U.S. Department of State Fiscal Year 2020 Agency Financial Report

6 is acceptable. Overriding allotment controls could lead to a violation of the Antideficiency Act 7 and increases the risk of fraud, misuse, and waste. III. Validity and Accuracy of Unliquidated Obligations Unliquidated obligations (ULO) represent the cumulative amount of orders, contracts, and other binding agreements for which the goods and services that were ordered have not been received or the goods and services have been received but for which payment has not yet been made. The Department’s policies and procedures provide guidance that requires allotment holders to perform at least monthly reviews of ULOs. Weaknesses in controls over ULOs were initially reported in the audit of the Department’s FY 1997 financial statements. We continued to identify a significant number and amount of invalid ULOs based on expired periods of performance, inactivity, lack of supporting documentation, or inability to support bona fide need. Although the Department continues to take steps to remediate long-standing ULO validity issues through its annual ULO review, the scope of the review does not include all ULOs. Overseas ULOs and domestic ULOs that do not meet the annual domestic review categories established by the Department continue to be a risk for invalidity. Furthermore, not all allotment holders were performing periodic reviews of ULO balances as required. As a result of invalid ULOs that were identified by our audit, the Department adjusted its FY 2020 financial statements. In addition, funds that could have been used for other purposes may have remained open as invalid ULOs, and the risk of duplicate or fraudulent payments because of the large number of invalid ULOs is increased. IV. Financial Reporting In FY 2019, the Department’s internal control structure was not sufficient to ensure that financial statement balances were consolidated and classified accurately. We concluded that the combination of financial reporting-related control deficiencies was a significant deficiency. In FY 2020, the Department addressed a control deficiency related to the classification of Funds from Dedicated Collections. However, we continued to identify a control deficiency related to the monitoring of allocation transfers that we concluded was a significant deficiency. In some cases, appropriated funds are required to be transferred to another agency for programmatic execution (referred to as “child funds”). Despite transferring these funds to another agency, the Department is required to report on the use and status of child funds in its financial statements. During FY 2020, the Department made significant child fund transfers to three agencies. To obtain audit coverage of the Department’s most significant child funds, we requested that the financial statements auditors of two of the three agencies perform certain audit steps. Those other auditors identified numerous invalid ULOs. We also requested detailed financial information from the third agency, which received a less significant amount of child funds from the Department. However, the data provided by the third agency did not reconcile to trial balance data. Therefore, we were unable to validate the information provided. The Department did not have an effective, routine process to ensure that amounts reported by agencies receiving child 7 Pub. L. No. 97-258, 96 STAT. 923. 54 | U ni ted S tates D epartment of S tate 2020 A gency F inanci al R eport FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT