HomeReportsBureau of the Comptroller and Global Financial ServicesFY 2020 Department of State Agency Financial Report…Section I: Management’s Discussion and Analysis

# 					FY 2020 Department of State Agency Financial Report: Section I: Management’s Discussion and Analysis			

Bureau of the Comptroller and Global Financial Services

 In this section										/

													Section Table of Contents											

                -  Section Table of Contents 
                -  About the Department                    -  Our Vision, Mission, and History 
                  -  Our Organization and People 
                  -  Our Work at Home and Overseas 
                -  Strategic Goals and Government-wide Management Initiatives                    -  Managing for Results: Planning, Budgeting, Managing, and Learning 
                  -  Joint State-USAID Strategic Goals 
                  -  Agency Priority Goals 
                  -  Cross-Agency Priority Goals 
                -  Performance Summary and Highlights                    -  Performance Reporting 
                  -  Major Program Areas 
                  -  Program and Project Design, Monitoring, and Evaluation Policy 
                  -  Maximizing America’s Investments Through Analysis and Evidence 
                -  Financial Summary and Highlights                    -  Balance Sheet: Overview of Financial Position 
                  -  Statement of Net Cost: Yearly Results of Operations 
                  -  Statement of Changes in Net Position: Cumulative Overview 
                  -  Combined Statement of Budgetary Resources 
                  -  The Department's Budgetary Position 
                  -  Impact of COVID-19 
                  -  Limitation of Financial Statements 
                -  Management Assurances and Other Financial Compliances                    -  Management Assurances 
                  -  Federal Managers' Financial Integrity Act 
                  -  Departmental Governance 
                  -  Federal Financial Management Improvement Act 
                  -  Federal Financial Management Improvement Act 
                  -  Federal Information Security Modernization Act 
                  -  Resource Management Systems Summary 
                  -  Digital Accountability and Transparency Act 

## Section Table of Contents

- About the Department
- Strategic Goals and Government-wide Management Initiatives
- Performance Summary and Highlights
- Financial Summary and Highlights
- Management Assurances and Other Financial Compliances

							About the Department					

### Our Vision, Mission, and History

#### Our Vision

On behalf of the American people we promote and demonstrate democratic values and advance a free, peaceful, and prosperous world.

#### Our Mission

The U.S. Department of State leads America’s foreign policy through diplomacy, advocacy, and assistance by advancing the interests of the American people, their safety and economic prosperity.

#### Our History

The U.S. Department of State (the Department) is the lead U.S. foreign affairs agency within the Executive Branch and the lead institution for the conduct of American diplomacy. Established by Congress in 1789, the Department is the nation’s oldest and most senior cabinet agency.

The Department is led by the Secretary of State, who is nominated by the President and confirmed by the U.S. Senate. The Secretary of State is the President’s principal foreign policy advisor and a member of the President’s Cabinet. The Secretary carries out the President’s foreign policies through the State Department and its employees.

The Department of State and the United States Agency for International Development (USAID) work together to harmonize the administration and structure of assistance programs to ensure maximum impact and efficient use of taxpayer funds. Each agency is responsible for its own operations and produces a separate AFR.

----

More information on the duties of the Secretary can be found at: https://www.state.gov/duties-of-the-secretary-of-state

----

----

**DID YOU KNOW?**

*Michael R. Pompeo has visited more than 75 countries during his 29 months as Secretary of State. He travels to all corners of the world to do his job. His duties as Secretary include acting as the President’s representative at all international forums, negotiating treaties and other international agreements, and conducting everyday, face-to-face diplomacy.*

More information on the Secretary’s travel can be found at: https://www.state.gov/secretary/travel/index.htm

----

### Our Organization and People

The Department of State advances U.S. objectives and interests in the world through its primary role in developing and implementing the President’s foreign policy worldwide. The Department also supports the foreign affairs activities of other U.S. Government entities including USAID. USAID is the U.S. Government agency responsible for most non-military foreign aid and it receives overall foreign policy guidance from the Secretary of State. The State Department carries out its foreign affairs mission and values in a worldwide workplace, focusing its energies and resources wherever they are most needed to best serve the American people and the world.

The Department is headquartered in Washington, D.C. and has an extensive global presence, with more than 270 embassies, consulates, and other posts in over 180 countries. A two-page map of the Department’s locations appears in Appendix B. The Department also operates several other types of offices, mostly located throughout the United States, including 23 passport agencies, six passport centers, two foreign press centers, one reception center, five logistic support offices for overseas operations, 30 security offices, and two financial service centers.

The Foreign Service officers and Civil Service employees in the Department and U.S. missions abroad represent the American people. They work together to achieve the goals and implement the initiatives of American foreign policy. The Foreign Service is dedicated to representing America and to responding to the needs of American citizens living and traveling around the world. They are also America’s first line of defense in a complex and often dangerous world. The Department’s Civil Service corps, most of whom are headquartered in Washington, D.C., is involved in virtually every policy and management area – from democracy and human rights, to narcotics control, trade, and environmental issues. Civil Service employees also serve as the domestic counterpart to Foreign Service consular officers who issue passports and assist U.S. citizens overseas.

Host country Foreign Service National (FSN) and other Locally Employed (LE) staff contribute to advancing the work of the Department overseas. Both FSNs and other LE staff contribute local expertise and provide continuity as they work with their American colleagues to perform vital services for U.S. citizens. At the close of 2020, the Department was comprised of approximately 77,000 employees.

The U.S. Department of State, with just over one percent of the entire Federal budget, has an outsized impact on Americans’ lives at home and abroad. For a relatively small investment, the Department yields a large return in a cost-effective way by advancing U.S. national security, promoting our economic interests, creating jobs, reaching new allies, strengthening old ones, and reaffirming our country’s role in the world. The Department’s mission impacts American lives in multiple ways.

These impacts include:

- We support American citizens abroad.  We provide emergency assistance to U.S. citizens in countries experiencing natural disasters or civil unrest. We assist with intercountry adoptions and work on international parental child abductions. In 2019, there were 2,971 adoptions to the United States, and 56 adoptions from the United States to other countries. In calendar year 2019, there were 1,253 children reported abducted to and from the United States, and we assisted in the return of 255 children to the United States.
- We create American jobs.  We directly support millions of U.S. jobs by promoting new and open markets for U.S. firms, protecting intellectual property, negotiating new U.S. airline routes worldwide, and helping American companies compete for foreign government and private contracts.
- We promote democracy and foster stability around the world.  Stable democracies are less likely to pose a threat to their neighbors or to the United States. We partner with the public and private sectors in countries in conflict to foster democracy and peace.
- We help to make the world a safer place.  Under the New Strategic Arms Reduction Treaty, we are reducing the number of deployed nuclear weapons to levels not seen since the 1950s. The Department has helped over 40 post-conflict countries clear millions of square meters of landmines and unexploded ordnance. We also work with foreign partners to strengthen international aviation and maritime safety and security.
- We save lives.  Strong bipartisan support for U.S. global health investments has led to worldwide progress against HIV/AIDS, tuberculosis, malaria, and polio. Better health abroad reduces the risk of instability and enhances our national security.
- We help countries feed themselves.  We help other countries plant the right seeds in the right way and get crops to markets to feed more people. Strong agricultural sectors lead to more stable countries.
- We help in times of crisis.  From natural disasters to famine to epidemics, our dedicated emergency professionals deliver assistance to those who need it most.
- We promote the rule of law and protect human dignity.  We help people in other countries find freedom and shape their own destinies. We advocate for the release of prisoners of conscience, prevent political activists from suffering abuse, train police officers to combat sex trafficking, and equip journalists to hold their governments accountable.
- We help Americans see the world.  The Department’s Bureau of Consular Affairs supports and protects the American public. In 2020, we issued 11.7 million passports and passport cards for Americans to travel abroad. We facilitate the lawful travel of international students, tourists, and business people to the United States, adding greatly to our economy. We provide information to help U.S. citizens assess risks of international travel and learn about steps to take to ensure their safety when traveling abroad.
- We are the face of America overseas.  Our diplomats, development experts, and the programs they implement are the source of American leadership around the world. They are the embodiments of our American values abroad and a force for good in the world.

The Secretary of State is supported by a Deputy Secretary, the Executive Secretariat, the Office of Foreign Assistance, the Counselor and Chief of Staff, six Under Secretaries, and over 30 functional and management bureaus and offices. The Deputy Secretary of State serves as the principal deputy, adviser, and alter ego to the Secretary of State. The Under Secretaries have been established for Political Affairs; Economic Growth, Energy and Environment; Arms Control and International Security Affairs; Public Diplomacy and Public Affairs; Management; and Civilian Security, Democracy and Human Rights. The Under Secretary for Management (M) also serves as the CFO for the Department. The Comptroller has delegated authority for many of the activities and responsibilities mandated as CFO functions, including preparation of the AFR.

Six regional bureaus support the Department’s political affairs mission – each is responsible for a specific geographic region of the world. These include:

- Bureau of African Affairs (AF),
- Bureau of European and Eurasian Affairs (EUR),
- Bureau of East Asian and Pacific Affairs (EAP),
- Bureau of Near Eastern Affairs (NEA),
- Bureau of South and Central Asian Affairs (SCA), and
- Bureau of Western Hemisphere Affairs (WHA).

The Department also includes the Bureau of International Organization Affairs. This Bureau develops and implements U.S. policy in the United Nations, its specialized and voluntary agencies, and other international organizations. The Department’s organization chart can be found at https://www.state.gov/department-of-state-organization-chart.

----

**DID YOU KNOW?**

*Thomas Jefferson was the first Secretary of State (1790-1793). He later was elected Vice President in 1796 and served two terms as President (1801-1809).*

More information on former Secretaries can be found at: https://history.state.gov/departmenthistory/people/secretaries

----

### Our Work at Home and Overseas

At home, the passport process is often the primary contact most U.S. citizens have with the Department of State. There are 29 domestic passport agencies and centers, and approximately 7,600 public and 600 Federal and military passport acceptance facilities. The Department designates many post offices, clerks of court, public libraries and other state, county, township, and municipal government offices to accept passport applications on its behalf.

Overseas, in each Embassy, the Chief of Mission (usually an Ambassador) is responsible for executing U.S. foreign policy aims, as well as coordinating and managing all U.S. Government functions in the host country. The President appoints each Chief of Mission, who is then confirmed by the Senate. The Chief of Mission reports directly to the President through the Secretary of State. The U.S. Mission is also the primary U.S. Government point of contact for Americans overseas and foreign nationals of the host country. The Mission serves the needs of Americans traveling, working, and studying abroad, and supports Presidential and Congressional delegations visiting the country.

Every diplomatic mission in the world operates under a security program designed and maintained by the Department’s Bureau of Diplomatic Security (DS). In the United States, DS inves-tigates passport and visa fraud, conducts personnel security investigations, and protects the Secretary of State and high-ranking foreign dignitaries and visiting officials. Click here for an “In Focus” view of our global visa fraud investigations.

Additionally, the Department utilizes a wide variety of technology tools to further enhance its effectiveness and magnify its efficiency. Today, most offices increasingly rely on digital video conferences, virtual presence posts, and websites to support their missions. The Department also leverages social networking Web tools to engage in dialogue with a broader audience. See Department websites of interest.

							Strategic Goals and Government-wide Management Initiatives					

### Managing for Results: Planning, Budgeting, Managing, and Learning

The Department of State has strengthened program and project management through greater emphasis on program and project design, key performance metrics, and strategic reviews to assess achievement of policy priorities. The Department uses the Managing for Results (MfR) Framework to foster enterprise-wide linkages of strategic planning, budgeting, managing, and learning to improve results. Bureaus and missions are achieving better outcomes by engaging in policy, resource, and program decision making that is informed by strategic planning and performance data gleaned through rigorous monitoring and evaluation practices.

### Joint State-USAID Strategic Goals

The Department’s cascading strategic plans processes and documents are implemented at three organizational levels:

- The State/USAID FY 2018-2022 Joint Strategic Plan (JSP) – Four-year agency strategic plan that outlines State and USAID overarching goals and objectives, and guides bureau and mission planning for U.S. diplomacy and development efforts. The State/USAID JSP and budget synchronize how the Department achieves its foreign policy priorities.
- Bureau Strategies   - Joint Regional Strategies – Four-year strategic plan for each region that sets joint State and USAID priorities and guides key partner bureau- and mission-level planning.
  - Functional Bureau Strategies – Four-year strategic plan that sets priorities for each State functional bureau and guides key partner bureau- and mission-level planning. 
- Integrated Country Strategies (ICS) – Four-year strategic plan that articulates whole-of-government priorities in a given country and incorporates policy priorities. As a whole-of-government document, each ICS incorporates the relevant USAID mission’s Country Development Cooperation Strategy and the official U.S. Government strategy for all Security Sector Assistance in the respective country.

The Department of State and USAID published the FY 2018-2022 JSP in February 2018 following a consultative process that involved the senior leadership of the two agencies, bureau leadership, subject matter experts, and representatives from 22 other Federal agencies who are stakeholders in the Department’s programs and policy initiatives. The JSP outlines the strategic direction of U.S. diplomacy and development efforts during this four-year period. Its goals and objectives articulate how State and USAID will enable the United States to succeed in a competitive globalized era, and how our agencies adapt on delivering our missions. It contains four goals and 16 objectives as shown in the “State-USAID Joint Strategic Goal Framework.”

The JSP, along with the National Defense Strategy, directly supports the National Security Strategy (NSS). There is a direct correlation between all 16 JSP objectives and 13 of 15 NSS objectives. The JSP was developed through policy guidance from the Secretary of State, USAID Administrator, and the National Security Council. State and USAID further consulted with Congress prior to the JSP’s release.

The JSP informed the overarching policy direction for the seven new Joint Regional Strategies, 40 Functional Bureau Strategies, and 185 Integrated Country Strategies. The goals and objectives established in the JSP provided both a policy and a strategic vision for all Department bureaus and posts by laying out actions and performance goals, which all bureaus and posts consider in developing their respective strategies. The goals and objectives in each bureau- and mission-level strategy are available to the public through the Department’s internet site at https://www.state.gov/plans-performance-budget/.

### Agency Priority Goals

Agency Priority Goals (APG) are a performance accountability component of the Government Performance Results Act (GPRA) Modernization Act of 2010 that provide agencies a mechanism to focus leadership priorities, set outcomes and measure results, bringing focus to mission areas where agencies need to drive significant progress and change. APGs support improvements in near-term outcomes, customer service or efficiencies, and advance progress toward longer-term, outcome-focused strategic goals and objectives. APGs are intended to demonstrate quarterly progress on near-term results or achievements the agency seeks to accomplish within 24 months. The Department of State has four APGs for the FY 2020 – FY 2021 cycle:

- **Data Informed Diplomacy:** By September 2021, we will align and augment a data and analytics cadre that can harness data and apply cutting-edge analytics processes and products to foreign policy and operational challenges, and fulfill the requirements of the Federal Data Strategy to include building the first Department Data Strategy and enterprise Data Catalog .
- **IT Modernization:** By September 30, 2021, the Department will satisfy Field Enabling IT baseline levels for capability and performance at all field locations; modernize its suite of core, mission-aligned IT systems incorporating a Cloud Smart approach that enables the Department to share resources and measure efficiencies gained via common cloud platform environments; and achieve a continuous cyber risk diagnostics and monitoring capability that embeds security equities throughout the full lifecycle of all IT systems within every sponsored environment .
- **Enhancing Security Monitoring Solutions:** By September 30, 2021, upgrade 20 percent of Department of State facilities’ security monitoring solutions .
- **Category Management:** By September 30, 2021, meet or exceed Federal targets for managed spending (identifying and proactively managing key vendors and contracts) as determined by the President’s Management Agenda.  The Department of State plans to retire this APG at the end of 2020.

The Department’s official reporting on APGs can be found on Performance.gov at https://www.performance.gov/state/state.html.

### Cross-Agency Priority Goals

The President’s Management Agenda’s long-term vision for modernizing the Federal Government will improve the ability of agencies to deliver mission outcomes, provide excellent customer service, and serve as effective stewards of taxpayer dollars on behalf of the American people. To drive these management priorities, the Administration leverages Cross-Agency Priority (CAP) goals to coordinate and publicly track implementation across Federal agencies. As of October 2020, the Department contributes to nine President’s Management Agenda CAP goals: IT Modernization; Data, Accountability and Transparency; Workforce for the 21st Century; Improving Customer Experience; Sharing Quality Services; Category Management; Results-Oriented Accountability for Grants; Getting Payments Right; Federal IT Spending Transparency; and Improve Management of Major Acquisitions. Progress updates on CAP goals are published on Performance.gov at https://www.performance.gov/CAP/CAP_goals.html.

							Performance Summary and Highlights					

### Performance Reporting

The Department of State reports annual progress and results toward achieving the strategic objectives and performance goals articulated in the JSP via the Annual Performance Plan/Annual Performance Report (APP/APR). The latest reporting on the JSP – including performance goals, performance indicators, and a narrative explanation of progress – can be found in the FY 2021 APP/FY 2019 APR at https://www.state.gov/plans-performance-budget/performance-plans-and-reports/.

In summer 2020, Department of State held internal strategic review meetings (Strategy and Resource Reviews) and provided the Office of Management and Budget (OMB) with a summary of findings. In addition, the Department of State continually reviews performance progress against the JSP’s 16 strategic objectives in a variety of complementary fora throughout the year, and thereby leverage planning, performance, evaluation, and budgeting processes to strengthen the use of data and evidence to inform decisions. These cumulative reviews foster a culture of continuous review and improvement.

The next section provides an overview of major program areas that are aligned with the four strategic goals of the State-USAID Joint Strategic Plan. These programs are also included in the Financial Section, Section II of this AFR, on the Consolidated Statement of Net Cost.

### Major Program Areas

#### Strategic Goal 1: Protect America’s Security at Home and A

The United States faces ever-evolving and multi-dimensional security challenges. To meet these challenges, we support and collaborate with both new and old partners to defend shared interests and to adapt to the changing international environment. This means working to advance nonproliferation, antiterrorism, demining, and related programs, global threat reduction, and security assistance. The Department is focusing its efforts on strategically vital regions to prevent crises and foster resilience in ways that align to our broader commitments and that secure our borders.

#### Strategic Goal 2: Renew America’s Competitive Advantage for Sustained Economic Growth and Job Creation

American national security requires sustained economic prosperity. As new challenges and opportunities emerge in a changing international landscape, our economic engagement with the world must be comprehensive, forward-looking, and flexible. The United States can advance its economic and security goals only through robust diplomacy, assertive trade and commercial policies, and broad-based engagement with governments and societies. Growth and economic security among U.S. allies and partners also builds markets for U.S. goods and services and strengthens the ability to confront global challenges. We must counter models promoted by other nations by offering a clear choice: The American approach is to help our partners prosper. Our economic diplomacy and development assistance are key tools in projecting this leadership to enhance security and prosperity at home.

#### Strategic Goal 3: Promote American Leadership through Balanced Engagement

America First does not mean America alone. The United States is a beacon of liberty, freedom, and opportunity. Since the conclusion of the Second World War, the United States has led the development of a rules-based international order that allows nations to compete peacefully and cooperate more effectively with one another. We worked together with allies and partners to build the institutions and structures to defend the sovereignty, self-governance, security, and prosperity of all nations and peoples. Past successes alone cannot ensure this system will continue indefinitely without being renewed, rejuvenated, and truly reciprocal. The ability to ensure peace, security, and prosperity requires a more principled and balanced approach to our engagement with our allies and partners: balanced between opportunity and responsibility; between shared goals, interests, and values; and between assistance and enforcement.

#### Strategic Goal 4: Ensure Effectiveness and Accountability to the American Taxpayer

The Federal Government can and should operate more effectively, efficiently, and securely. As such, the Administration set goals in areas that are critical to improving the Federal Government’s effectiveness, efficiency, cybersecurity, and accountability. This includes taking an evidence-based approach to improving programs and services; reducing the burden of compliance activities; delivering high performing program results and services to citizens and businesses through effective and efficient mission support services; and holding agencies accountable for improving performance. Department leadership and financial managers seek to foster an expansive and forward-leaning approach to enterprise risk management, thereby remaining able to respond to demands, events, conditions, or trends at times when significant changes trigger the need to take action. For example, this year Under Secretary for Management Brian Bulatao led quarterly strategic reviews with key leaders centered on the guiding principles of field first focus, innovation, accountability, agility, and data-informed decision making. In the face of the COVID-19 pandemic, the cultural change and cohesion arising from this effort enabled the Department to modify procedures and to acquire the tools needed to remain productive while working remotely.

### Program and Project Design, Monitoring, and Evaluation Policy

The Department is committed to using design, monitoring, evaluation, and data analysis best practices to achieve the most effective U.S. foreign policy outcomes and greater accountability to our primary stakeholders; the American people. In response to requirements contained in the Foreign Aid Transparency and Accountability Act, the Foundations for Evidence-Based Policymaking Act and the Program Management Improvement and Accountability Act, the Department updated its evaluation policy to encompass the full spectrum of performance management and evaluation activities including program design, monitoring, evaluation, analysis and learning. Bureaus are responding to this updated and expanded policy, located in 18 FAM 300 (https://fam.state.gov/fam/18fam/18fam030104.html) by putting in place performance management documents and practices, including the use of logic models, theories of change, performance metrics, monitoring structures, and other foundational components, against which progress can be monitored and evaluated. The Department also established guidance and a plan for implementing the updated policy and is working with bureaus and offices to complete program and project design steps for their major lines of effort.

The Department is developing further revisions to 18 FAM 300 to cover all OMB guidance program evaluation standards from the Evidence Act, specifically, to add a section on ethics previously only addressed in the Department’s evaluation policy guidance.

### Maximizing America’s Investments Through Analysis and Evidence

#### Evidence and Evaluation

The Department supports the analysis and use of evidence in policymaking by training staff, creating groups for knowledge sharing, establishing and monitoring evaluation requirements, providing funding opportunities to gather better evidence, and maintaining a central database to manage and share evaluations. The Department continues efforts to strengthen the use of data and evidence to drive better decision making, achieve greater impacts, and more effectively and efficiently achieve U.S. foreign policy objectives. Ongoing performance monitoring data provide a picture of how programs are doing, and program evaluation is used to understand why they are working.

The Department’s learning agenda is encompassed and supported in the MfR framework, which integrates planning, budgeting, managing, and learning processes to inform and support programmatic, budget, and policy decisions. Through this approach, the Department examines programs and operations in such a way that is relevant to its bureaus and the stakeholders they serve. The introduction of a program and project design and monitoring policy in 2018 further strengthened this framework. This program and project design work serves as a foundation for the collection and validation of performance monitoring data, confirming alignment to strategic objectives, and purposeful evaluative and learning questions.

The MfR intranet site offers guidance, tools, updates, and opportunities to engage with technical experts. Bureaus can locate key strategic planning documents including the Department’s Joint Strategic Plan, bureau and mission-specific strategic plans, and tools for facilitating progress reviews against strategic plans. The site is essential to supporting bureaus in their program design and performance monitoring work as it houses all of the guidance and resources for these processes. The site also offers templates and guides for evaluation plans.

Ongoing efforts to bolster the Department’s ability to plan and execute programs and projects in a way that encourages learning and adapting include:

#### Evidence Act Implementation.

In summer 2020, the Department formed a working group – the Evidence Act Team – comprised of performance and evaluation professionals working under the co-evaluation officers’ leadership to address implementation of Title 1 of the Foundations for Evidence-Based Policymaking Act (Evidence Act; Public Law No. 115–435). The Evidence Act Team and corresponding sub-groups are leading implementation of the Department’s deliverables required per the Evidence Act and OMB Memorandum-19-23: learning agenda; capacity assessment; and annual evaluation plan.

The Evidence Act implementation activities go hand in hand with the Department’s strategic planning activities, as development of the next Joint Strategic Plan.

The stakeholder and leadership input and adoption are key to effective Evidence Act implementation, as well as required by law, the Evidence Act Team first carried out an extensive stakeholder analysis. The Evidence Act Team developed a stakeholder engagement plan to ensure transparent engagement with stakeholders throughout the enterprise, across leadership and working level staff. As part of this plan, the team regularly meets and coordinates with the Performance Improvement Officer, Director of Foreign Assistance, Chief Data Officer, and Statistical Officer as appropriate.

In July 2020 focus groups were convened to contribute to the Evidence Act deliverables, as well as strengthen bureaus’ learning agendas. The Evidence Act deliverables will reflect the results of this ongoing engagement. Continued stakeholder communication includes surveys, emails, and department notices as well as participation in focus groups on the learning agenda and the capacity assessment to begin in fall 2020.

The Department is also implementing Title 2: Open Government Data Act, and Title 3: Confidential Information Protection and Statistical Efficiency Act of the Foundations for Evidence-Based Policymaking Act.

----

More information on the Department’s Program and Project Design, Monitoring, and Evaluation Policy can be found at: https://fam.state.gov/fam/18fam/18fam030104.html

----

#### Management Challenges: Providing an Independent Statement of the Agency

In the 2020 annual statement, the Department’s Office of Inspector General (OIG) identified the most serious management and performance challenges for the Department. These challenges were identified in the areas of: protection of people and facilities; management and oversight of contracts, grants, and foreign assistance; information security and management; financial and property management; operating in contingency and critical environments; workforce management; and promoting accountability through internal coordination and clear lines of authority.

The OIG statement may be found in the Other Information (OI) section of this report. In response to the OIG’s recommendations, the Department took a number of corrective actions. Information on management’s assessment of the challenge and a summary of actions taken may also be found in the OI section.

							Financial Summary and Highlights					

The financial summary and highlights that follow provide an overview of the 2020 financial statements of the Department of State (the Department). The independent auditor, Kearney & Company, audited the Department’s Consolidated Balance Sheet for the fiscal years ending September 30, 2020 and 2019, along with the Consolidated Statements of Net Cost and Changes in Net Position, and the Combined Statement of Budgetary Resources1. The Department received an unmodified (“clean”) audit opinion on both its 2020 and 2019 financial statements. A summary of key financial measures from the Balance Sheet and Statements of Net Cost and Budgetary Resources is provided in the table below. The complete financial statements, including the independent auditor’s reports, notes, and required supplementary information, are presented in Section II: Financial Information.

To help readers understand the Department’s principal financial statements, this section is organized as follows:

- Balance Sheet: Overview of Financial Position ,
- Statement of Net Cost: Yearly Results of Operations ,
- Statement of Changes in Net Position: Cumulative Overview ,
- Combined Statement of Budgetary Resources ,
- The Department’s Budgetary Position ,
- Impact of COVID-19 , and
- Limitation of Financial Statements .

----

1 Hereafter, in this section, the principal financial statements will be referred to as: Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Combined Statement of Budgetary Resources. (back to text)

### Balance Sheet: Overview of Financial Position

The Balance Sheet provides a snapshot of the Department’s financial position. It displays, as of a specific time, amounts of current and future economic benefits owned or managed by the reporting entity (Assets), amounts owed (Liabilities), and amounts which comprise the difference (Net Position) at the end of the fiscal year.

***Assets.*** The Department’s total assets were $109.7 billion at September 30, 2020, an increase of $766 million (0.7 percent) over the 2019 total. Fund Balance with Treasury decreased $1.5 billion (2 percent). Property and Equipment increased by $726 million (3 percent) from September 30, 2019. New buildings, structures, and improvements accounted for most of this increase with the top ten New Embassy Compound projects accounting for $701 million of the increase.

Other assets increased $871 million (39 percent) as a result of an increase in advances under the Global Health and Child Survival program for $507 million. Investments increased $669 million (3 percent) because contributions and appropriations received to support the Foreign Service Retirement and Disability Fund (FSRDF) were greater than benefit payments. Fund Balance with Treasury, Investments, and Property and Equipment comprise 97 percent of total assets for 2020 and 2019.

The six-year trend in the Department’s total assets is presented in the “Trend in Total Assets” bar chart. Total assets have increased an overall $19.1 billion (21 percent) since 2015. This upward trend resulted primarily from an $9.6 billion increase in Fund Balance with Treasury, a $6.1 billion increase in Property and Equipment, and a $1.9 billion increase in Investments.

Many Heritage Assets, including art, historic American furnishings, rare books and cultural objects, are not reflected as assets on the Department’s Balance Sheet. Federal accounting standards attempt to match costs to accomplishments in operating performance, and have deemed that the allocation of historical cost through depreciation of a national treasure or other priceless item intended to be preserved forever as part of our American heritage would not contribute to performance cost measurement. Thus the acquisition cost of heritage assets is expensed not capitalized. The maintenance costs of these heritage assets are expensed as incurred, since it is part of the government’s role to maintain them in good condition. All of the embassies and other properties on the Secretary of State’s Register of Culturally Significant Property, however, do appear as assets on the Balance Sheet, since they are used in the day-to-day operations of the Department.

***Liabilities.*** The Department’s total liabilities were $33.0 billion at September 30, 2020, an increase of $631 million (2 percent) between 2019 and 2020. After-Employment Benefit Liability comprises 78 percent of total liabilities and increased $1.7 billion (7 percent) from 2019. International Organizations Liability decreased $1.3 billion (34 percent) and Accounts Payable increased $278 million (12 percent).

The six-year trend in the Department’s total liabilities is presented in the “Trend in Total Liabilities” bar chart. Over this period, total liabilities increased by $7.6 billion (30 percent). This change is principally due to the increase in the After-Employment Benefit Liability, a $5.9 billion increase. The increase is due to a higher number of Foreign Service employees enrolled in the plan and changes in the key economic indicators underlying the actuarial computation over time.

***Ending Net Position.*** The Department’s net position, comprised of Unexpended Appropriations and the Cumulative Results of Operations, increased $135 million (.02 percent) between 2019 and 2020. Cumulative Results of Operations decreased $159 million and Unexpended Appropriations were up $294 million due in part to the budgetary financing sources used to purchase property and equipment.

### Statement of Net Cost: Yearly Results of Operations

The Statement of Net Cost presents the Department’s net cost of operations by strategic goal. Net cost is the total program cost incurred less any exchange (i.e., earned) revenue. The presentation of program results is based on the Department’s major goals established pursuant to the Government Performance and Results Act (GPRA) of 1993 and the GPRA Modernization Act of 2010. The total net cost of operations in 2020 equaled $32.6 billion, an increase of $2.9 billion (10 percent) from 2019. This increase of net costs was mainly due to decreases in fee and surcharge collections from consular operations, such as machine readable visa fees, passport fees and security surcharges, and other surcharges as a direct result of the global coronavirus pandemic. In addition, spending increased for humanitarian assistance.

The six-year trend in the Department’s net cost of operations is presented in the “Trend in Net Cost of Operations” bar chart. There is an increase from 2015 to 2020 of $7.0 billion. Increases from 2015 generally reflect costs associated with new program areas related to countering security threats and sustaining stable states, as well as the higher cost of day-to-day operations such as inflation and increased global presence.

The “Net Cost of Operations by Strategic Goal” pie chart illustrates the results of operations by strategic goal, as reported on the Statement of Net Cost. As shown, net costs associated with two of the strategic goals (Strategic Goal 3: Promote American Leadership through Balanced Engagement) and (Strategic Goal 4: Ensure Effectiveness and Accountability to the American Taxpayer) represents the largest net costs in 2020 – a combined $24.9 billion (76 percent). The largest increase was in Strategic Goal 1: Protect America’s Security at Home and Abroad. The net cost increased $1.4 billion resulting from the decrease in consular fee revenue due to the reduced travel from the global coronavirus pandemic. In Strategic Goal 3: Promote American Leadership through Balanced Engagement, net cost increased $653 million due to an increase in spending on humanitarian relief and global health programs.

#### Earned Revenues

Earned revenues occur when the Department provides goods or services to another Federal entity or the public. The Department reports earned revenues regardless of whether it is permitted to retain the revenue or remit it to Treasury. Revenue from other Federal agencies must be established and billed based on actual costs, without profit. Revenue from the public, in the form of fees for service (e.g., visa issuance), is also without profit. Consular fees are established on a cost recovery basis and determined by periodic cost studies. Certain fees, such as the machine readable Border Crossing Cards, are determined statutorily. Revenue from reimbursable agreements is received to perform services overseas for other Federal agencies. The FSRDF receives revenue from employee/employer contributions, a U.S. Government contribution, and investment interest. Other revenues come from ICASS billings and Working Capital Fund earnings.

Earned revenues totaled $6.8 billion in 2020, and are depicted, by program source, in the “Earned Revenues by Program Source” pie chart. The major sources of revenue were from consular fees ($2.7 billion or 39 percent), reimbursable agreements ($2.3 billion or 34 percent), and ICASS earnings ($1.0 billion or 15 percent). These revenue sources totaled $6.0 billion (88 percent). Overall, revenue decreased by 23 percent – $2.0 billion from 2019 to 2020. This decrease is primarily a result of a decrease in revenue from consular fees due to a decrease in travel as a result of COVID-19.

### Statement of Changes in Net Position: Cumulative Overview

The Statement of Changes in Net Position identifies all financing sources available to, or used by, the Department to support its net cost of operations and the net change in its financial position. The sum of these components, Cumulative Results of Operations and Unexpended Appropriations, equals the Net Position at year-end. The Department’s net position at the end of 2020 was $76.7 billion, a $135 million (.18 percent) increase from the prior fiscal year. This change resulted from the $294 million increase in Unexpended Appropriations and a $159 million decrease in Cumulative Results of Operations.

### Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources (SBR) provides data on the budgetary resources available to the Department and the status of these resources at the fiscal year-end. The SBR displays the key budgetary equation: Total Budgetary Resources equals Total Status of Budgetary Resources.

D

The Department’s budgetary resources consist primarily of appropriations, spending authority from offsetting collections, and unobligated balances brought forward from prior years. The “Trend in Total Budgetary Resources” bar chart highlights the budgetary trend over the fiscal years 2015 through 2020. A comparison of the two most recent years shows a $2.2 billion (3 percent) increase in total resources since 2019. This change resulted from increases in unobligated balances from prior year budget authority ($1.6 billion) and appropriations ($0.6 billion).

### The Department's Budgetary Position

For 2020, the majority of the Department’s funding was provided by the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2020 (Division F, Public Law No. 116-94) (the “FY 2020 Act”) enacted on December 20, 2019. Supplemental 2020 funding was provided for Coronavirus response by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (Public Law No. 116-123) and the Coronavirus Aid, Relief, and Economic Security Act, 2020 (Public Law No. 116-136). The Bureau of Budget and Planning manages the Diplomatic Engagement portion of the budget, and the Office of Foreign Assistance manages Foreign Assistance funds.

Looking ahead, the 2021 President’s Budget puts U.S. national security interests first, while carrying out our fiduciary responsibility to the U.S. taxpayer through necessary trade-offs and reductions. The request focuses our resources to address challenges such as terrorism, international health and humanitarian disasters, and competition from nations that do not share our values of freedom and democracy. It promotes U.S. economic growth by creating welcoming environments for U.S. businesses overseas, supporting the Department’s continued efforts to strengthen engagement with the private sector, and creating a fair and level playing field. The Budget recalibrates American contributions to international organizations to a more sustainable level, maintaining American leadership while asking other nations to increase their support. Finally, the request also continues to invest in the Department’s global workforce and promote efficient operations through information technology modernization and overseas humanitarian assistance restructuring.

#### Budgetary Position for Diplomatic Engagement

The 2020 funding provided for Diplomatic Engagement totaled $19.8 billion, which included $11.8 billion in appropriated Enduring funds and $3.7 billion in appropriated Overseas Contingency Operations (OCO) funds included in Title I of the FY 2020 Act, an additional $3.7 billion in non-appropriated retained fee revenue in the Consular and Border Security Program, and $588 million in cumulative supplemental appropriated Coronavirus response funds. Funding provided in these Acts supports the people and programs that carry out U.S. foreign policy, advancing U.S. national security, political, and economic interests at 276 posts in 191 countries around the world. These funds also maintain and secure the U.S. diplomatic infrastructure platform from which U.S. Government agencies operate overseas. In addition to the $19.8 billion in new 2020 funding, $13.5 billion in prior year Diplomatic Engagement funding remained available for obligation in 2020.

In 2020, the Department earned and retained $3.7 billion in new user fee revenue derived from passport and visa processing, including Machine Readable Visa fees, Immigrant Visa fees, the Western Hemisphere Travel Initiative Surcharge, Visa Fraud Prevention and Detection fees, and other fee and surcharge revenues that support the Consular and Border Security Programs (CBSP) account. CBSP funds support programs that provide protection to U.S. citizens overseas and contribute to national security and economic growth. These programs are a core element of the national effort to deny individuals who threaten the country entry into the United States while assisting and facilitating the entry of legitimate travelers, and promoting tourism.

For 2021, the Department’s Diplomatic Engagement budget request totals $16.2 billion in new budget authority. The 2021 estimate for consular fee revenue to support Consular and Border Security programs has been revised downwards to $3.1 billion, a reduction from the 2021 request due to reduced visa and passport demand. The Department is not requesting OCO funding in 2021.

#### Budgetary Position for Foreign Assistance

For 2020, Foreign Assistance funding for the Department of State and USAID totaled $39.0 billion, which included $33.2 billion in appropriated Enduring funds, and $4.1 billion in appropriated OCO funds in the FY 2020 Act, as well as a total of $1.7 billion in supplemental Foreign Assistance funding to respond to the coronavirus pandemic through Public Law No. 116-123 and Public Law No 116-136. The 2020 funding supported the President’s commitment to four key national priorities: defending U.S. national security, fostering opportunities for U.S. economic interests, asserting U.S. leadership and influence, and ensuring effectiveness and accountability to the U.S. taxpayer.

Foreign Assistance accounts fully managed by the Department of State totaled $19.3 billion, approximately half of the total 2020 Foreign Assistance budget. The Department also implements funds from the Assistance for Europe, Eurasia, and Central Asia account and the Economic Support Funds account, although these are also implemented by USAID. USAID fully implements the following accounts: Global Health Programs-USAID, International Disaster Assistance, Food for Peace, Development Assistance, Transition Initiatives, Complex Crises Fund, Operating Expenses, Capital Investment Fund, and the Office of the Inspector General Security assistance totaled $9.0 billion in 2020, and was appropriated in the following accounts: Foreign Military Financing (FMF); International Military Education and Training; International Narcotics Control and Law Enforcement; Nonproliferation, Antiterrorism, Demining, and Related Programs; and Peacekeeping Operations. The majority of security assistance, $6.2 billion in FMF, was provided to countries in the Middle East and North Africa, including $3.3 billion for Israel.

In 2020, the portion of the Global Health Programs appropriation managed by the Department totaled $5.9 billion. This is the primary source of funding for the President’s Emergency Plan for AIDS Relief. These funds are used to control the epidemic through data-driven investments that strategically target geographic areas and population where the initiative can achieve the most impact for its investments.

In 2020, the portion of humanitarian assistance managed by the Department through the Migration and Refugee Assistance (MRA) and U.S. Emergency Refugee and Migration Assistance accounts totaled $3.8 billion, of which $1.5 billion was OCO and $2.3 billion was for core programs including supplemental funds. These funds provided humanitarian assistance and resettlement opportunities for refugees and conflict victims around the globe and contributed to key multilateral and non-governmental organizations that address pressing humanitarian needs overseas. Of the $1.7 billion in 2020 supplemental Foreign Assistance appropriated for the Department of State and USAID, $350.0 million in MRA funding was provided to prevent, prepare for, and respond to COVID-19 in existing complex emergency responses, and to address the potential humanitarian consequences of the pandemic.

The Democracy Fund appropriation totaled $273.7 million in 2020; the funds are split, however, between the Department and USAID. The Department was allocated $178.5 million to promote democracy in priority countries where egregious human rights violations occur, democracy and human rights advocates are under pressure, governments are not democratic or are in transition, where there is growing demand for human rights and democracy, and for programs promoting Internet Freedom.

The 2020 International Organizations and Programs appropriation totaled $390.5 million. It provided international organizations voluntary contributions that advanced U.S. strategic goals by supporting and enhancing international consultation and coordination. This approach is required in transnational areas where solutions to problems are best addressed globally, such as protecting the ozone layer or safeguarding international air traffic. In other areas, the United States can multiply its influence and effectiveness through support for international programs.

The President’s 2021 Request for Foreign Assistance for the Department of State and USAID is currently under congressional consideration. The State and USAID request is for $27.6 billion to support all core programs; no OCO funding is requested. The Department of State-managed accounts sum to $11.7 billion or 42 percent of the total request.

### Impact of COVID-19

In response to the coronavirus disease 2019 (COVID-19) global pandemic, the Department of State has taken decisive action to inform and safeguard U.S. citizens overseas, protect the homeland, advance the Administration’s commitment to building global health security capacity for this and future outbreaks, and reduce the impact for U.S. companies and supply chains overseas. As of June 2020, the Department had coordinated the repatriations of 100,000 American citizens as part of the U.S. Government’s efforts to combat COVID-19 and protect American citizens abroad.

Resources were mobilized to support these efforts. The Department’s 2020 funding provided for Diplomatic Engagement included $588 million in cumulative supplemental funding appropriated for COVID-19 response. The $588 million in 2020 supplemental funding was provided to prevent, prepare for, and respond to the coronavirus pandemic. These funds were used to provide critical support to American citizens overseas and maintain consular operations in light of declining visa and passport revenues, and increase the Department’s global capacity for medical response, diagnosis, treatment, and evacuations. Supplemental funds also facilitated travel and covered support costs for State Department employees and families on authorized departure and ordered departure, as well as enhancing information technology support for telework and remote access so that employees could continue to deliver on the Department’s mission while following Federal, state, and local public health guidance. Funds were also used to prevent and respond to exposure at State Department facilities through increased decontamination, disinfection, and cleaning. In addition, funds supported the tracking and response to adversarial narratives and disinformation related to COVID-19, as well as providing enhanced intelligence analysis, and extending foreign language training to online class offerings. Internally, the Department implemented its Diplomacy Strong framework, a phased approach and methodology for COVID-19 mitigation in our domestic and overseas operations and facilities.

As noted, the impact to Department visa and passport fee-based revenue has been significant. Nonimmigrant visa and passport revenue declined by more than $1.4 billion in 2020 from 2019. In addition to the supplemental resources appropriated to the Department, the CARES Act temporarily expanded expenditure authority for the passport security surcharge and the immigrant visa security surcharge to enable carryforward amounts from those fees to also offset expenses necessary to maintain consular operations with a priority on U.S. citizen services. These expenses would otherwise have been covered by machine readable visa fees generated from nonimmigrant visa applications.

### Limitation of Financial Statements

Management prepares the accompanying financial statements to report the financial position and results of operations for the Department of State pursuant to the requirements of Chapter 31 of the U.S. Code Section 3515(b). While these statements have been prepared from the books and records of the Department in accordance with FASAB standards using OMB Circular A-136, *Financial Reporting Requirements*, revised, and other applicable authority, these statements are in addition to the financial reports, prepared from the same books and records, used to monitor and control the budgetary resources. These statements should be read with the understanding that they are for a component of the U.S. Government, a sovereign entity.

							Management Assurances and Other Financial Compliances					

### Management Assurances

The Department’s Management Control policy is comprehensive and requires all Department managers to establish cost-effective systems of management controls to ensure U.S. Government activities are managed effectively, efficiently, economically, and with integrity. All levels of management are responsible for ensuring adequate controls over all Department operations.

----

### Federal Managers' Financial Integrity Act

The Department of State’s (the Department’s) management is responsible for managing risks and maintaining effective internal control to meet the objectives of Sections 2 and 4 of the Federal Managers’ Financial Integrity Act. The Department conducted its assessment of risk and internal control in accordance with OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control. Based on the results of the assessment, the Department can provide reasonable assurance that internal control over operations, reporting, and compliance was operating effectively as of September 30, 2020.

As a result of its inherent limitations, internal control over financial reporting, no matter how well designed, cannot provide absolute assurance of achieving financial reporting objectives and may not prevent or detect misstatements. Therefore, even if the internal control over financial reporting is determined to be effective, it can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Michael R. Pompeo*Secretary of StateNovember 16, 2020*

----

### Departmental Governance

#### Management Control Program

The Federal Managers’ Financial Integrity Act (FMFIA) requires the head of each agency to conduct an annual evaluation in accordance with prescribed guidelines, and provide a Statement of Assurance (SoA) to the President and Congress. As such, the Department’s management is responsible for managing risks and maintaining effective internal control.

The FMFIA requires the GAO to prescribe standards of internal control in the Federal Government, which is titled GAO’s *Standards for Internal Control in the Federal Government* (Green Book). Commonly known as the Green Book, these standards provide the internal control framework and criteria Federal managers must use in designing, implementing, and operating an effective system of internal control. The Green Book defines internal control as a process effected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity are achieved. These objectives and related risks can be broadly classified into one or more of the following categories:

- Effectiveness and efficiency of operations,
- Compliance with applicable laws and regulations, and
- Reliability of reporting for internal and external use.

OMB Circular A-123, *Management’s Responsibility for Enterprise Risk Management and Internal Control* provides implementation guidance to Federal managers on improving the accountability and effectiveness of Federal programs and operations by identifying and managing risks, establishing requirements to assess, correct, and report on the effectiveness of internal controls. OMB Circular A-123 implements the FMFIA and GAO’s Green Book requirements. FMFIA also requires management to include assurance on whether the agency’s financial management systems comply with Government-wide requirements. The financial management systems requirements are directed by Section 803(a) of the FFMIA and Appendix D to OMB Circular A-123, *Compliance with the Federal Financial Management Improvement Act of 1996*. The 2020 results are discussed in the section titled “Federal Financial Management Improvement Act.”

The Secretary of State’s 2020 Statement of Assurance for FMFIA is provided on the previous page. We have also provided a Summary of Financial Statement Audits and Management Assurances as required by OMB Circular A-136, *Financial Reporting Requirements*, revised, in the Other Information section of this report. In addition, there are no individual areas for the Department currently on GAO’s bi-annual High-Risk List.

The Department’s Management Control Steering Committee (MCSC) oversees the Department’s management control program. The MCSC is chaired by the Comptroller, and is comprised of eight Assistant Secretaries, in addition to the Chief Information Officer, the Deputy Comptroller, the Deputy Legal Adviser, the Director for the Office of Budget and Planning, the Director for Human Resources, the Director for Management Strategy and Solutions, the Director for the Office of Overseas Buildings Operations, and the Inspector General (non-voting). Individual SoAs from Ambassadors assigned overseas and Assistant Secretaries in Washington, D.C. serve as the primary basis for the Department’s FMFIA SoA issued by the Secretary. The SoAs are based on information gathered from various sources including managers’ personal knowledge of day-to-day operations and existing controls, management program reviews, and other management-initiated evaluations. In addition, the Office of Inspector General, the Special Inspector General for Afghanistan Reconstruction, and the Government Accountability Office conduct reviews, audits, inspections, and investigations that are considered by management.

The Senior Assessment Team (SAT) provided oversight during 2020 for the internal controls over reporting program in place to meet Appendix A to OMB Circular A-123 requirements. The SAT reports to the MCSC and is comprised of 14 senior executives from bureaus that have significant responsibilities relative to the Department’s financial resources, processes, and reporting. The SAT also includes executives from the Office of the Legal Adviser and the Office of Inspector General (non-voting). The Department employs a risk-based approach in evaluating internal controls over reporting on a multi-year rotating basis, which has proven to be efficient. Due to the broad knowledge of management involved with the Appendix A assessment, along with the extensive work performed by the Office of Management Controls, the Department evaluated issues on a detailed level.

D

The Department’s management controls program is designed to ensure full compliance with the goals, objectives, and requirements of the FMFIA and various Federal laws and regulations. To that end, the Department has dedicated considerable resources to administer a successful management control program. The Department’s Office of Management Controls employs an integrated process to perform the work necessary to meet the requirements of OMB Circular A-123’s Appendix A and Appendix C (regarding Payment Integrity), the FMFIA, and the GAO’s Green Book. Green Book requirements directly relate to testing entity-level controls, which is a primary step in operating an effective system of internal control. Entity-level controls reside in the control environment, risk assessment, control activities, information and communication, and monitoring components of internal control in the Green Book, which are further required to be analyzed by 17 underlying principles of internal control. For the Department, all five components and 17 principles were operating effectively and supported the Department’s FY 2020 unmodified Statement of Assurance. The 2020 Appendix A assessment did not identify any material weaknesses in the design or operation of the internal control over reporting. The assessment did identify several significant deficiencies in internal control over reporting that management is closely monitoring. The Department complied with the requirements in OMB Circular A-123 during 2020 while working to evolve our existing internal control framework to be more value-added and provide for stronger risk management for the purpose of improving mission delivery.

D

The Department also places emphasis on the importance of continuous monitoring. It is the Department’s policy that any organization with a material weakness or significant deficiency must prepare and implement a corrective action plan to fix the weakness. The plan combined with the individual SoAs and Appendix A assessments provide the framework for monitoring and improving the Department’s management controls on a continuous basis. Management will continue to direct and focus efforts to resolve significant deficiencies in internal control identified by management and auditors.

During 2020, the Department continued taking important steps to advance its Enterprise Risk Management (ERM) program. The Enterprise Governance Board (EGB), which is comprised of the Deputy Secretary and all Under Secretaries, serves as the Enterprise Risk Management Council. In this capacity, the EGB reviews the Department’s risk profile at least once per year. The Department’s Office of Management Strategy and Solutions (M/SS) serves as the Executive Secretariat to the EGB and manages the Department’s overall risk management program. It is the Department’s policy that advancement of U.S. foreign policy objectives inherently involves diverse types of risk, and the Department recognizes that taking considered risks can be essential to creating value for our stakeholders.

The EGB reviewed the Department’s ERM processes and risk posture during 2020. The EGB endorsed updates to the Department’s overarching governance structure that sets the tone and direction for risk management policies, communications, and training throughout the organization. The EGB clarified roles and responsibilities with regard to risk and also updated the Department’s “Risk Principles” to provide a more common understanding of how Department employees and leaders should approach risk decisions. The EGB also recognized that Department bureaus have risk management built into a wide range of existing procedures and manage risk in a variety of ways, and incorporate mitigation strategies into strategic planning processes. The Department looks forward to continued development of ERM policies in 2021.

----

### Federal Financial Management Improvement Act

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires agencies to implement and maintain financial management systems that are in substantial compliance with Federal financial management system requirements, Federal accounting standards, and the U.S. Standard General Ledger at the transaction level. The Department conducted its evaluation of financial management systems for compliance with FFMIA in accordance with OMB Circular A‐123, Appendix D. Based on the results of this assessment, the Department can provide reasonable assurance that its overall financial management systems substantially comply with principles, standards, and requirements prescribed by the FFMIA as of September 30, 2020.

Michael R. Pompeo*Secretary of StateNovember 16, 2020*

----

### Federal Financial Management Improvement Act

The purpose of the Federal Financial Management Improvement Act of 1996 (FFMIA) is to advance Federal financial management by ensuring that Federal financial management systems generate timely, accurate, and useful information with which management can make informed decisions and to ensure accountability on an ongoing basis.

OMB Circular A-123, Appendix D, *Compliance with the Federal Financial Management Improvement Act of 1996*, provides guidance the Department used in determining compliance with FFMIA. The Department considered results of OIG and GAO audit reports, annual financial statement audits, and other relevant information. The Department’s annual Federal Information Security Modernization Act Report for 2020 was not available for review due to the Department being granted a 60 day deadline extension. The Department’s assessment also relies upon evaluations and assurances under the Federal Managers’ Financial Integrity Act of 1982 (FMFIA), including assessments performed to meet the requirements of OMB Circular A-123 Appendix A. When applicable, particular importance is given to any reported material weakness and material non-conformance identified during these internal control assessments. The Department has made it a priority to meet the objectives of the FFMIA.

In its Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements, the Independent Auditor identified instances of substantial noncompliance with Federal financial management systems requirements. The Department acknowledges that the Independent Auditor has noted certain weaknesses in our financial management systems. OMB’s Appendix D provides a revised compliance model that entails a risk-and outcome-based approach to assess FFMIA compliance. In our assessments and evaluations, the Department identified similar weaknesses. However, applying the guidance and the assessment framework noted in Appendix D to OMB Circular A-123, the Department considers them deficiencies versus substantial non-conformances relative to substantial compliance with the requirements of the FFMIA. Nonetheless, the Department is committed to continuing to work to address all identified financial management system deficiencies.

### Federal Information Security Modernization Act

The Federal Information Security Modernization Act of 2014 (FISMA) requires Federal agencies to develop, document, and implement an agency-wide program to protect government information and information systems that support the operations and assets of the agency. FISMA authorized the Department of Homeland Security (DHS) to take a leadership and oversight role in this effort, created cyber breach notification requirements, and modified the scope of reportable information from primarily policies and financial information to specific information about threats, security incidents, and compliance with security requirements.

The Department of State remains committed to adopting the best cybersecurity practices and embedding them into the agency’s culture. As a result, the agency continues to improve its cybersecurity posture and provide transparency internally and with external partners in other Federal agencies.

In 2019, OMB and DHS used the core areas of the National Institute of Standards and Technology (NIST) Cybersecurity Framework to assess cybersecurity capabilities and compliance and concluded that overall, the Department improved its security posture to actively “managing” cybersecurity risk for all of 2019 and last two quarters for 2020.

The FISMA audit that would normally be completed in November of 2020 was granted an extension for 60 days, and findings will be available at that time. In the meantime, the OIG recognized the agency’s progress in maturing the information security program in two of the five core areas of the Cybersecurity Framework and we continue to make progress to fully mature the program. To that end, in 2020, the Department accomplished the following:

- Enhanced capabilities to better inform top leadership and support risk-based decision making through an updated Agency Cyber Risk Management Strategy and implementation of agency and bureau level risk assessments and cyber performance scorecards. For high value assets, in response to DHS’s Binding Operational Directive 18-02, the risk reporting initiatives also included annual and quarterly metrics to facilitate a more comprehensive view of risk remediations.
- Initiated a multi-year effort to strengthen the Department’s security posture through greater alignment between business needs, cybersecurity, and enterprise architecture. Instead of adopting a flavor of the month approach to cyber security technologies and a complex sprawl of tools and processes with no integration, the Department is developing a robust framework to decide how much security is needed to protect the most critical and sensitive information assets in a more cost-effective manner that Department staff can efficiently administer and maintain. Using the NIST Risk Management Framework, NIST Cyber Security Framework, and the Sherwood Applied Business Security Architecture, the Department developed governance and a methodology to provide oversight for security architecture enterprise wide. By doing so, the Department can ensure different functions and locations worldwide consistently interpret, select and integrate cyber tools and processes, as we modernize our information technology assets in a changing threat landscape.
- Implemented continuous diagnostic monitoring (CDM) and enhanced the Department’s capacity to ensure role-based access controls through its identity access credential management program. The enhanced capacity will give the Department immediate access to comprehensive attributes of any single user after consolidating all digital identities including cybersecurity training records, clearance suitability, and system access rights. Additionally, the CDM identity management capabilities allow Department-wide users single sign-on service to reduce both the number of passwords a user must memorize and the probability of password compromise.

The actions that the Department continues to undertake are based on the premise that cybersecurity is an ongoing effort that requires agility to respond to ever evolving threats and the mission needs.

----

**DID YOU KNOW?**

*Robert Smith, the sixth Secretary of State, served both as the Secretary of the Navy (1801-1809) and the Secretary of State (1809-1811).*

More information on former Secretaries can be found at: https://history.state.gov/departmenthistory/people/secretaries

----

### Resource Management Systems Summary

Other Information, Section III of this AFR, provides an overview of the Department’s current and future resource management systems framework and systems critical to effective agency-wide financial management operations, financial reporting, internal controls, and interagency administrative support cost sharing. This summary presents the Department’s resource management systems strategy and how it will improve financial and budget management across the agency. This overview also contains a synopsis of critical projects and remediation activities that are planned or currently underway. These projects are intended to modernize and consolidate Department resource management systems.

### Digital Accountability and Transparency Act

The Digital Accountability and Transparency Act (DATA Act) of 2014’s purpose was to make information related to Federal expenditures more easily accessible and transparent. In doing so, the Federal Government gave citizens, Congress, and others unprecedented public access to structured information about spending and opened up new horizons for oversight, accountability, activism, and innovation. The law required the U.S. Department of the Treasury to establish common standards for financial data provided by all Government agencies. At the same time, other collaborative efforts were underway with regard to how these elements would be displayed and made available to the public through the website USASpending.gov. Ultimately, the goal of the law is to improve the ability of Americans to track and understand how the government is spending their tax dollars. It is also the first step in a larger and longer effort for agencies to use data as a resource to transform the way that leadership manages and governs the agencies.

The Department has dedicated considerable resources in complying with the DATA Act. Because of the extensive global presence of the Department, with more than 270 embassies, consulates, and other posts in over 180 countries, the Department faces challenges in consolidating data originating from around the world. This challenge also requires communication between multiple systems. To satisfy the requirements of the DATA Act, the Department successfully transitioned the Global Financial Management System data warehouse into a Global Business Intelligence solution. This was a significant undertaking, which included upgrading its supporting infrastructure. This solution has greatly improved the Department’s capability to utilize data mining techniques and expanded internal and external financial reporting proficiency for the Department.

## View report by:

### On This Page

                    -  Section Table of Contents 
                    -  About the Department                        -  Our Vision, Mission, and History 
                      -  Our Organization and People 
                      -  Our Work at Home and Overseas 
                    -  Strategic Goals and Government-wide Management Initiatives                        -  Managing for Results: Planning, Budgeting, Managing, and Learning 
                      -  Joint State-USAID Strategic Goals 
                      -  Agency Priority Goals 
                      -  Cross-Agency Priority Goals 
                    -  Performance Summary and Highlights                        -  Performance Reporting 
                      -  Major Program Areas 
                      -  Program and Project Design, Monitoring, and Evaluation Policy 
                      -  Maximizing America’s Investments Through Analysis and Evidence 
                    -  Financial Summary and Highlights                        -  Balance Sheet: Overview of Financial Position 
                      -  Statement of Net Cost: Yearly Results of Operations 
                      -  Statement of Changes in Net Position: Cumulative Overview 
                      -  Combined Statement of Budgetary Resources 
                      -  The Department's Budgetary Position 
                      -  Impact of COVID-19 
                      -  Limitation of Financial Statements 
                    -  Management Assurances and Other Financial Compliances                        -  Management Assurances 
                      -  Federal Managers' Financial Integrity Act 
                      -  Departmental Governance 
                      -  Federal Financial Management Improvement Act 
                      -  Federal Financial Management Improvement Act 
                      -  Federal Information Security Modernization Act 
                      -  Resource Management Systems Summary 
                      -  Digital Accountability and Transparency Act 

Tags

Accountability ReportBudget ReportBureau of Budget and PlanningBureau of the Comptroller and Global Financial ServicesFinancial ReportPerformance ReportsResource ManagementState Department MissionStrategic Plan

Back to Top

                - White House
                - USA.gov
                - Office of the Inspector General
                - Archives
                - Contact Us

follow us
FacebookTwitterInstagramYouTubeFlickrGovDelivery

              - Privacy Policy
              - Accessibility Statement
              - Copyright Information
              - FOIA
              - No FEAR Act

## U.S. Department *of* State

#### The Lessons of 1989: Freedom and Our Future