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

3 significant domestic real property purchases, renovations, or construction projects. The Department adjusted its consolidated financial statements to correct the amount of known errors. However, because the Department did not provide sufficient supporting documentation for all projects, we were unable to determine whether other misstatements existed. Without a formal process to determine the proper accounting treatment of domestic real property acquisitions, the Department may not appropriately and consistently account for those transactions. • Accounting for Leases – The Department manages approximately 17,800 real property leases throughout the world. The majority of the Department’s leases are short-term operating leases. The Department must disclose the future minimum lease payments (FMLP) related to the Department’s operating lease obligations in the notes related to the consolidated financial statements. We found numerous recorded lease terms that did not agree with supporting documentation and errors in the Department’s FMLP calculations. The Department’s processes to record lease information and to ensure the accuracy of FMLP calculations were not always effective. The errors resulted in misstatements in the Department’s notes related to the consolidated financial statements. • Accounting for Personal Property – The Department uses several non-integrated systems to track, manage, and record personal property transactions, which are periodically merged or reconciled with the financial management system to centrally account for the acquisition, disposal, and transfer of personal property. We identified a significant number of personal property transactions from prior years that were not recorded in the correct fiscal year. In addition, we found that the acquisition value for numerous tested items could not be supported or was incorrect. Furthermore, we found that the gain or loss recorded for some personal property disposals was not recorded properly. The Department’s internal control structure did not ensure that personal property acquisitions, disposals, and transfers were recorded in a complete, timely, and accurate manner. In addition, the Department’s monitoring activities were not effective to ensure proper financial reporting for personal property. The errors resulted in misstatements to the Department’s consolidated financial statements. The lack of effective control may result in the loss of accountability for asset custodianship, which could lead to undetected theft or waste. • Accounting for Vehicles Owned by Other Agencies – The Department may acquire property on behalf of other agencies operating at an overseas post and manage the property inventory for those agencies. However, only assets owned by the Department should be reported in the Department’s consolidated financial statements. We found some vehicles included in the Department’s property records that were owned by other agencies. Because the Department acquired these vehicles on behalf of another agency, the property records reflected a Department funding code. The costs were therefore incorrectly merged into the Department’s accounting records as an asset. The Department adjusted its consolidated financial statements to correct the error. However, without an effective process to accurately identify assets owned by other agencies, there is a risk of errors in the Department’s future consolidated financial statements. 2019 A gency F inancial R eport U nited S tates D epartment of S tate | 51 INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION