PUBLIC FINANCIAL 

MANAGEMENT

Improvements Needed 

in USAID’s and 

Treasury’s Monitoring 

and Evaluation Efforts

Report to the Ranking Member, 

Committee on Foreign Relations, U.S.

Senate

September 2012

GAO-12-920

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-920, a report to the 

Ranking Member, Committee on Foreign 

Relations, U.S. Senate

September 2012

PUBLIC FINANCIAL MANAGEMENT

Improvements Needed in USAID's and Treasury's 

Monitoring and Evaluation Efforts

Why GAO Did This Study

Effective management of public 

resources can play an important role in 

a country’s development. In recent 

years, developing countries committed 

to strengthen their PFM systems and 

donors committed to use those 

systems as much as possible. The 

United States provides assistance to 

strengthen PFM systems primarily 

through USAID and Treasury. USAID 

conducts capacity building activities to 

strengthen PFM systems as part of its 

development programs and has also 

set a target to obligate 30 percent of its 

annual assistance through local 

systems by 2015. Treasury provides 

technical assistance through advisors 

who work in country, typically with the 

finance ministry.

GAO was asked to examine the 

processes U.S. agencies use to (1) 

develop programs to strengthen PFM 

systems and (2) monitor and evaluate 

those programs. GAO reviewed 

agency guidance and program 

documents, interviewed U.S. agency 

officials, and selected case studies to 

serve as illustrative examples of PFMrelated programs.

What GAO Recommends

USAID should improve its capacity to 

measure its use of local systems and 

ensure adequate monitoring of its PFM 

programs. Treasury should implement 

additional controls to improve the 

process for computing program-wide 

annual performance measures and 

fully implement its requirement to 

evaluate the impact of its completed 

assistance. USAID and Treasury both 

concurred with GAO’s

recommendations. 

What GAO Found

To develop programs to strengthen developing countries’ Public Financial 

Management (PFM) systems, the U.S. Agency for International Development 

(USAID) and the U.S. Department of the Treasury (Treasury) rely on 

assessments of the host country government’s systems. In 2011, USAID 

implemented new processes that place a greater emphasis on PFM in its 

development efforts as the agency aims to increase its use of country systems to 

deliver assistance. The agency traditionally included PFM capacity-building 

efforts only as components of broader programs, as it identified relevant 

weaknesses during the country assessment or program design process. USAID’s 

new strategy and program development processes include a mandatory 

assessment of a country’s institutional capacity, including its financial systems, 

and a requirement to consider the use of country systems to deliver assistance. 

Most USAID country offices are required to develop a strategy using the new 

guidance by the end of fiscal year 2013. Treasury’s process for developing 

programs begins with an initial assessment of the host country’s capabilities. 

Treasury staff then draft objectives for the program. For example, a Treasury 

program in Honduras set four objectives, including improving operational 

efficiency and enhancing accountability by strengthening the organization of the 

ministry of finance. Once in country, the advisor develops an annual workplan, 

outlining more specific goals aimed at meeting the overall objectives. 

USAID and Treasury use several processes to monitor and evaluate their PFM 

assistance, but weaknesses exist. USAID uses its regular procedures, which 

may include performance management plans, periodic progress reporting, site 

visits, and evaluations, to monitor and evaluate its PFM-related programs. Prior 

reports by USAID’s Inspector General and GAO have found weaknesses in 

USAID’s implementation of its monitoring procedures in other programs, 

including programs from the USAID offices that provide PFM assistance. In 

addition, USAID is currently unable to monitor overall progress toward its target 

to obligate 30 percent of its program funds through local systems by 2015. 

USAID, and GAO in prior reports, have identified a number of weaknesses in 

evaluation practice. To address weaknesses the agency had identified, USAID 

adopted a new evaluation policy in January 2011 that states that all large 

projects are required to have an external evaluation, 3 percent of program 

budgets should be devoted to external evaluation, and evaluations must use 

methods that generate the highest quality evidence. Treasury’s processes for 

monitoring and evaluating its programs include monthly reports, annual 

quantitative performance measures, voluntary customer feedback surveys, and 

on-site management reviews, but Treasury does not fully evaluate the 

performance of its completed technical assistance programs. In addition, 

Treasury’s quantitative performance measures have been a useful project-level 

indicator of performance but have not been a useful indicator of overall 

performance due in part to inherent challenges associated with summarizing 

program performance and errors introduced when aggregating the performance 

data. Furthermore, a senior Treasury official reported that Treasury had not yet 

fully implemented a requirement to conduct independent postproject evaluations 

of its technical assistance programs.

View GAO-12-920. For more information, 

contact Thomas Melito at (202) 512-9601 or 

melitot@gao.gov.
Page i GAO-12-920 Public Financial Management

Letter 1 

Background 3

USAID’s and Treasury’s Processes for Developing PFM Programs 

Involve Consultation with Stakeholders and Rely on 

Assessments of Host-Country Systems 13

USAID and Treasury Use Certain Processes to Monitor and 

Evaluate PFM-Related Programs, but Implementation Has Some 

Weaknesses 21

Conclusions 32

Recommendations for Executive Action 33

Agency Comments and Our Evaluation 34

Appendix I Scope and Methodology 36

Appendix II Several International Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools 39

Appendix III State Department Conducts Fiscal Transparency Reviews and 

Administers the Domestic Finance for Development Initiative 48

Appendix IV Examples of Public Financial Management-related Projects in Six 

Countries 51

Appendix V Comments from the U.S. Agency for International Development 59

Appendix VI Comments from the Department of the Treasury 63

Appendix VII GAO Contact and Staff Acknowledgments 65

Contents
Page ii GAO-12-920 Public Financial Management

Tables

Table 1: Selected PFM-Related Commitments in the Paris 

Declaration and the Accra Agenda 8

Table 2. Status of Countries in the PFM Risk-Assessment 

Framework Process 18

Table 3: USAID’s Kosovo Growth and Fiscal Stability Initiative: 

Selected Objectives and Expected Results 52

Table 4: USAID’s Liberia GEMS: Selected Objectives, 

Subobjectives, and Expected Results 53

Table 5: USAID’s Peru ProDecentralization 2: Selected Objectives 

and Expected Results 54

Table 6: Treasury’s Technical Advisory Services to Cambodia on 

Budgeting: Selected Objectives and Activities 55

Table 7: Treasury’s Technical Advisory Services on Honduran 

Budgeting: Selected Objectives and Action Plan Activities 56

Table 8: Treasury’s Technical Advisory Services to South Africa on 

Budgeting: Selected Objectives and Activities 57

Figures

Figure 1: Illustrative Example of a Country’s Budget Cycle 4

Figure 2: Countries Receiving U.S. PFM-Related Assistance since 

2007 10

Figure 3. Select Components of USAID’s New Strategy 

Development and Project Design Processes That May 

Identify the Need for PFM Capacity Building 15

Figure 4: Open Budget 2010 Index Scores 43

Figure 5: Transparency International 2010 Corruption Perceptions 

Scores 45

Figure 6. Case Study Country Percentile Rankings on PFM 

Diagnostic Tools 47
Page iii GAO-12-920 Public Financial Management

Abbreviations

DF4D Domestic Finance for Development

DG Democracy and Governance Office, U.S. Agency for 

 International Development

EG Economic Growth Office, U.S. Agency for International 

 Development

IMF International Monetary Fund

OECD Organization for Economic Cooperation and Development

OTA Office of Technical Assistance, U.S. Department of the 

 Treasury

PEFA Public Expenditure and Financial Accountability Program

PFM Public Financial Management

PFMRAF Public Financial Management Risk Assessment 

 Framework

STATE U.S. Department of State

TREASURY U.S. Department of the Treasury

USAID U.S. Agency for International Development

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Page 1 GAO-12-920 Public Financial Management

United States Government Accountability Office

Washington, DC 20548

September 13, 2012

The Honorable Richard G. Lugar

Ranking Member

Committee on Foreign Relations

U.S. Senate

Dear Senator Lugar:

A country’s development is influenced, in part, by how effectively its 

government raises, manages, and expends public resources. In 2005, as 

part of the Paris Declaration on Aid Effectiveness, developing countries 

committed to strengthen their public financial management (PFM) 

systems and donors committed to use those systems to the maximum 

extent possible. More transparent and effective PFM systems can make 

governments more accountable and give donors more assurance that 

funds will not be misspent if they deliver more aid through recipient 

countries’ budgets and finance systems. Highlighting the need for 

stronger PFM, international organizations have raised concerns about low 

levels of transparency in countries’ budgets and high levels of corruption.

The United States provides assistance to strengthen other countries’ PFM 

systems primarily through the U.S. Agency for International Development 

(USAID) and the U.S. Department of the Treasury (Treasury). USAID has 

set a target of obligating 30 percent of the agency’s total annual 

assistance, or program funds, through local systems, including both 

partner country PFM systems and local not-for-profit and for-profit 

organizations, by fiscal year 2015.1

 

1

Since USAID is working to commit significantly more to partner country systems in 

Pakistan and Afghanistan, USAID excludes these two countries from the target as they 

would significantly distort the agency’s overall figures. 

Over the last decade, USAID has 

provided most of its assistance through agreements with large 

international implementing partners. USAID assesses countries’ PFM 

systems to determine their ability to effectively receive and manage U.S. 

assistance directly. USAID primarily provides PFM capacity-building 

assistance as a component of a broader development program, whereas 

the Treasury’s Office of Technical Assistance (OTA) provides PFMrelated technical assistance. Since 2007, USAID and Treasury have 

provided PFM assistance to 70 countries. The U.S. Department of State 

 
 

Page 2 GAO-12-920 Public Financial Management

(State) assesses the budget transparency of countries that receive U.S. 

assistance and helps to leverage existing PFM assistance, but has not 

funded PFM assistance.

In this context, you asked us to examine: (1) the processes U.S. agencies 

use to develop programs to strengthen PFM systems in developing 

countries and (2) the processes U.S. agencies use to monitor and 

evaluate their programs to strengthen PFM systems.

To address these objectives, we reviewed USAID, Treasury, and State 

guidance and program documents and interviewed U.S. officials in 

Washington, D.C. To address the first objective, we reviewed relevant 

documents, including assessment reports, agency guidance, and 

assistance agreements.2 To address the second objective, we reviewed 

agency and Organization for Economic Cooperation and Development 

(OECD)3

We conducted this performance audit from October 2011 through 

September 2012 in accordance with generally accepted government 

guidance and program documents, including assistance 

agreements, progress reports, evaluations, work plans, and performance 

management plans; and quantitative performance data. We spoke with 

USAID and Treasury officials about their development, monitoring, and 

evaluation of PFM-related programs. We also selected six case study 

countries in which Treasury or USAID has relevant ongoing or recently 

completed projects focused on strengthening PFM systems. We chose 

these case study countries for their geographic and income level 

diversity, as illustrative rather than generalizable examples. For Treasury, 

we selected Cambodia, Honduras, and South Africa; and for USAID, 

Kosovo, Liberia, and Peru. For each of our case study countries, we 

interviewed U.S. officials and reviewed program development and 

monitoring and evaluation documents related to PFM-focused projects.

Finally, we interviewed officials at the World Bank and International 

Monetary Fund to discuss the tools that they use to assess PFM systems.

 

2

Assistance agreements include all contracts, cooperative agreements, and grant 

agreements between USAID and its implementing partners.

3

OECD is is an international economic organization of 34 countries, including the United 

States, founded in 1961 to stimulate economic progress and world trade. It is a forum of 

countries committed to democracy and the market economy, providing a platform to 

compare policy experiences, seek answers to common problems, identify good practices, 

and coordinate the domestic and international policies of its members.
 

Page 3 GAO-12-920 Public Financial Management

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. See appendix I 

for a more detailed discussion of our scope and methodology.

The broad objectives of PFM are to achieve overall fiscal discipline, 

allocation of resources to priority needs, and efficient and effective 

allocation of public services, according to OECD. While donors may use 

different definitions of PFM, most definitions focus on a country’s budget 

cycle, the process used to manage public resources. The budget cycle 

centers around four main phases: (1) budget formulation, (2) budget 

execution, (3) accounting and reporting, and (4) external oversight (see 

fig. 1). OECD states that PFM includes all components of a country’s 

budget cycle.

Background 

PFM Focuses on a 

Country’s Budget Cycle
 

Page 4 GAO-12-920 Public Financial Management

Figure 1: Illustrative Example of a Country’s Budget Cycle

A budget cycle starts with the budget formulation process, in which the 

government, often with legislative oversight, plans for the use of the 

coming year’s resources in accordance with policy priorities.4

 

4 The steps and entities involved in the budget cycle may differ between countries. Also, 

some entities, such as the ministry of finance, may be referred to by different names, such 

as the budget directorate, depending on the country. 

After the 

government approves the budget and the new fiscal year begins, 

programming agencies and the ministry of finance, or appropriate entity, 

are responsible for executing the budget. They use the resources 
 

Page 5 GAO-12-920 Public Financial Management

allocated to them for items such as salaries for public servants, operating 

costs for their offices, and goods and services delivered to their 

beneficiaries. The ministry of finance, or equivalent, manages the flow of 

funds and monitors and makes in-year adjustments to help ensure 

compliance with the budget and PFM rules. Throughout the fiscal year, 

each programming agency is to account for and record its expenditures. 

The ministry of finance centrally consolidates these accounts. At the end 

of the fiscal year, the ministry of finance, or equivalent, issues an 

accounting report that demonstrates how the budget was implemented. 

External or independent entities, such as a country’s supreme audit 

institution, may review this report.5

PFM processes involve a number of governmental entities. While the 

ministry of finance is generally the focus of a country’s PFM system, PFM 

extends to all public ministries that are charged with delivering services or 

have spending authority. Civil society, donors, and oversight institutions, 

such as a country’s supreme audit institution, also help to ensure the 

proper management of public funds through external scrutiny and review.

The audit institution reviews the 

government’s revenue collection and spending and issues its own 

statement on the execution of the budget and the strength of the PFM 

systems. In many countries, the institution presents this audit report to an 

appropriate government entity for further scrutiny and action.

Broad PFM assessments conducted by international organizations report 

improvements in countries’ PFM systems, as well as continued 

weaknesses. Several international organizations, including the Public 

Expenditure and Financial Accountability (PEFA) program, World Bank, 

International Budget Partnership, and Transparency International, have 

developed assessment tools to assess broad aspects of PFM systems.6

 

5

 Supreme audit institution refers to any organization that sets standards for audit work.

GAO is the supreme audit institution for the United States. 

These assessments have highlighted varying levels of progress in 

improving PFM systems around the world, and the last two have identified 

relatively low levels of transparency in many countries’ budgets and high 

levels of corruption, respectively. More specifically:

6

The PEFA program grew out of a multidonor partnership that formed in 2001 to 

strengthen the ability of aid recipients and donors to assess and improve country public 

expenditure, procurement, and financial accountability systems.

Assessment Tools 

Highlight Both 

Improvements and 

Weaknesses in Developing 

Countries’ PFM Systems
 

Page 6 GAO-12-920 Public Financial Management

• PEFA: A 2010 monitoring report on the PEFA program, released by 

the PEFA Secretariat, found that while PFM systems were improving 

overall, progress varied among elements of countries’ systems.7 The 

PEFA secretariat’s analysis, based on a comparison of 33 repeat 

PEFA assessments from 2005 through 2010, showed that more 

countries had a higher number of improved versus worsened scores, 

indicating a broad trend of PFM improvement across the countries 

surveyed. According to the analysis, country actions taken to 

strengthen PFM features in the earlier stages of the budget cycle, 

such as planning, are more likely to improve or maintain a high score 

than actions taken later in the budget cycle, such as control and 

oversight of actual spending.

• World Bank: According to our analysis of the World Bank’s quality of 

budgetary and financial management indicator scores from 2005 

through 2010, slightly more than one-third of the countries assessed 

showed improvements in the quality of their PFM systems, while onequarter of the countries showed a worsening in the quality of their 

PFM systems.8

• International Budget Partnership:9 In its 2010 open budget survey 

of 94 countries, the International Budget Partnership concluded that 

the state of budget transparency was poor.10

 

7

PEFA Secretariat, PFM Performance Measurement Framework: Monitoring Report 2010

(Washington, D.C.: May 19, 2011). 

Only about 21 percent of 

the countries surveyed had open budgets while 44 percent of 

countries provided limited to no budget information. Nonetheless, the 

survey found the trend toward open budgets was favorable based on 

substantial improvements in budget transparency, especially among 

8

The World Bank conducts Country Policy and Institutional Assessments annually to rate 

the quality of a country’s policy and institutional framework against 16 indicators, including 

the quality of budgetary and financial management. The World Bank only publishes the 

indicator scores of countries that are eligible for funding from the World Bank’s 

International Development Association, which provides interest-free loans and grants to 

governments of the poorest countries. See World Bank’s Country Policy and Institutional 

Assessments 2010 Assessment Questionnaire.

9

The International Budget Partnership is a nongovernmental organization that collaborates 

with civil society around the world to reduce poverty and improve the quality of 

governance by reforming government budget systems and influencing budget policies. 

10International Budget Partnership, The Open Budget Survey 2010, (Washington, D.C.: 

October 2010).
 

Page 7 GAO-12-920 Public Financial Management

countries that had provided little information in the past. Some of 

these governments achieved improvements by simply making budget 

documents available on their websites.

• Transparency International:

11 The organization’s Corruption 

Perceptions Index showed that nearly three quarters of the 178 

countries in the index scored below 5, on a scale of 10 (very clean) to 

0 (highly corrupt), indicating what it categorizes as a serious 

corruption problem.12

For further information on each organization’s assessment tools and 

selected results, including the percentile rankings of our six case study 

countries in selected PFM diagnostic tools, see appendix II.

Donors and recipient governments have increased their attention to 

strengthening PFM systems, recognizing that strong and effective PFM 

systems underpin fiscal and macroeconomic stability, guide the allocation 

of public resources to national priorities, support the efficient delivery of 

services for poverty reduction and economic development, and make 

possible the transparency and scrutiny of public funds. In 2003, OECD’s 

Development Assistance Committee established a Working Party on Aid 

Effectiveness, which has played a critical role in establishing an initial 

international donor coordination framework and setting goals for donors 

and aid recipient countries to strengthen PFM. The working party has 

sponsored four global development forums since 2003. The second 

forum, held in Paris in 2005, resulted in the Paris Declaration on Aid 

Effectiveness which included broad commitments by recipient 

governments and donors to strengthen PFM systems and use those 

systems as appropriate. More than 100 countries and aid agencies, 

including the United States, endorsed the declaration. By signing the 

declaration, recipient governments made clear commitments to 

 

11Transparency International is a global civil society organization focused on the fight 

against corruption. Through more than 90 chapters worldwide and an international 

secretariat in Berlin, the organization raises awareness of the damaging effects of 

corruption and works with partners in government, business, and civil society to develop 

and implement effective measures to lessen it.

12Transparency International defines corruption as the abuse of entrusted power for 

private gain, and its definition encompasses corrupt practices in both the public and 

private sectors. See Transparency International, Corruption Perceptions Index 2010

(Berlin, Germany: October 2010).

International Attention to 

Strong and Effective PFM 

Systems Has Increased 

since 2003
 

Page 8 GAO-12-920 Public Financial Management

strengthen their systems to the maximum extent possible, and donor 

governments made clear commitments to use those systems wherever 

possible. These commitments were renewed and refined in the 

subsequent forum in Accra, Ghana, in 2008. The most recent forum was 

held in Bussan, South Korea, in 2011. (See table 1.)

Table 1: Selected PFM-Related Commitments in the Paris Declaration and the Accra 

Agenda

Partner countries committed to:

• Carry out diagnostic reviews and undertake reforms to ensure national systems, 

institutions, and procedures for managing resources are effective, accountable, and 

transparent 

• Intensify efforts to mobilize domestic resources, strengthen fiscal sustainability, and 

create an enabling environment for public and private investments

• Publish timely, transparent, and reliable reporting on budget execution

• Take leadership of PFM reform process

Donors committed to: 

• Use country systems and procedures to the maximum extent possible. Where use is 

not feasible, establish safeguards and measures in ways that strengthen rather than 

undermine country systems

• Provide reliable indicative commitments of aid over a multi-year framework and 

disburse aid in a timely and predictable manner according to agreed schedules

• Rely to the maximum extent possible on transparent partner government budget and 

accounting mechanisms 

Partner countries and donors jointly committed to:

• Implement harmonized diagnostic reviews and performance assessment frameworks 

in PFM

Source: GAO analysis of Paris Declaration on Aid Effectiveness, 2005, and the Accra Agenda for Action, 2008.
 

Page 9 GAO-12-920 Public Financial Management

USAID and Treasury are the two main U.S. agencies providing PFMrelated assistance.13

 

13Other U.S. agencies provide some PFM-related assistance. For example, GAO provides 

capacity-building support to fellow audit institutions through its membership in the 

International Organization of Supreme Audit Institutions. In addition, the Millennium 

Challenge Corporation (MCC) has minimum financial accountability requirements for 

countries to be eligible to enter into assistance compacts. Deficiencies in these 

requirements may be addressed through MCC’s threshold program, which is typically 

administered by USAID. 

Combined, the two agencies have PFM-related 

projects in 70 countries in all regions of the world, as shown in figure 2. 

State also conducts some PFM-related activities, although it has not 

funded programs. See appendix III for details on State’s PFM activities.

U.S. Agencies Provide a 

Variety of PFM-Related 

Assistance 
 

Page 10 GAO-12-920 Public Financial Management

Figure 2: Countries Receiving U.S. PFM-Related Assistance since 2007

a

Only countries where assistance is at least partially funded by OTA are listed. OTA projects funded 

completely by other agencies are not included. 
 

Page 11 GAO-12-920 Public Financial Management

b

U.S. appropriations law requires State to evaluate the fiscal transparency of foreign governments 

before providing certain U.S. assistance. If State determines it is in the U.S. national interest, it 

processes waivers for countries deemed nontransparent thereby allowing U.S. agencies to provide 

assistance to them. See Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, § 668(e), 121 

Stat. 1844, 2353 (2007) and Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, § 7031(b), 

125 Stat. 786, 1211 (2011).

USAID provides PFM capacity-building activities through its development 

programs and is seeking to provide more of its assistance through 

recipient countries’ financial systems. Capacity-building activities to 

strengthen PFM systems are typically part of broader democracy and 

governance (DG) or economic growth (EG) programs.14 PFM activities 

that are included as components of DG programs typically address the 

areas of legislative function and processes, public sector executive 

function, local government decentralization, and anticorruption reforms. 

PFM activities included as components of EG programs typically address 

fiscal and monetary policy issues. USAID has identified DG and EG 

programs with PFM components in over 60 countries since 2007. 

However, according to a USAID official, USAID cannot determine the total 

funding for PFM activities because it does not collect data at a sufficiently 

detailed level to precisely identify PFM activities. Therefore, the official 

reported that USAID is unable to separate PFM assistance from other 

assistance in larger DG and EG development programs. In 2011, total 

funding for DG programs was $1.7 billion, and for EG programs, $4.2 

billion.15

In addition to PFM capacity-building programs, USAID is seeking to 

increase the use of recipient country PFM systems to deliver assistance.

As part of its implementation and procurement reforms under its 

institutional reform agenda, known as USAID Forward, USAID has 

announced an agency target of obligating 30 percent of its annual

For illustrative examples of USAID PFM-related projects, see 

appendix IV.

 

14USAID reports that its DG programs support more legitimate, inclusive, and effective 

governments that are responsive to the needs of their people. DG’s stated goals include 

strengthening and promoting more transparent and accountable governance. Further, 

USAID reports that its EG programs work to help developing countries achieve rapid, 

sustained, and broad-based economic growth. Reported activities include developing wellfunctioning markets and strengthening the framework of policies, institutions, and public 

goods, including helping poor countries adopt better financial management systems that 

allow for stronger oversight of government spending and reduce chances for corruption.

15 Funding totals for 2011 do not include amounts that may have been administered by 

USAID from the Assistance to Europe, Eurasia, and Central Asia account. 

USAID
 

Page 12 GAO-12-920 Public Financial Management

assistance through local systems, including both partner country PFM 

systems and local not-for-profit and for-profit organizations, by fiscal year 

2015.

Treasury’s OTA provides technical assistance through advisors who work 

in-country within the finance ministry, the central bank, or other 

government entities. OTA’s program consists of five core areas, as 

follows:

• Budget and Financial Accountability helps foreign governments 

reform and strengthen their PFM systems in order to promote control, 

accountability, and transparency over resources, and to improve a 

country’s overall financial condition.

• Banking and Financial Services promotes strong financial sectors in 

which institutions are well regulated, stable, and accessible; serve as 

efficient intermediaries between savers and investors; and are 

resistant to criminal activity.

• Government Debt Issuance and Management helps host countries 

implement sound public debt management practices and develop 

markets through which the government can finance itself.

• Economic Crimes helps counterpart governments build their capacity 

to prevent, detect, investigate, and prosecute complex financial 

crimes.

• Revenue Policy and Administration provides assistance to 

ministries of finance and other relevant organizations that strengthens 

their ability to serve the country and its people through the efficient 

and responsible collection of revenues.

OTA provides both long-term resident and intermittent advisors. Longterm resident advisors provide advice and training to ministers of finance, 

central bank governors, and other government officials. Country 

engagement typically lasts between 2 and 10 years, according to an OTA 

official. Intermittent advisors provide highly specialized technical 

assistance in support of long-term projects, projects requiring several 

different specialties, and projects of short duration. According to an OTA 

official, they currently have about 70 advisors in roughly 50 countries. In 

2011, OTA’s total funding was $44.5 million, with $25.5 million in direct 

OTA appropriations and $19 million in transfers from other agencies, 

including State, USAID, and the Millennium Challenge Corporation. For 

illustrative examples of OTA technical assistance projects, see appendix 

IV.

Treasury
 

Page 13 GAO-12-920 Public Financial Management

USAID is implementing new processes for developing programs that 

reflect new agency reform priorities to increase the use of country 

systems to deliver U.S. assistance. USAID’s work in PFM has traditionally 

involved capacity building under broader programs designed to improve 

fiscal management and promote good governance. According to agency 

officials, USAID has increased its attention to PFM issues. USAID’s new 

country strategy development and project design processes include 

various analyses and assessments that may identify opportunities to 

strengthen and use countries’ PFM systems, as prioritized by USAID’s 

reform agenda. In these new processes, USAID may identify the need for 

PFM assistance during countrywide development assessments or 

through other required assessments. Furthermore, according to USAID 

guidance, country offices are to develop these assistance programs in 

collaboration with country stakeholders throughout the program 

development process. USAID’s new processes are similar in structure 

and approach to prior processes, but, according to USAID, aim to 

incorporate more analytical rigor at all stages of the strategic planning 

framework so that USAID’s efforts are better aligned with the recipient 

country’s development efforts.

USAID may identify the need for PFM assistance during the country 

strategy development process. According to USAID, most country offices 

are required to develop a Country Development Cooperation Strategy, a 

5-year strategy document, by the end of fiscal year 2013.16

 

16Exceptions include country offices implementing a single-sector program and country 

offices that are phasing out or closing down by fiscal year 2014. 

USAID’s latest 

USAID’s and 

Treasury’s Processes 

for Developing PFM 

Programs Involve 

Consultation with 

Stakeholders and Rely 

on Assessments of 

Host-Country Systems

USAID’s Processes
 

Page 14 GAO-12-920 Public Financial Management

draft of the guidance for developing the country strategy, released in 

September 2011, states that the strategy should demonstrate how it is 

integrating the goals of USAID’s assistance reform effort, USAID 

Forward, such as working through host-country systems and developing 

the capacity of civil society and private sector partners. In developing the 

country strategy document, the USAID country office is to consult with 

various country stakeholders and conduct several assessments to 

understand the development context and develop goals and objectives. 

