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Federal Managers' Financial Integrity Act (FMFIA)
FMFIA requires agencies to establish internal controls and financial systems which provide reasonable assurance that the integrity of federal programs and operations are protected. It also requires that the Agency head, based on an evaluation, provides an annual FMFIA assurance statement on whether USAID has met this requirement.
Management Operations
USAID managers successfully completed management control reviews of the Agency’s financial, program, and administrative policies, procedures, and operations. After the assessment results from the Assessable Units were consolidated and discussed by the Management Control Review Committee (MCRC), no new material weaknesses were identified. One of the two FY 2006 material weaknesses was reduced to a control deficiency (see Appendix B). The remaining material weakness forms the basis for the qualified FMFIA assurance statement.
Financial Reporting
The FMFIA assurance statement includes a separate assessment of the effectiveness of the Agency’s internal controls over financial reporting as a subset of the overall FMFIA assurance statement. The following key business processes were assessed at USAID/Washington as of June 30, 2007: (1) Accounts Receivable, (2) Accounts Payable, (3) Advances, (4) Obligations, and (5) Financial Reporting–Year End. No new or repeat material weaknesses were identified. Two material weaknesses, identified in the FY 2006 assessment, were reduced to reportable conditions based on corrective actions taken. The OMB Circular A-123, Appendix A, scope limitation, in which only nine of the 12 key business processes have been assessed, also forms the basis for the qualified FMFIA assurance statement.
Internal Control Over Management Operations
The MCRC oversees the Agency’s internal control program over management operations. It is chaired by the Deputy Administrator and is composed of USAID senior managers. Individual annual certification statements from Mission Directors located overseas and Assistant Administrators (AA) and Independent Office Directors in Washington, D.C. serve as the primary basis for the Agency’s certification that management controls are adequate or that control deficiencies exist. The certification statements are based on information gathered from various sources, including the managers’ personal knowledge of day-to-day operations and existing controls, program reviews, and other management-initiated evaluations. In addition, the Office of the Inspector General (OIG) and the Government Accountability Office (GAO) conduct reviews, audits, inspections, and investigations.
FMFIA REVIEW CRITERIA
Under the FMFIA, a material weakness is a deficiency of such significance that it should be reported to the President and Congress. A weakness of this nature might:
- impair the fulfillment of the Agency’s mission
- significantly weaken safeguards against waste, loss, unauthorized use, or misappropriation of funds, property, or other assets
- violate statutory or regulatory requirements
- result in a conflict of interest
- impair the Agency’s ability to use reliable and timely information for decision-making.
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Internal Control Over Financial Reporting
In December 2004, OMB Circular A-123, Management’s Responsibility for Internal Control was revised to include a new appendix, Appendix A, Internal Control Over Financial Reporting, which requires agencies to assess, document, and report on internal control over financial reporting. USAID is committed to strengthening internal control over financial reporting and is implementing a program to continuously assess, document, and report on these controls. The Agency began working toward the implementation of this program in FY 2005. The remaining work to fully implement Appendix A will be performed through FY 2008. USAID initially identified 12 key business processes in
FY 2006 and devised a plan that includes the assessment of four each year. The timeline for the assessment of key business processes is as follows:
USAID Key Processes
| Year One – FY 2006 |
Year Two – FY 2007 |
Year Three – FY 2008 |
- Accruals – high risk and current Government Management Reform Act (GMRA) material weakness
- Financial Reporting – high risk
- Fund Balance with Treasury – high risk
- Credit Program – medium risk and best baseline documentation
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- Accounts Payable – low risk and high visibility
- Accounts Receivable – medium risk
- Advances – low risk
- Obligations – medium risk, high impact
- Financial Reporting (Year End) – high risk
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- Budget – medium risk
- Statement of Net Cost – medium risk
- Financial Analysis and Audits – low risk
- Miscellaneous – low risk
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Internal control over financial reporting should assure the safeguarding of assets from waste, loss, unauthorized use, or misappropriation, as well as assure compliance with laws and regulations pertaining to financial reporting. Financial reporting includes the annual financial statements as well as other significant internal or external financial reports. Other significant financial reports are defined as any financial reports that could have a material effect on a significant spending, budgetary, or other financial decision of the Agency or that is used to determine compliance with laws and regulations on the part of the Agency. In addition to the annual financial statements, significant reports include quarterly financial statements, financial statements at the operating division or program level, budget execution reports, reports used to monitor specific activities, and reports used to monitor compliance with laws and regulations.
FMFIA Material Weakness and Corrective Action Plan
USAID’s material weakness and the corrective action plan is outlined in Exhibit A.
