Evan Bush/ iWatch News
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Money from a State Department fund meant for urgent needs – such as evacuating diplomats from posts in Egypt or Libya – has been spent on a kitchen renovation, holiday and retirement parties, and on white suits for President Obama’s inauguration.

An audit by the department’s inspector general raises questions about whether State Department officials have gone beyond the purpose of a law allowing U.S. diplomatic officials to tap into a so-called “K Fund.” The money is set aside for “unforeseen emergencies arising in the diplomatic and consular service,” such as moving personnel out of suddenly unstable regimes, rewarding tipsters for information about terrorist activities, and defraying the unexpected costs of visiting officials.

The State Department’s fiscal 2010 budget request for $10 million for the KFund stresses its importance: “Recent events including the evacuation of Lebanon, tsunami in Southeast Asia, war in Iraq, the events of Sept. 11, 2001, the SARS epidemic and the potential outbreak of Avian influenza, and the U.S. missions in Riyadh, Saudi Arabia and Islamabad, Pakistan, underscore the continuing need for a funding source from which extraordinary expenditures can be made on a timely basis to further and protect United States interests abroad.”

But an unclassified version of an audit of the K Fund released Thursday noted that auditors sampling records of expenditures in 2008 and 2009 found a total of $723,378 in spending “not made in accordance with the authorized legislation.” In addition, the auditors, working for Inspector General Harold W. Geisel, were unable to find sufficient documentation for an additional $734,840 in expenditures by State Department officials.

Expenses during the two years appear to have totaled well more than the State Department’s budget requests for each year – $34.3 million instead of $18 million.

The State Department, which was dismissive of all but two of the inspector general’s recommendations for ensuring more appropriate use of the money, did not respond to iWatch News requests for comment.

The audit makes clear that officials assumed that many of the uses of the money cited by the inspector general were allowed. They reasoned, for instance, that the kitchen upgrade and some of the other expenses oversees were appropriate because, as auditors noted, “the K Fund legislation is broadly written.” They had not asked for a legal opinion, however and needed better guidance about what they could and couldn’t do with the money, the auditors said.

Altogether, some $321,000 was charged to the K Fund over the two years on the kitchen upgrade at the State Department’s headquarters in the Foggy Bottom neighborhood of Washington, D.C. The money helped transform a preparation area to a full functioning kitchen, which State Department administrators reasoned would save money in the long run on meals that were “appropriately funded” by the K Fund.

The inspector general disagreed, suggesting the renovation – whatever its merits – should have been paid for out of capital projects funding.

Many expenses questioned by auditors were relatively small, compared with the billions and trillions that budget cutters argue about. Among those questioned expenses: $6,117 on shipping and postage, $496 on invites to a holiday party hosted by Secretary of State Hillary Clinton, and $226 to engrave holiday cards for senior-level officials. Linens for an annual retirement party cost another $1,500. Someone auditors could not identify drew $200 from the fund at an ATM.machine.

The inspector general warned that, despite the relatively small amounts involved, “inadequate controls could lead to funds being unavailable for emergencies” – the important purpose for which the K Fund was established.

“Limited adherence to procedures, such as for overseeing and supporting expenditures, increases the likelihood that improper payments could be made or that waste, fraud, or abuse could occur and not be detected,” auditors wrote.

In addition, late or incomplete expense reports limited the ability of Congress and K Fund administrators to monitor the agency’s spending. Mandatory quarterly reports filed to the House and Senate foreign affairs committees “did not include all expenditures that were reported by bureaus or offices because the bureaus and offices were not submitting the expenditures in a timely matter,” the report said.

Left off the filings were at least 33 expenditures totaling $16,096. That included a $1,120 lunch with Israeli officials, and an $893 dinner during a conference on consular issues.

The audit suggests the State Department was dismissive about the inspector general’s recommendations for improving oversight of the “K Fund.” The State Department agreed with only two of seven recommendations. It rejected, for instance, the inspector general’s request that receipts be sent to K Fund administrators without offering an alternative fix and did not respond to requests for greater legal certainty about the expenses that can be paid out of the fund.

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