Note 18. Statement of Net Cost

FY 2003 Performance and Accountability Report
Bureau of Resource Management
December 2003
Report

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 Objectives and Goals
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.

Department of State Consolidating Schedule of Net Cost
For the year ended September 30, 2003
(Dollars in Thousands)
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

Regional Stability

Total Cost $116,392  $10,449  $   14,645  $  883,807  $        —  $        8  $  (42,852) $   982,449 
Earned Revenue  (13,142)  (1,153)     (1,647)    (73,476)          —          (1)     42,852      (46,567)
Net Program Costs  103,250    9,296      12,998     810,331           —           7           —      935,882 

Counterterrorism

Total Cost   54,640    4,905       6,875     414,902           —           4     (20,117)     461,209 
Earned Revenue   (6,170)    (541)       (773)    (34,493)          —          (1)     20,117      (21,861)
Net Program Costs   48,470    4,364       6,102     380,409           —           3           —      439,348 

Homeland Security

Total Cost   53,426    4,796       6,722     405,682           —           4     (19,670)     450,960 
Earned Revenue   (6,033)    (529)       (756)    (33,727)          —           —      19,670      (21,375)
Net Program Costs   47,393    4,267       5,966     371,955           —           4           —      429,585 

Weapons of Mass Destruction

Total Cost   43,365    3,893       5,456     329,287           —           3     (15,966)     366,038 
Earned Revenue   (4,897)    (430)       (614)    (27,375)          —           —      15,966      (17,350)
Net Program Costs   38,468    3,463       4,842     301,912           —           3           —      348,688 

International Crime and Drugs

Total Cost        —        —     964,178      43,945       1,804           —      (4,132)   1,005,795 
Earned Revenue        —        —     (29,087)     (7,143)        (29)          —       4,132      (32,127)
Net Program Costs        —        —     935,091      36,802       1,775           —           —      973,668 

American Citizens

Total Cost        —        —        155   1,010,053           —     814,754    (332,455)   1,492,507 
Earned Revenue        —        —        (31)   (268,704)          —  (1,506,480)    332,455   (1,442,760)
Net Program Costs        —        —        124     741,349           —    (691,726)          —       49,747 

Democracy and Human Rights

Total Cost   58,340    5,238       7,340     443,001           —           4     (21,479)     492,444 
Earned Revenue   (6,587)    (578)       (825)    (36,829)          —          (1)     21,479      (23,341)
Net Program Costs   51,753    4,660       6,515     406,172           —           3           —      469,103 

Economic Prosperity and Security

Total Cost  123,272   11,067      15,510     936,054           —           9     (45,385)   1,040,527 
Earned Revenue  (13,919)  (1,221)     (1,744)    (77,819)          —          (1)     45,385      (49,319)
Net Program Costs  109,353    9,846      13,766     858,235           —           8           —      991,208 

Social and Environment Issues

Total Cost   30,298    2,720       3,813     230,062           —           2     (11,155)     255,740 
Earned Revenue   (3,421)    (300)       (429)    (19,126)          —           —      11,155      (12,121)
Net Program Costs   26,877    2,420       3,384     210,936           —           2           —      243,619 

Humanitarian Response

Total Cost        —        —     775,671          38         138           —        (129)     775,718 
Earned Revenue        —        —        (520)          —          (1)          —         129         (392)
Net Program Costs        —        —     775,151          38         137           —           —      775,326 

Public Diplomacy and Public Affairs

Total Cost   98,467    8,840      12,389     747,702     651,588           7     (36,253)   1,482,740 
Earned Revenue  (11,118)    (975)     (1,393)    (62,161)    (90,416)         (1)     36,253     (129,811)
Net Program Costs   87,349    7,865      10,996     685,541     561,172           6           —    1,352,929 

Executive Direction and Other Costs Not Assigned

Total Cost    4,721    4,494      61,857   3,984,091     536,000       4,390  (1,179,040)   3,416,513 
Earned Revenue   (2,534)  (2,412)    (33,197) (2,179,385)   (288,466)     (2,356)  1,142,351   (1,365,999)
Net Program Costs    2,187 
single underline
  2,082 
single underline
    28,660 
single underline
 1,804,706 
single underline
   247,534 
single underline
     2,034 
single underline
   (36,689)
single underline
  2,050,514 
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Total Cost  582,921   56,402   1,874,611   9,428,624   1,189,530     819,185  (1,728,633)  12,222,640 
Total Revenue  (67,821)  (8,139)    (71,016) (2,820,238)   (378,912) (1,508,841)  1,691,944   (3,163,023)
Total Net Cost $515,100 
double underline
$48,263 
double underline
$1,803,595 
double underline
$6,608,386 
double underline
$  810,618 
double underline
$ (689,656)
double underline
$  (36,689)
double underline
$ 9,059,617 
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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).

 

Executive direction and Other Costs Not Assigned
For the years ended September 30, 2003 and 2002
(Dollars in thousands)
Program 2003 2002
Total Prior to Eliminations Intra-Departmental Eliminations Total Total Prior to Eliminations Intra-Departmental Eliminations Total

Costs:

Executive Direction $2,039,675 $  159,629 $1,880,046 $1,681,836 $   117,887 $1,563,949
FSRDF  1,506,093    347,165  1,158,928  1,057,328    314,864    742,464
ICASS    965,358    670,831    294,527    906,142    692,376    213,766
International Commissions     84,427
single underline
     1,415
single underline
    83,012
single underline
    93,510
single underline
    (2,607)
single underline
    96,117
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Total Costs

$4,595,553
single underline
$1,179,040
single underline
$3,416,513
single underline
$3,738,816
single underline
$1,122,520
single underline
$2,616,296
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Earned Revenue:

Executive Direction $  335,553 $  159,629 $  175,924 $  235,115 $  117,887 $  117,228
FSRDF  1,177,066    310,476    866,590  1,157,436    293,367    864,069
ICASS    982,504    670,831    311,673    920,918    692,376    228,542
International Commissions     13,227
single underline
     1,415
single underline
    11,812
single underline
     2,825
single underline
    (2,607)
single underline
     5,432
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Total Earned Revenue

$2,508,350
single underline
$1,142,351
single underline
$1,365,999
single underline
$2,316,294
single underline
$1,101,023
single underline
$1,215,271
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Total Net Cost for Executive Direction and Other Costs Not Assigned $2,087,203
double underline
$   36,689
double underline
$2,050,514
double underline
$1,422,522
double underline
$   21,497
double underline
$1,401,025
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Program Costs

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):

Indirect costs by Organization in 2003 and 2002
(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
single underline
   157,442 
single underline
Total Central Support Costs $3,662,082
double underline
$2,671,537 
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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):

Distribution of Support Costs to Programs in 2003 and 2002
(Dollars in Thousands)
Program Receiving Allocation 2003 2002
Regional Stability $  320,648 $  191,907
Counterterrorism    150,528     82,947
Homeland Security    147,183    206,283
Weapons of Mass Destruction    119,467     75,645
International Crime and Drugs     45,815     38,011
American Citizens    928,342    721,816
Democracy and Human Rights    160,722     87,853
Economic Prosperity and Security    339,604    172,169
Social and Environmental Issues     83,467     51,114
Humanitarian Response         18         12
Public Diplomacy and Public Affairs    271,269    273,028
Executive Direction and Other Costs Not Assigned  1,095,019
single underline
   770,752
single underline
Total $3,662,082
double underline
$2,671,537
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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):

Under Secretary for Management/Secretariat Costs allocated to Other Under Secretaries
(Dollars in Thousands)
Under Secretary 2003 2002
Political Affairs $4,450,321 $2,817,597
Public Diplomacy    674,502    502,608
Management (Consular Affairs)    454,104    344,715
Arms Control, International Security Affairs    279,740    191,111
Global Affairs    151,211     63,456
Economic, Business and Agriculture Affairs     27,853
single underline
    18,090
single underline
Total $6,037,731
double underline
$3,937,577
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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):

Inter-Entity Costs
For the years ended September 30, 2003 and 2002
(Dollars in Thousands)
Inter-Entity Cost 2003 2002
Other Post-Employment Benefits:    

Civil Service Retirement Program

$ 25,010 $17,912

Federal Employees Health Benefits Program

  59,256  52,179

Federal Employees Group Life Insurance Program

     230     114

Litigation funded by Treasury Judgment Fund

   3,044
single underline
 13,874
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Subtotal - Imputed Financing Source $ 87,540 $84,079
Future Workers' Compensation Benefits   13,490
single underline
  7,620
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Total Inter-Entity Costs $101,030
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$91,699
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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

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):

Earned Revenues
For the years ended September 30, 2003 and 2002
(Dollars in thousands)
Program 2003 2002
Total Prior to Eliminations Intra-Departmental Eliminations Total Total Prior to Eliminations Intra-Departmental Eliminations Total

Consular Fees:

Passport, Visa and Other Consular Fees

$  642,076 $        — $  642,076 $  523,863 $        — $  523,863

Machine Readable Visa

   550,597          —    550,597    368,875          —    368,875

Expedited Passport

    98,207          —     98,207     65,286          —     65,286

Fingerprint Processing, Diversity Lottery, and Affadavit of Support

    23,514
single underline
         —
single underline
    23,514
single underline
    12,289
single underline
         —
single underline
    12,289
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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
ICASS   982,504    670,831    311,673    920,918    692,376    228,542
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
Other     22,015
single underline
         —
single underline
    22,015
single underline
     2,978
single underline
         —
single underline
     2,978
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Total $4,854,967
double underline
$1,691,944
double underline
$3,163,023
double underline
$3,995,907
double underline
$1,496,811
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$2,499,096
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Pricing Policies

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):

Gross Cost and Earned Revenue by Budget Functional Classification
For the years ended September 30, 2003 and 2002
(Dollars in Thousands)
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
Income Security   1,515,832    870,185    645,647   1,065,979    864,069    201,910
Natural Resources      71,064
single underline
     8,522
single underline
    62,542
single underline
     79,960
single underline
    13,334
single underline
    66,626
single underline
Total $12,222,640
double underline
$3,163,023
double underline
$9,059,617
double underline
$10,837,835
double underline
$2,499,096
double underline
$8,338,739
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