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Management of Obligations to the Department


FY 2008 Financial Report
Bureau of Resource Management
December 2008
Report
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Federal Civil Penalties Inflaction 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. Civil penalties are defined as any non-criminal penalty, fine or other sanction for which a given dollar amount or maximum amount is specified by Federal law, and which is assessed or enforced by an agency as a result of an administrative proceeding or civil action in the Federal courts. The Department has assessed fines on individuals and companies for exporting defense materials without required approvals and for misrepresenting facts on an export application.

Federal Civil Penalties Assessed on Companies for Exporting Defense Materials Without Required Approvals
Company Name Violation Date
Assessed
Amount
Assessed
Balance Outstanding
September 30, 2007
Fiscal Year
2008 Assessments
Fiscal Year
2008 Collections
Balance Outstanding
September 30, 2008
SPACE SYSTEMS/LORAL, INC. Violating the express terms and conditions of the Department’s munitions licenses and exporting defense services without a munitions license or other authorization to the People’s Republic of China. 1/9/2002 $14,000,000 $3,371,428 $— $1,685,714 $1,685,714
HUGHES ELECTRONICS CORP. & BOEING SATELLITE SYSTEMS Violating the terms and conditions of the Department’s munitions licenses and exporting defense services without munitions licenses or other authorizations (and conduct relating to two failed launches of rockets carrying spacecraft) to the People’s Republic of China. 3/4/2003 12,000,000 1,500,000 1,500,000
GENERAL MOTORS CORPORATION Exporting defense articles and services (to foreign person employees of proscribed countries) in violation of the terms or conditions of other approvals that were provided by the Department. 11/1/2004 8,000,000 3,000,000 1,500,000 1,500,000
ORBIT ADVANCED
TECHNOLOGIES INC.
Violating the terms and conditions of the Department’s munitions and licenses by agreeing to sell defense articles (Radome Measurement System – AL8098/AL8099) to the People’s Republic of China 08/29/05 500,000 166,666 166,666
GOODRICH CORPORATION Exporting unauthorized defense articles and services (to foreign person employees of proscribed countries) in violation of the terms and conditions of the Department’s International Traffic in Arms Regulations (ITAR). 03/28/06 1,250,000 500,000 1,750,000 250,000 2,000,000
L-3 COMMUNICATIONS Exporting unauthorized defense articles and services (to foreign person employees of proscribed countries) in violation of the terms and conditions of the Department’s International Traffic in Arms Regulations (ITAR). 02/28/06 2,000,000 2,000,000 500,000 1,500,000
THE DIRECTTV GROUP INC. & HUGHES NETWORK SYSTEMS INC. Exporting unauthorized defense articles and services (to foreign person employees of proscribed countries) in violation of the terms and conditions of the Department’s International Traffic in Arms Regulations (ITAR). 1/26/2005 5,000,000 1,500,000 1,000,000 500,000
LOCKHEED MARTIN (SIPPICAN) CORPORATION Exporting unauthorized classified and unclassified technical data and defense articles and services in violation of the terms and conditions of the Department’s International Traffic in Arms Regulations (ITAR). 12/12/06 3,000,000 2,000,000 1,000,000 1,000,000
SECURITY ASSISTANCE INTERNATIONAL, INC. & HENERY L. LAVERY III Violating the terms and conditions of the Department’s munitions licenses and exporting defense services without munitions licenses or other authorizations to the People’s Republic of China. 12/12/2006 75,000 75,000 75,000
ITT SPACE SYSTEM ITT Corporation has entered into a consent agreement to settle 208 violations of the AECA and ITAR in connection with the unauthorized export of defense articles and technical data. 6/11/2007     20,000,000 4,000,000 16,000,000
NORTHROP GRUMMAN (ELECTRONIC SYSTEMS) Northrop Grumman Corporation has entered into consent agreement to settle 110 violations of the AECA and ITAR in connection with the unauthorized export of defense articles and defense services. 3/14/2008     10,000,000 3,000,000 7,000,000
LOCKHEED MARTIN (MISSILE & FIRE CONTROL DIV.) Lockheed Martin Corporation has entered in a consent agreement to settle 8 violations of the AECA and ITAR in connection with export of classified technical data. 2008     3,000,000 2,000,000 1,000,000
BOEING (MCDONNELL AIRCRAFT & MISSILE DIV.) The Boeing Company has entered in a consent agreement to settle 40 violations of the AECA and ITAR in connection with the valuation of manufacturing license agreements. 6/9/2008     3,000,000 1,000,000 2,000,000
GOVERNMENT OF ISRAEL The details of the violations were not yet available.       500,000 500,000
DIRECT TV GROUP The details of the violations were not yet available.       2,500,000 2,500,000
TOTAL     $65,575,000 $12,113,094 $42,750,000 $18,935,714 $35,927,380

