Budget Issues: Electronic Processing of Non-IRS Collections Has Increased but Better Understanding of Cost Structure Is Needed
Published: 2009-11-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of the Treasury's Financial Management Service (FMS) collections program provides services to agencies to collect, deposit, and account for collections through a variety of methods. Electronic collection methods can reduce government borrowing costs and agency administrative costs, while improving compliance and security. The Government Accountability Office (GAO) was asked to identify (1) the extent to which agencies other than the Internal Revenue Service (IRS) use various collection methods, (2) ways to maximize the benefits of and overcome any barriers to agency use of the various collection methods, and (3) issues that FMS should consider in its plans to improve the efficiency and security of collections. GAO analyzed collections data, plans, and documents from FMS and five case-study agencies in the Departments of the Interior and Commerce that use a variety of collection methods, observed fee collection methods, and interviewed FMS and case-study agency officials. GAO also interviewed selected payer groups for case study agencies.
section_title: What GAO Found
paragraphs: Over the past 5 years, more than 80 percent of funds collected by agencies other than the Internal Revenue Service (IRS) were collected using fully electronic methods, including wire transfers and credit cards. As shown in the figure below, from fiscal year 2005 through 2009 there was a significant shift from nonelectronic collection methods to partly electronic methods. This shift was largely a result of a growth in electronic check-processing capacity. Moving to electronic collection methods can reduce costs and mitigate risks, such as theft, but the specific circumstances of individual agencies and payers have affected agencies' ability to fully adopt these methods. Use of electronic methods can result in cost savings, increased processing speed and accuracy, and improved security of staff and deposits. Specifically, FMS reports that on average the government saves 78 cents for each electronic transaction. Additionally, case-study agencies and payer groups GAO spoke with reported reduced costs when using electronic collection methods. Despite the advantages, payer characteristics, other agency considerations, and set-up costs or required system changes have limited agencies' adoption of electronic collection methods. Also, agencies may not have enough information to make cost-effective decisions about their choice of collection method. FMS is implementing a plan to improve the efficiency and effectiveness of federal collections, but the plan excludes important cost considerations and does not use all available incentives. Specifically, the plan does not consider the cost differences among different electronic methods or ensure the consistent application of policies on reimbursement for certain services. The FMS plan also does not include a strategy for incorporating key lessons-learned from agency reviews into its guidance and communicating that information to agencies. With such information, agencies not scheduled for review until later years could begin to transition to more efficient methods.

section_title: Letter
paragraphs: The Department of the Treasury’s (Treasury) Financial Management  Service (FMS) collected almost $509 billion in funds received by agencies  other than the Internal Revenue Service (non-IRS collections) in fiscal  year 2009. In prior work we found that the method used to collect  payments can affect compliance with payment requirements as well as  administrative costs for both agencies and fee payers. Although certain  FMS collections services can reduce government borrowing costs, reduce  agency/payer administrative costs, and improve the security of collections,  some agencies do not use these services for collections, relying instead on  agency deposit of paper-based collections. As a result we reported there  were delays between the time payments were received and the time they  were deposited into the Treasury, thus increasing government borrowing  costs.
This report responds to your request that we examine opportunities to  improve the efficiency of federal collections governmentwide. Specifically,  we examined (1) the extent to which agencies other than IRS use  collection methods in FMS’s collections program, (2) how FMS and these  agencies can maximize the benefits of and overcome any barriers to use of  the various collection methods, and (3) issues FMS should consider as it  implements its plans for improving the efficiency and security of these  collections. As agreed with your offices, we did not review IRS collections.  Also excluded from the review are collections of the Commodity Credit  Corporation (CCC), a federal corporation within the U.S. Department of  Agriculture.
To assess the extent to which agencies use various collection methods, we  analyzed FMS data on collections received by agencies other than IRS for  fiscal years 2005 through 2009, by collection method. We reviewed FMS  guidance and interviewed FMS officials to gather operational information  on each collection method and understand why use of the various  collection methods changed over time. To identify ways FMS and selected  agencies can maximize the benefits of and overcome any barriers to the  use of collection methods, we conducted case-study reviews of five  agencies within two departments: the Minerals Management Service  (MMS), the National Park Service (NPS), and the U.S. Geological Survey  (USGS) in the Department of the Interior; and the United States Patent and  Trademark Office (USPTO) and the National Oceanic and Atmospheric  Administration (NOAA) in the Department of Commerce. The case-study  agencies selected permitted us to cover the variety of collection methods  and payer characteristics, however the findings cannot be generalized  across the government. For each case-study agency, we analyzed  collections data; observed agency collection processes; reviewed relevant  legislation, regulations, agency guidance, and audit reports; and  interviewed agency officials. We also reviewed FMS regulations and  guidance, analyzed FMS data related to the costs and benefits of the  various collection methods, and interviewed FMS officials. We also met  with four payer groups identified by case-study agencies to gain an  understanding of the effects of the shift to electronic collections on  payers. These payer groups were trade organizations, one private-sector  company, and representatives from state governments. To identify the  issues FMS should consider in implementing its plans for improving the  efficiency and security of collections, we reviewed legislation and FMS  plans and agency agreements, applied relevant findings from our case  studies, and interviewed FMS and case-study agency officials. We assessed  the reliability of the data we used for this review and determined that they  were sufficiently reliable for our purposes. Appendix I provides additional  details about the scope and methodology of our review.
We conducted this performance audit from October 2008 through  November 2009 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: As the government’s financial manager, FMS establishes and implements  collections policies, regulations, standards, and procedures for the federal  government. Through its collections program, FMS also provides services  to federal agencies to collect, deposit, and account for federal collections.  Its collections program provides a means for individuals and  organizations, including businesses, state and local governments, and  nonprofit organizations, to remit funds such as taxes, duties, fees, sales,  leases, and loan repayments to the government. FMS offers a range of fully  electronic, partly electronic, and nonelectronic collection methods (see  table 1 and fig. 1).
The agencies we examined for our case studies use a variety of these  collection methods (see table 2).
FMS manages the services through which all federal collections are  deposited in the Treasury and strives to minimize the time between when  funds are collected and when they are deposited in the Treasury. Treasury  regulations state that when it is cost effective, practicable, and consistent  with current statutory authority, electronic transfers of funds are the  optimal method for federal collections, especially when fees are recurring  or of large dollar amounts. Accordingly, FMS may require an agency  wishing to use a collection method other than electronic transfer to  provide a cost-benefit analysis to justify this selection. In past work, we  highlighted the benefits of electronic collection processing. Specifically,  we reported that electronic collections provide better accuracy, lower  mailing and processing costs, and fewer delinquencies and defaults. When  the Federal Reserve moved to electronic conversions of paper checks,  work hours spent on check processing decreased by almost half and  transportation costs associated with check processing decreased by about  11 percent. In recent years FMS has made it a priority to increase the use  of electronic collection methods and reduce collection costs. FMS has  begun an initiative, called the Holistic Approach, to further these goals.
Selection of the best collection mechanism is a joint responsibility of  agencies and FMS. Agencies have responsibility for working with FMS to  conduct cash-management reviews, gathering volume and dollar data  relative to the operation of the systems, and funding any implementation  and operational costs above those normally funded by Treasury. FMS  provides guidance to agencies in its Treasury Financial Manual regarding  the selection and cost-effective use of collection mechanisms. Agencies  must provide FMS with a recommended mechanism for any new or  modified cash flows. FMS reviews the recommendations, approves a  mechanism, and assists with implementation.
FMS’s oversight of federal agencies’ cash-management activities includes  review of collections. FMS uses findings from such reviews to develop  initiatives to improve an agency’s collections and set and monitor dates by  which the agency must implement changes. Moreover, FMS may charge  agencies that do not meet the implementation deadlines for the amount of  interest savings that would have been realized by timely implementation.
According to Treasury regulations, when funds are not collected  electronically, agencies generally must deposit funds into the Treasury or  a designated depositary on the day of receipt.
FMS’s collections program is funded in part by permanent and indefinite  appropriations for all financial agent (banking) services required or  directed by Treasury. In some cases federal agencies reimburse FMS for a  part or all of these costs. For fiscal year 2009, FMS obligated $568 million  for banking services, an 8 percent increase over the $528 million obligated  in fiscal year 2008. Fiscal year 2009 reimbursements for these banking  services were $92 million. Such reimbursements are deposited in the  Treasury’s general fund.
section_title: Use of Electronic Collection Methods Has Increased
paragraphs: Since 2005, agency use of collection methods has reflected FMS’s  increased focus on electronic payments. Fully electronic payments  accounted for more than 80 percent of dollars collected by agencies other  than IRS for fiscal years 2005 through 2009, with $441 billion of the almost  $509 billion collected using fully electronic methods in fiscal year 2009.  While the percentage of funds collected through nonelectronic methods in  2009 was low, it constituted over $36 billion. Nor does it represent a  similarly low percentage of transactions. For example, in fiscal year 2008,  MMS’s Minerals Revenue Management program collected over $23 billion  in federal rents and royalties from the public; while payments by check  represented only 2 percent of the dollars collected, they represented 77  percent of the total number of its transactions.
In fiscal year 2009, of the almost $509 billion in non-IRS collections, about  $68 billion was collected as cash or checks and processed using either  partly electronic or nonelectronic collection methods. As shown in figure  2, there was a significant shift from nonelectronic to partly electronic  methods from 2005 to 2009. In 2005, partly electronic collection methods  accounted for just under 2 percent of cash and check collections, but by  2009 this share had increased to over 46 percent. Given the significant  process and cost differences between fully electronic and partly electronic  collection methods, we distinguish between them in this analysis.
The growth in partly electronic payments largely represents a change in  agency processes rather than in payer behavior: the shift is largely the  result of a growth in electronic check processing capacity both at agencies  and through lockbox banks. In fiscal year 2008 almost $24 billion in  collections settled as paper checks at lockbox banks, but in fiscal year  2009 less than $2.4 billion was settled this way. Conversely, collections  through electronic check processing were about $27 billion in fiscal year  2008, but were over $31 billion in fiscal year 2009. FMS attributes this  growth to a large marketing effort and new electronic check processing  locations (according to FMS officials, 209 new locations—185 agency PCC  and 24 lockbox ECP locations—were added in fiscal year 2009).
FMS plans to discontinue some current electronic collection methods and  shift programs that use those methods to Pay.gov—a Web-based portal  that processes collections made through ACH transfer and credit card— which will consolidate and simplify the number of collection methods  available through FMS. FMS officials told us that they expect ACH pre- authorized debits will be phased out and replaced by Pay.gov by the end of  calendar year 2009. In addition, FMS plans to shift most of the existing 32  lockbox ACH accounts to Pay.gov or other electronic collection methods,  leaving only 2 such accounts in existence at the end of calendar year 2010.  There are also plans to shift certain collections from nonelectronic  methods to Pay.gov; for example, MMS is currently shifting its rent  collections from paper checks to Pay.gov and, according to MMS officials,  will continue to expand its use of Pay.gov in 2010.
section_title: Movement to Electronic Collection Methods Can Reduce Costs and Mitigate Some Risks, but Agency-Specific Circumstances Have Affected Adoption of These Methods
paragraphs: FMS, case-study agencies, and the payer groups we interviewed have  identified a variety of cost savings stemming from the use of electronic  collection methods. These savings stem from more efficient agency  processing, expected lower future costs for system changes, the  acceleration of deposits to the Treasury, and a lower administrative  burden for payer groups. The shift to electronic methods has also  mitigated some security and accuracy risks for agencies. Nevertheless,  some organizations identified agency-specific circumstances that make  full adoption of electronic collection methods less beneficial. These  circumstances were determined by the characteristics of an agency’s  payer base, other agency considerations, and the initial system or  equipment costs related to the transition.
subsections: section_title: Electronic Collection Methods Have Reduced FMS’s, Agencies’, and Customers’ Costs
paragraphs: Officials from all five case-study agencies cited a decrease in current or  estimated future costs resulting from the use of electronic collection  methods but none of the agencies could fully quantify these savings.
In some cases, agencies increased the efficiency of internal processing  operations. For example, officials at USGS said their 2008 move from  nonelectronic check processing to partly-electronic paper check  conversion increased process efficiency. Specifically, according to  officials in one USGS office that underwent the transition, the change  reduced the time it takes staff to process checks, thus freeing up staff to  undertake additional tasks. This office disseminates USGS products such  as maps and books and processes checks, credit card payments, and small  amounts of cash from its sales. Prior to the transition, the nonelectronic  check process required manual preparation of the deposit and a staff  member to take the deposit to the bank each day. The new partly  electronic process permits a Web-based deposit process and reduces the  need to physically go to the bank.  In another case, a decrease in agency processing costs has the potential to  reduce the size of cost-recovery fees. A NOAA regional permit official said  that an upcoming shift from using a lockbox bank to Pay.gov for its fee  collections is expected to increase staff efficiency and reduce payment  processing costs such as the office’s mailing costs. If these cost savings  are realized, the cost reductions may be passed along to the payers of the  fee.
In addition, fully electronic collection methods may incorporate electronic  submission of remittance data, enabling automatic transfers of payment  and remittance data to the agency’s accounting system. For example, to  account for ACH transfers after funds are deposited in the Treasury, MMS  prints out detailed payment information from FMS, matches payment  information to the correct payer, and manually enters the detailed data  into MMS’s internal accounting system. MMS officials told us that they are  planning to update their accounting software to make this process  automatic. They also said they expect that the implementation of Pay.gov  will be designed to automate this process and thus reduce costs.  In May 2008 USPTO shifted its credit card processing function to Pay.gov  both to decrease current costs and avoid future system costs for the  agency. Adopting Pay.gov enabled USPTO to discontinue the lease of a  line to a credit card authorization provider, a monthly savings of about  $1,000. Agency officials also said they expect that costs associated with  future agency system changes stemming from a change in the FMS credit  card processor will be eliminated because Pay.gov will manage the  transition. Potential exists for similar savings at other agencies; according  to officials at NPS and USGS, they also incurred costs for system and  equipment changes that were required after FMS changed its credit card  processor.
Some payer groups also cited benefits of a shift towards electronic  collection methods. Three of the four payer groups we spoke with  reported that the increased use of electronic methods has improved  efficiency and saved money for their organizations or members by  reducing administrative time, costs, or both. For example, state  government representatives agreed that for many organizations, paying by  ACH transfer is preferred because paying by check is expensive in terms  of the cost and time of printing, mailing, and reconciling payments. More  specifically, a representative of the state of Mississippi said that the state  requires all vendors, besides federal agencies, to accept payments from the  state electronically. The specific challenges faced by these payers when  using federal agency collection methods is discussed later in this report.
As we have previously reported, the acceleration of deposits to the  Treasury can reduce the amount Treasury needs to borrow each day to  pay government obligations. According to FMS, moving to electronic  check processing reduces processing time by 1 day on average, whether  done at the agency or at a lockbox bank. These total times range from 1  day to 6 days depending on the collection method selected and whether  mail time is included (see table 3). In the case of paper check conversion,  this improvement brings check processing on par with some fully  electronic collection methods such as ACH transfers and credit cards.
section_title: Case-Study Agencies Make Collection Decisions without Full Information
paragraphs: Although the shift to electronic collection methods has increased  efficiencies and decreased costs, agencies are generally unable to consider  the full range of the federal government’s expenses—specifically FMS’s  total collection costs—when analyzing program costs and setting fee rates.  This is because FMS generally does not provide these cost data to  agencies, although according to officials, it could. FMS officials stated  that FMS does not track cost of collection information by agency, but  instead by collection method and bank. FMS has this cost information and  could provide it, but based on past practices, it generally has not. As we  have previously reported, reliable information on the costs of federal  programs and activities is crucial for effective management of government  operations. Currently, agencies make decisions about collection methods  without the benefit of this information. Moreover, agencies could  determine whether such costs should be considered in the design and level  of full-cost recovery fees. To the extent such cost data are provided,  agencies that are authorized to charge full-cost recovery fees—for  example, fees charged under the Independent Offices Appropriation Act of  1952 (IOAA)—could, in some cases, include FMS’s cost of collections in  their fee rates and deposit these funds into the Treasury.
section_title: Electronic Collection Methods Mitigate Security Concerns and Risks of Inaccuracy, Potentially Decreasing Collection Losses
paragraphs: Officials from all five case-study agencies and FMS stated that use of  electronic collection methods have reduced the risk of either security  problems or processing errors. Four of the five case-study agencies stated  that electronic collection methods alleviated security concerns for staff  members, reduced the risk of theft, or both.
As noted above, prior to the move to paper check conversion, USGS staff  drove deposits to a local bank, exposing staff to risk of theft or injury.
USGS officials said that the move to paper check conversion reduced  these safety concerns. Alternatively, some agencies reduced concerns  about staff safety by making bank deposits by means of a courier service.  However, using couriers poses other security risks and adds costs to the  collections process. For example, MMS officials said that courier costs at  its Denver office are approximately $80,000 a year for two daily mail  deliveries and one daily bank deposit.
NPS guidance also deals with security concerns pertaining to cash  collections and the use of personnel to collect fees. For example, this  guidance notes that parks’ implementation of a type of ACH transfer that is  primarily used for commercial tour groups reduces the amount of cash  handled by staff and therefore improves security. In addition, officials at  the Rocky Mountain National Park said that permitting unattended  entrance stations to accept only credit cards, rather than both cash and  credit cards, reduced collection costs and made the machines less  vulnerable to attempted theft.
Officials from three of our case-study agencies stated that the electronic  collection or provision of payment data has lowered the risk of processing  errors, reducing repeated work and lost time and effort.
USGS staff said that using paper check conversion has reduced the errors  in the process because the system confirms deposit totals before  completing a deposit.
Similarly, MMS officials reported a decrease in administrative errors  stemming from the use of Pay.gov for a selection of its fees.
USPTO’s adoption of an automated method for uploading remittance  information for organizations making multiple payments also reduced  errors. In some cases, USPTO may receive several thousand patent  renewals in one submission from a single company that manages these  renewals for multiple customers. In the past, these renewals would be sent  to a lockbox bank and remittance information would be entered manually.  This new system allows maintenance fee payment information to be  submitted on a single compact disc and the data file on the disc to be  uploaded directly into USPTO’s internal accounting system.
section_title: Agency-Specific Circumstances Can Affect Adoption of Electronic Collection Methods
paragraphs: An agency’s payer base characteristics and other issues can influence  collection method selection, sometimes causing agencies to leave  nonelectronic collection methods in place and incur costs associated with  maintaining separate collection methods. In its work with agencies, FMS  recognizes the importance of considering an agency’s payer base and  whether those payers are likely to accept electronic collection methods.  All five of our case-study agencies stated that payer characteristics and  customer needs affected the selection of collection methods. In some  cases, customer preferences as well as customer access to banks and  online banking systems have influenced the different payment methods  that agencies offer.
MMS said that its customers, while typically large companies, also include  smaller operations that may not be amenable to electronic collections.  When MMS mandated electronic submission of royalty collections, it  granted waivers for those that appealed the requirement—approximately  100 of the 2,100 entities for which it processes royalty revenues. Although  a small percentage, such accommodation requires that the agency manage  a waiver system and requires the maintenance of a nonelectronic or partly  electronic collection method alongside the new fully electronic collection  method. In the case of MMS, the agency maintained its nonelectronic  check processing for collections other than royalties, so the nonelectronic  processes were not solely maintained for those customers with waivers.
A representative of a commercial tour operator industry group stated that  smaller operators in his membership would prefer the maintenance of a  more flexible method of payment for NPS entrance fees than that  preferred by larger operators. NPS is considering adopting Pay.gov to  allow customers to use a Web portal to make online purchases. The tour  representative recommended that NPS continue to accept credit cards  from commercial operators at its entrances in order to accommodate  smaller operators as the agency shifts to Pay.gov. While credit cards are an  electronic collection method, the desire to maintain this alternative  payment option in order to better serve its customers imposes costs on the  agency, such as the purchase of necessary equipment.
Other agency considerations also influence the selection and adoption of  collection methods. MMS officials told us that they decided to pursue  Pay.gov for MMS’s rent collections rather than selecting a commercial  lockbox because a lockbox service would not meet their internal process  needs. Although the shift to Pay.gov is underway, officials acknowledge  there will always be some paper check collections to manage. In another  case, NPS officials told us that the services provided by those performing  collection activities go beyond the collection itself. They explained that  they do not wish to remove all representatives from entrance fee  collection stations—even if it were possible—because fee collectors are  often “ambassadors” for the park and provide an important public service.  Nonetheless, it requires that NPS incur some level of labor costs related to  collections.
For two case-study agencies the setup costs or required system changes  necessary to implement electronic collection methods affected the ability  or the extent to which the agency or program office could adopt or  maintain electronic collection methods.
In 2002 and 2003, one NOAA regional permit office used Pay.gov as a  payment method. The office discontinued the use of Pay.gov because of  changes to the office’s database system and lack of information  technology support required to establish the new system’s connection to  Pay.gov. Nonetheless, a current project aims to reestablish the link to  Pay.gov.
NPS reports that at some remote park locations the telephone and Internet  access necessary to support electronic collection methods may be difficult  to establish. Even in less remote areas, geographic dispersion may create  challenges, such as the need to maintain and purchase equipment for  multiple collection or processing points within one park. For example,  Rocky Mountain National Park, which covers 265,800 acres and has four  entrances, maintains two remittance offices to prepare collections for  deposit because the road crossing the park also crosses the continental  divide and is impassable during winter months. Therefore, collections  cannot be transported from one side of the park to the other and must be  prepared for deposit separately.
Finally, meeting the varying system requirements for some electronic  collection methods can also be a barrier for customer use. Officials from  three state governments that submit payments to USGS told us that, while  they prefer electronic collection methods such as ACH transfers, the  differing technical requirements and data formats at each federal agency  can make such transfers a burdensome, manual process. Our prior work  has found a similar lack of standardization across federal grant-making  agencies. For example, the use of multiple payment systems has resulted  in an excessive administrative burden for grantees. FMS officials stated  that limited funding is often cited as a barrier to agency adoption of new  collection methods.
section_title: FMS Is Working to Improve the Efficiency of Collections, but Reviews Exclude Important Considerations and Do Not Make Full Use of Available Incentives
subsections: section_title: FMS Reviews of Agency Collections Exclude Important Considerations
paragraphs: As the financial manager and principal fiscal agent for the federal  government, FMS is responsible for planning and managing federal  collections and has oversight responsibilities to ensure that agencies are  making adequate progress in improving their cash-management practices.  Consistent with these responsibilities, FMS developed a 5-year “Holistic  Approach” plan, which establishes a framework for increasing the use of  electronic collection mechanisms governmentwide; streamlining the  collections process; offering collection mechanisms that are easy to use,  convenient, and secure; managing depositary services that banks provide  to federal agencies; and providing timely collection of federal receipts. To  implement this plan, FMS ranked agencies for review based largely on  their dollar volume of collections using nonelectronic methods. It plans to  review the collections of and draft Strategic Cash Management  Agreements with 112 agencies spread about evenly over fiscal years 2009  through 2013. During the development of the agreements, FMS reviews  all agency collections, including those already using electronic methods, to  see if a more efficient method could be adopted. According to FMS  officials and as described above, the payer and type of collection are key  factors in choosing a collection method. Each interagency Strategic Cash  Management Agreement will outline the methods currently used by the  agency for each of its collections; recommend electronic collection  mechanisms; set conversion timelines, agencywide goals, and metrics; and  estimate savings from conversion. The agreements commit both FMS and  the agencies to implement improvements to agencies’ overall cash- management practices.
As laid out in its Holistic Approach plan, FMS estimates savings of  conversion from nonelectronic to electronic collection methods as part of  each agency review. FMS estimates that average per transaction collection  costs are $1.679 for nonelectronic methods and $0.897 for electronic  methods. Using these figures, FMS estimates that shifting to electronic  collections will save an average of $0.78 per transaction. However, there  are significant differences in cost per transaction between different  electronic collection methods which may be obscured by using only these  two broad categories to estimate savings. For example, FMS estimates  that, on average, ACH transfers processed through Pay.gov cost $0.64 per  transaction, credit card transactions cost $1.30 per transaction, and  lockbox ECP costs $0.58 per transaction.
Although the cost of using different collection methods also can vary by  the dollar amount of the transaction, FMS officials said they do not use  volume threshold guidelines when working with agencies to select  payment methods. Specifically, credit card merchant fees are, in part, a  percentage of the value of the transaction. Though it may be less costly to  process a small collection by credit card than by check, the reverse may be  the case for large-dollar-value collections. We recently reported that the  average merchant discount rate FMS paid in fiscal year 2007 was 1.43  percent. In a hypothetical example using this rate, the total fees for a  $100 transaction would be $1.43 and the fees for a $10,000 transaction  would be $143. FMS limits individual credit card transactions to under  $100,000 in order to limit merchant fees.
FMS’s Holistic Approach plan does not provide for all available incentives  to encourage agencies to increase the use of more cost effective collection  methods. By using FMS services, agencies can reduce their own costs of  collection. Specifically, as noted earlier, agencies that collect credit card  payments through Pay.gov would be able to avoid the costs of future  system changes because with Pay.gov those changes would be handled by  FMS. The Holistic Approach plan includes a provision for an inefficiency  charge of $1.00 per transaction for any collection not converted by the  deadline as outlined in the agreement. Although FMS has the authority to  assess inefficiency charges against agencies regardless of an agreement,  according to FMS officials, the charge is only assessed on agencies that  voluntarily sign an agreement and then only if the agency misses agreed- upon and likely flexible deadlines. Furthermore, FMS officials said they  are not using the Holistic Approach to review whether agencies are paying  for certain collection services as required. FMS guidance—Treasury  Bulletin 94-07—requires that agencies reimburse FMS for ancillary  services and for standard lockbox collection services unless lockbox  processing provides a net financial benefit to the Treasury’s general fund.  In one case, we found that charges for a NOAA lockbox were initiated by  FMS and then halted for an unknown reason. In the past, NOAA  reimbursed FMS for services on one of its lockboxes. However, when the  lockbox was moved to a different bank in 2005, the reimbursement charge  was discontinued. FMS officials do not have any records of why they  ceased to charge NOAA; NOAA officials were also not aware of the reason  why the charges were discontinued. By not reviewing agency  responsibility to pay for collection services, FMS does not make use of an  available incentive to agencies to move to more efficient collection  methods. FMS officials stated that as part of the review, FMS negotiates  the collections proposals with the agency, but that agencies may have  other, higher priorities than making the investments needed for a change.  If FMS also reviewed whether the agency should reimburse FMS for the  collection services and charged the agency based on the findings of that  review, the agency would have a financial incentive to adopt the more  cost-effective method.
section_title: FMS Plan Does Not Include Strategy for Communicating and Incorporating Lessons Learned from Agency Reviews as It Proceeds with Expanded Implementation
paragraphs: The Holistic Approach plan does not include a strategy for communicating  lessons-learned from earlier reviews to agencies. Without such  information, agencies not scheduled for review until later years might not  have an opportunity to correct common problems. As part of the reviews,  FMS assesses whether the agencies use unauthorized or inefficient cash  management practices. In its reviews to date, FMS found that two agencies  were holding funds outside of TGA banks and is aware of some inefficient  collection practices that do not rise to the level of being unauthorized  cash-management practices. In our case-study reviews we also found  examples of inefficient collection practices, including the following:    On a few occasions, USPTO accepted credit cards as payment for multiple,  individual sale transactions processed on the same day to the same credit  card account number. This resulted in the sum of the payments to the  same credit card account number to be at or near the dollar limit for credit  card transactions. Because credit card fees are based in part on a  percentage of the dollar amount charged, the cost of processing large  collections by credit card may be more than by other methods.
NOAA maintains some lockbox accounts with volumes below what FMS  officials told us was their rule-of-thumb for lockbox services. FMS does  not have an official volume threshold for lockboxes, but officials stated  that processing checks through a lockbox might be a good choice for a  program collecting a minimum of 1,000 checks and $1 million per month.  Of the eight NOAA lockboxes, all had calendar year 2008 collections  volume that averaged less than 1,000 checks per month and only one  processed over $1 million per month on average; one lockbox processed  208 checks totaling less than $5,000 that year. Check volume affects the  per-transaction cost of lockbox services because some lockbox bank  charges are fixed (e.g., monthly account maintenance charges).
As a standard practice for one NOAA regional permit office, payers mailed  checks to the office and then NOAA mailed the checks to the lockbox  bank for processing on a weekly basis. This practice delays deposit of the  collections.
Agencies not scheduled for review until later years also may lack  information on how to overcome barriers to the use of electronic  collection methods or invest in more cost-effective collection methods.  Such barriers include agency regulations that define the methods an  agency uses to make collections, and payers that are less amenable to  electronic collection methods. With better information about the  capabilities and benefits of the various collection methods, agencies could  in turn communicate that information to their payer groups. According to  payer groups we spoke with, their members would be more likely to adopt  electronic collection methods if agencies encouraged them. According to  FMS, existing agency collection contracts and systems can be a barrier to  adoption of more efficient collection methods.
Some FMS collections guidance is outdated, but the Holistic Approach  plan does not include a strategy for updating guidance based on lessons- learned from the agency reviews. The primary guidance to agencies on the  various options for collection methods—FMS’s Cash Management Made  Easy—was last updated in April 2002 and includes outdated descriptions  of some methods. FMS’s guidance for the situations in which agencies  must reimburse FMS for costs of lockbox services—Treasury Bulletin 94- 07—is, in some respects, also outdated. It bases the responsibility to pay  for the costs of standard lockbox services on the net benefit to the  Treasury’s general account of accelerated deposits. However, since the  time the bulletin was issued, electronic processing of checks has become  an option for agencies. In some cases, this new option may be a more cost- effective choice.
section_title: Conclusions
paragraphs: FMS has made important progress helping the federal government  improve the efficiency and effectiveness of non-IRS collections; in fiscal  year 2009, almost 87 percent of these funds were collected using fully  electronic methods. As work continues to overcome barriers to electronic  collection methods, several benefits continue to accrue: the cost of  government borrowing is decreased as the time to process collections is  reduced; agencies, customers, and FMS may enjoy lower costs of  collection; and security of collections and staff are improved.
Reliable information on the costs of federal programs and activities is  crucial for effective management of government operations. However, it  can be difficult for agencies to effectively manage their programs or make  informed choices among collection options because FMS generally does  not provide agencies data or information on FMS’s costs of collections for  a given agency, program, or collection method. FMS has cost information  by collection method but generally does not provide it to agencies. While  FMS officials said that they could and have provided cost information  upon request, we believe provision of such data should not be ad hoc.  Rather, data should be distributed systematically to facilitate agency  program management. The lack of information on FMS’s costs of  collections means that agencies do not have complete information for  analysis of their fee structure and level. For some full-cost recovery fees  this means that the federal government may be inappropriately foregoing  revenues.
FMS’s ongoing initiative to analyze and review the collection activity in  each agency through implementation of its Holistic Approach plan  facilitates growth in the use of electronic collection methods. However,  two aspects of the approach may lead to decisions that are not the most  cost-effective. First, FMS groups all fully and partially electronic methods  together when developing an estimate of the cost savings of shifts from  nonelectronic to other collection methods. Second, FMS does not make  use of all available financial incentives—including enforcing its own  guidance by requiring agencies to reimburse it for certain collection  services.
Finally, some inefficient agency collection practices may persist longer  than necessary because FMS’s Holistic Approach plan does not include  either a strategy to communicate key lessons-learned from early agency  reviews to other agencies whose reviews are scheduled for future years or  a way to use the information to update FMS guidance to agencies. Interim  updates of collections guidance and regulations could allow agencies to  benefit from key lessons-learned during FMS reviews.
section_title: Recommendations for Executive Action
paragraphs: We are making five recommendations in this report.
To strengthen oversight of the costs of collecting federal fees and other  receipts, we recommend that the Secretary of the Treasury direct the FMS  Commissioner to take the following four actions:  (1) Provide each agency with information on FMS’s annual costs of  processing related to that agency’s collections by, for example, providing  information on the agency’s total collections, by collection method, and  FMS’s costs by collection method.  (2) Revise FMS’s Holistic Approach plan to assure that the reviews of  agency collections will consider the differences in costs of the various  electronic collection methods.  (3) Enforce FMS guidance by  a.  services are either ancillary or are lockbox services not providing a  net benefit to the Treasury’s general account and so should be  reimbursed by the agency; and   specifying criteria for determining whether FMS collection  b.   using these criteria during Holistic Approach plan reviews to  determine whether each agency should reimburse FMS for services  and document that decision.  (4) Establish a process for updating collections guidance and regulations  based on key lessons-learned from its reviews and communicating that  information to all agencies so that agencies whose review is scheduled for  later years can begin to implement changes.
We recommend that the Secretaries of the Interior and Commerce include  FMS’s costs of collection, as available, in analyzing MMS, NPS, USGS,  USPTO, and NOAA programs and, as appropriate, the design and level of  user fees.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of the Treasury, the  Interior, and Commerce for review. We received written comments from  the Department of the Treasury’s Financial Management Service, the  Department of the Interior, and the Department of Commerce, which are  reprinted in appendixes VII, VIII, and IX, respectively. In addition,  Treasury provided technical comments, which we incorporated as  appropriate. We also provided portions of the report to nonfederal  stakeholders for their review and made technical corrections as  appropriate.
FMS agreed with our recommendations and stated that it will develop an  action plan to address each recommendation. Initially, the draft’s third  recommendation said that, while implementing the Holistic Approach  reviews, FMS should specify criteria for determining whether its collection  services are ancillary and should therefore be reimbursed by the agency.  FMS commented that it is working on establishing such criteria in an  initiative separate from the Holistic Approach. In describing this initiative  to us, FMS officials explained that by separating the two initiatives they  expect to be able to review and update the policy on reimbursement more  quickly. They expect to complete the review of the reimbursement policy  by April 2010. The officials also noted that enforcement of the policy may  need to be phased-in over time as agencies will need to ensure that their  appropriations allow reimbursement to FMS for certain collection  services. In response to these comments, we revised the recommendation  to clarify that the reimbursement criteria need not be developed as part of  the Holistic Approach plan, only that, to consistently enforce FMS policies,  the criteria should be applied as part of the reviews.
The Department of the Interior concurred with our findings and  recommendation and stated that the report accurately depicts their efforts  to implement electronic collection methods.
The Department of Commerce also agreed with our recommendation and  expressed its commitment to implementing the recommendation and to  working with Treasury to improve the efficiency and effectiveness of  collection processes. It also provided technical comments specifically with  regard to the USPTO, which we incorporated as appropriate.
We are sending copies of this report to the Honorable Timothy F.  Geithner, Secretary of the Treasury; the Honorable Ken Salazar, Secretary  of the Interior; and the Honorable Gary Locke, Secretary of Commerce.  This report is also available at no charge on the GAO Web site at  http://www.gao.gov.
Should you or your staff have any questions about this report, please  contact me on (202) 512-6806 or irvings@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in Appendix X.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To analyze opportunities to improve the efficiency of federal collections  governmentwide we examined (1) the extent to which agencies other than  the Internal Revenue Service (IRS) use collection methods in the Financial  Management Service’s (FMS) collections program, (2) how FMS and these  agencies can maximize the benefits of and overcome barriers to use of the  various collection methods, and (3) issues FMS should consider as it  implements its plans for improving the efficiency and security of these  collections.
To assess the extent to which agencies use various collection methods, we  analyzed data on governmentwide collections by collection method from  FMS’s Total Collections Report for fiscal years 2005 through 2009. We  worked with FMS to group collection methods consistently over time and  to categorize them as fully electronic, partly electronic, and nonelectronic.  In order to focus our analysis on nontax collections, we excluded  collections FMS identified as IRS collections. However, according to FMS,  some IRS collections may nonetheless be included in the remaining data.  We also excluded collections of the Commodity Credit Corporation  (CCC)—a federal corporation within the U.S. Department of Agriculture— because, according to FMS officials, CCC does not use the FMS collections  program in the same way as other agencies. CCC uses its own network of  banks to process collections. We reviewed FMS guidance and interviewed  FMS officials to gather operational information on each collection method  and understand why use of the various collection methods changed over  time.
To analyze ways FMS and selected agencies can maximize the benefits of  and overcome barriers to the use of collection methods, we conducted  case-study reviews of five agencies: the Minerals Management Service  (MMS), the National Park Service (NPS), the United States Geological  Survey (USGS), the United States Patent and Trademark Office (USPTO),  and the National Oceanic and Atmospheric Administration (NOAA). We  selected this set of case-study agencies to cover the use of the variety of  collection methods, a variety of payer and payment characteristics,  programs with significant collection totals, representation of at least two  departments, potential for improved efficiency, and instances of a recent  change in collection method. These case studies are not intended to be  representative and therefore the information gleaned from them cannot be  generalized across the government. We used fiscal year 2006 OMB data on  fee collections and fiscal year 2008 FMS data on collections by method to  identify the case-study agencies. For each case-study agency, we analyzed  collections data, interviewed agency officials, and reviewed relevant  legislation, regulations, agency guidance, and audit reports. We performed  site visits at NPS’s Rocky Mountain National Park in Estes Park, Colorado,  and USGS’s Central Region Geospatial Information Office and MMS’s  Minerals Revenue Management office both in Denver, Colorado. At each  site-visit location, we observed collection processes and interviewed  agency officials. We also observed the lockbox process and interviewed  bank officials at a U.S. Bank lockbox location in St. Louis, Missouri that  provides lockbox services to NOAA and USPTO. We also interviewed  representatives or members from four payer organizations—the American  Petroleum Institute, the National Tour Association, Computer Packages  Inc., and the National Association of State Auditors, Comptrollers and  Treasurers—to gain an understanding of the effects of the shift to  electronic collections on payers. We selected these organizations from  stakeholder or payer organizations suggested by each case-study agency.  We also reviewed FMS regulations and guidance, analyzed FMS data  related to the costs and benefits of the various collection methods, and  interviewed FMS officials.
To identify the issues FMS should consider in implementing its plans for  improving the efficiency and security of collections, we reviewed relevant  legislation and FMS plans and agency agreements, applied relevant  findings from our case studies, and interviewed FMS and case-study  agency officials.
We assessed the reliability of the data we used for this review and  determined that it was sufficiently reliable for our purposes. We  conducted this performance audit from October 2008 through November  2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Minerals Management Service Collections
subsections: section_title: Agency Description
paragraphs: The Minerals Management Service (MMS), a bureau in the Department of  the Interior, manages the nation’s natural gas, oil, and other mineral  resources on the outer continental shelf. The agency also collects,  accounts for, and disburses more than $8 billion per year in revenues from  federal offshore mineral leases and from onshore mineral leases on federal  and Indian lands.
section_title: Types of Collections
paragraphs: MMS’s Minerals Revenue Management collects rents, royalties, and  proceeds from lease sales by means of automated clearing house (ACH)  transfers, wire transfers, and Federal Reserve Bank deposits. Although  most of the payments MMS receives are transmitted electronically, as of  October 2008 MMS still received nearly 50,000 checks per year. In fiscal  year 2008, rents and royalties totaled $13.4 billion and lease sales totaled  $10.2 billion. Royalty payments are typically high-dollar payments, while  onshore and offshore rent payments can range from a few hundred to  several thousand dollars.
MMS’s Offshore Energy and Minerals Management program also collects  fees for cost-recovery services and payments, public-information service  fees, and linear rental fees, totaling $11.2 million in fiscal year 2008. These  collections are solely made through Pay.gov. MMS fee-paying customers  are often large companies, but also include smaller organizations and  individuals.
section_title: Appendix III: National Park Service Collections
subsections: section_title: Agency Description
paragraphs: The National Park Service (NPS) is a bureau of the Department of the  Interior. The national park system is comprised of 391 areas covering more  than 84 million acres. These areas include national parks, monuments,  battlefields, military parks, historical parks, historic sites, lakeshores,  seashores, recreation areas, scenic rivers and trails, and the White House.
section_title: Types of Collections
paragraphs: NPS collects funds from the public for recreation fees, special park use  permits and fees, transportation fees, and other collections such as  payments from concessionaires and commercial use fees and other forms  of debt collection. Recreation fees include park entrance fees and special  recreation permit fees. Recreation fees range from $5 to $25, or more for  large group purchases. Special use fees are charged for the use of park  lands or facilities for activities that occur in a park and provide benefit to  an individual, group, or organization rather than the public at large. These  administrative fees are intended to recover full costs and are calculated on  a case-by-case basis, but range from $50 to $50,000. Transportation fees  are collected to recover costs associated with an NPS-provided  transportation system.
In fiscal year 2008 NPS collected approximately $179 million in recreation  fees through credit cards, automated clearing house (ACH) transfers,  Federal Reserve Bank (FRB) deposits, Treasury General Account (TGA)  deposits, and Pay.gov. Fiscal year 2008 special park use fees totaled  $12,938,317 and were collected predominantly through TGA deposits and  some credit card collections. Transportation fees totaled $13,883,451 in  fiscal year 2008. NPS fee-paying customers include individuals, tour  operators, concessionaires, and commercial operators.
section_title: Appendix IV: United States Geological Survey Collections
subsections: section_title: Agency Description
paragraphs: The U.S. Geological Survey (USGS), a Department of the Interior agency,  is the nation’s largest water, earth, and biological science and civilian  mapping agency. The USGS collects, monitors, analyzes, and provides  scientific understanding about natural resource conditions, issues, and  problems.
section_title: Types of Collections
paragraphs: USGS collects funds for products sales (mostly relating to mapping  products), cooperative water program agreements, and fully-reimbursable  programs. Under the cooperative water program, cooperators partner with  USGS and reimburse USGS for a portion of the costs of specific USGS  data-collection activities, investigations, or studies. Payments under these  agreements vary, with 40 percent of agreements yielding $25,000 per year  or less and the largest agreement falling between $2 million and $3 million.  These funds make up the majority of USGS collections and are mostly  collected by lockbox electronic check processing (ECP). Other  collections, including those for product sales and reimbursable  agreements, are made via agency paper check conversion (PCC), Treasury  General Account (TGA) deposits, International Treasury General Account  (ITGA) deposits, credit cards, and wire transfers.
Fiscal year 2008 collections totaled $217 million, with the majority of this  amount ($215 million) stemming from reimbursables. Reimbursables  include reimbursements from nonfederal sources such as states, tribes,  and municipalities for cooperative efforts and proceeds from the sale of  photographs and record copies; reimbursements for permits and licenses  of the Federal Energy Regulatory Commission; and reimbursements from  foreign countries and international organizations for technical assistance.
section_title: Appendix V: U.S. Patent and Trademark Office Collections
subsections: section_title: Agency Description
paragraphs: The U.S. Patent and Trademark Office (USPTO) is an agency of the  Department of Commerce. The agency’s main functions are the  examination and issuance of patents and the examination and registration  of trademarks.
section_title: Types of Collections
paragraphs: USPTO receives its funding through fees that are paid to obtain and renew  patents and trademarks. Patent fees, for activities such as application  filing, maintenance, and patent extensions, totaled $1.6 billion in fiscal  year 2008. These fees can range from $3 for a patent copy to over $8,000  for other services such as inter partes reexamination. Patent fee payments  are accepted through credit cards, Pay.gov accepting credit cards or  automated clearing house (ACH) transfers, lockbox electronic check  processing (ECP) and Treasury General Account (TGA) deposits.  Trademark fees, charged for services such as trademark processing and  services, totaled $236 million in fiscal year 2008. Trademark fees range  from $3 to $400 and are paid through credit cards, Pay.gov accepting  credit cards or ACH transfers, and TGA deposits. USPTO also accepts  replenishments to deposit accounts through wire transfers, lockbox ECP,  and TGA deposits. Payments for some fees from foreign sources are sent  through wire transfers. Payers for patent and trademark fees are  individuals, attorneys, law firms, small businesses, nonprofits, and large  corporations. Patent fees are also paid by annuity companies.
section_title: Appendix VI: National Oceanic and Atmospheric Administration Collections
subsections: section_title: Agency Description
paragraphs: The National Oceanic and Atmospheric Administration (NOAA) is a  science-based federal agency within the Department of Commerce with  regulatory, operational, and information-service responsibilities. NOAA’s  mission is to understand and predict changes in the earth’s environment  and to conserve, protect, and manage coastal, marine, and Great Lakes’  resources to meet our nation’s economic, social, and environmental needs.  NOAA offices include the National Environmental Satellite, Data, and  Information Service (NESDIS), the National Marine Fisheries Service  (NMFS), the National Ocean Service, National Weather Service, the Office  of Marine and Aviation Operations, the Office of Oceanic and Atmospheric  Research, and the Office of Program Planning and Integration.
section_title: Types of Collections
paragraphs: NOAA offices receive collections for various programs using a wide range  of collection methods. In fiscal year 2008, NESDIS received $1.7 million in  revenue for its sales of data. These collections were made through a  combination of lockbox electronic check processing (ECP), Pay.gov,  lockbox general, and Treasury General Account (TGA) deposits. Pay.gov  processed the largest amount of these collections at $1.2 million. NMFS  receives fees for a variety of permits, penalties, and inspections, totaling  over $48 million in fiscal year 2008. Seafood inspection fees, for example,  averaged over $23,000 per fee collected and were collected by means of  wire transfer, Federal Reserve Bank deposits, lockbox ECP, Pay.gov,  lockbox general, and TGA deposits. Other NMFS collections averaged  from $26 for tuna permits to over $6,000 for civil monetary penalties. Other  NOAA collections include payments to the Damage Assessment and  Restoration Revolving Fund, loan and buy back payments, and other  reimbursables. Payer groups for NOAA fees vary, but include private and  corporate customers for NESDIS data sales as well as individual fishermen  and fishing companies for NMFS permit fees.
section_title: Appendix VII: Comments from the Department of the Treasury’s Financial Management Service
section_title: Appendix VIII: Comments from the Department of the Interior
section_title: Appendix IX: Comments from the Department of Commerce
section_title: Appendix X: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual listed above, Carol Henn, Assistant Director;  Mallory Bulman; Susan Etzel; Katherine Hamer; and Elizabeth Hosler  made significant contributions to this report. Charles Fox, Cody Goebel,  Christine Houle, Paul Kinney, Felicia Lopez, Julie Matta, Anu Mittal, Donna  Miller, Robin Nazzaro, Jacqueline M. Nowicki, Melanie Papasian, Sheila  Rajabiun, Thomas Short, and Jay Smale also made key contributions to  this report.