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entitled 'Rebuilding Iraq: Improved Management Controls and Iraqi 
Commitment Needed for Key State and USAID Capacity-Building Programs' 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

June 2009: 

Rebuilding Iraq: 

Improved Management Controls and Iraqi Commitment Needed for Key State 
and USAID Capacity-Building Programs: 

GAO-09-526: 

GAO Highlights: 

Highlights of GAO-09-526, a report to congressional committees. 

Why GAO Did This Study: 

Since 2003, the United States has provided $49 billion to help rebuild 
Iraq. To build the capacity of Iraq’s central and provincial 
governments to sustain this effort, the United States is implementing 
programs including Department of State’s (State) Provincial 
Reconstruction Development Committee (PRDC) and the U.S. Agency for 
International Development’s (USAID) National Capacity Development 
(NCD). 

The use of key management controls, such as appropriate organizational 
structure and program monitoring, helps ensure programs achieve their 
objectives. Through field visits in Iraq, interviews with program 
officials, analyses of official reports, and examination of a sample of 
projects, we assessed whether the PRDC and NCD’s management controls 
support the programs’ objectives of building the capacity of Iraq’s 
government. We also assessed Iraq’s commitment to sustaining these U.S. 
programs. 

What GAO Found: 

Through the PRDC program, State and USACE work with Iraqis in the 
provinces to develop proposals and undertake small-scale projects such 
as building schools, repairing roads, and developing water facilities. 
However, weaknesses in State’s management controls hinder achieving the 
program objective to build provincial government capacity. First, the 
program involves multiple organizations and a complex process but had 
no clearly identified program manager until May 2009 when State 
designated one in response to GAO’s findings. Second, State lacks a 
performance monitoring system that measures progress toward building 
provincial capacity to deliver essential services. Third, the program’s 
guidelines and policies have changed frequently, but State did not 
adequately communicate or consult with the USACE, the program 
implementer, about these changes. Finally, USACE’s financial controls 
for the timekeeping process did not ensure adequate documentation of 
time and attendance records for labor charges on projects. 

USAID’s management controls generally supported the NCD program’s 
objective of building ministry capacity by training Iraqi employees in 
administrative skills such as planning and budgeting and supporting 
Iraqi training centers. First, USAID’s organizational structure is 
clear, including who is responsible for overall program management. 
Second, in response to an audit report, USAID narrowed the NCD program 
objective to improving ministries’ administrative capabilities and 
clearly linked them to measures of outcome. Some of these measures 
include Iraqi ministries’ execution of their capital budgets, including 
the number of capital projects approved and the rate of spending on 
capital projects. USAID reported it was on track to meet or exceed its 
2008 targeted results. However, as of March 2009, final data on results 
were not available. Third, USAID’s guidelines and program expectations 
for NCD are documented, clear, and communicated throughout the 
organization. However, with regard to financial controls, GAO found 
that USAID officials did not confirm receipt of goods and services for 
invoices totaling about $17 million of $79 million, prior to payment. 
The officials did not always document reasons such as security risks, 
when confirmation was not possible. 

Iraq has committed to sustaining U.S.-funded programs and sharing in 
their costs, but actual budget expenditures for such activities are 
unclear. For the PRDC program, 16 of the 40 projects in our sample had 
evidence that the Iraqi government agreed to sustain the project; 
however, the records did not specify actual financial or budget 
commitments. For the NCD program, the Iraqi government is supporting 
the program by providing trainers and allocating funds in their 2009 
budgets for training center equipment and other NCD efforts. These 
funds are to be spent in 2009. We have previously reported that the 
Iraqi government includes funding in its budgets for investment 
activities such as operating and maintaining U.S.-funded reconstruction 
projects and training, but does not subsequently expend these funds. 

What GAO Recommends: 

GAO recommends that State address management control weaknesses such as 
developing measures of effectiveness; that the U.S. Army Corps of 
Engineers (USACE) and USAID improve financial controls; and that State 
and USAID document that Iraq shares the cost of these efforts. State 
and the USACE agreed with our recommendations. USAID is considering our 
financial control recommendations; GAO considers these important to 
implement. 

View [hyperlink, http://www.gao.gov/products/GAO-09-526] or key 
components. For more information, contact Joseph A. Christoff at (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

State Cannot Ensure That the PRDC Program Is Achieving Its Objective to 
Build Capacity: 

NCD Management Controls Support the Goal of Building the Capacity of 
Iraqi Ministries but Do Not Adequately Verify Expenditures: 

Iraq Has Agreed to Sustain the Programs and Is Providing Some Support 
for NCD, but Budget Expenditures Are Unclear: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of State: 

Appendix III: Comments from the U.S. Army Corps of Engineers: 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Status of $700 Million PRDC Program Funds, Fiscal Years 2006 
and 2007: 

Table 2: Examples of NCD Outcome Result Indicators Fiscal Year 2008: 

Figures: 

Figure 1: PRDC-Funded Electric Substation in Muthanna Province (U.S. 
provided $1.2 million in funds for this project): 

Figure 2: NCD-Funded Equipment for Ministry of Planning and Development 
and Cooperation: 

Figure 3: PRDC Program Organizational Structure and Process: 

Figure 4: NCD Organization Chart: 

Figure 5: Training Iraqis in Computer Skills at the National Center for 
Consultancy and Management Development: 

Abbreviations: 

ESF: Economic Support Fund: 

GRD: Gulf Regional Division: 

IRRF: Iraq Relief and Reconstruction Fund: 

ITAO: Iraq Transition Assistance Office: 

OPA: Office of Provincial Affairs: 

NCD: National Capacity Development: 

PPM: Provincial Program Manager: 

PRDC: Provincial Reconstruction Development Committee: 

PRT: Provisional Reconstruction Team: 

SIGIR: Office of Special Inspector General for Iraq Reconstruction: 

USACE: U.S. Army Corps of Engineers: 

USAID: U.S. Agency for International Development: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 3, 2009: 

Congressional Committees: 

Since 2003, the United States has provided $49 billion to rebuild and 
stabilize Iraq, including the reconstruction of large water and power 
plants. Since fiscal year 2008, U.S. agencies have stated that 
reconstruction has ended and the focus will be on helping Iraq build a 
sustainable, accountable, and responsive government that can maintain 
and continue U.S. efforts. Two programs intended to build the capacity 
of Iraq's government are the Department of State's (State) Provincial 
Reconstruction Development Committee (PRDC) program and the U.S. Agency 
for International Development's (USAID) National Capacity Development 
(NCD) program. The PRDC program funds and implements Iraqi proposals 
for small-scale projects such as schools, road repair, and water 
facilities in Iraq's provinces. By having Iraqi officials develop and 
agree on proposals, State intends to build provincial and local 
government capacity to identify, plan, and deliver essential services. 
The NCD program trains Iraqi government employees in administrative 
skills such as planning and budgeting and supports Iraq's national and 
regional training centers and individual ministry training programs. 
Finally, the NCD program advises Iraq's national ministries, including 
the electricity, oil, water, and planning ministries. The PRDC and NCD 
programs are funded through the Economic Support Fund (ESF) for Iraq. 
The PRDC program received $700 million in ESF funds between November 
2006 and February 2008.[Footnote 1] The NCD program received $209 
million in ESF funds in July 2006, and another $59.8 million in 
September 2008 and is scheduled to end in January 2011.[Footnote 2] 

A key factor in U.S. agencies' ability to achieve their missions and 
improve accountability is the implementation of appropriate management 
controls. Management controls help provide reasonable assurance that 
programs are focused on and can achieve their objectives. Key controls 
include (1) a clear organizational structure with adequate managerial 
and staff capacity that establish an effective control environment; (2) 
monitoring systems that track progress toward achieving desired 
outcomes; (3) policies and procedures that ensure management directives 
are carried out and the prompt communication of those policies and 
procedures; and (4) financial controls that accurately record and 
document financial transactions in a timely manner.[Footnote 3] 

This report uses management control elements as criteria to evaluate 
the PRDC and NCD programs. Specifically, we assessed whether (1) PRDC's 
management controls support the objective of building provincial 
government capacity, (2) NCD management controls support the objective 
of improving the capabilities of national ministries to develop budgets 
and programs, and (3) State and USAID ensure that the Iraqi government 
is committed to sustaining the PRDC and NCD program efforts. Due to 
broad congressional interest in issues related to Iraq, we completed 
this report under the Comptroller General's authority to conduct 
evaluations on his own initiative. 

To assess the management controls, we analyzed project contracts, 
program files, agency reports, guidelines, financial and programmatic 
databases, and assessments for both the PRDC and NCD programs. We 
interviewed officials at State, USAID, and U.S. Army Corps of Engineers 
(USACE) in Washington, D.C.; Millington, Tennessee; and Winchester, 
Virginia. In Iraq, we interviewed officials in the Iraq Transition 
Assistance Office (ITAO), the Office of Provincial Affairs (OPA), the 
Gulf Regional Division (GRD) and its district offices, at USAID in 
Baghdad, and the NCD training compound in Karada. We also selected 40 
PRDC construction projects that were initiated with fiscal years 2006 
and 2007 funds to examine the project monitoring conducted, the process 
used to implement the projects, and challenges to implementing them. We 
visited several projects in Babil, Baghdad, Basra, Muthanna, and Thi 
Qar provinces to verify the information and observe project 
implementation. To evaluate U.S. efforts to ensure Iraqi government 
commitment to sustaining U.S. program efforts, we analyzed two elements 
of commitment--letters or other evidence that the Iraq government 
pledged to sustain or maintain the programs and projects and evidence 
that the Iraqi government is sharing the cost of U.S. efforts. 

We conducted this performance audit from March 2008 to June 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. A detailed description of 
our scope and methodology is included in appendix I. 

Results in Brief: 

Through the PRDC program, State and USACE work with Iraqis in the 
provinces to develop proposals and undertake small-scale projects such 
as building schools, repairing roads, and developing water facilities. 
However, State's PRDC program has management control weaknesses that 
hinder the achievement of its program's objective of building Iraqi 
provincial government capacity. First, the program involves multiple 
organizations in a seven-step process; Iraqi officials develop 
proposals, the State embassy team approves them, and USACE implements 
the projects. However, no single program manager was clearly 
responsible for the overall management of the program until May 2009, 
when State designated one in response to GAO's findings. Without a 
manager to oversee the entire program, it is difficult to identify 
systemic problems and solutions and ensure provincial government 
capacity is built. Second, State lacks a performance monitoring system 
that measures outcomes for the PRDC program. State measures PRDC 
program accomplishments by the number of projects completed and awarded 
and the amount of funds disbursed. However, this measure does not 
provide evidence of the program's effectiveness in building provincial 
government capacity to deliver services. Third, the program's 
guidelines and policies have changed frequently, as has the program's 
direction, but State did not adequately communicate or consult with 
USACE, the project implementer, about these changes. For example, in 
January 2008, State shifted the focus of the program from building 
infrastructure to maintaining and sustaining projects. However, 
according to USACE officials, State did not consult with the USACE 
until September 2008 about how to implement these changes. As a result, 
USACE developed over 100 projects that were no longer the focus of the 
program. Finally, USACE's financial controls for the PRDC timekeeping 
process did not ensure adequate documentation of time and attendance 
records used for labor charges on projects. We found 26 percent of the 
labor charges in our sample had inadequate documentation. As of May 
2009, USACE was implementing initiatives to correct this and other 
deficiencies. 

USAID's management controls for the NDC program generally support the 
program's objective of building the capacity of Iraqi ministries, but 
there are weaknesses in some internal controls over contract payment. 
First, USAID's organizational structure clearly shows the units 
responsible for training Iraqis, developing Iraq's training centers, 
and consulting with the ministries. The reporting chain up to the USAID 
official responsible for the overall program is clear. As of February 
2009, the program had 278 contract staff, about 70 percent of whom were 
Iraqi nationals who worked in Baghdad, in the provinces, and at the 
ministries. Second, to improve the NCD program and better link the 
objectives to actual program results, USAID responded to a 2008 USAID 
Inspector General review that found the program lacked indicators for 
improving the ministries' delivery of services. USAID realized that the 
objective of improving service delivery was beyond the scope of the 
program and narrowed the objective to improving the ministries' 
administrative capabilities. As of September 2008, some indicators of 
program impact are how Iraqi ministries execute their capital budgets, 
including the number of capital projects approved and the rate of 
capital project expenditures. Third, USAID's guidelines and program 
expectations are documented and clear, and these are communicated 
throughout the organization. In contrast, there are weaknesses in some 
NCD financial controls for contract payment. For example, invoices of 
about $17 million of a total $79 million were not supported by a 
confirmation of receipt of goods and services prior to payment and 
there is no requirement to document reasons that preclude confirmation. 
Also, USAID did not adequately document that it reviewed the 
contractor's' invoices prior to payment. In November 2008, USAID began 
implementing initiatives to document the review of contractor invoices. 

Iraq has committed to sustaining U.S.-funded projects and programs and 
sharing in their costs, but actual Iraqi expenditures for this purpose 
are unclear. For the PRDC program, 16 of the 40 projects we reviewed 
had evidence that the Iraqi government agreed to sustain the project. 
[Footnote 4] However, the letters did not specify financial resources 
or other support that would be provided. In addition, State could not 
provide evidence that the Iraqi government followed through and 
budgeted or provided funds to sustain these projects. For the NCD 
program, two Iraqi ministries signed memorandums of understanding to 
support the program, eight other ministries drafted capacity-building 
strategies with NCD, and five ministries assumed the NCD training using 
their own instructors. In addition, several ministries committed to and 
allocated funds in their 2009 budgets to continue the NCD training, 
provide equipment for training centers, and share the cost of other NCD 
initiatives. However, we have previously reported that for 2005 to 2008 
budget years Iraq did not spend all of its budgeted funds for 
investment activities, including maintenance and training. 

To help these programs achieve their objectives of building the 
capacity of the provincial governments and central ministries, 

* We recommend that, for the PRDC program (1) the Secretary of State 
ensure that management control weaknesses are addressed in the PRDC 
program by designating an overall program manager; developing outcome 
measures of effectiveness; and documenting actual Iraqi government 
budget allocations and expenditures for fiscal year 2007 PRDC projects; 
and (2) the Secretary of the Army ensure that USACE initiatives to 
improve the financial controls for the timekeeping process correct the 
deficiencies discussed in this report. 

* We recommend that, for the NCD program, the USAID Administrator (1) 
revise USAID policy and procedures for confirming receipt of goods or 
services applicable to the NCD program in Iraq to include (a) 
clarifying that confirmation of receipt of goods/or services must be 
noted separately from the administrative approval or (b) documenting 
reasons precluding actual confirmation such as prohibitive personal 
danger or security protection costs; (2) ensure that USAID/Iraq 
initiatives to improve the documentation of the voucher examiner's 
required review of contractor invoices correct the deficiencies 
discussed in this report; and (3) document actual Iraqi government 
budget allocations and expenditures to ensure funds committed to 
support NCD activities are expended. 

State, USACE, and USAID provided written comments on a draft of this 
report, which we have reprinted in appendixes II, III, and IV. The 
USACE also provided technical comments, which we have incorporated 
where appropriate. 

State agreed with our recommendation to address management control 
weaknesses in the PRDC program. State commented that it had clarified 
and confirmed ITAO's overall responsibility for the PRDC program and 
that a program manager has now been designated. State also accepted our 
recommendation to develop outcome measures of effectiveness for PRDC 
and clarified that its reporting of projects approved and funds 
dispersed in the 2207 report to Congress was not intended to be a 
measure of PRDC's success. State further agreed to report on Iraqi 
government contributions to PRDC projects in its next cost matching 
report to Congress. 

USACE agreed with our draft recommendation to strengthen its financial 
controls for payroll and provided additional information about its 
initiatives to improve its timekeeping process. We subsequently refined 
our recommendation to state that the Secretary of the Army ensure that 
USACE initiatives to improve the timekeeping process correct the 
deficiencies discussed in the report. USACE agreed to this 
recommendation. In technical comments, USACE noted substantial 
discrepancies--amounting to millions of dollars and over 100 projects-
-between its financial and project data and ITAO's data that we 
included in our draft report. In reconciling the conflicting data, ITAO 
agreed to revise its April 3, 2009, Essential Indicators Report to 
reflect the corrected data. 

The U.S. Agency for International Development commented that it is 
taking under advisement our recommendation to require confirmation of 
receipt of goods and services and that it has already implemented our 
recommendation to document the voucher examiner's review of contract 
invoices. The agency agreed to implement our recommendation to document 
the government of Iraq's commitments and expenditures associated with 
the NCD program. 

Background: 

To help Iraq assume responsibility for sustaining U.S. reconstruction 
efforts, U.S. agencies are implementing programs to build the capacity 
of Iraq's central and provincial governments, including State's PRDC 
program to strengthen the capacity of Iraqi provincial governments to 
deliver essential services such as water and electricity and USAID's 
NCD program to assist the Iraqi government in improving the 
administrative capacity of several ministries and executive offices 
through training. 

Provincial Reconstruction Development Committee Program: 

In 2005, the United States created PRDCs to give the provinces a voice 
in deciding how to spend U.S. reconstruction funds for Iraq. The PRDCs 
comprise members of Iraq's Provincial Councils, representatives of the 
governor, and the Director Generals of Iraq's Central Ministries. The 
PRDC role is to identify needs within their province, prioritize the 
needs, and develop a list of projects to address those needs. The 
primary U.S. objective of the PRDC program is not reconstruction but 
strengthening the capacity of Iraqi provincial governments to develop 
and implement essential service projects, according to State. 

Congress appropriates funds to State, which are used, for the PRDC 
program to State, and the USACE's Gulf Regional Division (GRD) 
implements the program. ITAO coordinates and oversees the selection 
process for specific projects and according to State provides overall 
program management, and GRD provides project management.[Footnote 5] 
The Office of Provincial Affairs within the U.S. Embassy Baghdad 
provides policy guidance and support to the Provincial Reconstruction 
Teams (PRT) program. The PRTs serve as the coordinating body for this 
funding, assisting PRDCs with identifying, prioritizing, and developing 
project request packages. Each PRDC creates a prioritized list of 
reconstruction projects that address provincial needs; these are then 
discussed in a public forum. The project list is submitted to the 
Provincial Council for review and approval. Approved projects are 
forwarded to the PRT provincial program manager who reviews them to 
ensure they meet U.S. government policies and legal requirements. The 
PRT provincial program manager forwards the list to ITAO for review and 
approval. The National Embassy Team reviews and approves projects. The 
Gulf Region Division (GRD) scopes, estimates, bids, and awards project 
contracts. As the implementer, GRD assists ITAO by providing program 
and project oversight, which includes awarding contracts and providing 
quality assurance and quality control. The PRT engineer provides 
teaching, mentoring, training, guidance, and support for the PRDCs in 
preparing scopes of work, bills of quantities, estimates, and project 
nomination forms. The program funds small-scale projects proposed by 
the PRDCs, including water and electric plants, roads, bridges, 
schools, health clinics, airports, and fire stations. For fiscal year 
2007 funds, the PRDC program shifted focus to provide funds to help 
provincial governments sustain and plan essential service projects. 
Figure 1 is an example of a PRDC project we visited in Iraq in November 
2008. 

Through three interagency agreements between State and USACE, State 
obligated $700 million for fiscal years 2006 and 2007 to reimburse the 
USACE for costs incurred and awards made for the PRDC program. 
Specifically, State obligated $315 million and $385 million for fiscal 
years 2006 and 2007, respectively, under the agreements. 

Figure 1: PRDC-Funded Electric Substation in Muthanna Province (U.S. 
provided $1.2 million in funds for this project): 

[Refer to PDF for image: photograph] 

Source: GAO. 

[End of figure] 

As table 1 shows, for fiscal year 2006, USACE had entered into 
contracts to implement the program totaling about $259 million and 
about 135 out of 213 projects had been completed by April 2009, 
according to GRD. For fiscal year 2007, USACE had entered into 
contracts amounting to about $207 million and about 40 out of 185 
projects had been completed by April 2009, according to GRD. 

Table 1: Status of $700 Million PRDC Program Funds, Fiscal Years 2006 
and 2007 (Millions of U.S. dollars): 

Total funds obligated: 
Fiscal Year 2006: $315; 
Fiscal Year 2007: $385. 

Projects approved by National Embassy Team: 
Fiscal Year 2006: Cost: $259.6; 
Fiscal Year 2006: Projects: 213; 
Fiscal Year 2007: Cost: $262.3; 
Fiscal Year 2007: Projects: 185. 

Projects entered into contracts: 
Fiscal Year 2006: Cost: $258.6; 
Fiscal Year 2006: Projects: 210; 
Fiscal Year 2007: Cost: $207; 
Fiscal Year 2007: Projects: 160. 

Projects started: 
Fiscal Year 2006: Cost: $256.9; 
Fiscal Year 2006: Projects: 208; 
Fiscal Year 2007: Cost: $167.2; 
Fiscal Year 2007: Projects: 145. 

Projects completed: 
Fiscal Year 2006: Cost: $129.1; 
Fiscal Year 2006: Projects: 135; 
Fiscal Year 2007: Cost: $25.4; 
Fiscal Year 2007: Projects: 40. 

Source: USACE GRD. 

Notes: Data as of April 2009 and includes USACE labor costs. Planning 
and design funds obligated for fiscal year 2006 are $3.0 million and 
for fiscal year 2007 are $7.7 million. 

[End of table] 

National Capacity Development Program: 

In July 2006, USAID created the National Capacity Development (NCD) 
program to build the capacity of Iraq's central government. The program 
focuses on building the skills and capabilities of several Iraqi 
government executive offices, such as the Prime Minister's Office, and 
10 key Iraqi ministries, such as the Ministries of Electricity, Oil, 
and Water.[Footnote 6] Key tasks include (1) raising the skill levels 
of Iraqi public managers in project management, fiscal management, 
human resources, budgeting, and information technology; (2) advising 
key ministries in strategy development, program planning, and capacity 
building; and (3) expanding the Iraqi government's training capacity at 
its national training center and in the provinces. Additional 
activities for the program included providing equipment, furniture, and 
support to develop Iraq's training centers, and providing overseas 
scholarships to Iraqi civil servants. To help reform the Iraqi 
government's procurement system, USAID purchased equipment for 
administrative tribunal courtrooms at the Ministry of Planning and 
Development Cooperation, which rules on disputes over Iraqi government 
contract awards (see figure 2). 

Figure 2: NCD-Funded Equipment for Ministry of Planning and Development 
and Cooperation: 

[Refer to PDF for image: photograph] 

Source: USAID. 

[End of figure] 

USAID is responsible for the NCD program and has hired a contractor, 
Management Systems International, to implement the program.[Footnote 7] 
The initial contract was for $165 million for a 3-year period. Various 
modifications increased the program funding, changed the scope of work, 
and extended the completion date to January 31, 2011. A modification 
made in September 2008 increased the total contract amount to $339 
million. According to the USAID's financial management system, as of 
April 2009, the program has obligated $259 million, and of that amount 
about $152 million has been disbursed. 

State Cannot Ensure That the PRDC Program Is Achieving Its Objective to 
Build Capacity: 

State's PRDC program has management control weaknesses in organization, 
monitoring, and communication that hinder the achievement of its goal 
of building provincial government capacity. First, State's organization 
of the program does not clearly define who is responsible for the 
overall management of the program, and the multistep process for 
implementing the program adds to this ambiguity. Second, State lacks a 
performance monitoring system that measures progress toward building 
the capacity of provincial governments. Third, State's guidelines and 
policies have changed frequently, as has the direction of the program, 
but State did not fully communicate or consult with program 
implementers about these changes. Finally, USACE labor costs for the 
program are not always supported by adequate documentation, increasing 
the risk that USACE' requests to State for reimbursement of labor costs 
may be overstated or understated. 

PRDC's Organization Does Not Clearly Delineate Responsibility, and the 
Program Has Experienced Staffing Challenges: 

Management control standards require a well-managed and properly 
structured organization that clearly delineates authority and 
responsibility. In addition, management control standards call for 
qualified staff in place without excessive personnel turnover in key 
functions, such as program management, to implement proper management 
controls. 

State's PRDC Program Lacked a Manager to Oversee Program Challenges: 

State's PRDC program has multiple entities responsible for managing 
parts of its complicated, multistep process to approve and implement 
projects. However, no single program manager was clearly responsible 
for overall management of the program until May 2009, when State 
designated one in response to GAO's findings. The PRDC process for 
approving and implementing projects includes at least 7 entities and 7 
steps involving project development, project management, and project 
execution. Figure 3 illustrates the PRDC's complex organizational 
structure and process as reported by State. 

Figure 3: PRDC Program Organizational Structure and Process: 

[Refer to PDF for image: illustration and three photographs] 

Project Development: 

Government of Iraq Ministries[A]: 
* Coordination with ITAO (Iraq Transition Assistance Office)[B]; 
* Standards, Operations and maintenance, as well as coordination of 
requirements occurs with PDRC (Provincial Recontruction Development 
Committee[A] (DGs)); 

1) PDRC (Provincial Recontruction Development Committee[A] (DGs)): 
nomination forwarded to Provincial Council[A]; 

2) Provincial Council forward the nomination to the PRT (Provincial 
Reconstruction Team)[B]; The PRDC and PRT interact on requirements 
development and execution management; 

Project Execution: 

3) PRT (Provincial Reconstruction Team)[B]: forwards nomination to ITAO 
(Iraq Transition Assistance Office)[B]; 

Project Management: 

4) ITAO (Iraq Transition Assistance Office)[B]: Interacts with the 
National Embassy Team[B], which includes: Director ITAO; ITAO 
CFO/Budget; ITAO Ops; OPA; GRD. 

5) National Embassy Team[B]: forwards approval to GRD (Gulf Region 
Division[B]; GRD and ITAO interact on funding obligations 632b; 

Project Execution: 

6) GRD forwards approval to GRx[B] (Gulf Region: North/Central/South); 

7) GRx forwards contracts to: Contractors/vendors[A]; 

Contractors/vendors[A]: delivery occurs (indicated by photographs). 

Source: Chart: DEpartment of State; photographs: GAO. 

[A] U.S. entities. 

[B] Iraq and non-U.S. entities. 

Note: According to the Gulf Regional Division, the organization has 
been excluded from both the National Embassy Team review and approval 
meetings. 

[End of figure] 

Until May 2009, no single entity was accountable for the program in its 
entirety or responsible for ensuring that the program's objectives were 
met. For instance, although ITAO has a PRDC program manager, in 
response to an October 2008 report on ESF in Iraq, State indicated that 
ITAO coordinates and oversees project selection.[Footnote 8] The other 
entities also do not have responsibility for managing and ensuring that 
the overall program objectives are met. For instance, the Provincial 
Reconstruction Teams (PRT), through the PRT provincial program manager 
and PRT engineer, focus on helping the PRDC identify, prioritize, and 
develop project proposals. The PRDCs create prioritized lists of 
reconstruction projects that are submitted to the Provincial Council 
for review and approval. According to a State document, the PRT 
provincial program manager guides the process; however, a PRT 
provincial program manager is located at each PRT and therefore guides 
the process for that individual PRT and does not manage the entire 
process. ITAO and the National Embassy Team review and approve projects 
and then forward these to the program implementer, the USACE Gulf 
Regional Division (GRD). GRD focuses on scoping projects, estimating 
their costs, receiving bids, awarding projects, and providing quality 
assurance and quality control. As a result, no entity was responsible 
for managing the overall program and ensuring the program's goals are 
achieved. 

Without an overall program manager, no one oversees the entire program 
process and has overall responsibility for addressing systemic problems 
such as coordination issues. For instance, although coordination 
between U.S. and Iraqi officials is essential to building provincial 
capacity, it remains one of the program's key challenges. In our sample 
of 40 PRDC projects, we found that about 16 projects had problems 
coordinating with local Iraqi authorities. For example, determining and 
verifying land ownership is a major challenge in Iraq and is one of the 
most common causes for delays in awarding project contracts. In another 
instance, a $1.5 million potable water network to service Baghdad's 
Mansour district lost nearly 7 months waiting for the necessary 
building permits and test results. Other coordination challenges have 
also resulted in delays, cost increases, and project terminations. For 
example, on a $1.4 million Baghdad water network project, a local 
government office did not follow established guidance in requiring 
certain technical tests to be performed and rejected subsequent test 
results because they were conducted by an independent laboratory. The 
municipality suspended all work at the site and threatened to arrest 
personnel who continued to work. With about $400,000 already spent, the 
project is in the process of being terminated. In May 2009, State 
designated ITAO as the program manager in response to one report 
finding. 

PRDC Has Experienced Staffing Changes and Shortages: 

Both ITAO and GRD have staffing challenges. Our review of ITAO 
documents found that ITAO's PRDC point of contact, who coordinates and 
oversees the selection process for specific projects, changed six times 
since December 2006. Specifically, from January 2008 to September 2008, 
ITAO had three different PRDC managers. According to GRD, these 
frequent changes in ITAO's PRDC managers contributed to inconsistent 
information about program direction. For example, in January 2008, when 
the PRDC program shifted from building infrastructure to helping 
provincial governments in sustaining and planning essential services, 
ITAO failed to consult GRD about developing a new program management 
plan until September 2008. 

Gulf Region South officials stated that they have had difficulty 
obtaining staff with the skills and training to manage reconstruction 
projects. To address staffing shortages, Gulf Region South hired Iraqi 
associates to inspect projects in the field. In addition, Iraqi 
associates have been hired to contribute to a trained local work force, 
build local infrastructure, and ensure continued project 
sustainability, according to USACE officials. During our site visits, 
we observed that the Iraqi engineers were able to visit the sites more 
frequently, and because they spoke Arabic, they could interact with the 
Iraqi contractors. Senior GRD management stated that Iraqi workers have 
been essential, particularly when security conditions deteriorated. 

PRDC Program Lacks a Monitoring System to Track Performance Toward 
Building Provincial Capacity: 

Standards for management control require performance measures and 
indicators to monitor progress in achieving program objectives. 

The PRDC program has no performance measurement system to assess 
whether the program is achieving its objective of helping build 
provincial government capacity to deliver essential services, according 
to State officials. According to an October 2008 State report, PRDC 
program accomplishments are measured by the number of projects 
completed and awarded and amount of funds disbursed.[Footnote 9] 
However, this is a measure of State's ability to obtain and use U.S. 
funds. The indicator does not provide information about the extent to 
which U.S. efforts build the capacity of provincial governments to 
deliver essential services, particularly since only U.S. funds are 
involved in program funding. Further guidance for PRDC states that the 
program's capacity building will be demonstrated when operations and 
maintenance services and provincial planning projects are identified 
and programmed into the provincial budgets for 2008. However, at the 
time our review, ITAO and the Office of Provincial Affairs (OPA) 
[Footnote 10] could not provide us with this information. 

PRT engineers are responsible for assisting PRDC officials by teaching, 
mentoring, training, guiding, and supporting the preparation of all 
project scopes of work, bills of quantities, estimates, and project 
nomination forms. During site visits, we found that PRT engineers 
conducted training through the local GRD district offices to help Iraqi 
contractors prepare technical contract proposals. Similarly, OPA 
provided anecdotal examples to show how PRT engineers are building 
capacity in two provinces. However, these examples cannot be reliably 
used to track progress and outcomes in building capacity. 

Although there is no system to monitor program outcomes, GRD tracks 
project implementation through the Resident Management System. For 
example, based on a random sample of 40 projects, we found that 16 
projects had missed their milestones; 9 projects were on or ahead of 
schedule; 6 projects had construction canceled or terminated; and 6 
projects had been completed and accepted by the U.S. government for 
transferring to the Iraqi government. The most common challenges cited 
in these projects were contractor inefficiency, poor security, and 
coordination with local Iraqi authorities. Over two-thirds of the 40 
projects we analyzed described numerous problems with contractors' 
work. The challenges of conducting reconstruction work in a conflict 
environment hindered PRDC project execution in nearly half of the 
projects in our sample. For example, according to officials, dangerous 
security conditions in Maysan province prevented regional office U.S. 
personnel from visiting any projects in that province for an 18-month 
period ending in September 2008. In December 2008, a senior official at 
the U.S. embassy in Baghdad said the embassy was creating an official 
process for obtaining the status of all U.S.-funded reconstruction 
projects with problems that would include a review of the project 
schedule, budget, project status, and project quality. However, these 
indicators will not monitor or assess U.S. efforts to build the 
capacity of provincial government officials to deliver essential 
services. 

In commenting on a draft of the report, State agreed with the need to 
develop outcome measures of effectiveness. State proposed measures to 
track the length of project development, procurement, contracting, 
execution, and oversight process to see if it improves over time, as 
well as the quality of the projects completed. Other possible measures 
included the degree of constituent input in the project selection 
process, the degree of transparency and anti-corruption measures in the 
contracting process, the separation of powers between the executive and 
legislative, and the rate of Ministries, to follow-through to budget 
for and sustain the projects. 

Frequent Changes in PRDC Guidelines Were Not Adequately Communicated: 

Effective management controls call for the design and implementation of 
policies and procedures to ensure that management directives are 
carried out and that information is communicated clearly and in a 
timely fashion. 

ITAO issued PRDC program guidelines through action memorandums that 
specified funding allocations, types of projects that would be 
approved, priorities, and the general process for project approval. 
However, the guidelines were revised or clarified six times between 
August 2006 and July 2008. The program implementer--GRD--expressed 
concern about these frequent changes, particularly the lack of 
communication and consultation. In addition, according to a senior GRD 
official, ITAO had not communicated adequately and consistently about 
the guidelines and changes. For example, in January 2008, State shifted 
the focus of the PRDC program from building infrastructure to 
maintaining and sustaining projects. According to ITAO officials, State 
emphasized sustaining local operations and maintenance services of U.S.-
procured infrastructure, strategic planning for the infrastructure 
projects, and capacity building for provincial governments' 
professional staff. However, according to GRD officials, ITAO waited 
until September 2008 to consult with GRD on developing a new management 
plan to implement these changes. As a result, according to GRD 
documents, in 2008, the GRD district offices developed 109 project 
proposals with a value of $158 million. According to a senior GRD 
official, staff wasted resources developing these infrastructure 
project proposals because these projects were no longer the focus of 
the program. 

