The Results Act: Observations on the Department of State's May 1997 Draft
Strategic Plan (Correspondence, 07/18/97, GAO/NSIAD-97-198R).

Pursuant to a congressional request, GAO reviewed the draft strategic
plan submitted by the Department of State as required by the Government
Performance and Results Act, focusing on: (1) the draft plan's
compliance with the Results Act requirements and its overall quality;
(2) whether State's key statutory authorities were reflected in the
plan; (3) whether cross-cutting functions and interagency involvement
were included; (4) whether the draft plan addressed major management
problems; and (5) State's capacity to provide reliable information about
its operations and performance.

GAO noted that: (1) State's May 6, 1997, draft strategic plan is useful
in setting and clarifying U.S. foreign policy goals, but it does not
contain sufficient information to fully achieve the purposes of the
Results Act and is incomplete in several important respects; (2) in
particular, State's draft strategic plan omits two elements required by
the Results Act; (3) it does not contain components identifying the
relationship between long-term goals/objectives and annual performance
goals or a description of how program evaluations were used to establish
or revise strategic goals, or a schedule for future program evaluations;
(4) to meet the other four requirements of the Results Act, State's plan
needs to be more descriptive and consistent with the Office of
Management and Budget (OMB) guidance; (5) for example, State's mission
statement is described in two sections of the plan; (6) the plan could
be improved by consolidating these sections into a single mission
statement; (7) the strategic goals sections clearly set out foreign
policy goals but do not consistently explain what results are expected
from State's programs or when to expect the results; (8) the plan
contains several sections labeled strategy for specific goals, however,
it does not specifically identify the actions and resources needed to
meet the plan's goals or include a schedule for significant actions; (9)
the draft plan would be more useful to State, Congress, and other
stakeholders if it included a description of the statutory basis for
State's broad foreign policy responsibilities and explicit discussions
of cross-cutting functions, major management problems, and adequacy of
data and systems; (10) the plan is consistent with State's basic
statutory responsibilities, but it does not discuss them; (11) State's
draft plan recognizes that there are several cross-cutting issues and is
designed to: (a) coordinate the roles and missions of U.S. government
agencies involved in foreign affairs activities; and (b) serve as a
basis for consultation to sharpen and achieve broad agreement on U.S.
foreign policy goals; (12) State's plan highlights many of its
management responsibilities in ensuring its diplomatic readiness but
does not address many of the serious management challenges facing the
Department; and (13) State's capacity to provide reliable information
about its operations and program performance is questionable because of
long-standing deficiencies in the Department's information and financial
accounting systems.

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

 REPORTNUM:  NSIAD-97-198R
     TITLE:  The Results Act: Observations on the Department of State's 
             May 1997 Draft Strategic Plan
      DATE:  07/18/97
   SUBJECT:  Foreign policies
             Strategic planning
             Interagency relations
             Agency missions
             International relations
             Program evaluation
             Congressional/executive relations
             Federal agency reorganization
             Financial management systems

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



September 1997


GAO/NSIAD-97-198R

State's Draft Strategic Plan

(711281)


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

  ACDA - Arms Control and Dasarmament Agency
  BOP - Federal Bureau of Prisons
  CFO - Chief Financial Officers
  DEA - Drug Enforcement Administration
  DOJ - Department of Justice
  FBI - Federal Bureau of Investigation
  INS - Immigration and Naturalization Service
  NPR - National Performance Review
  OMB - Office of Management and Budget
  USIA - U.S.  Information Agency
  USAID - U.S.  Agency for International Development

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


B-277439

July 18, 1997

The Honorable Richard K.  Armey
Majority Leader
House of Representatives

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

The Honorable Dan Burton
Chairman,Committee on Government Reform
 and Oversight
House of Representatives

The Honorable Bob Livingston
Chairman, Committee on Appropriations
House of Representatives

Subject:  The Results Act:  Observations on the Department of State's
May 1997 Draft Strategic Plan

On June 12, 1997, you asked us to review the draft strategic plans
submitted by cabinet departments and selected major agencies for
consultation with Congress as required by the Government Performance
and Results Act of 1993 (the Results Act, P.L.  103-62).  This letter
is our response to that request concerning the Department of State. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :1

Our overall objective was to review and evaluate the latest available
version of State's draft strategic plan, which was prepared within
the context of the Department's overall strategic plan for
international affairs.  The plan is designed to serve as an
overarching framework to guide and coordinate the roles of U.S. 
government agencies under the foreign policy direction of the
President and the Secretary of State.  Specifically, we (1) assessed
the draft plan's compliance with the Results Act requirements and its
overall quality, (2) determined if State's key statutory authorities
were reflected in the plan, (3) determined whether cross-cutting
functions and interagency involvement were included, (4) determined
if the draft plan addressed major management problems, and (5)
discussed State's capacity to provide reliable information about its
operations and performance. 

Our overall assessment of State's draft strategic plan was generally
based on our knowledge of State's operations and programs, our
reviews of the Department's operations and programs, and other
existing information at the time of our assessment.  Specifically,
the criteria we used to determine whether State's draft strategic
plan complied with the requirements of the Results Act were the
Results Act, supplemented by the Office of Management and Budget's
(OMB) guidance on developing the plans (Circular A-11, part 2).  To
make judgments about the overall quality of the plan, we used our May
1997 guidance for congressional review of the plans\1 as a tool.  To
determine whether the plan addressed management problems previously
addressed by us, we relied on our general knowledge of State's
programs and operations and the result of reports and testimony that
we have issued in recent years.  (See enc.  II for a list of our
major products related to State's operations).  We conducted our
assessment between June 21, 1997 and July 18, 1997, in accordance
with generally accepted government auditing standards.  State
officials provided oral comments on a draft of this correspondence,
which are reflected in the agency comments section on page 14. 

We based our assessment on the May 6, 1997, draft strategic plan that
State provided on June 18, 1997, to the House of Representatives
staff team working with the agency.  We recognize that developing a
strategic plan is a dynamic process and that State is continuing to
revise the draft with input from OMB, congressional staff, and other
stakeholders. 

It is important to recognize that under the Results Act, a final plan
is not due until September 1997.  Furthermore, the act anticipated
that it would take several planning cycles to perfect the process and
that the final plan would be continually refined as various planning
cycles occur.  Thus, our comments reflect a snapshot status of the
plan at a given point in time. 


--------------------
\1 Agencies' Strategic Plans Under GPRA:  Key Questions to Facilitate
Congressional Review (GAO/GGD-10.1.16, May 1997). 


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

The State Department is the lead institution for the conduct of U.S. 
diplomacy.  It 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 range of functions that are
critical to U.S.  interests:  provide leadership to help bring peace
and stability to areas such as the Middle East and Bosnia, report on
overseas events, influence other countries to adopt policies and
practices consistent with U.S.  interests, assist U.S.  business
abroad, provide services to U.S.  citizens overseas, and issue
passports and visas.  State operates over 200 embassies and
consulates worldwide.  At posts overseas, the Department is
responsible for coordinating and supporting the international
activities of all U.S.  government agencies not under military
commands.  State's budget request totaled about $2.7 billion in
fiscal year 1998 for the administration of foreign affairs. 

The overall purposes of the Results Act include systematically
holding federal agencies accountable for achieving program results
and improving congressional decision-making by providing more
objective information on the relative effectiveness and efficiency of
federal programs and spending.  Consistent with its general purposes,
the Results Act requires that each federal agency develop a strategic
plan by September 30, 1997.  Each plan is to include six elements: 
(1) a comprehensive agency mission statement, (2) agencywide
long-term goals and objectives for all major functions and
operations, (3) approaches or strategies to achieve goals and
objectives and the various resources needed to do so, (4) the
relationship between long-term goals/objectives and annual
performance goals, (5) an identification of key external factors
beyond agency control that could significantly affect achievement of
strategic goals, and (6) a description of how program evaluations
were used to establish or revise strategic goals, and a schedule for
future program evaluations. 

State's first draft of its strategic plan was rejected by OMB last
year for several reasons, including the lack of senior staff
involvement in the plan's preparation.  According to State officials,
the May 1997 plan reflects a greater commitment by senior officials
in the Department.  In addition, State officials believe that the
Department's current program planning exercise, in support of the
budget process, will help State meet some of the requirements of the
Results Act. 

