Foreign Assistance: Treasury's Technical Assistance Program (Letter
Report, 03/12/99, GAO/NSIAD-99-65).

Pursuant to a congressional request, GAO reviewed the Department of the
Treasury's Office of Technical Assistance (OTA) foreign aid program,
focusing on: (1) the types of technical assistance OTA advisors have
provided to Russia and Romania; (2) oversight by OTA of advisors'
activities; (3) advisor qualifications, program cost, fund transfers
between the Agency for International Development and the Treasury; and
(4) the location of the Treasury's senior advisors to its program.

GAO noted that: (1) the Treasury's technical assistance advisors in
Russia and Romania have assisted in efforts to reform tax and budget
systems, improve banking and debt management policies, and enhance law
enforcement; (2) in support of these initiatives, Treasury advisors have
helped countries devise new systems and approaches to management of
their finances, drafted legislation and procedures, and developed
economic models; (3) host-government officials for the most part
indicated that the advice received from the Treasury's advisors was
beneficial to their reform efforts; (4) the advisor program has been
carried out with little formal structure; (5) the only clear mandatory
requirement is the filing of monthly reports, and reports of varying
content were generally filed on a regular basis; (6) however, other
documents OTA officials say they use in their oversight, such as
host-country agreements, work plans, and the results of supervisory
trips, were not available; (7) OTA has also been lax in enforcing
advisors' financial disclosure requirements; and (8) in response to
GAO's observations, OTA told GAO that they use informal means such as
electronic mail and telephone calls to carry out their oversight of
advisor activities.

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

 REPORTNUM:  NSIAD-99-65
     TITLE:  Foreign Assistance: Treasury's Technical Assistance Program
      DATE:  03/12/99
   SUBJECT:  Reporting requirements
             International relations
             Foreign technical aid
             Foreign economic assistance
             Foreign governments
IDENTIFIER:  Russia
             Romania
             
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Cover
================================================================ COVER


Report to Congressional Requesters

March 1999

FOREIGN ASSISTANCE - TREASURY'S
TECHNICAL ASSISTANCE PROGRAM

GAO/NSIAD-99-65

Foreign Assistance

(711304)


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

  GDP - gross domestic product
  OIG - Office of the Inspector General
  OMB - Office of Management and Budget
  OTA - Office of Technical Assistance
  USAID - U.S.  Agency for International Development

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


B-281920

March 12, 1999

The Honorable Benjamin A.  Gilman
Chairman, Committee on International Relations
House of Representatives

The Honorable Douglas K.  Bereuter
Chairman, Subcommittee on Asia and the Pacific
Committee on International Relations
House of Representatives

After the collapse of communism in Central Europe and the dissolution
of the Soviet Union, the United States developed programs of
technical assistance to help countries transition to market economies
and democracy.  The Department of the Treasury's Office of Technical
Assistance (OTA) was created to manage a program to provide strategic
and technical advice to these countries, through advisors based in
the United States and overseas, to facilitate economic reform and
promote private-sector development. 

As requested, we reviewed the operation of the Treasury assistance
program.  As agreed with your offices, this report identifies the
types of technical assistance the advisors have provided to Russia
and Romania.  It also discusses oversight by OTA of advisors'
activities.  In addition, as you requested, we are providing
information on advisor qualifications, program cost, fund transfers
between the U.S.  Agency for International Development (USAID) and
the Treasury, and the location of the Treasury's senior advisors to
its program (see apps.  I through IV for this program information). 

The Treasury began its resident advisor program in Russia in 1993;
since then, 12 different resident advisors have been assigned there. 
At the time of our review, there were five resident advisors in
Russia.  The Treasury began its resident advisor program in Romania
in 1993; since then, seven different resident advisors have been
assigned there.  At the time of our review, there were three resident
advisors in Romania.  These advisors in Russia and Romania together
accounted for about one quarter of the Treasury's OTA resident
advisors at the time of our fieldwork in June 1998.  We did not
attempt to determine the extent to which Treasury advisor assistance
influenced host governments to take particular actions because many
factors, such as host government willingness to reform, affect such
decisions.  Therefore, a direct link between the advisors' activities
and host-government actions is difficult to establish (see app.  VI
for a detailed description of our scope and methodology). 


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

The Treasury's technical assistance advisors in Russia and Romania
have assisted in efforts to reform tax and budget systems, improve
banking and debt management policies, and enhance law enforcement. 
In support of these initiatives, Treasury advisors have helped
countries devise new systems and approaches to management of their
finances, drafted legislation and procedures, and developed economic
models.  Host-government officials for the most part indicated that
the advice received from the Treasury's advisors was beneficial to
their reform efforts. 

The advisor program has been carried out with little formal
structure.  The only clear mandatory requirement is the filing of
monthly reports, and reports of varying content were generally filed
on a regular basis.  However, other documents OTA officials say they
use in their oversight, such as host-country agreements, work plans,
and the results of supervisory trips, were not available.  OTA has
also been lax in enforcing advisors' financial disclosure
requirements.  In response to our observations, OTA officials told us
that they use informal means such as electronic mail and telephone
calls to carry out their oversight of advisor activities. 


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

The Treasury first began its technical assistance program in 1990 in
Central Europe and then expanded it to include the countries of the
former Soviet Union.\1 The Treasury receives funds from USAID to pay
for the cost of advisors.  For fiscal years 1990-98, USAID
transferred about $134.2 million to the Treasury to support the
Treasury program. 

The Treasury had 39 resident advisors, as of September 1998, who
covered 13 Central Europe or former Soviet Union\2 countries.  There
are regional advisors in Budapest, Hungary, who are technical experts
and assist where they are needed.  In addition, the Treasury uses
short-term advisors based in the United States.  The overall strategy
of the Treasury advisor program is to provide direct, technical
advice to senior host-government officials on the development of laws
and administrative procedures and institutions to promote fiscal
stability, efficient resource allocation, transparent and democratic
processes, and private-sector growth. 

The Treasury tries to obtain advisors who are experts in each of its
five program areas.  The program areas are (1) tax policy and
administration, which is to help countries establish tax systems that
are fair and objective and that generate necessary revenues for
government operations; (2) financial institutions, policy, and
regulation, which is to develop policies and activities relating to
privatization of state-owned commercial banks and improve their
management; (3) budget policy, formulation, and execution, which is
intended to help strengthen ministries of finance by helping
introduce modern budget processes; (4) government debt issuance and
management, which is to provide advice to host-government officials
on developing markets for the sale of government securities; and (5)
law enforcement, which is to enhance enforcement capabilities of the
government to address crimes that can undermine privatization,
developing financial systems, and other economic reforms.  The first
four areas are each managed by an associate director in Washington,
D.C., and a senior advisor in Budapest.  The fifth program area is
managed by a senior advisor based in Washington, D.C. 

