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Ai^ OVERSIGHT: UNITED STATES AGENCY FOR ^ ^ INTERNATIONAL DEVELOPMENT Y 4. IN 8/16: D 49/3 Dversight: United States Agency for... Ir-KNTy-G>« -_ BEFORE THE committee on internationaij relations house of representatives ONE HUNDRED FOURTH CONGRESS SECOND SESSION MAY 9, 1996 Printed for the use of the Committee on International Relations U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053431-3 oc—ccin _ Qc _ 1 OVERSIGHT: UNITED STATES AGENCY FOR ,1^ ^ INTERNATIONAL DEVELOPMENT M, IN 8/16: D 49/3 Iversight: United States Agency for... Ir-vNT-rG>< BEFORE THE COMMITTEE ON INTERNATIONAL RELATIONS HOUSE OP REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION MAY 9, 1996 Printed for the use of the Committee on International Relatior QC^ 3 n U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice.Washington,DC 20402 ISBN 0-16-053431-3 COMMITTEE ON INTERNATIONAL RELATIONS BENJAMIN A. OILMAN, New York, Chairman WILLIAM F. GOODLING, Pennsylvania LEE H. HAMILTON, Indiana JAMES A. LEACH, Iowa SAM GEJDENSON, Connecticut TOBY ROTH, Wisconsin TOM LANTOS, California HENRY J. HYDE, Illinois ROBERT G. TORRICELLI, New Jersey DOUG BEREUTER, Nebraska HOWARD L. BERMAN. California CHRISTOPHER H. SMITH, New Jersey GARY L. ACKERMAN, New York DAN BURTON, Indiana HARRY JOHNSTON, Florida JAN MEYERS, Kansas ENI F.H. FALEOMAVAEGA, American ELTON GALLEGLY, California Samoa ILEANA ROS-LEHTINEN, Florida MATTHEW G. MARTINEZ, California CASS BALLENGER, North Carolina DONALD M. PAYNE, New Jersey DANA ROHRABACHER, California ROBERT E. ANDREWS, New Jersey DONALD A. MANZULLO, Illinois ROBERT MENENDEZ, New Jersey EDWARD R. ROYCE, California SHERROD BROWN, Ohio PETERT. KING, New York CYNTHIA A. McKINNEY, Georgia JAY KIM, California ALCEE L. HASTINGS, Florida SAM BROWNBACK, Kansas ALBERT RUSSELL WYNN, Maryland DAVID FUNDERBURK, North Carolina JAMES P. MORAN, Virginia STEVENJ. CHABOT, Ohio VICTOR O. FRAZER, Virgin Islands (Ind.) MARSHALL "MARK" SANFORD, South CHARLIE ROSE, North Carolina Carolina PAT DANNER, Missouri MATT SALMON, Arizona AMO HOUGHTON, New York TOM CAMPBELL. California Richard J. Gabon, ChiefofStaff Michael H. Van Dusen, Democratic ChiefofStaff Mark S. KJRK, Counsel Parker H. Brent, StaffAssociate (II) CONTENTS WITNESSES Page Mr. Jeffrey Rush, Jr., Inspector General, U.S. Agency for International Devel- opment 2 APPENDIX Prepared statement ofMr. Jeffrey Rush, Jr 19 Additional information provided by the U.S. Agency for International Devel- opment 38 Response by the U.S. Agency for International Development to a question submitted, by Congressman Roth 64 Responses by the U.S. Agency for International Development to additional questions submittedby Chairman Oilman 76 (III) OVERSIGHT: UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT THURSDAY, MAY 9, 1996 House of Representatives, Committee on International Reij^tions, Washington, DC. The committee met, pursuant to call, at 10:40 a.m. in 2172 Ray- burn House Office Building, Hon. Benjamin Oilman (chairman of the committee) presiding. Chairman Oiijvian. The committee will come to order. Today the committee will hear the testimony of Mr. Jeffrey Rush, Jr., Inspec- tor General; The Agency for the International Development. Before becoming AID Inspector General, Mr. Rush served for many years in the Agricultural Department rising to become the department's Deputy Assistant Inspector General. He also served as the Acting Inspector General to the Peace Corps. He has a lot of inspections under his belt. Mr. Rush is originally from Kansas; holds a bachelors degree from Baker University and a law degree from George Mason. I also understand Mr. Rush is one of the only Inspectors General in the U.S. Government who served as a student teacher of music prior to his current, less than musical, occupation. Mr. Rush, we offer you in musical terms a fortissimo welcome to our committee as well as an apology for not calling you sooner before our committee. The work of an Inspector General is vital to the continued suc- cess and integrity of our foreign assistants program. You and your able staff formed the first line of defense against waste, fraud and abuse that can creep into any government program. We want to support and highlight your work and hope you will be able to appear again before our committee when the need comes. The last three semi-annual reports to the Congress details some shocking problems with AID. We understand that you forcefully raised with AID management many of the problems described in your reports and we are interested in AID's response. For example, your latest report noted that AID has $14 billion outstanding in di- rect loans but could not provide any complete picture of who re- ceived those loans or whether any of those loans have been repaid. According to some ofyour findings, the agency is installing a $65 AW million worldwide accounting system, or ACS, which unlike the AW Pentagon's reliable ACS, apparently is not workable. The report describes AID's AWACS as being riddled with system weaknesses and far behind schedule. While AID laid offmore than 200 employees, your report indicates that tens ofmillions of dollars in unspent operating expense funds lie unused in various accounts. The gov- (1) ernment in Mozambique blatantly stole more than $1 million in food aid and refuses to make repayment. Yet AID continues to provide them with $7 million in other assistance. A further problem, contractors attempting to charge AID $300,000 to pay bribes, not to mention false claims by Jordanian contractors. Embezzlers of micro-enterprise development funds con- firms offering AID employees future employment in return for fa- vors in a procurement process. Your office has also been investigat- ing waste and mismanagement of the AID mission in South Africa and the activities of its director, Mr. Cap Dean. We understand that a report will be forthcoming with regard to that investigation in the near future. We certainly look forward to your testimony not only on these and other problems, but also on the accomplishments ofyour office on behalfofour American taxpayers. Before taking your statement, I would like to ask any of my colleagues if they have any opening remarks. Mr. Roth. Mr. Roth. Mr. Chairman, I agree with you that it is very impor- tant that we have this hearing and hear from the Inspector Gen- eral. His testimony I think is going to be most illuminating. Mr. Rush, we are delighted to have you before our committee and be able to ask you a few questions, also. Thank you. Chairman Oilman. Thank you, Mr. Roth. Any other opening statements? Judge Hastings. Mr. Hastings. Mr. Chairman, no, sir. I have no opening statement, Mr. Chairman. Chairman Oilman. If there are no further opening statements, I want to welcome Mr. Rush and your complete statement will be in- cluded in the record. If you would like to summarize it, please feel free. STATEMENT OF JEFFREY RUSH, JR., INSPECTOR GENERAL, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT Mr. Rush. Thank you and good morning, Mr. Chairman. I am delighted to appear before the committee to share with you my views about the challenges facing USAID in meeting requirements under the Chief Financial Officer's Act (CFO Act), the Government Man- agement Reform Act (COMRA), the Government Performance and Results Act (COPRA) and to talk generally about some of the performance audit work that we do. Before I summarize my testimony, I would like to draw your attention and the members' and staffs attention to the table to my left. We have provided some additional copies of our most recent semi-annual reports. We have a copy of our annual plan for fiscal year 1996. We have a copy of our 5-vear audit strategy for 1991 through 1995. And we have copies oi several statutes that might be of interest to members and their staff. Those statutes are those that pertain to the lO Act and our authorities, the Chief Financial Officer's Act, the Government Performance and Results Act and the Government Management and Reform Act. The CFO Act was passed in 1990 and requires most Federal agencies to prepare audited financial statements ofrevolving funds, trust funds and any other entity performing substantial commer- cial operations. USAID has made considerable progress during the first 4 years that it was required to prepare financial statements for the various programs under CFO. However, we are still in the process of completing the financial statements for this current fiscal year. We hope to have the last three of those accounts audited and our opinions issued by June 30, 1996. We have been working closely with the USAID Chief Financial Officer in anticipation of fiscal year 1996 financial statements. However, there are problems with that statement and they relate to the existing agency accounting systems which were used to prepare the financial statements in 1995 and will likely impact the preparation ofthe fiscal year 1996 statements. The USAID will be relying on a new integrated financial accounting system known as the AID Worldwide Accounting and Control Systems, or AWACS, to generate its first consolidated financial statement. The GMRA, the Government Management and Reform 0MB Act, requires most Federal agencies to prepare and submit to audited financial statements not later than March 1, 1997 and every year thereafter. Not withstanding the agency's plans for implementation of AWACS, USAID management has not been able to provide suffi- AWACS cient information for an independent verification that will produce reliable, timely, and accurate