Report Contents
What OIG Audited
Federal law authorizes Federal employees to receive cost-of-living allowances (COLA) to cover certain costs incurred when stationed in foreign areas. The Department of State (Department) is responsible for setting COLA rates for all eligible U.S. Government civilians. COLA consists of six different types of allowances, including the three covered in this audit—post allowance, education allowance, and separate maintenance allowance (SMA). Between FY 2013 and FY 2015, the Department spent approximately $673 million for these three allowances. The Office of Inspector General (OIG) conducted this audit to determine whether the Department established appropriate post allowance, education allowance, and SMA rates for American employees stationed overseas and whether the Department appropriately paid employees for education allowances in accordance with Federal regulations and Department policies.
What OIG Recommends
OIG made 16 recommendations that are intended to improve COLA rate determination methodologies, internal controls, and processes. On the basis of the Department’s responses to a draft of this report, OIG considers 1 recommendation closed and 15 resolved pending further action. A synopsis of the Department’s responses to the recommendations offered and OIG’s reply follow each recommendation. The Department’s responses to a draft of this report are reprinted in their entirety in Appendices B through G. Summaries of the Department’s general comments and OIG’s replies are presented in Appendices H through J.
What OIG Found
The Bureau of Administration, Deputy Assistant Secretary for Operations, Office of Allowances (A/OPR/ALS) has not established appropriate post allowance rates for the seven posts audited. Appropriate rates have not been effectuated for two primary reasons. First, the methodology currently used to calculate post allowance rates is flawed. Second, even aside from those flaws, A/OPR/ALS does not have sufficient policies and procedures to guide the process for rate setting. OIG estimates that had A/OPR/ALS used available independent cost-of-living economic data to determine rates rather than the methodology it employed, the Department would have saved approximately $18.2 million between FY 2013 and FY 2015 for six of the seven posts audited.
Although OIG found that A/OPR/ALS generally followed the established process to determine post education allowance rates for dependents of employees living overseas, A/OPR/ALS had not maintained a listing of adequate schools on which to base the rates. In addition, OIG found that A/OPR/ALS had not reviewed and updated the SMA rates annually, as required. OIG estimates that had A/OPR/ALS updated the SMA rates, the Department would have saved $1.7 million between FY 2013 and FY 2015.
In addition, OIG could not determine if two of three posts where OIG conducted audit fieldwork had appropriately paid employees for education allowances because of insufficient documentation and inconsistencies in the approach used to track education allowance payments. Without uniform policies for tracking education expenses at all posts, the risk of unallowable education expenses being paid increases.
Furthermore, OIG identified shortcomings with the oversight of a task order for eAllowances, which is an IT application used by A/OPR/ALS to convert cost-of-living information into post allowance rates. This occurred, in part, because the Contracting Officer did not timely appoint a Government Technical Monitor and because the quality assurance plan was insufficient. Without sufficient oversight, the risk of undetected calculation errors increases, which would have a financial impact on the Department as well as other agencies that pay employees COLA.
Report Terms
Report Recommendations
OIG recommends the Bureau of Administration develop and implement a plan to use independent economic data to determine post allowance rates where such data for post exist.
OIG recommends the Bureau of Administration re-determine and update by the end of FY 2018 post allowance rates using independent economic data where such data for post exist. Once the rates have been updated, the Bureau of Administration should determine the amount saved by implementing the new rates. OIG determined that using independent, economic data would have saved the Department approximately $18.2 million between FY 2013 and FY 2015 for six posts tested (that is, funds that could have been put to better use).
For cases in which independent cost-of-living indexes are not available to establish post allowance rates, OIG recommends that the Bureau of Administration revise and distribute updated policies and procedures to posts related to the post allowance rate methodology that provide detailed procedures for (a) collecting and summarizing living pattern questionnaires in eAllowances, and (b) collecting prices that reflect the requirements outlined in the Department of State Standardized Regulations on the retail price schedule Parts 3 and 4.
For cases in which independent cost-of-living indexes are not available to establish post allowance rates, OIG recommends that the Bureau of Administration revise and distribute updated internal procedures for calculating post allowances to include detailed instructions to (a) verify post living pattern questionnaire summary information in eAllowances with hard copies provided by post, and (b) remove inappropriate or unreasonable prices from the retail price schedule in a consistent manner across all subcategories of goods, including the use of independent data when available.
For cases in which independent cost-of-living indexes are not available to establish post allowance rates, OIG recommends that the Bureau of Administration conduct and formally document an analysis to determine how to make the Washington, DC, prices used in the post allowance rate calculations reflective of the consumption patterns of the average salary level for a post employee stationed in a foreign area so that data are comparable between Washington, DC, and the overseas post. The Bureau of Administration should implement changes as necessary as a result of its analysis.
OIG recommends the Bureau of Administration revise the Department of State Standardized Regulations for changes in the post allowance methodology as a result of implementing recommendations from this report.
OIG recommends that the Bureau of Administration develop and implement standard operating procedures to specify how analysts maintain and update the base schools list.
OIG recommends that the Bureau of Administration develop and implement standard operating procedures for selecting base schools by grade for posts that do not have Department of State-assisted schools.
OIG recommends that the Bureau of Administration develop and implement standard operating procedures to maintain and update an independent list of the conclusions related to the adequacy of Department of State-assisted schools.
OIG recommends that the Bureau of Administration review and update voluntary and involuntary separate maintenance allowance rates in accordance with its internal standard operating procedures and update the rates in the Department of State Standardized Regulations accordingly.
OIG recommends that the Bureau of Administration develop and implement internal controls to ensure separate maintenance allowance rates are reviewed annually, as required.
OIG recommends that the Bureau of Administration develop and implement internal controls to ensure analysts document the results of their reviews and supervisors validate the procedures used to determine separate maintenance allowance rates.
OIG recommends that the Bureau of Administration, in coordination with the Bureau of the Comptroller and Global Financial Services, determine and report to OIG the amount saved for the first pay period after the recalculated separate maintenance allowance rates is applied [Recommendation 10], which OIG estimated would have been $1.7 million from FY 2013 through FY2015.
OIG recommends that the Bureau of the Comptroller and Global Financial Services develop and implement uniform guidance for use by overseas posts to identify education allowance payments by student to comply with Department of State Standardized Regulations. This process, at a minimum, should include setting up individual obligations by student for the education allowance and include documentation requirements. The process instructions should be disseminated to all posts and then formalized in relevant Foreign Affairs Manual or Foreign Affairs Handbook sections, accordingly.
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management determine the reason or reasons that the Contracting Officer failed to implement sufficient contractor oversight and assess whether disciplinary actions and revisions to the delegation structure or oversight roles need to be implemented for the eAllowances task order (SAQMMA17A0001).
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management, in coordination with the Bureau of Administration, Deputy Assistant Secretary for Operations, Office of Allowances, modify the quality assurance surveillance plan for the eAllowances task order (SAQMMA17A0001) to include a methodology to measure and document contractor performance in accordance with the Federal Acquisition Regulation and Department of State policies.