STATE DEPARTMENT AND INTELLIGENCE COMMUNITY INVOLVEMENT IN DOMESTIC ACTIVITIES RELATED TO THE IRAN/CONTRA AFFAIR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90M00005R001100100001-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 172
• Document Creation Date: January 4, 2017
• Document Release Date: November 2, 2012
• Sequence Number: 1
• Publication Date: September 7, 1988
• Content Type: REPORT

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COMMITTEE ON FOREIGN AFFAIRS
U.S HOUSE OF REPRESENTATIVES
STAFF REPORT
STATE DEPARTMENT AND INTELLIGENCE COMMUNITY INVOLVEMENT
IN DOMESTIC ACTIVITIES
RELATED TO THE IRAN/CONTRA AFFAIR
September. 7, 1988
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/4
LEE H. HAMILTON. INDIANA
GUS YATRON. PENNSYLVANIA.
STEPHEN J. SOLARZ. NEW YORK .
.00N BONKER. WASHINGTON ? ,
,GERRY E. STUDDS, MASSACHUSETTS
DAN MICA. Ewan:A
HOWARD WOLPE. MICHIGAN
? GEO. W. CROCKETT. JR.. MICHIGAN
SAM GEJDENSON. CONNECTICUT
MERVYN M. DYMALLY. CALIFORNIA
TOM LANTOS. CALIFORNIA
PETER H. KOSTMAYER, PENNSYLVANIA
ROBERT G. TORRICELLI, NEW JERSEY
LAWRENCE i. SMITH. FLORIDA
HOWARD L. BERMAN. CALIFORNIA
MEL LEVINE. CALIFORNIA
EDWARD F. FEIGHAN: OHIO
TED WEISS. NEW YORK
GARY L. ACKERMAN. NEW YORE .
MORRIS K. UDALL. ARIZONA
CHESTER G. ATKINS. MASSACHUSETTS
JAMES McCLURE CLARKE. NORTH CAROLINA
JAIME B. FOSTER, PUERTO RICO ,
JAMES H. B1LBRAY. NEVADA
WAYNE OWENS, UTAH
FOF0 I.F. SUNIA. AMERICAN SAMOA
JOHN J. BRADY. JR.
CHIcrorSTArr,
One tinndredth Congress
Congress of the United *totes
ommittee on foreign affairs
tiouse of Iltpresnitatiots
Washington, BC 20515
September 7, 1988
The Honorable Dante B. Fascell
Chairman
Committee on Foreign Affairs
2170 Rayburn House Office Building
Washington, D.C. 20515
Dear Mr. Chairman:
WILLIAM S. BROOMFIELD. MroNGAN
BENJAMIN A GILMAN. NEW YORE
ROBERT J LAGOMARS1NO. CALAIORNIA
JIM LEACH, IOWA .
TORY ROTH. WISCONSIN
OLYMPIA SNOWE. MAINE
HENRY J. HYDE, ILLINOIS
GERALD B.H. SOLOMON. NEW TONE
DOUG BEREUTER. N
ROBERT K. DORNAN. CALIFORNIA
CHRISTOPHER M. SMITH. NEW JERSEY
CONNIE MACK. FLORIDA
MICHAEL-DcWINE. OHIO
DAN BURTON. INDIANA
JAN MEYERS. KANSAS
JOHN MILLER, WASHINGTON
DONALD E."131J1- LUKENS. Otoo
BEN BLAZ. GUAM
STEVEN K. BERRY
Mormon' CHIEF or START
We hereby submit the final staff report of our investigation
on the involvement of the State Department Office of Latin
American Public Diplomacy (S/LPD) in the establishment and
supervision of a private, domestic network designed to influence
the Congress, the media and public opinion on behalf of the
Administration's policies as related to the Iran/Contra affair.
Since the interim report, which we provided to you on March 18 of
last year, the investigations by the Iran/Contra Committees,
General Accounting Office and the State Department Inspector
General, as well as our subsequent follow-up investigation, have
revealed a much wider, and potentially much more serious,
violation of U.S. laws and regulations than our original interim
report had indicated.
Although the Iran/Contra Committees were constrained by
pressures of time and limited resources from pursuing many of the
leads that were developed during that investigation -- and the
General Accounting Office and State Insector General's reports
were narrowly focused on certain aspects of S/LPD's activities --
the combined information developed by those three investigations,
as well as our own investigation, present a situation which may
require further investigation. Such investigation may wish to
focus on the extent to which the CIA and various intelligence
components of the Department of Defense conspired, through the
staff of the National Security Council, to use the State
Department as a cover for a domestic operation which went far
beyond the legal and ethical scope of their authority.
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The Honorable Dante B. Fascell
Page Two.
September 7, 1988,
The staff report indicates the extensive involvement of
intelligence community personnel by the Office of Latin American
Public Diplomacy to establish, maintain and manage private,
domestic entities engaged in fundraising, lobbying, propaganda
and manipulation of the media in contravention of U.S. laws and
regulations.
While the report provides a clear indication that such
activities occurred and that they were deliberately hidden from
public view, there are many individuals who were intimately
involved in these activities who were never questioned by the
Iran/Contra Committees about these matters and who have not been
available to any of the other investigations that have been
conducted. Many important documents, which were discovered by
the GAO in the files of S/LPD, were never made available to our
Committee nor to the Iran/Contra Committees despite our request
and assurances that such materials would be forthcoming. There
may be other documents in the files of the CIA, DOD and the
Department of State which should be sought in order that a
complete picture may be obtained. Any subsequent investigation
will almost certainly need to use Congressional subpoena power in
order to obtain these documents and the testimony of key
witnesses.
Appended to the report are copies of our interim staff
report of March 18, 1987, two reports from the GAO and a report
by the State Department's Inspector General.
Vic Zangla, the General Accounting Office official who has
been working with the Foreign Affairs Committee for the past year
and a half, assisted with the compilation and evaluation of the
documentation upon which this report was based.
-Sincerely yours,
Ends.
. Spencer Oliver Bert Hammond
?
Chief Counsel
Staff ?consultant
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TABLE OF CONTENTS
Final Report by Foreign Affairs Committee' Staff
Overview
The GAO Audits
Report of the State Department's Office of Inspector
General
The Iran/Contra Investigation
S/LPD and the Private Network
Conclusions
Illustrative Chart
Page
1
5
9
14
16
30
33
March 18, 1987 Interim Foreign Affairs Committee Staff Report
July 1987 State Department Inspector General's Report
September 30, 1987 GAO Legal Opinion
October 1987 GAO Report
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MOM DEPARDUMF AND INJIDULIGENCE cutugur INVIDINEMENT
IN DOMESTIC AKMETWIMOES
MATED 'ID IRAN/CCWIRA AFFAIR
In March 1987, the staff of the Committee on Foreign Affairs issued
preliminary. report of its investigation into the award of six
contracts by the State Department's Office of Public Diplomacy for Latin
America and the Caribbean (S/LPD) to International Business
Communications (IBC) and its principal, Frank Gomez. The .report raised
a number of key questions, including;
Why was a noncompetitive $276,000 State Department contract with IBC
classified SECRET during the tame time period that IBC was engaged in
transferring monies to Lake Resources, an account controlled by Oliver
North for the purpose of aiding the Contras? Were any Of the State
Department contract monies in fact used illegally to lobby Members of
Congress? Was :S/LPD engaged in prohibited propagandistic activities?
Were State Department monies illegally diverted to aid the Contras?'
Due to the difficulty the.Coomittea staff encountered in its
efforts to obtain relevant information from the State Department and to
the fact that IBC had been involved in funneling money to secret Swiss
Bank accounts; many answers to question's raised in the report were not
immediately forthcoming. It was the Committee staff's opinion that
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these pressing questions could Only be properly reviewed by the Select
Committee to Investigate Covert Arms Transactions with Iran. The
Chairman of the Committee on Foreign Affairs, Rep. Dante Fascelli then
forwarded all relevant documents in the Committee's possession to the
.Select Committee.
On March -31 1987 Chairman Fascell anciRep. Jack Brooks, Chairman,'
,Committee on Government Operations, issued a joint letter to the General
Accounting Office (GAO) requesting it to conduct. an investigation and
render a legal opinion on the legality and propriety of certain
activities of S/LPD. Two. separate reports were Subsequently prepared by
GAO.
The first GAO report, issued 9/30/871 examined whether or not'S/LPD
had been involved in illegal lobbying and propaganda aCtiyities. The
'report concluded that S/LPD's activities involving the preparation and
dissemination Of Certain types of information violated a restriction On
the use of appropriated funds for publicity and propaganda purposes not
authorized by the Congress. The report also noted that the available
evidence did not support a conclusion that antilobbying statutes had
been violated. (GAO auditors however, informed CoMmittee staff that
?documents in the possession of the Iran/Contra Select Committees, which
were not made available to GAO until after its report had been issued,
Would have required GAO to reevaluate S/LPD s compliance with the
anti-lobbying statutes.)
The second GAO report, issued 10/30/87, assessed the contracting
activities of S/LPD. The report found that S/LPD generally did not
follow federal regulations governing contractual procedures.
In addition to the GAO reports, the State Department's Office of
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Inspector General (OIG) issued a report that examined the Department's
contracts With International: Business Cammunications (IBC) and Frank
Gomez,. one Of its principals The OIG's report concluded that many of
the purchase orders and contracts awarded by S/LPD Were questionable in
rthe later periods as VLPD's staff grew and gained experience; that the
acquisition Process for awarding and administering the purchase orders
and contracts was mismanaged; that one contract was improperly
classified ' SECRET, apparently to avoid competition :and public
disclosure; that some of the charges, in the. final contract between S/LPD
and IBC were questionable, that violation of ethical standards and/or .
conflict of interest restrictions may have occurred in the case of two
individuals; and that information provided by the Department to
Congressional requesters was inaccurate, incomplete, and misleading.
The. OIG's report also recommended specific actions to remedy
administrative problems identified in the repott.
This final staff report on the activities Of S/LPD serves bath as a
Summary of the previously described reports on the Office of Public
Diplomacy for Latin America and the Caribbean and as a description of
how a relatively obscure office in the State Department played a central
role in the creation and Management of the private network involved in
:the Iran/Contra affair'. It is the ComMittee-staffis contention that a
preponderance of documents obtained by the Staff, as Well as those
released by the Select Committees,. demonstrates that S/LPD was set up
and managed by operatives in the National Security Council (NSC) who
maintained close ties with Oliver North and former CIA Director Casey
The NSC staff Succeeded in having Otto Reich named as the Director Of
the new Office Latin America of Public Diplomacy which reported directly
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to the NSC. IBC's two principals--Richard R. Miller, former head of
public affairs at AID, and Francis. D. Gomez, former public affairs
specialist at the State Department and USIA-were- then hired by S/LPD
. through a series of sole source, no-bid-contracts to carry out a variety
of activities on behalf of the Administration's policies in Central
America.
During the same period that it had been receiving payments from the
State Department totalling in the hundreds of thousands of dollars, IBC -
also served as the conduit. through Which millions of dollars -from the
-illegal sales of weapons to Iran were diverted for use by the Contras as
well as other purposes. Also while under contract to the Office of
Public Dipldmacyi Miller and Gomez participated in activities designed
to influence the .media and public to support the President's Latin
American policies; including sophisticated television ad campaigns that:
were targeted at Members of Congress who were not supportive of the
President's Central America policy. Many of these activities by design
were covert. Johnathan Miller, Ambassador Reich's Deputy at S/LPD (who
later resigned from the White House staff when it was revealed that he
had assisted Oliver North in cashing travellers Checks for the Contras),
for example,described Gomez as a "cut-out" who Once made a clandestine'
trip in Central America and promoted ,media interviews and background
briefings with representatives of the Democratic Resistance in Nicaragua
on behalf of S/LPD, without acknowledgment of the State Department's
role.
In the course of assisting the Contras with their public relations,
Miller and Gomez were introduced to Oliver North and Contra fundraiser
'Carl "Spitz" Channell. Under the direction of North and with the
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financial assistance of Channell, IBC quickly became a central player in
' the so-called "enterprise." IBC s role, in fact, was so highly valued
that it was described by one White House official as -"the White House
outside the White House.."
THE- CACI AUDITS
Responding to a March 31 -1987, joint request issued by Chairmen
Fascell and Brooks, the GAO released two separate reports on the
activities of S/LPD. .The first report issued by the Comptroller General
on 9/30/87 concluded that S/LPD had "engaged in prohibited, covert
activities designed to influence the media and the public to support the
Administration's Latin American policies." The: use of appropriated
'funds for these activities constituted "a Violation of a:restriction on
the State Department annual, appropriations prohibiting the use of
federal funds for publicity or propaganda purposes."
GAO's conclusion centered on S/LPD's decision to use a university
professor, John F. Guilmartin, Jr.:, an adjunct professor of history at
Rice University, to write a newspaper article in support of the
Administration's Central America policy without alerting readers' or,
apparently, the newspaper that Guilmartin had been a paid Consultant to
S/LPD.
The Guilmartin article was one of five "white propaganda"
operations described in a Match 13, 1985, memorandum from S/LPD to the
Assistant to the President and Director: of Communications. The
confidential memorandum stated the following about the Guilmartin
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article:
:"Attached is a copy of an op-ed piece that ran two days ago in
The Wall Street Journal. Professor GuilMartin has been a.
consultant to our office and collaborated with our staff in the
- writing of this piece. It is devastating in its analysis of
the Nicaraguan arms build-up. Officially, this office had no
role in its preparation,"
Another item in the meMorandum describes the, use Of a "cut-out" to
- arrange visits to various news media by a Nicaraguan opposition leader.
Although the term is not defined, it appears to.reflect an intention to
hide the fact that the opposition leader's visits Were being arranged by
the Government.
Section 501 of the Departments of Commerce, Justice, State, the
Judiciary! and Related Agencies Appropriations Act, 1985, states: -"NO
part .cf an appropriation contained in the Act Shall be used for
publicity CT propaganda purposes not authorized by the Congress."
Although the legislative history of section 501 is silent as to the
intended effect of the restriction, GAO has had numerous opportunities
to Interpret language similar to section 501 as prohibiting covert
propaganda activities of an agency, which applies to the situation of
Professor GuiIMartin and visits of various Nicaraguan opposition leaders
arranged by S/LPD.
The GAO report concludes that "the described activities are beyond
the range Of acceptable, agency public information activities because the
articles prepared in: whole or part by S/LPD staff as the ostensible
position of persons not Associated with gOvernment and the media visits
arranged by S/LPD were misleading as to their origin and reasonably:
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constituted 'propaganda' within the cOmmon underStanding of that berm."
On October 30, 1987, GAO issued a second.report on. the State
Department's administration of certain public diplomacy contradtS.
In its evaluation of LPD's use of contractors, GAO reviewed 25 contracts
S/LPD entered into since the office was established The contracts were
valued at approximately $263,000. Mast of the contracts reviewed
involved the sUbmission of written products by individuals and, in some.
instances, companies. .
The GAO audit found that S/LPD did not Adhere, to federal
regulations governing contractual procedures, Specifically, the audit
reached the following three conclusions:
1.- The justifications to support the exclusive use of
sole-source contracting by LPD were inadequate.
2. Various other procurement requirements were not adhered
to in awarding contracts, stick-) as encouraging competition,
Obtaining required contract officer approvals .before
engaging contractors, and, in. One case, abiding by
limitations on the Salary paid to a retired military
officer.
8. Many products were different from those contracted for
with no evidence that agreement was reached on changes to
contract specifications.
With respect to the issue of sole source contracting, the GAO study.
concluded that all 25 contracts under review did not meet. federal
requirements for sole source justification. The contracts contained no
description of how the:writers'selected Were unique and why no one else
c6uld perform the desired requirements; nor did the contracts contain
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? anyAescription of efforts made to ascertain whether equally qualified
writers were available Under :the requirements of The Competition in
Contracting Act of 1984, both of these conditions must be fulfilled
before a Sole Source contract can be awarded.
In general cAo found Little evidence that S/LPD had made any
?
effort to locate other sources to ,compete on S/LPD contracts. Even a
sole source procurement requires such an effort to help support the sole
source justification. In the one instance Where the Department's
Procurement Office located a competitive source, S/LPD withdrew its
requirement for these services before the potential contractor could be
inteeVieWed. At the time, these services were being provided by Mark
Richards Associates,- Inc.-, who had performed services for S/LPD under a
series of sale source contracts since July 1984. Later in. the year,
however, S/LPD, in an about-face, requested the continued services of
Mak Richards Associates, whose principal, Colonel Mark Richards, had
extensive experience in military intelligence. In its request to renew
Richard's Contract, S/LPD cited "unusual and compelling urgency" as the
basis to award 4 sole-source procurement. S/LPD also added that "the
character and sensitivity of the services precluded disclosure of the
contractual Arrangement to the public."
GAO also noted that Mark Richards, an S/LPD employee detailed from
-
DOD and, a soon-to-be-retired Air Force Colonel would be subject to dual
compensation limitations if employed as a consultant to S/LPD after his
retirement from federal service. This would reduce his military
retirement pay, which, according to Colonel Richards was unacceptable.
Accordingly, Colonel Richards incorporated himself, and the Department
negotiated a sole-source contract with Mark Richards Associates for
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media consultant servides. This permitted him to continue working for
S/LPD without a reduction in his retirement pay. Between July 1984 and
February 1986, Mark Richards Associates received approximately $136,000.',
This arrangement, however, _circumvented two Office of Management and
Budget (OMB) circulars. that restrict the use of contracts to avoid
salary limitations for former government eMployees.
Of the 25 contracts GAO reviewed, 16 Specified one or more original
written products (41 in all). Most of the contractor products GAQ,
obtained, however', differed substantially from the contractscope of the
work. According to S/LPD personnel, few were? incorporated into S/LPD
pUblicaticas.
GAO's analysis was hampered by the lack of work products in S/LPD's
files. Auditors were only able to 'obtain 22 of the 41 research paper
Of the 28 work products obtained by GAO, only 13 addressed the topic
specified in the original stOPe of work, In the Other cases, the
product for which there was an "urgent need" was not produced; rather, a
substitute topic was addressed.
REPORT OF THE STATE DEPARIMENI"S MICE OF INSPECTOR GENERAL
In response to a March 1987 request from the Secretary, the staff
from this Office of Inspector General (OIG) examined the bepertment's-
contracts with International Business Communications (IBC) and Frank
Gomez, one of its principals. The examination coveredYsix: Purchase .
orders and contracts totalling approximately $436,000 with IBC or Frank
Gomez between February 1984 and September 1926. In July 1987, the OIG
released its :report containing the following findings;
1. Need for the Contracts?There was justification r for the :initial
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purchase orders for outside: assistance, during a :temporary ._startup
situation in S/LPD- early in 1984, Out the practice continued through-
fiscal 1986, after the urgency and the original justification had,
passed:
-2 The Acquisition Process?The practices hollowed in the procurements
with Frank Gomez, IBC, and INSI (Institute for North South Issues, a
non-profit foundation operated. by Frank Gomez) were generally contrary
to proper acquisition policies and procedures and failed to meet the
fundamental requirements of. the Federal Acquisition Regulation (FAR).
In certain instances, Frank Gomez and IBC only entered- into formal
contractual arrangements with the Department after S/LPD had directed
IBC to begin the work. For example, an order awarded to IBC in the
. amount of $24,400 Was signed by the Department's contracting official
almost one month after ,IBC was to have completed the work and almost
four months after IBC had been directed to begin the work by S/LPD
officials. The FAR Clearly states that the contracting officer is
responsible for the control of the contracting process and that
contracts may be entered into only by Contracting officers.
The OIG determined that all contracts awarded by the Department's
procurement Office to Mt. Gomez, IBC, .and INSI were based on inadequate
sole source justifications. In the final $276,000 contract with IBC
another feature of contracting was added?the Competition in Contracting
Act of 1984 (CICA). At the time this Contract was being Considered by
S/LPD officials, The FAR had been changed to include the CICA
provisions. The Department's contracting officials brought the new FAR
provisions to S/LPD's attention including the new CICA requirements to
publicize even 'proposed sole source awards., This contract was
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classified SECRET by S/I,Pa officials, not publicized by the Department,
and was, eventually awarded on .a sole source basis approximately 11
months after IBC began the work at SAPD'sdirection, Moreover, IBC
eventually received approximately $240,000 dollars for its work on the
contract,- even after the fact that Robert. Kagan, who, succeeded
Ambassador Reich as the Director of the Office of Public Diplomacy,
requested in a May 28 1986 memo to Executive Director Patrick Kennedy
that the funds be deobligated.
Federal acquisition regulations require that all proposed contracts
over the amount of $10,000 be published in the Commerce Business Daily
(CBD). None of the purchase orders of contracts over $10,000 awardedto
Mr. Gomez or IBC were publicized by the Department's contracting
officials. In addition, purchase orders BIOIX. Mr. Gomez and IBC were made
on a fragmented basis, often for less than $10,000, apparently to
circumvent the acquisition requirements.
3. Reasonableness of Prices and Performance-The OIG's audit questioned'
some charges Contained in the FY 1986 contract for $276,000.
Specifically, the report questioned the travel and ADP equipment costs
charged by IBC. The OIG report indicated the IG's office would conduct
a cost incurred audit at a future date. In December 1987, the OIG
completed the audit and disapproved approximately $84,000 in Costs
claimed by IBC under the contract The OIG has recommended that the
Department attempt to recover these funds from IBC. To date, the funds
have not been recovered.
On September 104 1984, the Foreign Service Institute (M/FSI) placed
a training order for $16,198 with IBC. The training order required IBC
to conduct seminars in El 'Salvador on improving press relations for El
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Salvadoran military officials in late August and early SepteMber of
1984.:? The use on an M/FSI training Order to Obtain the services of IBC
appeared to be inconsistent with the principles that generally apply to
M/FSI training orders. Normally, M/FSI arranges for training for State
Department employees that is job related. The training order with IBC
involved training for foreign officials and was conducted by a private
company in a. foreign country. Moreover, the DIG discovered in its
discussions with IBC officials that the training seminar never took
place; instead, individual counseling took .-place with 20 to 25
individuals. The DIG has recommended that action be taken to recover
the funds from IBC since the seminar never took place. :To data, the
funds have not been recovered.
4. Ethical/Conflict of Interest Considerations--The DIG determined that
Daniel Jake Jacobowitz, a Department of Defense intelligence specialist
detailed to S/LPD from June 1984 to: June 1986, may have violated federal
ethical standards by introducing his sister,- Fran Jadobowitz, who was a
specialist in establishing and operating mail distribution systems, to
the head Of: S/LPD and to Frank Gomez of IBC. ,S/LPD subsequently
contracted with the Institute for North South Issues (INSI) and IBC for
analysis, design, and operation of a mail distribution system. The
sister was hired by IBC to direct the work under such contracts. The
DIG referred the matter to the DOD Inspector General, who,: after
investigating the incident, determined that Jacobowitz had violated
employee standards of ethical conduct. A letter of reprimand was Placed
in Jacobowitz's personnel file.
Prior to being employed by S/LPD,.Frank Gomez was employed as the
Director of Foreign Press Centers for USIA. He retired from that agency
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on February 14, 1984 and the performance date for the work called for by
the purchase order with S/LPD was February 14,:1984 through May 31,
1984.
Documents contained in the S/LPD files indicate that, while he was
employed_bY USIA, Frank Gomez established the :Institute for North-South -
Issues and negotiated with USIA and the State Department for contract
work after he retired. The same purchase order was also negotiated with
S/LPD while he was employed by USIA.
The OIG referred this matter to the USIA IG on May 15, 1987 to
.determine whether
any conflict of interest laws Or regulations were
violated.- To date, the USIA IG has not initiated, any action.
. Congressional and Press Guidance-,-The DIG determined that a small
but important portion of information provided to Congtessional
requesters and as preSsiguidance was either inaCcurate, incomplete, or
potentially
misleading. In addition, the OIG concluded that the '
Department's responsiveness to requests for information by: members of
Congress and their staffs had been slow and fragmented.
6. Classification of the FYA.986 Contract--S/LPD- classified its final .
$276,000 contract with _IBC as SECRET, contending to *officials that it
contained sensitive information of a national security nature,- However,
the contract was Virtually a continuation of an unclassified FY 1985
contract, except for the addition of an unclassified document
distribution system The OIW,s report concluded that "there was nothing
of a.national security or even a sensitive nature in the contract. In
our opinion, the teal reason for classification was to avoid publication
in the CBD and possible challenges to the Sole source contractual
relationship with IBC."
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. The OIG's report also Contains -a number of specific recommendations
. relating to the Department's award and administration of contracts. All
of these recommendations, including those recommendations to recoup
monies from IBC have been .accepted by the Department. In addition to
these recommendations, it is the Committee staff's understanding that
the OIG has referred S/LPD Director Otto Reich's name to the
Department's personnel office for possible disciplinary action.'To
date, the office has not taken anyaction,
THE ERAWOONTRA INVESTIGATION
For the duration of the Congressional investigation of the
Iran/Contra affair, the Committee staff continued its investigation of
the activities of 'S/LPD. 'In its review of the evidence, it became
apparent to the Committee staff that SAPD's activities were not
coordinated within the State Department but by a'high level interagency
group established by the NSC. As the final report of the Congressional
Committees investigating the Iran/Contra .affair- points out, :Walt
Raymond, the principal NSC staff officer in charge of monitoring S/LPD
... was a former senior CIA official,: with experience in
covert operations, who had been detailed to the NSC staff for
a year with Casey's approval, and who upon retirement from the
CIA became a Special Assistant to the President with
responsibility for publicdiplamacY affairs."
Once.at the NSC, Raymond helped set up a system of inter-agency
committees, including
a working group on Central
Diplomacy. The NSC staff
American Public
also succeeded in having Otto Reich named as
the Director .of the new Office of
Public Diplomacy (S/LPD), which
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reported directly to the NSC. Francis D. Gomez, former, public affairs
specialist at the State Department and USIA, was hired by S/LPD through
a series of sole source no-bid contracts to carry out a variety of the
Reagan Administration policies in Central America. Gomez and his
business partner, Richard Miller, former head of public Affairs at AID,
then formed International Business Communications (IBC), a public
relations firm which also received a number of State Department
contracts.
Supported by 'the State Department and White House, Miller and Gomez
became the outside managers, of Carl Spitz Channell's fund-raising and
lobbying activities. They also served as the managers of Central
American political figures, defectors, Nicaraguan oppositiOn leaders and
. Sandinista atrocity victims who were made available to the press the
Congress and private groups, to tell the story of the Contra cause.
They facilitated the transfer of funds raised by Channell and others to
Swiss and offshore bank accounts at the direction of Oliver North. They
became the key link between the State Department and the Reagan White
House with the private groups and individuals engaged in a myriad of
endeavors aimed at influencing the: Congress, the media and public
opinion. They also became the main funnel for private U.S.- money going
to the Democratic resistance in Nicaragua.
What follows is a description of how an outside private network of
individuals was established that, with the guidance of senior White
House officials, provided financial and political support for the Contra
cause. S/LPD,
played a,pivotal
which played a
?
a relatively obscure office in the State Department,
role in maintaining and nurturing, this private netwOtk,
central: role in the larger Iran-Contra affair. (All
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information in the following section is taken from public sourceS and
published declassified transcripts and records of, the Iran-Contra
Committees.)
S/LPD AND THE PRIVATE NETWORK
Walt Raymond, a-senior career CIA official and propaganda expert,
was approached by Donald Gregg, Chief of the Intelligence Directorate at
the NSC, and informed that Gregg was recommending to CIA Director Casey
and NSC AdvisOriwilliam'Clark that he be assigned to the NSC as Gregg's
successor when Gregg departed to join the staff of Vice-President George'
Bush. Raymond discussed the transfer with Casey Clark, and McFarlane
and received approval: for his involvement in Setting up the public
diplomacy program along with his intelligence responsibilities.
Accordingly, he was transferred from CIA headquarters to the NSC in June
of 1982.
In the early part of 1983, documents obtained by the Select
Committees, and later released in unclassified form, indicate that Walt
Raymond, who had succeeded: Gregg as the Director of the Intelligence
Staff of ;the--.NSC, successfully recommended the establishment of an
inter-governmental network to promote and manage a public diplomacy plan
designed to create support for Reagan Administration policies at home
and abroad, Their initial efforts were directed toward involving
private groups and individuals in a campaign to influence American and
European public opinion on Intermediate Nuclear pot-0e (INF) deployment
in Europe.
In the Spring, of. 1983, the network began to turn its attention
toward beefing up the Administration's capacity to promote American
support for the Democratic resistance in Nicaragua and the fledgling
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democracy in El Salvador. This effort resulted:in the creation of the
Office of Public Diplomacy for Latin America and the Caribbean in the
Department of State (S/LPD) .headed by Otto Reich. ,
:On May ,25, 1983, Secretary of State George P. Shultz, in an effort
to head off the creation of, SAM, wrote a memorandum to the President
asking for the 'establishment of "simple and straightforward management
procedures." The memorandum to the President 'followed a discussion
between thePresident and Shultz earlier in the day.
In the memo Shultz said;
. .-, Therefore, what we discussed was that you will look to
me to carry out your policies: If those policies change,. you will?
.
tell me. If I am not parrying them outeffectively, you will hold
me accountable. But we will set. up a structure-sothat I can be
your sole delegate with regard to carrying out your policies.
. What this means is that there, will be an Assistant
-Secretary acceptable to you (and you and I have agreed on Tbny
Motley) Who will report to Me and through me to you. We Will use
Dick Stone as our negotiator, who, in conjunction with Tony, will
also report solely to me and through me to you. Similarly, there
will be an inter-agency committee, but it will be a tool of
management and not a.decisionmaking body. I shall resolve any
issues and report to you."
The President responded with a memorandum, which stated in part:
"Success in Central America Will require the cooperative effort
of several Departments and agencies. No single agency can do it
alone nor should it. Still, it is sensible to look to you, as T do,
as the lead Cabinet" officer, charged With Moving aggressively to
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develop the options in coordination with Cap, Bill Casey and others
and coming to me for decisions. I believe in Cabinet government.
It works when the Cabinet officers work together. I look to you and
Bill Clark to assure that happens."
Attached to the memo was a chart placing the NSC between the
Secretary of State and the President for the management of Central
American strategy: Shultz had not only lost the battle to prevent the
establishment of the office, he also accepted the NSC-sponsored
Candidate to run the office, and accepted the fact that Reich would
report directly to the NSC and not through the Assistant Secretary of
State for Inter-American Affairs.
Almost simultaneously with the creation of S/LPD, Walter Raymond,
Jr. was named to a new position as Special Assistant to the President
and Director of International Communications at the NSC ., From that time
forward, S/LPD reported to Raymond and his working.: group on Central
American Public Diplomacy at the NSC. The group was composed of
representatives of USIA, the CIA and DOD, as well as various NSC
Staffers, including Oliver North. At least for several months after he
assumed this position, Raymond also worked on intelligence matters
at
the NSC, includingsdrafting a Presidential Finding for Covert Action in
Nicaragua in mid-September.
Reich relied heavily. on Raymond to secure personnel transfers from
other government agencies to beef up the limited resources made
available to SAPID by the Department of State. The NSC also intervened
on behalf of S/LPD with top Management officials in the State Department
to expand Reich's resources within the Department. Personnel made
available to the new office included intelligence specialists from the
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U.S. Air Force and the U.S. Army. On one occasion, five intelligence
experts from the Army's 4th Psychological Operations Group at Fort
Bragg, North Carolina, were assigned to work with Reich's fast-growing
operation.
White House documents also indicate that CIA Director Casey had more
than a passing interest in the Central American public diplomacy
campaign. In an August 9, 1983 Memorandum entitled "Private Sector
Support for Central American Program," Raymond told Clark:
"A group of public relations specialists met with Bill Casey a
few days ago. Faith also met them.
The group included Bill
Greener, the public affairs head at Philip Morris, and two or three
others. They 'Stated' .What needed' to be done to generate a
nationwide Campaign. Several elements were identified.- The first,
fund-raising effort under the direction of someone like Waltet.,
wriston. Secondly, an effective communications system inside the
Government. The overall purpose would be to sell a 'new product' --:
Central America -- by generating interest across-the-spectrum.."
In an,August.29, 1983 Memorandum :from Raymond to Poindexter, Casey's
continuing interest in the effort to influence public ()Pinion Was shown
by the following reference:
"Bill Casey called on August 26 and would like to follow-up on
his idea to have a meeting with five or six key public relations
specialists. This is referred to in my earlier Memorandum. I-pUt
him off until after Labor Day.'
. When I philosophized a bit with Bill Casey (in an effort
to get him Out Of the loop), he was negative about turning the ball
over to State, but very positive aboUt. someone like Gil Robinson
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working on the problem from within State."
Casey was obviously concerned that the establishment of S/LPD in the
State Department might put it beyond NSC control, Casey's involvement
in the public diplomacy effort apparently continued throughout the
period under investigation by the Committees.
