Treasury Judgment Fund: Transparency and Reliability Needed in Reporting Fund Balances and Activities
Released: 2018-12-07T00:00:00

Letter

Background

The Judgment Fund is a permanent, indefinite appropriation, statutorily created in 1956, available to pay many types of eligible monetary claims that may be judicially or administratively ordered against the U.S. government. The Judgment Fund is also available to pay interest and costs on claims in certain circumstances. Administration of the Judgment Fund has changed substantially since its inception, with varying degrees of control and oversight by Congress, GAO, and Treasury. Originally, the Judgment Fund was limited to paying judgments of less than $100,000, as certified by the Comptroller General and entered by the U.S. Court of Claims (the predecessor to the current U.S. Court of Federal Claims) or a U.S. District Court, as well as authorized interest and costs. In the 1960s, new laws extended the Judgment Fund’s availability to awards and compromise settlements. In the next decade, the Supplemental Appropriations Act, 1977, eliminated the Judgment Fund’s $100,000 payment ceiling, resulting in no upper limit on the amount that could be paid from the Judgment Fund on any particular claim. The General Accounting Office Act of 1996 transferred certification of payments from the Judgment Fund from GAO to Treasury. Since 1996, Treasury has managed the Judgment Fund, including certifying payments. Treasury established Fiscal Service in October 2012, and delegated key Judgment Fund functions to that bureau.

Fiscal Service is responsible for, among other things, providing central payment services to federal agencies. Fiscal Service is the primary disburser of payments to individuals and businesses on behalf of federal agencies, including benefit payments made by the U.S. Social Security Administration and the U.S. Department of Veterans Affairs, federal income tax refund payments, and payments to businesses for goods and services provided to the federal government. Annually, Fiscal Service disburses more than a billion payments, with an associated total dollar value of more than $2.4 trillion.

Administering the Judgment Fund is among the services that Fiscal Service provides. A federal agency may request payment of a claim from the Fund on its behalf only in instances where funds are not legally available to pay the claim from the agency’s own appropriations or other funding source. Amounts paid from the Fund vary from year to year. Treasury reported that the Fund paid about $3 billion and $4 billion for administrative and litigative claims in fiscal years 2015 and 2016, respectively.

Fiscal Service carries out its mission through direct support from its three divisions. The primary focus of the Judgment Fund Branch is to receive and process claims for Judgment Fund payments. As shown in figure 1, the Judgment Fund Branch operates within Fiscal Service’s Financial Services and Operations Division.

Fiscal Service only certifies payments of claims from the Judgment Fund when the following four tests have been met: (1) claims are final, (2) claims are monetary, (3) one of the authorities specified in the Judgment Fund statute permits payment, and (4) payment is not legally available from any other source of funds (e.g., claims are only paid from the Judgment Fund when payment is not otherwise provided for in a specific appropriation or by another statutory provision). Generally, federal agencies are not required to reimburse the Judgment Fund. Two exceptions are Judgment Fund payments made pursuant to (1) the Contract Disputes Act of 1978 (CDA) and (2) the Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002 (No FEAR Act).

Currently, Treasury produces, and posts on its website, a voluminous spreadsheet—referred to as the Judgment Fund Transparency Report to Congress—when Congress requests it, but is not otherwise required to do so. The spreadsheets are data extracts from JFICS that provide information on the types and amounts of claims and the agencies for which the payments were made. Members of Congress introduced legislative proposals in the recent past related to the Judgment Fund. For example, in the 115th Congress, a bill entitled the Judgment Fund Transparency Act of 2017 (H.R. 1096), as reported (amended) by the Committee on the Judiciary on October 16, 2017, would amend the Judgment Fund statute to require Treasury to post on its website information related to claims on the Judgment Fund.

Treasury-Provided Information Was Not Fully Responsive and Not Fully Reconciled

In response to the Committee’s request for Schedules of the Judgment Fund Non-Entity Assets, Non-Entity Costs, and Custodial Revenues prepared in accordance with U.S. GAAP and related information, Treasury provided to the Committee nine “exhibits” that contained selected information on Judgment Fund payments and other related information to answer nine questions in the Committee’s request. We reviewed the Treasury-provided information and found that it did not provide the Schedules of Judgment Fund Non-Entity Assets, Non-Entity Costs, and Custodial Revenues for fiscal years 2010 through 2016, prepared in accordance with U.S. GAAP, and appropriate note disclosures or MD&A to the Committee, as requested.

In addition, we identified numerous differences between amounts included in the exhibits provided to the Committee and those reported in Treasury’s (1) unaudited transparency reports, (2) audited Schedules, or (3) audited Financial Statements. For example, we identified differences between administrative and litigative payments for fiscal years 2010 through 2016 reported on Exhibits 1 and 2 - Judgment Fund Administrative and Litigative Payments by Defendant Agency and Fiscal Year and those reported in Treasury’s (1) unaudited transparency reports, (2) audited Schedules, and (3) audited Financial Statements, for all years presented (as shown in tables 1, 2, and 3).

Further, we identified numerous differences between financial and nonfinancial information in Treasury’s exhibits and comparable information contained only in the transparency reports. For example, the Committee asked Treasury to disclose the amount of Judgment Fund payments for attorneys’ fees pursuant to the Equal Access to Justice Act (EAJA) for fiscal years 2010 through 2016. In response, Treasury provided Exhibit 8 - Amounts Paid from the Judgment Fund for EAJA Claims by Fiscal Year. We compared total payments for each fiscal year reported in Exhibit 8 with those reported in the transparency reports for the same years and identified differences in payments for principal, attorneys’ fees, and costs, as shown in table 4.

We provided Treasury the results of our comparisons and requested explanations for the differences we identified, and Treasury provided explanations for some of them. Subsequently, Treasury officials informed us that they discovered that the exhibits were created in a faulty manner, and rather than expending resources to reconcile and explain the numerous differences we identified, they indicated that Fiscal Service staff would submit new exhibits to the Committee; however, they did not provide a date by which they would do so.

Judgment Fund Branch staff further explained that the Committee’s request was a unique request for information that could not be fulfilled with existing standard reports and queries. To respond to the request, Fiscal Service created ad hoc queries of the JFICS database using different instructions for extracting data for the exhibits than those used for creating the transparency reports. The Judgment Fund Branch relied on these ad hoc queries, primarily from JFICS, to prepare the exhibits answering the nine questions included in the Committee’s request. However, according to Judgment Fund Branch officials, the Judgment Fund Branch does not prepare financial statements, such as the Schedules of Non-Entity Assets, Non-Entity Costs, and Custodial Revenues. Rather, its primary focus is receiving and processing claims for Judgment Fund payments. In addition, these officials told us that they could not confirm whether the Judgment Fund Branch worked with the Fiscal Accounting Branch to respond to the Committee’s request or prepare the exhibits provided to the Committee.

Treasury’s policy is to ensure and maximize the quality, objectivity, utility, and integrity of the information that it disseminates to the public. This policy directs Treasury bureaus and departmental offices to develop standards for information quality and ensure that the standards are used when disseminating information. The policy also directs that such information be accurate, clear, complete, and unbiased. In addition, policy guidelines specifically state that in situations where public access to data and methods will not occur, especially rigorous checks to analytic results should be applied and documented. According to Fiscal Service officials, this policy applies strictly to information disseminated to the public, and the related procedures in the policy do not apply to information transmitted to federal entities, including Congress. Fiscal Service officials did not provide evidence of a similar policy or procedures for ensuring the quality of the information disseminated to Congress and other federal entities. Fiscal Service officials also did not provide us with documentation indicating that any checks or reviews were performed on the exhibits—in a manner consistent with Treasury’s written policy and review procedures for disseminating information to the public—before Treasury provided them to the Committee.

