U.S. AGENCY for

INTERNATIONAL

DEVELOPMENT

Accountability

Report

FY

2001
All photos provided by USAID archives.

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FOREWORD

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 1

The Fiscal Year (FY) 2001 Accountability Report is one of three reports the United States Agency for International

Development (USAID) prepares annually to describe its financial position and the results of its operations. For FY 2001, the

two other reports are the Agency’s FY 2001 Performance Report and its FY 2003 Budget Justification.

The focus of the Accountability Report is on the Agency’s consolidated financial statements and the adequacy of its controls

over the obligation and expenditure of budgetary resources. However, the Accountability Report also includes brief

descriptions of USAID and the results of its operations, management’s discussion and analysis of the Agency’s financial and

program performance, the Inspector General’s reports on USAID’s financial statements, internal controls and compliance,

and USAID’s progress on strengthening its financial systems. This additional information is intended to help the public, the

Administration and the Congress assess management performance and stewardship. The Performance Report and Budget

Justification documents, on the other hand, provide detailed descriptions of the results achieved by USAID programs around

the world at the country, operating unit and strategic objective levels.

Electronic copies of all three of these documents are available through the Agency’s World Wide Web site: www.usaid.gov.

All comments regarding the content and presentation of this report are welcome. Comments may be addressed to:

U.S. Agency for International Development

Office of the Chief Financial Officer

1300 Pennsylvania Avenue, NW

Room 210

Washington, DC 20523

For additional information about USAID, please contact:

U.S. Agency for International Development

Bureau for Legislative and Public Affairs

1300 Pennsylvania Avenue, NW

Washington, DC 20523

February 2002
Fiscal Year 2001 marked 40 years that USAID

has provided assistance to countries

recovering from disaster, trying to escape

poverty and engaging in democratic reforms.

The Agency's programs have improved the

lives of millions of citizens in the developing

world, while also helping to advance foreign

policy objectives.

During my first year as Administrator at

USAID, I initiated a new strategic orientation

and incorporated a new way of doing

business to ensure that the Agency's long-term

development assistance and humanitarian

relief programs respond to the changing world

and U.S. national interests.

We reoriented USAID's programs to focus on

"Four Pillars." Three new program pillars -

Global Health (GH), Economic Growth,

Agriculture and Trade (EGAT) and

Democracy, Conflict, and Humanitarian

Assistance (DCHA) - have simplified and

integrated our current programs. Aggregating

our programs into these pillars will enable us

to use scarce budget and human resources

more effectively and to describe our programs

more clearly. The fourth pillar introduces the

Global Development Alliance as our new

model for doing business. Under this pillar,

we will serve as a catalyst to mobilize the

ideas, efforts and resources of the public

sector, corporate America, the higher

education community and non-governmental

organizations in support of shared objectives.

Reforming the Agency's management systems

is key to improving the delivery of

development and humanitarian assistance.

We are focussing on five systems -- financial

management, human resources management,

information technology, procurement and

administrative services. Reforms are aimed at

reducing operating costs, increasing

accountability and compliance, improving the

timeliness of delivery, promoting customer

service, improving program performance,

facilitating partner inclusiveness and ensuring

transparency. The actions underway will

directly support the President's management

agenda.

We have made progress in the achievement of

Agency program and management goals. We

are committed to ensuring that those who use

our performance information to make

decisions can do so with the assurance that

our data are valid and reliable. During FY

2001, we continued working to improve the

quality and availability of performance data.

The Bureau for Policy and Program

Coordination worked closely with the Office

of the Inspector General (OIG) to develop an

appropriate performance management audit

methodology which, without compromising

OIG's independence, is geared towards

providing guidance on needed improvements.

We also improved guidance and provided

Agency-wide training on performance

reporting.

We successfully launched a commercial offthe shelf accounting system in Washington

that is compliant with Federal requirements.

We implemented tools to extract financial

information from overseas missions,

established a linkage to the procurement

system and completed the work necessary to

interface the accounting system with

supporting systems for credit and grants

management support. USAID is now meeting

government-wide quarterly financial reporting

requirements with more accurate and

complete financial information.

There were also accomplishments in the areas

of human resources, procurement, and

information resources management. For the

first time in over a decade, the direct-hire

staffing level did not decrease significantly

from the previous year. The Agency received

a "green light" on the Executive Branch

Management Scorecard for plans in human

capital management. The Agency streamlined

contract preparation through worldwide

implementation of a new document

generation system which also permits timely

and accurate collection of statistical

information on procurements. Steps were

also taken to improve the security of

information systems and field access to

Agency systems.

Although progress has been made, USAID

still faces a number of management and

performance challenges. We must implement

an interfaced financial management system

worldwide and remove barriers to achieving

an unqualified opinion on the Agency's

financial statements. We must address

weaknesses in the management of

information technology resources and achieve

compliance with Federal requirements in this

area. Improvements in workforce planning,

recruitment and training must be

accomplished to fully address human capital

challenges. Finally, we must continue to

improve our performance measurement and

reporting systems.

During FY 2002, we will carry out a detailed

review of how our management systems are

working overseas and at headquarters and

finalize plans for changes that will produce

more effective and efficient world-wide

operations. This review will have a significant

impact on our efforts to implement and

further deploy an interfaced financial

management system.

This FY 2001 Accountability Report highlights

our accomplishments, as well as our

challenges. We are confident that the

changes that have taken place and those

under way will further strengthen

accountability and put us in an increasingly

better position to demonstrate results.

MESSAGE FROM THE ADMINISTRATOR: Andrew S. Natsios

Fiscal Year

2001

Accountability Report

2 U.S. Agency for International Development

Andrew S. Natsios

Administrator 

U.S. Agency for

International Development
The Agency celebrated its fortieth

anniversary in 2001 reflecting a long

tradition of development and

humanitarian assistance that has

helped reshape the world and the lives

of countless millions of people. The

United States Agency for International

Development Accountability Report for

FY 2001 provides a comprehensive

and compelling story about the efforts

and accomplishments of managers and

employees in USAID Missions and in

Washington who are committed to

improving program and management

performance. 

During FY 2001, the Agency 

implemented its new accounting

system (Phoenix) in Washington. The

system's implementation was a

complex undertaking that involved the

training of nearly 1,000 Washington

users. In addition, thirty-eight Mission

Controller sites were interfaced with

the Washington accounting system.

For the first time the Agency was able

to submit its worldwide financial

information to the Office of

Management and Budget (OMB) in a

timely and comprehensive manner;

and best, to provide information to

internal users. The new systems

processed 138,000 transactions, greatly

improving data integrity and internal

controls over current and prior year

financial information.

We face many challenges in

conforming to Federal standards as we

continue to implement the new

accounting system and to gain benefits

from this new and valuable asset.

Making change manageable is our

greatest challenge. OMB is eager to see

the system expanded overseas. Users

are looking for more and better

services.

The 25 Chief Financial Officers of the

United States Government have many

stakeholders. The most important is

the taxpayer. We are accountable for

ensuring that the money entrusted to

the agencies we serve is well managed

and safeguarded. We are accountable

to report fairly on the products and

services that are used and created in

executing our Agency mission. As an

illustration, USAID obligated $6.8

billion and had cash outlays of $5.7

billion. These numbers have

importance because they represent the

magnitude of help we are providing to

people in our programs. 

USAID's practice is to publish as part

of this report, a record of the plans we

undertake to solve problems and

improve. We have accomplished a

great deal, but more needs to be done.

In the coming year, we will build upon

the progress USAID has achieved, and

focus in particular on improving the

comprehensiveness and availability of

standard reports, and on implementing

processes for tracking the status of

vendor invoices.

This report tells the story of how we

are working hard to manage the

taxpayers' money well. Our people

work very hard to manage this money

because there will always be more

development and relief problems than

there is money. As a result, nearly

every employee in USAID is a money

manager. We are working hard to give

them the systems, the tools, and the

training to do the best job possible for

the taxpayer. I assure you that you can

be proud of them.

Michael T. Smokovich

Chief Financial Officer

U.S. Agency for International

Development

LETTER FROM THE CHIEF FINANCIAL OFFICER: Michael T. Smokovich

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 3
TABLE OF CONTENTS

Fiscal Year

2001

Accountability Report

4 U.S. Agency for International Development

Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Organization of USAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Performance Monitoring in USAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Highlights of Programs and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Management Goal and 2001 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Management Control Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Audit Follow-Up Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Consolidated Statement of Net Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Consolidated Statement of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Consolidated Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Consolidated Statement of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Notes to Principal Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

Consolidating Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Consolidating Statements of Net Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

Consolidating Statements of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

Consolidating Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75

Consolidating Statement of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76

Required Supplementary Information: Schedule of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

Inspector General: Independent Auditor’s Report on USAID’s FY 2001 Financial Statements . . . . . . . . . . . . . . . . . . . . . .79

Summary of Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

Report on USAID’s Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

Report on USAID’s Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84

Report on USAID’s Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

USAID CFO Goals and Strategies and Financial Remediation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

Goals and Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

Financial Management Systems Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

Grants Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Appendix A: Management Goal Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130

Appendix B: USAID’s Most Serious Management Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135

Appendix C: List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
MISSION STATEMENT

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 5

The mission of the United States Agency for International Development is to contribute to U.S. national

interests by supporting the people of developing and transitional countries in their efforts to achieve

enduring economic and social progress and to participate more fully in resolving the problems of their

countries and the world.
INTRODUCTION

The U.S. Agency for International

Development (USAID) is the Federal

agency that implements America's foreign

economic and humanitarian assistance

programs. USAID advances America's

foreign policy goals of expanded

democracy and free markets, while

improving the quality of life for millions

of people in the developing world.

USAID spends less than one-half of 1

percent of the federal budget in programs

that contribute directly to peace and

prosperity, global health, and

international disaster response on behalf

of the American people. As described by

Secretary of State Colin Powell: "USAID is

an important part of our country's foreign

policy team. Its work is at the core of our

engagement with the world.... Over the

long-term, our foreign assistance

programs are among our most powerful

national security tools."

USAID's history dates from the Marshall

Plan reconstruction of Europe after World

War Two and the Truman Administration's

Point Four Program. In 1961, President

John F. Kennedy signed the Foreign

Assistance Act into law and created

USAID by executive order.

Since that time, USAID has been the

principal U.S. agency to extend assistance

to countries recovering from disaster,

working to escape poverty, and engaging

in democratic reforms. USAID programs

in more than 100 countries promote U.S.

national interests and represent American

values by supporting:

• Economic growth, agriculture and

trade;

• Global health; and

• Democracy, conflict prevention,

and humanitarian assistance.

The Bush Administration has initiated a

new strategic orientation to ensure that

USAID's long-term development

assistance and humanitarian and

disaster relief programs better reflect

U.S. interests in security and prosperity.

As a result, USAID has increased its

focus on the dual imperatives of

globalization and the prevention of

deadly conflict.

As Administrator Natsios explained

before the Senate Foreign Relations

Committee in April 2001, "Nearly twothirds of the countries with USAID field

missions have been ravaged by civil

conflict over the past five years, in

some cases destroying years of

economic and political progress. I have

witnessed the horror of these conflicts,

the widespread starvation of civilians,

terrible atrocities, the collapse of

governments and national

economies.... USAID will begin a

deliberate effort to focus its limited

program funds on conflict prevention

and resolution, in conjunction with

already existing efforts at the State and

Defense Departments."

USAID reorganized its structure and

programs in FY 2001 to achieve this

new orientation. The USAID

Administrator, Andrew Natsios, led an

Agency-wide process to:

• Reorient, simplify and interface

USAID programs into four "pillars"

supporting achievement of the

Agency's strategic objectives;

• Introduce the Global Development

Alliance as USAID's new business

model;

• Adjust the Agency's budget

priorities to increase funding for

agriculture, HIV/AIDS, basic

education, and conflict prevention

and resolution; and

• Direct senior management

attention at headquarters and in

the field to the sweeping overhaul

of USAID management and

operating systems.

MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

6 U.S. Agency for International Development

“USAID and our partners 

in the NGO community 

and in the U.N. agencies are, in

fact, the world’s and the American

people’s combat battalion fighting

the four horsemen 

of the Apocalypse: epidemics,

famines, tyranny and . . .

terrorism.”

Administrator Andrew Natsios at

USAID’s 40th Anniversary
ORGANIZATION OF USAID

USAID is headed by an Administrator

and Deputy Administrator, who are

appointed by the President and

confirmed by the U.S. Senate. USAID

is headquartered in Washington, D.C.

and maintains field offices in most of

the countries where it has programs.

USAID works in close partnership with

private voluntary organizations,

indigenous organizations, universities,

American businesses, international

agencies, other governments, and other

U.S. Government agencies. USAID has

working relationships with more than

3,500 American companies and more

than 300 U.S.-based private voluntary

organizations.

In Washington, USAID's major

organization units are called "bureaus."

An Assistant Administrator who is

appointed by the President and confirmed

by the U.S. Senate heads each bureau.

The four geographic bureaus, which are

responsible for the overall activities in the

countries where the Agency has

programs, are:

• Africa (AFR)

• Asia and the Near East (ANE)

• Latin America and the Caribbean

(LAC)

• Europe and Eurasia (E&E)

USAID has two kinds of functional

bureaus: the new "pillar" bureaus that

support Agency programs (such as

health) across geographic regions; and

three functional bureaus that provide

Agency-wide management, policy, and

legislative support.

As part of Administrator Natsios' first

year reforms, USAID consolidated

development and relief activities into

three new pillar bureaus to reflect

program priorities. In the

reorganization process, USAID

eliminated two bureaus: the Bureau for

Humanitarian Response and the

Bureau for Global Programs, Field

Support and Research, whose programs

were absorbed into the pillar bureaus.

The three new pillar bureaus, which

support the delivery of technical

services in the field and promote

leading edge research on new

approaches and technologies, are:

• Global Health (GH)

• Economic Growth, Agriculture and

Trade (EGAT)

• Democracy, Conflict, and

Humanitarian Assistance (DCHA)

Two other entities also resulted from the

reform and reorganization process: the

Global Development Alliance

Secretariat and the Conflict Prevention

Task Force. These are temporary

structures. These units will assist in

implementing USAID's new business

model of strategic alliances and the

Agency's heightened focus on conflict

prevention throughout Agency

programs.

The other functional bureaus at USAID

headquarters, which serve all bureaus

and country programs, are:

• Management (M)

• Legislative and Public Affairs (LPA)

• Policy and Program Coordination

(PPC) 

USAID also has several independent

offices that carry out discrete functions.

Headed by Directors who are

appointed by the USAID Administrator,

these five offices are:

• Office of the Executive Secretariat

(ES)

• Office of Equal Opportunity

Programs (EOP)

• Office of the General Counsel

(GC)

• Office of Small and Disadvantaged

Business Utilization (OSDBU)

• Office of Security (SEC)

The Office of the Inspector General

(OIG) reviews the integrity of Agency

operations through audits, appraisals,

investigations, and inspections.

Finally, in Washington, two legislatively

mandated positions also provide

support to the Administrator. These are

the Chief Financial Officer, responsible

for ensuring that management of the

Agency's finances conforms to federal

standards, and the Chief Information

Officer, responsible for ensuring that

the Agency's information management

and technology conform to federal

standards.

USAID programs overseas are grouped

into various types of country

organizations:

• Countries where USAID maintains

a mission or other presence, and

provides an interfaced package of

sustainable development

assistance.

• Countries where USAID's presence

MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 7
is limited, but where aid to

non-governmental sectors is

necessary to facilitate the

emergence of a civic society,

help alleviate repression, meet

basic humanitarian needs,

enhance food security, or

influence a problem with

regional or global implications.

• Countries that have recently

experienced a national crisis, a

significant political transition,

or a natural disaster and/or

where timely assistance is

needed to reinforce institutions

and national order.

• Multi-country missions that

administer USAID programs

and services to several

countries, or that provide

regional services to other

overseas organizations.

• Various international

development organizations and

bilateral donors that represent

U.S. and USAID interests in

development assistance

matters. These offices may be

only partially staffed by USAID

personnel and may be headed

by employees of other U.S.

Government agencies.

• Field offices of the Inspector

General (such as Regional

Inspector General for Audit

offices and Investigative Field

Offices) that carry out

comprehensive programs of

audits and investigations.

PERFORMANCE

MONITORING IN USAID

USAID uses a variety of tools to track

performance. These tools have grown

out of the need to address foreign

policy priorities, Agency goals,

country-level conditions, and

Congressional and Administration

interests. In the past year, these

monitoring tools have given managers

an increasingly comprehensive view of

Agency performance. And to increase

the rigor of Agency performance

monitoring, USAID trained over 1,000

staff and partners in performance

management and USAID programming

policies, including results reporting,

over the past year.

Operating unit assessments. USAID

operating unit objectives, targets, and

indicators highlight the specific goals

the Agency seeks in country, regional,

or global settings. Operating units and

their partners set these indicators and

targets with guidance and technical

support from Washington, where they

are reviewed and approved. Operating

units report annually on program

performance relative to the agreedupon targets. These annual reports help

form the basis on which operating units

request resources and inform USAID's

overall resource request and allocation

process.

Strategic objective assessments were

conducted before submission of annual

reports by USAID operating units. PPC

received the performance reporting

documents for this report between

January and September 2001. PPC did

not receive assessments of annual

performance for all operating unit

objectives.

Goal area reviews. Each year, USAID

conducts an in-depth review of global,

regional, and country trends data by

goal area. On the basis of these trends,

the content and emphasis of the

Agency's regional and global program

portfolios are evaluated, followed by

an assessment of the need for changes

in USAID's strategy to achieve longrange goals.

Evaluations. The Agency's evaluation

system has three tiers: 1) central

evaluations conducted by PPC; 2)

operating-unit evaluations (both impact

and operational analysis); and 3) goalarea technical analyses. Central

evaluations shed light on the

relationships between USAID's

interventions and the development

goals that the U.S. Government and

the broader donor community have

agreed upon. They capture Agency

experience and lessons learned to

inform the strategic planning and

program design processes. Operatingunit evaluations capture project-level

progress as well as performance issues

and operational problems. A central

research and reference service

maintains these evaluations and makes

them available to the Agency and its

partners. This service facilitates the

application of accumulated experience

to future programs. Goal-area technical

analyses are conducted on specialized

topics and are principally used to

validate or modify program strategies.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

8 U.S. Agency for International Development
MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 9

Bureau for Democracy,

Conflict, &

Humanitarian Assistance

Bureau for 

Europe & Eurasia

Office of the Inspector General

Office of the General Counsel

Office of Equal Opportunity Programs

Office of Small & Disadvantaged Business

Office of Security

Bureau for Management

Bureau for Policy & Program Coordination

Bureau for Legislative & Public Affairs

Bureau for

Economic Growth,

Agriculture, & Trade

U.S Agency for International Development

Shaded area indicates temporary structure.

Bureau for 

Global Health Bureau for Africa Bureau for Asia & theNear East

Bureau for Latin

America & the

Caribbean

Field Missions

GDA Secretariat

CIO CFO

Office of the Administrator

Deputy Administrator

Counselor

Executive Secretariat
MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

10 U.S. Agency for International Development

• Broad-based economic growth and agricultural development encouraged

•Critical private markets expanded and strengthened

•More rapid and enhanced agricultural development and food security encouraged

•Access to economic opportunity for the rural and urban poor expanded and made more equitable

• Human capacity built through education and training

• Access to quality basic education for underserved populations, especially for girls and women,

expanded

• The contribution of host-country institutions of higher education to sustainable development

increased

• The world’s environment protected for long-term sustainability

• Threat of global climate change reduced

• Biological diversity conserved

• Sustainable urbanization, including pollution management, promoted

• Use of environmentally sound energy increased

• Sustainable management of natural resources increased

Economic Growth,

Agriculture and Trade

Global Health

Democracy, Conflict &

Humanitarian Assistance

• World population stabilized and human health protected

• Unintended and mistimed pregnancies reduced

• Infant and child health and nutrition improved and infant and child mortality reduced

• Deaths and adverse health outcomes to women as a result of childbirth reduced

• HIV transmissions and impact of HIV/AIDS pandemic in developing countries reduced

• The threat of infectious diseases of major public health importance reduced

• Democracy and good governance strengthened

• Rule of law and respect for human rights of women, as well as men, strengthened

• Credible and competitive political processes encouraged

• Development of politically active civil society promoted

• More transparent and accountable government institutions encouraged

• Lives saved, suffering associated with natural or man-made disasters reduced, and conditions 

necessary for political and/or economic development re-established

• Urgent needs in times of crisis met

• Personal security and basic institutions to meet critical needs and protect basic human rights 

re-established

• USAID’s development goals achieved in the most efficient and effective manner

• Accurate program performance and financial information reflected in Agency decisions

• USAID staff skills, Agency goals, core values, and organizational structures better aligned

to achieve results efficiently

• Agency goals and objectives served by well-planned and –managed acquisition and 

assistance

• Agency goals and objectives supported by better information management and technology

Three Program Pillars FY 2001 Agency Goals and Strategic Objectives

Management

Table 1-1 USAID Pillars, Goals, and Strategic Objectives
HIGHLIGHTS OF

PROGRAMS AND RESULTS

Overview

During FY 2001, the Agency pursued its

mission through the achievement of six

strategic goals and one management goal.

These goals are articulated in USAID's

1997 Strategic Plan and revised 2000

Strategic Plan. Although the latter serves

as the Agency's development framework,

the new Agency leadership initiated

programmatic and organizational changes

in this framework in FY 2001.

Accordingly, this Management Discussion

and Analysis (MD&A) represents results

achieved against each of the Agency's six

strategic goals under the new Agencywide pillar orientation, and the USAID

management goal.

Across USAID, operating unit

portfolios vary. Based on

operating unit strategic plans

that reflect different country

contexts and development

needs, as well as U.S. foreign

policy priorities and

Congressional directives,

USAID operating units pursue

different results. However,

each of these must be aligned

with Agency goals and

strategic objectives and must

be reported within that

framework. The program

results reported below capture

performance as of September

30, 2000 and are based on

self-assessments of

performance by missions and

other operating units. With the

exception of operating

expense funds, the results

were generally accomplished

using prior year funds. Funds are

generally made available to operating

units in the third and fourth quarters of

the fiscal year. Therefore, it is essentially

impossible to allocate the funding for a

specific fiscal year to specific Agency

accomplishments.

The three USAID pillars and Agency

management goal, and the corresponding

FY 2001 Agency goals and strategic

objectives on which performance is being

reported in this Report, are presented in

Table 1-1.

Program Performance

Summary

The staff and management of USAID are

proud of the Agency's strong

performance on behalf of the American

people. As illustrated in Table 1-2 and 

MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 11

Economic growth and 

agricultural development

Education

Environment

Population, health, 

and nutrition

Democracy and 

governance

Humanitarian 

assistance

Total

Goals Assessment Number Percent

Exceeded

Met

Not Met 

Exceeded

Met

Not Met 

Exceeded

Met

Not Met 

Exceeded

Met

Not Met 

Exceeded

Met

Not Met 

Exceeded

Met

Not Met 

13

63

4

7

14

0

12

30

2

16

44

1

11

51

12

2

13

0

61

215

19 

FY 1999 FY 2000 FY 2001

15

68

5

7

20

0

12

38

3

17

50

2

13

54

15

3

16

0

67

246

25

15

78

5

7

21

0

12

45

2

18

54

2

15

61

15

3

16

1

70

276

24

16

79

5

33

67

0

27

68

5

26

72

2

15

69

16

13

87

0

21

73

6

17

77

6

26

74

0

23

72

5

25

72

3

16

66

18

16

84

0

20

73

7

15

80

5

25

75

0

20

77

3

24

73

3

16

68

16

15

80

5

19

75

6

FY 1999 FY 2000 FY 2001

Exceeded

Met

Not Met 

Table 1-2 Performance Assessment Summary*

*USAID reporting cycle on a one-year lag.

"[USAID is] more than an element

of American foreign policy. You

bring hope to people. You bring

the American value system to the

darkest corners of the world."

Secretary of State Colin Powell

at USAID's 40th Anniversary
in the goal descriptions, the Agency

continues to meet its summary program

targets. The overall rate is high and

results remain consistent over time.

USAID's average rate of strategic

objectives not meeting expectations is

in the 6/7% range, while the exceeded

rate is in the 18/21% range.

With regard to specific goals, in

education and humanitarian assistance,

all USAID operating units met or

exceeded targets. Even in USAID's

democracy goal where one expects a

high risk, the rate of achievement is

reasonable.

In those cases where individual

operating units failed to meet program

expectations, the explanation and

corrective actions are local and do not

require management adjustments at a

central level. Illustrative examples of

strategic objectives assessed as not

meeting expectations are provided

below and provide explanations of why

performance targets were not met.

Performance by Goal Area

Within the New Pillars

The Global Development Alliance

Public-private alliances, as articulated

by USAID's new Global Development

Alliance, represent an important

business model for USAID, and are

applicable to many of the Agency's

programs. USAID proposes to serve as

a catalyst to mobilize the ideas, efforts,

and resources of the public sector,

corporate America, the higher

education and NGO communities, and

other partners in support of shared

objectives. GDA builds on many

successful alliances around the world,

and seeks to take the best of those

experiences and significantly expand

this approach to meeting development

objectives. Under the GDA and

related efforts, USAID will

collaboratively create alliances that

bring new partners, innovations, and

leveraged resources to development

challenges.

The Global Development Alliance

recognizes significant changes in the

assistance environment around the

world. It builds on decades of

experience working effectively with

partners both public and private to

take assistance to the next level of

shared responsibility and magnified

results.

• GDA brings new partners–a mix

of NGOs, PVOs, cooperatives,

foundations, corporations, higher

education institutions and even

individuals–to the development

challenge, and engages current

partners in new ways.

• It entails significant resource

leveraging–partners are to bring at

least as many resources to the

table as those provided by

USAID–including funds, in-kind

contributions, and intellectual

property. 

• GDA uses collaborative objective

setting as a catalyst to mobilize

ideas and resources of many

actors in support of shared

objectives. Development

problems and solutions are jointly

defined.

GDA seeks to improve the quality and

extent of partnerships, leverage private

financing of development assistance,

and enhance policy reform through

advocacy. GDA responds to a growing

international view that public

commitment and resources alone are

necessary but not sufficient to meet

development needs and opportunities.

While the GDA is new, it builds upon

years of experience. USAID is already

engaged in many successful alliances

around the world, such as the Global

Alliance for Vaccines and

Immunization (GAVI). What is new is

that USAID will pursue a systematic

approach to alliances on a much larger

scale and will institutionalize these

alliances as a central business model

across Agency operations.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

12 U.S. Agency for International Development

"The Global Development Alliance

will allow us to begin a new era of

cooperation, not where we give

grants to foundations or

universities, but where we use

our resources together in the

developing world to get projects

accomplished at a much grander

scale than we've been able to do

with only our own resources."

Administrator Andrew Natsios

at USAID's 40th Anniversary
USAID's Three Program Pillars

1. The Economic Growth,

Agriculture and Trade Pillar

(EGAT)

The global economy has changed

remarkably in the past two decades.

With the end of the Cold War, a truly

global marketplace for goods, services,

technology, and ideas has materialized,

and the World Trade Organization

(WTO) has begun to establish fair and

open markets as a common economic

goal requiring international oversight. It

is critical to both the U.S. economy

and global stability, that developing

and transition countries find a way to

participate in this process and that the

benefits of globalization are broadly

shared. Yet, more than 1.2 billion

people live on less than a dollar a day;

more than 800 million people continue

to go to bed hungry; and more than

113 million children are not in school.

USAID assistance provided under the

Economic Growth, Agriculture and

Trade pillar will focus on creating

economies that are viable over the

long term. To accomplish this, USAID

will pursue the mutually reinforcing

goals of promoting economic growth to

reduce poverty and increased

agricultural production to reduce

hunger. The interrelationship and

interdependence of economic growth,

environmental sustainability, and the

development of a country's human

capital are highlighted within this pillar

as illustrated in Table 1-1. Job creation

will be an essential element of this

pillar, especially through the promotion

of microenterprises and agroenterprises.

While human capacity development,

particularly basic education, and the

environment have an impact on all

three pillars, they are included with

economic growth. This recognizes their

essential link to economic

development. Issues of environmental

sustainability will continue to play a

central role in the execution of USAID

programs.

Special emphasis will be directed at

integrating growth, agriculture, and

environmental objectives in a manner

such that market forces play an

increasingly important role in the

Agency's strategic approach and in

determining a program's long-term

viability. Throughout these sectors and

activities, the Agency will take

advantage of new information

technologies to accelerate advances.

Funded activities will assist: the

productive sectors, especially

agriculture; the environment and

energy sectors; human capacity

development (including basic

education); micro-enterprises; and

improvement of the business, trade,

and investment climate.

FY 2001 Strategic Goal: Broad-based

economic growth and agricultural

development encouraged

In FY 2001, USAID's efforts in

economic growth and agricultural

development reflected the Agency

commitment to broad-based

sustainable economic growth, took into

account world trends, addressed the

needs of the hungry and poor, and

advanced the interests of the United

States in promoting global prosperity

and stability. In addition, economic

growth Strategic Objectives took into

account longstanding Congressional

earmarks and directives. USAID

activities supported three priority areas:

• Promoting open and competitive

economies;

• Developing science and

technology to improve

productivity, natural resource

management, markets, and human

nutrition; and

• Expanding access to economic

opportunities for the poor.

Nearly 70 percent of USAID-assisted

countries were growing at positive

rates in the second half of the

1990's, compared to 45 percent in

the early part of the decade.

Economic freedom improved in over

two-thirds of USAID assisted

countries. Overall, 95 percent of

assessed Strategic Objectives for

encouraging economic growth and

agricultural development met or

exceeded performance expectations.

Illustrative Operating Unit

Assessment of Performance

Reduced Poverty in Uganda

Uganda is a poor, least-developed,

landlocked country with no special

advantages, such as oil or valuable

minerals. Relatively good policies and

efforts at institutional strengthening

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 13

Not Met

5%

Met

80%

USAID Objectives Linked to

Economic Growth and Agricultural

Development

Exceeded

15%
since the mid-1980's have enabled

Uganda to overcome a legacy of crisis,

conflict, and state failure and to

achieve rapid growth and poverty

reduction. Under SO 617-001,

Increased rural household income,

USAID has focused on commercial

production of non-traditional

agricultural exports and food crops,

financial services, business

development, and an enabling

environment for free enterprise growth.

USAID/Uganda partners continued to

expand their technology transfer and

outreach programs, reaching 500,000

farmers in 35 districts in 2000, a 25%

increase over 1999. More than

220,000 thousand farmers, 35% of

them women, participated in 4,000 onfarm demonstrations promoting

improved seed varieties, proper

fertilizer use, integrated pest

management, post-harvest technologies

and market information systems.

USAID/Uganda has supported over

sixty new firms engaged in nontraditional agricultural exports with

technical assistance.

Production of selected food crops

increased dramatically as a result of

USAID interventions, with edible oil

production exceeding its target threefold, cassava production reaching more

than ten times the target, and beans

35% over target. Adoption of improved

seeds, fertilizer, and farm management

practices have reduced the cost of

production for maize over the last

three years from $340 to $140 per MT.

Post-harvest losses and improper

storage have been addressed for maize,

beans, and oilseeds.

Non-traditional agricultural export

volumes continue to expand and

international buyers now recognize

Uganda as a top competitor in the

supply of cut flowers and other

produce. Fresh fruit and vegetable

exports exceeded the target at 3,500

MT with a value of $3.65 million,

providing income to about 10,000

households. The export volume of

floriculture products, mainly roses and

plant cuttings, met the target at 3,017

MT. However, the export value of

$14.5 million was 20% below target

due to devaluation, increased fuel

costs, and border conflicts. Vanilla,

which is a relatively new crop for

Uganda, went from non-production to

the world's third largest producer in

just two years, filling a gap caused by

storm damage to crops in Madagascar.

The value of papain and cocoa exports

dropped by nearly $4 million, due to

rebel insurgency in production areas.

USAID has provided training to over

60 (out of about 100) micro-finance

institutions (MFIs), contributing to their

long-term sustainability. In order to

reach more people and expand

financial services, twelve MFIs were

targeted with additional grants

supporting operating costs, equipment,

and loan capital. USAID-funded

programs have directly assisted over

350,000 micro-enterprises (70%

women) and small businesses to

become more profitable.

The number of "best practices"

microenterprise finance institutions

using full cost-recovery interest rates

and fees, with delinquency rates below

10% and loan losses under 5% of their

portfolio, reached 14, double the

target. This year, MFIs saw a quantum

leap in savers and borrowers (70%

women) as a result of an innovative

equity investment and deposit

mobilization scheme with Centenary

Bank. The number of new savers

exceeded the target by over 60%; and

the target number of borrowers was

surpassed by 50%.

USAID's policy focus has helped the

Government of Uganda (GOU) and

private sector crystallize a strategy for

prioritizing critical reforms to enhance

competitiveness. Through USAID's

support, over 400 leaders in the private

and public sector have received

specialized training on issues such as

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

14 U.S. Agency for International Development

"Without economic growth no

development is ultimately

sustainable.

I would like to focus more of

USAID's resources on economic

development to reduce poverty

and on agricultural development

to reduce hunger and

malnutrition."

Administrator Andrew Natsios

in his Senate Foreign Relations

Committee Confirmation Statement
Uganda's interest in agricultural trade

reforms, regional integration with

Common Market for Eastern and

Southern Africa (COMESA) and the East

African Community, and the African

Growth and Opportunity Act (AGOA).

Illustrative Strategic Objectives

Assessed as Not Meeting

Expectations

In Turkmenistan, USAID achievements

under SO 1.30, An improved

environment for the growth of small

and medium enterprises, were severely

limited by the Government of

Turkmenistan's unwillingness to reform

the state-controlled economy. As a

result, Turkmenistan's near-term

outlook did not offer prospects for

building the foundation for long-term

economic growth. The dwindling

number of foreign investors faced

increasing difficulties in most of their

business operations. While there

appeared to be some recognition by

the national leadership that the

country's financial and fiscal

management (budget and debt

management) needs to be improved,

there was no political will among

Turkmen leaders to make needed

reforms. In response, USAID will

redouble its efforts under the strategy's

Intermediate Result, "Increased

opportunity to acquire business

information, knowledge, and skills," in

order to train the next generation of

entrepreneurs and policymakers.

The purpose of SO 2, Increased

income of enterprises, primarily rural,

with emphasis on exports, is to support

Eritrean enterprises, particularly

through the provision of loans and

related financial services to

entrepreneurs. This SO did not meet

expectations over the reporting period

primarily as a result of the economic

effects of Eritrea's conflict with

Ethiopia. The loss in agricultural

production, the disruption of traditional

trade patterns with Ethiopia, and the

flight of foreign direct investment

combined to slow Eritrea's rate of

economic growth from pre-war levels.

USAID activities under this SO were

severely constrained by travel

restrictions due to the security

situation. As a consequence, there was

no progress to report. The mobilization

of host country staff for required

military service, the ordered departure

of Americans and the absence of

advisory staff delayed skills training

planned for the staff of the Commercial

Bank of Eritrea (CBER) and the Rural

Enterprise Unit (REU). Delivery of

improved technical and financial

services for entrepreneurs was similarly

delayed.

USAID shifted the focus of the SO in

2000 to emergency recovery as a result

of the conflict and the generally

depressed economy. Under a

disbursement procedure established

with the U.S. cooperative development

organization, ACDI/VOCA, emergency

loans were provided to primarily small

and medium enterprises whose

inventory and businesses were

destroyed by the conflict in May 2000.

This emergency recovery effort, funded

from existing resources reprogrammed

as a result of invoking the Mission's

Crisis Modifier, was a well-appreciated

response to the economic recovery of

southern and western Eritrea.

With the signing of the peace

agreement, there is reason for guarded

optimism about the prospects for

recovery. For this reason, USAID did

not change the SO performance

indicators, believing that, with more

time and additional resources, progress

can be achieved.

FY 2001 Strategic Goal: Human

capacity built through education and

training

A country that achieves sustainable

economic growth by expanding and

improving basic education becomes a

more valuable trading partner with the

U.S. The same is true of a country that

grows faster because its universities

provide better access to new and

improved technology developed

abroad. Higher education helps a

country contribute more to its own

development.

Economic growth in developing

countries demands the creation of a

productive and skilled workforce. Basic

education for all children is the

necessary first step. The positive

linkages between education and other

USAID strategic goals are well

established. Better, more accessible

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 15
basic education raises agricultural

output and productivity, improves

environmental stewardship,

encourages ethnic tolerance and

respect for civil liberties, and builds

democratic values and practices. In

addition, there are specific benefits

linked to increased school

attendance among girls that lead to

higher incomes, better family

health,increased child survival,

smaller families, and improved

social status for women.

Human capacity development SOs

support USAID's emphasis on

Economic Growth in four priority

areas:

• Improving the quality and

efficiency of basic education;

• New partnerships improve the

quality and relevance of higher

education and workforce

development;

• Expanded training for future

private sector, NGO, and

government leaders; and

• Spreading the information

technology revolution to the

developing world and those in

need.

One hundred percent of assessed

Strategic Objectives for education met

or exceeded performance expectations.

Illustrative Operating Unit

Assessments of Performance

Increased Girls' Enrollment in

Guatemala

In Guatemala, poor children suffer

disadvantages in basic education, in

terms of initial enrollment and

educational quality. These problems are

especially acute for girls from rural

indigenous communities. In rural areas,

one of every three children does not

attend school. Mayan children

complete only 1.3 years of school on

average, while Mayan girls complete

less than a year. Six in ten children

repeat first grade, one in four at least

twice. Dropout and truancy are high,

and only two in ten rural children

complete sixth grade.

Contributing factors include very

limited public funding for basic

education; the limited influence of

rural indigenous communities on

national politics; and a tendency

among poor indigenous families to

keep girls home to help with chores

and take care of siblings, in some cases

allowing them to attend school just

long enough to learn basic reading and

arithmetic. In addition, the fact that

classes have traditionally been taught

only in Spanish has discouraged many

among the 50 percent of children from

Mayan-speaking households. Since the

signing of the 1996 peace accords that

ended Guatemala's long civil war,

universal primary education has been a

top priority.

USAID/Guatemala's SO, Better

educated rural society, comprises three

Intermediate Results: 1) increased

access to intercultural and bilingual

primary education for children of rural

Quiché Department; 2) greater access

to education services for rural

communities in the seven Departments

designated the "Peace Zone"; and 3)

implementation of education strategies

and policies that enhance gender and

cultural pluralism. In particular, USAID

has supported an intercultural bilingual

education program that directly affects

96,000 children in Quiché

Department.

Program efforts include teacher

training, developing and applying

innovative pre-primary and primary

instructional materials and

methodologies, organizing

communities around educational

issues, and increasing parents' and

especially mothers' participation in

educational management and student

learning. National policy reform

activities complement these activities

to strengthen the educational policy

environment to support cultural

pluralism and gender equity.

USAID reported progress in meeting

this SO both in Quiché and at the

national level. The gross primary

enrollment ratio for girls in Quiché

increased to 93.3 percent in 2000, up

from 79.1 percent in 1999 and from

the 1997 baseline of 62.1 percent. The

gender equity ratio in rural primary

schools in Quiché, the number of girls

enrolled per 100 boys, continued its

gradual climb, reaching 78.7 percent

in 2000, up from 74.2 percent in 1997.

Finally, the third grade completion rate

for girls in Quiché increased from 22

percent in 1999 to 28 percent in 2000,

providing evidence of improved

quality, equity, and system efficiency.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

16 U.S. Agency for International Development

Not Met

0%

Met

75%

USAID Objectives Linked

to Education

Exceeded

25%
These improvements contributed to an

increase in the net primary enrollment

ratio at the national level, from 69

percent in 1996 to an estimated 84

percent in 2000. Additional progress

was seen in the area of policy toward

bilingual education. For example, the

Ministry of Education issued a decree

mandating that, in all schools located

in indigenous areas, teachers who

speak indigenous languages should be

assigned to pre-primary through third

grade. Meanwhile, the Government

committed to provide funding for an

additional 75,000 primary school

scholarships for girls, helping scale up

an intervention pioneered by USAID to

encourage educational participation

among girls.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 17

A country that achieves sustainable economic growth by expanding and improving basic education

becomes a more valuable trading partner with the U.S. The same is true of a country that grows faster

because its universities provide better access to new and improved technology developed abroad.

Higher education helps a country contribute more to its own development.
Wider Access to Basic Education in

Guinea

Guinea is a poor country in West

Africa. Its human resource base and

domestic economy are still recovering

from the dictatorship of Sekou Toure,

who died in 1984 after 26 years of

rule. During the dictatorship, essential

social services and infrastructure

collapsed, and state central planning

devastated the private economy,

including the formerly prosperous

agricultural sector.

In 1990, the current government

initiated a program of political and

economic reforms that has liberalized

the economy, restrained public sector

spending, controlled inflation, and

stabilized the exchange rate. The

reform program has also helped

improve the delivery of social services,

including basic health and basic

education. USAID has supported the

reform program since its inception;

efforts to reform basic education have

been an important element in USAID's

overall development strategy. USAID's

current efforts in basic education build

on progress achieved during the first

phase of the education reform effort

(1990-1995), in which Guinea

increased the share of the national

budget for primary education,

reassigned many teachers from the

secondary to the primary school level,

and decentralized key budgetary and

management functions to the regional

and local level. These and other

measures contributed to the increase in

the primary enrollment ratio and the

drop in the educational gender gap

since 1990.

Despite this progress, Guinea has a

long way to go to achieve universal 

enrollment in primary education,

especially among girls, and to improve

educational quality. Thus, USAID has

supported a second-phase reform effort

since 1996 under the SO, Quality

basic education provided to a larger

percentage of Guinean children, with

emphasis on girls and rural children.

Major elements include: support for

interactive radio instruction for all six

primary grades, which reaches

schoolchildren in remote areas and

introduces new teaching strategies and

greater gender sensitivity to teachers;

assistance to the Ministry of Education

to improve capabilities in strategic

planning, management, and budgeting;

support for local Parent-Teacher

Associations (PTAs); and direct support

for the construction of community

schools in the poorest region of the

country, based on a commitment to

maintain a 50/50 boy/girl enrollment

ratio.

USAID/Guinea assessed progress under

the SO to have met expectations in

2000. The first interactive radio

broadcasts were launched in late 1999,

and have expanded to cover all six

primary grades. The Government has

assumed the cost of keeping the

broadcasts on the air. The radio

programs were complemented by a

variety of on-the-ground measures to

reinforce teachers' understanding and

ability to use the new educational

approaches. USAID encouraged

decentralized educational planning by

involving regional and local education

authorities in assessing the

effectiveness of teacher deployment.

Also in 2000, a USAID grantee

delivered training sessions in

organizational management to 187

school PTAs, including nearly 4,000

female trainees.

Together, these activities supported

Guinea's progress in basic education.

At the national level, the gross primary

enrollment ratio rose from 53.5 percent

in 1999 to 56.8 percent in 2000. The

percentage of girls in primary

enrollments rose from 40 percent in

1999 to 44.3 percent in 2000, while

the corresponding figure for rural girls

rose from 36 percent in 1999 to 38

percent in 2000.

FY 2001 Strategic Goal: The world's

environment protected for long-term

sustainability

Environmental problems increasingly

threaten the economic and political

interests of the United States and the

world at large. Environmental

degradation endangers human health,

undermines long-term economic

growth, and threatens ecological

systems essential to sustainable

development.

Environmental degradation in other

parts of the world, particularly the loss

of biological diversity, changes in

global climate, the spread of

pollutants, the careless use of toxic

chemicals, and the decline of natural

fish populations directly affects the

United States. Struggles over land,

water, and other natural resources in

the developing world lead to instability

and conflict, which often threaten U.S.

security and trade interests.

USAID programs tackle major

environmental problems abroad before

they pose more serious threats to the

United States. Agency programs

promote economic growth, global

health, technology transfer, and conflict

prevention and help people manage

their activities in ways that enable the

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

18 U.S. Agency for International Development
natural environment to continue to

produce–now and in the future–the

goods and services necessary for

survival.

The Agency seeks to protect the

environment for long-term

sustainability around the world

through programs directed at five

broad areas:

• The threat of global climate

change reduced;

• Biological diversity conserved;

• Sustainable management of

urbanization, including pollution

management, improved;

• Proportion of environmentally

sound energy services increased;

and

• Sustainability of natural

resources increased through

better management.

USAID met or exceeded 97% of

assessed operating unit Strategic

Objectives to protect the

environment for long-term

sustainability.

Illustrative Operating Unit

Assessments of Performance

Improved Conservation and Natural

Resource Management in Madagascar

Madagascar's separation from Africa

engendered an evolution of flora and

fauna found nowhere else. Madagascar

is the world's 13th poorest country,

placing unparalleled pressure on these

biodiversity treasures. International

conservation organizations cite

Madagascar as the highest biodiversity

priority in Africa and among the top

three global "biodiversity hotspots."

USAID is helping to preserve these

invaluable natural resources through

the SO, Biologically diverse

ecosystems conserved in priority

zones.

USAID has led Madagascar's National

Environmental Action Plan (NEAP)

donors since 1990, supporting

biodiversity conservation, forest

management, environmental policy

development, and institutional

strengthening. USAID's support

reinforces Madagascar's capacity to

develop and manage its protected area

network, increase local participation in

natural resources management,

encourage adoption of sustainable

agricultural technologies, increase

ecotourism and private sector

involvement in conservation

enterprises, and establish enabling

conditions and mechanisms for

sustainable environmental agencies.

Preliminary data suggest that annual

forest loss decreased in two priority

conservation zones where USAID has

worked for the last decade. Over 8% of

Madagascar is now protected (versus

4.7% before the NEAP began in 1989)

with 15 of 16 critical habitats in the

protected area network and 380

villages in priority conservation zones

using community-based conservation

techniques. Financing provided for

local environmental activities by an

independent Malagasy foundation,

initially capitalized by USAID, has

increased six-fold since 1997.

As the lead donor in establishing

Madagascar's National Park system,

USAID supported the National Park

Service (ANGAP's) development and

use of a protected area management

plan, which provides a cohesive

ecoregional management strategy: It

identifies critical biodiversity areas;

prioritizes unprotected area entry into

the park network; outlines research,

ecological monitoring, park

development, community involvement

and eco-tourism objectives; and

creates systems for achieving National

Park system financial sustainability.

Park Service revenue has increased an

average of 14% each year for the last

five years. During the same period,

Madagascar's tourism revenue showed

an average 14% annual increase. With

USAID support, three new ecotourism

investment zones were established

adjacent to three National Parks,

encouraging eco-lodge and tourism

investments. This has helped generate

employment, and handicraft and farm

revenue benefits for local communities.

USAID also supported a process to

transfer management of nine classified

forests to local communities: Forest

management was transferred to four

village associations following GOM

approval of their management plans;

and village forest management plans

were finalized for 8 classified forests.

Completion of management schemes

for these classified forests (200,000

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 19

Not Met

3%

Met

77%

USAID Objectives Linked to

Environment

Exceeded

20%
hectares) empowered local

communities to begin the process of

sustainable forest resource use.

Emphasizing the connection between

environment and economic growth,

USAID helped link conservation to

sustainable small farm agriculture and

increased rural family incomes. The

number of communities participating

in conservation activities increased

71% in USAID intervention zones.

USAID support has resulted in 7,312

farmers forming 280 producer

organizations (POs) in biodiversity rich

but unprotected forest areas. To

participate, farmers formally abandon

slash and burn farming. Fifty-two

percent of participating farmers

adopted improved agricultural

practices. Despite last year's droughts

and cyclones, many of these farmers

doubled rice yields while off-season

crop yields increased by as much as

120%. PO families have emerged

within their communities as

compelling examples of how good

environmental stewardship contributes

to more household food and cash.

Improved Energy and Natural

Resource Management in Egypt

Egyptians rate solid waste as the top

urban environmental issue, and Cairo

air pollutant levels are among the

highest in the world. Fuller utilization

of the country's abundant natural gas

reserves is needed to maintain

economic growth while reducing the

risk of climate change. Efficient use of

Nile water, Egypt's most precious

resource, is required for agricultural

expansion, industrial growth, and the

burgeoning population. And sustaining

the natural resource base that supports

tourism, the second largest source of

national income, requires proactive

intervention.

Under SO 263-019: Improved

management of the environment and

natural resources in targeted sectors,

USAID seeks to improve management

of Egypt's environment and natural

resource base in four areas: 1)

urban/industrial pollution; 2) Red Sea

natural resources; 3) energy efficiency;

and 4) Nile water resources. Results

under the SO are being realized

through three program initiatives: the

Egyptian Environmental Policy Program

(EEPP), Cairo Air Improvement Project

(CAIP), and the Agricultural Policy

Reform Program (APRP).

As a result of USAID support to the

Ministry of Water Resources and

Irrigation (MWRI) to improve Nile

water management and water use

efficiency, institutionalization of

stakeholder participation in Nile

irrigation water management is

progressing. In 2000, the APRP

garnered approval of a policy to adopt

the Irrigation Management Transfer

concept and promote water users'

participation in irrigation and drainage

system management. Real value of

agricultural production per 1000 cubic

meters of Nile irrigation water rose in

1998/99 to LE 551 (exceeding target),

and is expected to reach LE 600 in

2001/02.

Sales of clean burning compressed

natural gas (CNG) rose from 20.2

million gasoline gallon equivalents

(GGE) to 28.795 million GGE in FY

2000, exceeding the expected level.

Under the Cairo Air Improvement

Project, USAID promoted CNG use in

the transportation sector through

technology transfer of CNG bus

components and garage equipment,

and heavy vehicle emission testing

equipment. Egyptian counterpart CNG

technology investments totaled

approximately $13.1 million in buses,

support facilities, and land. USAID also

supported the development of CNG

safety standards for fueling equipment

and tanks and provided $17.3 million

in Commodity Import Program loans in

FY 2000 to the private sector for

environmental technology.

USAID support through EEEP led to

Egypt's first solid waste management

privatization contract in Alexandria,

which will improve the lives of over

four million residents. In FY 2000,

USAID also assisted the Tourism

Development Authority (TDA) in

introducing environmental

management systems (EMS) to Red Sea

hotels, which included

water/wastewater and solid waste

reduction techniques and the use of

renewable energy. The TDA

implemented a pilot EMS program

working with five hotels and issuing

EMS guidelines to the tourism industry. 

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

20 U.S. Agency for International Development
USAID technical assistance

documented 50 percent decreases in

water and energy consumption by

hotels, and the Starwood Corporation

(Sheraton) has adopted EMS for its 14

facilities in Egypt. The percentage of

rooms on TDA-owned lands investing

in environmental best practices rose

from 38.1 percent to 43 percent in CY

2000 (exceeding the expected level).

In FY 2000, the largest lead smelter in

Egypt curtailed production and

initiated plans for relocation and

rehabilitation as a result of USAID's

Cairo Air Improvement Program

support. The average concentration of

airborne lead in the Shoubra Al

Kheima district in northern Cairo fell

by 50 percent during FY 2000

compared to FY 1999 levels. In the

energy sector, USAID provided

assistance to the Energy Efficiency

Council, which is completing a

National Energy Efficiency Strategy

Framework for Egypt (expected FY

2001). As a result of USAID technical

assistance, energy efficiency service

companies increased in number during

CY 2000 from nine to 13.

Illustrative Strategic Objective

Assessed as Not Meeting

Expectations

In Georgia, USAID's SO 114-015, A

more economically efficient and

environmentally sustainable energy

sector focuses on 1) creating a business

climate that will attract private sector

participation and ownership, leading to

improvements in the management of

resources and provision of services;

and 2) improving energy sector

efficiency in economic terms, with

increased capital and operating

resources available to energy sector

companies. The SO did not meet

expectations, due to the energy sector's

lack of generated revenues and poor

management of cash flows.

In FY 2000, the number of customers

served through privately held

distribution companies held constant

(480,810), and the proportion of

electricity generated by private

suppliers improved from 9.3 % to

22.6%, exceeding USAID expectations.

However, although revenue collections

for electricity improved in Tbilisi and

other major cities, payments from

large, state industrial users and local

distribution companies declined,

causing a drop in the economic basis

for delivery of electricity from 43% (FY

1999) to 40% (FY 2000). Lack of

revenues strapped the energy sector

during the winter, as funds were not

available to pay for imported gas for

electricity generation, and widespread

outages occurred.

Factors such as the lack of political will

to cut off non-payers account for the

failure of the sector to meet heat and

electricity needs. The formation and

initial operations of the Georgia

Wholesale Electricity Market (WEM), a

transparent electricity trading

mechanism, has not met expectations,

and local distribution companies and

large industrial customers are still not

paying fully for electricity received.

Likewise, the state-owned electricity

transmission and dispatch

organizations bow to political pressure

and supply electricity to non-paying

customers.

Management contracts are viewed as a

politically acceptable solution to rectify

this situation. Thus, issuing

management contracts for the WEM

and preparing the rest of Georgia's

electricity generation and distribution

entities for sale to qualified

international investors, have been

USAID's major emphases in this sector

in 2000. In addition, in line with

recent conditions for U.S. contributions

for winter heat subsidies, the GOG

agreed to cut off electricity to nonpaying enterprises.

In mid-year, the Ministry for State

Property Management (MSPM) broke

off negotiations with several potential

bidders for 26 western Georgian

electricity distribution companies and

several hydroelectric facilities, citing

unreasonable expectations for tariffs

and rates of return on investment. The

MSPM and the Ministry of Fuel and

Energy then "re-aggregated" the

remaining municipality-controlled

electricity distribution companies into

eight regional companies and readied

them for another privatization effort to

be conducted in 2001. This reaggregation should make it easier to

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 21

In FY 2000, the largest lead

smelter in Egypt curtailed

production and initiated plans for

relocation and rehabilitation as a

result of USAID’s Cairo Air

Improvement Program support.
sell these more economically sized

entities to foreign investors. USAID will

assist the GOG to reaggregate the local

electricity distribution companies and

improve revenue collections and

technical operations. The goal of this

assistance will continue to be

preparation for commercial operations

and privatization. The MSPM

negotiated with the World Bank's

International Finance Corporation,

which USAID is financing, to provide

investment banking services to

facilitate the sale of the remaining

distribution and generation assets.

Privatization of the gas distribution

system for Tbilisi is also a major

component of USAID's program.

During the past two years, USAID had

difficulty in finding investors willing to

assume the deteriorating assets and

poor history of payments. In response,

USAID shifted its focus to customer

meter installation, operational

improvements, and increased revenue

generation to improve the

attractiveness of the system for another

attempted sale.

2. The Global Health Pillar

Stabilizing the world's population

benefits the American public by

contributing to global economic

growth, a sustainable environment, and

regional security. Reduced population

pressures will also lower the risk of

humanitarian crises in countries where

population growth rates are highest.

Protecting human health and nutrition

in developing and transitional

countries also directly affects public

health in the U.S. Unhealthy

conditions elsewhere increase the

incidence of disease and threat of

epidemics that could directly affect

U.S. citizens, retard economic

development, and increase human

suffering. 

Stabilization of rapid population

growth and improved health and

nutrition are essential to sustainable

development. They are also

fundamentally interdependent. When

people are nourished and free from the

ravages of infectious diseases, they can

contribute more fully to their own

social and economic progress and to

that of their nations. Nutrition

education, investments to correct

micronutrient deficiencies, and

investments in basic health services

will significantly improve the health of

undernourished people, especially

children and vulnerable populations.

When people can control the size of

their families, resources are made

available at the household, national,

and global levels for enduring

improvements in quality of life.

Moreover, improved health status of

women and girls plays a critical role in

child survival, family welfare,

economic productivity, and population

stabilization.

FY 2001 Strategic Goal: World

population stabilized and human

health protected

USAID works in the following five

main Global Health areas:

• Reducing the number of

unintended and mistimed

pregnancies;

• Improving infant and child

health and nutrition and

reducing infant and child

mortality;

• Reducing deaths and adverse

health outcomes to women as a

result of childbirth; 

• Reducing the HIV transmission

rate and the impact of the

HIV/AIDS pandemic in

developing countries; and

• Reducing the threat of infectious

diseases of major public health

importance.

While USAID has five main thrusts

to its Global Health efforts, these are

carefully integrated. In addition,

research, policy dialogue, health

sector reform, systems strengthening,

and capacity building–while not

among USAID's specific strategic

objectives for population, health,

and nutrition–are significant

crosscutting activities necessary for

ensuring long-term availability,

accessibility, efficiency, and quality

of population, health, and nutrition

services.

Overall, 97 percent of assessed

Strategic Objectives for stabilizing

world population and protecting

human health met or exceeded

performance expectations.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

22 U.S. Agency for International Development
Illustrative Operating Unit

Assessments of Performance

Comprehensive Child Survival and

Infectious Disease Programs in India

In India, HIV/AIDS incidence is rapidly

increasing, and over one-third of the

population of more than a billion

people lack adequate food. Food

insecurity is one of many factors that

contribute to a child mortality crisis:

One of every 11 children in India dies

before the age of five. 

Two USAID/India objectives target

these challenges. Through SO-3,

Improved child survival and nutrition

in selected areas of India, USAID has

partnered with the GOI by

programming over $127 million in

assistance to combat child mortality

and nutritional shortfalls through the

P.L.480 (Food for Peace) Title II

program and Child Survival (CS) funds.

CARE and Catholic Relief Services

(CRS) implement the Title II program,

the largest U.S. non-emergency food

aid program in the world. The program

reaches about 7.5 million poor women

and children at the greatest risk to

mortality, morbidity, and malnutrition

in over 102,000 remote rural and tribal

villages. With USAID support, CARE's

Integrated Nutrition and Health

Program works within the GOI

Integrated Child Development Services.

CRS' Safe Motherhood and Child

Survival program, also funded by

USAID, is implemented through social

service societies. 

The Title II program has reached 98%

of the planned target population, with

193,553 Metric Tons of Title II

commodities supplied in 102,355

villages across the nation. Progress in

integrating food and health continues.

Further, Title II activities were refined in

FY 2000 according to the

recommendations of a mid-term

review. CARE's Title II program

implemented a unified capacity

building strategy that replaced four

previous models of varying intensity

and interventions. CARE also

developed, tested, and implemented a

new Management Information System

(MIS) that integrates commodity and

health information systems. 

Using Child Survival funds to address

the causes of child mortality, USAID

initiated discussions with the

Government of Uttar Pradesh (GOUP)

and UNICEF to improve vitamin A

coverage in UP. The ongoing USAIDWorld Bank supported De-worming

and Enhanced Vitamin A trial (DEVTA)

in UP, covering about one million

children and slated for completion in

2003, will validate the impact of

concurrent vitamin A supplementation

and de-worming on mortality and

growth of children. Under the Program

for the Advancement of Commercial

Technology/Child and Reproductive

Health activity, a leading Indian bank,

ICICI Limited, supported the social

marketing campaign to position Oral

Rehydration Salts (ORS) as the

scientific, doctor-recommended, firstline product for childhood diarrhea. 

Through SO-7, Reduced transmission

and mitigated impact of infectious

diseases especially STD/HIV/AIDS in

India, USAID targets the HIV/AIDS

epidemic and its associated killer,

tuberculosis. Although prevalence is

less than one percent nationwide, India

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 23

Not Met

3%

Met

73%

USAID Objectives Linked to

Population, Health, and Nutrition

Exceeded

24%

"In the last 40 years, infant

mortality rates have dropped from

162 per 1,000 live births to 69, a

drop of almost two-thirds. That

drop was principally a result of

the introduction of a series of

technologies, many of them

crusaded by this agency, that led

to the lowering of newborn

deaths."

Administrator Andrew Natsios

at USAID's 40th Anniversary
is second only to South Africa in the

numbers infected. In addition, over

420,000 Indians die annually from TB

and nearly 2 million new cases are

diagnosed annually.

USAID results reflect the reduction in

transmission of HIV/AIDS and related

infectious diseases in the Indian state

of Tamil Nadu, one of India's three

recognized HIV epicenters. USAID

began tackling the disease in Tamil

Nadu in 1992 by developing the AIDS

Prevention and Control (APAC) activity.

This ten-year program targeted

transmission in high-risk groups by

using proven strategies for behavior

change; increasing access to and

utilization of high quality condoms;

and expanding access to and

utilization of quality treatment for

sexually transmitted diseases (STDs).

Results from Tamil Nadu are promising.

APAC results continue to demonstrate

high levels of condom use among

commercial sex workers (CSW) and

their clients. CSW condom use

increased by 3.1 percent from FY 1999

to FY 2000 (88.1% to 91.2%) and

70.1% of truckers reported condom

use during their last non-regular sexual

encounter, up from 66.9% in FY 1999.

Condom use among Sexually

Transmitted Infection (STI) patients is

19%; more work is required to

increase use for this risk group. 

In 1999, USAID supported the

development of a model Directly

Observed Therapy Short Course

(DOTS) treatment center in Tamil Nadu

in collaboration with WHO. USAID

saw a doubling of treatment success

through 2000. Tuberculosis control

data from the DOTS project indicated

that 70% of cases were detected in the

project area, of which 75% were

treated successfully. Over 100,000

people were tested for TB as part of a

systematic community survey in Tamil

Nadu.

With USAID and World Bank support,

over 50% of Tamil Nadu has been

covered by DOTS, although the

effectiveness of coverage needs to be

improved. A TB resistance survey was

completed and data indicated about

2% of TB patients present some form of

resistance. The Multidrug-Resistance TB

(MDRTB) survey will continue.

Through the DOTS project, over 1,400

health providers have completed indepth training.

Illustrative Strategic Objective

Assessed as Not Meeting

Expectations

In Namibia, USAID assessed that

SO673-005, The risk of HIV/AIDS

transmission reduced through a model

prevention program in a key region did

not meet expectations. Performance

data were unavailable for the Results

Review and Resource Request (R4) due

to revision of the results framework.

USAID launched a new program

designed to assist Namibia in its

multi-sector HIV/AIDS prevention and

care efforts. Initially designed to target

only one key geographic region, the

USAID program is now being

reviewed in conjunction with the

Government of Namibia (GRN) to

better counteract the burgeoning

spread of HIV/AIDS across a wider

geographic area. Another critically

important dimension to the program

began in early FY2001 to address the

challenge of adequately caring for

orphans and vulnerable children.

USAID/Namibia was unable to reach

agreement with the Government on

the originally designed program and is

currently negotiating a new program.

Outside the context of an agreement

with the GRN, USAID began to

implement activities through Family

Health International (FHI). To date,

FHI has established productive

relationships with the two ministries

of education, the Ministry of Labor,

several municipalities, and a number

of NGOs. Prospects for the future,

however, will depend on the strength

of the USAID health program's

relationship with the Ministry of

Health and Social Services, which is

charged with national coordination.

In consultation with the GRN, USAID

is planning to increase efforts to

support the care of orphans and

vulnerable children (OVC), and focus

on behavior change and other related

activities of the target populations of

youth and labor in four municipalities.

Following the recommendations of a

recent design team and input from the

Africa Bureau, the Mission has

modified the Intermediate Results and

indicators of the Special Objective to

better reflect the program as it is

currently being implemented.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

24 U.S. Agency for International Development
3. The Democracy, Conflict and

Humanitarian Assistance

Pillar

In the aftermath of September 11,

2001, the goal of a peaceful, stable

world order has assumed even greater

importance to U.S. foreign policy. This

single event will have sweeping social,

economic, political, and military

consequences that will bear directly on

world freedom and democracy. 

In this new context, USAID plays an

important role in promoting resilient,

well-governed, capable states that are

less vulnerable to violent conflict. With

the heightened threat of terrorism,

comes the necessity to swing states

toward more effective, accountable,

legitimate and democratic governance.

The global focus on terrorism brings

opportunities to advance the rule of

law, establish justice, and help

countries develop a stake in global

integration and stability. USAID will

spearhead reforms in developing and

transition countries to improve

education, promote transparency and

accountability, and preempt terrorism.

These efforts will complement USAID's

broader development programs to help

address the underlying sources of

alienation, anger, and despair that feed

radicalism and propel acts of violence

and terror. 

Fragile democracies fail because of poor

economic performance, stalled economic

reforms, inequality, endemic corruption,

dysfunctional rule of law, ethnic and

religious differences, and violence.

Support for democracy and confidence in

democratic institutions is declining in

many transitional democracies.

Increasingly, failed democracies and

economies result in civil war and conflict.

Nearly two-thirds of countries where

USAID works have been ravaged by

civil conflict over the past five years.

Civil war has produced an

unprecedented number of people who

fled their homes in search of food and

personal security. At the end of 2000,

at least 57 countries were the source of

significant uprooted populations. These

situations are marked by widespread

violence, collapse of central political

authority and public services, the

breakdown of markets and economic

activity, massive population

dislocation, and food shortages leading

to starvation, malnutrition or death.

In response to this new global reality,

USAID is restructuring its programs.

The new pillar on Democracy, Conflict,

and Humanitarian Assistance integrates

programs and approaches to deal more

effectively with the underlying social,

economic, and political problems that

contribute to failed states, and that lead

to humanitarian crises. This pillar

integrates programs in democracy and

governance, economic and social

development, agriculture and food

security, international disaster

assistance, and post-conflict transition

initiatives that prevent the re-ignition of

conflict. USAID, in collaboration with

other U.S. Government agencies and

partners, is addressing the causes of

conflict to help prevent, mitigate, or

resolve conflict. USAID has introduced

a new emphasis on dealing with

conflict situations into existing Agency

programs: By expanding Agency efforts

to promote stability, USAID will assist

countries in recovering from conflict,

preventing terrorism, and responding to

humanitarian crises. 

FY 2001 Strategic Goal: Democracy

and good governance strengthened

Expanding the global community of

democracies is a key objective of U.S.

foreign policy. As the primary channel

for U.S. foreign assistance in the

developing world, USAID has taken a

lead role in promoting and

consolidating democracy worldwide.

This role has been carried out through

USAID's second strategic goal, which

calls for the strengthening of

democracy and good governance

through efforts in four areas:

• Helping legal systems operate

more effectively to embody

democratic principles and protect

human rights;

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 25

Not Met

Met 16%

68%

USAID Objectives Linked to

Democracy and Governance

Exceeded

16%
• Supporting political processes,

including elections, that are

competitive and more effectively

reflect the will of an informed

citizenry;

• Promoting informed citizens'

groups that effectively contribute to

more responsive government; and

• Aiding national and local

government institutions in

becoming more open and effective

in performing their public

responsibilities. 

Eighty-four percent of the Agency's

assessed Strategic Objectives that

support democracy and governance

met or exceeded expectations. 

Illustrative Operating Unit

Assessments of Performance

Strengthened Institutions and

Democratic Reforms in Bolivia

Although shaken by violent

demonstrations rooted in popular

dissatisfaction and impatience with the

pace of democratic and economic

development, Bolivia has continued to

move forward in its long march toward

a stable democratic system. In the

process, USAID has played an

important role in strengthening the

sustainability of political reform under

the SO, increased citizen support for

the Bolivian democratic system. Its

assistance has deepened needed

decentralization and judicial reform by

increasing participation and

transparency, and strengthening

judicial, legislative, and municipal

institutions. 

The implementation of the Code of

Criminal Procedures represented a

critical step forward for judicial reform

in Bolivia. With the government fully

committed to the Code's

implementation, the key areas targeted

for USAID assistance included legal

and institutional reform, training, case

backlog resolution, and public

awareness. Major progress occurred in

2000 with congressional approval of

the Public Ministry Law, which

professionalized and institutionalized

the selection and training of public

prosecutors. In addition, USAID

assisted in drafting a new Police Law

under review in Congress. USAID

further contributed to the Code reform

process through the training of over

9,000 judicial trainers (judges,

prosecutors, defenders, and

investigators), whose training of

colleagues has led to sharp reductions

in trial time and use of preventive

detention throughout the country. A

massive public education campaign,

designed with USAID's assistance,

aimed at consolidating the reform

process by reaching over 400,000

Bolivians in an attempt to increase

awareness of the Code. Results from a

nationwide survey showed that over

half of the respondents had heard of

the Code and showed strong support

for oral trials, one of its major goals.

As part of USAID's major strategy to

increase popular support for

democratic reform, the Agency has

continued to encourage the

decentralization process in Bolivia. In

particular, USAID has facilitated the

creation of municipal associations in

eight of nine Bolivian departments,

helping to establish an effective voice

for local government on the national

level. This voice was particularly

helpful in pushing implementation of

the landmark Popular Participation

Law, in spite of lukewarm government

support. With USAID support,

departmental associations have formed

an official lobby, the Federation of

Municipal Associations, insuring a

strong presence in national policy

discussions. USAID has also supported

efforts to increase women's

participation in municipal government,

providing funding for the creation of

an Association of Women Council

Members.

Despite the turmoil caused by last

year's street protests, survey data show

that Bolivian citizens increasingly

recognize the importance of the

municipality in political and economic

life. A nationwide Democracy Values

Survey revealed that 46 percent of

respondents agreed municipal

governments should receive more

resources and responsibility, compared

to just 16 percent arguing for more

central government authority. In a

dramatic show of popular support for

municipal control of resources, a

National Dialogue Law called for 70

percent of all resources secured during

the current Enhanced Highly Indebted

Poor Countries debt relief initiative to 

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

26 U.S. Agency for International Development
be processed through municipalities,

with the remaining 30 percent to be

channeled into health and education

with municipal participation. By 2000,

municipal governments controlled 50

to 60 percent of all public investment-a

marked contrast to the situation before

1995, when central and departmental

authorities controlled 90 percent of all

funding.

Improved Local Governance and

Human Rights in South Africa

South Africa faces daunting problems,

such as widespread poverty, HIV/AIDS,

and an increasing crime rate. However,

it also has important assets for

democracy, including two free and fair

national elections and the stewardship

of former president Nelson Mandela.

Building on these assets to foster the

development of a stable, responsive,

and effective government, USAID has

assisted South Africa's democratization

through its SO, democratic

consolidation advanced. 

These USAID-supported efforts have

been successful on several fronts. For

example, in the area of local

government, the year 2000 saw the

fruits of nearly ten years of effort to

transform the legacy of apartheid into

the new system of governance

mandated by the Constitution. With

significant contributions from USAID,

the government demarcated new

municipal boundaries incorporating

previously all-white and non-white

areas, legally established 284

municipalities covering the entire

country, and passed major legislation

to define municipal powers and

functions and modernize management

systems and practices. In addition, as

the new local government system

moved toward full implementation,

USAID launched direct assistance

projects in 20 target municipalities to

support the new councils and

strengthen citizen-council engagement

in planning, revenue management, and

operational effectiveness. These

projects resulted in increased property

tax payments, growing citizen

participation, and improved

government performance.

USAID has also promoted awareness

and observance of human rights. Some

56,032 South African citizens–nearly

twice the number planned–were

educated on the new Constitution and

Bill of Rights. More than double the

number of expected human rights

violations were reported (9,923 actual

against 4,055 expected), which

suggests that South Africans may be

becoming less acquiescent when

human rights violations are committed.

In addition, 192 (200 planned) human

rights public awareness events were

held, and about 6.5 million

people–one million more than

planned–were reached through these

and other such activities. 

Finally, USAID efforts have furthered

reforms of the criminal justice system.

Most significant has been the support

provided to the Criminal Justice

Strengthening Program, a six-year

program with the Ministry of Justice

designed to create "a more effective

and accessible criminal justice system."

In addition, USAID has worked with

the National Director of Public

Prosecutions to help reduce

outstanding caseloads by 52% (from

5,750 to 2,750 cases). Additional

assistance to this agency helped its

asset forfeiture unit win 37 of 43 cases

tried under newly promulgated laws.

Illustrative Strategic Objectives

Assessed as Not Meeting

Expectations

In Ecuador, democracy efforts focused

almost exclusively on criminal justice

sector reform, with particular emphasis

on the role of the Prosecutor General's

Office in combatting public and private

corruption. However, the Prosecutor

General was found to be blocking

prosecution of corrupt bankers,

resulting in the suspension of this

major component of the mission's

democracy program. In Guatemala,

targets were not met in two democracy

objectives, primarily because of a lack

of resolve on the part of executive

branch officials and hard-liners in the

Congress. As a result, the Portillo

administration failed to meet seminal

Peace Accords targets for increased

revenue collection and its corollary,

social investment. Similarly,

Guatemala's Congress failed to

produce key Peace Accords legislation

and to follow through on commitments

to institutionalize USAID-supported

technical units.

In the Central Asia Republics,

Kazakhstan, Kyrgystan, and

Turkmenistan, government policies and

actions have continued to undermine

USAID democratic reform efforts. In

Turkmenistan, the government

continued to tighten its grip, blocking

civil society activities, strictly

controlling the media, and trampling

citizens' rights. The Kazakhstan

government has been unwilling to

make meaningful changes on

decentralization and local government

reform, while in Kyrgystan, harassment

of opposition candidates and

manipulation of results in last year's

failed parliamentary and presidential

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 27
elections have negatively affected the

development of civil society and

independent media.

FY 2001 Strategic Goal: Lives saved,

suffering associated with natural or

man-made disasters reduced, and

conditions necessary for political

and/or economic development reestablished

The United States is one of the largest

bilateral donors in humanitarian

assistance. American values mandate

offering assistance and international

leadership to alleviate human suffering

from crises. In fulfilling this mandate,

USAID has two objectives under the

Agency's humanitarian assistance goal: 

• To meet urgent needs in times of

crisis; and 

• To reestablish personal security

and basic institutions to meet

critical intermediate needs and

protect human rights. 

USAID provides essential food,

shelter, water, and health services to

keep people alive during disasters.

USAID mobilizes assistance as soon

as a disaster strikes and warrants U.S.

Government response. Each year,

millions of people suffer from

disasters. Many of these

millions–whether refugees fleeing war,

or residents fleeing from floods–are

affected by conflict and disaster year

after year. In 2000, more disasters

were reported than in any year over

the last decade, affecting the lives of

256 million people worldwide. This is

well above the decade's average of

211 million. While more people were

affected, the number of lives lost due

to disasters was 20,000-below the

decade's average of 75,250 deaths per

year.1

USAID responds to both natural

disasters and complex emergencies.

Physical hazards such as drought,

earthquake, cyclone, flood, pest and

disease outbreaks are considered

natural disasters. Those killed are

usually the poorest people, with the

majority or two-thirds from the leastdeveloped countries. The cost of

natural disasters is significant. For this

reason, USAID invests in disaster

prevention and mitigation programs

that enhance regional, national, and

local capacity to plan for, prepare,

respond to and mitigate disaster events. 

Complex emergencies may include

natural disasters such as drought, but

are usually caused or complicated by

civil strife. They are manifested in

armed conflict, displaced populations,

hunger, and death. In 2000, there were

25 major armed conflicts in 24

locations. By the end of 2000, at least

34.5 million people-refugees and

internally displaced-had fled their

homes because of war, persecution,

and human rights abuses.2 The number

of internally displaced persons (IDPs)

continued to exceed the number of

refugees, due to the persistence and

violence of conflicts and severe

government repression and to the

growing unwillingness of many states

to host long-standing refugee

populations. 

Ninety-five percent of the assessed

Strategic Objectives to promote

humanitarian assistance met or

exceeded expectations. 

Humanitarian Relief 

In relief situations, USAID monitors the

health and nutritional status of

populations in crises using two

benchmark indicators. These are Crude

Mortality Rates (CMR) and prevalence

of acute malnutrition in children under

5 years of age. Rates of mortality and

malnutrition decrease when essential

needs are met–such as food, water,

health care, and shelter. Thus, if

humanitarian assistance is effective,

CMR and malnutrition rates will

decrease over time. 

USAID initiated the monitoring of CMR

and nutritional status of populations in

emergency situations with the broader

goal of instituting a global, coordinated

system for gathering, analyzing,

reporting and disseminating

information on progress of relief

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

28 U.S. Agency for International Development

1 World Disasters Report, 2001

2 U.S. Committee for Refugees, World Refugee Survey, 2001

Not Met

5%

Met

80%

USAID Objectives Linked to

Humanitarian Assistance

Exceeded

15%
assistance. This is a collaborative

effort with implementing partners, the

State Department's Bureau of

Population, Refugees, and Migration

(State/PRM); the World Health

Organization (WHO); and the United

Nations Administrative Coordinating

Committee/Subcommittee on

Nutrition (ACC/SCN). The Refugee

Nutrition Information Network (RNIS)

of the ACC/SCN and WHO's

Emergency and Humanitarian Action

(EHA) monitor pilot sites and provide

updated analysis of CMR and

nutritional status of beneficiaries.

PVOs/NGOs, and UN agencies such

as UNICEF, the UN High Commission

on Refugees (UNHCR), and the World

Food Programme (WFP) provide data.

As stated in the FY 2000 and FY 2001

Agency Performance Plan (APP), these

performance indicators are

experimental. Progress to date shows

that this is a feasible undertaking, and

additional sites are being added. In

selected sites, CMR and nutritional

status indicators are monitored over

time to ensure rates are within

international standards. The

benchmark established was: 

• Four to five pilot sites selected

and baseline established from

published data;

• CMR and nutritional status in pilot

sites monitored;

• Methodology for CMR data

collection and analysis reviewed,

pilot-tested and refined; and

• Data collection and operational

issues (including nutritional status

data as part of regular reporting)

coordinated within USAID and

with other agencies.

The Agency achieved the following

progress on the benchmark:

1. USAID has exceeded the target of

5 pilot sites. There are 11 pilot

sites in 11 countries to monitor

CMR. There are 14 sites in 12

countries to monitor nutritional

status.

2. CMR and nutritional status in

these sites are being monitored.

3. The methodology for CMR data

collection with the nutrition

survey protocol was reviewed and

pilot-tested by World Vision in

Sudan. The methodology was

found to be feasible for

PVOs/NGOs. With the assistance

of Action Against Hunger,

guidelines are being finalized for

wider dissemination.

4. Data collection and operational

issues are being addressed and

coordinated within USAID and

with other agencies. USAID is

leading the effort to institute a

global, coordinated system for

measuring and reporting on CMR

and nutritional status. Since CMR

is not yet routinely collected by

USAID-funded PVOs, USAID is

developing a support mechanism

for PVOs that enables them to

gather, analyze, and report on

CMR and nutrition indicators. This

will also provide much needed

assistance to strengthen overall

technical capacity of

humanitarian assistance

organizations to undertake

nutritional and health assessments

in emergencies. In addition,

USAID plans to establish a realtime web-based information

center where data from the field

can be posted and accessed to

facilitate rapid program planning

and design. A technical core

group from collaborating

agencies, and individual experts

in emergency health and

nutrition, is being formed to

ensure that technical assistance is

available and can be readily

accessed by implementing

partners. Training will be

integrated with ongoing field

activities, such as the Sphere

Project, a collaborative effort of

the humanitarian community to

build more transparent systems of

accountability. CMR and

nutritional status are included as

two of the Sphere measures for

minimum standards in

humanitarian response.

One measure of USAID's success is

the recent adoption by State/PRM of

CMR as one of their humanitarian

response performance indicators. This

is now reflected in State/PRM's

Bureau Performance Plan, a key

management tool that outlines how

State/PRM intends to fulfill the

Department's responsibility for their

strategic goals. As a joint USG effort,

USAID and State/PRM are advocating

to other donors the use of these

indicators to monitor relief situations,

and coordination on the provision of

technical assistance to implementing

partners. USAID's efforts to coordinate

with other donors have been

welcomed by implementing partners,

as this will facilitate their reporting to

several of their donors. 

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 29
Transition 

USAID reviews performance in

achieving the "transition" objective

against benchmarks in a set of postconflict transition countries that were

selected in 1998. These include eight

sub-Saharan African countries: Angola,

Burundi, the Democratic Republic of

the Congo, Liberia, Rwanda, Sierra

Leone, Somalia, and Sudan; three

countries from Asia and the Near East:

Cambodia, Indonesia, and West

Bank/Gaza; six countries from Europe

and Eurasia: Azerbaijan, Bosnia,

Croatia, Georgia, Serbia/Montenegro,

and Tajikistan; and four countries from

Latin America and the Caribbean: El

Salvador, Guatemala, Haiti, and

Nicaragua. In light of changing

situations in transition countries, this

list will be updated as necessary.

USAID uses two performance benchmarks

to monitor progress and trends: The U.S.

Committee for Refugees' World Refugee

Survey on the number of refugees and

internally displaced persons, which USAID

uses to understand the breadth of crisis and

open conflict in a country; and the

Freedom House Index, as expressed in

Freedom of the World, which provides

trend data to assess the democratic status of

transition countries. These indicators

provide contextual information for

assessing changing trends of transitions in

various regions. 

Of the 21 post-conflict countries reviewed

by USAID, only two were classified as

"free" in 2000 by Freedom House. Croatia

and El Salvador both experienced

significant political change in the latter part

of the 1990s. Croatia held presidential and

parliamentary elections in 2000. In addition

the Croatian parliament passed legislation

that limited the power of the president. El

Salvador has been considered "free" since

1997, following the end of the civil war in

1992 and elections held in 1994 and 1997. 

Seven countries are still considered "not

free." In Africa, continued civil war exists in

Angola, the Democratic Republic of Congo

(DROC), Somalia, and Sudan. Cambodia,

partly free during the mid-1990s, continued

to experience government crackdowns on

alleged guerillas and political opponents.

Despite the 1997 peace agreement and

parliamentary elections in 2000, Tajikistan's

classification continued to be "not free." The

recent elections were considered irregular,

and were accompanied by violence from

paramilitary groups. Due to the instability

in Israel, no democratic improvements in

the West Bank/Gaza occurred.

Despite these setbacks, the number of

countries considered "not free" declined

from thirteen in 1993 to eight in 2000.

Improvements in Liberia, Sierra Leone,

Indonesia, Azerbaijan, Bosnia,

Serbia/Montenegro and Haiti contributed to

this trend. 

The total number of persons displaced by

open conflict in 2000 decreased by over

one million people from 1999.

Resettlement in Rwanda, Angola, and

Bosnia contributed to this decline. Of the

over 20 million internally displaced people

(IDPs), those within post-conflict countries

accounted for 11 million. Sudan, the

DROC, and Angola (despite a sizeable

decline) account for 6.9 million IDPs.

Resettlement progress occurred in Bosnia

where the number of IDPs declined by

400,000 during the year. The largest IDP

increase during 2000 was in the DROC

(one million). 

In addition to producing refugee flows,

post-conflict countries were also burdened

with hosting refugees from other countries.

For instance, Sudan currently hosts an

estimated 385,000 refugees; the Federal

Republic of Yugoslavia, 484,0000 and the

Democratic Republic Congo, 276,000.

Over ten percent of all refugees in 2000

were living in these three countries. 

Refugees from post-conflict countries

made up the majority of worldwide

refugees. The number of refugees from

Burundi and the Democratic Republic of

Congo, as well as the number of

Palestinian refugees from West Bank/

Gaza each grew by over 100,000 during

the past year. Refugees from Angola and

Sudan also increased significantly.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

30 U.S. Agency for International Development

Refugees 1990-2000

(millions)

World Total

Other Countries

USAID

Post-Conflict

20

18

16

14

12

10

8

6

4

2

0

Internally Displaced People

1990-2000 (millions)

World Total

Other Countries

USAID

Post-Conflict

30

25

20

15

10

5

0
MANAGEMENT GOAL

AND 2001 RESULTS

FY 2001 Agency

Management Goal: 

Achieve USAID goals in the

most efficient and effective

manner

USAID's management goal provides

the foundation for all USAID

development achievements. USAID/

Washington's role is to provide the

management infrastructure and support

to facilitate the efficient administration

of field programs-the ultimate

customers of Washington's

management function. Since the

Government Performance and Results

Act became law and USAID's original

Strategic Plan was prepared, USAID

has substantially realigned its

management objectives and achieved

incremental progress in better

supporting development operations.

USAID's objective throughout has been

to become a more flexible and

responsive organization that

continuously learns, adapts, and

improves its ability to achieve its goals.

USAID's FY 2001 Annual Performance

Plan stated the Agency's management

goal, "USAID Evolves Into a Model

21st-Century International

Development Agency." The goal

expressed USAID's commitment to

being a leader in development

assistance, to pioneering effective

solutions to pressing development

problems, and to delivering

development assistance as efficiently

and effectively as possible. The

management goal was further refined

in USAID's 2001 Strategic Plan and the

Agency's FY 2000 Performance

Overview.

As noted earlier in this report,

Administrator Natsios established

agency reform and reorganization as

priorities for his first year at USAID,

consistent with the Administration's

emphasis on improved government

performance. The reform of five key

processes–procurement, administrative

services, personnel, information

management, and financial

management–will improve Agency

operations. During FY 2002, USAID

will carry out a detailed review of how

each of the systems is working and will

finalize plans for more effective and

efficient worldwide operations. This

effort will also ensure that the limited

investment dollars are focused on the

most critical and highest payoff

opportunities to meet evolving priorities.

As part of the operational plan to

improve management processes,

USAID developed and began

implementing a series of initiatives

during FY 2001. These management

reforms were designed to ensure

Agency compliance with Federal law,

improve business processes, create

operational efficiencies, and raise the

overall level of customer satisfaction

within the Agency. Management

improvements were designed in each

office and incorporate mechanisms for

measurement that include baselines,

performance standards, and indicators,

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 31

Management Reform 1 - Payroll Inquiries

60%

93% 96% 96%

90% 90% 90% 90%

0%

20%

40%

60%

80%

100%

120%

June-2001 July-2001 August-2001 September-2001

Percentage of payroll inquiries resolved within two pay periods Performance Standard

Management Reform 1 - Payroll Inquiries
and a feedback mechanism that reports

performance back to management and

to customers.

Within the office of Financial

Management (FM), for example, the

payroll function has seen operational

improvement due to these

management reforms. In July 2001,

USAID implemented a system to

expeditiously handle payroll action

requests. The effort exceeded its goal of

resolving 90% of payroll inquiries to

the employees' satisfaction within two

pay-periods (see chart on p.31). In

addition to management reforms in

FM, other reforms were underway in

the Offices of Procurement, Human

Resources, Information Resources

Management and Administrative

Services.

While recognizing the important role

played by Washington-based staff in

the Management Bureau and all

headquarters bureaus in providing

support to programs in the field, the

2001-2002 reorganization also ensures

that field missions, as USAID's strength

and comparative advantage, remain the

focal point of assistance delivery.

Toward this end, USAID is reviewing

overseas staffing to more closely track

with funding levels and program

complexity. In addition, structural

changes will streamline the way USAID

does business, promote sound

information sharing for senior decisionmaking, and reduce redundancies and

disproportionalities in staffing that have

accumulated over time.

(Note: In its FY 2000 Performance

Overview Report, USAID modified the

objectives, performance goals, and

indicators that appeared in its FY 2001

Annual Performance Plan.)

During FY 2001, USAID made good

progress towards four management

objectives under the management goal.

While not all specific targets were met,

on balance, actual results indicate

demonstrable steps taken toward

achieving each objective. The

following section describes the

Agency's progress by specific

management objectives. Appendix 1

provides a comparison of 2001 targets

and actual results.

Management Objective 1:

Accurate program

performance and financial

information available for

Agency decisions

Performance Results

Financial management is a USAID

management priority, in order to bring

Agency financial management systems

into compliance with the Federal

Financial Management Improvement

Act. The cornerstone of USAID's

financial management improvement

program is the implementation of a

fully compliant core financial system.

To this end, USAID successfully

launched Phoenix, a commercial offthe-shelf core financial system that is

compliant with Federal requirements.

In December 2000, USAID deployed

Phoenix to support Washington

operations and during FY 2001, the

Agency implemented tools to extract

overseas financial information for an

automated interface with Phoenix.

USAID also completed the work

necessary to interface Phoenix with

two additional financial systems–the

Department of Health and Human

Services Payment Management System

which services USAID-issued letters of

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

32 U.S. Agency for International Development

While recognizing the important

role played by Washington-based

staff in the Management Bureau

and all headquarters bureaus in

providing support to programs in

the field, the 2001-2002

reorganization also ensures that

field missions, as USAID's

strength and comparative

advantage, remain the focal point

of assistance delivery.
credit for grantees and the Riggs Bank

system, which services loans on behalf

of the Agency. Phoenix and the

Agency's acquisition and assistance

system have also been interfaced to

achieve internal efficiencies and to

ensure the accuracy of financial

information. In addition, USAID

implemented a comprehensive

program to train Agency staff to

transition to Phoenix. As a result of all

of these efforts, the new accounting

system successfully completed one

fiscal year accounting cycle.

Historically, Washington-based

managers have not had access to

accurate, timely and useful financial

information from missions. This was a

factor in USAID's reporting a material

weakness in financial reporting and

resource management. In response,

USAID created a repository of overseas

financial information in Washington in

FY 2001 that provides Agency-wide

financial reporting to support internal

decision-making and external

stakeholder information needs.

Overseas financial transactions are

now captured and stored monthly in

Washington in the Mission Accounting

and Control System Auxiliary Ledger

(MACSAL), which will be used to

generate summary-level postings in the

Phoenix General Ledger for external

reporting. This management

improvement will correct the material

weakness in financial reporting, make

financial information more readily

available to managers, and reduce the

number of cuff-record or shadow

systems used by bureaus for tracking

overseas financial activity. USAID is

now meeting government-wide

quarterly financial reporting

requirements on time and with current

and complete financial information.

In addition, USAID completed the first

phase of its implementation of a

managerial cost accounting (MCA)

model. The model allocates operating

expenses recorded in the general

ledger from the Management Bureau to

benefiting bureaus. The MCA model

along with other cost allocation tools

will be used in preparing the annual

Statement of Net Cost, which reports

revenues and expenses by Agency goals.

The overseas deployment of the core

accounting system will be resequenced

to coincide with acquisition and

deployment of a new procurement

system and updated telecommunication network capabilities. Plans

will be developed for the worldwide

deployment of the system based on a

detailed review of the Agency's

management systems during FY 2002.

Although the Agency did not establish

2001 targets related to performance

information, USAID took several steps

to address program performance and

reporting issues. For example, the

Bureau for Policy and Program

Coordination (PPC) and the Office of

the Inspector General have worked

together closely to develop an

appropriate Performance Management

Audit methodology, which, without

compromising IG independence, is

geared towards providing guidance on

needed improvements.

In addition, PPC did a thorough rewrite

of the Agency's Automated Directives

Systems (ADS) sections on

programming guidance, emphasizing

the need to plan, collect, and report

empirically reliable data. These new

procedures support many of the

management reforms and innovations

described in this chapter and can be found

at: http://www.usaid.gov/pubs/ads/200/.

Based on the rewrite of the

programming guidance, PPC and HR

developed a pair of courses to address

immediate Agency training needs. The

first of these, the ADS Rollout

Workshop, covers all changes in the

new ADS and has been given to some

700 USAID staff worldwide during FY

2001. Also in FY 2001, USAID gave

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 33
the Performance Management

Workshop, a weeklong, hands-on

training, to nearly 300 staff and

implementers worldwide. USAID has

also taken steps to establish websites

where performance knowledge can be

shared, both inside and outside the

Agency. For example, all of USAID's

country results reporting is posted on

the web as soon as the statutes permit.

Other knowledge management

websites are being pre-tested.

Management Objective 2:

USAID staff skills, Agency

goals, core values and

organizational structures

better aligned to achieve

results efficiently

Performance Results

Human resources were identified as a

critical management challenge for

USAID. The first major human resource

concern is workforce planning,3

defined as getting the right person, at

the right time, for the right job, and

doing the right work.

Since September 30, 1992, USAID

experienced significant downsizing of

its combined Civil Service (CS) and

Foreign Service (FS) workforce. During

FY 1996, it reduced its level of FS and

CS employees by 14 percent (from

2,764 to 2,378) and continued to

downsize since then. USAID's target

employment level is 1,035 CS and

1,010 FS employees, a level 14 percent

below its end of FY 1996 level. To

reach these new, lower levels, the

Agency essentially froze new hiring

until FY 1999 and allowed voluntary

attrition to occur. As a result, a skill

imbalance now exists. USAID offered a

"buyout" for the Civil Service in FY

2000 to accelerate voluntary attrition

in occupational categories where fewer

employees were needed. But more

needs to be done to correct the

existing skills imbalance and reshape

USAID's workforce.

USAID's second major workforce

concern is the high number of

retirement-eligible employees. The

average USAID CS employee is 47

years old; the FS average age is 48

years. As of September 30, 2000, 32

percent of USAID's CS workforce and

almost 60 percent of FS employees

were eligible to retire immediately or

by September 30, 2005.

In FY 1998, USAID implemented the

first annual Foreign Service recruitment

plan, based upon analysis of each of

the 19 FS occupational categories. The

analysis projects the number of

employees and number of positions

five years from the beginning of the

current fiscal year. The FY 1998 plan,

for example, projected FS employee

needs by occupational category

through September 30, 2002. The

Agency used Mission data on projected

staffing needs by occupation and

attrition data to estimate the number of

positions and onboard employees five

years hence. The recruitment level is

then based upon projected shortfalls

and USAID's ability to absorb career

candidates.

Excluding the OIG, USAID had 996 FS

employees on 9/30/2000; and 992 on

9/30/2001. FS attrition was 92 in FY

2001. USAID projects FS attrition to be

at least 90 per year through FY 2005

and that total FS &CS attrition will be

200, or about 10% per annum.

The Foreign Service Act of 1980, as

amended, requires that the normal

Foreign Service entry level be at salary

class 4 or below. USAID refers to

entry-level employees as New Entry

Professionals (NEPs). In addition to

NEPs, USAID recruited midlevel career

candidate contract officers (salary class

3) and career candidate legal officers

(salary class 2). USAID hired 30 career

candidates in FY 1999; 51 in FY 2000;

and 81 career candidates in FY2001

(77 NEPs and four legal officers).

A total of 141 employees were brought

on board in FY 2001, consisting of 77

NEPs (Foreign Service entry-level

employees), 18 Presidential

Management Interns, and 46 other

career Civil Service (CS) employees.

NEP Classes are about 10 employees

fewer than target, due to last minute

cancellations or lack of necessary

medical/security clearances. The next

NEP class enters March 2002. USAID

staffed every critical position through

FY 2001, and anticipates that human

resource constraints will ease by the

end of FY 2002.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

34 U.S. Agency for International Development

3 The Office of the Inspector General (OIG) receives a separate appropriation and has separate human resouce authorities. Accordingly, this discussion does

not include OIG human resource issues.
For the first time in almost a decade,

the direct-hire staffing level did not

decrease significantly from the

previous year. The Agency received a

"green light" on the Executive Branch

Management Scorecard for its progress.

In addition to successfully increasing

its intake of professionals in FY 2001,

USAID also achieved significant

progress in staff training. The Agency

increased the number of senior

managers trained through such external

programs as the Federal Executive

Institute and the Foreign Affairs

Leadership Seminar. It also developed

new in-house training programs

designed to enhance managers' results

orientation, financial management,

acquisition and assistance, and

supervisory skills. In FY 2001, 105

executive-level (FS-1/GS-15) employees

and 147 midlevel seniors (FS-2/GS-14,

senior level Foreign Service Nationals

[FSNs] and US PSCs) received training.

In addition, 480 employees received

Acquisition and Assistance training;

385 employees received supervisory

training; and 348 employees were

trained in managing for results.

In the coming years, more work remains

to better align Washington staff with

USAID's strategic goals and objectives.

USAID is developing a Washington

workforce strategy that systematically and

comprehensively assesses headquarters

staffing needs. This strategy will use a

process similar to the FS employment

analysis described above, and will

include an examination of optimal

organization structures in Washington.

This analysis is expected to be completed

in fall 2002 after the completion of

USAID/W reorganization.

Management Objective 3:

Agency goals and objectives

served by well-planned and

managed acquisition and

assistance (A&A)

Performance Results:

USAID achieves development results

largely through intermediaries that receive

USAID funds, i.e., through contractors or

recipients of grants and cooperative

agreements. USAID's Direct Hire staff

perform the "inherently governmental

functions" of strategic planning, program

oversight, financial management,

assessment and reporting, and

negotiations and policy reform with hostcountry governments. In this

environment, efficient and effective

acquisition and assistance systems and

services are critical. For this reason,

USAID leadership designated the

development of more efficient and

effective A&A services as a priority, and

the Agency modified its A&A objective in

the 2000 Revised Strategic Plan.

In the recent past, the Agency

concentrated on increasing the number of

performance-based contracts and resultsbased assistance instruments as the key to

efficient and effective A&A services.

While USAID continued to emphasize

performance-based instruments in FY

2001, better collaboration and integration

among those involved in planning and

carrying out A&A activities was identified

as equally, if not more, important to

achieving development results more

quickly. This includes technical officers

responsible for program design and

implementation, contract officers

responsible for A&A negotiations, and

suppliers.

In FY 2001, USAID expanded its use of

more flexible A&A instruments, such as

indefinite quantity contracts and an

innovative assistance mechanism known

as "Leader/Associate Grants."

Notwithstanding these and other A&A

systems and procedural improvements,

USAID did not fully achieve its goal of

spreading obligations more evenly across

the year. While Washington exceeded its

target for obligations in the first three

quarters, fourth quarter obligations

Agency-wide where higher than

projected.

The goal of reducing fourth quarter

obligations is partly dependent upon

when the Operating Year Budget (OYB) is

made available. In addition, some

programs, such as the Office of Foreign

Disaster Assistance (OFDA), must react to

emergency needs, requiring obligation of

funds at any time. USAID has retained its

obligation targets for FY 2002, but plans

further review to determine whether the

goals should exclude actions that cannot

be planned in advance.

USAID continues to look for ways to

improve the timeliness of procurement

actions with available staff. The Agency

established a pilot program under which

another agency, through a franchise fund,

will award and administer some contracts

in order to enable the USAID contracting

staff to concentrate on the most

important, high dollar value contracts.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 35
USAID achieved important results with

regard to skill certification in the A&A

arena. By the end of FY 2001, 96

percent of Contract Officers (COs) with

unlimited warrants and 77 percent of

COs with warrants of $2.5 million or

more were certified. In addition, the

Administrator approved the new

Cognizant Technical Officer (CTO)

certification program and the budget

resources necessary to certify all CTOs

in three years.

A new automated contract writing

system was implemented in both

Washington and the field that will

allow quicker and easier capture of the

data needed to report to the Federal

Procurement Data Center and the

Small Business Administration.

Baseline data was developed on postaward meetings. Such meetings with

contracting officers, technical staff, and

contractors were held after about thirty

percent of large new contracts.

Planning is well underway to co-locate

two contracting branches with their

client offices as an experiment to

determine whether performance will

be enhanced. Finally, although the

Contract Review Board (CRB) began

reviewing contracts exceeding $10

million in April, because most of the

CRB's work occurred during the last

three months of the year, the board has

not yet provided its findings in order to

establish a baseline.

Management Objective 4:

Agency goals and objectives

supported by better

information management

and technology

The information management and

technology objective was established

in USAID's FY 2000 Performance

Overview. Specific performance goals

and targets were not set for FY 2001.

Performance goals, indicators, and

targets for FY 2002 will be

documented in the FY 2003

Performance Plan.

Performance Results

The following accomplishments during

FY 2001 will provide the baseline for

FY 2002 targets:

• Completed evaluation of new

desktop operating system/office

suite for USAID/Washington.

• Completed network operating

systems and e-mail upgrades at

eight missions.

• Completed telecommunications

network equipment upgrades in

three missions.

• E-Gov Strategy/GPEA Plan

completed and annual GPEA

report updated and submitted to

OMB on schedule.

Given the Agency's decentralized,

worldwide field presence, improving

Agency information management and

technology systems is imperative. To

address these challenges, USAID

developed an Information Management

(IM) Strategic Plan for Fiscal Years 2001-

05, mapping a course to use information

management and technology more

effectively in achieving development

goals and objectives. Under this Plan,

IM will achieve its goals of Exemplary

Leadership, Superior Performance, and

Full Compliance through the

implementation of five strategic

objectives: Improved Information

Infrastructure, Cost-Effective Support

Solutions, Integrated Program Solutions,

Effective Knowledge Management, and

Comprehensive Information

Management. During FY 2002 USAID

will complete a study to reengineer

Agency business practices and develop

a plan to accelerate deployment of

improved Agency-wide systems.

USAID successfully completed its first

Government Paperwork Elimination Act

(GPEA) Plan, which identified transactions

that were candidates for paperwork

elimination. Since then, each of the

candidate transactions has been analyzed

for congruence with infomation security

and architecture standards and prioritized

in terms of business benefits, life-cycle

cost, risk, and return on investment (ROI).

The updated GPEA Plan consolidated and

documented the results, successfully

completing the GPEA Planning Phase on

schedule. The Plan provides a platform for

initial implementation of the USAID Egov Strategy, summarized in terms of the

IM Strategic Objectives. However, a

number of IM requirements critical to the

success of the IM Strategic Plan remain

undeveloped.

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

36 U.S. Agency for International Development
FINANCIAL HIGHLIGHTS

USAID prepares consolidated financial

statements that include a Balance

Sheet, a Statement of Net Cost, a

Statement of Changes in Net Position, a

Statement of Budgetary Resources, and

a Statement of Financing. These

statements summarize the financial

activity and position of the agency.

Highlights of the financial information

presented on the principal statements

are provided below.

Balance Sheet

The Balance Sheet presents amounts

available for use by USAID (assets)

against the amounts owed (liabilities)

and amounts that comprise the

difference (net position). Two major

line items, Fund Balance with Treasury

and Loans Receivable (net) represent

94% of USAID's assets. Fund Balance

with Treasury is funding available in

the Department of the Treasury

accounts from which USAID is

authorized to make expenditures and

pay liabilities. The majority of Loans

Receivable are loans for which funds

have been disbursed under the Direct

Loan programs. Since no new loans

will be disbursed under this program,

changes to Loans Receivable (net) is

generally determined by collections of

principal and interest, billings for

interest, and calculations for loan loss

allowances.

The assets showing the most significant

change from FY 2000 to FY 2001 are

Cash and Other Monetary Assets and

Advances and Prepayments. Cash and

Other Monetary Assets increased by

39% in FY 2001 due to an increase in

foreign currency amounts reported at

two overseas missions. Advances and

Prepayments (non-Federal) decreased

by 63% in FY 2001 because of an

expense adjustment of $476 million

related to the liquidation of

outstanding Letter of Credit funded

advances.

Credit program liabilities represent

81% of USAID's total liabilities. The

bulk of these liabilities are reported as

Resources Payable to Treasury and

Loan Guarantee Liability. Resources

Payable to Treasury represents the

cumulative difference between pre-FY

1992 credit program assets and

liabilities and revenues and expenses,

that is considered payable to the U.S.

Treasury. Loan Guarantee liability is

comprised of an allowance established

for potential defaults on loan

guarantees obligated before FY 1992,

in addition to the estimated subsidy

cost of loan guarantees obligated after

FY 1991 as calculated in accordance

with the Credit Reform Act of 1990.

The three liability line items showing

the most significant change in activity

from FY 2000 to FY 2001 are Accounts

Payable, Debt, and Other Liabilities.

Accounts Payable (intragovernmental)

decreased 59% in FY 2001, the bulk of

which is attributable to four Federal

agencies. Debt decreased 45% to

$64.5 million due to principal

repayments of $52 million made to the

Treasury. Other Liabilities

(intragovernmental) decreased 71% to

$30.8 million. Over half of the

decrease was the result of the

collection of a $40 million receivable

due from the Polish American

MANAGEMENT DISCUSSION AND ANALYSIS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 37
Enterprise Fund. The collection was

recorded as an unavailable

miscellaneous receipt and the funds

were withdrawn to the U.S. Treasury.

Other Liabilities (non-Federal)

increased 27%, from $209 million to

$266 million, primarily due to a $60

million increase in the foreign currency

trust fund.

The change in Cumulative Results of

Operations is attributable to the effects

of prior period adjustments related to

the Agency's Credit Programs and

changes in Plant, Property, and

Equipment.

Statement of Net Cost

This statement provides the reader with

an understanding of the full cost of

operating USAID programs. In FY

2001, approximately 85% of all USAID

costs incurred were directly related to

support of USAID programs. Costs

incurred for the Agency's general

operations (e.g., salaries, training,

support for the Office of Inspector

General) accounted for approximately

15% of the total USAID cost.

Improvements to the Statement of Net

Cost were made during FY 2001.

USAID/Washington program expenses

by goal area are now obtained directly

from Phoenix, USAID's new

accounting system. In addition, a cost

allocation model was developed to

distribute Management Bureau

operating costs to specific goals.

Further refinements are anticipated for

FY 2002.

Statement of Changes in Net

Position

This statement identifies those items

that caused USAID's net position to

change from the beginning to the end

of the reporting period. Imputed

financing for pensions and other future

retirement benefits decreased from

$17.9 million to $12.4 million in FY

2001. Prior Period Adjustments related

to the Agency's Credit Programs were

$11 million in FY 2001. There were no

Prior Period Adjustments in FY 2000.

The decrease in unexpended

appropriations was $199.6 million for

FY 2001 versus an increase for $203.3

million in FY 2000. The primary reason

for this change was due to $246

million in outlays in the Central

America and Caribbean Emergency

Disaster Recovery Fund for which no

additional funds were received in FY

2001.

Statement of Budgetary

Resources

The Statement of Budgetary Resources

provides information on how budgetary

resources were made available for the

year and what the status of budgetary

resources was at year-end. USAID

obligated 73% of all available budgetary

resources for the year. The remaining 27%

of funds are unobligated. Among

unobligated funds, 99% are available for

new programming and obligating in

future years.

Two line items, Adjustments and

Unobligated Balances, Not Available,

accounted for the bulk of the changes in

the Statement of Budgetary Resources

from FY 2000 to FY 2001. These changes

are mainly due to activities related to

Credit Program transfers to the U.S.

Treasury.

Statement of Financing

The Statement of Financing reconciles

proprietary information to budgetary

accounting information. The most

significant increase from FY 2000 to FY

2001 was the Change in Amount of

Goods, Services, and Benefits Ordered

but not yet Received or Provided. The

change in this line item was primarily due

to the net increase in undelivered orders

during FY 2001 for program funds.

Additionally, Exchange Revenue

decreased by 40%. This decrease is

related to the net decrease of Credit

Program interest receivable. Decreases in

Credit Program loans receivable and

collections during FY 2001 contributed to

changes in the Total Resources that Do

Not Fund Net Cost of Operations. For

Financing Sources Yet to Be Provided,

only Actuarial Life Insurance Liability

showed a net increase during FY 2001.

Limitations to the Financial

Statements

The financial statements have been

prepared to report the financial

MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

38 U.S. Agency for International Development
position and results of operations of

USAID, pursuant to the requirements of

31 U.S.C. 3515(b). While the

statements have been prepared from

the books and records of the entity in

accordance with the formats prescribed

by OMB, the statements are in addition

to the financial reports used to monitor

and control budgetary resources which

are prepared from the same books and

records. The statements should be read

with the realization that they are for a

component of the U.S. Government, a

sovereign entity. One implication of

this is that liabilities cannot be

liquidated without legislation that

provides resources to do so.

Looking Forward: Possible

Future Effects of Existing

Events and Conditions

Several operational and financial

variables could affect USAID's

performance in FY 2002. These relate

to such issues as the Agency's mandate

to provide development and

emergency humanitarian assistance in

response to changing foreign policy

priorities and crises, as well as the

challenge of recruiting, retaining, and

training a highly skilled workforce.

With regard to potential operational

changes and cost implications, possible

significant events that could occur include:

• A high number of disasters or

humanitarian crises, whether

natural or man-made, particularly

if these were to occur

simultaneously in multiple

countries; and

• Direction by the President and

Secretary of State to establish

USAID in-country presence in

Pakistan and Afghanistan.

With regard to USAID's workforce, the

Agency is subject to the same general

challenges that the entire Federal

Government faces in attracting and

retaining appropriate staff. These

challenges are exacerbated at USAID,

the Department of State, and other

international and intelligence agencies,

however, due to additional security

clearance requirements, the need for

specialized skills (including foreign

languages), and overseas service,

including hardship posts. Beyond these

recruitment challenges, demographic

trends affecting the USAID workforce

have resulted in an institutional

knowledge gap between new hires and

veteran staff, many of whom are

expected to retire in the next five years.

This gap is currently more serious in

the Foreign Service than in the Civil

Service.

While USAID has accelerated its

recruitment and hiring for both FS and

CS employees as described above,

additional and unforeseen attrition,

combined with the need to upgrade

skills, will place added pressure on

USAID to enhance staff training.

Current projections, for example,

indicate that at least 1,500 Cognizant

Technical Officers should be trained

over the next three years, at an

estimated cost of $3 million.

MANAGEMENT DISCUSSION AND ANALYSIS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 39
MANAGEMENT CONTROL

PROGRAM

USAID maintains an active

management control program in

response to the Federal Managers'

Financial Integrity Act (FMFIA).

USAID's FMFIA program uses external

audits, annual internal reviews

conducted by each of its operating

units, special studies, and observations

of daily operations to identify control

weaknesses. It then develops and

implements detailed corrective action

plans for all weaknesses identified. The

Agency's Management Control Review

Committee, chaired by the Deputy

Administrator, monitors the status of

corrective actions Agency-wide and

determines when they have been

successfully completed. Parallel

committees operate within the

Agency's overseas operating units.

During FY 2001, management control

assessments were conducted by USAID

operating units worldwide in

compliance with Agency policy and

FMFIA standards. No new material

weaknesses were identified. However,

human capital challenges and building

security were raised as areas of

concern.

USAID continued to implement its

plans to resolve the four remaining

material weaknesses. The status of

progress against these material

weaknesses is described briefly below.

USAID's Primary Accounting System.

Since 1988, USAID's accounting

system 1) had not fully complied with

all financial system requirements, 2)

could not produce accurate and timely

reports, and 3) did not have adequate

controls. During FY 2001, USAID

deployed Phoenix, the new accounting

system, in Washington. USAID

successfully migrated financial records

to the new system, trained employees

on the use of the system, implemented

essential interfaces, and provided

accurate and timely financial

information. Following an assessment

of the results of the 2001 financial

statement audit, an audit of the general

systems control environment, and a

review of FFMIA systems standards by

the IG, the Agency will establish the

target correction date.

USAID's NMS Reporting and Resource

Management Capabilities. Since 1997,

Agency-level financial reporting has

not always been sufficiently timely,

accurate or useful to support decisionmaking. The Agency also lacked a

system for capturing data on overseas

procurement actions to comply with

Federal reporting requirements. The

deployment of Phoenix has improved

Agency-level financial reporting. For

example, during 2001, USAID was

able for the first time to report all of its

enterprise wide financial information

on budget execution to OMB in a

comprehensive, timely manner.

Agency-wide external reporting

requirements are now more accurate

and timely. Other external reporting

requirements are also more accurate

and timely. USAID has implemented

an automated procurement data

capture system for overseas missions.

Further work is underway to improve

financial reporting on overseas

programs.

Computer Security Program. By FY

2003, USAID plans to fully implement

its computer security program which

will comply with the Computer

Security Act of 1987, the Agency's

administrative policy, and requirements

of the OMB Circulars A-123, 127 and

130. Decisions by top USAID officials

resulted in designating Information

Systems security as a capital

investment in USAID's budget. By

following Standard Certification and

Accreditation Procedures, USAID has

corrected eight of its material

vulnerabilities. USAID is prioritizing

and implementing security projects as

funding allows. The Agency's IG, CIO

and external agencies, such as the

National Security Agency, are

continuously reviewing best security

practices in the IT arena. USAID's

management oversight process will

continue to assign responsibility and

accountability for identifying, tracking,

and correcting information security

vulnerabilities.

MANAGEMENT CONTROLS

Fiscal Year

2001

Accountability Report

40 U.S. Agency for International Development

USAID's Primary Accounting System

NMS Reporting and Resource 

Management Capabilities

Information Resources 

Management Processes

Computer Security Program

Fiscal Year

First 

Reported

Title

Fiscal Year

Targeted for 

Correction

1988

1997

1997

1997

TBD

2002

2003

2003

Table 2-1 Pending Material Weaknesses
Information Resources Management

(IRM) Processes. USAID plans to

implement a process to include 1)

procedures to select, manage, and

evaluate investments and 2) a means

for senior managers to monitor

progress in terms of costs, system

capabilities, timeliness and quality.

During FY 2001, USAID established an

information management interfaced

product team to formulate and review

the Agency's IT budget. Disciplined

processes in life cycle management are

being provided by experts. Redirecting

the Agency from a systems integration

organization to a technology

acquisition organizations helps in

achieving a Software Engineering

Capability Maturity Model Level 2, a

rating target representative of the top

one-third of all technical organizations.

USAID completed requirements

documentation toward CMM Level 2

status for the network upgrade

initiative. When USAID's Information

Technology Council becomes

operational, IT portfolio management

processes are implemented and the

USAID Capital Planning and

Investment Management Process is

implemented, this weakness will be

closed. The anticipated closure date is

December 2002.

Material Nonconformance of

Financial Management

System

USAID implemented a system that is

compliant with the Joint Financial

Management Improvement Program

(JFMIP) standards on December 15,

2000. The Agency strategy to achieve

compliance with systems standards

was significantly advanced when the

system was implemented with no

changes to the core software. The core

system complies with requirements for

executing and reporting transactions

consistent with the standard general

ledger.

The system achieves this by processing

some transactions individually and

some at a summary level. This standard

was implemented in submitting budget

execution reports to OMB for all of its

worldwide data. Improvements

scheduled for implementation during

2002 will enable the Agency to refine

the data. These improvements will

enable OMB to receive USAID specific

financial information used by its

managers and stakeholders.

The USAID Inspector General has

assigned an audit team to evaluate

USAID's compliance with the Federal

Financial Management Improvement

Act (FFMIA). The accounting system

will be evaluated against a checklist

published by the U.S. General

Accounting Office. We expect that the

review will highlight opportunities for

improvement with the standards. In

addition based on findings by the IG

and other assessment teams, we are

taking action to strengthen general

systems security and the security of our

financial information.

MANAGEMENT CONTROLS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 41

Annual Assurance Statement

As of September 30, 2001, the management accountability and control 

systems of the Agency for International Development provided reasonable 

assurance that the objectives of the Federal Managers' Financial Integrity 

Act were achieved, with the exception of the material weaknesses noted. 

This statement is based on the results of an Agency-wide management 

control assessment, Inspector General audits, and input from senior officials.

 

 Andrew Natsios

 Administrator
USING THE AUDIT

PROCESS FOR AGENCY

IMPROVEMENT

The Office of the Inspector General

(OIG) uses the audit process to help

USAID managers improve the

efficiency and effectiveness of

operations and programs. USAID

management and OIG staff work in

partnership to ensure timely and

appropriate responses to audit

recommendations.

The OIG contracts with the Defense

Contract Audit Agency to audit U.S.-

based contractors and relies on nonfederal auditors to audit U.S.-based

grant recipients. Foreign-based

organizations are audited by either

local auditing firms or the supreme

audit institutions of host countries. OIG

staff conduct audits of USAID programs

and operations, including the Agency's

financial statements, related systems

and procedures, and Agency

performance in implementing

programs, activities, or functions.

During FY 2001, USAID received 646

audit reports; 589 of these reports

covered financial audits of contractors

and recipients and 57 covered Agency

programs or operations.

During FY 2001, the Agency closed

614 audit recommendations. Of these,

211 were from audits performed by

OIG staff and 403 were from financial

audits of contractors or grant

recipients. USAID took final action on

recommendations with $40.9 million

in disallowed costs, and $4.4 million

was put to better use during the fiscal

year.

At the end of FY 2001, there were 303

open audit recommendations, 137

fewer than at the end of FY 2000 (440).

Of the 303 audit recommendations

open at the end of FY 2001 only 26, or

8.6%, had been open for more than

one year. The number of

recommendations open for more than

one year at the end of FY 2001 was

almost one-half the number at the end

of FY 2000, and exceeded the

Agency's target of closing 90% of audit

recommendations within one year.

As regards the 26 recommendations

open for more than one year at the end

of FY 2001, USAID must collect funds

from contractors or recipients to

complete actions on 7 of these

recommendations. The remaining 19

require improvements in Agency

programs and operations. Most of these

are tied to the implementation of the

interfaced financial management

system and improvements in financial

management policies and procedures.

AUDIT FOLLOW-UP PROGRAM 

Fiscal Year

2001

Accountability Report

42 U.S. Agency for International Development

57

Audit Reports Issued in 2001

589

OIG audits of Agency program/operations

Financial audits of contractors/grantees

Beginning balance 10/1/00

Management decisions during fiscal year

Final action

Recommendations implemented

Recommendations not implemented

Ending balance 9/30/01

138

212

251

216

35

99

34,039

14,098

40,942

28,549

12,393

7,195

Recommendations

Dollar Value 

($000)

Beginning balance 10/1/00

Management decisions during fiscal year

Final action

Recommendations implemented

Recommendations not implemented

Ending balance 9/30/01

4

6

6

6

-

4

604

186,352

4,364

4,364

-

182,592

Recommendations

Dollar Value 

($000)

Table 3-2 Management Action on Audits with Disallowed Costs

Table 3-1 Management Action on Recommendations

That Funds Be Put to Better Use
Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 43

FINANCIAL STATEMENTS AND NOTES

CONSOLIDATED BALANCE SHEET (AUDITED)

U.S. Agency for International Development

Consolidated Balance Sheet as of September 30, 2001 and 2000 (In Thousands)

2001 2000

ASSETS 

Intragovernmental 

Fund Balance with Treasury (Note 2) 

Accounts Receivable (Note 3) 

Advances and Prepayments (Note 4) 

Total Intragovernmental 

 

Cash and Other Monetary Assets (Note 5) 

Accounts Receivable, Net (Note 3) 

Loans Receivable, Net (Note 6) 

Operating Materials and Supplies (Note 7) 

General Property, Plant, and Equipment, Net (Note 8 and 9) 

Advances and Prepayments (Note 4) 

 Total Assets 

LIABILITIES (Note 16) 

 

Intragovernmental 

Accounts Payable (Note 10) 

Debt (Note 11) 

Due to U.S. Treasury 

Other Liabilities (Note 12, 13, and 14) 

Total Intragovernmental 

 

Accounts Payable (Note 10) 

Loan Guarantee Liability (Note 6) 

Federal Employees and Veteran's Benefits (Note 14) 

Other Liabilities (Note 12) 

Total Liabilities 

 

Commitments and Contingencies (Note 15) 

 

 NET POSITION 

Unexpended Appropriations 

Cumulative Results of Operations 

Total Net Position 

 

Total Liabilities and Net Position 

$11,214,407 

 423,577 

 76,838 

 11,714,822 

 213,176 

 31,018 

 5,533,169 

 26,099 

 45,373 

 270,237 

17,833,894 

35,496 

 64,528 

 5,278,463 

 30,872 

 5,409,359 

 1,160,274 

 1,167,235 

 30,905 

 266,437 

 8,034,210 

 

 9,789,358 

 10,326 

9,799,684 

$17,833,894 

 $11,120,290 

 473,166 

 63,609 

 11,657,065 

 153,170 

 48,643 

 6,637,712 

 21,122 

 35,969 

 727,571 

19,281,252

86,047 

 116,485 

 6,374,536 

 105,512 

 6,682,580 

 1,287,152 

 1,096,341 

 29,819 

 209,499 

 9,305,391 

 9,989,030 

 (13,169)

 9,975,861 

$19,281,252 

The accompanying footnotes are an integral part of these financial statements.
Fiscal Year

2001

Accountability Report

44 U.S. Agency for International Development

FINANCIAL STATEMENTS AND NOTES 

CONSOLIDATED STATEMENT OF NET COST (UNAUDITED)

U.S. Agency for International Development

Consolidated Statement of Net Cost for the years ended September 30, 2001 

and 2000 (In Thousands)

2001 2000

Costs: 

Broad-Based Economic Growth and Agricultural Development 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Strengthen Democracy and Good Governance 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Human Capacity Built Through Education and Training 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Stabilizing World Population and Protecting Human Health 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Protect the Environment for Long-Term Sustainability 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Promote Humanitarian Assistance 

Intragovernmental 

With the Public 

Total 

Less earned revenues 

Net program costs 

 

Less earned revenues not attributed to programs 

 

Net Cost of Operations (Note 17) 

$142,665 

 2,969,869 

 3,112,534 

 (9,970)

 3,102,564 

 29,678 

 666,444 

 696,122 

 - 

 696,122 

 18,059 

 349,582 

 367,641 

 - 

 367,641 

 51,124 

 1,026,046 

 1,077,170 

 (14,611)

 1,062,559 

 25,032 

 434,982 

 460,014 

 (5,805)

 454,209 

 38,269 

 1,319,788 

 1,358,057 

 (39,421)

 1,318,636 

 (12,196)

$6,989,535 

$71,902 

 3,261,285 

 3,333,187 

 (13,165)

 3,320,022 

 53,463 

 296,158 

 349,621 

 - 

 349,621 

 7,129 

 118,463 

 125,592 

 - 

 125,592 

 89,107 

 1,362,322 

 1,451,429 

 (14,368)

 1,437,061 

 73,502 

 376,486 

 449,988 

 (1,442)

 448,546 

 71,114 

 1,021,745 

 1,092,859 

 (36,939)

 1,055,920 

 (6,294)

$6,730,468 
Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 45

FINANCIAL STATEMENTS AND NOTES

The accompanying footnotes are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION (AUDITED)

U.S. Agency for International Development

Consolidated Changes in Net Position for the years ended September 30, 2001 

and 2000 (In Thousands)

2001 2000

Net Cost of Operations 

Financing Sources (other than exchange revenues) 

Appropriations Used 

Donated Revenue 

Imputed Financing 

Other Financing Sources 

Net Results of Operations 

 

Prior Period Adjustments (Note 18) 

Net Change in Cumulative Results of Operations 

 

Increase (Decrease) in Unexpended Appropriations 

 

Change in Net Position 

 

Net Position-Beginning of Period 

 

Net Position-End of Period

 $(6,989,535)

 6,941,692

 47,918

 12,380

 - 

 12,455

 11,040

 23,495

 (199,672)

 (176,177)

 9,975,861

 9,799,684

 $(6,730,468)

 6,663,278

 57,043

 17,985

 226

 8,064

 - 

 8,064

 203,319

 211,383

 9,764,478

 9,975,861
Fiscal Year

2001

Accountability Report

46 U.S. Agency for International Development

CONSOLIDATED STATEMENT OF BUDGETARY RESOURCES (AUDITED)

The accompanying footnotes are an integral part of these financial statements.

U.S. Agency for International Development

Consolidated Statement of Budgetary Resources for the years ended September 30, 2001 

and 2000 (In Thousands)

2001 2000 Restated

Budgetary Resources: (Notes 19 and 20) 

 

Budget Authority 

Unobligated Balances - Beginning of Period 

Spending Authority from Offsetting Collections 

Adjustments 

Total Budgetary Resources 

 

Status of Budgetary Resources: 

 

Obligations Incurred 

Unobligated Balances - Available 

Unobligated Balances - Not Available 

Total, Status of Budgetary Resources 

 

Outlays: 

 

Obligations Incurred 

Less: Spending Authority from Offsetting Collections 

and Adjustments 

Obligated Balance, Net - Beginning of Period 

Less: Obligated Balance, Net - End of Period 

 

Total Outlays

$6,857,262

2,228,559

1,063,294

(880,487)

9,268,628

6,804,038

2,450,907

13,683

9,268,628

6,804,038 

(1,169,319)

9,326,315

(9,223,430)

 $5,737,604

$6,823,903

1,957,279

1,137,734

106,820

10,025,736

6,928,676

2,098,471

998,589

10,025,736

6,928,676

(1,359,553)

9,306,691

(9,326,315)

$5,549,499

FINANCIAL STATEMENTS AND NOTES 
Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 47

FINANCIAL STATEMENTS AND NOTES

CONSOLIDATED STATEMENT OF FINANCING (UNAUDITED)

The accompanying footnotes are an integral part of these financial statements.

U.S. Agency for International Development

Consolidated Statement of Financing for the years ended September 30, 2001 

and 2000 (In Thousands)

2001 2000

Obligations and Nonbudgetary Resources 

 

Obligations Incurred 

Less: Spending Authority from Offsetting Collections and Adjustments 

Earned Reimbursements 

Collected 

Receivable from Federal Sources 

Change in unfilled customer orders 

Donations Not in the Entity's Budget 

Financing Imputed for Cost Subsidies 

Exchange Revenue Not in the Budget 

Total Obligations as Adjusted, and Nonbudgetary Resources 

 

Resources That Do Not Fund Net Cost of Operations 

 

Change in Amount of Goods, Services, and Benefits Ordered but 

not yet Received or Provided 

Change in Unfilled Customer Orders 

Costs Capitalized on the Balance Sheet 

General Property, Plant, and Equipment, Net 

Loans 

Purchases of Inventory 

Financing Sources that Fund Costs of Prior Periods 

Collections that Decrease Credit Program Receivables or 

Increase Credit Program Liabilities 

Adjustment for trust fund outlays that do not affect net cost 

Other (Note 21) 

Total resources that do not fund net cost of operations 

 

Costs That Do Not Require Resources 

 

Depreciation and amortization 

Other 

Total costs that do not require resources 

Financing Sources Yet to be Provided (Note 14) 

Net Cost of Operations

$6,804,038 

 (1,068,762)

 5,799 

 (331)

 47,918 

 12,380 

 (228,123)

 5,572,919 

 267,523 

 331 

 (12,394)

 (79,591)

 (4,978)

 (6,007)

 (62,202)

 (3,187)

 1,314,636 

 1,414,131 

 6,863 

 (5,464)

 1,399 

 1,086 

 $6,989,535

$6,928,676 

 (1,129,178)

 (8,555)

 (1)

 56,800 

 17,985 

 (378,300)

 5,487,427 

 (169,869)

 1 

 (13,866)

 (262,517)

 (5,603)

 - 

 (43,396)

 - 

 1,616,832 

 1,121,582 

 5,216 

 40,659 

 45,875 

 75,584 

$6,730,468 
NOTES TO THE PRINCIPAL

FINANCIAL STATEMENTS

NOTE 1.

Summary of Significant

Accounting Policies

A. Basis of Presentation

These financial statements report

USAID's financial position and results

of operations. They have been prepared

using USAID's books and records in

accordance with Agency accounting

policies, the most significant of which

are summarized in this note. The

statements are presented in accordance

with the applicable form and content

requirements of OMB Bulletin 97-01

and 01-09, Form and Content of

Agency Financial Statements, and the

Government Management Reform Act

of 1994.

USAID accounting policies follow

generally accepted accounting

principles for the Federal government,

as recommended by the Federal

Accounting Standards Advisory Board

(FASAB). The FASAB has been

recognized by the American Institute of

Certified Public Accountants (AICPA)

as the official accounting standard set

for the Federal government. These

standards have been agreed to, and

published by the Director of the Office

of Management and Budget, the

Secretary of the Treasury, and the

Comptroller General. Federal

accounting standards are based on the

following hierarchy:

1. FASAB Statements and Interpretations as well as AICPA and

Financial Accounting Standards

Board (FASB) pronouncements if

made applicable to Federal

governmental entities by a FASAB

Statement or Interpretation.

2. FASAB Technical Bulletins and the

following pronouncements if

specifically made applicable to

Federal governmental entities by

the AICPA and cleared by the

FASAB: AICPA Industry Audit and

Accounting Guides and AICPA

Statements of Position.

3. AICPA Accounting Standards

Executive Committee (AcSEC)

Practice Bulletins if specifically

made applicable to Federal

governmental entities and cleared

by the FASAB as well as Technical

Releases of the Accounting and

Auditing Policy Committee of the

FASAB.

4. Implementation guides published

by the FASAB staff and practices

that are widely recognized and

prevalent in the Federal

government.

5. Other accounting literature,

including FASAB Concept

Statements; pronouncements in

categories 1-4 above when not

specifically made applicable to

Federal governmental entities;

FASB Concepts Statements; GASB

Statements, Interpretations,

Technical Bulletins, and Concepts

Statements; AICPA Issues Papers;

International Accounting Standards

of the International Accounting

Standards Committee;

pronouncements of other

professional associations or

regulatory agencies; AICPA

Technical Practice Aids; and

accounting textbooks, handbooks,

and articles.

B. Reporting Entity

Established in 1961 by President John

F. Kennedy, USAID is the independent

U.S. Government agency that provides

economic development and

humanitarian assistance to advance

United States economic and political

interests overseas.

Programs

The financial statements reflect the

various program activities, shown by

appropriation in the financial

statements, which include such

programs as the Economic Support

Fund, Development Assistance,

Assistance for the New Independent

States of the Former Soviet Union,

Special Assistance Initiatives,

International Disaster Assistance, Child

Survival and Disease, Central America

and the Caribbean Emergency Disaster

Recovery Fund, Transition Initiatives,

and Direct and Guaranteed Loan

Programs. This classification is

consistent with the Budget of the

United States.

Economic Support Fund

Programs funded through this account

provide economic assistance to select

countries in support of efforts to

promote stability and U.S. security

interests in strategic regions of the

world.

Development Assistance

This program provides economic

resources to developing countries with

the aim of bringing the benefits of

development to the poor. The program

promotes broad-based, self-sustaining

economic growth and supports

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

48 U.S. Agency for International Development
initiatives intended to stabilize

population growth, protect the

environment and foster increased

democratic participation in developing

countries. The program is concentrated

in those areas in which the United

States has special expertise and which

promise the greatest opportunity for the

poor to better their lives.

Assistance for the New

Independent States of the Former

Soviet Union

This account provides funds for a

program of assistance to the

independent states that emerged from

the former Soviet Union. These funds

support U.S. foreign policy goals of

consolidating improved U.S. security;

building a lasting partnership with

the New Independent States; and

providing access to each other's

markets, resources, and expertise.

Special Assistance Initiatives

This program provides funds to

support special assistance activities.

The majority of funding for this

program was for democratic and

economic restructuring in Central

and Eastern European countries

consistent with the objectives of the

Support for East European

Democracy (SEED) Act. All SEED Act

programs support one or more of the

following strategic objectives:

promoting broad-based economic

growth with an emphasis on

privatization, legal and regulatory

reform and support for the emerging

private sector; encouraging

democratic reforms; and improving

the quality of life including

protecting the environment and

providing humanitarian assistance.

International Disaster Assistance

Funds for the International Disaster

Assistance Program provide relief,

rehabilitation, and reconstruction

assistance to foreign countries struck

by disasters such as famines, floods,

hurricanes and earthquakes. The

program also provides assistance in

disaster preparedness, and prevention

and mitigation.

Child Survival and Disease

This program provides economic

resources to developing countries to

support programs to improve infant

and child nutrition, with the aim of

reducing infant and child mortality

rates; to reduce HIV transmission and

the impact of the HIV/AIDS

pandemic in developing countries; to

reduce the threat of infectious

diseases of major public health

importance, such as polio and

malaria, and to expand access to

quality basic education for girls and

women.

Central America and the Caribbean

Emergency Disaster Recovery Fund

This program was established by a FY

1999 emergency supplemental bill

and is for necessary expenses to

provide relief for natural disasters in

Central America, South America, and

Colombia.

Transition Initiatives

This account funds humanitarian

programs that provide post-conflict

assistance to victims of natural and

man-made disasters. Until FY 2001,

this type of assistance was funded

under the International Disaster

Assistance account.

Direct and Guaranteed Loans:

Direct Loan

These loans are authorized under

Foreign Assistance Acts, various

predecessor agency programs, and

other foreign assistance legislation.

Direct Loans are issued in both U.S.

dollars and the currency of the

borrower. Foreign currency loans made

"with maintenance of value" place the

risk of currency devaluation on the

borrower, and are recorded in

equivalent U.S. dollars. Loans made

"without maintenance of value" place

the risk of devaluation on the U.S.

Government, and are recorded in the

foreign currency of the borrower.

Urban and Environmental

The Urban and Environmental (UE)

program, formerly the Housing

Guarantee Program, extends guaranties

to U.S. private investors who make

loans to developing countries to assist

them in formulating and executing

sound housing and community

development policies that meet the

needs of lower income groups.

Micro and Small Enterprise

Development

The Micro and Small Enterprise

Development (MSED) Program

supports private sector activities in

developing countries by providing

direct loans and loan guarantees to

support local micro and small

enterprises.

Israeli Loan Guarantee

Congress enacted the Israeli Loan

Guarantee Program in Section 226 of

the Foreign Assistance Act to support

the costs for immigrants resettling to

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 49
Israel from the former Soviet Union,

Ethiopia, and other countries. Under

this program, the U.S. Government

guaranteed the repayment of up to $10

billion in loans from commercial

sources, to be borrowed in $2 billion

annual increments. Borrowing was

completed under the program during

FY 1999, with approximately $9.2

billion being guaranteed. Guarantees

are made by USAID on behalf of the

U.S. Government, with funding

responsibility and basic administrative

functions resting with USAID.

Ukraine Loan Guarantee

The Ukraine Export Credit Insurance

Program was established with the

support of the Export-Import Bank of

the U.S. to assist Ukrainian importers

of American goods. The program

commenced operations in FY 1996 and

expired in FY 1999.

Development Credit Authority

The first obligations for USAID's new

Development Credit Authority (DCA)

were made in FY 1999. DCA allows

missions and other offices to use loans

and loan guarantees to achieve their

development objectives when it can be

shown that: 1) the project generates

enough revenue to cover the debt

service, including USAID fees, 2) there

is at least 50% risk-sharing with a

private-sector institution, and 3) the

DCA guarantee addresses a financial

market failure in-country and does not

"crowd out" private sector lending.

DCA can be used in any sector and by

any USAID operating unit whose

project meets the DCA criteria. DCA

projects are approved by the Agency

Credit Review Board and the Chief

Financial Officer.

Fund Types

The accompanying consolidated

financial statements for USAID include

the accounts of all funds under

USAID's control. The agency maintains

28 general fund appropriations, one

special fund, 13 revolving funds, 3

trust funds, and 5 deposit funds, 2

receipt accounts, and 4 budget

clearing accounts.

General fund appropriations and the

Special fund are used to record

financial transactions under

Congressional appropriations or other

authorization to spend general

revenue.

Revolving funds are established by law

to finance a continuing cycle of

operations, with receipts derived from

such operations usually available in

their entirety for use by the fund

without further action by Congress.

Trust funds are credited with receipts

generated by the terms of the trust

agreement or statute. At the point of

collection, these receipts are

unavailable, depending upon statutory

requirements, or available immediately.

Deposit funds are established for 1)

amount received for which USAID is

acting as a fiscal agent or custodian, 2)

unidentified remittances, 3) monies

withheld from payments for goods or

services received, and 4) monies held

waiting distribution on the basis of

legal determination.

C. Basis of Accounting

The accompanying financial statements

have been prepared on an accrual

basis. Under the accrual method of

accounting, revenues are recognized

when earned and expenses are

recognized when a liability is incurred,

without regard to receipt or payment of

cash.

Budgetary accounting facilitates

compliance with legal constraints on,

and controls of, the use of Federal

funds.

D. Budgets and Budgetary

Accounting

The components of USAID's budgetary

resources include current budgetary

authority (that is, appropriations and

borrowing authority) and unobligated

balances remaining from multi-year

and no-year budget authority received

in prior years. Budget authority is the

authorization provided by law to enter

into financial obligations that result in

immediate or future outlays of Federal

funds. Budgetary resources also

include reimbursement and other

income (that is, spending authority

from offsetting collections credited to

an appropriation of fund account) and

adjustments (that is, recoveries of prior

year obligations).

Pursuant to Public Law 101-510,

unobligated balances associated with

appropriations that expire at the end of

the fiscal year remain available for

obligation adjustments, but not new

obligations, until that account is

canceled. When accounts are canceled

five years after they expire, amounts

are not available for obligations or

expenditure for any purpose and are

returned to the Treasury.

Pursuant to Section 511 of USAID's

Appropriations Act for FY 1994

through FY 1999, or Section 517 for

USAID's Appropriations Act for FY

1987 through FY 1993, funds

appropriated for certain purposes

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

50 U.S. Agency for International Development
under the Foreign Assistance Act of

1961, as amended, shall remain

available until expended if such funds

are initially obligated within their

period of availability.

E. Revenues and Other

Financing Sources

USAID receives the majority of its

funding through congressional

appropriations – annual, multi-year,

and no-year appropriations – that may

be used within statutory limits.

Appropriations are recognized as

revenues at the time the related

program or administrative expenses are

incurred. Appropriations expended for

capitalized property and equipment are

not recognized as expenses. In

addition to funds warranted directly to

USAID, the Agency also receives

allocation transfers from the

Commodity Credit Corporation and the

Department of State.

Additional financing sources for

USAID's various credit programs and

trust funds include amounts obtained

through collection of guaranty fees,

interest income on rescheduled loans,

penalty interest on delinquent

balances, permanent indefinite

borrowing authority from the U.S.

Treasury, proceeds from the sale of

overseas real property acquired by

USAID, and advances from foreign

governments and international

organizations.

Revenues are recognized as financing

sources to the extent that they were

payable to USAID from other agencies,

other governments and the public in

exchange for goods and services

rendered to others.

F. Fund Balances with the

U.S. Treasury

Cash receipts and disbursements are

processed by the U.S. Treasury. The

balances with the Treasury are

primarily appropriated funds that are

available to pay current liabilities and

finance authorized purchase

commitments, but they also include

revolving, deposit, and trust funds.

G. Foreign Currency

The Direct Loan Program has foreign

currency funds, which are used to

disburse loans in certain countries.

Those balances are reported at the U.S.

dollar equivalents using the exchange

rates prescribed by the U.S. Treasury. A

gain or loss on translation is

recognized for the change in valuation

of foreign currencies at year-end.

H. Accounts Receivable

Accounts receivable consist of amounts

due mainly from foreign governments

but also from other Federal agencies

and private organizations. USAID

regards amounts due from other

Federal agencies as 100 percent

collectible. The Agency establishes an

allowance for uncollectible accounts

receivable for non-loan or revenue

generating sources that have not been

collected for a period of over one year.

I. Loans Receivable

Loans are accounted for as receivables

after funds have been disbursed. For

loans obligated before October 1,

1991 (the pre-credit reform period),

loan principal, interest, and penalties

receivable are reduced by an

allowance for estimated uncollectible

amounts. The allowance is estimated

based on a method prescribed by OMB

that takes into account country risk and

projected cash flows.

For loans obligated on or after October

1, 1991, the loans receivable are

reduced by an allowance equal to the

present value of the subsidy costs (due

to the interest rate differential between

the loans and Treasury borrowing, the

estimated delinquencies and defaults

net of recoveries, the offset from fees,

and other estimated cash flows)

associated with these loans. This

allowance is re-estimated when

necessary and changes are reflected in

the operating statement.

Loans are made in both U.S. dollars

and foreign currencies. Loans extended

in foreign currencies can be with or

without "Maintenance of Value"

(MOV). Those with MOV place the

currency exchange risk upon the

borrowing government; those without

MOV place the risk on USAID. Foreign

currency exchange gain or loss is

recognized on those loans extended

without MOV, and reflected in the net

credit programs receivable balance.

Credit program receivables also

include origination and annual fees on

outstanding guarantees, interest on

rescheduled loans and late charges.

Claims receivables (subrogated and

rescheduled) are due from foreign

governments as a result of defaults for

guaranteed loans. Receivables are

stated net of an allowance for

uncollectible accounts, determined

using a country-specific identification

methodology.

While estimates of uncollectible loans

and interest are made using methods

prescribed by OMB, the final

determination as to whether a loan is

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 51
collectible is also affected by actions of

other U.S. Government agencies.

J. Advances and

Prepayments

Funds disbursed in advance of incurred

expenditures are recorded as advances.

Most advances consist of funds

disbursed under letters of credit to

contractors and grantees. The advances

are liquidated and recorded as

expenses upon receipt of expenditure

reports from the recipients.

K. Operating Materials and

Supplies

USAID has operating materials and

supplies held for use that consist

mainly of computer paper and other

expendable office supplies not in the

hands of the user. USAID also has

materials and supplies in reserve for

foreign disaster assistance stored at

strategic sites around the world. These

consist of tents, vehicles, and water

purification units. The Agency also has

contraceptive supplies stored at several sites.

USAID's office supplies are deemed

items held for use because they are

tangible personal property to be

consumed in normal operations.

Agency supplies held in reserve for

future use are not readily available in

the market, or there is more than a

remote chance that the supplies will be

needed, but not in the normal course

of operations. Their valuation is based

on cost and they are not considered

"held for sale." USAID has no supplies

categorizable as excess, obsolete, or

unserviceable operating materials and

supplies.

L. Property, Plant and

Equipment

USAID capitalizes all property, plant

and equipment that has an acquisition

cost of $25,000 or greater and a useful

life of two years or more. Acquisitions

that do not meet these criteria are

recorded as operating expenses. Assets

are capitalized at historical cost and

depreciated using the straight-line

method. Real property is depreciated

over 20 years, nonexpendable personal

property is depreciated over 3 to 5

years, and capital leases are

depreciated according to the terms of

the lease. The Agency operates land,

buildings, and equipment that are

provided by the General Services

Administration. Rent for this property is

expensed. Internal use software that

has development costs of $300,000 or

greater is capitalized. Deferred

maintenance amounts are immaterial

with respect to the financial

statements.

M. Liabilities

Liabilities represent the amount of

monies or other resources that are

likely to be paid by USAID as the

result of transactions or events that

have already occurred. However, no

liability can be paid by the Agency

without an appropriation or borrowing

authority. Liabilities for which an

appropriation has not been enacted are

therefore classified as liabilities not

covered by budgetary resources

(unfunded liabilities), and there is no

certainty that the appropriations will be

enacted. Also, these liabilities can be

abrogated by the U.S. Government,

acting in its sovereign capacity.

N. Liabilities for Loan

Guarantees

The Credit Reform Act (CRA) of 1990,

which became effective on October 1,

1991, has significantly changed the

manner in which USAID's loan

programs finance their activities. The

main purpose of CRA was to more

accurately measure the cost of Federal

credit programs and to place the cost

of such programs on a basis equivalent

to other Federal spending.

Consequently, commencing in FY

1992, the loan program's funding for

activities changed so that activities are

funded through direct appropriation

provided for that year only, rather than

through cumulative appropriations

granted in prior years and accumulated

under the Revolving Fund.

For USAID's loan guarantee programs,

when guarantee commitments are

made, the program records a guarantee

reserve in the program account. This

reserve is based on the present value of

the estimated net cash outflows to be

paid by the Program as a result of the

loan guarantees, except for

administrative cost, less the net present

value of all revenues to be generated

from those guarantees. When the loans

are disbursed, the Program transfers

from the program account to the

financing account the amount of the

subsidy cost related to those loans. The

amount of the subsidy cost transferred,

for a given loan, is proportionate to the

amount of the total loan disbursed.

For loan guarantees made before the

CRA, liabilities for loan guarantees for

pre-1992 loans represent unfunded

liabilities. Footnote 5 presents the

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

52 U.S. Agency for International Development
unfunded amounts separate from the

post-1991 liabilities. The amount of

unfunded liabilities also represents a

future funding requirement to USAID.

The liability is calculated using a

reserve methodology that is similar to

OMB prescribed method for post-1991

loan guarantees.

O. Annual, Sick, and

Other Leave

Annual leave is accrued as it is earned

and the accrual is reduced as leave is

taken. Each year, the balance in the

accrued annual leave account is

adjusted to reflect current pay rates. To

the extent that current or prior year

appropriations are not available to fund

annual leave earned but not taken,

funding will be obtained from future

financing sources. Sick leave and other

types of leave are expensed as taken.

P. Retirement Plans and Post

Employment Benefits

USAID employees are covered by one of

four retirement plans. There are two Civil

Service plans, Civil Service Retirement

System (CSRS) and Federal Employees

Retirement System (FERS), and two foreign

service plans, Foreign Service Retirement

and Disability System (FSRDS) and the

Foreign Services Pension System (FSPS).

The Agency contributes approximately 7.5

percent of an employee's gross salary for

CSRS and FSRDS, and approximately 24

percent of an employee's gross salary for

FERS and FSPS.

Employees may elect to participate in

the Thrift Savings Plan (TSP). Under this

plan, FERS and FSPS employees may

elect to have up to 10 percent, but not

to exceed $10,500, of gross earnings

withheld from their salaries and receive

matching contributions from a

minimum of one percent to a

maximum of five percent. CSRS and

FSRDS employees may elect to have up

to five percent of gross earnings

withheld from their salaries, but they

do not receive matching contributions.

USAID funds a portion of employee post

employment benefits (PEB) and makes

necessary payroll withholdings. It has no

liability for future payments, nor is it

responsible for reporting the assets,

accumulated plan benefits, or unfunded

liabilities, if any, applicable to its

employees for these programs. Reporting

of such amount is the responsibility of the

Office of Personnel Management and the

Federal Retirement Thrift Investment

Board. Current year operating expenses

are charged for the full amount of

employer PEB costs with the unfunded

portion being charged to Other Revenue

Sources-Imputed Financing in accordance

with SFFAS Numbers 5 and 7.

Foreign Service National and Third

Country Nationals at overseas posts

who were hired prior to January 1,

1984, may be covered under CSRS.

Employees hired after that date are

covered under a variety of local

governmental plans in compliance

with host country laws and regulations.

In a limited number of cases where no

plans are regulated by the host country

or where such plans are inadequate,

the employees are covered by a

privately managed pension plan to

conform to prevailing practices by

employers.

The Foreign Service National

Separation Pay Trust Fund (FSNSPTF)

was established in 1991 by public law

102-138 to finance separation

payments for eligible individuals,

primarily Foreign Service Nationals

employed by USAID. The FSNSPTF

finances separation liabilities to

employees who resign, retire, or lose

their jobs due to a reduction-in-force;

and is applicable only in those

countries that, due to local law, require

a lump sum voluntary payment based

on years of service.

Q. Net Position

Net position is the residual

difference between assets and

liabilities. It is composed of

unexpended appropriations and

cumulative results of operations.

• Unexpended appropriations are

the portion of the appropriations

represented by undelivered

orders and unobligated balances.

• Cumulative results of operations

are also part of net position. This

account reflects the net

difference between 1) expenses

and losses and 2) financing

sources, including

appropriations, revenues and

gains, since the inception of the

activity.

R. Non-entity Assets

Non-entity fund balances are

amounts in Deposit Fund accounts.

These include such items as: funds

received from outside sources where

the government acts as fiscal agent,

monies the government has withheld

awaiting distribution based on legal

determination, and unidentified

remittances credited as suspense

items outside the budget. 

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 53
S. Program Costs

Program costs are presented on the

Statement of Net Cost by Agency goal.

The six Agency goals that support

USAID objectives are:

1. Broad-Based Economic Growth

and Agricultural Development

Encouraged

2. Democracy and Good Governance

Strengthened

3. Human Capacity Built Through

Education and Training

4. World Population Stabilized and

Human Health Protected

5. The World's Environment Protected

for Long-Term Sustainability

6. Lives Saved, Suffering Reduced,

and Conditions for Political and

Economic Development Reestablished.

Mission related program expenses by

goal area are obtained from the

Mission Accounting and Control

system (MACS). USAID/Washington

program expenses by goal area are

obtained directly from Phoenix. A cost

allocation model is used to distribute

Management Bureau operating costs to

specific goals. Expenses related to

Credit Reform and revolving funds are

directly applied to specific Agency

goals based on their objectives. Trust

funds and remaining operating

expenses are allocated based on

established program and operating

ratios.

NOTE 2.

Fund Balances with Treasury (In

Thousands)

Fund Balances with the Treasury as of

September 30, 2001 and 2000 are shown

in Table Note 2.

As of September 30, 2001 there was a

cash reconciliation difference of $38

million between USAID and the

Department of the Treasury's Fund

Balances. The difference as of September

30, 2000 was $18.7 million. For FY 2001

and FY 2000 reporting purposes, USAID

adjusted its fund balance downward by

these differences to equal the Department

of the Treasury's fund balance. By

adjusting USAID's fund balance to equal

the Treasury's fund balance, there is

consistency between various published

reports. Also, based on past experience,

the Department of the Treasury's balances

are more accurate and the differences are

usually cleared when USAID processes the

required disbursements.

The $38 million cash reconciliation

difference was posted to separate Fund

Balance sub-accounts and the cash

differences remain identified as such.

USAID is currently performing a

reconciliation of the $38 million total

amount in these accounts and will make

adjustments accordingly. 

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

54 U.S. Agency for International Development

$14,429

1,012,026

10,245,763

(57,811)

$11,214,407

Trust Funds

Revolving Funds

Appropriated Funds

Other Funds

Total

Unobligated Balance

 Available

 Unavailable

Obligated Balance Not 

Yet Disbursed

Total

$14,357

993,513

10,131,380

(18,960)

$11,120,290

$2,499,633

13,679

8,701,095

$11,214,407

2001 2000

2001 2000

$2,100,163

84,276

8,935,851

$11,120,290

Fund Balances With Treasury (In Thousands)

Fund Balances with Treasury as of September 30, 2001 

and 2000 consisted of the following:

Fund Balances:

Status of Fund Balances:

Table Note 2
NOTE 3.

Accounts Receivable, Net

(In Thousands)

The primary components of

USAID's accounts receivable as

of September 30, 2001 and

2000 were as shown in Table

Note 3a.

Reconciliation of

Uncollectible Amounts

(Allowance Accounts)

Entity Intragovernmental

accounts receivable consist of

amounts due from other U.S.

Government agencies. No

allowance has been established

for the intragovernmental

accounts receivable, which are

considered to be 100 percent

collectible. Disbursing

Authority Receivable from

USDA consists of obligational

authority from the U.S. Department of

Agriculture's Commodity Credit

Corporation. The authority is for

payment of transportation costs

incurred by USAID associated with the

shipment of P.L. 480, Title II and III

commodities; Farmer-to-Farmer

Technical Assistance Programs; and for

assistance to private voluntary

organizations, cooperatives, and

international organizations.

Collections against this receivable are

realized when USAID requests a

transfer of funds from USDA to cover

incurred expenses.

All other entity accounts receivable

consist of amounts managed by

missions or USAID/Washington. These

receivables consist of non-program

related receivables such as overdue

advances, unrecovered advances, audit

findings, and any interest related to

these types of receivables. A 100

percent allowance for uncollectible

amounts is estimated for governmental

accounts receivable which are more

that one year past due. Accounts

receivable from missions are collected

and recorded to the respective

appropriation.

Interest receivable is calculated

separately and there is no interest

included in the accounts receivable

Table Note 3b.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 55

 

 

 

Entity Intragovernmental

 Appropriation Reimbursements

 from Federal Agencies $202 $N/A $202 $24,280 

 Accounts Receivable

 from Federal Agencies 7,596

415,779

 N/A 7,596

415,779

448,741

 Disbursing Authority

 Receivable from USDA 145

Total Intragovernmental $423,577 N/A $423,577 $473,166 

 Accounts Receivable $39,906 $(11,620) $28,286 $4,650

 

Total Entity $463,483 $(11,620)

 $(1,470)

$451,863 $477,816 

 Total Non Entity 4,201 2,731 $43,993 

 Total Receivables $467,684 $(13,090) $454,594 $521,809 

Accounts Receivable, Net (In Thousands)

The primary components of USAID's accounts receivable as of September 30, 2001

and 2000 were as follows:

Receivable

Gross

Allowance

Accounts

Receivable

Net

2001

Receivable

Net

2000

 N/A

Note 3. Accounts Receivable, Net (In Thousands)

Beginning Balance

Additions

Reductions

Ending Balance

$11,463

1,954

(327)

$13,090

$9,746

1,936

(219)

$11,463

2001 2000

Reconciliation of Uncollectible Amounts 

(Allowance Accounts)

Table Note 3a

Table Note 3b
NOTE 4.

Advances and Prepayments 

(In Thousands)

Advances and Prepayments as of

September 30, 2001 and 2000 appear in

Table Note 4.

Advances to Host Country Governments

and Institutions represent amounts

advanced by USAID missions to host

country governments and other incountry organizations, such as

educational institutions and voluntary

organizations. Other Advances consist

primarily of amounts advanced for living

quarters and home service.

NOTE 5.

Cash and Other Monetary Assets

(In Thousands)

Cash and Other Monetary Assets as of

September 30, 2001 and 2000 are shown

in Table Note 5.

USAID has imprest funds in various

overseas locations. These funds are

provided by the Department of State

overseas U.S. Disbursing Officers to

which USAID is liable for any shortages.

USAID's portion of the Department of

State imprest funds provided to USAID

was $3.8 million in FY 2001 and $3

million in FY 2000. These imprest funds

are not included in USAID's Balance

Sheet.

USAID/Washington imprest funds of $10

thousand in FY2001 are being held in

reserve in anticipation of emergency relief

efforts for Afghanistan. Foreign

Currencies are related to Foreign

Currency Trust Funds and this amounted

to $213 million in FY 2001 and $153

million in FY 2000. USAID does not

have any non-entity cash or other

monetary assets.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

56 U.S. Agency for International Development

Advances and Prepayments (In Thousands)

Advances and Prepayments as of September 30, 2001 and 

2000 consisted of the following:

Intragovernmental 2001 2000

Total Advances and Prepayments $347,075

$76,838

$76,838

$190,000

3,920

42,071

$723,745

12

20,627

13,619

2,091

1,723

$63,609

$63,609

$791,180

 Advances to

 Federal Agencies

Total Intragovernmental

Prepayments

Advances, Other

Advances to Contractors/

 Grantees

Travel Advances

Advances to Host Country

 Governments

 and Institutions

Table Note 4

Cash and Other Monetary Assets (In Thousands)

Cash and Other Monetary Assets as of September 30, 2001 

and 2000 consisted of the following:

Cash and Other Monetary Assets 2001

$10

50

213,116

$213,176

 Imprest Fund - Headquarters

 UE and Micro and Small

 Enterprise Fund Cash w/Fiscal Agent

 Foreign Currencies

Total Cash and Other Monetary Assets

$-

50

153,120

$153,170

2000

Table Note 5
NOTE 6.

Loans Receivable and Liabilities for

Loan Guarantees (In Thousands)

USAID operates the following loan

and/or loan guarantee programs:

• Direct Loan Program (Direct Loan)

• Urban and Environmental Program

(UE)

• Micro and Small Enterprise

Development Program (MSED)

• Ukraine Export Insurance Credit

Program (Ukraine)

• Israeli Loan Guarantee Program

(Israeli Loan)

• Development Credit Authority

Program (DCA)

Direct loans resulting from obligations

made prior to FY 1992 are reported net

of allowance for estimated

uncollectible loans. Estimated losses

from defaults on loan guarantees

resulting from obligations made prior

to FY 1992 are reported as a liability.

The Credit Reform Act of 1990

prescribes an alternative method of

accounting for direct loans and

guarantees resulting from obligations

made after FY 1991. Subsidy cost,

which is the net present value of

the cash flows (i.e., interest rates,

interest supplements, estimated

defaults, fees, and other cash flows)

associated with direct loans and

guarantees, is required by the Act to be

recognized as an expense in the year

in which the direct loan or guarantee is

disbursed. Subsidy cost is calculated by

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 57

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Direct Loans Obligated Prior to FY 1992 (Allowance for Loss Method) as of 

September 30, 2001:

Direct Loans Obligated Prior to FY 1992 (Allowance for Loss Method) as of 

September 30, 2000:

Direct Loans Obligated After FY 1991 as of September 30, 2001:

Direct Loans Obligated After FY 1991 as of September 30, 2000:

Loan Programs

Direct Loan

MSED

 Total

$9,390,950

1,488

$9,392,438

$348,328

74

$348,402

$4,398,560

2,280

$4,400,840

$5,340,718

(718)

$5,340,000

Loans

Receivable Gross

Interest

Receivable

Allowance

For Loan Losses

Value of Assets

Related to

Direct Loans

 

Loan Programs

Direct Loan

MSED

 Total

$9,994,966

1,872

$9,996,838

$351,522

19

$351,541

$3,989,920

1,747

$3,991,667

$6,356,568

144

$6,356,712

Loans

Receivable Gross

Interest

Receivable

Allowance

For Loan Losses

Value of Assets

Related to

Direct Loans

 

 

Loan Programs

Direct Loan

MSED

 Total

$176,058

657

$176,715

$ - 

35

$35

$180,622

468

$181,090

$(4,564)

224

$(4,340)

Loans

Receivable Gross

Interest

Receivable

Allowance

For Loan Losses

Value of Assets

Related to

Direct Loans

 

 

Loan Programs

Direct Loan

MSED

 Total

$166,240

1,379

$167,619

$ - 

(92)

$(92)

$162,471

239

$162,710

$3,769

1,048

$4,817

Loans

Receivable Gross

Interest

Receivable

Allowance

For Loan Losses

Value of Assets

Related to

Direct Loans

Table Note 6a
Agency program offices prior to

obligation using a model prescribed by

the OMB. Subsidy relating to existing

loans and guarantees is generally

required to be reestimated on an

annual basis to adjust for changes in

risk and interest rate assumptions.

Direct loans are reported net of an

allowance for this subsidy cost

(allowance for subsidy). The subsidy

costs associated with loan guarantees

are reported as loan guarantee liability.

An analysis of loans receivable, loan

guarantees, liability for loan

guarantees, and the nature and

amounts of the subsidy costs associated

with the loans and loan guarantees are

provided in the Table Notes 6a, 6b, 6c,

and 6d.

The net loan receivable amounts are

not the same as the proceeds that

USAID would expect to receive from

selling its loans. Actual proceeds may

be higher or lower depending on the

borrower and the status of the loan.

Loan Guarantees Outstanding are not

presented on the face of the financial

statement but instead are used to

calculate the liability for loan

guarantees presented in Table Notes 6e

and 6f.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

58 U.S. Agency for International Development

Total Amount of Direct Loans Disbursed:

Subsidy Expenses for Post-1991 

Direct Loans as of September 30, 2000:

1 Current Year's Direct Loans

There were no subsidy expenses 

for FY 2000.

2 Direct Loan Modification and Reestimates

There were no modifications or 

reestimates. 

3 Total Direct Loan Subsidy Expense

None.

Direct Loan Programs

Direct Loan

MSED

 Total

$9,567,008

2,144

$9,569,152

$10,161,206

3,251

$10,164,457

2001 2000

Subsidy Expenses for Post-1991 

Direct Loans as of September 30, 2001:

1 Current Year's Direct Loans

There were no subsidy expenses 

for FY 2001.

2 Direct Loan Modification and Reestimates

There were no modifications or 

reestimates. 

3 Total Direct Loan Subsidy Expense

None.

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Schedule for Reconciling Subsidy Cost Allowance Balances 

(Post-1991 Direct Loans) as of September 30, 2001:

Schedule for Reconciling Subsidy Cost Allowance Balances 

(Post-1991 Direct Loans) as of September 30, 2000:

Beginning balance of the subsidy cost allowance

Adjustments:

Loan modifications

Subsidy allowance amortization

Other

Ending balance of the subsidy cost allowance

Beginning balance of the subsidy cost allowance

Adjustments:

Loan modifications

Subsidy allowance amortization

Other

Ending balance of the subsidy cost allowance

$135,826

34,819

(7,978)

(196)

$162,471

$376

-

(30)

-

$346

$136,202

34,819

(8,008)

(196)

$162,817

$162,471

20,967

(5,537)

2,721

$180,622

$346

-

122

-

$468

$162,817

20,967

(5,415)

2,721

$181,090

Direct Loan MSED Total

Direct Loan MSED Total

Table Note 6b
Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Defaulted Guaranteed Loans from Pre-1992 Guarantees 

(Allowance for Loss Method) as of September 30, 2001:

Defaulted Guaranteed Loans from Pre-1992 Guarantees 

(Allowance for Loss Method) as of September 30, 2000:

The Urban and Environment Credit Program experienced $2.9 million in defaults on payments that were due in 

FY 2001 on post-1991 guaranteed loans. The same program experienced $1.5 million in defaults in FY 2000.

Loan Guarantee

Programs

UE

 Total

$425,258

$425,258

$47,587

$47,587

$275,336

$275,336

$197,509

$197,509

Defaulted

Guaranteed Loan 

Receivable, Gross

Interest

Receivable

Allowance

For Loan Losses

Defaulted

Guaranteed Loan 

Receivable, Net

Loan Guarantee

Programs

UE

 Total

$447,497

$447,497

$45,670

$45,670

$219,344

$219,344

$273,823

$273,823

Defaulted

Guaranteed Loan 

Receivable, Gross

Interest

Receivable

Allowance

For Loan Losses

Defaulted

Guaranteed Loan 

Receivable, Net

Defaulted Guaranteed Loans from Pre-1991 Guarantees:

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 59

Table Note 6c 

Table Note 6d 

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Guaranteed Loans Outstanding:

Loan Programs

UE

MSED

Israel

DCA

 Total

$2,160,006

118,650

9,226,200

135,750

$11,640,606

$2,160,006

59,325

9,226,200

63,025

$11,508,556

$2,250,363

27,691

9,226,200

-

$11,504,254

$2,250,363

15,075

9,226,200

-

$11,491,638

Outstanding 

Principal, 

Guaranteed Loans, 

Face Value

Amount of

Outstanding 

Principal 

Guaranteed

Outstanding 

Principal, 

Guaranteed Loans, 

Face Value

Amount of

Outstanding 

Principal 

Guaranteed

2001 2000
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

60 U.S. Agency for International Development

New Guaranteed Loans Disbursed (FY 2001): New Guaranteed Loans Disbursed (FY 2000):

Loan Programs

DCA

 Total

$23,156

$23,156

$11,578

$11,578

Outstanding 

Principal, 

Guaranteed Loans, 

Face Value

Amount of

Outstanding 

Principal 

Guaranteed Loan Programs

UE

MSED

 Total

$20,000

692

20,692

$20,000

346

$20,346

Outstanding 

Principal, 

Guaranteed Loans, 

Face Value

Amount of

Outstanding 

Principal 

Guaranteed

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Liability for Loan Guarantees (Estimated Future Default Claims Pre-1992) as of September 30, 2001:

Loan Programs

UE

MSED

Israel

DCA

 Total

$465,765

-

-

-

$465,765

$74,944

289

626,050

187

$701,470

$540,709

289

626,050

187

$1,167,235

Liability for Losses

on Pre-1992

Guarantees,

Estimate Future

Default Claims

Liabilities for Loan

Guarantees for Post1991 Guarantees

Present Value

Total Liabilities For

Loan Guarantees

Liability for Loan Guarantees (Estimated Future Default Claims Pre-1992) as of September 30, 2000:

Loan Programs

UE

MSED

Israel

DCA

 Total

$441,469

-

-

-

$441,469

$65,507

2,633

586,629

103

$654,872

$506,976

2,633

586,629

103

$1,096,341

Liability for Losses

on Pre-1992

Guarantees,

Estimate Future

Default Claims

Liabilities for Loan

Guarantees for Post1991 Guarantees

Present Value

Total Liabilities For

Loan Guarantees

Table Note 6e

Table Note 6f
FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 61

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Subsidy Expense for New Loan Guarantees for the year ending September 30, 2001:

Loan Guarantee

Programs

DCA

 Total

$1,021

$1,021

$(321)

$(321)

$700

$700

Defaults

Fees and 

Other Collections Total

Subsidy Expense for New Loan Guarantees for the year ending September 30, 2000:

Loan Guarantee

Programs

UE

MSED

 Total

$4,452

160

$4,612

$(1,108)

(53)

$(1,161)

$3,344

107

$3,451

Defaults

Fees and 

Other Collections Total

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Modifications and Reestimates for the year ending September 30, 2001:

Loan Guarantee

Programs

UE

MSED

 Total

$612

1,470

$2,082

$3,538

(963)

$2,575

$4,150

507

$4,657

Interest Rate

Reestimates

Technical

Reestimates

Total

Reestimates

Modifications and Reestimates for the year ending September 30, 2000:

Loan Guarantee

Programs

UE

MSED

 Total

$(2,384)

13

$(2,371)

$10,933

969

$11,902

$8,549

982

$9,531

Interest Rate

Reestimates

Technical

Reestimates

Total

Reestimates

Total Loan Guarantee Subsidy Expense:

Loan Guarantee

Programs

DCA

UE

MSED

 Total

$700

4,150

507

$5,357

$-

11,893

1,089

$12,982

2001 2000

Table Note 6g

Subsidy

Expense for

Loan

Guarantees by

Program and

Component
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

62 U.S. Agency for International Development

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Budget Subsidy Rates for Loan Guarantees for the Current Year's Cohorts:

Loan Guarantee

Programs

DCA

 Total

4.53%

4.53%

(1.94)%

(1.94)%

2.59%

2.59%

Defaults (%)

Fees and Other

Collections (%) Total (%)

Loans Receivable and Liabilities for Loan Guarantees (In Thousands)

Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991 Direct Loans) as of September 30, 2001:

Beginning balance of loan guarantee liability

Add: subsidy expense for guaranteed loans

disbursed during the reporting years by component:

Other subsidy costs

Adjustments:

Fees received

Claim payments to lenders

Interest accumulation on the

liability balance

Other

Ending balance of the loan guarantee liability

before reestimates

Add or substract subsidy reestimates by

component:

Interest rate reestimate

Technical/default reestimate

Total of the above reestimate

components

Ending balance of loan guarantee liability

$686,975

700

2,859

(2,934)

46,548

7,224

$741,372

(22,730)

(17,147)

(39,877)

$701,495

$32,104

-

-

-

2,189

-

$34,293

(8,936)

(25,357)

(34,293)

$-

$586,628

-

-

-

39,421

-

$626,049

-

-

-

$626,049

$65,507

-

2,499

(2,934)

4,919

9,262

$79,253

(15,484)

11,176

(4,308)

$74,945

$2,633

-

201

-

19

(2,038)

815

1,690

(2,216)

(526)

$289

$103

700

159

-

-

-

962

-

(750)

(750)

$212

DCA MSED UE Israel Ukraine Total

Beginning balance of loan guarantee liability

Adjustments:

Fees received

Claim payments to lenders

Interest accumulation on the

liability balance

Other

Ending balance of the loan guarantee liability

before reestimates

Interest rate reestimate

Technical/default reestimate

Total of the above reestimate

components

Ending balance of loan guarantee liability

Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991 Direct Loans) as of September 30, 2000:

$649,786

2,823

(2,465)

38,989

9,500

$698,633

(2,371)

(9,287)

(11,658)

$686,975

$30,054

-

-

2,050

-

$32,104

-

-

-

$32,104

$549,689

-

-

36,939

-

$586,628

-

-

-

$586,628

$68,108

2,646

(2,380)

-

9,773

$78,147

(2,384)

(10,256)

(12,640)

$65,507

$1,935

74

(85)

-

(273)

1,651

13

969

982

$2,633

$-

103

-

-

-

103

-

-

-

$103

DCA MSED UE Israel Ukraine Total

Table Note 6h

Subsidy Rates for Loan

Guarantees by Program and

Component
Other Information

1. Allowance for Loss for

Liquidating account (pre-Credit

Reform Act) receivables have

been calculated in accordance

with OMB guidance using a

present value method which

assigns risk ratings to

receivables based upon the

country of debtor. Fourteen

countries are in violation of

Section 620q of the Foreign

Assistance Act (FAA), owing a

total of $88,805,465.95 that is

more than six months

delinquent. Twelve countries are

in violation of the BrookeAlexander Amendment to the

Foreign Operations Export

Financing and Related Programs

Appropriations Act, owing a total

of $499,222,177.48 that is more

than one year delinquent.

Outstanding direct loans

receivable for countries in

violation of section 620q totaled

$78,268,292.72. Outstanding

direct loans receivable for

countries in violation of the

Brooke Amendment totaled

$459,117,530.56.

2. The MSED Liquidating Account

general ledger has a loan

receivable balance of $1.9

million. The Riggs

Bank/Metavante loan servicing

system shows loans receivable in

the amount of $1.1 million. The

difference is due to the inclusion

of two additional loans in the

USAID general ledger totaling

$792,174.39. These loans are

being carried at 100% bad debt

allowance.

3. The Ukraine program guarantees

have expired. No defaults were

experienced. Closeout is

expected to take place in FY

2002.

FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 63

Table Note 6i

Loans Receivable and Liabilities for Loan Guarantees 

(In Thousands)

Administrative Expenses:

Loan Programs

DCA

UE

MSED

 Total

$3,083

548

714

$4,345

$-

5,112

452

$5,564

2001 2000
NOTE 7.

Operating Materials and Supplies

(In Thousands)

Operating Supplies and Materials as of

September 30, 2001 and 2000 appear

in Table Note 7. Operating Materials

and Supplies are valued at historical

cost and considered not held for sale.

NOTE 8.

General Property, Plant, and

Equipment, Net (In Thousands)

The components of PP&E at September

30, 2001 and at September 30, 2000

appear in Table Note 8. USAID PP&E

includes assets located in Washington,

DC offices and overseas field missions.

• For FY 2001, USAID capitalization

criteria for assets was $25,000.

Assets meeting this criteria are

depreciated using the half-year

straight line depreciation method.

• Equipment consists primarily of

electric generators, ADP hardware,

vehicles and copiers located at the

overseas field missions.

• Structures and Facilities include

USAID owned office buildings and

residences at foreign missions,

including the land on which these

structures reside. These structures

are used and maintained by the

field missions. USAID does not

separately report the cost of the

building and the land on which the

building resides.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

64 U.S. Agency for International Development

Operating Materials and Supplies (In Thousands)

Operating Supplies and Materials as of September 30, 2001 and 2000:

Items Held for Use

Office Supplies

Items Held in Reserve for Future Use

Diaster assistance materials and supplies

Birth control supplies

Total

$7,225

7,478

11,396

$26,099

$6,728

5,912

8,482

$21,122

2001 2000

General Property, Plant and Equipment, Net (In Thousands)

The components of PP&E at September 30, 2001 were:

Classes of Fixed Assets

Equipment

Buildings, Improvements,

 & Renovations

Land and Land Rights

Assets Under Capital Lease

Construction in Progress

Internal Use Software

Total

3 to 5 years

20 years

N/A

N/A

$37,390

37,060

4,056

3,399

-

6,323

$88,228

$(25,912)

(15,887)

-

(424)

-

(632)

$(42,855)

$11,478

21,173

4,056

2,975

-

5,691

$45,373

Useful Life Cost

Accumulated

Depreciation

Net Book

Value

The components of PP&E at September 30, 2000 were:

Classes of Fixed Assets

Equipment

Buildings, Improvements,

 & Renovations

Land and Land Rights

Assets Under Capital Lease

Construction in Progress

Total

3 to 5 years

20 years

N/A

N/A

$35,718

34,651

3,434

2,424

439

$76,666

$(27,397)

(12,840)

-

(460)

-

$(40,697)

$8,321

21,811

3,434

1,964

439

$35,969

Useful Life Cost

Accumulated

Depreciation

Net Book

Value

Table Note 7

Table Note 8
• Land consists of property owned

by USAID in foreign countries.

Usually the land is purchased with

the intention of constructing an

office building at the site.

NOTE 9.

Leases (In Thousands)

Leases as of September 30, 2001 and

2000 are represented in Table Note 9.

Of the $498 million in future lease

payments, $329 million is attributable

to the Ronald Reagan Building in

Washington DC, USAID's

headquarters. The remaining $169

million relates to other USAID/

Washington activity and missionrelated operating leases.

NOTE 10.

Accounts Payable (In Thousands)

The Accounts Payable covered by

budgetary resources as of September

30, 2001 and 2000 appears in Table

Note 10.

Intragovernmental Accounts Payable

are those payable to other Federal

agencies and consist mainly of

unliquidated obligation balances

related to interagency agreements

between USAID and other Federal

agencies.

All other Accounts Payable represent

liabilities to other non-Federal entities.

FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 65

$3,399

424

Future Costs

N/A

$194

192

190

190

176

2,033

$2,975

Capital Leases:

Summary of Assets Under Capital Lease:

Buildings

Accumulated Depreciation

Future Payments Due:

Fiscal Year

2001

2002

2003

2004

2005

2006

After 5 Years

Lease Liabilities

Covered by Budgetary Resources

$2,424

460

Future Costs

$117

116

116

116

116

N/A

1,383

$1,964

2001 2000

Leases (In Thousands)

Leases as of September 30, 2001 and 2000 consisted of the following:

Future Costs

N/A

$70,090

65,182

62,977

58,538

57,006

184,754

$498,547

Fiscal Year

2001

2002

2003

2004

2005

2006

After 5 Years

Total Future Lease Payments

Future Costs

$59,333

60,954

58,422

56,696

53,839

N/A

218,867

$508,111

2001 2000

Operating Leases:

Future Payments Due

Entity as Lessee: 

$35,496

-

$35,496

$1,160,263

11

$1,195,770

Intragovernmental

Accounts Payable

Disbursements in Transit

Total Intragovernmental

Accounts Payable

Disbursements in Transit

Total Accounts Payable

$86,047

-

$86,047

$1,285,063

2,089

$1,373,199

2001 2000

The Accounts Payable covered by budgetary resources as of 

September 30, 2001 and 2000 consisted of the following:

Accounts Payable (In Thousands)

Table Note 9

Table Note 10
NOTE 11.

Debt (In Thousands)

USAID Intragovernmental debt as of

September 30, 2001 and 2000

consisted of the borrowings, shown in

Table Note 11, from Treasury for post1991 loan programs, which is

classified as other debt.

Pursuant to the Credit Reform Act of

1990, agencies with credit programs

have permanent indefinite authority to

borrow funds from the Treasury. These

funds are used to disburse new direct

loans to the public and, in certain

situations, to cover credit reform

program costs. Liquidating (pre-1992)

accounts have permanent indefinite

borrowing authority to be used to

cover program costs when they exceed

account resources. UE Program debt

includes amounts borrowed before the

effective date of the Credit Reform Act

of 1990.

This disclosed debt is principal payable

to Treasury, which represents

borrowings from the Treasury under the

Credit Reform Act. In addition, there is

net liquidating account equity in the

amount of $5.3 billion, which under

the Credit Reform Act is required to be

recorded as Due to Treasury. Both of

these accounts are used exclusively for

credit reform activity. All debt shown

is intragovernmental debt.

NOTE 12.

Other Liabilities (In Thousands)

As of September 30, 2001, and

September 30, 2000, Other Liabilities

appear in Table Note 12.

All liabilities are current.

Intragovernmental Liabilities represent

amounts due to other Federal agencies.

All remaining Other Liabilities are

liabilities to non-Federal entities.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

66 U.S. Agency for International Development

Debt (In Thousands)

USAID Intragovernmental debt as of September 30, 2001 and 2000

consisted of the following borrowings from Treasury for post-1991

loan programs, which is classified as other debt: 

Urban & Environmental

Direct Loan

MSED

Total Debt

$-

114,772

1,713

$116,485

$-

(51,957)

-

$(51,957)

$-

62,815

1,713

$64,528

2000 

Beginning

Balance

2000 

Ending

Balance

2001 

Ending

Balance

Net

Borrowing

Net

Borrowing

$(48,000)

(33,462)

-

$(81,462)

$48,000

148,234

1,713

$197,947

$(35,876)

3,578

7,416

55,754

$30,872

$11,746

1,793

(100)

213,116

14,388

25,490

4

$297,309

Intragovernmental

OPAC Suspense

Deposit and Clearing Accounts

Unfunded FECA Liability

Other

Total Intragovernmental

Accrued Funded Payroll/Benefits

Deferred Credit

Liability for Deposit Funds and

Suspense Accounts - Non-Entity

Foreign Currency Trust Fund

Trust Fund Balances

Unfunded Leave

Other

Total Other Liabilities

$(461)

(774)

7,445

99,302

$105,512

$10,881

2,380

3,051

153,119

14,235

25,826

7

$315,011

2001 2000

Other Liabilities (In Thousands)

As of September 30, 2001 and 2000 Other Liabilities consisted of the 

following:

Table Note 11

Table Note 12
NOTE 13.

Accrued Unfunded Annual Leave

and Separation Pay (In Thousands)

Accrued unfunded benefits for annual

leave and separation pay as of

September 30, 2001 and 2000 are

shown in Table Note 13.

NOTE 14.

Accrued Unfunded Workers'

Compensation Benefits 

(In Thousands)

The provision for workers'

compensation benefits payable, as of

September 30, 2001 and 2000 appear

in Table Note 14.

The Federal Employees Compensation

Act (FECA) program is administered by

the U.S. Department of Labor (DOL)

and provides income and medical cost

protection to covered Federal civilian

employees who have been injured on

the job or have incurred a work-related

occupational disease. Compensation is

given to beneficiaries of employees

whose death is attributable to a jobrelated injury or occupational disease.

DOL initially pays valid FECA claims

for all Federal government agencies

and seeks reimbursement two fiscal

years later from the Federal agencies

employing the claimants.

USAID's total FECA liability is $38.3

million as of September 30, 2001 and

comprises of unpaid FECA billings for

$7.4 million and estimated future FECA

costs of $30.9 million.

For FY 2000, USAID's total FECA

liability was $37.2 million and

comprised of unpaid FECA billings for

$7.4 million and estimated future FECA

costs of $29.8 million.

Estimated future FECA costs are

determined by the Department of Labor.

This liability is determined using a paid

losses extrapolation method calculated

over a 37 year period. This method

utilizes historical benefit payment patterns

related to a specific incurred period to

predict the ultimate payments related to

that period. These annual benefit

payments have been discounted to present

value. The interest rate assumptions used

for discounting were 5.50% in year 1 and

year 2, 5.55% in year 3, and 5.60% in

year 4 and thereafter.

The increase of $1.1 million for Future

Workers' Compensation Benefits is

shown as a financing source yet to be

provided on the Statement of

Financing.

FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 67

Table Note 14

Table Note 13

$7,416

30,905

$38,321

Liabilities Not Covered by Budgetary Resources

Accrued Unfunded Workers'

Compensation

Future Workers' Compensation

Benefits

Total Accrued Unfunded Workers'

Compensation Benefits

$7,445

29,819

$37,264

2001 2000

Accrued Unfunded Workers' Compensation Benefits (In Thousands)

The provision for workers' compensation benefits payable, as of

September 30, 2001 and 2000 are as follows:

$25,485

5

$25,490

Liabilities Not Covered by Budgetary Resources

Accrued Annual Leave

FSN Separation Pay Liability

Total Accrued Unfunded Annual Leave

and Separation Pay

$25,587

239

$25,826

2001 2000

Accrued Unfunded Annual Leave and Separation Pay (In Thousands)

Accrued unfunded benefits for annual leave and separation pay as of

September 30, 2001 and 2000 are:
NOTE 15.

Commitments and Contingencies

USAID is involved in certain claims,

suits, and complaints that have been

filed or are pending. These matters are

in the ordinary course of the Agency's

operations and are not expected to

have a material adverse effect on the

Agency's financial operations.

USAID is involved in a group of cases

before the U.S. Court of Federal Claims

which disputes appropriate indirect

cost rates to be charged where contract

rates do not match Negotiated Indirect

Cost Rate Agreement (NICRA) rates. It

is reasonably possible that USAID

might lose this case. Any adverse

judgment would likely be paid out of

the Department of Justice's Judgment

Fund, but then be reimbursed by the

Agency. In this case the amounts

claimed are $2.2 million, exclusive of

Equal Access to Justice Fees. To date,

discovery has officially concluded on

one of the cases in this group.

Agreement was not reached during

settlement discussions, and this case

awaits reassignment to another judge

for further proceedings.

USAID is involved in a case before the

Armed Service Board of Contract

Appeals to dispute a matter related to

fair opportunity to compete an

indefinite quantity, multiple award, task

order contract for advisory services,

technical assistance, and training in the

area of sustainable urban management.

The case is in the preliminary stages,

and discovery is ongoing. The Agency

intends to file a dispositive motion by

March 4, 2002, or may seek mediation.

At this time, no estimate of potential

loss can be reasonably calculated.

The building in which USAID operates

is leased by the General Services

Administration (GSA). USAID is

charged rent intended to approximate

commercial rental rates. Lease

payments for FY 2001 and 2000

amounted to $32.8 million and $28.8

million respectively. An approximate

increase of 2.2% will take effect in FY

2002.

NOTE 16.

Liabilities Not Covered by

Budgetary Resources (In Thousands)

Liabilities not covered by budgetary

resources as of September 30, 2001

and 2000 are shown in Table Note 16.

All liabilities not covered by

Budgetary Resources are non-Federal

liabilities.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

68 U.S. Agency for International Development

$465,765

25,490

38,321

$529,576

7,504,634

$8,034,210

Contingent Liabilities for Loan Guarantees

Accrued unfunded annual leave and separation pay

Accrued unfunded Workers Compensation Benefits

Total Liabilities not covered by Budgetary Resources

Total Liabilities covered by Budgetary Resources

Total Liabilities

$441,469

25,826

37,265

$504,560

8,800,831

$9,305,391

2001 2000

Liabilities Not Covered By Budgetary Resources (In Thousands)

Liabilities not covered by budgetary resources as of September 30, 2001

and 2000 are as follows:

Table Note 16
NOTE 17.

Total Cost and Earned Revenue by

Budget Functional Classification

(In Thousands)

Total Cost and Earned Revenue by

Budget Functional Classification as of

September 30, 2001 and September

30, 2000 are shown in Table Note 17.

NOTE 18.

Prior Period Adjustments

Three prior period adjustments were

made in FY 2001 involving credit

program funds.

Reversals of accrued year-end FY 2000 reestimated subsidy liabilities in the Micro

and Small Enterprise Develop-ment

program fund for $1,143,000 and also in

the Urban and Environmental program

fund for $9,897,000 were made. These

amounts had already been closed to

cumulative results of operations as part of

the FY 2000 year-end closing process.

Current year (FY 2001) adjustments for

upward re-estimates of subsidy liability are

reflected in year-end account balances for

future funded expenses. Future funded

expenses are closed to cumulative results

of operations at year-end.

An adjustment for $242,211 was made

to establish unfunded annual leave in

the Development Credit Authority

(DCA) program fund. In previous years,

unfunded annual leave was recorded

in the Urban and Environmental (UE)

program fund.

There were no prior period adjustments

in FY 2000.

FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 69

Total Cost And Earned Revenue By Budget Functional Classification (In Thousands)

Total Cost and Earned Revenue by Budget Functional Classification, as of September 30, 2001 are

as follows:

International Development and Humanitarian Assistance- 151

International Security Assistance- 152

Conduct of Foreign Affairs- 153

Federal Employee Retirement and Disability- 602

Total

$4,722,391

2,302,752

44,489

1,906

$7,071,538

$(81,653)

(350)

-

-

$(82,003)

$4,640,738

2,302,402

44,489

1,906

$6,989,535

Function Classification Gross Cost Earned Revenue Net Cost

Total Cost and Earned Revenue by Budget Functional Classification, as of September 30, 2000 are

as follows:

International Development and Humanitarian Assistance- 151

International Security Assistance- 152

Conduct of Foreign Affairs- 153

Federal Employee Retirement and Disability- 602

Total

$4,360,617

2,396,420

43,837

1,802

$6,802,676

$(72,208)

-

-

-

$(72,208)

$4,288,409

2,396,420

43,837

1,802

$6,730,468

Function Classification Gross Cost Earned Revenue Net Cost

Table Note 17
NOTE 19.

Statement of Budgetary Resources

(In Thousands)

A. Net amount of budgetary

resources obligated for

undelivered orders at the end of

the period are shown in Table

Note 19.

B. Information regarding borrowing

authority at the end of period

and the terms of borrowing

authority used:

No borrowing authority was

utilized in FY 2001 or FY2000.

C. Information about legal

arrangements affecting the use of

unobligated balances of budget

authority:

Pursuant to Section 511 of PL

105-118 funds shall remain

available until expended if such

funds are initially obligated

before the expiration of their

periods of availability. Any

subsequent recoveries

(deobligations) of these funds

become unobligated balances

that are available for

reprogramming by USAID

(subject to OMB approval

through the apportionment

process).

D. Adjustments to Total Budgetary

Resources are comprised of

downward obligation adjustments

to match unpaid unexpended

obligations, cancelled authority, and

budget resources rescinded by

enacted legislation.

E. The Consolidated Statement of

Budgetary Resources for FY

2000 was restated to correct an

error in presentation for

undelivered orders, as reported

on line 14, Total Obligated

Balance, Net - End of Period.

This restatement was made in

accordance with SFFAS 21,

Reporting Corrections of Errors

and Changes in Accounting. The

net change in the restated

amount was $68.5 million. The

restated amount for FY 2000 on

line 14 of the Statement of

Budgetary Resources is also

presented on Line 12, Total

Obligated Balance, Net -

Beginning of Period for FY 2001.

F. USAID has identified $187

million cumulative remaining

balance of undelivered orders

(unliquidated obligations) for

Washington managed funds that

may be in excess of amounts

required under these obligations.

These amounts will need to be

reviewed for possible

deobligation in FY 2002.

NOTE 20.

Differences between the Statement

of Budgetary Resources and the

Budget of the United States

Government (In Thousands)

Differences exist between the information

presented on the Statement of Budgetary

Resources and the amounts described as

"actual" in the Budget of the U.S.

Government. These differences occur

because funds are appropriated to USAID

and then allocated out to other agencies.

In those cases, the related funds are not

included in the Agency's Statement of

Budgetary Resources but are included in

its part of the U.S. Budget. But sometimes

funds that are appropriated to other

agencies are then allocated to USAID. In

those cases, related funds are included in

the Agency's Statement of Budgetary

Resources but are not included in its

portion of the Budget.

The amounts related to other agency

activity as of September 30, 2001 are

shown in Table Note 20.

FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

70 U.S. Agency for International Development

$8,099,866

352,964

$8,452,830

Undelivered Orders - Unpaid

Undelivered Orders - Paid

Total Obligations for Undelivered Orders

$7,926,726

794,808

$8,721,534

2001 2000

Statement of Budgetary Resources (In Thousands)

A. Net amount of budgetary resources obligated for undelivered orders

at the end of the period:

Table Note 19
* The difference between the "Allocated

to Other Agencies" Obligated Balance -

End of Period, FY00, and Obligated

Balance - Beginning of Period, FY01, is

due to the total transfer of appropriations

1005 and 1032 to the Department of

State. These appropriations were no

longer maintained by USAID as of the

2001 fiscal year.

NOTE 21.

Statement of Financing-Other

The $1,314 million shown as "Other"

under Resources that Do Not Fund Net

Cost of Operations consists of $1,347

million in Actual Collections and

Other Payables to Treasury, and ($33)

million in adjustments for FY 2001. For

FY 2000, these amounts were $1,518

million and $99 million respectively.

These items are attributed to Credit

Program activity.

FINANCIAL STATEMENTS AND NOTES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 71

Table Note 20

$236,484

13,515

(170)

5,843

$255,672

$147,724

5,538

102,410

$255,672

$141,916

43,365

(90,921)

$94,360

Budgetary Resources

 Budget Authority

 Unobligated Balance

 Spending Authority from Offsetting Collections

 Adjustments

Total Budgetary Resources

Status of Budgetary Resources

 Obligations Incurred

 Unobligated Balances Available

 Unobligated Balances Not Available

Total Status of Budgetary Resources

Obligations Incurred, net of adjustments

Obligated Balance, Net - Beginning of Period *

Obligated Balance, Net - End of Period

Outlays

$501,287

4,813

-

4,122

$510,222

$459,527

-

50,695

$510,222

$455,404

509,765

(491,396)

$473,773

Allocated to

Other Agencies

Allocated from

Other Agencies

Differences Between the Statement of Budgetary 

Resources and the Budget of the United States Government 

(In Thousands)

The amounts related to other agency activity as of September 30, 2001

were as follows:

$353,159

22,396

-

-

$375,555

$356,729

1,063

17,763

$375,555

$356,729

78,848

(84,327)

$351,250

Budgetary Resources

 Budget Authority

 Unobligated Balance

 Spending Authority from Offsetting Collections

 Adjustments

Total Budgetary Resources

Status of Budgetary Resources

 Obligations Incurred

 Unobligated Balances Available

 Unobligated Balances Not Available

Total Status of Budgetary Resources

Obligations Incurred, net of adjustments

Obligated Balance, Net - Beginning of Period 

Obligated Balance, Net - End of Period

Outlays

$480,782

10,793

-

46,164

$537,739

$533,926

3,813

-

$537,739

$487,762

421,423

(509,765)

$399,420

Allocated to

Other Agencies

Allocated from

Other Agencies

The amounts related to other agency activity as of September 30, 2000

were as follows:
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

72 U.S. Agency for International Development

CONSOLIDATING BALANCE SHEET

U.S. Agency for International Development

Consolidating Balance Sheet as of September 30, 2001 (In Thousands)

Credit 

Program 

Funds

Program 

Funds

Operating 

Funds

Revolving 

Funds

Trust 

Funds

Other

 Funds

Eliminating 

Entries Total

ASSETS 

Intragovernmental 

Fund Balance with Treasury (Note 2) 

Accounts Receivable (Note 3) 

Advances and Prepayments (Note 4) 

Total Intragovernmental 

 

Cash and Other Monetary Assets (Note 5) 

Accounts Receivable, Net (Note 3) 

Loans Receivable, Net (Note 6) 

Operating Materials and Supplies (Note 7) 

General Property, Plant, and Equipment,

 Net (Note 8 and 9) 

Advances and Prepayments (Note 4) 

 Total Assets 

LIABILITIES (Note 16) 

 

Intragovernmental 

Accounts Payable (Note 10) 

Debt (Note 11) 

Due to U.S. Treasury (Note 11) 

Other Liabilities (Note 12, 13, and 14) 

Total Intragovernmental 

 

Accounts Payable (Note 10) 

Loan Guarantee Liability (Note 6) 

Federal Employees and Veteran's 

 Benefits (Note 14) 

Other Liabilities (Note 12) 

Total Liabilities 

 

Commitments and Contingencies 

 (Note 15) 

 

 NET POSITION 

Unexpended Appropriations 

Cumulative Results of Operations 

Total Net Position 

 

Total Liabilities and Net Position 

$1,032,316

 6,231

 - 

 1,038,547

 50

 14,739

 5,533,169

 - 

 - 

3,877

 6,590,382

 5,609

 64,528

 5,278,463

 51,281

 5,399,881

 3,411

 1,167,235

 - 

 1,920

 6,572,447

 23,802

 (5,867)

 17,935

 $6,590,382

 $9,911,612

 - 

 75,846

 9,987,458

 10

 12,801

 - 

 18,874

 414

 254,417

10,273,974

 24,505

 - 

 - 

 331

 24,836

 1,090,766

 - 

 - 

 - 

 1,115,602

9,135,329

 23,043

9,158,372

 $10,273,974

$309,514

 423,288

 992

 733,794

 213,116

 746

 - 

 7,225

 44,959

11,943

1,011,783

 10,987

 - 

 - 

 9,163

 20,150

 91,308

 - 

 30,905

 250,223

392,586

 630,227

 (11,030)

 619,197

 $1,011,783

 $4,374

 - 

 - 

 4,374

 - 

 - 

 - 

 - 

 - 

 - 

4,374

 - 

 - 

 - 

 - 

 - 

 189

 - 

 - 

 - 

189

 - 

 4,185

4,185

 $4,374

 $14,429

 - 

 - 

 14,429

 - 

 - 

 - 

 - 

 - 

 - 

14,429

 - 

 - 

 - 

 - 

 - 

 40

 - 

 - 

14,394

14,434

 - 

 (5)

(5)

 $14,429

 $(57,838)

 82

 - 

 (57,756)

 - 

 2,732

 - 

 - 

 - 

 - 

 (55,024)

 - 

 - 

 - 

 (29,484)

 (29,484)

 (25,440)

 - 

 - 

 (100)

(55,024)

 - 

 - 

 $(55,024)

 $11,214,407 

 423,577 

 76,838 

 11,714,822 

 213,176 

 31,018 

 5,533,169 

 26,099 

 45,373 

 270,237 

17,833,894 

 35,496 

 64,528 

 5,278,463 

 30,872 

 5,409,677 

 1,160,274 

 1,167,235 

 30,905 

 266,437 

8,034,210

 

 

 9,789,358 

 10,326 

9,799,684 

 $17,833,894 

 

 (6,024) 

 

 

 

 

 

 

 

(6,024) 

 

 (5,605) 

 

 

 (419) 

 (6,024) 

 

 

 

 

(6,024) 

 

 

 

 

 $(6,024)

 (6,024)
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 73

CONSOLIDATING STATEMENT OF NET COST

U.S. Agency for International Development

Consolidating Statement of Net Cost for the year ended September 30, 2001 (In Thousands)

Credit 

Program 

Funds

Operating 

Funds

Program 

Funds

Revolving 

Funds

Trust 

Funds

Other

 Funds

Eliminating 

Entries Total

Costs: 

Broad-Based Economic Growth and Agricultural Development 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Strengthen Democracy and Good Governance 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Human Capacity Built Through Education and Training 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Stabilizing World Population and Protecting Human Health 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Protect the Environment for Long-Term Sustainability 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Promote Humanitarian Assistance 

Intragovernmental 

With the Public Taxes 

Total 

Less earned revenues 

Net program costs 

 

Less earned revenues not attributed to programs 

 

Net Cost of Operations (Note 17) 

 $8,434 

5,889 

14,323 

 (9,970)

4,353 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

11 

11,378 

11,389 

 (5,805)

5,584 

 - 

39,421 

39,421 

 (39,421)

 - 

 - 

 $9,937 

 $90,675 

 194,894 

285,569 

 - 

285,569 

23,909 

 51,389 

75,298 

 - 

75,298 

15,668 

 33,678 

49,346 

 - 

49,346 

34,549 

 74,258 

108,807 

 - 

108,807 

21,475 

 46,158 

67,633 

 - 

67,633 

27,044 

499,887 

526,931 

 - 

526,931 

(13,333)

 $1,100,251

 $44,664 

2,766,695 

2,811,359 

 - 

2,811,359 

6,061 

614,630 

620,691 

 - 

620,691 

2,582 

315,657 

318,239 

 - 

318,239 

16,997 

951,412 

968,409 

 (14,611)

953,798 

3,808 

377,169 

380,977 

 - 

380,977 

11,554 

780,089 

791,643 

 - 

791,643 

 - 

 $5,876,707 

 $- 

1,153 

1,153 

 - 

1,153 

 - 

 - 

 - 

 - 

 - 

 - 

- 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 (1,467)

 $(314)

 $- 

1,238 

1,238 

 - 

1,238 

 - 

425 

425 

 - 

425 

 - 

 247.00 

 247.00 

 - 

 247.00 

 - 

376 

376 

 - 

376 

 - 

277 

277 

 - 

277 

 - 

391 

391 

 - 

391 

 - 

 $2,954 

 $- 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

$- 

 $(1,108)

 - 

(1,108)

(1,108)

 (292)

(292)

(292)

 (191)

 - 

(191)

(191)

 (422)

 - 

(422)

(422)

 (262)

(262)

(262)

 (329)

(329)

(329)

 2,604 

 $-

 $142,665 

2,969,869 

 3,112,534 

 (9,970)

 3,102,564 

 29,678 

666,444 

 696,122 

 - 

 696,122 

 18,059 

367,641 

 - 

 367,641 

 51,124 

1,026,046 

 1,077,170 

 (14,611)

 1,062,559 

 25,032 

434,982 

 460,014 

 (5,805)

 454,209 

 38,269 

 1,319,788 

 1,358,057 

 (39,421)

 1,318,636 

 (12,196)

$6,989,535 
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

74 U.S. Agency for International Development

CONSOLIDATING STATEMENT OF CHANGES IN NET POSITION

U.S. Agency for International Development

Consolidated Changes In Net Position for the years ended September 30, 2001 and 2000 (In Thousands)

Credit 

Program 

Funds

Program 

Funds

Operating 

Funds

Revolving 

Funds

Trust 

Funds

Other

 Funds Total

 $(9,937)

 4,312 

 - 

 - 

 (5,625)

 11,040 

 5,415 

 2,588 

 8,003 

 9,932 

$17,935 

 $(5,876,707)

 5,885,356 

 - 

 - 

 8,649 

 - 

 8,649 

 (207,816)

 (199,167)

 9,357,539 

$9,158,372 

 $(1,100,251)

 1,052,024 

 44,731 

 12,380 

 8,884 

 - 

 8,884 

 5,556 

 14,440 

 604,757 

$619,197 

 $314 

 - 

 - 

 - 

 314 

 - 

 314 

 - 

 314 

 3,871 

$4,185 

 $(2,954)

 - 

 3,187 

 - 

 233 

 - 

 233 

 - 

 233 

 (238)

$(5)

 $- 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

$- 

 $(6,989,535)

 6,941,692 

 47,918 

 12,380 

 12,455 

 11,040 

 23,495 

 (199,672)

 (176,177)

 9,975,861 

 $9,799,684 

Net Cost of Operations 

Financing Sources (other than exchange revenues) 

Appropriations Used 

Donated Revenue 

Imputed Financing 

Net Results of Operations 

 

Prior Period Adjustments (Note 18) 

Net Change in Cumulative Results of Operations 

 

Increase (Decrease) in Unexpended Appropriations 

 

Change in Net Position 

 

Net Position-Beginning of Period 

 

Net Position-End of Period
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 75

CONSOLIDATING STATEMENT OF BUDGETARY RESOURCES

U.S. Agency for International Development

Consolidated Statement Of Budgetary Resources for the years ended September 30, 2001 and 2000 (In Thousands)

Credit 

Program 

Funds

Program 

Funds

Operating 

Funds

Revolving 

Funds

Trust 

Funds Total

 $49,178 

 990,249 

 1,040,758 

 (964,713)

 1,115,472 

 (131,237)

 (983,702)

 (533)

 (1,115,472)

 131,237 

 (1,042,174)

 20,676 

 (48,076)

 $(938,337)

 $5,696,567 

 1,214,760 

 14,936 

 68,960 

 6,995,223 

 (5,556,963)

 (1,427,000)

 (11,260)

 (6,995,223)

 5,556,963 

 (102,782)

 8,600,566 

 (8,473,351)

 $5,581,396

 $1,108,176 

 18,099 

 6,133 

 15,287 

 1,147,695 

 (1,111,276)

 (34,529)

 (1,890)

 (1,147,695)

 1,111,276 

 (22,915)

 691,899 

 (688,876)

$1,091,384 

 $- 

 3,328 

 1,467 

 2 

 4,797 

 (1,308)

 (3,489)

 - 

 (4,797)

 1,308 

 (1,470)

 939 

 (885)

$(108)

 $3,341 

 2,123 

 - 

 (23)

 5,441 

 (3,254)

 (2,187)

 - 

 (5,441)

 3,254 

 23 

 12,234 

 (12,242)

$3,269 

 $6,857,262 

 2,228,559 

 1,063,294 

 (880,487)

 9,268,628 

 (6,804,038)

 (2,450,907)

 (13,683)

 (9,268,628)

 6,804,038 

 (1,169,318)

 9,326,314 

 (9,223,430)

$5,737,604 

Budgetary Resources: (Notes 19 and 20) 

 

Budget Authority 

Unobligated Balances - Beginning of Period 

Spending Authority from Offsetting Collections 

Adjustments 

Total Budgetary Resources 

 

Status of Budgetary Resources: 

 

Obligations Incurred 

Unobligated Balances - Available 

Unobligated Balances - Not Available 

Total, Status of Budgetary Resources 

 

Outlays: 

 

Obligations Incurred 

Less: Spending Authority from Offsetting Collections 

and Adjustments 

Obligated Balance, Net - Beginning of Period 

Less: Obligated Balance, Net - End of Period 

 

Total Outlays
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

76 U.S. Agency for International Development

CONSOLIDATING STATEMENT OF FINANCING

U.S. Agency for International Development

Consolidating Statement of Financing for the year ended September 30, 2001 (In Thousands)

Credit 

Program 

Funds

Program 

Funds

Operating 

Funds

Revolving 

Funds

Trust 

Funds

Other

 Funds Total

$131,237 

 (1,043,077)

 2,320 

 - 

 - 

 - 

 (222,605)

 (1,132,125)

 (27,608)

 - 

 - 

 (79,591)

 - 

 (122)

 (62,202)

 - 

 1,317,255 

 1,147,732 

 - 

 (5,670)

 (5,670)

 - 

 9,937 

$5,556,963 

 (18,075)

 3,470 

 (331)

 - 

 - 

 1,987 

 5,544,014 

 342,125 

 331 

 (414)

 - 

 (4,480)

 (3,211)

 - 

 - 

 (1,657)

 332,694 

 - 

 - 

 - 

 - 

 5,876,708 

$1,111,276 

 (6,143)

 9 

 - 

 44,731 

 12,380 

 (7,505)

 1,154,748 

 (46,772)

 - 

 (11,980)

 - 

 (498)

 (2,441)

 - 

 - 

 (962)

 (62,653)

 6,863 

 206 

 7,069 

 1,086 

1,100,250 

 $1,308 

 (1,467)

 - 

 - 

 - 

 - 

 - 

 (159)

 (155)

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 (155)

 - 

 - 

 - 

 - 

 (314)

$3,254 

 - 

 - 

 - 

 3,187 

 - 

 - 

 6,441 

 (67)

 - 

 - 

 - 

 - 

 (233)

 - 

 (3,187)

 - 

 (3,487)

 - 

 - 

 - 

 - 

2,954

$- 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 $6,804,038 

 (1,068,762)

 5,799 

 (331)

 47,918 

 12,380 

 (228,123)

 5,572,919 

 267,523 

 331 

 (12,394)

 (79,591)

 (4,978)

 (6,007)

 - 

 (62,202)

 (3,187)

 1,314,636 

 1,414,131 

 6,863 

 (5,464)

 1,399 

 1,086 

6,989,535 

Obligations and Nonbudgetary Resources 

 

Obligations Incurred 

Less: Spending Authority from Offsetting Collections and Adjustments 

Earned Reimbursements 

Collected 

Receivable from Federal Sources 

Change in unfilled customer orders 

Donations Not in the Entity's Budget 

Financing Imputed for Cost Subsidies 

Exchange Revenue Not in the Budget 

Total Obligations as Adjusted, and Nonbudgetary Resources 

 

Resources That Do Not Fund Net Cost of Operations 

 

Change in Amount of Goods, Services, and Benefits Ordered but 

not yet Received or Provided 

Change in Unfilled Customer Orders 

Costs Capitalized on the Balance Sheet 

General Property, Plant, and Equipment, Net 

Loans 

Purchases of Inventory 

Financing Sources that Fund Costs of Prior Periods 

Collections that Decrease Credit Program Receivables or 

Increase Credit Program Liabilities 

Adjustment for trust fund outlays that do not affect net cost 

Other (Note 21) 

Total resources that do not fund net cost of operations 

 

Costs That Do Not Require Resources 

 

Depreciation and amortization 

Other 

Total costs that do not require resources 

Financing Sources Yet to be Provided (Note 14) 

Net Cost of Operations
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 77

REQUIRED SUPPLEMENTARY INFORMATION: SCHEDULE OF BUDGETARY RESOURCES

U.S. Agency for International Development

Required Supplementary Information: Schedule of Budgetary Resources by Major Appropriation for the year ended September 30, 2001 (In Thousands)

1010 1021 1035 1037 1093 1095 1096 1000 4336

Program Fund Operating Fund Other Consolidated 

Total

Budgetary Resources: (Notes 19 and 20) 

 

Budget Authority 

Unobligated Balances - Beginning of Period 

Spending Authority from Offsetting Collections 

Adjustments 

 

Total Budgetary Resources 

 

Status of Budgetary Resources: 

 

Obligations Incurred 

Unobligated Balances - Available 

Unobligated Balances - Not Available 

 

Total, Status of Budgetary Resources 

 

Outlays: 

 

Obligations Incurred 

Less: Spending Authority from Offsetting Collections 

and Adjustments 

Obligated Balance, Net - Beginning of Period 

Less: Obligated Balance, Net - End of Period 

 

Total Outlays 

480,230 

 198,213 

 43 

 (165)

 678,321 

 (535,589)

 (140,538)

 (2,194)

 (678,321)

 535,589 

 (1,365)

 452,680 

 (604,238)

 382,666 

1,270,403 

 129,494 

 3,818 

 26,500 

1,430,215 

 (1,287,485)

 (137,712)

 (5,018)

 (1,430,215)

 1,287,485 

 (33,386)

 2,288,877 

 (2,362,958)

1,180,018 

300,000 

 33,824 

 - 

 6,139 

339,963 

 (325,940)

 (14,023)

 - 

 (339,963)

 325,940 

 (6,799)

 235,840 

 (353,914)

201,067 

2,289,377 

 514,835 

 350 

 24,535 

2,829,097 

 (1,976,972)

 (849,061)

 (3,064)

 (2,829,097)

 1,976,972 

 (30,132)

 3,319,968 

 (2,936,133)

2,330,675 

 447,156 

 272,958 

 - 

 11,279 

731,393 

 (524,159)

 (206,250)

 (984)

 (731,393)

 524,159 

 (13,060)

 544,487 

 (596,160)

 459,426 

 853,242 

 19,799 

 5,958 

 (1,554)

877,445 

 (827,062)

 (50,383)

 - 

 (877,445)

 827,062 

 (6,522)

 1,154,232 

 (1,288,368)

686,404 

 - 

 9 

 - 

 53 

62 

 (5)

 (57)

 (0)

 (62)

 5 

 (53)

 408,185 

 (188,333)

219,804 

 535,400 

 58,216 

 6,133 

 9,259 

609,008 

 (576,739)

 (30,976)

 (1,293)

 (609,008)

 576,739 

 (16,828)

 170,996 

 (188,552)

542,355 

501,287 

 (49,102)

 - 

 4,036 

456,221 

 (456,221)

 - 

 - 

 (456,221)

 456,221 

 (4,036)

 505,212 

 (488,542)

468,855 

 180,167 

 1,050,313 

 1,046,992 

 (960,569)

1,316,903 

 (293,866)

 (1,021,907)

 (1,130)

 (1,316,903)

 293,866 

 (1,057,137)

 245,837 

 (216,232)

 (733,666)

6,857,262 

 2,228,559 

 1,063,294 

 (880,487)

9,268,628 

 

 (6,804,038)

 (2,450,907)

 (13,683)

 (9,268,628)

 

 6,804,038 

 (1,169,318)

 9,326,314 

 (9,223,430)

 

 5,737,604 

MAJOR FUNDS 

 

 Program Fund 

 

 1010 Special Assistance Initiatives 

 1021 Development Assistance 

 1035 International Disaster Assistance 

 1037 Economic Support Fund 

 1093 Assistance for the N.I.S. Of The Former Soviet Union 

 1095 Child Survival and Disease Programs Funds 

 

 Operating Fund 

 

 1000 Operating Expenses of USAID 

 4336 Commodity Credit Corporation (from U.S. Dept. of 

 Agriculture) 

 

OTHER FUNDS 

 

 Credit Program Funds 

 

 0400 MSED Program Fund 

 0401 UE Program Fund 

 0402 Ukraine Program Fund 

 1264 DCA Program Fund 

 1403 Direct Loan Liquidating Fund 

 4119 Israel Guarantee Financing Fund 

 4137 Direct Loan Financing Fund 

 4266 DCA Financing Fund 

 4340 UE Guarantee Liquidating Fund 

 4341 MSED Direct Loan Liquidating Fund 

 4342 MSED Direct Loan Financing Fund 

 4343 MSED Guarantee Financing Fund 

 4345 Ukraine Financing Fund 

 5318 Israel Admin Expense Fund 

 OTHER FUNDS (con't) 

 

 Operating Funds 

 

 0113 Salaries & Expenses - Diplomatic Security 

 0535 Acquisition & Maintenance Of Building Abroad 

 1007 Operating Expenses of USAID Inspector General 

 1036 Foreign Service Retirement and Disability Fund 

 

 Program Funds 

 

 1005 International Organizations and Programs 

 1012 Sahel Development Program 

 1013 American Schools and Hospitals Abroad 

 1014 Africa Development Assistance 

 1023 Food and Nutrition Development Assistance 

 1024 Population and Planning & Health Dev. Asst. 

 1025 Education and Human Resources, Dev. Asst. 

 1038 Central American Reconciliation Assistance 

 1040 Sub-Saharan Africa Disaster Assistance 

 1075 Anti-Terrorism Demining 

 1500 Demobilization and Transition Fund 

 

 Trust Funds 

 

 8342 Foreign Natl. Employees Separation Liability Fund 

 8502 Tech. Assist. - U.S. Dollars Advance from Foreign 

 8824 Gifts and Donations 

 

 Revolving Funds 

 

 4175 Property Management Fund 

 4590 Acquisition of Property, Revolving Fund 
FINANCIAL STATEMENTS AND NOTES 

Fiscal Year

2001

Accountability Report

78 U.S. Agency for International Development

REQUIRED SUPPLEMENTARY INFORMATION: INTERGOVERNMENTAL AMOUNTS

U.S. Agency for International Development

Required Supplementary Information: Intragovernmental Amounts as of September 30, 2001

(In Thousands) - Intragovernmental assets:

Required Supplementary Information: Intragovernmental Amounts as of September 30, 2001

(In Thousands) - Intragovernmental liabilities:

Agency

Treasury

Dept of Agriculture

Dept of Commerce

Dept of State

Other

Total

11,214,407 

11,214,407

415,779 

7,798 

423,577

9,063 

23,326 

17,439 

27,010 

76,838

11,223,470 

415,779 

23,326 

17,439 

34,808 

11,714,822

Fund Balance 

with Treasury

Accounts

Receivable, Net

Advances and

Prepayments Totals

Agency

Treasury

GSA

Dept of Agriculture

Other

Total

5,278,463

5,278,463

6,668

13,458

3,028

12,362

35,496

30,872

30,872

64,528

64,528

5,349,659

13,458

3,028

43,234

5,409,359

Due to 

Treasury

Accounts 

Payable Debt Other Totals
MEMORANDUM

FOR: A-CFO/FM, Elmer S. Owens

FROM: IG/A/FA, Alvin A. Brown

SUBJECT: Independent Auditor's Report on USAID's Consolidated Financial Statements, Internal

Controls, and Compliance for Fiscal Year 2001 (Report No. 0-000-02-006-F)

The Office of the Inspector General (OIG) is transmitting its reports on the audit of the U.S Agency for

International Development's (USAID's) fiscal year 2001 financial statements, related internal controls,

and compliance with applicable laws and regulations. Under the Government Management Reform Act

of 1994, USAID is required to prepare consolidated fiscal year-end financial statements. For fiscal year

(FY) 2001, USAID is required to submit the audited financial statements to the Office of Management

and Budget (OMB) and the Department of the Treasury by February 27, 2002.

Enclosed are the OIG's reports on USAID's FY 2001 financial statements, related internal controls, and

compliance with applicable laws and regulations. We are pleased to report that, for the first time, we

are able to issue opinions on three of USAID's five principal financial statements. This is an important

milestone and represents progress by USAID. However, on the Balance Sheet and Statement of Changes

in Net Position, the opinion was achieved only through extensive efforts to overcome material

weaknesses in internal controls. Although these efforts resulted in an improvement in the information on

two of USAID's five principal financial statements, the efforts did not provide for reliable information to

USAID managers throughout the year. 

Our report discusses three material weaknesses in internal controls and three reportable conditions

identified during the audit. The material weaknesses relate to the reconciliation and proper classification

of financial information as well as computer security deficiencies. The reportable conditions address

financial management improvements needed at USAID.

We reported that USAID is not in substantial compliance with the financial management system

requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA).

We have received and considered your response to the draft report and the recommendations included

therein. Based on your response, we accepted your comments as management decisions. Please

forward all information on your requests to the Office of Management, Planning, and Innovation for

acceptance of the final management actions related to the recommendations. See Appendix II for

USAID's Management Comments.

I appreciate the cooperation and courtesies that your staff extended to the OIG during our audit. The

Office of the Inspector General is looking forward to working with you on the audit of fiscal year 2002

financial statements and seeing improved systems and controls.

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 79
SUMMARY OF RESULTS

The Government Management Reform

Act (GMRA) of 1994 requires the U.S.

Agency for International Development

(USAID) to prepare and submit audited

consolidated financial statements for

inclusion in the government-wide

financial statements. As part of this

effort, GMRA requires the Office of

Inspector General (OIG) to:

• Audit the financial statements and

issue an opinion on the fairness of

their presentation in accordance

with generally accepted

accounting principles;

• Report on related internal controls;

and

• Report on compliance with

applicable laws and regulations.

Auditor's Opinion on USAID's

Fiscal Year 2001 Financial

Statements

In our opinion, USAID's Balance

Sheet, Statement of Changes in Net

Position, and Statement of Budgetary

Resources present fairly, in all material

respects, the financial position of

USAID at September 30, 2001, in

conformity with generally accepted

accounting principles, except for the

effects of:

• $128 million in advances that

were not reconciled to ensure

proper classification as advances

and/or expenses on the Balance

Sheet and the Statement of

Changes in Net Position; and

• $186 million in unliquidated

obligations that may not be needed 

for the original obligation

purposes on the Statement of

Budgetary Resources.

We were unable to express an opinion

on USAID's Statements of Net Cost

and Financing for the year ended

September 30, 2001 because we could

not perform sufficient audit procedures

to determine the effect of:

• $246 million in expenses (of

which $155 million was attributed

to advance liquidations) that may

not have been properly allocated

to Agency goals and $128 million

in unreconciled advances that may

not have been properly classified

on the Statement of Net Cost; and

• $186 million in unliquidated

obligations that may not be

needed for the original obligation

purpose and the $128 million

unreconciled advances that may

not have been properly classified

on the Statement of Financing.

Other Accompanying Information

The Management Discussion and

Analysis (MD&A) is not a required part

of the basic financial statements; rather,

it is supplementary information required

by the Federal Accounting Standards

Advisory Board. We did not audit and

do not express an opinion on such

information. However, we have applied

certain limited procedures to determine

the methods of measurement and

presentation of the supplementary

information. As a result of such limited

procedures, we believe that the MD&A

departs materially from prescribed

guidelines. The results of our

procedures are included in the reports

on internal controls and compliance

with applicable laws and regulations.

Report on Related Internal

Controls

During fiscal year 2001, USAID took

steps to meet the Federal Financial

Management Improvement Act (FFMIA)

requirements by deploying Phoenix, an

off-the-shelf accounting system, as a

component of its financial

management system. However, USAID

financial management systems do not

substantially comply with the FFMIA

requirements. As a result, USAID

places greater reliance on manual

processes such as reconciliations

because data for the same transaction

may be separately entered into

multiple systems.

Our audit identified three material

internal control weaknesses and

reportable conditions, three of which

are included in this report.

The material weaknesses were:

• Advances to Grantees Were Not

Consistently Reconciled and

Classified.

• Unliquidated Obligations Were

Not Consistently Analyzed and

Deobligated as Necessary.

• Computer Security Deficiencies

Continue to Exist.

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Fiscal Year

2001

Accountability Report

80 U.S. Agency for International Development
The reportable conditions were:

• USAID's Process for Recognizing

and Reporting Accounts

Receivable Needs Improvement.

• USAID's Internal Controls Over

Its Overseas Missions Accounts

Payable Process Needs

Improvement.

• USAID's Process for Preparing

the Management Discussion and

Analysis Needs Improvement.

We noticed certain other matters

involving USAID's internal controls

and its operations that we will report

to management in a separate report.

With respect to performance

measures reported in the MD&A, we

were unable to obtain a complete

understanding of the design of the

related significant internal controls

because management did not

disclose all sources of performance

results data to the OIG in a timely

manner. Consequently, we were

unable to review the internal

controls surrounding all the sources.

However, by applying limited

procedures to certain sources to

determine the methods of

measurement and presentation of

performance results in the MD&A,

we identified deficiencies that, in

our judgment, caused the MD&A to

depart materially from prescribed

guidelines.

Report on Compliance with Laws

and Regulations

Our audit also disclosed two instances

of noncompliance with laws and

regulations that could have a direct

and material effect on the principal

financial statements and required

supplementary information. The laws

with which USAID did not comply

were:

• The Federal Financial Management

Improvement Act of 1996, and

• The Computer Security Act of 1987

Specifically, USAID's financial

management systems did not

substantially comply with Federal

Financial Management System

requirements, Federal Accounting

Standards, and the U.S. Standard

General Ledger at the transaction level.

Further, we found that USAID did not

implement an effective computer

security program as required by the

Act.

We considered USAID's internal

control weaknesses and

noncompliance with laws and

regulations to determine our auditing

procedures for the purpose of forming

our opinion on the financial statements

and not to provide assurance on

internal controls and compliance with

laws and regulations.

We have provided additional

information in the following

paragraphs regarding the areas listed

above. USAID reported these material

weaknesses in its previous

Accountability Reports and in its draft

2001 Accountability Report, which will

be issued on February 27, 2002.

BACKGROUND 

The United States Agency for

International Development (USAID)

was created in 1961 to advance the

United States' foreign policy interest by

promoting broad-based sustainable

development and providing

humanitarian assistance. USAID has

an overseas presence in over 70

countries, 42 of which have fully

operational and formal USAID

missions. In fiscal year 2001, USAID

had total obligation authority of about

$7.5 billion. 

Under the Government Management

Reform Act of 1994, USAID is required

to annually submit audited financial

statements to the Office of

Management and Budget (OMB) and

appropriate Congressional Committees.

Pursuant to this Act, for FY 2001,

USAID has prepared: (1) Balance

Sheet, (2) Statement of Net Cost (3)

Statement of Changes in Net Position,

(4) Statement of Budgetary Resources,

(5) Statement of Financing, (6) notes to

the financial statements, and (7) other

accompanying information.

Audit Objectives

OMB Bulletin No. 01-02 and related

GAO guidance established the

minimum audit requirements for

Federal financial statements. For

fiscal year 2001, this Bulletin required

us to:

• Determine whether USAID's

principal financial statements

present fairly in all material

respects, in conformity with

generally accepted accounting

principles, the (1) assets; (2)

liabilities and net position; (3) net

costs; (4) change in net position;

(5) budgetary resources; (6)

reconciliation of net costs and

budgetary obligations.

• Obtain an understanding of

USAID's internal control sufficient

to plan the audit by performing

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 81
procedures to understand the

design of controls relevant to an

audit of financial statements, and

whether they have been placed in

operation. Assess control risk for

the assertions embodied in the

classes of transactions, account

balances, and disclosure

components of the financial

statements.

• Obtain an understanding of the

components of USAID's internal

control relating to the existence

and completeness assertions

relevant to the performance

measures included in the

Management Discussion and

Analysis.

• Report on USAID's compliance

with laws and regulations that

could have a direct and material

effect on the principal statements,

and any other applicable laws and

regulations.

• Report whether USAID's financial

management systems substantially

comply with the FFMIA section

803(a) requirements.

For the first objective, we obtained

sufficient evidence about the balances

in the material line items on USAID's

fiscal year 2001 financial statements to

enable us to form an opinion on those

statements.

For the second and third objectives

mentioned above, we obtained an

understanding of USAID's internal

controls and assessed the control risk

for the assertions embodied in the

classes of transactions, account

balances, and disclosure components

of the financial statements. We

attempted to obtain an understanding

of the components of USAID's internal

controls relating to the existence and

completeness assertions relevant to the

performance measures included in the

Management Discussion and Analysis.

For the fourth and fifth objectives

mentioned above, we determined

whether USAID's financial

management systems comply

substantially with federal requirements

for financial management systems,

applicable federal accounting

standards, and the U.S. Standard

General Ledger at the transaction level,

as required by Section 803(a) of the

FFMIA of 1996.

In accordance with the OMB audit

requirements for federal financial

statements, this combined audit report

includes our separate reports on

USAID's financial statements, internal

controls, and compliance with

applicable laws and regulations.

AUDIT FINDINGS

Independent Auditor's

Report on USAID's Financial

Statements

Did USAID's principal financial

statements present fairly: the assets,

liabilities, net position, net costs,

change in net position, budgetary

resources, and reconciliation of net

costs, and budgetary obligations for

fiscal year 2001?

We have audited the accompanying

Balance Sheet, Statement of Changes

in Net Position, and Statement of

Budgetary Resources of USAID for the

year ended of September 30, 2001.

We were engaged to audit the related

Statements of Net Cost and Financing

for the year then ended. These

financial statements are the

responsibility of USAID's management.

Our responsibility is to express an

opinion on the financial statements

based on our audit.

We conducted our audit in accordance

with generally accepted government

auditing standards; the standards

applicable to financial audits contained

in Government Auditing Standards,

issued by the Comptroller General of

the United States; and the Office of

Management and Budget (OMB)

Bulletin No. 01-02, "Audit

Requirements for Federal Financial

Statements." Those standards require

that we plan and perform the audit to

obtain reasonable assurance about

whether the financial statements are

free of material misstatement. An audit

includes examining, on a test basis,

evidence supporting the amounts and

disclosures in the financial statements.

An audit also includes assessing the

accounting principles used and

significant estimates made by

management, as well as evaluating the

overall financial statement

presentation. We believe that our

audit provides a reasonable basis for

our opinion.

USAID did not reconcile and properly

classify $66 million net ($109 million

in absolute value) in advances and $62

million in advance liquidations were

not recorded as expenses on the

Balance Sheet and Statement of

Changes in Net Position, respectively.

Instead, $128 million was reported on

the Balance Sheet as advances.

Consequently, we were unable to

determine how the $128 million

should have been classified and

reported on the financial statements.

Additionally, we were unable to

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Fiscal Year

2001

Accountability Report

82 U.S. Agency for International Development
determine, through our normal

auditing procedures, whether $186

million in unliquidated obligations that

were reported on the Statement of

Budgetary Resources were needed for

the original obligation purpose.

In our opinion, except for the effect of

the outstanding advances, advance

liquidations, and unliquidated

obligations mentioned above, USAID's

fiscal year 2001 Balance Sheet,

Statement of Changes in Net Position,

and Statement of Budgetary Resources

present fairly, in all material respects,

the financial position of USAID for the

year then ended in conformity with

generally accepted accounting

principles.

We were unable to express an opinion

on USAID's Statement of Net Cost for

the fiscal year ended September 30,

2001 because we could not perform

sufficient audit procedures to

determine the effects of the allocation

of about $246 million in expenses to

the appropriate Agency goals on the

Statement of Net Cost. In addition, we

could not determine the effects of $128

million reported on the Balance Sheet

as advances that may be more

appropriately recorded as expenses but

were not included on the Statement of

Net Cost.

The $246 million in expenses may not

be appropriately assigned to specific

Agency goals because:

• $155 million in expenses (advance

liquidations) were not initially

recorded as expenses in FY 2001.

USAID grantees could not report

the expenses because the

corresponding obligations were not

recorded in the Department of

Health and Human Services

(DHHS) Payment Management

System (hereafter referred to as the

Payment Management System).

Subsequently, USAID recorded and

allocated the expenses but was

unable to record them directly to

the related agency goals.

• $91 million in mission expenses

were not appropriately assigned to

specific Agency goals in the

Statement of Net Cost.

The $128 million was reported on the

Balance Sheet as advances that

may be more appropriately

recorded as expenses on the

Statement of Net Cost. Of the

$128 million:

• $62 million was reported to

USAID as expenses by the DHHS

but not recorded as expenses in

USAID's FY 2001 general ledger

nor in the financial statements; and

• $66 million of unreconciled

advances ($109 million absolute)

remained in USAID's legacy

system. The legacy system is

inactive and, according to USAID

officials, the vast majority of these

outstanding advances should be

reclassified as expenses. Until the

advances are reviewed and a

determination made as to their

status, there is no means of

determining whether they are

expenses or outstanding advances.

We were unable to express an opinion

on USAID's Statement of Financing for

the fiscal year ended September 30,

2001 because we could not perform

sufficient audit procedures to

determine the effects of the $186

million noted above on the Statement

of Budgetary Resources that may not

be needed for the original obligation

purpose. In addition, we could not

determine the effects of the $128

million reported on the Balance Sheet

as advances that may be more

appropriately recorded as expenses.

In accordance with Government

Auditing Standards and the provisions

of OMB Bulletin 01-02, we have also

issued reports, dated February 25,

2002, on our consideration of USAID's

internal controls and on its compliance

with laws and regulations.

The Management Discussion and

Analysis (MD&A) is not a required part

of the basic financial statements, rather,

it is supplementary information

required by the Statement of Federal

Accounting Standards and we did not

audit and do not express an opinion on

such information. However, we have

applied certain limited procedures to

determine the methods of

measurement and presentation of the

supplementary information. As a result

of such limited procedures, we believe

that the MD&A departs materially from

prescribed guidelines. The results of

our procedures are included in the

reports on internal controls and

compliance with applicable laws and

regulations.

Office of Inspector General

February 25, 2002

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 83
Independent Auditor's

Report on Internal Controls

Did USAID establish adequate internal

controls related to its financial

statements and the performance

measures contained in its Management

Discussion and Analysis section?

We have audited the financial

statements of USAID for the fiscal year

ended September 30, 2001 and have

issued our report thereon. We

conducted the audit in accordance

with generally accepted auditing

standards; the standards applicable to

financial audits contained in

Government Auditing Standards, issued

by the Comptroller General of the

United States; and the Office of

Management and Budget (OMB)

Bulletin No. 01-02, "Audit

Requirements for Federal Financial

Statements."

In planning and performing our audit,

we considered USAID's internal

controls over financial reporting by

obtaining an understanding of those

controls. We determined whether the

internal controls have been placed in

operation, assessed control risk, and

performed tests of controls to

determine our auditing procedures for

the purpose of expressing an opinion

on the financial statements. We

limited the internal control testing to

those necessary to achieve the

objectives described in OMB Bulletin

No. 01-02. We did not test all internal

controls relevant to the operating

objectives as broadly defined by the

Federal Managers' Financial Integrity

Act of 1982 (such as those relevant to

ensuring efficient operations).

The objectives of internal controls are

to provide management with

reasonable, but not absolute,

assurance that the following

objectives are met:

• Transactions are properly recorded

and accounted for to permit the

preparation of reliable financial

reports and to maintain

accountability over assets.

• Funds, property, and other assets

are safeguarded against loss from

unauthorized acquisition, use, or

disposition.

• Transactions that have a material

impact on the financial statements,

including those related to

obligations and costs are executed

in compliance with laws and

regulations. 

The objective of our audit was not to

provide assurance on internal controls.

Consequently, we do not provide an

opinion on internal controls.

Our consideration of the internal

controls over USAID's financial

reporting would not necessarily

disclose all matters that might be

reportable conditions. Under

standards issued by the American

Institute of Certified Public

Accountants, reportable conditions are

matters coming to our attention

relating to significant deficiencies in

the design or operation of the internal

control that, in our judgement, could

adversely affect USAID's ability to

record, process, summarize, and report

financial data consistent with the

assertions by management in the

financial statements. Material

weaknesses, on the other hand, are

reportable conditions in which the

design or operation of one or more of

the internal control components does

not reduce to a relatively low level the

risk that misstatements in amounts that

would be material in relation to the

financial statement being audited may

occur and not be detected within a

timely period by employees in the

normal course of performing their

assigned functions.

Because of inherent limitations in

internal controls, misstatements, losses,

or noncompliance may nevertheless

occur and not be detected. However,

we noted certain matters, discussed in

the following paragraphs and

accompanying schedules, involving the

internal controls and their operation

that we consider material weaknesses

and/or reportable conditions. (See

Federal Financial Management

Improvement Act of 1996 (FFMIA)

section of Compliance Report for

additional internal control

weaknesses).

During fiscal year 2001, USAID took

steps to meet the FFMIA requirements

through deploying Phoenix, an off-theshelf accounting system, as a

component of its financial

management system. However, USAID

still lacks a fully integrated financial

management system and does not

substantially comply with the FFMIA

requirements. As a result, USAID

places a greater reliance on manual

processes such as reconciliations

because data for the same transaction

may be separately entered into

multiple systems.

We identified the following matters

involving the internal control and its

operation that we consider to be

material weaknesses and reportable

conditions as defined above.

Material weaknesses and reportable

conditions that were reported in

prior GMRA

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

Fiscal Year

2001

Accountability Report

84 U.S. Agency for International Development
audit reports, and that continued to

exist during FY 2001 are identified as

"Repeat Conditions".

The material weaknesses were:

• Advances to Grantees Were Not

Consistently Reconciled and

Classified.

• Unliquidated Obligations Were

Not Always Analyzed and

Deobligated as Necessary.

• Computer Security Deficiencies

Continue to Exist.

The reportable conditions were:

• USAID's Process for Recognizing

and Reporting Its Accounts

Receivable Needs Improvement.

• USAID's Internal Controls Over Its

Overseas Missions Accounts

Payable Process Needs

Improvement.

• USAID's Process for Preparing the

Management Discussion and

Analysis Needs Improvements.

We noticed certain other matters

involving USAID's internal controls

and its operations that we will

communicate to management in a

separate report that is scheduled to be

issued by March 31, 2002.

Material Weaknesses

Advances to Grantees Were Not

Consistently Reconciled and Classified

(Repeat Conditions)

We found that USAID did not

consistently reconcile advances to

grantees. Further, USAID did not

properly classify its advances to

grantees at fiscal year-end. As a result,

the following occurred:

• A $4391 million difference existed

between USAID's general ledger

and its subsidiary ledger

maintained by the Department of

Health and Human Services

(DHHS) for advances to grantees.

• About $1552 million in expenses

incurred by its grantees had not

been reported to DHHS nor

identified and recorded in the

financial records by USAID.

• A backlog of 278 grant awards

and/or modifications was not

entered in the Payment

Management System.

• About $66 million in advances

disbursed prior to October 1999

remained outstanding as of

September 30, 2001.

As of September 30, 2001, a difference

of $439 million existed between

USAID's general ledger and its

subsidiary ledger. USAID's general

ledger had a balance of about $1.1

billion in advances to grantees, while

its subsidiary ledger, which is

maintained by DHHS,3 had a balance

of $694 million. No automated

interface exists between the Payment

Management System and USAID's

general ledger. Therefore, transactions

processed in the Payment Management

System must be manually entered into

USAID's general ledger and USAID is

required to reconcile the reports

provided by DHHS to the general

ledger. The $439 million difference

occurred because USAID did not

follow its established procedure that

requires a monthly reconciliation

between the general and subsidiary

ledgers. According to USAID officials,

the lack of staffing resources impaired

its ability to perform the monthly

reconciliation. USAID recorded an

adjustment to its FY 2001 advance

balance for about $377 million of the

$439 million. USAID is analyzing the

remaining $62 million before it is

recorded as an expense. Therefore, the

advances may be overstated and the

expenses may be understated by the

$62 million.

GAO Standards for Internal Controls

in the Federal Government requires

reconciliation as part of federal

agency's management and

supervisory activities. The standards

state that "In the process of carrying

out regular management functions,

management should obtain

information as to whether internal

control is working properly.

Operating reports should be

integrated or reconciled with financial

reporting system data and used to

manage operations on an ongoing

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 85

1 USAID recorded an adjustment to its FY 2001 advance balance for about $377 million of the $439 million. USAID is analyzing the remaining $62

million before it is recorded as an expense.

2 USAID subsequently made an adjustment to record the $155 million as expenses.

3 DHHS is the servicing agency that manages advances to USAID's grantees through the Letter of Credit System. Therefore, the Payment Management

System is USAID's subsidiary ledger for advances to grantees.
basis. Significant inaccuracies or

exceptions should alert management to

any internal control problems." We

believe that USAID did not fully carry

out the requirements of this standard in

fiscal year 2001 as they relate to the

advance activities.

In a previous audit report,4 we

recommended that USAID conduct a

monthly reconciliation of the advance

balances maintained in the general and

subsidiary ledgers. However, USAID

has not fully implemented our

recommendation. Therefore, we are

making the following recommendation:

Recommendation No. 1. We

recommend that USAID Office of

Financial Management:

1.1 establish a general ledger suspense

account to record expenses

reported to USAID by the

Department of Health and Human

Services,

1.2 identify and record these expenses

against the appropriate general

ledger account at the obligation

level, and

1.3 establish procedures to research

and resolve all expenses remaining

in the general ledger suspense

account at the end of each

accounting period.

As of September 30, 2001, USAID had

not recorded about $155 million in

expenses related to advance liquidation

submitted by grantees. This occurred

because USAID does not have an

integrated financial management

system. Therefore, obligations

established for advances to grantees

that are managed by DHHS must be

manually entered into the Payment

Management System. However,

USAID has not established a process

that ensures that all obligations

established for advances to grantees

are entered into the Payment

Management System. Consequently,

the obligations related to the $155

million had not been entered into the

PMS, therefore, the expenses were not

recognized and reported by DHHS.

USAID subsequently made an

adjustment to record the $155 million

as expenses.

We determined that, as of September

30, 2001, USAID has a backlog of 278

grant agreements and/or amendments

with a value of about $255 million that

were not recorded in the Payment

Management System. The grant

agreements and/or amendments were

not posted to the Payment

Management System for up to 361

days. (Table 1 below illustrates the

status of the grant agreements or

amendments). This occurred because

USAID does not have a worldwideintegrated financial management

system that links the accounting,

procurement, and assistance systems as

well as all other activities performed by

USAID. Additionally, copies of new

grants and/or amendments issued by

USAID were not submitted to the

Financial Management Division in a

timely manner. Further, there is no

assurance that all obligations

established for grants managed by

DHHS were submitted to the USAID's

Cash Management and Payment

Division. The backlog of grants and/or

amendments were kept in a file drawer

in this division because USAID Office

of Financial Management did not have

the necessary staffing resources to enter

these agreements into the Payment

Management System.

GAO Standards for Internal Controls in

the Federal Government requires that

transactions and other significant

events should be promptly recorded

and properly classified. This guidance

further states that transactions must be

promptly recorded if pertinent

information is to maintain its relevance

and value to management in

controlling operations and making

decisions.

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2001

Accountability Report

86 U.S. Agency for International Development

210

19

10

14

7

18

278

Absolute Value

(in millions)

Number of

Amendments

Number of Days

Outstanding

0-59

60-90

91-120

121-180

181-360

361 & Over

$197

$25

$4

$13

$4

$12

$255

Table 1

Status of Grant Agreements/Amendments At September 30, 2001

4 Audit of USAID Advances and Related Internal

Controls for Fiscal Year 1999 (Audit Report No.

0-000-00-003-F, February 1, 2000).
This applies to:

• the entire process or life cycle of a

transaction or event and includes

the initiation and authorization,

• all aspects of the transactions

while in process, and

• its final classification in summary

records.

Proper classification of information on

transactions and events refers to the

organization and format of information

on summary records from which

reports and statements are prepared.

In previous audit reports,5 we

recommended that USAID implement

a process to address the internal

control deficiency identified above.

However, during our fiscal year 2001

GMRA audit follow-up, we determined

that USAID had not done so.

According to USAID officials, this

occurred because of the shortage in

staffing resources. As a result, the

backlog of unrecorded grants and

modifications has recurred. Therefore,

we are restating the following

recommendation to USAID

Management:

Recommendation No. 2. We

recommend that the USAID

Office of Financial Management:

2.1 eliminate the backlog of grant

agreements and/or amendments by

inputting them into the

Department of Health and Human

Service's Payment Management

System;

2.2 ensure that all new grant

agreements and/or amendments

are submitted to its Cash

Management and Payment

Division within 10 business days

after their execution; and

2.3 ensure that the Cash Management

and Payment Division enter all

new grants and/or amendments in

the Payment Management System

within 20 days after receiving

them.

USAID had not completed reconciling

and classifying the advances to

grantees recorded in its legacy system.

According to USAID officials, this

occurred because the Office of

Financial Management lacked the

necessary staffing resources.

Additionally, maintaining the day-today operations and implementing

Phoenix (USAID's new accounting

system) was assigned a higher priority.

As a result, $66 million in advances to

grantees remained unreconciled as of

September 30, 2001. This could result

in an overstatement of the year-end

advance balance and an

understatement of the related expenses

by the $66 million.

In previous audit reports, we reported

that USAID transferred an estimated

$1.3 billion of unliquidated obligations

for 301 recipient organizations to the

Payment Management System without

verifying the accuracy of the

transferred balances. We

recommended that USAID perform a

reconciliation to verify the accuracy of

balances transferred to DHHS. USAID

concurred with our finding and

recommendation and proposed

corrective action for this deficiency.

Our audit covering fiscal year 2001

showed that USAID reconciled the

unliquidated obligation balances for

168 of the 292 recipient organizations

transferred to the Payment

Management System.

As agreed, USAID has implemented

prior recommendations. However, due

to the lack of staffing resources, USAID

has not completed this reconciliation.

USAID officials stated that the

remaining 124 recipient organizations

will be completed by fiscal year-end

2002. Therefore, we are not making a

recommendation in this report.

Unliquidated Obligations Were Not

Consistently Analyzed and Deobligated

as Necessary (Repeat Condition)

USAID records showed unliquidated

obligations that may no longer be

needed for its original obligation

purpose. This occurred because, as of

September 30, 2001, USAID had not

implemented a process for consistently

reviewing, analyzing, and deobligating

unneeded obligations.

As a result, at September 30, 2001,

there were about $186 million in

unliquidated obligations that had no

activity against them for more than one

year. Further, this $186 million may no

longer be needed for its original

obligation purpose.

USAID's Automated Directive System

(ADS) No. 621 states that "as part of

the annual budget process, Assistant 

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

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U.S. Agency for International Development 87

5

Audit of USAID Advances and Related Internal Controls for Fiscal Year 1999 (Audit Report No. 0-000-00-003-F, February 1, 2000) and Audit of USAID

Advances and Related Internal Controls for Fiscal Year 2000 (Audit Report No. 0-000-00-003-F, February 15, 2001).
Administrators, independent Office

Directors, and Mission Directors must

certify whether unexpended balances

are necessary for on-going programs."

The directive further requires that in

conducting reviews of obligations to

identify funds that must be

deobligated, obligation managers and

others involved in the review process

should consider circumstances that

could result in excessive or unneeded

obligation balances. According to ADS

621, where there is an unobligated

balance that has remained unchanged

for 12 months or more and there is no

evidence of receipt of services/goods

during that same 12-month period, the

situation may reflect that remaining

balances are no longer needed.

We determined that, as of September

30, 2001, USAID's internal control

process as it relates to the management

of unliquidated obligations needs

improvement. Specifically, our review

of about $1.9 billion in unliquidated

obligations showed that about $186

million had no activity during FY 2001,

based on normal Agency operations,

and may not be needed for the original

obligation purpose. We were unable

to determine the portion of this amount

that should be deobligated.

We also determined that about $57

million of the $186 million in

unliquidated obligations had no

disbursement activity since the

obligation was established. According

to USAID officials, this occurred

because USAID's current disbursement

process does not match contractor or

grantee-reported expenses and the

subsequent payments with the

obligations that gave rise to those

payments. Consequently, the $57

million in unliquidated obligations was

carried forward each year even after

the payments that would have fully

depleted them were made by USAID

(see Table 2 below).

In prior years, we reported that

USAID's unliquidated balances

were not routinely reviewed and

were not reliable for calculating

accrued expenses and accounts

payable. In our fiscal year 2000

audit report, we reported that

USAID acted to improve its policies

and procedures and the quality of

the financial data recorded in the

New Management System.7 USAID

agreed that its process for

reviewing, analyzing, and

deobligating unliquidated

obligations needs improvement.

During fiscal year 2000, USAID:

• Implemented a project to

review and deobligate those

unnecessary unliquidated

obligations established during

fiscal year 1999 and prior

periods. As a result, USAID

deobligated over 1,200

obligations totaling about $126

million and revised its policies

and procedures for performing

periodic reviews. 

• Provided training in obligation

management to financial

management personnel; and

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

Fiscal Year

2001

Accountability Report

88 U.S. Agency for International Development

6

$66,250

1,376

0

1,192,789

429,799

1,037,180

1,247,520

5,226,301

27,118,496

20,743,564

- 

- 

$57,063,275

$5,100

39,530

444,833

-528,461

5,102,569

6,620,971

10,746,980

19,146,366

56,417,478

31,175,078

- 

- 

$129,170,444

$71,350

40,906

444,833

664,328

5,532,368

7,658,151

11,994,500

24,372,667

83,535,974

51,918,642

- 

- 

$186,233,719

$26,567,291

10,043,216

29,602,595

12,988,951

8,504,748

$87,706,801

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Total

Obligations 

with No 

Activity Since 

Establishment

Obligations 

with No Activity 

in Fiscal Year 

2001

Total 

Unliquidated 

Obligation 

Fiscal 

Year

Last

Recorded

Payment

by Fiscal

Year

Table 2

Unliquidated Obligations Reviewed and Questioned

6 No payment date was available for the

fiscal years prior to fiscal year 1996.

This is because the last payment would

have occurred before USAID deployed

the New Management System in fiscal

year 1996.

7 The New Management System is

USAID's old accounting system that was

replaced in fiscal year 2001 with the

Phoenix accounting system.
• Revised its Automated Directive

System, Chapter 621,

"Obligations," on September 11,

2000. 

According to USAID officials, the

Agency implemented a decentralized

Accrual Reporting System in the

beginning of FY 2002. This system is

designed to require review and

approval of a system-generated accrual

estimate. If this system is implemented

and maintained as intended, it should

enable USAID to routinely identify

obligations that could be deobligated.

We will review the implementation of

this new system during our fiscal year

2002 GMRA audit.

Recommendation No. 3. We

recommend that the USAID

Office of Financial Management

coordinate with the Office of

Procurement and responsible

program bureaus to conduct the

necessary analysis for

determining whether the $186

million and other unneeded

obligations should be

deobligated.

Computer Security 

Weaknesses Continue to Exist

(Repeat Condition)

Over the past four years, the OIG has

issued several audits related to the

security and general controls8 of

USAID's information systems. Those

audits have identified computer

security weaknesses that exposed

USAID's financial systems to significant

risk of unauthorized disclosure and

modification of sensitive data, misuse

or damage of resources, or disruption

of critical operations. (See the

"Computer Security Laws" section of

the compliance report for a discussion

of the OIG audit reports.)

Since 1997, USAID has reported the

Agency's computer security program as

a material weakness9 and currently

estimates that the weakness will not be

fully corrected until September 2003.

In USAID's attempt to resolve this

material weakness, USAID reportedly

has (1) established an effective

Information System Security Office

structure and an advisory group to set

strategy, (2) developed a risk

assessment methodology to evaluate

computer security, and (3) led the

Federal Best Security Practices

Initiative.

Nonetheless, recent OIG audits

showed that USAID has continued to

have many serious computer security

weaknesses. For example, the audits

identified weaknesses in logical access

controls, application software

development and change control,

segregation of duties, systems software

configuration, and service continuity.

These weaknesses exist because USAID

has not implemented an effective

computer security program. For

instance, USAID did not:

• enforce its policies and procedures

to ensure appropriate

implementation, and

• provide adequate guidance for

incorporating security into some of

USAID's information technology

processes.

As a result of the security deficiencies,

USAID's financial systems are at

significant risk of unauthorized

disclosure and modifications of

sensitive data, misuse or damage of

resources, or disruption of critical

operations. The weaknesses may also

hamper USAID's ability to produce

reliable financial information.

Therefore, USAID needs to continue to

improve the Agency's computer

security program. (To address these

weaknesses, the OIG made

recommendations in other audit

reports. We are not, therefore, making

any further recommendations at this

time.)

Reportable Conditions

USAID's Process for Recognizing and

Reporting Its Accounts Receivable

Needs Improvements 

(Repeat Condition)

As of September 30, 2001, USAID

lacks an integrated financial

management system with the ability to

account for its worldwide accounts

receivables. Consequently, USAID had

to rely on data calls to its missions to

determine the year-end accounts

receivable balance. This occurred

because USAID lacked coordination

and integration of various systems;

lacked adequate policy and procedural

guidance; and, as previously stated,

did not have an integrated financial

management system. As a result,

USAID has no assurance that the

amount reported for accounts

receivable in its FY 2001 financial

statements represents all receivables

due to USAID.

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2001

Accountability Report

U.S. Agency for International Development 89

8 General controls are the structure, policies, and procedures that apply to an entity's overall computer operations. If general controls are weak or

ineffective, the reliability of controls associated with individual applications is severely diminished.

9 USAID identified this as a material weakness in the Agency's Federal Manager's Financial Integrity Act review.
SFFAS No. 1 requires that accounts

receivable be recognized (recorded)

when a claim to cash or other assets

has been established. The

establishment of accounts receivable

cannot occur on a timely basis unless

there are adequate procedures for

recognizing and reporting accounts

receivable at the end of each

accounting period.

