Report No.: GAO/OCG-93-25TR Date: December 1992
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Author: United States General Accounting Office
Office of the Comptroller General
Addressee: Transition Series
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CONTENTS
Foreign Economic Assistance Issues
Reassessing Goals and Rationale for Foreign Economic Assistance
Ensuring Management Accountability in AID Programs
Establishing a Work Force Planning System in AID
Improving Information Resource Management
Establishing Modern Financial Management and Accounting Systems
Related GAO Products
Transition Series
- Economics
- Management
- Program Areas
Office of the Comptroller General
Washington, DC 20548
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses major
policy, management, and program issues facing the Congress and the new
administration in the area of foreign economic assistance. The issues include
(1) reassessing the goals and rationale for foreign economic assistance, (2)
ensuring management accountability in aid programs, (3) establishing a work
force planning system in the Agency for International Development, (4)
improving information resource management, and (5) establishing modern
financial management and accounting systems.
The GAO products upon which this report is based are listed at the end of this
report.
We are also sending this report to the President-elect, the Republican
leadership of the Congress, the appropriate congressional committees, and the
designated heads of the appropriate agencies.
Since the end of World War II, beginning with the Marshall Plan and throughout
the Cold War era, foreign economic assistance has served as an important tool
of U.S. foreign policy. Foreign economic assistance programs have focused on a
wide range of national objectives--political, economic, commercial, security,
developmental, and humanitarian. However, with the end of the Cold War and the
easing of East-West tensions, the perceived threats to our national
interests--the glue that once held together the political and popular support
of foreign aid--have disappeared. New challenges are on the horizon, both at
home and abroad. However, the role of foreign aid in meeting these challenges
is unclear, and mismanagement at the Agency for International Development
(AID), the primary agency for delivering U.S. bilateral economic assistance,
has clouded the agency's future.
Four years ago, we reported that the legislative framework, the Foreign
Assistance Act of 1961, as amended, needed to be reexamined. The multiplicity
of objectives in the legislation had created confusion as to the direction
assistance programs should take, had contributed to the lack of consensus on
priorities, and had made it difficult to hold the agency accountable for
achieving any particular objective. Attempts to reform the foreign assistance
legislation have so far been unsuccessful.
Other problems discussed in our 1988 report also remain. Management weaknesses
have caused problems in accountability and in control over funds and have
reduced the effectiveness of our foreign assistance programs. For the past
decade, AID has maintained a pipeline of several billion dollars in obligated
but unspent funds; since 1987, these funds have totaled more than
$8 billion. Also, for many years, AID's weak, unintegrated accounting system
has precluded it from reliably determining
(1) what the status of its appropriated funds is, (2) whether it actually has
on hand all the property it has paid for, and (3) what resources have been
used to achieve program results. AID has initiated a project to improve its
financial management system, but it is repeating past mistakes. AID has begun
to address its other management problems. In December 1990, the AID
Administrator announced a strategic management initiative with overall short-
and long-term goals, and other actions were taken to provide more
accountability for policy, operations, and administration. However, progress
has been slow.
REASSESSING GOALS AND RATIONALE FOR FOREIGN ECONOMIC ASSISTANCE
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It has been over 30 years since the Foreign Assistance Act of 1961 was
enacted. Since that time, the United States has provided an estimated $180
billion in bilateral economic aid to 153 countries, in addition to an
estimated $27 billion provided through international financial institutions
such as the World Bank. The act has been frequently amended, often to add new
objectives or to refocus old ones; however, neither our foreign assistance
goals and objectives nor the best mechanisms for providing assistance have
been fully reexamined. With the breakup of the Warsaw Pact and the Soviet
Union and other global changes and with increasing demands for assistance, it
is time for such a reexamination. [ Footnote 1: Similar concerns have been
raised about the future of U.S. military assistance, particularly as it
pertains to U.S. security commitments abroad. These concerns are addressed in
a separate report of this transition series. ]
The Agency for International Development, the primary agency administering
U.S. bilateral economic aid, does not have a clearly articulated strategic
mission. The Foreign Assistance Act of 1961, as amended, contains more than 30
directives covering a wide range of development assistance objectives, such as
promoting human rights, protecting tropical forests, integrating women into
developing countries' economies, promoting private enterprises, and using
appropriate technology for small farms and businesses. New programs and
approaches introduced by each Administrator, added to ongoing activities and
congressional directives, have resulted in a complicated and incoherent set of
objectives with no clear priorities. The foreign economic assistance program
has become fragmented, largely because of a lack of consensus among the many
groups that are concerned with AID's mission or that have a stake in AID's
services and resources. The program has been buffeted by the competing agendas
of other federal agencies, the significant role the Congress has taken in
programming decisions, and the lobbying efforts of special interest groups
outside the government.
AID's traditional role as the lead agency for administering U.S. economic
assistance is being eroded, and other agencies--such as the Departments of
State, the Treasury, and Commerce and the Environmental Protection
Agency--have begun to take the lead in implementing specific new programs.
