USAID has provided foreign aid since 1961 in an effort to improve countries’ economies, health, environment, and democratic processes. In times of crisis, the agency has also provided humanitarian assistance to those in need. USAID currently has 72 overseas missions and offices that manage projects associated with this foreign assistance. These projects are generally implemented by private voluntary organizations, nongovernmental organizations, international agencies, universities, and contractors. Since the end of the Cold War, Congress has reduced USAID’s appropriations, citing other funding priorities as well as basic questions about the effectiveness of foreign aid. USAID’s fiscal year 1996 obligations of $5.7 billion were 13 percent less than those in the previous year (see app. I for information on USAID obligations for fiscal years 1995 through 1997). To accommodate budget reductions, USAID cut its total workforce from 11,150 in September 1993 to 7,609 in June 1997 and will have closed 24 missions by the end of fiscal year 1997. Under the executive branch’s decision to consolidate the Department of State, the Arms Control and Disarmament Agency, and the U.S. Information Agency, the USAID Administrator will report directly to the Secretary of State rather than, as previously, to the President. Congress specifically directs how USAID spends much of its funding, earmarking substantial amounts of USAID’s direct appropriation for development assistance for specific purposes, such as child survival. Congress also earmarks funds for economic support and food assistance, which are administered by USAID. Congressional earmarks and executive branch directives (e.g., for the population program) accounted for 59.8 percent of development assistance funds in fiscal year 1995, 66.5 percent in fiscal year 1996, and 69.5 percent for fiscal year 1997 (see app. II for more details on directed and undirected assistance). In 1993, in response to criticisms about USAID’s inefficient processes and inability to demonstrate a significant impact on developing countries and some calls for the agency’s abolition, USAID’s Administrator volunteered the entire agency as a “reinvention laboratory.” USAID established five strategic goals to meet its agency mission of pursuing sustainable development in developing countries: (1) achieving broad-based economic growth, (2) building democracy, (3) stabilizing world population and protecting human health, (4) protecting the environment, and (5) providing humanitarian assistance. According to USAID, reengineering the agency’s overseas operations has revolved around (1) increasing its customer focus, (2) managing for results, (3) enhancing staff participation and teamwork, (4) empowering and increasing the accountability of staff, and (5) valuing diversity. The reengineering included reorganizing mission organizational structures, eliminating unnecessary administrative requirements, and including the participation of development partners and recipients in program planning. In 1994, USAID selected 10 missions to test these reengineering principles, concepts, and approaches prior to deployment worldwide. Based on observations of the experiments and feedback from the participating missions, USAID initiated full implementation of its reengineering approach on October 1, 1995. In fiscal year 1996, USAID deployed the New Management System, which was intended to provide an integrated database of financial and program information to facilitate the management of resources and monitoring of results. (See app. III for a chronology of USAID reforms.) USAID’s Administrator has noted that the agency’s reforms are consistent with the Government Performance and Results Act of 1993 (GPRA) and have positioned USAID well to meet the act’s requirements for strategic planning and performance monitoring. Overseas missions have changed their processes to streamline the way they provide assistance in support of USAID’s strategic goals. These changes include taking a team approach to management, accepting increased accountability through the authority and flexibility given them by USAID, and increasing the participation of development partners in the design and implementation of projects. USAID has supported the missions’ reform efforts with information and advice. Mission officials believe that these changes will result in more effective assistance programs. Moreover, our review indicated that the changes show promise that USAID is making progress in better managing the process of providing assistance. We could not fully assess the impact of the missions’ operational changes for the following reasons: (1) missions are at varying stages of implementing changes; (2) the impact of these changes may not be seen for several years, especially those that affect the design of new projects; and (3) the missions we visited had not established baseline information on the efficiency or effectiveness of their management operations before reengineering their processes and therefore could not demonstrate many measurable improvements. In some missions, officials indicated that some baseline data could be compiled from historical records but that doing so would demand an inordinate amount of scarce mission resources. Overseas missions we visited have reengineered their organizational structure to focus on achieving strategic objectives. Most missions have replaced their former office structure with a team approach to management, and each team is responsible for one of the mission’s strategic objectives. Team members at the missions we visited commented that the team approach has improved the management of their activities. USAID said that overseas missions have observed that teams are now more likely to (1) remain focused, (2) rethink tactics quickly when activities do not go as planned, and (3) terminate activities that only marginally contribute to results. Prior to reengineering, missions had several offices: technical offices, such as the education, health, and agriculture offices, which had day-to-day responsibility for implementing assistance projects, and support offices, such as the contracts, controller, and legal adviser’s offices, which assisted the technical offices. According to mission staff, in the past, each of these offices had its own management hierarchy and separately reviewed proposed actions such as expenditure requests or new project starts. This review was often done sequentially, and as each office raised problems or issues, action was delayed until they could be resolved; the proposal was then passed to the next office for review. The four missions that we visited had reorganized their offices into teams to manage assistance activities that support each mission’s strategic objectives. Staff members that previously worked for different technical and support offices now work together on a team toward a specific common objective. In most missions, the teams replaced much of the traditional office structure. For example, the mission in El Salvador combined the staff of its economic, education, and productive resources offices into a single economic growth strategic objective team, which also includes members from the contracts and controller offices. At the missions we visited, both technical and support staff said that issues that had previously delayed progress under the old process can now be resolved within the teams. For example, contract office staff are now involved in the early stages of project design and implementation, suggesting appropriate procurement instruments and helping draft scopes of work for proposed contracts. According to contract officers, this approach has reduced the number of sequential reviews and rewrites of proposals and the tensions that have historically existed between staff and technical offices. Under reengineering, USAID increased the authority and flexibility of missions in managing their activities by eliminating many administrative requirements previously imposed on the missions. For example, USAID eliminated the requirement for missions to prepare elaborate project papers and obtain bureau approval for new projects. Once a regional bureau approves a mission’s strategic objectives, the mission is authorized to develop activities to meet those objectives without the bureau’s further review and approval. USAID also eliminated the 10-year time limit on all projects, allowing the missions the flexibility to extend projects when it is advantageous to do so. For example, in Honduras, the mission extended an ongoing policy project in order to continue to provide high-level policy advice to the newly elected Honduran administration. Before reengineering, the mission would have had to design and authorize a completely new project or apply for a waiver from USAID to extend the project. Furthermore, USAID delegated to the missions a host of executive authorities previously held by officials at USAID headquarters. For example, missions may now independently issue implementation letters and negotiate and implement agreements with other U.S. government agencies. In accordance with the agency’s emphasis on staff empowerment and the assignment of responsibility and accountability under reengineering, mission directors delegated new authorities to their missions’ strategic objective teams. For example, the mission director in Honduras authorized team leaders to approve individual expenditures of up to $100,000 in program funds without her review. In the past, USAID was more concerned with the required inputs and expected outputs of a particular project than the results to be achieved. Projects had individual purposes that often related to an overall goal or goals in only a very general way, and the goals themselves were in broad categories rather than specific objectives against which progress could be measured. Also, missions reported on their activities in a variety of reports, including semiannual reviews and project implementation reviews, that did not necessarily focus on development results but rather focused on the status of project implementation. USAID is increasingly holding missions accountable for results. In fiscal year 1996, it began requiring the missions to report annually on the results of their programs in a report called the Results Review and Resource Request (R4). Missions must now report to high-level management on their progress in meeting agreed-upon strategic objectives and agency goals and quantify that progress through performance indicators developed by the missions, often with assistance from USAID’s Center for Development Information and Evaluation. Missions are to supplement the data in the annual R4 document with analyses of performance data and other evidence that the mission is making progress in meeting its strategic objectives. USAID has given its development partners a more active role in developing country strategies and designing and managing projects. Many of these partners were enthusiastic about this change. In some cases, the increased interaction has accelerated the design and management process. Also, with input from customers, the missions believe they have been better able to respond to a country’s needs and develop a strategy for meeting those needs.