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U.S. Department of State

Diplomacy in Action

Management of Payments


FY 2004 Performance and Accountability Report
Bureau of Resource Management
November 2004
Report
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PROMPT PAYMENT ACT

 

Timeliness of Payments

 

The Prompt Payment Act (PPA) requires Federal agencies to pay their bills on time or an interest penalty must be paid to vendors. During FY 2004, 94% of invoices were paid on time. Presented below is a table that reflects the timeliness of the Department's payments from FY 2002 through FY 2004.

 

Timeliness of DOS Payments FY 2002 - FY 2004

  FY 2002 FY 2003 FY 2004
On Time 96% 92% 94%
Late  4%  8%  6%

 

During FY 2004, 2% of invoices required interest penalties compared to 3% for FY 2003.

 

Selected Payment Data

 

Selected Payment Data for Invoices Requiring Interest Penalties
For Fiscal Years 2004, 2003 and 2002

  2004 2003 2002
Interest Paid ($000)    431     396    443
Interest Under $1 Not Due ($000)      —       —      4
Interest Due But Not Paid ($000)      —       —      —

Number of Procurement Card Transactions

Domestic

61,838  57,312 53,379

Overseas

66,416 112,766 46,297

 

 

ELECTRONIC PAYMENTS

The Department successfully increased the percentage of payments it makes electronically. In 2004, 80% of all payments were made by electronic funds transfer (EFT). Domestically, 96% of payments were made electronically. The Department processed 67% of its 2003 overseas payments by EFT, a 2% increase from 2003.

 

EFT and Check Payment Volumes

 

EFT and Check Payment Volumes
For Fiscal Years 2004, 2003 and 2002

Payment Type 2004 2003 2002
Number Percent Number Percent Number Percent

EFT:

Domestic

  981,427   1,248,335   1,210,054  

Overseas

  885,623
single underline
    988,329
single underline
    841,050
single underline
 

EFT Subtotal

1,867,050
single underline
 80
single underline
2,236,664
single underline
 79
single underline
2,051,104
single underline
 77
single underline

Checks:

Domestic

   26,012      47,043      56,668  

Overseas

  440,394
single underline

  531,046
single underline

  560,026
single underline
 

Checks Subtotal

  466,406
single underline
 20
single underline
  578,089
single underline
 21
single underline
  616,694
single underline
 23
single underline
 

Total Payments

2,333,456
double underline
100
double underline
2,814,753
double underline
100
double underline
2,667,798
double underline
100
double underline

 

IMPROPER PAYMENTS INFORMATION ACT

The Improper Payments Information Act of 2002 (Public Law No.107-300) (IPIA) requires agencies to annually review their programs and activities to identify those susceptible to significant improper payments. OMB Memorandum M-04-20, FY 2004 Performance and Accountability Reports and Reporting Requirements for the Financial Report of the United States Government, requires a brief summary of actual and planned accomplishments towards implementing the IPIA, which is presented in the Management's Discussion and Analysis section of this Report. OMB also requires more detailed information relating to IPIA, which is provided below.

 

Risk Assessment Procedures and Processes

 

For the identification and determination of significant improper payments, the Department has implemented a three-tier approach as follows.

 

Diagram showing the three-tier approach for determining significant improper payments.D

 

The first tier identifies the types of payments made by the Department. The second tier assesses the risk of these types of payments. The final tier relates to the testing of a sample of transactions for the payment classifications considered high-risk for significant improper payments and the identification of corrective actions needed to prevent and detect improper payments.

TIER 1- PROGRAM ASSESSMENT. The first tier provides an initial assessment of payments made at the object class level (e.g., payroll, travel, contracts, federal financial assistance). Payments are grouped into three categories: employee pay such as payroll, benefits and travel, vendor payments, and federal financial assistance, such as grants. These three payment groups are assessed for susceptibility to significant improper payments. This assessment is based on the institutional knowledge of the payment process for each type, as well as information contained in recent reports issued by the Office of Inspector General (OIG) and independent auditor's reports. As a result of this assessment, two types of payment were identified as having a potential high risk for significant improper payments—Federal Financial Assistance Programs and Vendor Pay.

TIER 2- GROSS RISK ASSESSMENT. The second tier provides an assessment of gross risk for programs and activities that have federal financial assistance and vendor payments by bureau, and by specific programs within a bureau. The assessment consists of a review of controls, policies and procedures for the individual programs, and interviews with personnel familiar with these programs. Based on this assessment, individual federal financial assistance programs and vendor payment categories are assigned a rating of high, moderate or low risk of having significant improper payments.

TIER 3 - DETAILED EVALUATION OF HIGH-RISK PROGRAMS. The third tier involves detailed testing of the individual federal financial assistance and vendor payment categories classified as highly susceptible to improper payments. Testing is conducted based on a statistical sample to determine if the transactions are proper. Improper transactions are reported as an error. Total errors are then statistically projected to the population.

 

Preliminary List of High-Risk Programs

 

Based on the risk assessment conducted in Tier Two, the following programs were considered at high-risk for significant improper payments during FY 2002 when our initial assessments were performed.

Federal Financial Assistance

  • International Information Program (IIP) - U.S. Speaker and Specialist Program
  • Population, Refugee and Migration (PRM) - Refugees Assistance Programs
  • PRM - Contributions to International Organizations
  • Education and Cultural Affairs (ECA) - Fulbright Program
  • ECA - Citizen Exchange Program
  • International Narcotics and Law Enforcement (INL) - Narcotics Program
  • Assistance to Overseas Schools

Vendor Pay

  • Other Contractual Services
  • Structures and Equipment

Based on these assessments, the Department began reviews of the high-risk programs using FY 2002 payment data. The first review was conducted on PRM—Contributions to International Organization. Lessons learned from this review and additional information obtained as part of the Department's IPIA implementation efforts in FY 2004, led to a reassessment of programs with a high-susceptibility of improper payment. The results of this reassessment are as follows:

  • PRM - Contributions to International Organizations was reassessed as moderate risk based on our FY 2003 IPIA review. We found no improper payments in the program. We plan to review this program again in FY 2005.
  • PRM - Refugees Assistance Program was lowered to a moderate risk. This program provides $800 million in contributions to International Organizations that participate in refugee services. We reviewed payments to two International Organizations that receive approximately 80 percent of the program's funds and found no exceptions. This program will be reviewed in FY 2005.
  • ECA - Citizen Exchange Program was lowered to a moderate risk because FY 2004 expenditures decreased to less than $20 million.
  • ECA - Fulbright Program is still considered as a high-risk program. Supporting documentation has been requested from grantees and sub-grantees but it is not yet available. This information will be collected and analyzed in FY 2005.
  • Assistance to Overseas Schools Program was lowered to moderate risk because its FY 2004 expenditures of $9 million dollars were below the $10 million threshold.

 

Revised List of High-Risk Programs

 

The following programs were tested for potential improper payments in FY 2004:

Federal Financial Assistance Area

  • IIP - U.S. Speaker and Specialist Program
  • INL - Narcotics Program

Vendor Pay Area

  • Other Contractual Services

Structures and Equipment remain a type of payment susceptible to significant improper payments. This area will be tested during FY 2005.

 

Statistical Sampling Process

 

The federal financial assistance programs were grouped into three different populations based on the type of assistance being provided. Using OMB guidance, the Department assumed a 2.5% or less rate of error for each of the programs sample since the Department had no historical error rate to use in calculating the sample sizes of the different populations. Listed below are the three populations and anticipated error rate.

 

Anticipated Sample Error Rate by Population

Program Anticipated Error Rate
Federal Financial Assistance:  

IIP - U.S. Speaker and Specialist Program

2.5% or less

INL-Narcotics Program

2.5% or less
Vendor Payments-—Other Contractural Services 2.5% or less

 

 

Results

 

Based on the Department's testing of sampled transactions, the actual error rate and the amount of error were determined to be low with the exception of the IIP-U.S. Speakers and Specialist Program. This program advances America's interests by informing and influencing international publics about U.S. policy and society. IIP sends out nearly a thousand speakers annually to discuss with foreign audiences issues identified by U.S. embassies. Participants in this program have not been required to complete and submit vouchers at the completion of their travel making most travel reimbursement payments "improper" under IPIA. Travel reimbursement payments under this program are high in volume yet small in terms of dollars. As a result, the improper payment error rate for this program is high at 81.18%, while the estimated amount of improper payments is low at $1.4 million, which is less than the $10 million statutory and regulatory definition of significant improper payments. Refer to the table under Improvement Targets for actual FY 2004 sample results.

 

Future Corrective Action

 

The potential for the Department making improper payments is low based on preliminary risk assessments and the FY 2004 review of high-risk programs, except for IIP's U.S. Speaker and Specialist Program where the error rate was high. IIP is planning to modify its policies and procedures to ensure that adequate documentation is generated and retained to support travel expenses in accordance with Department standards. These changes also will include training for administrative officers and regional bureau and post personnel involved with this program.

 

Department of States Improper Payments Information
For First Nine Months of FY 2004 with Projected Improvements Through FY 2007

  Projected
FY 2004
Projected
FY 2005
Projected
FY 2006
Projected
FY 2007
Program
(Dollars in Millions)
Outlays IP % IP $ Outlays IP % Outlays IP % Outlays IP %
Federal Financial Assistance Prgrams
INL-Narcotics Program $  313  0.87% $1.7  $  434 <1% $  451 <1% $  469 <1%
IIP-U.S. Speaker and Specialist Program $   30 81.18% $1.4  $   40 70% $   41 35% $   41  5%
Vendor Payments

Other Contractual Services

$1,534 2% $0.78 $2,363  2% $2,457  2% $2,556  2%

 

Audit Recovery Program

 

A key part of the Department's program to identify improper payments is to recover amounts erroneously paid. During the fourth quarter of FY 2004, the Department obtained the services of a contractor to perform recovery audits. Under contingency-based contract, the contractor is paid based on a percentage of the amount of erroneous payments identified and successfully collected. A work plan detailing the scope of this effort is currently being developed with audit recovery work expected to begin in FY 2005.

 

Accountability

 

The Department is committed to reducing erroneous payments issued domestically and overseas. Programs and procedures have been instituted that will strengthen agency management and internal control procedures for prevention, detection and recovery of erroneous payments. The following improvements are being undertaken:

  • Issue updated guidance for performing program reviews and risk assessments
  • Strengthen payment and debt management programs polices and practices that will improve detection, referral and recovery efforts
  • Report information on improper payments in the annual Performance and Accountability Report, starting with this Report.

 

Issues

 

In implementing the IPIA, the Department identified several potential opportunities to use the Single Audit Act (PL104-056), as amended, to assist in implementing the IPIA. For instance, if auditors conducting single audits projected error rates for each of the federal assistance programs tested at the grantee-level, agencies could rely more extensively on that process to implement the IPIA.

The Department also experienced difficulty in FY 2004 obtaining supporting documentation for grantee expenditures. We are working to develop a contemporaneous sampling plan for FY 2005 whereby grant payments will be selected for sampling throughout the year as draw-downs are processed.

State is not providing targeted reductions in over and underpayment at this time. This is State's first improper payment review and it was limited to only certain high-risk programs. Because of this limited information we feel that we could not provide a meaningful target estimate on the reduction of over and underpayments. In FY 2005, with improvements made in the Department's IPIA program, we plan to provide this type of information.

 

Photo showing the Department of State Charleston Financial Service Center. The Department of State Charleston Financial Service Center.
Department of State Photo

 


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