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

6 However, we continued to identify a significant number of invalid ULOs based on expired periods of performance, inactivity, lack of supporting documentation, or inability to support bona fide need. The Department’s internal control structure did not always ensure that invalid ULOs were identified and deobligated in a timely manner. As a result of invalid ULOs identified by our audit, the Department adjusted its consolidated financial statements. In addition, funds that could have been used for other purposes may have remained in unneeded obligations, and the risk of duplicate or fraudulent payments because of the large number of invalid ULOs is increased. IV. Intragovernmental Revenue In FY 2019, the Department’s internal control structure was not sufficient to ensure that revenue relating to transactions with other Federal agencies were recorded accurately and in a timely manner. We concluded that the combination of revenue-related control deficiencies was a significant deficiency. The individual deficiencies we identified are summarized as follows: • Revenue Recognition for Reimbursable Agreements – The Department routinely enters into reimbursable agreements when it provides services to other Federal agencies. A reimbursable agreement is used to define the terms, conditions, and costs for the services to be provided. As required, the Department recognizes revenue in its financial system as it provides the agreed-upon services. We found some reimbursable agreement revenue recorded in FY 2019 that should have been recorded as revenue in FY 2018. Although the Department implemented a control to periodically monitor reimbursable agreements revenue for financial statement reporting purposes, it did not have a process to periodically coordinate with bureaus that had active reimbursable agreements to ensure that revenue was reported in a timely manner. Because of the exceptions identified, the revenue amount reported in the Department’s FY 2018 and FY 2019 consolidated financial statements was misstated. Without effective controls to recognize revenue in a timely manner, the Department is at risk of misstating revenue in future periods. • Recognition of Deferred Revenue – Federal law 7 authorizes U.S. Government employees to receive cost-of-living allowances to cover certain costs incurred when stationed in foreign areas. The allowances include an education allowance to assist Federal employees stationed overseas in meeting the extraordinary and necessary expenses incurred in providing adequate elementary and secondary education for dependent children at overseas posts. We found that the Department did not recognize advance funding received from other agencies related to the education allowance as deferred revenue, which is a liability, as required. Instead, the Department recorded the entire amount of advance funding as a revenue when the funds were received. Although Department officials were generally aware of the accounting requirements related to recording advance payments from other organizations as deferred revenue, the Department had not considered applying these criteria to advance education reimbursements received from other agencies. The Department adjusted its consolidated financial statements to correct the error. However, 7 5 U.S.C. § 5924, “Cost-of-living allowances.” 54 | U nited S tates D epartment of S tate 2019 A gency F inancial R eport FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT