State Department: Additional Actions Needed to Improve Overseas Real
Property Management (Letter Report, 05/15/95, GAO/NSIAD-95-128).

In February 1995, GAO removed overseas real property management from its
list of federal programs most vulnerable to waste, fraud, abuse, and
mismanagement.  GAO based that decision on several factors, including
steps taken by the State Department to strengthen real property
programs.  However, State's management of overseas property still needs
to be monitored closely.  This report (1) discusses the progress made
and some of the problems still facing State in real property management
and (2) contains recommendations on ways to strengthen management by
State.

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

 REPORTNUM:  NSIAD-95-128
     TITLE:  State Department: Additional Actions Needed to Improve 
             Overseas Real Property Management
      DATE:  05/15/95
   SUBJECT:  Federal property management
             Management information systems
             Facility maintenance
             Facility management
             Funds management
             Americans employed abroad
             Audits
             Human resources utilization
             Information gathering operations
             Real property

             
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Cover
================================================================ COVER


Report to the Secretary of State

May 1995

STATE DEPARTMENT - ADDITIONAL
ACTIONS NEEDED TO IMPROVE OVERSEAS
REAL PROPERTY MANAGEMENT

GAO/NSIAD-95-128

State Department


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

  FAM - Foreign Affairs Manual
  FBO - Foreign Buildings Operations
  OBC - Office Building Chancery
  OMB - Office of Management and Budget

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


B-260352

May 15, 1995

The Honorable Warren M.  Christopher
The Secretary of State

Dear Mr.  Secretary: 

In February 1995, we removed overseas real property management from
our list of federal programs most vulnerable to waste, fraud, abuse,
and mismanagement.  We based that decision on a number of factors,
including the actions taken by the State Department and its Office of
Foreign Buildings Operations (FBO) to strengthen real property
programs.  However, because some problems still exist, State's
management of overseas real property still needs to be closely
monitored. 

This report (1) discusses the progress made and some of the problems
still facing the Department in real property management and (2)
contains recommendations to you to strengthen the Department's
management.  The report is based on our work at FBO headquarters and
the embassies in Nassau, the Bahamas; London, England; Vienna,
Austria; Santo Domingo, Dominican Republic; Port Moresby, Papua New
Guinea; Kuala Lumpur, Malaysia; and Singapore, Singapore. 


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

Many of the actions taken by State to improve real property
management have focused on the maintenance of overseas facilities. 
In our past reviews, we identified inadequate maintenance as one of
the most serious problems in the overseas real property program and
beginning in 1990, State identified it as a high-risk area in its
Federal Managers' Financial Integrity Act reports.  Actions taken to
address maintenance problems have included assigning skilled
maintenance professionals to overseas posts, conducting global
maintenance surveys, establishing maintenance assistance centers, and
implementing a facilities evaluation and assistance program.  FBO
also implemented a financial audit program in 1990, improving its
oversight of posts' real property programs and resulting in the
return of nearly $4 million in unused funds.  In addition, FBO has
implemented an information resource management system to strengthen
budgeting and planning and has continued upgrading its real estate
management system. 

Nevertheless, some significant problems still exist that, if allowed
to continue, could impede long-term efforts to improve real property
management.  Specifically, we found questionable and/or inappropriate
use of routine maintenance funds at every overseas post included in
our review.  We also found that some of the posts had failed to (1)
conduct or complete annual assessments of the condition of
government-owned and long-term leased facilities, (2) deobligate
unneeded FBO funds, and (3) properly use the real estate management
system to manage routine and preventive maintenance programs.  In
Nassau, we also found inadequate planning for the sale or use of
undeveloped properties that have been in the Department's property
inventory for years. 


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

FBO has responsibility for managing about 11,000 leased properties
and 3,000 U.S.-owned properties valued about $12 billion.  These
properties, at over 260 locations worldwide, include embassies and
consulates, office buildings, detached houses and multi-unit
residential buildings, warehouses and garages, and undeveloped land. 
FBO's responsibilities include (1) overseeing the acquisition,
design, construction, sales, operations, and maintenance of
properties and (2) establishing policies and procedures for overseas
posts to follow in managing real property programs. 

