Foreign Assistance: USAID Needs to Improve Its Workforce Planning and Operating Expense Accounting
Published: 2003-09-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: USAID oversees humanitarian and economic assistance--an integral part of the U.S. global security strategy--to more than 160 countries. GAO recommended in 1993 that USAID develop a comprehensive workforce plan; however, human capital management continues to be a high-risk area for the agency. GAO was asked to testify on how changes in USAID's workforce over the past 10 years have affected its ability to deliver foreign aid, the agency's progress in implementing a strategic workforce planning system, and whether its reported operating expenses reflect the full costs of delivering foreign aid.
section_title: What GAO Found
paragraphs: USAID has evolved from an agency in which U.S. direct-hire staff directly implemented development projects to one in which U.S. direct-hire staff oversee the activities of contractors and grantees. Since 1992, the number of USAID U.S. direct-hire staff declined by 37 percent, but the number of countries with USAID programs doubled and, over the last 2 years, program funding increased more than 78 percent. As a result of these and other changes in its workforce and its mostly ad-hoc approach to workforce planning, USAID faces several human capital vulnerabilities. For example, attrition of experienced foreign service officers and inadequate training and mentoring have sometimes led to the deployment of staff who lack essential skills and experience. The agency also lacks a "surge capacity" to respond to evolving foreign policy priorities and emerging crises. With fewer and less experienced staff managing more programs in more countries, USAID's ability to oversee the delivery of foreign assistance is becoming increasingly difficult. USAID has taken steps toward developing a workforce planning and human capital management system that should enable the agency to meet its challenges and achieve its mission, but it needs to do more, such as conducting a comprehensive skills assessment and including its civil service and contracted employees in its workforce planning efforts. USAID's reported that operating expenses do not always reflect the full costs of administering foreign assistance because the agency pays for some support and oversight activities done by contractors with program funds. As a result, the amount of program funds directly benefiting foreign recipients is likely overstated.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our report on USAID’s workforce  planning and highlight the preliminary findings from our ongoing review  of USAID’s operating expense account. The workforce report is being  released today. Humanitarian and economic development assistance is an  integral part of U.S. global security strategy, particularly as the United  States seeks to diminish the underlying conditions of poverty and  corruption that may be linked to instability and terrorism. In fiscal year  2003, USAID expects to obligate about $13 billion and manage programs in  about 160 countries. Agency staff often work in difficult environments and  under evolving program demands. More will be demanded of USAID’s staff  as they implement large-scale relief and reconstruction programs in  Afghanistan and Iraq while continuing traditional long-term development  assistance programs.
As a result, it is essential that USAID develop a strategic approach to its  workforce planning so that it can identify and attain the essentials skills it  needs to accomplish its goals. It is also important that USAID identify and  report accurate costs on administering its foreign aid programs. My  statement today will cover these two broad areas.
I will focus most of my statement on our review of USAID’s workforce  planning. I will discuss some of USAID’s human capital challenges,  including its recent efforts to staff missions in Afghanistan and Iraq, and  the status of its efforts to develop a strategic workforce planning system.  Regarding USAID’s operating expense account, I will focus on how the  agency’s reporting of operating expenses does not always capture the full  cost of administering foreign assistance.
subsections: section_title: Background
paragraphs: In 1993, we reported that USAID had not adequately managed changes in  its overseas workforce and recommended that USAID develop a  comprehensive workforce planning system to better identify staffing needs  and requirements. In the mid-1990s, USAID reorganized its activities  around strategic objectives and began reporting in a results-oriented  format but had made little progress in personnel reforms. In July 2002, we  reported that USAID could not quickly relocate or hire the staff needed to  implement a large-scale reconstruction and recovery program in Latin  America, and we recommended actions to help improve USAID’s staffing  flexibility for future disaster recovery requirements.
Studies by several organizations, including GAO, have shown that highly  successful service organizations use strategic management approaches to  prepare their workforces to meet present and future mission requirements.  We define strategic workforce planning as focusing on long-term strategies  for acquiring, developing, and retaining an organization’s workforce and  aligning human capital approaches that are clearly linked to achieving  programmatic goals. Based on work with the Office of Personnel  Management and other entities, we identified strategic workforce planning  principles used by leading organizations. According to these principles, a  strategic workforce planning and management system should (1) involve  senior management, employees, and stakeholders in developing,  communicating, and implementing the workforce plan; (2) determine the  agency’s current critical skills and competencies and those needed to  achieve program results; (3) develop strategies to address gaps in critical  skills and competencies; and (4) monitor and evaluate progress and the  contribution of strategic workforce planning efforts in achieving program  goals.
Until the mid-1970s, about two thirds of USAID’s operating expenses were  funded from appropriations to program accounts, and the rest were  funded from a separate administrative expenses account. In 1976,  Congress began providing a line-item appropriation for operating expenses  separate from USAID’s humanitarian and economic development  assistance programs. The accompanying Senate report noted that USAID’s  “cost of doing business” would be better managed if these funds were  separately appropriated. Congress authorized USAID’s separate operating  expense account the following year. USAID’s criteria for determining the  expenses to be paid from operating expense funds are based on guidance  it has received from Congress as well as its assessment of who benefits  from a particular activity—the agency or the intended program recipient.  For example, congressional reports in the late 1970s directed USAID to  fund the costs of all full-time staff in permanent positions from the  operating expense account.
section_title: Strategic Workforce Planning Can Help USAID Address Current and Future Challenges
paragraphs: USAID faces a number of challenges in developing and implementing a  strategic workforce plan. Its overseas missions operate in a changing  foreign policy environment often under very difficult conditions. USAID’s  workforce, particularly its U.S. direct-hire foreign service officers, has  decreased over the years; but in recent years program dollars and the  number of countries with USAID activities have increased. These factors  have combined to produce certain human capital vulnerabilities that have  implications for the agency’s ability to effectively carry out and oversee  foreign assistance. A strategic approach to workforce planning and  management can help USAID identify the workforce it needs and develop  strategies for attaining this workforce that will last throughout successive  administrations.
subsections: section_title: USAID Faces Challenges in Workforce Planning
paragraphs: Since 1990, USAID has continued to evolve from an agency in which U.S.  direct-hire foreign service employees directly implemented development  projects to one with a declining number of direct-hire staff who oversee  the contractors and grantees carrying out most of its day-to-day activities.  As numbers of U.S. direct-hire staff declined, mission directors began  relying on other types of employees, primarily foreign national personal  services contractors, to manage mission operations and oversee  development activities implemented by third parties. In December 2002,  according to USAID’s staffing report, the agency’s workforce totaled 7,741,  including 1,985 U.S. direct-hires. Personal services contractors made up  more than two-thirds of USAID’s total workforce, including 4,653 foreign  national contractors. Of the 1,985 U.S. direct-hires, 974 were foreign  service officers, about 65 percent of whom were posted overseas. Other  individuals not directly employed by USAID also perform a wide range of  services in support of the agency’s programs. These individuals include  employees of institutional or services contractors, private voluntary  organizations, and grantees.
In addition to having reduced the number of U.S. direct hires, USAID now  manages programs in more countries with no USAID direct-hire presence,  and its overseas structure has become more regional. Table 1 illustrates  the changes in USAID’s U.S. direct-hire overseas presence between fiscal  years 1992 and 2002. In fiscal year 2002, USAID managed activities in 88  countries with no U.S. direct-hire presence. According to USAID, in some  cases, activities in these countries are very small and require little  management by USAID staff. However, in 45 of these countries USAID  manages programs of $1 million or more, representing a more significant  burden on the agency. USAID also increasingly provides administrative  and program support to countries from regional service platforms, which  have increased from 2 to 26 between fiscal years 1992 and 2002. Program  funding also recently increased about 78 percent—from $7.3 billion in  fiscal year 2001 to about $13 billion in fiscal year 2003.
As a result of the decreases in U.S. direct-hire foreign service staff levels,  increasing program demands, and a mostly ad-hoc approach to workforce  planning, USAID now faces several human capital vulnerabilities. For  example, the attrition of its more experienced foreign service officers, its  difficulties in filling overseas positions, and limited opportunities for  training and mentoring have sometimes led to the deployment of direct- hire staff who do not have essential skills and experience and the reliance  on contractors to perform many functions. In addition, USAID lacks a  “surge capacity” to enable it to respond quickly to emerging crises and  changing strategic priorities. As a result, according to USAID officials and  a recent overseas staffing assessment, the agency is finding it increasingly  difficult to manage the delivery of foreign assistance.
