jurisdiction: US

text: b' U.S. DEPARTMENT OF COMMERCE\n Office of Inspector General\n\n\n\n\n PUBLIC\n RELEASE\n\n\n INTERNATIONAL TRADE\n ADMINISTRATION\n\nUS&FCS Spain\xe2\x80\x99s Leadership Has Improved\nOperating Environment, But Some Program\n Activities Need More Emphasis\n\n Final Audit Report No. IAD-10593-8-0001 / July 1998\n\n\n\n\n Office of Audits, Business and Trade Audits Division\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n TABLE OF CONTENTS\n\nEXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i\n\nINTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1\n\nPURPOSE AND SCOPE OF AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1\n\nBACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2\n Spanish Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2\n US&FCS Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4\n\nFINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6\n\n I. General Management and Organizational Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 6\n A. Business Information Center Creates\n Efficient and Effective Operating Environment . . . . . . . . . . . . . . . . . . . . 6\n B. SCO Leadership Effects Positive Changes in Key Areas . . . . . . . . . . . . . 7\n C. Supervisory Oversight and Organizational Structure Should Be\n Reevaluated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8\n D. Staffing Issues Require Management Attention . . . . . . . . . . . . . . . . . . . 10\n E. US&FCS Spain Faces Substantial Cost Increase Under ICASS . . . . . . . 12\n\n RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13\n US&FCS Comments on Draft Report and OIG Response . . . . . . . . . . . 13\n\n II. Program Activities and Performance Measurement . . . . . . . . . . . . . . . . . . . . . . 17\n A. Post Management\xe2\x80\x99s FY 1997 Focus Was on\n Internal Issues, Not Program Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 17\n B. Advocacy Strategy is Driven by Interagency Effort . . . . . . . . . . . . . . . . 18\n C. Number of Success Stories is Low Compared to Other US&FCS Posts . 18\n D. Greater Focus is Needed on Identifying Opportunities for\n Small and Medium-Sized Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 19\n E. Market Research Needs Quality Improvements . . . . . . . . . . . . . . . . . . . 20\n F. Aggressive FY 1998 Events Schedule May Lack\n Adequate Implementation Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20\n G. Individual Events Run Surplus, But Business Center Does Not Recover\n Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21\n H. \xe2\x80\x9cYou Brief Us\xe2\x80\x9d Program Offers Questionable Benefits to U.S. Firms . . 22\n\n RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22\n US&FCS Comments on Draft Report and OIG Response . . . . . . . . . . . 23\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n III. Internal Control Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26\n A. Control Systems Meet Most Requirements of\n Federal Managers\xe2\x80\x99 Financial Integrity Act . . . . . . . . . . . . . . . . . . . . . . . 26\n B. Poor Service From the Embassy\xe2\x80\x99s Budget and Finance Section Has\n Negatively Impacted the Control Environment . . . . . . . . . . . . . . . . . . . . 27\n C. Procurement and Disbursement Controls Are Adequate With One\n Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27\n D. Insufficient Controls Are Maintained Over SCO\xe2\x80\x99s\n Travel Authorizations and Expense Vouchers . . . . . . . . . . . . . . . . . . . . . 28\n E. Physical Asset Controls Are Good Except for Vehicle Management . . . 28\n F. Controls Over the Imprest Fund Should Be Strengthened . . . . . . . . . . . . 29\n G. Department of State and ITA Operating and\n Administrative Account Balances Differ . . . . . . . . . . . . . . . . . . . . . . . . . 29\n H. Account Balances in the TEMs Differ with Post Records . . . . . . . . . . . . 30\n I. Prior Year Unliquidated Obligations Should Be Reviewed . . . . . . . . . . 31\n\n RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31\n US&FCS Comments on Draft Report and OIG Response . . . . . . . . . . . 32\n\nAcronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX\nComplete US&FCS Response to OIG Draft Report . . . . . . . . . . . . . . . . . . . . . . ATTACHMENT\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n EXECUTIVE SUMMARY\n\nBecause Spain is a member of the European Union (EU), its economy is driven largely by the\nSpanish government\xe2\x80\x99s commitment to joining the European Monetary Union in 1999. To do so,\nSpain must fulfill the convergence criteria specified by the Maastricht Treaty of 1992, which\nestablished macroeconomic objectives that link EU countries. Spain is close to meeting the\nobjectives in each of the required areas, which include inflation, interests rates, deficit/GDP,\ndebt/GDP, and currency stability.\n\nSpain\xe2\x80\x99s economic viability is concentrated in a series of regional markets joined by two hubs:\nMadrid and Barcelona. Most major business transactions take place around these two cities,\nthough industrial production is spread throughout Spain. The Spanish government at all levels\n(national, regional, and local) has eased regulations and increased incentives in an effort to attract\nforeign firms and investment.\n\nThe United States enjoys excellent bilateral relations with Spain. During 1996, the U.S.\nachieved a $3.4 billion trade surplus with Spain, the result of $7.7 billion in exports to Spain and\n$4.3 billion in imports from Spain. Yet, despite structural reform packages passed by Spain in\n1996 and 1997, U.S. companies continue to face obstacles to doing business in Spain, including\nhigher import tariffs than European firms. Fortunately, however, U.S. products are usually\nassociated with a high level of technology and quality, and notable opportunities for American\nfirms exist in several industries.\n\nThe Department\xe2\x80\x99s operations in Spain are carried out by the International Trade Administration\xe2\x80\x99s\nU.S. and Foreign Commercial Service (US&FCS). US&FCS maintains two offices in Spain, in\nMadrid and Barcelona, and employs four foreign commercial officers and 15 foreign service\nnationals (FSNs). In FY 1997, US&FCS Spain had an operating budget of $1.2 million.\n\nThe Office of Inspector General conducted a performance audit of US&FCS operations in Spain.\nWe have divided our findings into three broad areas: (I) General Management and Organizational\nIssues; (II) Program Activities and Performance Measurement; and (III) Internal Control\nEnvironment.\n\nI. General Management and Organizational Issues\n\nSeveral recent actions indicate that US&FCS Spain management is committed to improving the\neffectiveness and efficiency of the Department\xe2\x80\x99s commercial operations in Spain. The physical\nrelocation to the new Business Information Center, a joint venture with the United States\nInformation Service and the Foreign Agricultural Service, resulted in a substantial cost savings\nand an improved working environment. In addition, the Senior Commercial Officer\xe2\x80\x99s leadership\nhas effected several positive changes. Since his arrival at the post in September 1996, US&FCS\nSpain\xe2\x80\x99s inter-agency relationships have been strengthened, program controls have been\n\n -i-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nreasserted, and strategic planning has been redesigned to target specific areas of opportunity in\nthe Spanish market.\n\nNevertheless, certain management areas need improvement. Foremost among these is US&FCS\nSpain\xe2\x80\x99s organizational structure, which fragments administrative responsibilities and the\nsupervision of staff assigned to duties in this area. The absence of a clear assignment and\nsupervision hierarchy for administrative functions hampers US&FCS Spain\xe2\x80\x99s ability to support\nits operations.\n\nSeveral staffing issues should also be addressed. First, a lack of local language skills prevents\ntwo of the four officers from performing extensive outreach. In addition, the post\xe2\x80\x99s FSNs\nregularly go long periods without receiving training in critical areas. This, along with a fear of\ncareer stagnation, has resulted in less-than-optimal staff morale.\n\nUS&FCS Spain faces a substantial cost increase under ICASS.1 The magnitude of this increase\nhighlights the need for management -- both at the post and at US&FCS headquarters -- to remain\nactively engaged in the ICASS process and to explore methods for reducing administrative costs.\n\nII. Program Activities and Performance Measurement\n\nDuring FY 1997, post management focused primarily on internal matters due to perceived\nproblems related to the commercial staff and US&FCS Spain\xe2\x80\x99s relationships with other agencies.\nThe lack of attention to program activities negatively impacted service provided to US&FCS\ncustomers.\n\nUS&FCS Spain\xe2\x80\x99s average of only one success story per staff member over the last two years\nindicates that greater emphasis should be placed on generating and documenting success stories,\nthe primary performance measure for US&FCS. Partner organizations also suggested that\nUS&FCS Spain should do more to exploit opportunities for small and medium-sized firms in the\nSpanish economy. In addition, market research reporting, particularly Industry Sector Analysis\nand International Market Insight reports, require improvement to be a more effective trade\npromotion tool.\n\nUS&FCS Spain has developed an aggressive events schedule for FY 1998, but could encounter\nproblems in implementing the large number of events due to uncertainty regarding who will\nprovide administrative support on these projects. Management should also develop a plan to\nrecover the operational costs of events held in the new Business Information Center. In addition,\nthe \xe2\x80\x9cYou Brief Us\xe2\x80\x9d program, a fee-based program for American companies to voice their\n\n\n 1\n The International Cooperative Administrative Support Services (ICASS) system was designed as a\nreplacement for the \xe2\x80\x9cFAAS\xe2\x80\x9d system, used by the State Department to allocate costs for services provided overseas.\n\n -ii-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nconcerns, offers questionable benefits to U.S. firms; management should more clearly identify its\nbenefits and develop a pricing structure to legitimize the program.\n\nSeveral agencies at the U.S. mission in Spain provide advocacy support to U.S. companies.\nUS&FCS Spain received high praise from other agencies for encouraging teamwork in this area\nand producing a coordinated advocacy strategy for the U.S. mission.\n\nIII. Internal Control Environment\n\nAfter reviewing the post\xe2\x80\x99s financial and administrative operations, we conclude that US&FCS\nSpain should improve internal control systems to better meet the requirements of the Federal\nManagers\xe2\x80\x99 Financial Integrity Act of 1982 (31 U.S.C. 3512(b)). Although adequate internal\ncontrol systems are in place to document and record transactions and events and to ensure that\nassets are generally safeguarded against waste, loss, unauthorized use, and misappropriation,\nmany controls should be strengthened. Improvement in the communication and information flow\nbetween US&FCS and the State Department\xe2\x80\x99s Budget & Finance (B&F) section is needed. B&F\nofficials confirmed that reporting services provided to the post in the past year have been\nunsatisfactory. Escalating administrative costs under ICAAS increase the need for US&FCS\nSpain to receive timely, high-quality service from B&F in order for management to quickly\naddress such cost issues.\n\nWe identified specific control weaknesses that need to be addressed in several areas: the\nprocurement process, imprest fund documentation, vehicle management, SCO travel documents,\nreconciliations of operating and trade event account balances, and prior-year unliquidated\nobligations. For example, we found significant differences between account balances recorded\nby the State Department and ITA. We also found differences in trade account balances between\nITA\xe2\x80\x99s Trade Event Management System and the post\xe2\x80\x99s records.\n\n RECOMMENDATIONS\n\nOur most important recommendations call for the Assistant Secretary and Director General of\nUS&FCS to:\n\n1. Develop an organizational structure for US&FCS Spain in which administrative\n responsibilities and lines of supervision are clearly delineated.\n\n2. Direct US&FCS Spain management to focus greater attention on program-related\n activities, including outreach, events, and market research reporting.\n\n3. Develop a strategy that increases international trade among small and medium-sized\n companies in accordance with the Department of Commerce strategic plan.\n\n\n -iii-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n4. Provide the training and oversight necessary to ensure that market research reports\n represent high-quality products, and ensure that industry coverage is consistent with the\n \xe2\x80\x9cbest-prospects\xe2\x80\x9d list, as required by US&FCS guidelines.\n\n5. Implement procedures to ensure that appropriate records regarding all accounting\n transactions are maintained, including summaries by event along with running balances of\n collections and expenditures.\n\n --------------\n\nIn responding to our draft report, US&FCS indicated general agreement with many of our\nobservations and conclusions. The actions planned or already taken by US&FCS should begin to\nresolve many of our concerns. Where minor disagreements persist, they have been duly noted\nand addressed by the OIG.\n\nIn her memorandum accompanying the response, the then-Acting Assistant Secretary and\nDirector General2 stated that the Senior Commercial Officer has addressed important managerial\nproblems and is now devoting more time to improving the delivery of export assistance programs\nand improving internal controls. The Acting Assistant Secretary and Director General also stated\nthat there was no mention of the US&FCS Barcelona operation in the draft report. We note that\nalthough we did not report separately on the Barcelona operation in our report, the performance\nmeasures reported for US&FCS operations in Spain include those of Barcelona. In providing\nmarket coverage for the Catalan region, US&FCS Barcelona is an extremely effective operation\nunder sound direction by the Commercial Officer. The Barcelona Commercial Officer has\ndeveloped strong relationships within the Consulate and in the business community, and\neffectively motivates the commercial staff. Our complete recommendations, as well as a\nsummary of the US&FCS comments and the OIG response, appear on pages 13, 22, and 31.\n\n\n\n\n 2\n Since we released the draft report, an Assistant Secretary and Director General has been\nconfirmed by the United States Senate.\n\n -iv-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n INTRODUCTION\n\nUnder the authority of the Inspector General Act of 1978, as amended, and the requirements of\nthe Omnibus Trade and Competitiveness Act of 1988, the Office of Inspector General conducted\na performance audit of Department of Commerce operations in Spain. Our fieldwork was\nconducted during December 1-5, 1997.\n\nPerformance audits are objective and systematic examinations of evidence for the purpose of\nproviding an independent assessment of an organization, program, activity, or function in order\nto provide information to improve accountability and facilitate decision-making by parties with\nresponsibility to oversee or initiate corrective action. By identifying systemic strengths and\nweaknesses, the OIG will help the Department\xe2\x80\x99s managers, in this case those in the International\nTrade Administration (ITA) and the U.S. & Foreign Commercial Service (US&FCS), implement\nmore efficient and effective operations to better serve the Department\xe2\x80\x99s customers.\n\nIn the absence of the Ambassador to Spain, we discussed our observations with the charg\xc3\xa9\nd\xe2\x80\x99affaires, and held an exit conference with the US&FCS SCO and the Regional Director for\nEurope on December 5, 1997. During this conference, the SCO generally agreed with our\nobservations.\n\n PURPOSE AND SCOPE OF AUDIT\n\nThe OIG is committed to the pursuit of operational effectiveness throughout the Department,\nchallenging management to achieve excellence with respect to programmatic, administrative, and\nfinancial operations. The purpose of this performance audit was to evaluate the effectiveness of\nthe Department\xe2\x80\x99s operations in Spain, which are carried out primarily through US&FCS Spain\noffices in Madrid and Barcelona.\n\nIn accordance with the General Accounting Office\xe2\x80\x99s (GAO) Assessing Internal Controls in\nPerformance Audits, we reviewed the agency\xe2\x80\x99s internal control environment relating to\nadministrative and financial management. We conducted tests to achieve our objective of\ndetermining the effectiveness of administrative and financial management controls.\n\nWe tested US&FCS Spain\xe2\x80\x99s operations for compliance with the GAO Policy and Procedures\nManual for Guidance of Federal agencies, and the Federal Managers\xe2\x80\x99 Financial Integrity Act of\n1982. The report findings and recommendations draw upon significant tests of records; physical\nevidence; documentary evidence, including accounting records and memorandums; and\nanalytical evidence based on data obtained. We also held interviews with US&FCS personnel,\nmultiplier organizations, and clients. We did not rely solely on computer-generated data to\nsupport our findings. Our audit covered a review of programmatic, management, administrative,\nand financial issues.\n\n\n -1-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nWe reviewed the policies, procedures, and practices being implemented by US&FCS Spain to\ndetermine whether it is successfully and efficiently meeting its mission: to assist U.S. companies,\nparticularly small and medium-sized enterprises, with export assistance. We also determined\nwhether US&FCS Spain\xe2\x80\x99s goals and objectives are being achieved, and whether these goals and\nobjectives are in line with Department objectives. The audit evaluated the effectiveness and\nefficiency of operations, and assessed the operation\xe2\x80\x99s compliance with applicable laws,\nregulations, and procedures.\n\nIn conducting our audit, we placed primary emphasis on the following areas:\n\n C General management and organizational issues.\n\n C Program activities and performance measurement.\n\n C Internal control environment.\n\nThe audit also considered ITA headquarters and domestic office activities that are coordinated\nwith US&FCS Spain.3 The audit was conducted in accordance with Generally Accepted\nGovernment Auditing Standards and was performed under the authority of the Inspector General\nAct of 1978, as amended, and Department of Commerce Organization Order 10-13, dated May\n22, 1980, as amended.\n\n\n\n BACKGROUND\n\nSPANISH MARKET\n\nSpain\xe2\x80\x99s economic policy is driven by the Spanish government\xe2\x80\x99s commitment to fulfill the\nconvergence criteria for the European Monetary Union (EMU) specified by the Maastricht Treaty\nof 1992. The Maastricht Treaty established macroeconomic objectives that must be met by\ncountries entering the first tier of EMU. Spain has been making progress in each of these areas\nand is in good position to join the first tier of countries in 1999.\n\n\n\n\n 3\n The OIG discloses that two audit team members formerly worked for ITA; however, they had\nno material involvement with US&FCS Spain operations.\n\n -2-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n\n\n EMU Convergence Criteria\n Inflation Interest Rates Deficit/GDP Debt/GDP\n Maximum Limit 2.7 9.0 3.0 60.0\n Spain 1997* 2.6 8.4 3.0 68.2\n\n * Source: Organization for Economic Cooperation and Development. Figures are estimates\nbased on 1996 data.\n\n\nSpain and the United States enjoy excellent bilateral relations. During 1996, the U.S. achieved a\n$3.4 billion trade surplus with Spain, the result of $7.7 billion in exports to Spain and $4.3\nbillion in imports from Spain. The U.S. trade surplus for 1997 was expected to decline slightly\nto $2.9 billion. Major U.S. exports to Spain include pollution control and water resources\nequipment, franchising, computers and peripherals, aircraft and parts, telecommunication\nservices, and electrical power systems. The U.S. ranks fourth among investor nations in Spain\nafter the Netherlands, France, and the United Kingdom. U.S. direct investment in Spain was\n$1.3 billion in 1996.\n\nSpain\xe2\x80\x99s economic viability is concentrated in regional markets joined by two hubs -- Madrid and\nBarcelona -- around which most major business activities occur. However, the Spanish\ngovernment at all levels (national, regional, and local) has eased regulations and increased\nincentives in an effort to attract foreign firms and investment. Due to cultural and geographic\ndifferences, each region has developed its own industrial characteristics. Madrid is Spain\xe2\x80\x99s\ncenter for banking and telecommunications. The Cataluna region, which includes Barcelona,\nserves as an industrial base for textiles, chemicals, plastics, printing, and machinery\nmanufacturing. The region around Bilbao, an important port in Cantabria, contains extensive\nshipyards, steelworks, iron ore mines, and oil refineries. Seville, in Andalucia, is a major source\nof olive oil, wine, and other agricultural products.\n\nDespite structural reform packages passed in 1996 and 1997, U.S. companies continue to face\nobstacles to doing business throughout Spain, including higher import tariffs than European\nfirms. Fortunately, however, U.S. products are generally associated with a high level of\ntechnology and quality, and notable opportunities for American firms exist in several industries.\nAs a result of EU grants, infrastructure investment will exceed $100 billion over the next 10\nyears. In addition, the Spanish government has initiated privatization projects in such key\nsectors as oil, gas, power and energy, transportation, and construction/engineering.\n\n\n\n\n -3-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n\n\n\n Portugal --------\n\n\n\n\nUS&FCS SPAIN\n\nThe Department\xe2\x80\x99s operations in Spain are carried out by US&FCS through offices in Madrid and\nBarcelona. During FY 1997, US&FCS moved its primary office in Madrid to the new American\nBusiness Information Center (BIC), where it is co-located with the Foreign Agricultural Service\n(FAS) and the United States Information Service (USIS). The commercial office in Barcelona is\nlocated in the American Consulate.\n\nIn FY 1997, US&FCS Spain had an operating budget of approximately $1.2 million and\nemployed four foreign commercial officers and 15 foreign service nationals (FSNs) including\npersonal services contractors. Estimated costs for administrative support services under ICASS\nwere $330,000.4 Spain is ranked 19th worldwide out of 69 countries on the US&FCS Resource\nAllocation Model, a management tool to guide decision-makers in allocating overseas resources.\n\n\n\n\n 4\n The International Cooperative Administrative Support Services (ICASS) system was designed as a\nreplacement for the Foreign Affairs Administrative Support (FAAS) system, used by the State Department to\nallocate costs for services provided overseas. During FY 1997, the system operated on a virtual basis to provide an\nestimate of what ICASS charges would have been. In FY 1998, ICASS officially replaces FAAS.\n\n -4-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n\n\n\n $1.21M\n\n\n $0.33M\n\n\n\n\nAccording to materials distributed by the U.S. mission in Spain, US&FCS Spain supports U.S.\ncommercial interests in the United States and helps companies increase sales and market share.5\nSpecifically it (1) promotes the export of U.S. goods and services to strengthen the U.S.\neconomy, maintain job security, and create jobs; (2) protects and advocates for U.S. business\ninterests; (3) assists U.S. firms to realize their potential by providing counseling, overseas market\ninformation, international contacts, and trade promotion vehicles; and (4) supports the export\npromotion efforts of other public and private organizations, using partnerships to create a full-\nservice export development infrastructure.\n\nUS&FCS Spain is part of the \xe2\x80\x9cShowcase Europe\xe2\x80\x9d initiative. This initiative, managed by the\nUS&FCS posts in Europe, attempts to coordinate US&FCS efforts in order to approach Europe\non a regional basis and to move U.S. firms already exporting to one or more European markets\ninto additional markets. Therefore, much of US&FCS Spain\xe2\x80\x99s strategic planning is designed to\nimplement the Showcase Europe initiative.\n\n\n\n\n 5\n Collectively, the U.S. government agencies with a presence in Spain represent the \xe2\x80\x9cU.S. mission.\xe2\x80\x9d\n\n -5-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n FINDINGS AND RECOMMENDATIONS\n\nDuring our audit, we found notable strengths in several areas. At the same time, we also\nidentified weaknesses. Management should address several areas of concern in order to increase\nthe quality and productivity of US&FCS Spain\xe2\x80\x99s program. In addition, improvements in internal\ncontrols are needed to ensure accurate recording of financial transactions and to safeguard assets.\n\nWe have categorized our findings and recommendations into three broad areas:\n\n C General Management and Organizational Issues.\n C Program Activities and Performance Measurement.\n C Internal Control Environment.\n\nI. GENERAL MANAGEMENT AND ORGANIZATIONAL ISSUES\n\nUS&FCS Spain management has taken several notable steps to improve its work products and its\noverall operating environment. The recent physical relocation of the Madrid office to the new\nBIC has resulted in substantial cost savings and improved working conditions. In addition, the\nSCO\xe2\x80\x99s leadership has effected many positive changes, including strengthened interagency\nrelationships, better program controls, and planning that targets real areas of opportunity for U.S.\ncompanies in Spain.\n\nSeveral issues, however, require continued management attention. US&FCS Spain\xe2\x80\x99s\norganizational structure fragments administrative responsibility and supervision, and may lead to\nweakened internal controls. We also identified areas of concern related to staffing. Two of the\nfour officers placed in Spain by US&FCS management possess limited Spanish language skills.\nIn addition, we believe that post\xe2\x80\x99s management can take action to further improve morale and\nincrease training opportunities for the FSNs. Finally, US&FCS Spain faces a substantial cost\nincrease under ICASS, increasing the need for management to analyze its administrative\nexpenses.\n\nA. Business Information Center Creates More\n Efficient and Effective Operating Environment\n\nUS&FCS Madrid\xe2\x80\x99s relocation in FY 1997 to the new BIC has resulted in substantial cost savings.\nAccording to our calculations, the move will enable the office to save nearly $50,000 per year in\nrent. It is worth noting that, due to the cost savings enjoyed by the agencies housed in the BIC\n(US&FCS, USIS, FAS), and the \xe2\x80\x9cone-stop-shop\xe2\x80\x9d service available to clients through co-location,\nthe State Department OIG praised the initiative as \xe2\x80\x9cthe biggest example of cooperation in the\nmission.\xe2\x80\x9d We, too, commend US&FCS Spain for this cost-saving and service-enhancing\nmeasure.\n\n\n -6-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nWith the BIC\xe2\x80\x99s close proximity to the embassy, US&FCS Spain has been able to maintain a close\nconnection with the staff and offices of other agencies. Commercial staff regularly walk to the\nembassy for meetings with related agencies, and vice versa. In addition, US&FCS Spain\xe2\x80\x99s co-\nlocation with FAS and USIS has helped to eliminate the feeling and appearance of isolation that\nreportedly plagued operations in the prior location. Clearly, the BIC has resulted in an operating\nenvironment that is more pleasant for both US&FCS staff and its customers.\n\nB. SCO Leadership Effects Positive Changes in Key Areas\n\nUpon the current SCO\xe2\x80\x99s arrival in September 1996, he identified several operational areas that\nrequired strengthening. We were advised that (1) US&FCS Spain\xe2\x80\x99s working relationships with\nsome of the other embassy agencies were strained, (2) the staff did not consistently follow proper\nclearance procedures, and (3) organizational planning did not involve the entire commercial staff.\nWe were pleased to observe that FY 1997 saw improvements in each of these areas.\n\nInteragency Working Relationships Are Strong\n\nSeveral of the agencies we interviewed at the post (e.g., State Department Economics and\nPolitical sections, FAS) informed us that their relationships with US&FCS Spain have\nsignificantly improved. The agencies gave much of the credit for their present relationships with\nUS&FCS to the SCO. According to representatives of these agencies, the SCO has fostered\ninteragency cooperation by encouraging their participation in large commercial projects, lending\nsupport (both his and his staff\xe2\x80\x99s) when needed, and \xe2\x80\x9csharing credit\xe2\x80\x9d for major successes. Each of\nthese agencies, as well as the Ambassador\xe2\x80\x99s office, praised both the SCO and the commercial\nstaff for their contribution to the country mission.\n\nProgram Controls Have Been Reasserted\n\nThe SCO has implemented procedures to control the review and distribution of program-related\ndocuments. During FY 1996 and early FY 1997, the office was experiencing problems in this\narea; specifically, substantive cables and letters were going forward without proper clearance\nfrom an American commercial officer or other relevant embassy sections. This failure to follow\nprotocol resulted in criticism from other agencies, including the Chief of Mission\xe2\x80\x99s office. The\nSCO has corrected the problem by installing procedures that safeguard against the unchecked\ndistribution of key documents and ensure more effective quality control related to market\nresearch reports. (For a more detailed discussion, see Section II.)\n\nEffective Planning Guides Operations\n\nMuch of US&FCS Spain\xe2\x80\x99s planning is driven by Showcase Europe, a regional initiative that\nincludes the identification of priority industry sectors for the European market. To meet these\n\n\n -7-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nregional objectives, the SCO\xe2\x80\x99s planning is focused on developing strategies to help U.S. firms\ntake advantage of market opportunities in those sectors. In addition, US&FCS Spain has targeted\nsectoral opportunities in the local market. Specifically, the SCO\xe2\x80\x99s strategy for FY 1998 is to\npursue areas in which the Spanish government has committed to heavy spending. These include\nenvironmental technologies and transportation, which have received EU cohesion funding, as\nwell as military sales. Because this strategy targets definite areas of substantial Spanish\ngovernment spending, we believe the approach is an effective way of identifying real\nopportunities for U.S. companies to benefit from US&FCS products and services.\n\nAs part of its planning process for FY 1998, US&FCS Spain held a two-day meeting of the entire\nin-country staff. Other agency heads, including the Acting Chief of Mission, were also invited to\nparticipate in portions of the conference. We found this initiative to be a positive means of\ninvolving related agencies in US&FCS operations and allowing commercial staff to contribute\nsubstantively to the planning process.\n\nC. Supervisory Oversight and Organizational Structure Should Be Reevaluated\n\nDirect supervisory responsibilities are divided among the SCO and the other commercial officers\nin a way that complicates US&FCS Spain\xe2\x80\x99s reporting structure. In Madrid, the Deputy SCO\n(DSCO) and the Assistant Commercial Attache share supervision of both administrative and\nprogrammatic operations. As indicated in the current organizational chart (see Appendix 1), the\nDSCO supervises most of the industry specialists and takes the lead in most administrative\nfunctions, while the Assistant Commercial Attache supervises other industry specialists and\noversees some administrative activities and special projects. The office manager, an FSN,\nofficially reports directly to the SCO. Thus, the supervisory structure over the administrative\nduties is fragmented. Figure 1 (next page) shows the current organizational structure for\nUS&FCS Spain.\n\nIn Madrid, four of the FSNs perform administrative functions. As the result of a recent\nreclassification of duties, two of these FSNs now also perform trade promotion duties.\nAccording to the SCO, the position reclassification was an attempt to broaden the scope of duties\nand enhance career development opportunities. In the case of one employee, however, the\ncurrent structure and duty classification has resulted in divided supervisory authority.\n\n\n\n\n -8-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n FIGURE 1\n\n Current US&FCS Spain Organizational Chart\n\n\n\n\n -9-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nOur interviews disclosed that FSNs feel that authority over administrative functions is not clearly\nstructured. Some FSNs also complained that it was difficult to get administrative support for\ntheir projects, it took an inordinate amount of time to obtain such support, and there was no\nlogical system in place to divide up administrative work. Thus, the current delineation of staff\nresponsibilities, while enhancing the potential career development of several employees, has\ncreated resentment and conflict among members of the staff by not effectively ensuring that\nadministrative assistance is provided.\n\nIn the absence of a clear hierarchy to supervise and coordinate administrative duties, US&FCS\nSpain \xe2\x80\x94 with a significantly increased trade events and promotion schedule in 1998 \xe2\x80\x94 may be\nless able to support its operations effectively. By contrast, the administrative structure of a\nwell-organized Commercial Section should maximize the office\xe2\x80\x99s ability to carry out its mission\nof trade promotion as efficiently as possible. Management should strive to enhance the career\ndevelopment of its employees, but in ways that do not negatively affect this mission.\n\nD. Staffing Issues Require Management Attention\n\nBased on our review, including comprehensive interviews with US&FCS and embassy staff, we\nidentified a number of staff-related items that merit attention from both post and headquarters\nmanagement. These include the foreign language capabilities of the American officers, FSN\nmorale, and the training opportunities made available to the FSN staff.\n\nOfficer Language Skills Do Not Meet Expectations\n\nThree of the four commercial officers in Spain have passed at least level 3 in reading and\nspeaking on the Spanish language test administered by the Foreign Service Institute (FSI).6\nHowever, according to our interviews with the commercial staff, two of these officers do not\npossess the Spanish language skills necessary to conduct a meaningful conversation with a\nSpanish-speaking business person. Other members of the embassy staff confirmed that the\nSpanish-speaking skills of these officers are marginal.\n\nPassing the FSI language test provides little practical benefit if the officers are not able to\ncommunicate effectively in the relevant foreign language. Although Spanish business people\ngenerally speak some English, the absence of adequate language skills reduces the ability to\n\n\n 6\n According to FSI standards, level 3 denotes general professional proficiency. For reading, this\nmeans the officer should be \xe2\x80\x9cable to read within a normal range of speed and with almost complete\ncomprehension of a variety of authentic prose materials on unfamiliar subjects.\xe2\x80\x9d For speaking, this\nmeans the officer should be \xe2\x80\x9cable to speak the language with sufficient structural accuracy and\nvocabulary to participate in most formal and informal conversations on practical, social, and professional\ntopics.\xe2\x80\x9d\n\n -10-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nperform outreach. This was confirmed by the statement by one of the low-fluency officers that\nhe does not perform outreach.\n\nBecause Spanish is not considered a difficult language to learn, US&FCS has not designated\nSpain a \xe2\x80\x9chard-language\xe2\x80\x9d post. The difficulty of placing an officer with the language skills to\ncommunicate effectively in Spain is not as great as placing an officer in a hard-language\ndesignated post, for example, China or Russia. While each of the commercial officers provides\ncommendable service in all other respects, their Spanish language skills should be improved to\nenable them to perform more effective outreach activities.