financial statements. Thus, in my last and most recent semi-annual report to the Congress, I stated the problems with the development and implementation of the agency's new accounting system could result in a failure to meet the requirement ofa consolidated financial statement for that fiscal year. Chairman Oilman. Please continue. We are on a roll call but we'll continue right on through. I would like to indicate to my colleagues that if they would like to go vote now, we will continue right through without recessing. Thank you. Please continue, Mr. Rush. Mr. Rush. The Government Performance Results Act requires Federal agencies to implement effective management systems for measuring program performance, developing program strategies, monitoring progress of those strategies and reporting on that progress. In March 1994, USAID submitted a proposal to become a pilot project under GPPIA. The proposal offered to expand agency- wide strategic planning, better link performance measures to agency-wide programming and management systems and to test broad- er management system reforms aimed at enhancing the agency's ability to manage for results through pilots. In February 1996, the USAID sent 0MB a copy of its 1995 annual performance report. Our monitoring of USAID's progress in meeting GPRA requirements is ongoing. Our review ofthe performance report disclosed that the report does not comply with the requirements of GPRA in several respects. First, the report does not address performance during one year. It discussed performance covering several years. Second, the report provides no basis to com- pare actual performance against planned performance. I am provid- ing copies of the USAID Pilot Project Proposal and the 0MB Pilot Project Proposal to my testimony. Finally, in talking a little bit about corrective actions at USAID, one of my responsibilities is to keep the Administration and the Congress informed about the problems and deficiencies of the agency, and to report both the need for and the progress of agency corrective action. Corrective action taken as a result of investigations and audits is dealt with in a systematic way. Prior to closing an investigative case file, a review is conducted by a supervisory investigator to determine if any criminal, civil or administrative action has been taken. Prior to closing an audit, a review is made to determine whether a "management decision" has been made. The 1988 amendments to the Inspector General Act define "management decision" as when management and the OIG agree on actions to take to address a particular audit recommendation. The USAID Office of Management Planning and Innovation, the USAID Office ofProcurement and the OIG are working on an auto- mated consolidated audit tracking system. The system will provide a shared data base and eliminate duplicate recordkeeping by management and OIG involving audit follow-up and tracking, and should be operational by October 1, 1996. Mr. Chairman, I would be pleased to answer any questions you might have. [The prepared statement of Mr. Rush appears in the appendix.] Chairman Oilman. Thank you, Mr. Rush, for your testimony. Mrs. Meyers. Mr. Chairman. Chairman Oilman. Ms. Meyers. Mrs. Meyers. I would like to welcome Mr. Rush to the committee. I represent the State of Kansas and the District I believe not only where he lived, but where he went to school. And so I am very pleased to have you before the committee today. Chairman Oilman. Thank you, Mrs. Meyers. Have you voted, Mrs. Meyers? There is a vote on now. Mrs. Meyers. Have you all Chairman Oilman. Ifyou would like to go on over, I am waiting for Mr. Roth to come back to continue with the hearing. You might want to go over and vote. Mrs. Meyers. All right. Chairman Oilman. I would welcome your doing that. Mr. Rush, I understand that in order to replace 11 outdated and separate accounting systems, AID approached a large software company known as Oracle Federal Systems and many independent contractors to design an entirely new accounting system from scratch. I will note that the law does not allow this unless OSA grants a waiver which OSA permitted. Following a Pentagon approach, the system is called the AID Worldwide Accounting and Control Sys- tem known as AWACS. You note in your testimony and reports that AWACS is late, over budget and lacks documentation on its design, control and testing. And specifically, you note that the AWACS system is lacking in basic system controls and procedures; that it is riddled with sys- temic weaknesses including a lack of edit controls over data entry and duplicative functions and suffering from poor quality of documentation and data. You also note that critical milestone dates for bringing the system on-line have been missed and basic internal controls are lack-