In addition, USAID works in an overseas environment that presents unique  challenges to workforce planning. Mission officials noted the difficulties in  adhering to a formal workforce plan linked to country strategies in an  uncertain foreign policy environment. For example, following the events  of September 11, 2001, the Middle East and sub-Saharan African missions  we visited—Egypt, Mali, and Senegal—received additional work that was  not anticipated when they developed their country development strategies  and work plans. Also, the mission in Ecuador had been scheduled to close  in fiscal year 2003. However, this decision was reversed due to political  and economic events in Ecuador, including a coup in 2000, the collapse of  the financial system, and rampant inflation. Program funding for Ecuador  tripled from fiscal year 1999 to fiscal year 2000, while staffing was reduced  from 110 to 30 personnel; and the budget for the mission’s operating  expenses was reduced from $2.7 million to $1.37 million. During our field  work, we found that other factors unique to USAID’s overseas work  environment can affect its ability to conduct workforce planning and  attract and retain top staff. These factors vary from country to country and  among regions and include difficulties in attracting staff to hardship posts,  inadequate salaries and benefits for attracting the top host country  professionals, and lengthy clearance processes for locally contracted staff.
USAID’s workforce challenges are illustrated by its difficulties in staffing  hardship posts like Afghanistan and Iraq. As of September 4, 2003,  according to USAID’s new personnel data system, the mission in Kabul  had 42 full-time staff—7 foreign service officers and 35 personal service  contractors, mostly local hires. However, the mission had 61 vacancies,  including 5 vacancies for foreign service officers. In Iraq, as of September  15, 2003, the mission had 13 USAID direct-hire staff; 3 additional U.S.  government employees; and about 60 personal services and institutional  contractors. The mission had 13 vacancies that will most likely be filled by  contract staff.
USAID’s human resource office is in its annual bidding process for foreign  service positions. When that process is complete, the office expects to  have a better picture of replacements for current staff in Afghanistan and  Iraq as well as additional placements. According to USAID staff, the  agency is having trouble attracting foreign service officers to these posts  because in-country conditions are difficult and tours are unaccompanied.  USAID’s average staff age is in the late forties, and this age group is  generally attracted to posts that can accommodate families. Both posts are  responsible for huge amounts of foreign aid—in fiscal year 2003 alone,  USAID’s assistance for Afghanistan and Iraq is expected to  total $817 million and $1.6 billion, respectively. USAID faces serious  accountability and quality of life issues as it attempts to manage and  oversee large-scale, expensive reconstruction programs in countries with  difficult conditions and inadequate numbers of both foreign service and  local hire staff.
section_title: USAID’s Workforce Planning Efforts
paragraphs: In response to the President’s Management Agenda, USAID has taken  steps toward developing a comprehensive workforce planning and human  capital management system that should enable the agency to meet its  challenges and achieve its mission, but progress so far is limited. In  evaluating USAID’s efforts in terms of proven strategic workforce planning  principles, USAID has more to do. For example:    The involvement of USAID leadership, employees, and stakeholders in  developing and communicating a strategic workforce plan has been  mixed. USAID’s human resource office is drafting a human capital  strategy, but at the time of our review it had not yet been finalized or  approved by such stakeholders as OMB and the Office of Personnel  Management. As a result, we cannot comment on whether USAID  employees and other stakeholders will have an active role in  developing and communicating the agency’s workforce strategies.
USAID has begun identifying the core competencies its future  workforce will need, and a working group is conducting a  comprehensive workforce analysis and planning pilot at three  headquarters units that will include an analysis of current skills.  However, it has not yet conducted a comprehensive assessment of the  critical skills and competencies of its current workforce. USAID hopes  to have a contractor in place by the end of September, 2003, to assist  the working group in identifying critical competencies and devising  strategies to close skill gaps. USAID is also in the process of  determining the appropriate information technology instrument and  methodology that will permit the assessment of its current workforce  skills and competencies.
USAID’s strategies to address critical skill gaps are not comprehensive  and have not been based on a critical analysis of current capabilities  matched with future requirements. USAID has begun hiring foreign  service officers and Presidential Management Interns to replace staff  lost through attrition. However, the agency has not completed its civil  service recruitment plan and has not yet included personal services  contractors—the largest segment of its workforce—in its agencywide  workforce analysis and planning efforts. According to USAID human  resource staff, the civil service recruitment plan will be completed after  conducting the competency analysis for civil service staff.
USAID has not created a system to monitor and evaluate its progress  toward reaching its human capital goals and ensuring that its efforts  continue under the leadership of successive administrators.
Because it does not have a comprehensive workforce planning and  management system, USAID cannot ensure that it has the essential  skills needed to carry out its ongoing and future programs. To help  USAID plan for changes in its workforce and continue operations in an  uncertain environment, our report recommends that the USAID  Administrator develop and institutionalize a strategic workforce  planning and management system that takes advantage of strategic  workforce planning principles.
section_title: USAID’s Operating Expense Account Does Not Reflect the Full Cost of Delivering Foreign Assistance
paragraphs: USAID’s operating expense account does not fully reflect the agency’s cost  of delivering foreign assistance, primarily because the agency pays for  some administrative activities done by contractors with program funds. As  we noted in our recent report, USAID’s overseas missions have  increasingly hired personal services contractors to manage USAID’s  development activities due to declining numbers of U.S. direct-hire staff.  According to USAID guidance, contractor salaries and related support can  be paid from program funds when the expenses are benefiting a particular  program or project. In some cases, however, the duties performed by  contractors, especially personal services contractors, are indistinguishable  from those done by U.S. direct-hire staff. One senior level USAID program  planning officer told us that 10 to 15 percent of program funds may be a  more realistic estimate of USAID’s cost of doing business, as opposed to  the 8.5 percent average since fiscal year 1995 that we calculated based on  our analysis of USAID reported data.
A recent USAID internal study identified about 160 personal services  contractors who were performing inherently governmental duties, but  these costs are not always reported as operating expenses.
Recent data collection efforts by USAID indicate that the agency will  likely obligate approximately $350 million in program funds for  operating expenses incurred during fiscal year 2003.
Because USAID’s cost of doing business is not always separated from its  humanitarian and development programs—the original intent behind  establishing the separate operating expense account, the amount of  program funds that directly benefits a foreign recipient is likely overstated.
section_title: Scope and Methodology
paragraphs: Overall, to accomplish our objectives, we analyzed personnel data,  workforce planning documents, and obligations data reported by USAID in  its annual budget justification documents. We did not verify the accuracy  of USAID’s reported data. We also interviewed cognizant USAID officials  representing the agency’s regional, technical, and management bureaus in  Washington, D.C., and conducted fieldwork at seven overseas missions— the Dominican Republic, Ecuador, Egypt, Mali, Peru, Senegal, and the  West Africa Regional Program in Mali.
To examine USAID’s progress in developing and implementing a  strategic workforce planning system, we evaluated the agency’s efforts  in terms of workforce planning principles used by leading  organizations: ensuring the involvement of agency leadership,  employees, and stakeholders; determining current skills and  competencies and those needed; implementing strategies to address  critical staffing needs; and evaluating progress in achieving human  capital goals.
To determine whether USAID’s operating expenses reflect its cost of  doing business, we reviewed USAID reports and obligations data and  discussed the matter with cognizant officials at USAID, the Department  of State, and the Office of Management and Budget. We also reviewed  mission staffing reports to determine whether staff were funded from  the operating expense account or program funds and discussed staff  duties with cognizant mission officials.
We obtained written comments on a draft of our report on USAID’s  workforce planning and discussed our preliminary findings from our  review of USAID’s operating expense account with cognizant USAID  officials. Overall, USAID agreed with our findings and concurred with our  recommendation to implement a strategic workforce planning system.
Our review was conducted between July 2002 and September 2003 in  accordance with generally accepted government auditing standards.
Mr. Chairman and Members of the Subcommittee, this concludes my  prepared statement. I will be happy to answer any questions you may have.
section_title: Contacts and Acknowledgments
paragraphs: For future contacts regarding this testimony, please call Jess Ford at (202)  512-4268 or Al Huntington at (202) 512-4140. Individuals making key  contributions to this testimony included Kimberly Ebner, Jeanette  Espinola, Emily Gupta, Rhonda Horried, and Audrey Solis. Mark Dowling,  Reid Lowe, and Jose Pena provided technical assistance.
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