Foreign Assistance: Status of USAID's Reforms (Briefing Report, 09/24/96,
GAO/NSIAD-96-241BR).

Pursuant to a congressional request, GAO examined the status of the U.S.
Agency for International Development's (AID) reform efforts.

GAO found that: (1) AID missions have reorganized their activities
around the agency's strategic objectives; (2) AID cut its total
workforce from 11,096 in September 1992 to 8,638 by August 1996; (3)
full implementation of a new management system designed to consolidate
many of the agency's operations into an integrated network has been
hampered by development and testing delays; (3) reforms in the agency's
personnel system have not progressed as far as other AID reforms; (4)
AID has implemented a number of initiatives to improve the procurement
process, including encouraging competition for contract awards and
reducing contract award time; (5) AID reengineering efforts have been
implemented in varying degrees and some headquarters units have not
adapted their operations to support reengineered missions; and (6) AID
needs to institutionalize reforms to sustain long-term progress.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-241BR
     TITLE:  Foreign Assistance: Status of USAID's Reforms
      DATE:  09/24/96
   SUBJECT:  Agency missions
             Reductions in force
             Reengineering (management)
             Human resources utilization
             International relations
             Management information systems
             Mission budgeting
             Financial management
             Internal controls
             Foreign aid programs
IDENTIFIER:  National Performance Review
             AID Worldwide Accounting and Control System
             
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Cover
================================================================ COVER


Briefing Report to the Chairman, Committee on International Relations
House of Representatives

September 1996

FOREIGN ASSISTANCE - STATUS OF
USAID'S REFORMS

GAO/NSIAD-96-241BR

Foreign Assistance

(711227)


Abbreviations
=============================================================== ABBREV

  AWACS - AID Worldwide Accounting and Control System
  NMS - new management system
  NPR - National Performance Review
  OMB - Office of Management and Budget
  USAID - U.S.  Agency for International Development

Letter
=============================================================== LETTER


B-274657

September 24, 1996

The Honorable Benjamin A.  Gilman
Chairman, Committee on International Relations
House of Representatives

Dear Mr.  Chairman: 

As you requested, during the first phase of this review, we focused
on the status of the U.S.  Agency for International Development's
(USAID) reform efforts.  On September 11, 1996, we briefed your staff
on the results of the first phase of our review.  This report
discusses the information presented in that briefing.  As agreed with
your office, in the second phase, we plan to assess the impact that
USAID reforms have had on the delivery of assistance overseas. 


   BACKGROUND
------------------------------------------------------------ Letter :1

We reported in March 1992 that USAID lacked a clearly articulated
strategic direction (AID Management:  Strategic Management Can Help
AID Face Current and Future Challenges (GAO/NSIAD-92-100, Mar.  6,
1992)).  In response to our findings and those of the USAID Inspector
General, the President's Commission on the Management of AID
Programs, and a joint USAID/Office of Management and Budget study
team, USAID began to develop a management improvement plan directed
at program management, implementation, and evaluation; human resource
management; and information and financial management. 

In March 1993, the President announced the National Performance
Review (NPR), a governmentwide initiative to "reinvent government."
In May 1993, the USAID Administrator designated the entire agency as
a "reinvention laboratory" under NPR.  In October 1993, the
Administrator announced USAID's reform plan. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

USAID has begun to undertake an array of reforms affecting the entire
agency, including organization, management, and program operations. 
USAID's missions largely have reorganized their activities around the
agency's strategic objectives and are reporting in a results-based
format.  However, according to USAID officials, the fiscal year 1998
budget cycle will be the first test of the degree to which results
are taken into account in making resource allocation decisions. 
Further, personnel reforms are not as far along as other reforms and
may reflect long-standing difficulties that USAID has had in this
area.  Parallel to, and in support of USAID's broad reform efforts,
is development of an integrated new management system (NMS) with
worldwide access, which is intended to consolidate a myriad of
existing systems. 

USAID officials recognize that they face the challenge of
institutionalizing the gains that the agency has made to ensure the
long-term sustainability of reforms.  To accomplish this objective,
USAID needs to be able to show that it is managing resources with
greater efficiency and transparency and demonstrate that it is
achieving measurable results. 

The briefing sections provide (1) more information on the origin and
impetus for USAID's reform efforts, (2) a listing of the reform
elements, and (3) a status report on the reform efforts. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To determine the status of USAID's management reforms, we analyzed 10
key reform initiatives identified by USAID as the centerpiece of
their reform effort.  We reviewed data on each reform area, including
action plans, agency directives and performance reports, business
area analyses, and various reports and correspondence.  We
interviewed key agency officials in most bureaus and offices in USAID
headquarters in Washington, D.C. 

We also visited the USAID mission in the Dominican Republic to obtain
a "snapshot" of reengineering efforts in the field.  This mission is
considered by USAID officials as one of the best and most successful
reengineered missions.  We interviewed the director and most U.S. 
direct hire as well as foreign service national staff participating
in strategic objective teams and serving on employee committees.  We
also interviewed officials of nongovernmental and private voluntary
organizations working with this mission. 

We performed our review between May and September 1996 in accordance
with generally accepted government auditing standards.  USAID
officials reviewed the information in this report and generally
agreed with it. 


---------------------------------------------------------- Letter :3.1

We are providing copies of this briefing report to the Chairmen and
Ranking Minority Members of the House and Senate Committees on
Appropriations, the Senate Committee on Foreign Relations, the House
Committee on Government Reform and Oversight, and the Senate
Committee on Governmental Affairs; and the Ranking Minority Member of
the House Committee on International Relations.  We are also sending
copies to the Administrator, U.S.  Agency for International
Development and the Director, Office of Management and Budget. 
Copies will be made available to others upon request. 

If you or your staff have any questions about this report, please
contact me at (202) 512-4128.  The major contributors to this report
were Lawrence L.  Suda, John D.  DeForge, James M.  Strus, and
Gregory S.  Nixon. 

Sincerely yours,

Jess T.  Ford
Associate Director
International Relations and Trade Issues


Briefing Section I BACKGROUND
============================================================== Letter 



   (See figure in printed
   edition.)

In response to recommendations by our office, the U.S.  Agency for
International Development (USAID) Inspector General, the President's
Commission on the Management of USAID Programs, and a joint
USAID/Office of Management and Budget (OMB) study team, USAID began
to develop a management improvement plan in mid-1992.  The plan was
to include improvements in program management, implementation, and
evaluation; human resource management; and information and financial
management. 

In March 1993, the President announced the National Performance
Review (NPR), a governmentwide initiative to "reinvent government."
NPR examined every cabinet department and 10 independent agencies. 
The NPR report included 38 recommendations to USAID. 

In May 1993, the USAID Administrator designated the entire agency as
a "reinvention laboratory." This committed USAID to fundamental
reform, with the goal of transforming the agency into a
high-performance, results-driven organization. 


Briefing Section II USAID REFORM
ELEMENTS
============================================================== Letter 



   (See figure in printed
   edition.)

USAID has identified 10 key reform elements as the centerpiece of its
reform effort.  We have used these elements in this presentation. 

USAID submitted proposed legislation to Congress for fiscal year 1994
(the Peace, Prosperity, and Democracy Act of 1994, H.R.  3765) to
repeal the Foreign Assistance Act of 1961 and provide a revised
policy framework for U.S.  foreign assistance.  The bill was referred
to the Senate Foreign Relations Committee and the House Committee on
Foreign Affairs.  Although the bill was not passed, USAID has
reorganized its program operations along the lines of strategic
objectives, incorporating some goals of the proposed legislation. 

The other reform elements are discussed in the following briefing
section entitled Status of Reforms. 


Briefing Section III STATUS OF
REFORMS
============================================================== Letter 


   STATUS OF REFORMS:  STRATEGIES,
   BUDGET, EVALUATION
------------------------------------------------------------ Letter :4



   (See figure in printed
   edition.)

USAID issued its Strategies for Sustainable Development in March
1994, which outlined the five priority areas in which USAID would
concentrate.  These priority areas are (1) promoting economic growth,
(2) stabilizing population and protecting human health, (3) advancing
democracy, (4) encouraging sound environmental management, and (5)
providing humanitarian and transition assistance.  USAID missions
have identified their strategic objectives and developed plans on how
the objectives will be achieved.  However, USAID's congressional
oversight committees have not accepted USAID's strategic objectives
program approach as a basis for reporting to Congress; thus, the
agency must continue to report along project lines.  USAID officials
recognize that, to achieve broad confidence in its reform efforts,
USAID needs to demonstrate that it is accomplishing measurable
results and adjusting resources to reflect results. 

In 1996, USAID began using a results framework (Results Review and
Resource Request or R-4), which includes missions' strategic
objectives, intermediate results, and operational indicators, to
measure missions' progress.  The R-4 process is intended to link
resource allocations and performance.  USAID officials said that the
R-4 process will be fully incorporated in the fiscal year 1998 budget
process. 

The Administrator has testified that USAID is now focused on
measurable results and that activities not achieving results will be
redesigned or terminated.  The Center for Development Information and
Evaluation, USAID's evaluation unit, is assisting missions in setting
up evaluation and monitoring teams and is concentrating on "what
people need" for better performance.  It also is tracking how its
customers use its evaluations, has set up a computer "home page," and
is issuing "how to tips" to get its findings out as quickly as
possible. 


   STATUS OF REFORMS: 
   ORGANIZATION
------------------------------------------------------------ Letter :5



   (See figure in printed
   edition.)

The Administrator announced his reorganization plan for USAID in
October 1993.  As part of that reorganization, each major bureau and
office undertook a business area analysis to "right-size" internal
organization, functions, and staff.  USAID has reduced its total
number of headquarters units (i.e., offices, divisions, and bureaus)
by 90, from 354 to 264.  Unit reductions came through abolishment or
consolidations, but in some cases new units were created. 

Since 1992, USAID will have closed 25 missions by the end of fiscal
year 1996.  According to USAID officials, the closures include
representative offices, as well as missions.  USAID closed (1) five
missions because their host countries were considered poor
development partners (e.g., Zaire); (2) 15 missions because the host
countries were ready for graduation from U.S.  assistance (e.g.,
Costa Rica); (3) one mission (Belize) because the cost of operations
exceeded the cost of program assistance; and (4) four missions
because of civil wars or safety or other concerns (e.g., Liberia). 
USAID counted the closure of the office in Uruguay as two graduation
closures because it also serviced operations in Argentina. 

USAID is negotiating with the Department of State on additional
closures.  USAID intends to further reduce its overseas presence over
the next 5 years.  From a total of over 70 missions in 1993, USAID
expects to operate about 30 full missions, 20 limited missions with
fewer U.S.  direct-hire staff, and maintain the capacity to mount up
to 10 transitional missions. 

USAID cut its total workforce, including direct hire staff and
personal service contractors, by 22 percent from 11,096 in September
1992 to 8,638 as of August 31, 1996.  Part of the staff reduction was
achieved through a recent reduction-in-force, which eliminated 103
civil service and 97 foreign service positions worldwide.  USAID's
stated goal is a total workforce of 8,000 by fiscal year 1998. 

Table III.1 depicts the projected reduction in civil service and
foreign service direct hire staff through September 1996. 



                              Table III.1
                
                 Projected Direct Hire Staff Reductions
                      Between 9/30/92 and 9/30/96

Type          Staff on 9/30/92    Staff on 9/30/96     Staff reduction
----------  ------------------  ------------------  ------------------
Civil                    1,558               1,220                 338
 Service
Foreign                  1,591               1,187                 404
 Service
======================================================================
Total                    3,149               2,407                 742
----------------------------------------------------------------------


   STATUS OF REFORMS: 
   MANAGEMENT/FINANCIAL
   INFORMATION
------------------------------------------------------------ Letter :6



   (See figure in printed
   edition.)

Since 1994, USAID has been developing an automated new management
system (NMS) for its business and service functions.  NMS is being
designed to consolidate all of USAID's accounting, budget, personnel,
procurement, and program operations into a single, integrated network
with worldwide access.  These efforts have been characterized by
officials at USAID and OMB and industry representatives as
technically complex but a valuable management tool.  For example, one
accounting module, the AID worldwide accounting and control system
(AWACS), is intended to replace 11 outdated accounting systems
currently operating in 43 USAID accounting centers worldwide. 

NMS was activated at USAID headquarters in Washington in July 1996. 
(Activated means that all hardware is in place with the system
modules running at varying capacities while development and testing
continues).  USAID officials intend to activate an updated software
package for mission use in October 1996. 

Full implementation of NMS will not occur until system development
and data transfer from the old systems to NMS are complete. 
According to USAID officials, NMS, particularly the AWACS, will not
be fully implemented for about a year.  For example, the current
AWACS module cannot perform intended functions such as accrual
calculation and reporting or foreign currency accounting.  USAID
plans to correct these deficiencies in future upgrades. 

Also, as a result of development delays, NMS will not be able to meet
USAID's stated goal of producing an auditable financial statement for
fiscal
year 1996.  According to USAID officials, the financial statement
will be developed using USAID's current accounting systems. 

OMB and industry technical experts have recommended a third-party
assessment of the NMS development effort based on established
professional standards for systems integrity and security.  USAID
officials agreed that, unlike a previous NMS risk assessment
conducted in 1995, which excluded the AWACS module and some of the
development methodology and procedures, the future assessment will
include all modules, functions, and development activity.  USAID
officials have said they will contract for such an assessment. 

The costs for NMS hardware and software development to date are about
$73 million.  These costs include about $23.5 million for the AWACS
module development and about $15 million for hardware infrastructure
costs.  The remaining costs include budget, procurement, and
operations module development, as well as telecommunications and
database management.  USAID Inspector General officials told us they
are reviewing NMS costs and plan to issue an interim report by
September 30, 1996. 


   STATUS OF REFORMS:  PERSONNEL
------------------------------------------------------------ Letter :7



   (See figure in printed
   edition.)

The 1993 NPR report recommended that USAID overhaul its personnel
system.  The report stated that workforce management has been raised
as a problem at USAID in most of the major studies of the agency,
including our June 1993 report (Foreign Assistance:  AID Strategic
Direction and Continued Management Improvements Needed
(GAO/NSIAD-93-106, June 11, 1993)).  The USAID personnel system has
been criticized as complex, costly, and unsuited to accomplishing the
agency's mission.  In response to that report, in December 1994,
USAID began developing a human resources business area analysis to
identify reforms and outline strategies for implementing
improvements. 

USAID issued the business area analysis in August 1995, and indicated
several areas for reform, including personnel administration, career
management, training, foreign service assignment, employee
evaluations, and foreign service national support.  However, since
that time, USAID has implemented few of these reforms.  Consequently,
personnel reforms are not as far along as other USAID reforms.  For
example, USAID has not yet developed the career management plan for
USAID direct hire employees and has not implemented some training and
workforce planning reforms, such as reforms aimed at integrating
career management and expanding training methods/learning delivery. 

USAID officials said their reform efforts were delayed in fiscal year
1996 because its Personnel Office devoted much of its resources to
implementing the reduction-in-force and two furloughs.  USAID
officials indicated that they plan to accelerate the pace of
personnel reform over the next year.  They are also working with the
State Department to define foreign service national personnel system
requirements. 

In January 1996, USAID instituted a new employee performance
evaluation system, combining the foreign service and civil service
systems under the same evaluation framework.  The system is designed
to promote teamwork, improve management, and reduce administrative
costs.  The new system separates evaluation from promotion and seeks
employee performance information from peers, support personnel,
supervisors, and customers affected by the employee's work. 

In personnel administration, USAID plans to use information
technology to accelerate personnel actions and provide worldwide
access of personnel records, assignment actions, and employee
information.  USAID plans to purchase an "off the shelf" commercial
personnel software package, tailor it to the agency's civil service
and foreign service systems, and integrate it with NMS.  USAID
expects to have this system in place by 1998 at a cost of about $2
million, which is not included as part of the current $73 million in
NMS cost estimates. 


   STATUS OF REFORMS:  PROCUREMENT
------------------------------------------------------------ Letter :8



   (See figure in printed
   edition.)

In January 1994, as part of the agency's reform efforts under NPR,
the Administrator outlined 18 procurement initiatives to reform the
procurement process.  Improvements in procurement are important given
the scope of procurement done by USAID.  Currently, USAID manages
approximately $13 billion of ongoing contracts, grants, and
cooperative agreements, with annual awards of over $3 billion. 

To eliminate the perception that USAID had become a "closed shop" and
to increase competition, USAID has taken a number of steps to
encourage wider participation and increase transparency in USAID
procurement.  In particular, USAID uses (1) the Internet and other
electronic media and (2) Commerce Business Daily Announcements and
Contract Information Bulletins to notify potential vendors of
contracting information, such as procurement forecasts, bids, and
solicitation documents.  To encourage broader participation by
potential customers, including small and disadvantaged businesses,
USAID holds outreach conferences throughout the United States and has
issued a guide to doing business with USAID.  Further, USAID has held
a series of vendor town meetings and follow-up workshops to provide a
forum to identify and focus on procurement issues important to USAID
and the development community. 

