Overview:
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Part of the Department of Treasury, the Financial Management Service (FMS) is in charge of the federal government’s money flow system. FMS develops and manages financial systems that collect and distribute money in and out of federal agencies and institutions. The volume of money that FMS handles is staggering. It disburses more than $1.6 trillion to more than 100 million individuals via social security and veterans’ benefits, income tax refunds and other federal payments. It collects more than $3.11 trillion per year in payments to the government through 10,000 financial institutions, with more than $2.45 trillion collected electronically. Although FMS proudly claims that it handles the government’s cash flows “efficiently, effectively and securely,” audits have revealed another story—of the bureau not collecting billions owed to the federal treasury and failing to correct serious flaws in its computer systems.
History:
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The Treasury Department was created in 1789 to provide for the collection, safeguarding and disbursement of money and to maintain a system to account for the government’s collections and payments. The federal financial infrastructure to keep track of the government’s finances remained small during the country’s first 100 years. The Register of the Treasury originally carried out the account-keeping functions, while individual departments and independent agencies conducted their money-disbursing functions without Treasury oversight.
The first major federal financial management reform took place just after World War I. In late 1919, Treasury Secretary Carter Glass created the forerunners of the current fiscal operations bureaus by approving the positions of the Commissioner of Accounts and Deposits and the Commissioner of the Public Debt. The officials appointed to these positions oversaw the various organizations that comprised the new Bureau of Accounts and Deposits (later renamed the Bureau of Accounts) and the Bureau of the Public Debt. The former of these two bureaus was the first direct ancestor of today’s Financial Management Service.
Although the predecessors of today's fiscal service organizations were established in 1919, most federal payment functions remained decentralized until 1933. That year, President Franklin D. Roosevelt issued an executive order mandating the transfer of the executive departments’ disbursing clerks to the newly established Division of Disbursement, which was assigned to the Bureau of Accounts. One result of this order was the creation of Regional Disbursing Offices. Eventually, 27 of these facilities were established to handle the ever-increasing number of checks issued by the government. (Today, FMS only utilizes four payment sites, thanks to advances in technology).
In 1940, the Treasury Department established the Fiscal Service, which consisted of the Bureau of Accounts, the Bureau of the Public Debt and the Office of the Treasurer. A 1974 reorganization of the Fiscal Service created the Bureau of Government Financial Operations, which was formed from a merger of the Bureau of Accounts and most functions of the Office of the Treasurer. In 1984, the Bureau of Government Financial Operations was renamed the Financial Management Service (FMS); the new name was meant to reflect Treasury’s renewed emphasis on achieving greater efficiency and economy in government financial management.
What it Does:
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The Treasury Department’s Financial Management Service (FMS) acts as the federal government’s money manager and bookkeeper, developing financial systems to move the government’s cash flows “efficiently, effectively and securely.” FMS provides centralized payment, collection, and reporting services for the government. The bureau also supports federal agencies’ financial management improvement efforts in the areas of education, consulting and accounting operations through a franchise fund business. The work of FMS supports the government-wide initiatives under the President’s management agenda—Improved Financial Performance and Expanded Electronic Government.
FMS disburses more than $1.6 trillion to more than 100 million individuals via social security and veterans’ benefits, income tax refunds and other federal payments. It collects more than $3.11 trillion per year in payments to the government through 10,000 financial institutions, with more than $2.45 trillion collected electronically. The office provides cash management guidance to federal program agencies and serves as the government’s central debt collection agency by managing the government’s delinquent debt portfolio. In doing so, FMS collects more than $3.7 billion per year in delinquent debts.
FMS has about 2,100 employees, one-third of whom are located in four Regional Financial Centers (RFCs)—Austin, TX; Kansas City, MO; Philadelphia, PA; and San Francisco, CA; and one Debt Collection Center in Alabama.
Payments
In fiscal year 2007, FMS issued more than 982 million non-Defense payments with a dollar value of nearly $1.6 trillion to more than 100 million people. More than 78% of these payments were issued by Electronic Funds Transfer (EFT). Nearly 215 million of FMS’ payments were disbursed by check. In 1996, Congress passed a law requiring most federal payments to be paid by EFT. For those individuals without a bank account, Treasury designed the Electronic Transfer Account (ETA), a low-cost account to be offered by federally insured financial institutions with the same consumer protections available to other account holders. The ETA is available to any federal benefit, wage, salary or retirement payment regardless of the recipients’ previous credit history.
FMS Regional Financial Centers perform other payment-related services, including preliminary handling of check claims, complete handling of EFT claims, processing of all trace and reclamation actions for EFT payments, cancellation of returned checks, and making any related adjustment in agency accounts.
Collections
FMS administers the world’s largest collections system, gathering more than $3.11 trillion annually through a network of more than 10,000 financial institutions. FMS collects more than $2.45 trillion of that total—nearly 79%—through electronic transactions. It also manages the collection of federal revenues, such as individual and corporate income tax deposits, customs duties, loan repayments, fines and proceeds from leases. The Electronic Federal Tax Payment System (EFTPS) was originally introduced in 1996, but in September 2001, FMS and IRS launched a new Internet application, EFTPS-Online, which offers all businesses and individuals the convenience of making their federal tax payments electronically anytime, instead of using checks. In FY 2007, EFTPS collected nearly $2.09 trillion, with more than $349 billion collected through EFTPS-Online.
