Recommendations and Actions
Major reviews of the Agency for International Development (AID) in the past five years, as well as interviews with AID employees, point to several financial, reporting, and notification mechanisms as impediments to the agency's efficiency and effectiveness. Chief among these are: (1) restrictions on funding by appropriations of program funds in one-year increments and multiple accounts, (2) earmarking of funds, and (3) external and internal reporting and notification requirements.(1)
No one disputes the need for oversight of AID to ensure that it is achieving results that advance U.S. foreign policy objectives. The tension between the executive and legislative branches inherent in our constitutional system, however, was exacerbated in the 1980s because of friction created by divided government and policy differences between the legislative and executive branches. This friction contributed to a proliferation of financial and reporting mechanisms to control and monitor agency action.(2) Changes are needed to transform executive and legislative branch control mechanisms into incentives for improved performance and accomplishment of results at AID.
Appropriations. With few exceptions, Congress appropriates AID's development assistance for a one-year period.(3) This appropriations funding cycle inhibits the kind of results-driven budget system envisioned by the National Performance Review (NPR) effort. AID employees indicate that the one-year cycle encourages obligating funds without adequate planning, disrupts project continuity due to uncertainties about funding availability from year to year, and reduces the agency's leverage in negotiating contracts and other agreements.(4) While Congress moved in fiscal year 1993 to consolidate most AID development assistance funding from multiple accounts into just two accounts, the consolidation of all development assistance into a single fund would improve the agency's flexibility and effectiveness by allowing it to transfer funding more quickly and efficiently to priority, high-performing projects and programs.
Earmarking. This practice consists of legislative restrictions on how AID can spend its appropriated funds. Funds are earmarked in different ways. These include limitations on the maximum amount of money that can be spent, specifications of minimum amounts to be spent, specific instructions on how money will be spent, and establishment of required staffing levels. Funds are also earmarked by targeting expenditures toward specific countries, projects, entities to carry out those projects, and functional accounts (e.g., environment and energy, education, microenterprise activities, and capital projects).
Funding earmarks grew markedly in AID appropriations bills during the 1980s. Earmarks have not been confined to legislation, however. Several appropriations bills were accompanied by lengthy conference reports by congressional committees, requesting or directing the expenditure of funds in particular ways.(5) AID officials recognize that such reports do not have the force of law. Nevertheless, they feel constrained to implement requests or directions on funding allocations to try to meet Congress' goals and to avoid problems.
The most heavily earmarked account is the Economic Support Fund (ESF) category, representing approximately 25 percent of AID's program assistance budget.(6) In recent years, approximately 85 percent of ESF funding has been legislatively allocated for economic assistance to Israel and Egypt, known as the Camp David countries. In fiscal year 1991, earmarks accounted for 60 percent of AID's overall program assistance budget. While that percentage has declined somewhat in the past two fiscal years, earmarks still apply to more than 50 percent of appropriated funds for AID programs.
AID officials and outside analysts generally agree that the earmarking of funds significantly curtails the flexibility needed by the agency to accomplish its mission efficiently and effectively.(7) Earmarks direct funds to certain countries, projects, or recipients at the expense of others that may be needier or likelier to succeed. In addition, it is more difficult to exert leverage on, and enforce reasonable and prudent controls over, designated recipients of earmarked funds when they know that their funding levels are assured.
The elimination or substantial reduction of earmarks is consistent with, and would advance, an important goal of government reinvention efforts. A recent congressional task force concluded: "Removing earmarks would enable more effective Congressional oversight, because Congress could focus on program results rather than relying on earmarks and associated prohibitions, conditions and reporting requirements."(8) If enacted, the current fiscal year 1994 AID appropriations bill pending in the House of Representatives would eliminate program funding earmarks.(9)
Reports and Notifications. A third burden on AID operations consistently identified by agency officials and outside reviewers is the number and volume of reporting requirements imposed in foreign assistance-related legislation and legislative reports.(10) These reporting and notification requirements fall into three general categories: (1) notifications, advising Congress of actions, determinations, or other events as they occur; (2) periodic reports; and (3) one-time reports.
These directives are found in authorizing and appropriations legislation, and in the accompanying and often voluminous committee reports. While some of these reporting requirements are not legally binding, the agency feels that such directions cannot be ignored and that it must comply.
Clearly, some reports are important and necessary for congressional oversight. In the interest of reducing undue constraints on mission accomplishment, however, it should be asked: (1) whether reporting and notification requirements imposed on AID at every stage of program operations reflect an undue focus on inputs and processes, rather than on the results of agency programs and operations; and (2) whether the number of required reports, their frequency, and the resources expended in their preparation divert already-limited staff and budget resources from more productive, mission-oriented activities.
AID must submit approximately 60 reports to Congress in fiscal year 1993, divided nearly evenly between one-time and periodic reports.(11) At least 10 reports can be identified for possible elimination, based on a lack of continued utility.(12)
A larger reporting burden is imposed in connection with congressional notifications, including what are known as country notifications and technical notifications. AID sources report that the agency prepares and submits an average of 1,000 congressional notifications per year. These include notifications to congressional committees made in advance of specified funding decisions, project changes, reprogramming decisions, and other program activities.
By law, AID must notify Congress of every proposed project obligation in excess of amounts previously justified in AID budget documents before obligating funds for these activities.(13) Notifications are sent to at least four congressional committees and must precede the obligations involved by at least 15 days. During this period, members may place holds on the proposed obligations for varying lengths of time.(14) Reasons for the holds vary and can occur as a result of factors unrelated to AID's proposed project (for example, concerns over controversial events in, or activities or policies of, the country in which the project is to occur).(15)
An estimated 35 to 50 holds are placed on obligations in any given year. The notification process costs an estimated $185,000 and four work years of staff time each year. The office responsible for coordinating and sending reports to Congress estimates that from 1 to 11 people (and possibly more) review and clear each notification.(16) Reducing the levels of review on these reports, however, would not resolve the threshold issues of the need for the number and frequency of these notifications, and the length of the waiting period before AID can proceed to implement funding and other decisions.
A 1988 congressional study of foreign assistance reporting requirements concluded that the number of foreign aid reporting requirements could be reduced by as much as one-half through consolidation or repeal of unnecessary and obsolete requirements. The agency's Congressional Presentation (CP) report received special mention. AID reported that it spent approximately 120 work years and more than $9 million to assemble this single report.
A consensus was found to exist among numerous legislative and executive branch officials interviewed that substantial portions of the CP could be eliminated.(17) AID has made progress since then in reducing the size and expense of the CP, but the problem is illustrative of the overall nature of the concern in this area.
In addition to the reports required to be submitted to Congress, AID officials and employees have also identified a proliferation of administrative reporting requirements and procedural directive systems as impediments to organizational efficiency and effectiveness. A mission in Africa, for example, recently compiled a list of approximately 46 reports that African field posts submit to headquarters in Washington at different reporting intervals each year.(18) Some of these reports, it should be noted, implement statutory or regulatory requirements. AID administrator J. Brian Atwood summarized the nature of the problem:
[O]ur failures in the past have produced overregulation in the present. We have spent more time on paperwork than people work. AID personnel have become more concerned with process than development. The first thought that should come to the mind of an AID project officer should not be "[H]ave I filled the forms out right?" It should be "[W]hat will this project achieve?" After that question is answered, we should then turn to accountability--and we should be accountable.(19)
The agency's Office of Inspector General (OIG) agrees that at least some of the agency's internal directives and reporting requirements have outlived their usefulness, impose costs in excess of the benefits derived, or otherwise impede the agency's effectiveness and efficiency.(20) A new AID Quality Council is coordinating an agencywide review of recurring reporting requirements, with a view toward consolidation or elimination of reports. The agency's Policy Directorate has recently undertaken a comprehensive revision of the agency's 33-volume handbook system, which has not been substantially updated for nearly a decade.(21)
Other administrative reporting mechanisms examined by the National Performance Review include several associated with what is known as the apportionment process administered by the Office of Management and Budget (OMB). Following enactment of congressional appropriations, apportionments of funds must be made by OMB before they can be obligated by an agency. Except for ESF monies, apportionments of funds to AID are made by OMB in consultation with the agency. By law, ESF funds are allocated on a country-by-country basis by the State Department, in consultation with AID; OMB then apportions funds for obligation by AID.(22)
AID's history of substantial management problems led to the formation in 1991 of what became known as the Joint OMB-AID SWAT Team, which was tasked with a comprehensive review of the agency's operations. The resulting report by the reviewers from both agencies led to 30 recommendations covering virtually every aspect of the agency's operations.(23)
The apportionment process provides OMB with an opportunity to evaluate AID's progress toward the management reforms it committed to make after the joint review. History suggests that OMB's diligence in apportioning AID appropriations has not been misplaced. Nevertheless, progress by AID in implementing SWAT Team recommendations and other reforms (e.g., improved program planning and evaluation, information and financial management, portfolio and contract management, and a more timely obligation of funds) could enable some reduction in reporting, documentation, and attendant delays currently associated with the apportionment process.
