Financial Management: State's Systems Planning Needs to Focus on
Correcting Long-standing Problems (Letter Report, 08/12/94,
GAO/AIMD-94-141).

The State Department recognizes that it has serious internal control and
financial management problems, and it has set out on the path to change.
However, State has not yet positioned itself to make any substantive
changes. Without an overall management structure and agencywide
information strategy plan to guide the development of the Integrated
Financial Management System, State runs a high risk of perpetuating its
long-standing financial management problems, detracting from its ability
to meet Chief Financial Officer Act goals of producing auditable
financial statements and implementing the standard general ledger, and
depriving its managers of the information they need to make sound
decisions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-94-141
     TITLE:  Financial Management: State's Systems Planning Needs to 
             Focus on Correcting Long-standing Problems
      DATE:  08/12/94
   SUBJECT:  Financial management systems
             Financial records
             Internal controls
             Management information systems
             Strategic information systems planning
             Information systems analysis
             Systems architecture
             Systems compatibility
             Information resources management
IDENTIFIER:  Dept. of State Integrated Financial Management System
             Dept. of State Overseas Financial Management System
             Dept. of State Central Financial Management System
             Dept. of State Bureau of Personnel Business Process 
             Reengineering Initiative
             Dept. of State Real Estate Management System
             
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Cover
================================================================ COVER


Report to the Chairman, Legislation and National Security
Subcommittee, Committee on Government Operations, House of
Representatives

August 1994

FINANCIAL MANAGEMENT - STATE'S
SYSTEMS PLANNING NEEDS TO FOCUS ON
CORRECTING LONG-STANDING PROBLEMS

GAO/AIMD-94-141

Financial Systems Planning at State


Abbreviations
=============================================================== ABBREV

  ADP - automated data processing
  CFO - Chief Financial Officer
  CFMS - Central Financial Management System
  CIO - Chief Information Officer
  FBO - Foreign Buildings Operations
  FMFIA - Federal Managers' Financial Integrity Act
  IFMS - Integrated Financial Management System
  IRM - information resources management
  OFMS - Overseas Financial Management System
  OMB - Office of Management and Budget
  REMS - Real Estate Management System
  RFP - Request for Proposals

Letter
=============================================================== LETTER


B-257517

August 12, 1994

The Honorable John Conyers, Jr.
Chairman, Legislation and
 National Security Subcommittee
Committee on Government Operations
House of Representatives

Dear Mr.  Chairman: 

This report responds to your February 3, 1994, request that we
provide information on the Department of State's financial management
improvement efforts.  State has acknowledged it has serious financial
management weaknesses.  It initiated two previous efforts, one in
1982 and another in 1988, to address these weaknesses, but was
unsuccessful in eliminating them.  Now State has begun a new
initiative--the Integrated Financial Management System (IFMS)--which
is part of State's broader goals of improving its business processes
and the information systems that support these processes.  This
report assesses whether State is effectively planning for and
managing IFMS. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

State's improvement initiatives, and IFMS in particular, are at a
high risk of failure because State's management and planning for
these initiatives have been inadequate.  State did not have any
documentation that described the anticipated financial management
structure, how various subsidiary systems will integrate with this
structure, or how IFMS is related to State's other long-term
improvement efforts.  State also did not have a definitive
description of its existing financial management system structure or
of systems development projects that are continuing.  Without
in-depth knowledge of the current financial accounting and management
environment and a fully articulated target structure, it will be very
difficult for State to improve its processes or correct weaknesses. 
One of the contributing factors has been that State lacked an
agencywide information resources management (IRM) leadership
structure, essential to achieving what it plans will be a
departmentwide system. 

Despite these problems, State issued a Request for Proposals (RFP)
for all design, development, deployment, and maintenance work related
to IFMS, as well as any necessary maintenance of existing financial
management systems.  In addition, the RFP does not offer an accurate
picture of the scope of work required and, accordingly, is not a
solid base for soliciting bids.  Aside from the need to maintain
existing systems or complete work on high-risk areas where all system
requirements have been identified, we believe that entering into
contractual arrangements for the full scope of work in the RFP would
be premature, further increasing the risk of developing a system that
does not correct existing weaknesses or meet managers' future
information needs. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Department of State is responsible for formulating policy across
a range of international issues, conducting foreign relations, and
coordinating the major overseas programs and activities of the
government.  Various bureaus and offices within the Department help
support these worldwide program and administrative
responsibilities.\1 By delegating these responsibilities to the
bureaus and offices, State has given each a great deal of operational
autonomy.  For example, each office or bureau has its own automated
data processing (ADP) staff, as well as budgetary authority, to
independently undertake system initiatives. 

The Department receives over $5 billion in appropriations annually,
which it accounts for and controls through a network of domestic and
foreign financial systems and subsystems.  In recent years, State has
forthrightly acknowledged that it has serious financial management
weaknesses, including weaknesses in its management and accountability
of real and personal property, worldwide disbursing and cashiering,
and payroll transactions.  State recognized that these weaknesses
were keeping its (1) managers from receiving needed cost, performance
measurement, and other financial information, and (2) financial
systems from conforming to governmentwide requirements. 

State has reported these weaknesses, as well as high-risk areas, for
each of the past 3 years in its reports to the President and the
Congress under the provisions of the Federal Managers' Financial
Integrity Act (FMFIA).  (See appendix I for a complete list of
State's reported weaknesses and high-risk areas).  We also reported
on these weaknesses in November 1992 as part of our assessment of
State's conformance to requirements of the Chief Financial Officers
(CFO) Act of 1990.\2

Realizing the seriousness of its weaknesses, State attempted two
major system improvement initiatives--the Overseas Financial
Management System (OFMS) and the Central Financial Management System
(CFMS).  State began work on OFMS in 1982, and as of November 1992
had installed the system at its 23 oversees financial management
centers and 2 of its 3 regional administrative management centers. 
CFMS, which operates using commercial off-the-shelf software, was
installed at State's 30 domestic bureaus in October 1991.  In 1992,
State reported that the system had limitations and was not reliable,
and began work to tailor CFMS to better meet State's needs. 

While State has continued to modify both systems in an effort to
overcome problems, it has not been able to solve its financial
management weaknesses.  One of the primary reasons for this is that
State did not complete the design or implement all functionalities of
these systems.  Specifically, the system designs called for an
integrated domestic/overseas accounting system with general ledger
summary financial control of all resources.  While State implemented
the administrative accountability and control of funds functions, it
did not implement the departmentwide general ledger.  Without this
general ledger, State has not been able to control financial
transactions or prepare auditable financial statements. 

In recent testimony on implementation of the Chief Financial Officers
Act, State's Deputy CFO and the Inspector General stated that
financial management system weaknesses precluded state from preparing
auditable financial statements on the majority of its appropriated
funds.\3 Thus far, State's Inspector General has either audited or
contracted for audits of financial statements of several funds and
activities, and except for one commission comprising less that 1
percent of State's total budget, has issued disclaimers of opinion. 

In 1992, State, recognizing that OFMS and CFMS were limited, started
work on its current financial management improvement initiative. 
IFMS is intended to be a single integrated accounting system that
links State's worldwide operations and provides managers at all
levels with reliable financial information to plan and conduct
operations.  To link all of State's worldwide financial operations,
IFMS will need to receive inputs from all of the subsidiary systems
within State's different bureaus and offices.  State estimates that
when completed, IFMS will cost about $50 million.  To date, State has
spent about $5.3 million on IFMS. 

IFMS and another major system project--the Bureau of Personnel
Business Process Reengineering Initiative--are also part of a
broader, long-term, State-wide effort to redesign current information
systems and move them from State's current hardware and software
resources, which are proprietary, to an open system environment. 
Because these efforts will impact IFMS, State will need to define how
these various improvement efforts will affect or interoperate with
each other.  State estimated that it will cost about $530 million
from fiscal years 1994 through 1998 to (1) replace its proprietary
computer hardware and software with an open system architecture and
(2) transition from its existing systems to this open architecture. 


--------------------
\1 The bureaus within State include the Executive Secretariat, the
Bureau of Finance and Management Policy, Bureau of Intelligence and
Research, Bureau of Consular Affairs, Bureau of Personnel, Bureau of
Diplomatic Security/Office of Information Security Technology, and
regional and policy bureaus such as the Bureau of African Affairs,
Bureau of East Asian and Pacific Affairs, and Bureau of European and
Canadian Affairs. 

\2 Financial Management:  Serious Deficiencies in State's Financial
Systems Require Sustained Attention (GAO/AFMD-93-9, November 13,
1992). 

\3 United States Senate Committee on Governmental Affairs Hearings on
the Chief Financial Officers Act, July 28, 1994. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To assess whether State is effectively planning for and managing the
IFMS effort, we first reviewed State's past three reports prepared
pursuant to FMFIA, as well as audit reports prepared by GAO and
State's Inspector General, to identify the material financial
management weaknesses that State needs to address and solve.  We also
reviewed system plans submitted to the Office of Management and
Budget (OMB) pursuant to the CFO Act to identify State's current
financial management structure. 

In addition, we reviewed the information strategy plans supporting
documentation prepared by State's Office of Financial Management and
Bureau of Personnel to determine State's

  target IFMS financial management structure, including all
     subsidiary systems that will support IFMS;

  plans and timetables for building the target financial management
     structure, including (1) existing subsidiary systems to be
     incorporated into the target structure, (2) existing systems
     that after modification will be incorporated into the target
     structure, and (3) subsidiary systems that need to be designed,
     developed, and implemented; and

  plans to (1) implement Treasury's standard general ledger, (2)
     produce auditable financial statements, and (3) solve State's
     current material internal control and financial management
     weaknesses through the target IFMS financial management
     structure. 

Finally, we reviewed the minutes from State's steering committees to
determine (1) the extent of top management oversight and leadership
over the life cycle of these projects and (2) whether State acted to
ensure that identified material internal control and financial
management weaknesses are corrected. 

To carry out our review objectives, we based our work on GAO's draft
review methodology entitled, GAO Information Resources Management
Audit and Review Methodology--A Guide for Reviewing Information
Management and Technology Issues in the Federal Government. 

We conducted our review from October 1993 to June 1994, in accordance
with generally accepted government auditing standards.  Our work was
completed at State's headquarters office and at various State offices
in the metropolitan Washington, D.C., area. 

As requested, we did not obtain agency comments on a draft of this
report.  However, at the end of fieldwork, we discussed the report's
findings and conclusions with the Under Secretary for Management and
the Deputy CFO.  Generally these officials agreed with the matters
discussed in this report.  Their views have been incorporated where
appropriate. 


   STATE'S PLANNING AND MANAGEMENT
   OF IFMS IS INADEQUATE
------------------------------------------------------------ Letter :4

When State began initial planning for IFMS, it recognized that in
order to resolve its serious financial management weaknesses, it
would need a worldwide system that integrated information from its
various bureaus and offices.  However, State's planning and
management of IFMS have been inadequate, increasing the risk that
IFMS will not resolve long-standing financial management and internal
control problems. 


      STATE HAS NOT ESTABLISHED
      TARGET STRUCTURE FOR IFMS OR
      DEFINED HOW IT WILL
      INTEGRATE WITH OTHER SYSTEMS
---------------------------------------------------------- Letter :4.1

In our November 1992 report,\4 we stated that for IFMS to succeed,
State needed to clearly define the system's hardware, software, and
communication structure.  We also noted that, ultimately, financial
information in both financial and program systems would need to be
compatible and linked together, to ensure that reported information
was complete and reliable. 

In the report, we stated that State should develop a plan that
discusses how (1) links will be established between its accounting
and budget information, (2) programmatic and financial systems will
be integrated, and (3) FMFIA reported weaknesses will be addressed. 
We also reported that the plan should include a written description
that identifies the anticipated financial management structure,
individual systems and subsystems that will support the structure,
financial information that will be produced, and the proposed flow of
information among the systems. 

State, however, has not developed a strategic plan that establishes a
target structure for IFMS or that defines how IFMS will integrate
with

  the different offices' and bureaus' subsidiary systems from which
     it will exchange information and

  other State-wide improvement efforts that will be coordinating with
     IFMS. 

State currently has five major system plans.  None of these plans
address agencywide needs and issues, tie ongoing system development
efforts together, or address all of State's FMFIA reported financial
management weaknesses.  For example, although the 5-year financial
management plan, prepared to meet CFO requirements, contained system
milestones for implementing IFMS, it did not describe State's
financial management processes or identify which subsidiary systems
will be included in IFMS.  Moreover, the information strategy plan
for IFMS did not identify the subsidiary systems that will be needed
or discuss how the FMFIA financial management weaknesses will be
addressed.  Instead, the plan acknowledged State's problems,
established a work plan to further study these problems, and
initiated seven pilot projects aimed at demonstrating the viability
of reengineering techniques and the use of computer-assisted software
engineering tools. 

During initial planning for IFMS, State said that the system would
function as a general ledger summary system (that is, it would record
summary financial information from the various subsidiary systems
that are used in the bureaus and offices).  These subsidiary systems,
which perform both financial and programmatic functions, would, in
turn, be responsible for recording day-to-day transactions. 
Consequently, one of the key issues facing State, and an integral
facet if State is to eliminate its financial management weaknesses,
is deciding how these subsidiary systems will be integrated with
IFMS. 

The IFMS project director agreed that to fully address State's
financial management weaknesses, all of State's detailed subsidiary
systems will need to be redesigned and integrated with IFMS. 
However, State was unable to provide us with any documentation that
discussed how and when the subsidiary systems will be redesigned and
linked to IFMS.  State officials told us that the only documentation
on these topics had been generated by three steering committees.  We
reviewed all the documentation from these steering committees and
found that most of the committee discussions focused on resolving
system specific concerns, such as contracting issues, system
development approaches, and State's migration from proprietary
hardware and software to an open system architecture.  Little mention
was given to integrating the various systems or resolving State's
long-standing financial management problems. 

Until State identifies the subsidiary systems that will be integrated
with IFMS and defines how this integration will occur, IFMS will not
correct State's identified financial management weaknesses.  For
instance, as shown in table 1, IFMS, as currently planned, will only
fully address one financial management weakness and will partially
address eight others.  To fully address all of the financial
management weaknesses, State is planning for other subsidiary systems
to be integrated with IFMS; however, none of these subsidiary systems
have been defined. 



                                     Table 1
                     
                       Reconciliation of IFMS Project With
                        FMFIA Reported High-risk Areas and
                     Material Internal Control and Accounting
                      System Weaknesses Related to Financial
                                    Management

FMFIA Material Internal                                           Additional
Control and Accounting                    IFMS Will   IFMS Will   System Project
System Areas of Material  IFMS Will       Partially   Not         Not Yet
Weaknesses                Fully Address   Address     Address     Defined
------------------------  --------------  ----------  ----------  --------------
Foreign currency                          X                       X
management

Foreign affairs                           X                       X
administrative support
system

Payroll internal control                  X                       X
weaknesses

Real and personal                         X                       X
property accountability
and control weaknesses

Major acquisition                                     X           X
weaknesses

Employee travel and item                              X           X
transportation
weaknesses

Sales proceeds                            X                       X
accountability problems

Disbursing and                            X                       X
cashiering weaknesses

Financial and accounting  X
system weaknesses

Collection of                             X                       X
receivables

Working capital fund                      X                       X
problems
--------------------------------------------------------------------------------
The importance of defining and integrating IFMS with subsidiary
systems can be illustrated with two examples from State's Office of
Foreign Buildings Operations (FBO).  FBO operates a system--the Real
Estate Management System (REMS)--to help it manage State's various
overseas real estate properties.  This system will have to provide
summary information to IFMS when fully implemented.  However, FBO
does not currently record all financial transactions for foreign
buildings in REMS because State has not defined which transactions
should be considered as routine maintenance, and thus accounted for
as an expense, and which should be capitalized--added to State's
investment in buildings and depreciated.  State will need to make
these types of decisions, prior to implementing IFMS. 

State will also need to determine what functions IFMS needs to
provide to help FBO account for its property transactions.  FBO
currently does not rely on CFMS to account for, control, and manage
its appropriated funds and related financial transactions because
CFMS cannot summarize and report these transactions by (1) project
(individual building), (2) function (architectural study), or (3)
object class (salaries).  To compensate, FBO has developed and uses
its own accounting system to produce financial reports according to
these three categories.  For IFMS to be successful, State will need
to determine what functions IFMS must provide to meet FBO's needs. 

An additional problem facing State as it redesigns and integrates its
various subsidiary systems is that the responsibility for these tasks
will rest with the different bureaus and offices that developed and
operate the systems.  However, as discussed later in this report,
State does not have anyone with agencywide authority and
responsibility for overseeing these bureaus' and offices' development
efforts.  Consequently, State cannot ensure that the systems will be
redesigned and integrated into IFMS.  Unless State establishes an
organizational focal point with the responsibility and authority to
ensure that all system projects are coordinated, there is little
assurance that State will be able to change its long-standing, ad
hoc, office-to-office, bureau-to-bureau, approach to systems
development, thus rendering IFMS incapable of serving State-wide
goals. 

This problem could at least be partially overcome if the various
bureaus and offices were involved in the planning for IFMS.  However,
representatives from some of the bureaus and offices told us that the
IFMS project team had only limited discussions with them regarding
how IFMS would interface with their financial management systems and
that these discussions occurred after the IFMS information strategy
had already been issued.  The representatives noted that they had
initial meetings with the IFMS project team in August 1993 and
additional meetings in February and March 1994.  However, IFMS
project planning occurred between October 1992 and May 1993, and the
IFMS information strategy plan was issued in May 1993--3 months
before the initial meetings with these representatives. 


--------------------
\4 (GAO/AFMD-93-9, November 13, 1992). 


      STATE DOES NOT KNOW ITS
      EXISTING SYSTEM STRUCTURE
---------------------------------------------------------- Letter :4.2

Another problem facing State as it plans for IFMS is that no one
within the Department has fully identified and reconciled the
different financial management systems that are being used at State,
what problems these systems may have, and what systems development
projects are ongoing.  Without this information, State cannot define
the body of work that will be required for IFMS. 

Various State headquarters offices have conducted inventories of
financial systems as part of preparing financial management and
systems planning and reporting documents.  Because the purpose of
these inventories was similar--defining State's current financial
management systems as a starting point for planning system
processes--the number of financial systems should be fairly
consistent.  However, as shown in table 2, the reported number of
financial systems varied widely, ranging from 10 to 76 systems,
depending on when the inventory was done and who performed it. 



                           Table 2
           
               State's Inventories of Financial
                      Management Systems

                                                   Number of
                                                   Financial
                                                     Systems
Planning and Reporting Document             Date  Identified
----------------------------------------  ------  ----------
Revised OMB Circular A-127 report           2/94          36
Open systems migration implementation      11/93          10
 plan
OMB Circular A-127 report                   9/93          59
IFMS information strategy plan              5/93          52
IFMS preliminary transition plan            2/93          76
------------------------------------------------------------
Even though the number of systems identified should be fairly
consistent, they are not, because each office had a separate
definition of what functions constitute a financial management
system.  For example, 3 of the 36 financial management systems on
State's revised OMB Circular A-127 report, which was prepared by the
Office of the Chief Financial Officer, were shown as accounting for,
controlling, and reporting on personal property.  However, State
officials responsible for personal property management told us that
State has nine manual or automated personal property systems. 

The IFMS project director agreed that State does not have an accurate
representation of how many financial management systems the
Department is currently using.  At our request, the IFMS project team
conducted an inventory of financial management systems and reported
in April 1994 that State was using 33 systems.  The team also
acknowledged that there could be other systems within the bureaus and
offices that could help meet IFMS requirements.  In essence, State
has not thoroughly analyzed its existing systems that process
financial data throughout the Department. 

State also has a host of systems development projects that the
bureaus and offices, as well as various improvement groups, are
continuing to pursue.  However, no one within State has identified
all of these projects in order to define the body of work underway. 
Such a definition is necessary to guard against duplication of
effort, establish how current and future projects will tie together,
and determine what other projects still need to be undertaken. 

We asked senior State Information Management Office and CFO officials
to identify and reconcile the number of system development projects
in process.  They told us that to complete such a reconciliation they
would have to mount an ad hoc effort to ask each of State's domestic
and overseas bureaus and offices to provide a list of their systems
development projects.  In our view, such an effort would be an
important element in determining how and whether all identified
systems and internal control weaknesses were being addressed. 


         NO ONE HAS AGENCYWIDE
         AUTHORITY AND
         RESPONSIBILITY TO OVERSEE
         CURRENT SYSTEMS AND
         DEVELOPMENT PROJECTS
-------------------------------------------------------- Letter :4.2.1

One of the primary reasons State does not know how many financial
systems or development projects it has is that no one has agencywide
authority or responsibility for overseeing all systems or development
projects.  In our December 1992 transition series report on
information management and technology issues,\5 we pointed out that a
strong IRM organization is an indispensable partner in helping agency
leaders work through a top-down analysis of business processes and
determine where strategic information technology investments need to
be made.  We also noted that too often poor IRM organization leads to
the failure of top management and IRM staff to work together in
developing an effective strategic technology plan.  This plan, which
maps out how the agency will get from where it is to where it wants
to be, is the linchpin that aligns an organization's business needs
with its information resources.  We noted that without this
partnership between the IRM organization and top management, what an
agency frequently presents as a strategic technology plan is merely a
listing of ongoing acquisitions. 

The importance of this partnership is recognized in the Paperwork
Reduction Act, which requires federal departments and agencies to
designate a senior official for information resources management. 
This official is to report to the agency head and, in essence, is
charged with ensuring that the agency carries out its information
activities in an efficient, effective, economical manner. 

In our report, we pointed out that few agencies have organized
themselves in such a way to help ensure success.  Too often, the
senior-level IRM official is a titular figure, without experience in
information management and burdened with major responsibilities in
other areas.  This individual also does not have adequate
organizational visibility and authority to ensure that program
offices are best using technology, both in meeting their own needs
and the agency's corporate information needs.  We cautioned that
without strong corporate IRM leadership and planning, program staff
may develop systems that meet their own requirements, but that
conflict with the broader information needs of the organization. 

This is essentially the situation we see at State.  State's Assistant
Secretary, Bureau of Administration, is the designated senior IRM
official for State.  In addition to this responsibility, the
Assistant Secretary is also responsible for a range of other
activities, including all administrative functions of the Department
and managing the operations of FBO.  Reporting to the Assistant
Secretary is the Deputy Assistant Secretary for Information
Management, who heads State's Office of Information Management and
carries out the day-to-day management and oversight of IRM activities
at State.  However, the Assistant Secretary, through the Office of
Information Management, only has cognizance over State-wide automated
systems, called corporate systems.  As we noted earlier, this Office
does not have cognizance over systems that are developed and
implemented by the various bureaus and offices. 

In addition to the Assistant Secretary and the Office of Information
Management, State has three major steering committees and a working
level group that include CFO, IRM, and program representatives: 

  the Modernization Steering Committee, chaired by the Deputy
     Assistant Secretary for Information Management, responsible for
     overseeing State-wide corporate system projects;

  the IFMS Steering Committee, headed by the Deputy Chief Financial
     Officer, responsible for overseeing the IFMS project;

  the Personnel Information Strategy Planning Committee, headed by
     the Deputy Assistant Secretary for Personnel, responsible for
     overseeing the Bureau of Personnel's business reengineering
     efforts; and

  the Joint Bureau Group, headed by the Director, Office of
     Development, responsible for resolving technical system design
     and development problems with regards to system initiatives for
     State's corporate systems. 

These committees and the working group serve a useful purpose in
helping State oversee individual projects; however, they are not a
substitute for having someone with agencywide responsibility and
authority for all systems and development projects.  None of the
groups have State-wide budgetary and organizational authority for all
system initiatives at individual bureaus and offices.  Instead, the
bureaus and offices are continuing to pursue and develop systems
projects on their own.  As a result, State cannot ensure that its
improvement efforts will (1) correct known agencywide weaknesses, (2)
identify and meet managers' future information needs, and (3) realize
the best return possible on State's investment in information
systems. 

We recently studied several leading public and private organizations
to determine how they used information management to improve mission
performance.\6 One of the key tenets of their success was creating a
management structure that had enterprisewide responsibility and
authority for overseeing major system development projects.  This
structure included top executives, line managers, and information
management specialists to ensure that information systems projects
effectively supported the organization's business goals and fully met
managers' information needs.  For example, these organizations

  established an organizationwide information management steering
     committee chaired by the chief executive and led by senior line
     management,

  identified an executive-level sponsor for each major information
     systems project, and

  recruited or promoted a qualified professional to serve as a Chief
     Information Officer (CIO) with the responsibility and authority
     to manage and control system improvements organizationwide. 

In this regard, in our January 1994 testimony, we called for the
establishment of a chief information officer at each agency to (1)
work with agency senior management to define strategic information
management priorities and (2) support program officials and the CFO
in defining information needs and developing strategies, systems, and
capabilities to meet those needs.\7


--------------------
\5 GAO/OCG-93-5TR, December 1992. 

\6 Executive Guide:  Improving Mission Performance Through Strategic
Information Management and Technology--Learning From Leading
Organizations (GAO/AIMD-94-115, May 1994). 

\7 Statement of Charles A.  Bowsher, Comptroller General of the
United States, before the Committee on Governmental Affairs, U.S. 
Senate, entitled Improving Government:  Actions Needed to Sustain and
Enhance Management Reforms, GAO/T-OCG-94-1. 


   FULL SCOPE OF STATE'S RFP IS
   PREMATURE
------------------------------------------------------------ Letter :5

Despite the system development planning and management problems we
identified, in December 1993, State issued an RFP to determine
detailed system requirements for IFMS; design, develop, test, and
implement a system to meet these requirements; and maintain and
enhance IFMS as additional requirements are identified.  The RFP also
called for maintaining the current systems until IFMS was fully
deployed.  State expects to select a vendor in September 1994. 
However, State is not ready to award a comprehensive contract to
build IFMS because (1) it has not yet defined IFMS' functionality or
structure nor how it will integrate with other systems and
improvement efforts and (2) the statement of work does not accurately
identify which systems will have to be maintained or enhanced under
the contract. 

The inventory of financial management systems required to be
maintained or enhanced under the RFP is inconsistent with the most
recent inventory of financial management systems, as well as any
other inventory of systems.  The RFP lists 31 systems and 41
subsystems, while the IFMS project team's April 1994 inventory showed
33 systems but no subsystems.  Further, only 11 of the systems in the
RFP are included in the April 1994 inventory.  Without an accurate
description of its current system structure, State has little, if
any, assurance regarding the scope of the work involved. 
Consequently, State may contract for work that is unnecessary or
duplicative and that further wastes State's system resources. 

