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Management of Payments


FY 2006 Performance and Accountability Report
Bureau of Resource Management
November 2006
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 2006, the Department made 614,511 payments subject to prompt payment of which 586,434 or 95% were paid on time. Presented below is a table that reflects the timeliness of the Department's payments from FY 2004 through FY 2006.

Timeliness of DOS Payments FY 2004 - FY 2006
  FY 2004 FY 2005 FY 2006
On Time 94% 96% 95%
Late  6%  4%  5%

During FY 2006, 1% of invoices required interest penalties compared to 2% for FY 2005. The percentage of interest penalties paid against the total invoices amount paid for domestic payments has been steadily improving: FY 04 - 0.016%, FY 05 - 0.013%, and FY 06 - 0,009%.

Selected Payment Data

Selected Payment Data for Invoices Requiring Interest Penalties
For Fiscal Years 2006, 2005, and 2004
  2006 2005 2004
Interest Paid ($000)    405    557    431
Interest Under $1 Not Due ($000)      —      —      —
Interest Due But Not Paid ($000)      —      —      —

Number of Procurement Card Transactions

Domestic

45,804 54,061 61,838

Overseas

82,023 75,407 66,416

 

Domestic Prompt Payment Interest FY 2001 to FY 2006
  FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
October $96,072 $22,273 $42,092 $29,637 $82,819 $30,367
November $93,040 $39,811 $25,290 $20,099 $32,045 $26,563
December $59,482 $34,450 $48,478 $23,114 $71,080 $30,482
January $95,969 $44,573 $33,150 $39,494 $30,106 $32,598
February $72,184 $40,376 $37,702 $34,227 $46,217 $42,127
March $87,300 $48,085 $33,392 $57,403 $49,095 $39,555
April $53,562 $28,754 $33,386 $44,768 $25,237 $17,065
May $30,116 $36,663 $27,307 $29,552 $22,317 $14,821
June $25,220 $30,289 $24,641 $25,171 $24,933 $34,235
July $35,369 $35,507 $23,593 $31,287 $13,021 $43,183
August $31,748 $15,247 $20,176 $26,527 $34,180 $28,675
September $35,110 $42,057 $34,020 $74,638 $80,490 $65,543

 

ELECTRONIC PAYMENTS

Payments made through Electronic Funds Transfer (EFT) were 87 percent of the total payments made for domestic and overseas payments. This is an increase of 2 percent over the fiscal year 2005 rate. EFT payments made for the Domestic operations were 98 percent of the total domestic payments. EFT payments made through the USDO for overseas operations was 81 percent of the total number of overseas payments. This is an increase of over 4 percent of the fiscal year 2005 rate. Payments made for overseas operations will not have the same rate as the domestic payments due to the result of complexities of banking operations in some of the countries where payments are made by the Department of State.

EFT and Check Payment Volumes

EFT and Check Payment Volumes
For Fiscal Years 2006, 2005, and 2004
Payment Type 2006 2005 2004
Number Percent Number Percent Number Percent
EFT:

Domestic

1,095,691  98 1,120,735  98   981,427  97

Overseas

1,455,055
single underline
 81
single underline
1,309,530
single underline
 77
single underline
  885,623
single underline
 67
single underline
EFT Subtotal 2,550,746
single underline
 87
single underline
2,430,265
single underline
 85
single underline
1,867,050
single underline
 80
single underline
Checks:

Domestic

   26,869   2    23,539   2    26,012   3

Overseas

  352,092
single underline
 19
single underline
  400,985
single underline
 23
single underline
  440,394
single underline
 33
single underline
Checks Subtotal   378,961
single underline
 13
single underline
  424,524
single underline
 15
single underline
  466,406
single underline
 20
single underline
 
Total Domestic 1,122,560  38 1,144,274  40 1,007,439  43
Total Overseas 1,807,147  62 1,710,515  60 1,326,017  57
Total Payments 2,929,707
double underline
100
double underline
2,854,789
double underline
100
double underline
2,333,456
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, in OMB Circular A-136, requires detailed information relating to IPIA, which is provided below.

In FY 2004, the Department identified programs that were susceptible to significant improper payments. A risk assessment was performed based on dollar volume, number of vendors or recipients, internal controls, audit reports of the programs, and management's institutional knowledge. Based on the results of this assessment, the Department classified all payments into the following three categories:

  • Employee Pay
  • Vendor Payments
  • Federal Financial Assistance

Two types of payments were identified as having a potential high risk for significant improper payments; Federal Financial Assistance Programs and Vendor Payments. The following programs were identified as high-risk and tested in FY 2004:

Federal Financial Assistance Area
  • International Information Programs (IIP) - U.S. Speaker and Specialist Program
  • International Narcotics and Law Enforcement (INL) - Counter-narcotics Program
Vendor Pay Area
  • Other Contractual Services
  • Structures & Equipment (test work in this area was started in FY 2004 and completed in FY 2005)

As shown in the table below, based on the FY 2004 test results for the programs tested, only the Federal Financial Assistance IIP Program was categorized as being susceptible to significant improper payments.