As a result, the exhibits that Treasury provided to the Committee were not responsive to the Committee’s request and are at increased risk that they may contain unreliable information. Accordingly, the Committee lacks important, reliable information needed to effectively oversee Judgment Fund activities, including considering whether enacting new legislation would benefit the American people by ensuring better management of the Judgment Fund.

Treasury Has Documented Procedures and Control Activities for Processing Payments

According to Fiscal Service’s documented policies and procedures, payments from the Judgment Fund may be made only upon certification by Fiscal Service. An important step in the claims payment certification process is for the Fiscal Service claims analyst and claims reviewer to confirm that an agency’s claim for payment from the Judgment Fund is not otherwise provided for by another source of funds. This confirmation is necessary to make sure that the Judgment Fund is not used for payments that should be paid directly by the involved agency or another funding source. Another important step in the claims payment certification process is to confirm that the claim is final, meaning that the applicable federal officials have fully resolved the claim’s underlying dispute and the only outstanding issue is payment of the claim. Additionally, Fiscal Service calculates the amount of any interest that may be authorized and initiates action under federal debt collection law to offset any known indebtedness to the United States by the claimant. In the actual “certification” step, Fiscal Service does not review or evaluate the merits of the underlying claim.

Payments made by the Treasury Judgment Fund on behalf of agencies are initiated upon the receipt of claim requests that agencies submit to Fiscal Service. These requests must be submitted online through JFICS or by sending completed payment request forms to the Judgment Fund Branch via fax or mail.

Claims submitted through JFICS must be accompanied by a FS Form 197, Voucher for Payment, page 2, signed by the claimant, and either a (1) settlement agreement or (2) court order. Claims submitted via fax or mail must contain a (1) FS Form 194, Judgment Fund Transmittal Form; (2) FS Form 196, Judgment Fund Award Data Sheet; and (3) FS Form 197, Voucher for Payment, page 1, and a document that authorizes payment.

Upon receipt of mailed or faxed forms, Fiscal Service staff manually enter the data from the submitted forms into JFICS. Fiscal Service staff review the forms for completeness and ensure that each FS Form 194 has been signed by the agency authorizing official. Fiscal Service relies on this signature and the presence of a U.S. government email address on the FS Form 194 as its primary controls for ensuring that a mailed or faxed claim has been authorized by the agency. Fiscal Service also relies on this signature to confirm that the claim is appropriate and is eligible to be paid from the Judgment Fund. For claims entered directly in JFICS by an agency, the agency authorizing official must click on “I agree” on the JFICS certification page to affirm that the claim is authorized by the agency and appropriate for payment from the Judgment Fund. (See fig. 2 for a depiction of the Judgment Fund claims process.)

Depending on the claim amount, Fiscal Service staff perform a minimum of two levels of review on Judgment Fund claims, whether the claims are received by fax or mail or directly entered into the JFICS system by agencies. First, the claims analyst reviews the claim to ensure that the agency has provided all of the information necessary to process it. Once the claims analyst determines that all of the information has been provided, the claim is forwarded electronically to the claims reviewer. The claims reviewer performs a secondary review to determine if all the information required has been provided, as well as to ensure that the claims analyst entered the mailed or faxed information into JFICS correctly. Claims for less than $1 million do not require further review and are submitted to the Treasury Disbursing Office for payment. Claims for $1 million or more are subject to management review, and claims for $50 million or more are sent to the Fiscal Service Office of Chief Counsel for review.

Conclusions

In connection with its oversight efforts, the Committee requested certain information from Treasury about Judgment Fund financial balances, activities, and other information. However, the information that Treasury provided to the Committee in response to this request did not include Judgment Fund Schedules of Non-Entity Assets, Non-Entity Costs, and Custodial Revenues prepared in accordance with U.S. GAAP, including appropriate note disclosures and MD&A, as requested. Further, Treasury officials stated that the exhibits provided to the Committee were created in a faulty manner, resulting in an increased risk that they may contain unreliable information. Although Treasury directs its bureaus and offices to take steps to ensure the quality of information disseminated to the public, Fiscal Service did not take appropriate steps to ensure that the information it provided to the Committee was responsive and complete. Without sufficient financial and other information, the Committee’s ability to effectively oversee Judgment Fund activities, including considering whether enacting new legislation would benefit the American people by ensuring better management of the Judgment Fund, may be hampered.

Recommendation for Executive Action

We are making the following recommendation to Treasury: The Commissioner of the Bureau of the Fiscal Service should take steps to ensure that information provided to Congress undergoes a documented review to ensure the quality and responsiveness of the information provided. (Recommendation 1)

Agency Comments and Our Evaluation

We provided a draft of this report to Treasury for review and comment. In written comments, reproduced in appendix IV, Fiscal Service did not concur or nonconcur with our recommendation, but stated that it agreed with our concerns regarding the reliability of information contained in the exhibits provided to the Committee and that a new set of data has been compiled and undergone a documented review to ensure its reliability. We are encouraged by the steps being taken to ensure the reliability of this information, but it is unclear to what extent steps have been, or will be, taken to ensure the quality and responsiveness of other information that may be provided to Congress in the future. We believe that such steps are necessary to help ensure that the Committee has sufficient financial and other information to effectively oversee Judgment Fund activities.

We are sending copies of this report to the appropriate congressional committees, the Secretary of the Treasury, the Inspector General of the Department of the Treasury, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-9816 or rasconap@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 key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

The objectives of our audit were to (1) evaluate the extent to which the information the U.S. Department of the Treasury (Treasury) provided to the House Committee on the Judiciary (Committee) responds to the Committee’s May 2017 request for information about Judgment Fund balances and activities and reconciles to financial information included in annual, audited financial reports and other selected reports and (2) describe the Bureau of the Fiscal Service’s (Fiscal Service) documented procedures and related control activities for processing agency requests for payments from the Judgment Fund, including how Fiscal Service ensures that appropriate agency official approve claims and what reviews are required, if any, to ensure receipt of required documentation.

To determine the extent to which the Treasury-prepared information responds to the Committee’s request for information about the Judgment Fund balances and activities, we compared the information provided by Treasury to the Committee with the Committee’s request letter to Treasury. For each item requested by the Committee, we reviewed the information provided by Treasury and determined whether it was responsive to the request.

To determine the extent to which the Treasury-prepared exhibits reconcile to information included in annual, audited financial statements and other reports, we compared, and identified any differences between, the Treasury-prepared exhibits and certain information included in the following Treasury reports: unaudited Judgment Fund transparency reports to Congress for fiscal years 2010 through 2016; audited Schedules of Non-Entity Assets, Non-Entity Costs, and Custodial Revenues for fiscal years 2010 through 2013; and audited department-wide Financial Statements for fiscal years 2010 through 2016.

To determine the reliability of the financial information contained in the unaudited transparency reports, we reviewed relevant documentation, interviewed knowledgeable agency officials, and conducted basic testing of the data. Based on these efforts, we concluded that the data were sufficiently reliable for the purpose of our reporting objective. In addition, we interviewed Fiscal Service staff to obtain (1) explanations for and reconcile differences we identified based on our comparisons and (2) Treasury’s related policies for reviewing information provided to Congress to ensure its quality and responsiveness. Further, because the Treasury Office of Inspector General (OIG) is currently conducting an audit that includes the Treasury Judgment Fund, we communicated with the OIG staff regarding the OIG’s current audit to ensure no duplication in our audit work.

To describe Fiscal Service’s documented procedures and related control activities for processing agency requests for payments from the Judgment Fund, we reviewed Treasury’s standard operating procedures and external user manuals for the application Fiscal Service uses to process claims (the Judgment Fund Internet Claims System (JFICS)). We also observed Fiscal Service staff entering and reviewing Judgment Fund claims in JFICS. In addition, we obtained and reviewed selected independent public accountant (IPA) audit documentation related to processing Judgment Fund claims supporting the IPA’s fiscal year 2017 audit of Treasury’s department-wide financial statements.

