State Department: Actions Needed to Improve Embassy Management (Letter
Report, 03/12/96, GAO/NSIAD-96-1).

Pursuant to a congressional request, GAO reviewed the Department of
State's efforts to improve the management of its embassies, focusing on
whether State has responded to previous recommendations concerning
embassy management.

GAO found that: (1) State has not responded to the recommendation that
it establish proactive management improvement programs at its overseas
posts because it believes that its approach of targeting specific areas
for improvement is more appropriate and achieves comparable longterm
results; (2) State has initiated action on some congressional
recommendations to improve its embassy management, but deficiencies
continue in controls over personal property, training for U.S. and
foreign service personnel, contracting and procurement practices,
controls over cashiering functions and medical insurance reimbursements,
and senior-level oversight; (3) the embassies in Turkey, Bangladesh, and
Tunisia have initiated management practices, such as tracking accounts
receivable, automating travel vouchers, strengthening internal controls,
improving regulation compliance, reducing costs, and enhancing
efficiency and effectiveness; and (4) embassy senior managers
participate in the day to day operations of their posts and use existing
reporting requirements to document administrative problems and decide on
appropriate corrective actions.

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

 REPORTNUM:  NSIAD-96-1
     TITLE:  State Department: Actions Needed to Improve Embassy 
             Management
      DATE:  03/12/96
   SUBJECT:  Internal controls
             Financial management systems
             Embassies
             Human resources training
             Personal property
             Reengineering (management)
             Federal property management
             Cost control
             Employment of foreign nationals
             Management information systems
IDENTIFIER:  Dept. of State Overseas Financial Management System
             Dept. of State Integrated Financial Management System
             Dept. of State Central Financial Management System
             Dept. of State Mission Program Plan
             Dept. of State Non-Expendable Property Application System
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Government Reform and Oversight,
House of Representatives

March 1996

STATE DEPARTMENT - ACTIONS NEEDED
TO IMPROVE EMBASSY MANAGEMENT

GAO/NSIAD-96-1

State Department

(711073)


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

  MPP - Mission Program Plans
  NEPA - non-expandable property application
  OIG - Office of the Inspector General

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


B-266136

March 12, 1996

The Honorable William F.  Clinger, Jr.
Chairman, Committee on Government Reform
 and Oversight
House of Representatives

Dear Mr.  Chairman: 

As requested by the former Chairman, House Committee on Government
Operations, we have assessed the State Department's efforts to
improve the management of its overseas posts.  Specifically, we
reviewed State's actions to implement the recommendations made in our
July 1993 testimony and your Committee's November 1993 report.\1 We
also identified management practices that could be used to improve
operations at other embassies. 


--------------------
\1 Widespread Management Weaknesses at Overseas Embassies
(GAO/T-NSIAD-93 -17, July 13, 1993) and State Department
Mismanagement of Overseas Embassies:  Corrective Actions Long
Overdue, House Committee on Government Operations, November 22, 1993. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The State Department operates over 160 embassies and over
100 consulates at a cost of about $2 billion annually.  The embassies
perform diplomatic and consular functions and provide administrative
support for other U.S.  agencies.  State employs over 7,300 U.S. 
Foreign Service officers, about 10,000 Foreign Service nationals, 650
U.S.  contractors, and 30,000 Foreign Service national contractors. 
Worldwide, embassies manage about $600 million worth of personal
property, procure about $500 million in goods and services annually,
and share management responsibilities for about $12 billion in
housing and other real properties.  Embassies also have
responsibility for over $2 million annually in accounts receivable,
such as medical expenses. 

For decades, long-standing management deficiencies have weakened
administrative operations at the embassies, and millions of dollars
remained unnecessarily vulnerable to fraud, waste, and abuse.  We
have previously criticized State's deficient controls over embassies'
personal and real property, cashiering operations, contract
administration, and training.  In July 1993, we testified that
management deficiencies continued to plague embassies' operations. 
We suggested that each embassy establish a formal management
improvement program to ensure sound management practices by
documenting problems and monitoring corrective actions. 

For years, Congress has been concerned about State's reluctance to
address management and internal control problems that have
historically reduced the effectiveness of its operations.  In its
November 1993 report, the House Committee on Government Operations
stated that State should implement our recommendation that each
embassy adopt a formal management improvement plan.  On the basis of
prior reviews by us and State's Office of the Inspector General
(OIG), the Committee also recommended that State (1) strengthen
controls over personal property, (2) ensure that appropriate training
is available for U.S.  and foreign service national personnel, (3)
implement contracting and procurement improvements, (4) eliminate
control problems in cashiering functions, and (5) develop systems to
track and collect medical insurance reimbursements. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

State has not implemented our suggestion, conveyed in testimony and
endorsed by Congress, that each post establish a proactive management
improvement program, nor has it fully implemented the Committee's
recommendations.  State did take some actions to improve embassy
management controls.  These actions included providing additional
embassy guidance and oversight in safeguarding resources and revising
the overseas risk assessment questionnaire--a tool designed for posts
to identify management weaknesses.  However, these initiatives were
inconsistently implemented at embassies we visited.  Thus,
long-standing management deficiencies continue to reduce the
efficiency and effectiveness of many embassies' operations. 

By contrast, three embassies (Ankara, Turkey; Dhaka, Bangladesh; and
Tunis, Tunisia) have initiated management practices to improve
administrative operations.  These practices, which include tracking
accounts receivables and automating travel vouchers, strengthened
internal controls, improved compliance with regulations, reduced
costs, and enhanced the efficiency and effectiveness of operations. 
In addition, these embassies were markedly distinguished from other
posts we visited by the active involvement of senior management and
use of existing reporting mechanisms, such as the certification of
internal controls, the Mission Program Plan, and the revised risk
assessment questionnaire, to routinely document administrative
problems and corrective actions taken.  These management practices
could be replicated at other embassies. 


   STATE HAS NOT FULLY IMPLEMENTED
   RECOMMENDATIONS
------------------------------------------------------------ Letter :3

State has not implemented our suggestion that all posts establish
formal management improvement programs to identify and correct
deficiencies.  State officials believe that their approach of
targeting specific areas for improvement is more appropriate and
achieves comparable results in the long term.  We continue to believe
that if State were to use existing mechanisms for managing embassy
operations, such as the Mission Program Plan, it could more quickly
and easily achieve the intent of our 1993 recommendation.  (See app. 
I.)

State has responded to recommendations contained in the House
Committee on Government Operations' report by initiating some
specific actions designed to improve its management over embassy
operations.  These actions, although steps in the right direction, do
not go far enough to ensure that each embassy is improving its
operations.  We and the State's OIG continue to find deficiencies in
(1) controlling personal property; (2) training for U.S.  and foreign
service national personnel; (3) contracting and procurement
practices; (4) poor controls over cashiering functions; (5) medical
insurance reimbursements; and (6) senior-level oversight of
operations. 


      CONTROLS OVER PERSONAL
      PROPERTY
---------------------------------------------------------- Letter :3.1

In November 1993, the House Committee on Government Operations
recommended that the State Department take the following actions to
strengthen controls over personal property: 

  establish more stringent procedures and guidance for receiving and
     issuing personal property overseas;

  improve the nonexpendable property application software to enhance
     reconciliation capability;

  provide increased and specialized training for Foreign Service
     officers and nationals;

  revise volume 6 of the Foreign Affairs Manual to require property
     officers to retain inventory records and other pertinent
     documentation in post files for 3 years; and

  adopt a zero-tolerance policy with respect to personal property
     losses. 

In July 1993, before the Committee's report, State updated volume 6
of the Foreign Affairs Manual to include revised personal property
regulations for all diplomatic and consular posts.  This updated
guidance incorporated changes in assigned responsibilities and
federal regulations.  The revised regulations also clarified
accountability criteria for ensuring internal controls.  On the basis
of the new regulations, State's Property Management Branch, which is
responsible for central oversight for domestic and overseas personal
property management, issued an instruction handbook that was intended
to be an easy reference for posts to ensure compliance with
management of personal property overseas.  However, branch officials
acknowledged that a number of posts were still not in compliance. 
During fiscal year 1994, branch staff visited 20 of the 260 posts to
verify their annual inventory certification.  Branch officials said
that 14 posts failed to provide documentation that physical
inventories were conducted.\2 Although posts that do not provide
inventory certifications can be subject to a withholding of funds for
personal property acquisitions, and individuals that either refused
to certify or falsely certified inventories can be subject to
punitive actions, we found no instances in which money was withheld
or individuals were sanctioned for not following property management
procedures. 

According to State, it has a zero tolerance policy on personal
property loses for fraudulent behavior, but it does not believe it to
be in the taxpayers' interest to pursue small shortages; therefore,
in November 1993, it adopted a 1-percent tolerance.  State adopted
this policy because the 1-percent level is commensurate with that of
private industry and State officials believed that the cost to pursue
shortages of less than 1-percent would outweigh any benefits.  State
officials said they required posts to submit to headquarters the
amount of losses incurred in fiscal year 1994.  Of the 160 posts that
submitted such information, only 15 exceeded the 1-percent level. 

In 1989, to improve property management and accountability, State
integrated an inventory reconciliation software package with its
non-expendable property application (NEPA) software at about 210 of
the overseas posts.  State is testing a new application of NEPA, but
it has not yet determined how NEPA and other subsidiary systems will
function with the planned Integrated Financial Management System.\3
In August 1994, we reported that this system was at a high risk of
failure because of State's inadequate management and planning and
therefore might not solve long-standing financial management and
internal control problems.\4


--------------------
\2 In commenting on a draft of this report, State reported that 12 of
the 14 posts had subsequently submitted the required inventory
certification. 

