United States General Accounting Office

GAO Report to the Chairman, Committee on

the Budget, House of Representatives

August 1996 STATE DEPARTMENT

Options for Addressing

Possible Budget

Reductions

G O A

years

1921 - 1996

GAO/NSIAD-96-124

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-271639 

August 29, 1996

The Honorable John R. Kasich

Chairman, Committee on the Budget

House of Representatives

Dear Mr. Chairman:

This report discusses the State Department’s reform and cost-cutting efforts and identifies

options that would enable State to adjust to reduced budgets. The report includes a

recommendation to the Secretary of State and two matters for congressional consideration to

assist the Department in reducing costs.

We are sending copies of the report to the Secretary of State and to other appropriate

congressional committees. We will make copies available to others upon request.

This report was prepared under the direction of Benjamin F. Nelson, Director, International

Relations and Trade Issues, who may be contacted on (202) 512-4128 if you or your staff have

any questions about this report. Other major contributors to the report are listed in appendix III.

Sincerely yours,

Henry L. Hinton, Jr.

Assistant Comptroller General
Executive Summary

Purpose The State Department received appropriations of $2.695 billion for fiscal

year 1995 and $2.671 billion for fiscal year 1996 for the administration of

foreign affairs. In light of plans to reduce funding for foreign affairs

activities, the Chairman of the House Committee on the Budget asked GAO

to determine the status of State’s reform and cost-cutting efforts and

identify options that would enable State to adjust to reduced budgets.

Background The State Department is responsible for conducting foreign relations,

including formulating policy on diverse international issues and

coordinating and supporting U.S. programs and activities overseas. State is

expected to perform a wide variety of functions that are critical to U.S.

interests: provide leadership to help bring peace and stability to areas such

as Bosnia and the Middle East; report on overseas events; influence other

countries to adopt policies and practices consistent with U.S. interests on

security, economic, narcotics, crime, environment, democracy, and other

issues; assist U.S. business abroad; provide services to U.S. citizens

overseas; and issue passports and visas.

In July 1995, the Office of Management and Budget suggested reducing

State’s funding to $2.5 billion by 2000—a 7-percent decline from 1995.

When inflation is factored in, State’s 1995 purchasing power would be

reduced by $770 million or 30 percent. Under the 7-year concurrent budget

resolution, passed by the Congress in June 1995, funding levels could be

even less.

The President has requested $2.713 billion for fiscal year 1997—$18 million

more than for fiscal year 1995 and $39 million more than for fiscal 

year 1996. The actual funding level is subject to negotiation.

To develop options to allow the State Department to accommodate

potential budget reductions, GAO analyzed State’s reform initiatives and

examined the functions of State’s headquarters organization, overseas

posts in 6 countries, and selected activities of 14 other U.S. government

agencies that share responsibility with State for certain international

activities.

Results in Brief Although the State Department has reduced the number of its staff and

implemented some cost reduction measures, it has been reluctant or

unable to significantly reduce its overseas presence and the scope of its

activities or to substantially change its business practices. In

Page 2 GAO/NSIAD-96-124 State Department
Executive Summary

February 1995, the Secretary of State chose not to support reforms that

might fundamentally change the Department’s mission, organizational

structure, and processes. The State Department believes that a substantial

downsizing to accommodate potential funding reductions would severely

jeopardize its ability to achieve U.S. foreign policy goals. However, GAO

believes that State can take steps to reduce its costs, while continuing to

protect U.S. interests.

The budgetary stringency that the federal government is projected to face

in the next few years makes it unlikely that State will receive the level of

funding that would allow it to maintain its current level of activities.

Because of inflation and cost increases overseas, GAO estimates that

maintaining current functions and personnel would cost $584 million more

in 2000 than in 1995, a 22-percent increase. But it is likely that State will

receive less resources in the future. If total discretionary spending is held

to the levels envisioned in the congressional budget resolution for fiscal

year 1997, spending will fall by almost 6 percent between 1995 and 2002.

State will probably have to bear a share of this planned reduction.

Furthermore, larger reductions in State’s funding have been proposed by

the Office of Management and Budget and the Congress. New fiscal

realities dictate that State increase its cost consciousness, make choices

about resource priorities for its wide range of locations and functions, and

fundamentally rethink the way that it does business in order to increase

efficiency and reduce operating costs.

The greatest opportunity to significantly reduce costs is by closing, or

reducing the size of, overseas posts, which cost about $1.9 billion annually.

This amount, which includes support costs, is equivalent to nearly

70 percent of State’s budget. State maintains a diplomatic presence in 

252 overseas locations, including countries where the United States has

limited interests. This structure has not changed substantially since the

end of the Cold War. Fiscal realities may require a fundamental rethinking

and redesign of overseas diplomatic structure, locations, functions, and

practices. Such a rethinking could lead to changes that would increase

operating efficiencies and reduce costs. Eliminating posts will be difficult,

as State has typically met with resistance from within and from other

agencies and members of Congress when it has tried to close some low

priority posts. Establishing an independent panel to review post closures

and reductions is one strategy to overcome this resistance.

State could also reduce support costs by several hundred million dollars

by accelerating changes to its business practices. State currently spends

Page 3 GAO/NSIAD-96-124 State Department
Executive Summary

nearly $1.8 billion on communications, real estate, and a wide variety of

other support services for domestic and overseas operations. Prompt

disposal of unneeded overseas real estate is just one example of how State

could reduce its support costs.

In addition, State may have to limit and/or eliminate its role in selected

functions. (State shares responsibility with various other U.S. government

agencies for many issues.) Although this may impact on the way U.S.

international activities are implemented, lessening State’s role could lead

to personnel reductions that would reduce headquarters costs and

facilitate reductions in costs for overseas posts and support.

In light of potential funding reductions and post Cold War realities, State

needs to plan for how it can become a smaller, more efficient, and less

expensive organization. Development of a downsizing strategy should start

with identification of core missions and functions and critical locations

and the resources required to support them. GAO recognizes that

implementation of some downsizing measures may require changes in

legislation or negotiations with other agencies. State’s strategy should

include a plan to obtain support from the Congress and cooperation by

other U.S. agencies.

Principal Findings

State Has Not Developed a

Downsizing Strategy

The State Department does not have a comprehensive strategy to

restructure its operation to adjust to potential funding reductions.

Management attention to downsizing has been distracted by (1) the need

to address foreign affairs crises and (2) internal bureaucratic pressures.

Moreover, the Department has not fully accepted that it may have to

substantially reduce its costs. As a result, State has not done a

comprehensive review of its functions and processes to identify

unnecessary and low-priority work. State continues to hope that funding

will be sufficient to avoid making major cuts to its operations. It notes that

the President’s proposed funding for fiscal year 1997 would require some

modest downsizing, but not the level of downsizing that would be required

under other proposed funding reductions.

Page 4 GAO/NSIAD-96-124 State Department
Executive Summary

Limited Cost Reductions The two major management initiatives undertaken since 1993 have not led

to fundamental changes in State’s organizational structure and business

practices or achieved significant cost reductions. Instead, State has opted

to implement administrative and other changes that would not have a

dramatic impact.

The Secretary established the Strategic Management Initiative in 1994 to

set the future course for the Department and to eliminate duplication and

unnecessary or marginal functions. Although State initially estimated that

proposed actions under the initiative could reduce costs by well over

$100 million, State officials told GAO that actual cost reductions have been

limited.

In 1993, the National Performance Review recommended actions that it

estimated would reduce State’s costs by $68 million over 5 years. State has

completed 2 of 14 recommended actions and has estimated cost

reductions at $1.2 million annually.

State points out that its funding has been relatively flat for several years

and that it has already reduced personnel and taken other actions to

reduce its costs accordingly. For example, State reports that it has

reduced its staff by 2,200 since 1993, from about 26,000 to 23,800, or an

8.5-percent reduction.

Options for Reducing

State’s Involvement in

Some Functions

One option to cope with reduced funding is to reduce or eliminate State’s

involvement in some areas and to lessen the degree of overlap among its

bureaus and with other agencies. State’s organizational structure and

operating procedures have the potential to create unnecessary overlap,

duplication, and inefficiency. The Department’s geographic bureaus are

organized to overlap with many other foreign policy and administrative

functions. These bureaus operate as six micro-departments that basically

administer U.S. foreign policy for a particular region of the world. In fact,

concerns about potential duplication among the various units within State

headquarters were raised in a 1995 State Department internal study of

domestic positions. The study identified examples of potential duplication

of work among offices within the Department. For example, the study

indicated that there is potential overlap between the Bureau of

Intelligence and Research and regional and functional bureaus throughout

the Department.

Page 5 GAO/NSIAD-96-124 State Department
Executive Summary

There is also overlap of work between State and other agencies. In

August 1995, the Office of Inspector General for the Arms Control and

Disarmament Agency (which also serves as the Office of Inspector General

for the Department of State) reported that duplication between the Agency

and State’s Political-Military Bureau “promotes inefficient use of resources

by both organizations and accentuates turf consciousness, dissipating

energies and damaging morale.”1

Also, with congressional approval where necessary, State could streamline

some informational reports—for example, its annual human rights report,

which consumes resources of many bureaus and nearly all overseas

missions—or eliminate reports that contain information available from

other sources, such as country reports on trade practices.

State could also eliminate certain positions or consolidate responsibility

for certain issues. For example, eliminating labor attaché positions and

transferring labor issues to political and economic officers could reduce

costs by about $7.4 million annually. Finally, State could recover some of

the costs of many services, such as factual and analytical reports, business

assistance services, and assistance to overseas visitors, that it provides to

other entities.

Making these changes would not be easy, as State’s functions are broadly

linked to foreign policy objectives, specifically required by statute, or

required by interagency processes, and according to State, some decisions

would have to be made in an interagency forum or may require legislative

approval.

Options for Reducing the

Costs of Overseas

Presence

State has embassies in most foreign capitals and consulates in some

commercial centers outside capital cities. Despite advances in

communications and transportation, geopolitical changes, and new budget

realities, State’s vast network of embassies and consulates and the way

they are configured and operated have remained largely unchanged.

Although there are some reform initiatives currently underway, a

fundamental rethinking of the vast overseas infrastructure has not taken

place. State could potentially increase operating efficiency, reduce the size

of some posts, and close others in order to reduce costs. Cost reductions

from closing a small post with about nine Foreign Service officers could

total about $2 million per year or $10 million over 5 years.

1

Report of Inspection, The U.S. Arms Control and Disarmament Agency (ACDA-ISP/I-95-44, Aug. 1995).

Page 6 GAO/NSIAD-96-124 State Department
Executive Summary

Offices within State, members of Congress, and other agencies have often

opposed closures of posts. In July 1995, State identified 19 posts for

possible closure but decided to close only 13 due to pressure from others.

For example, the Consulate in Curacao, Netherlands Antilles, was taken

off the closure list in response to pressure from a member of Congress and

objections from the Drug Enforcement Administration. According to State

officials, the Department may be forced to close 50 to 100 of its 252

overseas posts if proposed funding cuts become a reality.

One strategy to review post closing and downsizing options would be to

establish an independent post closure panel like the Defense Base Closure

and Realignment Commission—an approach that resulted in decisions to

close, realign, or otherwise downsize hundreds of military bases and

installations. Although the criteria involved in closing and downsizing

overseas diplomatic posts are different, a panel much like the Commission

may be useful. Since many other agencies depend on State’s overseas

presence, such an approach would allow for decision-making based on the

need to support both State and non-State activities consistent with overall

U.S. policy interests and priorities as well as available resources.

Another strategy to pursue cost reductions would be to implement the

National Performance Review recommendation that, on a pilot basis, U.S.

ambassadors be given expanded authority over all U.S. government fiscal

and staffing resources at overseas posts. Expanding ambassadors’

authority raises the potential for negative consequences, however. For

example, an ambassador and a federal agency may have differences of

opinion about the types and levels of resources needed to sustain agency

activities. However, because expanding ambassadors’ authority could

reduce costs, GAO supports a pilot study to test the concept. State has not

initiated action on this recommendation. State officials told GAO that the

Department cannot move on this recommendation until the National

Performance Review/Vice President’s staff propose legislation to the

Congress. However, National Performance Review staff told GAO that

proposing legislative action is State’s responsibility. In November 1995, the

U.S. Ambassador to Senegal asked that State’s Under Secretary for

Management convene the Vice President’s Interagency Council to obtain

its agreement to test increased authority of ambassadors. State has been

reviewing the proposal.

Options for Reducing

Support Costs

Potential budget reductions could also be met by reducing support costs,

which currently consume two-thirds of the Department’s budget. State is

Page 7 GAO/NSIAD-96-124 State Department
Executive Summary

experimenting with, studying, or considering several options to reduce its

support costs. GAO identified additional cost reduction options that are not

currently under review.

The Department of State Appropriations Act, 1996, requires that, starting

in fiscal year 1997, State have in place a system that allocates to each

department and agency the full cost of its overseas presence. State and

other U.S. agencies are developing a system sponsored by the President’s

Management Council that devolves authority for overseas support to

individual post interagency councils. This is a significant change in

philosophy, and State expects it to result in increased reimbursements

from other agencies and eventually lower the support costs. State

estimates it would spend about $108 million less to support other agencies

overseas during the first year of the new system. Additional cost

reductions are expected from greater efficiency and interagency

coordination. However, implementation will require strong interagency

and congressional cooperation.

Other cost-cutting measures being considered by State include (1) hiring

more U.S. family members to fill overseas staffing positions, (2) increasing

employees’ payments for medical services, (3) increasing the length of

overseas tours, and (4) reducing State’s cost for Marine guard

detachments at overseas posts by deactivating certain units or shifting the

costs to the Defense Department. Over the long term, State hopes to

further reduce its operating expenses through business process

reengineering and the outsourcing of certain support functions. In both

areas, however, only limited progress has been made.

GAO identified several additional options State could implement to adjust

to potential budget cuts as well as some of the potential adverse

consequences of these options. These options include (1) expanding the

use of foreign nationals in support positions at overseas posts,

(2) reviewing employees’ benefits and allowances, (3) reviewing support

staff levels in headquarters, and (4) disposing of excess and underused

properties overseas.

Recommendations GAO is not taking a position on the level of resources needed by the State

Department for the administration of foreign affairs. However, given the

likely decline in discretionary spending in the federal budget and the

various proposals for reductions in State’s budget, it is unlikely that State

will receive funding at a level necessary to support current services. For

Page 8 GAO/NSIAD-96-124 State Department
Executive Summary

example, fiscal constraints may not permit State to continue to maintain

its vast network of embassies and consulates as they are configured today.

A fundamental rethinking of functions, locations, and practices is needed

to determine what is essential and affordable to support U.S. interests.

State needs to plan for how it can become a smaller, more efficient, and

less expensive organization.

GAO recommends that the Secretary of State develop a downsizing strategy

that (1) identifies critical and noncritical functions and their costs;

(2) specifies the changes that would be necessary to adjust to potential

funding levels; and (3) identifies what legislative actions or modifications

to interagency agreements, if any, would be required to implement the

changes. Because overseas posts consume 70 percent of State’s budget,

reassessment of the network of overseas posts will be an important part of

the downsizing strategy. At a minimum, State should have a strategy that is

based on out-year funding guidance from the Office of Management and

Budget. (Such a strategy would allow for consideration of other funding

proposals and could be adjusted to accommodate actual appropriation

amounts.)

Matters for

Congressional

Consideration

If future funding levels require the State Department to close and reduce

the size of posts, the Congress may wish to establish an independent panel

to review State’s proposals in view of (1) the potential financial benefits to

the U.S. government, (2) the impact on governmentwide interests and the

many agencies that depend on State’s services, and (3) the potential

opposition to closing posts. Although the criteria involved in closing and

downsizing overseas diplomatic posts are different, a panel much like the

Defense Base Closure and Realignment Commission established to review

military installations may be useful.

Also, if the Congress believes that ambassadors’ authority over U.S.

government resources should be expanded to reduce spending, it could

explore with the executive branch how a pilot program, such as the one

recommended by the National Performance Review, could be structured

and implemented.

Agency Comments

and GAO’s Evaluation

In commenting on a draft of this report, State disagreed with GAO’s

conclusions and recommendation regarding the need to develop a strategy

for adjusting to potential budget reductions. State described the actions it

has taken over the last several years to absorb a reduction in real

Page 9 GAO/NSIAD-96-124 State Department
Executive Summary

resources and its plans for further gradual downsizing. Although it agreed

that strategic planning for downsizing is important, State stressed that it

does not accept and will not plan for proposed funding reductions that

could approach 44 percent. It believes reductions of this magnitude would

pose unacceptable risks and cause irreparable damage to America’s

national interests.

State opposed many of the options GAO identified to address possible

budget reductions and asserted that State’s diplomacy, when compared to

other tools for pursuing U.S. national security and other interests, is

relatively inexpensive. State indicated that the report does a good job

describing the difficulties in closing overseas posts. State also noted that it

cannot act unilaterally in reducing a post’s size because of the many other

agencies involved. State’s comments are reprinted in their entirety in

appendix II, along with GAO’s evaluation of them.

GAO did not make judgments on the relative value of State’s functions and

activities or try to compare the relative merits of State’s diplomacy to

other U.S. government tools. Instead, GAO pointed out that both the

legislative and executive branches had proposed substantial funding

reductions for State and that, barring a $584-million increase in funding

from 1995 to 2000, State would be unable to maintain its current level of

activities. Given the funding situation, GAO believes that State needs to

seriously consider actions for adjusting to the potential funding scenarios.

Furthermore, GAO believes that developing a downsizing strategy would

enable State to focus available resources on its most critical functions and

activities. Absent a downsizing strategy based on a comprehensive review

of its functions and processes, the Department will not have the data and

analyses and therefore cannot demonstrate clearly how funding

reductions will hamper U.S. interests or be in a position to protect critical

functions. GAO did not recommend specific actions to cut costs but

identified a number of options that could be part of a State Department

downsizing strategy.

GAO did not request formal comments from other agencies. However, to

verify data, GAO provided a copy of a draft of this report to the

Departments of Agriculture, Commerce, Labor, the Treasury, and

Transportation; the Environmental Protection Agency; the U.S. Agency for

International Development; the U.S Arms Control and Disarmament

Agency; and the Office of the U.S. Trade Representative. Where

appropriate, GAO incorporated the revisions that were suggested by these

agencies.

Page 10 GAO/NSIAD-96-124 State Department
Executive Summary

The U.S. Agency for International Development objected to expanding an

ambassador’s authority over the programmatic direction and funding of

overseas programs even on an experimental basis. The U.S. Agency for

International Development and the Office of the U.S. Trade Representative

emphasized that increasing reimbursements for administrative support at

overseas posts may require additional funding for agencies other than

State to cover certain costs they may not have budgeted for in the past.

The Office of the U.S. Trade Representative and the Department of Labor

expressed concern about coordination issues, emphasizing that

cost-cutting decisions that State could make may affect other agencies.

The Department of Labor objected to eliminating labor attaché positions

and transferring the responsibility for covering labor issues to political and

economic officers. In addition, Labor expressed concern about

streamlining the country reports on human rights practices, noting that

these reports are central to the U.S. policy goal of promoting human rights.

Page 11 GAO/NSIAD-96-124 State Department
Contents

Executive Summary 2

Chapter 1 

Background

14

State’s Functions and Organization 14

Funding and Allocations 17

Funding Prospects and Potential Impact 19

Objectives, Scope, and Methodology 22

Chapter 2 

State Is Not Prepared

to Cope With

Proposed Reductions

24

State Has Made Limited Progress in Streamlining Its Organization 24

Private and Public Experiences Show Planning Is Essential to

Downsizing

27

Conclusions 28

Recommendation 28

Agency Comments and Our Evaluation 28

Chapter 3 

Opportunities for

Streamlining

Functions

30

State Has a Varying Role in Diverse Functions 30

Option: Reassess Involvement in Certain Functions 30

Option: Cut Activities and Recoup Costs 36

Potential Impact of Cutting Back on State’s Role in Certain

Functions

40

Conclusions 41

Agency Comments and Our Evaluation 41

Chapter 4 

Options for Reducing

Overseas Presence

43

Overseas Posts Are Costly to Operate 43

Post Functions and Resource Allocations 44

Options for Closing and Restructuring Posts 48

Options to Reduce Post Costs 51

Conclusions 55

Matters for Congressional Consideration 55

Agency Comments and Our Evaluation 55

Chapter 5 

State’s Support Costs

Can Be Reduced

57

Support Network Consumes a Large Portion of the Budget 57

State Is Seeking to Reduce Its Support Costs 58

Additional Cost Reduction Options 63

Process Reengineering and Outsourcing May Lead to Long-Term

Cost Reductions

68

Page 12 GAO/NSIAD-96-124 State Department
Contents

Conclusions 71

Agency Comments and Our Evaluation 71

Appendixes Appendix I: Activities at Overseas Posts 74

Appendix II: Comments From the Department of State 82

Appendix III: Major Contributors to This Report 103

Related GAO Products 106

Tables Table 1.1: Fiscal Year 1995 Net Budget Authority for

Appropriations for the Administration of Foreign Affairs

18

Table 1.2: Fiscal Year 1995 Allotments 19

Table 4.1: State’s More Costly Missions 44

Table 4.2: Post Resources in Six Countries 46

Table 4.3: Support Staffing Levels in Six Countries 48

Figures Figure 1.1: Organization of Selected State Bureaus 15

Figure 1.2: Future Funding Scenarios for the Administration of

Foreign Affairs

21

Figure 4.1: State’s Overseas U.S. Direct-Hire Employees 45

Abbreviations

ACDA Arms Control and Disarmament Agency

FAAS Foreign Affairs Administrative Services

FSN foreign service national

ICASS International Cooperative Administrative Support Services

OMB Office of Management and Budget

USAID U.S. Agency for International Development

USTR Office of the U.S. Trade Representative

Page 13 GAO/NSIAD-96-124 State Department
Chapter 1 

Background

The State Department conducts activities designed to promote and protect

U.S. interests overseas. To support these activities, State maintains a

headquarters with regional and functional bureaus and 252 overseas posts.

The State Department received slightly less than $2.7 billion for the

administration of foreign affairs in both fiscal years 1995 and 1996, with

the bulk of these resources allocated to salaries, infrastructure, and

operating expenses. State faces a widening gap between available budget

resources and the costs of maintaining existing activities.

State’s Functions and

Organization

The State Department is the central agency for coordinating and

implementing U.S. foreign policy in support of U.S. interests. State

provides leadership to help bring peace and stability to areas such as

Bosnia and the Middle East and carries out a variety of activities to

promote these interests, including

• negotiating and overseeing over 14,000 treaties and agreements in force

since 1946, including 24 treaties and 338 agreements concluded in 1994;

• analyzing overseas events to obtain information critical to U.S.

policymakers in Washington;

• preparing over 130 congressionally mandated reports covering such

diverse subjects as the abuse of human rights and foreign trade;

• representing the United States at 700 international conferences annually;

• providing consular services to Americans overseas and issuing over

5 million passports and 8 million visas annually; and

• providing administrative support to about 35 federal departments and

independent agencies with staff overseas.

State’s headquarters in Washington, D.C., includes geographic bureaus

that are organized along regional lines (such as the Bureau of East Asian

and Pacific Affairs) and bureaus that are organized along functional lines

(such as the Bureau of Political-Military Affairs). Figure 1.1 shows the

basic organizational structure of the Department.

Page 14 GAO/NSIAD-96-124 State Department
Chapter 1 

Background

Figure 1.1: Organization of Selected State Bureaus

SECRETARY OF STATE

Deputy Secretary

Under Secretary

Political Affairs

European and Canadian

Affairs

86 overseas posts

East Asian and Pacific

Affairs

40 overseas posts

Near Eastern Affairs

20 overseas posts

African Affairs

48 overseas posts

Inter-American Affairs

42 overseas posts

South Asian Affairs

11 overseas posts

International Organizations

5 overseas posts

Under Secretary

Economic, Business, and

Agricultural Affairs

Economic and Business

Affairs

Under Secretary

International Security

Afffairs

Political-Military Affairs

Under Secretary

Management

Consular Affairs

Various Support

Services

Under Secretary

Global Affairs

International Narcotics

and Law Enforcement 

Affairs

Population, Refugees, 

and Migration

Democracy, Human 

Rights, and Labor

Oceans and International

Environmental and 

Scientific Affairs

Page 15 GAO/NSIAD-96-124 State Department
Chapter 1 

Background

State’s Geographic

Bureaus

The Under Secretary for Political Affairs oversees State’s six geographic

bureaus and the Bureau of International Organizations. With 1,143

headquarters staff, Political Affairs is the Washington focal point for the

development of policy recommendations, for coordination with other

departments and agencies, and for transmission of guidance to

ambassadors in the field. The geographic and International Organizations

bureaus guide, coordinate, and supervise nearly all of the State

Department’s activities overseas, including the operation of 163 embassies,

64 consulates general, 13 consulates, 8 missions to international

organizations, 2 branch offices, 1 liaison office, and 1 interests section.

State’s Functional Bureaus The functional bureaus generally manage and coordinate specific issues

and activities. The Bureau of Economic and Business Affairs, under the

jurisdiction of the Under Secretary for Economic, Business, and

Agricultural Affairs, is responsible for integrating U.S. economic interests

with U.S. foreign policy in such areas as international energy, trade, and

international civil aviation. In addition, State economic officers support

U.S. foreign policy initiatives, including devising, negotiating, and

implementing strategies and agreements to advance U.S. goals such as

Russia’s transition to democracy and Bosnia’s reconstruction. The Under

Secretary also oversees the Office of the Coordinator for Business Affairs,

which was created in 1993 to facilitate U.S. businesses’ access to markets

abroad.

The Under Secretary for International Security Affairs coordinates

national security functions pursuant to over 20 provisions of law. The

Under Secretary manages the Bureau of Political-Military Affairs, which

provides guidance, coordinates policy formulation, and participates in all

major negotiations involving the nonproliferation of weapons of mass

destruction and missile technology, nuclear and conventional arms

control, defense relations and security assistance, and export controls.

The Under Secretary for Global Affairs facilitates the implementation of

U.S. foreign policy on 11 issues grouped under 4 bureaus: the Bureau of

Democracy, Human Rights, and Labor; the Bureau of International

Narcotics and Law Enforcement Affairs; the Bureau of Oceans and

International Environmental and Scientific Affairs; and the Bureau of

Population, Refugees, and Migration. Global Affairs administers over

$800 million for narcotics control, refugee, and other programs and

prepares reports such as the annual human rights report to the Congress.

Page 16 GAO/NSIAD-96-124 State Department
Chapter 1 

Background

The Bureau of Consular Affairs administers and enforces immigration and

nationality laws in issuing passports, visas, and related services and

provides for the protection and welfare of American citizens and interests

abroad. The Bureau also manages the Department’s border security

program through which State is attempting to improve visa and passport

functions. In fiscal year 1995, Consular Affairs issued 5.7 million passports,

processed 7.8 million nonimmigrant visas and 604,000 immigrant visas, and

provided over 1.1 million special services.

The Under Secretary for Management directs all budgetary, support, and

personnel policies of the Department. The Under Secretary’s principal

function is to reconcile resources, both fiscal and personnel, with policy

requirements. This Under Secretary also coordinates the activities of other

bureaus, including the bureaus of Consular Affairs, Personnel,

Administration, and Finance and Management Policy.

Funding and

Allocations

The State Department was appropriated $2.695 billion for fiscal year 1995

and $2.671 billion for fiscal year 1996 for the administration of foreign

affairs.1

 State spends nearly 92 percent of its funding for fixed costs:

personnel, operating supplies, utilities, and essential contracts. The

remaining 8 percent is for mission-essential travel, the replacement of

worn-out equipment, and infrastructure projects.

Table 1.1 shows the allocation of State’s fiscal year 1995 appropriations by

major account category.

1

In addition to the amount appropriated for fiscal year 1995, State received net budget authority of

$595 million in permanent appropriations and trust funds for the administration of foreign affairs. State

also received additional appropriations of $2.1 billion for international organizations and commissions

and related programs and $857 million for refugee assistance, drug control programs, and other

purposes. State’s budget authority is provided by two appropriation acts: the Department of State and

Related Agencies Appropriations Act and the Foreign Operations, Export Financing, and Related

Programs Appropriations Act.

Page 17 GAO/NSIAD-96-124 State Department
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Table 1.1: Fiscal Year 1995 Net Budget

Authority for Appropriations for the

Administration of Foreign Affairs

Dollars in millions

Account Net budget authority

Diplomatic and consular programs $1,757.7

Salaries and expenses 367.4

Capital Investment Fund 0.5

Office of the Inspector General 23.8

Representation allowances 4.8

Protection of foreign missions and officials 9.1

Security and maintenance of U.S. missions 379.9

Emergencies in the diplomatic and consular

service 6.5

Repatriation loan program account: subsidy

and administration 0.8

Payment to the American Institute in Taiwan 15.4

Payment to the Foreign Service retirement

and disability fund 129.3

Total $2,695.2

Note: Table excludes permanent appropriations and additional budget authority for trust funds.

Source: State Department, Bureau of Finance and Management Policy.

Table 1.2 shows how these funds were actually spent, based on our

analysis of State Department data. This analysis shows that overseas posts

cost about $1.9 billion (the combined funding for overseas foreign policy,

overseas consular functions, overseas support provided by both

geographic and management bureaus, and security and maintenance of

U.S. missions). State support functions cost about $1.8 billion (the

combined costs of domestic support, overseas support provided by both

geographic and management bureaus, and security and maintenance of

U.S. missions). Support functions include, among others, information

systems, housing, telecommunication, security, personnel, finance,

training, and medical services.

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Table 1.2: Fiscal Year 1995 Allotments

Dollars in millions

Primary purpose of funding Funds allotted

Domestic foreign policy $214.3

Domestic consular functions 90.0

Overseas consular functions 178.7

Overseas foreign policy 295.9

Overseas support provided by geographic

bureaus 499.8

Overseas support provided by management

bureaus 497.6

Security and maintenance of U.S. missions 379.9

Domestic support 385.9

Othera 153.1

Total $2,695.2

aIncludes funding for the Office of the Inspector General and Foreign Service retirement and

disability fund.

Source: GAO analysis based on data from the State Department, Bureau of Finance and

Management Policy.

Funding Prospects

and Potential Impact

Because of inflation and cost increases overseas, we estimate that

maintaining current functions and personnel would cost $584 million more

in 2000 than in 1995, a 22-percent increase. But, it is likely that the

Department of State will face budget cutbacks over the next several years.

If total discretionary spending is held to the levels envisioned in the

congressional budget resolution for fiscal year 1997, spending will fall by

almost 6 percent between 1995 and 2002. It will be difficult to exempt

State from bearing a share of this planned reduction. Moreover, larger

reductions in State’s funding have been proposed by the Office of

Management and Budget (OMB) and the Congress.

For fiscal year 1996, State’s budget is $2.671 billion for the administration

of foreign affairs—$87 million less than requested. In July 1995, OMB

proposed reducing funding for the administration of foreign affairs to 

$2.5 billion by 2000—a 7-percent decline from fiscal year 1995. When

inflation is factored in, this represents a $770-million reduction in State’s

purchasing power. Under the terms of the 7-year concurrent budget

resolution passed by the Congress in June 1995, funding levels for the

administration of foreign affairs could be even less than OMB projections. If

the administration of foreign affairs were to take a proportional share of

Page 19 GAO/NSIAD-96-124 State Department
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Background

the proposed reductions for international affairs (the 150 budget function),

State would receive $1.4 billion less in fiscal year 2000 than the amount

required to sustain current activity levels. This represents a greater than

44-percent reduction in real terms from fiscal year 1995 levels. This

analysis assumes that the administration of foreign affairs would receive

the same percentage reductions as the rest of the 150 function, which may

not be the case.

To maintain the current—fiscal year 1995—level of services, we estimate

that State would need $584 million more in appropriations in fiscal 

year 2000 than it received in fiscal year 1995—a 22-percent increase. We

calculated this amount by applying a 4-percent annual inflation rate to the

fiscal year 1995 funding.2

Figure 1.2 illustrates the widening difference between the funding needed

to sustain State’s current level of services and funding provided under the

OMB and congressional scenarios.

2

State’s budget has to absorb the overseas inflation rates, which generally exceed U.S. rates. According

to State budget officials, a budget with no change from the prior year roughly translates into a

4-percent reduction in buying power because of these inflationary factors.

Page 20 GAO/NSIAD-96-124 State Department
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Figure 1.2: Future Funding Scenarios for the Administration of Foreign Affairs

1995 1996 1997 1998 1999 2000

1,500

2,000

2,500

3,000

3,500

Fiscal year

Dollars in millions

Current services

OMB guidance

Budget resolution

Note: Current services projections represent the funding State would need to maintain the

purchasing power of fiscal year 1995 funding. It assumes 4 percent inflation annually through

fiscal year 2000. OMB guidance shows projected funding for the administration of foreign affairs

based on the President’s requests for fiscal years 1996 and 1997, and on OMB’s July 1995

guidance to State for fiscal years 1998-2000. For the budget resolution projection we calculated

the percentage reduction to the 150 budget function called for in the fiscal year 1996 concurrent

budget resolution. We applied the same percentage reduction to the administration of foreign

affairs spending.

The magnitude of the likely difference between available resources and

the funding needed to maintain current operations dictates the need for a

fundamental change in the management and structure of the foreign affairs

apparatus. In the remainder of this report, we discuss State’s own reform

efforts and the importance of developing an effective strategy to guide

Page 21 GAO/NSIAD-96-124 State Department
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Background

fundamental change (ch. 2) and present various options to realize cost

reductions—streamlining State functions (ch. 3), restructuring State’s

overseas presence (ch. 4), and reducing support costs (ch. 5).

Objectives, Scope,

and Methodology

In response to a request from the Chairman, House Committee on the

Budget, we reviewed State’s reform and cost-cutting initiatives and

identified options that would enable State to adjust to reduced budgets.

We did not make judgments on the relative value of State’s functions and

activities or the level of resources that are required.

In Washington, D.C., we interviewed officials and collected data in the

bureaus responsible for political, economic and business, international

security, global, consular, and support issues and functions. We also

conducted work at agencies that perform related functions, including

offices at the Departments of Agriculture, Commerce, Defense, Justice,

Labor, Transportation, the Treasury, and other agencies, including the 

U.S. Agency for International Development (USAID), the U.S. Information

Agency, the Arms Control and Disarmament Agency (ACDA), the Peace

Corps, the Environmental Protection Agency, the U.S. Export-Import

Bank, and the Office of the U.S. Trade Representative (USTR). Although our

work describes State’s relationships with these agencies, we did not

evaluate State’s effectiveness relative to these agencies. In addition, we

met with various individuals in the private sector, including

representatives from the U.S. Chamber of Commerce, the Executive

Council on Foreign Diplomacy, the Kenan Institute of Private Enterprise,

and the National League of Cities.

We interviewed management officials and conducted work at offices and

private firms undergoing reforms and providing support. We also visited

Canada to discuss its overseas diplomatic practices and cost concerns.

To understand the work of the State Department overseas, we visited

posts in six countries: Belarus, Brazil, Malaysia, The Netherlands,

Paraguay, and Senegal. These posts were selected based on their varying

missions, sizes, and geographical locations. We interviewed officials and

reviewed the work of each section to identify primary activities, focusing

on the months of September and October 1995, and discussed

management and funding issues with post managers.

We obtained formal comments on the draft of this report from the State

Department. They are discussed at the end of chapters 2, 3, 4, and 5, and

Page 22 GAO/NSIAD-96-124 State Department
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Background

are presented in their entirety in appendix II, along with our evaluation. To

verify data, we provided a copy of a draft of this report to the Departments

of Agriculture, Commerce, Labor, the Treasury, and Transportation; the

Environmental Protection Agency; USAID; ACDA; and USTR. We have

incorporated their comments and suggested revisions to the text where

appropriate.

We did our review between June 1995 and June 1996 in accordance with

generally accepted government auditing standards.

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The Department of State has not developed a comprehensive strategy to

restructure its operations to adjust to potential funding reductions. State

officials have not fully accepted that State may have to substantially

reduce its costs. It notes that the President’s request for fiscal year 1997

would require some modest downsizing, but not to the level required by

other proposed funding levels. Believing that substantial funding

reductions would severely jeopardize its ability to conduct foreign policy

and achieve U.S. goals, State has decided not to plan how it would

accommodate proposed budget reductions.

State’s various reform initiatives over the past 3 years—including the 1994

Strategic Management Initiative and responses to National Performance

Review recommendations—have not resulted in overall plans to

implement the substantial changes that may be necessary. State’s reform

initiatives ultimately focused on short-term, narrowly focused actions that

have had little impact on the structure of the foreign affairs apparatus and

did not achieve significant cost reductions. Adjusting to proposed budget

reductions will require more substantial changes than those that have

occurred to date. Our assessments of other government and private sector

organizations show that planning is essential for effective downsizing and

restructuring. Without such a strategy, State’s ability to effectively carry

out its broad mission of promoting and protecting U.S. interests overseas

will be jeopardized in light of the severe budget gap it is facing.

State Has Made

Limited Progress in

Streamlining Its

Organization

According to State, since 1993 it has cut the number of deputy assistant

secretaries by 25 percent; reduced the general workforce by 2,200

positions—an 8.5-percent reduction; will have closed 14 small overseas

posts during fiscal year 1996; reduced the cost of security programs by

15 percent by applying risk management principles; and reduced travel,

contracts, and equipment expenses. These actions accommodated the flat

budgets between 1993 and 1995 and responded to a 1993 presidential

memorandum to reduce positions by 12 percent between fiscal year 1994

and 1999. These actions, though positive, are not sufficient to enable State

to cope with proposed reduced funding. Moreover, State has been

unwilling or unable to make major changes suggested under its Strategic

Management Initiative and the National Performance Review—changes

that would result in a more efficient operation.

Expectations of 1994

Strategic Management

Initiative Not Met

The Secretary of State established the Strategic Management Initiative in

1994 to set the Department’s future course and eliminate unnecessary or

marginal functions and internal duplication. He tasked the Department

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with formulating and implementing a plan of action to focus the

organization around its core mission. The Secretary asked his staff to

consider restructuring the Department to carry out its mission with a

substantial reduction in resources, and he recognized that, to do so, a

comprehensive review of functions was needed. In January 1995, State

announced that the initiative would highlight the highest priority functions

and products and identify low priority, redundant, duplicative, and less

valued work, which would be discontinued. The Secretary told State

employees that “we must remake ourselves from the bottom up” and that

State faces “a painful process culminating in hard choices.” This initiative

represented a major change for State, which in the past tended to

implement across-the-board budget reductions when necessary rather

than deciding what was more or less important.

The initiative’s first phase resulted in a series of reports analyzing issues

related to workload reduction, constituents’ views on State’s products and

services, eminent Americans’ views on State’s future role, reengineering of

the Foreign Service transfer process, communications, and the best

practices of organizations that have restructured. The teams provided

these reports, along with recommendations for change, to the Secretary in

January and early February 1995.

According to the initiative’s coordinator, the Secretary decided in

February 1995 that it was not a good time to propose fundamental changes

to State’s mission, organizational structure, and processes and that the

initiative should focus on recommendations that would not involve major

changes to operations. The Secretary was concerned that proposed

legislation to consolidate foreign affairs agencies could severely affect the

organization.

Under the second phase, the emphasis of the initiative has been to achieve

operating efficiencies. The Secretary also made improving the quality of

life for State personnel a priority. The Secretary stipulated that any

recommendations could not change the basic structure of the Department

and must be implemented in a short period of time. In March and

April 1995, seven teams developed 300 recommendations based on the

assumption that State’s operating budget would not change.

Forty-five recommendations were presented to the Secretary; in May 1995,

he approved 33. As of February 1996, State had implemented or was

implementing 30 of the 33 recommendations, including streamlining

processing for arms sales and export licensing requests, simplifying the

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Department’s travel order and vouchering system, and reducing the

number of required reports from overseas posts. The 15 recommendations

that had not been implemented include closing some diplomatic security

resident agent offices, establishing an overseas staffing board, using an

interagency advisory board to strengthen overseas staffing controls, and

setting priorities for intelligence gathering and reporting. If these

recommendations were implemented, costs could be significantly reduced.

In April 1995, the initiative’s team leaders initially identified $61 million in

potential domestic cost reductions, an additional $35 million in out-year

cost reductions, and $17 million in annual cost reductions from the closure

of overseas posts. Furthermore, they estimated that by terminating some

support functions, $33 million of the Management Bureau’s domestic

support funds could be reallocated to other needs. (Actions that State is

considering to streamline support functions are discussed in ch. 5.)

Although the Department did not attempt to track the actual cost

reductions achieved, the initiative coordinator told us in October 1995 that

few of the approved recommendations will reduce costs. Furthermore, he

indicated that cost reduction had not been a primary goal of the Strategic

Management Initiative, and therefore the Department had not established

cost reduction targets.

State’s reports show that Strategic Management Initiative efforts have

resulted in the elimination of as many as 130 positions. (We were unable to

verify reductions in positions claimed in State’s reports.) Beyond the cost

reductions from eliminating those positions, State estimated that it would

reduce costs by about $2.5 million in fiscal year 1996 and about

$9.3 million annually thereafter by closing 13 overseas posts. However, a

major cost at these posts—salaries for U.S. staff—is not included in the

estimates because the positions would be moved to other locations, not

eliminated. State has taken the position that elimination of these posts is

part of State’s overall plan to reduce staff. However, the above State

Department cost reduction estimates do not reflect cost reductions from

staff cuts.

The initiative’s primary goals (1) to highlight priority functions and

products and (2) to identify and stop low-priority, redundant work have,

for the most part, not been realized. To date, no comprehensive review of

State’s functions and processes has been conducted. Although State has

made some minor reductions in duplication among State offices and in the

number of its reports, no functions have been eliminated.

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Potential Cost Reductions

Not Realized From the

National Performance

Review’s Recommended

Actions

The National Performance Review, established in March 1993 to make

government work better and cost less, recommended in September 1993

that State implement 14 action items to reduce costs by (1) cutting

operating costs at overseas posts, (2) improving collection of receivables,

(3) relocating regional administrative management centers, and

(4) expanding management authority of chiefs of mission (generally

ambassadors). The National Performance Review estimated that

implementing these actions could yield about $68 million in cost

reductions between fiscal year 1994 and 1999.

As of January 1996, State had partially implemented only 2 of the 14 action

items. State deactivated Marine security guard detachments at a net total

of 11 overseas posts where classified operations did not warrant 24-hour

cleared American presence. This will achieve an estimated annual cost

reduction of $1.2 million. State also established an accounting and debt

collection procedure for all overseas medical expenses. State estimated

that this action resulted in collections of over $1 million in fiscal year 1994.

The remaining 12 action items are either under study, require legislation

for implementation, or are not yet completed. To cut support costs, State

was relocating a regional administrative management center from Mexico

City to Charleston, South Carolina, and has discussed relocating functions

handled by centers in Bangkok, Thailand and Paris, France to reduce

annual costs by as much as $3.5 million 5 years after completing the

moves. State does not have a plan for implementing these relocations.

Private and Public

Experiences Show

Planning Is Essential

to Downsizing

The experiences of private and public sector organizations show that

planning is essential for effective downsizing and restructuring.1

 For

example, our reports on previous reviews show that (1) downsizing needs

to be based on a clear determination of an organization’s mission and

resource requirements and (2) personnel reductions need to be taken with

a view toward retaining a viable workforce. Without identifying core

missions, functions, and processes, organizations acknowledged that they

had cut needed employees, suffered skill imbalances, and were often

forced to rehire or replace employees who had been separated. At one

company we reviewed, officials said that early cuts were not sufficiently

tied to a larger strategy and only exacerbated the company’s problems

because work did not go away simply because staff positions were cut.

1

Federal Downsizing: Observations on Agencies’ Implementation of the Buyout Authority

(GAO/T-GGD-95-164, May 17, 1995); Workforce Reductions: Downsizing Strategies Used in Selected

Organizations (GAO/GGD-95-54, Mar. 13, 1995); and Federal Downsizing: The Administration’s

Management of Workforce Reductions (GAO/T-GGD-95-108, Mar. 2, 1995).

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Eventually, this company analyzed the value of each functional area in the

organization.

Conclusions Although State’s precise funding for the administration of foreign affairs

has not been agreed upon, bipartisan efforts to balance the budget and

downsize the government make it likely that State will receive less

resources for the foreseeable future. To successfully cope with the

challenge of directing U.S. foreign policy in the post-Cold War era during a

period of declining real resources, State must be prepared to clearly

articulate its key missions, identify the core functions linked to those

missions, prioritize those activities that directly support missions and

functions, and link potential resource levels to these activities. Only then

can the merits of various options for achieving significant cost reductions

be effectively weighed, the need for administrative or legislative changes

necessary to implement those options be identified, and difficult choices

be made.

Recommendation We are not taking a position on the level of resources needed by the State

Department for the administration of foreign affairs. However, given the

likely decline in discretionary spending throughout the federal government

and the various proposals for reductions in State’s budget, State needs to

plan for how it can become a smaller, more efficient, and less expensive

organization.

We recommend that the Secretary of State develop a downsizing strategy

that (1) identifies critical and noncritical functions and their costs;

(2) specifies the changes that would be necessary to adjust to potential

funding levels; and (3) identifies what legislative actions or modifications

to interagency agreements, if any, would be required to implement the

changes. At a minimum, State should have a strategy that is based on

out-year funding guidance from OMB. (Such a strategy would allow for

consideration of other funding proposals and could be adjusted to

accommodate actual appropriation amounts.)

Agency Comments

and Our Evaluation

In commenting on a draft of this report, State disagreed with our

conclusions and recommendation regarding the need to develop a strategy

for adjusting to potential budget reductions. State also commented that

the report did not fully recognize some of the positive actions State has

taken to streamline its operations. For example, State said that its

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Overseas Staffing Board met in June 1996 to begin implementation of an

overseas staffing model. State also indicated that it had progressed in

setting priorities for intelligence gathering and reporting by expanding

State’s representation on the intelligence community and interagency

boards. State agreed that strategic planning for downsizing is important,

and believed that it had planned for what it described as “future

reasonable budget cuts.” But, State stressed that it does not accept and

will not plan for proposed funding reductions that could approach

44 percent. It believes reductions of this magnitude would pose

unacceptable risks and cause irreparable damage to America’s national

interests.

Given the funding situation, we believe that State needs to seriously

consider actions for adjusting to the potential funding scenarios.

Furthermore, we believe that developing a downsizing strategy would

enable State to focus available resources on its most critical functions and

activities. Absent a downsizing strategy based on a comprehensive review

of its functions and processes, the Department cannot demonstrate clearly

how funding reductions will hamper U.S. interests or be in a position to

protect critical functions.

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Reducing or eliminating State’s role in some foreign policy and consular

functions could lead to cost reductions at headquarters and overseas

posts, where State has a broad mandate to represent and protect U.S.

interests and provide services to a wide range of customers, including the

Congress, other U.S. agencies, the private sector, and the American public.

Over $500 million of the budget is specifically focused on implementing

foreign policy, and about $270 million is devoted to consular functions.

Options for State to consider include (1) reassessing the extent of its

involvement in functions where State shares substantial, overlapping

responsibility with other agencies and (2) cutting back on some specific

activities and recouping the costs of some products and services. State

needs to face the challenge of identifying its core functions and their costs

and making choices about the level of resource investments that are both

appropriate and affordable to sustain those functions.

State Has a Varying

Role in Diverse

Functions

More so than ever, many government issues, policies, and activities have

an international dimension, and State has taken a role in most cases. In

consultation with other government agencies, the State Department

develops, coordinates, and implements U.S. foreign policy and activities.

State’s various functional offices and bureaus focus on key foreign policy

objectives and programs that over time have evolved to cover a wide range

of issues. The Department evolved as a bulwark against the threat of

communism, and U.S. foreign policy was directed toward its containment.

With the end of the Cold War, State has increased its role in some areas.

For instance, with the consent of the Congress, State created a new Under

Secretary for Global Affairs to direct efforts toward promoting human

rights and workers’ rights, supporting emerging democracies, protecting

and improving the global environment, controlling population growth,

assisting migration and refugees, and controlling international narcotics

and crime. Some of these issues were peripheral during the Cold War.

To adjust to reduced budgets, State must scrutinize its functions and

reassess its involvement in those functions. State also must consider

reducing some of its activities wherever feasible and recouping costs of

the wide array of products and services it provides to numerous

customers.

Option: Reassess

Involvement in

Certain Functions

State’s functional bureaus share responsibility with multiple U.S. agencies

on various overlapping policy issues. We identified nearly 30 agencies and

offices involved in trade policy and export promotion, about 35 engaged in

global programs, and over 20 involved in international security functions.

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These agencies look to State for overall foreign policy guidance, and State

often relies on them for program funds and technical expertise. According

to agency officials, the value State adds to these functions is its language

expertise and negotiating skills as well as its knowledge of foreign

governments, access to and contacts with host government officials, and

understanding of the foreign political and economic environment.

In the sections that follow, we describe selected State functions. The

extent of State’s involvement in these functions varies from one of a

supporting role to that of a lead player. The involvement of many agencies

in similar or related functions does not mean the agencies unnecessarily

duplicate activities, but it does suggest the potential for consolidation or

transfer of some of State’s duties. However, choosing which areas to cut is

complicated because State’s functions and activities can be broadly linked

to foreign policy objectives, functions are specifically required by statute,

or interagency processes require State’s participation. Furthermore,

decisions about resource trade-offs are difficult because State’s financial

management system does not provide accurate cost data to show the

amount State spends by function or activity or the level of resources

applied to specific policy objectives.

Trade and Economic

Issues

In the area of international trade, the U.S. government formulates,

coordinates, and implements U.S. economic and trade policy. State helps

U.S. government efforts to (1) negotiate international treaties and trade

agreements; (2) enforce U.S. trade laws; (3) promote U.S. exports; and

(4) collect, analyze, and report information on economic issues. While

USTR and the Department of Commerce are at the center of federal trade

activity, the Departments of State, the Treasury, Agriculture, and Labor are

also involved in trade policy. Overall about 20 other U.S. agencies and

offices have varying responsibilities under trade and economic policy. USTR

shepherds the formulation of U.S. trade policy through an interagency

process, and the Secretary of Commerce chairs the Trade Promotion

Coordinating Committee, an interagency group that is required by statute

to develop a governmentwide strategy for rationalizing the federal

government’s export programs.1

1

We have issued several reports regarding coordination and reorganization of governmentwide

international trade functions, including Government Reorganization: Observations About Creating a

U.S. Trade Administration (GAO/T-GGD-95-234, Sept. 6, 1995), Commerce’s Trade Functions

(GAO/GGD-95-195R, June 26, 1995), Government Reorganization: Issues Relating to International

Trade Responsibilities (GAO/T-GGD-95-218, July 25, 1995), and International Trade: Coordination of

U.S. Export Promotion Activities in Pacific Rim Countries (GAO/GGD-94-192, Aug. 29, 1994).

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In some cases, agencies’ responsibilities overlap in the area of

international trade and economic policy functions. For example, although

USTR plays a lead role in developing and coordinating international trade

policy, investigating some alleged unfair trade practices, and enforcing

trade agreements, it relies on an interagency trade policy group to assist

with these responsibilities. State participates actively in this group,

sometimes as a lead player, and USTR relies on State to lead some

negotiations and to execute policy. State economic officers at overseas

posts obtain information from and convey U.S. positions to foreign

governments. In fiscal year 1995, USTR had a staff of 163 employees and a

budget of about $21.4 million.

The Department of Commerce’s U.S. and Foreign Commercial Service and

the Department of Agriculture’s Foreign Agricultural Service promote

exports. The Commercial Service has 824 staff, including 213 foreign

commercial officers at 133 overseas offices in 69 countries, and a fiscal

year 1995 budget of $96.1 million. With these resources, it helps individual

U.S. companies take advantage of specific export opportunities by

providing foreign market research, trade finance-related information, and

trade facilitation services. The Foreign Agricultural Service promotes

exports of U.S. food and agricultural products and administers programs

to enhance the competitiveness of U.S. agricultural exporters. As of

September 1995, the Foreign Agricultural Service had 1,097 staff, including

265 at 75 overseas locations, and a fiscal year 1995 budget authority of

$118 million.

The role of State economic officers is to (1) persuade foreign governments

to open markets for U.S. companies by seeking lower tariffs and

eliminating nontariff barriers; (2) seek to improve protection for

intellectual property rights; (3) monitor implementation of trade

agreements; and (4) participate in negotiations of economic

agreements—a role it shares with USTR and the Departments of Commerce,

the Treasury, and Agriculture. In over 100 smaller countries with limited

markets, and where the U.S. and Foreign Commercial Service and the

Foreign Agricultural Service are not represented, State economic officers

provide commercial assistance to U.S. businesses and perform their

traditional economic duties. They identify export opportunities, provide

businesses with contacts and advice on host country business practices

and economic conditions, and sponsor trade events.

U.S. state governments and many city governments also promote trade

abroad. Some have offices overseas, and the U.S. Chamber of Commerce

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has over 70 affiliated chambers in 65 countries. While these entities

supplement the U.S. government’s export promotion efforts, they are not

generally viewed as a substitute for continued U.S. government

involvement in this area. Officials we interviewed emphasized that

nonfederal entities cannot officially represent the U.S. government, nor

can they provide market intelligence worldwide because collecting such

information would be cost prohibitive. Thus, the State Department plays a

critical role in comprehensively representing U.S. interests around the

world and can, if necessary, challenge foreign governments’ unfair or

unethical practices to level the odds for U.S. businesses.

On transportation, international telecommunications, and international

energy issues, State officials cite statutes and executive orders as the basis

for State’s involvement. Other agencies generally provide the technical

expertise, while State handles key negotiations and integrates agencies’

actions with overall U.S. foreign policy. For example, State and the

Department of Transportation are engaged in activities important to U.S.

economic policy, including those of the Office of International Aviation

within the Office of the Secretary and the U.S. Maritime Administration.2

In fiscal year 1995, the International Aviation had about 40 positions and a

budget of $3.3 million, while the Maritime Administration devoted about 

7 positions and $612,100 of its budget to international activities. For

International Aviation, Transportation and State share responsibilities for

formulating, coordinating, and executing the U.S. international aviation

policy. These responsibilities include negotiating and overseeing 107

bilateral air transport agreements that establish air service rights.3

 In

addition, some countries’ carriers serve the United States on the basis of

comity and reciprocity without any written agreement. Transportation

provides technical expertise and does the substantive work in negotiating

agreements, and State chairs aviation negotiations. On international

shipping policy, however, the U.S. Maritime Administration takes the lead

and chairs U.S. delegations, negotiating with the five countries that have

bilateral maritime agreements with the United States. State is an active

participant in these negotiations and is consulted on matters affecting U.S.

2

Other Transportation offices that work with State on international activities are (1) the Federal

Aviation Administration, which has 365 positions, including 179 overseas, and a budget of

$42.3 million; (2) the Office of International Transportation and Trade, with 22 positions and a budget

of $1.6 million; (3) the Office of the General Counsel, which has 10 positions and a budget of $1 million

for its work on international law; and (4) the U.S. Coast Guard, whose 16-member international affairs

staff have a budget of $929,630.

3

The United States has negotiated 72 air transport agreements that are currently in force. In addition,

35 countries that were former colonies of other nations have in force the provisions of the

preindependence bilateral agreement between the United States and the previous governing power.

Page 33 GAO/NSIAD-96-124 State Department
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foreign relations and economic interests. To carry out its transportation

responsibilities, the Bureau of Economic and Business Affairs has 

7 officers involved in negotiating aviation agreements and 14 officers

working on transportation policy, including maritime negotiations.

International Security

Issues

In the area of international security affairs, State focuses on arms control,

the nonproliferation of weapons of mass destruction, export controls, and

regional security. In some cases, State shares its expertise on certain

issues, while other agencies complement State’s contribution. In other

cases, the uniqueness of each agency’s contribution is unclear. For

example, one area of overlap is in the review of export license

applications. State’s Office of Defense Trade Controls, under the

Political-Military Bureau, works in partnership with the Defense

Department on license applications for arms exports. The Office also

confers with the Commerce Department on license applications for

exports of sensitive dual-use items and with the Department of Energy for

exports of nuclear-related material. Both State and ACDA are involved in

dual-use and arms export issues. In some instances, multiple agencies

review the same applications to provide their perspectives and expertise.

In the area of arms control, studies issued by the Office of Inspector

General for ACDA, the Office of Inspector General for State, and the

National Security Council suggest that duplication between State and

other agencies could be eliminated. In August 1995, the Office of Inspector

General for ACDA (which also serves as the Office of Inspector General for

the Department of State) reported that duplication between ACDA and

State’s Political-Military Bureau “promotes inefficient use of resources by

both organizations and accentuates turf consciousness, dissipating

energies and damaging morale.”4

 Without specifying where duplication

exists, the report recommended that ACDA, with State, reassess the division

of labor and make more extensive use of teams to accomplish tasks of

mutual interest.

A State official acknowledged that the Political-Military Bureau’s Office of

Strategic Policy and Negotiations and ACDA probably have some

duplication or overlap in functions on which ACDA is the lead agency. He

said, however, that duplication of this type does not mean that both

organizations are doing the same work. Rather, State’s office represents

the Department’s interests and articulates State’s positions on delegations

or interagency groups. Furthermore, the official said such duplication was

4

Report of Inspection, The U.S. Arms Control and Disarmament Agency (ACDA-ISP/I-95-44, Aug. 1995).

Page 34 GAO/NSIAD-96-124 State Department
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Opportunities for Streamlining Functions

necessary because each agency has different goals, perspectives, and

agendas. The official added that without State’s involvement, needed

political and diplomatic input would be lost, and overall policy and

diplomacy efforts could become imbalanced. State noted that it is seeking

to identify and reduce unnecessary duplication between State and ACDA in

order to reduce costs while maintaining a productive overlap.

Global Issues Although State represents U.S. interests and formulates policy on global

issues, USAID plays a key role in implementing programs concerning

democratization ($432 million), population ($568 million), and the

environment ($799 million), spending a total of about $1.8 billion in fiscal

year 1995. USAID works with State to develop conference agendas and

provides technical expertise, but State leads delegations to international

conferences and negotiates treaties on these issues.

On environmental issues, State often relies on the Environmental

Protection Agency for policy and technical expertise. However, State plays

a key role in representing U.S. interests in international organizations’

activities relating to environment, science and technology, and health

issues. In addition, State clears bilateral agreements negotiated by the

Environmental Protection Agency. In fiscal year 1995, the Agency devoted

about 160 work years, including 15 staff in overseas assignments, and a

budget of $44 million to its international activities. These activities

included protecting U.S. citizens and natural resources from

transboundary and global environmental threats, leading U.S. government

efforts to implement the Western Hemisphere Summit Program on

Partnership for Pollution Prevention. The Environmental Protection

Agency also works with other agencies and the private sector to match

pressing environmental problems overseas with U.S. suppliers of

environmental technologies.

Labor and workers’ rights issues are addressed within State’s bureaus of

Democracy, Human Rights, and Labor; Economic and Business Affairs;

Population, Refugees, and Migration; and International Organizations. In

addition, State’s Office of International Labor Affairs, which has a

headquarters budget of $381,000, maintains about 45 attachés overseas to

gather detailed information on workers’ rights outside the United States

and prepare congressionally required reports on workers’ rights.

Moreover, the Department of Labor, which is the lead agency for

formulating international economic, trade, and immigration policies

affecting U.S. workers, has a fiscal year 1995 budget of $12.2 million and

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Opportunities for Streamlining Functions

about 90 staff to deal with its international responsibilities. It participates

in interagency committees and international conferences and meetings

and serves as the lead U.S. representative in multilateral forums on labor.

By eliminating the positions of 6 headquarters staff and the 45 labor

attachés overseas, State could reduce costs by about $7.4 million annually.

According to several officials at overseas posts, labor issues could be

adequately covered by political and/or economic officers. In addition,

several State bureaus monitor labor issues. State has proposed abolishing

or lowering the rank of some labor attaché positions in the past but has

encountered resistance from the Department of Labor and organized

labor.

Option: Cut Activities

and Recoup Costs

Faced with a reduced budget environment, State must make choices about

which areas to cut while considering the interrelationships among State’s

bureaus and offices and between State and other agencies. State may find

it difficult to decide where it can transfer, eliminate, or deemphasize its

role, yet maintain priority functions and activities. Nevertheless, in our

opinion, State can cut some of its expenses by eliminating or reducing the

Department’s involvement in some areas. Furthermore, State can also

consider alternative ways to recover the costs of the wide array of the

products and services it provides to its customers.

Options for Reducing

Reporting Requirements

Reduced budgets will likely compel State to reassess its workload

requirements to match its resources. One key area is that of reporting.

State is a principal provider of information used by the U.S. government in

foreign policy formulation. It reports on key developments, including

analyses of the politics, economic trends, and social forces at work in

foreign countries, to some 60 federal agencies dealing with national

security, intelligence, economic and commercial matters, science and

technology, and other issues. While some of the reports could be

eliminated or curtailed, it is not clear which are the best candidates

because their cost and relative value to the users are unknown.

In fiscal year 1996, State is required to produce over 130 congressionally

mandated reports.5

 These reports require input from numerous posts

worldwide and the use of considerable resources at headquarters and at

overseas posts. Streamlining some of these reporting requirements not

5

These reports are required periodically—that is, monthly, quarterly, semiannually, annually, or as

specified. About 40 additional reports are required intermittently, as actions warrant.

Page 36 GAO/NSIAD-96-124 State Department
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Opportunities for Streamlining Functions

only could significantly reduce resource requirements at State but also

could reduce demands on other agencies that must review some of these

reports.

The Bureau of Economic and Business Affairs, which recently eliminated

over 40 reports affecting up to 110 posts, believes that the requirement to

produce country reports on economic policy and trade practices should be

eliminated. These reports, required by the Omnibus Trade and

Competitiveness Act of 1988, consume the equivalent of 5 staff years at

headquarters and 100 posts at an annual cost of at least $500,000. Several

officials suggested that State seek legislative relief from this requirement,

since the reports’ information is available through other sources.

Other reporting requirements that consume substantial resources are the

annual country reports on human rights practices and the annual report on

science, technology, and American diplomacy. Geographic bureau and

post officials reported that they spent large blocks of time producing these

reports. For the human rights reports, the time required to prepare an

annual report varies from country to country. One overseas official, who

said he spends 40 to 50 percent of his time covering human rights issues,

estimated that drafting a country summary for the human rights report

takes at least 4 weeks. The concern here is that State expends resources

on these reports even in countries where human rights issues are not

significant. In addition to the 194 overseas posts that contribute to the

report, State has indicated that one employee spends roughly 6 months

working on the reports, and seven work on the reports full time for 

4 months. About 12 more employees review reports within their regional

areas of responsibility in the course of their regular workday. According to

one State official, if faced with substantial budget reductions, State may

have to limit reporting on those countries where human rights abuses are

least prevalent.

Options for Reducing

Overlap Within State

Lessening overlap within State’s offices could reduce costs. For most

functions and activities, several offices and bureaus within State

headquarters and overseas posts are involved. In February 1995, State

completed a preliminary functional study of domestic positions, focusing

on potential areas of overlap and duplication. Although the study did not

offer definitive answers or management options, it provided some clear

examples of potential duplication of functions for further research. For

example, 24 political-military positions are in bureaus other than the

Bureau of Political-Military Affairs, 59 economist positions are in bureaus

Page 37 GAO/NSIAD-96-124 State Department
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Opportunities for Streamlining Functions

other than the Bureau of Economic and Business Affairs, and 9 science

positions are outside the Bureau of Oceans and International

Environmental and Scientific Affairs. Moreover, the study indicated that

there is potential overlap between the Bureau of Intelligence and Research

and regional and functional bureaus throughout the Department.

Furthermore, geographic bureaus are organized to overlap with many

foreign policy and support functions. In a way, they operate as six

micro-State departments, basically administering U.S. foreign policy in

different regions of the world. Within each of the six bureaus is an Office

of the Executive Director with financial management, personnel, and other

support positions; a political and economic section or a combined

political-economic section with regional responsibilities; and country

desks that serve as the liaison between State headquarters offices and

overseas posts.

Options for Recovering

Costs of Some Services

State could recover some costs by charging for selected services and

products. Charging for such services would force the customer to reassess

the relative value of the service. State currently makes only limited efforts

to routinely compile data on the cost of its reports and services. Agencies

we contacted generally valued the reports and services that State

provided, but since costs are unknown, organizations have difficulty

making cost-benefit decisions.

State has historically charged for consular services but not for its factual

and analytical reports, business assistance services, and assistance to

overseas visitors. For example, the economic/ commercial section of

Embassy Asuncion, Paraguay, handled about 30 interagency requests

between September and October of 1995, including requests from USTR; the

Federal Aviation Administration; the U.S. Trade and Development Agency;

and the Departments of Commerce, the Treasury, and Energy—none of

which has representatives in Paraguay. The Consulate General in Sao

Paulo, Brazil, supported at least 14 high-level visits in 1995, including one

congressional delegation; the Secretary of Commerce and the Secretary of

the Treasury; the governors of Wisconsin and Nebraska; the mayor of

Orlando, Florida; the Director-General of the U.S. and Foreign Commercial

Service; and U.S. Export-Import Bank officials. State is not compensated

for staff time and some other expenses associated with these services.

Unlike other areas in the Department, State’s goal in Consular Affairs is to

recover the total cost of selected services. For example, based on a 1991

Page 38 GAO/NSIAD-96-124 State Department
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Opportunities for Streamlining Functions

cost study that showed the average cost of a passport was about $60, State

now charges $65 to issue a passport. In fiscal year 1995, State collected

$552 million in consular fees—funds that reverted back to the Treasury.

Since 1994, State has been authorized to retain the surcharge collected for

machine-readable visas, expedited passport fees, and certain processing

fees. For fiscal years 1994 and 1995, State was allowed to keep up to

$107.5 million—funds that the Bureau of Consular Affairs indicated it is

using to finance improvements to some of its passport and visa programs.

Consular Affairs is considering raising fees and charging for services that

are currently free and may seek legislative authority to retain more fees to

finance its activities. It may also seek legislative authority to make

permanent the Department’s retention of machine-readable visa fees.

In March 1996, State issued instructions to overseas posts to collect fees

for some commercial services. Under a newly authorized program, State

will collect fees for commercial services at posts where the Commercial

Service is not represented. The potential annual revenues, estimated to be

as much as $3,000 per post, will be reinvested to support business

assistance activities.

In September 1995, State’s Inspector General recommended that the

Bureau of Political-Military Affairs consider expanding manufacturer and

exporter registration and licensing fees to improve State’s arms export and

compliance activities. Under its annual appropriation act, State may retain

a stated amount annually, funds that the Bureau has used for information

systems to modernize the Bureau’s operations. In fiscal year 1995 State

retained $700,000. In comparison, officials from the Nuclear Regulatory

Commission, which also charges arms manufacturers and exporters

registration and licensing fees, said that the Commission’s licensing

process is self-financing from fees that range from $100 to $7,000 per

license.

While State currently has authority to collect and retain fees for a number

of the products and services it provides, it should determine whether there

other areas in which it could benefit from additional cost-recoupment

authority.

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Opportunities for Streamlining Functions

Potential Impact of

Cutting Back on

State’s Role in Certain

Functions

The cost-cutting decisions that State may make could adversely affect

other agencies. For example, because USTR has only one overseas office in

Geneva, Switzerland, it relies on State for field support in developing and

enforcing trade agreements. In a similar vein, the U.S. Export-Import

Bank, which has no offices overseas, also relies on State for support in

analyzing the credit risks of countries and negotiating and enforcing the

terms of foreign loans. Moreover, State and agency officials emphasized

that if other agencies, such as the Department of the Treasury and the

Federal Aviation Administration, downsize their presence overseas due to

reduced budgets governmentwide, they are likely to rely on State even

more for field support of international activities.

Other agencies also rely on State for support from the international

conferences and contingencies account, which funds the U.S.

government’s participation in about 700 international conferences.

Although the State Department coordinates overall U.S. participation,

other agencies, such as the Departments of Labor and Transportation and

USTR, provide technical expertise and lead delegations where appropriate.

When the Congress reduced the account from $6 million in fiscal year 1995

to $3 million in fiscal year 1996 ($2 million for conferences), the State

Department told other agencies that it could no longer fund non-State

participants. According to agency officials, State’s decision forced

agencies to limit or cancel their participation in some conferences, even

though in some instances the other agencies, not State, lead the U.S.

delegation. To help them plan for anticipated cuts in State support and

services, agency officials urged the Department to coordinate its plans

with other agencies in advance to allow those affected by State’s decisions

sufficient time to make alternate arrangements.

Another example of the impact of State cutbacks on other agencies is in

the assignment of detailees. State assigns detailees to agencies such as

USTR, the National Security Council, and the Department of Defense as well

as to congressional offices. Similarly, other agencies, like USAID, assign

detailees to the State Department. As State and other agencies face

reduced budgets, they may have to consider the costs and benefits of

detailing staff to outside assignments. Although State has no immediate

plans to eliminate or seek reimbursements for all detailees, the

Department recently formed a committee to review the policy. State

currently has 136 employees detailed to other agencies. USTR has about 40

detailees from other agencies, 10 of whom are from the State Department,

to augment its 163-member staff. Officials there expressed concern that

State would first try to reduce costs by eliminating the detailees it provides

Page 40 GAO/NSIAD-96-124 State Department
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Opportunities for Streamlining Functions

cost-free. USTR officials told us that, considering their limited budget and

staff, such an action would adversely affect their operations.

Conclusions Given the potential that State’s budget will decline, the Department must

scrutinize its diverse functions to determine which are critical, decide on

appropriate levels of resource investments, and identify areas that could

be streamlined. Offices within State share responsibility with multiple U.S.

agencies for various overlapping policy issues, which may suggest the

potential for consolidating or transferring some of State’s duties. Other

agencies may be able to assume greater responsibility in some areas. On

the other hand, budget considerations may increase other agencies’

reliance on State for support of their international activities. Therefore, in

making these streamlining and management decisions, State will need to

consider how cost-cutting decisions within the Department may adversely

affect other agencies.

State also must reassess its involvement in certain functions and activities.

This may include seeking legislative relief from certain congressionally

mandated reports or authorization to downgrade the level of certain

services. State also needs to consider recouping the costs of products and

services it provides to numerous customers. This will require State to

maintain cost information (which it does not currently have) in order to

weigh the costs and benefits of its products and services and prioritize

requirements. More importantly, the availability of cost information could

help State identify which functions and activities are most essential and

which areas can be eliminated, reduced, or deemphasized should reduced

budgets compel such action.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, State said that this chapter

accurately describes State’s foreign affairs activities and the large number

of other organizations involved. State made a number of technical

suggestions, some of which we incorporated in the report.

Regarding our discussion of the human rights reports, State indicated that

the Department had taken steps to streamline the report preparation

process (such as eliminating unnecessary redrafting and providing updates

only, rather than full reports). The Department of Labor expressed its

concern regarding streamlining these reports, noting that continuity in

coverage is important to the analysis of human rights issues. State also

said that it had taken steps to streamline its labor function, which State

Page 41 GAO/NSIAD-96-124 State Department
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believes remains important to U.S foreign policy interests. The

Department of Labor also objected to eliminating labor attaché positions

and asserted that neither political nor economic officers can effectively

perform the labor function.

We did not recommend that specific functions or activities be curtailed or

eliminated. Rather, we identified a number of options that, if implemented,

would help enable State to adjust to potential budget reductions. In a

period of limited resources, State may have to scrutinize its functions and

reassess its involvement in all areas, including human rights reporting and

labor functions.

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Options for Reducing Overseas Presence

Overseas posts consume almost 70 percent of State’s budget. Thus, a

fundamental rethinking and restructuring of the U.S. overseas presence

offers the greatest potential to achieve substantial budget reductions. State

officials believe that certain proposed funding levels could force them to

close 50 to 100 of its 252 overseas posts. The post closures and other

actions that would result from such a restructuring would mean a reversal

of State’s long-standing “universality” policy to maintain a presence in

nearly every country and could have other consequences as well. State has

proposed the closure of some posts and made efforts to reduce post costs

but has made little headway because of internal and external resistance.

Establishing an external commission to review proposed post closures and

vesting greater authority in the chiefs of mission to achieve cost

reductions are two approaches for addressing the problems.

Overseas Posts Are

Costly to Operate

The State Department’s overseas posts cost about $1.9 billion annually.

This amount includes the personnel costs for State’s overseas U.S.

direct-hire and foreign service national (FSN) employees; operating

expenses; and the costs for equipment, security, and building acquisition

and maintenance. State employs about 7,000 U.S. direct-hire workers and

about 9,300 FSNs at its posts.1

 It maintains embassies in most countries’

capitals, consulates in some commercial centers outside capital cities, and

missions to international organizations in some countries.

The agendas, sizes, and costs of overseas posts vary greatly. Some posts

are small and provide basic U.S. representation in a country. Other posts’

operations are comprehensive, with more staff and larger budgets to

support a large number of government agencies. The State Department

categorizes posts as representational, focused, small, medium, large, and

comprehensive.

A representational post serves as a diplomatic and consular presence in a

host country’s capital or in a major city of the country. Posts in the Central

African Republic, Grenada, and Western Samoa are considered

representational, and their annual costs range from about $240,000 to

about $2.5 million.2

 A focused post not only serves as a diplomatic or

1

The U.S. government has approximately 35,300 U.S. government employees at overseas posts,

including about 18,600 direct-hire employees and about 16,700 FSN employees.

2

These are State’s estimates of fiscal year 1995 funding levels and include the estimated personnel

costs for State’s overseas U.S. direct-hire and FSN employees; operating expenses; and equipment,

security, and foreign building operations. Estimated funding includes direct appropriations and

reimbursements from other agencies and may also include funds for some nonrecurring costs (e.g.,

construction).

Page 43 GAO/NSIAD-96-124 State Department
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consular presence but also functions in one or more specific areas, such as

foreign assistance or narcotics control. The posts in Burkina Faso,

Mongolia, and Vatican City are considered focused, and their annual costs

range from about $1.6 million to about $3.1 million.

The responsibilities of posts increase with their designation as small,

medium, large, and comprehensive. Responsibilities range from

addressing U.S. government policy and support requirements with a small

staff at a small post to addressing a full range of intensive bilateral and

multilateral issues as well as important and long-standing U.S. domestic

issues with a large, diverse staff at a comprehensive post. Costs for

medium, large, and comprehensive posts are substantial. For example, it

costs $54.2 million annually for a comprehensive embassy and five

consulates in Japan.

Large and comprehensive posts—those with the greatest

responsibilities—understandably absorb a disproportionate share of the

total costs of U.S. overseas posts. As shown in table 4.1, 10 of State’s more

expensive missions accounted for over $396 million, or over 21 percent of

costs in fiscal year 1995. In contrast, 10 of State’s least expensive missions

accounted for nearly $14 million, or less than 1 percent of total costs.

Table 4.1: State’s More Costly

Missions Dollars in millions

Mission Fiscal year 1995 funding

Germany $90.3

Japan 54.2

Mexico 42.3

France 53.5

Italy 35.1

United Kingdom 28.0

Brazil 27.4

Canada 19.6

Austria 23.1

Saudi Arabia 22.8

Source: State Department, Bureau of Finance and Management Policy.

Post Functions and

Resource Allocations

The overseas posts’ primary mission is to support U.S. foreign policies by

promoting political interests; supporting U.S. economic and trade

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interests; participating in efforts affecting global issues such as the

environment, counternarcotics, and labor; issuing visas; and assisting

American citizens. Posts also provide a wide range of services, including

communications, office and residential building operations, health,

equipment installation and maintenance, personnel, budget and fiscal,

travel, motor pool, procurement, shipment and customs support, and

security in support of mission operations and staff.

Figure 4.1 shows the work assignment distribution of State’s direct-hire

employees posted overseas. As shown in the figure, support functions

consume a significant amount of post resources.

Figure 4.1: State’s Overseas U.S. Direct-Hire Employees

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Support

Political

Executive

Consular

Economic

Other

41.5%

16.8%

15.0%

13.8%

9.4%

3.5% a

aOther includes science, refugee, and narcotics positions.

Source: State Department, Office of Resource Management and Organization Analysis, Bureau of

Personnel.

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In addition to U.S. direct-hire employees working in support positions,

State also employs over 9,300 FSNs, most of whom work in support areas.

State supports not only its own activities but also those of other agencies;

in fact, State supports more of other agencies’ U.S. direct-hire

employees—whose number has increased steadily—than its own.3

Individual posts provide a good illustration of resource allocations and

post functions. During our review, we visited posts in six countries that

vary in the numbers of staff, work, and budgets (see table 4.2).

Table 4.2: Post Resources in Six Countries

State staff Other agencies’ staff

Dollars in millions

Country

Number of

posts

U.S. direct

hire

FSN and

othera

U.S. direct

hire

FSN and

othera Total staff

State’s

funding level

(fiscal year

1995)b

Belarus 1 12 48 3 12 75 $2.0

Brazil 5c 120 431 88 204 843 27.4

Malaysia 1 41 123 32 44 240 8.4

The Netherlands 2 40 69 78 43 230 9.3

Paraguay 1 19 125 21 80 245 4.5

Senegal 1 29 147 43 157 376 8.0

aIncludes part-time intermittent temporary employees, U.S. personal service contractors, Marine

security guards (listed only as State Department staff), and foreign national personal service

contractors.

bIncludes personnel costs for State’s overseas U.S. direct-hire and FSN employees; operating

expenses; and equipment, security, representation, and foreign building operations. Amounts

may include some nonrecurring costs such as those for building construction and remodeling.

cWhile conducting our fieldwork, Brazil had five posts, but the Consulate in Porto Alegre closed

earlier this year and Brazil now has four posts.

Source: U.S. missions to Belarus, Brazil, Malaysia, The Netherlands, Paraguay, and Senegal and

the State Department’s Bureau of Finance and Management Policy.

The posts in Belarus and Paraguay are considered small posts; those in

Malaysia, The Netherlands, and Senegal are considered medium to large;

and the embassy in Brazil is considered large. Appendix I includes

information on the State Department’s overseas political; economic; and

commercial, global, and consular activities, focusing on activities at these

posts during September and October 1995. These activities may or may not

3

Of the approximately 18,600 U.S. direct-hire employees assigned to overseas posts, about 11,600

(62 percent) work for non-State agencies.

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be representative of the posts’ missions as defined by State, but they give

insight into the variety of issues the posts must deal with.

An important function of overseas posts has traditionally been to maintain

contact with foreign governments on political and security issues.

Together with the ambassador and the deputy chief of mission, a post’s

political section attends to the day-to-day political relations with the host

government and attempts to build support for U.S. government policies. It

also informs the U.S. government of host country policies and actions that

affect U.S. interests. At the posts we visited, the political sections spent

most of their time analyzing and reporting on the political situation there,

representing the U.S. government and developing contacts within the host

country, and supporting official visitors to the country.

State posts also support U.S. economic interests overseas, particularly in

the areas of business assistance and trade advocacy. At the posts we

visited, ambassadors were spending up to one-third of their time on

economic and trade advocacy activities, often personally weighing in on

behalf of U.S. businesses where appropriate. Posts also support issues of a

global nature, such as the environment, counternarcotics, and labor as

well as specific issues like international war crimes tribunals.

The consular section of an overseas post provides passport and citizenship

services; immigrant and nonimmigrant visa services; and services to U.S.

citizens overseas, for example, helping Americans in trouble abroad. The

sections we visited do a high volume of work with limited staff, collecting

fees for many of their services.

Although political, economic, and consular functions are the primary

missions of the overseas posts, support structures consume a large share

of State’s allocated resources. At the posts we visited, 28 to 67 percent of

State’s staff were devoted to support duties. According to State officials,

the number of personnel needed for support is influenced by several

factors, including language constraints, the quality of the local

infrastructure, and the availability of skilled labor locally. Table 4.3 shows

the support staffing levels in the six countries we visited.

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Table 4.3: Support Staffing Levels in

Six Countries (1995) 

Country

State

staff

Total

staff

State support

staff

Total support

staff (percent)

Belarus 60 75 50 67

Brazil 551 843 397 47

Malaysia 164 240 118 49

The Netherlands 109 230 65 28

Paraguay 144 245 119 49

Senegal 176 376 154 41

Source: U.S. missions to Belarus, Brazil, Malaysia, The Netherlands, Paraguay, and Senegal.

The contrast between the number of support staff and staff working on the

primary missions is striking at some of the posts. For example, of the 843

employees at the posts in Brazil, 551 work for State. Of State’s 551

employees, 154 work in substantive areas and 397 work in support areas.

Options for Closing

and Restructuring

Posts

State has closed and reduced the size of posts in recent years because of

funding constraints. For example, since 1991, State has closed 31 posts,

most of which were consulates in countries with multiple posts. During

the same period, State has also opened 28 posts mostly in the newly

independent states of the former Soviet Union.

State has a number of options to consider in closing more posts and

streamlining post operations. However, such actions are likely to face

continued resistance both from within State and externally. According to a

1992 State management study, some State officials favor multiple country

accreditation in some regions, where an ambassador operating from a

regional post would “circuit ride” to several small, neighboring countries.

Regional posts would allow consolidation of staff and other resources in

one central location, although cost reductions would be offset to some

degree by travel and other related expenses. The study stated that dual or

triple accreditation can work if there is reasonable geographic proximity

or if convenient air routes are available; no or very small other-agency

representation is in the country or countries concerned; and only

occasional “tending” for diplomatic reasons is needed. State favorably

cited British representation in Africa, where ambassadors are accredited

to three or four countries each. The U.S. Embassy in Bridgetown,

Barbados, has full diplomatic responsibilities for 7 countries and partial

diplomatic responsibility for 14 others in the eastern Caribbean. If the

foreign affairs budget declines, Embassy Bridgetown could serve as a

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Options for Reducing Overseas Presence

model for regionalizing American diplomatic presence. To reduce costs,

the State Department could expand multiple country accreditation to

other regions, such as the Baltic States, Africa, and countries in South

America such as Guyana and Suriname.

A second option would be to reevaluate the need for consulates. One

Deputy Chief of Mission suggested that while consulates served a variety

of purposes during the Cold War, expanded media coverage and improved

information and telecommunications technology have lessened the need

for them. The Deputy Chief of Mission posed an option to eliminate all

consulates to avoid political pressures when closures of specific

consulates are debated. Although many consulates are small or moderately

sized, some are bigger and more expensive to operate than major

embassies. For example, in fiscal year 1995, the consulate in Frankfurt,

Germany, cost about $18.8 million—substantially more than the cost of

operating the embassy in Ottawa, Canada ($5.9 million), and almost as

much as the combined total for the embassy and all six consulates in

Canada ($19.6 million).4

To critically review these and other options, one strategy would be to

establish an independent post closure panel like the Defense Base Closure

and Realignment Commission—an approach that resulted in decisions to

close, realign, or otherwise downsize hundreds of military bases and

installations. Although the criteria involved in closing and downsizing

overseas diplomatic posts are different, a panel much like the Commission

may be useful. A panel could review the needed governmentwide presence

at overseas posts as they relate to planned funding priorities. Since many

other agencies depend on State’s overseas presence, we believe that such

an approach would allow for decision-making based on the need to

support both State and non-State activities, consistent with overall U.S.

policy interests and priorities as well as available resources.

We believe that establishing such a commission would also have the added

advantage of mitigating at least some of the pressures and parochial

interests that have historically operated to maintain a U.S. overseas

presence. The State Department’s traditional policy of maintaining a

diplomatic presence in nearly every country—the policy of

“universality”—is the primary reason that there are 252 overseas posts,

even where U.S. interests are now minimal.

4

These are State’s estimates of fiscal year 1995 funding levels. The estimated costs for the embassy in

Ottawa do not include the cost of foreign building operations; however, the combined total for Canada

includes these costs.

Page 49 GAO/NSIAD-96-124 State Department
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Options for Reducing Overseas Presence

Universality is a principle rooted in the Cold War. According to the

National Performance Review, during the Cold War, the United States

obligated itself to maintain a presence around the world at least equal to

that of the Soviet Union. However, despite the end of the Cold War, State

remains reluctant to close embassies. In 1992, State decided to help

finance new posts in the former Soviet Union by closing posts in other

geographic regions, but some of State’s geographic bureaus resisted

proposing posts for closure. One bureau argued that it had been

established in response to congressional interest in the region and that

closing posts would be contrary to congressional intent. Another bureau

initially refused to propose that any post be closed because it wanted to

retain at least some presence in all countries.

Despite the expense, the concept of universality remains firmly rooted in

State’s policy. State officials say that even in countries with minimal U.S.

interests, a U.S. presence is important to provide international leadership,

for example, to influence votes in the United Nations. In September 1995,

the Secretary of State reaffirmed his commitment to universal

representation, noting that it had been invaluable in extending the nuclear

nonproliferation treaty earlier in the year and that it was essential when

crises erupt in unexpected places like Burundi and Belarus and when

American citizens experience trouble abroad.5

In addition to internal resistance, the State Department has faced outside

resistance to closing posts. In December 1992, for example, State reported

that congressional scrutiny, special interests, ethnic groups, and other

domestic U.S. political constituencies often emerge to oppose the closing

of posts.6

 In its 1992 post closing exercise, State originally proposed

closing 20 posts in fiscal years 1993 and 1994. After consultation with

congressional members on these closures, State announced that 19 of the

20 would close and then later reduced that number to 17.

In July 1995, in its latest attempt to close posts, State notified the Congress

that it intended to close 19 posts. It later withdrew six of the posts from

the list due to external pressures. For example, as a result of pressure

from a member of Congress and the Drug Enforcement Agency, State

removed the consulate in Curacao, Netherlands Antilles, from the list.

Some of the other five withdrawn posts—in Apia, Western Samoa;

Edinburgh, Scotland; Florence, Italy; and Hermosillo and Matamoros,

5

Speech before the Council on Foreign Relations, Washington, D.C., September 20, 1995.

6

State 2000: A New Model for Managing Foreign Affairs, State Department, Washington, D.C.,

December 1992.

Page 50 GAO/NSIAD-96-124 State Department
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Options for Reducing Overseas Presence

Mexico—have repeatedly appeared on lists of proposed closures. State

had expected to reduce its costs by about $12 million a year beginning in

fiscal year 1997, the year following the 19 closures. However, after

withdrawing six posts from the list, the projected cost reductions were

reduced to about $9.3 million.

Options to Reduce

Post Costs

In addition to actual post closures and consolidations, another option is to

consider ways to reduce post costs. Since a large portion of overseas costs

are structured around staffing, large budget reductions will likely mean

further cuts in overseas staff and operating costs. However, embassy

managers have little control over resources. As a result, the National

Performance Review recommended that a pilot project be set up to give

chiefs of mission more authority over all U.S. government resources at

posts.7

 This recommendation has not yet been implemented.

Options for Reducing

Overseas Staffing

Because of possible budgetary constraints, State may have to further

reduce the size of overseas posts—an even more likely possibility if State

remains reluctant to abandon its policy of near universal representation.

State could achieve significant cost reductions by making large-scale

reductions in overseas staffing. The prospect of further reductions in

overseas staffing means that an effective system for allocating overseas

staff based on agency goals and objectives is essential.

In December 1992, State reported that there had long been concerns that

the overseas staffing process was not directly linked with the goals and

objectives at specific posts. In 1993, among a number of other

organizational changes, the Secretary approved a plan to restructure the

overseas diplomatic presence. As part of this effort, State was to

implement a new overseas staffing model, under development since 1990,

to provide a rational basis for allocating personnel to overseas posts.

However, as of January 1996, State had still not implemented the model. In

commenting on a draft of this report, State noted that its Overseas Staffing

Board met in June 1996 to begin implementation of a model to rationalize

overseas staffing.

State’s costs would be much less if State made large-scale reductions in

overseas staffing. For example, the cost reductions from eliminating only

10 positions from overseas posts could total at least $1.5 million. State’s

7

Creating a Government That Works Better and Costs Less: Department of State and U.S. Information

Agency, Accompanying Report of the National Performance Review, Office of the Vice President

(Washington, D.C.; Sept. 1993).

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Office of Budget and Planning estimates the cost of positions overseas

from two different perspectives: (1) the costs of adding a new American

position and associated start-up expenses and (2) cost reductions from

eliminating a position. To estimate the costs of adding a new U.S.

direct-hire position to an existing overseas post, the Office uses a figure of

$214,400 for the first full year—an amount that includes the average salary,

compensatory and incentive allowances and benefits, and other operating

expenses. The Office uses a figure of $156,500 to estimate cost reductions

from cutting a U.S. direct-hire position overseas.8

 This amount is $57,900

less than the costs of adding a position because it does not include certain

operating costs, such as security, which may not decrease when a position

is cut. These figures vary by region and by post. For example, the cost

reductions from eliminating half of the 67 U.S. direct-hire employees in

India and half of the 100 in France could amount to about $5.2 million and

$7.8 million, respectively.

Option for Controlling Post

Costs

Chiefs of mission (generally ambassadors) currently control only a small

portion of the total resources devoted to their posts’ operations;

headquarters offices control the larger share. The National Performance

Review report noted that the centralized management of program and staff

resources in Washington, D.C., is less efficient than management of

resources in the field. For example, some embassy managers told us that

they were reluctant to hire FSNs or spouses to serve as secretaries because

their salaries and benefits would come from the posts’ budgets. On the

other hand, the salaries and benefits of U.S. direct-hire secretaries, which

are substantially more, are paid by headquarters offices.

Posts have tried to cut costs that are within their control, but cost

reductions have been small. For example, the post employees in Paraguay

are working longer hours Monday through Thursday and closing at noon

on Friday to reduce utility costs—an estimated cost reduction of about

$10,000 a year. Similarly, in Malaysia, the post’s air conditioning is turned

off at 5:00 p.m. on weekdays and all day on Saturday—a measure

estimated to reduce costs between $35,000 and $40,000 a year. The post in

The Hague is considering requiring staff to bring their own furniture

overseas, initially reducing the post’s costs by an estimated $10,000 a year,

with further cost reductions over time. The post now pays to operate a

furniture warehouse, but the cost of shipping household goods overseas is

paid by headquarters.

8

These figures reflect State’s estimates as of July 1995. We reported similar information in Overseas

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

Page 52 GAO/NSIAD-96-124 State Department
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According to some embassy managers, regulations and long-standing State

practices leave little room for innovative approaches to cutting costs. For

example, the managers at one post said that current prohibitions

governing lease/purchase arrangements do not allow for entrepreneurial

approaches to obtaining U.S. government real property.

State officials also argue that they lack sufficient authority over other

agencies’ resources at posts. A variety of laws, State Department

directives, and presidential letters of instruction give chiefs of mission the

authority over State’s and other agencies’ staffing decisions.9

 Nevertheless,

the National Performance Review noted that National Security Decision

Directive-38 (NSDD-38), issued June 2, 1982, makes the authority of the

chief of mission more theoretical than real in many cases. NSDD-38 allows

other agencies to challenge a decision made by the chief of mission.

According to State officials, headquarters management often does not

support chiefs of mission in bureaucratic battles with agencies that resist

their attempts to limit or reduce their staffs. Moreover, when a chief of

mission successfully limits an agency’s staff growth at one post, the

agency sometimes manages to increase its presence in a nearby country

instead. For example, although the Ambassador in Brazil negotiated with

the Internal Revenue Service to close its office in Sao Paulo because he,

along with Inter-American Affairs Bureau management, agreed that

Internal Revenue Service operations could be effectively managed in the

United States, the Internal Revenue Service opened a new office in Chile.

Our prior work has shown that other agencies’ staffs have increased

steadily, while State’s has decreased slightly.10

Even if chiefs of mission successfully exercise authority over staff levels,

they do not have practical day-to-day control over their personnel and

fiscal resources. According to the National Performance Review, because

of the diffusion of responsibility, authority, and operational prerogatives

among the various overseas agencies, chiefs of mission lack the flexibility

to shift resources to respond to changing requirements or evolving foreign

policy objectives. The Ambassador in Senegal managed to cut 14 positions

in Dakar, 13 of which were from other agencies, with estimated overall

cost reductions of about $3 million. He believes, nevertheless, that he

9

State is not responsible for large numbers of personnel who are paid directly or indirectly by other

U.S. government agencies and involved in U.S. government activities overseas, for example, military

personnel under a U.S. area military commander.

10In 1994, we reported an overall increase of 19 percent in overseas staffing between 1984 and 1994.

Agencies such as the Departments of Justice, Transportation, and the Treasury accounted for the

largest increases. See Overseas Presence: Staffing at U.S. Diplomatic Posts (GAO/NSIAD-95-50FS,

Dec. 28, 1994).

Page 53 GAO/NSIAD-96-124 State Department
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Options for Reducing Overseas Presence

could achieve greater cost reductions if he had day-to-day operational

control over total U.S. government funding and resources at his post. A

review of the post’s mission and structure, led by the Ambassador,

concluded that the explosion of different administrative, financial, and

information systems among the various agencies overseas calls for

consolidation of support functions, privatization, and other changes that

can come about only with expanded chief of mission authority. For

example, the agencies in Dakar have four different communication

systems. Also, 7 independent financial operations and 38 staff positions

are devoted to financial management functions there. The study indicated

that there are similar redundancies elsewhere and that streamlining and

cost reductions could be achieved in areas such as real estate and facilities

management, security, and quality-of-life benefits. (Options for cost

reductions in some of these areas are explored in more detail in ch. 5.)

To strengthen the ability of chiefs of mission to achieve significant cost

reductions, in September 1993 the National Performance Review

recommended a pilot project giving U.S. ambassadors at selected posts

more authority over all U.S. government resources at their posts, including

staff. There may be some potential negative consequences to expanding

ambassador authority. For example, a chief of mission and a federal

agency may have differences of opinion concerning the types and levels of

resources needed to sustain agency activities.

State has not initiated action on this recommendation. State officials told

us the Department cannot move on this recommendation until the

National Performance Review/Vice President’s staff propose the needed

legislation to the Congress. However, National Performance Review staff

told us that proposing legislation is the agency’s responsibility. State does

not want to initiate action because it believes the pilot program should be

viewed as an administration initiative to gain the interagency support such

a project would require. State has also told us that anticipated

congressional opposition to such a project has inhibited their submission

of a legislative proposal.

Consistent with the recommendation, in November 1995, the U.S.

Ambassador to Senegal submitted a study concluding that the chiefs of

mission need more authority and control over U.S. government programs,

personnel, and resources under their management. He asked that the

Under Secretary for Management convene the Vice President’s Interagency

Council to obtain agreement from its members to designate selected posts

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Options for Reducing Overseas Presence

to test the study’s conclusions. State management has been reviewing the

proposal.

Conclusions Because of fiscal constraints, State may not be able to continue to

maintain its vast network of embassies and consulates as they are

configured today. The end of the Cold War coupled with improvements in

communications capabilities provide the opportunity to rethink how the

U.S. government’s overseas presence is structured and develop new ways

of operating that could increase efficiency and reduce costs. Balanced,

thoughtful decisions must be made to ensure that U.S. interests are well

served overseas and Americans are protected within the constraints of

reduced funding.

Matters for

Congressional

Consideration

If future funding levels require the State Department to close and reduce

the size of posts, the Congress may wish to establish an independent panel

to review State’s proposals in view of (1) the potential financial benefits to

the U.S. government, (2) the impact on governmentwide interests and the

many agencies that depend on State’s services, and (3) the potential

opposition to closing posts. Although the criteria involved in closing and

downsizing overseas diplomatic posts are different, a panel much like the

Defense Base Closure and Realignment Commission established to review

military installations may be useful.

Also, if the Congress believes that ambassadors’ authority over U.S.

government resources should be expanded to reduce spending, it could

explore with the executive branch how a pilot program, such as the one

recommended by the National Performance Review, could be structured

and implemented.

Agency Comments

and Our Evaluation

State said that the chapter did a good job of describing State’s experiences

in proposing posts for closure and outlining some approaches to reducing

the number of posts. State asserted that a diplomatic presence in all

countries with which the United States has diplomatic relations continues

to be important today. State also emphasized that Americans traveling

abroad as well as other U.S. agencies depended on the network of

embassies and consulates. These factors will need to be carefully

considered in determining what overseas presence is essential and

affordable.

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USAID objected to expanding an ambassador’s authority over the

programmatic direction and funding of overseas programs, even on an

experimental basis. Increasing ambassadors’ authority, on a pilot basis, is

one option we offered as a means to reduce costs. We stated that

increasing ambassadors’ authority could have negative consequences.

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State’s Support Costs Can Be Reduced

The State Department spends two-thirds of its budget on support

operations. In response to reduced operating budgets, State is pursuing or

studying several options to reduce its support costs. These include

(1) recouping the full cost of support provided to other agencies overseas,

(2) hiring more U.S. family members to fill overseas staffing positions,

(3) increasing employees’ payments for medical services, (4) increasing

the length of overseas tours, and (5) reducing its costs for Marine guard

detachments at overseas posts by deactivating certain units or shifting its

cost to the Department of Defense.

We identified several additional options State could implement if it has to

adjust to potential budget cuts. These options include (1) reducing support

staffing levels in headquarters, (2) reviewing employees’ benefits and

allowances, (3) expanding the use of foreign nationals in support positions

at overseas posts, and (4) disposing of excess and underused properties

overseas.

Over the long term, State hopes to reduce its operating expenses through

business process reengineering and the outsourcing of certain support

functions. In both areas, however, only limited progress has been made.

Support Network

Consumes a Large

Portion of the Budget

In fiscal year 1995, State allotted $1.8 billion, or about 65 percent of its

budget, to domestic and overseas support operations.1

 These funds

provided support for both Department staff and employees from other

federal agencies. Centrally funded operations2

 account for approximately

$1.1 billion of the support budget and cover central administration costs

and the costs of running several regional centers that provide financial and

information management services to overseas posts. The geographic

bureaus control the remaining portion of State’s support budget, which is

largely used to fund the salaries of those employees in support positions.

State is reimbursed for some support costs under the Foreign Affairs

Administrative Services (FAAS) system, which attempts to allocate costs

among agencies based on workload. Under FAAS, other agencies at

overseas posts reimburse State for the incremental cost of providing some

support services. In fiscal year 1995, State received an estimated

1

State has never determined how this rate compares to other diplomatic services or firms in private

industry. State’s Assistant Secretary for Administration noted that in theory this could be done, but

added that any comparison would be complicated by State’s security requirements and support

responsibilities for other agencies overseas.

2

These include security, personnel, finance, information systems, telecommunications, security and

maintenance of U.S. missions, logistical operations, training, and medical services.

Page 57 GAO/NSIAD-96-124 State Department
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State’s Support Costs Can Be Reduced

$187 million in FAAS reimbursements from other agencies. These funds

were primarily used to pay the salaries of FSNs and personal service

contractors hired to meet the administrative needs of other agency staff.

