1). OECD states that PFM includes all components of a country’s  budget cycle. The ministry of finance centrally consolidates these accounts. Assessment Tools Highlight Both Improvements and Weaknesses in Developing Countries’ PFM Systems

Broad PFM assessments conducted by international organizations report  improvements in countries’ PFM systems, as well as continued  weaknesses. USAID provides PFM capacity-building activities through its development  programs and is seeking to provide more of its assistance through  recipient countries’ financial systems. Capacity-building activities to  strengthen PFM systems are typically part of broader democracy and  governance (DG) or economic growth (EG) programs. Treasury’s OTA provides technical assistance through advisors who work  in-country within the finance ministry, the central bank, or other  government entities. USAID’s and Treasury’s Processes for Developing PFM Programs Involve Consultation with Stakeholders and Rely on Assessments of Host-Country Systems

		USAID’s Processes

USAID is implementing new processes for developing programs that  reflect new agency reform priorities to increase the use of country  systems to deliver U.S. assistance. According to USAID, most country offices  are required to develop a Country Development Cooperation Strategy, a  5-year strategy document, by the end of fiscal year 2013. 2. USAID and Treasury Use Certain Processes to Monitor and Evaluate PFM-Related Programs, but Implementation Has Some Weaknesses

		USAID’s Processes

			USAID Uses Multiple Tools to Monitor Its PFM Assistance but Lacks a Process for Tracking Use of Country Systems

To monitor PFM-related programs, USAID develops performance  management plans, reviews periodic progress reports, and conducts site  visits, among other activities, but reviews of USAID programs have  identified agency-wide weaknesses in implementation, including using  unreliable baseline data and inaccurate reporting of results. Prior reviews of USAID programs have identified challenges in the  agency’s implementation of its monitoring processes across many types  of programs, including DG and EG programs. USAID adopted a new evaluation  policy in January 2011 and updated its guidance in February 2012 to  reflect it. The new evaluation policy requires that all large projects have at  least one evaluation and that evaluations use methods that generate the  highest-quality and most credible evidence, including experimental   The policy also states that 3 percent of program budgets  methods.should be devoted to external evaluation and classifies two types of  evaluations: performance evaluations, which focus on descriptive and normative  questions and other questions pertinent to program design,  management, and operational decision making; and  impact evaluations, which define a counterfactual (what would have  happened had the program not been implemented) to control for  external factors and measure the change in a development outcome  that is attributable to a defined intervention. USAID adopted the new policy to address a number of weaknesses it had  identified in its evaluation practices. Treasury’s Processes

			Treasury’s OTA Uses Various Processes to Monitor PFM- Related Programs

Treasury’s OTA uses various processes to monitor PFM-related  programs, including narrative monthly and trip reports, annual quantitative  performance measures, and customer feedback surveys, but weaknesses  exist in some of its evaluation processes. OTA’s quantitative performance measures have been a useful project- level indicator of performance but have not been a useful indicator of  OTA-wide performance because of conceptual problems and errors  introduced by OTA when aggregating the performance data. OTA has not yet fully implemented its requirement to conduct  independent evaluations—that is, evaluations conducted by someone  other than the resident advisor—of its completed technical assistance. Recommendations for Executive Action

To monitor progress toward USAID’s target to obligate 30 percent of its  annual assistance through local systems by 2015, we recommend that  the Administrator of USAID direct the appropriate offices to develop a  process to reliably identify and track the agency’s use of local systems in  all countries receiving assistance. To improve the effectiveness of OTA’s technical assistance, we  recommend that the Secretary of the Treasury direct OTA to take the  following two actions to improve monitoring and evaluation:  implement additional controls to improve the process for computing  OTA-wide annual performance measures, and  fully implement OTA’s existing requirement for end-of-project  evaluations and, consistent with its existing guidance, have an  independent party conduct the evaluations. In concurring with our two recommendations, USAID reported that it is in  the process of refining definitions that will identify and help measure the  assistance that qualifies to meet the agency’s target of obligating 30  percent of its annual assistance through local systems by 2015. Appendix I: Scope and Methodology

