State Department: Progress and Challenges in Addressing Management Issues
(Testimony, 03/08/2000, GAO/T-NSIAD-00-124).

Pursuant to a congressional request, GAO discussed the Department of
State's fiscal year (FY) 2001 budget, focusing on the management
challenges that State faces in improving its operations in four areas.

GAO noted that: (1) State faces several wide-ranging and complex
challenges in managing its vast overseas operations; (2) these
challenges include: (a) improving the security of U.S. personnel and
facilities overseas in a cost-effective and timely manner; (b)
determining the right size and location of the U.S. overseas presence to
improve the efficiency of operations; (c) upgrading information and
financial management systems to further improve communications and
accountability; and (d) improving performance planning to better achieve
mission objectives; (3) State has recognized these challenges and has
devoted substantial resources toward addressing them; (4) following up
on a recommendation of the Crowe reports, State also convened an
Overseas Presence Advisory Panel, which issued a report in November 1999
to the Secretary of State, calling for substantial changes in the size,
composition, and management of the U.S. overseas presence; (5) it
concluded that the U.S. presence has not adequately adjusted to the new
economic, political, and technical landscape; (6) in GAO's report issued
March 8, GAO concluded that State has made progress in implementing
certain emergency security upgrades, but cost estimates to complete
major upgrades could exceed the Department's initial estimates by about
$800 million, and will not be completed as quickly as it had hoped, due
to increasing security requirements; (7) State also faces continuing
challenges in working with U.S. agencies operating overseas to
standardize information technology capabilities and in correcting its
longstanding weaknesses in financial management systems; (8) investing
in compatible technologies could reduce costs, and improve the
productivity and effectiveness of overseas staff; (9) regarding
financial management, the Department's Office of Inspector General
reported in September 1999 that State's financial systems did not comply
with certain requirements, including some provisions of the Federal
Financial Management Improvement Act of 1996; (10) in GAO's view, State
needs to continue to make improvements in its financial management
systems to provide managers with information they need to operate in a
more business-like fashion and make better cost-based decisions; and
(11) moreover, while State has made some progress in implementing
requirements under the Government Performance and Results Act, its FY
2000 annual performance plan did not provide a complete picture of the
agency's intended performance relating to some of its strategic goals.

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

 REPORTNUM:  T-NSIAD-00-124
     TITLE:  State Department: Progress and Challenges in Addressing
	     Management Issues
      DATE:  03/08/2000
   SUBJECT:  Facility security
	     Federal facilities
	     Financial management systems
	     Americans employed abroad
	     Embassies
	     Federal employees
	     Terrorism
	     International relations
	     Cost control
	     Strategic planning
IDENTIFIER:  Nairobi (Kenya)
	     Dar es Salaam (Tanzania)
	     Kampala (Uganda)
	     Zagreb (Croatia)
	     Doha (Qatar)
	     Rio de Janeiro (Brazil)
	     Sao Paulo (Brazil)

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO/T-NSIAD-00-124

Before the Subcommittee on International Operations, Committee on Foreign
Relations, U.S. Senate

For Release on Delivery
Expected at10:30 a.m.,
Wednesday,
March 8, 2000

STATE DEPARTMENT

Progress and Challenges in Addressing Management Issues

Statement of Benjamin F. Nelson, Director, International Relations and Trade
Issues, National Security and International Affairs Division

GAO/T-NSIAD-00-124

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to participate in the Subcommittee's
deliberations on the Department of State's fiscal year 2001 budget. The
Department is the principal agency for advancing and protecting U.S.
interests overseas. The Department maintains a worldwide network of
operations at over 250 overseas locations to support its mission and that of
about 35 other U.S. agencies that operate overseas. A substantial amount of
State's $3 billion annual budget for the administration of foreign affairs
is spent supporting these operations. These business-type operations range
from providing security for over 50,000 State and other U.S. agencies
personnel to locating suitable housing for American employees and their
dependents.

In recent years, we have done a significant amount of work examining the way
State carries out its management and business-related operations--including
our report being issued today on State's progress on immediate security
upgrades in the wake of the bombings of the U.S. embassies in Africa. A list
of our other relevant reports is attached to the end of my statement. My
testimony will focus on the management challenges that State faces in
improving its operations in four key areas.

SUMMARY

The State Department faces several wide-ranging and complex challenges in
managing its vast overseas operations. These challenges include

   * improving the security of U.S. personnel and facilities overseas in a
     cost-effective and timely manner,

   * determining the right size and location of the U.S. overseas presence
     to improve the efficiency of operations,

   * upgrading information and financial management systems to further
     improve communications and accountability, and

   * improving performance planning to better achieve mission objectives.

State has recognized these challenges and has devoted substantial resources
toward addressing them. For example, in the aftermath of the bombings of two
U.S. embassies in Africa in 1998, State, using about $1.5 billion in
emergency supplemental funds, has started to upgrade security at all of its
overseas posts and has begun a major program to build new facilities that
fully meet higher security standards. Following up on a recommendation of
the Crowe reports, State also convened an Overseas Presence Advisory Panel,
which issued a report in November 1999 to the Secretary of State, calling
for substantial changes in the size, composition, and management of the U.S.
overseas presence. It concluded that the U.S. presence has not adequately
adjusted to the new economic, political, and technological landscape.
Further, the panel concluded that a 10 percent reduction in the size of the
overseas posts could generate government savings of $380 million annually.
State has established an interdepartmental "right-sizing" committee to
respond to the panel's recommendations. Furthermore, consistent with our
recommendations, State has made many improvements to its information and
financial management systems. It was able to successfully meet Y2K
challenges and received unqualified opinions on its financial management
statements for fiscal years 1997 and 1998. Further, State's performance
plans continue to show improvements in establishing results-oriented goals
and quantifiable performance measures.

State has made progress in addressing the four areas, but challenges remain.

   * In our report issued today, we conclude that State has made progress in
     implementing certain emergency security upgrades, but current cost
     estimates to complete major upgrades could exceed the Department's
     initial estimates by about $800 million, and will not be completed as
     quickly as it had hoped, due to increasing security requirements.
   * Although State has convened an interdepartmental right-sizing
     committee, it has not yet indicated what actions it may take to address
     the specific recommendations in the Overseas Presence Advisory Panel's
     report. The panel's findings are consistent with our observations from
     our work in recent years. We have recommended that State reexamine the
     way overseas administrative functions, such as relocating employees are
     carried out. From our work, we have concluded that State could increase
     the efficiency of its operations by regionalizing certain functions and
     making use of technology and outsourcing. Actions in these areas could
     potentially reduce the U.S. overseas presence.

   * State also faces continuing challenges in working with U.S. agencies
     operating overseas to standardize information technology capabilities
     and in correcting its long-standing weaknesses in financial management
     systems. Investing in compatible technologies could reduce costs, and
     improve the productivity and effectiveness of overseas staff. Regarding
     financial management, the Department's Office of Inspector General
     reported in September 1999 that State's financial systems did not
     comply with certain requirements, including some provisions of the
     Federal Financial Management Improvement Act of 1996. In our view,
     State needs to continue to make improvements in its financial
     management systems to provide managers with the information they need
     to operate in a more business-like fashion and make better cost-based
     decisions.
   * Moreover, while State has made some progress in implementing
     requirements under the Government's Performance and Results Act, its
     fiscal year 2000 annual performance plan did not provide a complete
     picture of the agency's intended performance relating to some of its
     strategic goals. It contained only a limited discussion of the
     strategies and resources the agency needs to achieve its goals. Also,
     the plan did not describe how the Department was going to validate the
     data it would use to measure its performance.