According to State’s Chief Financial Officer, however, these payments only

partially covered the increased costs of hosting staff from other federal

agencies.

State Is Seeking to

Reduce Its Support

Costs

State officials recognize the need to reduce the Department’s support

costs. In a March 1994 memorandum, the Under Secretary for Management

notified managers throughout the Department that significant and

sustained cuts in support costs must be made to allow State to continue to

operate with declining budgets. Under the direction of the Under Secretary

for Management, State has launched a number of initiatives designed to

reduce its support costs. The most significant of these initiatives involves

an attempt to recoup certain support costs that were previously

unreimbursed under the administrative cost-sharing system used by State

and other federal agencies overseas.

New Mechanism for

Overseas Cost Allocation

Has Potential for Cost

Reductions

Under FAAS, agencies at overseas posts reimburse State for the incremental

cost of providing some support services. State believes that FAAS

reimbursements do not capture the Department’s full costs for support to

other agencies, and as a result State subsidizes their overseas operations.

The President’s Management Council (a federal managers’ forum

established under the National Performance Review) also expressed

concerns about the complexity and equity of FAAS, noting that FAAS is

primarily a reimbursement mechanism—not a system for rationalizing

delivery of overseas administrative services—and it does not address

quality and delivery of services. To address these problems, the President’s

Management Council developed the International Cooperative

Administrative Support Services (ICASS) System.

Under ICASS, greater responsibility and authority for managing resources

and making decisions about paying for common administrative support

service will be delegated to the posts. Posts will be encouraged to explore

additional options for obtaining administrative support, rather than relying

solely on State. These options could include allowing other agencies to

provide support functions, using commercial contractors, or introducing

improved technologies. In addition, costs are to be clearly delineated by

agency for all post- and Washington-related services.

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Since ICASS is designed to better rationalize the delivery of overseas

administrative services, it should serve to help identify specific steps that

can be taken to streamline overseas operations, reduce the costs of

administrative services, and make better use of information systems and

communications technology.

In fiscal year 1997, State plans to implement ICASS administrative

procedures worldwide,3

 but State and other agencies will fund overseas

support operations using FAAS funding practices. The ICASS cost recovery

system will not go into effect until fiscal year 1998. State views ICASS as a

mechanism to equitably spread the full cost of providing overseas support

across all agencies with an overseas presence. State estimates that in

terms of cost recovery alone, implementing ICASS would allow the

Department to spend $108 million less per year for support to other

agencies. Redistribution of costs currently covered under FAAS would

reduce costs to State by $15 million, and billings for new cost items not

currently covered under FAAS would reduce cost to State by an additional

$93 million.4

 From a governmentwide perspective, these funding shifts

alone do not represent cost reductions. Some officials thought that once

agencies had to pay the true cost of placing personnel overseas, many

would decide to reduce their overseas presence. Such reductions would

reduce overall U.S. spending for overseas support.

State is also exploring how to bill agencies for costs that were previously

provided at no charge. For example, the Congress has tasked State’s

Diplomatic Telecommunications Service Program Office with devising a

system for charging agencies the actual cost of providing overseas

communication links. State is also considering billing agencies for foreign

building operations, overseas schools, security officers, as well as some

incremental domestic support costs associated with other agency

operations overseas. State has not estimated the potential revenue gain

from charging for these and other services.

Other agencies support the new system, noting that ICASS represents a

cultural change in the way overseas operations are managed. The move to

customer-based service standards and principles presents an opportunity

for cost reductions from greater efficiency and interagency coordination.

3

The Department of State Appropriations Act, 1996, requires that in fiscal year 1997 a system be in

place that allocates to each department and agency the full cost of its presence outside the United

States.

4

Beginning in fiscal year 1998, State will bill other agencies for local guard services at office buildings,

the community liaison officer, and building operations and expenses for government-owned and

long-term leased properties.

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Agencies also applaud the move to grant more decision-making authority

to the posts as to how they are managed. Major disagreements, however,

remain to be resolved over which costs should be covered under ICASS and

how these costs should be allocated among participating agencies. Every

agency we spoke to expressed concerns about paying higher costs under

ICASS and funding to cover those costs. Some agencies would like State to

transfer funds from its budget to them to offset the expected higher costs

under ICASS.

Agencies also expressed concern that (1) a financial system to track costs

and transfers of funds has not been field-tested; (2) the pilot tests have not

lasted long enough to evaluate ICASS capabilities; and (3) details for

handling different budget cycles, financial systems, and requirements

across agencies have not been resolved. State says it will be able to

address these concerns in time for worldwide implementation. State

Department officials also noted that the Department has to comply with a

congressional mandate to obtain full recovery of each department and

agency’s costs in fiscal year 1997.

ICASS has merit and the potential to change the culture of overseas

operations. However, ICASS implementation will likely lead to a protracted

debate over funding issues within the executive branch. Since ICASS

implementation will affect overseas funding and staffing decisions at over

35 U.S. government agencies, it will require significant, high-level support

within the executive and legislative branches for full implementation.

U.S. Family Member

Program Is Expanding

In October 1995, a task force established by the Under Secretary for

Management recommended that State increase the hiring of family

members to help meet overseas staffing needs. State could cut costs by an

estimated $105,000 for each family member hired to fill a position normally

reserved for a junior officer. A State official noted that the Department will

hire only about half of its normal junior office class in fiscal year 1996.

This will heighten the importance of the family member program to help

meet overseas staffing needs. In commenting on this report, State noted

that not all junior officer positions can, or should, be filled by family

members, since these positions provide valuable career training for

Foreign Service officers.

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Cost Reductions From

Changes in Medical

Services

To provide adequate health care for its employees worldwide, State

operates a health clinic in Washington, D.C., and 139 health units

throughout the world, providing many free services to its employees and

employees of other foreign affairs agencies.5

 State’s main health clinic has

diagnostic and laboratory facilities, including unique capabilities in the

area of tropical and parasitic diseases, and provides the physical

examinations required before staff and family members are posted

overseas. State also has a clinic at the National Foreign Affairs Training

Center. The overseas programs provide free occupational health-related

services (such as first aid for minor on-the-job injuries) and primary

medical care. The Inspector General reported that there were about 79

Foreign Service health-care professionals, supplemented by local hire

nurses and contract physicians, working in overseas posts as of

January 1994.

According to a report by State’s Inspector General,6

 State spent about

$19 million in fiscal year 1995 to provide uncompensated medical care to

its employees. The Inspector General recommended that State shift up to

$13 million of these costs to private health insurers responsible for

reimbursing employees for the costs of these services. The Inspector

General recommended that the remaining $6 million in uncompensated

care not be transferred. The Inspector General proposed that the

Department absorb this cost because it represents patient copayments and

deductibles that impose an administrative burden to track and recoup.

Also, different living conditions among posts could result in varying illness

rates, and employees should not be penalized for working in less desirable

locations. A provision in the fiscal year 1996 authorization bill would

enable State to collect reimbursements for medical services rendered. A

senior State official noted that additional cost reductions could be

achieved if the Department contracted for some services currently

provided by State headquarters medical clinics and if routine medical

services, such as physical examinations, were tailored to an employee or

dependent’s age, sex, and known risk factors. The same official estimated

that these actions could reduce costs by an estimated 30 percent of the

annual $4.5 million cost of clinical services, or about $1.4 million.

5

Included in the Department’s medical health program are all U.S. citizen employees of the Foreign

Service and eligible dependents and U.S. citizen federal employees assigned abroad by other federal

agencies participating in the medical health program and their eligible dependents.

6

Office of Inspector General, U.S. Department of State Report of Audit No. 5-SP-013: Overseas Health

Units, March 1995.

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State’s Support Costs Can Be Reduced

Overseas, State ensures that its employees receive care by authorizing and

approving payment for inpatient medical care and related outpatient

treatment of eligible overseas U.S. citizen employees and their dependents.

It then relies on its employees to file insurance claims and forward

reimbursements to State. In August 1995, State’s Office of Medical Services

and the Bureau of Finance and Management Policy began tracking

whether its employees filed such claims and whether reimbursements

were turned over to the Department. Posts issue authorizing services and

report to the Office of Medical Services the obligation number, insurance

carrier, amount expended, and information on the service provider. The

Office of Medical Services issues fund cites for all hospitalizations

overseas and tracks the recovery of medical insurance benefits. As of

January 1996, of the $1.5 million expended for overseas hospitalizations,

State had collected about $1.2 million (77 percent) and expected the final

recovery rate to exceed 80 percent. In 1996, employees will be held liable

for the cost of care, and debts will be turned over to the Bureau of Finance

and Management Policy for collection through State’s debt collection

procedures.

While embassies have the same guidelines for pursuing reimbursements

for medical services, State does not track expenses for other federal

employees that rely on it for medical services. Therefore, it does not know

whether other agencies’ employees reimburse embassies. In August 1992,

we recommended that State begin tracking costs for other agencies and

whether these costs were reimbursed by private insurers. A State medical

official agreed that tracking could be done but that the tracking workload

would increase by 80 percent. State has not attempted to quantify the

costs and benefits of tracking payments from other agencies’ overseas

staff, but it appears likely that State would achieve cost reductions similar

to those achieved by tracking reimbursements from State employees.

Extending Tours of Duty State estimated that it spent $68.7 million in fiscal year 1995 for travel for

post assignments. A 1993 State study of its policy on tours of duty

projected cost reductions of about $2 million annually by extending tours

to 3 years for all overseas posts (tours at hardship posts are currently 

2 years). Longer tours at all posts could further reduce costs. With longer

tours, State could also increase productivity and effectiveness because

staff need several months to adjust to foreign local cultures, languages,

and environments and to master a new job and about 9 months to go

through the reassignment process at the end of the tour. A 2-year tour can

therefore leave relatively little time for peak performance.

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Although costs could be reduced by extending tours of duty, State has

concluded in the past that the negative impact on employees’ morale and

State’s assignment process did not permit extending tours of duty.

However, State said it is now reexamining the issue in light of the current

budget situation.

Potential to Reduce State’s

Cost for Marine Guard

Detachments

In fiscal year 1994, State paid its share—$22 million—for 125 Marine guard

detachments at 112 embassies, 11 consulates general, one U.S. mission,

and one U.S. interests section. The guards are jointly funded by the Marine

Corps and the State Department and primarily safeguard classified

documents. As recommended by the National Performance Review and to

reduce costs, Marine guard detachments have been deactivated at some

posts where the level of classified operations do not warrant 24-hour

cleared American presence. The State Department and the intelligence

community are reviewing whether some detachments could be deactivated

or transferred to other locations. In lieu of Marine guards, State may have

to expend funds to increase security safeguards—for example, by

providing better real time surveillance equipment at the chancery. But, on

balance, deactivation of guard detachments could reduce cost where

security conditions permit.

For fiscal year 1997, the executive branch has proposed that funding for

the Marine guard detachments shift from State to the Department of

Defense. If this occurs, State will no longer spend its funds on the Marine

guard detachments.

Additional Cost

Reduction Options

Other options State may wish to consider in the future include

(1) reducing support staff levels in Washington, (2) reviewing employee

benefits and allowances, (3) expanding the use of FSNs in support positions

at overseas posts, and (4) selling excess or underused overseas property.

Support Staff in

Headquarters

According to a number of management reports, there may be

opportunities to reduce staffing in headquarters support offices. A senior

State official in Personnel noted the Department has been slow to initiate a

detailed review of support staffing levels in Washington. However, a

preliminary assessment of State’s domestic staffing, issued in

February 1995, noted a basic concern that support functions account for

almost 60 percent of State’s domestic workforce.

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Similar concerns over the proportion of domestic staff devoted to support

functions were raised in earlier management studies at State. The State

2000 Management Task Force report issued in December 1992 noted that

about 60 percent of headquarters salaries and expense resources are

expended for centrally managed support staff and that this level was much

too high. According to a 1993 State report, some estimates project that

Department staffing in Washington exceeds optimal levels by 15 to 20

percent in view of the low productivity of many organizations and

personnel. The report recommended that a baseline review of

headquarters support staffing be conducted and noted that potential

long-term cost reductions from such a study could be substantial, as each

5-percent reduction in personnel would reduce the Department’s costs by

$46 million.

Employee Benefits and

Allowances

If substantial reductions in appropriations occur, State may have to review

the benefits and allowances it provides to its employees, even though this

could involve difficult and painful decisions. For example, costs could be

reduced by millions of dollars if employees were required to pay for a

portion of their overseas housing costs. State noted that because benefits

and allowances are payable to all civilian government employees working

overseas, any changes would require interagency support and may require

legislative action. State officials also noted that a consideration would be

the potential negative impact on employee morale and the impact on

State’s ability to attract and retain staff to effectively carry out its mission.

We agree.

Overseas allowances and benefits are authorized by statute for U.S. federal

civilian employees stationed in foreign areas. There are two purposes for

granting allowances and benefits to U.S. staff employed overseas. First,

they can serve as reimbursement for extraordinary living costs to prevent

employees from being financially penalized for working overseas. Second,

they can serve as recruitment and retention incentives. Benefits and

allowances provided to Foreign Service employees working overseas

include free housing and utilities, hardship post payments, danger pay,

cost-of-living allowances, education allowances, and separate

maintenance allowances.

These benefits and allowances offer one potential area for cost reduction

efforts. According to the Director of State’s Office of Allowances, the only

comprehensive and recent review of Foreign Service benefits and

allowances was conducted in 1994 by a private firm under contract to

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USAID. In a January 1995 memorandum to the Director General of the

Foreign Service, USAID’s Deputy Assistant Administrator for Human

Resources noted that this study found that (1) the Foreign Service

compensation package was somewhat below that received in the private

sector; (2) the Foreign Service benefits package was comparable to the

private sector, except for retirement where the government is more

generous, and (3) Foreign Service allowances were comparable to the

private sector except for housing allowances where the private sector

generally deducted a home-country norm from the housing allowance so

that employees do not get free housing overseas.7

USAID’s consultant concluded that by paying only for excess housing costs,

private industry, without any apparent disruption to programs, avoided

substantial costs that the government pays. The consultant further

concluded that USAID employees’ benefits of receiving essentially free

housing and utilities amount to about 12 to 15 percent of their base pay.

We also noted that Canadian Foreign Service officers are expected to

contribute to a portion of their overseas housing costs based on Ottawa

housing costs and on their salary levels and household sizes. Likewise,

Australian Foreign Service officers are expected to contribute toward their

overseas housing costs based on a published schedule. The Director of

State’s Office of Allowances noted that other countries, such as Japan,

France, and Germany, also have a rent-share arrangement with their

employees. Like the United States, however, other countries such as Great

Britain and Ireland, fully reimburse overseas housing costs—up to a set

limit.

Increased Use of Foreign

Service Nationals Is an

Option

The administrative section at overseas posts is generally headed by an

administrative counselor or officer who is assisted by several Foreign

Service officers who manage administrative subunits and oversee a staff

comprised mainly of FSNs. In response to budget pressures, State could

increase its use of FSNs to replace Foreign Service specialists working in

7

Specifically, the consultants found that when total renumeration costs—which include salaries,

bonuses, and benefits such as retirement—were compared between USAID and the private sector,

USAID’s costs were almost identical to the private sector. With regards to overseas allowances, the

consultant found that USAID versus private sector comparisons varied from location to location;

however, USAID’s costs were significantly higher than private sector allowances in all locations

studied. The most significant difference between USAID and the private sector was that the private

sector required employees to pay a portion (ranging from $13,565 to $19,957) of their overseas housing

costs based on a U.S. housing standard.

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senior support positions.8 Employment of FSNs is less costly than

employment of Foreign Service officers because FSNs do not receive the

benefits and allowances payable to Foreign Service employees and

generally are paid lower salaries than Foreign Service employees.

In addition to the cost reductions that would result from the increased use

of FSNs, this practice would have two other advantages. First, State would

not have to periodically rotate hundreds of Foreign Service specialists

between headquarters and overseas posts. Second, an FSN-driven support

structure would eliminate the significant learning curve Foreign Service

specialists face at a new post.

State is reluctant to expand the use of FSNs because of security and

fiduciary concerns. These are valid concerns that would be compelling

without regard to oversight costs. However, cost-benefit and risk

management principles suggest that some level of increased risk may be

acceptable in return for significantly reduced oversight costs. Given

potential budget reductions, State would have to carefully weigh the

potential cost reductions resulting from increased use of FSNs against the

perceived risks.

Although security and fiduciary matters are a serious concern, the

following observations show that the increased use of FSNs may be feasible

at some posts and that the associated risks may be manageable or could

be mitigated.

• In Malaysia, the embassies of Australia, Canada, and Great Britain employ

foreign nationals to manage administrative sections under the overall

supervision of a diplomatic officer. In comparison, the U.S. Embassy, with

one exception, used American Foreign Service officers to head up the

administrative subunits.

• At some U.S. posts, FSNs are already employed to head some

administrative sections, such as personnel, working under the general

supervision of U.S. administrative counselors or officers.

• FSNs do not have access to sensitive records and information because

embassies have secure areas they are not permitted to enter. The number

of sensitive records is presumably small relative to support functions

typically handled in budget and fiscal, general services, and personnel

offices.

8

The Department hires Foreign Service specialists to fill 16 types of positions such as budget and fiscal

officers, general services officers, and information management officers. State currently has over 1,100

specialist positions in Washington and almost 2,500 specialist positions overseas.

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• Posts generally have two distinct computer systems, one classified and

one unclassified. FSNs do not have access to the separate classified system.

• The Inspector General’s procedures for periodic inspections could be

modified to provide additional oversight of FSNs that handle U.S. funds.

Also, the use of standard internal control procedures, such as the division

of duties and mandatory vacations, could help to ensure that funds are

managed responsibly.

Nonetheless, we agree that certain Foreign Service specialist positions

would not be appropriate for an FSN, given the classified or highly sensitive

nature of the position. These positions include communications

specialists, regional security officers, regional medical officers, foreign

building operations officers, technical staff working with classified

communications systems, and Foreign Service secretaries assigned to

work with classified information.

FSNs could replace the more costly existing staff as budget and fiscal

officers, general services officers, information management specialists

working with unclassified computer systems, personnel officers, regional

medical technologists, and Foreign Service nurses. We estimate that State

currently has about 500 Foreign Service specialists in these six job

categories in its overseas posts. This figure does not include rotational

positions in Washington. If State replaced these overseas specialist

positions with FSNs, the Department’s costs would be reduced by

approximately $53 million annually in allowance and benefit costs.

State Could Sell Excess

and Underused Properties

The State Department has over $10 billion in real estate at its overseas

posts. Some of this real estate is excess and underused; State has

identified properties for potential sale valued at $467 million as of

October 1995. Moreover, as we have reported, State also has millions of

dollars in potentially excess real estate at closed posts that are not

included in this amount and could be sold.9

 The Inspector General,

individual embassies, and State’s Office of Foreign Building Operations

have also identified some of these excess properties. However, because of

internal and external pressures, State has been slow in disposing of these

properties. Selling these properties would not only generate revenues but

could also significantly reduce maintenance costs.

9

Overseas Real Estate: Millions of Dollars Could Be Generated Selling Unneeded Real Estate

(GAO/NSIAD-96-36, Apr. 23, 1996) and Overseas Real Estate: Inaction on Proposals to Sell High-Value

Property in Tokyo (GAO/NSIAD-95-73, Apr. 7, 1995).

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In our most recent report, we recommended improvements in the State

Department’s procedures to identify and sell excess real estate. For

example, we recommended the establishment of an independent panel to

make recommendations regarding the sale of unneeded real estate, to

ensure that the taxpayers’ interests and the financial needs of the State

Department are considered.

Process

Reengineering and

Outsourcing May Lead

to Long-Term Cost

Reductions

State’s Under Secretary for Management has called for and supported

individual reengineering efforts throughout the Department.10 Some of

State’s managers have launched reengineering and reinvention exercises

in an attempt to improve services and lessen costs. Examples of such

efforts include State’s attempts to reengineer the Foreign Service transfer

process, major personnel management reforms in such areas as pay

broadbanding for FSNs, and an ongoing reengineering of the logistics

function. Under State’s Strategic Management Initiative, the Department

attempted to gauge the advisability of outsourcing a limited number of

support functions. These are positive signs of a desire for long-term reform

of how support services are procured and managed at State. However,

they represent just a beginning, since several major business functions

remain to be reengineered or analyzed in terms of outsourcing potential.

State’s Information

Management Capabilities

Have Hampered

Reengineering Efforts

State’s use of an outdated, proprietary operating system that is largely tied

to computer purchases made over 15 years ago complicates current

reengineering efforts. The poor condition of the information technology

platform has been the subject of repeated discussions both within and

outside the Department. State officials are frank in their assessments of

the numerous deficiencies in current systems and acknowledge the critical

need for a system that offers data users the flexibility and tools they need

to accomplish the Department’s work.

State launched a modernization program in 1992; according to State

officials, full implementation of the program will be delayed by funding

constraints. Information management resource problems have made it

difficult to effectively reengineer processes. For example, State selected

the Foreign Service’s transfer process as a reengineering test case because

10Reengineering is the redesign of an organization’s processes to achieve dramatic performance

improvements in such areas as cost, timeliness, quality, and customer satisfaction. Reengineering

requires that a “blank sheet” approach be taken toward the process to be redesigned. Marginal

improvements to existing procedures are by definition excluded. For additional information on

reengineering in the federal government see Reengineering Organizations: Results of a GAO

Symposium (GAO/NSIAD-95-34, Dec. 13, 1994) and Management Reforms: Examples of Public and

Private Innovations to Improve Service Delivery (GAO/AIMD/GGD-94-90BR, Feb. 11, 1994).

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the process had 117 steps, 23 forms, and a number of dispersed

operations. Over 2 months, steps in the process were charted and

brainstormed, and best practices in the private and public sectors were

reviewed. The final report recommended a streamlined system that would

enhance customer satisfaction and reduce costs. The team concluded that

by improving computer interconnectivity and empowering employees, the

number of full-time employees involved in the transfer process could be

reduced from 24 to perhaps 4 to 5 permanent positions, supplemented by

private contractor assistance. However, a year after completing the work,

two team members told us that none of these positions had been

eliminated because State does not have the information management tools

to make the system work as designed.

In a December 1994 report, we compared several private and public

leading organizations’ best practices in applying information technology to

improve performance to State’s practices and found that the Department

was deficient in several areas.11 Our report noted that State had no

integrated information management plan that identified goals and

objectives and linked information resource management projects to them;12

the information resource management and budgeting processes at State

were not closely linked; and State had not appointed a chief information

officer to serve as a bridge between top management, line managers, and

information support professionals.

The Under Secretary for Management has begun to take steps to improve

State’s information resource management capabilities, including forming

an information technology review board of senior department managers.

In May 1995, the Under Secretary for Management established an acting

chief information officer position. In May 1996, State appointed a

permanent chief information officer to comply with the mandate of the

1996 Information Technology Reform Act. Finally, State is currently

working on its latest 5-year strategic information resource management

plan (1996-2000), which should be issued in 1996.

11Department of State IRM: Strategic Approach Needed to Better Support Agency Mission and

Business Needs (GAO/AIMD-95-20, Dec. 22, 1994). This report compared State’s practices to those of

leading organizations as defined in GAO’s May 1994 guide on best practices. See Executive Guide:

Improving Performance Through Strategic Information Management and Technology

(GAO/AIMD-94-115, May 1994). GAO’s best practices guide formed the basis for OMB’s Evaluating

Information Technology Investments: A Practical Guide (Version 1.0, Nov. 1995), which is designed to

help federal agencies link information technology investment decisions to strategic objectives and

related business plans.

12In July 1995, State issued an updated information resource management modernization plan.

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Outsourcing

Administrative Functions

The National Performance Review encouraged federal agencies to identify

their core missions and unique competencies and to outsource functions

that can be provided more effectively and at a lower cost by other

agencies or private companies. State has not done this in any

comprehensive manner, even though the Strategic Management Initiative

called for outsourcing studies of telecommunication services offered

through the Diplomatic Telecommunications Service Program Office, the

payroll function, vendor and pension payments, the Foreign Service

medical examination program, and the training courses offered at the

National Foreign Affairs Training Center. An official from the Diplomatic

Telecommunications Service Program Office told us that the office was

never formally tasked with conducting this study and thus did not respond

to the recommendation. The Office of Medical Services also did not

prepare an outsourcing study, although an official from that office said a

study will soon be initiated. Outsourcing studies of State’s payroll

operations and vendor and pension payments processes were contracted

to an outside consulting firm. The results of these studies should be

available shortly. The only published outsourcing studies available at the

time of our review involved a limited number of courses offered by the

National Foreign Affairs Training Center. In each case, with certain minor

modifications, the internal review team concluded that the Center’s

offerings were cost-effective.13

State has not yet considered the numerous options for outsourcing many

of its noncore activities, particularly data processing and administrative

activities. Outsourcing options can be found in both the private and public

sector. Private contractors are already providing a wide range of data

processing and administrative services, including payroll, personnel

management, and financial management services, and have contracts with

several federal agencies.

According to one private firm, its worldwide network of data processing

centers could meet State’s domestic and overseas data processing

demands with relative ease. Officials from the same company cited several

examples of outsourcing contracts with federal agencies, including a

10-year contract with the Federal Aviation Administration to manage its

computer resources nucleus project and a 5-year contract with the

Immigration and Naturalization Service to manage its Information

13A March 1996 independent accountant’s report prepared for the Office of the Inspector General

recommended that the National Foreign Affairs Training Center establish user charges that fully reflect

the Center’s costs, as required by OMB-Circular A-25. The report also recommended that the Institute

reevaluate the training courses it offers and consider eliminating courses that do not fully recover their

costs and could be obtained at other training centers at a lower cost.

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Technology Partnership Program. Also, another country’s internal revenue

service has contracted with this firm to assume all of its information

technology responsibilities, including computer systems, systems

development and integration, systems maintenance, hardware and

software procurement, hardware maintenance, hardware and software

installation, and information technology project management. Transferring

with these responsibilities are three development centers, two accounts

offices, nine data centers, and 2,100 employees who are now the

contractor’s employees.

Another outsourcing option available to State is the work of the Defense

Logistics Agency Administrative Support Center, which been designated a

reinvention laboratory under the National Performance Review. The

Center provides a wide array of administrative services to Defense and

other nongovernment agencies, state and city governments, and private

firms. Customers pay only for actual services provided. According to its

latest survey of selected services offered by the Center, its costs were

significantly lower than prices in the private sector. The Director

explained that the Center does not operate on a profit margin and can

leverage Defense’s worldwide infrastructure to offer services at the lowest

costs possible. According to the Director, his staff periodically conduct

surveys of best practices in private industry to stay abreast of the latest

management techniques.

Conclusions The successful implementation of some or all of the options discussed in

this chapter could substantially reduce State’s support costs.

Congressional approval and negotiations with other agencies may be

required to implement some of these options. In addition, they would

require the potential displacement of hundreds of current employees and

the loss of some employee benefits, with potential adverse consequences

for employee morale and productivity. However, they represent the types

of changes that would enable State to operate with less resources.

Agency Comments

and Our Evaluation

State expressed concerns regarding a number of options discussed in this

chapter, pointing out the drawbacks. Regarding increased use of FSNs in

certain positions, State emphasized that American personnel are required

to minimize fiduciary concerns. We did not recommend increased use of

FSNs, but we believe this option should be considered. We share some of

State’s concerns, but we believe that risk management principles suggest

that some level of increased risk may be acceptable in return for

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significantly reduced costs. Given potential budget reductions, State

would have to carefully weigh the potential savings resulting from

increased use of FSNs, as well as implementation of other cost reduction

measures, against the perceived risks.

State said the chapter clearly described ICASS, which State believes is its

most important undertaking involving overseas support costs. USAID and

USTR emphasized that increasing reimbursements for administrative

support at overseas posts may require additional funding for agencies

other than State to cover certain costs they may not have budgeted for in

the past.

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Activities at Overseas Posts

In this appendix, we provide examples of the State Department’s overseas

political, economic and commercial, global, and consular activities. Unless

otherwise noted, these activities occurred during September and

October 1995. In addition, as discussed in chapters 4 and 5, State has

numerous functions and activities to support State and other U.S.

government agencies’ personnel and operations at overseas posts.

Political Activities The political sections spent most of their time reporting and analyzing

countries’ political situations, representing the United States and

developing contacts within the host countries, and supporting official

visitors to the countries.

Belarus For political issues, the combined political and economic section spent

major portions of its time on reporting and analysis, trade and finance

promotion and support, and coordination and support of other agencies’

programs, such as the Defense Department’s Cooperative Threat

Reduction Program to help remove nuclear weapons. Other major

activities included representation and contact development and dealing

with the shootdown of an American hot-air balloon by the Belarussian

military. Reporting and analysis included cables on internal government

shakeups, the confrontation between the Belarussian president and

parliament, and human rights.

Brazil The political section at the Embassy in Brasilia spent a significant amount

of time preparing for and supporting the First Lady’s visit, which included

visits to a school for street children, a vocational institution, and a

maternity hospital. The section also supported a visit by the Under

Secretary for Global Affairs. Overall, the section spent approximately

one-third of its time on visitor support. Another third of the time was spent

on reporting and analysis, and the rest of the time was spent on

representation and contact work and coordination with other agencies.

The section worked with the government of Brazil to resolve several

rocket technology issues, encouraged the government to support a global

ban on land mine production and sales, and helped Brazil gain entry into

the Missile Technology Control Regime, which may encourage closer

cooperation on nonproliferation.

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Malaysia The political section in Malaysia spent much of its time on reporting and

analysis, representation and contact work, and support for other agencies.

The Southeast Asian Nuclear Weapons Free Zone Treaty topped the list of

issues that were addressed. The section also dealt with issues concerning

U.S. policy toward Bosnia—an issue for which the United States has been

severely criticized in Malaysia. The section covered the 15-nation

Organization of Islamic Conference, advocating U.S. views and seeking the

support of the Malaysian Chairman of the United Nations Human Rights

Commission on related issues in Bosnia. Other efforts included

representations to the Ministry of Foreign Affairs on United Nations

issues, counternarcotics cooperation, arms sales, and security

cooperation. In addition, the section analyzed criminal law and procedures

and the political implications of a case involving an American citizen

charged with drug crimes that carry a mandatory death sentence.

The Netherlands In The Netherlands, a large portion of the political section’s time was

spent advocating U.S. policies and presenting demarches. Reporting and

analysis was also a major activity. The remainder of the section’s time was

spent on representation and contact development, visitor support, and

other tasks. The section worked to counter untrue press reports that the

United States had failed to alert the Dutch that an attack on Srebrenica (in

Bosnia) in the summer of 1995 was imminent. It also helped gain Dutch

support for the U.S. approach regarding assistance to Bosnia. In early

1995, the section used its ties with parliamentary defense experts to

overcome obstacles, clearing the way for a $100 million sale of air-to-air

missiles, and worked to maintain Dutch abstentions from voting on a

Cuban resolution to condemn the U.S. trade embargo against Cuba.

Paraguay The political section in Paraguay spent about three-fourths of its time on

democracy and narcotics issues. The visit of the First Lady to attend a

conference of her counterparts consumed most of the post’s time,

including 25 percent of the political section as well as other embassy

sections. In its efforts to help control narcotics traffic, the section also

assisted a visiting team from the Departments of Justice and the Treasury

to help draft money-laundering legislation for the government of Paraguay.

The section also drafted a summary of the human rights situation as input

to the annual human rights report and supported a visit of State’s Principal

Deputy Assistant Secretary for Inter-American Affairs.

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Senegal The political section in Senegal spent the largest portion of its time on

reporting and analysis and the remainder on representation, contact

development, the presentation of demarches, coordination with and

support to other agencies, and other activities. The section reported on the

leadership succession in Islamic brotherhoods, violence in ruling party

internal elections, human rights, and other issues. Moreover, it obtained

Senegal’s agreement not to oppose the U.S. positions at the United Nations

regarding sanctions against Cuba and Libya’s candidacy for a Security

Council seat.

Economic and

Commercial Activities

Economic and business promotion was among the top priorities of the

posts. Several ambassadors spent up to one-third of their time on

economic and trade advocacy activities, personally weighing in on behalf

of U.S. businesses where appropriate.

Belarus In Belarus, the combined economic and political section helped

coordinate USAID’s programs and reported on the International Monetary

Fund stand-by program. The section also helped facilitate a U.S. contract

to establish an international gateway teleport involving potential U.S.

exports worth up to $24 million and helped coordinate a U.S. business

delegation’s meetings with the Belarussian president and other

government officials.

Brazil Brazil is one of 10 emerging markets identified in the U.S. national export

strategy. The Ambassador has established trade advocacy as one of the

mission’s top priorities.1

 The economic section in Brasilia has advocated

cases with Brazilian ministries, up to the highest levels of government.

Success stories during 1995 included helping obtain a $15 million contract

for a U.S. firm to develop a wastewater treatment facility. In addition to

trade advocacy, the economic section in Brasilia focused its efforts on

promoting economic reform and intellectual property rights. It produced

about 60 cables during September and October, including 16 on, for

example, the banking sector and stock market where billions of U.S.

dollars are invested; 10 on intellectual property rights, which included

Brazilian congressional action on the subject; 13 on transportation

(including civil aviation and maritime affairs); 8 on telecommunications,

asking U.S. agencies to engage the Brazilians on this sector; 5 on the

1

Advocacy is carried out by several embassy sections, including the U.S. and Foreign Commercial

Service offices in Brasilia, Rio de Janeiro, Sao Paulo, and Belo Horizonte.

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Activities at Overseas Posts

energy sector in preparation for the Hemisphere Energy Summit; 2 on

World Trade Organization issues; and 1 in support of a major export

promotion project. Among the highlights of the mission’s

accomplishments during this time was the completion of the Bilateral

Trade Review, which was presented to Presidents Clinton and Cardoso in

November 1995.

Economic officers at posts spent a large portion of their time on reporting

and analysis. They also spent significant time on representation and

contact development; coordination with other agencies such as the

Overseas Private Investment Corporation, U.S. Export-Import Bank,

Federal Reserve System, Federal Communications Commission, and

Department of the Treasury; and support for visitors, including the First

Lady of the United States and the governors of Nebraska, West Virginia,

and Wisconsin on trade missions.

Malaysia In Malaysia, providing support to American business and enhancing the

business environment for U.S. companies are among the mission’s highest

priorities. With support from the economic section, working in

cooperation with the U.S. and Foreign Commercial Service staff, top post

officials are actively engaged in numerous trade advocacy efforts. For

example, the Ambassador aggressively pursued contracts for U.S. firms at

the $4 billion international airport; this support contributed to a

$35 million U.S. contract for passenger loading bridges and a $60 million

U.S. contract for systems integration. In addition, the economic section

provides macroeconomic analysis and conveys U.S. government positions

on a wide range of bilateral and multilateral trade and investment issues.

Supporting air service agreements and protecting intellectual property

rights are among the section’s key objectives.

During the months of September and October, staff in the economic

section spent much of their time on representation and contact

development, including numerous meetings with Malaysian government

and business representatives and U.S. business representatives; visitor

support for 10 official visits; trade and finance promotion and support; and

reporting and analysis. In addition, the section handled numerous requests

from many U.S. agencies, including the Office of the U.S. Trade

Representative (USTR); the Federal Reserve Board; the White House Office

of Science and Technology Policy; the Trade Development Agency; the

Federal Aviation Administration; and the Departments of Commerce, the

Treasury, Agriculture, and Labor.

Page 77 GAO/NSIAD-96-124 State Department
Appendix I 

Activities at Overseas Posts

The Netherlands Promoting commercial relationships and U.S. exports to The Netherlands

is a top priority. The Netherlands is the eighth largest U.S. export market,

the United States maintains a multibillion dollar trade surplus with The

Netherlands, and each country invests heavily in the other. The

Ambassador and Deputy Chief of Mission have intensively advocated

specific business deals involving officials at the highest levels of both

governments. One of the embassy’s major successes in 1995 was an effort

involving staff from many embassy sections to help win a $750 million

contract for the Apache helicopter. Aside from individual export deals,

U.S. and Dutch views on trade issues are often the same, and The

Netherlands has been a valuable ally in advancing U.S. economic policy

goals in the International Monetary Fund, the World Trade Organization,

and other multilateral bodies.

A U.S. and Foreign Commercial Service office helps individual U.S. firms

do business. Complementing this effort, the economic section represents

U.S. interests on a macro or policy level. The economic section spent a

large portion of its time on reporting and analysis. Other major activities

included trade and finance promotion, representation and contact

development, and visitor support. Accomplishments included advancing

the candidacy of the U.S. choice to chair a multilateral negotiating group

on the multilateral agreement on investment and helping devise a strategy

to secure market access for U.S. genetically modified agricultural

products. After bilateral negotiations facilitated by the economic section’s

aviation officer, the United States and The Netherlands also signed a

bilateral aviation safety agreement, setting a precedent for other civil

aviation partners.

Paraguay Working in support of the negotiation and approval of treaties on foreign

investment and economic development, the economic/ commercial section

in Paraguay deals primarily with issues involving government corruption,

intellectual property rights, and incorporating an informal commercial

sector into the economy. In terms of trade and business promotion, the

economic/commercial section offers the full array of services that U.S. and

Foreign Commercial Service posts usually provide. The mission is tracking

several infrastructure projects with business potential, including the

$200 million Asuncion Bay reclamation project and the $2.4 billion Corpus

hydroelectric project. In addition to handling 15 demarches on behalf of

State headquarters, the section handled over 30 requests from other U.S.

agencies, supported 7 trade shows, and met with more than 30 U.S.

business visitors during September and October 1995.

Page 78 GAO/NSIAD-96-124 State Department
Appendix I 

Activities at Overseas Posts

Global and Other

Issues

Missions cover global issues such as the environment, counternarcotics,

and labor. In Paraguay, the political section administers the

counternarcotics program. In The Netherlands, the economic and political

sections handle a variety of global issues, including energy, health care,

population, and narcotics issues. In Brazil, a section is devoted to science

and technology issues, including export controls, nonproliferation, nuclear

energy, space cooperation, and environmental/conservation issues. Also, a

narcotics assistance office helps Brazil combat drugs, and a labor officer

monitors labor conditions for trade agreements.

In The Netherlands, a legal section performs functions relating to the

international war crimes tribunals for the former Yugoslavia and Rwanda,

the International Court of Justice, and the Iran-U.S. Claims Tribunal. The

section provides reporting and analysis and acts as a liaison for the U.S.

government on matters relating to the war crimes tribunals and the

International Court of Justice. Regarding the Claims Tribunal, the section

supports the State Department’s legal adviser in legal and technical

negotiations with Iran. The section also represents the U.S. government in

cases at the Tribunal that are between the two governments, supports

private U.S. claimants in cases between private parties and the

government of Iran, and represents the U.S. government in administrative

and budgetary issues involving the Tribunal. To date, U.S. claimants have

received nearly $2.4 billion from the government of Iran through Tribunal

awards. The legal section’s activities included reporting and analysis on

subjects of ongoing technical and legal negotiations with Iran and the

Tribunal’s hearings in an intergovernmental case and a private claim

brought by a U.S. company against Iran. The section participated in

preparing the U.S. defense in the intergovernmental case and advised the

U.S. claimant and its counsel on Tribunal practice and precedent relevant

to its claim. The section also engaged in negotiations with Iranian

representatives concerning possible settlement of certain cases and

provided support for State’s legal adviser when he visited The Hague.

Consular Services Each post had busy consular sections, but posts in Brazil and Paraguay

had especially heavy visa workloads. Following are examples of the

consular workload.

Belarus During fiscal year 1995, the consular section in Belarus processed 7,944

nonimmigrant visa cases, 90 percent of which required interviews, and

processed 239 passport cases. The section provided 389 special consular

Page 79 GAO/NSIAD-96-124 State Department
Appendix I 

Activities at Overseas Posts

services involving matters such as reports of the death of American

citizens and inquiries about the welfare and whereabouts of American

citizens. The section spent 67 percent of its time on nonimmigrant visa

processing activities, including answering questions regarding

applications, 3 percent on immigrant visa processing activities, 27 percent

on special consular services, and 3 percent on other activities.

The shootdown of an American hot-air balloon by the Belarussian military

in September consumed all of the consular officer’s time and indeed that

of almost the entire mission for days. The consular section did all of the

groundwork associated with the incident, attempting to contact the

surviving Americans, identifying the bodies and sealing the morgue

container to prevent tampering prior to an autopsy, calling the families

involved, contacting the balloon club for information, photographing of

the scene, cataloging the personal effects of the victims, taking statements

from other participants, and arranging for final disposition of the remains.

Brazil The consular workload at posts in Sao Paulo and Rio de Janeiro has

reached near-crisis proportions and affected each post entirely, including

nonconsular sections. Managing the workload is a serious problem, and

the consular sections have proposed several ways to streamline

operations, increase efficiency, and raise revenues, given resource

constraints. Because of the popularity of tourism in the United States

among Brazilians, a strong local currency, confidence in the economy, and

bargain airfares, growth in the nonimmigrant visa workload has stressed

posts to their limits. In Sao Paulo, all State Department staff and some

non-State staff assist with visa work. This has caused some concern that

Sao Paulo and Rio de Janeiro are becoming unidimensional posts,

essentially functioning as “visa mills.” According to post officials, a

Brazilian family spends an average of $3,000 during a visit to the United

States; tourism from Brazil contributes about $1 billion to the U.S.

economy each year. Moreover, the United States collects over $10 million

in visa and other consular fees. The Ambassador expressed concern that

delays and difficulties in obtaining visas may discourage some Brazilian

tourists from visiting the United States.

Malaysia Approximately 75 percent of the consular section’s workload involves

processing nonimmigrant visas, which numbered over 10,000 between

September and October 1995. In September, an American citizen was

arrested on drug trafficking charges, a death penalty offense. This took a

Page 80 GAO/NSIAD-96-124 State Department
Appendix I 

Activities at Overseas Posts

considerable amount of the consular section’s time. (All charges were

subsequently dropped and the person was released.) In addition, to

capitalize on the signing of an extradition treaty in August 1995, the

embassy urged the government of Malaysia to begin negotiations on a

mutual legal assistance treaty. Negotiations were scheduled to begin in

June 1996.

Consular fees collected by the post in 1995 totaled about $1,132,400. The

embassy processed about 50,000 nonimmigrant visa applications, a

caseload that is expected to grow by about 20 percent per year. Immigrant

visa cases numbered about 430, representing about 5 percent of the

consular workload. American citizen services, which represent about

20 percent of the consular workload, included 3,769 passport cases and

2,158 special consular services, half of which were notarial and judicial

services.

Paraguay The consular workload is particularly heavy in Paraguay because of the

complexity and growing volume of adoption cases. In addition, Paraguay

tends to have a high number of fraudulent visa cases involving unskilled

Korean citizens trying to emigrate to the United States. In fiscal year 1995,

the section processed 510 immigrant visas including about 363 adoption

cases, 11,870 nonimmigrant visas, 557 special consular services, and 1,552

passport cases. U.S. staff in the section spent approximately 60 percent of

their time on immigrant visa processing, 30 percent on nonimmigrant visa

processing, and 10 percent on American citizens’ services. Consular

collections in fiscal year 1995 totaled $554,217.

Page 81 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

See comment 2.

Page 82 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 3.

See comment 4.

See comments 1 and 5.

See comment 5.

Page 83 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comments 1, 2,

and 3.

Now on p. 24.

See comments 4 and 6.

Page 84 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 7.

See comment 8.

See comment 9.

See comment 10.

Now on p. 26.

See comment 11.

See comment 12.

Page 85 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 13.

Now on p. 26.

See comment 14.

Now on p. 14.

Now on p. 17.

See comment 15.

Page 86 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

Now on p. 16.

See comment 15.

See comments 2 and 3.

See comment 16.

Page 87 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

Now on p. 34.

See comment 15.

See comment 15.

See comment 17.

Page 88 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 18.

Page 89 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 19.

Now on p. 38.

Page 90 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 15.

See comment 20.

See comment 21.

See comment 22.

See comment 23.

Page 91 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 24.

Now on p. 47.

Now on pp. 47-48.

Now on p. 48.

See comment 25.

See comment 26.

Page 92 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 27.

Now on p. 50.

See comment 28.

See comment 29.

Page 93 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 3.

See comment 15.

See comment 15.

See comment 15.

Page 94 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 30.

See comment 31.

Page 95 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

See comment 32.

See comment 33.

See comment 1.

See comment 15.

Page 96 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

The following are GAO’s comments on the Department of State’s letter

dated June 13, 1996.

GAO Comments 1. Both the legislative and executive branches have proposed funding

levels that are well below the amounts needed to maintain the status quo.

Given the magnitude of changes that may be necessary to adjust to

reduced budgets, it is essential that State develop a downsizing strategy

based on a comprehensive review of its functions and processes. Even if

State’s funding is not significantly reduced, we believe that developing a

downsizing plan would help State to focus whatever resources are

available on its most critical functions and activities.

2. We did not attempt to develop a cost reduction package. We clearly

stated that the Department would have to reduce the scope of activities to

absorb funding cuts of the magnitude being discussed. We did not attempt

to quantify the amount of cost reductions that could be achieved through

implementation of all of the options we identified. However, the total

amount of cost reduction options discussed in our report far exceeds the

$200 million figure cited by State. For example, we noted that State could

substantially reduce the costs of its overseas presence by closing some

posts and reducing the size of others, but we did not specify posts that

should be closed or downsized or the amount of cost reduction that would

result. However, given that State spends about $1.9 billion annually on its

overseas operations, the amount of cost reductions from downsizing

State’s overseas presence could be substantial.

3. We identified a number of options that, if implemented, would help

enable State to adjust to potential budget reductions. Some of the options

would require a reduction in the scope of State’s current functions and

activities. We did not attempt to recommend which combination of

options would be most appropriate. Although State may oppose many of

these options, future funding levels may require State to consider them as

part of a downsizing strategy. We believe it is State’s responsibility to

specify the actions, as well as the resulting cost implications, that would

be necessary to adjust to the various funding levels that have been

suggested by the executive and legislative branches.

4. The executive summary notes that, for several years, State has reduced

personnel and taken other actions to reduce costs accordingly, such as

reducing staff levels by 2,200 since 1993. It should be noted that this staff

reduction represented an 8.5 percent cut in personnel.

Page 97 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

5. We did not make judgments on appropriate funding levels for State or

the relative value of State’s functions and activities and we did not try to

compare the relative merits of State’s diplomacy to other U.S. government

tools.

6. We noted that since 1991, State has closed 31 posts, most of which were

consulates in countries with multiple posts. During the same period, State

also opened 28 posts mostly in the newly independent states of the former

Soviet Union.

7. Chapter 5 notes that State’s Under Secretary for Management has called

for and supported individual reengineering efforts throughout the

Department in an attempt to improve services and lessen costs.

8. We modified the report to reflect action taken in June 1996 to begin

implementation of the overseas staffing model, which has been in the

design phase for several years.

9. We agree that the mandate of the Strategic Management Initiative was to

streamline, reengineer, and reinvent specific activities. In its budget

request for fiscal year 1996, State also said that the initiative would

establish a clear strategic direction, match resources to priorities, be

consistent with budget realities, and result in significant reductions.

Furthermore, the Strategic Management Initiative coordinator told us that

the original goal of the initiative was to look at models for reorganizing

State and overseas missions. We stated in our report that the Secretary of

State decided in February 1995 that it was not a good time to propose

fundamental changes to State’s mission, organizational structure, and

processes and that the initiative should focus on recommendations that

would not involve major changes to operations.

10. The coordinator of the Strategic Management Initiative told us that

reengineering teams assumed a flat State Department budget when they

made their recommendations. They did not plan for overall budget cuts.

But, in an April 1995 letter to the Secretary, the initiative’s team leaders

conveyed their recommendations and identified over $100 million in

potential reductions: $61 million in domestic cost reductions, $35 million

in out-year cost reductions, $17 million in annual cost reductions from the

closure of overseas posts, and $33 million of reductions in the

Management Bureau’s domestic support costs.

Page 98 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

11. State documents prepared in February 1996 indicated no action on a

recommendation to improve setting priorities for intelligence collection.

We modified the report to incorporate State’s update on its efforts to set

priorities for intelligence gathering and reporting by expanding its

representation on the intelligence community and interagency boards.

12. Chapter 5 discusses the initiatives of the Under Secretary for

Management to reduce support costs.

13. Our report accurately reflects State Department cost estimates for post

closures, which do not include salaries for U.S. staff. We have noted in the

report that post closures will result in additional cost reductions if they

contribute to overall staff reductions.

14. In April 1995, a reengineering team recommended termination of law

enforcement activities. In May 1995, the Secretary decided that the

recommendation required further review in light of the President’s

counterterrorism initiative. In October 1995, the Coordinator of the

Strategic Management Initiative told us that the recommendations had

been tabled. We agree with State that it has closed resident offices (New

Haven, Detroit, and St. Louis), reduced three offices, and downsized the

Philadelphia field office. However, the Under Secretary for Management

notified the Congress of the plans to close these offices in November 1993,

1 year prior to the commencement of the Strategic Management Initiative.

We were unable to verify the number of diplomatic security field staff

positions that have been cut.

15. We modified the report to incorporate this suggestion.

16. It was not the intent of our report to specifically direct State’s

downsizing efforts. Our report stresses the importance of ensuring that

personnel reductions are taken with a view toward retaining a viable

workforce. To avoid the pitfalls of skill imbalances that could result from

such personnel reductions, it is essential that State develop plans for

downsizing or restructuring that include identifying its core missions,

functions, and processes.

17. We did not recommend that the Bureau of Democracy, Human Rights,

and Labor’s Office of International Labor Affairs and labor officer

positions abroad be eliminated. We offered this as one of many options

and measures that could reduce costs. Our point was that given potential

Page 99 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

budget shortfalls State needs to scrutinize its functions and reassess its

involvement in all areas.

18. We suggested that reporting may be one area that State could reduce if

budget levels compel the Department to reassess its workload

requirements to match the level of resources it must live with, and

stressed that some of State’s reports are legislatively mandated. Our report

recommends that State identify legislative actions, if any, that would be

needed to adjust to proposed funding levels.

We did not recommend elimination or otherwise limiting specific reporting

requirements. We mention three reports—the annual country reports on

economic policy and trade practices; human rights practices; and science,

technology, and American diplomacy—as examples of some of the

congressionally mandated reports that consume considerable resources at

headquarters and at overseas posts. Although the costs associated with its

reports have not been quantified, streamlining some of these reporting

requirements has the potential to significantly reduce resource

requirements. State will need to maintain cost information it presently

does not have in order to weigh the costs and benefits of its reports and

other products and services and to prioritize requirements. Where

appropriate, we have incorporated the technical changes that State has

noted in its comments.

19. We did not attempt to determine the extent of duplication and overlap

within the Department. However, we noted that State itself, in a

February 1995 study, had identified several areas of potential duplication,

including overlap between the Bureau of Intelligence and Research and

regional and functional bureaus throughout the Department.

20. We did not suggest that State charge fees for all services. We

understand that recouping the costs of certain products and services may

not be feasible.

21. We updated the report to acknowledge that, in March 1996, State

provided instructions to overseas posts for the collection of fees for

commercial services in posts where the Department of Commerce does

not provide commercial services. However, State could also explore

further options to recoup some of the costs it incurs in providing other

services.

Page 100 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

22. It was not our intent to tell State or other agencies how to set priorities

when downsizing. If other agencies lower their overseas profile and ask

State to fill the void, it will be incumbent upon State to adjust its resource

allocations based on strategic priorities.

23. In concluding that State must reassess its involvement in certain

functions and activities, we noted that State may need to seek legislative

relief from certain congressionally mandated reports or obtain legislative

authorization to downgrade the level of certain services.

24. This section of the report characterizes the work that State performs

overseas and was not intended to describe how the funding for consular

programs was managed. Information on funding for consular programs is

contained in chapter 3.

25. Chapters 4 and 5 describe how State not only supports its own

activities but also those of other agencies. In fact, State supports more of

other agencies’ U.S. direct-hire employees—whose number has increased

steadily—than its own.

26. Our report accurately characterizes how internal and external

pressures make closing posts difficult. We have modified the text in our

report to note that external pressures contributed to State’s decision to

maintain six posts that it had proposed to close.

27. Our report accurately characterizes State’s policy on universality. If its

budget is significantly reduced, State will probably have to reduce its

overseas presence and may not be able to afford universal diplomatic

representation. Our report recognizes that other agencies are located at

U.S. diplomatic posts and depend on State for services. This is one reason

why we believe an independent panel to review proposals to close and

downsize posts may be useful.

28. We modified the report to note State’s concerns about congressional

opposition to the National Performance Review recommendation to give

ambassadors greater authority. We do not believe that implementation of

the overseas staffing model and ICASS is a necessary precondition to

initiate a pilot program to test the concept of increasing ambassadors’

authority.

29. We agree that requiring overseas personnel to bring their furniture to

posts is not necessarily a prudent option, and our report did not offer this

Page 101 GAO/NSIAD-96-124 State Department
Appendix II 

Comments From the Department of State

as an option. Rather, we noted that the post in The Hague was considering

requiring staff to bring their own furniture overseas in order to reduce

post costs. We also noted that the cost of shipping household goods is paid

by State headquarters. This example demonstrates that posts do not have

full control of the resources and as a result may make decisions associated

with post operations that protect the post’s budget, but do not necessarily

reduce State’s costs.

30. We did not recommend increased use of the foreign service nationals

(FSN), but we believe this option should be considered. We share State’s

concerns about increased use of FSNs, but we believe that cost-benefit and

risk management principles suggest that some level of increased risk may

be acceptable in return for significantly reduced costs. State needs to

carefully weigh the cost and risk implications of this option.

31. We do not understand the context for this comment. This report did

not recommend the sale of properties. However, in a prior report,

Overseas Real Estate: Millions of Dollars Could Be Generated by Selling

Unneeded Real Estate (GAO/NSIAD-96-36, Apr. 23, 1996), we (1) pointed out

that State had a list of over 100 properties for potential sale valued at

$467 million; (2) identified other properties worth millions of dollars not

on the list that are potentially excess to State’s needs or have a

questionable value and are often expensive to maintain; and (3) proposed

that an independent panel be established to decide which properties

should be sold.

32. Outsourcing is an option that should be considered. State’s Strategic

Management Initiative called for an outsourcing study of

telecommunications services. Studies to determine the cost-effectiveness

of outsourcing other functions may also uncover ways to reduce costs.

33. We believe that the Defense Logistics Agency is one outsourcing option

available for State to consider, even though the Agency may not be able to

meet all of State’s needs. State would need to compare its costs for

providing certain support functions to the costs of contracting with the

Defense Logistics Agency for these same services.

Page 102 GAO/NSIAD-96-124 State Department
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

John Brummet

Blake Ainsworth

Eugene D. Beye

Michael J. Courts

Joy Labez

David C. Maurer

Margaret E. Morgan

Suzanne P. Nagy

Jeffrey D. Phillips

Jodi M. Prosser

Nancy L. Ragsdale

James M. Strus

Michael Ten-Kate

La Verne G. Tharpes

Page 103 GAO/NSIAD-96-124 State Department
Appendix III 

Major Contributors to This Report

Page 104 GAO/NSIAD-96-124 State Department
Appendix III 

Major Contributors to This Report

Page 105 GAO/NSIAD-96-124 State Department
Related GAO Products

Products on the State

Department

Overseas Real Estate: Millions of Dollars Could Be Generated Selling

Unneeded Real Estate (GAO/NSIAD-96-36, Apr. 23, 1996).

State Department: Actions Needed to Improve Embassy Management

(GAO/NSIAD-96-1, Mar. 12, 1996).

State Department: Additional Actions Needed to Improve Overseas Real

Property Management (NSIAD-95-128, May 15, 1995).

Overseas Real Estate: Inaction on Proposals to Sell High-Value Property in

Tokyo (GAO/NSIAD-95-73, Apr. 7, 1995).

Overseas Staffing: U.S. Government Diplomatic Presence Abroad

(GAO/T-NSIAD-95-136, Apr. 6, 1995).

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

Dec. 28, 1994).

Department of State IRM: Strategic Approach Needed to Better Support

Agency Mission and Business Needs (GAO/AIMD-95-20, Dec. 22, 1994).

State Department: Overseas Staffing Process Not Linked to Policy

Priorities (GAO/NSIAD-94-228, Sept. 20, 1994).

Financial Management: State’s Systems Planning Needs to Focus on

Correcting Long-standing Problems (GAO/AIMD-94-141, Aug. 12, 1994).

State Department: Widespread Management Weaknesses at Overseas

Embassies (GAO/T-NSIAD-93-17, July 13, 1993).

State Department: Survey of Administrative Issues Affecting Embassies

(GAO/NSIAD-93-218, July 12, 1993).

State Department: Management Weaknesses at the U.S. Embassies in

Panama, Barbados, and Grenada (GAO/NSIAD-93-190, July 9, 1993).

State Department: Management Weaknesses at the U.S. Embassy in

Mexico City, Mexico (GAO/NSIAD-93-88, Feb. 8, 1993).

High-Risk Series: Management of Overseas Real Property (GAO/HR-93-15,

Dec. 1992).

Page 106 GAO/NSIAD-96-124 State Department
Related GAO Products

Foreign Affairs Issues (GAO/OCG-93-26TR, Dec. 1992).

Financial Management: Serious Deficiencies in State’s Financial Systems

Require Sustained Attention (GAO/AFMD-93-9, Nov. 13, 1992).

State Department: Facilities in Eastern Europe and the Former Soviet

Union (GAO/NSIAD-92-284, Sept. 22, 1992).

State Department: Need to Ensure Recovery of Overseas Medical

Expenses (GAO/NSIAD-92-277, Aug. 7, 1992).

State Department: Management Weaknesses in the Security Construction

Program (GAO/NSIAD-92-2, Nov. 29, 1991).

State Department: Status of Actions to Improve Overseas Procurement

(GAO/NSIAD-92-24, Oct. 25, 1991).

State Department: Efforts Underway to Enhance Management of Overseas

Real Property (GAO/NSIAD-91-277, Sept. 5, 1991).

State Department: Status of the Diplomatic Security Construction Program

(GAO/NSIAD-91-143BR, Feb. 20, 1991).

Products on

Management and

Downsizing

Federal Downsizing: Observations on Agencies’ Implementation of the

Buyout Authority (GAO/T-GGD-95-164, May 17, 1995).

Workforce Reductions: Downsizing Strategies Used in Selected

Organizations (GAO/GGD-95-54, Mar. 13, 1995).

Federal Downsizing: The Administration’s Management of Workforce

Reductions (GAO/T-GGD-95-108, Mar. 2, 1995).

Reengineering Organizations: Results of a GAO Symposium (GAO/NSIAD-95-34,

Dec. 13, 1994).

Management Reform: Implementation of the National Performance

Review’s Recommendations (GAO/OCG-95-1, Dec. 5, 1994).

Executive Guide: Improving Performance Through Strategic Information

Management and Technology (GAO/AIMD-94-115, May 1994).

Page 107 GAO/NSIAD-96-124 State Department
Related GAO Products

Management Reforms: Examples of Public and Private Innovations to

Improve Service Delivery (GAO/AIMD/GGD-94-90BR, Feb. 11, 1994).

Management Reform: GAO’s Comments on the National Performance

Review’s Recommendations (GAO/OCG-94-1, Dec. 3, 1993).

(711134) Page 108 GAO/NSIAD-96-124 State Department
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