Foreign Affairs: Effective Stewardship of Resources Essential to Efficient Operations at State Department, USAID
Published: 2003-09-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In recent years, funding for the Department of State has increased dramatically, particularly for security upgrades at overseas facilities and a major hiring program. The U.S. Agency for International Development (USAID) has also received more funds, especially for programs in Afghanistan and Iraq and HIV/AIDS relief. Both State and USAID face significant management challenges in carrying out their respective missions, particularly in areas such as human capital management, performance measurement, and information technology management. Despite increased funding, resources are not unlimited. Thus, State, USAID, and all government agencies have an obligation to ensure that taxpayer resources are managed wisely. Long-lasting improvements in performance will require continual vigilance and the identification of widespread opportunities to improve the economy, efficiency, and effectiveness of State's and USAID's existing goals and programs. GAO was asked to summarize its findings from reports on State's and USAID's management of resources, actions taken in response to our reports, and recommendations to promote cost savings and more efficient and effective operations at the department and agency.
section_title: What GAO Found
paragraphs: Overall, State has increased its attention to managing resources, and its efforts are starting to show results, including potential cost savings and improved operational effectiveness and efficiency. For example, in 1996, GAO criticized State's performance in disposing of its overseas property. Between fiscal years 1997 through 2002, State sold 129 properties for more than $459 million with plans to sell additional properties between fiscal years 2003 through 2008 for approximately $300 million. Additional sales would help offset costs of replacing about 160 unsecure and deteriorating embassies. State is now taking a more businesslike approach with its embassy construction program, which is estimated to cost an additional $17 billion beginning in fiscal year 2004. Cost-cutting efforts allowed State to achieve $150 million in potential cost savings during fiscal year 2002. State should continue its reforms as it determines requirements for, designs, and builds new embassies. The costs of maintaining staff overseas are generally very high. In response to management weaknesses GAO identified, State has begun addressing workforce planning issues to ensure that the government has the right people in the right places at the right times. State should continue this work and adopt industry best practices that could reduce costs and streamline services overseas. GAO and others have highlighted deficiencies in State's information technology. State invested $236 million in fiscal year 2002 on modernization initiatives overseas and plans to spend $262 million over fiscal years 2003 and 2004. Ongoing oversight of this investment will be necessary to minimize the risks of spending large sums of money on systems that do not produce commensurate value. State has improved its strategic planning to better link staffing and budgetary requirements with policy priorities. Setting clear objectives and tying resources to them will make operations more efficient. GAO and others have also identified some management weaknesses at USAID, mainly in human capital management and workforce planning, program evaluation and performance measurement, information technology, and financial management. While USAID is taking corrective actions, better management of critical systems is essential to safeguard the agency's funds. Given the added resources State and USAID must manage, current budget deficits, and new requirements since Sept. 11, 2001, oversight is needed to ensure continued progress toward effective management practices. This focus could result in cost savings or other efficiencies.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of State’s and the  U.S. Agency for International Development’s (USAID) stewardship of their  resources and areas within their budgets where applying strong  management practices has the potential to produce efficiencies that could  result in cost savings.  To put this in perspective, in fiscal year 2003, State  was appropriated about $6 billion for the administration of foreign affairs  and USAID received approximately $12 billion in total program funding.
In carrying out its mission of forming, representing, and implementing U.S.  foreign policy, State faces complex challenges, some of which have  intensified since the terrorist attacks of September 11, 2001, including the  provision of secure facilities overseas.  Over the last several years, funding  for State’s operations has increased, particularly for security upgrades at  embassies and consulates around the world and for a major hiring  program to meet U.S. foreign policy needs.  USAID has also received  significant funding increases for foreign assistance programs, in  Afghanistan and Iraq in particular, as well as for HIV/AIDS relief programs.   However, resources are not unlimited, and sound management practices  can affect the utilization of large sums of money.
Over the years, GAO, State’s Office of the Inspector General (OIG), and  various commissions and studies have identified numerous management  weaknesses at State.  In addition, GAO and others have identified  management challenges and operational deficiencies at USAID that affect  the agency’s ability to implement its programs.  Ongoing attention to  resource management issues at both State and USAID will be needed to  ensure that the department and the agency take advantage of  opportunities for more efficient operations and achieve budget savings  wherever possible.
