Background State is the lead agency responsible for implementing American foreign  policy and representing the United States abroad. It operates over 275  embassies, consulates, and other posts worldwide, staffed by over  13,000 Foreign Service officers. State has the authority to grant  allowances to employees serving overseas to offset the cost of living and  working overseas as well as to recruit and retain employees who serve in  difficult and dangerous locations. Two key offices within State are involved in administering and processing  allowances for overseas employees. State’s Office of Allowances in the Bureau of Administration develops  and coordinates policies, regulations, standards, and procedures to  administer allowances under the Department of State Standardized  Regulations. The office compiles statistics on overseas living costs  and conditions and computes the established allowances to  compensate U.S. government civilian employees for costs and  hardships related to assignments abroad. State’s Bureau of the Comptroller and Global Financial Services  (CGFS) processes allowances for State employees through the  Consolidated American Payroll Processing System, State’s payroll  system, and captures information on payments for all allowances  through the Global Financial Management System, State’s accounting  system. State uses the Consolidated American Payroll Processing  System to process American employees’ pay, including allowances  paid directly to employees. This system generally captures  information on the location where an employee is assigned. According  to State officials, the Global Financial Management System captures  information on all State payments, including those paid through  vouchers, such as for rent paid directly to the landlord. State Offers 14  Allowances to  Compensate Its  Employees for Costs  and Hardships  Related to Foreign  Assignments State provides 14 allowances to employees serving overseas to  compensate them for the costs and hardships related to foreign  assignments across four broad categories—cost-of-living, recruitment and  retention incentives, quarters, and other allowances. Table 1 includes a  brief summary of these allowances. Cost-of-Living Allowances Cost-of-living allowances reimburse employees for certain excess costs,  exclusive of any quarters costs, incurred from employment overseas.  The following six allowances fall into this category: The post allowance is granted to employees officially stationed at  posts or foreign areas where the cost of living, exclusive of the cost of  quarters, is substantially higher than in Washington, D.C. It is  designed to permit employees to spend the same portion of their  salaries for standard living expenses as they would if they were living  in Washington, D.C. The Office of Allowances updates the post  allowance at least every other year based, in part, on a survey filled  out by posts. As part of this process, posts must collect and compile  prices for a sample basket of goods from stores that U.S. government  employees serving at that post frequent (see fig. 1). For example, as  of September 3, 2017, Embassy Port-au-Prince had a post allowance  rate of 20 percent and was expected to submit its next required  survey in June 2018. The foreign transfer allowance defrays an employee’s extraordinary,  necessary, and reasonable costs when he transfers to a post in a  foreign area. This allowance includes four expense types— predeparture subsistence, wardrobe, lease penalty, and  miscellaneous. The predeparture subsistence expense portion assists employees  with the cost of temporary lodging, meals, laundry, and dry  cleaning for up to 10 days when they vacate their permanent  residence in the United States before traveling to their overseas  post. This allowance may be granted before the employees’ final  departure from the United States, beginning not more than 30  days after they vacate their residence. The reimbursement rate is  based on the per diem rate of their U.S. post. Employees are eligible for the wardrobe expense portion when  they transfer across two climate zones for a new foreign  assignment. For example, if an employee were to transfer from  Saint Petersburg, Russia (zone 1), to Doha, Qatar (zone 3), then  the employee would receive a wardrobe allowance. This  allowance is a flat rate of $600 for individuals, $1,000 for  employee and one family member, or $1,300 for employees and  multiple family members. The lease penalty expense portion offsets a residential lease  penalty unavoidably incurred by employees when they transfer. The miscellaneous expense portion covers employees’ expenses  incurred from moving, such as pet transportation, vehicle  registration, and driver’s license fees. These expenses are capped  at the lesser of either 1 week’s salary or $650 for an individual, or  2 weeks’ salary or $1,300 for a family. The home service transfer allowance defrays an employee’s  extraordinary, necessary, and reasonable costs when she transfers  from an overseas post to a post in the United States. To qualify for  this allowance, the employee must agree to work for the U.S.  government for at least 12 months after her transfer. Similar to the  foreign transfer allowance, the home service transfer allowance  includes four expense types—subsistence, wardrobe, lease penalty,  and miscellaneous. The subsistence expense portion covers the same types of  expenses as the predeparture subsistence expense portion.  However, employees are also eligible to receive reimbursements  upon return to the United States based on the per diem rate for  the first 30 days and then a prorated rate thereafter. The wardrobe, lease penalty, and miscellaneous expense types  are the same for the home service transfer as for the foreign  service transfer. The separate maintenance allowance (SMA) defrays the additional  expense of maintaining family members at another location (1)  because of dangerous, notably unhealthful, or excessively adverse  living conditions at the overseas post of assignment, (2) for the  convenience of the U.S. government, or (3) because of special needs  or hardships involving the employee or a family member. There are  three types—involuntary, voluntary, and transitional. Involuntary SMA is provided when State determines that there is  an adverse, dangerous, or notably unhealthful condition that  should exclude family members from accompanying employees at  a post. The annual rate is based on family size ranging from  $6,800 for one child only to $23,000 for an adult and four or more  family members. Voluntary SMA can be authorized based on an employee’s  request for special needs or hardship at posts for reasons  including, but not limited to, career, health, educational, or family  considerations. The annual rate is based on family size, ranging  from $5,300 for one child only to $18,000 for an adult and four or  more family members. Transitional SMA is granted for a limited time after a post’s  evacuation status changes or in connection with the beginning or  end of an unaccompanied posting. It is paid at a daily rate based  on the number of eligible family members, the standard  continental U.S. per diem rate, and the amount of time the  employee receives the allowance. The education allowance defrays extraordinary and necessary costs,  not otherwise compensated for, to obtain adequate elementary and  secondary education for dependent children at overseas posts that  would normally be free of charge in the United States. State’s Office  of Overseas Schools determines the adequacy of schools at posts.  State determines the approved rate based on allowable education  expenses for (1) a school at the post, (2) a school away from the  post, (3) home schooling / private instruction, or (4) special-needs  education. For example, employees assigned to New Delhi can send  their school-aged children to the American Embassy School, which  State has determined is the least-expensive adequate school at post  (see fig. 2). Tuition for this school costs State between about $18,000  and $30,000 per child per year, depending on the child’s grade level. The educational travel allowance annually covers the travel expenses  of one round trip for each dependent between a school attended and  the overseas post of assignment. This benefit is primarily intended to  reunite a full-time, postsecondary student attending college (including  the postbaccalaureate level), or technical or vocational school with the  employee / parent serving the U.S. government in the foreign area.  Educational travel cannot be paid at the same time as the education  allowance. Recruitment and Retention  Incentive Allowances Recruitment and retention incentive allowances compensate employees  for service at posts where conditions may be difficult or dangerous.  State uses the following three allowances to recruit and retain staff at  posts: Hardship pay compensates employees for service in foreign areas  where conditions of environment differ substantially from conditions of  environment in the continental United States in that the living  conditions are extraordinarily difficult, involve excessive physical  hardship, or are notably unhealthy. Employees assigned to  designated posts can earn hardship pay at rates ranging from 5 to 35  percent above basic compensation in 5 percent increments, based on  the severity of the hardship as determined by State. Danger pay compensates employees for service in foreign areas  where conditions of civil insurrection, civil war, terrorism, or wartime  conditions threaten physical harm or imminent danger to the health or  well-being of the employee. Employees in designated danger pay  locations are granted between 15 and 35 percent above basic  compensation, in 10 percent increments, based on whether family  members are allowed at overseas posts. The difficult-to-staff incentive differential is paid to employees  assigned to a 15 percent or higher hardship pay post after State has  determined that especially adverse conditions of environment warrant  additional pay as an incentive to fill the employee’s position at that  post. State must establish a history of difficulty in filling positions at a  post prior to posts being eligible for this incentive. For example,  employees posted in Lagos, Nigeria, were eligible for this allowance  following the 2016 bidding cycle. Employees filling these positions  can earn 15 percent above their basic compensation. However, the  difficult-to-staff incentive and danger pay allowance combined cannot  exceed 35 percent of basic pay. Employees must agree to a 3-year  assignment to receive the difficult-to-staff incentive. Quarters Allowances Quarters allowances reimburse employees for substantially all costs for  either temporary or residence quarters at posts where government  housing is not provided. According to State officials, while most overseas  posts provide government-leased or owned housing for employees and  their families at no cost to the employee, employees can receive the  following three allowances to assist with housing costs: The living quarters allowance defrays the annual cost of suitable,  adequate living quarters for the employee and his or her family at an  overseas post where government-leased or government-owned  housing is not provided. Rates vary by post and are designed to  substantially cover the average employee’s costs for rent, utilities,  required taxes levied by the local government, and other allowable  expenses. According to State officials, while most posts provide  government housing, employees assigned to posts in Canada and  Bern, Switzerland, for example, primarily rely on the rental market. The temporary quarters subsistence allowance assists with the  reasonable cost of temporary lodging, meals, and laundry in a foreign  area when an employee first arrives at a new post and permanent  quarters are not yet available, or when an employee is getting ready  to depart the overseas post permanently and must vacate residential  quarters. The rate is based on the per diem at post, the size of an  employee’s family, and the amount of time the employee receives the  allowance. Employees cannot receive this allowance while receiving  the post allowance. The extraordinary quarters allowance is typically granted for up to 90  days to employees and eligible family members at an overseas post  when they are required to partially or completely vacate their  permanent quarters because of renovations, repairs, or unhealthy or  dangerous conditions in their permanent quarters. The rate is based  on the per diem at post, post allowance, and family size. In contrast to  the temporary quarters subsistence allowance, employees can  continue to receive the post allowance when they receive the  extraordinary quarters allowance. Other Allowances State offers two additional allowances designed to reimburse employees  who must maintain an official residence or employees who incur  expenses representing the U.S. government in an official capacity to a  foreign government. The official residence expense reimburses a principal representative,  such as an ambassador, at an overseas post for expenses related to  operating and maintaining a suitable official residence in-country  when those expenses exceed the usual expenses incurred if he were  serving at the post in any other official capacity. The allowance is  intended to offset the cost of representing the United States abroad  when a principal representative extends official hospitality to foreign  dignitaries and important visitors and by hosting appropriate  ceremonies (for an example, see fig. 3). Generally, principal  representatives are expected to direct at least 3.5 percent of their  salary toward maintaining their residences, and State may reimburse  expenses above that. The representation allowance reimburses employees, including  foreign national employees, and adult family members acting with or  on behalf of employees, for expenses incurred in establishing and  maintaining relationships of value to the United States in foreign  countries. Reimbursement may include costs for entertainment and  customary gifts or gratuities; for entertainment expenses, it must be  clearly demonstrated that the purpose is to directly promote U.S.  foreign policy interests, that the expenditure is not for personal  recreation, and that it is not otherwise prohibited by regulation. State Spent Almost  $480 Million Annually  on Allowances for Its  Employees Serving  Overseas, Totaling  Almost $2.9 Billion in  Fiscal Years 2011– 2016 State Spent about 70  Percent of Its Total  Spending on Allowances  from Fiscal Years 2011  through 2016 on the  Education Allowance,  Hardship Pay, and Post  Allowance State spent $2.9 billion on 14 allowances from fiscal years 2011 through  2016, 70 percent of which went to the three most expensive allowances— the education allowance, hardship pay, and post allowance. The  education allowance accounted for 30 percent of the total ($853.0  million), hardship pay accounted for 25 percent ($732.3 million), and the  post allowance accounted for 15 percent ($417.3 million). The other 11  allowances accounted for the remaining 30 percent of the total ($870.0  million) in fiscal years 2011 through 2016 (see fig. 4). Each of these 11  allowances accounted for less than 10 percent of total spending, ranging  from danger pay ($266.5 million) to the educational travel allowance  ($11.4 million). For additional information on State spending across all 14  allowances by fiscal year, see appendix II. State Spent Almost $480  Million Annually in Fiscal  Years 2011–2016, with  Individual Allowances  Varying State spent almost $480 million annually on the 14 allowances from fiscal  years 2011 through 2016, with varying amounts for individual allowances.  The lowest annual spending on such allowances during this period was  $462.3 million in fiscal year 2011 and the highest was $496.1 million, in  fiscal year 2014 (see fig. 5). Trends in spending for individual allowances varied from fiscal years 2011  through 2016, with the largest variation in spending from the cost-of-living  allowances. The largest increase in absolute spending across all  allowances during this period, as well as the largest single allowance  expenditure, was for the education allowance ($39.7 million). While the  overall spending for dependent education increased each year, State  officials noted that the spending on this allowance varied by post and year  based on the number of dependent children of overseas employees and  increasing education costs at some posts. The largest decrease in  absolute spending across all allowances during this period was for the  post allowance ($21.1 million). According to State officials, this variation  was caused, at least in part, by fluctuation in the strength of the dollar  against major global currencies. The other cost-of-living allowances— SMA, home service transfer, foreign transfer, and educational travel—had  relatively smaller fluctuations in dollar spending across fiscal years. For  example, State explained that the region’s increased volatility from the  “Arab Spring” may have contributed to the change in SMA spending from  fiscal years 2011 to 2012 (see fig. 6). According to State officials, this  unrest likely caused more volatile security situations at many State posts,  resulting in fewer family members of overseas employees living at the  assigned post of their parent or spouse, and, therefore, an increase in  SMA support. Recruitment and retention incentive allowances had the largest net  decrease in allowance spending from fiscal years 2011 through 2016,  about $10.6 million. Hardship pay increased by $5.3 million, with its  largest single year change between fiscal years 2015 and 2016 following  State’s 2015 revisions to its process for determining hardship pay rates.  In conjunction with an increase in hardship pay, danger pay decreased by  $15.6 million during this period. The difficult-to-staff incentive differential  remained relatively constant, decreasing by about $264,000 (see fig. 7). State’s spending on quarters allowances decreased from fiscal years  2011 through 2016 by almost $1 million. According to State officials, over  this period State shifted employees from the living quarters allowance into  U.S. government owned and leased facilities. They explained that, as of  August 22, 2017, a limited number of posts in Canada and Switzerland  relied primarily on the living quarters allowance, as opposed to U.S.  government-provided housing. For the extraordinary quarters  allowance, State officials explained that short-term, unexpected facilities  issues that render a house uninhabitable—such as water damage, mold  remediation, or fire—cause variations in spending. These costs can vary  significantly by year and by post. Spending on the temporary quarters  subsistence allowance increased by $1.6 million from fiscal years 2011  through 2016 (see fig. 8). The other allowances category consists of the official residence expense  and representation allowances. The official residence expense spending  at posts decreased by $2.6 million from fiscal years 2011 through 2016.  The representation allowance increased by $6.6 million during the same  period (see fig. 9). State’s Spending on the  Post Allowance, Separate  Maintenance Allowance,  Hardship Pay, and Danger  Pay Varied Substantially  by Country in Fiscal Years  2011–2016 State’s spending on the post allowance, SMA, hardship pay, and danger  pay varies substantially by country because these expenditures are  determined by factors specific to each post and allowance. For the post  allowance, spending by country reflects allowance rates, the number of  State employees, and the size of State employees’ families at each of the  country’s posts. Spending for SMA, by country, depends upon the  number of State employees maintaining their families away from post.  Spending for hardship pay and danger pay, by country, reflects the  allowance rate and number of State employees permanently assigned to  posts in each country. For example, in fiscal year 2016 State spent about  the same amount on hardship pay in Dhaka, Bangladesh (a post eligible  for 35 percent hardship pay), as it did in Bangkok, Thailand (a post  eligible for 10 percent hardship pay) because State had more than twice  as many personnel assigned to Thailand as to Bangladesh. Figure 10 shows a map of State’s post allowance spending by country for  fiscal years 2011 through 2016. State provided this allowance in about  170 countries worldwide in that period. Figure 11 shows State’s spending on SMA. Employees received an SMA  across about 170 countries from fiscal year 2011 through 2016. Figure 12 shows State’s spending on hardship pay. About 140 countries  had posts eligible for hardship pay from fiscal years 2011 through 2016. As illustrated in figure 13, countries with danger pay spending in fiscal  years 2011 through 2016 are largely concentrated in the Middle East and  Africa. Employees from posts in about 30 countries received danger pay  from fiscal years 2011 through 2016. Several countries with danger pay  spending during this period—including Mexico, Colombia, and Saudi  Arabia—were no longer eligible for danger pay as of February 5, 2017. Agency Comments We provided a draft of this report to State for comment. State provided  technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional  committees and the Secretary of State. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please  contact me at (202) 512-8980 or courtsm@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 contributions to this  report are listed in appendix II. Appendix I: Objectives, Scope, and  Methodology The objectives of this report were to (1) describe the allowances the  Department of State (State) offers its employees serving overseas and (2)  examine the amount State spent annually on these allowances from fiscal  years 2011 through 2016. To describe the different allowances offered by State to employees  serving overseas, we reviewed the Foreign Affairs Manual (FAM), Foreign  Affairs Handbooks, the Department of State Standardized Regulations,  and other State information. We selected 14 allowances to include in our  scope based on 3 FAM Exhibit 3210. From this list we excluded the  advance-of-pay allowance because it is not an additional outlay from  State’s budget. To examine State’s spending at overseas posts for these allowances, we  analyzed data in fiscal years 2011 through 2016 from State’s  Consolidated American Payroll Processing System and State’s Global  Financial Management System, which are administered by State’s  Bureau of the Comptroller and Global Financial Services (CGFS). We  