Embassy Contracting:

Contracts With Employee Associations Should Be Terminated

NSIAD-86-57: Published: Mar 18, 1986. Publicly Released: Apr 17, 1986.

Additional Materials:

Contact:

Joseph E. Kelley
(202) 512-4128
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a congressional request, GAO reviewed: (1) the extent to which U.S. embassies enter into contracts with employee associations to provide commissary, restaurant, and recreational facilities; (2) the rationale for using associations as contractors; and (3) the appropriateness of these arrangements.

GAO noted that: (1) because of the limits placed on the number of embassy employees, foreign service posts increasingly turn to contract personnel to provide commercial services; and (2) Department of State procurement regulations authorize posts to enter into nonpersonal service contracts as long as the government does not directly supervise the performance of work or reserve the right of selection of individual employees. GAO found that: (1) some embassy service contracts did not follow federal procurement regulations; (2) employee associations were making unauthorized profits on service contracts; (3) association accounting systems were deficient with respect to contract activities; (4) most contracts involved personal service, which established unauthorized employer/employee relationships between the government and contract personnel; (5) embassy personnel were performing certain functions that were the responsibility of the employee association; (6) day-to-day supervision of contract employees was a prime responsibility of permanent embassy personnel; and (7) in most cases, service contracts did not describe the tasks required, how often the tasks should be done, or the appropriate staffing levels. GAO also found that State has taken action to increase its oversight of association activities, but its efforts to remedy association contracting problems have been insufficient to correct contracting deficiencies.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: State's Program Inspector General is directing all senior team leaders to make reviews of embassy/association contracts, which up to this time were routinely carried out as special-interest items. Particular attention will be given to the use of association funds from government contracts.

    Recommendation: The Secretary of State should request the Inspector General to also determine whether association funds were misused or used for questionable purposes for associations in Mexico City and Ankara.

    Agency Affected: Department of State

  2. Status: Closed - Implemented

    Comments: In response to the State directive to investigate improper charges to the contract, the post responded that the GAO allegation was incorrect. The post did admit, however, that it had covered cafeteria losses with government funds, but believed that this was acceptable because local practice required the government to provide free or subsidized meals in-house for local employees.

    Recommendation: The Secretary of State should direct embassy officials in Ankara to determine the amount of snack bar employee salaries improperly charged to the government contract and make arrangements to return these funds to the government.

    Agency Affected: Department of State

  3. Status: Closed - Implemented

    Comments: State directed post personnel to investigate the matter. Posts responded that, although funds were commingled, association and contract-related severance funds were isolated in separate accounts. As far as posts could determine, all funds were accounted for and none were improperly spent for association purposes. Follow-up information from post reaffirmed its original position.

    Recommendation: The Secretary of State should direct embassy officials in Mexico City to determine the amount of severance funds improperly spent by the association for purchases unrelated to the embassy service contract and make appropriate arrangements to recover these funds.

    Agency Affected: Department of State

  4. Status: Closed - Implemented

    Comments: The service contracts were terminated. State issued a worldwide cable requesting that all associations: (1) properly safeguard the severance reserves controlled by the associations; (2) maintain close control over all severance reserves in escrowed, interest-bearing accounts; (3) maintain detailed records of transactions involving severance reserves; and (4) promptly return excess reserves.

    Recommendation: The Secretary of State should direct Department and post officials to recover the funds remaining in the contingent liability accounts related to these contracts and take appropriate actions to return these funds to the U.S. Treasury following the termination of service contracts between the embassies and the associations.

    Agency Affected: Department of State

  5. Status: Closed - Implemented

    Comments: Procedures were developed. Advance State approval is required and regional bureaus are to ensure that association records are adequate to support the costs claimed on such contracts. The only request for a waiver was denied.

    Recommendation: The Secretary of State should, in those cases where the posts determine there are compelling reasons to contract with the association, require that such arrangements: (1) be approved in advance at the Department level; (2) establish sufficient oversight and guidance to ensure contracting practices and procedures meet federal and Department procurement regulations; and (3) require that association financial records are adequate to support costs claimed.

    Agency Affected: Department of State

  6. Status: Closed - Implemented

    Comments: State directed posts worldwide to obtain necessary support services through commercial contracts or by hiring contract employees directly under personal services contracts. Posts are also required to justify the need for such contract personnel before any new contracts are awarded.

    Recommendation: The Secretary of State should direct the posts to hire contract personnel directly to provide support services overseas but, require that posts formally justify to the Department, in advance, the need for such contract personnel.

    Agency Affected: Department of State

  7. Status: Closed - Implemented

    Comments: State instructed overseas posts to phase out service contracts between associations and embassies. Posts were directed to review all such contracts, giving consideration to using commercial contractors or hiring personnel directly on personal service contracts. Virtually all association contracts have been phased out and the remainder will be terminated in the near future.

    Recommendation: The Secretary of State should terminate existing service contracts between the embassies and the associations as soon as possible in the orderly course and conduct of public business, unless there are compelling reasons to continue using the associations as contractors.

    Agency Affected: Department of State

  8. Status: Closed - Implemented

    Comments: State has recovered unauthorized profits amounting to about $106,700. According to officials in State's Office of the Comptroller, these funds are currently in a temporary suspense account, but will automatically revert back to the U.S. Treasury.

    Recommendation: The Secretary of State should direct embassy officials to take action necessary to recover unauthorized profits paid to employee associations after July 1985.

    Agency Affected: Department of State

 

Explore the full database of GAO's Open Recommendations »

Sep 1, 2016

Aug 19, 2016

Jun 8, 2016

Mar 24, 2016

Jan 11, 2016

Jun 16, 2015

Apr 16, 2015

Mar 9, 2015

Jan 30, 2015

Jan 6, 2015

Looking for more? Browse all our products here