This phenomenon stems partly from the lack of strong leadership at AID and
partly from the perception that AID cannot manage its programs well. In a 1991
report on assistance to Central and Eastern Europe, we noted that the State
Department had taken the lead in managing this assistance effort. While more
than 15 U.S. government agencies and other entities were involved, AID's role
was unclear. State Department officials observed that some U.S. agencies were
using their assistance programs as an opportunity to establish an overseas
presence. A similar number of U.S. agencies is involved in providing
assistance to the republics of the former Soviet Union; AID's role in managing
this effort is again ill defined. In Latin America, the Treasury Department
took the lead in implementing the Enterprise for the Americas Initiative, and
AID found itself taking a secondary and poorly defined role.
In April 1992, the President's Commission on the Management of AID Programs
concluded that AID's organizational status and location within the executive
branch--as a semiautonomous agency under the general policy direction of the
State Department--did not equip it to respond with the effectiveness and
flexibility required by the rapidly changing world of the 1990s. The
Commission argued that AID had difficulty attracting effective leaders because
it lacked prestige; that the agency was less able to resist the imposition of
new priorities and programs because it spoke with less than Cabinet-level
influence in both the executive and legislative branches; and that AID had
found itself isolated from the rapidly flowing political events of the 1990s,
such as the developments in Central and Eastern Europe and the former Soviet
Union. Concluding that the rationale for foreign assistance programs was to
support U.S. foreign policy objectives, the Commission recommended that AID be
fully merged into the State Department.
We have identified many of the same problems in AID that were articulated by
the President's Commission and have come to some of the same conclusions about
the pernicious effects of these problems. However, we have withheld judgment
on the Commission's recommendation to merge AID into the State Department
because we believe that the question of an organizational home for AID is
premature. Before this question can be appropriately answered, the executive
and legislative branches must agree on the policy goals of U.S. assistance.
Although complete consensus may be unattainable, AID needs to articulate its
strategic goals and assume leadership in obtaining the support of key groups.
On our recommendation, AID has begun such a process; however, for the process
to be successful, the Congress and the new administration must become engaged
at the very top levels in addressing basic questions about why the United
States has a foreign aid program, what priority goals we are trying to
achieve, and what the most appropriate means are for providing foreign aid.
ENSURING MANAGEMENT ACCOUNTABILITY IN AID PROGRAMS
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AID has traditionally used a highly decentralized organizational structure to
implement its programs through a worldwide network of overseas missions. Such
an approach may be appropriate for an agency such as AID because the
development and assistance needs of the countries and geographic regions it
serves vary widely. However, AID has not carried through its management
approach by establishing strong centralized policy and priority-setting
mechanisms and systems to ensure that its decentralized units are fully
accountable for implementing agency policy.
During the 1980s, AID increasingly decentralized approval authority for
projects and programs. This weakened the central policy-making function and
made the geographic regional bureaus much more independent. Lacking strong
central policy guidance, the geographic regional bureaus and missions tried to
develop performance measurement systems independently. We found that, because
the bureaus and missions did not coordinate, the data they were using were not
comparable and their efforts were redundant and costly. The centrally funded
functional bureaus--responsible for activities such as private enterprise
development, population programs, and efforts to combat HIV/AIDS--responded to
the shift in power by marketing services directly to the missions.
We have cited numerous instances in recent years in which organizational
fragmentation has made management inefficient. We reported that interbureau
disagreements had slowed and diffused AID's response to the HIV/AIDS crisis in
less developed countries. In addition, the targeting of resources to a few
countries where AID could have the most impact was delayed, partly because the
central and geographic bureaus could not agree on which countries were
priorities. Earlier, we had found that 43 units within three geographic
bureaus and one central bureau were implementing AID's population program and
no single program officer or office had overall management authority and
oversight responsibility.
AID has not emphasized project implementation and program results as much as
project design and the obligation of funds. The agency therefore has not
collected the baseline data needed and does not have adequate evaluation
systems for measuring the impact of its individual projects, country programs,
or overall operations.
For the past decade, AID's pipeline of obligated but unspent funds has
exceeded $6 billion--$8 billion since 1987. These funds exist largely because
of unrealistic or overstated plans for implementing projects. AID does not
intend to use a sizable percentage of these funds within the next
2 years. Thus, they represent a lost opportunity for AID to redirect scarce
resources to higher priorities.
Good management procedures are sometimes neglected. For example, contrary to
AID guidance, missions generally do not assess a host country's contracting
practices or audit capabilities before deciding to use host country
contracting procedures. Also, AID makes cash grants too far in advance of when
recipient countries need the money, thus adding to the U.S. government's
borrowing costs. Recipient countries earned, for their own use, nearly $229
million in interest on these cash grants between October 1988 and May 1992.
AID has managed some programs effectively. In October 1992, we reported that
AID's Office of U.S. Foreign Disaster Assistance has been generally responsive
to both quick-onset and long-term disasters. The effectiveness of the Office
is due largely to its programming and funding flexibility (which was
authorized by the Congress) and its ability to work well with international
and private voluntary organizations.