On March 20, 1985, Oliver North sent -a memorandum to National
Security Advisor Robert McFarlane on the subject; "Timing and the -
Nicaraguan Resistance Vote," .Attached to the memo wasa chronological
event checklist which outlined efforts "aimed at securing Congressional
approval for :renewed support to the Nicaraguan Resistance Forces.":
Responsibility for the various efforts was tasked to a number of
individuals in the NSC and Department of State as well as :private
. supporters including former Congressman Dan Kuykendall and State
Department contract consultant Frank Gomez. In the cover memoHseeking a
decision from Don Regan that would trigger some of the private group
efforts, North wrote:
"You should also be aware that Director Casey has sent a
personal note to Don Regan on the timing Matter. We are attempting
to obtain a copy for your Use."
As late as August of 1986, Walt Raymond prepared a memorandum for
Poindexter's signature to Bill Casey on the subject of Central American
Public Diplomacy. The memo repotted on a new structure in the State
Department which moved LPD from the Secretary's Office to the Bureau of
Inter-,-American- Affairs. In the cover memo to Poindexter, Raymond
indicated his desire to have peter Dailey, who had been U.S, Ambassador
to Ireland and had managed the public diplomacy initiative on INF
deployment in Europe, "work closely with Bob Kagan, the Interagency
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Central American Public Diplomacy coordinator, and to help coordinate
private sector activities such as funding that currently cannot be done
by either CIA or State."
On August 22, 1986, Casey responded to the Poindexter memo
indicating that he (Casey) had just:
? , ?
. brought Pete Dailey on board as counselor to the
Director of Central Intelligence. As a CIA employee, naturally,
Pete is subject to the legal prohibitions an us relating to
activities intending to influence U.S. public Opinion or policy.
Any advisory role that he plays an the public diplomacy front must,
of course, be in accordance with these legal restrictions.
"Similarly, now that Pete has joined us, he obviously can have no
role in any private fund-raising effort on behalf of the Nicaraguan
Resistance."
Curiously, the letter to Poindexter was apparently not sent to
Poindexter but to Wait Raymond' because, on August 29, 1986, Raymond
forwarded the letter tO Poindexter with a cover memo Which said:
Casey has sent a brief note to you. which puts some
caveats around the activities Peter Dailey can undertake. Peter
talked to me, and I do not believe that this will cause him any
difficulties in helping us along the lines of our previous exchanges
via the PROFS system."
On August 26, 1986, Raymond sent a PROF note to Poindexter on the
subject?Of "Central America Public Diplomacy." '11.1e PROF note said, in
part:
,7As,a follow-up, Peter Dailey invited me to breakfast. I thought
the Memo was excellent but he did not feel that it totally filled
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the bill-. What he thought was missing was the immediacy of the
problem from the AMerican,domettic perspective. He believes that we
are operating with a relatively narrow window in Which to turn
around American perceptions re Contrasand particularly Nic -- or
we will be chewed qp by Congress'. We discussed the obvious, which
yis part of our strategy, including such things as: the need to
convince people of the key importance of Contras to our national
security; the need to glue white hats on our team, etc'. The themes
are those we'haVe pressed although he believes we.coUld change the
dialogue away from Contras to democrats, emphasize the need for a
;free and open vote, etc.. Nothing really new, here. The key
difference is that he thinks we should run it more like a
political/presidential campaign We need to strengthen Our ability
to reach out. Names like Rollins! NOfziger and co. were thrown
around as the kinds of resources one needs to tap.
"Later, in talking to 011ie and Bob Kagan, we focussed on what
is missing and that is a well-funded-,' independent outside group
remember the Committee for the Present Danger -- that could mobilize
people. Peter suggested 10 or 12 very prominent bipartisan
Americans. Added to this would rieed.to be a key action officer and
-a 501-c-3 tax-,exempt structure :It is totally understanding that
such a structure is needed and also totally understanding -why; for
:discreet political reasons, it was not included in the memo WI Bill
Casey . I told Pete he was right but we need horse' and money!"
As late as November 10, 1986, Raymond pent Another PROF note to
Poindexter on the subject of "Cent Am Private Sector Initiative," which
,stated:.
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"There have been several meetings following qp on the effort to
get a major, bipartisan group formed to help promote an
'educational' program in the U.S. which would help provide .
understanding (and support) for our Centam policy, particularly
vis-a-vis Nicaragua.
"Although Pete Dailey Bill Casey and Clif White have all been
involved in general discussion of What needs to be done, we are
.going to have to be sure that Pete and Bill are not involved. Pete.
is getting very nervous on this item. Hence, Clif is now taking the
lead. The current focus is to get a bipartisan co-chairmanship, a
six man (toughly) EXCOM a staff -director and a large bipartisan
fl advisory council. Current names being tossed around for the
co-chair include Jack Gavin, Bill Rogers, Dean Rusk and Mark White.
Pete (and 011ie) favor going with Gavin. Clif is also talking to ,
several key democratic activist types for their recammendations.
Jim Woolsey's name has come up in that context. Clif has the list
of Several effective operators who have just finished the fall
campaign (plus
a good EXDIR.
some soon-to-be ex-staffers on the Hill) who might be
Dave Miller
terms of getting the 501-c-3
political consultant field.
from Mitch Daniels too.
"The problem with all of this is' that to make it work it really
has to be one step removed from our office and, as a result, we have
to rely on others to get the job done. Will keep you posted."
From early 1983 until November of 1986, the NSC staff, with
has also been helpful, particularly in
status and access to fresh faces in the
Clif has (or will) be seeking names
the
backing of Bill Casey and support from National Security Advisors Bill
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Clark, Bud McFarlane and John Poindexter, and With continuing help from
Oliver North, created an inter-governmental structure the purposes and
activities of which were masked from Congress and public view,. The NSC
and S/LPD, Operating under the cover of the State Department, hired,
outside consultants % and gave encouragement,- support and -direction to
groups of private citizens outside the government. These groups raised,
.money for Contra weapons, lobbied the Congress, ran sophisticated media-.
campaigns in targeted Congressional districts, and wOrked with S/LPD to
.influence American public opinion through manipulation of the American
press. In the latter half of 1986, Raymond was attempting to set up a
private group with more prestige and greater clout than the Rich
Millet/Spitz Channell netwOrk that had been quickly' assembled and
utilized to work on the 1986 Contraaid vote in the Congress.
While donations from other countries and profits from the Iran arms
..sales provided most of the money for lethal assistanceto the Contras
after the Boland Amendment, a network of private foundations and
organizations, including those associated with Carl R. .''Spitz" Channell
and Richard -R. Miller, also played:".an essential role. Channell'S
principal organization* the tax-exempt .National Endowment for the
Preservation of LibertyANEPL), used White House briefings and private
meetings with the President to raise more than $10,000,900 frdm private
contributors, almost all for the Contra cause. Over half of this total
came from two elderly widows -- Barbara Newington and Ellen Garwood
i--
who made: the bulk of their contributions after receiving private and.
emotional presentations by Oliver North on .the Contras' cause and
military needs. One dozen contributors accounted for ninety percent of
NEPL's funds in 1985 and 1986.
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Richard Miller's principal organization, .International -Business
Cammunication (IBC), was a partnership between Miller and Frank Gomez,
which began to work on behalf of the Contras under a State Department
contract that began in early1984. From early 1984 Until the Summer of
1985, IBC's principal source of income. was derived from a series of
State Department sole-source, no-bid contracts pushed through the .
bureaucracy by the principal officials of S/LPD.
The first State Department contract for IBC began in February 1984,
shortly after S/LPD had begun its work. Miller and Gomez were
introduced to Oliver North in mid.-1984 by State Department officials
from S/LPD. Fran that period forward, Miller and Gomez worked closely
with North as well as the Office of Public.DiploMacy in carrying out a
variety of assignments related to the promotion of the Contra cause:
In?the Spring of 1985, WhiteHouse Deputy Political Director John
Roberts sent Spitz Channell and his Deputy, Dan Conrad, to meet with
Miller and Gomez, who, Roberts believed could best advise them how to
utilize their fund-raising services on behalf of the Contra cause.
Roberts was so confident in IBC's Connections to the Administration that
he described it as the "White House outside the White House." Miller
and Gomez assisted Channell in his fund-raising efforts and advised
Channell on the, disbursement of the proceeds ? for various projects
including lobbying, television ads, newspaper ads and grassroots
activities: designed to influence Congressional .votes an aid to the
ContraS.
Congressman Mike Barnes, whose Congressional district adjoins
Washington, D.C.. and who was Chairman of the House Foreign Affairs
Subcommittee On Western Hemisphere Affairs, Was a special recipient of
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television ads financed by Channell. Heavy television advertising Was
directed against Barnes even though the sponsors. knew that there was no
chance they could change his mind or his vote. They felt-, however, that
Since these ads were scheduled to run in the Washington media market,
they would-be seen by all'Ilembers of Congress and serve as a _warning.
The Washington television campaign was supplemented by ad campaigns in
selectively targeted -Congressional districts. The entire effort,
although paid for by Spitz Channell and his contributors, was actually
managed-by Rich Miller and others, including Dan Kuykendall and Penn
Kemble.,
Of the $10,000,000 that was raised, nearly, two million dollars was
spent for public relations, : political advertising and lobbying. Much of
the rest was retained by Miller and Channell : for salaries, fees and
expenses incurred by their organizations. The-NEpl, money that was spent
for direct and indirect :assistance to the Contras: was disbursed,
primarily by Miller, at the direction of North. Approximately $1.7
million was "washed" by Channell through Miller's domestic and Cayman
island entities -- International Business CamMunications (IBC) and I.C.,
Inc. - to the Enterprise, where it was commingled with funds from third
country: contributions and the Iranian arms sale. Another one million
:dollars was passed at the direction of North through Miller's entities
to accounts, -controlled by Adolfo Calero. Approximately $00,000 was
distributed at North's request to other persons and entities engaged in
activities relating .to the Contras, including Rob Owen, Dan Kuykendall,
Thomas Dowling, the Washington ONO Office and some unidentified
entities.
Friends of the Democratic Center in Central America (PRODEMCA),
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which concentrated on Central American issues, was another organization
that had close financial and personal ties to Channell and Miller. Penn
Kemble, the President of PRODEMCA-; was involved in .a broad array of
activities related to Spitz Channell'S Central American Freedom Program
and the Reagan Administration's efforts on *half Of the Contras.
Kemble initially recommendedto Miller and Gomez that Bruce Cameron be
hired as a lobbyist for PRODEMCA The relationship; however, was
eventually accomplished by Kemble and Cameron taking over Rob ?Wens'
organization, the Institute for Democracy and Education in America
(IDEA)4 Changing its name to Center for Democracy in the Americas (CDA),
and readjusting the board of directors to include Kemble as Chairman and
Cameron as President.
Kemble was also one of the principals in the Institute for Religion'
and Democracy, whicn Worked with Otto Reich's S/LPD office in the State
Department and received some minimal funds from IBC. At the PRODEMCA
offices, Kemble hosted legislative strategy Sessions', in at least one of
which State Department official Robert Kagan was a participant, prior to
the 1986 Congressional votes on Contra aid.
: In the SUMITEr of 1985, Oliver North, with the assistance of Richard
Miller and Frank Gomez, enlisted the services of Roy Godson and the
Heritage Foundation in his successful effort to transfer _money
indirectly to Miller's Cayman Island bank account. North initially
asked Roy Godson, a consultant to the NSC, a member of the President's
Foreign Intelligence Advisory Board, and the Director of the Washington
Office of the National Strategy Information Center (an organization
founded by William Casey and with extensive ties to the intelligence
community), to raisemoney to be spent in NicaragUP. Godson later met
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L.
with Miller, who suggested two alternative routes for contributions:
donations to the Institute for North-South Issues (INSI), a tax-exempt
organization controlled by Miller's partner, Frank Gomez; or ,money
transfers directly to Miller's cayman Islands bank account.
Godson turned for assistance to Clyde Slease of Pittsburgh counsel
to Richard Mellon Scaife and several Mellon family foundations. At the
request of Slease, Godson arranged for a meeting s'dth North and Robert
McFarlane in the Situation Roam of the White House. Slease agreedto
try to raise $400,000 for North's project. Slease then persuaded an
acquaintance in Pittsburgh, John Donahue, to donate $100,000, and they
? settled on designating the Heritage Foundation as the recipient of the
donation. '
SepteMber 12, 1985 letter from Richard Miller to Edwin Fueiner,
Director of the Heritage,Foundation, indicates that Donahue's $100,000
grant to the Heritage Foundation-wasthen awarded to INSI in the form of
a grant for, according to Miller's letter, "the purpose of disseminating
in Central America materials designed to educate the public on U.S.
-policy objectives," No such materials, however, were ever produced by
INSI Instead, Miller instructed INSI, after Heritage awarded it the
$100,000 to transfer $80,000 of the grant to his CaymanIslands account
from which funds were withdrawn as directed:ty North. INSI retained a
twenty percent adtinistrative fee for its distribution of the grant,
.which, according to Miller, was:the:standard fee North had recomtended
him to take. Donahue was never informed that INSI would be the
recipient of his grant noot that the money would eventually find its way
into Miller's Cayman Island account or North's Lake Resources account.
The grant to INSI via Heritage is one example of the elaborate
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efforts Channell and Miller made to conceal the nature of their
fund-raising activities and North's. role. Certain funds reCeived by
NEPL for Contra assistance were allocated an Channell's books to a
project denominated "ToyW a euphemism for weapons. NEPL and IBC
employees Were instructed to refer to North by a code name, "Green."
Funds were transferred to the Contras, not directly?which would be
traceable--but through Miller's anonymous Offshore entity, Inc.
North Misrepresented to several White House officials the natureof
the network's fund-raising Activities. For instance, the .President
apparently was led to believe that the funds were being raised for
political advertising; the President's Chief of Staff, Donald Regan,- was
deliberately kept in the dark by North.and Poindexter; and North
misrepresented to Congress and White House personnel the nature of hiS
involvement in the activities of NEPL and IBC. As 4 result the
Miller/Channell network was able to operate successfully until the
latter part of 1986, when increased government aid to the Contras and.
public disclosure of both the Iranian arms sales and the Contra resupply
network made further assistanceefforts unnecessary and unwise.
By using a tax-exempt organization to funnel money to the
Contras--for arms and other purposes?Channell and Miller provided tax
deductions to donors. As a result, the United States Government
effectively subsidized a portion of the contributions .intended for
lethal aid to the Contras. In the Spring of 1987 Channell and Miller.
pled guilty to criminal tax charges of conspiring to defraud "the United
States Treasury of revenues to whichit was entitled by subverting and
corrupting the lawful purpose ,of NEPL by using NEPL to solicit
contributions to Purchase .military and other non-humanitarian aid for
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the Contras.1! At his plea hearing, Channell identified Miller and North
as his coconspirators.
CONCLUSIONS
This report, as well as the documents and testimony on Which it is
based, indicates that senior CIA officials with backgrounds in covert
operations', as well as Military intelligence: and ,psychological
operations specialists fram the Department of Defense, were deeply
involved in establishing and participating in a domestic political, and
propaganda operation run through an obscure bureau in the Department of
State which reported directly to the National Security Council rather
than through the normal State Department channels.
The? NSC working group on Central American Public Diplomacy was run
by a former senior CIA propaganda specialist and included
representatives of the CIA, the Department of Defense and the USIA as
well as various NSC staff, including Oliver North. Former CIA Director
William Casey approved of the operation-and was kept informed of its
activities throughout its existence., Donald Gregg, a former
high-ranking CIA official who is presently, the National Security Advisor
to Vice President Bush, initiated the recommendation which led to the
assignment of the senior CIA covert -.operative to the NSC. That
official, Walter Raymond, Jr., was responsible for the establishment of
the'S/LPD mechanism at the State Department even over the objections
and resistance of Secretary of State George Shultz. Raymond alsoran
the Central American Working Group on Public Diplomacy, at the NSC to'
which S/LPD reported. He was instrumental in facilitating the
assignment of intelligence personnel from the Department of Defense to
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S/LPD and the expansion of State Department resources available-to S/LPD
despite objections to, and initial denials of, such requests by senior
officials at the Departments of Defense and State. Through irregular
sole-source, no-bid contracts, S/LPD established and sustained a private
network of inidsiiduals and organizations whose': activities were
coordinated with, and sometimes directed by, Col. Oliver North as well
as officials of the NSC and S/LPD. These private individuals and
organizations raised and spent funds for the purpose Of influencing
Congressional votes and U.S. domestic news media. This network raised
and funneled money to off-shore bank accounts in the Cayman Islands or
to the secret, Lake Resources bank account in Switzerland for
disbursement at the direction of Oliver North
-Almost all of these activities were hidden from public view and many
of the key individuals involved were never questioned Or interviewed.by
the Iran/Contra Committees. Relevant documents discovered in S/LPD1s
files by the GAO were never provided to the Iran/Contra Committees nor
the Foreign Affairs Committee despite repeated requests. The State
Department Office Of Personnel has, for over a year, refused to act on a
recommendation by the State Department Inspector General that theformer
head of S/LPD be subjected to disciplinary action. A recommendation to
the Inspector General of USIA that certain matters related to these
activities be investigated has apparently been ignored or inexplicably
,delayed. Key officials of the NSC and S/LPD, who were responsible for
many of these imporper activities have been promoted or transferred to
senior positions in the U.S. Government.
-A subsequent investigation may be necessary to determine the extent
to which the Department of State' was used, and perhaps compromised, by
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the CIA and the NSC to establish sustain and manage a domestic covert
operation designed to lobby the Congress, manipulate the media and
influence domestic public opinion.
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'
U.S. Opparepeet
pf fest*
AP!. $6 . ose.
tier ? Ow SO
$302 SCO
Soo $5 vs, 1111
U.701011
Soo :Ow Is
SOO :0C
WM ? 01/C
$443 000
I C
Onto Ccroorawto
`=.212MI.
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DANTE
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LEE H. HAMILTON, INDIANA
GUS YATRON. PENNSYLVANIA
? STEPHEN J SOLARZ. New YOH
DON BONKER, WASHINGTON
GERRY E. STUDDS. MASSACHUSMS
DAN MICA. FLonwe
. HOWARD WOLPE, Mmwcen
GEO. W. CROCKETT. J.. MICHIGAN
SAM GEJDENSON. CopRetinue .
MERVYN M. DYMALLY. CALIFORNIA
TOM LANTOS, CALIFORNIA
PETER M. KOSTmAYER. PE LLLLL VANIA
ROBERT G.-TORRICELLI. NEW JERSEY
LAWRENCE J. SMITH. FLORIDA
HOWARD L BERMAN. CAUFORNIA
MEL ?LEVINE. CALIFORNIA
EDWARD F. FEIGHAN. OHIO
TED WEISS. New YORK
GARY L ACKERMAN. Haw You
? MORRIS K. UDALL AAIZONA
CHESTER G. ATKINS, MessacHuserre
JAMES McCLURE CLARKE Nonni Cenoume
JAIME B. FUSTER. PUERTO RICO
JAMES N. BILBRAY. NEVADA
. WAYNE OWENS, UTAH
'FOF0 IF. SUNIA. AMERICAN SAMOA
JOHN J. BRADY. JR. ,
CHIEF of STAFF
Dear Colleague.:
ent ilundrtdth Congas
Congress of tht United eStatts
committet on foreign affairs
oust of ittpresmatiots
itOsishington, BE 20575
March 18 1987
WIU.IAM S. SROCIMFISLD. MICHIGAN
" BENJAMIN A. GILMAN. NEW YORE
ROBERT J. LAGOMARSI/W). CaLooewl.
JIM LEACH, IOWA
TOBY ROTH. WISCONSIN ?
OLYMPIA J. SNOWE. Wow
HENRY J. HYDE, ILuTeTnt
GERALD.B.H. SOLOMON. New YORK
DOUG BEREUTER. NEBRASKA
ROBERT K. DORNAN. CAttRawnA
CHRISTOPHER H. SMITH. Paw
CONNIE MACK. FLomoa.
MICHAEL ()TWINE. OHIO ?
DAN BURTON. INDIANA
JAN MEYERS.
JOHN MILLER. WASHINGTON
DONALD E."BUZ",. LUKENS, OHIO
BEN. BLAZ, GUAM
STEVEN K. BERRY ?
Mitionirr CAME OF STAFF
Attached is a'Copy of a preliminary report prepared by the
Committee staff, which has been reviewing the State Department
consulting contracts with International Business Communications (IBC)
and one of its principals, Frank Gomez.
Because of the difficulty the Committee staff has encountered in
its efforts to Obtain relevant, information from the State Department,
and because IBC has apparently been involved in the funneling of? money
to secret Swiss bank accounts, I am forwarding this reporti-, along with
all of the relevant documents, to the House Select, Committee to
Investigate Covert Arms Transactions with Iran.
Although the Committee will continue to seek information an IBC
and related companies in its oversight capacity, .it is becoMing
increasingly apparent that the Select Committee may have to use its
subpoena powers to obtain the full story,
- DBF:BHddn
Sincere y yoursi-
. Fasce110
irman
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Committee on joreign Saffairo
MEMDRANDOM
TO: Dante B. Fascell, Chairman
FM: Committee Staff
RE: State Department's Award of Contracts to Frank Gomez and
International Business Communications
DATE: March 18 1987
Attached is a preliminary report of the Committee staff's
investigation of the circumstances surrounding the award of six
contracts by the State Department's Office of Latin America Public
Diplomacy, to International Business Communications (IBC) and its
principal, Frank Gomez.
As noted in the attached report, the staff encountered a number Of
problems in its attempt to obtain all of the relevant documents in a
timely fashion. Information and documents initially given to the
.Ccanittee were incomplete and failed to provide a continuous fldw of
events. Additional information and documents were provided to the
Committee staff at the State Department under restrictive conditions.
After its review of all contracts and files, the staff is of the
Opinion that the information provided by the Department raises Many
more questions than it answers. Given this fact, the staff wishes to
emphasize that the attached document is A preliminary, not a final,
report.
? While the State Department contracts and the files contain
additional information on, for example, the circumstances surrounding
the classification of the $276,000 contract, IBC's direct mail .
efforts, and some of the reasons why the Department formally entered
into a contractual relation with IBC eleven months after the contract
period commenced', these documents are still Completely lacking in
terms of answering a number of key questions For example:
Why was a non-competitive $276,000 State Department contract
With IBC classified as secret during the same time period that IBC was
engaged in transferring monies to Lake Resources, an account
controlled by Olivet North for the purpose of aiding the Contras?
-- Were any of the State Department contract monies in fact used
by IBC to illegally lobby Members of Congress?
-- Were State Department monies illegally diverted to aid the
Contras? ?
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,The Committee staff is of the opinion that these pressing
questions can only be properly reviewed by the Select Committee to
Investigate Covert Arms Transactions with Iran. With your
concurrence, the staff recommends that all documents in the
Committee's possession by forwarded to Chairman Hamilton and the
Select Committee staff.
This report was compiled by Bert Hammond, Vic Zangla and Spencer
Oliver.
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PRELIMINARy REPORT
MEMORANDUM
TO: Members, House of Representatives Committee
On Foreign Affairs
FM: Foreign Affairs Committee Staff
-_RE: ;Preliminary Review of Department of State Contracts with
International Business Communications, Inc.,
News articles on February 7, 1987, saying that the State Department awarded
a secret contract for $276,186 last year to a public relations firm that I
reportedly worked with Lt. Col. Oliver L. North, sparked immediate Committee
inquiries to the Department of State. In a letter dated February 9 1987,
Chairman Fascell and Chairman Hamilton requested the Secretary of State to :
provide information on this contract and any Similar ones'.
An meeting was held on February 10 1987, between Committee
staff and State Department Officials. The meeting produced little, if any,:
substantive and definitive information, e.g. on the reason for the contract;
the rationale for giving it a secret classification; its propriety in terms of.
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I fri
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2
spending taxpayer.money.for publicity and propaganda purposes; its award and
signing on September 2, 1986 -- some eleven months after its effective date of
October 1, 1985; its relationship, if any, to payments for pro-Contra TV ads;
and the possible Use of government contract payments to lobby Members of
Congress.'
Information a? nd documents initially given to the ComMittee were incampllete
and failed to provide a continuous flow of events. -Additional.information and
1
documents from contract files and the office of Public Diplomacy files were
made available to Committee staff at the State Department under closely
supervised and restrictive conditions. This information likewise was
'incomplete. For example, the State Department initially identified two
contracts with IBC. It now appears that there were at least six contracts with
IBC or its principals (see following listing and appendix).
Despite strenuous efforts by the Committee and its staff to obtain
documents and information related to the contracts with IBC, its principals,
and other similar contractors the Department of State has continued to raise
:barriers to Committee access to State Department files. Committee staff
requested contract information and answers to a number of specific questions at
the on-the-record meeting with State Department officials on February 10, 1987.
This information hasnot been provided. At a. hearing shortly thereafter,'
:Chairman Fascell asked the Secretary of State about thedelays and -
unresponsiveness of his Department. The Secretarysaid it was not their
intention to deny information to proper oversight investigations. However, the
epartment continued to stall
attempts to expedite the responses:
-- even after subsequent phone calls and ?
'Chairman Fascell .again wrote to the State ?
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I ?
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3
Department and other agencies an March 5, 1987, requesting important
information on agency contracting -- again without response.
The Committee is particularly concerned about the role played by the State
Department's Legal Advisor and his staff throughput its investigation. It:
appears that all requestsby the Catmittee for information .from the State
Department must go through the Legal Advisor's staff. The. Legal Advisor's, .
staff has continued to raise questions about every request, to examine all
documents before turning them over to the Committee, and to monitor and control
the. access to documents and other information. It is as though the
Legal Advisor is acting as a defense lawyer in a criminal investigation. As a
result,- the Committee has obtained only A Small portion of the documents
requested and has been required to jump through all kinds of unnecessary hoOlos.
just to acquire information that should routinely be provided in. its oversight
capacity. This gives rise to a question of what the Legal Advisor's office is
doing in this investigation? Why are they involved' Who are they reporting
to? Who is instructing them to apparently frustrate the Committee's effortS to
oversee the activities of the Department Of State?
Although access has been extremely limited, the following catMents and
Observations are based on a preliminary examination of documents and Other
information made available to the committee.
CONIRACIS
COmmittee staff has identified the following six contracts-between -
Frank Gomez/IBC and the Department of State. All contracts were sole
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source.
PERFORMANCE PERIOD
4
P.O. # RECIPIENP
2/14/84 7 5/31/84.
$ 9,500
1001402214 Frank Gomez
5/1/84 7/31/84
9,500
10017-402296 Frank Gomez
7/31/84 ? 9/1/84 .
9,800
1001-402296-A Frank Gomez
(extension of above contract)
10/1/84- - 12/31/84
.24,400
1001-502074: IBC
3/1/85 9/30/85
90,000
1001,-502160-
10/1/85 - 9/30/86
276,186
1001602066 IBC
In addition to these contracts, Francis Gomez in a letter dated 2/29184 to
Matthew Friedman (DOS/Office of Public Diplomacy), requested payment on an
additional Contract (P.O. #1101-402220,49,500 total amount). -: In a letter
dated 9/30/83 Francis Gomez, who was employed as the Director of the Foreign
Press Center at USIA, indicated that he would leave the employ of USIA on
2/14/84. Staff made a request for a copy of this contract but has not yet
received it. Questions include whether the period of performance for this
contract overlapped with other contract work for LPD performed by Frank Gomez,
and whether Mt. Gamez had terminated his employment with USIA before
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?A II,
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5
undertaking work for the Department of State.
OTHER LPD CON'I'RACIS
Apparently; State's Office Of Public Diplomacy for Latin America and the,
Caribbean (LPD) contracted for public diplomacy and publid relations with 'IBC
as well as others Mark Richards Associates, Inc.., seems to have had at least
3 contracts with LPD valued at approximately $126,000. Also, a nUmber of I
individuals were contracted to write one or more papers reportedly used in.,
connection with LPD Published materials. Of particular interest in this regard
is a contract to Mr. Arturo Cruz, Jr.. in FY 1985 for $6,300. Mr. Cruz, Jr.' is
the son of Arturo Cruz, a director of the United Nicaraguan Opposition (UNC)),
who recentlyresigned.
One of the questions that arises here is the extent to which these
contracts with LPD were for the same Or similar type work performed by IBC,
during the same time periods; and if so, Why the contracts were not open to
competitive bidding. The Committee requested these contracts and other
possible contracts on March 5, 1987, and has not yet receivedth
em
PAYMENTS TO LW
IBC made frequent requests to State for payments sometimes prepayments,
for services rendered under several contracts in 1984 and 1985. For example,
on 4/11/85,. IBC, citing cash flow problems urgently requested an early payment
on the first installment of an existing $90,000 contract that covered services
through September, 1985. IBC continued to perform services for LPD, apparently
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without interruptions and without a signed Contract, from October, 1985 to
September, 1986. There is no evidence in the documents made available to the
COmmittee that IBC requested any payment for these services during this
11-month period until September 16, 1986, when an invoice was submitted for
.$216,381.16 for services rendered .from October 1, 1985 through August 31, 1986.
A-final invoice covering the month of SepteMbek 1986, for $25, 670 was
submitted on October 31, 1986. (Total cost $244051,16).
Although documents examined 7- including proposals, projected costs,
requests for a fixed-priced contract, and reports of services rendered -- date
back, to September, 1985, the actual contract was not signed and executed until
.September 2, 1986, in the amount of $276,186. This series of events gives rise
to a number Of questions: for example, how and why IBC funded its operating
costs over Such a prolonged period of time without written assurance that it
would get a contract and be reimbursed for services rendered; why it took so
:long to execute a contract ostensibly for services similar to ones that IBC had
'performed for State/LPD under prior contracts; why the Contract eventually
executed was classified secret; why the contract was not Competed; and whether
Or not services performed by IBC in the area of public diplomacy and
development and distribution of information on Central Atherica were appropriate
and consistent with existing legislation.
_Perhaps, the article in the Washington Post on March 7,1987i May explain
to sane extent why IBC was apparently not pressed for money during the contract
.performance period. Based on information contained in an internal IBC
memorandum, the Article identifies IBC as a conduit for some $4.93 million,
received froth the National Endowment for the Preservation of Liberty (NEPL)
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during May 1985, through December 1986. NEPL is an organization apparently
controlled by Carl (Spitz) Channell. Reportedly, $1.74 million of this money
was transferred by IBC to Lake Resources, Inc., an organization allegedly
controlled by Lt. Col. Oliver North. The article notes that IBC collected'
"professional fees" of $1.28 million and spent another $493,000 on "program
expenses."
The overhead Charges included in the .$276,000 IBC contract amount to
$128,727, or 50% of the total contract', excluding the fixed fee of $16,442. On
the surface these charges appear. to be excessive and inbonsistent. For
example, the facility cost base used by IBC and accepted by the State
Department included $110,000 for rent, $25,142 for real estate taxes and
depreciation, and $17,895 for utilities and maintenance. Questions arise
because the facility cost base includes large rental fees along with costs
7
(taxes, depreciation, and Maintenance) generally associated with ownership of
real property. The principal place of business, 1912 Sunderland Place, N.W. is
a small 3 level office building with approximately 900 square feet of office
space on each level. The building in which IBC is located'also houses a number
Of other professional tenants. The contract called for places of performance
at bihe State Department, 1912 SunderlandPlace, N.W..; and 1523 New Hampshire
Ave., N.W., both.in,Washington, D.C.
MAILING LIST
IBC was asked by LPD in October 1985, to assume responsibilities for
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distributing public diplomacy materials and developing an improved
computerized mailing list. Starting with a listing containing About 500 names
mostly press, U.S. government and support groups IBC developed a
compUterized.data base of sane ,3300 names. This current listing includes
Members of Congress, key House and Senate staff members, U.S.' government
officials the media., religious organizations, state and local government
officials, political organizations, academicians, educational associations,
business', labor and research organizations, public interest groups and private
individuals. Th&Complete mailing list has rt yet been made available to the
Committee.
Some preliminary observations about the mailing list: (1) it 'appears to
consist largely of groups, organizations and individualS in positions to
- directly Or indirectly influence, debate and/or publicly support official U.S.
policy and activity, in Latin America and the. Caribbean; (2) the number of
private individuals on'the list is probably small; (3) the existing database is
structured and coded so as to allow sorting, selection and grouping of names in
any number of different categories, which in turn, would allow specific
targeting of public diplomacy efforts, (4) the database System is relational,
i.e., it can manipulate data for statistical and demographic purposes; thus it
seems to have the capability of comparing and analyzing information to
. ?
determine when and where diplomacy efforts are successful 9r need 'tobe
enhanced.
We found no evidence that Members of Congress and their staffs knew or were
-aware that the State Department was paying one or more Outside contractors to
. conduct "public diplomacy"-.aimed at influencing the Congress.
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9
The limited information made available to us indicates problems and
supports questions in a number of areas: (1) whether groups or individuals
were deliberately targeted by State/IBC in developing the mailing list and
developing and distributing information, (2) the extent to which the material
mailed out was objective and factual or designed to influence legislation, (3)
whether State/IBC complied with mail statute 39 USC 3204 that prohibits U.S.
government officials from mailing materials without prior requests, except to
educational institutions, public libraries or Federal, State and other public
authorities, (4) if State/IBC public diplomacy efforts were inconsistent or
contrary to legislative and other prohibitions regarding lobbying and (5)
whether State is complying with the requirement to inquire periodically if an
individual or organization wants to remain on the mailing list.
