CS plays a major role in U.S. export promotion activities as the primary agency providing export assistance to individual businesses, especially small- and medium-sized businesses. It is a unit of the Department of Commerce’s (Commerce) International Trade Administration (ITA), and its services include the following: Counseling and intelligence. CS assists U.S. businesses in understanding foreign markets and developing export marketing plans including overseas product pricing, best prospects, market entry strategies, and distribution channels, and facilitates access to export financing and public and private export promotion assistance. Matchmaking. CS organizes and participates in trade events and forums, and introduces U.S. businesses to qualified overseas agents, distributors, end users, and other partners. Advocacy services. CS alerts U.S. firms to major overseas projects and procurement, and advocates on behalf of U.S. firms bidding on projects. CS has about 300 staff members in U.S. Export Assistance Centers (USEAC) located throughout the United States who work with firms that are new to exporting or want to expand their exporting efforts. USEACs provide counseling and planning services, such as working with firms to select target markets and develop marketing plans. They also coordinate with CS posts overseas, which provide matchmaking, advocacy, and market intelligence services in the target markets. About 1,000 CS international field staff—made up of FSOs and LES—are located at posts around the world to provide these services. LES are generally natives of the countries in which they are located, making them well-suited to help U.S. companies make local connections. USEAC staff and overseas post staff are supported by about 180 staff at headquarters in Washington, D.C. For the purposes of this report we reviewed CS activities related to providing information, counseling, and assistance for exports of services and manufactured goods, which is CS’s main focus. USDA and State also conduct export promotion activities. USDA’s Foreign Agricultural Service focuses on promoting commodities produced by U.S. farmers and ranchers. State supports CS’s efforts in countries where CS does not have a presence (see app. II). However, U.S. export promotion activities are multifaceted and also include reducing trade barriers, government-to- government advocacy, financing and other monetary assistance, and other activities. U.S. plans to increase exports are generally articulated in the Trade Promotion Coordinating Committee’s National Export Strategy, which is issued annually. Established in 1993, the Trade Promotion Coordinating Committee is an interagency group established to provide a framework to coordinate the export promotion and export financing activities of the U.S. government. As of 2010, 20 U.S. agencies have a role in export promotion. However, we have reported for a number of years that the annual National Export Strategies have limitations that affect the Coordinating Committee’s ability to coordinate trade promotion activities. For example, National Export Strategies provide limited information on member agencies’ goals and progress, relative to broad national priorities, to guide future efforts. Another effort is under way that could facilitate better interagency coordination. On January 27, 2010, President Obama announced the NEI in an effort to support U.S. economic recovery following the recession. A newly created Export Promotion Cabinet that reports to the President will coordinate and implement the goals of the NEI, and is expected to deliver a report to the President with a plan to implement the goals of the NEI in September 2010. While many aspects of the NEI are still in the planning stages, the NEI will have three main components: Educating U.S. companies about export opportunities; directly connecting them with new customers, partners, and distributors overseas; and advocating for their interests. Providing access to credit through the Export-Import Bank of the United States with a special focus on small- and medium-sized businesses. Removing trade barriers. The first component of the NEI, educating U.S. companies about export opportunities, will be carried out in large part by the Department of Commerce through CS. The majority of CS’s costs are related to the personnel that staff CS’s headquarters and its domestic and overseas export assistance posts. According to CS, 60 percent of its budget in 2009 was associated with personnel costs, including salaries, benefits, and FSO support costs for officers posted overseas. FSO support costs include relocation, travel, training, home leave allowances, and shipping and storage of household goods. Administrative payments to State associated with having personnel stationed overseas, including International Cooperative Administrative Support Services (ICASS) and Capital Security Cost Sharing Program (CSCSP) charges, as well as payments to ITA, CS’s parent agency, for shared overhead totaled 29 percent. The remaining 11 percent included CS-specific overhead costs including rent, communications, utilities, program-related travel, supplies, printing, and equipment costs as well as costs for developing and enhancing software for CS worldwide. CS charges fees for export promotion services that benefit individual companies, such as connecting them with potential buyers and distributors. CS uses the fees it collects to cover the costs of the related program expenses. CS reported that it collected approximately $10 million in fees in 2008. CS leadership lacked systematic information about CS’s workforce, and did not fully recognize or adequately respond to program risks created by growing administrative costs and declining staff levels from 2004 to 2009. Management control standards require entities to ensure that program managers have systems to provide needed operational and financial information in a timely manner to carry out their management and oversight responsibilities. In the case of CS, the most important management responsibilities were related to workforce decisions, since workforce expenses are the largest portion of CS’s budget. Additionally, these standards require management to identify and analyze the relevant risks an agency faces from internal and external sources so it can proactively manage them. From 2004 to 2009, CS’s budgets remained essentially flat as per capita personnel costs and administrative costs increased. Although CS leadership was aware of this trend, they did not have processes in place to analyze and respond to the long-term financial implications of these costs on CS’s workforce. Additionally, CS was not fully aware of the costs associated with positions it maintained in U.S. embassies that were vacant but not officially eliminated and did not take steps that would have saved money on them. As CS’s financial constraints grew, officials delayed their impact through a variety of financial management practices such as using unobligated funds from prior years’ appropriations. However, as the availability of these offsetting funds declined and costs continued growing, CS leadership failed to recognize the risks entailed by the financial problems, and the organization reached a “crisis” situation in 2009. Officials froze hiring, travel, training, and supplies, compromising CS’s ability to conduct its core business. CS’s workforce declined by about 240 staff from its peak level in 2004 through attrition—affecting the mix and distribution of personnel. From 2004 to 2009, CS’s budgets remained essentially flat, while at the same time the agency faced increasing per capita personnel costs. CS appropriations grew about 1.9 percent on average per year during that time frame. This represented a total increase of about 10 percent from 2004 to 2009, as shown in table 1. Although CS’s budget was adjusted for inflation and other increases such as pay raises and changes in benefit contribution rates, its annual increases did not cover its full costs, according to CS officials. For example, administrative costs grew from 20 percent ($44 million) of its obligations in 2004 to 30 percent ($72 million) in 2009. CS officials calculated the total cumulative funding gap for 2004 to 2009—the difference between its annual appropriations and full costs—to be $24 million. Since 2004, CS faced increased administrative payments to State that consumed larger shares of its funds. One factor increasing costs was State’s CSCSP, which began in 2005 to support the building of new secure embassies and consulates. The fee was phased in over a 5-year period, with the full annual charge levied for the first time in 2009. In 2005, the fee for CS was about $3.1 million, and in 2009 it was $23.7 million. Other factors included increasing costs for personnel, benefits, and rent, which include adjustments for inflation. CS made up the difference by not filling positions. CS budget requests were based partly on an estimated number of FTEs. CS overestimated the number of FTEs it would support with its budget every year, as shown in table 2. The actual numbers averaged 142 FTEs, or 11 percent, less than their estimates. CS used the funds it was provided based on these overestimated FTE levels to pay expenses such as administrative costs. The fact that this happened over so many years indicates that CS did not fully recognize how its workforce was being affected by increasing administrative costs. CS leadership had information about growing costs as early as 2006, but they did not recognize the severity of the situation. CS had data about the growth in unfunded adjustments to base, which are essentially the difference between what CS needed in terms of funding to cover increased costs and the appropriation it received. However, CS leaders said they were not fully aware of the long-term financial and workforce implications of increasing costs until 2009 when CS switched to a new financial management system, which according to CS officials illuminated how little discretionary funding was available. In 2009, they undertook an exercise to analyze and more fully understand the costs that affected the CS budget. Additionally, CS lacks an automated workforce information system to provide up-to-date staffing information, which also has financial implications. For example, without this information CS could not easily review ICASS and CSCSP charges in order to confirm whether State’s charges for these activities were correct. Currently, CS officials compile information from quarterly reports supplied by the posts to determine staffing totals.