Currently, USAID records accounts

receivable after the missions and the

Office of Procurement notifies its

Financial Management Division that

employees, vendors, contractors, and

grantees owe funds to USAID. We

determined that this notification to the

Office of Financial Management occurs

when the receivables are significantly

past due- ranging from 636 to 4,042

days.

We also determined that USAID had

not recorded receivables of about $7.2

million for Title II and III

reimbursements from the U. S.

Department of Agriculture.

Additionally, we determined that

USAID initially overstated its accounts

receivable for transfers of currently

invested balances by about $49

million. USAID's management made

adjustments for these amounts to report

a more reliable balance for its accounts

receivables.

We are making the following

recommendation to the USAID Office

of Financial Management to improve

its accounts receivable process:

Recommendation No. 4. We

recommend that the USAID

Office of Financial Management

develop and implement a system

for the immediate recognition

and reporting of all accounts

receivables that are due to USAID

at the end of each accounting

period.

USAID's Internal Controls Over its

Overseas Missions Accounts Payable

Process Needs Improvement

Our audit determined that USAID's

internal controls over its mission

accounts payable process needs

improvement. We noted that amounts

reported for accounts payable via the

accrual worksheets used by missions

were unsupported by financial

documentation. This occurred because

all missions have not developed an

effective process for gathering the

needed financial information from their

contractors and grantees to calculate

and record periodic accounts payable.

As a result, the accounts payable

amount from USAID's missions for

fiscal year 2001 expenses was

overstated by about $165 million.

USAID management recorded an

adjustment for the $165 million to

present a more reliable accounts

payable balance at September 30,

2001.

OMB Circular A-123 requires that

transactions be promptly and properly

classified and accounted for so that

timely accounts and reliable financial

statements can be prepared. The

documentation for transactions,

management controls, and other

significant events must be clear and

readily available for examination.

We determined that the internal

control over the process for calculating

accounts payable at the missions

visited was ineffective. We found that

amounts calculated via the accrual

worksheet process were not supported

by available financial documentation,

rationale for calculations, or status

reports that reflect an assessment of the

spending for the project or activity.

Moreover, we found that several

accounts payable amounts were

recorded by the missions for the entire

balance of the related obligations, with

expired performance periods. These

obligations either had no financial

activity in more than one year or had

no activity since they were established.

We determined that USAID had not

conducted the necessary research to

determine if the obligations and

corresponding accounts payable were

necessary.

We determined that this resulted

because the efforts of USAID were

somewhat hampered by the

inefficiencies of the Mission

Accounting and Control System

(MACS)10 and its inability to group

various funding instruments of the

same project or program. However,

many USAID missions have not

documented their calculations, their

communications with contractors and

grantees, their analysis of project

expense burn rates, or their review of

the necessary accounting reports.

Additionally, the missions have not

developed an effective methodology

for gathering the necessary financial

information from contractors and

grantees.

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2001

Accountability Report

90 U.S. Agency for International Development

10 MACS is an activity based system for recording budget allowance, projects, operating expense, and accounting transactions at USAID's missions.
Furthermore, we determined that

USAID missions did not close several

obligations and calculated accounts

payable for the entire remaining

balance because the missions have not

received disbursement data from

USAID/Washington, nor had the

missions received a final voucher from

the contractors or grantees. As a result,

the accounts payable reported by

USAID missions were overstated by

about $5 million, which resulted in a

projected overstatement of about $165

million for FY 2001 mission accounts

payable. Therefore, we are including

the following recommendation to

USAID management:

Recommendation No 5. We

recommend that the Office of

Financial Management:

5.1 develop a standardized

documentation requirement for

estimating accounts payable at its

missions on a timely basis;

5.2 coordinate with the Office of

Procurement and issue detailed

guidance and instructions to its

missions for reviewing and

reporting, to its Washington Office

of Procurement, obligations that

are available for deobligation;

5.3 require all missions to maintain

adequate supporting

documentation that is sufficient for

the OIG's review, for their

accounts payable.

USAID's Process for Preparing the

Management Discussion and Analysis

Needs Improvements

OMB Bulletin No. 01-02 requires the

OIG to (a) obtain an understanding of

the components of internal controls

relating to the existence and

completeness assertions relevant to the

performance measures included in the

MD&A and to (b) report on those

internal controls that have not been

properly designed and placed in

operation. With respect to

performance measures reported in the

MD&A, we were unable to obtain a

complete understanding of the design

of the related significant internal

controls because management did not

disclose all sources of performance

results data to us in a timely manner.

In a memorandum dated April 25,

2001, USAID management asserted to

us that the performance information

contained in the MD&A for fiscal year

2001 would be drawn from the Results

Review and Resource Request (R4)

Reports submitted by USAID's

operating units during fiscal year 2001.

Upon reviewing a draft MD&A dated

January 18, 2002, we became aware

that much of the performance

information reported in the draft came

from sources other than the R4 reports.

Due to the untimely receipt of this

information, we were unable to review

the internal controls surrounding those

other sources. Nevertheless, after

applying limited procedures regarding

the measurement and presentation of

performance results reported in the

MD&A, we identified certain

deficiencies that, in our judgment,

adversely affected the Agency's

portrayal of performance results as

required by prescribed guidelines.

The MD&A is a brief narrative

overview, prepared by management,

which describes the reporting entity

and its mission, activities, program and

financial results, and financial

condition. The Statement of Federal

Financial Accounting Standards (SFFAS)

No. 15, Management's Discussion and

Analysis, requires the MD&A to be

included in each annual financial

statement as required supplementary

information. OMB Bulletin No. 97-01

provides additional guidance for

preparing the MD&A. It states that

program results reported in the MD&A

should be expressed in terms of

objective and relevant measures that

disclose the extent to which the

programs are achieving their intended

objectives. The Bulletin also states that

the reported measures should be

consistent with information on major

goals and objectives from USAID's

strategic plan and should be linked to

the programs featured in the Statement

of Net Costs.

Based on our review of the draft

MD&A dated January 18, 2002, we

determined that the reported program

results actually represented activities

that took place prior to fiscal year

2001. Consequently, the reported

results did not (a) correspond to

USAID's performance goals established

for fiscal year 2001 or (b) reflect the

achievements of program funds

expended during fiscal year 2001.

Further, we determined that the

program results reported in the MD&A

were based on USAID operating units'

self-assessments of progress (made in

prior years) towards meeting certain

strategic objectives. However, not all

strategic objectives were assessed.

Further, the MD&A did not disclose

which or how many of USAID's

strategic objectives were not assessed

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

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2001

Accountability Report

U.S. Agency for International Development 91
or reported. Despite the fact that

program results were from prior years

and not all strategic objectives were

assessed, in many instances the MD&A

reflected performance results data

achieved during fiscal year 2001 and

that all strategic objectives, within

certain programmatic categories, were

assessed. We believe that this portrayal

of USAID's performance results

departed materially from prescribed

guidelines and included misleading

information.

During our fieldwork we

communicated our concerns to USAID

management, resulting in some

changes that were incorporated into a

revised draft MD&A.11 However, we

believe that the revised draft continued

to portray misleading information.

Because we plan to conduct additional

audit work in the area of performance

reporting, we did not include a

recommendation in this report to

correct the above deficiencies.

This report is intended solely for the

information and use of the

management of USAID, OMB and

Congress, and is not intended to be

and should not be used by anyone

other than these specified parties.

However, this restriction is not

intended to limit the distribution of this

report, which is a matter of public

record.

Office of Inspector General

February 25, 2002

INDEPENDENT AUDITOR'S

REPORT ON COMPLIANCE

WITH LAWS AND

REGULATIONS

Did USAID comply with laws and

regulations that could have a direct

and material effect on the financial

statements, and with any other

applicable laws and regulations?

We have audited the financial

statements of USAID for the fiscal year

ended September 30, 2001 and have

issued our report thereon. We

conducted the audit in accordance

with generally accepted auditing

standards; the standards applicable to

financial audits contained in

Government Auditing Standards, issued

by the Comptroller General of the

United States; and the Office of

Management and Budget (OMB)

Bulletin No. 01-02, "Audit

Requirements for Federal Financial

Statements."

The management of USAID is

responsible for complying with laws

and regulations applicable to USAID.

As part of obtaining reasonable

assurance about whether USAID's

financial statements are free of material

misstatement, we performed tests of

USAID's compliance with certain

provisions of laws and regulations,

noncompliance with which could have

a direct and material effect on the

determination of financial statement

amounts. Also, we tested certain other

laws and regulations specified in OMB

Bulletin No. 01-02, including the

requirements referred to in the Federal

Financial Management Improvement

Act (FFMIA) of 1996. We limited our

tests of compliance to these provisions

and we did not test compliance with

all laws and regulations applicable to

USAID.

The results of our tests of compliance

with laws and regulations described in

the preceding paragraph exclusive to

FFMIA12 disclosed instances of

noncompliance with laws and

regulations that are required to be

reported under Government Auditing

Standards and OMB Bulletin No. 01-

02.

Under FFMIA, we are required to

report whether USAID's financial

management systems substantially

comply with the Federal financial

management systems requirements,

applicable Federal accounting

standards, and the United States

Government Standard General Ledger

at the transaction level. To meet this

requirement, we performed tests of

compliance with FFMIA section 803 (a)

requirements.

The results of our tests disclosed

instances, described below, where

USAID's financial management

systems did not substantially comply

with Federal financial management

system requirements, Federal

accounting standards, and the U.S.

Standard General Ledger at the

transaction level.

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2001

Accountability Report

92 U.S. Agency for International Development

11 This revised draft, dated January 29, 2002, was the last version of the MD&A we received for review. At the conclusion of our fieldwork, Agency

management had not yet issued a final version.

12 FFMIA requires reporting on whether an agency's financial management systems substantially comply with the FFMIA section 803 (a) requirements

relating to Federal financial management systems requirements, applicable Federal accounting standards, and the United States Government Standard

General Ledger published by the Department of the Treasury. FFMIA imposes additional reporting requirements when tests disclose instances in which

agency systems do not substantially comply with the foregoing requirements.
Nature, Extent, and Causes of

Noncompliance

The Federal Financial Management

Improvement Act was passed to

improve Federal financial management

by ensuring that Federal financial

management systems provide reliable,

consistent, financial data from year to

year. The Act requires each agency to

implement and maintain financial

management systems that comply

substantially with:

• Federal financial management

system requirements,

• applicable Federal Accounting

Standards, and

• the United States Government

Standard General Ledger at the

transaction level.

Office of Management and Budget

Circular No. A-127, Financial

Management Systems, prescribes

policies and standards for agencies to

follow in developing, operating,

evaluating, and reporting on financial

management systems. Section 7 of the

Circular identifies the requirements,

mentioned above, that Federal

financial systems should meet. In

January 2001, the Office of

Management and Budget issued

guidance to supplement OMB Circular

No. A-127 to help determine whether

financial systems substantially comply

with FFMIA requirements. That

guidance identifies various

requirements13 that an agency must

meet, including Joint Financial

Management Improvement Program

system requirements.

Since 1997, the OIG has reported that

USAID's financial management

systems did not substantially comply

with accounting and system

requirements under FFMIA.14 The

reason for USAID's noncompliance

was that the Agency's core financial

management system15 did not operate

effectively. Therefore, USAID had to

rely on a combination of outdated,

legacy systems; informal, unofficial

records; and a core financial

management system-that suffered from

technical and operational problems.

USAID has taken several steps to

modernize the Agency's systems and

meet FFMIA requirements. For

instance, in September 1999, USAID

purchased a new core financial system

from the General Services

Administration's schedule of qualified

software.16 In December 2000, USAID

implemented the new core financial

system in Washington. In addition,

during fiscal year 2001, USAID:

• implemented the Mission

Accounting and Control System

Auxiliary Ledger data repository,

that provides an automated

interface between data extracted

from Agency mission systems and

the core financial system; and

• established operating procedures

for interfaces and pre-interfaces

between the new core financial

system and five major systems

that process transactions outside

the core financial system. Those

systems were (1) USAID's

procurement system; (2) National

Finance Center's Payroll system;

(3) Mission Accounting and

Control System; (4) the

Department of Health and

Human Services' Payment

Management System, that

processes USAID's Letter of

Credit17 activities; and (5) Riggs

Banks, which services USAID's

credit portfolio.

Federal Financial Management

System Requirements - Although it

has taken steps to meet FFMIA

requirements, USAID still needs to

continue to improve the Agency's

financial management systems.

According to FFMIA, Federal agencies

must implement and maintain

financial management systems that

comply substantially with Federal

financial management system

requirements. However, USAID's

financial management systems did not 

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 93

13 Other requirements are Office of Management and Budgets Circulars No. A-34, Instructions on Budget Execution; and A-130, Management of Federal

Information Resources; and the United States Government Standard General Ledger.

14 Reports on USAID's Consolidated Financial Statements, Internal Controls, and Compliance for Fiscal Year 2000 (Audit Report No. 0-000-01-006-F,

February 26, 2001); Reports on USAID's Consolidated Financial Statements, Internal Controls, and Compliance for Fiscal Year 1999 (Audit Report No. 0-

000-00-006-F, February 18, 2000); and Audit of the Extent to Which USAID's Financial Management System Meets Requirements Identified in the Federal

Financial Management Improvement Act of 1996 (Audit Report No. A-000-98-003-P, March 2, 1998).

15 This system, called the New Management System, consists of four subsystems: (1) AID Worldwide Accounting and Control System, (2) Acquisition and

Assistance, (3) Budget, and (4) Operations.

16 The software on this General Services Administration schedule is Joint Federal Financial Improvement Program certified.

17 USAID uses Letter of Credit to finance grants. Letter of Credits make Federal funds available to recipient organizations on the next workday following the

receipt of a request for funds. The Department of Health and Human Services processes USAID's active Letter of Credits.
substantially comply with the

requirements.

The primary reasons for this

noncompliance were that:

• USAID's core financial system did

not always function properly with

respect to funds control,

• USAID did not implement effective

internal controls over USAID's

financial management systems,

and

• USAID's core financial systems did

not readily produce user-friendly

reports needed to manage Agency

programs.

As a result, USAID's financial system

may not provide users with complete,

reliable, timely financial information

needed for decision-making purposes.

The following paragraphs discuss these

issues in detail.

Funds Control - According to OMB

Circular No. A-34, Instructions on

Budget Execution, each Federal

agency is responsible for establishing

a funds control system that will ensure

that USAID does not obligate or

expend funds in excess of those

appropriated or apportioned. In

addition, the Circular states that

entering into contracts that exceed the

enacted appropriations for the year or

purchasing services and merchandise

before appropriations are enacted is a

violation of the Anti-deficiency Act.

We found that USAID's core financial

system had some system problems

with respect to funds control. USAID

management was aware of each of

these problems before our audit, has

begun to take corrective actions, and

expects to have these system-related

problems corrected in fiscal year

2002. Therefore, we are not making

any recommendations at this time.

Nonetheless, the OIG considered

these problems in determining

substantial compliance with Federal

system requirements under FFMIA, as

described below.

First, according to OMB's FFMIA

guidance, the Agency's financial

management system shall support the

preparation, execution, and reporting

of the Agency's budget in accordance

with OMB Circular A-34. According

to that Circular, at year-end, multiyear funds not obligated that remain

available must be reapportioned in the

upcoming fiscal year. However,

USAID's new core financial system

did not roll-up all funds to the

appropriation level to be

reapportioned as part of the year-end

closing process. Specifically, at yearend, the system did not roll up multiyear unobligated balances, thus

allowing the funds to remain available

for obligation. As a result, although

the audit did not identify any

instances in which USAID's funds

were obligated before roll-up and

reapportionment, USAID was at risk

of committing an Anti-deficiency Act

violation.

USAID recognized that the software

created an opportunity for an Antideficiency Act violation and requested

that Agency bureaus avoid using those

funds. Additionally, a USAID

contractor ran a series of reports and

determined that no Anti-deficiency

Act violations occurred. To correct

the problem, USAID subsequently ran

a series of scripts which rolled up

unobligated multi-year account

balances by fund to the appropriation

level. (A USAID contractor is

currently testing software to roll-up

unobligated multi-year funds as part

of the year-end closing process.)

Second, USAID's system did not

properly display the funding available

after appropriation transfer18

transactions. Although, the system

prohibited a user from obligating

more funds than apportioned, the

system displayed an incorrect

available amount at the appropriation

level after users processed

appropriation transfers. For example,

if an appropriation had an available

amount of $100,000 and USAID

transferred in $25,000 from another

appropriation or agency, the system

would erroneously add $25,000 to the

balance twice and display $150,000

as available rather than the correct

amount of $125,000. Likewise, if an

appropriation had an available

amount of $100,000 and USAID

transferred $25,000 to another

appropriation or agency, the system

would erroneously subtract $25,000

from the balance twice and display

$50,000 as available rather than the

correct amount of $75,000.

Consequently, when checking funds

availability, the system displayed to

users that more or less funds were

available than actually were.

Therefore, users could not use the

system to properly manage operations.

According to Agency officials, USAID

will place a system patch into

production in February 2002 to

alleviate this problem.

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Fiscal Year

2001

Accountability Report

94 U.S. Agency for International Development

18 An appropriation transfer occurs when funds are received from or given to another Federal agency or another appropriation within USAID.
Internal Control Weaknesses - In

December 2000, USAID implemented

a new core financial system in

Washington. The Joint Financial

Management Improvement Program

certified that the system's baseline

software complied with Federal core

financial system requirements.

However, USAID had internal control

weaknesses over the financial systems.

USAID's general controls had the most

serious weaknesses, as discussed

below.19 (See Appendix No. III for a

discussion of other internal control

weaknesses.)

Office of Management and Budget

Circular A-130, Appendix III, requires

agencies implement and maintain a

program to assure that adequate

security is provided for all agency

information. During a series of

audits,20 the OIG determined that

USAID did not fully develop and

implement an Agency-wide security

program for information systems as

required. The OIG also identified

serious general control weaknesses that

place financial systems at significant

risk of unauthorized disclosure and

modification of sensitive data, misuse

or damage of resources, or disruption

of critical operations. For example,

USAID's security program weaknesses

included poorly chosen passwords,

inadequate access controls, and

inadequate segregation of duties. As a

result of these weaknesses, USAID was

not substantially compliant with

Federal financial management system

requirements under FFMIA. The OIG

will make recommendations to address

these issues in another audit report.

Reports - USAID's financial

management system users were not

always able to readily obtain data to

manage Agency operations. This

occurred because USAID's core

financial system was operational only

for ten months in fiscal year 2001 and,

therefore, USAID primarily focused

resources on implementation and

operations, rather than on reporting.

As a result, some system users

maintained "cuff records"21 to

supplement the core financial system.

The following paragraphs discuss this

issue in detail.

According to JFMIP-SR-02-01, Core

Financial System Requirements,

"Reporting Function:"

...the core financial system must

provide for ready access to the

information it contains. Information

must be assessable to personnel with

varying levels of technical knowledge

of systems. Personnel with relatively

limited knowledge...must be able to

access and retrieve data with minimal

training on the system.

In fiscal year 1997, USAID first

reported a material weakness in

obtaining timely, accurate, or

sufficiently useful financial information

to manage resources and support

decision making.22 To address this

issue, USAID's long term strategy was

to implement a new, integrated

financial management and accounting

system.

In December 2000, USAID

implemented a new core financial

system. Although the system allowed

users to view standard financial reports

(e.g., required reports to the U. S.

Treasury), users still reported that

obtaining useful financial reports was a

significant problem. For example,

officials in one bureau noted that the

system could not readily provide the

financial information at a detailed level

to manage programs and report on

program performance. That bureau

created a software program to

consolidate information contained in

individual spreadsheets and provide

information that was more detailed

than was currently available in the core

financial system. The bureau used that

software program to plan, budget,

report, manage, and track programs. In

another bureau, one user maintained

spreadsheets to track obligations by

strategic objective-information that

should be readily available from the

financial management system.

As stated previously, USAID's financial

management system users were not

always able to readily obtain data to

manage Agency operations because

USAID's core financial system was

operational for only ten months in

fiscal year 2001. Therefore, USAID

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19 General controls are the structure, policies, and procedures that affect the overall effectiveness and security of computer operations. These include

security management, systems security software, and controls designed to ensure that access to data and programs is restricted, computer duties are

segregated, only authorized changes are made to computer programs, and plans are adequate to ensure continuity of operations.

20 Audit of USAID's Compliance with the Provisions of the Government Information Security Reform, (Audit Report No. A-000-01-002-P, September 25,

2001). We are currently drafting the report on USAID's general controls, that will have restricted distribution. In addition, we issued audit reports on

general controls for three USAID missions and are drafting a fourth report.

21 For this audit, "cuff records" are defined as informal, unofficial records of Agency activities.

22 USAID reported this as a material weakness pursuant to the Federal Managers' Financial Integrity Act of 1982.
primarily focused resources on

implementation and operations, rather

than on reporting. According to

USAID officials, that decision was

made because resources were limited.

Nonetheless, recognizing that users

needed more than the standard reports,

USAID implemented a reporting tool.23

However, that tool was not userfriendly. Moreover, some users did not

have the training needed to obtain

reports from the system. Finally, only a

few users had the role needed to create

reports with the necessary data fields.

As a result, some system users

maintained cuff records to manage

operations. According to one senior

Financial Management official,

although USAID plans to continue to

rely on the software vendor to support

the system, the Agency plans to focus

on reporting in the future. For instance,

USAID has begun to implement a more

user-friendly report writing tool.24

Nonetheless, USAID needs to ensure

that system users are able to obtain the

information needed to manage

resources and support decision

making. We are, therefore, making the

following recommendation to assist in

that effort.

Recommendation No. 6: We

recommend that USAID's Chief

Financial Officer, in collaboration

with USAID's Chief Information

Officer, provide users of the core

financial system with a reporting

tool and the training needed to

obtain accurate, timely, and

useful information from the core

financial system to help manage

Agency's operations.

Federal Accounting Standards

Because USAID did not meet Office of

Management and Budget's indicators

of compliance with Federal accounting

standards, this audit determined that

USAID's financial management system

did not substantially comply with

Federal accounting standards. As a

result, USAID's systems may not

provide complete, accurate, reliable

financial information. The following

paragraphs discuss this issue in detail.

According to Office of Management

and Budget guidance,25 an agency's

financial management systems are

considered in substantial compliance

with Federal accounting standards if:

• the agency's financial statements

are compiled in accordance with

Federal accounting standards, and

• financial information used for

internal management is consistent

with Federal accounting standards.

We determined that USAID did not

substantially comply with applicable

Federal accounting standards.

Specifically, USAID did not

substantially comply with the

Statements of Federal Financial

Accounting Standards Nos. 1, 4, 10,

and 15, as described below.

Standard No. 1, Accounting for

Selected Assets and Liabilities - We

determined that USAID's advances and

accounts receivables did not comply

with standard No. 1, as discussed

below.

Advances - USAID did not recognize

(record) all expenses related to

advance liquidations during fiscal year

2001. During fiscal year 2001 USAID

did not record $439 million in

expenses (advance liquidations)

submitted by DHHS. USAID did not

record the $439 million as expenses

because of processing problems and

missing data during its payment

authorization process. Further, USAID

did not follow its established procedure

that requires a monthly reconciliation

between the general and subsidiary

ledgers. According to USAID officials,

the lack of staffing resources impaired

its ability to perform the monthly

reconciliation.

Therefore, the expenses were not

recorded until after the fiscal year

ended. SFFAS No. 1 requires that

advances be reduced when goods and

services are received (i.e., expenses

have been actually incurred by the

grant recipient). USAID was not able

to process the $439 million of grantee

liquidations because its financial

management system had not been

updated for new obligations or

amendments to existing obligations.

In addition, there were about $155

million in advance liquidations

submitted by grantees to DHHS that

could not be processed (accepted) by

the Payment Management System. This

occurred because USAID does not

have an integrated financial

management system. Therefore,

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23 This tool is called Business Objects.

24 This tool is called Crystal Reports.

25 Revised Implementation Guidance for the Federal Financial Management Improvement Act (January 4, 2001)
obligations established for advances to

grantees that are managed by DHHS

must be manually entered into the

Payment Management System.

However, USAID has not established a

process that ensures that all obligations

established for advances to grantees

are entered into the Payment

Management System..

USAID recorded a $532 million yearend adjusting journal entry ($377

million of the $43926 million and the

$155 million mentioned above) to

decrease advances and increase

expenses for these advance liquidations

that were submitted by grantees but

not processed in the system during the

fiscal year.

Accounts Receivable - USAID does not

have an adequate system to recognize

its worldwide accounts receivable in a

timely manner. USAID is only aware

of its receivables when its Office of

Procurement, missions, and

contractors/grantees report them to its

Office of Financial Management. This

occurred because USAID lacked

coordination and integration of various

systems; lacked adequate policy and

procedural guidance; and, as

previously stated, did not have an

integrated financial management

system. SFFAS No. 1 requires that a

receivable be recognized (recorded)

when a claim to cash or other assets

has been established. The

establishment of a receivable cannot

occur on a timely basis unless there

are adequate procedures for

recognizing and reporting accounts

receivable at the end of each

accounting period.

Standard No. 4, Managerial Cost

Accounting Concepts and Standards

for the Federal Government - USAID

did not comply with one of the

fundamental elements of SFFAS No. 4

that requires establishing responsibility

segments that match costs with outputs

and requires the reporting of full costs

of outputs. Also, USAID does not have

a system to identify and report all costs

against the appropriate Agency goals.

USAID did not record and report about

$374 million in program expenses in

accordance with their established

methodology due to missing data,

inefficient processing, and

unreconciled information.

The methodology requires that program

costs be directly expensed at the

intermediate output level and rolled up

to the net cost reporting level of

Agency goals. USAID did not record

and report the $374 million in

accordance with that methodology on

its Fiscal Year 2001 Statement of Net

Costs. Instead, USAID allocated those

costs based on a predetermined

percentage rate. We were unable to

review this allocation to determine the

reliability of the allocation.

We determined that USAID did not

process and record about $439 million

in expenses related to the advances to

grantees managed by the Department

of Health and Human Services (DHHS)

in their financial management system

during fiscal year 2001. (DHHS is the

servicing agent for USAID's Letter of

Credit advances to grantees). USAID

was not able to process the $439

million of grantee advance liquidations

expenses for various reasons. Of this

amount, $62 million could not be

recorded and reported in accordance

with their established methodology

because of processing problems,

inefficient processing of liquidation

expenses, and missing data in its

payment authorization process. In

addition, USAID did not reconcile and

properly classify about $66 million in

outstanding advances remaining in its

legacy system that were disbursed

before October 1999. The $128 million

mentioned above represents activities

that may be more appropriately

classified as expenses.

We determined that about $246

million in expenses may not have been

properly recorded against the

appropriate Agency goals in USAID's

Fiscal Year 2001 Statement of Net Cost.

The information needed to properly

allocate these expenses was not

available to USAID at the time the

financial statements were prepared.

We identified about $155 million in

expenses associated with the advances

to grantees managed by DHHS that

were not identified and recorded by

USAID during fiscal year 2001. These

expenses were not reported by DHHS

because the related obligations for

which the expenses were incurred

were not recorded in the Payment

Management System. According to the

agreement established between USAID

and DHHS, all awards to grantees for

the purpose of advancing funds must

be entered into the Payment

Management System before the

liquidation of the advance funds can

occur. Further, we determined that

about $91 million (or 3 percent) of

mission expenses related to multiple

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26USAID is analyzing the remaining $62 million.
Agency goals were not consistently

allocated as required by FASAB No. 4.

Standard No. 10, Accounting for

Internal Use Software27- According

to Standard No. 10, Federal agencies

are required to capitalize the cost of

internal-use software, whether that

software is commercial off-the-shelf,

contractor-developed, or internally

developed. The capitalized cost for

commercial off-the-shelf software

should include the amount paid to

the vendor for the software. For

contractor-developed software,

capitalized cost should include the

amount paid to a contractor to

design, program, install, and

implement the software. USAID's

policy is to capitalize software that

exceeds a $300,000 threshold. 

For fiscal year 2001, the only

software that exceeded USAID's

threshold was the core financial

system,28 which cost $14.9 million.

Of that amount, USAID capitalized

$6.3 million for fiscal year 2001.

Although those amounts were

immaterial to the overall

presentation of the fiscal year 2001

financial statements, our audit

determined that USAID did not:

• include costs funded in prior

years for services received in

fiscal year 2001 (accrual basis of

accounting),

• capitalize costs by fiscal year,

• have readily available all the

required documentation to

support USAID's property

records, and

• reconcile the Agency's software

property records with the

financial records.

Standard No. 15, Management

Discussion and Analysis - According

to Standard No. 15, each general

purpose Federal financial report

should include a section devoted to

Management's Discussion & Analysis

(MD&A). Standard No. 15 indicates

that the MD&A should be regarded

as required supplementary

information29 and, among other

things, address performance goals

and results that relate to the

financial statements included in the

general purpose Federal financial

report.

Based on our review of the draft

MD&A dated January 18, 2002, we

determined that the reported

program results actually represented

activities that took place prior to

fiscal year 2001. Consequently, the

reported results did not (a)

correspond to USAID's performance

goals established for fiscal year 2001

or (b) reflect the achievements of

program funds expended during

fiscal year 2001.

This occurred because USAID

management did not require

individual operating units to report

program results for fiscal year 2001

to include them in the MD&A for

fiscal year 2001. Without the

current results information, USAID

management is unable to effectively

discuss and analyze USAID's

program performance in relation to

its performance goals or financial

statements for fiscal year 2001.

Indicators of noncompliance - The

audit determined that USAID's

financial management system did not

substantially comply with Federal

accounting standards because the

Agency did not meet Office of

Management and Budget's indicators

of compliance with those standards

(opinion, internal controls, and

managerial cost information), as

described below.

• Opinion - One indicator of

compliance with Federal

accounting standards is "[a]n

unqualified opinion, or a

qualified or disclaimer...for

reasons other than the agency's

ability to prepare auditable

financial statements." For fiscal

year 2001, the OIG could not

determine, through normal

auditing procedures, whether

$186 million in unliquidated

obligations were needed for

current Agency operations and

whether $128 million in

advances should be included in

USAID's fiscal year 2001

financial statements. Therefore,

the OIG disclaimed an opinion

on USAID's Statement of Net

Costs and Statement of

Financing. In addition, the OIG

expressed a qualified opinion on

the Balance Sheet, Statement of

Budgetary Resources, and

Statement of Changes in Net

Position. (See "Independent

Auditor's Report on USAID's

Financial Statements.")

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27 The OIG will issue a separate audit report that will further explain the details relating to this section.

28 USAID's costs for the core financial system included costs to automate the feeder systems.

29 See section 558, "Required Supplementary Information," in Codification of Statements on Auditing Standards, American Institute of Certified Public

Accountants (AICPA).
• Internal Controls - Another

indicator of compliance with

Federal accounting standards is

"...no material weaknesses in

internal controls that affect

USAID's ability to prepare

financial statements [and other

related reports]...consistent with

Federal accounting standards."

We identified several material

weaknesses in USAID's internal

controls. For instance, USAID

did not:

- record 278 grant agreements

and/or amendments with an

absolute total of $256 million in

the Department of Health and

Human Services' Payment

Management System;

- record advance liquidation

expenses of about $439 million;

and

- have activity during fiscal year

2001 for about $186 million in

unliquidated obligations, which

may be available for

deobligation.

(See "Independent Auditor's Report

on USAID's Internal Controls.")

• Managerial Cost Information -

A third indicator of compliance

with Federal accounting

standards is that "the agency

produces managerial cost

information consistent with

[cost accounting standards]."

However, in a March 1999 audit

report, the OIG reported that

USAID did not have a system to

report on the full cost of Agency

programs, activities, and

outputs.30 Therefore, the OIG

recommended that USAID's

Bureau for Policy and Program

Coordination develop internal

controls for identifying the full

costs of USAID program,

activities, and outputs. USAID

is continuing to take corrective

action to produce managerial

cost information.

As a result of USAID's systems not

substantially complying with

Federal accounting standards, the

Agency's financial management

systems may not provide complete,

accurate, reliable financial

information. These issues of noncompliance are discussed in other

sections of this audit report. We are

not, therefore, making any further

recommendations at this time.

Use of United States Standard

General Ledger at the Transaction

Level - FFMIA requires agencies to

implement and maintain systems

that comply substantially with,

among other things, the United

States Standard General Ledger

(SGL) at the transaction level.

Substantial compliance with the

SGL at the transaction level requires

that:

• Transactions be recorded in full

compliance with the SGL Chart

of Account's descriptions and

posting models or attributes that

demonstrate how the SGL is to

be used for recording

transactions of the Federal

government accounting process;

• Reports produced by the systems

provide financial information

that can be traced directly to the

SGL accounts; and

• Transactions from feeder systems,

which may be summarized and

interfaced into the core financial

system's general ledger, be

posted following SGL

requirements.

The OIG determined that USAID did

not substantially comply with the

SGL at the transaction level.31

Specifically, USAID did not record

mission activities-accounting for

approximately 52 percent of

USAID's total net cost of operationsusing the SGL at the transaction

level. This occurred because USAID

recorded mission activities in the

Mission Accounting and Control

System (MACS)- a computer-based

system that did not have an SGL

Chart of Accounts. Instead, MACS

used transaction codes that did not

match to the SGL Chart of Accounts.

During the fourth quarter of fiscal

year 2001, USAID implemented, as

part of the monthly closing process,

a process to crosswalk MACS

transactions to the SGL. In that

process, every month USAID

extracted mission transactions for

MACS transaction codes. USAID

electronically transferred those

transactions to an auxiliary ledger

that summarized and electronically

cross-walked the MACS transaction

codes to transaction codes in the

core financial system. Each

transaction code in the

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30 Report to USAID Managers on Selected USAID Internal Controls (Report No. 0-000-99-002-F, March 31, 1999).

31 USAID did not record the Agency's non-expendable property activities using the SGL at the transaction level. However, non-expendable property was

immaterial to the financial statements for fiscal year 2001.
core financial system is correlated to

SGL accounts. USAID then records

those summarized results into the core

accounting system's general ledger.

According to Office of Management

and Budget officials, while USAID's

process may be a good interim solution

until the Agency has an integrated

financial management system, the

process did not allow the Agency to be

substantially compliant with the SGL at

the transaction level. As a result,

USAID cannot ensure that transactions

are posted properly and consistently

from mission to mission.

Therefore, USAID needs to record

mission activities using the SGL at the

transaction level to support financial

reporting and meet requirements.

However, until USAID deploys its core

financial system worldwide, MACS will

continue to operate as the financial

system for overseas missions. Although

USAID estimates in the Agency's

Capital Asset Plan that worldwide

deployment of the core financial

system will not begin until fiscal year

2008, USAID has begun to conduct a

study to identify opportunities for

improving the Agency's financial

management areas. According to one

Agency official, that study will include

a determination of when and how

USAID should deploy the core

financial system overseas. Accordingly,

we are not making any

recommendations at this time.

Remediation Plan - Although USAID

has made progress in becoming FFMIA

compliant, the Agency did not fully

meet four of the six32 major targets

established in the USAID's remediation

plan for completion in fiscal year

2001.33 This occurred primarily

because USAID:

• continued to maintain a

fragmented organizational

structure, that did not assign

USAID's Chief Financial Officer

the responsibility and authority to

manage all financial management

systems; and 

• did not fully plan the remedies

needed to make USAID's financial

management systems compliant

with FFMIA.

As a result, USAID may not meet the

Agency's overall goal of becoming

substantially compliant with FFMIA by

the fourth quarter of fiscal year 2003.

The following paragraphs discuss this

issue in detail.

Office of Management and Budget

Circular A-11 states that an agency that

is not in compliance with FFMIA must

prepare a remediation plan. The

purpose of a remediation plan is to

identify activities planned and

underway that will allow USAID to

achieve substantial compliance with

FFMIA. Remediation plans must

include the resources, remedies,

interim target dates, and responsible

officials. Further, the remediation

target date must be within three years

of the date from the time when the

system was determined to be not

substantially compliant.

As shown in the table below, USAID

achieved only two of the six

remediation targets for fiscal year 2001

and dropped a third, stating that the

requirement was no longer needed to

bring the Agency into substantial

compliance with FFMIA. USAID

generally cited budget constraints,

unplanned additional work, and new

strategies as the reasons that the

Agency did not meet the milestones for

the remaining three targets. However,

USAID did partially complete one of

the targets by automating the interface

between the core financial system and

the procurement system. Additionally,

USAID stated that they had begun

taking steps to resolve weaknesses in

the (1) primary accounting and (2)

reporting and resource management

capabilities, as discussed in other

sections of this report.As described in

detail below, the primary reasons that

USAID did not fully achieve three of

the six targets were that:

• USAID continued to maintain a

fragmented organizational structure

that did not assign the Agency's

Chief Financial Officer the

responsibility and authority to

manage all financial management

systems; and

• USAID did not fully plan the

remedies needed to make the

Agency's financial management

systems compliant with FFMIA.

Organizational Structure - In a March

1999 audit report, the OIG reported

that USAID had not delegated to the 

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32 The remediation plan had six major milestones for fiscal year 2001. However, USAID dropped one, stating that the requirement was not needed to bring

the Agency's systems into substantial compliance with FFMIA.

33 We reviewed the remediation plan in USAID's FY 2000 Accountability Report.
Chief Financial Officer (CFO) the

responsibility and authority to develop

and maintain an integrated financial

management system, as required by the

CFO Act of 1990.37 Therefore, the OIG

recommended that USAID's CFO

collaborate with other offices to

determine the specific responsibility,

authority, and resources needed to

meet the requirements under the CFO

Act, including FFMIA. Although

USAID has taken some corrective

actions, the most significantreorganization-has not yet taken place.

Consequently, USAID ended up with

deficiencies that affected USAID's

ability to meet the targets established

in the remediation plan.

For example, due to USAID's

fragmented organizational structure

and a lack of integrated planning,

USAID did not achieve the target of

performing certification and

accreditation at mission accounting

stations in fiscal year 2001.

Specifically, the CFO's system work

group was tasked to perform the

certification and accreditation of

mission accounting systems, which was

dependent on Bureau for

Management's Information Resource

Management Division (the Division)

concurrently performing risk

assessments. However, one CFO

official stated that the Division did not

adequately budget for the risk

assessments and, thus, USAID did not

have enough funds to complete the

planned activities. The audit also

noted that USAID's Capital Asset Plan38

as of October 2001 did not disclose

the Division's cost to perform risk

assessments, which again was not

funded in fiscal year 2002.

In addition, USAID's general control

weaknesses have had an impact on the

Agency's ability to become FFMIA

compliant. The Clinger-Cohen Act of

1996 makes the head of the agency, in

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1

2

3

4

5

6

No

No

No

Yes

Yes

No

Remedy 34

35

36

Target Date in 

Remediation 

Plan

Revised Target 

Date

Target 

Achieved? 

Electronically interface feeder 

systems with core financial 

management system

Resolve weakness in Agency's (1) 

primary accounting and (2) 

reporting and resource 

management capabilities

Implement the core financial 

system that calculates and reports 

accounts payable and accrual 

expenses in compliance with 

Federal requirements and 

standards.

Integrate core financial system in 

USAID/Washington

Interface Mission data via the 

MACS Auxiliary Ledger with core 

financial system to support the 

Accounting Classification Structure 

upper level general ledger postings

Implement Enterprise Solution 

Integration Lab (prototype testing) 

and associate system engineering 

practices to perform solution 

demonstration

4th Qtr FY 2001

4th Qtr FY 2001

1st Qtr FY 2001

1st Qtr FY 2001

4th Qtr FY 2001

3rd Qtr FY 2001

1st Qtr FY 2002

3rd Qtr FY 2002

1st Qtr FY 2002

Completed

Completed

N/A - 

Requirement 

Dropped

Table 2

USAID’s Targets for Fiscal Year 2001

34These dates were taken from USAID's Capital

Asset Plan. At the time of our review, USAID

had not completed the Agency's revised

remediation plan. However, an Agency

official stated that the Capital Asset Plan

contained the same information that would be

presented in the remediation plan.

35USAID completed some of the electronic

interfaces during fiscal year 2001.

36USAID has taken some steps to correct these

weaknesses.

37Reports on USAID's Financial Statements,

Internal Controls, and Compliance for Fiscal

Year 1999 (Report No. 0-000-99-001-F, March

1, 1999).

38At the time of our review, USAID had not

completed the Agency's revised remediation

plan. However, an Agency official stated that

the Capital Asset Plan contained the same

information that would be presented in the

remediation plan. 
consultation with the CFO and the

Chief Information Officer, accountable

for establishing policies and

procedures that ensure that:

• the agency's information systems

provide financial or program

performance data for agency

financial statements;

• financial and performance data are

provided to financial management

systems in a reliable, consistent,

and timely manner; and

• financial statements support

assessments and revisions of

mission and administrative

processes, and measurements of

the performance of technology

investments.

The CFO stated that his position in

USAID does not provide him the

responsibility for implementing

remedies that address general controls.

USAID's Administrator has designated

the Chief Information Officer to be

responsible for planning and budgeting

activities for information technologyrelated investments. Therefore,

USAID's CFO did not have control

over the resources to correct the

general control weaknesses and is

dependent on the Chief Information

Officer to become compliant with

FFMIA. Although this weakness was

not a fiscal year 2001 milestone it will

effect future year compliance with

FFMIA.

Remedies - USAID's remediation plan

did not fully address all remedies

needed to become FFMIA compliant.

Specifically, the plan did not address

deployment of USAID's core financial

system worldwide to comply with SGL

requirements, as discussed below.

USAID's remediation plan did not fully

address compliance with the SGL at

the transaction level. As discussed in

the "Use of United States Standard

General Ledger at the Transaction

Level" section, USAID did not record

the Agency's mission activities using

the SGL at the transaction level.

Agency officials believed that an

interim measure would make the

system SGL compliant, and revised the

target to start worldwide deployment of

the core financial system from fiscal

year 2002 to 2008. However, Office

of Management and Budget officials

stated that USAID's interim measure

did not make the Agency compliant

with FFMIA. Upon being notified of

the Office and Management Budget's

position, USAID officials decided to

revise the strategy for making the

Agency compliant with FFMIA

requirements. (For more details, see

"Use of United States Standard General

Ledger at the Transaction Level"

section.)

As a result of the problems discussed

above, USAID may not meet the overall

goal to become substantially compliant

with FFMIA by the fourth quarter of

fiscal year 2003. Although USAID

named the Chief Financial Officer as the

official who would be responsible for

implementing the FFMIA remediation

plan, USAID's CFO does not have

sufficient authority to complete remedial

actions. Therefore, the CFO needs to

work collaboratively with the Chief

Information Officer to meet the targets

in USAID's remediation plan. We are,

therefore, making the following

recommendation to help USAID

improve its remediation plan.

Recommendation No. 7: We

recommend that USAID's Chief

Financial Officer, in collaboration

with USAID's Chief Information

Officer, revise the remediation

plan to identify sufficient

resources and remedies to make

USAID's systems substantially

compliant with the Federal

Financial Management

Improvement Act of 1996.

Computer Security Act

The Computer Security Act of 1987

(Public Law No. 100-235) requires

Federal agencies to protect information

by (1) identifying sensitive systems, (2)

developing and implementing security

plans for sensitive systems, and (3)

establishing a training program to

increase security awareness and

knowledge of accepted security

practices. To further improve program

management and evaluations of

agencies' computer security efforts, the

Government Information Security

Reform Act (Public Law No. 106-398)

was passed in October 2000.

Over the past four years, the OIG has

conducted several audits related to the

security and general controls of USAID's

information systems, as described below.

Nevertheless, USAID has continued to

have many serious deficiencies in the

Agency's security program.

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102 U.S. Agency for International Development
In a September 1997 audit report,39 the

OIG found that USAID did not

implement an effective computer

security program as required. These

deficiencies occurred because USAID

did not implement an adequate system

of management controls to support an

effective computer security program.

As a result, USAID was exposed to

high risk that resources would not be

adequately protected from fraud or

misuse.

Additionally, during a series of audits

conducted during fiscal year 1999,40

the OIG found that USAID had not

implemented effective general controls

over its mainframe, client server, and

USAID Mission computer systems. A

primary reason for USAID's ineffective

general controls is that USAID did not

have an Agency-wide security program

that includes clear security

responsibilities and Agency-wide

security processes.

Finally, in a September 2001 audit

report,41 the OIG found that USAID

had not fully implemented an

effective42 security program for the

Agency's information systems.

Although USAID had made significant

progress in developing an information

systems security program, the Agency

had not implemented a program that

allows USAID officials to

comprehensively manage the risks

associated with USAID's operations

and systems. Specifically, USAID had

not:

• enforced its policies and

procedures to ensure appropriate

implementation, and

• provided adequate guidance to

incorporate security into some of

USAID's information technology

processes.

The primary reason for the deficiencies

was that USAID had not implemented

a centralized function that had

oversight and ensured that USAID met

security requirements. Such

deficiencies exposed USAID to

unacceptable risks that resources

would not adequately be protected.

The OIG made ten recommendations

to correct deficiencies identified in

USAID's security program for

information systems.

As part of this audit effort, the OIG

reviewed the status of

recommendations from the audit

reports discussed above. Although

USAID has taken some corrective

actions, many deficiencies still exist.

Specifically, USAID needs to take

corrective action for 17

recommendations from the above

reports. For example, USAID needs to

develop and implement an effective

computer security program by:

• ensuring that adequate resources

and skills are available to

implement the program,

• preparing security plans,

• completing contingency/disaster

recovery plans.

USAID has reported the Agency's

computer security program as a

material weakness43 since 1997.

USAID currently estimates that the

computer security weaknesses will be

fully corrected in September 2003.

Providing an opinion on compliance

with certain provisions of laws and

regulations was not an objective of our

audit and, accordingly, we do not

express such an opinion.

Office of the Inspector General

February 25, 2002

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39Audit of USAID's Compliance with Federal Computer Security Requirements (Audit Report No. A-000-97-008-P, September 30, 1997). 40Audit of USAID/Peru's General Controls Over the Mission Accounting and Controls System (Audit Report No. 527-99-001-P, December 30, 1998); Audit

of Access and System's Software Security Controls Over the Mission Accounting and Control System (MACS) (Audit Report No. A-000-99-002-P,

December 31, 1998); Audit of USAID's Progress Implementing a Financial Management System That Meets Federal Financial Management Improvement

Act Requirements (Audit Report No. A-000-99-003-P, March 1, 1999); Audit of General Controls Over USAID's Mainframe Computer Environment (A000-99-004-P, March 1, 1999); and Audit of General Controls Over USAID's Client-Server Environment (A-000-99-005-P, March 1, 1999). 41Audit of USAID's Compliance with the Provisions of the Government Information Security Reform (Audit Report No. A-000-01-002-P, September 25,

2001).

42For that audit, effective was defined as designing controls that are properly implemented and working as intended.

43USAID identified this as a material weakness in the Agency's Federal Manager's Financial Integrity Act review.
MANAGEMENT

COMMENTS AND OUR

EVALUATION

We received USAID's management

comments and suggested changes to

the findings and recommendations

included in our draft report. USAID

management agreed with all findings

and recommendations and has acted

on recommendation No. 2.

Management commented that

recommendation No. 2 and No. 4

cannot be fully implemented until a

worldwide integrated financial

management system is deployed. We

have evaluated USAID management

comments on the recommendations

and have reached management

decisions on all seven

recommendations. We have also made

the suggested changes where deemed

necessary. The following is a brief

summary of USAID's management

comments on each of the seven

recommendations included in this

report and our evaluation of those

comments.

Recommendation No. 1

USAID management agreed with

recommendation No. 1 and

commented that they will establish the

necessary general ledger control

account and complete the necessary

reconciliation on a monthly basis.

USAID will establish a reasonable time

period for resolving all reconciling

items. We agree with USAID

management decision regarding

recommendation No. 1 and plan to

review this general ledger control

account and USAID's reconciliation

process during our fiscal year 2002

GMRA audit.

Recommendation No. 2

USAID management agreed with

recommendation No. 2 and

commented that they have in fact acted

to eliminate the backlog of unrecorded

grant agreements and/or modifications.

USAID management noted that

because the Agency does not have a

financial management system where its

overseas procurement/assistance

actions are integrated with the

accounting system, USAID cannot

develop an automated interface with

DHHS' Payment Management System

that will ensure that a backlog does not

occur in the future. USAID

management further commented that

the agency will look at ways to

improve the workflow between its field

offices, Washington, and DHHS'

Payment Management System to

include allowing Grant and

Procurement Officers at its missions

access to the Payment Management

System.

At the end of FY 2001, USAID

established a "central e-mail box" for

mission Grant Officers to send,

electronically, all new grants and/or

modifications to its Washington Office

of Financial Management. USAID

believes that this electronic submission

of new grants and/or modifications will

allow its Washington Office of

Financial Management to update the

DHHS' Payment Management System

in a timely manner. We agree with

USAID management's decision

regarding recommendation No. 2 and

plan to review this new "central e-mail

box" process and the ways USAID has

improved the recording of its new

grants and/or modifications during our

fiscal year 2002 GMRA audit.