 

Debt Management

Outstanding debt from non-federal sources (net of allowance) increased from $32.5 million in FY 2007 to $55.3 million in FY 2008.

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.

Of the delinquent receivables over 365 days old, $6.9 million is for the Repatriation Loan Program. These are loans given to destitute American citizens stranded overseas to allow them to return to the United States. The loans are given only if the individual cannot obtain funds from relatives, friends, employers, or another source. The Department acts as the lender of last resort. The loan becomes delinquent 60 days after repatriation to the United States. Due to their poor economic situation, most of these individuals are unable to repay the loans on time.

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. In 1998, the Department entered into a cross-servicing agreement with the Department of the Treasury for collections of delinquent receivables. In accordance with the agreement and the Debt Collection Improvement Act of 1996 (Public Law 104-134), the Department referred $1,644,602 to Treasury for cross-servicing in FY 2008. Of the current and past debts referred to Treasury, $821,775 was collected in 2008.

 

Receivables Referred to the Department of the Treasury for Cross-Servicing
  FY 2008 FY 2007 FY 2006 FY 2005
Number of Accounts    864    884  1,044  772
Amounts Referred (In Thousands) $1,645
double underline
$1,445
double underline
$1,673
double underline
$401double underline

 

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. In FY 2008, the Department made 728,596 payments subject to prompt payment regulations; 620,473 of these payments were paid overseas and 108,123 were paid domestically. The Department paid 692,808 or 95% of its payments on time. Presented below is a table that reflects the timeliness of the Department’s payments from FY 2006 through FY 2008.

Timeliness of DOS Payments
FY 2006 - FY 2008
  FY 2006 FY 2007 FY 2008
On Time 95% 96% 95%
Late  5%  4%  5%

 

During FY 2008, the Department paid $5.4 million in accrued interest penalties, compared to $1.4 million the previous year, a 286 percent increase. The increase in Prompt Payment penalties was primarily due to domestic payment delays caused by the transition to a new accounting system in FY 2007. The Department averaged $736 in interest penalties per million dollars of prompt payments made in FY 2008.

Selected Payment Data

Selected Payment Data for Invoices Requiring Interest Penalties
FY 2006 - FY 2008
  2008 2007 2006
Interest Paid ($000)   5,411   1,420    405
Interest Under $1 Not Due ($000)       —      —      —
Interest Due But Not Paid ($000)       —      —      —
Number of Procurement Card Transactions
Domestic  40,470 41,524 45,804
Overseas 103,529 93,480 82,023

 

Domestic Prompt Payment Interest
FY 2006 - FY 2008
  October November December January February March April May June July August September
FY 2006 $ 30,367 $ 26,563 $ 30,482 $ 32,598 $ 42,127 $ 39,555 $ 17,065 $ 14,821 $ 34,235 $ 43,183 $ 28,675 $ 65,543
FY 2007 $ 35,855 $ 29,878 $ 83,164 $ 54,741 $ 57,348 $ 48,789 $ 97,066 $ 17,775 $222,313 $314,724 $110,402 $312,144
FY 2008 $350,251 $341,430 $435,291 $901,748 $609,375 $516,475 $465,412 $386,374 $275,321 $373,786 $334,857 $388,254