\n\nFSN Staff Morale Needs Improvement\n\nThe FSNs in Spain generally agreed that the SCO has instituted positive changes since his\narrival, including a greater emphasis on industry sectors and improved communication between\nmanagement and staff. However, many of the staff interviewed raised common points of\nfrustration that impact morale.\n\nAt the operational level, most of the FSNs complained that, contrary to standard operating\npractice, they were not allowed to travel to events in the U.S. or other Showcase Europe\ncountries for which they had successfully recruited corporate participants. The internship\nprogram, through which US&FCS utilizes American college students for three-month stints to\nassist with basic market research and report preparation assistance, caused additional criticism\nfrom both the permanent staff and the interns. FSNs claimed that post management placed the\ninterns \xe2\x80\x9con a pedestal,\xe2\x80\x9d while the interns complained that they did not feel integrated into\nUS&FCS Spain operations. The reported absence of training opportunities and the difficulty in\nobtaining administrative support were also cited by the FSNs as areas of frustration.\n\nSome of the more experienced FSNs expressed concerns regarding career growth. Though the\nrecent addition of programmatic duties to two formerly administrative personnel has provided a\nhope that other personnel will also be reclassified in the future, a perception that management\xe2\x80\x99s\nfocus is on the development of younger staff has prompted fears that job enhancement of older\nFSNs is a low priority for post management. Specifically, senior FSNs criticized management\xe2\x80\x99s\nfailure to fill a vacant FSN-11 (i.e., senior FSN) position for which they feel clearly qualified.\nBoth the SCO and US&FCS headquarters management stated that, in order to control the\nagency\xe2\x80\x99s FTE count at the time the position became vacant, the unwritten but universally\naccepted practice was to replace vacant FSN positions with personal service contracts (PSC).\nThus, the SCO filled the senior FSN position with a lower level PSC.\n\nWhile US&FCS Spain management is aware of some of the issues that are affecting FSN morale,\nmany of the steps it has taken are perceived by the FSNs to be ineffective. Though not yet at a\ncritically low level, worsening morale could reduce the staff\xe2\x80\x99s motivation and hamper the ability\nof US&FCS Spain to meet its objectives.\n\n -11-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nFSN Training Is Not Adequate\n\nFSN training is not being provided on a regular basis; many FSNs have not received training for\na period of several years. Both trade specialists and administrative personnel perform a wide\nvariety of tasks that require regular training to develop and maintain skills. Virtually without\nexception, officers and FSNs expressed the need to place a greater emphasis on training in order\nto strengthen FSN skills. The following areas were specifically identified as desired training\nareas: sector-specific training, time and project management, English writing, market research,\ncomputer usage, and administrative operations. We were told by the staff that FSNs have gone\nlong periods without receiving training in any of these areas.\n\nAlthough the FSNs generally appear to be performing their jobs well, we believe training would\nenhance the quality of their work and increase productivity. Specifically, our team noted that the\nEnglish-writing skills of the FSNs were weak. Good management practices dictate that staff be\nallowed to develop their skills and enhance their knowledge of areas for which they are\nresponsible. While US&FCS does provide some training to FSNs, the amount provided is often\nlimited by budget constraints. The absence of regular training for the FSNs hampers the\neffectiveness of US&FCS Spain. For example, as discussed in the Program Activities and\nPerformance Measurement section, we reviewed several market research reports that read poorly\nand contained obvious flaws in sentence structure.\n\nE. US&FCS Spain Faces Substantial Cost Increase Under ICASS\n\nDuring FY 1997, US&FCS Spain paid $170,000 for administrative services under the Foreign\nAffairs Administrative Support (FAAS) system. With ICASS officially replacing FAAS in FY\n1998, the estimated ICASS charges for US&FCS Spain are $350,000, a one-year increase of\n$180,000 in administrative costs. This represents approximately three percent of the total\namount of base funding transferred from the State Department to Commerce to cover the\nworldwide cost increase under ICASS. Since Spain is only one of 70 countries that US&FCS\noperates in and represents only 1.5 percent of the agency\xe2\x80\x99s overseas budget, it would appear that\nthe ICASS cost increase may be disproportionately large.\n\nThe magnitude of this cost increase highlights the need for management to remain actively\nengaged in the ICASS process. During our reviews of other US&FCS posts, we have found\nuneven involvement in ICASS by commercial officers, which can lead to the posts paying\nhigher-than-necessary costs. By contrast, in Spain the commercial officer assigned to ICASS\nspends considerable time analyzing and negotiating US&FCS\xe2\x80\x99s ICASS charges. Other agencies,\nincluding State, commended US&FCS for holding the service provider accountable without\ncompromising the cooperative spirit of ICASS.\n\n\n\n\n -12-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nThe commercial officer assigned to ICASS informed us that he has begun to negotiate US&FCS\nSpain\xe2\x80\x99s ICASS allocation based on the FY 1998 target budget. US&FCS needs to persistently\nmonitor its ICASS distribution and continue to explore ways to reduce its administrative costs.\n\n RECOMMENDATIONS\n\nWe recommend that the Assistant Secretary and Director General for US&FCS:\n\n1. Develop an organizational structure for US&FCS Spain in which administrative\n responsibilities and lines of supervision are clearly delineated.\n\n2. Establish clear lines of communication between the administrative employees and the\n commercial officer in charge of administrative functions to provide for effective\n coordination and monitoring of administrative staff time.\n\n3. Provide greater consideration to the practical foreign language abilities of officers so that,\n as much as possible, assigned personnel are language proficient and capable of\n performing effective outreach.\n\n4. As appropriate, take the necessary steps to identify and address issues that affect\n employee morale, including travel policy, the intern program, and administrative support\n for FSNs.\n\n5. Evaluate the training needs of the FSN staff, work with US&FCS headquarters to develop\n a program to satisfy those needs, and, if budget constraints are a problem, encourage\n creative training alternatives.\n\n6. Develop global and post-specific strategies for controlling ICASS costs, including active\n local participation by the post.\n\n --------------\n\nUS&FCS Comments on Draft Report and OIG Response\n\nUS&FCS Comment on Draft Report Recommendations 1 and 2:\n\nUS&FCS states that increased success stories in conjunction with the completion of core\nactivities indicate that post\xe2\x80\x99s current administrative organization will not negatively affect the\nquality of its performance. US&FCS notes, however, that the recent review and subsequent\nreallocation of officers (effective in 1999) has eliminated the Assistant Commercial Attache\nposition. As such, the administrative reporting process will be improved to the extent that\n\n\n -13-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nadministrative staff will in the future report to a single officer, the Deputy Senior Commercial\nOfficer.\n\nOIG Response:\n\nWithout limiting the career development of any employee at post, we encourage post to continue\nto clarify the roles and responsibilities of administrative personnel in order to ensure that the staff\ntime of all members is efficiently utilized.\n\nUS&FCS Comment on Draft Report Recommendation 3:\n\nUS&FCS confirms that both officers have achieved the required FSI 3/3 score. Despite this fact,\nUS&FCS states that the officers may require additional tutoring and in-country experience to\nachieve proficiency. While both officers continue to receive supplemental language training to\nimprove their language skills, US&FCS asserts that post\xe2\x80\x99s outreach efforts have not necessarily\nbeen affected by the limited language skills of these two officers.\n\nOIG Response:\n\nWe agree that US&FCS should take steps to ensure that supplemental foreign-language training\nis provided to officers who have not reached a practical level of foreign-language proficiency.\nSince a standard 3-year post assignment is brief relative to the time required to become proficient\nin a foreign language, we also believe that US&FCS could more efficiently utilize its resources if\nemphasis was placed on assigning officers who are already proficient in the applicable foreign\nlanguage.\n\nUS&FCS Comment on Draft Report Recommendation 4:\n\nWith respect to improving staff morale in general, US&FCS notes that a PSC in Madrid has been\nconverted to an FSN. With the exception of occasional FSN requests which could not be met\ndue to resource constraints, post is unaware of needed administrative support ever being denied\nto FSNs. In addition to monitoring FSN workload, post is also cognizant that\nunplanned/unchanneled requests made by FSNs could excessively burden the administrative\nstaff. With respect to trade missions and the additional workload they entail, US&FCS notes that\npost has budgeted a contractor that works 3 to 4 weeks full-time on promotional and\nadministrative-related tasks. Post also has the assistance of full-time interns who can assist with\nnon-administrative work.\n\nUS&FCS states that post\xe2\x80\x99s travel policy in support of International Buyer Programs (IBP) is fair\nand consistent with US&FCS\xe2\x80\x99s world-wide practice. According to US&FCS, a 15-company\nthreshold has been established for recruitment. Accordingly, a number of FSNs have\nparticipated in IBPs in which free tickets and rooms were received, as recorded in the appropriate\n\n -14-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nGifts & Bequests documentation. Regarding the two instances in which FSNs did not participate\nin IBP travel, US&FCS notes that there was a timing conflict in one case and in the other the\nFSN failed to recruit the requisite number of companies.\n\nWith respect to the internship program, US&FCS disagrees that special treatment has ever been\nprovided to the interns and states that it has managed the program according to Department of\nCommerce guidelines. While all officers encourage staff to take advantage of the strong writing,\nediting, and computer skills that the interns bring to the office, US&FCS states that some FSNs\nin the past have been reluctant to utilize this additional resource. According to US&FCS, the\nSCO is a strong supporter of the Department\xe2\x80\x99s internship program because it offers women and\nminorities an opportunity to observe first hand what a career in the Commercial Service can\noffer. It is also an additional resource of competent and efficient personnel. .\n\nOIG Response:\n\nTo the extent that roles and responsibilities are defined and threshold requirements for IBPs are\nclearly communicated to staff, we believe post has begun to address many of the points raised in\nour recommendation regarding staff morale. We encourage post to continue to address areas of\nconcern to FSNs, administrative staff, and interns in order to further improve staff morale and\noperational efficiency.\n\nUS&FCS Comment on Draft Report Recommendation 5:\n\nAccording to US&FCS, post management believes that performance will almost always improve\nwhen staff are provided with adequate training. US&FCS states that, while post has requested\nheadquarters-sponsored training for its FSNs on numerous occasions, training slots are limited\nand all requests cannot be granted; e.g., post made six training requests in FY 1997, but no\nemployees were selected. US&FCS states that it will follow up with the Office of Foreign\nService Personnel to ensure that FSN training needs are given high priority for upcoming\nsessions. With respect to field training, post management has volunteered the use of its\nAmerican Business Information Center (ABIC) as a training site for FSNs from Spain, as well as\nother regional posts. Finally, the SCO has requested and will receive $6,500 for local computer\ntraining to ease the transition to the new software system.\n\nOIG Response:\n\nThe OIG is satisfied that actions planned or taken by US&FCS address the recommendation.\n\n\nUS&FCS Comment on Draft Report Recommendation 6:\n\n\n\n -15-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nUS&FCS acknowledges that the switch from FAAS to ICASS has resulted in a larger than\ndesired budget increase for US&FCS Spain. Headquarters management reiterates that US&FCS\nSpain is an active participant in the post\xe2\x80\x99s ICASS management and review. According to\nUS&FCS, constant monitoring and review of ICASS cost centers led to a reduction in the fiscal\nyear 1998 ICASS budget of $17,437 (about five percent).\n\nOIG Response:\n\nWe encourage the continuing efforts of the commercial officers at US&FCS Spain to reduce the\npost\xe2\x80\x99s local ICASS costs. Because the increase in administrative costs to US&FCS Spain under\nICASS is disproportionately large, the continued active engagement by both the post and\nheadquarters management is necessary to further reduce the financial administrative burden and\nmaximize the funds available for overseas program operations.\n\n\n\n\n -16-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nII. PROGRAM ACTIVITIES AND PERFORMANCE MEASUREMENT\n\nIn FY 1997, much of post management\xe2\x80\x99s attention was focused on internal operating matters,\noften at the expense of program activities. As a result, the trade promotion program was not as\neffective as possible. One notable exception involved US&FCS Spain\xe2\x80\x99s advocacy program,\nwhich received praise from several agencies at post for its team-driven strategy.\n\nWe identified specific program areas needing improvement, including a greater focus on\ndeveloping success stories, better identification of opportunities for small and medium-sized\nfirms, and increased quality in market research reporting. The FY 1998 events schedule,\nalthough aggressive compared to prior years, risks bottlenecks due to a lack of administrative\nsupport. In addition, post management needs to develop some type of planning to recover costs\nassociated with events held in the new Business Information Center. Finally, US&FCS\nmanagement needs to develop a cost/benefit analysis and pricing structure to help legitimize the\n\xe2\x80\x9cYou Brief Us\xe2\x80\x9d program.\n\nA. Post Management\xe2\x80\x99s FY 1997 Focus Was on Internal Issues, Not Program Activities\n\nUS&FCS Spain\xe2\x80\x99s \xe2\x80\x9cprogram\xe2\x80\x9d activities were not the primary emphasis in FY 1997 due to\nmanagement\xe2\x80\x99s focus on internal issues. Several perceived problems identified by the SCO\nshortly after his arrival at post required the majority of his management attention. They included,\namong others:\n\n C A lack of coordination with other agencies at post.\n C The commercial staff\xe2\x80\x99s failure to respect embassy protocol.\n C Insufficient education levels among the commercial staff and poor writing skills.\n C Low staff morale.\n C Instances of insubordination.\n\nThe SCO\xe2\x80\x99s attempt to address these problems shifted attention away from US&FCS clients.7 As\na result, several areas related to the promotion of US&FCS products and services suffered.\nSpecifically, we found the office (1) generated a low volume of success stories, (2) identified few\nopportunities for small and medium-sized companies, and (3) had poor market research quality\n(each of these items are discussed in greater detail in subsequent sections).\n\nHaving made improvements in several of the internal areas, the SCO has focused greater\nattention on program activities in FY 1998. The staff has been re-educated about the importance\n\n\n 7\n The internal items are mentioned here only in relation to their effect on program activities.\nThe SCO\xe2\x80\x99s positive resolution of several of these items is discussed in the sections on general\nmanagement and organizational issues.\n\n -17-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nof success stories, a quality control program for market research reporting has been implemented,\nand US&FCS Spain has embarked on an ambitious events schedule. We believe this program re-\nprioritization will result in better client service in FY 1998 and more successes for U.S. firms.\n\nB. Advocacy Strategy Is Driven by Interagency Effort\n\nSeveral agencies at the U.S. mission in Spain provide advocacy support to U.S. firms bidding on\nSpanish government projects. According to the agencies we interviewed, although US&FCS\noften takes the lead on these projects, it actively pursues the involvement of other agencies, such\nas State Department Economic Section, USIS, and the Office of Military Sales. During our\nreview, US&FCS received high praise for encouraging teamwork in this area and helping to\nprevent turf wars. During FY 1997, the charge d\xe2\x80\x99affaires credited US&FCS with being the key\nto a successful mission effort that resulted in a $750 million deal for Lockheed Martin.\n\nThe Spanish government\xe2\x80\x99s commitment to spending on infrastructure development (estimated at\n$100 billion over 10 years) should create some major opportunities for U.S. companies. Despite\na series of recent setbacks for U.S. firms competing for major Spanish projects, we believe the\ninteragency approach to advocacy supported by US&FCS appears to maximize the potential for\nsuccess for U.S. exporters.\n\nC. Number of Success Stories Is Low Compared to Other US&FCS Posts\n\nThe numbers and dollar values of US&FCS Spain\xe2\x80\x99s success stories are summarized in the\nfollowing table. Success stories represent a record of export actions achieved by U.S. companies\nin which US&FCS played a role.\n\n Success Stories Summary*\n\n Number Value\n FY 1996 14 $80 million\n FY 1997 17 754 million\n\n FY 1998 (1st Qtr.) 12 2 million\n\n C The success stories values in both FY 1996 and FY 1997 are heavily skewed by\n two large export actions. In FY 1996, one success story comprised 81 percent of\n the total value; in FY 1997, a single success story comprised 99 percent of the total value.\n\nOn average, the number of success stories achieved by US&FCS Spain in FY 1996 and FY 1997\nequates to about one success story per non-administrative staff member. In contrast, US&FCS\nBelgium and Portugal, which both have smaller staffs, generated four success stories per person\n\n -18-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nduring the same period. In addition, the majority of US&FCS Spain success stories are reported\nby only a small percentage of the non-administrative staff. Given these circumstances, we\nbelieve US&FCS Spain has the resources in place to generate a greater number of success stories.\n\n\nThe SCO has acknowledged that success story volume is low, in part because of his focus on\nresolving internal problems in the last year, but also because the impact of his leadership is not\nreflected in the FY 1996 and FY 1997 numbers. However, several FSNs indicated that there is\nno formal procedure in place for following up with clients on potential success stories. The ad\nhoc manner of monitoring probably results in a lower number of success stories and may also\nlead to under-reporting.\n\nThe US&FCS Operations Manual recognizes the importance of success story reporting as the\nprincipal means of informing Department officials, the Congress, the Office of Management and\nBudget, and the public of agency accomplishments, suggesting that management should\nemphasize collection of information that helps justify the existence of the agency. Although the\nmanual provides guidelines as to how success story information is to be reported, each post\nmaintains responsibility for implementing an effective method to identify such stories.\n\nWe noted that US&FCS Spain recently implemented a new tracking system tied to commercial\nlibrary inquiries as a means of increasing the generation of success stories. The new system is\nalready paying dividends; in FY 1998 the office is on pace to nearly triple its number of success\nstories over FY 1997. We believe increased management emphasis on success stories, as well as\nthe development of a standard follow-up procedure with clients, will enable US&FCS Spain to\ncontinue to generate success stories at a higher rate.\n\nD. Greater Focus Is Needed on Identifying Opportunities for\n Small and Medium-Sized Enterprises\n\nSmall and medium-sized enterprises (SMEs) are not emphasized in US&FCS Spain\xe2\x80\x99s strategic\nplan, and there is little evidence to indicate that they are the focus of the office\xe2\x80\x99s outreach\nactivities. By contrast, US&FCS promotional material states that the agency is committed to\nincreasing the number of U.S. firms, particularly SMEs, involved in international trade and that\nmany US&FCS export promotion products are designed specifically for SMEs. In addition, the\nCommerce Department\xe2\x80\x99s 1997 Strategic Plan states that one of ITA\xe2\x80\x99s roles is to increase trade\nassistance targeted to SMEs.\n\nAlthough partner organizations that we met with praised US&FCS Spain for making business\ninformation available, they suggested that the post was not taking advantage of significant\nopportunities for SMEs. Rather than focusing directly on providing assistance to SMEs,\nUS&FCS Spain has identified sectors in the Spanish economy that are in line to receive heavy\ngovernment spending. It is predominantly larger firms that benefit from such large-scale\n\n -19-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nprojects. While we applaud this approach as a general strategy to promote opportunities for U.S.\nfirms, post management should also develop a plan to specifically help SMEs take advantage of\nthese opportunities.\n\nE. Market Research Needs Quality Improvements\n\nSimilar to other posts worldwide, US&FCS Spain generates, or assists in generating, the\nfollowing types of market research: Country Commercial Guides, Customized Market Analyses,\nIndustry Subsector Analyses (ISAs), and International Market Insights (IMIs). Our analysis of\nUS&FCS Spain\xe2\x80\x99s market research reporting, particularly ISAs and IMIs, showed that some\nreports contained incorrect sentence structure and misstated financial information.\n\nAccording to the US&FCS Operations Manual, posts are responsible for selecting, producing,\nand maintaining the quality of ISAs. The selection of ISA titles should draw primarily from the\nbroader \xe2\x80\x9cbest-prospects\xe2\x80\x9d sectors identified in the post\xe2\x80\x99s annual strategic commercial plan.\nSeveral of US&FCS Spain\xe2\x80\x99s recent ISAs fall outside the list of best prospects.\n\nIn many cases, English is not the native language of the FSNs who write these reports. In the\nabsence of training to enhance their English-writing skills, these reports are time consuming and\nprone to inaccuracies. In addition, according to some of the staff, pressure to produce a large\nnumber of IMIs has shifted the focus from quality to quantity in reporting. While poorly written\nmarket research has no immediate impact on US&FCS operations, narratives that do not convey\nclear messages will likely undermine the confidence of US&FCS clients who attempt to use the\nmarket research information. In addition, by ignoring the parameters established for selecting\ntopical areas for some of its market research reporting, US&FCS Spain may have expended\nvaluable resources developing information for a clientele that does not exist.\n\nWhile the SCO acknowledged past quality problems, he stated that these problems were being\nresolved through a more critical review process. Additionally, in order to improve the quality\nand substance of the market research, the SCO has directed FSNs to develop more specific\ninformation on the procurement process within each of the best prospect sectors.\n\nF. Aggressive FY 1998 Events Schedule May Lack Adequate Implementation Support\n\nUS&FCS Spain has included many more trade activities on its schedule for FY 1998. Without\nchanging its communication equipment and standard operating procedures, the post could face\nproblems effectively managing and implementing this increased number of events.\n\nThe total number of trade event activities scheduled for the first half of 1998 (21) is almost twice\nthat for the same period in 1997 (11), and also covers a broader range of sectors. These include\nthe trade shows and trade missions that US&FCS Spain is supporting, as well as the International\n\n\n -20-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nBuyer Program.8 Such increased productivity and sector coverage is commendable. However,\nthe dramatic increase in trade activity puts pressure on the post\xe2\x80\x99s resources. Magnifying this\neffect, the 1998 schedule includes significantly more trade shows, which tend to consume more\nof each FSN\xe2\x80\x99s time.\n\nTo avoid bottlenecks and provide a high level of service to event participants, improvement is\nneeded in both equipment and organization of operations. According to the staff, existing office\ncommunication equipment (e.g., fax board insertions for computers and E-mail software), is not\nsufficient to support the large volume of communication that takes places in preparing for trade\nevents. In addition, to the extent that no one is directly responsible for coordinating and\ndelegating administrative support, it is unclear how time-sensitive activities will be assigned.\n\nG. Individual Events Run Surpluses, But Business Center Does Not Recover Costs\n\nDuring FY 1997, US&FCS Spain made collections in excess of event-specific expenditures on\nall but one of its trade events. For most of these events, the surplus was less than $1,000,\nindicating that the post was operating the events close to the cost recovery ratio mandated by\nDepartment guidelines. However, US&FCS is not recovering costs associated with the event\nspace in the new Business Information Center.\n\nAccording to federal regulations, events staged at a fixed federal facility should collectively\nrecover all the facility\xe2\x80\x99s costs, including overhead. Using financial information provided by the\npost, we determined that the total 1997 US&FCS cost of operating the BIC\xe2\x80\x99s small event space\nwas approximately $19,000. During this period, US&FCS staged only three events in the BIC,\ncollecting a total of about $1,000.\n\nBased on the BIC\xe2\x80\x99s 1997 cost/revenue figures, the schedule of events held there is not sufficient\nto enable US&FCS to fully recover the costs associated with the event space. To effectively\nmonitor the BIC\xe2\x80\x99s cost recovery, post management should regularly perform a cost/revenue\nanalysis. In addition, to better match revenues and expenses, US&FCS should incorporate a\nportion of the event space overhead into the pricing structure for each event held in the Center.\n\n\n\n\n 8\n The International Buyer Program allows FSNs to recruit and accompany a delegation of prospective\nimporters, in this case from Spain, to a foreign trade show in which U.S. goods are exhibited.\n\n -21-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nH. \xe2\x80\x9cYou Brief Us\xe2\x80\x9d Program Offers Questionable Benefits to U.S. Firms\n\nIn conjunction with \xe2\x80\x9cPower-Gen \xe2\x80\x9897 Europe,\xe2\x80\x9d a trade show for the energy sector held in Madrid\nin June 1997, US&FCS Spain hosted a \xe2\x80\x9cYou Brief Us\xe2\x80\x9d conference for U.S. firms participating in\nthe trade show. For a fee of $550, participating companies were given an hour to discuss\ncommercial issues with the US&FCS staff involved in Power-Gen. The US&FCS promotional\nbrochure states, \xe2\x80\x9c \xe2\x80\x98You Brief Us\xe2\x80\x99 offers your company a rare opportunity to brief, exchange\nviews with, and explain your specific needs to 30 U.S. Embassy specialists and officers\nrepresenting markets across Europe, the Newly Independent Sates, and Northern Africa.\xe2\x80\x9d\n\n\xe2\x80\x9cYou Brief Us\xe2\x80\x9d is not a standard part of regional events. However, versions of the program have\nbeen held during other Showcase Europe conferences. Although any U.S. firm is eligible to\nparticipate, it is unclear what service or benefits these companies can expect in return for their\nfee, other than the right to be heard. In addition, the commercial staff was unable to provide an\nexplanation of how the $550 fee was determined or a breakdown of what expenses the fee was\nintended to cover.\n\nTo help legitimize this program, we believe US&FCS should (1) explain more fully in its\npromotional materials what services a company can expect for participating in the program, and\n(2) develop a pricing structure that clearly identifies the expenses that the participation fee\ncovers.\n\n RECOMMENDATIONS\n\nWe recommend that the Assistant Secretary and Director General for US&FCS:\n\n1. Direct US&FCS Spain management to focus greater attention on program-related\n activities, including outreach, events, and market research reporting.\n\n2. Establish a goal to increase success stories to a level that meets (or exceeds) the average\n for a post the size of Spain.\n\n3. Develop a strategy that increases international trade among small and medium-sized\n companies in accordance with the Department of Commerce strategic plan.\n\n4. Provide the training and oversight necessary to ensure that market research reports\n represent high quality products, and ensure that industry coverage is consistent with the\n \xe2\x80\x9cbest-prospect\xe2\x80\x9d list, as required by US&FCS guidelines.\n\n5. Ensure that adequate resources in terms of equipment and administrative personnel are\n made available to accommodate the increased trade event activity.\n\n\n -22-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n6. Design a model to regularly perform a cost/revenue analysis of the Business Information\n Center to monitor costs associated with events held in the facility.\n\n7. Explicitly disclose the benefits that participants in the \xe2\x80\x9cYou Brief Us\xe2\x80\x9d program can\n expect, and develop a pricing structure that clearly identifies the expenses covered by the\n participation fee.\n\n --------------\n\nUS&FCS Comments on Draft Report and OIG Response\n\nUS&FCS Comment on Draft Report Recommendation 1:\n\nUS&FCS reports that US&FCS Spain\xe2\x80\x99s staff has made several outreach trips since fiscal year\n1997, including export promotion trips to 12 of the 17 Spanish regions. The post is also\ncontinuing its work with a local contractor to publish a \xe2\x80\x9cDoing Business in Spain Guide\xe2\x80\x9d for\ndistribution throughout Spain and to many key multipliers in the United States. In addition, in\nfiscal year 1998, US&FCS Madrid is scheduled to complete eight events in Spain and support\nnumerous Showcase Europe events in Europe and the United States.\n\nUS&FCS Spain plans to complete the required ISAs, a respectable number of IMIs, and, by the\nend of fiscal year 1998, detailed studies on most of the 17 Spanish regions. US&FCS\nmanagement is pleased with the increased level of programmatic activity, and the greater focus\non trade events and mission, several of which will prominently feature SMEs.\n\nOIG Response:\n\nAs stated in our report, the OIG recognizes the increased attention devoted by US&FCS Spain to\nprogram activities during fiscal year 1998. We commend US&FCS for aggressive planning in\nthis area and encourage the post, with the support of agency management, to continue to make\nexport promotion activities the office\xe2\x80\x99s top priority.\n\nUS&FCS Comment on Draft Report Recommendation 2:\n\nUS&FCS and post recognize the importance of success stories and agree that the number of\nsuccess stories documented by post is on track to substantially increase in FY 1998. US&FCS\nnotes that the number of success stories has increased each year since the arrival of the current\nSCO.\n\n\n\nOIG Response:\n\n -23-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nWe commend US&FCS Spain for increasing the volume of reported success stories. However,\nwe believe post could further increase reported success stories by developing and transmitting to\nFSNs clear (and mandatory) guidelines for monitoring and collecting success story information.\n\n\nUS&FCS Comments on Draft Report Recommendation 3:\n\nUS&FCS states that companies would like to come on trade missions to Spain but the cost is too\nhigh. US&FCS Madrid is purchasing new furniture so that the configuration of the meeting area\nin the BIC can be changed to accommodate more companies, allowing the events to be held in-\nhouse and at a lower cost, hopefully making the package more attractive to companies. In\naddition, in FY 1999 Valencia Spain will be the host to a major EU-organized partnering event\nwhich is expected to include a delegation of American SMEs.\n\nOIG Response:\n\nWe recognize that greater success in recruiting SMEs to participate in trade events and missions\nin Spain is at least one part of increasing trade among such firms. To extent that US&FCS Spain\nis able to enhance the event space in the BIC and attract more companies for trade missions, we\nsupport their efforts. We also encourage US&FCS Spain to more vigorously promote events\ntargeted to SMEs such as the upcoming event in Valencia. However, to increase the focus of the\nentire US&FCS Spain operation on identifying opportunities for SMEs, we believe the office\nneeds to incorporate and emphasize a targeted strategy for SMEs into its strategic plan.\n\nUS&FCS Comment on Draft Report Recommendation 4:\n\nUS&FCS states that post will focus on Industry Sector Analyses on the \xe2\x80\x9cBest Prospect List\xe2\x80\x9d and\nthose tasked under Showcase Europe starting in FY 1999. It will also ensure that its current\nschedule of market research will be properly proofed for linguistic and factual accuracy.\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 5:\n\nUS&FCS states that it is confident that the management expertise and resources to successfully\ncomplete the FY 1998 event schedule. As a part of the worldwide effort to upgrade US&FCS\nposts over the next two years, post\xe2\x80\x99s computer hardware and software will be upgraded in the\nsummer of 1998.\n\nOIG Response:\n\n -24-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 6:\n\nUS&FCS indicates that the post is purchasing different furniture for the BIC to allow for larger\nmissions to utilize the events space, for which the office plans to charge appropriately. However,\nUS&FCS points out that the cost of commercial space rental in Madrid is low, thus, the post\nwould only be able to charge a minimum fee to the participating companies.\n\nOIG Response:\n\nThe OIG has already recognized the overall cost savings achieved by the BIC compared to the\nformer physical office location. We also commend US&FCS for establishing a practical and\ncost-effective configuration for the BIC\xe2\x80\x99s common event space. To avoid the possibility of\novercharging companies for leasing the event space, we suggest that US&FCS Spain conduct a\nregular analysis of costs associated with operating the shared space versus the revenue generated\nthrough in-house events. US&FCS Spain should attempt to recover as much of those costs as\npossible through events held in the BIC.\n\nUS&FCS Comment on Draft Report Recommendation 7:\n\nUS&FCS states that management has developed some guidelines for posts to use in structuring\nand promoting the \xe2\x80\x9cYou Brief US\xe2\x80\x9d programs, which many participating companies have\napplauded. Efforts to recruit such participants will be transparent and open to large firms and to\nSMEs alike. Posts will be requested to structure these events on a cost recovery basis.\n\nOIG Response:\n\nThe OIG believes that US&FCS has developed a plan to emphasize the benefits of the \xe2\x80\x9cYou\nBrief US\xe2\x80\x9d program to potential participants and to implement an appropriate pricing structure.\n\n\n\n\n -25-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nIII. INTERNAL CONTROL ENVIRONMENT\n\nAfter reviewing US&FCS Spain\xe2\x80\x99s financial and administrative operations, we concluded that\nseveral improvements in the internal control systems would help US&FCS Spain to better meet\nthe requirements of the Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982 (31 U.S.C. 3512(b)).\nThe systems in place to document and record transactions and events and to ensure that assets are\nsafeguarded against waste, loss, unauthorized use, and misappropriation are generally adequate\nbut should be strengthened.\n\nEspecially needed is an improvement in the communication and information flow between\nUS&FCS and the State Department\xe2\x80\x99s Budget & Finance (B&F) section. B&F confirmed that\nservices provided to the post in the past year have been below expectations. With the\nimplementation of ICAAS, administrative costs to the post will escalate, increasing the need for\nUS&FCS Spain to remain actively engaged and to ensure that the services provided by B&F are\ntimely and of high quality. Controls should also be strengthened over the procurement process,\nimprest fund documentation, vehicle management, SCO travel documents, reconciliations of\naccount balances, and prior year unliquidated obligations.\n\nA. Control Systems Meet Most Requirements of\n Federal Managers\xe2\x80\x99 Financial Integrity Act\n\nUS&FCS Spain has established adequate internal control systems to comply with most\nprovisions of the Federal Managers\xe2\x80\x99 Financial Integrity Act. Systems are in place to document\nand record transactions and events and to ensure that assets are safeguarded against waste, loss,\nunauthorized use, and misappropriation. Management has separated key duties and\nresponsibilities in authorizing, processing, recording, and reviewing transactions among key\nindividuals, with minor exceptions. Other than the SCO signing his own travel authorization and\nreimbursement vouchers, no one individual is solely responsible for a single transaction.\nHowever, the organizational structure does not provide clear lines of supervision regarding the\nofficer(s) who approve these activities, and the actual assignment of these activities has not been\nwell communicated to the staff.\n\nIn addition to US&FCS management establishing good internal controls over transactions, a\nnumber of internal accounting and administrative controls over the post\xe2\x80\x99s financial and\nadministrative activities are provided by the State Department\xe2\x80\x99s B&F section and its General\nServices Office (GSO).9 GSO staff have established good internal controls over the procurement\nprocess, including updating inventory records when goods are received and conducting periodic\n\n\n 9\n Although we did not audit the State Department\xe2\x80\x99s internal control systems, we conducted a review of the\ncontrol elements in the B&F and GSO offices that affect US&FCS operations. The internal controls provided by\nthese offices impact the overall control environment related to many US&FCS functions, including procurement.\n\n -26-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nverification of post inventory items. In instances when US&FCS Spain inappropriately identifies\nspecific vendors on a purchase order, GSO staff will obtain competition for the item. GSO and\nB&F have controls over the procurement and payment cycle to ensure that appropriate reviews\nand authorization signatures are on purchase orders and other documents. However, as discussed\nbelow, we noted a weakness in the application of this internal control.\n\nB. Poor Service From the Embassy\xe2\x80\x99s Budget & Finance Section\n Has Negatively Affected the Control Environment\n\nThe Budget and Finance (B&F) section provides financial management services and maintains a\nsystem of internal controls over post transactions. While the control environment is generally\nadequate, controls should be strengthened in a number of areas, including communication and\ninformation flow. B&F has not always provided timely, high-quality service to US&FCS Spain.\nAs a result, US&FCS Spain has been unable to monitor the current status of post fund balances.\n\nWe discussed the situation with B&F senior staff, who confirmed that they have not been\nproviding adequate services to US&FCS Spain. B&F staff attributed the poor service over the\npast year to several factors, including the resignation of several key staff members, an employee\ntaking extended sick leave, and the section\xe2\x80\x99s attention being diverted to preparations for a\nPresidential visit.\n\nC. Procurement and Disbursement Controls Are Adequate With One Exception\n\nAlthough procurement controls at post generally were good, one control was not properly\napplied. We found that B&F had not updated its list (effective February 1997) of authorized\napproving officers for the following sub-activities in the procurement process: ordering,\nreceiving, certifying, and approval for payment. For all the sub-activities the following American\nofficers were authorized:\n\n < Current SCO.\n < Former DSCO.\n < Current Assistant Commercial Attache.\n\nThe former DSCO left the post and was replaced by the current DSCO during FY 1997. The\nauthorized signature list had not been updated to reflect this change. The post is small enough\nthat the B&F section can recognize all the American officers. However, with the numerous\npersonnel changes at B&F, a sound internal control structure requires a current list of authorizing\nofficials and a procedure to verify that officers have the authority to initiate procurement actions.\n\n\n\n\n -27-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nD. Insufficient Controls Are Maintained Over SCO\xe2\x80\x99s\n Travel Authorizations and Expense Vouchers\n\nThe SCO approves his own travel authorizations and reimbursement vouchers for payment. In\nreviewing travel files at B&F, we found nothing to indicate improper use of travel funds.\nHowever, the lack of an outside review and approval of the SCO\xe2\x80\x99s travel authorizations and\nreimbursement vouchers is an internal control weakness.\n\nThe SCO told us that such self-approval is standard practice throughout US&FCS posts. Our\nreviews of other posts and interviews with commercial officers indicate that it is not standard\nprocedure. With the widespread use of faxes and modems to transmit data, obtaining a\nsupervisory approval or blanket travel orders in advance would not be burdensome and would\ncontribute to a stronger control environment.\n\nE. Physical Asset Controls Are Good Except For Vehicle Management\n\nThe post has established proper physical asset management procedures to ensure that assets are\nsafeguarded against waste, loss, unauthorized use, and misappropriation. Record systems are in\nplace to track inventory and use of vehicles. Management has the inventory log updated by GSO\neach time procurements are received and invoices paid. However, while some records are kept\nfor vehicle usage, the vehicle management system should be improved.\n\nUS&FCS requires that posts with vehicles keep a log that records official and personal use, and\nUS&FCS staff must reimburse the government for all personal use of a vehicle. We reviewed\nthe log maintained for US&FCS Spain\xe2\x80\x99s vehicle in Madrid. The log did not explicitly show\npersonal use of the vehicle and recorded only the ending kilometer for each trip. Since no\nbeginning kilometer reading was shown, we reasoned that subtracting the ending kilometer\nreading from the previous ending kilometer reading would give total trip distance. Instead we\nfound huge differences in kilometers driven for trips to the same destination. For example:\n\n\n\n\n -28-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n Trips from Madrid to Ifema and Return\n\n Date of Trip Ending Previous Trip Kilometers\n Trip Odometer Ending Odometer Driven\n 3/7/96 7375 7358 17\n 6/12/96 9393 9360 33\n 7/1/96 9673 9532 141\n 11/5/96 14304 14279 25\n 11/22/96 14763 14723 40\n illegible 16549 14763 1786\n\nFrom the analysis above, we conclude that post is not accounting for all the kilometers the\nvehicle has been driven, and the risk of personal use of the vehicle is high.\n\nF. Controls Over the Imprest Fund Should Be Strengthened\n\nAs a general practice, US&FCS Spain disbursed many trade event payments from the petty cash\nfund, including payments to translators. The office manager said that the practice was limited to\nvendor expenses under $500, and that both the office and the vendors prefer this method of\npayment because it takes B&F a long time to obligate, liquidate, and disburse checks. We\nreviewed several disbursements for expense payments for translator expenses. All of the\ninvoices were copies of originals. The invoice copies had minimal information regarding the\nvendor, only the vendor name and a brief description of the services rendered. Generally there\nwas no telephone number or address of the person providing the service. The invoice copy was\nnot marked in any manner as having been paid. While use of the imprest funds may be an\neconomical alternative, under the current system, the invoices accepted by the post and B&F are\ninadequate.\n\nG. Department of State and ITA Operations and\n Administrative Account Balances Differ\n\nOur review of official records disclosed a measurable difference in the operations and\nadministrative (O&A) account balance reported by ITA and the State Department. During our\nreview of FY 1997 account balances, we initially identified a total difference of nearly $500,000\nbetween ITA and State accounting data for expenditures.\n\n\n\n\n -29-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n Reconciliation of State and ITA Accounting Data (FY 1997)\n\n Expenditure ITA Balance State Balance Difference\n\n O&A $1,706,454 $1,208,520 $497,934\n\n\nFor O&A, the ITA account balance includes American officer salaries and benefits, while State\xe2\x80\x99s\ndoes not. When the $417,000 in American officer salaries and benefits is subtracted from the\nITA total, the adjusted difference is $80,934. We were unable to determine the reason for the\nfinal difference. With such a discrepancy in account balances between State and ITA records,\nITA may be relying on inaccurate data to manage its overseas posts. ITA needs to reconcile its\naccount balances and determine the reasons for significant discrepancies.\n\nH. Account Balances in the TEMS Differ with Post Records\n\nOur review of records disclosed differences between account balances reported by the post and\nUS&FCS Washington\xe2\x80\x99s Trade Event Management System (TEMS) for collections. We\nidentified a net difference of approximately $9,300 between post and TEMS data for FY 1997\ntrade event overseas collections.\n\n Reconciliation of Post and TEMS Data\n Trade Event Cash Collections (FY 1997)\n\n Event Collections per Post Collections per TEMS Difference\n\n Gold Key $8,300.00 $7,750.00 ($550.00)\n\n Infrastructure Seminar 7,475.00 7,475.00 0.00\n\n State of Colorado 6,200.00 6,200.00 0.00\n\n Tecma 96 2,235.00 2,235.00 0.00\n\n Post-Initiated Events 6,313.86 6,067.86 (224.00)\n\n FITUR 97 1,550.00 1,550.00 0.00\n\n BIT 97/Travel and Tourism no record a 5,500.00 5,500.00\n\n Publications no record b 4,600.71 4,600.71\n\n Total $9,326.71\n\n a\n No one at post had any knowledge of this event.\n b\n While there was no cumulative total in the post records, weekly cash reports included the collections from\n this activity.\n\n\n\n -30-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nWhile the minor differences are likely the result of rounding or timing differences, the bulk of\nthe discrepancy stems from the fact that post did not have any collection records for two of the\nevents. The Office of Trade Event Management indicated that one of the events (BIT 97) may\nhave been misrecorded in TEMS. Nonetheless, as a result of differences in account balances\nbetween post and TEMS records, US&FCS may be relying on inaccurate data to oversee its trade\nevents at foreign posts. US&FCS Spain needs to reconcile its trade event account balances with\nTEMS department records and determine the reason for the significant differences.\n\nI. Prior Year Unliquidated Obligations Should Be Reviewed\n\nThe O&A accounts show unliquidated balances of $4,000 for FY 1995 and $16,315 for FY 1996.\nThe $4,000 balance obligated in FY 1995 is from a series of travel advances given to a former\nemployee in Barcelona. According to a memo from this employee to the US&FCS office\nmanager in Madrid, four travel vouchers that collectively account for the $4,000 were submitted.\nHowever, neither US&FCS Spain nor the B&F office had a copy of the vouchers. The post\nshould take action to obtain and/or file a proper travel claim and liquidate the appropriate amount\nfrom this long-standing obligation.\n\nThe bulk of the $16,315 obligated in FY 1996 as office furnishings is actually related to furniture\ncosts associated with the current SCO\xe2\x80\x99s residence. According to the office manager, US&FCS\nSpain has not yet received a bill for the furniture and they expect US&FCS headquarters to\nhandle the expense. The post should review these transactions, identify the appropriate source of\nfunds, and take action as to resolve these obligations.\n\n RECOMMENDATIONS\n\nWe recommend that the Assistant Secretary and Director General for US&FCS:\n\n1. Require US&FCS Spain to report on the quality and timeliness of financial and\n administrative services provided by the embassy and, if service standards are not met,\n take action to remedy the situation or identify alternative service providers.\n\n2. Update the list of American officers who have authority to initiate procurements.\n\n3. Redesign the vehicle log so that all kilometers driven are accounted for, and ensure that\n personal use of the vehicle is properly documented and appropriate costs are reimbursed\n to the government.\n\n4. Require the SCO to submit all travel authorizations and reimbursement vouchers to an\n appropriate supervisor for review and approval.\n\n\n\n -31-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n5. Require invoices submitted for imprest fund reimbursement to clearly identify the\n vendor\xe2\x80\x99s business address and telephone number, include a detailed description of the\n service provided, and be promptly marked as paid.\n\n6. Implement procedures to ensure that appropriate records regarding all accounting\n transactions are maintained, including summaries by event along with running balances\n of collections and expenditures.\n\n7. Ensure that internal records are periodically reconciled to B&F and State Department\n reports to ensure that all transactions generated at post are being captured in the RAMC\n reports.\n\n8. Implement procedures to ensure that unusual items, such as obligations that remain\n outstanding for more than two years, obligations occurring outside the year of\n expenditure authority, or disbursements occurring two or more years after the\n establishment of the obligation, are identified and investigated.\n\n9. Implement procedures to ensure that post trade event collection and expenditure data are\n reconciled with OTEM\xe2\x80\x99s financial records.\n\n --------------\n\nUS&FCS Comments on Draft Report and OIG Response\n\nUS&FCS Comment on Draft Report Recommendation 1:\n\nAccording to US&FCS, through post\xe2\x80\x99s active involvement in ICASS, it closely monitors the\nquality and timeliness of the service providers. The post plans to report deviations from ICASS\nstandards to the Council as well as to headquarters.\n\nOIG Response:\n\nIn addition to the actions already planned or taken, US&FCS Spain should consider following up\nits reporting on deviations from ICASS standards by engaging other agencies in developing\nstrategies to increase service quality and, in the absence of noticeable service improvement,\nexploring alternative providers.\n\nUS&FCS Comment on Draft Report Recommendation 2:\n\nUS&FCS states that post has updated the list of American officers who have authority to initiate\nprocurement.\n\n\n -32-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 3:\n\nUS&FCS states that post has redesigned the log to ensure that it complies with US&FCS\xe2\x80\x99\nrequirements. Each time the staff members use the car, they must document kilometers at the\nstart and end of each trip. The type of use (official or personal) is also noted. The Assistant\nCommercial Attache has been instructed to review the log quarterly.\n\nOIG Response:\n\nThe OIG is satisfied that the action planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 4:\n\nUS&FCS states that the Department of State has been contracted under ICASS to provide local\nmanagement and fiscal oversight. All vouchers, including purchase orders, disbursements, travel\nrequests, travel vouchers, etc., are examined and require the approval of the B&F officer, the\nGSO and/or the Administrative Counselor. This relationship between the agencies represented at\npost and the Department of State is not unique to Commerce, but is also followed by the other\nagencies.\n\nUS&FCS argues that if there is a need to make improvements on management oversight or fiscal\npractices, these should be addressed system-wide and not on a post-by-post basis, as they are\ngeneric in nature and carried out throughout the world by all or many US&FCS posts. For\nexample, all travel requests require the signature of the B&F officer for approval and certification\nthat the funds are available and not in violation of anti-deficiency regulations. It would be\nimpractical to require that a US&FCS headquarters officer approve travel requests due to\ndifference in time, long distance, etc.\n\nUS&FCS states that travel vouchers presented after travel has been completed are presented to\npost administrative authorities for review and approval. The B&F officer or, in his/her absence,\nthe Administrative Counselor reviews and approves vouchers - all vouchers - not just the SCO\xe2\x80\x99s\nfor payment. According to US&FCS, the procedures followed by US&FCS Spain are standard\nand do not violate in any way the US&FCS Operations Manual or the Foreign Affairs Manual.\n\n\n\n\n -33-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nOIG Response:\n\nSection 301-1.101(3) of the Federal Travel Regulations states, \xe2\x80\x9cTravel-authorizing officials shall\nauthorize or approve only that travel necessary to accomplish the agency mission in the most\neffective and economical manner. Authorizing officials should be aware of travel plans...and\nshall ensure appropriate consideration of the need for the travel, the use of travel substitutes, and\nthe most cost-effective routing and means of accomplishing travel.\xe2\x80\x9d\n\nIn the case of the SCO\xe2\x80\x99s travel documentation, we are not persuaded that such a review is taking\nplace. Although the B&F officer in Spain signs each of the travel documents, the OIG found that\nthe extent of his review is nothing more than a determination that funds are available to cover the\namount on the voucher. It does not constitute \xe2\x80\x9cmanagement\xe2\x80\x9d approval of the travel being\nconsidered from an agency-mission perspective, as required by the Federal Travel Regulations.\nThe separation of duties standard is a standard business practice endorsed by the GAO in Report\nOP-4.1.4, Assessing Internal Controls in Performance Audits. It is necessary to ensure an\nadequate internal control environment that someone other than the traveler provide this review.\n\nAs stated in our report, we found nothing to indicate improper use of travel funds. In addition, it\nmay be impractical to require that a US&FCS headquarters officer approve all individual travel\nrequests. However, we continue to recommend that action be taken to ensure a proper review\nand approval of the SCO\xe2\x80\x99s travel documents. Though US&FCS states that the signature of the\nB&F and/or Administrative Counselor on the SCO\xe2\x80\x99s travel documents are standard world-wide,\nwe have found the nature of their review to be inconsistent. For example, in other OIG reviews\n(e.g., South Korea and Japan) we found that the SCO\xe2\x80\x99s travel documents were properly reviewed\nand analyzed by either the DCM or the Administrative Counselor, not simply certified by the\nB&F officer that funds were available. Therefore, we recommend that the SCO at US&FCS\nSpain submit his travel documents to an appropriate authorizing official--such as the\nAdministrative Counselor or the DCM--for a proper review as required by Federal Travel\nRegulations.\n\nUS&FCS Comment on Draft Report Recommendation 5:\n\nUS&FCS states that invoices similar to those mentioned in the report were immediately adjusted\nto contain more details in accordance with the OIG\xe2\x80\x99s recommendations.\n\nOIG Response:\n\nThe OIG is satisfied with the action taken and encourages US&FCS to include similar pertinent\ninformation on future invoices.\n\n\n\n\n -34-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nUS&FCS Comment on Draft Report Recommendation 6:\n\nUS&FCS states that a new system has been implemented to summarize collections for\npublications. US&FCS notes that all collections for publications are duly noted in the Weekly\nCollections Report. In the meantime, apart from the individual event collection logs already in\nplace, the Event Expense Worksheets for the events have also been adjusted to reflect the current\nstatus of collections.\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 7:\n\nUS&FCS states that problems with the B&F section are now under control and the new financial\ntechnician assigned to the US&FCS accounts is working much more closely with the post\xe2\x80\x99s staff.\nUS&FCS Madrid reconciles the internal records the internal records with the RAMC reports on a\nregular basis and queries any discrepancies immediately.\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\nUS&FCS Comment on Draft Report Recommendation 8:\n\nUS&FCS states that the only 1995 obligation for $4,000 has been settled, with the support of\nUS&FCS/OIO. The employee in question issued a check to cover a small outstanding balance\nand all amounts have now been liquidated.\n\nAs far as the post can tell, there were only four unliquidated 1996 obligations in the O&A\naccount, one of which has already been deobligated. The other three unliquidated obligations\ndeal with furniture for the SCO\xe2\x80\x99s residence. In line with standard practice, the order was placed\nthrough GSO to GSA suppliers in the U.S. US&FCS states that the office in Madrid has\ninquired on several occasions if anything can be done to expedite payment and has been advised\nby GSO that charges of this nature can take an inordinate length of time and that GSO cannot\nspeed up the billing process. However, US&FCS states that US&FCS Madrid will adopt a more\nassertive role in the monitoring of unliquidated balances of prior-year funding.\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\n -35-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\nUS&FCS Comment on Draft Report Recommendation 9:\n\nUS&FCS states that collection \xe2\x80\x94 as opposed to expense \xe2\x80\x94 reports are rarely reconciled with\nother documentation and notes that the post does not and never has received copies of OTEM\nreports held in Washington. Arrangements will be worked out with the appropriate office in ITA\nto have copies of the TEMS reports forwarded to US&FCS Madrid on a regular basis to ensure a\ntimely monitoring or collections.\n\nOIG Response:\n\nThe OIG is satisfied that the actions planned or taken by US&FCS address the recommendation.\n\n\n\n\n -36-\n\x0cU.S. Department of Commerce Final Report IAD-10593\nOffice of Inspector General July 1998\n\n APPENDIX\n\n Acronyms\n\n B&F Budget and Finance Office (State Department)\n BIC Business Information Center\n DSCO Deputy Senior Commercial Officer\n ECON Economics Section (State Department)\n EMU European Monetary Union\n EU European Union\n FAAS Foreign Affairs Administrative Support\n FAS Foreign Agricultural Service\n FSN Foreign Service National\n GAO General Accounting Office\n GSO General Services Office\n ICASS International Cooperative Administrative Support Services\n IMI International Market Insight Report\n ISA Industry Sector Analysis\n ITA International Trade Administration\n O&A Operations and Administrative\n POL Political Section (State Department)\n SCO Senior Commercial Officer\n SME Small and Medium-Sized Enterprise\n TEMS Trade Event Management System\n US&FCS United States and Foreign Commercial Service\n USIS United States Information Service\n\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c\x0c'