\3 This system is intended to be a single integrated accounting
system that links State's worldwide operations and provides managers
at all levels with reliable financial information to plan and conduct
operations. 

\4 Financial Management:  State's Systems Planning Needs to Focus on
Correcting Long-Standing Problems (GAO/AIMD-94-41, Aug.  12, 1994). 


      TRAINING FOR U.S.  AND
      FOREIGN SERVICE NATIONAL
      PERSONNEL
---------------------------------------------------------- Letter :3.2

The Committee recommended that State train both U.S.  Foreign Service
officers and Foreign Service national employees in the areas of
procurement and acquisition, real property management and
maintenance, personal property, and budget and fiscal
responsibilities.  State's training arm--The Foreign Service
Institute--offers training in most of these areas.  State
acknowledged that, in some cases, Foreign Service officers report to
posts without such training.  And, according to the Director of the
Office of Foreign Service National Personnel, training Foreign
Service nationals is not a priority because of the high costs
involved in bringing Foreign Service nationals to Washington, D.C. 

Although State says it has focused on increasing its regional
training of Foreign Service nationals, those we interviewed said that
training was still limited, often not timely, and generally not
offered in their native language.  Of the seven posts we visited,
only Paris had formal training programs that identified or provided
opportunities for the training requirements of Foreign Service
nationals or officers. 

State is exploring ways to increase the role of Foreign Service
nationals in administrative operations overseas.  However, the
Foreign Service Institute does not have a formal plan in place to
ensure that Foreign Service nationals receive adequate training. 
Transferring more responsibility to Foreign Service nationals without
proper training is likely to weaken compliance with internal
controls. 


      CONTRACTING AND PROCUREMENT
      PRACTICES
---------------------------------------------------------- Letter :3.3

In 1993, the Committee recommended a number of actions to improve
contracting and procurement practices.  These included (1) requiring
training for all Foreign Service officers and Foreign Service
nationals responsible for contracting and procurement, (2) developing
and implementing a procurement management information system that
includes overseas procurement operations, (3) requiring each post to
fully implement the worldwide procurement data system and provide
each with appropriate software, (4) requiring each post to appoint a
competition advocate and establish a competition advocacy program,
and (5) requiring posts to develop advance acquisition plans each
fiscal year. 

To address the need for procurement training, State established new
training requirements for contracting officers, including training
seminars for about 100 employees at seven regional centers.  However,
only 150 of the 700 officers overseas have received required training
for standard contracting authority up to $250,000.  The rest of
State's overseas contracting officers have provisional contracting
authority up to $100,000.\5 Procurement officials estimate that it
will take many years before all of these officers complete their
training.  In addition, some Foreign Service nationals responsible
for maintaining contracting files indicated that they were not
adequately trained.  For example, one Foreign Service national told
us she had been involved in procurement actions for 6 years before
receiving formal training. 

State developed a worldwide procurement database to meet the minimum
legal and regulatory overseas procurement reporting requirements. 
This database is currently in use at 193 (or 73 percent) of the 265
overseas posts.  This database, however, only reports the number and
types of contract actions.  It is not used to manage, monitor, or
ensure control over embassy procurement operations. 

Most of the posts we visited had not established a competition
advocacy program called for by the Committee.  The lack of such a
program contributed to the failure of some posts to fully compete or
review their contract actions and prepare and maintain required
documentation.  None of the posts had a written policy to advertise
solicitations or had evidence that solicitations were authorized. 
Also, most posts did not maintain a current vendor list, and
therefore, could not be assured that all potential sources had been
solicited. 

Several of the embassy officials we met with said they had not
received or could not locate headquarters' guidance stipulating the
need of advance acquisition planning.  In addition, none of the
officials had developed an advance acquisition plan ranking essential
procurements. 


--------------------
\5 State instituted a program in October 1992 that grants contracting
officers with provisional contracting authority up to $100,000.  Once
training is completed, the officer is granted authority up to
$250,000. 


      CONTROLS OVER CASHIERING
      FUNCTIONS
---------------------------------------------------------- Letter :3.4

Embassy cashiers are responsible for the day-to-day payment,
collection, deposit, and reconciliation of funds advanced by regional
disbursement centers.  Cashiering operations are supervised by U.S. 
disbursing officers located at those centers. 

To improve controls over cashiering, in 1993, the Committee
recommended that State

  fully fund the implementation of a worldwide standardized and
     integrated financial management system,

  adopt standardized accounting systems,

  increase monitoring and oversight of overseas cashiering
     operations,

  improve oversight of U.S.  disbursing officers operations to ensure
     that transactions and accounts are properly recorded and
     reconciled, and

  require all posts to train staff in safeguards and procedures to
     prevent theft or misuse of official funds. 

State has not fully implemented the computerized Integrated Financial
Management System;\6 therefore, controls over cashiering continue to
be manual and dependent on noncompliant financial systems in the
majority of overseas posts.  Although reconciliations are required
monthly at overseas post, only about one-third of embassies'
cashiering operations are currently reviewed each year by external
review teams from the State's Financial Service Centers. 
Headquarters officials said that losses have been minimal, but
acknowledged that major problems could occur. 

