Overseas Presence: State and USAID Should Adopt a Comprehensive  
Plan to Improve the Consolidation of Overseas Support Services	 
(08-SEP-06, GAO-06-829).					 
                                                                 
The Department of State (State) has embassies in about 180	 
countries, and the U.S. Agency for International Development	 
(USAID) maintains missions in about 90 of those countries. At	 
many posts, State and USAID are located on separate compounds and
maintain multiple support service operations, such as warehouses.
However, the United States is in the process of building new	 
embassy compounds that will collocate all agencies, creating	 
opportunities for greater sharing of services. In September 2004,
we recommended that State pursue the elimination of duplicative  
support structures at overseas facilities. We reviewed (1) the	 
status of State and USAID's joint initiative to consolidate	 
overseas services, and plans for advancing the initiative; and	 
(2) the challenges State and USAID face in these efforts.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-829 					        
    ACCNO:   A60484						        
  TITLE:     Overseas Presence: State and USAID Should Adopt a	      
Comprehensive Plan to Improve the Consolidation of Overseas	 
Support Services						 
     DATE:   09/08/2006 
  SUBJECT:   Administrative costs				 
	     Agency missions					 
	     Cost analysis					 
	     Cost control					 
	     Embassies						 
	     Federal employees					 
	     Interagency relations				 
	     Lessons learned					 
	     Program evaluation 				 
	     Strategic planning 				 
	     Duplication of effort				 
	     Pilot programs					 
	     Support services					 
	     Cairo (Egypt)					 
	     Dar es Salaam (Tanzania)				 
	     Dept. of State International Cooperative		 
	     Administrative Support Services System		 
                                                                 
	     Jakarta (Indonesia)				 
	     Phnom Penh (Cambodia)				 

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GAO-06-829

     

     * GAO-06-829
          * Table of Contents
          * Letter
               * Results in Brief
                    * Background
                    * State and USAID Have Consolidated Some Services and
                      Plan Add
                         * Pilot Projects Demonstrate Feasibility of
                           Consolidating Over
                         * Results Varied by Post
                              * Phnom Penh
                              * Dar es Salaam
                              * Jakarta
                              * Cairo
                         * State and USAID Learned Lessons from the Pilot
                           Projects
                         * State and USAID Are Expanding Their Efforts to
                           Consolidate S
                         * Some Additional Posts Have Begun to Plan New
                           Consolidation P
                              * Phnom Penh
                              * Jakarta
                              * Nairobi
                              * San Salvador
                              * Managua
                              * Kiev
                              * Tegucigalpa, Pristina, and Cotonou
                    * State and USAID Face Challenges in Expanding
                      Consolidation o
                         * USAID's Concerns about Potential Cost Increases
                              * Posts Lack Reliable Cost Data
                              * Reluctance to Reduce Staff
                              * Communication between Headquarters and Posts
                              * Technical Differences Will Hamper Efforts to
                                Consolidate Ser
                         * State and USAID Need a Comprehensive Plan
                    * Conclusion
                    * Recommendations for Executive Action
                    * Agency Comments and Our Evaluation
          * Appendix I: Posts Where State and USAID Are Currently Colloc
          * Appendix II: Posts Currently Planned for Construction During
          * Appendix III: Results of Workshop on Consolidating Support S
          * Appendix IV: Scope and Methodology
          * Appendix V: Comments from the Department of State
          * Appendix VI: Comments from USAID
          * Appendix VII: GAO Contact and Acknowledgments
               * GAO Contact
               * Staff Acknowledgments
                    * Order by Mail or Phone

                 United States Government Accountability Office

Report to the Chairman, Subcommittee

GAO

on National Security, Emerging Threats and International Relations, Committee on
                  Government Reform, House of Representatives

September 2006

OVERSEAS PRESENCE

 State and USAID Should Adopt a Comprehensive Plan to Improve the Consolidation
                          of Overseas Support Services

GAO-06-829

OVERSEAS PRESENCE

State and USAID Should Adopt a Comprehensive Plan to Improve the
Consolidation of Overseas Support Services

  What GAO Found

State and USAID have demonstrated the feasibility of consolidating
overseas support services and are seeking to expand their efforts. In June
2004, State and USAID initiated pilot projects at four posts to
demonstrate the feasibility of consolidating support services. The four
posts that participated in the pilot successfully consolidated 12 of the
16 support services, such as residential property maintenance, and
reported operational efficiencies and costs avoided. For example, Dar es
Salaam eliminated several positions and Phnom Penh improved motor pool and
housing procedures. State and USAID learned valuable lessons from the
pilot projects. They have directed posts to begin the process of
identifying duplicative services and initiating consolidation efforts. As
of July 2006, nine posts had responded, but only one had advanced beyond
the planning stage.

The two agencies face several challenges in consolidating services at
posts. The challenges include the need for State and USAID in Washington
and at posts to address concerns that USAID's costs may increase if
services are consolidated, develop better cost and performance data,
reduce the number of locally employed staff and reduce or replace U.S.
direct hires with locally employed staff, communicate better, and resolve
technical differences. During our work, State and USAID took steps to
address some of these challenges. For instance, in June 2006, the two
agencies produced a draft strategy that defines broad goals and sets forth
a common vision-to combine at collocating posts all State and USAID
services into a single administrative structure and reduce the number of
U.S. direct hire personnel. This is a positive step. However, our analysis
of the draft strategy shows that it does not include a plan that details
milestones, specific goals, timelines, and performance measures or
accountability mechanisms to demonstrate results.

State and USAID Collocated Posts, Fiscal Years 2006-2011

United States Government Accountability Office

Contents

Letter 1

Results in Brief 3

Background  4

State and USAID Have Consolidated Some Services and Plan Additional
Consolidations 8

State and USAID Face Challenges in Expanding Consolidation of Support
Services 19

Conclusion 27

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 27

Appendix I Posts Where State and USAID Are Currently Collocated

Appendix II Posts Currently Planned for Construction During

Fiscal Years 2006-2011 Where State and USAID

Will be Collocated

Appendix III Results of Workshop on Consolidating Support Services

Appendix IV Scope and Methodology

Appendix V Comments from the Department of State

Appendix VI Comments from USAID

Appendix VII GAO Contact and Acknowledgments

 Table  
        Table 1: Results of Pilot Services Consolidation Project, June 2004
        October 2005                                                     10 
Figures                                                                  
        Figure 1: Posts Where State and USAID are Collocated or Will be  
        Collocated Based on Current Construction and USAID               
        Deployment Plans, Fiscal Years 2006-2011                         6  
        Figure 2: The Location of State and USAID on the New Embassy     
        Compound in Dar es Salaam                                        7  

    Abbreviations

ICASS International Cooperative Administrative Support Services 
OMB   Office of Management and Budget                           
USAID U.S. Agency for International Development                 

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separately.

United States Government Accountability Office Washington, DC 20548

September 8, 2006

The Honorable Christopher Shays Chairman Subcommittee on National
Security, Emerging Threats

and International Relations Committee on Government Reform House of
Representatives

Dear Mr. Chairman:

The Department of State (State) has embassies in about 180 countries, and
the U.S. Agency for International Development (USAID) maintains missions
in about 90 of these countries. At many overseas posts, State and USAID
are located on separate compounds and maintain multiple warehouses, motor
pools, and other support service operations. However, the United States is
in the process of building new embassy compounds that will collocate all
agencies, including State and USAID, under the authority of a chief of
mission, creating opportunities for greater sharing of services. 1 In
September 2004, we recommended that State aggressively pursue the
elimination of duplicative support structures at overseas facilities with
the goal of limiting each service to the one provider best able to provide
a quality service at the lowest possible price. 2 Further, the President
has emphasized the importance of safety, efficiency, and accountability in
U.S. government staffing overseas by designating the achievement of a
"rightsized" overseas presence as part of the President's Management
Agenda. 3 One of the elements of rightsizing is to eliminate and
consolidate duplicative services. State and USAID have initiated an

1

The Secure Embassy Construction and Counterterrorism Act of 1999, Pub. L.
106-113, Appendix G, Div. A, Title VI, sec. 606(a)(2) generally requires
all agencies under the authority of a chief of mission to be collocated on
new embassy compounds.

2GAO, Embassy Management: Actions Are Needed to Increase Efficiency and
Improve Delivery of Administrative Support Services, GAO-04-511
(Washington, D.C.: September 7, 2004).

3

Office of Management and Budget, President's Management Agenda, Fiscal
Year 2002 (Washington, D.C.: August 2001). The President's Management
Agenda is a set of management initiatives designed to make government more
effective and efficient. Rightsizing is a concept that refers to having
the right number of staff at overseas posts with the necessary resources
and expertise to accomplish U.S. policy objectives.

effort to eliminate and consolidate duplicative services at posts with
both a State and USAID presence, starting with pilot projects at four
posts.

This report examines (1) the status of State and USAID's joint initiative
to consolidate overseas services, and plans for advancing the initiative;
and

(2) the challenges that State and USAID face in consolidating services at
posts. This report is one of three recent reports that address your
interest in rightsizing the U.S. presence abroad. The other two reports
discussed State's initiative to provide support services remotely 4 and
the U.S. government's overall effort to rightsize its presence overseas. 5

To address our objectives, we reviewed plans and studies describing
State's and USAID's efforts to consolidate services. We also met with
officials of several State and USAID regional and functional bureaus, as
well as private and public sector organizations with knowledge of or
firsthand experience consolidating and providing shared services. In
January and February 2006, we conducted fieldwork at three posts that
participated in the pilot projects-Cairo, Egypt; Dar es Salaam, Tanzania;
and Phnom Penh, Cambodia-and held a teleconference with the fourth-
Jakarta, Indonesia. We also conducted fieldwork in Nairobi, Kenya, a post
that is planning to consolidate State and USAID services. We obtained and
analyzed studies documenting the results of the pilot projects and lessons
learned, as well as the challenges encountered by State and USAID. We also
reviewed numerous studies documenting consolidation and shared services
lessons learned and benefits, and we convened a workshop in May 2006
consisting of State and USAID officials, as well as two experts on
governance and shared services, to further discuss and analyze these
lessons in the context of State's and USAID's initiative. This workshop
not only provided participants with an opportunity to discuss and learn
from similar private and public sector efforts to consolidate support
services, but also provided us with the context for framing our
recommendations. Appendix III contains the results of our workshop. We
performed our work from November 2005 through July 2006 in accordance with
generally accepted government auditing standards. (See app. IV for a more
complete discussion of our scope and methodology).

4GAO, Overseas Presence: Cost Analyses and Performance Measures are Needed
to Demonstrate Full Potential of Providing Embassy Support Remotely,
GAO-06-479 (Washington, D.C.: May 2, 2006).

GAO, Overseas Staffing: Rightsizing Approaches Slowly Taking Hold but More
Needs to Be Done, GAO-06-737 (Washington, D.C.: June 28, 2006).

      Page 2 GAO-06-829 Overseas Consolidation

  Results in Brief

State and USAID have demonstrated the feasibility of consolidating
overseas support services and are seeking to expand their efforts. In June
2004, State and USAID initiated pilot projects at four posts to
demonstrate the feasibility of consolidating support services. The four
posts that participated in the pilot-Cairo, Egypt; Dar es Salaam,
Tanzania; Phnom Penh, Cambodia; and Jakarta, Indonesia-successfully
consolidated 12 of the 16 support services targeted, such as residential
property maintenance, and reported operational efficiencies and costs
avoided. For example, Phnom Penh used the consolidation as an opportunity
to improve standard operating procedures for motor vehicle and housing
services. Dar es Salaam eliminated several positions and replaced a U.S.
direct hire position with an eligible family member position. 6 State and
USAID learned valuable lessons from the pilot projects and are expanding
their efforts to consolidate services at other posts. In December 2005,
State and USAID directed posts to begin the process of identifying
duplicative services and initiating consolidation efforts. As of July
2006, nine posts had responded, but only one had advanced beyond the
planning stage.

State and USAID face several challenges in consolidating services at all
posts. The challenges include the need for State and USAID in Washington
and at posts to address concerns that USAID's costs may increase if
services are consolidated, in part because of embassies' reliance on
higher-cost U.S. direct hire staff, 7 even though overall U.S. government
costs will decrease; develop better cost and performance data; reduce the
number of locally employed staff and reduce or replace U.S. direct hire
staff with locally employed staff who are less expensive to employ;
communicate better; and resolve technical differences. During the course
of our work, State and USAID have taken steps to address some of these
challenges. For instance, in April 2006, State took steps to encourage the
regional bureaus to replace U.S. direct hires with locally employed staff.
In addition, in June 2006, the two agencies produced a draft strategy that
defines broad goals and sets forth a common vision-to combine at
collocating posts all common State and USAID services into a single
administrative structure and reduce the number of U.S. direct hire

6

An eligible family member lives with a U.S. direct hire staff person at
post. State uses eligible family members to fill a variety of positions.
According to State officials, hiring an eligible family member often can
result in savings because State does not have to pay for many of the costs
associated with supporting the U.S. direct hire staff person, such as the
cost of schooling for dependent children.

7See GAO-04-511 for a fuller explanation of how costs for overseas posts'
administrative services have increased.

personnel. These are positive steps. However, our analysis of the draft
strategy shows that it does not include a plan that details milestones,
specific goals, timelines, and performance measures or accountability
mechanisms to demonstrate results.

We are recommending that the Secretary of State, in conjunction with the
USAID Administrator, designate overseas services consolidation a priority
and develop a comprehensive plan that provides a detailed picture of the
desired end state and defines timelines, performance and accountability
measures, and results-oriented criteria for success. We are also
recommending that State and USAID set timelines for accomplishing the
standardization of State's and USAID's policies, procedures, and systems.

State and USAID agreed with the report and our recommendations and said
that they are actively working to consolidate overseas support services.

Background

The operation of U.S. embassies requires basic support services for
overseas personnel, such as motor pool, residential property leasing,
warehousing, and others. Many non-State government agencies, including
USAID, operate overseas under the authority of a chief of mission and
require such services. Under a State Department-administered system known
as the International Cooperative Administrative Support Services (ICASS)
system, the costs of support services are divided among agencies that have
personnel at post and representatives of participating agencies are part
of a council that tracks and evaluates service provider performance. While
many agencies participate in ICASS, it is for the most part a voluntary
system; agencies can opt out of all but two services. 8 Reasons for doing
so can include a desire to retain control over service providers, an
agency's belief that costs can be minimized by providing the services
itself, or because the agency is not located on the main embassy complex.
For these and other reasons, at many overseas locations, agencies maintain
multiple warehouses, motor pools, procurement operations, and other
services. USAID, for example, provides its own services in many of the
approximately 90 countries where it has a

8

These include services that can only be obtained by the embassy, such as
securing diplomatic credentials from the host country and services
provided by the post's Community Liaison Office, such as providing
welcoming and orientation materials, and helping to enroll dependent
children in education programs.

Page 4 GAO-06-829 Overseas Consolidation

presence. At some posts, USAID is the largest agency that maintains its
own separate, sometimes duplicative, support services.

State plans to construct 65 new embassies and consulates over the next 6
fiscal years and State and USAID will be collocated at 37 of these
locations, providing considerable opportunities for consolidating the
agencies' services. 9 For instance, the new embassy office compound in
Addis Ababa, Ethiopia, slated for construction in fiscal year 2007, will
provide space for both State and USAID. Figure 1 shows the posts where
State and USAID are collocated and will be collocated over the next 6
years, based on current embassy construction plans and USAID deployment
plans. Figure 2 shows the new embassy compound in Dar es Salaam, where
State and USAID are now collocated. Appendix I provides a listing of the
44 posts where State and USAID are currently collocated, and Appendix II
provides a listing of the 37 posts planned for construction during fiscal
years 2006-2011 where State and USAID will be collocated, based on current
construction and USAID deployment plans.

Total cost over the life of the program is estimated to be about $21
billion. Under the program, State intends to replace approximately 200
embassies and consulates. According to State officials, the program
envisions spending approximately $1.4 billion per fiscal year for
construction over the next 6 fiscal years.

Page 5 GAO-06-829 Overseas Consolidation

Figure 1: Posts Where State and USAID are Collocated or Will be Collocated
Based on Current Construction and USAID Deployment Plans, Fiscal Years
2006-2011

Countries in which State and USAID are collocated

Source: Department of State.

Figure 2: The Location of State and USAID on the New Embassy Compound in
Dar es Salaam

Source: GAO.

In accordance with the President's National Security Strategy 10 and the
President's Management Agenda, State and USAID have begun to integrate
their operations and management structures, producing for the first time a
joint strategic plan in August 2003. 11 While mindful that the agencies
remain two separate organizations with distinct legislative mandates and
budgets, the goal of the plan is to reduce redundancies and costs where
possible. As such, the plan states that, among other things, State and
USAID will work with the Office of Management and Budget (OMB) and other
U.S. government agencies to align the number and location of staff
assigned overseas with foreign policy priorities, security, and other
constraints. It also calls for State and USAID to jointly review

10

The National Security Strategy of the United States of America
(Washington, D.C.: March 16, 2006). The strategy's goal of enhancing and
transforming key institutions has three priorities, one of which is to
promote State's reorientation toward transformational diplomacy by more
fully aligning the foreign assistance provided by State and USAID.

11

Strategic Plan, Fiscal Years 2004-2009: U.S. Department of State and U.S.
Agency for International Development (Washington, D.C.: August 2003).
State and USAID are currently revising this strategic plan.

their operations at overseas locations and implement pilot projects in
which selected support operations would be combined to reduce costs,
enhance the quality of services provided, or both. As part of a separate
but related effort, State and USAID have begun to consolidate
administrative services at headquarters, including information technology
and financial systems services. In conjunction with rightsizing efforts,
posts receiving a new embassy compound are required to prepare an analysis
of duplicative services and identify opportunities for consolidation.

To develop priorities and implement strategies for the two agencies, and
monitor progress toward the goals articulated in the strategic plan, State
and USAID established a Joint Management Council, cochaired by State's
Undersecretary for Management and USAID's Deputy Administrator. The
council created eight joint State-USAID working groups, one of which was
formed to identify parallel services performed by both State and USAID and
examine the feasibility of consolidating services at selected posts, among
other things. Within State, the congressionally mandated Office of
Rightsizing 12 and the Office of Global Support Services and Innovation
within the Bureau of Administration lead State's efforts to encourage
posts to consolidate services by providing technical services and
direction, including documenting and posting lessons learned on State's
intranet Web site; at USAID, the Office of Overseas Management Support
within the Bureau for Management plays the same role.

  State and USAID Have Consolidated Some Services and Plan Additional
  Consolidations

In June 2004 State and USAID launched pilot projects at four posts to
demonstrate the feasibility of consolidating services. Consolidation
results varied from post to post but overall 12 of 16 targeted services
achieved some level of consolidation. For example, Phnom Penh and Dar es
Salaam merged four services-warehousing, motor pool, residential
maintenance, and leasing. Cairo was the least successful, consolidating
one service, warehouse operations. Jakarta consolidated motor pool,
residential maintenance, and leasing operations, but did not initially
consolidate warehousing. Posts reported some operational efficiencies and
costs avoided, but because of differences in how each post calculated its

12

In fiscal year 2004, Congress mandated the establishment of an Office of
Rightsizing the United States Government Overseas Presence to be
established within the Department of State. The office was directed to
lead the State Department's effort to develop internal and interagency
mechanisms to better coordinate, rationalize, and manage the deployment of

U.S. government personnel overseas, under Chief of Mission authority
(Public Law 108-199, Div. B, Title IV ).

Page 8 GAO-06-829 Overseas Consolidation

benefits, the overall level of cost avoidance and savings was not fully
developed.

State and USAID learned important lessons from the pilot projects,
including the need for posts to determine the scope and pace of
consolidation efforts. State and USAID are expanding their efforts to
consolidate services at other posts. As of July 2006, nine posts had begun
consolidation projects. However, only one had advanced beyond the planning
stage.

    Pilot Projects Demonstrate Feasibility of Consolidating Overseas Support
    Services


Results Varied by Post

With assistance from a private contractor, a joint State and USAID working
group from Washington completed a study in May 2004 examining the
feasibility of consolidating duplicative motor pool, warehouse,
residential maintenance, and leasing services at four posts-Cairo, Egypt;
Dar es Salaam, Tanzania; Phnom Penh, Cambodia; and Jakarta, Indonesia. 13
The goal was to combine the best employees, equipment, and processes from
existing operations to ensure that both agencies and all ICASS customers
benefited from improved services at lower cost to the taxpayer. The study
identified significant advantages to consolidating services, finding in
every case that service levels could be improved and cost could be
reduced. The study also recommended a set of pilot projects for each
location and suggested which of the two service providers- State/ICASS or
USAID-should be the lead service provider but left the final decision up
to the individual posts. According to agency and post officials, the pilot
projects began in June 2004.

As a result of the pilot projects, State and USAID reported that the four
posts had successfully consolidated in full or in part 12 of the 16
services targeted, resulting in operational efficiencies and costs
avoided. The final evaluation of the results of the pilot projects,
completed in October 2005, was based on surveys submitted by the four
pilot posts in June 2005 to the Joint Management Council. However,
post-consolidation customer satisfaction surveys were conducted on only 5
of the services, providing insufficient data to draw reasonable
conclusions about changes in the quality of services provided. Examples of
operational efficiencies identified include

13

In Cairo, State and USAID are located on separate compounds; in Dar es
Salaam, Jakarta, and Phnom Penh, State and USAID are collocated or will
soon be collocated on the same compound.

Page 9 GAO-06-829 Overseas Consolidation

  * Re-engineered business processes and updated standard operating
    procedures. For example, Phnom Penh updated its housing handbook.
  * Better use of workspace. For example, combining the warehouses in Phnom
    Penh resulted in a 40 percent decrease in the amount of space used.
  * Improvements in the competitive position of the U.S. government. For
    example, posts reported that having just one U.S. government provider
    responsible for residential leasing eliminated the competition for
    residences in the local market.
  * Reduced unit costs of service. For example, the unit cost of providing
    residential maintenance in Jakarta-a measure of the cost of maintaining a
    residence or building-decreased from $1.54 a square foot before the pilot
    project to $1.33 per square foot after consolidation occurred.

The pilot posts reported costs avoided of approximately $386,000 stemming
from staff reductions, contract terminations, or other actions. Table 3
summarizes what the pilot posts reported. Dar es Salaam later reported
that as a result of consolidating services, it has decided to replace a
U.S. direct hire position with a position for an eligible family member.
By doing this, post officials in Dar es Salaam estimated that they saved
an additional $300,000.

      Table 1: Results of Pilot Services Consolidation Project, June
      2004-October 2005

Residential Annual cost Motor pool Warehouse Leasing maintenance avoidance

Phnom Penh Consolidated Consolidated Consolidated Consolidated $ 49,000

Dar es Salaam Consolidated Consolidated Consolidated Consolidated $ 42,000

Jakarta Consolidated Not consolidated Consolidated Consolidated $114,885

Total annual cost avoidance $385,885

Source: October 2005 State and USAID evaluation.

a

According to post officials, Cairo decided not to consolidate leasing and
residential maintenance services, in part because of a post analysis that
indicated consolidating these services would not reduce costs. The motor
pools were not merged because the post did not believe this could result
in significant savings.

    Results Varied by Post

Posts' efforts to consolidate services varied. Phnom Penh and Dar es
Salaam were the most successful, consolidating all four services, and
Jakarta consolidated three services. By contrast, Cairo, the largest of
the four pilot posts and one of the largest posts in the world, was only
able to consolidate one service.

Phnom Penh

Phnom Penh successfully merged all four target services and realized
efficiency gains. State and USAID officials described Phnom Penh as the
model project. The post reported that it had reviewed and consolidated all
administrative instructions and standard operating procedures for motor
vehicle services and housing services. In particular, the post updated its
housing handbook, held customer service briefings, and updated its country
clearance cable to ensure that all customers understood the changes in
procedures. The post also reported that it had instituted USAID's best
practice of providing vehicles to the maintenance staff, allowing its four
maintenance teams to operate independently without additional workload for
the motor pool or the need for additional drivers. Moreover, before
consolidation, USAID and State motor pool drivers occupied two separate
offices, but these were consolidated, making better use of existing space
and decreasing utility costs. Additionally, the post reported that leasing
services were improved by establishing a single point of contact for local
landlords with multiple properties under lease to the
U.S. government. Still further, the consolidation of maintenance services
allowed USAID in Phnom Penh to terminate its maintenance shop lease, which
led to savings in utilities and rent expenses. Finally, by consolidating
warehouse operations, the post reported that it had realized gains in
delivery times and a 40 percent decrease in the amount of space used.

Dar es Salaam

Dar es Salaam reported several operational efficiencies and costs avoided
from the pilot project. In leasing, the post reported benefits from the
establishment of a single leasing office and by eliminating in the process
the competition between State and USAID. The post also reported that while
State had lacked an adequate assistant maintenance supervisor before the
consolidation of the residential maintenance function, the acquisition of
a highly qualified supervisor from USAID made the combined section
stronger.

Dar es Salaam initially reported that it had avoided $42,000 in costs by
reducing the number of locally employed staff. However, in our discussions
with post officials we found that it has also replaced a U.S. direct hire
position with an eligible family member position. State's Bureau of
Resource Management has computed the average cost of each overseas
position at $400,000 for fiscal year 2007, including salary, benefits, and
support costs, plus a number of costs that apply only to officials
overseas. It also includes costs for providing a secure building for
officers to work in overseas. By replacing a U.S. direct hire position
with an eligible family member position, post officials estimated that
they saved approximately $300,000, chiefly by not having to pay additional
support costs associated with a U.S. direct hire. For this reason, costs
avoided amounted to approximately $342,000, the most of any pilot post. 14

Jakarta

Jakarta reported that it was able to consolidate three services,
including leasing, and avoid costs of $114,000. However, post staff we
spoke with in February 2006 indicated that in fact leasing had been only
partially consolidated and that while residential leasing was taken over
by USAID, nonresidential leasing had not been consolidated. Nonetheless,
Jakarta reported gaining some efficiencies. For example, driver
utilization-a measure of the amount of time a driver is in use-increased
from below 50 percent before motor pool consolidation to 78 percent after
consolidation. In addition, post staff indicated that dropping a $50,000
residential maintenance contract contributed to cost avoidance.

Cairo

Cairo reported that it avoided $180,000 in costs mainly by
terminating the USAID warehouse contract. State/ICASS took over the
management of both warehouses, increasing its inventory by 50 percent but
leaving the number of staff the same. Because the USAID and State
warehouse buildings are adjacent to one another, placing them under a
single management structure was a priority. However, although State/ICASS
now oversees warehouse activities for both agencies, operations are not
fully integrated. USAID still has a separate building and post officials
maintained that the separate building is necessary for keeping track of
its inventory, some of which legally must be used only to support
development activities in Egypt and therefore cannot be merged with
State's inventory. State officials contend that effective monitoring would
address the issue and that further efficiencies could be gained by
combining warehouse space.

Cairo did not consolidate the other targeted services for two main
reasons. First, the two agencies are in separate, very distant compounds.
While the embassy is located in central Cairo, USAID's building is in a
suburb of the

14

OMB's estimate of the average cost across all agencies of having one U.S.
direct hire overseas for 2007 is $491,000, including direct and indirect
personnel costs.

Page 12 GAO-06-829 Overseas Consolidation

city. Second, the post reported that merging leasing, residential
maintenance, and motor pool services would not result in benefits. Cairo's
ICASS Council, which includes management officers and support services
personnel from both agencies, analyzed these services as candidates for
consolidation. It found no evidence that cost avoidance, improvement in
service, or change in staffing levels could be achieved, and therefore
recommended they remain separate. However, post officials also cautioned
that their data was imprecise and was derived from proxies or rough
extrapolations. In addition, State officials questioned the post's
conclusion that consolidating services would not reduce costs or result in
operational efficiencies, suggesting that the post had not explored the
full potential. Moreover, State officials suggested that other services
might be candidates for consolidation, including travel services and human
resource services for locally employed staff.

                   Page 13 GAO-06-829 Overseas Consolidation

State and USAID Learned Lessons from the Pilot Projects

State and USAID have learned some important lessons from the pilot                                      
projects. These lessons were partially detailed in the October 2005 Joint                              
Management Council evaluation, which included a number of recommendations
to improve the initiative, some of which have been implemented. They included
the following:            

                        o Posts, not Washington, should decide whether to     
                          consolidate services                                
                          sequentially or simultaneously. During the pilot    
                          program, Washington                                 
                          made many of the key decisions, according to post   
                          officials in Jakarta,                               
                          Cairo, and Dar es Salaam. In addition, posts        
                          reported that it was much                           
                          easier to consolidate services sequentially. More   
                          recently, many of the key                           
                          decisions about consolidating services, including   
                          whether or not to                                   
                          consolidate services sequentially or                
                          simultaneously, have been left to post              
                          officials. Nairobi, for example, has chosen to      
                          consolidate services                                
                          sequentially.                                       
                        o To realize operational efficiencies and eliminate   
                          the potential for                                   
                          increased duplication and operational confusion,    
                          certain services, such as                           
                          residential leasing and maintenance, should be      
                          paired and operated by a                            
                          single service provider. During the original pilot  
                          projects, these services                            
                          were not paired. According to officials in Jakarta, 
                          this resulted in some                               
                          operational inefficiencies and missed costs         
                          avoided. For example,                               
                          according to one official in Jakarta, Washington    
                          chose to consolidate only                           
                          residential leasing, though consolidating all       
                          leasing services would have                         
                          been more logical. In addition, while State and     
                          USAID decided to                                    
                          consolidate property management, they did not       
                          include supply                                      
                          management, which is closely related. More          
                          recently, Nairobi and San                           

Salvador decided to pair residential leasing and maintenance, among other
services.

     * Posts that have consolidated support services should be encouraged to
       expand the number of services consolidated. Phnom Penh, for example,
       consolidated vehicle maintenance along with motor pool operations and
       currently is exploring other possibilities.
     * In addition, in our discussions with agency and post officials, they
       also identified other lessons, including the following:
  * The need for chiefs of mission to take a strong and active role in
    consolidating services. State and USAID officials attributed Phnom Penh's
    positive results in part to the chief of mission's strong commitment.
  * The need for the agencies, particularly State, to make better use of
    locally employed staff consistent with security and accountability
    requirements in order to reduce the cost of support services overseas.

In July 2006, the State Department Inspector General issued a report that
addressed, in part, the consolidation of duplicative administrative
services. It found that State had done a good job of consolidating
services at posts receiving new embassy compounds, but had not been as
successful in combining services at posts not scheduled to receive a new
embassy compound. The report also found that despite the Joint Management
Council's guidance to eliminate duplicative State and USAID support
services, State and USAID had duplicative services in 22 of the 27 posts
that it inspected in fiscal years 2005 and 2006.

    State and USAID Are Expanding Their Efforts to Consolidate Services

State and USAID are expanding their efforts to consolidate services,
relying on posts to identify and eliminate duplicative services and
designate a lead service provider. The approach was defined in a December
2005 message from State and USAID that provided a status report on the
consolidation initiative, including lessons learned from the pilot
project; recommended collocating posts adopt a model merging State and
USAID services into a streamlined, unified operation; and defined the
services that could be provided by State's Office of Global Support
Services and Innovation. The message also directed chiefs of mission and
USAID mission directors involved in the process of developing a mission
performance plan to lead the effort to consolidate services at their
posts, including the development of short and long-term consolidation
plans. However, according to State and USAID officials, the message did
not go far enough. For example, it did not define in detail the services
that posts
could and could not consolidate. In addition, no detailed guidance was
available for posts, particularly USAID missions, to quickly identify the
functions and their associated costs that should be included in the
operational baseline analysis needed to determine the lead service
provider-a process that USAID mission officials in Jakarta told us was
time and labor intensive because of differences in State's and USAID's
accounting and financial systems and the inclusion of certain
administrative costs within USAID's program functions. 15

Recognizing that additional guidance was needed, in March 2006, State and
USAID developed a template to enable posts to quickly identify and
document the items that should be included as part of the operational
baseline analysis of costs and services. In addition, in April 2006, State
and USAID sent a second message to posts that updated and clarified the
December 2005 guidance. This message defined in detail the services that
posts could and could not consider for consolidation. Services identified
for consolidation included administrative support functions, such as
warehouse management, expendable supplies, and motor pool services;
financial management functions, such as cashiering and locally employed
staff payroll processing; human resource functions, such as recruitment,
and language training at post for Americans; and joint information
technology systems. Services identified as not subject to consolidation
included USAID technical and program management functions and
nonadministrative staff and management activities that support these
functions, and USAID legal advisory functions. The April 2006 message
assumes that collocating posts will consolidate all administrative
functions provided by State/ICASS, leaving to posts the decision about
which agency will serve as the lead service provider.

    Some Additional Posts Have Begun to Plan New Consolidation Projects

Certain posts have begun to plan new consolidation projects. Officials in
Phnom Penh told us that they intend to consolidate additional services,
and eight other posts-- Jakarta, Indonesia; Nairobi, Kenya; San Salvador,
El Salvador; Managua, Nicaragua; Kiev, Ukraine; Tegucigalpa, Honduras;
Pristina, Kosovo; and Cotonou, Benin-have also begun to plan consolidation
projects. However, only one of these posts has advanced beyond the
planning stages, and Nairobi, which started first and had a timetable
calling for State and USAID to consolidate services before

15

Examples of administrative costs included in USAID's programming include,
for instance, the costs associated with budget analysis.

Page 15 GAO-06-829 Overseas Consolidation

USAID's scheduled September 2006 move into the new embassy compound, now
does not plan to begin consolidating services until after the move occurs.

Phnom Penh

Post officials in Phnom Penh told us in February 2006 that they plan to
eventually consolidate all State and USAID services, but they have not
announced any specific plans, deferring any actions to consolidate
additional services until after USAID's move into the new embassy
compound, scheduled for September 2006. Post officials underlined three
main reasons for consolidating all State and USAID services: their desire
to become a model post, an interest in greater efficiencies, and cost
savings.

Jakarta

In May 2006, the post announced that it had consolidated one additional
service, was in the process of consolidating a second, and planned to
consolidate two other services by November 2006. As of May 2006, USAID had
taken over nonresidential leasing and had begun the process of taking over
warehousing functions. USAID plans to complete its takeover of warehouse
functions by October 2006. However, post officials reported that one
issue, if not resolved, could erase any cost savings resulting from this
effort-the need to reconcile State's personal property regulations, which
require posts to track and account for all items valued at more than $500
with USAID's much more rigorous regulations, requiring missions to track
and account for all items valued at more than $100. 16 The post has asked
State and USAID to waive USAID's regulations on personal property
management.

In addition, the post plans to consolidate procurement and human resource
services for locally employed staff under the leadership of State/ICASS by
November 2006. State/ICASS plans to take over USAID's administrative
procurement function. However, this will not affect USAID's
program-related procurements. In addition, State/ICASS plans to take over
all of USAID human resource functions involving locally employed staff,
such as payroll services.

Nairobi

In preparation for USAID's move to the new embassy complex, expected in
September 2006, Nairobi plans to consolidate seven services. The post's
original timetable called for State and USAID to consolidate services

16

Personal property includes such items as vehicles, furniture, equipment,
supplies, and machinery.

Page 16 GAO-06-829 Overseas Consolidation

before USAID's scheduled move into the new embassy compound. As of June
2006, the post had not begun to consolidate any services.

Nairobi began the process of consolidating support services in April 2005.
In August and September 2005, a combined State and USAID team from
Washington, with assistance from a private consultant, conducted an
assessment of services. The team's report, submitted in September, 2005,
recommended consolidating six services-motor pool, vehicle maintenance,
non-expendable property, warehousing, expendable property and
administrative supply, residential maintenance, leasing, shipping, and
customs. It also recommended combining all administrative services and
staff into a single organization under the leadership of State/ICASS, but
with a strong role for USAID. As an alternative, the team's report
recommended consolidating the six services under the leadership of either
State/ICASS or USAID.

Post officials decided to consolidate the six services, but not to combine
the services into a single organization in the short term. Five reasons
were given for not adopting this model: differences between the two
agencies on where the savings should be achieved, with USAID arguing that
consolidation should not result in any additional costs for the agency;
the need for Washington to harmonize systems before certain services could
be consolidated at post; ambiguity in lines of authority; uncertainty over
personnel assignments; and skepticism that meaningful cost savings could
be achieved with this combined structure. Instead, the post decided to
adopt the same model used by the pilot projects involving the provision of
services by one of the two service providers. However, three factors-
budget constraints, conflicting interests of the two agencies, and a lack
of effective communication between Washington and posts-continued to slow
the progress of this effort.

More recently, in June 2006, the post reported that it had decided to
consolidate a seventh service-reproduction services. As of June 2006, it
had not begun to consolidate any service.

San Salvador

In April 2006, a team from State and USAID in Washington traveled to San
Salvador to assist the post's efforts to consolidate State and USAID
support services, including determining the lead service provider. A total
of nine services were identified for consolidation, including
administrative supplies, motor pool, vehicle maintenance, nonexpendable
property management and warehousing, leasing, residential maintenance,
reception and switchboard, copy services, and mail and messenger services.
The State and USAID team suggested that San Salvador take several steps to
move the initiative forward, including developing a timeline and an
overall plan for implementation. The post has indicated that it plans to
consolidate reception and switchboard, copy, and mail and messenger
services by October 1, 2006. The post plans to consolidate the other
services beginning on April 1, 2007.

Managua

In May 2006, a Washington team visited Managua to facilitate the post's
consolidation efforts. The team examined motor pool, administrative
supplies, warehouse, residential maintenance, leasing, shipping, travel,
reproduction, reception services, and human resource services for locally
employed staff. Their report recommended that the post develop an
overarching communication plan and form a working group to manage
implementation activities, including conducting a cost analysis, reviewing
service quality, standardizing processes, outlining a plan, and creating a
timeline. The report also stated that if cost savings cannot be reached
within 3 to 6 months, the post should identify a plan to achieve cost
savings over the next 1 to 2 years.

  Kiev

USAID is reducing the size of its mission in Ukraine and is looking to
State to take over some of its administrative services. In addition, the
post is in the process of planning for a new embassy compound. For these
reasons, the post has announced plans to consolidate a number of State and
USAID support services. The services that will be consolidated are travel
services, shipping and customs, warehousing, and human resource services
for locally employed staff. In addition, the post plans to consolidate
motor pool, and residential maintenance and leasing services. For this
purpose, the post has developed and sent a communications strategy to post
personnel and is currently at work on an implementation strategy and
timeline.

Tegucigalpa, Pristina, and Cotonou

Tegucigalpa plans to consolidate State's and USAID's warehouses in the
summer of 2006. It recently created a task force to examine the provision
of other support services and recommend consolidation where practicable
and plans to consolidate additional support services next year. However,
as of June 2006, the post had not identified the other support services
that it plans to consolidate. In addition, Pristina has stated that it
plans to implement a consolidation project in the next 2 years, starting
with motor pool services. Finally, Cotonou, Benin, has announced plans to
consolidate warehouse, motor pool, and maintenance services beginning in
October 2006.

  State and USAID Face Challenges in Expanding Consolidation of Support Services

State and USAID face challenges in expanding the consolidation of support
services. The challenges include the need for State and USAID in
Washington and at posts to address concerns that USAID's costs may
increase if services are consolidated due in part to State/ICASS's
reliance on higher-cost U.S. direct hire staff even though overall U.S.
government costs will decrease; develop better cost and performance data,
reduce or replace U.S. direct hire and locally employed staff, communicate
better, and resolve technical differences. During the course of our work,
State and USAID have taken steps to address some of these challenges. For
instance, in April 2006, State took steps to encourage the regional
bureaus to identify and replace U.S. direct hires with locally employed
staff. In addition, in June 2006, the two agencies produced a draft
strategy that defines broad goals and sets forth a common vision-to
combine at collocating posts all State and USAID services into a single
administrative structure and reduce the number of U.S. direct hire
personnel. The steps taken by State and USAID are a positive development.
However, their full impact has yet to be determined. In addition, the
draft strategy is not sufficiently comprehensive, since it does not
include a plan that contains key elements including specific timelines,
accountability mechanisms, specific goals, and performance measures to
show results.

USAID's Concerns about Potential Cost Increases

USAID officials have expressed concerns that because State/ICASS relies
more heavily on higher-cost U.S. direct hire staff, its costs could
increase if services are consolidated. However, State officials have
argued that by consolidating services, USAID will save a significant
amount of the cost imposed by the Capital Security Cost Sharing Program,
which requires agencies with staff assigned to overseas missions to pay a
portion of the construction costs of new embassy compounds based on the
number of agency staff at all overseas locations and the type of office
space. 17 USAID acknowledges that in some cases, it will save money by
consolidating services under State/ICASS. However, USAID officials also
cautioned that they have not determined the full budget impact of support
service consolidation, taking into consideration the Capital Security Cost
Sharing Program.

An October 2005 memo issued by the post in Nairobi, repeated again in a
message to Washington in June 2006, stated that while the proposed unified
administrative structure had great potential for overall cost savings

17

P. L. 108-447, Div. B, Title IV, sec. 629. Congress authorized the Capital
Security Cost Sharing Program in fiscal year 2005.

Page 19 GAO-06-829 Overseas Consolidation

to the U.S. government, it would likely result in increased costs for
USAID. It also stated that the probable increased cost to USAID of ICASS
services was a key obstacle that had to be surmounted before the project
could move forward-an assessment that post officials in Nairobi during our
visit in January 2006 agreed was slowing the progress of the project
considerably. In particular, USAID officials have expressed concern about
the effects that increased costs as a result of service consolidation
could have on its operating expense budget. USAID officials in Washington
stated that while USAID's program budget worldwide has increased since
fiscal year 2001, its operating expense budget, adjusted for inflation,
has remained essentially flat. In addition, USAID has opened missions in
Afghanistan and Iraq, which have placed additional strains on its
operating expense budget. Our analysis of the data shows that USAID's
operating budget from fiscal year 2001 to fiscal year 2006 increased
annually on average by 2.5 percent.

In addition, while USAID officials recognize that consolidating support
services overseas could result in reduced costs for the U.S. government as
a whole, they have expressed skepticism about State/ICASS's ability to
control or reduce the cost of services. Specifically, these officials
stated that State/ICASS relies more heavily than USAID on more expensive
U.S. direct hire personnel and has in the past experienced difficulties
controlling costs. In September 2004, we found that State/ICASS costs rose
almost 30 percent from 2001 to 2003 because of State's increased hiring of

U.S. direct hire personnel, rising security costs, and other factors. 18
We also reported that 21 out of 23 customer agencies had chosen to reduce
their participation in ICASS during the same period. More recently, OMB
rated ICASS's performance only as "adequate" in part because of the
program's inability to control costs, which according to OMB, have
increased an average of 7.5 percent since fiscal year 2001. 19

However, State officials have argued that by consolidating services under
State/ICASS, USAID could save a significant amount of the cost imposed by
the Capital Security Cost Sharing program as they would likely have fewer
staff assigned to embassies. Under the Capital Security Cost Sharing

18See GAO-04-511.

Office of Management and Budget, Program Assessment Rating Tool. OMB
developed the Program Assessment Rating Tool to assess and improve program
performance. Using the tool, OMB places each program into one of five
categories: "Effective," "Moderately Effective," "Adequate,"
"Ineffective," and "Results Not Demonstrated."

Page 20 GAO-06-829 Overseas Consolidation

Program, agencies with staff assigned to overseas missions pay a portion
of new embassy compound construction costs based on the number of agency
staff at all overseas locations and the type of office space. The
agencies' share of embassy construction costs is phased in over a 5-year
period, beginning in fiscal year 2005.

USAID officials acknowledge that the costs imposed by the Capital Security
Cost Sharing Program could mean that for certain missions it may make
sense to consolidate services under State/ICASS. For example, according to
USAID, a June 2006 examination of support services provided by USAID in
Gaborone, Botswana, determined that by consolidating services under
State/ICASS, the post could save approximately $78,000 per year, chiefly
by reducing the number of locally employed staff and terminating the lease
on a warehouse. However, USAID officials also cautioned that the Capital
Security Cost Sharing Program is relatively new and its full effect is
uncertain.

Posts Lack Reliable Cost Data

In its October 2005 evaluation of the pilot project, State and USAID
reported that consolidating services at the pilot posts resulted in costs
avoided estimated at approximately $386,000. However, agency officials
indicated that this estimate is imprecise and based on figures provided by
posts, which themselves stem in part from extrapolations or proxies. Post
officials stated that because certain performance and cost data was
lacking, data often was not available to make valid before-and-after
comparisons, forcing them to use rough approximations.

Several factors complicated posts' efforts to estimate cost avoidance.
First, State and USAID use different budgeting and accounting methods, and
did not follow the same methodology for developing cost information. For
example, State and USAID's motor pool logs do not capture the same
information and therefore cannot be used to make direct comparisons. In
addition, some USAID staff manage multiple services but do not closely
monitor time spent on each, making it difficult to disaggregate the cost
of a service. Further, during the pilot project, posts did not have good
guidance for reconciling different accounting rules for transferring
assets, such as building space and vehicles. This caused uncertainty in
valuations and raised questions about how to calculate one time costs.

Reluctance to Reduce Staff

To achieve cost benefits from consolidation, State and USAID need to
reduce or replace U.S. direct hire staff where appropriate or better
utilize locally employed staff. According to the October 2005 Joint
Management Council evaluation, significant savings from consolidation of
services can only occur if there is a reduction in the number of U.S.
direct hire staff overseas. Although officials from both agencies in
Washington and in the field recognize this fact, only one of the pilot
posts-Dar es Salaam-was able to achieve such an outcome. 20 Dar es Salaam
decided to replace a U.S. direct hire position-a State Department
assistant general services officer-with an eligible family member. 21

Post officials we spoke with in Phnom Penh and Dar es Salaam said that
they were reluctant to implement reductions in force, in part because of a
lack of consistent guidance from State and USAID, choosing to combine the
two workforces and transfer the cost of personnel from one agency to
another, or rely on slow attrition to achieve this reduction. According to
agency and post officials, the failure to implement reductions in force of
locally employed staff has reduced the overall impact of consolidating
services. The October 2005 evaluation stated that Washington needed to
provide detailed guidance to posts on both U.S. and locally employed
position reductions resulting from service consolidation. Post officials
also attributed their reluctance to reducing the number of locally
employed staff to other factors. For example, post officials in Nairobi
and Dar es Salaam told us that their reluctance to reduce the number of
locally employed staff also stemmed from loyalty to their staff, many of
whom have worked for the United States for many years and were present
during the 1998 embassy bombings. In addition, post officials cited
concerns about diminishing morale.

State has demonstrated potential cost avoidance from reducing staff
positions overseas. For example, State reported that a rightsizing
initiative in Addis Ababa, Ethiopia, avoided approximately $14.2 million
in construction costs for the new embassy compound. According to State,
the initiative avoided construction costs by reducing the number of
projected staff positions by 79-including 36 U.S. direct hire staff.
However, we have not validated State's reported cost avoidance.

USAID has argued that one way State can reduce the cost of providing
support services is by replacing U.S. direct hire personnel, particularly
State Department general service officers, with locally employed staff.
State has estimated the average cost of employing a locally employed staff

20

Nairobi has also taken steps to eliminate two U.S. direct hire positions.
However, as of June 2006, Nairobi had not begun to consolidate support
services.

21

General services officers provide leasing, housing and contracting
services for State and other agencies.

Page 22 GAO-06-829 Overseas Consolidation

member, including salaries and benefits, at approximately $24,000. 22
USAID tends to use locally employed staff extensively, and these staff
often play a key role in the mission's operations and programming.
However, State tends to use locally employed staff to a lesser degree
because of requirements involving entry into secure parts of the chancery
and other factors. In June 2006, the post in Nairobi asked State and USAID
in Washington to clarify the extent to which locally employed staff can
substitute for State Department direct hire general service officers.

In April 2006, State's Undersecretary for Management took steps to reduce
the number of U.S. direct hire staff overseas, requiring State regional
executive directors to submit by June 1, 2006, a list of U.S. direct hire
positions for conversion to locally employed staff. Moreover, in June
2006, State and USAID developed a draft strategy that states, among other
things, that posts rightsizing and consolidating services need to conduct
reductions in force of locally employed staff in a transparent fashion
and, where appropriate, to establish plans for this purpose. However, as
of July 2006, the April 2006 message had resulted in the identification of
only 21

U.S. direct hire positions for conversion. State officials told us in July
2006 that they expect that the bureaus will identify additional positions.
In addition, a recent survey of posts by the Bureau of Human Resources
disclosed that as of June 2006, 61 embassies had not prepared reduction in
force plans for locally employed staff, and another 30 have plans that are
over 10 years old.

Communication between Headquarters and Posts

State, USAID, and post officials told us that consistent and effective
communication between Washington and the posts has not always been
forthcoming, hampering posts' efforts to develop and implement
consolidation projects. For example, in February 2005 USAID instructed
posts to demonstrate that consolidating services would not result in
increased costs to the agency. The directive showed that there was a basic
philosophical difference between State and USAID about where savings
should be achieved. State/ICASS has argued that saving money for the U.S.
government is the overall goal, and USAID has argued that any
consolidation be cost-neutral for USAID. According to post officials in
Nairobi, the effect of the USAID directive was to cause confusion about

22

According to State, this estimate was derived by adding the salaries of
all locally employed staff worldwide, including locally employed staff
employed by other agencies, and dividing this by the number of staff
employed. While we have not validated State's methodology for producing
this estimate, our analysis indicates that the salary costs of locally
employed staff overseas are considerably lower than those for U.S. direct
hires.

Page 23 GAO-06-829 Overseas Consolidation

the purpose of consolidating services, slowing the process, and causing it
to be more contentious, since a time-consuming cost analysis is needed to
demonstrate that consolidating services would not result in increased
costs to USAID. According to USAID officials, as of April 2006, this
conflicting guidance remained in effect. However, State and USAID
officials said in June 2006 that they are trying to address the difference
by collaborating on the creation of a new shared strategic vision for
consolidating services.

Technical Differences Will Hamper Efforts to Consolidate Services

State's and USAID's efforts to consolidate support services face
challenges stemming from having different technical systems, such as
different accounting, financial, and information technology systems and
software. In addition, State and USAID have different regulatory
requirements with respect to accounting for and tracking property. While
State and USAID have recommended that collocating posts adopt a model
merging State and USAID services into a streamlined, unified operation,
Nairobi's experience suggests that State and USAID will not achieve this
goal until these technical challenges are resolved.

State and USAID have incompatible budgeting, accounting, and information
technology systems. As a result, posts have found it difficult and
contentious to determine the most cost-effective service provider. In
addition, the different systems have complicated efforts to merge
operations, such as warehousing. State and USAID have tried to address
these issues by creating a cost analysis template and a specialized
version of their standard costing software application. However, while
posts acknowledge that these tools have helped, they also stated that the
tools have not entirely resolved the problems caused by incompatible
systems.

To identify the most cost-effective service provider, posts must identify
the appropriate functions that must be included in the analysis and their
associated costs. In addition, they must conduct a side-by-side comparison
of the two service providers' cost and quality of services, and produce a
"what if" analysis using a different mix of inputs, such as vehicles and
drivers. This is done to determine the per unit cost of enlarging the
scope of a service, for example, the cost of transferring vehicles and
drivers from one agency's motor pool to another. To facilitate valid cost
comparison, State and USAID have agreed to use the State/ICASS system to
examine costs and created a special software tool for alternate service
providers, such as USAID, to use. However, posts still face three key
problems.

First, the process of putting a value on certain inputs can to a certain
degree be subjective and is based on past performance, not future
requirements. For example, calculating a hypothetical cost for USAID to
provide motor pool services involves placing a value on staff time spent
supervising or operating the vehicle fleet. According to State and USAID
officials, this value can vary substantially among posts and between
agencies because of a lack of standardized rules and procedures. Oversight
of most support services also varies. In addition, forecasting new
requirements on the basis of past performance can lead to misjudging costs
substantially.

Second, most USAID missions do not have experience using the alternate
service provider software. According to State and USAID officials, the
recent development of a template in March 2006 to gather and translate
data related to specific cost centers has reduced the amount of time and
effort required to gather the needed data and create the baseline analyses
needed to compare the two service providers' cost and quality. In
addition, according to State officials, State/ICASS is developing a new
version of the alternate service provider software. According to State and
USAID officials, this software will make it easier for posts, particularly
USAID missions, to identify the appropriate costs that must be included
and produce "what if" analyses. However, State, USAID and post officials
also cautioned that the template will not eliminate the subjective quality
of the cost comparison, and as a result, quantifying costs will remain a
problem. In addition, as of April 2006, State and USAID officials did not
know when the new version of the alternate service provider software would
be released.

Third, State and USAID use different information technology systems to
track and account for property items in their warehouses, manage and
monitor payroll and human resource activities, and communicate internally
and externally, among other things. For instance, State uses a property
tracking system that is different from that of USAID. To fully integrate
their warehousing services, State and USAID will need to adopt one system.
In May 2006, the post in Jakarta asked State and USAID to allow it to use
State's system for tracking property to track all items in the warehouse,
including those of USAID. However, as of June 2006, post officials
indicated that State and USAID had not responded to Jakarta's request.
Post officials also told us that as an interim measure, they have
determined that whichever agency is serving as the service provider will
be utilizing its own guidelines in providing the services, as is
consistent with State/ICASS guidelines for alternate service providers.

In July 2006, State officials told us that the Joint Management Council
was in the process of developing plans for harmonizing the two agencies'
systems and procedures. However, these plans were not completed in time
for us to analyze them.

    State and USAID Need a Comprehensive Plan

In June 2006, State and USAID developed a draft strategy that defines
broad goals and sets forth a common vision. Among other things, the draft
strategy sets as an immediate goal one of consolidating all State and
USAID services into a combined or single mission administrative operation
for those posts moving into new embassy compounds. It also sets as a goal
the reduction of U.S. direct hire personnel and their replacement, where
appropriate, with locally employed staff. The draft strategy is a step
forward, but our experience shows that the strategy must be coupled with a
more comprehensive, detailed implementation plan that includes milestones,
specific timelines, accountability mechanisms, more detailed goals, and
performance measures to show results. State officials told us in early
July 2006 that the Joint Management Council is in the process of
developing a plan. However, it was not completed in time for us to analyze
the results.

The Government Performance and Results Act of 1993 requires federal
agencies to develop plans and measures to assess progress in achieving
their goals. In particular, it requires agencies to set multiyear
strategic goals in their strategic plans and corresponding annual goals in
their performance plans, measure performance toward the achievement of
those goals, and report on their progress.

The draft strategy outlined by State and USAID in June 2006, while a step
in the right direction, does not provide a detailed map of actions to
take, and for this reason, State and USAID need to define a more
comprehensive plan. For example, the strategy does not identify the
actions that need to be taken to establish a single, joint administrative
structure. Such a structure was recommended for Nairobi in September 2005,
but the post decided not to adopt this structure in the short term, in
part because of skepticism that meaningful cost savings could be achieved
with this structure and the need for harmonization of State and USAID
systems and procedures. In addition, the strategy does not address the
fundamental problem that in some cases adequate performance measures to
fully demonstrate the extent of cost and operational efficiencies do not
exist.

The set of challenges faced by State and USAID as they consolidate
overseas support services are similar to those faced by other
organizations. In May 2006, we convened a workshop with State and USAID
officials as well as outside experts to discuss the most important issues.
The experience of other organizations generally supports our analysis of
the key challenges and highlights the need for strong leadership, a clear
direction, consistent communication, and agreement on a standard set of
procedures and systems. For more detailed information on outcomes from the
workshop, see appendix III.

  Conclusion

State and USAID have taken important steps toward the consolidation of
support services. During the course of our work, relations between State
and USAID improved. State and USAID have begun to integrate certain
operations and management structures and are currently revising their
joint strategic plan. This provides an opportunity to move the
consolidation process forward by addressing the challenges that have
limited the progress of the consolidation effort. If State and USAID can
overcome these challenges, they may have the potential to realize
significant savings and efficiencies. To do so, State and USAID need to
develop a more comprehensive plan that establishes clear goals,
performance targets, and accountability mechanisms.

  Recommendations for Executive Action

We recommend that the Secretary of State, in conjunction with the USAID
Administrator,

  * designate overseas services consolidation a priority joint State/USAID
    objective;
  * define a comprehensive plan that provides a detailed picture of the
    desired end state; addresses cost and incentive differences between
    agencies; enables clear and consistent communications from headquarters
    to post; demonstrates the overall cost benefits of consolidation; defines
    timelines, metrics, and results-oriented criteria for success; and
    outlines, where appropriate, options for leveraging more locally employed
    staff; and
  * set timelines for accomplishing the standardization of State and USAID
    policies, procedures, and systems.

Agency Comments and Our Evaluation

We provided a draft of this report to the Department of State and USAID
for comment. State's and USAID's comments can be found in appendixes V and
Our Evaluation and VI. We also received technical comments from both State
and USAID,
which have been incorporated into the report as appropriate.

Page 27 GAO-06-829 Overseas Consolidation

State fully agreed with our recommendations. State said that it is
actively working with USAID to address the policy, procedural, and
technical issues identified in our report. State believes that elimination
of duplicative administrative support platforms will result in overall
savings to both State and USAID.

USAID also agreed with the basic findings of our report. USAID said that
it is clear that by consolidating duplicative administrative operations
and eliminating staff, the U.S. government will save considerable sums of
money. USAID said that it and the State Department are in the process of
developing a comprehensive plan to improve the manner in which support
services are managed.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the date of this letter. At that time, we will send copies of this report
to other interested members of Congress, the Library of Congress, and the
Secretary of State. We will also make copies available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-4128. Other GAO contacts and staff acknowledgments are
listed in appendix VII.

Sincerely yours,

Jess T. Ford Director, International Affairs and Trade

Appendix I: Posts Where State and USAID Are Currently Collocated

Alexandria, Egypt
Amman, Jordan
Baku, Azerbaijan
Basrah, Iraq
Beirut, Lebanon
Belgrade, Serbia
Bishkek, Kyrgyzstan
Bogota, Colombia
Brasilia, Brazil
Bridgetown, Barbados
Brussels, Belguim
Bujumbura, Burundi
Colombo, Sri Lanka
Dar es Salaam, Tanzania
Dhaka, Bangladesh
Djibouti, Djibouti
Dushanbe, Tajikistan
Freetown, Sierra Leone
Geneva, Switzerland
Georgetown, Guyana
Hillah, Iraq
Islamabad, Pakistan
Jakarta, Indonesia
Jerusalem, Israel
Kabul, Afghanistan
Lima, Peru
Luanda, Angola
Mexico City, Mexico
Minsk, Belarus
Monrovia, Liberia
Moscow, Russia New Delhi,
India Nicosia, Cyprus
Phnom Penh, Cambodia
Podgorica, Montenegro
San Salvador, El Salvador
Istanbul, Turkey
Sanaa, Yemen
Sofia, Bulgaria
Tashkent, Uzbekistan
Tirana, Albania

Appendix I: Posts Where State and USAID Are Currently Collocated

Ulaanbaatar, Mongolia
Yerevan, Armenia
Zagreb, Croatia

Appendix II: Posts Currently Planned for Construction During Fiscal Years
2006-2011 Where State and USAID Will be Collocated

Abuja, Nigeria
Accra, Ghana
Addis Ababa, Ethiopia
Almaty, Kazakhstan
Antananarivo, Madagascar
Astana, Kazakhstan
Asuncion, Paraguay
Baghdad, Iraq
Bamako, Mali
Conakry, Guinea
Cotonou, Benin
Dili, East Timor
Harare, Zimbabwe
Istanbul, Turkey
Juba, Sudan
Kampala, Uganda
Kathmandu, Nepal
Khartoum, Sudan
Kiev, Ukraine
Kigali, Rwanda
Kingston, Jamaica
Kinshasa, Congo
Lusaka, Zambia
Managua, Nicaragua
Manila, Philippines
Mbabane, Swaziland
Nairobi, Kenya
Ouagadougou, Burkina Faso
Panama City, Panama
Peshawar, Pakistan
Port-au-Prince, Haiti
Pristina, Kosovo
Quito, Ecuador
Santo Domingo, Dominican Republic
Sarajevo, Bosnia
Skopje, Macedonia
Tbilisi, Georgia

Appendix III: Results of Workshop on Consolidating Support Services

In May 2006, we convened a workshop with State and U.S. Agency for
International Development officials as well as two outside experts to
discuss the most important issues related to State and USAID efforts to
consolidate overseas support services.

The experience of other organizations suggests that creating shared
service centers and consolidating support services can achieve significant
cost avoidance and efficiencies. Moreover, experts suggest four elements
are critical for achieving success in such efforts: defining an
overarching vision, communicating clearly and consistently, demonstrating
the cost benefits, and developing metrics.

External studies and the results of our May 2006 workshop show that
private and public sector organizations that consolidate support services
and create shared service centers can achieve major cost avoidance and
efficiencies. For example, in the private sector, British Petroleum, one
of the world's largest energy companies, has achieved savings of 20
percent to 50 percent since adopting a consolidated services model in
1995. In the public sector, the U.S. Postal Service reported that
consolidating and creating shared accounting service centers enabled it to
achieve economies of scale by closing 80 district accounting offices.
According to one study, the average organization may realize net cost
decreases of approximately 25 to 55 percent through efforts to consolidate
services and create shared service centers, depending on the function. For
instance, consolidating and creating shared service centers for purchasing
typically results in a 25 percent cost reduction for that function; while
consolidating and creating shared service centers for general accounting
functions can result in a 55 percent cost reduction.

A number of private sector corporations in the United States and
throughout the world have adopted a consolidated or shared service model.
For example, British Petroleum's program involves the consolidation of
finance and accounting functions, including internal and external
financial reporting, and budgeting and forecasting functions, as well as
the creation of shared service centers. According to one private sector
consulting company, as a result of these actions, British Petroleum's
finance and accounting transactional unit costs have steadily declined,
and working capital improvements measured in the tens of millions of
dollars have already been achieved, with more on the way.

In addition, public sector organizations in the United States and
throughout the world have also adopted shared services models. These
include the U.S. Postal Service, which as part of an initiative in 2003 to

Appendix III: Results of Workshop on Consolidating Support Services

consolidate its finance function reported that consolidating and creating
shared accounting service centers enabled it to achieve economies of scale
by closing 80 district accounting offices. The Postal Service's Strategic
Transformation Plan: 2006-2010 also outlines a human resources shared
services initiative that will centralize certain transactional human
resource functions and other noncore support functions as well, such as
information technology and purchasing functions. 1

While examples of public and private sector successes in consolidating
services are numerous, it is important to note that cost savings and
operational efficiencies can vary. State and USAID may not be able to
achieve similar levels of success because of differences in the nature and
scope of their efforts. Nonetheless, the fact that large companies and
organizations have achieved positive results clearly demonstrates that the
potential for savings exists and suggests that their lessons learned may
be applicable to State and USAID's efforts.

The challenges faced by State and USAID as they consolidate overseas
support services are similar to those faced by other organizations. The
experiences of these organizations highlight the need for strong
leadership, a clear direction, consistent communication, and agreement on
a standard set of procedures and systems. For example:

     * Defining an overarching vision: Experts suggest that a strategic
       framework is critical to the success of a consolidation effort. Such a
       framework should provide a detailed picture of the desired end state,
       define resultsoriented criteria for success, and outline key
       milestones. In addition, it should address concerns about staff
       reductions and career implications. Most importantly, the plan should
       state that leadership commitment, from the executives of both
       agencies, is strong and unified.
     * Communicating clearly and consistently: Experts suggest that
       communication should be consistent and clear, with detailed direction
       on how to implement the consolidation effort at post. Agency officials
       indicated that posts have received mixed messages from headquarters in
       the past.
     * Demonstrating the cost benefits: Experts suggest demonstrating a
       compelling rationale for undertaking the consolidation effort is
       critical.

1United States Postal Service, Strategic Transformation Plan: 2006-2010,
(Washington, D.C.: September 2005).

Page 33 GAO-06-829 Overseas Consolidation Appendix III: Results of
Workshop on Consolidating Support Services

However, State and USAID do not have the data or a method for accurately
determining and comparing the cost and quality of services provided by
each agency, making it difficult to accurately demonstrate the benefits of
consolidating services and achieve consensus on which is the most
efficient service provider.

o  Developing metrics: Experts suggest that the adoption of performance
measures is critical to evaluating operational efficiencies. Although
State and USAID have developed some metrics, key performance metrics are
lacking. For example, the May 2005 study that recommended consolidating
services at the four pilot posts noted that for both State/ICASS and
USAID, motor pool trip logs are not used for an analysis of driver/vehicle
utilization, peak volume/time determination, or capacity requirements.
Moreover, warehouse capacity use and inventory turnover are not tracked to
determine the need for warehouse space or to highlight opportunities for
disposal of unused items. The lack of performance measures has also
complicated posts' efforts to quantify and document cost avoidance.

Appendix IV: Scope and Methodology

To address what State and USAID have accomplished and learned from their
initiative to consolidate overseas support services, we obtained and
reviewed a number of State and USAID documents, including the State and
USAID joint strategic plan for fiscal years 2004 through 2009, the May
2004 study that led to the original pilot project, and the October 2005
evaluation of lessons learned as a result of the pilot project. We also
met with State and USAID officials in the functional and regional bureaus,
as well as private sector consultants knowledgeable about the initiative.
We conducted fieldwork at three of the four original pilot posts-Cairo,
Egypt; Dar es Salaam, Tanzania; and Phnom Penh, Cambodia and conducted a
teleconference with officials of the fourth-Jakarta, Indonesia. We also
conducted fieldwork at a post that is planning to consolidate support
services-Nairobi, Kenya. At each post, we met with the principal officers,
including the chief of mission and the deputy chief of mission, as well as
the State management officer and the USAID executive officer. At many
posts, the State management officer and the USAID executive officer are
responsible for managing the day-to-day operations of their respective
agencies, and in most cases, these officials were given the responsibility
of working out the details of consolidating support services. To assess
the reliability of the cost and operational efficiency data that posts
provided, we (1) reviewed pertinent documents provided by State, USAID,
and the posts, such as the May 2004 study that detailed problems with
obtaining reliable cost and performance data, and (2) discussed data
reliability with agency and post officials knowledgeable about the data.
We noted limitations in the data that result from State and USAID
collecting data through different systems and managers sometimes failing
to record accurately the times allocated to different tasks. However, we
determined the data to be sufficiently reliable for the purposes of this
report.

To address the challenges that State and USAID have encountered in
implementing this program, we obtained and analyzed a number of documents,
among them the May 2004 study that led to the original pilot project, the
February 2005 directive from USAID directing missions to demonstrate that
consolidating services would not result in any additional costs to the
agency before agreeing to consolidate a support service, the October 2005
evaluation of lessons learned, and the December 2005 and April 2006
directives from State and USAID to the missions that, among other things,
established the services that can and cannot be consolidated. We also
reviewed a copy of State and USAID's June 2006 draft strategy. In
addition, we met with knowledgeable agency and post officials, including
State/ICASS officials and USAID contractors knowledgeable about the ICASS
alternate service provider software and its use. Moreover, we reviewed
certain State/ICASS and USAID policies and procedures that

Appendix IV: Scope and Methodology

outline the requirements for managing property at post. These are spelled
out in USAID's Automated Directives System, and in State's Foreign Affairs
Manual.

To learn what private and public sector lessons learned can be applied to
this initiative, which we used to help frame our recommendations, we
reviewed a number of studies that examined how private and public sector
organizations have implemented efforts to consolidate and share support
services. Many of these studies detail shared service best practices and
lessons learned. We also met with private and public sector officials
knowledgeable about or responsible for implementing shared services.
Finally, in May 2006 we convened an informal roundtable discussion
featuring two respected experts on governance and shared services. The two
experts were Jonathan Breul, of the IBM Center for the Business of
Government, a research center dedicated to improving government services;
and Brad Gladstone, of Accenture, a global management consulting and
technology services company. Breul, a Senior Fellow with the IBM Center,
previously served as a Senior Advisor to the Deputy Director for
Management in the Office of Management and Budget, and has provided his
insights to a number of government agencies and initiatives, including the
State Department, and the President's Management Agenda. Gladstone, a
Senior Executive in Accenture's Federal Client Group, leads their finance
and performance management practice. He has provided his expertise on
consolidation and shared services to a wide range of customers in both the
public and private sectors, including the Departments of Interior and
Agriculture. State, USAID, and other agency officials participated in this
informal roundtable. We prepared a summary of lessons learned based on the
roundtable discussion and shared this with State and USAID officials.

We performed our work from November 2005 through July 2006 in accordance
with generally accepted government auditing standards.

Appendix V: Comments from the Department of State

Page 38 GAO-06-829 Overseas Consolidation

Page 39 GAO-06-829 Overseas Consolidation

Page 40 GAO-06-829 Overseas Consolidation

Page 41 GAO-06-829 Overseas Consolidation

Appendix VI: Comments from USAID

Appendix VII: GAO Contact and Acknowledgments

  GAO Contact

Jess Ford, (202) 512-4128

In addition to the person named above, John Brummett, Assistant

  Staff

Director; Kevin Bailey; Joseph Brown; Joseph Carney; Virginia Chanley;
Acknowledgments Marc Castellano; Martin De Alteriis; Edward Kennedy; Jose
M. Pena, III; and Wrenn Yennie made key contributions to this report.

(320380)

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