As of September 2007, the Iraqi government included 34 ministries responsible for providing security and essential government services. U.S. capacity development programs target 12 key ministries: State and USAID focus on 10 civilian ministries while DOD is responsible for the Ministries of Defense and Interior. These 12 ministries employ 67 percent of the Iraqi government workforce and are responsible for 74 percent of the 2007 budget (see table 1). U.S. efforts to help build the capacity of the Iraqi national government are characterized by (1) multiple U.S. agencies leading individual efforts without overarching direction from a lead entity or a strategic approach that integrates their efforts with Iraqi government priorities and (2) shifting time frames and priorities in response to deteriorating conditions in Iraq. As of May 2007, six U.S. agencies were implementing about 53 projects at individual ministries and other national Iraqi agencies. State, USAID, and DOD lead the largest number of programs and provide about 384 U.S. military, government, and contractor personnel to work with the ministries. DOD provides over half (215) of the personnel to the Ministries of Defense and Interior to advise Iraqi staff in developing plans and policies, building ministry budgets, and managing personnel and logistics. State and USAID together provide an additional 169 advisors to the 10 key civilian ministries. Although State, USAID, and DOD have improved the coordination of their capacity-building efforts since early 2007, there is no lead agency or strategic plan to provide overarching guidance. Two factors explain the lack of a lead agency. First, from their inception in 2003, U.S. ministry capacity-building efforts evolved without an overall plan or the designation of a lead entity. U.S. agencies provided distinct assistance to four successive governments in response to Iraq’s immediate needs, according to U.S. officials. This approach first began under the Coalition Provisional Authority whereby U.S. advisors ran the ministries using U.S. and Iraqi funds and made personnel and budget decisions. Attempts to create an overall capacity development plan were dropped in late 2003 after the United States decided to transfer control of the ministries to an interim government. A second factor has been the delay in implementing recommendations from a 2005 State assessment that characterized U.S. capacity development programs as uncoordinated, fragmented, duplicative and disorganized. State recommended a unified effort among State, DOD, and USAID, with the latter providing overall coordination and leadership. The recommendations were not implemented. However, in July 2007, State named an ambassador to direct civilian capacity-building programs, including USAID efforts. Shifting priorities also have affected U.S. capacity development efforts, particularly in response to continued security problems. In early 2007, the U.S. mission refocused its capacity development program as part of the surge strategy associated with the administration’s New Way Forward. Rather than focusing on 12 civilian and security ministries, State and DOD targeted 6 key ministries (Interior, Defense, Planning, Finance, Oil, and Electricity) and focused on short-term improvements to address immediate problems with budget execution, procurement, and contracting. Accordingly, U.S. capacity development efforts shifted from long-term institution building to immediate efforts to help Iraqi ministries spend their capital budgets and deliver better services to the Iraqi people. Improvements were expected by September 2007. U.S. efforts to develop Iraqi ministerial capacity face four key challenges that pose a risk to their success and long-term sustainability. First, Iraqi government institutions have significant shortages of personnel with the skills to perform the vital tasks necessary to provide security and deliver essential services to the Iraqi people. When the Coalition Provisional Authority (CPA) removed Ba’athist party leaders and members from upper-level management in government, universities, and hospitals in 2003, most of Iraq’s technocratic class was forced out of government. A September 2006 U.S. embassy assessment noted that the government had significant human resource shortfalls in most key civilian ministries. The majority of staff at all but 1 of the 12 ministries surveyed was inadequately trained for their positions, and a quarter of them relied heavily on foreign support to compensate for their human and capital resource shortfalls. The lack of trained staff has particularly hindered the ability of ministries to develop and execute budgets. For example, in 2006, the Iraqi government spent only 22 percent of its capital budget. For January through July 2007, spending levels have improved with about 24 percent of capital budgets spent. However, as we reported in early September 2007, it is unlikely that Iraq will spend the $10 billion it allocated for 2007 for capital budgets by the end of this year. Second, Iraq’s government confronts significant challenges in staffing a nonpartisan civil service and addressing militia infiltration of key ministries. In June 2007, DOD reported that militias influenced every component of the Ministry of Interior. In particular, the Ministry has been infiltrated by members of the Supreme Islamic Council of Iraq and its Badr Organization, as well as Muqtada al-Sadr’s Mahdi Army. Furthermore, the Iraqi civil service remained hampered by staff whose political and sectarian loyalties jeopardized the civilian ministries’ abilities to provide basic services and build credibility among Iraqi citizens, according to U.S. government reports and international assessments. DOD further found that government ministries and budgets were sources of power for political parties, and staff ministry positions were rewarded to party cronies. The use of patronage hindered capacity development because it led to instability in the civil service as many staff were replaced whenever the government changed or a new minister was named, according to U.S. officials. Third, according to State, widespread corruption undermines efforts to develop the government’s capacity by robbing it of needed resources, some of which are used to fund the insurgency; by eroding popular faith in democratic institutions seen to be run by corrupt political elites; and by spurring capital flight and reducing economic growth. According to a State assessment, one-third of the 12 civilian ministries surveyed had problems with “ghost employees” (that is, nonexistent staff listed on the payroll). In addition, the procedures to counter corruption adopted at all but one of the civilian ministries surveyed were partly effective or ineffective. Similar problems existed in the security ministries, according to DOD. Finally, the security situation remains a major obstacle to developing capacity in areas vital to the government’s success. The high level of violence hinders U.S. advisors’ access to their counterparts in the ministries, increases absenteeism among ministry employees, and contributes to “brain drain” as ministry employees join the growing number of Iraqis leaving the country. According to a UN report, between March 2003 and June 2007, about 2.2 million Iraqis left the country and 2 million were internally displaced. According to U.S. and international officials, the flow of refugees exacerbates Iraqi ministry capacity shortfalls because those fleeing tend to be disproportionately from the educated and professional classes. A November 2006 UN report stated that an estimated 40 percent of Iraq’s professional class had left since 2003. In February 2007, State officials provided GAO with a three-page, high- level outline proposing a U.S. strategy for strengthening Iraqi ministerial capacity. This document was a summary with few details and no timeline. A senior USAID official indicated that it is uncertain whether the high-level summary will be developed into a strategy, although the administration received $140 million in funding for its capacity development efforts in fiscal year 2007 and requested $255 million for fiscal year 2008. GAO has previously identified the desirable elements of a strategy: a clear purpose, scope, and methodology; a delineation of U.S. roles, responsibilities, and coordination; desired goals, objectives, and activities tied to Iraqi priorities; performance measures; and a description of costs, resources needed, and risks. Table 2 summarizes the key elements of a strategy and provides examples of the status of the U.S. approach as of September 2007. As table 2 shows, U.S. agencies have developed some of these elements in their programs for capacity building at individual ministries, but not as part of an overall U.S. strategy. For example: We found little evidence that the U.S. government has clearly defined the purpose, scope, and methodology for developing an overall strategy. Agencies have provided some limited information on why an overall strategy is needed, what it will cover, and how it will be developed. A Joint Task Force on Capacity Development, established in October 2006, has helped U.S. agencies better delineate roles and responsibilities and coordinate their efforts. However, we found no plans on how the capacity development programs of State, USAID, and DOD will be unified and integrated. While U.S. agencies have clearly identified the overall goals of capacity development at the Iraqi ministries, most U.S. efforts lack clear ties to Iraqi priorities for all ministries. While DOD is developing measures to assess progress at the security ministries, such measures have not been developed for Iraqi civilian ministries. U.S. agencies have not identified the costs and resources needed to complete capacity development programs beyond the budget for fiscal year 2007 and the 2008 budget request. Agencies have not provided information on how future resources will be targeted to achieve the desired end-state or how the risks we identified will be addressed. In addition, efforts to improve cooperation with the UN and other international donor nations and organizations have encountered difficulties. For example, U.S. efforts are to be coordinated with the Iraqi government and the international donor community through the Capacity Development Working Group. However, the group did not meet for about a year after forming in late 2005 and did not meet from February through May 2007. Current U.S. efforts to build the capacity of the Iraqi government involve multiple U.S. agencies working with Iraqi counterparts on many issues. GAO, for example, is working with the Iraqi Board of Supreme Audit to enhance its auditing skills and capacity. However, U.S. efforts to improve the capacity of Iraq’s ministries must address significant challenges if they are to achieve their desired outcomes. U.S. efforts lack an overall strategy, no lead agency provides overall direction, and U.S. priorities have been subject to numerous changes. Finally, U.S. efforts confront shortages of competent personnel at Iraqi ministries, and sectarian ministries contend with pervasive corruption. The risks are further compounded by the ongoing violence in Iraq as U.S. civilian advisors have difficulties meeting with their Iraqi counterparts and skilled Iraqi professionals leave the country. Congress appropriated $140 million in May 2007 for capacity building and the administration requested up to $255 million for fiscal year 2008. We believe that future U.S. investments must be conditioned on the development of an overall integrated U.S. strategy that clearly articulates agency roles and responsibilities, establishes clear goals, delineates the total costs needed, and assesses the risk to U.S. efforts. The strategy would also need to consider any expanded role of multilateral organizations, including the United Nations and World Bank. GAO recommends that State, in consultation with the Iraqi government, complete an overall integrated strategy for U.S. capacity development efforts. Key components of an overall capacity development strategy should include a clear purpose, scope, and methodology; a clear delineation of U.S. roles, responsibilities, and coordination, including the designation of a lead agency; goals and objectives based on Iraqi-identified priorities; performance measures based on outcome metrics and milestones; and a description of how resources will be targeted to achieve the desired end- state. Given the absence of an integrated capacity development strategy, it is unclear how further appropriations of funding for ministry capacity development programs will contribute to the success of overall U.S. efforts in Iraq. Congress should consider conditioning future appropriations on the completion of an overall integrated strategy. In commenting on a draft of the report accompanying this testimony, State and USAID noted (1) their concern over our recommendation to condition future appropriations for capacity development on the completion of a strategy; (2) the recent appointment of an ambassador to supervise all short- and medium-term capacity development programs; and (3) the need to tailor capacity development needs to each Iraqi ministry. In response to the agencies’ first comment, we do not recommend stopping U.S. investment in capacity development; the $140 million in supplemental funding appropriated in fiscal year 2007 remains available for the agencies to continue their efforts. Rather, we recommend that Congress condition future funding on the development of an overall integrated strategy. We acknowledge that State named an ambassador to coordinate the embassy’s economic and assistance operations. However, this action occurred in July 2007, underscoring our point that U.S. capacity development efforts have lacked overall leadership and highlighting the need for an overall integrated strategy. Finally, our recommendation does not preclude U.S. agencies from tailoring capacity development efforts to meet each ministry’s unique needs. A strategy ensures that a U.S.-funded program has consistent overall goals, clear leadership and roles, and assessed risks and vulnerabilities. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other Members have at this time. For questions regarding this testimony please me on (202) 512-5500, or Mr. Joseph A. Christoff, Director, International Affairs and Trade, on (202) 512-8979 or christoffj@gao.gov. Other key contributors to this statement were Tetsuo Miyabara, Patrick Hickey, Lynn Cothern, Lisa Helmer, Stephen Lord, and Judith McCloskey. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: The development of competent and loyal government ministries is critical to stabilizing and rebuilding Iraq. The ministries are Iraq's largest employer, with an estimated 2.2 million government workers. U.S. efforts to build the capacity of Iraqi ministries include programs to advise and help Iraqi government employees develop the skills to plan programs, execute budgets, and effectively deliver services. The administration received $140 million in fiscal year 2007 to fund U.S. capacity-building efforts and requested an additional $255 million for fiscal year 2008. This testimony discusses (1) U.S. efforts to develop ministry capacity, (2) the key challenges to these efforts, and (3) the extent to which the U.S. government has an overall integrated strategy. This statement is based on GAO-08-117 . To accomplish our report objectives, we reviewed reports from and interviewed officials of U.S. agencies, the Iraqi government, the United Nations, and the World Bank. We conducted fieldwork in Washington, D.C.; New York City; Baghdad, Iraq; and Amman, Jordan. Over the past 4 years, U.S. efforts to help build the capacity of the Iraqi national government have been characterized by (1) multiple U.S. agencies leading efforts without overarching direction from a lead agency or a strategic plan that integrates their efforts; and (2) shifting timeframes and priorities in response to deteriorating conditions in Iraq. As of May 2007, six U.S. agencies were implementing about 53 projects at individual ministries and other national Iraqi agencies. Although the Departments of State and Defense and the U.S. Agency for International Development (USAID) have improved the coordination of their capacity-building efforts, there is no lead agency or strategic plan to provide overarching guidance. U.S. efforts to develop Iraqi ministerial capacity face four key challenges that pose risks to their success and long-term sustainability. First, Iraqi government institutions have significant shortages of personnel with the skills to perform the vital tasks necessary to provide security and deliver essential services to the Iraqi people. Second, Iraq's government confronts significant challenges in staffing a nonpartisan civil service and addressing militia infiltration of key ministries. Third, widespread corruption undermines efforts to develop the government's capacity by robbing it of needed resources, some of which are used to fund the insurgency. Finally, violence in Iraq hinders U.S. advisors' access to Iraqi minstries, increases absenteeism among minstry employees, and contributes to the growing number of professional Iraqis leaving the country. The U.S. government is beginning to develop an overall strategy for ministerial capacity development, although agencies have been implementing separate programs since 2003. GAO's work in this area shows that an overall strategy for capacity development should include (1) a clear purpose, scope, and methodology; (2) a delineation of U.S. roles and responsibilities and coordination with other donors including the United Nations; (3) goals and objectives linked to Iraqi priorities; (4) performance measures and milestones; and (5) costs, resources needed, and assessment of program risks. U.S. ministry capacity efforts have included some but not all of these components. For example, agencies are working to clarify roles and responsibilities. However, U.S. efforts lack clear ties to Iraqi-identified priorities at all ministries, clear performance measures, and information on how resources will be targeted to achieve the desired end-state. State and USAID noted concerns over our recommendation to condition further appropriations and cited the appointment of an ambassador to supervise civilian capacity development programs. GAO does not recommend stopping U.S. investment in capacity development. The $140 million in fiscal year 2007 funds remains available to continue efforts while developing an integrated strategy. In addition, the U.S. ambassador arrived in Iraq in July 2007 underscoring our point that U.S. efforts lacked overall leadership and highlighting the need for an overall integrated strategy.