EXHIBIT A — FMFIA Material Weakness for Management Operations
| Material Weakness |
Corrective Action Plan |
| Limited Ability to Implement and Monitor Activity in the ANE Region, Most Notably in Iraq, Afghanistan, Pakistan, and West Bank/Gaza. High threat environments, and USAID’s adherence to the U.S. government’s “No Contact” policy which continues to have selected impact in the West Bank/Gaza, continue to restrain travel to project sites to monitor implementation and to meet with USAID partners. Meanwhile, there is a continuing challenge of attracting appropriately qualified staff to Missions in high threat countries. Together, these weaknesses continue to limit, to some extent, USAID’s ability to implement and monitor programs. USAID needs to do a better job of sharing information and best practices on implementation and monitoring among country programs and to update its guidance to managers responsible for such programs. |
During 2007, Missions in these countries continued to take steps within their management control to implement and monitor activities as well as possible. Completed and ongoing steps include increased reliance on FSNs, who can travel more freely, as well as third-party contractors for monitoring purposes. Increased coordination with Provincial Reconstruction Teams (PRT) and embedding of USAID staff with PRTs, has also strengthened monitoring and field reporting capabilities. Within the first quarter of FY 2008, USAID will coordinate closely with U.S. Diplomatic Security and the Department of Defense (DOD) to seek increased access to security convoys to increase the number of site visits in Iraq and Afghanistan. In addition, USAID will operate in close coordination with Diplomatic Security to update emergency procedures and communication systems. In 2007, the ANE bureau completed design concept work for a spatially enabled management information system which will allow Missions to remotely monitor progress of construction activities in real time. The Agency will immediately develop a plan for determining future funding to develop such a distance monitoring system and will evaluate the potential for other distance monitoring tools. USAID also began development of a flexible-delivery training program for planning and implementing foreign assistance programs in high threat environments that will be implemented.
Similarly, USAID continues to strengthen recruitment of appropriately skilled staff for Critical Priority Countries (CPCs) in ANE. USAID is currently on track to have all 2008 Direct Hire CPC positions filled by December 2007. With assignments of only one year, it is a continuous challenge to keep positions filled with appropriately qualified staff. It must also be recognized that additional resources will be needed to support staffing incentives and other selected efforts to address this material weakness.
As noted, USAID is employing a variety of methods to implement and monitor programs in high-threat environments and will continue to pursue additional implementation and oversight approaches tailored to these circumstances. By March 31, 2008, USAID will compile an inventory of the implementation and oversight approaches and mechanisms currently employed in Iraq, Afghanistan, Pakistan, West Bank/Gaza and other high-threat countries; share this information among program managers in such countries; and prepare updated implementation and monitoring guidance specifically for managing and monitoring activities in these circumstances. USAID also will assess the feasibility of specific implementation and monitoring enhancements in these countries including, for instance, electronic telecommunication mechanisms for real-time video interaction between USAID officers at secure facilities and USAID’s contractors, grantees, beneficiaries, and counterparts located in difficult-to-reach, more insecure areas; and the possible use of third-party monitoring by other U.S. government entities.
Adequate and effective program implementation and oversight in insecure environments will continue to be a challenge for USAID. Sharing of best practices, encouraging innovative approaches, and issuing updated guidance specifically for these circumstances will ensure that USAID is taking all necessary steps within its management control.
Target Completion Date: March 31, 2008 |
FMFIA Reportable Conditions and Corrective Action Plans
In keeping with the Agency’s core concept of increasing transparency, USAID is voluntarily disclosing its reportable conditions in the AFR. See Exhibit B below.
EXHIBIT B — FMFIA Reportable Conditions for Management Operations
| Reportable Condition |
Corrective Action Plan |
| Information Technology (IT): Governance and EA Issues Persist. Based on internal discussions with staff and other stakeholders, several deficiencies have been noted that pertain to lowering risk and increasing efficiency in the following key IT practice areas: IT strategic planning, enterprise architecture (EA), IT policy and practice standardization, and the full establishment of IT governance and best practices. There is general agreement that funding the correction of these process control areas is in the best interest of the Agency. |
Governance: Internal assessments have pointed out that the Chief Information Officer (CIO) needs sufficient resources to provide effective IT governance. The lack of adequate funding, due to Agency budget cutbacks and the assignment of limited resources to higher priority tasks, is the major factor for the Office of the CIO’s slow progress in resolving these issues. However, over the last year, progress has been made in several areas. Along with the assignment of a new CIO and the realignment of the CIO’s organization, the Office: (1) documented and conducted initial internal review of the Agency independent IT strategic plan, (2) developed initial EA-related drawings, (3) developed an IT Project Life Cycle Methodology and provided initial training, (4) drafted a standardized Work Breakdown Structure (WBS) for IT projects, (5) documented the complete list of functional activities by CIO organization, and (6) successfully completed the transition/integration of the former Capital Planning and Investment Control (CPIC) Committee with the Business Systems Modernization Committee into the new IT Steering Subcommittee under the Business Transformation Executive Committee (BTEC). Within the next six months, the Office of the CIO expects to close all governance reportable conditions.