CLASSIFICATION OF CONTRACT
Press reports allege that the State Department classified the $276,000
contract in order to protect Sandinista defectors that IBC was reponsible for
under the berms of the contract. In a discussion between committee staff and
DOS officials (2/10/87), State representatives indicated that the contract had
been classified not for security reasons but to guard business confidentiality.
In an internal State Department memorandum dated 2/24/86, John Blacken
(S/LPD) said that "the services provided by the contract are such that
publication of the general nature of the performance would be detrimental to
ongoing .programs under S/LPD. Firstly, release of the general nature of the
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S
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10
contract could allow elements unfriendly to the U.S. to deduce sensitive
interagency operations of S/LPD, the secrecy of which is fundamental to their
success. Revelation of certain operations or allowing speculation could result
in serious damage to our relations with several allies and other sovereign
states."
In another memorandum dated 2/29/86, Thomas F. Calhoun (S/LPD) informed
Barbara Garland, Acting Chief of the Contracts Division, that the entire
contract with IBC would be classified secret. Calhoun indicated that the
citations justifying the classification of the $276,000 IBC contract are
Federal Acquisition Regulations (FAR) 6.302-6 for national security
consideration and FAR 5.202 for unusual and compelling reasons.
FAR 5.202 states that the contracting officer need not submit the notice
required by. FAR 5.201 (which requires agencies to furnish for publication in
the Commerce Business Daily (CBD) notice of proposed contracts to exceed
$10,000) when the contracting officer determines that publication of the
synopsis of the contract in CBD would compromise the national security (e.g.,
would result in disclosure of classified information). Sec. 5.202(1) also
states that "The fact that a proposed solicitation or contract action contains
classified information, or that access to classified matters may be necessary
to submit a proposal or perform the contract does not, in itself, justify use
of this exception to synopsis."
Section 6.302-6 of the FAR states that full and open campetition for the
award of the contract "need not be provided for when the disclosure of the
agency's needs would compromise the national security." Section 6.302-6 also
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A L.
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11
states that national security justifications for classifying a contract shall
not be used merely because the acquisition is classified, or merely because
access to classified matters will be necessary to submit a proposal or perform
a contract.
The October 1, 1985, through SepteMber 30, 1986, DOS contract with IBC
provided for the handling of Nicaraguan political defectors during their stay
in the U.S. and for translation services associated with debriefing the
defectors. In addition, IBC would provide DOS with direct mail services.
With respect to the secret classification of the IBC contract, a number of
questions remain:
-- How would the disclosure of a contract to host Nicaraguan exiles in the U.S.
have compromised national security?
-- How would the IBC contract in question have compromised the Office of
Public Diplomacy had it been disclosed publicly?
-- How would public disclosure of the contract have compromised U.S.
relations with its allies and other sovereign states?
-- How would the business practices of IBC have been compromised if the
contents of the contract had been disclosed to the public?
-- Were national security considerations the real reason for classifying
the contract?
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12
IBC SECURITY CLEARAWE
Department of State records indicate that due to the classification of the
IBC contract for $276,000, a formal written award of the contract could not be
made until IBC obtained a secret facility clearance.
On March 18, 1986, Defense Investigative Service (DIS) responded to the
State Department to indicate that IBC was a partnership (namely, Miller
Communications, Inc. and Gomez International, Inc.) and that both individuals
(Gmbez and Miller) wished to have their facility clearance processed as an
individual facility partnership. Both Miller and Gomez were advised by DIS
that additional documentation would have to be processed for such a clearance.
Neither entity responded to the DIS request for additional information.
On April 17, the State Department forwarded a second request for clearance
to DIS. On May 6, DIS responded to State to indicate that the office "had made
repeated attempts to contact Mt. Frank Gomez, all to no avail."
On May 14, a third request for a secret facility clearance was forwarded to
DIS. On June 3, DIS responded to State that after "repeated and explicit
requests that the partnership furnish the information requested to place IBC in
process for a clearance," Gamez and Miller had not answered DIS inquiries. DIS
again discontinued processing IBC for a facility clearance.
In a June 12 memo, Barbara Garland (Contracts Branch) noted IBC's repeated
failure to respond to DIS inquiries. She recommended that "the requirements
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13
office should be put-on notice that IBC is to perform no further services nor
incur, further costs until the situation is resolved."
In a June 17 memo to Robert Kagan (Director, Office Of Public Diplomacy)
Robert Dickson of the Procurement Division warned that unless Kagan's office
book irrimediateaction to ensure that IBC complied with DIS requests, the Office
Of Public Diplomacy "would be faded with a situation where services are being
performed not only absent a contract but where there is no adequate assurance
that the contractor is following security procedures for an effort that is
clearly Sensitive in nature. Should this effort fail there- is no means to
assure that the services Are being performed in accordance with S/LPDOO
requirements and no contractual instrument will exist by which the contractor
may be paid for its Services."
On July 30, DIS granted IBC an Interim Secret facility clearance.
On November 17, after the expiration of the contract DIS granted IBC a
secret facility clearance but without the capability to safeguard classified
MateriaL. The IBC facility that was granted a clearance is located'at 1912
Sunderland Place, N.14,%, Washington D. C. 20036. It should be noted that the
contract also permits the contractor to perform services at 1523 New Hampshire
Ave'. N.W., Washington, D.C. 20036.. This facility, however/ Was not granted a
security clearance.,
This:series of events raises many questions such as:
-- Why weren't IBC's principals, Richard Miller and Frank Gomez, rt-re
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= 14
responsive to Defense Investigative Service's inquires?
-- What classified services did IBC provide State in the ten month period
before it received its interim security clearance on 7/30/86? At which
location were these classified services performed?
--Were the classified services that IBC provided to State before receiving
ts interim' security clearance in violation of security Clearance provisions?
-7 IS _it normal practice to approve a classified contract and continue to
request that classified services be providedby the contractor before proper
clearances have been granted. to the Contractor?
-7 How could the Office of Public Diplomacy be assured that IBC was
executing its contractual obligations in accordance with State Department
requirements?when IBC. had failed on numerous occasions to obtain the proper
? security clearances?.
-,-- Was it within government and State Department procedures and guidelines
to formally enter into a classified contract with IBC, albeit a year after the
beginning of the contract period; before a final secret clearance had been
granted by DIS? (final secret clearance granted by DIS Nov. 17,1986.)
How widespread a habit does the State Department make of requesting -
services from an Outside firm before it enters into a formal contractual
relationship with the firm?
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I 6,.
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15
Why didn't Mt. Kagan and the staff of the Office of Public DiploMacy
respond to warnings in a.June_17:memo from the Procurement Division Which noted
that without a contract, (1). the contractor was wOrking at his own risk; (2).A
situation existed whereby services were being performed not only absent- a
contract but that there was not adequate assurance that the contractor was
following security procedures; and (3) no contractual instrument existed at the
time by which the contractor could be paid for its services?
What was the purpose of classifying the contract when in fact the -
contractor provided services to the State Department Without having obtained a
..facility security clearance for the first ten monthsof the 12-month contract'
period?
LEGITIMCY OE' IBC 02413RACT
Staff notes that the legitimacy of the $276,000 IBC contract was raised by
Barbara Garland, Contracts Division. :In a January 8, 1986, memorandum to
Barbara.Garland Dennis- Gallagher of the Office -of Assistant Legal Advisor,' -
addressed.her concerns.
Specifically, Gallagher referred in his memorandum to OMB Circular No.
N-76, which states that the U.S Government may rely on commercially available
serviaes to provide commercial products and services for government use.
Certain functions, however, which are intimately: related to the public
interest, and which require policy making and decition making activity (for:
example, criminal investigations, national defense, regulation of industry and
commerce) may only be provided by. the government., The IBC contract in
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16
question,, according to Gallagher, Consists primarily of liaison and information
dissemination in connection with Department public relations press relations,
and congressional relations efforts. OMB Circular listt,advertising and
'public relations services among the management support services listed at
commercial activities. Using OMBt guidelines, Gallagher believesIBC's
. activities, as outlined in the IBC contract in question, are not inherently
governmental, do not involve policy Making and decision making activities, and
are therefore legitimate.
Gallagher also notes: "Department of State expenditures for public
relations are generally limited by. 4 standard provision in our annual
appropriation acts providing that appropriations may not be used for publicity
and propaganda purposes not authorized by Congress. Since S/LDPs public
information program has been presented to Congress by the Department, this
provision does not apply to prohibit the proposal contract."
It should be noted, however, that the Committee has not found any evidence
.that Congress was ever informed that the State Department's Office of Latin
American Public Diplomacy would enter into secret contractual arrangements
which might violate prohibitions against lobbying and disseminating government
information for publicity and propaganda purposes.
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APPENDDC
GCNEVIBC CONTRACTS WITH DEPARTMENT or STATE
CONTRACr NUMBER:
CONTRACMR:
AMOUNr:
TYPE:
courRAcr PERIOD:
ME EXECUTED:
INITIATED BY:
SIGNED BY:
(Note: This contract was
Central America incurred
of the contract.)
PURPOSE:
10017402214
Frank Gomez
6564 Williamsburg Blvd.
Arlington, VA. 22213
Department of State -- Office of Public
Diplomacy
$9,500.00
Fixed/Sole Source
-2/14/84 - 5/31/84
2/24/84
Jonathan Miller, Acting Director, Office'of
Public Diplomacy
Simon Canady, 2/27/84 contracts office;
approved by: Jonathan Miller, 2/27/84; '
Frances Gomez, 2/28/84
amended to include payment for travel expenses to,
by 11.r Gomez in connection With fulfilling the terms
1) Research, write and assemble information
kits on U.S. policy in Central America for
use by persons speaking on behalf of
Administration policy in the region.
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I I .
CCNTRACT NICER:
CafIRACIOR:
AMOUNT:
TYPE:
CONTRALT PERICO:
DAT,E EXECUTED:
INITIATED BY:
SIGNED BY:
PURPOSE:
1001-402296
Francis Gomez
6564 Williamsburg Blvd.
Arlington, VA. 22213
Department of State - Office of Public
Diplomacy
$9,500.00
Fixed/Sole Source
5/1/84 - 7/31/84
4/16/84
Jonathan Miller, Director Office of Public
Diplomacy
(1) Research paper On Nicaraguan
Government's internal and external
information apparatus
(2) Prepare briefing book of Central America
,(3)i Evaluate Government of El Salvador's
Public information programs.
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A I.
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commicr NUMBER: 1001-402296-A
CONIRACIOR: Francis Gomez
6564 Williamsburg Blvd.
Arlington, VA. 22213
Department of State, Office of Public
Diplomacy
$9,800.00
Fixed/Sole Source
CONIRACT
DATE EXECUI'ED:
INITIATED BY:
SIGNED BY:
PURPOSE:
Amends pipit 1001-402296 to extend periocd of
contract through 9/1/84.
7/18/84
Jonathan Miller, Office of Latin America
Public Diplomacy
Jonathan Miller, 6/15/84; Simon Canady',
Contracting Officer, 7/18/84.
-,(1) Develop and execute a public affairs
strategy and program relating to 11/4/84
elections in Nicaragua, 'Included in
activities shall-be:Ooordination of visits to
Washington by Nicaraguan citizens and f
arrangements for meetings, press conferences,
interviews and other events.
(2) Draft and attempt to place in prominent
newspapers op-ed type articles for
Contractor's signature as well as other State
Department officials.
(3) ?Talking points and speeches reflecting
current developments in the region and U.S.
policies And approaches to Central America.
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rv.
CONTRACT REIMER: 1001-502074
CONTRAMMI: International Business Communications
Suite 300
H1607 New Hampshire Avenue, N.W.
Washington, D.C. 20009
Department of State, Office Of Latin AmpiiCa
Public Diplomacy
AMOUNT: $24,400.00
TYPE: Fixed/Sole Source
CONTRACT PERIOD: 10/1/84 '-.12/31/84
.DATE EXECMIED: 12110/84
INITIATED BY:, Jonathan Miller Director, Office of Public
,Diplomacy
. SIGNED BY: Jonathan Miller, 12/16/84; Simon Canady,
? Contracting OffiCer, 1/28/85
PURPOSE: ',(1) Press conferences, interviews; plan and
execute press conferences for visitors from
Central America to the U.S., as well as
? Central Americans in U.S. Provide
simultaneous translation services.
(2) Plan and execute three to four speakers
tours to the northeast of the United.States,
? to includeBoston, Hartford, Providence, New
York, and Philadelphia. Speakers Will be
Central Americans either visiting or residing
in U.S.
(3) Analysis of documents captured in the
conflict in El Salvador.
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?
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V.
CONTRACT NUMBER:
CONTRACTOR:
ciotaRAcr PERIOD:
DATE MagCUTED:
INITIATED BY:
SIGNED BY:
PURPOE1E:
1001-520160
International Business Communications
Suite 300
1607 New Hampshire Avenue,
Washington,.a.C. 20009
Department of State Office of Latin America_
Public Diplomacy
$.90,000.00
Fixed/Sole Source
3/1/85 - 9/30/85
3/29/85
,Frank Gardner, Office Of Public Diplomacy
Barbara Garland, 4/1/85; Contracting Officer:
Richard Miller, President, IBC
(1) Assist U.S. visits of Central American
political, business and humanitarian
organization representatives
(2) Assist Central American refugees and
exiles in Washington
.(3) Translation and distribution of Central
American articles for distribution to U.S.
news Organizations and public interest groups
(4) point_ of Contact for congressional and
public interest offices seeking to interview
refugees ?
:(5) Seek out media opportunities for exiles
'(6) Brief correspondents and syndicated
columnists
'(7) _Compose and edit letters to the editor
in response to article on Central America -
(8) Provide Office of Public Diplomacy with
op-ed articles and feature articles for
distribution, under Office Of Public
Diplomacy signature or by an IBC designated
person
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,
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?
CON'TRACr NOPEER:
CONTRACIOR:
AMOUNT:
TYPE:
oarnmper PERICO:
TATE EXEO7rED:
INITIATED BY:
SIGNED BY:
(Contract declassified by Robert
Public Diplomacy, 1/28/86)
PURPOGE:
10017602066
International Business Communications
1912 Sunderland Place, N.W.
Washington, D.C. 20036-1608
DepartmOnt of State, Office of Latin America
Public Diplomacy
$276,186.00
Cost-Plus-Fixed-Fee
10/1/85 - 9/30/86
9/2/86
Robert Kagan, Office of .Public DiplOmacy
Richard Miller, President, IBC, 9/2/86;:
Barbara Garland, Contracts :Officer, 9/2/86
Kagan, Acting Director, Office of
A. Public Diplomacy Efforts:
(1) Provide advice and assistance to Central
AmericaarepresentativeS.,of civic, labor,
business, and humanitarian groups during
visits to Washington
(2) Provide contact with Central American
?
refugee groups and exiles in U.S.
(3) Translate articles on Latin-American/
Caribbean and distribute to media
(4) Provide point of contact for public'
interest groups
(5) Coordinate and accompany media visits to
. the U.S
(6) . Provide source material relating to
regional conflict to persons designated by
Office of public Diplomacy -
(7) Provide and present information-on
security considerations, refugee problems,
and political dynamics of the region.
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(8) Edit briefs and all material to be used
by Office:of Public Diplomacy
(9) Conduct special studies/projects
S. Distribution Services -7 Design and
operate distribution system including:
(1) Specialized addressee list
(2) COmputerization,, coding, maintenance and
Updating of lists
.(3) Retrieval, storage', mailing, and
shipping of publications
(4) Maintenance and control of materials
(5) Distribution of materials
(6) Evaluation of system
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I L
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United States Department of State
.t Office of Inspector General
AUDIT REPORT NO. 7PP-008
SPECIAL INQUIRY INTO THE DEPARTMENT'S
CONTRACTS WITH INTERNATIONAL BUSINESS
COMMUNICATIONS AND ITS PRINCIPALS
JULY 1987
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REPORT ON
SPECIAL INQUIRY-INTO,THE
DEPARTMENT OF STATE'S CONTRACTS
WITH INTERNATIONAL BUSINESS COMMUNICATIONS -
AND ITS PRINCIPALS
TABLE OF CONTENTS
SECTION
I. EXECUTIVE SUMMARY .
II. PURPOSE AND SCOPE . . . . .
III. BACKGROUND....... .
IV. FINDINGS
. ...........
Page
Number
1
. . ..... 3
A. Need for the, Contracts
......
B. The Acquisition Process . . .... ,C. -
Reasonableness of Prices and Performance
D. Lobbying Activities - . . . .
E. Ethical/Conflict of Interest
Considerations . . , ... ..
1. _Ethical Considerations .....
2. Potential Conflict of Interest. . ?
F. Congressional and Press Guidance .G....
..
Departmental.Cooperation with Congressional
Requesters . ..........
, Other Matters ............
1. Classification of FY 1986 Contract. ? ? ?
2. Security Violations by LPD and IBC. .
V. RECOMMENDATIONS . .
? .
. .
5
. 7
: 2i
.. 22
..
EXHIBIT A*-
EXHIBIT B -
EXHIBIT C -
? ?? ..... ......
?
28
30
30.
33
. 34
Key Program and Procurement Officials Involved
in Contracts with IBC
Memorandum from Former Coordinator of LPD 'dated
July 17, 1987
Memorandum from Current Coordinator of LPD dated
-June 25, 1987
EXHIBIT D 7- Memorandum from A/OPR dated June 23, 1987
EXHIBIT E .?Memprandum from. A/OPE dated June 26, 1987
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REPORT ON
SPECIAL INQUIRY INTO THE
DEPARTMENT OF.STATE'S CONTRACTS
WITH. INTERNATIONAL BUSINESS COMMUNICATIONS AND
ITS PRINCIPALS
I. EXECUTIVE SUMMARY
In response to a request from the Secretary, the staff from
the Office of Inspector General (OIG) examined the Department's
contracts with International Business Communications (IBC) and
Frank Gomez, one of its principals. These contracts were
entered into by the Department's Office- of Public Diplomacy for
Latin America and the Caribbean (LPD) which initially operated
out of the Secretary's office and currently is located in the
Bureau of Inter-American Affairs (ARA).
The examination covered six purchase orders and contracts
totalling about $436,000 with IBC or -Frank Gomez betwean
February 1984 and September 1986. In addition, the examination
included one purchase order for $5,500 with the Institute for
North-South Issues, a firm established by Frank Gomez. IBC is a
Washington, D.C. public relations firm and the Department's
contracts with IBC were for media relations activities such as
arranging media events, interviews, and public appearances for.
Central American refugee groups and exiles in the United States;
Preparing talking papers, briefings, and op/ed articles;
translating articles on Latin America and the Caribbean and
making them available to U.S. news organizations and Public
interest groups; and designing and operating a mail distribution
system for Materials and information on Latin America and the
Caribbean.
Findings of the, examination are as follows:
The need for the purchase orders and contracts was
'justifiable in the beginning, but was questionable in
the later periods as LPD' s in-house staff grew and
gained experience.
The acquisition process for awarding and administering
the purchase orders and contracts was mismanaged. In
addition, one contract was improperly classified:.
SECRET, without legitimate justification, apparently to
avoid competition and public disclosure of the contract
in the Commerce Business Dail .
Some charges to the final contract between LPD and IBC
are questionable, particularly travel expenses of
Central American refugees brought to the United States
for Media events and expenses for ADP equipment used in
developing and operating the document distribution
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Wil? Wag
- 2 -
system. The specific amounts will be described in a
separate report of an incurred cost audit, currently
underway by OIG staff. In addition, the conduct of
media relations training by IBC for Salvadoran military
officials differed so significantly from what was
contracted for that collection efforts should be
instituted to recover funds from IBC. Although
deliverables were vaguely defined and reported, the
performance by Frank Gomez and IBC on all other
purchase orders and contracts was approved, accepted,
and frequently applauded by LPD officials. '
Many. of LPD'S activities provided opportunities to
conduct prohibited. lobbying activities; however, there
is no evidence that LPD officials, or IBC persOnnel
while working under LPD contracts, violated the
anti-lobbying statute. Among other things, the LPD
Coordinator and staff traveled and spoke extensively .on
the merits of the Administration's Central America
policy. LPD staff and contractor personnel sponsored
and escorted Central American refugees and exiles to
cities in the United States for speaking engagements
before various groups.
violations of ethical standardi and/or conflict of
interest restrictions may have occurred in the case of
two individuals. Since neither was an employee of the
State Department, referrals were made to the
appropriate Government agencies for consideration and
appropriate action.
Some of the information provided by the Department to
Congressional requesters and to Public Affairs for.
press briefings was inaccurate, incomplete, and
misleading. We found no evidence that errors were made
intentionally..
Responsiveness to Congressional requests for
information about these and similar contracts has been
somewhat slow and .fragmented, partially due to the
large volume of requestswhich have been received.
Much information was provided, however, and we found no
evidence that the Department personnel deliberatelyi
delayed or frustrated Congressional requesters. The
role of the Office of the Legal Adviser in collecting,
examining, and releasing documents on the IBC and other
procurements has been poorly understood and has caused
resentment by Congressional members and staff.
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I.
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? II. PURPOSE AND SCOPE
As a result of a number of press articles critical of the
Department's association with International Business .
Communications (IBC) and its principals, the Secretary requested
an examination of the subject by the Office of Inspector General
((DIG). The request, dated February 13, 1987, asked OIG to
examine (1) the procedures followed in entering into all
contracts between the Department and IBC or its principals,
Frank Gomez and Richard Miller and (2) the performance under
those contracts. The Legal Adviser's memo transmitting the
request mentioned and included, as attachments, information on
alleged improper lobbying activities, improper classification of
an IBC contract as SECRET, that the contract was signed after
most work was performed, and a brother/sister relationship
between personnel of the Office of Public Diplomacy for Latin
America and the Caribbean (LPD) and IBC.
We established the objectives for this special inquiry by
considering the request from the Secretary, examining the:
articles which had appeared in the press, and holding
preliminary discussions with Department officials. The specific
objectives were to determine:
Whether the contracts with IBC and its principals were
needed or whether the work should have been performed
in-house;
? Whether required procurement and contracting procedures
were followed;
Whether the contractor performed the work required by'
the contract and charged reasonable and allowable costs
? to the Department;
Whether LPD personnel, or IBC.personnel while
Performing under contract to the Department,
participated in improper lobbying activities;
,
-- Whether conflicts of interest or violations of ethical
standards occurred as a result of the conduct of or
relationships between LPD and IBC personnel;
--
Whether information provided by the Department to
Congressional-requesters and for press briefings was
accurate and appropriate; and
--
Whether Department officials or offices intentionally
delayed in providing information to or withheld '
information from Congressional requesters. .
The inquiry included six purchase orders and contracts with
Frank Gomez or IBC totaling $435,584 between February 14, 1984
and September 30, 1986. In addition, a purchase order with tha
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Institute for Nort*South Issues (INSI) for ?$5,500 for September
1985 was included because INSI was established by Frank Gomez. -
This represented the 'extent of the Department's contracts with
IBC and its principals. There Were no contracts or purchase
orders .with Richard Miller as an individual. . The inquiry was
limited to performance by these -organizations and individuals on,
the contracts with the Department. :Activities of the -
organizations and individuals for other clients were not
included in the Scope of the inquiry.
,
.The inquiry was conducted in adcordance with generally .
accepted .government auditing standards and included appropriate
tests to evaluate the adequacy of internal Controls and
procedures used. to,protect?funds and assets from waste, fraud,
and mismanagement.? In the Course Of the work, applicable
program and contract files were examined. In'addition, .
Depaftment officials in the. Office of the ?Legal Adviser (L), the
Office of Public Diplomacy for ?Latin America and the ? .
Caribbean--initially in the Office of the Secretary (S/LPD) and,
currently in the .Bureau of Inter-American Affairs- (ARA/LPD), the
Bureau of Administration, Operations (A/OPR) and Office Of. the
Procurement Executive (A/OPE), the Bureau ofLegislative-and'
Intergovernmental Affairs -(H), the Bureau of Public_Affairs
(PA), and the Foreign Service Institute (M/PSI). were
interviewed, as well as officials of IBC and its, legal counsel,
We distributed a copy of this report in draft to affected
-
-offices and officials in the Department for their comments and ,
incorporated .the more significant into the appropriate sections
of the report. . In addition, we have inclUded the complete
.responses of the-former?head of S/LPD, the current head of
ARA/LPD,' the Deputy Assistant Secretary, Office of Operations,
Bureau of Administration (A/OPR)and the Procurement . Executive
(A/OPE) as :Exhibits S through E.
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Ars,
? .
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5
III. BACKGROUND
By White House "Memorandum for Special Planning Group
Principals" of July 1, 1983, Mr. Otto J. Reich was given the
dual designation of Secretary of State's'Advisor for Public
Diplomacy and Coordinator for Public Diplomacy for Central .
America and the Caribbean. The Coordinator's office was to be
located in the Department of State, with staff support to be
detailed from other agencies and departments. His activities
. were to begin.immediately.
Coordinator Reich came to State with no staff support except
for his secretary whom he had brought from the Agency for
International Development (AID). His office was established as
the Office of Public Diplomacy for Latin America and the
Caribbean (S/LPD). Lacking adequate staff, Mr. Reich obtained
permission to contract for a short term professional services
Contract in February 1984 with Frank Gomez, an outside public
relations specialist. The relationship proved highly.
satisfactory to both parties and was continued through
successive sole source contracts with Mr. Gomez or with
International Business Communications (/BC), the partnership
company Mr. Gomez formed with Richard Miller, through fiscal
year 1986.
The purchase orders and contracts for S/LPD with IBC or its
principals are listed below. One purchase order, 1001-502356,
was with the Institute for NorthSouth Issues (INSI). That
order is included because INSI was founded by Frank Gomez.
Number Contractor
1001-402214 Gomez
1001-402296 Gomez 02/14/84 - 05/31/84 $ 9,500
1001-402486 I 05/01/84 - 07/31/84 19,300
Au /Se t 1984
1001-502074 IBC 16,198 _
1001-502160 IBC 10/01 84 - 12/31/84 24,400
1001-502356 INSI 03/01/85 - 09/30/85 90,000
09/01/85 - 09/30/85
1001-602066 IBC 5,500
10/01/85 - 09/30/86 276,186
$441,084
During the early purchase orders Mr. Gomez prepared talking
points papers, fact sheets, and draft speeches for S/LPD
speakers, drafted op-ed articles, and arranged press conferences
for Central American visitors. During the late 1984 and early
1985 period IBC continued and intensified these activities, plus
arranging for translation and publication of documents critical
of the Sandinistas in Nicaragua and arranging visits for
Nicaraguan defectors to speak in major U.S. cities. In the
final contract IBC designed and operated a computerized mailing
list for S/LPD's publications..
Performance
Period
Amount
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- 6
S/LPD Classified the FY 1.986 contract SECRET, maintaining
that it contained national security information. . The
classification led to numerous complications, security
violations, and delay in signing of the contract until September
2, 1986, in the final month of the contract's term. This in
turn raised suspicions in the media and in Congress after the
contract came to light that the secret classification 'was
intended to. cover illegal lobbying. .
In January 1986 the Coordinator of VLPD was nominated as
Ambassador to Venezuela and withdrew from active leadership of
VrApp. He was succeeded in May 1986 by Robert W. Kagan. At
that time S/LPD was transferred from the office of the Secretary
. to_the Bureau of Inter-American Affairs (ARA). Mr. Kagan
decided to discontinue the contractual relationship with IBC and
have the contract functions performed by the ARA/LPD staff.
' Congress and the media .began to question the State ,
Department's dealings with IBC and its principals, Frank Gomez -
and Richard Miller in late 1986 and early 1987. Various
allegations of illegal lobbying and political activity began to
focus on the secret contract with IBC.
On February 13, 1987, the Secretary Of State requestecithe
Inspector General, to examine the procedures followed in entering
,into all Contracts with IBC or itsprincipalsi,and the
performance under those contracts
This is the Inspector-General's report on his findings.
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- 7 -
IV. FINDINGS
A. Need For The Contracts
We believe there was justification for the initial purchase
order for outside assistance, during a temporary short handed
situation in S/LPD early in 1984, but the practice continued
through fiscal 1986, after the urgency and the original
justification had passed.
A White House "memorandum for Special Planning Group
Principals" of July 1,1983 created the Office of Coordinator and
the Secretary's Advisor for Public Diplomacy for Central America
and the Caribbean. The office was to be located at the
Department of State; support staff was to include 'officers
detailed from "appropriate agencies and departments"; State was
to provide appropriate space, logistic support, operating
budget, and clerical support. Activities were to begin
immediately. The office was established under the office of the
Secretary as the Office of Public Diplomacy for Latin America
and the Caribbean (S/LPD).
According to the Coordinator (now Ambassador), he came to
State with no staff support but himself and his secretary whom
he had brought from AID. The Coordinator was under considerable
pressure from the White House to popularize the Administration's
Central American policy, but did not have the specialized staff
that he needed. This is not surprising since his specialist
staff were to be provided on nonreimbursable detail from other
agencies--not a very effective way to staff an office for quick
action. In addition, the Coordinator was not well grounded in
Department of State regulations, nor were his first detailees
from other agencies. In short, he did not have bureaucratic
expertise. He discovered later how to use the influence of the
White House to obtain assistance from the bureaucracy of State
and the other executive agencies and departments. Finding
himself in a bind between high expectations for immediate action
from the White House, and a lack of staff at State, the
Coordinator decided to get assistance from outside through
contracts.
Early in 1984 the Coordinator was introduced to Frank Gomez
who was retiring from the U.S. Information Agency (USIA) and was
looking for post-retirement employment. Finding that Mr. Gomez
had the qualifications that he needed, the Coordinator offered
him full time employment. Mr. Gomez did not want further full
time employment, so they settled on a consultancy, through a
short term purchase order.
Mr. Gomez's purchase order called for him to write talking
Points papers on Central America, prepare speaker kits, identify
and refute distortions and false allegations of U.S. policy,
draft sample speeches, prepare and clear op/ed pieces and
feature articles, assist Central American refugees and exiles
visiting Washington, arrange media events for them An8 ?, _ ?
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available for Congressional interviews. His purchase order was
later amended to authorize travel to Central America for
contacts with those governments.
Faced as he was with a lack of adequate staff and under
White House pressure to perform, we believe that the criteria
for an urgent, sole source, professional services acquisition by
purchase order were arguably met: the Department of State had
authority, the Office of the Secretary had appropriated funds,
and the personnel system did not locate and make available the
needed specialized talent in time to meet the Coordinator's
perceived urgency.
Unfortunately the original short term arrangement became so
comfortable that it seems to have taken on a life of its own.
As discussed on pages 9 through 11, purchase order followed
purchase order and contract followed contract without regard for ,
rules and regulations. Contracting for outside assistance
continued even after S/LPD acquired substantial staff of.its own
and full time detailees from other agencies who should have been
.able to perform much of the work that IBC was performing. In FY
86 S/LPD had nine State and ten other agency personnel whose
annual salaries alone totaled some $780,000. We believe that by
that point the original justification for outside assistance was
no longer valid.
When leadership of S/LPD changed in mid-1986, the new
Coordinator came to the same conclusion and decided to stop
contracting with IBC at the end of the FY 1986 contract, and to
perform the work in-house.
The basic responsibility for balancing in-house and contract
resources rests with the program manager, in this case the
Coordinator of S/LPD. As long as funds are available, and the-
program manager can obtain those funds, contract resources can
be increased (assuming, of course, that appropriate procurement
regulations are adhered to). For these reasons we have made no
recommendations concerning the need for the contracts.
Recommendations concerning the manner in which the contracts
were awarded and administered are included on pages 34 through
36 of this report.
Comments of De artment Officials
In commenting on a draft of this report, the former head of
S/LPD stated that the justification for contracts and purchase
orders for outside assistance was greater in 1985 than in 1983
because the workload had increased. He cited specifically the
need to distribute voluminous amounts of materials and
Publications relating to Central America which he also stated
was the major purpose of the last contract with IBC. However,
the distribution of materials and publications is the precise
function which the current head of ARA/LPD stated he felt could
be performed in-house by Department personnel when he decided to
stop contracting with IBC. Consequently we believe, as we state
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9
in the report,thatIthe original justification for contract
assistance from IBC was not valid in the later periods.
B. The ACqu1sjtj0n Process
The practices followed in the procurements with Frank Gomez,
IBC, and INSI were contrary to proper acquisition policies.and
procedures and failed to meet the fundamental requirements of
the Federal Acquisition Regulation (FAR). S/LPD officials
abused the acquisition process and OPR/STP officials, rather
than control and correct the problems, condoned and assisted in
the commission of unauthorized actions.
This inquiry examined seven acquisitions made by two of the
organizations in the Department which have been delegated
procurement authority--Deputy Assistant Secretary for
Operations, Office of Supply, Transportation, and Procurement
(OPR/STP) and the Foreign Service Institute (M/FSI). The
purpose of our audit was to evaluate the adequacy of the
policies, procedures and practices followed in acquiring these
services. Our findings are divided into two sections. The
first section addresses the 'acquisitions made by OPR/STP and the
second section addresses the acquisition made by M/FSI.