The Treasury plans worldwide expansion of its advisor program.  In
the Omnibus Appropriations Act of 1999 (P.L.  105-277), Congress
provided $1.5 million to the Treasury for its own advisor programs in
countries outside Central Europe and the former Soviet Union.  The
programs in Central Europe and the former Soviet Union will continue
to be funded through transfers from USAID. 


--------------------
\1 Congress enacted the Support for East European Democracy Act of
1989 (P.L.  101-179) to initiate a program of technical assistance by
various U.S.  departments and agencies to Central Europe.  The
Freedom for Russia and Emerging Eurasian Democracies and Open Markets
Support Act of 1992
(P.L.  102-511) extended similar assistance to countries of the
former Soviet Union. 

\2 As of September 1998, resident advisors (funded under the Support
for East European Democracy Act and the Freedom Support Act) were
located in Albania, Armenia, Bosnia, Bulgaria, Georgia, Hungary,
Kyrgyz Republic, Lithuania, Macedonia, Moldova, Romania, Russia, and
Ukraine.  In addition, the Treasury also has advisors in other
countries including Haiti, South Africa, and Indonesia who are funded
by USAID under the Foreign Assistance Act of 1961, as amended (P.L. 
87-195). 


   TYPES OF ASSISTANCE
------------------------------------------------------------ Letter :3

Treasury advisors' contributions have ranged from the provision of
policy advice on major initiatives, such as reform of a tax code or a
budget system, to discrete projects such as the development of
comparative analyses of how selected countries restructured insolvent
banks, to the completion of a model to forecast gross domestic
product (GDP).  For the most part, Russian and Romanian officials
complimented the Treasury advisors' work. 

The following paragraphs contain a description, by country, of the
Treasury advisors' activities in Russia and Romania, including the
Treasury program areas and specific activities and tasks. 


      RUSSIA
---------------------------------------------------------- Letter :3.1

In Russia, OTA is providing technical assistance in three program
areas--tax policy and administration, financial institutions, and
government budgets. 


         TAX POLICY AND
         ADMINISTRATION
-------------------------------------------------------- Letter :3.1.1

The development of a sound tax system to support economic initiatives
and reforms in Russia is a high U.S.  government priority.  According
to OTA's Associate Director, Tax Advisory Program, the advisors' most
concerted efforts were in the preparation of draft tax legislation to
reform the Russian tax code.  In the tax policy and administration
area, the Treasury advisors have helped analyze a proposed Russian
tax code and have prepared memos for Russian officials on issues that
included tax compliance, revenue forecasting estimates; property and
business taxation, depreciation and investment issues, and
formulation of a Russian-Cyprus tax treaty.  As a general rule,
advisors are not physically located within government ministries in
Russia.  Although one advisor told us that he did not have direct,
daily contact with host-government officials and had received little
feedback on how useful his work has been, the Russian Vice Minister
of Finance told us that overall the Treasury's tax advisors have been
helpful to the State Tax Service and were completing a tax model for
the Ministry.  In addition, the Deputy Minister of Taxation noted
that U.S.  advisors from the Treasury and USAID were helpful in
providing advice and assistance in all areas of tax aid. 

At the time of our work, the Russian government had not approved
major tax reforms.  OTA's Associate Director, Tax Advisory Program,
told us he believed that the advisors should continue providing tax
assistance because tax reform is critical to Russia's economic
development. 


         FINANCIAL INSTITUTIONS
-------------------------------------------------------- Letter :3.1.2

The financial institutions advisor in Russia was providing assistance
on several banking issues, especially on how to deal with banking
insolvencies--a widespread problem in Russia.  Since the first
financial institutions advisor was sent to Russia in December 1997,
the objectives have evolved.  Initially, the advisor was to work with
the bank rehabilitation department of the Central Bank and focus on
(1) identifying problems in the banking system, (2) providing
recommendations for an early warning system regarding banks in
financial trouble, and (3) making recommendations for dealing with
banking problems before they reached a crisis stage.  His Russian
counterpart's superior at the Central Bank was removed from office 2
months later, and the replacement official wanted assistance in other
areas.  Under the new official, the advisor was to (1) advise/prepare
drafts of federal laws, programs, and regulations on bank
restructuring, rehabilitation of problem banks, and liquidation of
insolvent banks; (2) advise on establishing and managing a deposit
guaranty system; and (3) advise and assist on training staff in bank
rehabilitation and restructuring.  At the time of our visit, the
advisor was completing a comparative analysis of how 12 countries
restructured their insolvent banks, to identify "lessons learned" for
the Russian Central Bank. 

A Russian Central Bank official said he was satisfied with the
assistance being provided by the Treasury advisor.  This official
told us that the Bank recognizes that the Treasury had a wealth of
information on banking in other countries, that relations were good
with the Treasury advisor, and the Bank has benefited from Treasury
seminars, including one on the U.S.  Resolution Trust Corporation. 
He said he and the advisor normally meet once a week and that there
have been no Bank requests for assistance to which the Treasury
advisor has not responded. 


         BUDGET
-------------------------------------------------------- Letter :3.1.3

The three budget advisors in Russia have primarily focused on
devising statistical measures that provide data for budget
formulation.  A resident advisor who is a macroeconomist had spent
most of his time developing a model to forecast GDP.  Another advisor
developed a consumer sentiment index to measure the attitudes and
expectations of the Russian consumer, which provides indicators of
potential economic growth and is relevant to budget planning.  This
particular budget advisor's task at the time of our fieldwork was to
analyze and monitor the savings behavior of the population for use by
the Ministry of Finance.  A third budget advisor prepared a study on
standards of living in Russia that was discussed in hearings by the
budget committee of the upper house of the parliament.  The advisor
is now completing a study for the budget committee on the
relationship between standards of living and the allocation of
federal funds among the regions. 

The Russian Vice Minister of Finance praised the assistance of the
macroeconomist and told us that he uses the GDP model on a daily
basis.  The Vice Minister was highly complimentary of the advisors'
work on the consumer sentiment index.  Also, the Chief of Staff of
the parliament budget committee said the advisor's report on
standards of living in Russia was appreciated by the committee and by
regional authorities throughout Russia. 


      ROMANIA
---------------------------------------------------------- Letter :3.2

In Romania, OTA is providing assistance in four program areas--tax
policy and administration, budgets, government debt issuance, and law
enforcement.  OTA suspended advisors' work on financial institutions
because it concluded that the government was not ready to move
forward on reforms. 


         TAX POLICY AND
         ADMINISTRATION
-------------------------------------------------------- Letter :3.2.1

In Romania, the tax advisor has provided assistance on ways to
improve the Romanian tax system.  The tax advisor had prepared a plan
for a new national tax administration system that included
recommendations for restructuring the lines of authority over tax
administration at both the central government and local levels;
identified the need for standard manuals, procedures, and processes
for tax administration activities; and suggested the creation of a
taxpayer service section to assist and educate the public and a
training academy that would use a standard curriculum to teach
procedures and methodologies of functions such as investigation and
collection to tax administration staff.  According to a cognizant
official, the Ministry was undecided whether certain components of
the proposed plan would be fully implemented. 

The tax advisor also has been helping Ministry staff prepare manuals
for large audits and collections.  In addition, she has provided
comments on a proposed income tax law.  The advisor told us that she
spends about half of her time on her main assignment--the tax
administration reorganization project--with the remaining time spent
providing advice and assistance in other areas.  For example, she
told us that she has both arranged and taught courses for the
Ministry's tax controls department, presented a general management
practices seminar, and was assisting in the development of a forms
design workshop.  She also organized study tours for Ministry staff
to observe how tax administration is done in other countries,
facilitated the participation of Ministry of Finance tax police in
some of the Treasury's law enforcement assistance training, and
advised Ministry staff on assistance they could seek from other
sources. 

The tax advisor, along with the Treasury's budget advisor, was asked
by the Finance Minister in 1998 to help prepare a reorganization plan
for the entire Ministry of Finance.  Their advice was used to develop
a plan to streamline the management structure and eliminate some
management positions that had been filled by political appointees. 
However, before more of the plan could be implemented, the Minister
was replaced and the reorganization plan was suspended.  The advisor
told us that the new Minister did not accept the proposed changes and
asked her to develop a new reorganization plan. 

A Ministry of Finance official, who was the liaison between the
Treasury advisors and the Ministry officials, said he was very
pleased with the advisor's work.  Also, the Romanian Ministry of
Finance official in charge of information systems told us he was very
pleased with the management seminar that the tax advisor had prepared
for his staff.  In addition, he noted that the Treasury advisors have
been working with his staff for a longer period of time than advisors
from other organizations and that there was continuity to their work. 
Furthermore, he said the advice provided by the Treasury on discrete
projects, such as specific training courses and assistance with
adaptation of new technology for tax administration, was very
beneficial to the Ministry. 


         BUDGET
-------------------------------------------------------- Letter :3.2.2

In Romania, the budget advisor is assisting in the phasing in of a
new budget system that was adopted by the parliament and is expected
to be fully implemented by the year 2000.  The advisor helped develop
a new budget format, which presents program objectives, desired
outcomes, and program costs and provides a clearer view of government
spending and program results. 

The budget advisor told us that he has given formal presentations and
informal consultations to budget officials in ministries throughout
the Romanian government, explaining the details of the new budget
process.  The advisor has also reviewed drafts of a local public
finance law that could extend performance budgeting to local
jurisdictions.  The advisor has also been consulted on issues such as
the impact of debt on the budget; alternative funding sources for
public education, health, and cultural programs; reorganization of
the Ministry of Finance; and a proposed food stamp program.  In
addition, he has participated in budget-related training sessions,
coordinated a study tour of Romanian officials to the United States,
and obtained short-term assistance from other U.S.  experts on
performance budgets and alternative funding sources to reduce the
need for future government expenditures such as financing for
cultural programs. 

Romanian Ministry of Finance officials told us that budget reform is
a very high priority for the Ministry and the budget advisor has
played an integral role in its efforts.  A Ministry official who
worked on the education budget said that it was very helpful to have
the budget advisor accompany her on visits to the Ministry of
Education to discuss the new budget format.  The General Director for
the State Budget said that the advisor was also helpful in providing
officials at ministries with information on how health and education
programs were financed in other countries, which was of interest to
officials at ministries who are seeking alternatives to government
funding of programs in light of anticipated future budget shortfalls. 
The Executive Secretary for the State Budget said that the budget
advisor, along with the other Treasury advisors, has provided
valuable comments on a pending local public finance law. 


         GOVERNMENT DEBT ISSUANCE
-------------------------------------------------------- Letter :3.2.3

The Treasury advisor in government debt issuance has worked in
Romania since 1996.  The advisor coordinated the work of several
Romanian agencies involved in issuing government securities, helped
develop securities markets, and provided advice on the legal
framework that would be required for further development.  The
Treasury advisor helped facilitate cooperation between the Ministry
of Finance and the Central Bank to develop procedures for the
issuance of government securities. 

At the start of the advisor's tenure, Romania had a rudimentary
primary market, no secondary market,\3 and a poorly functioning
auction system.  The advisor's technical assistance facilitated a
host-government decision that resulted in a strengthened primary
market and the ancillary auction system.  He also advised the Central
Bank on regulations that would be needed to establish a secondary
securities market and conducted training for Ministry and Bank staff
on the functioning of markets and auctions.  The resident and
regional advisors provided advice to the Romanian government on the
timing of its entry into international financial markets and helped
Romania enter the Eurobond market\4 for the first time.  In addition,
a short-term Treasury advisor helped the government improve its
central clearing house and registration system for government
securities. 

The Romanian Ministry of Finance official in charge of the domestic
public debt said that the resident advisor in Romania and the
regional advisor from Budapest, who was an expert on international
financing and came to Bucharest to provide advice on Eurobonds,
taught her step-by-step how to issue an international bond.  She also
credited the resident advisor with helping build a communication
bridge between the Central Bank and the Ministry of Finance, a
relationship that had not before been strong but is crucial since
both play a role in the issuance of government securities.  She
emphasized that reforms in government debt issuance benefited
extensively from having the resident advisor located in the Ministry
and available to answer questions and provide advice as needed. 


--------------------
\3 A primary market is made up of a group of banks or other financial
institutions that purchase the securities issued by the government. 
A secondary market has mechanisms that facilitate trade of securities
between all holders of the securities. 

\4 The Eurobond market refers to bonds sold in Europe denominated in
a currency other than the national currency of the issuer. 