Target Completion Date (Governance): March 31, 2008
EA: EA will be a focus of attention during the next 12 months. Creating and staffing a new EA Division is a primary goal to satisfying this reportable condition. An ad hoc team is developing some initial artifacts in the meantime. The funding/staffing will hopefully be resolved in the near future to allow a team of professionals to address the initial development and future core maintenance of an EA program. This is a multi-year effort. It is reportable because the Agency does not have the long-term funding/staffing in place and is behind schedule.
Target Completion Date (EA): (1) Hire a direct-hire to be the EA Manager (March 2008); (2) Hire contractor staff to support a “core” EA Office (ASAP, FY 2008 OE funding decision); (3) Prepare USAID EA Implementation Plan (three months after staffing is provided); (4) Develop initial artifacts and governance processes during 2008 and for completion during 2009. |
| Risk of Inability to Meet Statutory and Accountability Requirements. On behalf of the Office of Acquisition and Assistance (OAA) and the Office of the Chief Financial Officer (OCFO), the Management Bureau has identified resource constraints as an area of significant concern to USAID. Since 2001 the overall budget resources of the Agency have nearly doubled to approximately $13 billion while statutory and regulatory requirements have increased on both the OAA and the OCFO, thereby increasing workload and activity. Despite these increased demands, resources (particularly human) have decreased and staff turnover is impinging on effective operations. |
As a result of the increased work volumes while administrative resources have not kept pace, operational risks have increased. The potential for significant operational failures has reached unreasonable levels of risk. By identifying this issue as a reportable condition it is the intent of the Agency to assess operations in these offices, and others, to determine appropriate levels of staffing. In October 2007, the Management Bureau initiated an independent assessment of the Bureau with the expectation of a fair analysis of human resources and recommendations to improve overall performance and compliance.
Target Completion Date: March 31, 2008 |
| Untimely Issuance of Funds. Issuance of funding for USAID operating units was not timely in FY 2007. It stemmed primarily from the late passing and signing of the FY 2007 appropriations bill (February) combined with the long time it now seems to take to reach closure with congressional committees on the 653(a) report. While the length of time spent in FY 2007 on the 653(a) consultations was less than in FY 2006, it nevertheless took nearly six months. In FY 2006, the consultations took longer, but since the appropriations bill was passed four months earlier, the problem was less acute. In addition to the delay stemming from the lengthy 653(a) consultations, considerable confusion on process resulted from the Director of Foreign Assistance’s (DFA) first year of operation. In particular, there was confusion on the process USAID would be using to submit congressional notices in FY 2007. Finally, the creation of the DFA resulted in new clearance procedures for obtaining the DFA’s approval on the use (and release) of funds before the 653(a) was approved. Near the end of the fiscal year, the DFA began to delegate limited authorities to AAs and Mission Directors. |
The DFA and USAID will obtain congressional approval on the process for notifying FY 2008 funds early in the fiscal year, including a shared understanding on how the Framework and Program Hierarchy will be used in preparing congressional notices. The DFA will build on the FY 2007 delegations and seek to expand them. The DFA and USAID will engage the congressional committees to establish a shared understanding on steps that would reduce the length of the 653(a) consultations process. In addition, the DFA will work with USAID and OMB on reviewing the OMB apportionment process to develop acceptable service standards that will simplify and reduce the time spent on this step in the release of funds process. These steps can improve the timely release of funds with the proviso that, ultimately, the passage of an appropriations bills and reaching closure on the 653(a) report involve decisions by parties outside of the DFA or USAID.
Target Completion Date: April 30, 2008 |
EXHIBIT B — FMFIA Reportable Conditions for Financial Reporting
| Reportable Condition |
Corrective Action Plan |
| Accruals Reconciliations. The reconciliation between the Accruals Reporting System (ARS) and Phoenix was not performed when data were initially transferred from one database to the other. |
USAID implemented a reconciliation process and periodic management monitoring to ensure the data are transferred correctly from ARS to Phoenix. The reconciliation identifies any errors in the posting of accruals, allowing time for corrections prior to closing the general ledger. This process also highlights interface problems to be corrected prior to the next quarterly accrual exercise. USAID created a Business Objects Enterprise (BOE) report that contains all accrual entries posted in the accrual query in Phoenix. It also contains all of the corresponding accrual voucher (AV) documents and amounts that post to the general ledger. This is an “audit train” report.
