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. During FY 2007, the Department made 731,830 payments subject to prompt payment of which 704,583 or 96% were paid on time. Presented below is a chart that reflects the timeliness of the Department's payments from FY 2005 through FY 2007.

During FY 2007, The Department realized an increase in interest penalties paid (4 percent), when compared to one percent or $405 K in FY 2006. The increase in Prompt Payment penalties was primary due domestic payment delays caused by the transition to a new accounting system in FY 2007. Also, the effects of the system transition were seen in the percentage domestic invoices paying penalties against the total amount of domestic payments paid (FY 2007 - 0.031 percent vs. FY 2005 - 0.013 percent and FY 2006 - 0.009 percent).

SELECTED PAYMENT DATA

ELECTRONIC PAYMENTS

Payments made through Electronic Funds Transfer (EFT) were 90 percent of the total payments made for domestic and overseas payments. This is an increase of 3 percent over the fiscal year 2006 rate. EFT payments made for the Domestic operations were 97 percent of the total domestic payments. EFT payments made through the USDO for overseas operations was 85 percent of the total number of overseas payments. This is an increase of over 4 percent of the fiscal year 2006 rate. Payments made for overseas operations will not have the same rate as the domestic payments due to the result of complexities of banking operations in some of the countries where payments are made by the Department of State.

EFT and Check Payment Volumes

EFT and Check Payment Volumes
FY 2005 - FY 2007

Payment Type	2007		2006		2005
	Number	Percent	Number	Percent	Number	Percent
EFT:
Domestic	1,263,429	97	1,095,691	98	1,120,735	98
Overseas	1,586,790	85	1,455,055	81	1,309,530	77
EFT Subtotal	2,850,219	90	2,550,746	87	2,430,265	85
Checks:
Domestic	39,924	3	26,869	2	23,539	2
Overseas	289,585	15	352,092	19	400,985	23
Checks Subtotal	329,509	10	378,961	13	424,524	15
Total Domestic	1,303,353	41	1,122,560	38	1,144,274	40
Total Overseas	1,876,375	59	1,807,147	62	1,710,515	60
Total Payments	3,179,728	100	2,929,707	100	2,854,789	100

IMPROPER PAYMENTS INFORMATION ACT

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. OMB Circular A-123, Appendix C, defines significant improper payments as annual improper payments in a program that exceed both 2.5 percent of program annual payments and $10 million. 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. Summarized below are the Department's IPIA accomplishments and future plans for identifying improper payments as provided for in OMB Circular A-136, Financial Reporting Requirements.

Statistical Sampling Process

Records of payments were provided to the statistician for sample selection. The statistician randomly selected the records and the required number of samples for analysis of accuracy. The number selected was the minimum required to yield an estimate with a 90 percent confidence level and a confidence interval of plus or minus 2.5 percent.

INTERNATIONAL INFORMATION PROGRAMS (IIP) -U.S. SPEAKER PROGRAM

In FY 2003, the Department of State began to institute an effort that would identify programs that were susceptible to significant improper payments in accordance with the Improper Payments Information Act (IPIA) of 2002 (Public Law No. 107-300). All of the Department's expenditures for FY 2002 were classified into three categories: employee pay, vendor payments, and federal financial assistance. A risk assessment was performed based on a number of factors such as dollar volume, number of recipients, internal controls and the audit reports of the programs. As a result of this risk assessment, International Information Program (IIP), U.S. Speaker and Specialist program was classified as high-risk.

In FY 2004, a statistical sample was selected for IIP and detailed evaluations were performed. The improper payments projected error rate over the entire population was 81.18 percent or $1.4 million. The findings related to insufficient supporting documentation being provided and an incorrect financial assistance award instrument being used to obligate the award. In FY 2005, there were no detailed evaluations for improper payments performed for IIP. As a result, the program was reviewed during FY 2006.

In FY 2006, a statistical sample was selected for IIP and detailed evaluations were performed. The detailed evaluations resulted in 30 improper payments and several internal control findings. The projected error rate and dollar amount of improper payments in the population sampled was 23.81 percent or $348,567.

In FY 2007, a statistical sampling was conducted for IIP and a comprehensive assessment was performed. The assessment resulted in four improper payments and three internal control findings. The projected error rate and dollar amount of improper payments shows significant improvement with an error rate of only 4 percent or $17,038. The findings related to insufficient documentation (Bio or Resume) to support whether the grantee was eligible for the award. In no instance was evidence found that a payment was erroneous and needed to be recovered.

Last Quarter FY 2006 and First Three Quarters FY 2007-International Information Programs-US Speaker Program (IIP)

Corrective Action Plans

During our review of the International Information Program -U.S. Speaker and Specialist Program, four improper payments were found where there was insufficient documentation provided to support the grantee eligibility for the award (i.e. biographical information or resumes). To address these issues, the program officers will periodically check project tracker for each respective grantee to ensure that the documentation required to validate and support the eligibility of each grantee is supported.

IPIA REPORTING FY 2007-BUSINESS CLASS TRAVEL

In March 2006, GAO issued a report that identified shortcomings in the Department of State's authorization and administration of business class travel. In April 2006, in response to the report, the Department instituted additional measures to tighten internal controls over the approval and use of business class travel. The GAO report also recommended that the Secretary of State conduct regular reviews of the Department's use of business class travel and report the findings to senior management. Specifically, the reviews would determine whether the Travel Management Centers, bureaus and travelers adhered to government-wide and Department regulations for premium class travel.

In response to this recommendation, the Department incorporated the audits of premium class travel into the ongoing reviews conducted in accordance with the IPIA, the GAO guide, and other guidelines for evaluating and testing controls over sensitive payments. Grant Thornton was tasked with testing the controls for authorization and issuance of Business Class Travel for FY 2006 and FY 2007.

The first review was conducted for the first and second quarters of FY 2006. Results generally supported the findings end of the GAO report.. The second review, covering the second and third quarters of FY 2007, was conducted after the new management controls were implemented in April 2006. The improvements were significant. In particular, there were no instances where the travelers flying business class were found to be ineligible.

Errors that were found stemmed from weaknesses in administrative procedures and instances where supporting documentation was not readily available. These can be projected to an overall error rate of 3.97% or $21,594. In no instance was evidence found that a business class travel payment was erroneous and needed to be recovered.

Second and Third Quarters FY 2007-Business Class Travel and Sensitive Payments

Corrective Action Plans

• For Blanket Authorizations, one instance was found where it was not possible to verify that the appropriate justification for business class travel was properly authorized and approved. The requirement for the DS 4087 became effective in April 2006, when 14 FAM 567.2-2 (b) was revised to establish the requirement for use of DS 4087 to document the justification for authorizing business class travel, including travel over 14 hours.
  
  To address this problem, a Business Class Travel Department Notice will be issued to re-emphasize the business class travel regulations as cited in 14 FAM 567.2-4 and the Disposition Authorization Number, GRS 9 that provides travelers with specific instructions on what documents are to be retained for travel relating to routine and operational aspects of travel.
  
  
• Three instances were identified where full supporting documentation was missing (travel voucher, DS-4087 and itinerary) in order to verify compliance in accordance with 14FAM 567.2-2 (A) and (B).
  
  The correction action plan provides that the Department will issue a Business Class Travel directive that states that all travel documentation (travel orders, travel vouchers, receipts related to a reimbursable expense, DS 4087 and the government travel agency issued itinerary) be retained for not less than seven years.
  
  
• One instance was found during the review where full supporting travel voucher documentation did not provide the appropriate signature (electronic) by the designated approving official.
  
  As a corrective measure, the Department will require that the voucher be sent back to the person aware of the travel for proper approval before the voucher can be funded.

Results Summary

The following table summarizes the results of the International Information Programs (IIP), Business Class Travel Improper Payment Review, and the projected improper payment percentage and outlay estimates for the next three years.

The Improper Payment dollar amounts in the table represents the estimated value of errors in the entire population based upon the samples average dollar amount per improper payment times the prospected number of improper payment transactions in the population.

RECOVERY AUDIT PROGRAM RESULTS

Currently the Department of State, Bureau of Resource Management has established a two-tiered erroneous payment monitoring and review program, which supplements the formal account receivable process. The Global Financial Services (GFS), 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. In addition, the GFS Office of Oversight Management & Analysis conducts a monthly query of all domestic payments, focusing on identifying potential erroneous and duplicate payments. The GFS 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 TIN matching, sampling of vendors etc.

In FY 2007, the GFS domestic claims debt management process identified and validated 214 actual duplicate/erroneous payments, totaling $5.3 million, out of 551,149 total payments, totaling $23.2 billion. The claims office has collected or recovered 198 of the 214 validated erroneous payment debts (93 percent), totaling $4.9 million (92 percent). While the transition to a new financial system in 2007 has increased the number of incidents and expanded the debt collection timeline, the primary reasons for these improper payments and debts continues to be the use the wrong vendor payment record in the funding of the awards and/or authorization of payment on submitted claims.

The GFS duplicate or erroneous payment program has proven to be a cost effective tool (the program's annual $100 thousand operating costs) to supplement the ARD domestic commercial debt management and recovery. Identified debts not collected by the office of claims are transferred to ARD for follow-up collection. Since FY 2005, this GFS program has identified 736 duplicate/erroneous payments ($13.1 million), and collected 673 identified debts ($12.6 million or a collection rate of 96.2 percent).

ACCOUNTABILITY

The Department is committed to reducing erroneous payments issued domestically and overseas. Programs and procedures have been instituted that will strengthen agency management and internal control procedures for prevention, detection and recovery of erroneous payments. The following improvements are being undertaken:

• Issue updated guidance for performing program reviews and risk assessments
• Strengthen policies and procedures with regard to proper documentation requirements for payments
• Provide training to affected staff regarding proper payment requirements and documentation
• Strengthen payment and debt management programs policies and practices that will improve detection, referral and recovery efforts
• Report information on improper payments in the annual Agency Financial Report

INFORMATION SYSTEMS

Based on the improper payment reviews conducted in FY 2005 and FY 2006, the improper payments identified did not result from the lack of proper information systems. Although the Department transitioned to a new global financial management system in FY 2007, the current financial management system did not have an impact on the level of improper payments identified.

ISSUES

As previously mentioned, one of the challenges the Department faced in FY 2007 was determining to what extent federal financial assistance should be tested to obtain reasonable assurance that improper payments are not occurring at the grantee level. The Department performed limited procedures to test for improper payments that did not involve reviewing payments at the grantee level. However, to supplement the test work performed, the Department relied on monitoring procedures performed at the program offices, the A-133 reports of grantees, and the results of OIG reviews. In FY 2008, the Department will consider establishing procedures in the Bureau of Resource Management to monitor financial transactions. The Department will also seek guidance from OMB in FY 2008 to determine the most feasible way to test federal financial assistance for compliance with the IPIA. The Department will also review best practices to follow in FY 2008.

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