1. EaE.SgggtVTT__V.AIVSII_AnI42q_tX_2EEET.T
Our findings are based on our audit of the OPR/STP and S/LPD
files, interviews with the OPR/STP contracting officials and the
Department's Procurement Executive, and information from
previous OIG audit reports. We found that
-- Purchase Orders and Contracts Were Placed After Work
Had Begun;
Sole Source Acquisitiont Were Not Justified;
Acquisitions Were Not Publicized in the Commerce
Business Dail (CBD);
Acquisitions Were Apparently Split to Circumvent
Regulations; and
OPR/STP Contracting Officials Did Not Perform Adequate
. Contract Administration.
a. Purchase Orders and Contracts Were Placed After Work
112_122.24:a
The S/LPD program officials assumed the duties of the
OPR/STP 'contracting officials by obtaining the services of Mr.
Gomez, IBC, and INSI without following proper acquisition
policies and procedures. Once S/LPD program officials had
arranged for the services and settled the substantive issues
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involved in the acquisition process, they turned the work over
to the OPR/STP contracting officials to process the paperwork
needed to pay for the services. OPR/STP contracting officials
assembled acquisition documents and signed them to cover
unauthorized commitments made by S/LPD program officials.
Despite the fact that these methods of conducting the
Government's acquisition affairs were contrary to the
acquisition regulations, the OPR/STP contracting officials did
not challenge the S/LPD actions as unauthorized commitments.
For example, Purchase Order No. 1001-502074 was signed on
January 28, 1985, by the OPR/STP contracting official; almost .
one month after IBC was to have completed the work and almost
four months after IBC had been directed to begin the work by
S/LPD officials. The order was awarded to IBC for $24,400. The
proposal from IBC was submitted to S/LPD officials based on
their discussions with Mr. Gomez. If done correctly, proposals
from any and all sources should have been obtained by OPR/STP
contracting officials through the prescribed acquisition
procedures. However, S/LPD officials assumed the role of the
OPR/STP contracting officials for this portion of the
acquisition process. Next, the S/LPD officials directed IBC to
perform the work without contracting officer authority and
created an unauthorized commitment. This purchase order was
illustrative of the other orders and contracts awarded to Mr.
Gomez and IBC.
The FAR prescribes the acquisition process to ensure that the
interests of the United States are safeguarded and that
contractors doing business with the Government receive
impartial, fair, and equitable treatment (FAR 1.602-2). The FAR
clearly states that contracting officers are responsible for the
control of the acquisition process and that contracts may be
entered into and signed on behalf of the Government only by
contracting officers. FAR 1.602 (b) provides that no contract
shall be entered into unless the contracting officer ensures
that alL requirements of law, executive orders, regulations, and
all other applicable procedures, including clearances and
approvals, have been met.
We believe that additional measures must be taken by
the Department's senior managers to strengthen the acquisition
process and to ensure stricter enforcement of the provisions of
the acquisition regulations. (Recommendation 1). Moreover, by
separate correspondence, we are referring a copy of this report
to the Director General of the Foreign Service and Director of
Personnel (M/DGP) with a recommendation that disciplinary action
be considered against personnel who were responsible for
violating the acquisition regulations and for directing and
managing the acquisitions from Mr. Gomez, IBC, and INSI.
b. Sole Source Acquisitions Were Not Justified
All purchase orders and contracts awarded by the OPR/STP
contracting officials to Mr. Gomez, IBC, and INS' warp hA..A -n
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inadequate sole source justifications. The documents furnished
by the S/LPD program officials as justifications did not meet
the requirements of acquisition regulations, but were merely
capability statements. The OPR/STP contracting officials did
not challenge the adequacy of the justifications. They simply
accepted the documentation and did not seek free and open
competition.
For example, Purchase Order No. 1001-402214 was the initial
order with Mr. Gomez placed in February 1984 on a sole source
basis by OPR/STP contracting officials. S/LPD's request
included a document titled sole source justification. The
document was merely a description of Mr. Gomez's background and
capability, however. It did not demonstrate that he was the
only source that could provide the services required by S/LPD.
Once this document was accepted without question by the
OPR/STP officials, the die was cast. During the work of the
Initial order, S/LPD officials began negotiating with Mr. Gomez
for the next purchase order. They used essentially the same
justification for the next purchase request they prepared for
Mr. Gomez's services. Using the inadequate justification, the
OPR/STP contracting officials placed the second order
(1001-402296) with Mr. Gomez in July 1984.
In the final contract with IBC another feature of
contracting was added--the Competition in Contracting Act of
1984 (CICA). At the time this contract was being considered by
S/LPD officials, the FAR had been changed to include the CICA
provisions. OPR/STP contracting officials brought the new FAR
provisions to S/LPD's attention; including the requirements to
publicize even proposed sole source awards and seek competition
to the maximum practicable extent even in cases of urgency.
This contract was classified SECRET by S/LPD officials, not
publicized by OPR/STP officials, and was eventually awarded on a
sole source basis some 11 months after IBC began the work at
S/LPD's direction.
This final contract with IBC included the addition of a new
requirement, on a sole source basis, for the design and
operation of S/LPD's distribution system. The distribution
system services were not included in the media relations
services that S/LPD had been obtaining from IBC during the
period of February 1984 through September 1985. Nonetheless,
S/LPD officials proposed IBC as a sole source for these
seemingly ordinary services.
We believe that additional measures are needed to improve
OPR/STP's compliance with the competition requirements in the
Federal Acquisition Regulation. Moreover, we believe that any
instructions prepared to address improvements in compliance with
the competition requirements should be furnished to all the
Department's acquisition offices. (Recommendation 2).
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c. Acquisitions Were Not Publicized in the Commerce
Business Daily
OPR/STP contracting officials did not comply with the
requirements of the acquisition regulations on publicizing
proposed contracts in the CBD. None of the purchase orders or
contracts over $10,000 awarded to Mr. Gomez or IBC were
publicized by OPR/STP contracting officials and this
noncompliance was encouraged by the S/LPD program officials.
Some of the acquisitions were made during the time the
Federal Procurement Regulations (FPR) were in effect (through
March 31, 1984) and other acquisitions were made under the
present regulations, the FAR. The FPR and the FAR both
contained specific requirements for synopsizing proposed
contracts over $10,000.
Based on evidence in the files, the only acquisition which
was considered for CBD publication was contract 1001-602066.
This contract was for IBC services for FY 1986 and was awarded
through the ratification process some 11 months after IBC was
directed by S/LPD officials to begin the work without a
contract. It was awarded in the not-to-exceed amount of
$276,186 and contained the new requirement for IBC services
related to the design and operation of the S/LPD distribution
system.
The S/LPD request for FY 1986 services from IBC was prepared
the day before the contracting officials sent the new CICA
guidance to the S/LPD officials. The S/LPD request contained
the same justification for not publicizing the requirement as
the first contract with IBC: "... the services and contractual
arrangements of which are not to be disclosed publicly because
of their character, ingredients, and components." The OPR/STP
contracting officials cited the revised FAR and stated that the
previous basis for not disclosing work with IBC was no longer
acceptable because the FAR required publication in the CBD of
proposed sole source awards and competition, to the maximum
practical extent, for even those requirements that were
determined to be urgent. After interaction between various
Department staffs, a decision was made by S/LPD officials to
have the contract and the entire contract file classified SECRET
for "national security reasons." This action caused a series of
delays in the acquisition process.
The OPR/STP contracting officials were aware of the
requirement that S/LPD had for FY 1986 services in late
September 1985, but did not act to publicize the requirements in
the CBD. The negotiation summary in the contract file prepared
by OPR/STP officials and dated August 26, 1986, stated: "The
procurement was not synopsized in the Commerce Business Daily
(CBD) due to the highly sensitive nature of the services, and
the fact that S/LPD did not want the requirement to become
ublic knowled e." [emphasis added.] In the same flies, in the
justification for other than full and open competition, dated
April 3, 1986, the OPR/STP OffiCiAlg rAn e .1^^
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"National Security," as the basis for not providing for full and
open competition. That justification went on to state: "FAR
Chapter 5.202 provides an exception to synopsizing a procurement
in the Commerce Business Daily (CBD) if disclosure of the
Agency's needs would compromise the national security. In the
case of this contract, the contractor will be performing
services that fall within that criterion."
In our opinion, the reason cited by the OPR/STP contracting
official for not synopsizing the proposed contract did not
adequately address the FAR requirements. FAR 5.202(8)(1) states
that the contracting officer need not submit the notice to the
CBD when the contracting officer determines that - "The synopsis
cannot be worded to preclude disclosure of an agency's needs and
such disclosure would compromise national security (e.g., would
result in disclosure of classified information)." The fact that
a proposed solicitation or contract action contains classified
information, or that access to classified matter may be
necessary to submit a proposal or perform the contract does not,
in itself, justify use of this exception to synopsis.
We believe the Department should issue additional
instructions on the requirements for CBD synopsis.
(Recommendation 3).
d. Ac isitions Were A arentl S lit to Circumvent
Regu ations
Purchase orders with Mr. Gomez and IBC were made on a
fragmented basis apparently to circumvent the acquisition
requirements. The first three purchase orders were based on
split requirements prepared by S/LPD program officials for '
periods of performance of a few months and at dollar levels- ,
below $10,000, the threshold for small purchases in effect when
these orders were awarded. The final S/LPD request for a small
purchase award to IBC was under $25,000, the small purchase
threshold 'in effect at the time that order was awarded. S/LPD
program officials knew they were going to continue to use Mr. ?
Gomez's services for an extended period of time because while he
was working under a purchase order or contract, S/LPD was
negotiating with him for the next purchase order or contract.
OPR/STP contracting officials were aware of these S/LPD actions
because the S/LPD requisition documents referred to extensions
of previous ordersor continuation of previous services.
However, the OPR/STP contracting officials did not attempt to
stop these practices.
We believe that additional measures are needed to bring the
small purchasing operations into compliance with PART 13 of the
FAR. (Recommendation 4).
e. OPR/STP Contractin Officials Did Not Perform Ade uate
Contract A ministration
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Preaward administration includes the actions that
contracting officers are required to take prior to signing a
contract to determine that a proposed acquisition meets all the
requirements of law and regulation. Postaward administration
includes the actions that contracting officers are required to
take during the period the contract work is performed up to
contract completion and close out. OPR/STP contracting
officials did not perform adequate preaward administration and
did not perform any postaward administration.
(1) Preaward Administration
The two contract files for contracts placed with IBC showed
that the OPR/STP contracting officials accomplished most of the
preaward actions required by the FAR; however, there were some
preaward actions that were either overlooked or were not treated
adequately. Some examples of the preaward administration
activities that were either lacking or inadequate were as
follows:
Contract No. 1001L502160
-- The contract was placed on an after-the-fact basis but
was not treated as a ratification action because of a reference
in the file to a verbal approval from the Department's
Procurement Executive.
-- The information in the price negotiation memorandum for
the $90,000 fixed price contract was not sufficient to
demonstrate that the price was fair and reasonable nor did it
offer convincing evidence that a fixed price contract was the
appropriate type of contract because of the number of
uncertainties in the work to be performed.
-- The Matter of determining that IBC was a responsible
bidder was not adequately addressed by the OPR/STP contracting
officials. We were told by the OPR/STP contracting officials
that they had accepted IBC as a responsible bidder based on
previous purchase orders placed with IBC. However, when the
next contract with IBC was negotiated, it became apparent that
the matter was not addressed in adequate depth. The next
contract with IBC, for FY 1986 services, was Classified by S/LPD
officials and IBC was required to obtain a facility clearance
prior to contract ,execution. -Attempts to grant a security
clearance for IBC were delayed at one point because the
investigators found that IBC was in fact a loosely formed
association between two other companies. If the OPR/STP
contracting officials had pursued the issue of contractor
responsibility as required by the FAR in their preaward actions
for the $90,000 IBC contract, the organizational issues that
later caused the delay in the clearance might well have been
avoided.
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Contract No. 1001-602066
-- The OPR/STP contracting officials negotiated this
contract on a cost-plus-fixed-fee basis using audit information
developed by a review of the IBC cost proposal by the
Department's Inspector General. The OPR/STP contracting
officials failed to require IBC officials to execute a
certificate of current cost or pricing data as required by FAR
15.804-4.
(2) Postaward Administration
There was no evidence uf any postaward administration in
either the small purchase order or the contract files. We were
told by the OPR/STP contracting officials that no administration
was performed. Some of the more significant problems we
identified were as follows:
-- There was no oversight by the OPR/STP contracting
officials of important features of the acquisitions such as
timely and complete deliveries of the services and payments of
contractor invoices.
-- In the case of the final contract, a cost type contract,
the OPR/STP contracting officials had not acted to obtain a
final audit of the IBC costs or to settle the issue of the
number of hours contracted for under the level-of-effort
arrangements in the contract. The contract work was supposedly
completed in September 1986; however, the actions described
Previously were not initiated by the contracting officials until
the OIG staff began this inquiry in early 1987.
We believe that improvements are needed in the performance
of preaward and postaward contract administration functions.
(Recommendations 5 and 6).
f. Other Problems
We considered the lack of procurement planning that was
evident in the acquisitions from Mr. Gomez, IBC, and INSI. The
use of urgency as the basis for these acquisitions for the S/LPD
needs was caused by a lack of sound acquisition planning .
We discussed the issue with the cognizant contracting
officials. We were told that acquisition planning procedures
were being developed and that requests for planned acquisitions
were issued but with little results. We were also told that
several policy letters on acquisition planning had been issued,
the latest on March 27, 1987.
The FAR requires agencies to perform acquisition planning.
Part 7 addresses acquisition planning and contains a multitude
of specific requirements for agencies to follow to establish a
satisfactory acquisition planning system. One of the primary
purposes of the planning system mandated by the FAR is to
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promote and provide full and open competition or, when other
than full and open competition is authorized by the FAR, to
obtain competition to the maximum practical extent possible.
The actions taken by OPR/STP contracting officials to award
purchase orders and contracts for S/LPD program officials based
on urgent needs of the S/LPD program could have been avoided had
the Department enforced the acquisition planning requirements.
(Recommendation 7).
Our review of the acquisitions from Mr. Gomez, IBC, and INSI
also included a review of the Department's policies and
procedures currently in effect for acquisitions by OPR/STP
contracting officials. The instructions we reviewed included
the Department of State Procurement Regulations (Title 41,
Chapter 6) and the Procurement Division Instructions issued by
the OPR/STP staff. These procedures were not current with the
FAR and did not address a number of the acquisition policy and
procedure questions we were reviewing.
For example, during our review of the ratification action of
the final IBC contract, we found that the procedures for
contract ratification were in the as yet unpublished Department
of State Acquisition Regulation (DOSAR). The DOSAR was
published in the Federal Register for public comment on May 28,
1987. When published in final form, it will become the
Department's implementation of the FAR. The delay in issuing
Departmental procurement regulations has been a longstanding
problem and we believe that a high priority should be placed on
8).
finalizing and publishing these regulations. (Recommendation
g. Problems Reported Previousl
These deficient acquisition
previous audit report issued by
General in July 1983 on OPR/STP
the following:
?NM ?Mo
?
practices are not new. A
the Department's Inspector
acquisition activities included
"Requisitioning organizations frequently engage in
procurement activities before submitting a procurement
request to OPR/STP/P. They often conduct market
surveys and even solicit proposals using OPR/STP/P not
as the Department's major procurement activity, but as
a requisition processor." The audit report included a
recommendation that OPR/STP should advise all
requisitioning organizations of their precise
responsibilities and limitations in procurement
activities.
"The inordinate use of sole-source procurement is
attributed mainly to insufficient time to permit formal
advertising or competitive negotiation and to
unquestioned acceptance of the sole-source
justifications of requisitioning offices." The report
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included the recommendation that OPR/STP should not
process requisitions which stipulate sole source
procurement unless the criteria have been satisfied.
"OPR/STP, in accordance with FPR 1-3.807-2, should
establish controls and set forth procedures to assure
that price or cost analysis is performed on each
negotiated contract awarded and that such action is
adequately documented in the contract files."
"OPR/STP should emphasize to all Department
organizations the importance of their early
identification of planned acquisitions in the
procurement process even though funding is not a
certainty."
Apparently, the actions taken in response to the report were
not adequate to resolve the problems.
In the course of our interviews with the cognizant
contracting officials we were told that there was a great deal
of pressure to place the S/LPD orders and that there were
inadequate OPR/STP personnel resources at the time the
acquisitions were processed to perform the functions related to
the acquisition process. One official simply stated that the
OPR/STP small Purchasing staff failed to do their job.
Contracting officials told us they generally agreed that the
sole source justifications were inadequate and they did not
question S/LPD officials on their actions to split the purchase
requirements. .Moreover, we were told that the shortage of staff
caused OPR/STP to act as a "rubber stamp" operation.
2. Trainin Order Placed b the Forei n Service Institute
112212_.E21,
The Foreign Service Institute (M/FSI) Registrar placed
Training Order No. 1001-402486 for $16,198 with IBC on September
10, 1984. The training order required IBC to conduct seminars in
El Salvador on improving press relations for El Salvadoran
military officials in late August and early September of 1984.
The use of an M/FSI training order to obtain these IBC services
appears to be inconsistent with the principles that generally
apply to M/FSI training orders. Normally, M/FSI arranges for
training for State Department employees that is job related. I
The training order with IBC was for media relations training for
officials of a foreign government and was conducted by a private'
company in a foreign country.
i
. According to the IBC proposal, it had been instructed to
plan and execute a series of mini seminars of two days each for
about fifteen persons per session. In addition to the formal
class work, IBC planned to arrange meetings between a former
Ambassador and senior government officials for him to impart
Insights, methods, and recommendations on the proper conduct of
public information activities.
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The M/COMP Certifying Officer stated that the invoices
submitted by companies which have performed services under a
training order are "self-certifying." We were told that the
training order form statement--"I certify that the above named
student has been properly registered as stated" was used by
M/COMP personnel as the basis for certifying an invoice for
payment. Therefore, the documents needed for M/COMP to process
a training order payment would be a copy of the training order
and the company's invoice.
We believe the procedures for "self-certification" of
contractor invoices may be an appropriate method for processing
payments when M/FSI personnel use a training order to acquire
training using M/FSI funds for job-related training for
employees. However, we believe that the use of
"self-certification" of contractor's invoices for the IBC
training order was not an appropriate method to process payments
since the services provided by IBC deviated from the normal
M/FSI training procedures.
In discussions with an IBC official we were told that IBC
was asked to improve Salvadoran public relations capabilities.
we were told that IBC prepared materials for the program and
went to El Salvador. While there, IBC met with various people
and gave them advice and a plan; however, the "seminar" never
took place as a formal seminar. Instead, individual counseling
took place with 20 to 25 individuals. The former Ambassador
informed us that he went to El Salvador in June 1984 but not
during the period late August and early September 1984.
Moreover, he said that except for his travel expenses he
received no other payment for the work he performed in June
1984. The IBC proposal for the seminar in August/September 1984
included a $1,000 honorarium for the services of the former
Ambassador. During the same period IBC was providing services
to S/LPD under purchase order 1001-402296. The order covered
travel expenses to El Salvador for IBC personnel and the
evaluation of the government's public information programs.
S/LPD officials were unaware of the nature and extent of IBC
performance under the training order.
While the IBC official told us that the work ordered by
M/FSI's training order was not performed in accordance with the
specific requirements of the order, the invoice submitted by IBC
showed tuition for ten officials for a price of $16,198 for a
two-week seminar for El Salvadoran Government Officials in late
August--early September 1984. This IBC invoice was paid based
on the "self-certification" process.
On July 13, 1987, M/FSI informed us that its internal
controls over pass-through contracts such as the one discussed
above had been strengthened to prevent similar problems in the
future. We believe the delegationof procurement authority to
M/FSI should be reviewed to determine whether it is appropriate
for the Registrar to continue to award these types of training
orders in the future. (Recommendation 9). Moreover, we believe
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that action should be taken to recover funds from IBC since the
services specified in the training order issued by m/FSI were
not performed. (Recommendation 10).
Comments of Department Officials
In commenting on a draft of this report, the former head of
S/LPD stated (1) he was not aware of the procurement policies
and regulations, (2) he relied on his staff and procurement
office staff to insure that appropriate rules were complied
with, (3) he was never informed about any irregularities in
S/LPD's procurement practices, rather, he was informed that such
practices were followed all the time, (4) he was not adequately
supported by the Department with administrative and other
personnel familiar with Departmental procedures, and (5) the
pricing of many of IBC's activities such as handling defectors
and establishing credibility of U.S. government officials was
difficult to establish.
Officials in A/OPR and A/OPE described the causes for the
problems somewhat differently. Both stated that a lack of
resources within the procurement function has been a historical
problem in the Department and has hindered the carrying out of
effective procurement operations. However, both also stated
that the majority of the fault for the problems with the IBC
contracts was with the programming office (in this case S/LPD)
rather than the procurement or contracting officials. A/OPR
commented that S/LPD exploited the situation by entering into
unauthorized commitments, selecting the source, deciding upon
dollar amounts and relying on the contracting officer to correct
the situation on an urgent and compelling basis to facilitate
payment. Both A/OPR and A/OPE stated that S/LPD used extreme
duress and "steamrolled" procurement officials to process
acquisitions which did not comply with appropriate regulations.
A/OPR also commented that the report did not recognize the
considerable progress which has been made in the procurement
operations in the Department since the subject contracts with
IBC and its principals were processed. Along these lines, he
stated that most of the recommendations concerning procurement
operations have already been implemented.
We acknowledge that a lack of personnel resources could have
been a contributing factor in the operations of both S/LPD and
procurement. We found that the former head of S/LPD made many
requests for staffing and other support for his office. We also
verified that administrative positions in S/LPD turned over
frequently and were vacant during some periods. In summary, we
agree that S/LPD probably was not adequately supported by the
Department. We also acknowledge that the lack of adequate
personnel resources in the procurement function has been a
problem reported previously by the Inspector General.
Concerning progress made in procurement activities we believe
that significant improvements may have been made; however, the
scope of this inquiry was limited to specific procurement
actions, some of which were several years old. We did not
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conduct a review of the Department's procurement function and
therefore cannot comment on its overall operations. We will,
however, conduct a complete examination of procurement
activities in the future.
In our opinion, as we stated in the report, both S/LPD and
procurement personnel are responsible for the problems in the
acquisition process. We believe that as a manager, the former
head of S/LPD had a responsibility to be knowledgeable of basic
federal procurement requirements, such as the prohibition
against directing a contractor to begin work or otherwise
committing the government to contracts without the authority to
do so.
C. Reasonableness of Prices and Performance
Some charges to the FY 1986 contract appear to be
questionable. The specific types and amounts of such costs will
be described in a separate report on an incurred cost audit
which currently is being conducted by OIG staff. In addition,
as previously discussed under the Acquisition Process, IBC's
conduct of a media relations seminar differed so significantly
from its proposal for the seminar that we recommended collection
efforts by Department officials (see Recommendation 10). While
deliverables were vaguely defined-113-Fii3UFfia7-EHi-/Sirformance
by Frank Gomez and IBC on all other purchase orders and
contracts was approved, accepted, and frequently applauded by
S/LPD officials.
With the exception of the FY 1986 contract, we did not
conduct incurred cost audits because the purchase orders and
contracts were fixed price procurements. Our audit of that
contract has been delayed somewhat because of the unavailability
of documents and because we were requested to work through the
legal firm representing IBC in obtaining information about the
work performed. Based on preliminary results of the audit, it
? appears that travel and ADP equipment costs charged by IBC are
questionable.
The travel expenses included lodging, transportation, meals,
clothing, and other items for individuals while they were in
Washington, D.C. and other cities in the United States under the
Sponsorship of S/LPD. During these visits, the exiles and
defectors were giving interviews; meeting with groups, members
of Congress; and attending press conferences. These work
elements and costs were not specifically included in the final
contract issued by procurement, although they were included in
the proposal sent to OPR/STP. The amount that is disallowed
will be determined during the incurred cost audit.
The charges for computer support need to be recomputed. In
the cost proposal, IBC stated that $25 an hour was the best
price available from vendors for computer access. This rate was
accepted for use in the cost review. The actual amount IBC
billed for computer usage totalled $7,981. This amount almn*
equalled them
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supplies purchased by IBC ($8,277). Since the equipment was not
used only for the Department of State contract, and is still
available for use by IBC for other clients and its own staff,
there should be an adjustment of the computer charges.
Finally, the indirect rates need to be recomputed.
Provisional indirect rates were computed during the cost
proposal review. These rates are subject to recomputation and
adjustment based on the actual costs incurred. Work performed
under the FY 1986 contract, as well as all work under all other
purchase orders and contracts except the M/FSI training order
was invoiced, approved for payment by S/LPD officials, and
certified and processed for payment by M/COMP personnel. In
each case it appears that at least some work was performed;
however, it appears that Department personnel approved invoices
for payment without adequate evidence that required work had
been conducted.
For example, the purchase order with INSI for $5,500 was for
an analysis of S/LPD's distribution system for publications on
Central America. The invoice from INSI to S/LPD was a one
sentence statement that the analysis had been completed and that
payment was requested. An S/LPD official certified that the
work had been completed and forwarded the invoice for payment
and payment was made. There was no written report of the
analysis. Frank Gomez informed us that, while no written report
was prepared, an analysis was conducted. He stated that the
main purpose of the purchase order, however, was to start
designing and implementing a new distribution system for S/LPD.
The S/LPD official who certified the invoice for payment
informed us that he did not recall whether an analysis had been
performed.
We believe that purchase orders and contracts should be more
specific in describing required performance and that officials
approving invoices for payment should have more evidence that
the required work has been performed. (Recommendations 11 and
12). On balance, almost all officials we Interviewedexpresse
.satisfaction with the quality and level of performance on the
subject contracts.
Comments of Department Officials
In commenting on a draft of this report the former head of
S/LPD again expressed satisfaction with the level and quality of
work performed by IBC and Frank Gomez for the Department. He
described in some detail the difficulty in pricing such
activities as re-establishing the credibility of government
officials or the handling of defectors, two of the functions he
stated were being purchased under the contract. While we agree
that establishing a price for some activities may be difficult,
It is firmly and clearly required by procurement regulations.
The response also illustrates the nature of the problem with
vaguely defined work elements. As stated the functions are not
only difficult to price but also difficult to measure, evaluate,
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and certify as completed so that payment can be authorized--also
required by procurement regulations.
D. Lobbying Activities.
Although allegations were widespread, there is no evidence
that S/LPD staff participated directly or indirectly in any
unlawful lobbying or that IBC spent S/LPD contract funds for
lobbying activities. Many of S/LPD's and IBC's activities under
contract with S/LPD provided opportunities to conduct prohibited
lobbying; however, there is no evidence that these officials
violated the anti-lobbying statute.
Public diplomacy is separated from lobbying by a thin and
coMplex line. The basic legislation, 18 USC 1913 (the
"anti-lobbying statute") provides that
"No part of the money appropriated by any enactment of
Congress shall, in the absence of express authorization by
Congress, be used directly or indirectly to pay for any
personal service, advertisement, telegram, telephone,
letter, printed or written matter, or other device, intended
or designed to influence in any manner a Member of Congress,
to favor or oppose, by vote or otherwise, any legislation or
appropriation by Congress, whether before or after the
introduction of any bill or resolution proposing such
legislation or appropriation; but this shall not prevent
officers or employees of the United States or of its
departments or agencies from communicating to Members of
Congress on the request of any Member or to Congress,
through the proper official channels, requests for
legislation or appropriations which they deem necessary for
the efficient conduct of the public business."
Many of S/LPD's activities provided opportunities to conduct
improper.lobbying. The Coordinator and staff traveled and spoke
extensively on the merits of the Administration's policy and
programs for Central America. S/LPD paid for the cost of
publication and circulation of pamphlets and articles favorable
to the Administration's policy. S/LPD sponsored, paid for, and
escorted Central American refugees and exiles to cities in the
United States for speaking engagements before members of
Congress and various private sector audiences. If, in carrying
out these activities, S/LPD personnel had suggested or agreed
that a member(s) of Congress should be contacted and encouraged
to support programs in Central America, a violation would have
occurred.
During our inquiry we questioned a number of S/LPD's
activities and discussed them with OIG investigations staff and
the Department of Justice. One such activity was reflected in a
June 25, 1985, memorandum from the Administrative Officer of
S/LPD to the S/S-EX Budget Officer providing information in
support of S/LPD's budget request. The memorandum contained the
following statement:
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"During the recent congressional hearings on financial
assistance to the freedom fighters in Nicaragua, S/LPD furnished
floor speeches and talking papers to Congressional supporters of
the President's program".
During discussions with an official from the Department of
Justice we were informed that this activity was not a violation
of the anti-lobbying statute as it has been interpreted by the
Department of Justice. According to this individual, violations
are evident only where the appropriated funds are used to
effectuate a grass roots type of campaign directed at
influencing a member(s) of Congress.
fra_g_j_s,lext!L_Itor Congress was informed of S/LPD' s activities.
In the Department's FY 1987 budget request, under the Office of
the Secretary, the following information was included:
"One unit within the Office of the Secretary is the Office
? of Public Diplomacy for Latin America and the Caribbean. This
office has coordinated the efforts of appropriate agencies of
the Federal Government toward a better public awareness and
understanding of the administration's policy in Latin America
and the Caribbean. This office also sponsors the public
appearances of individuals whose experiences in Latin America or
the Caribbean are germane to public debate on policy issues for
the region. In the last 12 months, the office has arranged for
more than 400 public appearances (including speaking before
refugee and exile groups in the United States), and more than
100 radio and television appearances, of its staff and others,
including foreign visitors. * * * During the same period it has
arranged for publication and dissemination of publications and
pamphlets (including translations of foreign originated
articles)."
There is no evidence that IBC performed lobbying activities
for the Department under contract. Notwithstanding the
considerable press coverage of IBC's activities in this and
related areas, our work to date has disclosed no evidence that
S/LPD knowingly paid IBC or Frank Gomez to perform prohibited
lobbying activities. As mentioned previously, the scope of our
inquiry included only the activities of IBC or Frank Gomez
performed under the purchase orders and contracts with the
Department between 1984 to 1986. Our work did not include the
activities of IBC or Frank Gomez performed for other clients.
The first head of S/LPD informed us that he was alert from
the beginning that his official public diplomacy functions would
put him close to the prohibitions against lobbying contained in
the State Department appropriation acts and the anti-lobbying
statute. He requested guidance from the Legal Adviser's office
and circulated to his staff the guidance provided: "Do's and
Don't's in Department Public Affairs Activities." Most of the
key S/LPD officials we interviewed stated that considerable care
was exercised within S/LPD to assure that lobbying violations
did not occur.
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There is also evidence that S/LPD participated in a group
with other organizations which conducted activities which S/LPD
would have been prohibited from performing(e.g. a targeted
telephone campaign in selected congressional districts). One
example is reflected in a .document titled "Chronological Event
Checklist" which was located in the S/LPD administrative files
and IBC files. The document, dated March 1, 1985, lists
week-by-week activities,, along With the person or organization
responsible for carrying them out. Three of the entries on the
checklist are as follows:
Event
Responsibility
Send resource book on the Contodora process State/LPD
tos congressmen, media outlets, private
organizations and individuals interested
in Nicaragua.
Prepare themes for approaches to Congressmen NSC
based on overall listed perceptions which will
directly attack the publicly and privately
expressed objections to voting for financial
aid.
Targeted telephone campaign begins in 120
Congressional districts. CITIZENS FOR
AMERICA district activists organize phone-
tree to targeted Congressional offices
encouraging them to vote for aid to the freedom
fighters in Nicaragua.
(Private
citizen)
We were unable to establish the authorship of this document
and others like it even though we found them in both S/LPD and
IBC files. None of the officials we contacted could- recall
specifically where the documents came from or how they came to
be filed with other related documents.
We found no evidence that S/LPD funds, either directly or
through its contracts with Frank Gomez and IBC, were used for
the activities listed as the responsibility of the NSC and the
private citizen. The preparation and dissemination of the
publication on the Contodora process was a legitimate activity
for S/LPD.
The SECRET classification of the IBC contract for FY 1986
probably gave rise to suspicions among the media and in Congress
that illegal or improper activities were contemplated under the
contract. The suspicions were enhanced by later revelations
that IBC, while under contract to S/LPD, was simultaneously
involved in questionable dealings with Lt. Col. Oliver North, et
al. On May 7,1987 one of the IBC partners, Richard Miller,
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pleaded guilty to one count of conspiracy to defraud the
government of income tax for his work with Carl R. (Spitz)
Channell. There is no evidence, however, that IBC used any
S/LPD contract funds for prohibited lobbying activities. Also,
according to press reports of the testimony of Messrs. Channell
and Miller to the Independent Counsel, they seem to have had no
need of State Department funds for their other activities
because of the generous funding available to them from the
National Endowment for the Preservation of Liberty (NEPL), the
tax exempt foundation of Mr. Channell.
