Implementing and managing

G. Budgeting and financial management

Managing financial resources and effectively navigating budget processes is essential for success in a PD section, but it can be the source of stress and anxiety for people who are not budget experts. This section outlines some of the basic principles for budgeting and financial management for PD work.

1. PD funding sources

Public diplomacy at overseas posts is carried out with financial resources from a variety of streams, each of which has different rules that guide and regulate their use. Some of the most common funding streams are defined here.

Diplomatic Program Public Diplomacy funding is often referred to as .7 funding. This money is allocated to posts for supporting costs for activities directly expensed against the PD appropriation.

To execute PD interventions and programs, PD staff may use several sources of funding in addition to the Diplomatic Program (.7) funds. These sources include:

• The Educational and Cultural Exchanges (ECE) appropriation
• Representational expenses allocations
• Funds from other bureaus
• Funds from other USG sources
• Public–private partnerships
• Economic Support Funds (ESF)
• International Cooperative Administrative Support Services (ICASS)
• Local fundraising/host country contributions
• Recycling funds
• President’s Emergency Plan for AIDS Relief (PEPFAR)
• Assistance for Europe, Eurasia, and Central Asia (AEECA)
• Middle East Partnership Initiative (MEPI)

Money from these sources is distributed differently and comes with unique statutory or regulatory requirements governing its use. The PD Funding Matrix provides relevant details on the uses of .7 funds vs. ECE, which are the two most commonly used sources of funding. These various funds often have unique reporting requirements as well, and these should be understood and considered from the beginning of the planning process. PAOs should consult with their financial management officer (FMO) to ensure funds are spent appropriately. PAOs should understand what money is available to support their mission’s strategic priorities and how to avail themselves of these funds.

R/PPR and regional offices reserve a portion of their allocations for unfunded requests (UFRs), especially at the end of the fiscal year. PAOs may make requests for special initiatives and for emerging or unplanned needs, such as requests for severance payments not covered by the Foreign Service National Separation Liability Trust Fund. The RPPR/front office and the regional office director respectively hold the authority to approve or deny submitted UFRs.

2. Budget formulation process

Understanding the basic philosophies and processes of the federal budget at a macro level will help PD sections in their budgeting and resource allocation tasks at a local level. Budgeting and planning timelines can be long, but they are also predictable. Just as strategic guidance is nested from the NSS to the ICS, budget requests are also nested.

The President’s Request is a statement of Administration policy, and the Department of State and USAID have input into this request. Decisions are made at various stages before reaching the final document, which is influenced by both internal stakeholders in the Department, including the regional and functional bureaus, the Bureau of Budget and Planning (BP), and the Enterprise Governing Board (EGB), as well as external stakeholders like the OMB. Importantly, if a request made in year one is not approved and the need persists, PD sections should continue to make the request. It can take several annual budget cycles before a need is recognized and results in a base increase to funding.

For overseas posts, the Mission Resource Request (MRR) is the first step, and an important step, in the State and USAID budget formulation process. PD sections should use the MRR to describe the resources required to advance the nation’s foreign policy goals and make progress on their mission objectives, outlined in the ICS, and to delineate how those objectives roll up to the bureau objectives articulated in their respective FBS or JRS. The MRR develops the funding request two fiscal years into the future (FY+2). PD sections should use the MRR process as an opportunity to advocate for the resources post needs to advance projected mission goals and priorities.

From there, bureau leadership develops the Bureau Resource Request (BRR), which references narratives and requests for additional resources contained in the MRR submitted by each post in the region. If the PD section identifies a need to request a programmatic or staffing increase, it should include a justification in the MRR that articulates how the increase will better position the PD section to achieve the bureau’s strategic goals and objectives as articulated in the FBS or JRS. These requests will be evaluated and potentially included in the BRR. Bureau leadership submits the BRR to the Bureau of Budget and Planning (BP).

3. Considerations for budget planning

At the beginning of the process, ideally early in the fiscal year, every PD section receives a budget target from its regional bureau. The budget target represents the regional bureau’s calculation of post’s base requirements for .7 funds for the coming fiscal year. This calculation is based primarily on prior year fiscal data from each post. Budget targets represent the total amount of funding a section will receive in the coming year. They should be used as a starting point for planning an annual budget.

Based on the budget target provided by its regional bureau, PD sections should plan an annual budget as they complete the PDIP process. This is generally done by the PAO in conjunction with the post Financial Management Officer (FMO). Budget resources are expended to support section activities, but PD teams should relate their budget priorities to their strategic priorities and include budget allocation at the initiative level.

The first item to consider, mandatory costs, which are calculated by the FMO and budget staff, are deducted from the target. Mandatory costs always include LE staff salaries and benefits.¹ These costs vary significantly from post to post but should generally not exceed 75 percent of the target.² Other mandatory costs may include internet or phone service and other recurring expenses.

Once mandatory costs have been calculated, the remaining funds are available for non-mandatory expenses, such as translation contracts, subscriptions, training, travel, or new equipment. These costs may vary from post to post and from year to year, but it is often good practice to set these at a baseline percentage of the target budget. Additionally, PAOs should designate some money for audience research, for M&E, and for emerging issues. The Department’s grant and contract regulations allow performance M&E as program or project costs. The guidance in 18 FAM 300 provides methodologies for determining program funds to be set aside for M&E during budget formulation.

After all of these expenditures are accounted for, a PAO and their team are left with a programming and grant-making budget. In reality, this number may be a small fraction of the total budget. This is where thinking strategically comes in. What priorities are most important? What programs can start in an unfunded category and be executed on short notice if funds become available? How can the post best allocate scarce resources to achieve impact? How will existing contracts and relationships play into budgeting decisions? How can different parts of the PD section or the mission work together to achieve efficiencies and make progress toward goals? What are opportunities for collaboration and teaming across mission priorities?

All planned activities should have a notional budget, and spending should be prioritized according to the relative strategic importance of each activity. Given uncertainty around disbursements throughout the year, it is good practice to plan unfunded programs that can be quickly operationalized if more money than expected becomes available.

4. Financial management

The PAO is ultimately responsible for managing PD financial resources, including the oversight of funds awarded through grants/federal assistance that are initiated at post. The PAO may assign daily responsibility for program/resource management and the handling of financial requests to another USDH and/or LE Staff member. PD staff must work closely with their financial management office to ensure good management and adequate controls over spending. The FMO’s accounts are the official record of a post’s financial situation. PD section staff should request regular budget reports on a regular basis or as needed.

Still, it is advisable for PD leadership to maintain an unofficial record of expenses in a spreadsheet or elsewhere to track program funding. This is often called a “cuff record” or an “abacus.” These records serve as a close estimate of a PD section budget at any given time, and they should be reconciled regularly with FMO reports.

Federal assistance awards (including grants and cooperative agreements) play an important role in PD programs. PAOs and/or their designees are responsible for executing, monitoring, and evaluating grants that are generated at post. Posts may generate grants or cooperative agreements using PD funds to collaborate with in-country or U.S. organizations on projects. Federal assistance awards using PD funds may be used only for PD purposes. These awards are administered by the PD section for programs that are intrinsically focused on engaging with the public and that connect, inform, inspire change, or persuade priority audiences regarding mission-level strategic goals and objectives.