My statement today is based on our work at State and USAID over the last  several years.  I will focus on our observations regarding State’s  management in the following five areas: (1) unneeded real estate; (2)  embassy construction; (3) overseas presence and staffing, including  rightsizing; (4) information technology; and (5) strategic planning.  I will  also discuss key areas where USAID has faced challenges, including (1)  human capital management and workforce planning, (2) program  evaluation and performance measurement, (3) information technology,  and (4) financial management.  A list of relevant GAO reports is attached  to the end of my statement (see app. I).
subsections: section_title: Background
paragraphs: Approximately 4 percent of discretionary spending in the United States’  federal budget is appropriated for the conduct of foreign affairs activities.   This includes funding for bilateral and multilateral assistance, military  assistance, and State Department activities.  Spending for State, taken  from the “150 Account,” makes up the largest share of foreign affairs  spending.  Funding for State’s Diplomatic and Consular Programs—State’s  chief operating account, which supports the department’s diplomatic  activities and programs, including salaries and benefits—comprises the  largest portion of its appropriations.  Embassy security, construction, and  maintenance funding comprises another large portion of State’s  appropriation.  Funding for the administration of foreign affairs has risen  dramatically in recent fiscal years, due, in part, to enhanced funding for  security-related improvements worldwide, including personnel,  construction, and equipment following the bombings of two U.S.  embassies in 1998 and the events of September 11, 2001.  For example,  State received about $2.8 billion in fiscal year 1998, but by fiscal year 2003,  State’s appropriation was approximately $6 billion.  For fiscal year 2004,  State is seeking approximately $6.4 billion, which includes $4 billion for  diplomatic and consular affairs and $1.5 billion for embassy security,  construction, and maintenance.  In addition, State plans to spend $262  million over fiscal years 2003 and 2004 on information technology  modernization initiatives overseas.
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.  USAID is charged with overseeing U.S.  foreign economic and humanitarian assistance programs.  In fiscal year  2003, Congress appropriated about $12 billion—including supplemental  funding—to USAID, and the agency managed programs in about 160  countries, including 71 overseas missions with USAID direct-hire  presence.  Fiscal year 2004 foreign aid spending is expected to increase  due, in part, to substantial increases in HIV/AIDS funding and security- related economic aid.
section_title: Department of State
paragraphs: I would like to discuss State’s performance in managing its overseas real  estate, overseeing major embassy construction projects, managing its  overseas presence and staffing, modernizing its information technology,  and developing and implementing strategic plans.
subsections: section_title: Management of Real Property
paragraphs: State manages an overseas real property portfolio valued at approximately  $12 billion.  The management of real property is an area where State could  achieve major cost savings and other operational efficiencies.  In the past,  we have been critical of State’s management of its overseas property,  including its slow disposal of unneeded facilities.  Recently, officials at  State’s Bureau of Overseas Buildings Operations (OBO), which manages  the government’s real property overseas, have taken a more systematic  approach to identifying unneeded properties and have significantly  increased the sale of these properties.  For example, in 2002, OBO  completed sales of 26 properties totaling $64 million, with contracts in  place for another $40 million in sales.  But State needs to dispose of more  facilities in the coming years as it embarks on an expensive plan to replace  embassies and consulates that do not meet State’s security requirements  and/or are in poor condition.
subsections: section_title: Unneeded Property
paragraphs: Unneeded property and deteriorating facilities present a real problem— but also an opportunity to improve U.S. operations abroad and achieve  savings. We have reported that the management of overseas real estate has  been a continuing challenge for State, although the department has made  improvements in recent years.  One of the key weaknesses we found was  the lack of a systematic process to identify unneeded properties and to  dispose of them in a timely manner.  In 1996, we identified properties  worth hundreds of millions of dollars potentially excess to State’s needs or  of questionable value and expensive to maintain that the department had  not previously identified for potential sale.  As a result of State’s inability  to resolve internal disputes and sell excess property in an expeditious  manner, we recommended that the Secretary of State appoint an  independent panel to decide which properties should be sold.  The  Secretary of State created this panel in 1997.  As of April 2002, the Real  Property Advisory Board had reviewed 41 disputed properties and  recommended that 26 be sold.  By that time, State had disposed of seven of  these properties for about $21 million.
In 2002, we again reviewed State’s processes for identifying and selling  unneeded overseas real estate and found that it had taken steps to  implement a more systematic approach that included asking posts to  annually identify properties for disposal and increasing efforts by OBO  and officials from State’s OIG to identify such properties when they visit  posts.  For example, the director of OBO took steps to resolve disputes  with posts that have delayed the sale of valuable property.  OBO has also  instituted monthly Project Performance Reviews to review all aspects of  real estate management, such as the status of acquisitions and disposal of  overseas property.  However, we found that the department’s ability to  monitor property use and identify potentially unneeded properties was  hampered by errors and omissions in its property inventory.  Inaccurate  inventory information can result in unneeded properties not being  identified for potential sale.  Therefore, we recommended that the  department improve the accuracy of its real property inventory.  In  commenting on our report, OBO said that it had already taken action to  improve its data collection.  For example, State sent a cable to all overseas  posts reminding them of their responsibilities to maintain accurate real  estate records.