Comments of Department Officials
In commenting on a draft of this report the former head of
S/LPD objected to our inclusion of the Chronological Event
Checklist. He stated that the document was irrelevant to
S/LPD's activities and was not prepared by anyone in S/LPD or
the Department of State. He stated that the use of the document
could give the impression that S/LPD in some way condoned or
coordinated the activities listed. The current head of ARA/LPD
suggested that the document, and others like it, were provided
to the office by IBC. He stated that all such documents were
marked CONFIDENTIAL when received from IBC.
The document in question was only one of several we
identified in S/LPD's and IBC's files. Other documents covered
different time periods and described different activities of
different organizations. Some of the documents, even those in
S/LPD's files, were marked as classified and some were not. We
acknowledged in the report that the authorship of the document
was not established and that S/LPD's activity described in the
document was an acceptable one; however, we believe that the
document itself is relevant and that it accurately reflects
S/LPD's association with other groups and organizations involved
in activities which S/LPD would have been prohibited from
performing or from paying IBC to perform.
E. Ethical/Conflict of Interest Considerations
The special inquiry disclosed a potential violation of
ethical standards of conduct and a potential conflict of
interest. The ethical question involved a Department of Defense
employee detailed to S/LPD. The potential conflict of interest
involved activities of Frank Gomez during the period immediately
preceding his retirement from the U.S. Information Agency.
1. Ethical Considerations
The Code of Federal Regulations (22 CFR Part 10.735-201)
lists various proscribed actions under Ethical and Other Conduct
and Res onsibilities of Em lo ees. The sec ion s a es a an
emp oyee s a
avoi any ac on, whether or not specifically
prohibited by the regulations in this part, which might result
in, or create the appearance of: (1) giving preferential
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treatment to any person or (2) losing independence or
impartiality.
A Department of Defense detailee to S/LPD, who served as a
Senior Military Advisor from June 1984 through June 1986, and as
Executive Officer from about June 1985 to June 1986, may have
violated these regulations. This individual introduced his
sister, who was a specialist in establishing and operating mail
distribution systems, to the head of S/LPD and to Frank Gomez of
IBC. Both the head of S/LPD and Frank Gomez confirmed that she
was introduced by the Senior Military Advisor as his sister. At
the time of the introduction, she was employed by a private firm
in New York. S/LPD subsequently contracted with INSI and with
IBC for analysis, design, and operation of a mail distribution
system. The sister was hired by IBC to direct the work under
such contracts.
By virtue of his position as the Executive Officer, the
Senior Military Advisor was in a position to influence S/LPD's
decision to contract for the services and IBC's decision to hire
his sister. Also, even though Frank Gomez and IBC had performed
various activities for LPD under several previous purchase
orders and contracts, operating a mail distribution system was
not one of such activities. The analysis, establishment, and
operation of S/LPD's distribution system was contracted for on a
sole-source basis. In addition, the Senior Military Advisor was
involved in the decision by S/LPD officials to classify the
final contract with IBC, which included about $150,000 for
design and operation of the mail distribution system. He
informed us that he probably made the suggestion to classify the
contract although the final decision was made at a higher level.
As previously stated, we found that the classification of the
contract was done, without justification, apparently to avoid
competition and public disclosure of the contract in the CBD.
Since the Senior Military Advisor is a Department of Defense
employee who was on a nonreimbursable detail to the Department,
we referred the matter to the DOD Inspector General for further
consideration and appropriate action on May 18, 1987.
2. Potential Conflict of Interest
Prior to being employed by S/LPD on a purchase order in
February 1984, Frank Gomez was employed as the Director of
Foreign Press Centers for USIA. He retired from that agency on
February 14, 1984 and the performance date for the work called
for by the purchase order with S/LPD was February 14,1984
through May 31, 1984.
Documents contained in the S/LPD files indicate that, while
he was employed by USIA, Frank Gomez established the Institute
for North-South Issues and negotiated with USIA and the State
Department for contract work after he retired. The purchase
order discussed above was also negotiated with S/LPD while he
was employed by USIA.
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This matter was referred to the USIA IG along with available
documentation on May 15, 1987 to determine whether any conflict
of interest laws or regulations were violated.
F. Congressional and Press Guidance
A relatively small, but important, portion of information
provided to Congressional requesters and as press guidance was
either inaccurate, incomplete, or potentially misleading. There
was no evidence that mistakes were made intentionally.
The first external interest in the Department's contracts
with IBC and its principals was by Senator John Kerry of the
Senate Foreign Relations Committee on December 17, 1986. On
December 19, 1986, Representative Edward Feighan of the House
Foreign Affairs Committee requested information about the IBC
and other contracts. Since that time numerous additional
requests have been made by:
Congressman Dante Fascell, House Foreign Affairs, 2/9/87
House Foreign Affairs Committee Staff, 2/10/87
Congressman Lee Hamilton, House Foreign Affairs, 2/13/87
Congressman Dante Fascell, House Foreign Affairs, 3/4/87
Senator John Kerry, Senate Foreign Relations, 3/24/87
Congressmen Fascell and Broomfield, House Foreign Affairs,
3/26/87
Senator Kerry's December 17, 1986 request was for "any and
all contracts between the State Department, or any agency or
entity under its aegis, and International Business
Communications, * * * or Richard Miller or Frank Gomez, two of
IBC's principals, entered into at any time from 1981 to the
present." In responding to the request on January 29, 1987 the
Department's correspondence stated: "A search of our contract
files coyering the year 1981 through the present has surfaced
the two enclosed contract documents." The documents referred to
were the last two contracts with IBC--the FY 1986 contract for
$276,186 and the contract for the 7 months ending September
30,1985, for $90,000. As discussed above, our work shows that
there were four earlier purchase orders and contracts with Frank
Gomez and IBC totalling $69,400 between February and December
1984.
Press guidance was prepared on several occasions in
February, March, and April 1987. Press guidance prepared by ARA
on February 7, 1987 included a series of questions and answers,
one of which was as follows:
"Q. Why was the State Department contract with IBC
backdated? Is this normal practice?
"A. The contract with IBC was not backdated. The contract
was signed in September 1986 to cover the period from October
1985 to September 1986.
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"The contract was negotiated well in advance of being
signed. However, its terms required that the contracting firm
obtain specific security clearances before the contract could be
signed. Procurement regulations allow unclassified work to be
performed in such cases pending the receipt of the security
clearances necessary to allow the signing of the contract."
The inference that IBC delayed the classified activities and
worked only on unclassified activities pending receipt of its
security clearance is erroneous. The records show, and anyone
familiar with the contract should have known, that IBC was
conducting allegedly "classified" activities before receiving
its clearance and, in fact, had completed all such activities
before receiving the clearance.
we believe that officials providing information for
Congressional requesters and press briefings should be reminded
to exercise caution to insure that such information is accurate
and complete. (Recommendation 13).
G. Departmental Cooperation with Congressional Requesters
Responsiveness to requests for information by members of the
Congress and their staffs has been somewhat slow and fragmented,
although the volume of information requested has been
considerable. The role of the Office of the Legal Adviser in
providing information to the requesters was not completely
understood and was a source of some friction with some members
of Congress and Congressional staff.
Departmental procedures for providing information to
Congressional requesters are described in 5 FAM 110 and the
Secretariat Handbook. The procedures require Congressional
correspondence to be answered, or at least acknowledged, within
3 workdays from receipt in the action office. Concerning
requests for information, the stated policy is that all officers
are authorized and encouraged to provide prompt and forthcoming
support.
The Department has been criticized, mainly by staff of the
House Foreign Affairs Committee (HFAC), for not cooperating with
Congressional requesters attempting to obtain information about
the contracts with IBC and Frank Gomez. On February 19, 1987,
In testimony before the HFAC, the Secretary was asked about the
Department's unresponsiveness to the Committee's request. The
Chairman and Ranking Minority Member stated that "Apparently,
the Department is following an internal review process before
documents are furnished to the Committee that has effectively
choked off the flow of information to the Committee. In the
interest of comity, we respectfully request the Department to
speed up the process."
The criticism of the Department focuses on two main
issues--first, the length of time taken in respondina to
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requests for information and, second, the role of the Office of
the Legal Adviser in releasing information to the requesters.
In the case of timeliness, requests for information took as
long as a month, or longer, to receive a response. The request
from Congressman Feighan, dated December 19, 1986, took over 3
months. On balance, the requests for information from the
Department have been voluminous. One request alone involved
copies of documentation for 90 procurements on 67 separate
procurement actions. Another problem has been that Department
officials have been quicker to promise information to
Congressional requesters than to deliver such information.
During an on-the-record meeting between staff of the HFAC and
officials from H, ARA/LPD, OPR/STP, and L on February 10, 1987,
numerous questions were asked and requests for information from
the Department were made. Department officials agreed to
respond to the questions and provide the information requested;
however, no one inventoried what had been promised and made sure
that information promised was delivered. As of May 4, 1987,
some of the information still had not been provided.
The role of the Office of the Legal Adviser in the process
for receiving requests from the Congress and responding to those
requests has also caused consternation, particularly among
Congressional and General Accounting Office (GAO) staff. The
role was, or at least was perceived to be, unusual since L
normally does not function as a conduit for detailed information
requests and responses to such requests. All files and
documentation requested by the staff, and, in the initial stages
of our inquiry, even by representatives of the OIG, were first
reviewed by L before being made available for examination by the
staff. Requests for copies of documents were made through L.
This process was criticized as an attempt to obstruct staff
investigations of the Department's contracts with IBC and
others.
According to the Deputy Legal Adviser responsible for
coordinating the Department's cooperation with the Iran/Contra
investigations, the Secretary asked the Office of the Legal
Adviser to coordinate the efforts of an Informal Working Group
(IWG), which was composed of persons from a number of bureaus
and was designed to facilitate all of the Department's efforts
to cooperate with various law enforcement and Congressional
investigations underway on Iran/Contra issues. L assumed such a
role before questions were raised about the Department's
activities with IBC and Frank Gomez. When such questions were
raised, a judgement was made that the documents involved were
likely to be requested by the Independent Counsel and the
Congressional Select Committees investigating the Iran/Contra
affair. He stated that the IWG adopted the same procedures it
had established for other aspects of the investigation to ensure
that a thorough search was made, that the chain of custody of
documents was maintained as required by the independent counsel,
and that documents and requests therefore were logged and
arrangements made for prompt access by the various
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investigators. He stated that this role and rationale was
explained in a meeting with HFAC Staff on February 26, 1987.
We believe that Department officials should place a high
priority on responding to Congressional requests for
information, particularly after such information has been
promised by the Department. Officials dealing with
Congressional representatives should be more selective in
promising information and should attempt to negotiate reduced
volumes of information or phased delivery. Requests should be
discussed thoroughly with requesters so that redundant, boiler
plate, and routine procedural information is eliminated unless
absolutely necessary. Promises of information which are made
should be systematically tracked to ensure that requested
information is delivered and further criticism for
non-responsiveness is minimized. (Recommendation 14). The
specific nature and purpose of L's Fae-(6i-a7i-FiEri of any such
working group or task force) in this and similar issues should
be clearly defined, documented, and communicated to affected
parties at the outset. (Recommendation 15).
Comments of Department Officials
In commenting on a draft of this report, A/OPR stated that
OPR/STP took the lead in trying to be responsive to the Hill and
that every initiative to release information came from the
Procurement Division. He added that at no time did any of the
offices involved assume responsibility for a coordinated
response.
. H. Other matters
1. Classification of the FY 1986 IBC Contract.
S/LPD classified its final contract with IBC as SECRET,
contending to officials in OPR/STP and L that it contained
sensitive information of a national security nature. However,
the contract was virtually a continuation of an unclassified FY
1985 contract, except for the addition of an unclassified
document distribution system. There was nothing of a national.
.security_o.c_e.3zajwensitive_riature in
the contract. In our
,opinion, the real reason tcii classification was to avoid
!publication in the CBD and Possible challenges to the sole_
! sgures-cpptractual relationship__Teath_I&C. Most of the remaining
'staff of AAA/LPD, and the former officials we have contacted,
? now admit that classification was an error.
The improper classification created a number of other
problems since IBC could not retain a copy of the contract, and
the contract could not be signed until IBC obtained a facility
clearance. This led to multiple technical security violations'
and probably added to suspicions that the classification was to
cover improper dealings with IBC.
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The criteria for secret classification are contained in 5
FAM 922.1-2 which reads:
"Information may not be classified secret unless its
unauthorized disclosure reasonably could be expected to
cause serious damage to the national security."
The FAM also prohibits certain classification actions at 5
FAM 921.b. It provides that "Information may not be classified
to conceal violations of law, inefficiency, or administrative
error; to prevent embarrassment to a person, organization, or
agency; to restrain competition; or to prevent or delay the
release of information that does not require protection in the
interest of national security." (emphasis added).
On August 30, 1985, S/LPD requested an extension of the FY
1985 contract with IBC to provide for services during FY 1986.
The only new work requirement was for the design and
implementation of a document distribution system. No mention
was made that the FY 1986 services would be classified. OPR/STP
informed S/LPD that the FY 1985 contract was a fixed price
contract and could not be extended. In addition, OPR/STP
informed S/LPD that the new contract should be publicized in the
CBD and full and open competition should be obtained.
On December 4, 1985, S/LPD requested a new contract and
stated that the services and contractual arrangements were to be
classified SECRET and not disclosed publicly "because of their
character, ingredients, and components." The justification
statement submitted by S/LPD was prepared so as to appear to
meet the classification requirements of the FAM. The
justification stated that "publication of the general nature of
the performance would be detrimental to ongoing programs under
S/LPD and revelation of certain operations or allowing
speculation could result in serious damage to our relations
with several allies and other foreign states." In a memorandum
dated February 24, 1986, the Deputy Coordinator wrote: "This is
a precise definition of secret." OPR/STP returned all contract
documents to S/LPD where they were subsequently stamped SECRET.
S/LPD officials informed us that they decided to classify
the contract because of concerns for the safety of Central
American defectors being brought to the United States by IBC for
media events. They said they believed that if this activity
became widely known, the safety of the defectors would be
jeopardized. They acknowledged this activity was not
specifically described in the contract and that the same
activity had been conducted by IBC under the previous
unclassified contract. In fact, S/LPD had previously contracted
with the U. S. Marshals Service to provide protective services
for a Central American defector. The correspondence concerning
the services, invoices, and request for payment were all
unclassified.
In our opinion, the only rationale for classificatinn nf the
FY 1986 contrAt.*
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competition. The contract extension initially proposed by S/LPD
was unclassified, the statements by S/LPD officials concerning
the consequences of disclosing such information are not
accurate, and the safety of Central American defectors does not
justify a SECRET classification.
Declassification actions of ARA/LPD also did not follow
proper procedures. The declassification of the contract on
January 28, 1987, in response to Senator Kerry's request for
copies was not improper. The Coordinator of ARA/LPD at the time
of the declassification had the authority, by succession to the
Coordinator of S/LPD, to downgrade or declassify a document
classified by (or by direction of) his predecessor. On January
28, 1987 he wrote at the bottom of only the original copy of the
contract: "Declassified by Robt. Kagan 1/28/86." (sic). The
correct date was 1/28/87. However, other copies of the document
were not retrieved for declassification and holders of these
copies were not notified. Also various other documents which
were classified subsequent to and because the contract was
classified were not declassified. On June 9, 1987, following
several inquiries from OIG staff, the Coordinator properly
declassified the contract and supporting documentation; We
believe that the Coordinator should be instructed to follow
established procedures for classifying and declassifying
documents in the future. (Recommendation 16).
The improper classification created an anomalous situation:
the contract could not be signed until the contractor had a
facility clearance; the contractor could not have a copy of the
contract; and the contractor could not be paid until the
contract-was signed. The classification of the contract
probably also gave rise to, and later fed, allegations of
improper lobbying through use of a classified contract.
Having created the problem of a classified contract with an
uncleared contractor, S/LPD and IBC did not act quickly to
resolve tie problem. Four security investigations were begun by
the Defense Investigative Service (DIS) at the request of S/LPD
and ARA/LPD in 1986: February 5, April 17, May 14, and July
10. According to DIS reports the first two were terminated
after IBC refused to respond to the investigators; the third was
terminated when DIS learned that IBC was not a registered
Partnership; and the fourth resulted only in an "interim"
clearance, in the tenth month of the contract, but without
permission to possess classified material on the contractor's
premises. IBC was finally granted a secret facility clearance
on November 17, 1986, nearly two months after the contract was
completed. However that clearance still did not allow the
contractor to have classified information on its premises. As
discussed below, we found evidence that this requirement was
violated and we referred the issue to the Bureau of Diplomatic
Security for appropriate action.
While the fault for failure to obtain the necessary
clearance is primarily IBC's, S/LPD should not have'
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,
contractor to continue to perform on a classified contract
without a facility clearance. (See Recommendation 16). .
2. Security violations by IBC and LPD
During the course of the inquiry several potential security
violations were discovered. In responding to our request, IBC's
legal firm provided documents which were marked with the
security classification CONFIDENTIAL. Our information indicated
that the contractor did not have authority to store classified
documents and neither did the legal firm. In addition, the -
documents had been commercially copied before they were provided
to us. During our review of S/LPD files, we found a TOP SECRET
document improperly stored in a bar-lock cabinet. These
problems were referred to the Bureau of Diplomatic Security (DS)
for investigation and appropriate action on April 9 and May 5,
1987. (See Recommendation 16).
Comments of Department Officials
In commenting on a draft of this report, the former head of
S/LPD stated that the DOD detailee told him that a procurement
official had suggested that the contract be classified so he
assumed that this was the proper thing to do. He also described
the issue of safety of the defectors which IBC was handling for
S/LPD and stated that keeping this activity secret seemed to be
the prudent thing to do. The current head of ARA/LPD, on the
other hand, stated that the activities cOnducted under the .
contract were not Classified and that the Contract should not
have been classified. He stated that this was part of his ?.
rationale for declassifying the contract in January 1987; _A/OPR
stated that new procedures are now in effect which require all
classified procurements to be brought.to his attention.. --
In our opinion, the comment regarding the procurement.
.officials suggestion is misleading. AS the situation was
described to OIG staff, the suggestion was made only in response
to comments of S/LPD officials that the contract contained
sensitive information which should not be disclosed to the
public. The suggestion was not a concurrence that the
information contained in the contract was classified. Rather,
it was presented as advice to S/LPD that if the information was
sensitive and should be protected from the public, consideration
should be given to classifying the document. -
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V. RECOMMENDATIONS
1. The Department (A) should take appropriate actions to
implement Department policies to ensure that program offices,
including S-S/EX, ARA/EX, and ARA/LPD, are prohibited from
performing the acquisition functions assigned to the contracting
officers by the Federal Acquisition Regulation. Moreover, this
policy should prescribe disciplinary action in those instances
when a program official acts to commit the Government to
contracts without the authority to make such commitments.
2. The Department (A) should direct A/OPE and A/OPR to issue
instructions to OPR/STP contracting officials to reaffirm their
responsibilities to adhere to the competition requirements in
the Federal Acquisition Regulation. If deemed appropriate by
OPE, these instructions may be provided to other contracting
officials in the Department.
3. The Department (A) should direct A/OPE and A/OPR to issue
instructions to the OPR/STP contracting officials to stress
their responsibilities to adhere to the requirements for
publicizing proposed acquisitions in the Commerce Business Daily
as required by Part 5 of the Federal Acquisition Regulation. If
deemed appropriate by OPE, these instructions may be provided to
other contracting officials in the Department.
4. The Department (A) should direct A/OPE and A/OPR to issue
instructions to the OPR/STP contracting officials to stress
their responsibilities to adhere to the small purchasing
procedures in Part 13 of the Federal Acquisition Regulation.
Specific instructions should be given to OPR/STP officials to
detect and eliminate split requirements.proposed by program
officials.
5. The Department (A) should direct A/OPE and A/OPR to issue
instructions to the OPR/STP contracting officials to define the
preawardland postaward contract administration functions they?
are to perform. Moreover, OPE should conduct a random review of
OPR/STP contracts during early FY 1988 to determine if the
instructions are being followed by the OPR/STP contracting
officials.
6. The Department (A) should direct A/OPE and A/OPR to issue
instructions on the use of contract audit services for both
preaward and postaward contract actions. Moreover, OPE should
conduct a random review of OPR/STP contracts in early FY 1988 to
determine if the instructions are being followed by the OPR/STP
contracting officials.
7. The Department (A/OPE in coordination with M and A) should
take the actions necessary to implement an effective acquisition
planning program within the Department as required by Part 7 of
the Federal Acquisition Regulation. Moreover, OPE should review
the results of the planning system in early FY 1988 to determine
if it is achieving the desired results.
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3
8. The Department (A/OPE) should complete the actions necessary
to finalize the Department of State Acquisition Regulation as
expeditiously as possible.
9. The Department (A/OPE) should review the current delegation
of procurement authority issued to the Foreign Service Institute
(M/FSI) :and determine whether it needs to be modified to
preclude'the use of the Registrar's authority to issue training
orders for persons outside the Department using funds that are
not M/FSI funds.
10. The Department (M/FSI) should take immediate action to
recover funds from International Business Communications (IBC)
for nonperformance Of.services under Training Order No.
1001-402486. ?
11. The Department (ARA/EX).should instruct ARA/LPD to prepare
purchase requirements in-sufficient detail to allow OPR/STP to
structure definitive, quantifiable, statements of work which
identify deliverables and delivery dates.
12. The Department (A/OPR) should direct OPR/STP to reject
purchase requirements which lack sufficient detail to develop
definitive, quantifiable statements of.work.
.13. -The Department (H and PA) should instruct all. Department
offices, including ARA and L, to exercise more care to insure
the accuracy and completeness of information provided for'
Congressional requesters and press guidance.
14.. The. Department (H) should modify instructions for use by
Department offices and officials in dealing with 'Congression
requesters. Such instructions should address informal or verbal
requests and should include the need. to:
?place a high priority on responding to Congressional
requests, particularly after information has been
Promised,
thoroughly discuss, define, delimit, and document the
Information needed to respond to the request,
obtain a written request for the information, if
Possible, and
'periodically follow-up On commitments to provide
-information, to insurethat.requests do not remain open
for excessively long periods.??
,
15 -The Department.IH in. Coordination with L and SIS), when it
is desirable to designate L (or any ?other working .group or task
force) as a focal point for receiving.andresponding to requests
for 'information on a particular subject, 'should describe the ..
nature and purpose of the arrangement in writing .and communicate
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it to affected parties, particularly those in the Congress,
the outset.
16. The Department (DS and ARA) should require that the
Coordinator and staff of ARA/LPD familiarize themselves with the.
Department's security .regulations and adhere strictly to the
classification', declassificationamd. physical protection
requirements of g FAM 920, 930, 940, 950, .960, and 970..
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Order/Contract No.
1001-402214
'Awarded to: Mr. Gomez
1001-402296
Awarded to:
. Gomez.
1001-502074
Awarded to: IBC
1001-502356
Awarded to: INSI
LISTING OF OFFICIALS INVOLVED IN
EACH CONTRACT
Officials Involved
0. Reich, S/LPD (Requested Order)
J. Miller, S/LPD (Liaison Officer)*
Reich, S/LPD (Requested Order)
J. Miller,' .S/LPD' Officer)*
S. Canady, OPR/STP (Signed Order).
J. Miller, S/LPD (Requested Order)
(Liaison Officer)*
S. Canady, OPR/STP (Signed Order)
- F. Gardner, S/LPD (Requested Order)
(COTR)
R. Green, OPR/STP? (Signed Order)?
1001-402486 O.Reich, S/LPD (Requested Order)
Awarded to: IBC.- J. Miller, S/LPD (COTR)
A. Edwards M/FSI (Signed Training Order)
1001-502160
Awarded, to IBC. - F. Gardner, S/LPD (Requested Contract)
. (COTR)
.J..Miller, S/LPD (Proposed as COTR but not designated)
J. Handrahan, OPR/STP (Negotiated Contract)'
B. Garland, OPR/STP (Signe:I.:Contract):
O. Reich, S/LPD. Requested Contract from S/S-EX)
F. Gardner, S/LPD (Requested Contract from OPR/STP)
R. Kagan, S/LPD (COTR)' -
J. Blacken, S/LPD (Designated as COTR by S/LPD, not
named. as COTR due to;rotation) -
L. Berryhill, OPR/STP.(Negotiated.Contract)
B. Garland, OPR/STP (Signed Contract)
J. Conway,. A/OPE- (Ratified S/LPD Actions)
No. Contracting Officer's Technical Representative (COTR) was designated
on the purchase orders. Instead, a Liaison offir-r Acaci
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1001-602066
Awarded to: IBC
'4,NOTE:
Position
Coordinator
Deputy -
Coordinator
Deputy
Coordinator
Administrative
Officer
Procurement
Division Chief
Procurement ;
Executive
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KEY PROGRAM AND PROCUREMENT OFFICIALS
? -INVOLVED IN CONTRACTS WITH.IBC AND ITS PRINCIPALS
STAFFING OF KEY POSITIONS IN S/LPD (ARA/LPD) 1984-1987
1984
Otto J. Reich
(STATE)
John D. Blacken
(STATE)
1985
Otto J. Reich
John D. Blacken
Johnathan S. Miller Johnathan S.
(STATE)
1986
Otto J. Reich
(to 1/86)
John D. Blacken, Acting
(1/86 5/86)
EXHIBIT A
1987
Robert W. Kagan
Robert W. Kagan
(from 5/86)
John D. Blacken
(to 5/86)
Cresencio Arcos
? (USIA)
Miller John Scafe, Acting Daniel Fisk
(USIA)
Vacant Francis Gardner
Matthew Freedman (STATE)
(USAID) Daniel Jacobowitz
(DOD)(9/85 --12/85)
Thomas F. Calhoun
(STATE)(from 12/85)
STAFFING OF KEY PROCUREMENT POSITIONS 1984 - 1987
John Conway
Th?masF. Calhoun
(to 12/86) -
John Conway,
Acting .--
John Conway ? Barbaeb A. Garland,
(to 6/85) Acting,(to 4/86)
Joseph W. Globe, ,
Acting (to 10/85)
Barbara A. Garland, 'Robert B. Dickson
Acting (from 10/85) (from 4/86)
John Conway, John Conway
Acting
(from 2/86)
(STATE)
Vacant
(Daniel Fisk,
Acting)
?
Robert B. Dickson
John Conway .
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Exhibit - Memorandum from Former Coordinator
.of S/LPD dated July 17, J987
United States Department of State
MEMORANDUM
TO: OIC/AUD - Lynn W. Burgener
FROM: Ambassador Otto J. Reich
SUBJECT: Draft Report--special Inquiry into the
Department's Contracts with International
Business Communications (IBC)
The following' are my comments on the draft report; I
can only address myself to those management decisions over
which I had an impact at S/LPD. Several of the
allegations concerning Department procedures occurred
after I left S/LPD and many do not apply to S/LPD.
I will begin with Page 14 on the report which is
where the main text starts.
Washington, D.C. 20520
July 17 1987
Page 14, IV, Para A. I wish to take issue with the
statement that 'the need for the purchase orders and
contracts may have been justifiable in the beginning but
was questionable in the later periods as S/LPD' s in-house
staff grew and gained experience.. This judgment is
subjective and erroneous, and frankly, constitutes
second-guessing. The purchase orders and contracts for
outside assistance were as justifiable as the staff grew
as they were at the beginning, because the demands on the
office grew geometrically while the staff grew
arithmetically. As the office became more and more a
reliable source of information for members of the
executive branch-7including the President, the Vice
President, the Secretaries of State and Defense, the
Director of Central Intelligence--the Congress, the media,
and other audiences; demands on this office increased. In
the "later periods' the S/LPD staff was just as busy as it
had been at the beginning. The enormous amount of product
which was demanded and received by our audiences caused
our staff to work extremely long hours and every weekend.
In fact the IBC contract which first drew the attention of
the Congress and the press and which caused this IG report
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to be undertaken, was a result of the inability of the
State Department to properly distribute the voluminous
amount of S/LPD materials satisfactorily to audiences in
the executive and legislative branches as well outside of
government.
I would like to add at this point tha one of the
principal objectives of the office from the very first day
wac to help re-establish the credibility of the
Administration's information. When the office was
created, a number of Members of Congress and the media
were publicly questioning the credibility of the
Administration. I am very proud to say that in two and a
'half years of producing scores of documents, speeches,
briefings, issues papers and other materials, not one
factual error or mistake was made in S/LPD materials. In
April of 1985 Secretary Shultz told me that, in his
opinion, S/LPD had done 'a superlative, an outstanding'
job. This sentiment about the office was not a result of
carelessness or lack of attention to detail. It is very
easy to second-guess the actions of an executive, whether
in the-government or the private sector, two years after
the fact. But the reader should put himself in the
position in which the Administration found itself in the
summer of 1983, when banner headlines in the press too
often distorted or misrepresented the facts of reality in
Central America and of the policy of the United States
designed to deal with the crisis (as the President
correctly called it) in that region of the world. The
'urgency' never passed, at least as far as the President
of the United States and his senior advisors were
concerned. In fact, even after I had already left for
Venezuela and taken over my duties as Ambassador, the
President continued to use S/LPD products in his
successful battle to obtain Congressional support for his
Central American policy.
There is a factual error (in the second paragraph of
page 10 and again on page 14) which states 'Coordinator
Reich came to State in December 1983.???' Actually, I
began the public diplomacy activities on July 5, 1983,
immediately upon public announcement of the establishment
of the office. The Office had been established, as the
report states on July 1, 1983, but I had been designated
at a meeting of the National Security Council on June 21,
1983. [The possible reason for the confusion in the dates
may stem from the fact that from July to December 1983 I
was still on the AID payroll and in effect working on
detail from AID to State.] The report is completely
correct however, when it states that 'lacking adequate
staff, Mr. Reich obtained permission to contract for a
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short-term professional services contract in February 1984
with Frank Gomez...* I believe it is important to state
(in fact, it cannot be overstated) how much this office
was lacking not only in adequate staff, but in adequate
resources of all kinds. As I told the IG Team, I
personally had to ask constantly for resources for what
was supposed to be a Presidential initiative. It took
months ?for S/LPD to obtain its own office space,
telephones, typewriters, staff, and all the other support
necessary to carry out its function.
One very important element related to inadequate
resources, which had direct bearing on the subject of this
inquiry, was my constant request for an administrative
officer from the State Department to be assigned to S/LPD
to assist us in all administrative matters. This
included--and I remember repeatedly mentioning this as an
example of why we needed such administrative support.....
supervisionof our outside contracts (e.g., IBC). It took
over a year from the time that the office was established
for a State Department administrative expert to be
assigned to S/LPD. Even then, we had only what amounted
to "TDY? personnel as we changed administrative officers
frequently because of other priorities of the Department.
In fact, over two years after the establishment of the
office, I personally requested the Director General of the
Foreign Service to please see if he could identify an
experienced person to fill the again empty administrative
slot in S/LPD. This was after a two-month gap in that
Position in the fall of 1985. This timing is very
important and bears elaboration because it is precisely
during this period in 1985 when S/LPD had no State
Department administrative officer assigned to it, that the
IBC contract in question (the one which is allegedly '
erroneously classified) was negotiated. Because of the
lack of administrative support, I had to turned to a
Department of Defense detailee, an active duty military
officer, to help me with administrative matters. This
officer was an extremely hard-working and conscientious
individual but he had absolutely no knowledge of State
Department procedures, much less contracting. However, I
had no choice but to turn to him as I had already been
designated as Ambassador to Venezuela and was trying to
focus on my ongoing assignment, while still trying to keep
? the office in operation. In fact, it was on a trip to
Quito, Ecuador, in October of 1985 to attend the Andean
Chiefs of Mission Conference in anticipation of my future
Ambassadorial assignment that I requested the Director
General of the Foreign Service to find S/LPD an
administrative officer. I told the Director General that
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I wanted to leave S/LPD in the best possible management
condition. Immediately upon his return to Washington, the
Director General did find us an administrative officer,
but this person could not be detached from his assignment
until six weeks later (December 1985). In effect,
therefore, we were without administrative support for
another crucial period. It can be argued that the
inability of the Department to provide S/LPD with such
help was an important contributing factor to any ,
irregularities which may have occurred in the handling of
the IBC relationship. I think it is a very telling
commentary on the Department's priorities that one and a
,half years later (1987) approximately half a dozen
!,experienced State Department auditors were found to look
into the contract. These individuals spent a total of
?approximately two to three months looking into this
relationship. Had we had just one of these capable and
knowledgeable individuals assisting us with our
contracting procedures in S/LPD in 1984 and 1985, perhaps
the American taxpayer would have been spared the need for,
and saved the cost of, this investigation.
Going back to the Report itself, on page 12, third
paragraph, it is stated that 'in January 1985 the
coordinator of S/LPD was nominated as Ambassador to
Venezuela and withdrew from active leadership of S/LPD.'
