HomeReportsBureau of the Comptroller and Global Financial ServicesFY 2018 Department of State Agency Financial Report...Section III: Other Information

# 					FY 2018 Department of State Agency Financial Report: Section III: Other Information			

Bureau of the Comptroller and Global Financial Services

 In this section										/

													Section Table of Contents											

                -  Section Table of Contents 
                -  Inspector General's Statement on the Department's Major Management and Performance Challenges                    -  Introduction 
                  -  1. Protection of People and Facilities 
                  -  2. Oversight of Contracts, Grants, and Foreign Assistance 
                  -  3. Information Security and Management 
                  -  4. Financial and Property Management 
                  -  5. Operating in Contingency and Critical Environments 
                  -  6. Workforce Management 
                  -  7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority 
                  -  Conclusion 
                  -  Footnotes 
                -  Management's Response to Inspector General                    -  1. Protection of People and Facilities 
                  -  2. Oversight of Contracts, Grants, and Foreign Assistance 
                  -  3. Information Security and Management 
                  -  4. Financial and Property Management 
                  -  5. Operating in Contingency and Critical Environments 
                  -  6. Workforce Management 
                  -  7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority 
                -  Summary of Financial Statement Audit and Management Assurances                    -  Summary of Financial Statement Audit 
                  -  Summary of Management Assurances 
                -  Payment Integrity and Other Laws and Regulations                    -  Improper Payments Information Act, as Amended 
                  -  Debt Management 
                  -  Electronic Payments 
                  -  Federal Civil Penalties Inflation Adjustment Act 
                  -  Prompt Payment Act 
                  -  Fraud Reduction Report 
                  -  Grants Oversight and New Efficiency (GONE) Act 
                -  Resource Management Systems Summary                    -  Introduction 
                  -  Financial Systems Program 
                  -  Planning and Budget Systems Program 
                  -  Travel Systems Program 
                  -  Compensation Systems Program 
                  -  Business Intelligence Program 
                -  Heritage Assets                    -  Diplomatic Reception Rooms Collection 
                  -  Art Bank Program 
                  -  Rare & Special Book Collection 
                  -  Cultural Heritage Collection 
                  -  Secretary of State’s Register of Culturally Significant Property 
                  -  Diplomacy Center 
                  -  Art in Embassies Program 
                  -  International Boundary and Water Commission 
                  -  Blair House 
                -  Reduce the Footprint   

## Section Table of Contents

- Inspector General’s Statement on the Department’s Major Management and Performance Challenges
- Management’s Response to Inspector General
- Summary of Financial Statement Audit and Management Assurances
- Payment Integrity and Other Laws and Regulations
- Resource Management Systems Summary
- Heritage Assets
- Reduce the Footprint

							Inspector General's Statement on the Department's Major Management and Performance Challenges					

### Introduction

This report is provided in accordance with the Reports Consolidation Act of 2000.1 Each year, the Office of Inspector General (OIG) for the Department of State (Department) identifies the most serious management and performance challenges facing the Department and provides a brief assessment of the Department’s progress in addressing those challenges.

We assess progress primarily through our compliance process, which relates to individual and often targeted recommendations. Our oversight work, however, gives us unique visibility into the most significant challenges facing the Department. OIG identifies the following major management and performance challenges the Department faced in FY 2018:

- Protection of people and facilities
- Oversight of contracts, grants, and foreign assistance
- Information security and management
- Financial and property management
- Operating in contingency and critical environments
- Workforce management
- Promoting accountability through internal coordination and clear lines of authority

These challenges are based on a thorough review of our oversight work performed this year and in the past. We have included within this document examples of reports and findings that are particularly illustrative or noteworthy on certain points. In addition to publicly available work, OIG issues a number of Sensitive But Unclassified and Classified reports throughout the year. Many of the findings in those reports reinforce our assessment of these management challenges, particularly as they relate to protection of people and facilities and information security and management.

Although the specific challenges are unchanged from FY 2017, our focus on certain aspects of these challenges has shifted in FY 2018. For example, this year, as part of the challenge relating to oversight of contracts and grants, we have emphasized the Department’s oversight of construction contracts. A growing body of our work reveals ongoing concerns with the Department’s long-term, complex, and high value construction projects, and this is particularly true in critical and contingency environments. Although many of the deficiencies we identify are relevant to contract oversight generally, we focus on these construction contracts separately due to the particular financial and security risks they pose for the Department.

These challenges often overlap and reinforce one another. Protecting people and facilities is often a particular challenge in contingency and critical environments, and workforce management challenges are frequently found at the root of deficiencies related to contract and grant oversight. Likewise, weaknesses in organizational structure and lines of authority contribute to a range of concerns, including information security deficiencies and difficulties managing foreign assistance programs.

Continued attention to the management challenges identified in this report will improve the Department’s capacity to fulfill its mission while exhibiting good stewardship of public resources. OIG encourages the Department to consider ways that specific recommendations might be applied broadly to make systemic improvements that will result in meaningful and permanent change. We hope that this report, accompanied by the oversight work we perform throughout the year, assists the Department in its efforts to improve the effectiveness and efficiency of its programs and operations.

### 1. Protection of People and Facilities

The Department has made substantial progress on safety and security issues since an attack on the diplomatic compound in Benghazi, Libya, 6 years ago. However, the threat of physical violence against U.S. diplomats and U.S. diplomatic facilities continues to affect every region of the world, making this a top management challenge.

Although naturally greater in conflict areas such as Iraq and Afghanistan, the threat of violence is global, with all U.S. diplomatic facilities facing some level of risk. Additionally, natural disasters, environmental hazards, and ordinary crime continually pose risks to the health and safety of Department personnel and their families serving abroad. Much of OIG’s work identifies risks to the protection of Department personnel and facilities and provides recommendations to address those risks.

#### Constructing and Maintaining Safe and Secure Diplomatic Facilities

Constructing and maintaining safe and secure diplomatic facilities has been an ongoing challenge, which is compounded in regions affected by conflict and humanitarian crises. OIG continues to recommend steps the Department can take to improve adherence to its own policies and procedures.

In one example, an inspection of Embassy Georgetown in Guyana revealed the use of an old, Government-owned warehouse for non-storage operations, including Facilities Management workshops. This facility, though, did not meet Department standards and was accordingly determined unfit for occupancy. The report noted that the warehouse did not comply with the electrical code; that it lacked a fire alarm, fire suppression system, or fire hydrant; and that it was located near an open drainage system that constituted a health hazard.2 We recommended that the embassy vacate the warehouse and notify the Bureau of Overseas Buildings Operations (OBO) so it could be sold. Understaffing had also prevented the embassy from implementing a comprehensive and routine maintenance program, which made it less likely to identify major deficiencies and more susceptible to the risk of equipment failure.3 In fact, the lack of a comprehensive preventative maintenance program is a problem that our inspection work frequently notes.4

In FY 2017, we identified poor quality assurance and oversight of construction at Embassy Kabul that led to a range of deficiencies affecting plumbing and electrical systems; heating, ventilation, and air conditioning systems; elevators; and fire safety systems. Identified deficiencies included a failure to adhere to electrical and fire safety standards.5 A follow-up report in 2018 revealed similar risks to personnel and property due to the improper installation of the embassy’s fire alarm system as part of a major office and residential expansion.6 Inspections of embassies in Copenhagen, Lisbon, and Djibouti also identified issues adhering to fire safety standards, including lapses in monthly inspections of fire extinguishers and smoke alarms7 and improper storage of flammable materials.8

#### Ensuring the Health and Safety of Personnel Abroad

We consistently find that embassy leadership is engaged on security and health and safety issues. Areas for improvement remain, however, especially in safety and training in the operation of official vehicles, residential security, and emergency preparedness.

##### *Operations of Official Vehicles Overseas*

In FY 2018, OIG determined that the Department made improvements in response to an earlier report identifying weaknesses in armored vehicle training. In the earlier report, OIG noted that the Department only required specialized training for drivers of Chiefs of Mission and Principal Officers and recommended that the Department establish mandatory training for *all* overseas professional chauffeurs and incidental operators.9 The Department agreed with this recommendation and anticipates training *all* armored vehicle operators within the next 2 1/2 years; it is also in the process of revising its training requirements.10

OIG did, however, identify other concerns regarding safety standards related to official vehicles. For example, OIG reported that some drivers worked excessive hours, a practice that increases the risk of motor vehicle accidents caused by driver fatigue.11 We also noted lapses in medical clearances for operators of official vehicles.12 Finally, several inspections found either outdated or an absence of safety training for drivers.13

Although some concerns are limited to practices at particular posts, OIG recommendations have identified potential improvements in overall program management practices that could minimize these deficiencies. For example, posts should comply with the Department’s Motor Vehicle Safety Management Program policy on vehicle operator duty limits and update vehicle policies to ensure they comply with Department standards.

##### *Residential Security*

Much like FY 2017, the Department had problems with the administration of its housing and related anti-crime program in FY 2018. Our inspection report findings show that many Department employees and their families continue to occupy residences abroad that do not or cannot be demonstrated to meet Department safety standards.

A number of reports illustrate this concern. In Beijing, multiple residential properties lacked post occupational safety and health certifications to demonstrate that the residential units met basic safety standards.14 In Addis Ababa, most residences did not have electrical grounding, and water heaters in many residences lacked a safety valve to release internal pressure, thus making them more vulnerable to explosions.15 In Lisbon, the Department did not take required steps to inform employees of safety deficiencies at apartment complexes with swimming pools, several of which were not enclosed with a permanent barrier or fence.16 In San Jose, the embassy did not coordinate with OBO regarding its decision to lease high-rise residencies that did not meet the U.S. fire code.17

Residential security is also put at risk by deficient and ineffective emergency planning, as addressed below.

##### *Emergency Preparedness*

Department guidelines require U.S. embassies to maintain post-specific emergency action plans to respond to situations such as bombs, fires, civil disorder, or natural disasters. Although there is substantial compliance with emergency planning standards, we continue to highlight these deficiencies because of their implications for life and safety.

Again, a number of reports reflect these weaknesses. For example, despite ranking among those posts with the highest category for seismic risk, neither Embassy Addis Ababa nor OBO had a documented strategy to address residential seismic concerns.18 Inspections of other embassies at risk for earthquakes also revealed a failure to implement seismic safety assessments for many of their residential properties.19

Some consular sections—which play a lead role in crisis preparedness—did not meet Department standards. We found consular staff at one embassy that did not know the contents of the disaster assistance kits needed to function off-site in an emergency20 or, at another embassy, how to operate satellite phones to be used in an emergency.21

Staffing shortages and competing priorities were cited as factors in a lapse in emergency preparedness and security at some embassies. However, even in light of such factors, OIG made recommendations that can be implemented to improve compliance with Department standards. For example, we suggested that consular managers at Embassy Guatemala City and Embassy Managua coordinate with their counterparts in other Central American countries on disaster preparedness and response planning.22

### 2. Oversight of Contracts, Grants, and Foreign Assistance

OIG has long viewed the oversight of contracts, grants, and foreign assistance as a significant challenge for the Department, and this year is no exception. Department entities domestically and abroad did not consistently and adequately monitor contractor performance, conduct thorough invoice reviews, and oversee grants and foreign assistance programs. A growing body of OIG work also illustrates the difficulty the Department faces in managing large, long-term construction contracts, particularly in contingency environments.

These issues overlap frequently with another Department challenge: workforce management. At the root of many of the deficiencies described in this section are inexperienced and untrained oversight personnel, staff rotations that promote inefficiency, and complex programs and contracts that simply require more oversight. Because of the substantial resources involved (more than $17.2 billion for diplomatic engagement and $18.9 billion for foreign assistance in FY 201723), inadequate oversight and mismanagement pose considerable financial risk.

#### Procuring Goods and Services Cost Effectively

The value engineering (VE) program is one approach intended to reduce costs for high-value contracts. This is a systematic process of reviewing and analyzing systems, projects, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required levels of performance, reliability, quality, or safety. Although the Office of Management and Budget (OMB) requires all Federal agencies to have a VE program, we found the Department had not implemented one outside of OBO.24 Furthermore, in an audit of the OBO VE program, OIG could not complete some of its planned audit analysis because of missing documentation that prevented it from evaluating the overall effectiveness of the program.25 Until the Department implements a Department-wide VE program in line with OMB requirements, it is missing opportunities to consider cost reductions for major procurements.

#### Monitoring and Documenting Contractor Performance

As the Department engages in complex acquisitions to procure needed services and supplies to support U.S. foreign policy goals, it continues to face challenges in properly overseeing contractor performance. Oversight personnel must monitor and document performance, confirm that work is conducted in accordance with the terms of a contract, hold contractors accountable for nonperformance, and ensure that costs are effectively contained. Several examples of deficiencies in the performance of these duties follow.

In one report that addressed a contract for food services at Department facilities in Iraq, OIG found the Department did not effectively implement contractually established cost controls to protect its financial interests. Specifically, the Contracting Officer (CO) did not direct the contractor to maintain costs at a contractually established rate and increased the rates in subsequent years without performing the required analysis to establish that the Department received a fair and reasonable price.26 These unjustified increases led to $41 million in questioned costs.

In another report related to food services provided under the same contract, we reported a number of deficiencies in contractor oversight.27 For example, Contracting Officer’s Representatives (CORs) failed to develop a quality assurance surveillance plan that included measurable and structured performance standards. Moreover, the Department was unable to provide documentation for over one quarter of required food service inspections and did not complete contractor performance assessment report narratives in a timely manner, thereby hampering its ability to assess performance and hold the contractor accountable.

In the audit of fuel contracts at Embassy Amman, oversight of contractor performance was flawed in several ways. OIG found nonexistent or inadequate quality assurance surveillance plans, deliveries that were accepted by unauthorized personnel, and COR files that were missing or incomplete, all of which increased the risk of mismanagement and fraud.28 Additionally, over the course of 3 years, oversight personnel ordered and accepted fuel without purchase orders, resulting in numerous unauthorized commitments.

In an audit of Bureau of European and Eurasian Affairs (EUR) contract and grant oversight, we found EUR management and Office of Acquisitions Management COs did not review the status of electronic or hard copy COR files to ensure that they included required documents or that CORs received and reviewed all contract deliverables. Moreover, it noted that EUR management had no process in place to identify CORs or Government Technical Monitors who acted without designated authority from the CO, putting the Department at risk.29

Several FY 2018 reports also noted instances where the Department did not consistently or timely document contractors’ performance in the Contractor Performance Assessment Report System, an important tool for ensuring that other U.S. Government agencies have all available information necessary to make informed procurement decisions.30

In an effort to identify common themes regarding these issues, OIG reviewed its overseas mission and domestic bureau inspection reports published from January 2016 through December 2017 and found that 36 percent contained findings related to CORs. These included CORs who did not monitor contractors’ technical progress, did not properly review contractors’ invoices before approving them for payment, and did not maintain complete COR files.31 Although noting that many factors played a role in these concerns, OIG concluded that oversight would be enhanced by requiring CORs to use the electronic filing system. The Department developed this system to improve contract oversight generally—a significant management challenge—and to increase oversight of COR performance.32 Requiring its use will advance these goals.

#### Ensuring Proper Invoice Review and Approval Processes

Proper invoice review and approval processes are crucial to ensure that the Department receives the benefit of its contracts and that the Department is able to take appropriate steps if contractors are not performing in accordance with the terms of the contract. Where the Department has focused on this issue, it has been successful. For example, in an audit of the International Narcotics and Law Enforcement Affairs’ (INL) invoice review process for contracts in Afghanistan, OIG reported that CORs appropriately followed the bureau’s procedures and, as a result, all invoices reviewed by OIG complied with requirements. Moreover, the CORs had appropriately rejected invoices when they contained unallowable costs.33

In contrast, the audit of fuel contracts at Embassy Amman is illustrative of the deficiencies OIG continues to find related to invoice review. The audit revealed that CORs did not consistently verify that prices on invoices matched the contract prices or that quantities listed on the invoices matched supporting documentation provided by the contractor.34 Similarly, in an audit of costs invoiced under the Afghanistan Life Support Services contract, OIG found invoices with questioned costs that were approved because management did not routinely monitor invoice reviews.35 Bureaus and other Department entities overseeing contracts must establish and implement invoice review procedures and corresponding checklists that ensure proper review and approval.36 Furthermore, the Department should adopt a quality assurance process that periodically tests invoice review for accuracy.37

#### Overseeing Construction Contracts

A growing body of OIG work reveals particular concerns with the Department’s oversight of construction contracts, which are often long-term, complex, and of high value. There are obvious financial implications to inadequate management and oversight of these contracts, but more importantly, insufficient oversight of the building process can lead to the construction of substandard facilities with implications for the safety and security of personnel.

In one of a series of reports on new construction at Embassy Kabul, OIG reported that OBO acted contrary to its own policies and declared two new buildings substantially complete even though 14 major building systems were not fully commissioned—that is, there was no confirmation that they met design intent and specified performance requirements.38 In addition to the operating environment, the Department’s difficulty ensuring clear lines of authority and internal coordination caused this potentially costly premature declaration. The OBO project director’s position in the organizational structure effectively allowed him to override the commissioning agent in Kabul. Accordingly, the agent could not function independently, even though industry standards and OBO’s guidelines stress the importance of such independence.

