State Department: Major Management Challenges and Program Risks
(Testimony, 03/04/1999, GAO/T-NSIAD/AIMD-99-99).

As the lead agency for the conduct of foreign affairs, the State
Department has enormous responsibilities as it works to shape a more
secure, prosperous, and democratic world. A substantial part of State's
nearly $2.7 billion annual budget for the conduct of foreign affairs
goes for business functions. For example, State has a worldwide network
of operations to maintain its headquarters and overseas posts as well as
provide support for about 35 other U.S. agencies that operate overseas.
State also provides security for thousands of U.S. personnel and
facilities abroad. This testimony, which is based largely on GAO's
performance and accountability series (GAO/OCG-99-12, Jan. 1999),
focuses on the challenges facing State on the business side of its
operations.

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

 REPORTNUM:  T-NSIAD/AIMD-99-99
     TITLE:  State Department: Major Management Challenges and Program
	     Risks
      DATE:  03/04/1999
   SUBJECT:  Facility security
	     Information resources management
	     Risk management
	     Strategic planning
	     Internal controls
	     Financial management systems
	     Americans employed abroad
IDENTIFIER:  Kenya
	     Tanzania
	     Y2K
	     Dept. of State International Cooperative Administrative
	     Support Services System

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GAO/T-NSIAD/AIMD-99-99

United States General Accounting Office

Testimony

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

For Release on Delivery Expected at 2:00 p.m., EST Thursday, March
4, 1999

STATE DEPARTMENT Major Management Challenges and Program Risks

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

GAO/T-NSIAD/AIMD-99-99

Page 1 GAO/T-NSIAD/AIMD-99-99 State Department

Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today to discuss some of the major management challenges and
program risks facing the Department of State. As the lead agency
for the conduct of foreign affairs, State has enormous
responsibilities as it works to shape a more secure, prosperous,
and democratic world. My testimony today will focus on the
challenges faced by the Department on the business side of its
operations. A substantial amount of State's nearly $2.7 billion
annual budget for the administration of foreign affairs is spent
on business functions that support its broad mission. The
Department has a worldwide network of operations to maintain its
headquarters and over 250 overseas posts and to support about 35
other U.S. agencies that operate overseas. State also provides
security for thousands of U.S. personnel and facilities abroad. In
fiscal year 1999, it received $1.45 billion in emergency
supplemental funding for worldwide security enhancements.

My statement is largely based on our recently issued report
entitled Performance and Accountability Series: Major Management
Challenges and Program Risks, Department of State (GAO/OCG-99-12).
I have attached a list of other relevant GAO reports to the end of
my statement.

Summary The major management challenges facing the State
Department are not simple. They cover a wide spectrum of State's
operations and

responsibilities around the world. If these challenges are not
met, they could seriously undermine its ability to function
effectively in the 21 st

century. These challenges include  enhancing the security of U.S.
personnel and facilities overseas,  improving the quality and
capability of information and financial

management systems,  successfully integrating other foreign
affairs agencies into State,  effectively managing the visa
process to reduce the risk of fraud and

abuse, and  modernizing its approach to relocating and housing
employees

overseas. State has recognized these challenges and has put in
place over the last 2 years a new leadership team to address them.
State has devoted resources toward formulating a strategy and
establishing priorities for enhancing overseas security. The
Department has also embarked on an

Page 2 GAO/T-NSIAD/AIMD-99-99 State Department

aggressive approach to addressing its long-standing information
and financial management issues. However, much more needs to be
done to create an effective and efficient platform to facilitate
the conduct of foreign affairs and to protect U.S. employees
overseas. The Department has been reluctant to fundamentally
change the way it does business. The adoption of cost-based
decision-making and use of best practices are critical to State's
dealing with these challenges. Furthermore, the 1993 Government
Performance and Results Act can serve as an important tool to help
State overcome some of the challenges it faces.

Enhancing Overseas Security

The need to adequately protect employees and their families
overseas may very well be the single most important management
challenge currently facing the State Department. The acts of
terrorism in Kenya and Tanzania in August 1998 claimed more than
260 lives and injured thousands. Worldwide, several embassies
found themselves either shut down or unable to provide normal
services because of threatening situations. According to a recent
analysis, over 80 percent of State's embassies and consulates do
not meet the Department's 100-foot setback standard, one of the
major means of reducing vulnerability to terrorist attacks.

Special accountability boards set up to review the circumstances
surrounding the August bombings, headed by retired Admiral William
Crowe, concluded that insufficient levels of resources have been
invested to provide security against terrorist attacks. The
January 1999 Crowe report made several recommendations to enhance
security. These recommendations dealt with a number of issues
concerning among other things, the handling of terrorist attacks
and threats, the size and composition of overseas missions, and
the level of funding for safe buildings and security programs over
the years.

The financial requirements for undertaking security enhancements
will be significant. State has already received $1.45 billion in
emergency funding to rebuild the embassies in Kenya and Tanzania,
relocate other embassies, and improve security for other
facilities serving U.S. personnel worldwide. State reports that it
has completed security surveys of over 200 posts and formulated
six internal working groups to direct and track program
implementation. State is also assessing its longer term security
enhancement needs and estimates that several billion dollars may
be required for additional embassy construction. In the fiscal
year 2000 budget request for the international affairs 150
account, State requested an advance of $3 billion for fiscal years
2001-2005 to replace its highest risk,

Page 3 GAO/T-NSIAD/AIMD-99-99 State Department

most vulnerable embassies and consulates. In that request, State
indicated that posts would receive priority for construction based
on security factors, global situation, and practicality. It did
not, however, address certain key issues, such as whether U.S.
agencies will be collocated.

Our prior work has raised other issues that deserve attention.
These issues concern whether State has the capacity to manage a
major security program and whether the current U.S. overseas
presence needs to be reexamined to determine if new technologies
and regionalization can reduce the number of employees that must
be protected.

Management Capacity In the early 1990s, we reported that State
encountered several management problems in using the $1.47 billion
in funds that were applied to the

diplomatic security construction program after bombings in Beirut.
Our work showed that inadequate staffing, poor program planning,
difficulties in site acquisition, changes in security
requirements, and inadequate contractor performance directly
contributed to significant delays and cost increases in the
majority of State's construction projects. State has since
undertaken a number of efforts to improve its management of the
construction program. These include value engineering and
configuration management programs designed to reduce project
design changes and control costs.

In view of State's prior experiences and difficulties in
implementing the security construction program, several questions
and issues need to be addressed, as follows:

 What action does State need to take to ensure it has the
management capability to implement a large-scale construction
program?  Are there adequate control mechanisms to ensure
efficient and effective

use of emergency funds and any subsequent funding for overseas
security?  Have meaningful performance measures been set to assess
the level of

progress made in meeting security program objectives?

Overseas Presence A key issue that should be considered in
addressing future security requirements is the sheer number of
U.S. employees overseas. The security

burden is directly affected by the size of the overseas workforce.
In our work on overseas staffing issues in the mid-1990s, we noted
that the U.S. government (excluding military operational commands)
employed a total

Page 4 GAO/T-NSIAD/AIMD-99-99 State Department

of nearly 38,000 personnel overseassplit evenly between U.S.
direct hire employees and foreign national employees. An important
trend has been the increase in the number of overseas U.S. direct
hires by the non-foreign affairs agencies. A broad examination of
how the U.S. government carries out its overseas role and related
missions may now be needed in view of the increased security
threats. State, in conjunction with the National Security Council,
needs to work with other agencies operating overseas to examine
their overseas staffing requirements and explore alternatives for
reducing the number of U.S. employees overseas.

I would like to point out that the Crowe report also endorsed the
need to better define the role and functions of embassies abroad,
with a view toward exploiting technologies more fully, improving
their efficiencies, ensuring security, and reducing their overall
cost. It was further recommended that State look specifically at
reducing the number of diplomatic missions by establishing
regional embassies and accrediting ambassadors to several
countries.

Improving Information and Financial Management Systems

State officials have recognized that deficiencies exist in the
Department's information resource management (IRM) operations. The
Department is spending hundreds of millions of dollars each year
on information resource management, including $100 million to $150
million to modernize its information technology (IT) hardware and
software systems, remediate Year 2000 problems, implement a
comprehensive information security program, and upgrade its
overall IT capability. These initiatives have received top-level
management support over the last several months as evidenced by
the appointment of a permanent Chief Information Officer (CIO) and
a deputy CIO for architecture and planning, the creation of a
Deputy CIO position for the Year 2000 issue, and the assignment of
information system security issues to the Deputy CIO for
Operations. Safeguarding State's IT investments will require
sustained management commitment and effective program management
to provide adequate assurance that (1) critical operations and
assets are protected from disruption, loss, and inappropriate
disclosure and (2) the sizable investments in modernization will
lead to effective information systems.

State estimated in 1997 that it would need $2.7 billion over 5
years to upgrade and operate its IT infrastructure. This estimate
was very speculative because not all costs required to complete
the plan were included, such as consular IT operating costs. Also,
some costs had changed, such as added bandwidth requirements and
capital replacement

Page 5 GAO/T-NSIAD/AIMD-99-99 State Department

needs. Furthermore, these plans were developed without the benefit
of full implementation of the planning and investment process
called for by federal guidance. To address these shortcomings, we
recommended that State make the full implementation of an IT
planning and investment process a top priority. This should
include preparing a validated IT architecture to help guide the
modernization, establishing a fully functioning technical review
board, revising State's long-range plans and cost estimates, and
identifying potential cost savings and efficiencies expected from
the modernization effort.

State's CIO has taken a number of steps to implement our
recommendations. For example, the CIO has

 drafted an IRM vision paper that will serve as a basis for
revising the strategic and tactical plans, and related cost
estimates;  finalized a high-level IT architecture;  implemented a
Department-wide capital planning process; and  reconstituted the
technical review board.

Year 2000 Issues State has been slow in addressing Year 2000
issues. In its December 1998 quarterly report, the Office of
Management and Budget (OMB) categorized

State as a tier 1 agency, meaning that State was not making
sufficient progress. Should State fail to adequately address Year
2000 deficiencies, its ability to perform key functions may be at
question, including identifying visa applicants who may pose a
threat to the nation's security.

In August 1998, we reported that if State continued its current
approach, which lacked a mission-based perspective, it would risk
spending time and resources fixing systems that have little
bearing on its overall mission. We recommended that State reassess
its systems using a mission-based approach and ensure that systems
identified as supporting critical business functions receive
priority attention and resources. We also recommended that State
ensure that contingency planning efforts focus on core business
functions and supporting systems and that interfaces with other
entities be identified and corrected. State generally agreed with
these recommendations and has since prioritized its mission-
critical applications and made some progress remediating them.
However, in its February 1999 report to OMB, State indicated that
it will not be able meet the OMB deadline for compliance of four
of its mission-critical systems. In that same report, State also
notes that about one-half of its noncompliant, mission-critical
systems had not been repaired or replaced. Thus far, the

Page 6 GAO/T-NSIAD/AIMD-99-99 State Department

Department's Y2K Certification Panel has certified only 2 of its
59 mission- critical systems as compliant.

Information Security Our 1997 evaluation of State's information
security program showed that it lacked key elements such as
routine assessments of risk, complete written

policies, and procedures for testing system controls. Our tests
showed that State's unclassified but sensitive systems, and the
information contained within them, were vulnerable to unauthorized
access. Also, the Department's December 1997 report on internal
controls cited information system security as a material weakness.
Such vulnerabilities could be exploited by individuals or
organizations seeking to damage State's operations, commit
terrorism, or obtain financial data. We recommended that State
implement a number of corrective measures, including establishing
a central information security unit. State concurred with the
majority of our recommendations and has taken steps to improve
information security. For example, it has established a central IT
security unit and Department-level information systems security
officer, prepared new management guidance on IT security, and
increased IT security awareness activities.

Financial Management Systems

One of State's long-standing shortcomings has been the absence of
an effective financial management system that can assist managers
in making cost-based decisions. Recently, and for the first time,
the Department of State received an unqualified audit opinion on
its Departmentwide financial statements for fiscal year 1997. This
achievement represents a good step forward. It provides the
Department a basis for routinely producing accurate and timely
financial management information essential for effective and
efficient use of federal funds.

State must continue its efforts to strengthen its financial
management system. For example, in the recently issued audit
report on State's fiscal year 1997 financial statements, the
Department's Inspector General disclosed that State's systems were
out of compliance with certain requirements, including some
provisions of the Federal Financial Management Improvement Act of
1996. In addition, State did not meet OMB's March 1, 1999,
requirement to submit fiscal year 1998 audited financial
statements.

In response to the Inspector General's audit findings, State has
indicated that it would study the level of compliance with the
Federal Financial

Page 7 GAO/T-NSIAD/AIMD-99-99 State Department

Management Improvement Act. State will use the results of the
study to prepare a remediation plan as required by the act. The
Department also stated that additional reports and procedures are
being put into place to address the internal control weaknesses
identified during the most recent audit.

To better manage and allocate overseas support costs, State has
also implemented the International Cooperative Administrative
Support Services (ICASS) system. Under ICASS, greater
responsibility and authority for managing resources and making
decisions about administrative support services shared with other
agencies located at diplomatic missions have been delegated to the
overseas posts. The stakes are highinitial ICASS reports indicate
that shared administrative costs are about $640 million annually.
ICASS is now generating new and more reliable cost data; the key
question that remains to be answered is whether State can
effectively use the system to consolidate resources and reduce
overseas support costs.

Successfully Integrating Foreign Affairs Agencies

The long-planned reorganization of the government's foreign
affairs agencies is under way. In April 1997, the White House
announced a plan to put matters of international arms control,
public diplomacy, and other functions within a reinvented State
Department. In October 1998, the Congress authorized the
reorganization, which abolished the U.S. Information Agency (USIA)
and the U.S. Arms Control and Disarmament Agency (ACDA) and
consolidated and integrated those functions into State. The
reorganization is intended to reinvigorate the foreign affairs
functions of the United States within the State Department. About
3,000 employees of ACDA and USIA will be integrated into State.
Potential areas identified for integration among the three
agencies include legal affairs, congressional liaison, press and
public affairs, and management. Central management functions that
are to be integrated include IRM, overseas facilities and
operations, logistics, diplomatic security, financial management,
and human resources.

State has indicated that during the transition, costs would likely
increase because of the need to implement system conversions and
transfers; in the longer term, overall staffing and costs may
decrease. State faces several challenges in achieving the
objectives of this reorganization. One major challenge is the
technological difficulty of uniting the agencies, including
integrating separate electronic mail and computer systems. Overall
issues include whether the reorganization will actually produce
identifiable

Page 8 GAO/T-NSIAD/AIMD-99-99 State Department

efficiencies and improved performance in foreign affairs
programming. As our prior work has indicated, many of the areas
targeted for management consolidation need substantial reform.

Effectively Managing the Visa Process

The Immigration and Naturalization Service (INS) estimated that as
of October 1996, 5 million illegal aliens were residing in the
United States. While not the primary source of illegal
immigration, visa fraud is a significant matter of concern.
State's consular officers at overseas posts are responsible for
providing expeditious visa processing for qualified applicants. At
the same time, they must prevent the entry of those who are a
danger to U.S. security interests or are likely to remain in the
United States illegally. In fiscal year 1997, State processed over
7 million nonimmigrant visas and 640,000 immigrant visas for
foreigners to enter the United States. Visa processing is a
particular problem for some overseas locations where volume and/or
security concerns are high.

State has introduced new technologies, equipment, and controls
designed to improve visa processing and reduce the incidence of
fraud. State notes that progress has been made in several areas,
including installation of machine-readable visa systems at all
visa-issuing posts, online connectivity to Washington, D.C.,
databases, and implementation of a first phase of a State-INS
data-share program. Many improvements were made possible through
State's temporary authority to retain fees charged foreigners
applying for nonimmigrant visas. Those fees generated millions of
dollars, enabling the Department of State to invest in border
security technology and to pay the salaries of nearly 2,000
employees.

State will need to remain vigilant in a number of areas to further
reduce the vulnerability of the visa system to fraud and abuse.
These include addressing (1) critical staffing gaps in overseas
consular positions; (2) limitations in consular automated systems;
(3) restrictions in the exchange of intelligence information with
INS and other law enforcement agencies; and (4) weaknesses in the
integrity of immigrant and nonimmigrant documentation, including
the computerized systems used to produce them. The Department must
also continue its efforts to encourage consular sections to
implement best practices designed to streamline and rationalize
the visa workload. Several potential best practices were
identified in our recent work on visa backlog issues. These
include using travel agents for initial processing, establishing
appointment systems to control workload, and allowing the payment
of visa fees at a bank or other financial institution. In view of
the increased international terrorist threats,

Page 9 GAO/T-NSIAD/AIMD-99-99 State Department

continued attention to State's progress in addressing these issues
will be needed.

Modernizing Relocation and Housing Processes

State has recognized the need to reengineer its logistics
processes based on the adoption of best practices, hoping to
reduce the time and costs associated with its outdated business
operations. One area that deserves attention is State's employee
transfer process, which has remained virtually unchanged for
years. Over 3,000 employees along with their household effects are
relocated each year. We recently compared State's process for
transferring employees and their household goods to those of other
public and private sector organizations. We found that the best
practices of leading private sector companies and other
organizations can serve as a useful model for State to reduce
costs and provide better services. One of the key differences
between the process State uses to relocate its employees and the
process leading private sector organizations use is State's
reliance on in-house operations.

Our work found that leading companies in the private sector use a
number of best practices. These include having one point of
contact for assistance to employees, known as one-stop shopping,
and using commercial, door-to-door shipments to lower the cost of
shipping employees' household effects. In contrast, State
employees are confronted with a myriad of steps and multiple
offices to navigate. State also separately contracts for each
segment of most moves. In addition to incurring annual direct
costs of about $36 million to ship household effects, State incurs
as much as $1,600 in overhead costs for each move.

State and other U.S. government agencies operating overseas also
spend over $200 million annually to lease housing and purchase
furniture for employees and their families. This process appears
to be more costly than necessary. Our comparison of State's
processes with those of key private sector firms operating
overseas indicates that if State adopted private sector practices
at a number of posts, it could potentially save the U.S.
government substantial amounts of money and still meet its
employees' overseas residential housing and furniture needs.
Specific practices that can reduce costs include:

 using relocation companies and similar service providers to
search for housing and negotiate leases to reduce in-house support
costs and shift some property preparation expenses to landlords;

Page 10 GAO/T-NSIAD/AIMD-99-99 State Department

 providing employees with housing allowances to select their own
homes rather than managing and maintaining a housing pool of
government leases and preassigning residences; and  acquiring
residential furniture overseas instead of buying and shipping it

from the United States.

StrengtheningStrategic and Performance Planning

The Results Act provides a framework for resolving management
challenges and for providing greater accountability of State's
programs and operations. As required by the Results Act, State has
prepared strategic and performance plans. In its first strategic
plan for foreign affairs, State formulated 16 foreign policy goals
that cover a wide spectrum of U.S. national interestsnational
security, economic prosperity, American citizens and U.S. borders,
law enforcement, democracy, humanitarian response, and global
issues. Our review of that plan and the Department's annual
performance plan for 1999 indicated that State's plans had their
strong points but often did not provide the information which is
needed for effective Results Act planning.

For example, we are concerned that State's strategic plan
addressed neither the potential impact of the consolidation of the
foreign affairs agencies on its systems nor the potential for
other agencies to have functions duplicative of State's. We have
found that State's functional bureaus share responsibility with
multiple U.S. agencies on various overlapping issues, including
trade and export policy and international security functions. The
strategic plan also did not address the deficiencies in State's
financial accounting and information systems, noting only in
general terms that several years will be required to develop
performance measures and related databases to provide sufficient
information on the achievement of goals.

Our review of State's performance plan revealed similar
deficiencies but also some encouraging points as well. For
example, State's performance plan generally provided clear and
reasonable strategies and goals in the areas of improving U.S.
citizens' services and border security, and promoting democracy.
In contrast, State's plan did not present a clear picture of its
methods to meet strategic and performance goals in the areas of
furthering economic prosperity, preventing international crime,
and enhancing humanitarian assistance. Overall, the performance
plan did not clearly indicate the Department's intended
performance and was vague about how State will coordinate with
other agencies. Further, State's performance plan did not provide
sufficient confidence that the

Page 11 GAO/T-NSIAD/AIMD-99-99 State Department

Department's performance information will be credible. Also, it
did not address how the known deficiencies in State's financial
and information systems will affect performance measurement.

In response to our work, State is attempting to improve its
planning by developing clearer and more objective performance
measures linked to performance goals. It is also identifying
partnerships with other agencies or governments to address
crosscutting issues.

Conclusion In conclusion, State faces a number of serious
management challenges that, if not adequately addressed, could
encumber its overall performance,

seriously impair its ability to meet its goals and objectives, and
potentially waste resources. The introduction of cost-based
decision-making, the use of best practices, and the establishment
of sound strategic planning offer the promise of helping State
improve the efficiency of its operations.

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

Let t er

Page 12 GAO/T-NSIAD/AIMD-99-99 State Department

Page 13 GAO/T-NSIAD/AIMD-99-99 State Department

Page 14 GAO/T-NSIAD/AIMD-99-99 State Department

Page 15 GAO/T-NSIAD/AIMD-99-99 State Department

Related GAO Products

Overseas Security and Presence

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

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

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

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).

Visa Processing State Department: Tourist Visa Processing Backlogs
Persist at U.S. Consulates (GAO/NSIAD-98-69, Mar. 13, 1998).

State Department: Efforts to Reduce Visa Fraud (GAO/T-NSIAD-97-
167, May 20, 1997).

Foreign Affairs Organization and Management

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

Related GAO Products Page 16 GAO/T-NSIAD/AIMD-99-99 State
Department

Foreign Affairs: Perspective on Foreign Affairs Programs and
Structures (GAO/NSIAD-97-6, Nov. 8, 1996).

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

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

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).

(711410) Let t er

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