Note 16. Statement of Net Cost

FY 2007 Financial Report
Bureau of Resource Management
November 2007
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).

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. The Department's strategic goals and strategic priorities are defined in Management 's Discussion and Analysis section of this report.

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, 2007
(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
Achieving Peace and Security
Total Cost $  579,272  $16,915  $2,114,664  $3,338,226 $    1,296  $       83  $ (289,346) $ 5,761,110 
Earned Revenue   (100,753)  (2,883)   (621,803)   (413,043)        (28)        (13)    289,346     (849,177)
Net Program Costs    478,519   14,032   1,492,861   2,925,183       1,268         70          —    4,911,933 
Governing Justly and Democratically
Total Cost    104,085    3,039      43,469     595,897           —         15    (49,693)     696,812 
Earned Revenue    (18,104)    (518)     (4,515)    (73,258)          —          (2)     49,693      (46,704)
Net Program Costs     85,981    2,521      38,954     522,639           —         13          —      650,108 
Investing in People
Total Cost    618,141   18,443     120,452   1,586,997           —         89    (22,391)   2,321,731 
Earned Revenue     (8,168)    (233)     (2,037)    (33,035)          —          (1)     22,391      (21,083)
Net Program Costs    609,973   18,210     118,415   1,553,962           —         88          —    2,300,648 
Promoting Economic Growth and Prosperity
Total Cost    170,120    4,967      71,047     973,953           —         24    (81,220)   1,138,891 
Earned Revenue    (29,589)    (847)     (7,380)   (119,735)          —          (4)     81,220      (76,335)
Net Program Costs    140,531    4,120      63,667     854,218           —         20          —    1,062,556 
Providing Humanitarian Assistance
Total Cost          —        —   1,102,220      (1,410)        294           —      (1,972)   1,099,132 
Earned Revenue          —        —      (2,001)         0         (2)          —       1,972          (31)
Net Program Costs          —        —   1,100,219      (1,410)        292           —           —    1,099,101 
Promoting International Understanding
Total Cost    205,737    6,007      85,921   1,177,863     547,693         29    (98,225)   1,925,025 
Earned Revenue    (35,784)  (1,024)     (8,925)   (144,802)    (59,136)         (5)     98,225     (151,451)
Net Program Costs    169,953    4,983      76,996   1,033,061     488,557         24          —    1,773,574 
Strengthening Consular and Management Capabilities
Total Cost          —        —           —     773,763     300,743  1,913,421   (378,375)   2,609,552 
Earned Revenue          —        —           —    (167,666)    (46,501) (2,826,200)    378,375   (2,661,992)
Net Program Costs          —        —           —     606,097     254,242    (912,779)          —      (52,440)
Executive Direction and Other Costs Not Assigned
Total Cost      2,721    2,506      73,592   4,735,798     524,003       2,596  (1,868,930)   3,472,286 
Earned Revenue     (1,674)  (1,541)    (45,267) (3,056,791)   (325,328)     (1,570)  1,850,488   (1,581,683)
Net Program Costs      1,047 
single underline
    965 
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    28,325 
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 1,679,007 
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   198,675 
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     1,026 
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   (18,442)
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  1,890,603 
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Total Cost  1,680,076   51,877   3,611,365  13,181,087   1,374,029   1,916,257  (2,790,152)  19,024,539 
Total Revenue   (194,072)
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 (7,046)
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  (691,928)
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(4,008,330)
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  (430,995)
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(2,827,795)
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 2,771,710 
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 (5,388,456)
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Total Net Cost $1,486,004 
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$44,831 
double underline
$2,919,437 
double underline
$9,172,757 
double underline
$  943,034 
double underline
$ (911,538)
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$  (18,442)
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$13,636,083 
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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, 2007 and 2006, these consist of costs and earned revenue summarized below (Dollars in Thousands).

Executive Direction and Other Costs Not Assigned
For the Years Ended September 30, 2007 and 2006
(Dollars in thousands)
Program 2007 2006
Total Prior to Eliminations Intra-Departmental Eliminations Total Total Prior to Eliminations Intra-Departmental Eliminations Total
Costs:
Executive Direction $2,647,830 $  466,418 $2,181,412 $2,591,920 $  588,788 $2,003,132
FSRDF  1,266,562    440,746    825,816  1,486,863    397,920  1,088,943
ICASS  1,323,061    959,423    363,638  1,196,669    894,766    301,903
International Commissions    103,763
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     2,343
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   101,420
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    89,860
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     2,098
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    87,762
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Total Costs $5,341,216
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$1,868,930
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$3,472,286
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$5,365,312
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$1,883,572
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$3,481,740
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Earned Revenue:
Executive Direction $  877,698 $  466,418 $  411,280 $  632,366 $  588,788 $   43,578
FSRDF  1,251,011    422,304    828,707  1,220,904    372,407    848,497
ICASS  1,295,229    959,423    335,806  1,222,128    894,766    327,362
International Commissions      8,233
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     2,343
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     5,890
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    10,338
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     2,098
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     8,240
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Total Earned Revenue $3,432,171
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$1,850,488
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$1,581,683
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$3,085,736
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$1,858,059
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$1,227,677
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Total Net Cost for Executive Direction and Other Costs Not Assigned $1,909,045
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$   18,442
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$1,890,603
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$2,279,576
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$   25,513
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$2,254,063
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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 2007 and 2006 under the Under Secretary for Management by the following organizations (Dollars in Thousands):

Indirect Costs by Organization in 2007 and 2006
(Dollars in Thousands)
Bureau (or equivalent) 2007 2006
Bureau of Diplomatic Security $1,484,899 $1,282,989
Office of Overseas Buildings Operations    339,466    776,887
Bureau of Administration    880,256    650,511
Bureau of Information Resource Management    283,728    358,036
Bureau of Personnel    279,752    465,596
Bureau of Resource Management  1,179,615    497,586
Foreign Service Institute    101,267    128,670
Medical Services and Other    229,418
single underline
   168,849
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Total Central Support Costs $4,778,401
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$4,329,124
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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 2007 and 2006 was as follows (Dollars in Thousands):

Distribution of Support Costs to Programs in 2007 and 2006
(Dollars in Thousands)
Program Receiving Allocation 2007 2006
Achieving Peace and Security $1,144,577 $1,056,117
Governing Justly and Democratically    198,737    181,166
Investing in People     89,548     81,631
Promoting Economic Growth and Prosperity    324,822    296,104
Providing Humanitarian Assistance         27         21
Promoting International Understanding    392,828    358,097
Strengthening Consular and Management Capabilities  1,079,557    999,480
Executive Direction and Other Costs Not Assigned  1,548,305
single underline
 1,356,508
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Total $4,778,401
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$4,329,124
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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 2007 2006
Political Affairs $6,342,670 $5,112,736
Public Diplomacy    825,582    710,975
Management (Consular Affairs)    973,493    696,395
Arms Control, International Security Affairs  1,084,311    336,902
Global Affairs    314,825  1,337,724
Economic, Business and Agriculture Affairs     33,897
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    29,092
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Total $9,574,778
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$8,223,824
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Inter-Entity Costs and Imputed Financing: 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.

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 years ended September 30, 2007 and 2006 (Dollars in Thousands):

Inter-Entity Costs
For the Years Ended September 30, 2007 and 2006
(Dollars in Thousands)
Inter-Entity Cost 2007 2006
Other Post-Employment Benefits:    
Civil Service Retirement Program $ 25,639 $ 24,867
Federal Employees Health Benefits Program   98,435   91,410
Federal Employees Group Life Insurance Program      299      287
Litigation funded by Treasury Judgment Fund       —
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      —
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Subtotal - Imputed Financing Source $124,373 $116,564
Future Workers' Compensation Benefits   17,637
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  16,873
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Total Inter-Entity Costs $142,010
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$133,437
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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, 2007 and 2006, consist of the following (Dollars in Thousands):

Earned Revenues
For the Years Ended September 30, 2007 and 2006
(Dollars in thousands)
Program 2007 2006
Total Prior to Eliminations Intra-Departmental Eliminations Total Total Prior to Eliminations Intra-Departmental Eliminations Total
Consular Fees:
Passport, Visa and Other Consular Fees $1,092,382 $        — $1,092,382 $  882,160 $        — $  882,160
Machine Readable Visa    740,458          —    740,458    693,051          —    693,051
Expedited Passport    314,677          —    314,677    177,853          —    177,853
Passport, Visa and other Surcharges    386,373          —    386,373    188,137          —    188,137
Fingerprint Processing, Diversity Lottery, and Affadavit of Support     24,258
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         —
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    24,258
single underline
    28,414
single underline
         —
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    28,414
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Subtotal - Consular Fees $2,558,148 $        — $2,558,148 $1,969,615 $        — $1,969,615

FSRDF
$1,251,011 $  422,305 $  828,706 $1,220,904 $  361,943 $  858,961
ICASS  1,295,229    959,424    335,805  1,222,128    894,766    327,362
Other Reimbursable Agreements  2,204,564    720,807  1,483,757  1,879,580    673,332  1,206,248
Working Capital Fund    744,284    643,408    100,876    524,274    377,520    146,754
Other    106,931
single underline
    25,767
single underline
    81,164
single underline
    93,568
single underline
    12,232
single underline
    81,336
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Total $8,160,167
double underline
$2,771,711
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$5,388,456
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$6,910,069
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$2,319,793
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$4,590,276
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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 2007 and 2006 were $233.5 million and $224.0 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 2007 and 2006 were $241.4 million and $231.3 million, respectively. FSRDF cash resources are invested in special non-marketable securities issued by the Treasury. Total interest earned on these investments in 2007 and 2006 was $776.1 million and $765.6 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.

 


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