To gain control over disbursing operations overseas, State has
centralized 18 of 19 disbursing operations with its 3 regional
administrative management centers and plans to relocate the 1
remaining operation (Brasilia).  State's Deputy Chief Financial
Officer and Deputy Assistant Secretary for Finance initiated this
action to improve oversight and management controls over disbursing. 

State also created the Office of Overseas Financial Management and
Oversight under the Chief Financial Officer.  However, officials from
this office said that fiscal irregularities were continuing due to
(1) the lack of trained U.S.  Foreign Service officers and nationals
on cashiering practices, (2) negligence, and (3) malfeasance. 

To address the Committee's recommendation to train staff on financial
controls, in June 1994, at the Regional Administrative Management
Center in Mexico City, State trained about 40 budget and fiscal
officers and
40 supervisory Foreign Service nationals from the posts in Mexico on
safeguards and procedures to prevent theft or misuse of funds. 
However, State officials said more regional training was needed for
the hundreds of Foreign Service nationals supporting State's budget
and fiscal operations overseas. 


--------------------
\6 The Integrated Financial Management System is intended to be a
single integrated accounting system that links State's worldwide
operations and provides managers with reliable financial information
to plan and conduct operations.  We reported in 1994 that this system
ran a high risk of failure because State's management and planning
has been inadequate. 


      MEDICAL INSURANCE
      REIMBURSEMENTS
---------------------------------------------------------- Letter :3.5

In 1993, the Committee recommended that State (1) develop and
implement systems that identify and report on overseas medical
expenses paid, claims filed, and amounts reimbursed to the government
and (2) require all Foreign Service officers serving overseas to
carry private medical insurance.  State's Office of Medical Services
now assigns an obligation number for each medical claim and
authorizes payment by the overseas posts.  The embassy notifies the
office of each payment, and an accounts receivable and corresponding
billing documents are then established in the Central Financial
Management System.  These actions resulted in collections of over $1
million in fiscal year 1994, including funds owed since 1991. 
According to a Medical Services official, the collection system
applies to State employees only.  It does not cover employees of
other agencies that may receive medical services overseas. 

Although State still does not require Foreign Service officers to
have private medical insurance before they are assigned overseas, it
has stopped paying claims for hospitalization of those without
insurance with the exception of the hospital admission charge, which
must be promptly reimbursed. 


      SENIOR-LEVEL OVERSIGHT OF
      OPERATIONS
---------------------------------------------------------- Letter :3.6

In 1993, the Committee called for increased oversight of operations
by senior officials both in Washington and at the embassies.  State
officials acknowledged that a greater emphasis should be placed on
management controls, and that commitment and support should come from
the top.  To enhance senior managers' commitment at posts, State has
introduced a number of actions intended to address the managers'
systemic disregard for sound management practices and establish
accountability for carrying out headquarter's requirements.  For
example, State now emphasizes the importance of management controls
and responsibility for those controls to newly appointed ambassadors
during preassignment briefings and in the Secretary's Chief of
Mission Authority Letter.  The Chiefs of Mission are required to
develop a Mission Program Plan that will form the basis for the
missions' major activities and resource allocations and have the plan
approved by the Assistant Secretary of State.  They are also required
to reduce mission costs whenever possible, implement sound management
controls to ensure that government resources are maximized and
protected, and certify annually that management controls are
adequate. 

Another action to increase senior-level attention to embassy
management included the addition of a management control segment to
the training course for new Deputy Chiefs of Mission.  This segment
defines management controls, emphasizes using the Mission Program
Plan, and encourages the use of the risk assessment questionnaire. 
In addition, the risk assessment questionnaire was revised to include
questions covering the minimum controls necessary for facilities
maintenance, contracting, and medical reimbursements. 

These initiatives were inconsistently applied at the posts we
visited.  However, as discussed below, posts that employed sound
management practices had the active involvement of the Deputy Chief
of Mission serving as a Chief Operating Officer. 


   SOME EMBASSIES' MANAGEMENT
   PRACTICES HAVE IMPROVED
   OPERATIONS
------------------------------------------------------------ Letter :4

Some embassies have implemented practices on their own to improve
administrative operations.  Practices, such as those we observed in
Ankara, Tunis, and Dhaka, could be used by other embassies to
strengthen management controls, reduce costs, foster accountability,
and increase compliance with applicable regulations. 

Embassies in Ankara, Tunis, and Dhaka introduced operational
improvements to address and correct continuing deficiencies in the
areas of property management, training, contract administration, and
cashiering.  For example, in Tunis and Ankara, setting performance
targets for inventory control and accountability resulted in more
efficient property utilization and reduced losses from theft. 
Cross-training programs for Foreign Service nationals within the
budget and finance offices in Tunis and Ankara increased their
supervisors' flexibility to fill staffing gaps and enhanced morale
among their subordinates.  In Tunis and Dhaka, the implementation of
internal control checklists for contract administration ensured that
their contracting and procurement operations were in compliance with
regulations.  All three posts have developed systems for tracking and
collecting accounts receivables, which resulted in more
accountability, cost savings, and reduced vulnerabilities to fraud,
waste, and abuse.  Table 1 summarizes the initiatives at these posts. 