 

Electronic Payments

Ninety percent of total domestic and overseas payments were made through electronic funds transfer (EFT). EFT payments made for the Domestic operations were 95 percent of the total domestic payments. EFT payments for overseas operations were 87 percent of the total number of overseas payments. Fewer payments are made overseas due to the complexities of banking operations in some foreign countries

EFT and Check Payment Volumes

EFT and Check Payment Volumes
FY 2006 - FY 2008
Payment Type 2008 2007 2006
Number Percent Number Percent Number Percent
EFT:
Domestic 1,260,246  95 1,263,429  97 1,095,691  98
Overseas 1,756,368
single underline
 87
single underline
1,586,790
single underline
 85
single underline
1,455,055
single underline
 81
single underline
EFT Subtotal 3,016,614
single underline
 90
single underline
2,850,219
single underline
 90
single underline
2,550,746
single underline
 87
single underline
Checks:
Domestic    62,085   5    39,924   3    26,869   2
Overseas   254,415
single underline
 13
single underline
  289,585
single underline
 15
single underline
  352,092
single underline
 19
single underline
Checks Subtotal   316,500
single underline
 10
single underline
  329,509
single underline
 10
single underline
  378,961
single underline
 13
single underline
 
Total Domestic 1,322,331  38 1,303,353  41 1,122,560  38
Total Overseas 2,010,783  62 1,876,375  59 1,807,147  62
Total Payments 3,333,114
double underline
100
double underline
3,179,728
double underline
100
double underline
2,929,707
double underline
100
double underline

 

Improper Payments Information Act

The Improper Payments Information Act of 2002 (IPIA), Public Law No. 107-300, requires agencies to annually review their programs and activities to identify those susceptible to significant improper payments. OMB Circular A-123 Appendix C, Requirements for Effective Management and Remediation of Improper Payments, defines significant improper payments as annual improper payments in a program that exceed both 2.5 percent of program annual payments and $10 million. 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 statutory, contractual, and administrative or other legally applicable requirement.

IPIA Reporting Details

Based on a series of internal control review techniques, the Department determined that none of its programs are risk-susceptible for making significant improper payments at or above the threshold levels set by OMB. These reviews were conducted in addition to audits under the Single Audit Act, the CFO Act, GAO reviews, and reviews by the Department’s Office of Inspector General. The Department also conducted risk assessments of programs exceeding $35 million in annual outlays. These risk assessments showed that the Department is at low risk for making significant improper payments at or above the threshold levels set by OMB. The Department’s future plans include developing a process to integrate risk assessment efforts between reviews conducted to meet compliance requirements with OMB Circular A-123 Appendix A and C, as well as with our FMFIA program.

Recovery Audit Program Results

The Department of State, Bureau of Resource Management, has established a two-tiered erroneous payment monitoring and review program that supplements the formal account receivable process. The Global Financial Services (GFS), Office of Claims, has integrated erroneous payment identification and collection as key functions of the accounts payable process and the paying office’s operations. The claims office has established an internal debt management unit, whose primary mission is the identification and collection of erroneous payments, coordinating with the Accounts Receivable Division (ARD) as necessary. In addition, the GFS Office of Oversight Management & Analysis conducts a monthly query of all domestic payments, focusing on identifying potential erroneous and duplicate payments. The GFS approach has incorporated various manual and automated data analysis techniques and processes to identify, validate and collect erroneous payments, including use of data mining software, manual sampling of internal payment records, U.S. Treasury taxpayer identification number matching, and sampling of vendors.

