FY 2019 Department of State Agency Financial Report: Section I: Management’s Discussion and Analysis

Our Vision, Mission, and History

Our Vision

On behalf of the American people we promote and demonstrate democratic values and advance a free, peaceful, and prosperous world.

Our Mission

The U.S. Department of State leads America’s foreign policy through diplomacy, advocacy, and assistance by advancing the interests of the American people, their safety and economic prosperity.

Our History

The U.S. Department of State (the Department) is the lead U.S. foreign affairs agency within the Executive Branch and the lead institution for the conduct of American diplomacy. Established by Congress in 1789, the Department is the nation’s oldest and most senior cabinet agency.

The Department is led by the Secretary of State, who is nominated by the President and confirmed by the U.S. Senate. The Secretary of State is the President’s principal foreign policy advisor and a member of the President’s Cabinet. The Secretary carries out the President’s foreign policies through the State Department and its employees.

The Department of State and the United States Agency for International Development (USAID) work together to harmonize the administration and structure of assistance programs to ensure maximum impact and efficient use of taxpayer funds. Each agency is responsible for its own operations and produces a separate AFR.

More information on the duties of the Secretary can be found at: https://www.state.gov/duties-of-the-secretary-of-state

DID YOU KNOW?

Michael R. Pompeo has visited more than 50 countries, traveling over 230,000 miles during his 17 months as Secretary of State. He travels to all corners of the world to do his job. His duties as Secretary include acting as the President’s representative at all international forums, negotiating treaties and other international agreements, and conducting everyday, face-to-face diplomacy.

More information on the Secretary’s travel can be found at: https://www.state.gov/secretary/travel/index.htm

Our Organization and People

The Department of State advances U.S. objectives and interests in the world through its primary role in developing and implementing the President’s foreign policy worldwide. The Department also supports the foreign affairs activities of other U.S. Government entities including USAID. USAID is the U.S. Government agency responsible for most non-military foreign aid and it receives overall foreign policy guidance from the Secretary of State. The State Department carries out its foreign affairs mission and values in a worldwide workplace, focusing its energies and resources wherever they are most needed to best serve the American people and the world.

The Department is headquartered in Washington, D.C. and has an extensive global presence, with more than 270 embassies, consulates, and other posts in over 180 countries. A two-page map of the Department’s locations appears in Appendix B. The Department also operates several other types of offices, mostly located throughout the United States, including 23 passport agencies, six passport centers, two foreign press centers, one reception center, five logistic support offices for overseas operations, 20 security offices, and two financial service centers.

The Foreign Service officers and Civil Service employees in the Department and U.S. missions abroad represent the American people. They work together to achieve the goals and implement the initiatives of American foreign policy. The Foreign Service is dedicated to representing America and to responding to the needs of American citizens living and traveling around the world. They are also America’s first line of defense in a complex and often dangerous world. The Department’s Civil Service corps, most of whom are headquartered in Washington, D.C., is involved in virtually every policy and management area – from democracy and human rights, to narcotics control, trade, and environmental issues. Civil Service employees also serve as the domestic counterpart to Foreign Service consular officers who issue passports and assist U.S. citizens overseas.

Host country Foreign Service National (FSN) and other Locally Employed (LE) staff contribute to advancing the work of the Department overseas. Both FSNs and other LE staff contribute local expertise and provide continuity as they work with their American colleagues to perform vital services for U.S. citizens. At the close of 2019, the Department was comprised of approximately 76,000 employees.

The U.S. Department of State, with just over one percent of the entire Federal budget, has an outsized impact on Americans’ lives at home and abroad. For a relatively small investment, the Department yields a large return in a cost-effective way by advancing U.S. national security, promoting our economic interests, creating jobs, reaching new allies, strengthening old ones, and reaffirming our country’s role in the world. The Department’s mission impacts American lives in multiple ways.

These impacts include:

1. We support American citizens abroad. We provide emergency assistance to U.S. citizens in countries experiencing natural disasters or civil unrest. We assist with intercountry adoptions and work on international parental child abductions. In 2018, there were 4,059 adoptions to the United States, and 81 adoptions from the United States to other countries. In calendar year 2018, we worked on international parental child abduction cases involving 1,444 children – resulting in the return of 252 children to the United States.
2. We create American jobs. We directly support millions of U.S. jobs by promoting new and open markets for U.S. firms, protecting intellectual property, negotiating new U.S. airline routes worldwide, and helping American companies compete for foreign government and private contracts.
3. We promote democracy and foster stability around the world. Stable democracies are less likely to pose a threat to their neighbors or to the United States. We partner with the public and private sectors in countries in conflict to foster democracy and peace.
4. We help to make the world a safer place. Under the New Strategic Arms Reduction Treaty, we are reducing the number of deployed nuclear weapons to levels not seen since the 1950s. The Department has helped over 40 post-conflict countries clear millions of square meters of landmines and unexploded ordnance. We also work with foreign partners to strengthen international aviation and maritime safety and security.
5. We save lives. Strong bipartisan support for U.S. global health investments has led to worldwide progress against HIV/AIDS, tuberculosis, malaria, and polio. Better health abroad reduces the risk of instability and enhances our national security.
6. We help countries feed themselves. We help other countries plant the right seeds in the right way and get crops to markets to feed more people. Strong agricultural sectors lead to more stable countries.
7. We help in times of crisis. From natural disasters to famine to epidemics, our dedicated emergency professionals deliver assistance to those who need it most.
8. We promote the rule of law and protect human dignity. We help people in other countries find freedom and shape their own destinies. We advocate for the release of prisoners of conscience, prevent political activists from suffering abuse, train police officers to combat sex trafficking, and equip journalists to hold their governments accountable.
9. We help Americans see the world. The Department’s Bureau of Consular Affairs supports and protects the American public. In 2019, we issued 20.7 million passports and passport cards for Americans to travel abroad. We facilitate the lawful travel of international students, tourists, and business people to the United States, adding greatly to our economy. We provide information to help U.S. citizens assess risks of international travel and learn about steps to take to ensure their safety when traveling abroad.
10. We are the face of America overseas. Our diplomats, development experts, and the programs they implement are the source of American leadership around the world. They are the embodiments of our American values abroad and a force for good in the world.

The Secretary of State is supported by a Deputy Secretary, the Executive Secretariat, the Office of U.S. Foreign Assistance Resources, the Counselor and Chief of Staff, six Under Secretaries, and over 30 functional and management bureaus and offices. The Deputy Secretary of State serves as the principal deputy, adviser, and alter ego to the Secretary of State. The Under Secretaries have been established for Political Affairs; Economic Growth, Energy and Environment; Arms Control and International Security Affairs; Public Diplomacy and Public Affairs; Management; and Civilian Security, Democracy and Human Rights. The Under Secretary for Management also serves as the CFO for the Department. The Comptroller has delegated authority for many of the activities and responsibilities mandated as CFO functions, including preparation of the AFR.

Six regional bureaus support the Department’s political affairs mission – each is responsible for a specific geographic region of the world. These include:

• Bureau of African Affairs (AF),
• Bureau of European and Eurasian Affairs (EUR),
• Bureau of East Asian and Pacific Affairs (EAP),
• Bureau of Near Eastern Affairs (NEA),
• Bureau of South and Central Asian Affairs (SCA), and
• Bureau of Western Hemisphere Affairs (WHA).

The Department also includes the Bureau of International Organization Affairs. This Bureau develops and implements U.S. policy in the United Nations, its specialized and voluntary agencies, and other international organizations. The Department’s organization chart can be found at https://www.state.gov/department-of-state-organization-chart.

DID YOU KNOW?

James Madison was the fifth Secretary of State (1801-1809) and served two terms as President (1809-1817).

More information on former Secretaries can be found at: https://history.state.gov/departmenthistory/people/secretaries

Our Work at Home and Overseas

At home, the passport process is often the primary contact most U.S. citizens have with the Department of State. There are 29 domestic passport agencies and centers, and approximately 7,600 public and 600 Federal and military passport acceptance facilities. The Department designates many post offices, clerks of court, public libraries and other state, county, township, and municipal government offices to accept passport applications on its behalf.

