<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:91839.wais]
IMPROVING FINANCIAL MANAGEMENT AT USAID
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 24, 2003
__________
Serial No. 108-104
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
_______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Government Efficiency and Financial Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Larry Brady, Professional Staff Member
Amy Laudeman, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on September 24, 2003............................... 1
Statement of:
Marshall, John, Assistant Administrator for Management and
Chief Information Officer, USAID; Everett Mosley, Inspector
General, USAID; and Gregory Kutz, Director, Financial
Management and Assurance, GAO.............................. 4
Letters, statements, etc., submitted for the record by:
Kutz, Gregory, Director, Financial Management and Assurance,
GAO, prepared statement of................................. 27
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York, prepared statement of............... 60
Marshall, John, Assistant Administrator for Management and
Chief Information Officer, USAID, prepared statement of.... 7
Mosley, Everett, Inspector General, USAID, prepared statement
of......................................................... 17
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
Towns, Hon. Edolphus, a Representative in Congress from the
State of New York, prepared statement of................... 41
IMPROVING FINANCIAL MANAGEMENT AT USAID
----------
WEDNESDAY, SEPTEMBER 24, 2003
House of Representatives,
Subcommittee on Government Efficiency and Financial
Management,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:10 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd R. Platts
(chairman of the subcommittee) presiding.
Present: Representatives Platts, Towns, Blackburn, Maloney,
Turner and Owens.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Larry Brady, Kara Galles, and Tabetha Mueller,
professional staff members; Amy Laudeman, clerk; Mark
Stephenson, minority professional staff member; Earley Green,
minority chief clerk; and Jean Gosa, minority assistant clerk.
Mr. Platts. With a quorum about to be present--Mr. Towns is
on his way--we are going to go ahead and get started and bring
this hearing to order for the Subcommittee on Government
Efficiency and Financial Management.
Today's hearing is one in a series focusing on financial
management at Federal agencies. For fiscal year 2002, 21 of the
24 agencies mandated by the CFO Act to audit their statements
earned an unqualified or ``clean'' opinion. Agencies that did
not earn clean opinions have been invited to testify before the
subcommittee as part of our oversight on financial management.
The U.S. Agency for International Development will be the focus
of today's hearing.
Our intent today is to focus not only on the financial
challenges facing USAID, but also on successful improvements in
USAID's financial management practices. After receiving
disclaimers for 5 consecutive years, the Agency improved enough
to earn a qualified opinion on its consolidated statements. In
fact, four of the five statements in 2002 that make up the
consolidated financial statements actually received clean
opinions.
That being said, USAID still faces financial management
challenges including the material weaknesses cited in the audit
and the use of so-called ``heroic efforts,'' the costly and
time-consuming manual accounting transactions used to reconcile
the books at year-end. Today's hearing will look at these
aspects of financial management and focus on the goal of
achieving sound business practices, not just earning an end of
the year clean opinion.
President Bush's administration has made financial
performance a top priority and a key part of the President's
Management Agenda. Congress has placed a great deal of emphasis
on the financial accountability of publicly traded companies
and their responsibility to provide accurate information to
investors. Congress and the Federal Government have an equal,
if not greater, responsibility to be accountable to our
investors, the American taxpayers.
[The prepared statement of Hon. Todd Russell Platts
follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Platts. Our witnesses today will discuss the results of
the financial audit for fiscal year 2002 at USAID. We are
honored to have the Honorable John Marshall, Assistant
Administrator for Management at USAID, the Honorable Everett
Mosley, Inspector General for USAID, and Mr. Greg Kutz,
Director of Financial Management and Assurance with the U.S.
General Accounting Office. Thank you for your presence here
today and for the extensive written statements you have
provided the committee in advance of this hearing. I look
forward to hearing your oral testimonies as well.
I would normally yield to the gentleman from New York. When
Mr. Towns arrives, after your statements, I will allow him to
make an opening statement then, if he chooses, or to enter it
into the record.
We will proceed directly to each of your statements. We
have been advised we may have votes in 15 minutes or so. My
hope is we can get your opening statements as part of the
record and if need be, recess briefly to run over, vote and
come right back.
I would ask each of our witnesses and any of your staff
that will be advising you today, to stand and raise your right
hands to take the oath.
[Witnesses sworn.]
Mr. Platts. The clerk will note that all witnesses and
support staff have affirmed the oath. We will now proceed
directly to your testimonies. We will begin, Mr. Marshall, with
you, followed by Mr. Mosley and finally, Mr. Kutz. Again, the
subcommittee appreciates your testimonies and would ask if you
would limit your testimony, today, to 5 minutes for your
opening statements and we will get into questions following
your testimony.
Mr. Marshall, if you would like to begin.
STATEMENT OF JOHN MARSHALL, ASSISTANT ADMINISTRATOR FOR
MANAGEMENT AND CHIEF INFORMATION OFFICER, USAID; EVERETT
MOSLEY, INSPECTOR GENERAL, USAID; AND GREGORY KUTZ, DIRECTOR,
FINANCIAL MANAGEMENT AND ASSURANCE, GAO
Mr. Marshall. Thank you, Mr. Chairman.
When Administrator Andrew Natsios arrived at USAID in 2001,
he found all of the agency's management systems in a state of
disrepair. He directed me to overhaul and modernize the basic
systems of the Management Bureau, Human Resources, Financial
Management, Procurement, Information Technology and
Administrative Services. Reforms in each of these areas are
well underway. Most have been integrated with the President's
Management Agenda and many are being coordinated with similar
efforts in the State Department.
As a result of past failures, our challenges in financial
management have been more visible and our reform efforts more
urgent than in other areas. Regrettably, USAID in the 1990's
was a poster child for government waste as a result of a failed
modernization effort. We have also been noted as one of a few
agencies unable to produce a clean audit opinion because our
systems could not produce complete, reliable and timely
financial information.
Our central problem has been our lack of an agencywide
financial management system that meets Federal requirements. We
began to address this fundamental weakness with the
implementation in fiscal year 2001 of a new government approved
commercial off the shelf accounting system we call Phoenix.
Since its implementation in Washington, DC, Phoenix has
produced significant results. After 5 consecutive years of
disclaimers on all five of our financial statements, in 2001
our Inspector General was able to issue three out of five
qualified opinions and in 2002, four out of five statements
received unqualified opinions. This marked the first time since
enactment of the Government Management Reform Act that USAID
received an opinion on all of its financial statements.
In the 2002 GMRA audit, the Inspector General recognized
seven internal control material weaknesses. Six of the seven
have been addressed and we expect the last one to be fixed in
the near future. We are working closely with the Inspector
General on resolving all remaining obstacles so that he may
issue a clean opinion for fiscal year 2003 and meet the
administration's accelerated reporting deadline of November 15.
The next phase of our modernization effort will be the
deployment of Phoenix overseas. We plan to complete worldwide
implementation by the end of fiscal year 2005. This will bring
the agency into full compliance with Federal requirements. At
the same time, we are working closely with the State Department
to implement a joint financial management system as recommended
by a study commissioned by the Department of State and USAID at
the urging of the two agencies Inspectors General and OMB. The
joint system will combine the two agencies' version of the same
accounting software package into a single, common platform, one
system, one set of code. We have also agreed to jointly
implement a procurement system in 2006. USAID has fully
embraced the President's Management Agenda and has made
significant progress.
Like many Federal agencies, USAID is experiencing serious
human capital challenges. As a result of new program demands
around the world, deep staffing cuts and decisions to
effectively shut down recruiting and training in the 1990's,
our workforce is stretched thin, rapidly graying and lacking in
critical skills.
Yesterday, I testified to Congressman Shays' subcommittee
about our efforts to develop a comprehensive work force
planning capability. These efforts will help us address
critical competency gaps including those in our financial
management capabilities through systematic recruiting, training
and career development planning.
In the area of budget and performance integration, we have
developed a strategic budgeting model that has enabled us to
link performance and resource allocation more efficiently. For
the first time ever, the State Department and USAID have
developed a joint strategic plan that will improve
collaboration and coordination of diplomatic and foreign
assistance services around the world. We are developing a
comprehensive USAID competitive sourcing strategic plan and
action plans to achieve more efficient and effective
competition between public and private sources to generate
savings and performance improvements.
We are partners on several of the President's 25 e-
Government initiatives, collaborating on projects for
standardization and integration of similar business processes
when it makes sense. We are developing a joint enterprise
architecture with the Department of State. This tool will
identify redundancies and inefficiencies and help us set
priorities for joint management improvement and IT investments.
We have established procedures for capital planning and
investment control to ensure that we spend our IT resources
more efficiently and we have greatly enhanced our IT security
efforts.
Mr. Chairman and members of the subcommittee, Administrator
Natsios has no higher priority than continuing to improve
USAID's management systems. We inherited a base of capabilities
that had deteriorated seriously relative to 21st century
standards and we are making determined efforts to improve as
rapidly as our resource levels allow.
Thanks for the opportunity to report on our progress. I
look forward to your questions.
[The prepared statement of Mr. Marshall follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Platts. Thank you, Mr. Marshall.
Mr. Mosley.
Mr. Mosley. Mr. Chairman, members and staff of the
subcommittee, I thank you for the opportunity to appear before
you this afternoon and provide my testimony on the financial
management challenges facing USAID and progress being made to
meet those challenges.
In recognition of the time constraints that you pointed
out, I have provided my full statement for the record and I
will make my verbal statement very brief.
Prior to passage of the Government Management Reform Act of
1994, USAID, like many other Federal departments and agencies,
did not have an integrated financial management system in place
that could provide accurate and timely financial information
that managers needed to effectively manage or that could
produce auditable financial statements. This situation resulted
in disclaimers of opinion--unauditable financial statements--
for the first 5 years of the Government Management Reform Act
that were audited between 1996 and 2000.
However, USAID management's efforts over the last several
years, with the assistance of the Office of Inspector General,
have resulted in significant improvements in the financial
management operation. USAID implemented a new financial
management system called Phoenix, for the Washington
operations, in December 2000. This system and efforts by
management and the Office of Inspector General to concentrate
on correcting outstanding material weaknesses resulting from
the audit reports have resulted in the fact that we are able to
issue opinions for the first time in fiscal year 2001.
OIG issued a qualified opinion on three of the five
financial statements and a disclaimer of opinion on the other
two statements. With continued improvements in fiscal year
2002, the OIG issued unqualified opinions on four of the five
USAID financial statements and a qualified opinion on the final
statements. We are following up on all weaknesses from the
fiscal year 2002 audit as a part of our audit now in process of
the fiscal year 2003 financial statements. It would be
premature to draw final conclusions at this point but thus far,
nothing has come to our attention that would prevent us from
issuing audit opinions on each of the financial statements for
fiscal year 2003.
While improvements have been made and the opinions for the
statements have been more positive in recent years.
Considerably more still needs to be done. Currently the USAID
financial statements are put together through a tremendous
amount of effort by USAID management staff and similar
extensive efforts by the Office of Inspector General to perform
the audit. This is because the financial systems do not totally
produce the statement and much manual work is needed to pull
them together. OIG then has to perform significant testing and
individual transaction reviews to compensate for the lack of
controls in the system and to be in a position to render an
opinion. This should not be, so it is extremely important that
USAID get its Phoenix system for financial management deployed
to field operations which will result in an integrated
financial management system that meets the Federal
requirements. This will also provide USAID managers with timely
and accurate information needed to effectively manage the
business of the agency on an ongoing basis.
Ultimately the preparation and audit of the financial
statements on a quarterly and annual basis would then be a
byproduct of a system that provides for normal business
operations.
Mr. Chairman, I thank you for your time and I am willing to
answer any questions.
[The prepared statement of Mr. Mosley follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Platts. Thank you, Mr. Mosley.
Mr. Kutz.
Mr. Kutz. Thank you, Mr. Chairman.
Thank you for giving us an opportunity to testify on
financial management challenges facing USAID. We have reported
financial management as a significant challenge facing USAID
for years. The bottom line of my testimony this afternoon is
that although the opinions on USAID's financial statements have
improved, significant challenges remain to achieve the goal of
effective financial management.
My testimony has two parts: first, an overview of the
longstanding financial management challenges and second, our
perspectives on efforts at reform and some key elements of
success.
First, Federal financial management has come under
increasing scrutiny in recent years. The establishment of the
Federal Financial Management Framework has shed light on this
important issue. As this subcommittee is well aware, the
challenges at USAID are not isolated and reflect a
governmentwide problem. In light of the serious fiscal
challenges facing our Nation, the importance of effective
financial management at Federal agencies is magnified.
Progress at USAID since fiscal year 2000 relates primarily
to improvements on opinions in its financial statements. As the
Inspector General and Mr. Marshall noted, the opinions began
improving in fiscal year 2001 and for fiscal year 2002, the IG
issued unqualified opinions on all but one of the financial
statements. The IG noted additional progress made in improving
processes and procedures in fiscal year 2002.
However, over the last 3 years while USAID's opinions on
its financial statements have improved, reported material
weaknesses and noncompliance have increased. This increase does
not necessarily reflect that the situation has gotten worse,
but rather shows the results of a full scope audit and a better
definition of the challenges.
The reported weaknesses indicate that USAID does not have
timely, reliable financial information. The chronic nature of
reported weaknesses reflect challenges with people, processes
and systems. Progress in addressing weaknesses has been slow.
For example, we reported in 1993 that USAID had problems with
timely deobligation of unneeded funds. This issue remained for
fiscal year 2002 with the IG reporting $153 million of stale
obligations at year end.
Moving on to my second point and as Mr. Marshall noted,
USAID has several reform efforts underway to address the
challenges. For example, they are attempting to implement an
integrated financial management system. A previous attempt to
develop a home grown system in the 1990's failed which set them
back in their reform efforts. This current effort involves a
commercial software procurement. Successful implementation of
this system will require reengineering of processes and
controls and significant, substantive management oversight.
With respect to oversight, USAID has a Governance Committee
that is leading transformation of business systems and
organizational performance. Some of the key issues this
committee can address include cultural resistance to change,
improvements in human capital and IT investment oversight.
