OPERATING EXPENSES

Dollars in Thousands

Uses of Operating Expenses

The OE budget is composed of:

• Overseas Operations, including field mission allocations, USDH salaries and benefits, and field mission relocations
• Washington Operations, including bureau/office allocations and USDH salaries and benefits
• Central Support, including security, information technology, Washington rent, utilities and other support costs, development readiness, staff training, and other agency costs

The table below shows the funding and USDH workforce levels from FY 2002 through FY 2005, followed by a brief description of each category and explanation of the FY 2005 funding request.

OVERSEAS OPERATIONS

Approximately 50% of the OE budget funds the Agency's overseas presence. This is comprised of USDH salary and benefits for foreign-service officers overseas and costs of maintaining field missions. These costs are in addition to costs for mission relocations.

Field Missions ($237.8 M)

• Salaries and benefits for Foreign Service National direct hire and personal service contractors (PSCs) and U.S. PSCs. The FY 2005 request is $98.2 million, or 39% of total mission funding.
• Residential and office rents, utilities, security guard costs, and communications. The FY 2005 request is $50.6 million, or 20% of total mission funding. These costs are largely non-discretionary.
• Intergovernmental payments. The FY 2005 estimated cost is $29.1 million or 11.4% of mission expenses. The majority is for payments of International Cooperative Administrative Support Services (ICASS). ICASS is the cost of administrative support provided to missions by other U.S. Government agencies (generally the Department of State). USAID's Working Capital Fund, which finances the costs associated with USAID's provision of services, is described later in this section.
• Operational travel and training. This category includes essential travel to visit development sites, work with host country officials, other operational travel, including travel to respond to disasters, and the costs of tuition and travel for training not sponsored by Washington. The FY 2005 request is $16.4 million.
• Supplies, materials, and equipment. This category includes the cost of replacing office and residential equipment, official vehicles, IT hardware and software, general office and residential supplies and materials, and some security-related equipment. The FY 2005 request is $15.2 million.
• Mandatory travel and transportation. This category includes travel and transportation expenses for post assignment, home leave, and Rest & Recovery and the shipment of furniture and equipment. The FY 2005 request is $14.6 million.
• Contractual support. This category includes mission requirements for voucher examiners, data-entry assistance, and other administrative support provided through contracts. The FY 2005 request is $5.5 million.
• Operation and maintenance of facilities and equipment. This category includes the cost of operating and maintaining facilities and equipment at overseas missions. The FY 2005 request is $6.4 million.
• Miscellaneous. This includes medical costs, building renovations and printing. The FY 05 request is $1.6 million.

  USDH Salaries and Benefits - Overseas ($94.1 M)

• USDH Salaries and Benefits includes salaries and the Agency share of benefits, such as retirement, thrift savings plan, social security, and health and life insurance for approximately 700 Foreign Service Officers serving overseas. The retirement costs include the January 2003 inception of the virtual locality pay program. Under this initiative, the formula used to calculate FSOs' pension benefits now adjusts the pay base to reflect locality pay received by Washington staff. Overseas salaries also include various post differentials including "difficult to staff incentives" for FSOs willing to extend tours at posts where harsh living conditions deter personnel from seeking assignments. The FY 2005 request is $94.1 million.

  Field Mission Facility Relocations ($5.5 M)

• In addition to recurring support requirements, USAID needs OE funds to move into interim office facilities and/or the purchase or construction of interim office buildings. These funds will provide for office relocation at priority security threat posts where the USAID mission is not collocated with the Embassy. These funds are separate from the proposed CIF account, which will be used exclusively for new office building construction on Embassy compounds. The FY 2005 request is $5.5 million.

WASHINGTON OPERATIONS

Includes USDH salaries and benefits for Washington staff, and travel, administrative supplies, and contract support for Washington offices and bureaus.

Washington Bureaus/Offices ($12.6 M)

• Operational and training travel. This category includes essential travel to visit missions and development sites, work with host country officials, participate in training, and other operational travel, including travel to respond to disasters. The FY 2005 request is $4.4 million.
• Advisory and assistance services. This category includes manpower contracts and advisory services to support essential functions, such as preparation of the Agency's Financial Statements, voucher payment processing, and financial analysis. The FY 2005 request is $8.2 million.

  USDH Salaries and Benefits - Washington ($154.9 M)

• USDH Salaries and Benefits includes salaries and the Agency share of benefits, such as retirement, thrift savings plan, social security, and health and life insurance, for approximately 1,300 general service and foreign service employees. The FY 2005 request is $154.9 million.

Human Capital Initiatives

Development Readiness Initiative

USAID's multiyear Development Readiness Initiative (DRI) supports the Department of State's Diplomatic Readiness Initiative. This effort would culminate in establishing a new ceiling for USDH staff, increasing the 1,000 strong Foreign Service by 15%, the percentage used by the Department of State to establish a training and assignment float for entry-level programs.

The Development Readiness Initiative will strengthen the Agency's capacity to respond to crises and emerging priorities, cover staffing gaps, and provide appropriate training. DRI includes the recruitment and hiring of qualified staff to replace retiring officers to expand staff to develop a surge capacity to meet urgent foreign policy demands. More critically, DRI will maintain the Agency's quality and flexibility of human resources and ensure that staff maximizes the professional skills needed to grow with job requirements. DRI will help USAID meet OPM's mandate to get the "right people in the right jobs with the right skills at the right time."

The Development Readiness Initiative will provide USAID with the overall capacity to:

• Fill critical vacancies overseas
• Maintain the world-class humanitarian and development assistance programs that tackle the main causes of terrorism - poverty and loss of hope
• Ensure staff are highly trained in languages, development technologies, project management, and other supporting skills
• Respond to unforeseen foreign-crisis situations that can emerge quickly
• Design new business models for managing development as needs dictate and the flexibility to change business models when necessary
• Lead development by collaborating with other U.S. and international organizations to effectively implement programs to further U.S. foreign policy interests
• Rationalize overall staffing to achieve the best results overseas

Important DRI elements include:

• An overall long-term recruiting and hiring plan as part of the Human Capital Strategy
• A plan to design and institutionalize a training and certification program to transfer existing development knowledge and expertise
• Identification of new skills necessary for incoming and current staff members to meet complex foreign assistance challenges that contribute to overall foreign policy and development of relevant training programs that reflect these skills needs
• New models of doing business that include deploying staff overseas in ways that account for the increased security threat both to our American and foreign national staffs, increase our ability to respond quickly to emerging conflicts, are the most cost effective, and support and focus on results critical to our foreign interest

USAID's is aligning its work on the President's Management Agenda (PMA) objectives (Human Capital, Financial Performance, E-Government, Budget and Performance Integration, and Competitive Sourcing) with the concept of development readiness. The PMA emphasizes the interdependency of these core management models in strengthening the Agency's impact as a world-class development agency with the capacity to respond quickly and effectively to U.S. foreign policy interests.

In FY 2005, USAID will:

• Allocate 80-90 training positions in overseas missions to ensure that new officers are mentored appropriately before assuming leadership of offices and programs;
• Establish a "surge" capacity to respond to new policy priorities and programs;
• Reverse the staffing crisis by expanding and strengthening recruitment/hiring;
• Properly train and develop new and current staff to be well-prepared for increasingly demanding overseas positions;
• Create a float to enable deployment of officers to cover critical work during vacancy periods that often occur for a period of up to six months when officers leave post and before their replacements arrive;
• Mandate greater adherence to language skills due to the current necessity of quickly filling critical positions;
• Hire 50 new officers over and above attrition;
• Convert 50 personnel service contractors to direct hire status in critical shortage areas;
• Target hiring to fill the most critical skill gaps identified in FY 2004; and,
• Institute recruitment and retention strategies that will help guarantee future leadership

Program-Funded Hiring Authorities

In response to the Agency's staffing crisis, the administration and Congress have proposed and enacted additional hiring authorities to enable USAID to address critical staffing requirements. These new authorities enable the agency to utilized existing program funding to complement the staffing gains funded through the DRI initiative.

The FY 2004 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. Under this authority, the Agency may use program funds to employ up to 85 individuals overseas each year on a limited term appointment basis. This would effectively enhance the resources available for administrative functions by $36.121 million in FY 2005. This authority will rationalize the hiring process by empowering the agency to base hiring decisions on job requirements rather than funding availability. It will also ensure that officials who perform inherently governmental functions are employees of the US Government.

The FY 2005 request also identifies up to $12.5 million in program funds to be transferred to and merged with the Operating Expense account to pay for salaries, benefits and allowances of up to 50 permanent direct hire positions in concert with approval of a comprehensive workforce analysis. This authority, which is contingent upon a simultaneous reduction of 50 program funded contract staff, will enable the agency to fully meet the goals of the DRI. Estimated expenditures in FY 2005 for 30 FTE will be $7.465 million.

Security

The USAID security (SEC) budget for FY 2005 represents a continuing effort to protect USAID employees and facilities against global terrorism and national security information against espionage. This budget focuses on improving the security of existing USAID field missions where collocation with the U.S. Embassies cannot be accommodated. USAID will accomplish this by enhancing physical security measures, improving emergency communications systems, providing armored vehicles, and conducting security awareness training to protect classified information. In Washington, USAID will focus on public-access controls in the Ronald Reagan Building and the protection of national security information.

Physical security includes all costs associated with (1) overseas security enhancement projects, including design, procurement, shipment, and physical installation of certified systems, materials and barriers to deter intruders to USAID facilities; (2) upgrading Emergency & Evacuation (E & E) voice radio systems; (3) the procurement of armored vehicles; and (4) securing USAID Headquarters in Washington, DC. In FY 2005, USAID will:

• Complete 27 physical security enhancement projects at overseas posts where USAID field missions cannot collocate with U.S. Embassies because of insufficient space or no current plans to construct new Embassies.
• Complete communications systems upgrade projects at 33 missions to ensure overseas employees have dependable means of accessing U.S. Embassy E & E voice radio networks. Those systems will include residential and vehicle radios, base stations, and repeaters to provide employees with 24 hour communications while at work, home, and during transit. The costs include procurement, testing, calibration, equipment repair, shipment, and installation.
• Provide 25 armored vehicles to posts where the threat of terrorism, war, or civil disturbance is considered critical or high. USAID also will conduct two defensive-driving training courses for USAID armored-vehicle drivers to enhance their driving skills and ability to respond properly to emergency conditions.
• Fund guard costs in the USAID portion of the Ronald Reagan Building to protect personnel, safeguard facilities, and protect sensitive and national security information. Costs include the maintenance and repair of security equipment, such as electronic card access systems, locking devices, and closed-circuit television surveillance systems.

Personnel security includes all costs associated with conducting background investigations and periodic update investigations in accordance with the provisions of Executive Order (EO) 10450, Security Requirements for Government Employment, and EO 12968, Access to Classified Information. USAID must investigate and grant a Top Secret or Secret clearance to all USAID personnel occupying U.S. direct-hire positions (Foreign Service, General Schedule, and Administratively Determined) before hiring them. Pre-employment investigations and security clearances or employment authorizations also are required for USAID contractors who will work in USAID office space.

Information security includes costs associated with the protection of national security and sensitive information. Executive Orders 12958 and 12968 and Information Security Oversight Office Directive 1 require USAID to establish and maintain a security awareness program to ensure that classified national security information is properly prepared, transported, safeguarded, and eventually destroyed. This category includes costs to maintain an Agency-wide inter-active computerized training course to satisfy annual training requirements established by E.O. 12968.

The FY 2005 USAID Information Technology (IT) Operations budget provides funding for the on-going support of IT systems, infrastructure, and architecture, which is critical in helping USAID staff fulfill the Agency's mission.

IT Systems Operations

The IT Systems component of the operations budget is budgeted at $16.1 million in FY 2005. This provides funding for managing, operating, and maintaining the organization's suite of enterprise-wide, legacy, and database systems; designing, developing, programming, and implementing small, automated information-management systems; and contract support for ongoing software maintenance, error correction, and licensing. In total, USAID maintains approximately 33 systems in the categories of financial, mixed financial, procurement, human resources, inventory, and other. Major components of the IT Systems Operations portfolio are Phoenix, the Agency's commercial off-the-shelf core accounting application; and the Acquisition & Assistance subsystem of the legacy New Management System.

IT Infrastructure Operations

The IT Infrastructure component of the operations budget is budgeted at $39.8 million in FY 2005. It consists of a wide range of technologies that support the Agency's worldwide telecommunications operations and centralized network and server platforms at USAID's Washington, DC headquarters (USAID/W). The hardware and software technologies include server platforms, desktop platforms, switches, routers, voice systems, telegram distribution, network monitoring, operational computer security, telecommunications functions, and the customer help desk. In addition to support for USAID/W, the budget covers the costs of providing standards and technical support to missions and manages all mission telecommunications functionality, firewalls, and servers. It provides for day-to-day management in planning, capacity analysis, and implementation of centrally funded upgrades.

Given the vulnerability of international operations, USAID will review and improve IT systems and organizational security procedures, ensure adequate IT security is in place, provide tools, define IT security policies, and implement IT security roles and responsibilities. Additionally, work will continue in risk and security management, incidence response and policy enforcement, enhanced capabilities for system certification and accreditation, compliance monitoring, risk analysis and assessments, security monitoring, and validation and verification of Agency Disaster Recovery and Continuity of Operations (COOP) plans. Other major components of the IT Infrastructure Operations portfolio include Internet Services, Tech Hub, Information System Security Program, and Knowledge Management.

IT Architecture, Planning, & IRM Program Management

IT Architecture, Planning and IRM Program Management component operations is budgeted at $7.5 million in FY 2005. The budget includes the costs associated with configuration management, contract management, project management, systems engineering, process improvement, acquisition support, and information-resources program management. This budget also will cover the costs for IRM acquisition management, including management and oversight of the major technology labor contracts.

General Support Budget

Washington Rent, Utilities, and Support Costs

In FY 2005, payments for office rent, utilities, and guard services for public areas in the Ronald Reagan Building and warehouse space in the metropolitan area will cost about $38.5 million, 80% of this budget category. The General Services Administration charges for building-specific security for the Ronald Reagan Building increased 300% from FY 2002 to FY 2004 and will increase another 130% in FY 2005. This is an average increase of about $2 million per year. These increases are related to increased security measures after the 9/11 attacks. The remainder of this account is also relatively fixed, required for building and equipment maintenance and operations costs, postal fees, APO costs, bulk supplies, transit subsidies, health and safety, and other general support costs for headquarters personnel.

Relocation of Continuity of Operations (COOP) Site

From its current location in Olney, MD, USAID plans to relocate its COOP site to the Xerox Center in Lansdowne, VA in FY 2004. This relocation will satisfy USAID's needs for additional space to sufficiently house the COOP designees and provide basic support services at a more reasonable cost and locate the site 50 miles outside the Washington, DC metropolitan area, as required in case of a widespread event. In FY 2005 and subsequent years, the new site's estimated annual operating costs is $38 thousand - $22 thousand for the lease and $16 thousand in user fees for two 2-day training events each year - adjusted annually for inflation. This will result in an estimated annual cost savings of $224 thousand.

Staff Training

Continued investment in training is central to the FY 2005 implementation of the Agency Human Capital Strategy. The FY 2004 completion of an overseas workforce assessment will form the basis for more robust workforce planning, corporate hiring strategies, and training programs. Training activities will ensure the Agency builds a more flexible workforce and enhances its capacity to respond to the ever-increasing demands placed on USAID development experts. Training programs will focus on:

• Identifying the skills needed for a world-class 21st-century development agency
• Analyzing the gaps between skills needed and those available within the Agency
• Implementing the most cost-effective training models to close the skills gaps, including the use of the blended-learning approaches that combine classroom and distance learning
• Eliminating duplication in a variety of skills, project management, and leadership courses
• Designing and procuring a learning management system with a supporting database to accurately capture employee training data

The training strategy will rebuild and retool the core of the Agency workforce and ensure that newly hired employees receive the training needed to do their jobs effectively. In FY 2005, USAID will:

• Train up to 220 new officers (50 DRI, 170 to replace attrition)
• Implement certification programs for senior leaders, program managers, technical officers and support staff (finance, project and contracting officers)
• Implement a new training program in response to the Administrator's commitment to train all supervisors
• Continue training in languages, security, and retirement planning

Approximately 60% of the request will support the Human Capital Strategy and its goals while the remaining 40% will fund fixed recurring requirements, such as language and security training.

Other Agency Costs

The budget request for other agency costs covers primarily mandatory costs, the largest being payments to the Department of State for administrative support and Dispatch Agent fees and the Department of Labor for employee medical and compensation claims relating to job-related injury or death. This category also includes travel and related costs for retiring Foreign Service Officers, costs associated with the Foreign Service panels, and funding for medical, property, and tort claims.

Department of State administrative support costs will increase by $2 million from FY 2004 to FY 2005 due to increased investment in upgrading ICASS infrastructure. Agencies' contributions increase in the same proportion as DOS contributions.

This category also covers legislative and public affairs support, including the costs of publications such as Front Lines, support for Operation Days Work, and travel to accompany Congressional delegations.

In addition, this request includes $1.9 million for potential extraordinary audit costs to cover Office of Inspector General expenses.

Funding Sources for Operating Expenses

USAID's operating expenses are financed from several sources, including new budget authority, local currency trust funds, reimbursements for services provided to others, recoveries of prior year obligations, and unobligated balances carried forward from prior year availabilities. The table below shows the details.

Local currency trust funds are estimated at $26.7 million, the same level as in FY 2004. Estimated recoveries during FY 2004 available for use in FY 2005 are anticipated at $12.5 million compared to $19.8 million in FY 2003 and $16.1 million in FY 2002. In addition, several provisions in the program fund accounts make additional funds available for administrative expenses. Those provisions total $5,945.

Funding Sources for Operating Expenses ($000)

Operating Expense Tables - Index

Capital Investment Fund

FY 2004 marks the third year USAID proposes the Capital Investment Fund to modernize and improve information technology systems and finance construction of USAID buildings overseas in conjunction with the Department of State. These no-year funds will provide the Agency with greater flexibility to manage investments in technology systems and facility construction not allowed by the annual appropriation for Operating Expenses.

Capital Investment Fund ($ in thousands)

Information Technology (IT)

Separating the improvement funds from on-going operations funds will allow IT improvement managers to have funding certainty independent of operational cost fluctuations. Reflecting the Agency's best estimates, this fund is proposed at $36.1 million for FY 2005 to support the following initiatives:

Information Technology ($ in thousands)

IT Systems Capital Investments

Phoenix Financial System Integration (USAID Washington) - This project improves USAID's headquarters' core financial system that provides accurate financial information to support Agency decisions to achieve USAID/State's strategic goals and objectives in the most cost efficient and effective manner and supports substantial compliance with the Federal Financial Management Improvement Act. It funds both the ongoing support for the currently installed financial systems and upgrades needed to allow for a joint, integrated financial system with the Department of State.

Phoenix Financial System Overseas Deployment (USAID Missions) - This project, part of the modernization of USAID's business systems worldwide, will expand the Agency's core accounting system to include 70 overseas missions in developing countries. The overseas deployment of a web-based, integrated financial management system will provide an Agency-wide system for budget execution, accounting, and financial management. E-business technologies will provide a tool for mission personnel to manage financial transactions and program performance and allow the Agency to replace its current overseas Mission Accounting and Control System that is noncompliant with Joint Financial Management Improvement Program requirements. USAID will coordinate this project with the Department of State (DoS) to ensure successful migration of the Phoenix and DoS Momentum systems.

Procurement System Improvement (USAID Missions) - This project, part of the modernization of USAID's business systems worldwide, will implement an integrated Acquisition and Assistance (A&A;) management system for USAID's Washington headquarters and overseas missions. The project will replace the NMS legacy system for A&A;, which is used only at headquarters, and provide full electronic processing capability for the first time to field missions. Acquisition and Assistance, a core function, is the Agency's primary means of achieving its economic-development mission. The overseas deployment of a web-based procurement system will provide a common Agency-wide system for the A&A; process.

The A&A; process applies to contracts for goods and services, grants for development assistance, and to vendors and other agency partners in support of the program operations business area. The project will enable the Agency to achieve a higher level of compliance with key government regulations, such as Government Performance and Results Act, Government Paperwork Elimination Act, and the Information Technology Management Reform Act. USAID will act as a managing partner to coordinate joint USAID and Department of State planning efforts to ensure the successful development and implementation of a common world-wide acquisition system with a grants management module.

E-Gov Initiatives - As a contributing partner, USAID will provide funding for several E-gov initiatives to improve agency operations and benefit from the cost effectiveness of electronic government technologies. The projects undertaken include:

E-Authentication -- A Federal government multi-agency initiative to minimize the burden on businesses, the public, and government when obtaining on-line services by providing a secure infrastructure for on-line transactions, eliminating the need for separate processes for the verification of identity and electronic signatures.

Grants.gov (formerly E-Grants) -- A Federal government multi-agency initiative to create a single portal for all Federal grant customers to find, apply, and ultimately manage grants on-line.

E-Training -- A Federal government multi-agency online training initiative to create a premier e-training environment that supports development of the Federal workforce through simplified and one-stop access to high-quality e-training products and services.

E-Travel -- A Federal government multi-agency initiative to provide a web-based service that applies world-class travel-management practices to consolidate Federal travel, minimize cost, and produce superior customer satisfaction. From travel planning and authorization to reimbursement, the E-Travel Service will leverage administrative, financial, and information-technology best practices to achieve significant cost savings and improved employee productivity.

Integrated Acquisition Environment -- A Federal government multi-agency project to create a secure business environment that will facilitate and support cost-effective acquisition of goods and services by agencies, while eliminating inefficiencies in the current acquisition environment.

Recruitment One-Stop -- A Federal multi-agency project that outsources the USAJOBS Federal Employment Information System to deliver state-of-the-art on-line recruitment services to job seekers, including intuitive job searching, on-line resume submission, applicant data mining, and on-line feedback on status and eligibility.

IT Infrastructure Capital Investments

USAID/DOS Infrastructure Collaboration - This project supports USAID's participation in concept development, planning, issue analysis, and preliminary engineering for information technology infrastructure collaboration and consolidation between the Department of State and USAID. The project will consider a variety of technical, procedural, contractual, and security requirements issues in consolidating the two information-technology infrastructures.

IT Architecture and Planning Capital Investments

Architecture and Planning/PMO - This project, part of the modernization of USAID's business systems worldwide, will develop an Enterprise Architecture consistent with Federal Enterprise Architecture standards in collaboration with the Department of State. It also provides for a Project Management Office and staffing to support the management of related projects through all cycles of the project planning and management.

Facility Construction

The Secure Embassy Construction and Counterterrorism Act of 1999 requires the construction of new USAID office facilities to be collocated on embassy compounds when new embassies are constructed. The FY 2005 request of $28.7 million will fund USAID's participation in the Capital Cost-Sharing Program and office building moves to interim, secure facilities. It will support construction on new compounds in eight locations: Katmandu, Asmara, Damascus, Quito, Beirut, Moscow, Skopje, and Bogotá. FY 2005 funding is critical to provide secure, safe and functional workspaces for USAID employees and comply with the Act of 1999.

WORKING CAPITAL FUND

The Agency's Working Capital Fund (WCF) is authorized by Section 635(m) of the Foreign Assistance Act of 1961, as amended. The fund finances, on a reimbursable basis, the costs associated with providing administrative support to other agencies under the International Cooperative Administrative Support Services (ICASS) program overseas. Under ICASS, each agency pays a proportionate share of the cost of those services they have agreed to receive. Working through inter-agency councils at post, all agencies have a say in determining which services the USAID mission will provide, defining service standards, reviewing costs, and determining funding levels. The WCF is a no-year fund that permits unobligated monies to be carried over from one year to the next, an advantage that provides fiscal flexibility and increases opportunities to establish multi-year planning. It also enables managers to make long-term decisions without the constraints of the annual fiscal year cycle.

Services provided by USAID include building operations, information management, administrative supplies, non-expendable property management, travel services and customs clearance. USAID had eight missions employing the use of WCF to offer administrative services at the end of FY 2003.

Gross receipts into the WCF during FY 2003 totaled approximately $4 million. While virtually all funds were required to cover the actual cost of providing service, over time it is anticipated that modest surpluses will accumulate through charging customers for depreciation and proceeds from the sale of assets. Missions will invest these surpluses in infrastructure improvements to further increase the effectiveness and efficiency with which services are delivered.

The WCF receives a portion of its income from deposits of rebates from the use of Federal credit cards. These funds are dedicated to management oversight of existing working capital fund missions, to provide training, and to assist missions that are ready to provide ICASS services with start-up costs.

