Management's Discussion & Analysis

Financial Management Progress and Priorities

Improving the Quality, Utility, and Transparency of Federal Financial Information

The Digital Accountability and Transparency Act of 2014 (DATA Act), signed on May 9, 2014, sets forth a clear vision for the future of federal spending transparency. The Act amended the Federal Funding Accountability and Transparency Act of 2006 (FFATA) by requiring that all federal spending be displayed on a website in searchable, downloadable, and machine-readable format and by requiring publication of agency financial data.

In May 2017, OMB and Treasury launched beta.USAspending.gov, a new website connecting financial and award data for the first time for more than 75 federal agencies and in August 2017, OMB and Treasury submitted to Congress a report on the pilot to Reduce Administrative Burden required under section 5 of the DATA Act. OMB and Treasury are continuing to make regular improvements to the completeness of the data and quality of the display.

In November 2017, the Government Accountability Office (GAO) and many agency Offices of Inspector General published audits of the quality of the data as required under the DATA Act. OMB, Treasury, and agencies are reviewing the results of these audits in order to make further improvements to the quality of the data and display in the coming year.

Improving the quality, utility and transparency of federal spending information reflects a commitment to openness, as identified in the U.S. Government’s National Action Plan for Open Government.

Improving Program Efficiency

Payment Integrity

Addressing improper payments is necessary for legal compliance and the efficient use of financial resources. In FY 2017, OMB analyzed program-by-program improper payment data and concluded that it was more useful than aggregate improper payment data. For this reason, in November 2017, PaymentAccuracy.gov was updated with program-specific information, and now includes both the amount of improper payments that result in a monetary loss to the government and the amount of improper payments that does not result in monetary loss.

For FY 2017, there were improvements in four of the five programs with the highest payment error activity, including the Earned Income Tax Credit, Medicare Fee for Service (FFS), Medicaid, and Medicare Part C for both monetary and nonmonetary losses; however, in some cases these improvements were in the statistical margin of error and may not represent actual changes in losses. Medicare FFS showed the largest improvement, reporting $36 billion in improper payments for FY 2017 compared to $41 billion in improper payments for FY 2016. This was primarily driven by the Centers for Medicare and Medicaid Services (CMS) ongoing efforts to provide more individualized provider education and clarification of Medicare coverage and documentation requirements. In FY 2017, agencies recovered approximately $20 billion in overpayments through payment recapture audits and other methods (just as in FY 2015 and 2016).

In FY 2018, OMB will with work with agencies, the Chief Financial Officers Council (CFOC), and other stakeholders to develop strategies to minimize and eliminate improper payments and to develop a comprehensive strategy that finds customized solutions for agencies that materially contribute to improper payments rates and methods to address root causes. In addition, OMB will continue to rely on agency IG recommendations for additional improvements that can be made in the prevention of improper payments within specific programs.

Other efforts to prevent improper payments leverage advanced data analytics and improved technologies. As part of the continuation of the Do Not Pay Initiative, the Treasury Working System provides agencies a single-point of entry to access data and matching services to help detect, prevent, and recover improper payments during the award or payment lifecycle. Treasury has also begun analyzing data across agencies to identify potential duplicative benefit payments in programs with related missions and beneficiaries. In addition, agency payment integrity tools include the CMS Fraud Prevention System (FPS); the Department of Defense (DOD) Business Activity Monitoring (BAM) tool; the Social Security Administration’s (SSA) efforts to intercept payments to beneficiaries who have died or been incarcerated; and the Department of Labor’s Unemployment Insurance (UI) Integrity Center of Excellence, a federal-state partnership that helps prevent, detect, and reduce improper payments in the UI program.

The Treasury Working System has 56 agencies performing matches against several databases (e.g., Death Master File, System for Award Management, Treasury Debt Check). In FY 2017, agencies screened over $1.3 billion payments through the Treasury Working System using their payment integration function. While the vast majority of these payments were determined to be proper, the Office of Personnel Management stopped over $25 million in improper payments. In addition to the Treasury Working System, the agency-specific integrity centers have demonstrated solid returns. Currently, SSA has 23 computer matching agreements that generate over $7 billion in annual savings. During FY 2016, HHS took administrative action against 1,044 providers and suppliers as a result of the CMS FPS, resulting in an estimated $527 million in identified savings. For FY 2017, the DOD BAM tool prevented $1.4 billion in improper payments in DOD’s commercial payment systems.

Combating improper payments within the federal government is a priority for OMB and agencies who will work to share government data while maintaining privacy. Going forward, the goal of data transparency is to provide relevant granularity that makes it easier for agencies to take action on root cause issues.

Grants Management

The federal government awards approximately $700 billion in federal financial assistance each year to state and local governments and nonprofit organizations. Federal agencies have oversight responsibilities for the funds that they award to nonfederal entities. The effective and efficient oversight of these awards helps agencies to achieve mission success while protecting these resources from fraud, waste, and mismanagement and improper payment. Federal awarding agencies are taking measures to address areas where needed improvement in federal oversight has been identified. The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR 200 (Uniform Guidance), issued in December of 2014, is the authoritative OMB guidance governing federal financial assistance, which is comprised primarily of grants.

Since adoption of the Uniform Guidance, OMB and 28 federal awarding agencies have been diligently working to implement these requirements.

In addition to Uniform Guidance implementation, OMB in collaboration with the former Council on Financial Assistance Reform (COFAR) and the CFOC recently published the Financial Assistance Career Roadmap. This Roadmap is intended to serve as a resource for agencies and financial assistance professionals to ensure that they have the proper skills and competencies to perform their duties. OMB and COFAR also developed an interactive on-line Grant Training program, consisting of five modules, to aid agencies in training their staff in grant requirements and management.

Starting with FY 2015 submissions, all annual Single Audits of grantees that expend more than $750,000 in federal funds (approximately 38,000) have been available publicly on the Federal Audit Clearinghouse website (https://harvester.census.gov/facweb/Default.aspx). These compliance audits are a valuable tool for agencies and passthrough entities to monitor and manage federal funds efficiently and effectively.

OMB and the federal awarding agencies are committed to working together to continue to ensure that the government promotes effective stewardship over its federal financial assistance funds.

Enhancing Program Efficiency through Mission Support

Mission Support Services and Financial IT

The federal financial management infrastructure exists in a complex environment of legacy information technology, customized tools built to unique requirements, and business processes, that do not fully leverage modern technology. The sharing of financial technology and services has been successful for smaller agencies, but has not met expectations for larger agencies. A cross-agency subgroup of the CFOC developed the core business framework for financial management that was used in the fall of 2017 to explore industry capabilities for smarter use of technology in federal financial management. This information will be included in overall efforts to develop and implement recommendations and solutions that can improve federal financial management.

Efficient Use of Real Property Assets

The federal domestic building inventory is diverse and contains 252,000 buildings requiring approximately $18.8 billion in annual operation and maintenance expenditures, including approximately $7.3 billion in annual lease costs. The domestic portfolio is 2.6 billion square feet in size and the total replacement value of the government’s 232,000 owned buildings is approximately $1 trillion, with a repair need of $115 billion. Within both the owned and leased inventories, there are opportunities to realize cost savings by utilizing space more efficiently and reducing the portfolio. In 2013, the “Freeze the Footprint” (FTF) Policy (OMB Management Procedures Memorandum 2013-02) was issued, requiring agencies to freeze their real property footprint. From FY 2013 to FY 2015, when the FTF policy expired, agencies reduced their federal domestic office and warehouse space by 24.7 million square feet. OMB estimates that this 24.7 million square foot reduction will generate $370 million of annual cost avoidance for the government from FY 2016 onward. To improve the quality of federal real property data in annual Performance and Accountability Reports (PARs) or Agency Financial Reports (AFRs), agencies were required to validate and report “Freeze the Footprint” square footage and associated operations and maintenance costs in their 2014 through 2016 PARs or AFRs.

In FY 2017, the Government issued the National Strategy for the Efficient Use of Real Property (Strategy) and its companion implementation policy, the Reduce the Footprint (RTF) policy. The Strategy provides a strategic framework for agencies to measure the efficiency of their real property portfolios in order to identify and prioritize efficiency actions that reduce portfolio size and cost.

The RTF policy requires that agencies reduce the size of the federal real property portfolios to improve utilization of government-owned buildings and reduce reliance on leasing, lower the number of excess and underutilized properties, and improve the cost effectiveness and efficiency of the federal real property portfolio. Agencies have developed and annually update five-year Real Property Efficiency Plans (Plans) to identify reductions to their portfolios over a five-year time-period. In FY 2016, agencies reduced their FY 2015 RTF baselines by 11.2 million square feet, resulting in an annual estimated cost avoidance of $100 million. During the FY 2017 to FY 2021 timeframe, the agencies’ Plans target a net office and warehouse reduction of 22.4 million square feet and a reduction of 49.4 million square feet in owned space. The magnitude of the reduction targets indicates that the Strategy and RTF policy will be effective tools to improve the efficiency of the Government’s real property portfolio. Agencies will update their Plans and annual reduction targets in March of 2018. Agencies will continue to validate square footage and operations and maintenance costs in their PARs or AFRs under RTF.

Efficiency will be further improved by OMB’s implementation of the Federal Assets Sale and Transfer Act of 2016 (FASTA) and the Federal Property Management Reform Act of 2016 (FPMRA). The RTF Plans help the agencies identify projects appropriate for inclusion in the FASTA process. To date, OMB has met all of its responsibilities under FASTA and FPMRA by the required deadlines.

To support increased reduction targets, the General Services Administration and OMB have developed a new management tool within the Federal Real Property Profile (FRPP) database that enables agencies to fully analyze the efficiency of their portfolios and to collocate with other agencies. The new management tool uses real property performance metrics to measure the efficiency of agencies’ portfolios and thereby enable the identification and prioritization of improvement opportunities. The management tool and the improved FRPP data quality resulting from the implementation of GSA’s technical guidance issued in FY 2017 (to establish mandatory FRPP data validation and verification requirements), will enhance agencies’ abilities to implement data driven decision making when developing their annual RTF reduction targets. Focusing policy on reducing the portfolio, improving the quality of FRPP data through mandatory data validation and verification procedures, and the broad use of the new FRPP management tool will support higher RTF square foot reduction targets and efficiency gains in future years.

Conclusion

The federal government has seen significant progress in financial management since the passage of the CFO Act more than 20 years ago; yet significant challenges remain. The issues that the federal government faces today require financial managers to move beyond the status quo and improve both the efficiency and effectiveness of financial management activities. The steps outlined above leverage the tools and capacities that are in place today, and refocus energies on critical and emerging priorities – cutting wasteful spending, improving the efficiency of our operations and information technology, and laying a foundation for improved data quality and collaboration.