Note 18. Statement of Net Cost
The Consolidated Statement of Net Cost reports the Department's gross and net cost for its strategic objectives and strategic goals. The net cost of operations is the gross (i.e., total) cost incurred by the Department, less any exchange (i.e., earned) revenue.
The Consolidating Schedule of Net Cost categorizes costs and revenues by strategic goal and responsibility segment. A responsibility segment is the component that carries out a mission or major line of activity, and whose managers report directly to top management. For the Department, a Bureau (e.g., Bureau of African Affairs) is considered a responsibility segment. For presentation purposes, Bureaus have been summarized and reported at the Under Secretary level (e.g., Under Secretary for Political Affairs). For 2000 and beyond, a new responsibility segment has been added for the Under Secretary for Public Diplomacy and Public Affairs as a result of the merger of the former USIA. Information on the Bureaus (or equivalent) that report to each Under Secretary can be found on the Organization Chart for the Department provided in the MD&A Section of this report.
The presentation of program results by strategic objectives and strategic goals is based on the Department's current Strategic Plan established pursuant to the Government Performance and Results Act of 1993. In prior years, the Department presented its program information at the National Interest level to the extent that it was practicable. In accordance with current guidance, prior year data have been recast consistent with the 2003 presentation for comparative purposes.
As outlined in the Strategic Plan, the United States conducts relations with foreign governments and others to pursue U.S. national interests, and create a more secure, democratic and prosperous world for the benefit of the American people and the international community. These strategic objectives and strategic goals are:
|STRATEGIC OBJECTIVE||STRATEGIC GOAL||GOAL DESCRIPTION|
|Achieve Peace and Security||Regional Stability||Avert and resolve local and regional conflicts to preserve peace and minimize harm to the national interests of the United States.|
|Counterterrorism||Prevent attacks against the United States, our allies, and our friends, and strengthen alliances and international arrangements to defeat global terrorism.|
|Homeland Security||Protect the homeland by enhancing the security of our borders and infrastructure.|
|Weapons of Mass Destruction||Reduce the threat of weapons of mass destruction to the United States, our allies, and our friends.|
|International Crime and Drugs||Minimize the impact of international crime and illegal drugs on the United States and its citizens.|
|American Citizens||Assist American citizens to travel, conduct business, and live abroad securely.|
Advance Sustainable Development and Global Interests
|Democracy and Human Rights||Advance the growth of democracy and good governance, including civil society, the rule of law, respect for human rights, and religious freedom.|
|Economic Prosperity and Security||Strengthen world economic growth, development, and stability, while expanding opportunities for U.S. businesses and ensuring economic security for the nation.|
|Social and Environmental Issues||Improve health, education, environment, and other conditions for the global population.|
|Humanitarian Response||Minimize the human costs of displacement, conflicts, and natural disasters.|
|Promote International Understanding||Public Diplomacy and Public Affairs||Increase understanding for American values, policies, and initiatives to create a receptive international environment.|
|Strengthen Diplomatic and Program Capabilities||Management and Organizational Excellence||Ensure a high quality workforce supported by modern and secure infrastructure and operational capabilities.|
The Management and Organizational Excellence strategic goal relates to the Department's responsibilities for managing infrastructure, information, and human resources. The ability of the Department to advance national and foreign policy interests depends on the quality of these items — the two largest and most visible of which are Diplomatic Security and Overseas Buildings Operations.
|STRATEGIC GOAL||Under Secretary for||Eliminations||Total|
|Arms Control, Int'l Security||Economic, Business and Agriculture||Global Affairs||Political Affairs||Public Diplomacy and Public Affairs||Management - Consular Affairs|
|Total Cost||$116,392||$10,449||$ 14,645||$ 883,807||$ —||$ 8||$ (42,852)||$ 982,449|
|Net Program Costs||103,250||9,296||12,998||810,331||—||7||—||935,882|
|Net Program Costs||48,470||4,364||6,102||380,409||—||3||—||439,348|
|Net Program Costs||47,393||4,267||5,966||371,955||—||4||—||429,585|
Weapons of Mass Destruction
|Net Program Costs||38,468||3,463||4,842||301,912||—||3||—||348,688|
International Crime and Drugs
|Net Program Costs||—||—||935,091||36,802||1,775||—||—||973,668|
|Net Program Costs||—||—||124||741,349||—||(691,726)||—||49,747|
Democracy and Human Rights
|Net Program Costs||51,753||4,660||6,515||406,172||—||3||—||469,103|
Economic Prosperity and Security
|Net Program Costs||109,353||9,846||13,766||858,235||—||8||—||991,208|
Social and Environment Issues
|Net Program Costs||26,877||2,420||3,384||210,936||—||2||—||243,619|
|Net Program Costs||—||—||775,151||38||137||—||—||775,326|
Public Diplomacy and Public Affairs
|Net Program Costs||87,349||7,865||10,996||685,541||561,172||6||—||1,352,929|
Executive Direction and Other Costs Not Assigned
|Net Program Costs|| 2,187
|| 2,050,514 |
|Total Net Cost||$515,100
||$ 9,059,617 |
Executive Direction and Other Costs Not Assigned relate to high-level executive direction (e.g., Office of the Secretary, Office of the Legal Adviser), international commissions, general management, and certain administrative support costs that cannot be directly traced or reasonably allocated to a particular program. For the year ended September 30, 2003 and 2002, these consist of costs and earned revenue for the following table (Dollars in Thousands).
|Total Prior to Eliminations||Intra-Departmental Eliminations||Total||Total Prior to Eliminations||Intra-Departmental Eliminations||Total|
|Executive Direction||$2,039,675||$ 159,629||$1,880,046||$1,681,836||$ 117,887||$1,563,949|
|International Commissions|| 84,427
|Executive Direction||$ 335,553||$ 159,629||$ 175,924||$ 235,115||$ 117,887||$ 117,228|
|International Commissions|| 13,227
Total Earned Revenue
|Total Net Cost for Executive Direction and Other Costs Not Assigned||$2,087,203
These costs include the full cost of resources consumed by a program, both direct and indirect, to carry out its activities. Direct costs can be specifically identified with a program. Indirect costs include resources that are commonly used to support two or more programs, and are not specifically identified with any program. Indirect costs are assigned to programs through allocations. Full costs also include the costs of goods or services received from other Federal entities (referred to as inter-entity costs), whether or not the Department reimburses that entity.
Indirect Costs: Indirect costs consist primarily of Management and Organizational Excellence charges for central support functions performed in 2003 and 2002 under the Under Secretary for Management by the following organizations (Dollars in Thousands):
|Bureau (or equivalent)||2003||2002|
|Bureau of Diplomatic Security||$1,154,129||$ 782,344|
|Office of Overseas Buildings Operations||689,219||643,675|
|Bureau of Administration||520,549||513,562|
|Bureau of Information Resource Management||326,900||298,470|
|Bureau of Personnel||303,272||265,282|
|Bureau of Resource Management||324,899||(95,662)|
|Foreign Service Institute||113,885||106,424|
|Medical Services and Other|| 229,229
|| 157,442 |
|Total Central Support Costs||$3,662,082
These support costs were distributed to programs on the basis of a program's total base salaries for its full-time employees, as a percentage of total base salaries for all full-time employees, except for the Office of Overseas Buildings Operations. Since the Office of Overseas Buildings Operations supports overseas operations, its costs were allocated based on the percentage of budgeted cost by program for the regional bureaus. The distribution of support costs to programs in 2003 and 2002 was as follows (Dollars in Thousands):
|Program Receiving Allocation||2003||2002|
|Regional Stability||$ 320,648||$ 191,907|
|Weapons of Mass Destruction||119,467||75,645|
|International Crime and Drugs||45,815||38,011|
|Democracy and Human Rights||160,722||87,853|
|Economic Prosperity and Security||339,604||172,169|
|Social and Environmental Issues||83,467||51,114|
|Public Diplomacy and Public Affairs||271,269||273,028|
|Executive Direction and Other Costs Not Assigned|| 1,095,019
Since the cost incurred by the Under Secretary for Management and the Secretariat are primarily support costs, these costs were distributed to the other Under Secretaries to show the full costs under the responsibility segments that have direct control over the Department's programs. One exception within the Under Secretary for Management is the Bureau of Consular Affairs, which is responsible for the American Citizens program. As a result, these costs were not allocated and continue to be reported as the Under Secretary for Management.
The Under Secretary for Management/Secretariat costs (except for the Bureau of Consular Affairs) were allocated to the other Department responsibility segments based on the percentage of total costs by organization for each program. The allocation of these costs to the other Under Secretaries and to the Bureau of Consular Affairs was as follows (Dollars in Thousands):
|Management (Consular Affairs)||454,104||344,715|
|Arms Control, International Security Affairs||279,740||191,111|
|Economic, Business and Agriculture Affairs|| 27,853
Inter-Entity Costs and Imputed Financing: The Department is an agency of the U.S. Government, which performs many services for other U.S. Government agencies, especially overseas. Conversely, other U.S. Government agencies make financial decisions and report certain financial matters on behalf of the U.S. Government as a whole, including matters to which the Department may be an interested party.
To measure the full cost of activities, SFFAS No. 4, Managerial Cost Accounting, requires that total costs of programs include costs that are paid by other U.S. Government entities, if material. As provided by SFFAS No. 4, OMB issued a Memorandum in April 1998, entitled "Technical Guidance on the Implementation of Managerial Cost Accounting Standards for the Government." In that Memorandum, OMB established that reporting entities should recognize inter-entity costs for (1) employees' pension benefits; (2) health insurance, life insurance, and other benefits for retired employees; (3) other post-retirement benefits for retired, terminated and inactive employees, including severance payments, training and counseling, continued health care, and unemployment and workers' compensation under the Federal Employees' Compensation Act; and (4) payments made in litigation proceedings. This requirement to recognize specific inter-entity costs was extended in September 2001 and September 2000 to FY 2002 and 2001 financial statements by Bulletin 01-09 and OMB Memorandum M-00-14, "Technical Amendments to OMB Bulletin 97-01, Form and Content of Agency Financial Statements," respectively.
The Department recognizes an imputed financing source on the Statement of Changes in Net Position for the value of inter-entity costs paid by other U.S. Government entities. This consists of all inter-entity amounts as reported below except for the Federal Workers' Compensation Benefits (FWCB). For FWCB, the Department recognizes its share of the change in the actuarial liability for FWCB as determined by the Department of Labor (DoL). The Department reimburses DoL for FWCB paid to current and former Department employees.
The following inter-entity costs and imputed financing sources were recognized in the Statement of Net Cost and Statement of Changes in Net Position, respectively, for the year ended September 30, 2003 and 2002 (Dollars in Thousands):
|Other Post-Employment Benefits:|
Civil Service Retirement Program
Federal Employees Health Benefits Program
Federal Employees Group Life Insurance Program
Litigation funded by Treasury Judgment Fund
|Subtotal - Imputed Financing Source||$ 87,540||$84,079|
|Future Workers' Compensation Benefits|| 13,490
|Total Inter-Entity Costs||$101,030
Intra-departmental Eliminations. Intra-departmental eliminations of cost and revenue were recorded against the program that provided the service. Therefore the full program cost was reported by leaving the reporting of cost with the program that received the service.
Earned revenues occur when the Department provides goods or services to the public or another Federal entity. Earned revenues are reported regardless of whether the Department is permitted to retain all or part of the revenue. Specifically, the Department collects but does not retain passport, visa, and certain other consular fees. Earned revenues for the year ended September 30, 2003 and 2002, consist of the following (Dollars in Thousands):
|Total Prior to Eliminations||Intra-Departmental Eliminations||Total||Total Prior to Eliminations||Intra-Departmental Eliminations||Total|
Passport, Visa and Other Consular Fees
|$ 642,076||$ —||$ 642,076||$ 523,863||$ —||$ 523,863|
Machine Readable Visa
Fingerprint Processing, Diversity Lottery, and Affadavit of Support
Subtotal - Consular Fees
|$1,314,394||$ —||$1,314,394||$ 970,313||$ —||$ 970,313|
|FSRDF||$1,177,066||$ 310,476||$ 866,590||$1,157,436||$ 293,367||$ 864,069|
|Reimbursable Agreements With Federal Agencies||1,088,382||543,632||544,750||692,225||338,911||353,314|
|Working Capital Fund||270,606||167,005||103,601||252,037||172,157||79,880|
Generally, a Federal agency may not earn revenue from outside sources unless it obtains specific statutory authority. Accordingly, the pricing policy for any earned revenue depends on the revenue's nature, and the statutory authority under which the Department is allowed to earn and retain (or not retain) the revenue. Earned revenue that the Department is not authorized to retain is deposited into the Treasury's General Fund.
The FSRDF finances the operations of the Foreign Service Retirement and Disability System (FSRDS) and the Foreign Service Pension System (FSPS). The FSRDF receives revenue from employee/employer contributions, a U.S. Government contribution, and interest on investments. By law, FSRDS participants contribute 7.25% of their base salary, and each employing agency contributes 7.25%; FSPS participants contribute 1.35% of their base salary and each employing agency contributes 20.22%. Employing agencies report employee/employer contributions biweekly. Total employee/employer contributions for 2003 and 2002 were $185.4 million and $171.3 million, respectively.
The FSRDF also receives a U.S. Government contribution to finance (1) FSRDS benefits not funded by employee/employer contributions; (2) interest on FSRDS unfunded liability; and (3) FSRDS disbursements attributable to military service. The U.S. Government contributions for 2003 and 2002 were $219.0 million and $216.0 million, respectively. FSRDF cash resources are invested in special non-marketable securities issued by the Treasury. Total interest earned on these investments in 2003 and 2002 was $772.6 million and $770.1 million, respectively.
Consular Fees are established primarily on a cost recovery basis and are determined by periodic cost studies. Reimbursable Agreements with Federal agencies are established and billed on a cost-recovery basis. ICASS billings are computed on a cost- recovery basis; billings are calculated to cover all operating, overhead, and replacement of capital assets, based on budget submissions, budget updates, and other factors. In addition to services covered under ICASS, the Department provides administrative support to other agencies overseas for which the Department does not charge. Areas of support primarily include buildings and facilities, diplomatic security (other than the local guard program), overseas employment, communications, diplomatic pouch, receptionist and selected information management activities. The Department receives direct appropriations to provide this support; individual costs for these activities have not been determined.
Gross Cost and Earned Revenue by Budget Functional Classification (BFC)
The Department's costs and revenue are included in the Financial Report of the United States Government - Fiscal 2003 (formerly the Consolidated Financial Statements of the United States Government), which is published by the Department of the Treasury. The Financial Report of the United States Government - Fiscal 2003 presents gross costs and earned revenue by BFC. Following is the Department's gross cost and earned revenue by BFC for the years ended September 30, 2003 and 2002 (Dollars in Thousands and reported net of intra-departmental eliminations):
|Budget Functional Classification||2003||2002|
|Gross Cost||Earned Revenue||Net Cost||Gross Cost||Earned Revenue||Net Cost|
|International Affairs||$10,635,744||$2,284,316||$8,351,428||$ 9,691,896||$1,621,693||$8,070,203|
|Natural Resources|| 71,064