1. Funding for AID development assistance programs should be appropriated on a two-year or multiyear basis determined by reference to specific assistance needs.
This recommendation does not imply the creation of open-ended spending authority, but rather the setting of multiyear commitments corresponding to the reality of AID's development assistance program funding and project cycles. Appropriation periods can be adjusted by Congress as those circumstances change.(24)
2. AID development assistance funds should be appropriated as part of a single account.
Implementation of this recommendation could be accomplished with the submission of an AID development assistance funding request in a unified account, followed by congressional appropriation of funds in that single account category.
3. Earmarks on AID development assistance appropriations should be eliminated or reduced to allow the agency greater flexibility in responding to changing assistance needs.
The elimination or reduction of earmarks, along with establishment of a single budget category for all appropriated development assistance funds, would significantly reduce AID's management load in tracking all obligations by separate category and account, and could result in a significant reduction of in-house staff devoted to such activities. The proposed elimination of earmarks on AID appropriations for fiscal year 1994 in H.R. 2295 represents significant progress on this issue.(25)
4. Statutory reporting and notification requirements should be reduced.
Congress should reduce, consolidate, or eliminate unduly costly, burdensome, and obsolete reporting and notification requirements, with particular emphasis on the Congressional Presentation report and one-time notifications. This recommendation could be accomplished by one or more of the following measures: (1) amendment of the pertinent reporting and notification provisions in the Foreign Assistance Act of 1961, as amended, and other statutes affecting AID operations to eliminate unnecessary and outdated requirements, and to consolidate remaining requirements in a single report; (2) deletion of affected reports and notifications in new legislation recommended elsewhere in this report; (3) limitation of new reporting requirements in future authorization and appropriations acts, and in committee reports accompanying such legislation; or (4) use of computer technology to simplify the report preparation and transmittal process.(26) Reporting requirements identified for elimination in one current Senate foreign assistance reauthorization proposal should be considered as a starting point.(27)
5. The AID administrator should assure the completion of a zero-based review of all internal agency reporting requirements and procedural directives; elimination of outdated, unduly burdensome, non-cost- effective requirements; and establishment of controls over the initiation of new requirements.
AID's Policy Directorate and its new Quality Council are already making progress on this initiative. In the process, directorate officials are attempting to strengthen channels of communication with the agency OIG, which has expressed a willingness to assist AID employees in the identification of procedural impediments to the most effective and efficient accomplishment of the agency's mission.
6. AID should develop a results-driven performance measurement system capable of documenting expenditures of development assistance funds against feasible and measurable performance goals.
Reductions in earmarking, one-year appropriations, reporting requirements, and other control mechanisms should be accompanied by development of reliable and effective performance measurement indicators. Such indicators are needed to ensure the agency's accountability for its allocations of program and other funds, and to provide assurances to the President, OMB, Congress, and the public that AID programs are achieving results.(28)
Implementation of the recommended measures will provide AID with much-needed flexibility and increase accountability as it moves toward the goal of becoming a more effectively and efficiently managed mission-driven, results-oriented agency.
The primary impact of these recommendations is expected to be more efficient allocation of budgetary and human resources. The fiscal impact of these recommendations cannot be estimated.
