State Department: Options for Addressing Possible Budget Reductions
(Chapter Report, 08/29/96, GAO/NSIAD-96-124).

Pursuant to a congressional request, GAO reviewed the Department of
State's reform and cost-cutting efforts and identified options that
would enable State to adjust to reduced budgets.

GAO found that: (1) State does not have a comprehensive strategy to
restructure and downsize its operations to meet potential funding
reductions; (2) State has reduced its staff and implemented some cost
reduction measures, but it has been reluctant to reduce its overseas
presence or change its business practices to accommodate proposed budget
reductions; (3) State believes that substantial downsizing would
severely hamper its achievement of U.S. foreign policy goals and
irreparably harm U.S. interests; (4) because of expected governmentwide
budget constraints and congressional and Office of Management and Budget
(OMB) proposals for even larger decreases in State funding, State is
unlikely to receive the level of funding needed to maintain its existing
activity level; (5) State could reduce costs by reducing duplication
among its bureaus and with outside agencies with which it shares program
responsibility, streamlining or eliminating some informational reports,
eliminating or consolidating certain personnel positions, recovering
some service costs from users, and expanding the authority of chiefs of
mission over all U.S. government fiscal and staffing resources at
overseas posts; (6) State has the opportunity to significantly reduce
costs by reducing the size of overseas posts, which consume about 70
percent of State's budget; and (7) State could reduce support costs,
which constitute two-thirds of its budget, by recouping support costs
from other agencies, hiring more U.S. family members for overseas
positions, adjusting employee benefits and allowances, increasing tour
lengths, reducing costs for Marine guards at overseas posts, reducing
headquarters support staff, using more foreign nationals in support
positions, disposing of unneeded overseas real estate, and reengineering
and outsourcing administrative functions.

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

 REPORTNUM:  NSIAD-96-124
     TITLE:  State Department: Options for Addressing Possible Budget 
             Reductions
      DATE:  08/29/96
   SUBJECT:  Strategic planning
             Interagency relations
             Cost control
             Federal downsizing
             Foreign policies
             Agency missions
             Budget cuts
             Property disposal
             Administrative costs
             Federal agency reorganization
IDENTIFIER:  Dept. of State Strategic Management Initiative
             Belarus
             Brazil
             Malaysia
             Netherlands
             Paraguay
             Senegal
             Western Hemisphere Summit Program on Partnership for 
             Pollution Prevention
             Dept. of State Foreign Affairs Administrative Services 
             System
             Dept. of State International Cooperative Administrative 
             Support Services System
             Dept. of State Family Member Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


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


Report to the Chairman, Committee on the Budget, House of
Representatives

August 1996

STATE DEPARTMENT - OPTIONS FOR
ADDRESSING POSSIBLE BUDGET
REDUCTIONS

GAO/NSIAD-96-124

State Department

(711134)


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

  ACDA - Arms Control and Disarmament Agency
  FAAS - Foreign Affairs Administrative Services
  FSN - foreign service national
  ICASS - International Cooperative Administrative Support Services
  OMB - Office of Management and Budget
  USAID - U.S.  Agency for International Development
  USTR - Office of the U.S.  Trade Representative

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


B-271639

August 29, 1996

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

This report discusses the State Department's reform and cost-cutting
efforts and identifies options that would enable State to adjust to
reduced budgets.  The report includes a recommendation to the
Secretary of State and two matters for congressional consideration to
assist the Department in reducing costs. 

We are sending copies of the report to the Secretary of State and to
other appropriate congressional committees.  We will make copies
available to others upon request. 

This report was prepared under the direction of Benjamin F.  Nelson,
Director, International Relations and Trade Issues, who may be
contacted on (202) 512-4128 if you or your staff have any questions
about this report.  Other major contributors to the report are listed
in appendix III. 

Sincerely yours,

Henry L.  Hinton, Jr.
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The State Department received appropriations of $2.695 billion for
fiscal year 1995 and $2.671 billion for fiscal year 1996 for the
administration of foreign affairs.  In light of plans to reduce
funding for foreign affairs activities, the Chairman of the House
Committee on the Budget asked GAO to determine the status of State's
reform and cost-cutting efforts and identify options that would
enable State to adjust to reduced budgets. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The State Department is responsible for conducting foreign relations,
including formulating policy on diverse international issues and
coordinating and supporting U.S.  programs and activities overseas. 
State is expected to perform a wide variety of functions that are
critical to U.S.  interests:  provide leadership to help bring peace
and stability to areas such as Bosnia and the Middle East; report on
overseas events; influence other countries to adopt policies and
practices consistent with U.S.  interests on security, economic,
narcotics, crime, environment, democracy, and other issues; assist
U.S.  business abroad; provide services to U.S.  citizens overseas;
and issue passports and visas. 

In July 1995, the Office of Management and Budget suggested reducing
State's funding to $2.5 billion by 2000--a 7-percent decline from
1995.  When inflation is factored in, State's 1995 purchasing power
would be reduced by $770 million or 30 percent.  Under the 7-year
concurrent budget resolution, passed by the Congress in June 1995,
funding levels could be even less. 

The President has requested $2.713 billion for fiscal year 1997-- $18
million more than for fiscal year 1995 and $39 million more than for
fiscal
year 1996.  The actual funding level is subject to negotiation. 

To develop options to allow the State Department to accommodate
potential budget reductions, GAO analyzed State's reform initiatives
and examined the functions of State's headquarters organization,
overseas posts in 6 countries, and selected activities of 14 other
U.S.  government agencies that share responsibility with State for
certain international activities. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Although the State Department has reduced the number of its staff and
implemented some cost reduction measures, it has been reluctant or
unable to significantly reduce its overseas presence and the scope of
its activities or to substantially change its business practices.  In
February 1995, the Secretary of State chose not to support reforms
that might fundamentally change the Department's mission,
organizational structure, and processes.  The State Department
believes that a substantial downsizing to accommodate potential
funding reductions would severely jeopardize its ability to achieve
U.S.  foreign policy goals.  However, GAO believes that State can
take steps to reduce its costs, while continuing to protect U.S. 
interests. 

The budgetary stringency that the federal government is projected to
face in the next few years makes it unlikely that State will receive
the level of funding that would allow it to maintain its current
level of activities.  Because of inflation and cost increases
overseas, GAO estimates that maintaining current functions and
personnel would cost $584 million more in 2000 than in 1995, a
22-percent increase.  But it is likely that State will receive less
resources in the future.  If total discretionary spending is held to
the levels envisioned in the congressional budget resolution for
fiscal year 1997, spending will fall by almost 6 percent between 1995
and 2002.  State will probably have to bear a share of this planned
reduction.  Furthermore, larger reductions in State's funding have
been proposed by the Office of Management and Budget and the
Congress.  New fiscal realities dictate that State increase its cost
consciousness, make choices about resource priorities for its wide
range of locations and functions, and fundamentally rethink the way
that it does business in order to increase efficiency and reduce
operating costs. 

The greatest opportunity to significantly reduce costs is by closing,
or reducing the size of, overseas posts, which cost about $1.9
billion annually.  This amount, which includes support costs, is
equivalent to nearly 70 percent of State's budget.  State maintains a
diplomatic presence in
252 overseas locations, including countries where the United States
has limited interests.  This structure has not changed substantially
since the end of the Cold War.  Fiscal realities may require a
fundamental rethinking and redesign of overseas diplomatic structure,
locations, functions, and practices.  Such a rethinking could lead to
changes that would increase operating efficiencies and reduce costs. 
Eliminating posts will be difficult, as State has typically met with
resistance from within and from other agencies and members of
Congress when it has tried to close some low priority posts. 
Establishing an independent panel to review post closures and
reductions is one strategy to overcome this resistance. 

State could also reduce support costs by several hundred million
dollars by accelerating changes to its business practices.  State
currently spends nearly $1.8 billion on communications, real estate,
and a wide variety of other support services for domestic and
overseas operations.  Prompt disposal of unneeded overseas real
estate is just one example of how State could reduce its support
costs. 

In addition, State may have to limit and/or eliminate its role in
selected functions.  (State shares responsibility with various other
U.S.  government agencies for many issues.) Although this may impact
on the way U.S.  international activities are implemented, lessening
State's role could lead to personnel reductions that would reduce
headquarters costs and facilitate reductions in costs for overseas
posts and support. 

In light of potential funding reductions and post Cold War realities,
State needs to plan for how it can become a smaller, more efficient,
and less expensive organization.  Development of a downsizing
strategy should start with identification of core missions and
functions and critical locations and the resources required to
support them.  GAO recognizes that implementation of some downsizing
measures may require changes in legislation or negotiations with
other agencies.  State's strategy should include a plan to obtain
support from the Congress and cooperation by other U.S.  agencies. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      STATE HAS NOT DEVELOPED A
      DOWNSIZING STRATEGY
-------------------------------------------------------- Chapter 0:4.1

The State Department does not have a comprehensive strategy to
restructure its operation to adjust to potential funding reductions. 
Management attention to downsizing has been distracted by (1) the
need to address foreign affairs crises and (2) internal bureaucratic
pressures.  Moreover, the Department has not fully accepted that it
may have to substantially reduce its costs.  As a result, State has
not done a comprehensive review of its functions and processes to
identify unnecessary and low-priority work.  State continues to hope
that funding will be sufficient to avoid making major cuts to its
operations.  It notes that the President's proposed funding for
fiscal year 1997 would require some modest downsizing, but not the
level of downsizing that would be required under other proposed
funding reductions. 


      LIMITED COST REDUCTIONS
-------------------------------------------------------- Chapter 0:4.2

The two major management initiatives undertaken since 1993 have not
led to fundamental changes in State's organizational structure and
business practices or achieved significant cost reductions.  Instead,
State has opted to implement administrative and other changes that
would not have a dramatic impact. 

The Secretary established the Strategic Management Initiative in 1994
to set the future course for the Department and to eliminate
duplication and unnecessary or marginal functions.  Although State
initially estimated that proposed actions under the initiative could
reduce costs by well over $100 million, State officials told GAO that
actual cost reductions have been limited. 

In 1993, the National Performance Review recommended actions that it
estimated would reduce State's costs by $68 million over 5 years. 
State has completed 2 of 14 recommended actions and has estimated
cost reductions at $1.2 million annually. 

State points out that its funding has been relatively flat for
several years and that it has already reduced personnel and taken
other actions to reduce its costs accordingly.  For example, State
reports that it has reduced its staff by 2,200 since 1993, from about
26,000 to 23,800, or an 8.5-percent reduction. 


      OPTIONS FOR REDUCING STATE'S
      INVOLVEMENT IN SOME
      FUNCTIONS
-------------------------------------------------------- Chapter 0:4.3

One option to cope with reduced funding is to reduce or eliminate
State's involvement in some areas and to lessen the degree of overlap
among its bureaus and with other agencies.  State's organizational
structure and operating procedures have the potential to create
unnecessary overlap, duplication, and inefficiency.  The Department's
geographic bureaus are organized to overlap with many other foreign
policy and administrative functions.  These bureaus operate as six
micro-departments that basically administer U.S.  foreign policy for
a particular region of the world.  In fact, concerns about potential
duplication among the various units within State headquarters were
raised in a 1995 State Department internal study of domestic
positions.  The study identified examples of potential duplication of
work among offices within the Department.  For example, the study
indicated that there is potential overlap between the Bureau of
Intelligence and Research and regional and functional bureaus
throughout the Department. 

There is also overlap of work between State and other agencies.  In
August 1995, the Office of Inspector General for the Arms Control and
Disarmament Agency (which also serves as the Office of Inspector
General for the Department of State) reported that duplication
between the Agency and State's Political-Military Bureau "promotes
inefficient use of resources by both organizations and accentuates
turf consciousness, dissipating energies and damaging morale."\1

Also, with congressional approval where necessary, State could
streamline some informational reports--for example, its annual human
rights report, which consumes resources of many bureaus and nearly
all overseas missions--or eliminate reports that contain information
available from other sources, such as country reports on trade
practices. 

State could also eliminate certain positions or consolidate
responsibility for certain issues.  For example, eliminating labor
attachï¿½ positions and transferring labor issues to political and
economic officers could reduce costs by about $7.4 million annually. 
Finally, State could recover some of the costs of many services, such
as factual and analytical reports, business assistance services, and
assistance to overseas visitors, that it provides to other entities. 

Making these changes would not be easy, as State's functions are
broadly linked to foreign policy objectives, specifically required by
statute, or required by interagency processes, and according to
State, some decisions would have to be made in an interagency forum
or may require legislative approval. 


--------------------
\1 Report of Inspection, The U.S.  Arms Control and Disarmament
Agency (ACDA-ISP/I-95-44, Aug.  1995). 


      OPTIONS FOR REDUCING THE
      COSTS OF OVERSEAS PRESENCE
-------------------------------------------------------- Chapter 0:4.4

State has embassies in most foreign capitals and consulates in some
commercial centers outside capital cities.  Despite advances in
communications and transportation, geopolitical changes, and new
budget realities, State's vast network of embassies and consulates
and the way they are configured and operated have remained largely
unchanged.  Although there are some reform initiatives currently
underway, a fundamental rethinking of the vast overseas
infrastructure has not taken place.  State could potentially increase
operating efficiency, reduce the size of some posts, and close others
in order to reduce costs.  Cost reductions from closing a small post
with about nine Foreign Service officers could total about $2 million
per year or $10 million over 5 years. 

Offices within State, members of Congress, and other agencies have
often opposed closures of posts.  In July 1995, State identified 19
posts for possible closure but decided to close only 13 due to
pressure from others.  For example, the Consulate in Curacao,
Netherlands Antilles, was taken off the closure list in response to
pressure from a member of Congress and objections from the Drug
Enforcement Administration.  According to State officials, the
Department may be forced to close 50 to 100 of its 252 overseas posts
if proposed funding cuts become a reality. 

One strategy to review post closing and downsizing options would be
to establish an independent post closure panel like the Defense Base
Closure and Realignment Commission--an approach that resulted in
decisions to close, realign, or otherwise downsize hundreds of
military bases and installations.  Although the criteria involved in
closing and downsizing overseas diplomatic posts are different, a
panel much like the Commission may be useful.  Since many other
agencies depend on State's overseas presence, such an approach would
allow for decision-making based on the need to support both State and
non-State activities consistent with overall U.S.  policy interests
and priorities as well as available resources. 

Another strategy to pursue cost reductions would be to implement the
National Performance Review recommendation that, on a pilot basis,
U.S.  ambassadors be given expanded authority over all U.S. 
government fiscal and staffing resources at overseas posts. 
Expanding ambassadors' authority raises the potential for negative
consequences, however.  For example, an ambassador and a federal
agency may have differences of opinion about the types and levels of
resources needed to sustain agency activities.  However, because
expanding ambassadors' authority could reduce costs, GAO supports a
pilot study to test the concept.  State has not initiated action on
this recommendation.  State officials told GAO that the Department
cannot move on this recommendation until the National Performance
Review/Vice President's staff propose legislation to the Congress. 
However, National Performance Review staff told GAO that proposing
legislative action is State's responsibility.  In November 1995, the
U.S.  Ambassador to Senegal asked that State's Under Secretary for
Management convene the Vice President's Interagency Council to obtain
its agreement to test increased authority of ambassadors.  State has
been reviewing the proposal. 


      OPTIONS FOR REDUCING SUPPORT
      COSTS
-------------------------------------------------------- Chapter 0:4.5

Potential budget reductions could also be met by reducing support
costs, which currently consume two-thirds of the Department's budget. 
State is experimenting with, studying, or considering several options
to reduce its support costs.  GAO identified additional cost
reduction options that are not currently under review. 

The Department of State Appropriations Act, 1996, requires that,
starting in fiscal year 1997, State have in place a system that
allocates to each department and agency the full cost of its overseas
presence.  State and other U.S.  agencies are developing a system
sponsored by the President's Management Council that devolves
authority for overseas support to individual post interagency
councils.  This is a significant change in philosophy, and State
expects it to result in increased reimbursements from other agencies
and eventually lower the support costs.  State estimates it would
spend about $108 million less to support other agencies overseas
during the first year of the new system.  Additional cost reductions
are expected from greater efficiency and interagency coordination. 
However, implementation will require strong interagency and
congressional cooperation. 

Other cost-cutting measures being considered by State include (1)
hiring more U.S.  family members to fill overseas staffing positions,
(2) increasing employees' payments for medical services, (3)
increasing the length of overseas tours, and (4) reducing State's
cost for Marine guard detachments at overseas posts by deactivating
certain units or shifting the costs to the Defense Department.  Over
the long term, State hopes to further reduce its operating expenses
through business process reengineering and the outsourcing of certain
support functions.  In both areas, however, only limited progress has
been made. 

GAO identified several additional options State could implement to
adjust to potential budget cuts as well as some of the potential
adverse consequences of these options.  These options include (1)
expanding the use of foreign nationals in support positions at
overseas posts, (2) reviewing employees' benefits and allowances, (3)
reviewing support staff levels in headquarters, and (4) disposing of
excess and underused properties overseas. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO is not taking a position on the level of resources needed by the
State Department for the administration of foreign affairs.  However,
given the likely decline in discretionary spending in the federal
budget and the various proposals for reductions in State's budget, it
is unlikely that State will receive funding at a level necessary to
support current services.  For example, fiscal constraints may not
permit State to continue to maintain its vast network of embassies
and consulates as they are configured today.  A fundamental
rethinking of functions, locations, and practices is needed to
determine what is essential and affordable to support U.S. 
interests.  State needs to plan for how it can become a smaller, more
efficient, and less expensive organization. 

GAO recommends that the Secretary of State develop a downsizing
strategy that (1) identifies critical and noncritical functions and
their costs; (2) specifies the changes that would be necessary to
adjust to potential funding levels; and (3) identifies what
legislative actions or modifications to interagency agreements, if
any, would be required to implement the changes.  Because overseas
posts consume 70 percent of State's budget, reassessment of the
network of overseas posts will be an important part of the downsizing
strategy.  At a minimum, State should have a strategy that is based
on out-year funding guidance from the Office of Management and
Budget.  (Such a strategy would allow for consideration of other
funding proposals and could be adjusted to accommodate actual
appropriation amounts.)


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:6

If future funding levels require the State Department to close and
reduce the size of posts, the Congress may wish to establish an
independent panel to review State's proposals in view of (1) the
potential financial benefits to the U.S.  government, (2) the impact
on governmentwide interests and the many agencies that depend on
State's services, and (3) the potential opposition to closing posts. 
Although the criteria involved in closing and downsizing overseas
diplomatic posts are different, a panel much like the Defense Base
Closure and Realignment Commission established to review military
installations may be useful. 

Also, if the Congress believes that ambassadors' authority over U.S. 
government resources should be expanded to reduce spending, it could
explore with the executive branch how a pilot program, such as the
one recommended by the National Performance Review, could be
structured and implemented. 


   AGENCY COMMENTS AND GAO'S
   EVALUATION
---------------------------------------------------------- Chapter 0:7

In commenting on a draft of this report, State disagreed with GAO's
conclusions and recommendation regarding the need to develop a
strategy for adjusting to potential budget reductions.  State
described the actions it has taken over the last several years to
absorb a reduction in real resources and its plans for further
gradual downsizing.  Although it agreed that strategic planning for
downsizing is important, State stressed that it does not accept and
will not plan for proposed funding reductions that could approach 44
percent.  It believes reductions of this magnitude would pose
unacceptable risks and cause irreparable damage to America's national
interests. 

State opposed many of the options GAO identified to address possible
budget reductions and asserted that State's diplomacy, when compared
to other tools for pursuing U.S.  national security and other
interests, is relatively inexpensive.  State indicated that the
report does a good job describing the difficulties in closing
overseas posts.  State also noted that it cannot act unilaterally in
reducing a post's size because of the many other agencies involved. 
State's comments are reprinted in their entirety in appendix II,
along with GAO's evaluation of them. 

GAO did not make judgments on the relative value of State's functions
and activities or try to compare the relative merits of State's
diplomacy to other U.S.  government tools.  Instead, GAO pointed out
that both the legislative and executive branches had proposed
substantial funding reductions for State and that, barring a
$584-million increase in funding from 1995 to 2000, State would be
unable to maintain its current level of activities.  Given the
funding situation, GAO believes that State needs to seriously
consider actions for adjusting to the potential funding scenarios. 
Furthermore, GAO believes that developing a downsizing strategy would
enable State to focus available resources on its most critical
functions and activities.  Absent a downsizing strategy based on a
comprehensive review of its functions and processes, the Department
will not have the data and analyses and therefore cannot demonstrate
clearly how funding reductions will hamper U.S.  interests or be in a
position to protect critical functions.  GAO did not recommend
specific actions to cut costs but identified a number of options that
could be part of a State Department downsizing strategy. 

GAO did not request formal comments from other agencies.  However, to
verify data, GAO provided a copy of a draft of this report to the
Departments of Agriculture, Commerce, Labor, the Treasury, and
Transportation; the Environmental Protection Agency; the U.S.  Agency
for International Development; the U.S Arms Control and Disarmament
Agency; and the Office of the U.S.  Trade Representative.  Where
appropriate, GAO incorporated the revisions that were suggested by
these agencies. 

The U.S.  Agency for International Development objected to expanding
an ambassador's authority over the programmatic direction and funding
of overseas programs even on an experimental basis.  The U.S.  Agency
for International Development and the Office of the U.S.  Trade
Representative emphasized that increasing reimbursements for
administrative support at overseas posts may require additional
funding for agencies other than State to cover certain costs they may
not have budgeted for in the past. 

The Office of the U.S.  Trade Representative and the Department of
Labor expressed concern about coordination issues, emphasizing that
cost-cutting decisions that State could make may affect other
agencies.  The Department of Labor objected to eliminating labor
attachï¿½ positions and transferring the responsibility for covering
labor issues to political and economic officers.  In addition, Labor
expressed concern about streamlining the country reports on human
rights practices, noting that these reports are central to the U.S. 
policy goal of promoting human rights. 


BACKGROUND
============================================================ Chapter 1

The State Department conducts activities designed to promote and
protect U.S.  interests overseas.  To support these activities, State
maintains a headquarters with regional and functional bureaus and 252
overseas posts.  The State Department received slightly less than
$2.7 billion for the administration of foreign affairs in both fiscal
years 1995 and 1996, with the bulk of these resources allocated to
salaries, infrastructure, and operating expenses.  State faces a
widening gap between available budget resources and the costs of
maintaining existing activities. 


   STATE'S FUNCTIONS AND
   ORGANIZATION
---------------------------------------------------------- Chapter 1:1

The State Department is the central agency for coordinating and
implementing U.S.  foreign policy in support of U.S.  interests. 
State provides leadership to help bring peace and stability to areas
such as Bosnia and the Middle East and carries out a variety of
activities to promote these interests, including

  -- negotiating and overseeing over 14,000 treaties and agreements
     in force since 1946, including 24 treaties and 338 agreements
     concluded in 1994;

  -- analyzing overseas events to obtain information critical to U.S. 
     policymakers in Washington;

  -- preparing over 130 congressionally mandated reports covering
     such diverse subjects as the abuse of human rights and foreign
     trade;

  -- representing the United States at 700 international conferences
     annually;

  -- providing consular services to Americans overseas and issuing
     over 5 million passports and 8 million visas annually; and

  -- providing administrative support to about 35 federal departments
     and independent agencies with staff overseas. 

State's headquarters in Washington, D.C., includes geographic bureaus
that are organized along regional lines (such as the Bureau of East
Asian and Pacific Affairs) and bureaus that are organized along
functional lines (such as the Bureau of Political-Military Affairs). 
Figure 1.1 shows the basic organizational structure of the
Department. 

   Figure 1.1:  Organization of
   Selected State Bureaus

   (See figure in printed
   edition.)


      STATE'S GEOGRAPHIC BUREAUS
-------------------------------------------------------- Chapter 1:1.1

The Under Secretary for Political Affairs oversees State's six
geographic bureaus and the Bureau of International Organizations. 
With 1,143 headquarters staff, Political Affairs is the Washington
focal point for the development of policy recommendations, for
coordination with other departments and agencies, and for
transmission of guidance to ambassadors in the field.  The geographic
and International Organizations bureaus guide, coordinate, and
supervise nearly all of the State Department's activities overseas,
including the operation of 163 embassies, 64 consulates general, 13
consulates, 8 missions to international organizations, 2 branch
offices, 1 liaison office, and 1 interests section. 


      STATE'S FUNCTIONAL BUREAUS
-------------------------------------------------------- Chapter 1:1.2

The functional bureaus generally manage and coordinate specific
issues and activities.  The Bureau of Economic and Business Affairs,
under the jurisdiction of the Under Secretary for Economic, Business,
and Agricultural Affairs, is responsible for integrating U.S. 
economic interests with U.S.  foreign policy in such areas as
international energy, trade, and international civil aviation.  In
addition, State economic officers support U.S.  foreign policy
initiatives, including devising, negotiating, and implementing
strategies and agreements to advance U.S.  goals such as Russia's
transition to democracy and Bosnia's reconstruction.  The Under
Secretary also oversees the Office of the Coordinator for Business
Affairs, which was created in 1993 to facilitate U.S.  businesses'
access to markets abroad. 

The Under Secretary for International Security Affairs coordinates
national security functions pursuant to over 20 provisions of law. 
The Under Secretary manages the Bureau of Political-Military Affairs,
which provides guidance, coordinates policy formulation, and
participates in all major negotiations involving the nonproliferation
of weapons of mass destruction and missile technology, nuclear and
conventional arms control, defense relations and security assistance,
and export controls. 

The Under Secretary for Global Affairs facilitates the implementation
of U.S.  foreign policy on 11 issues grouped under 4 bureaus:  the
Bureau of Democracy, Human Rights, and Labor; the Bureau of
International Narcotics and Law Enforcement Affairs; the Bureau of
Oceans and International Environmental and Scientific Affairs; and
the Bureau of Population, Refugees, and Migration.  Global Affairs
administers over $800 million for narcotics control, refugee, and
other programs and prepares reports such as the annual human rights
report to the Congress. 

The Bureau of Consular Affairs administers and enforces immigration
and nationality laws in issuing passports, visas, and related
services and provides for the protection and welfare of American
citizens and interests abroad.  The Bureau also manages the
Department's border security program through which State is
attempting to improve visa and passport functions.  In fiscal year
1995, Consular Affairs issued 5.7 million passports, processed 7.8
million nonimmigrant visas and 604,000 immigrant visas, and provided
over 1.1 million special services. 

The Under Secretary for Management directs all budgetary, support,
and personnel policies of the Department.  The Under Secretary's
principal function is to reconcile resources, both fiscal and
personnel, with policy requirements.  This Under Secretary also
coordinates the activities of other bureaus, including the bureaus of
Consular Affairs, Personnel, Administration, and Finance and
Management Policy. 


   FUNDING AND ALLOCATIONS
---------------------------------------------------------- Chapter 1:2

The State Department was appropriated $2.695 billion for fiscal year
1995 and $2.671 billion for fiscal year 1996 for the administration
of foreign affairs.\1

State spends nearly 92 percent of its funding for fixed costs: 
personnel, operating supplies, utilities, and essential contracts. 
The remaining 8 percent is for mission-essential travel, the
replacement of worn-out equipment, and infrastructure projects. 

Table 1.1 shows the allocation of State's fiscal year 1995
appropriations by major account category. 



                               Table 1.1
                
                 Fiscal Year 1995 Net Budget Authority
                       for Appropriations for the
                   Administration of Foreign Affairs

                         (Dollars in millions)

Account                                           Net budget authority
----------------------------------------  ----------------------------
Diplomatic and consular programs                              $1,757.7
Salaries and expenses                                            367.4
Capital Investment Fund                                            0.5
Office of the Inspector General                                   23.8
Representation allowances                                          4.8
Protection of foreign missions and                                 9.1
 officials
Security and maintenance of U.S.                                 379.9
 missions
Emergencies in the diplomatic and                                  6.5
 consular service
Repatriation loan program account:                                 0.8
 subsidy and administration
Payment to the American Institute in                              15.4
 Taiwan
Payment to the Foreign Service                                   129.3
 retirement and disability fund
======================================================================
Total                                                         $2,695.2
----------------------------------------------------------------------
Note:  Table excludes permanent appropriations and additional budget
authority for trust funds. 

Source:  State Department, Bureau of Finance and Management Policy. 

Table 1.2 shows how these funds were actually spent, based on our
analysis of State Department data.  This analysis shows that overseas
posts cost about $1.9 billion (the combined funding for overseas
foreign policy, overseas consular functions, overseas support
provided by both geographic and management bureaus, and security and
maintenance of U.S.  missions).  State support functions cost about
$1.8 billion (the combined costs of domestic support, overseas
support provided by both geographic and management bureaus, and
security and maintenance of U.S.  missions).  Support functions
include, among others, information systems, housing,
telecommunication, security, personnel, finance, training, and
medical services. 



                               Table 1.2
                
                      Fiscal Year 1995 Allotments

                         (Dollars in millions)

Primary purpose of funding                              Funds allotted
----------------------------------------  ----------------------------
Domestic foreign policy                                         $214.3
Domestic consular functions                                       90.0
Overseas consular functions                                      178.7
Overseas foreign policy                                          295.9
Overseas support provided by geographic                          499.8
 bureaus
Overseas support provided by management                          497.6
 bureaus
Security and maintenance of U.S.                                 379.9
 missions
Domestic support                                                 385.9
Other\a                                                          153.1
======================================================================
Total                                                         $2,695.2
----------------------------------------------------------------------
\a Includes funding for the Office of the Inspector General and
Foreign Service retirement and disability fund. 

Source:  GAO analysis based on data from the State Department, Bureau
of Finance and Management Policy. 


--------------------
\1 In addition to the amount appropriated for fiscal year 1995, State
received net budget authority of $595 million in permanent
appropriations and trust funds for the administration of foreign
affairs.  State also received additional appropriations of $2.1
billion for international organizations and commissions and related
programs and $857 million for refugee assistance, drug control
programs, and other purposes.  State's budget authority is provided
by two appropriation acts:  the Department of State and Related
Agencies Appropriations Act and the Foreign Operations, Export
Financing, and Related Programs Appropriations Act. 


   FUNDING PROSPECTS AND POTENTIAL
   IMPACT
---------------------------------------------------------- Chapter 1:3

Because of inflation and cost increases overseas, we estimate that
maintaining current functions and personnel would cost $584 million
more in 2000 than in 1995, a 22-percent increase.  But, it is likely
that the Department of State will face budget cutbacks over the next
several years.  If total discretionary spending is held to the levels
envisioned in the congressional budget resolution for fiscal year
1997, spending will fall by almost 6 percent between 1995 and 2002. 
It will be difficult to exempt State from bearing a share of this
planned reduction.  Moreover, larger reductions in State's funding
have been proposed by the Office of Management and Budget (OMB) and
the Congress. 

For fiscal year 1996, State's budget is $2.671 billion for the
administration of foreign affairs--$87 million less than requested. 
In July 1995, OMB proposed reducing funding for the administration of
foreign affairs to
$2.5 billion by 2000--a 7-percent decline from fiscal year 1995. 
When inflation is factored in, this represents a $770-million
reduction in State's purchasing power.  Under the terms of the 7-year
concurrent budget resolution passed by the Congress in June 1995,
funding levels for the administration of foreign affairs could be
even less than OMB projections.  If the administration of foreign
affairs were to take a proportional share of the proposed reductions
for international affairs (the 150 budget function), State would
receive $1.4 billion less in fiscal year 2000 than the amount
required to sustain current activity levels.  This represents a
greater than 44-percent reduction in real terms from fiscal year 1995
levels.  This analysis assumes that the administration of foreign
affairs would receive the same percentage reductions as the rest of
the 150 function, which may not be the case. 

To maintain the current--fiscal year 1995--level of services, we
estimate that State would need $584 million more in appropriations in
fiscal
year 2000 than it received in fiscal year 1995--a 22-percent
increase.  We calculated this amount by applying a 4-percent annual
inflation rate to the fiscal year 1995 funding.\2

Figure 1.2 illustrates the widening difference between the funding
needed to sustain State's current level of services and funding
provided under the OMB and congressional scenarios. 

   Figure 1.2:  Future Funding
   Scenarios for the
   Administration of Foreign
   Affairs

   (See figure in printed
   edition.)

Note:  Current services projections represent the funding State would
need to maintain the purchasing power of fiscal year 1995 funding. 
It assumes 4 percent inflation annually through fiscal year 2000. 
OMB guidance shows projected funding for the administration of
foreign affairs based on the President's requests for fiscal years
1996 and 1997, and on OMB's July 1995 guidance to State for fiscal
years 1998-2000.  For the budget resolution projection we calculated
the percentage reduction to the 150 budget function called for in the
fiscal year 1996 concurrent budget resolution.  We applied the same
percentage reduction to the administration of foreign affairs
spending. 

The magnitude of the likely difference between available resources
and the funding needed to maintain current operations dictates the
need for a fundamental change in the management and structure of the
foreign affairs apparatus.  In the remainder of this report, we
discuss State's own reform efforts and the importance of developing
an effective strategy to guide fundamental change (ch.  2) and
present various options to realize cost reductions--streamlining
State functions (ch.  3), restructuring State's overseas presence
(ch.  4), and reducing support costs (ch.  5). 


--------------------
\2 State's budget has to absorb the overseas inflation rates, which
generally exceed U.S.  rates.  According to State budget officials, a
budget with no change from the prior year roughly translates into a
4-percent reduction in buying power because of these inflationary
factors. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

In response to a request from the Chairman, House Committee on the
Budget, we reviewed State's reform and cost-cutting initiatives and
identified options that would enable State to adjust to reduced
budgets.  We did not make judgments on the relative value of State's
functions and activities or the level of resources that are required. 

In Washington, D.C., we interviewed officials and collected data in
the bureaus responsible for political, economic and business,
international security, global, consular, and support issues and
functions.  We also conducted work at agencies that perform related
functions, including offices at the Departments of Agriculture,
Commerce, Defense, Justice, Labor, Transportation, the Treasury, and
other agencies, including the
U.S.  Agency for International Development (USAID), the U.S. 
Information Agency, the Arms Control and Disarmament Agency (ACDA),
the Peace Corps, the Environmental Protection Agency, the U.S. 
Export-Import Bank, and the Office of the U.S.  Trade Representative
(USTR).  Although our work describes State's relationships with these
agencies, we did not evaluate State's effectiveness relative to these
agencies.  In addition, we met with various individuals in the
private sector, including representatives from the U.S.  Chamber of
Commerce, the Executive Council on Foreign Diplomacy, the Kenan
Institute of Private Enterprise, and the National League of Cities. 

We interviewed management officials and conducted work at offices and
private firms undergoing reforms and providing support.  We also
visited Canada to discuss its overseas diplomatic practices and cost
concerns. 

To understand the work of the State Department overseas, we visited
posts in six countries:  Belarus, Brazil, Malaysia, The Netherlands,
Paraguay, and Senegal.  These posts were selected based on their
varying missions, sizes, and geographical locations.  We interviewed
officials and reviewed the work of each section to identify primary
activities, focusing on the months of September and October 1995, and
discussed management and funding issues with post managers. 

We obtained formal comments on the draft of this report from the
State Department.  They are discussed at the end of chapters 2, 3, 4,
and 5, and are presented in their entirety in appendix II, along with
our evaluation.  To verify data, we provided a copy of a draft of
this report to the Departments of Agriculture, Commerce, Labor, the
Treasury, and Transportation; the Environmental Protection Agency;
USAID; ACDA; and USTR.  We have incorporated their comments and
suggested revisions to the text where appropriate. 

We did our review between June 1995 and June 1996 in accordance with
generally accepted government auditing standards. 


STATE IS NOT PREPARED TO COPE WITH
PROPOSED REDUCTIONS
============================================================ Chapter 2

The Department of State has not developed a comprehensive strategy to
restructure its operations to adjust to potential funding reductions. 
State officials have not fully accepted that State may have to
substantially reduce its costs.  It notes that the President's
request for fiscal year 1997 would require some modest downsizing,
but not to the level required by other proposed funding levels. 
Believing that substantial funding reductions would severely
jeopardize its ability to conduct foreign policy and achieve U.S. 
goals, State has decided not to plan how it would accommodate
proposed budget reductions. 

State's various reform initiatives over the past 3 years--including
the 1994 Strategic Management Initiative and responses to National
Performance Review recommendations--have not resulted in overall
plans to implement the substantial changes that may be necessary. 
State's reform initiatives ultimately focused on short-term, narrowly
focused actions that have had little impact on the structure of the
foreign affairs apparatus and did not achieve significant cost
reductions.  Adjusting to proposed budget reductions will require
more substantial changes than those that have occurred to date.  Our
assessments of other government and private sector organizations show
that planning is essential for effective downsizing and
restructuring.  Without such a strategy, State's ability to
effectively carry out its broad mission of promoting and protecting
U.S.  interests overseas will be jeopardized in light of the severe
budget gap it is facing. 


   STATE HAS MADE LIMITED PROGRESS
   IN STREAMLINING ITS
   ORGANIZATION
---------------------------------------------------------- Chapter 2:1

According to State, since 1993 it has cut the number of deputy
assistant secretaries by 25 percent; reduced the general workforce by
2,200 positions--an 8.5-percent reduction; will have closed 14 small
overseas posts during fiscal year 1996; reduced the cost of security
programs by 15 percent by applying risk management principles; and
reduced travel, contracts, and equipment expenses.  These actions
accommodated the flat budgets between 1993 and 1995 and responded to
a 1993 presidential memorandum to reduce positions by 12 percent
between fiscal year 1994 and 1999.  These actions, though positive,
are not sufficient to enable State to cope with proposed reduced
funding.  Moreover, State has been unwilling or unable to make major
changes suggested under its Strategic Management Initiative and the
National Performance Review--changes that would result in a more
efficient operation. 


      EXPECTATIONS OF 1994
      STRATEGIC MANAGEMENT
      INITIATIVE NOT MET
-------------------------------------------------------- Chapter 2:1.1

The Secretary of State established the Strategic Management
Initiative in 1994 to set the Department's future course and
eliminate unnecessary or marginal functions and internal duplication. 
He tasked the Department with formulating and implementing a plan of
action to focus the organization around its core mission.  The
Secretary asked his staff to consider restructuring the Department to
carry out its mission with a substantial reduction in resources, and
he recognized that, to do so, a comprehensive review of functions was
needed.  In January 1995, State announced that the initiative would
highlight the highest priority functions and products and identify
low priority, redundant, duplicative, and less valued work, which
would be discontinued.  The Secretary told State employees that "we
must remake ourselves from the bottom up" and that State faces "a
painful process culminating in hard choices." This initiative
represented a major change for State, which in the past tended to
implement across-the-board budget reductions when necessary rather
than deciding what was more or less important. 

The initiative's first phase resulted in a series of reports
analyzing issues related to workload reduction, constituents' views
on State's products and services, eminent Americans' views on State's
future role, reengineering of the Foreign Service transfer process,
communications, and the best practices of organizations that have
restructured.  The teams provided these reports, along with
recommendations for change, to the Secretary in January and early
February 1995. 

According to the initiative's coordinator, the Secretary decided in
February 1995 that it was not a good time to propose fundamental
changes to State's mission, organizational structure, and processes
and that the initiative should focus on recommendations that would
not involve major changes to operations.  The Secretary was concerned
that proposed legislation to consolidate foreign affairs agencies
could severely affect the organization. 

Under the second phase, the emphasis of the initiative has been to
achieve operating efficiencies.  The Secretary also made improving
the quality of life for State personnel a priority.  The Secretary
stipulated that any recommendations could not change the basic
structure of the Department and must be implemented in a short period
of time.  In March and April 1995, seven teams developed 300
recommendations based on the assumption that State's operating budget
would not change. 

Forty-five recommendations were presented to the Secretary; in May
1995, he approved 33.  As of February 1996, State had implemented or
was implementing 30 of the 33 recommendations, including streamlining
processing for arms sales and export licensing requests, simplifying
the Department's travel order and vouchering system, and reducing the
number of required reports from overseas posts.  The 15
recommendations that had not been implemented include closing some
diplomatic security resident agent offices, establishing an overseas
staffing board, using an interagency advisory board to strengthen
overseas staffing controls, and setting priorities for intelligence
gathering and reporting.  If these recommendations were implemented,
costs could be significantly reduced. 

In April 1995, the initiative's team leaders initially identified $61
million in potential domestic cost reductions, an additional $35
million in out-year cost reductions, and $17 million in annual cost
reductions from the closure of overseas posts.  Furthermore, they
estimated that by terminating some support functions, $33 million of
the Management Bureau's domestic support funds could be reallocated
to other needs.  (Actions that State is considering to streamline
support functions are discussed in ch.  5.) Although the Department
did not attempt to track the actual cost reductions achieved, the
initiative coordinator told us in October 1995 that few of the
approved recommendations will reduce costs.  Furthermore, he
indicated that cost reduction had not been a primary goal of the
Strategic Management Initiative, and therefore the Department had not
established cost reduction targets. 

State's reports show that Strategic Management Initiative efforts
have resulted in the elimination of as many as 130 positions.  (We
were unable to verify reductions in positions claimed in State's
reports.) Beyond the cost reductions from eliminating those
positions, State estimated that it would reduce costs by about $2.5
million in fiscal year 1996 and about $9.3 million annually
thereafter by closing 13 overseas posts.  However, a major cost at
these posts--salaries for U.S.  staff--is not included in the
estimates because the positions would be moved to other locations,
not eliminated.  State has taken the position that elimination of
these posts is part of State's overall plan to reduce staff. 
However, the above State Department cost reduction estimates do not
reflect cost reductions from staff cuts. 

The initiative's primary goals (1) to highlight priority functions
and products and (2) to identify and stop low-priority, redundant
work have, for the most part, not been realized.  To date, no
comprehensive review of State's functions and processes has been
conducted.  Although State has made some minor reductions in
duplication among State offices and in the number of its reports, no
functions have been eliminated. 


      POTENTIAL COST REDUCTIONS
      NOT REALIZED FROM THE
      NATIONAL PERFORMANCE
      REVIEW'S RECOMMENDED ACTIONS
-------------------------------------------------------- Chapter 2:1.2

The National Performance Review, established in March 1993 to make
government work better and cost less, recommended in September 1993
that State implement 14 action items to reduce costs by (1) cutting
operating costs at overseas posts, (2) improving collection of
receivables, (3) relocating regional administrative management
centers, and (4) expanding management authority of chiefs of mission
(generally ambassadors).  The National Performance Review estimated
that implementing these actions could yield about $68 million in cost
reductions between fiscal year 1994 and 1999. 

As of January 1996, State had partially implemented only 2 of the 14
action items.  State deactivated Marine security guard detachments at
a net total of 11 overseas posts where classified operations did not
warrant 24-hour cleared American presence.  This will achieve an
estimated annual cost reduction of $1.2 million.  State also
established an accounting and debt collection procedure for all
overseas medical expenses.  State estimated that this action resulted
in collections of over $1 million in fiscal year 1994. 

The remaining 12 action items are either under study, require
legislation for implementation, or are not yet completed.  To cut
support costs, State was relocating a regional administrative
management center from Mexico City to Charleston, South Carolina, and
has discussed relocating functions handled by centers in Bangkok,
Thailand and Paris, France to reduce annual costs by as much as $3.5
million 5 years after completing the moves.  State does not have a
plan for implementing these relocations. 


   PRIVATE AND PUBLIC EXPERIENCES
   SHOW PLANNING IS ESSENTIAL TO
   DOWNSIZING
---------------------------------------------------------- Chapter 2:2

The experiences of private and public sector organizations show that
planning is essential for effective downsizing and restructuring.\1
For example, our reports on previous reviews show that (1) downsizing
needs to be based on a clear determination of an organization's
mission and resource requirements and (2) personnel reductions need
to be taken with a view toward retaining a viable workforce.  Without
identifying core missions, functions, and processes, organizations
acknowledged that they had cut needed employees, suffered skill
imbalances, and were often forced to rehire or replace employees who
had been separated.  At one company we reviewed, officials said that
early cuts were not sufficiently tied to a larger strategy and only
exacerbated the company's problems because work did not go away
simply because staff positions were cut.  Eventually, this company
analyzed the value of each functional area in the organization. 


--------------------
\1 Federal Downsizing:  Observations on Agencies' Implementation of
the Buyout Authority (GAO/T-GGD-95-164, May 17, 1995); Workforce
Reductions:  Downsizing Strategies Used in Selected Organizations
(GAO/GGD-95-54, Mar.  13, 1995); and Federal Downsizing:  The
Administration's Management of Workforce Reductions
(GAO/T-GGD-95-108, Mar.  2, 1995). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:3

Although State's precise funding for the administration of foreign
affairs has not been agreed upon, bipartisan efforts to balance the
budget and downsize the government make it likely that State will
receive less resources for the foreseeable future.  To successfully
cope with the challenge of directing U.S.  foreign policy in the
post-Cold War era during a period of declining real resources, State
must be prepared to clearly articulate its key missions, identify the
core functions linked to those missions, prioritize those activities
that directly support missions and functions, and link potential
resource levels to these activities.  Only then can the merits of
various options for achieving significant cost reductions be
effectively weighed, the need for administrative or legislative
changes necessary to implement those options be identified, and
difficult choices be made. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 2:4

We are not taking a position on the level of resources needed by the
State Department for the administration of foreign affairs.  However,
given the likely decline in discretionary spending throughout the
federal government and the various proposals for reductions in
State's budget, State needs to plan for how it can become a smaller,
more efficient, and less expensive organization. 

We recommend that the Secretary of State develop a downsizing
strategy that (1) identifies critical and noncritical functions and
their costs; (2) specifies the changes that would be necessary to
adjust to potential funding levels; and (3) identifies what
legislative actions or modifications to interagency agreements, if
any, would be required to implement the changes.  At a minimum, State
should have a strategy that is based on out-year funding guidance
from OMB.  (Such a strategy would allow for consideration of other
funding proposals and could be adjusted to accommodate actual
appropriation amounts.)


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 2:5

In commenting on a draft of this report, State disagreed with our
conclusions and recommendation regarding the need to develop a
strategy for adjusting to potential budget reductions.  State also
commented that the report did not fully recognize some of the
positive actions State has taken to streamline its operations.  For
example, State said that its Overseas Staffing Board met in June 1996
to begin implementation of an overseas staffing model.  State also
indicated that it had progressed in setting priorities for
intelligence gathering and reporting by expanding State's
representation on the intelligence community and interagency boards. 
State agreed that strategic planning for downsizing is important, and
believed that it had planned for what it described as "future
reasonable budget cuts." But, State stressed that it does not accept
and will not plan for proposed funding reductions that could approach
44 percent.  It believes reductions of this magnitude would pose
unacceptable risks and cause irreparable damage to America's national
interests. 

Given the funding situation, we believe that State needs to seriously
consider actions for adjusting to the potential funding scenarios. 
Furthermore, we believe that developing a downsizing strategy would
enable State to focus available resources on its most critical
functions and activities.  Absent a downsizing strategy based on a
comprehensive review of its functions and processes, the Department
cannot demonstrate clearly how funding reductions will hamper U.S. 
interests or be in a position to protect critical functions. 


OPPORTUNITIES FOR STREAMLINING
FUNCTIONS
============================================================ Chapter 3

Reducing or eliminating State's role in some foreign policy and
consular functions could lead to cost reductions at headquarters and
overseas posts, where State has a broad mandate to represent and
protect U.S.  interests and provide services to a wide range of
customers, including the Congress, other U.S.  agencies, the private
sector, and the American public.  Over $500 million of the budget is
specifically focused on implementing foreign policy, and about $270
million is devoted to consular functions.  Options for State to
consider include (1) reassessing the extent of its involvement in
functions where State shares substantial, overlapping responsibility
with other agencies and (2) cutting back on some specific activities
and recouping the costs of some products and services.  State needs
to face the challenge of identifying its core functions and their
costs and making choices about the level of resource investments that
are both appropriate and affordable to sustain those functions. 


   STATE HAS A VARYING ROLE IN
   DIVERSE FUNCTIONS
---------------------------------------------------------- Chapter 3:1

More so than ever, many government issues, policies, and activities
have an international dimension, and State has taken a role in most
cases.  In consultation with other government agencies, the State
Department develops, coordinates, and implements U.S.  foreign policy
and activities.  State's various functional offices and bureaus focus
on key foreign policy objectives and programs that over time have
evolved to cover a wide range of issues.  The Department evolved as a
bulwark against the threat of communism, and U.S.  foreign policy was
directed toward its containment.  With the end of the Cold War, State
has increased its role in some areas.  For instance, with the consent
of the Congress, State created a new Under Secretary for Global
Affairs to direct efforts toward promoting human rights and workers'
rights, supporting emerging democracies, protecting and improving the
global environment, controlling population growth, assisting
migration and refugees, and controlling international narcotics and
crime.  Some of these issues were peripheral during the Cold War. 

To adjust to reduced budgets, State must scrutinize its functions and
reassess its involvement in those functions.  State also must
consider reducing some of its activities wherever feasible and
recouping costs of the wide array of products and services it
provides to numerous customers. 


   OPTION:  REASSESS INVOLVEMENT
   IN CERTAIN FUNCTIONS
---------------------------------------------------------- Chapter 3:2

State's functional bureaus share responsibility with multiple U.S. 
agencies on various overlapping policy issues.  We identified nearly
30 agencies and offices involved in trade policy and export
promotion, about 35 engaged in global programs, and over 20 involved
in international security functions.  These agencies look to State
for overall foreign policy guidance, and State often relies on them
for program funds and technical expertise.  According to agency
officials, the value State adds to these functions is its language
expertise and negotiating skills as well as its knowledge of foreign
governments, access to and contacts with host government officials,
and understanding of the foreign political and economic environment. 

In the sections that follow, we describe selected State functions. 
The extent of State's involvement in these functions varies from one
of a supporting role to that of a lead player.  The involvement of
many agencies in similar or related functions does not mean the
agencies unnecessarily duplicate activities, but it does suggest the
potential for consolidation or transfer of some of State's duties. 
However, choosing which areas to cut is complicated because State's
functions and activities can be broadly linked to foreign policy
objectives, functions are specifically required by statute, or
interagency processes require State's participation.  Furthermore,
decisions about resource trade-offs are difficult because State's
financial management system does not provide accurate cost data to
show the amount State spends by function or activity or the level of
resources applied to specific policy objectives. 


      TRADE AND ECONOMIC ISSUES
-------------------------------------------------------- Chapter 3:2.1

In the area of international trade, the U.S.  government formulates,
coordinates, and implements U.S.  economic and trade policy.  State
helps U.S.  government efforts to (1) negotiate international
treaties and trade agreements; (2) enforce U.S.  trade laws; (3)
promote U.S.  exports; and (4) collect, analyze, and report
information on economic issues.  While USTR and the Department of
Commerce are at the center of federal trade activity, the Departments
of State, the Treasury, Agriculture, and Labor are also involved in
trade policy.  Overall about 20 other U.S.  agencies and offices have
varying responsibilities under trade and economic policy.  USTR
shepherds the formulation of U.S.  trade policy through an
interagency process, and the Secretary of Commerce chairs the Trade
Promotion Coordinating Committee, an interagency group that is
required by statute to develop a governmentwide strategy for
rationalizing the federal government's export programs.\1

In some cases, agencies' responsibilities overlap in the area of
international trade and economic policy functions.  For example,
although USTR plays a lead role in developing and coordinating
international trade policy, investigating some alleged unfair trade
practices, and enforcing trade agreements, it relies on an
interagency trade policy group to assist with these responsibilities. 
State participates actively in this group, sometimes as a lead
player, and USTR relies on State to lead some negotiations and to
execute policy.  State economic officers at overseas posts obtain
information from and convey U.S.  positions to foreign governments. 
In fiscal year 1995, USTR had a staff of 163 employees and a budget
of about $21.4 million. 

The Department of Commerce's U.S.  and Foreign Commercial Service and
the Department of Agriculture's Foreign Agricultural Service promote
exports.  The Commercial Service has 824 staff, including 213 foreign
commercial officers at 133 overseas offices in 69 countries, and a
fiscal year 1995 budget of $96.1 million.  With these resources, it
helps individual U.S.  companies take advantage of specific export
opportunities by providing foreign market research, trade
finance-related information, and trade facilitation services.  The
Foreign Agricultural Service promotes exports of U.S.  food and
agricultural products and administers programs to enhance the
competitiveness of U.S.  agricultural exporters.  As of September
1995, the Foreign Agricultural Service had 1,097 staff, including 265
at 75 overseas locations, and a fiscal year 1995 budget authority of
$118 million. 

The role of State economic officers is to (1) persuade foreign
governments to open markets for U.S.  companies by seeking lower
tariffs and eliminating nontariff barriers; (2) seek to improve
protection for intellectual property rights; (3) monitor
implementation of trade agreements; and (4) participate in
negotiations of economic agreements--a role it shares with USTR and
the Departments of Commerce, the Treasury, and Agriculture.  In over
100 smaller countries with limited markets, and where the U.S.  and
Foreign Commercial Service and the Foreign Agricultural Service are
not represented, State economic officers provide commercial
assistance to U.S.  businesses and perform their traditional economic
duties.  They identify export opportunities, provide businesses with
contacts and advice on host country business practices and economic
conditions, and sponsor trade events. 

U.S.  state governments and many city governments also promote trade
abroad.  Some have offices overseas, and the U.S.  Chamber of
Commerce has over 70 affiliated chambers in 65 countries.  While
these entities supplement the U.S.  government's export promotion
efforts, they are not generally viewed as a substitute for continued
U.S.  government involvement in this area.  Officials we interviewed
emphasized that nonfederal entities cannot officially represent the
U.S.  government, nor can they provide market intelligence worldwide
because collecting such information would be cost prohibitive.  Thus,
the State Department plays a critical role in comprehensively
representing U.S.  interests around the world and can, if necessary,
challenge foreign governments' unfair or unethical practices to level
the odds for U.S.  businesses. 

On transportation, international telecommunications, and
international energy issues, State officials cite statutes and
executive orders as the basis for State's involvement.  Other
agencies generally provide the technical expertise, while State
handles key negotiations and integrates agencies' actions with
overall U.S.  foreign policy.  For example, State and the Department
of Transportation are engaged in activities important to U.S. 
economic policy, including those of the Office of International
Aviation within the Office of the Secretary and the U.S.  Maritime
Administration.\2

In fiscal year 1995, the International Aviation had about 40
positions and a budget of $3.3 million, while the Maritime
Administration devoted about
7 positions and $612,100 of its budget to international activities. 
For International Aviation, Transportation and State share
responsibilities for formulating, coordinating, and executing the
U.S.  international aviation policy.  These responsibilities include
negotiating and overseeing 107 bilateral air transport agreements
that establish air service rights.\3 In addition, some countries'
carriers serve the United States on the basis of comity and
reciprocity without any written agreement.  Transportation provides
technical expertise and does the substantive work in negotiating
agreements, and State chairs aviation negotiations.  On international
shipping policy, however, the U.S.  Maritime Administration takes the
lead and chairs U.S.  delegations, negotiating with the five
countries that have bilateral maritime agreements with the United
States.  State is an active participant in these negotiations and is
consulted on matters affecting U.S.  foreign relations and economic
interests.  To carry out its transportation responsibilities, the
Bureau of Economic and Business Affairs has
7 officers involved in negotiating aviation agreements and 14
officers working on transportation policy, including maritime
negotiations. 


--------------------
\1 We have issued several reports regarding coordination and
reorganization of governmentwide international trade functions,
including Government Reorganization:  Observations About Creating a
U.S.  Trade Administration (GAO/T-GGD-95-234, Sept.  6, 1995),
Commerce's Trade Functions (GAO/GGD-95-195R, June 26, 1995),
Government Reorganization:  Issues Relating to International Trade
Responsibilities (GAO/T-GGD-95-218, July 25, 1995), and International
Trade:  Coordination of U.S.  Export Promotion Activities in Pacific
Rim Countries (GAO/GGD- 94-192, Aug.  29, 1994). 

\2 Other Transportation offices that work with State on international
activities are (1) the Federal Aviation Administration, which has 365
positions, including 179 overseas, and a budget of $42.3 million; (2)
the Office of International Transportation and Trade, with 22
positions and a budget of $1.6 million; (3) the Office of the General
Counsel, which has 10 positions and a budget of $1 million for its
work on international law; and (4) the U.S.  Coast Guard, whose
16-member international affairs staff have a budget of $929,630. 

\3 The United States has negotiated 72 air transport agreements that
are currently in force.  In addition, 35 countries that were former
colonies of other nations have in force the provisions of the
preindependence bilateral agreement between the United States and the
previous governing power. 


      INTERNATIONAL SECURITY
      ISSUES
-------------------------------------------------------- Chapter 3:2.2

In the area of international security affairs, State focuses on arms
control, the nonproliferation of weapons of mass destruction, export
controls, and regional security.  In some cases, State shares its
expertise on certain issues, while other agencies complement State's
contribution.  In other cases, the uniqueness of each agency's
contribution is unclear.  For example, one area of overlap is in the
review of export license applications.  State's Office of Defense
Trade Controls, under the Political- Military Bureau, works in
partnership with the Defense Department on license applications for
arms exports.  The Office also confers with the Commerce Department
on license applications for exports of sensitive dual-use items and
with the Department of Energy for exports of nuclear-related
material.  Both State and ACDA are involved in dual-use and arms
export issues.  In some instances, multiple agencies review the same
applications to provide their perspectives and expertise. 

In the area of arms control, studies issued by the Office of
Inspector General for ACDA, the Office of Inspector General for
State, and the National Security Council suggest that duplication
between State and other agencies could be eliminated.  In August
1995, the Office of Inspector General for ACDA (which also serves as
the Office of Inspector General for the Department of State) reported
that duplication between ACDA and State's Political- Military Bureau
"promotes inefficient use of resources by both organizations and
accentuates turf consciousness, dissipating energies and damaging
morale."\4 Without specifying where duplication exists, the report
recommended that ACDA, with State, reassess the division of labor and
make more extensive use of teams to accomplish tasks of mutual
interest. 

A State official acknowledged that the Political-Military Bureau's
Office of Strategic Policy and Negotiations and ACDA probably have
some duplication or overlap in functions on which ACDA is the lead
agency.  He said, however, that duplication of this type does not
mean that both organizations are doing the same work.  Rather,
State's office represents the Department's interests and articulates
State's positions on delegations or interagency groups.  Furthermore,
the official said such duplication was necessary because each agency
has different goals, perspectives, and agendas.  The official added
that without State's involvement, needed political and diplomatic
input would be lost, and overall policy and diplomacy efforts could
become imbalanced.  State noted that it is seeking to identify and
reduce unnecessary duplication between State and ACDA in order to
reduce costs while maintaining a productive overlap. 


--------------------
\4 Report of Inspection, The U.S.  Arms Control and Disarmament
Agency (ACDA-ISP/I-95-44, Aug.  1995). 


      GLOBAL ISSUES
-------------------------------------------------------- Chapter 3:2.3

Although State represents U.S.  interests and formulates policy on
global issues, USAID plays a key role in implementing programs
concerning democratization ($432 million), population ($568 million),
and the environment ($799 million), spending a total of about $1.8
billion in fiscal year 1995.  USAID works with State to develop
conference agendas and provides technical expertise, but State leads
delegations to international conferences and negotiates treaties on
these issues. 

On environmental issues, State often relies on the Environmental
Protection Agency for policy and technical expertise.  However, State
plays a key role in representing U.S.  interests in international
organizations' activities relating to environment, science and
technology, and health issues.  In addition, State clears bilateral
agreements negotiated by the Environmental Protection Agency.  In
fiscal year 1995, the Agency devoted about 160 work years, including
15 staff in overseas assignments, and a budget of $44 million to its
international activities.  These activities included protecting U.S. 
citizens and natural resources from transboundary and global
environmental threats, leading U.S.  government efforts to implement
the Western Hemisphere Summit Program on Partnership for Pollution
Prevention.  The Environmental Protection Agency also works with
other agencies and the private sector to match pressing environmental
problems overseas with U.S.  suppliers of environmental technologies. 

Labor and workers' rights issues are addressed within State's bureaus
of Democracy, Human Rights, and Labor; Economic and Business Affairs;
Population, Refugees, and Migration; and International Organizations. 
In addition, State's Office of International Labor Affairs, which has
a headquarters budget of $381,000, maintains about 45 attachï¿½s
overseas to gather detailed information on workers' rights outside
the United States and prepare congressionally required reports on
workers' rights.  Moreover, the Department of Labor, which is the
lead agency for formulating international economic, trade, and
immigration policies affecting U.S.  workers, has a fiscal year 1995
budget of $12.2 million and about 90 staff to deal with its
international responsibilities.  It participates in interagency
committees and international conferences and meetings and serves as
the lead U.S.  representative in multilateral forums on labor. 

By eliminating the positions of 6 headquarters staff and the 45 labor
attachï¿½s overseas, State could reduce costs by about $7.4 million
annually.  According to several officials at overseas posts, labor
issues could be adequately covered by political and/or economic
officers.  In addition, several State bureaus monitor labor issues. 
State has proposed abolishing or lowering the rank of some labor
attachï¿½ positions in the past but has encountered resistance from the
Department of Labor and organized labor. 


   OPTION:  CUT ACTIVITIES AND
   RECOUP COSTS
---------------------------------------------------------- Chapter 3:3

Faced with a reduced budget environment, State must make choices
about which areas to cut while considering the interrelationships
among State's bureaus and offices and between State and other
agencies.  State may find it difficult to decide where it can
transfer, eliminate, or deemphasize its role, yet maintain priority
functions and activities.  Nevertheless, in our opinion, State can
cut some of its expenses by eliminating or reducing the Department's
involvement in some areas.  Furthermore, State can also consider
alternative ways to recover the costs of the wide array of the
products and services it provides to its customers. 


      OPTIONS FOR REDUCING
      REPORTING REQUIREMENTS
-------------------------------------------------------- Chapter 3:3.1

Reduced budgets will likely compel State to reassess its workload
requirements to match its resources.  One key area is that of
reporting.  State is a principal provider of information used by the
U.S.  government in foreign policy formulation.  It reports on key
developments, including analyses of the politics, economic trends,
and social forces at work in foreign countries, to some 60 federal
agencies dealing with national security, intelligence, economic and
commercial matters, science and technology, and other issues.  While
some of the reports could be eliminated or curtailed, it is not clear
which are the best candidates because their cost and relative value
to the users are unknown. 

In fiscal year 1996, State is required to produce over 130
congressionally mandated reports.\5 These reports require input from
numerous posts worldwide and the use of considerable resources at
headquarters and at overseas posts.  Streamlining some of these
reporting requirements not only could significantly reduce resource
requirements at State but also could reduce demands on other agencies
that must review some of these reports. 

The Bureau of Economic and Business Affairs, which recently
eliminated over 40 reports affecting up to 110 posts, believes that
the requirement to produce country reports on economic policy and
trade practices should be eliminated.  These reports, required by the
Omnibus Trade and Competitiveness Act of 1988, consume the equivalent
of 5 staff years at headquarters and 100 posts at an annual cost of
at least $500,000.  Several officials suggested that State seek
legislative relief from this requirement, since the reports'
information is available through other sources. 

Other reporting requirements that consume substantial resources are
the annual country reports on human rights practices and the annual
report on science, technology, and American diplomacy.  Geographic
bureau and post officials reported that they spent large blocks of
time producing these reports.  For the human rights reports, the time
required to prepare an annual report varies from country to country. 
One overseas official, who said he spends 40 to 50 percent of his
time covering human rights issues, estimated that drafting a country
summary for the human rights report takes at least 4 weeks.  The
concern here is that State expends resources on these reports even in
countries where human rights issues are not significant.  In addition
to the 194 overseas posts that contribute to the report, State has
indicated that one employee spends roughly 6 months working on the
reports, and seven work on the reports full time for
4 months.  About 12 more employees review reports within their
regional areas of responsibility in the course of their regular
workday.  According to one State official, if faced with substantial
budget reductions, State may have to limit reporting on those
countries where human rights abuses are least prevalent. 


--------------------
\5 These reports are required periodically--that is, monthly,
quarterly, semiannually, annually, or as specified.  About 40
additional reports are required intermittently, as actions warrant. 


      OPTIONS FOR REDUCING OVERLAP
      WITHIN STATE
-------------------------------------------------------- Chapter 3:3.2

Lessening overlap within State's offices could reduce costs.  For
most functions and activities, several offices and bureaus within
State headquarters and overseas posts are involved.  In February
1995, State completed a preliminary functional study of domestic
positions, focusing on potential areas of overlap and duplication. 
Although the study did not offer definitive answers or management
options, it provided some clear examples of potential duplication of
functions for further research.  For example, 24 political- military
positions are in bureaus other than the Bureau of Political-Military
Affairs, 59 economist positions are in bureaus other than the Bureau
of Economic and Business Affairs, and 9 science positions are outside
the Bureau of Oceans and International Environmental and Scientific
Affairs.  Moreover, the study indicated that there is potential
overlap between the Bureau of Intelligence and Research and regional
and functional bureaus throughout the Department. 

Furthermore, geographic bureaus are organized to overlap with many
foreign policy and support functions.  In a way, they operate as six
micro-State departments, basically administering U.S.  foreign policy
in different regions of the world.  Within each of the six bureaus is
an Office of the Executive Director with financial management,
personnel, and other support positions; a political and economic
section or a combined political-economic section with regional
responsibilities; and country desks that serve as the liaison between
State headquarters offices and overseas posts. 


      OPTIONS FOR RECOVERING COSTS
      OF SOME SERVICES
-------------------------------------------------------- Chapter 3:3.3

State could recover some costs by charging for selected services and
products.  Charging for such services would force the customer to
reassess the relative value of the service.  State currently makes
only limited efforts to routinely compile data on the cost of its
reports and services.  Agencies we contacted generally valued the
reports and services that State provided, but since costs are
unknown, organizations have difficulty making cost-benefit decisions. 

State has historically charged for consular services but not for its
factual and analytical reports, business assistance services, and
assistance to overseas visitors.  For example, the economic/
commercial section of Embassy Asuncion, Paraguay, handled about 30
interagency requests between September and October of 1995, including
requests from USTR; the Federal Aviation Administration; the U.S. 
Trade and Development Agency; and the Departments of Commerce, the
Treasury, and Energy--none of which has representatives in Paraguay. 
The Consulate General in Sao Paulo, Brazil, supported at least 14
high-level visits in 1995, including one congressional delegation;
the Secretary of Commerce and the Secretary of the Treasury; the
governors of Wisconsin and Nebraska; the mayor of Orlando, Florida;
the Director-General of the U.S.  and Foreign Commercial Service; and
U.S.  Export-Import Bank officials.  State is not compensated for
staff time and some other expenses associated with these services. 

Unlike other areas in the Department, State's goal in Consular
Affairs is to recover the total cost of selected services.  For
example, based on a 1991 cost study that showed the average cost of a
passport was about $60, State now charges $65 to issue a passport. 
In fiscal year 1995, State collected $552 million in consular
fees--funds that reverted back to the Treasury.  Since 1994, State
has been authorized to retain the surcharge collected for
machine-readable visas, expedited passport fees, and certain
processing fees.  For fiscal years 1994 and 1995, State was allowed
to keep up to $107.5 million--funds that the Bureau of Consular
Affairs indicated it is using to finance improvements to some of its
passport and visa programs.  Consular Affairs is considering raising
fees and charging for services that are currently free and may seek
legislative authority to retain more fees to finance its activities. 
It may also seek legislative authority to make permanent the
Department's retention of machine- readable visa fees. 

In March 1996, State issued instructions to overseas posts to collect
fees for some commercial services.  Under a newly authorized program,
State will collect fees for commercial services at posts where the
Commercial Service is not represented.  The potential annual
revenues, estimated to be as much as $3,000 per post, will be
reinvested to support business assistance activities. 

In September 1995, State's Inspector General recommended that the
Bureau of Political-Military Affairs consider expanding manufacturer
and exporter registration and licensing fees to improve State's arms
export and compliance activities.  Under its annual appropriation
act, State may retain a stated amount annually, funds that the Bureau
has used for information systems to modernize the Bureau's
operations.  In fiscal year 1995 State retained $700,000.  In
comparison, officials from the Nuclear Regulatory Commission, which
also charges arms manufacturers and exporters registration and
licensing fees, said that the Commission's licensing process is
self-financing from fees that range from $100 to $7,000 per license. 

While State currently has authority to collect and retain fees for a
number of the products and services it provides, it should determine
whether there other areas in which it could benefit from additional
cost-recoupment authority. 


   POTENTIAL IMPACT OF CUTTING
   BACK ON STATE'S ROLE IN CERTAIN
   FUNCTIONS
---------------------------------------------------------- Chapter 3:4

The cost-cutting decisions that State may make could adversely affect
other agencies.  For example, because USTR has only one overseas
office in Geneva, Switzerland, it relies on State for field support
in developing and enforcing trade agreements.  In a similar vein, the
U.S.  Export-Import Bank, which has no offices overseas, also relies
on State for support in analyzing the credit risks of countries and
negotiating and enforcing the terms of foreign loans.  Moreover,
State and agency officials emphasized that if other agencies, such as
the Department of the Treasury and the Federal Aviation
Administration, downsize their presence overseas due to reduced
budgets governmentwide, they are likely to rely on State even more
for field support of international activities. 

Other agencies also rely on State for support from the international
conferences and contingencies account, which funds the U.S. 
government's participation in about 700 international conferences. 
Although the State Department coordinates overall U.S. 
participation, other agencies, such as the Departments of Labor and
Transportation and USTR, provide technical expertise and lead
delegations where appropriate.  When the Congress reduced the account
from $6 million in fiscal year 1995 to $3 million in fiscal year 1996
($2 million for conferences), the State Department told other
agencies that it could no longer fund non-State participants. 
According to agency officials, State's decision forced agencies to
limit or cancel their participation in some conferences, even though
in some instances the other agencies, not State, lead the U.S. 
delegation.  To help them plan for anticipated cuts in State support
and services, agency officials urged the Department to coordinate its
plans with other agencies in advance to allow those affected by
State's decisions sufficient time to make alternate arrangements. 

Another example of the impact of State cutbacks on other agencies is
in the assignment of detailees.  State assigns detailees to agencies
such as USTR, the National Security Council, and the Department of
Defense as well as to congressional offices.  Similarly, other
agencies, like USAID, assign detailees to the State Department.  As
State and other agencies face reduced budgets, they may have to
consider the costs and benefits of detailing staff to outside
assignments.  Although State has no immediate plans to eliminate or
seek reimbursements for all detailees, the Department recently formed
a committee to review the policy.  State currently has 136 employees
detailed to other agencies.  USTR has about 40 detailees from other
agencies, 10 of whom are from the State Department, to augment its
163-member staff.  Officials there expressed concern that State would
first try to reduce costs by eliminating the detailees it provides
cost- free.  USTR officials told us that, considering their limited
budget and staff, such an action would adversely affect their
operations. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:5

Given the potential that State's budget will decline, the Department
must scrutinize its diverse functions to determine which are
critical, decide on appropriate levels of resource investments, and
identify areas that could be streamlined.  Offices within State share
responsibility with multiple U.S.  agencies for various overlapping
policy issues, which may suggest the potential for consolidating or
transferring some of State's duties.  Other agencies may be able to
assume greater responsibility in some areas.  On the other hand,
budget considerations may increase other agencies' reliance on State
for support of their international activities.  Therefore, in making
these streamlining and management decisions, State will need to
consider how cost-cutting decisions within the Department may
adversely affect other agencies. 

State also must reassess its involvement in certain functions and
activities.  This may include seeking legislative relief from certain
congressionally mandated reports or authorization to downgrade the
level of certain services.  State also needs to consider recouping
the costs of products and services it provides to numerous customers. 
This will require State to maintain cost information (which it does
not currently have) in order to weigh the costs and benefits of its
products and services and prioritize requirements.  More importantly,
the availability of cost information could help State identify which
functions and activities are most essential and which areas can be
eliminated, reduced, or deemphasized should reduced budgets compel
such action. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 3:6

In commenting on a draft of this report, State said that this chapter
accurately describes State's foreign affairs activities and the large
number of other organizations involved.  State made a number of
technical suggestions, some of which we incorporated in the report. 

Regarding our discussion of the human rights reports, State indicated
that the Department had taken steps to streamline the report
preparation process (such as eliminating unnecessary redrafting and
providing updates only, rather than full reports).  The Department of
Labor expressed its concern regarding streamlining these reports,
noting that continuity in coverage is important to the analysis of
human rights issues.  State also said that it had taken steps to
streamline its labor function, which State believes remains important
to U.S foreign policy interests.  The Department of Labor also
objected to eliminating labor attachï¿½ positions and asserted that
neither political nor economic officers can effectively perform the
labor function. 

We did not recommend that specific functions or activities be
curtailed or eliminated.  Rather, we identified a number of options
that, if implemented, would help enable State to adjust to potential
budget reductions.  In a period of limited resources, State may have
to scrutinize its functions and reassess its involvement in all
areas, including human rights reporting and labor functions. 


OPTIONS FOR REDUCING OVERSEAS
PRESENCE
============================================================ Chapter 4

Overseas posts consume almost 70 percent of State's budget.  Thus, a
fundamental rethinking and restructuring of the U.S.  overseas
presence offers the greatest potential to achieve substantial budget
reductions.  State officials believe that certain proposed funding
levels could force them to close 50 to 100 of its 252 overseas posts. 
The post closures and other actions that would result from such a
restructuring would mean a reversal of State's long-standing
"universality" policy to maintain a presence in nearly every country
and could have other consequences as well.  State has proposed the
closure of some posts and made efforts to reduce post costs but has
made little headway because of internal and external resistance. 
Establishing an external commission to review proposed post closures
and vesting greater authority in the chiefs of mission to achieve
cost reductions are two approaches for addressing the problems. 


   OVERSEAS POSTS ARE COSTLY TO
   OPERATE
---------------------------------------------------------- Chapter 4:1

The State Department's overseas posts cost about $1.9 billion
annually.  This amount includes the personnel costs for State's
overseas U.S.  direct-hire and foreign service national (FSN)
employees; operating expenses; and the costs for equipment, security,
and building acquisition and maintenance.  State employs about 7,000
U.S.  direct-hire workers and about 9,300 FSNs at its posts.\1 It
maintains embassies in most countries' capitals, consulates in some
commercial centers outside capital cities, and missions to
international organizations in some countries. 

The agendas, sizes, and costs of overseas posts vary greatly.  Some
posts are small and provide basic U.S.  representation in a country. 
Other posts' operations are comprehensive, with more staff and larger
budgets to support a large number of government agencies.  The State
Department categorizes posts as representational, focused, small,
medium, large, and comprehensive. 

A representational post serves as a diplomatic and consular presence
in a host country's capital or in a major city of the country.  Posts
in the Central African Republic, Grenada, and Western Samoa are
considered representational, and their annual costs range from about
$240,000 to about $2.5 million.\2 A focused post not only serves as a
diplomatic or consular presence but also functions in one or more
specific areas, such as foreign assistance or narcotics control.  The
posts in Burkina Faso, Mongolia, and Vatican City are considered
focused, and their annual costs range from about $1.6 million to
about $3.1 million. 

The responsibilities of posts increase with their designation as
small, medium, large, and comprehensive.  Responsibilities range from
addressing U.S.  government policy and support requirements with a
small staff at a small post to addressing a full range of intensive
bilateral and multilateral issues as well as important and
long-standing U.S.  domestic issues with a large, diverse staff at a
comprehensive post.  Costs for medium, large, and comprehensive posts
are substantial.  For example, it costs $54.2 million annually for a
comprehensive embassy and five consulates in Japan. 

Large and comprehensive posts--those with the greatest
responsibilities--understandably absorb a disproportionate share of
the total costs of U.S.  overseas posts.  As shown in table 4.1, 10
of State's more expensive missions accounted for over $396 million,
or over 21 percent of costs in fiscal year 1995.  In contrast, 10 of
State's least expensive missions accounted for nearly $14 million, or
less than 1 percent of total costs. 



                               Table 4.1
                
                      State's More Costly Missions

                         (Dollars in millions)

Mission                                       Fiscal year 1995 funding
----------------------------------------  ----------------------------
Germany                                                          $90.3
Japan                                                             54.2
Mexico                                                            42.3
France                                                            53.5
Italy                                                             35.1
United Kingdom                                                    28.0
Brazil                                                            27.4
Canada                                                            19.6
Austria                                                           23.1
Saudi Arabia                                                      22.8
----------------------------------------------------------------------
Source:  State Department, Bureau of Finance and Management Policy. 


--------------------
\1 The U.S.  government has approximately 35,300 U.S.  government
employees at overseas posts, including about 18,600 direct-hire
employees and about 16,700 FSN employees. 

\2 These are State's estimates of fiscal year 1995 funding levels and
include the estimated personnel costs for State's overseas U.S. 
direct-hire and FSN employees; operating expenses; and equipment,
security, and foreign building operations.  Estimated funding
includes direct appropriations and reimbursements from other agencies
and may also include funds for some nonrecurring costs (e.g.,
construction). 


   POST FUNCTIONS AND RESOURCE
   ALLOCATIONS
---------------------------------------------------------- Chapter 4:2

The overseas posts' primary mission is to support U.S.  foreign
policies by promoting political interests; supporting U.S.  economic
and trade interests; participating in efforts affecting global issues
such as the environment, counternarcotics, and labor; issuing visas;
and assisting American citizens.  Posts also provide a wide range of
services, including communications, office and residential building
operations, health, equipment installation and maintenance,
personnel, budget and fiscal, travel, motor pool, procurement,
shipment and customs support, and security in support of mission
operations and staff. 

Figure 4.1 shows the work assignment distribution of State's
direct-hire employees posted overseas.  As shown in the figure,
support functions consume a significant amount of post resources. 

   Figure 4.1:  State's Overseas
   U.S.  Direct-Hire Employees

   (See figure in printed
   edition.)

\a Other includes science, refugee, and narcotics positions. 

Source:  State Department, Office of Resource Management and
Organization Analysis, Bureau of Personnel. 

In addition to U.S.  direct-hire employees working in support
positions, State also employs over 9,300 FSNs, most of whom work in
support areas.  State supports not only its own activities but also
those of other agencies; in fact, State supports more of other
agencies' U.S.  direct-hire employees--whose number has increased
steadily--than its own.\3

Individual posts provide a good illustration of resource allocations
and post functions.  During our review, we visited posts in six
countries that vary in the numbers of staff, work, and budgets (see
table 4.2). 



                                    Table 4.2
                     
                         Post Resources in Six Countries

                              (Dollars in millions)


                                                                         State's
                                                                         funding
                                                                           level
Cou                  U.S.                  U.S.                          (fiscal
ntr  Number of     direct    FSN and     direct    FSN and      Total       year
y        posts       hire    other\a       hire    other\a      staff    1995)\b
---  ---------  ---------  ---------  ---------  ---------  =========  ---------
Bel          1         12         48          3         12         75       $2.0
 ar
 us
Bra        5\c        120        431         88        204        843       27.4
 zil
Mal          1         41        123         32         44        240        8.4
 ay
 si
 a
The          2         40         69         78         43        230        9.3
 Ne
 th
 er
 la
 nd
 s
Par          1         19        125         21         80        245        4.5
 ag
 ua
 y
Sen          1         29        147         43        157        376        8.0
 eg
 al
--------------------------------------------------------------------------------
\a Includes part-time intermittent temporary employees, U.S. 
personal service contractors, Marine security guards (listed only as
State Department staff), and foreign national personal service
contractors. 

\b Includes personnel costs for State's overseas U.S.  direct-hire
and FSN employees; operating expenses; and equipment, security,
representation, and foreign building operations.  Amounts may include
some nonrecurring costs such as those for building construction and
remodeling. 

\c While conducting our fieldwork, Brazil had five posts, but the
Consulate in Porto Alegre closed earlier this year and Brazil now has
four posts. 

Source:  U.S.  missions to Belarus, Brazil, Malaysia, The
Netherlands, Paraguay, and Senegal and the State Department's Bureau
of Finance and Management Policy. 

The posts in Belarus and Paraguay are considered small posts; those
in Malaysia, The Netherlands, and Senegal are considered medium to
large; and the embassy in Brazil is considered large.  Appendix I
includes information on the State Department's overseas political;
economic; and commercial, global, and consular activities, focusing
on activities at these posts during September and October 1995. 
These activities may or may not be representative of the posts'
missions as defined by State, but they give insight into the variety
of issues the posts must deal with. 

An important function of overseas posts has traditionally been to
maintain contact with foreign governments on political and security
issues.  Together with the ambassador and the deputy chief of
mission, a post's political section attends to the day-to-day
political relations with the host government and attempts to build
support for U.S.  government policies.  It also informs the U.S. 
government of host country policies and actions that affect U.S. 
interests.  At the posts we visited, the political sections spent
most of their time analyzing and reporting on the political situation
there, representing the U.S.  government and developing contacts
within the host country, and supporting official visitors to the
country. 

State posts also support U.S.  economic interests overseas,
particularly in the areas of business assistance and trade advocacy. 
At the posts we visited, ambassadors were spending up to one-third of
their time on economic and trade advocacy activities, often
personally weighing in on behalf of U.S.  businesses where
appropriate.  Posts also support issues of a global nature, such as
the environment, counternarcotics, and labor as well as specific
issues like international war crimes tribunals. 

The consular section of an overseas post provides passport and
citizenship services; immigrant and nonimmigrant visa services; and
services to U.S.  citizens overseas, for example, helping Americans
in trouble abroad.  The sections we visited do a high volume of work
with limited staff, collecting fees for many of their services. 

Although political, economic, and consular functions are the primary
missions of the overseas posts, support structures consume a large
share of State's allocated resources.  At the posts we visited, 28 to
67 percent of State's staff were devoted to support duties. 
According to State officials, the number of personnel needed for
support is influenced by several factors, including language
constraints, the quality of the local infrastructure, and the
availability of skilled labor locally.  Table 4.3 shows the support
staffing levels in the six countries we visited. 



                               Table 4.3
                
                Support Staffing Levels in Six Countries
                                 (1995)

                                                                 Total
                                                   State       support
                             State   Total       support         staff
Country                      staff   staff         staff     (percent)
--------------------------  ------  ------  ------------  ------------
Belarus                         60      75            50            67
Brazil                         551     843           397            47
Malaysia                       164     240           118            49
The Netherlands                109     230            65            28
Paraguay                       144     245           119            49
Senegal                        176     376           154            41
----------------------------------------------------------------------
Source:  U.S.  missions to Belarus, Brazil, Malaysia, The
Netherlands, Paraguay, and Senegal. 

The contrast between the number of support staff and staff working on
the primary missions is striking at some of the posts.  For example,
of the 843 employees at the posts in Brazil, 551 work for State.  Of
State's 551 employees, 154 work in substantive areas and 397 work in
support areas. 


--------------------
\3 Of the approximately 18,600 U.S.  direct-hire employees assigned
to overseas posts, about 11,600 (62 percent) work for non-State
agencies. 


   OPTIONS FOR CLOSING AND
   RESTRUCTURING POSTS
---------------------------------------------------------- Chapter 4:3

State has closed and reduced the size of posts in recent years
because of funding constraints.  For example, since 1991, State has
closed 31 posts, most of which were consulates in countries with
multiple posts.  During the same period, State has also opened 28
posts mostly in the newly independent states of the former Soviet
Union. 

State has a number of options to consider in closing more posts and
streamlining post operations.  However, such actions are likely to
face continued resistance both from within State and externally. 
According to a 1992 State management study, some State officials
favor multiple country accreditation in some regions, where an
ambassador operating from a regional post would "circuit ride" to
several small, neighboring countries.  Regional posts would allow
consolidation of staff and other resources in one central location,
although cost reductions would be offset to some degree by travel and
other related expenses.  The study stated that dual or triple
accreditation can work if there is reasonable geographic proximity or
if convenient air routes are available; no or very small other-agency
representation is in the country or countries concerned; and only
occasional "tending" for diplomatic reasons is needed.  State
favorably cited British representation in Africa, where ambassadors
are accredited to three or four countries each.  The U.S.  Embassy in
Bridgetown, Barbados, has full diplomatic responsibilities for 7
countries and partial diplomatic responsibility for 14 others in the
eastern Caribbean.  If the foreign affairs budget declines, Embassy
Bridgetown could serve as a model for regionalizing American
diplomatic presence.  To reduce costs, the State Department could
expand multiple country accreditation to other regions, such as the
Baltic States, Africa, and countries in South America such as Guyana
and Suriname. 

A second option would be to reevaluate the need for consulates.  One
Deputy Chief of Mission suggested that while consulates served a
variety of purposes during the Cold War, expanded media coverage and
improved information and telecommunications technology have lessened
the need for them.  The Deputy Chief of Mission posed an option to
eliminate all consulates to avoid political pressures when closures
of specific consulates are debated.  Although many consulates are
small or moderately sized, some are bigger and more expensive to
operate than major embassies.  For example, in fiscal year 1995, the
consulate in Frankfurt, Germany, cost about $18.8
million--substantially more than the cost of operating the embassy in
Ottawa, Canada ($5.9 million), and almost as much as the combined
total for the embassy and all six consulates in Canada ($19.6
million).\4

To critically review these and other options, one strategy would be
to establish an independent post closure panel like the Defense Base
Closure and Realignment Commission--an approach that resulted in
decisions to close, realign, or otherwise downsize hundreds of
military bases and installations.  Although the criteria involved in
closing and downsizing overseas diplomatic posts are different, a
panel much like the Commission may be useful.  A panel could review
the needed governmentwide presence at overseas posts as they relate
to planned funding priorities.  Since many other agencies depend on
State's overseas presence, we believe that such an approach would
allow for decision-making based on the need to support both State and
non-State activities, consistent with overall U.S.  policy interests
and priorities as well as available resources. 

We believe that establishing such a commission would also have the
added advantage of mitigating at least some of the pressures and
parochial interests that have historically operated to maintain a
U.S.  overseas presence.  The State Department's traditional policy
of maintaining a diplomatic presence in nearly every country--the
policy of "universality"--is the primary reason that there are 252
overseas posts, even where U.S.  interests are now minimal. 

Universality is a principle rooted in the Cold War.  According to the
National Performance Review, during the Cold War, the United States
obligated itself to maintain a presence around the world at least
equal to that of the Soviet Union.  However, despite the end of the
Cold War, State remains reluctant to close embassies.  In 1992, State
decided to help finance new posts in the former Soviet Union by
closing posts in other geographic regions, but some of State's
geographic bureaus resisted proposing posts for closure.  One bureau
argued that it had been established in response to congressional
interest in the region and that closing posts would be contrary to
congressional intent.  Another bureau initially refused to propose
that any post be closed because it wanted to retain at least some
presence in all countries. 

Despite the expense, the concept of universality remains firmly
rooted in State's policy.  State officials say that even in countries
with minimal U.S.  interests, a U.S.  presence is important to
provide international leadership, for example, to influence votes in
the United Nations.  In September 1995, the Secretary of State
reaffirmed his commitment to universal representation, noting that it
had been invaluable in extending the nuclear nonproliferation treaty
earlier in the year and that it was essential when crises erupt in
unexpected places like Burundi and Belarus and when American citizens
experience trouble abroad.\5

In addition to internal resistance, the State Department has faced
outside resistance to closing posts.  In December 1992, for example,
State reported that congressional scrutiny, special interests, ethnic
groups, and other domestic U.S.  political constituencies often
emerge to oppose the closing of posts.\6 In its 1992 post closing
exercise, State originally proposed closing 20 posts in fiscal years
1993 and 1994.  After consultation with congressional members on
these closures, State announced that 19 of the 20 would close and
then later reduced that number to 17. 

In July 1995, in its latest attempt to close posts, State notified
the Congress that it intended to close 19 posts.  It later withdrew
six of the posts from the list due to external pressures.  For
example, as a result of pressure from a member of Congress and the
Drug Enforcement Agency, State removed the consulate in Curacao,
Netherlands Antilles, from the list.  Some of the other five
withdrawn posts--in Apia, Western Samoa; Edinburgh, Scotland;
Florence, Italy; and Hermosillo and Matamoros, Mexico--have
repeatedly appeared on lists of proposed closures.  State had
expected to reduce its costs by about $12 million a year beginning in
fiscal year 1997, the year following the 19 closures.  However, after
withdrawing six posts from the list, the projected cost reductions
were reduced to about $9.3 million. 


--------------------
\4 These are State's estimates of fiscal year 1995 funding levels. 
The estimated costs for the embassy in Ottawa do not include the cost
of foreign building operations; however, the combined total for
Canada includes these costs. 

\5 Speech before the Council on Foreign Relations, Washington, D.C.,
September 20, 1995. 

\6 State 2000:  A New Model for Managing Foreign Affairs, State
Department, Washington, D.C., December 1992. 


   OPTIONS TO REDUCE POST COSTS
---------------------------------------------------------- Chapter 4:4

In addition to actual post closures and consolidations, another
option is to consider ways to reduce post costs.  Since a large
portion of overseas costs are structured around staffing, large
budget reductions will likely mean further cuts in overseas staff and
operating costs.  However, embassy managers have little control over
resources.  As a result, the National Performance Review recommended
that a pilot project be set up to give chiefs of mission more
authority over all U.S.  government resources at posts.\7 This
recommendation has not yet been implemented. 


--------------------
\7 Creating a Government That Works Better and Costs Less: 
Department of State and U.S.  Information Agency, Accompanying Report
of the National Performance Review, Office of the Vice President
(Washington, D.C.; Sept.  1993). 


      OPTIONS FOR REDUCING
      OVERSEAS STAFFING
-------------------------------------------------------- Chapter 4:4.1

Because of possible budgetary constraints, State may have to further
reduce the size of overseas posts--an even more likely possibility if
State remains reluctant to abandon its policy of near universal
representation.  State could achieve significant cost reductions by
making large-scale reductions in overseas staffing.  The prospect of
further reductions in overseas staffing means that an effective
system for allocating overseas staff based on agency goals and
objectives is essential. 

In December 1992, State reported that there had long been concerns
that the overseas staffing process was not directly linked with the
goals and objectives at specific posts.  In 1993, among a number of
other organizational changes, the Secretary approved a plan to
restructure the overseas diplomatic presence.  As part of this
effort, State was to implement a new overseas staffing model, under
development since 1990, to provide a rational basis for allocating
personnel to overseas posts.  However, as of January 1996, State had
still not implemented the model.  In commenting on a draft of this
report, State noted that its Overseas Staffing Board met in June 1996
to begin implementation of a model to rationalize overseas staffing. 

State's costs would be much less if State made large-scale reductions
in overseas staffing.  For example, the cost reductions from
eliminating only 10 positions from overseas posts could total at
least $1.5 million.  State's Office of Budget and Planning estimates
the cost of positions overseas from two different perspectives:  (1)
the costs of adding a new American position and associated start-up
expenses and (2) cost reductions from eliminating a position.  To
estimate the costs of adding a new U.S.  direct-hire position to an
existing overseas post, the Office uses a figure of $214,400 for the
first full year--an amount that includes the average salary,
compensatory and incentive allowances and benefits, and other
operating expenses.  The Office uses a figure of $156,500 to estimate
cost reductions from cutting a U.S.  direct-hire position overseas.\8
This amount is $57,900 less than the costs of adding a position
because it does not include certain operating costs, such as
security, which may not decrease when a position is cut.  These
figures vary by region and by post.  For example, the cost reductions
from eliminating half of the 67 U.S.  direct-hire employees in India
and half of the 100 in France could amount to about $5.2 million and
$7.8 million, respectively. 


--------------------
\8 These figures reflect State's estimates as of July 1995.  We
reported similar information in Overseas Presence:  Staffing at U.S. 
Diplomatic Posts (GAO/NSIAD-95-50FS, Dec.  28, 1994). 


      OPTION FOR CONTROLLING POST
      COSTS
-------------------------------------------------------- Chapter 4:4.2

Chiefs of mission (generally ambassadors) currently control only a
small portion of the total resources devoted to their posts'
operations; headquarters offices control the larger share.  The
National Performance Review report noted that the centralized
management of program and staff resources in Washington, D.C., is
less efficient than management of resources in the field.  For
example, some embassy managers told us that they were reluctant to
hire FSNs or spouses to serve as secretaries because their salaries
and benefits would come from the posts' budgets.  On the other hand,
the salaries and benefits of U.S.  direct-hire secretaries, which are
substantially more, are paid by headquarters offices. 

Posts have tried to cut costs that are within their control, but cost
reductions have been small.  For example, the post employees in
Paraguay are working longer hours Monday through Thursday and closing
at noon on Friday to reduce utility costs--an estimated cost
reduction of about $10,000 a year.  Similarly, in Malaysia, the
post's air conditioning is turned off at 5:00 p.m.  on weekdays and
all day on Saturday--a measure estimated to reduce costs between
$35,000 and $40,000 a year.  The post in The Hague is considering
requiring staff to bring their own furniture overseas, initially
reducing the post's costs by an estimated $10,000 a year, with
further cost reductions over time.  The post now pays to operate a
furniture warehouse, but the cost of shipping household goods
overseas is paid by headquarters. 

According to some embassy managers, regulations and long-standing
State practices leave little room for innovative approaches to
cutting costs.  For example, the managers at one post said that
current prohibitions governing lease/purchase arrangements do not
allow for entrepreneurial approaches to obtaining U.S.  government
real property. 

State officials also argue that they lack sufficient authority over
other agencies' resources at posts.  A variety of laws, State
Department directives, and presidential letters of instruction give
chiefs of mission the authority over State's and other agencies'
staffing decisions.\9 Nevertheless, the National Performance Review
noted that National Security Decision Directive-38 (NSDD-38), issued
June 2, 1982, makes the authority of the chief of mission more
theoretical than real in many cases.  NSDD-38 allows other agencies
to challenge a decision made by the chief of mission.  According to
State officials, headquarters management often does not support
chiefs of mission in bureaucratic battles with agencies that resist
their attempts to limit or reduce their staffs.  Moreover, when a
chief of mission successfully limits an agency's staff growth at one
post, the agency sometimes manages to increase its presence in a
nearby country instead.  For example, although the Ambassador in
Brazil negotiated with the Internal Revenue Service to close its
office in Sao Paulo because he, along with Inter-American Affairs
Bureau management, agreed that Internal Revenue Service operations
could be effectively managed in the United States, the Internal
Revenue Service opened a new office in Chile.  Our prior work has
shown that other agencies' staffs have increased steadily, while
State's has decreased slightly.\10

Even if chiefs of mission successfully exercise authority over staff
levels, they do not have practical day-to-day control over their
personnel and fiscal resources.  According to the National
Performance Review, because of the diffusion of responsibility,
authority, and operational prerogatives among the various overseas
agencies, chiefs of mission lack the flexibility to shift resources
to respond to changing requirements or evolving foreign policy
objectives.  The Ambassador in Senegal managed to cut 14 positions in
Dakar, 13 of which were from other agencies, with estimated overall
cost reductions of about $3 million.  He believes, nevertheless, that
he could achieve greater cost reductions if he had day-to-day
operational control over total U.S.  government funding and resources
at his post.  A review of the post's mission and structure, led by
the Ambassador, concluded that the explosion of different
administrative, financial, and information systems among the various
agencies overseas calls for consolidation of support functions,
privatization, and other changes that can come about only with
expanded chief of mission authority.  For example, the agencies in
Dakar have four different communication systems.  Also, 7 independent
financial operations and 38 staff positions are devoted to financial
management functions there.  The study indicated that there are
similar redundancies elsewhere and that streamlining and cost
reductions could be achieved in areas such as real estate and
facilities management, security, and quality-of- life benefits. 
(Options for cost reductions in some of these areas are explored in
more detail in ch.  5.)

To strengthen the ability of chiefs of mission to achieve significant
cost reductions, in September 1993 the National Performance Review
recommended a pilot project giving U.S.  ambassadors at selected
posts more authority over all U.S.  government resources at their
posts, including staff.  There may be some potential negative
consequences to expanding ambassador authority.  For example, a chief
of mission and a federal agency may have differences of opinion
concerning the types and levels of resources needed to sustain agency
activities. 

State has not initiated action on this recommendation.  State
officials told us the Department cannot move on this recommendation
until the National Performance Review/Vice President's staff propose
the needed legislation to the Congress.  However, National
Performance Review staff told us that proposing legislation is the
agency's responsibility.  State does not want to initiate action
because it believes the pilot program should be viewed as an
administration initiative to gain the interagency support such a
project would require.  State has also told us that anticipated
congressional opposition to such a project has inhibited their
submission of a legislative proposal. 

Consistent with the recommendation, in November 1995, the U.S. 
Ambassador to Senegal submitted a study concluding that the chiefs of
mission need more authority and control over U.S.  government
programs, personnel, and resources under their management.  He asked
that the Under Secretary for Management convene the Vice President's
Interagency Council to obtain agreement from its members to designate
selected posts to test the study's conclusions.  State management has
been reviewing the proposal. 


--------------------
\9 State is not responsible for large numbers of personnel who are
paid directly or indirectly by other U.S.  government agencies and
involved in U.S.  government activities overseas, for example,
military personnel under a U.S.  area military commander. 

\10 In 1994, we reported an overall increase of 19 percent in
overseas staffing between 1984 and 1994.  Agencies such as the
Departments of Justice, Transportation, and the Treasury accounted
for the largest increases.  See Overseas Presence:  Staffing at U.S. 
Diplomatic Posts (GAO/NSIAD-95-50FS, Dec.  28, 1994). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 4:5

Because of fiscal constraints, State may not be able to continue to
maintain its vast network of embassies and consulates as they are
configured today.  The end of the Cold War coupled with improvements
in communications capabilities provide the opportunity to rethink how
the U.S.  government's overseas presence is structured and develop
new ways of operating that could increase efficiency and reduce
costs.  Balanced, thoughtful decisions must be made to ensure that
U.S.  interests are well served overseas and Americans are protected
within the constraints of reduced funding. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 4:6

If future funding levels require the State Department to close and
reduce the size of posts, the Congress may wish to establish an
independent panel to review State's proposals in view of (1) the
potential financial benefits to the U.S.  government, (2) the impact
on governmentwide interests and the many agencies that depend on
State's services, and (3) the potential opposition to closing posts. 
Although the criteria involved in closing and downsizing overseas
diplomatic posts are different, a panel much like the Defense Base
Closure and Realignment Commission established to review military
installations may be useful. 

Also, if the Congress believes that ambassadors' authority over U.S. 
government resources should be expanded to reduce spending, it could
explore with the executive branch how a pilot program, such as the
one recommended by the National Performance Review, could be
structured and implemented. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 4:7

State said that the chapter did a good job of describing State's
experiences in proposing posts for closure and outlining some
approaches to reducing the number of posts.  State asserted that a
diplomatic presence in all countries with which the United States has
diplomatic relations continues to be important today.  State also
emphasized that Americans traveling abroad as well as other U.S. 
agencies depended on the network of embassies and consulates.  These
factors will need to be carefully considered in determining what
overseas presence is essential and affordable. 

USAID objected to expanding an ambassador's authority over the
programmatic direction and funding of overseas programs, even on an
experimental basis.  Increasing ambassadors' authority, on a pilot
basis, is one option we offered as a means to reduce costs.  We
stated that increasing ambassadors' authority could have negative
consequences. 


STATE'S SUPPORT COSTS CAN BE
REDUCED
============================================================ Chapter 5

The State Department spends two-thirds of its budget on support
operations.  In response to reduced operating budgets, State is
pursuing or studying several options to reduce its support costs. 
These include (1) recouping the full cost of support provided to
other agencies overseas, (2) hiring more U.S.  family members to fill
overseas staffing positions, (3) increasing employees' payments for
medical services, (4) increasing the length of overseas tours, and
(5) reducing its costs for Marine guard detachments at overseas posts
by deactivating certain units or shifting its cost to the Department
of Defense. 

We identified several additional options State could implement if it
has to adjust to potential budget cuts.  These options include (1)
reducing support staffing levels in headquarters, (2) reviewing
employees' benefits and allowances, (3) expanding the use of foreign
nationals in support positions at overseas posts, and (4) disposing
of excess and underused properties overseas. 

Over the long term, State hopes to reduce its operating expenses
through business process reengineering and the outsourcing of certain
support functions.  In both areas, however, only limited progress has
been made. 


   SUPPORT NETWORK CONSUMES A
   LARGE PORTION OF THE BUDGET
---------------------------------------------------------- Chapter 5:1

In fiscal year 1995, State allotted $1.8 billion, or about 65 percent
of its budget, to domestic and overseas support operations.\1 These
funds provided support for both Department staff and employees from
other federal agencies.  Centrally funded operations\2 account for
approximately $1.1 billion of the support budget and cover central
administration costs and the costs of running several regional
centers that provide financial and information management services to
overseas posts.  The geographic bureaus control the remaining portion
of State's support budget, which is largely used to fund the salaries
of those employees in support positions. 

State is reimbursed for some support costs under the Foreign Affairs
Administrative Services (FAAS) system, which attempts to allocate
costs among agencies based on workload.  Under FAAS, other agencies
at overseas posts reimburse State for the incremental cost of
providing some support services.  In fiscal year 1995, State received
an estimated $187 million in FAAS reimbursements from other agencies. 
These funds were primarily used to pay the salaries of FSNs and
personal service contractors hired to meet the administrative needs
of other agency staff.  According to State's Chief Financial Officer,
however, these payments only partially covered the increased costs of
hosting staff from other federal agencies. 


--------------------
\1 State has never determined how this rate compares to other
diplomatic services or firms in private industry.  State's Assistant
Secretary for Administration noted that in theory this could be done,
but added that any comparison would be complicated by State's
security requirements and support responsibilities for other agencies
overseas. 

\2 These include security, personnel, finance, information systems,
telecommunications, security and maintenance of U.S.  missions,
logistical operations, training, and medical services. 