Overseas, in each Embassy, the Chief of Mission (usually an Ambassador) is responsible for executing U.S. foreign policy aims, as well as coordinating and managing all U.S. Government functions in the host country. The President appoints each Chief of Mission, who is then confirmed by the Senate. The Chief of Mission reports directly to the President through the Secretary of State. The U.S. Mission is also the primary U.S. Government point of contact for Americans overseas and foreign nationals of the host country. The Mission serves the needs of Americans traveling, working, and studying abroad, and supports Presidential and Congressional delegations visiting the country.

Every diplomatic mission in the world operates under a security program designed and maintained by the Department’s Bureau of Diplomatic Security (DS). In the United States, DS investigates passport and visa fraud, conducts personnel security investigations, and protects the Secretary of State and high-ranking foreign dignitaries and visiting officials. Click here for an “In Focus” view of our global visa fraud investigations.

Additionally, the Department utilizes a wide variety of technology tools to further enhance its effectiveness and magnify its efficiency. Today, most offices increasingly rely on digital video conferences, virtual presence posts, and websites to support their missions. The Department also leverages social networking Web tools to engage in dialogue with a broader audience. See Department websites of interest.

Managing for Results: Planning, Budgeting, Managing, and Learning

The Department of State has strengthened program and project management through enhanced guidelines to better align programs with best practices and policy priorities. The Department uses the Managing for Results (MfR) Framework to foster enterprise-wide linkages of strategic planning, budgeting, managing, and improving results. Bureaus and missions can achieve better outcomes by engaging in policy, resource, and program decision making that is informed by strategic planning and data gleaned through rigorous monitoring and evaluation practices.

Joint State-USAID Strategic Goals

The Department’s major strategic planning processes and documents are implemented at three organizational levels:

• The State/USAID FY 2018-2022 Joint Strategic Plan (JSP) – Four-year agency strategic plan that outlines State and USAID overarching goals and objectives, and guides bureau and mission planning for U.S. diplomacy and development efforts. The State/USAID JSP and budget synchronize how the Department achieves its foreign policy priorities.
• Bureau Strategies
  • Joint Regional Strategies – Four-year strategic plan for each region that sets joint State and USAID priorities and guides key partner bureau- and mission-level planning.
  • Functional Bureau Strategies – Four-year strategic plan that sets priorities for each State functional bureau and guides key partner bureau- and mission-level planning.
• Integrated Country Strategies (ICS) – Four year strategic plan that articulates whole-of-government priorities in a given country and incorporates policy priorities. As a whole-of-government document, each ICS incorporates the relevant USAID mission’s Country Development Cooperation Strategy and the official U.S. Government strategy for all Security Sector Assistance in the respective country.

The Department of State and USAID published its FY 2018-2022 JSP in February 2018 following a consultative process that involved the senior leadership of the two agencies, bureau leadership, and subject matter experts. The JSP outlines the strategic direction of U.S. diplomacy and development efforts during this four-year period. Its goals and objectives articulate how State and USAID will enable the United States to succeed in a competitive globalized era, and how our agencies adapt on delivering our missions. It contains four goals and 16 objectives as shown in the “State-USAID Joint Strategic Goal Framework.”

The JSP, along with the National Defense Strategy, directly supports the National Security Strategy (NSS). There is a direct correlation between all 16 JSP objectives and 13 of 15 NSS objectives. The JSP was developed through policy guidance from the Secretary of State, USAID Administrator, Congress, and the National Security Council.

The JSP informed the overarching policy direction for the seven State-USAID Joint Regional Strategies, 40 Functional Bureau Strategies, and Integrated Country Strategies. The goals and objectives established in the JSP provide both a policy and strategic vision for all Department bureaus and posts by laying out actions and performance goals, which all bureaus and posts needed to consider in developing their respective strategies. The goals and objectives in each bureau- and mission-level strategy are available to the public through the Department’s internet site at https://www.state.gov/plans-performance-budget/.

Agency Priority Goals

Agency Priority Goals (APG) are a performance accountability component of the Government Performance Results Act (GPRA) Modernization Act of 2010 that provide agencies a mechanism to focus leadership priorities, set outcomes, and measure results, bringing focus to mission areas where agencies need to drive significant progress and change. APGs support improvements in near-term outcomes, customer service or efficiencies, and advance progress toward longer-term, outcome-focused strategic goals and objectives. APGs are intended to demonstrate quarterly progress on near-term results or achievements the agency seeks to accomplish within 24 months. The Department of State has had four APGs for the FY 2018 – FY 2019 cycle (see italicized goal statements below), which align with the updated goals and objectives in the FY 2018-2022 Joint Strategic Plan:

• Visa Security: “By September 30, 2019, the Department will update the DS-160 and DS-260 non-immigrant and immigrant visa application forms and add the newly-collected fields to our data sharing feeds for interagency partners.” This APG aligns with JSP Goal 1: Protect America’s Security at Home and Abroad.
• IT Modernization: “By September 30, 2019, the Department will improve its IT service delivery by reducing the average time associated with providing new IT capabilities by 20 percent, managing 100 percent of workforce digital identities through a central Enterprise Identity Management solution, from a baseline of zero, and increasing workforce access to cloud-based email and business data from any device from 10 percent to 100 percent.” This APG aligns with JSP Goal 4: Ensure Effectiveness and Accountability to the American Taxpayer.
• HIV/AIDS: “By September 30, 2019, new infections are fewer than deaths from all causes in HIV-positive patients in up to 13 high-HIV burden countries through leadership by State and implementation by USAID; the U.S. Department of Health and Human Services and its Agencies, including the Centers for Disease Control and Prevention, the Health Resources and Services Administration, and the National Institutes of Health; the Departments of Defense, Labor, and Treasury; and the Peace Corps.” This APG aligns with JSP Goal 3: Promote American Leadership through Balanced Engagement.
• Category Management: “By September 30, 2019, meet or exceed Federal targets for Best-In-Class contract awards.” This APG aligns with JSP Goal 4: Ensure Effectiveness and Accountability to the American Taxpayer.

Office of Management and Budget guidance (OMB Circular A-11) requires agencies to establish or update their FY 2020-2021 APGs and publish implementation action plans early in 2020. The Department’s official reporting on APGs can be found on Performance.gov at https://www.performance.gov/state/state.html .

Cross-Agency Priority Goals

The President’s Management Agenda’s long-term vision for modernizing the Federal Government will improve the ability of agencies to deliver mission outcomes, provide excellent customer service, and serve as effective stewards of taxpayer dollars on behalf of the American people. To drive these management priorities, the Administration leverages Cross-Agency Priority (CAP) goals to coordinate and publicly track implementation across Federal agencies. CAP goals provide the components of the Federal Government Performance Plan required by the GPRA Modernization Act of 2010. As of October 2019, the Department contributes to 11 CAP goals: IT Modernization; Data, Accountability and Transparency; Workforce for the 21st Century; Improving Customer Experience; Sharing Quality Services; Shifting from Low-Value to High-Value Work; Category Management; Results-Oriented Accountability for Grants; Getting Payments Right; Federal IT Spending Transparency; and Improve Management of Major Acquisitions. Progress updates on CAP goals are published on Performance.gov at https://www.performance.gov/CAP/CAP_goals.html .

Performance Reporting

The Department of State reports annual progress and results toward achieving the strategic objectives and performance goals articulated in the JSP via the Annual Performance Plan/Annual Performance Report (APP/APR). The latest reporting on the JSP – including performance goals, performance indicators, and a narrative explanation of progress – can be found in the FY 2020 APP/FY 2018 APR at https://www.state.gov/plans-performance-budget/performance-plans-and-reports/. The following are illustrative accomplishments from the APP/APR:

Strategic Goal 1: Protect America’s Security at Home and Abroad

• The Global Coalition to Defeat ISIS gained five new members: the Philippines, the Community of Sahel-Saharan States, Guinea, Kenya, and Fiji. Coalition stabilization and early recovery assistance helped restore essential services and remove explosive remnants of war, and encouraged the free and voluntary return of over 162,000 internally displaced persons to Raqqa, Syria.
• The U.S. Government funded 7,460 events, trainings, or activities, in which 359,766 people participated, designed to build support for peace or reconciliation on a mass scale.
• State had engagement on cyber issues with 126 countries, economies, and/or regional organizations.

Strategic Goal 2: Renew America’s Competitive Advantage for Sustained Economic Growth and Job Creation

• The United States reached or expanded six aviation agreements, including four new Open Skies Agreements with Caribbean partners.
• U.S. exports of information and communications technology grew by more than 4 percent to $70.9 billion.
• Forty-nine countries participated in State scientific fellowships and exchanges.

Strategic Goal 3: Promote American Leadership through Balanced Engagement

• The U.S. Government provided assistance to almost 7,700 civil society organizations engaged in advocacy of U.S. goals and values.
• Almost 2.7 million adults and children were newly enrolled on antiretroviral therapy.
• State’s American Spaces programs hosted 68.3 million visitors.

Strategic Goal 4: Ensure Effectiveness and Accountability to the American Taxpayer

• In support of State’s Category Management APG, 40 percent of addressable contract dollars were awarded to Best in Class vehicles and 25 percent of contract dollars were awarded to contract vehicles designated as Spend Under Management.
• State achieved $16.65 million in supply chain cost savings.
• State closed 17 percent of its domestic data centers due to Cloud efficiencies.
• Approximately 3,100 U.S. Government employees and local staff were moved into safer and more secure facilities.

The section starting below provides an overview of major program areas. These programs are included in the Financial Section, Section II of this AFR, on the Consolidated Statement of Net Cost.

Major Program Areas

Peace and Security

The United States faces ever-evolving and multi-dimensional security challenges. To meet these challenges, we support and collaborate with both new and old partners to defend shared interests and to adapt to the changing international environment. This means working to advance nonproliferation, antiterrorism, demining, and related programs; global threat reduction; and security assistance. The Department is focusing its efforts on strategically vital regions to prevent crises and foster resilience in ways that align to our broader commitments and that secure our borders.

Democracy, Human Rights, and Governance

Accountable governments contribute to a freer, more prosperous, and peaceful world. Democracies are our strongest partners on security, trade, and energy, in peace and in conflict. Our support – which includes efforts to address transnational criminal organizations and illicit pathways to the U.S. border, as well as the underlying conditions for weak governance, corruption, uneven economic growth and human rights abuses – is a lifeline for nations and individuals striving for change, and is an important part of our efforts in combating violent extremism. Democratic governments work with the United States to build consensus and solve problems on the global stage.

Health, Education, and Social Services

U.S. efforts to improve specific challenges in global health and education advance our broader national security interests by addressing underlying drivers of terrorism and constraints to inclusive economic growth that open markets and reduce fragility. The State Department and USAID use diplomacy and foreign assistance programs to create an AIDS-free generation, end preventable child and maternal deaths, reduce the threat of infectious diseases, and fight pandemic diseases. The U.S. Government partners with multilateral institutions, donor nations, and other organizations to encourage and empower developing countries to build strong, sustainable health care systems. Expanding health care capacity abroad is essential to long-term development. U.S. investments, such as those supporting the immunization of hundreds of millions of children in low-resource countries, save lives and result in healthier people. Our investments make for stronger, more prosperous, and more stable countries; enhance international security and trade; and in turn ensure a safer, more resilient America. Despite successes in recent decades, the United States recognizes that much remains to be done to strengthen health systems in developing countries so that they can address emerging threats and long-term challenges, such as HIV/AIDS, tuberculosis, malaria, and maternal and child mortality. Investments in PEPFAR focused U.S. support in key countries to expand HIV prevention and treatment services and leverage increased performance and efficiency gains. Infectious disease outbreaks remain among the foremost dangers to human health and the global economy, as many countries have limited capacity to prevent, detect, and respond rapidly to these threats. Health is the largest component of U.S. development assistance.

Humanitarian Assistance

The Department is addressing many of the underlying drivers of threats to our national security through migration and refugee assistance. The Department and other U.S. agencies work to ensure documents and resolutions adopted in the United Nations or other international forums are consistent with U.S. policy. Our efforts include outreach to and dialogue with government officials, multilateral organizations, NGOs, and other entities. This allows the United States to maintain a leadership role in shaping global humanitarian assistance while also working with international partners on long-term solutions.

International Organizations and Commissions

The United States benefits from a disciplined, purposeful, and deep engagement with the rest of the world. American interests are protected by an international system that allows for cooperation with like-minded partners without compromising our independence. The Department continues to strengthen American leadership both in our partnerships and with multilateral institutions, such as the host of United Nations agencies and organizations. U.S. leadership in these venues is often instrumental to fostering cooperation, sharing the costs of taking action, and protecting the rule of law, human rights, dignity, and democratic values.

U.S. senior officials also engage publicly and privately with citizens in countries eager for progress and those burdened by oppressive governments. The U.S. Government pushes back on attempts to dismantle institutions, and works with like-minded governments. The Department also engages regional mechanisms to advance our ideals and to deter backsliding by governments.

Diplomatic and Consular Programs

Meeting twenty-first century diplomatic and development challenges requires a flexible and efficient support platform for our global staff. As the Department adapts how it delivers on mission, our ability to keep personnel safe from physical and virtual threats is a top priority. By ensuring that only the right people are allowed on systems with a sophisticated cybersecurity infrastructure, the Department can carry out the mission while maintaining security. State is striving to ensure that all personnel, whether they are diplomats, development professionals, security agents, or family members, receive the right training at the right time so that everyone is a contributor to overall security in both the real and digital worlds.

Administration of Foreign Affairs

The Department under the leadership of the Under Secretary for Management this year has articulated a set of guiding principles – field-first focus, innovation, accountability, agility, and data-informed decision making – to integrate and improve the administration of foreign affairs. These principles guide action across the full range of Department activities but are focused on five action areas: talent, security and infrastructure, excellence and innovation, data and analytics, and technology. Effective engagement with international partners, stakeholders, customers, and audiences requires data-informed decision making and risk-based investments that apply new technologies and innovative approaches for strengthening collaboration, ensuring coordinated strategic planning linked to budget priorities, and expanding our internal and external networks. In an era when information is disseminated instantaneously worldwide, our ability to engage quickly and effectively is a core competency for our high-performing, motivated professionals. To meet these challenges also requires a nimble and efficient support platform for our professionals representing the United States around the world. Department leadership and financial managers seek to foster an expansive and forward-leaning approach to enterprise risk management, retaining the agility to respond to demands, events, conditions, or trends at times when significant changes trigger the need to take action.

Another focus of the Department is transitioning engagement activities from limited, exclusive, and direct contacts to an approach based on a culture of openness. This has resulted in expanding the use of digital communications such as social media, video conferencing, and smart phone applications that allow the Department to directly reach citizens and to open up our public engagement to all who are interested, not just the limited audience that can be invited to attend events in person. Evidence-based planning and increased operational efficiency and effectiveness are among the factors accounting for the improvements in performance and results.

Program and Project Design, Monitoring, and Evaluation Policy

The Department is committed to using design, monitoring, evaluation, and data analysis best practices to achieve the most effective U.S. foreign policy outcomes and greater accountability to our primary stakeholders; the American people. In response to requirements contained in the Foreign Aid Transparency and Accountability Act and the Program Management Improvement and Accountability Act, the Department updated its evaluation policy to encompass the full spectrum of performance management and evaluation activities including program design, monitoring, evaluation, and analysis and learning. Bureaus are responding to this updated and expanded policy, located in 18 FAM 300 (https://fam.state.gov/fam/18fam/18fam030104.html), by putting in place performance management documents and practices, including the use of logic models, theories of change, performance metrics, monitoring structures, and other foundational components, against which progress can be monitored and evaluated.

Maximizing America's Investment Through Innovation and Evidence

Evidence and Evaluation

The Department supports the analysis and use of evidence in policymaking by training staff, creating groups for knowledge sharing, establishing and monitoring evaluation requirements, providing funding opportunities to gather better evidence, and maintaining a central database to manage and share evaluations. The Department continues efforts to strengthen the use of data and evidence to drive better decision making, achieve greater impacts, and learn what works and what’s not working in order to more effectively and efficiently achieve U.S. foreign policy objectives. Ongoing performance monitoring data provide a picture of how programs are doing, and program evaluation is used to understand why they are working.

The Department’s learning agenda is encompassed and supported in the MfR framework, which integrates planning, budgeting, managing, and learning processes to inform and support programmatic, budget, and policy decisions. Through this approach, the Department examines programs and operations in such a way that is relevant to its bureaus and the stakeholders they serve. The introduction of a program and project design and monitoring policy in 2018 further strengthened this framework. This program and project design work serves as a foundation for the collection and validation of performance monitoring data, confirming alignment to strategic objectives, and purposeful evaluative and learning questions.

The MfR intranet site offers guidance, tools, updates and opportunities to engage with technical experts. Bureaus can locate key strategic planning documents including the Department’s Joint Strategic Plan, bureau and mission-specific strategic plans, and tools for facilitating progress reviews against strategic plans. The site is essential to supporting bureaus in their program design and performance monitoring work as it houses all of the guidance and resources for these processes. The site also offers templates and guides for evaluation plans.

Ongoing efforts to bolster the Department’s ability to plan and execute programs and projects in a way that encourages learning and adapting include:

Examples of how the MfR framework develops into specific learning agendas throughout the Department follow.

In a broad, enterprise-wide learning effort, the Department researched the methodology and uses of strategic evaluations to determine how to facilitate them for learning and collect data within the agency. Strategic evaluations respond to strategic goals and often provide the kind of data that Congress requests on the success of global health, humanitarian assistance, rule of law, or other themes. The research process included reaching out to bureaus who were implementing strategic evaluations to follow their progress and develop specific examples. The results of this work will contribute to Department-wide learning, help build capacity by modeling evaluation to bureaus, and highlight the utility of this type of research to upper management.

The Public Diplomacy (PD) learning agenda guides public diplomacy research. Forty research questions are linked to 10 theories of change covering Public Diplomacy and Public Affairs activities. Over the last two years, PD has undertaken a number of evaluations aimed at addressing questions in the learning agenda. For example, the Youth Ambassadors program in France examines whether the youth leadership program affects people in the social networks around the program participants. This “multiplier” effect is a central concept in numerous PD programs. In 2019, PD is also concluding a major evaluation of the Young Transatlantic Innovation Leaders Initiative (YTILI), which examines whether participating in the Fellowship promotes economic prosperity in Europe, increases the entrepreneurial knowledge of Fellows, and strengthens the relationship between the YTILI Fellows and the United States. Public Diplomacy will continue to conduct evaluations that test the 10 theories of change contained in the learning agenda.

The Department also initiates studies to respond to pressing questions or needs in foreign assistance policy. In developing the agenda for this work, stakeholders from State, USAID, the non-governmental organization and the academic communities are invited to provide feedback. For 2018-2019, this process yielded three pressing questions: 1) how can the United States promote financial burden-sharing for foreign assistance with other countries; 2) can coordination with U.S. agencies and institutions be enhanced by creating a one-stop shop for economic assistance resources, connecting relevant experts, and training economic officers on coordinating overseas development assistance in the economic arena; and 3) to what extent has past U.S. and international donor foreign assistance prioritized and reduced future risks of violent conflict and instability, in line with established international principles for conflict prevention. The results of the first phase of the Strategic Prevention Project are available at https://www.state.gov/wp-content/uploads/2019/07/Strategic-Prevention-Project.pdf [4 MB].

The Department is continuing to review the process by which it updates its learning agenda in order to ensure it is meeting all facets of the requirements as detailed in the Evidence Act.

More information on the Department’s Program and Project Design, Monitoring, and Evaluation Policy can be found at: https://fam.state.gov/fam/18fam/18fam030104.html

Management Challenges: Providing an Independent Statement of the Agency

In the 2019 annual statement, the Department’s Office of Inspector General (OIG) identified the most serious management and performance challenges for the Department. These challenges were identified in the areas of: protection of people and facilities; oversight of contracts, grants, and foreign assistance; information security and management; financial and property management; operating in contingency and critical environments; workforce management; and promoting accountability through internal coordination and clear lines of authority.

The OIG statement may be found in the Other Information (OI) section of this report. In response to the OIG’s recommendations, the Department took a number of corrective actions. Information on management’s assessment of the challenge and a summary of actions taken may also be found in the OI section.

DID YOU KNOW?

Elihu Root served as the 38th Secretary of State (1905-1909). He created the first Foreign Service Exam and later awarded the Nobel Peace Prize in 1912 for his work on international arbitration.

More information on former Secretaries can be found at: https://history.state.gov/departmenthistory/people/secretaries

The financial summary and highlights that follow provide an overview of the 2019 financial statements of the Department of State (the Department). The independent auditor, Kearney & Company, audited the Department’s Consolidated Balance Sheet for the fiscal years ending September 30, 2019 and 2018, along with the Consolidated Statements of Net Cost and Changes in Net Position, and the Combined Statement of Budgetary Resources¹. The Department received an unmodified (“clean”) audit opinion on both its 2019 and 2018 financial statements. A summary of key financial measures from the Balance Sheet and Statements of Net Cost and Budgetary Resources is provided in the table below. The complete financial statements, including the independent auditor’s reports, notes, and required supplementary information, are presented in Section II: Financial Information.

To help readers understand the Department’s principal financial statements, this section is organized as follows:

• Balance Sheet: Overview of Financial Position,
• Statement of Net Cost: Yearly Results of Operations,
• Statement of Changes in Net Position: Cumulative Overview,
• Combined Statement of Budgetary Resources,
• The Department’s Budgetary Position,
• Resource Management Systems Summary, and
• Limitation of Financial Statements.

¹ Hereafter, in this section, the principal financial statements will be referred to as: Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Combined Statement of Budgetary Resources. (back to text)

Balance Sheet: Overview of Financial Position

The Balance Sheet provides a snapshot of the Department’s financial position. It displays, as of a specific time, amounts of future economic benefits owned or managed by the reporting entity (Assets), amounts owed (Liabilities), and amounts which comprise the difference (Net Position) at the end of the fiscal year.

Assets. The Department’s total assets were $109.0 billion at September 30, 2019, an increase of $3.4 billion (3 percent) over the 2018 total. Fund Balance with Treasury increased $2.3 billion (4 percent) as a result of increased appropriations for International Peacekeeping Activities; Diplomatic and Consular Programs; International Narcotics Control; and Global Health and Child Survival. Property and Equipment increased by $1.3 billion (5 percent) from September 30, 2018. New buildings, structures and improvements accounted for most of this increase with the top nine New Embassy Compound projects and a training center accounting for $1.0 billion of the increase (see “Real Property Projects – 2019 Cost Activity”). In addition, land increased by $88 million due to the following land purchases: Adana, Turkey for $50 million; Windhoek, Namibia for $14 million; and Merida, Mexico for $13 million. Internal use software increased by $105 million due to new projects in 2019. These increases are offset by a decrease in personal property of $143 million. This decrease is predominately due to a decrease in aircraft for $86 million.

Other assets decreased $178 million (7 percent) as a result of a decrease in advances under the Global Health and Child Survival program for $51 million. Investments increased $137 million (1 percent) because contributions and appropriations received to support the Foreign Service Retirement and Disability Fund (FSRDF) were greater than benefit payments. There was also an increase due to investments made by the Foreign Service National Defined Contributions Fund for the Variable Contribution Plan. Fund Balance with Treasury, Investments, and Property and Equipment comprise 97 percent of total assets for 2019 and 2018.

The six-year trend in the Department’s total assets is presented in the “Trend in Total Assets” bar chart. Total assets have increased an overall $22.2 billion (26 percent) since 2014. This upward trend resulted primarily from an $13.7 billion increase in Fund Balance with Treasury, a $6.5 billion increase in Property and Equipment, and a $1.6 billion increase in Investments.

Many Heritage Assets, including art, historic American furnishings, rare books and cultural objects, are not reflected as assets on the Department’s Balance Sheet. Federal accounting standards attempt to match costs to accomplishments in operating performance, and have deemed that the allocation of historical cost through depreciation of a national treasure or other priceless item intended to be preserved forever as part of our American heritage would not contribute to performance cost measurement. Thus the acquisition cost of heritage assets is expensed not capitalized. The maintenance costs of these heritage assets are expensed as incurred, since it is part of the government’s role to maintain them in good condition. All of the embassies and other properties on the Secretary of State’s Register of Culturally Significant Property, however, do appear as assets on the Balance Sheet, since they are used in the day-to-day operations of the Department.

Liabilities. The Department’s total liabilities were $32.4 billion at September 30, 2019, an increase of $2.5 billion (8 percent) between 2018 and 2019. After-Employment Benefit Liability comprises 75 percent of total liabilities and increased $1.6 billion (7 percent) from 2018. International Organizations Liability increased $1.1 billion (41 percent) and Accounts Payable decreased $313 million (12 percent).

The six-year trend in the Department’s total liabilities is presented in the “Trend in Total Liabilities” bar chart. Over this period, total liabilities increased by $7.3 billion (29 percent). This change is principally due to the increase in the After-Employment Benefit Liability, a $4.6 billion increase. The increase is due to a higher number of Foreign Service employees enrolled in the plan and changes in the key economic indicators underlying the actuarial computation over time.

Ending Net Position. The Department’s net position, comprised of Unexpended Appropriations and the Cumulative Results of Operations, increased $0.9 billion (1 percent) between 2018 and 2019. Cumulative Results of Operations increased $757 million and Unexpended Appropriations were up $130 million due in part to the budgetary financing sources used to purchase property and equipment.

Statement of Net Cost: Yearly Results of Operations

The Statement of Net Cost presents the Department’s net cost of operations by major program instead of strategic goal. The Department believes this is more consistent and transparent with its Congressional Budget submissions. Net cost is the total program cost incurred less any exchange (i.e., earned) revenue. The presentation of program results is based on the Department’s major programs related to the major goals established pursuant to the Government Performance and Results Act (GPRA) of 1993 and the GPRA Modernization Act of 2010. The total net cost of operations in 2019 equaled $29.7 billion, an increase of $1.0 billion (3 percent) from 2018. This increase of net costs was mainly due to increases in spending for international organizations as a result of timing differences in assessments received from the international organizations and increases in spending for humanitarian efforts and security. These increases were offset by a decrease in actuarial costs in the FSRDF due to actuarial assumption changes.

The six-year trend in the Department’s net cost of operations is presented in the “Trend in Net Cost of Operations” bar chart. There is an increase from 2014 to 2019 of $4.7 billion. Increases from 2014 generally reflect costs associated with new program areas related to countering security threats and sustaining stable states, as well as the higher cost of day-to-day operations such as inflation and increased global presence.

The “Net Cost of Operations by Major Program” pie chart illustrates the results of operations by major program, as reported on the Statement of Net Cost. As shown, net costs associated with two of the major programs (Health, Education, and Social Services) and (Diplomatic and Consular Programs) represents the largest net costs in 2019 – a combined $17.2 billion (58 percent). The largest increase was in Diplomatic and Consular Programs. This program increased by $639 million as a result of increases in global security. In the International Organizations and Commissions program, net costs increased by $612 million as a result of timing differences in assessments received from the international organizations. There were more assessments received in 2019.

Earned Revenues

Earned revenues occur when the Department provides goods or services to another Federal entity or the public. The Department reports earned revenues regardless of whether it is permitted to retain the revenue or remit it to Treasury. Revenue from other Federal agencies must be established and billed based on actual costs, without profit. Revenue from the public, in the form of fees for service (e.g., visa issuance), is also without profit. Consular fees are established on a cost recovery basis and determined by periodic cost studies. Certain fees, such as the machine readable Border Crossing Cards, are determined statutorily. Revenue from reimbursable agreements is received to perform services overseas for other Federal agencies. The FSRDF receives revenue from employee/employer contributions, a U.S. Government contribution, and investment interest. Other revenues come from ICASS billings and Working Capital Fund earnings.

Earned revenues totaled $8.8 billion in 2019, and are depicted, by program source, in the “Earned Revenues by Program Source” pie chart. The major sources of revenue were from consular fees ($4.5 billion or 51 percent), reimbursable agreements ($2.4 billion or 27 percent), and ICASS earnings ($1.1 billion or 13 percent). These revenue sources totaled $8.0 billion (91 percent). Overall, revenue increased by two percent – $139 million from 2018 to 2019. This increase is primarily a result of an increase in reimbursable activity with other Federal agencies.

Statement of Changes in Net Position: Cumulative Overview

The Statement of Changes in Net Position identifies all financing sources available to, or used by, the Department to support its net cost of operations and the net change in its financial position. The sum of these components, Cumulative Results of Operations and Unexpended Appropriations, equals the Net Position at year-end. The Department’s net position at the end of 2019 was $76.6 billion, an $887 million (1 percent) increase from the prior fiscal year. This change resulted from the $130 million increase in Unexpended Appropriations and a $757 million increase in Cumulative Results of Operations.

Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources (SBR) provides data on the budgetary resources available to the Department and the status of these resources at the fiscal year-end. The SBR displays the key budgetary equation: Total Budgetary Resources equals Total Status of Budgetary Resources.

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The Department’s budgetary resources consist primarily of appropriations, spending authority from offsetting collections, and unobligated balances brought forward from prior years. The “Trend in Total Budgetary Resources” bar chart highlights the budgetary trend over the fiscal years 2014 through 2019. A comparison of the two most recent years shows a $2.6 billion (4 percent) increase in total resources since 2018. This change resulted from a decrease in offsetting collections ($3.4 billion) and increases in unobligated balances from prior year budget authority ($2.3 billion) and appropriations ($3.7 billion).

The Department's Budgetary Position

For 2019, the majority of the Department’s funding was provided by the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2019 (Division F, Public Law 116-6) (the “FY 2019 Act”) enacted on February 15, 2019. The Bureau of Budget and Planning manages the Diplomatic Engagement portion of the budget, and the Office of U.S. Foreign Assistance Resources manages Foreign Assistance funds.

Budgetary Position for Diplomatic Engagement

The 2019 appropriations for Diplomatic Engagement totaled $15.2 billion, which included $11.1 billion in Enduring funds from Title I of the Act, and $4.1 billion in Overseas Contingency Operations (OCO) funded through Title VIII. Funding in both titles supports the people and programs that carry out U.S. foreign policy, advancing U.S. national security, political, and economic interests at 276 posts in 191 countries around the world. These funds also maintain and secure the U.S. diplomatic infrastructure platform, from which U.S. Government agencies operate overseas. In addition to new 2019 funding, $14.4 billion in prior year funding remained available for obligation in 2019.

In addition to appropriated resources, the Department earned and retained $3.5 billion in new user fee revenue derived from passport and visa processing, including Machine Readable Visa fees, Immigrant Visa fees, the Western Hemisphere Travel Initiative Surcharge, Visa Fraud Prevention and Detection fees, and other fee and surcharge revenues that support the Consular and Border Security Programs (CBSP) account. CBSP funds support programs that provide protection to U.S. citizens overseas and contribute to national security and economic growth. These programs are a core element of the national effort to deny individuals who threaten the country entry into the United States while assisting and facilitating the entry of legitimate travelers, and promoting tourism.

Upon enactment of the FY 2019 Act, the name of the Department’s principal operating account was changed from Diplomatic and Consular Programs (D&CP) to Diplomatic Programs (DP). In 2019, DP totaled $8.9 billion, including Enduring and OCO funds. Within the total, $5.1 billion supported ongoing program operations and $3.8 billion went toward the Worldwide Security Protection (WSP) program to strengthen security for diplomatic personnel and facilities. Per Section 8004 of the FY 2019 Act, $301.2 billion in WSP OCO funds appropriated by the Security Assistance Appropriations Act, 2017 (Division B, Public Law 114-254) was rescinded.

Major elements of 2019 DP funding included $1.3 billion to support operations of the U.S. Mission in Iraq, of which $1.3 billion is OCO and $16 million is Enduring; $882 million for activities in Afghanistan, of which $847 million is OCO and $35 million is Enduring; $144 million for key programs and activities in Pakistan, of which $112 million is OCO and $31 million is Enduring; and $673 million for public diplomacy programs to counter misinformation and secure support for U.S. policies abroad, of which $83 million is OCO and $590 million is Enduring.

The Department’s Information Technology (IT) Central Fund supported $321 million in IT investments in 2019. This included $93 million in enacted appropriations and $228 million in revenue from Expedited Passport fees. Investment priorities included Cloud migration; consolidation of software licenses; deployment of global Wi-Fi to overseas locations; reduction of the number of Department data centers; refreshing computers and other devices for online support; consolidation of contact and event management systems into a single cloud-based solution to increase knowledge and data sharing; data analytics enhancements; and modernization of multi-year enterprise financial management, logistics, and human capital systems.

The Embassy Security, Construction, and Maintenance (ESCM) appropriation totaled $2.0 billion, all Enduring, which provides U.S. missions overseas with secure, safe, and functional facilities. ESCM’s centerpiece programs are Capital Security Cost Sharing ($847 million) and Maintenance Cost Sharing ($178 million), which enabled the Department to begin five New Embassy Compound/New Consulate Compound projects and start two maintenance projects. In addition to State’s funding, these programs rely on over $1 billion in interagency contributions based on each agency’s overseas presence.

The Educational and Cultural Exchange Programs (ECE) appropriation was funded at $701 million. Elements of the Department’s public diplomacy strategy include ECE programs that engage both domestic and foreign audiences to develop mutual understanding and build foundations for international cooperation. Major highlights of 2019 funding included: $358 million for Academic Programs, such as the J. William Fulbright Scholarship Program; $221 million for Professional and Cultural Exchanges, notably the International Visitor Leadership Program and Citizen Exchange Program; and $31 million for the Young Leaders Initiatives.

The 2019 appropriation provided a total of $1.4 billion for the Contributions to International Organizations (CIO) account, including $96.2 million for OCO, and $1.3 billion in Enduring funds for assessed contributions to international organizations including the United Nations and its specialized agencies, regional and Inter-American organizations, and other international organizations. The 2019 appropriation provided $1.6 billion for the Contributions for International Peacekeeping Activities (CIPA) account, including $989 million in OCO, and $562 million in Enduring funds for assessed contributions to international peacekeeping activities authorized by the United Nations.

The remainder of the Diplomatic Engagement enduring operations budget is comprised of Related Programs ($214 million) and International Commissions ($141 million) appropriations. Related programs include appropriations for the National Endowment for Democracy ($180 million), The Asia Foundation ($17 million), and the East-West Center ($17 million). The largest of the International Commissions is the International Boundary and Water Commission (IBWC), a binational commission that implements boundary and water treaties and international agreements between the United States and Mexico. IBWC received $77.5 million in 2019 appropriations.

Looking ahead, the Department’s 2020 Diplomatic Engagement budget request totals $13 billion in new budget authority. The Department is not requesting OCO funding in 2020.

The 2020 President’s Budget provides the necessary resources to protect United States citizens, support our allies while asking other nations to do more, and advance a secure, prosperous world by assisting countries to become self-reliant economic and security partners. The 2020 budget request for the State Department and USAID focuses resources on providing better results for the American people. It supports more effective American diplomacy, prioritizes embassy security and the protection of diplomats and staff, and provides for strategic partners and diplomatic progress.

Budgetary Position for Foreign Assistance

The 2019 Department of State Foreign Assistance budget totaled $18.8 billion. Foreign Assistance programs support the President’s commitment to four key national priorities: defending U.S. national security, fostering opportunities for U.S. economic interests, asserting U.S. leadership and influence, and ensuring effectiveness and accountability to the U.S. taxpayer.

Foreign Assistance programs under the purview of the Department of State are the Democracy Fund (DF); U.S. Emergency Refugee and Migration Assistance (ERMA); Foreign Military Financing (FMF); Global Health Programs (GHP); International Military Education and Training (IMET); International Narcotics Control and Law Enforcement (INCLE); International Organizations and Programs (IO&P); Migration and Refugee Assistance (MRA); Nonproliferation, Antiterrorism, Demining, and Related Programs (NADR); and Peacekeeping Operations (PKO). The Department also implements funds from the Assistance for Europe, Eurasia, and Central Asia account and the Economic Support Fund account.

An important aspect of the Department’s 2019 budget is the OCO component. OCO funds enable us to prevent, address, and help countries recover from crisis, particularly in Africa, the Middle East and South Central Asia. The Department’s Foreign Assistance portion of the 2019 budget for OCO totaled $1.9 billion in the FMF, MRA, and PKO accounts.

The Democracy Fund appropriation totaled $227.2 million in 2019; the funds are split, however, between the Department and USAID. The Department was allocated $157.7 million to promote democracy in priority countries where egregious human rights violations occur, democracy and human rights advocates are under pressure, governments are not democratic or are in transition, where there is growing demand for human rights and democracy, and for programs promoting Internet Freedom.

The 2019 ERMA appropriation totaled $1 million. ERMA serves as a contingency fund from which the President can draw in order to respond effectively to humanitarian crises in an ever-changing international environment.

The 2019 FMF appropriation totaled $6.2 billion, of which $229 million is designated as OCO and $6.0 billion supports core programs. FMF promotes U.S. national security by contributing to regional and global stability, strengthening military support for key U.S. allies and regional partner governments, and countering transnational threats, including terrorism and trafficking in narcotics, weapons, and persons. The provision of FMF assistance to partner militaries establishes and facilitates strong military-to-military cooperation, promotes U.S. trade and economic interests, and enables friends and allies to be interoperable with U.S., regional, and international military forces.

In 2019, the portion of the Global Health Programs appropriation managed by the Department totaled $5.7 billion. This is the primary source of funding for the President’s Emergency Plan for AIDS Relief. These funds are used to control the epidemic through data-driven investments that strategically target geographic areas and population where the initiative can achieve the most impact for its investments. The majority of the funds ($3.4 billion) continue to be allocated to the Africa region where the HIV/AIDS epidemic is the most widespread. There was also made a $1.4 billion contribution to the Global Fund to Fight AIDS, Tuberculosis, and Malaria.

The 2019 IMET appropriation totaled $110.8 million. IMET is a key component of U.S. security assistance that promotes regional stability and defense capabilities through professional military training and education. IMET students from allied and friendly nations receive valuable training and education on U.S. military practices and standards. IMET is an effective mechanism for strengthening military alliances and international coalitions critical to the global fight against terrorism.

The INCLE appropriation for 2019 totaled $1.5 billion. INCLE supports the safety and security of the United States through bilateral, regional, and global programs that address and mitigate security threats posed by illicit trafficking in narcotics, persons, and wildlife, among other pernicious forms of transnational crime. INCLE programs assist U.S. partners in developing their criminal justice systems and capabilities in order to protect the national security and economic interests of the United States from the impact of crime and instability overseas. In 2019, many INCLE resources were focused where security situations are most dire, and where U.S. resources were used in tandem with host-country government strategies to maximize impact.

The 2019 IO&P appropriation totaled $339 million. It provided international organizations voluntary contributions that advanced U.S. strategic goals by supporting and enhancing international consultation and coordination. This approach is required in transnational areas where solutions to problems are best addressed globally, such as protecting the ozone layer or safeguarding international air traffic. In other areas, the United States can multiply its influence and effectiveness through support for international programs.

In 2019, the MRA appropriation totaled $3.4 billion, of which $1.4 billion was OCO and $2 billion was for core programs. These funds provided humanitarian assistance and resettlement opportunities for refugees and conflict victims around the globe. In 2019, MRA contributed to key multilateral organizations such as the UN High Commissioner for Refugees and the International Committee of the Red Cross, and to non-governmental organizations that address pressing humanitarian needs overseas and resettle refugees in the United States.

The NADR appropriation in 2019 totaled $864.6 million. NADR funding is used to support U.S. national interests through critical, security-related programs, especially in the areas of nonproliferation and disarmament, export control, and other border security assistance; global threat-reduction programs; antiterrorism programs; and conventional weapons destruction.

The PKO appropriation totaled $488.7 million, of which $325.2 million was OCO and $163.5 million supported core programs. PKO is used to support programs that bolster the capacity of partner nations to conduct critical peacekeeping and counterterrorism operations, support stabilization in countries grappling with violent conflict, enhance maritime security, and promote security sector reform. In 2019, the PKO program supported ongoing requirements for the Global Peace Operations Initiative, as well as multinational peacekeeping, security sector reform, and regional stability operations, particularly in Somalia.

The Department of State’s 2020 budget request for Foreign Assistance is currently under congressional consideration. The request is for $26.9 billion to support core programs.

DID YOU KNOW?

James Buchanan served as the 17th Secretary of State (1845-1849), Minister to Great Britain (1853-1856), and President (1857-1861).

More information on former Secretaries can be found at: https://history.state.gov/departmenthistory/people/secretaries

Resource Management Systems Summary

Other Information, Section III of this AFR, provides an overview of the Department’s current and future resource management systems framework and systems critical to effective agency-wide financial management operations, financial reporting, internal controls, and interagency administrative support cost sharing. This summary presents the Department’s resource management systems strategy and how it will improve financial and budget management across the agency. This overview also contains a synopsis of critical projects and remediation activities that are planned or currently underway. These projects are intended to modernize and consolidate Department resource management systems.

Limitation 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 U.S. Code Section 3515(b). While these statements have been prepared from the books and records of the Department in accordance with FASAB standards using OMB Circular A-136, Financial Reporting Requirements, revised, and other applicable authority, these statements are in addition to the financial reports, prepared from the same books and records, used to monitor and control the budgetary resources. These statements should be read with the understanding that they are for a component of the U.S. Government, a sovereign entity.

Management Assurances

The Department’s Management Control policy is comprehensive and requires all Department managers to establish cost-effective systems of management controls to ensure U.S. Government activities are managed effectively, efficiently, economically, and with integrity. All levels of management are responsible for ensuring adequate controls over all Department operations.

Federal Managers' Financial Integrity Act

The Department of State’s (the Department’s) management is responsible for managing risks and maintaining effective internal control to meet the objectives of Sections 2 and 4 of the Federal Managers’ Financial Integrity Act. The Department conducted its assessment of risk and internal control in accordance with OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control. Based on the results of the assessment, the Department can provide reasonable assurance that internal control over operations, reporting, and compliance was operating effectively as of September 30, 2019.

As a result of its inherent limitations, internal control over financial reporting, no matter how well designed, cannot provide absolute assurance of achieving financial reporting objectives and may not prevent or detect misstatements. Therefore, even if the internal control over financial reporting is determined to be effective, it can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Michael R. Pompeo
Secretary of State
January 17, 2020

Departmental Governance

Management Control Program

The Federal Managers’ Financial Integrity Act (FMFIA) requires the head of each agency to conduct an annual evaluation in accordance with prescribed guidelines, and provide a Statement of Assurance (SoA) to the President and Congress. As such, the Department’s management is responsible for managing risks and maintaining effective internal control.

The FMFIA requires the GAO to prescribe standards of internal control in the Federal Government. Commonly known as the Green Book, these standards provide the internal control framework and criteria Federal managers must use in designing, implementing, and operating an effective system of internal control. The Green Book defines internal control as a process effected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity are achieved. These objectives and related risks can be broadly classified into one or more of the following categories:

• Effectiveness and efficiency of operations,
• Compliance with applicable laws and regulations, and
• Reliability of reporting for internal and external use.

OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control provides implementation guidance to Federal managers on improving the accountability and effectiveness of Federal programs and operations by identifying and managing risks, establishing requirements to assess, correct, and report on the effectiveness of internal controls. OMB Circular A-123 implements the FMFIA and Green Book requirements. FMFIA also requires management to include assurance on whether the agency’s financial management systems comply with Government-wide requirements. The financial management systems requirements are directed by Section 803(a) of the FMFIA and Appendix D to OMB Circular A-123, Compliance with the Federal Financial Management Improvement Act of 1996. The 2019 results are discussed in the section titled “Federal Financial Management Improvement Act.”

The Secretary of State’s 2019 Statement of Assurance for FMFIA is provided above. We have also provided a Summary of Financial Statement Audits and Management Assurances as required by OMB Circular A-136, Financial Reporting Requirements, revised, in the Other Information section of this report. In addition, there are no individual areas for the Department currently on GAO’s bi-annual High-Risk List.

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The Department’s Management Control Steering Committee (MCSC) oversees the Department’s management control program. The MCSC is chaired by the Comptroller, and is comprised of eight Assistant Secretaries, in addition to the Chief Information Officer, the Deputy Comptroller, the Deputy Legal Adviser, the Director for the Office of Budget and Planning, the Director for Human Resources, the Director for Management Policy, Rightsizing, and Innovation, the Director for the Office of Overseas Buildings Operations, and the Inspector General (non-voting). Individual SoAs from Ambassadors assigned overseas and Assistant Secretaries in Washington, D.C. serve as the primary basis for the Department’s FMFIA SoA issued by the Secretary. The SoAs are based on information gathered from various sources including managers’ personal knowledge of day-to-day operations and existing controls, management program reviews, and other management-initiated evaluations. In addition, the Office of Inspector General, the Special Inspector General for Afghanistan Reconstruction, and the Government Accountability Office conduct reviews, audits, inspections, and investigations that are considered by management.

The Senior Assessment Team (SAT) provided oversight during 2019 for the internal controls over reporting program in place to meet Appendix A to OMB Circular A-123 requirements. The SAT reports to the MCSC and is comprised of 15 senior executives from bureaus that have significant responsibilities relative to the Department’s financial resources, processes, and reporting. The SAT also includes executives from the Office of the Legal Adviser and the Office of Inspector General (non-voting). The Department employs a risk-based approach in evaluating internal controls over reporting on a multi-year rotating basis, which has proven to be efficient. Due to the broad knowledge of management involved with the Appendix A assessment, along with the extensive work performed by the Office of Management Controls, the Department evaluated issues on a detailed level.

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The Department’s management controls program is designed to ensure full compliance with the goals, objectives, and requirements of the FMFIA and various Federal laws and regulations. To that end, the Department has dedicated considerable resources to administer a successful management control program. The Department’s Office of Management Controls employs an integrated process to perform the work necessary to meet the requirements of OMB Circular A-123’s Appendix A and Appendix C (regarding Payment Integrity), the FMFIA, and the GAO’s Green Book. Green Book requirements directly relate to testing entity-level controls, which is a primary step in operating an effective system of internal control. Entity-level controls reside in the control environment, risk assessment, control activities, information and communication, and monitoring components of internal control in the Green Book, which are further required to be analyzed by 17 underlying principles of internal control. For the Department, all five components and 17 principles were operating effectively and supported the Department’s FY 2019 unmodified Statement of Assurance. The 2019 Appendix A assessment did not identify any material weaknesses in the design or operation of the internal control over reporting. The assessment did identify several significant deficiencies in internal control over financial reporting that management is closely monitoring. The Department complied with the requirements in OMB Circular A-123 during 2019 while working to evolve our existing internal control framework to be more value-added and provide for stronger risk management for the purpose of improving mission delivery.

The Department also places emphasis on the importance of continuous monitoring. It is the Department’s policy that any organization with a material weakness or significant deficiency must prepare and implement a corrective action plan to fix the weakness. The plan combined with the individual SoAs and Appendix A assessments provide the framework for monitoring and improving the Department’s management controls on a continuous basis. Management will continue to direct and focus efforts to resolve significant deficiencies in internal control identified by management and auditors.

During 2019, the Department continued to take important steps to transform how the Department is implementing an Enterprise Risk Management (ERM) System. A principal element is to integrate better risk management into our everyday work across all of our operations. The Department’s Office of Management Policy, Rightsizing, and Innovation (M/PRI) leads the Department’s ERM implementation by supporting the Department’s Enterprise Governance Board. The Under Secretary for Management chairs the Board, and membership includes all six Under Secretaries and six advisory members. M/PRI also expanded membership in the ERM working group that collectively contributed toward developing policies and in updating the Department’s risk profile. M/PRI developed a Departmental governance structure for ERM, enterprise risk criteria for use in improving the risk profile, completed an analysis of the strategic plan and its relation to the risk profile, and made other improvements to the process including a full implementation timeline.

Federal Financial Management Improvement Act

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires that Federal agencies’ financial management systems provide reliable financial data that complies with Federal financial management system requirements, applicable Federal accounting standards, and the U.S. Government Standard General Ledger (USSGL) at the transaction level.

OMB Circular A-123, Appendix D, Compliance with the Federal Financial Management Improvement Act of 1996, provides guidance the Department used in determining compliance with FFMIA. The Department considered results of OIG and GAO audit reports, annual financial statement audits, the Department’s annual Federal Information Security Modernization Act Report, and other relevant information. The Department’s assessment also relies upon evaluations and assurances under the Federal Managers’ Financial Integrity Act of 1982 (FMFIA), including assessments performed to meet the requirements of OMB Circular A-123 Appendix A. When applicable, particular importance is given to any reported material weakness and material non-conformance identified during these internal control assessments. The Department has made it a priority to meet the objectives of the FFMIA.

In its Report on Compliance and Other Matters, the Independent Auditor identified instances of substantial noncompliance with Federal financial management systems requirements. The Department acknowledges that the Independent Auditor has noted certain weaknesses in our financial management systems. OMB’s Appendix D provides a revised compliance model that entails a risk-and outcome-based approach to assess FFMIA compliance. In our assessments and evaluations, the Department identified similar weaknesses. However, applying the guidance and the assessment framework noted in Appendix D to OMB Circular A-123, the Department considers them deficiencies versus substantial non-conformances relative to substantial compliance with the requirements of the FFMIA. Nonetheless, the Department is committed to continuing to work to address all identified financial management system deficiencies.

Federal Information Security Modernization Act

The Federal Information Security Modernization Act of 2014 (FISMA) requires Federal agencies to develop, document, and implement an agency-wide program to protect government information and information systems that support the operations and assets of the agency. FISMA authorized the Department of Homeland Security (DHS) to take a leadership and oversight role in this effort, created cyber breach notification requirements, and modified the scope of reportable information from primarily policies and financial information to specific information about threats, security incidents, and compliance with security requirements.

The Department of State remains committed to adopting the best cybersecurity practices and embedding them into the agency’s culture. As a result, the agency continues to improve its cybersecurity posture and provide transparency internally and with external partners in other Federal agencies.

In 2019, OMB and DHS used the core areas of the National Institute of Standards and Technology Cybersecurity Framework to assess cybersecurity capabilities and compliance and concluded that overall, the Department improved its security posture to actively “managing” cybersecurity risk.

The October 2019 FISMA audit of the Department recognized the agency’s progress in maturing the information security program in two of the five core areas of the Cybersecurity Framework. The OIG also recommended 1) to ensure an accurate, comprehensive inventory of systems and associated components; and 2) to fully define and implement an information security architecture. The actions that the Department undertook in 2019 are based on the premise that cybersecurity is an ongoing effort that requires agility to respond to ever evolving threats and the mission needs. To that end, the Department accomplished the following:

• Updated the Agency Cyber Risk Management Strategy and implemented several initiatives to assess areas of need and prioritize resource allocations. These initiatives include the development of a mission risk assessment process; completion of a bureau-level cyber risk assessment pilot and an accompanying report; development of a bureau-level cyber performance scorecard and an executive risk decision support guide; and launch of a second bureau-level risk assessment pilot.
• Developed a high-value assets (HVA) strategy to expand the agency’s ability to identify and monitor risks and to better align with secure architecture in response to the DHS’s Binding Operational Directive 18-02 that governs the HVA management. Furthermore, the Department increased oversight and prioritization of critical and high vulnerability remediation of HVAs. The agency also developed a three-year assessment schedule to ensure the secure operation of its HVAs.
• Worked steadily to streamline inventory processes, validate existing data, and develop a common framework for categorizing and reporting assets. A number of ongoing efforts aim to further enhance the agency’s ability to ensure an accurate and up-to-date inventory including: (1) The DHS’s Continuous Diagnostics and Mitigation (CDM) assessment that will provide the Department a baseline of software, hardware, and systems by 2021. The CDM program will enhance government network security through the automated control testing and progress tracking; (2) defining and improving the security architecture that will serve as a framework to link business drivers with operational security and technical controls to protect assets and functionality; and (3) strengthening the governance process to ensure information technology assets are accounted for throughout the IT life-cycle.
• Continued to reduce the backlog of systems operating without a valid authorization to operate (ATO). In the fourth quarter of 2019, the Department reported 78 percent of its systems as authorized to operate, compared to 21 percent in the third quarter of 2017. This steady improvement is due to several factors, including the continued use of risk-based prioritization to triage the backlog. In 2019, the Department granted authorization to several FedRAMP-approved cloud systems that will serve as enterprise offerings for use across the agency such as ServiceNow, Office365, and Microsoft Azure. The expectation is that on-premise and custom applications will migrate to the new enterprise cloud solutions and reduce the number of systems that the agency personnel must manage. In the meantime, the Department continues to identify and assess common controls from on-premise services and cloud service providers to reduce the overall number of security controls that must be assessed and maintained. Efforts to mature the use of Xacta, the Governance Risk and Compliance automated tool, are ongoing. Underway is the pilot of Xacta Compliance Campaign Manager – a module that helps system owners answer non-technical controls. Xacta Continuum, a module that supports continuous monitoring of technical controls, is also in the testing phase. With the deployment of these two modules the Department will move a step closer towards an ongoing authorization approach compared to the previous three-year ATO cycle.
• Deployed the ISSO Dashboard for system logs to most U.S. missions overseas and some domestic sites. This web-based interface provides information system security officers (ISSOs) the capability to continuously monitor the network for anomalies, such as failed login attempts, application crashes, software and service installations, remote desktop activity, account usage, event logs cleared, and system or service failures in the pane of a customizable dashboard.

The Department of States’ steady, proactive efforts to enhance the information security program reflect an enduring recognition that securing and protecting cyber assets is an ongoing multi-year effort, with no finish line.

Digital Accountability and Transparency Act

The Digital Accountability and Transparency Act (DATA Act) of 2014’s purpose was to make information related to Federal expenditures more easily accessible and transparent. In doing so, the Federal Government gave citizens, Congress, and others unprecedented public access to structured information about spending and opened up new horizons for oversight, accountability, activism, and innovation. The law required the U.S. Department of the Treasury to establish common standards for financial data provided by all Government agencies. At the same time, other collaborative efforts were underway with regard to how these elements would be displayed and made available to the public through the website USASpending.gov . Ultimately, the goal of the law is to improve the ability of Americans to track and understand how the government is spending their tax dollars. It is also the first step in a larger and longer effort for agencies to use data as a resource to transform the way that leadership manages and governs the agencies.

The Department has made considerable progress in complying with the DATA Act. Because of the extensive global presence of the Department, with more than 270 embassies, consulates, and other posts in over 180 countries, the Department faces challenges in consolidating data originating from around the world. This challenge also requires communication between multiple systems. To satisfy the requirements of the DATA Act, the Department made substantial progress in transitioning the Global Financial Management System data warehouse into a Global Business Intelligence solution. This effort includes upgrading its supporting infrastructure. This solution will be the single source for meeting internal and external financial reporting requirements for the Department.

The Department developed and implemented a comprehensive data quality plan during 2019. Strong internal controls were in place while the Department continued working to refine processes to accurately record and validate 57 standardized data elements, capturing Procurement Instrument Identifiers and Federal Award Identification Numbers, and expanding infrastructure to unite data elements from multiple systems. Quarterly certifications of the Department’s transactions were submitted timely to OMB, with data quality audit results showing consistent improvement. Extensive other internal controls were established including weekly reconciliations to identify actions that were recorded in the Department’s Global Financial Manage­ment System but did not have a matching action in the Federal Procurement Data System. Weekly meetings between personnel dedicated to DATA Act development and the Administration bureau take place to routinely discuss issues and opportunities for improvement. The Department reports financial and payment information to the public using USASpending.gov , and continues to work to achieve 100 percent accuracy of this data submitted from all around the world. The Department knows it needs to improve reporting of data for our overseas operations and will continue to make these improvements, while continuing to ensure the rigor and accountability over the expenditure of Department and taxpayer dollars.

Other Regulatory Requirements

The Department is required to comply with a number of other legal and regulatory financial requirements, including the Improper Payment Information Act (IPIA, as amended), the Debt Collection Improvement Act, and the Prompt Payment Act. The Department determined that none of its programs are risk-susceptible for making significant improper payments at or above the threshold levels set by OMB. In addition, the Department does not refer a substantial amount of debts to Treasury for collection, and has successfully paid vendors timely over 97 percent of the time for the past three fiscal years. A detailed description of these compliance results and improvements is presented in the Other Information section of this report.