Major Management Challenges and Program Risks: Agency for International
Development (Letter Report, 01/01/99, GAO/OCG-99-16).

As part of its Performance and Accountability Series, GAO provided
information on the major management challenges and program risks facing
the Agency for International Development (AID).

GAO noted that: (1) AID's effort to develop and implement its New
Management System (NMS), which is meant to consolidate primary
information systems into a single integrated network, has not been fully
successful; (2) the NMS is only partially functional and has created
problems in agency operations; (3) in 1996, AID deployed the system
without sufficient testing, and subsequent difficulties forced AID to
suspend its use for most administrative functions in overseas missions
in April 1997; (4) despite an expenditure of at least $92 million to
date, the NMS is not likely to be fully operational and compliant with
federal accounting standards for several more years; (5) until then, AID
will not have accurate information to ensure that its operations and
programs are being managed in a cost-effective and efficient manner; (6)
AID's computer systems in headquarters and in its field offices are not
yet equipped to handle the year 2000 problem; (7) AID has not taken
adequate steps to address this problem and has not developed contingency
plans to ensure continuity of all of its mission-critical business
operations; (8) although AID has requested supplemental funds to
accelerate the year 2000 compliance process, it continues to face a
serious risk that its systems and operations could fail or be
significantly degraded; (9) AID continues to face financial management
challenges; (10) the lack of an integrated financial management system
and the existence of material control weaknesses hinder the agency's
ability to produce auditable financial statements; (11) as in the
previous year, AID's Office of Inspector General (OIG) was unable to
express an opinion on the agency's financial statements for fiscal year
1997; (12) the process of preparing financial statements and subjecting
them to independent audit is the first step in generating complete,
reliable, and timely financial information for decisionmakers at all
levels; (13) without financial integration and strong controls, AID's
systems are out of compliance with federal accounting and management
requirements; and (14) AID has designated a Chief Information Officer
and NMS program manager and made the year 2000 problem its highest
information technology priority, and is submitting a plan to address
some of its financial management deficiencies over the next 5 years.

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

 REPORTNUM:  OCG-99-16
     TITLE:  Major Management Challenges and Program Risks: Agency for 
             International Development
      DATE:  01/01/99
   SUBJECT:  Financial management
             Y2K
             Federal agency accounting systems
             Accountability
             Management information systems
             Systems conversions
             Computer software verification and validation
             Information resources management
             Risk management
             Foreign aid programs
IDENTIFIER:  Performance and Accountability Series 1999
             AID New Management System
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Performance and Accountability Series

January 1999

MAJOR MANAGEMENT CHALLENGES AND
PROGRAM RISKS - AGENCY FOR
INTERNATIONAL DEVELOPMENT

GAO/OCG-99-16

USAID Challenges


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

  CFO - Chief Financial Officer
  NMS - New Management System
  OIG - Office of Inspector General
  USAID - U.S.  Agency for International Development

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



January 1999

The President of the Senate
The Speaker of the House of Representatives

This report addresses performance and management challenges that have
limited the effectiveness of the U.S.  Agency for International
Development (USAID) in carrying out its mission.  It also outlines
corrective actions that USAID has recently taken or initiated to
address these challenges. 

USAID is faced with major challenges in improving its information and
financial management systems and internal controls.  The agency has
recognized that it needs to give top-level attention to these
management challenges and has undertaken a course of action to
improve its systems and processes.  For example, USAID has recently
appointed a chief information officer and implemented a disciplined
process for resolving deficiencies in its major management
information systems.  It also made Year 2000 problems its top
information technology priority.  This top-level management attention
is critical and must be sustained to ensure that the challenges are
successfully met. 

This report is part of a special series entitled the Performance and
Accountability Series:  Major Management Challenges and Program
Risks.  The series contains separate reports on 20 agencies--one on
each of the cabinet departments and on most major independent
agencies as well as the U.  S.  Postal Service.  The series also
includes a governmentwide report that draws from the agency-specific
reports to identify the performance and management challenges
requiring attention across the federal government.  As a companion
volume to this series, GAO is issuing an update to those government
operations and programs that its work has identified as "high risk"
because of their greater vulnerabilities to waste, fraud, abuse, and
mismanagement.  High-risk government operations are also identified
and discussed in detail in the appropriate performance and
accountability series agency reports. 