Recommendation No. 3

USAID management agreed with

recommendation No. 3 and

commented that they will take the

necessary actions in fiscal year 2002 to

review the unliquidated obligations

identified by our audit. USAID

management further commented that

the Agency would conduct the

necessary analysis to determine the

correct accounting classification of the

unliquidated balance of the expired

obligations identified by our audit

finding. We agree with USAID

management's decision regarding

recommendation No. 3 and plan to

conduct a separate audit of USAID

unliquidated obligations during fiscal

year 2002 and will also determine the

impact of USAID analysis and

classification of the identified expired

obligations during our fiscal year 2002

GMRA audit.

Recommendation No. 4

USAID management commented that

they agreed with the intent of

recommendation No. 4. However,

management commented that the

Agency could not implement this

recommendation until a worldwide

integrated accounting system is

deployed. USAID management also

noted that accounts receivable is an

immaterial item on its financial

statements?$31 million. Therefore,

pending deployment of a worldwide

system, USAID will continue to rely on

data calls to obtain accounts receivable

data for financial statement preparation

purposes.

We believe that USAID's claim that

accounts receivable is immaterial is

incorrect. The accounts receivable

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104 U.S. Agency for International Development
amount reported by USAID, before

adjustments, for fiscal year 2001 was

more than our testing materiality

threshold of $75 million. Further, as

reported, USAID's process for

accounting for and reporting accounts

receivable does not allow the Agency

to recognize receivables at the time

they occur. We agree with USAID

management's decision regarding

recommendation No. 4 and plan to

continue review USAID's annual

accounts receivable process if we

determine that the amount reported in

the financial statements is material.

Recommendation No. 5

USAID management agreed with this

recommendation and commented that

they will issue the appropriate

guidance to its overseas accounting

stations regarding documentation

retention requirements in fiscal year

2002. We agree with management's

decision regarding recommendation

No. 5 and will review these

instructions and their implementation

during our fiscal year 2002 GMRA

audit.

Recommendation No. 6

USAID management agreed with

recommendation No. 6 and

commented that reporting from

Phoenix and the MACS Auxiliary

Ledger is one of the priority work areas

for the Financial Systems Team in fiscal

year 2002. We agree with

management's decision regarding

recommendation no. 6. During our

fiscal year 2002 GMRA audit, we will

review USAID's actions taken.

Recommendation No. 7

USAID management agreed with

recommendation no. 7 and

commented that USAID will make the

necessary changes to the remediation

plan based on the results of the

Agency's business transformation study

being conducted under the direction of

the USAID Business Transformation

Executive Committee. We agree with

management's decision regarding

recommendation no. 7. During the

fiscal year 2002 GMRA audit, we will

follow-up on the status of USAID's

corrective actions.

See Appendix II for USAID's

management comments.

APPENDIX I: SCOPE AND

METHODOLOGY

Scope

This audit was conducted in

accordance with generally accepted

auditing standards. Following those

standards, we assessed the reliability of

USAID's Fiscal Year 2001 financial

statements, related internal controls,

and compliance with provisions of

applicable laws and regulations.

We obtained an understanding of the

account balances reported in USAID's

FY 2001 financial statements. We

determined whether the amounts were

reliable, whether applicable policies

and procedures were established, and

whether they had been placed in

operation to meet the objectives of the

Federal Accounting Standards Advisory

Board and other regulations. We

considered all reasonable efforts made

by USAID's management to improve its

financial management and respond to

our previous recommendations relating

to the operations of its financial

portfolio.

We statistically selected and reviewed

FY 2001 financial statements and

financial related activities at

USAID/Washington and 10 USAID

missions.44 A planning materiality

threshold of five percent and testing

materiality threshold of three percent

was calculated. These materiality

thresholds were based on USAID FY

2000 total assets net of

intergovernmental balances. Any

amount over $75 million was

considered material and included in

our review of USAID's FY 2001

financial statements. All exceptions

were considered in the aggregate to

determine whether USAID's FY 2001

financial statements were reliable.

With respect to the MD&A, we

judgmentally selected and reviewed FY

2001 performance results data reported

to USAID/Washington by its operating

units. We did not assess the quality of

the performance indicators but

attempted to verify the accuracy of

data in the MD&A and performed only

limited tests to assess the controls

established by USAID. With respect to

performance measures reported in the

MD&A, we were unable to obtain a

complete understanding of the design

of the related significant internal

controls because USAID's management

did not disclose all sources of

performance results data to us in a

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44The ten missions selected were USAID: Kiev, Budapest, India, Nepal, Cairo, Pretoria, Ghana, Mali, Kenya, and Nicaragua. USAID/Nepal was not visited

because of political unrest in that country. USAID/Nigeria was visited as part of our review of USAID/Ghana and USAID/Moscow was substituted for

USAID/India during the testing phase of the audit.
timely manner. However, after

applying the limited tests in regards to

the measurement and presentation of

performance results reported in the

MD&A, we identified certain

deficiencies that, in our judgment,

adversely affected USAID's portrayal of

performance results as required by

prescribed guidelines.

Methodology

In accomplishing our audit objectives,

we reviewed significant line items and

amounts related to USAID's fiscal year

2001 financial statements. These

financial statements include Balance

Sheet, Statement of Net Cost,

Statement of Changes in Net Position,

Statement of Budgetary Resources, and

Statement of Financing. To accomplish

the audit objectives we:

• Obtained an understanding of the

components of internal control and

assessed the level of control risk

relevant to the assertions embodied

in the class of transactions,

account balances, and disclosure

components of the financial

statements;

• Performed tests of compliance with

laws and regulations that could

have a direct and material effect

on USAID's financial statements

including FFMIA;

• Conducted detailed audit tests of

selected account balances at

USAID/Washington and the 10

statistically selected missions;

• We statistically selected and

confirmed outstanding advances to

grantees and selected direct loan

balances.

• Reviewed prior audit reports

related to USAID financial

activities and determined their

impact of USAID's fiscal year 2001

financial statements;

• Conducted meetings with USAID

management, employees,

contractors, grantees, and other

parties associated with the

information presented in the

fiscal year 2001 financial

statements;

• Followed up on previous

financial statement audit

recommendations and restated

those recommendations that

were not implemented by USAID

management; and

• Conducted a limited review of

the components of internal

controls related to the existence

and completeness assertions

relevant to the performance

measures included in the MD&A.

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

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106 U.S. Agency for International Development
APPENDIX II: USAID'S MANAGEMENT COMMENTS

MEMORANDUM 

February 21, 2002

TO: IG/A/FA, Alvin A. Brown

FROM: M/FM, Elmer S. Owens, Acting CFO

SUBJECT: Draft Report on the Audit of USAID's Consolidated Financial Statements, Internal

Controls, and Compliance for FY2001 (Report No. 0-000-02-003-F)

Thank you for the opportunity to respond to the subject draft report. We are very pleased that you

are able to issue qualified opinions on three of USAID's five principal financial statements, and

appreciate your recognition of the progress that the Agency has made in addressing financial

accounting deficiencies. I would also like to express my sincere appreciation for the professional

and cooperative manner that your audit team displayed throughout the audit. This memo includes

our comments on your draft report, suggestions for changes, and our management decisions

regarding proposed recommendations.

Independent Auditor's Report on Internal Controls

The paragraph that discusses the $439 million difference between the general ledger and subsidiary

ledger should include a statement that USAID reconciled all but $62 million of the difference and

that the IG was able to verify this reconciliation.

We agree with the three parts of Recommendation No. 1. We will establish the necessary general

ledger control account and complete the necessary reconciliation on a monthly basis. However,

with regard to Recommendation 1.3, it will in all likelihood not be possible to "resolve" all

reconciling items at the end of the month in which they first occur. USAID will establish a

reasonable time period for resolving all reconciling items.

The discussion of the $155 million in expenses that could not be recorded into the Department of

Health and Human Services' (DHHS) Payment Management System (PMS) by some grantees need

to be expanded to clarify for the reader why these advance liquidations could not be recorded.

Also, please include a statement that USAID made an adjusting entry to recognize the $155 million

in expenses.

The paragraph that describes the 278 grant agreements and/or modification not entered in DHHS'

PMS contains a sentence that states that this problem occurred because USAID does not have a

worldwide integrated financial management system. This statement should to be expanded to

clarify that the worldwide system the audit reports is referring to is a integrated system that includes

both the procurement and assistance systems and that it is not referring to just the accounting

system.

We agree with Recommendation 2.1 and have in fact taken action to eliminate the backlog. It

should be eliminated within the next month. However, because the Agency does not yet have a

financial management system where overseas procurement/assistance actions are integrated with

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

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Accountability Report

U.S. Agency for International Development 107
the accounting system, we cannot develop an automated interface with DHHS' PMS that will

"ensure" (Recommendation 2.2) that a backlog does not occur in the future. We will look at ways

to improve the workflow between field offices, Washington, and DHHS' PMS, including looking

into the alternative of giving field offices input access to PMS. For example, at the end of FY 2001

we established a central e-mail box for grantee officers to send new grant agreements or

modifications. If the documents are sent electronically to the mailbox, the time lost through the

pouch mail system will be done away with and PMS will be updated in a timely manner. Given

the foregoing, please modify Recommendation 2.2.

We agree with Recommendation No. 3 and will take the necessary action in FY 2002 to review the

unliquidated obligations identified by this finding. In this regard, it should be noted that the

amount identified by the Agency as requiring review is about $150 million or some $36 million

less than the amount identified in the audit report. The Office of Financial Management, in

consultation with the responsible bureaus/offices, will do the necessary analysis to determine the

correct accounting classification of the unliquidated balance of the expired obligations identified in

this finding.

We agree in general with the intent of Recommendation No. 4, but until we deploy the core

financial system worldwide; The Agency cannot implement the recommendation. We are taking

this position because Accounts Receivable for USAID is small in comparison to our other assets. In

fact, as of September 30, 2001 accounts receivables were only $31 million, which includes $11

million in credit program fee receivables. Therefore, pending deployment of a worldwide system,

USAID will have to continue to rely on periodic data calls to obtain total accounts receivable data

for financial statement preparation purposes. We will institute more frequent data calls to comply

with the new semi-annual and quarterly unaudited financial statement requirements starting in FY

2002.

The first paragraph under the discussion of mission accounts payable discussed the estimated $165

million that these payables were determined to be overstated. Please include a statement that

USAID made an adjusting entry for this amount and that you concur with this adjustment.

The final paragraph regarding mission accounts payable states that accounts payable at the mission

visited by the auditors were ineffective. I believe that this statement needs to be clarified. It is my

understanding that the finding relates to the weaknesses in the documentation supporting the

accrual calculations in some of the missions visited that caused the auditors to recommend a $165

million adjusting entry.

We agree with Recommendation No. 5. We will issue appropriate guidance to overseas

accounting stations regarding document retention requirements during FY 2002.

Independent Auditor's Report on Compliance with Laws and Regulations

It is our understanding that the findings related to compliance with the Federal Financial

Management Improvement Act are based on the system as it was operated during FY 2001.

Further, we understand that the report does not consider actions taken or planned for FY 2002 nor

does it take into consideration manual controls or work-around implemented to mitigate risk in

drawing its conclusion. Given this understanding, we will not take issue with the finding and

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108 U.S. Agency for International Development
recommendations. However, it should be noted we implemented adequate manual controls during

FY 2001 that prevented any obligations or expenditures in excess for funds appropriated or

appropriated. This is evidenced by the fact that the audit did not detect any cases where the

Agency violated these restrictions.

The draft report identifies Reports as an area of non-compliance with federal system requirements.

We agree with Recommendation No. 6. Reporting from Phoenix and the MACS Auxiliary Ledger is

one of our priority work areas for the Financial Systems Team in FY 2002. In fact, we are planning

to issue an Agency Notice the first week of March announcing that the first set of financial reports

available to USAID/Washington on Crystal Enterprise. In conjunction with M/IRM we will be

sending out a notice on how people can access the reports in Crystal Enterprise.

Recommendation No. 7 makes recommendations regarding the revision of the remediation plan.

We agree with this recommendation and will make the necessary changes based on the results of

the current business transformation study being conduction under the direction of the USAID

Business Transformation Executive Committee.

Finally, once again I would like to thank you for the opportunity to comment on the draft report

and to express my appreciation for the cooperation extended by your entire audit team.

CC:

AA/M, J. Marshall

DAA/M, R. Nygard

AA/PPC, P. Cronin

DAA/PPC, B. Turner

PPC/PC, L. Waskin

PPC/CDIE/OME, D.Blumhagen

M/FM/CAR, D. Ostermeyer

M/MPI/MIC, S. Malone-Gilmer

M/MPI/MIC, S. Stiens

M/FM, N. Wijesooriya

INDEPENDENT AUDITOR’S REPORT ON USAID’S FY 2001 FINANCIAL STATEMENTS 

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U.S. Agency for International Development 109
APPENDIX III: OTHER

SYSTEM WEAKNESSES

The audit identified other control

weaknesses in USAID's

implementation of its core financial

system, as described below.

Payment history not migrated - JFMIPSR-02-01, Core Financial System

Requirements, "Payment Management

Function," requires systems to maintain

among other things, a history of

invoice number, vendor name,

payment amount, payment date,

obligation number, and appropriation

charged. Before implementing the new

core financial system, USAID migrated

only summary level information from

the previous core financial system.

As a result, USAID's new core financial

system did not contain detailed

payment history, thus increasing the

risk of duplicate payments. According

to Agency officials, USAID decided

that payment information would be

migrated at the summary level because

migrating all transactions would have

required more staff support, thereby

significantly increasing the time and

costs of the migration. Further, the

detailed information would be

maintained in the old accounting

system and contract payment files to

serve as mitigating controls. USAID

officials noted that the cost of

migrating detailed information might

outweigh the benefit. Further, this

control risk will be reduced over time

as the financial system generates a

payment history. Therefore, we are not

making a recommendation at this time.

Accruals off-line - JFMIP-SR-02-01,

Core Financial System Requirements,

"General Ledger Management

Function," requires that systems

provide for accruals relating to

contracts or other items that cross

fiscal years. For fiscal year 2001,

USAID calculated the Agency's

accruals manually because the

Agency had problems with (1)

unliquidated obligations balances,

and (2) contract and grant

completion dates-two factors needed

to automatically calculate accruals.

As a result, USAID's system did not

control and execute the period-end

processes needed for reporting

purposes. USAID is aware of the

problem and is cleaning up the data

used in the accrual process. For

instance, according to Agency

officials, USAID successfully

reviewed over 85 percent of its

obligations. In addition, beginning

in fiscal year 2002, USAID plans to

use an online tool that will allow

accrual information to be loaded to

a web-site for review. We, therefore,

are not making any recommendations

at this time.

STATUS OF UNCORRECTED

FINDINGS AND

RECOMMENDATIONS

FROM THE PRIOR AUDITS

THAT AFFECT THE

CURRENT AUDIT

OBJECTIVES

Office of Management and Budget's

Circular No. A-50 states that a

management decision on audit

recommendations shall be made

within a maximum of six months

after issuance of a final report.

Corrective action should proceed a

rapidly as possible. The following

audit recommendations directed to

USAID remain uncorrected and/or

final action has not been completed

as of September 30, 2001. We have

also noted where final action was

taken subsequent to fiscal year-end

but prior to the date of this report.

Audit of USAID's Compliance

with Federal Computer Security

Requirements Audit Report No.

A-000-97-008-P September 30,

1997

Recommendation No. 2: We

recommend that the Acting Assistant

Administrator for Management

demonstrate support for an effective

computer security program by taking

action to direct the computer

security program manager to develop

and implement an effective

computer security program by:

2.2 Ensuring that adequate resources

and skills are available to

implement the program.

2.4 Implementing disciplined

processes to ensure compliance

with the Computer Security Act

of 1987 and OMB Circular A130.

2.5 Bringing sensitive computer

systems, including NMS, into

compliance with computer

security requirements by: (1)

assigning security responsibility,

(2) preparing security plans, (3)

completing contingency/disaster

recovery plans, (4) identifying

technical controls, (5)

conducting security reviews, and

(6) obtaining management's

authorization before allowing

systems to process data.

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110 U.S. Agency for International Development
Recommendation is pending final

action by USAID

Reports on USAID'S Financial

Statements, Internal Controls,

and Compliance for Fiscal Years

1997 and 1996 Audit Report No.

0-000-98-001-F March 2, 1998

Recommendation No. 5:We

recommend that the Assistant

Administrator/Bureau for Policy and

Program Coordination establish a

common set of indicators for use by

operating units to measure progress in

achieving USAID's strategic goals and

objectives and that allow for the

aggregation of program results reported

by operating units.

Recommendation is pending final

action by USAID

Recommendation No. 7:We

recommend that USAID:

7.1 Establish procedures to ensure (1)

operating units report results for

the year ended September 30 and

(2) results reported in the MD&A

section of USAID's financial

statements and Annual

Performance Report be clearly

shown as achievements for that

year.

Recommendation is pending final

action by USAID

Recommendation No. 9:We

recommend that the Chief Financial

Officer develop and implement

policies and procedures to ensure

adherence to the requirements of the

Debt Collection Act of 1982 and the

Debt Collection Improvement Act of

1996. These policies and procedures

should at a minimum ensure that:

9.1 All billing offices incorporate due

process rights into demands for

payment; 

9.2 All delinquencies in excess of 180

days are identified in a timely

manner, and referred to the United

States Treasury; and

9.3 The issuance or guarantee of

consumer credit is reported to

consumer credit reporting

agencies.

Recommendation is pending final

action by USAID

Audit of Access and System

Software Security Controls Over

the Mission Accounting and

Control System (MACS) Audit

Report No. A-000-99-002-P

December 31, 1998

Recommendation No. 1:We

recommend that the Director of IRM

strengthen MACS' access and system

software controls by developing and

implementing standards for access and

system software installation and

maintenance. These standards should

implement the agency's policies

pertaining to access and system

software controls and thus, provides

step-by-step guidance to mission

system managers in the

implementation of these controls.

These standards should specifically

address the controls described in

GAO's Federal Information System

Controls Audit Manual.

Recommendation is pending final

action by USAID

Report on USAID's Financial

Statements, Internal Controls,

and Compliance for Fiscal year

1998 Audit Report No. 0-000-99-

001-F March 1, 1999

Recommendation No. 1:

Because the Chief Financial Officer

lacks the authority called for in the

CFO Act, we recommend that the

Chief Financial Officer collaborate

with the Assistant Administrator for

Management, Chief Information

Officer, and Bureau For Policy and

Program Coordination to:

1.1 Determine the specific

responsibility, authority, and

resources needed to meet the

requirements of the Chief

Financial Officers Act of 1990,

which assigns the Chief Financial

Officer responsibility to: (1)

develop and maintain an

integrated accounting and

financial management system that

meets federal financial system

requirements, federal accounting

standards, and the U.S. Standard

General Ledger at the transaction

level; (2) approve and manage

financial management system

design and enhancement projects;

and (3) develop a financial

management system that provides

for systematic measurement of

performance.

Recommendation is pending final

action by USAID

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Accountability Report

U.S. Agency for International Development 111
Report to USAID Managers on

Selected USAID Internal Controls

for Fiscal year 1998 Audit Report

No. 0-000-99-002-F March 31,

1999

Recommendation No. 10: We

recommend that USAID's Bureau for

Policy and Program Coordination:

10.2Develop internal controls for

identifying the full costs (USAID

program and operating expenses

and funding by other donors and

host countries) of USAID programs,

activities, and outputs.

Recommendation is pending final

action by USAID

Audit on USAID's Advances and

Related Internal Controls Audit

Report No. 0-000-00-003-F,

February 1, 2000

Recommendation No. 3:We

recommend that the Office of Financial

Management perform a reconciliation

to verify the accuracy of unliquidated

obligation balances and related

information transferred to the

Department of Health and Human

Services.

Recommendation is pending final

action by USAID

Recommendation No. 4: We

recommend that the Office of Financial

Management perform periodic

reconciliations between its subsidiary

ledger and general ledger.

Recommendation is pending final

action by USAID.

Audit of USAID's Actions to

Correct Financial Management

System Planning Deficiencies

Audit Report No.A-000-00-003-P

August 24, 2000

Recommendation No. 1:We

recommend that the Chief Information

Officer, in conjunction with the Capital

Investment Review Board and the Chief

Financial Officer:

1.1 Develop and implement a process

for selecting information

technology investments that meets

requirements of OMB's guidelines

for Selecting Information

Technology Investments and

GAO's Executive Guide: Leading

Practices in Capital Decision

Making; and

1.2 Apply the process to prioritize

USAID's financial management

system investments as part of a

portfolio of planned information

technology investments as part of a

portfolio of planned information

technology investments for

USAID's fiscal year 2002 budget

submission to OMB.

Recommendation is pending final

action by USAID

Recommendation No. 3: We

recommend that the Chief Information

Officer and the Chief Financial Officer

work with the Assistant Administrator

for management to ensure that the

Change Management Team and the

Office of Financial Systems Integration

collectively have the responsibilities,

the authority, and the structure to

direct the planning, design,

development, and deployment of all

financial and mixed financial system

components of the Integrated Financial

management System Program.

Recommendation is pending final

action by USAID

Audit of USAID's Fund Balance

with The U.S. Treasury And

Related Internal Controls Audit

Report No. 0-000-01-005-F,

February 15, 2001

Recommendation No. 1: We

recommend that USAID's Office of

Financial Management:

1.1 Continue to perform a detailed

analysis of its outstanding

reconciling items, which were

reported by the overseas

missions, and to reslove or write

off the remaining reconciling

items.

1.2 Reconcile the mission

adjustment account in the

general ledger to the cumulative

amounts in the mission ledgers

and resolve differences between

the general ledger and the

mission ledgers.

Recommendation No. 2: We

recommend that USAID's Office of

Financial Management develop and

implement procedures to obtain the

necessary information needed from

its overseas missions to prepare and

submit the required budgetary

reports to the Office of Management

and Budget as required by the

Office of Management and Budget

Circular A-34.

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Audit of USAID's Compliance

with the Provisions of the

Government Information Security

Reform Audit Report No. A-000-

01-002-P September 25, 2001

Recommendation No. 1: We

recommend that the Chief Information

Officer obtain evidence that the

security requirements have been

applied to USAID's mission critical

systems. For those systems that are

operated by other agencies and

organizations, the responsible Assistant

Administrator, the Chief Financial

Officer, the Director of Human

Resources, or the Director of the Office

of Procurement shall provide the Chief

Information Officer evidence that

proper protection exists for those

systems.

Recommendation is pending final

action by USAID.

Recommendation No. 2: We

recommend that Chief Information

Officer provide and document that

USAID employees in key security

positions obtain training to allow them

to conduct their security

responsibilities.

Recommendation is pending final

action by USAID.

Recommendation No. 3: We

recommend that the Chief Information

Officer conduct a study to determine

the feasibility of centrally administering

information security, monitoring

controls, intrusion detection, and

additional sensors for sensitive systems.

Recommendation is pending final

action by USAID.

Recommendation No. 4: We

recommend that the Chief Information

Officer develop and implement a

management oversight process by

assigning responsibility and

accountability for correcting identified

information security vulnerabilities to

designated individuals. The process

should include a reporting mechanism

that regularly tracks the status of all

vulnerabilities, including actions taken

to correct them.

Recommendation is pending final

action by USAID.

Recommendation No. 5: We

recommend that the Chief Information

Officer centralize security functions to

oversee, enforce, and coordinate

security and related functions.

Recommendation is pending final

action by USAID.

Recommendation No. 6: We

recommend that the Chief Information

Officer coordinate the revision of

appropriate Automated Directives

System Chapters and any other

supporting guidance to include and/or

clarify the government information

security reform-mandated

requirements, especially those that

pertain to incorporating security into

the investment process, enterprise

architecture, and contractor-provided

services.

Recommendation is pending final

action by USAID.

Recommendation No. 7: We

recommend that the Chief Information

Officer provide instructions to program

managers to include security

requirements in the information

technology investment process and

report them on the Capital Asset Plan. 

Recommendation is pending final

action by USAID.

Recommendation No. 8: We

recommend that the Chief Information

Officer finalize and approve the

following four draft documents: (1)

USAID Information Systems Security

Program Plan; (2) USAID Risk

Assessment Manual; (3) USAID

Security Incident Handling Response

Policy and Procedures; and (4) USAID

Incident Response Capability

Handbook Coordinating Draft.

Recommendation is pending final

action by USAID.

Recommendation No. 9: We

recommend that the Chief Information

Officer document the agency's

decision on the critical infrastructures

protection plan.

Recommendation is pending final

action by USAID.

Recommendation No. 10: We

recommend that the Chief Information

Officer develop specific performance

measures that include timetables and

approaches to address deficiencies in

its information security program.

Recommendation is pending final

action by USAID.

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U.S. Agency for International Development 113
OVERVIEW

The implementation of cost-effective and reliable financial management systems to support

USAID's worldwide operations continues to represent an enormous challenge for the Agency.

USAID's Chief Financial Officer (CFO) is charged with modernizing and integrating USAID's

financial management systems and the business processes that depend on them. The CFO

specifically oversees the financial systems and operations of the Agency. The CFO in turn works

with other Agency managers of systems with financial components to ensure that these systems are

interfaced with the financial systems and provide reliable, consistent and timely financial

information. The Agency's financial and administrative operations are critically dependent on the

implementation of modern systems, improved services, and proven technologies that enable the

workforce to connect with and deliver services to its customers, stakeholders, and partners through

more cost-effective business processes. 

USAID has made significant progress in aligning its management goal and objectives to focus on

the basic management functions that it must perform well to be a high performing and efficient

organization. These objectives recognize that USAID needs to apply technologies and process

improvements to provide proven support solutions for internal and external work processes.

Investing in systems and services that are generally available to commercial and Government users

will deliver these solutions and transform the way the Agency conducts its business.

The government-wide priorities of the CFO Council are reflected in this plan. The Council's

priorities guide the Agency's goal in recognizing the need for integrated processes and systems that,

when implemented, solve end-user and customer problems, achieve performance objectives, and

gain compliance with laws and regulations.

This document sets forth a strategy for modernizing USAID's financial management systems and

details specific plans and targets for achieving substantial compliance with Federal financial

management requirements and standards. Where appropriate, the plan suggests preliminary

performance targets. These targets will be refined and possibly modified through USAID's Annual

Performance Plans. Results achieved will be reported in USAID's Accountability Reports and

Annual Performance Reports.

Michael T. Smokovich

Chief Financial Officer

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114 U.S. Agency for International Development
GOALS AND STRATEGIES

Background

The 2000 Federal Financial

Management Report contains the

following Government-wide goals for

financial management:

• Improve financial accountability;

• Improve financial programs and

the performance of financial

systems;

• Invest in human capital;

• Better manage obligations of the

Federal Government; and

• Improve the administration of

Federal grants.

In addition to these goals, USAID

must align itself with governmentwide financial management

regulations and requirements as

outlined in relevant legislation

including the Chief Financial

Officer's Act (1990); the Government

Performance and Results Act (1993);

the Federal Financial Management

Improvement Act (1996); and the

Government Management Reform

Act (1994).

USAID has kept these goals and

requirements in mind as we refined the

management performance goals,

objectives and targets for the FY 2003

Annual Performance Plan (APP). The

CFO and USAID consider the APP

management goal to be consistent with

the government-wide goals for

financial management identified above

and the Improved Financial

Performance initiative described in the

President's Management Reform

Agenda.

It is the function and responsibility of

the Chief Financial Officer working

with other Agency bureaus, offices and

missions to meet these goals and

targets. The reference to CFO herein,

unless indicated otherwise, reflects the

combined efforts of the CFO and

USAID staff engaged in financial

management stewardship and

improvement efforts.

USAID Management

Objectives

To achieve its management goal,

USAID has identified four management

objectives:

• Accurate program performance

and financial information available

for Agency decisions.

• USAID staff skills, Agency goals,

core values and organizational

structures better aligned to achieve

results efficiently.

• Agency goals and objectives served

by well-planned and managed

acquisition and assistance.

• Agency goals and objectives

supported by better information

management and technology.

The following focuses on the first goal

and its associated objectives,

indicators, and targets. The other

objectives are detailed in the Agency's

current Performance Plan.

Objective 1: 

Accurate Program Performance and

Financial Information Available for

Agency Decisions.

FY 2001 Achievements:

The cornerstone of USAID's financial

management improvement program is

the implementation of a fully

compliant core financial system. To this

end, USAID successfully launched

Phoenix, a commercial off-the-shelf

core financial system that is compliant

with Federal requirements and

standards. In December 2000, USAID

deployed Phoenix to support

Washington operations, and during FY

2001, the Agency implemented tools to

extract overseas financial information

for an automated interface with

Phoenix (the Mission Accounting and

Control System Auxiliary Ledger).

USAID also completed the work

necessary to interface Phoenix with

two additional financial systems:

Department of Health and Human

Services Payment Management System

(DHHS PMS), which services USAIDissued Letters of Credit, and the Riggs

Bank system, which services loans on

behalf of USAID. Phoenix and the

Agency's acquisition and assistance

system have also been interfaced to

achieve internal efficiencies and to

ensure the accuracy of financial 

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U.S. Agency for International Development 115
information. In addition, USAID

implemented a comprehensive

program to train Agency staff to

transition to Phoenix. As a result of

these efforts, the new accounting

system successfully completed its first

fiscal year accounting cycle.

Historically, USAID managers have not

had access to accurate, timely and

useful financial information from

missions. This was a factor in USAID's

reporting a material weakness in

financial reporting and resource

management. In response, USAID

created a repository of overseas

financial information in Washington in

FY 2001 that provides Agency-wide

financial reporting to support internal

decision-making and external

stakeholder information needs.

Overseas financial transactions are

now captured and stored monthly in

Washington in the MACS Auxiliary

Ledger (MAL), which will be used to

facilitate external reporting. This

improvement will help to correct the

material weakness in financial

reporting, make financial information

more readily available to managers,

and reduce the number of cuff record

systems used by bureaus for tracking

overseas financial activity. USAID is

now meeting government-wide

quarterly financial reporting

requirements on time and with current

and complete financial information. In

addition, USAID completed the first

phase of its implementation of a

Managerial Cost Accounting (MCA)

model. The model allocates operating

expenses, recorded in the general

ledger, from the Management Bureau

to benefiting bureaus. The MCA model

along with other cost allocation tools

will be used in preparing the annual

Statement of Net Cost, which reports

revenues and expenses by Agency

goals.

Performance Goal 1.1

Core financial management system

certified compliant with Federal

requirements.

Progress against this goal will be

assessed using the following indicators

and targets for FY 2002 and FY 2003:

• Indicator 1.1.1: Integrated

automated financial systems

worldwide.

FY 2002 targets:

The core financial system supports

mission financial reporting at the

strategic objective level in accordance

with the Agency's accounting

classification structure. A firm date is

established for accelerated deployment

of the core accounting system.

Electronic interfaces and data

repositories for significant feeder

systems are implemented.

FY 2003 target:

Plans are finalized for worldwide

deploy-ment of the core accounting

system.

• Indicator 1.1.2: A fully operational,

secure and compliant core

financial system installed with

interfaces to major feeder systems.

FY 2002 targets:

Mission accounting system security

certifications completed for at least

50% of the overseas accounting

stations. Web-based reporting tools

implemented to support enhanced

financial reporting for decision-making

and resource management. Select

priority enhancements to core financial

system implemented (e.g., web-based

vendor query and electronic invoicing

capabilities, web-based core financial

system upgrade, and Agency

reorganization).

FY 2003 targets:

Mission accounting system security

certification completed at all (38)

overseas accounting stations. Select

priority enhancements to core financial

system implemented (e.g., credit card

processing, grantee advances, Agencywide cash reconciliation system, core

financial system upgrade, and

application integration tools).

Performance Goal 1.2

A system to allocate administrative

costs fully to Agency strategic goals

installed in Washington and the

field.

Progress against this goal will be

assessed using the following indicators

and targets for FY 2002 and FY 2003:

• Indicator 1.2.1: Administrative

costs allocated to strategic goals.

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116 U.S. Agency for International Development
FY 2002 target:

Cost accounting system capable of

allocating the full costs of Washington

programs and operations to Agency

goals.

FY 2003 target:

Plan developed for implementing the

cost accounting system Agency-wide.

AUDITED FINANCIAL

STATEMENTS

USAID is required, under the

Government Management and Reform

Act of 1994 to: (1) prepare

consolidated audited financial

statements each year, beginning with

FY 1996; and (2) submit them to the

Office of Management and Budget

(OMB) and the Department of the

Treasury. USAID has prepared

consolidated financial statements for

each fiscal year. However, through the

FY 2000 financial statements, the

USAID Inspector General (IG) has been

unable to express an opinion on the

statements. This has occurred because

the IG has been unable to perform the

audit due to deficiencies in accounting

and financial management systems.

For FY 2001, following the deployment

of the new core accounting system in

Washington and the implementation of

a new interface to the field accounting

system, the IG is conducting a

complete financial statement audit for

the first time. While the audit is

ongoing, nothing has been brought to

USAID's attention to indicate that the

IG will not complete the audit. USAID

is hopeful that the IG will be able to

render an opinion on the FY 2001

financial statements, and in future

fiscal years. 

FINANCIAL MANAGEMENT

SYSTEMS STRUCTURE

Baseline Financial Management

Systems

USAID implemented the Phoenix

System in December 2000. Phoenix is

the USAID configuration of the

Momentum® Financials software

product from American Management

Systems (AMS). Phoenix is the

Agency's new core financial

management system and the

cornerstone of its interfaced financial

management system. During 2001,

USAID has interfaced Phoenix with

significant legacy financial

management systems and third-party

systems that provide transaction

processing services. The major systems

and their relationships are shown in

Figure 6-1.

Phoenix: Phoenix is the Agency's core

financial system. Phoenix will

eventually replace MACS installed at

overseas accounting stations. The

Phoenix application modules include

accounts payable, accounts receivable,

automated disbursements, budget

execution, cost allocation, general

ledger, business planning, project cost

accounting, and purchasing.

New Management System (NMS): The

NMS was originally an integrated suite

of custom-built financial and mixed

financial applications. The

implementation of Phoenix enabled

USAID to suspend three of the four

NMS applications. The Acquisition and

Assistance (A&A) application continues

to support Washington's procurement

operations and it is interfaced with

Phoenix.

Mission Accounting and Control

System (MACS): MACS is a 20-yearold, custom-built system for overseas

financial operations. It is installed at 38

accounting stations overseas and

supports basic accounting and control

functions. MACS alone is not

substantially compliant with Federal

financial requirements, standards, and

the standard general ledger at the

transaction level. MACS does not

support the Agency's accounting

classification structure (ACS). A MACS

Auxiliary Ledger (MAL) was

implemented in 2001 to capture

overseas financial transactions for

posting in the Phoenix general ledger.

The MAL provides a crosswalk

between overseas accounting elements

and the Agency's ACS. The MAL

enables the Agency to provide timely,

accurate and useful external and

internal financial reports on overseas

programs and operations. The related

MACS Voucher Tracking System

(MACSTRAX) automates voucher

management and payment scheduling.

A system security certification and

accreditation of MACS to operate at

each overseas accounting station is

underway. In addition to strengthening 

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U.S. Agency for International Development 117
management controls, this work will

assure financial data integrity and

reduce financial statement audit risk.

Business Support Services: The chief

business support applications in the

Agency's financial management

systems inventory relate to travel

management and property

management:

• Travel Manager: The GELCO

commercial software product,

Travel Manager, is currently used

in Washington and in missions to

provide travel management

support. It is used either as a

standalone application or

operating as a shared application

over a local area network.

Currently, Travel Manager does not

have an electronic interface with

any Agency financial systems.

• Non-Expendable Property (NXP):

The NXP program is USAID's

custom-developed property

management system. It is currently

in use at many missions around the

world but is planned for

replacement. Imple-mented in

1989, it is not compliant with

JFMIP requirements for a property

management system. NXP does not

have an electronic interface with

any Agency financial system.

• BAR/SCAN: USAID currently uses

the commercial software product,

BAR/SCAN, for property

management of non-expendable

property in Washington.

BAR/SCAN is being implemented

at field missions. BAR/SCAN does

not have an electronic interface

with any Agency financial systems.

Third-Party Service Providers: As part

of its long-term information

management strategy USAID has crossserviced with other Government

agencies or outsourced to commercial

organizations some of its financial

transaction processing requirements.

This reflects an overall strategy of the

Agency and is consistent with OMB

guidance. The chief third-party service

providers include:

• Department of Agriculture

National Finance Center (NFC):

USAID has a cross-serving

agreement with NFC for personnel

and payroll processes for U.S.

direct hire (USDH) employees.

USAID accesses the NFC systems

to maintain personnel records,

process employee time and

attendance data, and transact

payroll services. The NFC payroll

system is not integrated with

Phoenix at this time.

• Riggs National Bank: USAID has

outsourced standard Credit Reform

transactions to Riggs National

Bank. The Riggs Loan Management

System provides services to the

Agency for collections,

disbursements, claims, and yearend accruals. The Riggs system has

an automated interface with

Phoenix.

• Department of Health and Human

Services (DHHS): USAID has

cross-serviced its letter of credit

(LOC) processing of grantee

advances and liquidations to the

DHHS Payment Management

System. The DHHS system has an

automated interface with Phoenix.

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118 U.S. Agency for International Development

Figure 6-1 Current Financial Management Systems Structure
Other Baseline Financial

Management Systems

• Mission Personal Services

Contractor (PSC) Personnel and

Payroll Systems: USAID missions

currently use a variety of systems

to manage and pay PSC personnel.

These range from spreadsheets to

custom-built applications and

databases to commercial off-theshelf packages. Typically, U.S.

citizen PSC employees and Foreign

Service National (FSN) PSC

employees are managed and paid

through different systems. Some

missions obtain FSN payroll

services from the U.S. Department

of State's Financial Management

Center (FMC). Some missions have

developed electronic interfaces

from their payroll systems to

MACS. State's FMC will become

the standard Agency-wide thirdparty service provider for FSN PSC

payroll processing.

• Mission Procurement Information

Collection System (MPICS):

Pending the fielding of an Agencywide procurement system, a

manual procurement process is

used in the missions. MPICS is the

data entry mechanism for USAID

field missions to enter their past

and current award data into a

single Washington database for

reporting purposes.

• ProDoc and RegSearch: These

procurement support systems from

Distributed Solutions Inc. have

been deployed in Washington and

the missions to generate

solicitations and awards as well as

improve procurement reporting.

Deficiencies in Baseline Financial

Management Systems

Material Weaknesses: USAID has

developed and is implementing

detailed corrective action plans for

each material weakness as required by

the Federal Managers' Financial

Integrity Act (FMFIA).

Primary Accounting System: Since

1988, USAID's accounting system 1)

had not fully complied with all

financial system requirements, (2)

could not produce accurate and timely

reports, and (3) did not have adequate

controls. During FY 2001, USAID

deployed Phoenix, the new accounting

system. USAID successfully migrated

financial records to the new system,

trained employees on its use,

implemented essential interfaces, and

provided accurate and timely financial

information. Following an assessment

of the results of the FY 2001 financial

statement audit, an audit of the general

systems control environment, and a

review of FFMIA compliance by the

USAID IG, the Agency will establish

the target correction date.

Reporting and Resource Management

Capabilities: Since 1997, Agency-level

financial reporting has not always been

sufficiently timely, accurate or useful to

support decision-making. Also, USAID

lacked a system for capturing data on

overseas procurement actions to

comply with Federal reporting 

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U.S. Agency for International Development 119
requirements. The deployment of

Phoenix has improved Agency-level

financial reporting. For example,

during FY 2001, USAID was able, for

the first time, to report all of its

enterprise-wide financial information

on budget execution to OMB in a

comprehensive, timely manner. Other

external reporting requirements are

also more accurate and timely. USAID

has implemented an automated

procurement data capture system for

overseas missions, and further work is

underway to improve financial

reporting on overseas programs.

Information Resources Management

Processes: USAID plans to implement

a process to include 1) procedures to

select, manage, and evaluate

investments and 2) a means for senior

managers to monitor progress in terms

of costs, system capabilities, timeliness

and quality. During FY 2001, USAID

established an information

management integrated product team

to formulate and review the Agency's

information technology (IT) budget.

Experts are providing disciplined

processes in life-cycle management.

Reengineering the Agency from a

systems integration organization to a

technology acquisition organization

will help to achieve a Software

Engineering Capability Maturity Model

(CMM) Level 2, a rating target

representative of the top one-third of

all technical organizations. USAID

completed requirements

documentation toward CMM Level 2

status for the network upgrade

initiative. When USAID's Information

Technology Council becomes

operational, IT portfolio management

processes are implemented, and the

USAID Capital Planning and

Investment Management Process is

implemented, this weakness will be

closed by December 2002.

Computer Security Program: In FY

2003, USAID plans to implement its

computer security program, which will

comply with the Computer Security Act

of 1987, USAID's administrative policy,

and requirements of OMB Circulars A123, 127 and 130. Decisions by top

USAID officials resulted in the

designation of Information Systems

Security as a capital investment in

USAID's budget. By following standard

certification and accreditation

procedures, USAID has corrected a

number of material vulnerabilities.

USAID is prioritizing and

implementing security projects as

funding allows. The Agency's IG, CIO

and external agencies, such as the

National Security Agency, are

continuously reviewing best security

practices in the IT arena. USAID's

management oversight process will

continue to assign responsibility and

accountability for identifying, tracking,

and correcting information security

vulnerabilities.

Audit Findings: During IG's audit of

the Agency's FY 2000 financial

statements, 39 audit recommendations

were identified as remaining

uncorrected from prior audits that

affected financial statement audit

objectives, as shown in Figure 6-3. The

Agency developed a strategy and plan

to systematically correct many of these

deficiencies and close the audit

recommendations. By the end of FY

2001, 23 of these audit

recommendations were successfully

closed. All but six of the 16 remaining

audit recommendations are targeted for

closure in FY 2002. The remaining six

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120 U.S. Agency for International Development

Targets to Correct Audit 

Recommendations

0

10

20

30

40

50

60

70

80

90

 The OIG identified 39 open audit

recommendations that affected their

FY 2000 financial statement audit

objectives; 16 of these remained open

at the end of FY 2001.

 OIG recommendations address

findings in:

Policies & Procedures

Core Financial System & Other

Feeder Systems

Data Reconciliation

Performance Reporting

System Security & Controls

19992000200120022003

FY

Figure 6-2 IG Audit Findings and Recommendations
related to performance reporting

and system security and controls

are planned for closure in FY 2003.

The following summarizes key

deficiencies identified in the open

audit recommendations planned for

closure in FY 2002 and FY 2003:

• Policies & Procedures:

Implement policies and

procedures to ensure adherence

to debt collection requirements.

Clarify CFO authorities and

resources to carry out CFO Act

responsibilities.

• Core Financial System & Other

Feeder Systems: Apply

disciplined practices to system

planning, project management

and system development.

Record accruals in the general

ledger. Establish adequate

responsibilities, authority and

structure to direct financial

system design, development

and deployment efforts.

• Data Reconciliation: Ensure that

subsidiary ledgers and general

ledger reconcile. Verify

unliquidated obligation

balances at DHHS.

• Performance Reporting:

Establish common performance

indicators by operating unit.

Identify the full cost of USAID

programs, activities and

outputs.

• System Security & Controls:

Incorporate system security

requirements, processes and

resources in planning and

implementation efforts. Ensure

that adequate skills and

resources are assigned to the

computer security program.

Bring existing systems into full

compliance. Strengthen MACS

system security. Clarify security

roles and responsibilities.

Target Financial Management

Systems Structure

The primary goal of financial

management system modernization

at USAID is a single, integrated

financial management system (IFMS).

The IFMS architecture is intended to

support the mission of the Agency,

comply with Federal requirements

and standards, improve the

efficiency and effectiveness of

Agency operations, and deliver

electronic government solutions. The

goal will be achieved by adherence

to the disciplines of architecture

planning, capital investment

planning, business process reengineering, and systems

engineering. This will ensure that

plans are business-focused rather

than technology-driven, resultsoriented rather than process-driven,

and developed by business managers

rather than technology specialists

alone.

The target financial management

system will:

• Provide complete, reliable,

timely, and consistent

information.

• Apply consistent internal

controls to ensure the integrity

and security of information and

resources.

• Utilize a common data

classification structure to support

collection, storage, retrieval and

reporting of information.

• Provide an information portal to 

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Extended Financial Management

External

Feeder System

Resource

Management

Program

Management

Framework

EIS

Warehouse

Data 

Electronic Record 

Management

Interoperability

Procurement

Management

Core Financial System

• General Ledger

• Funds Control

• Accounts Payable

• Accounts Receivable

• Cost Accounting

• Reporting

Service and

Performance

Management

of IFMS

State

USDO

Treasury

Grantee

Letter of

Credits

(DHH SPMS)

Loan

Processing

System

(Riggs M&I)

Acquisition

System

Assistance

System

Collaborative

Zone

 Performance

Management

System

Budget

Formulation

System

Travel

System

Property

Management

System

FSN/USPSC

Personnel

Services

Human

Resources

and Payroll

Services

Figure 6-3 Target Financial Management System Structure
the Agency's financial

management data resources with

a similar look and feel accessible

wherever USAID operates.

• Utilize an open framework and

industry standards for data

interchange and interoperability.

• Provide, on demand, valueadded information products and

services.

• Ensure standardized processes

are utilized for similar kinds of

transactions.

• Remain flexible and modifiable

to business changes.

• Support timely, accurate, and

cost-effective electronic

exchange of information with

customers and external partners.

To achieve this vision, the data,

systems, services, and technical

infrastructure will be engineered,

configured and optimized to operate in

an integrated fashion to deliver

Agency-wide financial management

support. Figure 6-4 shows this

architecture at a conceptual level

where the components of the IFMS are

interfaced via an interoperability

framework. Figure 6-5 describes the

logical business model that the target

IFMS will support. A high-level target

system architecture is shown in Figure

6-6. It is guided by and consistent with

the Agency's target enterprise

information architecture. This target

financial management system

architecture will be implemented in a

modular fashion.

The business functions of the Agency

will increasingly be supported by a

combination of commercial software

products and third party service

providers. Public sector and private

sector third party service providers will

provide essential feeder systems to the

Agency's core financial system. The

increasing reliance of foreign affairs

agencies on shared telecommunication

infrastructure, co-located facilities

overseas, and common financial

transaction processing services may

suggest alternative implementation

strategies for the IFMS. An

interoperability framework consisting

of policies, standards, practices,

hardware and software will enable the

Agency to more effectively utilize

commercial software products and

third party service providers to evolve

the IFMS as both technologies and

service providers evolve.

Enterprise Solution Integration Lab:

Given the global nature of USAID's

mission, its overseas operations and

diverse technical infrastructure, an

enterprise systems engineering

approach will be used to design and

maintain the IFMS. This approach will

involve users and technical staff in

evaluating alternative concepts of

operation, system design approaches,

reengineered processes, and new

technologies operating over the

Agency's current and planned network

systems and telecommunications

infrastructure. An Enterprise Solution

Integration Lab (ESIL) and associated

system engineering practices will be

established to support the planning,

prototyping, design, configuration and

testing of components of the Agency's

IFMS. This test-bed environment that

models the Agency's current and

intermediate target architecture along

with disciplined engineering practices

will mitigate the significant risks of 

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Program Performance

System

PROGRAM OPERATIONS

Procurement System

ACQUISITION AND 

ASSISTANCE

Budget Formulation

System

BUDGET US Direct Hire Personnel/

Payroll System

Mission Personnel/

Payroll System

HUMAN RESOURCES

Core Financial System

FINANCIAL 

MANAGEMENT

Travel Management System

Property Management 

System

BUSINESS SERVICES

financial status

SO activity structure

resource constraint

resource request

procurement 

request

contract 

evaluation

program 

results

skill requirements

award

acceptance criteria

property asset accounting data

capitalized asset depreciation

procurement (travel) document

payroll data

notification of receipt

property replacement 

needs

financial status

OYB financial status

distribution

payment 

authorization

procurement

document

PSC 

employees

staffing 

strategy

assignment

(travel/ 

transportation)

Figure 6-4 Logical Business Architecture
deploying the IFMS over the Agency's

global network. It will provide a costeffective approach for conducting

solution demonstrations that validate

the application of new technologies for

satisfying business needs, developing

performance measures, refining

requirements, improving the reliability

of cost and schedule estimates, and

assuring that planned returns on

investment are realized.

Financial Management

Systems Strategy

The Agency's financial management

system strategy is aligned to the

Agency's Strategic Plan, Information

Management Strategic Plan, and Target

Enterprise Information Architecture. The

essential elements of the strategy

include:

• Utilize public and private sector

third party service providers

whenever cost-effective.

• Require solution demonstrations to

manage risks and engineer system

components within the target

enterprise architecture framework.

• Acquire proven commercial

software products rather than build

custom-developed applications.

• Re-engineer Agency business

processes before altering the

baseline commercial software

product.

• Implement major systems in

Washington before deploying

systems to missions.

• Implement network and

telecommunication infrastructure

upgrades to support the financial

management systems architecture.

• Leverage the system architecture

and the planned technology

evolution of commercial software

products.

• Integrate data repositories using

common data elements and webbased reporting and analytical

tools.

• Acquire system components in an

incremental fashion.

• Plan enhancements to system

capabilities as releases within the

framework of enterprise

configuration management

practices.

Planned Major System

Investments

Implementing the target financial

management system structure will take

more than 5 years. The required major

system investments will be identified,

planned, and sequenced as part of a

business transformation initiative that

will begin in 2002 and extend into

2003. Specific projects will be selected

on the merit of each business case and

support for accelerated deployment of

the IFMS. The broad categories of

system investment will likely include:

• Core Financial System

• Procurement System

• Budget Formulation System

• Data Repositories and Reporting

Systems

• Executive Information Systems

• Business Support Systems

• Third Party Service Providers

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Figure 6-5 Target Financial Management System Architecture
Core Financial System: Phoenix's

underlying Momentum® Financial

product line will be upgraded through

successive product releases to ensure

sustained compliance with changing

Federal requirements and the evolution

of technology in the commercial

marketplace. Key among these

expected enhancements will be

support for electronic government

initiatives and fully internet-based

access to Phoenix from any mission

with access to requisite internet

services. Missions will access

centralized financial systems based in

Washington to record financial

transactions and obtain financial

information to support decision-making

and resource management. An Agencywide concept of operation will

optimize business processes, systems,

and workflow to achieve improved

efficiency and effectiveness. Phoenix

will be interfaced with multiple feeder

systems utilizing industry standards and

proven software integration tools to

achieve Agency and government-wide

goals in electronic government.

Procurement System: A commercial

software product will be selected that

supports both acquisition and

assistance activities of the Agency. This

new internet-based procurement

system will standardize Agency-wide

business practices, be fully interfaced

with Phoenix, support electronic

government initiatives, and improve

Agency efficiency and effectiveness.

Budget Formulation System: USAID

will implement a set of tools and

standard business processes to improve

Agency-wide budget planning,

formulation, consolidation, submission,

and integration with Phoenix. USAID's

budget formulation and execution

processes will be interfaced with its

program and performance management

processes for collecting information on

the performance of Agency programs.

Data Repositories and Reporting

Systems: Third-party feeder systems

generate data that is stored in data

repositories to support data

reconciliation, audits, ad hoc queries,

and reporting requirements. Other

financial management systems capture

data that will not be electronically

exchanged with other systems and will

need data repositories to facilitate

integrated reporting. USAID will

implement an enterprise-wide "datamart" strategy to link multiple data

repositories using common data

elements. Web-based reporting tools

will be used to extract, consolidate and

generate reports tailored to managers'

needs across systems and data

repositories.

Executive Information Systems: With

the implementation of integrated data

repositories, the Agency will be able to

use commercial software products that

provide online analytical processing

tools to view Agency operations and

programs, monitor performance, and

enhance effective utilization of

resources.

Business Support Systems: The major

initiatives in the administrative service

areas will be enterprise-wide

deployment of the Agency's travel and

property management systems. The

Agency will rely on joint vendor efforts

to integrate commercial software

products with the AMS Momentum®

Financials commercial software

product. Future releases of Phoenix

will include these enhancements.

Initiatives, such as the implementation

of a Momentum® product that would

integrate GELCO Travel Manager with

Phoenix, are among the options to be

studied.

Third-party service providers: The

Agency is expected to continue to rely

on its current third-party service

providers, NFC, Riggs National Bank,

and DHHS, for the foreseeable future.

Further improvements to electronic

interfaces to achieve greater integration

will be evaluated.

Financial Management System Costs:

Estimates for the full life-cycle costs for

major system planning, modernization,

enhancements and steady state

operations for current and planned

financial management systems have

not been fully developed. The Agency's

FY 2003 Annual Performance Plan

includes an FY 2002 target to complete

a business transformation study to

reengineer business practices and

identify system investment priorities to

accelerate deployment of Agency-wide

financial management systems. The

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124 U.S. Agency for International Development
business case and estimated costs for

system investments in FY 2003 and

beyond will be included in the FY

2004 budget submission. The FY 2002

and FY 2003 budget requests for

financial management systems are

included in the Agency's FY 2003

budget submission, and Exhibits 52, 53

and 300, that largely sustain current

operations with incremental

enhancements. IT capital investments

for accelerated deployment of financial

management systems will be included

in the FY 2004 budget submission.

FFMIA Remediation Plan

The Federal Financial Management

Improvement Act (FFMIA) requires

USAID to implement and maintain a

financial management system that

complies substantially with:

• Federal requirements for an

integrated financial management

system.

• Applicable Federal accounting

standards.

• U.S. Standard General Ledger at

the transaction level.

These requirements are further detailed

in OMB Circular A-127, Financial

Management Systems. The IG is

required under FFMIA to report on

compliance with these requirements as

part of the audit of USAID's financial

statements. In successive audits of

USAID's financial statements, the IG

has determined that USAID's financial

management systems did not

substantially comply with FFMIA

accounting and system requirements.

The Agency Administrator has also

reported the material non-conformance

of its financial management systems in

successive Accountability Reports. The

designated accountable Agency official

for correcting these deficiencies is the

Chief Financial Officer, Michael

Smokovich.

Audit Work on USAID's Compliance

with FFMIA: The Agency largely relies

on IG audit work to determine the

Agency's conformance with FFMIA.

The IG has identified deficiencies in

the Agency's baseline financial

management systems that encompass

policies, procedures, controls and

practices. These are summarized in

Section 4.1 and further detailed in

Table 4-1. OMB guidance on

implementing FFMIA sets forth

requirements and indicators for

substantial compliance. The IG began

its most comprehensive audit of

Agency compliance with FFMIA in FY

2001 based on this OMB guidance and

will deliver its findings and

recommendations in FY 2002. Prior to

this audit work, the IG has identified

only examples of non-compliance and

not necessarily all instances of noncompliance. As a result of this new and

on-going FFMIA compliance audit

work, additional deficiencies may be

identified.

Preliminary audit findings have

indicated that the scope of planned

remedies may be insufficient to

achieve substantial compliance with

FFMIA. In particular, the underlying

strategy to integrate the overseas

accounting systems, i.e., MACS, with

Phoenix, may prove insufficient to

achieve substantial compliance. While

Phoenix is compliant with JFMIP

requirements for a core financial

system, MACS is not substantially

compliant. MACS does not enable

standard general ledger postings at the

transaction level or manage accounts

receivables. Furthermore, MACS does

not support the Agency's full

accounting classification structure. The

planned remedy of using an

intermediate MACS Auxiliary Ledger to

capture overseas financial transactions

in order to make summary general

ledger postings in Phoenix utilizing

ACS cross-walk tables may prove

insufficient to achieve substantial

FFMIA compliance.

Notwithstanding these issues, the

remedies largely implemented in FY

2001 do substantially improve the

accuracy, timeliness, and usefulness of

Agency-wide financial information for

decision-making, resource

management, and external reporting.

However, it will likely be necessary to

further deploy Phoenix Agency-wide to

replace MACS at overseas accounting

stations in order to achieve substantial

compliance with FFMIA. The Agency

will continue to rely on MACS through

FY 2003 or longer to support Agency

financial operations until an

incremental deployment of Phoenix is

completed. Further investments in

MACS and the MACS Auxiliary Ledger

will be necessary as intermediate

remedies until Phoenix is fully

deployed.

Revisions to the Agency's

Remediation Plan: The Agency's

Remediation Plan as detailed in the

FY 2000 Accountability Report will

continue to undergo substantial

revisions in FY 2002. The Agency will

undertake a study in FY 2002 to

address how it can make more

effective use of capital planning,

enterprise architecture, and modern

business practices in accounting,

procurement, and electronic

government to modernize its business

systems and accelerate deployment

of Phoenix as the AgencyUSAID CFO GOALS AND STRATEGIES AND FINANCIAL REMEDIATION PLAN 

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USAID CFO GOALS AND STRATEGIES AND FINANCIAL REMEDIATION PLAN 

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126 U.S. Agency for International Development

wide core financial system. The

Remediation Plan in its current form

does not capture the additional

remedies arising from this study, nor

does it address the new IG audit

findings and recommendations in the

ongoing FFMIA audit. Table 4-1

provides a summary of currently

understood deficiencies, remedies, and

target dates.

The current target date for substantial

compliance with FFMIA is the 4th

quarter of FY 2003. It was predicated

on the adequacy of MACS at overseas

accounting stations interfaced with

Phoenix via the MACS Auxiliary Ledger

to achieve a JFMIP compliant core

financial system. The Agency

anticipates that this target date will

change based on preliminary IG FFMIA

audit work and guidance from OMB

that MACS is not an adequate

accounting system. Migration of

overseas accounting to Phoenix will

take substantially more time and

resources. An updated Remediation

Plan will be submitted to OMB later in

FY 2002 with updated target date and

resource estimates for implementing an

Agency-wide substantially compliant

interfaced financial management

system.

The current estimated cost of the

Remediation Plan for the Agency's

financial management systems is $12.4

million in FY 2002 and FY 2003. This

cost is consistent with the Agency's FY

2003 budget submission as detailed in

Exhibits 52 and 53, and 300 for the

Agency's core financial system.

GRANTS MANAGEMENT

USAID ensures consistency across its

programs through the issuance of

policies and procedures for award and

administration of assistance

instruments. USAID's Automated

Directives System (ADS) includes a

chapter (ADS 303, Grants and

Cooperative Agreements to NonGovernmental Organizations) that

establishes requirements applicable to

grants and cooperative agreements

with non-governmental organizations

under virtually all USAID assistance

programs except those that are exempt

by statute. The chapter establishes not

just the requirements under OMB

Circular A-110, but also requirements

that are specific to USAID programs.

Except for programs that exclusively

involve local overseas organizations,

ADS 303 now requires utilization of the

standard government-wide application

form, "Application for Federal

Assistance" (SF-424). Financial reporting

is limited to the use of U.S. government

standard forms as well. ADS 303

includes the standard provisions that

are applicable to USAID assistance

instruments. Agreement Officers do not

have the authority to make changes in

the standard provisions for awards to

U.S. organizations, whether for a single

award or a group of awards, unless the

Director of the Office of Procurement

approves the deviation. All together, the

requirements in ADS 303 help to

ensure that there is substantial

consistency of requirements among

USAID's programs.

While USAID has some grant programs

under which assistance is available on

an annual basis to Private Voluntary

Organizations, for the most part USAID

grants are competed on a case-by-case

basis as required in accordance with

the objectives of USAID's programs in

various developing countries. We do

not have information that can be used

to identify the five largest programs.

For the most part, the requirements are

the same for any USAID grant with

limited exceptions.

USAID obtains feedback from recipient

organizations fairly regularly, which

helps to identify areas of concern. The

Advisory Committee on Voluntary

Foreign Aid, chaired by a member of

the recipient community, with a

membership comprised of both

recipient organizations and USAID,

provides input to USAID on issues of

mutual concern. USAID offices also

conduct outreach programs from time

to time that provide recipients the

opportunity to discuss issues and

concerns.

USAID participates in an informal

group of grants policy professionals

from virtually all of the grant-making

agencies. The group meets regularly to

discuss topics of interest to all

agencies. When USAID considers

policy changes, the grants policy expert

in the Office of Procurement generally

researches regulations of other

agencies and confers with contacts

from other agencies to determine their

approach to similar issues.
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Deficiency: MACS is not substantially compliant with JFMIP requirements for a 

core financial system. The MACS Auxiliary Ledger and interface to Phoenix do not 

sufficiently address compliance deficiencies. MACS does not support new 

electronic government initiatives. The Agency's overseas operations do not have 

access to the Agency's integrated financial management system, especially a 

procurement system integrated with a core financial system, to be compliant with 

Federal requirements, standards, and government-wide initiatives. USAID needs 

an enterprise architecture and IT capital investment plan to accelerate deployment 

of modern, compliant business practices in finance, procurement, and electronic 

government.

Remedy: Conduct a study to make more effective use of capital planning, 

enterprise architecture, and modern business practices in finance, 

procurement, and electronic government to modernize the Agency's business 

systems and accelerate deployment of Phoenix as the Agency-wide core 

financial system. Submit updated IT capital asset plans and FFMIA 

Remediation Plan.

Remedy: Establish a capital investment account to segregate and better 

manage IT capital investments for modernizing the Agency's financial 

management systems. 

Deficiency: IG audit findings and recommendations summarized areas of noncompliance with OMB Circular A-127 and indicated that USAID did not reconcile 

and record accounts receivable subsidiary ledger balances to the general ledger in 

accordance with the U.S. Standard General Ledger. 

Remedy: Implement Phoenix in Washington as the Agency's fully integrated 

core financial system with budget execution, accounts payable, accounts 

receivable and general ledger. 

Deficiency: IG audit findings and recommendations indicated the Agency relied 

on multiple incompatible systems that cannot exchange data electronically. The 

manual interfaces require controls and compensatory procedures that were 

judged inadequate and labor intensive. Inadequate data reconciliation policies 

and procedures impair the financial statement audit objectives. The Agency's 

primary accounting system (i.e., NMS AWACS) and overseas accounting system 

(i.e., MACS) were not integrated and interface was not electronic. Furthermore, 

significant feeder systems to NMS AWACS and MACS did not have electronic 

interfaces. 

Remedy: Implement electronic interfaces between Phoenix and significant 

feeder systems with associated controls and reconciliation procedures.

Remedy: Improve reconciliation and management of the fund balance with 

Treasury and reduce the materiality of cash reconciling items.

Deficiencies & Remedies

USAID FFMIA Remediation Plan

Current Schedule 

Targets

Revised Schedule 

Targets

FY 2003

FY 2001

Achieved

4th Qtr of FY 2002

1st Qtr of FY 2001 

Achieved

4th Qtr of FY 2001 

Revision Required: 

Completed NMS A&A, 

Treasury's Connect: 

Direct, and MACS 

interfaces.

1st Qtr of FY 2002 

Justification: Increased 

complexity and FY 

close workload. 

Scheduled to complete 

DHHS LOC and Riggs 

Loan interfaces.
Fiscal Year

2001

Accountability Report

128 U.S. Agency for International Development

USAID CFO GOALS AND STRATEGIES AND FINANCIAL REMEDIATION PLAN 

Deficiency: USAID identified a material weakness in Reporting and Resource 

Management. Agency financial systems could not produce accurate and 

consistent financial reports and IG audit work also identified findings and 

recommendations related to the Agency's ability to produce timely, accurate, and 

useful financial reports to support decision-making.

Remedy: Implement Phoenix in Washington and MACS Auxiliary Ledger 

enhancements to support Agency-wide financial reporting.

Deficiency: The Computer Security Program material weakness, FY 2000 

Financial Statement Audit Findings, and preliminary audits findings associated 

with FY 2001 general controls and financial statement audit work have identified 

significant deficiencies in the computer security program, general controls 

environment for mission critical systems, and compliance with Federal 

requirements.

Remedy: The Phoenix core financial system will be implemented and guided 

by a system security plan and risk assessment and certification & accreditation 

of the system's security and control environment. Access controls/passwords 

and a designated system security officer will issue user authorizations in 

writing.

Remedy: Complete risk assessments, computer security training, staffing, and 

system security certification & accreditation at all overseas accounting stations.

Remedy: Complete system and general control environment risk assessments, 

mitigate risks, and develop disaster recovery plans for mission critical systems.

Deficiency: IG audit findings have identified the lack of an Agency-wide 

accounting classification structure and the existence of multiple financial systems 

that cannot exchange data. This has impeded Agency efforts to produce timely, 

accurate, and useful Agency-wide financial information for decision-making and 

reporting.

Remedy: Implement a MACS interface to Phoenix via an intermediate MACS 

Auxiliary Ledger that captures overseas financial transactions and crosswalks 

to translate the overseas accounting classification structure into the Agencywide upper-level accounting classification structure. 

Remedy: Implement further enhancements to MACS Auxiliary Ledger to fully 

implement crosswalk tables between MACS ACS and Phoenix ACS to support 

mission strategic objective cost allocations.

Remedy: Implement accounting classification data standards and common 

data elements in financial data repositories derived from significant feeder 

systems as part of a financial management data warehouse.

Deficiency: IG audit findings indicate that the Agency did not comply with JFMIP 

requirements for prompt payments.

Remedy: The Phoenix core financial system is configured and implemented to 

comply with JFMIP requirements for prompt payments.

Deficiencies & Remedies

USAID FFMIA Remediation Plan

Current Schedule 

Targets

Revised Schedule 

Targets

FY 2002 

Ongoing—

Revision Required

FY 2002

Ongoing

4th Qtr of FY 2003 

Justification:

Budget constraints

necessitate extending 

scheduled work 

into FY 2003.

FY 2002 

Ongoing—

Revision Required

4th Qtr of FY 2003 

Justification:

as above.

1st Qtr of FY 2001 

Achieved

1st Qtr of FY 2001 

Achieved

3rd Qtr of FY 2002 

Ongoing

4th Qtr of FY 2001 

Achieved

FY 2001

Revision Required

3rd Qtr of FY 2002

Justification:

Implementing Webbased enterprise 

reporting tool.
U.S. Agency for International Development 129

Fiscal Year

2001

Accountability Report

USAID CFO GOALS AND STRATEGIES AND FINANCIAL REMEDIATION PLAN 

Deficiency: IG audit findings indicate that the Agency did not have an effective 

methodology for estimating accrued expenditures.

Remedy: Implement the Phoenix core financial system that calculates and 

reports accounts payable and accrual expenses in compliance with Federal 

requirements and standards.

Deficiency: IG audit findings indicate that the Agency is not able to attribute costs 

to organizations, locations, programs, and activities.

Remedy: Implement the Phoenix core financial system with a managerial cost 

accounting subsystem.

Remedy: Develop cost allocation models with cost drivers to attribute costs to 

Agency goals. 

Remedy: Update cost allocation model to allocate the costs of Agency 

programs to the operating unit and strategic objective level for Washington 

and missions. 

Deficiency: IG audit findings indicate the Agency is not in compliance with the 

Debt Collection Acts of 1982 and 1996. Specifically, USAID did not have policies 

and procedures to ensure that debts in excess of 180 days are automatically 

referred to Treasury.

Remedy: Update policies and procedures for billings, receivables and debt 

collection in the Agency's Automated Directives System.

Remedy: Continue ongoing work to make further recoveries of Agency debt 

through the Dept. of the Treasury.

Deficiency: The Agency has used manual interface procedures for posting 

summary level journal vouchers to the general ledger for financial transactions 

generated outside NMS in various feeder systems. The IG has documented 

findings that journal voucher postings to the NMS general ledger were not 

adequately supported, reviewed and authorized.

Remedy: The design of the Phoenix interfaces to feeder systems in FY 2001 

will address controls, procedures and system requirements for audit trails.

Remedy: Policies and procedures will be issued to ensure that journal 

vouchers posted in the Phoenix general ledger are properly prepared, 

supported by data from feeder systems, reviewed for accuracy, and authorized.

Deficiencies & Remedies

USAID FFMIA Remediation Plan

Current Schedule 

Targets

Revised Schedule 

Targets

1st Qtr of FY 2001 

Revision Required: 

Payment process 

implemented, statistical 

accrual estimation 

methodology for FY 

2001, and web-based 

user productivity tools 

to support user 

estimated accruals 

completed.

1st Qtr of FY 

 2001 Achieved with 

Revision to Target: 

Subsystem was 

implemented in the 4th 

Qtr of FY 2001 to 

support preparation of 

the Statement of Net 

Costs.

FY 2001 Achieved 

FY 2002 Ongoing 4th Qtr of FY 2002

FY 2002 Ongoing 

FY 2001 Achieved

FY 2001 Achieved

FY 2002 Ongoing 

1st Qtr of FY 2002 

Justification: 

Introducting a new 

accrual process that 

requires user reviews 

of accrual estimates, 

which requires 

additional change 

management and user 

training.
APPENDIX A: MANAGEMENT GOAL PERFORMANCE DATA 

Fiscal Year

2001

Accountability Report

130 U.S. Agency for International Development

Performance Goals

& Indicators

Linkage to President's

Management Agenda

FY 2001 Target FY 2001 Actual Assessment Notes

Management Goal: Achieve USAID's Goals Efficiently and Effectively

Table of FY 2001 Performance Data

Objective #1: Accurate program performance and financial information available for Agency decisions (M/CFO)

1.1: Core financial management system certified compliant with Federal requirements Modified in FY 2000 POR

1.2: A system to allocate costs fully to Agency strategic goals installed in Washington and the field Modified in FY 2000 POR

1.1.1: Integrated, 

automated financial 

systems worldwide

Such a system is fully 

operational in Washington 

and two overseas Missions.

Overseas deployment of 

core financial system 

resequenced to follow 

acquisition and deployment 

of a new procurement 

system and upgraded 

telecommunication 

network capabilities.

Target not fully achieved in 

order to dedicate budget 

resources to complete 

implementation of core 

financial system in 

Washington. 

Improved Financial 

Performance

Improved Financial 

Performance

Washington system fully 

implemented.

System linked to missions 

through electronic 

interface.

No pilot missions.

Target exceeded

Target exceeded

Target not met

per note:

Target met

Target met

Target

partially met

Target

partially met

1.1.2: A fully operational, Target met

secure and compliant 

core financial system 

installed with interfaces 

to major feeder systems

Federal certification of 

the general control 

environment and system 

security of the accounting 

operations of 

approximately one-half 

of the Agency's overseas 

Missions.

Washington system 

certified.

Mission critical interfaces.

System security 

certification and 

accreditations were 

conducted at nine of 38 

overseas accounting 

stations. System security 

vulnerabilities were 

identified and corrected. 

The 10th mission was not 

certified due to delays 

associated with 

September 11.

Technical and functional 

managers designated for 

five mission critical 

systems.

Budget and Performance 

Integration

1.2.1: Costs attributable Target met

to Agency strategic goals

Provide secure, reliable 

and accurate financial 

information at the 

strategic objective level 

throughout the Agency.

Financial reporting at the 

strategic objective level in 

Washington.

Mission financial 

reporting at the strategic 

objective level on 

schedule for June 2002.
APPENDIX A: MANAGEMENT GOAL PERFORMANCE DATA 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 131

Performance Goals

& Indicators

Linkage to President's

Management Agenda

FY 2001 Target FY 2001 Actual Assessment Notes

1.3: Program performance assessment systems and capabilities increased Modified in FY 2000 POR

2.1: Human resource planning capabilities strengthened Modified in FY 2000 POR

1.4: Knowledge to plan and implement USAID's programs acquired and shared effectively Modified in FY 2000 POR

1.3.1: USAID program 

performance tracked

Target not set for FY 2001. New indicator for FY 2002 

(introduced in FY 2000 

POR).

Budget and Performance 

Integration

Budget and Performance 

Integration; and, Improved 

Financial Performance

Not applicable

1.4.1: Knowledge Target not set for FY 2001. New indicator for FY 2002 

(introduced in FY 2000 

POR).

Not applicable

1.5: Agency operations guided by effective policies and procedures Modified in FY 2000 POR

Management Goal: Achieve USAID's Goals Efficiently and Effectively

Table of FY 2001 Performance Data

Implementation of 

www.USAIDResults.org

as a knowledge 

management portal for 

ADS 200 Programming 

Policies.

1.5.1: Assessment and 

audits validate 

implementation of 

policies and procedures

Target not set for FY 2001. New indicator for FY 2002 

(introduced in FY 2000 

POR).

9 OIG Performance Not applicable

Audits Conducted 

indicating inconsistent 

adherence to data 

reliability standards.

Strategic Management

of Human Capital

2.1.1: Recruitment 

efforts result in rapid 

deployment of staff in all 

labor categories and 

services-Target A

An additional 151 

employees (of which 131 

will be NEPs) brought on 

board through March 2002.

NEP Classes are about 10 

employees fewer than 

actual target due to last 

minute cancellations or lack 

of necessary 

medical/security 

clearances. Next NEP class 

enters March 2002.

Total of 141 employees Target not met

brought on board. 

Breakdown: 77 NEPs 

(Foreign Service entry 

level employees) entered 

on duty along with 18 

Presidential Management 

Interns, 46 other career 

Civil Service (CS) 

employees entered on 

duty during FY 2001. 

Strategic Management of 

Human Capital

2.1.1: Recruitment 

efforts result in rapid 

deployment of staff in all 

labor categories and 

services-Target B

Planned FS staffing level 

maintained.

The Agency plans to have 

1,000 Foreign Service (FS) 

on board by 9/30/2002.

Excluding the IG, USAID Target met

had 996 FS employees on 

9/30/2000; on 9/30/2001, 

it had 992. FS attrition 

was 92 of FY 2001. 

(USAID projects FS 

attrition to be at least 90 

per year through FY 2005 

and total FS &CS attrition 

will be 200, or about 10% 

per annum.)

Objective #1: Accurate program performance and financial information available for Agency decisions (M/CFO)

Objective #2: USAID staff skills, Agency goals, core values and organizational structures better aligned to achieve results efficiently (M/HR)
APPENDIX A: MANAGEMENT GOAL PERFORMANCE DATA 

Fiscal Year

2001

Accountability Report

132 U.S. Agency for International Development

Performance Goals

& Indicators

Linkage to President's

Management Agenda

FY 2001 Target FY 2001 Actual Assessment Notes

2.2: Skill shortages addressed Modified in FY 2000 POR

2.2.1: In-house training 

on critical operational 

skills continued-Target A

Leadership training

for 100 executive-level

(FS-1/GS-15) employees

Strategic Management

of Human Capital

Target Met

Management Goal: Achieve USAID's Goals Efficiently and Effectively

Table of FY 2001 Performance Data

The goal of reducing fourth 

quarter obligations is partly 

dependent on when the 

OYB is made available. In 

addition, some programs, 

such as OFDA, must react 

to immediate needs. 

(USAID is retaining its 

targets for FY 2002, but 

plans further review to 

determine whether the 

goals should exclude 

actions that cannot be 

planned in advance.)

105 executive-level

(FS-1/GS-15) employees 

trained.

3.1.1: Procurement 

priorities established and 

modified jointly by 

technical and contract 

officers

Negotiate 38% of A&A 

instruments within first 

three quarters of FY 2001, 

20% during July, 21% 

during August, and 21% in 

September.

Baseline (FY 1999): 32% of 

A&A instruments awarded 

were executed during the 

first three quarters of the 

year. The remaining 68% 

of the instruments were 

executed during the fourth 

quarter as follows: July - 

13%; August - 14%; 

September - 41%. 

Target exceeded Competitive Sourcing 

Other targets 

not met. See 

note at right

Of the A&A awards made 

in Washington, 40% of 

awards were made within 

the first three quarters.

8% were awarded in July; 

8% were awarded in 

August; 44% were 

awarded in September.

2.2.1: In-house training 

on critical operational 

skills continued-Target B

Operations training for 120 

midlevel seniors

(FS-2/GS-14), senior level 

FSNs and US PSCs

Strategic Management

of Human Capital

147 midlevel seniors Target Met

(FS-2/GS-14), senior level 

FSNs and US PSCs 

trained.

2.2.1: In-house training 

on critical operational 

skills continued-Target C

Assistance and acquisition 

training for 425 technical 

officers

Strategic Management

of Human Capital

480 employees trained. Target Met

2.2.1: In-house training 

on critical operational 

skills continued-Target D

Supervisory training for 

300 employees at all levels

Strategic Management

of Human Capital

385 employees trained. Target Met

2.2.1: In-house training 

on critical operational 

skills continued-Target E

Managing for Results 

Program made available 

for computer-based selfinstruction.

Strategic Management

of Human Capital

Program made available Target Met

and 348 employees 

trained.

Objective #2: USAID staff skills, Agency goals, core values and organizational structures better aligned to achieve results efficiently (M/HR)

3.1: A&A planning integrated with program development Modified in FY 2000 POR

Objective #3: Agency goals and objectives served by well-planned and managed acquisitions and assistance (A&A) (M/OP)
APPENDIX A: MANAGEMENT GOAL PERFORMANCE DATA 

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 133

Performance Goals

& Indicators

Linkage to President's

Management Agenda

FY 2001 Target FY 2001 Actual Assessment Notes

3.2: A&A competencies of technical and contract staff strengthened Modified in FY 2000 POR

3.3: Partnerships among USAID technical offices, contract offices and contractors and recipients improved Modified in FY 2000 POR

3.4: Consistency in application of A&A policies and procedures Modified in FY 2000 POR

Management Goal: Achieve USAID's Goals Efficiently and Effectively

Table of FY 2001 Performance Data

Administrator's notice of 

July 16 indicated his 

decision to budget 

resources to complete the 

CTO certification program 

in three years.

3.2.1: Percentage of 

CTOs and COs certifiedTarget A

Cognizant Technical 

Officer (CTO) certification 

program approved.

Improved Financial 

Performance

The Administrator Target met

approved the CTO 

certification program.

3.2.1: Percentage of 

CTOs and COs certifiedTarget B

85% of Contract Officers 

(COs) certified by end of 

FY 2001.

Improved Financial 

Performance

96% of COs with Target met

unlimited warrants are 

certified.

77% of COs with warrants 

of $2.5 million and more 

are certified.

System is required to be 

used as of 10/01/01.

3.2.1: Percentage of 

CTOs and COs certifiedTarget C

Productivity of COs 

enhanced by a fully 

operational, automated 

contract-writing system.

Improved Financial 

Performance

New automated contract Target met

writing system (ProDoc) 

is operational in 

Washington and 

Missions. 

CRB began reviewing 

contracts exceeding $10 

million in April. Since the 

majority of the work of the 

CRB occurred during the 

last three months of the 

year--particularly the last 

month--the board has not 

yet set down its findings in 

order to establish a 

baseline. 

3.4.1: Uniform 

implementation of 

contracting policies

Uniform implementation 

of contracting policies

Improved Financial 

Performance

Baseline not established Target not met

because of end-of-year 

work requirements. 

3.3.1: Increase in 

postaward meetings 

between all parties when 

substantial new awards 

are made

Baseline established and 

2002 target set.

Improved Financial 

Performance

Baseline established that Target met

joint meetings were held 

for large new contracts 

approximately 30% of 

the time.

3.3.2: Contract 

administration is 

simplified

New indicator-target not 

set for FY 2001.

Improved Financial 

Performance

Not applicable

Objective #3: Agency goals and objectives served by well-planned and managed acquisitions and assistance (A&A) (M/OP)
APPENDIX A: MANAGEMENT GOAL PERFORMANCE DATA 

Fiscal Year

2001

Accountability Report

134 U.S. Agency for International Development

Performance Goals

& Indicators

Linkage to President's

Management Agenda

FY 2001 Target FY 2001 Actual Assessment Notes

NEW: 4.1: Information technology improves Agency efficiency and effectiveness Modified in FY 2000 POR

Management Goal: Achieve USAID's Goals Efficiently and Effectively

Table of FY 2001 Performance Data

4.1: Enhanced 

compliance with Federal 

requirements and 

regulations

Continue the process of 

modernizing Agency 

systems consistent with 

the technical architecture 

adapted in fiscal year 2000.

Expanded Electronic 

Government

Evaluation of new Target met

desktop operating 

system/office suite for 

USAID/W completed. 

Eight missions completed 

for network operating 

system, e-mail upgrades.

Telecommunications 

network equipment 

upgraded in three 

missions.

Objective #4: Agency goals and objectives supported by better information management and technology (M/IRM and M/CIO)
INFORMATION MEMORANDUM

TO: A/AID, Andrew S. Natsios

FROM: IG, Everett L. Mosley

SUBJECT: USAID's Most Serious Management Challenges

SUMMARY

Attached is a revised copy of my Office's statement of the most serious challenges facing USAID

management for inclusion in USAID's fiscal year 2001 Accountability Report. Except as otherwise

noted, this summary is as of September 30, 2001.

DISCUSSION

The Report Consolidation Act of 2000 (Public Law 106-531) states that an agency Accountability

Report "shall include a statement prepared by the agency's inspector general that summarizes what the

inspector general considers to be the most serious management and performance challenges facing the

agency and briefly assesses the agency's progress in addressing those challenges."

The attached document provides our statement concerning USAID's most serious management and

performance challenges for inclusion in USAID's fiscal year 2001 Accountability Report. This

memorandum supercedes my same subject memorandum to you dated February 4, 2002 as it contains

additional information derived from relevant audit work my Office performed subsequent to the

September 30, 2001 reporting period. This additional information is described in the attachment.

If you have any questions or wish to discuss this document, I would be happy to meet with you.

Attachment:

USAID Office of Inspector General Statement Concerning USAID's Most Serious Management and

Performance Challenges

APPENDIX B: USAID OFFICE OF INSPECTOR GENERAL STATEMENT CONCERNING

USAID’S MOST SERIOUS MANAGMENT AND PERFORMANCE CHALLENGES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 135
This document presents the Office of

Inspector General's assessment of the

most serious challenges facing USAID

management at the close of fiscal year

2001.

In pursuit of its mission, USAID faces a

number of serious challenges. This

statement describes USAID's

continuing efforts to address its major

management and performance

challenges and OIG efforts to assist in

overcoming these challenges.

Information Resource

Management

Over the past several years, OIG audits

have identified significant weaknesses

in USAID's management of information

technology resources. Organizational

and management deficiencies have

slowed USAID's acquisition and

implementation of effective information

systems. Furthermore, USAID's

management practices have kept the

Agency from fully complying with the

Clinger-Cohen Act of 1996, which

requires executive agencies to

implement a process that maximizes

the value of information technology

investments and assess the risks

involved with these investments. As a

result, USAID managers have not had

access to financial information that is

complete, reliable, and timely.

USAID faces three primary information

resource management challenges:

financial reporting and resource

management capabilities, information

resource management processes, and

computer security.

Improving Financial Reporting and

Resource Management Capabilities

The information systems at USAID

have not fully supported the Agency's

planning and reporting requirements.

Therefore, USAID managers have had

difficulty consistently obtaining timely,

reliable and complete financial and

performance data. Even though USAID

managers can mitigate the systemic

weaknesses by generating individual

reports on an ad hoc basis, the

Agency's ability to routinely use

financial information for decisionmaking purposes remains impaired.

To correct this weakness, USAID has

deployed Phoenix, the core financial

accounting component of a new

integrated financial management and

accounting system. The Phoenix

system replaced key components of

USAID's unreliable financial

management system, the New

Management System. The OIG has

closely monitored the implementation

of the Phoenix system.

Improving Information Resource

Management Processes

Over the past years, the OIG has

reported that USAID's processes for

procuring and managing information

resource technology have not followed

the guidelines established by the

Clinger-Cohen Act. USAID

management has acknowledged the

weaknesses of its information resource

management processes, and the

Agency has made efforts to improve

them. For example, USAID is

incorporating performance

measurements to enhance program

management capabilities for

monitoring and tracking information

management projects. Also, the

Agency is developing plans to seek

independent certification that its

practices meet commonly accepted

government and industry standards.

USAID efforts to comply with industry

standards for complex information

technology projects, such as the wide

area renovation projects to deploy

telecommunication services overseas,

should result in faster, more efficient

project implementation.

USAID's management and

procurement of information technology

resources will considerably improve

with these actions. The OIG will

continue to track and report on

USAID's efforts to fully comply with

requirements of the Clinger-Cohen Act.

Improving Computer Security

Recent OIG audits have confirmed that

USAID does not yet have adequate

computer security controls in place to

mitigate the risks to critical information

systems. These audits, however, have

also identified substantial computer

security improvements. For example,

USAID's computer security framework

includes updated security policies, a

security valuation process requiring

certification by management, improved

security training, and a risk assessment

process. The Chief Information

Officers Council and the General

Services Administration recognized

USAID's security program as an

innovative and comprehensive

approach that could benefit the entire

Federal government.

Despite these efforts, more work is

needed to ensure that sensitive data is

not exposed to unacceptable risks of

loss or destruction.As of July 2001,

USAID had assessed the computer

security risks at only 20 percent of

missions, and agency-wide computer

security had not yet been fully

addressed. Also, during fiscal year

2001, USAID conducted assessments

at nine overseas Mission Accounting

APPENDIX B: USAID OFFICE OF INSPECTOR GENERAL STATEMENT CONCERNING

USAID’S MOST SERIOUS MANAGMENT AND PERFORMANCE CHALLENGES 

Fiscal Year

2001

Accountability Report

136 U.S. Agency for International Development
and Control Systems (MACS)

accounting stations and found that

three MACS systems had not been

finalized according to certification and

accreditation requirements.

Furthermore, USAID could better

protect Agency information systems by

developing capabilities to prevent,

detect, respond to, and report efforts to

obtain unauthorized access.

The OIG, through continuing audits

and by monitoring USAID's

Information Systems Security Working

Group, will continue to work with

USAID management to improve

computer security.

Financial Management

Over the past several years, USAID has

made progress toward resolving

problems with its financial

management system, and the Agency

has committed significant resources for

additional improvements. Despite

these efforts, USAID's outstanding

financial management system

deficiencies remain a significant

management challenge, and the

solutions to several long-standing

problems have been delayed.

Implementing an Integrated Financial

Management System

OIG audits showed that USAID's

financial management systems did not

comply with Federal Financial

Management Improvement Act (FFMIA)

requirements and were unable to

provide complete, reliable, timely, and

consistent information about Agency

operations.

To correct this situation, USAID plans

to implement an integrated financial

management system using a

combination of commercial off-theshelf software products and third party

financial service providers.

Phoenix, the core financial accounting

component, operates in Washington,

D.C. and receives financial information

electronically from the 38 overseas

accounting stations. While Phoenix

has been deployed in Washington, the

deployment of Phoenix to overseas

accounting stations has been delayed.

Pilot implementation of the system at

two missions, scheduled to take place

during April 2001, had not occurred by

the close of fiscal year 2001, and

estimates for the system's full

deployment were changed from fiscal

year 2003 to fiscal year 2007.

According to USAID management, a

major reason for delaying the

worldwide Phoenix deployment was

the cost. As a result, USAID revised its

strategy on how the Agency could

become compliant with FFMIA

requirements. Initially, USAID

developed an interim effort that

automated the interface between data

extracted from the Agency mission

systems and Phoenix. USAID officials

believed, at that time, that

implementing the automated interface

would make the system compliant.

However, subsequent to the September

30, 2001 reporting period, we found,

based on our discussions with Office of

Management and Budget officials and

our own audit work, that the interface

did not make the system compliant

with FFMIA requirements. Again

USAID was faced with a need to revise

its strategy on how it would become

compliant with FFMIA. USAID is

currently conducting a study to

determine when and how best to

deploy the system overseas and

become compliant with FFMIA.

The OIG will continue to monitor the

deployment of USAID's integrated

financial management systems and

review USAID's efforts to comply with

FFMIA requirements.

Correcting Outstanding Financial

Management System Planning

Deficiencies

Recent OIG audits reported that

USAID had made significant

improvements to its financial

management system planning. Those

improvements included developing

and implementing an agency-wide

information technology architecture,

financial management system portfolio,

acquisition strategy, financial

management system remediation plan,

and a program management office to

oversee the development of an

integrated financial management

system.

Despite these improvements, the OIG

concluded that additional efforts are

needed to fully correct identified

financial management system planning

deficiencies. For example, USAID

needs to improve its process so that

information technology investments are

prioritized and selected in accordance

with OMB guidelines. Furthermore,

the Agency needs to strengthen the

authorities to ensure to manage

financial management system projects

effective day-to-day oversight of

USAID's financial system modernization

efforts. Finally, although USAID's

current remediation plan has been

updated to include remedies, resources,

and intermediate target dates, the

Agency has yet to meet those dates. The

OIG will continue to monitor the

Agency's progress in correcting these

remaining financial management system

planning deficiencies.

APPENDIX B: USAID OFFICE OF INSPECTOR GENERAL STATEMENT CONCERNING

USAID’S MOST SERIOUS MANAGMENT AND PERFORMANCE CHALLENGES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 137
Reconciling Financial Data

During past audits, the OIG found

that USAID's grant financial

management system did not provide

effective control and accountability

over many of the Agency's advances.

The OIG recommended that USAID

reconcile the unliquidated obligation

amount for each grant transferred

from its old legacy system to the

Department of Health and Human

Services Payment Management

System. USAID is in the process of

performing this reconciliation and

has contracted with a private

accounting firm to provide

additional assistance in this area.

According to USAID, this effort has

improved the reliability of the

advance balances that will be

reported in the Agency's fiscal year

2001 financial statements. As part of

the current Government

Management Reform Act (GMRA)

audit, the OIG is assessing whether

this action led to improvements in

the information reported in the

Agency's financial accounting

system.

Accurately Reporting Accounts

Receivable

The OIG first noted in a 1997 audit

report that USAID could not

adequately track and report its

accounts receivable. To address this

problem, USAID's new integrated

accounting system will have the

capacity to establish and report

accounts receivable. When this

system is fully implemented in

Washington and at the missions, the

OIG will review the resulting data to

determine whether USAID managers

are receiving reliable and timely

accounts receivable data. 

As an interim measure, USAID

records accounts receivable as an

adjusting entry to its year-end

financial statements. As part of the

current GMRA audit, the OIG is

evaluating these efforts to ensure that

they provide adequate information

about the Agency's accounts

receivable.

Human Capital Management

As a result of downsizing initiatives,

USAID has experienced a 30 percent

reduction in U.S. direct hire staff since

fiscal year 1995. USAID's remaining

workforce-the Agency's human capitalmust be properly managed to ensure

USAID's ability to fulfill its mission.

In January 2001, the U.S. General

Accounting Office (GAO) reported that

since the early 1990s, USAID has

made limited progress in addressing

human capital reforms related to

personnel administration, career

management, training, and Foreign

Service assignments. According to the

GAO, USAID's human capital

problems can be seen as part of a

broader pattern of human capital

shortcomings that have eroded mission

capabilities across the federal

government. USAID's specific human

capital challenges include:

• a projected 57 percent of U.S.

direct hire Foreign Service staff that

will be eligible for voluntary

retirement by the end of fiscal year

2005;

• a projected 32 percent of U.S.

direct hire Civil Service staff that

will be eligible for retirement by

the end of fiscal year 2005; and

• attrition rates estimated to be about

7 percent for Foreign Service staff

and 10 percent for the Civil

Service through fiscal year 2006.

USAID faces a steady decline in the

number of experienced Foreign Service

officers and employees who have

specialized technical expertise. As a

result, there are less-experienced

personnel managing increasingly

complex overseas development programs.

Although these challenges are daunting,

they also provide an opportunity for

USAID to develop a workforce with the

necessary skills for the future. To address

these challenges, USAID is planning to (1)

hire 80 to 85 entry-level Foreign Service

candidates per year through fiscal year

2005, (2) increase external training for

upper-level managers through such

programs as the Federal Executive

Institute and the Foreign Affairs

Leadership Seminar, and (3) recruit

employees with critical skills in the areas

of information technology, financial

management, legal, and contracting.

Because human capital management is

designated as a major challenge, the

OIG is committed to continued audit

work in this area. The OIG is currently

evaluating USAID's (1) management

staff training, (2) management of the

Agency's procurement workforce, and

(3) human capital baseline data.

Procurement

USAID relies on its procurement

workforce to award and administer the

contracts and assistance instruments

required to accomplish program

objectives. A major challenge for

USAID is to develop and implement a

system to effectively manage the

Agency's procurement resources.

Specifically, USAID must address the

following issues.

APPENDIX B: USAID OFFICE OF INSPECTOR GENERAL STATEMENT CONCERNING

USAID’S MOST SERIOUS MANAGMENT AND PERFORMANCE CHALLENGES 

Fiscal Year

2001

Accountability Report

138 U.S. Agency for International Development
Ensuring Adequate Procurement Office

Staffing

USAID's Office of Procurement is

losing experienced contracting officers

to retirement, other federal agencies,

the private sector, and transfers to noncontracting jobs within other USAID

offices. According to USAID officials,

the number of contracting staff as of

the second quarter fiscal year 2001

decreased by 20 percent from the

onboard levels at the beginning of

fiscal year 2000.

According to USAID's fiscal year 1999

and 2000 budgets, USAID's

procurement staff administered

approximately 50 percent of the

Agency's foreign assistance budget

through assistance and acquisition

instruments. In the Office of

Procurement's fiscal year 2000 Federal

Manager's Financial Integrity Act

submission, the Director reported that

as a result of workforce attrition,

coupled with the inability to quickly fill

vacant procurement professional

positions, the Office of Procurement has

not been operating at adequate staffing

levels. A major challenge for USAID

will be to retain enough procurement

professionals and to ensure the integrity

and efficiency of the Agency's

acquisition and assistance functions.

Ensuring Effective Contract

Administration

USAID requires its procurement

workforce to manage a variety of

contract award and administration

activities. The staffing challenges

USAID faces make it difficult for the

procurement workforce to maintain the

appropriate levels of contract

administration to ensure continuation

of sound business practices. As a

result, USAID could be vulnerable to

higher contract costs, delays in

contract awards, an increased number

of bid protests, as well as costly

contract modifications and revisions.

For fiscal year 2002, USAID's goal is to

use performance-based contracting

techniques to award at least 20 percent

of the Agency's eligible contracts over

$25,000. To achieve this goal,

procurement specialists will be

expected to have much greater

knowledge of market conditions,

industry trends and technical details of

the commodities and services

procured.

To help ensure the effectiveness of

USAID's procurement operations, the

OIG plans to evaluate various aspects

of the procurement function. The OIG

currently has underway audits of

USAID's staffing of procurement

officers and use of non-U.S. direct hire

personnel to perform procurement

functions. The OIG recently completed

an audit of the independence of

procurement officers overseas.

Performance Measurement and

Reporting

The Government Performance and

Results Act of 1993 (Results Act)

requires agencies to set program goals,

measure program performance against

those goals, and report on their

progress. As the OIG stated in a

December 2000 letter to the U.S.

Senate Committee on Governmental

Affairs, USAID continues to have

problems developing performance

measurement and reporting systems

that meet internal and external

reporting requirements, including the

requirements of the Results Act.

The OIG is continuing to monitor and

recommend improvements to USAID's

performance measurement and

reporting systems. For example, in

collaboration with USAID

management, the OIG conducted a

series of audits to test compliance with

the Agency's performance monitoring

guidance. These audits reviewed

indicators appearing in USAID's

annual internal Results Review and

Resource Request (R4) reports and

determined that the audited operating

units needed to:

• improve their respective

performance monitoring plans;

• perform and document data

quality assessments on indicators

used for program management and

reported in R4 reports; ando

• disclose any known data quality

limitations in the R4 reports.

The OIG is currently conducting a

series of similar audits focused on

indicators related to USAID's HIV/AIDS

activities. Further, in response to the

OIG's audit reports, USAID has revised

directives for performance monitoring,

and has initiated Agency-wide training

to improve performance measurement

and monitoring.

The OIG is continuing to monitor and

recommend improvements to USAID's

performance measurement and

reporting systems.

APPENDIX B: USAID OFFICE OF INSPECTOR GENERAL STATEMENT CONCERNING

USAID’S MOST SERIOUS MANAGMENT AND PERFORMANCE CHALLENGES

Fiscal Year

2001

Accountability Report

U.S. Agency for International Development 139
A&A Acquisition and Assistance

ACS Accounting Classification Structure

ADS Automated Directives System

AICPA American Institute of Certified Public Accountants

APP Annual Performance Plan

AWACS A.I.D. Worldwide Accounting and Control System

C&A Certification and Accreditation

CFO Chief Financial Officer

CIO Chief Information Officer

CMM Capability Maturity Model

CO Contracting Officer

CONOPS Concept of Operations

COTS Commercial Off-the-Shelf

CRB Contract Review Board

CS Civil Service

CTO Cognizant Technical Officer

DHHS Department of Health and Human Services

E-GOV Electronic Government

ESIL Enterprise Solution Integration Laboratory

FFMIA Federal Financial Management Improvement Act

FMC Financial Management Center

FMFIA Federal Managers' Financial Integrity Act

FMIP Financial Management Improvement Program

FS Foreign Service

FSI Financial Systems Integration

FSN Foreign Service National

GMRA Government Management Reform Act

GPEA Government Paperwork Elimination Act

GPRA Government Performance and Results Act

IFMS Integrated Financial Management System

IG Inspector General

IMSP Information Management Strategic Plan

IT Information Technology

JFMIP Joint Financial Management Improvement Program

LOC Letter of Credit

MACS Mission Accounting and Control System

MACSTRAX MACS Voucher Tracking System

MAL MACS Auxiliary Ledger

MCA Managerial Cost Accounting

MPICS Mission Procurement Information Collection System

NEP New Entry Professional

NFC National Finance Center

NMS New Management System

NXP Non-Expendable Property

OIG Office of the Inspector General

OMB Office of Management and Budget

PMI Presidential Management Intern

PMS Payment Management System

PSC Personal Services Contractor

QCR Quality Control Review

SGL Standard General Ledger

TEIA Target Enterprise Information Architecture

USAID United States Agency for International Development

USDH United States Direct Hire

APPENDIX C: LIST OF ACRONYMS 

Fiscal Year

2001

Accountability Report

140 U.S. Agency for International Development