State provides hardship and danger pay to employees who serve at many of its overseas posts as an incentive to work in harsh or dangerous locations, many of which are critical to advancing U.S. foreign policy objectives. As of February 5, 2017, State offered hardship pay at 188 of its 273 overseas posts (about 69 percent), with hardship rates ranging from 5 percent to 35 percent above basic compensation in 5-percent increments (see fig. 1). For example, State employees serving at posts such as Dhaka, Bangladesh; Kabul, Afghanistan; and Abuja, Nigeria, were eligible for the maximum hardship rate of 35 percent above basic compensation. State employees serving at posts such as Windhoek, Namibia; Reykjavik, Iceland; and Vilnius, Lithuania, were eligible for the minimum 5-percent hardship rate. State did not offer hardship pay at 85 of its 273 overseas posts (about 31 percent). According to State data, about three-quarters of the department’s Foreign Service overseas work force, as of September 30, 2016, was based at a post designated for hardship pay. As of February 5, 2017, State had provided danger pay at 25 of its 273 overseas posts (about 9 percent), with danger pay rates ranging from 15 percent to 35 percent above basic compensation, in 10-percent increments (see fig. 2). State employees serving at posts such as Baghdad, Iraq; Juba, South Sudan; and Islamabad, Pakistan, received the maximum danger pay rate of 35 percent above basic compensation. State employees serving at posts in Cairo, Egypt; Port-au-Prince, Haiti; and Tunis, Tunisia, received the minimum danger pay rate of 15 percent above basic compensation. State did not offer danger pay at 248 of its 273 overseas posts (about 91 percent). According to State data, about 15 percent of the department’s Foreign Service overseas work force, as of September 30, 2016, was based at a post designated for danger pay. At some posts, State employees are eligible to receive both hardship and danger pay up to a maximum combined rate of 70 percent above basic compensation. As of February 5, 2017, 21 overseas posts were eligible for both allowances, and 6 posts were receiving the maximum 70 percent combined rate for hardship and danger pay. State completed assessments in 2011 and 2015 that identified hardship and danger pay as important factors in employees’ bidding decisions and staffing for overseas posts. A 2011 evaluation found hardship and danger pay to be the most important individual incentives in staffing hardship posts. Specifically, the 2011 evaluation stated that an increase in either incentive would have a positive impact on bidding and staffing, whereas a decrease would have a negative impact. A survey component of the evaluation concluded that hardship and danger pay were among the top three most important individual incentives, among 52 different incentives, for employees at most career stages and types of family status to take into consideration when bidding on hardship posts. Another component of the evaluation, which analyzed the relationship between spending on financial incentives and success in staffing hardship posts, determined that, among 10 financial incentives, hardship and danger pay had the strongest influence on filling positions, including hard-to-fill positions. In 2015, State reconfirmed these findings as part of a study to determine which incentives were viewed as most influential in the recruitment of Foreign Service officers to Priority Staffing Posts. As part of this study, State employees identified hardship and danger pay as among the top 4 out of 16 incentives that would influence them to bid on Priority Staffing Posts. During our fieldwork, we held roundtable discussions with staff across various offices from five overseas posts, and most employees confirmed that hardship and danger pay remained important incentives for making bidding decisions. Several State entities play roles in the administration of hardship and danger pay. ALS develops and coordinates policies, regulations, standards, and procedures to administer hardship and danger pay, among other allowances, under the Department of State Standardized Regulations (DSSR). In particular, ALS is responsible for implementing processes to determine which overseas posts will be eligible to receive hardship and danger pay and the rates for these allowances. For example, ALS analyzes information on conditions at overseas posts to determine appropriate hardship pay rates. The Director of ALS also chairs the Danger Pay Review Board, which makes recommendations to the Assistant Secretary for Administration concerning overseas posts proposed for danger pay. CGFS processes hardship and danger pay for State employees through State’s payroll system and oversees the identification and recovery of overpayments for these and other allowances when they occur. State offices at overseas posts serve various functions related to hardship and danger pay. They provide information to ALS through periodic hardship questionnaires that inform hardship pay determinations and may provide information to the Danger Pay Review Board through their regional bureaus requesting changes to danger pay outside of the annual review cycle. These offices also administer systems and procedures at posts to facilitate the processing of hardship and danger pay and to ensure compliance with State’s rules on employee eligibility for these allowances. For example, overseas posts manage the time and attendance process, which State uses to record danger pay hours for permanently assigned employees. Overseas posts are also responsible for notifying CGFS when employees temporarily depart and return to posts so that CGFS can stop and start hardship pay in accordance with State’s policy. The Bureau of Diplomatic Security’s Office of Intelligence and Threat Analysis generates annual Security Environment Threat List (SETL) ratings for overseas posts—such as for political violence, terrorism, and crime—which play a role in determining danger pay eligibility and hardship pay rates. State’s Undersecretary for Management determines whether eligible family members are allowed at overseas posts (i.e., “accompanied status”), which is the primary factor in determining the rates above basic compensation that employees are paid at posts that State deems eligible for danger pay. When determining “accompanied status,” State considers factors that could impact a post’s operations; movement; and the health, safety, and security of a post’s facilities and its personnel. State spent about $1 billion for hardship and danger pay in fiscal years 2011 through 2016, including $732 million for State employees serving in locations designated for hardship pay and $266 million for employees serving in locations designated for danger pay. As shown in figure 3, spending on danger pay declined from about $49 million to $33 million over this period, whereas spending on hardship pay increased from about $122 million to $128 million. Combined spending for the two allowances declined by about $10 million in fiscal years 2011 through 2016, primarily because of reduced spending on these allowances in Iraq and Afghanistan. Specifically, spending on hardship and danger pay in Iraq and Afghanistan declined by almost $28 million in fiscal years 2011 through 2016, whereas spending on these allowances at all other posts increased by about $17 million over this period. State’s global spending for hardship and danger pay in fiscal years 2011 through 2016 varied, depending on the allowance rates and staffing levels at posts in a given country. For example, in fiscal year 2016, State spent about the same amount on hardship pay in Dhaka, Bangladesh ($1,348,242), a post eligible for hardship pay at 35 percent above basic compensation, as it did in Bangkok, Thailand ($1,328,286), a post eligible for hardship pay at 10 percent above basic compensation, because State has almost three times as many personnel assigned to Thailand (132 Foreign Service officers) as it has to Bangladesh (47 Foreign Service officers). Figure 4 shows State’s worldwide spending for hardship pay in fiscal years 2011 through 2016. As illustrated in figure 5, countries with danger pay spending in fiscal years 2011 through 2016 are largely concentrated in the Middle East and Africa. Several countries with danger pay spending during this period— including Mexico, Colombia, and Saudi Arabia—were no longer eligible for danger pay, as of February 5, 2017. An interactive graphic accompanying this report illustrates hardship and danger pay spending by country and fiscal year and provides information on hardship and danger pay rates and numbers of Foreign Service officers by overseas post for fiscal year 2016. Afghanistan and Iraq were the top two countries for State’s spending on both hardship and danger pay in fiscal years 2011 through 2016 and accounted for a substantial portion of State’s spending on these two allowances. As shown in figure 6, State spent about $138 million on hardship pay in Afghanistan and Iraq in fiscal years 2011 through 2016— about 19 percent of its total spending on hardship pay. State spent about $125 million on danger pay in these two countries over the same period, almost half of its worldwide danger pay spending. Posts in Afghanistan and Iraq are among the largest in the world, and all have hardship and danger pay rates of 30 or 35 percent. In most cases, State followed its process for determining hardship pay rates by analyzing survey responses and other data on living conditions at overseas posts. However, in a few cases, State awarded “Director Points”—additional points awarded at the discretion of the Director of State’s Office of Allowances (ALS)—to increase hardship pay without clearly explaining in its documentation how posts met relevant criteria. For danger pay, State followed its process of determining rates based on political violence and terrorism threat ratings and whether family members are allowed at overseas posts. ALS determines hardship pay rates through a process of analyzing factors affecting living conditions at overseas posts such as physical and social isolation, crime, air pollution, and medical care. ALS collects information on these factors based on periodic surveys of overseas posts and data from State offices and other sources. ALS employees evaluate this information against written standards and assign points for each factor. For example, a post with unhealthy levels of air pollution would receive more points for this factor than a post with good air quality. ALS sums the points assigned to individual factors to calculate a total numeric score for each post, and specified ranges of scores correspond to hardship pay rates ranging from 0 to 35 percent above basic compensation. For example, under State’s system, posts with scores under 50 do not receive hardship pay, whereas posts with scores of 150 or higher are eligible for the maximum hardship pay rate of 35 percent above basic compensation. Table 1 shows the factors that contribute to a post’s hardship score and the percent of the total score accounted for by each category of factors. Specifically, ALS develops the hardship scores as follows: ALS bases about half of a post’s score on its analysis of the post’s responses to a survey. Among other things, the survey includes questions about the physical isolation of the post, level of community resources, environmental conditions and sanitation, and the incidence of certain diseases. Multiple offices at post contribute to the survey responses, and posts may include supporting documentation such as photos or orientation materials provided to newly arriving employees. ALS determines the other half of a post’s score based on its analysis of data collected from State offices. For example, ALS obtains information on levels of crime at overseas posts from DS, medical services capabilities from the Office of Medical Services, and education facilities from the Office of Overseas Schools. The Director of ALS reviews a post’s score as determined by ALS and can add additional Director Points if she deems that there are extreme conditions at the post not adequately captured in State’s written standards. ALS normally scores and updates hardship rates for each post every 4 years. According to ALS officials, overseas posts remain free to submit new surveys outside of the normal 4-year cycle if warranted by significant changes to the living conditions at a post. For example, ALS officials said that Embassy Caracas submitted an out-of-cycle hardship survey in October 2015 because of rapidly deteriorating conditions in Venezuela. Based on this new information, ALS calculated a new score for Embassy Caracas and approved a 5-percentage point increase in its hardship rate, from 20 percent to 25 percent. State mostly followed its process for determining hardship pay rates for overseas posts but in a few cases awarded Director Points without adequately explaining in its documentation how the conditions at posts met relevant criteria. We reviewed ALS scoring for 192 overseas posts as of October 2016 and determined that the hardship rates for these posts accurately reflected the scores they received based on State’s analysis of the conditions at these posts. For 15 of these posts, State awarded additional Director Points ranging from 2 to 12 points, which in each case enabled the posts to reach the scoring threshold for the next-highest hardship rate. That is, State approved hardship rates for these posts that were 5 percent higher than the rate they would have received in the absence of Director Points. State policies note that Director Points may be awarded for extreme conditions not adequately captured in