State has significantly improved its performance in selling unneeded  property.  In total, between fiscal years 1997 through 2002, State sold 129  properties for more than $459 million.  Funds generated from property  sales are being used to help offset embassy construction costs in Berlin,  Germany; Luanda, Angola; and elsewhere.  State estimates it will sell  additional properties between fiscal years 2003 and 2008 valued at  approximately $300 million.  More recently, State has taken action to sell  two properties (a 0.4 acre parking lot and an office building) in Paris  identified in a GAO report as potentially unneeded.  After initially resisting  the sale of the parking lot, the department reversed its decision and sold  both properties in June 2003 for a total of $63.1 million—a substantial  benefit to the government.  The parking lot alone was sold conditionally  for $20.7 million.  Although this may be a unique case, it demonstrates  how scrutiny of the property inventory could result in potential savings.   The department should continue to look closely at property holdings to  see if other opportunities exist.  If State continues to streamline its  operations and dispose of additional facilities over the next several years,  it can use those funds to help offset the cost of replacing about 160  embassies and consulates for security reasons in the coming years.
section_title: Embassy Construction
paragraphs: In the past, State has had difficulties ensuring that major embassy  construction projects were completed on time and within budget.  For  example, in 1991 we reported that State’s previous construction program  suffered from delays and cost increases due to, among other things, poor  program planning and inadequate contractor performance.  In 1998, State  embarked on the largest overseas embassy construction program in its  history in response to the bombings of U.S. embassies in Africa.  From  fiscal years 1999 through 2003, State received approximately $2.7 billion  for its new construction program and began replacing 25 of 185 posts  identified as vulnerable by State.  To better manage this program, OBO has  undertaken several initiatives aimed at improving State’s stewardship of  its funds for embassy buildings, including cutting costs of planned  construction projects, using standard designs, and reducing construction  duration through a “fast track” process.  Moreover, State hopes that  additional management tools aimed at ensuring that new facilities are built  in the most cost-effective manner, including improvements in how  agencies determine requirements for new embassies, will help move the  program forward.  State is also pursuing a cost-sharing plan that would  charge other federal agencies for the cost of their overall overseas  presence and provide additional funds to help accelerate the embassy  construction program.
subsections: section_title: Replacing Vulnerable Facilities
paragraphs: While State has begun replacing many facilities, OBO officials estimated  that beginning in fiscal year 2004, it will cost an additional $17 billion to  replace facilities at remaining posts.  As of February 2003, State had begun  replacing 25 of 185 posts identified by State as vulnerable after the 1998  embassy bombings.  To avoid the problems that weakened the previous  embassy construction program, we recommended that State develop a  long-term capital construction plan that identifies (1) proposed  construction projects’ cost estimates and schedules and (2) estimated  annual funding requirements for the overall program.  Although State  initially resisted implementing our recommendation, OBO’s new  leadership reconsidered this recommendation and has since produced two  annual planning documents titled the “Long-Range Overseas Building  Plan.”  According to OBO, the long-range plan is the roadmap by which  State, other departments and agencies, the Office of Management and  Budget (OMB), the Congress, and others can focus on defining and  resolving the needs of overseas facilities.
In addition to the long-range plan, OBO has undertaken several initiatives  aimed at improving State’s stewardship of its embassy construction funds.   These measures have the potential to result in significant cost savings and  other efficiencies.  For example, OBO has    developed Standard Embassy Designs (SED) for use in most embassy  construction projects. SEDs provide OBO with the ability to contract for  shortened design and construction periods and control costs through  standardization;   shifted from “design-bid-build” contracting toward “design-build”  contracts, which have the potential to reduce project costs and  construction time frames;   developed and implemented procedures to enforce cost planning during  the design phase and ensure that the final designs are within budget; and  increased the number of contractors eligible to bid for construction  projects, thereby increasing competition for contracts, which could  potentially result in lower bids.
OBO has set a goal of a 2-year design and construction period for its mid- sized, standard embassy design buildings, which, if met, could reduce the  amount of time spent in design and construction by almost one year.  We  reported in January 2003 that these cost-cutting efforts allowed OBO to  achieve $150 million in potential cost savings during fiscal year 2002.   These savings, according to OBO, resulted from the application of the  SEDs and increased competition for the design and construction of these  projects.
Despite these gains, State will face continuing hurdles throughout the life  of the embassy construction program.  These hurdles include meeting  construction schedules within the estimated costs and ensuring that State  has the capacity to manage a large number of projects simultaneously.   Because of the high costs associated with this program and the  importance of providing secure facilities overseas, we believe this program  merits continuous oversight by State, GAO, and the Congress.
section_title: Staffing Requirements for New Embassy Compounds
paragraphs: In addition to ensuring that individual construction projects meet cost and  performance schedules, State must also ensure that new embassies are  appropriately sized.  Given that the size and cost of new facilities are  directly related to agencies’ anticipated staffing needs, it is imperative that  future requirements be predicted as accurately as possible.  Embassy  buildings that are designed too small may require additional construction  and funding in the future; buildings that are too large may have unused  space—a waste of government funds.  State’s construction program in the  late 1980s encountered lengthy delays and cost overruns in part because it  lacked coordinated planning of post requirements prior to approval and  budgeting for construction projects.  As real needs were determined,  changes in scope and increases in costs followed.  OBO now requires that  all staffing projections for new embassy compounds be finalized prior to  submitting funding requests, which are sent to Congress as part of State’s  annual budget request each February.
In April 2003, we reported that U.S. agencies operating overseas, including  State, were developing staffing projections without a systematic  approach.  We found that State’s headquarters gave embassies little  guidance on factors to consider when developing projections, and thus  U.S. agencies did not take a consistent or systematic approach to  determining long-term staffing needs.  Based on our recommendations,  State in May 2003 issued a “Guide to Developing Staffing Projections for  New Embassy and Consulate Compound Construction,” which requires a  more serious, disciplined approach to developing staffing projections.   When fully implemented, this approach should ensure that overseas  staffing projections are more accurate and minimize the financial risks  associated with building facilities that are designed for the wrong number  of people.
section_title: Capital Security Cost Sharing
paragraphs: Historically, State has paid all costs associated with the construction of  overseas facilities.  Following the embassy bombings, the Overseas  Presence Advisory Panel (OPAP) noted a lack of cost sharing among  agencies that use overseas facilities.  As a result, OPAP recommended that  agencies be required to pay rent in government-owned buildings in foreign  countries to cover operating and maintenance costs.  In 2001, an  interagency group put forth a proposal that would require agencies to pay  rent based on the space they occupy in overseas facilities, but the plan was  not enacted.  In 2002, OMB began an effort to develop a mechanism that  would require users of overseas facilities to share the construction costs  associated with those facilities.  The administration believes that if  agencies were required to pay a greater portion of the total costs  associated with operating overseas facilities, they would think more  carefully before posting personnel overseas.  As part of this effort, State  has presented a capital security cost-sharing plan that would require  agencies to help fund its capital construction program.  State’s proposal  calls for each agency to fund a proportion of the total construction  program cost based on its respective proportion of total overseas staffing.   OBO has reported that its proposed cost-sharing program could result in  additional funds, thereby reducing the duration of the overall program.
section_title: Overseas Presence and Staffing
paragraphs: State maintains a network of approximately 260 diplomatic posts in about  170 countries worldwide and employs a direct-hire workforce of about  30,000 employees, about 60 percent of those overseas.  The costs of  maintaining staff overseas vary by agency but in general are extremely  high.  In 2002, the average annual cost of placing one full-time direct-hire  American family of four in a U.S. embassy was approximately $339,000.   These costs make it critical that the U.S. overseas presence is sized  appropriately to conduct its work.  We have reported that State and most  other federal agencies overseas have historically lacked a systematic  process for determining the right number of personnel needed overseas— otherwise known as rightsizing.  Moreover, in June 2002, we reported  that State faces serious staffing shortfalls at hardship posts—in both the  number of staff assigned to these posts and their experience, skills, and/or  language proficiency.  Thus, State has been unable to ensure that it has  “the right people in the right place at the right time with the right skills to  carry out America’s foreign policy”—its definition of diplomatic  readiness.  However, since 2001, State has directed significant attention  to improving weaknesses in the management of its workforce planning  and staffing issues that we and others have noted.  Because personnel  salaries and benefits consume a huge portion of State’s operating budget,  it is important that the department exercise good stewardship of its human  capital resources.
subsections: section_title: Overseas Staffing
paragraphs: Around the time GAO designated strategic human capital management as a  governmentwide high-risk area in 2001, State, as part of its Diplomatic  Readiness Initiative (DRI), began directing significant attention to  addressing its human capital needs, adding 1,158 employees over a 3-year  period (fiscal years 2002 through 2004).  In fiscal year 2002, Congress  allocated nearly $107 million for the DRI. State requested nearly $100  million annually in fiscal years 2003 and 2004 to hire approximately 400  new staff each year.
The DRI has enabled the department to boost recruitment.  However, State  has historically lacked a systematic approach to determine the appropriate  size and location of its overseas staff.  To move the rightsizing process  forward, the August 2001 President’s Management Agenda identified it as  one of the administration’s priorities.  Given the high costs of maintaining  the U.S. overseas presence, the administration has instructed U.S. agencies  to reconfigure the number of overseas staff to the minimum necessary to  meet U.S. foreign policy goals.  This OMB-led initiative aims to develop  cost-saving tools or models, such as increasing the use of regional centers,  revising the Mission Performance Planning (MPP) process, increasing  overseas administrative efficiency, and relocating functions to the United  States.  According to the OPAP, although the magnitude of savings from  rightsizing the overseas presence cannot be known in advance, “significant  savings” are achievable.  For example, it said that reducing all agencies’  staffing by 10 percent could yield governmentwide savings of almost $380  million a year.
GAO’s Rightsizing Framework  In May 2002, we testified on our development of a rightsizing framework.   The framework is a series of questions linking staffing levels to three  critical elements of overseas diplomatic operations: security of facilities,  mission priorities and requirements, and cost of operations.  It also  addresses consideration of rightsizing options, such as relocating  functions back to the United States or to regional centers, competitively  sourcing functions, and streamlining operations.  Rightsizing analyses  could lead decision makers to increase, decrease, or change the mix of  staff at a given post.  For example, based on our work at the U.S. embassy  in Paris, we identified positions that could potentially be relocated to  regional centers or back to the United States. On the other hand,  rightsizing analyses may indicate the need for increased staffing,  particularly at hardship posts.  In a follow-up report to our testimony, we  recommended that the director of OMB ensure that our framework is used  as a basis for assessing staffing levels in the administration’s rightsizing  initiative.
In commenting on our rightsizing reports, State endorsed our framework  and said it plans to incorporate elements of our rightsizing questions into  its future planning processes, including its MPPs.  State also has begun to  take further actions in managing its overseas presence—along the lines  that we recommended in our June 2002 report on hardship posts— including revising its assignment system to improve staffing of hardship  posts and addressing language shortfalls by providing more opportunities  for language training.   In addition, State has already taken some  rightsizing actions to improve the cost effectiveness of its overseas  operating practices.  For example, State    plans to spend at least $80 million to purchase and renovate a 23-acre,  multi-building facility in Frankfurt, Germany—slated to open in mid- 2005—for use as a regional hub to conduct and support diplomatic  operations;   has relocated more than 100 positions from the Paris embassy to the  regional Financial Services Center in Charleston, South Carolina; and is working with OMB on a cost-sharing mechanism, as previously  mentioned, that will give all U.S. agencies an incentive to weigh the high  costs to taxpayers associated with assigning staff overseas.
In addition to these rightsizing actions, there are other areas where the  adoption of industry best practices could lead to cost reductions and  streamlined services.  For example, in 1997, we reported that State could  significantly streamline its employee transfer and housing relocation  processes.  We also reported in 1998 that State’s overseas posts could  potentially save millions of dollars by implementing best practices such as  competitive sourcing.
In light of competing priorities as new needs emerge, particularly in Iraq  and Afghanistan, State must be prepared to make difficult strategic  decisions on which posts and positions it will fill and which positions it  could remove, relocate, or regionalize.  State will need to marshal and  manage its human capital to facilitate the most efficient, effective  allocation of these significant resources.
section_title: Information Technology
paragraphs: Up-to-date information technology, along with adequate and modern office  facilities, is an important part of diplomatic readiness.  We have reported  that State has long been plagued by poor information technology at its  overseas posts, as well as weaknesses in its ability to manage information  technology modernization programs.  State’s information technology  capabilities provide the foundation of support for U.S. government  operations around the world, yet many overseas posts have been equipped  with obsolete information technology systems that prevented effective  interagency information sharing.
The Secretary of State has made a major commitment to modernizing the  department’s information technology.  In March 2003, we testified that the  department invested $236 million in fiscal year 2002 on key modernization  initiatives for overseas posts and plans to spend $262 million over fiscal  years 2003 and 2004.  State reports that its information technology is now  in the best shape it has ever been, including improved Internet access and  upgraded computer equipment.  The department is now working to  replace its antiquated cable system with a new integrated messaging and  retrieval system, which it acknowledges is an ambitious effort.
State’s OIG and GAO have raised a number of concerns regarding the  department’s management of information technology programs.  For  example, in 2001, we reported that State was not following proven system  acquisition and investment practices in attempting to deploy a common  overseas knowledge management system.  This system was intended to  provide functionality ranging from basic Internet access and e-mail to  mission-critical policy formulation and crisis management support.  We  recommended that State limit its investment in this system until it had  secured stakeholder involvement and buy-in.  State has since discontinued  the project due to a lack of interagency buy-in and commitment, thereby  avoiding additional costs of more than $200 million.
Recognizing that interagency information sharing and collaboration can  pay off in terms of greater efficiency and effectiveness of overseas  operations, State’s OIG reported that the department recently decided to  merge some of the objectives associated with the interagency knowledge  management system into its new messaging system.  We believe that the  department should try to eliminate the barriers that prevented  implementation of this system.  As State continues to modernize  information technology at overseas posts, it is important that the  department employ rigorous and disciplined management processes on  each of its projects to minimize the risks that the department will spend  large sums of money on systems that do not produce commensurate value.
section_title: Strategic Planning
paragraphs: Linking performance and financial information is a key feature of sound  management—reinforcing the connection between resources consumed  and results achieved—and an important element in giving the public a  useful and informative perspective on federal spending.  A well-defined  mission and clear, well understood strategic goals are essential in helping  agencies make intelligent trade-offs among short- and long-term priorities  and ensure that program and resource commitments are sustainable.  In  recent years, State has made improvements to its strategic planning  process both at headquarters and overseas that are intended to link  staffing and budgetary requirements with policy priorities.  For instance,  State has developed a new strategic plan for fiscal years 2004 through  2009, which, unlike previous strategic plans, was developed in conjunction  with USAID and aligns diplomatic and development efforts.  At the field  level, State revised the MPP process so that posts are now required to  identify key goals for a given fiscal year, and link staffing and budgetary  requirements to fulfilling these priorities.
State’s compliance with the Government Performance and Results Act of  1993 (GPRA), which requires federal agencies to prepare annual  performance plans covering the program activities set out in their budgets,  has been mixed.  While State’s performance plans fell short of GPRA  requirements from 1998 through 2000, the department has recently made  strides in its planning and reporting processes.  For example, in its  performance plan for 2002, State took a major step toward implementing  GPRA requirements, and it has continued to make improvements in its  subsequent plans.
As we have previously reported, although connections between specific  performance and funding levels can be difficult to make, efforts to infuse  performance information into budget deliberations have the potential to  change the terms of debate from simple outputs to outcomes.  Continued  improvements to strategic and performance planning will ensure that State  is setting clear objectives, tying resources to these objectives, and  monitoring its progress in achieving them—all of which are essential to  efficient operations.
section_title: U.S. Agency for International Development
paragraphs: Now I would like to discuss some of the challenges USAID faces in  managing its human capital, evaluating its programs and measuring their  performance, and managing its information technology and financial  systems.  I will also outline GAO’s findings from our reviews of USAID’s  democracy and rule of law programs in Latin America and the former  Soviet Union.
subsections: section_title: Human Capital Management
paragraphs: Since the early 1990s, we have reported that USAID has made limited  progress in addressing its human capital management issues and managing  the changes in its overseas workforce.  A major concern is that USAID has  not established a comprehensive workforce plan that is integrated with  the agency’s strategic objectives and ensures that the agency has skills and  competencies necessary to meet its emerging foreign assistance  challenges.  Developing such a plan is critical due to a reduction in the  agency’s workforce during the 1990s and continuing attrition—more than  half of the agency’s foreign service officers are eligible to retire by 2007.   According to USAID’s OIG, the steady decline in the number of foreign  service and civil service employees with specialized technical expertise  has resulted in insufficient staff with needed skills and experience and less  experienced personnel managing increasingly complex programs.   Meanwhile, USAID’s program budget has increased from $7.3 billion in  2001 to about $12 billion in fiscal year 2003, due primarily to significant  increases in HIV/AIDS funding and supplemental funding for emerging  programs in Iraq and Afghanistan.  The combination of continued attrition  of experienced foreign service officers, increased program funding, and  emerging foreign policy priorities raises concerns regarding USAID’s  ability to maintain effective oversight of its foreign assistance programs.
USAID’s lack of progress in institutionalizing a workforce planning system  has led to certain vulnerabilities.  For example, as we reported in July  2002, USAID lacks a “surge capacity” that enables it to quickly hire the  staff needed to respond to emerging demands and post-conflict or post- emergency reconstruction situations.  We also reported that insufficient  numbers of contract officers affected the agency’s ability to deliver  hurricane reconstruction assistance in Latin America in the program’s  early phases.
USAID is aware of its human capital management and workforce planning  shortcomings and is now beginning to address some of them with targeted  hiring and other actions.
section_title: Program Evaluation and Performance Measurement
paragraphs: USAID continues to face difficulties in identifying and collecting the data it  needs to develop reliable performance measures and accurately report the  results of its programs.  Our work and that of USAID’s OIG have identified  a number of problems with the annual results data that USAID’s operating  units have been reporting.  USAID has acknowledged these concerns and  has undertaken several initiatives to correct them. Although the agency  has made a serious effort to develop improved performance measures, it  continues to report numerical outputs that do not gauge the impact of its  programs.
Without accurate and reliable performance data, USAID has little  assurance that its programs achieve their objectives and related targets.  In  July 1999, we commented on USAID’s fiscal year 2000 performance plan  and noted that because the agency depends on international organizations  and thousands of partner institutions for data, it does not have full control  over how data are collected, reported, or verified.  In April 2002, we  reported that USAID had evaluated few of its experiences in using various  funding mechanisms and different types of organizations to achieve its  objectives.  We concluded that with better data on these aspects of the  agency’s operations, USAID managers and congressional overseers would  be better equipped to analyze whether the agency’s mix of approaches  takes full advantage of nongovernmental organizations to achieve the  agency’s purposes.
section_title: Information Technology and Financial Management
paragraphs: USAID’s information systems do not provide managers with the accurate  information they need to make sound and cost-effective decisions.   USAID’s OIG has reported that the agency’s processes for procuring  information technology have not followed established guidelines, which  require executive agencies to implement a process that maximizes the  value and assesses the risks of information technology investments.  In  addition, USAID’s computer systems are vulnerable and need better  security controls. USAID management has acknowledged these  weaknesses and the agency is making efforts to correct them.
Effective financial systems and controls are necessary to ensure that  USAID management has timely and reliable information to make effective,  informed decisions and that assets are safeguarded.  USAID has made  progress in correcting some of its systems and internal control  deficiencies and is in the process of revising its plan to remedy financial  management weaknesses as required by the Federal Financial  Management Improvement Act of 1996.  To obtain its goal, however,  USAID needs to continue efforts to resolve its internal control weaknesses  and ensure that planned upgrades to its financial systems are in  compliance with federal financial system requirements.
section_title: Democracy and Rule of Law Programs
paragraphs: Our reviews of democracy and rule of law programs in Latin America and  the former Soviet Union demonstrate that these programs have had  limited results and suggest areas for improving the efficiency and impact  of these efforts.
In Latin America, we found that U.S. assistance has helped bring about  important criminal justice reforms in five countries.  This assistance has  also help improve transparency and accountability of some government  functions, increase attention to human rights, and support elections that  observation groups have considered free and fair.  In several countries of  the former Soviet Union, U.S. agencies have helped support a variety of  legal system reforms and introduced some innovative legal concepts and  practices in the areas of legislative and judicial reform, legal education,  law enforcement, and civil society.  In both regions, however,  sustainability of these programs is questionable.  Establishing democracy  and rule of law in these countries is a complex undertaking that requires  long-term host government commitment and consensus to succeed.   However, host governments have not always provided the political  support and financial and human capital needed to sustain these reforms.   In other cases, U.S.-supported programs were limited, and countries did  not adopt the reforms and programs on a national scale.
In both of our reviews, we found that several management issues shared  by USAID and the other agencies have affected implementation of these  programs.  Poor coordination among the key U.S. agencies has been a  long-standing management problem, and cooperation with other foreign  donors has been limited. U.S. agencies’ strategic plans do not outline how  these agencies will overcome coordination problems and cooperate with  other foreign donors on program planning and implementation to  maximize scarce resources.  Also, U.S. agencies, including USAID, have  not consistently evaluated program results and have tended to stress  output measures, such as the numbers of people trained, over indicators  that measure program outcomes and results, such as reforming law  enforcement practices.  Further, U.S. agencies have not consistently  shared lessons learned from completed projects, thus missing  opportunities to enhance the outcomes of their programs.
Mr. Chairman, this completes my prepared statement.  I would be happy to  respond to any questions you or other members of the committee may  have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For future contacts regarding this testimony, please call Jess Ford or John  Brummet at (202) 512-4128.  Individuals making key contributions to this  testimony include Heather Barker, David Bernet, Janey Cohen, Diana  Glod, Kathryn Hartsburg, Edward Kennedy, Joy Labez, Jessica Lundberg,  and Audrey Solis.
section_title: Appendix I: GAO Reports on Resource Management
subsections: section_title: Department of State
subsections: section_title: Overseas Security, Presence, and Facilities
paragraphs: Overseas Presence: Conditions of Overseas Diplomatic Facilities. GAO- 03-557T. Washington, D.C.: March 20, 2003.
Overseas Presence: Rightsizing Framework Can Be Applied at U.S.  Diplomatic Posts in Developing Countries. GAO-03-396. Washington,  D.C.: April 7, 2003.
Embassy Construction: Process for Determining Staffing Requirements  Needs Improvement. GAO-03-411. Washington, D.C.: April 7, 2003.
Overseas Presence: Framework for Assessing Embassy Staff Levels Can  Support Rightsizing Initiatives. GAO-02-780. Washington, D.C.: July 26,  2002.
State Department: Sale of Unneeded Property Has Increased, but Further  Improvements Are Necessary. GAO-02-590. Washington, D.C.: June 11,  2002.
Embassy Construction: Long-Term Planning Will Enhance Program  Decision-making. GAO-01-11. Washington, D.C.: January 22, 2001.
State Department: Decision to Retain Embassy Parking Lot in Paris,  France, Should Be Revisited. GAO-01-477. Washington, D.C.: April 13,  2001.
section_title: Staffing and Workforce Planning
paragraphs: State Department: Staffing Shortfalls and Ineffective Assignment System  Compromise Diplomatic Readiness at Hardship Posts. GAO-02-626.  Washington, D.C.: June 18, 2002.
Foreign Languages: Human Capital Approach Needed to Correct  Staffing and Proficiency Shortfalls. GAO-02-375. Washington, D.C.:  January 31, 2002.
section_title: Information Management
paragraphs: Information Technology: State Department-Led Overseas Modernization  Program Faces Management Challenges. GAO-02-41. Washington, D.C.:  November 16, 2001.
Foreign Affairs: Effort to Upgrade Information Technology Overseas  Faces Formidable Challenges. GAO-T-AIMD/NSIAD-00-214. Washington,  D.C.: June 22, 2000.
Electronic Signature: Sanction of the Department of State’s System.  GAO/AIMD-00-227R. Washington, D.C.: July 10, 2000.
section_title: Strategic and Performance Planning and Foreign Affairs Management
paragraphs: Major Management Challenges and Program Risks: Department of State.  GAO-03-107. Washington, D.C.: January 2003.
Department of State: Status of Achieving Key Outcomes and Addressing  Major Management Challenges. GAO-02-42. Washington, D.C.: December  7, 2001.
Observations on the Department of State’s Fiscal Year 1999 Performance  Report and Fiscal Year 2001 Performance Plan. GAO/NSIAD-00-189R.  Washington, D.C.: June 30, 2000.
Major Management Challenges and Program Risks: Department of State.  GAO-01-252. Washington, D.C.: January 2001.
U.S. Agency for International Development: Status of Achieving Key  Outcomes and Addressing Major Management Challenges. GAO-01-721.  Washington, D.C.: August 17, 2001.
Observations on the Department of State’s Fiscal Year 2000 Performance  Plan. GAO/NSIAD-99-183R. Washington, D.C.: July 20, 1999.
Major Management Challenges and Program Risks: Implementation  Status of Open Recommendations. GAO/OCG-99-28. Washington, D.C.:  July 30, 1999.
The Results Act: Observations on the Department of State’s Fiscal Year  1999 Annual Performance Plan. GAO/NSIAD-98-210R. Washington, D.C.:  June 17, 1998.
section_title: U.S. Agency for International Development
paragraphs: Major Management Challenges and Program Risks: U.S. Agency for  International Development. GAO-03-111. Washington, D.C.: January 2003.
Foreign Assistance: Disaster Recovery Program Addressed Intended  Purposes, but USAID Needs Greater Flexibility to Improve Its Response  Capability. GAO-02-787. Washington, D.C.: July 24, 2002.
Foreign Assistance: USAID Relies Heavily on Nongovernmental  Organizations, but Better Data Needed to Evaluate Approaches. GAO-02- 471. Washington, D.C.: April 25, 2002.
Major Management Challenges and Program Risks: U.S. Agency for  International Development. GAO-01-256. Washington, D.C.: January 2001.
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