|James L. Millette|
The Department of State is firmly committed to delivering the highest standard of financial accountability and reporting in support of our critical foreign affairs mission. This Agency Financial Report (AFR) is a key element and essential discipline in disclosing the Department's financial status and providing transparency and accountability to the American people. The AFR provides a comprehensive view of the Department's financial activities set against the backdrop of the global issues and engagements we face as an institution working to advance U.S. interests abroad. It is important to recognize that behind this high-level snapshot is the immense financial work and dedication that occurs every day by our financial professionals in more than 270 locations and 180 countries, often in the most challenging environments.
The scale and complexity of the Department's activities and corresponding financial management requirements continue to grow in the face of a wide range of global and regional issues. As highlighted in the Message from the Secretary, the United States is faced with a broad range of foreign policy challenges, whether it's transition in Afghanistan; a new relationship with post-war Iraq; revolutions and transitions in the Middle East and North Africa; combating nuclear proliferation and pandemic disease; or promoting food security and the President's Emergency Plan for AIDS Relief. Through the Quadrennial Diplomacy and Development Review (QDDR), Secretary Clinton has challenged us to improve our efficiency and effectiveness in tackling these and other challenges, including the now realigned Bureau of the Comptroller and Global Financial Services. I'm extremely proud of the Department's financial personnel and our contributions to these efforts, our focus on continuous financial management improvements, and our stewardship over the Department's financial resources.
There is a wealth of financial, performance and management information in this AFR. The key component of course is the presentation of the annual financial statements and Independent Auditor's Report. This presentation is the culmination of a rigorous year-round process with our partners, the Independent Auditor and the Office of the Inspector General, as we work to deliver meaningful financial statements by November 15 and demonstrate the Department's commitment to strong financial management practices. In our complex and ever changing global financial management environment, there are always surprises. We strive to meet these challenges and our compliance requirements, managing and prioritizing improvements in our financial processes and systems, supporting the President's Accountable Government Initiative, and meeting our day-to-day financial management support obligations. We realize that in today's fiscal climate how we balance these efforts has added significance as we work to squeeze the most value from our limited resources and execute investment decisions that support our most critical needs. Our ultimate goal is to support an accountable and efficient financial platform that furthers the Department's global operations and mission as well as provide accurate and high-value financial information for decision-makers and transparency and confidence for the American public.
To that end, I am extremely pleased to report that the Department has received an unqualified or "clean" opinion from the Independent Auditor for FY 2012. I want to thank Kearney & Company for their efforts and professionalism in working through the many complex issues associated with the Department's financial processes. Late in last year's process, a number of issues were raised regarding the Department's financial reporting of after-employment benefits for the Foreign Service Nationals (FSN) we employ around the world. This resulted in a qualified opinion on the Consolidated Balance Sheet and Statement of Changes in Net Position and a material weakness around FSN after-employment reporting for FY 2011. We took significant steps this year to solidify the inventory of these country-by-country plans and improve the actuarial work for the future liability for defined benefit, lump-sum retirement, and severance benefits related to these plans. As a result of this comprehensive work, the Independent Auditor lifted the qualification for FY 2011 and reduced the related material weakness for FY 2012. While we are pleased with this improvement, we will need to ensure this progress is fully institutionalized as we move forward.
The Department maintains a robust system of internal controls that are validated by senior leadership and administered by the Bureau of the Comptroller and Global Financial Services. For FY 2011, a material weakness was identified by the Department regarding the effective oversight of the Summer Work Travel Program for students traveling to the United States for temporary and seasonal employment during their academic breaks. While improvements and plans were put in place this year to address this issue, the Department elected to maintain it as a material weakness to complete the validation of the corrective actions. In addition, the Independent Auditor's Report on Internal Control cites a material weakness that relates to financial reporting, which represents an aggregation of several different reporting issues. While identifying and reporting significant deficiencies of our own, management recognizes the issues identified as a material weakness by the auditors, but disagrees with the severity at which they are aggregated and categorized. The Department will work with the OIG and the Independent Auditors in FY 2013 to ensure we include their recommendations for improvements for these areas in our corrective action plans.
We recognize that there are a number of items identified by the external audit that will require our continued attention, diligence, and improvement. We are committed to addressing these items and meeting these challenges. Given the global and complex nature of our operations, there will always be areas of concern and opportunities for improvement. We understand that fact, and I am confident in our resolve as we continue to manage the Department's finite resources on behalf of America's taxpayers in support of our nation's diplomatic affairs.
James L. Millette
November 15, 2012