         LAW ENFORCEMENT
-------------------------------------------------------- Letter :3.2.4

During 1998, temporary advisors were helping reform the Romanian bank
fraud enforcement efforts of the General Prosecutor's office by
helping coordinate their activities with the work of the Ministry of
Interior.  The advisors created workshops for reviewing cases and
focusing on issues of evidence and the use of technology.  The Deputy
Director in the General Prosecutor's office said that many of the
bank fraud cases were hard to prosecute, since the prosecutors had
little experience in such cases.  He also said that the workshops
held by the Treasury advisors helped the prosecutors and
investigators understand the complexities of each other's work and
would enable them to more effectively handle cases. 


         FINANCIAL INSTITUTIONS
-------------------------------------------------------- Letter :3.2.5

At the time of our review, the Treasury's financial institutions
advisory program was suspended in Romania.  A previous resident
financial institutions advisor in Romania helped provide technical
advice on the privatization of one of the state banks.  However,
after 2 years of effort, the Romanian government was not ready to
undertake privatization of the bank to which he was assigned.  For
example, he advised the bank to increase its capitalization and
dilute government ownership by selling some bank shares to private
investors.  The bank did issue certificates of deposit but chose to
sell most of its bank shares to other government entities instead of
the private sector.  The advisor indicated that there did not seem to
be a firm commitment by host-government officials to privatization
and that some officials were not willing to accept his advice. 

A second financial institutions advisor was sent to Romania from
September 1995 to mid-1996 and was involved in assisting in the
privatization of other state banks and reviewing drafts of a bank
privatization law.  The Romanian government showed little interest in
privatizing its state banks, so OTA officials told us they suspended
the financial institutions program in Romania.  OTA indicated that
the Treasury may attempt to send another advisor if OTA is convinced
that the government of Romania shows greater commitment to
privatizing its state banks. 


   OTA OVERSIGHT OF THE PROGRAM
------------------------------------------------------------ Letter :4

The advisor program has been carried out with little formal
structure.  OTA has few written policies and procedures specifying
oversight requirements.  Advisors generally filed monthly reports as
required, but the contents of the reports varied in the level of
detail on program progress.  We noted that other documents that OTA
officials told us they used for program oversight, such as country
agreements, work plans, and reports of supervisor visits, were not
available.  For example, initially we requested copies of documents
used for oversight for a sample of five countries.  OTA told us it
would have difficulty in assembling these documents in a timely
manner, and we narrowed our request to two countries--Russia and
Romania.  After 4 months, OTA notified us that it could not locate a
significant number of the documents we requested.  OTA's oversight of
its advisor financial disclosure reporting requirements was also lax. 
OTA officials told us they frequently used informal means, such as
electronic mail and telephonic communication, to oversee the work of
resident advisors. 


      RESIDENT ADVISOR REPORTING
---------------------------------------------------------- Letter :4.1

OTA's Employee Handbook issued in March 1997 requires that monthly
reports from all full-time employees stationed abroad include project
highlights and project accomplishments for each objective in the
advisor's work plan.  OTA associate directors told us that these
reports are used as the principal means for monitoring the resident
advisors' activities.  Although we identified one advisor who failed
to file 12 monthly reports, advisors had filed most of the required
reports.  However, the content of the reports varied.  In some cases,
reports included detailed discussions that linked the advisor's work
to the objectives and strategies described in the work plans, when
one was completed, and outlined progress made to date along with
timetables for ongoing and future work.  In contrast, other reports
were brief statements of the status of work without reference to the
work plan and frequently repeated verbatim the prior month's
reporting.  For example, one advisor's report consisted of nine lines
that outlined in very general terms what he did that month. 


      HOST-COUNTRY AGREEMENTS
---------------------------------------------------------- Letter :4.2

The Deputy Assistant Secretary for Technical Assistance Policy told
us formal agreements\5 setting forth the understanding between the
Treasury and the host government on the specific technical assistance
that will be provided were to be prepared for each advisor.  He said
the formalization of these agreements is needed to ensure that the
host government is committed to working with the advisor and willing
to accept advice.  However, we found few resident advisors in Russia
and Romania had signed letters of agreement with their host
government.  We could not locate signed host-government agreements
for 15 of the 19 resident advisors that have been assigned to Russia
and Romania since 1992. 


--------------------
\5 Also called "terms of reference."


      RESIDENT ADVISOR WORK PLANS
---------------------------------------------------------- Letter :4.3

OTA officials told us that resident advisor work plans were to be
prepared by each advisor.  In some cases, the requirement to do work
plans was included in the advisor contract.  OTA officials said the
plans are an important element in overseeing their activities.  The
work plan serves to (1) lay out the objectives and strategies of what
the Treasury intends to accomplish, (2) specify how advisors will
accomplish these objectives and strategies, and (3) provide a means
to hold advisors accountable for their work.  OTA could not locate
work plans for 13 of 19 advisors assigned to Russia and Romania since
1992. 


      SUPERVISORY REPORTING
---------------------------------------------------------- Letter :4.4

According to OTA officials, supervisory officials, such as senior
advisors and associate directors, are also expected to prepare
written reports on program progress and accomplishments and the
status of resident advisors' activities.  In particular, supervisors
were expected to file written trip reports whenever they visited the
resident advisors.  We found that supervisory officials were not
consistently reporting on their work to senior management. 

Supervisory reports were prepared for only 9 of 33 trips to Russia
and/or Romania over a 2-year period covering May 1996 to May 1998. 
One senior advisor did not file any reports over a 16-month period
during which he made 13 supervisory trips to countries under his
responsibility.  Further, the content of the available reports did
not always parallel the stated purposes of the trips, and few reports
discussed progress being made by resident advisors.  For example,
only two of the nine reports commented in detail on a resident
advisor's work. 


      RATIONALE FOR CURRENT
      OVERSIGHT APPROACH
---------------------------------------------------------- Letter :4.5

According to the former OTA Director, the absence of documentation on
country agreements, advisor work plans, and supervisory reports did
not adversely affect program oversight.  He believed that information
on program activities was communicated to the right people and that
senior OTA officials were kept abreast of program status through
telephone conversations, electronic messages, and twice yearly,
programwide conferences.  He also noted that OTA had not established
a structured approach to oversight requirements because the program
was relatively small.  He indicated that with the pending expansion
of the program, OTA should consider establishing more written
policies and procedures outlining these requirements. 


      GUIDANCE DOCUMENTS ARE
      AVAILABLE
---------------------------------------------------------- Letter :4.6

Determining how much formal structure is necessary to assure
accountability for funds is not easy.  The Office of Management and
Budget (OMB) and our guide on internal controls\6 provide some
guidance.  According to these documents, written policies and
procedures, manuals, and other related materials are necessary to
describe and communicate the responsibilities and authorities of
management and staff, organizational structure, operating procedures,
and administrative practices.  It is not clear whether OTA's current
approach is consistent with these basic guidelines. 


--------------------
\6 See OMB Circular A-123 and Accounting Series:  Standards for
Internal Controls in the Federal Government (Washington, D.C.:  GAO,
1983). 


      OVERSIGHT OF FINANCIAL
      DISCLOSURE COMPLIANCE HAS
      BEEN LAX
---------------------------------------------------------- Letter :4.7

OTA requires most of its advisors to file annual financial disclosure
reports by October 31\7 of each year, detailing their financial
interests.\8 The reports are used to help determine whether a
potential conflict of interest exists, since advisors may be in a
position to render advice in an area where they may have a financial
interest.  OTA management is required to review the statements for
potential conflicts of interest within 60 days of filing and, if
necessary, resolve conflicts.  For 1997, OTA extended the filing
deadline until November 30, because some advisors had received their
filing paperwork late. 

OTA has not enforced compliance with these requirements.  For 1997,
we found that only 18 of 73 advisors had filed statements by the
extended deadline.  In response to our questions on this issue, on
March 10 and April 2, 1998, OTA sent memos to the advisors who had
not filed reports and requested that the advisors comply with office
requirements.  Eventually, an additional 40 reports were filed.  To
improve OTA oversight, the Treasury's Deputy Assistant General
Counsel said that her office held a training session for OTA in April
1998 on the rules and regulations of federal financial disclosure
procedures. 


--------------------
\7 Governing regulations for filing and reviewing financial
disclosure reports are contained in 5 C.F.R.  2634.  We did not
include advisors compensated above the government service (GS) 15,
step 10, level in our analysis.  These advisors had different filing
requirements. 

\8 Prior to the award of each personal services contract, each
prospective personal services contract advisor submits a financial
disclosure report that is reviewed by representatives of the
Department of the Treasury, the Office of Procurement, and the Office
of General Counsel for potential conflicts of interest. 


   CONCLUSIONS AND RECOMMENDATION
------------------------------------------------------------ Letter :5

Treasury advisors in Romania and Russia have provided advice on a
variety of economic reform efforts.  The nature of advice being
provided has varied from addressing broad policy and operational
issues to handling discrete projects such as devising economic
forecasting models.  Host-government officials told us they found the
Treasury advice to be beneficial. 

OTA has largely relied upon informal mechanisms to maintain program
oversight.  However, as OTA expands its assistance to other
countries, we believe it should develop a more formal set of policies
and procedures for conducting program oversight.  It also needs to
enforce these requirements.  Although we did not identify an adverse
effect from the current oversight approach exercised by OTA, we
believe that a more structured approach to program oversight and
accountability, particularly in light of the program's pending
expansion, is needed to provide reasonable assurance that the
government interest is protected and to provide an institutional
memory that could be the basis for future programmatic decisions. 
Thus, we recommend that the Secretary of the Treasury establish
formal requirements and procedures that clearly state advisor
responsibilities, and take steps to ensure compliance with these
requirements. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

In its written comments, the Department of the Treasury agreed with
the thrust of this report and cited several actions that will be
considered to improve program oversight.  The Treasury did, however,
raise concerns about the methodology we used to compare our advisor
costs to USAID's advisor costs.  The Treasury cited a State
Department Office of the Inspector General report that concluded that
the costs were similar and questioned whether certain OTA costs were
appropriately included in our analysis.  The Treasury also expressed
concern that our draft report did not sufficiently capture its
financial disclosure report practices. 

We believe that our analysis of Treasury and USAID advisor costs is
fair and that the cost elements that we weighed are appropriate.  We
have added additional information clarifying our methodology.  We
have also added information regarding the process the Treasury uses
to address potential conflicts of interest beyond the annual
financial disclosure statements that we analyzed (see app.  V for the
Treasury's comments and our response to them). 


---------------------------------------------------------- Letter :6.1

We are providing copies of this report to the Chairman and Ranking
Minority Members of the House and Senate Committees on
Appropriations, the Senate Committee on Foreign Relations, and the
Ranking Minority Member of the House Committee on International
Relations.  We are also sending copies to interested congressional
committees and to the Secretaries of the Treasury and State; the
Administrator, U.S.  Agency for International Development; and the
Director, Office of Management and Budget.  Copies will be made
available to others upon request. 

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

Benjamin F.  Nelson
Director, International Relations
 and Trade Issues


TREASURY ADVISOR QUALIFICATIONS
=========================================================== Appendix I

The Treasury's Office of Technical Assistance (OTA) requires general
personnel qualifications for the advisors in its program.  These
advisor qualifications include a combination of expertise in one of
five program areas (tax policy and administration; financial
institutions, policy, and regulation; budget policy, formulation, and
execution; government debt issuance and management; and law
enforcement), significant prior senior-level experience, and relevant
educational backgrounds.  Additionally, foreign language expertise
and prior overseas work experience were indicated as desirable.  To
determine whether the advisors appear to have the indicated job
qualifications, we reviewed the advisors' application information\1
and a sample of 24 job advertisements.  We attempted to compare the
application material presented by the applicants in U.S.  government
Standard Form 171, Optional Form 612, or resumï¿½s to the
qualifications listed in the job announcement.  Since the Treasury
did not retain copies of all of the advertisements it used, we were
not able to match specific applications with the specific
advertisements that the applicants were answering.  However, an OTA
official said that the advertisements were generally the same. 

Our analysis shows that the advisors have an average of 19 years of
experience in their field; have held positions of responsibility such
as Deputy Assistant Commissioner of the Internal Revenue Service,
bank senior vice president, and chief financial officer; 32, or 70
percent, have graduate degrees; 11, or 24 percent, have some
knowledge of a regional language; and 16, or 35 percent, have prior
overseas experience. 


--------------------
\1 We selected all senior advisors who served in the program from its
inception and resident advisors who were in the program as of
November 1, 1997, for our analysis.  The majority, or about 83
percent, of the Treasury Department's 46 resident and senior advisors
were hired as personal services contractors for a year assignment
that is renewable for additional years.  About 17 percent of the
advisors were U.S.  government employees on loan from other agencies
or Departments, and about 20 percent have worked for the U.S.  Agency
for International Development (USAID) or its contractors in the past. 


