State Department: Progress and Challenges in Managing for Results
(Testimony, 07/19/2000, GAO/T-NSIAD/AIMD-00-254).

Pursuant to a congressional request, GAO discussed the Department of
State's progress in addressing the challenges it faces in its efforts to
achieve a more secure, efficient, and effective network of operations.

GAO noted that: (1) GAO's evaluations showed that although State's
strategic and performance plans had their strong points, they only
partially met the requirements of the 1993 Government Performance and
Results Act; (2) State's strategic plan defined U.S. interests and
clarified U.S. foreign policy goals, and its annual performance plan for
fiscal year 2000 showed improvement over the prior year's plan in
linking strategies and measures to its goals; (3) in light of the
potential for terrorism by groups opposed to U.S. interests, enhancing
the security of embassies and consulates might well be the most
significant challenge facing the State; (4) however, State faces many
challenges to its goals in this area; (5) State has made progress in
implementing certain security upgrades, such as surveillance detection
programs and providing armored vehicles, but because of the scope of the
program, many facilities are awaiting enhancements, including barriers,
walls, and other safeguards; (6) another key challenge for State is to
rightsize its overseas presence; (7) GAO has suggested that State
explore the potential for regionalizing certain functions and making
greater use of technology and outsourcing to achieve efficiencies and
improve performance; (8) State's Overseas Presence Advisory Panel issued
a report calling for changes in the size, composition, and management of
the U.S. overseas presence; (9) in addition to rightsizing, State is
considering options identified by the panel to improve information
technology and management of capital facilities; (10) State has made
many improvements in its information and financial management systems
but faces continuing challenges in working with U.S. agencies operating
overseas to standardize information technology capabilities and to
correct weaknesses in its information security and financial management
systems; (11) State Department was able to successfully meet year 2000
challenges and has received unqualified opinions on its financial
management statements for fiscal years 1997, 1998, and 1999; (12)
however, devising a common technology solution that would permit
electronic communication between agencies overseas and improve the
productivity and effectiveness of overseas staff remains a formidable
task; and (13) GAO's evaluations of State's computer networks and
assessments by the State's Inspector General also point to the continued
need for the State to assess its controls over sensitive information.

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

 REPORTNUM:  T-NSIAD/AIMD-00-254
     TITLE:  State Department: Progress and Challenges in Managing for
	     Results
      DATE:  07/19/2000
   SUBJECT:  Strategic planning
	     International relations
	     Foreign policies
	     Embassies
	     Performance measures
	     Systems compatibility
	     Interagency relations

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GAO/T-NSIAD/AIMD-00-254

I am pleased to be here today to provide an update on the Department of
State's progress in addressing many of the security and other management
challenges raised during a hearing before this Subcommittee last year. These
challenges arise from the Department's responsibility to maintain a network
of operations at over 250 overseas locations to support its mission and that
of about 40 other U.S. agencies that operate overseas and to protect over
50,000 U.S. and foreign national employees at hundreds of overseas
facilities. State spends a substantial amount of its $4.3-billion foreign
affairs administration budget on business-type activities that support its
global operations. These activities provide staff overseas with access to
financial and information services, security, housing, personnel services,
and more. In making decisions on the size and capacity of the support
structure at any particular location, State must consider the views of other
U.S. government agencies including Defense, Commerce, Agriculture, Treasury
and Justice. Since last year's hearing, an independent advisory panel has
examined the U.S. overseas presence and recommended options for streamlining
and rightsizing overseas operations consistent with U.S. foreign policy
priorities and a vastly changing world with new requirements for security,
communications, technology, and service. Many of the panel's recommendations
address concerns that we have raised over the years.

My testimony today will focus on State's progress in addressing the
challenges it faces in its efforts to achieve a more secure, efficient, and
effective network of operations, including its response to the
recommendations from the independent advisory panel. The major challenges
include

   * better utilizing the Government Performance and Results Act process to
     improve strategic and performance planning to better achieve overall
     mission, policy, and operational objectives;
   * improving the security of U.S. personnel and facilities at overseas
     locations in a cost-effective and timely manner;
   * determining the right size and location of the U.S. overseas presence
     to both improve the efficiency of operations and reduce the security
     burden; and
   * upgrading information and financial management systems to further
     improve communications, accountability, and decision-making.

State has indicated that it will need several billions of dollars in capital
construction and other investments over several years to achieve operations
that can effectively support U.S. overseas interests. To successfully meet
many of these challenges, the Department needs to have a clearly articulated
vision, strategy, and congressional commitment to make sure that intended
results are achieved. Let me provide a summary of progress, remaining
challenges, and obstacles in each of the areas I mentioned.

SUMMARY

The leadership team at the Department of State has recognized many of its
critical management challenges and devoted substantial resources to
addressing them. As a result, State has made considerable progress in many
difficult areas but still faces significant obstacles in achieving an
efficient and effective overseas platform to support U.S. interests.

   * Our evaluations showed that although State's strategic and performance
     plans had their strong points, they only partially met the requirements
     of the 1993 Government Performance and Results Act. State's strategic
     plan defined U.S. interests and clarified U.S. foreign policy goals,
     and its annual performance plan for fiscal year 2000 showed improvement
     over the prior year's plan in linking strategies and measures to its
     goals. However, its fiscal year 2000 performance plan also fell short
     in a number of areas. For example, it did not present a complete
     picture of baselines, targets, and measures for some of its strategic
     goals and did not elaborate on how State plans to work with other
     agencies to achieve progress on cross-cutting issues, such as trade
     policy and stopping the flow of illegal narcotics. State recently
     issued its fiscal year 1999 performance report, the first required
     under the Results Act, and its performance plan for fiscal year 2001.
     Both have some of the same weaknesses found in its prior planning
     efforts. The performance report does not adequately demonstrate State's
     level of success in achieving desired outcomes or the way in which
     State's actions actually led to the achievement of desired goals.
     State's performance plan for fiscal year 2001 provides more detail on
     its intended performance compared to prior years' plans but it will be
     difficult to determine the extent tangible results will be achieved
     because of the Department's numerous, scattered targets. State
     recognizes that it needs to continue to strengthen its strategic and
     performance planning as part of its overall effort to improve
     management and address critical challenges.

   * In light of the potential for terrorism 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.
     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,
     started to significantly upgrade security at all of its overseas posts
     and build new facilities that meet higher security standards. However,
     State faces many challenges to its goals in this area. State has made
     progress in implementing certain security upgrades, such as
     surveillance detection programs and providing armored vehicles, but
     because of the scope of the program, many facilities are awaiting
     enhancements, including barriers, walls, and other safeguards. In
     addition, due to an increase in project scope resulting from more
     stringent security requirements and better documentation of what was
     needed at individual posts, State estimates that the emergency upgrades
     may cost hundreds of millions of dollars more than originally
     envisioned and will likely take several years to complete. Moreover,
     State is encountering several obstacles in its effort to construct new
     and more secure embassies and consulates. Some of these hurdles include
     difficulties in purchasing suitable sites for new buildings and gaining
     agreements among agencies on future staffing levels and resulting
     requirements.

   * Another key challenge for State is to rightsize its overseas presence.
     State is in the early stages of examining various options to
     restructuring overseas presence in light of changing needs in the post
     cold war world and advances in technology. We have recommended that
     State reexamine the way it conducts overseas administrative functions,
     such as relocating and housing employees. From our work, we also have
     suggested that State explore the potential for regionalizing certain
     functions and making greater use of technology and outsourcing to
     achieve efficiencies and improve performance. Actions in these areas
     could potentially reduce the U.S. overseas presence. In November 1999,
     the Overseas Presence Advisory Panel convened by State, issued a report
     calling for changes in the size, composition, and management of the
     U.S. overseas presence. Many of the panel's findings are consistent
     with our observations from our work in recent years. State has
     established several committees to consider the panel's recommendations.
     In addition to rightsizing, they are considering options identified by
     the panel to improve information technology and management of capital
     facilities.