The performance and accountability series was done at the request of
the Majority Leader of the House of Representatives, Dick Armey; the
Chairman of the House Government Reform Committee, Dan Burton; the
Chairman of the House Budget Committee, John Kasich; the Chairman of
the Senate Committee on Governmental Affairs, Fred Thompson; the
Chairman of the Senate Budget Committee, Pete Domenici; and Senator
Larry Craig.  The series was subsequently cosponsored by the Ranking
Minority Member of the House Government Reform Committee, Henry A. 
Waxman; the Ranking Minority Member, Subcommittee on Government
Management, Information and Technology, House Government Reform
Committee, Dennis J.  Kucinich; Senator Joseph I.  Lieberman; and
Senator Carl Levin. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of the Congress, the
Director of the Office of Management and Budget, the Administrator of
the U.S.  Agency for International Development, and the heads of
other major departments and agencies. 

David M.  Walker
Comptroller General of
the United States


OVERVIEW
============================================================ Chapter 0

With a budget of over $6 billion a year, the U.S.  Agency for
International Development (USAID) provides assistance to developing
countries.  USAID's development mission is multifaceted and complex,
with strategic goals ranging from economic growth to environmental
protection.  In the more than 100 countries where it has programs,
USAID works with a wide array of public and private partners, relying
heavily on private partners to implement its programs.  Given the
complexity of this operating environment, establishing efficient
management structures that focus on accountability and results is
critical to ensuring that scarce foreign aid funds are spent
effectively.  However, USAID faces some major performance and
management challenges that threaten its ability to carry out its
mission effectively. 


   THE CHALLENGES
---------------------------------------------------------- Chapter 0:1


      USAID HAS NOT IMPLEMENTED A
      COMPREHENSIVE INFORMATION
      MANAGEMENT SYSTEM
-------------------------------------------------------- Chapter 0:1.1

USAID's effort to develop and implement its New Management System
(NMS), which is meant to consolidate primary information systems into
a single integrated network, has not been fully successful.  The NMS
is only partially functional and has created problems in agency
operations.  In 1996, USAID deployed the system without sufficient
testing, and subsequent difficulties forced USAID to suspend its use
for most administrative functions in overseas missions in April 1997. 
Despite an expenditure of at least $92 million to date, the NMS is
not likely to be fully operational and compliant with federal
accounting standards for several more years.  Until then, USAID will
not have accurate information to ensure that its operations and
programs are being managed in a cost-effective and efficient manner. 


      USAID'S ACTIONS NOT ADEQUATE
      TO RESOLVE THE YEAR 2000
      PROBLEM
-------------------------------------------------------- Chapter 0:1.2

USAID's computer systems in headquarters and in its field offices are
not yet equipped to handle the Year 2000 problem.  USAID has not
taken adequate steps to address this problem and has not developed
contingency plans to ensure continuity of all of its mission-critical
business operations.  Although USAID has requested supplemental funds
to accelerate the Year 2000 compliance process, it continues to face
a serious risk that its systems and operations could fail or be
significantly degraded. 


      USAID REMAINS VULNERABLE TO
      WEAK FINANCIAL MANAGEMENT
-------------------------------------------------------- Chapter 0:1.3

USAID continues to face financial management challenges.  The lack of
an integrated financial management system and the existence of
material control weaknesses hinder the agency's ability to produce
auditable financial statements.  As in the previous year, USAID's
Office of Inspector General (OIG) was unable to express an opinion on
the agency's financial statements for fiscal year 1997.  The process
of preparing financial statements and subjecting them to independent
audit is the first step in generating complete, reliable, and timely
financial information for decisionmakers at all levels.  Without
financial integration and strong controls, USAID's systems do not
comply with federal accounting and management requirements. 


   PROGRESS AND NEXT STEPS
---------------------------------------------------------- Chapter 0:2

USAID has taken several steps in the past year to address these
management challenges.  USAID has designated a Chief Information
Officer and NMS program manager to institute more disciplined
processes for managing information technology and to address NMS
system deficiencies.  In addition, USAID has made the Year 2000
problem the agency's highest information technology priority. 
Further, the USAID Chief Financial Officer (CFO) is in the process of
submitting a plan to the Office of Management and Budget to address
some of its financial management deficiencies over the next 5 years. 
However, resolving these deficiencies will require USAID to commit
significant management attention to achieving genuine reform. 


MAJOR PERFORMANCE AND MANAGEMENT
ISSUES
============================================================ Chapter 1

USAID has primary responsibility for implementing a diverse array of
U.S.  foreign assistance programs throughout the world.  It designs
and manages programs in the areas of (1) economic growth and
agricultural development, (2) education and training, (3) world
population and human health, (4) environmental protection, and (5)
humanitarian relief.  Foreign assistance projects are implemented in
association with host governments, nongovernmental organizations,
international agencies, universities, and other contractors through
USAID headquarters bureaus and about
70 overseas missions and offices. 

This report summarizes recent findings on the effectiveness of
USAID's efforts to implement effective information and financial
management systems and ensure that its computer systems are ready for
the Year 2000.  The report also addresses USAID's efforts to correct
these management deficiencies. 


   USAID HAS NOT IMPLEMENTED A
   COMPREHENSIVE MANAGEMENT
   INFORMATION SYSTEM
---------------------------------------------------------- Chapter 1:1

Although USAID has spent, by its own account, at least $92 million to
develop and maintain the NMS, the system does not work as intended
and has created problems in mission operations and morale.  The NMS
was designed to enable USAID to manage its resources and monitor
results more effectively by consolidating accounting, budget,
personnel, procurement, program operations, and property management
into a single, integrated network.  It was designed to allow the
agency's missions and offices worldwide to access information and to
aid in the effective management and monitoring of its programs. 
Correcting system deficiencies is essential to USAID's continued
progress in improving its operations, including ensuring financial
accountability and implementing performance-based management. 

USAID began developing the NMS in 1994 and activated it at USAID
headquarters in July 1996 and at the overseas missions in October
1996.  The agency deployed the system worldwide, knowing that it was
not fully operational or adequately tested.  Consequently, agency
staff experienced chronic problems with the NMS, including
excessively slow operation and difficulties transferring data from
one computer application to another.  USAID suspended use of part of
the NMS in the missions but has continued to use the NMS accounting
module in Washington, despite warnings from the OIG that doing so
"leaves USAID vulnerable to losses from fraud or abuse and hinders
USAID's ability to provide adequate assurance that it can account for
resources." According to the OIG, the NMS does not have a system of
internal controls that meet federal government standards, was
deployed without providing the necessary training to many users, and
is difficult to maintain due to deficiencies in the software code,
among other problems. 

USAID has taken some steps to correct the deficiencies of the NMS,
including appointing a Chief Information Officer who has instituted
more disciplined processes for planning, developing, and implementing
new management information technology.  An NMS program manager has
also been appointed to handle deficiencies and implement remedial
actions within the NMS.  However, USAID does not anticipate fully
implementing the NMS across the agency for several more years.  Thus,
the NMS still presents a critical management challenge for the
foreseeable future, and we will continue monitoring USAID's reform
efforts. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:1.1

Benjamin F.  Nelson, Director
International Affairs and Trade Issues
National Security and International Affairs
 Division
(202) 512-4128
[email protected]


   USAID'S ACTIONS NOT ADEQUATE TO
   RESOLVE THE YEAR 2000 PROBLEM
---------------------------------------------------------- Chapter 1:2

USAID has not taken adequate steps to address the computer problems
associated with accommodating dates beyond 1999--the "Year 2000
problem." The Office of Management and Budget has categorized USAID
as a "tier I" agency for Year 2000 readiness--that is, USAID is among
those agencies that have not shown satisfactory progress in ensuring
that they will be able to continue mission-critical business
operations in the Year 2000.  USAID had relied heavily on
implementation of the NMS to resolve the agency's Year 2000 problems. 
However, full implementation of the NMS has been delayed beyond the
Year 2000.  In addition, studies have revealed that those parts of
the NMS system currently in place are not immune to the Year 2000
problem and have already encountered many serious date-handling
difficulties. 

Remediation of the Year 2000 problem is currently under way and is
USAID's highest information technology priority, according to agency
officials.  USAID plans to complete this effort by October 1999 for
those elements of the system that are operational and has requested
$10.2 million in supplemental funds to accelerate the pace of Year
2000 compliance.  However, it is unclear whether this effort will be
sufficient, given the short time and the broad extent of testing and
system integration that needs to be done.  In addition, USAID's Year
2000 program has significant shortcomings in scope.  The agency is
concentrating its remediation efforts on the NMS and other corporate
systems and has not fully addressed systems developed separately by
its worldwide missions and bureaus or the systems that it has funded
in other countries.  This would include high-visibility overseas
projects such as the stock market trading system in Russia and
extensive communications network improvements in Egypt. 

Given that these various shortcomings suggest a high risk that
USAID's systems could experience disruptive failures, it is critical
that the agency have contingency plans in place to ensure continuity
of its business operations.  However, USAID is only now beginning to
prepare contingency plans after being criticized for poor progress in
this area by the OIG.  Fixing the agency's Year 2000 problems will
require focused management attention at the most senior levels of the
agency. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:2.1

Jack L.  Brock, Jr., Director
Governmentwide and Defense Information
 Systems
Accounting and Information Management
 Division
(202) 512-6240
[email protected]


   USAID REMAINS VULNERABLE TO
   WEAK FINANCIAL MANAGEMENT
---------------------------------------------------------- Chapter 1:3

USAID continues to face serious financial management problems.  As in
the previous fiscal year, the OIG was unable to express an opinion on
USAID's financial statements for fiscal year 1997 because (1) USAID's
financial management systems could not produce complete, reliable,
timely, and consistent financial information in accordance with
federal requirements and (2) weak internal controls in accounting and
financial management systems precluded the OIG from obtaining
sufficient evidential matter to perform adequate testing.  USAID's
inadequate financial accounting system makes it difficult for the
agency to accurately account for activity costs and measure its
program results. 

The OIG concluded that USAID's financial management system does not
meet the federal financial systems requirements.  Federal law
requires agencies to develop and maintain an integrated accounting
and financial management system that substantially complies with
applicable accounting principles and internal control standards. 
USAID's introduction of the NMS in October 1996 was intended to
correct these long-standing system deficiencies.  However, as
previously noted, the NMS was not successfully implemented.  As a
result, USAID continues to use a variety of nonintegrated systems
that require data reentry, supplementary accounting records, and
lengthy and burdensome reconciliation processes. 

The OIG reported several material weaknesses in internal controls
that impair the integrity of financial information.  These
deficiencies prevented the OIG from obtaining sufficient evidence to
express an opinion on USAID's financial statements.  For example, the
OIG reported the following control weaknesses: 

  -- USAID did not have adequate controls to ensure that
     disbursements made through letters of credit (about $1.69
     billion in fiscal year 1997) were authorized, proper, correct,
     and accurately recorded and reported. 

  -- USAID did not review and reconcile unexpended appropriation
     balances as required by the U.S.  Department of the Treasury. 
     As a result, USAID's unexpended appropriation balances may
     potentially be misstated. 

  -- USAID has not established effective policies and procedures for
     recording and reporting financial statement account balances. 
     Therefore, USAID cannot provide adequate assurance that all
     financial transactions are complete, consistent, reliable, and
     properly reported. 

USAID is in the process of correcting some of its deficiencies, in
part by contracting a number of its financial management functions to
organizations outside the agency, including a private bank and
another U.S.  government agency.  USAID's Chief Financial Officer is
also in the process of submitting a 5-year plan to the Office of
Management and Budget outlining improvement initiatives, including
system remediation efforts.  In addition to the system improvements,
USAID needs to strengthen its internal controls to ensure that (1)
transactions are properly recorded; (2) assets are safeguarded
against loss due to unauthorized access, use, and disposition; and
(3) transactions are executed in compliance with laws and regulations
that could have a direct and material effect on the financial
statements.  As part of the agency's required annual financial
statements audit, USAID's OIG will continue to assess and report on
whether USAID internal controls are effective.  In addition, we will
monitor USAID's progress in resolving these long-standing financial
management problems. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:3.1

Lisa G.  Jacobson
Director, Defense Financial Audits
Accounting and Information Management
 Division
(202) 512-9095
[email protected]


RELATED GAO PRODUCTS
============================================================ Chapter 2

The Results Act:  Observations on the U.S.  Agency for International
Development's Fiscal Year 1999 Annual Performance Plan
(GAO/NSIAD-98-194R, June 25, 1998). 

Foreign Assistance:  USAID's Reengineering at Overseas Missions
(GAO/NSIAD-97-194,
Sept.  12, 1997). 

The Results Act:  Observations on USAID's November 1996 Draft
Strategic Plan (GAO/NSIAD-97-197R, July 11, 1997). 

Foreign Assistance:  Status of USAID's Reforms (GAO/NSIAD-96-241BR,
Sept.  24, 1996). 

Information Management Reform:  Effective Implementation Is Essential
for Improving Federal Performance (GAO/T-AIMD-96-132, July 17, 1996). 

Foreign Assistance:  AID Strategic Direction and Continued Management
Improvements Needed (GAO/NSIAD-93/106, June 11, 1993). 


PERFORMANCE AND ACCOUNTABILITY
SERIES
============================================================ Chapter 3

Major Management Challenges and Program Risks:  A Governmentwide
Perspective (GAO/OCG-99-1)

Major Management Challenges and Program Risks:  Department of
Agriculture (GAO/OCG-99-2)

Major Management Challenges and Program Risks:  Department of
Commerce (GAO/OCG-99-3)

Major Management Challenges and Program Risks:  Department of Defense
(GAO/OCG-99-4)

Major Management Challenges and Program Risks:  Department of
Education (GAO/OCG-99-5)

Major Management Challenges and Program Risks:  Department of Energy
(GAO/OCG-99-6)

Major Management Challenges and Program Risks:  Department of Health
and Human Services (GAO/OCG-99-7)

Major Management Challenges and Program Risks:  Department of Housing
and Urban Development (GAO/OCG-99-8)

Major Management Challenges and Program Risks:  Department of the
Interior (GAO/OCG-99-9)

Major Management Challenges and Program Risks:  Department of Justice
(GAO/OCG-99-10)

Major Management Challenges and Program Risks:  Department of Labor
(GAO/OCG-99-11)

Major Management Challenges and Program Risks:  Department of State
(GAO/OCG-99-12)

Major Management Challenges and Program Risks:  Department of
Transportation (GAO/OCG-99-13)

Major Management Challenges and Program Risks:  Department of the
Treasury (GAO/OCG-99-14)

Major Management Challenges and Program Risks:  Department of
Veterans Affairs (GAO/OCG-99-15)

Major Management Challenges and Program Risks:  Agency for
International Development (GAO/OCG-99-16)

Major Management Challenges and Program Risks:  Environmental
Protection Agency (GAO/OCG-99-17)

Major Management Challenges and Program Risks:  National Aeronautics
and Space Administration (GAO/OCG-99-18)

Major Management Challenges and Program Risks:  Nuclear Regulatory
Commission (GAO/OCG-99-19)

Major Management Challenges and Program Risks:  Social Security
Administration (GAO/OCG-99-20)

Major Management Challenges and Program Risks:  U.S.  Postal Service
(GAO/OCG-99-21)

High-Risk Series:  An Update (GAO/HR-99-1)



The entire series of 21 performance and accountability reports and
the high-risk series update can be ordered by using the order number
GAO/OCG-99-22SET. 


*** End of document. ***