The Agency Financial Report (AFR) is the cornerstone of our efforts to disclose the Department’s financial status and provide transparency and accountability to the American people; both our successes and challenges. It is a comprehensive view of the Department’s financial activities set against the backdrop of global issues and engagements we face as an institution working to carry out U.S. foreign policy and advance U.S. interests abroad. It is also a snapshot in time of the immense financial work that occurs behind the scenes every day by Department financial personnel as we operate in more than 260 locations, 172 countries, and in over 150 currencies and foreign languages, often in the most challenging environments.
As the Acting Assistant Secretary for Resource Management, I would like to thank the Department’s financial professionals, first and foremost, whose efforts on a daily basis to plan, execute, and account for the Department’s global resources is the foundation of our stewardship of our public dollars in support of our foreign policy goals. It is a privilege for me to be a part of such a dedicated group of individuals as we all, both the Bureau of Resource Management and the Department’s extended financial team, strive to deliver the highest standard of financial accountability and reporting.
FY 2009 was a year of transition to a new Administration. Secretary Clinton has squarely challenged the Department to increase our capacity to utilize “Smart Power” by intelligently leveraging and coordinating our diplomatic and development tools in order to meet the calling of a “New Era of Engagement.” For the Department’s financial community, this means providing the flexible financial platform that allows us to plan, manage, and account for resources in a way that supports our mission success.
The scale and complexity of the Department’s activities and corresponding financial management requirements have grown significantly to address a wide range of global issues, whether in support of humanitarian assistance, capital construction of secure diplomatic facilities, or carrying out crucial diplomatic and reconstruction programs in war zones. Over the last five years, total dollars under direct Department management has doubled from $21 billion in FY 2005 to $41.3 billion for FY 2009. We know that strong financial management and internal controls provide the building blocks to support the transparency of operations and accountability to effectively manage these resources. As a result, we have worked diligently to embrace the broadening landscape of financial compliance and reporting requirements and proactively incorporate them into our ongoing budgetary and financial operations. We recognize that the Annual Financial Reporting process is an essential discipline that has provided invaluable benefit over the past several years and in the future. At the same time, we will need to continue to be cognizant to strike the right balance between data driven compliance and reasoned practice tied to outcomes. The ultimate goal of course is to provide transparent, accurate, and timely financial data that translates into high-value financial information for decision-makers in furtherance of the Department’s mission and financial transparency and confidence for the American public.
This year’s annual audit process was extremely difficult, as we engaged a new audit firm to conduct our annual review. Our experience told us that the worldwide operations and complexities of the Department in carrying out the President’s foreign policy agenda were going to be a large challenge for a new firm to comprehend in the tight time frame required by the process. Unfortunately this proved to be true resulting in an outcome that I believe does not truly reflect the full status of the Department’s financial program.
Coming into this year, the Department faced no previously identified material weaknesses in its internal controls, and significant work was done to address the FY 2008-cited significant deficiencies in accounting for personal property, management of unliquidated obligations, reporting unfunded actuarial liability for defined benefit supplemental pension plans for overseas locally employed staff, and strengthening interface logic between our systems. In addition, I am pleased to report that the Department maintains a robust system of internal controls overseen by senior leadership and administered by the Bureau of Resource Management. For FY 2009, the Secretary was able to provide an overall unqualified statement of assurance about the Department’s internal controls in accordance with the Federal Managers’ Financial Integrity Act, as well as an unqualified statement of assurance for internal controls over financial reporting.
Nevertheless, for FY 2009 we did not receive an unqualified opinion on this year’s financial statements. The Independent Auditor disclaimed an opinion on the Statement of Budgetary Resources, citing difficulties obtaining timely information requested, and qualified the opinion on the Balance Sheet, citing concerns about the accuracy of property reporting. While we are extremely disappointed with the results of the audit, we are committed to addressing the items cited and improving the audit process and result for FY 2010.
I am confident that the Department’s dedicated financial professionals will support this new era of engagement as they continue to plan for and garner vitally needed resources; budget, manage and account for the Department’s funds on behalf of America’s taxpayers; and assist posts in the field as they conduct our nation’s diplomatic affairs. Accountability remains our paramount priority.
James L. Millette
Assistant Secretary for Resource Management
and Chief Financial Officer
December 15, 2009