This is not correct. It would be correct to state that I
withdrew completely from active leadership of S/LPD at
that time. I had indications since May of 1985 that I was
going to be nominated as Ambassador to Venezuela. In
August of 1985, President Reagan signed the internal
memorandum approving my nomination and requesting FBI and
other clearances. In early December of 1985 I received
the call from the President officially requesting that I
take the job of Ambassador. The last step, in January
1986, spas the public nomination of the Ambassadorship and
the transmittal of the nomination papers to the Congress.
At that time, I withdrew completely from S/LPD leadership
and concentrated full time on my confirmation hearings and
in continuing to prepare for the Ambassadorship (something
which I had already begun to do, concurrently with my
S/LPD duties, in the summer of 1985).
On page 16, the report states that the criteria for a
sole source contract with Frank Gomez appeared to be weak
though justifiable at first. As the report iself states
on page 15, I was not familiar with State Department
regulations and I relied entirely on the advice I
received--usually through someone on my staff--from the
contracting office at State. When Frank Gomez appeared on
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the scene, I was told--repeatedly--that sole source
contracts ?were done all the time' and were perfectly
legal. The report also seems to question why Frank Gomez
received a series of short-term contracts. There appears
to be a contradiction here, in that a sole source contract
was initially justifiable but not later, as Mr. Gomez
proved himself capable of doing the job even better. I
would like to reiterate what the report states, and that
is, that I did not know Frank Gomez until I took over
S/LPD. When he became available in early 1984, I had no
knowledge of how he would be able to perform for us.
Therefore, I thought that the prudent thing to do from a
management standpoint was to try out Mr. Gomez for a short
period of time. I was very impressed with his performance
and extended the contract for another three months, and,
as the report states we continued increasing his
activities, as well as his remuneration, in subsequent
contracts. Borrowing from some of the hindsight so
abundant in this investigation, we could ask whether.
S/LPD's initial contract with Mr. Gomez should have seen
for one year, thus avoiding the present aggravation of
having to explain three consecutive short-term contracts;
would that have been justifiable?
On page 17, the report states that by FY 86, S/LPD
had nine State Department and ten other agency personnel
and that, therefore, by that point the original
justification for outside assistance as no longer valid.
This is another example of Monday morning quarterbacking.
In FY 86, the demands on the office far exceeded the
office's capabilities. On many occasions, we had
personnel working until one o'clock in the morning and
through entire weekends, something that is not common
procedure in the State Department, even though it is one
of the hardest working of all executive departments. I
simplyscould not justify continuing to demand that kind of
performance from my staff forever. If anyone questions
those statements, all they have to do is interview any and
all of the S/LPD staff to determine what the working hours
were. Additional evidence is available from the overtime
requests for secretaries. It is very easy now for people
totally unfamiliar with the demands on this office and the
working conditions prevalent at that time to make the
statement that 'outside assistance' was no longer
justified. In fact, it was probably even more justified
in 1985 than it had been in 1983 since we did not know at
the beginning exactly what the demands on the office were
going to be. Moreover, the last contract for IBC, most of
which was for distribution of S/LPD publications, was made
necessary by the enormous amount of material which the
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office was producing. The materials were simply not
getting into the hands of the people who needed to have
them. The Administration continued to be criticized by
officials in the Congress, the public, and even the press
about the lack of effectiveness in 'telling its side of
the story on Central America.' Having contacted the
Bureau of Public Affairs, and having examined all of the
available avenues open to us to distribute the
Department's publications, I came to the conclusion, with
the assistance of other State Department officials, that
the most efficient method open to us was to seek and
outside source of distribution services. I was told this
requirement could be added to the IBC contract. Once
again, I had to assume that the information I was
?receiving from the Department's experts was correct
especially since, as the report itself indicates, we were
not told otherwise.
The second paragraph on page 17 is not entirely
correct. It states 'when the leadership of S/LPD changed
in mid-1986, the new coordinator came to the same
conclusion and decided to stop contracting with IBC at the
end of the FY 86 contract and to perform the work
in-house.' I recall that prior to my departure for
Venezuela, I had met with the new S/LPD coordinator and
among other things told him that I thought that the IBC
contract was simply taking too long to negotiate (it was
indeed not concluded until September 1986) and that I felt
that he should find some other way to get the job done.
This was not a reflection of IBC's ability to do the job,
it is more a reflection of the frustration with the
contracting procedures. I was no aware at that time of
the reason for the the difficulti4s with IBC, and in fact,
have only become aware of all of them by reading this
report. I did know, however, that: if they were ever going
to get 'the job done of getting the; material distributed,
-and since the IBC contract was taking so long, that the
Department had to find some other way to do it.
1
Page 19. For each example which is listed on this
page as evidence that S/LPD 'abused' the process, I have
to respond that I asked, at every Opportunity, whether the
recommendation that was being made l to me, by whichever
person was monitoring the contract and dealing with the
contracting office, was legal and'standard procedure. At
every step I received the reply that this was standard
procedure and completely legal and 'done all the time.'
The example of acquisition activities listed on page 21-22
of the report was thought by me at the time to be
completely normal. I had no reason to believe otherwise
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since, as the report itself indicates, 'the OPR/STP
contracting offices did not challenge the S/LPD actions as
unauthorized comimitments.' How am I supposed to know,
when I am attempting to run what was later described by
seventh floor principals as one of the most productive
offices in the State Department, that the office upon
which we were relying for contracting advice and
assistance had, in the words quoted in the report, 'failed
to do their job?'
On page 23 the report states that the sole source
acquisitions were not justified. I believe this is
partially second guessing, but also that S/LPD was let
down once again by the experts in the Department. On
'sole source' as well as the other apects of these
acquisitions, I was told that 'this was done all the time'
and that I had no reason to believe that our
recommendations were inadequate or were not justified.
Since none of these contracts were rejected by the
contracting office, I had to assume they were adequate and
proper.
I would argue with the tone of pages 24-25 in that
there appears to be a question about Frank Gomez' ability
to qualify for a sole source contract. Considering the
condition of S/LPD staff at that time, and the demands
upon the office, someone with Mr. Gomez' background was
Practically made to order.
On page 36 there begins a discussion of whether or
not some of the contract amounts constituted a 'fair and
reasonable' price. It is very difficult to determine just
exactly what price to put on the credibility of USG
offficials. It is therefore very difficult to put a price
on the ability of an individual or a corporation to assist
the USG and its highest officials to obtain understanding
and support for a particular policy, (the success of which
may in fact event a major foreign policy disaster). I
mention the above to attempt to put the pricing issue in
its proper perspective. For example, in 1981, (long
before the establishment of S/LPD) the State Department,
in an attempt to prove the fact that the Salvadoran
guerrillas were receiving support and assistance from
Nicaragua, issued a so-called 'White Paper' which reported
extensively on the evidence of Nicaraguan support for the
Salvadoran guerrillas. In their continuing effort to
discredit the Administration's policy, some members of the
national media found minor errors in the multi-page 1981
report. Immediately thereafter, in order to support their
own effort, they began to call it the discredited White
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AM,
Paper.' This was a very embarrassing incident to the U.S.
government. It took approximately two years to overcome
the damage to the credibility of the Administration in the
Congress and the press regarding what everyone now knows
to be the overwhelming evidence of Nicaraguan support for
the Salvadoran guerrillas during that and subsequent time
periods. (The Congress of the United States in 1985, in
order to end this discussion once and for all incuded
language into legislation which states that it is the
opinion of the Congres that Nicaraguan support for the
Salvadoran guerrillas is indeed true). When S/LPD was
created, the experience of the so-called 'White Paper' was
still very fresh on everyone's mind. One of the very
important areas in which Mr. Gomez assisted us was in
;insuring accuracy in some of the papers as well as in
bringing to us unclassified materials which could be
included in such papers. Some people may consider those
services to be relatively inexpensive. It is certainly
inexpensive when one considers the cost to the Government
of the United States of having its statements constantly
questioned by friend and foe alike.
There is another aspect of Frank Gomez' work which
has an impact on pricing. Gomez was helping us to deal
with defectors from Central America whose lives had been
threatened by the government of Nicaragua and by the
Communist guerrillas in El Salvador. He handled, very
effectively, I must add, a number of those defectors. He
helped us with the physical care and feeding of these
human beings who found themselves in a totally strange
country and whom in no case spoke English; they did not
have any contacts in the United States, nor any knowledge.
of how to even get around. I believe this would be an
appropriate time for me to comment on the haphazard way in
which the United States too often handles defectors. It
is no surprise that the U.S. Government has been
embarrassed by cases such as that of the Soviet KGB
defector Yuriy Yurchenko who redefected to the Soviet
Union in early 1986, three months after his defection to
the U.S. In 1982, one year before S/LPD was created, the
U.S. Government suffered another major embarrassment when
a Nicaraguan who had been captured in El Salvador fighting
with the Marxist guerrillas was brought to Washington by
high State Department officials in order to re-tell the
story which he had told the Salvadoran authorities of his
training in Cuba and Nicaragua as well as his insertion
into the Salvadoran conflict by the Nicaraguan
government. This captured Nicaraguan, whose last name was
Tardencillas, changed his story when he was put on U.S.
national television and said that he had been 'tortured'
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and 'forced' to tell a lie and that he had never been
trained by the Cubans or Nicaraguans. We know now (and
knew then) that Tardencillas was lying in this latter
version of his story. But the damage to the credibility
of the USG around the world had already been done.
Tardencillas was returned to Nicaragua and it took
approximately a year to live that episode down. I am
proud to say that never in the two and a half years in
which I headed S/LPD, did we have an incident with
defectors. Can someone put a price on that? We took
pains to prevent such incidents with our in-house staff,
but on occasion Frank Gomez helped us screen defectors to
make sure that they were not 'plants' or foreign agents.
Under S/LPD' s management of defectors, there were many
requests for them from several members of Congress,
including the then Chairman of the Senate Intelligence
Committee, David Durenburger of Minnesota.
The report says that 'although deliverables were
vaguely defined and reported, the performance by Frank
Gomez and IBC on all other purchase orders and contracts
was approved, accepted, and frequently applauded by S/LPD
officials.' I would go even further. I would say that we
'enthusiastically' applauded Frank Gomez' performance. As
I told the IG team investigating this relationship, I
believe that Mr. Gomez performed exceptionally wells for
the USG almost without exception. The question we have to
ask ourselves when dealing with contracts such as this one
is: How does one determine the real value to the U.S.
Government of, for example, something as 'vaguely
definable' as re-establishing Credibility? Or of avoiding
a repetition of the 'White Paper' or the Tardencillas
incident?
Classification of the FY 86 IBC contract. I would
like tq set forth my version of why the FY 86 IBC contract
was classified secret. At some point in the fall of 1985
to the best of my recollection, the military detailee who
had been acting as liaison with the rest of the Department
on S/LPD contracts, told me that it had been suggested to
him by a Department official that the contract be
classified. Knowing that he was in constant communication
with the contracting office and other entities of the
Department trying to get this contract approved, I
naturally assumed that this was the proper thing to do.
In 1987, in response to questions from the IG and the GAO,
I stated that I had probably given the go ahead for the
classification for that contract. I have no evidence to
the contrary even today. That is, that I probably did
tell the officer to go ahead and to through channels to
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get the contract classified. The IG report states that
there was no justification for that classification. I
believe that does not take into account the
circumstances. As I mentioned earlier, IBC was dealing
with defectors on behalf of S/LPD, and keeping that
relationship secret seemed to be a prudent thing to do.
Although IBC had been handling such defectors from
practically the onset of its relationship with S/LPD, in
the summer or fall of 1985 we received indications that at
least one of the defectors whom we were handling, Mr.
Alvaro Baldizon, was under a death threat from the
government of Nicaragua. (Baldizon's brother was
'arrested' in Nicaragua immediately after the defection,
disappeared, and is presumed dead). We had been advised
that there might be a hit squad in the U.S. sent by the
government of Nicaragua to assassinate Baldizon. I
therefore requested protection for Mr. Baldizon from the
U.S. Marshals. They provided this service but, much to
our surprise, proceeded to charge the Department of State
at the rate of approximately $8,000 a week for
round-the-clock protection for Mr. Baldizon. I received a
call from S/S-EX stating that we should sever the contract
with the U.S. Marshals because the Department simply
'could not afford it,' that the Department did not have
the funds to provide that kind of expensive protection for
Mr. Baldizon. At that point, one could say that S/LPD was
really in a bind. On the one hand, a defector had trusted
his life to the USG and on the other hand, the Department,
in effect, washed its hand of this individual. We have to
understand that when people trust their lives to the USG,
we have a moral responsibility and cannot discard that
responsibility simply because the U.S. Marshals decide to
charge $81000 a week to guard that person. At any rate,
when the Department told me to sever the relationship with
the U.S. Marshals, I asked Frank Gomez if he could help
take care of Mr. Baldizon. Mr. Gomez said that he could,
and as a precaution, proceeded to move Mr. Baldizon around
the Washington area from hotel to hotel as well as to feed
him and take care of his basic human needs. Earlier, we
discussed the matter of what constitutes appropriate
pricing for a contract such as this. I would be very
interested in knowing how much the services provided by
Mr. Gomez on behalf of the Department of State, in taking
care of a politically sensitive defector with a price on
his head are worth to the USG. If the security alone for
such an individual is worth $8,000 a week (or $416,000 a
year), then was the contract that was being negotiated
with IBC for approximately $10,000 a month (in addition to
the distribution services) adequate or appropriate?
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a a
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I object to, and disagree with, the characterization
of the statement on page 69 of the report that the reason
for classification for the contract was 'to restrain
competition.' I do not believe that was the reason why
the contract was classified; I have stated why I believe
the contract was classified. I believe that if the
information we had received about Mr. Baldizon was
correct, that is, that he was under threat of
assassination, and if that assassination had been
successfully carried out while he was in our custody, that
that would have caused serious damage to our nation.
Defectors are the repository of a great deal of very
valuable information which often impacts on our national
security. If we cannot care for these people, then other
potential defectors, who may have even more valuable
information, would probably, human nature being what it
is, at least think twice if not actually change their
minds, about defecting to the U.S. If I may add my own
unofficial recommendation to this repoort, it is that the
USG establish a better system than presently exists for
dealing with defectors that includes not only their
physical but also their emotional and spiritual needs. I
would be curious as to how many IG or Congressional
investigations would have been launched had a successful
assassination been carried out against one of the
defectors which S/LPD was caring for or 'handling. Would
there have been an outcry from some of the same staff or
members of Congress who are quick to criticize the
Administration for the IBC contract? Would they have been
quick to criticize the Administration for not being able
to take care of defectors?
Page 44, paragraph 2. The allegation regarding the
training order placed through FSI was a surprise to me. I
was under the impression that the training described in
the order had indeed taken place. I will be interested in
knowing if there is a plausible explanation of this case.
In the meanwhile, I fully agree with the two
recommendations of the IG report on this issue. I had
never heard of a 'self-certification' system of payment
and find it inadequate. I would like to point out,
however, that this event also occurred at a time when
S/LPD had no administrative support. Our aid detailee who
was handling this contract (and all other administrative
matters) left in late August 1984 and was not replaced for
several months. This obviously contributed to the
confusion on this contract. One additional factor which
may be relevant: it bears remembering that S/LPD did not
deal with 'normal' issues. In this particular instance,
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for example, the principal counterpart in the government
of El Salvador with whom Mr. Gomez dealt, a Lieutenant
Colonel Cienfuegos, was assassinated by the communist
guerrillas just six months after the time in question
(March 1985). The opinion of both USG and Salvadoran
experts at that time was that the guerrillas had killed
LTC Cienfuegos precisely because he, and his office, had
become too effective in dealing with the international
press. Their response was to shoot him through the head
and drape him with a red flag with the guerrilla
movement's initial on it. As I said, this may or may not
be relevant, but that is the environment in which we
operated.
Page 53, Para D: Lobbying activities. The first
:paragraph appears to be contradictory. The first sentence
states that "although allegations were widespread, there
is no evidence that S/LPD staff or IBC personnel
contracted with the Department participated directly in
any unlawful lobbying.' I agree with that. The next
sentence states 'there is considerable evidence, however,
that S/LPD conducted and participated in activities which
came close to prohibited categories, and were interpreted
as illegal by some observers.' I do not understand who
these anonymous 'observers' are and why their
'interpretation' should have any weight in this report. I
believe this last sentence should be struck. As the
report indicates, the Department of Justice looked at the
allegations and found that the activities of S/LPD were
lawful. The opinions of the unnamed observers are,
therefore, irrelevant.
The report also states that 'while S/LPD did not
violate the lobbying statute, there is considerable
evidence, however, that activities were carried out which
are ve'ry close to the line between authorized informing
and unauthorized attempting to influence.' I object to
this, statement because there is absolutely nothing wrong
..with coming 'very close to the line.' I do not know which
'line' this.report is talking about, but if that 'line' is.
the law then it should be very clearly stated that S/LpD's
activities were all within that law. As the report itself
indicates, S/LPD management went to great pains to ensure
that all our activities were within the statutes.
The report then goes on to say something very
strange: 'Among other things the S/LPD coordinator and
staff travelled and spoke extensively on the merits of the
Administration's Central American Policy.' I really do
not understand what this statement is doing in this
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report. State Department officials constantly travel and
speak throughout the country on the merits of any
Administration's foreign policies and there is nothing
Wrong with that. . In fact, there is an entire bureau (the
Bureau of Public Affairs) designed to organize such travel
and speaking engagements. That statement is confusing and
gives the wrong impression.
Perhaps this would be a good time to point out that
one of the reasons why S/LPD was created at such a high
level (the National.Security Council) was because, in the
opinion Of the highest policy makers of the USG, the State
Department was simply not performing satisfactorily in
communicating tothe American people the Administration's
policy objectives in Central America. The Bureau of .
Public Affairs at the State Department and other Executive
departments were simply overwhelmed with requests for
speakers and other materials on the Central America
policy. I was informed when the office was created that
the President,. the Vice President, and others were, to say
the least, very upset with theinability of the Executive
Branch to publicly communicate to the American people what
the USG was trying to do in Central America. In
subsequent conversations with the President, the Vice ?
President, and a number of Cabinet Secretaries, / was able
to personally confirm 'that sentiment..
The report states that S/LPD 'subsidized*
publications supporting the President's Central American
policies. This is a very strange statement. We not only
'subsidized' publications, we corifess to paying for them.
This was clearly within our mandate and within the law. .
It is also something which the Department does regularly
and for which there is great public demand. If the, United
States Government cannot communicate directly with the
American people, we are in very serious trouble because
many major media are no longer a reliable source of
information on issues such at' Central America. One,
reality,- however, is that the press always has the last
word on any debate. (As I am sure it will have on the -
subject of this report.)*
In addition., I would-like to point out that,
according to law and established practice, S/LPD's'
activities that pertained to the Congress were done in
response to requests to members of Congress or coordinated
through the Department of State's Office of Congressional
Relation's or the White House or NSC congressional
-relations.
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On pages 56 and 57, an example is given of what is
called 'evidence that LPD participated in a group with
other organizations which conducted activities which LPD
would have been prohibited from performing.' I will state
again what I stated to the IG Team: This example is
irrevelant. The paper from which this example is taken
was not prepared by anyone in S/LPD nor, in my opinion, by
anyone in the Department of State. It was probably one of
the literally hundreds of papers which S/LPD staff picked
up at the hundreds of meetings which were attended by the
staff outside the Department over a period of two and a
half years. I do not know who prepared this particular
paper, but the inclusion of these examples in this report
,may give the reader the impression that S/LPD in some way
condoned or coordinated the activities listed.
Finally, I would like to point out two things on
behalf of the 'senior military advisor" who is alleged to
have committed an unethical act. First, he was not the
executive officer from June 1985 to June 1986, but rather
only from September 1985. This is important because he
was not in a position, as the report states, to
'influence' S/LPD's decision to contract for the services
of his sister. Second, from the very outset, he disclosed
the kinship and separated himself from management
decisions affecting his sister. There is enough character
assassination taking place in Washington right now without
the Department unnecessarily participating in any.
Conclusion: S/LPD was created largely in response to
criticism in the Congress and the media that the
Administration was not 'leveling' with the American people
on Central America; that the Administration was either not
telling the truth or did not have the facts to back up its
principal contentions about the crisis in the region.
Very often, when Administration officials would testify
before Congress or speak to the press, they would have to
fall back upon the true but inadequate excuse that 'that
is classified and I cannot share it with you.' After a
while, even reasonable people tend to believe that is a
cover-up for lack of information, rather than an effort to
protect sources and methods. When S/LPD was created, one
of the first tasks that it undertook was an attempt to
work with the intelligence community to declassify the
enormous amount of intelligence available and which did
prove we were being truthful. This task was accomplished
due to the cooperation of almost all (there were some
notoriously tight-fisted ones) members of the intelligence
community. It should also be pointed out that S/LPD was
an experimental program. It was the first and for almost
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two years after its inception the only Office of Public
Diplomacy in the State Department (or the Executive
Branch). As a result much of what the office did was
brand new and did not have precedent. The three principal
areas in which it operated were (1) information gathering,
(2) information processing, and (3) information
dissemination. In each one of these areas I believe that
we broke new ground, such as for example, in enhancing
cooperation with the intelligence community for
accelerated declassification of information; or by
obtaining unclassified information which corroborated
classified information which could not be declassified
because of the source or method of acquisition; or by
attempting to ensure that the information available to the
executive branch was also available to Members of
Congress, members of the press, and as much of the public
as was interested in that information. It was this last
effort at distribution which the final IBC contract
attempted deal with. The bulk of the IBC FY 86 contract
was for distribution services. It must be. reitereated
that that is not the reason why the contract was
classified; as we know, the contract was classified
because among the other services at IBC was the handling
of defectors from Central America, some of whom had a
price on their head.
There are many cases when S/LPD was the only source
of unclassified information available to policy makers.
For example, at a press conference in the summer of 1984
President Reagan personally highlighted the S/LPD
publication 'Nicaraguan Military Buildup and Support for
Subversion.' It goes without saying that for the
President of the United States to use one of the first
major projects a brand new office, and which had been
completed in just a few months, was a great source of
pride dnd satisfaction to the staff and it encouraged us
to continue our efforts. In addition, there were other
instances when, as S/LPD products became more and more
sophisticated and relied upon, that there were additional
demands upon the office. For example, there came a time
in 1985 when a very high level Cabinet official asked for
a particular unclassified chronology of Nicaraguan
incursions into Honduras and Costa Rica. Incredibly
enough, we found that S/LPD was the only office in the
Executive Branch which had prepared such an unclassified
chronology dating back to the very first week of the
Sandinista takeover of Nicaragua in 1979. There were many
instances such as this in which very high ranking (as well
as other) members of the Executive Branch and the Congress
came to rely on the Office of Public Diplomacy. In most
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cases, we simply provided the information to an
intermediary office or bureau of the Department or the
White Rouse for transmittal to the end users. It should
also be pointed out that this was accomplished with one of
the smallest budgets of any such office in the executive
branch and also one of the smallest staffs. As the IG
report indicates, we had approximately $750,000 per year,
not an exhorbitant amount if we believe that the American
people have a right to know what its government is doing.
In fact, it is only a fraction of the cost of what the
Iran-Contra investigation is costing, and for the same
reason: because 'the people have a right to know.'
I accept responsibility for that which is my fault.
was in charge of the office and if there were any
technical violations, then they happened on my watch. But
I was given to believe that there was an entire team of
experienced contracting, legal, administrative, and other
officers supporting my office. It is not coincidental
that the principal issue in the investigation, the
contracting procedures and classification of the final IBC
contract, happened precisely during a period of three
months in which our office did not have a single State
Department administrative officer assigned even though I
had constantly requested one. It was during this period
of September to December 1985 when I had to rely on an
active duty military officer on detail to the State
Department to help me try to untangle the jumble of
regulations concerning contracts. This was not fair to a
military officer with no experience in State, performing a
job for which he was not trained and which he did not
expect to do when he was assigned to the Department of
State.
Although S/LPD was indeed one of the smallest
in the %Department, it was also one of the most
productive. At least that was the opinion of the
Secretary of State as expressed to me on the 30th
1985, when he offered me a promotion based on my
performance for the previous twenty-two months as
Coordinator for Public Diplomacy.
This was also the position, as expressed to me by
other Seventh Floor principals, two U.S. Permanent
Representatives to the United Nations; the late Director
of Central Intelligence Mr. William Casey; the Vice
President of the United States; a number of Senators and
Congressmen: U.S. Ambassadors to Latin American and
European countries; three advisors to the President for
National Security Affairs; a number of superiors,
offices
of April
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Colleagues, and private sector people Whose opiniOns-I
value; and finally, the President o_f. the United States on
the 16th of May 1986, as I departed Washington to assume
my duties as Ambassador to Venezuela. In fact, if S/LPD'.s
experience is any indication, I believe that the taxpayer
will be well Served by reducing the number of personnel in
many large Executive Branch offices and having them become
more cost effective and productive4 1 realize of course
that that recommendation is not feasible in every Case,
but the productivity of the interagency personnel in S/LPD
is a testimony to the dedication and professionalism of
career and non-career government officials and
'secretarieS4 who worked tirelessly and in many cases
around the clock to perform a duty which they had been
-told and knew to be aAligh Presidential priority.
- Other than the fact that, with the benefit of the:-
.
hindsight which this.report provides, ' I alknow aware that
I should have paid more attention to the lack of support
we were getting from the rest of the Department, I have
absolutely no regrets about my management of S/LPD.
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Exhibit C - Memorandum from Coordinator
of ARA/LPD dated June 25, 1987
United States Department of State
Washington, D.C. 20520
June 25, 1987
MEMORANDUM
TO: OIG/AUD - Lynn W. Burgener
FROM: ARA - Robert W. Kagan
SUBJECT: Comments on IC Draft Report on IBC Contracts
While ARA/LPD generally finds the draft report to be
fair and balanced in its findings relative to Department
contracts with IBC, et al, there are several areas which
require comment.
?
Classification And Sole Source Procurement Without
Proper Justification. On page 2, an in ot er re erentes'
throughout the report with regard to Classification of the
FY 86 contract and the sole source justification of other
contracts/purchase orders, the report states .that the
conttact was improperly classified 'without
juStification.? This implies that no justification was
submitted, which was not the"case Justification of the
proposed classification and sole source statements were
provided and Were not challenged by contracting.
personnel. ,Recommend that references be changed to
indicate that classification, and some sole source requests
were approved 'without. adequate justification' rather than
implying that no justification was submitted.
'Staffin . The report discusses the use of purchase
orders to o tain..short-term expertise and personnel whenthe office was first being formed. In Pursuing the logic
trail of this decision on page 16 the report states that
the personnel System was not 'capable of providing'
Sufficient talent time to meet the Coordinator's
etceived (emphasis:added) urgency.' The use of
'perceived' indicates that urgent}, existed only in the
mind of the C000rdinator. Ambassador Reich was selected
to establish a new office in order to work one of the
Administrations top foreign policy issues. He could not
hope to accomplish his job without an adequate staff.: ,
Recommend that statement be changed to read, 'the needed
specialized talent in a timely manner.'
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Lobbying. On pages 3 and 4 and on, pages 53 and 54,
the report states that LPD did not participate in lobbying
activities but that it often operated 'close to the line"
between authorized 'informing' and unauthorized
'attempting to influence.' Specific reference is made to
the extensive travel and speaking engagements of the
Coordinator and his staff. While not so stating, the
report seems to imply that such speaking engagements may
have been a questionable activity. We do not believe this
to be the case. The office was founded because public
opinion polls showed that the public did not understand
Central American issues and events nor did they understand
U.S. interests and policies in the region. The major
focus, of LPD has been to inform the public in the belief
that a public which is well-informed and follows the
-issues will support the policy. One of Ambassador Reich's
major objectives was to increase public awareness of the
'significant- foreign policy issues in Central America and
to raise the level of public debate on those issues.
Ambassador Reich and his staff became recognized as
respected, authoritative sources who were sought after by
both the media and private organizations to speak on the
issues. The Coordinator must be able to speak out on the
issues and to explain the policy. We do not believe that
the report should imply that public and media speaking
.engagements or the production of documents may in some way
constitute an improper activity.
Conduct of Classified Activities by IBC and IBC
Possession of Classified Documents. The report
unequivocally concludes that there was no real
justification for the Secret classification of the FY 86
contract. However, on page 64, in a critique of prepared
press guidance, the report states: 'The inference that '
IBC worked only on unclassified activities pending receipt
of its,security clearance is erroneous. The records show,
and anyone familiar with the contract should have known,
that IBC was conducting allegedly 'classified' activities
before receiving its clearance and, in fact, had completed
all such activities before receiving the clearance.' ,
Either the activities were classified or they were not.
If they were, then the contract was correctly classified.
If they were not, then Department representatives should
not be criticized for saying that classified activities
were not conducted under the contract. It should also be
noted that the press guidance was prepared after' the
contract was declassified.
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? The quoted statement implies that anyone familiar
with the contract should know that IBC was conducting
'classified' activities. The statement of work included
many activities, some of which may have been classified
and some of which obviously were not, e.g., distribution
of LPD publications. The report implies that because the
contract was 'classified' any activities conducted under
the contract were by definition 'classified.' After S/LPD
became ARA/LPD in the spring of 1986, the only substantive
service provided by IBC was related to distribution
services. This work was not classified.
The press guidance stated (page 63) 'Procurement
regulations allow classified work to be performed in such
cases pending the receipt of the security clearances
necessary to allow the signing of the contract.' This
statement may not be correct. If procurement regulations
do not provide for this situation then the press guidance
was incorrect and misleading and the report should so
state. However, that is considerably different from
implying that Department personnel knew that classified
work was being done, but failed to acknowledge it.
The statement discussed on page 64 and statements
regarding the IBC possession of classified documents on
pages 73 and 74 apparently refer to the 'Chronological
Event Checklist,' dated March 1, 1985, which is quoted on
page 57. When the IBC contract became .a public issue,
ARA/LPD requested that IBC provide appropriate files on
,IBC activities under the contract. IBC provided a
notebook containing various memos and status reports on
February 11, 1987. .Several Chronological Event
Checklists, which were stamped Confidential, were in the
inside jacket pocket of the notebook. No one presently in
ARA/LPD had ever seen these checklists before. We are not
aware 9f inspectors finding other copies in normal LPD
files other than those provided to ARA/LPD by IBC in
February 1987. To our knowledge, there is no evidence
that S/LPD gave those checklists to IBC. It is unlikely
that the checklist was developed at S/LPD since, as
quoted, the document refers to State/LpD rather than
S/LPD. The report should say that it is unknown, or that
the IG was unable to determine, whether these checklists
were provided to IBC by LPD personnel.
ARA/LPD was not aware of work that IBC was conducting
for other clients, some of which may have been of a
confidential nature. In the opinion of ARA/LPD personnel,
no classified work was conducted for LPD under the FY 86
contract. If IBC was improperly doing classified work for
others, it does not follow that ARA/LPD personnel ?should
have known' about it.
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Declassification of Contract. On page 72, the report
discusses the declassification of the contract and
criticizes the way in Which the declassification was
accomplished. .These criticisms are valid; however, it.
should be noted that the handwritten declassification note
was Written in the Legal Advisor's office at the.
suggestion of the Legal Advisor to review the contract for
possible' declassification. -
The report states on page 72 that, 'We believe that-.
_the method of declassification indicates that the involved
officials did not give much credence to the 'national
security', contention in their earlier classification '
ijutifitation statements.' This statement implies that
-the officials who declassified the contract and those who
submitted the original justification statements were one
- and the same. This is not true. The decision to classify
was made by members of S/LPD; none of which are still with
ARA/LPD. The contract was declassified by Robert W. Kagan
who was not affiliated with ARA/LPD until May 1986,
Mr. Kagan is on record as stating that he does not think
the contract should have ever been classified.
Declassification was accomplished by Mr.' Kagan, with the
concurrence of the Legal Advisor, based upon the belief
that activities conducted under the contract were not -
classified and in an attempt to be as responsive as
possible to Congressional and media inquiries. -
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MEMORANDUM
Exnibit D-Memoranaum from A/OPR, dated June 23, 1987
United States Department of State
'
TO: OIG/AUD. Lynn W. Burgener
FROM: A/OPR - RiChard C. Paul
SUBJECT: IG Special Inquiry. - IBC
Washington, D.C. 20520
June 23, 1987
I have carefully read your draft report on the
International Business Communications (IBC) and make the
following observations. I strongly believe that the report
underemphasizes -the amount; of pressure, high level: involvement
and national security emphasis that were used to warrant said
contract with IBC.- The report places the majority of the fault
with the Contracting Office .and not with the Program Office,
where -I believe it should rightfully fall. This is not.tosay
that OPR/STP/P is without fault; on the contrary, we have '
recognized our problem areas and have made a herculean effort
to rectify our procurement weaknesses. My fault with the
report may be in that area most of all. The recommendations on
the,whole. are nothing that OPE and ,STP have, not already been
working on or are in plate: Yet, no mention of that in the
report.'
I would now like to do a page-by-page response to your
report:
(I) -Page 2, Last Paragraph
'P.O.s/contracts-.mismanaged': This refers to
improper classification to :avoid competition,- This point
confuses the issue. Contracting officers are Obligated to rely
on the judgement of program personnel with: regard to the
classification or sensitivity of matters within thepurview of
the program office._ Only if the contracting officer has reason
to believe that the program offices' statements are false or
misleading is the contracting officer Obligated to challenge
such a determination. - This', of course, was not the case in the
IBC matter. The contracting officer had a reasonable basis to
belieVe'that a requirement from the Secretary's support..
element, S/S-EX,,or memos tasking the Department from the
National Security Council 'could very well be classified, and
therefore, in our opinion, acted properly to withhold release
from the Commerce Business Daily. (FYI: New procedures are
now in place that require all classified procurements to be
brought to my attention.) '
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(2) Page 18 . - First Paragraph
OPR/STP officials 'condoned and assisted in the
commission of unauthorized acts': The Procurement Division
staff was grossly understaffed during most of this period.
Nevertheless, when Program Offices provided adequate leadtime,
documentation suitable for competition and sufficient support
to identify sources, countless successful competitive
procurements were completed. In this case, the Program Office
exploited the situation by entering into unauthorized
commitments, selecting the source, deciding upon dollar amounts
and relying upon the contracting officer to correct the
situation on an urgent and compelling basis to facilitate
payment. By using the Office of the Secretary as a
justification , the contracting officer was placed in a
position of extreme duress, especially when national security
issues were cited as a basis for immediate action. The early
procurements, which even the S/IG report suggests were
Justifiable, then served as a precedent. The record suggests
that as the dollar, value of the procurement activity, increased,
and therefore became subject to more detailed contracting
regulations, the contracting office increasingly attempted to
force the Program Office to comply with the Federal Acquisition
Regulation.
(3) Page 32 - Paragraph 1
' no attempt to seek competition or draft a synopsis
on the final contract': Clearly, no attempt was made to secure
competition on a contract which met the criteria for
ratification, after eleven months of contract performance. To
suggest that the Program Office would have considered some
additional firms as technically acceptable would seem to
indicate their willingness to provide data in direct conflict
to all previous submissions. There is no reasonable basis to
suggest thit the Program Office would have ever considered any
alternative to IBC.
There is also no basis to assume that the contracting
officer _would have drafted a proposed synopsis, when the
program office was invoking national security issues involving
potential life-threatening issues.
(4) Page 32 Paragraph d.
Split Requisitions: The S/IG report properly
indicates that 'S/LPD officials were controlling this process
by splitting their requirements', but inaccurately indicates
that all of these contracts/purchase orders were 'continuations
of previous services', and that 'OPR/STP contracting officials
did not attempt to stop these S/LPD practices.'
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Clearly some of the documents support, the S/IG findings;
however, the following should be considered:
(a) The two early purchase orders to Mr. Gomez were
awarded by OPR/STP covering work from February through July,
1984.
(b) The next order (listed on Pg. 11) was to IBC and was:
awarded by the Foreign Service Institute and was unknown to the
OPR contracting officials, .
(c)- A purchase?order was issued to IBC by OPR/STP
(Purchasing) ? covering work done from October through-DeCember,
1984.
(d) A contract was issued to IBC by OPR/STP (Contracts)
covering work performed March through September, 1985.:
(e) A Purchase order was issued by al)reviously
uninvolved purchasing agent to the Institute for North/South
issues in September of 1985.
(f) The final contract was awarded by OPR/STP (Contracts)
to IBC for a one-year .period, ending in September 'of 1986.
?
The S/IG Report suggestion that OPR/STP did not challenge
S/LPD't actions may be based upon the. flawed Assumption that
there was sufficient time and organization available for this
purpose, This was not the case. $/LPD knew what it was doing,
and as their requirements grew in magnitude, they were
increasingly challenged for documentation and justificationg.
However to suggest that OPR/STP could have taken the above 4it
and fragmented series of events and challenged them is not? -
realistic, based upon the organizational structure. and time
factors involved.
(5) 12122_1Z - laagsA2ki_
Ref: responsibility determination On the 90K
contract, and the suggestion that later delays on the security
Clearance could have been avoided: The delay in obtaining a
security clearance on the 276K contract was due solely to the-
absolute?failure of company officials and S/LPD officials to
cooperate With OPR/STP and the Defense Investigative Service.
-Numerous attempts were made to secure the cooperation of the
parties, but they totally ignored the requests of OPR/STP. In
fact, all efforts to comply with established security
procedures were generated by OPR/STP.
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While additional research could have been performed on the
90K contract to determine IBC's responsibility, the Contracting
Officer relied heavily upon the previous successful performance
of the contractor on Department of State projects. Such
reliance is not uncommon, and the contracting officer may have
pursued the course recommended by S/IG only if there was some
reason to believe that a problem existed.
(6) Page 38 - Postaward Administration ... Last Para
..the timeframes are not unusual, as post award
audits often take months to schedule and complete.: In fact,
the Procurement Division had involved S/IG early on in the case
of:,the 276K contract, by requesting a pre-award audit. This,
along with the security clearance issue, was the reason 'that
negotiations could not commence until August 1986.
In the fall of 1986, OPR/STP was havily involved in
the procurment of over 1600 orders for 'recurring services'
That took precedence over post award matters. These services
involved a wide range of services crucial to the performance of
the Department of State mission. It is not uncommon under such
circumstances to set priorities in favor of new awards,
especially when all of our rights are preserved in the post
award audit.
(7) Page 421 previously reported problems
.... In fact, the problems reported in the current review
have been existent for many years. In response to the 1979 and
1983 audit reports, OPR/STp attempted to address the concerns
cited therein. In fact, the A/OPR consultant studies on
internarcontrols and the organization of the Procurement
Division, conducted by Watson Rice Co. in 1985, were in
response to the 1983 findings. A separate management study was
also conducted by A/OPR during 1985 to analyze staffing and to
propose a new organization.
As a result of this effort, a complete overhaul of the
Procurment Division took place in 1986. Attempts to share the
many initiatives currently underway in the Procurement Division
seem to fall on deaf ears of the S/IG representives. They
chose to focus on the organization and guidance in place at'the
time, but did not review the many corrective actions that have
already been put into place. For instance, the following
corrective actions are in place or are well underway:
(a) Complete realignment to provide management controls
throughout the Division.
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Twelve management management and supervisory personnel will now monitor
and direct activities in the Division. This is in contrast to
the three personnel in place during the period in question.
Most of the twelve personnel are in place or will be in place
within the next few months. These personnel are experienced
contract professionals with the training and background to
provide the leadership required to prevent a reoccurence of the
situation which existed during most of the IBC matter.
(b) A detailed system of written guidance and procedures
is well underway to establish uniformity and compliance with
the latest FAR and statutory requirements. This system
includes a Project Officers' Handbook to provide written
guidance in standard format to all requiting activities;
Procurment? Division Memoranda providing internal guidance to
contracting officers; and, a new Contract file system with a
totally overhauled procedure for tabs and indexing.
(c) A Contract Review Board, comprised of senior Division
personnel, to review all new contracts and modifications
exceeding $100,000.
(d) An extensive emphasis to professional development,
including the Completion or scheduling of 55 courses for
personnel assigned to the Procurement Division.
(e) An .authorization to hire an additional 26 personnel,
which has been continuously underway since June 1986. Division
personnel assigned now include 47 direct hire personnel, with
17 contract personnel who will be phased out as additional
direct hires are brought on board. ,
(f). The effective application of management techniques.
The Procurment Divison is currently operating on a well
thought-out planned system of goals and objectives. Through
the use of,effective management principles, regular meetings
are conducted with all supervisory personnel to insure
compliance with current requirements. Performance is measured
and monitored through the use of.a management information
system, previously developed but not fully utilized until now.
(8), Pae 50 - Ref: reasonableness of price
. The incurred cost audit is being performed at
the request of the Procurement Division. It was S/IG that
conducted the original audit also, it therequest of the
Procurement Division. OPR/STP is well aware.of.the safeguards
and uses the audit tool extensively to.insure that costs are
properly managed.
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Vouchers and performance were reviewed by LPD, so if there were
significant deviations they should have reported them. Their
consistent failure to observe even the fundamentals of the
procurement process suggests that even with additional contract
administration by OPR/STP, proper management of the contract
would have been difficult.
(9) Page 63 - Last Paragraph
... The statement should be attributed to the
originator, or at least they should indicate that no one from
OPR/sTP ever made such a stP.tement. We were adamant about the
security issue and never did anything but go by the book. It is
my understanding that a Department official did make such a
statement during Congressional staff briefings.
(10) Page 64, - Ref: responsiveness to the Hill.
OPR/STP took the lead in trying to be responsive
to the Hill. Every initiative to release information came from
the Procurement Division, including phone calls from the DAS to
others in the department and outside attempting to get the
docurments released. Whenever we developed a package for
release it was always our personnel who walked the hall trying
to get coordination from L, H, ARA, IWG, etc. The initial
response to the February 10 meeting was delayed because of a
misunderstanding that the transcript of that meeting was
forthcoming, and that this would assist in the preparation of a
response. At no time did any of the offices involved assume
responsibility for a coordinated response.
(11) Page 70 ... It should be clear that the OPR/STP
contracting officer tried to control the 90K contract by
refusing to extend. Also, the contracting officer did not know
that an extension would be required, until August 30. For a
new award,the lead time would bi about 180 days under the best
circumstances. Therefore, it should be clear that the Program
Office did not communicate with OPR/STP, and did not provide
information necessary to conclude a successful procurement.
The fact that they classified the effort further compounded the
matter.
(12) Recommendations ... Corrective actions have
already been identified, and in most cases, have been
implemented. In fact, most actions were taken prior to the
inquiry;thus, we feel that the recommendations are without
merit, and only redundant. While A/OPE can codify them and
provide Department-wide guidance, we have not delayed or waited
for such guidance to implement corrective actions.
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The IBC contract issue is really a manifestation of a far
greater problem. In reality, the practices of S/LPD and
later ARA/LPD -- reflect a Department-wide failure to manage
resources.wisely. The Program Office knew the rules about
competitive and sole-source procurements, enough to know that
they wanted ,a sole-source procurement in each separate
instance. They provided documentation to support every case.
. There is no reason to believe, in retrospect, that they would
have, upon advise of the contracting officer; changed their
requirments to go along with competition rules They knew that
the contracting officer would be influenced by the fact that
their technical judgment was persuasive, and that these were
issues of .43 sensitive/classified nature involving the National
Security Council, S/S-EX and perhaps others.' None of the facts
suggest that a grossly overworked Procurement-DiVision would
have ever really been able to overrule the requirements office
and direct a competitive procurement without the cooperation of
the requiring activity..
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MEMORANDUM
Exhibit E - Memorandum from A/OPE dated June 26, 1987
United States Department of State
Assistant Secretary of State
' for Administration
Washington, D. C. 20520
Office of the Procurement Executive
Room 227, State Annex Number 6
June 26, 1987
TO: OIG/AUD - Mr. Lynn W. Burgener
THROUGH: A/EX Jenkins
FROM: A/OPE onway
SUBJECT: Draft Report - Special Inquiry into the
Department's Contracts with International Business
Communications
As requested in your memorandum of June 10, attached are my
comments orvOIG's draft report on the Department's contracts
with International Business Communications (IBC) and its
principal officers.
Thank you for allowing me the opportunity to comment on the
report while it is still in dtaft. Should you-have any
questions with respect to my comments,'please telephone me
on ,235-2352. Also thank Mr. John Payne for a time extension
so that I could coordinate our response with kand A/OPR.
Attachment:
As Stated
cc: A - Mr. Donald Bouchard (memo only)
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A/OPE Comments on OIG's Draft Report -
Special Inquiry into the '
Department of State's Contracts with
International Business Communications and
Its Principals
June 22, 1987
The Office of the Inspector General (OIG) at the request of
the Secretary, performed a special inquiry into Department of
State contracts with International Business Communications
(IBC) and its principal officers. On June 10 OIG provided to
A/OPE a copy of its draft report, with a request for written
comments by June 24. This memorandum transmits A/OPE's
comments on the report, including responses to those
recommendations directed at A/OPE.
A/OPE does not take issue with the findings presented in the
report, except when OIG declines to make any recommendations
with respect to the need for the latter IBC contracts, after
having stated that IBC was performing work that S/SPD's
in-house staff should have been able to perform (page 17).
A/OPE disagrees with the OIG statement that such a situation is
not a matter for recommendations, particularly since that
determination was identified as a specific objective of the
inquiry (pages 6 and 7). A/OPE strongly objects to OIG's
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statement (page 17)
the program manager
can be increased."
that "(ais long as funds are available, and
can obtain those funds, contract resources
Taken at face value, this position could be
used to justify massive year-end spending.
Otherwise, A/OPE considers the report to be thorough and fair.
The report contains 16 recommendations, of which eight (numbers
2 through 9) are directed to A/OPE; in addition recommendation
1 is within A/OPE's purview. Prefatory to its responses to
these recommendations A/OPE offers the following comments for
OIG's consideration.
latixogiu_c_talys&L_Ratinrn
One main finding of the report is that contracting officials in
OPR/STP failed to enforce their legal and regulatory
responsibilities. Because the report covers only one program,
however,'it does not address the larger issue of the ability of
all Department contracting officials to enforce their
authorities. If contracting officials can be faulted in
general, it is perhaps for accommodating Department
unwillingness, including at the upper levels of management,
to
follow the rules and to accept determinations made by those
contracting officials. Too often when contracting officials
have attempted to resist improper contracting, they have been
"steamrolled" by a system that is indifferent to their legal
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and regulatory responsibilities. A positive result from this
report would be a policy statement, signed by the Secretary,
acknowledging that Department contracting officials have these
legal and regulatory responsibilities aid the authority to
execute them (see OIG recommendation 1).
The report finds that OPR/STP/P contracting officials did not
perform adequate contract administration. For preaward
contract administration, A/OPE finds that the problem is not a
lack of instructions, but a failure to perform. Problems with
postaward administration, however, result from other
circumstances. As OIG reports, this problem was reported by
S/IG in 1979. S/IG supported in writing a request by OPR/STP/p
for 12 positions, 6 of which would be used to build a contract
administration function. This request was denied in the review
process. In 1983, S/IG reported contract administration as
deficient and again OPR/STP/P's request for contract
administration staff was denied in the review process.
.0PR/STP/P has continued to assign some postaward contract
administration functions to the requirements offices. .Under.
these circumstances, coordination is difficult between the
contract administrators and the contracting officials. This
does not excuse the lapses identified by OIG; it only attempts
to Clarify the historical aspects. A/OPE will work with
Deportment contracting activities in both file documentation
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and procedures to strengthen the areas of contract
administration, to include critiques of files (see OIG
recommendations 5 and 6).
If Department contracting officials are regarded as "ordering
clerks," it is because that is the way the Department wants
it. For example, to ensure proper acquisition planning which
is covered in the report, contracting officials should
participate in the budget process for each Department office
that requests the acquisition of supplies or services, as it is
at that point that acquisition strategies should begin (see OIG
recommendation 7). This does not happen now, both by lack of
consideration for procurement planning in the budget process
and, heretofore, a lack of procurement personnel for that
purpose.
The concept of acqUisitiot planning is a practice that must beaccepted as a Department philosOphy. -A/OPE has stated
government7wide policy to all requireMents Offices and
OPR/STP/P has attempted to enforce it, but the plain facts are
that if a requireMents office procrastinates long enough and
time becomes of essence, the pressures on OPR/STP/P are::
insurmountable. The argument then is either project
iMpairment, loss of one year fund,, or both.. OPR/STP/P
contracting officials become the "bad guys" who make '
"impossible demands," for 'conformancewith government
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regulations.
If the recommendations in the report are to have any
long-lasting impact, then top management, beginning with the
Secretary, must throw their full support behind them. If not,
the problems will not be resolved. For example, the Department
of Energy had already established and staffed an independent
procurement policy office when Executive Order 12352 "Federal
procurement reforms" (attachment A), was signed on March 17,
1982, so it quickly implemented these new initiatives. When
the Competition in Contracting Act became effective on April 1,
1985, the procurement policy staff developed a series of
policies and procedures for implementing it, including a
memorandum, signed by the Secretary of Energy and distributed
agency-wide, on competition in contracting (see OIG
recommendation 2). This occurred at about the same time the
Department was just beginning to establish a procurement policy
office.
The creation of the Office of the Procurement Executive
exemplifies the Department's disinterest in its
responsibilities for managing a procurement system and/or its
unwillingness to provide the resources necessary to ensure that
proper acquisition policies, and procedures are established and
enforced.
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A and A/OPR formally requested a budget and staff resources for
A/OPE in Fiscal Years 1984, 1985, 1986, and 1987. The
Department denied each request with the suggestion that A
reprogram out of existing resources. Concurrent with these
events, A had to respond on an emergency basis to the demands
imposed by the $360 million security supplemental appropriation
and the succeeding establishment of the Bureau of Diplomatic
Security.
A/OPE was established as a separate office on January 28, 1985,
with no personnel allocations. The Chief, OPR/STP/P, was
designated Acting Procurement Executive, concurrent with
OPR/STP/p duties, but with no formal personnel action. After a
meeting with OMB and the Office of Federal Procurement Policy
(OFPP) on June 17, 1985, concerning the Department's
noncompliance with Executive Order 12352, the position of
Procurement Executive was divorced from OPR/STp/P. The formal
personnel action was dated October 27, 1985, for a 90 day
detail not to exceed February 23, 1986. One staff position was
also detailed to the Procurement Executive, though an official
personnel action was not processed.
In FY 1986, A/OPR transferred 4 positions to A/OPE and A/EX
provided a ?float" position for secretarial support--a total of
5 positions out of the 12 requested for A/OPE (attachment B).
The FY 1988 budget
request contains 6 positions of which 2 are
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subject to transfer back to A/OPR. This record speaks for
itself; apparently, only A and A/OPR recognized the
Department's responsibilities for managing its procurement
system and were willing to ask for, and after the usual
denials, allocate their own resources toward that end
(attachment C).
Until A/OPE's creation in 1985, which some Department officers
resisted for several years as unnecessary, the Department had
no staff office responsible solely. for managing its procurement
system. One result was the three-year delay in completing the
Department of State Acquisition Regulation, which also was
cited in the report (see OIG recommendation 8). The
Procurement Executive is the Department's principal officer
assigned responsibility for its procurement policies,
regulations, and procedures. The Procurement Executive's
delegation of authority was signed on April 18, 1986, by the
Assistant Secretary for Administration and published on May 6,
1986 (attachment D). The Procurement Executive's charter
assigns significant responsibilities over 12 domestic and
approximately 250 overseas contracting activities. Even with
staff of 10 professionals and 2 support this would be a taxing
undertaking.
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Reuslasga_tsuaer,s2w2nasitionl'
Recommendation 1. The Department (A) should take appropriate
actions to implement Department policies to ensure that program
offices, including S-S/EX, ARA/EX, and ARA/I,PD, are prohibited
from performing the acquisition functions assigned to the
contracting officers by the F d a Acquisition Regulation.
Moreover, this policy should prescribe disciplinary action in
those instances when a program official acts to commit the
Government to contracts without the authority to make such
commitments.
Ramlnae. A/OPE accepts this recommendation. The Department
of State Acquisition Regulation (DOSAR, see recommendation 8),
will establish the Department's basic public policies with
respect to the responsibilities of programmatic.and contracting
officials in the acquisition process. Implementation of these
policies'will require new texts for the Foreign Affairs Manual,
which A/OPE intends to begin this fiscal year. A/OPE believes
that, in consideration of the importance of this issue and to
ensure full Department compliance with its implementation, a
policy statement should be prepared for the Under Secretary's
(M) signature. The statement should acknowledge that
Department contracting officials have these legal and
regulatory responsibilities and the authority to execute them.
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Regarding disciplinary action against program officials
usurping contracting officer authority, A/OPE believes that
such a policy should be established, but only in broad terms;
like the ratification action itself, any disciplinary action
must be considered on a case-by-case basis. Depending on the
specificity of the policy, the review and concurrehce of M, and
M/PER, and possibly the employee unions, may be required.
In 1984, the Procurement Executive issued a memorandum on
ratifications to all executive directors and administrative
officers (attachment E)., Ratification also was mentioned in a
1986 memorandum on recurring services contracts, issued from
the Deputy Assistant Secretary for Operations to all executive
directors and administrative officers (attachment F).
Recommendation 2. The Department .(A/OPE) should issue
instructions to the OPR/STP contracting
their redponsibilities to adhere to the
requirements in the Federal Acquisition
appropriate by OPE, these instructions may
contracting officials in the Department.
Officials to reaffirm
competition
Regulation. If deemed
be
provided to other
Racommendation_l. The Department (A/OPE) should issue
instructions to the OPR/STP contracting officials to stress
theit responsibilities to adhere to the requirements for
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publicizing proposed acquisitions in the Commeige_Busingla
Daily as required by Part 5 of the Federal Acquisition
Regulation. If deemed appropriate by OPE, these instructions
may be provided to other contracting officials in the
Department.
Recommendation 4. The Department (A/OPE) should issue
instructions to the OPR/STP contracting officials to stress
their responsibilities to adhere to the small purchasing
procedures in Part 13 of the Federal Acquisition Regulation.
Specific instructions should be given to OPR/STP officials to
detect and eliminate split requirements proposed by program
officials.
RIcpunmgnlation_l. The Department (A/OPE) should issue
instructions to the OPR/STp contracting officials to define the
preaward and postaward contract administration functions they
are to p4rform. Moreover, OPE should conduct a random review
of OPR/STP contracts during early FY 1988 to determine if the
instructions are being followed by the OPR/STP contracting
officials.
Fleraunmenclativi_41 . The Department (A/OPE) should issue
instructions on the use of contract audit services for both
preaward and postaward contract actions. Moreover, OPE should
conduct a random review of OPR/STP contracts in early FY 1988
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to determine if the instructions are being followed by the
OPR/STP contracting officials.
Response. A/OPE does not accept the basic premise for
recommendations 2 through 6. A/OPE is responsible for
establishing Department procurement policies and procedures,
not for issuing instructions to implement those policies and
procedures. That is a responsibility of the operational
elements, i.e., the managers and supervisors for the
contracting activities. In its current configuration,
OPR/STP/P supervisors are responsible for ensuring that its
contracting personnel are instructed in the procedures followed
by that activity. A/OPE expects that the OPR/STP/p supervisors
are fully capable of instructing their staff in these
procedures.
For example, in 1984 the Chief, OPR/STP/P, issued instructions
to the OPR/STP/P staff on small purchase procedures and
contract administration (attachments G and H). The current
Chief, OPR/STP/P, issues "Procurement Division Memoranda,"
which again instruct OPR/STP/P personnel in operational
procedures (attachment I).
Nevertheless, A/OPE will discuss these recommendations with the
'OPR/STP/p chief to determine the extent of assistance A/OPE can
offer to that Activity.
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A/OPE accepts recommendations 5 and 6 that A/OPE conduct random
reviews of OPR/STP/P contracts in early FY 1988 to determine
whether OPR/STP/P.contracting officials are following their
instructions. However, A/OPE notes that, at least for
OPR/STP/P contract actions, postaward contract administration
currently is usually delegated to the requirements offices.
A/OPE will work with Department contracting activities in both
file documentation and procedures to strengthen the areas of
contract administration, to include critiques of files.
Regarding the compliance review function, A/OPE presently is
constrained in that it has approximately one full time
equivalent position available for the review (both preaward and
postaward) of contracts issued by all eleven domestic
Department contracting activities. A/OPE's review function
initially concentrated on OPR/STP/P, and involved all
acquisitions over $100,000. To extend this review function to
other Department contracting activities, A/OPE had to raise to
$500,000 the level of review for OPR/STP actions.
ReCaMMandAtiAn_i_c The Department (A/OPE in coordination with M
and A) should take the actions necessary to implement an
effective acquisition planning program within the Department as
required by Part 7 of the Federal Acquisition Regulation.
Moreover OPE should review the results of the planning system
in early FY 1988 to determine if it is achieving the desired
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results.
Response. A/OPE accepts the recommendation on implementing
acquisition planning, though it is uncertain whether a
"program" per se is necessary. Acquisition planning, as
required by Part 7 of the Federal Acquisition Regulation and
previously by OMB/OFPP policy letter, has not been fully
implemented by the Department. To illustrate, over the last
several years, officials in A have issued memoranda on
acquisition planning (attachments J through L) and a number of
memoranda on year-end spending (attachments M through 0). This
method has had only limited results in terms of meeting the
requirements of FAR Part 7.
As intended by the FAR, A/OPE believes that for an effective
acquisition planning process, contracting officials should
participate in the budget process for each Department office
that requires the 'acquisition of supplies or services by
contract. The budget process itself comprises three major
phases; i.e., formulation, mark-up, and approval; in theory,
acquisition planning should be considered during each phase.
Making acquisition planning effective, however, will require
the full support of senior management.
From a management perspective, an acquisition planning process
shoula innls.A.,
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and review. Because the roles and responsibilities of
contracting officials in the Department's budget process have
not been established by policy or implemented procedurally,
A/OPE believes it will not be feasible to review acquisitions
in early FY 1988 to determine whether acquisition planning is
effective.
As an interim measure, A/OPE has drafted a policy directive
that will deny a procurement action, other than for reasons of
unusual and compelling urgency, to proceed without an approved
acquisition plan included with the purchase request from the
requirements office. This is an interim measure in that it
concerns only acquisition planning for the approved budget.
This may cause some requests to fail and/or the lapse of some
one year money, but the larger objective will be met.
ReggimmendAtion_1?. The Department (A/OPE) should complete the
actions necessary to finalize the Department of State
Acquisition Regulations as expeditiously as possible.
4.1201M, A/OPEaccepts_the.recommendation. The Department of
State Acquitition Regulation (DOSAR) was published as A
proposed rule in the May 28, 1987, edition in the EadeZil
Regiatgr (52 FR 19990). The period for submission of comments
Closes on June 29, 1987.- After reviewing those Comments, A/OPE
will publish--the DOSAR as a final rule,- at which
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become effective. Given the process for regulatory rule
making, A/OPE projects that this shoulcLoccur by late July or
early August of this year.
Recommendation 9. The Department (A/OPE) should review the
current delegation of procurement authority issued to the
Foreign Service Institute (M/FSI) and determine whether it
needs to be modified to preclude the use of the Registrar's
authority to issue training orders for persons outside the
Department using funds that are not AfFSI funds.
Response. A/OPE accepts the recommendation. Since A/OPE has
not yet reviewed the specific authority cited in the
recommendation, A/OPE cannot determine at this time whether the
authority needs to be modified.
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Concluding Comments
A procurement system comprises personnel, management, and
organization elements. Unfortunately, the report addressed
only the first two. Department contracting officials soon
recognize that while personnel and management inadequacies are
real, the more intransigent problem is the Department's
organizational mindset. Contracting officials know what
happens when they try to enforce the regulations--their
decisions are circumVented. This is not to denigrate the
findings contained in the report, but to stress that the
recommendations are not sufficient as they are directed at
contracting officials without mentioning the role and
responsibility of senior management to ensure that those
officials have the authority commensurate with their
responsibilities.
Contracting is a dynamic service function that works properly
only when it is based on cooperation within the Department.
Too often it has been allowed to degenerate into an adversary
relationship between the programmatic and contracting
officials. Contracting officials genuinely want to help the
programmatic officials accomplish their missions, but the
system seems to be stacked against them. If any proof is
needed, just remember that the fourth quarter is _rapidly
approaching; let's see how the Department reacts to the
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enforcement of the regulations by contracting officials.
A/OPE's acceptance of the report's recommendations and its
intentions to initiate actions as stated must be considered in
light of its resources relative to the responsibilities
assigned in Delegation of Authority No. 120-3. Despite
numerous requests by A, resources have not been forthcoming,
which reflects a persistent insensitivity by upper management
to the magnitude of these responsibilities.
Attachments:
As stated
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Comptroller General
of the United States
Washington, D.C. 20548
B-229069
September 30, 1987
The Honorable Jack Brooks
Chairman, Committee on
Government Operations
House of Representatives
The Honorable Dante B. Fascell
Chairman, Committee on
Foreign Affairs
House of Representatives
Dear Mr. Chairmen:
This responds to your joint letter of March 31, 1987,
requesting this Office to conduct an investigation and
render a legal opinion on the legality and propriety of
certain activities of the Office for Public Diplomacy for
Latin America and the Caribbean (S/LPD) of the Department of
State. Subsequent discussion with your staff limited the
scope of the legal opinion to the issues of alleged lobbying
and the development and dissemination of propaganda from
1984 to the present.
We conducted a review to develop the facts regarding the
lobbying and propaganda issues, which consisted of inter-
views of knowledgeable individuals and a search of the
S/LPD files. As a result of our review, we conclude that
S/LPD's activities involving the preparation and dissemina-
tion of certain types of information violated a restriction
on the use of appropriated funds for publicity or propaganda
purposes not authorized by the Congress. We do not believe,
however, that available evidence will support a conclusion
that the applicable antilobbying statute has been violated.
We are presently continuing a review of certain other S/LPD
activities, and will keep you informed of our progress on a
periodic basis.
THE PROPAGANDA ISSUE
According to Ambassador Otto J. Reich, who directed S/LPD
from 1983 until 1986, the Office of Public Diplomacy for
Latin America and the Caribbean was established within the
Office of the Secretary of State in 1983 to engage in a
campaign to influence the public and the .Congress to support
increased funding for the Administration's Central American
policy. In pursuit of its public diplomacy mission, S/LPD
used its own staff, and let a number of contracts with
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Outside writers, for articles, editorials and op-ed pieces
in support of the Administration's position. Generally,
S/LPD employed direct and overtmethods in using the media'
to favorably influence the public to support the Administra-
tion's Central American Policy. However, information
developed during the course of our investigation demon-
strates that, on occasion, S/LPD also arrangedfor the
publication of articles whiCh purportedly had been prepared
by,. and reflected the views of, persons not associated with
the government but which, in fact, had been prepared at the
request of government officials and partially or wholly paid
for with government funds.
For example,' S/LPD .arranged for a university professor, who
was also paid as 'a consultant to S/LPD, to write a news-
paper article in support of the Administration's Central
America policy without alerting readers or, apparently, the
newspaper that the government was involved. S/LPD described
this technique in a March 12, 1985, internal memorandum to
another Department of State office. Attached to that
memorandum was an op-ed article entitled "Nicaragua is
Armed for Trouble," which was ostensibly written exclusively
by Professor John Guilmartin of Rice University, and ,
published in the March 11, 1985 issue of the Wall Street
Journal. The memorandum state's that "Professor Guilmartin,
TATU-Ti-a consultant to our office, and the Public Diplomacy
staff Worked extensively On this piece." However, the'
published article lists the author solely as John F.
Guilmartin, Jr. and describes lam as follows:
"Mr. Guilmartin is adjunct professor of history at
Rice University in Houston. He was formerly a
lieutenant colonel in the U.S. Air Force and
editor of the Air University Review."
The Guilmartin article was one of five "white propaganda"
operations described in a March 13, 1985, memorandum from
S/LPD to the Assistant to the President and Director of
Communications. The memorandum stated the following about
the article:
'Attached is' a copy of an op-ed piece that ran two days
ago in The Wall Street Journal. Professor. Guilmartin
has been a consultant to our office and Collaborated
with our staff 'in the writing of this piece. It is
devastating in its analysis of the Nicaraguan arms
build-up. Officially, this office had no role in its
preparation."
8-229069
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The memorandum also described As follows the use of-
consultants to write op-ed pieces for Nicaraguan opposition
leaders:
"Two op-ed pieces, one for The Washington Post and.
one for The New York Times, are being prepared for
the signatures of opposition leaders Alphonso
Rubello, AdolphO.Callero and Arturo Cruz. These
two Op-ed pieces are being prepared by one of our
-.consultants and will Serve as a reply to the
outrageous op-ed piece by Daniel Ortega in todaY's
New York Times.,
A third item in the memorandum describes the use of a
"cut-out" to arrange visits to various news media by .a
Nicaraguan opposition leader. Although the term is not
defined, it appears to reflect an intention to hide the fact
that the opposition leader's visits were being arranged by .
the government. The closing paragraph of the memorandum
explains that S/LPD will not communicate its activities on a
regular basis to the Director of Communications in part
because "the work ,Of our operation :j ensured by our
office's keeping a low profile."
The memorandum, Which is enclosed with this opinion, wAs
initially classified by the Department of State as "Confi-
dential." Following our request, it was declassified by the
Department on September 10, 1987. Three other documents
similarly were declassified following our request.
The use of appropriated funds by the, Department of State for
certain types of publicity and propaganda is prohibited.
Section 501 Of the Departments of Commerce, Justice and
State, the Judiciary, and Related Agencies Appropriations
Act, 1985, Pub. L. No. 98-411, August 30, 1984, 98 Stat.
1545, which provided fiscal year 1985 funding for the
Department of State, reads .as follows:
"Sec. 501. ,No-part of any appropriation contained
in this Act'shallibe used for publicity or
propaganda purposes not authorized by the
'Congress."
The legislative history of section 501 is silent as to the
intended effect of the restriction. See H.R. Rep. No. 197,
99th Cong. 1st Sess. 90 (1985). This Office has had
numerous .occasions in the past to interpret language similar
to section 501. We have held that such a provision
prohibits the use of federal funds for two distinct types of
publicity and'propaganda activities.
