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Diplomacy in Action

Management of Departmental Obligations


Bureau of the Comptroller and Global Financial Services
Report
November 16, 2012

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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 and munitions licenses, exporting unauthorized defense articles and services, and valuation of manufacturing licenses agreements. In FY 2012, the Department assessed $55 million of penalties against one company, and collected $37 million of outstanding penalties from five companies. Balance outstanding at September 30, 2012, was $86 million.

Debt Management

Outstanding debt from non-Federal sources (net of allowance) increased from $109 million in FY 2011 to $111.7 million in FY 2012. Civil Monetary Penalties increased by $1 million in FY 2012, resulting in an 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 No. 104-134), the Department referred $3.6 million to Treasury for cross-servicing in FY 2012. Of the current and past debts referred to Treasury, $931.7 thousand was collected in FY 2012.


Receivables Referred to the Department of the Treasury for Cross-Servicing
  FY 2012 FY 2011 FY 2010
Number of Accounts 1,189 920 772
Amounts Referred (dollars in millions) $3.6 $2.1 $2.0

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 2012, the Department paid timely over 98 percent of the 548,636 payments subject to prompt payment act regulations. The chart below reflects the timeliness of the Department's payments from FY 2010 through FY 2012. During FY 2012, the Department paid $209 thousand in interest penalties, compared to $251 thousand in FY 2011, a 17 percent decrease.


Timeliness of DOS Payments
FY 2010 - FY 2012
  FY 2010 FY 2011 FY 2012
On Time 97% 98% 98%
Late 3% 2% 2%

Electronic Payments

The payments made through Electronic Funds Transfer (EFT) were over 96 percent of the total payments made for domestic and overseas payments. Domestic operations accomplished over 98 percent of its payments with EFT this year. Overseas operations have a lower EFT 95 percentage than domestic operations due to the complexities of banking operations in some foreign countries. Each year, the Department disburses over 4 million separate payments.

Improper Payments Information Act, as Amended by IPERA

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. During FY 2010, the President signed into law the Improper Payments Elimination and Recovery Act (IPERA, Public Law No. 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 No. 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 risk assessment of programs in FY 2011. Risk assessments over all programs are done every three years. In the interim years, risk assessments evaluating programs that experience any significant legislative changes and/or significant increase in funding 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. During FY 2012 the Department revised its methodology for conducting risk assessments, integrating results from reviews conducted to meet compliance requirements with OMB Circular A-123 Appendix A, 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 CGFS has established a two-tiered erroneous payment monitoring and review program that supplements the formal accounts receivable process. The CGFS, 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. This activity 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. In FY 2012, this effort identified and validated transactions totaling $11.1 million of actual duplicate/erroneous payments, of which we collected, or recovered, $10.9 million during FY 2012. Of the prior year identified balance of $15.6 million, we collected $647 thousand during FY 2012. Thus, total amounts recovered in the current year were $11.6 million. The Department has collected all but $175 thousand of the current year identified amount and $552 of the prior year identified amount, resulting in the cumulative outstanding balance of $727 thousand. These results are presented in the table below entitled Overpayments Recaptured Outside of Payment Recapture Audits.

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)
CGFS Office of Claims $11.1 million $11.6 million $15.6 million $14.4 million $26.7 million $26.0 million
OIG $8.3 million $8.3 million $19.4 million $19.4 million $27.7 million $27.7 million
CY=FY 2012, PYs=FY 2005 - 2011

Additionally, the Office of Inspector General conducted investigations spanning a breadth of content, including fraud, embezzlement, bribery and kickbacks, false statements, and employee misconduct. Recoveries obtained as a result of OIG investigations are also presented in the table above.

The CGFS Office of Oversight Management and Analysis conducts a monthly query of all domestic payments, including the largest portion of 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 CGFS 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. Beginning in FY 2011, this activity represents 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 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)
Contracts $11.0 billion $11.0
billion
$35,357 $35,141 99.4% $216 .6% $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)
Contracts (continued) 0% $41.1
million
$41.1
million
$41.1
million
$41.1
million
$216 $0
CY=FY 2012, PYs=FY 2005 - 2011

In FY 2012, this effort identified and validated 6 transactions totaling $35,035 of actual duplicate/erroneous payments from a review of 120,820 payments, totaling $11.0 billion, in addition to 5 erroneous transactions totaling $322 carried over from FY 2011. The Department has collected, or recovered, all but $216 of the current year identified amount, resulting in a recovery rate of virtually 100 percent, in addition to recovering the prior year outstanding balance of $322. 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. Increased quality control processes in both the payment generation and internal post-payment review processes have contributed to lower recapture audit amounts. The majority of improper payments identified through recapture audits had already been identified by the Office of Claims and, as such, are reported in the Overpayments Recaptured Outside of Payment Recapture Audits table.

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
Contracts $35,357 $35,141 99.4% 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
Contracts $0 $0 $0 $35,141 $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 $0 $216 $0

The CGFS 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 domestic vendor payments and grant payments. In 2005 and 2006, the Department contracted with an external firm to perform recapture audit activities. After 2006, however, the contracted firm determined it was not cost-effective to continue this function. CGFS 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.

Sensitive Payments

In addition to the annual required IPERA 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 2012 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 Department has identified areas of sensitive payments for review, some annually and some on a rotating schedule depending on the level of risk and sensitivity. They include: Executive Compensation, Premium Class Travel, Representation Costs, Speaking Honoraria and Gifts, Executive Perquisites, and the American Recovery and Reinvestment Act payments.

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 6 percent ($34,867) in FY 2012, and 10 percent ($36,645) in FY 2011. During FY 2013, the Department will undertake efforts to correct the deficiencies noted during the FY 2012 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 - 2012 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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