In commenting on a draft of this report, State indicated that GRD was 
involved in planning at an early date and that GRD received copies of 
all changes to the PRDC program via memos. However, according to GRD 
officials, in July 2008, ITAO directed the National Embassy Team to 
approve projects for award without any GRD involvement in the approval 
process. As of May 2009, GRD officials stated that the limited 
involvement of GRD in the strategic planning process for the PRDC 
program has hindered the ability of GRD to understand the shifts in 
program focus and realign resources in an efficient and effective 
manner to meet the needs of State Department and the program. 

PRDC Labor Cost Could Be Overstated or Understated: 

Standards for internal control call for federal agencies to retain 
evidence that transactions and events are appropriately classified and 
promptly recorded throughout the life cycle of each transaction, 
including final classification in summary records from which reports 
are prepared. 

Our tests of USACE's established controls to help ensure financial 
accountability for the PRDC program identified deficiencies in the 
maintenance of adequate documentation to support labor costs that USACE 
charged to PRDC projects. Inadequate documentation highlights a control 
weakness that may cause the USACE reported cost for specific PRDC 
projects to be inaccurate. Further, USACE's requests to State for 
reimbursement of labor costs may be overstated or understated. Our 
review of time and attendance records for 152 USACE employees, totaling 
about $2.5 million in net labor charges to 36 PRDC projects, disclosed 
that about 26 percent of these charges did not have adequate supporting 
documentation.[Footnote 11] 

Our review disclosed that APPO timekeepers' files did not contain 
complete time and attendance records. USACE procedures require 
timekeepers in Iraq to send time and attendance documentation to the 
Administrative Personnel Processing Office (APPO) in Winchester, 
Virginia, for data entry into the USACE financial management system and 
retention in APPO files. We also found instances where the hours on the 
time and attendance records that were located did not agree with the 
hours entered into the USACE financial management system. However, 
neither we nor the APPO staff could readily determine the reason for 
these inconsistencies. Furthermore, a November 2008 APPO review of time 
and attendance practices in Iraq also identified problems regarding the 
accuracy of labor hour charges to PRDC projects.[Footnote 12] For 
example, the review disclosed that employee supervisors did not 
routinely verify that hours entered into the financial management 
system agreed with hours on original time and attendance records. USACE 
officials also stated that, although certain managers were authorized 
to correct labor charges that were incorrectly charged to a project in 
a prior pay period, evidence of the correction was not required to be 
maintained in the APPO timekeepers' files because APPO timekeepers were 
not responsible for recording these corrections in the financial 
management system. Additionally, an APPO official stated that, in 2006 
and 2007, APPO timekeepers sometimes discarded original time and 
attendance records when corrected time and attendance records were 
subsequently received to avoid having two or more time and attendance 
records for the same pay period. Although the official explained that 
the current procedure is to attach corrected copies of time and 
attendance documentation to the original documentation, these 
procedures have not been formally documented. Discarding original time 
and attendance records precludes the ability to determine why 
corrections were made to the original entry. 

GRD program managers use financial reports derived, in part, from time 
and attendance records and adjustments to monitor a project's financial 
status and labor resources expended. In addition, USACE uses time and 
attendance data to bill State for reimbursement of PRDC labor costs in 
accordance with an interagency agreement between the USACE and State 
that provides funding to USACE to implement the PRDC program. The APPO 
November 2008 review noted that some steps were being initiated to help 
improve the documentation of time and attendance transactions, which, 
if successfully implemented, should help improve time and attendance 
internal controls. 

However, as of January 2009, APPO informed us that time and attendance 
reporting problems continue to be identified. To help improve 
timekeeping, in April 2009, the GRD Finance and Accounting Officer 
informed us that the timekeeping function would be moved from APPO to 
the GRD office in Winchester, Virginia, by May 2009. According to the 
GRD Finance and Accounting Officer, the intent is to hire a team of 
three people to work exclusively on timekeeping matters with personnel 
in Iraq to increase timekeeping accuracy. APPO had been tasked with 
preparing personnel for deployment and travel in addition to 
timekeeping. We were also informed that the timekeepers are being 
trained on labor costing and the importance of proper labor charging. 
In addition, the GRD timekeepers will be responsible for documenting 
timekeeping problems and informing personnel in Iraq about needed 
improvements. 

NCD Management Controls Support the Goal of Building the Capacity of 
Iraqi Ministries but Do Not Adequately Verify Expenditures: 

The goal of USAID's NCD program is to build the planning and 
administrative capacity of Iraqi ministers and officials. The 
organization of the program clearly lays out roles and responsibilities 
of key players in training and consulting with Iraqi ministries and 
identifies the reporting chain up to the individual responsible for the 
overall program. In response to a 2008 USAID Inspector General report, 
USAID scaled back the NCD program objective of improving ministry 
service delivery to more achievable objectives such as improving the 
ministries' administrative systems and budget execution. For 2008, NCD 
monitors and tracks both outputs and outcomes for its new objectives 
and provides regular reporting on the results. USAID's polices and 
procedures provide guidance for implementing the program by laying out 
explicit expectations for contract modifications and task orders in 
USAID's automated directive system. Nevertheless, we found that the 
controls for documenting program expenditures are weak; we found 
invoices totaling about $17 million that did not have confirmation of 
receipt. 

NCD's Organization Provides Clear Lines of Accountability and Authority 
and Is Increasingly Relying on Iraqis to Execute the Program: 

The organization and structure of the NCD program is clearly laid out, 
and related guidance details the roles of the key players. The units 
responsible for training Iraqi officials and working with the 
ministries are clearly identified, and the chain of command is 
unambiguous. Figure 4 shows the organization of the NCD program. 

Figure 4: NCD Organization Chart: 

[Refer to PDF for image: illustration] 

Top level: USAID Iraq Capacity Building Office (CBO) Director[A]. 

Second level, reporting to the CBO Director: USAID Iraq CBO Deputy 
Director Cognizant Technical Office (CTO)[A]. 

Third level, reporting to the CTO: National Capacity Development (NCD) 
Program: Tatweer Project Chief of Party[B]. 

Fourth level, report to the NDC: 
* Institutional Development Deputy Chief of Party[B]: 
- Tatweer Energy Director[B]; 
- Executive Ministries Director[B]; 
- Line Ministries and Provincial Outreach[B]; 

* Training and Consulting Deputy Chief of Party[B]; 
- Professional Development Director[B]; 
- Regional Training Coordinators and Advisors[B]; 
- Consulting Units and Team Leaders[B]. 

* Administration and Finance Deputy Chief of Party[B]: 
- Controller[B]; 
- Chief Administrative Officer[B]; 
- IT Manager[B]. 

Source: GAO analysis of USAID data. 

[A] USAID staff. 

[B] USAID contractors. 

[End of figure] 

As the figure shows, the director of the Capacity Building Office (CBO) 
in Iraq has overall responsibility for the program. The deputy director 
coordinates the program and acts as the liaison with the Iraqi 
government and the U.S. agencies in Iraq, according to NCD guidance. 
The deputy director directs and coordinates NCD activities through the 
contractor chief of party, who is responsible for training Iraqi civil 
servants, consulting at the ministries, developing Iraqi training 
centers, and completing progress reports as requested by USAID. 

To carry out these activities, the program relies on Arabic-speaking 
employees for all aspects of its operations. As of February 2009, NCD 
program staff comprised 278 contract staff, of which about 70 percent 
are Iraqi nationals and the rest are expatriates from the United States 
and third countries. These staff work within Iraqi ministries, 
including the Ministries of Planning, Health, Agriculture, Oil, and 
Electricity. The staff also conducts training at three U.S. compounds 
in Baghdad and assists in developing the training programs at Iraqi 
provincial training centers in Basra, Ramadi, and Hilla. According to 
USAID, early in its implementation, the program faced the challenge of 
recruiting qualified Arabic-speaking instructors and training advisors 
who would reside in Baghdad under the security conditions present in 
Iraq in early 2007. To address this challenge, the program emphasized 
hiring qualified Iraqis to teach these courses, such as at the Karada 
compound we visited in October 2008 (see figure 5). By the end of its 
second year, the NCD program trained more than 25,000 Iraqi civil 
servants in project management, accounting, and risk analysis, 
according to a USAID report. 

Figure 5: Training Iraqis in Computer Skills at the National Center for 
Consultancy and Management Development: 

[Refer to PDF for image: photograph] 

Source: USAID. 

[End of figure] 

USAID Monitors NCD Program Impacts but Had to Revise Overall 
Objectives: 

USAID uses a results framework with indicators that measure program 
outputs and outcomes to monitor progress toward program objectives. 
Through this framework, USAID reviews program activities, makes 
corrections to identified problems, and responds to audit reports. 
During the second year of the NCD program, USAID revised its indicators 
in response to a November 2008 USAID Inspector General's report stating 
that the NCD program did not have indicators to measure the program's 
impact in improving key ministries' delivery of core services.[Footnote 
13] For example, USAID measured many of its output goals such as 
training Iraqi employees, establishing regional training centers, and 
awarding scholarships. However, there were no outcome indicators to 
measure the achievement of USAID's goal to build the capacity of key 
Iraqi ministries to deliver core services. As a result, USAID narrowed 
its overall program indicators and stated it would begin to track the 
budget execution rates of Iraqi ministries such as the percentage of 
ministries' approved budget that is spent. For example, USAID will now 
monitor the value of capital projects approved, the number of capital 
projects approved by the Ministry of Planning, and the rate of capital 
projects implemented. 

In 2007, 3 out of the 20 NCD program accomplishment indicators were 
output--or numeric--goals, such as number of civil servants trained or 
the number of scholarships awarded. However, in 2008, the NCD program 
emphasized the measurement of results and included additional outcome 
indicators in its accomplishment reporting. For instance, 14 out of the 
24 indicators measured outcomes, or actual improvements. Some of the 
outcome indicators for 2008 included the extent to which trainees were 
using their new skills at work and saw related improvements at their 
office; whether the ministries were implementing improved fiscal 
information technology systems, based on USAID contractor's 
recommendations; and the extent to which ministries and the Iraqi 
government's public administration training center, the National Center 
for Consultation and Management Development, were initiating their own 
training. Table 2 provides examples of these indicators and our reason 
for considering these to be outcome indicators. 

Table 2: Examples of NCD Outcome Result Indicators Fiscal Year 2008: 

Outcome Indicator: Proportion of training graduates that often use new 
training skills; 
Comment: Indicator goes beyond output on numbers trained to probe the 
extent training is utilized. 

Outcome Indicator: Proportion of training graduates reporting 
significant improvements in their unit or ministry; 
Comment: Indicator goes beyond output on numbers trained for respondent 
to judge the evidence around them for positive change. 

Outcome Indicator: Proportion of priority improvements in fiscal 
management implemented by ministries; 
Comment: Response measures improvements such as adopting modifications, 
amending procedures, and developing new systems based on joint 
assessments by the Ministry and NCD. 

Outcome Indicator: Proportion of priority improvements in information 
technology implemented by ministries; 
Comment: Response based on joint assessments by the Ministry and NCD. 

Outcome Indicator: Number of ministries establishing a public 
administration training program; 
Comment: While this is a numeric goal, this is an outcome indicating 
Iraqi government commitment to the development of the civil service and 
improvement in service delivery to beneficiaries. 

Source: GAO analysis of USAID data. 

