Using that hearing as a baseline, we evaluated,  using primarily USAID IG reports, the progress made to improve USAID’s  financial management systems, processes, and human capital (people) in  the past 2 years. At the time of the May 2001 hearing, USAID was one of  three federal agencies subject to the CFO Act that had such significant  problems that they were unable to produce financial statements that  auditors could express an opinion on. While USAID has made progress in its financial management since that  hearing, it has not achieved the success that it had expected. All but one of USAID’s financial statements  received unqualified opinions. The IG reported that “…on the Statement of Net Cost, the  opinion was achieved only through extensive effort to overcome material  weaknesses in internal control” and “lthough these efforts resulted in  auditable information,  did not provide timely information to USAID  management to make cost and budgetary decisions throughout the year.”
Compounding USAID’s systems difficulties has been the lack of adequate  financial management personnel. Since the early 1990s, we have reported  that USAID has made limited progress in addressing its human capital  management issues. While a viable financial management system is needed, and  offers the capacity to achieve reliable data, it is not the entire answer for  improving USAID’s financial management information. As financial information improved over the years, it  has assisted the USAID IG in identifying additional internal control and  system weaknesses. The chronic nature of the reported weaknesses at USAID reflect challenges  with people (human capital), processes, and financial management  systems. Financial Management Reform Will Require a Long-term Commitment

Transforming USAID’s financial and business management environment  into an efficient and effective operation that is capable of providing  management and the Congress with relevant, timely, and accurate  information on the results of operation will require a sustained effort. Improved financial systems and properly trained financial management  personnel are key elements of this transformation. We have reported for years and USAID acknowledges that human  capital is one of the management challenges that must be overcome. USAID represented to us that as part of its  agencywide human capital strategy, it plans to specifically address its  financial management personnel challenges. Conclusion

USAID appears to be making a serious attempt to reform its financial  management, as evidenced by initiatives to improve its human capital,  internal controls, and business systems.
Why GAO Did This Study

GAO has long reported that the U.S. Agency for International Development (USAID) faces a number of performance and accountability challenges that affect its ability to implement its foreign economic and humanitarian assistance programs. These major challenges include human capital, performance measurement, information technology, and financial management. Effective financial management as envisioned by the Chief Financial Officers Act of 1990 (CFO Act) and other financial management reform laws is an important factor to the achievement of USAID's mission. USAID is one of the federal agencies subject to the CFO Act. In light of these circumstances, the Subcommittee on Government Efficiency and Financial Management, House Committee Government Reform asked GAO to testify on the financial management challenges facing USAID, as well as the keys to reforming USAID's financial management and business practices and the status of ongoing improvement efforts.

What GAO Found

USAID has made some progress to improve financial management, primarily in achieving audit opinions on its financial statements. Through the rigors of the financial statement audit process and the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA), USAID has gained a better understanding of its financial management weaknesses. However, pervasive internal control weaknesses continue to prevent USAID management from achieving the objective of the CFO Act, which is to have timely, accurate financial information for day-to-day decision making. USAID's inadequate accounting systems make it difficult for the agency to accurately account for activity costs and measure its program results. Compounding USAID's systems difficulties has been the lack of adequate financial management personnel. Since the early 1990s, we have reported that USAID has made limited progress in addressing its human capital management issues. While some improvements have been made over the past several years, significant challenges remain. Transforming USAID's financial and business environment into an efficient and effective operation that is capable of providing timely and accurate information will require a sustained effort. USAID has acknowledged the challenges it faces to reform its financial management problems and has initiatives underway to improve its systems, processes, and internal controls. USAID has also recognized the need for a specific human capital action plan that addresses financial management personnel shortfalls.