It is important to note that the administration, with the support of
Congress, decided in April 1997 to reorganize the foreign affairs
agencies of the United States.  The objectives of the reorganization
are to consolidate State, the U.S.  Information Agency (USIA), and
the Arms Control and Disarmament Agency (ACDA) and to integrate
certain administrative functions of State and the U.S.  Agency for
International Development (USAID).  Special consolidation/
integration teams are now putting together the strategy and plan of
action for this effort, which will have significant cross-cutting
policy and management implications for State.  A formal
reorganization plan is scheduled to be completed by September 1997. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :3

State's May 6, 1997, draft strategic plan is useful in setting and
clarifying U.S.  foreign policy goals, but it does not contain
sufficient information to fully achieve the purposes of the Results
Act and is incomplete in several important respects.  In particular,
State's draft strategic plan omits two elements required by the
Results Act.  It does not contain components identifying the
relationship between long-term goals/objectives and annual
performance goals or a description of how program evaluations were
used to establish or revise strategic goals, or a schedule for future
program evaluations. 

To meet the other four requirements of the Results Act, State's plan
needs to be more descriptive and consistent with OMB guidance.  For
example, State's mission statement is described in two sections of
the plan.  The plan could be improved by consolidating these sections
into a single mission statement.  The strategic goals sections
clearly set out foreign policy goals but do not consistently explain
what results are expected from State's programs or when to expect the
results.  The plan contains several sections labeled strategy for
specific goals, however, it does not specifically identify the
actions and resources needed to meet the plan's goals or include a
schedule for significant actions.  In addition, State's strategies
for achieving the foreign policy goals often focus on describing the
Department's role in various areas instead of describing how State's
programs and operations will achieve the goals.  State frequently
identifies the key factors related to the achievement of specific
goals as part of its assumptions sections for each goal.  However,
the draft plan does not systematically describe how the achievement
of goals could be affected by external factors or discuss some of the
more overriding issues that could affect plan implementation, such as
pending legislation. 

The draft plan would be more useful to State, Congress, and other
stakeholders if it included a description of the statutory basis for
State's broad foreign policy responsibilities and explicit
discussions of cross-cutting functions, major management problems,
and adequacy of data and systems.  The plan is consistent with
State's basic statutory responsibilities, but it does not discuss
them.  State's draft plan recognizes that there are several
cross-cutting issues and is designed to (1) coordinate the roles and
missions of U.S.  government agencies involved in foreign affairs
activities and (2) serve as a basis for consultation to sharpen and
achieve broad agreement on U.S.  foreign policy goals.  However, the
draft strategic plan does not clearly indicate how the Department
plans to provide leadership and coordinate the programs of other
agencies.  Further, State's plan would be enhanced if it included a
discussion of how the proposed reorganization of State, USIA, ACDA,
and USAID might affect formulation of strategic goals and strategies
and related management and resource requirements. 

State's plan highlights many of its management responsibilities in
ensuring its diplomatic readiness but does not address many of the
serious management challenges facing the Department.  Our prior
reviews have identified several formidable management challenges,
including the need for State to develop program strategies that
reflect budget constraints, reduce its operating costs, meet the
objectives of the Chief Financial Officers (CFO) Act, and
systematically modernize its key business processes. 

State's capacity to provide reliable information about its operations
and program performance is questionable because of long-standing
deficiencies in the Department's information and financial accounting
systems.  Successfully resolving a number of these material
deficiencies in the Department's financial management and information
systems will be critical to successfully implementing the plan. 


   STATE'S DRAFT STRATEGIC PLAN
   DOES NOT REFLECT ALL ELEMENTS
   OF RESULTS ACT REQUIREMENTS
------------------------------------------------------------ Letter :4

State's draft strategic plan omits two key components and only
partially fulfills the remaining four components required by the
Results Act.  Table 1 shows the Results Act's required components and
the corresponding sections in State's plan. 



                                Table 1
                
                Strategic Plan Components Listed by the
                 Results Act and Corresponding Sections
                in State's May 1997 Draft Strategic Plan

Strategic plan component listed by  Corresponding sections in State's
Results Act                         May 1997 draft strategic plan
----------------------------------  ----------------------------------
1. Comprehensive mission statement  State Department Overview and the
covering the major functions and    International Affairs Mission
operations of the agency            Statement

2. General goals and objectives     National Interests and Strategic
                                    Goals

3. Description of how the goals     Strategies
and objectives are to be achieved

4. Description of how the annual    Not discussed
performance goals shall be related
to the general goals and
objectives in the strategic plan

5. Identification of key factors    Assumptions
external to the agency and beyond
its control that could affect
achievement of the general goals
and objectives

6. Description of the program       Not discussed
evaluations used to establish/
revise strategic goals with a
schedule for future program
evaluations
----------------------------------------------------------------------
Source:  The Government Performance and Results Act of 1993 and
State's May 1997 draft strategic plan. 


      MISSION STATEMENT
---------------------------------------------------------- Letter :4.1

The elements of State's mission are described in two different
sections of the plan--one that provides an overview of the State
Department and another that gives a mission statement for
international affairs.  This mission is broad-based and includes
providing policy leadership, conducting international negotiations,
coordinating responses to crises, assisting U.S.  business,
adjudicating visas, and protecting and assisting American citizens
abroad.  State's plan would be easier to use if it contained a
consolidated agency mission statement that was clearly labeled. 


      GOALS AND OBJECTIVES
---------------------------------------------------------- Letter :4.2

State's draft strategic plan identifies 16 strategic foreign policy
goals.  The strategic goals are established for key areas of national
interest and core U.S.  values--national security, economic
prosperity, protection of American citizens and border security, law
enforcement, democracy, humanitarian assistance, and global issues
(environment, population, and health).  The plan also contains a
diplomatic readiness section that establishes separate goals for
human resources, information resource management, and infrastructure
and operations of the Department.  Although State's plan establishes
several goals, it does not consistently explain what results are
expected from the agency's major functions or when to expect those
results.  For example, the foreign policy goal of expanding U.S. 
exports to $1.2 trillion is too broad and subject to multiple
influences to clearly articulate what results can be expected from
the Department in the 5-year plus period covered by the draft plan. 
Moreover, some goals are not clear.  For example, the diplomatic
readiness goal of "enabling the U.S.  government to achieve foreign
policy objectives and respond to international crises by cultivating
a skilled, motivated, diverse, and flexible workforce" is obscure
and, in our opinion, it would be difficult to make a future
assessment of whether the goal was being achieved. 


      APPROACHES (OR STRATEGIES)
      TO ACHIEVE GOALS
---------------------------------------------------------- Letter :4.3

The draft strategic plan identifies strategies for each foreign
policy goal, but it often does not describe how the goals are to be
achieved.  For example, State's first strategy (maintaining effective
working relationships with leading regional states through vigorous
diplomacy, backed by strong U.S.  and allied military capability to
react to regional contingencies) does not describe how the Department
plans to maintain effective working relationships or coordinate with
the other lead agency (Department of Defense) identified in the
strategy.  In contrast, the strategy to meet rising passport demand
and maintain integrity of the passport system clearly describes
State's approaches such as upgrading automated systems; developing
backup systems; and introducing photodigitization to improve
security. 

The plan does not clearly describe the agency's staff skills and
technologies, and the human, capital, information, and other
resources needed to meet the plan's foreign policy goals, consistent
with OMB Circular A-11, part 2.  The diplomatic readiness section
sets goals and strategies for managing and upgrading State's resource
base, but those goals and strategies are not clearly linked to the
strategic goals.  Additionally, the plan is not consistent with OMB
Circular A-11, part 2, which states that strategies should outline
how the agency will communicate strategic goals throughout the
organization and hold managers and staff accountable for achieving
these goals. 


      RELATIONSHIP BETWEEN
      LONG-TERM GOALS AND ANNUAL
      PERFORMANCE GOALS
---------------------------------------------------------- Letter :4.4

The draft strategic plan does not discuss the relationship between
strategic goals and annual performance goals as required by the
Results Act.  However, it contains a section labeled indicators for
each goal that may be a good first step toward establishing annual
performance goals.  For example, State's goal of minimizing the
impact of international crime on the United States and its citizens
lists crime statistics and intelligence estimates as an indicator to
measure progress.  State officials noted that they are currently
engaged in their annual program planning process and hope to further
define operational goals, performance measures, and resource
requirements consistent with the Results Act. 


