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Management of Departmental Obligations


Bureau of Resource Management
Report
December 16, 2009

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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 on individuals for such infractions as violating the terms of munitions licenses, exporting unauthorized defense articles and services, and valuation of manufacturing license agreements. In FY 2009, the Department assessed $15.1 million of penalties against two companies, and collected $28.5 million of outstanding penalties from ten companies. Balance outstanding at September 30, 2009, was $19 million.

Debt Management

Total outstanding debt from non-federal sources (net of allowance) decreased from $76.5 million in FY 2008 to $37.9 million in FY 2009.

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. 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 $1,658,020 to Treasury for cross-servicing in FY 2009. Of the current and past debts referred to Treasury, $814,075 was collected in FY 2009.


Receivables Referred to the Department of the Treasury for Cross-Servicing
  FY 2009 FY 2008 FY 2007 FY 2006
Number of Accounts    1,006    864  884  1,044
Amounts Referred (In Millions) $1.7 $1.7 $1.5 $1.7

Prompt Payment Act

Timeliness of Payments

The Prompt Payment Act requires federal agencies to pay bills on time or incur and pay an interest penalty to vendors. In FY 2009, the Department paid timely 97% of the almost 500,000 payments subject to prompt payment act regulations. The chart below reflects the timeliness of the Department’s payments from FY 2007 through FY 2009.


Timeliness of DOS Payments
FY 2007 - FY 2009
  FY 2007 FY 2008 FY 2009
On Time 96% 95% 97%
Late  4%  5%  3%

During FY 2009, the Department paid $1.3 million in interest penalties, compared to $5.4 million in FY 2008, a 76 percent decrease. The Bureau of Resource Management (RM) was able to reduce domestic payment delays this year caused by the transition to a new accounting system in FY 2007.

Electronic Payments

Electronic Funds Transfer (EFT) accounted for 93 percent of the Department’s total payments, domestic and overseas. Domestic operations accomplished 99 percent of its payments with EFT this year. Overseas operations have a lower EFT percentage than domestic operations due to the complexities of banking operations in some foreign countries. Each year, RM disburses about 3 million separate payments.

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 is scheduled to conduct its next full risk assessment of programs in FY 2010. In the interim, simplified annual assessments evaluating whether any significant legislative, programmatic, funding, and/or other changes have occurred showed that the Department continues to be 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

RM 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 and 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 FY 2009, the GFS domestic claims debt management process identified and validated 259 actual duplicate/erroneous payments, totaling $3.87 million, out of 133,400 total payments, totaling $12.73 billion. The claims office has collected or recovered 219 of the 259 erroneous payment debts, totaling $3.75 million (97 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 1,518 duplicate/erroneous payments ($32.47 million), and collected 1,295 identified debts ($30.45 million or a collection rate of 94 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 133,400 133,400 259 219 1,259 1,518 1,295 223
Amount $12.73
billion
$12.73
billion
$3.87
million
$3.75
million
$28.6
million
$32.47
million
$30.45
million
$2.02
million
CY=Current year, PY=Cumulative, FY 2005-2008

Sensitive Payments

In addition to the annual required IPIA reviews, Departments are also encouraged to conduct reviews of programs and activities that are commonly prone to misinterpretation or misapplication of Federal guidelines and various sensitive payment areas. Sensitive payments are those where the dollar amounts involved are usually not significant, but the public disclosure of improper payments may result in significant criticism of the agency.

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 in fiscal year 2009 to determine if improper payments were made in association with three areas of sensitive payments: business class travel, representation expenses, and payments made from funding received for the American Recovery and Reinvestment Act (ARRA).

Business 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 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.

Beginning with fiscal year 2006, the Department has annually selected a random sample and supporting documentation was reviewed. There were no instances where evidence was found that a business class travel payment was unapproved and needed to be recovered. For 2009, there were no instances where the travelers flying business class were found to be ineligible, but there were 4 instances where proper supporting documentation was not readily available. Those errors represent an error rate of 4 percent or $10,994 in FY 2009. Past error rates have been 1 percent or $5,385 in FY 2008; 4 percent or $17,038 in FY 2007; and 24 percent or $348,567 in FY 2006. The improvement shown in the sampling results demonstrates that the additional controls the Department put in place in 2006, along with continuous monitoring, have been effective in ensuring significant improper payments were not made for business class travel. Since the error rate is slightly higher in fiscal year 2009 (although well below the 2006 error rate), the Department will reinforce internal communication of the Department’s policies regarding 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

Representation Expense Reviews

The Department’s mission is conducted throughout the world and requires that extensive diplomatic relationships be established and maintained. This necessarily requires the Department to expend funding on representing the United States’ interests at foreign posts. A random sample of representation expenses was selected and supporting documentation was reviewed. In all instances, the expenses were found to be appropriate, in compliance with the Department’s policies regarding limitations on representation activity, and supported by adequate documentation.

American Recovery and Reinvestment Act (ARRA) Reviews

The Department received $602 million in funding from the ARRA. The Department has placed emphasis during fiscal year 2009 in obligating and expending the monies as quickly as possible to positively contribute to the facilitation of the country’s recovery from the current recession. A random sample of ARRA expenses was selected and supporting documentation was reviewed. In all instances the expenses were found to be appropriate, in compliance with the Department’s policies regarding ARRA activity, and supported by adequate documentation.

 




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