                                     Table 1
                     
                         Initiatives That Contributed to
                       Improving Administrative Operations

                          Administrativ
Initiative                e area         Impact                    Embassy
------------------------  -------------  ------------------------  -------------
Automated Travel Voucher  Budget and     Improved efficiency of    Tunis,
Processing System         fiscal         embassy services.         Tunisia
                                         Reduced processing time
                                         from 31.5 to 3 days.

Cross training            Budget and     Increased skill level of  Tunis,
                          fiscal, and    Foreign Service           Tunisia, and
                          sections of    nationals, provided       Ankara,
                          general        flexibility for           Turkey
                          services       managers, and improved
                                         efficiency of
                                         operations.

Performance targets       Budget and     Enabled Foreign Service   Ankara,
                          fiscal         nationals to know         Turkey, and
                                         expectations and time     Tunis,
                                         frames for their          Tunisia
                                         completion. Increased
                                         efficiency and
                                         effectiveness.

Voucher recertification   Budget and     Ensured compliance with   Tunis,
checklist                 fiscal         regulations and helped    Tunisia
                                         reduce vulnerability to
                                         fraud, waste, and abuse.

Unused Ticket Refund      Budget and     Ensured compliance with   Tunis,
System\a                  fiscal         regulations and           Tunisia
                                         protected funds from
                                         waste. Resulted in
                                         $13,000 savings in
                                         fiscal year 1994.

In-house systems to       Budget and     Ensured compliance with   Tunis,
track accounts            fiscal         regulations and helped    Tunisia;
receivable and other                     ensure timely collection  Ankara,
collections                              of U.S. funds.            Turkey; and
                                                                   Dhaka,
                                                                   Bangladesh

Standard Operating        Budget and     Ensured compliance with   Dhaka,
Procedures Manuals        fiscal, and    regulations and           Bangladesh;
                          general        established consistent    Tunis,
                          services       procedures.               Tunisia; and
                                                                   Ankara,
                                                                   Turkey

Checklist for guidance    Contracting    Ensured compliance with   Tunis,
on solicitation of        and            regulations.              Tunisia
contract bids             procurement

Review of local           General        Allowed posts to operate  Dhaka,
utilities' charges for    service        cost effectively and      Bangladesh
accuracy                  officers       reduce vulnerability of
                                         funds to fraud and
                                         waste. Saved $116,000 in
                                         1994. Additional savings
                                         were expected in 1995.
--------------------------------------------------------------------------------
\a All posts are required by regulations to recoup funds on unused
tickets.  However, if posts do not have systems in place to track
these types of accounts receivable, U.S.  funds may not be adequately
safeguarded against waste. 

We discussed these practices with State Department officials in
Washington, D.C., and determined that the initiatives could be used
to improve operations at other posts, as applicable.  They said that
many of these practices could be introduced by the post planning
processes and would greatly assist in their efforts to achieve real
management reform of embassy operations.  As budget uncertainties
continue, implementation of these practices could provide overseas
managers with more flexibility in managing their operations. 

These posts had two other practices in common--the direct involvement
of senior officials in post's operations and the use of existing
management tools to address deficiencies.  These practices could also
be replicated at other embassies. 


      DIRECT INVOLVEMENT OF SENIOR
      OFFICIALS
---------------------------------------------------------- Letter :4.1

At embassies in Ankara, Tunis, and Dhaka, the Deputy Chiefs of
Mission and sometimes the Chiefs of Mission are directly involved in
embassy administration.  The commitment of these officials to
management was demonstrated through regularly scheduled meetings to
discuss management issues, an open-door policy for the resolution of
problems, and daily reviews of management operations. 

The Deputy Chiefs of Mission served as the Chief Operating Officer at
all three missions.  These officials emphasize a zero-tolerance
policy for inadequate management controls.  They use management
reviews and performance evaluations to hold section managers
accountable for adequate internal controls and corrections of
management deficiencies.  In addition, the Deputy Chiefs of Mission
regularly reinforce the importance of internal controls to
administrative staff through counseling, according to embassy
officials. 

Embassy managers stressed the importance of senior management
involvement in the management of operations and said senior officials
set the tone for how well their administrative staff will manage
embassy operations.  Reports by State's OIG have documented the
critical link between the emphasis placed on internal controls by
senior officials and the attention given to the management issues
throughout the embassy. 


      USE OF EXISTING MANAGEMENT
      TOOLS TO ADDRESS WEAKNESSES
---------------------------------------------------------- Letter :4.2

Senior managers at embassies in Ankara, Tunis, and Dhaka have
successfully used existing, agencywide reporting requirements to
address and correct management deficiencies.  These include the
Mission Program Plan, risk assessment questionnaire, and
certification of internal controls. 


