International Finance
Treasury Has Reduced the Number of Attaches Overseas Gao ID: GAO-05-1010 September 23, 2005The number of financial attaches that the Department of the Treasury (Treasury) deploys overseas dropped from approximately 30 in 1981 to 7 at the beginning of fiscal year 2005. Treasury has traditionally used financial attaches to monitor and gather information on international economic and financial developments to help shape U.S. international economic policy and to promote U.S. national interests. These attaches are part of the U.S. mission overseas and are typically stationed in U.S. embassies in key countries. Since at least 1981, however, the number of financial attaches placed overseas has been declining in response to changing conditions. Due to congressional interest in these financial attaches, this report describes (1) the role of financial attaches and (2) the process Treasury uses to determine attache placement. In commenting on this report, Treasury considered our report to be fair and accurate. Both Treasury and the Department of State provided technical comments, which we incorporated where appropriate.
Financial attaches represent Treasury overseas and cover economic and financial issues relevant to U.S. international economic policies and U.S. national interests, although the role and need for financial attaches have evolved. Specifically, financial attaches conduct monitoring and analysis of macroeconomic and financial issues, including those affecting the private sector. Typically, financial attaches interact with host government financial agencies such as the ministries of finance and central banks, as well as with private sector financial entities. Financial attaches typically work in conjunction with the Economic Section of the U.S. mission and usually share the information they collect with other U.S. agencies. In Afghanistan and Iraq, financial attaches are primarily involved in coordinating economic reconstruction efforts. In general, the role of attaches has evolved over time due to changing Treasury priorities, as well as factors such as technological advances in communications. To some extent, these changes have reduced the necessity for some financial attache posts overseas. Treasury has recently begun to formalize its process for determining attache placement. Previously, the placement of Treasury's attaches was accomplished through an informal process, according to Treasury officials. More recently, Treasury has taken steps to formalize its process by specifying placement criteria it will take into consideration relative to overall Treasury priorities. These criteria include whether the United States has major financial interest in a country or whether there is significant U.S. engagement in a country. However, Treasury officials stated that budget constraints have been a primary factor in determining the number of attaches in recent years. Furthermore, projected rising costs are likely to constrain the number of attaches in the future.
GAO-05-1010, International Finance: Treasury Has Reduced the Number of Attaches Overseas
This is the accessible text file for GAO report number GAO-05-1010
entitled 'International Finance: Treasury Has Reduced the Number of
Attachés Overseas' which was released on September 23, 2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Requesters:
September 2005:
International Finance:
Treasury Has Reduced the Number of Attachés Overseas:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-1010]:
GAO Highlights:
Highlights of GAO-05-1010, a report to congressional requesters:
Why GAO Did This Study:
The number of financial attachés that the Department of the Treasury
(Treasury) deploys overseas dropped from approximately 30 in 1981 to 7
at the beginning of fiscal year 2005. Treasury has traditionally used
financial attachés to monitor and gather information on international
economic and financial developments to help shape U.S. international
economic policy and to promote U.S. national interests. These attachés
are part of the U.S. mission overseas and are typically stationed in
U.S. embassies in key countries. Since at least 1981, however, the
number of financial attachés placed overseas has been declining in
response to changing conditions. Due to congressional interest in these
financial attachés, this report describes (1) the role of financial
attachés and (2) the process Treasury uses to determine attaché
placement.
In commenting on this report, Treasury considered our report to be fair
and accurate. Both Treasury and the Department of State provided
technical comments, which we incorporated where appropriate.
What GAO Found:
Financial attachés represent Treasury overseas and cover economic and
financial issues relevant to U.S. international economic policies and
U.S. national interests, although the role and need for financial
attachés have evolved. Specifically, financial attachés conduct
monitoring and analysis of macroeconomic and financial issues,
including those affecting the private sector. Typically, financial
attachés interact with host government financial agencies such as the
ministries of finance and central banks, as well as with private sector
financial entities. Financial attachés typically work in conjunction
with the Economic Section of the U.S. mission and usually share the
information they collect with other U.S. agencies. In Afghanistan and
Iraq, financial attachés are primarily involved in coordinating
economic reconstruction efforts. In general, the role of attachés has
evolved over time due to changing Treasury priorities, as well as
factors such as technological advances in communications. To some
extent, these changes have reduced the necessity for some financial
attaché posts overseas.
Treasury has recently begun to formalize its process for determining
attaché placement. Previously, the placement of Treasury‘s attachés was
accomplished through an informal process, according to Treasury
officials. More recently, Treasury has taken steps to formalize its
process by specifying placement criteria it will take into
consideration relative to overall Treasury priorities. These criteria
include whether the United States has major financial interest in a
country or whether there is significant U.S. engagement in a country.
However, Treasury officials stated that budget constraints have been a
primary factor in determining the number of attachés in recent years.
Furthermore, projected rising costs are likely to constrain the number
of attachés in the future.
Locations of Financial Attachés at the Beginning of Fiscal Year 2005:
[See PDF for image]
[End of figure]
What GAO Recommends:
www.gao.gov/cgi-bin/getrpt?GAO-05-1010.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Attachés Generally Provide Macroeconomic and Financial Policy
Perspectives; Role in Afghanistan and Iraq Includes Economic
Reconstruction:
Treasury Has Begun to Formalize the Process for Determining Attaché
Posts, but Budget Constraints Limit the Number of Attachés:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comparison of Financial Attachés and Technical Advisors:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Key Differences between Treasury's Financial Attaché vs.
Technical Advisor:
Figures:
Figure 1: Estimated Total International Affairs Staff vs. Financial
Attachés (1981-2005):
Figure 2: Locations of Financial Attachés in Fiscal Year 2005:
Figure 3: Estimated Expense Categories for Cost Per Financial Attaché
for FY 2005:
Figure 4: Organizational Chart of Treasury Offices and the Office of
International Affairs:
Figure 5: Treasury's Process and Criteria to Establish Financial
Attaché Posts:
Abbreviations:
CSCS: Capital Security Cost-Sharing:
DAS: Deputy Assistant Secretary:
ESF: Exchange Stabilization Fund:
G-8: Group of Eight:
IA: (Treasury's) Office of International Affairs:
ICASS: International Cooperative Administrative Support Services:
IFI: International Financial Institution:
IMF: International Monetary Fund:
OECD: Organization for Economic Cooperation and Development:
Letter September 23, 2005:
The Honorable Michael G. Oxley:
Chairman:
The Honorable Barney Frank:
Ranking Minority Member:
Committee on Financial Services:
House of Representatives:
The Honorable Deborah Pryce:
Chairman:
The Honorable Carolyn B. Maloney:
Ranking Minority Member:
Subcommittee on Domestic and International Monetary Policy, Trade, and
Technology:
Committee on Financial Services:
House of Representatives:
The number of financial attachés that the Department of the Treasury
(Treasury) has posted overseas dropped from approximately 30 in 1981 to
7 at the beginning of fiscal year 2005. Treasury has traditionally
deployed financial attachés overseas to monitor and gather information
on international economic and financial developments to help shape U.S.
international economic policy and to promote U.S. national interests.
These attachés are part of the U.S. mission overseas and are typically
stationed in U.S. embassies in key countries. Since at least 1981,
however, the number of financial attachés placed overseas has been
declining in response to Treasury's changing needs and budgetary
constraints.
In response to congressional interest in these financial attachés, this
report describes (1) the role of financial attachés and (2) the process
Treasury uses to determine attaché placement.
To explain the role of financial attachés and document the placement
process for financial attachés, we interviewed officials from Treasury
and the Department of State (State) and reviewed documents including
key memorandums, budget data, and attaché position descriptions
provided by Treasury. At Treasury, we interviewed officials from the
Office of International Affairs (IA), which houses financial attachés,
as well as all five current and three recently returned financial
attachés, for a total of eight officials in the financial attaché role.
We also contacted State Economic Section officers in five selected
locations on how financial attachés function in the context of U.S.
missions. Lastly, we met with officials from the Securities Industry
Association, an organization that represents various private sector
financial companies. Due to time constraints, we were not able to
determine the reliability of the budget and other data provided by
Treasury. We are providing these data for informational purposes and do
not base any conclusions on them. For a more detailed explanation of
our scope and methodology, see appendix I. We conducted our work in
Washington, D.C., from June 2005 to August 2005 in accordance with
generally accepted government auditing standards.
Results in Brief:
Financial attachés represent Treasury overseas and monitor
macroeconomic and financial policy issues that are relevant to U.S.
international economic policies and U.S. national interests, although
the roles and need for financial attachés have evolved. Specifically,
financial attachés conduct macroeconomic monitoring and analysis, such
as trends in host country fiscal policies and the stability of its
financial system. In addition, financial attachés monitor and try to
influence financial issues affecting the private sector, such as
banking, taxation, and corporate governance. Typically, financial
attachés serve as interlocutors with host government financial agencies
such as ministries of finance and central banks, as well as with
private sector financial entities. Financial attachés usually work in
conjunction with the Economic Section of the U.S. mission, sharing
information and complementing each other's area of focus. For example,
since financial attachés tend to have specialized knowledge of
financial issues, they focus on the financial sector, while State
officials in the Economic Section focus more broadly on other sectors
of the economy. Financial attachés share the information they collect
with State and other U.S. agencies through cables as well as through
interagency embassy meetings. In Afghanistan and Iraq, financial
attachés are primarily involved in coordinating economic reconstruction
efforts such as building the capacity of the central bank and
negotiating host country debt issues with international donors. In
general, the roles of attachés have evolved over time due to changing
Treasury priorities, as well as other factors such as technological
advances in communications. To some extent, these changes have reduced
the necessity of maintaining the same number of financial attaché posts
overseas that Treasury had in the early 1980's.
Treasury has recently begun to formalize its process for determining
attaché placement. Previously, the placement of Treasury's attachés was
accomplished through an informal process, according to Treasury
officials. More recently, as it works with a constrained budget,
Treasury has taken steps to formalize its process by specifying
placement criteria, such as whether the United States has major
financial interest in a country or whether there is significant U.S.
engagement in a country. However, Treasury officials stated that budget
constraints have been a primary factor in determining the number of
attachés in recent years. For example, although Russia is both an
important source of energy for the United States and a Group of Eight
(G-8) partner, Treasury plans to close the Moscow financial attaché
post by the end of fiscal year 2005, primarily because of budget
constraints and also because this post is of a lower priority compared
with some other regions. Furthermore, according to Treasury officials,
projected rising costs of attaché posts and overall resource
constraints in IA may further constrain the number of attachés in the
future.
Background:
To help shape U.S. international economic policy and promote U.S.
national interests, Treasury has placed financial attachés overseas.
Financial attachés are part of IA and as such, support its mission to
serve the interests of the American people by improving financial
stability and security in emerging and world markets, enhancing the
functioning of the International Financial Institutions (IFI), and
promoting an open and transparent international trade and investment
regime.
According to Treasury officials, the number of financial attachés
placed overseas has been declining since at least 1981, as shown in
figure 1. This trend mirrors a decline in overall IA staffing levels.
Treasury had used the Exchange Stabilization Fund (ESF)[Footnote 1] for
expenses related to financial attachés until 1978, when Congress passed
legislation disallowing use of this fund for administrative purposes,
including payment of salaries.[Footnote 2] Since then, Treasury has
generally funded attachés out of IA's overall budget.
Figure 1: Estimated Total International Affairs Staff vs. Financial
Attachés (1981-2005):
[See PDF for image]
[A] Although precise data on attachés were not available prior to 1985,
Treasury estimated that it had more than 30 attachés in 1981.
[End of figure]
At the beginning of fiscal year 2005, Treasury had seven[Footnote 3]
financial attachés dispersed across South America, Europe, the Middle
East, and Asia (see fig. 2). According to Treasury, maintaining
attachés overseas cost 12 percent (or $3.1 million) of IA's total
budget of approximately $26 million for fiscal year 2005, although the
financial attachés represented 4 percent[Footnote 4] of IA's total
staff of 175. Treasury has assumed the full cost for five financial
attachés, while State has funded costs, excluding salary and benefits,
for financial attachés in Baghdad and Kabul. However, Treasury expects
to fund the full cost of the attaché in Baghdad in fiscal year 2006.
Figure 2: Locations of Financial Attachés in Fiscal Year 2005A:
[See PDF for image]
[A] Treasury officials said they plan to establish two new posts in FY
2006.
[End of figure]
According to Treasury estimates, the average annual cost of maintaining
an attaché abroad is over $520,000 in fiscal year 2005.[Footnote 5]
About 70 percent of the annual cost per attaché is comprised of
nonsalary expenses such as housing and support staff, as well as shared
administrative charges and capital security cost charges assessed by
State (see fig. 3). Treasury expects the cost to increase by about
$100,000 per year in part because of State's Capital Security Cost-
Sharing (CSCS) program, which is discussed in more detail
below.[Footnote 6] As a result of the increase in costs, Treasury
officials estimated that by fiscal year 2008, the annual cost per
attaché would exceed $800,000; and the cost of the current attaché
structure would increase from $3.1 million to $5.2 million.
Treasury's financial attachés are part of the U.S. mission overseas and
are typically housed in the embassy. As such, Treasury incurs
administrative and other costs, such as sharing the cost for embassy
construction, to maintain overseas posts for financial attachés.
Administrative expenses are paid through the International Cooperative
Administrative Support Services (ICASS) cost-distribution system,
operated primarily by State, which divides cost among different U.S.
government agencies and sub-agencies with staff assigned to various
posts.[Footnote 7] In addition to ICASS, agencies are expected to help
finance the cost of the embassy construction program through the CSCS,
which is expected to ensure that agencies "rightsize" (i.e., assign
only the number of staff needed to accomplish their overseas mission).
This program would require agencies to share construction costs based
on the per capita proportion of total overseas staff and the type of
space (controlled access, noncontrolled access, or nonoffice) they
need. As a result, the fiscal year 2007 construction costs borne by non-
State agencies, such as Treasury, are expected to be about three and a
half times higher than they were in fiscal year 2005.
Figure 3: Estimated Expense Categories for Cost Per Financial Attaché
for FY 2005:
[See PDF for image]
[A] International Cooperative Administrative Support Services.
[B] Other expenses consist of entitlements such as moving costs, and
educational and travel allowances (5 percent), Capital Security Cost-
Sharing (5 percent), allowances including nonregular compensation such
as danger pay (3 percent), travel for field and regional work purposes
(3 percent), office support including utilities and subscription
charges (3 percent), security charges, including payment for local
guard support (1 percent), and other periodic expenses such as storage
(1 percent). Percentages do not add up to 100 due to rounding.
[End of figure]
Attachés Generally Provide Macroeconomic and Financial Policy
Perspectives; Role in Afghanistan and Iraq Includes Economic
Reconstruction:
Macroeconomic and financial policy monitoring and analysis are key
functions of financial attachés. Typically, attachés serve as
interlocutors with host government financial agencies and private
sector financial entities. They also work in conjunction with the
Economic Section of the U.S. mission, which complements the role and
expertise of financial attachés. In Afghanistan and Iraq, financial
attachés are primarily involved in coordinating economic reconstruction
efforts. In general, the roles and need for attachés have evolved over
time due to changing Treasury priorities, as well as other factors such
as technological advances in communications.
Attachés Provide a Macroeconomic and Financial Policy Perspective and
Supplement Staffing at U.S. Missions:
Financial attachés provide a macroeconomic and financial policy
perspective to officials at Treasury headquarters as well as to U.S.
mission officials. In terms of macroeconomic policy, financial attachés
cover important fiscal and monetary trends and developments of the host
country or region. Financial attachés monitor and analyze financial
issues, including those affecting the private sector, such as banking,
taxation, and corporate governance. Attachés may also work on debt
issues relating to IFIs such as the International Monetary Fund (IMF),
the World Bank, and other multilateral donor organizations. Attachés
work closely with officials primarily from host government financial
and regulatory institutions such as the ministries of finance and
central banks, representatives of IFIs, and private sector financial
institutions such as investment and commercial banks. These government
and private sector contacts allow attachés to obtain information
regarding changes and trends in the economic and financial sectors.
According to one Treasury official, attachés are especially important
in countries in which economic and financial systems as well as markets
are less transparent and hence difficult to understand without close
contact with relevant officials and private sector groups in the
country.
The attachés use information gleaned from their contacts to support
Treasury objectives such as promoting U.S. economic policy and national
interests by positively influencing the economic policy and regulatory
decisions of the host country, advocating the interests of U.S.
financial services companies, and providing intelligence to help shape
U.S. international economic policy. The financial attachés with whom we
spoke illustrated the impact of their efforts with the following
examples:
* In one country undergoing financial crisis, the financial attaché
reported assisting the finance ministry officials in taking actions and
developing policies necessary to generate donor support.
* An attaché in Europe noted his role in facilitating U.S. and European
Union regulatory dialogue by staffing meetings for these discussions,
preparing briefing papers, and providing input on these developments to
Treasury and other U.S. regulatory agency officials.
* An attaché, who had been working on improving financial regulatory
transparency of the host country government, stated that in conjunction
with U.S. embassy officials, he convinced the host country to
incorporate changes in a new law that otherwise would have increased
the legal risk for U.S. companies.
IA expects attachés to function with considerable independence within
the policy goals of Treasury, in particular, and the U.S. government in
general. However, attachés reported receiving varying degrees of
operational direction from IA. For example, in most cases, the attachés
reported close operational guidance from IA, while in another case, IA
had little involvement in directing the efforts of the attaché. One of
the attachés with whom we spoke said that IA provided constructive
advice periodically, including guidance on specific technical issues
that were new to the attaché.
In addition to their intelligence gathering role, the attachés also
provide logistical support for visits by Treasury officials, U.S.
government financial regulators, and others, including putting these
officials in contact with relevant host country officials. Also, since
financial attachés are part of the U.S. mission in the host country,
they brief the ambassador on economic and financial issues and may
provide specific help as requested by the ambassador.
Treasury's financial attachés usually work closely and are colocated
with officials from the Economic Section of the U.S. mission. Despite
this proximity, the role of financial attachés can vary significantly
from that of State's economic officers, in part because of differences
in skills and qualifications, as well as the differing objectives of
their agencies. For example, according to both Treasury and State
officials, financial attachés have more specialized knowledge of
financial issues. In addition, financial attachés tend to be midcareer
or senior officials with several years of experience in government or
the private sector, whereas economic officers usually start at an entry
level and work their way up to midcareer and senior levels. However,
according to Treasury and State officials, irrespective of rank and
experience, many economic officers do not have the level of expertise
on financial issues that financial attachés have because economic
officers tend to have a broader focus. Furthermore, both Treasury and
State officials said that, in large part due to their institutional
affiliation with Treasury, financial attachés tend to be well connected
to officials in host government financial and regulatory institutions
as well as IFIs and that this access would be difficult for economic
officers to replicate.
The Treasury and State officials whom we contacted reported little or
no overlap in activities of the financial attaché with the economic
officers in U.S. missions. These officials reported that financial
attachés focus on financial issues, while economic officers often cover
other sectors of the economy. Some State officials in the field who
currently work with financial attachés noted that without those
attachés, the Economic Section can do some of the reporting on
financial issues, but it will not be at the level of technical details
that financial attachés can provide. Most attachés noted that their
work complements that of the Economic Section. In Afghanistan and Iraq,
where Treasury has recently placed financial attachés, the attachés
noted that there is a good working relationship with the Economic
Section, and that division of labor is necessitated by the large number
of issues confronting the mission. Additionally, according to State, in
U.S. missions where State officials assume the deputy attaché role,
information sharing occurs regularly between State and Treasury.
However, another attaché noted transition difficulties with the
Economic Section when the financial attaché post was established.
Attachés Assist with Reconstruction Efforts in Afghanistan and Iraq:
Treasury's financial attachés in Afghanistan and Iraq have undertaken
roles that are different from their counterparts in areas without
conflict. Since these two countries do not have well-functioning
financial systems, financial attachés in these countries have been
involved in coordinating and guiding technical assistance provided to
the host countries on financial and economic issues through U.S.
government entities such as Treasury's Office of Technical Assistance
and the U.S. Agency for International Development. (See app. II for a
description of the differences between financial attachés and the
Office of Technical Assistance's technical advisors.)
Treasury's access to multilateral agencies such as the World Bank and
IMF, as well as bilateral donors, has enabled financial attachés to
coordinate the efforts of international donors and creditors in Iraq
and Afghanistan. For example, former Treasury attachés in Afghanistan
stated that they were closely involved in debt reduction negotiations
between the Afghan and Russian governments. The Treasury attaché in
Iraq has been involved in discussions on Iraqi debt and reconstruction
with creditors such as the IMF and the Paris Club.[Footnote 8]
Furthermore, the two financial attachés in Afghanistan, who were posted
there at different times, were involved in designing donors' economic
assistance strategy as well as the Afghan government's national
development strategy. One of the attachés stated that he provided
advice on topics such as bank supervision and bank reconstruction,
private sector growth, tax administration and policy, and government
debt issuance.
The Treasury attaché in Baghdad heads the Iraq Reconstruction
Management Office for Fiscal and Financial Affairs, which is engaged in
providing technical assistance to Iraqi financial and regulatory
institutions, including the Ministry of Finance and central bank.
According to the attaché, this office is involved in implementing
initiatives such as the national payments system that was designed by
the now defunct Coalition Provisional Authority in Iraq. The new
payments system, reported the attaché, is intended to increase the
efficiency and effectiveness of the Iraqi government as well as the
private sector by enabling electronic payments instead of the current
cash-based payment system, which was both a logistical challenge and a
security risk. Additionally, as the director of fiscal and financial
reconstruction, the attaché reported managing the efforts of experts
(hired on short-term contracts by State) in helping the Iraqi
government with budget formulation and execution. This office is also
coordinating with the Iraqi Ministry of Finance to administer and close
out contracts issued by the Coalition Provisional Authority, as well as
transfer assets--such as schools constructed by the U.S. government--to
the Iraqi government.
The Roles and the Need for Financial Attachés Have Evolved:
The roles and the need for financial attachés have evolved over time
due to changing Treasury priorities and budgetary considerations, as
well as factors such as improved communications technology, wider range
of information sources, and increased frequency of meetings among
economic and finance officials from industrialized countries. Senior
Treasury officials stated that while they do not have a sufficient
number of financial attachés to adequately cover key financial markets,
Treasury does not need as many financial attachés as it had in the
early 1980's, due in part to these technological advancements (see fig.
1).
Improvements in communications technology have affected the type of
work done by attachés, and, according to attachés, Treasury expects
them to provide more nuanced information or detect subtle economic and
financial trends that may not be captured by other information sources.
Issues such as countering terrorist financing and money-laundering
efforts are now of higher priority to Treasury and are part of the
portfolio of issues for current financial attachés.[Footnote 9]
Furthermore, while budgetary considerations have contributed to fewer
financial attachés in the field, they are expected to cover broader
regions. For example, the attaché in Buenos Aires currently covers
countries throughout South America. The attaché in Frankfurt covers the
various member countries of the European Union, in addition to German
financial and regulatory entities.
At the same time that financial attaché roles have evolved, changing
economic conditions of countries have also altered the need for
attachés in certain posts. For example, one State official in a U.S.
mission stated that the need for an attaché in that country has
decreased as the country has achieved greater economic stability over
time. In addition, according to one Treasury official, forums such as
meetings of the Group of Seven industrialized nations provide officials
in financial and regulatory institutions opportunities to meet more
often and hence may decrease the reliance on financial attachés for
information exchange. However, Treasury officials also said that while
the need for financial attachés in industrialized nations may have
declined, the need for attachés in developing countries seems to have
increased. Treasury officials emphasized the need for attachés to
engage with emerging markets such as China, India, and Brazil and to
combat terrorist financing in the Middle East and elsewhere, describing
these as major Treasury priorities and U.S. policy imperatives.
Treasury Has Begun to Formalize the Process for Determining Attaché
Posts, but Budget Constraints Limit the Number of Attachés:
Until recently, Treasury determined attaché placement through an
informal process, according to Treasury officials. More recently, as it
works with a constrained budget, Treasury has taken steps to formalize
its process by specifying placement criteria. However, Treasury
officials stated that budgetary considerations have been the primary
factor in determining the number of attachés in recent years, and
projected rising costs are likely to constrain the number of attachés
in the future.
In the Past, Treasury Used Informal Process to Determine Attaché Posts:
The determination of attaché posts has been rather informal, according
to Treasury officials, as Treasury has tried to respond to changing
needs. These officials went on to say that, although less structured,
this process still allowed Treasury to place attachés in posts where it
had key priorities. For example, when the Argentine financial crisis
occurred in late 2001, the financial attaché in Mexico City was moved
to Buenos Aires in response to the emergency and changing priorities in
Latin America. Treasury officials stated that IA management conducts
much of the discussion surrounding attaché placement through informal e-
mails and conversations. According to IA officials, they prefer to use
an informal method because the process of opening or closing of attaché
posts is sensitive for several reasons. First, the presence of an
attaché in a country is considered indicative of the country's relative
importance to the United States and thus holds symbolic value. Second,
financial attaché positions are highly coveted within Treasury, and
officials told us that they use the possibility of attaining a
financial attaché position as a recruiting tool. Furthermore, external
stakeholders may express a particular interest in maintaining a certain
financial attaché post. For example, the U.S. ambassador to the
Organization for Economic Cooperation and Development (OECD) stated
that maintaining a financial attaché position at the OECD, which
Treasury closed in April 2005, supports a variety of U.S. interests.
During the most recent cycle of determining attaché placement, Treasury
officials reported considering the views of both external and internal
stakeholders. The former included U.S. mission officials as well as the
private sector, and the latter included office directors and Deputy
Assistant Secretaries (DAS). The private sector officials with whom we
spoke, for example, made it known through various meetings with
Treasury officials that they wanted a financial services expert on the
ground in key financial market countries. These officials also support
legislation to allow more flexible funding of financial
attachés.[Footnote 10] In terms of internal stakeholders, figure 4
shows the organizational chart for IA and its location with respect to
other Treasury offices. IA officials said that office directors made
their preferences known to their respective DAS by way of narrowly
distributed internal memorandums, rather than through a formal report
or even a department-wide memorandum. Each DAS, in turn, sent his or
her preferences via memorandum to the Under Secretary for International
Affairs and to the Secretary. The Secretary of the Treasury makes the
final decision on placing attachés.
Figure 4: Organizational Chart of Treasury Offices and the Office of
International Affairs:
[See PDF for image]
[End of figure]
Treasury Has Taken Steps to Formalize Some Aspects of the Process:
Treasury has recently begun to take steps to formalize certain aspects
of the process to determine attaché placement. As of June 2005,
Treasury decided to formally review the necessity of financial attaché
posts either every 2 years or upon the conclusion of the attaché's term
of service. Treasury officials reported that they have established
criteria for determining priority posts for attaché placement (see fig.
5). These criteria include the following:
* Whether the United States has major financial interest in the
country, including regulatory issues and emerging markets;
* Whether there is significant U.S. military or political engagement
such as in Iraq and Afghanistan;
* Whether the country is difficult to cover from Washington, D.C., due
to time differences or language barriers; and:
* Whether Treasury has a congressional mandate to place a financial
attaché in a certain post.
These criteria, however, are not given equal weight, according to
Treasury officials. For example, officials noted that Treasury would
consider major U.S. financial interest in a country of more importance
than whether a country is more difficult to cover from Washington, D.C.
Furthermore, U.S. military and political engagement geared toward
reconstruction efforts, as is the case in Afghanistan, tend to be
shorter term. The relative importance of that criterion, therefore, may
be temporary and eventually give way to other criteria. Irrespective of
the process, however, Treasury officials noted that they continue to
consider the IA's overall budgetary resources and other IA priorities
before determining priority posts for financial attaché placement. For
example, although Russia is both an important source of energy for the
United States and is a G-8 partner, Treasury plans to close the Moscow
financial attaché post by the end of fiscal year 2005 because of budget
constraints and also because this post is of lower priority compared
with some other regions.
Figure 5: Treasury's Process and Criteria to Establish Financial
Attaché Posts:
[See PDF for image]
[End of figure]
To further formalize the process, IA defined the term of service for a
financial attaché as per a memorandum signed by the Secretary of the
Treasury in June 2005. According to this memorandum, an attaché can
normally expect to serve at a post for a period of 2 years. In the
past, some financial attachés have stayed at a post for 5 years or
more. Treasury officials noted that limiting the term of attachés would
allow IA to provide more employees the professional development
opportunity afforded by the attaché position. Furthermore, rotating
staff more often through financial attaché positions could be used as
an incentive for employee retention.
Rising Cost of Overseas Presence Constrain the Number of Financial
Attaché Posts:
Treasury's overall IA budget has implications for the number of
financial attaché posts it can maintain overseas. Specifically, a
relatively constant IA budget, coupled with the increasing cost of
maintaining attachés overseas, has forced Treasury to make trade-offs
between the number of financial attachés and the number of IA staff at
headquarters, according to Treasury officials. In addition, these
officials said that the demands on IA resources have gone up
considerably, while the overall staffing level of this office has been
declining since at least 1981 (as shown in fig. 1). Treasury officials
cited a study, conducted by a private company in 2002, that recommended
a minimum IA staffing level of 220. Currently, however, this office has
a staffing level of 175. Treasury officials noted that understaffing at
headquarters has limited IA's flexibility in reassigning staff to
important areas and adopting a strategic approach. For example, there
are three desk officers for Africa, and on average each desk officer
covers 10 to 20 countries. IA officials noted that it is difficult to
cover so many countries effectively. Furthermore, one financial attaché
also noted that IA may not be effectively using the information that
attachés provide.