In another report, OIG noted several oversight weaknesses, including underqualified oversight personnel and poor communication, which contributed to unapproved design changes to the facades of three new buildings at Embassy Islamabad.39 Neither the COR nor the Alternate COR effectively communicated with the CO concerning this issue, and OIG found no documentation indicating OBO or the CO had reviewed or approved the changes. In fact, the CO learned of the changes from OIG.

With respect to the construction of a new office complex in Taiwan, OIG found that the contractor was allowed to continue performing work even though oversight staff did not issue a final notice to proceed (i.e., formal request to continue work on a phased project).40 This created a variety of risks for the Department, which could have been responsible for costs incurred as a result of idle hours had the contractor stopped work.41

#### Monitoring Grants in Compliance with Applicable Standards

OIG continues to find grants management practices that do not comply with Department requirements. Key deficiencies include insufficient focus on risk assessments and monitoring plans. In overseas inspections, OIG found individual grants that lacked both.42 For example, an inspection of the Bureau of African Affairs’ (AF) foreign assistance program found that, although grant files included risk assessments, many were not properly designated as high risk, and those with a performance period of more than 1 year were not updated annually. In an audit of Bureau of Educational and Cultural Affairs administration of selected cooperative agreements, OIG found that the Grants Officer and Grants Officer’s Representative (GOR) developed monitoring plans, but those plans were not specific to each cooperative agreement as required and did not contain all required elements.43

In the same audit, OIG found that the Department did not ensure that grant oversight personnel performed financial monitoring of the grantee’s cost-sharing requirements. As a result, we found that the grantee was unable to support 91 percent ($36 million) of the cost-sharing expenses it claimed.44

Our work also highlighted continued deficiencies in the area of site visits. For example, in an audit of EUR grant management, OIG found that, as to the grants reviewed, GORs either did not perform site visits or did not document those visits.45 Failing to conduct site visits deprives the Department of an opportunity to substantiate sound financial management; program progress; and compliance with laws, regulations, and policies.

Department offices and overseas posts should place more emphasis on following Federal Assistance Directive requirements with respect to monitoring and risk assessments. That effort should focus on addressing underlying workforce management issues, namely undertrained and underqualified oversight personnel. Doing so may reduce the likelihood that U.S. Government funds are lost or misused and will likewise help ensure that grants meet program objectives.

#### Ensuring Foreign Assistance Programs Achieve Intended Objectives and Policy Goals

In addition to the Department’s difficulties in tracking foreign assistance funds (which is assessed under the financial management challenge), OIG found multiple instances of weaknesses in planning and designing foreign assistance programs that meet policy goals. The two issues are closely related, as illustrated in the inspection of the U.S. Mission to the African Union.46 OIG’s inspection found that the mission was unable to develop and implement a strategy that encompassed all African Union programs and funding because it had no reliable mechanism for tracking that information.

Flawed organizational structures also sometimes hinder the Department’s ability to ensure foreign assistance programs meet objectives. For example, the inspection of AF’s foreign assistance program described a decentralized management structure that made effectively implementing foreign assistance programs difficult.47 Similarly, South and Central Asian Affairs (SCA) lacked a senior official with primary responsibility for overseeing the monitoring and coordination of foreign assistance programs and ensuring that resources are allocated in keeping with policy goals.48

Where multiple bureaus are involved, coordination weaknesses can play a role as well, as discussed further in promoting accountability through clear lines of authority and internal coordination. Related to the antiterrorism assistance program in Afghanistan, OIG found that the Bureau of Diplomatic Security (DS) and the Bureau of Counterterrorism and Countering Violent Extremism had not fully established a way to evaluate program progress against specific, measurable, and outcome-oriented objectives.49

Inadequate planning in two of INL’s foreign assistance programs in Central America resulted in the acquisition or provision of unusable equipment. In our inspection of Embassy San Jose, we found that, in 2015, INL purchased $540,077 in video surveillance equipment that had yet to be installed because the intended facility—a Costa Rican prison—lacked the necessary electrical infrastructure and cabling. As a result, the section stored more than 160 pieces of equipment in the embassy warehouse for over 2 years, and the warranty on the equipment expired during this period.50 In Guatemala City, we found that five helicopters furnished to the host government could not be used for drug interdiction missions because they had been grounded since 2016 as a result of poor maintenance and questionable procurement practices that prevented them from meeting INL’s airworthiness standards.51

To address this issue, entities responsible for foreign assistance funds should focus on strategic planning that ensures programs are designed and resources are allocated to meet foreign policy goals.

### 3. Information Security and Management

The Department depends on information systems to function, and the security of these systems is vital to protecting national and economic security, public safety, and the flow of commerce. The Department acknowledges that its information systems and networks are subject to serious threats that can exploit and compromise sensitive information, and it has taken some steps to address these concerns. However, notwithstanding the expenditure of substantial resources by the Department, OIG continued to identify significant issues that put its information at risk.

#### Strengthening Cybersecurity Performance

As in prior years, OIG’s annual assessment of the Department’s information security program identified numerous control weaknesses that significantly affected program effectiveness and increased the Department’s vulnerability to cyberattacks and threats.52 The lack of an effective risk management strategy and dispersed authority contribute to many of OIG’s concerns regarding IT security and management at the Department.

As OIG has explained repeatedly, the Chief Information Officer (CIO) is not well placed in the organization to be fully accountable for information security program issues. For example, DS, which also has information security responsibilities, does not report to the CIO. Additionally, there is insufficient authority vested in the CIO to track and control IT investments, so there is no clear picture of total IT spending by the Department. We continue to recommend that the Department address this decentralized reporting structure in order to improve overall information security. We did so most recently in October 2017 when we recommended that the Deputy Secretary of State elevate and realign the organizational placement of the CIO in order to carry out the CIO’s lead role as a senior accountable official in managing information security and information security risk management processes for the Department.53

These concerns were also reflected in various other reports throughout FY 2018. For example, an inspection of the Bureau of Information Resource Management Office of Governance, Resource, and Performance (IRM/GRP) revealed information security vulnerabilities that were partially the result of the Department’s challenge to establish clear lines of authority.54 OIG found policies that did not consistently identify GRP as responsible for managing the Department’s IT Configuration Control Board. Furthermore, it lacked authority to enforce Dedicated Internet Network (DIN)55 requirements. OIG recommended that IRM implement procedures to centrally authorize and register DINs.

Lapses in the duties of Information Systems Security Officers (ISSOs)56 persisted in FY 2018.57 For example, at Embassy Denmark, the ISSO did not perform information system audits or other mandated duties, including recurring vulnerability scanning, monthly random email reviews, and monthly random user data reviews.58 At Embassy Riyadh and its constituent posts, no ISSOs performed cybersecurity reviews using the Department’s ISSO checklists, and none documented the reviews they did perform.59 Without a systematic approach to monitoring networks and recording findings, Department networks could be breached and information security compromised. Accordingly, OIG issued recommendations for individual posts to implement standard operating procedures to ensure performance of ISSO duties.

OIG also continued to find deficiencies in Department IT contingency planning at overseas posts.60 Department guidelines require every information system to have a contingency plan that is documented and tested annually. Incomplete and untested IT contingency plans increase the risk of ineffective responses to or loss of critical communication during an emergency crisis. Embassies failed to show that they tested IT contingency plans annually, and initial and refresher IT contingency training for employees was lacking.

The inspection of Embassy Guatemala City detailed an example of the consequence of failure to comply with key procedures. OIG discovered that its Information Management Section staff installed unauthorized and misconfigured network devices on the Department’s sensitive network, creating IT security vulnerabilities.61 From July through November 2017, the embassy reported three incidents involving unauthorized and misconfigured network devices, two of which OIG identified during this inspection. As a result, OIG recommended that DS, in coordination with IRM and Embassy Guatemala City, audit the embassy’s sensitive network to ensure it complies with Department standards.

#### Tracking IT Assets

The Department’s inability to track its IT assets prevents adequate oversight and puts the Department at risk of purchasing duplicate or unneeded software. This is a longstanding and ongoing issue for the Department. Although OIG has identified this issue in previous years, OIG reiterates its concern regarding the fact that the Department has systems or applications that have not been recorded in the Department’s inventory database.62 Just this year, in the inspection of GRP, we also noted that there was no centralized inventory for software purchases, which totaled more than $200 million in each of the previous two years.63 Furthermore, we reported that IRM did not have an inventory of operating systems being used on IT hardware connected to OpenNet, meaning that IRM did not maintain an accurate and complete list of operating systems.64

### 4. Financial and Property Management

Management of its financial resources and property remains a challenge for the Department. One significant aspect of this challenge relates to overall internal control issues—namely, the Department’s ability to identify internal control weaknesses in the first place and its subsequent compliance with relevant standards. This issue affects management of both the Department’s financial resources and its property.

This section also describes the Department’s difficulties in tracking and reporting data, especially related to foreign assistance. In addition, we identify weaknesses in the Department’s collection, use, and analysis of financial information. As with oversight of contracts and grants, attention to this challenge is particularly important to ensure that the Department appropriately oversees and uses public resources.

#### Complying with Internal Controls

Internal control deficiencies spanned a wide range of Department operations in FY 2018. As it had in previous years, the FY 2017 audit of the Department’s financial statements identified a significant number of invalid unliquidated obligations (ULOs) that had not been identified by the Department’s review process and noted that the internal control structure was not operating effectively to comply with existing policy or facilitate the accurate reporting of ULO balances in the financial statements.65 It also noted that the Department’s internal controls were not effective to ensure that ULOs were consistently and systematically evaluated for validity and deobligation. In another report, OIG acknowledged that, after they were identified during the FY 2016 financial statement audit, the Department properly addressed invalid ULOs.66 Because the Bureau of the Comptroller and Global Financial Services prioritized the deobligation and followed up with responsible bureaus until resolution, the Department appropriately deobligated 34 invalid ULOs, totaling $10.4 million.

Through our inspection work, we sometimes observe internal control deficiencies that are embassy-specific. For example, Embassy Beijing failed to conduct quarterly unannounced cash verifications, an important control related to cashier operations.67 Additionally, OIG concluded that poor financial management practices at Embassy San Jose led to 47 outstanding travel advances totaling $67,283.68 Management failed to ensure embassy employees submitted travel expense reports and accounted for travel advances received, which represent a loss of funds to the Department if they remain uncollected.

Deficiencies related to acquisition planning were more widely noted. Several FY 2018 inspections found embassies that did not conduct annual planning meant to determine optimal contracting methods, increase competition, and achieve potential cost savings.69 For example, at Embassy Georgetown, the embassy did not have an annual acquisition plan for procuring goods and services, and management officials did not seek input from embassy sections to forecast contracting requirements for the upcoming fiscal year.70 At Mission Riyadh, despite incurring $9.8 million in FY 2017 procurement costs, the embassy did not use a mission-wide acquisition plan as part of its annual budget planning process and did not conduct an annual utilization survey to limit the acquisition of personal property.71

Internal control deficiencies related to property management were also wide-ranging. In an audit of the Department’s aviation program,72 we found that the Aviation Governing Board, which is responsible for overseeing aviation activities, did not evaluate the usage and cost effectiveness of aircraft services as required by Federal and Department guidance. Overall, we concluded that the Department is not optimally managing aviation resources and that it accordingly spent $72 million on unnecessary services from September 2013 to August 2017. Additionally, we found that a lack of procedures and guidance contributed to insufficient accountability over aircraft equipment and improper disposal of aircraft, placing aviation assets at increased risk for fraud, waste, and abuse.

Several reports noted particular issues with embassy management of fuel, an asset that is particularly vulnerable to theft given its significant value.73 At Embassy Riyadh, because of inadequate management supervision, staff did not record daily fuel issuance, conduct monthly inventories, or reconcile bulk fuel balances, which are required internal control procedures that decrease the risk of theft and mismanagement.74 Our inspection of Embassy San Jose found it lacked a comprehensive fuel control program that included oversight and internal controls.75

Several embassy inspections identified weaknesses in general property management controls involving warehouse access, inventory, spot checks, and related issues.76 For example, Embassy Addis Ababa showed multiple internal control deficiencies related to the management of Government-owned property and warehouse operations, including inadequate access controls, lack of unannounced spot checks, lack of physical inventories of motor vehicles, and property disposal records discrepancies.77

Our work also highlighted some embassies that have improved property management controls. For instance, Embassy Georgetown identified excess property and held three auctions in FY 2016 and FY 2017 that generated $670,813 for use by the Department and other agencies. It also implemented procedures and controls to ensure accuracy of property records.78 Similarly, Embassy Guatemala City improved recordkeeping and addressed staffing shortages at its warehouse, resulting in a reduction of the embassy’s nonexpendable property shortage.79

The role of management is paramount on the issue of internal controls. We reported last year that 38 percent of inspections conducted from December 2014 to January 2017 showed deficiencies in Chief of Mission oversight of the annual statement of assurance process meant to identify internal control weaknesses.80 Weak internal controls that go unidentified by management increase the risk of misuse of Department resources.

#### Tracking and Reporting Department Assets

OIG noted in its 2017 management challenges statement that the Department’s financial management and procurement IT systems were not designed to track and report programmatic details of foreign assistance, an issue we have long noted.81 OIG acknowledges that the Department took positive steps during FY 2018 to alleviate some of these concerns, for example, by defining the types of data to be collected and expanding the scope of data collection efforts to include spending on contracts and interagency agreements. Collecting and harnessing the data in a foreign assistance tracking and reporting system is a complex process, though, and the Department has noted that it will require years to fully accomplish. In light of this issue’s importance and the limitations that OIG previously identified,82 we will continue to closely monitor this issue.

Beyond foreign assistance funds, the Department sometimes has difficulty tracking and reporting its assets. In fact, the annual audit of Department financial statements reported a significant deficiency related to property and equipment. Namely, it found that a significant number of property transactions were not recorded in the year the assets were acquired or disposed of. It also noted the Department does not have a complete and accurate record of software.83 We also reported this year that the DS Office of Training and Performance Standards does not properly record accountable property, perform physical inventories, or use required procedures to ensure property is returned when no longer needed.84

#### Collecting, Analyzing, and Applying Financial Information

Flaws in the Department’s collection, use, and analysis of financial information continue to be a management challenge. These weaknesses are often attributable to the use of outdated or weak methods of collecting, analyzing, and applying financial and related data.

In a key example of this challenge, a recent audit found that the Department lacked adequate policies and procedures for evaluating and remitting to Treasury excess earnings in its Working Capital Fund accounts, which are intended to operate on a break-even basis.85 As a result of these deficiencies, we concluded that the Department is unable to advance the primary purpose of the Working Capital Fund, which is to provide an effective means for controlling the costs of goods and services and to encourage cost consciousness and efficiency for users and suppliers of services. We made recommendations to improve policies and procedures related to establishing fees, maintaining historical documentation on these processes, and calculating excess earnings for remittance.

The mandated *Audit of the Department of State’s Implementation of the Digital Accountability and Transparency Act of 2014* noted ongoing difficulties in collecting and assessing required data. One objective of this audit was to assess the accuracy, completeness, timeliness, and quality of second quarter FY 2017 data submitted by the Department for inclusion on USASpending.gov. However, as we reported, the auditor could not assess the data related to overseas transactions because the Department did not certify that the data was valid and reliable.86 In addition, more than 64 percent of domestic transactions that were tested did not meet OMB’s quality requirements.87 The auditor concluded that, although the Department has taken steps to implement the financial data standards established under the Digital Accountability and Transparency Act, improvements—particularly related to data collection overseas—are needed.

### 5. Operating in Contingency and Critical Environments

Programs and posts operating in contingency and critical environments must adapt to constant change, pervasive security concerns, dramatic swings in personnel and funding, and widespread reliance on contractors and grantees. In addition to the overall challenge of protecting its people and facilities, the Department faces a much more specific challenge in managing contracts and foreign assistance programs in these locations. A few examples of reports addressing these issues follow.

As discussed previously, an audit of new construction projects at Embassy Kabul noted multiple contract management deficiencies, including a finding that OBO declared the buildings substantially complete even though 14 major buildings systems were not fully commissioned.88 The operating environment seems to have contributed to this premature declaration. First, the contractor did not always have adequate staff onsite to facilitate key commissioning activities (e.g., demonstrating operation of boilers and chillers) because manufacturers—whose technicians would have been required to start up some equipment—were reluctant to send staff to high-threat posts. The commissioning agent said this contributed to some of the delays in completing the commissioning process.89

Second, facility management personnel stated that OBO was under pressure to move embassy staff into hardened structures as soon as possible because of the unstable security situation.90 As a result, OIG recommended that OBO establish procedures to assist the bureau in addressing scenarios where it must accelerate substantial completion as a result of security concerns.

In a report on funding in Syria, OIG found that the Department faces substantial challenges in delivering stabilization assistance.91 External constraints include regional political concerns, a high-threat security environment, policy and legal restrictions on how appropriated funds can be spent, and the lack of a U.N. or host country partner. These create risks that programs will not achieve the intended strategic result of preventing the reemergence of Islamic State of Iraq and Syria and other terrorist organizations. Although these constraints are largely outside the Department’s control, they affect all aspects of operations and planning. We recommended the Department identify lessons learned from its delivery of stabilization assistance in Syria and develop interagency institutional mechanisms to facilitate deployment of Department personnel for future stabilization missions.92

In an audit of a task order for food services under the Baghdad Life Support Services Contract in Iraq, OIG found that the CO did not implement a point-of-sale cafeteria system or restrict dining facility access for local national employees and for individuals not serving under chief of mission authority, as required.93 As a result, the Department inappropriately paid for a minimum of 459,102 meals for local staff (valued at approximately $4.1 million) and an unidentified number of meals to individuals not serving under chief of mission authority.94 Department officials said that these weaknesses occurred because of a security-related crisis in Iraq and explained that they did not later reinitiate efforts to implement the point-of-sale system because of morale concerns.