Active, substantive oversight of the implementation of the new
system is a key to reform.
Last but not least I come back to human capital. The root
cause of the financial problems at USAID appears to be human
capital in nature. It is people that implement and operate
systems. It is people that establish, follow and monitor the
effectiveness of internal controls. Since the early 1990's, we
have reported that USAID has made limited progress in
addressing its human capital management challenges. Developing
a comprehensive work force plan is critical for USAID given the
reductions in personnel in the 1990's and the high number of
employees eligible to retire. In addition, USAID has not had
consistent financial management leadership. Sustained
leadership by a CFO and a high quality financial work force are
critical to successful reform.
In summary, USAID appears to be making a serious attempt to
reform its financial management. Initiatives are under way to
address the many challenges. However, progress to date relates
primarily to improvements in opinions on financial statements.
These opinions reflect a heroic effort to develop numbers at
year end rather than the ability to generate timely, reliable
information for management and the Congress. To achieve
fundamental reform, USAID will need to successfully address its
challenges with human capital, internal controls and business
systems.
Mr. Chairman, that ends my statement and I would be happy
to answer questions.
[The prepared statement of Mr. Kutz follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Platts. Mr. Kutz, thanks for your testimony.
I would like to recognize our ranking member, Mr. Towns
from New York, as well as our vice chairwoman, the gentlelady
from Tennessee, Ms. Blackburn. Would either of you like to make
an opening statement before we get into questions?
Mr. Towns. No, Mr. Chairman, I will place it in the record.
[The prepared statement of Hon. Edolphus Towns follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Platts. OK. We will certainly accept your written
statements for the record.
I think we have about 10 minutes before the first vote, so
I am going to try to get started here. My understanding is we
have two votes. We will try to get those close together and
come back with you. We certainly appreciate our witnesses'
patience with us as we run over there.
Mr. Marshall, if I could start with kind of a broad
question. We have heard testimony here, today, and in your
written statements about the past efforts of trying to get the
agency's arms around financial accountability and the
expenditure of roughly $100 million, or so, through the 1990's;
and now of a new effort because the previous effort was not
successful. We understand you are currently developing an
enterprise architecture while moving forward with the domestic
implementation of the Phoenix system, looking forward to
implementation in foreign locations, and also efforts with the
Department of State on a joint financial system--a lot of
coordination.
What can you tell us that will help to assure us the
mistakes of the 1990's, where $100 million was spent and, at
the end of the day, did not have a system that actually worked;
and that as you move forward from your operations here in the
United States to your operations overseas, working to
coordinate these various efforts that are all important but
need to work together at the end of the day--whether a year
from now or 2 years from now--we truly are going to have a
financial system in place that allows informed, day-to-day
decisionmaking to be made?
Mr. Marshall. We are doing things differently is the short
answer and we have spent a lot of time over the last couple of
years in building a foundation of best practices upon which to
buildup the capabilities to manage the system implementation
more effectively. As noted in the testimony of my colleague
from GAO, the last system in the 1990's was a home grown effort
they attempted without all the requisite capabilities to
develop their own system. We are taking a proven, effective,
commercial off-the-shelf product, that has been designed for
the Government and successfully implemented by a large number
of government agencies. So a lot of that learning curve, you
might say, we are benefiting from that.
We are investing in sound project management capabilities,
we have put our plans through a more rigorous business case
analysis frankly to secure funding from the Office of
Management and Budget as a result of the administration's much
tougher requirements in developing business cases, the scrutiny
they are providing on IT investments and the emphasis on
project management. So we are going to make sure we have the
right skills in place to manage effectively. Training and
certification in the skills of project management will be amply
funded. We are presuming that the administration and Congress
provide the resources it takes and putting all these best
practices in place, together with fully skilled, capable
resources, will get the job done.
Mr. Platts. This may relate to some of your testimony
yesterday. I wasn't able to be at the National Security
Subcommittee regarding the workforce, but it kind of goes hand-
in-hand with what you are doing different in the sense of your
infrastructure. As I think we all agree, having personnel there
to take that infrastructure, really make it work and to act
upon it has been one of the challenges to the agency of having
and retaining your work force. Especially since over the next
several years, 40 percent or so of your work force will be
retirement eligible, which will compound that challenge.
How are you moving forward to match on the human resource
side and ensure people who are there will stay or are going to
be recruited to put the systems you are currently developing
into use.
Mr. Marshall. That is a very good question and it is an
acute problem at USAID and many other agencies. The agency
effectively shut down recruiting in the 1990's and as a result,
we have what you might call a ``lost generation'' of people who
would be in their mid-career years who could be replacing the
senior level professionals who are becoming eligible and
retiring rapidly. Over the past couple of years, we have been
ramping up a mid-career recruitment vehicle. We call it our New
Entry Professional Program. A couple of hundred new entry
professionals have come in with a variety of skills, primarily
on the Foreign Service side of our organization. Our
organization includes both Civil Service employees primarily
based in Washington, and Foreign Service who are based overseas
and in Washington. On the Civil Service side, we continue to
recruit.
For jobs relative to the financial management, we are
making sure we advertise and screen for the kinds of skills we
need. Our work force planning effort is just beginning. It has
been neglected for too long. I had a long discussion with
Chairman Shays in the other subcommittee hearing yesterday
about this. We are very concerned but we are moving as
aggressively as we can to put the right mechanisms in place so
that we conduct work force planning on a systematic basis,
institutionalize that capacity so we don't get stuck in this
kind of situation again in the future.
Mr. Platts. I have some followup questions to both those
issues but before we break, I want to recognize Mr. Towns.
Mr. Towns. We don't have enough time. I walk slow, Mr.
Chairman.
Mr. Platts. So you want to wait until we come back? Maybe
what we will do is go ahead and break here so we can go vote
and we will proceed as soon as we return.
Thank you.
[Recess.]
Mr. Platts. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
Mr. Marshall, let me start with you. Your funding over the
last year almost doubled, right?
Mr. Marshall. Are you talking about programmatic funding
for the agency overall?
Mr. Towns. Yes.
Mr. Marshall. I don't have those numbers handy but that
sounds in the ballpark.
Mr. Towns. I guess my real question is does USAID have the
personnel and financial management system in place to handle
the surge of funding?
Mr. Marshall. That's a very good question, sir. We are
stretched now. Our present capabilities, as you heard in
testimony from all three of us this morning, are in need of
modernization. We think we can get the job done to accommodate
the surge of activity that we anticipate over the next several
years. Right now, we are getting the books balanced and we
believe we can at least produce an unqualified opinion. We are
hoping we will this year but I can't deny that it is not
without heroic efforts as testified by Mr. Mosley. It takes a
lot of leg work because we don't have an integrated, worldwide
system in place. We still have legacy systems which have
difficulty integrating with our core system in Washington, a
lot of paper-based processes and the system is not nearly as
efficient as we would like it to be, but we are moving as
aggressively as we can to correct those deficiencies.
Mr. Towns. Mr. Kutz, you testified that you used USAID
financial management conditions of 2 years ago as a baseline
for this current review. You go on to testify about various
improvements and also some apparent deteriorations. What is the
bottom line in your opinion? Is it better now, worse or the
same? I am not sure.
Mr. Kutz. I would say the additional problems that were
identified were the result of full scope audits. In 2000, there
were disclaimers on all the financial statements which means
you can't give any opinion on the financial statements.
Typically when agencies have a full scope audit where all areas
of the audit are investigated, in this case, by Mr. Mosley's
team, more issues would come to light. I would say they are
probably in better shape from either knowing what the problems
are or having had time to make progress against the challenges
identified.
I have done lots of financial audits also and I have seen
that consistently that as you audit more and more items, more
issues come to light. Now that they have had a full scope audit
done for several years, I would think most of the issues are on
the table for them to attack. I would say it probably better
reflects today the issues than 2 years ago when they had
audited everything.
Mr. Towns. So you are saying the issues are out there now
and it is up to them to begin to correct them?
Mr. Kutz. I would say it is up to them to correct. I think
they should know all the challenges that face them at this
point and it is a matter of going after it with the people
processes and systems.
Mr. Towns. Why do you think they have not achieved the
success that maybe you had expected? Why do you think they have
not been able to move more aggressively?
Mr. Kutz. I don't know if they haven't moved aggressively,
I think the root cause of the problem as we see it, and we
don't do the financial audit, Mr. Mosley does the audit, but
looking across government, the human capital would be, in our
view, the issue that is most important here. GAO has looked at
human capital in a broader sense at USAID and had a lot of
problems with the progress they have made along those lines,
but right now, you don't have a chief financial officer in
place. I understand one is coming on board and that is going to
be critical to reform, having a CFO that is in place for
several years to maintain the efforts toward reform over a long
period of time, that is going to be necessary, and making sure
they recruit and retain a competent, high quality financial
management work force is going to be a critical element here.
A lot of times people say the problem is the system but I
don't think the problem is that simple; it is the people that
are implementing and operating the system that are the more
important issues.
Mr. Towns. Mr. Marshall, 2 years ago your predecessor
testified that most of the financial management problems faced
by AID at the time would be addressed by now. That is
apparently not the case. Both your IG and GAO point to serious
continuing weaknesses. What has gone wrong? When can we expect
to see real improvement? This was 2 years ago.
Mr. Marshall. Things changed unfortunately in those
intervening 2 years. We had a new administration come in and
raise the bar on its acceptance of funding requests, business
cases for IT investments like our financial system, so we
didn't receive the funding until we did more homework to
establish better capabilities, to start work on an enterprise
architecture which was a prerequisite to getting funding from
OMB so it was clear this investment met the needs of the agency
in a broader enterprise context and so that we produced a
business case which fully justified the investment. Those
criteria had not been previously met and this new
administration has raised the bar on those requirements so we
have done some more studying. Within the last 6 months at the
suggestion of Mr. Mosley and his counterpart at the State
Department, we have done another study to study not just
deployment of our system and the State Department system, two
systems independently, but how the two systems could be
integrated into a single system to serve both agencies. That
has also resulted in at least another 6 months delay in our
receiving funding to move forward with deployment of our
financial system, Phoenix, overseas.
Mr. Towns. Mr. Chairman, there will be another round?
Mr. Platts. Yes, sir.
Mr. Towns. I see my time has expired.
Mr. Platts. Ms. Blackburn, did you have questions?
Ms. Blackburn. Yes, I did. Thank you so very much. It looks
like I got back just in time.
I want to go back to the Phoenix system. Mr. Kutz, I think
I want to come to you with this. We were hearing about the
implementation of the Phoenix systems on a worldwide basis and
Mr. Marshall made the comment going back and looking at what
has been tried previously and the amount of money invested, I
think as we sit through these hearings and talk to different
departments, we hear stories of failures when it comes to our
interactive technologies and our technological applications. We
hear lessons learned stated but it is very seldom that we see
those applied.
As we look at the Phoenix system, if I am understanding
correctly, Mr. Marshall, you are saying it is an off the shelf
product with government applications. We have already spent
$100 million here, DOD has spent hundreds of millions, we have
Homeland Security spending hundreds of millions. I have a
couple of questions. One, the applications that are available
through the architecture in the Phoenix systems, if they are
able to be implemented for our recordkeeping, money tracking
with these programs, then would the same system be able to be
used in other agencies?
If the answer to that is yes, what would the timeline be
for implementing it through USAID and then also with some of
the other agencies. If you have a timeline worked up and a cost
estimate, if you were to take that template and that
architecture and apply it, tweak it for other agencies, have
you given any thought to what a cost savings would be rather
than doing it much like what we heard from the Chief Financial
Officer with Homeland Security, that there was no timeline and
the cost estimate was somewhere between $100-$200 million which
the constituents in my district Monday morning at a Chamber of
Commerce breakfast just broke into laughter when they heard
that. Response?
Mr. Kutz. Let me break the bad news to you, first. With DOD
you are not talking about hundreds of millions, you are talking
about tens and hundreds of billions with systems. So they are
operating in a different sphere of money.
With respect to this system that they are implementing,
again I am not that familiar with exactly what they are doing,
this is a Momentum system, an AMS product, an off the shelf
product. The prior effort they had to implement, the system was
a home-grown effort. I think studies have shown that the off
the shelf packages are easier to implement, although they are
not necessarily simple to implement because some of the
failures we have seen in the Federal Government have also
included off the shelf packages that have not worked.
The key to the off the shelf implementations would be
reengineering of business practices and internal controls and
strong, consistent oversight and project management. Off the
shelf packages aren't simply something you apply, you push a
button and everything works. It just doesn't work that way. The
success level I believe with off the shelf packages would be
more heightened.
Other agencies in the Federal Government and the
legislative branch, for example the Architect of the Capitol,
are implementing this same system, so it is being used other
places.
If I understand your question, with respect to could the
Government apply this across the board, presumably yes, the
Government could if you looked at the Government as something
like Exxon-Mobil where you have a bunch of subsidiaries. Could
you have one system across the Government? There has been a lot
of talk about doing such a thing. Could there be savings? Yes,
there could be billions of dollars of savings if you did
something like that.
The types of technology and functionality built into this
momentum system are tested by the JFMIP, the Joint Financial
Management Improvement Program, and presumably if implemented
correctly and processes reengineered, this is a tested system
that should work. I think I touched on all your points.
Ms. Blackburn. Yes, you did a great job and I thank you for
being succinct in that and I will come back.
Mr. Platts. Mr. Marshall, I want to ask your opinion about
the statement that you hope to have an unqualified opinion for
your 2003 statements but admit that it is going to require
heroic efforts again to make that happen.
It is understandable in the short term why every agency
wants to have an unqualified opinion and not be one of the
ones--the 1, 2 or 3 of the 24 CFO Act agencies that does not
get a clean opinion. In the long term that is not really
achieving the intent of the CFO Act and the President's
Management Agenda, which is clearly having a management system
in place that lets us benefit from that system day in and day
out.
What is the decisionmaking process? How has the agency gone
about saying you don't have unlimited resources, financial or
human capital, so by focusing in heroic fashion to get an
``unqualified opinion,'' this year, you are going to have to
take resources, money or personnel from the long-term goal of
that systematic change and your internal controls. It seems for
the short-term gain, we are going to have a loss long-term. In
other words--a longer period of time before we have those long
term processes in place. Your response to the opinion I have of
the approach you are taking?
Mr. Marshall. That is a good question. We have wrestled
with that one ourselves. Indeed, what is the business value of
a heroic effort in that investment toward producing what might
be an apparent victory of a clean audit opinion when that money
might have been reinvested in other initiatives with more
lasting impact. That is a tough one.
We believe the effort that goes into the audit doesn't just
produce a clean audit opinion. It also produces, as I think Mr.
Mosley and Mr. Kutz testified, better understanding of your
financial vulnerabilities because each time you conduct the
audit, you dig to deeper levels of information, you undercover
perhaps additional material weaknesses or deficiencies which
you hadn't inspected before and that tells you something about
the condition of your books of your financial system. That
helps you target your investment initiatives to fix those kinds
of problems.
Mr. Platts. That would go to identifying the weaknesses but
then expending the dollars or personnel time of accounting for
those weaknesses by that heroic effort to make up for it versus
just identifying and saying, here are our problems--why we
can't get an unqualified opinion without heroic effort. We are
going to acknowledge that, accept a qualified opinion or no
opinion for this year so that we can take these resources we
would need to use to account for those shortcomings and put
them into long term benefits.
Mr. Marshall. We have had some of those discussions and it
is really a tradeoff because we do receive value beyond
symbolic result of a clean audit opinion from what we learned
conducting the audits and we are required to close the books.
So some effort has to be made to do that.
I would agree with the point Mr. Kutz made that the use of
the information is really the ultimate aim. It is using that
information to better manage your entire enterprise. We have
serious human capital challenges in providing the training to
the right people to teach them to use the information more
effectively to manage their programs and making the data
available and giving the people the skills to analyze the data.
There is a lot to be done here but we do think there is some
value to closing the books, getting the opinion and hopefully
getting a clean one that we think justifies that investment.
Mr. Platts. Mr. Mosley and Mr. Kutz, your sentiments on
spending the resources, personnel or capital to get an
unqualified opinion versus accepting a qualified one and using
that instead for the long term transformation?
Mr. Mosley. If I could be very frank, that has not been the
emphasis. The emphasis from everybody has been clean opinions.
That is being very honest with you.
Mr. Platts. When you say everyone, who do you mean by
everyone? OMB?
Mr. Mosley. OMB, the administration, GAO, everybody is
pushing for a clean opinion, not only for AID but for all of
government, to be very honest with you. Several years ago, we
had discussions within the agency where the OIG's office and
management sat down and talked about, let us not even go
through doing this big work, this massive amount of work
knowing we are going to come up with a disclaimer anyway. Why
don't we just have the disclaimer now and concentrate on
working on the things needing to be corrected so we have a
better system. That really wasn't an acceptable option for us,
even though we still came out with a disclaimer.
What we have done for the last several years is we have
narrowed our work to what are the critical issues that are
preventing us from getting good data. Those are the issues we
have worked on with management. That has allowed us to come to
better opinions on the financial statements. The other just
hasn't been an option for us.
By the same token, the ultimate of getting financial data
on a current basis that managers can use to manage is not going
to happen until we get the system, Phoenix, deployed to the
field. The reason for that is, right now we have lots of people
in the field who don't have systems that are integrated so what
they do is keep cuff records. They keep those cuff records in
order to maintain the information they need to do their
managing. The problem with that is when you come from Congress,
from management, from OMB and ask for certain information, they
have to go through a long process of pulling that information
together. It takes time, it sometimes lacks accuracy and you
have to reconcile that information. That is why we need the
system deployed to the field as soon as possible.
Mr. Platts. Mr. Kutz? I acknowledge there is a push for the
clean opinions and unqualified opinions but I hope the push for
that is for unqualified opinions that really mean something day
to day.
Mr. Kutz. Right. Our position is that the unqualified
opinion is not the most important thing and in fact, with DOD
as you may remember from our hearing earlier this summer, the
law was passed that effectively prohibited spending of a lot of
money to try to audit unauditable information. We supported
that legislation under those circumstances. We don't think the
end goal here is the unqualified opinion.
I have seen this issue across government. I saw it at IRS,
for example. IRS is at the point right now where they have
their weaknesses and all those weaknesses are dependent upon
systems being modernized. If the systems never get modernized,
those weaknesses will never go away. They are at a point where
they are having to still do somewhat of a heroic effort,
although they have perfected it to some extent by getting
numbers once a year. It is a tradeoff between spending time. It
is not like you have unlimited resources so to the extent you
are spending that time getting that clean opinion, that is time
that will not be spent on systems modernization or upgrading
your human capital or whatever else there is to do.
Mr. Platts. It seems for USAID and IRS, it is kind of a
catch-22. No one wants to be highlighted as not having that
clean opinion, but for what we are really after, it doesn't
mean anything if, year after year, it is heroic.
I raise that because I think we are being shortsighted in
our approach in many instances and in this specific one.
Mr. Kutz. Governmentwide, you have 19 out of the 24 right
now that have systems that don't comply with FFMIA's but 21 out
of the 24 have the clean opinion, so I think you can see what
has happened here.
Mr. Platts. We are using that heroic, end of the year
effort to look good but not really get the benefit day in and
day out. I want to come back to that.
Mr. Towns.
Mr. Towns. Thank you.
Mr. Marshall, thinking about your current expansion, GAO
testified that many individuals financial managers must depend
on to provide the data used for financial reports are not
answerable to the financial managers and often do not have the
background or training necessary to report that data
accurately. How are you addressing this problem?
Mr. Marshall. That gets to the heart of the human capital
challenges that Mr. Kutz has described where we need to do a
much better job of work force planning, of defining the
competencies we need throughout the work force in financial
management and any of or other management or programmatic areas
and making sure we have those competencies in place either by
hiring, outsourcing, training, recruiting, whatever it takes.
The first thing we need to do is to define what are the
requirements and what are the gaps and then develop a strategy
to meet those gaps in one of those different ways. This is one
very high on our list.
We have, as I testified yesterday to Mr. Shays'
subcommittee, our initial work force planning pilot efforts
will be soon underway and we are targeting our management
areas, human resources and procurement as well as the
programmatic area of our global health programs where we think
we have particularly acute needs to address those human capital
gaps. Those will be the first areas we are looking at.
It is a rigorous analysis that needs to take place. We are
trying to address it as best we can through ad hoc ways, you
might say, but we are not doing it in a systematic way as we
need to be but we are trying to get there as rapidly as we can.
Mr. Towns. Mr. Kutz, let me ask you this. First of all, who
are these people and who are they answerable to if not the
financial managers?
Mr. Kutz. They would be answerable to the various
components of USAID outside of Mr. Marshall's area. They would
be programmatic people more so. Again, this is not an issue of
just USAID. This is an issue across government where a large
chunk of the financial information and systems are not under
the purview of the chief financial officer which does create
kind of a mixed dotted line reporting issue for getting
financial information to the systems. One would be the
procurement people as an example of that. Again, I think it is
more the programmatic people, the people who are involved in
distribution of funds and oversight of grants and contracts.
Mr. Marshall. We do have a worldwide financial management
controller's community as well as procurement community that
have you might say a dotted line relationship to those
centralized organizational components that are part of the
management bureau which I head. Our CFO has a dotted line
reporting relationship to controllers in each of our missions
overseas and the controllers' staffs. As Mr. Kutz was
describing they aren't directly under my control or the control
of the CFO who is a member of my organization, but we do issue
policy guidance and we coordinate training and define the
standards these individuals and their systems are intended to
perform. So we do our best to train up and test up to those
standards but they aren't directly under my control and those
resources are stretched pretty thin and are oftentimes
conflicted between their reporting relationships up through
their chains of command in the field and through that narrow,
small dotted line into Washington.
Mr. Towns. Mr. Mosley, you testified that the problem
affecting USAID financial management systems were caused by the
absence of effective controls for managing USAID information
technology resources. Could you elaborate on that?
Mr. Mosley. There are a lot of weaknesses in the general
control systems. In fact, that is why we have to do so much
substantive testing. The systems don't have the controls in
them, plus you don't have an integrated system that includes
the field mission accountability control system. That system
then feeds information into Phoenix and then once you are
trying to reconcile that information, it doesn't have the
controls necessary to make sure the information is accurate.
That is why there is a lot of effort being made by the managers
to pull together the statements and us to do the testing of the
transactions on a statistical basis to try to determine whether
there are significant weaknesses and whether we can render
opinions.
Mr. Towns. Mr. Marshall, do you have any kind of time table
for when you might be able to pull this together?
Mr. Marshall. Our current plans call for completing the
overseas deployment of our financial system within about 2
years, by the end of fiscal year 2005 and soon thereafter, we
will be completing the integration which is planned with the
State Department. We will have a single system serving the two
agencies.
Our piloting overseas will start in early 2004, in April
through August 2004, and then the deployment through the
remaining missions will be completed, hopefully, by August
2005. That is the current timetable.
Mr. Towns. On that note, I yield. There will be another
round?
Mr. Platts. Yes. We will have plenty more opportunities.
Ms. Blackburn.
Ms. Blackburn. Thank you.
Mr. Mosley, let us continue right there on these computer
systems. For data transfer and management, how secure are the
systems, the computer systems?
Mr. Mosley. The agency has made a lot of improvements in
computer security. That has been an emphasis over the past
couple of years. There are still weaknesses simply because you
are dealing in underdeveloped countries and you are
telecommunicating data. There are still weaknesses but they are
much more secure than they were at that time.
Ms. Blackburn. Where do you think the greatest
vulnerabilities are?
Mr. Mosley. Probably through telecommunications. You are
using lines and there are mechanisms in foreign countries where
the systems and processes are not nearly as well developed.
Ms. Blackburn. Mr. Marshall, can USAID account for every
dollar they have given in foreign aid?
Mr. Marshall. I would have to get back to you on that. I
think we can account in some way. We are challenged in
attributing every dollar to every strategic objective. This
gets into the very complex way we have of defining strategic
objectives, country objectives, programmatic objectives and
geographical objectives. We do quite a bit of estimating in how
we split the dollars, which ones roll up to which strategic
objectives.
Worldwide, I think our system has hundreds of strategic
objectives because our plans and all the strategic objectives
are based on a per country basis. So we are challenged in that
area but we do the best we can. We hope with our new system, we
can keep getting better and better.
Ms. Blackburn. So you can't account for it now but you are
trying to get better at it. Specifically, other than
implementing a new system, what are you doing to be sure you
are accounting for the dollars you are spending or do you
intend on having the new system remedy all your problems?
Mr. Marshall. I think the new system is the major piece of
the puzzle. We are doing a lot of things with our reports,
refining our strategic objectives and part of this gets into
our budget process. We are doing joint and strategic planning
and financial management with the State Department. Clearly I
think the financial system is the big piece of the puzzle here
but our definition of strategic objectives, the way they align
with goals of the agency's, strategic goals and objectives from
the broadest level down to the country level, and roll up from
expenditure. Tracking reports is another area where we need to
continue to do work.
Ms. Blackburn. Let me ask you something else. You mentioned
that you are defining the competencies that are needed within
your agency.
Mr. Marshall. Yes, in our work force planning context.
Ms. Blackburn. And then with your human capital. How long
have you known that you had a human capital problem? How long
have you been in process on this to get to the point that you
are just beginning to define the issue and you are going to get
a pilot project underway? Listening to all of this and being
someone that comes from the private sector and small business,
I am always challenged in my thinking to get beyond my bias
which says if you were in the private sector, you would have
been out of business a long time ago. How long has it taken you
to move through this process and how long do we have to go
before we say we have arrested this problem?
Mr. Marshall. I appreciate your question and I share your
frustration. I too came in from the private sector to USAID 2
years ago. What I found when I moved into my position was I had
an HR office that had a vacancy in the Director of HR and the
Deputy Director of HR and those positions weren't filled until
I was in my position for about 6 months. It is very hard to
initiate something new and comprehensive like work force
planning with a leadership void like that.
Another thing to understand is during the 1990's, the USAID
was in the downsizing mode. We had significant cuts across all
of our administrative functions and programmatic functions. The
Management Bureau took some very deep cuts and those skills and
those capacities within HR were severely affected. In the
1990's being in a downsizing and outplacement mode, there
wasn't a focus on recruitment, it almost ground to a halt;
training, ground to a halt. There was no work force planning
when the emphasis was on downsizing.
Also, as a result of the failed IT initiatives of the
1990's, those were supposed to have produced new systems which
would allow us a lower base of personnel to operate more
efficiently. Those initiatives failed and so in the last couple
of years we have inherited a lower number of employees who
continue to operate in these outmoded, inefficient, antiquated
systems that don't integrate, don't produce data, and don't
process transactions efficiently. As a result we have a very
small margin of extra resources to invest in modernization that
it will take to get on top of the situation. It is very
challenging but I appreciate where you are coming from. That is
why it has taken a while to ramp up our work force planning,
getting back to your point, because my first task upon arriving
was finding a HR Director, bringing in a Deputy Director,
getting a leadership team in place, stopping the leaks in the
dike where the whole HR function had pretty much ground to a
halt and hadn't been doing any of this stuff because they had
been in the outplacement mode for the 1990's and starting
incrementally, step by step, to think about the future and
connect our work force planning with our agency strategic
planning and move forward and say what are the programmatic
drivers, the business drivers, the skills we need, how do we
get them on board, how do we source them, how do we train them,
how do we recruit them.
I share your frustration and it is a very complex and
Gordian knot to unravel.
Ms. Blackburn. May I ask one followup?
Mr. Platts. Yes.
Ms. Blackburn. In light of your timelines, your timetable,
you mentioned your computer systems and the Phoenix system, you
are looking at total integration of that by 2005?
