USAID is the lead U.S. agency for administering humanitarian and economic assistance to about 160 countries. The USAID Administrator reports to the Secretary of State and receives overall foreign policy guidance from the Department of State. USAID operates its foreign assistance programs from its offices in Washington, D.C., and from missions and offices around the world. In 1993, we reported that USAID had not adequately managed changes in its overseas workforce and recommended that USAID develop a comprehensive workforce planning and management 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. Appendix I summarizes several reports and studies prepared by GAO and others since 1989 that address USAID workforce planning and human capital management issues. Studies by several organizations, including GAO, have shown that highly successful service organizations in both the public and private sectors use effective 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, other U.S. government agencies, the National Academy for Public Administration, and the International Personnel Management Association, we identified strategic workforce planning principles used by leading organizations. According to these principles, an organization’s 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. USAID has changed from an agency of U.S. direct-hires that largely provided direct, hands-on implementation of development projects to one that manages and oversees the activities of contractors and grantees. During the past decade, this trend has affected USAID’s ability to implement its foreign assistance program as the number of U.S. direct-hire foreign service officers declined and much of USAID’s direct-hire workforce was replaced by foreign national personal services contractors. In addition, while program funding remained relatively stable from fiscal year 1990 through fiscal year 2000, it increased from $7.3 billion in fiscal year 2001 to $11.5 billion in fiscal year 2003, and USAID’s fewer direct hires are now responsible for programs in more countries with little or no resident U.S. direct-hire presence. Moreover, USAID operates in a difficult and uncertain environment that presents unique challenges to its ability to plan and manage its overseas workforce. Because USAID did not have a strategic workforce planning system while these changes were underway, several human capital vulnerabilities have surfaced. For example, an across-the-board reduction in force for both the foreign service and the civil service, followed by a 5-year decline in the number of U.S. direct- hires, has left the agency with critical shortages of experienced mid-level staff and in the pipeline of junior staff. In addition, 37 positions remain vacant, and opportunities for training and mentoring staff are limited, sometimes forcing the placement of staff who may lack essential skills and experience. USAID also lacks a “surge” capacity to help it deal with emerging crises and changing strategic priorities. According to USAID documents and our discussions with agency officials, these vulnerabilities are making it increasingly difficult for the agency to adequately manage and oversee its foreign assistance activities. USAID’s U.S. direct-hire workforce decreased from about 8,600 in 1962 to about 3,162 in 1990. USAID could not continue its hands-on project approach as the number of U.S. direct hires, including foreign service staff, declined and responsibilities for planning, financing, and monitoring projects shifted to contractors, grantees, and host country governments. As figure 1 shows, this trend has continued as the number of U.S. direct- hire staff further decreased to 1,985 by December 2002. The number of foreign national employees—both direct-hires and personal services contractors—also decreased from 5,211 in fiscal year 1995 to 4,725 in fiscal year 2002. Furthermore, while program funding levels remained relatively stable for most of this period, program funding increased 57 percent from $7.3 billion in fiscal year 2001 to $11.5 billion in fiscal year 2003. 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 (see fig. 2). Of the 1,985 U.S. direct hires, 974 were foreign service officers, about 65 percent of whom were posted overseas. For our analysis, we used the workforce definition developed by USAID’s 1990 Workforce Planning Working Group. This group defined the agency’s workforce as those who have a direct employer-employee relationship with USAID. This includes the following staff categories: U.S. citizen direct-hire civil service in Washington, D.C.; U.S. citizen direct-hire foreign service, most of whom serve at overseas missions; foreign national (non-U.S. citizen) direct hires, whom USAID can employ overseas for any foreign service-related mission, program, or activity; and personal services contractors, both U.S. and foreign nationals, who are individuals on contract with USAID for the specific services of that individual only. In addition, USAID includes in its monthly staffing report other types of nondirect-hire staff with an employer-employee relationship, such as staff detailed from a number of organizations and other U.S. government agencies and centrally contracted technical advisors. 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. Last year, we reported that USAID relies heavily on nongovernmental organizations to deliver foreign assistance. In fiscal year 2000, USAID directed about $4 billion of its $7.2 billion assistance funding to nongovernmental organizations, including at least $1 billion to private voluntary organizations (charities) working overseas. We further noted that, although USAID generally chooses funding mechanisms that delegate a large amount of program control to implementing organizations, it has not compiled data on its use of specific types of funding or evaluated their effectiveness. In addition to hiring third parties to implement its programs, USAID also contracts with outside organizations to provide contract management and oversight of large programs. As we reported in July 2002, the agency hired several firms to manage and oversee some of the contractors and grantees conducting USAID hurricane reconstruction activities in Latin America. At present, USAID is also planning to hire outside parties to oversee the large-scale contracts recently awarded for reconstruction activities in Iraq. Despite the reliance on personal services and institutional contractors, USAID officials maintain that the direct-hire foreign service officer is still the core of mission staffing. He or she works toward achieving U.S. foreign policy goals, gives direction to the country program, brings corporate knowledge and a better understanding of agency guidance to the mission, and provides the authority needed to work effectively with host country counterparts and other U.S. government agencies. The quality and deployment of foreign national contractors can vary among missions and regions. U.S. personal services contractors are an important means for filling mission positions when U.S. direct hires are not available. According to USAID regulations, the terms of their contracts essentially allow personal services contractors to perform almost the same duties as U.S. government employees. About two-thirds work in technical positions, but many serve as program and project development officers, controllers, executive officers, and, occasionally, temporary mission directors— positions that USAID considers inherently governmental. According to USAID officials, as a matter of policy, the agency rarely delegates inherently governmental functions. According to mission officials, U.S. and foreign national contractors are an integral part of the mission workforce, but they cannot replace the agency commitment and experience that U.S. direct-hire foreign service officers bring to the mission. In addition to filling in for U.S. direct-hire staff, contractors, particularly foreign nationals, typically make a career at USAID and provide needed continuity and corporate knowledge of the country programs. However, officials noted that, compared to direct-hire staff, personal services contractors generally do not have the same level of agency commitment; do not fully understand how the agency works and the political pressures that it faces in Washington, D.C.; are not subject to the same degree of accountability; and have limited administrative and decisional authorities. Furthermore, contractors cannot supervise U.S. direct-hire staff, even if the contractor is very experienced and the direct- hire is new to USAID. This further limits the training and mentoring opportunities for new staff.