FY 2004 Improper Payments Test Results

FY 2004 Improper Payment Test Results
Year
Reviewed
Payment Category Program First Nine Months
FY 2005 Outlays
IP % IP $
FY 2004 Federal Financial Assistance INL Counter-narcotics Program $  313  0.87% $1.7 
IIP - U.S. Speaker and Specialist Program $   30 81.18% $1.4 
Vendor Payments Other Contractual Services $1,534     2% $0.78

 

In FY 2005, a reassessment of risk was performed to determine which categories identified in FY 2004 were still susceptible to significant improper payments. Based on the results of this reassessment of risk, the following was noted:

  • Employee Pay - Based on the Department's institutional knowledge and the results of past internal control reviews over this process, this category did not appear to be susceptible to significant improper payments in FY 2005.
  • Vendor Payments - Based on the FY 2004 test results, this category of payments was also not considered to be susceptible to significant improper payments in FY 2005.
  • Federal Financial Assistance - This was the only category of payments considered to be susceptible to significant improper payments in FY 2005.

As part of this reassessment, using data for the last quarter of FY 2004 and the first three quarters of FY 2005, the population of Federal Financial Assistance payments by specific programs within each bureau was identified. The following is a breakout of these expenditures by bureau:

Federal Financial Assistance Payments by Program
Program Percentage
IO 50%
PRM 19%
INL 13%
ECA 8%
Other 10%

 

OMB's threshold of $10 million and 2.5% of program payments was applied to each program within the bureaus to identify those programs that could be susceptible to significant improper payments. For the programs meeting the threshold, the reassessment of risk was conducted to determine whether these programs had a High, Moderate, or Low risk of susceptibility to improper payments. In addition, three programs were identified that did not meet the OMB threshold but, based on the Department's institutional knowledge, could be susceptible to significant improper payments.

The following is a list of the programs that were classified as being susceptible to significant improper payments and the overall risk assessment for each program.

Programs Classified as Being Susceptible to Significant Improper Payments
Program Risk Assessment
Educational & Cultural Affairs (ECA) - Fulbright Program Moderate
ECA - Teacher Exchange1 Low
ECA - Humphrey Program1 Low
ECA - Study of the U.S.1 Low
INL - Law Enforcement Support, Eradication, Aviation Support, & Support to the Military Moderate
Population, Refugees and Migration (PRM) - Humanitarian Migration to Israel Low
PRM - Refugee assistance through International Organizations Low
PRM - Refugee Admissions Low
PRM - Refugee Assistance (grants and contributions) Moderate
International Organizations (IO) - Contributions to International Organizations and Peacekeeping Moderate
1 Although these programs did not meet the OMB threshold, the Department identified them as being susceptible to improper payments due to the similarity in the scope of these programs to the Fulbright Program. However, based on the results of the risk assessments, these programs were classified as having a low risk of susceptibility to improper payments. (back to text)

 

In addition, Structures and Equipment (classified under the Vendor Payments category in FY 2004) was classified as high-risk. The improper payments review for Structures and Equipment was started in FY 2004 and completed in FY 2005.

The following table shows a breakdown of the Federal Financial Assistance dollars for the risk susceptible bureaus, the population of expenditures for moderate risk programs (identified above) for each risk susceptible bureau, and the payments reviewed for the moderate risk programs in FY 2005.

Risk Assessment by Program
(Dollars in Millions)
  ECA INL PRM IO
Risk Susceptible Programs $371 $635 $904 $2,487
Population of Moderate Risk Programs $168 $313 $682 $1,891
Payments Reviewed for Moderate Risk Programs $  7 $ 10 $ 79 $1,512

 

Results

One of the challenges faced during the testing of the Federal Financial Assistance Programs for improper payments is that the level of testing was performed based on the supporting documentation maintained by the Department. The Department did not extend the testing to the grantee level to obtain further supporting documentation to support whether the funds were spent in accordance with the grant agreement. As a result, the Department's testing of sampled transactions yielded an actual error rate and amount of error at zero to low levels, the results could have been different if the level of testing was extended to the grantee level.

FY 2005 Improper Payments Test Results

FY 2005 Improper Payment Test Results
Payment Category Program Last quarter of FY 2004
and first three quarters
of FY 2005 Outlays
(In Millions)
IP % IP $
Federal Financial Assistance ECA - Fulbright Program $  169 0.00% $    -
PRM - Refugee Assistance $  682 0.00% $    -
IO - Contributions to International Organizations and Peacekeeping $1,891 0.00% $    -
Vendor Payments Structures & Equipment $  485   <1% $0.235

 

Department of State Improper Payments Information
For FY 2006 With Projected Improvements Through FY 2009
Program
(Dollars in Millions)
FY 2006 Projected
FY 2007
Projected
FY 2008
Projected
FY 2009
Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $
Year Reviewed: 2006
Federal Financial Assistance Programs
INL Narcotics Program1 $313 3.97% $180,340.00 $322 <1% $185,750.07 $332 <1% $191,322.44 $342 <1% $197,061.98
1 The improper payment testing for INL was started in FY05 and completed in FY06. (back to text)

 

Department of State Improper Payments Information
For First Three Quarters of FY 2006 With Projected Improvements Through FY 2009
Program
(Dollars in Millions)
First three quarters
of FY 2006
Projected
FY 2007
Projected
FY 2008
Projected
FY 2009
Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $
Year Reviewed: 2006
Federal Financial Assistance Programs
IIP - U.S. Speaker and Specialist Program $28 23.81% $348,567.00 $29 10.00% $361,015.82 $30 <1% $373,464.64 $31 <1% $385,913.46

 

Department of State Improper Payments Information
For Last Quarter of FY 2004, First Three Quarters of FY 2005, and FY 2006 With Projected Improvements Through FY 2009
Program
(Dollars in Millions)
Last quarter of FY 2004 and first three quarters of FY 2005 FY 2006 Projected
FY 2007
Projected
FY 2008
Projected
FY 2009
Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $
Year Reviewed: 2005
Federal Financial Assistance Programs
ECA - Fulbright Program $  169 0.00% $    - $  187 0.00% $    - $  196 0.00% $    - $  205 0.00% $    - $  205 0.00% $    -
PRM - Refugee Assistance $  682 0.00% $    - $  870 0.00% $    - $1,009 0.00% $    - $1,039 0.00% $    - $1,039 0.00% $    -
IO - Contributions to International Organizations and Peacekeeping $1,891 0.00% $    - $1,948 0.00% $    - $2,006 0.00% $    - $2,066 0.00% $    - $2,066 0.00% $    -
Vendor Payments
Structures & Equipment $  485 <1% $0.235 $  691 0.00% $    - $  712   <1% $    - $  733 0.00% $    - $  755 0.00% $    -

 

FY 2006 Improper Payments Test Results

In FY06, a random sample of the detailed payment transaction data was selected for the last month of FY 2004 and first three months of FY 2005 for International Narcotics and Law Enforcement (INL) and the first nine months of FY 2006 for International Information Programs-U.S. Speaker and Specialist Program (IIP). Both programs were identified as high-risk and tested in FY 2004. The sampling methodology used was developed using the OMB guidance. Test results found improper payments in both programs. The projected error rate and dollar amount of improper payments in the population sampled range from approximately 3.97 % and $180,340 thousand to 23.97 % and $348,567 thousand.

FY 2006 Improper Payment Test Results
Program Transactions in Dollars in Error Rate Projected Improper Payments
Population Sample Population Sample
International Narcotics and Law Enforcement- Law Enforcement, Eradication, Aviation Support and Support to the Military. 4,315 126 $313,078,592 $2,366,056  3.97% $180,340
International Information Programs- U.S. Speaker and Specialist Program   741 126 $ 28,822,489  $ 288,548 23.81% $348,567

Calculation of error rate and payment amounts based on sample results

Actual test results and projected improper payments for Fiscal Years 2007 through are shown in the enclosed table.

Statistical Sampling Process

Using OMB guidance, the Department assumed a 2.5 percent or less rate of error for each of the programs sampled since the Department had no historical error rate to use in calculating the sample sizes of the different populations. A sample size of 126 transactions was reviewed for each program. The sample size selected was based on the minimum required to yield an estimate with a 90% confidence level and a confidence interval of plus or minus 2.5%.

Several corrective action recommendations were made to the Office of Financial Policy, Reporting and Analysis (FPRA) in an effort to reduce the amount of the agency's improper payments and internal control deficiencies.

The following table provides a summary of the improper payments identified in FY 2006, the cause for the improper payment, the impact and corrective action plans to reduce the estimated rate of improper payments:

Summary of Improper Payments Identified in FY 2006
Year Reviewed Payment Category Program Improper Payment Findings and Impact Corrective Actions
FY 2006 Federal Financial Assistance IIP-U.S. Speaker and Specialist Program Insufficient documentation provided to support eligibility for the award. Difficulty in validating grantee's eligibility without sufficient documentation. The Department will enforce and follow its policies and procedures as it relates to proper documenting the biographical information.
Incorrect financial assistance award instrument used to obligate award. The Department will review all documentation prior to obligating the award in CFMS to ensure that the correct financial assistance instrument is being used.
Overpayment. The Department will review all documentation prior to making an award and ensure that an award is being made from the correct supporting documentation.
INL-Law Enforcement, Eradication, Aviation Support and Support to the Military Insufficient supporting documentation. Difficulty in validating the payment. The Department will enforce and follow policies and procedures as it relates to maintaining sufficient documentation.
Prompt Payment Act Violation
Cannot validate grantees eligibility without sufficient documentation. Inconsistency in annotating the date of receipt on invoices potentially resulting in overpayment or underpayment of interest.
The Department will enforce policies and procedures as it relates to clearly annotating the date the invoice is received.

 

Photo showing the Department of State Charleston Financial Service Center.

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

 

Recovery Audit Program Results

Currently the Department of State, Bureau Resource Management, has in place a detection and recovery program to monitor duplicate and erroneous payments. This is a monthly audit of all payments focusing on identifying potential erroneous and duplicate domestic payments. Using data mining software to identify potential duplicate and erroneous payments, payments are validated, and then collection begins. In addition, there is an established debt management support structure, specifically focused on early detection, identification and collection of erroneous and duplicate commercial claims.

For FY 2006, there were 591 (or 0.15%) out of 403,636 payments identified as potential duplicate/erroneous payments. Of these, 259 were confirmed duplicate payments totaling approximately $2.3 million out of $10 Billion. Of the 259 confirmed duplicate payments, 214 have been collected totaling $2.15 million while 45 remain outstanding totaling $120,450. The cause of the improper payments caused by obligations being recorded to an incorrect vendor and authorized payments to the same claim from multiple funding strips. 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 policies and procedures with regard to proper documentation requirements for payments. Provide training to affected staff regarding proper payment requirements and documentation. Strengthen payment and debt management programs, policies and practices that will improve detection, referral and recovery efforts.

The cost to run the internal CFSC's (Global Financial Services) erroneous payment program is estimated at approximately $135,000. In addition, a recovery audit firm was used during the fiscal year. The cost associated with the contracted recovery audit firm was approximately $30,000 which was paid out of the funds recovered.

U.S. DEPARTMENT OF STATE DEBT RECOVERY PROGRAM
Audit Program Amount of Payments Subject to Review Number of Payments Reviewed Number Amount (in $000)
Potential Duplicates Actual Duplicates Confirmed Claims Collected Outstanding Claims Duplicate Payments Confirmed Duplicate Payments Collected Outstanding Claims
Recovery Auditor $8.4
Billion
419,688  80  26  26  0 $  127.7 $  127.7 $  0.0
Internal CFSC Audit $26.5
Billion
403,636 591 259 214 45 $2,269.5 $2,149.0 $120.5
Total $34.9
Billion
823,324 671 285 240 45 $2,397.2 $2,276.7 $120.5

 

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 policies and procedures with regard to proper documentation requirements for payments
  • Provide training to affected staff regarding proper payment requirements and documentation
  • Strengthen payment and debt management programs policies and practices that will improve detection, referral and recovery efforts
  • Report information on improper payments in the annual Performance and Accountability Report
Information Systems

Based on the improper payment reviews conducted in FY 2005 and FY 2006, the improper payments identified did not result from the lack of proper information systems. Although the Department is currently in transition to implement a global financial management system by FY 2007, the current financial management system did not have an impact on the level of improper payments identified.

Issues

As previously mentioned, one of the challenges the Department faced in FY 2006 was determining to what extent federal financial assistance should be tested to obtain reasonable assurance that improper payments are not occurring at the grantee level. The Department performed limited procedures to test for improper payments that did not involve reviewing payments at the grantee level. However, to supplement the test work performed, the Department relied on monitoring procedures performed at the program offices, the A-133 reports of grantees, and the results of OIG reviews. In FY 2007, the Department will consider establishing procedures in the Bureau of Resource Management to monitor financial transactions. The Department will also seek guidance from OMB in FY 2006 to determine the most feasible way to test federal financial assistance for compliance with the IPIA. The Department will also review best practices to follow in FY 2007.

 


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