Appendix II: Differences GAO Identified between Treasury-Prepared Exhibits and Other Treasury-Issued Reports

The U.S. Department of the Treasury (Treasury) provided the House Committee on the Judiciary (Committee) nine exhibits in response to nine questions included in the Committee’s request. Information included in these exhibits and differences we identified based on comparisons of this information with information included in certain Treasury annual audited financial reports and other reports is summarized below.

Exhibits 1 and 2 - Judgment Fund Administrative and Litigative Payments by Defendant Agency and Fiscal Year shows, by agency and type of payment, the amounts paid from the Judgment Fund on behalf of federal agencies. We compared information in these exhibits with Treasury’s (1) unaudited Judgment Fund transparency reports to Congress for fiscal years 2010 through 2016; (2) audited Schedules of Non-Entity Assets, Non-Entity Costs, and Custodial Revenues (Schedules) for fiscal years 2010 through 2013; and (3) audited department-wide financial statements (Financial Statements) for fiscal years 2010 through 2016 (see tables 5, 6, and 7).

Exhibit 3 - Judgment Fund Collections from Federal Agencies by Fiscal Year presents, by Treasury account symbol, recoveries and reimbursements from federal agencies. Exhibit 4 - Judgment Fund Accounts Receivable from Federal Agencies by Fiscal Year presents, by Treasury account symbol, amounts due from federal agencies for payments made on their behalf. We compared information in Exhibit 3 with the Schedules and information in Exhibit 4 with the Schedules and the Financial Statements for all available fiscal years. Information contained in Exhibits 3 and 4 were not payment related (these exhibits were receipts from agencies and accounts receivable owed by agencies) and therefore could not be traced to the transparency reports. The differences identified based on our comparisons of Exhibit 3 to the Schedules and Exhibit 4 to the Financial Statements are shown in tables 8 and 9, respectively.

Exhibit 5 - Judgment Fund Costs Paid by Citation Code and Fiscal Year shows, by fiscal year, amounts paid for each type of citation code. We identified differences in each fiscal year between the total amounts paid as presented in Exhibit 5 and the total amounts contained in the transparency reports (see table 10).

Exhibit 6 - Top 25 Attorney Law Firms that Received Payments from the Judgment Fund by Fiscal Year presents, by attorney and law firm, amounts paid for each of the 7 years. Because Treasury has identified this exhibit as containing personally identifiable information protected by the Privacy Act of 1974, we do not present information from Exhibit 6.

Exhibit 7 - EAJA Payments to Plaintiffs’ Counsel in Decending Order shows, by attorney and law firm, amounts paid to each related to Equal Access to Justice Act (EAJA) claims. When we compared the exhibit to the transparency reports, we identified differences in the total amounts for all fiscal years (see table 11).

Exhibit 8 - Amounts Paid from the Judgment Fund for EAJA Claims by Fiscal Year shows, by cost citation code, amounts paid for principal, attorneys’ fees, costs, and interest for each fiscal year. When we compared Exhibit 8 to the transparency reports, we identified differences in the amounts reported for principal, attorney’s fees, and costs for most fiscal years (see table 12).

Exhibit 9 - Major Recipients of Judgment Fund Payments by Fiscal Year presents amounts paid to major recipients (top 25) of payments from the Judgment Fund. Because Treasury has identified this exhibit as containing personally identifiable information protected by the Privacy Act of 1974, information about Exhibit 9 is not presented.

Appendix III: Comments from the Department of the Treasury

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Heather I. Keister (Assistant Director), Anthony Clark, Patrick Frey, Lauren S. Fassler, Nadine Ferreira, Valerie Freeman, James Kernen, Ned Malone, Lisa Motley, and Taya R. Tasse made key contributions to this report.