GAO

United States General Accounting Office

Testimony

Before the Subcommittee on International Operations,

Committee on Foreign Relations, U.S. Senate

For Release

on Delivery

Expected at

2:00 p.m., EST

Thursday,

March 4, 1999

STATE DEPARTMENT

Major Management 

Challenges and Program 

Risks

Statement of Benjamin F. Nelson, Director, International

Relations and Trade Issues, National Security and

International Affairs Division

GAO/T-NSIAD/AIMD-99-99

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

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss some of the major management

challenges and program risks facing the Department of State. As the lead

agency for the conduct of foreign affairs, State has enormous

responsibilities as it works to shape a more secure, prosperous, and

democratic world. My testimony today will focus on the challenges faced

by the Department on the business side of its operations. A substantial

amount of States nearly $2.7 billion annual budget for the administration of

foreign affairs is spent on business functions that support its broad

mission. The Department has a worldwide network of operations to

maintain its headquarters and over 250 overseas posts and to support about

35 other U.S. agencies that operate overseas. State also provides security

for thousands of U.S. personnel and facilities abroad. In fiscal year 1999, it

received $1.45 billion in emergency supplemental funding for worldwide

security enhancements.

My statement is largely based on our recently issued report entitled

Performance and Accountability Series: Major Management Challenges and

Program Risks, Department of State (GAO/OCG-99-12). I have attached a

list of other relevant GAO reports to the end of my statement.

Summary The major management challenges facing the State Department are not

simple. They cover a wide spectrum of States operations and

responsibilities around the world. If these challenges are not met, they

could seriously undermine its ability to function effectively in the 21 st

century. These challenges include

 enhancing the security of U.S. personnel and facilities overseas,

 improving the quality and capability of information and financial

management systems,

 successfully integrating other foreign affairs agencies into State,

 effectively managing the visa process to reduce the risk of fraud and

abuse, and

 modernizing its approach to relocating and housing employees

overseas.

State has recognized these challenges and has put in place over the last

2 years a new leadership team to address them. State has devoted

resources toward formulating a strategy and establishing priorities for

enhancing overseas security. The Department has also embarked on an
Page 2 GAO/T-NSIAD/AIMD-99-99 State Department

aggressive approach to addressing its long-standing information and

financial management issues. However, much more needs to be done to

create an effective and efficient platform to facilitate the conduct of foreign

affairs and to protect U.S. employees overseas. The Department has been

reluctant to fundamentally change the way it does business. The adoption

of cost-based decision-making and use of best practices are critical to

States dealing with these challenges. Furthermore, the 1993 Government

Performance and Results Act can serve as an important tool to help State

overcome some of the challenges it faces.

Enhancing Overseas

Security

The need to adequately protect employees and their families overseas may

very well be the single most important management challenge currently

facing the State Department. The acts of terrorism in Kenya and Tanzania

in August 1998 claimed more than 260 lives and injured thousands.

Worldwide, several embassies found themselves either shut down or

unable to provide normal services because of threatening situations.

According to a recent analysis, over 80 percent of States embassies and

consulates do not meet the Departments 100-foot setback standard, one of

the major means of reducing vulnerability to terrorist attacks.

Special accountability boards set up to review the circumstances

surrounding the August bombings, headed by retired Admiral William

Crowe, concluded that insufficient levels of resources have been invested

to provide security against terrorist attacks. The January 1999 Crowe

report made several recommendations to enhance security. These

recommendations dealt with a number of issues concerning among other

things, the handling of terrorist attacks and threats, the size and

composition of overseas missions, and the level of funding for safe

buildings and security programs over the years.

The financial requirements for undertaking security enhancements will be

significant. State has already received $1.45 billion in emergency funding to

rebuild the embassies in Kenya and Tanzania, relocate other embassies,

and improve security for other facilities serving U.S. personnel worldwide.

State reports that it has completed security surveys of over 200 posts and

formulated six internal working groups to direct and track program

implementation. State is also assessing its longer term security

enhancement needs and estimates that several billion dollars may be

required for additional embassy construction. In the fiscal year 2000

budget request for the international affairs 150 account, State requested an

advance of $3 billion for fiscal years 2001-2005 to replace its highest risk,
Page 3 GAO/T-NSIAD/AIMD-99-99 State Department

most vulnerable embassies and consulates. In that request, State indicated

that posts would receive priority for construction based on security

factors, global situation, and practicality. It did not, however, address

certain key issues, such as whether U.S. agencies will be collocated.

Our prior work has raised other issues that deserve attention. These issues

concern whether State has the capacity to manage a major security

program and whether the current U.S. overseas presence needs to be

reexamined to determine if new technologies and regionalization can

reduce the number of employees that must be protected.

Management Capacity In the early 1990s, we reported that State encountered several management

problems in using the $1.47 billion in funds that were applied to the

diplomatic security construction program after bombings in Beirut. Our

work showed that inadequate staffing, poor program planning, difficulties

in site acquisition, changes in security requirements, and inadequate

contractor performance directly contributed to significant delays and cost

increases in the majority of States construction projects. State has since

undertaken a number of efforts to improve its management of the

construction program. These include value engineering and configuration

management programs designed to reduce project design changes and

control costs.

In view of States prior experiences and difficulties in implementing the

security construction program, several questions and issues need to be

addressed, as follows:

 What action does State need to take to ensure it has the management

capability to implement a large-scale construction program?

 Are there adequate control mechanisms to ensure efficient and effective

use of emergency funds and any subsequent funding for overseas

security?

 Have meaningful performance measures been set to assess the level of

progress made in meeting security program objectives?

Overseas Presence A key issue that should be considered in addressing future security

requirements is the sheer number of U.S. employees overseas. The security

burden is directly affected by the size of the overseas workforce. In our

work on overseas staffing issues in the mid-1990s, we noted that the U.S.

government (excluding military operational commands) employed a total
Page 4 GAO/T-NSIAD/AIMD-99-99 State Department

of nearly 38,000 personnel overseassplit evenly between U.S. direct hire

employees and foreign national employees. An important trend has been

the increase in the number of overseas U.S. direct hires by the non-foreign

affairs agencies. A broad examination of how the U.S. government carries

out its overseas role and related missions may now be needed in view of

the increased security threats. State, in conjunction with the National

Security Council, needs to work with other agencies operating overseas to

examine their overseas staffing requirements and explore alternatives for

reducing the number of U.S. employees overseas.

I would like to point out that the Crowe report also endorsed the need to

better define the role and functions of embassies abroad, with a view

toward exploiting technologies more fully, improving their efficiencies,

ensuring security, and reducing their overall cost. It was further

recommended that State look specifically at reducing the number of

diplomatic missions by establishing regional embassies and accrediting

ambassadors to several countries.

Improving Information

and Financial

Management Systems

State officials have recognized that deficiencies exist in the Departments

information resource management (IRM) operations. The Department is

spending hundreds of millions of dollars each year on information resource

management, including $100 million to $150 million to modernize its

information technology (IT) hardware and software systems, remediate

Year 2000 problems, implement a comprehensive information security

program, and upgrade its overall IT capability. These initiatives have

received top-level management support over the last several months as

evidenced by the appointment of a permanent Chief Information Officer

(CIO) and a deputy CIO for architecture and planning, the creation of a

Deputy CIO position for the Year 2000 issue, and the assignment of

information system security issues to the Deputy CIO for Operations.

Safeguarding States IT investments will require sustained management

commitment and effective program management to provide adequate

assurance that (1) critical operations and assets are protected from

disruption, loss, and inappropriate disclosure and (2) the sizable

investments in modernization will lead to effective information systems.

State estimated in 1997 that it would need $2.7 billion over 5 years to

upgrade and operate its IT infrastructure. This estimate was very

speculative because not all costs required to complete the plan were

included, such as consular IT operating costs. Also, some costs had

changed, such as added bandwidth requirements and capital replacement
Page 5 GAO/T-NSIAD/AIMD-99-99 State Department

needs. Furthermore, these plans were developed without the benefit of full

implementation of the planning and investment process called for by

federal guidance. To address these shortcomings, we recommended that

State make the full implementation of an IT planning and investment

process a top priority. This should include preparing a validated IT

architecture to help guide the modernization, establishing a fully

functioning technical review board, revising States long-range plans and

cost estimates, and identifying potential cost savings and efficiencies

expected from the modernization effort.

States CIO has taken a number of steps to implement our

recommendations. For example, the CIO has

 drafted an IRM vision paper that will serve as a basis for revising the

strategic and tactical plans, and related cost estimates;

 finalized a high-level IT architecture;

 implemented a Department-wide capital planning process; and

 reconstituted the technical review board.

Year 2000 Issues State has been slow in addressing Year 2000 issues. In its December 1998

quarterly report, the Office of Management and Budget (OMB) categorized

State as a tier 1 agency, meaning that State was not making sufficient

progress. Should State fail to adequately address Year 2000 deficiencies, its

ability to perform key functions may be at question, including identifying

visa applicants who may pose a threat to the nations security.

In August 1998, we reported that if State continued its current approach,

which lacked a mission-based perspective, it would risk spending time and

resources fixing systems that have little bearing on its overall mission. We

recommended that State reassess its systems using a mission-based

approach and ensure that systems identified as supporting critical business

functions receive priority attention and resources. We also recommended

that State ensure that contingency planning efforts focus on core business

functions and supporting systems and that interfaces with other entities be

identified and corrected. State generally agreed with these

recommendations and has since prioritized its mission-critical applications

and made some progress remediating them. However, in its February 1999

report to OMB, State indicated that it will not be able meet the OMB

deadline for compliance of four of its mission-critical systems. In that

same report, State also notes that about one-half of its noncompliant,

mission-critical systems had not been repaired or replaced. Thus far, the
Page 6 GAO/T-NSIAD/AIMD-99-99 State Department

Departments Y2K Certification Panel has certified only 2 of its 59 missioncritical systems as compliant.

Information Security Our 1997 evaluation of States information security program showed that it

lacked key elements such as routine assessments of risk, complete written

policies, and procedures for testing system controls. Our tests showed that

States unclassified but sensitive systems, and the information contained

within them, were vulnerable to unauthorized access. Also, the

Departments December 1997 report on internal controls cited information

system security as a material weakness. Such vulnerabilities could be

exploited by individuals or organizations seeking to damage States

operations, commit terrorism, or obtain financial data. We recommended

that State implement a number of corrective measures, including

establishing a central information security unit. State concurred with the

majority of our recommendations and has taken steps to improve

information security. For example, it has established a central IT security

unit and Department-level information systems security officer, prepared

new management guidance on IT security, and increased IT security

awareness activities.

Financial Management

Systems

One of States long-standing shortcomings has been the absence of an

effective financial management system that can assist managers in making

cost-based decisions. Recently, and for the first time, the Department of

State received an unqualified audit opinion on its Departmentwide financial

statements for fiscal year 1997. This achievement represents a good step

forward. It provides the Department a basis for routinely producing

accurate and timely financial management information essential for

effective and efficient use of federal funds.

State must continue its efforts to strengthen its financial management

system. For example, in the recently issued audit report on States fiscal

year 1997 financial statements, the Departments Inspector General

disclosed that States systems were out of compliance with certain

requirements, including some provisions of the Federal Financial

Management Improvement Act of 1996. In addition, State did not meet

OMBs March 1, 1999, requirement to submit fiscal year 1998 audited

financial statements.

In response to the Inspector Generals audit findings, State has indicated

that it would study the level of compliance with the Federal Financial
Page 7 GAO/T-NSIAD/AIMD-99-99 State Department

Management Improvement Act. State will use the results of the study to

prepare a remediation plan as required by the act. The Department also

stated that additional reports and procedures are being put into place to

address the internal control weaknesses identified during the most recent

audit.

To better manage and allocate overseas support costs, State has also

implemented the International Cooperative Administrative Support

Services (ICASS) system. Under ICASS, greater responsibility and

authority for managing resources and making decisions about

administrative support services shared with other agencies located at

diplomatic missions have been delegated to the overseas posts. The stakes

are highinitial ICASS reports indicate that shared administrative costs

are about $640 million annually. ICASS is now generating new and more

reliable cost data; the key question that remains to be answered is whether

State can effectively use the system to consolidate resources and reduce

overseas support costs.

Successfully

Integrating Foreign

Affairs Agencies

The long-planned reorganization of the governments foreign affairs

agencies is under way. In April 1997, the White House announced a plan to

put matters of international arms control, public diplomacy, and other

functions within a reinvented State Department. In October 1998, the

Congress authorized the reorganization, which abolished the U.S.

Information Agency (USIA) and the U.S. Arms Control and Disarmament

Agency (ACDA) and consolidated and integrated those functions into State.

The reorganization is intended to reinvigorate the foreign affairs functions

of the United States within the State Department. About 3,000 employees of

ACDA and USIA will be integrated into State. Potential areas identified for

integration among the three agencies include legal affairs, congressional

liaison, press and public affairs, and management. Central management

functions that are to be integrated include IRM, overseas facilities and

operations, logistics, diplomatic security, financial management, and

human resources.

State has indicated that during the transition, costs would likely increase

because of the need to implement system conversions and transfers; in the

longer term, overall staffing and costs may decrease. State faces several

challenges in achieving the objectives of this reorganization. One major

challenge is the technological difficulty of uniting the agencies, including

integrating separate electronic mail and computer systems. Overall issues

include whether the reorganization will actually produce identifiable
Page 8 GAO/T-NSIAD/AIMD-99-99 State Department

efficiencies and improved performance in foreign affairs programming. As

our prior work has indicated, many of the areas targeted for management

consolidation need substantial reform.

Effectively Managing

the Visa Process

The Immigration and Naturalization Service (INS) estimated that as of

October 1996, 5 million illegal aliens were residing in the United States.

While not the primary source of illegal immigration, visa fraud is a

significant matter of concern. States consular officers at overseas posts

are responsible for providing expeditious visa processing for qualified

applicants. At the same time, they must prevent the entry of those who are

a danger to U.S. security interests or are likely to remain in the United

States illegally. In fiscal year 1997, State processed over 7 million

nonimmigrant visas and 640,000 immigrant visas for foreigners to enter the

United States. Visa processing is a particular problem for some overseas

locations where volume and/or security concerns are high.

State has introduced new technologies, equipment, and controls designed

to improve visa processing and reduce the incidence of fraud. State notes

that progress has been made in several areas, including installation of

machine-readable visa systems at all visa-issuing posts, online connectivity

to Washington, D.C., databases, and implementation of a first phase of a

State-INS data-share program. Many improvements were made possible

through States temporary authority to retain fees charged foreigners

applying for nonimmigrant visas. Those fees generated millions of dollars,

enabling the Department of State to invest in border security technology

and to pay the salaries of nearly 2,000 employees.

State will need to remain vigilant in a number of areas to further reduce the

vulnerability of the visa system to fraud and abuse. These include

addressing (1) critical staffing gaps in overseas consular positions;

(2) limitations in consular automated systems; (3) restrictions in the

exchange of intelligence information with INS and other law enforcement

agencies; and (4) weaknesses in the integrity of immigrant and

nonimmigrant documentation, including the computerized systems used to

produce them. The Department must also continue its efforts to encourage

consular sections to implement best practices designed to streamline and

rationalize the visa workload. Several potential best practices were

identified in our recent work on visa backlog issues. These include using

travel agents for initial processing, establishing appointment systems to

control workload, and allowing the payment of visa fees at a bank or other

financial institution. In view of the increased international terrorist threats,
Page 9 GAO/T-NSIAD/AIMD-99-99 State Department

continued attention to States progress in addressing these issues will be

needed.

Modernizing

Relocation and

Housing Processes

State has recognized the need to reengineer its logistics processes based on

the adoption of best practices, hoping to reduce the time and costs

associated with its outdated business operations. One area that deserves

attention is States employee transfer process, which has remained virtually

unchanged for years. Over 3,000 employees along with their household

effects are relocated each year. We recently compared States process for

transferring employees and their household goods to those of other public

and private sector organizations. We found that the best practices of

leading private sector companies and other organizations can serve as a

useful model for State to reduce costs and provide better services. One of

the key differences between the process State uses to relocate its

employees and the process leading private sector organizations use is

States reliance on in-house operations.

Our work found that leading companies in the private sector use a number

of best practices. These include having one point of contact for

assistance to employees, known as one-stop shopping, and using

commercial, door-to-door shipments to lower the cost of shipping

employees household effects. In contrast, State employees are confronted

with a myriad of steps and multiple offices to navigate. State also

separately contracts for each segment of most moves. In addition to

incurring annual direct costs of about $36 million to ship household effects,

State incurs as much as $1,600 in overhead costs for each move.

State and other U.S. government agencies operating overseas also spend

over $200 million annually to lease housing and purchase furniture for

employees and their families. This process appears to be more costly than

necessary. Our comparison of States processes with those of key private

sector firms operating overseas indicates that if State adopted private

sector practices at a number of posts, it could potentially save the U.S.

government substantial amounts of money and still meet its employees

overseas residential housing and furniture needs. Specific practices that

can reduce costs include:

 using relocation companies and similar service providers to search for

housing and negotiate leases to reduce in-house support costs and shift

some property preparation expenses to landlords;
Page 10 GAO/T-NSIAD/AIMD-99-99 State Department

 providing employees with housing allowances to select their own homes

rather than managing and maintaining a housing pool of government

leases and preassigning residences; and

 acquiring residential furniture overseas instead of buying and shipping it

from the United States.

Strengthening Strategic

and Performance

Planning

The Results Act provides a framework for resolving management

challenges and for providing greater accountability of States programs and

operations. As required by the Results Act, State has prepared strategic and

performance plans. In its first strategic plan for foreign affairs, State

formulated 16 foreign policy goals that cover a wide spectrum of U.S.

national interestsnational security, economic prosperity, American

citizens and U.S. borders, law enforcement, democracy, humanitarian

response, and global issues. Our review of that plan and the Departments

annual performance plan for 1999 indicated that States plans had their

strong points but often did not provide the information which is needed for

effective Results Act planning.

For example, we are concerned that States strategic plan addressed

neither the potential impact of the consolidation of the foreign affairs

agencies on its systems nor the potential for other agencies to have

functions duplicative of States. We have found that States functional

bureaus share responsibility with multiple U.S. agencies on various

overlapping issues, including trade and export policy and international

security functions. The strategic plan also did not address the deficiencies

in States financial accounting and information systems, noting only in

general terms that several years will be required to develop performance

measures and related databases to provide sufficient information on the

achievement of goals.

Our review of States performance plan revealed similar deficiencies but

also some encouraging points as well. For example, States performance

plan generally provided clear and reasonable strategies and goals in the

areas of improving U.S. citizens services and border security, and

promoting democracy. In contrast, States plan did not present a clear

picture of its methods to meet strategic and performance goals in the areas

of furthering economic prosperity, preventing international crime, and

enhancing humanitarian assistance. Overall, the performance plan did not

clearly indicate the Departments intended performance and was vague

about how State will coordinate with other agencies. Further, States

performance plan did not provide sufficient confidence that the
Page 11 GAO/T-NSIAD/AIMD-99-99 State Department

Departments performance information will be credible. Also, it did not

address how the known deficiencies in States financial and information

systems will affect performance measurement.

In response to our work, State is attempting to improve its planning by

developing clearer and more objective performance measures linked to

performance goals. It is also identifying partnerships with other agencies

or governments to address crosscutting issues.

Conclusion In conclusion, State faces a number of serious management challenges

that, if not adequately addressed, could encumber its overall performance,

seriously impair its ability to meet its goals and objectives, and potentially

waste resources. The introduction of cost-based decision-making, the use

of best practices, and the establishment of sound strategic planning offer

the promise of helping State improve the efficiency of its operations.

Mr. Chairman and members of the Subcommittee, this concludes my

prepared statement. I would be happy to answer any questions you may

have.

Leter
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Related GAO Products

Overseas Security and

Presence

Overseas Presence: Staffing at U.S. Diplomatic Posts

(GAO/NSIAD-95-50FS, Dec. 28, 1994).

State Department: Overseas Staffing Process Not Linked to Policy

Priorities (GAO/NSIAD-94-228, Sept. 20, 1994).

State Department: Management Weaknesses in the Security Construction

Program (GAO/NSIAD-92-2, Nov. 29, 1991).

Information

Management

Department of State IRM: Modernization Program at Risk Absent Full

Implementation of Key Best Practices (GAO/NSIAD-98-242, Sept. 29, 1998).

Year 2000 Computing Crisis: State Department Needs to Make Fundamental

Improvements to Its Year 2000 Program (GAO/AIMD-98-162, Aug. 28, 1998).

Computer Security: Pervasive, Serious Weaknesses Jeopardize State

Department Operations (GAO/AIMD-98-145, May 18, 1998).

Visa Processing State Department: Tourist Visa Processing Backlogs Persist at U.S.

Consulates (GAO/NSIAD-98-69, Mar. 13, 1998).

State Department: Efforts to Reduce Visa Fraud (GAO/T-NSIAD-97-167,

May 20, 1997).

Foreign Affairs

Organization and

Management

Performance and Accountability Series: Major Management Challenges and

Program Risks, Department of State (GAO/OCG-99-12, January 1999).

Foreign Affairs Management: Major Challenges Facing the Department of

State (GAO/T-NSIAD-98-251, Sept. 17, 1998).

International Affairs: Activities of Domestic Agencies

(GAO/T-NSIAD-98-174, June 4, 1998).

International Affairs Budget: Framework for Assessing Relevance, Priority,

and Efficiency (GAO/T-NSIAD-98-18, Oct. 30, 1997).
Related GAO Products

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

Foreign Affairs: Perspective on Foreign Affairs Programs and Structures

(GAO/NSIAD-97-6, Nov. 8, 1996).

State Department: Options for Addressing Possible Budget Reductions

(GAO/NSIAD-96-124, Aug. 29, 1996).

Relocation and

Housing

State Department: Options for Reducing Overseas Housing and Furniture

Costs (GAO/NSIAD-98-128, July 31, 1998).

State Department: Using Best Practices to Relocate Employees Could

Reduce Costs and Improve Service (GAO/NSIAD-98-19, Oct. 17, 1997).

Strategic and

Performance Planning

The Results Act: Observations on the Department of States Fiscal Year

1999 Annual Performance Plan (GAO/NSIAD-98-210R, June 17, 1998).

Managing for Results: Agencies Annual Performance Plans Can Help

Address Strategic Planning Challenges (GAO/GGD-98-44, Jan. 30, 1998).

(711410) Leter
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