[End of table] 

USAID has been compiling data on the 2008 overall results for (1) 
strengthening public management skills, (2) establishing more effective 
administrative systems, and (3) expanding the Iraqi government's 
training capacity. In October 2008, USAID reported that some target 
measures were exceeded, some were not achieved, and several were on 
track. For instance, the program did not achieve its target for 
significant improvement reported by graduates within their ministry or 
unit. We observed and participants told us during our site visits in 
October 2008 that many of the trainees were lower-level employees who 
lacked the authority to implement their new skills within the units to 
which they returned after training. USAID reported that ministries were 
either on track to meet or had exceeded other results to establish more 
effective administrative systems for 6 of 7 indicators. USAID stated it 
had achieved or exceeded targeted results for 8 out of 10 indicators to 
expand the Iraqi government's capacity to train its own officials. 
However, the results were not complete at the time of our review so we 
could not independently assess them. 

NCD Policies and Guidance Provide Direction for Implementing the 
Program: 

Polices and procedures for the NCD program are documented and 
accessible. USAID programs are required to follow the mandatory 
guidance in the automated directives system (ADS), which includes USAID 
internal policy and required procedures as well as external 
regulations. Agency employees must adhere to these policy directives 
and required procedures. For example, ADS chapter 596 gives management 
responsibility for internal controls and provides the policy and 
required procedures to improve the accountability and effectiveness of 
USAID programs by establishing, assessing, and reporting on internal 
controls. In addition, ADS chapter 253 provides guidance for designing 
and implementing training and capacity building programs. The chapter 
includes guidance on assigning primary responsibility for the program; 
host country responsibilities for the program; and requirements for 
data collection, reporting, and monitoring of the program and 
participants. 

The NCD contract and its contract modifications provide specific 
guidance and expectations for implementing the program. For example, 
the first task order implementing the contract called for six major 
tasks, a list of responsibilities assigned to each major task and 
deadlines from within 30 days to 24 months for these assignments. The 
assignments included assisting the Iraqi government in developing its 
own capacity-building strategy, training government of Iraq employees 
at specific ministries, introducing standard training modules for 
regional training centers, and sending at least 50 Iraqis abroad to 
work on degrees or certificates related to public administration. 
Subsequent modifications added tasks based on the capacity-building 
needs of the ministries and Iraqi government. For example, a September 
2007 modification expanded ministerial capacity development teams and 
placed project management units in key ministries and institutions. 

Communication of the results occurred regularly and the contractor was 
required to provide weekly, monthly, quarterly, and annual reports on 
program implementation. We reviewed annual, quarterly, and monthly 
reports for 2006 through 2008 and some of the weekly reports. These 
reports documented program statistics on training, consulting with 
ministries, provision of equipment, and other activities. The reports 
also reported on challenges to implementing the program. For example, 
in 2007, the security situation in Iraq, including the inability to 
visit ministries and send Iraqis to training, was a major challenge to 
implementing the program. Other challenges included high staff turnover 
and the difficulties in acquiring skilled staff fluent in Arabic, which 
USAID has addressed by hiring local Iraqis. Longer-term challenges 
included dealing with extensive capacity needs at the ministries, while 
identifying ministries and individuals willing to implement reforms. 

Weaknesses Identified in NCD Financial Controls Over Contract Payment 
Process: 

Under USAID policy, an approving officer, usually the cognizant 
technical officer, performs administrative approval, which provides 
written evidence that USAID received the services or goods specified on 
the contractor's invoice prior to payment, and fills out a checklist to 
support administrative approval.[Footnote 14] The checklist is on the 
USAID Administrative Approval Form and Checklist and includes six 
different options for supporting administrative approval. Between April 
2007 and June 2008, USAID received 18 invoices from the NCD contractor 
totaling about $79 million. We found that the cognizant technical 
officer did not check off the option indicating receipt of contractor 
services on the form for administrative approval for 6 of these 18 
invoices, totaling about $17 of the $79 million. Instead, the cognizant 
technical officer indicated that acceptance of the contractor's 
services was based on meeting(s) between the officer and contractor 
personnel during which the contractor's performance was discussed. 
Thus, the cognizant technical officer appeared to rely on the 
contractor's statements that the billed services were provided to 
authorize payment of the bill. Although the Administrative Approval 
Form and Checklist provides an option for an officer to confirm the 
receipt of goods or services by marking the appropriate place, 
instructions do not require confirmation of receipt. For example, the 
instructions direct the officer to mark as many reasons on the form as 
possible to justify acceptance of the contractor's services, and that 
at least one reason on the checklist must be checked for administrative 
approval of the contractor's invoice. Not requiring the confirmation of 
receipt invalidates this internal control and could circumvent the 
regulatory and GAO internal control standards that require confirmation 
of receipt prior to payment. 

The instructions for the form do not require an explanation if 
confirmation of receipt is not possible. According to USAID officials, 
there is a reasonable likelihood that security risks may arise that 
make confirming the receipt of services impossible due to prohibitive 
personal danger or security protection costs. If these conditions are 
not documented, USAID managers cannot readily monitor the extent to 
which invoices were paid without confirmation of receipt or take other 
measures to ensure that the government's interest is protected. 

USAID policy also requires verification of the pricing and computations 
on a contractor's invoice and assigns this responsibility to the 
financial voucher examiner. We found that USAID did not have reasonable 
assurance that the voucher examiner completed this function because 
many of the contractor's invoices showed no indication that the 
examiner had performed any verifications, causing a lapse in the 
internal control to detect any errors in contractor billings. 
Furthermore, USAID policy did not specifically address the 
documentation that voucher examiners should use to support their 
analysis of contractor invoices. However, the USAID Deputy Controller 
in Iraq stated that, as of November 2008, voucher examiners began using 
a form to document their analysis of contractor invoices. It is too 
early to determine whether this form has been an effective control to 
prevent improper payments to the contractor. 

We observed that the complexity of these invoices and the process of 
verifying pricing and computations against the terms of the contract 
are unwieldy. This increases the risk that the voucher examiner's 
review may not prevent improper payments. For example, two of the 
contractor's invoices were more than 100 pages and listed numerous 
labor-hour costs and other direct costs, including a variety of 
footnotes and adjustments. Invoices listed the number of hours that 
specific individuals worked on the NCD program and numerous labor hours 
for administration. In addition, the cost of equipment purchases was 
not easily identifiable, if at all. Furthermore, the Defense Contract 
Audit Agency identified problems with certain NCD contractor costs 
billed to USAID.[Footnote 15] 

Iraq Has Agreed to Sustain the Programs and Is Providing Some Support 
for NCD, but Budget Expenditures Are Unclear: 

Iraq committed to sustaining U.S.-funded projects and programs and 
sharing in their costs in several official documents and the 
International Compact for Iraq.[Footnote 16] For example, we found that 
Iraqi government officials had signed letters agreeing to sustain many 
of the PRDC projects in our sample. The documents, however, do not 
specify dollar amounts or other resources to do this. For the NCD 
program, two Iraqi ministries signed memorandums of understanding for 
support of the program and eight other ministries developed capacity- 
building strategies that incorporated NCD materials. Iraq also 
demonstrated its commitment to U.S. efforts by expanding the NCD 
training program and starting its own training programs in some 
ministries. Several ministries also made 2009 budget commitments to 
continue the NCD training and provide equipment for training centers, 
among other efforts. These amounts are due to be expended during 2009. 
However, our past work has found that, although Iraq budgets for 
investment and sustainment activities, it may not spend the budgeted 
funds. 

The Iraqi Government Has Committed to Operate and Maintain PRDC 
Projects and Is Supporting NCD Efforts: 

For the PRDC program, 16 of the 40 projects we reviewed had indications 
that the Iraqi government agreed to sustain the projects; however, none 
of the records we examined included specific funding or resource 
commitments that would allow a check against actual Iraqi budgets and 
expenditures. For fiscal year 2007 project funds, U.S. guidance 
required that all PRDC project proposals include a letter of 
sustainment from the appropriate Iraqi government office. However, in 
response to our request, ITAO provided only 10 of the 12 letters of 
sustainment for fiscal year 2007 projects in our sample. For fiscal 
year 2006, 6 of the 28 projects in our sample had evidence of Iraqi 
government commitment to sustain the projects.[Footnote 17] Letters of 
sustainment indicate Iraqi government approval for the design and 
construction of the project and an agreement to accept staff, operate, 
and maintain the project. For example, on a 2007 PRDC project to 
convert river water to drinking water, the Director General of the 
Wasit Water Directorate signed a letter agreeing to staff, operate, and 
maintain the water plant, once completed. For a 2007 PRDC project to 
build four electrical feeders, the Director General of Electricity 
agreed to prepare and submit an annual budget to the Ministry of 
Electricity to operate and maintain the project. 

The Iraqi government has agreed to support some NCD efforts. For 
example, the Ministry of Electricity pledged to provide ongoing support 
for NCD efforts; sustain projects funded in whole or part by NCD; and 
provide staff to NCD, including finance and accounting specialists, 
power generation engineers, maintenance engineers, and others. 
Commitments from other ministries have been demonstrated by their 
actions to develop capacity-building plans with NCD assistance. In 
October 2007, we reported that not all U.S. capacity development 
efforts were clearly linked to the needs and priorities identified by 
the Iraqis, which may reduce the sustainability of U.S.-funded efforts. 
[Footnote 18] USAID has attempted to identify Iraqi government needs 
and obtain official government commitments by helping the ministries 
develop their own capacity-building plans. As of January 2009, eight 
ministries, plus the Prime Minister's Office and the Council of 
Ministers' Secretariat, had developed capacity development plans with 
NCD assistance. Based on ministry self-assessments that identify Iraqi 
needs and priorities, the plans emphasized the Iraqi ministries 
partnering with the U.S. government on budget execution, training in 
project management, strategic planning, human resources, and fiscal 
management. For example, the Prime Minister's Office, as result of 
developing its capacity development plan in 2007, developed a new 
organization structure, job descriptions, and a strategy for the 
office. 

Iraqi ministries have also demonstrated commitment to NCD's train-the- 
trainers program, and five ministries have started their own training 
programs. USAID stated that the Iraqi government is increasingly taking 
over USAID's training. For example, according to USAID's contractor, as 
of May 2008, Iraqi government staff who had graduated from USAID's 
courses and received additional train-the-trainer courses taught more 
than half of all monthly courses. Iraqi government staff trained by 
USAID contractors taught 14,720 (over 54 percent) of 27,127 course 
participants trained through September 2008. Moreover, as of September 
2008, the Iraqi government's National Center for Consultancy and 
Management Development delivers all train-the-trainer and core public 
administration courses in project management, budgeting, procurement, 
and strategic planning. The center has developed a tool to assess 
trainers and established a monitoring and evaluation unit to assess the 
impact of its training programs. 

Iraqi Budget Expenditures for PRDC and NCD Programs Are Unclear: 

State's PRDC 2006 guidance states that U.S. assistance will be matching 
in nature to ensure commitment and investment from the provincial 
government. PRDC program guidelines for fiscal year 2007 ESF funds 
further state that the development of capacity building would be 
demonstrated when projects are identified and programmed into Iraq's 
2008 provincial budgets. In its 2007 International Compact, Iraq stated 
that any new development programs should be co-financed by Iraq to 
leverage Iraq's own resources and provide a framework for mutual 
accountability. 

ITAO officials could not provide support that specific PRDC projects 
have been co-financed or that the Iraqi government budgets contained 
operating and maintenance funds for these projects. In August 2008, GRD 
officials stated that Iraq had not provided any cost-share funds for 
implementing fiscal year 2006 and fiscal year 2007 PRDC projects to 
date. Moreover, according to a GRD official, the Iraqis have been 
unable to meet their commitments to sustain PRDC projects because the 
central ministries have not budgeted sufficient funds to sustain 
projects. For example, according to this GRD official, the Director 
General for roads in the Ministry of Construction and Housing budgeted 
only $100 million in fiscal year 2008 for building and maintaining all 
roads in Iraq--an inadequate amount for road construction and 
maintenance. 