1. See, for example, U.S. General Accounting Office, AID Management: Strategic Management Can Help AID Face Current and Future Challenges, GAO/NSIAD-92-100 (Washington, D.C.: General Accounting Office, March 1992); The President's Commission on the Management of AID Programs (the Ferris Commission), Report to the President: An Action Plan (Washington, D.C., April 1992); Joint OMB-AID SWAT Team, Improving Management at the Agency for International Development (Washington, D.C., 1992). For a discussion of the effects of one-year appropriations and earmarking on government agencies generally, with recommendations, see the NPR Accompanying Report Mission-Driven, Results-Oriented Budgeting (Washington, D.C., September 1993). For a discussion of and recommendations on governmentwide reporting requirements, see the NPR Accompanying Report Streamlining Management Control (Washington, D.C., September 1993).
2. The American Enterprise Institute and the Brookings Institution, Renewing Congress: A Second Report (Washington, D.C., 1993), p. 78; Pastor, Robert A. "The President Versus Congress," in Robert J. Art and Seyom Brown, ed., U.S. Foreign Policy: The Search For a New Role (New York: Macmillan Publishing Co., 1993), pp. 12-13, 22; and U.S. Congress, House, Report of the Task Force on Foreign Assistance, 101st Cong., 1st Sess. (February 1989), H. Rept. 101-32 (the Hamilton-Gilman report), p. 7.
3. AID's Development Fund for Africa and Economic Support Fund accounts are funded for a two-year period; assistance to the former Soviet Union and Eastern Europe is funded on a no-year or multiyear basis, i.e., available until expended.
4. Interviews with selected AID employees (Washington, D.C., May- August 1993).
5. See, for example, U.S. Congress, Senate, Committee on Appropriations, S. Rept. 102-419, 102nd Cong., 2nd Sess., September 23, 1992.
6. The Economic Support Fund (ESF) is used to provide assistance to other countries based on special economic, political, or security interests of the United States. Most ESF assistance is provided as cash grant transfers to help other countries improve their balance of payments; the rest is spent on commodity support to pay for imports of U.S. goods, and on development projects. See Tarnoff, Curt, Foreign Aid: Answers to Basic Questions, Rept. No. 92-309 F (Washington, D.C.: Library of Congress, Congressional Research Service, March 25, 1992), p. CRS-2.
7. Interviews with AID employees; Ferris Commission, pp. 4, 11-12; Joint OMB-AID SWAT Team; the Hamilton-Gilman report, pp. 27, 39-40; and Hellinger, Stephen, Douglas Hellinger, and Fred M. O'Regan, Aid for Just Development: Report on the Future of Foreign Assistance (Boulder and London: Lynne Rienner Publishers, Inc., 1988), pp. 74- 75.
8. Hamilton-Gilman report, p. 40.
9. U.S. Congress, House, An Act Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 1994, and Making Supplemental Appropriations for Such Programs for the Fiscal Year Ending September 30, 1993, and for Other Purposes, 103rd Cong., 1st Sess., 1993.
10. Hamilton-Gilman report, pp. 27, 31; and interviews with AID employees.
11. Interviews with AID employees.
12. AID has identified six possible reports for elimination. See interviews with AID employees. Others are shown in a proposed congressional authorization measure (U.S. Congress, A Bill to Authorize Appropriations for Foreign Assistance Programs, and for Other Purposes, 103rd Cong., 1st Sess., 1993 [Draft]).
13. Section 634A of the Foreign Assistance Act of 1961, P.L. 87-195, as amended; and Section 522 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1993, P.L. 102- 391.
14. Holds are used under congressional procedures to permit members of Congress to delay action on pending matters for varying periods of time.
15. Interviews with AID employees.
17. Hamilton-Gilman report, p. 4.
18. Facsimile of memorandum from AID employee C. Palme to AID employee W. Saulter, October 23, 1992.
19. U.S. Congress, Senate, Committee on Foreign Relations, prepared statement, April 29, 1993.
20. Interviews with AID employees.
22. Section 531(b), P.L. 87-195; and interviews with OMB and AID employees (Washington, D.C., July-August 1993).
23. Joint OMB-AID SWAT Team.
24. See related recommendation in the NPR Accompanying Report Mission-Driven, Results-Oriented Budgeting.
26. See the NPR Accompanying Report Streamlining Management Control.
27. Proposed Senate authorization bill.
28. See related recommendations in the NPR Accompanying Report Mission-Driven, Results-Oriented Budgeting
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