U.S. Department of State Fiscal Year 2020 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 2020 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 financial statements and subsequent audits. In FY 2020, 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: • 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 numerous real property acquisitions and disposals overseas that were not recorded by the Department in a timely manner. Although the Department implemented certain controls, such as a quarterly data call, to identify acquisitions and disposals 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 acquisitions and disposals resulted in misstatements in the Department’s asset and expense balances. • Overseas Construction Projects – During FY 2020, the Department managed over $5 billion in overseas construction projects. All construction projects should be tracked in the construction-in-progress (CIP) account until the project reaches substantial completion. Once a construction project is substantially complete, the Department transfers the asset to the appropriate real property asset account and the asset is depreciated 2 over its estimated useful life. The Department notified us of construction projects that had either reached substantial completion or were terminated prior to FY 2020 but remained in the Department’s CIP account. These projects were not managed in accordance with the Department’s policies and controls relating to overseas construction. The projects were managed by a bureau that does not normally manage construction projects. This bureau did not provide accurate responses to data calls related to the status of the construction projects. The untimely transfer of completed and terminated construction projects resulted in misstatements in the Department’s asset and expense balances. • Domestic Construction Projects – The Department currently manages over $400 million in domestic construction projects. Similar to overseas projects, domestic construction 2 Depreciation is the allocation of the acquisition cost of an asset, less its estimated salvage or residual value, over its estimated useful life. 50 | U ni ted S tates D epartment of S tate 2020 A gency F inanci al R eport FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT