Section Table of Contents
- Message from the Comptroller
- Independent Auditor’s Report
- Financial Statements, Notes, and Required Supplementary Information
The fiscal year (FY) 2021 Agency Financial Report (AFR) reflects the Department of State’s steadfast commitment to deliver the highest standard of financial accountability and transparency to the American people. The FY 2021 financial statements demonstrate the care taken to manage the finite resources entrusted to the Department to lead America’s global diplomatic and development efforts. The AFR is our principal financial report to the President, Congress, and the American people. The theme of this year’s AFR, Foreign Policy for the American People, underscores the importance of the last of these relationships. We value our role in providing this accountability to the American people, and we take pride in knowing strong financial stewardship furthers the Department’s essential foreign policy mission. We understand the importance of our stewardship responsibilities and the information contained in this AFR represents the diligence and dedication of the Department’s professionals around the world.
The Department operates in more than 270 embassies and consulates around the world. We conduct business on a 24/7 basis in over 135 currencies; account for more than $80 billion in budgetary resources and nearly $112 billion in assets in over 500 separate fiscal accounts; and manage real and personal property assets with historical costs of more than $42 billion. We provide the shared administrative operating platform for more than 45 other U.S. Government entities overseas; and pay more than 100,000 Foreign and Civil Service, Locally Employed Staff, and Foreign Service annuitants. The Department in 2021 continued to confront the challenges of the global pandemic affecting our operations. The partnerships, innovation, and amazing resilience across the Department’s management platform allowed us to continue delivering programs and services while maintaining strong financial management controls.
We continue to implement vital investments in transformative financial systems and operations to improve our global financial operations, reporting, and compliance. These investments provide a cost-effective enterprise-wide financial framework able to generate accurate and timely financial data. Further use of data as a resource, enterprise system integration, and robotic process automation will drive State’s ongoing transformational efforts in ways that improve accountability, improve performance, and foster data-informed decision making. Our support of these efforts, together with our need to be responsible stewards of data, requires that we continuously enhance our financial systems and data. To that end, as required by the Digital Accountability and Transparency Act of 2014 (DATA Act), the Department reports financial and payment information on the Department’s spending to the public using USASpending.gov, and continues to work to achieve 100 percent accuracy of this data. Our ISO 9001 certified operations and Capability Maturity Model Integration (CMMI) standard for financial systems development help us deliver quality financial services. These quality management programs allow us to continuously improve our services and drive new automation and efficiencies into mission furthering support services.
We know strong and effective internal controls are fundamental to our success, and we embrace our Department-wide leadership role in promoting them. We are pleased to report that the Department maintains a comprehensive, sound internal controls system, which is validated by senior leadership. For 2021, no material weaknesses in internal controls were identified by the Senior Assessment Team or the Management Control Steering Committee. As a result, the Secretary was able to provide reasonable assurance on the effectiveness of the Department’s internal controls in accordance with the Federal Managers’ Financial Integrity Act (FMFIA). The Secretary also provided assurance that the Department’s financial systems were in substantial compliance with the Federal Financial Management Improvement Act (FFMIA). As highlighted in the AFR, the Department does not have any programs at risk for making significant improper payments. We continuously conduct payment risk assessments and recapture audits, as well as verifications against Treasury’s Do Not Pay databases. In its most recent annual assessment, the OIG found the Department’s improper payments program to be in compliance with the Payment Integrity Information Act (PIIA). Finally, I am pleased to report the Association of Government Accountants again awarded the Department the prestigious Certificate of Excellence in Accountability Reporting in recognition of the exceptional quality of our 2020 AFR.
The annual independent audit is another essential element of our commitment to strong corporate governance and effective internal controls. The audited Financial Statements in the following pages represent the culmination of a rigorous process with our partners: the Office of the Inspector General (OIG) and the independent auditor, Kearney & Company. Given the financial complexities and unpredictability of the global operating environment in 2021, there are always opportunities to improve, challenges to address, and issues that require further clarification as we meet Government-wide compliance and accounting standards.
For 2021, the Department received an unmodified (“clean”) audit opinion on its 2021 and 2020 financial statements, with no material weaknesses in internal controls over financial reporting identified by the Independent Auditor. This result is gratifying, and I congratulate the Department’s outstanding team of professionals around the world and in the Bureau of the Comptroller and Global Financial Services. We, nonetheless, recognize there are several items noted in the independent auditor’s report that require our additional focus. I am confident the Department’s financial management team will address these identified matters and continue to deliver for the American people.
Sincerely,
Jeffrey C. Mounts
Comptroller
November 15, 2021
November 15, 2021
UNCLASSIFIED
FROM: | OIG – Diana R. Shaw ![]() |
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SUBJECT: | Independent Auditor’s Report on the U.S. Department of State FY 2021 and FY 2020 Financial Statements (AUD-FM-22-10) |
An independent external auditor, Kearney & Company, P.C., was engaged to audit the financial statements of the U.S. Department of State (Department) as of September 30, 2021 and 2020, and for the years then ended; to provide a report on internal control over financial reporting; to report on whether the Department’s financial management systems substantially complied with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA); and to report any reportable noncompliance with laws, regulations, contracts, and grant agreements it tested. The contract required that the audit be performed in accordance with auditing standards generally accepted in the United States of America and Office of Management and Budget audit guidance.
