oversight

Foreign Assistance: Treasury's Technical Assistance Program

Published by the Government Accountability Office on 1999-03-12.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




March 1999
                  FOREIGN
                  ASSISTANCE
                  Treasury’s Technical
                  Assistance Program




GAO/NSIAD-99-65
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-281920

      March 12, 1999

      The Honorable Benjamin A. Gilman
      Chairman, Committee on International Relations
      House of Representatives

      The Honorable Douglas K. Bereuter
      Chairman, Subcommittee on Asia and the Pacific
      Committee on International Relations
      House of Representatives

      After the collapse of communism in Central Europe and the dissolution of
      the Soviet Union, the United States developed programs of technical
      assistance to help countries transition to market economies and
      democracy. The Department of the Treasury’s Office of Technical
      Assistance (OTA) was created to manage a program to provide strategic
      and technical advice to these countries, through advisors based in the
      United States and overseas, to facilitate economic reform and promote
      private-sector development.

      As requested, we reviewed the operation of the Treasury assistance
      program. As agreed with your offices, this report identifies the types of
      technical assistance the advisors have provided to Russia and Romania. It
      also discusses oversight by OTA of advisors’ activities. In addition, as you
      requested, we are providing information on advisor qualifications,
      program cost, fund transfers between the U.S. Agency for International
      Development (USAID) and the Treasury, and the location of the Treasury’s
      senior advisors to its program (see apps. I through IV for this program
      information).

      The Treasury began its resident advisor program in Russia in 1993; since
      then, 12 different resident advisors have been assigned there. At the time
      of our review, there were five resident advisors in Russia. The Treasury
      began its resident advisor program in Romania in 1993; since then, seven
      different resident advisors have been assigned there. At the time of our
      review, there were three resident advisors in Romania. These advisors in
      Russia and Romania together accounted for about one quarter of the
      Treasury’s OTA resident advisors at the time of our fieldwork in June 1998.
      We did not attempt to determine the extent to which Treasury advisor
      assistance influenced host governments to take particular actions because
      many factors, such as host government willingness to reform, affect such
      decisions. Therefore, a direct link between the advisors’ activities and




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                   host-government actions is difficult to establish (see app. VI for a detailed
                   description of our scope and methodology).


                   The Treasury’s technical assistance advisors in Russia and Romania have
Results in Brief   assisted in efforts to reform tax and budget systems, improve banking and
                   debt management policies, and enhance law enforcement. In support of
                   these initiatives, Treasury advisors have helped countries devise new
                   systems and approaches to management of their finances, drafted
                   legislation and procedures, and developed economic models.
                   Host-government officials for the most part indicated that the advice
                   received from the Treasury’s advisors was beneficial to their reform
                   efforts.

                   The advisor program has been carried out with little formal structure. The
                   only clear mandatory requirement is the filing of monthly reports, and
                   reports of varying content were generally filed on a regular basis.
                   However, other documents OTA officials say they use in their oversight,
                   such as host-country agreements, work plans, and the results of
                   supervisory trips, were not available. OTA has also been lax in enforcing
                   advisors’ financial disclosure requirements. In response to our
                   observations, OTA officials told us that they use informal means such as
                   electronic mail and telephone calls to carry out their oversight of advisor
                   activities.


                   The Treasury first began its technical assistance program in 1990 in
Background         Central Europe and then expanded it to include the countries of the
                   former Soviet Union.1 The Treasury receives funds from USAID to pay for
                   the cost of advisors. For fiscal years 1990-98, USAID transferred about
                   $134.2 million to the Treasury to support the Treasury program.

                   The Treasury had 39 resident advisors, as of September 1998, who covered
                   13 Central Europe or former Soviet Union2 countries. There are regional
                   advisors in Budapest, Hungary, who are technical experts and assist where

                   1
                    Congress enacted the Support for East European Democracy Act of 1989 (P.L. 101-179) to initiate a
                   program of technical assistance by various U.S. departments and agencies to Central Europe. The
                   Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act of 1992
                   (P.L. 102-511) extended similar assistance to countries of the former Soviet Union.
                   2
                    As of September 1998, resident advisors (funded under the Support for East European Democracy Act
                   and the Freedom Support Act) were located in Albania, Armenia, Bosnia, Bulgaria, Georgia, Hungary,
                   Kyrgyz Republic, Lithuania, Macedonia, Moldova, Romania, Russia, and Ukraine. In addition, the
                   Treasury also has advisors in other countries including Haiti, South Africa, and Indonesia who are
                   funded by USAID under the Foreign Assistance Act of 1961, as amended (P.L. 87-195).



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                      they are needed. In addition, the Treasury uses short-term advisors based
                      in the United States. The overall strategy of the Treasury advisor program
                      is to provide direct, technical advice to senior host-government officials on
                      the development of laws and administrative procedures and institutions to
                      promote fiscal stability, efficient resource allocation, transparent and
                      democratic processes, and private-sector growth.

                      The Treasury tries to obtain advisors who are experts in each of its five
                      program areas. The program areas are (1) tax policy and administration,
                      which is to help countries establish tax systems that are fair and objective
                      and that generate necessary revenues for government operations;
                      (2) financial institutions, policy, and regulation, which is to develop
                      policies and activities relating to privatization of state-owned commercial
                      banks and improve their management; (3) budget policy, formulation, and
                      execution, which is intended to help strengthen ministries of finance by
                      helping introduce modern budget processes; (4) government debt issuance
                      and management, which is to provide advice to host-government officials
                      on developing markets for the sale of government securities; and (5) law
                      enforcement, which is to enhance enforcement capabilities of the
                      government to address crimes that can undermine privatization,
                      developing financial systems, and other economic reforms. The first four
                      areas are each managed by an associate director in Washington, D.C., and
                      a senior advisor in Budapest. The fifth program area is managed by a
                      senior advisor based in Washington, D.C.

                      The Treasury plans worldwide expansion of its advisor program. In the
                      Omnibus Appropriations Act of 1999 (P.L. 105-277), Congress provided
                      $1.5 million to the Treasury for its own advisor programs in countries
                      outside Central Europe and the former Soviet Union. The programs in
                      Central Europe and the former Soviet Union will continue to be funded
                      through transfers from USAID.


                      Treasury advisors’ contributions have ranged from the provision of policy
Types of Assistance   advice on major initiatives, such as reform of a tax code or a budget
                      system, to discrete projects such as the development of comparative
                      analyses of how selected countries restructured insolvent banks, to the
                      completion of a model to forecast gross domestic product (GDP). For the
                      most part, Russian and Romanian officials complimented the Treasury
                      advisors’ work.




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                                The following paragraphs contain a description, by country, of the
                                Treasury advisors’ activities in Russia and Romania, including the
                                Treasury program areas and specific activities and tasks.


Russia                          In Russia, OTA is providing technical assistance in three program
                                areas—tax policy and administration, financial institutions, and
                                government budgets.

Tax Policy and Administration   The development of a sound tax system to support economic initiatives
                                and reforms in Russia is a high U.S. government priority. According to
                                OTA’s Associate Director, Tax Advisory Program, the advisors’ most
                                concerted efforts were in the preparation of draft tax legislation to reform
                                the Russian tax code. In the tax policy and administration area, the
                                Treasury advisors have helped analyze a proposed Russian tax code and
                                have prepared memos for Russian officials on issues that included tax
                                compliance, revenue forecasting estimates; property and business
                                taxation, depreciation and investment issues, and formulation of a
                                Russian-Cyprus tax treaty. As a general rule, advisors are not physically
                                located within government ministries in Russia. Although one advisor told
                                us that he did not have direct, daily contact with host-government officials
                                and had received little feedback on how useful his work has been, the
                                Russian Vice Minister of Finance told us that overall the Treasury’s tax
                                advisors have been helpful to the State Tax Service and were completing a
                                tax model for the Ministry. In addition, the Deputy Minister of Taxation
                                noted that U.S. advisors from the Treasury and USAID were helpful in
                                providing advice and assistance in all areas of tax aid.

                                At the time of our work, the Russian government had not approved major
                                tax reforms. OTA’s Associate Director, Tax Advisory Program, told us he
                                believed that the advisors should continue providing tax assistance
                                because tax reform is critical to Russia’s economic development.

Financial Institutions          The financial institutions advisor in Russia was providing assistance on
                                several banking issues, especially on how to deal with banking
                                insolvencies—a widespread problem in Russia. Since the first financial
                                institutions advisor was sent to Russia in December 1997, the objectives
                                have evolved. Initially, the advisor was to work with the bank
                                rehabilitation department of the Central Bank and focus on (1) identifying
                                problems in the banking system, (2) providing recommendations for an
                                early warning system regarding banks in financial trouble, and (3) making
                                recommendations for dealing with banking problems before they reached



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         a crisis stage. His Russian counterpart’s superior at the Central Bank was
         removed from office 2 months later, and the replacement official wanted
         assistance in other areas. Under the new official, the advisor was to
         (1) advise/prepare drafts of federal laws, programs, and regulations on
         bank restructuring, rehabilitation of problem banks, and liquidation of
         insolvent banks; (2) advise on establishing and managing a deposit
         guaranty system; and (3) advise and assist on training staff in bank
         rehabilitation and restructuring. At the time of our visit, the advisor was
         completing a comparative analysis of how 12 countries restructured their
         insolvent banks, to identify “lessons learned” for the Russian Central
         Bank.

         A Russian Central Bank official said he was satisfied with the assistance
         being provided by the Treasury advisor. This official told us that the Bank
         recognizes that the Treasury had a wealth of information on banking in
         other countries, that relations were good with the Treasury advisor, and
         the Bank has benefited from Treasury seminars, including one on the U.S.
         Resolution Trust Corporation. He said he and the advisor normally meet
         once a week and that there have been no Bank requests for assistance to
         which the Treasury advisor has not responded.

Budget   The three budget advisors in Russia have primarily focused on devising
         statistical measures that provide data for budget formulation. A resident
         advisor who is a macroeconomist had spent most of his time developing a
         model to forecast GDP. Another advisor developed a consumer sentiment
         index to measure the attitudes and expectations of the Russian consumer,
         which provides indicators of potential economic growth and is relevant to
         budget planning. This particular budget advisor’s task at the time of our
         fieldwork was to analyze and monitor the savings behavior of the
         population for use by the Ministry of Finance. A third budget advisor
         prepared a study on standards of living in Russia that was discussed in
         hearings by the budget committee of the upper house of the parliament.
         The advisor is now completing a study for the budget committee on the
         relationship between standards of living and the allocation of federal
         funds among the regions.

         The Russian Vice Minister of Finance praised the assistance of the
         macroeconomist and told us that he uses the GDP model on a daily basis.
         The Vice Minister was highly complimentary of the advisors’ work on the
         consumer sentiment index. Also, the Chief of Staff of the parliament
         budget committee said the advisor’s report on standards of living in Russia




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                                was appreciated by the committee and by regional authorities throughout
                                Russia.


Romania                         In Romania, OTA is providing assistance in four program areas—tax policy
                                and administration, budgets, government debt issuance, and law
                                enforcement. OTA suspended advisors’ work on financial institutions
                                because it concluded that the government was not ready to move forward
                                on reforms.

Tax Policy and Administration   In Romania, the tax advisor has provided assistance on ways to improve
                                the Romanian tax system. The tax advisor had prepared a plan for a new
                                national tax administration system that included recommendations for
                                restructuring the lines of authority over tax administration at both the
                                central government and local levels; identified the need for standard
                                manuals, procedures, and processes for tax administration activities; and
                                suggested the creation of a taxpayer service section to assist and educate
                                the public and a training academy that would use a standard curriculum to
                                teach procedures and methodologies of functions such as investigation
                                and collection to tax administration staff. According to a cognizant
                                official, the Ministry was undecided whether certain components of the
                                proposed plan would be fully implemented.

                                The tax advisor also has been helping Ministry staff prepare manuals for
                                large audits and collections. In addition, she has provided comments on a
                                proposed income tax law. The advisor told us that she spends about half
                                of her time on her main assignment—the tax administration reorganization
                                project—with the remaining time spent providing advice and assistance in
                                other areas. For example, she told us that she has both arranged and
                                taught courses for the Ministry’s tax controls department, presented a
                                general management practices seminar, and was assisting in the
                                development of a forms design workshop. She also organized study tours
                                for Ministry staff to observe how tax administration is done in other
                                countries, facilitated the participation of Ministry of Finance tax police in
                                some of the Treasury’s law enforcement assistance training, and advised
                                Ministry staff on assistance they could seek from other sources.

                                The tax advisor, along with the Treasury’s budget advisor, was asked by
                                the Finance Minister in 1998 to help prepare a reorganization plan for the
                                entire Ministry of Finance. Their advice was used to develop a plan to
                                streamline the management structure and eliminate some management
                                positions that had been filled by political appointees. However, before



                                Page 6                                       GAO/NSIAD-99-65 Foreign Assistance
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         more of the plan could be implemented, the Minister was replaced and the
         reorganization plan was suspended. The advisor told us that the new
         Minister did not accept the proposed changes and asked her to develop a
         new reorganization plan.

         A Ministry of Finance official, who was the liaison between the Treasury
         advisors and the Ministry officials, said he was very pleased with the
         advisor’s work. Also, the Romanian Ministry of Finance official in charge
         of information systems told us he was very pleased with the management
         seminar that the tax advisor had prepared for his staff. In addition, he
         noted that the Treasury advisors have been working with his staff for a
         longer period of time than advisors from other organizations and that
         there was continuity to their work. Furthermore, he said the advice
         provided by the Treasury on discrete projects, such as specific training
         courses and assistance with adaptation of new technology for tax
         administration, was very beneficial to the Ministry.

Budget   In Romania, the budget advisor is assisting in the phasing in of a new
         budget system that was adopted by the parliament and is expected to be
         fully implemented by the year 2000. The advisor helped develop a new
         budget format, which presents program objectives, desired outcomes, and
         program costs and provides a clearer view of government spending and
         program results.

         The budget advisor told us that he has given formal presentations and
         informal consultations to budget officials in ministries throughout the
         Romanian government, explaining the details of the new budget process.
         The advisor has also reviewed drafts of a local public finance law that
         could extend performance budgeting to local jurisdictions. The advisor
         has also been consulted on issues such as the impact of debt on the
         budget; alternative funding sources for public education, health, and
         cultural programs; reorganization of the Ministry of Finance; and a
         proposed food stamp program. In addition, he has participated in
         budget-related training sessions, coordinated a study tour of Romanian
         officials to the United States, and obtained short-term assistance from
         other U.S. experts on performance budgets and alternative funding
         sources to reduce the need for future government expenditures such as
         financing for cultural programs.

         Romanian Ministry of Finance officials told us that budget reform is a very
         high priority for the Ministry and the budget advisor has played an integral
         role in its efforts. A Ministry official who worked on the education budget



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                           said that it was very helpful to have the budget advisor accompany her on
                           visits to the Ministry of Education to discuss the new budget format. The
                           General Director for the State Budget said that the advisor was also
                           helpful in providing officials at ministries with information on how health
                           and education programs were financed in other countries, which was of
                           interest to officials at ministries who are seeking alternatives to
                           government funding of programs in light of anticipated future budget
                           shortfalls. The Executive Secretary for the State Budget said that the
                           budget advisor, along with the other Treasury advisors, has provided
                           valuable comments on a pending local public finance law.

Government Debt Issuance   The Treasury advisor in government debt issuance has worked in Romania
                           since 1996. The advisor coordinated the work of several Romanian
                           agencies involved in issuing government securities, helped develop
                           securities markets, and provided advice on the legal framework that would
                           be required for further development. The Treasury advisor helped
                           facilitate cooperation between the Ministry of Finance and the Central
                           Bank to develop procedures for the issuance of government securities.

                           At the start of the advisor’s tenure, Romania had a rudimentary primary
                           market, no secondary market,3 and a poorly functioning auction system.
                           The advisor’s technical assistance facilitated a host-government decision
                           that resulted in a strengthened primary market and the ancillary auction
                           system. He also advised the Central Bank on regulations that would be
                           needed to establish a secondary securities market and conducted training
                           for Ministry and Bank staff on the functioning of markets and auctions.
                           The resident and regional advisors provided advice to the Romanian
                           government on the timing of its entry into international financial markets
                           and helped Romania enter the Eurobond market4 for the first time. In
                           addition, a short-term Treasury advisor helped the government improve its
                           central clearing house and registration system for government securities.

                           The Romanian Ministry of Finance official in charge of the domestic public
                           debt said that the resident advisor in Romania and the regional advisor
                           from Budapest, who was an expert on international financing and came to
                           Bucharest to provide advice on Eurobonds, taught her step-by-step how to
                           issue an international bond. She also credited the resident advisor with


                           3
                            A primary market is made up of a group of banks or other financial institutions that purchase the
                           securities issued by the government. A secondary market has mechanisms that facilitate trade of
                           securities between all holders of the securities.
                           4
                            The Eurobond market refers to bonds sold in Europe denominated in a currency other than the
                           national currency of the issuer.



                           Page 8                                                       GAO/NSIAD-99-65 Foreign Assistance
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                         helping build a communication bridge between the Central Bank and the
                         Ministry of Finance, a relationship that had not before been strong but is
                         crucial since both play a role in the issuance of government securities. She
                         emphasized that reforms in government debt issuance benefited
                         extensively from having the resident advisor located in the Ministry and
                         available to answer questions and provide advice as needed.

Law Enforcement          During 1998, temporary advisors were helping reform the Romanian bank
                         fraud enforcement efforts of the General Prosecutor’s office by helping
                         coordinate their activities with the work of the Ministry of Interior. The
                         advisors created workshops for reviewing cases and focusing on issues of
                         evidence and the use of technology. The Deputy Director in the General
                         Prosecutor’s office said that many of the bank fraud cases were hard to
                         prosecute, since the prosecutors had little experience in such cases. He
                         also said that the workshops held by the Treasury advisors helped the
                         prosecutors and investigators understand the complexities of each other’s
                         work and would enable them to more effectively handle cases.

Financial Institutions   At the time of our review, the Treasury’s financial institutions advisory
                         program was suspended in Romania. A previous resident financial
                         institutions advisor in Romania helped provide technical advice on the
                         privatization of one of the state banks. However, after 2 years of effort, the
                         Romanian government was not ready to undertake privatization of the
                         bank to which he was assigned. For example, he advised the bank to
                         increase its capitalization and dilute government ownership by selling
                         some bank shares to private investors. The bank did issue certificates of
                         deposit but chose to sell most of its bank shares to other government
                         entities instead of the private sector. The advisor indicated that there did
                         not seem to be a firm commitment by host-government officials to
                         privatization and that some officials were not willing to accept his advice.

                         A second financial institutions advisor was sent to Romania from
                         September 1995 to mid-1996 and was involved in assisting in the
                         privatization of other state banks and reviewing drafts of a bank
                         privatization law. The Romanian government showed little interest in
                         privatizing its state banks, so OTA officials told us they suspended the
                         financial institutions program in Romania. OTA indicated that the Treasury
                         may attempt to send another advisor if OTA is convinced that the
                         government of Romania shows greater commitment to privatizing its state
                         banks.




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                          The advisor program has been carried out with little formal structure. OTA
OTA Oversight of the      has few written policies and procedures specifying oversight
Program                   requirements. Advisors generally filed monthly reports as required, but the
                          contents of the reports varied in the level of detail on program progress.
                          We noted that other documents that OTA officials told us they used for
                          program oversight, such as country agreements, work plans, and reports
                          of supervisor visits, were not available. For example, initially we requested
                          copies of documents used for oversight for a sample of five countries. OTA
                          told us it would have difficulty in assembling these documents in a timely
                          manner, and we narrowed our request to two countries—Russia and
                          Romania. After 4 months, OTA notified us that it could not locate a
                          significant number of the documents we requested. OTA’s oversight of its
                          advisor financial disclosure reporting requirements was also lax. OTA
                          officials told us they frequently used informal means, such as electronic
                          mail and telephonic communication, to oversee the work of resident
                          advisors.


Resident Advisor          OTA’s  Employee Handbook issued in March 1997 requires that monthly
Reporting                 reports from all full-time employees stationed abroad include project
                          highlights and project accomplishments for each objective in the advisor’s
                          work plan. OTA associate directors told us that these reports are used as
                          the principal means for monitoring the resident advisors’ activities.
                          Although we identified one advisor who failed to file 12 monthly reports,
                          advisors had filed most of the required reports. However, the content of
                          the reports varied. In some cases, reports included detailed discussions
                          that linked the advisor’s work to the objectives and strategies described in
                          the work plans, when one was completed, and outlined progress made to
                          date along with timetables for ongoing and future work. In contrast, other
                          reports were brief statements of the status of work without reference to
                          the work plan and frequently repeated verbatim the prior month’s
                          reporting. For example, one advisor’s report consisted of nine lines that
                          outlined in very general terms what he did that month.


Host-Country Agreements   The Deputy Assistant Secretary for Technical Assistance Policy told us
                          formal agreements5 setting forth the understanding between the Treasury
                          and the host government on the specific technical assistance that will be
                          provided were to be prepared for each advisor. He said the formalization
                          of these agreements is needed to ensure that the host government is
                          committed to working with the advisor and willing to accept advice.

                          5
                           Also called “terms of reference.”



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                        However, we found few resident advisors in Russia and Romania had
                        signed letters of agreement with their host government. We could not
                        locate signed host-government agreements for 15 of the 19 resident
                        advisors that have been assigned to Russia and Romania since 1992.


Resident Advisor Work   OTA officials told us that resident advisor work plans were to be prepared
Plans                   by each advisor. In some cases, the requirement to do work plans was
                        included in the advisor contract. OTA officials said the plans are an
                        important element in overseeing their activities. The work plan serves to
                        (1) lay out the objectives and strategies of what the Treasury intends to
                        accomplish, (2) specify how advisors will accomplish these objectives and
                        strategies, and (3) provide a means to hold advisors accountable for their
                        work. OTA could not locate work plans for 13 of 19 advisors assigned to
                        Russia and Romania since 1992.


Supervisory Reporting   According to OTA officials, supervisory officials, such as senior advisors
                        and associate directors, are also expected to prepare written reports on
                        program progress and accomplishments and the status of resident
                        advisors’ activities. In particular, supervisors were expected to file written
                        trip reports whenever they visited the resident advisors. We found that
                        supervisory officials were not consistently reporting on their work to
                        senior management.

                        Supervisory reports were prepared for only 9 of 33 trips to Russia and/or
                        Romania over a 2-year period covering May 1996 to May 1998. One senior
                        advisor did not file any reports over a 16-month period during which he
                        made 13 supervisory trips to countries under his responsibility. Further,
                        the content of the available reports did not always parallel the stated
                        purposes of the trips, and few reports discussed progress being made by
                        resident advisors. For example, only two of the nine reports commented in
                        detail on a resident advisor’s work.


Rationale for Current   According to the former OTA Director, the absence of documentation on
Oversight Approach      country agreements, advisor work plans, and supervisory reports did not
                        adversely affect program oversight. He believed that information on
                        program activities was communicated to the right people and that senior
                        OTA officials were kept abreast of program status through telephone
                        conversations, electronic messages, and twice yearly, programwide
                        conferences. He also noted that OTA had not established a structured



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                         approach to oversight requirements because the program was relatively
                         small. He indicated that with the pending expansion of the program, OTA
                         should consider establishing more written policies and procedures
                         outlining these requirements.


Guidance Documents Are   Determining how much formal structure is necessary to assure
Available                accountability for funds is not easy. The Office of Management and Budget
                         (OMB) and our guide on internal controls6 provide some guidance.
                         According to these documents, written policies and procedures, manuals,
                         and other related materials are necessary to describe and communicate
                         the responsibilities and authorities of management and staff,
                         organizational structure, operating procedures, and administrative
                         practices. It is not clear whether OTA’s current approach is consistent with
                         these basic guidelines.


Oversight of Financial   OTA requires most of its advisors to file annual financial disclosure reports
Disclosure Compliance    by October 317 of each year, detailing their financial interests.8 The reports
Has Been Lax             are used to help determine whether a potential conflict of interest exists,
                         since advisors may be in a position to render advice in an area where they
                         may have a financial interest. OTA management is required to review the
                         statements for potential conflicts of interest within 60 days of filing and, if
                         necessary, resolve conflicts. For 1997, OTA extended the filing deadline
                         until November 30, because some advisors had received their filing
                         paperwork late.

                         OTA has not enforced compliance with these requirements. For 1997, we
                         found that only 18 of 73 advisors had filed statements by the extended
                         deadline. In response to our questions on this issue, on March 10 and
                         April 2, 1998, OTA sent memos to the advisors who had not filed reports
                         and requested that the advisors comply with office requirements.
                         Eventually, an additional 40 reports were filed. To improve OTA oversight,
                         the Treasury’s Deputy Assistant General Counsel said that her office held a

                         6
                         See OMB Circular A-123 and Accounting Series: Standards for Internal Controls in the Federal
                         Government (Washington, D.C.: GAO, 1983).
                         7
                          Governing regulations for filing and reviewing financial disclosure reports are contained in 5 C.F.R.
                         2634. We did not include advisors compensated above the government service (GS) 15, step 10, level in
                         our analysis. These advisors had different filing requirements.
                         8
                          Prior to the award of each personal services contract, each prospective personal services contract
                         advisor submits a financial disclosure report that is reviewed by representatives of the Department of
                         the Treasury, the Office of Procurement, and the Office of General Counsel for potential conflicts of
                         interest.



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                  training session for OTA in April 1998 on the rules and regulations of
                  federal financial disclosure procedures.


                  Treasury advisors in Romania and Russia have provided advice on a
Conclusions and   variety of economic reform efforts. The nature of advice being provided
Recommendation    has varied from addressing broad policy and operational issues to
                  handling discrete projects such as devising economic forecasting models.
                  Host-government officials told us they found the Treasury advice to be
                  beneficial.

                  OTA has largely relied upon informal mechanisms to maintain program
                  oversight. However, as OTA expands its assistance to other countries, we
                  believe it should develop a more formal set of policies and procedures for
                  conducting program oversight. It also needs to enforce these
                  requirements. Although we did not identify an adverse effect from the
                  current oversight approach exercised by OTA, we believe that a more
                  structured approach to program oversight and accountability, particularly
                  in light of the program’s pending expansion, is needed to provide
                  reasonable assurance that the government interest is protected and to
                  provide an institutional memory that could be the basis for future
                  programmatic decisions. Thus, we recommend that the Secretary of the
                  Treasury establish formal requirements and procedures that clearly state
                  advisor responsibilities, and take steps to ensure compliance with these
                  requirements.


                  In its written comments, the Department of the Treasury agreed with the
Agency Comments   thrust of this report and cited several actions that will be considered to
                  improve program oversight. The Treasury did, however, raise concerns
                  about the methodology we used to compare our advisor costs to USAID’s
                  advisor costs. The Treasury cited a State Department Office of the
                  Inspector General report that concluded that the costs were similar and
                  questioned whether certain OTA costs were appropriately included in our
                  analysis. The Treasury also expressed concern that our draft report did
                  not sufficiently capture its financial disclosure report practices.

                  We believe that our analysis of Treasury and USAID advisor costs is fair and
                  that the cost elements that we weighed are appropriate. We have added
                  additional information clarifying our methodology. We have also added
                  information regarding the process the Treasury uses to address potential
                  conflicts of interest beyond the annual financial disclosure statements that



                  Page 13                                       GAO/NSIAD-99-65 Foreign Assistance
B-281920




we analyzed (see app. V for the Treasury’s comments and our response to
them).


We are providing copies of this report to the Chairman and Ranking
Minority Members of the House and Senate Committees on
Appropriations, the Senate Committee on Foreign Relations, and the
Ranking Minority Member of the House Committee on International
Relations. We are also sending copies to interested congressional
committees and to the Secretaries of the Treasury and State; the
Administrator, U.S. Agency for International Development; and the
Director, Office of Management and Budget. Copies will be made available
to others upon request.

Please contact me at (202) 512-4128 if you or your staff have any questions
about this report. Major contributors to this report are listed in
appendix VII.




Benjamin F. Nelson
Director, International Relations
  and Trade Issues




Page 14                                      GAO/NSIAD-99-65 Foreign Assistance
Page 15   GAO/NSIAD-99-65 Foreign Assistance
Contents



Letter                                                                                        1


Appendix I                                                                                   18
Treasury Advisor
Qualifications
Appendix II                                                                                  19
                        Average Cost of Programs in Russia                                   20
Costs for Treasury      Average Cost of Programs in Ukraine                                  21
and U.S. Agency for
International
Development Program
Advisors in Russia
and Ukraine
Appendix III                                                                                 23
USAID Transfer of
Funds to the Treasury
Appendix IV                                                                                  24
Location and Cost of
Advisors in Paris and
London
Appendix V                                                                                   25
Comments From the
Department of the
Treasury
Appendix VI                                                                                  30
Objectives, Scope,
and Methodology



                        Page 16                               GAO/NSIAD-99-65 Foreign Assistance
                        Contents




Appendix VII                                                                                      33
Major Contributors to
This Report
Tables                  Table II.1: OTA and USAID Advisor Costs for Russia, Fiscal Years          21
                          1995-97
                        Table II.2: OTA and USAID Advisor Costs for Ukraine, Fiscal               22
                          Years 1995-97




                        Abbreviations

                        GDP        gross domestic product
                        OIG        Office of the Inspector General
                        OMB        Office of Management and Budget
                        OTA        Office of Technical Assistance
                        USAID      U.S. Agency for International Development


                        Page 17                                    GAO/NSIAD-99-65 Foreign Assistance
Appendix I

Treasury Advisor Qualifications


               The Treasury’s Office of Technical Assistance (OTA) requires general
               personnel qualifications for the advisors in its program. These advisor
               qualifications include a combination of expertise in one of five program
               areas (tax policy and administration; financial institutions, policy, and
               regulation; budget policy, formulation, and execution; government debt
               issuance and management; and law enforcement), significant prior
               senior-level experience, and relevant educational backgrounds.
               Additionally, foreign language expertise and prior overseas work
               experience were indicated as desirable. To determine whether the
               advisors appear to have the indicated job qualifications, we reviewed the
               advisors’ application information1 and a sample of 24 job advertisements.
               We attempted to compare the application material presented by the
               applicants in U.S. government Standard Form 171, Optional Form 612, or
               resumés to the qualifications listed in the job announcement. Since the
               Treasury did not retain copies of all of the advertisements it used, we were
               not able to match specific applications with the specific advertisements
               that the applicants were answering. However, an OTA official said that the
               advertisements were generally the same.

               Our analysis shows that the advisors have an average of 19 years of
               experience in their field; have held positions of responsibility such as
               Deputy Assistant Commissioner of the Internal Revenue Service, bank
               senior vice president, and chief financial officer; 32, or 70 percent, have
               graduate degrees; 11, or 24 percent, have some knowledge of a regional
               language; and 16, or 35 percent, have prior overseas experience.




               1
                We selected all senior advisors who served in the program from its inception and resident advisors
               who were in the program as of November 1, 1997, for our analysis. The majority, or about 83 percent,
               of the Treasury Department’s 46 resident and senior advisors were hired as personal services
               contractors for a year assignment that is renewable for additional years. About 17 percent of the
               advisors were U.S. government employees on loan from other agencies or Departments, and about
               20 percent have worked for the U.S. Agency for International Development (USAID) or its contractors
               in the past.



               Page 18                                                     GAO/NSIAD-99-65 Foreign Assistance
Appendix II

Costs for Treasury and U.S. Agency for
International Development Program
Advisors in Russia and Ukraine
                  The average cost for an OTA advisor in Russia and Ukraine is higher than
                  that of the USAID program.1 Some of the reasons for this are that OTA’s
                  program costs have included higher wages and greater use of short-term
                  advisors. In comparing the cost of the Treasury’s Office of Technical
                  Assistance and USAID advisors, we selected Russia and Ukraine as
                  countries for comparison because both the Treasury and USAID2 have
                  similar technical assistance programs in the countries, about 60 percent of
                  the resident advisors working in the former Soviet Union in
                  fiscal year 1997 were posted to these countries, and the two countries
                  account for about 30 percent of the total program costs in the former
                  Soviet Union funded by the Treasury that year.

                  To determine the average cost per OTA advisor, we obtained the Treasury’s
                  financial reports and advisor cost data for fiscal years 1995-97. We
                  obtained cost data for a USAID contractor that performs similar activities in
                  Russia and Ukraine to calculate USAID’s average advisor costs. For OTA and
                  USAID we compared


              •   wages paid to advisors overseas, including salary and benefits, housing,
                  post allowances, and post differential;
              •   support costs for the advisors, including office rent and utilities,
                  administrative support in the field such as local-hire staff salaries and
                  benefits, travel, and transportation; we included the program management
                  and administrative costs of OTA3 and the USAID contractor responsible for
                  the USAID program; and
              •   short-term advisor costs, including salary and travel expenses for expert
                  assistance on an as-needed basis.




                  1
                   In calculating the average advisor cost, there are certain limitations to the cost calculation that should
                  be recognized, such as variations between programs developed by the two agencies and differences in
                  a given program from one year to another. These differences include varying numbers of advisors,
                  both resident and short term, and their varying wage and support costs.
                  2
                   OTA employs personal services contractors and U.S. government employees as resident advisors on
                  an individual basis overseas. These advisors typically give advice directly to host-government officials
                  and are assisted by local-hire staff and short-term and regional advisors. OTA’s overseas logistical
                  support is provided by a contractor. USAID uses a contractor to provide technical assistance to Russia
                  and Ukraine. The contractor is responsible for establishing a team of U.S. and foreign national
                  specialists to provide technical assistance to host governments and also for supplying all
                  administrative support for the contract.
                  3
                   OTA’s operations office in Washington provides operational and administrative support for financial
                  and travel services, recruitment, and procurement. As of September 1998, OTA had a staff of 35,
                  consisting of an Office Director, Deputy Director, Associate Director for Operations; 4 program
                  associate directors; staff assigned to specific program areas; and administrative staff. A private
                  contractor provides administrative and logistical support overseas.



                  Page 19                                                        GAO/NSIAD-99-65 Foreign Assistance
                     Appendix II
                     Costs for Treasury and U.S. Agency for
                     International Development Program
                     Advisors in Russia and Ukraine




                     We used average advisor cost as a unit of measurement, because the
                     Department of the Treasury requests funds for the entire OTA program on a
                     per-resident-advisor basis. We note that cost for support of the advisors is
                     the largest cost element in our analysis of cost per advisor.



                     The average cost per OTA advisor in Russia for fiscal years 1995-97 was
Average Cost of      $567,000, and the average cost per USAID advisor in Russia was $453,000.4
Programs in Russia   The major cost differences between the two programs were due to wages5
                     and the use of short-term advisors. For the 3-year period, OTA paid its
                     advisors an average of $184,300 in wages compared to $153,500 paid by the
                     USAID contractor. OTA officials told us that they employ senior government
                     and high-level officials from the private sector who are eligible6 for higher
                     salaries. In addition, OTA relied more on short-term advisors for technical
                     assistance than did the USAID contractor. OTA spent an average of $91,400
                     for short-term advisor assistance during the 3 fiscal years, compared to
                     $30,000 for USAID.

                     We note that the average advisor costs sometimes can provide a skewed
                     indication of the actual costs of a program. For example, average advisor
                     costs for USAID in Russia for fiscal year 1997 were higher than the previous
                     2 fiscal years because as the USAID program was ending, although the
                     number of resident advisors had declined, the fixed costs associated with
                     support and short-term advisor costs were averaged over fewer advisors.

                     Table II.1 depicts the average costs for OTA and USAID advisors in Russia for
                     fiscal years 1995-97 and the cost categories.




                     4
                      All costs are in 1997 dollars to account for inflation. Average costs per advisor for fiscal years 1995-97
                     are weighted averages.
                     5
                      Includes housing allowance.
                     6
                      OTA pays advisors up to government service grade (GS) 15, step 10, of the government pay scale.
                     However, OTA has authority to seek waivers to pay higher salaries when the applicant’s prior salary
                     history indicates that he or she was paid above the GS-15, step 10, level. As of February 1998,
                     51 percent (20 of 39) of OTA’s resident advisors were paid above the GS-15, step 10, level.



                     Page 20                                                         GAO/NSIAD-99-65 Foreign Assistance
                                          Appendix II
                                          Costs for Treasury and U.S. Agency for
                                          International Development Program
                                          Advisors in Russia and Ukraine




Table II.1: OTA and USAID Advisor Costs for Russia, Fiscal Years 1995-97
1997 dollars
                                                                                                              Average cost            Average
                                         Total    Number of            Average cost      Average cost         of short-term           cost per
Fiscal year      Agency           program cost FTEa advisors              of wages         of support              advisors            advisor
1995             OTA                 $1,217,300                2.33         $177,000           $245,900              $99,600         $522,400
                 USAID                5,097,700              12.16            168,300           236,600                14,300          419,300
1996             OTA                  1,738,600                2.75           179,500           351,900              100,900           632,200
                 USAID                4,093,800                9.14           139,700           271,500                36,600          447,800
1997             OTA                  2,096,300                3.83           192,200           275,500                79,700          547,300
                 USAID                2,590,000                4.71           141,700           350,800                57,600          550,100
Average          OTA                  1,684,000                2.97           184,300           291,300                91,400          567,000
FY 95-97         USAID                3,927,200                8.67           153,500           269,500                30,000          453,000
                                          Legend

                                          FY = fiscal year

                                          Notes:

                                          1. Totals may not add due to rounding.

                                          2. We used full-time equivalent (FTE) to account for staff not assigned for a full year. Average cost
                                          per advisor is a weighted average.
                                          a
                                           FTE is equivalent to one staff year.

                                          Source: OTA and USAID-contractor cost data.




                                          The average cost per OTA advisor in Ukraine for fiscal years 1995-97 was
Average Cost of                           $448,700, and the average cost per USAID advisor in Ukraine was $397,200.
Programs in Ukraine                       The major cost differences between the two programs were due to wages
                                          and the use of short-term advisors.

                                          For the 3-year period, OTA paid its advisors an average of $142,500 in
                                          wages, compared to $125,500 paid by the USAID contractor. Again, the
                                          higher salaries were based on the advisor’s prior salary. As in Russia, OTA
                                          relied more on short-term technical assistance than did the USAID
                                          contractor. OTA spent an average of $89,800 for short-term assistance
                                          during the 3 years, as compared to $33,400 for USAID.

                                          Table II.2 depicts the average costs for OTA and USAID advisors in Ukraine
                                          for fiscal years 1995-97 and the cost categories.




                                          Page 21                                                       GAO/NSIAD-99-65 Foreign Assistance
                                          Appendix II
                                          Costs for Treasury and U.S. Agency for
                                          International Development Program
                                          Advisors in Russia and Ukraine




Table II.2: OTA and USAID Advisor Costs for Ukraine, Fiscal Years 1995-97
1997 dollars
                                                                                                              Average cost
                                         Total    Number of            Average cost        Average cost       of short-term      Average cost
Fiscal year      Agency           program cost FTEa advisors              of wages           of support            advisors       per advisor
1995             OTA                  $ 537,900                1.25         $142,300           $188,500              $99,600           $430,300
                 USAID                1,465,300                3.57           138,300           238,800                33,000           410,000
1996             OTA                    851,800                1.92           133,800           209,000              100,900            443,700
                 USAID                1,120,900                2.83           134,400           232,900                29,100           396,400
1997             OTA                  1,527,000                3.33           147,600           231,300                79,700           458,600
                 USAID                  892,000                2.35               95,200        244,500                39,100           378,900
Average          OTA                    972,200                2.17           142,500           216,500                89,800           448,700
FY 95-97         USAID                1,159,400                2.92           125,500           238,400                33,400           397,200
                                          Legend

                                          FY = fiscal year

                                          Notes:

                                          1. Totals may not add due to rounding.

                                          2. We used full-time equivalent (FTE) to account for staff not assigned for a full year. Average cost
                                          per advisor is a weighted average.
                                          a
                                           FTE is equivalent to one staff year.

                                          Source: OTA and USAID-contractor cost data.




                                          Page 22                                                       GAO/NSIAD-99-65 Foreign Assistance
Appendix III

USAID Transfer of Funds to the Treasury


               The Treasury does not receive direct appropriations for the foreign
               assistance activities of its technical assistance program to Central Europe
               and the former Soviet Union. Rather, USAID transfers funds appropriated
               under the Foreign Assistance Act of 1961, as amended (P.L. 87-195), to the
               Treasury. USAID transfers the funds by agreements authorized under
               section 632 (a) or 632 (b) of the act. Responsibility for program monitoring
               and evaluation is linked to the method used by USAID to transfer the funds.

               When USAID transfers funds under 632 (a), the transfer agreements are
               brief documents that do not obligate funds. Instead, these agreements are
               simply an allocation of funds from USAID to the Treasury for use in
               activities under the Treasury’s funding obligation process. USAID has
               minimal responsibility for approving these activities, and program
               monitoring and evaluation are the responsibility of the Treasury.

               When USAID transfers funds to the Treasury under 632 (b), USAID essentially
               retains control over how the funds are used and accounted for. Under a
               632 (b) transfer, USAID and the Treasury negotiate and agree upon how the
               funds will be used, and the transfer agreement includes a requirement that
               the Treasury follow USAID’s procurement and reporting rules. The funds are
               obligated by USAID, which is responsible for program monitoring and
               evaluation.

               The Treasury has received funds from USAID since fiscal year 1990 for its
               technical assistance program in Central Europe and since fiscal year 1992
               for its program in the former Soviet Union. During fiscal years 1991 and
               1992, USAID’s transfers for Central Europe and the former Soviet Union
               were made primarily under 632 (a) authority. During fiscal years 1993-96,
               the transfers took place primarily under 632 (b) authority. In 1996, the
               State Department Coordinator of assistance to the former Soviet Union
               directed USAID to switch most funding authority from 632 (b) to 632 (a).
               The decision was made, according to the Coordinator, because disputes
               about money and policies between USAID and the Treasury were delaying
               program implementation. The Coordinator of assistance to Central Europe
               said he directed USAID to switch funding authority from 632 (b) to 632 (a)
               in 1997 after USAID said it could no longer provide adequate monitoring of
               632 (b) programs, given USAID’s downsizing over the past several years.




               Page 23                                      GAO/NSIAD-99-65 Foreign Assistance
Appendix IV

Location and Cost of Advisors in Paris and
London

               From July 1991 to September 1997, the Treasury’s senior advisors1 for the
               tax team were based in Paris, and from November 1994 to September 1997,
               the senior advisor for the financial institutions team was based in London.
               This appendix discusses the basis and costs of placing these advisors in
               those locations.

               In 1991, the Treasury identified Paris as the best location for its senior
               advisor for tax since it offered good communications and transportation
               links. It also provided the advantage of on-site coordination with the
               Organization for Economic Cooperation and Development, which was
               active in providing tax training for government officials from Central
               Europe. In 1994, the Treasury decided to post a senior advisor for the
               financial institutions program in London because it also provided for
               better transportation links and an opportunity for on-site coordination
               with the European Bank for Reconstruction and Development that
               planned to work on bank privatization. Also, in 1994, the Treasury based
               its newly assigned senior advisor for the government debt issuance area in
               Budapest, Hungary. The senior advisor for the budget area was likewise
               placed in Budapest in 1995. In 1997, the senior advisors for tax and
               financial institutions closed their Paris and London offices, and all senior
               Treasury advisors were consolidated in Budapest.

               Expenditure data provided by the Treasury2 showed the average annual
               support costs of basing the senior advisor in Paris from fiscal year 1992 to
               1997 were $103,796 in 1997 dollars. These costs included housing, travel,
               and office support. They did not include compensation and benefits nor
               overall program management costs, since these costs are the same
               regardless of location. Comparable costs for the advisor in London from
               fiscal year 1995 to 1997 were $137,675. According to a Treasury official,
               these costs were lower than anticipated because in Paris the advisors lived
               in embassy housing, and in both Paris and London the embassies provided
               logistical support.




               1
                Senior advisors are responsible for supervising the work of the resident advisors through supervisory
               visits, reports, and telecommunications.
               2
               To determine the average location-dependent cost per year to base an advisor in Paris and London,
               we obtained the Treasury’s advisor cost data for fiscal year 1991-97.



               Page 24                                                      GAO/NSIAD-99-65 Foreign Assistance
Appendix V

Comments From the Department of the
Treasury

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




See comment 1.



See p. 19.




                             Page 25   GAO/NSIAD-99-65 Foreign Assistance
                 Appendix V
                 Comments From the Department of the
                 Treasury




See comment 2.




See p. 12.




See p. 12.




See p. 12.




                 Page 26                               GAO/NSIAD-99-65 Foreign Assistance
                 Appendix V
                 Comments From the Department of the
                 Treasury




See comment 3.




See p. 13.




See comment 4.




                 Page 27                               GAO/NSIAD-99-65 Foreign Assistance
Appendix V
Comments From the Department of the
Treasury




Page 28                               GAO/NSIAD-99-65 Foreign Assistance
                 Appendix V
                 Comments From the Department of the
                 Treasury




                 The following are GAO’s comments on the Department of the Treasury’s
                 letter dated February 5, 1999.


                 1. The primary difference between our calculations of advisor costs and
GAO’s Comments   those of the Department of State, Office of the Inspector General (OIG), is
                 that we included the cost of short-term advisors, while the OIG’s review did
                 not. We included the short-term advisor costs because they represent a
                 key component of the Treasury program. We discussed our methodology
                 with OTA management and staff on several occasions and have clarified our
                 presentation of the methodology in the body of the report.

                 2. Our review focused on the annual OTA requirement to review the
                 financial disclosure statements of its advisors. We have clarified the report
                 to include additional information on the other financial disclosure
                 requirements that apply when advisors are hired.

                 3. Our report is not intended to imply that the Terms of Reference should
                 be considered a principal measure of an advisor’s utility in a particular
                 country. Department of the Treasury officials told us the Terms of
                 Reference are intended to ensure that the United States and a recipient
                 country have a formal understanding on the advisor’s role and that the
                 recipient government is committed to working with the advisor. As we
                 point out in the report, the Terms of Reference were not available for 15 of
                 the 19 advisors assigned to Russia and Romania since 1992. While we
                 understand that it may not be possible to always have signed Terms of
                 Reference for all countries, we believe that the Treasury should strive to
                 establish such formal agreement to the maximum extent possible.

                 4. The report text has been modified to reflect this information.




                 Page 29                                       GAO/NSIAD-99-65 Foreign Assistance
Appendix VI

Objectives, Scope, and Methodology


              At the request of the Chairman of the House Committee on International
              Relations and the Chairman of the Committee’s Subcommittee on Asia and
              the Pacific, we identified the types of technical assistance the Treasury’s
              program provided to Russia and Romania and the methods that OTA uses to
              conduct oversight of its advisors. In addition, we provided information on
              advisor qualifications, program cost, fund transfers between USAID and the
              Treasury, and the location of the Treasury’s senior advisors to its program.

              To identify OTA activities, we reviewed the Department of the Treasury’s
              and the Department of State’s current strategic planning documents;
              analyzed program planning and reporting documents; interviewed
              Treasury, State, and USAID officials in Washington, D.C.; and attended the
              annual Treasury advisors’ conference in Budapest in November 1997,
              where we interviewed senior, regional, and resident advisors on their
              background experience, work in host countries, and interaction and
              coordination with other bilateral and multilateral advisors.

              In completing our review, we examined in detail advisor activities in
              Russia and Romania and visited OTA’s advisors working in these countries.
              At the time of our fieldwork, programs in Russia and Romania together
              represented about one quarter of the Treasury’s resident advisors. In
              Moscow, and Bucharest, Romania, we reviewed program documents such
              as reports written by the current advisors for the host-government officials
              and interviewed all OTA resident advisors, the International Monetary Fund
              advisor and/or representative, USAID contractors, private sector groups
              such as the Soros Foundation, and host-government officials at the deputy
              and vice minister levels and below at the ministries of finance and tax, the
              central banks, the Ministry of Interior and the General Prosecutor’s office
              in Bucharest, and the Chamber of Accounts in Moscow. We discussed the
              assistance being provided by Treasury advisors, host-government use of
              the assistance, and program achievements.

              To address how OTA conducts program oversight, we interviewed Treasury
              officials, senior and resident advisors, and program officers; reviewed
              reports on the OTA program by the USAID and Treasury Inspectors General
              from 1994 to 1997; a 1998 management review by the Treasury’s Office of
              Organizational Improvement; and the Treasury’s procedures, strategic
              planning documents, advisor reports, and consultants’ reports. We also
              reviewed OTA’s procedures for reviewing financial disclosure reports as
              well as OTA advisors’ financial disclosure reports on file with the Treasury.




              Page 30                                       GAO/NSIAD-99-65 Foreign Assistance
Appendix VI
Objectives, Scope, and Methodology




To address advisors’ qualifications, we surveyed OTA program managers,
interviewed advisors, reviewed personnel records of OTA advisors, and
compared personnel records and qualifications to position requirements.
We compared the applications of all the resident advisors in the OTA
program as of November 1, 1997, to a sample of job announcements the
Treasury used to advertise the resident advisor positions.

To determine the Treasury’s program costs and USAID contractor costs, we
selected Russia and Ukraine because the Treasury and USAID have similar
technical assistance programs in the countries, half of the resident
advisors working in the former Soviet Union in fiscal year 1997 are posted
to these countries, and the two countries account for about 30 percent of
the total program costs in the former Soviet Union funded by the Treasury
that year. To determine the average cost per advisor, we obtained the
Treasury’s financial reports and advisor cost data for fiscal years 1995-97
and reviewed average cost analyses prepared by the Treasury, the State
Department’s Inspector General, and USAID. Further, we interviewed
Treasury officials and reviewed Treasury budget estimates to understand
the elements of the program budget. We did not independently verify the
validity of the Treasury’s data.

We analyzed USAID contractor cost data to calculate average costs. We also
discussed our analysis with USAID contractor officials, who agreed that our
analysis accurately depicted USAID costs. Primarily because of different
contractual arrangements with advisors and different financial reporting
systems, USAID and the Treasury do not present cost data in the same way
or with the same cost categories. To present comparable costs in this
report, we gathered the various costs into three broad
categories—compensation paid to resident advisors and contractors
overseas, including housing allowances; support costs for the advisors and
contractors; and the cost of employing short-term advisors to assist the
resident advisors and contractors.

To address the location of the Treasury’s senior advisors to its program in
Paris and London, we interviewed Treasury and State officials and
reviewed cost data and documents justifying the placement of advisors in
those capital cities. To determine the cost of basing senior advisors in
Paris and London, we obtained support costs for these locations since
1991, including housing, travel, and transportation by senior advisors, and
office support. As agreed to with our requesters, we did not include
compensation and benefits or program management costs because these
costs are constant regardless of country. To compare an overall average



Page 31                                      GAO/NSIAD-99-65 Foreign Assistance
Appendix VI
Objectives, Scope, and Methodology




support cost per advisor and location, we calculated an average advisor
cost for each fiscal year and in total. Furthermore, to determine overall
average support costs for each location, we summarized the costs for all
years, divided by the number of years that senior advisors were based at
each location. Our analysis of costs for Paris was limited to fiscal
years 1992-97 because the initial posting of an advisor was at the end of
fiscal year 1991.

To address the issue of fund transfers from USAID, we interviewed
Treasury, State, and USAID officials and reviewed prior GAO reports1 on fund
transfers from USAID to other agencies.

As part of our work, we initially reviewed aspects of OTA’s logistical
support contracts. During the course of this review, we became aware of
an investigation by the Treasury Inspector General of the contracts and
issues surrounding them. Because of this investigation, we terminated this
aspect of our work and provided appropriate documents to the Inspector
General.

We performed our work from October 1997 to December 1998 in
accordance with generally accepted government auditing standards.




1
 Former Soviet Union: An Update on Coordination of U.S. Assistance and Economic Cooperation
Programs (GAO/NSIAD-96-16, Dec. 15, 1995) and Former Soviet Union: U.S. Bilateral Program Lacks
Effective Coordination (GAO/NSIAD-95-10, Feb. 7, 1995).



Page 32                                                   GAO/NSIAD-99-65 Foreign Assistance
Appendix VII

Major Contributors to This Report


                        Jess T. Ford
National Security and   Ronald A. Kushner
International Affairs   Maria Z. Oliver
Division, Washington,   Bruce L Kutnick
                        Rona H. Mendelsohn
D.C.                    Janice V. Morrison
                        James M. Strus




(711304)                Page 33              GAO/NSIAD-99-65 Foreign Assistance
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