Treasury officials said that they expect the cost of maintaining
overseas posts to increase due to cost-sharing programs such as ICASS
and CSCS. Hence, one of the trade-offs Treasury officials are
considering is to reduce the number of attachés to two by fiscal year
2008. Although they are considering reducing the overall number of
attaché posts, Treasury officials are planning to open new posts and
close some existing ones in response to changing priorities. However,
Treasury officials noted that closing some existing posts would
significantly reduce their ability to carry out policy mandates in
those regions. In at least one such proposed closure, Treasury expects
both the host government and a U.S. private sector industry association
to lobby strongly against the closure of the attaché office. State
officials as well representatives from the industry association
confirmed this response.
Reducing the number of attaché positions, however, would allow Treasury
to send staff from Washington overseas on temporary duty more often,
according to Treasury officials, as the cost of sending an employee on
temporary duty every 2 months would be less than half the cost of
maintaining an attaché position. At the same time, Treasury officials
noted that relying primarily on short-term travel rather than
maintaining an attaché position overseas may not allow staff to develop
the necessary contact and expertise in the given region. According to
the OECD ambassador, a group of senior Treasury officials could travel
for ministerial meetings, but the U.S. mission to the OECD needs a
financial attaché weeks or months in advance to undertake the
preparatory work leading up to those meetings. Two attachés with whom
we spoke also expressed concerns about Treasury's ability to fund more
travel. Treasury officials in Washington noted that IA's overall travel
budget in fiscal year 2005 is capped internally at $1.2 million, and IA
has noted other program priorities for which funds saved from attaché
post closures would be used. These other priorities include more
engagement with key emerging markets in Asia and focusing on economic
development initiatives in the Middle East, by hiring economists at
headquarters that focus on these regions and issues. Given these other
IA priorities, according to Treasury officials, travel fund limits may
further restrict the attaché functions that could be undertaken by
staff in Washington.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of the Treasury
and State. Treasury considered our report to be fair and accurate. Both
Treasury and State provided technical comments, which we have
incorporated where appropriate.
We are sending copies of this report to the Secretaries of the Treasury
and State, and interested congressional committees. We will make copies
available to other interested parties upon request. In addition, this
report will be available on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or [Hyperlink, yagerl@gao.gov]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix III.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
To explain the role of financial attachés, we interviewed officials at
the Department of the Treasury's (Treasury) Office of International
Affairs (IA) in Washington, D.C., as well as contacted all five current
financial attachés posted overseas. In addition, we interviewed three
former financial attachés who recently returned to Washington. We
reviewed position descriptions and other Treasury documents on
financial attachés. Treasury officials provided us with data on the
number of total IA staff from 1981 to 2005 and the number of attachés
from 1985 to 2001. Treasury was not able to provide precise figures for
attachés prior to 1985 but did give us an estimate for the number of
attachés in 1981. We did not assess the reliability of these data
because we used them as background to our researchable objectives. In
addition, since Treasury officials could not provide accurate locations
prior to fiscal year 2002, we are unable to authoritatively comment on
how changes in attaché posts have paralleled Treasury's changing
priorities or lack thereof. Furthermore, we interviewed officials from
the Department of State (State), as well as obtained information from
officials in four U.S. missions, of which three have financial
attachés, to assess the role of financial attachés within the context
of U.S. missions and understand how the State Economic Section of U.S.
missions either works with financial attachés or substitutes for them
in locations that lack a financial attaché. Due to time constraints, we
could only contact State officials in five posts, including one post
where there is not a financial attaché. As a result, we are unable to
comprehensively describe the extent to which State Economic Sections
currently fulfill the financial attaché role in U.S. missions that lack
a financial attaché.
To document the financial attaché placement process, we interviewed
officials from IA and reviewed relevant memorandums and documents. To
understand how resource requirements and budgetary considerations
affect attaché placement decisions, we reviewed various planning, cost,
and budget-related documents provided by Treasury. To assess the
reliability of the cost data, we considered the specific expense
categories for reasonableness, and compared the categories to other
sources of data when that was possible. However, we were unable to
determine fully the reliability of the cost data due to time
constraints. We are using these data to provide details into Treasury's
position about the high costs of maintaining attaches overseas. No
conclusions rely upon these data. To obtain the perspective of the
private sector on the financial attaché placement and role, we
interviewed officials from the Securities Industry Association. We also
interviewed the U.S. ambassador to the Organization for Economic
Cooperation and Development, where Treasury recently closed an attaché
post. Additionally, due to time constraints and the scope of this
engagement, we did not undertake any travel to relevant financial
attaché posts. We conducted our work in Washington, D.C., from June
2005 to August 2005 in accordance with generally accepted government
auditing standards.
[End of section]
Appendix II: Comparison of Financial Attachés and Technical Advisors:
While some financial attachés have served in the capacity of technical
advisors with Treasury's Office of Technical Assistance, and other
attachés, specifically those in Afghanistan and Iraq, see their role as
guiding and coordinating the efforts of technical advisors, the role of
a financial attaché differs in some key respects from a technical
advisor, as summarized in table 1 below:
Table 1: Key Differences between Treasury's Financial Attaché vs.
Technical Advisor:
Financial attaché: Primarily engaged in broad policy functions relating
to economic and financial issues, such as influencing host country
policies and regulations, as well as helping shape U.S. economic
policy; relies on networks of contacts within key host country
institutions;
Technical advisor: Advises other governments on specific issues such as
pension reforms, money-laundering, etc.
Financial attaché: Advocates U.S. interests and policies;
Technical advisor: Does not engage in advocacy of U.S. interests.
Financial attaché: Tends to work closely and is colocated with U.S.
embassy officials, especially in the Economic Section;
Technical advisor: Tends to be located in host country institutions,
such as the Ministry of Finance, administering technical advice.
Financial attaché: Primarily stationed in areas where the United States
has significant economic and financial interest;
Technical advisor: Not necessarily in locations where the United States
has the greatest financial interests.
Financial attaché: In the past, some financial attachés have stayed at
a post for 5 years or more (new policy would make a typical posting for
a 2-year term);
Technical advisor: Duration of assignments range from months to several
years.
Source: Based on information provided by Treasury officials.
[End of table]
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4347:
Staff Acknowledgments:
In addition, Anthony Moran, Assistant Director, as well as Judith
Williams, Mona Sehgal, and Ernie Jackson made key contributions to this
report.
(320354):
FOOTNOTES
[1] The ESF consists of three types of assets: U.S. dollars, foreign
currencies, and Special Drawing Rights. Currently, according to
Treasury, the ESF has a total of approximately $43 billion in these
three assets. The ESF can be used to purchase or sell foreign
currencies, to hold U.S. foreign exchange and Special Drawing Rights
assets, and to provide financing to foreign governments. All operations
of the ESF require the explicit authorization of the Secretary of the
Treasury. The legal basis of the ESF is the Gold Reserve Act of 1934.
[2] Public Law 95-612 placed ESF administrative expenses on budget and
required that funds for such expenses be appropriated. The enactment of
this law was preceded by a 1977 GAO audit, which discussed Treasury's
use of ESF funds for administrative expenses. See GAO, Use of Exchange
Stabilization Fund Resources: Arrangement with Treasury Provides Access
to Information, ID-77-42 (Washington, D.C.: September 28, 1977).
[3] Currently, Treasury has five financial attachés overseas, as it
recalled the attaché at the Organization for Economic Cooperation and
Development in Paris in April 2005, and the attaché in Kabul returned
in July 2005 after completing a short-term rotation.
[4] This includes two attaché positions funded by State in Baghdad and
Afghanistan.
[5] The 2005 average estimated costs per established attaché position
vary considerably by location, ranging from about $330,000 in Buenos
Aires to more than $700,000 in Tokyo.
[6] State's Bureau of Overseas Buildings Operations is engaged in
construction and rehabilitation of U.S. embassies and consular
compounds abroad to make them more secure. To increase the resources
required for this effort, the Bureau has initiated the CSCS, which it
expects to cut the projected time to complete the funding for 150 new
embassy and consular compounds from 26 to 14 years. (Source:
http://www.state.gov/m/p/results/49532.htm#rightsized). For more
information on CSCS see GAO, Embassy Construction: Proposed Cost-
Sharing Program Could Speed Construction and Reduce Staff Levels, but
Some Agencies Have Concerns, GAO-05-32 (Washington D.C.: November 14,
2004).
[7] For more information on effectiveness of ICASS in delivering
services at U.S. overseas missions, see GAO, Embassy Management:
Actions Are Needed to Increase Efficiency and Improve Delivery of
Administrative Support Services, GAO-04-511 (Washington D.C.: September
7, 2004).
[8] The Paris Club is an informal group of official creditors whose
role is to find solutions to the payment difficulties experienced by
debtor countries. Paris Club creditors agree to provide a country with
debt relief through a postponement and, in the case of concessional
rescheduling, a reduction in debt service obligations.
[9] Treasury has recently drafted a plan for inclusion in its fiscal
year 2007 budget proposal for having attachés jointly funded by IA and
the Office of Terrorism and Financial Intelligence. According to
Treasury, this would allow for not only a greater number of financial
attachés, but would also allow a greater focus on combating terrorist
financing.
[10] See H.R. 3058, 109TH Cong., 1ST Sess., which would allow the
Secretary of the Treasury to transfer funds from within Treasury
accounts for any costs necessary to pay for both career and non-career
Senior Executive Service positions and support staff in locations of
economic strategic interests throughout the world.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