COSTS FOR TREASURY AND U.S. 
AGENCY FOR INTERNATIONAL
DEVELOPMENT PROGRAM ADVISORS IN
RUSSIA AND UKRAINE
========================================================== Appendix II

The average cost for an OTA advisor in Russia and Ukraine is higher
than that of the USAID program.\1 Some of the reasons for this are
that OTA's program costs have included higher wages and greater use
of short-term advisors.  In comparing the cost of the Treasury's
Office of Technical Assistance and USAID advisors, we selected Russia
and Ukraine as countries for comparison because both the Treasury and
USAID\2 have similar technical assistance programs in the countries,
about 60 percent of the resident advisors working in the former
Soviet Union in
fiscal year 1997 were posted to these countries, and the two
countries account for about 30 percent of the total program costs in
the former Soviet Union funded by the Treasury that year. 

To determine the average cost per OTA advisor, we obtained the
Treasury's financial reports and advisor cost data for fiscal years
1995-97.  We obtained cost data for a USAID contractor that performs
similar activities in Russia and Ukraine to calculate USAID's average
advisor costs.  For OTA and USAID we compared

  -- wages paid to advisors overseas, including salary and benefits,
     housing, post allowances, and post differential;

  -- support costs for the advisors, including office rent and
     utilities, administrative support in the field such as
     local-hire staff salaries and benefits, travel, and
     transportation; we included the program management and
     administrative costs of OTA\3 and the USAID contractor
     responsible for the USAID program; and

  -- short-term advisor costs, including salary and travel expenses
     for expert assistance on an as-needed basis. 

We used average advisor cost as a unit of measurement, because the
Department of the Treasury requests funds for the entire OTA program
on a per-resident-advisor basis.  We note that cost for support of
the advisors is the largest cost element in our analysis of cost per
advisor. 


--------------------
\1 In calculating the average advisor cost, there are certain
limitations to the cost calculation that should be recognized, such
as variations between programs developed by the two agencies and
differences in a given program from one year to another.  These
differences include varying numbers of advisors, both resident and
short term, and their varying wage and support costs. 

\2 OTA employs personal services contractors and U.S.  government
employees as resident advisors on an individual basis overseas. 
These advisors typically give advice directly to host-government
officials and are assisted by local-hire staff and short-term and
regional advisors.  OTA's overseas logistical support is provided by
a contractor.  USAID uses a contractor to provide technical
assistance to Russia and Ukraine.  The contractor is responsible for
establishing a team of U.S.  and foreign national specialists to
provide technical assistance to host governments and also for
supplying all administrative support for the contract. 

\3 OTA's operations office in Washington provides operational and
administrative support for financial and travel services,
recruitment, and procurement.  As of September 1998, OTA had a staff
of 35, consisting of an Office Director, Deputy Director, Associate
Director for Operations; 4 program associate directors; staff
assigned to specific program areas; and administrative staff.  A
private contractor provides administrative and logistical support
overseas. 


   AVERAGE COST OF PROGRAMS IN
   RUSSIA
-------------------------------------------------------- Appendix II:1

The average cost per OTA advisor in Russia for fiscal years 1995-97
was $567,000, and the average cost per USAID advisor in Russia was
$453,000.\4 The major cost differences between the two programs were
due to wages\5 and the use of short-term advisors.  For the 3-year
period, OTA paid its advisors an average of $184,300 in wages
compared to $153,500 paid by the USAID contractor.  OTA officials
told us that they employ senior government and high-level officials
from the private sector who are eligible\6 for higher salaries.  In
addition, OTA relied more on short-term advisors for technical
assistance than did the USAID contractor.  OTA spent an average of
$91,400 for short-term advisor assistance during the 3 fiscal years,
compared to $30,000 for USAID. 

We note that the average advisor costs sometimes can provide a skewed
indication of the actual costs of a program.  For example, average
advisor costs for USAID in Russia for fiscal year 1997 were higher
than the previous 2 fiscal years because as the USAID program was
ending, although the number of resident advisors had declined, the
fixed costs associated with support and short-term advisor costs were
averaged over fewer advisors. 

Table II.1 depicts the average costs for OTA and USAID advisors in
Russia for fiscal years 1995-97 and the cost categories. 



                                        Table II.1
                         
                         OTA and USAID Advisor Costs for Russia,
                                   Fiscal Years 1995-97

                                      (1997 dollars)

                                                                       Average
                                                                       cost of
                            Total  Number of    Average    Average      short-   Average
                          program      FTE\a    cost of    cost of        term  cost per
Fiscal      Agency           cost   advisors      wages    support    advisors   advisor
year        ----------  ---------  ---------  ---------  ---------  ----------  --------
1995        OTA         $1,217,30       2.33   $177,000   $245,900     $99,600  $522,400
                                0
            USAID       5,097,700      12.16    168,300    236,600      14,300   419,300
1996        OTA         1,738,600       2.75    179,500    351,900     100,900   632,200
            USAID       4,093,800       9.14    139,700    271,500      36,600   447,800
1997        OTA         2,096,300       3.83    192,200    275,500      79,700   547,300
            USAID       2,590,000       4.71    141,700    350,800      57,600   550,100
Average     OTA         1,684,000       2.97    184,300    291,300      91,400   567,000
FY 95-97    USAID       3,927,200       8.67    153,500    269,500      30,000   453,000
----------------------------------------------------------------------------------------
Legend

FY = fiscal year

Notes:

1.  Totals may not add due to rounding.

2.  We used full-time equivalent (FTE) to account for staff not
assigned for a full year.  Average cost per advisor is a weighted
average. 

\a FTE is equivalent to one staff year. 

Source:  OTA and USAID-contractor cost data. 


--------------------
\4 All costs are in 1997 dollars to account for inflation.  Average
costs per advisor for fiscal years 1995-97 are weighted averages. 

\5 Includes housing allowance. 

\6 OTA pays advisors up to government service grade (GS) 15, step 10,
of the government pay scale.  However, OTA has authority to seek
waivers to pay higher salaries when the applicant's prior salary
history indicates that he or she was paid above the GS-15, step 10,
level.  As of February 1998, 51 percent (20 of 39) of OTA's resident
advisors were paid above the GS-15, step 10, level. 


   AVERAGE COST OF PROGRAMS IN
   UKRAINE
-------------------------------------------------------- Appendix II:2

The average cost per OTA advisor in Ukraine for fiscal years 1995-97
was $448,700, and the average cost per USAID advisor in Ukraine was
$397,200.  The major cost differences between the two programs were
due to wages and the use of short-term advisors. 

For the 3-year period, OTA paid its advisors an average of $142,500
in wages, compared to $125,500 paid by the USAID contractor.  Again,
the higher salaries were based on the advisor's prior salary.  As in
Russia, OTA relied more on short-term technical assistance than did
the USAID contractor.  OTA spent an average of $89,800 for short-term
assistance during the 3 years, as compared to $33,400 for USAID. 

Table II.2 depicts the average costs for OTA and USAID advisors in
Ukraine for fiscal years 1995-97 and the cost categories. 



                                        Table II.2
                         
                         OTA and USAID Advisor Costs for Ukraine,
                                   Fiscal Years 1995-97

                                      (1997 dollars)

                                                                       Average
                                                                       cost of
                            Total  Number of    Average    Average      short-    Average
                          program     FTE\a\    cost of    cost of        term   cost per
Fiscal      Agency           cost   advisors      wages    support    advisors    advisor
year        ----------  ---------  ---------  ---------  ---------  ----------  ---------
1995        OTA         $ 537,900       1.25   $142,300   $188,500     $99,600   $430,300
            USAID       1,465,300       3.57    138,300    238,800      33,000    410,000
1996        OTA           851,800       1.92    133,800    209,000     100,900    443,700
            USAID       1,120,900       2.83    134,400    232,900      29,100    396,400
1997        OTA         1,527,000       3.33    147,600    231,300      79,700    458,600
            USAID         892,000       2.35     95,200    244,500      39,100    378,900
Average     OTA           972,200       2.17    142,500    216,500      89,800    448,700
FY 95-97    USAID       1,159,400       2.92    125,500    238,400      33,400    397,200
-----------------------------------------------------------------------------------------
Legend

FY = fiscal year

Notes:

1.  Totals may not add due to rounding.

2.  We used full-time equivalent (FTE) to account for staff not
assigned for a full year.  Average cost per advisor is a weighted
average. 

\a FTE is equivalent to one staff year. 

Source:  OTA and USAID-contractor cost data. 


USAID TRANSFER OF FUNDS TO THE
TREASURY
========================================================= Appendix III

The Treasury does not receive direct appropriations for the foreign
assistance activities of its technical assistance program to Central
Europe and the former Soviet Union.  Rather, USAID transfers funds
appropriated under the Foreign Assistance Act of 1961, as amended
(P.L.  87-195), to the Treasury.  USAID transfers the funds by
agreements authorized under section 632 (a) or 632 (b) of the act. 
Responsibility for program monitoring and evaluation is linked to the
method used by USAID to transfer the funds. 

When USAID transfers funds under 632 (a), the transfer agreements are
brief documents that do not obligate funds.  Instead, these
agreements are simply an allocation of funds from USAID to the
Treasury for use in activities under the Treasury's funding
obligation process.  USAID has minimal responsibility for approving
these activities, and program monitoring and evaluation are the
responsibility of the Treasury. 

When USAID transfers funds to the Treasury under 632 (b), USAID
essentially retains control over how the funds are used and accounted
for.  Under a 632 (b) transfer, USAID and the Treasury negotiate and
agree upon how the funds will be used, and the transfer agreement
includes a requirement that the Treasury follow USAID's procurement
and reporting rules.  The funds are obligated by USAID, which is
responsible for program monitoring and evaluation. 

The Treasury has received funds from USAID since fiscal year 1990 for
its technical assistance program in Central Europe and since fiscal
year 1992 for its program in the former Soviet Union.  During fiscal
years 1991 and 1992, USAID's transfers for Central Europe and the
former Soviet Union were made primarily under 632 (a) authority. 
During fiscal years 1993-96, the transfers took place primarily under
632 (b) authority.  In 1996, the State Department Coordinator of
assistance to the former Soviet Union directed USAID to switch most
funding authority from 632 (b) to 632 (a).  The decision was made,
according to the Coordinator, because disputes about money and
policies between USAID and the Treasury were delaying program
implementation.  The Coordinator of assistance to Central Europe said
he directed USAID to switch funding authority from 632 (b) to 632 (a)
in 1997 after USAID said it could no longer provide adequate
monitoring of 632 (b) programs, given USAID's downsizing over the
past several years. 


LOCATION AND COST OF ADVISORS IN
PARIS AND LONDON
========================================================== Appendix IV

From July 1991 to September 1997, the Treasury's senior advisors\1
for the tax team were based in Paris, and from November 1994 to
September 1997, the senior advisor for the financial institutions
team was based in London.  This appendix discusses the basis and
costs of placing these advisors in those locations. 

In 1991, the Treasury identified Paris as the best location for its
senior advisor for tax since it offered good communications and
transportation links.  It also provided the advantage of on-site
coordination with the Organization for Economic Cooperation and
Development, which was active in providing tax training for
government officials from Central Europe.  In 1994, the Treasury
decided to post a senior advisor for the financial institutions
program in London because it also provided for better transportation
links and an opportunity for on-site coordination with the European
Bank for Reconstruction and Development that planned to work on bank
privatization.  Also, in 1994, the Treasury based its newly assigned
senior advisor for the government debt issuance area in Budapest,
Hungary.  The senior advisor for the budget area was likewise placed
in Budapest in 1995.  In 1997, the senior advisors for tax and
financial institutions closed their Paris and London offices, and all
senior Treasury advisors were consolidated in Budapest. 

Expenditure data provided by the Treasury\2 showed the average annual
support costs of basing the senior advisor in Paris from fiscal year
1992 to 1997 were $103,796 in 1997 dollars.  These costs included
housing, travel, and office support.  They did not include
compensation and benefits nor overall program management costs, since
these costs are the same regardless of location.  Comparable costs
for the advisor in London from fiscal year 1995 to 1997 were
$137,675.  According to a Treasury official, these costs were lower
than anticipated because in Paris the advisors lived in embassy
housing, and in both Paris and London the embassies provided
logistical support. 



(See figure in printed edition.)Appendix V

--------------------
\1 Senior advisors are responsible for supervising the work of the
resident advisors through supervisory visits, reports, and
telecommunications. 

\2 To determine the average location-dependent cost per year to base
an advisor in Paris and London, we obtained the Treasury's advisor
cost data for fiscal year 1991-97. 


COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of the Treasury's
letter dated February 5, 1999. 

GAO'S COMMENTS

1.  The primary difference between our calculations of advisor costs
and those of the Department of State, Office of the Inspector General
(OIG), is that we included the cost of short-term advisors, while the
OIG's review did not.  We included the short-term advisor costs
because they represent a key component of the Treasury program.  We
discussed our methodology with OTA management and staff on several
occasions and have clarified our presentation of the methodology in
the body of the report. 

2.  Our review focused on the annual OTA requirement to review the
financial disclosure statements of its advisors.  We have clarified
the report to include additional information on the other financial
disclosure requirements that apply when advisors are hired. 

3.  Our report is not intended to imply that the Terms of Reference
should be considered a principal measure of an advisor's utility in a
particular country.  Department of the Treasury officials told us the
Terms of Reference are intended to ensure that the United States and
a recipient country have a formal understanding on the advisor's role
and that the recipient government is committed to working with the
advisor.  As we point out in the report, the Terms of Reference were
not available for 15 of the 19 advisors assigned to Russia and
Romania since 1992.  While we understand that it may not be possible
to always have signed Terms of Reference for all countries, we
believe that the Treasury should strive to establish such formal
agreement to the maximum extent possible. 

4.  The report text has been modified to reflect this information. 


OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix VI

At the request of the Chairman of the House Committee on
International Relations and the Chairman of the Committee's
Subcommittee on Asia and the Pacific, we identified the types of
technical assistance the Treasury's program provided to Russia and
Romania and the methods that OTA uses to conduct oversight of its
advisors.  In addition, we provided information on advisor
qualifications, program cost, fund transfers between USAID and the
Treasury, and the location of the Treasury's senior advisors to its
program. 

To identify OTA activities, we reviewed the Department of the
Treasury's and the Department of State's current strategic planning
documents; analyzed program planning and reporting documents;
interviewed Treasury, State, and USAID officials in Washington, D.C.;
and attended the annual Treasury advisors' conference in Budapest in
November 1997, where we interviewed senior, regional, and resident
advisors on their background experience, work in host countries, and
interaction and coordination with other bilateral and multilateral
advisors. 

In completing our review, we examined in detail advisor activities in
Russia and Romania and visited OTA's advisors working in these
countries.  At the time of our fieldwork, programs in Russia and
Romania together represented about one quarter of the Treasury's
resident advisors.  In Moscow, and Bucharest, Romania, we reviewed
program documents such as reports written by the current advisors for
the host-government officials and interviewed all OTA resident
advisors, the International Monetary Fund advisor and/or
representative, USAID contractors, private sector groups such as the
Soros Foundation, and host-government officials at the deputy and
vice minister levels and below at the ministries of finance and tax,
the central banks, the Ministry of Interior and the General
Prosecutor's office in Bucharest, and the Chamber of Accounts in
Moscow.  We discussed the assistance being provided by Treasury
advisors, host-government use of the assistance, and program
achievements. 

To address how OTA conducts program oversight, we interviewed
Treasury officials, senior and resident advisors, and program
officers; reviewed reports on the OTA program by the USAID and
Treasury Inspectors General from 1994 to 1997; a 1998 management
review by the Treasury's Office of Organizational Improvement; and
the Treasury's procedures, strategic planning documents, advisor
reports, and consultants' reports.  We also reviewed OTA's procedures
for reviewing financial disclosure reports as well as OTA advisors'
financial disclosure reports on file with the Treasury. 

To address advisors' qualifications, we surveyed OTA program
managers, interviewed advisors, reviewed personnel records of OTA
advisors, and compared personnel records and qualifications to
position requirements.  We compared the applications of all the
resident advisors in the OTA program as of November 1, 1997, to a
sample of job announcements the Treasury used to advertise the
resident advisor positions. 

To determine the Treasury's program costs and USAID contractor costs,
we selected Russia and Ukraine because the Treasury and USAID have
similar technical assistance programs in the countries, half of the
resident advisors working in the former Soviet Union in fiscal year
1997 are posted to these countries, and the two countries account for
about 30 percent of the total program costs in the former Soviet
Union funded by the Treasury that year.  To determine the average
cost per advisor, we obtained the Treasury's financial reports and
advisor cost data for fiscal years 1995-97 and reviewed average cost
analyses prepared by the Treasury, the State Department's Inspector
General, and USAID.  Further, we interviewed Treasury officials and
reviewed Treasury budget estimates to understand the elements of the
program budget.  We did not independently verify the validity of the
Treasury's data. 

We analyzed USAID contractor cost data to calculate average costs. 
We also discussed our analysis with USAID contractor officials, who
agreed that our analysis accurately depicted USAID costs.  Primarily
because of different contractual arrangements with advisors and
different financial reporting systems, USAID and the Treasury do not
present cost data in the same way or with the same cost categories. 
To present comparable costs in this report, we gathered the various
costs into three broad categories--compensation paid to resident
advisors and contractors overseas, including housing allowances;
support costs for the advisors and contractors; and the cost of
employing short-term advisors to assist the resident advisors and
contractors. 

To address the location of the Treasury's senior advisors to its
program in Paris and London, we interviewed Treasury and State
officials and reviewed cost data and documents justifying the
placement of advisors in those capital cities.  To determine the cost
of basing senior advisors in Paris and London, we obtained support
costs for these locations since 1991, including housing, travel, and
transportation by senior advisors, and office support.  As agreed to
with our requesters, we did not include compensation and benefits or
program management costs because these costs are constant regardless
of country.  To compare an overall average support cost per advisor
and location, we calculated an average advisor cost for each fiscal
year and in total.  Furthermore, to determine overall average support
costs for each location, we summarized the costs for all years,
divided by the number of years that senior advisors were based at
each location.  Our analysis of costs for Paris was limited to fiscal
years 1992-97 because the initial posting of an advisor was at the
end of fiscal year 1991. 

To address the issue of fund transfers from USAID, we interviewed
Treasury, State, and USAID officials and reviewed prior GAO reports\1
on fund transfers from USAID to other agencies. 

As part of our work, we initially reviewed aspects of OTA's
logistical support contracts.  During the course of this review, we
became aware of an investigation by the Treasury Inspector General of
the contracts and issues surrounding them.  Because of this
investigation, we terminated this aspect of our work and provided
appropriate documents to the Inspector General. 

We performed our work from October 1997 to December 1998 in
accordance with generally accepted government auditing standards. 


--------------------
\1 Former Soviet Union:  An Update on Coordination of U.S. 
Assistance and Economic Cooperation Programs (GAO/NSIAD-96-16, Dec. 
15, 1995) and Former Soviet Union:  U.S.  Bilateral Program Lacks
Effective Coordination (GAO/NSIAD-95-10, Feb.  7, 1995). 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

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

Jess T.  Ford
Ronald A.  Kushner
Maria Z.  Oliver
Bruce L Kutnick
Rona H.  Mendelsohn
Janice V.  Morrison
James M.  Strus


*** End of document. ***