Since the early 1960s, we have reported serious deficiencies in FBO's
management of overseas real property.  Beginning in 1990, as part of
our special effort to review and report on federal programs
considered high-risk, we identified the management of overseas real
property as being at substantial risk for waste, fraud, abuse, and
mismanagement.  Our December 1992 report on overseas real property\1
identified the chronic and long-standing management weaknesses that
had affected overseas real property programs, including insufficient
maintenance, lax oversight of overseas operations, inadequate
information systems, and poor planning.  These weaknesses resulted in
deteriorating facilities and a significant backlog of maintenance and
repair requirements.  Management weaknesses also directly contributed
to construction delays and cost overruns, oversized and unauthorized
housing, poor decisions, and questionable expenditures.  In our 1992
report, we noted that the State Department had recognized the
significance and urgency of the problems and had planned or initiated
a number of engineering, staffing, and management process actions
designed to address past problems. 


--------------------
\1 Management of Overseas Real Property (GAO/HR-93-15, Dec.  1992). 


   PROGRESS IN MAINTENANCE
   PROGRAMS
------------------------------------------------------------ Letter :3

Progress has been made in addressing the long-standing problem of
inadequate maintenance and rehabilitation of overseas facilities.  In
early 1993, we sent a questionnaire to the State Department's
overseas embassies addressing several management issues.\2 Almost all
of the
80 embassies responding to the questionnaire said that they had
received services or review visits from FBO and/or one of the
regional maintenance assistance centers, and the majority of the
respondents were generally or very satisfied with the services
received.  In September 1993, the State Department's Inspector
General reported that FBO had made progress in addressing weaknesses
in its repair and maintenance of overseas property.\3 Progress cited
by the Inspector General included a new group of skilled maintenance
professionals in the State Department responsible for overseeing post
maintenance and repair operations, a systematic global facility
review program to assess the condition of U.S.-owned and long-term
leased facilities, a 5-year plan for major rehabilitations, a
comprehensive maintenance plan for newly constructed buildings, and
additional funding for maintenance programs.  Other initiatives have
included the facilities evaluation and assistance program.  This
program augments the global review program and typically consists of
a maintenance audit of post facilities using a standard evaluation
checklist and assistance in developing more effective maintenance
programs. 

In December 1993, the Office of Management and Budget (OMB)
determined that FBO had made sufficient headway in improving
maintenance management to warrant removing rehabilitation and
maintenance of overseas property from its list of areas at highest
risk to fraud, waste, and abuse.  We agree with this decision since
our work also indicates substantial progress by FBO in the
maintenance and rehabilitation area.  However, we have also
identified continuing problems requiring corrective action.  These
problems include the questionable and/or inappropriate use of routine
maintenance funds by overseas posts and the failure of some posts to
either conduct or complete annual surveys documenting the condition
of government-owned and long-term leased facilities. 


--------------------
\2 The questionnaire was sent to 104 embassies with authorized State
Department staff levels of 10 or more.  The 80 embassies that
completed and returned the questionnaire represented a response rate
of 77 percent. 

\3 Maintenance and Repair of Buildings Overseas (3-PP-014, Sept. 
1993). 


      QUESTIONABLE AND/OR
      INAPPROPRIATE USES OF FUNDS
---------------------------------------------------------- Letter :3.1

As part of its overall management responsibilities, FBO provides
funds to each overseas post to pay for routine maintenance and repair
of its real property.  In fiscal year 1994, approximately $27 million
was provided to the posts.  Authorized uses of the funds include
painting and other services/materials of a recurring or minor nature,
the purchase of bulk supplies such as lumber and nails, and projects
that would otherwise qualify as special maintenance or minor
improvement projects.\4 The policies and procedures allowing the use
of routine maintenance funds for special and minor improvement
projects were identified in an April 1993 cable to all posts, giving
post management the latitude to execute small special maintenance and
improvement projects as required.\5

However, to ensure that posts use most of these funds for routine
maintenance, no special maintenance or minor improvement project
using routine maintenance funds may exceed $10,000 and no more than a
total of 5 percent of a post's annual routine maintenance funds may
be used for special projects in a given year. 

Although FBO has issued guidance to the posts on the proper uses of
routine maintenance funds, our review of posts' financial records
shows that inappropriate and/or questionable uses of funds have
occurred frequently.  These have included the use of routine
maintenance funds for (1) special and minor improvement projects
costing more than $10,000 and (2) special and minor improvement
projects totaling more than 5 percent of the post's annual routine
maintenance budget.  In some cases, posts used routine maintenance
funds for nonmaintenance and repair purposes.  Reasons for the misuse
of funds include the failure of posts to follow FBO guidance, some
ambiguities in the guidance and related State regulations, and FBO's
failure to hold posts sufficiently accountable for improperly using
funds. 