ENHANCING OVERSEAS SECURITY

In light of the known threats of terrorism against the American people and
property overseas by groups opposed to U.S. interests, enhancing the
security of embassies and consulates might well be the most significant
challenge facing the Department of State. The August 1998 bombings of the
U.S. embassies in Nairobi, Kenya, and in Dar es Salaam, Tanzania,
highlighted the security management challenge for the Department of State.
Immediately after the bombings in Africa, State deployed teams to Kenya and
Tanzania to assess the damage firsthand and estimate costs for replacements
and temporary facilities. It also sent teams to over 30 other high-risk
countries to assess the threats and possible options to reduce them. Those
teams, in coordination with State's overseas security officers, chiefs of
missions, and other officials, helped State further define its security
enhancement requirements and estimate the costs for upgrading existing
facilities worldwide. State requested and received about $1.5 billion in
emergency supplemental appropriations from the Congress to improve security
quickly at all posts and to begin relocating its most vulnerable embassies
and consulates.

Using funds from the supplemental, State has reestablished embassy
operations in interim office buildings in Nairobi, Kenya, and in Dar es
Salaam, Tanzania, and has signed a contract for construction of new embassy
compounds. These two embassy compounds are scheduled for completion in 2003
at a cost of about $119 million. Projects to relocate several other
embassies and consulates are also under way including those in Kampala,
Uganda; Zagreb, Croatia; and Doha, Qatar. In addition, State has made
progress in implementing many of its planned security upgrades, including
enhancing vehicle inspection and security guard programs, hiring additional
special agents and other security staff, and instituting a new surveillance
detection program designed to identify hostile surveillance activities and
potential attackers.

According to State's data, major construction upgrades to improve the
security of existing facilities at 119 posts are likely to cost
significantly more than was originally estimated and are behind schedule.
State estimates that the upgrades and electronic equipment installations,
originally funded at $181 million, and take longer to complete than
projected. State notes that these upgrades could potentially cost about $800
million more to complete than originally envisioned due to an increase in
requirements and other factors. State says that to address these additional
requirements, it plans to request additional funds in its fiscal year 2001
and future budgets; realign funds from other projects; stretch the program
over several years; and/or, where possible, use less costly methods to
achieve project objectives. Further, the current cost estimates for the
construction of embassies initiated as part of the emergency supplemental in
Kampala, Zagreb, and Doha are about $122 million, or about $45 million
higher than original estimates, due to increases in staffing and upgrades in
security requirements. As of December 31, 1999, State had obligated $972
million and expended $445 million of the $1.5-billion emergency supplemental
appropriations.

In its fiscal year 2001 budget, the Department of State requested an advance
appropriation of $3.35 billion over 4 years (fiscal years 2002 through 2005)
to replace its highest risk and most vulnerable embassies and consulates.
State did not identify which embassies and consulates will be replaced or
what the estimated project costs are for completion. Because of State's past
problems in implementing capital construction programs, we have been asked
to evaluate whether the Department's planning adequately identifies which
projects are highest priority for replacement, their estimated costs, and
when construction can be completed. We have just begun this effort.

OVERSEAS PRESENCE

Another key issue that the Department faces in its everyday operations is
the sheer number of U.S. employees overseas-which affects security
requirements, operating costs, and efficiency. In recent years, we have
repeatedly raised concerns about the need to reexamine the U.S. overseas
presence in light of the changing political landscape and advances in
technology. In 1996, we reported that State was reluctant to seriously
reexamine its overseas presence and the scope of its activities or to
substantially change its business practices. We encouraged State to expand
its use of regional centers for certain administrative services and explore
greater use of Foreign Service National personnel to reduce staffing costs.
In our 1998 report on overseas housing programs, we noted that some
administrative functions could be performed by the private sector or through
other means that would reduce posts' staffing needs. The security burden is
directly affected by the size of the overseas work force.