Mr. Marshall. That is correct. Phoenix will be deployed,
our present plan shows, by August 2005.
Ms. Blackburn. As far as your human capital management, is
your timetable the same?
Mr. Marshall. No, it is not exactly the same but let me
explain. Primarily the work force planning capability is the
missing piece here. That is not just a particular system, an
analysis or any particular deliverable. That is a whole set of
capabilities that have to be put in place. It is a life cycle
kind of system to be meshed with our strategic planning process
so you identify what are your programmatic needs, your work
force needs, where are your gaps in your capabilities, how do
you source those gaps, do you outsource them, do you recruit
them, do you train them, and so forth.
Work force planning is kind of a life cycle of cradle to
grave activities of how you manage your HR system. Different
pieces are being put in place over the next couple of years. I
can get back to you with some more specifics on the dates and
sequencing of those investments but we are seriously resource
constrained and we are trying to put them in place based on
what is the most critical need and the highest payoff from a
particular investment. We are getting at that but I don't have
a timetable for you in terms of when the complete set of
capabilities will be in place and when our organization will
mature to the point we can say we have an effective work force
planning capability institutionalized.
Ms. Blackburn. I think that I would be interested in that.
I don't want to add to your workload because I appreciate your
attention to the task of trying to go through a reorganization
but I definitely would be interested in seeing what that
timetable is and how you plan to phase that in. I think it is
relevant to our discussion of having a government that is
effectively delivering services using 21st century technology,
that government come into the 21st century and avail itself of
all this technology looking for some efficiencies and some cost
savings along the way. I would appreciate knowing that.
Mr. Marshall. I would be happy to provide that for you.
Mr. Platts. Thank you, Ms. Blackburn.
A couple of followups to Ms. Blackburn's questions. One, I
take it that we do have a Director and Deputy Director in place
today working on that human capital plan?
Mr. Marshall. Yes, we do. We brought in from overseas one
of the agency's top managers to be the HR Director and we
recruited governmentwide and found a very capable Deputy
Director who has been in place for about 9 months now. We are
starting to bounce back a bit. I think we hit bottom a little
over a year ago and over the last 6 to 12 months we have
started to rebound.
Mr. Platts. And that is the direction in which we want you
to continue--and a positive one.
The followup regarding the timeframe on the Phoenix
implementation overseas kind of follows up my broader question
about short-term investment versus long-term. You are saying
August 2005 is when it will be fully implemented overseas,
which means we really are looking at the 2006 financial
statement when that integration will really benefit us with
full integration?
Mr. Marshall. Yes, that is true, although I must say that
over the next year in 2004, we will be in our pilot missions.
We picked three countries, Cairo, Egypt, Lima, Aeara Peru and
Ghana in West Africa for our initial pilots. Those three
missions produce 60 percent or so of our transactions, I think
is the number, so we might see some benefits before 2006
because we hope to be ramping up the higher volume missions
earlier.
Mr. Platts. That is April 2004?
Mr. Marshall. 2004.
Mr. Platts. So about halfway through the 2004 fiscal year.
The 2004 audits could show something?
Mr. Marshall. It is possible. That could start to show some
benefits.
Mr. Platts. If we are starting in April 2004 and it is
another year and a half roughly to get fully implemented, is
the barrier dollars or being able to allocate enough dollars
for that implementation?
Mr. Marshall. You mean for the timeline?
Mr. Platts. Yes.
Mr. Marshall. No, dollars aren't the constraint right now,
it is the capacity of our organization to get it done, the
implementation. We need to test pilot the applications in a
couple of missions, do the training, learn from that
experience, fix any problems that come up and really be
deliberate and systematic about that. Hopefully in about August
2004, if all those pilots are successful, then we will begin
the deployment to the rest of the missions throughout the next
year. I think that is a prudent timeframe for getting this done
and all the professional advice we have had has endorsed that.
Mr. Platts. In a correlation or analogy to the private
sector and that you would be out of business perhaps by now if
you were in the private sector, in the private sector agencies
that provide humanitarian assistance--which my wife and I lead
our personal support for agencies in our community with her
serving on several not-for-profit boards--a common judge of an
efficient operation is of every dollar received, 90 percent, 95
percent, 85 percent is actually hitting the pavement in
services.
Given your current financial situation and your internal
controls, of the dollars American taxpayers give USAID, what
percent is gobbled up in administration either internal or
consulting agencies or contract agencies versus what actually
is received in services provided?
Mr. Marshall. I don't have that number with me but we have
looked at that and I can get back with you on the best numbers
we have along those lines.
Mr. Platts. I would welcome that. Can you give me a
guesstimate today? Is it 80-20, 50-50, 60-40?
Mr. Marshall. I don't think I can give that.
Mr. Kutz. I believe the annual report shows that it is 84
percent.
Mr. Platts. My followup to the two of you is, are you
familiar with that percentage as current 2002 numbers or
historically and what is the IG or GAO's assessment of how
efficient we are from an agency standpoint in the management of
those dollars to actually doing what we intend them to do--
provide the service?
Mr. Mosley. From my perspective, I have to say that while I
think one of the questions was can the agency account for every
dollar that is being spent and clearly the answer to that was
no, we can't account for every dollar. Based on the opinions
that we are giving, obviously the majority of the dollars can
be accounted for. The difficulty is when. It takes so long to
account for them.
We have not found where there are significant losses. As I
said, we do a lot of testing when we do the financial statement
audits. In addition to that, in terms of the actual program
operations, we do program audits in each of the locations. We
have field offices as well and our people are out there doing
program audits to assure that the dollars are going where they
are supposed to go and they are being spent in the way they
should.
Mr. Platts. To make sure I understand, are your program
audits x-dollars committed to this program and x-dollars were
spent on that program or do they get into the next level of
questions that this service was provided by that program, say
it is $5 million to this program and it went to that program
but $5 million of services were provided versus $4 million in
consulting fees and $1 million in services. Do your program
audits get into that?
Mr. Mosley. Yes, it does. The financial audits are the ones
we really make sure the dollars went where they were supposed
to go. Our performance audits, which are the programs we are
reviewing, are really looking at whether the program was
accomplishing what it was intended to accomplish.
Certainly we don't have the resources to do audits of every
activity but of those we have done, we are not finding a
tremendous amount of loss.
Mr. Platts. Can you give us a ballpark percentage of the
ones you have done, x dollars were not really getting to the
intended beneficiaries?
Mr. Mosley. I cannot give you that today and being a
conservative auditor type, I don't want to render a guess but I
could certainly provide you that.
Mr. Platts. If you could followup as well with us for the
record.
Mr. Mosley. Sure.
Mr. Platts. Mr. Kutz.
Mr. Kutz. I don't have anything else to say.
Mr. Platts. Let me go to Mr. Towns.
Mr. Towns. Thank you.
Mr. Kutz, you testified that in 2002 and in 1993, GAO
reported USAID did not promptly and accurately report
disbursements and that at that time USAID could not ensure that
disbursements were made only against valid reestablished
obligations. Additionally, you reported that USAID did not have
effective controls and accountability over its property.