Iraq's past inability to spend its investment budget also raises 
concerns about whether Iraq is providing funds to sustain PRDC 
projects. In March 2009, we reported that Iraq's inability to spend its 
resources, particularly on investment activities, limits the 
government's efforts to further economic development and deliver 
essential services to the Iraqi people.[Footnote 19] Although Iraq's 
total expenditures grew from 2005 through 2007, Iraq was unable to 
spend all of its budgeted funds, especially for investment activities 
such as maintenance of roads, bridges, vehicles, buildings, water and 
electricity installations, and weapons. In 2007, Iraq spent 28 percent 
of its $12 billion total investment budget. In 2008, it spent 39 
percent of its $24 billion investment budget. In 2008, the Iraqi 
government spent $949 million, or about 2 percent of its total 2008 
expenditures, for the maintenance of Iraqi-and U.S.-funded investments. 
In 2008, the provinces spent $2,054 million, or 22 percent of total 
investment expenditures of $9,167 million. The 2008 investment budget 
for the provinces, including the supplemental budget, was $6,470 
million. The provinces spent 32 percent of their investment budget. 
There were sufficient unspent budget funds for the provinces to provide 
matching funds. 

The spending limits imposed by the central ministries in Baghdad also 
limit the ability of Iraq's provincial governments to sustain projects. 
According to a PRT official, the Director General for water in Basra 
has a $2,500 per item requisition limit. For items higher than that 
amount, he needs approval from the Ministry of Water in Baghdad. Most 
items cost more than $2,500; a filter for the Garma water purification 
facility, for example, costs $25,000. Obtaining approval from the 
central ministry in Baghdad takes time, and often that ministry will 
approve some parts but not others, which severely limits the Director 
General's ability to live up to his commitment to sustain U.S.-funded 
water projects in Basra. 

For the NCD program, Iraq government ministries and executive offices 
have pledged about $95 million in cost sharing for specific NCD-related 
activities and procurements, according to USAID. Some of these 
commitments are included in Iraqi government budgets, according to a 
USAID report.[Footnote 20] For example, the Ministry of Agriculture 
budgeted $5.8 million to construct a strategic planning center for 
training and capacity building and allocated $5.1 million in its 
operating budget to run the center. The report also states that the 
Iraqi Ministry of Planning and Development Cooperation allocated $6 
million in its 2009 operational budget to fund postgraduate studies. 
Moreover, the Council of Ministers Secretariat allocated $1 million to 
create an executive training department and dedicated office space to a 
full-time training center. USAID also reported that various ministries 
and executive offices have agreed to contribute about 41 percent (an 
estimated $2.2 million) of the total cost of funding equipment, 
facilities, and training at four geographic information system centers 
and 16 training centers. 

Conclusion: 

A successful U.S. transition from Iraq depends on the Iraqi 
government's commitments to programs that build government capacity, 
such as the PRDC and NCD programs. However, given the management 
weaknesses in State's PRDC program, including a lack of an overall 
program manager, measures of effectiveness, and a lack of a focus on 
capacity building, it is unclear if the program is achieving its 
objectives. Although the Iraqi government has agreed to maintain PRDC 
projects, based on prior experience, the Iraqi government's commitment 
to spend resources on U.S.-funded reconstruction projects may not be 
realized. Also, USACE financial controls for the timekeeping process 
did not ensure adequate documentation, although USACE introduced 
initiatives to correct this. The management controls of USAID's NCD 
program support the objective of capacity building,and the program, 
including its outcome indicators and guidance, is focused on this 
objective. However, the program has weaknesses in the financial 
controls for confirming the receipt of goods and services and review of 
contractor invoices. In addition, USAID will need to ensure that the 
Iraqi government follows through on commitments to sustain USAID NCD 
programs. 

Recommendations for Executive Action: 

To help these programs achieve their objectives of building the 
capacity of the provincial governments and central ministries, 

* We recommend that, for the PRDC program (1) the Secretary of State 
ensure that management control weaknesses are addressed in the PRDC 
program by designating an overall program manager; developing outcome 
measures of effectiveness; and documenting actual Iraqi government 
budget allocations and expenditures for fiscal year 2007 PRDC projects; 
and (2) the Secretary of the Army ensure that USACE initiatives to 
improve the financial controls for the timekeeping process correct the 
deficiencies discussed in this report. 

* We recommend that, for the NCD program, the USAID Administrator (1) 
revise USAID policy and procedures for confirming receipt of goods or 
services applicable to the NCD program in Iraq to include (a) 
clarifying that confirmation of receipt of goods/or services must be 
noted separately from the administrative approval or (b) documenting 
reasons precluding actual confirmation such as prohibitive personal 
danger or security protection costs; (2) ensure that USAID/Iraq 
initiatives to improve the documentation of the voucher examiner's 
required review of contractor invoices correct the deficiencies 
discussed in this report; and (3) document actual Iraqi government 
budget allocations and expenditures to ensure funds committed to 
support NCD activities are expended. 

Agency Comments and Our Evaluation: 

State, USACE, and USAID provided written comments on a draft of this 
report, which we have reprinted in appendixes II, III, and IV. The 
USACE also provided technical comments, which we have incorporated 
where appropriate. 

State agreed with our recommendation to address management control 
weaknesses in the PRDC program. State commented that it had clarified 
and confirmed ITAO's overall responsibility for the PRDC program and 
that a program manager has now been designated. State also accepted our 
recommendation to develop outcome measures of effectiveness for PRDC 
and clarified that its reporting of projects approved and funds 
dispersed in the 2207 report to Congress was not intended to be a 
measure of PRDC's success. State further agreed to report on Iraqi 
government contributions to PRDC projects in its next cost matching 
report to Congress. 

USACE agreed with our draft recommendation to strengthen its financial 
controls for payroll and provided additional information about its 
initiatives to improve its timekeeping process. We subsequently refined 
our recommendation to state that the Secretary of the Army ensure that 
USACE initiatives improve the timekeeping process correct the 
deficiencies discussed in the report. USACE agreed to this 
recommendation. In technical comments, USACE noted substantial 
discrepancies--amounting to millions of dollars and over 100 projects-
-between its financial and project data and ITAO's data that we 
included in our draft report. In reconciling the conflicting data, ITAO 
agreed to revise its April 3, 2009, Essential Indicators Report to 
reflect the corrected data. 

USAID commented that it is taking under advisement our recommendation 
to require confirmation of receipt of goods and services and that it 
has already implemented our recommendation to document the voucher 
examiner's review of contract invoices. The agency agreed to implement 
our recommendation to document the government of Iraq's commitments and 
expenditures associated with the NCD program. 

We are sending copies of this report to interested congressional 
committees and the Secretary of State, the Secretary of Defense, the 
Secretary of the Army, and the Administrator for USAID. We will also 
make copies available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. If you or your staff have any questions about this 
report, please contact me at (202) 512-8979 or christoffj@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. Key contributors 
to this report are listed in appendix V. 

Sincerely yours, 

Signed by: 

Joseph A. Christoff: 
Director: 
International Affairs and Trade: 

Signed by: 

Asif A Khan: 
Director: 
Financial Management and Assurance: 

List of Congressional Committees: 

The Honorable Carl Levin: 
Chair: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Senator Kent Conrad:
Chair:
The Honorable Senator Judd Gregg:
Ranking Member:
Committee on Budget:
United States Senate: 

The Honorable John F. Kerry: 
Chair: 
The Honorable Richard G. Lugar: 
Ranking Member: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Joseph I. Lieberman: 
Chair: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Patrick J. Leahy: 
Chair: 
The Honorable Judd Gregg: 
Ranking Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ike Skelton: 
Chair: 
The Honorable John M. McHugh: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable John M Spratt, Jr.
Chair:
The Honorable Paul Ryan:
Ranking Member:
Committee on Budget:
House of Representatives: 

The Honorable Howard L. Berman: 
Chair: 
The Honorable Ileana Ros-Lehtinen: 
Ranking Member: 
Committee on Foreign Affairs: 
House of Representatives: 

The Honorable Edolphus Towns: 
Chair: 
The Honorable Darrell E. Issa: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To assess whether the management controls of the Provincial 
Reconstruction Development Committee (PRDC) program and the National 
Capacity Development (NCD) program support the achievement of the 
programs' objectives, we interviewed agency officials and analyzed 
project contracts, program files, agency reports, guidelines, financial 
and programmatic databases, and assessments for both the PRDC and NCD 
programs. We examined key management controls, including (1) a clear 
organizational structure with adequate managerial capacity and 
financial systems that establish an effective control environment; (2) 
policies and procedures that ensure management directives are carried 
out and communication of those policies and procedures; and (3) 
monitoring systems that track progress toward desired outcomes. We 
interviewed officials at the Department of State (State), U.S. Agency 
for International Development (USAID), and the U.S. Army Corps of 
Engineers (USACE) in Washington, D.C., and Iraq. In Iraq, we also met 
with officials at State's Iraq Transition Assistance Office (ITAO), 
which oversees and coordinates aspects of the PRDC program, the Office 
of Provincial Affairs, and Gulf Regional Division (GRD) and its 
district offices. We reviewed a sample of 40 PRDC construction projects 
using Economic Support Funds (ESF) from fiscal years 2006 and 2007and 
examined all activities in the NCD program.[Footnote 21] We conducted 
field visits to several PRDC projects and to a training center, where 
we observed Iraqi officials in NCD training activities. We used 
information from the USACE's Resident Management System database to 
identify the status of projects and specific challenges. We assessed 
the reliability of this system database by (1) interviewing agency 
officials and contractors about data quality control procedures, and 
(2) checking the data by visiting sites. We determined that the data 
were sufficiently reliable for the purposes of this report. 

To develop the sample of 45 PRDC projects, we used the population of 
290 PRDC projects as of June 30, 2008, that were initiated with fiscal 
year 2006 and 2007 ESF.[Footnote 22] We selected a dollar unit sample 
to test financial controls over PRDC project data in the USACE's 
Financial Management System. We used a 90-percent confidence level, an 
expected error of 0, and tolerable error of 5 percent, for the sample 
plan. Given the parameters of the sample test (e.g., sample size, 
expected errors) any control testing error would indicate the control 
is not operating as designed. 

To review the financial management controls over the PRDC and NCD 
program, we reviewed documents supporting obligation and disbursement 
transactions for 40 PRDC construction and 5 nonconstruction projects, 
and all NCD obligation and disbursement transactions. We interviewed 
USAID officials in Washington, D.C., and Iraq; and USACE officials in 
Washington, D.C.; Millington, Tennessee; Winchester, Virginia; and 
Iraq. Our review of PRDC and NCD transactions covered the period 
October 1, 2005, through June 30, 2008. To determine whether the 
financial data provided to us were reliable, we interviewed agency 
officials and performed testing regarding the accuracy and completeness 
of information. 

To evaluate U.S. efforts to ensure Iraqi government commitment to 
sustaining U.S. program efforts, we examined U.S. guidance in obtaining 
commitments from the Iraqi government and interviewed State and USAID 
officials and their program implementers, GRD and Tatweer. We then 
focused on two elements of commitment--letters or other evidence that 
the Iraqi government committed to sustain or maintain the programs and 
projects and evidence that the Iraqi government is sharing the cost of 
U.S. efforts. PRDC program guidelines for 2006 state that the projects 
will be matching in nature to ensure buy-in and investment from the 
government and the 2007 guidelines require an Iraqi government letter 
of sustainment for the projects. Moreover, Iraq has budget surpluses, 
and in the Annual Review of the International Compact with Iraq, the 
Iraqi government committed to co-finance any new development programs 
to leverage its resources and provide a framework for mutual 
accountability. 

We conducted this performance audit from March 2008 to June 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of State: 

United States Department of State: 
Washington, D.C. 20520: 

May 19, 2009: 

Ms. Jacquelyn Williams-Bridgers:
Managing Director International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W. 
Washington, D.C. 20548-0001: 

Dear Ms. Williams-Bridgers: 
We appreciate the opportunity to review your draft report, "Rebuilding 
Iraq: Improved Management Controls and Iraqi Commitment Needed for Key 
State and USAID Capacity Building Programs," GAO Job Code 320587. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact Kyle 
Peterson, Desk Officer, Bureau of Near Eastern Affairs at (202) 647-
9837. 

Sincerely, 

Signed by: 

James L. Millette: 

cc: 
GAO - Tet Miyabara: 
NEA - Jeffrey Feltman (Acting): 
State/OIG - Mark Duda: 

[End of letter] 

Department Of State Comments On GAO Draft Report: 

Rebuilding Iraq: Improved Management Controls and Iraqi Commitment 
Needed for Key State and USAID Capacity Building Programs (GAO-09-526, 
GAO Code 320587): 

Thank you for the opportunity to review and comment on the May 2009 GAO 
draft report Rebuilding Iraq: Improved Management Controls and Iraqi 
Commitment Needed for Key State and USAID Capacity-Building Programs. 
The United States is committed to helping build the capacity of Iraq's 
central and provincial governments, and the Provincial Reconstruction 
Development Committee (PRDC) program is a critical part of that 
commitment. We welcome GAO's investigation into this important issue, 
and are working with our Embassy in Baghdad to explore options to 
improve our coordination and metrics to ensure that this program can 
better achieve its objectives. 

Recommendation: 

The Secretary of State ensure that management control weaknesses are 
addressed in the PRDC program by designating an overall program 
manager; developing outcome measures of effectiveness; and documenting 
actual Iraqi government budget allocations and expenditures for fiscal 
year 2007 PRDC projects. 

Designating an overall PRDC program manager: 

The Department agrees that clarification of overall program management 
for the PRDC is important, and has confirmed that the Iraq Transition 
and Assistance Office (ITAO) is the overall PRDC program manager. 
Nevertheless, in a war zone where command of civilian and military is 
vested in separate leaders, programs and activities that involve both 
civilian and military personnel face challenges in full coordination 
and cooperation. ITAO maintains overall management of the PRDC program 
and now has an officer clearly designated as the PRDC program manager. 
ITAO maintains accountability for funds, and for project review and 
selection. It does not direct, however, actual execution of the 
projects by the Gulf Region Division (GRD) of the U.S. Army Corps of 
Engineers (USACE), which is the responsibility of GRD under the 632(b) 
agreement. 

The PRDC process does have many steps, each of which is necessary. For 
example, the inclusion of the Iraqi-led PRDCs provides Iraqi buy-in and 
sustainability. Earlier efforts to fund projects in Iraq prior to the 
PRDC program that left out this step resulted in problems with asset 
transfer and sustainability in some cases because the Iraqis did not 
see these projects as meeting their needs or priorities. Rather than 
eliminate essential steps or essential partners, we believe the best 
mitigation is continued cooperation and coordination. We believe that 
ITAO has achieved that through supporting the PRTs (including their 
interactions with Iraqi Provincial Councils) and providing guidance to 
and oversight accountability of GRD. [See comment 1] 

ITAO is scheduled to close in May of 2010. Although most PRDC projects 
will be completed by that time, there will be several still in progress 
or under contract. State is already working with Embassy Baghdad to 
identify and transition to an office that will oversee the remaining 
PRDC program following ITAO's closeout. This office will continue to be 
responsible for working with the multiple U.S. and Iraqi entities 
involved to ensure a smooth transition of the PRDC program. 

As a subset of this recommendation, we would also like to address GAO's 
findings in the draft report that "the [PRDC] program's guidelines and 
policies have changed frequently as has the program's direction, but 
State did not adequately communicate or consult with Corps of 
Engineers, the program implementer, about these changes" (page 5). 

There is always room for better coordination and we would like to 
provide some additional information to the GAO on this point of the 
draft report. There is considerable evidence to show that GRD was 
actively involved in planning at an early date. The clear purpose of 
the PRDC program, from the outset, included Iraqi involvement and 
participation in the development of the projects, as is shown by the 
2006 Action Memo included as an attachment to the original 632(b) 
agreement. These priorities were further discussed and well integrated 
into the amendment to the 632(b) agreement, signed January 30, 2008 by 
both State and USACE. The 632(b) agreement, as amended, sets out the 
following: [See comment 2] 

$85 million is also provided to the Servicing Agency, which shall 
provide personnel and services to implement and deliver operations, 
maintenance and planning activities in support of essential services at 
the provincial level. [632(b) agreement 2008 amendment; page 2] 

Additionally, the Guidelines for FY2007 Supplemental Economic Support 
Funds (ESF) for PRDCs, set out in a June 23, 2007 memorandum from the 
ITAO budget office to ITAO Director Mark Tokola, which was shared with 
USACE officials, state that "this funding is not intended as 
principally a reconstruction effort, but as a means to stimulate 
engagement and capacity building at the provincial government level." 
The guidelines for FY2007 funds were further clarified in an October 
23, 2007 memorandum from the PRDC program manager to the ITAO Director. 
Thus, in July 2008, GRD notified ITAO that it wished to formalize 
informal management arrangements, and asked ITAO to concur with its 
draft, which ITAO did. State plans to continue to work closely with GRD 
to ensure that all parties continue to be involved in, and aware of, 
policy guidance regarding the PRDC program. We will also work to 
develop with GRD amendments or new program management plans, as needed 
or appropriate, to implement policy guidance. 

Developing outcome measures of effectiveness: 

We believe GAO may have misinterpreted our October 2008 2207 Report to 
Congress in its draft report: "According to an October 2008 State 
report, PRDC program success is measured by the number of projects 
completed and awarded and amount of funds disbursed" (page 15). 

The 2207 report states that PRDC's mission is to "identify and execute 
priority projects that strengthen the ability of provincial governments 
to deliver essential services and key development projects to their 
[Iraqi] communities." (State, Section 2207 Report to Congress, October 
2008) and lists the number of projects awarded and funds disbursed as 
"Accomplishments." The intention of this section of the 2207 Report is 
not to claim that the success of the PRDC program hinges on the number 
of projects awarded and/or money dispersed. We fully agree with the GAO 
that a program focus on an expenditure rate would "not provide 
information about the extent to which U.S. efforts build the capacity 
of provincial governments to deliver essential services" (p. 15) and we 
have resisted that measure in every forum. [See comment 3] 

We agree with the importance of and accept the draft report's 
recommendation to develop outcome measures of effectiveness. As this 
program is intended to build local capacity to identify, plan and 
deliver essential services, one possible measure would be to track the 
length of project development, procurement, contracting, execution, and 
oversight process to see if it improves over time, as well as the 
quality of the projects completed. Another possible measure would be 
the degree of constituent input in the project selection process and 
the degree of transparency and anti-corruption measures in the 
contracting process, the separation of powers between the executive and 
legislative, the post-completion longevity of projects, and the 
occurrence rate of Ministries following through and budgeting to 
sustain the projects. These additional metrics, along with others, 
would help to better quantify the impact of the PRDC program. 

We would note that State already has a provincial-focused measurement 
system in place, which we are in the process of making more robust. The 
Office of Provincial Affairs (OPA) Maturity Model, reassessed quarterly 
in each province, measures progress in provinces' capacity to operate 
and govern effectively. Specifically, in the Governance section of the 
OPA Maturity Model, PRTs rate the progress made by Provincial 
Governments in their ability to deliver essential services. 
Nevertheless, we believe that, while the Maturity Model helps assess 
increasing provincial government capacity, some of which may be the 
result of PRDC projects, additional metrics to more fully quantify the 
impact of PRDC projects are important, and we are developing such 
metrics. 

Documenting actual Iraqi government budget allocations and expenditures 
for fiscal year 2007 PRDC projects: 

We agree with the GAO draft report's focus on sustainability, and the 
PRDC program has made great efforts recently to help ensure the 
sustainability of its projects. As noted above, the participation of 
the Iraqi-led PRDCs and Provincial Councils is a vital component of 
ensuring sustainable projects. In addition, ITAO has hosted workshops 
in Baghdad for PRT members to discuss best practices for sustainable 
projects, and developed guidance to PRTs on this subject. 

At several points, GAO states in its draft report that 16 of the 40 
PRDC projects sampled "had evidence that the Iraqi government agreed to 
sustain the project; however the records did not specify actual 
financial or budget commitments" (Introduction, pages 6, 28). When the 
Government of Iraq (GOI) agrees to sustain projects, information on 
actual financial or budget commitments may not be available due to the 
budget creation calendar. Nevertheless, the GOI is recognizing the 
project as a future GOI asset, and its need to include sustainment for 
such a project in its own budget. Furthermore, we will be able to 
verify the inclusion of these budget commitments once the local budget 
is finalized. 

On page 28 of the GAO draft report, GAO correctly distinguishes between 
FY2006 projects, which did not require a letter of sustainability, and 
FY2007 projects, which did. Of the FY07 approved projects that required 
a letter of sustainment, two letters could not be located. But even six 
of the FY2006 projects that did not require sustainment documentation 
did have a letter, indicating the priority this has come to have for 
PRDC projects. In the last year, 100% of projects have had such 
letters. [See comment 4] 

State has submitted two reports to Congress detailing 2008 Iraqi 
government funds and contributions to match some FY2008 Supplemental 
U.S. civilian foreign assistance programs and projects. These reports 
showed that the Iraqi government already matches or exceeds U.S. 
foreign assistance levels in many common areas of effort, including 
programs that support national and provincial capacity development, 
economic diversification, and rule of law institutions. Given the 
intent for the PRDC program to ensure O&M costs are picked up by the 
Iraqi local ministerial budgets, we intend to include, in our next 
matching report, a special section on Iraqi government contributions 
for PRDC projects, including those funded in FY2007. [See comment 4] 

We appreciate GAO's audit of the PRDC program, and the recommendations 
offered in the draft report. We will continue to explore how to 
implement these changes in order to ensure that the PRDC program is as 
effective as possible. 

The following are GAO's comments on the U.S. Department of State's 
letter dated May 19, 2009. 

GAO Comments: 

1. State implies that this GAO report calls for the elimination of 
steps or partners in the process. Instead, we believe the program's 
multistep complexity illustrates the importance of implementing our 
recommendation to designate a program manager. 

2. We added State's additional information. However, in their technical 
comments, Gulf Region Division officials stated that communication and 
coordination remain problems as of May 2009. 

3. We have changed program "success" to program "accomplishment" in the 
final report. However, the larger issue, as State acknowledges, is that 
the Provincial Reconstruction Development Committee program does not 
have outcome measures of effectiveness to assess how the program has 
enhanced the capacity of local Iraqi councils to identify, plan, and 
deliver essential services. 

4. Our past work indicates that although the Iraqi government budgets 
for investment activities, its actual spending for these investments, 
including maintenance of projects, is limited. For instance, in 2008, 
the Iraqi government spent $949 million, or about 2 percent of its 
total 2008 expenditures, for the maintenance of Iraqi-and U.S.-funded 
investments. In 2008, the provinces spent $2. 054 billion or 22 percent 
of budgeted investment expenditures of $9.167 billion. The 2008 
investment budget for the provinces, including the supplemental budget, 
was $6.47 billion. The provinces spent 32 percent. 

[End of section] 

Appendix III: Comments from the U.S. Army Corps of Engineers: 

Department Of The Army: 
U.S. Army Corps Of Engineers: 
441 G Street, NW: 
Washington, DC 20314-1000: 

Reply To Attention Of CEMP-GR: 

May 22, 2009: 

Mr. Joseph A. Christoff: 
Director, Internal Affairs & Trade: 
U.S. Accountability Office (GAO): 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Christoff: 

This is the Department of Defense (DOD) response to the GAO draft 
report GAO-09-526, Rebuilding Iraq: Improved Management Controls and 
Iraqi Commitment Needed for Key State and USAID Capacity Building 
Programs, dated May 1, 2009 (GAO Code 320587). 

The Department concurs with the findings in this report. Questions your 
staff may have concerning these responses maybe addressed to Ms. Sheryl 
Lewis (202) 761-5750 and Mr. John Daley (202) 761-5844. 

Signed by: 

Joseph Tyler, P.E. 
Director of Military Programs: 

[End of letter] 

Enclosure: 

GAO Draft Report Dated May 1, 2009: 
GAO-09-526 (GAO Code 320587): 

Rebuilding Iraq: Improved Management Controls And Iraqi Commitment 
Needed For Key State And USAID Capacity Building Programs: 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation: The GAO recommends that the Secretary of Army ensure 
that the U.S. Corps of Engineers' financial controls for payroll are 
strengthened. (page 32/GAO Draft Report). 

DOD Response: Concur. Prior to the GAO review, the U.S. Army Corps of 
Engineers commenced implementing a number of changes to improve the 
accuracy of the timesheets and labor hours recorded by the Gulf Region 
Division (GRD). The GRD Rear Cell currently performing the function is 
now under the supervision of accountants who provide additional review 
and assistance to the timekeeping function. In addition, timesheets are 
being reviewed prior to certification, all timesheets are being kept 
including the original and any revised or corrected timesheets. 
Additional follow up is done when signed time and attendance reports 
are not received in timely manner. 

The following are GAO's comments on the U.S. Army Corps of Engineers 
letter dated May 22, 2009. 

GAO Comment: 

1. We modified our recommendation in response to the additional 
information USACE provided about its initiatives to strengthen the 
timekeeping process. In follow up discussions, USACE agreed to our 
recommendation that the Secretary of the Army ensure the initiatives to 
improve the financial controls for the timekeeping process correct the 
deficiencies discussed in the report. 

[End of section] 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

USAID: From The American People: 
U.S. Agency for International Development: 
1300 Pennsylvania Avenue, NW: 
Washington, DC 20523: 
[hyperlink, http://www.usaid.gov] 

May 22, 2009: 

Joseph A. Christoff, Director
International Affairs and Trade
U.S. Government Accountability Office 441 G Street, N.W.
Washington, D.C. 20548 

Dear Mr. Christoff: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled "Rebuilding 
Iraq: Improved Management Controls and Iraqi Commitment Needed for Key 
State and USAID Capacity Building Programs." (GAO-09-526) 

The GAO recommendation included in the report states, "We recommend 
that, for the NCD program, the USAID Administrator: 

(1) revise USAID policy and procedures for confirming receipt of goods 
or services applicable to the NCD program in Iraq to include (a) 
clarifying that confirmation of receipt of goods/or services must be 
noted separately from the administrative approval or (b) documenting 
reasons precluding actual confirmation such as prohibitive personal 
danger or security protection costs; 

(2) ensure that USAID/Iraq initiatives to improve the documentation of 
the voucher examiner's required review of contractor invoices correct 
the deficiencies discussed in this report: and; 

(3) document actual Iraqi government budget allocations and 
expenditures to ensure, funds committed to support NCD activities are 
expended." 

Regarding the first issue, revising the "USAID Administrative Approval 
Form and Checklist", USAID is taking this matter under advisement. 

Regarding the second issue, ensuring initiatives to correct the 
deficiencies in the voucher examiner's documentation, the Iraq 
Mission's Financial Management Office (FMO) has since November 2008, 
implemented a reconciliation process to ensure that financial records 
of the implementer and USAID are in agreement. This process is 
mentioned in the report, although the GAO deems it too early to 
determine its effectiveness. 

In regard to the third issue, documenting Iraqi government budget 
allocations and expenditures, our comments are as follows: 

1. The GOI was not required to make a formal commitment of funds to 
support USAID's NCD Program. Therefore, for the purposes of retroactive 
documentation, USAID could only cite 2008 GOI budget allocations that 
were generally associated with the NCD Program, and; 

2. Prospectively, it is expected that the GOI will make formal and 
specific resource commitments associated with USG assistance to the 
Central Government beginning in FY 09. Accordingly, USAID will collect 
supporting documentation of the GOI's commitments/expenditures 
associated with the NCD Program. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Drew W. Luten: 
Acting Assistant Administrator: 
Bureau for Management: 

[End of section] 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Joseph A. Christoff, (202) 512-8979 or christoffj@gao.gov: 

Asif A. Khan, (202) 512-9869 or khana@gao.gov: 

Staff Acknowledgments: 

Tetsuo Miyabara, Assistant Director; Mary Ellen Chervenic, Assistant 
Director; Jessica Butchko; Richard Cambosos; Lynn Cothern; K. Eric 
Essig; Dennis Fauber; Wilfred Holloway; Rhonda Horried; Grace Lui; 
Jason Pogacnik; and Eddie Uyekawa made key contributions to this 
report. 

[End of section] 

Footnotes: 

[1] ESF funding data were obtained from three interagency agreements 
between State and the U.S. Army Corps of Engineers (USACE) for PRDC and 
Provincial Reconstruction Team projects. The first interagency 
agreement signed in November 2006 transferred $315 million in fiscal 
year 2006 ESF to USACE. Two amendments were subsequently signed to 
transfer fiscal year 2007 ESF for the continuation of the PRDC program. 
The first amendment, signed in August 2007, transferred $100 million. 
The second amendment, signed in February 2008, transferred $285 million 
of which $85 million was to be used for operations, maintenance, and 
planning activities in support of PRDC projects. Under the agreement, 
funds can be expended until specified performance is completed or 
terminated. Moreover, funds must be returned to State if they haven't 
been fully expended by a certain time. Also, the parties can terminate 
the agreement before completion of the project as long as they provide 
30 days written notice to the other party. Funds provided for the 2008 
PRDC program, according to State and USAID's Supplemental 
Appropriations Spending Plan Fiscal Year 2008, were for three programs 
to (1) implement short-term projects quickly through micro-purchases, 
grants, and direct procurements; (2) provide engineering experts to 
help define and assess potential projects funded by the Iraqi 
provincial governments; and (3) provide direct technical assistance 
through Provincial Reconstruction Team advisors to Iraqi provincial 
officials in governance, public finance, city planning and urban 
management, public works and infrastructure management, and 
agriculture. 

[2] Data were obtained from USAID contract documents for the National 
Capacity Development program. 

[3] GAO, Internal Control and Management and Evaluation Tool, 
[hyperlink, http://www.gao.gov/products/GAO-01-1008G] (Washington, 
D.C.: Aug. 2001). 

[4] The United States did not require letters of sustainment for fiscal 
year 2006 PRDC projects, but State indicated in a memo that U.S. 
assistance would be matching in nature to ensure buy-in and investment 
from the local provincial government. 

[5] ITAO provides a programming and oversight role to executive 
departments and agencies in concluding the remaining large 
infrastructure projects in Iraq. In addition, ITAO coordinates 
Ministerial capacity training, as well as sustainment funds for 
operations and maintenance. 

[6] Other executive offices include the Civil Service Committee, 
Council of Ministers Secretariat, Presidency Council, and Deputy Prime 
Minister Office. Other ministries include Ministry of Agriculture, 
Ministry of Human Rights, Ministry of Health, Ministry of Displacement 
and Migration, Ministry of Planning and Development Coordination, and 
Ministry of Municipalities and Public Works. 

[7] In Arabic, the program is also known as Tatweer, which means 
development. 

[8] Special Inspector General for Iraq Reconstruction, Status of 
Department of State Economic Support Fund Interagency Agreements with 
the U.S. Army Corps of Engineers in Iraq, SIGIR-09-006 (Oct. 28, 2008). 

[9] State, Section 2207 Report to Congress, October 2008. 

[10] The Office of Provincial Affairs within the U.S. embassy in 
Baghdad provides policy guidance and support to the PRT program. 

[11] USACE reported PRDC net disbursements of about $137 million for 
about 270 PRDC projects between October 2005 and June 2008, of which 
about $14.2 million was for USACE employee salaries. 

[12] USACE Transatlantic Program Center APPO, After Action Review 
(Winchester, VA: Nov. 16, 2008). Employees detailed to Iraq complete a 
time and attendance record, supervisors attest to the employee's time, 
and both the employee and supervisor sign a paper copy of the time and 
attendance. Timekeepers in Iraq scan and e-mail signed time and 
attendances to APPO for data entry. 

[13] USAID Office of the Inspector General, Audit of USAID/Iraq's 
National Capacity Development Program, Audit Report No. E-267-09-001-P 
(Nov. 25, 2008). 

[14] USAID, ADS Chapter 630, Payables Management (Washington, D.C.: 
Jun. 22, 2007). 

[15] Defense Contract Audit Agency, Audit of Public Vouchers Submitted 
from July 27, 2006 to September 30, 2007 Under Contract No. AEP-I-01- 
05-00221-00, Report No. 6311-2008I17900003 (Aug. 28, 2008); and Audit 
Report on Costs Incurred and Billed Under Contract No. AEP-I-00-00- 
00024-00, Task No. 08, for the Period of June 26, 2003 through May 31, 
2005, Report No. 6311-2007I17900004 (Jan. 15, 2008). 

[16] The International Compact for Iraq is the Iraqi government's 
initiative to form a new partnership with the international community. 
The objective is to build a framework for Iraq's economic 
transformation and integration into the regional and global economy. 

[17] The United States did not require letters of sustainment for 
fiscal year 2006 PRDC projects, but State indicated in a memo that U.S. 
assistance would be matching in nature to ensure commitment and 
investment from the local provincial government. 

[18] GAO, Stabilizing and Rebuilding Iraq: U.S. Ministry Capacity 
Development Efforts Need an Overall Integrated Strategy to Guide 
Efforts and Manage Risk, [hyperlink, 
http://www.gao.gov/products/GAO-08-117] (Washington, D.C.: Oct. 2007). 

[19] GAO, Iraq: Key Issues for Congressional Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-09-294SP] (Washington, D.C.: Mar. 
2009). See also [hyperlink, http://www.gao.gov/products/GAO-08-153]. 

[20] USAID, Mid-Month Report on the GOI's Commitment to Sustain TATWEER 
Project Contributions (Sept. 2008). 

[21] Although a sample of 45 projects was selected from 292 PRDC 
projects, the analysis using the USACE's Resident Management System 
involved only 40 construction projects. The other 5 projects were not 
construction projects and were not in the Resident Management System 
which tracks project status. We used the Resident Management System to 
analyze project challenges and select project sites to visit. 

[22] In our testing, we included two other PRDC projects that were 
excluded from the sample selection population because the total net 
obligation for each project was $0. 

[End of section] 

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