Operating Expenses of the Inspector General

The Office of Inspector General (OIG), U. S. Agency for International Development (USAID), FY 2005 appropriation request is $35 million. This request will allow the OIG to accomplish its mandatory and some urgent priority audit and investigative work and reduce USAID’s, the African Development Foundation’s (ADF), and the Inter-American Foundation’s (IAF) exposure to fraud and waste. This request will also enable the OIG to increase the credibility of and confidence in those programs operating in highly vulnerable areas of the world.

Established under the Inspector General Act of 1978, the OIG is tasked to: (1) conduct audits and investigations relating to the programs, operations and personnel of USAID, ADF, and IAF; (2) provide leadership and coordination and recommend policies for activities designed to promote economy, efficiency and effectiveness and to detect waste, fraud and abuse in the programs and operations of USAID, ADF, and IAF; and, (3) provide a means for keeping the USAID Administrator, Foundation Directors, and the Congress fully and currently informed about problems and deficiencies relating to USAID, ADF, and IAF.

The OIG’s goal is to promote and preserve the integrity, effectiveness and efficiency of USAID, ADF, and IAF. The OIG assists USAID, ADF, and IAF with the implementation of its strategies for economic development and provides managers with information and recommendations that improve program and operational effectiveness and efficiency. During FY 2003, with a $35.3 million budget (Appropriation plus carry-over funds), OIG audits and investigations of contracts, contractors, grantees and program operations led to more than $79 million in monetary findings, including amounts management agreed should be recovered for questioned costs, funds put to better use and civil restitution payments and penalties. Of the $79 million, $16¹ million were actual recoveries to the U.S. Government.

For USAID’s FY 2003 consolidated financial statements, the OIG, for the first time since it began auditing USAID’s financial statements, was able to issue unqualified opinions on all five of USAID’s principal financial statements. This was an important milestone and represents continued progress by USAID. However, for the balance sheet and statement of net cost, the opinion was achieved only through extensive audit efforts to overcome material weaknesses in internal control. Although these efforts resulted in auditable information on the balance sheet and statement of net cost, they did not provide information in a timely manner to enable USAID managers to make cost and budgeting decisions throughout the year.

USAID continues to play a critical and central role in the relief and reconstruction efforts in Iraq and Afghanistan. The economic and political instability that exists in these countries and USAID’s need to rapidly expand and implement its programs to address immediate needs increase the vulnerability to corruption. To ensure effective use of U.S. funds, the OIG is devoting considerable audit and investigative resources overseeing both programs. The OIG established a continuous on-the-ground presence in Baghdad in August 2003 and continues with periodic visits to oversee major program activities in Afghanistan. Additionally, for both programs, the OIG is overseeing an extensive program of contracted financial audits to closely monitor program expenditures.

The OIG is also closely monitoring developments regarding USAID’s participation in the President’s Emergency Plan for AIDS Relief (PEPFAR) through contacts with USAID’s Washington bureaus and field missions. Once the funding levels and details become clearer, the OIG will determine what potential additional audit efforts will be required by the OIG.

Work continues on our proactive fraud awareness activities with excellent results. During FY 2003, in an effort to reduce fraud and illegal activity, through proactive initiatives the OIG staff conducted fraud awareness training sessions for more than 2,000 participants in 31 countries. The participants were USAID employees, grantees, and contractors worldwide. The ultimate goal of our fraud awareness program is to educate employees, contractors, and grantees to a point that we eliminate fraudulent activity from USAID’s programs.

¹ The $79 million in identified monetary findings includes $13.6 million from audits and $2.4 million from investigations. USAID management agreed to $7.3 million of monetary audit findings during FY 2003.

FOREIGN SERVICE RETIREMENT AND DISABILITY FUND

Budget Request

Foreign Service Retirement and Disability Fund
(Thousand Dollars)

In FY 1974, amendments to the Foreign Assistance Act of 1961, as amended, permitted USAID career foreign service employees to become participants in the Foreign Service Retirement and Disability Fund.

The extension of coverage to USAID employees created an unfunded liability in the system. An actuarial determination by the Department of the Treasury shows that in FY 2005, $42,500,000 will be required to amortize this liability and the unfunded liability created by pay raises and benefit changes since FY 1974.

For FY 2005, USAID is requesting an appropriation of this amount.

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