To examine the process the U.S. Agency for International Development  (USAID) uses to develop programs to strengthen public financial  management (PFM) systems, we reviewed USAID’s official policy and  procedures, as contained in the Automated Directives System, as well as  USAID’s new guidance documents for developing country strategies and  designing projects, including the Country Development Cooperation  Strategy and Project Design Guidance. To examine the process the U.S. Department of Treasury’s Office of  Technical Assistance (OTA) uses to develop programs to strengthen PFM  systems, we interviewed senior OTA officials regarding OTA’s policies  and procedures.
Why GAO Did This Study

Effective management of public resources can play an important role in a countrys development. In recent years, developing countries committed to strengthen their PFM systems and donors committed to use those systems as much as possible. The United States provides assistance to strengthen PFM systems primarily through USAID and Treasury. USAID conducts capacity building activities to strengthen PFM systems as part of its development programs and has also set a target to obligate 30 percent of its annual assistance through local systems by 2015. Treasury provides technical assistance through advisors who work in country, typically with the finance ministry.
GAO was asked to examine the processes U.S. agencies use to (1) develop programs to strengthen PFM systems and (2) monitor and evaluate those programs. GAO reviewed agency guidance and program documents, interviewed U.S. agency officials, and selected case studies to serve as illustrative examples of PFM-related programs.

What GAO Found

To develop programs to strengthen developing countries Public Financial Management (PFM) systems, the U.S. Agency for International Development (USAID) and the U.S. Department of the Treasury (Treasury) rely on assessments of the host country governments systems. In 2011, USAID implemented new processes that place a greater emphasis on PFM in its development efforts as the agency aims to increase its use of country systems to deliver assistance. The agency traditionally included PFM capacity-building efforts only as components of broader programs, as it identified relevant weaknesses during the country assessment or program design process. USAIDs new strategy and program development processes include a mandatory assessment of a countrys institutional capacity, including its financial systems, and a requirement to consider the use of country systems to deliver assistance. Most USAID country offices are required to develop a strategy using the new guidance by the end of fiscal year 2013. Treasurys process for developing programs begins with an initial assessment of the host countrys capabilities. Treasury staff then draft objectives for the program. For example, a Treasury program in Honduras set four objectives, including improving operational efficiency and enhancing accountability by strengthening the organization of the ministry of finance. Once in country, the advisor develops an annual workplan, outlining more specific goals aimed at meeting the overall objectives.
USAID and Treasury use several processes to monitor and evaluate their PFM assistance, but weaknesses exist. USAID uses its regular procedures, which may include performance management plans, periodic progress reporting, site visits, and evaluations, to monitor and evaluate its PFM-related programs. Prior reports by USAIDs Inspector General and GAO have found weaknesses in USAIDs implementation of its monitoring procedures in other programs, including programs from the USAID offices that provide PFM assistance. In addition, USAID is currently unable to monitor overall progress toward its target to obligate 30 percent of its program funds through local systems by 2015. USAID, and GAO in prior reports, have identified a number of weaknesses in evaluation practice. To address weaknesses the agency had identified, USAID adopted a new evaluation policy in January 2011 that states that all large projects are required to have an external evaluation, 3 percent of program budgets should be devoted to external evaluation, and evaluations must use methods that generate the highest quality evidence. Treasurys processes for monitoring and evaluating its programs include monthly reports, annual quantitative performance measures, voluntary customer feedback surveys, and on-site management reviews, but Treasury does not fully evaluate the performance of its completed technical assistance programs. In addition, Treasurys quantitative performance measures have been a useful project-level indicator of performance but have not been a useful indicator of overall performance due in part to inherent challenges associated with summarizing program performance and errors introduced when aggregating the performance data. Furthermore, a senior Treasury official reported that Treasury had not yet fully implemented a requirement to conduct independent postproject evaluations of its technical assistance programs.

What GAO Recommends

USAID should improve its capacity to measure its use of local systems and ensure adequate monitoring of its PFM programs. Treasury should implement additional controls to improve the process for computing program-wide annual performance measures and fully implement its requirement to evaluate the impact of its completed assistance. USAID and Treasury both concurred with GAOs recommendations.