      KEY FACTORS EXTERNAL TO THE
      AGENCY
---------------------------------------------------------- Letter :4.5

State's draft strategic plan contains key external factors affecting
the achievement of the goals.  These are described as part of its
assumptions for each goal.  Such assumptions are a good starting
point for identifying the key external factors that might affect the
Department's programs.  However, the assumptions contained in the
plan do not systematically (1) describe how the achievement of the
goal(s) could be affected by the factor (consistent with OMB Circular
A-11, part 2) or (2) identify other important factors that we believe
could affect achievement of the goals.  For example, a key assumption
for controlling how immigrants and foreign visitors enter and remain
in the United States is that applications for nonimmigrant visas will
increase by 3-5 percent per year.  The assumptions, however, do not
mention legislative and technological challenges that could affect
achievement of the goal.  These might include pending requests for
legislative authority to make immigration, passport, and other fees
available to State as an indefinite appropriation. 

Another example is one of the assumptions related to State's
diplomatic readiness goal of establishing and maintaining
infrastructure.  It states that the investment decisions for major
infrastructure systems will become more complex as high maintenance
costs increase the urgency of new construction.  However, the
assumptions do not recognize the potential impact of international
market forces on real estate decisions. 


      HOW PROGRAM EVALUATIONS WERE
      USED TO ESTABLISH OR REVISE
      GOALS
---------------------------------------------------------- Letter :4.6

The draft strategic plan does not mention or describe how program
evaluations were used to establish or revise strategic goals or
include a schedule for future program evaluations.  According to OMB
guidance, the agency should briefly describe program evaluations that
were used in preparing the strategic plan and outline (1) the general
scope and methodology for planned evaluations, (2) particular issues
to be addressed, and (3) a schedule for future evaluations. 
Addressing these requirements will be clearly important to State in
its efforts to finalize a useful strategic plan.  Recent program
evaluations by State's Inspector General, who examined the
Department's counternarcotics program, peacekeeping activities, and
immigrant visa programs, have identified several internal and
external factors affecting program implementation.  Our most recent
evaluations have identified options for agencywide cost reductions,
better real property management, and application of best practices
adopted by the private sector. 

State officials have found that many foreign policy issues are
subject to multiple influences and are not quickly translated into
agency-specific goals.  State's draft strategic plan provides limited
insight about how the Department's contributions will be singled out
or how annual performance goals and measures will relate to the
general goals and objectives.  However, State officials are
optimistic that such problems can be worked out in the program
planning process.  We have not assessed State's program planning
process to determine whether it will enable State to meet the
requirements of the Results Act. 


   KEY STATUTORY AUTHORITIES
   GENERALLY REFLECTED IN STATE'S
   STRATEGIC PLAN
------------------------------------------------------------ Letter :5

Our review of the draft plan and State's key statutory authorities,
including the State Department Basic Authorities Act of 1956 (P.L. 
84-885), foreign relations authorization and appropriations acts,\2
relevant provisions of the Foreign Assistance Act of 1961 (P.L. 
87-195), and other laws, indicates that State's description of its
mission, goals, and objectives, as stated in its draft plan,
generally reflect State's statutory authority.  State's description
of its mission is supported by its broad statutory authority for
management of foreign affairs (22 U.S.C.  2656).  Similarly, each of
the 16 major goals appears to reflect broad foreign policy objectives
and/or specific legislative priorities.  In general, the overall
structure of the plan, which is based on broad foreign policy goals
but not tied directly to specific legislation, appears to be
consistent with the nature of State's role as the lead institution
for the conduct of foreign policy. 

The Results Act does not require a statement of major statutory
authorities to be included with the agency's plan.  However, OMB
Circular A-11, part 2, suggests that an agency's mission statement
may include a brief discussion of the agency's enabling or
authorizing legislation.  We believe that State's plan may benefit
from such a discussion to provide a better understanding of the
statutory basis for State's broadly defined mission, goals, and
objectives. 