According to the guidance, the country office is required to develop the 

strategy document with a focus on maximizing the impact of USAID 

resources and build the capacity of specific institutions and related 

governance systems at the national, regional, and local levels. For 

example, if a USAID country office determines that a nontransparent and 

inefficient financial system is a key obstacle to economic growth, the 

country office is to work with the host government to improve its capacity 

for sound financial management and equitable allocation of resources. 

According to USAID officials, one indicator of need for a PFM project 

would be an assessment that the country has a major fiscal imbalance 

that needs to be corrected by a combination of increased revenue 

mobilization or reduction of budget expenditures. Another indicator would 

be a determination, arrived at through repeated reporting on corruption in 

the media, or internal and external publications, and supported by 

stakeholder interviews, that anticorruption programs would improve PFM.

The goals and objectives outlined in the country strategy are to provide 

the basis for project design, monitoring, and evaluation. As of June 2012, 

USAID stated it had approved 15 country strategies, and 73 USAID 

country offices are scheduled to complete a strategy by October 2013. 

See figure 3 for highlights of the elements of USAID’s new strategy and 

project design processes that could identify the need for PFM capacity 

building.
 

Page 15 GAO-12-920 Public Financial Management

Figure 3. Select Components of USAID’s New Strategy Development and Project 

Design Processes That May Identify the Need for PFM Capacity Building

Note: USAID’s new processes have several steps to identify the need for PFM capacity-building 

programs. We included the components that pertain most directly to PFM.

According to the new USAID guidance on project design, after USAID 

approves the strategy document and identifies the need for PFM-related 

assistance, USAID country offices are to begin the project design phase. 

This phase is to begin with the formation of a design team that is 

responsible for the project’s development from planning to 

implementation.17

• Conceptual stage. During the conceptual stage, the project design 

team is to conduct stakeholder outreach, assessments, analysis, and 

implementation planning. This stage results in a concept paper, which 

provides a summary of a proposed project that country-office 

management can review to assess how the project aligns with the 

country strategy, the likelihood of success, and the assumptions 

Overall, the project design phase is to comprise three 

stages, as follows:

 

17USAID country offices are required to follow the new project design guidance starting in 

July 2012. However, to facilitate transition to the new USAID project design process, full 

application of the new project design guidance will only apply to a limited number of new, 

priority projects for fiscal years 2012 and 2013 for USAID country offices with an approved 

country strategy, or an approved Feed the Future strategy for Feed the Future focus 

countries. Priority projects include those that intend to use government systems. 
 

Page 16 GAO-12-920 Public Financial Management

underlying project success. After USAID management approves the 

concept paper, the design team transitions to the analytical stage.

• Analytical stage. During the analytical stage, the design team seeks 

to understand the problem or constraints identified during the 

conceptual stage, and identify and assess critical assumptions. The 

team is to conduct a series of targeted assessments, including 

required gender, environmental, and sustainability analyses and other 

social, political, and institutional analyses. Of these analyses, we 

identified two that pertain directly to PFM systems, as follows:

• Sustainability analysis. The sustainability analysis assesses the 

partner government’s ability to manage the continuation of the 

project after the project has concluded. According to USAID 

guidance, to build sustainability into a project, the design should 

consider how the country office will increase the skills and 

capacity of local stakeholders involved in maintaining 

development gains after the project ends—as well as how USAID 

will ensure that relevant activities or services are gradually tied to 

sustainable financing models through private sector participation 

or through sustainable, publicly managed arrangements and 

government processes.

• Institutional analysis. An institutional analysis is an in-depth 

assessment of the local institutions and systems most critical to 

the implementation of the project’s development interventions, 

including an assessment of the quality of their leadership, 

structure, and staff; and identification of their administrative and 

financial management strengths and weaknesses. Using the 

analysis, USAID is to develop a plan for project activities that are 

necessary and sufficient to bring these institutions up to the level 

of performance or engagement as partners appropriate for their 

roles in the project’s implementation and their eligibility for direct 

USAID funding.

According to USAID guidance, the analytical stage results in a project 

authorization document that will be the basis for project 

implementation, adaptation, and evaluation, which includes a 

summary of the analyses that underlie the rationale for the project 

design.

• Approval stage. A successful project design results in an approved 

project authorization, which enables a project to move from the 

planning stage to implementation. The project authorization sets out 

the purpose and duration of the project, defines fundamental terms 

and conditions of the assistance when a partner country agreement is 
 

Page 17 GAO-12-920 Public Financial Management

anticipated, and approves an overall total budget level, subject to the 

availability of funds.

In addition to the above analyses, USAID has developed a PFM riskassessment framework (PFMRAF) to measure the fiduciary risk, or the 

risk of funds being misspent or mismanaged, when USAID plans to 

provide aid through the country’s finance systems. USAID guidance 

commits country offices to offer, if appropriate, a USAID assessment of 

partner country PFM systems with the goal of providing funding for project 

implementation through the use of those systems. If the offer is accepted, 

the assessment must be carried out using the PFMRAF. Whenever 

possible, USAID should begin conducting the PFMRAF during the 

conceptual stage of the project design process. The PFMRAF consists of 

the following five stages:

1. The Rapid Appraisal provides a high-level snapshot of country-level 

fiduciary risks associated with the use of partner country PFM 

systems and helps inform decisions on whether to undertake a more 

rigorous, formal risk assessment.

2. The Risk Assessment, Analysis, Mitigation, and the Approval for 

Use of Partner Country Systems establishes the baseline level of 

risk corresponding to contemplated funding levels and identifies 

vulnerabilities of the partner country PFM sector in which USAID is 

considering use of the system for project implementation. USAID 

determines whether any systemic risk can be reasonably mitigated 

and, if so, what kind of mitigating measures might be introduced to 

reduce the risk. USAID establishes an accountability framework with a 

set of conditions that would, if complied with, constitute formal 

approval for the use of a partner country PFM system.

3. The Project Design, Approval, Designation of Responsibilities, 

and Selection of the Funding Mechanism incorporates the approval 

of use of country systems into the project design, includes risk 

mitigation measures, such as capacity-building technical assistance, 

concurrent audits, and disbursements in tranches, as appropriate, and 

the appropriate funding mechanism.

4. Negotiating and Preparing the Bilateral Project Agreement with 

the Partner Country Government involves the preparation of the 

bilateral agreement in accordance with the risk mitigation measures 

outlined in the approval for use of partner country systems and in 

collaboration with the partner country government.

5. Implementation, Monitoring, and Evaluation occurs once both 

countries agree to the bilateral agreement and as outlined in the 

project design.
 

Page 18 GAO-12-920 Public Financial Management

According to USAID, the country office is to incorporate recommendations 

on actions to mitigate identified risks to providing assistance directly to 

the host government into various stages of the project design. According 

to one USAID official, the country office’s decision to implement the 

recommended steps for mitigating risk may depend on the availability of 

funds. According to USAID, if risks cannot be mitigated, USAID is not to 

deliver assistance through the partner country’s financial systems.

Mitigation steps may include adding a PFM component to a project, such 

as technical assistance to improve an aspect of the financial system. As 

of June 2012, USAID had completed the rapid assessment in 20 

countries and was in the process of finalizing the report for an additional 

12. For 4 of the countries for which USAID had completed the rapid 

assessment, USAID had decided to either delay or not to proceed to 

stage 2 for various reasons, including funding cuts and the political 

situation in the country. For the second stage of the PFMRAF, USAID had 

completed the risk assessment for 3 countries and was in the process of 

conducting the assessment for 11 others. USAID had completed four 

stages of the PFMRAF for 3 countries. Table 2 contains a summary of the 

status of countries where USAID has begun the PFMRAF process.

Table 2. Status of Countries in the PFM Risk-Assessment Framework Process

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Complete In Progress Complete In Progress Complete In Progress Complete In Progress Complete

20a 12 3 11 3 0 3 0 0b

Source: USAID.

a

Stage 2 on hold or no plan to continue to stage 2 in four of these countries.

b

The three countries that have completed stage 4 of the process are pending obligation of funds, 

which will move them to stage 5.

Treasury OTA’s processes for developing PFM programs involve 

collaboration with country government officials whom Treasury has 

determined have a strong commitment to reform and are seeking to 

develop strong PFM, as well as OTA’s assessment of the country system. 

OTA receives requests for assistance from foreign governments, other 

U.S. government agencies, U.S. embassies, international organizations, 

and OTA advisors and other donors already working in countries on other 

projects. According to OTA officials, OTA receives two to three requests 

for assistance per month, but due to the agency’s limited financial 

resources and the financial commitment required for each project, it 

Treasury’s Processes
 

Page 19 GAO-12-920 Public Financial Management

selectively chooses its projects. OTA’s principles for providing assistance 

are as follows:

• work with partners committed to ownership of their reform;

• advocate self-reliance by providing countries with knowledge and 

skills required to generate and manage their own resources and 

reduce dependence on international aid; and

• work with ministry staff daily to build capacity through mentoring and 

on-the-job training on PFM practices.

After receiving the request, OTA begins a preliminary assessment 

process to identify weaknesses and areas for assistance, according to 

OTA officials. The preliminary assessment is primarily a review of 

available information on the country’s PFM system, which may include 

information from the U.S. embassy, as well as relevant country reports 

and assessments prepared by international financial institutions, other 

bilateral assistance providers, and nongovernmental organizations. After 

reviewing documents, if it decides to proceed with the assessment, OTA 

completes a more in-depth, in-country assessment of PFM, which 

consists of meetings with U.S. embassy staff, other donors, and relevant 

ministry officials, including the minister of finance or the head of the 

central bank, as well as high-level policy staff and mid-level supervisors.

According to OTA officials, the purpose of the in-country assessment is to 

review the structural issues related to the country system and determine 

whether the country has dedicated staff committed to working toward their 

reform efforts. At any point during the assessment process, OTA may 

determine that OTA assistance is not suitable for the country’s needs. 

OTA officials told us that in one such case, government officials 

requested that OTA manage their budget for them, which is against 

OTA’s principles because doing so would not promote self-reliance or 

help the country develop the capacity to generate and better manage its 

own revenues. Finally, OTA officials told us that their decision on whether 

to provide assistance depends on whether sufficient funding is available.

The in-country assessment typically results in a draft of official terms of 

reference, which identifies weaknesses to be addressed during OTA’s 

engagement. According to OTA officials, the terms of reference describes 

the broad goals of the project and represents agreement between 

Treasury and the host-country counterpart, the ministry staff with whom 

the advisor will work on a daily basis. For example, the 2010 terms of 

reference for a budget project in Honduras identified the following four 

agreed-upon areas for assistance:
 

Page 20 GAO-12-920 Public Financial Management

• improve operational efficiency and enhance accountability by 

strengthening the organization of the ministry of finance;

• move toward compliance with International Public Sector Accounting 

Standards;

• enhance capacity to conduct fiscal analysis and produce more reliable 

macroeconomic estimates and revenue and expenditure projections; 

and

• conduct workshops on basic finance methods and terminology.

The terms of reference also identifies the advisor’s host-country 

counterparts and agreements regarding each party’s responsibilities. 

According to OTA officials, after OTA fully vets a project and secures 

funding, the parties finalize and sign the terms of reference. However, 

OTA and its counterparts may seek to revise the terms of reference if the 

central purpose of the technical assistance project changes or during 

times of transition, such as when a finance minister changes. In 

Honduras, the 2010 terms of reference replaced an existing OTA project 

following a gap in OTA assistance during a political crisis in the Honduran 

government in 2009.

The OTA advisor assigned to the country uses the broad goals expressed 

in the terms of reference to develop a work plan. The work plan contains 

specific objectives, milestones, and planned completion dates designed 

to work toward goals agreed upon in the terms of reference, and the plan 

must be developed within 60 days of the advisor arriving in-country. Each 

work plan covers a 1-year period and is the primary basis for regular 

monthly progress reports to OTA headquarters. OTA considers work 

plans, and the monthly reports on which they are based, to be dynamic 

documents that reflect the project’s progress in real time, and advisors 

can and should change or modify the work plan during the course of a 

project as appropriate and in consultation with the ministry staff and OTA 

management. Moreover, according to OTA officials, a 1-week in-country 

assessment may not provide all of the information needed and may 

require that the advisor rewrite the plan after a few months in the country. 

While the work plan is considered a management tool to monitor projects, 

OTA officials told us that in recent years it has also become a joint 

document between the OTA advisor and ministry staff as a shared tool to 

monitor and discuss progress.
 

Page 21 GAO-12-920 Public Financial Management

To monitor PFM-related programs, USAID develops performance 

management plans, reviews periodic progress reports, and conducts site 

visits, among other activities, but reviews of USAID programs have 

identified agency-wide weaknesses in implementation, including using 

unreliable baseline data and inaccurate reporting of results. USAID 

develops the monitoring and evaluation framework during the project 

design, and it generally is to include the following:

• A performance management plan: This is a tool to plan and 

manage the process of monitoring, evaluating, and reporting progress 

toward achieving the project’s development objectives. The 

performance management plan includes performance indicators and 

targets that link to the project objectives.18

• A work plan: This specifies activities to be undertaken and the 

proposed schedule for these activities during the life of the project.19

 

18According to USAID guidance, a performance indicator is a particular characteristic or 

dimension used to measure actual results compared to expected results to determine 

progress toward the objective at three levels: output, outcome, and impact. Output is an 

immediate and intended product or consequence of an activity within USAID’s control, 

such as number of personnel trained or new technologies developed. Outcome is a 

higher-level or end result, or purpose, such as the development objective to develop locallevel capacity to create reliable financial institutions. Impact generally refers to higher-level 

medium- and long-term impacts, which can be intended or unintended, positive or 

negative, such as growth in national income or the size of the budget deficit.