USAID reviewed the third quarter Accrual Reconciliation Report, BOE R0665. For the third quarter, this report contained all of the accruals posted in the Phoenix accrual query, 21,916 items, plus two AV documents processed manually. This report contained 869 items where the expected AV document did not equal the actual AV document. For all of these documents however, the posted AV amount did equal the current outstanding balance for the obligation. This indicates that the accrual document script is functioning as intended. The script causes modified accrual amounts to be reduced for payments and deobligations that occurred during the accrual cycle. Based on the above analysis, this deficiency is reduced to a reportable condition. Management believes that it can produce the same quality R0665 in future accruals cycles and expects to close this issue after reviewing the report for two more accrual cycles.
Target Completion Date: January 31, 2008 |
| Inadequate Accruals Training for Agency Cognizant Technical Officers (CTO). Personnel preparing the quarterly accruals have not received adequate training on how to properly document and calculate quarterly accruals. |
USAID identified and implemented several actions during FY 2007 to enhance its accruals training to ensure that obligation managers, in particular CTOs, are adequately trained and can make reasonable accrual estimates. USAID updated its existing accruals training material for CTO Acquisition and Assistance (A&A) classes. The development of standardized forms that compute the accrual offline using Excel formulas was introduced as an additional help tool. USAID also identified a pool of subject matter experts to provide hands-on support for the accruals module in the CTO A&A courses. In addition, USAID developed a web-based CTO accruals course that is a mandatory requirement for all obligation managers and is a part of the existing CTO certification requirements. This web-based course is worldwide and is available on demand. This course also serves as a prerequisite to future CTO designations and as a refresher course. USAID has also taken measures to better advertise the availability of its Phoenix accruals instructor-led classroom course. To ensure that all personnel requiring accruals training are targeted, USAID improved the quality of its CTO database to better identify CTO training needs. USAID will continue to enhance accruals training for CTOs by providing tailored training to specific bureaus. Based on the implementation of these actions, this deficiency is reduced to a reportable condition.
Target Completion Date: January 31, 2008 |
| Excessive Held/Rejected HHS/LOC Transactions. Advances and expenditures for USAID awards under the letter of credit (LOC) payment mechanism are processed through the Health and Human Services (HHS) Payment Management System (PMS). The transaction data is collected by the HHS PMS then downloaded and interfaced in to Phoenix by the Agency’s Cash Management and Payments Division (CMP). The interface process produces some documents which remain in a held/reject status due to a variety of reasons but primarily due to award number inconsistencies with the USAID mission awards. These held/rejected items must be manually posted by the CMP and often require assistance from USAID mission staff. The volume of the held/reject items is cyclical with the number of items greatly increasing when the quarterly expenditure reports are required to be filed by the award recipients. |
The Agency aggressively pursued the resolution of as many held/rejected docu-ments as possible prior to the end of FY 2007 in order to reduce the materiality of any financial statement adjustments that may need to be recorded by the Agency’s Central Accounting and Reporting Division (CAR). The number of held/rejected HHS/LOC transactions on September 17, 2007 was 431 with a value of $312 million. The number of held/rejected HHS/LOC transactions at the close of business on September 28, 2007 was 192 with a value of $35 million. As of October 31, 2007, the number of held/rejected transactions continues to decrease. Currently, there are 149 transactions totaling $31 million.
USAID will devise and implement a plan to resolve by December 31, 2007 all held/rejected HHS/LOC transactions with a transaction date prior to September 30, 2007. The Agency is identifying and documenting the cause/discrepancy of each held/rejected transaction for submission and follow-up to the applicable mission for corrective actions. All held/rejected items are tracked on a shared LOC spreadsheet to monitor the timeliness and follow-up of corrective actions taken. This plan includes involving the USAID missions, other bureaus and technical support staff, as necessary, to correct the underlying source of the held/rejected documents versus posting corrective reoccurring actions. Correcting the problems which are causing the held/rejected documents should reduce both the volume of future held/rejected transactions and the time required to manually post these documents.
The Agency will continue to work with the Inspector General (IG) in its efforts to move toward a change in accounting principle in which grant expenditures are recognized at the time advances are issued. This change should result in a timelier recording of the expenditure transactions in USAID’s accounting records.
Target Completion Date: December 31, 2007 |
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