USAID has reduced competitive procurement time for contracts and task
orders by about 42 percent.  In fiscal year 1993, USAID took an
average of 192 days to award a competitive contract or task order
from the time of request for proposal to contract issuance.  By
fiscal year 1995, USAID had reduced this time to an average of 111
days.  USAID officials attribute the reduction in award time to such
factors as (1) increased use of task orders, (2) better procurement
planning, (3) more timely completion of pre-award audits, (4)
increase in the number of procurement professionals, and (5) better
training of staff. 

While USAID has reduced its staff overall, the agency realized it
needed to increase the size and professionalism of its procurement
staff to successfully reform the procurement area.  USAID has
increased the number of its procurement professionals (contracting
officers and contract negotiators) by about one third since fiscal
year 1990.  In 1990, the number of contracting professionals was 104,
rising to 119 in 1992, to a current level of 151; this total includes
17 staff in the Office of Policy and Evaluation who were assigned to
the Office of Procurement as part of USAID's consolidation.  Further,
USAID has instituted a system of continuing professional development
requirements and a procurement management certification program. 


   STATUS OF REFORMS: 
   REENGINEERING
------------------------------------------------------------ Letter :9



   (See figure in printed
   edition.)

USAID's reengineering effort has been along four guiding principles: 
(1) defining and involving USAID's customers, (2) empowering
employees, (3) managing for results, and (4) emphasizing and
rewarding teamwork.  To help implement these principles, USAID
developed business area analyses to reform its core business
functions. 

USAID reports that its overseas missions have reengineered their
operations to varying degrees and missions are structuring their
development efforts within USAID's overall strategic objectives. 
Early in the reform process, USAID selected 10 missions to serve as
experimental laboratories to test various reform efforts.  As a
result, some missions have reengineered their operations to a greater
degree than others.  For example, the mission to the Dominican
Republic has reengineered its operations along four strategic
objectives, reorganized along strategic objective teams, and
physically reconfigured the office to promote teamwork.  Employees
have been given greater authority and responsibilities, and
organizational levels were reduced.  The mission has brought its
customers---nongovernmental organizations as well as other donor
institutions---into its planning and operational discussions. 

Headquarters units have not reengineered their operations to the
degree that missions have and not all have adapted their operations
to support reengineered missions.  USAID officials acknowledge that
headquarters, in general, has not reengineered operations at the same
pace as many missions.  However, these officials added that
headquarters units still are committed to reform and reengineering
but at a slower pace.  Missions are closer to their customers and
have more at stake in the development process.  Working directly with
recipients, missions can much more easily see the results of their
efforts.  Further, bureaucratic and cultural barriers to
reengineering are easier to break down at a mission level than at
headquarters. 


   STATUS OF REFORMS: 
   SUSTAINABILITY OF REFORMS
----------------------------------------------------------- Letter :10



   (See figure in printed
   edition.)

The USAID Administrator committed the agency to fundamental reform in
1993 with the goal of transforming USAID into a results-driven
agency.  USAID has since undertaken a substantial array of reforms
affecting the entire agency.  Key aspects of success are being able
to demonstrate that USAID is achieving measurable results under its
strategic objectives and considering results in its resource
allocation.  These actions will also help build congressional
confidence in the strategic approach as well as that of other
stake-holders such as the State Department. 

Most of USAID's reforms will be facilitated and supported by the
successful implementation of NMS.  For example, USAID procurement
efficiency depends on NMS as does the smooth operation of a
results-based budgeting process.  While employees support what the
system promises, they remain skeptical about what it will deliver. 
This skepticism is in part due to a record of delays in
implementation.  For example, although USAID intended the system to
be operational by October 1995, the AWACS module will not be fully
operational for at least another year and the entire system is still
undergoing testing. 

Missions are structuring their activities around the agency's
strategic objectives and are reporting in a results-based format. 
Ultimately, their success and efficiency will depend to a
considerable extent on the support they receive from other components
undergoing reform.  For example, personnel reforms are not as far
along as other reforms and may reflect long standing difficulties
that USAID has had in this area.  However, an important part of
personnel reform, a new employee evaluation system, has been
introduced.  Its success will be a key to USAID being able to show
that it is holding employees accountable and rewarding them for
results. 

While reforms continue, USAID officials recognize that they face the
challenge of institutionalizing the gains made to ensure the
long-term sustainability of reform.  Concurrent and consistent
progress in all areas of reforms will help USAID to achieve
sustainability.  Such progress, along with transparency in resource
allocation based on results and continued training on reengineering
concepts and practices, will help capture these gains. 


*** End of document. ***