State Department: Major Management Challenges and Program Risks

Published by the Government Accountability Office on 1999-03-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         United States General Accounting Office

GAO                      Testimony
                         Before the Subcommittee on International Operations,

                         Committee on Foreign Relations, U.S. Senate

For Release

on Delivery

Expected at
                         STATE DEPARTMENT
2:00 p.m., EST


March 4, 1999

                         Major Management
                         Challenges and Program
                         Statement of Benjamin F. Nelson, Director, International

                         Relations and Trade Issues, National Security and

                         International Affairs Division

          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 State’s 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 State’s 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

          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 1                                   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
                     State’s 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   The need to adequately protect employees and their families overseas may

Security             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 State’s embassies and
                     consulates do not meet the Department’s 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 2                                    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 State’s 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 State’s 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
                      • 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 3                                  GAO/T-NSIAD/AIMD-99-99 State Department
                        of nearly 38,000 personnel overseas—split 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   State officials have recognized that deficiencies exist in the Department’s

and Financial           information resource management (IRM) operations. The Department is
                        spending hundreds of millions of dollars each year on information resource
Management Systems      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 State’s 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 4                                  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 State’s long-range plans and
                   cost estimates, and identifying potential cost savings and efficiencies
                   expected from the modernization effort.

                   State’s 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 nation’s 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 5                                   GAO/T-NSIAD/AIMD-99-99 State Department
                       Department’s Y2K Certification Panel has certified only 2 of its 59 mission-
                       critical systems as compliant.

Information Security   Our 1997 evaluation of State’s 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
                       State’s unclassified but sensitive systems, and the information contained
                       within them, were vulnerable to unauthorized access. Also, the
                       Department’s 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 State’s
                       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   One of State’s 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 State’s fiscal
                       year 1997 financial statements, the Department’s Inspector General
                       disclosed that State’s 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
                       OMB’s March 1, 1999, requirement to submit fiscal year 1998 audited
                       financial statements.

                       In response to the Inspector General’s audit findings, State has indicated
                       that it would study the level of compliance with the Federal Financial

                       Page 6                                  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

                      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 high—initial 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          The long-planned reorganization of the government’s foreign affairs

Integrating Foreign   agencies is under way. In April 1997, the White House announced a plan to
                      put matters of international arms control, public diplomacy, and other
Affairs Agencies      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 7                                  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 Immigration and Naturalization Service (INS) estimated that as of

the Visa Process       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. State’s 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 State’s 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 8                                    GAO/T-NSIAD/AIMD-99-99 State Department
                    continued attention to State’s progress in addressing these issues will be

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

Relocation and      the adoption of best practices, hoping to reduce the time and costs
                    associated with its outdated business operations. One area that deserves
Housing Processes   attention is State’s 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 State’s 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
                    State’s 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 State’s 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 9                                   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.

StrengtheningStrategic   The Results Act provides a framework for resolving management

and Performance          challenges and for providing greater accountability of State’s programs and
                         operations. As required by the Results Act, State has prepared strategic and
Planning                 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 interests—national security, economic prosperity, American
                         citizens and U.S. borders, law enforcement, democracy, humanitarian
                         response, and global issues. Our review of that plan and the Department’s
                         annual performance plan for 1999 indicated that State’s 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 State’s 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 State’s. We have found that State’s 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 State’s 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 State’s performance plan revealed similar deficiencies but
                         also some encouraging points as well. For example, State’s 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, State’s 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 Department’s intended performance and was vague
                         about how State will coordinate with other agencies. Further, State’s
                         performance plan did not provide sufficient confidence that the

                         Page 10                                 GAO/T-NSIAD/AIMD-99-99 State Department
                     Department’s performance information will be credible. Also, it did not
                     address how the known deficiencies in State’s 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

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Related GAO Products

Overseas Security and   Overseas Presence: Staffing at U.S. Diplomatic Posts

Presence                (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             Department of State IRM: Modernization Program at Risk Absent Full

Management              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         Performance and Accountability Series: Major Management Challenges and

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

Management              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).

                        Page 15                                 GAO/T-NSIAD/AIMD-99-99 State Department
                       Related GAO Products

                       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         State Department: Options for Reducing Overseas Housing and Furniture

Housing                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          The Results Act: Observations on the Department of State’s Fiscal Year

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