U.S. Department of State Fiscal Year 2019 Agency Financial Report

2 Significant Deficiencies I. Property and Equipment The Department reported more than $26 billion in net property and equipment on its FY 2019 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 audit of the Department’s FY 2005 consolidated financial statements and subsequent audits. In FY 2019, 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: • Accounting for Overseas Real Property – The Department operates at more than 270 posts in more than 180 countries around the world and is primarily responsible for acquiring and managing real property in foreign countries on behalf of the U.S. Government. We found several real property disposals overseas that were not recorded by the Department in a timely manner. In addition, we tested real property acquisitions overseas and identified deposits (i.e., payments made prior to closing on the purchase of real property) made by the Department in prior years that were not recorded as prepaid assets, as required. Although the Department implemented certain controls, such as the use of project codes, to identify disposals and prepayments related to overseas real property, the controls did not ensure that all real property transactions were recorded in the proper fiscal year. The untimely processing of property disposals and the unrecorded acquisition prepayments resulted in misstatements in the Department’s asset balances. • Accounting for Domestic Real Property – The acquisition, renovation, or construction of domestic real property used by the Department is funded and managed using a variety of methods. The General Services Administration (GSA) is usually the custodian of domestic real property that it acquires on behalf of other Federal agencies, and when that is the case, the property is included in GSA’s real property inventory. However, depending on certain factors, the property may be more appropriately accounted for as part of the funding agency’s real property inventory. We found instances where the Department had not correctly accounted for domestic real property transactions and other instances where the Department was unable to provide documentation to determine the proper accounting treatment for domestic real property transactions. For example, we found a construction project that was not transferred to a capital asset account upon substantial completion of the project. In addition, we found that construction costs for some projects were being accounted for as expenses even though the proper accounting treatment for those transactions may have been to record the costs to an asset account. The Department does not have a process in place to effectively track or monitor 50 | U nited S tates D epartment of S tate 2019 A gency F inancial R eport FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT