1. From Registration to Accounts Receivable – The Whole Can of Worms 2007 UBO/UBU Conference 1 Briefing: UBO Accounts Receivable Date: 22 March 2007 Time: 1010 - 1100

2. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 3 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 Recipe for Failure

4. 2007 UBO/UBU Conference From Registration to Accounts Receivable 4 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 FY 2005 Audit Failures

5. 2007 UBO/UBU Conference From Registration to Accounts Receivable 5 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 Fiscal Management Requirements

6. 2007 UBO/UBU Conference From Registration to Accounts Receivable 6 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) Fiscal Management Requirements (con’t)

7. 2007 UBO/UBU Conference From Registration to Accounts Receivable 7 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 What is SFIS?

8. 2007 UBO/UBU Conference From Registration to Accounts Receivable 8 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/ http://www.defenselink.mil/comptroller/fmr/ DoD References

9. 2007 UBO/UBU Conference From Registration to Accounts Receivable 9 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? Accounts Receivable (A/R)

10. 2007 UBO/UBU Conference From Registration to Accounts Receivable 10 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 Doubtful Accounts & Write-offs

11. 2007 UBO/UBU Conference From Registration to Accounts Receivable 11 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 http://www.dod.mil/comptroller/cfs/fy2006.html Service Financial Statements

12. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 14 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 Navy Financial Statements

15. 2007 UBO/UBU Conference From Registration to Accounts Receivable 15 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 Air Force Financial Statements

16. 2007 UBO/UBU Conference From Registration to Accounts Receivable 16 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) Types of UBO Cost Recovery Program A/R

17. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 20 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 When to Recognize A/R

21. 2007 UBO/UBU Conference From Registration to Accounts Receivable 21 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 Aged A/R per FMR, Volume 6B, Chapter 10

22. 2007 UBO/UBU Conference From Registration to Accounts Receivable 22 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” Timeline for Changes

23. 2007 UBO/UBU Conference From Registration to Accounts Receivable 23 Service SMA Points of Contact Army – MAJ Tony Bowman/MEDCOM Navy – Raymond Anderson/BUMED Air Force – Lt Col Brent Erickson/AF SG

24. 2007 UBO/UBU Conference From Registration to Accounts Receivable 24 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? Barriers to Reporting?

25. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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. 2007 UBO/UBU Conference From Registration to Accounts Receivable 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?