3
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First, it prohibits "self-aggrandizement" activities on the
part of a federal agency, which have been described-by our
Office as publicity activities of a nature tending to
,emphasize the importance of the agency or activity in
question. 31 Comp. Gen. 311, 313 (1952), B-212069,
October 6, 1983. Self-aggrandizement is not an issue in
the present situation.
Second, we have construed the language of section 501 as
prohibiting covert propaganda activities of an agency, which
is the issue involved in the situations described above.
In our decision B-223098, October 10, 1986, we held that
editorials in support, of a proposed reorganization of the
Small Business Administration (SBA) prepared by SBA for
publication as the ostensible editorial position of
newspapers to which the editorials were submitted,:were
misleading as to their origin and reasonably constituted
"propaganda" within the common Understanding of that term.
We conclude that the described activities are beyond the
range of acceptable agency public information activities
because the articles prepared in whole or part by S/LPD,
staff as the ostensible position of persons not associated
with the government and the media visits arranged by S/LPD
were misleading as to their origin and reasonably
constituted "propaganda" within the common understanding of
that term. Therefore, under the rationale enunciated in -
B-223098, supra, these activities violated the "publicity
and propaganda' prohibitition of section 501.
We have been unable to estimate the amount of effort and
funds expended on covert propaganda operations. Materials
contained in S/LPD files indicate that covert propaganda
operations were conducted on several other occasions and
were not separated from routine legitimate activities. In
view of the difficulty in determining the exact amount
expended illegally, as well as the identity .of any partic-
ular voucher involved, we conclude that it would not be
appropriate in these circumstances to attempt recovery, of
the funds improperly expended. We recommend that the
Department of State take action to insure that violations of
appropriations restrictions contained in section 501 do not
occur in the future. '
THE LOBBYING ISSUE
The S/LPD staff carried on many activities designed to
influence the public and the Congress to support the
Administration's Central American policy, in keeping with
the purpose for which S/LPD was established.
Ambassador Reich gave a briefing to the Secretary of State
B-229069
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I to
in which he explained that S/LPD'S objective in attempting
to influence Congress was:
"To gain sufficient bipartisan support in Congress
to permit Approval of increased assistance,
economic and military, to Central America and to
preclude crippling restrictions on actions in
support of U.S. -policy objectives in the region.
Sometime in 1983, S/LPD developed a close working relation-
ship with a public interest group entitled "Citizens for
America" (CFA). CFA is a nationwide grass roots organiza-
tion engaged in lobbying and fund raising activities on
behalf of Nicaraguan Contra causes. CFA has its head-
quarters in Washington, D.C?and is organized into regions
:and local district committees throughout the country, which
are staffed With volunteer workers. Volunteers receive
periodic instruction! from CFA's Washington headquarters,
when legislative action is scheduled in the Congress, to
call and write members of Congress, to write letters-to-the-
editor and op-ed pieces, and call in and appear on radio
talk shows in Support of the Administration's policy on:
Central America.
On March 4, 1984, the Chairman of CFA wrote the Secretary of
State informing him of the details of his grass roots
lobbying effort in'support of the Administration's, policy.
Ambassador Reich, then head of S/LPD, prepared a draft
response letter to the Chairman for the Secretary to sign,
In .the transmittal memo, Ambassador Reich described the
close working relationship between CFA and S/LPD as follows:
"Citizens for America has been carrying out a
public education campaign on Central America.
"Our office has a very good. working relationship
with Citizens for America and has provided CEA
with a great deal of information.
mA word of encouragement and appreciation from you
would go a long way toward letting CFA know we
recognize and value their efforts."
Again on July 3, 1984, the CFA Chairman wrote the Secretary
of State making the following request:
"We hope you will be able to contribute a one-page
letter to our ,"action kit' voicing your support
for this vital aid and your feeling that Congress
must address the issue this summer.
5
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"This request is urgent. Your contribution will
mean more op-ed pieces, letters to the editor,'
calls to Congressmen, and' radio end television
interview's -- the elements of grass-toots support
so vital for effective political 'action.
"Thanks so much for your help.. Anne Barton will
be in touch with A member of your staff today to
provide any details you might need."
Ambassador Reich prepared a draft response letter for the
SeCretary-of State to sign. The draft letter was not used.
Instead, the Office of ..t114 Secretary sent Ambassador Reich
an extract from a statement .by Secretary Shultz before the
Subcommittee of Foreign OperationS of the House Appropria-
tions Committee on Match 16, 1983, and instructed him to
reply to the CFA Chairman. We could not locate a copy of
Ambassador Reich's reply to CFA.' '
The Annual Departments of Commerce, Justice, and State, the
Judiciary, and Related Agencies Appropriations Act,l/ under
which the Department of State receives its appropriations,
does not contain A restriction on the use' of such funds for
lobbying The only antilobbying legislation relevant to
these circumstances is 18 U.S.C. S 1913,.which reads in part
as follows:
"No part of the Money appropriated by any
enactment of Congress shall, in the absence of
express authorization by Congress, be used
"directly or indirectly to pay for any personal
service, advertisement, telegram, telephOne,
letter, printed or written matter, or other
device, intended or designed to influence in any
manner a Member of Congress, whether before or
after the introduction of any bill .or resolution
proposing such legislation or appropriation, but
this shall not prevent officers or employees of
the United States or' of' its departments or
agencies'frOm communicating to Members of congress
on the request of any Member or to COngress,
through the proper official' channels, requests for
legislation ,or Appropriations Which they deem
necessaryforthe efficient conduct of the public
business."
Section 1913 further provides for penalties of a fine,
imprisonment, and removal from federal service.
1/ ,See, e.g., Pub. L. N
-98 Stat. 1545.
6
. 98-411, August 30 1984,'
B-2 29069
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Because 18 U.S.C. S 1913 provides for criminal penalties,
its interpretation and enforcement is the responsibility of
the Department of Justice. This Office may, however, refer
appropriate cases of apparent violations of 18 U.S.C. S 1913
to the Justice Department for prosecution. See, -
B-212235(1), November 17, 1983 (Commerce Department
publication favoring revision of Export Administration Act
referred to Justice). To our knowledge, there has never
been a prosecution under this statute. .B-217896, July 25,
1985. In addition, only a few court decisions have cited
the statute and generally they have not dealt with-the
question of a violation, but have been concerned with
peripheral issues. See, e.., National Association for
Community Development v. Hodgson, 356 F. Supp. 1399 (D.D.C.
1973);:American Public Gas Association v. Federal Energy
Administration, 408 F. Supp. 640 (D.D.C. 1976), See
B-214455, October 24,-19.84.
The Department of Justice interprets 18 U.S.C. S 1913 to
apply only when funds are spent in a grass roots lobbying
effort, Where an attempt is made to induce members of the
public to contact their representatives in Congress to
persuade them to either support or oppose pending legisla-
tion? B-216239, January. 22, 1985; 63 Comp. Gen. 624,
625-226 (1984).
We mote that 18 U.S.C. i 1913 prohibits the use of
appropriated funds for printed or written matter intended or
designed to influence legislation pending before the
Congress: If S/LPD expended any appropriated funds to
develop the information provided to CFA, such expenditure
might constitute a violation of 18 U.S.C. S 1913. On the
other hand, if the information provided CFA was readily'.
available within the Department of State, the expenditure of
funds would not have been necessary, and the statute would
not have been violated.. See B-129874, September 11, 1978.
We have not found any evidence indicating that S/LPD
expended appropriated funds for such information. The only
document found during our investigation that was given to
CFA by S/LPD was a copy of testimony, presented by the
Secretary of State at a congressional bearing and was
readily'available. Accordingly,-we found no evidence that
would lead us to conclude that S/LPD violated 18U.S.C.
.5 1913 in its. relationship with CFA.
SUMMARY AND CONCLUSIONS
S/LPD engaged in prohibited, -covert propaganda activities
designed to influence the media and the public to support
the Administration's Latin American policies. The use of
appropriated funds for these activities constitute's a
7
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violation of a restriction on the State Department annual
appropriations prohibiting the use of federal funds-for
publicity or propaganda purposes not authorized by the
Congress.
S/LPD also developed a close mutually supportive relation-
'ship with CFA, a nationwide grass roots organization
'engaged in lobbying and fund raising activities on behalf of
Nicaraguan Contra causes. S/LPD acknowledges giving CFA a.
great deal of information, However, we have not found any
evidence that S/LPD officials violated the applicable
antilobbying statute.
Unless you publicly announce its Contents earlier, we plan
no further distribution until 30 days from the date of this
,opinion. :At that time, we will send copies to interested
parties and make copies available to others.on request.
Sincerely yours,
Comptr6ller General
of the United States
Enclosure
-2290B 69
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FIE ten
TO:
Enclosure
L'aited States Deportment of State
reskingson. D.C. 20520
Kr. Pat Buchanan
Assistant to the Presiden
Director of Communication
The White House
March 13 1985
DEPARTMENT OF STATE i/nc.aca
REVIEWED BY DATE $-ze.
RD or rDscExT. DATE
AUTH. e REAZON(S)
ENDORSE Et
11?12KINGS
DECLASSIFIEDILRZLEASABLECI
RELEASE DENIEDC.
FROM: S/LPD - Johnathan . Mille PA or. FOI EMOTIONS
SUBJECT: 'White Propaganda' Operation
Five illustrative examples of .the Reich 'White
Propaganda' operation:.
? Attached is a copy of an op-ed piece that ran two
days ago in The Wall Street Journal. Professor
Guilmartin has been a consultant to our office and -
collaborated with our staff in the writing of this
piece. It is devastating, in its analysis of the
Nicaraguan arms build-up. 'Officially, this office
had no role in its preparation,.
? In case you missed last night's NBC News with Tom
Brokaw; you might ask WHCA to, call up the Fred
Francis story on the !Contras.*: This piece was
prepared by Francis after he consulted two of our
contractors who recently had made a c:lndestine trip.
to the freedom fighter camp along the Nicaragua/
Honduras border (the purpose of this trip was to
serve as a pre-advance for many selected journalists
to visit the area and get a true flavor of what the
freedom fighters are doing; i.e., not baby killing).
Although I wasn't wild about the tag line, it was a
positive piece.
Two op-ed pieces, one for The Washington Post-and one
for The New York Times, are being prepared for the
signatures of opposition leaders Alphonso
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Adolpho Caller(' ind AstUto Cull. These two op-!ed
pieces are being prepared by one of our consultants
and will serve as a reply to the outrageous op-ed
piece by Daniel.Ortega in today's New York Tises.-
41 Through a cut-out, we are having the 'opposition
leader Alphonso Rubella visit the following rews
organisations while bets in Washington thiz week:
Hearst Newspapers, Newsweek Magazine, Scrip p3 Roward
Newspapers, The Washington Post (Editorial 8card),
and USA Today..In addition, the CNN ?Treeman
Report, the 'McNeil-Lehrer Report,' the 'Today Show
and CBS Morning News have been contacted about the
availability of Mr. Rubello.
Attached is a copy of a cable that we received today
from Managua. The cable states that Congressman
Lagomarsino took up Daniel Ortega's offer to visit
any 'place in Nicaragua. You May remember that Ortega
received a good deal of publicity on his 'peace'
proposal when he stated that he welcomed visits by '
Members'of Congress, stating that they would be free
to go anywhere they wished. At the cable notes, the
Congreman's request to visit an airfield was denied.
Do not be surprised if this cable somehow hits the
evening news.
I will not attempt in the future to keep you posted
on all activities since we have too many balls in the air
at any one time and Since the work of our operation is _
ensured by out office's keeping a low profile.? I Merely
wanted to give you a? flavor of some of the activites that
hit our office on any one day and ask that, as you
formulate ideas and plans of attack, you give us a'
heads-up since our office has been crafted to handle the
concerns that you have in letting the President's program
for the freedom fighters enacted.
Attachments:
1. Op,-ed piece .by Professor Guilmartin.
2. 85 Managua 1523.
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United States General Accounting Offite
GAO
Report to: Congressional Requesters
October 1987 CONTRACTING
State's Administration of Certain PublicDiplomacy
Contracts ?
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'United States
,General Accounting Office
Washington, D.C. 20548
National Security and
International Affairs Division
B-229069
October 30, 1987
The Honorable Jack Brooks
Chairman, Committee on
, Government Operations
-House of Representatives
The -.Honorable Dante B. Fascell
Chairman, Committee on
Foreign Affairs
House of Representatives
In response to your request dated March 31, 1987, this
report provides the results of Our assessment of
Contracting activities at the Department of State's Office
of Public Diplomacy for Latin America and the Caribbean
(LPD).
LPD was established at the Department of State in Mid-1983
by a White .House decision memorandum for the Special
Planning Group. 1 LPD is an "interagency ?Moe And has
been staffed by 'personnel from the military services, the
Information Agency, the Agend?ffor International
Development, and other offices within the Department of
State. The office has regularly interacted with other
government offices, including the National :Security
Council.
LPD's_stated goal is to promote a better understanding of
U.S. policy toward Latin. America and the Caribbean: Its
activities have been, directed at educating, informing, and
influencing: foreign and domestic audiences On the
.administration's foreign policy objectives in Latin
1The.Special 'lanning.GrOup', under the National Security
Council, was stablAshed by a National Security Decision
Directive in January 1983. The group Was tasked with the
overall planning', direction, coordination, and mOnitorin
of the implementation of public diplomacy activities.
relative to national security.
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1.
B- 2 2 9 0 6 9
America. .The former Coordinator2 of the office described
the public diplomacy objective towards Congress as one
directed "to gain sufficient bipartisan support in Congress
to permit approval of increased astistanjce, economic and .
military, to Central America and to preclude crippling
restrictions on actions in support of VS policy objectives
in ?the region."
In carrying out its objectives, LPD contracted with
numerous individuals and several companies,' mostly for
written products. ,We-found that., in doing so, LPD
generally did ? not follow federal regulations governing
contractual procedures. Specifically:
The justifications, to support the exclusive use of
sole-source contracting by LPD were inadequate.
Various other procurement requirements were not adhered
to in awarding contracts, such as encouraging
competition, obtaining required contract officer
approvals before engaging contractors, and, in one
case, abiding by limitations on the salary paid to a
retired military officer.
Many products were different from those contracted for
with no evidence that agreement was reached on changes
to contract specifications.
In our evaluation of LPD's use of contractors, we reviewed
25 contracts entered into since the office was established
and valued at approximately $263,000. All were for
professional services. Most of the contracts were for
written products dealing with conditions and U.S. policy in
Latin America:., However, few Of the contractor's prOducts
were directly incorporated into LPD publications.
No similar contracts have been initiated by LPD since
February 1986- In March 1986, LPD was transferred from
the Office of the Secretary of State to State's Bureau for
Inter-American Affairs and a new Coordinator was appointed
The only LPD professional service contracts we did not
review were those under separate investigation by the
Congress and the Department of State's Office of the
Inspector General. These .separate investigations inclt.
contracts awarded to International Business Communicatin-1-.
?M? ???
am. ?MI?
2The person direating LPD's efforts is desianated as
Coordinator to reflect the interagency character of the
.office. Since -its establishment, LPD has had two
Coordinators.
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I ti
B-229069
Inc, the Institute forNorth-South Issues, and to Mr.
Frank, Gomez
Details of our review are provided in appendix I. We
discussed the facts and circumstances surrounding the 25
contracts we examined with the current and the former
Coordinators of LPD and have included their comments as
appropriate. The current Coordinator said that, because
the contracts reviewed covered the period prior to his '
appointment, he was not able to offer substantive comments.
The former Coordinator said that he was generally
unfamiliar with the details related to the office's
contracting procedures. Instead he relied on his staff as
well as State's procurement office to ensure that federal
regulations were adhered to. As requested, we did not
obtain written comments.
Unless you publicly announce its contents earlier, we plan
no further distribution of this report until 30 days from
its date. At that time; we will send copies to the
Department of State, the Office of Management and Budget,
and other interested parties.
Frank C,Conahan
Assistant COmptroller General
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APPENDIX I APPENDIX I
? LPD'S CONTRACTING PRACTICES
DID NOT COMPLY WITH FEDERAL REQUIREMENTS
The Office of Public Diplomacy for Latin America and the Caribbean
(LPD) was established in June 1983 by A White House decision
memorandum. Its creation reflected thePresident's concern that
efforts be made to deepen the understanding of and support for the
administration's policies in Central America. The efforts were
intended to be focused on foreign, as well as domestic, :audiences.
The purpose of LPD activitieswas to inform, educate, and influence
the public on U.S. foreign Polity issues in the region.
Until February 1986, ,LPD awarded many professional service
contracts' and relied heavily-on them to carry out its mission.
Our review of those' contractingactivities showed that-government
regulations for Contract administration were not followed. LPD did,
not adequately support its exclusive use of sole-source contracts.
Other procurement requirements to ensure competition and to limit
compensation Were also not followed. In addition, most of the
contractors' -written products we reviewed were substantially
different from the respective contract's original scope of work,
and few were incorporated directly into LPD publications.
LPD'S ORGANIZATION AND ACTIVITIES
From its inception in' mid-1983, LPD has been an interagency effort
with personnel and support staff from the military services, the
U.S. Information Agency, the Agency :for International Development,
and Other offices' in the Department of S.tate. LPD was originally
placed ,under the Office of the Secretary:Of State.
-In March 1986, LPD was transferred from the Office of the -Secretary
of State to State's Bureau of Inter-American Affairs and placed
under -a new Coordinator, the Deputy for Policy and Public Affairs.
One of the reasons for and benefits of the move, according to the
current Coordinator:, was to integrate:the office more fully into
State's operations. This also allowed the office to obtain
resources more readily from Other offices in the Bureau.
LPD addressed its mission in-part by arranging speaking engagement's
for State Department officials, producing' pUblications for domestic
and international distribution, and-participating in special
projects--such as an arms display of weapons captured from
SalvadOran, guerrillas. From October 1983 through November 1984,
LPD and State's-Office of Public Affairs scheduled speaking
engagements and interviews in-hundreds of cities. LPD also
'Most of the contracts we examined were Valued at less than 310, --
and are, for purposes of certain federal requlations, called
"purchase orders. For purposes of this report we refer to the7
contracts.
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APPENDIX I
APPENDIX I
distributed publications to an extensive audience, including the
private sector, key government officials, and U.S. ambassadors and
embassy political section chiefs in Latin American and European
countries.
Use of Contractors to Address LPD Mission
.Although these types of activities (i.e., speaking engagements,
production of publications) continue, LPD's use of contractors has
been substantially reduced since the office was.moved and the new
Coordinator was appointed. Prior to that time, contractors were
used extensively. According to the former Coordinator, this was
necessary to "...accomplish the voluminous research, production of
special papers, and media exposure necessary to carry out our
mission, all the while keeping our office team small and
manageable." The nature Of some of the LPD contractor activities
became a source Of media attention and, subsequently, the subject
of congressional :and administration inquiries, ?
:During the first 6 months of .LPD's existence, four officers on
average (including the Coordinator) staffed the office. From
January 1984 until January 1986, LPD employed 13 professional
staff, on average. Even with the increase in professional staff,
LPD continued to rely heavily on. professional 'service contracts.
The former Coordinatcr stated that this was necessary because LPD's
work increased at a greater rate than did the staff to address the
demands.
LPD has not initiated any new professional service contracts since
February 1986.. The only contract carried over is with the U.S. Air
'Force for a Clippings service on news events related to Latin
America and the Caribbean. The office currently functions with an
average of 10 professional staff. The duties of former contractors
have been absorbed within LPD. For example, the functions of a
media consultant/intelligence analyst, Previously performed by
contract, are done by the Coordinator and his deputies.
Publications are also written without contractors.', The -mailing
list developed by contract, is being maintained by LPD personnel.
REQUIREMENTS *FOR CONTRACT
ADMINISTRATION WERE NOT FOLLOWED
Our review focused on the administration' of LPD professional
service contracts awarded. from mid-dune 1983 to February 1986. :.;e:
reviewed 25 contracts with a total value of approximately $26300',
We found that LPD generally did not follow federal requirement5 ar!-:
procedures. governing contract award and administration.
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1;
-APPENDIX I
APPENDIX I
Other Procurement Requirements
Were Not Followed
Various other regulations governing the acquisition process were
not adhered to by LPD or OPR/STP in contracting out for services.
We found that LPD virtually eliminated competition in contract
award procedures, engaged the services ct contractors before
required approvals were obtained, and awarded several contracts to
an individual that circumvented pay limitations for retired
military officers.
According to contracting officials in OPR/STP, they find it
:difficult to be knowledgeable of alternative source's for the types
of services required by LPD. That is, -unlike procuring equipment
from Various established manufacturers, it is more difficult to be
aware and evaluate the quality of a prospective author's ability to
produce an authoritative statement about a subject related to
activities in Latin America. According to these officials, the
lack of knowledge about alternatives inhibited their efforts to
locate potential competitors.
,In addition. to the difficulty associated with identifying
alternative sources, OPR/STP officials felt that they were under
considerable pressure by LPD to Accept the sole-source
recommendations. For example, contracting officials provided us
with various documents from high-level government officials that
stressed the importance of LPD's activities. - Such documents,
according to the contracting officials, were used to support LPD's
requests for expedited handling Of their, sole-source procurements.
The former Coordinator disagreed with OPR/STP officials! view that
LPD applied pressure to obtain acceptance of its sole-source
recommendations. He noted that, while he tried to get priority
processing for LPD's requests because of the urgency he felt in
addressing the office mission, he never intended that procurement
regulations be bypassed.
Little effort to identify competition-
.
We found little evidence in LPD or OpR/STp files to indicate that
any effort was made to locate other sources to compete on LPD
contracts. CTCA provides that while competition may be restricte':
for reasons of unusual and compelling. urgency, the contracting
.officer must solicit offers from as many potential sources as
practicable. Even a sole-source procurement requires such an
.
effort to help support 'the sole-source justifiOation. -
For sole-source proc!.iretents exceeding $10,000, CICA requires
synopsizing the proposed contract in the Commerce Business Dail.:
7
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? ? .
APPENDIX I APPENDIX I
encourage competition.4 Of the contracts we reviewed, eight were
above $10,000 and should have been synopsized and published. Yet,
in only one instance did OPR/STP give 'notice of its intended sole-
source procurement in the Commerce Business Daily.
For the contracts valued at less than $10,000, .some effort is
required to locate alternative sources even if that effort tonsists
of no more than a few telephone inquiries. The Federal Acquisition
Regulation (FAR), part 13, which sets forth small purchase
procedures, requires that for oral solicitations, the contracting
office establish and maintain records of suppliers contacted and
the prices and other terms and conditions quoted by each. We found
no evidence in the contract files, however, to indicate that such
efforts were made.
With one exception, we found./no attempts by LPD'or OPR/STP to
locate competitive sources for LPD. The, exception was a contract
for a media consultant/intelligence analyst which LPD wanted to
issue as a sole-source procurement. In April 1985, after receiving
an advance planning document from LPD, OPR/STP attempted to fill
the requirement through competition. At the time, these services
were being provided by Mark Richards Associates,. Inc. (MRA). MRA
had performed this function under various sole-source contracts
since 'July 1984, and LPD sought to continue the arrangement.
Using the LPD planning document, OPR/STP located another source,
interested in competing for the work. According to information in
the contract files, however, LPD withdrew its 'requirementfor these
services before this potential contractorcould be interviewed. A
few months later, in September 1985, LPD requested the continued
services of MRA, citing "unusual and compelling urgency" as the'
basis to award a sole-source procurement. LPD also added that the
character and sensitivity of the services precluded disclosure of
the contractual arrangement to the public.
According to OPR/STP contracting officials, it appeared that
delaying the announcement of a known and intended procurement was
used by LPD to apply additional pressure on OPR/STP to approve the
sole-source procurement for MRA. This technique conflicts with
CICA, which states: "In no case may an executive agency...enter
into a contract for property or services using procedures other
than competitive procedures on the basis of the lack of advance
planning...."
Regarding the sensitivity cf the services to be performed, a -Stat,:
Department legal advisor noted that "...it is plainly inconsisten!:
for...LPD to assert in an unclassified draft sole source
Justification that these contract arrangements should not be
441 U.S.C. 5416. There as a similar requirement before CICA
enacted.
8
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APPENDIX I
APPENDIX I
disclosed to the public..." The contracting officer concluded that
"...through advance procurement planning prior to expiration of the
new. contract on. September 30, 1986, the entire competitiVe
procurement process will be initiated to assure full and open
competition..": 'However, LPD began performing the function in-house
after completion of the contract.
Eamttat_.222arently beaun,
before contracts d
.FAR requires that "no contract shall be 'entered into unless the
contracting officer ensures that all requirements of. law, executive
Orders regulations, and all other applicable procedures, includino
clearances and approvals, have been met.
In three procurements, contractor work was apparently begun before
being approved by OPR/STP. . In effect, OPR/STP had to ratify the
work after it was begun. . In One instance, the contracting officer
approved the requisition on January 6, 1984, for the production of
a paper that was to be completed ,5 days before; the contractor's
paper was dated' December 20,-..1983. Another requisition specified
that the contract period was to run from December 10 to
December 24, 1984. :The request was not submitted., -however, until
December 19 and was not approved until February 9, 1985 It ,
appears that the contractor began work prior to contract approval.
In a third instance, a note in LPD's contract file for a particular
contractor said that "OPR/STP needs the date [the contractor)will
perform services. As we know, he has already performed them."
In the first two instances, rather than 'advising LPD that its
actionS: were counter to contracting procedures, the,contracting-
officer appears to have approved the acquisitions withOut comment.
In the third instance, it is unclear whether OPR/STP was ever aware
of the note indicating, that the services were performed prior to a
contract being issued.
Contracts avoid
Two Office of Management and Budget (OMB) circulars restrict the
use of contracts to avoid salary limitations for former government
employees. In a series of contracts with MRA, LPD did not adhere
to those requirements. . 4 total of approximately $136,000, or over
50 percent of the value of the contract? we reviewed; was paid ,to
MRA The company is owned and Operated by retired Colonel Mark
Richards.
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It
APPENDIX I
The OMB circulars require that
functions previously performed by government
not be converted to contract solely to avoid
or salary limitations:5
APPENDIX T
employees
personnel
shall
ceiling
consulting services are normally to be obtained only on an
intermittent or temporary basis, repeated or extended
procurements are not to be made,6 and consulting services are
not to be used to circumvent pay caps and other pay
limitations; and
consulting service contracts will be competitively awarded to
the maximum extent practicable to ensure that costs are
reasonable.7
Colonel Richards was detailed to LPD in January 1984. He became a
Senior Advisor on the staff of LPD. Asa staff member of LPD, he
was responsible for providing information to the media, reviewing
cable traffic from U.S. embassies in Central America for
information useful to LPD, reviewing the content of LPD
publications for accuracy, and developing press kits for the media.
When the Coordinator learned of Colonel Richards' impending
retirement from the Air Force in July 1984, he decided to retain
his services at LPD.
As a military retiree, Colonel Richards Would be subject to dual
compensation ?limitations if employed as a consultant (5 U.S.0
?5532). This would reduce his military retirement pay.
According to Colonel Richards, the redudtion was unacceptable.
Accordingly, Colonel Richards incorporated himself, and the State
Department negotiated a sole-source contract with MRA for media
consultant services. Colonel Richards retired:on:June 30,, 1934,
and began work as a media contract consultant on July 1, 1984..
3etween July 1984 and February. 1986,, LPD awarded MRA'foUr short-
term contracts allowing him to serve continuously on the LPD
5Section 7c (6), OMB Circular No. A-76 Revised, August 4, 1983,
Subject: Performance of Commercial Actiiiities.
6Section 6 b-d, OMB Circular. Nor. A-120, April 14, 1980, Subject:
Guidelines for the ['se of Consulting Services.
7Section 8, OMB Circular No. A-120.
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APPENDIN I APPENDIX I
staff.8. This permitted him to continue working for LPD without a
reduction in his?retirement'pay. According toColonel Richards he
performed the same job he did.while he was on detail. His
supervision, clerical support, access to files, .and working hours
at the State Department were the same.
Many Contract Products Differed
From Contract Scope of Work
LPD made extensive use of professional service contracts to obtain
written products from individuals outside Of government.
Justification for the use of the contractors was based on their
unique insights or expertise on Latin America, which LPD asserted
was not available inhouse. Of the 25 contracts we reviewed, 16
specified one or more original written products (41 in all).9 Most
of the contractor products we were able to obtain, however.,
differed substantially from the contract scope of work. According
to LPD personnel, few were incorporated into LPD publications.
Our Analysis was hampered by the:laCk'of products in LPD files.
Through a file search and some contacts with previous contractors,
we were .able to obtain 28 of the 41 research papers. -According to,
a State contract specialist, OPR/STP recently addressed this
problem by requiring copies .of final 'products for its contractor
files.
Sole-source procurements were used to -obtain the services of each
contractor-, and their use was justified on the basis of (1) unique
abilities and expertise and .-(2) LPD's.urgent need for the specified
product. However, only 13 of the 2.8 products we obtained addressed
the topic specified in the original scope of work. In the other
caseS,' the product for which there was an "urgent need" was not
produced; rather, ?a substitute topic was addressed.
For example, the scope of one contract specified topics for four
research papers. None of the papers were written. Instead, a
number of substitute products were produced on topics not ,specified
in the scope of work. For instance, in place of one paper on
"Cuban and Nicaraguan Involvement in Drug Trafficking," the -
contractor wrote .(1) a memorandum on the "World Court and
Nicaragua," (2) an editorial on "Morality and the Central America
Issue," and (3)-a paper entitled "The Managua Connection: ,The,
Sandinistas and Middle Eastern Terrorists." We found no.
justification that the contractor selected as uniquely qualified to
8The last contract for nA expired September 1986.
9Several types Of products were requested in the contracts. M.ost
were research papers, hut short articles and essays were specifi.P
in some. contracts. These are not included in the product :total.
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1 W
APPENDIX I
APPENDIX I
write on the original topic was also uniquely qualified to write on
the new topics. We also found no contract modification to reflect
a change in the product or evidence that attempts were made to find
the necessary expei)tise elsewhere. This example was typical of the
other cases in which the contractor product differed from the
contract'soriginal scope Of work. -
According to the former Coordinator, the need for contractors was
crucialin.the office's early days before LPD:built a staff and
expertise in Latin American public diplomacy. We found, however,
that of the 13 LPD publications issued during its initial 18 months
(through the end of 1984), only 2 were based on the work of LPD
contractors. The former Coordinator commented that contractors
work on formal publications it not, by itself, a comprehensive
indicator of, contractor contributions since they also worked on
other products, such as speeches And background materials.
However, we notedthat these types of products were not in LPD's
files and, in Most instances, were not in the respective contract's
scope of work.
COORDINATORS' COMMENTS
Th_ current LPD Coordinator told us that he was unable to. comment
on the facts and circumstances surrounding. the 25 LPD contracts we
examined.becaute they related to events which occurred prior to his
appointment. The former Coordinator noted that, even though he was
in charge of LPD when the contracts covered in our review were
awarded, he was generally unfamiliar With their details In all
cases, including those .0 which he was more knowledgeable, the
former Coordinator commented that he relied on his staff, as well
as OPR/STP, to ensure that all procurement requirements were net.
He added that approval of the contracts by OPR/STP was an
indication to him that all regulations had been dealt with
properly.
OBJECTIVES, SCOPE, AND METHODOLOGY
We examined the operations of LPD to determine the extent to which
LPD used 'contractor services and whether contract awards were ma-
in accordance.with federal acquisition requirements, In all., we
examined the circumstances related to 25 LPD contracts for
professional services. The only LPD professional service contractl
we did not review were, the seven under separate investigation by,
the Congress and the Department of State's Office of the Inspector
General, These seven contracts had been .awarded to International
-Business Communications, Inc., the Institute for North-South
Issues, and Mr. Frank Gomez.
We interviewed LPD ,personnel, including some past officers, 4n.2
contract officials in OPR/STP In addition, we interviewed to7-,
individuals who had been under contract with LPD to discuss they-
Products and and how they were ultimately used. We also examined .LT:
contractor and related files as well as those maintained by CIDR:-:
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APPENDIX I APPENDIX I
to ascertain whether LPD and contracting officials complied with
federal acquisition requirements.-
In a . separate letter to yoii, we provided : our legal opiniOn on
whether LPD violated statutes prohibi ting certain 1,obbying and
propaganda activities. 10 In that opinion, we concluded that. LPD
had violated a restriction on the use: of appropriated funds ..for
publicity ;or propaganda purposes. The former Coordinator disagreed
with_that conclusion but has not provided any information which
would cause us to change our position. I
Our review was-conducted from April' to.September 1987.- Because the
primary focus of our review was on LPD's administration of its
contracts we did not evaluate State's internal controls governing
contracting. We are, however,' conducting a separate assessment of
State's procurement function, including sole-source awards- Except
for this limitation, our review was conducted in ,accordance with
generally accepted government auditing standards.
(467315).
10B-229069, September 30, 1907.
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