UO || DEPARTMENTS OF TRANSPORTATION AND TREASURY. AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 2004 HEARINGS SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTH CONGRESS . FIRST SESSION ... r - SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION AND TREASURY. AND INDEPENDENT AGENCIES APPROPRIATIONS - ERNEST J. ISTOOK, JR., Oklahoma, Chairman FRANK R. WOLF, Virginia . STENY H. HOYER, Maryland JERRY LEWIS, California JOHN W. OLVER, Massachusetts HAROLD ROGERS, Kentucky ED PASTOR, Arizona : TODD TIAHRT, Kansas - - CAROLYN C. KILPATRICK, Michigan ANNE M. NORTHUP, Kentucky JAMES E. CLYBURN, South Carolina ROBERT B. ADERHOLT, Alabama STEVEN R. ROTHMAN, New Jersey JOHN E. SWEENEY, New York. - , & - . . JOHN ABNEY CULBERSON, Texas - 1 * . } NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full Committee; and Mr. Obey, as Ranking - Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. RICHARD E. EFFORD, KURT DODD, CHERYLE R. TUCKER, WALTER HEARNE, - and LEIGHA SHAW, Subcommittee Staff - PART 2 . DEPARTMENT OF THE TREASURY FY04 BUDGET JUSTIFICATIONS AND PERFORMANCE PLANs Printed for the use of the Committee on Appropriations - | UNIVERSITY OF MICHIGAN 1,135 AGMES Aº University : JUL 2 2003 of Michigan + - . of g * i) EPOSI'ſ ÉÉ) tº - UNITED STATES OF AMERICA Center DEPARTMENTS OF TRANSPORTATION AND TREASURY. AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 2004 HEARINGS BEFORE A subcommer of THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTH CONGRESS FIRST SESSION SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION AND TREASURY. AND INDEPENDENT AGENCIES APPROPRIATIONS ERNEST J. ISTOOK, Jr., Oklahoma, Chairman FRANK R. WOLF, Virginia STENY H. HOYER, Maryland JERRY LEWIS, California - JOHN W. OLVER, Massachusetts HAROLD ROGERS, Kentucky ED PASTOR, Arizona TODD TIAHRT, Kansas CAROLYN C. KILPATRICK, Michigan ANNE M. NORTHUP, Kentucky JAMES E. CLYBURN, South Carolina ROBERT B. ADERHOLT, Alabama STEVEN R. ROTHMAN, New Jersey JOHN E. SWEENEY, New York JOHN ABNEY CULBERSON, Texas NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full Committee, and Mr. Obey, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. RICHARD E. EFFORD, KURT DODD, CHERYLE R. TUCKER, WALTER HEARNE, and LEIGHA SHAW, Subcommittee Staff PART 2 DEPARTMENT OF THE TREASURY FY04 BUDGET JUSTIFICATIONS AND PERFORMANCE PLANS U.S. GOVERNMENT PRINTING OFFICE 86–710 WASHINGTON : 2003 COMMITTEE ON APPROPRIATIONS C. W. BILL YOUNG, Florida, Chairman RALPH REGULA, Ohio JERRY LEWIS, California HAROLD ROGERS, Kentucky FRANK R. WOLF, Virginia JIM KOLBE, Arizona JAMES T. WALSH, New York CHARLES H. TAYLOR, North Carolina DAVID L. HOBSON, Ohio ERNEST J. ISTOOK, JR., Oklahoma HENRY BONILLA, Texas JOE KNOLLENBERG, Michigan JACK KINGSTON, Georgia RODNEY P. FRELINGHUYSEN, New Jersey ROGER F. WICKER, Mississippi GEORGE R. NETHERCUTT, JR., Washington RANDY “DUKE” CUNNINGHAM, California TODD TIAHRT, Kansas ZACH WAMP, Tennessee TOM LATHAM, Iowa ANNE M. NORTHUP, Kentucky ROBERT B. ADERHOLT, Alabama JO ANN EMERSON, Missouri KAY GRANGER, Texas JOHN E. PETERSON, Pennsylvania VIRGIL H. GOODE, JR., Virginia JOHN T. DOOLITTLE, California RAY LAHOOD, Illinois JOHN E. SWEENEY, New York DAVID VITTER, Louisiana DON SHERWOOD, Pennsylvania DAVE WELDON, Florida MICHAEL K. SIMPSON, Idaho JOHN ABNEY CULBERSON, Texas MARK STEVEN KIRK, Illinois ANDER CRENSHAW, Florida DAVID R. OBEY, Wisconsin JOHN P. MURTHA, Pennsylvania NORMAN D. DICKS, Washington MARTIN OLAV SABO, Minnesota STENY H. HOYER, Maryland ALAN B. MOLLOHAN, West Virginia MARCY KAPTUR, Ohio PETER J. VISCLOSKY, Indiana NITA. M. LOWEY, New York JOSE E. SERRANO, New York ROSA L. DELAURO, Connecticut JAMES P. MORAN, Virginia JOHN W. OLVER, Massachusetts ED PASTOR, Arizona DAVID E. PRICE, North Carolina CHET EDWARDS, Texas ROBERT E. “BUD” CRAMER, JR., Alabama PATRICK J. KENNEDY, Rhode Island JAMES E. CLYBURN, South Carolina MAURICE D. HINCHEY, New York LUCILLE ROYBAL-ALLARD, California SAM FARR, California JESSE L. JACKSON, JR., Illinois CAROLYN C. KILPATRICK, Michigan ALLEN BOYD, Florida CHAKA FATTAH, Pennsylvania STEVEN R. ROTHMAN, New Jersey SANFORD D. BISHOP, JR., Georgia MARION BERRY, Arkansas JAMES W. DYER, Clerk and Staff Director (II) C O N T E N T S Departmental Offices: Salaries and Expenses ..................................................................................... Department-wide Systems & Capital Investments Program ........................ Inspector General for Treasury ........................................ • * * * * * * * - - - - - - - - - - - - - - - - - - - - - - - Air Transportation Stabilization Program ........................................- tº gº tº g º żº tº e º º ſº tº 8 Treasury Building and Annex Repair and Restoration ................................. Financial Crimes Enforcement Network ............................................................... Financial Management Service ....................................................................... ſº e º E & & e Alcohol and Tobacco Tax and Trade Bureau ......................................................... Bureau of Engraving and Printing ......................................................................... United States Mint .................................................................................................. Internal Revenue Service: Processing, Assistance, and Management ...................................................... Tax Law Enforcement .............................................................. • * * g º g & ſº e º ſº e º tº e º gº & º & tº º & º e Earned Income Tax Credit Compliance Initiative ......................................... Information Systems ........................................................................................ Business Systems Modernization .................................................................... Health Insurance Tax Credit Administration ................................................ Office of Comptroller of the Currency .................................................................... Office of Thrift Supervision ..................................................................................... SUMMARY OF TREASURY’s FY 2004 BUDGET REQUEST FY2003: Treasury Program Level Request (Pres. Budget, Amended) $15.943 billion Bureau Transfers per P.L. 107-296 (USCS, USSS, FLETC) - 3.994 billion Related Function Transfer to DHS & DOJ - .931 billion Net Adjusted Program Level in FY2003 $II.018 billion FY2004: Total Treasury Program Level Request $11,408 billion :: * >k × :: *k k + k + k >k :k × x + xk The President's Budget Request for the Department of the Treasury for FY2004, after adjusting for the historic one-time transfers due to the enactment of the Homeland Security Act of 2002, reflects an increase of $400 million over FY 2003. The Homeland Security legislation transferred select law enforcement bureaus and related functions from the Treasury Department to the Departments of Homeland Security and Justice, respectively. The resource levels reflected throughout this document refer only to those bureaus remaining in Treasury. Information regarding those entities that have transferred to either DHS or DOJ may be found in budget documents for their respective agency. - HIGHLIGHTS OF TREASURY'S REQUEST The President’s proposed FY 2004 Budget continues to recognize Treasury’s key role in Government as economic policymaker, financial manager, and revenue collector. The recent divestiture of a majority of Treasury’s law enforcement portfolio has re- emphasized the importance of these areas, as well as strengthening our focus on the critical role the Department plays in the financial war against terrorism. The Budget request also places increased importance on providing the customer service and program reliability that our customers demand and deserve. To deliver on these and other commitments, Treasury partners the principles of the President’s Management Agenda and the Department’s performance budgeting processes to: (a) link performance with dollars; and (b) serve as catalysts for identifying and eliminating those programs producing little or no real value to its customers and redirecting those resources to higher value programs. Justification for FY 2004 Appropriations— Departmental Summary Page I 2 TIE Treasury's FY 2004 budget request continues the Department’s recent accomplishments and highlights Treasury’s commitment to: Ensure that the tax system is fair for all through a comprehensive compliance effort Increase Treasury’s efficiency and effectiveness by streamlining operations Serve a critical role in the financial war against terrorism Maintain the integrity of our Nation’s financial systems & safeguard our Nation’s currency : Treasury uses the principles of the President’s Management Agenda as a foundation for accomplishing not only these key priorities, but the overall mission and goals of the Department. Ensuri stem is Fair for All Supports the following Treasury Strategic Goal: v Collect Revenue Due to the Federal Government A cornerstone of Treasury’s mission is helping our citizens meet their tax responsibilities, while maintaining the fairness of the tax System for all and respecting taxpayer rights. This is the responsibility of the Internal Revenue Service, which manages the systems that collect most of the revenue needed to operate government. This responsibility entails: > Meeting the annual demands related to processing over 2.6 billion tax-related documents; > Sending out over 95 million tax refunds; > Providing quality service on taxpayer phone calls concerning tax law and account specific questions; and > Maintaining a balanced and comprehensive enforcement presence. Justification for FY 2004 Appropriations — Departmental Summary Page II Continuing to work toward their mission of “providing America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all,” the FY 2004 budget request for the Internal Revenue Service: 1. Focuses tax administration goals by directing new resources toward areas where dollar non-compliance is the highest while maintaining balanced reviews across all areas, ensuring tax legislation is applied fairly and equally to all taxpayers. 2. Provides an ongoing level of $35 million in FY 2004 for continued implementation of a health coverage tax credit program authorized by the Trade Act of 2002. - 3. Invests $429M to continue the momentum of the Business System Modernization effort for FY 2004, continuing to advance a key technological and business redesign effort, now in its fifth year of implementation. 4. Improves the collection of unpaid taxes through the utilization of private collection agents (PCAs). D Ensuring tax legislation is applied fairly and equally to all taxpayers. We need to improve voluntary compliance, which has been hovering at about 83% for over a decade. We collect another 3 percent through our own enforcement actions, which yield more than invested, but are more costly than collecting the taxes voluntarily. An additional concentration of IRS resources will enhance such voluntary compliance. High Income Taxpayers. The budget invests $133 million of new funding in FY 2004 to focus and target resources and staffing toward the most significant areas of non-compliance – particularly more examinations of high income non-compliance – resulting in more examinations of high-income taxpayers and businesses. It is anticipated that the number of audits in this category will rise from 93,000 in 2000 to 160,000 in 2004. • Although specific FY 2004 Tax Enforcement staffing is up 1,075 FTE over planned FY 2003 levels (and 1,637 FTE from FY 2002), overall IRS staffing has only risen 998 from FY 2002. This is due to a series of re-engineering efforts across all operations to identify lower-value programs and projects and re-directing resources from those operations to front-line, value producing ones. IRS is proposing a realignment of $166 million in similar types of savings and re-directions to accomplish this goal. Improving Effectiveness of the EITC Program. Issuance of erroneous payments has been a concern for the Earned Income Tax Credit (EITC) program since its inception. Unlike most other tax credits, the EITC is reimbursable, i.e., it is a payment. However, Justification for FY 2004 Appropriations — Departmental Summary Page III unlike with other federal benefit payment programs, there is essentially no eligibility verification before EITC payments are made. Therefore, any erroneous claims that are honored by IRS result in payments that require significant additional investment of Federal resources to recover, and have proven difficult to retrieve. Although IRS has been given additional enforcement authorities to fight EITC overpayments in the past, these authorities do not prevent them in the payments process. • Beginning in FY 2004, IRS will use an integrated approach to address potential erroneous claims before they are accepted for processing and before any EITC benefits are paid. • The FY 2004 President’s Budget requests an additional $100 million to correct deficiencies of the EITC program. IRS will dedicate 60% of their additional FY 2004 funds to begin using this integrated approach in cases that have been determined to have a high likelihood of error. The remaining 40% will be used to invest in the necessary infrastructure to allow full implementation of the integrated approach. D Continued Implementation of the Trade Act of 2002. In carrying out the provisions of the Trade Act of 2002 (P.L. 107-210), the Treasury Department, through the IRS, was chartered with establishing and implementing a new health coverage tax credit program. This program provides a refundable tax credit to eligible individuals for the cost of qualified health insurance for both the individual and qualifying family members. As part of the FY 2003 President’s Budget amendment, $70M was redirected from within existing funds for the start-up costs of this program. In FY 2004, the IRS budget proposes an ongoing level of $35M to continue implementation and operation of this new program. * - Continue the Momentum of the Business Systems Modernization Effort. The Internal Revenue Service is committed to providing excellent customer service and takes pride in the integrity of their systems. As a result, they are continually improving operations efficiency and performance by adopting best business practices and state-of-the-art technology. * This multi-year endeavor is providing IRS with the technological tools and revamped business processes needed to deliver first-class customer service to American taxpayers and to ensure that compliance programs are administered efficiently and fairly. • FY 2002 and FY 2003 have been key transition years for IRS Modernization efforts, as the foundation of our Nation’s tax System is being replaced, building a bridge to providing interactive and improved customer service. FY 2004 investments will build on those accomplishments. Justification for FY 2004 Appropriations — Departmental Summary Page IV • The Department's FY 2004 budget provides $429 million for the continuation of the Service's modernization effort in re- engineering business processes and developing new business systems to replace the antiquated and obsolete system. This amount compares to the FY 2003 amended level of $380M. • The original FY 2003 President's Budget level of $450M was amended to meet a $70M startup need in FY 2003 for a new health coverage tax credit authorized by the Trade Act of 2002. The FY 2004 budget restores this funding back to the BSM account. D Improve the Collection of Unpaid Taxes while Protecting Taxpayer Rights. During FY 2002, using the Program Assessment Rating Tool (PART), the Administration determined that the IRS Tax Collection program fails to collect a higher amount of taxes due and does not effectively enforce fair tax compliance. In fact, there is a large and growing inventory of identified cases where IRS still does not take further action. Therefore, the FY 2004 budget provides an initiative to use private collection agents (PCAs) to help collect such delinquent tax debts, allowing IRS to concentrate its enforcement resources on more complex cases and issues. PCAs have proven successful with over 40 states and other federal entities, such as the Student Loan program, in the past. - • By eliciting the assistance of PCAs, the IRS should eventually be able to handle more collection cases at an earlier stage in the process-- before the accounts become stale and uncollectible. • PCAs would hold no enforcement power and all taxpayer confidentiality protections and rights would apply, including the provisions of IRS Restructuring and Reform Act of 1998 (RRA 98). The IRS will closely monitor the activities and performance of the PCAs to ensure these protections are provided. El Regulatory and Legislative Proposals. Although the vast majority of taxpayers and businesses do their best to comply with the law, some actively promote or engage in transactions structured to generate tax benefits never intended by Congress. Such abusive transactions not only consume valuable IRS resources, but also erode the public's respect for the tax laws. The Administration has proposed a number of regulatory and legislative changes designed to significantly enhance the current enforcement regime and curtail the use of abusive tax avoidance transactions, working towards ensuring that the tax system is fair for all. - Advancing the IRS Mission. To continue to achieve their mission of “providing America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all,” the IRS Justification for FY 2004 Appropriations — Departmental Summary Page V has realized that organizational improvements and employee satisfaction lead to improved customer satisfaction. As a result, strategic objectives focus not only on the taxpayer, but also on the improvement of the bureau as a whole. • Through implementation of the IRS Restructuring and Reform Act of 1998 (RRA 98), the IRS has improved many of its customer service performance problems. • In FY 2003 and FY 2004, IRS will roll out the first two phases of a multi-year effort to replace their taxpayer database. This new database will allow accurate tax account answers on a real-time basis and will also allow the IRS to develop new approaches to simultaneously improve tax collection and taxpayer assistance. • The tax code appears to be an abominable monster to the everyday American citizen. IRS and Treasury continue to work with Congress to clarify ambiguities and confusing issues in the existing tax code. In reasing Trea. ’s Efficiency and Effe eness by Streamlining Operation Supports the following Treasury Strategic Goals: v Continue to Build a Strong Institution v Support the Achievement of Business Results FY 2003 and FY 2004 will serve as defining years for Treasury, as well as for the rest of the federal government, as 22 agencies are transferred to the new Department of Homeland Security. This massive reorganization has given Treasury the opportunity to reevaluate not only those efforts related to Homeland Security, but all remaining functions to streamline operations and increase Treasury's, and ultimately the federal government’s, efficiency and effectiveness. During the FY 2004 budget process, bureaus were required to go through a rigorous application process in which programs producing little or no value were eliminated and the funds for those programs were redirected to programs expected to produce results. This process has forced the bureaus to reevaluate their own operations and prioritize funding based upon those producing the highest value. Justification for FY 2004 Appropriations — Departmental Summary Page VI Homeland Security Divestiture D Pursuant to Public Law 107-296, the Homeland Security Act of 2002, certain law enforcement functions were transferred from Treasury Department to the Departments of Homeland Security and Justice, respectively, • The Federal Law Enforcement Training Center, the United States Customs Service, and the United States Secret Service were transferred to the Department of Homeland Security. - • The Bureau of Alcohol, Tobacco and Firearms was split, with those functions related to firearms, arson and explosives transferring to the Department of Justice. • The legislation also created a new bureau within the Treasury called the Alcohol and Tobacco Tax and Trade Bureau, which is charged with enforcing federal laws and regulations relating to alcohol and tobacco. D In addition to those accounts specifically laid out in legislation, through the FY 2004 budget process, other related accounts will be affected as well. - • Appropriations for the Counter-Terrorism Fund, whose major function is to cover unanticipated costs related to counter- terrorism efforts, have been requested in the FY 2004 budget for the Department of Homeland Security. • In a step to streamline funding and operations, the Inter-Agency Crime and Drug Enforcement (ICDE) account is proposed for transfer back to the Department of Justice. • Portions of the Departmental Offices, Department-wide Systems and Capital Investments Program (Wireless Radio Development Program) and Office of Inspector General accounts were transferred to the Department of Homeland Security in order to provide those transferring bureaus a continued level of service and seamless transition to the Department of Homeland Security. • In support of the portion of the Bureau of Alcohol, Tobacco and Firearms that is transferring to the Department of Justice, portions of the Departmental Offices and Office of Inspector General accounts will also be transferred to the Department of Justice. Justification for FY 2004 Appropriations — Departmental Summary - - Page VII Ll The transfer of the Federal Law Enforcement Training Center, United States Customs Service, United States Secret Service, a majority of the Bureau of Alcohol, Tobacco and Firearms, Counter-Terrorism Fund and Inter-Agency Crime and Drug Enforcement accounts represents nearly 90% of Treasury’s law enforcement mission and almost a third of Treasury’s total FY 2003 budget. U This reorganization is not only streamlining Homeland Security efforts, but it is also allowing the Department to concentrate on its core responsibilities as economic policymaker, financial manager and revenue collector, as well as focusing its law enforcement effort on fighting the war against terrorism on the financial front. Consolidated IG Function As a partial result of the transfer of nearly 70% of the Office of Inspector General account to the Department of Homeland Security and the Department of Justice, the FY 2004 President’s Budget proposes a consolidation of the Inspector General services at Treasury, the Office of Inspector General and the Inspector General for Tax Administration. D. The Office of Inspector General was created in 1978 by the Inspector General Act Amendments to oversee Treasury functions. D The Inspector General for Tax Administration was created as part of the Internal Revenue Service Restructuring and Reform Act of 1998 to oversee operations at the Internal Revenue Service. The combined Inspector General for Treasury will be responsible for providing oversight to the remaining Treasury bureaus. This amalgamation of the two oversight functions within Treasury represents the Department’s ongoing commitment to reduce duplicative efforts and improve the way the government conducts its business. Supports the following Treasury Strategic Goal: Y Combat Money Laundering and Other Financial Crimes The divestiture of nearly 90% of Treasury’s law enforcement mission provides Treasury the opportunity to place an even greater focus on their role in the financial war against terrorism. Treasury continues to play a critical role in combating terrorist finance by serving Justification for FY 2004 Appropriations — Departmental Summary Page VIII as Chair of the inter-agency Policy Coordinating Committee, which is responsible for coordinating the day-to-day development and implementation of policies to combat terrorist finance and provide policy analysis on terrorist finance issues. The three entities within Treasury responsible for combating terrorist financing are: the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC) and the Internal Revenue Service Criminal Investigation Division. The Financial Crimes Enforcement Network (FinCEN) fosters interagency and global cooperation and serves as a link between the law enforcement/intelligence communities and financial institutions and regulators in fighting domestic and international financial crime. D Their strategic analyses of domestic and worldwide money laundering developments, trends, and patterns provides U.S. policymakers a platform on which important decisions concerning terrorist threat can be made. - D. FinCEN works toward these ends through information collection, analysis, and sharing, as well as technological assistance and innovative, cost-effective implementation of the Bank Secrecy Act (BSA) and other Treasury authorities. U FinCEN continues to support Operation Green Quest, the FBI’s Terrorism Financing Operations Section, the Policy Coordinating Committee Action Group on Terrorist Financing, and the National Money Laundering and Terrorist Financing Strategy of 2002 (formerly the National Money Laundering Strategy). D FinCEN’s FY 2004 funding level reflects a significant increase over their FY 2003 President’s Budget level. This increase will allow FinCEN to: - • Improve information sharing between the financial services and law enforcement communities and enhance their ability to provide useful information to these entities regarding trends, patterns, and issues related to suspicious financial transactions and other money laundering/financial crimes which fuel terrorism and other criminal activities; • Effectively administer additional requirements mandated by the USA Patriot Act of 2001 and subsequent regulatory requirements, including expanding the capacity to provide direct access to BSA data to meet increased demand; • Monitor the establishment of anti-money laundering programs in all financial institutions; Justification for FY 2004 Appropriations — Departmental Summary Page IX 5 • Expand the Bank Secrecy Act (BSA) to new industries and accelerate efforts to enable electronic filing of BSA data more efficiently through the Patriot Act Communications system; • Strengthen and expand mechanisms for the exchange of information globally to enhance the global fight against terrorism and money laundering that fuels criminal activities. The Office of Foreign Assets Control administers and enforces economic sanctions and embargo programs against targeted foreign governments and groups that pose threats to the national security, foreign policy, or economy of the United States. C] Consistent with President Bush’s November 7, 2001 address, the United States continues to attack terrorists where it hurts them the most – their bank accounts, - Since September 2001, Treasury's Office of Foreign Assets Control and our allies have frozen over $124 million in terrorist aSSetS. D Only days after September 11, 2001, OFAC was responsible for drafting and implementing Executive Order 13224, which invoked Presidential authority contained in the International Emergency Economic Powers Act and froze the assets of 29 entities and individuals linked to Osama Bin Laden and his Al-Qaeda network. Since then, 228 additional entities and individuals, most of them the result of OFAC research and investigation, have been designated as Specially Designated Global Terrorists under the Order. This designation and asset blocking process has served as the spearhead of the President's financial war on terrorism. The Internal Revenue Service Criminal Investigation (IRS-CI) Division specializes in analyzing complex financial information and determining whether that information is in violation of tax laws, money laundering laws, and the Bank Secrecy Act. In addition, IRS-CI is heavily involved with the Joint Terrorism Task Forces (JTTFs) and similar partnerships focused on disrupting and dismantling terrorist financing. Justification for FY 2004 Appropriations — Departmental Summary - Page X T Supports the following Treasury Strategic Goal: V Improve the Efficiency of Production Operations and Maintain the Integrity of U.S. Coins and Currency The Office of the Comptroller of the Currency serves as the Administrator of National Banks, chartering new banking institutions only after investigation and due consideration of charter applications and supervising existing national banks through the promulgation of rules and regulations for the guidance of national banks and bank directors. The Office of Thrift Supervision charters, regulates and examines Federal thrifts, cooperates in the examination and supervision of state-chartered thrifts and reviews applications of State-chartered thrifts for conversion to Federal thrifts. They also review applications for the establishment of branch offices. - The Financial Management Service will continue to improve the quality of Federal financial management, fully implement debt management services operations, modernize Government-wide accounting and reporting infrastructure, and progress toward an all- electronic Treasury. The Bureau of the Public Debt will continue its management and vital support to applications and systems used for Federal borrowing and debt accounting, re-enforcing its mission of providing quality debt management services to financial institutions, individuals, foreign governments, and over 200 Government trust funds. The activities of the United States Mint and the Bureau of Engraving and Printing, along with the health of our Nation's economy, are jointly responsible for ensuring that our nation’s currency retains its status as the world's most accepted currency. The United States Mint, under its funding provisions for both investment and operations, responds to the needs of retail commence by producing a reliable supply of coinage, including the newly designed fifty state commemorative quarters. Equally important, the Mint will continue its major role in promoting national patriotic themes with collectable coins. The Bureau of Engraving and Printing is in the process of redesigning our Nation’s paper currency to counter the trend of computer generated counterfeiting. Building on past security features, the new design, known as NexGen, may begin circulation in the $20 note as early as Fall 2003, with the $50 and $100 note to follow 12 to 18 months later. Justification for FY 2004 Appropriations — Departmental Summary Page XI S Foundation or succes s-- the President’s Management Agenda Supports the following Treasury Strategic Goals: Support the Achievement of Business Results Improve Customer Satisfaction v Improve Employee Satisfaction V Cost-Effectively Finance the Federal Government's Operations v. Provide Accurate and Timely Financial Information and Support the Government-wide Implementation of Accounting Standards : Treasury continues to work toward becoming a results-driven, world class organization. FY 2002 served as a key year for Treasury in implementing the five initiative areas of the President’s Management Agenda. Accomplishments for FY 2002 include: Strategic Management of Human Capital – Treasury's vision for managing its human capital is to retain a diverse, high-caliber workforce – a workforce that places the right employees in the right place at the right time to fulfill the Department's global mission efficiently and effectively. The Department believes that high levels of satisfaction within the portfolio of Treasury employees will lead to enhanced service provided to the American citizen, thus yielding higher customer satisfaction from both stakeholders and service users. Departmental Offices has participated in a Gallup survey of all employees to serve as a baseline for measuring employee satisfaction. Most bureaus already participate in measuring employee satisfaction. Expanded Electronic Government – The Department is working toward building a comprehensive, citizen-centered IT infrastructure, Treasury is also encouraging increased participation by the bureaus in all 24 of the e-government initiatives across Treasury. Specific efforts in FY 2002 and FY 2003 include: D The Internal Revenue Service has made significant progress towards achieving the Congressional goal of having 80% of all tax and information returns filed electronically by 2007. During 2002, IRS partnered with the Free File Alliance, a consortium of private sector companies, to provide free Internet filing of 2002 federal tax forms and has also provided functionality to allow taxpayers to check the status of their refund on the web. Free Tax Filing is a premier IRS e-gov initiative. Progress is currently underway to improve other parts of the Internet-based system, including providing online employer identification numbers. D In FY 2002, the Financial Management Service issued 73% of all payments (666 million of 919 million) by electronic funds transfer. FMS also collected 79% ($1.8 trillion of $2.27 trillion) of all federal receipts electronically. Justification for FY 2004 Appropriations — Departmental Summary Page XII CŞ Cl In 2002, the Bureau of Public Debt introduced the TreasuryDirect system, by which retail investors can purchase electronic Series I inflation-indexed savings bonds. This is the first step toward the Bureau’s goal to convert all savings bond holdings to paperless form. U HR Connect is Treasury’s first enterprise-wide application, a web-based human resources solution that has fundamentally transformed the standard HR service delivery model by putting information, services and processes directly in the control of managers and employees. HR Connect provides standardized information with results-driven decision-making capability, fully supporting the technological benchmark for true government-wide HR reform under both the E-gov and Human Capital initiatives of the PMA. Operating in eight bureaus (including IRS), HR Connect will continue to provide services to those bureaus transferring to the Department of Homeland Security and the Department of Justice. . Improved Financial Performance – Treasury acts as principal custodian of the revenue collected and debt issued on behalf of the Federal Government. In order to fulfill this responsibility, the Department is working to streamline financial management practices, develop sound costing methodologies, and integrate financial data with performance data. As best in government, Treasury has set the standard for the rest of government, with all of its bureaus now closing their financial statements within 3 days after the close of each month and within 45 days after the end of each year. This availability of real-time data has brought the Department up to speed with the private sector and has enabled bureau and Department management to make results-driven decisions, instead of spending the majority of time aggregating data. Budget and Performance Integration — Treasury is dedicated to the fiscal stewardship of each congressionally authorized dollar by linking investments with specific, measurable results. Integrating performance information into the budget decision-making process allows agencies to more directly focus their resource decisions on strategies and programs that produce desired results. D During the FY 2004 budget process, bureaus were required to go through a rigorous application process in which programs producing little or no value were eliminated and the funds for those programs were redirected to programs expected to produce results. D. Also, in FY 2002, Treasury issued its first combined Performance and Accountability Report. The pairing of these two reports provides annual data for both internal and external stakeholders to assess Treasury’s performance in a timely manner and allows decision-makers to base their decisions on recent and reliable data. Justification for FY 2004 Appropriations — Departmental Summary Page XIII T Competitive Sourcing – The Department is committed to evaluating the merits of its internal efforts, by understanding competitive sourcing options — migrating to those outsourced options when it produces the most value for the American people based on cost and value, while retaining those specific functions that are inherently governmental. As a result of the Department’s expertise in this area, it has been sought after as a consultant by many agencies within federal government including NASA, Department of Agriculture, Department of Transportation and the State Department. The Department will identify opportunities to integrate other elements of the PMA into competitive sourcing and will work toward the ultimate competitive sourcing objective by identifying new potential targets for A-76 studies. Specific accomplishments for the Department in FY 2002 include: C Completed competitive sourcing studies on 192 FTE through direct conversion or streamlined studies. G Identified, planned and commenced on-going studies on 6,071 FTE throughout the Department. D Developed and implemented a web-based automated Federal Activities Inventory Reform (FAIR) Act inventory data collection system that enabled Treasury to submit the FAIR Act inventory to OMB early. Treasury was the first Department across government to submit the inventory. Justification for FY 2004 Appropriations — Departmental Summary Page XIV C. DEPARTMENT OF THE TREASURY FY2004 President's Budget Summary By Function (dollars in thousands) ºº - º- - -- ++ - - --- º -FY2003 - - - º ry flºº º --- º less Net Em ºss º º - President's Transfer ºr ever Tºwnsfºrº Budgetº º º º º --- sºlº º - º - - - - -- - Tax Administration $9,474,604 - 59,474,654 59,915.353 - º sia,335,541 internal Revenueservice: operations 8,923,011 - 8,923,011 9,319,853 - 9,319,853 9,721,374 Business Systems. Modernization 405,593 - 405,593 380,000 - 380,000 429,000 Earned income Tax Credit Compliance 146,000 - 146,000 146,000 - 146,000 251,167 Health insurance Tax Credit administration - - - 70,000 – 70,000 35,000 - - —l - |Enforcement & Collections st,049.860 ($821,747) $228,113 $1,081.868 (s343,775). $238,093 ###| Bureau of Alcohol, Tobacco and Firearms 854,747 (854,747 - 883,775 (883,775, - - Alcohol and Tobacco Tax and Trade Bureau - 73,000 73,000 - 80,000 80,000 80,000 Financial Crime-Enforcement Network 47,537 - 47,537 50,517 - 50,517 57,571 Interagency Crime and Drug Enforcement (OCDETF) 107,576 - 107,576 107,576 - 107,576 - Counter-Terrorism Fund 40,000 (40,000 - 40,000 (40,000 - - Financiaſº Fiscal service operations. T $465,803 *L T5465,553 $479.831 - –LºsſD $453,304 financial Management Service 198,850 - 198,850 220,712 - 220,712 228,606 Bureau of the Public Debt 186,953 - 186,953 191,119 - 191,119 173,698 Community Development Financial Institutions Fund 80,000 - 80,000 68,000 – 68,000 51,000 |- - - Management - $457,004 ($30,951) s376,053 $471.1.05 (556.35|| $354,154 $380,290 Salaries and Expenses 177,142 (30,500 146,642 191,914 (30,500 161,414 166,875 AirTransportationstabilization Program 9,400 - 9,400 6,041 - 6,041 2,538 Treasury Building & Annex Repairs & Restoration 28,932 - 28,932 32,932 - 32,932 25,000 Department-widesystems & Capital investments Program 68,828 (25,935 42,893 68,828 (31,93 36,893 36,928 Expanded Access to Financial Services 2,000 - 2,000 2,000 - 2,000 - International Affairs Technical assistance 9,500 - 9,500 10,000 - 10,000 14,000 Inspector General for Treasury - - 134,949 office of Inspector General 35,424 (24,516 10,908 35,428 (24,516 10,912 - Treasury Inspector-General for Tax Administration 125,778 - 125,778 123.962 - 123,962 - - - - - HößLTEESTEYLEVEI silºil su,048,657 726 17 --sui-107,706 iſ FY2003 President's Budget was amended on January 7, 2003. For Treasury, the amendment included a shift in resources from the Business Systems Modernization account to a new Health Insurance Tax Credit effort in the amount of 7 $70M. 2. As a result of P.L. 107-296, portions of the Departmental Offices, Department-wide Systems and Capital Investments Program, Office of Inspector General ind Bureau of alcohol, Tobacco and Firearms accounts were transferred out of the Department of Treasury. The "Less Transfer" columns reflect the comparative levels of such a transfer for FY2002 and FY2003. Justification for FY 2004 Appropriations—Departmental Summary Page 1 5 DEPARTMENT OF THE TREASURY FY2004 Comparison of APPROPRIATIONS dº ESTIMATES FOR TREASURYBUREAUS (Dollars in thousands) º tº- FY2002 ry 2003 T FY2004_ - -- sacted Levelº Leº Transfer Net Emacted º: º Less Transfer *...* - *- * - departmental offices: Salaries and Expenses 177,142 (30,500 146,642 191,914 (30,500 161,414 166,875 Treasury-wide Financial Statements Audit Program (non-add)........ - - - 5,893 - 5,893 ---> AirTransportati bilization Program 9,400 - 9,400 6,041 - 6,041 2,538 Treasury Building and Annex Repair and Restoration 28,932 - 28,932 32,932 - 32,932 25,000 Expanded Access to Financial Services......... 2,000 - 2,000 2,000 - 2,000 departMent-wide systems-capital investments PROGRAM_ 68,828 (25,935 42,893 68,828 (31,935 36,893 36,928 Hr Connect (non-add) ------- 25.75 - 25.751 25-75/ - 25.75/ 25,989 Treasury Enterprisearch (non-add) 200 - 200 200 - 200 200 Critical Inſ (non-add) 7.993 - 7.993 8.993 -- 8.993 8,993 Integrated (Wireless) Treasury Network (non-add). 25,935 (25,935 - 31.935 (31,935 - - Critical Infrastructure (non-add- 8,746 - 8,746 1,746 - 1,746 1,746 Treasury Assets Management Information System (non-add) 203 - 203 203 - 203 - INspectors-General: Inspector General For Treasury - - - - - - 134,949 Office of Inspector General. 35,424 (24,516 10,908 35,428 (24,516 10,912 - Inspector General for Tax A 125,778 - 125,778 123,962 - 123.962 - Counter-TERRORISM FUND- 40,000 (40,000 - 40,000 (40,000 - - FiNANCIAL CRIMES-enforceMent network - 47,537 - 47,537 50,517 - 50,517 57.571 MoneyService Business Regulatory Program (non-add) 7,790 - 7,790 7,964 - 7,964 8.15.2 INTERAGENCY crime and drug-enforcement. 107,576 - 107,576 107,576 - 107,576 - FINANCIAL MANAGEMENT SERVICE- 198,850 - 198,850 220,712 - 220,712 228,606 BUREAU of Alcohol, tobacco ANDFIREARMs. 854,747 (854,747 - 883,775 (883,775 - - ALCOHOL AND tobacco tax and trade Bureau - 73,000 73,000 - 80,000 80,000 BUREAU of The Public deat- - 191.353 - 191.353 195,519 - 195,519 Maintenance Fee (4,400 - (4,400 (4,400 - (4,400 Subtotal, BPD 186,953 - 186,953 191,119 - 191,119 INTERNAL REVENUE service: Processing Assistance, and M 3,810,880 - 3.810,880 3,958,337 - 3,958,337 Tax Law E 3,542.89. - 3,542,891 3,729,072 - 3,729,072 Information Systems.- 1.569.240 - 1.569,240 1,632,444 - 1,632,444 Business Systems Modernization. 405,593 - 405,593 380,000 - 380,000 Eamed Income Tax Compliance................ 146,000 - 146,000 146,000 - 146,000 Health Insurance Tax Credit admini - - - 70,000 - 70,000 Subtotal, IRS.– ------------------------------------------ 9474,604 - 9,474,604 9,915,853 - 9,915,853 10,436,541 - TOTAL, TREASURY APPROPRIATION COMMITTEE-----. silºš7,771 (590 - sii ,726). SIO,939,931 $11,342,706 COMMUNITY development Financial institutions fund- 80,000 - 80,000 68,000 - 68,000 51,000 INTERNATIONALAFFAIRSTECHNICAL Assistance- 9,500 - 9,500 10,000 - 10,000 14,000 AL, TREASURYLEVEL.........…....…....…........….Hºsłł,447,271}ºſs?02. 544,573 $14,017,931 i 811,407,706 iſ FY2003 President's Budget was amended on January 7, 2003. For Treasury, the amendment included a shift in resources from the Business Systems Modernization account to a new Health Insurance Tax Credit effort in the amount of 2. As a result of P.L. 107-296, portions of the Departmental Offices, Department-wide Systems and Capital Investments Program, office of Inspector General and Bureau of alcohol, tobacco and Firearms accounts were transferred out of the Department of Treasury. The "Less transfer" columns reflect the comparative levels of such a transfer for FY2002 and FY2003. Just”ation for FY2004. Appropriations—Departmental Summary Page 2 G DEPARTMENT OF THE TREASURY FISCAL YEAR COMPARISON OF FULL-TIME EQUIVALENT STAFFING (Direct and Reimbursable) AL Transportation stabilization access to Financial General For of inspector GENERAL For tax BUILDING & ANNexrepair & crimes Enforcement Franchise MANAGeMent of Alcohol, tobacco AND - -- - AND tobacco tax And TRADE 15 559 of encraving And - 2,627 2,627 Mint - 2,610 2,610 of the Public -- 5 1,338 revenue service: Processing. Assistance and 42,917 Tax Law - 47,306 Information 7,996 Earned Income Tax _2,994 ins 101.213 of the currency of Thrift Development Financial inst. insurance 1/As a result of P.L. 107-296, portions of the Departmental offices, Department-wide systems and Capital Investments program, office of Inspector General and Bureau of Alcohol, Tobacco and Firearms accounts were transferred out of the Department of Treasury. The "Comparative Level" columns reflect the comparative levels of such a transfer for FY2002 and FY2003. Justification for FY 2004 Appropriations—Departmental Summary Page 3 º DEPARTMENT OF THE TREASURY FY 2004 President's Budget Summary of FY2004 Increases and Decreases (Dollars in thousands) P.L. 107-296 Non-Recurring Costs - Operations Non-Recurring Costs. Capital Investments Matntain Current Levels of Service Special MCLs Pay Annuafizations initiative Annualizations Transfers in Transfers Out Justification for FY 2004 Appropriations — Departmental Summary Page 4 C DEPARTMENT OF THE TREASURY FY 2004 PRESIDENT'S BUDGET EXPLANATION OFFF 2004 INCREASES AND DECREASES $$$ in thousands Direct FTE Adjustment for P.L. 107-296 (Homeland Security Act of 2002) (930,726) (4,983) Bureau of Alcohol, Tobacco & Firearms (non-add) (803,775) (3,526) Departmental Offices (non-add) (30,500) (226) Department-wide Systems and Capital Investments Program (non-add) (31,935) 6 Office of Inspector General (non-add) (24,516) (195) Counter-Terrorism Fund (non-add) (40,000) {} EVISED FY2003 LEVEE (Net of Transfers), sº sº. . . . º Maintaining Current Levels: Mandatory Cost increases 228,243 0. Pay & Benefits (non-add) F81. A 27 {} Non-pay (non-add) 47,046 {} Special MCLs - 992 0. Pay Annualizations - 60,946 O Initiative Annualizations (Primarily related to the USA Patriot Act) 2,591 8 9nº-Time Costs Savings: ATSB Non-recurring Administrative Costs (3,503) (2) ARS Non-recurring Costs Associated with the Health Insurance Tax Credit (35,000) TBARR Non-recurring Costs of Building Repairs and Renovations (7,932) O Propºsed Transfers: Æð Transfer of Previously Reimbursable Funding (446) 0 FINCEN Continue Activities Related to Intelligence Support of Terrorist Financing 446 5 ICDE Transfer to Justicc (107,576) 0. JG Transfer to Homeland Security (15) 0 IG Transfer to Justice (40) (? : º $11,156,637. Program Initiatives: CDFW Increased Administrative Costs 1,751 3 DO Terrorism Insurance Program O 4 DSCIP HR Connect 35 0. FINCEN Improve Government-wide Data Access Scrwice 845 | FINCEN Maintain Pre-Scpt iſ Workload/Meet USA Patriot Act Mandates 1,206 9 FMS Indian and Tribal Trust Fund Litigation 2,000 0 ‘IATA . Technical Assistance Program increase 4,000 {} IRS Customer Service 739 10 IRS Compliance 132,869 ł,700 IRS Counter-fcryorism p 5,860 24 IRS Business Systems Modernization 49,000 0 IRS Earned Income Tax Compliance initiative 100,000 650 Program Reductions: *- BPD Paper Savings Bond Marketing Efforts (22,400) (145) CDFI CDFI Grant Level (19,000) 0. EXP Expanded Access to Financial Services Program (2,000) (1) IG Audit - (2,611) (32) IG Investigations (1,225) (15) 0 (1,496) IRS Re-engineering Efforts . . . . . . . . . $11,497,706 . . . . fú5964 FººtºSIDENTSBUDGET REQUEST’sº Justification for FY 2004 Appropriations — Departmental Summary Page 5 DEPARTMENT OF THE TREASURY Full Cost of Retirement Benefits Comparison (Dollars in Thousands) ‘. . . . . . . . . . * , ". . . . . . . ." ‘. . . . . & A. ... " " . . . ...- . . . . - * , , , ,' ' ' " . . . * & . ...Sº yº" " " : " . . . . . . ' ' ' ' ' ". . . ! } * , * - , ; * v- ' ' ', " . . . . . . " " ' ' '... . . : , - ++-ºs- x * h a v . . * * * * * * * -- | 1 ' ' ' ". . . . . . . . . . . . . . . . . . . . . . . * - # - : PPROPRIATED ACCOUNTS ' ". . . . .” ºf ... . . . " . . . . . . . . . - - 4- - - a • * ~ * \ * * -- - - -- a t t * - r - f : * * * ax. . . * * * - ... . . . . º. * * * * , * " ; , , , • * * ... -- . . .”. ...; ... . . . . . . " ' " : ". 2 : 1 -? - * * * • * - l ..'. t - • * * 1 - 1. ... " * * * **; , ; ; , , . . . . . . . ." . . . • , , , . " ... • x - • * - r i - FY2002. -i- FY2004. DEPARTMENTAL OFFICES INSPECTOR GENERAL FORTREASURY.. TREASURY BUILDING & ANNEX REPAIR & RESTORATION FINANCIAL CRIMES ENFORCEMENT NETWORK................. FINANCIAL MANAGEMENT SERVICE ALCOHOL AND TOBACCO TAX AND TRADE BUREAU BUREAU OF THE PUBLIC DEBT. INTERNAL REVENUE SERVICE: Processing, Assistance, and Manag Tax Law Enforcement Earned Income Tax Compliance it. Information Syst Subtotal, IRS tº e º a º g º 4 s e 5,697 9,189 77 1,459 10,471 2,753 8,415 172,091 243,910 7% 41,665 6,098. 9,622 82 1,772 11,191 2,934 ...] 191,490 259,286 8,346 43,413 6,510 10,271 88 1,892 11,946 3,132 9,253 204,416 27&s: 8,909 46,343 465,606 502,535 536,456 $503,667, ToTAL, Treasury Appropriation Committee … . . . . $542,902 º, $579,548. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND 223 255 272 * -- --- ~~ tº re- rºrs r". .......' 'º';*: , ſ: " ' ". . . . . . . . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTA LiſHEASURY.LEVE,WELºis. J 3. issºsses sessessessia ... . . s: J. : - . . . . . . . * * , tº ". . . . . ; ...] §§503890, : 3543,157. ; : S579,820: Justification for FY 2004 Appropriations — Departmental Summary Page 6 bº) C º DEPARTMENT OF THE TREASURY TOTAL FUNDING LEVELS IN THE FY 2004 PRESIDENT'S BUDGET (dollars in millions) FY 2002 FY 2003 FY 2004 % Enacted Request Request Inc/Dec. ANNUAL APPROPRIATIONS 10,545 11,018 11,408 3.5% INTEREST PAYMENTS: Interest on Public Debt 332,537 328,316 352,335 7.3% Refunding Internal Revenue Collections, Interest 4,208 3,219 2,689 - 16.5% Interest on Uninvested Funds 6 8 6 -25.0% Interest Paid To Credit Financing Accounts 4,276 3,787 3,812 0.7% Restitution of Foregone Interest 183 0 - 0. 0.0% Federal Interest Liabilities to States 6 4 6 50.0% Subtotal, INTEREST PAYMENTS 341,216 335,334 358,848 7.0% TRUST FUNDS & OTHER FUNDS: Federal Financing Bank 51 52 63 21.2% Payment to Resolution Funding Corp 675 1,191 1,707 43.3% Check Forgery Insurance Fund 0 3 3 0.0% Payment to Terrestrial Wildlife Habitat Restoration Trust Fund....................... 5 5 5 0.0% Air Transportation Stabilization Program Account 172 506 3 -99.4% U.S. Mint Revolving Fund 13 0 0. 0.0% Subtotal, TRUST FUNDS & OTHER FUNDS 9I6 1,757 1,781 1.4% PERMANENT ALTHORITY APPROPRIATIONS: Presidential Election Campaign Fund 67 67 67 0.0% Terrorism Insurance Program 0 8 9 12.5% Sallie Mac A A. 0 ... I | 0.0% Continued Dumping and Subsidy Oſfset.................................................. 312 321 331 3.1% Treasury Forfeiture Fund 178 221 {} -100.0% Debt Collection Special Fund 35 28 30 7.1% Claims, Judgments & Relief Acts 1,850 921 935 1.5% Federal Rcserve Bank Reimbursement by — FMS 84 135 536 297.0% BPD 131 133 131 -1.5% Government Losses in Shipment l i 0 -100.0% Collection of Taxes for Puerto Rico by -- TTB 341 355 364 2.5% IRS New and Existing Fees 70 70 70 0.0% IRS Informant Payments 9 3 3 0.0% IRS Private Collection Agencies 0 0 2 100.0% Payment where Child Credit exceeds liability for tax............................................... 5,060 6,170 6,937 12.4% Payment where EITC exceeds liability for tax 27,826 30,606 31,375 2.5% Payment where failing School Credit exceeds liability for tax................................. 0 0 213 100.0% Payment where Health Care Credit exceeds liability for tax................. O 4 212 5200.0% Subtotal, PERMANENT AUTHORITY APPROPRIATIONS,....................... 35,964 39,044 41,216 5.6% OFFSETTING COLLECTIONS -18,054 -18,058 -20,897 15.7% OTHER ADJUSTMENTS -13 -14 -15 TOTAL, DEPARTMENT OF THE TREASURY 370,574 369,081 392,341 6.3% Justification for FY 2004 Appropriations — Departmental Summary - Page 7 § IRS Oversight Board FY 2004 Budget Request for the Internal Revenue Service In accordance with the Internal Revenue Service Restructuring and Reform Act of 1998, the IRS Oversight Board has reviewed and approved a budget proposal for FY 2004 that supports the IRS Strategic Plan. This proposal has been forwarded to the Office of Management and Budget and is hereby transmitted, without changes, to the Congress for its consideration. FY 2003 - $000 DIRECT FTE REIMB FTE Plan FY 2004 BASE CHANGES Levels FY FY 2004 PROGRAM CHANGES and Reinvestments: & Reinvestments Customer Investments B Justification for FY 2004 Appropriations — Departmental Summary Page 8 § HIGHILIGHTS OF FY 2002 PERFORMANCE Treasury continued to work toward achieving its strategic goals and improving service to the American public. The following summarizes Treasury’s efforts in accomplishing the FY 2002 performance objectives, both successes and continuing challenges. More detailed information on Treasury’s performance can be found in Treasury’s FY2002 Performance and Accountability Report. Economic Mission: Promote Prosperous and stable American and world Economies Stimulating Economic Growth. In the domestic economic arena, Treasury contributed to growth enhancing policies through analysis and proposals for tax-relief and other stimulus measures. Real Growth Domestic Products (GDP) grew 3 percent over the past year. This growth was achieved in spite of effects of the terrorist attacks and, in large part, due to the passage of tax relief in the spring of 2001. In March 2002, additional stimulus measures were passed designed to boost employment and capital spending. - Responding to Terrorist Attacks – Terrorist Insurance. Given the on-going threat of terrorist attacks, the inability to obtain adequate insurance brought many building plans to a halt. Treasury led the Administration's efforts in crafting and negotiating the terrorism risk insurance components of the Terrorism Insurance Bill, the passage of which was a major goal of the Administration. Under the enacted Terrorism Risk Insurance Act of 2002, Treasury will play a lead role as the administrator of the terrorism risk insurance program, including issuing implementing regulations, calculating and making Federal payments, recouping amounts as required and conducting certain insurance industry studies. - Economic Development Abroad. President Bush launched a new development initiative, the Millennium Challenge Account (MCA) in March 2002, to substantially increase U.S. development assistance beginning in FY 2004. Treasury worked with other agencies to design an efficient and effective administrative structure for the MCA, creating a logical process by which specific projects and/or programs will be selected, and identify objective criteria to measure progress. The goal of the MCA is to reward sound policy decisions that support economic growth and reduce poverty. *-* Tax Collection. The following summarizes IRS’ FY 2002 performance. • Pre-Filing Programs. IRS is focusing on how to better assist taxpayers in understanding their tax obligations. Significant progress in this area will lead to reduced filing errors and increased productivity in downstream tax administration processes. Although IRS only met 33 percent of its targets for FY 2002, 67 percent of the indicators exceeded FY 2001 performance levels. - Justification for FY 2004 Appropriations — Departmental Summary Page 9 Ş. • Filing Programs. Overall, 43 percent of the indicators met FY 2002 targets, and 71 percent exceeded FY 2001 performance. IRS’ aggressive marketing program enabled electronic-filing performance to continue to exceed goal, and IRS projects continued progress in 2003 and beyond as the agency works towards 80 percent electronic-filing by 2007. Demand for toll free phone services increased dramatically due to several new tax programs. While the level of service did not meet the target in FY 2002, service was up from 2001. Quality of service improved significantly as a result of improved call routing and employee training. - • Post-Filing (Compliance Programs). Although 50 percent of indicators in this area met FY 2002, 57 percent of their performance targets exceeded FY 2001 levels. Enforcement revenue increased over 2001 for an annual total of $33.9 billion. Performance targets were missed in Automated Collection Site (ACS) programs. Contributing to the lower performance levels were: (1) the suspension of some activities to ensure proper treatment of taxpayers affected by the September 11, 2001, terrorist attacks, and (2) an unexpected increase in non-ACS telephone calls, diverting resources from Automated Call Collection work. Issuing Payments. As an essential part of the U.S. economy, Treasury issued approximately 920 million payments to more than 100 million individuals and businesses, totaling over $1.2 trillion. Whether recipients of Social Security or Veterans’ benefits, income tax refunds, vendor payments, annuities, or salaries, making payments to American citizens accurately and on time is of considerable financial importance. Treasury’s payments were on time and accurate 100 percent of the time. Non-Tax Delinquent Debt. As a result of continued improvement in FMS’ Debt Management Program, collections of non-tax delinquent debt again exceeded Treasury performance goals. For FY 2002, the target for collecting delinquent debt was $2.6 billion. FMS achieved collections of more than $2.8 billion. Government's Cash Management. The Government’s cash position, budget surplus, and deficit information were reported on schedule and accurately 100 percent of the time in the key Treasury publications. For the fifth consecutive year, the Financial Report of the U.S. Government, including the Government’s consolidated financial statements was issued on time, although it continued to receive a disclaimer of opinion. Cash and Debt Management. Treasury developed a comprehensive contingency plan for cash and debt management business processes to provide current and timely cash and debt position information to key Treasury officials during a crisis situation. This plan includes the establishment of a real-time back- up site and the creation of a delegation of authority covering cash and debt management functions in the event key personnel are unable to perform them. n: safeguardour Financial systems, protect our Nation's Leaders, and secure a safe and Homeland Security Legislation. Treasury assisted in developing the proposal to create a new Cabinet-level Department of Homeland Security. Included in the President's plan was a transfer of the U.S. Customs Service and U.S. Secret Service to the new Department. Subsequent legislation also includes the Justification for FY 2004 Appropriations — Departmental Summary - Page 10 S. transfer of the Federal Law Enforcement Training Center to the new Department and the law enforcement portion of the Bureau of Alcohol, Tobacco and Firearms to the Department of Justice. Global Efforts to Combat Terrorist Financing. At the direction of the President, Treasury launched the financial front in the war on terrorism and took the lead in global efforts to combat the financing of terrorism. Treasury successfully pursued international cooperation to combat terrorist financing on a global scale, working multilaterally with the G-7, the G-8, the G-20, the international financial institutions, and the Financial Action Task Force under the Organization for Economic Cooperation and Development. Treasury also worked bilaterally with individual countries to block the financing of terrorist networks, freeze terrorist assets, and criminalize the collection of funds for terrorism. Treasury established a task force on terrorist financing to keep track, account-by-account, dollar-by-dollar, of all countries’ efforts. Treasury also reached out to foreign governments allied in the war on terrorism to provide assistance to identify and immobilize terrorist assets pursuant to United Nations directives. Operation Greenquest. This operation is a multi-agency, Customs-led Treasury initiative designed to stamp out terrorist funding by identifying, disrupting, and dismantling the financial systems and infrastructures that terrorist organizations use to fund their work. In FY 2002, Greenquest initiated 859 financial investigations involving suspected terrorist financing and referred 1,109 leads on potential terrorist financial activities to domestic and foreign offices. The Operation’s financial investigations resulted in 47 arrests, 28 indictments, and the seizure of $7.3 million. Operation Oasis, a Customs outbound bulk currency initiative coordinated by Operation Greenquest, has resulted in total seizures of $18.6 million worth of smuggled currency and monetary instruments resulting in 397 seizures. Economic Sanctions. After September 11, 2002, the role of Treasury’s Office of Foreign Assets and Control (OFAC) in fighting terrorist financing expanded greatly through the issuance of Executive Order (E.O.) 13224, which broadened the scope of previously existing OFAC authority with respect to supporters of terrorism, and the passage of the USA PATRIOT Act (PATRIOT Act), which substantially enhanced the usefulness of classified material and provided a wide array of other enforcement tools. These programs prohibit transactions by persons subject to U.S. jurisdiction with, and block the property of, targeted governments and listed entities and individuals. A total of 243 entities and individuals have been designated under E.O. 13224 since it was signed on September 23, 2001. Drug Interdiction. Increased enforcement efforts in Mexico and changes in smuggling patterns are but two factors likely to have been instrumental in cocaine and marijuana seizure levels being below FY 2002 projected levels. Initially, the heightened state of alert resulting from the September 11, 2001, terrorist attacks increased drug seizures at the border. This in turn however, may have forced changes in smuggling methodologies and trends. Customs enforcement efforts are both a catalyst in forcing that change and an end result toward meeting the challenge of the changing patterns. Justification for FY 2004 Appropriations — Departmental Summary - Page 11 § Management Improvements. In managing our own resources, Treasury completed its first-ever Human Capital Strategic Plan, achieved an unqualified audit opinion for the third year in a row, reduced the number of material weaknesses by 31 percent, and improved management of capital investments. Performance Management. The Department met 69 percent of its 203 quantifiable performance measures, exceeding our previous year's performance for or maximizing performance for 56 percent of the measures. The Performance Scorecard at the end of this section highlights results of several key performance indicators. Financial Highlights. As with FY 2000 and FY 2001, Treasury received an unqualified audit opinion on its FY 2002 financial statements. In addition, the FY 2002 statements are being issued forty-five days after year-end, more than three months earlier than the FY 2001 statements. Furthermore, the overall improvements made in the financial reporting process have enabled bureau budget offices to provide timely monthly financial information to our management and meet the ongoing challenge of preparing quarterly and annual financial statements in a reasonable timeframe comparable to the private Sector. Treasury aggressively pursued implementing the goals of the President’s Management Agenda (PMA) and integrating those goals into the management of its operations during FY 2002. Below is a summary of activities to achieve those goals. w Strategic Management of Human Capital. Treasury's vision for managing its human capital is to retain a diverse, high-caliber workforce – a workforce that places the right employees in the right place at the right time to fulfill the Department's global mission efficiently and effectively. Accomplishments for FY 2002 toward this vision include: - • Development of the Department's Human Capital Strategic Plan in consultation with the bureaus. The Plan was recently implemented at the bureau level, and the Department held workshops to assist the bureaus gain a better understanding of the Plan's objectives. • Establishment of four Human Capital Leadership Groups each comprised to increase the bureaus' involvement with Departmental Human Capital management. Leadership Groups assist one another in the planning and implementation process, share innovative ideas and best practices, and evaluate each others’ progress in meeting the PMA objectives through a dissertation-style rating process. Justitication for FY 2004 Appropriations – Departmental Summary Page 12 Competitive Sourcing. Treasury’s Competitive Sourcing team continues to provide support for IRS and other Treasury bureaus' competitive sourcing initiatives. Accomplishments for FY 2002 include: - Holding two Government-wide competitive sourcing conferences attended by over 1,100 professionals. The second conference was the first conference addressing the link between competitive sourcing and human capital. Treasury also held a Department-wide conference providing an overview of the competitive sourcing process. Producing intellectual capital on competitive sourcing for the A-76 Institute and Performance Institute as well as writing articles published in Federal Times. Treasury provided consulting services and expertise to NASA, Department of Agriculture, Department of Transportation and State Department. w Providing FMS, Mint, DO, Customs, ATF and IRS with consulting services on selected competitions. Through September 30, 2002, Treasury completed studies on 192 full time equivalents (FTEs) and commenced several full studies at IRS, Mint and the BEP. Improved Financial Performance. Treasury’s financial performance vision is for every financial management system to be in compliance with all Federal financial management systems requirements, providing timely, accurate, informative data for both day-to-day management and external reporting purposes. The Department will fulfill this vision by streamlining financial management practices, developing sound costing methodologies, and integrating financial data with performance data. Accomplishments for FY 2002 include: On time delivery of the Department's FY 2001 financial statements to OMB and Congress with an unqualified audit opinion, and on-time delivery of interim financial statements to OMB. Successful implementation of the 3-day close initiative during FY 2002. Each Treasury bureau is now able to close its books within 3 days after the close of each month and forward its summary financial data to the Department’s data warehouse for consolidation and analysis. Reduced material weaknesses from 29 at the beginning of FY 2002 to 20 as of year-end. IRS has consolidated five closely related material weaknesses into one under "Modernization, Information Technology & Security (MITS) weakness. Similarly, FMS has combined three Government-wide Consolidated Financial Statements weaknesses into one. Both have obtained the concurrence from TIGTA and GAO, respectively. Despite our accomplishments, we need to continue striving to correct our remaining material weaknesses, which prevent us from being in compliance with Section 4 of the Federal Managers' Financial Integrity Act (FMFIA) and also with Federal Financial Management Improvement Act (FFMIA). We also have several instances of noncompliance with laws and regulations, as described in the Inspector General's in Part 3, which we are working to address. Justification for FY 2004 Appropriations — Departmental Summary - Page 13 & The Department will continue to build upon its successes in data quality and timeliness and reduction of material weaknesses. Key areas of focus in FY 2003 will include integrating financial and performance data with the support of the CFO Council's Cost Accounting and Labor Distribution Committee, and improving levels of compliance with FFMLA, FMFIA and Government Information Security Reform Act (GISRA). Expanded E-government. Treasury’s E-government vision is to deploy and manage assets and services, which ease the burden on citizens, businesses and other government organizations conducting business with the Department. Accomplishments for FY 2002 include: • Expanded Financial Management Services’ Pay.gov collections initiative. The Department has entered into an agreement with OMB to make the Pay.gov authentication service available Government-wide. - • Launched a Web-based tax refund application. • Agreed to establish free Internet tax filing for low-income citizens. Budget and Performance Integration. Budget and performance integration is vital to Treasury’s vision of providing high-quality products and services to citizens, businesses and other governmental organizations. Budget and performance integration also accelerates Treasury’s progression to a world-class, citizen-centered, results-oriented organization. The Department will formulate and commit resources based on program performance, which improves the Department’s delivery of services by making program performance information the foundation for Treasury’s daily decision processes. Accomplishments for FY 2002 include: • Formulation of Treasury's FY 2004 budget and performance plans that better aligned resources with Treasury's strategic priorities. The Department utilized a process of reviewing base resources, provided a well-defined process for program requests, and presented budget requests programmatically. • Establishment of a Treasury CFO Council committee to address cost accounting and performance integration. Just"cation for FY 2004 Appropriations — Departmental Summary + - Page 14 § PROGRAM ASSESSMENTRATING TOOL (PART) In order to improve program performance goals for the FY 2004 budget and to identify areas in need of management attention, OMB created the Program Assessment Rating Tool (PART). The purpose of the PART is to measure and assess program performance; evaluate programs in a systematic, consistent and transparent manner; frame and inform agency and OMB decisions; focus program improvements, and measure progress. PART accomplishes this by utilizing a set of questions designed to assess program performance in four areas: : - Purpose – to assess whether the program design and purpose are clear and defendable. º - Strategic Planning – to assess whether the agency has set valid annual and long-term goals for the program. - Program Management—to rate agency management of the program, including financial oversight and program improvement efforts. - Program Results – to rate program performance on goals reviewed in the strategic planning section and through other evaluations, -- OMB and Treasury evaluated 10 Treasury programs during FY 2002. Of the 10 programs, 3 were rated effective, 2 were rated . adequate, 1 was rated ineffective and 4 were unable to demonstrate results. A summary of the results for each program is included in the pages that follow. Justification of FY 2004 Appropriations — Departmental Summary - * - Page 15 3. Program: A7F Consumer ProductSafety Activities Agency; Department of the Treasury Bureau; Bureau of Aſcohol, 70bacco and Frearms Purpose Planning Management Results / Accountability |V. Measures Adequate [...] New Measures Needed [...] Results Achieved [...] Results Not Demonstrated Aey Performance Measures Year Target Actual Long-term Measure: 2003 10% The percentage of Certificate of Label Approvals issued, by Initiating electronic application and approval procedures 2008 75% (New measure for 2004) Long-term Measure: Measures under development Annual Measure: Measures under development Rating: Adequate Program Type: Regulatory Program Summary: This program protects the public against contaminated alcohol products. It does this by verifying the content of alcohol products and evaluating the claims on the product labels. Under the provisions of the Homeland Security Act of 2002, the Consumer product safety activities and alcohol and tobacco excise tax collections of the ATF are being removed from the ATF and established as the Alcohol and Tobacco Tax and Trade Bureau in the Department of the Treasury. The program assessment indicates the overall purpose of the program is clear, and the program has demonstrated results based on its historical performance measures. However, the current measures do not sufficiently capture the impact of the program's performance on public safety. - In response to these findings the Alcohol and Tobacco Tax and Trade Bureau will: 1. Refine performance measures to more accurately reflect the goals and achievements of the program. 2. Establish clear guidelines and procedures to insure that goals are very specific. Establish written guidelines and supporting documentation for all aspects of the program. Program Funding Leve/ (in miſſions of doſſars) 2002 Actual 2003 Estimate 2004 Estimate 21 - 23 - 23 Justification for FY 2004 Appropriations — Departmental Summary Page 16 sº Program: Bănk Enterprise Award Agency: Department of tile Treasury Bureau: Departmental Offices Purpose Planning Management Resuits / Accountability 0 100 [] Results Achieved by Measures Adequate Results Not Demonstrated [...] New Measures Needed Rey Performance Measures Year Target Actual Long-term Measure: 2003 4,930 Jobs in underserved communities created or maintained by businesses financed by BEA Program applicants - 2004 4,930 (New measure adopted in 2003) Long-term Measure: - 2003 612 Commercial real-estate properties financed by BEA Program applicants that provide access to essential 2004 612 community products and services in underserved Communities (New measure adopted in 2003) Annual Measure: 2003 391 Number of affordable housing units in underserved communities whose development or rehabilitation is financed by BEA Program applicants 2004 391 (New measure adopted in 2003) Rating: Results Wot Demonstrated Program Type: Competitive Grants Arogram Summary: The Bank Enterprise Awards (BEA) Program offers financial awards to banks that participate in community development activities. Such activities include supporting community development financial institutions, financing affordable housing and economic development projects, and the provision of financial Services. The assessment indicates that while there is some evidence that BEA awardees use awards to reinvest in community development initiatives, program results are hard to measure because it cannot be determined how awardees would behave in the absence of the program. Additional findings include: 1. The program purpose is clear, but design limitations hamper the program's effectiveness. Under the current structure, it cannot be determined if banks participate in community development activities because of regulatory requirements (under the Community Reinvestment Act) or because of the money provided by the awards program. Thus, the results of the program cannot be determined until the Fund collects additional data. 2. In the last year, the program has developed new outcome-oriented goals and has taken steps to collect additional data on program results. However, as the award is for past performance, there are no prospective performance requirements on how awardees spend award funds. This prevents the Fund from ensuring that program awardees commit to the long-term goals of the program. 3. The program is efficiently managed. In response to these findings, the Budget proposes to: 1. Reduce the funding for the BEA until statutory changes to the authorizing legislation are made that would clearly distinguish this program from the mandates of the Community Reinvestment Act and would insure that award funds are spent on community development activities. - Program Funding Leveſ (in millions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 23 17 8 Justification for FY 2004 Appropriations — Departmental Summary Page 17 § Program: Coin Production Agency: Department of the 77aasury Aureau: United States Mint Purpose Planning Management Results / Accountability KZ Results Achieved Measures Adequate [] Results Not Demonstrated […] New Measures Needed Aey Performance Measures Year Target Actual Long-term Measure: 2001 199% Reduction in the controllable costs of circulating colnage from a 1997 baseline of $10.27 per 1000 coins 2005 15% Controllable costs exclude the costs of metals which vary considerably with market conditions. (Targets being refined) Long-term Measure: 2001 85% Federal Reserve Board Customer Satisfaction survey (Average rating out of one hundred, based on surveys of 2002 85% Federal Reserve officials) Long-term Measure: 2002 $11.00 $8.69 Conversion costs per 1,000 coln equivalents This measures production cost efficiency. 2003 $10.25 2004 $9.75 Rating: Effective Program Type: Direct Federa/ Program Summary: The United States Mint makes coins for use as legal tender. This assessment of the Mint found that the Mint has established performance measures focused on customer satisfaction and improving cost efficiencies. Additional findings include: 1. The Mint needs to improve customer satisfaction survey scores. 2. The Mint has shown some efficiency improvements in achieving reduced manufacturing costs (19 percent reduction since 1997). The Mint is implementing a series of reforms to address these findings. These reforms include: 1, Reducing the maintenance down time of coin manufacturing machinery. 2. Competing customer service and order mailing staff to determine if contractors could handle these functions more efficiently. 3. Establishing a performance target to reduce the time required to process raw materials into finished goods. Program Funding Leveſ (in millions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 827 946 971 Just”“ation for FY 2004 Appropriations — Departmental Summary Page 18 § Program: Farmed Income 7ax Credit (EITC) Compliance Agency: Department of the Treasury Bureau: Interna/ Revenue Service _l I I º Purpose . . . 100 Planning łºś Management § §§§ 69 Results / 10 Accountabliity 0 100 [...] Measures Adequate R7 New Measures Needed [] Results Achieved [...] Results Not Demonstrated Mey Performance Measures Year Target Actuaſ Long-term Measure: 1997 24 to Percent of EITC dollars paid that should not have been paid 26.9% This means that more than one dollar in four paid under 1999 27 to EITC should not have been pald. 3.20% (Targets under development) Annual Measure: - - 2001 $1,169 Revenue protected, i.e., dollars incorrectly claimed by taxpayers that IRS either did not pay or later recovered ($ in billions) (Targets under development) Annual Measure: - 2001 453,947 EITC returns audited 2002 || 413,331 || 437,799 Rating: Ineffective Program Type: Direct Federa/ Program summary: The Earned Income Tax Credit (EITC) Compliance Initiative is intended to reduce erroneous payments of the Earned Income Tax Credit. It is run by the Internal Revenue Service (IRS). This assessment indicates the EITC compliance initiative has failed to reduce EITC erroneous payments to acceptable levels. -- 1. IRS has a strong planning process closely linked to its budget process, but it has not yet used this outcome information to set performance targets that allow it to demonstrate results. - 2. While IRS prevents roughly $1 billion in erroneous EITC payments per year, annual data reveals that 27 to 32 percent of all EITC payments were still made in error in tax year 1999. The magnitude of this error rate compels a rating of "ineffective." - 3. IRS has made numerous management improvements in recent years. However, its financial management systems remain weak, Treasury formed a Task Force in the spring of 2002 to recommend solutions to the EITC high error rate. The Budget provides a $100 million increase for the following initiatives recommended by the Task Force to improve EITC compliance. - 1. IRS will require high-risk EITC applicants to pre-certify that the children claimed on their return are really qualifying children under EITC. Incorrectly claimed qualifying children have been a major source of EITC error. High risk applicants will be - identified through databases such as the Federal Case Registry (information on child custody) and by focusing on taxpayers with characteristics linked to high error rates in compliance studies (e.g., relatives other than parents who claim a child for EITC purposes). 2. IRS will delay refunds on returns deemed to be high risk for filing status or income errors while agents take action to resolve cases. High-risk returns will be identified by researching taxpayer historical compliance and by requiring new information on EITC returns. Note these initiatives will reduce EITC audits as resources are focused on correcting errors earlier in the process. Program Funding level (in millions of dollars) 2003 349,000 002 Actual 2003 Estimate 2004 Estimat 2004 || 364,000 146 146 251 Justification for FY2004 Appropriations—Departmental Summary Page 19 § Arogram: Internationa/Development Association Agency. Department of the Treasury Bureau: International Affairs Purpose Planning Management Resuits / Accountability 0. - 100 V. Measures Adequate [I] New Measures Needed Year Target Actua/ [...] Results Achieved [I] Results Not Demonstrated Aey Performance Measures Long-term Measure: 2015 100% Universal primary education (Ensure that by 2015 children everywhere will be able to complete a full course of primary schooling) Annual Performance Measure: - 2002 58% Measles immunization rate (New measure) 2004 60% Indicator of progress in health Annual Performance/Effidency Measure: 2002 81 Reduction in number of days required for business start-up (New measure) 2004 75 Indicator of progress In private sector development Rating: Adequate Program Type: Block/Formula Grants Program Summary: The International Development Association (IDA) is part of the World Bank. It provides both long-term zero-interest loans (so-called "concessional" lending) and grants to the poorest developing countries to finance investments in health, education, sanitation, and infrastructure. The assessment primarily indicates that IDA lacks a system to measure, monitor, and evaluate overall results. Therefore, it is difficult to determine if IDA funding is having any measurable effect, and this difficulty is reflected in the Accountability/Results score. However, the recently concluded agreement to replenish the resources of IDA -- the IDA-13 replenishment agreement -- calls for the establishment of such a system. The agreement also identifies six pre-existing and widely-used indicators to serve as annual performance measures to track IDA's progress in health, education, and private sector development. Additional findings include: 1. IDA is not the only provider of concessional lending. Other regional development banks have very similar programs. 2. The poorest developing countries should not borrow more money than they can afford to repay. IDA should provide more grants than it currently does. 3. The World Bank manages the IDA program well on a project-specific level. The successful establishment of the measurable results system will allow IDA to track its progress in meeting development objectives across the board. In response to these findings: 1. By signing on to the IDA-13 replenishment agreement, the U.S. committed to provide $850 million annually for the next three year (2003 through 2005). The Administration is also requesting $27 million in 2004 to clear some of the $73 million in arrears that the U.S. owes IDA. 2. The Administration will request an additional $100 million for IDA in 2004 if IDA meets specific performance benchmarks and an additional $200 million for IDA in 2005 if IDA makes satisfactory progress in the areas of health, education, and private sector development. 3. The Administration will continue to press IDA and other donors to increase the amount of grants that IDA provides. Program Funding Leve/(in miſſions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 792 874 977 - Justification for FY 2004 Appropriations — Departmental Summary Page 20 3. Program: IRS Tax Collection Agency: Department of the Treasury Bureau: Interna/ Revenue Service T II. I I Purpose ** " . . . . . . . . . . . . . . --> 100 Planning - - Management Results / Accountability 0 100 [...] Measures Adequate RZ New Measures Needed Year Target Actual [...] Results Achieved RZ Results Not Demonstrated Rey Performance Measures Long-term Measure: Measure under development Rating: Results Wot Demonstrated Program Type: Direct Federa/ Program Summary: The Internal Revenue Service (IRS) Collection program collects known delinquent taxpayer liabilities (tax debts). This is distinct from IRS audits which determine how much a taxpayer owes. Collection agents contact taxpayers through notices, phone calls and personal visits to secure payments. If necessary, collection agents can use liens, levies or seizures, or refer taxpayers for criminal prosecution. Tax revenue is necessary to finance government operations, and the Collection program is necessary to the success of tax enforcement. However, the assessment indicates that the Collection program needs improvements. Additional findings include: 1. Collection yields substantial revenue ($18 billion in 2001). However, IRS does not work enough collection cases with its current resources, work processes and technology to ensure fair tax enforcement. Each year IRS falls to work billions of dollars worth of collection cases. 2. IRS has made numerous management improvements in the last several years, including implementing good output measures. However, it's financial management systems remain weak. 3. IRS has a strong planning process closely linked to its budget process. However, it has not yet developed collection outcome measures or goals. The Administration is working on several efforts to improve collection performance. 1. The Budget includes a legislative proposal to allow IRS to hire private Collection contractors to secure payment in some cases. The legislation includes strong taxpayer rights protections. The contractors will be paid from receipts based on actual Collections. 2. The Budget includes funding for 537 new collection employees. 3. Reengineering and technology modernization efforts are ongoing to introduce risk- based approaches to target specific taxpayers with the most effective collection procedure (i.e., notice, phone call, or field visit). (For more information on this program, please see the Department of the Treasury chapter in the Budget volume.) Program Funding Leve/ (in miſſions of dollars) Annual Measure: 2001 846,800 || 757,392 Taxpayer Delinquent Accounts case closures (field cases) These are cases where taxpayers have not paid known tax 2002 804,085 || 724,430 debts, 2003 714,000 2004 769,000 Annual Measure: 2001 86% 84% Field Collection Quality (Percent of cases meeting strict standards for process and 2002 85% 84% treatment of taxpayers) 2003 87% 2004 89% 2002 Actual 2003 Estimate 2004 Estimate 923 967 1,038 Justification for FY 2004 Appropriations — Departmental Summary Page 21 3. Program: OCC Bank Supervision Agency: Department of the Treasury Bureau: Comptroffer of the Currency Purpose Planning Management Results / º Accountability Fº 0 V Results Achieved [...] Results Not Demonstrated Rey Performance Measures Measures Adequate [...] New Measures Needed Year Target Actuaſ Rating: Effective Arogram Type: Regulatory Program Summary: The Office of the Comptroller of the Currency (OCC) mission is to ensure a safe and sound and competitive national banking system. OCC charters and is the primary federal regulator of national banks. It is responsible for examining the financial records of banks and for maintaining the integrity of the Bank Insurance Fund (FDIC deposit insurance). - The assessment indicates that the program contributes to the safety and soundness of the banking industry. For example, a key performance indicator shows that more than 95% of banks regulated by the OCC have strong ratings in 2002 which incorporate measures for: capital, asset quality, management competence, earnings, liquidity, and sensitivity to market risk, commonly known as CAMELS. Additional findings include: 1. The program purpose is clear. 2. The program goals are outcome-oriented and program measurements are clear. 3. The program is efficiently and effectively managed. 4. The program is not unique in that other agencies, including the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Federal Reserve Bank (FRB), perform similar types of regulatory functions in the banking industry. In response to these findings: 1. Federal banking regulatory agencies, including the OCC, the OTS, the NCUA, the Federal Reserve, and the FDIC, will work together to align outcome goals and related measures to allow for greater comparison of program performance in the industry. Arogram Funding Level (in millions of dollars) Long-term Measure: 2001 90% 94% Percentage of National banks with high ratings according to industry standards (composite CAMELS rating of 1 or 2) 2002 90% 95% (Performance measure was adopted in 2002) 2003 90% 2004 90% Annual Measure: 2001 40% 44% Percent of problem banks rehabilitated, as measured by industry standards 2002 40% 47% (Performance measure was adopted in 2002) 2003 40% 2004 40% Annual Measure: 2001 95% 98% Percent of national banks that are well capitalized (Performance measure was adopted in 2002) 2002 95% 99% 2003 95% 2004 95% 2002 Actual 2003 Estimate 2004 Estimate 413 435 454 Justºration for FY 2004 Appropriations — Departmental Summary Page 22 9; Program: Office of Foreign Assets Contro/ (OFAC) Agency: Department of the Treasury Bureau: Departmenta/ Offices . . 100 100 Purpose Planning Management Results / - Accountability . 0 [...] Results Achieved D Measures Adequate Results Not Demonstrated New Measures Needed Rey Performance Measures Year 7arget Actuaſ Long-term Measure: Measures under development Annual Measure: - Timely development of trade sanction programs (New measure, targets under development) Annual Measure: Compliance with US trade Sanctions (New measure, targets under development) Rating: Results Wot Demonstrated Program Type: Direct Federa/ Program Summary: Treasury's Office of Foreign Assets Control (OFAC) develops and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers. For instance, OFAC and our Allies were responsible for blocking over $124 million in terrorist assets worldwide since September 2001. The assessment indicates the overall purpose of the program is clear, but unit cost measures are lacking. Additional findings include: - . 1. OFAC lacks long-term performance goals with specific targets, which makes it difficult to determine whether or not outcome goals are achieved. 2. The program has not yet instituted annual performance goals to determine the effectiveness of OFAC Sanctions. The program is implementing a series of reforms designed to address these findings. These reforms include: 1. Developing long-term performance goals with specific timeframes and measures. 2. Adopting annual performance goals and aligning them with the long-term performance goals. Program Funding Leveſ (in miſſions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 26 22 22 Justification for FY 2004 Appropriations — Departmental Summary Page 23 & Program: O7S 7/hrift Supervision Agency: Department of the Treasury Bureau: Office of Thrift Supervision Purpose Planning Management Results / ºś93 Accountability : Fº-ººººººººººººººº. Measures Adequate [...] New Measures Needed Year Target Actual KZ Results Achieved [] Results Not Demonstrated Aey Performance Measures Rating: Effective Program Type: Regulatory Program Summary: The Office of Thrift Supervision (OTS) charters, examines, supervises and regulates thrift institutions and savings associations. The assessment indicates that the program contributes to the safety and soundness of the banking industry. For example, a key performance indicator shows that more than 90% of banks regulated by the OTS have strong ratings in 2002 which incorporates measures for: capital, asset quality, management competence, earnings, liquidity, and sensitivity to market risk, commonly known as CAMELS. Additional findings include: 1. The program purpose is clear. 2. The program recently developed new goals that are outcome-oriented and program measurements which are clear. 3. The program is efficiently and effectively managed. 4. The program is not unique in that other agencies, including the Office of Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Federal Reserve Bank (FRB), perform similar types of regulatory functions in the banking industry. In response to these findings: Long-term Measure: 2002 90% 90% 1. Federal banking regulatory agencies, including the OTS, the OCC, the NCUA, the . with . 3. ; 2 0. Federal Reserve, and the FDIC, will work together to align outcome goals and related *::::: . dopted in º of 1 or 2) 2003 90% measures to allow for greater comparison of program performance in the industry. o 2. The OTS will evaluate the efficiency and effectiveness of a single examination for 2004 90% both Safety and Soundness and Compliance functions. 3. The OTS will take steps to examine long-term systemic risks in the industry. Long-term Measure: 2002 90% 92% Thrifts with consumer compllance ratings of 1 or 2 (Performance measure was adopted in 2003) 2003 90% 2004 90% Annual Measure: 2002 95% 98% Percent of thrifts that are well capitalized (Performance measure was adopted in 2003) 2003 95% 2004 95% Program Funding Leveſ (in miſſions of doſſars) o 2002 Actual 2003 Estimate 2004 Estimate 163 168 168 Justification for FY 2004 Appropriations — Departmental Summary Page 24 § Program: Treasury Technica/Assistance Agency: Department of the Treasury Bureau: International Affairs Purpose Planning Management Results / Accountability [...] Measures Adequate RZ New Measures Needed Year Target Actual [T] Results Achieved Results Not Demonstrated Key Performance Measures Long-term Measure: Measures under development Annual Measure: 2001 3 3 Number of countries in which tax administration agencies will initiate substantive changes to reorganize on a functional basis (Better targets under development) Annual Measure: Measures under development Rating: Results Not Demonstrated Program Type: Direct Federa/ Program Summary: This program provides technical assistance to developing countries to help them reform the way they budget, tax, enforce financial laws, and manage government finances. - Findings from the PART Assessment include the following: 1. The program scored well for program design and management. Program managers at the Office of Technical Assistance (OTA) closely collaborate with advisors Implementing programs and with countries receiving assistance to ensure well- designed projects and effective use of funds. 2. Strategic planning is the area most in need of management attention. OTA has a limited number of long-term performance goals. However, these goals are not linked to measurable achievements, do not identify clear targets towards which to manage OTA's resources, and do not establish a timeframe for completion. 3. The absence of quantifiable long-term performance measures makes it difficult for OTA to justify how a particular funding level will help achieve results. 4. While annual performance goals are delineated, the absence of quantifiable long- term goals makes annual progress difficult since it cannot be measured against a long- term baseline. Furthermore, annual goals should be more ambitious, since most are usually achieved by 100 percent. 5. The low score in the results section is due primarily to the fact that the program has not yet developed adequate performance measures and targets. This makes it Impossible to hold the program accountable for achieving results. In response to these findings OTA managers will improve strategic planning by developing quantifiable annual and long-term performance measures and targets in 2003. Program Funding Leveſ (in millions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 7 10 14 Justification for FY 2004 Appropriations — Departmental Summary Page 25 5 Performance Measures for Purposes of Compliance with the Government Performance and Results Act (GPRA) In the FY 2003 Annual Performance Plan and the FY 2004 Proposed Annual Performance Plan a range of performance measures and metrics information is provided to best enable judgments of the request and performance. These measures have been classified as: (S) Strategic outcome/results oriented measures, (O) Operational measures dealing with outputs, (W) Workload measures which relate inputs of work required, and (CS) for customer service standards per Executive Order 12862 “Setting Customer Service Standards”. This information is located in the “Program Performance Annual Performance Goals, Measures, Indicators and Informational Table” included in both Volume 1 and Volume 2, and provides a linkage between the budget and performance sections. For purposes of compliance with GPRA, and the Annual Performance Report which it requires, Treasury designates the “Strategic” measures as the official reportable GPRA measures as they best demonstrates results or outcomes. is Departmental Offices, Salaries and Expenses TABLE OF CONTENTS VOLUME 1-PERFORMANCE BUDGET STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET....................................................... EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of Fiscal Year 2003 and Fiscal Year 2004 Digest Sheet * * * * * * * * * * * * * * * * * * * * * s = Summary of FY 2004 Increases and Decreases Explanation of Fiscal Year 2004 Budget Increases and Decreases.............................................................. SUPPORTING MATERIAL Detail of Full-Time Equivalent Position by Category is tº e s is e & & sº e e s tº e º & © tº tº e < * Detail of Full-Time Equivalent Position by Grade. Standard Classification Schedule: Direct Obligation Appropriation Language Sheet and Justification of Language Changes Display of Enforcement Policies and Program S&E – 6 S&E – 7 S&E – 8 S&E – 18 S&E – 19 S&E – 20 S&E – 21 S&E – 22 § Departmental Offices, Salaries and Expenses SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT | STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN T Departmental Offices (DO) serve as the headquarters bureau for the Department of the Treasury. DO provide leadership in critical areas that affect domestic and international economics, and general management of the Treasury Department. In order for Treasury to lead the country and the world to more prosperous and stable economies, and collect the revenue due the government, DO needs adequate resources to achieve these goals. The attached budget and performance plan outlines the DO’s FY 2004 resource requirements and associated performance targets. The level proposed for FY 2004 meets core DO needs and supports the key components of the President’s budget strategy for FY 2004 that are so important to the Administration and the American people. This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Departmental Offices (DO) and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The mission of DO mirrors the three-part mission of the Department of the Treasury: Economic Mission: To Promote Prosperous and Stable American and World Economies Financial Mission: To Effectively Manage the Government’s Finances Management Mission: To Continue to Build a Strong Institution On November 25, 2002, the President signed into law legislation to create the new Department of Homeland Security (DHS). The legislation unites the efforts of several government agencies under one roof to prevent terrorist attacks within the United States, reduces America’s vulnerability to terrorism, and minimizes the damage from potential attacks and natural disasters. In March 2003, the United States Secret Service (USSS), United State Customs Service (USCS) and the Federal Law Enforcement Training Center (FLETC) will become part of DHS. In January 2003, the Bureau of Alcohol, Tobacco and Firearms (with the exception of the alcohol and tobacco tax and trade functions which will remain at Treasury) was transferred to the Department of Justice. 2/3/03 & DO SE - 1 § Departmental Offices, Salaries and Expenses The Department's Office of Enforcement provides policy and oversight to the transferring bureaus and this function will be transferred to Headquarters’ operations at DHS largely in concert with its bureaus. As part of the reorganization, Treasury will retain its leadership and policy role in combating terrorist financing, money laundering and other financial crimes, and oversee operations of the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (OFAC), and the new Bureau of Alcohol and Tobacco Tax and Trade. As necessary, mission statements, strategic goals, and performance measures will be amended following the divestiture and transition work at the Department. In FY 2004, OFAC will continue to administer and enforce economic and trade sanctions against targeted foreign countries, terrorists and terrorism sponsoring organizations, and international narcotics traffickers based on U.S. foreign policy and national security goals. Funding for OFAC efforts will sustain the President's ongoing worldwide financial war against terrorism implemented under EO 13224; implement the Foreign Narcotics Kingpin Designation Act ("Kingpin Act"), restore the capability to research and designate targets under OFAC's country programs (e.g., Iraq, Tran, Libya, North Korea, Sudan, etc.); and institutionalize OFAC's public transparency initiatives, as recommended by the congressionally-mandated Judicial Review Commission ("JRC"). - - In FY 2003, the Department plans to establish an Administrative Law Judge (ALJ) Office to conduct administrative hearings that arise from violations of the Trading with the Enemy Act, primarily alleged violations of the Cuban Assets Control Regulations, 31 CFR, Part 51 5. Most hearings will involve allegations of violations of the prohibitions against engaging in transactions relating to unauthorized travel to Cuba. In this new role, DO will continue to formulate and oversee implementation of domestic and international finance, tax, economic, and management policies of both the Department and of the Federal government. These responsibilities include: Recommending and implementing U.S. domestic and international financial services, and economic, tax, and fiscal policy, Managing the development of financial policy on the public debt; Overseeing the fiscal operations of the Federal government; Representing the U.S. on international monetary, trade, and investment issues; Overseeing Treasury’s overseas operations and major regulatory functions relative to international trade and depository institutions; Maintaining foreign assets control; and, • Setting policy, directing and overseeing bureaus and programs, and managing the internal management operations of the Department. The table below shows how DO’s strategic and performance goals are linked to the Department’s strategic goals and objectives. Since DO is fully covered by the Treasury-wide strategic plan (and does not have a separate strategic plan), the strategic goals and objectives follow the Department’s plan. 2/3/03 : DO SE - 2 † Departmental Offices, Salaries and Expenses * |RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE ANNUAL PERFORMANCE PLAN | Treasury and DO Strategic Goal | DO Performance Goals Linked to Strategic Goals Activity I: Economic Policies and Programs Maintain U.S. Leadership on Global Economic Issues Monitor economic activity and support programs optimizing U.S. economic growth, so that it approaches the long-run potential growth rate estimated to be 3.1%. Promote Economic Growth and Sound Policies in Developing and Transitional Economies Strengthen International Financial Institutions that Promote Global Economic Stability and Support Developing and Transitional Economies Monitor the Global Economy and Promote International Economic Leadership through Cooperation on Economic Policy Facilitate Legitimate Trade, Enhance Access to Foreign Markets, and Enforce Trade Agreements Strengthen the Stability and Efficiency of Global Capital Markets and Promote and Sound Framework for International Investment Activity 2: Financial Policies and Programs Promote Domestic Economic Growth Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs Cost-Effectively Finance the Federal Government's Operations Finance the Federal Government in the Most Effective Manner Over the Long . Term Support the Achievement of Business Results Effective Oversight of the Bureau of Public Debt, Financial Management Service, and the Community Development Financial Institutions Fund Collect Revenue Due to the Federal Government Promote the Development and Implementation of Effective Tax Policies Activity 3: Enforcement Policies and Programs 2/3/03 DO SE - 3 5, Departmental Offices, Salaries and Expenses Treasury and DO Strategic Goal DO Performance Goals Linked to Strategic Goals Note: As part of the reorganization, Treasury will retain its leadership and policy role in combating terrorist financing, money laundering and other financial crimes, and oversee operations of the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (OFAC), and the new Bureau of Alcohol and Tobacco Tax and Trade. As necessary, mission statements, strategic goals, and performance measures will be amended following the divestiture and transition work at the Department, Activity 4: Treasury-wide Management Policies and Programs . Support the Achievement of Business Results Each bureau’s supervisory, managerial and SES individual performance plans include a measure for Human Capital and EEO accountability (i.e., leaders are held accountable for getting results cost-effectively in a way that is fair and equitable). Increase the use of alternative dispute resolution (ADR) and preventative techniques to improve the quality of the workplace Integrate Bureau Financial Data into a Department-wide Financial Analysis and Reporting System Improve the Quality and Timeliness of the Required Audit of Treasury-wide FY 2004 Financial Statements Reduce/Prevent Internal Control/Audit Resolution Open Items Ensure Compliance with FFMLA Ensure IT Investments Improve Program Performance and Facilitate Mission Goals Ensure non-IT Investments Improve Program Performance and Facilitate Mission Goals Expand A-76 competitions and provide a more accurate FAIR Act inventory Improve Computer Security Across the Department by Ensuring that All Treasury IT Systems are Certified and Accredited to Operate - Integrate Budget and Performance data to ensure that unit cost information available is to inform budget decision. Activity 5: Treasury-wide Financial Statement Audits 2/3/03 DO SE - 4 5 Departmental Offices, Salaries and Expenses Treasury and DO Strategic Goal | DO Performance Goals Linked to Strategic Goals Strategic Goals to be determined Activity 6: Office of Foreign Asset Control See note under Activity 3. | 2/3/03 DO SE - 5 5 Analysis of FY 2003 PRESIDENT's Budge T LEVEL 3: DIGEST OF FISCAL YEAR 2004 BUDGET ESTIMATES BY ACTIVITY 0 Amount $000 $191,914 0 U o 191,914 (28,000) (2,500) 161,414 Departmental Offices, Salaries and Expenses FY 2003 President's Budget........................... ---------------------------------------- -------- FY 2003 Amendment(s) -------------------------------------------------------------- Adjustments (+/-): Proposed transfers tomom Utner Accounts (list)............................. Reprogramming (FTE only, except for inter-appropriation transfers)..... FY 2003 Adjusted President's Budget Level, Plus/Minus Transfers..... Less Adjustment for Comparability with FY 2004 Request under Homeland Security Act............. Less Adjustment for Comparability with FY2004 Transfer to Department of Justice.......... FY2003 President's Budget Comparable with FY 2004 Request........... Dollars in Thousands : : 6. Office of Foreign Assel Control Adjustment for comparably with FY2004 Request under Homeland Security Act 2/3/03 following amo unts would be added: - º - - § . 1. Economic Policies and Programs 55,310 57,210 5,224 5,224 Economic Policy 44 6,230 6,363 44 7,660 - 1,297 - 1,297 International Affairs 239 39,995 255 41,355 255 44,861 - 3,506 3,506 Executive Direction 61 9,085 57 9,492 57 9,913 - 421 421 2. Financial Policies and Programs 259 41,515 265 42,716 265 49,242 - 6,526 - - 6,526 Tax Policy 125 20,887 132 21,366 132 24,611 3,245 - 3,245 Domestic Finance 88 13,877 87 14,192 87 15,492 - 1,300 - 1,300 Executive Direction 46 6,851 46 7,158 46 9,139 - 1,981 1,981 3. Enforcement Policies and Programs 127 25,918 130 28,952 - - (130) (28,952) - (129) (28,952) Enforcement Programs 83 19,328 86 21,755 - (86) (21,755) (85) (21,755) Executive Direction 44 6,590 44 7,197. (44) (7,197) (44) (7,197) 4. Treasury-wide Management Policies and Programs 187 34,567 198 35,491 102 29,951 (96) (5,540) - (97) (5,540) Management and CFO Programs 152 29,429 164 30,123 78 25,373 (86) (4,750) (87) (4,750) Executive Direction 35 5,138 34 5,368 24 4,578 (10) (790) (10) (790) 5. Treasury-Wide Financial Statement Audit 5,893 3,393 (2,500) (2,500) 21,652 203 203, DOSE-6 & Departmental Offices, Salaries and Expenses summary Expl Anations of Fiscal- YEAR 2004 REQUESTED CHAnces BY Activity (Dollars in Thousands) adjustments Necessary to Maintain current Levels: o 5,907 adjustment(s) to Allow for Transfer to/from other accounts in FY 2004: (130) (30,946) o 7,358 1. Re-direction of base resources: Departmental Offices will redirect FTE and funding within and across Budget Activities to remain within its request and meet program and customer needs. -- ing Costs: o o (96) (7,358) tº izāºš other changes: Other Adjustment: Program Reduction: 2/3/03 DOSE-7 § Departmental Offices, Salaries and Expenses Explanation of Fiscal Year 2004 Budget Increases and Decreases In FY 2004, funding requirements for the Departmental Offices are projected to be $166,875,000. Total increases of $5,907,000 are offset by $30,946 in reductions, resulting in a net decrease of $25,039,000 under the FY 2003 total funding level of $191,914,000. The associated FY 2004 FTE level of 860 is 226 under the level of FTE for FY 2003, Other Changes - Total Other changes (-$25,039,000/-226 FTE) 1. Adjustment Necessary to Maintain Current Level ......................................................................... ($5,907,000/0 FTE) 2. Transfer to another Account (-$30,946,000/-130 FTE) a. Departmental Offices transferred $446,000 previously reimbursable funding to FinCEN to continue activities related to intelligence support of terrorist efforts. b. Transfer $28,000,000 from the Enforcement Policies and Programs to the Department of Homeland Security. c. Transfer $2,500,000 from the Enforcement Policies and Programs to the Department of Justice. 3. Other Adjustment................................................................................................................... ($7,358,000/0 FTE) a. A re-direction of FTE and funding within and across Budget Activities to remain within the request and meet program and customer needs. 4. Program Reduction ...(-$7,358,000/-96 FTE) Reduction in the Enforcement Policies and Program activities and Treasury-Wide Management and Programs. 2/3/03 - DO SE - 8 3. Departmental Offices, Salaries and Expenses Budget Activity 1: Economic Policies and Programs The function of the Economic Policies and Programs Activity is to monitor macro and micro economic development, assist in determining appropriate economic polices and formulate and execute U.S. International economic and financial polices. • FY 2002 FY 2004 Performance Goals, Performance Measures, and FY 1999 FY 2000 FY 2001 FY 2003 P ed Indicators Performance Performance Performance Target Target ropos Performance Target Budget Authority ($000s) $45,097 $46,554 $52,906 $57,523 $55,310 $57,210 $62,434 Direct FTE 339 330 329 353 344 356 356 Economic Policies and Programs Performance Goals: B. Promote Economic Growth and Sound Policies in Developing and Transitional Economies C. Strengthen International Financial Institutions that Promote Global Economic Stability and Support Developing and Transitional Economies E. Facilitate Legitimate Trade, Enhance Access to Foreign Markets, and Enforce Trade Agreements F. Strengthen the Stability and Efficiency of Global Capital Markets and Promote the Sound Framework for International Investment D. Monitor the Global Economy and Promote International Economic Leadership through Cooperation on Economic Policy A. Monitor economic activity and support programs optimizing U.S. economic growth, so that it approaches the long-run potential growth rate estimated to be 3.1%. 2/3/03 Strategic Measures: A\. Rate of Domestic Economic Growth (GDP) (S) * 4.2% 4.3% .8% N/A 1.5% (ytd) >0 >0 *:::::::::::" in developing countries (rate 3.9% 5.3%u 4% GDP Growth GDP Growth GDP Growth GDP Growth Hºmº" in transitional economics 3.6% 4.9% 4.9% GDP Growth GDP Growth GDP Growth GDP growth DO SE - 9 9. Departmental Offices, Salaries and Expenses 2/3/03 . . - - * FY 2002 FY 2004 Performance Goals, Performance Measures, and FY 1999 FY 2000 FY 2001 FY 2003 Prome d . . . . . . Indicators Performance Performance Performance Target - . . . . . . . r e Target Performance g - Target 1.Economic conditions in foreign countries that are major U.S. trading partners and the global economic condition (rate of growth in GDP) (S * tº: g ) (S) 5.1% ;: 1.5% GDP Growth GDP Growth GDP Growth GDP Growth 2) European Union (Euro area), 2.6% 3.03. 1.5% GDP Growth GDP Growth GDP Growth GDP Growth 3) United Kingdom, 2.1% ...” 2.2% GDP Growth GDP Growth GDP Growth GDP Growth 4) Mexico 3.7% 6.6% –0.3% GDP Growth GDP Growth GDP Growth GDP Growth 5 Japan." 0.7% 2.2% –0.4% GDP Growth GDP Growth GDP Growth GDP Growth 6) China, 7.1% 8.0% 7.3% GDP Growth GDP Growth GDP Growth GDP Growth 7) Global economy 3.6% 4.7% 2.5% GDP Growth GDP Growth GDP Growth GDP Growth Operational Measures 1.Number of analyses and estimated products by DO (W) N/A N/A N/A N/A >450 ='02 =’02 2. U.S. meets current financing commitments and pays 5 451 $499 $533 all arrears to multilateral development banks (value of $33 $ $533 $355 $179 arrears in millions of dollars (O) 3. Value of U. S. exports of goods and services ($ in $957 $1,064 $1,000 Growth Growth Growth Growth billions) Revised 4. Level of U. S. direct investment abroad (billions of 1,131 $1,293 $1,382 Growth Growth Growth Growth dollars on historical cost basis) Revised * Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W) and Customer Service Standards (CS) DO SE - 10 § Departmental Offices, Salaries and Expenses Budget Activity 2: Financial Policies and Programs The function of the Financial Policies and Programs Activity is to monitor and provide advice and assistance to the Secretary in the areas of domestic finance, banking, other related financial matters, financial institutions, Federal debt finance, financial regulation, capital markets, community development of financial rograms and to develop and implement tax polices and programs. FY2000 | FY2001 200 FY 2003 Y 2004 Performance Goals, Performance Measures, and FY 1999 - - FY 000 - 2 0. FY20 2 . F . . . . . ry: . . . . . Indicators . . . . Performance Performance Performance Target Proposed . . . . . - - Target Performance Target Budget Authority sº $34,660 $36,301 $40,674 $43,283 $41,615 $42,716 $49,242 IDirect FTE 280 272 255 266 259 265 g 265 Financial Policies and Programs Performance Measures: A. Effective Oversight to the Bureaus of Public Debt (BPD) and Financial Management Service (FMS) B. Finance the Federal Government in the most Effective Manner Over the Long-Term. Strategic Goals: 1. Percentage of performance targets met by BPD º” g º 83% 90% 100% 90% 90% 92% 94% Operational Measures 1. Percent of borrowing policies and borrowing . requirements announced to financial market participants 100% 100% 100% 100% 100% 100% 100% in a timely manner. (O) 2/3/03 DO SE - 11 3. Departmental Offices, Salaries and Expenses Budget Activity 3: Enforcement Policies and Programs Functions (Customs, Secret Service, Federal Law Enforcement Training Center) within this activity are to be transferred to the Department of Homeland Security in March 2003. The Bureau of Alcohol, Tobacco and Firearms (with the exception of the alcohol and tobacco tax and trade mission areas which will remain at Treasury) was transferred to the Department of Justice in January 2003. - Performance Goals, Performance Measures, and FY 1999 ". ry wo - ry 2001 - . . . . fy in ºryzº ..º.º. . . . . - Indicators Performance Performance Performance . . . . . . Target Proposed - - - Target Performance 4 || || Target 2 Budget Authority ($000s) 1/ $17,836 $21,311 - $32,674 $47,255 $45,650 $50,604 n/a Direct FTE 145 177 177 256 256 267 n/a Enforcement Policies and Programs Performance Goals: A: Effective Oversight of Law Enforcement Bureaus. B. Deny Financing to Terrorist Organizations. Strategic Measures: 1. Percentage of all Performance targets met by - Enforcement Bureaus and major offices (USCS, ATF, 64% 77% 82% 85% 68% n/a 3/ USSS, FLETC, FinCEN, TFF) (S) - 1/ Final Budget Authority combine totals in Enforcement Policies and Programs and Office of Foreign Asset Control for all Fiscal Years except FY 2004 2/ Office of Foreign Assets Control totals are found in Budget Activity 6. 3/Measure discontinued due to transfers to Homeland Security and Department of Justice. 4/The FY 2002 Performance and Accountability Report show 69% in error. 34 targets out of 50 were met. 2/3/03 DO SE - 12 º Departmental Offices, Salaries and Expenses Budget Activity 4: Treasury-Wide Management Polices and Program The function of the Treasury-Wide Polices and Program activity is to develop and implement polices relative to the internal management of the Department and its bureaus as well as oversight of coinage and currency production and Security. - FY 1999 FY2000 ry 200 FY 2002 Eyzaga FY 2004 Performance Goals, Performance Measures, and renome Performance Performance - - ta let - Prop osed ... . . . . Indicators º Target Performance w Target Budget Authority (S000s) $24,742 $29,684 $33,711 $35,819 $34,567 $35,491 $29,951 Direct FTE 204 236 228 187 187 198 102 Treasury-Wide Policies and Programs — President’s Management Agenda Performance Goals: A. Each bureau's supervisory, managerial and SES individual performance plans include a measure for Human Capital and EEO accountability (i.e., leaders are held accountable for getting results cost-effectively in a way that is fair and equitable). Increase the use of alternative dispute resolution (ADR) and preventative techniques to improve the quality of the workplace Integrate Bureau Financial Data into a Department-wide Financial Analysis and Reporting System Improve the Quality and Timeliness of the Required Audit of Treasury-wide FY 2000 Financial Statements Reduce/Prevent Internal Control/Audit Resolution Open Items Ensure Compliance with FFMIA . Ensure IT Investments Improve Program Performance and Facilitate Mission Goals Ensure non-IT Investments Improve Program Performance and Facilitate Mission Goals Expand A-76 competitions and provide a more accurate FAIR Act inventory. Improve Computer Security Across the Department by Ensuring that All Treasury IT Systems are Certified and Accredited to Operate K . Integrate Budget and Performance data to ensure that unit cost information available is to inform budget decision. 2/3/03 DO SE - 13 3. Departmental Offices, Salaries and Expenses - FY 2002 FY 2004 Performance Goals, Performance Measures, and FY 1999 FY 2000 FY 2001 . 2003 Proposed Indicators Performance | Performance | Performance Target Performance arget Target Strategic Measures Percent of Programmatic Performance Targets Met (S) Operational Measures Al. Percentage of bureaus' individual performance plans for supervisors, managers, and SES members that 50% 75% 100% include a measure for Human Capital and EEO accountability. (o) B1. Percentage of EEO complaints and grievances for 15% 20% 25% which Bureau uses ADR (p) 10% 10% B2. Percentage decrease in EEO complaints (o) 7% Decrease º º eCreaSe CCIe3SČ C1. Percent of monthly financial submissions by 50% 90% 100% 84%- bureaus/reporting entities that are timely and contain 100% 100% 100% quality data (Management Challenge, President's Management Agenda º .: º Qualified/ | Qualified/ | Unqualified/ | Unqualified! | Unqualified/ | Unqualified/ | Unqualified/ - - 3. March 25 Feb. 29 March 1 Feb. 27 g November 15, 2003/Unqualified [i.e., a “clean” opinion]) arC e aſ C e Feb. 27 Nov. 15 Nov. 15 (President's Management Agenda) E1. Number of open material weaknesses (significant 49 32 28 15 management problems identified by GAO, the Igs and/or 15 8 5 the Bureaus). (President's Management Agenda) DO SE - 14 2/3/03 3. Departmental Offices, Salaries and Expenses F1. Percent of bureaus in compliance with the requirements of the Federal Financial Management 0. O o O d O O Improvement Act of 1996 (FFMLA) (Management 54% 54% 67% 77% 77% 86 % 86% Challenge, President's Management Agenda) G1. Percent of IT that are within costs, on schedule, and Establish Unmet (Data | Unmet (Data | Unmet (Data | *P** 100% 100% meeting performance targets (Management Challenge) Baseline not available) || not available) not available) available) H1. Percent of non-IT capital investments meeting costs, Baseli Baseline schedule and performance targets (Management 3.Seline not established TBD TBD Challenge) FY 1999 FY 2000 - FY 2002 FY 2004 Performance Goals, Performance Measures, and Performance | Performance ry 2001 FY 2003 Proposed Indicators Performance Target Performance Target Target Expand * * * Complete * competitive - sourcing º Or studies or irect - direct COIlveſ S10DS wº to encompass COITVCISIORTS I1. Percent of total eligible FTE competitively-sourced a full on at least (President's Management Agenda) (O) cumulative 15% of the total of 15% eligible FY ‘’." | 2000 FAIR of the eligible Act º Commercial ct Inventory. Commercial Inventory DO SE - 15 2/3/03 * 9. Departmental Offices, Salaries and Expenses J1. Percent of all Treasury IT systems that are currently certified and accredited to operate (Management Challenge) (o) 7% 15.5% 65% 65% 70% 80% K1. Percentage of Treasury budget/program activities that have output fully loaded unit cost information in the Annual Performance Budget (o) Baseline TBD 2/3/03 DO SE - 16 % Departmental Offices, Salaries and Expenses Budget Activity 5: Treasury-Wide Financial Statement Audits The function of the Treasury-Wide Financial Statement Audit is to provide resources for audits for Departmental Offices and Treasury bureaus. - - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Goals, Performance Measures, and * * - Indicators Performance Performance Performance Target Performance Target “” Proposed Target n/a n/a n/a n/a n/a Budget Authority($000)s $5,893 $3,393 Performance Goals: To Be Determined ** ** FY 2003 is the first year Treasury-Wide Financial Statements received budget authority. *** $2,500 of FY 2003 total is transferred to the Department of Homeland Security. Budget Activity 6: Office of Foreign Asset Control (OFAC) . OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign policy and national security goals against targeted foreign countries, terrorists and international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction. - - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Goals, Performance Measures, and . - - Indicators Perforinance Performance | Performance - Target Proposed - Target . . . . . . Target Performance Budget Authority($000)s $5,517 $6,112 $11,175 $19,732 $19,732 $21,652 $21,855 FTE 56 8 5 2 6 7 129 129 137 137 The table includes the budget request for dollars in FY 2004. This level of funding represents an increase of $203,000 above the FY 2003 President's budget level for maintaining current levels (MCL). 2/3/03 DO SE - 17 § tº: m s ices, sº ames a º == DETAIL of Ful-L-TIME Equival Ent starFYEARs BY CATEGORY Statutory executive positions........... 2/3/03 |Policy/program professional staff... ministrative staff. Ad DO Se-18 3 Executive Service Level 6 Executive Service Level 5... Executive Service Level 4 Executive Service Level 3 Executive Service Level 2... Executive Service Level 1.............................................................. DETAIL of Ful-L-TIME Equival Ent starFYEARS BY GRADE DOSE-19 Departmental Offices, Salaries and Expenses 2/3/03 2. sTANDARD CLASSIFICATION SCHEDULE Direct obligations (Dollars in Thousands) Object Classification Personnel compensation: Permanent positions.................... Positions other than permanent Other personnel compensation.......... Special personal services payments ºfºtai petsprimetºotripefisation. ------- 89.947 92,260 80,667 (11,593) Civilian personnel benefits 25,844 25,932 19,180 (6,752) Benefits to former personnel. -------- --------- 99 92 92 - OASIA Special Benefits 546 546 Travel and transportation of persons........................ 3,319 3,514 3,339 (175) Transportation of things............................................ 522 396 404 8 Rents, communications and utilities: Rental payments to GSA...................................... 3,806 4,006 3,327 (679) Rental payments to others 236 167 (69) Other rents, communications and utilities 12,905 10,241 9,222 (1,019) Printing and reproduction 2,840 2,778 2,778 - Other services: Advisory & assistance services. --- - Other services 46,337 49,664 39,899 (9,765) Purchase of goods/services from Govt. accts...... 56,658 - Operation & maintenance of facilities. --- Research & development contracts, Medical care... Operation & maintenance of equipment. Subsistence & support of persons... Unobligat gbalance ilable, SOY (71,013) (4,451) 4,451 Unobligated balance available, EOY. 4,451 - Unobligated balance expiring (6,538) - - ------- NOTE: Include carry overbalances of unexpired accounts DOSE-20 § Departmental Offices, Salaries and Expenses Department of the Treasury Department Offices Federal Funds General and Special Funds: Salaries and Expenses For necessary expenses of the Departmental Office including operation and maintenance of the Treasury Building and Annex; hire of passenger motor vehicles; maintenance, repairs; and improvements of, and purchase of commercial insurance policies for, real properties leased or owned overseas, when necessary for the performance of official business; not to exceed $3,500,000 for official travel expenses; not to exceed $3,000,000, to remain available until September 30, 2005 expended for information technology modernization requirements; not to exceed $150,000 for official reception and representation expenses; not to exceed $258,000 for unforeseen emergencies of a confidential nature, to be allocated and expended under the direction of the Secretary of the Treasury and to be accounted for solely on his certificate, $166,875,000: Provided, That the these amounts $2,900,000 is for grants to State and local law enforcement groups to help fight money laundering; Provide further, That no less than $21,855,000 is for the Office of Foreign Asset Control: Provided further: That of these amounts, $3,393,000, to remain available until September 30, 2005, shall be for the Treasury-wide Financial Statement Audit Program, of which such amounts as may be necessary may be transferred to accounts of the Department’s offices and bureaus to conduct audits; Provided further, That this transfer authority shall be in addition to any other provided in this Act, 2/3/03 - DO SE - 21 3. 0 9 4,556 639 259 0 24 2,991 22 9 48 Personnel Compensation 0 Communications, Assets Control Enforcement Policies and Programs A -1–?-------4---- C • dirt-shººtion ~! 1/ frºm ºf irºn - urg wituºuſy Departmental ces Display of Enforcement Policies and Programs ds Dollars ln thousan FY 2002 Enacted 4.278 958 295 25 3,051 23 12,131 2,683 958 | 19 154 8,010 570 2,180 used to distribute these costs is based on the pervious activity structure. FY 2003 President's Budget FY 2004 Budget Estimate too SE - 22 Departmental Offices, Salaries and Expenses R Departmental Offices, Salaries and Expenses TABLE OF CONTENTS VOLUME 2- PERFORMANCE PLAN Strategic Context for FY 2004 Budget/Performance Plan .............................................................................. S&E - 1 Relationship between the Strategic Plan and the Annual Performance Plan S&E – 3 Performance Information by Budget Activity Budget Activity 1: Economic Policies and Programs Budget Authority, FTE and Performance Measures * - - - S&E -6 Budget Activity 2: Financial Policies and Programs Budget Authority, FTE and Performance Measures S&E –9 Budget Activity 3: Enforcement Policies and Programs - Budget Authority, FTE and Performance Measures S&E – 11 Budget Activity 4: Treasury-wide Management Policies and Programs Budget Authority, FTE and Performance Measures S&E –13 Budget Activity 5: Treasury-wide Financial Statement Audit Program Budget Authority, FTE and Performance Measures - S&E – 17 Budget Activity 6: Office of Foreign Asset Control Budget Authority, FTE and Performance Measures S&E – 17 Supporting Material Major Management Challenges and High Risk Areas S&E – 18 Cross-Cutting Coordination Efforts S&E – 23 Verification and Validation of Data and Performance Measurements Definition S&E – 24 Program Assessment Rating Tool (PART) Summary.................................................................................................... S&E – 30 2 9. Departmental Offices, Salaries and Expenses suMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN | Departmental Offices (DO) serve as the headquarters bureau for the Department of the Treasury. DO provide leadership in critical areas that affect domestic and international economics, and general management of the Treasury Department. In order for Treasury to lead the country and the world to more prosperous and stable economies, and collect the revenue due the government, DO needs adequate resources to achieve these goals. The attached budget and performance plan outlines the DO’s FY 2004 resource requirements and associated performance targets. The level proposed for FY 2004 meets core DO needs and supports the key components of the President’s budget strategy for FY 2004 that are so important to the Administration and the American people. - . r This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Departmental Offices (DO) and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The mission of DO mirrors the three-part mission of the Department of the Treasury: Economic Mission: To Promote Prosperous and Stable American and World Economies Financial Mission: To Effectively Manage the Government’s Finances Management Mission: To Continue to Build a Strong Institution On November 25, 2002, the President signed into law legislation to create the new Department of Homeland Security (DHS). The legislation unites the efforts of several government agencies under one roof to prevent terrorist attacks within the United States, reduces America’s vulnerability to terrorism, and minimizes the damage from potential attacks and natural disasters. In March 2003, the United States Secret Service (USSS), United State Customs Service (USCS) and the Federal Law Enforcement Training Center (FLETC) will become part of DHS. In January 2003, the Bureau of Alcohol, Tobacco and Firearms (with the exception of the alcohol and tobacco tax and trade functions which will remain at Treasury) was transferred to the Department of Justice. - - - 2/3/03 - - - - - DO SE - 1 3. Departmental Offices, Salaries and Expenses The Department's Office of Enforcement provides policy and oversight to the transferring bureaus and this function will be transferred to Headquarters’ operations at DHS largely in concert with its bureaus. As part of the reorganization, Treasury will retain its leadership and policy role in combating terrorist financing, money laundering and other financial crimes, and oversee operations of the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (OFAC), and the new Bureau of Alcohol and Tobacco Tax and Trade. As necessary, mission statements, strategic goals, and performance measures will be amended following the divestiture and transition work at the Department. In FY 2004, OFAC will continue to administer and enforce economic and trade sanctions against targeted foreign countries, terrorists and terrorism sponsoring organizations, and international narcotics traffickers based on U.S. foreign policy and national security goals. Funding for OFAC efforts will sustain the President's ongoing worldwide financial war against terrorism implemented under EO 13224; implement the Foreign Narcotics Kingpin Designation Act ("Kingpin Act"); restore the capability to research and designate targets under OFAC's country programs (e.g., Iraq, Tran, Libya, North Korea, Sudan, etc.); and institutionalize OFAC's public transparency initiatives, as recommended by the congressionally-mandated Judicial Review Commission ("JRC"). In FY 2003, the Department plans to establish an Administrative Law Judge (ALJ) Office to conduct administrative hearings that arise from violations of the Trading with the Enemy Act, primarily alleged violations of the Cuban Assets Control Regulations, 31 CFR, Part 515. Most hearings will involve allegations of violations of the prohibitions against engaging in transactions relating to unauthorized travel to Cuba. In this new role, DO will continue to formulate and oversee implementation of domestic and international finance, tax, economic, and management policies of both the Department and of the Federal government. These responsibilities include: Recommending and implementing U.S. domestic and international financial services, and economic, tax, and fiscal policy; Managing the development of financial policy on the public debt; Overseeing the fiscal operations of the Federal government; Representing the U.S. on international monetary, trade, and investment issues; Overseeing Treasury’s overseas operations and major regulatory functions relative to international trade and depository institutions; Maintaining foreign assets control; and, Setting policy, directing and overseeing bureaus and programs, and managing the internal management operations of the Department. : The table below shows how DO’s strategic and performance goals are linked to the Department’s strategic goals and objectives. Since DO is fully covered by the Treasury-wide strategic plan (and does not have a separate strategic plan), the strategic goals and objectives follow the Department’s plan. 2/3/03 - DO SE - 2 3. Departmental Offices, Salaries and Expenses [RELATIONSHIPBETWEENTHESTRATEGICPLANAND THEANNUAL PERFORMANCE PLAN | Treasury and DO Strategic Goal | DO Performance Goals Linked to Strategic Goals Activity 1: Economic Policies and Programs Maintain U.S. Leadership on Global Economic Issues Monitor economic activity and support programs optimizing U.S. economic growth, so that it approaches the long-run potential growth rate estimated to be 3.1%. Promote Economic Growth and Sound Policies in Developing and Transitional Economies - - Strengthen International Financial Institutions that Promote Global Economic Stability and Support Developing and Transitional Economies Monitor the Global Economy and Promote International Economic Leadership through Cooperation on Economic Policy - Facilitate Legitimate Trade, Enhance Access to Foreign Markets, and Enforce Trade Agreements - Strengthen the Stability and Efficiency of Global Capital Markets and Promote and Sound Framework for International Investment Activity 2: Financial Policies and Programs Promote Domestic Economic Growth Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs Cost-Effectively Finance the Federal Government's Operations Finance the Federal Government in the Most Effective Manner Over the Long Term Support the Achievement of Business Results Effective Oversight of the Bureau of Public Debt, Financial Management Service, and the Community Development Financial Institutions Fund Collect Revenue Due to the Federal Government Promote the Development and Implementation of Effective Tax Policies Activity 3: Enforcement Policies and Programs 2/3/03 DO SE - 3 3. Departmental Offices, Salaries and Expenses Treasury and DO Strategic Goal DO Performance Goals Linked to Strategic Goals Note: As part of the reorganization, Treasury will retain its leadership and policy role in combating terrorist financing, money laundering and other financial crimes, and oversee operations of the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (OFAC), and the new Bureau of Alcohol and Tobacco Tax and Trade. As necessary, mission statements, strategic goals, and performance measures will be amended following the divestiture and transition work at the Department. Activity 4: Treasury-wide Management Policies and Programs Support the Achievement of Business Results Each bureau’s supervisory, managerial and SES individual performance plans include a measure for Human Capital and EEO accountability (i.e., leaders are held accountable for getting results cost-effectively in a way that is fair and equitable). Increase the use of alternative dispute resolution (ADR) and preventative techniques to improve the quality of the workplace Integrate Bureau Financial Data into a Department-wide Financial Analysis and Reporting System Improve the Quality and Timeliness of the Required Audit of Treasury-wide FY 2004 Financial Statements Reduce/Prevent Internal Control/Audit Resolution Open Items Ensure Compliance with FFMLA Ensure IT Investments Improve Program Performance and Facilitate Mission Goals Ensure non-IT Investments Improve Program Performance and Facilitate Mission Goals Expand A-76 competitions and provide a more accurate FAIR Act inventory. Improve Computer Security Across the Department by Ensuring that All Treasury IT Systems are Certified and Accredited to Operate Integrate Budget and Performance data to ensure that unit cost information available is to inform budget decisions. Activity 5: Treasury-wide Financial Statement Audits 2/3/03 DO SE - 4 Sº Departmental Offices, Salaries and Expenses Treasury and DO Strategic Goal | DO Performance Goals Linked to Strategic Goals Strategic Goals to be determined | - Activity 6: Office of Foreign Asset Control See note under Activity 3. 2/3/03 DO SE - 5 s Departmental Offices, Salaries and Expenses Budget Activity 1: Economic Policies and Programs The function of the Economic Policies and Programs Activity is to monitor macro and micro economic development, assist in determining appropriate economic polices and formulate and execute U.S. International economic and financial polices. - FY 2002 FY 2004 Performance Goals, Performance Measures, an FY 1999 FY 2000 FY 2001 FY 2003 Proposed Indicators - Performance Performance | Performance Target opo - - Target Performance g Target Budget Authority ($000s) $45,097 $46,554 $52,906 $57,523 $55,310 $57,210 $62,434 Direct FTE 339 330 329 353 344 356 356 Economic Policies and Programs Performance Goals: A. Monitor economic activity and support programs optimizing U.S. economic growth, so that it approaches the long-run potential growth rate estimated to be 3.1%. B. Promote Economic Growth and Sound Policies in Developing and Transitional Economies - C. Strengthen International Financial Institutions that Promote Global Economic Stability and Support Developing and Transitional Economies D. Monitor the Global Economy and Promote International Economic Leadership through Cooperation on Economic Policy E. Facilitate Legitimate Trade, Enhance Access to Foreign Markets, and Enforce Trade Agreements F. Strengthen the Stability and Efficiency of Global Capital Markets and Promote the Sound Framework for International Investment Strategic Measures: A\. Rate of Domestic Economic Growth (GDP) (S) * 4.2% .8% N/A 1.5% (ytd) >0 0 - 4.3% > B\ Economic conditions in developing countries (rate 3.9% 5.8% 4% GDP Growth GDP Growth GDP Growth GDP Growth of growth in GDP) (S) C\ Economic conditions in transitional economics 3.6% 0. 4.9% GDP Growth GDP Growth GDP Growth | (growth in GDP) (S) 4.9% GDP Growth 2/3/03 DO SE - 6 s Departmental Offices, Salaries and Expenses FY 2002 FY 2004 Performance Goals, Performance Measures, and FY 1999 | FY 2000 FY 2001 FY 2003 Pr d Indicators Performance Performance | Performance Target - Target opose Performance Target 1.Economic conditions in foreign countries that are major U.S. trading partners and the global economic condition (rate of growth in GDP) (S - 1) tº: g ) (S) 5.1% 4.4% 1.5% GDP Growth GDP Growth GDP Growth GDP Growth z o * 2) European Union (Euro area), 2.6% 3.4% 1.5% GDP Growth GDP Growth GDP Growth GDP Growth 3) United Kingdom, 2.1% 3.0% 2.2% GDP Growth GDP Growth GDP Growth GDP Growth 4) Mexico, 3.7% 6.6% -0.3% GDP Growth GDP Growth GDP Growth GDP Growth 5) Japan, 0.7% 2.2% -0.4% GDP Growth GDP Growth GDP Growth GDP Growth 6) China, 7.1% 8.0% 7.3% GDP Growth GDP Growth GDP Growth GDP Growth 7) Global economy 3.6% 4.7% 2.5% GDP Growth GDP Growth GDP Growth GDP Growth Operational Measures 1.Number of analyses and estimated products by DO (W) N/A N/A N/A N/A >450 =*02 ='02 2. U.S. meets current financing commitments and pays $335 $451 $499 $533 $533 $355 $179 all arrears to multilateral development banks (value of 2) arrears in millions of dollars (O) 3. Value of U.S. exports of goods and services ($ in $957 $1,064 $1,000 Growth Growth Growth Growth billions) Revised 4. Level of U. S. direct investment abroad (billions of 1,131 $1,293 $1,382 Growth Growth Growth Growth dollars on historical cost basis) Revised * Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W) and Customer Service Standards (CS) | FY2004 PROPOSED PERFORMANCE PLAN Description Departmental Offices will continue to provide superior service to the Secretary of the Treasury, Office of Management and Budget, Congress, the White House, and most importantly the American public. The Economic Policies and Programs function will be responsible for the 2/3/03 DO SE - 7 S Departmental Offices, Salaries and Expenses review and analysis of both domestic and international economic issues and developments in the financial markets. It reports on current and prospective economic developments and assists in the determination of appropriate economic policies. The table includes the budget request for dollars and FTE in FY 2004. This level of funding represents an increase of $5,067,000 above the FY 2003 President’s budget level. This comprise of $2,463,000 for maintaining current levels (MCL) and $2,604,000 for redirecting resources to provide quality customer service. | FY2003 PERFORMANCE PLAN | Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: No change expected. 2/3/03 DO SE - 8 CŞ Departmental Offices, Salaries and Expenses Budget Activity 2: Financial Policies and Programs The function of the Financial Policies and Programs Activity is to monitor and provide advice and assistance to the Secretary in the areas of domestic finance, banking, other related financial matters, financial institutions, Federal debt finance, financial regulation, capital markets, community development of financial rograms and to develop and implement tax polices and programs. - --- - ‘. . º: . . . . . º. . . . FY 1999 || FY2000 || FY2001 tº FY 2002 erformance Goals, Performance Measures, and . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . .” . . . . . . . . • ' ' ..., , , , . . . . . . . º . . . Performance Performance -- Performance. • r 1. ... * * Indicators * . . . . . . . . . . . . . . . . . . . . . . . . . . . | | Target Performance º “ . . Target Budget Authority ($000s) $34,660 $36,301 $40,674 $43.283 $41,615 $42,716 $49,242 - 280 272 255 266 259 265 265 Direct FTE Financial Policies and Programs Performance Measures: A. Effective Oversight to the Bureaus of Public Debt (BPD) and Financial Management Service (FMS) B. Finance the Federal Government in the most Effective Manner Over the Long-Term. Strategic Goals: 1. P t f ce targets met by BPD - ...wº performance argets met by 83% 90% 100% 90% 90% 92% 94% Operational Measures 1. Percent of borrowing policies and borrowing requirements announced to financial market participants in a timely manner. (O) 100% 100% 100% 100% 100% 100% 100% | FY 2004 PROPOSED PERFORMANCE PLAN | Description: Departmental Offices will continue to provide superior service to the Secretary of the Treasury, Office of Management and Budget, Congress, the White House, and most importantly the American public. The Financial Policies and Programs functions will advise and assist in areas 2/3/03 - - - - - - DOSE - 9 S Departmental Offices, Salaries and Expenses of domestic finance, banking, and other related economic matters. It develops policies and guidance for Treasury Department activities in the areas of financial institutions, federal debt finance, financial regulation, and capital markets. The table includes the budget request for dollars and FTE in FY 2004. This level of funding represents an increase of $6,368,000 above the FY 2003 President’s budget level. This comprise of $2,463,000 for maintaining current levels (MCL) and $4,439,000 for redirecting resources to provide quality customer service. | FY2003 PERFORMANCE PLAN | Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: No change expected. 2/3/03 DO SE - 10 C. Departmental Offices, Salaries and Expenses Budget Activity 3: Enforcement Policies and Programs Functions (Customs, Secret Service, Federal Law Enforcement Training Center) within this activity are to be transferred to the ſepartment of Homeland Security in March 2003. The Bureau of Alcohol, Tobacco and Firearms (with the exception of the alcohol and tobacco tax and trade mission areas which will remain at Treasury) was transferred to the Department of Justice in January 2003. . . . . . . . . . . . . | FY 1999 || FY2000 || FY 2001 FY 2002 FY 2003 | FY2004 * Performance Goals, Performance Measures, and - - - - . . . . . . . . . . . . . . . . . . - . . . . . Indicators | Performance Performance performance | . . . . . . . . . || || Target. . proposed * . . . . . . . . . ." * , . . . . . Target Performatice 4 || “.. Target 2/ Budget Authority ($000s) 1/ $17,836 $21,311 $32,674 $47,255 $45,650 $50,604 n/a n/ Direct FTE 145 177 177 256 256 267 a Enforcement Policies and Programs Performance Goals: A: Effective Oversight of Law Enforcement Bureaus. B. Deny Financing to Terrorist Organizations. Strategic Measures: 1. Percentage of all Performance targets met by Enforcement Bureaus and major offices (USCS, ATF, 64% 77% 82% 85% 68% n/a 3/ USSS, FLETC, FinCEN, TFF) (S) - 1/Final Budget Authority combine totals in Enforcement Policies and Programs and Office of Foreign Asset Control for all Fiscal Years except FY 2004 2/ Office of Foreign Assets Control totals are found in Budget Activity 6. 3/Measure discontinued due to transfers to Homeland Security and Department of Justice. 4/The FY 2002 Performance and Accountability Report show 69% in error. 34 targets out of 50 were met. FY2004 PROPOSED PERFORMANCE PLAN Description: There are no Performance Plans for the Enforcement Policies and Programs section because the Enforcement bureaus are transferring out the Department in FY 2004. 2/3/03 DO SE - 11 G Departmental Offices, Salaries and Expenses | FY2003 PERFORMANCE PLAN | Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: No change expected. 2/3/03 DO SE - 12 S Departmental Offices, Salaries and Expenses Budget Activity 4: Treasury-Wide Management Polices and Program The function of the Treasury-Wide Polices and Program activity is to develop and implement polices relative to the internal management of the Department and its bureaus as well as oversight of coinage and currency production and security, - - - - - -- FY 1999 FY 2000 FY 2001 rvzoo. . . . . FY 2003 . Performance * Measures, and Performance Performance Performance | Target - Performance - target *:::: Budget Authority ($000s) $24,742 $29,684 $33,711 $35,819 $34,567 $35,491 $29,951 Direct FTE 204 - 236 228 200 187 198 102 Treasury-Wide Policies and Programs — President’s Management Agenda Performance Goals: A. K. Each bureau's supervisory, managerial and SES individual performance plans include a measure for Human Capital and EEO accountability (i.e., leaders are held accountable for getting results cost-effectively in a way that is fair and equitable). Increase the use of alternative dispute resolution (ADR) and preventative techniques to improve the quality of the workplace . Integrate Bureau Financial Data into a Department-wide Financial Analysis and Reporting System Improve the Quality and Timeliness of the Required Audit of Treasury-wide FY 2000 Financial Statements Reduce/Prevent Internal Control/Audit Resolution Open Items Ensure Compliance with FFMIA . Ensure IT Investments Improve Program Performance and Facilitate Mission Goals . Ensure non-IT Investments Improve Program Performance and Facilitate Mission Goals Expand A-76 competitions and provide a more accurate FAIR Act inventory. Improve Computer Security Across the Department by Ensuring that All Treasury IT Systems are Certified and Accredited to Operate Integrate Budget and Performance data to ensure that unit cost information available is to inform budget decisions. 2/3/03 DO SE - 13 & Departmental Offices, Salaries and Expenses FY 2004 - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 Performance Goals, Performance Measures, and Proposed Indicators Performance | Performance | Performance Target 2/ Target Performance Target Strategic Measures: Percent of Programmatic Performances Targets Met (S) -- Operational Measures A1. Percentage of bureaus' individual performance plans for supervisors, managers, and SES members that 50% 75% 100% include a measure for Human Capital and EEO - accountability. (P) B1. Percentage of EEO complaints and grievances for 15% 20% 25% which Bureau uses ADR (O) - G - - * * o, n- * , 10% Additional B2. Percentage decrease in EEO complaints (O) 7% Decrease Additional Decrease Decrease C1. Percent of monthly financial submissions by 50% 90% 100% 84% bureaus/reporting entities that are timely and contain 100% 100% 100% quality data (Management Challenge, President's Management Agenda º º: º Qualified/ Qualified/ Unqualified/ Unqualified/ Unquali fied/ Unqualified/ Unqualified º º 3. March 25 Feb. 29 March 1 Feb. 27 - November 15, 2003/Unqualified [i.e., a “clean” aſ C € arc e Feb. 27 Nov. 15 Nov. 15 opinion]) (President's Management Agenda) E1. Number of open material weaknesses (significant 49 32 28 15 management problems identified by GAO, the Igs 15 8 5 and/or the Bureaus). (President's Management Agenda) 2/3/03 DO SE - 14 S Departmental Offices, Salaries and Expenses F1. Percent of bureaus in compliance with the requirements of the Federal Financial Management o o g d o o Improvement Act of 1996 (FFMLA) (Management 54% 54% 67% 77% 77% 86% 86% Challenge, President's Management Agenda) G1. Percent of IT that are within costs, on schedule, and Establish Unmet (Data | Unmet (Data | Unmet (Data Unmeiſpata not 100% 100% meeting performance targets (Management Challenge) Baseline not available) not available) || not available) available) H2. Percent of non-IT capital investments meeting +. - Baseline costs, schedule and performance targets (Management Baseline Not Established n/a TBD Challenge) (O) ... . . . . . . FY 1999 || FY 2000 Y - FY 2004 Performance Goals, Performance Measures, and | Performance Performance || F zoo. FY 2002, - . . . . ry 2003 | Proposed Target. - Indicators - | Performance — "Target — . . . . . . . - Target Performance. ... . . . . . . . . Expand competitive sourcing Complete studies or competitive direct sourcing studies conversions or direct conversions on at I1. Percent of total eligible FTE competitively- * least 15% of the sourced (President's Management Agenda) (O) cumulative eligible FY 2000 total of 15% | FAIR Act of the eligible Commercial FY 2000 Inventory. FAIR Act Commercial Inventory J1. Percent of all Treasury IT systems that are O d 0 O O 0. currently certified and accredited to operate 7% 15.5% 65% 65% 70% 80% (Management Challenge) (O) 2/3/03 DO SE - 15 3 Departmental Offices, Salaries and Expenses K1. Percentage of Treasury budget/program activities that have output fully loaded unit cost information in the Annual Performance Budget (O) Baseline TBD * Measure Coding. Strategic Measures (S), Operational Measures (O), Workload Indicators (W) and Customer Service Standards (CS) | FY2004 PROPOSED PERFORMANCE PLAN | Description: Departmental Offices will continue to provide superior service to the Secretary of the Treasury, Office of Management and Budget, Congress, the White House, and most importantly the American public. The Treasury-Wide Policies and Programs function will continue to provide oversight and guidance to all treasury bureaus in the areas of human resources, information technology, financial administration, and management and budget. The table includes the budget request for dollars and FTE in FY 2004. This level of funding represents a decrease of -$5,225,000 under the FY 2003 President’s budget level. This comprises of $1,312,000 for maintaining current levels (MCL) and -$6,537,000 for redirecting resources to provide quality customer service. | FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: No change expected. 2/3/03 DO SE - 16 22 Departmental Offices, Salaries and Expenses Budget Activity 5: Treasury-Wide Financial Statement Audits The function of the Treasury-Wide Financial Statement Audit is to provide resources for audits for Departmental Offices and Treasury bureaus. FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Goals, Performance Measures, - * * * and Indicators Performance Performance Performance Target Performance Target Proposed Target n/a n/a n/a n/a n/a $5,893 $3,393 Budget Authority($000s) Performance Goals: To Be Determined ** ** FY 2003 is the first year Treasury-Wide Financial Statements received budget authority. ***$2,500 of FY 2003 total is transferred to the Department of Homeland Security. Budget Activity 6: Office of Foreign Asset Control (OFAC) The function of the Office of Foreign Asset Control is to help fight the Financial War on Terrorism through maintaining asset control. OFAC helps the Federal Government seize terrorist assets as well as implement financial sanctions which freeze terrorist assets. - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Goals, Performance Measures, and Indicators Performance Performance Performance Target Performance Target Proposed Target Budget Authority($000s) $5,517 $6,112 $11,175 $19,732 $18,166 $21,652 $21,855 FTE - 56 68 75 129 129 137 137 The table includes the budget request for dollars in FY 2004. budget level for maintaining current levels (MCL). 2/3/03 This level of funding represents an increase of $203,000 above the FY 2003 President’s DO SE - 17 § Departmental Offices, Salaries and Expenses Supporting Material | MAJOR MANAGEMENT CHALLENGES AND HIGHRISK AREAS | I. Management Challenge or High-Risk Area: Information Security (GAO, OIG and TIGTA) Issue: Treasury needs to improve the security of its information technology to protect information and data from physical and electronic threats. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: Implementation of Presidential Decision Directive 63: Presidential Decision Directive 63 requires Federal departments and agencies to establish and implement a program to protect their critical infrastructure. During FY 2001 all bureaus completed Project Matrix Step 1, which required agencies to identify all critical cyber and non-cyber assets. The final report from the National Critical Infrastructure Assurance Office to Treasury revealed a total of 32 assets of Critical Infrastructure Program (CIP) concern. Project Matrix Step 2, which identifies the interdependencies of each asset, began in April 2002. Of particular importance within the area of Critical Infrastructure is protection of the Banking and Finance (B&F) sector. Treasury chairs the Financial and Banking Information Infrastructure Committee (FBIIC), an interagency group consisting of federal/state financial regulatory agencies that has initiated efforts to identify the critical assets of the financial system and undertake vulnerability assessments of those assets. In addition, the FBIIC has developed interagency policies on sponsoring private sector institutions for priority telecommunications programs, drafted interagency emergency cornmunication protocols, and participated in bilateral critical infrastructure protection discussions with Japan, Australia, Canada, the United Kingdom, and Italy. Computer Security Incident Response Capability (CSIRC). As reported last year, all bureaus have a computer security incident response capability. Four bureaus have a formal capability while the remaining bureaus have informal incident response teams that form for the duration of incident handling. All bureaus receive Federal Critical Infrastructure Reporting Center (FedCIRC) and National Infrastructure Protection Center (NIPC) alerts and advisories, and apply patches, service packs, and other fixes as applicable. A statement of work has been completed to contract to implement an enterprise-wide CSIRC. - Actions Planned or Underway: Work continues to foster a public/private partnership with industry in order to protect the financial system from the systemic impact of cyber or physical attacks. Treasury will work with the Financial Services Sector Coordinating Counci', a private sector industry group, to improve crisis management capabilities of the industry, increase information sharing and dissemination throughout the sector, and reduce the risk of dependence on telecommunications by critical institutions. In FY 2003, Project Matrix Step 2 implementation will continue. Enhancements will be made to the vulnerability tools/lab used to test critical assets. Re- certification and accreditation of critical Departmental systems will be under...ken. The Security Training and Awareness Program focusing on cyber, physical, personnel, information, and industrial security will be implemented Department-wide. 2/3/03 . - DO SE - 18 33 Departmental Offices, Salaries and Expenses II. Management Challenge or High-Risk Area: Linking Resources to Results (OIG) Issue: Treasury has not integrated managerial cost accounting into its business activities Relevant Performance Measure(s) and/or FY 2002 Accomplishments: In FY 2001, the Department issued a policy memorandum that established Treasury wide managerial cost accounting goals. One of the primary goals of the policy is for strategic plans, budgets and accounting data to be aligned so as to provide timely, accurate cost data for internal program management and macro-level external reporting. While most of Treasury's major suborganizations (bureaus) have cost accounting systems, the degree of sophistication and integration with business activities varies. This is because of the diversity of operating environments and the different sizes of suborganizations within the Department. Actions Planned or Underway: In FY 2002, the Department assessed the progress of its suborganizations in meeting this goal. The Department's Chief Financial Office (CFO) Council determined that a committee needed to be established to address Department wide cost accounting and labor distribution issues. The work of this committee, which will be coordinated by the Deputy Chief Financial Office (DCFO), will move the Department toward meeting this primary managerial cost accounting goal. - III. Management Challenge or High-Risk Area: Duplicated, Wasteful Practices (OIG) Issue: Duplicated and Wasteful Practices Relevant Performance Measure(s) and/or FY 2001 Accomplishments: The Department of the Treasury has undertaken a bold and comprehensive effort to improve workforce management through the design and implementation of a new enterprise-wide human resources management system, HR Connect, which will lead to significant cost savings and a dramatic transformation in HR service delivery, Our Office of Human Resources Enterprise Solutions (OHRES) is responsible for providing strategic organizational direction and vision for the program, Treasury’s first enterprise-wide software application. The OHRES has the lead in collaborating with the bureaus and managing the program control and technical aspects of the program, including a significant effort to reengineer bureau HR business practices and move to an Internet-based service delivery platform. - Actions Planned or Underway: The HR Connect program reached a major milestone this year with introduction of HR Connect Release 3, the first web-based version of the enterprise software. This major software release paves the way for dramatic changes in HR service delivery through an integrated Suite of on-line manager and self-service functions. HR Connect self-service functionality is already in some stage of production in four Treasury bureaus. 2/3/03 . DO SE - 19 º Departmental Offices, Salaries and Expenses Developing the software components of HR Connect Release 3 are but one aspect of an elaborate process that is required to ensure that the new functionality reaches the Treasury bureaus, operates as intended, and reaps the organizational benefit envisioned. Over the last 6 months, we have procured, configured and deployed new web-based Customer Relationship Management (CRM) software that fully automates the HR Connect help desk and provides for web-based initiation, routing, disposition, and tracking of system problems and issues. Two additional Treasury bureaus have moved to HR Connect (Mint and BEP) and we have begun working with IRS for deployment of HR Connect within the Service. And, on the payroll side, we chartered and provided leadership to a joint Treasury/National Finance Center improvement team, which to date has drafted a new Service Level Agreement, performance standards and issues escalation processes to govern our payroll provider relationship. The totality of these new functions and support systems has positioned Treasury for a quantum leap in service delivery and places the Department at the forefront of Government-wide HR reform. The results of these efforts are already being evidenced in the bureaus implementing new self-service features and will lead to costs savings of exponential proportions as the capabilities are expanded to other bureaus and fully utilized to sunset current paper-based processes. IV. Management Challenge or High-Risk Area: Compliance with Federal Financial Management Improvement Act of 1996 (GAO, OIG, and TIGTA) Issue: Treasury is not in substantial compliance with the requirements of FFMIA. Financial systems are not adequately integrated to support fiscal management of program delivery as well as budget execution functions and internal and external financial reporting requirements. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: • During FY 2002, Treasury received its second unqualified audit opinion on its financial statements for FY 2001 and reduced the number of open material weaknesses at the end of FY 2002 to 13 from the FY 1998 baseline year of 49, while preventing any new material weaknesses. Treasury also exceeded the goal of 77% of bureaus in compliance with Federal Financial Management Improvement Act (FFMIA) financial systems requirements by achieving 86% compliance (also above the FY 2001 of 67%). - Actions Planned or Underway: • Financial Systems: Treasury continues to work to create integrated financial management systems by standardizing core data elements Department-wide and developing uniform integration policies in order to enable all key bureau financial data to be aggregated for improved analysis and decision-making. 2/3/03 DOSE - 20 3. Departmental Offices, Salaries and Expenses • Financial Reporting Strategy: Treasury is continuing to enhance the systems capability and accounting methodology to provide accurate and timely financial data for Departmental financial statements, with full cost accumulation for all Treasury programs and activities, to facilitate internal analysis, resolve known high-risk control issues, and enhance external financial statement reporting capable of receiving an unqualified audit opinion. - • Progress will be measured by several new performance measures specifically addressing FFMLA compliance issues (for financial systems requirements, accounting standards, and Standard Ledger requirements). - V. Management Challenge or High-Risk Area: Prompt Corrective Action (OIG) Issue: Treasury has not promptly corrected material weaknesses and other serious deficiencies in programs and operations. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: The Department’s increased emphasis on reducing material weaknesses during the year has resulted in a reduction to 13 from 28 at October 1, 2001. During the year, we consolidated three FMS material weaknesses tied to the government consolidated financial statement into one. Similarly, we consolidated five IRS material weaknesses tied to systems security into one. Combined, these actions reduced our FY 2002 baseline to 22 material weaknesses. Of these, nine (or more) will be closed or downgraded by September 30, 2002, leaving the Department with a total of 13. Actions Planned or Underway: Continued emphasis will reduce Treasury’s material weaknesses to 8 or less at the end of FY 2003 and to 5 or less at the end of FY 2004, - VI. Management Challenge or High-Risk Area: Strategic Management of Human Capital (GAO and TIGTA) Issue: Short-comings involve lack of human capital planning and organizational alignment; leadership continuity and succession planning; acquiring and developing staffs whose size, skill, and deployment meet agency needs; and creating results-oriented organizational cultures Relevant Performance Measure(s) and/or FY 2002 (2001) Accomplishments: In FY 2002, the Department developed a Treasury Human Capital Strategic Plan that will serve as a frame work for FY 2002 and beyond, and will assist management in creating an environment where the entire workforce is valued and can excel to the greatest extent possible. The Strategic Plan will ensure that workforce planning strategies are in place to address skill imbalances in mission critical occupations; that bureaus fully utilize HR flexibilities and enterprise-wide technological solutions and data support HR service delivery; that effective performance management is emphasized; and that bureaus have leadership development and succession plans in place. The Human Capital Strategic Plan also includes a set of challenging measures to provide comprehensive feedback on bureau progress toward strategic objectives. The Department is also taking steps to improve HR services by implementing a competency-based approach to recruit, develop and retain a high-quality, diverse workforce; redesigning and improving the SES performance management system; implementing discrimination complaint processing efficiencies to improve timely processing. increasing resolution rates for complaints of discrimination. 2/3/03 DO SE - 21 3. Departmental Offices, Salaries and Expenses The Department also developed a performances measure for FY 2002: “Percent of Treasury bureaus which have adequately implemented plans to address skill gaps related to mission critical occupations; and, which have adequately implemented succession plans to address anticipated turnover in key leadership positions.” Actions Planned or Underway: We are continuing to take steps to refine implementation of the Treasury Human Capital Strategic Plan including reviewing and validating our measures. In addition, as a component of the Treasury Human Resources Advisory Counsel (HRAC), we have established four Leadership Teams comprised of Bureau representatives. Bureau representatives will assist each other, critique, and in a dissertation-style assess each other's input to the Human Capital Strategic Plan's (HCSP) measures. Panels will act as sounding boards and make recommendations to the Deputy Assistant Secretary (Human Resources) and HRAC concerning necessary changes to the HCSP measures, or the HCSP, that will maximize Treasury's ability to meet or exceed its human capital goals and objectives. Panels will also identify and share innovative methods and "best practices" with each other and the HRAC. 2/3/03 - DO SE - 22 23 Departmental Offices, Salaries and Expenses | CROSS-CUTTING COORDINATION EFFORTS | Economic Policies and Programs Performance goals and measures that pertain to Treasury’s international affairs activities correspond to similar goals and measures for other Federal international affairs agencies, including the Department of State. Treasury’s efforts support the U.S. Strategic Plan for International Affairs. 2/3/03 . DO SE - 23 33 Departmental Offices, Salaries and Expenses VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS | Economic Policies and Programs • Rate of Domestic Economic Growth (GDP) Definition: real gross domestic product (GDP) is the most comprehensive measure of economic activity and is compiled throughout the year to reflect developments in each calendar quarter. For the purpose of the performance review, the appropriate quarters are aggregated to yield a fiscal year result. How Data is Captured: Data are provided by the Bureau of Economic Analysis, Department of Commerce. How the data is verified and validated to make certain it is accurate: Data is drawn from the source listed above and checked twice to make sure the data is accurate. Data Accuracy: Reasonable Accuracy. • Measure: Economic conditions in developing countries (rate of growth in GDP) Definition: This measure the overall percent change in Gross Domestic Product (GDP) from the prior calendar year for all developing countries. - Verification and Validation of Data Quality: Economic data collected primarily from official foreign government sources, that is reviewed and/or supplemented by Federal agencies (e.g., State, CIA), international financial organizations (e.g., World Bank, International Monetary Fund (IMF), Organization for Economic Development and Cooperation (OECD), and private banking, investment, and trading firms). The accuracy of the data collected (which includes balance of payments, official financial reserves, rate of inflation, money supply, exchange rates, unemployment rate, budget deficit, and external debt) differs considerably by foreign country. Data Accuracy: Reasonable Accuracy • Measure: Economic conditions in transitional countries (rate of growth in GDP) Definition: This measure the overall percent change in Gross Domestic Product (GDP) from the prior calendar year for all transitional countries. Verification and Validation of Data Quality: Economic data collected primarily from official foreign government sources, that is reviewed and/or supplemented by Federal agencies (e.g., State, CIA), international financial organizations (e.g., World Bank, International Monetary Fund (IMF), Organization for Economic Development and Cooperation (OECD), and private banking, investment, and trading firms). The accuracy of the data collected (which includes balance of payments, official financial reserves, rate of inflation, money supply, exchange rates, unemployment rate, budget deficit, and external debt) differs considerably by foreign country. Data Accuracy: Reasonable Accuracy • Measure: U.S meets current financing commitments and pays all arrears to multilateral development banks (dollar value of arrears; $ in millions) 2/3/03 HDO SE - 24 & Departmental Offices, Salaries and Expenses Definition: This measures the amount of unpaid commitments (arrears) the U.S. owes to the multilateral development banks. Verification and Validation of Data Quality: The Department of the Treasury represents the U.S. Government in multilateral negotiations on the periodic replenishment of financial resources of the multilateral development banks (MDBs). These agreements detail the financial elements, including the U.S. contribution, and the policy framework within which these resources will be used. U.S. participation in these agreements requires Congressional authorization. As part of the annual appropriations process, Treasury requests funding sufficient to meet the U.S. annual scheduled contributions to respective institutions as contained in these agreements. Under funding of the Administration’s request can result in the accumulation of U.S. arrears to the MDBs. Data Accuracy: Very accurate. • Measure: Economic conditions in foreign countries that are major U.S. trading partners Definition: This measures the percent change over the prior year in gross domestic product of six major U.S. trading partners. Verification and Validation of Data Quality: Growth rate – Major U.S. trading partners are identified based on volume of trade with the U.S., as reported by the U.S. Department of Commerce. These major trading partners report their gross domestic product (GDP) to the International Monetary Fund and publicly. Data Accuracy: Reasonable Accuracy • Measure: Value of U.S. exports of goods and services ($ in billions) Definition: This measures, in billions of dollars, the value of goods and services the U.S. exports to other countries. Verification and Validation of Data Quality: Based upon export valuations collected and reported by the U.S. Customs Service, and compiled, reviewed, and published by the U.S. Commerce Department. - Data Accuracy: Highly accurate • Measure: Level of U.S. direct investment abroad ($ in billions on historical cost basis) Definition: Direct investments are those where an U.S. investor owns, directly or indirectly, 10% or more of the equity in a foreign company, as measured in the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated foreign business enterprise in a foreign company. Verification and Validation of Data Quality: The amount of investment is measured by the U.S. Trade Representative, Department of State, Treasury, and the OECD. Date is complied and published by the Bureau of Economic Analysis, U.S. Department of Commerce. Data Accuracy: Highly Accurate Financial Policies and Programs • Measure: Percentage of performance targets met by BPD, and FMS. Definition: The Under Secretary for Domestic Finance has direct oversight of these bureaus and meets regularly with them. Success in these measures is 2/3/03 - DO SE - 25 Departmental Offices, Salaries and Expenses predicated upon success by the bureaus in meeting their published performance measures. Verification and Validation of Data Quality: Performance reports issued by BPD and FMS. Data Accuracy: Reasonable Accuracy • Measure: Percent of borrowing policies and requirements announced to financial market participants in a timely manner. Definition: Treasury provides data to financial market participants with sufficient lead-time to avoid surprises. This is a measure of the percentage of time announcements are made in a timely manner. The Office of the Under Secretary for Domestic Finance holds press conference announcements of borrowing policies, requirements and auction offerings giving a date and time for the auction to be held. The Bureau of Public Debt then conducts the auction at the announced time, tracks the results of the auction, and announces the auction results within 25 minutes of the end of the auction. Verification and Validation of Data Quality: The Federal Register contains the supporting data and serves as validation. Data Accuracy: Reasonable Accuracy - - - Treasury-wide Management Policies and Programs • Measure: Percentage of bureaus' individual performance plans for supervisors, managers, and SES members that include a measure for Human Capital and EEO accountability. Data will be collected by requesting that bureaus conduct their workforce planning analyses in accordance with the related measures in Treasury's Human Capital Strategic Plan (HCSP). The Plan, among other requirements, focuses on holding supervisors and managers accountable for results-oriented management \O of Human Capital and EEO. - - C Data will be verified by Leadership Groups comprised of high-level bureau representatives who will critique and rate each other's progress in meeting the measures contained in the HCSP. Will data be reasonably accurate or questionable: The data collected should be reasonably accurate. - . • Measures: Percentage of EEO complaints and grievances for which Bureau uses ADR techniques Data will be collected from the bureaus' Human Capital Strategic Plan reports. - - Data will be verified by reviewing Treasury Complaint Tracking System data and the annual EEOC 462 Reports submitted by bureaus. • Measure: Percentage decrease in EEO complaints Data will be collected from the bureaus' Human Capital Strategic Plan reports. 2/3/03 , DOSE - 26 se Departmental Offices, Salaries and Expenses Data will be verified by reviewing Treasury Complaint Tracking System data and the annual EEOC 462 Reports submitted by bureaus. • Measure: Percent of monthly financial submissions by bureaus/reporting entities that are timely and contain quality data (Management Challenge, President's Management Agenda) Definition: This measures the percentage of bureaus and reporting entities whose data is entered into Treasury’s Financial Analysis and Reporting System (FARS) within the prescribed timeframe each month and meets all data quality metrics. - Verification and Validation of Data Quality: Bureau/Reporting entity data submissions are received electronically within the prescribed timeframe (20 business days pre-June 2002 and 3 business days post-June 2002) of the end of the prior month. Financial reports and statements are consistent with bureaus' reports generated from their respective core financial systems. Year-end consolidated financial statements are auditable by Treasury’s auditors. All data updated on a monthly basis; data passes all system edits; and, abnormal balances are within prescribed limits. Data Accuracy: Reasonable Accuracy • Measure: Delivery date of Treasury-wide financial statement and audit opinion. (Target: February 27, 2002 and November 15, 2003/Unqualified [i.e., a “clean” opinion]) (President's Management Agenda) Definition: This measures the quality of Treasury’s financial statements in terms of the audit opinion rendered as a result of an independent audit. Verification and Validation of Data Quality: Verification of both measures can be made from reviewing the Department’s Accountability Report and observing the audit opinion rendered as well as the date of the Secretary’s Message within the report. Data is materially correct as determined through the audit process. Data Accuracy: Reasonable Accuracy • Measure: Number of open material weaknesses (significant management problems identified by GAO, the IGs and/or the Bureaus). (President's Management Agenda) Definition: Treasury wants to reduce and eventually eliminate the material weaknesses that currently exist within Treasury, while simultaneously taking actions which will serve to avoid new material weaknesses. Material weaknesses are significant problems with an organization’s systems’ reliability; controls on waste, fraud or abuse; mission performance; and/or compliance with laws and regulations, identified by the General Accounting Office, Treasury’s Inspectors General, and/or Treasury bureaus. - - Verification and Validation of Data Quality: Certification statement issued by head of bureau/corroborated by auditors. Independent review to validate material weakness has been corrected if deemed necessary by bureau management/OIG/TIGTA. Number of material weaknesses is accurate based on management’s assertions/audit review. Data Accuracy: Reasonable Accuracy 2/3/03 - - DO SE - 27 § Departmental Offices, Salaries and Expenses • Measure: Percent of bureaus in compliance with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA) (Management Challenge, President's Management Agenda) Definition: The Federal Financial Management Improvement Act Of 1996 requires agencies to maintain financial management systems that comply substantially with Federal financial management systems requirements. This measures the percentage of Treasury bureaus that are in compliant with these requirements. Verification and Validation of Data Quality: Treasury’s management and/or auditors do not find any instances of bureaus being in substantial non-compliance with the Act’s requirements. Data is accurate based on management evaluation and auditor corroboration. - Data Accuracy: Reasonable Accuracy • Measure: Percent of IT capital investments that are within costs, on schedule, and meeting performance targets Definition: Under the Federal Acquisition Streamlining Act, Part V (FASA V), Treasury must ensure that at least 90% of information technology investments are within costs, on schedule, and meeting performance targets. By complying with FASA V, Treasury is able to demonstrate appropriate management of its capital investments. Treasury's system for collecting this data and assessing compliance with FASA V is the Information Technology Investment Portfolio . System (I-TIPS). The percentage is calculated by dividing the total number of reported capital investments in I-TIPS by the total number of capital investments that are within costs, on schedule, and meeting performance targets. . Verification and Validation of Data Quality: Data is entered in I-TIPS by bureau and departmental staff, and is manually verified and validated by bureau and departmental management. System data is updated at least annually and then reviewed by departmental management offices. Data Accuracy: Reasonable Accuracy • Measure: Percent of new non-IT capital investments meeting costs, schedule, and performance targets Definition: New non-It assets must meet cost, schedules, and performance goals for which they were acquired. Investment criteria to be established by the Treasury Capital Investment Review Board . - Verification and Validation: Data will be maintained in the Information Technology Investment Portfolio System [Note: validation/verification is provided by the bureau. Independent verification/validation is not available]. Data Accuracy: Questionable or Unknown Accuracy - • Measure: Percent of total eligible FTE competitively-sourced Definition: The measure is determined by the number of eligible FTE competed or directly converted in accordance with A-76 as compared to the FY 2000 FAIR Act Commercial Inventory. - How data is captured: Bureau study plans have already been provided to Treasury and approved by OMB. On a monthly basis, OPE contacts the bureaus to determine how they are progressing with their plans. This information is them scored using OMB's "red, yellow or green" scoring process based on attained progress. On a quarterly basis, Treasury provides this data to OMB who then scores Treasury's progress. - 2/3/03 - DO SE - 28 S3 Departmental Offices, Salaries and Expenses How the data is verified and validated to make certain it is accurate. As part of the monthly scoring of the bureaus OPE reviews the data submitted by the bureaus to ensure that Treasury has complied with the requirements of OMB Circular A-76. If data is found to be erroneous, it is not accepted by OPE. Data Accuracy: Data provided to OMB has been reviewed by OPE for accuracy and validity. Data accuracy is 100%. • Measure: Percent of all Treasury IT systems that are currently certified and accredited to operate Definition: Per OMB Circular A-130, Appendix III, all major application ad general IT systems must be certified and accredited following appropriate Department/Agency IT Security guidelines. While OMB Circulars are not laws, OMB Circulars are considered mandatory guidelines for all U.S. government departments and agencies. These rules help cnsure that the government is managed properly and in the best interests of the general public. To ensure that Treasury is following the rules outlined in OMB Circular A-130, in FY 2001, Treasury established a unique performance measure for Department-wide use: the percentage of major application and general support information technology systems that are certified and accredited. Bureaus report the total number of major application and general support systems operating, and how many of these have been certified and accredited by a given date each year. The percentage is created by dividing the number of systems certified and accredited by the total number of systems in operation. - Verification and Validation of Data Quality: Data will be collected and maintained by Treasury's Office of Security. A survey will be done semiannually in FY 2001 and FY 2002, and annually thereafter by the Office of Security. Appropriately cleared Departmental senior management will review the survey and resulting data. Office of Security staff will verify data during annual compliance reviews. From these reviews, we are 100% confident that each bureau accurately reports the number of certified and accredited systems. Data Accuracy: Reasonable Accuracy • Measure: Percentage of Treasury budget/program activities that have output fully loaded unit cost information in the Annual Performance Budget Definition: This measures progress in integrating budget and performance by the use of cost accounting information. It is the percent of Treasury programs/budget activities presented each year in the Treasury Congressional Justification to the President's Budget that contain fully loaded unit cost information. "Fully loaded costs" include overhead and indirect costs as well as direct costs. In calculating the percent the denominator would be the count of budget/program activities from bureaus; the numerator is the number of those that contain one or more unit costs. How Data is Captured: Data will be captured and tabulated by a member of Treasury's Office of Performance Budgeting (OPB) by reviewing the Treasury Congressional Justification to the President's Budget each year. - How the data is verified and validated to make certain it is accurate: The tabulations will be "double checked" by a member of the OPB staff. Data Accuracy: Reasonable Accuracy Treasury-wide Financial Statement Audit To be determine Office of Foreign Asset Control To be determine - 2/3/03 - - DOSE-29 ¥ Program: Office of Foreign Assets Contro/(OFAC) Agency: Department of the 7teasury Bureau: Departmental Offices Purpose 100 Planning Management Results / 40 Accountability [] Results Achieved & Results Not Demonstrated Key Performance Measures 100 [] Measures Adequate W. New Measures Needed Year Target Actual Long-term Measure: Measures under development Annual Measure: Timely development of trade sanction programs (New measure, targets under development) Annual Measure: Compliance with US trade sanctions - (New measure, targets under development) Rating: Results Not Demonstrated Program Type: Direct Federal Program Summary: Treasury's Office of Foreign Assets Control (OFAC) develops and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers. For instance, OFAC and our Allies were responsible for blocking over $124 million in terrorist assets worldwide since September 2001. The assessment indicates the overall purpose of the program is clear, but unit cost measures are lacking. Additional findings include: & 1. OFAC lacks long-term performance goals with specific targets, which makes it difficult to determine whether or not outcome goals are achieved, 2. The program has not yet instituted annual performance goals to determine the effectiveness of OFAC sanctions. The program is implementing a series of reforms designed to address these findings. These reforms include: - 1. Developing long-term performance goals with specific timeframes and measures, 2. Adopting annual performance goals and aligning them with the long-term performance goals. Arogram Funding Leve/(In miſſions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 26 22 22 | DoSE-30 Ş. Program: OTS Thrift Supervision Agency: Department of the Treasury Bureau: Office of Thrift Supervision Purpose Planning Management Results / Accountability O 100 RZ Results Adhieved [] Results Not Demonstrated [V] Measures Adequate [...] New Measures Needed Key Performance Measures Year Target Actual Long-term Measure: 2002 90% 90% Percentage of thrifts with high ratings according to - Industry standards (composite CAMELS ratings of 1 or 2) 2003 90% (Performance measure was adopted in 2003) 2004 90% Long-term Measure: 2002 90% 92% Thrifts with consumer compliance ratings of 1 or 2 (Performance measure was adopted in 2003) 2003 90% 2004 90% Annual Measure: 2002 95% 98% Percent of thrifts that are well capitalized - (Performance measure was adopted in 2003) - 2003 95% 2004 95% Rating: Effective Program Type: Regulatory Program Summary: The Office of Thrift Supervision (OTS) charters, examines, supervises and regulates thrift institutions and savings associations. The assessment indicates that the program contributes to the safety and soundness of the banking industry. For example, a key performance indicator shows that more than 90% of banks regulated by the OTS have strong ratings in 2002 which incorporates measures for: capital, asset quality, management competence, earnings, liquidity, and sensitivity to market risk, commonly known as CAMELS. Additional findings Include: - - 1. The program purpose is clear. 2. The program recently developed new goals that are outcome-oriented and program measurements which are clear. 3. The program is efficiently and effectively managed. 4. The program is not unique in that other agencies, Including the Office of Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Federal Reserve Bank (FRB), perform similar types of regulatory functions in the banking industry. In response to these findings: 1. Federal banking regulatory agencies, including the OTS, the OCC, the NCUA, the Federal Reserve, and the FDIC, will work together to allgn outcome goals and related measures to allow for greater comparison of program performance in the industry, 2. The OTS will evaluate the efficiency and effectiveness of a single examination for both Safety and Soundness and Compliance functions. - 3. The OTS will take steps to examine long-term systemic risks in the industry. Program Funding leveſ (in miſſions of dollars) 2002 Actual 2003 Estimate 04 Estimate 163 168 168 SE-31 $ Rating: Effective Program Type: Regulatory Program Summary: The Office of the Comptroller of the Currency (OCC) mission is to ensure a safe and Program: OCC Bank Supervision Agency: Department of the Treasury Bureau: Comptroller of the Currency Purpose Planning Management Results / Accountability 0 100. Measures Adequate [I] New Measures Needed Results Achieved [...] Results Not Demonstrated Rey Performance Measures Year Target Actual sound and competitive national banking system. OCC charters and is the primary federal regulator of national banks. It is responsible for examining the financial records of banks and for maintaining the integrity of the Bank Insurance Fund (FDIC deposit insurance). The assessment indicates that the program contributes to the safety and soundness of the banking industry. For example, a key performance indicator shows that more than 95% of banks regulated by the OCC have strong ratings in 2002 which incorporate measures for: capital, asset quality, management competence, earnings, liquidity, and sensitivity to market risk, commonly known as CAMELS. Additional findings include: 1. The program purpose is clear. 2. The program goals are outcome-oriented and program measurements are clear. 3. The program is efficiently and effectively managed. 4. The program is not unique in that other agencies, including the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Federal Reserve Bank (FRB), perform similar types of regulatory functions in the banking industry, In response to these findings: 1. Federal banking regulatory agencies, including the OCC, the OTS, the NCUA, the Federal Reserve, and the FDIC, will work together to align outcome goals and related measures to allow for greater comparison of program performance in the industry. Program Funding Leveſ (in miſſions of doſſars) Long-term Measure: - 2001 90% 94% Percentage of National banks with high ratings according to industry standards (composite CAMELS rating of 1 or 2) 2002 90% 95% (Performance measure was adopted in 2002) 2003 90% 2004 90% Annual Measure: 2001 40% 44% Percent of problem banks rehabilitated, as measured by industry standards 2002 40% 47% (Performance measure was adopted in 2002) 2003 40% 2004 40% Annual Measure: - 2001 95% 98% Percent of national banks that are well capitalized (Performance measure was adopted in 2002) 2002 95% 99% 2003 95% 2004 95% 2002 Actual 2003 Estimate 2004 Estimate 413 435 454 DOSE-32 sº Arogram: International Development Association Agency: Department of the 77easury Bureau: Internationa/Affairs Purpose Planning §§ sº º sº zºº. Management § ... t \; ... º. - Y Sºtº :..., ºn | | | Accountability - 0 100 Measures Adequate [...] New Measures Needed Year 7arget Actual [] Results Achieved [...] Results Not Demonstrated Key Performance Measures Long-term Measure: 2015 100% Universal primary education (Ensure that by 2015 children everywhere will be able to omplete a full course of primary schooling) Annual Performance Measure: 2002 58% Measles immunization rate (New measure) 2004 60% Indicator of progress in health Annual Performance/Efficiency Measure: 2002 81 Reduction in number of days required for business start-up (New measure) - 2004 75 Indicator of progress in private sector development Rating: Adequate Program 7,7e: Block/Formula Grants Program Summary: The International Development Association (IDA) is part of the World Bank. It provides both long-term zero-interest loans (so-called "concessional" lending) and grants to the poorest developing countries to finance investments in health, education, sanitation, and infrastructure, The assessment primarily indicates that IDA lacks a system to measure, monitor, and evaluate overall results. Therefore, it is difficult to determine if IDA funding is having any measurable effect, and this difficulty is reflected in the Accountability/Results score. However, the recently concluded agreement to replenish the resources of IDA -- the IDA-13 replenishment agreement -- calls for the establishment of such a system. The agreement also identifies six pre-existing and widely-used indicators to serve as annual performance measures to track IDA's progress in health, education, and private sector development. Additional findings include: - 1. IDA is not the only provider of concessional lending. Other regional development banks have very similar programs. - 2. The poorest developing countries should not borrow more money than they can afford to repay. IDA should provide more grants than it currently does. 3. The World Bank manages the IDA program well on a project-specific level. The successful establishment of the measurable results system will allow IDA to track its progress in meeting development objectives across the board. In response to these findings: 1. By signing on to the IDA-13 replenishment agreement, the U.S. committed to provide $850 million annually for the next three year (2003 through 2005). The Administration is also requesting $27 million in 2004 to clear some of the $73 million in arrears that the U.S. owes IDA. 2. The Administration will request an additional $100 million for IDA in 2004 if IDA meets specific performance benchmarks and an additional $200 million for IDA in 2005 if IDA makes satisfactory progress in the areas of health, education, and private sector development, - - 3. The Administration will continue to press IDA and other donors to increase the amount of grants that IDA provides, Program Funding level (In miſſions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 792 874 977 § Program: Treasury Technica/Assistance Agency; Department of the Treasury Bureau; Internationa/Affairs T - . I | T | Purpose L → 100 Planning Management ºf Results / 25 Accountability 0 100 [T] Results Achieved [] Measures Adequate Results Not Demonstrated Rº New Measures Needed Key Performance Measures Year Target Actuaſ Long-term Measure: Measures under development Annual Measure. 2001 . 3 3 Number of countries in which tax administration agencies will initiate substantive changes to reorganize on a functional basis (Better targets under development) Annual Measure: Measures under development Rating: Results Not Demonstrated Program Type: Direct Federa/ Program Summary: This program provides technical assistance to developing countries to help them reform the way they budget, tax, enforce financial laws, and manage government finances. Findings from the PART Assessment include the following: 1, The program scored well for program design and management. Program managers at the Office of Technical Assistance (OTA) closely collaborate with advisors implementing programs and with countries receiving assistance to ensure well- designed projects and effective use of funds. . . - 2. Strategic planning is the area most in need of management attention. OTA has a limited number of long-term performance goals. However, these goals are not linked to measurable achievements, do not identify clear targets towards which to manage OTA's resources, and do not establish a timeframe for completion, 3. The absence of quantifiable long-term performance measures makes it difficult for OTA to justify how a particular funding level will help achieve results. 4. While annual performance goals are delineated, the absence of quantifiable long- term goals makes annual progress difficult since it cannot be measured against a long- term baseline. Furthermore, annual goals should be more ambitious, since most are usually achieved by 100 percent, 5. The low score in the results section is due primarily to the fact that the program has not yet developed adequate performance measures and targets. This makes it impossible to hold the program accountable for achieving results. In response to these findings OTA managers will improve strategic planning by developing quantifiable annual and long-term performance measures and targets in 2003, Program Funding Level (In millions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 7 10. 14 DOSE-34 § Treasury Building and Annex Repair and Restoration TREASURY BUILDING AND ANNEX REPAIR AND RESTORATION TABLE OF CONTENTS VOLUME 1- PERFORMANCE BUDGET STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET TBARR - 1 EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of Fiscal Year 2003 and Fiscal Year 2004 Digest Sheet................................................................................... TBARR - 2 Summary of FY 2004 Increases and Decreases........................................................................................................ TBARR - 3 Explanation of Fiscal Year 2004 Budget Increases and Decreases................................................................................. TBARR-4 SUPPORTING MATERIAL - Detail of Full-Time Equivalent Position by Category....................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TBARR - 6 Detail of Full-Time Equivalent Position by Grade..................... ................................................ .* * * * * * * * * * * * * * • * * * * * g º ºs e º 'º e º sº e º & TBARR – 7 Standard Classification Schedule: Direct Obligation................................................................................................. TBARR – 8 TBARR-9 Appropriation Language sheet and Justification of Language Changes ..................................... - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Treasury Building and Annex Repair and Restoration SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT [STRATEGICCONTEXT FORTHE FY2004BUDGET/PERFORMANCE PLAN Under the Federal Property and Administrative Services Act of 1949 (as amended), the Treasury Department has direct operational control over the Main Treasury and Treasury Annex buildings. The planning to improve basic building systems began in the FY 1996 budget (under the Repair and Improvements Appropriation) with funding requests for heating, ventilation and air conditioning (HVAC), and electrical systems. As a result of the fire in June 1996, which caused extensive damage to the interior of the north wing of the building, the time line for these projects was severely affected. The Building Modernization and Renovation Program was introduced in FY 1999 as an umbrella program to coordinate building projects in the most cost-effective manner. The program is being accomplished with a "Construction Manager as Constructor" contract, under which the contractor participates in the design development as well as providing overall construction management and subcontracting for construction of the systems. To date, we have awarded that contract, as well as a construction contract for cleaning and repairs to the Main Treasury Building exterior, including replacement of all windows with energy efficient windows, and repair of the north plaza and fence. We have also awarded the architectural design contract for the interior renovations for the HVAC, fire protection sprinklers, plumbing, electrical systems, and architectural historic restoration. Construction of the first of four phases of renovations to the building was completed in March 2002. Construction of phase two began in November 2001 with completion scheduled for May 2003. Design of the third and fourth phases was substantially completed in May 2002. The construction contract option for phase three was exercised in the first quarter of FY 2003. The construction contract option for phase four is scheduled to be exercised in second quarter of FY 2004. In FY 2004, this will be the final funding request for this project The funding request for the Building Modernization and Renovation Program has been approved by the National Capital Planning Commission, and is included in the most recent Federal Capital Improvements Program. The funding stream was developed in the context of modernizing multiple systems simultaneously. If systems were modernized one at a time, costs would be greater, as repeated, separate incursions into walls, floors and ceilings would be necessary. In addition, the serial approach would mean repeatedly evacuating portions of the building, increasing the costs of moves and rental space outside of the Treasury Building. - 2/3/03 - TBARR - 1 E analysis of FY 2003 PRESIDEnt’s Budget LEveL Amount FTE ($000) FY2003 President's Budget 10 $32,932 FY2003 Amendment(s) o o Adjustments (+/-) Proposed Transfers to/from other Accounts (list) o o Reprogramming (FTE only, except for inter-appropriation transfers) o o FY 2003 Adjusted Presidents Budget Level, Plus/Minus Transfers -- - ------------- 10 32,932 Less Adjustment for Comparability with FY2004 Request under Homeland Security Act. - -------- o o FY2003 President's Budget comparable with FY2004 Request ------- -------------------- 10 32,932 DIGEST or FY 2004 Budget Estimates. By Activity 1. Treasury Building and Unobligated balance expiring Subtotal, Budget Authority (all sources) 10 27,103 10 32.932 40 25,000 o (7,932) o o 0. o Less adjustments for other funding sources: User fees (proposed new or increases) - HIDTA, ONDCP, etc - - - - - o o o o o o o o o o o o Total enacted appropriations and budget estimates (excluding all transfers and reimbursements) 10 27,103 10 32,932 10 25,000 0 (7,932) d o 0. d Less: Adjustment for Comparability with FY2004 Request under Homeland Security Act 0. o o 0 0. 0 o o 0 0. 0 0. Enacted Appropriations comparable with FY 2004 10 $27,103 40 $32,932 10 $25,000 o ($7,932) 0. so 0 $0 2/3/03 TBARR-2 5 summary ExPLANATIONs of Fiscal- YEAR 2004 REQUESTED CHANGES BY ACTivity (Dollars in Thousands) adjustments Necessary to Maintain Current Levels: adjustment(s) to allow for Transfer to/from other Accounts in FY 2004: Initiative annualizations: TBARR-3 Treasury Building and Annex Repair and Restoration Nonrecurring Costs: other changes: 2/3/03 5 Treasury Building and Annex Repair and Restoration Explanation of Fiscal Year 2004 Budget Increases and Decrease In FY 2004, funding requirements for the Treasury Building and Annex Repair and Restoration are projected to be $25,000,000. This is a total decrease of $7,932,000 under the FY 2003 total funding level of $32,932,000. The associated FY 2004 FTE level of 10 is the same level of FTE for FY 2003. Other Changes Total Request Other changes. (-$7,932,000/0 FTE) 1. Nonrecur............ * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * -$7,932,000/0 FTE Reflects savings due to fewer buildings modifications and less relocation that will be required because bureaus moving to DHS Budget Activity 1: Treasury Building and Annex Repair and Restoration (TBARR) The projects funded from this appropriation generally support all of the performance goals and measures provided in Departmental Offices, Salaries and Expenses. - Program Performance Annual Performance Goals, Measures, Indicators and Information Table . . . FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 ry was Performance Goals, Performance Measures, and Performance Performance Performance Target Performance Target Proposed Indicators Target Budget Authority ($000s) $27,000 $36,500 $35,500 $28,832 $28,832 $32,932 $25,000 Direct FTE 10 12 8 10 10 10 10 Performance Goal A: By the end of the Building Modernization and Renovation Project, Departmental Offices will 1) provide minimum safety for Departmental Offices employees, equipment and information; 2) comply with building codes, regulations and the Americans with Disabilities Act; and 3) prevent deterioration of the historic Main Treasury Building. |Performance Measures: * 1. Implement Phase 2 of the Building Modernization Award Perform Performed Program (O) Contract Contract Contract 2/3/03 : . TBARR - 4 F Treasury Building and Annex Repair and Restoration * . . . FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Goals. Performance Measures, and - Proposed Indicators Performance Performance Performance Target Performance Target Target ;: Phase 3 of the Building Modernization Award Contract Awarded Perform gſ Contract Contract 3. Implement Phase 4 of the Building Modernization Award Program (0) Contract *Coding for measures are Strategic Goals (S), Operational Measures (O), Workload Measures (W), Customer Service Measures (CS) 2/3/03 TBARR - 5 5. DETAIL of FullL-TIME EquivaLENT starryEARs BY CATEGORY Statutory tive positio Crafts and custodial Part-time & temporary full-time equivalent staffyears TPARR-6 2/3/03 3. Treasury Building and Annex Repair and Restoration DETAL or Ful-L-TIME Equival-ENT staffyears BY GRADE Executive Level 5 iłł - Senior Executive Service Level 4 Senior Executive Service Level 3 Senior Executive Service Level 2. s - Le Senior Executive Service Level 6... Senior Executive Service Level 5... GS-14 3. GS-13 3. GS-12 2 GS-11 Executive Level 2 Executive Level 3 E tive Level 4 2/3/03 TBARR-7 s Treasury Building and Annex Repair and Restoration Personnel compensation: Permanent positions Positions other than permanent... Other personnel compensation.... Special personal services payments ---- personnet compensation…: Civilian personnel benefits Benefits to former personnel... Travel and transportation of persons Transportation of things £ot sTANdARd classification schedul-E Direct obligations (Dollars in Thousands) Object Classification 974 860 Rents, communications and utilities: Rental payments to GSA Rental payments to others. Other rents, communications and utilities. Printing and reproduction... Other services: Advisory & assistance services Other services........................... Purchase of goods/services from Govt. accts...... Operation & maintenance of facilities. Research & development contracts.... Medical care Operation & maintenance of equipment. Subsistence & support of persons Supplies and materials. Equipment Lands and structures Insurance claims and indemnities. Conſidential expenditures 3ºtá 17 1,193 4,010 3,793 3,934 2,500 20 31 1,441 1 23,952 SOY (5,070) (8,339) Ul Unobligated balance available, EOY........................ 8,339 Recoveries from prior year obligation....................... (1,420) 8,339 2/3/03 *********** NOTE: Include carry overbalances of unexpired accounts 812 (381) 2,717 (1,293) 3.659 19 (12) 16,698 (7,254) TEARR-8 3. Treasury Building and Annex Repair and Restoration General and Special Funds: Treasury Building and Annex Repair and Restoration For the repair, alteration and improvement of the Treasury Building and Annex, $25,000,000, to remain available until September 30, 2006. (Treasury Department Appropriations Act 2004.) 2/3/03 . TBARR - 9 # Treasury Building and Annex Repair and Restoration TREASURY BUILDING AND ANNEX REPAIR AND RESTORATION TABLE OF CONTENTS VOLUME 2- PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET Performance Plan Budget Authority, FTE, and Performance Measures TBARR – 1 TBARR -2 FY 2004 Proposed Performance Plan FY 2003 Final Performance Plan ..TBARR-2 TBARR -3 SUPPORTING MATERLALS Verification and Validation of Data and Performance Measurement Definition TBARR-5 E Treasury Building and Annex Repair and Restoration SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT [STRATEGICCONTEXT FORTHE FY2004BUDGET/PERFORMANCE PLAN Under the Federal Property and Administrative Services Act of 1949 (as amended), the Treasury Department has direct operational control over the Main Treasury and Treasury Annex buildings. The planning to improve basic building systems began in the FY 1996 budget (under the Repair and Improvements Appropriation) with funding requests for heating, ventilation and air conditioning (HVAC), and electrical systems. As a result of the fire in June 1996, which caused extensive damage to the interior of the north wing of the building, the time line for these projects was severely affected. - The Building Modernization and Renovation Program was introduced in FY 1999 as an umbrella program to coordinate building projects in the most cost-effective manner. The program is being accomplished with a "Construction Manager as Constructor" contract, under which the contractor participates in the design development as well as providing overall construction management and subcontracting for construction of the systems. To date, we have awarded that contract, as well as a construction contract for cleaning and repairs to the Main Treasury Building exterior, including replacement of all windows with energy efficient windows, and repair of the north plaza and fence. We have also awarded the architectural design contract for the interior renovations for the HVAC, fire protection sprinklers, plumbing, electrical systems, and architectural historic restoration. Construction of the first of four phases of renovations to the building was completed in March 2002. Construction of phase two began in November 2001 with completion scheduled for May 2003. Design of the third and fourth phases was substantially completed in May 2002. The construction contract option for phase three was exercised in the first quarter of FY 2003. The construction contract option for phase four is scheduled to be exercised in second quarter of FY 2004. In FY 2004, this will be the final funding request for this project The funding request for the Building Modernization and Renovation Program has been approved by the National Capital Planning Commission, and is included in the most recent Federal Capital Improvements Program. The funding stream was developed in the context of modernizing multiple systems simultaneously. If systems were modernized one at a time, costs would be greater, as repeated, separate incursions into walls, floors and ceilings would be necessary. In addition, the serial approach would mean repeatedly evacuating portions of the building, increasing the costs of moves and rental space outside of the Treasury Building. - 2/3/03 - - TBARR - 1 E Treasury Building and Annex Repair and Restoration Budget Activity 1: Treasury Building and Annex Repair and Restoration (TBARR) The projects funded from this appropriation generally support all of the performance goals and measures provided in Departmental Offices, Salaries and Expenses. Performance Goal A: By the end of the Building Modernization and Renovation Project, Departmental Offices will 1) provide minimum safety for Departmental Offices employees, equipment and information; 2) comply with building codes, regulations and the Americans with Disabilities Act; and 3) prevent deterioration of the historic Main Treasury Building. Performance Measures: 1. Implement Phase 2 of the Building Modernization Award Perform Performed Program (O) -- -- Contract Contract Contract 2, Implement Phase 3 of the Building Modernization Award Contract Award Perform Program (O) Contract Contract 3. Implement Phase 4 of the Building Modernization Award Contract Program (0) - - - - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 - Performance Goals: Performance M* and performance Performance performance Target Performance Target Proposed - - Indicators Target Budget Authority ($000s) $27,000 $36,500 $35,500 $28,832 $28,832 $32,932 $25,000 Direct FTE 10 12 8 10 10 10 10 *Coding for measures are Strategic Goals (S), Operational Measures (O), Workload Measures (W), Customer Service Measures (CS) |FY2004 PROPOSED PERFORMANCE PLAN Description: TBARR will continue to provide and enhance occupant safety, improve energy efficiency, create modern office environment, and retain the historical characteristic of the Treasury Building. 2/3/03 TBARR - 2 E Treasury Building and Annex Repair and Restoration | FY 2003 PERFORMANCE PLAN – Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: Fundi support planned implementation of Phase 3 of the Building Modernization Program. i 2/3/03 - - TBARR - 3 ng will E Treasury Building and Annex Repair and Restoration TREASURY BUILDING AND ANNEX REPAIR AND RESTORATION PERFORMANCE MEASURES VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS | Performance Data Quality: For each performance measure, a definition as well as verification and validation information for measured values of actual performance is provided below. Based on the verification and validation information, each measure's data of actual performance is rated as having either: “Reasonable Accuracy” (judged to be sufficiently accurate for program management ºd performance reporting purposes) or as “Questionable or Unknown Accuracy.” In the case of measures where statistical confidence intervals are available, these are provided instead of the rating statements above. Measures designated as "Strategic" or "Operational are considered measures of actual performance as addressed in OMB Circular A-11 220.5. Budget Activity: TBARR • Measure: Implement Phase 2 of the Building Modernization Program Definition: This measures award of the construction contract option for Phase 2. How the data is verified and validated to make certain it is accurate: Issuance of the procurement action will be used as verification. Data Accuracy: Reasonable Accuracy • Measure: Implement Phase 3 of the Building Modernization Program Definition: This measures award of the construction contract option for Phase 3. How the data is verified and validated to make certain it is accurate: Issuance of the procurement action will be used as verification. Data Accuracy: Reasonable Accuracy • Measure: Implement Phase 4 of the Building Modernization Program How Data is Captured: This measures award of the construction contract option for Phase 4. How the data is verified and validated to make certain it is accurate: Issuance of the procurement action will be used as verification. Data Accuracy: Reasonable Accuracy 2/3/03 TBARR - 5 F Air Transportation Stabilization Program AIRTRANSPORTATION STABILIZATION BOARD TABLE OF CONTENTS volumE 1-PERFORMANCE BUDGET STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of Fiscal Year 2003 and Fiscal Year 2004 Digest Sheet Summary of FY 2004 Increases and Decreases - ATSP - 1 ATSP - 2 ATSP - 3 Explanation of Fiscal Year 2004 Budget Increases and Decreases * * * * * * s 8 tº € 8 s a tº a s & 4 is º 6 & & & it is 8 & 9 º' s e º ſº e º s & e s & s is a g º a s & © tº e s a s & 8 9 º' g º g g g g g g g g g e º 'º gº tº e º s e s tº * * * SUPPORTING MATERIAL Detail of Full-Time Equivalent Position by Category ATSP - 4 ATSP-5 Detail of Full-Time Equivalent Position by Grade ATSP – 6 Standard Classification Schedule: Direct Obligation ATSP – 7 Appropriation Language Sheet and Justification of Language Changes ATSP – 8 5. Air Transportation Stabilization Program SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT STRATEGIC CONTEXT FOR THE FY 2004 BUDGET The Air Transportation Stabilization Program was authorized in the Air Transportation Safety and Stabilization Act to issue $10 billion of Federal credit instruments to air carriers. The purpose is "to compensate air carriers for losses incurred by the air carriers as a result of the terrorist attacks on the United States that occurred on September 11, 2001", providing among other criteria, that "such agreement is a necessary part of maintaining a safe, efficient, and viable commercial aviation system in the United States". The deadline for filing an application was June 28, 2002. After the loan guarantee transaction have been finalized, the ATSP will manage the portfolio, monitor and review the financial performance of each borrower, workout any loans in default and ultimately close out the loans and guarantees when the loans are finally paid off. The ATSP will also be responsible for monitoring the borrower’s stock price and the conditions of the capital markets in order to ensure timely disposition of the warrants, options or other equity derivative instruments that the ATSP receives as part of the compensation for providing the loan guarantees. The necessary work will be performed by a combination of Board staff, Board members, outside consultants, and outside attorneys. In FY 2004, the Air Transportation Stabilization Program will continue its efforts in providing quality service. 2/3/03 - - ATSP - 1 = AirTransportation Stabilization Program analysis of FY 2003 PRESIDEnt’s Budget LEvel. Amount FTE ($000) FY2003 Presidents Budget 8 $6,041 FY2003 Amendment(s) o o Adjustments (+/-) Proposed Transfers to/from Qther Accounts (list) - o o Reprogramming (FTE only, except for inter-appropriation transfers) o 0. FY2003 Adjusted President's Budget Level, Plus/Minus Transfers. ----------------- - 8 6,041 Less Adjustment for Comparability with FY2004 Request under Homeland Security Act........ o o - 8 6,041 FY2003 Presidents Budget comparable with FY2004 Request DiGEst of FY 2004 Budget Estimates. By Activity Dollars in Thousands º 1. AirTransportation Stabilization Bºrº Unobligated balance expiring. . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal, Budget Authority (All Sources) a. 9,400 c 6,041 s 2,538 (2) (3,503) 0. 0. 0. 0. Less adjustments for other funding sources: Userſees (proposed new or increases) - - - - - HIDTA. ONDCP, etc - - - - - - o o d o 0 o o 0 o o 0. 0 Total enacted appropriations and budget estimates (excluding all transfers and reimbursements) a 9,400 8 6,041 s 2,538 (2) (3,503) d º d 0. Less: Adjustment for Comparability with FY2004 Request under Homeland Security Act 0. 0. o 0 o 0 0 o o o o o Enacted Appropriations comparable with FY 2004 - $9,400 º $6,041 6 $2,538 (2) ($3.503) o so º so ATSP-2 2/3/03 E Adjustments Necessary to Maintain Current Levels: Adjustment(s) to allow for Transfer to/from other Accounts in FY 2004: Initiative annualizations: summary ExPLANATIons or FiscAL YEAR 2004 REQUESTED CHANGEs BY Activity (Dollars in Thousands) other changes: Nonrecurring Costs: ATSP-3 Air Transportation Stabilization Program 2/3/03 : Air Transportation Stabilization Program Explanation of Fiscal year 2004 Budget Increase and Decreases In FY 2004, funding requirements for the Air Transportation Stabilization Program are projected to be 2,538,000. This is a total decrease of $3,503,000 under the FY 2003 total funding level of $6,041,000. The associated FY 2004 FTE level of 6 is two FTEs lower than the level of FTEs for FY 2003. Other Changes Total Request Other changes. ($-3,503,000/-2 FTE) 1. Non-recur................................................................................................ . .....-$3,503,000/-2 FTE Reflects administrative cost associated with the program Budget Activity 1: Air Transportation Stabilization Program (ATSP) Program Performance Annual Performance Goals, Measures, Indicators and Information Table FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 ryzoo, Performance Goals, Performance Measures, and Performance Performance Performance Target Performance Target Proposed Indicators Target Budget Authority ($000s) $0 $0 $0 $9,400 $9,400 $6,041 $2,538 6 Direct FTE 0 0 O 7 7 8 2/3/03 '• ATSP - 4 E AirTransportation Stabilization Program Part-time & temporary full-time equivalent staffyears DETAIL of Ful-L-TIME Equival-ENT STAFFYEARS BY CATEGORY 2/3/03 ATSP-5 g DETAIL or Ful-L-TIME Equival-ENT starryEARs ey. GRADE Level 1... |Executive Level 2 Executive Level 3 Executive Level 4 Ex - 5 Senior Executive Service Level 1 Senior Executive Service Level 6... Senior Executive Service Level 5... Senior Executive Service Level 4...... Senior Executive Service Level 3..... Senior Executive Service Level 2... ATSP-6 AirTransportation Stabilization Program 2/3/03 S standard classIFICATION SCHEDULE Direct obligations (Dollars. In Thousands) Object Classification Personnel compensation: - Permanent positions........................................... ----- 698 826 347 (479) Positions other than permanent..... - Other personnel compensation...... Special personal services payments. ºtášpetsäriff Civilian personnel benefits Benefits to former personnel... -- Travel and transportation of persons................................... - Transp ion of things - - Rents, communications and utilities: Rental payments to GSA................................................. - Rental payments to others........................ -- - Other rents, communications and utilities -- 211 211 89 (122) Printing and reproduction............ -------------------- - - Other services: Advisory & assistance services....................................... - Other services - Purchase of goods/services from Govt. accts. - Operation & maintenance of facilities -- Research & development contracts - Medical care - Operation & maintenance of equipment... - Subsistence & support of persons............ - Supplies and materials........................................................ 7,906 4,650 1,954 (2,696) Equipment - -- 11 7 3 (4) Lands and structures........................................................... 381 120 50 (70) Insurance claims and indemnities - - Conſidential expenditu ----- atiotis - - Unobligated balance available, SOY................................... Unobligated balance transferred from other accounts (9,400) Unobligated balance available, EOY --- 2,190 2,190 (2,190) Unobligated balance expiring 7.210 - ATSP-7 AirTransportation stabilization Program 2/3/03 § Air Transportation Stabilization Program Department of the Treasury Air Transportation Stabilization Program For necessary expenses to administer the AirTransportation Stabilization Board, established by section 102 of the Air Transportation Safety and System Stabilization Act (Public Law 107-42), $2,538,000, to remain available until expended. 2/3/03 ATSP – 8 § Treasury Forfeiture Fund TREASURY FORFEITURE FUND (TFF) TABLE OF CONTENTS VOLUME 1 - BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Budget Authority, FTE, and Performance Measures by Budget Activity.......... 2/3/03 TFF-1 TFF-2 TFF-i s Treasury Forfeiture Fund F- STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN | Profile of the Treasury Forfeiture Fund The Treasury Forfeiture Fund (the Fund), the receipt account for the deposit of non-tax forfeitures made pursuant to laws enforced or administered by Treasury law enforcement agencies and the United States Coast Guard, has been proposed for consolidation with the Department of Justice Assets Forfeiture Fund, under the auspices of the Department of Justice, commencing with fiscal year 2004 pursuant to pending legislation. The Fund was established in October of 1992 as the successor to the Forfeiture Fund of the United States Customs Service. When the enabling legislation for the Fund was enacted, it brought together all of Treasury law enforcement under a single forfeiture program. The member law enforcement bureaus of the Fund were the U.S. Customs Service (Customs), the U.S. Secret Service (Secret Service), the Bureau of Alcohol, Tobacco and Firearms (ATF), and the Internal Revenue Service's Criminal Investigation (IRS-CI). These Treasury bureaus were joined by the U.S. Coast Guard of the Department of Transportation, a member of the Fund as the result of a long-standing close law enforcement relationship with Customs. The Homeland Security Act of 2002, enacted November 25, 2002, transferred the majority of ATF to the Department of Justice, all of Customs and the Secret Service, as well as the Coast Guard, to the new Department of Homeland Security, leaving IRS Criminal Investigation as the remaining Treasury participant of the Fund. Pending legislation would bring together the seizures and forfeitures of all of the Federal law enforcement bureaus with forfeiture authority into one consolidated forfeiture fund under the organizational mantel of the Department of Justice. Therefore, the Fund is not requesting an annual enacted appropriation from Congress for FY 2004 and shows all balances transferred to the proposed consolidated fund. 2/3/03 . -- TFF-1 5. | EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST BUDGET ACTIVITY 1: LAW ENFORCEMENT OPERATIONS The function of the TFF is to ensure resources are managed to cover the costs of an effective asset seizure and forfeiture program, including the costs of seizing, evaluating, inventorying, maintaining, protecting, advertising, forfeiting and disposing of property. Asset forfeiture is used by Federal law enforcement to disrupt and dismantle criminal enterprises. 2/3/03 FY 1999, FY 2000 FY 2001 FY 2002 2003 FY 2004 TFF Performance Measures Performance | Performance | Performance | Target performance Target º arge Budget Authority ($000s) $347,191 $226,100 $269,923 $221,000 $178,378 $221,000 gº ºs º º Direct FTE sm º ºs ºr as tº tº 8- ----> * * * * ---- *** * * ºg º was tº VCRTF Budget Authority ($000s)................................ mº ºn sº sm. * * me se & sº gº ºn * m * * ---- **** *** * VCRTF FTE ----- * * * * **** * * * * ----- * * * * * * * *s Performance Goal: Strategic use of asset forfeiture by Treasury law enforcement in a manner that results in a high-impact forfeiture program. Performance Measure: 1. Percent of forfeited cash proceeds resulting from high-impact cases. N/A N/A 75% 75% 73% | 75% | * * * * TFF-2 § Treasury Forfeiture Fund TREASURY FORFEITURE FUND (TFF) TABLE OF CONTENTS VOLUME 1 - BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Budget Authority, FTE, and Performance Measures by Budget Activity 2/3/03 TFF-1 TFF-2 TFF-i S. rººm; porterms rtml STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN Profile of the Treasury Forfeiture Fund The Treasury Forfeiture Fund (the Fund), the receipt account for the deposit of non-tax forfeitures made pursuant to laws enforced or administered by Treasury law enforcement agencies and the United States Coast Guard, has been proposed for consolidation with the Department of Justice Assets Forfeiture Fund, under the auspices of the Department of Justice, commencing with fiscal year 2004 pursuant to pending legislation. The Fund was established in October of 1992 as the successor to the Forfeiture Fund of the United States Customs Service. When the enabling legislation for the Fund was enacted, it brought together all of Treasury law enforcement under a single forfeiture program. The member law enforcement bureaus of the Fund were the U.S. Customs Service (Customs), the U.S. Secret Service (Secret Service), the Bureau of Alcohol, Tobacco and Firearms (ATF), and the Internal Revenue Service's Criminal Investigation (IRS-CI). These Treasury bureaus were joined by the U.S. Coast Guard of the Department of Transportation, a member of the Fund as the result of a long-standing close law enforcement relationship with Customs. The Homeland Security Act of 2002, enacted November 25, 2002, transferred the majority of ATF to the Department of Justice, all of Customs and the Secret Service, as well as the Coast Guard, to the new Department of Homeland Security, leaving IRS Criminal Investigation as the remaining Treasury participant of the Fund. Pending legislation would bring together the seizures and forfeitures of all of the Federal law enforcement bureaus with forfeiture authority into one consolidated forfeiture fund under the organizational mantel of the Department of Justice. Therefore, the Fund is not requesting an annual enacted appropriation from Congress for FY 2004 and shows all balances transferred to the proposed consolidated fund. 2/3/03 - TFF-1 g Treasury Forfeiture Fund | EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST BUDGET ACTIVITY 1: LAW ENFORCEMENT OPERATIONS The function of the TFF is to ensure resources are managed to cover the costs of an effective asset seizure and forfeiture program, including the costs of seizing, evaluating, inventorying, maintaining, protecting, advertising, forfeiting and disposing of property. Asset forfeiture is used by Federal law enforcement to disrupt and dismantle criminal enterprises. FY 1999 FY 2000 FY 2001 FY 2002 2003 FY 2004 TFF Performance Measures Performance Performance Performance | Target Performance Final Proposed Target Target Budget Authority ($000s) $347,191 $226,100 $269,923 $221,000 $221,000 $221,000 * * * * Direct FTE ------ ----- ------- **-* * **** *** * * * * * * VCRTF Budget Authority ($000s) **** ---- sº tºº & --- tº gº tºº tº gº ºg my *** * VCRTF FTE * * * * *** - ſº ---- e ººº- * * * * *** * *** * * Performance Goal: Strategic use of asset forfeiture by Treasury law enforcement in a manner that results in a high-impact forfeiture program. Performance Measure: 1. Percent of forfeited cash proceeds resulting from high-impact cases. N/A N/A | 75% | 79% 75% 75% | s: º gº & 2/3/03 TFF-2 g Treasury Forfeiture Fund TREASURY FORFEITURE FUND (TFF) TABLE OF CONTENTS VOLUME 2 – PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 BUDGET REQUEST............ RELATIONSHIPBETWEEN THE STRATEGICPLAN AND THE PERFORMANCE PLAN PERFORMANCE INFORMATION BY BUDGET ACTIVITY Budget Activity 1: Law Enforcement Operations Budget Authority, FTE, and Performance Measures FY 2004 Proposed Performance Plan FY 2003 Final Performance Plan SUPPORTING MATERLALS tº e e g º e s tº a 9 s tº w w e º e a e s s e e º a s e o e º º º Customer Service Standards Performance Report Summary.......................... Cross-Cutting Coordination Efforts....................................................................................... * * * * * * * * Verification and Validation of Data and Performance Measurement Definition 2/3/03 TFF-1 g Treasury Forfeiture Fund STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN Profile of the Treasury Forfeiture Fund The Treasury Forfeiture Fund, the receipt account for the deposit of non-tax forfeitures made pursuant to laws enforced or administered by Treasury law enforcement agencies and the United States Coast Guard, has been proposed for consolidation with the Department of Justice Assets Forfeiture Fund, under the auspices of the Department of Justice, commencing with fiscal year 2004 pursuant to pending legislation. It was established in October of 1992 as the successor to the Forfeiture Fund of the United States Customs Service. When the enabling legislation for the Fund was enacted, it brought together all of Treasury law enforcement under a single forfeiture program. The member law enforcement bureaus of the Treasury Forfeiture Fund were the U.S. Customs Service (Customs), the U.S. Secret Service (Secret Service), the Bureau of Alcohol, Tobacco and Firearms (ATF), and the Internal Revenue Service's Criminal Investigation (IRS-CI). These Treasury bureaus were joined by the U.S. Coast Guard of the Department of Transportation, a member of the Fund as the result of a long-standing close law enforcement relationship with Customs, The Homeland Security Act of 2002, enacted November 25, 2002, transferred the majority of ATF to the Department of Justice, all of Customs and the Secret Service, as well as the Coast Guard, to the new Department of Homeland Security, leaving IRS Criminal Investigation as the remaining Treasury participant of the Fund. Pending legislation would bring together the seizures and forfeitures of all of the Federal law enforcement bureaus with forfeiture authority into one consolidated forfeiture fund under the organizational mantel of the Department of Justice. Therefore, the Fund is not requesting an annual enacted appropriation from Congress for FY 2004 and shows all balances transferred to the proposed consolidated fund. Strategic Vision Through 2003, Fund management will continue to focus on strategic cases and investigations which result in high-impact seizures. We believe this approach will affect the greatest damage to criminal organizations while accomplishing the ultimate objective – to disrupt and dismantle criminal enterprises. The enhancement of forfeiture activity requires longer, more in-depth investigations. Strategic Mission The mission of the Treasury Forfeiture Fund through 2003 is to affirmatively influence the consistent and strategic use of asset forfeiture by Treasury law enforcement bureaus to disrupt and dismantle criminal enterprises. 2/3/03 - TFF-1 g IFéâSūry m m Strategic Goals The goal of the Treasury Forfeiture Fund through 2003 is to support the Department of the Treasury’s national asset forfeiture program in a manner that results in Federal law enforcement's continued and effective use of asset forfeiture as a high-impact law enforcement sanction to disrupt and dismantle criminal enterprises. In addition, the Fund has the following four supporting goals which further the strategic mission: 1) deprive criminals of property used in or acquired through illegal activities; 2) encourage joint operations among Federal, state and local law enforcement agencies, as well as foreign countries; 3) strengthen law enforcement; and 4) protect the rights of the individual. Key Strategic Issues Asset seizure and forfeiture was a top priority for Treasury Enforcement and has been linked directly to the 2002 National Money Laundering Strategy. In this regard, management has identified the following key strategic issues to be continued through 2003: • Continuing to educate and focus stakeholders, and others, on the vision and mission of Treasury’s asset forfeiture program (i.e., affirmatively influence the consistent and strategic use of asset forfeiture by Treasury law enforcement bureaus to disrupt and dismantle criminal enterprises). • Focusing resources to enhance support of the Treasury law enforcement money laundering strategy and anti-terrorism financing efforts. • Fostering and supporting the reinvestment of funds back into the Treasury forfeiture program in order to promote program excellence and thereby strengthen the overall quality of criminal investigations. Strategies for FY 2004 As the former Treasury Forfeiture community transitions over to the Department of Justice consolidated forfeiture fund in 2004, we hope to join Justice forfeiture bureaus in shared strategic goals and issues along the lines described above. We hope to continue to increase our investment in technologies and data collection; press the bureaus to pursue truly major cases and establish financial plans that reflect such priorities; further develop and modify forfeiture training and forfeiture awareness programs that are responsive to today’s needs and are designed to foster the understanding and application of asset forfeiture; and continually re-evaluate our basic method of operation to ensure that this methodology is the best one. - 2/3/03 - TFF-2 g Treasury Forfeiture Fund RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE ANNUAL PERFORMANCE PLAN THROUGH 2003 Treasury Strategic Goal TFF Strategic Goal Performance Goal Linked to Strategic Goal > Combat money laundering and other financial crimes. > Protect our nation’s borders and major international transportation terminals from traffickers and smugglers of illicit drugs. > Reduce violent crime and the threat of terrorism. - > Support the Department of the Treasury’s national asset forfeiture program in a manner that results in Federal law enforcement’s continued and effective use of asset forfeiture as a high-impact law enforcement sanction to disrupt and dismantle criminal enterprises. > Strategic use of asset forfeiture by Treasury law enforcement in a manner that results in a high-impact forfeiture program. 2/3/03 TFF-3 g Performance Plans for FY 2003 and FY 2004 and Performance Report for FY 2002 BUDGET ACTIVITY 1: LAW ENFORCEMENT OPERATIONS The function of the TFF was to ensure resources are managed to cover the costs of an effective asset seizure and forfeiture program, including the costs of seizing, evaluating, inventorying, maintaining, protecting, advertising, forfeiting and disposing of property. Asset forfeiture is used by Federal law enforcement to disrupt and dismantle criminal enterprises. The TFF is proposed for consolidation into a national consolidated forfeiture fund under the auspices of the Department of Justice, beginning in FY 2004 pursuant to pending legislation. FY 1999 FY 2000 FY 2001 FY 2002 2003 FY 2004 TFF Performance Measures Performance | Performance Performance | Target Performance Target º arge Budget Authority ($000s) $347,191 $226,100 $269,923 $221,000 $178,378 $221,000 * * * * Direct FTE ---- - a--- ---- ---- ---- ---- **** VCRTF Budget Authority ($000s) *** *- * --- ---- ---- ---- ----- ---- VCRTF FTE ---- * - - - -- - - --- - ---- ---- * * * * Performance Goal: Strategic use of asset forfeiture by Treasury law enforcement in a manner that results in a high-impact forfeiture program. Performance Measure: 1. Percent of forfeited cash proceeds resulting from high-impact cases. | N/A | N/A 75% 75% | 73% | 75% ---- 2/3/03 TFF-4 g Treasury Forfeiture Fund | FY 2004 PROPOSED PERFORMANCE PLAN Description of Budget Request: The Treasury Forfeiture Fund is proposed for consolidation with the Justice Assets Forfeiture Fund, under the auspices of the Department of Justice beginning in 2004, pursuant to pending legislation. |FY 2003 FINAL PERFORMANCE PLAN Description of Adjustments Related to Congressional Action: Congress eliminated discretionary, appropriated authority of the TFF in FY 1998. There are no adjustments related to Congressional action in FY 2003, Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals: Fund management does not intend to make any changes in FY 2002 relative to its one performance measure. The Fund came in slightly under its performance goal in FY 2002 but intends to meet or exceed the target for FY 2003. |SUPPORTING MATERIALs - - – CUSTOMER SERVICE STANDARDS PERFORMANCE REPORT SUMMARY As mentioned previously, the TFF is proposed for consolidation with the Justice Assets Forfeiture Fund, under the auspices of the Department of Justice beginning in 2004, pursuant to pending legislation. Through 2003, the main customers of the Treasury Forfeiture Fund are the four major law enforcement bureaus in Treasury (i.e., Customs, IRS, ATF and Secret Service, with ATF leaving to join the Justice Department on January 25, pursuant to the Homeland Security Act of 2002). The Fund supports these agencies in their efforts to disrupt and dismantle criminal enterprises by providing funding for seizure related activities, including expenses of storing and maintaining seized and forfeited assets; valid liens and mortgages; investigative expenses incurred in pursuing a seizure; information and inventory systems; and certain costs of local police agencies incurred in joint law enforcement operations. - CROSS-CUTTING COORDINATION EFFORTS As executive agent for the Fund, the Customs Service will continue at least through 2003 to provide accounting support including preparation of reports and the annual financial statements. The Fund reimburses Customs for its accounting support, as well as for other services. The executive agent arrangement requires close coordination between EOAF and Customs on many issues of mutual interest. It has not been established how the consolidated fund will impact the executive agency status of Customs. Such issues must be resolved among managers of the consolidated fund which will include members from Departments of Treasury, Homeland Security and Justice. 2/3/03 - TFF-5 Tºwerºw-m VERIFICATION AND VALIDATION OF DATA AND PERFORMANCE MEASUREMENT DEFINITIONS Performance Data Quality: For each performance measure, a definition and verification and validation information are provided below. Based on the verification and validation information, each measure’s data is rated as having either “Reasonable Accuracy” or as “Questionable or Unknown Accuracy.” In the case of measures where statistical confidence intervals are available, these are provided instead of the rating statements above. Budget Activity 1: Law Enforcement Operations • Performance Measure 1: Percent of forfeited cash proceeds resulting from high-impact cases. Definition: Measures the percentage of forfeited cash proceeds resulting from high-impact cases (those with asset forfeitures in excess of $100,000). This measure is calculated by dividing the total amount of forfeited cash proceeds from cases greater than $100,000 by the total amount of forfeited cash proceeds for all cases. Focusing on strategic cases and investigations which result in high-impact seizures will affect the greatest damage to criminal organizations while accomplishing the ultimate objective – to disrupt and dismantle criminal enterprises. Verification and Validation of Data Quality: Data for this measure is captured as part of the Asset Information Management System (AIMS), which is the general ledger system maintained by the U.S. Customs Service. Data for this measure is extracted from this system via the Detailed }-A Collections Report generated by Customs' National Finance Center. The data is then sorted and reviewed by EOAF staff. Verification of the data 3. is completed during the Fund’s annual CFO financial statements audit. The data is available quarterly. Data Accuracy: Reasonable Accuracy. 2/3/03 TFF-6 g Department-Wide Systems and Capital Investments Program DEPARTMENT-WIDE SYSTEMS AND CAPITAL INVESTMENTS PROGRAM TABLE OF CONTENTS Volume 1-PERFORMANCE BUDGET STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET. . . . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . . . DSCIP - 1 EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of Fiscal Year 2003 and Fiscal Year 2004 Digest Sheet............................................................................ DSCIP - 3 Summary of FY 2004 Increases and Decreases................................................................................................. DSCIP - 4 Explanation of Fiscal Year 2004 Budget Increases and Decreases............................................................................ DSCIP-5 Performance Budget and Performance Plans for FY 2003 and FY 2004 and Performance Data for FY 2002........................., DSCIP-6 SUPPORTENG MATERIAL Explanation of Congressional Action............................................................................................................. DSCIP - 7 Standard Classification Schedule.................................................................................................................. DSCIP – 8 g Department-Wide Systems and Capital Investments Program SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN The Department-wide Systems and Capital Investments Program provide funds for the development and acquisition of equipment, Software and services of a corporate nature. It serves as the central funding point for Treasury-wide or crosscutting projects, such as human resources reengineering and creating a common, multipurpose and standards-based architecture. This budget request continues several investments that have been funded in FY 2003 -- HR Connect, Critical Infrastructure Protection, Treasury Architecture, and the Treasury Back-up/Disaster Recovery Capacity The HR Connect program will continue to improve and expand its scope by introducing new technology, implementing new functionality, and increasing its customer base while maintaining a high degree of customer service and product quality. The primary technical focus will be the conversion from a hybrid system of desktop-server applications to a web-based application. Functional enhancements will enable manager and employee self-service capability in the areas of recruitment, training, and performance management. The customer database for HR Connect will increase as the Internal Revenue Service continues its implementation and deployment. In addition, we anticipate incorporating significant enhancements and modifications to previous HR Connect releases based on inputs and business needs from deployed Treasury bureaus. The goal of the Information Systems Security program is to improve information technology security program management and performance while safeguarding and protecting classified and sensitive Treasury information from unauthorized disclosure. Protection and assurance of the Treasury Critical Infrastructure is of the utmost importance and Treasury seeks to achieve it by maintaining an effective emergency management capability, strengthening the knowledge, skills, and abilities of Treasury security staff and providing security awareness and education for all Treasury employees. During FY 2004, the focus of the Critical Infrastructure Protection (CIP) program will be assessing infrastructure vulnerabilities and developing risk mitigation strategies for them. In addition to the on-going department-wide security programs, of particular importance within the area of Critical Infrastructure is protection of the Banking and Finance (B&F) sector. Treasury chairs the Financial and Banking Information Infrastructure Committee (FBIIC), a group that has initiated interagency and federal/state efforts to identify the critical assets of the financial system and undertake vulnerability assessments of those assets. In FY 2004, a longer-term, nationwide, comprehensive assessment will be undertaken to examine the ability of financial markets and systems to respond and recover from major system failures and identify deficiencies of current guidance with regard to business resumption and continuity planning procedures. Work will also continue on acquiring and maintaining secure communications lines and 2/3/03 DSCIP - 1 g Department-Wide Systems and Capital Investments Program e-mail capacity using the Treasury Secure Data Network include secret-level laptop computers, accreditation and certification, technical services and other hardware and software necessary to process classified and sensitive information. The Clinger-Cohen Act requires that each federal agency have an enterprise architecture (EA). Agency EA compliance is monitored through the President’s Management Agenda scorecard. Enterprise architectures must contain both the “as is” and “to be” descriptions of the agency’s business, data, application, and technology infrastructure. In FY 2002, the Treasury Chief Information Officer Council approved the Treasury Governance Structure for Enterprise Architecture. Treasury has refocused its enterprise architecture efforts on the lines of business in the new Federal Business Reference Model (BRM), mapping Treasury activities to business lines in the Federal Enterprise Architecture (FEA). Currently, Treasury is sponsoring sixteen Technical Reference Model namespace working groups. These working groups will identify sets of technology or the bundling of data, application, and technology for reuse throughout the Department, creating savings in acquisition and development. In FY 2004, Treasury will continue efforts on the Disaster Recovery initiative of the Chief Information Officer (CIO) organization. This effort is critical to the protection of many of Treasury’s technology systems and continuity of operations for key Treasury officials and functions in the event of a disaster. In FY 2003, Treasury will transfer its Integrated (Wireless) Network (ITN) function and associated funding to the Department of Homeland Security. This follows the guidance set under the Homeland Security Act. The goal is for Treasury to prove the Department of Homeland Security with all necessary resources during the transition. 2/3/03 DSCIP - 2 3 analysis of FY 2003 PRESIDENT's Budget LEvel. DIGEST of FY 2004 Budget Estimates. By Activity Dollars in Thousands Ž ($31 º Amount $68,863 68,863 (31,935) 36,928 Less: Adjustment for Comparability with FY2004 under the |Homeland Security Act (25,935) (31,900) Adjusted Enacted Appropriations comparable with FY 2004 0. 42,893 o 36,922 36,928 Department-Wide SysſeſsTTCFETTT Tivulatiºs FY2003 Presidents Budget FY2003 Amendment(s). Adjustments (+/-): Proposed Transfers to/from other Accounts (list) Reprogramming (FTE only, except for inter-appropriation transfers) FY2003 Adjusted President's Budget Level, Plus/Minus Transfers Less Adjustment for Comparability with FY2004 Request under Homeland Security Act. FY 2003 President's Budget comparable with FY2004 Request partment-wide System and Capital investmºn. Program Unobligated balance expiring Total enacted appropriations and 0. 68,828 o 68,828 budget estimates (excluding all transfers and reimbursements) 36,928 (31,900) (31,900) 2/3/03 DSCIP-3 E summary Explanations or Fiscal-YEAR 2004 REquestEd changes. By Activity (Dollars in Thousands) other changes: adjustments Necessary to Maintain current Levels: adjustment(s) to allow for Transfer to/from other accounts in FY 2004: Initiative Annualizations: 0. (31.900) o DSCIP-4 Department-Wide Systems and Capital investment Program 2/3/03 Nonrecurring Costs: E Department-Wide Systems and Capital Investments Program Explanation of Fiscal year 2004 Budget Increase and Decreases In FY 2004, funding requirements for the Department-Wide Systems and Capital Investment Program are projected to be $36,928,000. This is a total decrease of $31,900,000 below the FY 2003 total funding level of $68,828,000, but because of the transfer to the Department of Home Security during FY 2003, it reflects a level budget from FY 2003 to 2004. The associated FY 2004 FTE level of 0 is the same level of FTE for FY 2003. Description of Program: The Department-Wide Systems and Capital Investments Program (DSCIP) consist of four programs; HR Connect, Treasury- wide Information Technology Architecture, Treasury Back-up Capacity, and Critical Infrastructure Protection. These programs address issues having Departmental stature and involve Treasury interface with other government agencies. Other Changes Total Request Other chang (-$31,900,000/OFTE) 1. Adjustments to allow for transfers............................................................................... -$31,900,000/0 FTE Reflects the transfer to the Department of Homeland Security. 2/3/03 DSCIP - 5 § Department-Wide Systems and Capital Investments Program Budget Activity 1: Department-Wide Systems and Capital Investment Programs (DSCIP) Each of these projects contributes to the success of one or more Treasury mission areas. The table that follows indicates references to relevant performance goals/measures by project, and how they link to, and support these goals and measures. The performance plan and results are reflected in the accounts identified in the tables. Program Performance Annual Performance Goals, Measures, Indicators and Information Table FY 2002 Performance Goals, Performance Measures, and FY 2004 Indicators FY 1999 FY 2000 FY 2001 FY 2003 P d Performance Performance Performance Target Performance Target” *: Budget Authority ($000s) $28,690 $43,448 $62,150 $68,828 $50,230 $68,828 $36,928 Direct FTE - 0. 0 O 0 O 0. - 0 Project: Treasury-wide Human Resources Reengineering and Systems Modernization Performance Goal/Performance Measure: See Treasury’s Strategic Goal to improve the capacity to recruit, retain, and develop high-caliber employees Project: Treasury-wide IT Architecture Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Ensure IT and Non-IT Investments Improve Program Performance and Facilitate Mission Goals.” Project: Critical Infrastructure Protection – Banking and Finance Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs.” Project: Critical Infrastructure Protection — Banking and Finance Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs.” Project: Treasury Back-up/Disaster Recovery Capacity Performance Goal/Performance Measure: See Treasury’s Strategic Goal to ensure continuity of Treasury operations. * In FY 2003, the Integrated (Wireless) Network was transferred to the Department of Homeland Security. This was a total decrease of $31,900,000 below the FY 2003 total funding level of $68,828,000, but because of the transfer to the Department of Home Security during FY 2003, the budget is level in FY 2003 and FY 2004 at $36,928. 2/3/03 - DSCIP - 6 5 Department-Wide Systems and Capital Investments Program In FY 2003, Treasury requested $68,828,000 for projects identified in this account. Congress appropriated $68,828,000. During FY 2004, the entire Integrated (Wireless) network is being transfer to the Department of Homeland Security through the Request under Homeland Security Act. 2/3/03 DSCIP - 7 F STANDARD CLAssification schedul-E Direct obligations (Dollars in Thousands) Personnel compensation: Permanent positions..................................................... --------------------------------- Positions other than permanen Other personnel compensation...... object cass Object Classification Special personal services payments ºfotai petsäritieſ compensatiºn........... Büdget Estimate for:Fººtº: ºffitrºëstº the creases Civilian personnel benefits Benefits to former personnel. Travel and transportation of person Transportation of things................ Rents, communications and utilities: Rental payments to GSA... Rental payments to others. Other rents, communications and utilities............ Printing and reproduction........................................ - Other services: 47,520 Advisory & assistance services............................ Other services.................................................…. Purchase of goods/services from Govt. accts. Operation & maintenance of facilities..... Research & development contracts. Medical care..................................... Operation & maintenance of equipment. Subsistence & support of persons... Supplies and materials............... 210 100 418 34,871 Fruinrnant -- 1,982 33,957 Lands and structures Insurance claims and indemnities. Confidential expenditures & total obligatiotis. …º i-x. º 18,709 (16,162) 18,219 (15,738) Unobligated balance available, SOY -- (10,403) (26,913) Unobligated balance available, EOY........................ 26,913 26,913 Unobligated balance expired (3,146) Transfer to other accounts (7,000) Recoveries of prior year obligations 5,234 64.828. 26,913 (26,913) DSCIP-8 Department-wide systems and Capital Investment Program 2/3/03 5 Department-Wide Systems and Capital Investments Program Department-wide Systems and Capital Investment Program (Including transfer of funds) For the development and acquisition of automatic data processing equipment, software and services for the Department of the Treasury, $36,928,000 to remain available until September 30, 2006: Provided, that these funds shall be transferred to accounts and in amounts as necessary to satisfy the requirements of the Department’s offices, bureaus and other organizations: Provided further, That this transfer authority shall be in addition to any other transfer authority provided in this Act. 2/3/03 DSCIP - 9 # Department-Wide Systems and Capital Investments Program DEPARTMENT-WIDE SYSTEMS AND CAPITAL INVESTMENTS PROGRAM TABLE OF CONTENTS VOLUME 2-PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET ......... RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Budget Authority, FTE, and Performance Measures FY 2004 Proposed Performance Plan FY 2003 Final Performance Plan........................................................................... DSCIP - 1 ...DSCIP-2 DSCIP - 3 DSCIP - 4 IDSCIP - 4 s Department-Wide Systems and Capital Investments Program suMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT | STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN The Department-wide Systems and Capital Investments Program provide funds for the development and acquisition of equipment, software and services of a corporate nature. It serves as the central funding point for Treasury-wide or crosscutting projects, such as human resources reengineering and creating a common, multipurpose and standards-based architecture. This budget request continues several investments that have been funded in FY 2003 -- HR Connect, Critical Infrastructure Protection, Treasury Architecture, and the Treasury Back-up/Disaster Recovery Capacity The HR Connect program will continue to improve and expand its scope by introducing new technology, implementing new functionality, and increasing its customer base while maintaining a high degree of customer service and product quality. The primary technical focus will be the conversion from a hybrid system of desktop-server applications to a web-based application. Functional enhancements will enable manager and employee self-service capability in the areas of recruitment, training, and performance management. The customer database for HR Connect will increase as the Internal Revenue Service continues its implementation and deployment. In addition, we anticipate incorporating significant enhancements and modifications to previous HR Connect releases based on inputs and business needs from deployed Treasury bureaus. The goal of the Information Systems Security program is to improve information technology security program management and performance while safeguarding and protecting classified and sensitive Treasury information from unauthorized disclosure. Protection and assurance of the Treasury Critical Infrastructure is of the utmost importance and Treasury seeks to achieve it by maintaining an effective emergency management capability, strengthening the knowledge, skills, and abilities of Treasury security staff and providing security awareness and education for all Treasury employees. During FY 2004, the focus of the Critical Infrastructure Protection (CIP) program will be assessing infrastructure vulnerabilities and developing risk mitigation strategies for them. In addition to the on-going department-wide security programs, of particular importance within the area of Critical - Infrastructure is protection of the Banking and Finance (B&F) sector. Treasury chairs the Financial and Banking Information Infrastructure Committee (FBIIC), a group that has initiated interagency and federal/state efforts to identify the critical assets of the financial system and undertake Vulnerability assessments of those assets. In FY 2004, a longer-term, nationwide, comprehensive assessment will be undertaken to examine the ability of financial markets and systems to respond and recover from major system failures and identify deficiencies of current guidance with regard * resumption and continuity planning procedures. Work will also continue on acquiring and maintaining secure communications lines and DSCIP - 1 £ Department-Wide Systems and Capital Investments Program e-mail capacity using the Treasury Secure Data Network include secret-level laptop computers, accreditation and certification, technical services and other hardware and software necessary to process classified and sensitive information. The Clinger-Cohen Act requires that each federal agency have an enterprise architecture (EA). Agency EA compliance is monitored through the President’s Management Agenda scorecard. Enterprise architectures must contain both the “as is” and “to be” descriptions of the agency’s business, data, application, and technology infrastructure. In FY 2002, the Treasury Chief Information Officer Council approved the Treasury Governance Structure for Enterprise Architecture. Treasury has refocused its enterprise architecture efforts on the lines of business in the new Federal Business Reference Model (BRM), mapping Treasury activities to business lines in the Federal Enterprise Architecture (FEA). Currently, Treasury is sponsoring sixteen Technical Reference Model namespace working groups. These working groups will identify sets of technology or the bundling of data, application, and technology for reuse throughout the Department, creating savings in acquisition and development. In FY 2004, Treasury will continue efforts on the Disaster Recovery initiative of the Chief Information Officer (CIO) organization. This effort is critical to the protection of many of Treasury’s technology systems and continuity of operations for key Treasury officials and functions in the event of a disaster. In FY 2003, Treasury will transfer its Integrated (Wireless) Network (ITN) function and associated funding to the Department of Homeland Security. This follows the guidance set under the Homeland Security Act. The goal is for Treasury to prove the Department of Homeland Security with all necessary resources during the transition. 2/3/03 DSCIP - 2 º Department-Wide Systems and Capital Investments Program Budget Activity 1: Department-Wide Systems and Capital Investment Programs (DSCIP) Each of these projects contributes to the success of one or more Treasury mission areas. The table that follows indicates references to relevant performance goals/measures by project, and how they link to, and support these goals and measures. The performance plan and results are reflected in the accounts identified in the tables. Program Performance Annual Performance Goals, Measures, Indicators and Information Table - FY 2002 Performance Goals, Performance Measures, and FY 2004 Indicators FY 1999 FY 2000 FY 2001 - FY 2003 Proposed r0DOSę Performance Performance Performance Target Performance Target" Fºt Budget Authority ($000s) $28,690 $43,448 $62,150 $68,828 $50,230 $68,828 $36,928 Direct FTE 0 0 0 0 O O () Project: Treasury-wide Human Resources Reengineering and Systems Modernization Performance Goal/Performance Measure: See Treasury’s Strategic Goal to improve the capacity to recruit, retain, and develop high-caliber employees Project: Treasury-wide IT Architecture Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Ensure IT and Non-IT Investments Improve Program Performance and Facilitate Mission Goals.” Project: Critical Infrastructure Protection — Banking and Finance Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs.” Project: Critical Infrastructure Protection – Banking and Finance Performance Goal/Performance Measure: See DO Salaries and Expenses performance goal to “Promote Domestic Financial Institutions Markets Growth and Stability, and Community Development through the Development and Implementation of Effective Polices and Programs.” Project: Treasury Back-up/Disaster Recovery Capacity Performance Goal/Performance Measure: See Treasury’s Strategic Goal to ensure continuity of Treasury operations. * In FY 2003, the Integrated (Wireless) Network was transferred to the Department of Homeland Security. This was a total decrease of $31,900,000 below the FY 2003 total funding level of $68,828,000, but because of the transfer to the Department of Home Security during FY 2003, the budget is level in FY 2003 and FY 2004 at $36,928. 2/3/03 - - DSCIP - 3 g Department-Wide Systems and Capital Investments Program | FY2004 PROPOSED PERFORMANCE PLAN | Description: The systems funded from this account will directly support accomplishments of the goals presented in the respective bureau performance plans and the Treasury-wide and bureau strategic plans. Several of these systems must be coordinated among Treasury bureaus. | FY 2003 PERFORMANCE PLAN Description of Adjustments Related to Congressional Action. Funding supports continued implementation of projects. Evaluation of FY2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: No change expected. 2/3/03 - DSCIP - 4 2. Expanded Access to Financial Services EXPANDED ACCESS TO FINANCIAL SERVICES TABLE OF CONTENTS VOLUME 1- PERFORMANCE BUDGET STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... Expanded Access - 1 EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of Fiscal Year 2003 and Fiscal Year 2004 Digest Sheet......................................................... Expanded Access - 2 Summary of FY 2004 Increases and Decreases ........................................................................ ... Expanded Access – 3 Explanation of Fiscal Year 2004 Budget Increases and Decreases...................................................... ... Expanded Access - 4 SUPPORTING MATERIAL Detail of Full-Time Equivalent Position by Category......................................................................... Expanded Access - 5 Detail of Full-Time Equivalent Position by Grade ... .Expanded Access – 6 Standard Classification Schedule: Direct Obligation Expanded Access —7 g Expanded Access to Financial Services SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT | STRATEGIC CONTEXT | In FY 2002, Treasury received $2,000,000 in First Accounts funding to expand access to financial services and help more low- and moderate-income Americans benefit from access to basic financial services. In FY 2004, Treasury will continue to develop a variety of projects to expand the access of consumers to financial services. These include: * Financial and Economic Literacy. Treasury is assessing how best to educate low- and moderate-income families regarding accounts at financial institutions, electronic funds transfer, and other financial services, managing household finances, and building savings and assets. * Expanded Access to ATMs. Treasury is exploring with financial institutions ways to encourage expanded access to ATMs in safe, secure convenient locations, such as U.S. Post Offices, in low-income neighborhoods where access to ATMs is limited. * Research on the “unbanked.” Treasury is developing an agenda and priorities for research into the financial service needs of the unbanked. * Low-cost electronic accounts. Treasury, in conjunction with financial institutions, is assessing how to design low cost electronic accounts in several pilot locations to encourage the expansion of access to financial services among lower-income individuals who do not have a bank account. 2/3/03 EAFS - 1 g Expanded Access to Financial Services Analysis of FY 2003 PRESIDENT's Budge T LEVEL Announ. FTE ($000) FY2003 President's Budget. o $2,000 FY 2003 Amendment(s) o o Adjustments (+/-) Proposed Transferstofrom other Accounts (list) - O o Reprogramming (FTE only, except for inter-appropriation transfers) 0. o FY2003 Adjusted Presidents Budget Level, Plus/Minus Transfers. ------- 3. 2,000 Less Adjustment for Comparability with FY2004 Request under Homeland Security Act 0. o 3 2,000 FY 2003 President's Budget Comparable with FY2004 Request - DiGEST of FY 2004 Budget Estimates. By Activity Do Unobligated balance expiring. . . . . . . . . . . . . . . . . . . . . . . . Subtotal, Budget authority (All sources) 1 2,000 3. 2,000 2 o (1) (2,000) o o Total enacted appropriations and budget estimates (excluding all transfers and relmbursements) + 2,000 3. 2,000 2 D (1) (2,000) 0. 0. Less: Adjustment for Comparability with FY2004 Request under Homeland Security Act o o o o o o o o o 0 Enacted Appropriations Comparable with FY 2004 t $2,000 3. $2,000 2 50 (1) $2, $0 50 2/3/03 Expanded Access-2 º summary ExPLANATIONS OF Fiscal- YEAR 2004 REQUESTED changes BY Activity (Dollars in Thousands) OTHER CHANGEs: Adjustments Necessary to Maintain Current Levels: Adjustment(s) to allow for Transfer to/from other Accounts in FY 2004: Initiative annualizations: Nonrecurring Costs: Expanded Access-3 Expanded Access to Financial Services 2/3/03 3. Expanded Access to Financial Services Explanation of Fiscal Year 2004 Budget Increases and Decreases In FY 2004, funding requirements for the Expanded Access to Financial Services are projected to be $0. This is a total decrease of $2,000,000 under the FY 2003 total funding level of $2,000,000. The associated FY 2004 FTE level of 2 is 1 FTE lower than the level for FY 2003. In FY 2004, funding from unobligated balances will be used to fund program. Other Changes Total Request Other changes. The program will continue to operate but only with unobligated balances. Budget Activity 1: Expanded Access to Financial Services (EAFS) Program Performance Annual Performance Goals, Measures, Indicators and Information Table (-$2,000,000/-1 FTE) -$2,000,000/-1 FTE - . - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 . Performance Goals, Performance Measures, and Performance Performance Performance Target Performance Target Proposed Indicators Target Budget Authority ($000s) $0 $0 $9,978 $2,000 $2,000 $2,000 0. Direct FTE * 0 0 3 3 1 3 2 2/3/03 EAFS - 4 g Expanded Access to Financial Services DETAIL of Ful-L-TIME EquivaLENT starFYEARS BY CATEGORY º º Part-time & temporary full-time equivalent stafyear 2/3/03 Expanded Access-5 g DETAL OF FULL-TIME Equival-ENT STAFFYEARS BY GRADE Executive Level 5. Senior Executive Service Level 6 Senior Executive Service Level 5. Senior Executive Service Level 4 Senior Executive Service Level 3 Senior Executive Service Level 2 Senior Executive Service Level 1 º ------------------ Expanded AccessTFTTHTTTTSETWTes º: Leve + Executive Level 2 Executive Level 3 - tive Level 4 btotal. GS-15 GS-14 GS-13 GS-12 GS-11 GS-10 2/3/03 Expanded Access-6 g Direct obligations (Dollars. In Thousands) Object Classification Personnel compensation: Permanent positions Positions other than permanent. Other personnel compensation............ Special personal services payments. Civilian personnel benefits Benefits to former personnel... Travel and transportation of persons.... Transportation of things......................... Rents, communications and utilities: Rental payments to GSA...................................... Rental payments to others Other rents, communications and utilities -- - Printing and reproduction................... ------------------- - 10 (10) Other services: 1 1,570 829 (741) Purchase of goods/services from Govt. accts...... - Operation & maintenance of facilities - Research & development contracts. - Medical care.... Operation & maintenance of equipment Subsistence & support of persons Supplies and materials.............................................. 8,457 20 (20) º-ºº: &2:0:0:0: (9,679) (1,149) 1,149 1,149 8,530 - */Although program is not funded in FY2004, the program will operate on unobligated balances Expanded Access-7 Expanded Access to Financial Services 2/3/03 º INSPECTOR GENERAL FORTREASURY TABLE OF CONTENTS VOLUME 1 – BUDGET REQUEST STRATEGIC CONTEXT FOR FY2004 BUDGET/PERFORMANCE PLAN Proposed Consolidation of both Treasury Inspectors General........................................................................ IGT-1 Mission and Key Strategic Impacts....................................................................................................... IGT-2 EXPLANATION OF FY 2004 BUDGET REQUEST Analysis of FY 2003 President's Budget.................................................................................................. IGT-3 Digest of FY 2004 Budget Estimates by Activity....................................................................................... IGT-4 Summary Explanations of FY 2004 Request Changes by Activity................................................................... IGT-4 Explanations of FY 2004 Budget Increases and Decreases............................................................................ IGT-5 Presentations by Budget Activities Budget Activity 1. Audit........................................................................................................... IGT-6 Budget Activity2. Investigations................................................................................................. IGT-7 Program Description: Inspector General Auditor Training Institute.......................................................... IGT-8 SUPPORTING MATERIALS - Detail of Full-Time Equivalent Positions by Category.................................................................................. IGT-10 Detail of Full-Time Equivalent Positions by Grade.................................................................................... IGT-11 Standard Classification Schedule: Direct Obligations................................................................................. IGT-12 Appropriation Language Sheet and Justification of Language Changes............................................................. IGT-13 02/3/03 2. Inspector General for Treasury 2/3/03 STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN Legislation is proposed in the President’s Budget which will merge the Treasury Inspector General and the Treasury Inspector General for Tax Administration (TIGTA) into a new Inspector General office, called the Inspector General for Treasury (IGT). The new organization will have all of the same powers and authorities under current law. Some designated functions are being transferred to the Department of Homeland Security and the Department of Justice. Under this proposal, the IGT conducts and supervises audits, investigations, and evaluations to assess the operations and programs of the bureaus and offices of the Department of the Treasury. It (1) promotes the economy, efficiency, and effectiveness of Departmental programs and operations by preventing fraud, waste, and abuse in those programs and operations, (2) keeps the Secretary and the Congress fully and currently informed of these issues and the progress made toward resolving them, (3) reviews existing and proposed legislation and regulations relating to the programs and operations of the Department, and makes recommendations concerning the impact of such legislation and regulations on the economy and efficiency in the administration of programs and operations of the Department of the Treasury. The audit function provides program audit, contract audit, information technology audit, and financial statement audit services. Program audits review and audit all facets of agency programs and operations and related entities. Contract audits provide professional advice to agency contracting officials on accounting and financial matters relative to negotiation, award, administration, repricing, and settlement of contracts. Information technology audits review all aspects of the acquisition, implementation, and security of electronic systems. Financial statement audits assess whether financial statements fairly present the agency’s financial condition and results of operations, the adequacy of accounting controls, and compliance with laws and regulations. These audits contribute significantly to improved financial management by helping Treasury managers identify improvements needed in their accounting and internal control systems. The evaluations function reviews program performance and issues critical to the mission of the Department of the Treasury, including assessing the Department’s implementation of the Government Performance and Results Act. The investigative function provides for the detection, investigation of and protection against improper and illegal activities involving programs, personnel, and operations of Department of the Treasury including external attempts to corrupt or threaten their employees, systems and facilities. IGT- 1 5 Inspector General for Treasury 2/3/03 Mission and Key Strategic Issues: Treasury will develop a mission statement that accurately reflects Inspector General for Treasury mandates as established under the Inspector General Act of 1978, as amended, as well as the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98). A mission, with strategic goals and measures will be constructed based upon the duties and responsibilities of each office, except for those transferred to the Department of Homeland Security and the Department of Justice. This will be developed for presentation with Treasury’s FY 2004 Final Performance Plan that is combined within the FY 2005 Justification for Appropriation and Performance Plan. HGT- 2 5 Inspector General for Treasury Analysis or FY2003 PRESIDENT's Budget Level. amount FTE FY2003 Presidents Budget 1,229 $159,390 FY2003. A 0. o Adjustments (+/-): Proposed Transfers to/from Other Accounts (list)...................... ---------------- ----------- o o Reprogramming (FTE only, except for inter-appropriation transfers)........................... ----------- ---------------- ----- o º FY2003. Adjusted Presidents Budget Level, Plus/Minus Transfers 1,229 159,390 Less Adjustment for Comparability with FY2004 Request under Homeland Security Act..... ------------ - (195) (24,516) FY2003 Presidents Budget Comparable with FY2004 Request.................. ---------------------- -------------------- ------------------------------------------------------ --- 1.034 134,874 DIGEST OFFY2004 Bungºr-ºn-Arºsay Activity - - ºil- air----- 1. Treasury Office of Inspector General (OWG).................. 272 $34,294 2. Treasury Inspector General for Tax administrationſ ſigta) 928. §125,276 947 5123,962 Combined Inspector General for Treasury Budget Activity 1. Audit................................ 432 356.107 Budget Activity2. Investigations......................... 555 ºre.842 Unobligated balance expiring.... -- --- 1,632 :- Total enacted appropriations and budgatestimates (excluding all transfers and 1,200 161,202 || 1,229. 152,390 - 98.7 134,249 (242) (24,441) (47) (3,836) (195) (20,805) relmbursements) 11,2/ Adjustment for Comparability with FY2004 Request Pursuant to the Homeland Security act (195) (24,516). (195) (24,516) 195 24,516 o 0 195 24,516 Eriºceſſºr-cºrrºrizº: 1,005_513&º L1,034 3134,574 Lºº （134,-4- (47) $75 [47]_ſº,838 o º: 11. Memorandum. Under proposed legislation to reflect the ful costing of CSRS retirememt benefits and all retirement health benefits, the following amounts would be added: FY2002: 39,189, FY2003: $9,622; FY2004: $8,835. 2/3/03 IGT-3 5 Inspector General for Treasury, Salaries and Expenses summary ExPLANATIONS OF FISCAL YEAR 2004 REQUESTED CHANGES BY ACTIVITY (Dollars in Thousands) PROGRAM changes: Program Reduction (47) ($3,836) OTHERCHANGES: Adjustments Necessary to Maintain Current Levels 3,966 Transfer out to Department of Homeland Security (155) (19,632) Transfer out to Department of Justice (40) (4,939) §§§ ----- --- § 2/3/03 IGT-4 f Inspector General for Treasury EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the newly created Inspector General for Treasury (IGT) are projected to be $134,949,000. The total reflects the consolidation of the Treasury Office of Inspector General (OIG) and the Treasury Inspector General for Tax Administration (TIGTA). The total funding requirements also reflect changes in labor costs, program reductions and transfers to other sources as described below. PROGRAM CHANGES Total Reguested Program Changes -$3,836,000 / (47) FTE The increased costs associated with the rates of pay and general inflation are being absorbed through a reduction in staffing. The staffing reductions will impact the overall level of productivity in FY 2004, as reflected in the adjusted performance measures and indicators for the audit and investigations functions. In audit there will be a reduction in the number of audit reports produced as well as a reduction in the outcomes associated with each of their GPRA goals. For investigations fewer FTE will impact the level of attention directed towards administrative misconduct cases, as they are required by law to ensure that criminal investigations are worked in a timely manner. OTHER CHANGES Total Requested Other Changes -$ 20,605,000 / (195) FTE 1. Transfer from Treasury OIG to Department of Homeland Security (DHS) -$ 19,632,000 / (155) FTE Transfer from OIG to the Department of Justice (DOJ) -$ 4,939,000 / (40) FTE This adjustment represents the transfer of resources associated with those components previously part of Treasury that are now part of the newly created Department of Homeland Security and the Department of Justice. 2. Adjustments necessary to Maintain Current Levels (MCL) +$ 3,966,000 / 0 FTE This reflects adjustments for inflation and higher payroll costs for FY 2004. 2/3/03 - IGT- 5 5. Inspector General for Treasury BUDGET ACTIVITY 1: AUDIT Description: The audit function provides program audit, contract audit, information technology audit, and financial statement audit services. Program audits review and audit all facets of agency programs and operations and related entities. Contract audits provide professional advice to agency contracting officials on accounting and financial matters relative to negotiation, award, administration, repricing, and settlement of contracts. Information technology audits review all aspects of the acquisition, implementation, and security of electronic systems. Financial statement audits assess whether financial statements fairly present the agency’s financial condition and results of operations, the adequacy of accounting controls, and compliance with laws and regulations. These audits contribute significantly to improved financial management by helping Treasury managers identify improvements needed in their accounting and internal control systems. The evaluations function reviews program performance and issues critical to the mission of the Department of the Treasury, including assessing the Department’s implementation of the Government Performance and Results Act. Homeland Security Act Public Law created the Alcohol and Tobacco Tax and Trade Bureau to perform the excise tax and other revenue collection functions of what was the Bureau of Alcohol, Tobacco and Firearms, whose law enforcement functions were divested to Department of Justice pursuant to the same Act. It is expected that this new bureau will collect approximately $14.4 billion during FY 2003. The audit function will be responsible for the audit oversight of the new Tax and Trade Bureau. FY 1999 FY2000 || FY2001 FY2002 FY 2003 FY 2004 | Performance Performance Performance Target Performance Target º: - n/a n/a n/a n/a n/a n/a Budget Authority ($000s)........ $56,107 Direct FTE............... na. n/a n/a n/a n/a n/a 432 A detailed performance plan for FY 2004 will be presented with the Treasury FY 2005 Justification for Appropriation and Performance Plan. 2/3/03 IGT- g Inspector General for Treasury BUDGET ACTIVITY 2: INVESTIGATIONS Description: The investigative function provides for the detection, investigation of and protection against improper and illegal activities involving programs, personnel, and operations of Department of the Treasury including external attempts to corrupt or threaten their employees, systems and facilities. The investigative function will have oversight of the Alcohol and Tobacco Tax and Trade Bureau to ensure that program reviews, security policies, procedures, and controls are in place to protect the Bureau from the risk and magnitude of harm resulting from loss, misuse or unauthorized access to information maintained by the Bureau and to conduct investigations of the Alcohol and Tobacco Tax and Trade Bureau employees where necessary. | FY1999 || FY2000 | FY2001 || FY 2002. FY2003 FY2004 . | Performance Performance | Performance Target Performance | Target r;: n/a n/a n/a n/a n/a n/a $78,842 Budget Authority ($000s)....................] - Direct FTE n/a n/a n/a n/a n/a n/a 555 A detailed performance plan for FY 2004 will be presented with the Treasury FY 2005 Justification for Appropriation and Performance Plan. - 2/3/03 IGT- 7 5 Inspector General for Treasury PROGRAM, INSPECTOR GENERALAUDITOR TRAINING INSTITUTE Description of Program: The Inspector General Auditor Training Institute (IGATI) was established by the President's Council on Integrity and Efficiency (PCIE) in 1991 as the primary source of basic training for Federal auditors. IGATI has become an integral part of the Inspector General community. IGATI philosophy is to provide training that will enhance the skills, abilities and knowledge of Federal Offices of Inspector General auditors, and be the focal point of professional development and growth for auditors employed by the Federal Offices of Inspector General. Since inception, IGATI has earned a reputation as a unique training provider, training over 12,000 students in the past decade. As a result of demand, IGATI continues to expand its curriculum to provide training on basic skills and knowledge needed to successfully conduct audits and evaluations in the Federal IG community. IGATI offers up to 25 distinct courses, and delivers training at cost to ensure that the IG community receives desired training at competitive prices. 2/3/03 - - - IGT- 8 3. Inspector General for Treasury, Salaries and Expenses Statutory positions |Policy/program professional staff Administrative staff DETAL OF Ful-L-TIME Equival Ent staffºreARs BY CATEGORY - rial and clerical Crafts and custodial Part-time & temporary full-time equivalent stafyears 2/3/03 1,028 1,057 54 54 90 90 IGT-10 º Inspector General for Treasury, Salaries and Expenses DETAL OF Full-TIME Equival Ent starryBARS BY GRADE Executive Level 2 Executive Level 3 |Executive Level 4 Executive Level 5 Senior Executive Service Level 6 Senior Executive Service Level 5 Senior Executive Service Level 4. Senior Executive Service Level 3. Senior Executive Service Level 2. Senior Executive Service Level1. #$iibitºtºlii. GS-15 77 GS-14 182 GS-13 574 GS-12 165 2/3/03 i 190 616 139 62 156 536 121 IGT-11 s Inspector General for Treasury, Salaries and Expenses STANDARD CLASSIFICATION SCHEDULE Direct Obligations Object Classification Personnel compensation: Permanent positions........................................... 87,051 88,661 74,229 (14,432) Positions other than permanent........................ - 741 374 273 (101) Other personnel compensation. 8,911 8,848 7,502 (1,346) 0 0 º - --- ###9). 25,211 24,800 20,883 (3,917) 6 2 Benefits to Former Employees....... --- 15 (4) Travel and transportation of persons...................... 6,014 5,899 5,181 (718) Transportation of things.......................................... 119 169 136 (33) Rents, communications and utilities: Rental payments to GSA 10,185 11,499 9,610 (1,889) Rental payments to Others -- 263 232 236 4 Other rents, communications and utilities/1....... 3,332 3,334 2,729 (605) Printing and reproduction........................................ 97 78 33 (45) Other services: Advisory & assistance services/1...................... 4,542 2,561 2,241 (320) Other services/1 1,455 3,294 2,908 (386) Purchase of goods/services from Govt. accts.... 1,808 2,775 2,365 (410) Operation & maintenance of facilities 633 205 208 3 Medical Care......................................... -- 87 0 0 0 Operation & maintenance of equipment............. 640 270 274 4 Supplies and materials........................................... 1,231 1,291 1,198 (93) Equipment - 6,814 4,930 4,789 (141) Insurance claims and indemnities........................... 237 20 6 (14) Conſidential Expenditures 2/3/03 Less Legislative Proposal ### 11 Fr 2004 amounts in these object classes do not round to the amounts in millions reflected in Presidents Budget. IGT-12 s Inspector General for Treasury Federal Funds General and Special Funds: INSPECTOR GENERAL FOR TREASURY SALARES AND EXPENSES For necessary expenses of the Inspector General for Treasury in carrying out the provisions of the Inspector General Act of 1978, as amended, including purchase (not to exceed 150 for replacement only for police-type use) and hire of passenger motor vehicles (31 U.S.C. § 1343(b)); services authorized by 5 U.S.C. § 3109, at such rates as may be determined by the IG; not to exceed $7,000,000 for official travel expenses; and not to exceed $600,000 for unforeseen emergencies of a confidential nature, to be allocated and expanded under the direction of the Inspector General for Treasury, $134,949,000. Justification of Language Changes To maximize efficiencies and effectiveness, legislative language is being proposed which will merge the Treasury Inspector General and the Treasury Inspector General for Tax Administration into a new Inspector General office, called the Inspector General for Treasury. The new organization will have all of the same powers and authorities under current law, except for those transferred to the Department of Homeland Security and the Department of Justice. 2/3/03 IGT- 13 s Inspector General for Treasury INSPECTOR GENERAL FOR TREASURY VOLUME 2 — PERFORMANCE PLAN A detailed performance plan for FY 2004 will be presented with the Treasury FY 2005 Justification for Appropriation and Performance Plan. 2/3/03 IGT s Financial Crimes Enforcement Network, Salaries and Expenses FINANCIAL CRIMES ENFORCEMENT NETWORK (FinCEN) TABLE OF CONTENTS volumE 1–BUDGET REQUEST STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN FinCEN - 1 EXPLANATION OF THE FY 2004 PERFORMANCE BUDGET Analysis of FY 2003 President’s Budget Digest Sheet of Fiscal Year 2004 Budget Estimates By Activity FinCEN - 5 Summary Explanations of FY 2004 Request Changes by Activity FinCEN - 6 Explanation of FY 2004 Budget Increases and Decreases R Budget Authority, FTE and Performance Measures by Budget Activity 1 FinCEN - 7 FinCEN - 11 FinCEN - 14 Budget Authority, FTE and Performance Measures by Budget Activity 2 SUPPORTING MATERLALS Detail of Full-Time Equivalent Positions by Category FinCEN - 15 FinCEN - 16 Detail of Full-Time Equivalent Positions by Grade Standard Classification Schedule: Direct Obligations Appropriation Language Sheet and Justification of Language Changes 2/3/03 FinCEN - 17 FinCEN - 18 FinCEN-i s Financial Crimes Enforcement Network, Salaries and Expenses STRATEGIC CONTEXT FORTHE FY2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 Budget by demonstrating how funding enables the Financial Crimes Enforcement Network (FinCEN) to achieve its strategic objectives, and how those objectives are ascertained through performance goals and measures. Mission FinCEN was created in 1990 and established as a Treasury law enforcement bureau by the USA Patriot Act in October 2001. The mission of FinCEN is to support law enforcement investigative efforts and foster interagency and global cooperation against domestic and international financial crimes and to provide U.S. policymakers with strategic analyses of domestic and worldwide money laundering developments, trends, and patterns. FinCEN works toward those ends through information collection, analysis, and sharing, as well as technological assistance and innovative, cost- effective implementation of the Bank Secrecy Act (BSA) and other Treasury authorities. 2/3/03 FinCEN supports law enforcement investigations to prevent and detect money laundering, terrorist financing, and other financial crimes. Money laundering is the process by which criminals or criminal organizations seek to disguise the illicit nature of their proceeds or the illicit use of moneys by placing them into the stream of legitimate commerce and finance. Money can be laundered through a wide variety of enterprises, from banks and money transmitters to stock brokerage houses and casinos. These illicit proceeds provide the fuel for drug dealers, terrorists, arms dealers, and other criminals to operate and expand their enterprises. The BSA, originally enacted in 1970, authorizes Treasury to require covered financial institutions to file certain reports and keep records of certain types of financial transactions (e.g., suspicious activity reports and currency transaction reports). This information helps to uncover the financial trail for investigators to follow as they track criminals and their assets. Using BSA information reported by banks and other types of financial institutions, such as money services businesses and casinos, FinCEN serves as the nation's central clearinghouse for broad- based financial intelligence and information sharing on money laundering, FinCEN's FY 2004 request supports—the fight against terrorist financing and money laundering—by funding efforts to accomplish the following strategic objectives: - Support the Financial Aspects of Investigations by providing quality and timely investigative support, as well as networking to its customers, in the fight against money laundering, terrorist financing, and other financial crimes. - Identify Financial Crime Trends and Patterns for law enforcement, regulators, and financial institutions by applying strategic analysis techniques to an array of data collected pursuant to the BSA, obtained through commercially available sources, or received by law enforcement. FinCEN - 1 5. Financial Crimes Enforcement Network, Salaries and Expenses - Foster International Cooperation by promoting global cooperation through encouraging and supporting other countries to establish financial intelligence units, and strengthening the mechanisms to facilitate the exchange of information. - Administer the BSA Effectively in partnership with the financial services industry, the financial regulatory agencies, and the law enforcement community in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. - Strengthen Management Support by building efficient and effective management processes and administrative support to accomplish FinCEN’s mission. - Key Strategic Issues FinCEN is challenged to meet the new and expanded responsibilities in the USA Patriot Act of 2001 and the 2002 National Money Laundering and Terrorist Financing Strategy, while maintaining the capabilities to meet the ever-rising demand for its traditional financial intelligence expertise and support of financial crime investigations. Moreover, the Patriot Act accelerated the need for FinCEN to expand the reporting and recordkeeping requirements of the BSA to additional segments of the financial community. FinCEN is also required to expedite the creation of an electronic process to share information between law enforcement and the financial institutions. An assessment of FinCEN’s strategic direction has identified the following issues: 2/3/03 Support New Requirements while Maintaining Pre-9/11 Service Efforts. Immediately following the tragedy of September 11th, 2001, FinCEN estimates that 30-50 percent of its resources were totally dedicated to terrorist financing related activities. Although this activity appears to have stabilized, the workload associated with terrorist financing is estimated to require 15-25 percent of FinCEN’s current resources. This requirement is in addition to the traditional law enforcement support demands. FinCEN continues to support Operation Green Quest, FBI’s Terrorist Financial Operations Section, the Policy Coordinating Committee Action Group on Terrorist Financing, and the National Money Laundering and Terrorist Financing Strategy of 2002, while, at the same time, continuing to meet the demands for FinCEN’s SCTV1CCS. - Enhance Information Sharing. The Patriot Act provides new investigative resources and tools to aid in the detection and combating of money laundering and terrorist financing activities. It includes several provisions that require the facilitation of information sharing among law enforcement, financial institutions, and regulators. One provision of the Act is the implementation of Section 314a and 314b. This provision increases FinCEN’s information exchange responsibilities by requiring two key venues for sharing information: (1) information exchange between the government and financial institutions and (2) information exchange among financial institutions. Federal law enforcement agencies will have the ability to locate accounts of, and transactions conducted by, suspected terrorists or money launderers by providing a list of names and identifying information to FinCEN. FinCEN, in turn, will disseminate that information to financial institutions. Financial institutions will be required to search their internal records in an effort to match submitted law enforcement information and report FinCEN - 2 3. Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 their findings through FinCEN, back to the federal law enforcement agency that generated the list. Acting as a communications hub, FinCEN will aggregate information received from financial institutions and will provide a single report back to the requesting federal law enforcement agency. Section 362 requires FinCEN to establish a highly secure network to allow financial institutions to file BSA reports electronically and provide financial institutions with alerts regarding suspicious activities. The electronic filing capability of this network, referred to as the Patriot Act Communication System (PACS), will improve the timeliness and quality of the data, especially for suspicious activity reports, by reducing transcription errors from paper forms and making the information available to law enforcement more quickly. The Act accelerated plans to implement an electronic filing option for BSA reports. - Extend BSA Regulations to New Industries. Although FinCEN was in the process of issuing additional regulations to other sectors of the financial community beyond depository institutions, the Patriot Act accelerated this effort. For example, Section 352 of the Patriot Act requires all financial institutions to establish an anti-money laundering program. This requirement includes all financial institutions, those already subject to federal regulation (i.e., banks, credit unions, money services businesses, registered securities broker-dealers and futures commission merchants) and those that do not have a functional regulator such as pawnbrokers and insurance companies. In addition, expanding suspicious activity reporting to all sectors of the securities industry (e.g., commodity brokers, investment companies, hedge fund companies) and the insurance industry is expected between FY 2003-2004. The implementation of these provisions will require FinCEN to have additional subject matter experts to provide industry outreach, educate trade associations, and provide interface with financial industries. Expand Direct Access to BSA Data and Maximize Networking Opportunities. FinCEN’s Gateway program allows participating Federal, state and local law enforcement agencies to conduct their own research and not rely on the resources of an intermediary agency to obtain financial records—saving investigators time and money. Section 361 of the Patriot Act requires FinCEN to establish and maintain operating procedures for government-wide access to its systems. These procedures must provide appropriate limits on the use of the information in order to protect privacy rights. Since the events of September 11th, the demand for FinCEN’s analytical expertise in terrorist financing and money laundering has increased, thus the number of new agencies and users requiring direct access to BSA data through the Gateway process has risen sharply. One of the most outstanding and useful features of this system is its “alert” mechanism that automatically alerts FinCEN that two or more agencies have an interest in the same subject. In this way, FinCEN is able to assist law enforcement agencies in coordinating their investigations among themselves. As more agencies participate in the Gateway Program, there will be more opportunities for networking. - Expand Capability to Identify Trends and Patterns of Money Laundering and Terrorist Financing. FinCEN will specifically focus on the analyses of informal value transfer systems and other non-traditional banking mechanisms. FinCEN staff will conduct studies, as well as . seek contractual services from experts, and collaborate with foreign counterparts to better understand the use of informal value transfer systems in moving criminal proceeds and funding terrorist activity. FinCEN will also conduct analyses in support of various sections of the Patriot Act to identify money laundering trends and patterns as they relate to securities brokers and dealers, correspondent accounts, foreign corruption and foreign financial institutions. - FinCEN - 3 s Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 Enhance International Cooperation Efforts. FinCEN works with other countries to enhance mechanisms for exchanging financial intelligence on a international level, including using the worldwide network of Financial Intelligence Units (FIUs), known as the Egmont Group. The rapid exchange of financial intelligence among governments has become increasingly important to success in combating international financial crime. Information obtained from foreign sources has the potential to greatly enhance domestic efforts to successfully complete financial aspects of investigations. In June 2002, 11 new FIUs were admitted into the Egmont Group, bringing the number of countries/jurisdictions with an FIU to 69 (out of a potential 191 countries). This significant growth in FIUs has ramifications both for the Egmont Group—as well as for FinCEN-which provides significant assistance and training to new FIUs. FinCEN also serves as the Chair of the newly established Egmont Committee, which will serve to avºist the Egmont Group in a range of activities from internal coordination and administrative consultation to representation with other international fora. Build a Strong Infrastructure. The USA Patriot Act elevated FinCEN to bureau status in October 2001. With the basic authorities provided as a Treasury bureau, FinCEN is now beginning to develop the most efficient and effective administrative process to support our program goals. Our employees are our most valuable asset and employee satisfaction is a priority. A baseline employee satisfaction survey conducted in FY 2002 showed that 66 percent of the employees were satisfied overall with their job, 68 percent of the employees felt that they were treated with dignity and respect at work, and 75 percent were proud to work at FinCEN. FinCEN has conducted employee focus groups and is currently evaluating several courses of action to address areas for improvement. FinCEN plans to administer the survey periodically in order to assess progress. Ensuring the health and safety of our workforce is a priority for achieving the greatest value from our employees. Although to date FinCEN has had no serious safety-related accidents, we continue to be proactive in this area and are monitoring OUT SUCCESS. FinCEN - 4 > Financial Crimes Enforcement Network, Salaries and Expenses ANALYsis or FY 2003 PRESIDENT's BUDGET LEVEL Amount ($000) FY 2003 President's Budget.......................................................................................---------------------------------------- 254 $50,517 FY 2003 Amendment(s)........................................................................................................… 0 0 Adjustments (+/-): Proposed Transfers to/from Other Accounts (list).................................................................................................... o 0 Reprogramming (FTE only, except for inter-appropriation transfers).............................................................................. 0 0 FY 2003 Adjusted President's Budget Level, Plus/Minus Transfers................................................................................. 254 $50,517 Less Adjustment for Comparability with FY 2004 Request under Homeland Security Act....................................................... 0 0 FY 2003 President's Budget Comparable with FY 2004 Request..................................................................................... 254 $50,517 DIGEST OF FISCAL YEAR 2004 Budget ESTIMATES BY ACTivity (Dollars in Th ds) Fºx TFYzoos º - º INCREASE (+}ORDECREASE (-) FOR FY FY 2002 President's Budgetº 2004 - - - Enacted Budget Budget Activity FTE Amount FTE A FTE 1. Investigative Analysis, BSA Administration, and International Activities.................................................................................... 238 39,685 254 42,553 277 49,419 || 23 6,866 10 2051 13 4,815 2. Regulatory Support Programs, including Money Services Business...] 0 7,790 || 0 7,964 o 8,152 188 188 Unobligated balance expiring.................................................... 114 Subtotal, Budget Authority (All Sources) 238 47,589 || 254 50,517 277 57,571 || 23 7,054 || 10 2,051 || 13 5,003 Less Adjustments for other funding sources: 21 HIDTA............................................….....................…. 52 Total enacted appropriations and budgetestimates (excluding all transfers and reimbursements) 238 47,537 || 254 50,517 | 277 57,571 || 23 7,054 || 10 2,051 13 5,003 Less: Adjustment for Comparability with FY2004 Request Under Homeland Security Act Enacted Appropriations Comparable with FY 2004 238 47,537 || 254 50,517 | 277 57,571 || 23 7,054 || 10_2,051 13 5,003 Memorandum: Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY2002: $1,459; FY2003: $1,772; FY2004: $1,892. 2/3/03 FinCEN - º Financial Crimes Enforcement Network, Salaries and Expenses SUMMARY ExPLANATIONS OF FISCAL YEAR 2004 REQUESTED CHANGES BY ACTIVITY (Dollars in Thousands) ºº: º - - investigative Analysis, BSA. H. #Administration onal jº a lººr. º --- º == PROGRAM CHANGES: 1. Improve Government-Wide Data Access Service 1 $845 2. Maintain Pre-September 11 Workload/Meet PatriotAct Mandates 9 1,206 subtotal, PROGRAM changes ºf 10 2,054 Hºo OTHER CHANGES: Adjustments Necessary to Maintain Current Levels: 2,017 Adjustment(s) to Allow for Transfer to/from Other Accounts in FY2004: 5 446 Initiative Annualizations: 8 2,352 º - OTHERCHANGES 2/3/03 188 10. 2,205 446 2,352 FinCEN - g Financial Crimes Enforcement Network, Salaries and Expenses EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, resource requirements for FinCEN are projected at $57,571,000 and 277 FTE. Total increases of $7,054,000 and 23 FTE over the FY 2003 funding level of $50,517,000. The increase includes $6,866,000 and 23 FTE to continue Investigative Analysis, BSA Administration, and International Activities (Budget Activity 1) and $188,000 to continue Regulatory Support Program Activities, including support to Money Services Businesses. (Budget Activity 2) - - PROGRAM CHANGES Total Requested Program Changes............................................................................................................. $2,051,000/10 FTE 1. 2/3/03 Improving Government-wide Access to the BSA Data.................................................................................. $ 845,000/ 1 FTE A program increase of $845,000 and 1 FTE is requested for this activity in FY 2004 to bring on and support additional users requiring direct access to the BSA data. With the events of 9/11 and the surge in terrorist financing and money laundering related cases, the number of agencies requesting case support is exceeding FinCEN’s capacity to support within a reasonable time frame. In addition, the recent emphasis on terrorist financing and money laundering in general has increased the demand for access to the BSA data and there are a number of Federal users requesting access to the network. This program increase will allow FinCEN to expand its capacity to at least 800-1,000 new users per year with direct access to BSA data using the Gateway process, which will double its current capacity interms of the number of new users. The direct access programs—such as Gateway—save investigators and other customers time and money because participating agencies can conduct their own research on line at any time. This approach is also cost-effective for FinCEN because it reduces the number of requests that would otherwise be submitted to FinCEN’s contractor data research team. An added benefit of expanding Gateway participation is the potential increase in opportunities to network federal and state law enforcement agencies working on cases with the same subject. Section 361 of the Patriot Act requires FinCEN to establish and maintain operating procedures with respect to the government-wide data access service. These procedures must also provide appropriate limits on the use of the information in order to protect the privacy rights implicated by the data. The Gateway process was developed to meet these criteria and provide direct access through the Internal Revenue Service’s Detroit Computing Center (IRS-DCC) using a secure and carefully monitored system. The Gateway process enables law enforcement agencies in all 50 states, the District of Columbia and the Commonwealth of Puerto Rico to have direct access to records filed under the Bank Secrecy Act (BSA). Several federal law enforcement agencies including the Drug Enforcement Administration, U.S. Postal Inspection Service, and the Federal Bureau of Investigation also have access to BSA records through Gateway. FinCEN - 7 2 Financial Crimes Enforcement Network, Salaries and Expenses 2. 2/3/03 Maintaining pre 9/11 workload and meeting USA Patriot Act mandates............................................................. $1,206,000/9 FTE This workload related program increase of $1,206,000 and 9 FTE will assure that FinCEN has the capability to continue to meet the ever- rising demand for its financial intelligence expertise and support of financial crime investigations. This increase crosses all aspects of FinCEN’s mission to assure our customers’ and stakeholders’ expectations are satisfied, and to enable the implementation of the numerous new Patriot Act mandates, including the expansion of the SARS activity reporting to new industries. The specific aspects of this request are highlighted below: The additional resources in support of the financial aspects of investigations will allow FinCEN to meet the workload demands related to terrorist financing without degrading support to other money laundering investigations. For example, grand jury, classified, undercover, and public corruption cases, can no longer be supported as expeditiously or in-depth as before, without the additional resources. This request will also enhance FinCEN’s capability to proactively pursue and develop investigative lead information for law enforcement, using all source information, allowing enhanced contribution to fighting financial crime-- identifying individuals, organizations, or financial transactions engaged in the Support of organized crime, narcotics trafficking, money laundering, and terrorist financing. Additional strategic analysis to identify financial crime trends and patterns is needed in the international area to support USA Patriot Act goals. This includes trend and pattern analysis related to correspondent accounts for foreign banks; analysis of bulk cash Smuggling, particularly across the U.S.-Mexican border; analysis of financial transactions of corrupt foreign officials; and analysis of foreign financial institutions, particularly those in Non-Cooperative Countries and Territories. Additional resources will be required to effectively administer the Bank Secrecy Act. This will include requirements to develop additional expertise to administer BSA programs for additional financial services industries, coordinate the examination/enforcement program with federal and state regulators; evaluate anti-money laundering compliance by financial services industries and address deficiencies; and continue to streamline the BSA form management process, refining instructions and improving IRS’ Detroit Computer Center processing for these new industries. These efforts are directly related to the mandates of the USA Patriot Act to enhance anti- money laundering efforts by providing additional resources to track terrorist financing activities. Finally, FinCEN will need to strengthen its information technology support to improve its overall system network operations. This includes expediting the implementation of software patches, providing data management support more quickly, increasing firewall protection by over 75 percent, and implementing and maintaining a comprehensive internal security detection system. This reflects FinCEN’s need to rapidly expand its role in the web environment and its requisite expansion of application software and need of technology experts. FinCEN - 8 g Financial Crimes Enforcement Network, Salaries and Expenses OTHER CHANGES Total Requested Other Changes....................................................... e e s see e ºu e o e s a s a se e o e º e s so a se e o e º e s s a e s ess e e s see e s e º a see $5,003,000/13 FTE Other changes include adjustments necessary to maintain current levels (MCLs) and other adjustments that may be required. They are as follows: 1. Adjustments Necessary to Maintain Current Levels.................................................................... $2,205,000/0 FTE 2. Adjustments to Allow for Transfer to/from Other Accounts in FY zoos * & e º º ºs e º is tº e s tº ſº e º e º ºs e º e g º e g g g g g º º ........... $ 446,000/ 5 FTE 3. Other Adjustments for Initiative Annualization........ ~ tº e º 'º e º e º 'º e g º e º º is tº e º 'º º e º 'º º s2.352,000/8 FTE 2/3/03 Strengthening the fight against money laundering and terrorist financing in support of the USA Patriot Act ($1,002,000/8 FTE). Additional funding is required to annualize the staffing initiative approved in FY 2003. This initiative annualization allows FinCEN to continue efforts to begin to meet the challenges posed by the Act, strengthening efforts in the fight against money laundering and providing additional tools to combat terrorist financing. The USA Patriot Act of 2001 had far reaching impact on FinCEN’s current and future workload requirements. The Act requires issuance of numerous regulations, establishment of new regulatory programs and expansion of anti-money laundering programs to all financial institutions. . Enhancing Information Exchanges in support of Section 314 of USA Patriot Act ($1,020,000/0 FTE): Additional funding is required to continue the efforts begun in FY 2003 with one-time funding from the Treasury Forfeiture Fund. These information exchanges will bolster FinCEN’s information exchange regime by enhancing two key channels for sharing information: (1) information exchange between the government and financial institutions (Section 314(a)) and (2) information exchange among financial institutions (Section 314(b)). Federal law enforcement agencies will have the ability to locate accounts of, and transactions conducted by, suspected terrorists or money launderers by providing identifying information to FinCEN. FinCEN, in turn will disseminate that information, to financial institutions. The financial institutions will be required to search their internal records in an effort to match submitted law enforcement information and to report their findings through FinCEN, back to the federal law enforcement agency. Acting as a communications hub, FinCEN will aggregate information received from financial institutions and will provide a single report back to the requesting federal law enforcement agency. Establishing Patriot Act Communication Systems (PACS) in support of Section 362 of the USA Patriot Act ($330,000): Additional funding is required to continue the expansion of PACS begun in FY 2003 with one-time funding from the Treasury Forfeiture Fund. The Patriot Act of 2001 requires FinCEN to (1) develop a “highly secure network” to allow financial institutions to electronically file Bank Secrecy Act (BSA) forms and (2) provide these institutions with alerts regarding suspicious activities that warrant immediate and enhanced scrutiny. To meet the Congressional mandates, FinCEN awarded a contract in February 2002 and the system was successfully piloted through August with 30 financial institutions. This e-filing process will provide significantly improved information to law enforcement for their investigations of money laundering and terrorist-related financing by improving the timeliness and quality of the data. In FY 2001, over 13 million BSA documents were filed through IRS-DCC with 70 percent of these reports filed via magnetic media. Of these, Suspicious Activity Reports FinCEN - 9 g Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 (SARs), totaling approximately 180,000 per year, are one of the most critical BSA reports to law enforcement as they contain critical narrative information describing the details of the activity. The SAR form, with 50 percent being filed via magnetic media, is currently susceptible to data entry and other input errors. A recent evaluation of the BSA electronic filing program implementation within the IRS and FinCEN indicates that there are inadequate resources in the near-term to cover the expected level of participation. Over time the electronic filing process will have the potential to significantly reduce processing costs at the IRS-DCC if financial institutions currently filing using paper adopt new business processes to take advantage of this system. FinCEN - 10 £ Financial Crimes Enforcement Network, Salaries and Expenses 1: Investigative Analysis, BSA Administration, and International Activities Budget Activi The budget activity of investigative analysis, BSA administration, and international activities supports Treasury's strategic goal to “Combat Money Laundering and Other Financial Crimes” by using its network to link the law enforcement, financial and regulatory communities together for the common purpose of preventing and detecting money laundering and other financial crimes. Additional description of these activities is provided above in the strategic context section. Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table FY 2002 FY 2004 FY 1999 || FY2000 FY2001 *Y* | *. . - Performance | Performance Performance Target Performance Target #.. Budget Authority (5000s, TºTTEFETEA-TETTETTSETT sº Direct FTE 160 169 174 238 200 254 277 VCRTF Budget Authority ($000s)...… $1,400 $1,750 VCRTF FTE Performance Measures; Workload and Other Non-Performance Statistics Performance Goal A: Supporting the Financial Aspects of Investigations: To provide quality and timely investigative support and networking to FinCEN’s customers for money laundering, terrorist financing, and other financial crime cases. A1. Percentage of law enforcement investigative analytical reports. (W) customers satisfied with FinCEN’s N/A N/A N/A Baseline 79% 80-83% 85-90% investigative analytical reports. (S) A2. Number of investi gative cases - networked among law enforcement agencies. N/A Baseline 2.921, 2,200-2,800 | 1,600* |2,000-3,000 |4,000-5,000 (Estimated FY 2000 base: 2,500 per year) (W) A3. Number of subjects in completed sk 33,000- xit tº sk 34,000- 36,000- 30,489 30,821 34,307 38,000 30,840 40,000 42,000 *Revised. Reported as 2,113 cases and 32,278 subjects in FY 2003 President's Budget. * ** A change in the type of cases received, adjustments to the matching criteria and a reduction in the number of queriable databases has resulted in a reduction in the overall networks. *** The number of cases significantly exceeded prior year. However, the number of subjects decreased from 8 subjects per case to approximately 5 subjects per case, which resulted in an overall decrease in subjects researched. 2/3/03 FinCEN - 11 g FY 1999 Performance FY 2000 Performance FY 2001 Performance FY 2002 Target Performance FY 2003 Target FY 2004 Proposed Target Performance Measures; Workload and Other Non-Performance Statistics Performance Goal B: Identifying Financial Crime Trends and Patterns. To provide useful information to law enforcement, regulators and financial institutions about trends, patterns, and issues with money laundering, terrorist financing, and other financial crimes. B1. Percentage of financial industry customers satisfied with FinCEN’s (W) analytical products that provide feedback N/A N/A N/A Baseline N/A* N/A Baseline on the use and utility of BSA data. Baseline to be established in FY 2004] (S) B2. Number of strategic analytic products. N/A N/A 53 55-70 69 75-90 90-100 Performance Measures; Workload and Other Non-Performance Statistics Performance Goal C: Administering the Bank Secrecy Act. To administer effectively the Bank Secrecy Act in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. C1. Percentage of customers (financial case. (O) institutions) satisfied with FinCEN’s N/A N/A N/A N/A N/A Baseline D º: be d guidance. [Baseline to be established in FY €termine 2003] (S) C2. Average time to process a civil penalty 2.0 years 1.8 years 1.8 years 1.8 years 1.5 years 1.5 years 1.5 years 2/3/03 * FinCEN’s efforts to establish this customer service measure baseline in FY 2002 slipped to FY 2004. FinCEN continues to believe the best way to examine our support to the financial institution industry is by monitoring customer feedback and expectations over time. FinCEN - 12 g Financial Crimes Enforcement Network, Salaries TFNCENFEKTITEM ºurs and Expenses | Performance: Performance | Performance | Target | Performance | Target | tº CTHITICS. Performance Measures; Workload and Other Non-Performance Statistics . Performance Goal D. Fostering International Cooperation. To establish and strengthen mechanisms for the exchange of information globally, and engage, encourage, and support international partners in taking necessary steps to combat money laundering, terrorist financing, and other financial D1. Number of investigative information exchanges coordinated with foreign jurisdictions. (W) - 217 221 435 225-250 760 500-600 500-600 accomplish FinCEN's mission. Performance Measures; Workload and Other Non-Performance Statistics Performance Goal E: Strengthening Management Support. To build efficient and effective management processes and administrative support to E1. Percentage of employees who are satisfied with their job. [Baseline to be established in FY 2002] (O) N/A N/A N/A Baseline 66% NA* 70-75% E2. Percent reduction in total work-related injuries and illness rate. [Baseline: FY 2001 work-related injuries and illness rate = 4.42]. (O) N/A N/A Baseline 100% 89% 100% 0% E3, Reduction in number of new workers compensation claims accepted by the Office of Workers Compensation Programs (OWCP). [Baseline: FY 2001-8 OWCP claims]. (O) N/A N/A Baseline E4. Percent reduction in lost time case-rate. [Baseline: [FY 2001-0 cases lost time]. (O) N/A N/A Baseline 0% # * 100% 0% *This data will be collected every other year in order to allow time to act ont ** FinCEN had one case with lost time, a rate of 0.48. 2/3/03 he results ofthe survey. The next survey will be conducted in FY 2004. FinCEN - 13 3. Financial crimes Enforcement Nº. salaries and Expenses - BUDGET ACTIVITY 2: REGULATORY SUPPORT PROGRAMS, INCLUDING MONEY SERVICES BUSINESSES (MSB Beginning in FY 2004, this program will support all new requirements to strengthen anti-money laundering controls with the money Services businesses industry, casino, broker/dealer, securities, and other industries with new program or reporting requirements under the Bank Secrecy Act (BSA). FinCEN will also continue efforts with the IRS, especially related to the money service business industry, to assure compliance, respond to public inquiries, distribute forms, and publications, and support information processing of the BSA data. Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table *Balance or $2.2M carried forward from FY 1999 FinCEN Performance Measures FY 2002 FY 2002 FY 2004 FY 1999 FY 2000 FY 2001 FY 2003 Proposed Performance Performance | Performance Target Performance Target Target Budget Authority ($000s) $2,270 $7,790 $7,790 $7,964 $8,152 TFF Reimbursable Funding ($000s) $300 $2,190* Performance Measures; Workload and Other Non-Performance Statistics Performance Goal C: Administering the Bank Secrecy Act. To administer effectively the Bank Secrecy Act in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. 11,000- C3. Number of MSBs registered. (O) N/A N/A N/A N/A 11,253 50-250% 13,000 *Registration required biennially. FY 2003 number represents only new registrants. 2/3/03 FinCEN - 14 g Financial Crimes Enforcement Network, Salaries and Expenses DETAIL OF Ful-L-TIME Equival ENT STAFFYEARS BY CATEGORY Policy/program professional staff................................. 158 210 233 23 10 13 Administrative staff................................... ------------------- 24 27 27 - Secretarial and clerical................................................. 7 7 7 - Crafts and º - - -> — § Part-time & temporary full-time equivalent staffyears. --- 5 5 5 - 2/3/03 FinCEN-15 3 Senior Executive Service Level 5... Senior Executive Service Level 4... Senior Executive Service Level 3... Senior Executive Service Level 2... Senior Executive Service Level.1 Senior Executive Service Level 6.............................. . . Financial Crimes Enforcement Network, Salaries and Expenses DETAIL of FullL-TIME EquivaLENT STAFFYEARS BY GRADE º Execurve Level 1 Executive Level 2 Executive Level 3.... Executive Level 4 Executive Level 5 GS-15. 2/3/03 FinCEN-16 g STANDARD CLASSIFICATION SCHEDULE Direct Obligations (Dollars in Thousands) º Object Classification Personnel compensation: Permanent positions 14,855 18,801 20,867 2,066 Positions other than permanent 437 184 184 - Other personnel compensation............................ 638 626 626 - Special personal services payments.… - - - - **** - º Civilian personnel benefits........................................ Benefits to former personnel. Travel and transportation of person Transportation of things................ Rents, communications and utilities: Rental payments to GSA... 2,530 3,363 4,443 1,080 Rental payments to others. 32 28 30 2 Other rents, communications and utilities. 435 500 501 1 Printing and reproduction 108 50 50 - Other services: Advisory & assistance services 92 180 180 - Other services..................................... - 2,729 6,037 7,558 1,521 Purchase of goods/services from Govt. accts. 11,358 7,789 9,026 1,237 Operation & maintenance of facilities..... 1,106 600 600 - Research & development contracts - - - - Medical care..................................... 86 93 6 Operation & maintenance of equipment.... 5,688 5,335 5,533 198 Subsistence & support of persons - - - - Supplies and materials.... 356 300 309 9 Equipment --------------------------- ------- 2,072 1,582 1,794 212 Lands and structures ---- - - - Insurance claims and indemnities Confidential expenditures. Unobligated balance available, SOY Unobligated balance available, EOY Unobligated balance expiring Less Legislative Proposal.... NotE: Include carry overbalances of unexpired accounts. FinCEN-17 Financial Crimes Enforcement Network, Salaries and Experses 2/3/03 se Financial Crimes Enforcement Network, Salaries and Expenses Department of the Treasury FINANCIAL CRIMES ENFORCEMENT NETWORK Federal Funds General and Special Funds: SALARIES AND EXPENSES For necessary expenses of the Financial Crimes Enforcement Network, including hire of passenger motor vehicles; travel expenses of non-Federal law enforcement personnel to attend meetings concerned with financial intelligence activities, law enforcement, and financial regulation; not to exceed $14,000 for official reception and representation expenses; and for assistance to Federal law enforcement agencies, with or without reimbursement, $57,571,000, of which not to exceed $4,500,000 shall remain available until September 30, 2006; and of which $8,152,000 shall remain available until September 30, 2005; Provided, That funds appropriated in this account may be used to procure personal services contracts. Justification of Language Changes The funding available until September 30, 2006 is required for information technology or special analytical efforts and therefore, requires a longer lead time to execute. The funding available until September 30, 2005, reflects the amount requested for Regulatory Programs, including MSB. This approach in essence establishes a separate appropriation for the Regulatory Programs, including MSB funding, which will be implemented through inter-governmental contract support with IRS and other contractual partners. 2/3/03 FinCEN - 18 § Financial Crimes Enforcement Network, Salaries and Expenses FINANCIAL CRIMES ENFORCEMENT NETWORK (FinCEN) TABLE OF CONTENTS VOLUME 2 – PERFORMANCE PLAN STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN FinCEN-1 RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN FinCEN- 5 PEFORMANCE INFORMATION BY BUDGET ACTIVITY Budget Activity 1: Investigative Analysis, BSA Administration, and International activities Budget Authority, FTE, and Performance Measures FinCEN- 7 FY 2004 Proposed Performance Plan FinCEN-10 FY 2003 Final Performance Plan FinCEN-12 Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals......... FinCEN-15 Budget Activity 2: Regulatory Support Program Activities, including Money Services Business FinCEN-19 Budget Authority, FTE, and Performance M tº - FinCEN-19 FY 2004 Proposed Performance Plan FinCEN-20 FY 2003 Final Performance Plan FinCEN-20 Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals......... FinCEN-20 SUPPORTING MATERIALS Customer Service Standards Performance Report Summary FinCEN-21 Cross-Cutting Coordination Efforts FinCEN-21 Verification and Validation of Data and Performance Measurement Definitions FinCEN-22 2/3/03 - FinCEN-i § Financial Crimes Enforcement Network, Salaries and Expenses SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLANS AND REPORTS STRATEGICCONTEXT FORTHE FY2004BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 Budget by demonstrating how funding enables the Financial Crimes Enforcement Network (FinCEN) to achieve its strategic objectives, and how those objectives are ascertained through performance goals and measures. Mission FinCEN was created in 1990 and established as a Treasury law enforcement bureau by the USA Patriot Act in October 2001. The mission of FinCEN is to support law enforcement investigative efforts and foster interagency and global cooperation against domestic and international financial crimes and to provide U.S. policymakers with strategic analyses of domestic and worldwide money laundering developments, trends, and patterns. FinCEN works toward those ends through information collection, analysis, and sharing, as well as technological assistance and innovative, cost- effective implementation of the Bank Secrecy Act (BSA) and other Treasury authorities. • FinCEN supports law enforcement investigations to prevent and detect money laundering, terrorist financing, and other financial crimes. Money laundering is the process by which criminals or criminal organizations seek to disguise the illicit nature of their proceeds or the illicit use of moneys by placing them into the stream of legitimate commerce and finance. Money can be laundered through a wide variety of enterprises, from banks and money transmitters to stock brokerage houses and casinos. These illicit proceeds provide the fuel for drug dealers, terrorists, arms dealers, and other criminals to operate and expand their enterprises. • The BSA, originally enacted in 1970, authorizes Treasury to require covered financial institutions to file certain reports and keep records of certain types of financial transactions (e.g., Suspicious activity reports and currency transaction reports). This information helps to uncover the financial trail for investigators to follow as they track criminals and their assets. Using BSA information reported by banks and other types of financial institutions, such as money services businesses and casinos, FinCEN serves as the nation’s central clearinghouse for broad- based financial intelligence and information sharing on money laundering. • FinCEN's FY 2004 request supports—the fight against terrorist financing and money laundering—by funding efforts to accomplish the following strategic objectives: 2/3/03 FinCEN - 1 g Financial Crimes Enforcement Network, Salaries and Expenses Support the Financial Aspects of Investigations by providing quality and timely investigative support, as well as networking to its customers, in the fight against money laundering, terrorist financing, and other financial crimes. Identify Financial Crime Trends and Patterns for law enforcement, regulators, and financial institutions by applying strategic analysis techniques to an array of data collected pursuant to the BSA, obtained through commercially available sources, or received by law enforcement. Foster International Cooperation by promoting global cooperation through encouraging and supporting other countries to establish financial intelligence units, and strengthening the mechanisms to facilitate the exchange of information. Administer the BSA Effectively in partnership with the financial services industry, the financial regulatory agencies, and the law enforcement community in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. - Strengthen Management Support by building efficient and effective management processes and administrative support to accomplish FinCEN’s mission. . Key Strategic Issues FinCEN is challenged to meet the new and expanded responsibilities in the USA Patriot Act of 2001 and the 2002 National Money Laundering and Terrorist Financing Strategy, while maintaining the capabilities to meet the ever-rising demand for its traditional financial intelligence expertise and support of financial crime investigations. Moreover, the Patriot Act accelerated the need for FinCEN to expand the reporting and recordkeeping requirements of the BSA to additional segments of the financial community. FinCEN is also required to expedite the creation of an electronic process to share information between law enforcement and the financial institutions. An assessment of FinCEN’s strategic direction has identified the following issues: . • Support New Requirements while Maintaining Pre-9/11 Service Efforts. Immediately following the tragedy of September 11th, 2001, FinCEN estimates that 30-50 percent of its resources were totally dedicated to terrorist financing related activities. Although this activity appears to have stabilized, the workload associated with terrorist financing is estimated to require 15-25 percent of FinCEN’s current resources. This requirement is in addition to the traditional law enforcement support demands. FinCEN continues to support Operation Green Quest, FBI’s Terrorist Financial Operations Section, the Policy Coordinating Committee Action Group on Terrorist Financing, and the National Money Laundering and Terrorist Financing Strategy of 2002, while, at the same time, continuing to meet the demands for FinCEN’s services. • Enhance Information Sharing. The Patriot Act provides new investigative resources and tools to aid in the detection and combating of money laundering and terrorist financing activities. It includes several provisions that require the facilitation of information sharing among 2/3/03 FinCEN - 2 3. Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 law enforcement, financial institutions, and regulators. One provision of the Act is the implementation of Section 314a and 314b. This provision increases FinCEN’s information exchange responsibilities by requiring two key venues for sharing information: (1) information exchange between the government and financial institutions and (2) information exchange among financial institutions. Federal law enforcement agencies will have the ability to locate accounts of, and transactions conducted by, suspected terrorists or money launderers by providing a list of names and identifying information to FinCEN. FinCEN, in turn, will disseminate that information to financial institutions. Financial institutions will be required to search their internal records in an effort to match submitted law enforcement information and report their findings through FinCEN, back to the federal law enforcement agency that generated the list. Acting as a communications hub, FinCEN will aggregate information received from financial institutions and will provide a single report back to the requesting federal law enforcement agency. Section 362 requires FinCEN to establish a highly secure network to allow financial institutions to file BSA reports electronically and provide financial institutions with alerts regarding suspicious activities. The electronic filing capability of this network, referred to as the Patriot Act Communication System (PACS), will improve the timeliness and quality of the data, especially for suspicious activity reports, by reducing transcription errors from paper forms and making the information available to law enforcement more quickly. The Act accelerated plans to implement an electronic filing option for BSA reports. Extend BSA Regulations to New Industries. Although FinCEN was in the process of issuing additional regulations to other sectors of the financial community beyond depository institutions, the Patriot Act accelerated this effort. For example, Section 352 of the Patriot Act requires all financial institutions to establish an anti-money laundering program. This requirement includes all financial institutions, those already subject to federal regulation (i.e., banks, credit unions, money services businesses, registered securities broker-dealers and futures commission merchants) and those that do not have a functional regulator such as pawnbrokers and insurance companies. In addition, expanding suspicious activity reporting to all sectors of the securities industry (e.g., commodity brokers, investment companies, hedge fund companies) and the insurance industry is expected between FY 2003-2004. The implementation of these provisions will require FinCEN to have additional subject matter experts to provide industry outreach, educate trade associations, and provide interface with financial industries. Expand Direct Access to BSA Data and Maximize Networking Opportunities. FinCEN’s Gateway program allows participating Federal, state and local law enforcement agencies to conduct their own research and not rely on the resources of an intermediary agency to obtain financial records—saving investigators time and money. Section 361 of the Patriot Act requires FinCEN to establish and maintain operating procedures for government-wide access to its systems. These procedures must provide appropriate limits on the use of the information in order to protect privacy rights. Since the events of September 11th, the demand for FinCEN’s analytical expertise in terrorist financing and money laundering has increased, thus the number of new agencies and users requiring direct access to BSA data through the Gateway process has risen sharply. One of the most outstanding and useful features of this system is its “alert” mechanism that automatically alerts FinCEN that two or more agencies have an interest in the same subject. In this way, FinCEN is able to assist law enforcement agencies in coordinating their investigations among themselves. As more agencies participate in the Gateway Program, there will be more opportunities for networking. - FinCEN - 3 § Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 Expand Capability to Identify Trends and Patterns of Money Laundering and Terrorist Financing. FinCEN will specifically focus on the analyses of informal value transfer systems and other non-traditional banking mechanisms. FinCEN staff will conduct studies, as well as seek contractual services from experts, and collaborate with foreign counterparts to better understand the use of informal value transfer systems in moving criminal proceeds and funding terrorist activity. FinCEN will also conduct analyses in support of various sections of the Patriot Act to identify money laundering trends and patterns as they relate to securities brokers and dealers, correspondent accounts, foreign corruption and foreign financial institutions. Enhance International Cooperation Efforts. FinCEN works with other countries to enhance mechanisms for exchanging financial intelligence on a international level, including using the worldwide network of Financial Intelligence Units (FIUs), known as the Egmont Group. The rapid exchange of financial intelligence among governments has become increasingly important to success in combating international financial crime. Information obtained from foreign sources has the potential to greatly enhance domestic efforts to successfully complete financial aspects of investigations. In June 2002, 11 new FIUs were admitted into the Egmont Group, bringing the number of countries/jurisdictions with an FIU to 69 (out of a potential 191 countries). This significant growth in FIUs has ramifications both for the Egmont Group—as well as for FinCEN-which provides significant assistance and training to new FIUs. FinCEN also serves as the Chair of the newly established Egmont Committee, which will serve to assist the Egmont Group in a range of activities from internal coordination and administrative consultation to representation with other international fora. - Build a Strong Infrastructure. The USA Patriot Act elevated FinCEN to bureau status in October 2001. With the basic authorities provided as a Treasury bureau, FinCEN is now beginning to develop the most efficient and effective administrative process to support our program goals. Our employees are our most valuable asset and employee satisfaction is a priority. A baseline employee satisfaction survey conducted in FY 2002 showed that 66 percent of the employees were satisfied overall with their job, 68 percent of the employees felt that they were treated with dignity and respect at work, and 75 percent were proud to work at FinCEN. FinCEN has conducted employee focus groups and is currently evaluating several courses of action to address areas for improvement. FinCEN plans to administer the survey periodically in order to assess progress. Ensuring the health and safety of our workforce is a priority for achieving the greatest value from our employees. Although to date FinCEN has had no serious safety-related accidents, we continue to be proactive in this area and are monitoring OUIT Sll CCCSS. FinCEN - 4 3. Financial Crimes Enforcement Network, Salaries and Expenses RELATIONSHIPBETWEEN THE STRATEGICPLAN AND THE ANNUAL PERFORMANCE PLAN -*sº Srmance Goals Treasury Strategic Goal | —--- - ------, - LP- - - --. - intº Luanzººrua as F. -- - - To provide quality and timely investigati etworking to FinCEN’s º: . Money Laundering and Other customers for money laundering, terrorist financing and other financial crime cases. IIlaſ Clà! UIHIºleS To provide useful information to law enforcement, regulators and financial - institutions about trends, patterns, and issues with money laundering, terrorist financing and other financial crimes. To administer effectively the Bank Secrecy Act in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. To establish and strengthen mechanisms for the exchange of information globally, and engage, encourage, and support international partners in taking necessary steps - to combat money laundering, terrorist financing and other financial crimes. Goal: Support the Achievement of Business Results To build efficient and effective management processes and administrative support to Goal: Improve Customer Satisfaction accomplish FinCEN’s mission. - Goal: Improve Employee Satisfaction Performance Budget and Performance Plans for FY 2003 and FY 2004 and Performance Data for FY 2002 The operations of FinCEN are divided into two budget activities: (1) Investigative Analysis, BSA Administration, and International Activities and (2) Regulatory Programs, including Money Services Businesses (MSB). For each of these activities, budget and performance data are presented in table format to show historical trends and performance expectations associated with the FY 2004 Budget. Following the tables, narratives are provided explaining the FY 2004 proposed performance plan, the FY 2003 final performance plan, and the evaluation of the FY 2003 performance plan relative to expected performance achieved toward the FY 2002 performance goals. - BUDGET ACTIVITY 1: INVESTIGATIVE ANALYSIS, BSA ADMINISTRATION, AND INTERNATIONAL ACTIVITIES Description of Program: This program supports a number of specialized efforts described below: - Supporting the Financial Aspects of Investigations: FinCEN’s in-house analysts provide direct case support to U.S. law enforcement at the federal, state, and local level and their international counterparts by preparing reports based on data collected under the BSA, and other commercial and law enforcement information. These reports identify links between business associates, bank accounts, property records, and other information to assist law enforcement in conducting more complete financial investigations. FinCEN also provides specially tailored 2/3/03 - FinCEN - 5 3. Financial Crimes Enforcement Network, Salaries and Expenses 2/3/03 forms of assistance that permit other agencies’ staff to have direct access to its resources. When two or more agencies have an interest in the same subject, FinCEN networks these agencies so they can better coordinate their related investigations and regulatory customers. FinCEN’s intelligence liaisons assist both the law enforcement and the intelligence communities by identifying and developing financial lead information. FinCEN began a pilot initiative in FY 2000 to fully exploit all source information, to support law enforcement investigative interests related to drug trafficking and terrorist financing. This pilot effort positioned FinCEN to provide valuable expertise and information both prior to and following the tragic events of 9/11. . Identifying Financial Crime Trends and Patterns: FinCEN provides a unique capability to identify trends, patterns, and national-level issues, associated with money laundering, terrorist financing, and other financial crimes. FinCEN accomplishes these objectives by extracting information from BSA data and other information sources and then developing analytic products intended to assist FinCEN’s customers in furthering the prevention and detection of money laundering and financial crime. FinCEN utilizes sophisticated analytical tools to develop money laundering trends and patterns, identify emerging money laundering methodologies, and assess the threat posed by systemic illicit financial activity. These efforts serve as a catalyst for research, analysis, and dissemination of information on money laundering methodologies and the preparation of geographic threat assessments associated with money laundering and other financial crimes. These products can be used to identify trends and patterns in the movement of potential terrorist funds, reveal investigative leads for law enforcement, and provide guidance to the financial industry on funds movement activities symptomatic of terrorist financing for enhanced Scrutiny and risk management. - Administering the BSA: Effective administration of the BSA is the foundation of FinCEN’s core mission to support law enforcement investigations. Working in partnership with the financial services industry, the financial regulatory agencies, and the law enforcement community, FinCEN recommends and implements policies designed to effectively administer the BSA, while balancing the associated burden imposed on the regulated financial institutions. FinCEN is also in the process of expanding suspicious activity reporting to the casino and security broker/dealer industries, and by FY 2004, should include additional segments of the financial services industry. In addition, FinCEN is working to comply with several statutory provisions under the Patriot Act that would require all financial institutions, including the insurance industry and investment companies, to establish anti-money laundering compliance programs. Fostering International Partnerships: FinCEN works closely with other components of the U.S. government and its global partners around the world to counter the growing threat of transnational crime to financial institutions and governments. The growing sophistication and expertise of money launderers coupled with the tremendous increase in the volume and scale of international trade and business transactions have made international cooperation essential. In addition, FinCEN coordinates and provides training and technical assistance to partner nations seeking to legislate against financial crimes, put in place anti-money laundering regimes and establish financial intelligence units. FinCEN also serves as the Chair of the newly established Egmont Committee, which will serve to assist the Egmont Group in a range of activities from internal coordination and administrative consultation to representation with other international fora. - FinCEN - 6 3 Financial Crimes Enforcement Network, Salaries and Expenses Building a Strong Infrastructure: From a strategic perspective, this management support objective was included in FinCEN’s strategic plan to recognize the role of both FinCEN’s overall management team and its administrative support functions (e.g. human resources, information technology, financial management, and procurement) in the achievement of its mission. The inclusion as a strategic objective demonstrates management’s commitment to improving the work environment for its employees and customers. FinCEN’s employees are its most valuable asset, with employee satisfaction and workplace safety continuing to be its priority. Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table : . . . . . . . - FY 2002 . . . . . . - 2004 FY 1999 FY 2000 FY 2001 FY 2003 *. osed Performance | Performance Performance Target Performance Target +.et Budget Authority ($000s) 53,000 $27,818 $35,283 $39,747 $39,747 $42,553 $49,419 Direct FTE 160 169 174 238 200 254 277 VCRTF Budget Authority ($000s)....................... $1,400 $1,750 VCRTF FTE - - . - º ations: To provide quality and timely investigative support and networking to Performance Goal A: Supporting the Financial Aspects of Investig FinCEN’s customers for money laundering, terrorist financing, and other financial crime cases, Performance Measures; Workload and Other Non-Performance Statistics A1. Percentage of law enforcement customers satisfied with FinCEN's N/A N/A N/A Baseline 79% 80-83% 85-90% investigative analytical reports. (S) A2. Number of investigative cases - networked among law enforcement agencies. N/A Baseline 2.921, 2,200-2,800 | 1,600* | 2,000-3,000 |4,000-5,000 (Estimated FY 2000 base: 2,500 per year) (W) A3. Number of subjects in completed 33,000- × 3:3# 34,000- 36,000- investigative analytical reports. (W) 30,489 30.821 34.307 sº 30,840 40,000 42,000 *Revised. Reported as 2,113 cases and 32,278 subjects in FY 2003 President’s Budget. *A change in the type of cases received, adjustments to the matching criteria and a reduction in the number of queriable databases has resulted in a reduction in the overall networks. - *** The number of cases significantly exceeded prior year. However, the number of subjects decreased from 8 subjects per case to approximately 5 Subjects per case, which resulted in an overall decrease in subjects researched. 