Report of Independent Auditors: Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH LAWS,
REGULATIONS, CONTRACTS, AND GRANT AGREEMENTS
To the Secretary and the Inspector General of the U.S. Department of State
We have audited the consolidated financial statements of the U.S. Department of State (Department) as of and for the year ended September 30, 2017, and have issued our report thereon dated November 15, 2017. We conducted our audit 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. 17-03, “Audit Requirements for Federal Financial Statements.”
As part of obtaining reasonable assurance about whether the Department’s consolidated financial statements are free from material misstatement, we performed tests of the Department’s compliance with provisions of applicable laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material impact on the financial statement amounts, including the provisions referred to in Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA) 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 that are required to be reported under Government Auditing Standards and OMB Bulletin No. 17-03 and which are summarized as follows:
- Antideficiency Act. This act prohibits the Department from (1) making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law; (2) involving the Government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law; or (3) making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. Our audit procedures identified Department of the Treasury account fund symbols with negative balances that were potentially in violation of the Antideficiency Act. We also identified systemic issues in the Department’s use of allotment overrides to exceed available allotment authority. Establishing obligations that exceed available allotment authority increases the risk of noncompliance with the Antideficiency Act. We further noted the potential for Antideficiency Act noncompliance in the report Audit of the Bureau of Consular Affairs Fee-Setting Methodology for Selected Consular Services.1 As explained in that report, the Bureau of Consular Affairs risks noncompliance with the Antideficiency Act by expending funds collected in excess of the cost of providing certain services (amounts available for expenditure in that case). Conditions impacting the Department’s compliance with the Antideficiency Act have been reported annually since our FY 2009 audit.
- Prompt Payment Act. This act requires Federal agencies to make payments in a timely manner, pay interest penalties when payments are late, and take discounts only when payments are made within the discount period. We found that the Department did not always pay interest penalties for overdue payments to overseas vendors, certain international organizations, utility providers, or nonprofit entities. The Department was unable to provide legal justification exempting the Department from paying interest penalties for payments to these types of entities. Conditions impacting the Department’s compliance with the Prompt Payment Act have been reported annually since our FY 2009 audit.
Under FFMIA, 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, we did identify 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 and the USSGL at the transaction level.
Federal Financial Management Systems Requirements
- The Department has long-standing weaknesses in its financial management systems regarding its capacity to account for and record financial information. For instance, the Department has significant deficiencies relating to property and equipment, budgetary accounting, and unliquidated obligations.
- During its annual evaluation of the Department’s information security program, as required by the Federal Information Security Modernization Act (FISMA), the Department’s Office of Inspector General reported control weaknesses in all seven Inspector General FISMA metric domains.2
- The Department did not maintain effective administrative control of funds. Specifically, obligations were not created in a timely manner or were recorded in advance of an executed obligating document. We identified systemic issues in the Department’s use of allotment overrides that allowed officials to exceed allotments.
- The Department did not always minimize waste, loss, unauthorized use, or misappropriation of Federal funds. For example, the Office of Inspector General reported a significant amount of questioned costs and funds that could be put to better use during FY 2017.
- In addition, the previously reported matters related to the Antideficiency Act and the Prompt Payment Act impact the Department’s compliance with FFMIA.
Standard General Ledger at the Transaction Level
- The Department’s financial management systems did not consistently post transactions to USSGL-compliant accounts or track proprietary and budgetary account attributes consistent with the USSGL.
- General ledger account balances could not always be traced to discrete transactions. Further, discrete transactions could not always be traced to source documents.
The Department had not implemented and enforced systematic financial management controls to ensure substantial compliance with FFMIA. The Department had not developed and executed remediation plans to address instances of noncompliance or validate compliance against criteria. The Department’s ability to meet Federal financial management system requirements and fully process transaction-level data in accordance with the USSGL was hindered by limitations in systems and processes. Since our FY 2009 audit, we have reported annually that the Department did not substantially comply with FFMIA.
During the audit, we noted certain additional matters involving compliance that we will report to Department management in a separate letter.
Department’s Response to Findings
Department management provided its response to our findings in a separate memorandum included in this report as Appendix A. We did not audit management’s response, and accordingly, we express no opinion on it.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of compliance 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 auditing standards generally accepted in the United States of America, Government Auditing Standards, and OMB Bulletin No. 17-03 in considering the entity’s compliance. Accordingly, this report is not suitable for any other purpose.
November 15, 2017
1 OIG, Audit of the Bureau of Consular Affairs Fee-Setting Methodology for Selected Consular Services (AUD-FM-17-53, September 2017). (back to text)
2 OIG, Audit of the Department of State Information Security Program (AUD-IT-18-12, October 2017). (back to text)