Our inspection of the Yemen Affairs Unit examined the diplomatic mission that was established in Jeddah, Saudi Arabia, following the suspension of operations and evacuation of Embassy Sanaa, Yemen, in February 2015. We found the Yemen Affairs Unit experienced financial and property management challenges that were largely inseparable from the environment in which it operated. For example, lost records made addressing unliquidated obligations difficult and labor-intensive, and an inability to return to Yemen made maintaining a leased property there problematic. Overall, the Department had not reviewed the unit’s functions or structure to determine whether they were aligned with current goals and whether funds expended were appropriate.95 On a positive note, though, we reported that the unit was successful in reducing Embassy Sanaa’s unliquidated obligation balances by $17.3 million in FY 2017 by recreating records destroyed during the March 2015 evacuation, contacting vendors, consulting with embassy LE staff, and using Department records.96

### 6. Workforce Management

The Bureau of Human Resources rightly identifies staff as the Department’s greatest asset. The Department accordingly expends substantial resources on recruiting, training, and retaining a diverse, talented workforce capable of carrying out the Department’s foreign policy goals and priorities. However, OIG’s work finds that staffing gaps, frequent turnover, and inexperienced and undertrained staff frequently contribute to the Department’s other management challenges. Workforce management issues are pervasive, affecting programs and operations domestically and overseas and across functional areas and geographic regions.

#### Maintaining Adequate Staffing Levels to Meet Operational Needs

OIG frequently encounters Department entities that experience difficulty maintaining staffing levels. For example, in the inspection of the Bureau of African Affairs, OIG identified the bureau’s profound difficulties in attracting Foreign Service Officers to its overseas posts.97 The bureau experienced the same issues domestically, and OIG noted that staffing gaps inhibited its ability to support crucial functions such as strategic planning. Similarly, SCA faced problems filling overseas posts in its region as well as Civil Service vacancies in Washington, D.C.98 DS also faced a bureau-wide shortage of agents. This shortage was felt in the Office of Mobile Security Deployment, an organization with a strong reputation for fulfilling its substantive mission despite working with a 38 percent staffing shortfall in 2017.99

Understaffing is often at play where OIG sees problems with oversight of contracts and grants. In one illustrative example, OIG found that in IRM/GRP, only one COR was responsible for overseeing 14 complex contracts worth well over $100 million per year in FY 2016 and FY 2017.100 As a result of this poor distribution of oversight staff, OIG found a number of oversight weaknesses, including approval of invoice payments without appropriately verifying that goods have been received. Conversely, when the Department places adequate oversight personnel in charge of contracts, it sees positive results. For example, during the period when INL maintained its optimal staffing level of four permanent CORs for overseeing contracts in Afghanistan, OIG found that, without exception, invoices were reviewed in compliance with Federal regulations and Department policies.101

Likewise, understaffing can play a role in internal control deficiencies. In an inspection of the Bureau of the Comptroller and Global Financial Services’ (CGFS) oversight of the Department’s management control program, we found the program for non-financial operations was insufficient.102 The responsible office did not request the personnel resources it needed to design and oversee the Department’s non-financial management control program, and staff members told OIG they had neither the experience nor the resources to develop, monitor, and evaluate the Department’s non-financial management control program.103 This lack of oversight is significant because it goes to the Department’s overall assessment of material weaknesses and areas of control weakness.

During the course of our FY 2018 work, some Department officials referenced a Department-wide hiring freeze when discussing work obstacles.104 We reported in our inspection of Embassy San Jose, for example, that INL’s projects to improve the host government’s ability to seize narcotics transiting through its territory included a $50 million project to provide two refurbished U.S. Coast Guard cutters and related maritime support infrastructure and an $11.9 million project to supply three helicopters. Staff, however, reported that they lacked technical expertise on aviation and that the section did not have a dedicated maritime advisor to effectively manage the projects. The embassy had planned to hire a personal services contractor for this purpose but could not do so because of the hiring freeze; although INL had sought waivers to fill the position, it was unclear at the time of the inspection whether they would be approved.105 In another example, we reported that key property management positions in the DS Office of Training and Performance Standards were left vacant as a result of the hiring freeze, contributing to weaknesses in the process by which protective equipment was issued and managed.106 Finally, management sections in several overseas posts stated that the inability to hire eligible family members—who have historically provided a talented, accessible, and cost-effective pool of labor to fill widespread support positions—was a hardship that affected their posts’ programs and operations.107

OIG emphasizes that its work to date has not attempted to assess any overall consequences of the hiring freeze but has instead reported concerns expressed by some Department officials in the course of other projects. In response to language in the explanatory section of the conference report for the Consolidated Appropriations Act, 2018, OIG will, however, engage in a more general analysis of this issue.108

#### Ensuring Staff Are Appropriately Qualified

Underqualified staff is an issue that frequently intersects with the Department’s difficulties managing and overseeing contracts. One prominent example is the OIG audit of food safety controls under the Baghdad Life Support Services contract. The COR and Alternate CORs had no experience in food safety and received no training on food safety before or after assuming oversight responsibilities. OIG found myriad deficiencies, including missing documentation of food service inspections and untimely performance assessment reports. The Department acknowledged a lack of expertise and capacity to properly oversee the contract.109

Beyond the realm of contract and grant management, OIG finds Department personnel holding positions that are poorly tailored to their experience or qualifications. For example, in the inspection of Consulate General Hong Kong, OIG found that eight of ten language designated positions list Mandarin as the primary language even though 90 percent of Hong Kong’s population speaks Cantonese and English is widely spoken. Seven of the eight officers in the Mandarin-designated positions said they rarely used their language training. Conversely, in the inspection of Embassy Beijing, OIG found that only one of six designated post occupational and safety health officers had received required training, and even that training had occurred more than 5 years ago. OIG noted that this contributed to problems with the residential housing program, which had consequences for the health and safety of Department personnel.

### 7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority

Promoting accountability through careful internal coordination and clear, well-defined lines of authority is still a challenge for the Department. OIG finds that poor coordination and vague or dispersed authority are at the root of some of the Department’s other deficiencies. This is a concern that affects a wide range of Department functions: it is often implicated in problems particular to certain Department programs or projects, and it is likewise relevant to some of the Department’s more longstanding and systemic difficulties, including ensuring physical and information security.

A good illustration of a bureau-specific lack of coordination was set forth in our inspection of the Bureau of African Affairs’ foreign assistance program.110 As discussed previously, this inspection found deficiencies in the management and oversight of foreign assistance at the program level and the individual award level. Many of the deficiencies, however, had their roots in the bureau’s decentralized structure in which four different offices with four different reporting mechanisms play a role in managing foreign assistance programs. This management structure inhibited efficient and effective program oversight necessary to ensure programs met policy goals. For example, one office within the bureau spent $324,647 in travel funds in FY 2016 but did not coordinate contract and grant site visits across programs.

OIG also has concerns with coordination across bureaus and other Department entities. Of particular note, OIG concluded that the Department had taken a “fragmented approach” to implementing its non-financial management control program. Although, according to the Foreign Affairs Manual (FAM), CGFS has overall responsibility for designing this program, in practice, CGFS had neither the staff nor the expertise to fulfill these obligations. Moreover, the Department’s Comptroller stated that the FAM did “not accurately reflect the entities responsible for particular tasks” and that these obligations are split between CGFS and the Office of Management Policy, Rightsizing, and Innovation (M/PRI). OIG concluded, though, that M/PRI and CGFS had not coordinated or maintained close communication and did not have the same understanding of their respective obligations. Unclear lines of responsibility make it more difficult for the Department to manage its overall risks.

Furthermore, we found that dispersed and unclear authority contributed to weaknesses in the implementation of the Department’s aviation program. Our audit report explained that the Aviation Governing Board Charter had not been revised since 2011 and did not align with the board’s actual practices. To assist in addressing several program management deficiencies, we recommended that the Department centralize management of aviation programs and assets and update the board’s charter to reflect the roles and responsibilities as set forth in the FAM.111

In another example, the Department risked costly delays in a construction project at Embassy Guatemala City because the embassy did not coordinate systematically with OBO to establish accurate staffing levels for a planned new embassy compound.112 The Department awarded a $287.6 million contract in September 2017 to construct the new compound, but the embassy later estimated that it had established at least 89 desk positions that were not included in OBO’s space requirements plan and was considering proposals to add another 48 new positions.

A lack of coordination also affects the Department’s overall difficulties in tracking and prioritizing physical security needs at overseas posts and its struggle to implement an effective information security program. On the former, we have long noted in past reports a lack of coordination between OBO and DS, both of which have responsibilities for physical security at diplomatic facilities.113 The creation of a physical security deficiency database reflects improved coordination between the bureaus, but until the Department develops and implements a process to prioritize physical security deficiencies at overseas posts to improve allocation of funding, the underlying deficiency will persist. With regard to information security, OIG remains concerned with the overlapping and poorly defined responsibilities between DS and IRM and the organizational placement of the CIO, which impedes the position’s ability to effectively implement an agency-wide information security program. In addition to addressing these structural and organizational concerns through its reports and recommendations, OIG has repeatedly emphasized these matters in testimony, presentations, and other communications with the Department and with Congress.

The Department has made efforts to streamline organizational structures in some instances, and, when it has done so, there have been positive effects. For example, an inspection of the Bureau of South and Central Asian Affairs concluded that intra-bureau coordination on foreign assistance was generally positive.114 Department stakeholders felt collaboration was improved by the reintegration of the Special Representative for Afghanistan and Pakistan—formerly in the Office of the Secretary—into the bureau, which allowed for a single entity with authority to coordinate U.S. policy and programs for the entire region.

### Conclusion

Effectively implementing U.S. foreign policy through diplomacy, advocacy, and assistance is essential to our nation’s security and prosperity. However, each of the management challenges described in this report has an outsized effect on the Department’s ability to perform its mission and to safeguard taxpayer resources while doing so.

OIG observes that where multiple challenges overlap, unique vulnerabilities emerge for the Department. OIG is particularly concerned with the Department’s information systems, which are relied on by all programs and operations for carrying out the Department’s mission. Longstanding information security weaknesses put every other function at risk. For example, IT vulnerabilities can affect the integrity of financial applications, which, in turn, increases the risk that sensitive financial information could be accessed by unauthorized individuals or that financial transactions could be accidentally or intentionally altered.

Additionally, widespread workforce management issues hinder oversight of contracts and grants and weaken internal controls, exposing the Department to the risk of fraud and waste, particularly in critical and contingency environments. In fact, our body of work on the construction projects at Embassy Kabul illustrates the interplay of all these issues. Pressure to quickly complete construction projects coupled with poor coordination among stakeholders and inadequate personnel to provide quality assurance oversight can lead to contract management mistakes with financial and security implications for the Department.

Where these challenges intersect and contribute to one another is also where the Department would benefit most if deficiencies were properly addressed. OIG accordingly encourages the Department to consider how these challenges interact and how it can address them systemically. OIG remains committed to assisting the Department as it works to improve the effectiveness and efficiency of its programs and operations.

**HELP FIGHT**

**FRAUD.  WASTE.  ABUSE.    1-800-409-9926www.stateoig.gov/HOTLINE**

If you fear reprisal, contact the    OIG Whistleblower Coordinator    to learn more about your rights:

**WPEAOmbuds@stateoig.gov**

### Footnotes

1 The Reports Consolidation Act of 2000, § 3, Pub. L. 106-531 (amending 31 U.S.C. § 3516). (back to text)

2 OIG, *Inspection of Embassy Georgetown, Guyana* (ISP-I-18-19, May 2018). (back to text)

3*Ibid*. (back to text)

4 OIG, *Inspection of Copenhagen, Denmark* (ISP-I-18-23, April 2018); OIG, *Inspection of Embassy Djibouti, Djibouti* (ISP-I-18-14, April 2018). (back to text)

5 OIG, *Management Assistance Report: Building Deficiencies Identified at U.S. Embassy Kabul, Afghanistan Need Prompt Attention* (AUD-MERO-17-44, June 2017). (back to text)

6 OIG, *Management Assistance Report: Improper Installation of Key Components of U.S. Embassy Kabul, Afghanistan’s Fire Alarm System Needs Prompt Attention* (AUD-MERO-18-32, April 2018). (back to text)

7 OIG, *Inspection of Embassy Lisbon and Consulate Ponta Delgada, Portugal* (ISP-I-18-22, May 2018); ISP-I-18-23, April 2018. (back to text)

8 ISP-I-18-14, April 2018. (back to text)

9 OIG, *Management Assistance Report: Armored Vehicle Training* (ISP-16-17, April 2016). (back to text)

10 OIG, *Compliance Follow-up Review: Armored Vehicle Training* (ISP-C-18-32, April 2018). (back to text)

11 OIG, *Inspection of Guatemala City, Guatemala* (ISP-I-18-16, May 2018); OIG, *Inspection of Managua, Nicaragua* (ISP-I-18-12, March 2018); OIG, *Inspection of Consulate General Hong Kong, China* (ISP-I-18-06, November 2017); ISP-I-18-14, April 2018. (back to text)

12 OIG, *Inspection of Embassy San Jose, Costa Rica* (ISP-I-18-13, April 2018); OIG, *Inspection of Embassy Beijing and Constituent Posts, China* (ISP-I-18-04, December 2017); OIG, *Inspection of Embassy Nicosia, Cyprus* (ISP-I-18-03, October 2017); ISP-I-18-22, May 2018; ISP-I-18-19, May 2018; ISP-I-18-16, May 2018; ISP-I-18-14, April 2018; ISP-I-18-06, November 2017. (back to text)

13 OIG, *Inspection of Embassy Riyadh and Constituent Posts, Saudi Arabia* (ISP-I-18-17, May 2018); OIG, *Inspection of Addis Ababa, Ethiopia* (ISP-I-18-18, May 2018); ISP-I-18-13, April 2018; ISP-I-18-06, November 2017. (back to text)

14 ISP-I-18-04, December 2017. (back to text)

15 ISP-I-18-18, May 2018. (back to text)

16 ISP-I-18-22, May 2018. (back to text)

17 ISP-I-18-13, April 2018. (back to text)

18 ISP-I-18-18, May 2018. (back to text)

19 ISP-I-18-16, May 2018; ISP-I-18-14, April 2018; ISP-I-18-04, December 2017; ISP-I-18-03, October 2017. (back to text)

20 ISP-I-18-13, April 2018. (back to text)

21 ISP-I-18-19, May 2018. (back to text)

22 ISP-I-18-16, May 2018; ISP-I-18-12, March 2018. (back to text)

23 Department of State, *Agency Financial Report, Fiscal Year 2017*. (back to text)

24 OIG, *Management Assistance Report: Department of State Has Not Implemented the Required Value Engineering Program for Contracts Exceeding $5 Million* (AUD-CGI-18-52, August 2018). (back to text)

25 OIG, *Audit of the Bureau of Overseas Buildings Operations Value Engineering Program* (AUD-CGI-18-54, August 2018). (back to text)

26 OIG, *Management Assistance Report: Cost Controls for Food Services Supporting Department of State Operations in Iraq Require Attention* (AUD-MERO-18-31, March 2018). (back to text)

27 OIG, *Audit of Food Safety Controls Under Baghdad Life Support Services (BLiSS) Task Order SAQMMA14F0721* (AUD-MERO-18-38, May 2018). (back to text)

28 OIG, *Audit of the Administration and Oversight of Fuel Contracts at U.S. Embassy Amman, Jordan* (AUD-MERO-18-33, March 2018). (back to text)

29 OIG, *Audit of the Bureau of European and Eurasian Affairs Administration and Oversight of Selected Contracts and Grants* (AUD-CGI-18-50, August 2018). (back to text)

30 OIG, *Audit of Cost Controls Within the Baghdad Life Support Services Contract Food Services Task Order SAQMMA14F0721* (AUD-MERO-18-55, August 2018); ISP-I-18-04, December 2017; OIG, *Management Assistance Report: Contract Administration Practices Involving the Construction of the New Office Compound Taipei, Taiwan, Require Attention* (AUD-SI-18-34, March 2018); AUD-MERO-18-38, May 2018. (back to text)

31 OIG, *Management Assistance Report: Dispersal of Contracting Officer Representatives Creates Oversight Challenges* (ISP-I-18-33, August 2018). (back to text)

32*Ibid*. (back to text)

33 OIG, *Audit of the Bureau of International Narcotics and Law Enforcement Affairs Invoice Review Process for Contracts in Afghanistan* (AUD-MERO-18-30, February 2018). (back to text)

34 AUD-MERO-18-33, March 2018. (back to text)

35 OIG, *Audit of Costs Invoiced Under the Afghanistan Life Support Services Contracts* (AUD-MERO-18-35, April 2018). (back to text)

36 AUD-MERO-18-33, March 2018. (back to text)

37 AUD-MERO-18-35, April 2018. (back to text)

38 OIG, *Audit of Bureau of Overseas Buildings Operations’ Oversight of New Construction Projects at the U.S. Embassy in Kabul, Afghanistan* (AUD-MERO-18-17, January 2018). This audit followed several previous reports addressing particular concerns affecting ongoing construction at U.S. Embassy Kabul. *See ibid*. at 51-55 (summarizing key findings in earlier reports). (back to text)

39 OIG, *Management Assistance Report: Lapse in Oversight at Embassy Islamabad, Pakistan, Allowed Design Change To Proceed Without the Contracting Officer’s Knowledge* (AUD-MERO-18-01, December 2017). (back to text)

40 AUD-SI-18-34, March 2018. (back to text)

41*Ibid*. (back to text)

42 ISP-I-18-16, May 2018; ISP-I-18-14, April 2018; ISP-I-18-06, November 2017; ISP-I-18-03, October 2017. (back to text)

43 OIG, *Audit of the Administration of Selected Cooperative Agreements Awarded to the Institute of International Education by the Bureau of Educational and Cultural Affairs* (AUD-CGI-18-15, February 2018). (back to text)

44*Ibid*. (back to text)

45 AUD-CGI-18-50, August 2018. (back to text)

46 OIG, *Inspection of the U.S. Mission to the African Union, Addis Ababa, Ethiopia* (ISP-I-18-20, May 2018). (back to text)

47 OIG, *Inspection of the Bureau of African Affairs’ Foreign Assistance Program Management* (ISP-I-18-02, October 2017). (back to text)

48 OIG, *Inspection of the Bureau of South and Central Asian Affairs* (ISP-I-18-11, February 2018). (back to text)

49 OIG, *Management Assistance Report: Although Progress Has Been Made, Challenges Remain in Monitoring and Overseeing Antiterrorism Assistance Program Activities in Afghanistan* (AUD-MERO-18-16, November 2017). (back to text)

50 ISP-I-18-13, April 2018. (back to text)

51 ISP-I-18-16, May 2018. (back to text)

52 OIG, *Audit of the Department of State Information Security Program* (AUD-IT-18-12, October 2017). (back to text)

53*Ibid*. (back to text)

54 OIG, *Inspection of the Bureau of Information Resource Management’s Office of Governance, Resource, and Performance Management* (ISP-I-18-15, April 2018). (back to text)

55 DINs deliver internet access from internet service providers via Department-owned and operated unclassified networks that are not connected to any other Department systems. They are established for information processing purposes that cannot be accomplished on the Department’s Sensitive But Unclassified network (OpenNet). (back to text)

56 ISSOs are responsible for implementing the Department’s information systems security program and for working closely with system managers to ensure compliance with information systems security standards. (back to text)

57*See, e.g.*, ISP-I-18-19, May 2018; ISP-I-18-16, May 2018; ISP-I-18-14, April 2018; ISP-I-18-13, April 2018; ISP-I-18-12, March 2018. (back to text)

58 ISP-I-18-23, April 2018. (back to text)

59 ISP-I-18-17, May 2018. (back to text)

60*See, e.g., OIG, Inspection of Embassy Dublin, Ireland* (ISP-I-18-24, June 2018); OIG, *Inspection of Consulate General Jerusalem* (ISP-I-17-18, June 2017); ISP-I-18-19, May 2018; ISP-I-18-16, May 2018; ISP-I-18-14, April 2018; ISP-I-18-13, April 2018; ISP-I-18-12, March 2018; ISP-I-18-03, October 2017. (back to text)

61 ISP-I-18-16, May 2018; *see also* ISP-I-18-12, March 2018 (noting that Information Management staff did not review and analyze information systems audit logs for inappropriate or unusual activity; reporting that OIG accordingly found multiple issues in the classified computer operation that regular performance of ISSO duties could have prevented). (back to text)

62 AUD-IT-18-12, October 2017; *see also* OIG, *Management Assistance Report: The Process to Authorize and Track Information Technology Systems Needs Improvement* (AUD-IT-17-56, August 2017). (back to text)

63 ISP-I-18-15, April 2018. (back to text)

64 OIG, *Management Assistance Report: The Department of State Is Not Managing Unsupported Operating Systems in Accordance With Federal Requirements*(AUD-IT-18-43, May 2018). (back to text)

65 OIG, *Independent Auditor’s Report on the U.S. Department of State 2017 and 2016 Financial Statements* (AUD-FM-18-05, November 2017). (back to text)

66 OIG, *Management Assistance Report: The Department of State Properly Addressed Invalid Unliquidated Obligations Identified During the FY 2016 Financial Statements Audit* (AUD-FM-18-27, January 2018). (back to text)

67 ISP-I-18-04, December 2017. (back to text)

68 ISP-I-18-13, April 2018. (back to text)

69 ISP-I-18-24, June 2018; ISP-I-18-13, April 2018; ISP-I-18-04, December 2017. (back to text)

70 ISP-I-18-19, May 2018. (back to text)

71 ISP-I-18-17, May 2018. (back to text)

72 OIG, *Audit of the Department of State’s Administration of its Aviation Program* (AUD-SI-18-59, September 2018). (back to text)

73*See, e.g.*, ISP-I-18-19, May 2018; ISP-I-18-14, April 2018. (back to text)

74 ISP-I-18-17, May 2018. (back to text)

75 ISP-I-18-13, April 2018. (back to text)

76 ISP-I-18-14, April 2018; ISP-I-18-04, December 2017; ISP-I-18-03, October 2017. (back to text)

77 ISP-I-18-18, May 2018. (back to text)

78 ISP-I-18-19, May 2018. (back to text)

79 ISP-I-18-16, May 2018. (back to text)

80 OIG, *Management Assistance Report: Department Can Take Steps Toward More Effective Executive Direction of Overseas Missions* (ISP-17-38, July 2017). (back to text)

81 OIG, *Management Assistance Report: Department Financial Systems Are Insufficient to Track and Report on Foreign Assistance Funds*(ISP-I-15-14, February 2015); OIG, *Compliance Follow-up Review: Department of State is Still Unable to Accurately Track and Report on Foreign Assistance Funds* (ISP-C-17-27, June 2017). (back to text)

82 OIG, *Inspector General Statement on the Department of State’s Major Management and Performance Challenges, Fiscal Year 2017* (OIG-EX-18-02, November 2017). (back to text)

83 AUD-FM-18-05, November 2017. (back to text)

84 OIG, *Management Assistance Report: The Bureau of Diplomatic Security’s Office of Training and Performance Standards Should Improve Property Management Over Equipment Provided During High-Threat Training* (AUD-SI-18-49, August 2018). (back to text)

85 OIG, *Audit of the Department of State’s Process to Identify and Transfer Excess Working Capital Funds* (AUD-FM-18-44, June 2018). (back to text)

86 OIG, *Audit of the Department of State’s Implementation of the Digital Accountability and Transparency Act of 2014* (AUD-FM-18-03, November 2017). (back to text)

87*Ibid*. (back to text)

88 AUD-MERO-18-17, January 2018. (back to text)

89*Ibid*. (back to text)

90*Ibid*. (back to text)

91 OIG, *Department of State Stabilization Programs in Syria Funded Under the Further Continuing and Security Assistance Appropriations Act, 2017* (ISP-18-29, September 2018). (back to text)

92*Ibid*. (back to text)

93 AUD-MERO-18-31, March 2018. (back to text)

94*Ibid*. (back to text)

95 OIG, *Inspection of Yemen Affairs Unit* (ISP-I-18-21, March 2018). (back to text)

96*Ibid*. (back to text)

97 OIG, *Inspection of the Bureau of African Affairs* (ISP-I-18-01, October 2017). (back to text)

98 ISP-I-18-11, February 2018.irm/ (back to text)

99 OIG, *Inspection of the Bureau of Diplomatic Security’s Office of Mobile Security Deployments* (ISP-I-18-05, October 2017). (back to text)

100 ISP-I-18-15, April 2018. (back to text)

101 OIG, *Audit of the Bureau of International Narcotics and Law Enforcement Affairs Invoice Review Process for Contracts in Afghanistan* (AUD-MERO-18-30, February 2018). (back to text)

102 OIG, *Inspection of the Bureau of the Comptroller and Global Financial Services’ Office of Management Control* (ISP-I-18-07, June 2018). (back to text)

103*Ibid*. (back to text)

104 A government-wide hiring freeze was first announced by the Office of Management and Budget on January 23, 2017. Although most vacant positions could not be filled, the Secretary could approve specific exemptions. The freeze was lifted effective May 15, 2018. (back to text)

105 ISP-I-18-13, April 2018. (back to text)

106 AUD-SI-18-49, August 2018. (back to text)

107 ISP-I-18-22, May 2018; ISP-I-18-17, May 2018; ISP-I-18-19, May 2018; ISP-I-18-14, April 2018; ISP-I-18-13, April 2018; ISP-I-18-12, March 2018. (back to text)

108 “The OIG shall review the current status of the freeze on hiring, including EFM employment and lateral transfers, and assess the impact of such freeze during calendar year 2017 on: (1) the day-to-day function and mission of the Department of State, United States embassies, and consulates; (2) the safety, welfare, and morale of Department personnel; and (3) the personnel costs of the Department. The review shall also examine the impact of the suspension of EFM employment on embassy and consulate operations, and on other Federal agencies.” 115 Cong. Rec. H2842 (daily ed. March 22, 2018). (back to text)

109 AUD-MERO-18-38, May 2018. (back to text)

110 ISP-I-18-02, October 2017. (back to text)

111 AUD-SI-18-59, September 2018. (back to text)

112 ISP-I-18-16, May 2018. (back to text)

113*See* OIG, *Compliance Follow-up Audit of the Process to Request and Prioritize Physical-Security Related Activities at Overseas Posts* (AUD-ACF-16-20, December 2015). (back to text)

114 ISP-I-18-11, February 2018. (back to text)

							Management's Response to Inspector General					

In 2018, the Department of State’s Office of Inspector General (OIG) identified management and performance challenges in the areas of: protection of people and facilities; 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 Department promptly takes corrective actions in response to OIG findings and recommendations. Highlights are summarized below.

### 1. Protection of People and Facilities

The protection of people and facilities remains a top priority for the Department. In a very dangerous world, the Department is succeeding in keeping its personnel and facilities safe. Threats to our people and facilities will continue to evolve and requires constant focus and risk mitigation. The Department has various processes to manage risk, and has also created the Enterprise Risk Management Council (ERMC) led by the Deputy Secretary to look at strategic risks comprehensively. The Department annually revises the Security Environment Threat List and conducts High Threat Post Review Board assessments, and it is increasing the number of posts for which the Foreign Affairs Counter Threat training is mandatory. Despite these and other efforts, the challenge of eliminating risk and preventing attacks will continue given the nature of diplomacy and the operating environments in which the Department works in. The Department will continue to focus on mitigating risks.

Below is additional information about specific issues raised by the OIG and improvements the Department has made in its systems for protecting people and facilities. However, there are some areas in which the Department would like to clarify some perceived weaknesses by the OIG.

#### Constructing and Maintaining Safe and Secure Diplomatic Facilities

- The OIG found that Embassy Georgetown warehouse facilities did not meet Department standards. The embassy has since removed all offices and equipment from the warehouse, and a contractor from the Bureau of Overseas Buildings Operations (OBO) conducted an appraisal survey in April in preparation for the sale of the property. The embassy will move the Facilities’ shops upon completion of the fire suppression system at the new leased warehouse at which time OBO will commence the disposition process for the old property.
- The OIG states that poor quality assurance and oversight of the construction process of two buildings at Embassy Kabul led to failure to adhere to electrical and fire safety standards. However, OBO has previously made and continues to stand by their assessment that the company that was consulted on these deficiencies had a conflict of interest. It was actively negotiating a maintenance contract with the U.S. Government and could have benefitted from identifying maintenance issues that required mitigation. In addition, the OIG conducted this audit during the warranty period. The contractor is mitigating the majority of construction issues noted in the report.
- In addition, OBO respectfully disagrees with the OIG’s assertion of risks to personnel and property due to the improper installation of Embassy Kabul’s fire alarm system as part of a major office and residential expansion. A separate redundant network circuit is not required by National Fire Protection Association regulation 72. Furthermore, disruption of communication across a network does not diminish or degrade the individual operations of a Fire Alarm Control Unit. The conditions presented by the OIG did not require immediate action. Nonetheless, as of July 9, 2018, the fire alarm redundant loop was completed to assuage OIG’s concerns.

#### Operation of Official Vehicles Overseas

- The OIG noted that there were lapses in medical clearances for operators of official vehicles. The Bureau of Medical Services is finishing a complete rewrite of the Drivers Physical form, which will be routed through a technical platform that follows progress from the time Motor Pool recommends a driver for medical clearance to the time that MED provides clearance.

### 2. Oversight of Contracts, Grants, and Foreign Assistance

In response to the OIG recommendations, the Department took a number of actions to improve oversight of contracts and grants, including those that appear below. The Department will continue to take steps to address OIG’s recommendations.

#### Procuring Goods and Services Cost Effectively

- The OIG had found that the Department had not been implementing a Value Engineering program enterprise-wide. In response, the Office of the Under Secretary for Management has established the Head of Contracting Activity in the Bureau of Administration (A) as the Senior Accountability Officer of Value Engineering for the Department, in September. In addition, the Office of the Procurement Executive (A/OPE) will develop and implement Value Engineering policies and procedures, in accordance with OMB Circular A-131 requirements, through the Department’s Acquisitions Planning process found in the Department of State Acquisitions Regulation. These policies and procedures will follow the content requirements set forth in FAR 7.105 (Contents of Written Acquisition Plans). A/OPE expects the policies and procedures to be in place by the end of FY 2019.

#### Overseeing Construction Contracts

- Regarding the OIG’s perceived oversight weakness which contributed to unapproved design changes to the facades of new buildings at Embassy Islamabad, A and OBO completed a joint review of contract oversight activities and concluded from their review that no unauthorized contract actions or unauthorized changes or alterations to the design issued for construction have occurred.
- A and OBO added that an Alternate Contract Officer Representative (ACOR) was onsite and fully capable of performing contract oversight in lieu of an appointed Contracting Officer Representative (COR). The Office of Logistics Management (A/LM) acknowledges the ACOR appointment letter is not as robust in content as a COR appointment letter; however, A/LM states that the ACOR was nonetheless delegated contract oversight duties. The bureaus concluded that the Contracting Officer (CO) determined that no lapse in contract oversight occurred, with the exception of the 20 days between the end of the ACOR appointment and the delegation of duties to the successor COR. The bureaus state that in the future the CO will ensure a COR and ACORs are nominated and appointed prior to departure of the incumbent personnel and will work with OBO to ensure COR and ACOR changes are adequately forecasted, broadcast, and appointed as needed.
- In response to an OIG report on the new compound in Taipei, Taiwan, the Office of Acquisitions (A/OPE/AQM) is including training on issuance of limited or final notices to proceed as part of their annual training sessions. AQM is also developing and implementing a process that notifies Assessing Officials and Assessing Official Representatives when contractor performance evaluations are due. A/OPE/AQM is in the process of developing an automated reminder for this requirement.
- As part of the Department’s ongoing efforts to improve contract oversight, the Bureau of South and Central Asian Affairs (SCA) worked with the CORs on the Afghanistan Life Support Services Contract to establish a quality assurance process to track invoice review results and periodically test invoice reviews for accuracy. SCA updated existing SOPs and developed a new procedure for random sampling of invoices.

#### Ensuring Foreign Assistance Programs Achieve Intended Objectives and Policy Goals

- In regards to the tracking and reporting of programmatic details of foreign assistance, the Department appreciates the OIG’s acknowledgement that the Department took positive steps during FY 2018 to alleviate some of its concerns. The Department has made significant progress on data quality under the Foreign Assistance Data Review (FADR), and it continues to progress against the timeline and report sent to the Committees on Appropriation. In October 2017, the Director of U.S. Foreign Assistance Resources (F) was assigned by the Deputy Secretary of State as the senior Department official to oversee the process of developing and executing a plan with clear milestones and target completion dates to address foreign assistance tracking and reporting requirements. Since that assignment, while analysis has begun to design a long-term solution for improved Foreign Assistance reporting and management, F and the Bureau of the Comptroller and Global Financial Services (CGFS) have worked on an interim solution that makes use of available system fields that map directly or can be inferred from existing data to the FADR Index data elements. In addition, F has worked with CGFS to improve foreign assistance data quality including engaging with all foreign assistance bureaus in the Department. This continued leadership and engagement resulted in the publication of over 395,000 rows of obligation and disbursement data at the transaction level on ForeignAssistance.gov for FY 2018.

### 3. Information Security and Management

The Department recognizes the significant threats that exist to its information systems and is constantly taking actions to reinforce its defenses against those threats.

#### Strengthening Cyber Security Performance

- In response to the OIG’s concern about clear lines of authority within the Bureau of Information Management and Resource’s (IRM) Office of Governance, Resource and Performance (IRM/GRP), GRP and the Deputy Chief Information Officer (DCIO) for Budget and Management Policy have directly engaged with the Bureau for Human Resources’ Office of Resource Management Analysis (HR/RMA) to perform a comprehensive organizational assessment of the GRP office. This assessment has been completed and RMA recommendations have been provided to the Principal DCIO and CIO for review and potential implementation.
- OIG also recommended that IRM implement procedures to centrally authorize and register Dedicated Internet Networks (DINs). IRM has since established, and is implementing, procedures to centrally manage DINs levering two existing registration tools. DINs must be now registered as IT assets in IRM’s iMATRIX system, the Department’s official record for IT investments. System owners must obtain an iMATRIX ID number to register a DIN with the IT Configuration Control Board (CCB). Integrating iMATRIX ID into the IT CCB DIN Registration site requirements has improved data integrity and data quality. These two systems serve different purposes: iMATRIX manages asset inventory while IT CCB registration maintains records of approval and authorization.
- In order to centralize oversight of information security, IRM’s Information Systems Security Officers (IRM/IA/ISSO) program is currently being rolled out to posts worldwide. IRM/IA/ISSO’s recent submission to purchase additional licenses for the ISSO Dashboard will enable IA/ISSO to complete its rollout (currently 60 percent or approximately 157 posts and 11 domestic sites are using the ISSO Dashboard). The ISSO Dashboard is a web-based interface that allows ISSOs in the field to access server log data. Being web-based, there is no need to create command line queries to the database – instead relevant information is shown simply by checking the ISSO Dashboard’s web page. A daily review of the ISSO Dashboard will allow the ISSO to develop a baseline to determine normal behavior on their network and allow for the detection and follow-up of anomalies, either on site or with the help of the Cyber Incident Response Team (CIRT).
- After the inspection of Embassy Guatemala City identified several IT security vulnerabilities, post took steps to modernize its classified and unclassified standard operating procedures. Post has established checklists and SOPs to ensure all IT staff are performing Department specified duties. Earlier this year the Bureau of Western Hemisphere Affairs (WHA), Embassy Guatemala City, and IRM conducted a table top exercise, successfully testing IT contingency plans and making eleven updates. A recent IT Contingency test included a satellite Internet test providing wireless Internet access to handheld mobiles all running on battery. The Regional Cyber Security Officer is currently in Guatemala conducting a Cyber Security Assessment.
- The Department recently completed a major revision to its Information Security Risk Management Strategy to align with federal guidelines. This change makes explicit the need to manage risk at the Department, bureau and information system levels with interlinking processes. The initial version of this revision was approved by the Chief Information Officer for sharing more broadly with key partners and bureau stakeholders. In addition, the documented strategies are undergoing implementation planning to integrate risk indicators into existing IT governance processes including, but not limited to, investment, acquisition and security oversight.

#### Tracking IT Assets

- The OIG has highlighted the need for the Department to better track its IT assets. To address this deficiency, the Department purchased the Software Asset Management (SAM) module of ServiceNow. This tool supports life cycle management of software licensing. ServiceNow SAM will support enhanced alignment of software needs to mission requirements, ensure more intelligent purchasing strategies, and manage overall software inventories to adhere to compliance requirements through automated reporting. The implementation of software inventory licensing is currently undergoing a pilot phase and is expected to be complete by November 30, 2018.

### 4. Financial and Property Management

The Department operates in a complex and challenging global environment. As a result, the Department manages one of the U.S. Government’s most complex financial operations. Operating around-the-clock in over 270 locations and 180 countries, the Department conducts business in over 135 currencies, accounts for $100 billion in assets, maintains 225 bank accounts around the world, executes over 6,000 annual foreign currency purchases and sales valued at over $4 billion, and manages real and personal property capital assets with historical costs of more than $34 billion.

Department officials at all levels, both at home and abroad, are dedicated to ensuring effective management controls and oversight over the resources entrusted to the Department. In doing so, the Department has received six consecutive unmodified opinions (FY 2012-2017) from the external Independent Auditor on our annual Department-wide financial statements. In addition, the Department ended FY 2017 with no reported material weaknesses in internal controls over financial reporting and was able to resolve a previously reported significant deficiency for financial reporting. Last year, in recognition of the exceptional quality of the Department’s Agency Financial Report, the Association of Government Accountants awarded the Department the prestigious Certificate of Excellence in Accountability Reporting.

#### Complying with Internal Controls

- In 2018, in addition to improved processes that bureaus themselves have established, CGFS provided lists of transactions to help facilitate bureaus’ reviews so they can concentrate on potentially invalid unliquidated obligations (ULOs). CGFS appreciates the OIG’s acknowledgment of our efforts in this regard in their report (AUD-FM-18-27). In 2018, CGFS transmitted ULOs with a value of $2.7 billion for bureaus to review. Additionally, CGFS has assigned personnel to work at specific bureaus CFGS identifies as high-risk and requiring additional attention for ULO validation.
- The OIG identified deficiencies in cashiering operations. The Department uses several tools to actively monitor cashiering operations, including cashier system controls and an oversight cashier monitor function carried out by CGFS. CGFS measures posts’ performance with this compliance on a monthly basis and has developed an annual Cashier Operations Based Risk Assessment (COBRA) tool to help prevent theft, fraud and misuse of cash within the operations deemed higher risk. The tool analyzes operational risk, verification and controls and an overall cashier operation assessment. CGFS ensures the risk measurement factors in the COBRA tool are reviewed and updated yearly to reflect current trends as noted by our Cashier Monitors. CGFS also conducts on-site reviews of all Class B Cashier operations at least every five years, which provides an in-depth history of operations and post actions on findings.
- In response to an OIG-identified need for an acquisition plan for procuring goods and services, Embassy Georgetown created and distributed a Management notice to the entire Embassy to solicit input for a plan. In addition, the General Services Officer now works with Mission offices to develop their procurement plans prior to each fiscal year to include acquisition background and objectives, a plan of action, and proposed timeline.
- The Department continues to work to improve the Statement of Assurance (SoA) process. Improvements made to the SoA process during FY 2018 included the expansion of assurances in the SoA regarding Federal financial assistance. The SoA guidance distributed to Assistant Secretaries and Chiefs of Mission was also expanded to emphasize the role of managers throughout the Department in performing reviews of programs. CGFS has coordinated closely with the Bureau of Budget and Planning (BP) over the years to meet the Department’s compliance objectives in an efficient way to avoid duplication of effort regarding program reviews. The increased emphasis on program reviews in the SoA guidance additionally outlined Department managers’ responsibilities updated in response to the Program Management and Improvement and Accountability Act. In addition, improved training was delivered through classroom instruction to all Domestic and Regional Bureau Management Control Coordinators. An updated and expanded Management Controls Checklist was distributed to Assistant Secretaries and Chiefs of Mission, and training materials on the SoA process for inclusion into multiple Foreign Service Institute courses including courses for Chiefs of Mission and Deputy Chiefs of Mission, was developed. Finally, live instruction was delivered at the Bureau’s request to all managers within the Arms Control and International Security bureaus.

#### Tracking and Reporting Department Assets

- The Department took steps to enhance the tracking and usage of U.S. Government vehicles overseas by declaring 2018 “The Year of the Vehicle”. The Department required posts to certify that Department of State vehicles were properly entered into ILMS; vehicle trips were properly logged in FMIS; fuel and maintenance information were properly recorded, and fleet sizes are properly aligned.

#### Collecting, Analyzing and Applying Financial Information

- The OIG’s mandated  Audit of the Department of State’s Implementation of the Digital Accountability and Transparency Act of 2014  noted ongoing difficulties in collecting and assessing the required data and in particular overseas transactions. In addition, the audit noted that more than 64 percent of domestic transactions that were tested did not meet OMB’s quality requirements. The Department’s ongoing DATA Act efforts include the implementation of system interfaces and new procedures for overseas activities that improve financial data. Specifically, these implementations align key data attributes, such as the procurement ID (PIID) and the grant ID (FAIN), across the relevant Department’s source systems for procurement and financial assistance activity conducted overseas. The Department continues its rollout of a modernized Grants management system (SAMS) for overseas assistance and integration with RFMS. By the end of FY 2019, all posts will have implemented SAMS. The Department recognizes and respects that the mandated audit by OIG was required to be conducted, and results reported, in accordance with the CIGIE Guide, “Inspectors General Guide to Compliance Under the DATA Act.” However, unfortunately, the CIGIE approach provides an extremely conservative picture of the status of the data. For example, a record with 57 data fields with an error in a single data field is considered 100 percent in error versus 2 percent (i.e., one 57th) in error. This produces an exceptionally high error rate due to a small discrepancy. It would infer that all of the other data fields cannot be relied upon. Irrespective, the Department continues to work to achieve 100 percent accuracy.

### 5. Operating in Contingency and Critical Environments

In some cases, the Department must operate in “critical” environments, or areas that experience various challenges in the form of conflict, instability, disease, or natural disasters. These pose their own set of problems and contribute to existing challenges. The following examples demonstrate ways the Department strives to improve its operations in such environments.

- Due to the unreliability of Kabul’s electricity service provider, Embassy Kabul and Camp Sullivan generate power using fuel-burning electrical generators. The Embassy also maintains its own vehicle-fueling station on the embassy compound, which is used by staff located at both Embassy Kabul and Camp Sullivan. A new vehicle maintenance facility (VMF) and vehicle-fueling station are expected to come online at Camp Qasemi in the next few months and will service the majority of vehicles that travel off-compound. This VMF fuel point is outfitted with a modern fuel distribution system that will handle the distribution and tracking of the fuel used by these vehicles. The Embassy has put in place internal controls to monitor and control the fuel distribution.
- To address weaknesses in security for Embassy Baghdad’s cafeteria, the Department is looking at the feasibility of a point of sale system and is taking steps to prevent unauthorized use of the cafeteria.
- The Department has been working to implement Enterprise Risk Management (ERM) per OMB Circular A-123 requirements, defining risk management as events or circumstances that impact the Department’s ability to achieve its strategic objectives. ERM looks at risks in a cross-cutting manner, and the Department has many existing risk management processes that feed into the enterprise risk process. The Deputy Secretary chairs the Enterprise Risk Management Council, which is comprised of six Under Secretaries and representatives from INR, L, BP and F. A working group has also been established comprised of several stakeholder bureaus, and representatives of all Under Secretaries, which work on developing the program and will support the Council. The ERMC and the working group are well-positioned to consider the risks associated with operating in contingency and critical environments.

### 6. Workforce Management

The Department considers its employees its greatest asset. The Department invests considerable time in recruiting and retaining the best talent possible. Though the Department has experienced periods of transition in the past fiscal year, it continues to strive to be flexible and meet its resource needs, and well as providing adequate compensation in challenging areas.

- Recognizing the challenge of attracting bidders to certain posts, specifically those overseen by the Bureau of African Affairs (AF) and SCA, HR raised the threshold for posts that satisfy the “Fair Share” bidding requirement from 15 percent combined differential to a 20 percent combined differential.
- HR introduced new Professional Development Plans for Foreign Service Officers and for Office Management Specialists, which require “A completed tour at a 25 percent or greater hardship differential post from entry into the Foreign Service OR a completed tour at an unaccompanied post from entry into the Foreign Service AND Another completed tour at a 20 percent or greater hardship differential post after tenure” in order to compete for promotion to the Senior Foreign Service (FSO) or the FP-02 grade (OMS).
- After the OIG identified the impacts of the hiring freeze on key programs, the Bureau of International Narcotics and Law Enforcement (INL) hired a Senior Maritime Advisor, and is in the final process of hiring a Senior Aviation Advisor, who will join the team before the end of the year. In addition, one third-party contractor with specific maritime expertise has been hired, another is in the hiring process, as are two locally employed staff program assistants (currently awaiting MCLASS) who will support the maritime and aviation projects, respectively.

### 7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority

The Department acknowledges that clear lines of authority are necessary for insuring that the Department is able to hold decision makers accountable. It also recognizes that an organization as diffuse and diverse in mission as the Department is, requires a great deal of coordination between internal and external partners. The following illustrates how the Department has worked to improve on areas of vulnerability identified by the OIG.

- In response to previous OIG recommendations and new regulations enshrined in the 18 FAM 301.4, the bureau of Diplomatic Security (DS) and the Bureau of Counterterrorism (CT) designed a new process to ensure continuous monitoring of foreign assistance expenditures with Specific, Measurable, Actionable, Relevant, and Time-bound (SMART) Objectives that are clearly linked to national security policy objectives and priorities. This new program has been introduced, and the bureaus are in the process of determining resource requirements, finalizing templates, and preparing for the pilot implementation program. Following the pilot, DS expects to have monitoring plans for the office of Anti-Terrorism Assistance programs ready by the 18 FAM 300 deadline of May 31, 2019. These plans will be included with the FY 2020 Country Implementation Plans, with analysis and monitoring reports completed in that year. This new process introduces a tiered approach to evaluating our programs that will meet the requirements while taking resource limitations into account.
- CGFS and M/PRI coordinate closely on non-financial management controls as they pertain to ERM. The Department’s approach to ERM is comprehensive and goes beyond internal management controls compliance to assess risks that may impact the Department’s ability to achieve its strategic goals. The Department’s ERM program incorporates a broad scope of risk management processes which requires a strategic view of what is happening across the Department and the broader external foreign affairs environment. ERM includes risk management processes related to foreign policy, Congressional actions, and reputational risk. The Deputy Secretary chairs the ERMC comprised all six Under Secretaries, ensuring ERM is coordinated at the highest levels in the Department. Recognizing that CGFS is not well-positioned organizationally to coordinate across all of these functions, M/PRI takes the lead in supporting the ERMC and coordinates with a wide array of bureaus – including CGFS – to develop and implement an integrated ERM program. M/PRI and CGFS have a strong partnership and continue to work closely to ensure ERM and management control programs are coordinated appropriately. The Department’s Comptroller contributed to the development of the ERM program at every step, including the creation of the enterprise risk profile which incorporates management controls risks. CGFS/Management Controls (MC) is a key participant in the ERM working group, and M/PRI is a member of the Management Controls Steering Committee and the Senior Assessment Team. Through these formal mechanisms and through regular informal communication, M/PRI closely coordinates with CGFS and other key risk management stakeholders to ensure the ERM policies and processes reflect an integrated risk management approach.
- The OIG found that the Embassy at Guatemala City did not coordinate systematically with OBO on establishing accurate staffing levels for the new embassy compound, resulting in an anticipated shortage of space. The Embassy worked with the Office of Management Policy, Rightsizing and Innovation (M/PRI) to prepare a 2018 table revision of the Mission to address the shortage. Post worked with OBO to economize the furniture configuration in the New Embassy Compound, ensuring that the current accurate staffing could be accommodated in the existing construction plans without costly delays.

							Summary of Financial Statement Audit and Management Assurances					

As described in this report’s section called Departmental Governance, the Department tracks audit material weaknesses as well as other requirements of the Federal Manager’s Financial Integrity Act of 1982 (FMFIA). Below is management’s summary of these matters as required by OMB Circular A-136, *Financial Reporting Requirements*, revised.

### Summary of Financial Statement Audit

### Summary of Management Assurances

| **Statement of Assurance:**   | **Unmodified** |
|-------------------------------|----------------|
||
| **Total Material Weaknesses** | 0              | 0 | 0 | 0 | 0 | 0 |

| **Statement of Assurance:**   | **Unmodified** |
|-------------------------------|----------------|
||
| **Total Material Weaknesses** | 0              | 0 | 0 | 0 | 0 | 0 |

| **Statement of Assurance:** | **Federal systems conform to financial management system requirements** |
|-----------------------------|-------------------------------------------------------------------------|
||
| **Total Non-conformances**  | 0                                                                       | 0 | 0 | 0 | 0 | 0 |

|                        | **AGENCY**                  | **AUDITOR** |
|-----------------------------|-----------------------------|-------------|
| No lack of compliance noted | Lack of compliance noted    |
| No lack of compliance noted | No lack of compliance noted |
| No lack of compliance noted | Lack of compliance noted    |

**DEFINITION OF TERMS**

***Beginning Balance:*** The beginning balance will agree with the ending balance of material weaknesses from the prior year.

***New:*** The total number of material weaknesses that have been identified during the current year.

***Resolved:*** The total number of material weaknesses that have dropped below the level of materiality in the current year.

***Consolidated:*** The combining of two or more findings.

***Reassessed:*** The removal of any finding not attributable to corrective actions (e.g., management has re-evaluated and determined a finding does not meet the criteria for materiality or is redefined as more correctly classified under another heading (e.g., section 2 to a section 4 and vice versa)).

***Ending Balance:*** The agency’s year-end balance of material weaknesses.

							Payment Integrity and Other Laws and Regulations					

### Improper Payments Information Act, as Amended

Over the past decade, laws and regulations governing the identification and recovery of improper payments have evolved to strengthen improvements in payment accuracy and raise public confidence in Federal programs. The Improper Payments Information Act of 2002 (IPIA), as amended and expanded by other related laws, collectively requires agencies to periodically review all programs and activities to identify those susceptible to significant improper payments, to conduct payment recapture audits, and to leverage Government-wide Do Not Pay initiatives. In FY 2018, OMB issued memo M-18-20 – a revised OMB Circular A-123 Appendix C, *Requirements for Payment Integrity Improvement*, to transform the improper payment compliance framework to create a more unified, comprehensive, and less burdensome set of requirements. comprehensive, and less burdensome set of requirements.

IPIA defines significant improper payments as annual improper payments in a program that exceed both 1.5 percent of program annual payments and $10 million, or that exceed $100 million, regardless of the error rate. Once those highly susceptible programs and activities are identified, agencies are required to estimate and report the annual amount of improper payments. Generally, an improper payment is any payment that should not have been made or that was made in an incorrect amount under a statutory, contractual, and administrative or other legally applicable requirement.

#### Payment Integrity Reporting Details

The Department defines its programs and activities in alignment with the manner of funding received through appropriations, as further subdivided into funding for operations carried out around the world. Risk assessments over all programs are done every three years. In the interim years, risk assessments evaluating programs that experience any significant legislative changes and/or significant increase in funding will be done to determine if the Department continues to be at low risk for making significant improper payments at or above the threshold levels set by OMB. The Department conducted a risk assessment of all programs and activities in 2013 and again in 2016. As such, 2018 is an interim year.

Risk assessments of Department programs and activities involve an evaluation of the risk factors described in OMB Circular A-123 Appendix C including whether the program or activity reviewed is new to the Department; the complexity of the program or activity reviewed, particularly with respect to determining correct payment amounts; the volume of payments made annually; whether payments or payment eligibility decisions are made outside of the Department; recent major changes in program funding, authorities, practices, or procedures; the level, experience, and quality of training for personnel responsible for making program eligibility determinations or certifying that payments are accurate; inherent risks of improper payments due to the nature of Department programs; significant deficiencies in the audit reports on the Department including OIG, GAO, and the Special Inspector General for Afghanistan Reconstruction audit report findings; results from the prior year improper payment recapture work; and the percentage increase in funding. Additional risk factors are considered as needed. Further, risks and results from the work performed in compliance with OMB Circular A-123 Appendix A, other internal Department reviews, and other relevant information are considered.

Based on this series of internal control review techniques performed in 2018, the Department determined that none of its programs were risk-susceptible for making significant improper payments at or above the threshold levels set by statute. The 12 programs assessed were: Diplomatic and Inspector General Programs; Diplomatic and Consular Terrorism Related Programs (D&CP); Passport Generation and Related Programs; D&CP Other Operations Programs; International Security Programs; Population Refugees and Migrations Programs; International Cooperative Administrative Support Services; Working Capital Fund Programs; Educational Programs; Embassy Operations Programs; Peacekeeping Operations Programs; and Security Training and Related Programs. Based on these procedures, the Department determined that none of its programs in 2018 were risk-susceptible for making significant improper payments at or above the threshold levels set by OMB.

#### Recapture of Improper Payments Reporting

A number of improper payment activities, both preventative and recovery, exist for domestic and overseas payments at the Department, Bureau, post, and program levels to support IPIA efforts and ensure the integrity and accuracy of Department payments. The Bureau of the Comptroller and Global Financial Services (CGFS) has a two-tiered improper payment monitoring and review program that consists of activities performed by the payment issuing office and secondly by the Office of Oversight and Management Analysis (OMA). As an integral part of our post-payment review process, improper payment reviews are performed initially by the payment issuing offices which include the Office of Claims (CGFS/F/C) and Office of Global Compensation (CGFS/GC). The subsequent review performed by OMA focuses on overpayments and utilizes data and risk analysis to drive the recapture work performed. While many agencies hire external recapture auditors to perform a secondary review, this function is performed more efficiently within the Department by OMA. Because the activity performed by CGFS/F/C and CGFS/GC is a post-payment (versus recapture payment) review process, those results are not considered recapture audits and are considered an activity outside of recapture audits. Because the OMA activity is secondary and consistent with a function that an external auditor would perform, for reporting purposes OMA’s activity is considered recapture as defined by IPIA.

##### Payment Recapture Audit Reporting

CGFS incorporates various manual and automated data analysis techniques and processes to identify, validate and collect improper payments, including use of data mining software, manual sampling of internal payment records, U.S. Treasury taxpayer identification number matching, and sampling of vendors. Monthly, as part of the Recapture Audit process, OMA conducts a query of domestic vendor payments. Domestic vendor payments represent the largest category of Department-made payments subject to IPIA recapture audit requirements, focusing on identifying potential improper and duplicate payments. Currently, these payments are reviewed on a monthly basis using IDEA – Data Analysis software to run matches of vendor invoice numbers and payment amounts against current payment data and payments dating back to 2007. The increased quality control processes by CGFS/F/C in both payments generation and internal post-payment review process have contributed to overall lower improper recapture audit amounts. In addition to the automated IDEA analysis, OMA performs a manual quarterly review of overseas and domestic payments. These manual recapture audits validate elements such as vendor, payment amount, and ensure proper documentation exists to support sampled payments. In 2018, OMA contract recapture audit efforts identified $66,793 contract overpayments. Of that amount, $3,166 was recovered and returned to the originating appropriations.

In addition, OMA performs a quarterly manual recapture audit of employee claim payments subject to the Department’s overall travel program. This recapture audit focuses on known identified issue areas as well as providing overall audit coverage of employee travel payments. As shown in the “Overpayment Payment Recaptures with and without Recapture Audit Programs” table, in 2018 OMA identified $139,701 in travel program recapture audit overpayments, and collected $63,794 which was returned to the originating appropriation.

During 2018, OMA built on prior year recapture audit activities in additional areas.

- Grants payments.  OMA continued manual sampling and testing of grants payments including those made on behalf of the Department by the Department of Health and Human Services through their Payment Management System (PMS).
- Foreign Service Retirement Disability Fund annuitant payments.  In 2018, OMA efforts continued regarding FSRDF annuitant payments by reviewing annuity supplemental payments.
- American Employee (AE) and Foreign Locally Employed (LE) Staff Compensation payments.  In addition, during 2018 OMA continued recapture efforts of AE and LE Staff Compensation payments. LE Staff payments represent compensation made to local employees of Embassies and Posts who typically hold residency in those countries. OMA systematic analysis and targeted payment reviews will continue to expand efforts in the Grants, Annuity Payments, AE, and LE Staff Compensation recapture audit areas in future years.

The CGFS automated duplicate or erroneous payment program using the domestic payment file for recapture audit analysis has proven to be a cost effective tool. The additional inclusion of automated and manual recapture audit processes implemented in the domestic and overseas vendor, annuity payment, grant payment, AE compensation, and LE Staff compensation areas ensures the Department has coverage in required IPIA recapture audit areas. Prior to these efforts, in 2005 and 2006, the Department contracted with an external firm to perform recapture audit activities. However, after 2006, the contracted firm determined it was not cost-effective to continue this function. At this time, CGFS has not made a request to OMB to exclude any IPIA area from recapture audit activity. CGFS realizes that additional recapture audit opportunities may exist and continues to collectively assess areas of greater risk of improper payments and implement recapture audit measures deemed cost-effective.

##### Overpayments Recaptured Outside of Payment Recapture Audits

Improper payment identification and collection are essential functions of the Accounts Payable operations in CGFS/F/C. As such, CGFS/F/C has established an internal debt management unit, whose primary mission is to identify and collect improper payments. In addition, this Unit assists in identifying potential systemic issues leading to improper payments, which facilitates immediate implementation of corrective actions. Programs in which CGFS/F/C identified improper payments in 2018 include: Diplomatic and Consular Programs; Working Capital Fund Programs; Nonproliferation, Antiterrorism, Demining; International Narcotics Control and Law Enforcement; and other State programs. Collectively, as shown in the “Overpayment Payment Recaptures with and without Audit Programs” (“overpayments”) table, during 2018, CGFS/F/C identified and confirmed transactions totaling $1.6 million of actual duplicate/improper payments, of which we recovered $1.2 million in addition to collecting $243,609 of the prior year unrecovered balance. Also, in 2018 the Department identified and confirmed employee claims overpayments totaling $9,546, of which we recovered $1,754. Additionally we recovered $24,589 from prior year identified travel overpayments. Total recovered travel amounts in 2018 of $26,343 were returned to the original appropriations.

CGFS/GC also leverages an overpayment processing unit whose purpose is to review, calculate, and notify employees of any salary or allowance overpayment debt. Salary overpayments can occur for various reasons in the Department’s complex global pay environment, much of which is dependent on timely notification of events impacting pay. For example, late receipt of a cable notifying CGFS that an employee has departed an overseas mission for official duty travel or on personal leave can result in an overpayment of allowances. The payroll systems have programmatic internal controls and system edits in place to assist in preventing overpayments. CGFS/GC continues to implement additional measures to prevent and identify overpayments. In 2018, the Department’s CGFS American Pay Processing Division identified and confirmed payroll overpayments totaling $6.6 million, of which $3.9 million has been recovered. Additionally $935,871 of prior year payroll debts were recovered, bringing the total recovered in 2018 to $4.9 million. To date, CGFS/GC has collected 82 percent of prior year debts. This is notable because recovery of payroll debts can be delayed due to a debtor’s request for an administrative review or a waiver. Efforts to collect outstanding payroll debts are ongoing and attempts are made to use the most effective means to maximize collection, such as salary offsets, when possible.

In addition to salary overpayments, Global Compensation performs procedures to identify overpayments impacting Foreign Service annuities paid by the Department. In 2018, the CGFS/GC Annuitant Pay Processing (ANP) identified and confirmed overpayment transactions totaling $570,470 and recovered $134,189 of this amount. All amounts recovered were returned to the original appropriation. These overpayments occur for reasons such as annuity reductions due to divorce, annuitant re-employment, and untimely notification of death. CGFS continues the use of the Do Not Pay Death Master File (DMF) on a pre-payment basis to better identify when annuitant deaths occur. This and other internal controls greatly assist ANP in preventing and managing improper payments. 

Additionally, the Office of Inspector General (OIG) conducted a number of audits, evaluations, inspections, and investigations to prevent and detect fraud, waste, abuse, and mismanagement in programs and operations of the Department. The OIG disclosed disallowed costs identified from their activities in the OIG’s FY 2018 Semiannual Reports to Congress that were presented in the “overpayments” table. Despite efforts made to obtain actual collections data for OIG’s identified disallowed costs, we were unable to ascertain the exact status. Multiple collection techniques are utilized by contracting and grants officers, which can include collecting cash, applying agreed-upon reductions of current billings due to the vendor, and other appropriate offsets which effectively serve to recover the funds for the government. OIG disallowed costs are occasionally related to matters that are referred to the Department of Justice for litigation. Given the majority of disallowed costs are recovered by various means, we disclosed collections as equal to amounts identified as disallowed, which we believe are materially correct. Developing a process to individually contact contracting and grants officers and obtain collection data for each transaction identified by the OIG would be overly resource intensive and not cost effective. However, we will continue to research for new and automated ways to obtain more exact collection data for the OIG in FY 2019. The OIG also disclosed disallowed costs associated with the Defense Contract Audit Agency and Single Audits within the OIG’s semiannual reports that are presented in the “overpayments” table as well. Detailed information and supporting documentation was more readily available and obtained to support those activities.

| Program or Activity              | Amount Recaptured | Original Purpose |
|----------------------------------|-------------------|------------------|
| Travel Program                   | $63.8             | $63.8            |
| Diplomatic and Consular Programs | 3.2               | 3.2              |
| Total                            | $67.0             | $67.0            |

| Program or Activity              | Amount Outstanding          (0–6 months) | Amount Outstanding          (6 months to 1 year) | Amount Outstanding          (over 1 year) | Amount determined          to not be collectable |
|----------------------------------|------------------------------------------------|--------------------------------------------------|-------------------------------------------|--------------------------------------------------|
| Travel Program                   | $24.3                                          | $67.7                                            | $91.7                                     | $—                                         |
| Diplomatic and Consular Programs | 66.8                                           | —                                          | —                                   | —                                          |
| OBO Programs                     | —                                        | —                                          | 16.7                                      | —                                          |
| Foreign Service Annuities        | —                                              | —                                                | 48.8                                      | —                                          |
| Total                            | $91.1                                          | $67.7                                            | $157.2                                    | $—                                         |

Additional Department Payment Integrity (previously referred to as Improper Payments) information can be found at the following link: https://paymentaccuracy.gov/ .

##### Agency Improvement of Payment Accuracy with the Do Not Pay Initiative

The Department reviewed potential improper payments provided by the Department of the Treasury (Treasury) generated as a result of submitting disbursed payments through the Do Not Pay (DNP) portal. In FY 2018, the Treasury reviewed and disbursed 1,431,349 payments totaling $12.4 billion paid by the Department through the DNP portal. Potential matches were provided on a daily basis, comparing payments to the public Death Master File (DMF) of the Social Security Administration and the General Services Administration’s Excluded Parties List System (EPLS). The Department has access to the private EPLS matching criteria, and as such, the DMF results were based on a social security number and name match of any payees who have been reported as deceased.

Through daily access via the Treasury DNP portal, the Department reviewed 1.1 million unmatchable payments, totaling $3.6 billion, and adjudicated 3 potential erroneous payment matches as part of the post payment review process.

The Department continued to utilize the Do Not Pay portal’s Social Security Administration DMF on a pre-payment continuous monitoring basis for all annuitant payments this year. At least twice each month the Department’s annuitant database is screened against the DMF to identify deceased annuitants. All matches are researched and if confirmed, payment to the annuitant is stopped prior to processing the monthly annuity payment run. In 2018, 201,435 annuitant payments totaling $953 million were reviewed against the DMF and 75 payments totaling $266,193 were stopped due to this initiative. This process has been successful in timely identifying deceased annuitants and ensuring improper payments are not made. In addition, all annuity manual payments processed through Treasury’s Secure Payment System are also reviewed through the Do Not Pay DMF online search prior to making the payment. For each manual payment, the Department maintains supporting documentation to show that a DMF match did not occur.

For non-Treasury Disbursing Office payments made by the Department for disbursement overseas, payee information is checked against Treasury’s Office of Foreign Assets Control’s (OFAC) list of Specially Designated Nationals (SDN). During 2018, potential payment matches were reviewed and resulted in one stopped payment totaling $41.

In addition, in 2018 Department grants processed through the Department of Health and Human Services Payment Management System (PMS) are included in a Do Not Pay review. The Health and Human Services Division of Payment Management incorporated a review of the Do Not Pay portal into their payment process to identify individuals or entities with delinquent Federal non-tax debt, a recipient that is listed as deceased on the DMF, and recipients excluded from doing business with the government. In 2018, the Department was notified of two recipients that appeared ineligible due to results of the Do Not Pay process. In addition, in 2018, seven recipient payments were stopped as a result of the Treasury Offset Program.

##### Premium Class Travel Reviews

The Department’s mission is conducted throughout the world and requires extensive travel, sometimes of a significant duration. Because of the high volume of travel, the Department has made concerted efforts to monitor if official travel has adhered to Government-wide and Department regulations for premium class travel.

For 2018, there were no instances identified where a business class travel payment was inappropriate and needed to be recovered, or where the travelers flying business class were found to be ineligible. However, there have been instances where proper and complete supporting documentation was not readily available. Those errors represent an error rate of 1 percent ($13,941) in FY 2018, 4 percent ($47,536) in FY 2017, 4 percent ($32,242) in FY 2016, 15 percent ($157,144) in FY 2015, and 17 percent ($54,885) in FY 2014. OMB requires agencies to report improper payment errors based on six categories of errors: program design or structural issue, inability to authenticate eligibility, failure to verify, administrative or process error, medical necessity, and insufficient documentation to determine. All Department errors found each year were attributable to documentation and administrative errors. The Department carefully considered these results in combination with results from other travel reviews, and will undertake efforts in 2019 to correct the deficiencies noted during the FY 2018 review.

### Debt Management

Outstanding debt from non-Federal sources (net of allowance) increased from $38.6 million at September 30, 2017 to $58 million at September 30, 2018. Civil Monetary Penalties increased by $14 million while IBWC, Direct Loans, Administrative fees, and Passport non-sufficient funds increased by $5.4 million at September 30, 2018, resulting in an increase overall to the non-Federal source figures.

Non-Federal receivables consist of debts owed to the International Boundary and Water Commission, Civil Monetary Fund, and amounts owed for repatriation loans, medical costs, travel advances, and other miscellaneous receivables.

The Department uses installment agreements, salary offset, and restrictions on passports as tools to collect its receivables. It also receives collections through its cross-servicing agreement with the Department of the Treasury (Treasury). In 1998, the Department entered into a cross-servicing agreement with Treasury for collections of delinquent receivables. In accordance with the agreement and the Debt Collection Improvement Act of 1996 (Public Law No. 104-134), the Department referred $4.3 million to Treasury for cross-servicing in 2018. Of the current and past debts referred to Treasury, $1.6 million was collected in 2018.

### Electronic Payments

The payments made through Electronic Funds Transfer (EFT) were 99 percent of the total payments made for domestic and overseas payments. Domestic operations accomplished 99.2 percent of its payments with EFT this year. Overseas operations have a slightly lower EFT percentage (98.9 percent) than domestic operations due to the complexities of banking operations in some foreign countries. For 2018, approximately 3.7 million payments were disbursed for the Department of State.

### Federal Civil Penalties Inflation Adjustment Act

The Federal Civil Penalties Inflation Adjustment Act of 1990 established annual reporting requirements for civil monetary penalties assessed and collected by Federal agencies. The Department assesses civil fines and penalties for such infractions as violating the terms of munitions licenses, exporting unauthorized defense articles and services, and valuation of manufacturing license agreements. In 2018, the Department assessed a $30 million penalty on one company, of which $15 million will be suspended on condition that the respondent undertake remedial compliance measures. During 2018, $1 million of the assessed penalty was collected. The balance outstanding as of September 30, 2018 was $14 million. The following table lists the current penalty level for infractions governed by the Department.

### Prompt Payment Act

#### Timeliness of Payments

The Prompt Payment Act (PPA) requires Federal agencies to pay their bills on time. PPA assesses an interest penalty against Federal agencies that do not pay their vendors timely as required by law. In 2018, the Department timely paid over 98.5 percent of the 596,997 payments subject to PPA regulations. The “Timeliness of DOS Payments” bar chart reflects the timeliness of the Department’s payments from 2016 through 2018. During 2018, the Department paid $407,685 in interest penalties out of $10 billion in payments that were subject to PPA, compared to $271,158 in 2017.

### Fraud Reduction Report

Government leaders are under increasing pressure, with limited resources and more public scrutiny, to reduce or eliminate fraud, waste, abuse, misconduct, and improper payments in Federal programs and operations. Fraud in the Federal Government is a serious problem that wastes taxpayer dollars, prevents Federal programs from carrying out their intended purpose and serving target populations, and creates potential national security risks. Congress and Federal agencies have been working to combat fraud and reduce improper payments by creating policies and legislation that will give agencies the tools that they need to target and prevent fraud.

The Fraud Reduction and Data Analytics Act (FRDAA) of 2015 (Public Law No. 114-186) required OMB to establish guidelines for Federal agencies to establish financial and administrative controls to identify and assess fraud risks and design and implement control activities in order to prevent, detect, and respond to fraud, including improper payments. Agencies are required to report on their progress to implement financial and administrative controls in compliance with the OMB guidelines, GAO’s *Standards for Internal Control in the Federal Government* (Green Book), and the OMB Circular A-123.

To help managers combat fraud and preserve integrity in government agencies and programs, GAO identified leading practices for managing fraud risks and organized them into the *Framework for Managing Fraud Risk in Federal Programs*. This framework, and other leading practice materials, provided a foundation for the Department’s fraud reduction program. In FY 2018, an Internal Controls Fraud Working Group continued to improve implementation efforts to comply with FRDAA. CGFS conducted extensive outreach during FY 2018 to increase awareness and provided FRDAA information to program managers of consular services, payroll, beneficiary payments, grants, contracts, asset management, and purchase and travel cards. CGFS worked closely to assist program managers and supervisors conduct fraud risk assessments and populate fraud risk profiles, who identified specific risks to their processes, documented current risk mitigation efforts and residual risks after mitigation efforts, and assessed likelihood and impact.

#### Progress in Implementing Financial and Administrative Controls

The Department has a strong management controls program in place, and performs extensive work to provide value beyond complying with the myriad of laws and regulations applicable to the Department. Below are examples and highlights from a few of our accomplishments in FY 2018.

The Department’s Bureau of Consular Affairs (CA) has historically analyzed financial and adjudicatory data pertaining to specific visa categories and passport applications to determine possible fraud trends or detect internal malfeasance. In FY 2016, CA undertook the development of an advanced fraud analytics program to identify, combat, and prevent potential fraud through fraud prevention units (FPUs) located at 220 embassies and consulates abroad, as well as 29 domestic passport agencies and centers. In FY 2018, FPUs continue to use the results of this analysis in combination with their knowledge of local conditions to train consular adjudicators to identify potentially fraudulent applications.

To prevent external fraud, CA provides external training to consular personnel on fraud trends, techniques and counter measures during adjudicative training and in advanced fraud prevention training throughout their careers. CA adjudicators have access to on-line databases that assist with verification of genuine identity and travel documents and to detect counterfeit and altered documents. CA’s Counterfeit Deterrence Laboratory contributes to the design and development of secure U.S. travel documents by sharing analysis and expertise with the interagency group. CA personnel receive malfeasance training annually, either through management or as part of consular-specific training courses. To prevent internal fraud, CA maintains technology and other internal control mechanisms to deter unauthorized access to consular records and uses Consular Management Assistance Team and OIG visits to posts and passport agencies, as well as mandatory Annual Management Control Certifications and other reporting, to actively monitor and deter internal fraud, including financial fraud.

#### Progress in Implementing the Fraud Risk Principle in the Green Book

The Department conducts an annual entity-level control assessment to comply with the GAO’s Green Book. The assessment includes Principle #8, which requires management to consider the potential for fraud when identifying, analyzing, and responding to risks. Overall, the Department’s assessment of fraud included tests of operating effectiveness and utilized other existing fraud programs conducted within our bureaus. Other programs that identified fraud were considered including the Statement of Assurance process, as well as work performed by external auditors such as the OIG, GAO, and the Special Inspector General for Afghanistan Reconstruction.

#### Progress in Identifying Risks and Vulnerabilities

Many Department managers have robust fraud preventive and detective measures, and fraud analytics programs that have operated for many years, while some areas have begun to build fraud prevention activities in response to the FRDAA Act. Below are examples and highlights from a few of our accomplishments in FY 2018.

**Grants:** The Federal Assistance Division in the Office of the Procurement Executive (A/OPE/AP/FA) implemented a new risk assessment and monitoring plan template, which can be applied with increased complexity to small, medium, and large-sized awards. This new risk assessment and monitoring plan, which was accompanied by improved training on its implementation, has resulted in its increased use, which focuses the user on the need for and type of financial monitoring and oversight required for each specific award. A/OPE/AP/FA has also improved training on improved monitoring of payment advances and draw-downs in order to encourage that payments are tied more strictly to program activities.

**Consular:** CA liaised with management and consular adjudicators worldwide to refine their fraud prevention strategies and tactics to combat new and evolving threats. CA disseminated anti-fraud information to a wide variety of clients via the CA/FPP website, the Fraud Digest, webinars, and other publications. CA also liaised with the Bureau of Diplomatic Security (DS), the Department of Homeland Security (DHS) and other Federal agencies and organizations concerned with immigration fraud and alien smuggling.

**Property:** During the 2018 annual inventory process the ILMS Analytics team uncovered irregular scanning activity: one employee on one day at one post, scanned 11 times more assets (worth $1.1 million) than the worldwide average. Post investigation revealed the employee had falsified annual inventory results by scanning a book of duplicate barcodes instead of actual physical assets in the warehouse.

**Procurement:** The ILMS Analytics team identified multiple cases of split purchases (where each transaction was below the micro-purchase threshold) which allowed posts to avoid the competitive bid process. For one requesting office at one post there were three orders for the same type of service issued on the same day.

**Beneficiary Payments:** The use of Treasury’s Secure Payment System continues to assist with successful identification and prevention of fraudulent payments to beneficiaries. In 2018, 201,435 annuitant payments totaling $953 million were reviewed against the DMF and 75 payments totaling $266,193 were stopped due to this initiative.

**Purchase Card Program:** 276 bureaus and posts completed and certified their FY 2017 Annual Review in PMARS (Purchase Card Management & Reporting System). This represents a significant increase from prior years when Annual Reviews were primarily a paper process. Beginning in FY 2018, all Bureaus and Posts were required to complete the Annual Review electronically in PMARS, which has led to a significant increase in worldwide compliance.

**Travel Card Program:** The Department’s Travel Card Program office (TCP) utilizes an automated Misuse tool that has yielded 100 percent compliance with the Government Charge Card Abuse Prevention Act, which reviews all credit card transactions and compares the data to travel orders to determine if the card was used in compliance with government mandates. In 2017, 122,000 transactions totaling more than $24 million were inspected by the Misuse tool. 936 transactions were confirmed as misuse totaling $152,683. Annual 2018 results are not yet compiled; however, improved results are expected based on monthly reporting results. Cardholders who were found to have misused their cards were counseled on the appropriate use of the card and required to re-take training.

#### Ancillary Benefits to Fraud Reduction Work

Travel Card Program: Through conference calls and surveys, all embassies using a centrally billed account (CBA) have been contacted and have had flowcharts documenting internal controls and CBA reconciliation processes created. Prior to 2017, the Department did not have a centralized repository of these documents. This process implemented by TCP has already assisted posts with OIG visits, helped streamline post operations on reconciling their statements, and has assisted embassies with holding their Travel Management Centers to the terms of their contracts.

#### Progress on Establishing Strategies, Procedures, and Other Steps to Curb Fraud

During FY 2018, the Department established and implemented *Consular Fraud Prevention (7 FAH-1 H-930)* policies to organize fraud prevention programs, analysis, and training within posts to identify, prevent and disrupt passport, visa and other types of consular fraud. The potential for fraud is investigated by the Office of Inspector General and other fraud investigations such as the Criminal Fraud Investigations office in DS. In addition, posts report on a semi-annual or annual basis the occurrences of fraud including the types of fraud, fraud risks and methods to mitigate those risks.

Fraud risk management is an important aspect of the Department’s strategy to achieve its mission and goals. Overall, the Department expanded our capability to identify risk and vulnerabilities and prevent fraud by employing data analytic tools in our logistics systems, as well as utilized the collective knowledge of leaders to develop new data relationships to identify and prevent fraud. New policies and procedures were put in place to prevent, detect, and respond to fraud, and Bureaus collaborated with each other to advance an organizational culture to combat fraud across components, programs, and levels. The Department will advance its fraud reduction efforts and take further steps to reduce fraud in FY 2019.

### Grants Oversight and New Efficiency (GONE) Act

The Department recognizes the importance of a timely closeout of grants and cooperative agreements and has made significant progress in reducing the number of expired awards. Over the past twelve months, the Department has achieved a two-thirds reduction in the overall number of open awards with a period of performance end date of September 30, 2015 or earlier. Of the 432 awards totaling $12,127,938 reported in our FY 2017 GONE Act Report, 144 awards totaling $4,471,510 remain.

The Department’s commitment to improving its management of grants and cooperative agreements is demonstrated by the implementation of a standardized Federal assistance management system (State Assistance Management System (SAMS)) for domestic bureaus and overseas posts, coupled with updates to the Department’s Federal assistance policies and training. Taking these steps have enabled the Department to better monitor, analyze, and report on the closeout of awards.

Challenges in closing awards still exist. While data does pass electronically between SAMS, the Department’s financial systems, and the HHS Payment Management System (PMS), some critical closeout tasks remain a manual process in the payment system. As highlighted in the GAO report, *Actions Needed to Address Persistent Grant Closeout Timeliness and Undisbursed Balance Issues* (GAO-16-362), the manual steps required to reconcile differences between systems can be labor-intensive, especially in PMS.

The Department has taken numerous steps to mitigate and resolve these issues. SAMS utilizes a standardized closeout checklist and offers reporting capabilities to help target awards awaiting closeout. Additionally, Department of Interior services are used to negotiate indirect cost rates which facilitates timelier award closeout, and publication of a Federal assistance Human Capital Plan has resulted in increased training and guidance on Federal assistance management, including closeout requirements and procedures.

							Resource Management Systems Summary					

### Introduction

The financial activities of the Department of State (the Department or DOS) occur in approximately 270 locations in 180 countries. We conduct business transactions in over 135 currencies and even more languages and cultures. Hundreds of financial and management professionals around the globe allocate, disburse, and account for billions of dollars in annual appropriations, revenues, and assets. The Department is at the forefront of Federal Government efforts to achieve cost savings by engaging in shared services. Indeed, the Department’s resource management customers include 45 U.S. Government agencies in every corner of the world, served 24 hours a day, seven days a week. Another illustration of the Department’s commitment to shared services is its hosting at its Charleston, S.C. financial center of USAID’s core financial system. This system, known as Phoenix, makes use of the same commercial off-the-shelf (COTS) software as the Department’s core system, thereby promoting smooth interaction between the two agencies.

The Department’s financial management efforts are guided by three overarching goals: delivering world-class financial services and systems to our customers effectively and efficiently; establishing and administering an accountable, transparent, and prudent rigorous internal control, compliance and financial reporting environment; and facilitating inter-agency coordination and liaison activities that support Department operations.

The nonprofit independent firm that conducts the Department’s annual survey of overseas users of financial operations and systems is one of the leading proponents of benchmarking and best practices in business research. The firm noted that the Department’s Bureau of the Comptroller and Global Financial Services (CGFS) set its overall performance target for customer satisfaction at 80 percent for all services, a goal considerably higher than what many Government agencies and private sector financial institutions achieve. Not only has CGFS set such high goals, it has consistently surpassed these marks for overall satisfaction and satisfaction with the majority of its individual systems. In our most recent survey, for the first time all nine financial systems received a satisfaction rating of 80 or higher from overseas users. Such scores exceed benchmark averages from financial services customers of 64 for Federal Government agencies and 75 for private sector providers. CGFS viewed this improvement as particularly meaningful as it was driven by an increase in both the response rate and average satisfaction scores provided by financial management officers.

Continued standardization and consolidation of financial activities and leveraging investments in financial systems to improve our financial business processes will lead to greater efficiencies and effectiveness. This change is not always easy with the decentralized post-level financial services model that exists for the Department’s worldwide operations. In addition, over the next several years, we will need to leverage upgrades in our core financial system software, locally employed (LE) staff and American payroll and time and attendance (T&A) deployments, and integration with other Department corporate systems to improve our processes in ways that better support financial operations. Besides seeking greater linkages within our systems, we also are seeking additional opportunities to improve our shared service efficiencies in ways that help us serve our customer agencies and so lower overall costs to the U.S. Government.

We have made significant progress in modernizing and consolidating Department resource management systems. In response to cybersecurity concerns, our development efforts in all lines of business increasingly emphasize the need to reduce vulnerabilities within systems and to be mindful of potential threats to unauthorized access and to the integrity of data within our systems. This focus seeks to protect both the Department and its employees. CGFS’ financial systems development activities are now operated under Capability Maturity Model Integration (CMMI) industry standards.

We continue to make use of proven COTS software in delivering resource management systems to the Department and our serviced customers. We have pushed to consolidate these systems to the CGFS platform with the goals of meeting user requirements, sharing a common platform and architecture, reflecting rationalized standard business processes, and ensuring secure and compliant systems. A COTS solution is the platform for our Global Foreign Affairs Compensation Systems (GFACS). By managing the process in this manner, we can deliver products that are compliant, controlled, and secure. OMB continues its initiative to standardize Government-wide business processes to address the Federal Government’s long-term need to improve financial management. Also, over the next several years, a number of new Federal accounting and information technology standards, many driven by the Department of the Treasury, will become effective. These include Government-wide projects to standardize business requirements and processes, establish and implement a Government-wide accounting classification, and support the replacement of financial statement and budgetary reporting. The Department’s implementation of new standards and Government-wide reporting will strengthen both our financial and information technology management practices.

The Department uses financial management systems that are critical to effective agency-wide financial management, financial reporting, and financial control. These systems are included in various programs. An overview of these programs follows.

### Financial Systems Program

The financial systems program includes the Global Financial Management System (GFMS), the Regional Financial Management System (RFMS), and the Consolidated Overseas Accountability Support Toolbox (COAST).

***The Global Financial Management System.*** GFMS centrally accounts for billions of dollars recorded through over 5 million transactions annually, by more than 1,000 users and over 25 “handshakes” with other internal and external systems. GFMS is critical to the Department’s day-to-day operations. It supports the execution of the Department’s mission by effectively accounting for business activities and recording the associated financial information, including obligations and costs, performance, financial assets, and other data. It supports the Department’s domestic offices and serves as the agency’s repository of corporate data.

During 2018, GFMS was updated to meet the OMB mandate to begin implementing Invoice Processing Platform (IPP). IPP is a shared service provided by the Department of the Treasury. Use of this service allows DOS to streamline domestic and overseas invoice processing. The Department and vendors will have access to the IPP platform to exchange data on orders, invoices, and payments. Internal controls will ensure that invoices are reviewed and approved in IPP by using configurable standard workflows. During 2018, development, testing, and implementation tasks were completed and pilots with three Department bureaus were started. Full deployment will continue into 2019.

DOS continued efforts to improve methods to track Interagency Agreements (IAAs) in GFMS, including providing the ability to create IAA forms directly from GFMS. Signed IAAs must be attached to the GFMS Agreement and Order documents providing for a central repository for all IAAs. During 2018, various development, testing, and implementation tasks were completed and pilots with two Department bureaus that have high volumes of IAAs were started. Full deployment with all bureaus will continue into 2019.

***The Regional Financial Management System.*** RFMS is the global accounting and payment system that has been implemented for posts around the world. RFMS includes a common accounting system for funds management and transaction processing. To improve the accuracy of the Department’s residential and operational leases, posts started using RFMS/M Property related Obligation and Payment (PrOPP) functionality. PrOPP provides an automated tool to set up recurring profiles for obligations and payments related to leases and other recurring payments and includes reports and queries for managing future lease transactions. Ninety-two posts are currently live on PrOPP and full deployment efforts will continue in 2019. IPP will also be used by RFMS vendors to submit invoices. Interfaces from RFMS will extract orders to send to IPP and RFMS approving officials will review and approve invoices in IPP. IPP will send approved invoices to RFMS for payment. During 2018, analysis and design tasks were completed. Full deployment, starting with pilots in Lima and Rome, will continue into 2019.

***The Consolidated Overseas Accountability Support Toolbox.*** COAST is an application suite deployed to more than 180 posts around the world as well as to Department of State and other agency headquarters offices domestically. COAST captures and maintains accurate, meaningful financial information, and provides it to decision makers in a timely fashion. The current COAST suite consists of COAST Cashiering, COAST Reporting, and COAST Payroll Reporting. In 2018, the Department continued with the RFMS/Cashiering (RFMS/C) project to replace COAST Cashiering with a centralized, web-based cashiering application installed in a single location. New functionality was designed to integrate transactions from RFMS/C to RFMS/M in real time. This will replace the existing COAST Cashiering process of sending transactions to RFMS/M through a batch file. Implementation of RFMS/C is slated to begin late in 2018. COAST Reporting and COAST Payroll Reporting capabilities will be discussed in more detail under the Business Intelligence Program.

### Planning and Budget Systems Program

In 2018, the Budget System Modernization (BSM) project to standardize, consolidate, and simplify the budgeting systems of the Department expanded functionality for headquarters level financial planning of Diplomatic Engagement funds. This fully transitioned central budget office financial planning from the legacy Central Resource Management System (CRMS) to the new Integrated Budget Intelligence System (IBIS). The recording of State’s 2018 service agreements through reimbursements with other Federal agencies and between Department offices fully transitioned from CRMS to the GFMS accounting system.

IBIS has deployed additional functionality so that all 2019 warrants and domestic and overseas fund allocations contained within the Department will be entered in IBIS and interfaced to the accounting system. The 2019 non-expenditure transfers, as well as prior year budgetary transactions, will be handled directly in the GFMS accounting system. The successful transition of reimbursements, headquarters financial planning and distribution of funds from CRMS to IBIS and the accounting system reduces the dependence on custom software in lieu of COTS software. CRMS continues to provide foreign currency fluctuation impact projections for use in managing the overseas budgets for the current year and fund allocation planning for the International Cooperative Administrative Support Services (ICASS) working capital fund. These remaining functions will be transitioned to COTS software in 2019. In 2018, only those changes absolutely necessary to maintain the system until retirement were undertaken. This work included technical enhancements to address security as well as modifications to keep pace with the Department’s network and its use of current versions of technology.

WebRABIT is an application used by regional and other bureaus for program and public diplomacy execution year budgets at their posts. WebRABIT is in an operations and maintenance mode, with resources being aligned with this lower level of activity. Incorporating the current functionality of WebRABIT in the BSM project is part of the long-term strategy for planning and budget systems.

WebICASS is the principal means by which the U.S. Government shares the cost of common administrative support at its more than 270 diplomatic and consular posts overseas. The Department has statutory authority to serve as the primary overseas shared service provider to other agencies.

### Travel Systems Program

In 2016, the Department successfully transitioned to the next generation of the E-Government Travel Services (ETS2) contract with Carlson Wagonlit Travel. In 2016, the Department also implemented the Local Travel module allowing for the submission of local travel claims for expenses incurred in and around the vicinity of a duty station. The Department expanded the use of the Local Travel feature to also accommodate non-travel employee claims previously submitted through an SF-1164. In the Local Travel module, approvers will electronically approve claims and provide reimbursement to the employee’s bank account via EFT. The Department has completed this implementation for 76 posts overseas.

The Department continues to work with our bureaus and posts to identify improvements that can be made to the travel system. The Department also participates with other agencies to prioritize travel system enhancements across the Federal Government landscape. The Department worked with Carlson Wagonlit Travel to complete the implementation of Single Sign-On in 2018. The Department has initiated work with the Diplomatic Security bureau to use the enhancement for DOS Long-term Temporary Duty Travel. Completion of this pilot bureau implementation will occur in 2019. The Department continues to work with Carlson Wagonlit Travel on enhancements to support the implementation of the Local Payments module domestically.

### Compensation Systems Program

The Department serves as one of five payroll shared service providers on behalf of Federal agencies. Shared service providers process payroll annually for some 2.3 million employees worldwide, or about 99 percent of the Federal civilian workforce.

D

The Department continued to execute a phased deployment strategy, replacing six legacy payroll systems with a single, COTS-based solution to address the widely diverse payroll requirements of the Foreign Service, Civil Service, LE staff, and retirees of the Department and the other 45 civilian agencies serviced. The “Compensation System Vision and Concept” diagram highlights how past and future changes involve simplifying and consolidating our systems. The Global Foreign Affairs Compensation System (GFACS) will leverage a rules-based, table-driven architecture to promote compliance with the complex statutes found across the Foreign and Civil Service Acts and local laws and practices applicable to all the countries in which civilian agencies operate. At the close of 2018, 186 countries and over 61,000 LE staff have been converted to GFACS.

The last pay module to be implemented in GFACS is American payroll. It is currently in final testing prior to full implementation. The web-based global time and attendance product, based on the same technology as GFACS, will follow the American payroll implementation. This product has the capability of electronic routing, electronic signature, and self-service features. As a result, it will bring a more efficient and modern process to the Department’s workforce.

### Business Intelligence Program

The Department’s Business Intelligence (BI) program consists of the GFMS Data Warehouse (DW), COAST Reporting, COAST Payroll Reporting, and the Global BI framework. The GFMS DW enables users to access financial information from standard, prepared reports or customized queries. It also provides, on a daily basis, critical financial information to the Department’s enterprise data warehouse. During 2018, the GFMS DW was updated to implement new Distribution of Funds reports supporting the rollout of new BSM capabilities and to implement updates to reporting on spending and unliquidated obligations. The GFMS DW was also updated to implement a historical repository of data and a supporting capability for an overseas voucher management system. For 2019, work will continue to implement critical new and changing reporting requirements.

In 2017, the Department implemented the Global BI application, building on the infrastructure being used for the DW, and adding an in-memory appliance and a new data analytics tool. In 2018, the Global BI application continued to be used to import, reconcile, and export data that meets the requirements of the DATA Act. The Global BI application was updated to complete the full suite of financial reports for overseas posts as well as a second set of analytics information spaces for posts to drill into their overseas transactional data. The Department continued through an agile-like process utilizing a collection of overseas posts, a regional bureau, and accounting support staff in Charleston, S.C. to finalize overseas report and information space requirements and report functionality. Training was conducted for additional posts in the East Asian and Pacific, Western Hemisphere, Near Eastern, and South Central Asian regions. Training was also conducted for two domestic bureaus. New functionality added to Global BI in 2018 included an improved process for external reporting of the Department’s foreign assistance data, as well as new processes to support a domestic pilot for providing vendor and purchase order data to Treasury’s Invoice Processing Platform. In 2019, the Global BI application will be updated to include a new Pipeline report to show bureau spending by country and program, add new post payroll reporting, and provide a new initial foreign currency reporting capability. Improvements to the DATA Act processes will also occur in 2019 to meet evolving Treasury requirements. Post and domestic bureau use of Global BI will also be expended in 2019 as the rollout of Global BI continues. Analysis of GFMS DW reporting will also be conducted to support the planned 2020 migration of priority domestic bureau reporting to the Global BI application.

----

**DID YOU KNOW?**

*Robert Bacon, the 39th Secretary of State, served only 37 days in 1909.*

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

----

							Heritage Assets					

The Department has collections of art objects, furnishings, books, and buildings that are considered heritage or multi-use heritage assets. These collections are housed in the Diplomatic Reception Rooms, senior staff offices in the Secretary’s suite, offices, reception areas, conference rooms, the cafeteria and related areas, and embassies throughout the world. The items have been acquired as donations, are on loan from the owners, or were purchased using gift and appropriated funds. The assets are classified into nine categories: the Diplomatic Reception Rooms Collection, the Art Bank Program, the Library Rare & Special Book Collection, the Cultural Heritage Collection, the Secretary of State’s Register of Culturally Significant Property, the U.S. Diplomacy Center, the Art in Embassies Program, the International Boundary and Water Commission, and the Blair House. Items in the Register of Culturally Significant Property category are classified as multi-use heritage assets due to their use in general government operations.

### Diplomatic Reception Rooms Collection

In 1961, the State Department’s Office of Fine Arts began the privately-funded Americana Project to remodel and redecorate the 42 Diplomatic Reception Rooms – including the offices of the Secretary of State – on the seventh and eighth floors of the Harry S Truman Building. The Secretary of State, the President, and Senior Government Officials use the rooms for official functions promoting American values through diplomacy. The rooms reflect American art and architecture from the time of our country’s founding and its formative years, 1740 – 1840. The rooms also contain one of the most important collections of early Americana in the nation, with over 5,000 objects, including museum-quality furniture, rugs, paintings, and silver. These items have been acquired through donations or purchases funded through gifts from private citizens, foundations, and corporations. No tax dollars have been used to acquire or maintain the collection. There are three public tours each day.

### Art Bank Program

The Art Bank Program was established in 1984 to acquire artworks that could be displayed throughout the Department’s offices and annexes. The works of art are displayed in staff offices, reception areas, conference rooms, the cafeteria, and related public areas. The collection consists of original works on paper (watercolors and pastels) as well as limited edition prints, such as lithographs, woodcuts, intaglios, and silk-screens. These items are acquired through purchases funded by contributions from each participating bureau.

### Rare & Special Book Collection

In recent years, the Ralph J. Bunche Library has identified books that require special care or preservation. Many of these publications have been placed in the Rare Books and Special Collections Room, which is located adjacent to the Reading Room. Among the treasures is a copy of the Nuremberg Chronicles, which was printed in 1493; volumes signed by Thomas Jefferson; and books written by Foreign Service authors.

### Cultural Heritage Collection

The Cultural Heritage Collection, which is managed by the Bureau of Overseas Buildings Operations, Office of Residential Design and Cultural Heritage, is responsible for identifying and maintaining cultural objects owned by the Department in its properties abroad. The collections are identified based upon their historic importance, antiquity, or intrinsic value.

### Secretary of State’s Register of Culturally Significant Property

The Secretary of State’s Register of Culturally Significant Property was established in January 2001 to recognize the Department’s owned properties overseas that have historical, architectural, or cultural significance. Properties in this category include chanceries, consulates, and residences. All of these properties are used predominantly in general government operations and are thus classified as multi-use heritage assets. Financial information for multi-use heritage assets is presented in the principal statements. The register is managed by the Bureau of Overseas Buildings Operations, Office of Residential Design and Cultural Heritage.

### Diplomacy Center

The U.S. Diplomacy Center is a unique education and exhibition venue at the Department of State that explores the history, practice and challenges of U.S. diplomacy. It is a place that fosters a greater understanding of the role of U.S. diplomacy, past, present and future, and is an educational resource for students and teachers in the United States and around the globe. Exhibitions and programs inspire visitors to make diplomacy a part of their lives. The Diplomacy Center is located within the Bureau of Public Affairs, and actively collects artifacts for exhibitions.

### Art in Embassies Program

The Art in Embassies Program was established in 1964 to promote national pride and the distinct cultural identity of America’s arts and its artists. The program, which is managed by the Bureau of Overseas Buildings Operations, provides original U.S. works of art for the representational rooms of United States ambassadorial residences worldwide. The works of art were purchased or are on loan from individuals, organizations, or museums.

### International Boundary and Water Commission

One of the IBWC’s primary mission requirements is the demarcation and preservation of the international boundary between the United States and Mexico (see Reporting Entity in Note 1). Roughly 1,300 miles of this border are demarcated by the Rio Grande and the Colorado River, and the other 700 miles of border are demarcated by 276 monuments along the land boundary, which extends from the Pacific Ocean to the Rio Grande. These monuments are jointly owned and maintained by the United States and Mexico. The United States is responsible for 138 monuments and considers them heritage assets. In addition, the IBWC is responsible for the Falcon International Storage Dam and Hydroelectric Power Plant. These were constructed jointly by the United States and Mexico pursuant to Water Treaty of 1944 for the mission purposes of flood control, water conservation, and hydroelectric power generation. Both were dedicated by U.S. President Dwight D. Eisenhower and President Adolfo Ruiz Cortines, of Mexico to the residents of both countries. Falcon is located about 75 miles downstream (southeast) of Laredo, Texas and about 150 miles above the mouth of the Rio Grande. They are considered multi-use heritage assets.

### Blair House

Composed of four historic landmark buildings owned by GSA, Blair House, the President’s Guest House, operates under the stewardship of the Department of State’s Office of the Chief of Protocol and has accommodated official guests of the President of the United States since 1942. In 2012, these buildings were added to the Secretary’s Register of Culturally Significant Property for their important role in U.S. history and the conduct of diplomacy over time. Its many elegant rooms are furnished with collections of predominantly American and English fine and decorative arts, historical artifacts, other cultural objects, rare books, and archival materials documenting the Blair family and buildings history from 1824 to the present. Objects are acquired via purchase, donation or transfer through the private non-profit Blair House Restoration Fund; transfers may also be received through the State Department’s Office of Fine Arts and Office of the Chief of Protocol. Collections are managed by the Office of the Curator at Blair House, which operates under the Office of Fine Arts.

							Reduce the Footprint					

Consistent with Section 3 of the OMB Memorandum-12-12, *Promoting Efficient Spending to Support Agency Operations*, and OMB Management Procedures Memorandum 2013-02, the “Reduce the Footprint” policy implementing guidance, all CFO Act entities must set annual targets to reduce the total square footage of their domestic office and warehouse inventory compared to the 2015 baseline. As a result, OMB is working in partnership with the GSA and other Federal agencies to right-size the Federal real property inventory.

While some of the data is comparable to other agencies’ data, the Department functions as a service provider supporting U.S. Government agencies with overseas presence. This affects how the data is analyzed. There are service providers and support staff in domestic facilities who are providing overseas interagency support. Forty percent of U.S. direct-hire employees under Chief of Mission authority work for other agencies; most of them receive some direct service or management policy coordination from employees occupying domestic facilities. For example, the Department provides management services such as human resources, security, medical, diplomatic pouch and mail, financial management, real estate management, acquisition, information technology, contracting, and other services, to most agencies overseas.

The Department’s overall Reduce the Footprint plan shows a slight increase from the 2015 baseline to FY 2017. The Department’s current plans anticipate that the portfolio will remain at or close to the 2015 baseline in the immediate future and no significant acquisitions or disposals are planned for FY 2019. The Department continues to actively seek opportunities to maximize efficiencies and co-locate staff in order to reduce the costs of leased space, while also retaining the necessary resources to support the mission.

The Department strives for efficiency and best practices in its real estate program. The Department works closely with GSA on long-term strategic planning and housing for the Department’s domestic staff. Additionally, the Department has space allocation standards that reduce workstation sizes and limit the number of private offices, and is achieving improved utilization rates via increased densification.

As the Department’s real property needs are mission-driven, it must be prepared for real world events that may require changes in its physical footprint. Whether it is reacting to crises such as the Zika outbreak and other immediate threats to our nation’s security, or longer-term engagements such as coalition building and supporting U.S. citizens overseas, the Department must have the necessary personnel and facilities to respond rapidly to changing requirements. The Department commits however, to improving utilization rates and accommodating additional personnel within its current portfolio to the maximum extent possible.

The table “Reduce the Footprint Baseline Comparison” compares (1) the reported total square footage of Department-occupied assets and (2) the most recent annual operating costs associated with Department-owned assets to their respective 2015 baselines assigned by GSA. The operation and maintenance costs have been calculated from the 2015 Federal Real Property Profile data and include facilities other than office and warehouse space, such as data and training centers. The 2018 amounts are not available until after publication of the Agency Financial Report.

|   | 2017 | 2015 *Baseline* | Change |
|--------|------|-----------------|--------|
| 7.1    | 7.0  | 0.1             |
|   |
| $21.9  | $22  | ($0.1)          |

## View report by:

### On This Page

                    -  Section Table of Contents 
                    -  Inspector General's Statement on the Department's Major Management and Performance Challenges                        -  Introduction 
                      -  1. Protection of People and Facilities 
                      -  2. Oversight of Contracts, Grants, and Foreign Assistance 
                      -  3. Information Security and Management 
                      -  4. Financial and Property Management 
                      -  5. Operating in Contingency and Critical Environments 
                      -  6. Workforce Management 
                      -  7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority 
                      -  Conclusion 
                      -  Footnotes 
                    -  Management's Response to Inspector General                        -  1. Protection of People and Facilities 
                      -  2. Oversight of Contracts, Grants, and Foreign Assistance 
                      -  3. Information Security and Management 
                      -  4. Financial and Property Management 
                      -  5. Operating in Contingency and Critical Environments 
                      -  6. Workforce Management 
                      -  7. Promoting Accountability Through Internal Coordination and Clear Lines of Authority 
                    -  Summary of Financial Statement Audit and Management Assurances                        -  Summary of Financial Statement Audit 
                      -  Summary of Management Assurances 
                    -  Payment Integrity and Other Laws and Regulations                        -  Improper Payments Information Act, as Amended 
                      -  Debt Management 
                      -  Electronic Payments 
                      -  Federal Civil Penalties Inflation Adjustment Act 
                      -  Prompt Payment Act 
                      -  Fraud Reduction Report 
                      -  Grants Oversight and New Efficiency (GONE) Act 
                    -  Resource Management Systems Summary                        -  Introduction 
                      -  Financial Systems Program 
                      -  Planning and Budget Systems Program 
                      -  Travel Systems Program 
                      -  Compensation Systems Program 
                      -  Business Intelligence Program 
                    -  Heritage Assets                        -  Diplomatic Reception Rooms Collection 
                      -  Art Bank Program 
                      -  Rare & Special Book Collection 
                      -  Cultural Heritage Collection 
                      -  Secretary of State’s Register of Culturally Significant Property 
                      -  Diplomacy Center 
                      -  Art in Embassies Program 
                      -  International Boundary and Water Commission 
                      -  Blair House 
                    -  Reduce the Footprint   

Tags

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

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## U.S. Department *of* State

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