We are pleased to note that the Department has moved forward in examining
its overseas presence. Following the bombings in Africa, State appointed a
panel to review overseas operations of the U.S. government. The panel made a
number of recommendations in November 1999 about how to best organize and
manage overseas posts. The panel concluded that the U.S. overseas presence
has not adequately adjusted to the new economic, political, and
technological landscape. Many of these points are consistent with our
observations from prior work on budget, staffing, and related management
issues. The panel recommended that the President establish an interagency
committee to determine the right size and composition of overseas posts. The
panel concluded that reducing the size of overseas posts overall by 10
percent would generate government savings of $380 million annually.

The panel also recommended that State reform its administrative services.
Our prior work identified several actions State could take to streamline
those services and reduce costs, including outsourcing of key housing
functions and one-stop shopping for relocation services. State has attempted
to reengineer its logistics system, focusing on direct ordering from the
supplier and other actions that eliminated unnecessary costs and procedures
in providing needed goods and services. It has also implemented the
International Cooperative Administrative Support Services system to provide
greater transparency to the costs of operations. However, it has not broadly
embraced the concept of cost-based decision-making for many of its
operations, such as overseas housing and relocation. Changes in the way
State carries out its administrative functions could reduce the number of
overseas staff.

IMPROVING INFORMATION

AND FINANCIAL MANAGEMENT SYSTEMS

Recognizing that it relied on inadequate information and financial
management systems and infrastructures that were generally inadequate to
support State's core foreign policy and administrative functions, in 1997,
State developed a 5-year information technology plan to lay out its overall
modernization effort. Our 1998 report on information resource management
questioned State's methodology for making its 1997 estimate that it would
cost $2.7 billion over 5 years to modernize its global information
technology infrastructure. Consistent with our recommendations, State has
improved its information technology planning and investment process and is
revising its modernization cost estimates. Moreover, State reports that it
has fully achieved some of its modernization goals. For example, overseas
posts now have modern computer platforms, the obsolete Wang computer network
has been fully replaced, and its e-mail systems have been consolidated and
upgraded.

Despite these efforts, the Overseas Presence Advisory Panel reported that
U.S. embassies are still equipped with incompatible information technology
systems incapable of even the simplest electronic communications between
agencies. It added that most employees overseas cannot e-mail colleagues in
other agencies even in the same building. The panel recommended that the
Department develop and implement a strategy for standardizing information
and communications networks at all posts while providing all agencies with
the connectivity they require. The panel suggested that a single,
unclassified global communications network to serve all U.S. agencies with
an overseas presence could be built at an estimated cost of $200 million.
The Department's recently completed modernization program overseas,
according to State officials, could provide a common platform at posts for
e-mail and other functions if it is accepted by all agencies at each post.
State has included $17 million in its fiscal year 2001 budget request to
develop and deploy interagency information platforms at about 45 posts
overseas.

Regarding financial management, the Department of State has received an
unqualified audit opinion on its Department-wide financial statements for
fiscal years 1997 and 1998. However, its audit report for fiscal year 1998
issued on September 30, 1999, disclosed that State's financial management
systems were still out of compliance with certain federal accounting
requirements. Principal weaknesses in State's financial and accounting
systems included balances that could not be reconciled, and balances
requiring substantial manual effort to correct. In addition, State did not
meet the OMB's March 1, 2000 requirement to submit fiscal year 1999 audited
financial statements. State officials indicated that they anticipate
obtaining an unqualified audit opinion on its fiscal year 1999 statements.
State has drafted a remediation plan in compliance with the Federal
Financial Management Improvement Act. This plan addresses the actions the
agency believes are necessary to address its internal control weaknesses.

STRENGTHENING STRATEGIC

AND PERFORMANCE PLANNING

As required by the Government Performance and Results Act, State has
prepared strategic and performance plans in recent years. The Act provides a
framework for addressing management challenges and providing greater
accountability of State's programs and operations. In its first strategic
plan for foreign affairs, State formulated foreign policy goals that cover a
wide spectrum of U.S. national interests. Our review of State's performance
plan for fiscal year 2000 found that improvements had been made over the
prior year's plans, including the addition of results-oriented goals,
quantifiable measures, and baselines for many of its performance goals.
However, the plan still had limited usefulness and provided an incomplete
picture of the agency's intended performance for some of its key strategic
goals. For example, State did not provide a full range of objectives,
strategies, external factors, and performance indicators for many of its
goals. Also, its plan did not elaborate on the many cross-cutting issues.
For example, State says it works closely with the U.S. Trade Representative
and the Department of Commerce on specific U.S. government export promotion
efforts without explaining what each agency will do. We will soon review
State's performance plan for 2001 and its first performance report for
fiscal year 1999.

- - - - -

Mr. Chairman and Members of the Subcommittee, this concludes my prepared
statement. I would be happy to answer any questions you may have.

Contacts and Acknowledgements

For questions regarding this testimony, please contact Ben Nelson at (202)
512-4128. Individuals making key contributions to this testimony included
Jess Ford, Diana Glod, Lynn Moore, Edward Kennedy, Jesus Martinez, and Maria
Oliver.RELATED GAO PRODUCTSPRIVATE

OVERSEAS SECURITY AND PRESENCE

State Department: Overseas Emergency Security Program Progressing, but Costs
Are Increasing (GAO/NSIAD-00-83, Mar. 8, 2000).

INFORMATION MANAGEMENT

Department of State IRM: Modernization Program at Risk Absent Full
Implementation of Key Best Practices (GAO/NSIAD-98-242, Sept. 29, 1998).

Year 2000 Computing Crisis: State Department Needs to Make Fundamental
Improvements to Its Year 2000 Program (GAO/AIMD-98-162, Aug. 28, 1998).

Computer Security: Pervasive, Serious Weaknesses Jeopardize State Department
Operations (GAO/AIMD-98-145, May 18, 1998).

FOREIGN AFFAIRS ORGANIZATION AND MANAGEMENT

State Department: Major Management Challenges and Program Risks
(T-NSIAD/AIMD-99-99, Mar. 4, 1999).

Performance and Accountability Series: Major Management Challenges and
Program Risks, Department of State (GAO/OCG-99-12, Jan. 1999).

Foreign Affairs Management: Major Challenges Facing the Department of State
(GAO/T-NSIAD-98-251, Sept. 17, 1998).

International Affairs: Activities of Domestic Agencies (GAO/T-NSIAD-98-174,
June 4, 1998).

International Affairs Budget: Framework for Assessing Relevance, Priority,
and Efficiency (GAO/T-NSIAD-98-18, Oct. 30, 1997).

RELOCATION AND HOUSING

State Department: Options for Reducing Overseas Housing and Furniture Costs
(GAO/NSIAD-98-128, July 31, 1998).

State Department: Using Best Practices to Relocate Employees Could Reduce
Costs and Improve Service (GAO/NSIAD-98-19, Oct. 17, 1997).

STRATEGIC AND PERFORMANCE PLANNING

Observations on Department of State's Fiscal Year 2000 Performance Plan
(NSIAD-

99-183R, July 20, 1999).

The Results Act: Observations on the Department of State's Fiscal Year 1999
Annual Performance Plan (GAO/NSIAD-98-210R, June 17, 1998).

Managing for Results: Agencies' Annual Performance Plans Can Help Address
Strategic Planning Challenges (GAO/GGD-98-44, Jan. 30, 1998).

(711506)

ORDERS BY INTERNET

For information on how to access GAO reports on the INTERNET, send an e-mail
message with "info" in the body to

HYPERLINK mailto:[email protected] [email protected]

or visit GAO's World Wide Web Home Page at

HYPERLINK http://www.gao.gov http://www.gao.gov

TO REPORT FRAUD, WASTE, AND ABUSE

IN FEDERAL PROGRAMS

Contact one:

   * website: HYPERLINK http://www.gao.gov/fraudnet/fraudnet.htm
     http://www.gao.gov/fraudnet/fraudnet.htm

   * e-mail: HYPERLINK mailto:[email protected] [email protected]

   * 1-800-424-5454 (automated answering system)

  
*** End of document. ***