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Diplomacy in Action

Improper Payments Information Act and Other Laws and Regulations


Bureau of the Comptroller and Global Financial Services
Report
December 16, 2013

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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. IPERA 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

The Department defines its programs and activities in alignment with the manner of funding received through Appropriations, as further subdivided into funding for operations carried out around the world. For example, the Embassy Security, Construction, and Maintenance Appropriation is comprised of several programs for Improper Payment reviews. Two examples include the Short-term Residential Lease and Construction programs. The Congressional Budget Justification represents the Department's annual funding request to the Congress and provides important information about the Department's programs and activities, organizational performance targets relating to the Department's Strategic Plan, and the resources needed to achieve the Department's performance goals.

The Department conducted a risk assessment of all programs and activities in FY 2013. Risk assessments of programs and activities involve an evaluation of the risk factors described in OMB Circular A-123 Appendix C, as well as consideration of the work performed in compliance with OMB Circular A-123 Appendix A, internal Department information regarding the operation of programs and activities, results of audits performed by the Office of Inspector General, the GAO, the Special Inspector General for Afghanistan Reconstruction, the Special Inspector General for Iraq Reconstruction, and other relevant information. In addition, during FY 2013 the Department expanded its methodology for conducting risk assessments by integrating results from the prior OIG review of IPERA recommendations, reviews conducted to meet compliance requirements with OMB Circular A-123 Appendix A, as well as with our FMFIA program. Based on this 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.

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.

Recapture of Improper Payments Reporting

A number of improper payment activities, both preventative and recovery, exist for domestic and overseas payments 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 improper payment monitoring and review program that consists of activity performed by the Office of Claims (OC) and the Office of Oversight and Management Analysis (OMA). Improper payment reviews are performed initially by OC as an integral part of our post-payment review process, and secondly by OMA. While many agencies hire external recapture auditors to perform a secondary review, this function is performed more efficiently within the Department by OMA. Because the activity performed by OC is a post-payment (versus recapture payment) review process, those results are not considered recapture audits and are considered an activity outside of recapture audits. Because the OMA activity is secondary and consistent with a function that an external auditor would perform, for reporting purposes the OMA's activity is considered recapture.

Overpayments Recaptured Outside of Payment Recapture Audits

Improper payment identification and collection are essential functions of the accounts payable process and the paying office's operations. As such, OC has established an internal debt management unit, whose primary mission is to identify and collect improper payments. Historically, this activity represented the majority of the Department's recapture results. However, starting in FY 2011 based on the revised IPERA guidance from OMB, it is classified and reported as overpayments recaptured outside of recapture payment audits activity. OC results represent the majority of the $41.1 million amounts shown as prior years' activity in the table entitled Payment Recapture Audit Reporting, while activity since 2011 has accumulated 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 $11.2 million $9.9 million $26.7 million $26.0 million $37.9 million $35.9 million
OIG $10.8 million $10.8 million $27.7 million $27.7 million $38.5 million $38.5 million
CY=FY 2013, PYs=FY's 2012 and earlier

During FY 2013, OC's efforts identified and confirmed transactions totaling $11.2 million of actual duplicate/improper payments, of which we recovered $9.7 million, in addition to collecting $205 thousand of the prior year unrecovered balance of $728 thousand. Thus, total amounts recovered in FY 2013 (i.e. current year) were $9.9 million. At the end of FY 2013, the Department has collected all but $1.5 million of the current year identified amount and $523 thousand of the prior years' identified amount, resulting in the cumulative outstanding balance of approximately $2 million. 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.

Payment Recapture Audit Reporting

The OMA conducts a monthly query of domestic vendor payments. These payments represent the largest category of Department-made payments subject to IPERA recapture audit requirements, focusing on identifying potential improper 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. In addition, during FY 2013 OMA expanded the IPERA recapture audit procedures for the Department by including quarterly IPERA recapture audits of the Department's overseas payments subject to review. The CGFS approach has incorporated various manual and automated data analysis techniques and processes to identify, validate and collect improper payments, including use of data mining software, manual sampling of internal payment records, U.S. Treasury taxpayer identification number matching, and sampling of vendors. Grant payments made on behalf of the Department by the Department of Health and Human Services through their Payments Management System are not currently included in the automated analysis using IDEA due to system and data limitations.

Beginning in FY 2011, this activity represents the Department's recapture results, pursuant to revised IPERA guidance from OMB, as the Department concluded only this internal activity 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
(Combined Program or Activity1)
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 $10.8
billion
$10.2
billion
$2,253 $2,253 100% $0 0% $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
$0 $0

CY=FY 2013, PYs=FY's 2012 and earlier

1 Represents the collective amounts reviewed, identified, and recovered. The CY amounts identified and recovered are shown by individual program in the following three tables. (back to text)


Payment Recapture Audit Targets
Program or Activity 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
Diplomatic policy and support Contract $2,175 $2,175 100% 90% 90% 90%
ICASS Contract $78 $78 100% 90% 90% 90%

Aging of Outstanding Overpayments
Program or Activity Type of
Payment
CY Amount Outstanding
(0-6 months)
CY Amount Outstanding
(6 months to 1 year)
CY Amount Outstanding
(over 1 year)
Diplomatic policy and support Contract $0 $0 $0
ICASS Contract $0 $0 $0

