Briefing: UBO Accounts Receivable Date: 22 March 2007 Time: 1010 - 1100

1. Briefing: UBO Accounts Receivable Date: 22 March 2007 Time: 1010 - 1100

2. Objectives • Understand the problems in accounting for & reporting of Accounts Receivable (A/R) in the various Uniform Business Office (UBO) Cost Recovery Programs • Learn why accounting for A/R is becoming more important • Review A/R in Service Financial Statements • Identify required changes in accounting for A/R • Discuss timeline for improving the accounting for & reporting of A/R • Identify barriers to improving the accounting for & reporting of A/R

3. Recipe for Failure • Little visibility to senior management • Few people above the MTF level know the true extent of existing Accounts Receivable (A/R) for the three (3) UBO Cost Recovery Programs • Little management oversight • Issue is “below the radar” since limited A/R data are being reported upward • No effective performance • “It’s not important” so why bother improving our collection rates or the write-off/transfer of bad debt

4. FY 2005 Audit Failures • Four of 24 major federal agencies failed their annual audits • Defense, NASA, Energy, and Homeland Security • Agencies failed to put in place effective internal controls for financial reporting

5. Fiscal Management Requirements • CFO Act of 1990: Integrated Financial Management (FM) systems supporting DoD accounting needs are key to effective financial management • Federal Financial Management Improvement Act (FFMIA) of 1996: All Federal agencies to comply • Implement/maintain systems that meet Federal FM system requirements (Joint Financial Management Improvement Program (JFMIP)) • Support Federal accounting standards (Federal Accounting Standards Advisory Board (FASAB)) • Apply US Standard General Ledger (USSGL) at the transaction level

6. Fiscal Management Requirements (con’t) • Office of Management & Budget (OMB) • Use commercial off-the-shelf (COTS) JFMIP-certified software for replacement of core FM systems (OMB Circular A-127) • New Service FM COTS are JFMIP-certified • Army – GFEBS (Oracle & SAP) • Navy – Navy ERP (SAP) • Air Force – DEAMS (Oracle)

7. What is SFIS? • Standard Financial Information Structure • A comprehensive, standard “business language” that defines financial information that supports all DoD-wide budget, cost/performance management, and external reporting requirements • SFIS is NOT an IT system • http://www.defenselink.mil/dbt/sfis_resources.html

8. DoD References • DoD Financial Management Regulation (FMR), Volume 4, Chapter 3, “Receivables” dated April 2003 • DoD Financial Management Regulation (FMR), Volume 6B, Chapter 10, “Notes to Financial Statements” dated January 2006 • Located at OSD (Comptroller) Web site: • http://www.defenselink.mil/comptroller/fmr/

9. Accounts Receivable (A/R) • Two types of A/R in governmental accounting • Intra-governmental (e.g., Coast Guard, VA) • Expect to get paid 100% of Billed Amount • Disputes regarding claims against other federal agencies (e.g., Coast Guard, VA) are to be resolved per Code of Federal Regulations 4 CFR 101 • Public (civilian emergencies, TPC) • Need to establish an allowance for bad debt • MTFs may be reporting collections to higher headquarters but do they report outstanding and aged (e.g., >30 days, >120 days) A/R?

10. Doubtful Accounts & Write-offs • FMR guidance states: • The accounting office shall establish an allowance for doubtful debt, which shall provide for reducing gross receivables by the amount of the estimated loss to their net realizable value • A write-off occurs when an agency official determines, after using all appropriate collection tools, that is it more than 50% likely that a debt is uncollectible

11. Service Financial Statements • A/R are reported on the annual audited financial • Service Financial Statements located at OSD(Comptroller) Web site: • http://www.dod.mil/comptroller/cfs/fy2006.html

12. Service Financial Statements (con’t) • Aged A/R on Service Financial Statements broken out by: • Nondelinquent • Current • Noncurrent • Delinquent • 1 to 30 days • 31 to 60 days • 61 to 90 days • 91 to 180 days • 181 days to 1 year • > 1 year and < or equal to 2 years • > 2 years and < or equal to 6 years • > 6 years and < or equal to 10 years • > 10 years

13. Army Financial Statements • FY 2006 Army Annual Financial Statement • Reported $628 million in Net Public A/R • A/R 180 days to 2 yrs discounted 50% • A/R >2yrs discounted 100% • Reported $357 million in intra-governmental A/R • FY 2006 Army TPC Gross Public A/R was $82 million • Not included in the Army Annual Financial Statement

14. Navy Financial Statements • FY 2006 Navy Annual Financial Statement • Reported $3.268 billion in Net Public A/R • Includes $2.521 billion in contract litigation – Principal & Interest • Allowance for doubtful accounts receivable is based on analysis of collections experience by fund type • Reported $281 million in intra-governmental A/R • FY 2006 Navy TPC Gross Public A/R was $22 million • Not included in the Navy Annual Financial Statement

15. Air Force Financial Statements • FY 2006 Air Force Annual Financial Statement • Reported $1.042 billion in Net Public A/R • Allowance for uncollectible amounts is computed each quarter based on the average percentage of write-offs to outstanding public A/R for the last five years • Reported $666 million in intra-governmental A/R • FY 2006 Air Force TPC Gross Public A/R was $123 million • Not included in the Air Force Annual Financial Statement

16. Types of UBO Cost Recovery Program A/R • Three (3) types of UBO Cost Recovery Programs • Medical Services Account (MSA) A/R • Includes Intra-governmental (e.g., Coast Guard) and Public A/R (civilian emergencies) • Third Party Collections (TPC) • Only Public A/R (e.g., insurance companies) • Medical Affirmative Claims (MAC) • Only Public A/R (e.g., insurance companies, liable individuals)

17. Medical Services Account • Combination of both Intra-governmental A/R (e.g., Coast Guard, VA) and Public A/R (e.g., civilian emergencies) • Total MSA amount collected TMA-wide in FY 2005 was $181 million • What do the Services know regarding total outstanding A/R and their age? • Total A/R outstanding is unknown above the MTF level • No idea as to age of A/R accounts

18. Third Party Collections • Third Party Collections (TPC) bills an average of $220 million per year • Total TPC in FY 2006 were $103 million • Total TPC A/R in FY 2006 by Service was: • Army – $82 Million • Navy – $21 Million • Air Force – $123 Million • How much is really being written off as uncollectible, and how much is still on the books as A/R? • What do the Services know regarding total outstanding A/R and their age? • Air Force is currently getting this data from their TPC contractors as one of their key performance indicators (KPIs)

19. Medical Affirmative Claims • Medical Affirmative Claims (MAC) A/R is all Public A/R (e.g., insurance companies, liable individuals) • Total amount collected TMA-wide in FY 2005 was $17 million • What do the Services know regarding total outstanding A/R and their age? • No Service visibility to write-offs taken as uncollectible • No Service visibility to how much is still on the books as outstanding A/R and their age • TMA UBO developing a tool for use by MTF UBO staff to track MAC claims forwarded to local JAG

20. When to Recognize A/R • UBO Business Rules still need to be developed • Possible approaches include: • MSA • Intra-governmental A/R recognized at time of service • Public A/R recognized at time of service • Billing timeliness impacted by coding delays • TPC • Public A/R recognized at time of service • Billing timeliness impacted by coding delays • MAC • Public A/R recognized at time of legal settlement

21. Aged A/R per FMR, Volume 6B, Chapter 10 • Nondelinquent • Current • Noncurrent (due beyond next 12 months) • Delinquent • Not paid by the date specified in the initial written demand for payment • 1 to 30 days • 31 to 60 days • 61 to 90 days • 91 to 180 days • > 180 days

22. Timeline for Changes • Service Line financial managers not yet tracking UBO A/R • Service Medical Activity (SMA) financial managers are not reporting UBO A/R in their SMA financial statements • No specific timeline identified for including A/R in SMA financial statements • We don’t want to be the ones to be preventing the Services from achieving “clean audits”

23. Service SMA Points of Contact • Army – MAJ Tony Bowman/MEDCOM • Navy – Raymond Anderson/BUMED • Air Force – Lt Col Brent Erickson/AF SG

24. Barriers to Reporting? • How much can TPOCS and CHCS MSA Module currently support? • How much support can Service Financial Systems provide? • TPC and MAC A/R not currently being reported in Service or DFAS financial systems • What are the other barriers that you see out there?

25. Summary • Problems in accounting for & reporting of Accounts Receivable (A/R) in the various Uniform Business Office (UBO) Cost Recovery Programs • Accounting for A/R is becoming more important • Review A/R in Service Financial Statements • Identify required changes in accounting for A/R • Discuss timeline for improving the accounting for & reporting of A/R • Identify barriers to improving the accounting for & reporting of A/R

26. Quiz • Is SFIS an IT financial system? • Where do you find DoD guidance regarding A/R? • What are the two (2) types of A/R in governmental accounting? • What kind of A/R is Coast Guard A/R owed to MTFs? • What are the three (3) UBO Cost Recovery Programs?