State’s written standards. For each of the 15 posts, State documented its decision to award Director Points in a memo approved by the Director of ALS. We reviewed the 15 memos and found the following: Three of the 15 memos clearly documented how the posts met State’s criteria for awarding Director Points. Specifically, these memos noted that the three posts submitted hardship surveys shortly before State’s revised standards and scoring system took effect in 2015, and State awarded these three posts Director Points to compensate for extreme living conditions that would have received additional credit under the updated methodology. Twelve of the 15 memos did not clearly document how the posts met State’s criteria for awarding Director Points. All 12 memos cited conditions that are already factored into State’s hardship standards and scoring system, such as high crime, social isolation, or a difficult climate. Additionally, some of these memos cited conditions that did not meet State’s criteria for awarding Director Points. For example, some cited concerns at posts over losing danger pay as part of the justification, and one cited, among other things, a desire to keep the post at its previous hardship pay rate—in part to preserve its eligibility for additional “rest and recuperation” leave, which was contingent upon its being designated as a hardship post. The current ALS Director was unsure why Director Points were approved in the cases we identified as lacking clear explanations for how conditions at the specified posts met State’s criteria. These cases predated her tenure as Director of ALS and, as of June 6, 2017, she had not approved Director Points for any posts since she assumed her position in the summer of 2016. She noted that Director Points may have been used more liberally in 2015 to ease the transition for posts concerned about losing danger pay, but she underscored that the updates State made to its hardship standards and scoring system in 2015 should lessen the need to use Director Points because the new standards better reflect the type and severity of conditions at overseas posts. Accordingly, the ALS Director noted that State plans to limit the use of Director Points going forward so as not to “tip the scales” for specific posts, although there still may be extenuating circumstances that justify their use. Moreover, she added that in the instances when Director Points are justified, ALS would need to clearly show how the conditions justifying Director Points are not already captured in State’s hardship standards. State’s Foreign Affairs Manual (FAM) states that employees, within their area of responsibility, must create and preserve documents that properly and adequately document the organization, functions, policies, decisions, procedures, and essential transactions of the department. Furthermore, the FAM provision on adequacy of documentation states that records should be complete to the extent necessary to facilitate the making of decisions and policies and the taking of action by the incumbents and their successors in office. Although State has used memos to document its decisions to award Director Points, in some cases these memos do not clearly explain how the conditions at posts met State’s criteria. Without clearer documentation, State does not have information that is clear enough to facilitate the making of decisions and policies by incumbent and successors of the office of the ALS Director. Furthermore, State cannot provide assurances that it is applying Director Points fairly across posts and tenures of ALS Directors, which could lead to inconsistent hardship pay determinations. We found that State followed the new process it implemented in 2015 for determining danger pay rates at overseas posts. To determine danger pay rates at overseas posts, State uses a two-part process that bases danger pay eligibility on threat ratings for political violence and terrorism at posts and danger pay rates on whether eligible family members are allowed at posts (see fig. 7). Following its policies, State determines eligibility for danger pay based on SETL ratings for (1) political violence and (2) terrorism at posts, which are generated by the DS Office of Intelligence and Threat Analysis. Overseas posts with a critical threat rating in either of these categories are eligible for danger pay. DS generates SETL ratings annually, reflecting threat levels for all overseas posts permanently staffed by direct hire personnel who operate under the Chief of Mission. SETL ratings reflect the views of the leadership team at each post as well as the analysts at DS who assess threats to overseas posts worldwide. Political violence ratings incorporate the threat to U.S. officials from civil unrest, government collapse, demonstrations, coups d’état, and inter- or intrastate conflicts, to include, but not limited to, armed insurgents and drug trafficking organizations. Terrorism ratings consider the threat of violence from foreign terrorist organizations and other international terrorist groups that possess the capability and intent to recruit, plan, finance, and execute local attacks against official U.S. interests. For posts that meet eligibility criteria, State determines danger pay rates based on the “accompanied status” at overseas posts—that is, whether eligible family members are allowed to reside at posts. The three tiers of danger pay (15, 25, and 35 percent above basic compensation) correspond to different types of accompanied status. Fully accompanied posts receive the lowest danger pay rate of 15 percent above basic compensation. Partially accompanied posts receive a 25-percent danger pay rate. Unaccompanied posts and posts that allow only adult working-eligible family members are entitled to the highest danger pay rate of 35 percent. The Danger Pay Review Board evaluates danger pay rates as part of an annual review cycle and on an ad hoc basis for event-driven reasons. The board meets each fall to reevaluate danger pay following DS’s release of new SETL ratings and recommends posts to add or delete from the danger pay list. Regional bureaus may also request danger pay for posts outside of the annual cycle for event-driven reasons—for example, if political unrest leads to the evacuation of family members from a post. These requests must specify the conditions at the location that meet the qualifying factors in the danger pay statute and regulations. Additionally, regional bureaus may request danger pay for locations other than established overseas posts where employees from State or other eligible agencies operate. Because these locations do not have SETL ratings, the Danger Pay Review Board evaluates these requests and makes its recommendations based on the specific conditions at these locations. The board generally makes recommendations regarding requests for danger pay at these other locations in conjunction with its annual review. State implemented its current process for determining danger pay rates in April 2015—the result of its first review of its processes for determining danger pay rates at overseas posts since the 1980s. Prior to these changes, ALS scored posts and determined danger pay rates based on responses to a danger pay survey completed periodically by posts, similar to the process now used to determine hardship pay. State’s review identified some inconsistencies between the conditions at posts receiving danger pay and the qualifying factors cited in the authorizing statute and regulations. For example, some posts were receiving danger pay primarily because of high crime rates even though danger pay regulations stipulate that the qualifying conditions for danger pay do not include acts characterized chiefly as economic crime. State’s review also determined that the survey-based scoring process was largely duplicative with the SETL process led by DS and, moreover, that DS possessed greater expertise than ALS for assessing the threats at overseas posts and ensuring consistency in threat ratings across posts. According to State officials, the new process for determining danger pay rates ensures greater transparency, consistency, and fairness. In 2015, State completed its first annual review of danger pay under the new process by assessing whether overseas posts had qualifying SETL ratings and then determining rates based on the accompanied status of these posts. As a result, 34 overseas posts and other locations lost danger pay, 7 received danger pay that previously had not been eligible for it, and 15 experienced increases in their danger pay rates. In conjunction with its implementation of the new process for determining danger pay rates, State adjusted hardship pay rates for affected posts by adding or subtracting credit for political violence and terrorism—factors that help determine rates for both allowances. Credit for these factors must be removed from hardship pay when a post receives danger pay to avoid duplication of benefits for the same condition. Removing this credit from the hardship scoring usually results in a decrease in the hardship pay rate. Conversely, credit for these factors is added back into hardship pay when a post loses danger pay, commonly resulting in an increase in the hardship pay rate. As a result of these adjustments, most of the posts that lost danger pay (27 of the 34) experienced an increase in hardship pay that offset some or all of their loss in danger pay. For example, six posts in Mexico lost danger pay under the new process because they lacked qualifying SETL ratings. However, all six received increases in hardship pay, which partially or fully offset the loss of danger pay. Correspondingly, six of the seven posts that became newly eligible for danger pay experienced partially offsetting reductions in hardship pay. In November 2016, State conducted its second annual danger pay review cycle under the new process. Four posts subsequently lost danger pay because they no longer had qualifying SETL ratings, and three posts or other locations either received danger pay or were awarded a higher rate of danger pay. Consistent with its prescribed process for determining rates, as of June 6, 2017, State had also approved three requests for danger pay outside of the annual review cycle because of changes in conditions at posts. Specifically, in January 2016, State approved 35-percent danger pay for Bujumbura, Burundi, because of increasing political violence that led to a partial evacuation of the post. Danger pay for Bujumbura was later renewed in November 2016 as part of the regular review cycle based on a qualifying SETL rating. Additionally, in March 2016, State approved danger pay for several posts in Turkey because of increasing terrorist attacks and a growing threat of political violence. Lastly, in June 2016, State approved danger pay for Bamako, Mali, because of increasing terrorist threats. State also has adjusted danger pay for one post because its accompanied status changed outside of the annual review cycle. In May 2016, State reduced the danger pay rate for Tunis, Tunisia, from 25 percent to 15 percent when the post’s accompanied status changed from partially accompanied to fully accompanied. State’s policies for stopping and starting hardship pay when employees temporarily leave their assigned overseas posts depend on a variety of factors such as the travel destination, purpose of travel, and assigned post. To implement these policies, overseas posts must send diplomatic cables instructing CGFS to manually adjust hardship pay for employees. State officials said that these procedures are resource intensive, requiring more than 10,000 manual adjustments to employee pay in both 2015 and 2016. Moreover, CGFS officials said that State’s policies and procedures contribute to improper payments related to hardship pay, which are costly to recover. However, State has not assessed the cost-effectiveness of its policies and procedures for stopping and starting hardship pay in accordance with its Foreign Affairs Manual, which requires that all managers establish and review cost-effective policies and procedures to ensure that U.S. government activities are managed effectively, efficiently, and economically. State’s policies for stopping and starting danger pay are based on a single factor—whether or not permanently assigned employees are present at their assigned posts—and State’s procedures for implementing these policies are mostly automated through its time and attendance system. State’s policies for stopping and starting hardship pay when an employee temporarily leaves his post are based on a range of factors, including the employee’s travel destination, sequencing of travel, purpose of travel, assigned post, and whether family members remain at post, among other things. State has made multiple modifications and added exceptions to the policies since introducing them in 1953; the current policies reflect these revisions. Travel destination and assigned posts affect hardship pay. According to State’s policy, generally employees who are temporarily absent from a hardship post in a location other than the United States retain hardship pay for up to 42 days. However, if they take leave in the United States, they generally lose hardship pay on the day their travel starts, unless specific exceptions apply, such as when an eligible family member remains at the post and the primary purpose of the travel is for detail or medical evacuation. Sequencing of travel destinations affects hardship pay. According to State’s policy, employees at a hardship post who take leave in a foreign location en route to the United States lose hardship pay when they arrive in the United States. However, if employees travel directly from a hardship post to the United States and take leave in a foreign location en route back to their post, they lose hardship pay at close of business the day they leave the post. The purpose of travel and whether employees have eligible family members that remain at a hardship post affects hardship pay during travel to the United States. According to State’s policy, employees who do not have eligible family members at their hardship post and are in the United States for a detail or medical evacuation would lose hardship pay for the duration of their absence. However, if employees do have eligible family members who remain at the post, they would continue to earn hardship pay for up to 42 consecutive days. Figure 8 is an illustrative flowchart that summarizes State’s policies for stopping and starting hardship pay when an employee is away from her permanently assigned post, based on our analysis of State documents and interviews with State officials. To implement State’s policies for stopping and starting hardship pay for employees who temporarily leave their assigned overseas posts, officials at posts must use diplomatic cables to instruct CGFS to manually adjust hardship pay. For State employees permanently assigned to a hardship post, CGFS must suspend and reinstate hardship pay when an employee is temporarily absent from a post—particularly during trips to the United States that do not meet one of the exceptions noted in State’s policies. Overseas posts are responsible for tracking employee arrivals and departures and sending diplomatic cables to CGFS with this information so that CGFS can process changes to hardship pay. To adhere to State’s policy, these cables should include information about employees’ travel dates, the purpose of their travel, and the status of any dependents. Overseas posts we visited had developed different policies and procedures for tracking employee travel to the United States and reporting this travel to CGFS. For example, at Embassy Tunis, the Human Resources Office is responsible for sending diplomatic cables to CGFS and requires employees to fill out a form with relevant information needed for the cables whenever they travel to and return from the United States. For each diplomatic cable, CGFS determines how the travel will impact hardship pay and manually adjusts the allowance in the payroll system for the employee. When the employee returns to the post, the post must send a similar diplomatic cable to CGFS with instructions to reinstate hardship pay, and CGFS again manually adjusts the employee’s pay. According to State officials, the procedures it uses to stop and start hardship pay when employees temporarily leave their post, in accordance with its policies, are resource intensive and contribute to improper payments. For example, administering hardship pay policies involves a large volume of diplomatic cables, which CGFS officials noted are costly for them to process. According to CGFS data, overseas posts sent diplomatic cables requiring CGFS to make more than 10,000 manual adjustments to temporarily stop and start employees’ hardship pay in both 2015 and 2016. CGFS officials also pointed to untimely diplomatic cables as a primary cause of overpayments related to hardship pay, which are costly to recover. Various officials at the posts we visited also described the resources involved in managing, maintaining, and enforcing the policies for hardship pay. For example, at Embassy Mexico City, several steps are required to stop and start hardship pay. First, an employee must fill out an electronic leave request including information about whether he is traveling to the United States, the purpose of the U.S. travel, and whether any eligible family members will remain at the post. Second, timekeepers must notify the Financial Management Office of the employee’s travel to the United States through a travel log that they update based on the electronic leave requests. Finally, the financial specialist sends the diplomatic cable to CGFS. In 2015 and 2016, according to CGFS data, posts in Mexico sent cables to CGFS that prompted almost 2,800 actions to temporarily turn on or off hardship pay for employees. The financial specialist in the Financial Management Office explained that she spent about an hour each morning checking the travel log and sending diplomatic cables to CGFS. State has not assessed the cost-effectiveness of its policies and procedures for stopping and starting hardship pay, which were established decades ago. State’s FAM requires that all managers establish and review cost-effective policies and procedures to ensure that U.S. government activities are managed effectively, efficiently, and economically. According to State officials, State has not assessed the cost-effectiveness of its policies and procedures for stopping and starting hardship pay because State has not directed such an assessment. CGFS officials and other State officials we interviewed during our overseas fieldwork noted that it might be more cost-effective to apply a flat hardship pay rate over an employee’s entire overseas assignment rather than adjust hardship pay each time an employee temporarily leaves and returns to her post. Officials also suggested that State could improve the administration of hardship pay by adopting simpler policies that base hardship pay solely on whether employees are present at their overseas posts. Without reviewing the cost-effectiveness of its policies and procedures, State does not know the extent to which they are effective, efficient, and economical. State uses its time and attendance system to automatically stop and start danger pay when a permanently assigned employee temporarily leaves his post, based on policies that depend solely on whether the employee is present at the post. The policies to stop and start danger pay specify that employees are eligible for danger pay when present at a danger pay post and ineligible for danger pay when not present at a danger pay post. These policies have mostly remained constant since danger pay was authorized in the Foreign Service Act of 1980. Unlike with hardship pay, the policies list no exceptions based on the assigned post, purpose of travel, destination, whether eligible family members remain at the post, or any other factors. To implement these policies, timekeepers at overseas posts record danger pay hours for employees assigned to their posts and submit these hours to CGFS through State’s time and attendance system. CGFS then processes danger pay for these employees automatically according to the hours recorded in the system. CGFS identified a total of about $2.9 million in improper payments for hardship and danger pay in fiscal years 2015 and 2016, including about $2.8 million for hardship pay and nearly $67 thousand for danger pay (see table 2). These improper payments accounted for about 30 percent of the $9.6 million in improper payments that CGFS identified related to compensation for U.S. employees in 2015 and 2016. CGFS identified almost twice the amount of improper payments for hardship pay in fiscal year 2015 as it did in 2016. According to CGFS officials, the amount of improper payments it identified declined in 2016 because the bureau made progress working through a backlog of diplomatic cables from overseas posts and instituted new work processes that helped to reduce improper payments. As of March 2017, CGFS had recovered almost $2.7 million, or about 92 percent, of the improper payments it identified in 2015 and 2016 related to hardship and danger pay. According to CGFS officials, the bureau was continuing efforts to recover the remaining 8 percent. CGFS officials cited late notification of employee arrivals and departures from overseas posts as the main cause of improper payments related to hardship and danger pay. For employees assigned to hardship posts, State’s policy specifies that hardship pay must be suspended upon travel to the United States, with some exceptions. To implement these rules, overseas posts must send diplomatic cables to CGFS with instructions to suspend and reinstate hardship pay for their employees. According to CGFS officials, improper payments may occur when CGFS processes hardship pay cables for dates outside of the current pay period because a cable arrived after the end of a pay period or CGFS was unable to process the cable during the pay period when it arrived. For danger pay, which is recorded in conjunction with the time and attendance process at overseas posts, CGFS officials said that they primarily identify overpayments when they receive timesheet corrections from posts involving danger pay after danger pay has been processed for a given pay period. While CGFS has identified about $2.9 million in improper payments related to hardship and danger pay as part of its regular pay processing activities, according to CGFS officials, it has not identified any additional improper payments through recovery audits, which are generally required by the Improper Payments Elimination and Recovery Act of 2010 (IPERA). IPERA requires these audits, if they are not prohibited under any other provision of law, if it is a program and activity of the agency that expends $1 million or more annually and if conducting such audits would be cost-effective. The Office of Management and Budget and State refer to these recovery audits as “payment recapture audits.” A recapture audit is a review and analysis of accounting and financial records, supporting documentation, and other information supporting payments that is specifically designed to identify overpayments. CGFS identified U.S. employee compensation, including hardship and danger pay, as one of the State programs that meet these criteria and expanded its recapture audit activities in fiscal year 2015 to cover this area. For example, CGFS has reviewed instances where hardship pay was paid to employees assigned to a domestic location. However, according to CGFS officials, as of March 2017, it had not found any additional overpayments related specifically to hardship and danger pay through these recapture audit efforts. They explained that recapture audit efforts for U.S. employee compensation are in their initial phases, and they plan to expand them in the future. We found that CGFS had not analyzed available data that could help to identify hardship posts at risk of overpayments and thereby aid in recapture audit and improper payment prevention efforts. In 2015, CGFS began collecting data on types of diplomatic cables from overseas posts that include requests for hardship pay to be suspended or reinstated for employees. According to CGFS officials, CGFS initiated this data collection effort in order to reduce improper payments by better managing workloads and prioritizing cases in which hardship pay needed to be suspended before CGFS processed pay. CGFS officials emphasized that they did not originally intend for the data to be used to facilitate recapture audits. CGFS officials agreed, however, that analyzing patterns in the data could help identify posts more likely to be out of compliance with the rules for hardship pay and therefore at higher risk for improper payments. For example, the diplomatic cable data could help identify anomalies such as posts that have fewer than expected requests for suspensions and reinstatements of hardship pay relative to the size of their workforce or proximity to the United States. Once CGFS has identified these anomalous posts, the posts would be able to use other data, such as information from travel management systems, to identify and recover any overpayments and could develop systems to prevent future improper payments. For example, one post we visited conducted an internal audit of employee travel and identified 18 instances over 8 months when the post did not send diplomatic cables to CGFS to suspend hardship pay. The post later sent cables to CGFS with this information so that CGFS could recover the associated overpayments. The post also developed a standard operating procedure to improve compliance with the policies for hardship pay and prevent similar overpayments related to hardship pay going forward. We independently analyzed the diplomatic cable data by post and identified several anomalies. For example, we identified nine countries— accounting for a total of about $2 million in hardship pay spending in fiscal years 2015 and 2016—that did not send either suspension or reinstatement cables to CGFS to request adjustments to hardship pay during this time period. CGFS officials confirmed that the lack of diplomatic cables was a possible indication that these posts were not following State’s rules for hardship pay. Additionally, we identified some overseas posts located in the same region of the world and with similar Foreign Service staffing levels that generated substantially different numbers of diplomatic cable requests to suspend and reinstate hardship pay. For example, the data indicate that—among two neighboring posts in Southeast Asia with similar Foreign Service officer staffing levels—one post sent a total of 235 diplomatic cable requests to suspend and reinstate hardship pay in fiscal years 2015 and 2016, whereas the other post sent 39. State spent a total of about $3.5 million on hardship pay in each of these countries in fiscal years 2015 and 2016. Data analytics involves a variety of techniques to analyze and interpret data to facilitate decision making and may be used to identify patterns or trends, determine whether problems are widespread and systemic in nature, and evaluate program performance outcomes. Guidance from the Office of Management and Budget notes that such techniques could be part of an internal control program to prevent, detect, and recover overpayments. Moreover, a forum we convened in September 2016 to advance the intergovernmental dialogue on implementing data analytics to prevent and detect improper payments highlighted the importance of agencies inventorying existing data sources and considering how they could be used to identify improper payments. By not analyzing the available diplomatic cable data, CGFS may be missing an opportunity to identify, recover, and prevent additional overpayments of hardship pay as part of its recapture audits. Advancing U.S. foreign policy objectives throughout the world requires State employees to serve at overseas locations where conditions may be harsh or dangerous. Hardship and danger pay are important incentives for State employees to work at these challenging locations. Although State mostly followed the new processes it established in 2015 for determining hardship and danger pay rates and locations, in a few cases it awarded Director Points that increased hardship pay for posts without clearly explaining in its documentation how the conditions at these posts met State’s criteria. Without clearer documentation, State cannot provide assurances that it is applying Director Points consistently across posts and tenures of ALS Directors, potentially leading to increased spending on hardship pay not otherwise justified under State’s current process for determining rates. Moreover, State has not assessed the cost- effectiveness of its policies and procedures for stopping and starting hardship pay when employees temporarily leave their overseas posts. State officials noted that these policies and procedures are resource intensive to implement and contribute to improper payments, which are costly to recover. Without reviewing the cost-effectiveness of these policies and procedures, State does not know whether they are effective, efficient, and economical. Finally, by not analyzing available data compiled by CGFS, State may be missing an opportunity to identify, recover, and prevent improper payments related to hardship pay with the potential to produce cost savings for the U.S. government. Our independent analysis of State data identified overseas posts accounting for millions of dollars in hardship spending in fiscal years 2015 and 2016 that may be at high risk for improper payments. We are making the following three recommendations to State: The Director of ALS should clearly document how the conditions at relevant posts meet the criteria for Director Points to ensure that hardship pay rates for overseas posts are consistently determined across posts and tenures of ALS Directors. (Recommendation 1) The Undersecretary of Management should assess the cost- effectiveness of State’s policies and procedures for stopping and starting hardship pay for employees who temporarily leave their assigned overseas posts. (Recommendation 2) The Department’s Comptroller should analyze available diplomatic cable data from overseas posts to identify posts at risk of improper payments for hardship pay, identify any improper payments, and take steps to recover and prevent them. (Recommendation 3) We provided a draft of this report to State for comment. In its comments, reproduced in appendix II, State concurred with all three recommendations. State also provided a technical comment, which we incorporated. We are sending copies of this report to the appropriate congressional committees and the Secretary of State. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-8980 or courtsm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made contributions to this report are listed in appendix III. The objectives of this review were to examine (1) the Department of State’s (State) spending at overseas posts for hardship and danger pay in fiscal years 2011-2016, (2) the extent to which State has followed its process for determining hardship and danger pay rates at overseas posts, (3) the procedures State uses to implement its policies for stopping and starting hardship and danger pay when employees temporarily leave their assigned overseas posts, and (4) the extent to which State has identified improper payments related to hardship and danger pay. To examine State’s spending at overseas posts for hardship and danger pay, we analyzed data in fiscal years 2011 to 2016 from State’s Consolidated American Payroll Processing System, which is administered by the Bureau of the Comptroller and Global Financial Services (CGFS). Because hardship and danger pay are processed through payroll, CGFS provided us with spending data for the 26 pay periods that best approximated each fiscal year from 2011 to 2016, and we used these data to summarize spending by fiscal year. All spending data in this report are presented in nominal dollars. We also used the gross domestic product price index to analyze trends in hardship and danger pay, expressed in terms of constant (inflation-adjusted) dollars. To assess the reliability of the data that State provided, we performed testing to identify missing data, outliers, and errors; and interviewed CGFS officials. We determined that the data we used were sufficiently reliable for the purposes of summarizing spending for hardship and danger pay by fiscal year and country. To determine the extent to which State has followed its process for determining hardship and danger pay rates at overseas posts, we analyzed data from State’s Office of Allowances (ALS) on its hardship scoring for overseas posts and hardship and danger pay rates by post. We reviewed State’s policies and standards for hardship and danger pay in the Department of State Standardized Regulations (DSSR), standard operating procedures, and hardship pay survey and scoring system. We also reviewed other documents that inform hardship and danger pay rates, including Security Environment Threat List ratings and reports on the operating status of overseas posts. We compared State’s implementation of its process for determining hardship and danger pay rates with its guidance. For hardship pay, we analyzed ALS scoring for 192 overseas posts as of October 2016 to determine whether the hardship rates for these posts accurately reflected the scores they received based on the ALS analysis of conditions at these posts. For the 15 posts for which ALS awarded Director Points, we reviewed the memos approving Director Points to determine whether State adequately documented how these posts met State’s criteria. For danger pay, we reviewed memos and other documents approving changes to danger pay rates and analyzed these to determine whether they followed State’s methodology. We interviewed officials from various State offices, including ALS, CGFS, and the Bureaus of Diplomatic Security (DS) and Human Resources (HR). We also interviewed officials from the American Foreign Service Association to obtain their views on hardship and danger pay. To understand how State applies its processes for determining hardship and danger pay in specific locations, we conducted a videoconference with officials at the U.S. embassy in Port-au-Prince, Haiti, and completed fieldwork at U.S. embassies in Islamabad, Pakistan; Mexico City, Mexico; New Delhi, India; and Tunis, Tunisia. We selected these posts for site visits based on various criteria, including their hardship and danger pay rates, Foreign Service staffing levels, whether they gained or lost hardship or danger pay because of the changes State made to its process in 2015, and whether they had experienced issues with improper payments related to these allowances. We also selected posts for site visits to provide broad geographic representation and to include an overseas post designated by State as a Priority Staffing Post. To examine the procedures State uses to implement its policies for stopping and starting hardship and danger pay when employees temporarily leave their assigned overseas posts, we reviewed State policies and procedures for implementing hardship and danger pay, including the Foreign Affairs Manual, standard operating procedures developed by CGFS, and guidance from the posts we visited. We also reviewed the frequently asked questions related to hardship and danger pay published by ALS and analyzed versions of the DSSR from 1953 to the present to identify changes to the rules for stopping and starting hardship and danger pay for employees assigned to overseas posts. Finally, we interviewed officials from ALS, CGFS, HR, and at selected overseas posts. Lastly, to determine the extent to which State has identified improper payments related to hardship and danger pay, we reviewed State’s Annual Financial Reports for 2015 and 2016, the first 2 years that State reported information on improper payments related to compensation for U.S. employees. We analyzed CGFS data on the amount of improper payments identified and recovered for hardship and danger pay in 2015 and 2016. We also reviewed data from CGFS on the types of diplomatic cables it received from overseas posts in 2015 and 2016—cables that included information needed by CGFS to make adjustments to hardship pay. We compared these diplomatic cable data to hardship spending to identify countries at risk for overpayments of hardship pay. We also reviewed legal and Office of Management and Budget requirements related to improper payments, as well as federal internal control standards. We interviewed CGFS officials to understand State’s process and methodology for identifying, recovering, and preventing improper payments related to hardship and danger pay as both part of its normal business process and its recapture audits. On our site visits, we examined posts’ controls to prevent and reduce overpayments and interviewed State employees to understand their experiences with State’s overpayment recovery efforts. We conducted this performance audit from April 2016 through September 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Hynek Kalkus (Assistant Director), Drew Lindsey (Analyst-in-Charge), Alana Miller, Timothy Carr, Debbie Chung, Gita Devaney, Neil Doherty, Jeff Isaacs, Grace Lui, Jill Lacey, and Eli Stiefel made key contributions to this report.

Summary: State provides hardship and danger pay, among other allowances, as incentives for State personnel to work at challenging overseas locations. Hardship pay compensates employees for service at overseas posts where conditions differ substantially from those in the United States. Danger pay compensates employees for service at posts where civil insurrection, civil war, terrorism, or wartime conditions threaten the health or well-being of an employee. This report examines hardship and danger pay, specifically, (1) State’s spending at overseas posts in fiscal years 2011-2016, (2) the extent to which State has followed its process for determining rates, (3) the procedures State uses to implement its policies for starting and stopping hardship and danger pay, and (4) the extent to which State has identified improper payments. GAO analyzed State data and documents; interviewed State officials in Washington, D.C.; and conducted fieldwork at four posts that receive hardship or danger pay: Islamabad, Pakistan; Mexico City, Mexico; New Delhi, India; and Tunis, Tunisia. The Department of State (State) spent about $732 million for hardship pay and $266 million for danger pay at overseas posts in fiscal years 2011 through 2016. State has mostly followed its process for determining hardship and danger pay rates at overseas posts. To determine hardship rates, State calculates scores for overseas posts based on information from post surveys and data on factors such as air pollution and crime. GAO reviewed scores for 192 posts and found that State mostly followed its process. However, in 12 of 15 cases where State added points for extreme conditions not captured in its written standards—Director Points—it did not clearly document how posts met these criteria. Without adequate documentation, the department cannot ensure that it is awarding these points consistently. For danger pay, State followed a process that bases rates on threat levels for political violence and terrorism and whether family members are allowed at post. State’s procedures for stopping and starting hardship pay when employees temporarily leave posts—based on several factors—are resource intensive, but State has not assessed their cost-effectiveness. State uses diplomatic cables to adjust hardship pay, but these procedures are resource intensive—requiring 10,000 pay actions each year—and contribute to improper payments, which are costly to recover. State’s procedures for adjusting danger pay through time and attendance, based on whether or not employees are present at posts, are mostly automated. State has not assessed the cost-effectiveness of its hardship pay policies and procedures in accordance with its Foreign Affairs Manual . State identified $2.9 million in improper payments related mostly to hardship pay in fiscal years 2015-2016. State conducts required improper payments audits but has not analyzed available data that could help further identify and recover overpayments related to hardship pay. Guidance from the Office of Management and Budget notes that such data analysis could be part of an internal control program to prevent, detect, and recover overpayments. GAO recommends that State clearly document the use of Director Points for extreme conditions at posts; assess the cost-effectiveness of its policies and procedures for stopping and starting hardship pay for overseas employees; and analyze available data to identify, recover, and prevent improper payments related to hardship pay. State concurred with these recommendations.