   STATE IS SEEKING TO REDUCE ITS
   SUPPORT COSTS
---------------------------------------------------------- Chapter 5:2

State officials recognize the need to reduce the Department's support
costs.  In a March 1994 memorandum, the Under Secretary for
Management notified managers throughout the Department that
significant and sustained cuts in support costs must be made to allow
State to continue to operate with declining budgets.  Under the
direction of the Under Secretary for Management, State has launched a
number of initiatives designed to reduce its support costs.  The most
significant of these initiatives involves an attempt to recoup
certain support costs that were previously unreimbursed under the
administrative cost-sharing system used by State and other federal
agencies overseas. 


      NEW MECHANISM FOR OVERSEAS
      COST ALLOCATION HAS
      POTENTIAL FOR COST
      REDUCTIONS
-------------------------------------------------------- Chapter 5:2.1

Under FAAS, agencies at overseas posts reimburse State for the
incremental cost of providing some support services.  State believes
that FAAS reimbursements do not capture the Department's full costs
for support to other agencies, and as a result State subsidizes their
overseas operations.  The President's Management Council (a federal
managers' forum established under the National Performance Review)
also expressed concerns about the complexity and equity of FAAS,
noting that FAAS is primarily a reimbursement mechanism--not a system
for rationalizing delivery of overseas administrative services--and
it does not address quality and delivery of services.  To address
these problems, the President's Management Council developed the
International Cooperative Administrative Support Services (ICASS)
System. 

Under ICASS, greater responsibility and authority for managing
resources and making decisions about paying for common administrative
support service will be delegated to the posts.  Posts will be
encouraged to explore additional options for obtaining administrative
support, rather than relying solely on State.  These options could
include allowing other agencies to provide support functions, using
commercial contractors, or introducing improved technologies.  In
addition, costs are to be clearly delineated by agency for all post-
and Washington-related services. 

Since ICASS is designed to better rationalize the delivery of
overseas administrative services, it should serve to help identify
specific steps that can be taken to streamline overseas operations,
reduce the costs of administrative services, and make better use of
information systems and communications technology. 

In fiscal year 1997, State plans to implement ICASS administrative
procedures worldwide,\3 but State and other agencies will fund
overseas support operations using FAAS funding practices.  The ICASS
cost recovery system will not go into effect until fiscal year 1998. 
State views ICASS as a mechanism to equitably spread the full cost of
providing overseas support across all agencies with an overseas
presence.  State estimates that in terms of cost recovery alone,
implementing ICASS would allow the Department to spend $108 million
less per year for support to other agencies.  Redistribution of costs
currently covered under FAAS would reduce costs to State by $15
million, and billings for new cost items not currently covered under
FAAS would reduce cost to State by an additional $93 million.\4 From
a governmentwide perspective, these funding shifts alone do not
represent cost reductions.  Some officials thought that once agencies
had to pay the true cost of placing personnel overseas, many would
decide to reduce their overseas presence.  Such reductions would
reduce overall U.S.  spending for overseas support. 

State is also exploring how to bill agencies for costs that were
previously provided at no charge.  For example, the Congress has
tasked State's Diplomatic Telecommunications Service Program Office
with devising a system for charging agencies the actual cost of
providing overseas communication links.  State is also considering
billing agencies for foreign building operations, overseas schools,
security officers, as well as some incremental domestic support costs
associated with other agency operations overseas.  State has not
estimated the potential revenue gain from charging for these and
other services. 

Other agencies support the new system, noting that ICASS represents a
cultural change in the way overseas operations are managed.  The move
to customer-based service standards and principles presents an
opportunity for cost reductions from greater efficiency and
interagency coordination.  Agencies also applaud the move to grant
more decision-making authority to the posts as to how they are
managed.  Major disagreements, however, remain to be resolved over
which costs should be covered under ICASS and how these costs should
be allocated among participating agencies.  Every agency we spoke to
expressed concerns about paying higher costs under ICASS and funding
to cover those costs.  Some agencies would like State to transfer
funds from its budget to them to offset the expected higher costs
under ICASS. 

Agencies also expressed concern that (1) a financial system to track
costs and transfers of funds has not been field-tested; (2) the pilot
tests have not lasted long enough to evaluate ICASS capabilities; and
(3) details for handling different budget cycles, financial systems,
and requirements across agencies have not been resolved.  State says
it will be able to address these concerns in time for worldwide
implementation.  State Department officials also noted that the
Department has to comply with a congressional mandate to obtain full
recovery of each department and agency's costs in fiscal year 1997. 

ICASS has merit and the potential to change the culture of overseas
operations.  However, ICASS implementation will likely lead to a
protracted debate over funding issues within the executive branch. 
Since ICASS implementation will affect overseas funding and staffing
decisions at over 35 U.S.  government agencies, it will require
significant, high-level support within the executive and legislative
branches for full implementation. 


--------------------
\3 The Department of State Appropriations Act, 1996, requires that in
fiscal year 1997 a system be in place that allocates to each
department and agency the full cost of its presence outside the
United States. 

\4 Beginning in fiscal year 1998, State will bill other agencies for
local guard services at office buildings, the community liaison
officer, and building operations and expenses for government-owned
and long-term leased properties. 


      U.S.  FAMILY MEMBER PROGRAM
      IS EXPANDING
-------------------------------------------------------- Chapter 5:2.2

In October 1995, a task force established by the Under Secretary for
Management recommended that State increase the hiring of family
members to help meet overseas staffing needs.  State could cut costs
by an estimated $105,000 for each family member hired to fill a
position normally reserved for a junior officer.  A State official
noted that the Department will hire only about half of its normal
junior office class in fiscal year 1996.  This will heighten the
importance of the family member program to help meet overseas
staffing needs.  In commenting on this report, State noted that not
all junior officer positions can, or should, be filled by family
members, since these positions provide valuable career training for
Foreign Service officers. 


      COST REDUCTIONS FROM CHANGES
      IN MEDICAL SERVICES
-------------------------------------------------------- Chapter 5:2.3

To provide adequate health care for its employees worldwide, State
operates a health clinic in Washington, D.C., and 139 health units
throughout the world, providing many free services to its employees
and employees of other foreign affairs agencies.\5 State's main
health clinic has diagnostic and laboratory facilities, including
unique capabilities in the area of tropical and parasitic diseases,
and provides the physical examinations required before staff and
family members are posted overseas.  State also has a clinic at the
National Foreign Affairs Training Center.  The overseas programs
provide free occupational health-related services (such as first aid
for minor on-the-job injuries) and primary medical care.  The
Inspector General reported that there were about 79 Foreign Service
health-care professionals, supplemented by local hire nurses and
contract physicians, working in overseas posts as of January 1994. 

According to a report by State's Inspector General,\6 State spent
about $19 million in fiscal year 1995 to provide uncompensated
medical care to its employees.  The Inspector General recommended
that State shift up to $13 million of these costs to private health
insurers responsible for reimbursing employees for the costs of these
services.  The Inspector General recommended that the remaining $6
million in uncompensated care not be transferred.  The Inspector
General proposed that the Department absorb this cost because it
represents patient copayments and deductibles that impose an
administrative burden to track and recoup.  Also, different living
conditions among posts could result in varying illness rates, and
employees should not be penalized for working in less desirable
locations.  A provision in the fiscal year 1996 authorization bill
would enable State to collect reimbursements for medical services
rendered.  A senior State official noted that additional cost
reductions could be achieved if the Department contracted for some
services currently provided by State headquarters medical clinics and
if routine medical services, such as physical examinations, were
tailored to an employee or dependent's age, sex, and known risk
factors.  The same official estimated that these actions could reduce
costs by an estimated 30 percent of the annual $4.5 million cost of
clinical services, or about $1.4 million. 

Overseas, State ensures that its employees receive care by
authorizing and approving payment for inpatient medical care and
related outpatient treatment of eligible overseas U.S.  citizen
employees and their dependents.  It then relies on its employees to
file insurance claims and forward reimbursements to State.  In August
1995, State's Office of Medical Services and the Bureau of Finance
and Management Policy began tracking whether its employees filed such
claims and whether reimbursements were turned over to the Department. 
Posts issue authorizing services and report to the Office of Medical
Services the obligation number, insurance carrier, amount expended,
and information on the service provider.  The Office of Medical
Services issues fund cites for all hospitalizations overseas and
tracks the recovery of medical insurance benefits.  As of January
1996, of the $1.5 million expended for overseas hospitalizations,
State had collected about $1.2 million (77 percent) and expected the
final recovery rate to exceed 80 percent.  In 1996, employees will be
held liable for the cost of care, and debts will be turned over to
the Bureau of Finance and Management Policy for collection through
State's debt collection procedures. 

While embassies have the same guidelines for pursuing reimbursements
for medical services, State does not track expenses for other federal
employees that rely on it for medical services.  Therefore, it does
not know whether other agencies' employees reimburse embassies.  In
August 1992, we recommended that State begin tracking costs for other
agencies and whether these costs were reimbursed by private insurers. 
A State medical official agreed that tracking could be done but that
the tracking workload would increase by 80 percent.  State has not
attempted to quantify the costs and benefits of tracking payments
from other agencies' overseas staff, but it appears likely that State
would achieve cost reductions similar to those achieved by tracking
reimbursements from State employees. 


--------------------
\5 Included in the Department's medical health program are all U.S. 
citizen employees of the Foreign Service and eligible dependents and
U.S.  citizen federal employees assigned abroad by other federal
agencies participating in the medical health program and their
eligible dependents. 

\6 Office of Inspector General, U.S.  Department of State Report of
Audit No.  5-SP-013:  Overseas Health Units, March 1995. 


      EXTENDING TOURS OF DUTY
-------------------------------------------------------- Chapter 5:2.4

State estimated that it spent $68.7 million in fiscal year 1995 for
travel for post assignments.  A 1993 State study of its policy on
tours of duty projected cost reductions of about $2 million annually
by extending tours to 3 years for all overseas posts (tours at
hardship posts are currently
2 years).  Longer tours at all posts could further reduce costs. 
With longer tours, State could also increase productivity and
effectiveness because staff need several months to adjust to foreign
local cultures, languages, and environments and to master a new job
and about 9 months to go through the reassignment process at the end
of the tour.  A 2-year tour can therefore leave relatively little
time for peak performance. 

Although costs could be reduced by extending tours of duty, State has
concluded in the past that the negative impact on employees' morale
and State's assignment process did not permit extending tours of
duty.  However, State said it is now reexamining the issue in light
of the current budget situation. 


      POTENTIAL TO REDUCE STATE'S
      COST FOR MARINE GUARD
      DETACHMENTS
-------------------------------------------------------- Chapter 5:2.5

In fiscal year 1994, State paid its share--$22 million--for 125
Marine guard detachments at 112 embassies, 11 consulates general, one
U.S.  mission, and one U.S.  interests section.  The guards are
jointly funded by the Marine Corps and the State Department and
primarily safeguard classified documents.  As recommended by the
National Performance Review and to reduce costs, Marine guard
detachments have been deactivated at some posts where the level of
classified operations do not warrant 24-hour cleared American
presence.  The State Department and the intelligence community are
reviewing whether some detachments could be deactivated or
transferred to other locations.  In lieu of Marine guards, State may
have to expend funds to increase security safeguards--for example, by
providing better real time surveillance equipment at the chancery. 
But, on balance, deactivation of guard detachments could reduce cost
where security conditions permit. 

For fiscal year 1997, the executive branch has proposed that funding
for the Marine guard detachments shift from State to the Department
of Defense.  If this occurs, State will no longer spend its funds on
the Marine guard detachments. 


   ADDITIONAL COST REDUCTION
   OPTIONS
---------------------------------------------------------- Chapter 5:3

Other options State may wish to consider in the future include (1)
reducing support staff levels in Washington, (2) reviewing employee
benefits and allowances, (3) expanding the use of FSNs in support
positions at overseas posts, and (4) selling excess or underused
overseas property. 


      SUPPORT STAFF IN
      HEADQUARTERS
-------------------------------------------------------- Chapter 5:3.1

According to a number of management reports, there may be
opportunities to reduce staffing in headquarters support offices.  A
senior State official in Personnel noted the Department has been slow
to initiate a detailed review of support staffing levels in
Washington.  However, a preliminary assessment of State's domestic
staffing, issued in February 1995, noted a basic concern that support
functions account for almost 60 percent of State's domestic
workforce. 

Similar concerns over the proportion of domestic staff devoted to
support functions were raised in earlier management studies at State. 
The State 2000 Management Task Force report issued in December 1992
noted that about 60 percent of headquarters salaries and expense
resources are expended for centrally managed support staff and that
this level was much too high.  According to a 1993 State report, some
estimates project that Department staffing in Washington exceeds
optimal levels by 15 to 20 percent in view of the low productivity of
many organizations and personnel.  The report recommended that a
baseline review of headquarters support staffing be conducted and
noted that potential long-term cost reductions from such a study
could be substantial, as each 5-percent reduction in personnel would
reduce the Department's costs by $46 million. 


      EMPLOYEE BENEFITS AND
      ALLOWANCES
-------------------------------------------------------- Chapter 5:3.2

If substantial reductions in appropriations occur, State may have to
review the benefits and allowances it provides to its employees, even
though this could involve difficult and painful decisions.  For
example, costs could be reduced by millions of dollars if employees
were required to pay for a portion of their overseas housing costs. 
State noted that because benefits and allowances are payable to all
civilian government employees working overseas, any changes would
require interagency support and may require legislative action. 
State officials also noted that a consideration would be the
potential negative impact on employee morale and the impact on
State's ability to attract and retain staff to effectively carry out
its mission.  We agree. 

Overseas allowances and benefits are authorized by statute for U.S. 
federal civilian employees stationed in foreign areas.  There are two
purposes for granting allowances and benefits to U.S.  staff employed
overseas.  First, they can serve as reimbursement for extraordinary
living costs to prevent employees from being financially penalized
for working overseas.  Second, they can serve as recruitment and
retention incentives.  Benefits and allowances provided to Foreign
Service employees working overseas include free housing and
utilities, hardship post payments, danger pay, cost-of-living
allowances, education allowances, and separate maintenance
allowances. 

These benefits and allowances offer one potential area for cost
reduction efforts.  According to the Director of State's Office of
Allowances, the only comprehensive and recent review of Foreign
Service benefits and allowances was conducted in 1994 by a private
firm under contract to USAID.  In a January 1995 memorandum to the
Director General of the Foreign Service, USAID's Deputy Assistant
Administrator for Human Resources noted that this study found that
(1) the Foreign Service compensation package was somewhat below that
received in the private sector; (2) the Foreign Service benefits
package was comparable to the private sector, except for retirement
where the government is more generous, and (3) Foreign Service
allowances were comparable to the private sector except for housing
allowances where the private sector generally deducted a home-country
norm from the housing allowance so that employees do not get free
housing overseas.\7

USAID's consultant concluded that by paying only for excess housing
costs, private industry, without any apparent disruption to programs,
avoided substantial costs that the government pays.  The consultant
further concluded that USAID employees' benefits of receiving
essentially free housing and utilities amount to about 12 to 15
percent of their base pay. 

We also noted that Canadian Foreign Service officers are expected to
contribute to a portion of their overseas housing costs based on
Ottawa housing costs and on their salary levels and household sizes. 
Likewise, Australian Foreign Service officers are expected to
contribute toward their overseas housing costs based on a published
schedule.  The Director of State's Office of Allowances noted that
other countries, such as Japan, France, and Germany, also have a
rent-share arrangement with their employees.  Like the United States,
however, other countries such as Great Britain and Ireland, fully
reimburse overseas housing costs--up to a set limit. 


--------------------
\7 Specifically, the consultants found that when total renumeration
costs--which include salaries, bonuses, and benefits such as
retirement--were compared between USAID and the private sector,
USAID's costs were almost identical to the private sector.  With
regards to overseas allowances, the consultant found that USAID
versus private sector comparisons varied from location to location;
however, USAID's costs were significantly higher than private sector
allowances in all locations studied.  The most significant difference
between USAID and the private sector was that the private sector
required employees to pay a portion (ranging from $13,565 to $19,957)
of their overseas housing costs based on a U.S.  housing standard. 


      INCREASED USE OF FOREIGN
      SERVICE NATIONALS IS AN
      OPTION
-------------------------------------------------------- Chapter 5:3.3

The administrative section at overseas posts is generally headed by
an administrative counselor or officer who is assisted by several
Foreign Service officers who manage administrative subunits and
oversee a staff comprised mainly of FSNs.  In response to budget
pressures, State could increase its use of FSNs to replace Foreign
Service specialists working in senior support positions.\8 Employment
of FSNs is less costly than employment of Foreign Service officers
because FSNs do not receive the benefits and allowances payable to
Foreign Service employees and generally are paid lower salaries than
Foreign Service employees. 

In addition to the cost reductions that would result from the
increased use of FSNs, this practice would have two other advantages. 
First, State would not have to periodically rotate hundreds of
Foreign Service specialists between headquarters and overseas posts. 
Second, an FSN-driven support structure would eliminate the
significant learning curve Foreign Service specialists face at a new
post. 

State is reluctant to expand the use of FSNs because of security and
fiduciary concerns.  These are valid concerns that would be
compelling without regard to oversight costs.  However, cost- benefit
and risk management principles suggest that some level of increased
risk may be acceptable in return for significantly reduced oversight
costs.  Given potential budget reductions, State would have to
carefully weigh the potential cost reductions resulting from
increased use of FSNs against the perceived risks. 

Although security and fiduciary matters are a serious concern, the
following observations show that the increased use of FSNs may be
feasible at some posts and that the associated risks may be
manageable or could be mitigated. 

  -- In Malaysia, the embassies of Australia, Canada, and Great
     Britain employ foreign nationals to manage administrative
     sections under the overall supervision of a diplomatic officer. 
     In comparison, the U.S.  Embassy, with one exception, used
     American Foreign Service officers to head up the administrative
     subunits. 

  -- At some U.S.  posts, FSNs are already employed to head some
     administrative sections, such as personnel, working under the
     general supervision of U.S.  administrative counselors or
     officers. 

  -- FSNs do not have access to sensitive records and information
     because embassies have secure areas they are not permitted to
     enter.  The number of sensitive records is presumably small
     relative to support functions typically handled in budget and
     fiscal, general services, and personnel offices. 

  -- Posts generally have two distinct computer systems, one
     classified and one unclassified.  FSNs do not have access to the
     separate classified system. 

  -- The Inspector General's procedures for periodic inspections
     could be modified to provide additional oversight of FSNs that
     handle U.S.  funds.  Also, the use of standard internal control
     procedures, such as the division of duties and mandatory
     vacations, could help to ensure that funds are managed
     responsibly. 

Nonetheless, we agree that certain Foreign Service specialist
positions would not be appropriate for an FSN, given the classified
or highly sensitive nature of the position.  These positions include
communications specialists, regional security officers, regional
medical officers, foreign building operations officers, technical
staff working with classified communications systems, and Foreign
Service secretaries assigned to work with classified information. 

FSNs could replace the more costly existing staff as budget and
fiscal officers, general services officers, information management
specialists working with unclassified computer systems, personnel
officers, regional medical technologists, and Foreign Service nurses. 
We estimate that State currently has about 500 Foreign Service
specialists in these six job categories in its overseas posts.  This
figure does not include rotational positions in Washington.  If State
replaced these overseas specialist positions with FSNs, the
Department's costs would be reduced by approximately $53 million
annually in allowance and benefit costs. 


--------------------
\8 The Department hires Foreign Service specialists to fill 16 types
of positions such as budget and fiscal officers, general services
officers, and information management officers.  State currently has
over 1,100 specialist positions in Washington and almost 2,500
specialist positions overseas. 


      STATE COULD SELL EXCESS AND
      UNDERUSED PROPERTIES
-------------------------------------------------------- Chapter 5:3.4

The State Department has over $10 billion in real estate at its
overseas posts.  Some of this real estate is excess and underused;
State has identified properties for potential sale valued at $467
million as of October 1995.  Moreover, as we have reported, State
also has millions of dollars in potentially excess real estate at
closed posts that are not included in this amount and could be
sold.\9 The Inspector General, individual embassies, and State's
Office of Foreign Building Operations have also identified some of
these excess properties.  However, because of internal and external
pressures, State has been slow in disposing of these properties. 
Selling these properties would not only generate revenues but could
also significantly reduce maintenance costs. 

In our most recent report, we recommended improvements in the State
Department's procedures to identify and sell excess real estate.  For
example, we recommended the establishment of an independent panel to
make recommendations regarding the sale of unneeded real estate, to
ensure that the taxpayers' interests and the financial needs of the
State Department are considered. 


--------------------
\9 Overseas Real Estate:  Millions of Dollars Could Be Generated
Selling Unneeded Real Estate (GAO/NSIAD-96-36, Apr.  23, 1996) and
Overseas Real Estate:  Inaction on Proposals to Sell High- Value
Property in Tokyo (GAO/NSIAD-95-73, Apr.  7, 1995). 


   PROCESS REENGINEERING AND
   OUTSOURCING MAY LEAD TO LONG-
   TERM COST REDUCTIONS
---------------------------------------------------------- Chapter 5:4

State's Under Secretary for Management has called for and supported
individual reengineering efforts throughout the Department.\10 Some
of State's managers have launched reengineering and reinvention
exercises in an attempt to improve services and lessen costs. 
Examples of such efforts include State's attempts to reengineer the
Foreign Service transfer process, major personnel management reforms
in such areas as pay broadbanding for FSNs, and an ongoing
reengineering of the logistics function.  Under State's Strategic
Management Initiative, the Department attempted to gauge the
advisability of outsourcing a limited number of support functions. 
These are positive signs of a desire for long-term reform of how
support services are procured and managed at State.  However, they
represent just a beginning, since several major business functions
remain to be reengineered or analyzed in terms of outsourcing
potential. 


--------------------
\10 Reengineering is the redesign of an organization's processes to
achieve dramatic performance improvements in such areas as cost,
timeliness, quality, and customer satisfaction.  Reengineering
requires that a "blank sheet" approach be taken toward the process to
be redesigned.  Marginal improvements to existing procedures are by
definition excluded.  For additional information on reengineering in
the federal government see Reengineering Organizations:  Results of a
GAO Symposium (GAO/NSIAD-95-34, Dec.  13, 1994) and Management
Reforms:  Examples of Public and Private Innovations to Improve
Service Delivery (GAO/AIMD/GGD-94-90BR, Feb.  11, 1994). 


      STATE'S INFORMATION
      MANAGEMENT CAPABILITIES HAVE
      HAMPERED REENGINEERING
      EFFORTS
-------------------------------------------------------- Chapter 5:4.1

State's use of an outdated, proprietary operating system that is
largely tied to computer purchases made over 15 years ago complicates
current reengineering efforts.  The poor condition of the information
technology platform has been the subject of repeated discussions both
within and outside the Department.  State officials are frank in
their assessments of the numerous deficiencies in current systems and
acknowledge the critical need for a system that offers data users the
flexibility and tools they need to accomplish the Department's work. 

State launched a modernization program in 1992; according to State
officials, full implementation of the program will be delayed by
funding constraints.  Information management resource problems have
made it difficult to effectively reengineer processes.  For example,
State selected the Foreign Service's transfer process as a
reengineering test case because the process had 117 steps, 23 forms,
and a number of dispersed operations.  Over 2 months, steps in the
process were charted and brainstormed, and best practices in the
private and public sectors were reviewed.  The final report
recommended a streamlined system that would enhance customer
satisfaction and reduce costs.  The team concluded that by improving
computer interconnectivity and empowering employees, the number of
full-time employees involved in the transfer process could be reduced
from 24 to perhaps 4 to 5 permanent positions, supplemented by
private contractor assistance.  However, a year after completing the
work, two team members told us that none of these positions had been
eliminated because State does not have the information management
tools to make the system work as designed. 

In a December 1994 report, we compared several private and public
leading organizations' best practices in applying information
technology to improve performance to State's practices and found that
the Department was deficient in several areas.\11 Our report noted
that State had no integrated information management plan that
identified goals and objectives and linked information resource
management projects to them;\12 the information resource management
and budgeting processes at State were not closely linked; and State
had not appointed a chief information officer to serve as a bridge
between top management, line managers, and information support
professionals. 

The Under Secretary for Management has begun to take steps to improve
State's information resource management capabilities, including
forming an information technology review board of senior department
managers.  In May 1995, the Under Secretary for Management
established an acting chief information officer position.  In May
1996, State appointed a permanent chief information officer to comply
with the mandate of the 1996 Information Technology Reform Act. 
Finally, State is currently working on its latest 5- year strategic
information resource management plan (1996-2000), which should be
issued in 1996. 


--------------------
\11 Department of State IRM:  Strategic Approach Needed to Better
Support Agency Mission and Business Needs (GAO/AIMD-95-20, Dec.  22,
1994).  This report compared State's practices to those of leading
organizations as defined in GAO's May 1994 guide on best practices. 
See Executive Guide:  Improving Performance Through Strategic
Information Management and Technology (GAO/AIMD-94-115, May 1994). 
GAO's best practices guide formed the basis for OMB's Evaluating
Information Technology Investments:  A Practical Guide (Version 1.0,
Nov.  1995), which is designed to help federal agencies link
information technology investment decisions to strategic objectives
and related business plans. 

\12 In July 1995, State issued an updated information resource
management modernization plan. 


      OUTSOURCING ADMINISTRATIVE
      FUNCTIONS
-------------------------------------------------------- Chapter 5:4.2

The National Performance Review encouraged federal agencies to
identify their core missions and unique competencies and to outsource
functions that can be provided more effectively and at a lower cost
by other agencies or private companies.  State has not done this in
any comprehensive manner, even though the Strategic Management
Initiative called for outsourcing studies of telecommunication
services offered through the Diplomatic Telecommunications Service
Program Office, the payroll function, vendor and pension payments,
the Foreign Service medical examination program, and the training
courses offered at the National Foreign Affairs Training Center.  An
official from the Diplomatic Telecommunications Service Program
Office told us that the office was never formally tasked with
conducting this study and thus did not respond to the recommendation. 
The Office of Medical Services also did not prepare an outsourcing
study, although an official from that office said a study will soon
be initiated.  Outsourcing studies of State's payroll operations and
vendor and pension payments processes were contracted to an outside
consulting firm.  The results of these studies should be available
shortly.  The only published outsourcing studies available at the
time of our review involved a limited number of courses offered by
the National Foreign Affairs Training Center.  In each case, with
certain minor modifications, the internal review team concluded that
the Center's offerings were cost-effective.\13

State has not yet considered the numerous options for outsourcing
many of its noncore activities, particularly data processing and
administrative activities.  Outsourcing options can be found in both
the private and public sector.  Private contractors are already
providing a wide range of data processing and administrative
services, including payroll, personnel management, and financial
management services, and have contracts with several federal
agencies. 

According to one private firm, its worldwide network of data
processing centers could meet State's domestic and overseas data
processing demands with relative ease.  Officials from the same
company cited several examples of outsourcing contracts with federal
agencies, including a 10-year contract with the Federal Aviation
Administration to manage its computer resources nucleus project and a
5-year contract with the Immigration and Naturalization Service to
manage its Information Technology Partnership Program.  Also, another
country's internal revenue service has contracted with this firm to
assume all of its information technology responsibilities, including
computer systems, systems development and integration, systems
maintenance, hardware and software procurement, hardware maintenance,
hardware and software installation, and information technology
project management.  Transferring with these responsibilities are
three development centers, two accounts offices, nine data centers,
and 2,100 employees who are now the contractor's employees. 

Another outsourcing option available to State is the work of the
Defense Logistics Agency Administrative Support Center, which been
designated a reinvention laboratory under the National Performance
Review.  The Center provides a wide array of administrative services
to Defense and other nongovernment agencies, state and city
governments, and private firms.  Customers pay only for actual
services provided.  According to its latest survey of selected
services offered by the Center, its costs were significantly lower
than prices in the private sector.  The Director explained that the
Center does not operate on a profit margin and can leverage Defense's
worldwide infrastructure to offer services at the lowest costs
possible.  According to the Director, his staff periodically conduct
surveys of best practices in private industry to stay abreast of the
latest management techniques. 


--------------------
\13 A March 1996 independent accountant's report prepared for the
Office of the Inspector General recommended that the National Foreign
Affairs Training Center establish user charges that fully reflect the
Center's costs, as required by OMB-Circular A-25.  The report also
recommended that the Institute reevaluate the training courses it
offers and consider eliminating courses that do not fully recover
their costs and could be obtained at other training centers at a
lower cost. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 5:5

The successful implementation of some or all of the options discussed
in this chapter could substantially reduce State's support costs. 
Congressional approval and negotiations with other agencies may be
required to implement some of these options.  In addition, they would
require the potential displacement of hundreds of current employees
and the loss of some employee benefits, with potential adverse
consequences for employee morale and productivity.  However, they
represent the types of changes that would enable State to operate
with less resources. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 5:6

State expressed concerns regarding a number of options discussed in
this chapter, pointing out the drawbacks.  Regarding increased use of
FSNs in certain positions, State emphasized that American personnel
are required to minimize fiduciary concerns.  We did not recommend
increased use of FSNs, but we believe this option should be
considered.  We share some of State's concerns, but we believe that
risk management principles suggest that some level of increased risk
may be acceptable in return for significantly reduced costs.  Given
potential budget reductions, State would have to carefully weigh the
potential savings resulting from increased use of FSNs, as well as
implementation of other cost reduction measures, against the
perceived risks. 

State said the chapter clearly described ICASS, which State believes
is its most important undertaking involving overseas support costs. 
USAID and USTR emphasized that increasing reimbursements for
administrative support at overseas posts may require additional
funding for agencies other than State to cover certain costs they may
not have budgeted for in the past. 


ACTIVITIES AT OVERSEAS POSTS
=========================================================== Appendix I

In this appendix, we provide examples of the State Department's
overseas political, economic and commercial, global, and consular
activities.  Unless otherwise noted, these activities occurred during
September and October 1995.  In addition, as discussed in chapters 4
and 5, State has numerous functions and activities to support State
and other U.S.  government agencies' personnel and operations at
overseas posts. 


   POLITICAL ACTIVITIES
--------------------------------------------------------- Appendix I:1

The political sections spent most of their time reporting and
analyzing countries' political situations, representing the United
States and developing contacts within the host countries, and
supporting official visitors to the countries. 


      BELARUS
------------------------------------------------------- Appendix I:1.1

For political issues, the combined political and economic section
spent major portions of its time on reporting and analysis, trade and
finance promotion and support, and coordination and support of other
agencies' programs, such as the Defense Department's Cooperative
Threat Reduction Program to help remove nuclear weapons.  Other major
activities included representation and contact development and
dealing with the shootdown of an American hot-air balloon by the
Belarussian military.  Reporting and analysis included cables on
internal government shakeups, the confrontation between the
Belarussian president and parliament, and human rights. 


      BRAZIL
------------------------------------------------------- Appendix I:1.2

The political section at the Embassy in Brasilia spent a significant
amount of time preparing for and supporting the First Lady's visit,
which included visits to a school for street children, a vocational
institution, and a maternity hospital.  The section also supported a
visit by the Under Secretary for Global Affairs.  Overall, the
section spent approximately one-third of its time on visitor support. 
Another third of the time was spent on reporting and analysis, and
the rest of the time was spent on representation and contact work and
coordination with other agencies.  The section worked with the
government of Brazil to resolve several rocket technology issues,
encouraged the government to support a global ban on land mine
production and sales, and helped Brazil gain entry into the Missile
Technology Control Regime, which may encourage closer cooperation on
nonproliferation. 


      MALAYSIA
------------------------------------------------------- Appendix I:1.3

The political section in Malaysia spent much of its time on reporting
and analysis, representation and contact work, and support for other
agencies.  The Southeast Asian Nuclear Weapons Free Zone Treaty
topped the list of issues that were addressed.  The section also
dealt with issues concerning U.S.  policy toward Bosnia--an issue for
which the United States has been severely criticized in Malaysia. 
The section covered the 15-nation Organization of Islamic Conference,
advocating U.S.  views and seeking the support of the Malaysian
Chairman of the United Nations Human Rights Commission on related
issues in Bosnia.  Other efforts included representations to the
Ministry of Foreign Affairs on United Nations issues,
counternarcotics cooperation, arms sales, and security cooperation. 
In addition, the section analyzed criminal law and procedures and the
political implications of a case involving an American citizen
charged with drug crimes that carry a mandatory death sentence. 


      THE NETHERLANDS
------------------------------------------------------- Appendix I:1.4

In The Netherlands, a large portion of the political section's time
was spent advocating U.S.  policies and presenting demarches. 
Reporting and analysis was also a major activity.  The remainder of
the section's time was spent on representation and contact
development, visitor support, and other tasks.  The section worked to
counter untrue press reports that the United States had failed to
alert the Dutch that an attack on Srebrenica (in Bosnia) in the
summer of 1995 was imminent.  It also helped gain Dutch support for
the U.S.  approach regarding assistance to Bosnia.  In early 1995,
the section used its ties with parliamentary defense experts to
overcome obstacles, clearing the way for a $100 million sale of
air-to-air missiles, and worked to maintain Dutch abstentions from
voting on a Cuban resolution to condemn the U.S.  trade embargo
against Cuba. 


      PARAGUAY
------------------------------------------------------- Appendix I:1.5

The political section in Paraguay spent about three-fourths of its
time on democracy and narcotics issues.  The visit of the First Lady
to attend a conference of her counterparts consumed most of the
post's time, including 25 percent of the political section as well as
other embassy sections.  In its efforts to help control narcotics
traffic, the section also assisted a visiting team from the
Departments of Justice and the Treasury to help draft
money-laundering legislation for the government of Paraguay.  The
section also drafted a summary of the human rights situation as input
to the annual human rights report and supported a visit of State's
Principal Deputy Assistant Secretary for Inter-American Affairs. 


      SENEGAL
------------------------------------------------------- Appendix I:1.6

The political section in Senegal spent the largest portion of its
time on reporting and analysis and the remainder on representation,
contact development, the presentation of demarches, coordination with
and support to other agencies, and other activities.  The section
reported on the leadership succession in Islamic brotherhoods,
violence in ruling party internal elections, human rights, and other
issues.  Moreover, it obtained Senegal's agreement not to oppose the
U.S.  positions at the United Nations regarding sanctions against
Cuba and Libya's candidacy for a Security Council seat. 


   ECONOMIC AND COMMERCIAL
   ACTIVITIES
--------------------------------------------------------- Appendix I:2

Economic and business promotion was among the top priorities of the
posts.  Several ambassadors spent up to one-third of their time on
economic and trade advocacy activities, personally weighing in on
behalf of U.S.  businesses where appropriate. 


      BELARUS
------------------------------------------------------- Appendix I:2.1

In Belarus, the combined economic and political section helped
coordinate USAID's programs and reported on the International
Monetary Fund stand-by program.  The section also helped facilitate a
U.S.  contract to establish an international gateway teleport
involving potential U.S.  exports worth up to $24 million and helped
coordinate a U.S.  business delegation's meetings with the
Belarussian president and other government officials. 


      BRAZIL
------------------------------------------------------- Appendix I:2.2

Brazil is one of 10 emerging markets identified in the U.S.  national
export strategy.  The Ambassador has established trade advocacy as
one of the mission's top priorities.\1 The economic section in
Brasilia has advocated cases with Brazilian ministries, up to the
highest levels of government.  Success stories during 1995 included
helping obtain a $15 million contract for a U.S.  firm to develop a
wastewater treatment facility.  In addition to trade advocacy, the
economic section in Brasilia focused its efforts on promoting
economic reform and intellectual property rights.  It produced about
60 cables during September and October, including 16 on, for example,
the banking sector and stock market where billions of U.S.  dollars
are invested; 10 on intellectual property rights, which included
Brazilian congressional action on the subject; 13 on transportation
(including civil aviation and maritime affairs); 8 on
telecommunications, asking U.S.  agencies to engage the Brazilians on
this sector; 5 on the energy sector in preparation for the Hemisphere
Energy Summit; 2 on World Trade Organization issues; and 1 in support
of a major export promotion project.  Among the highlights of the
mission's accomplishments during this time was the completion of the
Bilateral Trade Review, which was presented to Presidents Clinton and
Cardoso in November 1995. 

Economic officers at posts spent a large portion of their time on
reporting and analysis.  They also spent significant time on
representation and contact development; coordination with other
agencies such as the Overseas Private Investment Corporation, U.S. 
Export-Import Bank, Federal Reserve System, Federal Communications
Commission, and Department of the Treasury; and support for visitors,
including the First Lady of the United States and the governors of
Nebraska, West Virginia, and Wisconsin on trade missions. 


--------------------
\1 Advocacy is carried out by several embassy sections, including the
U.S.  and Foreign Commercial Service offices in Brasilia, Rio de
Janeiro, Sao Paulo, and Belo Horizonte. 


      MALAYSIA
------------------------------------------------------- Appendix I:2.3

In Malaysia, providing support to American business and enhancing the
business environment for U.S.  companies are among the mission's
highest priorities.  With support from the economic section, working
in cooperation with the U.S.  and Foreign Commercial Service staff,
top post officials are actively engaged in numerous trade advocacy
efforts.  For example, the Ambassador aggressively pursued contracts
for U.S.  firms at the $4 billion international airport; this support
contributed to a $35 million U.S.  contract for passenger loading
bridges and a $60 million U.S.  contract for systems integration.  In
addition, the economic section provides macroeconomic analysis and
conveys U.S.  government positions on a wide range of bilateral and
multilateral trade and investment issues.  Supporting air service
agreements and protecting intellectual property rights are among the
section's key objectives. 

During the months of September and October, staff in the economic
section spent much of their time on representation and contact
development, including numerous meetings with Malaysian government
and business representatives and U.S.  business representatives;
visitor support for 10 official visits; trade and finance promotion
and support; and reporting and analysis.  In addition, the section
handled numerous requests from many U.S.  agencies, including the
Office of the U.S.  Trade Representative (USTR); the Federal Reserve
Board; the White House Office of Science and Technology Policy; the
Trade Development Agency; the Federal Aviation Administration; and
the Departments of Commerce, the Treasury, Agriculture, and Labor. 


      THE NETHERLANDS
------------------------------------------------------- Appendix I:2.4

Promoting commercial relationships and U.S.  exports to The
Netherlands is a top priority.  The Netherlands is the eighth largest
U.S.  export market, the United States maintains a multibillion
dollar trade surplus with The Netherlands, and each country invests
heavily in the other.  The Ambassador and Deputy Chief of Mission
have intensively advocated specific business deals involving
officials at the highest levels of both governments.  One of the
embassy's major successes in 1995 was an effort involving staff from
many embassy sections to help win a $750 million contract for the
Apache helicopter.  Aside from individual export deals, U.S.  and
Dutch views on trade issues are often the same, and The Netherlands
has been a valuable ally in advancing U.S.  economic policy goals in
the International Monetary Fund, the World Trade Organization, and
other multilateral bodies. 

A U.S.  and Foreign Commercial Service office helps individual U.S. 
firms do business.  Complementing this effort, the economic section
represents U.S.  interests on a macro or policy level.  The economic
section spent a large portion of its time on reporting and analysis. 
Other major activities included trade and finance promotion,
representation and contact development, and visitor support. 
Accomplishments included advancing the candidacy of the U.S.  choice
to chair a multilateral negotiating group on the multilateral
agreement on investment and helping devise a strategy to secure
market access for U.S.  genetically modified agricultural products. 
After bilateral negotiations facilitated by the economic section's
aviation officer, the United States and The Netherlands also signed a
bilateral aviation safety agreement, setting a precedent for other
civil aviation partners. 


      PARAGUAY
------------------------------------------------------- Appendix I:2.5

Working in support of the negotiation and approval of treaties on
foreign investment and economic development, the economic/ commercial
section in Paraguay deals primarily with issues involving government
corruption, intellectual property rights, and incorporating an
informal commercial sector into the economy.  In terms of trade and
business promotion, the economic/commercial section offers the full
array of services that U.S.  and Foreign Commercial Service posts
usually provide.  The mission is tracking several infrastructure
projects with business potential, including the $200 million Asuncion
Bay reclamation project and the $2.4 billion Corpus hydroelectric
project.  In addition to handling 15 demarches on behalf of State
headquarters, the section handled over 30 requests from other U.S. 
agencies, supported 7 trade shows, and met with more than 30 U.S. 
business visitors during September and October 1995. 


   GLOBAL AND OTHER ISSUES
--------------------------------------------------------- Appendix I:3

Missions cover global issues such as the environment,
counternarcotics, and labor.  In Paraguay, the political section
administers the counternarcotics program.  In The Netherlands, the
economic and political sections handle a variety of global issues,
including energy, health care, population, and narcotics issues.  In
Brazil, a section is devoted to science and technology issues,
including export controls, nonproliferation, nuclear energy, space
cooperation, and environmental/conservation issues.  Also, a
narcotics assistance office helps Brazil combat drugs, and a labor
officer monitors labor conditions for trade agreements. 

In The Netherlands, a legal section performs functions relating to
the international war crimes tribunals for the former Yugoslavia and
Rwanda, the International Court of Justice, and the Iran-U.S.  Claims
Tribunal.  The section provides reporting and analysis and acts as a
liaison for the U.S.  government on matters relating to the war
crimes tribunals and the International Court of Justice.  Regarding
the Claims Tribunal, the section supports the State Department's
legal adviser in legal and technical negotiations with Iran.  The
section also represents the U.S.  government in cases at the Tribunal
that are between the two governments, supports private U.S. 
claimants in cases between private parties and the government of
Iran, and represents the U.S.  government in administrative and
budgetary issues involving the Tribunal.  To date, U.S.  claimants
have received nearly $2.4 billion from the government of Iran through
Tribunal awards.  The legal section's activities included reporting
and analysis on subjects of ongoing technical and legal negotiations
with Iran and the Tribunal's hearings in an intergovernmental case
and a private claim brought by a U.S.  company against Iran.  The
section participated in preparing the U.S.  defense in the
intergovernmental case and advised the U.S.  claimant and its counsel
on Tribunal practice and precedent relevant to its claim.  The
section also engaged in negotiations with Iranian representatives
concerning possible settlement of certain cases and provided support
for State's legal adviser when he visited The Hague. 


   CONSULAR SERVICES
--------------------------------------------------------- Appendix I:4

Each post had busy consular sections, but posts in Brazil and
Paraguay had especially heavy visa workloads.  Following are examples
of the consular workload. 


      BELARUS
------------------------------------------------------- Appendix I:4.1

During fiscal year 1995, the consular section in Belarus processed
7,944 nonimmigrant visa cases, 90 percent of which required
interviews, and processed 239 passport cases.  The section provided
389 special consular services involving matters such as reports of
the death of American citizens and inquiries about the welfare and
whereabouts of American citizens.  The section spent 67 percent of
its time on nonimmigrant visa processing activities, including
answering questions regarding applications, 3 percent on immigrant
visa processing activities, 27 percent on special consular services,
and 3 percent on other activities. 

The shootdown of an American hot-air balloon by the Belarussian
military in September consumed all of the consular officer's time and
indeed that of almost the entire mission for days.  The consular
section did all of the groundwork associated with the incident,
attempting to contact the surviving Americans, identifying the bodies
and sealing the morgue container to prevent tampering prior to an
autopsy, calling the families involved, contacting the balloon club
for information, photographing of the scene, cataloging the personal
effects of the victims, taking statements from other participants,
and arranging for final disposition of the remains. 


      BRAZIL
------------------------------------------------------- Appendix I:4.2

The consular workload at posts in Sao Paulo and Rio de Janeiro has
reached near-crisis proportions and affected each post entirely,
including nonconsular sections.  Managing the workload is a serious
problem, and the consular sections have proposed several ways to
streamline operations, increase efficiency, and raise revenues, given
resource constraints.  Because of the popularity of tourism in the
United States among Brazilians, a strong local currency, confidence
in the economy, and bargain airfares, growth in the nonimmigrant visa
workload has stressed posts to their limits.  In Sao Paulo, all State
Department staff and some non-State staff assist with visa work. 
This has caused some concern that Sao Paulo and Rio de Janeiro are
becoming unidimensional posts, essentially functioning as "visa
mills." According to post officials, a Brazilian family spends an
average of $3,000 during a visit to the United States; tourism from
Brazil contributes about $1 billion to the U.S.  economy each year. 
Moreover, the United States collects over $10 million in visa and
other consular fees.  The Ambassador expressed concern that delays
and difficulties in obtaining visas may discourage some Brazilian
tourists from visiting the United States. 


      MALAYSIA
------------------------------------------------------- Appendix I:4.3

Approximately 75 percent of the consular section's workload involves
processing nonimmigrant visas, which numbered over 10,000 between
September and October 1995.  In September, an American citizen was
arrested on drug trafficking charges, a death penalty offense.  This
took a considerable amount of the consular section's time.  (All
charges were subsequently dropped and the person was released.) In
addition, to capitalize on the signing of an extradition treaty in
August 1995, the embassy urged the government of Malaysia to begin
negotiations on a mutual legal assistance treaty.  Negotiations were
scheduled to begin in June 1996. 

Consular fees collected by the post in 1995 totaled about $1,132,400. 
The embassy processed about 50,000 nonimmigrant visa applications, a
caseload that is expected to grow by about 20 percent per year. 
Immigrant visa cases numbered about 430, representing about 5 percent
of the consular workload.  American citizen services, which represent
about 20 percent of the consular workload, included 3,769 passport
cases and 2,158 special consular services, half of which were
notarial and judicial services. 


      PARAGUAY
------------------------------------------------------- Appendix I:4.4

The consular workload is particularly heavy in Paraguay because of
the complexity and growing volume of adoption cases.  In addition,
Paraguay tends to have a high number of fraudulent visa cases
involving unskilled Korean citizens trying to emigrate to the United
States.  In fiscal year 1995, the section processed 510 immigrant
visas including about 363 adoption cases, 11,870 nonimmigrant visas,
557 special consular services, and 1,552 passport cases.  U.S.  staff
in the section spent approximately 60 percent of their time on
immigrant visa processing, 30 percent on nonimmigrant visa
processing, and 10 percent on American citizens' services.  Consular
collections in fiscal year 1995 totaled $554,217. 




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

See comment 1. 

See comment 2. 



(See figure in printed edition.)

See comment 3. 

See comment 4. 

See comments 1 and 5. 

See comment 5. 



(See figure in printed edition.)

See comments 1, 2,
and 3. 

Now on p.  24. 

See comments 4 and 6. 



(See figure in printed edition.)

See comment 7. 

See comment 8. 

See comment 9. 

See comment 10. 

Now on p.  26. 

See comment 11. 

See comment 12. 



(See figure in printed edition.)

See comment 13. 

Now on p.  26. 

See comment 14. 

Now on p.  14. 

Now on p.  17. 

See comment 15. 



(See figure in printed edition.)

Now on p.  16. 

See comment 15. 

See comments 2 and 3. 

See comment 16. 



(See figure in printed edition.)

Now on p.  34. 

See comment 15. 

See comment 15. 

See comment 17. 



(See figure in printed edition.)

See comment 18. 



(See figure in printed edition.)

See comment 19. 

Now on p.  38. 



(See figure in printed edition.)

See comment 15. 

See comment 20. 

See comment 21. 

See comment 22. 

See comment 23. 



(See figure in printed edition.)

See comment 24. 

Now on p.  47. 

Now on pp.  47-48.
Now on p.  48. 

See comment 25. 

See comment 26. 



(See figure in printed edition.)

See comment 27. 

Now on p.  50. 

See comment 28. 

See comment 29. 



(See figure in printed edition.)

See comment 3. 

See comment 15. 

See comment 15. 

See comment 15. 



(See figure in printed edition.)

See comment 30. 

See comment 31. 



(See figure in printed edition.)

See comment 32. 

See comment 33. 

See comment 1. 

See comment 15. 


The following are GAO's comments on the Department of State's letter
dated June 13, 1996. 


   GAO COMMENTS
--------------------------------------------------------- Appendix I:5

1.  Both the legislative and executive branches have proposed funding
levels that are well below the amounts needed to maintain the status
quo.  Given the magnitude of changes that may be necessary to adjust
to reduced budgets, it is essential that State develop a downsizing
strategy based on a comprehensive review of its functions and
processes.  Even if State's funding is not significantly reduced, we
believe that developing a downsizing plan would help State to focus
whatever resources are available on its most critical functions and
activities. 

2.  We did not attempt to develop a cost reduction package.  We
clearly stated that the Department would have to reduce the scope of
activities to absorb funding cuts of the magnitude being discussed. 
We did not attempt to quantify the amount of cost reductions that
could be achieved through implementation of all of the options we
identified.  However, the total amount of cost reduction options
discussed in our report far exceeds the $200 million figure cited by
State.  For example, we noted that State could substantially reduce
the costs of its overseas presence by closing some posts and reducing
the size of others, but we did not specify posts that should be
closed or downsized or the amount of cost reduction that would
result.  However, given that State spends about $1.9 billion annually
on its overseas operations, the amount of cost reductions from
downsizing State's overseas presence could be substantial. 

3.  We identified a number of options that, if implemented, would
help enable State to adjust to potential budget reductions.  Some of
the options would require a reduction in the scope of State's current
functions and activities.  We did not attempt to recommend which
combination of options would be most appropriate.  Although State may
oppose many of these options, future funding levels may require State
to consider them as part of a downsizing strategy.  We believe it is
State's responsibility to specify the actions, as well as the
resulting cost implications, that would be necessary to adjust to the
various funding levels that have been suggested by the executive and
legislative branches. 

4.  The executive summary notes that, for several years, State has
reduced personnel and taken other actions to reduce costs
accordingly, such as reducing staff levels by 2,200 since 1993.  It
should be noted that this staff reduction represented an 8.5 percent
cut in personnel. 

5.  We did not make judgments on appropriate funding levels for State
or the relative value of State's functions and activities and we did
not try to compare the relative merits of State's diplomacy to other
U.S.  government tools. 

6.  We noted that since 1991, State has closed 31 posts, most of
which were consulates in countries with multiple posts.  During the
same period, State also opened 28 posts mostly in the newly
independent states of the former Soviet Union. 

7.  Chapter 5 notes that State's Under Secretary for Management has
called for and supported individual reengineering efforts throughout
the Department in an attempt to improve services and lessen costs. 

8.  We modified the report to reflect action taken in June 1996 to
begin implementation of the overseas staffing model, which has been
in the design phase for several years. 

9.  We agree that the mandate of the Strategic Management Initiative
was to streamline, reengineer, and reinvent specific activities.  In
its budget request for fiscal year 1996, State also said that the
initiative would establish a clear strategic direction, match
resources to priorities, be consistent with budget realities, and
result in significant reductions.  Furthermore, the Strategic
Management Initiative coordinator told us that the original goal of
the initiative was to look at models for reorganizing State and
overseas missions.  We stated in our report that the Secretary of
State decided in February 1995 that it was not a good time to propose
fundamental changes to State's mission, organizational structure, and
processes and that the initiative should focus on recommendations
that would not involve major changes to operations. 

10.  The coordinator of the Strategic Management Initiative told us
that reengineering teams assumed a flat State Department budget when
they made their recommendations.  They did not plan for overall
budget cuts.  But, in an April 1995 letter to the Secretary, the
initiative's team leaders conveyed their recommendations and
identified over $100 million in potential reductions:  $61 million in
domestic cost reductions, $35 million in out-year cost reductions,
$17 million in annual cost reductions from the closure of overseas
posts, and $33 million of reductions in the Management Bureau's
domestic support costs. 

11.  State documents prepared in February 1996 indicated no action on
a recommendation to improve setting priorities for intelligence
collection.  We modified the report to incorporate State's update on
its efforts to set priorities for intelligence gathering and
reporting by expanding its representation on the intelligence
community and interagency boards. 

12.  Chapter 5 discusses the initiatives of the Under Secretary for
Management to reduce support costs. 

13.  Our report accurately reflects State Department cost estimates
for post closures, which do not include salaries for U.S.  staff.  We
have noted in the report that post closures will result in additional
cost reductions if they contribute to overall staff reductions. 

14.  In April 1995, a reengineering team recommended termination of
law enforcement activities.  In May 1995, the Secretary decided that
the recommendation required further review in light of the
President's counterterrorism initiative.  In October 1995, the
Coordinator of the Strategic Management Initiative told us that the
recommendations had been tabled.  We agree with State that it has
closed resident offices (New Haven, Detroit, and St.  Louis), reduced
three offices, and downsized the Philadelphia field office.  However,
the Under Secretary for Management notified the Congress of the plans
to close these offices in November 1993, 1 year prior to the
commencement of the Strategic Management Initiative.  We were unable
to verify the number of diplomatic security field staff positions
that have been cut. 

15.  We modified the report to incorporate this suggestion. 

16.  It was not the intent of our report to specifically direct
State's downsizing efforts.  Our report stresses the importance of
ensuring that personnel reductions are taken with a view toward
retaining a viable workforce.  To avoid the pitfalls of skill
imbalances that could result from such personnel reductions, it is
essential that State develop plans for downsizing or restructuring
that include identifying its core missions, functions, and processes. 

17.  We did not recommend that the Bureau of Democracy, Human Rights,
and Labor's Office of International Labor Affairs and labor officer
positions abroad be eliminated.  We offered this as one of many
options and measures that could reduce costs.  Our point was that
given potential budget shortfalls State needs to scrutinize its
functions and reassess its involvement in all areas. 

18.  We suggested that reporting may be one area that State could
reduce if budget levels compel the Department to reassess its
workload requirements to match the level of resources it must live
with, and stressed that some of State's reports are legislatively
mandated.  Our report recommends that State identify legislative
actions, if any, that would be needed to adjust to proposed funding
levels. 

We did not recommend elimination or otherwise limiting specific
reporting requirements.  We mention three reports--the annual country
reports on economic policy and trade practices; human rights
practices; and science, technology, and American diplomacy--as
examples of some of the congressionally mandated reports that consume
considerable resources at headquarters and at overseas posts. 
Although the costs associated with its reports have not been
quantified, streamlining some of these reporting requirements has the
potential to significantly reduce resource requirements.  State will
need to maintain cost information it presently does not have in order
to weigh the costs and benefits of its reports and other products and
services and to prioritize requirements.  Where appropriate, we have
incorporated the technical changes that State has noted in its
comments. 

19.  We did not attempt to determine the extent of duplication and
overlap within the Department.  However, we noted that State itself,
in a February 1995 study, had identified several areas of potential
duplication, including overlap between the Bureau of Intelligence and
Research and regional and functional bureaus throughout the
Department. 

20.  We did not suggest that State charge fees for all services.  We
understand that recouping the costs of certain products and services
may not be feasible. 

21.  We updated the report to acknowledge that, in March 1996, State
provided instructions to overseas posts for the collection of fees
for commercial services in posts where the Department of Commerce
does not provide commercial services.  However, State could also
explore further options to recoup some of the costs it incurs in
providing other services. 

22.  It was not our intent to tell State or other agencies how to set
priorities when downsizing.  If other agencies lower their overseas
profile and ask State to fill the void, it will be incumbent upon
State to adjust its resource allocations based on strategic
priorities. 

23.  In concluding that State must reassess its involvement in
certain functions and activities, we noted that State may need to
seek legislative relief from certain congressionally mandated reports
or obtain legislative authorization to downgrade the level of certain
services. 

24.  This section of the report characterizes the work that State
performs overseas and was not intended to describe how the funding
for consular programs was managed.  Information on funding for
consular programs is contained in chapter 3. 

25.  Chapters 4 and 5 describe how State not only supports its own
activities but also those of other agencies.  In fact, State supports
more of other agencies' U.S.  direct-hire employees--whose number has
increased steadily--than its own. 

26.  Our report accurately characterizes how internal and external
pressures make closing posts difficult.  We have modified the text in
our report to note that external pressures contributed to State's
decision to maintain six posts that it had proposed to close. 

27.  Our report accurately characterizes State's policy on
universality.  If its budget is significantly reduced, State will
probably have to reduce its overseas presence and may not be able to
afford universal diplomatic representation.  Our report recognizes
that other agencies are located at U.S.  diplomatic posts and depend
on State for services.  This is one reason why we believe an
independent panel to review proposals to close and downsize posts may
be useful. 

28.  We modified the report to note State's concerns about
congressional opposition to the National Performance Review
recommendation to give ambassadors greater authority.  We do not
believe that implementation of the overseas staffing model and ICASS
is a necessary precondition to initiate a pilot program to test the
concept of increasing ambassadors' authority. 

29.  We agree that requiring overseas personnel to bring their
furniture to posts is not necessarily a prudent option, and our
report did not offer this as an option.  Rather, we noted that the
post in The Hague was considering requiring staff to bring their own
furniture overseas in order to reduce post costs.  We also noted that
the cost of shipping household goods is paid by State headquarters. 
This example demonstrates that posts do not have full control of the
resources and as a result may make decisions associated with post
operations that protect the post's budget, but do not necessarily
reduce State's costs. 

30.  We did not recommend increased use of the foreign service
nationals (FSN), but we believe this option should be considered.  We
share State's concerns about increased use of FSNs, but we believe
that cost-benefit and risk management principles suggest that some
level of increased risk may be acceptable in return for significantly
reduced costs.  State needs to carefully weigh the cost and risk
implications of this option. 

31.  We do not understand the context for this comment.  This report
did not recommend the sale of properties.  However, in a prior
report, Overseas Real Estate:  Millions of Dollars Could Be Generated
by Selling Unneeded Real Estate (GAO/NSIAD-96-36, Apr.  23, 1996), we
(1) pointed out that State had a list of over 100 properties for
potential sale valued at $467 million; (2) identified other
properties worth millions of dollars not on the list that are
potentially excess to State's needs or have a questionable value and
are often expensive to maintain; and (3) proposed that an independent
panel be established to decide which properties should be sold. 

32.  Outsourcing is an option that should be considered.  State's
Strategic Management Initiative called for an outsourcing study of
telecommunications services.  Studies to determine the
cost-effectiveness of outsourcing other functions may also uncover
ways to reduce costs. 

33.  We believe that the Defense Logistics Agency is one outsourcing
option available for State to consider, even though the Agency may
not be able to meet all of State's needs.  State would need to
compare its costs for providing certain support functions to the
costs of contracting with the Defense Logistics Agency for these same
services. 


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


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

John Brummet
Blake Ainsworth
Eugene D.  Beye
Michael J.  Courts
Joy Labez
David C.  Maurer
Margaret E.  Morgan
Suzanne P.  Nagy
Jeffrey D.  Phillips
Jodi M.  Prosser
Nancy L.  Ragsdale
James M.  Strus
Michael Ten-Kate
La Verne G.  Tharpes




RELATED GAO PRODUCTS
============================================================ Chapter 1

PRODUCTS ON THE STATE DEPARTMENT

Overseas Real Estate:  Millions of Dollars Could Be Generated Selling
Unneeded Real Estate (GAO/NSIAD-96-36, Apr.  23, 1996). 

State Department:  Actions Needed to Improve Embassy Management
(GAO/NSIAD-96-1, Mar.  12, 1996). 

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

Overseas Real Estate:  Inaction on Proposals to Sell High-Value
Property in Tokyo (GAO/NSIAD-95-73, Apr.  7, 1995). 

Overseas Staffing:  U.S.  Government Diplomatic Presence Abroad
(GAO/T-NSIAD-95-136, Apr.  6, 1995). 

Overseas Presence:  Staffing at U.S.  Diplomatic Posts
(GAO/NSIAD-95-50FS, Dec.  28, 1994). 

Department of State IRM:  Strategic Approach Needed to Better Support
Agency Mission and Business Needs (GAO/AIMD-95-20, Dec.  22, 1994). 

State Department:  Overseas Staffing Process Not Linked to Policy
Priorities (GAO/NSIAD-94-228, Sept.  20, 1994). 

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

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

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

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

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

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

Foreign Affairs Issues (GAO/OCG-93-26TR, Dec.  1992). 

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

State Department:  Facilities in Eastern Europe and the Former Soviet
Union (GAO/NSIAD-92-284, Sept.  22, 1992). 

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

State Department:  Management Weaknesses in the Security Construction
Program (GAO/NSIAD-92-2, Nov.  29, 1991). 

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

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

State Department:  Status of the Diplomatic Security Construction
Program (GAO/NSIAD-91-143BR, Feb.  20, 1991). 

PRODUCTS ON MANAGEMENT AND
DOWNSIZING

Federal Downsizing:  Observations on Agencies' Implementation of the
Buyout Authority (GAO/T-GGD-95-164, May 17, 1995). 

Workforce Reductions:  Downsizing Strategies Used in Selected
Organizations (GAO/GGD-95-54, Mar.  13, 1995). 

Federal Downsizing:  The Administration's Management of Workforce
Reductions (GAO/T-GGD-95-108, Mar.  2, 1995). 

Reengineering Organizations:  Results of a GAO Symposium
(GAO/NSIAD-95-34, Dec.  13, 1994). 

Management Reform:  Implementation of the National Performance
Review's Recommendations (GAO/OCG-95-1, Dec.  5, 1994). 

Executive Guide:  Improving Performance Through Strategic Information
Management and Technology (GAO/AIMD-94-115, May 1994). 

Management Reforms:  Examples of Public and Private Innovations to
Improve Service Delivery (GAO/AIMD/GGD-94-90BR, Feb.  11, 1994). 

Management Reform:  GAO's Comments on the National Performance
Review's Recommendations (GAO/OCG-94-1, Dec.  3, 1993). 

*** End of document. ***