CHAPTER NINE Department of State and Related Agencies DEPARTMENT OF STATE During the fiscal year 1962 we continued to devote our major audit effort in the Department of State and related agencies to the nonmilitary foreign assistance program administered currently by the Agency for International Development (AID). The Agency for International Development was created effective in November 1961 to administer the programs previously carried out by the International Cooperation Administration and the Development Loan Fund and certain loan activities previously carried out by the Export-Import Bank of Washington. We examined selected assistance activities for individual recipient countries and various other agency-wide activities. We also audited the operation of the Development Loan Fund for the fiscal year 1961, as required by the provisions of the Government Corporation Control Act. We examined the financial activities of other offices of the Department of State on a selective basis at the Washington office of the Department. AGENCY FOR INTERNATIONAL DEVELOPMENT Our examination of the economic and technical assistance activities under the mutual security program as administered by the Agency for International Development and its predecessor agencies was performed principally at the agency's Washington office and was supplemented by examinations at certain of the agency's overseas missions. In 1962 we issued reports to the Congress on (1) our examination of the economic and technical assistance program for Thailand for the fiscal years 1955 through 1960 and (2) our audit of the Development Loan Fund for the fiscal year 1961. A report on our examination of the assistance program in Korea was in preparation at June 30, 1962. During the year, we started examinations of the economic and technical assistance programs in Turkey and Vietnam and continued our examinations on a selective basis of the agency's disbursements to test compliance with applicable laws and regulations. As a result of our examinations of disbursements, the agency collected refunds of $215,114 during the year because of noncompliance with applicable laws and regulations. The more significant findings contained in our reports are summarized below. Economic and Technical Assistance Our examination of the economic and technical assistance program for Thailand showed that the commodity import program had been administered in a generally satisfactory manner; however, as summarized below, two matters concerning deposits of local currency under the program required the attention of the agency. In the area of project assistance, we noted that seven major projects selected for detailed review had made unsatisfactory progress. Counterpart deposits of local currency less than those generally required. The Government of Thailand had not made counterpart deposits of local currency to the extent generally required by the agency under existing legislation principally because (1) importers of commodities financed by the United States were being allowed a special discount of about 1 percent from invoiced costs, and (2) local currency in amounts equal to import duties collected was not being deposited. For the period covered by our review, counterpart deposits were governed by section 142 of the Mutual Security Act of 1954, as amended (22 U.S.C. 1852), which required that recipient countries deposit local currency in amounts equal to the proceeds derived from the import or sale of commodities financed by the United States on a grant basis. Therefore, the agency generally required counterpart deposits equal to the total amounts collected from importers, including invoiced costs, import duties, and other charges. However, the agency informed us that foreign policy considerations made it impractical to request the Thai Government to make full deposits at that time. In June 1962 the matter had not been resolved. Unsatisfactory progress of economic development projects.Our review of 10 selected technical and economic development projects, which received United States financing in excess of $56 million through June 30, 1960, showed that 7 projects had made unsatisfactory progress because of insufficient planning, delays in contracting for necessary technical services, and disagreements among responsible parties. For the last reason, two projects had to be curtailed or terminated. Because of delays in starting one highway project, a major part of the U.S.financed equipment was lying idle at the time of our review. The projects covered by our review were in the fields of education, power, communications, and transportation. About the insufficient planning of some of these projects, the agency has emphasized that the uncertain political conditions in Southeast Asia necessitated an early start of projects which were considered to be militarily and economically important to Thailand. The agency was generally aware of the difficulties and deficiencies affecting these projects and has taken or proposed remedial action. Development Loan Fund for Fiscal Year 1961 Our audit of the Development Loan Fund (DLF) for the fiscal year 1961 indicated that DLF's policies and procedures were generally adequate to provide for an orderly administration of the loan program. In examining selected loans approved by the DLF, we noted several conditions which warranted consideration by the AID in evaluating applications for similar loans in the future to obtain the most effective use of loan funds. These conditions concerned (1) the obligating of loan funds for equipment for a project although suitable equipment valued at about $3 million was to be available from a similar type project in the same country, (2) the financing of an irrigation and water supply project of questionable efficiency, (3) the financing of a Government-owned fertilizer plant which appeared to be suitable for private ownership and operation, and (4) the classifying of revenue-producing telephone and related systems as economic overhead projects thus requiring a loan interest rate of 3% percent as contrasted to a rate of 5% percent on loans for profit. earning projects. OTHER STATE DEPARTMENT ACTIVITIES As in the past we examined the financial activities of other offices of the Department of State on a selective basis at the Washington office of the Department. In this work our staff examines domestic and foreign cash receipts and disbursements and reviews the adequacy of fiscal controls, accounting records and related administrative practices. During the year we examined certain activities of the Office of Foreign Buildings, and a report was being prepared at the close of the fiscal year. We gave particular attention to the purpose and authorized uses of the Foreign Service Building Fund, architectural plans, and problems in acquisition and construction activities. In October 1961, we issued a report to the Department calling attention to its inadequate procedures for collecting outstanding debts from separated employees and to procedural weaknesses giving rise to debts from separated employees. The Department's financial management improvement program continued with the assistance and guidance of representatives of the General Accounting Office, the Bureau of the Budget, and the Treasury Department constituting a joint advisory group. A report by our Office on the progress and status of the financial management improvement program was being prepared at the close of the fiscal year. UNITED STATES INFORMATION AGENCY Our audit efforts in the United States Information Agency during the fiscal year 1962 were concerned primarily with examinations on a selective test basis of the Agency's financial transactions originating in the United States and at various overseas offices. We reviewed selected cash receipts and disbursements, |