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Financial Highlights


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The Department's financial statements, which appear on pages 192 through 251, received for the sixth straight year an unqualified audit opinion issued by the independent accounting firm of Leonard G. Birnbaum and Company. Preparing these statements is part of the Department's goal to improve financial management and to provide accurate and reliable information that is useful for assessing performance and allocating resources. Department management is responsible for the integrity and objectivity of the financial information presented in the financial statements.

The financial statements and financial data presented in this report have been prepared from the accounting records of the Department of State in conformity with accounting principles generally accepted in the United States of America (GAAP). GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB).

OVERVIEW OF FINANCIAL POSITION

Assets. The Consolidated Balance Sheet on pages 193 and 194 shows the Department had total assets of $26.8 billion at the end of 2002. This represents an increase of $2.6 billion (10.8%) over the previous year's total assets of $24.2 billion. The increase is primarily the result of increases of $1.3 billion in Fund Balances with Treasury, $629.4 million in property and equipment, and $544.3 million in investments in the Foreign Service Retirement and Disability Fund (FSRDF). The increase in
Fund Balances with Treasury primarily resulted from a $3.7 billion increase in 2002 budget authority.

The Department's assets reflected in the Consolidated Balance Sheet are summarized in the following table (dollars in thousands):

2002
2003
Investment, Net
$11,750,737
$11,206,403
Fund Balances with Treasury
8,937,139
7,652,119
Property and Equipment, Net
5,499,850
4,870,466
Accounts, Loans & Interest
Receivable, Net
552,508

403,329
Other Assets
99,923
91,516
Total Assets
$26,840,157
$24,223,833

Investments, Fund Balances with Treasury and Property and Equipment comprise 98% of total assets for 2002, which is the same as the 2001 percentage of 98%. Investments consist almost entirely of U.S. Government Securities held in the FSRDF.

Assest by Type
Investments
43.8%
Fund Balance with Treasury
33.3%
Property and Equipment
20.5%
Receivables
2.1%
Other Assets
0.4%

Liabilities. The Department had total liabilities of $14.8 billion at the end of 2002, which is reported on the Consolidated Balance Sheet and summarized in the following table (dollars in thousands):

 
2002
2003
Foreign Service Retirement Actuarial Liability
$12,211,800 $11,766,900
Liability to International Organizations
1,065,172 1,650,006
Accounts Payable 784,799 823,818
Other Liabilities 762,632 569,753
Total Liabilities $14,824,403 $14,810,477

The Foreign Service Retirement Actuarial (FSRA) Liability of $12.2 billion and the Liability to International Organizations of $1.1 billion comprise 90% of the Department's total liabilities.

Of the total liabilities, $1.8 billion (12%) were unfunded, i.e., budgetary resources were not available to cover these liabilities. The $1.8 billion is primarily comprised of the $1.1 billion Liability to International Organizations, and the unfunded portion of the FSRA Liability of $324.7 million, which represents the amount by which the $12.2 billion FSRA Liability exceeds the FSRDF's net assets available to pay the liability. The $324.7 million unfunded portion of the FRSA Liability is $100.2 million less than the $424.9 million unfunded FRSA Liability at the end of 2001, and marks the ninth consecutive annual decrease due to the continued financial growth experienced by the FSRDF. 

Liabilities by Type
FSRA Liability 82.4%
Liability to International Organization 7.2%
Accounts Payable 5.3%
Other Liabilities 5.1%

The $1.1 billion Liability to International Organizations consists of $761.6 million in calendar year 2002 annual assessments, and $303.5 million in accumulated arrears assessed by the UN, its affiliated agencies and other international organizations. These financial commitments mature into obligations only when funds are authorized and appropriated by Congress.

As of September 30, 2002, a total of $926 million had been appropriated by Congress for payment of U.S. arrearages. These amounts, however, were made available subject to certifications by the Secretary of State that certain legislative requirements were met. A payment of $100 million in arrearages was made in FY 2000; a payment of $475 million and a credit of $107 million were made FY 2002; and payments totaling $211.9 million were made in early FY 2003. Thus, $32.1 million of
appropriations for arrearage payments remain.

Ending Net Position
. The Department's Net Position at the end of 2002 on the Consolidated Balance Sheet and the Consolidated Statement of Changes in Net Position was $12.0 billion, a $2.6 billion (27.6%) increase from the previous fiscal year. Net Position is the sum of the Unexpended Appropriations and Cumulative Results of Operations at the end of 2002.

The growth in Unexpended Appropriations was principally due to the increase in budget authority received to rebuild the Department's diplomatic platform.

The increase in Cumulative Results of Operations resulted mainly from the $629.4 million increase in property and equipment. The Cumulative Results of Operations also increased as a result of growth in the Working Capital Fund, and net proceeds of the FSRDF.

RESULTS OF OPERATIONS

The results of operations are reported in the Consolidated Statement of Net Cost and the Consolidated Statement of Changes in Net Position on pages 195 and 196.

The Consolidated Statement of Net Cost on page 195 presents the annual cost of operating the Department's major programs. The total cost less any earned revenue for each program is used to determine the Net Program Cost. A Consolidating Schedule of Net Cost is presented in Note 18. The schedule displays the program costs by responsibility segment. Each Under Secretary oversees a responsibility segment and carries out their mission or major line of activity.

The programs on the Consolidated Statement of Net Cost correlate to the National Interests represented in the "Management's Discussion and Analysis" section of this report and in the Department's 2002 Performance Report. Exceptions are the National Interests of National Security, Economic Prosperity, Democracy, and Global Issues. These National Interests are carried out through, and presented collectively under, "Diplomatic Relations and International Organizations" on the
Consolidated Statement of Net Cost. "Executive Direction and Other Costs Not Assigned" reflect costs and revenues related to high-level executive direction, international commissions, and certain general management and administrative support costs that cannot be reasonably allocated to programs.


The Department's Total Net Cost of Operations for 2002, after intra-departmental eliminations, was $8.3 billion. "Diplomatic Relations and International Organizations" represents the largest investment for the Department at 59% of the Department's Net Cost of Operations. The net cost of operations for the remaining programs varies from 6% to 17%.

The Consolidated Statement of Changes in Net Position presents the accounting items that caused the net position section of the balance sheet to change since the beginning of the fiscal year. Appropriations Used totaled $9.9 billion, comprising 81.2% of the Department's total revenues and financing sources after considering intra-departmental eliminations of $1.5 billion. The charts reflect the funds that the Department received during 2001 and how these funds were used.

The Combined Statement of Budgetary Resources on pages 197-198 provides information on how budgetary resources were made available to the Department for the year and their status at fiscal year-end. For the fiscal year, the Department had total budgetary resources of $17.8 billion, an increase of 27.4% from 2001 levels. Budget Authority of $12.9 billion - which consists of $11.8 billion for appropriations (direct, related, and supplemental) and transfers, and $1.1 billion financed from
trust funds - comprise 73% of the total budgetary resources. The Department incurred obligations of $15.2 billion for the year, a significant increase (31%) over $11.6 billion of obligations incurred during 2001. The outlays reflect the actual cash disbursed against the Department's obligations.

The Combined Statement of Financing reconciles the resources available to the Department to finance operations with the net costs of operating the Department's programs. Some operating costs, such as depreciation, do not require direct financing sources.

Where Funds Go - Net Program Costs (Dollars in Thousands)
Diplomatic Relations and International Organizations
4,890,828
American Citizens and U.S. Borders
511,264
Humanitarian Assistance
845,659
Law Enforcement
699,963
Executive Direction and Other Costs Not Assigned
1,391,025

 

Where Funds Come From (Dollars in Thousands)
Appropriations and Tranfsers
11,757,321
Reimbursement Earned
2,299,295
Trust Funds
1,196,698
Other
2,541,277

BUDGETARY ISSUES

The amount in the Federal budget to fund International Affairs, which encompasses several Federal agencies, is 1% of the Total Federal Government Dollar as reflected in the chart. The Department's funding related to international affairs amounts to just a fraction of 1%.

The FY 2002 Department of State's budget of $7.814 billion included the appropriations that finance the administration of foreign affairs ($5.971 billion); contributions to international organizations and activities ($1.724 billion); international commissions ($61 million); other related appropriations ($58 million); and several foreign assistance programs ($818 million). The administration of foreign affairs appropriations primarily funds the operating budgets of the Department of State. These appropriations fund the basic platform for conducting the U.S. Government's diplomatic activities around the world as well as building and maintaining the infrastructure that supports most U.S. Government operations overseas. In addition, the Department continues to rely on Machine Readable Visa (MRV), Expedited Passport, and other user fee collections to enhance the nation's border security and help meet consular workload demands, and to invest in modern, responsive information technology systems. These resources are essential to accomplishing two overriding objectives of the President's foreign policy: to win the war on terrorism and to protect Americans at home and abroad.

In FY 2002, the Department received appropriations and transfers from the Emergency Response Fund that targets funding to the Department's highest priority policy and management requirements and ensures the Department is properly organized, equipped, and manned to conduct America's foreign policy. FY 2002 represented a significant increase in the Department's resources and the first fiscal step in efforts to align both the organization for and the conduct of America's foreign policy with
the dictates of the 21st Century. Within these funding levels, the Department continued current operations and met the Department's highest priorities, including embassy construction, security, information technology, and hiring new people. FY 2002 levels also included funding critical to address emergent facilities and operating requirements that arose as a result of the September 11 terrorist attacks, including reopening the mission in Kabul, Afghanistan; reestablishing an official presence in Dushanbe, Tajikistan; and increased security and personnel protection demands at home and abroad.

For our major operating appropriation, Diplomatic and Consular Programs (D&CP), the Department was funded at $3.78 billion and included the first year of a multi-year Diplomatic Readiness Initiative (DRI) strategy to recruit, hire, train, and deploy additional professionals around the world. The appropriation and transfers, along with increases in MRV fee spending, also supported hiring 883 new employees (above anticipated attrition) including 360 new diplomatic readiness positions, 51 new security positions to mitigate identified information security vulnerabilities overseas, 12 counter-terrorism positions, 71 new consular positions to address border security workload increases, and 389 new security professionals. With increased D&CP funding, the Department funded programs to create a work environment to attract and retain talent within a highly competitive economy.

The Department's FY 2002 funding included $1.517 billion for Embassy Security, Construction and Maintenance to manage the Department's real property assets and provide U.S. diplomatic and consular missions with secure, safe, and functional facilities. This funding included $1.059 billion for security capital construction and compound security projects and $458 million for ongoing operations. The Department also received $535 million for Worldwide Security Upgrades within the
Diplomatic and Consular Programs appropriations (including $30 million from the Emergency Response Fund and $18 million from the 2002 Supplemental) to continue the perimeter security enhancement program for 232 posts; improve technical, counterintelligence and domestic security programs; and fund the 389 new security professionals. This funding also sustains
security programs begun with the FY 1999 emergency supplemental such as worldwide guard protection, physical security equipment and technical support, information/systems security, and personnel and training.

The Department's FY 2002 funding for the Capital Investment Fund included $210 million to provide modern information technology to every Department employee, including secure access to the Internet for all of our employees and modern classified systems. This included funding for OpenNet Plus providing complete web access for all State desktops by mid-FY 2003 and providing classified connectivity and email to every eligible post by FY 2004, laying the foundation for modernizing our outmoded cable system.

The Department's FY 2003 budget request continues to support the Department's priorities to support the War on Terrorism and build diplomatic readiness. The request includes $1.3 billion for enhanced security and the War on Terrorism, including $755 million to design and/or construct secure facilities, additional site acquisition, and compound security projects; $553 million to upgrade worldwide security readiness including increased guard protection, chem/bio defense, and facility protection measures; and $52 million to consolidate the Department's anti-terrorism training programs for both Diplomatic
Security and coalition law enforcement personnel, by establishing a new Center for Anti-Terrorism Security Training (CAST).

The request also includes funding to support hiring 631 additional Americans, including 134 security professionals and support staff; 399 new hires to meet the highest priority diplomatic readiness staffing needs; and 98 new consular positions to enhance Border Security and ensure the security of U.S. visas and passports. The request continues to support the Department's information technology program with a request for $177 million for the Capital Investment Fund, which would continue the investment in state-of-the-art IT systems worldwide, including extending classified connectivity to every post requiring it and expanding desktop Internet access to all Department employees.

The Federal Government Dollar:
Medicaid, Medicare, Other Entitlements & Mandatory Programs -- 31%
International Affairs -- 1%
Social Security -- 23%
Non-Defense Discretionary -- 18%
National Defense -- 16%
Net Interest -- 11%

America's Best Guesses - Public Estimates on Foreign Policy Issues:
Topic -- Percentage of U.S. Budget going to foreign aid
U.S. Perception -- 20 percent
Reality -- Less than 1 percent
Reproduced with permission from FOREIGN POLICY #126 (September/October 2001). Copyright 2001 by the Carnegie Endowment for International Peace.

LIMITATIONS OF FINANCIAL STATEMENTS

Management prepares the accompanying financial statements to report the financial position and results of operations for the Department of State pursuant to the requirements of Chapter 31 of the United States Code section 3515(b).

While these statements have been prepared from the books and records of the Department in accordance with the formats prescribed in OMB Bulletin 01-09, Form and Content of Agency Financial Statements, these statements are in addition to the financial reports used to monitor and control the budgetary resources that are prepared from the same books and records.

These statements should be read with the understanding that they are for a component of the U.S. Government, a sovereign entity. One implication of this is that unfunded liabilities reported in the statements cannot be liquidated without the enactment of an appropriation and ongoing operations are subject to the enactment of appropriations.

The Department also issues financial statements for its International Cooperative Administrative Support Services (ICASS) and the International Boundary and Water Commission (IBWC). The complete, separately-issued ICASS and IBWC Annual Financial Reports are available from the Department's Bureau of Resource Management, Office of Financial Policy, Reporting and Analysis, 2401 E Street, Room H1500,Washington, DC, 20037; (202) 261-8620.

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