Appendix I

U.S. Embassy in Panama

We found that the U.S. Embassy in Panama City, Panama, has had weaknesses in its management controls for a number of years. Management problems have affected personal property, financial operations, and contracting and procurement. Deficiencies in staffing and training, real property management, and security for unclassified automated information systems have also affected the efficiency of operations. Some of these problems and deficiencies were not accurately reported through internal control review mechanisms established by the Department of State. As a result, senior management attention has not sufficiently focused on recurring management deficiencies that unnecessarily expose U.S. property and funds to fraud, waste, and abuse.

Some of the difficulties in establishing management controls in previous years may be attributed to disruptions in post activities resulting from the U.S. invasion of Panama in 1989. Inadequate performance of certain U.S. officers who had administrative and management responsibilities at the Embassy in the late 1980s to early 1990s also were identified by current Embassy officials as a factor. Although progress has been made in improving management of post resources in recent years, current Embassy officials agree that corrective actions are still needed in a number of areas and they plan to institute procedures to address the problems and issues we identified.

Embassy Operations

The U.S. Embassy in Panama implements U.S. foreign policy objectives,
provides consular services, and supports other U.S. agency programs in
the country. Senior officers having management oversight and
administrative responsibilities include the Ambassador, the deputy chief of
mission, the administrative officer, the general services officer, the budget
and management officer, and the personnel officer. The budget and
management section is responsible for financial operations, including the
internal controls over cashier operations for the class B cashier1 and
subcashier. The general services office manages personal and real
property and is responsible for procurement activities.

The fiscal year 1992 budget for salaries, expenses, and administrative support costs was about $4 million. During 1992, the Embassy employed 120 U.S. and foreign service national personnel and had personal services contracts with over 50 foreign nationals to execute a variety of support and administrative functions. The value of the personal property inventory totaled about $2.8 million in fiscal year 1992. The amount of supplies,

'The class B cashier is personally responsible for the cash advanced from State.

U.S. Embassy in Panama

equipment, and services procured during the first three quarters of fiscal year 1992 totaled about $2 million.

Personal Property

Management and controls of personal property are weak in several areas.
For example, the general services office did not formally conduct quarterly
spot checks and verifications of the accuracy of personal property
records, which is one of State's internal control standards. State also
requires that embassies certify that (1) periodic utilization surveys of
embassy property are conducted to ensure appropriate use of property
and to identify unneeded property and (2) adequate separation of duties
exists in property management. However, the general services office had
not conducted such surveys or maintained an appropriate separation of
duties among personal property management employees. Post officials
said that problems in maintaining a separation of duties was due to
staffing limitations. The same employee was responsible for storing and
issuing expendable property2 and maintaining property records. In
addition, the nonexpendable3 inventory clerk was responsible for
transferring receiving information to inventory records, maintaining the
inventory records, assisting in conducting inventories, preparing property
disposal and transfer documents, and removing items from the inventory
system.

The Embassy had also not fully implemented State's automated nonexpendable property system, which was established several years ago to improve oversight and control. According to the acting general services officer, the post has tried unsuccessfully since 1987 to implement the system, and as a result, the general services office maintained a manual inventory system. Implementation of the system was delayed by the political situation in the country in 1989 and the post's inability to fund the hardware required to link the warehouse and the computer system. At the time of our review, the general services office was completing data entry of all personal property into the automated system. According to the acting general services officer, the Embassy received an extension for reporting the results of the 1992 inventory until early 1993, when the automated system was fully implemented.

2Expendable personal property is property that, put in use, is consumed, loses its identity, or becomes an integral part of another item of property. Examples are office supplies and automobile tires.

"Nonexpendable property is property that (1) is complete in itself, (2) does not lose its identity or become part of another item when used, and (3) is of a durable nature and has an estimated useful life over 2 years. Examples include furniture, equipment, and machinery.

U.S. Embassy in Panama

Missing Property

Other property control issues included (1) written operating procedures for receipt and inspection or transfer of personal property, as prescribed in the Foreign Affairs Manual, had not been prepared; (2) inventories of expendable medical supplies were conducted by the nurse rather than by the general services officer;5 and (3) nonexpendable medical equipment was not accounted for in the nonexpendable property system. In response to the issues identified in our review, the acting general services officer agreed that problems have existed in many areas of property records and control. He believes that implementation of State's automated nonexpendable inventory property system will help substantially. Post officials said that since our visit, one formal periodic utilization survey has been conducted, indicating that all property was used efficiently and effectively. Written instructions that outline proper procedures for receipt and inspection of property have also been provided to warehouse personnel, duties of property management personnel have been reorganized, and a new foreign service national staff member has been hired to assist in property management at the warehouse. Post officials also said that they planned to record medical property in the inventory system by August 1993.

State documents indicate that the Department has conducted two reviews of the post's property systems. A 1987 review by the Property Management Branch identified serious problems, including a failure of the post to conduct inventories and submission of unacceptable inventory certifications. In June 1992, State's Property Management Branch again reviewed the property management system. The review team indicated that substantial progress had been made but recommended improvements in several areas, including documenting findings of periodic utilization surveys, separating some property management functions to ensure the adequacy of internal controls, and emphasizing implementation of State's automated nonexpendable property management system.

Historically, weaknesses in property controls and record keeping and the lack of an automated inventory system have contributed to problems in inventory control. For example, about $74,000 of property was located during the 1991 inventory that had not been recorded in the manual record

*Such procedures are necessary to ensure that property is inspected promptly as to condition, quantity, and quality and that acquisitions are in accordance with terms and specifications of the procurement document.

According to State guidance, general services officers are the accountable property officers for nonprescriptive drugs and medical supplies and nonexpendable property located in the health unit.