   * Consistent with our recommendations, State has made many improvements
     in its information and financial management systems but faces
     continuing challenges in working with U.S. agencies operating overseas
     to standardize information technology capabilities and to correct
     weaknesses in its information security and financial management
     systems. State was able to successfully meet Y2K challenges and has
     received unqualified opinions on its financial management statements
     for fiscal years 1997, 1998, and 1999. However, devising a common
     technology solution that would permit electronic communication between
     agencies overseas and improve the productivity and effectiveness of
     overseas staff remains a formidable task. Our evaluations of State's
     computer networks and assessments by State's Inspector General also
     point to the continued need for State to assess its controls over
     sensitive information. Regarding financial management, the Department's
     Office of Inspector General has reported that State's financial systems
     do not comply with certain federal laws and requirements largely due to
     the overall lack of organization and integration of the Department's
     financial management systems. Improvements in its financial management
     systems, including those required to be in compliance with the Federal
     Financial Management Improvement Act of 1996, would provide managers
     with the more timely information they need to operate in a more
     business-like fashion and make better cost-based decisions.

STRENGTHENING STRATEGIC

AND PERFORMANCE PLANNING

The Government Performance and Results Act provides a framework for
addressing management challenges and increasing accountability for results
in programs and operations. Under the Results Act, agencies are to prepare a
five-year strategic plan that defines their mission, long-term goals, and
strategies to achieve the goals; and an annual performance plan that
communicates performance goals, targets, and measures. The Act also requires
that, beginning this year; agencies prepare an annual performance report
describing actual performance in comparison to stated goals and targets.

As required by the Results Act, State has prepared a strategic plan and
annual performance plans. Our review of State's performance plan for fiscal
year 2000 found that improvements had been made over the prior year's plan,
including the addition of results-oriented goals, quantifiable measures, and
baselines for many of its performance goals. However, while State's foreign
policy goals cover a wide spectrum of U.S. national interests, its plan did
not provide a full range of objectives, strategies, and performance
indicators for all of its 16 strategic goals. To illustrate, one of State's
strategic goals is to open foreign markets to U.S. firms. Within this goal,
State identified two major objectives but elaborated on only one in detail.
In addition, the plan did not describe how State would coordinate with other
agencies contributing to the same or similar results. 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 precisely what each agency will do.

We have analyzed State's performance report for fiscal year 1999 and its
performance plan for fiscal year 2001. We found that it is difficult to
judge how the agency performed or can be expected to perform in some areas.
For example, one of State's outcome goals is to enhance the ability of
American citizens to travel and live abroad securely. Due to data
limitations, State's progress in meeting this outcome is inconclusive. For
example, neither the performance report nor the plan provides performance
information on passport issuance. The report does, however, discuss State's
progress in providing U.S. citizens with information and other services.
Another of State's goals is to reduce international crime and availability
and/or use of illegal drugs. State's performance plan highlights why these
key outcomes are important; however, it does not clearly identify State's
progress towards meeting its goals. State reports on only one of four
measures identified in the plan--international training programs--which
accounts for less than 2 percent of State's international narcotics and law
enforcement budget.

State's performance report addressed most of the agency's major management
challenges in some manner. However, its fiscal year 2001 plan has not
adequately addressed challenges in key areas, including managing information
technology modernization and security, the hiring and training of staff, and
improving financial management systems. Also, as in prior years' plans,
there is no discussion of whether State coordinated with the numerous
partner agencies listed in the plan, how resources will be used to achieve
goals, what data limitations there were, or whether the data used was
validated and verified.

State's fiscal year 2000 plan acknowledged that the process of managing for
results as envisioned by the Results Act is not well entrenched in the
Department. Although improvements are evident in the Department's first
performance report and its latest performance plan, State shares our view
that much more needs to be done to strengthen strategic and performance
planning in the agency. State officials have indicated that the Department
plans to form strategic goal teams to produce a more focused fiscal year
2002 performance plan. State officials also acknowledge that performance
plans need to better address State's major management challenges.
Accordingly, State officials said they plan to amend the fiscal year 2002
plan to make it more comprehensive, particularly in the areas of managing
information technology modernization and security, hiring and training
staff, and improving financial systems.

ENHANCING OVERSEAS SECURITY

The August 1998 bombings of the U.S. embassies in Nairobi, Kenya, and Dar es
Salaam, Tanzania, highlighted the security management challenge of upgrading
and/or replacing most embassies and consulates in a timely and cost
effective manner. 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. In fiscal year 1999, State received
about $1.5 billion in emergency supplemental appropriations from the
Congress to improve security quickly at all posts, build new facilities in
Kenya and Tanzania, and to begin replacing some of its most vulnerable
embassies and consulates.

Using funds from emergency supplemental appropriations, State has
reestablished embassy operations in interim office buildings in Nairobi, and
Dar es Salaam, and has signed a contract for construction of new embassy
compounds at those posts. These two embassy compounds are on schedule 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; Doha, Qatar; and Zagreb, Croatia. The Kampala and Doha
projects are scheduled for completion in 2001 and the Zagreb project in
2003. 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.

Projects involving major construction upgrades to improve the security of
existing facilities at more than 100 posts are likely to cost significantly
more than was originally envisioned by the Department shortly after the
bombings in Africa and are behind schedule. State estimates that the
upgrades and electronic equipment installations, originally funded at $181
million, could potentially cost about $800 million more to complete.
According to State, these potential increases in costs have occurred because
State has conducted more detailed assessments of posts' security enhancement
requirements since the bombings in Africa, and has upgraded its security
standards. State requested $200 million in its fiscal year 2001 budget
request to address these additional requirements. It also may make future
budget requests; realign funds from other projects; stretch the program over
several years; and/or, use less costly methods to achieve project
objectives.

Looking ahead, State has identified over 190 diplomatic or consular
facilities deemed vulnerable to terrorist attack that need to be replaced or
substantially altered. State has prioritized these facilities for
replacement into groups of 20. In 1999, the Crowe accountability report on
the bombings in Africa recommended that State spend about $1 billion
annually for 10 years to replace its most vulnerable facilities. State's
fiscal year 2000 appropriations included $300 million to continue its
embassy replacement program. As of April, State had received additional
congressional approval to construct a new embassy in Tunis, Tunisia, and
acquire or identify sites, and/or further define projects at 12 other posts.

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 continue replacing its highest risk and most vulnerable embassies and
consulates. State has not identified in its budget request which embassies
and consulates will be replaced. Due to the cost increases and schedule
delays in State's prior capital construction programs, we have been asked by
the Senate Foreign Relations Committee to evaluate whether the Department's
plans and strategies adequately identify which projects are highest priority
for replacement, what their estimated costs will be, and when construction
can be completed. We have just begun this effort and will focus on the
project identification and implementation process, potential best practices
that can reduce the amount of time required to construct new facilities
overseas, and the overall program costs.

OVERSEAS PRESENCE

Another key issue that the Department faces in its everyday operations is
managing the sheer number of U.S. employees overseas-which directly affects
security requirements, operating costs, and efficiency. There are
approximately 19,000 Americans and about 37,000 foreign service nationals
and contract employees working at U.S. diplomatic facilities overseas. In
recent years, we have raised concerns about the need to reexamine the U.S.
overseas presence in light of the costs, changing political landscape, and
advances in technology. In 1996, we reported that State needed to 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 American 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 could possibly 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 best to organize and
manage overseas posts, addressing areas such as security, interagency
coordination, information technology, capital needs, and human resources.
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 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
reengineered parts of 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
better allocate costs among agencies and 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.

In March 2000, State announced that an interagency committee had been formed
to look at how to determine the right size and composition of posts
universally and to conduct pilot programs at selected posts. Progress in
addressing right sizing issues faces several challenges, including State's
limited authority and influence over the staffing decisions of other
agencies operating overseas.

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, State
developed a 5-year information technology plan in 1997 which outlined 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 computers, the obsolete Wang computer network has been
fully replaced, and its e-mail systems have been consolidated and upgraded.

Although State has improved its information resource capabilities, there is
not a common platform serving all agencies operating overseas. The Overseas
Presence Advisory 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
business 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 two pilot posts. If the common
platform is proven workable and funded, State believes that it could be
operational worldwide in about 2-1/2 years.

At this point, State is at the early stages of planning for the common
platform initiative--establishing preliminary project milestones, developing
rough cost estimates, and formulating a project plan for upgrading
information technology systems abroad. The plan, which State expects to
complete by August 2000, will define project goals, requirements,
benefits/cost, schedule and approval procedures. Nevertheless, devising a
common technology solution that will meet the collective needs of the
foreign affairs community will be a formidable task. Several thousand
American and foreign nationals employed by about 40 federal agencies located
in 160 countries comprise the foreign affairs community. Moreover, each
agency has a unique mission and its own information systems and obtaining
consensus will be difficult. If the common platform is to move from concept
to reality, State will have to overcome cultural obstacles and get agreement
from platform users on requirements so it can make sound procurement
decisions. Further, it will need to carryout this delicate balancing act
while defining its own technical architecture and continuing to address
pervasive computer security weaknesses.

State relies heavily on its critical information systems and the data
contained within them to support its domestic and overseas operations. Two
years ago, we reported that State's sensitive but unclassified systems were
highly vulnerable to exploitation and unauthorized access. The Department
has worked hard to upgrade and secure its information technology, including
clarifying roles and responsibilities and requiring the use of risk
management by all project managers. However, subsequent computer security
evaluations and assessments of controls over sensitive information continue
to highlight problems with State's information and physical security.
According to State, these vulnerabilities are being addressed. Clearly,
continued oversight is needed to ensure that controls are in place and
operating as intended to reduce risks to sensitive information assets.

Regarding financial management, the Department of State received an
unqualified audit opinion on its Department-wide financial statements for
fiscal years 1997, 1998, and 1999--a significant accomplishment. State has
also closed some of its previously identified material weaknesses, including
worldwide disbursing and cashering. The audit report for the fiscal years
1998 and 1999 statements, however, disclosed that State faces several
longstanding challenges in developing financial management systems that
fully comply with federal requirements. According to State's fiscal year
1999 performance report, it deferred upgrading its financial management
system because of Y2K activities and the consolidation of the foreign
affairs agencies. State is continuing its efforts to improve its financial
management systems. State submitted its proposed remediation plan to the
Office of Management and Budget in March 2000. The plan, required by the
1996 Federal Financial Management Improvement Act, identifies actions the
agency believes are necessary to address its internal control weaknesses and
be in substantial compliance with the Act.

------------

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, and Lynn Moore.

RELATED GAO PRODUCTSPRIVATE

STRATEGIC AND PERFORMANCE PLANNING

Observations on the 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).

OVERSEAS SECURITY AND PRESENCE

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

INFORMATION MANAGEMENT

Foreign Affairs: Effort to Upgrade Information Technology Overseas Faces
Formidable Challenges (GAO/T-AIMD/NSIAD-00-214, June 22, 2000).

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: Progress and Challenges in Addressing Management Issues
(GAO/T-NSIAD-00-124, Mar. 8, 2000).

State Department: Major Management Challenges and Program Risks
(GAO/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).

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

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

(711528)

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