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Department of State and U.S. Information Agency

Recommendations and Actions

DOS08: Improve the Collection of Receivables

Background

The Department of State has experienced significant problems in its departmental accounting and financial management. The serious deficiencies in the Department of State's financial system have led the Office of Management and Budget (OMB) to designate it as a high- risk area. The target date for correction reported by the Department of State is 1999.

One deficiency in the current financial systems that should be addressed immediately is the recovery of receivables owed to the U.S. government by State Department employees and other parties. The root cause of the department's current poor recovery rate is the lack of accurate accounting information. The Department of State does not have a financial accounting system that tells managers, in a timely manner, who owes how much and what action has been taken to collect. The department itself acknowledged that it has "a great deal of work ahead before fully implementing the requirements of the Standard General Ledger."(1) The General Accounting Office (GAO) reports that this failure to implement a general ledger capability has left the department with no control or accounting of accounts receivable.(2) An outside auditor states, "The possibility exists that revenue/receivables which should be recorded are never reported."(3) Collection is difficult and spotty without proper accounting procedures and records.

As a goal, the standard for recovery should be 100 percent of the receivables due. To fulfill its obligation to taxpayers to use federal funds effectively and efficiently, every public organization must seek to maximize its recovery of receivables. This approach is common sense for most commercial enterprises, and is certainly the proper approach for government. Internal control standards, set by the Federal Managers' Financial Integrity Act of 1982 and the Comptroller General, require "that all transactions and other significant events . . . be clearly and promptly documented and the documentation be readily available for examination."(4) If these internal control standards for documentation were met, the Department of State could identify its receivables. With this information and aggressive collection, recoveries could be made even with the lack of a fully deployed and integrated general ledger system. Based on the latest data available, State Department annual collections barely keep pace with the new receivables accrued each year. In fiscal year 1992, collections totaled about $17 million, while new receivables were $16 million. This means the outstanding receivables of approximately $20 million were reduced by only $1 million.

Recovery of overseas medical expenses is a good example of the department's need to track and aggressively collect receivables. Most Department of State employees serving overseas have private or federally sponsored medical insurance. These employees "are responsible for filing claims with their insurer to recover allowable medical expenses the government has paid and for remitting the insurance payments to the government."(5) GAO estimates that approximately $1.7 million in reimbursement of medical expenses could have been recovered in fiscal year 1991.(6) However, it appears that very little, if any, of this potential revenue was recovered.(7)

Examples of other State Department receivables include repatriation loans, emergency medical loans, medical air evacuation, nonstate travel, unearned pay, travel advances, and passport fees. The Department of State's accounting system does not provide the detail necessary to calculate the total amount due; however, it is clear that a significant number of debts with a substantial dollar value go uncollected.

Actions

1. The State Department should ensure that overseas medical expenses are accurately identified and reported by each embassy.

Minimum information to be tracked and reported by each overseas post should include:

--- date and amount of medical expenses authorized and paid, by name of employee,

--- employee insurer and date claim for reimbursement was filed,

--- amount and date of recoverable expenses paid to employee and amount and date remitted to the government, and

--- delinquencies or problems in filing claims or remitting recovered expenses.

2. The State Department should ensure that all other debts to the government are accurately identified and reported.

Procedures should be established at all overseas posts to record and track all obligations that are due from both businesses and individuals, such as prepaid leases, other prepaid expenses, personal use of government vehicles, and unofficial telephone calls.

3. The State Department should actively collect all accounts receivable.

To improve collection of receivables from employees, the Department of State should increase its use of payroll deduction where appropriate. The department currently uses IRS offset and collection agencies, but follow-up is poor and should be improved. For all receivables, the Department of State should set a goal of increasing its rate of recovery by 3 percent per year for the next five years.

Implications

The limitations of the current financial system notwithstanding, the recommended actions should increase the number and amount of accounts receivable collected. By accurately documenting, recording, and reporting debts, the Department of State would not only be able to track its accounts receivable more accurately, but also have the proof necessary to effect collection. Although more must be done to record and report all receivables rapidly, the known receivables provide an opportunity for improvement. Recent receivables normally have the best chance for recovery. At the end of fiscal year 1992, the Department of State reported $6 million in receivables less than 90 days old, with total receivables amounting to approximately $20 million. In other words, there are ample known receivables for the department to target.

Aggressive debt collection would also serve notice to the department that a higher standard for accounting and collection practices has been established--one that requires greater diligence on the part of staffs. Increased accountability should encourage both financial officers and individuals to examine carefully transactions that result in receivables such as travel advances, personal use of government services and equipment, and prepaid expenses. These transactions should be limited in number and amounts as much as possible. Discretion in requesting and approving these actions should be exercised.

Fiscal Impact

The recommended actions regarding overseas medical expenses alone could recover well over a million dollars annually. The potential collections from other areas would be dependent upon the recovery rate achieved, new receivables incurred, and other factors, but are calculated below based on conservative estimates and a modest annual improvement rate of three percent. Collection of any portion of these receivables represents funds that would otherwise be lost to the government.

Budget Authority (BA) and Outlays (Dollars in Millions) 

Fiscal Year
          1994       1995     1996     1997     1998     1999     Total
          ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
BA          -1.3     -1.7     -1.8        -1.7       -1.6     -1.7        -9.8

Outlays   -1.3     -1.7     -1.8         -1.7      -1.6     -1.7        -9.8

Change 
in FTEs       0         0          0            0            0         0           0

Endnotes

1. U.S. Department of State, "The Federal Managers' Financial Integrity Act 1992 Report to the President and the Congress," Washington, D.C., December 23, 1992, p. B-8.

2. U.S. General Accounting Office, Serious Deficiencies in State's Financial Systems Require Sustained Attention, AFMD-93-9 (Washington, D.C.: U.S. General Accounting Office [GAO], November 1992), p. 25.

3. U.S. Department of State, Report on Review of the Receivables Function Within the U.S. Department of State, report No. 1-FM-034 (Washington, D.C., August 1991), p. I-1.

4. U.S. General Accounting Office, Need to Ensure Recovery of Overseas Medical Expenses, NSIAD-92-277 (Washington, D.C.: GAO, August 1992), p. 3.

5. Ibid., p. 2.

6. Ibid., p. 4.

7. The estimate of the recoverable amount is based upon overseas medical expenses reported by Department of State's Office of Medical Services in fiscal 1991.

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