A recent audit conducted by Kearney & Company, P.C., on behalf of the Office of Inspector General (OIG) of the U.S. Department of State has uncovered persistent internal control weaknesses in the agency’s financial management practices for Fiscal Year (FY) 2024. The management letter, dated February 27, 2025, highlights five recurring issues from prior years and introduces a new concern regarding information security, raising questions about the Department’s ability to safeguard taxpayer funds and ensure accurate financial reporting.
The OIG, tasked with preventing waste, fraud, and abuse within federal agencies, oversaw the audit of the Department’s financial statements as of September 30, 2024. While the audit did not identify material weaknesses, it flagged several significant deficiencies in internal controls over financial reporting and instances of noncompliance in its November 2024 report. The management letter delves deeper into additional concerns that, while not deemed material, indicate operational inefficiencies and potential risks.
The audit reiterated five issues that have persisted since the FY 2023 management letter, some dating back over a decade. The Department continues to struggle with recording financial obligations in a timely manner. Testing of 58 obligations in FY 2024 revealed 14 instances in which goods or services were received before proper documentation was executed, increasing the risk of violating the Anti-Deficiency Act and delaying payments under the Prompt Payment Act. This issue, first noted in FY 2010, underscores a lack of robust processes to ensure compliance with federal budgeting rules, according to the audit report.
The audit report states that discrepancies between the Overseas Personnel System (OPS) and the Global Foreign Affairs Compensation System – Locally Employed (GFACS LE) persist, affecting data such as dates of birth, service computation dates, and salaries for locally employed (LE) staff at overseas posts. These inaccuracies, initially reported in FY 2012, could lead to miscalculated liabilities for post-employment benefits and improper payroll disbursements.
The Department’s management of personnel records remains inconsistent, with errors in documentation for Civil Service, Foreign Service, and LE staff. In FY 2024, testing uncovered discrepancies in Thrift Savings Plan withholdings and life insurance elections, echoing concerns first raised in FY 2009. The untimely processing of personnel actions further heightens the risk of improper payments, according to the audit report.
According to the audit report, the Bureau of Overseas Buildings Operations (OBO) has failed to consistently update its asbestos management database, FAC Apps, leading to overstated remediation cost estimates. Seven discrepancies were identified across posts in Ankara and London, a problem traced back to FY 2013, due to inadequate communication and oversight.
Only 35% of Integrated Logistics Management System (ILMS) user accounts were reviewed in FY 2024, leaving the majority unchecked since FY 2019. This gap in oversight of the logistics and supply chain system increases the risk of unauthorized access and erroneous transactions.
A new issue emerged in FY 2024 regarding the Real Property Application (RPA), which tracks the Department’s overseas property data. Although RPA audit logs capture high-risk activities, OBO officials did not review them during the fiscal year due to the lack of an efficient reporting process. This oversight, which OBO aims to address in FY 2025, could allow suspicious or malicious activity to go undetected, threatening data integrity.
In a memorandum dated February 24, 2025, Comptroller James A. Walsh of the Bureau of the Comptroller and Global Financial Services (CGFS) acknowledged the findings without offering substantive comments. Walsh expressed appreciation for the OIG and Kearney & Company’s efforts and affirmed the Department’s commitment to addressing both recurring and new issues. “The Department has benefitted significantly from the past ten-plus years of Kearney’s knowledge sharing and professionalism,” he noted.
The OIG’s findings signal ongoing challenges in the Department of State’s financial stewardship, despite years of audits highlighting similar weaknesses. While none of the issues rose to the level of material weaknesses, their persistence suggests systemic inefficiencies that could undermine fiscal accountability and operational effectiveness. The risks of over-obligating funds, misreporting liabilities, and compromising sensitive systems underscore the need for stronger internal controls.
The Department has pledged to refine its processes, with specific plans to overhaul ILMS access reviews and establish RPA monitoring by FY 2025. However, without concrete timelines or detailed corrective actions for longstanding issues, stakeholders may question the pace of progress. The OIG will likely continue to monitor these areas in future audits to ensure compliance and protect against waste, fraud, and abuse.
Susan Shrestha
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