--------------------
\2 The most recent authorization act for State is the Foreign
Relations Authorization Act for Fiscal Years 1994 and 1995 (P.L. 
103-236).  The Department of State and Related Agencies
Appropriations Act for Fiscal Year 1997 is title IV of P.L.  104-208. 


   CROSS-CUTTING ISSUES NOT FULLY
   DISCUSSED
------------------------------------------------------------ Letter :6

State, as the lead agency for the conduct of foreign policy, is
involved in several cross-cutting issues for which successful
performance depends on actions by the Department and other agencies. 
The Department's strategic plan states that it was not intended to
supplant strategic planning efforts in the foreign affairs and other
communities but was to be used as the basis for consultations with
the aim of sharpening and achieving broad agreement on U.S.  foreign
policy goals.  As such, State's strategies for achieving individual
foreign affairs goals typically identify the various agencies that
have responsibilities in the area but do not provide specific
evidence of interagency coordination in determining how specific
goals will be achieved.  For example, several of State's strategies
for helping achieve the goal of improving the well-being of the
world's poor simply identify the lead agency (for example, USAID) and
which agencies (for example, USAID and State) provide input, without
giving any additional information about how the goal will be pursued. 

State's draft plan does not specifically address the potential for
other agencies to have functions similar to or possibly duplicative
of State's role that could affect the formulation and implementation
of strategies.  In August 1996, we reported\3 that State's functional
bureaus share responsibility with multiple U.S.  agencies on various
overlapping issues, including over 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. 
Examples include the following: 

  -- The Office of the U.S.  Trade Representative and the Department
     of Commerce are at the center of federal trade activity, while
     the Departments of State, the Treasury, Agriculture, and Labor
     are also involved in trade policy. 

  -- State's Office of Defense Trade Controls works in partnership
     with the Defense Department on license applications for arms
     controls.  The Office also confers with the Commerce Department
     on licenses 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 its strategic plan, State identifies the general role of such
agencies in support of various strategies but does not clearly
address how the Department and other agencies will be expected to
fulfill their roles.  The plan does not indicate whether State
systematically coordinated with its governmentwide stakeholders.  We
believe that a shortcoming of the plan is that State does not clearly
identify how its programs relate to those of other agencies.  This is
partially due to the difficulties in linking specific agency programs
to overlapping foreign affairs goals that do not have a designation
of priorities.  In addition, the numbers of agencies involved in
foreign affairs activities makes identification of cross-cutting
responsibilities difficult. 


--------------------
\3 State Department:  Options for Addressing Possible Budget
Reductions (GAO/NSIAD-96-124, Aug.  29, 1996). 


      IMPACT OF AGENCY
      CONSOLIDATION NOT IDENTIFIED
---------------------------------------------------------- Letter :6.1

A related cross-cutting issue that could improve State's final plan
would be a discussion of ongoing efforts of the administration to
integrate (1) State, USIA, and ACDA into an effective and efficient
agency to serve U.S.  national interests and foreign policy goals in
the 21st century and (2) certain shared administrative functions of
State and USAID.  Work on the reorganization of the foreign affairs
agencies is under the direction of a steering committee (the four
agency heads); a core team comprised of senior administrators in each
agency; a planning team; and task forces addressing various agency
integration issues, including management, arms
control/non-proliferation/international security, and public
diplomacy.  The task forces and the planning team are to address key
strategic issues, including the mission, organizational structure,
number and type of personnel, resources and authorities of relevant
policy/program implementation, and substantive support requirements
for the reorganization. 


   STRATEGIC PLAN DOES NOT FULLY
   ADDRESS MAJOR MANAGEMENT
   PROBLEMS
------------------------------------------------------------ Letter :7

State's strategic plan addresses some, but not all, of the major
management challenges that the Department faces in carrying out its
foreign policy responsibilities.  The management challenges
recognized by State as part of its plan include staffing and work
force planning, information resource management, property management,
logistics, security, and core administrative systems.  These
management issues are discussed separately in a diplomatic readiness
section of the strategic plan.  We believe the plan would be
strengthened if it better described how these management challenges
could affect achievement of the strategic goals in the plan.  We also
believe that the plan should address some of the key problems we have
identified in our prior work related to cost control, overseas
embassy management, and financial management.  Specifically, we noted
the following: 

  -- In our August 1996 report on options for addressing possible
     budget reductions, we stated that the Department had not fully
     accepted that it may have to substantially reduce its costs, nor
     had it done a comprehensive review of its functions and
     processes to identify unnecessary or low-priority work.  Options
     we identified for reducing costs included (1) reducing or
     eliminating State's involvement in some areas and lessening the
     degree of overlap among its bureaus and with other agencies, (2)
     reducing the cost of State's overseas presence, and (3) reducing
     support costs.  We noted that the structure of State's overseas
     presence has not changed substantially since the end of the Cold
     War, despite advances in communications and transportation and
     major changes in the way business is conducted overseas.  We
     pointed out that fiscal realities should require 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 to increase
     efficiency and reduce operating costs.  The draft strategic plan
     does not fully address these issues. 

  -- State operates over 200 embassies and consulates worldwide at a
     cost of nearly $2 billion annually.  In reports and
     congressional testimony,\4 we and the Department's Inspector
     General have identified serious management problems that have
     contributed to wasted resources and weakened administrative
     systems overseas.  State has taken some actions to improve
     overseas management, but the draft strategic plan does not
     specifically address the embassy management problem. 

  -- Solving State's financial management problems depends largely on
     the Department's ability to meet the objectives of the CFO Act,
     as expanded by the Government Management Reform Act.  The
     passage of the CFO Act was intended to improve federal financial
     management by, among other things, (1) mandating improvements in
     financial systems and internal controls and (2) requiring
     agencies to prepare and have audited financial statements.  The
     June 1997 State Inspector General's audit report\5 on the
     Department's consolidated statement of financial position for
     fiscal year 1996 contained a qualified audit opinion due, in
     large part, to the inability to audit undelivered orders.  The
     Department's financial and accounting system, as of September
     30, 1996, was noted to be "materially inadequate." This may
     significantly affect the Department's ability to successfully
     implement the Results Act.  The plan does not address the major
     financial management challenges faced by State or how State will
     resolve these challenges. 

Our August 1996 report on options for addressing budget reductions
also noted that State could possibly reduce its support costs by
several hundred million dollars by accelerating changes to its
business practices.  In the plan, State's strategies for improving
its diplomatic readiness contain elements that can help it to
partially address the support cost issue.  One of the most important
elements focuses on a reengineering of the Department's worldwide
logistics system.  The Department's strategy in this area is largely
based on an application of best practices of other organizations in
the logistics area.  Our ongoing work also shows that the Department
can reengineer other key business processes and use the best
practices of the private sector and other organizations to do things
better at less cost.  The strategic plan would be strengthened if
these opportunities were more fully explored. 


--------------------
\4 State Department:  Actions Needed to Improve Embassy Management
(GAO/NSIAD-96-1, Mar.  12, 1996) and Widespread Management Weaknesses
at Overseas Embassies (GAO/T-NSIAD-93-17, July 13, 1993). 

\5 Department of State's Consolidated Statement of Financial Position
for Fiscal Year 1996 (OIG Audit Report 97-FM-017, June 2, 1997). 


   STATE HAS LIMITED CAPACITY TO
   PROVIDE RELIABLE INFORMATION ON
   ACHIEVEMENT OF GOALS
------------------------------------------------------------ Letter :8

The Department's ability to generate reliable data in the near future
is uncertain.  Specifically, we believe that State is likely to
encounter significant problems in providing reliable information on
achievement of strategic goals due to the long-standing weaknesses in
its information management systems and in its financial and
accounting systems.  Although State has recognized deficiencies in
its existing systems and auditors have identified related internal
control weaknesses, current target dates for completing corrective
actions are at least 2 years off.  As such, State needs to discuss
the issue of data reliability in its strategic plan. 


      INFORMATION SYSTEM
      WEAKNESSES
---------------------------------------------------------- Letter :8.1

According to State's most recent Federal Managers' Financial
Integrity Act report, its information resource management
infrastructure is totally inadequate to meet the current core foreign
policy and administrative functions.  This situation has a
significant impact on the Department's mission and severely limits
its ability to provide efficient, flexible, and timely national
security reporting; to promote U.S.  business opportunities abroad;
and to reinvent and streamline Department business practices. 
State's report goes on to note that 90 percent of the Department's
overseas unclassified systems and nearly three-fourths of the
domestic systems are obsolete.  Current target dates for completing
corrective actions are in the year 2000. 


      RELIABILITY OF FINANCIAL AND
      ACCOUNTING DATA
---------------------------------------------------------- Letter :8.2

State's financial accounting systems are not capable of accurately
accumulating the costs of its activities and thereby determining the
cost of achieving program results and measuring the success of
strategic goals.  The CFO Act requires agencies to have accounting
and financial accounting systems that provide for the development of
cost information and systematic measurement of performance. 
Currently, State does not have a true cost accounting system and, as
a result, reliable cost information by function cannot be provided. 
Historically, State has focused attention on developing financial
systems to satisfy appropriated fund control requirements rather than
to provide financial cost information needed to manage operations. 
Domestic and overseas financial systems have been incompatible, out
of date, and unable to meet managers' cost performance measurement
and other financial needs. 

As part of the Federal Managers' Financial Integrity Act process,
State has long recognized the deficiencies in its financial
management systems.  The Department has developed a plan to improve
its financial management systems to solve these weaknesses.  Key
elements of the plan include upgrading the core financial system,
reducing the number of systems, and developing a reports management
system.  Target dates for resolving material weaknesses are currently
in the year 1999. 

If State plans to use data from its existing financial management
systems to measure and manage program results, it needs to ensure
that such data are complete, reliable, and timely.  The process of
preparing financial statements and subjecting them to an independent
audit helps to establish discipline in the financial management
process.  This is a necessary step in generating reliable and timely
information, along with initiatives for improvement as part of the
financial integrity process.  State needs to discuss the issue of
data reliability in its strategic plan in terms of how reliable its
data are, what is being done to improve the data, and how the
reliability of the data can be expected to affect the agency's
performance. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

On July 16, 1997, we obtained oral comments on a draft of this report
from State officials responsible for preparing State's strategic
plan.  These officials said that our report reflects a May 1997
"snapshot" of the State Department's strategic plan that, under the
Results Act, is not due until September 1997.  They noted that with
the administration's announcement of the consolidation of foreign
affairs agencies, much has changed at the State Department since May
1997 and the strategic plan is evolving as well.  From the outset, it
has been State's intention to apply the outcomes of the strategic
planning process in ways consistent with the Results Act.  For
example, all State Department bureaus are using the strategic plan as
a template to complete program plans this summer that will form the
basis for the fiscal year 1999 budget for both international affairs
programs and State Department operations.  State believes that the
strategic plan it submits in September, taken together with the
annual performance plan and the fiscal year 1999 budget submitted to
OMB, will reasonably address our comments on its draft plan. 


---------------------------------------------------------- Letter :9.1

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this letter
until 30 days from its issue date.  At that time, we will send copies
of this letter to the Minority Leader of the House of
Representatives; Ranking Minority Members of your Committees;
Chairmen and Ranking Minority Members of other Committees that have
jurisdiction over Department of State activities; the Secretary of
State; and the Director, OMB.  We will send copies to others on
request. 

Please contact me at (202) 512-4128 if you or your staffs have any
questions concerning this letter.  Major contributors to this letter
are listed in enclosure I. 

Benjamin F.  Nelson
Director, International Relations and
 Trade Issues


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


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

Jess T.  Ford
Diana M.  Glod
Lynn B.  Moore


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:2

Joseph S.  Wholey
Christopher Mihm


   OFFICE OF THE GENERAL COUNSEL,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:3

Mark Speight


   ATLANTA FIELD OFFICE
--------------------------------------------------------- Appendix I:4

Diane Handley
Thanomsri S.  Piyapongroj


============================================================ Chapter 0


============================================================ Chapter 1


============================================================ Chapter 2


RELATED GAO PRODUCTS
============================================================ Chapter 3

State Department:  Options for Addressing Possible Budget Reductions
(GAO/NSIAD-96-124, Aug.  29, 1996). 

Overseas Real Estate:  Millions of Dollars Could Be Generated by
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 GAO/NSIAD-95-128, May 15, 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, Jul.  13, 1993). 

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


*** End of document. ***