Home » Management Discussion and Analysis » Performance Section » Financial Section » Appendices »
	Cover Letter Summary of Results Background Audit Objective Report on USAID's Financial Statements Report on Internal Control Accruals Reporting System Process for Reconciling Fund Balance with the U.S. Treasury Intragovernmental Transactions Process for Recognizing and Reporting Overseas Accounts Receivable Report on Compliance with Laws and Regulations Reportable FFMIA Noncompliance Evaluation of Management Comments Appendix I - Scope and Methodology Appendix II - Management Comments Appendix III - Status of Prior Year Findings and Recommendations
	Advanced search... Search USAID Personnel... Search USAID Documents...

Independent Auditor's Report – Reportable FFMIA Noncompliance (Repeat Finding)

Since 1997, the OIG has reported that USAID's financial management systems do not substantially comply with system requirements under FFMIA. Since then, USAID initiated the Financial Systems Integration project to acquire and incrementally implement through successive phases and product releases, a single, Agency-wide integrated core financial system known as Phoenix.¹

In fiscal year 2005, USAID made significant strides to overcome the longstanding FFMIA noncompliance conditions and modernize its financial management systems. As a result, USAID is now closer to having an integrated core financial system, but the Agency still must rely on a combination of its partially deployed Phoenix system, legacy systems, and informal and unofficial records. Therefore, the following three reportable noncompliance conditions still remain:

According to FFMIA, Federal agencies must implement and maintain financial management systems that substantially comply with Federal financial management system requirements. The Act states that users should have on-line access to, or receive daily reports on, the status of funds to perform analysis or make decisions. OMB Circular A-11 states that an agency that is not in compliance with FFMIA must prepare a remediation plan. The purpose of a remediation plan is to identify activities planned and underway that will allow the agency to achieve substantial compliance with FFMIA. Remediation plans must include the resources, remedies, interim target dates, and responsible officials. The remediation target dates must be within three years of the date the system was determined not to be substantially compliant.

USAID prepared a remediation plan for fiscal years 2005 and 2006 that sets forth a strategy for modernizing its financial management systems and details specific plans and targets for achieving substantial compliance with Federal financial management requirements and standards. USAID met remediation plan target dates in fiscal year 2005 and officials expect to achieve substantial compliance with FFMIA when the Phoenix system is fully deployed to the field in June 2006.

Phoenix is Not Fully Deployed, but Progress is Being Made

During fiscal year 2005, USAID made measurable progress with its Phoenix Overseas Deployment project. OMB Circular A-127, Financial Management Systems, prescribes policies and standards for agencies to follow in developing, operating, evaluating, and reporting on financial management systems. USAID's ability to meet such requirements rests with its successful overseas deployment of Phoenix.

At the beginning of the fiscal year, Phoenix was only operating in USAID/Washington and at five overseas missions but by the end of September 2005, it was operating at 22 of 53 missions. Additionally, USAID upgraded the Phoenix software from Momentum Financials version 3.7.4 to version 6.0.3 for both USAID/Washington and the overseas missions. The upgrade provides several improvements, such as increased functionality and features, and enables the Agency to meet key strategic objectives, including standardizing Momentum versions with the Department of State, complying with new Federal requirements, and complying with security best practices, such as standardsbased encryption.

While this progress is impressive, USAID still needs to deploy Phoenix to the 31 other overseas missions that are still using the Agency's legacy Mission Accounting and Control System (MACS). In the meantime, USAID continues to rely on a combination of its partially deployed Phoenix system, legacy systems, and informal and unofficial records.

While it is closer to having an integrated core financial system, the Agency still must use MACS to process obligations at overseas missions not yet converted to Phoenix. As a result, USAID may not have provided users at those locations with the complete, accurate, and timely financial information needed for decision-making purposes.

According to OMB Circular A-11, Preparation, Submission, and Execution of the Budget, each Federal agency is responsible for establishing a funds control system that will ensure that the agency does not obligate or expend funds in excess of those appropriated or apportioned. The Circular also states that multi-year unobligated funds remaining available at year-end must be reapportioned in the upcoming fiscal year.

In January 2003,² the OIG reported that, because USAID did not have an integrated financial management system, it used a separate system (MACS) to process obligations for its overseas missions. As such, the appropriation amount displayed as available after the roll-up of mission obligations was overstated by the amount of these same mission obligations. To compensate for this weakness, USAID allowed only a few users to apportion funds. Further, those users had access to records held outside of Phoenix to track mission obligations and determine the correct amount available for apportionment. Because this issue should be corrected with the successful deployment of Phoenix to the overseas missions, we do not make any recommendations to correct it.

Legacy Financial Systems at Overseas Missions Did Not Comply With U.S. Government Standard General Ledger at the Transaction Level

For overseas missions that had not yet converted to Phoenix, USAID continued to use the legacy MACS system as its financial system. However, MACS does not record mission activities using the U.S. Government Standard General Ledger (SGL) at the
transaction level to support financial reporting and to meet FFMIA requirements. Consequently, USAID cannot ensure that transactions are posted properly and consistently from mission to mission.

FFMIA requires agencies to implement and maintain systems that comply substantially with, among other things, the SGL at the transaction level. According to OMB Circular A-127, Financial Management Systems, application of the SGL at the transaction level means that a financial management system will process transactions following the definitions and defined uses of the general ledger accounts as described in the SGL. Compliance with this standard requires:

• Data in Financial Reports Consistent with the SGL. Reports produced by the systems that provide financial information, whether used internally or externally, shall provide financial data that can be traced directly to the SGL accounts.
• Transactions Recorded Consistent with SGL Rules. The criteria (e.g., timing, processing rules/conditions) for recording financial events in all financial management systems shall be consistent with accounting transaction definitions and
  processing rules defined in the SGL.
• Supporting Transaction Details for SGL Accounts Readily Available. Transaction details supporting SGL accounts shall be available in the financial management systems and directly traceable to specific SGL account codes.

In sum, to support financial reporting and to meet FFMIA requirements, USAID needs to record mission activities using SGL at the transaction level USAID officials expect that substantial compliance with FFMIA will be achieved when Phoenix is fully deployed in June 2006. Because this issue should be corrected with the successful deployment of Phoenix to the overseas missions, we did not make any recommendations to correct it.

Financial Reporting Capabilities Need Improvement

USAID financial management professionals are relying on separate reporting mechanisms outside of Phoenix for day-to-day management of their programs because many of USAID's standard financial reports available in Phoenix and through Crystal
Enterprise (USAID's additional reporting package software) are not always useful for the routine management and monitoring of USAID's financial activities. Under FFMIA, Federal agencies must incorporate established accounting standards and reporting objectives into their financial management systems so that assets, liabilities, revenues, expenditures, and the full costs of programs and activities of the Federal Government can be consistently and accurately recorded, monitored, and reported. As a result of USAID's use of these separate reporting mechanisms, information needed for routine financial management is generated with less efficiency and at an increased risk of error.

Because many of USAID's reporting capabilities could be improved, Phoenix users rely on outside programs and use their own manual schedules to develop the information they need. This may involve consolidating information from various reports available in Phoenix or Crystal Enterprise. Although preparing separate financial reports can be inefficient and result in an increased risk of error, some Phoenix users find it more practical and reliable to use their own reporting mechanisms because the standard Phoenix reporting options currently do not provide the ability to filter data in a useful way. Alternatively, Crystal Enterprise, which can filter data, provides only a few standard options for users.

This report is intended solely for the information and use of the management of USAID, OMB and Congress, and is not intended to be and should not be used by anyone other than those specified parties.

USAID, Office of Inspector General
November 14, 2005

Notes:

1. The Phoenix system is based on CGI-AMS Momentum Financials®, a Commercial Off-the-Shelf financial management system designed for Federal agencies. In May 2005, USAID upgraded the system from version 3.7.4 to version 6.0.3. (back to text)
2. Report on USAID's Consolidated Financial Statements, Internal Controls And Compliance for Fiscal Year 2002 (Audit Report No. 0-000-03-001-C, January 24, 2003). (back to text)

Back to Top ^ | < Previous Page | Next Page >