Government-wide Accounting
FMS gathers and publishes government-wide financial information that is used in establishing fiscal and debt management policies and also is used by the public and private sectors to monitor the government’s financial status. These publications include: Daily Treasury Statement; Monthly Treasury Statement; Treasury Bulletin; US Government Annual Report; and Financial Report of the US Government. The Financial Report is the federal government’s set of audited financial statements, a requirement of the Government Management and Reform Act of 1994. The Intragovernmental Payment and Collection System (IPAC), which interfaces with the FMS Central Accounting System to provide accounting information used to report the government’s financial status, enables funds to be transferred between federal program agencies and provides the capability for agencies to include descriptive information related to each transaction, assisting FPAs with their monthly reconciliation. IPAC is currently used by approximately 900 government agencies.
Debt Collection
FMS serves as the government’s central debt collection agency, managing the government’s delinquent debt portfolio. Since enactment of the Debt Collection Improvement Act of 1996 (DCIA), FMS has collected $31.5 billion in delinquent debt. In FY 2007, FMS collected more than $3.7 billion in delinquent debt owed to the federal government.
Electronic Commerce
Through its Electronic Money (E-Money) Program, FMS tests new payment and collection technologies using the Internet and card technology, as well as related technologies such as digital signatures and biometrics. FMS has several programs to help federal agencies modernize their payment and collection activities, including: government-wide collections portal;
used on military bases and in government hospitals; point-of-sale check truncation; and an Internet credit card collection program. Since October 2000, FMS has collected monies through a federal Internet portal called
. Pay.gov provides collections, form submittal and bill presentment, authentication, and agency financial reporting services. Pay.gov, which has been implemented with 85 federal agencies representing 208 cashflows, collected $37.9 billion in FY 2007.
Where Does the Money Go:
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According to USAspending.gov, the Financial Management Service spent more than $680 million this decade on goods and services provided by private companies. A total of 1,956 contractors were paid by FMS for such work as Automated Data Processing (ADP) and telecommunications services ($91 million), software ($83 million), ADP support equipment ($57 million), banking services ($45 million) and ADPE system configuration ($40 million).
The top recipients of FMS expenditures are:
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IBM
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$55,795,375
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M-Cubed Information Systems
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$31,286,514
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Computer Sciences Corporation
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$30,233,430
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STG, Inc.
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$27,991,080
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Onpoint Consulting Inc.
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$27,103,971
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Pante' Technology Corporation
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$21,203,271
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Avineon, Inc.
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$18,722,309
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SAIC, Inc.
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$17,272,538
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Integrated Solutions
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$16,375,942
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Controversies:
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FMS Not Collecting from Deadbeat Businesses
The Government Accountability Office (GAO) reported in 2005 that the Financial Management Service had failed to dock 33,000 businesses that owed back taxes to the federal government. The total amount owed was $3.3 billion.
Under federal law, FMS is supposed to withhold 15% from payments the government makes to companies owing taxes. Instead of collecting the three billion owed to the US treasury, FMS only collected $16 million.
FMS’ leadership said it was working with the Internal Revenue Service and other agencies to subject delinquent contractors to the withholding program.
Contractors Said to Owe Billions in Taxes (Associated Press)
Thousands of Civilian Agency Contractors Abuse the Federal Tax System with Little Consequence (GAO Report) (PDF)
FMS Slow to Make Changes to Computer Systems
The Financial Management Service has demonstrated a pattern of not addressing serious flaws in its computer controls, according to the GAO. In 1999, 2000 and 2002, the government watchdog agency pointed out that FMS’ financial systems were at “significant risk of fraud, unauthorized disclosure and modification of sensitive data and programs, misuse or damage to computer resources, or disruption of critical
operations”—all of which threatened billions of dollars in revenue. In its 2002 report, GAO stated that FMS still needed to act on approximately 42% of the weaknesses discussed in the 1999 report.
FMS Significant Weaknesses in Computer Controls Continue
(GAO Report) (PDF)
Suggested Reforms:
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GAO Urges Changes to Computer Controls
To address concerns about FMS’ computer systems that potentially threatened billions in federal revenue, the Government Accountability Office recommended the following changes:
- fully implement an effective security program
- correct each individual weakness that GAO identified and address each of the 85 specific recommendations detailed in the December 14, 2001, report
- work with the Federal Reserve Banks (FRBs) to monitor corrective actions taken to resolve the computer control vulnerabilities related to FMS systems supported by the FRBs that GAO identified and communicated to the FRBs
- develop a detailed plan that describes the remedial actions, resources, target dates, and responsible agency officials to facilitate the implementation of its security program.
- FMS Significant Weaknesses in Computer Controls Continue (GAO Report) (PDF)
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- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Suggested Reforms
- Comments
- Leave a comment
Founded: 1974
Annual Budget: $449.6 million
Employees: 2,100
Official Website: http://www.fiscal.treasury.gov/
Bureau of the Fiscal Service
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