A senior State official said that the RFP covers not only work for
the design and implementation of IFMS, but also work to keep State's
current accounting systems operating while IFMS is being built.  This
official agreed that work on IFMS should not be contracted for until
all of IFMS' requirements are defined and State has an organizational
structure in place to manage the project.  The official stated,
however, that State should be allowed to enter into contractual
arrangements under the RFP to keep current systems operating and to
start work on projects that address high-risk areas where all
requirements have been clearly defined. 

We agree that State may need some means to contract for maintenance
and to proceed with projects that address high-risk areas, provided
that requirements for these projects have been completely defined. 
However, entering into a contractual arrangement for the full scope
of work in the existing RFP is premature. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

State has recognized that it has serious internal control and
financial management problems, and it has set out on the path to
change.  However, State has not yet positioned itself to make any
substantive changes.  Without an overall management structure and
agencywide information strategy plan to guide the development of
IFMS, State runs a high risk of perpetuating its long-standing
financial management problems, detracting from its ability to meet
CFO Act goals of producing auditable financial statements and
implementing the standard general ledger, and depriving its managers
of the information they need to support effective decision-making. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of State

  develop a comprehensive agencywide information strategy plan that
     describes a target structure for IFMS, establishes what systems
     will be included in IFMS, defines how these systems will be
     integrated within the target structure, and describes how IFMS
     relates to State's other improvement efforts;

  establish an agencywide IRM management leadership structure to
     oversee all agency system improvement initiatives and to provide
     short and long-term support, direction, and oversight; and

  defer entering into contractual arrangements for the full scope of
     work under the RFP for the IFMS initiative until State (1)
     articulates how IFMS will solve long-standing internal control
     and financial management systems weaknesses and (2) establishes
     detailed requirements for individual system development projects
     to address high-risk areas. 


---------------------------------------------------------- Letter :7.1

As agreed with your staff, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from its issue date.  At that time, we will send copies of this
report to the Secretary of State; the Director, Office of Management
and Budget; and other interested congressional committees.  Copies
will also be made available to others upon request. 

Please contact me at (202) 512-6194 if you or your staff have any
questions.  Other major contributors are listed in appendix II. 

Sincerely yours,

David O.  Nellemann
Director, Information Resources Management/
 National Security and International
 Affairs


HIGH-RISK AREAS AND MATERIAL
INTERNAL CONTROL WEAKNESSES
REPORTED IN STATE'S DECEMBER 30,
1993, FMFIA REPORT
=========================================================== Appendix I

FOUR HIGH-RISK AREAS

  Immigrant and nonimmigrant visa fraud

  Financial and accounting systems

  Worldwide disbursing and cashiering

  Information management:  modernization, contingency planning, and
     mainframe security

NINETEEN MATERIAL INTERNAL CONTROL
WEAKNESSES

  Immigrant and nonimmigrant visa processing

  Worldwide disbursing and cashiering

  Information management--contingency planning

  Information management--modernization

  Information management--mainframe security

  Rehabilitation and maintenance of real property, overseas

  Inadequate administrative staffing, overseas

  The passport process

  Foreign currency management

  Foreign affairs administrative support system

  Personal property management

  Accounting for proceeds of sales

  Commercial payment process

  Accounting for travel advances

  Management of major acquisitions

  Unreconciled payroll accounts

  Accounting for the working capital fund

  Accounting for receivables

  End-use compliance checks


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Ernst F.  Stockel, Assistant Director
Harold P.  Santarelli, Senior Auditor-in-Charge


RELATED GAO PRODUCTS
=========================================================== Appendix 0

State Department:  Widespread Management Weaknesses at Overseas
Embassies (GAO/T-NSIAD-93-17, July 13, 1993). 

Financial Management:  Serious Deficiencies in State's Financial
Systems Require Sustained Attention (GAO/AFMD-93-9, November 13,
1992). 

State Department:  Efforts Underway to Enhance Management of Overseas
Real Property (GAO/NSIAD-91-277, September 5, 1991). 

Financial Management:  Problems in Accounting for DOD Disbursements
(GAO/AFMD-91-9, November 9, 1990). 

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