         MISSION PROGRAM PLAN
-------------------------------------------------------- Letter :4.2.1

In 1990, the mission program planning process began.  The Mission
Program Plan is a long-range planning document that is updated
annually to address the objectives of the mission and the resources
needed to fulfill those objectives.  It addresses all areas of
embassy operations, including administrative operations.  According
to State guidance, the plan should include milestones for critical
progress points and completion of action.  The plan also has a
performance and evaluation component. 

The Mission Program Plans for the embassies in Ankara, Dhaka, and
Tunis all incorporated detailed statements of objectives and
responsibilities within the administrative section, which helped
management focus attention on identifying problems and developing
corrective action plans.  For example, in Ankara the Mission Program
Plan establishes time frames for the correction of management
deficiencies, and identifies offices that are accountable for the
corrections.  According to officials in the Office of Management and
Planning, State is encouraging the posts to use this mechanism to
address management weaknesses and increase accountability by tying
resource allocations to objectives of the plan (see app.I).  While
there are few posts that currently do this, our review indicates that
using the Mission Program Plan to address deficiencies would be
consistent with our recommendation that each post establish a
proactive management improvement plan. 


         RISK ASSESSMENT
         QUESTIONNAIRE
-------------------------------------------------------- Letter :4.2.2

The risk assessment questionnaire identifies internal control
weaknesses.  State's policy requires posts to complete these
questionnaires just before an inspection by the OIG, which usually
occurs every 4 to 5 years.  However, to help ensure adequate internal
controls at the posts, State sent a February 1994 cable to all
overseas posts that encouraged them to use the risk assessment
questionnaire as frequently as local conditions warrant. 

The embassies at Ankara, Dhaka, and Tunis have used the risk
assessment questionnaire at least once a year to assess
administrative weaknesses.  The questionnaires have provided input
for the planning process and served as a foundation for the annual
certification of internal controls.  These posts also used the
questionnaire to link management controls to goals and objectives in
the Mission Program Plan.  For example, in Ankara, administrative
officers developed detailed corrective action plans, including
milestones, based on the results of their questionnaires. 

Officials at these posts agreed that the questionnaire was an
excellent management tool for identifying potential problems and that
it can be completed with minimal effort.  Officials in Washington
asserted that all embassies should use the questionnaire on a more
frequent basis.  Officials in the Office of Finance and Management
Policy said they encourage posts to use the questionnaire as a
self-assessment management tool and find that posts that are
concerned about management use the questionnaire annually, and posts
less concerned about management only use the questionnaires prior to
an inspection. 


         CERTIFICATION OF INTERNAL
         CONTROLS
-------------------------------------------------------- Letter :4.2.3

The Chiefs of Mission are required by the Secretary of State to
certify the adequacy of management controls each year.  These
certifications are to aid the Secretary of State in preparing the
annual report required by the Federal Managers' Financial Integrity
Act.  The mission chiefs at the embassies in Ankara, Dhaka, and Tunis
said they did not sign their certifications until they were sure that
spot checks had been conducted to ensure the veracity of the
certification.  Officials in the other four posts we visited did not
use the questionnaire to validate their certifications and their
Chiefs of Mission relied solely on their administrative officer's
opinion without conducting spot checks in certifying the posts'
internal controls. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :5

We recommend that the Secretary of State expand the operational
improvements discussed in this report to a minimum of 50 other
embassies on a test basis to help improve operations.  If the test
demonstrates the applicability of these improvements in a variety of
posts, the practices should be further expanded until the maximum
benefits are achieved. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of this report, State Department officials
stated that improving the management of its overseas operations was a
high priority and that it would like to see the overseas posts use
the practices that we identified as a positive management tool in
ways that make sense for their particular circumstances and
environments.  State believes it needs to provide overseas posts with
information on the initiatives of other posts, but it does not want
to make the implementation of such practices a requirement.  We do
not believe that relying on voluntary adoption of these practices
will produce the maximum benefits.  The management deficiencies have
existed for decades.  However, because our findings were focused on
only a few overseas posts, and State points out that overseas posts
operate in different environments, we have modified our position from
one that would require all posts to immediately implement the
recommended improvements.  We believe that if State is serious about
trying to improve management of its overseas operations, then out of
its more than 260 posts, it should be willing to pilot test the
recommended actions at a minimum of 50 posts.  If the pilot
demonstrates the applicability of these improvements in a variety of
posts, then State should continue to expand the use of these
practices until the maximum number of posts benefit. 

The Department of State's comments are presented in their entirety in
appendix II along with our evaluation of them. 


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

We interviewed State Department officials in Washington, D.C., who
are responsible for embassy management oversight, to assess actions
taken by State to improve the management of its overseas operations. 
We analyzed documentation related to embassy management improvements
provided by functional managers and documented continuing management
deficiencies from State OIG reports.  (See app.  III for a listing of
related GAO and OIG reports.) In addition, we observed good embassy
practices that could be used at other embassies.  We selected these
embassies based on (1) State OIG reports that identified good
management practices at these posts and (2) the recommendations of
post management officers responsible for embassy oversight.  Overall,
we reviewed operations at U.S.  embassies in Venezuela, Tunisia,
France, Portugal, Turkey, Philippines, and Bangladesh. 

We performed our work from April 1994 to November 1995 in accordance
with generally accepted government auditing standards. 


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

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

Sincerely yours,

Benjamin F.  Nelson, Director
International Relations and Trade Issues


LINKING RESOURCES WITH STATE'S
PLANNING PROCESS
=========================================================== Appendix I

State's primary means for linking foreign policy objectives and
resources is the program planning process.  In a November 1994 cable
to all diplomatic and consular posts, the Under Secretary for
Management informed the Chiefs of Mission that the link between
resources and the mission program planning process was missing;
consequently, budget reductions were enacted without thought to the
future.  The Under Secretary instructed mission management to develop
a mission program plan that reflects mission priorities in both
policy and management areas, actively involves all mission elements
in its preparation, and serves as an instrument for continuous
management improvement. 


   A MORE EFFECTIVE POST PLANNING
   PROCESS WOULD HELP
   INSTITUTIONALIZE MANAGEMENT
   IMPROVEMENT EFFORTS
--------------------------------------------------------- Appendix I:1

State guidance to embassies for preparing the Mission Program Plans
(MPP) for fiscal years 1995 through 1999 attempts to build on
previous planning efforts and encourages posts to embrace MPP as a
management creed of continuous improvement to support the
Department's goal of building an efficient organization.  This
guidance directs embassies to use MPP as a tool to measure progress
in achieving mission objectives, including examining innovative and
lower cost ways to deliver administrative support.  More importantly,
State guidance instructs embassy managers to document how they will
address material weakness in administrative areas when reducing
administrative staff. 

The structure of MPP supports a proactive management improvement
effort.  MPP has an administrative section that reviews financial
management, cashiering, procurement, supplies, and warehousing.  In
addition, MPP has a status of progress section that tracks progress
on administrative and other mission goals. 

The Under Secretary for Management's guidance encourages senior
managers to personally assist in the preparation and implementation
of the plan by (1) objectively measuring or validating results and
adjusting performance through a regular, systematic process; (2)
providing personal leadership and involvement; and (3) holding others
accountable on a regular basis.  Senior officials are also directed
to establish incentives to help institutionalize the use of MPPs.  To
fully achieve these goals, recent headquarters actions have attempted
to link embassy staff work requirements to mission program plans. 
One of these actions was to require that objectives of MPP be
reflected in work requirements statements so that performance can be
linked to the successful achievement of MPP goals.  Assistant
secretaries are also instructed to evaluate the performance of Chiefs
of Missions based on the successful achievement of MPP objectives and
their diligence in evaluating subordinates' performance against MPP
objectives. 


   BUREAU PROCEDURES DESIGNED TO
   IMPROVE PLANNING EFFORTS
--------------------------------------------------------- Appendix I:2

To assist posts in using MPP to manage resources, the Under Secretary
for Management issued 5-year staffing and funding levels for each
geographic bureau.  Bureaus use MPPs to review current resource
deployments against policy priorities and determine the optimal match
of resources and post needs.  Both the Bureau of Diplomatic Security
and the Bureau of International Organization Affairs have established
exemplary bureau planning processes. 

The Bureau of Diplomatic Security initiated an operational planning
system in fiscal year 1987 to establish specific goals and monitor
progress in security programs receiving funds from the Supplementary
Diplomatic Security budget.  This effort has become known as the
Milestone Program.  The program, which is administrated by the
Bureau's Office of Policy, Planning, and Budget, expanded in fiscal
year 1988 to include all bureau programs.  The Milestone Program
applies management-by-objectives criteria to the security programs
managed by the Bureau.  Elements of the program include: 

  meeting monthly to discuss program performance, problems, and
     modifications and revise milestones for the next cycle;

  tracking activities to specific program objectives;

  establishing performance measurements to keep programs in
     compliance;

  tying financial information to program milestones and continually
     analyzing ways to contain costs and streamline activities; and

  fully integrating the Bureau's planning process with its
     milestones. 

Likewise, the Bureau of International Organization Affairs' Internal
Controls Plan uses a management-by-objective process that links
foreign policy and management priorities to resource allocations. 
According to Bureau officials, this plan allows the Bureau to
identify internal control weaknesses and better allocate resources. 
Program planning officials believe elements of these programs can
significantly improve planning efforts at other bureaus. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
STATE
=========================================================== Appendix I



(See figure in printed edition.)

See comment 1. 

See comment 1. 

See comment 1. 

See comment 2. 



(See figure in printed edition.)

See comment 2. 

See comment 2. 



(See figure in printed edition.)

See comment 2. 

See comment 2. 



(See figure in printed edition.)

See comment 3. 



(See figure in printed edition.)

See comment 4. 

See comment 5. 

See comment 6. 



(See figure in printed edition.)

See comment 7. 

See comment 8. 


The following are GAO's comments on the Department of State's letter
dated November 8, 1995. 

GAO'S COMMENTS

1.We have modified our report by stating that branch officials said
that
14 of the 20 posts visited failed to provide documentation that
physical inventories were conducted.  We also footnoted that 12 of
the posts subsequently submitted the required certification at a
later date. 

2.We have modified the report in line with the comment. 

3.We agree that a single automated system for processing travel
vouchers is needed.  However, replication of individual post systems
that work could be beneficial to other posts until State is able to
implement a uniform system for vouchers processed overseas. 

4.Standardized procedures for tracking accounts receivable and other
collections have long been needed in State.  However, we believe that
until standard procedures are implemented, application of automated
systems used at individual posts would prove useful. 

5.We did not recommend that State centrally develop manuals for all
posts.  However, State's endorsement of standard operating procedures
manuals for each post could encourage individual posts to develop
manuals consistent with their individual needs and conditions. 

6.Although State described this practice as a standard procedure, our
review indicated that only a few posts were actually performing this
internal control procedure. 

7.Completion of the risk assessment questionnaire annually by the
posts would optimize the use of this document, which has been
endorsed by the State Department as an excellent management tool.  We
do not believe that it is necessary for Washington to score and
evaluate the questionnaires on an annual basis.  Instead, the posts
could use and score their own questionnaires for self-assessment
purposes during the annual certification process. 

8.The Secretary of State's endorsement of the use of best management
practices throughout State's overseas system, where applicable, would
help demonstrate a commitment from the top to improve management at
the overseas posts.  It would also encourage the use of best
practices, such as automated travel voucher and accounts receivable
tracking system, on a greater scale until agencywide systems are
available. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Diana Glod
John Townes
Janine Cantin
Steven Schamberger
Dennis Richards
Dan Tikvart
Karen Blum



RELATED GAO AND OIG PRODUCTS
============================================================ Chapter 0

GAO PRODUCTS

Internal Controls:  State's Controls Over Personal Property
Management Are Inadequate (GAO/NSIAD-87-156, June 10, 1987). 

Embassy Contracting:  State Department Efforts to Terminate Employee
Association Contracts (GAO/NSIAD-88-85, Feb.  16, 1988). 

Overseas Support:  Current U.S.  Administrative Support System Is Too
Complicated (GAO/NSIAD-88-84, Mar.  25, 1988). 

State Department:  Status of Actions to Improve Overseas Procurement
(GAO/NSIAD-92-24, Oct.  25, 1991). 

State Department:  Need to Ensure Recovery of Overseas Medical
Expenses (GAO/NSIAD-92-277, Aug.  7, 1992). 

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

High-Risk Series:  Management of Overseas Real Property
(GAO/HR-93-15, Dec.  1992). 

State Department:  Management Weaknesses at the U.S.  Embassy in
Mexico City, Mexico (GAO/NSIAD-93-88, Feb.  8, 1993). 

State Department:  Management Weaknesses at the U.S.  Embassies in
Panama, Barbados, and Grenada (GAO/NSIAD-93-190, July 9, 1993). 

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

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

Financial Management:  State's Systems Planning Needs to Focus on
Correcting Long-Standing Problems (GAO/AIMD-94-141, Aug.  12, 1994). 

State Department:  Additional Actions Needed to Improve Overseas Real
Property Management (GAO/NSIAD-95-128, May 15, 1995). 

OIG PRODUCTS

Financial Management Overseas, State Department Inspector General
Report (O-FM-008, Jan.  15, 1990). 

Overseas Foreign Affairs Administrative Support Costs, State
Department Inspector General Report (1-FM-005, Dec.  20, 1990). 

Overseas Procurement Programs, State Department Inspector General
Report (1-PP-004, Jan.  29, 1991). 

Management Improvements in Embassy Cairo's Administrative Operations,
State Department Inspector General Report (3-FM-003, Jan.  12, 1993). 

Report of Inspection, Embassy Paris, France (ISP/I-93-10, Mar. 
1993). 

Buildings Overseas-Maintenance and Repair, State Department Inspector
General Report (3-PP-014, Sept.  14, 1993). 

Report of Inspection, Embassy Ankara, Turkey and its Constituent
Posts (ISP/I-94-02, Oct.  1993). 

Recovery of Overseas Medical Expenses, State Department Inspector
General Report (4-SP-003, Feb.  9, 1994). 

Report of Inspection, Embassy Tunis, Tunisia (ISP/I-94-20, Mar. 
1994). 

Management of Overseas Travel Services, State Department Inspector
General Report (4-SP-009, Feb.  22, 1994). 


*** End of document. ***