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Diplomacy in Action

Management of Departmental Obligations

Bureau of Resource Management
November 15, 2010


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 2010, the Department assessed $43 million of penalties against two companies, and collected $14 million of outstanding penalties from five companies. Balance outstanding at September 30, 2010, was $35 million.

Debt Management

Outstanding debt from non-federal sources (net of allowance) increased from $37.9 million in FY 2009 to $38.3 million in FY 2010 as of September 30, 2010.

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 $2 million to Treasury for cross-servicing in FY 2010. Of the current and past debts referred to Treasury, $1 million was collected in FY 2010.

Receivables Referred to the Department of the Treasury for Cross-Servicing
FY 2010 FY 2009 FY 2008
Number of Accounts 772 1,006 864
Amounts Referred (dollars in millions) $2.0 $1.7 $1.7

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 2010, the Department paid timely 97% of the 507,760 payments subject to prompt payment act regulations. The table below reflects the timeliness of the Department’s payments from FY 2008 through FY 2010.

Timeliness of DOS Payments
FY 2008 - FY 2010
FY 2008 FY 2009 FY 2010
On Time 95% 97% 97%
Late  5%  3% 3%

During FY 2010, the Department paid $526 thousand in interest penalties, compared to $1.3 million in FY 2009, a 60 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

The payments made through Electronic Funds Transfer (EFT) were 94 percent of the total payments made for domestic and overseas payments. 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 over 3 million separate payments.

Improper Payments Information Act

The Improper Payments Information Act of 2002 (IPIA), Public Law 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.

There has been significant emphasis on eliminating improper payments this year. In November 2009, the President issued Executive Order 13520 on Reducing Improper Payments; in March 2010, the President signed a memorandum on intensifying and expanding payment recapture audits; and in June 2010, the President issued a memorandum to enhance payment accuracy by creating a “Do Not Pay” List. Most recently, on July 22, 2010, the President signed into law the Improper Payments Elimination and Recovery Act (IPERA, Public law 111-204), which amends the Improper Payments Information Act of 2002, repeals the Recovery Auditing Act (Section 831 of the FY 2002 Defense Authorization Act, Public law 107-107) and significantly increases agency payment recapture efforts— by expanding the types of payments that can be reviewed and lowering the threshold of annual outlays that requires agencies to conduct payment recapture audit programs. Final guidance on agency payment recapture audit programs, as required by IPERA, will be issued by OMB by January 2011.

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 conducted a full risk assessment of programs in FY 2010. Full risk assessments are done every three years. In the interim years, simplified annual assessments evaluating any significant legislative, programmatic, funding, and/or other changes will be done to determine if 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

The 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. 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.

The GFS Office of Oversight Management and Analysis conducts a monthly query of all domestic payments, focusing on identifying potential erroneous and duplicate payments. Beginning this fiscal year, GFS expanded the sample universe beyond domestic payments to include all commercial, manual and automated travel claims, and international payments paid through GFS-Charleston. This expansion resulted in a significant increase, primarily in volume, in amounts subject to review. This change also resulted in an increase in amounts identified for recovery. In FY 2010, the GFS domestic claims debt management process identified and validated 365 actual duplicate/erroneous payments, totaling $8.1 million, out of 412,225 total payments, totaling $22.95 billion. The claims office has collected or recovered 349 of the 365 erroneous payment debts identified during FY 2010, totaling $7.47 million, in addition to recovering 123 of prior year outstanding items totaling $410 thousand (80 percent). The primary reasons for these improper payments and debts continue 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 ARD’s domestic commercial debt management and recovery. Identified debts not collected by the Office of Claims are transferred to ARD for follow-up collection. Since FY 2005, this GFS program has identified 1,883 duplicate/erroneous payments ($40.57 million), and collected 1,767 identified debts ($38.33 million or a collection rate of 94 percent).

Recapture Audit Program Results
Agency Component Amount
Subject to
Review for CY Reporting
Actual Amount
Reviewed and Reported
Identified for Recovery
Amounts Recovered
Identified for Recovery
Amounts Recovered PYs Cumulative
Identified for Recovery
(CY + PYs)
(CY + PYs)
Number 412,225 412,225 365 472 1,518 1,295 1,883 1,767
Amount $22.95
CY=Current year, PYs=Prior years FY 2005 - 2009

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 FY 2010 to determine if improper payments were made in association with two areas of sensitive payments: business class travel, and payments made from funding received for the American Recovery and Reinvestment Act (ARRA).

The matrix below indicates areas of sensitive payments that the Department has identified for review, some annually and some on a rotating schedule depending on the level of risk and sensitivity.

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 monitor if official travel has adhered to government-wide and Department regulations for business class travel.

Beginning with fiscal year 2006, the Department has annually selected a random sample and supporting documentation was reviewed. There have been no instances where evidence was found that a business class travel payment was unapproved and needed to be recovered, or where the travelers flying business class were found to be ineligible. However, there have been instances where proper supporting documentation was not readily available. Those errors represent an error rate of 16 percent ($48,566) in FY 2010. Past error rates have been 4 percent ($10,994) in FY 2009; 1 percent ($5,385) in FY 2008; 4 percent ($17,038) in FY 2007; and 24 percent ($348,567) in FY 2006. During FY 2011, the Department will undertake efforts to correct the deficiencies noted during the FY 2010 review.

OMB requires agencies to report improper payment errors based on three categories of errors: documentation and administrative errors, authentication and medical necessity errors, and verification errors. All Department errors found each year were attributable to documentation and administrative errors.

Sensitive Payment Categories Recommended for Review
Sensitive Payment Categories
Recommended by GAO for Review
Sensitive Payment Categories Selected by the Department for Review Year
Executive Compensation: Employee compensation, including salary, bonuses, and awards. Executive Compensation FY 2010 –by Independent Auditor
Travel: Travel expenditures including relocation expenses. Premium Class Travel (includes Business and First Class Travel) FY 2006 - FY 2010
Official Entertainment Funds: Costs associated with entertaining visiting dignitaries and state functions. Representation Costs (includes official entertainment funds) FY 2009
Speaking Honoraria and Gifts. Speaking Honoraria and Gifts Planned for future review
Executive Perquisites: Parking, limousine service, dining facilities, office space and furnishings, and other government owned and furnished facilities. Executive Perquisites Planned for future review
American Recovery and Reinvestment Act payments FY 2009 – FY 2010
American Recovery and Reinvestment Act (ARRA) Reviews

The Department received $564 million in funding from the American Recovery and Reinvestment Act. The Department has placed emphasis during FY 2009 and FY 2010 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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