In its audit of the Department’s FY 2021 and FY 2020 financial statements, Kearney & Company found
Kearney & Company is responsible for the attached auditor’s report, which includes the Independent Auditor’s Report; the Report on Internal Control Over Financial Reporting; and the Report on Compliance With Laws, Regulations, Contracts, and Grant Agreements, dated November 15, 2021; and the conclusions expressed in the report. The Office of Inspector General (OIG) does not express an opinion on the Department’s financial statements or conclusions on internal control over financial reporting and compliance with laws, regulations, contracts, and grant agreements, including whether the Department’s financial management systems substantially complied with FFMIA.
The Bureau of the Comptroller and Global Financial Services’ response is reprinted in its entirety as an appendix to the auditor’s report.
OIG appreciates the cooperation extended to it and Kearney & Company by Department managers and staff during the conduct of this audit.
Attachment: As stated
1 A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. (back to text)
2 A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. (back to text)
Office of Inspector General | U.S. Department of State | 1700 North Moore Street | Arlington, Virginia 22209
UNCLASSIFIED
INDEPENDENT AUDITOR’S REPORT
AUD-FM-22-10
To the Secretary of the U.S. Department of State and the Acting Inspector General
We have audited the accompanying financial statements of the U.S. Department of State (Department), which comprise the consolidated balance sheets as of September 30, 2021 and 2020; the related consolidated statements of net cost and changes in net position and the combined statements of budgetary resources for the years then ended; and the related notes to the financial statements.
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for preparing, measuring, and presenting the required supplementary information in accordance with accounting principles generally accepted in the United States of America; preparing and presenting other information included in documents containing the audited financial statements and auditor’s report; and ensuring the consistency of that information with the audited financial statements and the required supplementary information.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 21-04, “Audit Requirements for Federal Financial Statements.” Those standards and OMB Bulletin No. 21-04 require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit of financial statements involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit of financial statements also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Department as of September 30, 2021 and 2020, and its net cost of operations, changes in net position, and budgetary resources for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, Combining Statement of Budgetary Resources, Condition of Heritage Assets, and Deferred Maintenance and Repairs (hereinafter referred to as “required supplementary information”) be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by OMB Circular A-136, “Financial Reporting Requirements,” and the Federal Accounting Standards Advisory Board, which consider the information to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of making inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the financial statements, and other knowledge we obtained during our audits of the financial statements. We did not audit and we do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The information in the Introduction, Message from the Secretary, Message from the Comptroller, Section III: Other Information, and Appendices as listed in the Table of Contents of the Department’s Agency Financial Report (also known as “other information”), is presented for purposes of additional analysis and is not a required part of the financial statements or the required supplementary information. We read the other information included in the Agency Financial Report to identify material inconsistencies, if any, with the audited financial statements. We did not audit and do not express an opinion or provide any assurance on the other information.
In accordance with Government Auditing Standards and OMB Bulletin No. 21-04, we have also issued reports, dated November 15, 2021, on our consideration of the Department’s internal control over financial reporting and on our tests of the Department’s compliance with certain provisions of applicable laws, regulations, contracts, and grant agreements for the year ended September 30, 2021. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and OMB Bulletin No. 21-04 and should be considered in assessing the results of our audits.
Alexandria, Virginia
November 15, 2021
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Secretary of the U.S. Department of State and the Acting Inspector General
We have audited, in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 21-04, “Audit Requirements for Federal Financial Statements,” the financial statements and the related notes to the financial statements of the U.S. Department of State (Department) as of and for the year ended September 30, 2021, and we have issued our report thereon dated November 15, 2021.
In planning and performing our audit of the financial statements, we considered the Department’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Department’s internal control. We limited our internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin No. 21-04. We did not test all internal controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982,1 such as those controls relevant to ensuring efficient operations.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We identified certain deficiencies in internal control, described below, as items that we consider to be significant deficiencies.
The Department reported more than $27 billion in net property and equipment on its FY 2021 consolidated balance sheet. Real and leased property consisted primarily of residential and functional facilities and capital improvements to these facilities. Personal property consisted of several asset categories, including aircraft, vehicles, security equipment, communication equipment, and software. Weaknesses in property and equipment were initially reported in the report related to the audit of the Department’s FY 2005 financial statements and subsequent audit reports. In FY 2021, the Department’s internal control structure continued to exhibit several deficiencies that negatively affected the Department’s ability to account for real and personal property in a complete, accurate, and timely manner. We concluded that the combination of property-related control deficiencies was a significant deficiency. The individual deficiencies we identified are summarized as follows:
The Department lacked sufficient reliable funds control over its accounting and business processes to ensure budgetary transactions were properly recorded, monitored, and reported. Beginning in our report on the Department’s FY 2010 financial statements, we identified budgetary accounting as a significant deficiency. During FY 2021, the audit continued to identify control limitations, and we concluded that the combination of control deficiencies remained a significant deficiency. The individual deficiencies we identified are summarized as follows:
Unliquidated obligations (ULO) represent the cumulative amount of orders, contracts, and other binding agreements for which the goods and services that were ordered have not been received or the goods and services have been received but payment has not yet been made. The Department’s policies and procedures provide guidance that requires allotment holders to perform at least monthly reviews of ULOs. Weaknesses in controls over ULOs were initially reported during the audit of the Department’s FY 1997 financial statements. We continued to identify a significant number and amount of invalid ULOs based on expired periods of performance, inactivity, lack of supporting documentation, and the inability to support bona fide need.
Additionally, in August 2021, the Department evacuated Embassy Kabul, Afghanistan, based on security concerns. At the time of evacuation, the Department reported a significant amount in open obligations related to the Department’s mission in Afghanistan. Because the Department suspended operations in Afghanistan, there was an increased risk that there was no longer a bona fide need for some of the obligations. We identified a significant number and amount of invalid ULOs related to Afghanistan, based on inquiries with Department officials and supporting documentation regarding the impact of the withdrawal on the continuing bona fide need for the ULOs.
Although the Department takes steps to remediate long-standing ULO validity issues through its annual ULO review, the scope of the review does not include all ULOs. Overseas ULOs and domestic ULOs that do not meet the annual domestic review categories established by the Department continue to be a risk for invalidity. Furthermore, not all allotment holders were performing periodic reviews of ULO balances as required. Finally, the Department did not develop and implement a process to assess how an extraordinary event, such as an evacuation of a large post, impacted financial reporting related to ULOs. As a result of the invalid ULOs that were identified by our audit, the Department adjusted its FY 2021 financial statements. In addition, funds that could have been used for other purposes may have remained open as invalid ULOs, and the risk of duplicate or fraudulent payments increased.
Weaknesses in controls over financial reporting were initially reported during the audit of the Department’s FY 2019 financial statements. During FY 2021, the audit continued to identify control limitations, and we concluded that financial reporting remained a significant deficiency.
In some cases, appropriated funds are required to be transferred to another agency for programmatic execution (referred to as “child funds”). Despite transferring these funds to another agency, the Department is required to report on the use and status of child funds in its financial statements. During FY 2021, the Department made significant child fund transfers to three agencies. To obtain audit coverage of the Department’s most significant child funds, we requested that the financial statements auditors of two of the three agencies perform certain audit steps. Those other auditors identified numerous invalid ULOs. We also requested detailed financial information from the third agency, which received a less significant amount of child funds from the Department. However, the third agency was not able to provide complete and accurate transaction-level data that reconciled to its trial balance data. Therefore, we were unable to validate the information provided. The Department did not have an effective, routine process to ensure that amounts reported by agencies receiving child funds were accurate. For example, the Department did not communicate effectively with child fund agencies to ensure that the validity of ULOs was reviewed periodically. In addition, the Department did not have a routine process to ensure that transaction-level details were readily available from the other agencies and were auditable. The Department adjusted its FY 2021 financial statements to correct the errors identified. However, without an effective process to accurately monitor child funds, there is a risk of errors in the Department’s future financial statements.
The Department’s information systems and electronic data depend on the confidentiality, integrity, and availability of the Department’s comprehensive and interconnected IT infrastructure using various technologies around the globe. Therefore, it is critical that the Department manage information security risks effectively throughout the organization. The Department uses several financial management systems to compile information for financial reporting purposes. The Department’s general support system, a component of its information security program, is the gateway for all the Department’s systems, including its financial management systems. Generally, control deficiencies noted in the information security program are inherited by the systems that reside in it.
On behalf of the Office of Inspector General, we performed an audit of the Department’s FY 2021 information security program, in accordance with the Federal Information Security Modernization Act of 2014 (FISMA).9 During that audit,10 we concluded that the Department did not have an effective organization-wide information security program. Specifically, we determined that eight of nine domains included in the “FY 2021 Inspector General Federal Information Security Modernization Act of 2014 (FISMA) Reporting Metrics, Version 1.1” were operating below an effective level. Some of the deficiencies identified that we determined had an impact on internal controls related to financial reporting were:
Without an effective information security program, the Department remains vulnerable to IT-centered attacks and threats to its critical mission-related functions. Information security program weaknesses can affect the integrity of financial applications, which increases the risk that sensitive financial information could be accessed by unauthorized individuals or that financial transactions could be altered, either accidentally or intentionally. Information security program weaknesses and deficiencies increase the risk that the Department will be unable to report financial data accurately.
We considered the weaknesses and deficiencies identified during the FISMA audit to be a significant deficiency within the scope of the FY 2021 financial statements audit. We have reported weaknesses and deficiencies in IT security controls as a significant deficiency in each audit since our audit of the Department’s FY 2009 financial statements.
During the audit, we noted certain additional matters involving internal control over financial reporting that we will report to Department management in a separate letter.
In the Independent Auditor’s Report on Internal Control Over Financial Reporting that was included in the audit report on the Department’s FY 2020 financial statements,13 we noted several issues that were related to internal control over financial reporting. The status of the FY 2020 internal control findings is summarized in Table 1.
Control Deficiency | FY 2021 Status | FY 2020 Status |
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Property and Equipment | Significant Deficiency | Significant Deficiency |
Budgetary Accounting | Significant Deficiency | Significant Deficiency |
Validity and Accuracy of Unliquidated Obligations | Significant Deficiency | Significant Deficiency |
Financial Reporting | Significant Deficiency | Significant Deficiency |
Information Technology | Significant Deficiency | Significant Deficiency |
The Department provided its response to our findings in a separate letter included in this report as Appendix A. We did not audit management’s response, and accordingly, we express no opinion on it.
The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the effectiveness of the Department’s internal control. This report is an integral part of an audit performed in accordance with Government Auditing Standards and OMB Bulletin No. 21-04 in considering the entity’s internal control over financial reporting. Accordingly, this report is not suitable for any other purpose.
Alexandria, Virginia
November 15, 2021
1 Federal Managers’ Financial Integrity Act of 1982, Pub. L. No. 97-255, 96 STAT 814 (September 8, 1982). (back to text)
2 The Department currently manages more than $6 billion in overseas construction projects. (back to text)
3 GSA-managed properties include those that are owned or leased by GSA. (back to text)
4 31 U.S. Code § 39, “Prompt Payment.” (back to text)
5 Antideficiency Act, Pub. L. No. 97-258, 96 STAT. 923 (September 13, 1982). (back to text)
6 Ibid. (back to text)
7 31 U.S. Code § 39. (back to text)
8 Pub. L. No. 97-258 (1982). (back to text)
9 Pub. L. No. 113-283, 128 STAT. 3079-3080 (December 18, 2014). (back to text)
10 Office of Inspector General, Audit of the Department of State FY 2021 Information Security Program (AUD-IT-22-06, October 2021). (back to text)
11 According to the National Institute of Standards and Technology (NIST), Special Publication (SP) 800-37, rev. 2, “Risk Management Framework (RMF) for Information Systems and Organizations,” December 2018, at 91, an authorization to operate is “the official management decision given by a senior Federal official or officials to authorize operation of an information system and to explicitly accept the risk to agency operations (including mission, functions, image, or reputation), agency assets, individuals, other organizations, and the Nation based on the implementation of an agreed-upon set of security and privacy controls.” (back to text)
12 NIST, SP 800-53, rev. 4, “Security and Privacy Controls for Information Systems and Organizations,” January 2015, at B-17, defines a privileged user as a “user that is authorized (and therefore, trusted) to perform security-relevant functions that ordinary users are not authorized to perform.” (back to text)
13 Office of Inspector General, Independent Auditor’s Report on the U.S. Department of State FY 2020 and FY 2019 Financial Statements (AUD-FM-21-08, November 2020). (back to text)
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH LAWS,
REGULATIONS, CONTRACTS, AND GRANT AGREEMENTS
To the Secretary of the U.S. Department of State and the Acting Inspector General
We have audited, in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 21-04, “Audit Requirements for Federal Financial Statements,” the financial statements and the related notes to the financial statements, of the U.S. Department of State (Department) as of and for the year ended September 30, 2021, and we have issued our report thereon dated November 15, 2021.
As part of obtaining reasonable assurance about whether the Department’s financial statements are free from material misstatement, we performed tests of the Department’s compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts, including the provisions referred to in Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA),1 that we determined were applicable. We limited our tests of compliance to these provisions and did not test compliance with all laws, regulations, contracts, and grant agreements applicable to the Department. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests, exclusive of those related to FFMIA, disclosed instances of noncompliance or potential noncompliance that are required to be reported under Government Auditing Standards and OMB Bulletin No. 21-04 and which are summarized as follows:
Under FFMIA,4 we are required to report whether the Department’s financial management systems substantially comply with Federal financial management systems requirements, applicable Federal accounting standards, and the U.S. Standard General Ledger (USSGL) at the transaction level. Although we did not identify any instances of substantial noncompliance with Federal accounting standards or with the application of the USSGL at the transaction level, we identified instances, when combined, in which the Department’s financial management systems and related controls did not comply substantially with certain Federal financial management system requirements.
Federal Financial Management Systems Requirements
The Department had not implemented and enforced systematic financial management controls to ensure substantial compliance with FFMIA. The Department’s ability to meet Federal financial management systems requirements was hindered by limitations in systems and processes. The Bureau of the Comptroller and Global Financial Services (CGFS) performed an analysis to assess the Department’s compliance with FFMIA but had not developed remediation plans to address instances of noncompliance. Although CGFS generally agreed with the deficiencies that we identified, CGFS did not conclude that the deficiencies rose to the level of substantial noncompliance. Since our FY 2009 audit, we have reported annually that the Department did not substantially comply with all requirements of FFMIA.
During the audit, we noted certain additional matters involving compliance that we will report to Department management in a separate letter.
The Department provided its response to our findings in a separate letter included in this report as Appendix A. We did not audit management’s response, and accordingly, we express no opinion on it.
The purpose of this report is solely to describe the scope of our testing of compliance with laws, regulations, contracts, and grant agreements and the results of that testing and not to provide an opinion on the effectiveness of the entity’s compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards and OMB Bulletin No. 21-04 in considering the entity’s compliance. Accordingly, this report is not suitable for any other purpose.
Alexandria, Virginia
November 15, 2021
1 Federal Financial Management Improvement Act of 1996, Pub. L. No. 104-208, 110 STAT. 3009 (September 30, 1996). (back to text)
2 Antideficiency Act, Pub. L. No. 97-258, 96 STAT. 923 (September 13, 1982). (back to text)
3 31 U.S. Code § 39, “Prompt Payment.” (back to text)
4 Pub. L. No. 104-208 (1996). (back to text)
5 Office of Inspector General, Audit of the Department of State FY 2021 Information Security Program (AUD-IT-22-06, October 2021). (back to text)
6 According to the National Institute of Standards and Technology (NIST), Special Publication (SP) 800-37, rev. 2, “Risk Management Framework (RMF) for Information Systems and Organizations,” December 2018, at 91, an authorization to operate is “the official management decision given by a senior Federal official or officials to authorize operation of an information system and to explicitly accept the risk to agency operations (including mission, functions, image, or reputation), agency assets, individuals, other organizations, and the Nation based on the implementation of an agreed-upon set of security and privacy controls.” (back to text)
7 NIST, SP 800-53, rev. 4, “Security and Privacy Controls for Information Systems and Organizations,” January 2015, at B-17, defines a privileged user as a “user that is authorized (and therefore, trusted) to perform security-relevant functions that ordinary users are not authorized to perform.” (back to text)
Appendix A
United States Department of State
Comptroller
Washington, D.C. 20520
November 14, 2021
To: | OIG – Diana Shaw, Deputy Inspector General |
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FROM: | CGFS – Jeffery C. Mounts, Comptroller ![]() |
SUBJECT: | Draft Report on the Department of State’s Fiscal Year 2021 Financial Statements |
This memo is in response to your request for comments on the Draft Report of the Independent Auditor’s Report on Internal Control Over Financial Reporting, and Report on Compliance with Applicable Provisions of Laws, Regulations, Contracts, and Grant Agreements.
As you are aware, the scale and complexity of Department activities and corresponding financial management operations and requirements are immense. The Department does business in more than 270 locations. The more than 180 countries in which we operate include some extraordinarily challenging environments. These factors are a backdrop as we work diligently to maintain and operate an efficient and transparent financial management platform in support of the Department’s and U.S. Government’s essential foreign affairs mission.
We value accountability in all we do, and the discipline of the annual external audit process and the issuance of the Department’s audited financial statements represents our commitment to this accountability to the American people. I’m sure that few outside the financial management community fully realize the time and effort that go into producing the audit and the Agency Financial Report (AFR). We may not agree on every aspect of the process and findings, however, we extend our sincere thanks for the commitment by all parties, including the OIG and Kearney & Company, to work together constructively and within a concentrated timeframe to complete the comprehensive audit process. We know there always will be new challenges and concerns given our global operating environment and scope of compliance requirements. The ongoing global pandemic and the suspension of embassy operations in Afghanistan have demanded especially dedicated and thoughtful effort this year by all stakeholders. I’m grateful for the resilience and flexibility demonstrated by all parties. The overall results of the audit reflect the continuous improvement and strong performance we strive to achieve in the Bureau of the Comptroller and Global Financial Services (CGFS) and across the Department’s financial management community.
We are pleased to learn the Independent Auditor’s Report concludes the Department has received an unmodified (“clean”) audit opinion on its FY 2020 and FY 2021 principal financial statements. Moreover, the audit reflects no material weaknesses.
We remain committed to strong corporate governance and internal controls as demonstrated by our robust system of internal controls. This framework is overseen by our Senior Assessment Team (SAT) and Management Control Steering Committee (MCSC), with senior leadership providing validation. We appreciate the OIG’s participation in both the SAT and MCSC discussions. For FY 2021, no material management control issues or material weaknesses in internal controls over financial reporting were identified by senior leadership. As a result, the Secretary was able to provide an unmodified Statement of Assurance for the Department’s overall internal controls and internal controls over financial reporting in accordance with the Federal Managers’ Financial Integrity Act.
We recognize there is more to be done, and the items identified in the Draft Report will demand additional action to achieve further improvement. We look forward to working with you, Kearney & Company, and other stakeholders addressing these issues in the coming year.
The Principal Financial Statements (Statements) have bee n prepared to report the financial position and results of operations of the U.S. Department of State (Department). The Statements have been prepared from the books and records of the Department in accordance with formats prescribed by the Office of Management and Budget (OMB) in OMB Circular A-136, Financial Reporting Requirements, revised. The Statements are in addition to financial reports prepared by the Department in accordance with OMB and U.S. Department of the Treasury (Treasury) directives to monitor and control the status and use of budgetary resources, which are prepared from the same books and records. The Statements should be read with the understanding that they are for a component of the U.S. Government, a sovereign entity. The Department has no authority to pay liabilities not covered by budgetary resources. Liquidation of such liabilities requires enactment of an appropriation. Comparative data for 2020 are included.
Unless otherwise designated all use of a year indicates fiscal year, e.g., 2021 equals Fiscal Year 2021.
The Consolidated Balance Sheet provides information on assets, liabilities, and net position similar to balance sheets reported in the private sector. Intra-departmental balances have been eliminated from the amounts presented.
The Consolidated Statement of Net Cost reports the components of the net costs of the Department’s operations for the period. The net cost of operations consists of the gross cost incurred by the Department less any exchange (i.e., earned) revenue from our activities. Intra-departmental balances have been eliminated from the amounts presented.
The Consolidated Statement of Changes in Net Position reports the beginning net position, the transactions that affect net position for the period, and the ending net position. The intra-departmental transactions are eliminated from the combined total amounts presented.
The Combined Statement of Budgetary Resources provides information on how budgetary resources were made available and their status at the end of the year. Information in this statement is reported on the budgetary basis of accounting. Intra-departmental transactions have not been eliminated from the amounts presented.
Required Supplementary Information contains a Combining Statement of Budgetary Resources, the condition of heritage assets held by the Department, and information on deferred maintenance and repairs. The Combining Statement of Budgetary Resources provides additional information on amounts presented in the Combined Statement of Budgetary Resources.
As of September 30, | Notes | 2021 | 2020 |
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ASSETS |
|||
Intragovernmental: | |||
Fund Balance with Treasury | 2 | $60,779 | $59,653 |
Investments | 3 | 20,562 | 20,191 |
Accounts Receivable, Net | 4 | 75 | 110 |
Advances and Prepayments | 7 | 1,782 | 1,847 |
Total Intragovernmental | 83,198 | 81,801 | |
With the Public: | |||
Cash and Other Monetary Assets | 5 | 265 | 241 |
Accounts Receivable, Net | 4 | 112 | 119 |
General Property and Equipment, Net | 6 | 27,297 | 26,305 |
Advances and Prepayments | 7 | 963 | 1,245 |
Other Assets | |||
Inventory and Related Property, Net | 14 | 21 | |
Loans Receivable, Net | 3 | 6 | |
Total With the Public | 28,654 | 27,937 | |
Total Assets | $111,852 | $109,738 | |
Stewardship Property and Equipment – Heritage Assets | 6 | ||
LIABILITIES | |||
Intragovernmental: | |||
Accounts Payable | $207 | $151 | |
Advances from Others and Deferred Revenue | 315 | 293 | |
Other | 8 | 73 | 68 |
Total Intragovernmental | 595 | 512 | |
With the Public: | |||
Accounts Payable | |||
International Organizations Liability | 10 | 821 | 259 |
Other Accounts Payable | 2,506 | 2,427 | |
Federal Employee and Veteran Benefits Payable | 9 | 29,223 | 26,690 |
Advances from Others and Deferred Revenue | 96 | 49 | |
Other Liabilities | |||
International Organizations Liability | 10 | 1,564 | 2,259 |
Environmental and Disposal Liability | 8 | 52 | 52 |
Other | 8,11 | 891 | 794 |
Total With the Public | 35,153 | 32,530 | |
Total Liabilities | 35,748 | 33,042 | |
Contingencies and Commitments | 12 | ||
NET POSITION | |||
Unexpended Appropriations – Funds from Dedicated Collections | 13 | 2 | (190) |
Unexpended Appropriations – Funds from Other Than Dedicated Collections | 45,967 | 47,107 | |
Total Unexpended Appropriations | 45,969 | 46,917 | |
Cumulative Results of Operations – Funds from Dedicated Collections | 13 | 2,197 | 2,772 |
Cumulative Results of Operations – Funds from Other Than Dedicated Collections | 27,938 | 27,007 | |
Total Cumulative Results of Operations | 30,135 | 29,779 | |
Total Net Position | 76,104 | 76,696 | |
Total Liabilities and Net Position | $111,852 | $109,738 |
The accompanying notes are an integral part of this financial statement.
The format of the Balance Sheet has changed to reflect more detail for certain line items, as required for all significant reporting entities by OMB Circular A-136. This change does not affect totals for assets, liabilities, or net position and is intended to allow readers of this Report to see how the amounts shown on the Balance Sheet are reflected on the Government-wide Balance Sheet, thereby supporting the preparation and audit of the Financial Report of the United States Government. The presentation of the fiscal year 2020 Balance Sheet was modified to be consistent with the fiscal year 2021 presentation.
For the Year Ended September 30, | 2021 | 2020 |
---|---|---|
SG1: Protect America’s Security at Home and Abroad | ||
Total Cost | $7,645 | $7,554 |
Earned Revenue | (1,977) | (1,864) |
Net Program Costs | 5,668 | 5,690 |
SG2: Renew America’s Competitive Advantage for Sustained Economic Growth and Job Creation | ||
Total Cost | 2,060 | 2,113 |
Earned Revenue | (110) | (92) |
Net Program Costs | 1,950 | 2,021 |
SG3: Promote American Leadership through Balanced Engagement | ||
Total Cost | 19,879 | 14,709 |
Earned Revenue | (84) | (68) |
Net Program Costs | 19,795 | 14,641 |
SG4: Ensure Effectiveness and Accountability to the American Taxpayer | ||
Total Cost | 14,306 | 13,961 |
Earned Revenue | (5,270) | (4,729) |
Net Program Costs Before Assumption Changes | 9,036 | 9,232 |
Actuarial Loss on Pension Assumption Changes (Notes 1 and 9) | 1,898 | 1,056 |
Net Program Costs | 10,934 | 10,288 |
Cost Not Assigned to Programs | ||
Total Cost | 25 | (1) |
Earned Revenue | (2) | (2) |
Net Costs | 23 | (3) |
Total Cost and Loss on Assumption Changes | 45,813 | 39,392 |
Total Revenue | (7,443) | (6,755) |
Total Net Cost | $38,370 | $32,637 |
The accompanying notes are an integral part of this financial statement.
For the Year Ended September 30, | 2021 | 2020 | |||
---|---|---|---|---|---|
Combined Funds From Dedicated Collections | Combined All Other Funds | Intra-Departmental Eliminations | Consolidated Total |
Consolidated Total |
|
Unexpended Appropriations | |||||
Beginning Balances | $83 | $46,834 | $— | $46,917 | $46,623 |
Appropriations Received | 300 | 38,352 | — | 38,652 | 33,457 |
Appropriations Transferred In(Out) | — | (22) | — | (22) | (71) |
Other Adjustments | — | (655) | — | (655) | (389) |
Appropriations Used | (381) | (38,542) | — | (38,923) | (32,703) |
Net Change in Unexpended Appropriations | (81) | (867) | — | (948) | 294 |
Total Unexpended Appropriations: Ending | 2 | 45,967 | — | 45,969 | 46,917 |
Cumulative Results of Operations | |||||
Beginning Balances | $2,117 | $27,662 | $— | $29,779 | $29,938 |
Appropriations Used | 381 | 38,542 | — | 38,923 | 32,703 |
Donations and Forfeitures of Cash and Cash Equivalents | 14 | — | — | 14 | 62 |
Transfers In(Out) Without Reimbursement | 217 | (226) | — | (9) | 63 |
Donations and Forfeitures of Property | — | 104 | — | 104 | — |
Imputed Financing | 54 | 316 | (174) | 196 | 186 |
Non-Entity Collections | — | (502) | — | (502) | (536) |
Net Cost of Operations | (1,091) | (37,453) | 174 | (38,370) | (32,637) |
Net Change in Cumulative Results of Operations | (425) | 781 | — | 356 | (159) |
Total Cumulative Results of Operations: Ending | 1,692 | 28,443 | — | 30,135 | 29,779 |
Net Position | $1,694 | $74,410 | $— | $76,104 | $76,696 |
The accompanying notes are an integral part of this financial statement.
For the Year Ended September 30, | 2021 | 2020 |
---|---|---|
Budgetary Resources: | ||
Unobligated Balance from Prior Year Budget Authority, Net | $29,890 | $32,742 |
Appropriations (Discretionary and Mandatory) | 41,445 | 36,384 |
Borrowing Authority (Discretionary and Mandatory) | 2 | 3 |
Spending Authority from Offsetting Collections (Discretionary and Mandatory) | 8,750 | 7,974 |
Total Budgetary Resources | $80,087 | $77,103 |
Status of Budgetary Resources: | ||
New Obligations and Upward Adjustments (Total) | $50,656 | $49,157 |
Unobligated Balance, End of Year: | ||
Apportioned, Unexpired Accounts | 27,891 | 26,542 |
Exempt from Apportionment, Unexpired Accounts | 148 | 49 |
Unapportioned, Unexpired Accounts | 367 | 152 |
Unexpired Unobligated Balance, End of Year | 28,406 | 26,743 |
Expired Unobligated Balance, End of Year | 1,025 | 1,203 |
Unobligated Balance, End of Year (Total) | 29,431 | 27,946 |
Total Budgetary Resources | $80,087 | $77,103 |
Outlays, Net: | ||
Outlays, Net (Total) (Discretionary and Mandatory) | 40,239 | 37,680 |
Distributed Offsetting Receipts (-) | (2,672) | (2,877) |
Agency Outlays, Net (Discretionary and Mandatory) | $37,567 | $34,803 |
The accompanying notes are an integral part of this financial statement.
Congress established the U.S. Department of State (Department of State or Department), the senior Executive Branch department of the United States Government in 1789. The Department advises the President in the formulation and execution of U.S. foreign policy. The head of the Department, the Secretary of State, is the President’s principal advisor on foreign affairs.
View the 20 notes to the principal financial statements.
Administration of Foreign Affairs |
International Organizations | International Commissions | Foreign Assistance | Other | Total | |
---|---|---|---|---|---|---|
Budgetary Resources: | ||||||
Unobligated Balance from Prior Year Budget Authority, Net | $16,797 | $869 | $160 | $1,528 | $10,536 | $29,890 |
Appropriations (Discretionary and Mandatory) | 16,344 | 2,962 | 180 | 2,257 | 19,702 | 41,445 |
Borrowing Authority (Discretionary and Mandatory) | 2 | — | — | — | — | 2 |
Spending Authority from Offsetting Collections (Discretionary and Mandatory) | 8,660 | — | 11 | 50 | 29 | 8,750 |
Total Budgetary Resources | $41,803 | $3,831 | $351 | $3,835 | $30,267 | $80,087 |
Status of Budgetary Resources: | ||||||
New Obligations and Upward Adjustments (Total) | $26,594 | $3,706 | $177 | $1,912 | $18,267 | $50,656 |
Unobligated Balance, End of Year: | ||||||
Apportioned, Unexpired Accounts | 14,251 | 92 | 169 | 1,813 | 11,566 | 27,891 |
Exempt from Apportionment, Unexpired Accounts | 145 | — | — | — | 3 | 148 |
Unapportioned, Unexpired Accounts | 200 | 6 | 1 | — | 160 | 367 |
Unexpired Unobligated Balance, End of Year | 14,596 | 98 | 170 | 1,813 | 11,729 | 28,406 |
Expired Unobligated Balance, End of Year | 613 | 27 | 4 | 110 | 271 | 1,025 |
Unobligated Balance, End of Year (Total) | 15,209 | 125 | 174 | 1,923 | 12,000 | 29,431 |
Total Budgetary Resources | $41,803 | $3,831 | $351 | $3,835 | $30,267 | $80,087 |
Outlays, Net: | ||||||
Outlays, Net (Total) (Discretionary and Mandatory) | 16,200 | 3,126 | 135 | 1,599 | 19,179 | 40,239 |
Distributed Offsetting Receipts (-) | (2,672) | — | — | — | — | (2,672) |
Agency Outlays, Net (Discretionary and Mandatory) | $13,528 | $3,126 | $135 | $1,599 | $19,179 | $37,567 |
The condition of the Department’s heritage assets is based on professional conservation standards. The Department performs periodic condition surveys to ensure heritage assets are documented and preserved for future generations. Once these objects are conserved, regular follow-up inspections and periodic maintenance treatments are essential for their preservation. The categories of condition are Poor, Good, and Excellent.
Category | Number of Assets | Condition |
---|---|---|
Diplomatic Reception Rooms Collection | 1,833 | Good to Excellent |
Art Bank Program | 2,685 | Poor to Excellent |
Art in Embassies Program | 1,281 | Good to Excellent |
Cultural Heritage Collection | 19,732 | Good to Excellent |
Library Rare & Special Book Collection | 1,378 | Poor to Good |
Secretary of State’s Register of Culturally Significant Property | 38 | Poor to Excellent |
National Museum of American Diplomacy | 7,012 | Good to Excellent |
Blair House | 2,599 | Good to Excellent |
International Boundary and Water Commission | 140 | Poor to Good |
Deferred Maintenance and Repairs (DM&R) are maintenance and repairs that were not performed when they should have been, that were scheduled and not performed, or that were delayed for a future period. Maintenance and repairs are activities directed towards keeping General Property and Equipment in acceptable operating condition. These activities include preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it can deliver acceptable performance and achieve its expected life. Maintenance and repairs exclude activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater, than those originally intended. The Department occupies more than 8,500 Government-owned or long-term leased real properties at more than 270 overseas locations, numerous domestic locations, and at the IBWC.
The methodology for calculating DM&R is based on the Facility Condition Index (FCI). This methodology accounts for all facilities globally without the reliance on a response through a manual data call process, allowing for a more complete DM&R estimate. FCI is the ratio of repair needs to the replacement value of a facility as calculated by:
Repair need is defined as the non-recurring costs that reflect the amount necessary to ensure that a constructed asset is restored to a condition substantially equivalent to the originally intended and designed capacity, efficiency, or capability.
In accordance with the Federal Real Property Portfolio definition of repair need, the Department uses repair needs identified by overseas facilities managers. Since this process does not identity repair need costs for all 8,500+ properties, the Department also uses parametric modeling to supplement these results. Based on the ages and expected useful life of individual systems and documented FCI results, the FCI parametric model uses deterioration curves to reflect how systems deteriorate over time.
Replacement value is defined as the cost to design, acquire, and construct an asset to replace an existing asset of the same functionality, size, and in the same location using current costs, building codes and standards. Neither the current condition of the asset nor the future need for the asset is a factor in the replacement value estimate. The Department uses construction “unit rates” determined by its Office of Cost Management for each property use code recorded in its Real Property Application. The Department multiplies these unit rates by the size of each property to determine replacement values.
Deferred Maintenance & Repairs are based on the FCI. An FCI score of 100 percent indicates a facility that is in a condition substantially equivalent to the originally intended and designed capacity, efficiency, or capability. Statements of Federal Financial Accounting Standards (SFFAS) No. 42 defines maintenance and repairs as activities directed toward keeping fixed assets in an “acceptable condition” and specifies management should determine which methods to apply and what condition standards are acceptable.
Applying these definitions, the Department’s management has determined that an FCI score of 70 percent indicates “acceptable condition”.
While the Department’s average FCI for its worldwide asset inventory is 80 percent, the large number of new facilities constructed over the past 20 years greatly influences this result. The proportion of properties with an FCI score below 70 percent increases for those that are older.
The Department’s DM&R is the total repair need to bring all owned and capital leased properties up to an acceptable FCI score of 70 percent.
The Department’s General Property and Equipment mission is to provide secure, safe, functional, and sustainable facilities that represent the U.S. Government and provide the physical platform for U.S. Government employees at our embassies, consulates and domestic locations as they work to achieve U.S. foreign policy objectives.
The facility management of U.S. diplomatic and consular properties overseas is complex, which impacts the success and failure of properties and infrastructure on human life, welfare, morale, safety, and the provision of essential operations and services. Facility management also has a large impact on the environment and on budgets, requiring a resilient approach that results in buildings and infrastructure that are efficient, reliable, cost effective, and sustainable over their life cycle. This occurs at properties of varying age, configuration, and construction quality in every climate and culture in the world. Some posts have the task of keeping an aging or historic property in good working order; while others must operate a complex new building that may be the most technologically advanced in the country.
The beginning and ending balances in the “Deferred Maintenance and Repairs” table were calculated using the FCI methodology.
Asset Category | 2021 Ending Balance DM&R |
2021 Beginning Balance DM&R |
||
---|---|---|---|---|
Other | IBWC | Other | IBWC | |
General Property and Equipment | $2,593 | $5 | $2,712 | $5 |
Heritage Assets (Secretary of State’s Register of Culturally Significant Property) | 422 | 2 | 318 | 2 |
Total | $3,015 | $7 | $3,030 | $7 |