Examples of using routine maintenance funds for special projects
costing greater than $10,000 included

  the repair and resurfacing of a tennis court at the ambassador's
     residence in Santo Domingo;

  construction of storage lockers and hard covering over a swimming
     pool, and new windows in London; and

  extension of a tubular mailing system, facade renovation,
     installation of a suspended ceiling, and grounds preparation for
     a volleyball court in Vienna. 

Routine maintenance funds were used for nonmaintenance purposes to
purchase furniture for the posts in Santo Domingo and Nassau; to
purchase and install communications equipment, pay for security
escort services, purchase plants for the ambassador's dining area in
the chancery, and purchase flag pole stands, mirrors, and a
chandelier in London; to purchase a new clock for the chancery in
Vienna; and to purchase garden lighting systems and track lighting in
Kuala Lumpur.  According to FBO officials, such expenditures should
have been charged to salaries and expenses appropriations or to other
FBO accounts, such as the furniture, furnishings, and equipment
program.\6

The post in Kuala Lumpur obligated over $10,000 in routine
maintenance funds for renovating offices in the chancery 1 day before
the end of fiscal year 1994.  That obligation (1) represented a
potential misuse of routine maintenance funds and (2) appeared to
represent an effort to fully obligate remaining funds (year-end
buying) instead of returning them to FBO. 

In some cases, expenditures were questionable because State and FBO
policy guidance is unclear.  For example, routine maintenance funds
have been used for numerous gardening-related activities at the
ambassador's residence and other properties in London, totaling over
$10,000 in fiscal year 1994.  Items purchased included rose bushes,
shrubs, seeds, compost, and flower pots.  We believe these uses are
questionable because, according to State's Foreign Affairs Manual
(FAM), grounds care for residences occupied by the ambassador or
chief of mission should be charged to salaries and expenses
appropriations.  However, embassy officials in London identified what
they considered to be potentially conflicting guidance in another
part of the FAM, which defines routine maintenance and repair as
activities done for the continuing upkeep of buildings and grounds. 
FBO officials said that State's guidance concerning which
appropriations should be used for gardening expenses is unclear.  Our
analysis and discussions with post officials indicates that State's
guidance is also unclear in other areas, including the
appropriateness of using routine maintenance funds for such things as
the replacement of carpets. 

The misuse of routine maintenance funds is not a new problem. 
Beginning in 1990, FBO's financial audits determined that several
overseas posts had not used routine maintenance and repair funds for
intended purposes.  Similarly, the September 1993 State Inspector
General report on maintenance and repair programs noted that all
eight of the posts included in that assessment had used routine
maintenance funds for improper and/or questionable purposes. 
According to the FBO and Inspector General assessments, posts
improperly used routine maintenance and repair funds on projects that
should have been funded as special projects or minor improvements or
from the salaries and expenses appropriation.  The Inspector General
also found that posts used funds for questionable activities in part
due to inadequate State guidance. 


--------------------
\4 Special maintenance and repair funds are authorized by FBO for
one-time projects designed to restore a building to a fully
functioning condition (e.g., roof replacement).  Minor improvement
funds are for one-time projects designed to enhance the value of a
building or change its functional nature (e.g., adding a new
kitchen).  FBO planned to obligate about $55 million for special
maintenance and minor improvement projects in fiscal year 1994. 

\5 Prior to these procedures, all special maintenance and minor
improvement projects required FBO approval. 

\6 The improper use of an appropriation to fund an item that should
be funded by another appropriation raises a question under section
1301 (a) of title 31, which provides that funds may be used only for
the purpose or the purposes for which they were appropriated. 


      SOME FACILITY CONDITION
      SURVEYS NOT CONDUCTED OR NOT
      COMPLETE
---------------------------------------------------------- Letter :3.2

One of the key FBO requirements for a successful ongoing maintenance
program is the annual facility condition survey.  According to FBO's
Facility Maintenance Handbook, the overseas posts should survey all
government-owned and long-term leased facilities annually for
structural, electrical, and mechanical deficiencies.  According to
FBO, the surveys are necessary for determining required maintenance
and repair work at a post and for allowing management decisions on
budget priorities.  The failure of overseas posts to properly conduct
annual surveys has historically been a problem in the Department's
maintenance system.  In our 1990 report on maintenance management,\7
we reported that none of the 14 posts included in that review had
conducted annual property condition surveys.  In our 1993 report on
administrative issues affecting overseas embassies,\8 we found
improvements, but also noted that about 30 percent of the embassies
responding to our questionnaire acknowledged that they had not
conducted annual condition surveys. 

Recently, we found that there are still some weaknesses in the system
for surveying the condition of overseas property.  For example, the
post in Nassau examined the condition of its property to support the
fiscal year 1994 budget.  However, the survey did not cover all
government-owned properties or use an inspection checklist as
recommended by FBO in its Facility Maintenance Guide.  Embassy
officials in Vienna said that a survey was not done to support the
fiscal year 1995 budget because they were unaware of the FBO
requirement.  However, at the time of our visit, we were told that a
survey was underway to support the fiscal year 1996 budget process. 
We also found that the post in Port Moresby had not conducted annual
facility condition surveys or prepared annual inspection summaries. 


--------------------
\7 State Department:  Need to Improve Maintenance Management of
Overseas Property (GAO/NSIAD-90-216, Sept.  24, 1990). 

\8 State Department:  Survey of Administrative Issues Affecting
Embassies (GAO/NSIAD-93-218, July 12, 1993). 


   IMPROVEMENTS IN MONITORING AND
   OVERSIGHT
------------------------------------------------------------ Letter :4

Effective oversight of overseas real property programs is critical to
ensuring that the State Department's policies and procedures are
followed and funds are properly used.  It also provides a basis for
FBO to work directly with the overseas posts to improve their
maintenance capabilities and strengthen other aspects of their real
property programs.  FBO has made progress in strengthening its
monitoring capability through its financial audit program, but
coverage has been limited.  Some progress has also been made in the
area management program. 


      FINANCIAL AUDITS
---------------------------------------------------------- Letter :4.1

In 1990, FBO began conducting financial audits of the administration
and use of funds at overseas posts with significant FBO resources. 
One of the major reasons for beginning the audit program was FBO's
concerns about the difficulties it encountered in (1) using the State
Department's financial management systems to track post expenditures
and (2) identifying excess funds that had been provided to the posts
and getting the posts to return such funds to FBO rather than use
them for other purposes.  At the end of fiscal year 1994, audits had
been conducted at 21 overseas posts.  Some posts were identified as
having good financial controls over FBO accounts, including Bonn,
Jakarta, Tokyo, and Cairo.  However, the FBO audits identified
significant financial management irregularities at other posts,
including the misuse of routine maintenance funds and inadequate
controls over the obligation/deobligation process.  Posts identified
by FBO as having financial control weaknesses included Kinshasa, New
Delhi, Tel Aviv, Rome, Hong Kong, and Manila. 

FBO's financial audits have resulted, both directly and indirectly,
in improved oversight and administration of funds.  Overall, FBO
estimates that its financial audit program has resulted in nearly $4
million in uncommitted post funds being returned to FBO for use in
other projects and programs.  For example, based on the results of a
1990 FBO audit, the post in Mexico City (1) deobligated over $100,000
in unused funds for fiscal years 1988-89 and returned them to FBO and
(2) transferred charges of about $43,000 to the salaries and expenses
account that had been erroneously charged to the routine maintenance
account. 

Although results have been noteworthy, FBO's financial audit coverage
has been limited to less than 10 percent of the foreign service
posts.  Without greater FBO audit coverage of the overseas posts, FBO
has inadequate assurances that real property activities are
consistent with State's financial policies and that posts promptly
return unneeded FBO provided funds.  For example, in Nassau, we found
over $60,000 in funds that FBO provided in fiscal years 1989-93 that
the post had accumulated without finite plans for use.  Records for
the embassy in Santo Domingo showed over $200,000 in fiscal years
1989-92 funds that should have been deobligated.  According to FBO
officials, the post in Nassau subsequently deobligated all of the
funds we identified and returned them to FBO for other uses.  The
post in Santo Domingo has deobligated only about $20,000.  It has not
yet taken any actions on about $185,000 of funds because post
officials said the obligating documents identifying the purpose of
the intended expenditures could not be located. 


      AREA MANAGEMENT
---------------------------------------------------------- Letter :4.2

FBO's area managers have primary responsibility for monitoring
overseas post activities and ensuring that post actions are
consistent with FBO's policies and procedures.  In the past, area
managers did not give their monitoring responsibilities sufficient
priority.  Our analysis of recent trip reports by FBO's area managers
indicates that their coverage was often comprehensive, but the
quality of monitoring varies significantly by individual managers. 
In some cases, area managers (1) either did not prepare or could not
locate their trip reports documenting the status of post controls or
(2) had not completed FBO's standard checklists. 

FBO's checklists also have some limitations.  For example, they do
not require area managers to determine if posts conducted annual
facilities condition surveys or if the surveys were done consistent
with FBO's guidance.  In addition, the checklist only requires area
managers to spot-check obligation backup documents to ensure funds
are properly used.  Moreover, in 1993, the State Department's
Inspector General found that three of the posts it visited had used
routine maintenance funds improperly even though FBO's area managers
had recently spot-checked the posts and had identified no problems. 

FBO officials acknowledge that audits of posts' use of maintenance
funds are important, but question expanding the role area managers
have in helping to ensure compliance with financial procedures.  FBO
officials said that (1) limited resources do not permit area managers
to perform anything but a check on post operations and (2) an audit
function is not appropriate for area managers.  We agree that area
managers should not become auditors.  However, our review indicates
that there are opportunities to make area manager's spot-checks of
financial activities more beneficial.  For example, prior to their
visit, area managers could ask the post to assemble purchase orders
supporting its obligations of routine maintenance funds for the most
recently completed fiscal year.  The area managers could then quickly
review the orders at the post to (1) determine if the use of funds
has been consistent with FBO's procedures and (2) refer any problems
to post management for corrective action.  This could help underscore
the importance of posts' compliance with financial requirements. 


      FACILITIES PLANNING
---------------------------------------------------------- Letter :4.3

Progress has been made in strengthening FBO's planning capabilities. 
In our December 1992 high-risk report, we noted that poor planning
was one of FBO's fundamental management weaknesses, directly
contributing to project delays, cost increases, and questionable real
estate decisions at overseas posts.  At that time, FBO's approach to
strengthening planning called for (1) matching each post's short- and
long-term requirements with existing assets and (2) outlining
budgeting and staffing needs on a 5-year basis.  However, FBO had not
established milestones for developing facilities plans at key posts
or included in the 5-year plan the potential proceeds from sales of
properties as potential offsets to costs in other areas. 

FBO has subsequently taken several actions to improve its capability
to plan for real property programs, including expanding the Planning
and Program Division from 6 to 17 staff members and conducting a
formal analysis of all overseas posts to determine each post's
candidacy for future construction and/or major renovation projects. 
Facilities plans have been prepared for 12 posts, and at the time of
our review, facilities studies were underway at 9 overseas posts. 
FBO also plans to revise its policy on facilities planning.  The
planned revision calls for (1) at a minimum, developing baseline
planning data for each overseas post and (2) developing in-depth
facilities plans for posts having greater planning requirements. 



      RETENTION OF UNDEVELOPED
      LAND
---------------------------------------------------------- Letter :4.4

Inadequate real estate planning at the post level continues to be a
problem.  For example, we found that State has kept undeveloped
properties in Nassau without adequate justification or plans for
their use.  These properties are: 

  Saffron Hill, a 1.95-acre vacant lot adjacent to the ambassador's
     residence, used primarily as an overflow parking lot during
     official receptions at the residence.  The lot was acquired in
     1959 at a cost of $32,000 and its current value\9 is not
     identified in FBO's real estate management system.  According to
     October 1993 post documents, its intended and potential use was
     unknown. 

  Another Saffron Hill property, a 0.6-acre vacant lot across the
     street from the ambassador's residence.  The property was
     acquired in 1975 for $5,000 and has not been used for any
     official purposes.  Its current value is not identified in the
     real estate management system.  According to October 1993 post
     documents, its intended and future use was unknown. 

  Office Building Chancery (OBC) site, 11.12 undeveloped acres
     obtained in 1975 as part of a tax settlement.  Originally
     intended to be used for construction of a new embassy, its
     future use is unknown because of State's decision to purchase
     the existing embassy, which had been part of a long-term lease
     arrangement.  Directly across the street from the OBC site is
     another government-owned property.  This ocean-front property is
     0.71 acres and was also acquired as part of a tax settlement. 
     Post officials could not identify its intended or future use. 

Although the need to dispose of the OBC site and the property across
from it was recognized in 1993, FBO and the post have failed to
properly manage the disposition process.  Specifically, the post
received two appraisals in 1993 for the OBC site and the ocean-front
property near it, ranging between $900,000 and $2.5 million. 
However, according to FBO officials, the discrepancies in appraisal
value and the lack of supporting documentation and data in the
appraisals prompted FBO to request additional information from the
post in February 1994.  FBO officials said that no response was
received and a follow-up cable was sent in June 1994 and again in
November 1994.  According to FBO, the market value of these
properties needs to be accurately determined before they can be sold. 

Appraisals for the other two undeveloped properties near the
ambassador's residence had not been conducted at the time of our
fieldwork.  According to information provided by FBO in November
1994, the property adjacent to the ambassador's residence was not
considered excess to government needs because it is used for overflow
parking.  FBO also stated that the other parcel was held pending the
identification of "high return" purchases the post could enter into
and fund with the proceeds of sale of that property.  However, in
March 1995, FBO officials said that neither of these two lots had
been disposed of because the post reported that both are required for
overflow parking at the ambassador's residence during official
functions.  Parking may be an issue at the ambassador's residence
when official receptions are held, but the post's stated reasons for
the retention of two properties for overflow parking should be based
on a comparison to the properties' potential disposal value. 

On a larger scale, State previously included in its annual budget
requests the potential proceeds from the sale of properties as an
offset to other funds being requested.  However, FBO officials have
now taken the position that it is not practical because of the long
time frame required for development of budget estimates, the volatile
nature of overseas real estate markets, and the complexities of
marketing high-value properties.  We are currently reviewing FBO's
policies and procedures for disposing of overseas real property that
does not meet U.S.  government needs and for using the proceeds from
property sales. 


--------------------
\9 According to FBO, current values are only reflected in the real
estate management system when appraisals have been conducted for
disposal or acquisition of property. 


   SOME LIMITATIONS IN INFORMATION
   SYSTEMS CONTINUE
------------------------------------------------------------ Letter :5

FBO has taken actions to upgrade and expand its information systems. 
In our 1992 high-risk report, we pointed out that FBO's real estate
management system did not fully support management functions because
it did not provide historical cost information or maintenance and
repair information for each building overseas.  As a result, FBO
could not (1) track costs for each building, (2) determine the total
costs of operating properties, (3) budget for future building costs,
or (4) develop performance measures for property management purposes. 
At the time of our 1992 report, FBO had begun installing an enhanced
version of the automated real estate management system at the
overseas posts.  Since then, the enhanced system has been installed
at 71 posts, providing automated data on approximately three-fourths
of the real property inventory.  Current plans call for installing
the system at most remaining posts in the next few years.  FBO has
also developed an information resource management system, which
consists of several integrated applications, including project
management and budget planning and allocation. 

Although these systems have helped to strengthen FBO and post
capabilities to report on and manage real property, some weaknesses
continue.  As already noted, the real estate management system does
not contain complete and current information on the value of overseas
property.  We found that although FBO has developed an automated work
order component of the system that can track maintenance costs for
individual buildings, some posts have not fully or correctly utilized
it.  For example, the automated work order system at the post in
London was not fully operational and contained inaccurate inventories
of equipment requiring preventive maintenance.  In Vienna, management
oversight was unnecessarily complicated because the work order
process was split into two separate automated systems--the real
estate management system for residential units and other properties
outside the embassy compound and a system developed by the post for
managing maintenance at the embassy and the consulate.  In Nassau, we
found that the PC-based system installed by FBO to facilitate the use
of a work order program was not used.  In Singapore, the post's use
of the work order system was limited to monitoring landlord
maintenance, and the equipment inventory had not been updated for
years. 

The automated real estate management system also does not track or
report on compliance of overseas residences with the State
Department's housing space standards.  This reduces State's ability
to monitor the extent individual posts are (1) effectively managing
housing assignments and (2) minimizing the number of housing units
that exceed space standards.  About 88 percent of the embassies
responding to our 1993 questionnaire reported that some housing units
at their embassy exceeded the State Department's residential housing
space standards, and 61 percent reported that 10 percent or more of
the housing units exceeded standards.  Sixty-two percent estimated it
would take 2 years or more to be in compliance with the standards. 
We found that some problems are still being experienced in meeting
those standards.  In Vienna, for example, post officials estimated
that nearly 25 percent of the residential units exceed space
standards. 

FBO officials said that it may be accurate to state that certain
residences in Vienna exceed the standards for the current occupant,
but noted that the housing profile system used by FBO allows such
assignments if the properties are within the post's approved
profile.\10 However, the automated real estate management system did
not identify the eight housing units that were outside the approved
profile and the post had not applied for or received FBO waivers for
exceeding the standards.  FBO officials acknowledged that the system
cannot currently identify out-of-profile properties that do not have
waivers.  However, they said that the system can now identify
approved waivers and with further instructions to the posts, waivers
in relation to profiles can be tracked.  FBO officials added that the
next step--the generation of compliance reports and statistics
related to profiles and waivers--would then be possible. 

FBO also recognizes that overall weaknesses in accountability over
real property transactions continue.  To upgrade its system
capability, FBO is examining the potential for integrating data
maintained in the Department's new information financial management
system and the FBO real estate management system.  FBO hopes to (1)
define common data requirements that can be shared between the two
systems and (2) ascertain where the existing systems meet or fail to
meet requirements.  Complementing this effort is a planned audit by
State's Inspector General.  Planned objectives of the audit include
determining whether FBO's systems contain adequate data to serve as
subsidiary accounting records for real property and whether FBO has
sufficient internal controls. 


--------------------
\10 Housing profiles identify the mix of housing units authorized to
meet the post's position structure and the projected family size of
occupants. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

We recommend that the Secretary of State strengthen real property
management by taking the following actions: 

  Revise and clarify State's policies and procedures governing the
     use of routine maintenance and repair funds, adding a checklist
     of appropriate and nonappropriate charges to the routine
     maintenance and repair allotment. 

  Expand FBO's financial audit program to ensure coverage of a
     greater number of overseas posts and use FBO's area manager
     program to have a more comprehensive check of posts' use of
     routine maintenance funds.  Area managers' checklists should
     also be expanded to cover other key problems, including the
     extent posts (1) conduct annual facility conditions surveys and
     (2) use the automated real estate management system for work
     order management. 

  Use FBO's automated real estate management system to report on and
     monitor whether housing units at each post comply with existing
     space standards, approved housing profiles, and space waiver
     requirements.  FBO should also be directed to use these reports
     to enforce compliance with State's space standards. 

  Develop a plan of action with associated time frames for selling
     unneeded property in Nassau.  The plan should (1) require
     updated appraisals of the value of the former OBC site and the
     ocean-front property near it and (2) include supporting analysis
     and justification for retaining two properties for parking near
     the ambassador's residence, compared to the potential sales
     proceeds that could be realized from the sale of one of the
     properties. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

Our work was conducted at FBO headquarters and at seven overseas
posts.  These posts were London, England; Vienna, Austria; Santo
Domingo, Dominican Republic; Nassau, the Bahamas; Singapore,
Singapore; Kuala Lumpur, Malaysia; and Port Moresby, Papua New
Guinea.  These posts were selected because none of them had been
subject to an FBO financial audit and because the size of their
allotments of routine maintenance funds varied significantly. 

We reviewed pertinent records and documents, including the FAM and
FBO's guidance on use of funds; global maintenance surveys and
facilities evaluation and assistance program reports; FBO's financial
audit, real estate management system, and area management trip
reports; and posts' status of obligation reports, purchase orders,
and work order reports.  We also interviewed appropriate FBO and post
personnel and visited several post properties.  We did not obtain
State Department's comments on this report.  However, informal
comments on a draft of this report were received from FBO officials
and were incorporated in the report as appropriate.  We conducted our
review from February 1994 to February 1995 in accordance with
generally accepted auditing standards. 


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

As you know, the head of a federal agency is required under 31 U.S.C. 
720 to submit a written statement on actions taken on our
recommendations to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight not later than
60 days after the date of the report and to the Senate and House
Committees on Appropriations with the agency's first request for
appropriations made more than 60 days after the date of the report. 

Please contact me at (202) 512-4128 if you or your staff have any
questions concerning this report.  The major contributors to this
report are listed in appendix I. 

Sincerely yours,

Joseph E.  Kelley
Director-in-Charge
International Affairs Issues


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:1

John Brummet
Lynn Moore
Jesus Martinez
Olivia Parker


   EUROPEAN OFFICE, FRANKFURT,
   GERMANY
--------------------------------------------------------- Appendix I:2

Bettye Caton
Neyla Arnas


   FAR EAST OFFICE, HONOLULU,
   HAWAII
--------------------------------------------------------- Appendix I:3

Dennis Richards
Robert Sanchez

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