used the Global Financial Management System, State’s accounting  system, to analyze the foreign transfer, home service transfer, education  allowance, educational travel, difficult-to-staff incentive, living quarters,  temporary quarters subsistence, extraordinary living quarters, official  residence expense, and representation allowances. We used the  Consolidated American Payroll Processing System, State’s payroll  system, to analyze post allowance, separate maintenance allowance  (SMA), hardship pay, and danger pay expenditures, including information  on the outlays by country. Because CGFS processes these four  allowances through payroll, it provided us with spending data for the 26  pay periods that best approximated each fiscal year from 2011 through  2016, and we used these data to summarize spending by fiscal year. All spending in this report is presented in nominal dollars. We also used  the gross domestic product price index to analyze trends in hardship and  danger pay, expressed in terms of constant (inflation-adjusted) dollars. To  assess the reliability of the data that State provided, we performed testing  to identify missing data, outliers, and errors; and interviewed Office of  Allowances officials in Washington, D.C., and CGFS officials in  Charleston, South Carolina. We determined that the data we used were  sufficiently reliable for the purposes of summarizing spending by country  for the post allowance, SMA, hardship pay, and danger pay and by fiscal  years 2011–2016 for all allowances. We also communicated with State  officials from the Office of Allowances, CGFS, and the Bureau of  Overseas Building Operations about changes in allowance expenditures  over time. We conducted this performance audit from May 2017 through November  2017 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our  description and analysis based on our audit objectives. Appendix II: Department of State Spending  for Allowances for Employees Serving at  Overseas Posts, Fiscal Years 2011–2016 Appendix II: Department of State Spending for  Allowances for Employees Serving at  Overseas Posts, Fiscal Years 2011–2016 417,283  37,900  46,441  55,019  852,972  11,367  (21,055)  (347) Education travel  Recruiting and retention incentive allowances  Hardship differential Appendix III: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact named above, Hynek Kalkus (Assistant  Director), Alana Miller (Analyst-in-Charge), Ashley Alley, Timothy Carr,  Debbie Chung, Gita Devaney, Neil Doherty, Jill Lacey, Drew Lindsey, and  Eli Stiefel made key contributions to this report.
State spends millions of dollars annually on allowances to compensate its employees for costs and hardships related to foreign assignments. Many of these assignments are critical to U.S. foreign policy objectives. In accordance with U.S. law, State employees working abroad may be reimbursed for costs related to working overseas, including the cost of living in expensive locations, dependent education costs, and the costs of maintaining family members away from post. They also may be eligible for such allowances in locations where they encounter harsh or dangerous living conditions. These allowances cover over 13,000 employees across more than 275 posts. GAO was asked to review State's administration of allowances for its employees. GAO's September 2017 report focused on State hardship and danger pay allowances ( GAO-17-715 ), while this report (1) describes all of the allowances that State offers its employees serving overseas and (2) examines the amount State spent annually on these allowances in fiscal years 2011 through 2016. GAO analyzed State data and documents and communicated with State officials in Washington, D.C., and Charleston, South Carolina, the location of State's Bureau of the Comptroller and Global Financial Services. The Department of State (State) offers 14 different allowances to compensate State employees serving at overseas posts for costs and hardships related to foreign assignments across four categories. Cost-of-living allowances consist of six types of allowances that reimburse employees for certain costs incurred from employment overseas, such as the cost for dependent education that would normally be free in the United States. Recruitment and retention incentive allowances consist of three types of allowances that compensate employees for service at posts where conditions may be difficult or dangerous. For example, hardship pay compensates employees for service where conditions differ substantially from those in the United States. Quarters allowances consist of three types of allowances that reimburse employees for substantially all housing costs at posts where government housing is not provided. For example, the temporary quarters subsistence allowance pays for temporary housing when government-provided housing is not available. Other allowances consist of two types of allowances that reimburse employees, such as ambassadors, who must maintain an official residence in-country or employees who incur expenses representing the U.S. government in an official capacity to a foreign government. State spent almost $480 million per year on its 14 allowances for employees serving overseas, totaling almost $2.9 billion in fiscal years 2011 through 2016. Most of this amount went toward cost-of-living and recruitment and retention allowances. During this period, the three largest individual allowances accounted for about 70 percent of the total spending on all allowances. These were the education allowance, about $853.0 million; hardship pay, about $732.3 million; and post allowance, used to offset the higher cost of living at certain posts, about $417.3 million.