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Diplomacy in Action

Management of Departmental Obligations


Bureau of Resource Management
Report
November 15, 2011

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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 2011, the Department assessed $79 million of penalties against one company, and collected $29 million of outstanding penalties from five companies. Balance outstanding at September 30, 2011, was $85 million.

Debt Management

Outstanding debt from non-Federal sources (net of allowance) increased from $53 million in FY 2010 to $109 million in FY 2011. Civil Monetary Penalties increased by $50 million in FY 2011, resulting in the dramatic increase overall to the non-Federal source figures.

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 2011. Of the current and past debts referred to Treasury, $1 million was collected in FY 2011.


Receivables Referred to the Department of the Treasury for Cross-Servicing
  FY 2011 FY 2010 FY 2009
Number of Accounts 920 772 1,006
Amounts Referred (dollars in millions) $2.1 $2.0 $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 2011, the Department paid timely over 98% of the 548,225 payments subject to prompt payment act regulations. The table below reflects the timeliness of the Department’s payments from FY 2009 through FY 2011. During FY 2011, the Department paid $251 thousand in interest penalties, compared to $526 thousand in FY 2010, a 52 percent decrease.


Timeliness of DOS Payments
FY 2009 - FY 2011
  FY 2009 FY 2010 FY 2011
On Time 97% 97% 98%
Late  3% 3% 2%

Electronic Payments

The payments made through Electronic Funds Transfer (EFT) were 96 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 3.7 million separate payments.

Improper Payments Information Act, as Amended by IPERA

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. During FY 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, and repeals the Recovery Auditing Act (Section 831 of the FY 2002 Defense Authorization Act, Public law 107-107). IPERA 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. 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, or that exceed $100 million, regardless of the error rate. 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, as Amended by IPERA, 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.

Recapture of Improper Payments Reporting

A number of improper payment activities, both preventative and recovery, exist domestically and overseas at the Department, Bureau, post, and program levels to support IPERA efforts and ensure the integrity and accuracy of Department payments. The Bureau of Resource Management has established a two-tiered erroneous payment monitoring and review program that supplements the formal accounts 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. This activity has historically represented the Department’s recapture results, but starting in FY 2011 it is classified as overpayments recaptured outside of recapture payment audits activity based on the revised IPERA guidance. These results are presented in the table below entitled “overpayments recaptured outside of recapture payment audits”. 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.

Overpayments Recaptured Outside of Payment Recapture Audits
Agency Source Amount Identified (CY) Amount Recovered (CY) Amount Identified (PYs) Amount Recovered (PYs) Cumulative Amount Identified (CY+PYs) Cumulative Amount Recovered (CY+PYs)
All $15.6
million
$14.4
million
$0 $0 $15.6
million
$14.4
million
CY=FY 2011, PYs=FY 2005 - 2010

The GFS Office of Oversight Management and Analysis conducts a monthly query of all domestic payments, which includes the largest portion of all Department payments subject to IPERA recapture audit requirements, focusing on identifying potential erroneous and duplicate payments. Currently, these payments are reviewed on a monthly basis using IDEA – Data Analysis Software. An automated analysis is executed to run matches of vendor invoice numbers and payment amounts against current payment data and payments dating back to 2007. 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. Starting in FY 2011, this activity will represent the Department’s recapture results, pursuant to newly released OMB guidance as the Department concluded only this internal activity that fits the definitions and purpose of the IPERA Recapture Audit program requirements. These results are presented in the table below entitled “payment recapture audit reporting”.

Payment Recapture Audit Reporting
Type of Payment Amount Subject to Review for Reporting
(CY)
Actual Amount Reviewed and Reported (CY) Amount Identified for Recovery (CY) Amount Recovered (CY) % of Amount Recovered out of Amount Identified (CY) Amount Outstanding
(CY)
% of Amount Outstanding out of Amount Identified (CY) Amount Determined Not to be Collectable
(CY)
All $9.6
billion
$9.6
billion
$567,336 $567,014 99.9% $322 .1% $0
Type of Payment % of Amount Determined Not to be Collectable out of Amount Identified (CY) Amounts Identified for Recovery (PYs) Amounts
Recovered
(PYs)
Cumulative
Amounts
Identified
for
Recovery
(CY + PYs)
Cumulative
Amounts
Recovered
(CY + PYs)
Cumulative Amounts Outstanding
(CY+PYs)
Cumulative Amounts Determined Not to be Collectable
(CY+PYs)
All (continued) 0% $40.57
million
$40.57
million
$41.13
million
$41.13
million
$322 $0
CY=FY 2011, PYs=FY 2005 - 2010

Payment Recapture Audit Targets
Type of Payment CY
Amount
Identified
CY
Amount
Recovered
CY
Recovery Rate
(Amount Recovered / Amount Identified)
CY + 1
Recovery
Rate Target
CY + 2
Recovery
Rate Target
CY + 3
Recovery
Rate Target
All $567,336 $567,014 99.9% 90% 90% 90%

Disposition of Recaptured Funds
Type of Payment Agency Expenses to Administer the Program Payment Recapture Auditor Fees Financial Management Improvement Activities Original Purpose Office of Inspector General Returned to Treasury
All $0 $0 $0 $567,014 $0 $0

Aging of Outstanding Overpayments
Type of Payment CY Amount Outstanding
(0-6 months)
CY Amount Outstanding
(6 months to 1 year)
CY Amount Outstanding
(over 1 year)
Contracts $322 $0 $0

In FY 2011, this effort identified and validated 15 transactions totaling $567,336 of actual duplicate/erroneous payments from a review of 138,782 payments, totaling $9.6 billion. The Department has collected, or recovered, all but $322 of the identified amount, virtually having a recovery rate of 100%. Since the recaptured funds were not expired, they were returned to the originating appropriation. The Department performs analysis to determine the cause of improper payments and has determined the primary reasons are linked to vendor billing issues and initial approval for payment. The significant decrease from the prior year to the current year is based on the revised activity identified as recapture auditing activity, as explained above.

The GFS duplicate or erroneous payment program using the domestic payment file for recapture audit analysis has proven to be a cost effective tool. The file presently includes the majority of payments subject to IPERA requirements such as most domestic vendor payments and grant payments. Efforts are ongoing to establish a file that includes all payment types required for review under IPERA if reviewing these additional payments is deemed cost-effective. The Bureau of Resource Management realizes that additional recapture audit opportunities may exist and will continue to collectively assess areas of greater risk of improper and erroneous payments and implement recapture audit measures deemed cost-effective. In 2005 and 2006, the Department contracted with an external firm to perform recapture audit activities. However, after 2006, the contracted firm determined it was not cost-effective to continue this function.

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 2011 to determine if improper payments were made in association with two areas of sensitive payments: premium 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.

Sensitive Payment Categories Recommended for Review
Sensitive Payment Categories
Recommended by GAO for Review
Sensitive Payment Categories Selected by the Department for Review Year
Reviewed
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 2011
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 FY 2012
  American Recovery and Reinvestment Act payments FY 2009 – FY 2011
Premium 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 premium class travel.

Beginning with FY 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 10 percent ($36,645) in FY 2011, and the error rate in FY 2010 was 16 percent ($48,566). During FY 2012, the Department will undertake efforts to correct the deficiencies noted during the FY 2011 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.

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 during fiscal years 2010 and 2011 in 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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