Can you expand on these problems? Are you saying they
continue to exist today? Can you elaborate on that?
Mr. Kutz. The issue with deobligations that Mr. Mosley's
2002 audit report indicated were still a problem, $153 million
of amounts that were not timely deobligated, timely mean there
were no payments for at least a year or more, would indicate
that the money was no longer needed for the original purpose.
That was something we had reported on back in 1993. That has
been a chronic problem there.
We also did report on some accountability issues with
property in 1993 and Mr. Mosley's report would indicate that
there are still some challenges with that issue. The answer is
those are still there and the deobligation one, probably they
are governmentwide issues, lots of agencies have them.
The one on deobligations does get back to how reliable is
the information Congress and management have to manage. The
$153 million would appear to have been spent for purposes of
Congress looking at that obligation when in fact the money
wasn't necessarily needed. It could have resulted in a
situation of providing money for something that maybe money was
already there for. That is a very important thing they need to
deal with, timely deobligation. They have policies and
procedures in place for managers to scrub their obligations and
deobligate them. It just appears in 2002 and before, people
weren't doing it and the question is are they doing it now.
Maybe Mr. Marshall can comment on some of that.
Mr. Marshall. It is a concern. It is a governmentwide
problem and it gets to be a workload matter. We have to go
through a scrub exercise. It requires agency program managers
to close out contracts and do a lot of administrative work that
takes away from the rest of the work. A lot of our people are
stretched very thin and it is hard for them to find the time.
Last year, we went through a push, we found a level of
obligations, went through a scrub, deobligated a lot of money,
kind of a one-time clean-up effort. It is another one of those
things that takes sometimes some heroic effort to get done and
manage down to a more reasonable level. We have been challenged
to find the resources to put into that, although it is
something that should be done. It is good common sense
businesslike housekeeping that unfortunately gets deferred too
frequently.
Mr. Mosley. If I might add one comment, this gets back to,
not to beat a dead horse about the system, but that is really
what it comes back to. The systems don't provide that
information on a constant basis for the managers to manage. As
a result, you have people who have records but those records
are not in the overall system. Then you have to go back to
them.
I have to say that management has implemented a system
where on a quarterly basis, they are going back and scrubbing
that information and we are also working with them in taking a
look at that information but because the system is not there,
they have to go back and determine have these funds been spent
or not. In many cases, it is not money that needs to
deobligate, it has been spent, it is just that is not in the
overall records for the agency.
Mr. Towns. That is serious, very serious. Mr. Mosley, you
also testified that the International Relations Committee, that
your office uncovered a major bid rigging and fraud scandal in
USAID funded construction contracts in Egypt that resulted in
fines and restitution of over $260 million in fiscal years 2000
and 2002. Can you provide us with some details of your
investigation?
Mr. Mosley. Yes. Those were contracts for building sewers
and other types of activities in Egypt. You had several
companies who got together and they manipulated the bids. They
made agreements where certain companies would make certain bids
and one company would get it this time, a different company
would get it another time and because of this, they were
defrauding the government. The bids were set so that AID did
not have the process of getting competitive bids and getting
the best price.
We took this to the Department of Justice after we did the
investigation. Prosecutions were made and several companies
paid restitution up to as high as $50 million from an
individual company and a total of about five companies with
somewhere in the neighborhood of $250-$260 million.
That was an investigation we did over a period of about 5
years to bring it to fruition.
Mr. Towns. Financial management weaknesses at AID
contribute to this problem, you have to say that, right?
Mr. Mosley. I don't know that you could say that. I don't
see a direct relationship in terms of financial management
simply because this was in the procurement process and these
companies were getting together and fixing the bids. There was
no way for the managers to know they were fixing the bids. To
be very honest, there would have been no way for us to know had
it not been for someone coming forward and giving us
information, basically ratting out those companies.
Mr. Towns. I assume this has been corrected?
Mr. Mosley. It has been.
Mr. Platts. Thank you, Mr. Towns.
We have a mark-up scheduled to begin in about 5 minutes, so
we are going to have to wrap up. I did want to touch on one
other issue and Mr. Marshall, you may need to followup as well
after the hearing with us directly in writing.
From a staffing standpoint and the issue of outsourcing, if
we set aside more clerical, secretarial staff in-house, what
percentage of USAID, Washington, your operations here, are
direct hires versus non-direct hires regarding professional
staff?
Mr. Marshall. We have about 1,300 direct hires in the
Washington headquarters. I would have to get back to you with
the breakdown and that would include secretarial as well as
administrative. I will be happy to give you a breakdown. We can
visit with your staff and get a sense as to how you would like
that.
Mr. Platts. And how do the direct hires compare to the non-
direct in your operations and managing your programs?
Mr. Marshall. Sure.
Mr. Platts. The followup is: are the non-direct staff
directly involved in the accountability for the programs and
the oversight of the programs or is that accountability
retained in-house?
Mr. Marshall. We are a very contract dependent work force.
They are an important part of our entire business system, our
delivery system, both in Washington and overseas since most of
our business actually is carried out overseas by contractors
and grantees. If you are referring primarily to Washington,
sometimes we have situations where contractor employees are in
accountability positions. We are reviewing those situations,
trying to be aware of them and reduce that vulnerability as
best we can. In a work force like ours which is resource
constrained and contractor dependent, it is one of our
challenges.
Mr. Platts. Mr. Mosley, Mr. Kutz, does that worry you in
the sense of the accountability, oversight being non-direct
hires for the agency and the integrity of that oversight?
Mr. Mosley. Certainly that is a concern. Unfortunately, AID
is in a situation where they certainly don't have enough
people. Our concern is even if you have non-direct hires who
are doing the work, we need enough qualified people in place to
manage those who understand what needs to be done.
Mr. Platts. Enough in-house people?
Mr. Mosley. In-house people who can assure us the product
they are receiving is what was desired. That is one of the
difficulties in terms of contract offices and some of the
expert program people. That is one of the things Mr. Marshall
was talking about. We need more quality people in that area.
Mr. Platts. I want to thank our witnesses again for your
written testimonies and your testimony here today. We do
appreciate your forwarding some followup information to us. Mr.
Marshall, coming in 2 years ago without people in place and the
challenges you are facing, you certainly came in with quite a
task ahead of you and we appreciate your dedicated efforts in
tackling that task and going forward. As we see in the progress
scorecards, we know there are some encouraging signs.
I hope that we will focus governmentwide but specifically
in this case for USAID on ensuring that we really are about
institutionalizing good financial management practices so that
we have that day to day benefit to taxpayers that their money
is being spent and allocated in the most efficient and
responsible way possible, especially as we are increasing USAID
efforts in Iraq and Africa with the AIDS efforts and elsewhere
in the world. Being wise with those dollars is all the more
important.
I hope we will continue to head in that right direction and
not just have interim good signs but permanent, long term
benefits. Thank you again.
The record will be kept open for 2 weeks for submission of
additional information and this hearing stands adjourned.
[Whereupon, at 3:44 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[The prepared statement of Hon. Carolyn B. Maloney and
additional information submitted for the hearing record
follow:]
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