AID has recognized the need for stronger controls to hold bureaus and missions
accountable for their programs. The Administrator tried to address the lack of
central direction through his reorganization of headquarters operations in
October 1991. Despite this and other management initiatives, AID still lacks
the strong central leadership and management systems required to make its
decentralized operation effective.
ESTABLISHING A WORK FORCE PLANNING SYSTEM IN AID
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The number of AID employees has steadily declined over the past decade as AID
has evolved from a hands-on agency implementing projects to one that largely
oversees the implementation of projects by third parties such as contractors
and private voluntary organizations. However, AID employees, particularly at
the agency's missions, frequently do not have the skills necessary to perform
their new responsibilities. The underlying reason is that AID has not
systematically planned for its work force needs.
AID acknowledges that it does not have an integrated system for determining
the appropriate composition of its work force or the skills missions require.
Consequently, it cannot systematically match its mission needs with available
skills or fill gaps in the agency's skill profile. The agency also has not
developed effective placement, training, and recruiting programs to make
better use of its staff. AID officials are developing a work force planning
system but are constrained by the lack of basic information about the agency's
work force--its size, components, and skills. AID's ongoing work force
planning efforts are inhibited by the lack of a clear strategic direction for
the future.
AID believes that the steady decline in the number of U.S. employees, coupled
with the rapid expansion of programming and management requirements, has been
a major source of its accountability problems, and missions have frequently
told us that they have insufficient staff to manage and oversee their
projects. While staff reductions do challenge AID's ability to manage its
activities, we believe the agency could significantly improve accountability
and oversight over its programs by strengthening the management of its work
force. The first step in this process is to develop a work force planning
system.
IMPROVING INFORMATION RESOURCE MANAGEMENT
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Like other agencies, AID depends on information to sustain its programs and
operations, to fulfill a multitude of internal and external reporting
requirements, and to evaluate program performance in response to legislative
concerns. However, long-standing shortfalls exist in AID's information
resource management (IRM), including problems with undefined agency
information needs to support technology decisions; duplicate data; redundant,
outdated, and unintegrated information systems; complaints from users about
inadequate IRM support; and nonexistent data standards and procedures. In
1990, AID hired a management consulting firm to review its IRM program and
develop a strategic IRM plan to correct deficiencies. The agency has since
taken steps to improve its IRM program, but it has still not developed a
business plan and remains unfocused in its overall approach to IRM. AID is
just beginning to shift its focus from obtaining information technology, with
little control or standardization of data or systems agencywide, to managing
information as a corporate resource. As a first step, AID should develop a
functional business plan to provide the agency with a framework for managing
its information resources and formally designate a senior IRM official with
overall responsibility for agencywide leadership in information resource
management.
ESTABLISHING MODERN FINANCIAL MANAGEMENT AND ACCOUNTING SYSTEMS
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AID administers billions of dollars of economic and development assistance
programs worldwide. However, the agency has serious accounting and financial
reporting problems that preclude it from reliably determining (1) what the
status of its appropriated funds is, (2) whether it actually has on hand all
the property it has paid for, and (3) what resources have been used to achieve
program results. These problems exist because AID managers have not enforced
established accounting and financial reporting procedures. Currently, AID uses
45 headquarters and overseas financial management systems to account for,
control, and report on resources used for its program and administrative
operations, but these systems do not meet the information needs of AID
managers.
AID cannot reliably account for and report on the status of its appropriated
funds. As of September 20, 1992, AID had $418 million in disbursements that
remained unmatched with corresponding obligations, some for as long as 10
years. Consequently, AID has no assurance that these disbursements were made
only against valid, preestablished obligations. AID's accounts also include
erroneous information, and in two cases the amounts obligated for programs
exceeded the appropriation. Until AID matches its unliquidated obligations
with the disbursements already made and determines which of the remaining
unliquidated obligations represent valid amounts still owed by the federal
government, AID cannot determine the status of its appropriated funds or
ensure that it fully complied with congressional directives on using these
funds.
AID's property systems do not reliably account for and control property. One
system overstated vehicle acquisitions by 44 percent and disposal by 14
percent. Another system recorded more than
20,000 items valued at about $1.9 million that could not be located during a
physical inventory. Still another system understated property balances in
overseas offices by about $13 million in 1990 and by about $1.9 million in
1991. Because of this unreliable information, AID has no assurance that it has
on hand all property paid for and that property has not been misappropriated.
AID's systems do not record and report financial and quantitative information
on the resources used and results achieved by program operations. As a result,
AID cannot efficiently provide program and financial information to program
managers and the Congress. To obtain information on program results, AID must
use ad hoc manual data from project files, which can take weeks to gather and
process.
AID has initiated a major project to improve its financial management systems,
but it appears to be repeating past mistakes by not having a comprehensive
plan for the project and a management structure to ensure that the project's
design is fully developed and implemented. We believe that the agency will
need to develop a long-term plan that establishes a steering committee;
designates a project manager; and specifies the goals, objectives, and scope
of the financial management system.