19 Our three USAID case-study countries’ agreements required annual work plans. 

USAID and Treasury 

Use Certain Processes 

to Monitor and 

Evaluate PFM-Related 

Programs, but 

Implementation Has 

Some Weaknesses 

USAID’s Processes

USAID Uses Multiple Tools to 

Monitor Its PFM Assistance but 

Lacks a Process for Tracking 

Use of Country Systems
 

Page 22 GAO-12-920 Public Financial Management

• Periodic progress reports: USAID assistance agreements with 

nongovernmental organizations generally also require implementing 

partners to submit periodic progress reports, the frequency of which 

vary depending on the assistance agreement, but these reports may 

not be required more frequently than quarterly or less frequently than 

annually. The progress reports should generally contain a comparison 

of actual accomplishments with the goals and objectives established 

for the period and reasons why established goals were not met, if 

appropriate. Implementing partners should immediately notify USAID 

of developments that have a significant impact on the awardsupported activities.

• Site visits: USAID guidance states that site visits are conducted as 

needed by the technical officers, who are responsible for monitoring.

USAID works with the implementing partner to produce and approve the 

work plan and the performance management plan. USAID’s technical 

officer approves the plans. USAID guidance also requires staff to conduct 

at least one portfolio review each year that covers all activities included in 

their various programs. These reviews determine, among other things, 

whether the activities are achieving the desired results.

Prior reviews of USAID programs have identified challenges in the 

agency’s implementation of its monitoring processes across many types 

of programs, including DG and EG programs. In its fiscal year 2011 

memo on management and performance challenges, USAID’s Inspector 

General identified specific monitoring-related weaknesses as one of 

USAID’s most serious management and performance challenges. The 

USAID Inspector General reported problems with assistance planning in 

25 out of 80 performance audits conducted in fiscal year 2011. 

Assistance planning is important because it provides the means for 

program implementers to track progress toward program objectives and 

helps to ensure that USAID assistance programs achieve planned results. 

In addition, 37 of the 80 audit reports the Office of the Inspector General 

issued in fiscal year 2011 identified cases in which USAID operating units 

or their implementing partners reported misstated, unsupported, or 

unvalidated results. In recent reports, we also identified deficiencies in 

USAID’s monitoring practices, including the lack of an integrated plan for 

The following illustrates the key 

elements that are built into the 

performance management plan 

and the work plan for USAID’s 

Growth and Fiscal Stability 

Initiative Program in Kosovo.

Agreement: The USAID/Kosovo 

program established 3 objectives: 

Objectives: 

1. Build professionalism and 

expertise in sound PFM in 

municipalities. 

2. Support private sector 

participation through public-private 

partnerships. 

3. Develop and implement an actionoriented government strategy for 

profitable private sector growth. 

The performance management 

plan incorporated these objectives, 

along with indicators and targets. 

For example:

Objective 1: Build professionalism 

and expertise in sound PFM in 

municipalities. 

Indicator: Number of PEFA 

assessments conducted by 

municipalities.

Target: Conduct 5 assessments in 

year 1 and 10 in year 2. 

The work plan linked tasks, 

activities, and timelines to each of 

the objectives from the performance 

management plan. 

For example:

Objective 1: Build professionalism 

and expertise in sound PFM in 

municipalities

Task: Implement the PEFA 

framework methodology for selfassessments by municipalities. 

Activity: Conduct inventory of 

current PFM practices through PEFA 

self-assessment.

Timeline: First 3 months.
 

Page 23 GAO-12-920 Public Financial Management

monitoring and evaluating nonemergency food aid,20 monitoring practices 

that do not correspond to agency performance guidelines,21 difficulties in 

developing meaningful outcome indicators related to building trade 

capacity,22 undocumented site visits for assistance programs in Burma,23

and lack of performance targets and baseline data for indicators related to 

PFM efforts in Afghanistan.24

Moreover, in our review of the fiscal year 2011 and 2012 Inspector 

General’s audits of USAID’s DG and EG programs, we found monitoring 

weaknesses cited in 20 of the 32 audit reports.25

With regard to our three case study countries, we found that the country 

offices generally applied USAID’s monitoring processes in all three PFMrelated programs; however, we did find some conditions that could make 

monitoring more difficult, as described below. Our review was not 

intended to be comprehensive or applicable to all USAID PFM-related 

programs.

The audit reports cited 

monitoring weaknesses, including unreliable or nonexistent baseline data; 

performance data weaknesses, such as results that were not reported, 

lack of data verification, or inaccurate reporting of data; lack of a current 

performance management plan; and inadequate monitoring of program 

activities, including lack of regular submission of progress reports.

 

20 GAO, International Food Assistance: USAID Is Taking Actions to Improve Monitoring 

and Evaluation of Nonemergency Food Aid, but Weaknesses in Planning Could Impede 

Efforts, GAO-09-980 (Washington, D.C.: September 28, 2009).

21 GAO, Foreign Assistance: The United States Provides Wide-ranging Trade Capacity 

Building Assistance, but Better Reporting and Evaluation Are Needed, GAO-11-727

(Washington, D.C.: July 29, 2011).

22GAO, Foreign Assistance: The United States Provides Wide-ranging Trade Capacity 

Building Assistance, but Better Reporting and Evaluation Are Needed, GAO-11-727

(Washington, D.C.: July 29, 2011). 

23GAO, Burma: UN and U.S. Agencies Assisted Cyclone Victims in Difficult Environment, 

but Improved U.S. Monitoring Needed, GAO-11-700 (Washington, D.C.: July 26, 2011).

24GAO, Afghanistan Governance: Performance-Data Gaps Hinder Overall Assessment of 

U.S. Efforts to Build Financial Management Capacity, GAO-11-907 (Washington, D.C.: 

Sept. 20, 2011).

25 USAID’s DG and EG offices are the primary offices providing PFM-related assistance.
 

Page 24 GAO-12-920 Public Financial Management

• Performance management plans: All three programs were clearly 

defined in terms of overall objectives, project objectives, tasks, 

expected results or outcomes, and required plans and reports. All 

three programs—the Kosovo Growth and Fiscal Stability Initiative, the 

Peru ProDecentralization Project, and Liberia’s Governance and 

Economic Management Support Program—had performance 

management plans containing objectives and indicators. Two of the 

three performance management plans also included targets. 

However, the targets for Liberia’s program had not been determined 9 

months into the program.26

• Work plans: All three programs also had work plans that specified 

tasks and timelines. However, Liberia’s Governance and Economic 

Management Support Program initially operated without an approved 

work plan, although it did establish an action plan to guide its 

activities.27

• Periodic progress reports: Assistance agreements for all three

USAID programs required quarterly progress reports, and the 

implementing partners submitted all reports according to agreed-upon 

time frames. In our review of the three programs, we found that the 

language used to describe the objectives and results in the quarterly 

progress reports did not correspond to the language in the work plans, 

which could make it difficult to track progress against the work plans’ 

objectives. For example, the quarterly reports for the Kosovo Growth 

and Fiscal Stability Initiative Program describe progress on five 

separate lines of effort under the objective to improve fiscal 

stewardship, while the statement of work and work plan discuss only 

three lines of effort under the same objective.

• Site visits: USAID officials responsible for monitoring progress on all 

three projects said that they do not rely solely on progress reports to 

track progress, and that additional monitoring tools included weekly 

progress meetings, frequent site visits, and telephone and e-mail 

communications with implementers. For example, the USAID official 

 

26The Liberia program’s performance management plan indicates that it will be updated in 

the fourth quarter of fiscal year 2012.

27The lack of an approved work plan was due to the ongoing negotiations between the 

Government of Liberia and the USAID/Liberia country-office staff, according to a program 

progress report. 
 

Page 25 GAO-12-920 Public Financial Management

in Kosovo reported that he works on a daily basis with the 

implementing partners who produce the quarterly and annual reports 

and that they exchange e-mails and phone conversations daily.

See appendix IV for descriptions of USAID PFM-related assistance 

programs from our case study countries.

In addition to USAID’s reported program monitoring weaknesses, we 

found that the agency does not have a process to fully identify and 

measure its use of country systems. USAID has set an agency target of 

obligating 30 percent of the agency’s annual assistance through local 

systems, including both partner country PFM systems and local not-forprofit and for-profit organizations, by fiscal year 2015. 28

USAID’s process to assess the effectiveness of its PFM-related programs 

involves independent evaluations, but weaknesses in the agency’s overall 

evaluation practices have been reported. USAID may use independent 

external evaluations in the middle or at the end of a program based on 

the need to inform program decisions. USAID adopted a new evaluation 

policy in January 2011 and updated its guidance in February 2012 to 

reflect it. The new evaluation policy requires that all large projects have at 

least one evaluation and that evaluations use methods that generate the 

highest-quality and most credible evidence, including experimental 

However, USAID 

currently cannot track progress toward its 30 percent target because its 

accounting system cannot identify the full range of such assistance, which 

includes a variety of implementing mechanisms from host-country 

contracting to direct cash transfers. The project data in USAID’s 

accounting system does not provide sufficiently detailed information, such 

as the location of the organization receiving assistance, to identify 

qualifying assistance. According to a senior USAID official, the agency is 

working on a system whereby it will tag each entity receiving assistance 

with an identifier, such as government or not-for-profit organization, as 

well as a vendor location signifying U.S.-based or non-U.S. based.

According to the official, this tagging process will facilitate identifying use 

of country systems. However, USAID’s financial system currently cannot 

distinguish whether non-U.S. based not-for-profit and for-profit 

organizations are located in the host country or in a third-party country.

 

28According to a senior USAID official, USAID directed 3 percent of its funds through 

country systems in 2007.

USAID Uses Evaluations to 

Assess the Effectiveness of Its 

Programs, but Weaknesses in 

Its Practices Have Been 

Reported 
 

Page 26 GAO-12-920 Public Financial Management

methods.29

• performance evaluations, which focus on descriptive and normative 

questions and other questions pertinent to program design, 

management, and operational decision making; and

The policy also states that 3 percent of program budgets 

should be devoted to external evaluation and classifies two types of 

evaluations:

• impact evaluations, which define a counterfactual (what would have 

happened had the program not been implemented) to control for 

external factors and measure the change in a development outcome 

that is attributable to a defined intervention.

USAID reported that experimental methods generate the strongest 

evidence for impact evaluations; however, experimental methods and 

impact evaluations may be difficult to apply to PFM capacity-building 

efforts.30 For example, USAID evaluations of PFM programs have 

highlighted difficulties associated with conducting impact evaluations, 

including lack of data or resources, and too short a time period to identify 

impact.31 A February 2012 USAID report on the first year of 

implementation of the new evaluation policy noted that USAID had not yet 

completed an evaluation under the new policy.32

 

29In experimental methods research, subjects are randomly assigned to either a treatment 

or control group, data are collected both before and after the intervention, and results from 

the treatment group are benchmarked against results from the control group. 

30The Inter-American Development Bank, an international financial institution composed of 

48 member governments, has reported that techniques for using impact evaluations to 

assess institutional capacity building have not been fully developed. Furthermore, if a 

program targets a ministry, such as the finance ministry, it may be difficult to establish a 

control or comparison group equivalent to the ministry (i.e., a counterfactual). Capacity 

building at the subnational (regional or municipal) level may be more amenable to 

experimental or quasi-experimental methods if program assistance is provided to some 

regions or municipalities but not others.

31Democracy International Inc., Kosovo Effective Municipalities Initiative Mid-Term 

Evaluation, a special report prepared at the request of the U.S. Agency for International 

Development, May 2009; and ARD Inc., Prodecentralization Project External Mid Term 

Review, a special report prepared at the request of the U.S. Agency for International 

Development, September 2010. 

32U.S. Agency for International Development,USAID Evaluation Policy: Year One. First 

Annual Report and Plan for 2012 and 2013, PD-ACS-999 (Washington, D.C.: February 

2012). 
 

Page 27 GAO-12-920 Public Financial Management

USAID adopted the new policy to address a number of weaknesses it had 

identified in its evaluation practices. USAID reported that the number of 

evaluations submitted to USAID’s Development Experience 

Clearinghouse—its main repository for agency evaluations—decreased 

from nearly 500 in 1994 to approximately 170 in 2009 despite an almost 

three-fold increase in program dollars managed. Furthermore, according 

to USAID, the majority of evaluations in recent years relied heavily on 

anecdotal information and expert opinion, rather than systematically 

collected evidence. We have also reported weaknesses in USAID 

evaluation practices in several areas in recent years, including not 

planning for evaluations or not using evaluation results.33

We reviewed external evaluations from our case study countries to 

illustrate how evaluations have been applied to PFM programs and noted 

a number of program accomplishments as well as examples of 

methodological weaknesses.

Furthermore, 

the weaknesses in performance indicators that the USAID IG identified in 

DG and EG programs could create difficulties for evaluating PFM 

programs. For example, weaknesses in baseline data or performance 

indicators would make it difficult to use quantitative measures to evaluate 

these programs.

34 For example, an external team conducted 

a final evaluation of the Governance and Economic Management 

Assistance Program in Liberia in 2010 and found that the program made 

corrupt practices more difficult, improved the accuracy of the budget, and 

exerted central control over governmental processes.35

 

33GAO, Foreign Assistance: The United States Provides Wide-ranging Trade Capacity 

Building Assistance, but Better Reporting and Evaluation Are Needed, 

However, the 

evaluation team was hampered by insufficient time for data collection and 

analysis and a disorganized monitoring and evaluation framework. In 

addition, in Kosovo in 2009, an external team conducted a midterm 

GAO-11-727

(Washington, D.C.: July 29, 2011); Afghanistan Development: Enhancements to 

Performance Management and Evaluation Efforts Could Improve USAID’s Agricultural 

Programs, GAO-10-368 (Washington, D.C.: July 14, 2010); and International Food 

Assistance: USAID Is Taking Actions to Improve Monitoring and Evaluation of 

Nonemergency Food Aid, but Weaknesses in Planning Could Impede Efforts, 

GAO-09-980 (Washington, D.C.: Sept. 28, 2009).

34These evaluations were not subject to USAID’s new evaluation policy, which was issued 

in January 2011. 

35Sibley International LLC, Final Evaluation of USAID GEMAP Activities (Governance and 

Economic Management Assistance Program), a special report prepared at the request of 

the U.S. Agency for International Development, June 2010.
 

Page 28 GAO-12-920 Public Financial Management

evaluation of the Economic Management for Stability and Growth 

program and found that the program improved the government’s 

institutional capacity in fiscal and monetary policy.36 However, the team 

did not document its evaluation methodology.

Treasury’s OTA uses various processes to monitor PFM-related 

programs, including narrative monthly and trip reports, annual quantitative 

performance measures, and customer feedback surveys, but weaknesses 

exist in some of its evaluation processes. The work plan is the key 

document OTA uses to monitor a project. OTA uses monthly reports to 

document and monitor progress toward the milestones identified in the 

annual work plan, including changes to milestones or timelines, and to 

facilitate communication between the resident advisors and headquarters. 

OTA advisors may also share monthly reports with host-country 

counterpart institutions, U.S. embassy staff, other Treasury bureaus and 

offices, and other interested partners such as USAID, the Millennium 

Challenge Corporation, and relevant international financial institutions to 

monitor progress and coordinate donor assistance as relevant. In addition 

to updates on work-plan progress, the monthly reports may also include 

other information such as activities completed; significant meetings held; 

and important political, social, and economic developments. OTA also 

uses monthly reports to track changes made to the work plan agreed to 

by the advisor and his or her counterpart. For example, an OTA budget 

project in Cambodia listed implementation of program budgeting as one 

its primary objectives and improving budget classification as one its 

secondary objectives. In the monthly reports, the resident advisor 

documented the need to refocus the reform efforts on budget 

classification to better align with the Cambodian government’s ongoing 

PFM reform efforts. Further, in the case of OTA’s 2011 Honduras budget 

project to implement international public sector accounting standards, the 

objectives remained unchanged, but milestones were changed in the 

monthly reports. According to the advisor, some milestones had to be 

extended due to overly ambitious initial expectations that were purposely 

established to encourage the ministry staff to undertake reforms. See 

 

36AECOM International Development, Evaluation of the Economic Management for 

Stability and Growth Program, a special report prepared at the request of the U.S. Agency 

for International Development, April 2009. 

Treasury’s Processes

Treasury’s OTA Uses Various 

Processes to Monitor PFMRelated Programs 
 

Page 29 GAO-12-920 Public Financial Management

appendix IV for descriptions of OTA-funded PFM projects in our case 

study countries.

OTA headquarters also maintains regular communication with its 

advisors. Senior OTA officials monitor project performance through 

regular contact with advisors in the field by e-mail, telephone, and site 

visits. One advisor told us that their director would already be aware of 

any issues raised in the monthly reports, given the frequency of their 

communications. Resident advisors also told us that senior Treasury staff 

visited Cambodia and Honduras to review OTA projects and talk with 

counterparts. Following site visits, OTA officials are required to prepare 

trip reports. For example, in a trip report from November 2011, a senior 

OTA official reported that he met with host-country counterparts to 

discuss the four current OTA engagements in Cambodia, including the 

budget project. The visit confirmed the reported difficulties in 

implementing the government financial management information system 

as a result of a procurement delay, but also affirmed OTA’s role in its 

eventual implementation. OTA also uses voluntary customer surveys to 

collect feedback on OTA projects from the host-country counterpart. For 

example, a Honduran government official who completed the voluntary 

customer feedback survey for the budget project indicated that the project 

met expectations and made a significant contribution by strengthening the 

host-country staff’s technical capacity through the training sessions that 

OTA staff offered.

We found that OTA applied its monitoring processes to all three of our 

case study country projects, but monthly reports lacked some details on 

progress. We reviewed OTA’s monitoring activities in three PFM-related 

projects to examine how OTA applied its monitoring process to these 

projects. Our review was not intended to be comprehensive or applicable 

to all OTA projects. We found the projects to be clearly defined with 

specific objectives, milestones, proposed completion dates, and regularly 

submitted monthly reports. In addition, in all three cases, the resident 

advisor reported frequent communication on project progress with

headquarters. However, in two of the case study countries, Cambodia 

and South Africa, work plans had major changes in objectives, but only 

Cambodia documented its change in a monthly report. Additionally, our 

review found that the level of detail of the monthly report narratives on 

progress varied, with a few reports having little detail, which could make 

tracking progress for these specific projects difficult without other 

communication between the advisor and OTA management. However, as 

noted above, OTA headquarters maintained frequent communication with 

advisors in the field.
 

Page 30 GAO-12-920 Public Financial Management

OTA’s quantitative performance measures have been a useful projectlevel indicator of performance but have not been a useful indicator of 

OTA-wide performance because of conceptual problems and errors 

introduced by OTA when aggregating the performance data. OTA 

advisors and management score technical assistance projects annually 

based on project-specific indicators under four main categories.37 The 

projects are scored on a scale of one (lowest) to five (highest) for 

“traction,” or the degree of engagement with host-country counterparts, 

and “impact,” or the results of project activities that bring about change in 

counterpart law, systems, processes, and procedures. OTA officials told 

us that the traction and impact measures also reflect the language and 

values of OTA, and are useful to management, advisors, and hostcountry counterparts. The primary purpose of the quantitative 

performance scores was to respond to an Office of Management and 

Budget reporting requirement for evaluation data. While OTA reported 

that it met or exceeded targets for traction and impact set in 2008, in 

every year from 2009 through 2011, OTA officials acknowledged that the 

aggregate values associated with its annual goals were of limited value 

due to lack of comparability across programs and over time. In previous 

work on the Office of Management and Budget, we highlighted the 

difficulty of representing program performance with a single rating.38

 

37The four main categories for project assessment are (1) international standards, 

processes, and participation; (2) progress toward country goals; (3) building human and 

systems capacity; and (4) whole-of-government and private sector effectiveness.

Using a single rating can force agencies to simplify more nuanced and 

complex performance results, a circumstance similar to OTA’s 

aggregation of traction and impact scores. A senior official told us that

OTA, in complying with the OMB requirement, designed the measures to 

be as useful as possible at the project level. For example, OTA uses the 

project-level traction and impact measures in setting expectations and 

discussing progress with both the host-country counterpart and the 

advisor. In addition, the official reported that OTA is continually looking 

for additional ways to use the traction and impact scores. One example 

of how researchers have used PFM performance data is by developing 

analytical approaches to identify the determinants of strong PFM systems 

38GAO, Performance Budgeting: Observations on the Use of OMB’s Performance 

Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-174 (Washington, 

D.C.: Jan. 30, 2004). 

Treasury OTA’s Performance 

Measures Are Useful ProjectLevel Indicators but Have 

Weaknesses 
 

Page 31 GAO-12-920 Public Financial Management

and elements of successful PFM reform efforts, which can help to control 

for important differences across countries.

39

Our analysis of OTA performance data found several errors that OTA 

introduced when aggregating project-level data; these errors collectively 

raised questions about the reliability of the instrument used to aggregate 

OTA’s quantitative performance measures and, thus, suggested there 

may be limitations in its ability to provide insight into performance across 

OTA projects. OTA uses this instrument to calculate the annual 

performance averages which are compared against annual targets and 

provided to OMB and to Congress in annual reports. Our analysis of the 

spreadsheet containing these data, and limited spot checking of some 

underlying data for our three case-study countries, identified a number of 

errors, including those introduced when transcribing data to the 

spreadsheet. In one instance, OTA listed a performance score under the 

wrong country, which resulted in inaccurate information for two countries’ 

projects.

OTA has not yet fully implemented its requirement to conduct 

independent evaluations—that is, evaluations conducted by someone 

other than the resident advisor—of its completed technical assistance.

OTA guidance for project reporting and documentation includes 

requirements for end-of-tour reports when a resident advisor leaves and 

end-of-project reports when a technical assistance project is completed.

The end-of-project report is a postproject evaluation whose purpose is to 

(1) compare accomplishments with the initial objectives of the project and 

(2) improve the planning and execution of future projects. A senior OTA 

official said that the requirement for the end-of-tour report was fully 

implemented and that OTA intended to fully implement the end-of-project 

report requirement by the end of 2012. According to the guidance, the 

evaluation must be conducted independently; the report is the 

responsibility of the associate director and can be delegated to a senior 

advisor, but it should not be prepared by an advisor who prepared an 

end-of-tour report. Both OECD guidance and USAID guidance also 

 

39See, for example, Paolo de Renzio, Matt Andrews, and Zac Mills, “Does Donor Support 

to Public Financial Management Reform in Developing Countries Work? An Analytical 

Study of Quantitative Cross-Country Evidence.” Overseas Development Institute Working 

Paper # 329, April 2011; or Matt Andrews, “How Far Have Public Financial Management 

Reforms Come in Africa?” Harvard Kennedy School Faculty Working Paper Series, 

RWP10-018, May 2010.

OTA Does Not Fully Evaluate 

Technical Assistance after 

Completion
 

Page 32 GAO-12-920 Public Financial Management

highlight the importance of independence in evaluation. In contrast to the 

guidance, OTA provided three end-of-project reports that were conducted 

by OTA staff who had been involved in providing some of the technical 

assistance being evaluated. While no comprehensive and fully 

independent end-of-project evaluation has been conducted, OTA officials 

described relevant insights from a postproject trip to one country that was 

undertaken by a senior OTA official in part to better understand the 

longer-term impact of OTA assistance. During the trip, that official 

identified some factors that significantly limited the impact of this project, 

notably a lack of counterparty commitment at the policy level to 

implement and sustain reforms in key areas identified in the terms of 

reference. 

As more donors, including the United States, seek to provide additional 

assistance through countries’ systems, the need for strong PFM systems 

and accountability in recipient countries become even more important to 

help lessen corruption and ensure countries effectively manage 

resources. Given USAID’s stated goal of obligating 30 percent of annual 

assistance through local systems, including partner country PFM 

systems, by 2015, it must ensure that those systems are functioning

properly and transparently. Efforts to strengthen PFM systems can lower 

the risks that assistance delivered through country systems will be 

misspent, while also increasing the capacity of the recipient country to 

effectively manage its own resources. Given concerns about 

transparency and corruption in many aid-recipient countries, achieving 

the expected benefits of using recipient countries’ PFM systems may be 

difficult without concerted efforts by the donors and countries to 

strengthen these systems. In addition, the risks to using these systems 

are increased without efforts to strengthen them. To help strengthen 

these systems, USAID provides developing countries with PFM capacitybuilding assistance. In light of this assistance, and given the difficulties

USAID has experienced in the past with implementing monitoring and 

evaluation practices, the importance of developing efforts to strengthen 

PFM systems and effectively monitoring and evaluating these efforts has 

increased significantly. Previous difficulties USAID has experienced with 

regard to monitoring, including poor quality of reported data on projects, 

and the lack of reliable baseline data, could affect USAID’s ability to 

conduct effective evaluations of these projects, as evaluators will not 

have access to reliable data. Also, while USAID’s new evaluation policy 

places greater emphasis on impact evaluations and experimental 

methods, it may be difficult for USAID to evaluate its PFM capacitybuilding efforts using these approaches. Finally, for USAID to achieve its 

Conclusions 
 

Page 33 GAO-12-920 Public Financial Management

target for use of local systems, by fiscal year 2015, it must be able to 

identify and measure the full extent of assistance that qualifies.

Treasury OTA advisors provide technical assistance targeted at 

weaknesses in countries’ PFM systems. Although OTA has taken 

numerous steps to monitor this assistance, errors in its aggregated 

performance data and the lack of comprehensive postproject evaluations 

limit OTA’s ability to effectively evaluate its assistance. OTA has adapted 

a challenging mandate from OMB to create a useful measure of its efforts’ 

performance for management, advisors, and host-country counterparts; 

however, conceptual problems with and errors in the aggregated 

measures undermine the measures’ reliability. With greater confidence in 

the quality of the data, opportunities exist to better identify patterns in 

performance across OTA programs, such as economic or institutional 

factors that influence program performance. These patterns could help 

OTA better understand the strengths and weaknesses of its assistance 

programs and make appropriate changes. OTA could also use the 

quantitative performance measurement system it has developed to 

experiment and document the results of new approaches. Finally, 

although OTA guidance recognizes the importance of postproject 

evaluations by including in its guidance the requirements for an end-ofproject evaluation, the agency has yet to enforce this requirement.

Without a postproject evaluation OTA may not fully understand results of 

its technical assistance or be able to apply lessons learned to new 

projects.

To monitor progress toward USAID’s target to obligate 30 percent of its 

annual assistance through local systems by 2015, we recommend that 

the Administrator of USAID direct the appropriate offices to develop a 

process to reliably identify and track the agency’s use of local systems in 

all countries receiving assistance.

To help ensure that USAID conducts effective evaluations of PFM-related 

programs under its new policy, we recommend that the Administrator of 

USAID direct the appropriate offices to ensure that they are establishing 

adequate monitoring practices for PFM-related programs. Such practices 

may include selecting proper indicators, collecting reliable baseline data, 

and ensuring the reliability of reported results.

To improve the effectiveness of OTA’s technical assistance, we 

recommend that the Secretary of the Treasury direct OTA to take the 

following two actions to improve monitoring and evaluation:

Recommendations for 

Executive Action
 

Page 34 GAO-12-920 Public Financial Management

• implement additional controls to improve the process for computing 

OTA-wide annual performance measures, and

• fully implement OTA’s existing requirement for end-of-project 

evaluations and, consistent with its existing guidance, have an 

independent party conduct the evaluations.

We provided a draft of this report to USAID, Treasury, and State for their 

review and comment. Both USAID and Treasury concurred with our 

recommendations in their written comments, which are reproduced in 

appendix V and appendix VI respectively. These agencies along with 

State provided technical comments and updated information, which we 

have incorporated throughout this report, as appropriate. 

In concurring with our two recommendations, USAID reported that it is in 

the process of refining definitions that will identify and help measure the 

assistance that qualifies to meet the agency’s target of obligating 30 

percent of its annual assistance through local systems by 2015. USAID 

also reported that it has implemented two complementary reforms that will 

help ensure effective evaluations and adequate monitoring of its PFM 

assistance. The first reform involves USAID planning for the monitoring 

and evaluation of assistance during the early stages of project design, 

including defining indicators and collecting baseline data. The second 

reform requires USAID to plan final monitoring and evaluation schedules 

during project design. 

In concurring with our two recommendations, Treasury reported that OTA 

has corrected several errors in the 2011 annual performance measures, 

and has taken steps to strengthen data controls, including conducting 

additional reviews and increasing staff resources dedicated to computing 

the performance measures. In addition, OTA has begun to implement its 

requirement for independent end-of-project evaluations of its technical 

assistance and intends to fully implement the requirement by the end of 

2012. 

We are sending copies of this report to appropriate congressional 

committees. We are also sending copies of this report to the 

Administrator of USAID and the Secretaries of the Treasury and State. In 

addition, this report is available at no charge on the GAO Web site at 

http://www.gao.gov.

Agency Comments 

and Our Evaluation
 

Page 35 GAO-12-920 Public Financial Management

If you or your staff have any questions about this report, please contact 

me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this reported 

are listed in appendix VII. 

Sincerely yours,

Thomas Melito

Director, International Affairs and Trade 
Appendix I: Scope and Methodology

Page 36 GAO-12-920 Public Financial Management

To examine the process the U.S. Agency for International Development 

(USAID) uses to develop programs to strengthen public financial 

management (PFM) systems, we reviewed USAID’s official policy and 

procedures, as contained in the Automated Directives System, as well as 

USAID’s new guidance documents for developing country strategies and 

designing projects, including the Country Development Cooperation 

Strategy and Project Design Guidance. We also interviewed USAID 

officials, including officials from the democracy and governance (DG) and 

economic growth (EG) offices. Most USAID country offices are required to 

have an approved country strategy by the end of fiscal year 2013 and to 

follow the new project design guidance starting July 2012. Because 

USAID was still in the process of transitioning to these new processes 

during the course of our audit, we did not review USAID’s implementation 

of these processes.

To examine the process the U.S. Department of Treasury’s Office of 

Technical Assistance (OTA) uses to develop programs to strengthen PFM 

systems, we interviewed senior OTA officials regarding OTA’s policies 

and procedures. We interviewed resident advisors regarding how OTA 

assessed and developed projects in our three OTA case study countries. 

We also reviewed OTA’s official policy guidance document and projectspecific documents, including assessment reports, signed terms of 

reference, work plans, and monthly reports.

To examine and assess the processes USAID uses to monitor and 

evaluate its PFM-related programs, we reviewed USAID program 

development guidance; monitoring and evaluation policies and 

procedures; USAID reports; and program documents, including 

assistance agreements, monitoring and evaluation plans, and progress 

reports; USAID external project evaluations; past GAO reports; and 

USAID Inspector General reports. We used the review of the documents 

for our three USAID country case studies to illustrate the implementation 

of USAID’s monitoring processes for its PFM-related programs. We also 

interviewed agency officials in Washington, D.C., and conducted 

telephone interviews and had e-mail communications with key countryoffice staff for each of our case study countries.

To examine and assess OTA’s processes for monitoring and evaluating 

PFM-related programs, we reviewed OTA project reporting and 

documentation instructions, project work plans, and monthly reports, endof-tour and end-of-project reports, annual quantitative performance data, 

Organization for Economic Cooperation and Development guidance on 

evaluation, and conducted interviews with OTA headquarters staff. We 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 37 GAO-12-920 Public Financial Management

used the review of the documents for our three OTA case studies to 

illustrate the implementation of OTA’s monitoring processes. We 

supplemented the document review with interviews with current or former 

advisors for each of the case study countries. In addition, we assessed 

the reliability of the instrument OTA uses to aggregate quantitative 

performance measures across projects. We examined spreadsheets 

provided by OTA for consistency, examined data for outliers and missing 

values, and spot-checked the transcription of data to the spreadsheet for 

our case study countries. Due to a number of errors in the OTA data, we 

could not determine if the aggregated performance data were sufficiently 

reliable for identifying patterns in performance across projects or over 

time.

In selecting our case study countries, we focused on countries in which 

OTA or USAID had relevant ongoing or recently completed projects 

designed to strengthen PFM systems. We selected six countries: 

Cambodia, Honduras, and South Africa for OTA, and Kosovo, Liberia, 

and Peru for USAID. In selecting these countries, we considered the 

following two factors:

• Geographic diversity: For each agency, we selected countries from 

three different geographical regions.

• Country income group diversity: For each agency, we chose a country 

that the World Bank has listed as (1) lower income, (2) lower-middle 

income, and (3) upper-middle income in order to report examples from 

different income levels, which may also be associated with different 

institutional characteristics.

In cases where more than one country would be acceptable under our 

decision criteria, we considered additional criteria, such as the availability 

of other broad-based indicators. For OTA, we focused our selection on 

countries receiving technical assistance from OTA’s Budget and Financial 

Accountability team, given its focus on traditional PFM aspects. For 

USAID, we selected our countries from a list of countries with significant 

PFM-related programs that USAID provided. USAID excluded some 

countries with PFM-related programs from the list because staff were not 

available to discuss their programs with us. Our review of USAID and 

OTA case study countries was not intended to be comprehensive or 

applicable to all their respective programs and projects or generalizable to 

all countries.
Appendix I: Scope and Methodology

Page 38 GAO-12-920 Public Financial Management

To describe recent trends in country PFM systems, we reviewed the data 

and publications of five international organizations that conduct broad 

assessments of country PFM systems. These broad assessment tools 

include the Public Expenditure and Financial Accountability Program, the 

World Bank’s Country Policy and Institutional Assessment’s quality of 

budgetary and financial management indicator, International Budget 

Partnership’s Open Budget Survey, Transparency International’s 

Corruption Perceptions Index, and the International Monetary Fund’s 

fiscal transparency Reports on the Observance of Standards and Codes. 

We converted our six case study country scores for the three PFM 

diagnostic tools for which scores were available (Open Budget Survey, 

Corruption Perceptions Index, and quality of budget indicator) into 

percentile rankings to illustrate each country’s performance as measured 

by the three PFM diagnostic tools. We also interviewed officials at the 

World Bank and International Monetary Fund to discuss their PFM-related 

diagnostic tools.

To describe the Department of State’s PFM-related efforts, we conducted 

interviews with agency officials in Washington, D.C. We reviewed State 

documents, including agency guidance, waiver packages, and program 

documents. We also reviewed relevant appropriations laws to identify the 

requirements for State’s fiscal transparency reviews.

We conducted this performance audit from October 2011 through 

September 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 39 GAO-12-920 Public Financial Management

Five international organizations — the Public Expenditure and Financial 

Accountability Program, the World Bank, International Budget 

Partnership, Transparency International, and the International Monetary 

fund — have developed tools to assess various aspects of countries’ 

public financial management (PFM) systems, and some have published 

recent findings or results. We illustrate the percentile ranking for each of 

our case study countries in three broad PFM diagnostic tools – the Open 

Budget Survey, the Corruption Perceptions Index, and the World Bank’s 

quality of budgetary and financial management indicator.

In December 2001, a multiagency partnership founded the Public 

Expenditure and Financial Accountability Program (PEFA) to strengthen 

the ability of aid recipients and donors to assess and improve country 

public expenditure, procurement, and financial accountability systems. 1

• Credibility of the budget: The budget is realistic and is implemented 

as intended.

In 2005, the program developed the PFM Performance Measurement 

Framework, known as the PEFA Framework, to provide a measure of the 

strengths and weaknesses of a country’s PFM system. The PEFA 

Framework incorporates a PFM performance report, which includes an 

assessment of the evaluated country’s PFM performance along six core 

dimensions of PFM. The six dimensions are the following:

• Comprehensiveness and transparency: The budget and the fiscal 

risk oversight are comprehensive, and fiscal and budget information is 

accessible to the public.

• Policy-based budgeting: The budget is prepared with due regard to 

government policy.

• Predictability and control in budget execution: The budget is 

implemented in an orderly and predictable manner, and arrangements 

for the exercise of control and stewardship in the use of public funds 

exist.

• Accounting, recording, and reporting: Adequate records and 

information are produced, maintained, and disseminated to meet 

decision-making control, management, and reporting purposes.

 

1 The partnership included the World Bank, the European Commission, the United 

Kingdom’s Department for International Development, the Swiss State Secretariat for 

Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of 

Foreign Affairs, and the International Monetary Fund. 

Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Public Expenditure and 

Financial Accountability 

Program’s PFM 

Performance Measurement 

Framework
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 40 GAO-12-920 Public Financial Management

• External scrutiny and audit: Arrangements for scrutiny of public 

finances and follow up by executive are operating.

The six core dimensions include 28 high-level indicators, each of which is 

assigned a letter score from A to D. The initial assessment helps 

establish performance baselines, while repeat assessments help in 

monitoring performance progress over time.

In 2011, the PEFA secretariat released the 2010 PEFA Monitoring 

Report. Based on a comparison of 33 repeat PEFA assessments over the 

2005-2010 period, the analysis shows that more countries had a higher 

number of highest or improved scores (23 countries) than lowest or 

worsened scores (8 countries), indicating a broad trend of PFM 

improvement across the countries surveyed.2

Starting July 2012, the PEFA partners are extending the PEFA program 

by 5 years and conducting a comprehensive review of the PEFA 

Framework, the first since it was launched in 2005. One of the objectives 

is to improve confidence in PEFA assessments through an endorsement 

process that provides an incentive to ensure adherence to PEFA good 

practices in undertaking an assessment.

According to the analysis, 

while PFM systems are improving overall, systems features vary 

significantly. Formal PFM features where progress can be achieved 

through adopting a new law, regulation, or technical tool, or focusing on 

no more than a few agencies, or at an early stage in the budget cycle are 

more likely to improve or maintain a high score than functional PFM 

features where progress requires actually implementing a new law or 

regulation, or coordinating the work of many agencies, or working later in 

the budget cycle.

 

2 Highest or improved scores are combined because it is not possible to improve on an A 

score; lowest or worsened scores are combined because it is not possible to be worse 

than a D score. Five of the eight countries were small island states with challenges not 

typical of the larger sample, including high vulnerability to external shocks such as 

hurricanes and volatile tourism earnings, severe capacity constraints with high emigration 

of skilled human resources, and political instability. The other three were small African 

states with many of the same challenges.
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 41 GAO-12-920 Public Financial Management

The World Bank undertakes annual Country Policy and Institutional 

Assessments to assess the quality of a country’s present policy and 

institutional framework. One of the 16 indicators the World Bank uses to 

assess the performance of a country’s current policies and institutions is 

the quality of budgetary and financial management. This criterion 

assesses the extent to which the country has a comprehensive and 

credible budget linked to policy priorities; effective financial management 

systems to ensure that the budget is implemented as intended in a 

controlled and predictable way; and timely and accurate accounting and 

fiscal reporting. Over the 5-year period from 2005 through 2010, 26 out of 

73 countries, or slightly more than one-third, showed improvements in the 

quality of their PFM systems, while 19 countries’ scores worsened.3 Most

countries, 62 percent in 2010, are clustered in the mid-range.4

In addition to the quality of budgetary and financial management 

indicator, the World Bank uses other broad PFM diagnostic tools, 

including the Country Financial Accountability Assessments and the 

Public Expenditure Reviews. The objective of the Country Financial 

Accountability Assessments is to support the World Bank’s development 

objectives by identifying strengths and weaknesses in country PFM 

systems. The assessments are intended to help identify priorities and 

inform the design and implementation of capacity-building programs. The 

assessments also describe and analyze financial management and 

expenditure controls, including expenditure monitoring, accounting and 

financial reporting, internal controls, internal and external auditing, and 

legislative review. Information obtained from the assessments, taken 

together with that obtained from other World Bank diagnostic products 

and other sources, supports the preparation of an integrated fiduciary

assessment. The results of these assessments inform the preparation of 

the World Bank’s Country Assistance Strategy, particularly the sections 

dealing with the size of the support program, the sectors to be supported, 

selection of lending instruments, and approaches to risk management. 

The assessments are particularly important where World Bank resources 

 

3 The World Bank does not publish the indicator scores of countries that are not eligible 

for funding from the World Bank’s International Development Association, which provides 

interest-free loans and grants to governments of the poorest countries. An average of 76 

countries received a rating for this indicator from 2005 through 2010.

4 The World Bank rates each country on a scale of 1 (low) to 6 (high) in half-point 

increments (0.5). A score of 1 corresponds to a very weak performance; a score of 6, to a 

very strong performance. Mid-range includes scores of 3 and 3.5. 

World Bank’s Quality of 

Budgetary and Financial 

Management Indicator
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 42 GAO-12-920 Public Financial Management

are managed by the country’s own PFM system, as in the case of budget 

support.

The Public Expenditure Review’s objectives are to strengthen budget 

analysis and processes to achieve a better focus on growth and poverty 

reduction, and to assess public expenditure policies and programs to 

provide governments with an external review of their policies. Public 

Expenditure Reviews may also address the incentives and institutions 

needed to improve the efficacy of public spending in major sectors such 

as health and education.

The International Budget Partnership’s Open Budget Survey assesses 

the availability in each country of eight key budget documents, as well as 

the comprehensiveness of the data contained in these documents.5

In its 2010 survey of budget transparency in 94 countries, Open Budget 

concluded that the state of budget transparency is poor. Only a minority 

of countries, 20 out of the 94, or 21 percent, can be considered to have 

open budgets, while a larger number of countries, 41, or 44 percent, 

provide minimal to scant budget information. The following figure includes 

the 2010 Open Budget scores for 5 of our 6 case study countries.

The 

survey also examines the extent of effective oversight provided by 

legislatures and supreme audit institutions, as well as the opportunities 

available to the public to participate in national budget decision-making 

processes.

6

 

5 The Open Budget Index is an external view of transparency, not of a country’s systems 

and processes.

(See 

fig. 4.)

6 The 2010 Open Budget Survey did not include Kosovo.

International Budget 

Partnership’s Open Budget 

Survey
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 43 GAO-12-920 Public Financial Management

Figure 4: Open Budget 2010 Index Scores

Note. The Open Budget Index assigns countries covered by the survey a transparency score on a 

100-point scale. Scores assigned to questions in the Open Budget Survey are used to determine an

overall transparency score for each country surveyed. These scores are then compiled to create the 

Open Budget Index, providing a ranking of each country’s relative level of transparency.

Nonetheless, the survey finds the trend toward open budgets is favorable 

based on substantial improvements in budget transparency, especially 

among countries that provided little information in the past. Some of these 

governments, especially those that scored very low in earlier rounds of 

the Open Budget Index, largely achieved these improvements by taking 

one basic and inexpensive step: They began to make available on their 

web-sites the budget documents that they previously produced but had 

made available only to internal government audiences or to donors. 

According to the Open Budget Survey, countries performing poorly on the 

Open Budget Index tend to share certain characteristics, such as low 

levels of income, low levels of democracy, and geographical location in 

Africa and the Middle East.
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 44 GAO-12-920 Public Financial Management

Transparency International’s Corruption Perceptions Index ranks 

countries according to the perception of corruption in the public sector.7

Transparency International’s Corruption Perceptions Index shows that 

nearly three-quarters of the 178 countries in the index score below 5, on a 

scale from 10 (very clean) to 0 (highly corrupt). These results, shown in 

figure 5, indicate a serious corruption problem, according to Transparency 

International. Figure 5 includes the scores of our six case study countries.

The Corruption Perceptions Index is an aggregate indicator that combines 

different sources of information about corruption, making it possible to 

compare countries. Broadly speaking, the surveys and assessments used 

to compile the index include questions relating to bribery of public 

officials, kickbacks in public procurement, embezzlement of public funds, 

and questions that probe the strength and effectiveness of public sector 

anticorruption efforts.

 

7

Transparency International defines corruption as the abuse of entrusted power for private 

gain; its definition encompasses corrupt practices in both the public and private sectors.

Transparency 

International’s Corruption 

Perceptions Index
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 45 GAO-12-920 Public Financial Management

Figure 5: Transparency International 2010 Corruption Perceptions Scores

According to Transparency International, the Corruption Perceptions 

Index is not suitable for trend analysis or for monitoring changes in the 

perceived levels of corruption over time for all countries as year-to-year 

changes in a country’s or territory’s score can result from a change in the 

perceptions of performance, a change in the ranking provided by original 

sources, or changes in the methodology resulting from Transparency 

International’s efforts to improve the index. However, using specific 

criteria, Transparency International determined that nine countries 
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 46 GAO-12-920 Public Financial Management

showed an improvement, and seven countries showed deterioration from 

2009 to 2010.8

The International Monetary Fund (IMF) developed a Code of Good 

Practices on Fiscal Transparency (the Code) in 1998 to help ensure that 

governments are providing a clear picture of the structure and finances of

government. The Code, updated in 2007, focuses particularly on 

transparency and accountability, and is based on four principles: clarity of 

roles and responsibilities, open budget processes, public availability of 

information, and assurances of integrity. IMF’s fiscal transparency 

Reports on the Observance of Standards and Codes is a voluntary fiscal 

transparency assessment program intended to assess member countries’ 

observance of the good fiscal transparency practices in the Code and 

recent achievements in fiscal transparency; identify and prioritize reforms 

necessary to enhance the openness of accountability of public 

institutions; and in resource-rich countries, assess and advise on revenue 

transparency issues.

Figure 6 illustrates the percentile ranking for each of our six case study 

countries in three broad PFM diagnostic tools: the Open Budget Survey, 

the Corruption Perceptions Index, and the World Bank’s quality of 

budgetary and financial management indicator. Percentiles measure 

position from the bottom, so the percentile rank indicates the percent of 

cases falling at or below that score. A higher percentile represents a 

better relative standing. For example, Kosovo’s ranking on the Corruption 

Perceptions Index is at the 36th percentile, meaning that Kosovo’s 

standing is as high or higher than 36 percent of the other 178 countries in 

the index.

 

8

Countries showing improvement include Bhutan, Chile, Ecuador, former Yugoslav 

Republic of Macedonia, Gambia, Haiti, Jamaica, Kuwait, and Qatar. Countries showing 

deterioration include the Czech Republic, Greece, Hungary, Italy, Madagascar, Niger, and 

the United States.

International Monetary 

Fund’s Fiscal 

Transparency Reports on 

the Observance of 

Standards and Codes

Case Study Country 

Performance Based on 

PFM Diagnostic Tools
Appendix II: Several International 

Organizations Reported Results of Their Public 

Financial Management Diagnostic Tools

Page 47 GAO-12-920 Public Financial Management

Figure 6. Case Study Country Percentile Rankings on PFM Diagnostic Tools

Note: Kosovo was not in the 2010 Open Budget Survey. World Bank budgetary and financial 

management indicator scores are not available for Peru and South Africa because the World Bank 

does not disclose Country Policy and Institutional Assessment scores for countries that are not

eligible for funding from the World Bank’s International Development Association, which provides 

interest-free loans and grants to governments of the poorest countries.
Appendix III: State Department Conducts 

Fiscal Transparency Reviews and Administers 

the Domestic Finance for Development

Initiative

Page 48 GAO-12-920 Public Financial Management

The State Department (State) does not directly fund public financial 

management (PFM) programs, but its Office of Monetary Affairs (OMA) is 

responsible for two PFM-related activities. First, since 2008, U.S. 

appropriations laws have required State to evaluate the fiscal 

transparency of foreign governments receiving U.S. assistance.1

Second, State supports the presidential initiative called Domestic Finance 

for Development (DF4D), which President Obama announced in 2011. 

Under this initiative, State is to help countries use their own resources 

and leverage other donor resources to meet development goals. State is 

piloting this initiative in five countries: El Salvador, Honduras, Kyrgyzstan, 

Tunisia, and Zambia. The goal of DF4D is to strengthen the commitment 

to reform within partner countries; provide technical assistance in partner 

countries, such as taxation expertise, including through innovative publicprivate partnerships; and elevate the importance and interrelation of 

domestic resource mobilization, fiscal transparency, and anticorruption 

efforts in public finance as key components for sustainable economic 

development. Because State has not funded programs in the past for this 

initiative, State has reached out to other organizations operating in these 

countries, including international and bilateral organizations, to leverage 

their programs and resources.

When 

State determines it is important to the United States’ national interest, it 

may approve waivers for countries that are deemed to be nontransparent 

that allow U.S. agencies to provide assistance to these countries in 

accordance with the legal prohibition against providing such assistance 

without waivers. State processed 28 such waivers in 2011.

State has developed processes for carrying out its PFM-related activities 

required by legislative mandate and presidential initiative. Under the 

Fiscal Transparency Review Process (FTRP), OMA reviews central 

governments expected to receive bilateral economic assistance and 

international security assistance for several dimensions of transparency:

publicly disclosed budget, budget breakdown by ministry, standards for 

 

1 Since 2008, the annual Department of State, Foreign Operations, and Related Programs 

Appropriations Acts have prohibited certain U.S. foreign assistance to the central 

government of any country that fails to make its national budget publicly available on an 

annual basis. The law permits the Secretary of State to waive this restriction on individual 

countries by reporting to Congress that a waiver is important to the national interest of the 

United States. See Pub. L. No. 110-161.

Appendix III: State Department Conducts Fiscal 

Transparency Reviews and Administers the 

Domestic Finance for Development Initiative 

State Department 

Conducts Two Public 

Financial ManagementRelated Activities

State Processes for PFM 

Activities Derive from 

Legal Requirements and 

Presidential Initiatives
Appendix III: State Department Conducts 

Fiscal Transparency Reviews and Administers 

the Domestic Finance for Development 

Initiative

Page 49 GAO-12-920 Public Financial Management

awarding natural resource contracts, and timely and accurate 

documents.2 Each year, OMA reviews all countries it deemed 

nontransparent in the prior year, and countries where recent events may 

have affected fiscal transparency to evaluate whether they meet the 

threshold of fiscal transparency. State uses the IMF’s definition of fiscal 

transparency as a guideline for the FTRP.3

 

2 Countries that are not transparent with their budgets are ineligible to receive certain U.S. 

assistance, without a State issued waiver, in accordance with Pub. L. No. 112-74, § 

7031(b).

During this process, OMA 

officials said they obtain information about the level of transparency of 

each country by collecting information from U.S. embassy staff working in 

those countries. In addition, OMA staff review publicly available reports 

published by international organizations and civil society representatives, 

such as the World Bank, International Monetary Fund, International 

Budget Partnership, and the World Economic Forum. Because these 

organizations do not always prepare country reports on an annual basis, 

officials told us they use these reports as a check on their internally 

generated information, rather than relying on them as primary sources of 

information. For countries that State finds to be nontransparent, State can 

issue a waiver that allows the country to receive otherwise restricted 

assistance. As part of the process of requesting a waiver, embassy staff 

in country develop action plans to assist the country in improving the level 

of transparency in its budget process. The action plan should address 

specific fiscal transparency issues identified in the transparency review 

process and should include recommendations of short- and long-term 

steps that the countries can take to improve budget transparency.

Embassies work with host governments to encourage implementation of 

action plans, which may include activities such as continued daily 

engagement with country officials working on budget reforms, providing 

training and coordinating training on issues related to the budget process, 

and funding local nongovernmental organizations to perform budget 

oversight functions.

3 The IMF defines fiscal transparency as “openness toward the public at large about 

government structure and functions, fiscal policy intentions, public sector accounts, and 

projections. It involves ready access to reliable, comprehensive, timely, understandable, 

and internationally comparable information on government activities so that the electorate 

and financial markets can accurately assess the government’s financial position and the 

true costs and benefits of government activities, including their present and future 

economic and social implications.” 
Appendix III: State Department Conducts 

Fiscal Transparency Reviews and Administers 

the Domestic Finance for Development 

Initiative

Page 50 GAO-12-920 Public Financial Management

For OMA’s DF4D initiative, State officials, working with other agencies 

and organizations, helped develop programs based on needs expressed 

by country government officials that built on existing reform efforts and 

development priorities. As an interagency effort, OMA helps identify and 

leverage existing programs and resources, such as those of multilateral 

organizations and other donors, such as USAID’s Innovation Fund and 

the Global Health Initiative. For example, USAID is implementing a $7.6 

million program to advance El Salvador’s fiscal reform agenda by building 

capacity and improving systems for public expenditure and management 

and tax revenue mobilization, promoting private sector engagement, and 

creating a $2 million Revenue Challenge Fund to support improved tax 

collection at the municipal level. With five countries piloting DF4D, State 

plans to proceed by selecting additional partner countries based on 

performance against quantitative DF4D-related measures, consultations 

with posts, and expressions of interest from ministers of finance and other 

economic leaders. Moreover, State plans to use action plans developed 

for FTRP for countries to be considered for DF4D. State encourages 

posts to report on PFM issues and opportunities to mobilize domestic 

resources, raise the issues with relevant stakeholders in the public and 

private sectors, and work with OMA staff to further the objectives of the 

DF4D initiative.

State is beginning to conduct additional monitoring as part of its fiscal 

transparency evaluations. Starting in 2012, State is requiring benchmarks 

in its action plans for nontransparent countries so that it can compare 

progress annually. According to State officials, some country action plans 

had benchmarks but the quality of the benchmarks varied. The action 

plan attempts to capture all the steps necessary to improve a country’s 

fiscal transparency and includes more than just State actions. Lastly, 

appropriations law for 2012 requires State to evaluate whether or not the 

country has made progress toward improved fiscal transparency included 

in any waiver request submitted.4

 

4 Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, § 7031(b).

State guidance reports that progress 

toward implementation of embassy action plans will factor into its decision 

of whether to renew waivers.

State Is Taking Steps to 

Monitor Progress of 

Nontransparent Aid 

Recipients 
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 51 GAO-12-920 Public Financial Management

To provide illustrative examples of U.S. projects to strengthen public 

financial management (PFM) systems, we chose six case study 

countries. For the U.S. Agency for International Development (USAID), 

we selected projects in Kosovo, Liberia, and Peru and for the U.S. 

Department of the Treasury (Treasury), we selected projects in 

Cambodia, Honduras, and South Africa. We used the following criteria to 

select the three countries for each agency:

• The agency has relevant ongoing or recently completed projects 

focused on strengthening PFM systems.

• The countries represent different geographic regions.

• The countries have different income levels, which may be associated 

with different levels of government capabilities. For each U.S. agency, 

we selected a country that the World Bank has classified as lower 

income (Cambodia and Liberia), lower-middle income (Honduras and

Kosovo), and upper-middle income (Peru and South Africa).

For one PFM-related project in each country we summarized the project’s 

background, and, for selected objectives, we summarized some of 

USAID’s expected results and some of Treasury’s activities. These 

examples are meant to be illustrative and not generalizable.

Tables 3 through 5 summarize selected USAID PFM-related projects in 

Kosovo, Liberia, and Peru.

Kosovo Growth and Fiscal Stability Initiative

Time period: July 2010-July 2013

Award amount: $1,051,208

Description: Since 1999, USAID’s Kosovo economic policy and 

institutional strengthening programs have focused on establishing key 

central economic institutions and an enabling environment for private 

sector growth. USAID is to adjust the focus of technical assistance as the 

Growth and Fiscal Stability Initiative builds upon the experience and 

lessons learned from the creation of reliable financial institutions in the 

central government to address the fiscal stewardship challenges faced by 

subnational governments. The initiative is to work with municipalities in 

areas that are directly linked with the Ministry of Finance and Economy, 

such as budget, treasury, property tax, and public private partnerships.

Appendix IV: Examples of Public Financial 

Management-related Projects in Six 

Countries 

Selected USAID PFM–

Related Projects
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 52 GAO-12-920 Public Financial Management

Table 3: USAID’s Kosovo Growth and Fiscal Stability Initiative: Selected Objectives and Expected Results

Objective: Build professionalism and expertise in sound PFM to enable municipal institutions to autonomously and 

efficiently stimulate local economic development while providing a high standard of public services

Expected results

• Identify PFM strengths and weaknesses and develop a PFM reform action plan

• Share best practices and lessons learned with other municipalities through outreach and training

• New municipalities use the main Kosovo financial management systems daily

Objective: Strengthen the Office of the Auditor General’s ability to effectively review and assess municipalities’ fiscal 

operations in a more timely manner

Expected results

• Office has adequate budget resources to enable annual audits of all municipalities

• International audit firms perform some municipal audits and train Auditor General staff

• Municipalities address audit findings and improve fiscal operations

Objective: Assist the Ministry of Finance and Economy to (1) develop and implement a plan to enable data sharing among 

information systems; (2) assess priority capacity-building needs in budget and treasury functions; and (3) ensure that the 

property tax department and supporting systems can meet municipalities’ need to generate revenue

Expected results

• Install a single, shared physical network with all ministry organizations linked to it

• Ministry budget and treasury departments function effectively and transparently without external assistance

• Municipalities administer property tax as a source of revenue

Source: USAID Growth and Fiscal Stability Initiative Assistance Agreement.

Liberia: Governance and Economic Management Support Program 

(GEMS)

Time period: July 2011-June 2016

Contract amount: $44,902,679

Description: USAID-GEMS is to address significant governance 

challenges remaining after USAID completed its previous capacitybuilding program in 2010. The program is to strengthen human and 

institutional capacity within selected ministries, agencies, and 

commissions. USAID-GEMS is to develop and maintain systems that 

increase transparency and accountability, increase efficiency, reduce 

expenditures, increase revenue, and limit corruption.
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 53 GAO-12-920 Public Financial Management

Table 4: USAID’s Liberia GEMS: Selected Objectives, Subobjectives, and Expected Results

Objective: Broadened capacity building for ministries and agencies

Subobjective: Management systems of targeted government institutions meet international good practices and standards 

Expected results

• Improve management systems at selected state-owned enterprises

• Participating ministries and agencies conform with international good practice standards

• Targeted ministries and agencies ready to manage U.S. government and other donor funds

Objective: Provide financial management and information technology training

Subobjective: Liberia Institute of Public Administration provides sustainable, quality training, and advisory services to its 

clients in financial management and information technology

Expected results

• Design, deliver, and monitor training that responds to the clients’ needs

• Provide training and testing for selected international certifications in programs such as computer technician

Objective: Effective concessions monitoring and management

Subobjective: Government of Liberia manages mining, agriculture and forestry concessions effectively

Expected results

• Establish transparent legal and regulatory framework

• Use information and communications technology-based systems for management and oversight 

Objective: Assistance to the Central Bank of Liberia

Subobjective: National payment system meets West African Monetary Zone requirements

Expected results

• Implement payment and accounting systems effectively

• Complete transition to direct deposit payments

Source: USAID Governance and Economic Management Support Program Assistance Agreement and first-year work plan.

Peru: USAID ProDecentralization 2

Time period: August 2008-July 2012

Award amount: $10,644,432

Description: The USAID/Peru ProDecentralization project is in the 

second phase. The first phase targeted national, regional, and municipal 

institutions responsible for implementing the decentralization process. 

The second phase seeks to continue to improve the policy framework at 

the national level and strengthen the institutional capabilities of regional 

and municipal governments. The national project aims to improve the 

legal and policy framework for decentralization, including fiscal policies 

that support a more equitable distribution of public resources. Regional 

and local-level activities are to target technical assistance and training to 

the diverse needs of Peru’s regional and municipal governments in 
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 54 GAO-12-920 Public Financial Management

effectively administering resources and responding to citizens’ increasing 

expectations. Under this project, existing services offered to subnational 

governments in planning, budgeting, accountability, and institutional 

strengthening are supplemented by new training and technical assistance 

programs.

Table 5: USAID’s Peru ProDecentralization 2: Selected Objectives and Expected Results

Objective: Improved legal and policy framework

Expected results

• Assess legal and policy framework

• Design a legal and policy framework tool for progress that identifies legislation and policies necessary to further the 

decentralization process

• Provide technical assistance on critical legal and policy issues

• Produce an annual report on the status of decentralization

Objective: Strengthened local government capacity to effectively govern

Expected results

• Reinforce and reward good governance practices

• Improve implementation of national administrative systems

• Improve efficiency of subnational governments

• Innovate strategies to collect taxes at municipal level 

Objective: Strengthened good governance in context of regional and local elections

Expected results

• Discuss at least two priority subjects of the legal and policy framework for decentralization at public hearings

• Provide all municipalities in the project with clear and updated guidance on the transfer of managerial competencies 

Source: USAID ProDecentralization 2 Performance Management Plan and second-year work plan.

Tables 6 through 8 summarize selected Treasury Office of Technology 

Assessment (OTA) PFM-related projects in Cambodia, Honduras, and 

South Africa.

Cambodia: Technical Advisory Services on Budgeting

Time period: October 2009–September 2010

Description: The Cambodian government has been implementing a plan 

to create a credible budget and improve accountability. In the current 

phase of the plan, OTA and Cambodian government actions are focused 

on decentralizing the reform effort to the line ministries and subnational 

levels. These actions include expanding the use of strategic and program 

Selected Treasury PFM–

Related Projects
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 55 GAO-12-920 Public Financial Management

budgeting, implementing a PFM information system, improving 

macroeconomic forecasting, enhancing the linkage between the capital 

and operating budgets, and improving overall financial accountability. The 

overall aim is to improve the ability of the budget to be an instrument for 

policy delivery and to support effective and efficient service delivery.

Table 6: Treasury’s Technical Advisory Services to Cambodia on Budgeting: Selected Objectives and Activities

Objective: Improve and expand program budgeting 

Action plan activities

• Review and improve the implementation of program budgeting, including integrating poverty reduction into the Budget Strategy 

Plan and Program Budget guidelines

• Develop strategy to expand program budgeting

• Continue capacity development through the further training on program budgeting

Objective: Further improve budget comprehensiveness 

Action plan activity

• Further incorporate off-budget expenditures and revenues into the annual budget, including increasing information on donor funds

Objective: Improve budget integration 

Action plan activities

• Develop a policy on the integration of the budget. Continue to improve integration of the recurrent and capital budgets through 

ongoing initiatives such as the Medium Term Expenditure Framework, Budget Strategy Plan, and Program Budget.

Objective: Provide advisory support as necessary and requested by budget entities 

Action plan activity

• Improve lines of accountability by clarifying roles, functions, and responsibilities 

Objective: Improve instruments for encouraging responsible financial management and accountability

Action plan activity

• Establish a list of flexibilities to be given to those budget entities that meet agreed criteria on satisfactory resource management 

Objective: Improve budget classification

Action plan activity

• Further improve the implementation of new budget classifications and chart of accounts

Source: OTA Terms of Reference and 2010 work plans for Cambodia.

Honduras: Technical Advisory Services on Budgeting

Time Period: January 2011-December 2013

Description: OTA’s technical assistance focuses on implementing 

international public sector accounting standards.
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 56 GAO-12-920 Public Financial Management

Table 7: Treasury’s Technical Advisory Services on Honduran Budgeting: Selected Objectives and Action Plan Activities

Objective: Assist in the preparation of year-end financial statements 

Action plan activities

• Review financial statements sent to Congress in April 2011

• Assist with the creation of a consolidated balance sheet

• Prepare a Consolidated Statement of Cash Flows for the entire government in accordance with international accounting 

standards

Objective: Review laws and regulations and recommend changes to the legislative framework

Action plan activities

• Review Organic Budget Law, Organic Law of the Supreme Court of Accounts, Public Administrative Law, and other relevant 

regulations

• Evaluate current application of laws and regulations

• Provide written recommendations to finance minister

Objective: Identify government business enterprises as defined by the international public sector accounting standards and 

evaluate the impact of implementing the required standards

Action plan activities

• Identify government business enterprises and determine which ones are using appropriate standards

• Provide assistance to integrate these enterprises into the financial management information system 

Objective: Develop regulations and manuals including procedures to identify the data needed and entity responsible for 

gathering and recording data and templates for financial statements

Action plan activities

• Review existing regulations and manuals for the central government and recommend changes

• Review and provide assistance with the development of manuals and regulations for relevant government entities as they are 

integrated into the financial management information system

Objective: Provide training and materials to Accountant General and staff 

Action plan activities

• Evaluate skill level of accounting staff

• Develop training materials for accounting staff and assist with training

• Develop specialized training materials for central administration and assist with training

• Review financial information provided by other relevant government entities to determine training needs

Objective: Review functionality of the country’s financial management information system. Identify changes needed for the 

system to serve as the primary source of financial information throughout the finance ministry. 

Action plan activities

• Review current reporting requirements of the finance ministry

• Evaluate the financial management information system’s ability to meet reporting requirements of finance ministry directorates

Source: Treasury OTA 2011 Work Plan for Honduras.
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 57 GAO-12-920 Public Financial Management

South Africa: Technical Advisory Services on Budgeting

Time Period: February 2007—January 2009

Description: Treasury OTA has conducted technical assistance projects 

in South Africa in the areas of budget formulation, intergovernmental 

finance, infrastructure budgeting, public finance training, and others since 

1997. In 2006, the National Treasury of South Africa requested a new 

OTA budget project to focus on the organization of an expenditure 

program performance evaluation unit, performance information and cost 

analysis, and support for the Collaborative Africa Budget Reform 

Initiative. The central mission of the resident advisor was to establish an 

expenditure program performance review system.

Table 8: Treasury’s Technical Advisory Services to South Africa on Budgeting: Selected Objectives and Activities

Objective: Assist in the development of a performance information management framework and support the implementation 

of performance-based budgeting practices

Work plan activities

• Facilitate agreement among different staff at the National Treasury on the core principles of performance information 

management 

• Gather and provide input with the aim to publish a Performance Information Management Framework

• Identify opportunities for performance-based budgeting practices (outlined in the framework) to be integrated into existing 

budgeting systems in conjunction with Public Finance and Budget Office

• Facilitate the implementation of a pilot for performance-based budgeting into the structure of the 2008-2009 budget

Objective: Develop performance review capacity at the National Treasury

Work plan activities

• Identify the goal, role and primary objectives of a performance review function in conjunction with the Public Finance and Budget 

Offices

• Assess and make recommendations on the organizational and technical capacity of the National Treasury to conduct 

performance reviews. Work with the Public Finance and Budget Offices to select a performance review(s) related to the following 

potential issues:

• Reform the budget process for interdepartmental information technology systems

• Review the efficiency and effectiveness of labor-based programs such as public works

• Review the efficiency and effectiveness of infrastructure maintenance and rehabilitation program

• Review the efficiency and effectiveness of training and skills development and other government capacity-building projects

• Review state-owned enterprises with large accumulated surpluses

• Assist in conducting a performance review(s) to identify critical interventions, as support for the establishment of a performance 

review function.

• Assist in the establishment of a permanent performance review function
Appendix IV: Examples of Public Financial 

Management-related Projects in Six Countries

Page 58 GAO-12-920 Public Financial Management

Objective: Support the oversight role of parliament through the provision of more timely and actionable in-year financial and 

performance information

Work plan activities

• Clarify and obtain agreement on the information needs and expectations of the Joint Budget Committee in Parliament

• Identify and map the in-year financial and performance information on national departments currently available to the National 

Treasury

• Develop strategies to collect and report necessary information to the Joint Budget Committee and design report format and 

processes

• Pilot report format and processes with the Joint Budget Committee

• Improve and finalize report format and processes

Objective: Support efforts to enhance professionalism and sharing of effective practices between the countries of Africa via 

the Collaborative Africa Budget Reform Initiative

Work plan activity

• Identify possible opportunities for assistance

Source: Treasury OTA 2007 Resident Advisor Work Plan.
Appendix V: Comments from the U.S. Agency 

for International Development

Page 59 GAO-12-920 Public Financial Management

Appendix V: Comments from the U.S. Agency 

for International Development
Appendix V: Comments from the U.S. Agency 

for International Development

Page 60 GAO-12-920 Public Financial Management
Appendix V: Comments from the U.S. Agency 

for International Development

Page 61 GAO-12-920 Public Financial Management
Appendix V: Comments from the U.S. Agency 

for International Development

Page 62 GAO-12-920 Public Financial Management
Appendix VI: Comments from the Department 

of the Treasury

Page 63 GAO-12-920 Public Financial Management

Appendix VI: Comments from the 

Department of the Treasury
Appendix VI: Comments from the Department 

of the Treasury

Page 64 GAO-12-920 Public Financial Management
Appendix VII: GAO Contact and Staff 

Acknowledgments

Page 65 GAO-12-920 Public Financial Management

Thomas Melito, (202) 512-9601 or melitot@gao.gov

Cheryl Goodman (Assistant Director), Michael Maslowski, Shirley Min, 

RG Steinman, Michael Hoffman, Debbie Chung, Grace Lui, David 

Dayton, and Etana Finkler made key contributions to this report.

Appendix VII: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(320870)
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