Disposition of Recaptured Funds
Program or Activity 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
Diplomatic policy and support Contract $0 $0 $0 $2,175 $0 $0
ICASS Contract $0 $0 $0 $78 $0 $0

For FY 2013, $10.2 billion in domestic payments and $600 million in overseas payments were subjected to recapture audits. Of those amounts, 116,945 domestic payments totaling $10.2 billion and overseas payments totaling $46 million were reviewed, resulting in the identification of 2 transactions totaling $2,253 as improper payments (that are not duplicative of the results first identified by the Office of Claims). The Department has collected all $2,253 of the current year identified amount, resulting in a recovery rate of 100 percent, in addition to recovering the prior year outstanding balance of $215. The recaptured funds 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 by OC in both the payment generation and internal post-payment review processes have contributed to lower improper recapture audit amounts. Specifically, the majority of improper payments identified through recapture audits has already been identified by the Office of Claims, and as such, are reported in the Overpayments Recaptured Outside of Payment Recapture Audits table.

The CGFS automated duplicate or improper payment program using the domestic payment file for recapture audit analysis has proven to be a cost effective tool. The domestic file presently includes the majority of payments subject to IPERA requirements, such as domestic vendor payments. 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. CGFS realizes that additional recapture audit opportunities may exist and will continue to collectively assess areas of greater risk of improper and improper payments and implement recapture audit measures deemed cost-effective.

Sensitive Payments

The Department does not have programs determined risk-susceptible for making significant improper payments at or above the threshold levels set by OMB. However, in addition to the required annual IPERA reviews, Departments are also encouraged to conduct reviews of programs and activities that are 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. The Department has identified several areas of sensitive payments for review. They include: Premium Class Travel, Executive Compensation, Representation Costs, Speaking Honoraria and Gifts, Executive Perquisites, and the American Recovery and Reinvestment Act payments. Premium Class Travel and American Recovery and Reinvestment Act payments are reviewed annually, and the other areas are reviewed on a rotating schedule depending on their level of risk and sensitivity.

The Department performed elective procedures in FY 2013 to determine if improper payments were made in association with Premium Class Travel and 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 8 percent ($56,442) in FY 2013, 6 percent ($34,867) in FY 2012, and 10 percent ($36,645) in FY 2011. 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. During FY 2014, the Department will undertake efforts to correct the deficiencies noted during the FY 2013 review.

American Recovery and Reinvestment Act (ARRA) Reviews

The Department received $564 million in funding from the American Recovery and Reinvestment Act. The Department obligated these funds during FY 2009 and FY 2010 and expended the majority of the funding during fiscal years 2010 - 2012, making a concerted effort to expend the monies as quickly as possible to positively contribute to the facilitation of the country's recovery from the recent recession. Of the remaining work performed during FY 2013, a random sample of ARRA expenses was selected and supporting documentation was reviewed. As in the past years, all expenses were found to be appropriate, in compliance with the Department's policies regarding ARRA activity, and supported by adequate documentation.

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 2013, the Department assessed $41 million in new penalties against three companies, and collected $37 million of outstanding penalties from six companies. In addition, the total outstanding balance due was reduced by $32 million as a result of adjustments associated with remedial compliance measures. The balance outstanding at September 30, 2013, was $58 million.

Debt Management

Outstanding debt from non-Federal sources (net of allowance) decreased from $111.7 million at September 30, 2012 to $81.3 million at September 30, 2013. Civil Monetary Penalties decreased by $28 million at September 30, 2013, resulting in a decrease overall to the non-Federal source figures.

Photo showing U.S. Secretary of State John Kerry addressing his fellow foreign ministers at the outset of an ASEAN ministerial meeting in Bandar Seri Bagawan, Brunei Darussalam, July 1, 2013.

U.S. Secretary of State John Kerry addresses his fellow foreign ministers at the outset of an ASEAN ministerial meeting in Bandar Seri Bagawan, Brunei Darussalam, July 1, 2013. Department of State

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 (Treasury). In 1998, the Department entered into a cross-servicing agreement with 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 $2.8 million to Treasury for cross-servicing in FY 2013. Of the current and past debts referred to Treasury, $1.1 million was collected in FY 2013.

Receivables Referred to the Department of the Treasury for Cross-Servicing
  FY 2013 FY 2012 FY 2011
Number of Accounts 1,189 1,189 920
Amounts Referred (dollars in millions) $2.8 $3.6 $2.1
Amounts Collected (dollars in millions) $1.1 $0.9 $1.0

Prompt Payment Act

Timeliness of Payments

The Prompt Payment Act (PPA) requires Federal agencies to pay their bills on time. PPA assesses an interest penalty against Federal agencies that do not pay their vendors timely as required by law. In FY 2013, the Department timely paid 98 percent of the 553,886 payments subject to PPA regulations. The following chart reflects the timeliness of the Department's payments from FY 2011 through FY 2013. During FY 2013, the Department paid $226 thousand in interest penalties, compared to $209 thousand in FY 2012, an eight percent increase.

Timeliness of DOS Payments
FY 2011 - FY 2013
  FY 2011 FY 2012 FY 2013
On Time 98% 98% 98%
Late 2% 2% 2%

Electronic Payments

The payments made through Electronic Funds Transfer (EFT) were nearly 98 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 slightly lower EFT percentage (97 percent) than domestic operations due to the complexities of banking operations in some foreign countries. For FY 2013, approximately 3.6 million payments were disbursed for the Department of State.

 




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