In fiscal year 2008, the GFS domestic claims debt management process identified and validated 501 actual duplicate/erroneous payments, totaling $15 million, out of 129,504 total payments, totaling $4.8 billion. The claims office has collected or recovered 466 of the 501 erroneous payment debts, totaling $14 million (93 percent). The primary reasons for these improper payments and debts continues to be the use of wrong vendor payment records in the funding of the awards and/or authorization of payment on submitted claims.

The GFS duplicate or erroneous payment program has proven to be a cost effective tool (the program operates at an annual cost of $100 thousand) to supplement the ARD domestic commercial debt management and recovery. Identified debts not collected by the office of claims are transferred to ARD for follow-up collection. Since fiscal year 2005, this GFS program has identified 1,284 duplicate/erroneous payments ($30 million), and collected 1,197 identified debts ($29 million or a collection rate of 95 percent).

Recovery Audit Program Results
Agency Component Amount
Subject to
Review for CY Reporting
Actual Amount
Reviewed and Reported
CY
Amounts
Identified for Recovery
CY
Amounts Recovered
CY
Amounts
Identified for Recovery
PY
Cumulative
Amounts
Identified for Recovery
(CY + PY)
Cumulative
Amounts
Recovered
(CY + PY)
Outstanding
Number 129,504 129,504 501 466 783 1,284 1,197 87
Amount $4.8 billion $4.8 billion $15.4 million $14.3 million $14.63 million $30.03 million $28.53 million $1.5 million

Business Class Travel Reviews

Although the Department does not have programs determined risk-susceptible for making significant improper payments at or above the threshold levels set by OMB, the Department performed elective procedures to determine if improper payments were made in association with business class travel. 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 determine if official travel has adhered to government-wide and Department regulations for premium class travel.

In March 2006, GAO issued a report that identified shortcomings in the Department of State’s authorization and administration of business class travel. In response to the report, the Department instituted additional measures to strengthen internal controls over the approval and use of business class travel. The GAO report recommended that the Secretary of State conduct regular reviews of the Department’s use of business class travel and report the findings to senior management. In response to this recommendation, the Department incorporated the review of business class travel into the ongoing reviews conducted in accordance with the IPIA, the GAO guide, and other guidelines for evaluating and testing controls over sensitive payments.

During fiscal years 2006, 2007, and 2008, a random sample was selected by a statistician to yield an estimate with a 90 percent confidence level and interval of approximately 2.5 percent. There were no instances where evidence was found that a business class travel payment was unapproved and needed to be recovered. For 2008 there were no instances where the travelers flying business class were found to be ineligible, though there was one error found that stemmed from weaknesses where supporting documentation was not readily available. This was projected to an overall error rate of 1% or $5,385. The FY 2006 review’s error rate was 24 percent or $348,567 and the FY 2007 error rate was 4 percent or $17,038. The improvement shown in the sampling results demonstrates that the additional controls the Department put in place in 2006 have been effective in ensuring improper payments were not made for business class travel.

Photo showing the residence of the U.S. Ambassador to Japan.

Secretary’s List of Culturally Significant Properties:

The residence of the U.S. Ambassador to Japan, with its spacious reception rooms and large garden, offers serenity in the center of downtown Tokyo. In 1925, the U.S. government acquired the land from the Japanese government for $115,000 after an earthquake and fire had destroyed a former Prince’s residence there and the adjacent U.S. Embassy buildings. This residence, a blend of Moorish and Asian styles with colonial overtones, was one of the first projects of the new Foreign Services Building Commission established by President Herbert Hoover. Dubbed “Hoover’s Folly” at the time, the chancery and residence with imported Georgia walnut panels and Vermont marble flooring were completed during the Depression for $1.25 million.

During World War II, the compound was under the protection of the Swiss government. From 1945 to 1951, General Douglas MacArthur lived in what his staff called “The Big House.” On September 27, 1945 Emperor Hirohito came to the residence to speak with MacArthur and the next day a now-famous photograph of their meeting in the living room was on the front page of every newspaper in Japan. Department of State/OBO

 


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