United States General Accounting Office

GAO Report to Congressional Requesters

March 1999 FOREIGN

ASSISTANCE

Treasury’s Technical

Assistance Program

GAO/NSIAD-99-65

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

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

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host-government actions is difficult to establish (see app. VI for a detailed

description of our scope and methodology).

Results in Brief 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 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 Union2

 countries. There are regional

advisors in Budapest, Hungary, who are technical experts and assist where

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).

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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.

Types of Assistance 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.

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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 In Russia, OTA is providing technical assistance in three program

areas—tax policy and administration, financial institutions, and

government budgets.

Tax Policy and Administration 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 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

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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 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

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was appreciated by the committee and by regional authorities throughout

Russia.

Romania 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 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

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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 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

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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 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 market4

 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

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.

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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.

Law Enforcement 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 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.

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OTA Oversight of the

Program

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

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 The Deputy Assistant Secretary for Technical Assistance Policy told us

formal agreements5

 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.

5

Also called “terms of reference.”

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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.

Resident Advisor Work

Plans

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 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

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

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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

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 controls6

 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.

Oversight of Financial

Disclosure Compliance

Has Been Lax

OTA requires most of its advisors to file annual financial disclosure reports

by October 317

 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

6

See OMB Circular A-123 and Accounting Series: Standards for Internal Controls in the Federal

Government (Washington, D.C.: GAO, 1983).

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.

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training session for OTA in April 1998 on the rules and regulations of

federal financial disclosure procedures.

Conclusions and

Recommendation

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 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

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we analyzed (see app. V for the Treasury’s comments and our response to

them).

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

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Contents

Letter 1

Appendix I 

Treasury Advisor

Qualifications

18

Appendix II 

Costs for Treasury

and U.S. Agency for

International

Development Program

Advisors in Russia

and Ukraine

19

Average Cost of Programs in Russia 20

Average Cost of Programs in Ukraine 21

Appendix III 

USAID Transfer of

Funds to the Treasury

23

Appendix IV 

Location and Cost of

Advisors in Paris and

London

24

Appendix V 

Comments From the

Department of the

Treasury

25

Appendix VI 

Objectives, Scope,

and Methodology

30

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Contents

Appendix VII 

Major Contributors to

This Report

33

Tables Table II.1: OTA and USAID Advisor Costs for Russia, Fiscal Years

1995-97

21

Table II.2: OTA and USAID Advisor Costs for Ukraine, Fiscal

Years 1995-97

22

Abbreviations

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

Page 17 GAO/NSIAD-99-65 Foreign Assistance
Appendix I 

Treasury Advisor Qualifications

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 information1

 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

resumés 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.

Page 18 GAO/NSIAD-99-65 Foreign Assistance
Appendix II 

Costs for Treasury and U.S. Agency for

International Development Program

Advisors in Russia and Ukraine

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 USAID2

 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 OTA3

 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.

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.

Page 19 GAO/NSIAD-99-65 Foreign Assistance
Appendix II 

Costs for Treasury and U.S. Agency for

International Development Program

Advisors in Russia and Ukraine

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.

Average Cost of

Programs in Russia

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 wages5

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 eligible6

 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.

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.

Page 20 GAO/NSIAD-99-65 Foreign Assistance
Appendix II 

Costs for Treasury and U.S. Agency for

International Development Program

Advisors in Russia and Ukraine

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

1997 dollars

Fiscal year Agency

Total

program cost

Number of

FTEa advisors

Average cost

of wages

Average cost

of support

Average cost

of short-term

advisors

Average

cost per

advisor

1995 OTA $1,217,300 2.33 $177,000 $245,900 $99,600 $522,400

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.

aFTE is equivalent to one staff year.

Source: OTA and USAID-contractor cost data.

Average Cost of

Programs in Ukraine

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.

Page 21 GAO/NSIAD-99-65 Foreign Assistance
Appendix II 

Costs for Treasury and U.S. Agency for

International Development Program

Advisors in Russia and Ukraine

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

1997 dollars

Fiscal year Agency

Total

program cost

Number of

FTEa advisors

Average cost

of wages

Average cost

of support

Average cost

of short-term

advisors

Average cost

per advisor

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.

aFTE is equivalent to one staff year.

Source: OTA and USAID-contractor cost data.

Page 22 GAO/NSIAD-99-65 Foreign Assistance
Appendix III 

USAID Transfer of Funds to the Treasury

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.

Page 23 GAO/NSIAD-99-65 Foreign Assistance
Appendix IV 

Location and Cost of Advisors in Paris and

London

From July 1991 to September 1997, the Treasury’s senior advisors1 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 Treasury2

 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.

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.

Page 24 GAO/NSIAD-99-65 Foreign Assistance
Appendix V 

Comments From the Department of the

Treasury

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

See comment 1.

See p. 19.

Page 25 GAO/NSIAD-99-65 Foreign Assistance
Appendix V 

Comments From the Department of the

Treasury

See comment 2.

See p. 12.

See p. 12.

See p. 12.

Page 26 GAO/NSIAD-99-65 Foreign Assistance
Appendix V 

Comments From the Department of the

Treasury

See comment 3.

See p. 13.

See comment 4.

Page 27 GAO/NSIAD-99-65 Foreign Assistance
Appendix V 

Comments From the Department of the

Treasury

Page 28 GAO/NSIAD-99-65 Foreign Assistance
Appendix V 

Comments From the Department of the

Treasury

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.

Page 29 GAO/NSIAD-99-65 Foreign Assistance
Appendix VI 

Objectives, Scope, and Methodology

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.

Page 30 GAO/NSIAD-99-65 Foreign Assistance
Appendix VI 

Objectives, Scope, and Methodology

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

Page 31 GAO/NSIAD-99-65 Foreign Assistance
Appendix VI 

Objectives, Scope, and Methodology

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 reports1

 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).

Page 32 GAO/NSIAD-99-65 Foreign Assistance
Appendix VII 

Major Contributors to This Report

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

(711304) Page 33 GAO/NSIAD-99-65 Foreign Assistance
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