A Message from the Chief Financial Officer
The Agency Financial Report for Fiscal Year 2007 (AFR) is the Agency’s principal publication and report to the President and the American people on our stewardship and management of the public funds to which we have been entrusted. In addition to financial information, this report also includes a high level discussion of performance information.
On October 3, 2007, I was designated as Chief Financial Officer (CFO) for the U.S. Agency for International Development (USAID), making me the sixth USAID CFO since the CFO Act of 1990. I am proud to be named CFO for the Agency after 30 years of financial experiences at USAID.
I am pleased to report that, for the fifth year in a row, USAID received an unqualified or “clean” opinion from our Inspector General (IG) on all four of the Agency’s principal financial statements. In addition, we continue to meet the accelerated financial statement reporting deadlines.
This has been a landmark year for Agency financial operations. For the first time, during the second quarter of FY 2007, USAID advanced from “yellow” to “green” status for financial performance on the President’s Management Agenda (PMA) scorecard. During a series of meetings, we were able to demonstrate to the Office of Management and Budget (OMB) that financial data are leading to informed management decisions on an ongoing and expanding basis.
Significantly, USAID has no auditor-reported internal control material weaknesses nor material weaknesses reported under Section 2 (financial reporting) of the Federal Managers’ Financial Integrity Act (FMFIA). We completed all corrective actions related to the one auditor-reported material weakness—accrual accounting and reporting—identified by the Office of Inspector General (OIG) in the FY 2006 audit. On September 25, 2007, the Management Control Review Committee voted to reduce the two FMFIA financial reporting material weaknesses, both related to accruals, to “reportable condition” indicating that the internal control deficiencies will remain internal to the Agency but will continue to require corrective action plans. USAID has taken several steps to improve its accrual system, including revamping its electronic processes for producing obligation information, creating a help tool for Cognizant Technical Officers (CTO) to develop accruals offline, improving its existing training, and developing a new Web-based accruals training module. Recently issued Agency policy requires all current and soon-to-be-designated CTOs to take the new accruals training and achieve a passing score.
The Independent Auditor’s Report on USAID’s Consolidated Financial Statements, Internal Controls, and Compliance for FY 2007 contains no material weaknesses related to USAID accounting and operations.
The Independent Auditor’s Report includes five significant deficiencies and several related audit recommendations. We have accepted responsibility for addressing these issues and expect to take final actions by the end of FY 2008. We foresee no major impediments to correcting these weaknesses. Additional details regarding the weaknesses and our specific plans for addressing the audit recommendations can be found in the Management’s Discussion & Analysis (MD&A) Section of the AFR. Actions taken regarding issues from the FY 2006 audit are also included in this report.
In a 2007 Government Accountability Office (GAO) report entitled “Long-standing Financial Systems Weaknesses Present a Formidable Challenge,” USAID was cited as the only CFO Act agency for which its auditors provided positive assurance that its financial management system substantially complied with the requirements of Federal Financial Management Improvement Act (FFMIA) during FY 2006. Although the auditors reduced the scope of their considerable FFMIA efforts between 2006 and 2007, I am pleased to confirm that the auditors again noted no issues affecting substantial compliance with FFMIA.
Another continuing focus for 2007 has been Appendix A to OMB’s Circular A-123, a directive requiring management to guarantee the accuracy and effectiveness of controls over financial reporting. In FY 2006, we exercised the option to break down the compliance burden into a clear plan for full implementation within three years. We focused this year on the following five key business processes: accounts payable, accounts receivable, advances, obligations, and year-end financial reporting. The remaining work to fully implement Appendix A will be performed throughout FY 2008. In the meantime, I have requested additional resources and staff in order to ensure that all key business processes are appropriately verified and the myriad pieces of the system are effectively managed.
Recently, the Agency adopted a new standard set of Expanded Object Class Codes (EOCC) to expand transparency on funding use for administrative costs. USAID also completed mapping all programmatic resources to the new Foreign Assistance Framework and, during the third quarter, produced its first comparable Statement of Net Costs in this format and established a single mechanism for reporting priority activities to Agency stakeholders.
USAID is committed to minimizing the risk of making erroneous or improper payments to contractors, grantees, and customers. During 2007, our recovery auditors elected to terminate their engagement with USAID because they were unable to detect adequate recoveries for them to economically justify continuation of their work. We have an aggressive system in place to monitor payments, especially for high profile programs, including the Global War on Terror.
While we are pleased with our accomplishments in FY 2007, we will strive to improve all aspects of financial performance and to maintain higher financial management standards in FY 2008. We will continue to promote effective internal controls and focus on implementation of the PMA and other financial management initiatives. USAID will resolve any impediments that could affect the IG’s ability to issue an unqualified audit opinion next year and we will continue to meet the accelerated reporting deadline.
David D. Ostermeyer
Chief Financial Officer
November 15, 2007
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