2/3/03 FinCEN - 7 š Financial Crimes Enforcement Network, Salaries and Expenses FY 2002 FY 1999 FY 2000 FY 2001 FY 2003 *. * ro Performance | Performance Performance Target Performance Target ; Performance Measures; Workload and Other Non-Performance Statistics Performance Goal B: Identifying Financial Crime Trends and Patterns. To provide useful information to law enforcement, regulators and financial institutions about trends, patterns, and issues with money laundering, terrorist financing, and other financial crimes. B1. Percentage of financial industry customers satisfied with FinCEN's (W) analytical products that provide feedback N/A N/A N/A Baseline N/A* N/A Baseline on the use and utility of BSA data. [Baseline to be established in FY 2004] (S) B2. Number of strategic analytic products. N/A N/A 53 55-70 69 75-90 90-100 Performance Measures; Workload and Other Non-Performance Statistics Performance Goal C: Administering the Bank Secrecy Act. To administer effectively the Bank Secrecy Act in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. case. (O) C1. Percentage of customers (financial institutions) satisfied with FinCEN’s N/A N/A N/A N/A N/A Baseline TO be d guidance. [Baseline to be established in FY Determine 2003] (S) C2. Average time to process a civil penalty 2.0 years 1.8 years 1.8 years 1.8 years 1.5 years | 1.5 years 1.5 years * FinCEN’s efforts to establish this customer service measure baseline in FY 2002 slipped to FY 2004. FinCEN continues to believe the best way to examine our support to the financial institution industry is by monitoring customer feedback and expectations over time. 2/3/03 FinCEN - s Financial Crimes Enforcement Network, Salaries and Expenses FinCEN Performance Measures . . . . . FY 2002 FY 2004 - FY 1999 | FY2000 FY 2001 FY 2003 Proposed Performance Performance | Performance Target Performance Target Target Performance Measures; Workload and Other Non-Performance Statistics Performance Goal D: Fostering International Cooperation. To establish and strengthen mechanisms for the exchange of information globally, and engage, encourage, and Support international partners in taking necessary steps to combat money laundering, terrorist financing, and other financial D1. Number of investigative information exchanges coordinated with foreign jurisdictions. (W) 217 221 435 225-250 760 500-600 500-600 accomplish FinCEN's mission. Performance Measures; Workload and Other Non-Performance Statistics Performance Goal E: Strengthening Management Support. To build efficient and effective management processes and administrative support to E1. Percentage of employees who are satisfied with their job. [Baseline to be established in FY 2002] (O) N/A N/A N/A Baseline 66% NA* 70-75% E2, Percent reduction in total work-related injuries and illness rate. [Baseline: FY 2001 work-related injuries and illness rate = 4,42]. (O) N/A N/A Baseline 100% 89% 100% 0% E3. Reduction in number of new workers compensation claims accepted by the Office of Workers Compensation Programs (OWCP). [Baseline: FY 2001- 8 OWCP claims]. (O) N/A N/A Baseline E4. Percent reduction in lost time case-rate [Baseline: [FY 2001-0 cases lost time]. (O) N/A N/A Baseline O #3; 100% 0% **FinCEN had 1 case with lost time, a rate of 0.48. crimes. - 2/3/03 *This data will be collected every other year in order to allow time to act on the results of the survey. The next survey will be conducted in FY 2004. FinCEN - § Financial Crimes Enforcement Network, Salaries and Expenses FY2004 PROPOSED PERFORMANCE PLAN Description: The FY 2004 Budget Request for this budget activity is $49,419,000 and 277 FTE. Total increases over FY 2003 are $6,866,000 and 23 FTE. This level includes additional funding to support the USA Patriot Act provisions, meet increasing demand for investigative analysis, maintain the current level of effort and annualize positions approved in FY 2003. Based on FinCEN’s approved staffing levels and strategic plan, FinCEN plans to achieve the following results in FY 2004: Supporting the Financial Aspects of Investigations: Identi 2/3/03 Develop capability to support 800 new direct access users per year through the Gateway process. Significantly increase the number of investigative cases networked among law enforcement agencies through consolidation of BSA access mechanisms and the expansion of Gateway users. Explore opportunities to better utilize technology and reduce manual processes currently utilized to network agencies identified as working on the same subject. Enhance work processes in support of Section 314 information exchanges. Begin efforts to develop additional case background information, as part of the in-take process, in support of future strategic or pro-active analyses. Further improve the case processing time and enhance the number of subject linkages through more in-depth analysis for non-terrorist financing related cases such as grand jury, classified, under cover, and public corruption related inquiries. Continue to provide on-site support to the designated High Intensity Money Laundering and Related Financial Crimes Areas (HIFCAs). Utilize data mining tools to pro-actively identify suspicious activity from BSA data sources with a concentration on overall money laundering and financial crime target development. - Continue to support an ever increasing number of international customers, resulting from the growth in the number of Egmont Financial Intelligent Units (FIU). The anticipated growth of Egmont FIU membership, presently 69 countries, is 10-15 new countries each year, for the next several years. Continue efforts to pursue and develop a comprehensive regional approach to develop expertise and skills, specific to particular areas of the world in order to better detect individual organizations and financial transactions associated with money laundering, terrorist financing, and other illegal financial activities. Initiate cooperative efforts to support additional on-site detailee(s) to enhance multi-agency initiatives through joint collaboration. ing Financial Crime Trends and Patterns: Continue to improve FinCEN’s capability to identify financial transactions linked to potential domestic terrorist activity, focusing on the role of non-traditional financial service providers operating in the U.S. FinCEN - 10 : Financial Crimes Enforcement Network, Salaries and Expenses Implement analysis to develop a knowledge base and identify money laundering methodologies associated with foreign correspondent banking services, foreign corrupt officials and foreign financial institutions (especially those associated with Non-Cooperative Countries and Territories). Enhance FinCEN’s ability to identify and track illicit cross-border currency movements, especially along the U.S.-Mexico border. Continue the application of enhanced data mining tools to extract trend and pattern information from BSA data sources, with particular emphasis on recently implemented SAR databases (money services businesses, casinos, and securities and commodities futures). Continue to develop mechanisms for sharing strategic money laundering information among members of the Egmont Group of financial intelligence units (FIUs). - - Continue to provide feedback on the utility of SAR data with the financial services industry, focusing on semi-annual production of the SAR Activity Review—Trends, Tips and Issues and dissemination of bulletins and advisories. Continue to coordinate with law enforcement investigative sources to identify case-based money laundering trends and patterns. Continue to improve efforts in producing analytical products that reflect the customers’ needs based on feedback received by FinCEN. Administering the BSA: Evaluate implementation of SAR reporting requirements by financial institutions and provide additional guidance to correct deficiencies. Continue to provide feedback on the most frequent regulatory violations and on common BSA reporting errors to financial institutions. Evaluate enforcement program with respect to expansion of anti-money laundering program and SAR reporting requirements to new industries. - Evaluate opportunities to reduce the regulatory burden to the financial services industry and improve the usefulness to law enforcement through improved BSA data collection and reporting processes, including implementing possible legislative and administrative remedies related to the CTR exemption process. Deploy a secure, web-based BSA electronic filing system to financial service providers, as required by the USA Patriot Act. Issue reports and studies required by the USA Patriot Act. Update procedural regulations that prescribe procedures for obtaining regulatory rulings and regulations governing the administration of the penalty process. - Expand BSA reporting to additional industries, as required. Fostering International Cooperation: 2/3/03 Work within the Egmont Group of FIUs to identify whether there are any legal impediments to information exchange, especially relating to terrorist funding activities. Work within the Egmont Group of FIUs to streamline, make more uniform and increase the response time of the case processing system, thereby furthering the usefulness of information exchanges. - FinCEN - 11 ; Financial Crimes Enforcement Network, Salaries and Expenses - Increase capability to identify and meet training and technology needs of foreign jurisdictions, prioritized by U.S. agencies as critical in the fight against terrorism and terrorist financing, that are Egmont members or candidates, or designated by the Financial Action Task Force's (FATF's) anti-money laundering efforts as non-cooperative. - Work within Egmont to assist the efforts of FATF and the IMF and World Bank in the formulation and implementation of a framework for assessing compliance with international Standards. - - Continue to support the globalization of anti-money laundering activities through the efforts of FATF-style regional bodies by assisting and participating in these bodies. - Strive for 100% connection to the Secure Web of the Egmont Network of FIUs. - Seek to obtain greater coordination of technical assistance and training programs, particularly with regard to FIU development, with other agencies and international bodies and institutions. - Continue to support interagency and multilateral initiatives that review and assess global anti-money laundering efforts. Strengthen Management Support: - Evaluate the improvements in administrative processes achieved in the areas of human resources and procurement. - Implement Treasury’s Human Resource support system (e.g. HR Connect). - Provide further opportunities for developing skills in managing a diverse workforce. - Coordinate either the relocation to a new facility or the enhancement of the current facility. - Bring internal processes into compliance with the Government Paperwork Elimination Act (GPEA). - Conduct a biennial employee survey to monitor progress. - Collect baseline data for additional customer satisfaction measures and develop business cost measures. - Conduct vulnerability assessments, penetration testing, monitoring, auditing, advanced firewall and intrusion detection operations and reporting on FinCEN’s systems and network. - Provide training opportunities for FinCEN’s IT security staff to remain current with systems and network security methods and technology. - Develop enhanced training, through the Secure Outreach Web-site, for law enforcement on utilizing the BSA data. - Expand deployment of the Patriot Act Communications System (PACS). - Expand deployment of Secure Outreach Gateway Web Network including secure email. - Complete second phase of development of an Enterprise Architecture. FY2003 FINAL PERFORMANCE PLAN Description: The FY 2003 appropriation for Budget Activity 1 totals $42,553,000 and 254 FTE, which includes additional funding to begin implementation of the USA Patriot Act provisions, maintain the current level of effort and annualize positions approved in the FY 2002 emergency supplemental. The FY 2003 Performance Plan will continue to build a balanced set of performance measures, refining and adding, as appropriate, new customer satisfaction measures and business cost measures. FinCEN will focus on the following results in FY 2003: 2/3/03 FinCEN - 12 § Financial Crimes Enforcement Network, Salaries and Expenses Supporting the Financial Aspects of Investigations: Begin a multi-year effort to obtain additional comprehensive feedback on FinCEN’s investigative reports, which will allow FinCEN to better tailor its investigative reports to more fully meet the requirements of its law enforcement customers. Continue efforts to identify groups of customers that can be better served through FinCEN’s direct access programs, Gateway and Platform. Begin efforts to consolidate BSA access mechanisms used by Treasury law enforcement bureaus into the IRS-DCC primary portal. This effort will improve the timeliness and quality of data and allow expansion of networking opportunities. Establish a process to enhance information exchanges between financial institutions and law enforcement through the implementation of Section 314 of the Patriot Act. Continue to provide on-site support to the designated High Intensity Money Laundering and Related Financial Crimes Areas (HIFCAs). Begin testing and implementing new analytical linking tool to enhance the proactive identification and analysis of suspect financial networks. Begin developing global ‘regional specific’ program structure to enhance capabilities to provide valuable investigative referrals and financial lead information relative to particular geographic areas. ,sº Expand support to multi-agency terrorist financing intelligence programs through detailed FinCEN personnel, training, and direct BSA access for joint targeting initiatives. Begin utilizing secure communications to enable closer coordination for shared investigative interests with intelligence counterparts. . Identifying Financial Crime Trends and Patterns: 2/3/03 Improve FinCEN’s capability to identify financial transactions linked to potential domestic terrorist activity, focusing on illegal money remitters operating in the U.S. Apply enhanced data mining tools to extract trend and pattern information from Suspicious Activity Reports (SARs) and other BSA data SOil ICCS. Implement analysis of new Suspicious Activity Report (SAR) databases (money services businesses, casinos, and securities brokers and dealers) as they come on line. Develop a new series of FinCEN country and regional money laundering threat assessments based on analysis of BSA data, especially SARs, for use in the International Narcotics Control Strategy Report and other international risk assessment programs and initiatives. Continue to develop mechanisms for sharing strategic money laundering information among members of the Egmont Group of financial intelligence units (FIUs). Continue to provide feedback on the utility of SAR data with the financial services industry, focusing on semi-annual production of the SAR Activity Review—Trends, Tips and Issues and dissemination of bulletins and advisories. Expand coordination with law enforcement investigative sources, such as HIFCAs, to identify case-based money laundering trends and patterns. - Continue to improve efforts in producing analytical products that reflect the customers’ needs based on feedback received by FinCEN. FinCEN - 13 š Financial Crimes Enforcement Network, Salaries and Expenses Administering the BSA: Evaluate implementation of SAR reporting requirements by financial institutions and provide additional guidance to correct deficiencies. Continue to provide feedback on the most frequent regulatory violations and on common BSA reporting errors to financial institutions. Evaluate enforcement program with respect to expansion of anti-money laundering program and SAR reporting requirements to new industries. Evaluate the results of the CTR exemption study that began in FY 2002 concerning obstacles to utilization of the CTR exemptions. Prepare a report for Congress on the results of the CTR exemption study and provide Congress the industry feedback on the costs related to filing CTRs and SARs. The report will include recommendations for legislative and/or administrative remedies. Deploy a secure, web-based BSA electronic filing system to financial service providers, as required by the USA Patriot Act. Issue reports and regulations required by the USA Patriot Act (including wide expansion of anti-money laundering program requirements and final version of proposed rules issued during FY 2002). Determine whether further regulation of financial institutions is necessary to achieve BSA goals. Explore delegation of enforcement authority to appropriate federal regulatory agencies. Implement SAR reporting for Securities Industry and Casinos and publish the applicable forms for use by the respective industry. Expand BSA reporting to additional industries, as required. Implement procedures to improve quality of SAR reporting. Fostering International Cooperation: Work within the Egmont Group of FIUs to streamline and make more uniform the case processing system, thereby furthering the usefulness of information exchanges. - Increase capability to meet training needs of foreign jurisdictions prioritized by U.S. agencies as critical in the fight against terrorism and terrorist financing or designated by the Financial Action Task Force's (FATF's) anti-money laundering efforts as non-cooperative. Strive for 100% connection to the Secure Web of the Egmont Network of FIUs. - - Increase number of training and technical assistance efforts, reaching out to Middle East, Africa, and Asia. Broaden training opportunities to the growing number of FIUs. - Continue to support interagency and multilateral initiatives that review and assess global anti-money laundering and counter-terrorism efforts. Strengthen Management Support: 2/3/03 Continue to enhance timeliness and quality of personnel processes as FinCEN takes on additional human resource management functions previously performed by a cross-servicing agreement. - Begin to implement Treasury’s Human Resource support system (e.g. HR Connect). Begin implementation of a tele-working program. Provide further opportunities for developing skills in managing a diverse workforce. FinCEN - 14 s Financial Crimes Enforcement Network, Salaries and Expenses Coordinate the renewal of FinCEN’s lease or the relocation to a new facility. Develop a viable infrastructure to support the procurement functions and to improve the records management and property management processes. Coordinate development of the FY 2003-2008 Strategic Plan. Collect baseline data for new customer satisfaction measure on requests for information concerning regulatory matters. Improve processes related to personnel security by reducing the time required for background investigations and security clearances and continue efforts to bring the entire personnel security program in-house. Conduct vulnerability assessments, penetration testing, monitoring, auditing, advanced firewall and intrusion detection operations and reporting on FinCEN’s systems and network. Provide training opportunities for FinCEN’s IT security staff to remain current with systems and network security methods and technology Implement advanced IT systems and network security management solution using commercial software. Establish remote hot site in compliance with FinCEN’s Continuity of Operations Plan (COOP). Expand the opportunities for State and Federal law enforcement users to utilize FinCEN’s advanced data analysis tools, based on the results of the pilot project with the State of Florida. Complete infrastructure upgrades to achieve high availability and optimize performance of systems. Complete first phase of development of Enterprise Architecture. Complete Gap Analysis of BSA data processing; evaluate/determine future modernization plans. Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals: Description: Building upon the efforts outlined below, FinCEN will achieve the performance plan outlined in FY 2003. In FY 2002, FinCEN accomplished the following results: Supporting the Financial Aspects of Investigations: 2/3/03 Enabled federal, state, and local law enforcement investigators to directly access BSA data in support of more than 9,589 investigations, an increase of 10% over FY 2001. Supported over 4,700 investigations, including a 20% increase in pro-active case reports. Provided support to about 800 direct access users of BSA data, including training to 250 new users from various agencies. Provided over 1,600 opportunities for networking investigations by alerting other law enforcement agencies that two or more were interested in the same subject. Staffed two additional High Intensity Money Laundering and Related Financial Crimes Areas (HIFCA) working groups with a FinCEN analyst and provided access to FinCEN’s analytical tools and databases. An analyst for a third HIFCA is expected on board soon. Based on feedback from international Egmont customers, expanded the narratives of the investigative case reports to provide more detailed information to assist customers in understanding the results. FinCEN - 15 # Financial Crimes Enforcement Network, Salaries and Expenses Expanded pro-active efforts through the use of new technology and additional resources to increase the number and quality of investigative referrals. - Continued extended coverage of the operation center through April 2002 to coordinate investigative activities related to 9/11, and enhanced liaison with FBI Counter-Terrorism Center and Treasury’s Operation Green Quest. . . • . Supported a number of multi-agency efforts using FinCEN’s specialized analytical tools and secure facility by providing electronically shared and coordinated information relevant to common areas of joint agency interest. Developed valuable investigative referrals and financial lead information by redirecting the majority staff to support counter terrorist initiatives. i Significantly increased FinCEN’s participation in multi-agency working groups with the law enforcement and intelligence communities to facilitate sharing of appropriate financial information among these entities, including detailing personnel to the joint agency “Foreign Terrorist Asset Targeting Group” (FTAT-G). - Identifying Financial Crime Trends and Patterns: 2/3/03 Implemented a multi-faceted initiative to collect domestic law enforcement investigative information related to the use of Informal Value Transfer Systems (IVTS). This included: extracting and analyzing BSA data reflecting potential terrorist funding activity; sponsoring two conferences—one in Washington, D.C. and one in Mexico—to share information on terrorist financing methodologies; completing a contract study by an academic expert on the international implications of IVTS and terrorism; and preparing a report to Congress outlining risks posed by IVTS and recommending regulatory measures to address such risks. - - Disseminated 60 strategic analytical products covering money laundering methodologies, trends and patterns, statistical reports, geographic assessments, issues analyses, industry studies, and industry/law enforcement bulletins. Provided enhanced feedback to the financial industry on the value of SARs through publication of the semi-annual SAR Activity Review – Trends, Tips & Issues. At the request of the industry, the first issue of FY2002 focused on Money Services Businesses (MSBs); the second issue provided expanded coverage of terrorist financing. . Issued a SAR Bulletin on Financial Aspects of Terrorist Funding. - . Continued to develop a process within the Egmont Group of financial intelligence units (FIUs) to share money laundering trend and pattern information. - - Supported the U.S. role in the Financial Action Task Force (FATF), including preparation of the U.S. submission for and participation in the annual Money Laundering Typologies exercise, and participation in the FATF Asia-Pacific Group and the Caribbean Financial Action Task Force. Continued to provide analytical support to the HIFCA Working Group during the pre-selection and post-selection process. Implemented trend and pattern analysis of SAR data reported by Money Services Businesses (accelerated MSB SAR reporting required starting in January, 2002). . - Continued to monitor customer satisfaction feedback to tune production of strategic analytic products to the needs of the nation’s financial industries. - FinCEN - 16 § Financial Crimes Enforcement Network, Salaries and Expenses Administering the BSA: Expanded regulatory outreach efforts, responding to over 3,722 telephone inquiries, 198 publication requests, 114 written inquiries, and 70 electronic mail inquiries. Received 1,115 telephone calls on the Financial Institutions Hotline from financial institutions, resulting in 566 referrals to the FBI, Customs’ Green Quest Task Force, and OFAC, regarding suspicious activity related to terrorism. Implemented several aspects of the MSB program, including the development of a specially-dedicated MSB Website containing regulatory guidance materials for industry; the creation of the MSB Registration and SAR forms; and the outreach and educational efforts to the industry. Assessed civil money penalties in 4 cases and resolved 61 potential enforcement matters or backfiling determinations. Began a study on the obstacles to utilization of the CTR exempt’s n process, intended to reduce the number of excessive CTRs filed that are eligible for exemption and are of little use to law enforcement as well as the related costs of filing CTRs and SARs within the financial institutions industry. Section 366 of the Patriot Act required this effort. - - Issued final regulations requiring the securities industry to establish programs to detect and report suspicious activity. Proposed a draft regulation requiring suspicious activity reporting by casinos and card clubs and seeking industry comment. Increased the number and timeliness of the regulatory guidance materials provided to financial institutions. Issued numerous regulations required by the USA Patriot Act. Assisted Treasury in drafting and issuing reports to Congress required by the USA Patriot Act. Implement a pilot for a secure, web-based BSA electronic filing in partnership with IRS, as required by the USA Patriot Act. Initiated a quality review of SAR database. Fostering International Cooperation: 2/3/03 Coordinated 518 investigative information exchanges with 66 foreign jurisdictions, including support for 117 domestic law enforcement CàSCS, Supported efforts to expand the international network of Egmont FIUs, which expanded by 11 countries in FY 2002 for a total of 69 COuntries. Conducted training and a technological capabilities assessment in support of Plan Colombia. Supported the work of the Counter Terrorism Finance Training and Assistance Working Group in performing on-site country assessments and follow-up training and technical assistance. Provided training and technical assistance to over 30 countries, including intensive training courses and review of draft anti-money laundering legislation; hosted visits of law enforcement agencies or diplomatic representatives from over 50 countries; engaged Turkey in an FIU-FIU personnel exchange; and sent FinCEN experts to over 20 countries. Connected an additional 11 countries for a total of 52 countries to the Egmont Secure Network to enhance information sharing. Worked with the Egmont Group to publish, with the Financial Action Task Force, a collection of 20 sanitized terrorist-financing cases. FinCEN - 17 º Financial Crimes Enforcement Network, Salaries and Expenses Strengthen Management Support: 2/3/03 Expanded significantly the distribution of employment opportunity information through special mailings, partnerships with universities, and participation in job fairs. Enhanced awareness of diversity through a one-day Diversity Day Training conference, held special emphasis programs throughout the year, and continued to offer training, seminars and workshops on valuing diversity in the workplace. Completed a comprehensive review of FinCEN facility needs in anticipation of the lease renewals in FY 2003. Evaluated areas that required upgrades to physical security and began efforts to upgrade the internal intrusion detection system. Implemented a number of actions toward establishing an internal human resources management function to include position management, position classification, intake of applications, evaluation of applications, and employee/management relations. These actions have significantly improved service levels and reduced the time previously spent to bring on-board new employees. - Achieved Treasury’s goal of providing month end financial results within three days through cooperative efforts with FinCEN’s service provider. - Collected baseline data for new customer satisfaction measure on FinCEN’s analytical investigative reports. Conducted a survey in order to establish a baseline for employee satisfaction; conducted focus groups and other efforts to improve the overall employee environment and began implementation of survey recommendations. Completed an extensive evaluation of FinCEN’s IT systems and networks for Certification and Accreditation. Continued efforts to develop and implement systems security policies, assessments, testing, and systems/network security oversight. Strengthened FinCEN’s IT security program by adding experienced staff and implementing industry IT security practices. Completed a successful pilot of new advanced technology applications through the use of state-of-the-art data analysis tool. Developed and implemented Internet and fax-based systems in accordance with the requirements of Patriot Act Section 314. Completed a successful pilot for a secure Internet-based system for filing BSA data in accordance with requirements of Patriot Act Section 362. FinCEN - 18 E Financial Crimes Enforcement Network, Salaries and Expenses BUDGET ACTIVITY 2: REGULATORY SUPPORT PROGRAMS, INCLUDING MONEY SERVICES BUSINESSES (MSB) Beginning in FY 2004, this program will support all new requirements to strengthen anti-money laundering controls with the money services businesses industry, casino, broker/dealer, securities, and other industries with new program or reporting requirements under the Bank Secrecy Act (BSA). FinCEN will also continue efforts with the IRS, especially related to the money services businesses industry, to assure compliance, respond to public inquiries, distribute forms, and publications, and support information processing of the BSA data. Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table FinCEN Performance Measures FY 2002 FY 2002 *Balance of $2.2M carried forward from FY 1999 FY 1999 FY 2000 FY 2001 FY 2003 #.: Performance - Performance Performance - Target Performance Target Target Budget Authority ($000s) $2,270 $7,790 $7,790 $7,964 $8,152 TFF Reimbursable Funding ($000s) $300 $2,190* . Performance Measures; Workload and Other Non-Performance Statistics Performance Goal C: Administering the Bank Secrecy Act. To administer effectively the Bank Secrecy Act in order to support the prevention and detection of money laundering, terrorist financing, and other financial crimes. C3. Number of MSBs registered. (O) N/A N/A N/A N/A 11,253 50–250% 11,000- 13,000 *Registration required biennially. FY 2003 number represents only new registrants. 2/3/03 FinCEN - 19 § Financial Crimes Enforcement Network, Salaries and Expenses FY2004 PROPOSED PERFORMANCE PLAN Description: The FY 2004 Budget to implement the Regulatory Support Programs, including MSB Regulatory Program is $8,152,000. The total increase of $188,000 over the FY 2003 request is to maintain current levels. - This program will continue to support the efforts with the IRS, especially related to the money services businesses industry, to assure compliance with BSA statues, provides education to the public through field outreach, responds to public inquiries, distributes forms and publications, and supports information processing of the BSA data. However, the USA Patriot Act has expanded anti-money laundering program and reporting requirements to a number of industries previously not covered by the BSA. FinCEN will undertake programs to outreach to these new industry groups, as necessary. Funding may also support any new IRS DCC information technology requirement related to changes in form content or additional industries beginning SAR reporting. The MSB industry will also be required to update their registrations in FY 2004. FY2003 FINAL PERFORMANCE PLAN Description: The FY 2003 Budget to implement the MSB Regulatory Support Program is $7,964,000. This request provides funding to continue the efforts with the IRS, assuring compliance with BSA statues; providing the public with education guidance through outreach; responses to public inquiries; distributing forms and publications; and support in the processing of the BSA data. These oversight and outreach activities are essential to ensure compliance with national registration and other BSA requirements. FinCEN will continue outreach and education efforts through the development of additional guidance materials and other information in several languages to the money services businesses industry. FinCEN will also continue efforts to update and enhance its web site dedicated to the MSB community. A survey will be conducted to assess the effectiveness of the outreach campaign. The expected MSB registration for new businesses will be between 50 and 250. The MSB SARs are expected to increase to between 40,000 and 60,000, partially due to the elimination of a monthly consolidated report from the Postal Service. Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals: The FY 2002 Budget includes funding to support a multi-year public education effort. This effort will assure that the MSB institutions understand their requirements to register and to file suspicious activity reports. The extensive outreach will include direct contact through mailings of educational material, constituency contact through associations and other industry groups, and telephone contact. Results of a baseline survey revealed that, as of the beginning of FY 2002, approximately 77 percent of the MSB community had not heard anything about the new reporting rules. FinCEN began efforts to prepare and distribute guidance, training materials and other information to the MSB community. FinCEN also established a new website specifically aimed at providing materials, regulatory guidance, and other policy information. IRS-DCC also established procedures to process the national registration forms and the suspicious activity reporting forms filed by the industry. The results of these efforts 2/3/03 FinCEN - 20 ; Financial Crimes Enforcement Network, Salaries and Expenses were successful based on 11,253 registration forms filed (as of July 31, 2002), and approximately 12,402 SARS filed in FY 2002 (as of August 15, 2002). SUPPORTING MATERLALS CUSTOMER SERVICESTANDARDS PERFORMANCE REPORTSUMMARY FinCEN’s mission is to support federal, state and local law enforcement, therefore it is limited to the amount of direct contact with the public. FinCEN’s public contacts are primarily through industry representatives or their federal oversight agency. To ensure a balanced approach to performance measurement is achieved, FinCEN will introduce customer service based performance measures over the next few years. These measures will include customer satisfaction with FinCEN’s investigative analytical reports, analytical products that identify trends and patterns of suspect financial activities, and regulatory assistance efforts. The first customer satisfaction measure—for FinCEN’s investigative analytical reports—was initiated in FY 2002. CROSS-CUTTING COORDINATION EFFORTS FinCEN coordinates on cross-cutting efforts with a number of public and private sector groups. On the domestic side, an important vehicle for coordinating cross-cutting efforts is the BSA Advisory Group (BSAAG), a Treasury-sponsored group, composed of representatives from the institutions subject to the BSA, such as banks, broker-dealers, and MSBs, as well as state and federal law enforcement and financial regulators. In FY 2002, FinCEN continued to participate in the leadcrship of the BSAAG Suspicious Activity Report (SAR) Feedback Subcommittee, which created a mutually agreed upon framework among the financial industry, regulators and federal law enforcement for providing feedback on the use and utility of SARS to law enforcement, financial institutions, and Congress. During FY 2002, FinCEN worked with several private sector associations to increase feedback from their respective members on the value of FinCEN’s analytic products. In addition, FinCEN worked closely with Business Executives for National Security (BENS) to identify appropriate mechanisms to engage with industry leaders in developing an action plan for addressing terrorist financing across a broad spectrum of financial service providers. As a result of this effort, BENS intends to reach out to CEOs to assist in improving SAR reporting. FinCEN also participated with the New York Clearinghouse on ways to improve communication among law enforcement and the private sector in terrorist financing. FinCEN coordinates extensively with other federal agencies on numerous cross-cutting initiatives such as those identified in the 1999, 2000, 2001 and 2002 Treasury-Justice National Money Laundering Strategies. FinCEN also supports the FBI’s Terrorist Financial Operations Section, Treasury’s Operation Green Quest, and the Policy Coordinating Committee Action Group on Terrorist Financing, Another federal group in which FinCEN participates is the SAR Owners' Group (OG). FinCEN executives meet periodically with officials from the five federal regulatory agencies to discuss issues with the Suspicious Activity Report. For example, we are currently vetting proposed changes to the SAR form through the OG, seeking their concurrence on changes FinCEN is recommending. The system is working well. The OG concurs with our Suggested changes, and has added a few more. The purpose is to have SAR reporting timely and accurate, at minimal cost. 2/3/03 FinCEN - 21 # Financial Crimes Enforcement Network, Salaries and Expenses . On the international side, FinCEN participates in multilateral fora such as the Financial Action Task Force (FATF) and the Egmont Group of Financial Intelligence Units. In FY 2002, FinCEN supported the U.S. role in the FATF, particularly the annual Money Laundering Typologies exercise, the Asia-Pacific Group on Money Laundering, the Caribbean Financial Action Task Force, the Council of Europe PC-R-EV Committee, and the Eastern and Southern Africa Anti-Money Laundering Group. - | VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS Budget Activity 1: Investigative Analysis, BSA Administration, and International Activities For each performance measure, a definition as well as verification and validation information is provided below. Based on the verification and validation information, each measure’s data is rated as having either: “Reasonable Accuracy” (judged to be sufficiently accurate for program management and performance reporting purposes) or as ‘Questionable or Unknown Accuracy.” In the case of measures where statistical confidence intervals are available, these are provided instead of the rating statements above. • Strategic Performance Measure A1: Percentage of law enforcement customers satisfied with FinCEN’s investigative analytical reports. [Baseline to be established in FY 2002.] Definition: This measures the share of our Federal law enforcement customers who are satisfied with the investigative reports prepared by FinCEN analysts and contractors as a percentage of the total. The investigative reports represent a significant portion of our workload and one of the most frequent ways in which FinCEN staff supports law enforcement cases. How Data is Captured: The data was collected by the contractor that conducted the telephone survey and the results were published in the final report. Verification and Validation of Data Quality: A listed sample of 262 surveys were conducted via telephone. The results had a margin of error of + or -6.1 percentage points at a 95% confidence interval. The results of the survey will be compiled annually using a survey instrument. Data Accuracy: Reasonable Accuracy. • Operational Measure A2: Number of investigative cases networked among law enforcement agencies. 2/3/03 Definition: This measures the number of opportunities FinCEN has for networking investigative efforts among various agencies. When FinCEN identifies two or more federal or state organizations that are looking at the same individual, business, or organization, it notifies the organizations of the common interest. These networking opportunities should reduce duplicative investigative efforts, and encourage information sharing among law enforcement organizations at both the Federal and State level. How Data is Captured: Automated systems are used to identify and track the number of investigative efforts that are networked. FinCEN - 22 É Financial Crimes Enforcement Network, Salaries and Expenses Verification and Validation of Data Quality: The results are available on an ongoing basis and are evaluated semi annually. Data Accuracy: Reasonable Accuracy. • Workload Measure A3: Number of subjects in completed investigative analytical reports. Definition: This measures the number of subjects, such as business associates, linked together with bank accounts, property records, and other information, in investigative analytical reports prepared by FinCEN analysts. The number of Subjects researched and/or identified could be associated with the complexity and volume of case research over time. It also indicates the level of manpower and computer support required to complete the investigative analytical reports. How Data is Captured: Each research request is given a unique case number. Automated systems are used to track and monitor this information. Verification and Validation of Data Quality: The results are available on an ongoing basis, and are reviewed on a quarterly basis. Data Accuracy: Reasonable Accuracy. • Strategic Performance Measure B1: Percentage of financial industry customers satisfied with FinCEN’s analytical products that provide feedback on the use and utility of BSA data. [Baseline to be established in FY 2004] - Definition: This measures the share of our financial industry customers who are satisfied with FinCEN’s specialized analytical products as a percentage of the total. FinCEN provides a variety of different products to regulators, financial institutions, and law enforcement, which examine the ‘macro-level’ issues regarding money laundering, terrorist financing and other financial crimes. One of the most important products is the SAR Activity Review, Trends, Tips and Issues. The semi-annual publication provides meaningful information about the preparation, use, and value of the Suspicious Activity Reports filed by financial institutions. How Data is Captured: The data will be recorded by the contractor tasked with carrying out the survey. Verification and Validation of Data Quality: The results of the Survey will be compiled annually using a Survey instrument. The results will be validated using standard statistical models. Data Accuracy: Reasonable Accuracy • Workload Measure: B2: Number of strategic analytic products. Definition: This represents the number of strategic analytic products prepared on a wide range of topics, including geographic regions, Specific industries, and or financial service areas. The products are comprehensive in nature and are intended to directly support law 2/3/03 . FinCEN - 23 : Financial Crimes Enforcement Network, Salaries and Expenses enforcement, analytical, and/or investigative efforts and assist the law enforcement, regulatory, and/or banking communities to better detect and prevent money laundering and terrorist financing activities. These reports contain conclusions, recommendations, and alternatives on various ways and means to attack identified vulnerabilities. How Data is Captured: The results of the completed strategic analytic products are required in an automated tracking system. A report is periodically completed to report the number of products completed. Verification and Validation of Data Quality: FinCEN’s Office of Strategic Analysis maintains Data for this measure. Data Accuracy: Reasonable Accuracy • Strategic Performance Measure C1: Percentage of customers (financial institutions) satisfied with FinCEN’s guidance. [Baseline to be established in FY 2003] . Definition: This measures the share of our financial institution customers who are satisfied with the regulatory guidance provided by FinCEN, as a percentage of the total. On an ongoing basis, FinCEN provides guidance and assistance to the regulated industries and federal regulators on the provisions of the Bank Secrecy Act through responses to phone, written and e-mail inquiries. How Data is Captured: The data will collected by the contractor that will conduct the telephone survey and the results will be published in the final report. Verification and Validation of Data Quality: The results of the survey will be compiled annually using a Survey instrument. The results will be validated using standard statistical models. Data Accuracy: Reasonable Accuracy. • Performance Measure C2: Average time to process a civil penalty case. 2/3/03 Definition: This measure tracks annual average case processing time for civil penalty matters received by FinCEN after January 1, 1998. The enforcement matters are entered into the automated log and evaluated to determine whether there is enforcement potential through a civil monetary penalty or otherwise. FinCEN has established management process guidelines to reduce the average processing time for civil penalty cases. How Data is Captured: The average case processing time is calculated annually, using the data captured through an internal database that tracks enforcement matters. The database on enforcement matters is maintained to record the date cases are received, the analyst assigned to the matter, the statute of limitations date, and the date each case was closed FinCEN - 24 É Financial Crimes Enforcement Network, Salaries and Expenses Verification and Validation of Data Quality: The database of enforcement matters is maintained and updated continually. The data is reviewed quarterly to identify cases that may exceed the processing timeliness goals. - Data Accuracy: Reasonably Accuracy. • Operational Measure D1: Number of investigative information exchanges coordinated with foreign jurisdictions. Definition: This measures the number of investigative information exchanges FinCEN staff coordinates with foreign jurisdictions. The results provide an indication of the degree to which FinCEN is successful at supporting anti-money laundering and anti-terrorist investigations internationally. FinCEN provides information to foreign jurisdictions in support of their anti-money laundering activities and, conversely, requests and receives information from those jurisdictions on behalf of U.S. domestic law enforcement investigations. How Data is Captured: Data is collected and maintained by FinCEN by tracking the request for information through a central logging system. Verification and Validation of Data Quality: The status of the request is checked for accuracy and updated at least on a weekly basis. Data Accuracy: Reasonable Accuracy. • Operational Measure E1: Percentage of employees who are satisfied with their job. [Baseline to be established in FY 2002] Definition: This measure provides an indication of the number of employees who are satisfied overall with their job, as a percentage of the total. Employees are FinCEN’s most important resource, and employee satisfaction is key to achieving excellence in customer satisfaction and business results. How Data is Captured: FinCEN utilized a contractor to develop a survey instrument and conduct the survey in order to ensure privacy for survey respondents. The survey had an 83% response rate. Verification and Validation of Data Quality: Standard survey methods and sample size requirements were used to administer and collect the data. The FY 2002 survey results will be the baseline for future evaluations. Data Accuracy: Reasonable Accuracy. * Performance Measure E2: Percent reduction in total work-related injuries and illness rate. Definition: The Secretary has established a goal of zero injuries and illnesses as a result of working at Treasury. To reach to this goal each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is calculated as the total number of OSHA reportable cases times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to 2/3/03 FinCEN - 25 : Financial Crimes Enforcement Network, Salaries and Expenses approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s total case rate was 3.63. - How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managerS. How the data is verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers' Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and /or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. Performance Measure E3: Reduction in number of new workers compensations claims accepted by the Office of Workers’ Compensation Programs (OWCP) Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. How Data is Captured: Data for this measure are captured through the Safety and Health Information Management System (SHIMS). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted to OWCP. How the data is verified and validated to make certain it is accurate: Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating. Data Accuracy: Reasonable Accuracy. Performance Measure E4: Percent reduction in lost-time case-rate. Definition: The goal is a lost-time case-rate of zero. To reach to this goal each bureau is expected to reduce its lost-time case-rate annually. The lost-time case rate is calculated as the total number of OSHA reportable cases involving lost-time times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost-time cases per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s lost-time case rate was 1.75. 2/3/03 FinCEN - 26 º: Financial Crimes Enforcement Network, Salaries and Expenses How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and Safety managers. How the data is verified and validated to make certain it is accurate: Each quarter a statistically representative sample of SHIMS records are selected and the data input is audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audits findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. Budget Activity 2: Regulatory Programs, including Money Services Businesses (MSB): - • Performance Measure C3: Number of Money Services Businesses registered. [Baseline to be established in FY 2002] Definition: This measure provides the total number of MSBs registered. A regulation required the registration of Money Services Businesses (MSBs) effective January 1, 2002. FinCEN’s MSB Regulatory Program supports efforts to identify and educate institutions concerning the new regulatory requirements, including the registration of MSBs. Verification and Validation of Data Quality: Registrations are being captured by IRS’s Detroit Computing Center on an ongoing basis. Data Accuracy: Reasonable Accuracy. - 2/3/03 FinCEN - 27 § Department of the Treasury, Franchise Fund DEPARTMENT OF THE TREASURY FRANCHISE FUND TABLE OF CONTENTS VOLUME 2 – PERFORMANCE SECTION PERFORMANCE INFORMATION Summary Results for Franchise Fund.................................................................................................... GOAL: Ensure Business Activities are Self Sufficient - GOAL: Ensure Customers are Satisfied with all Aspects of Service Provided— Quality of Products/Services, Delivery, Price and Conduct of Business............................................................. ~~~~ GOAL: Ensure Compliance with Legal and Regulatory Requirements GOAL: Ensure Competitiveness........................................................................................................ FY 2004 Performance Goals Explanation & # * * * * * * g e º a tº tº $ tº $ & e º 'º e º & © tº $ tº e g g g tº e g º & g º ºs s e º 'º e º ºs º º ſº s tº e º $ tº $ it a s * * * * * * * * * * * * * * * * * * tº e º e º 'º e º is a s a s gº tº e s e a t t e e º e º & © e s tº t e º e g º e s º ºs é º e s s tº e º $ tº e s is e º e º ºs e º 'º e º e º e s e º 'º e s tº e is 02/03/03 § ANNUAL PERFORMANCE PLANS AND RESULTS AS REQUIRED UNDER THE GOVERNMENT PERFORMANCE AND RESULTS OF 1993 (GPRA) SUMMARY RESULTS FOR FRANCHISE FUND The Franchise Fund budget and performance data are presented in table format to show historical trends and performance expectations —associated with-the-FY 2004-budget— FY 2001 F2007 F2003 | FY 2004 | . Actual Actual Final Plan Proposal Franchise Fund Costs ($000s) . . . . . . . . . . . FEDSOURCE $168,279 $255,205 $283,694 $314,375 ARC 35,336 38,204 44,679 49,517 TAS 13,891 9,628 9,319 9,712 FCG 1,831 1,877 3,453 3,539 IGATI 1,087 N/A N/A N/A TOTAL FUND $220,424 $304,913 $341,146 $377,143 Franchise Fund FTEs FEDSOURCE 40 49 54 54 ARC 334 362 405 415 TAS 54 - 58 66 68 FCG 3 4 5 6 IGATI 6 N/A N/A N/A TOTAL FUND 438 473 530 543 Franchise - 1 02/03/03 § GOAL: ENSURE BUSINESS ACTIVITIES ARE SELF SUFFICIENT FY 2001 Actual FY 2002 Actual FY 2003 Final Plan FY 2004 Proposal Positive Positive Positive alified Positive Positive Positive Positive N/ Positive Positive Positive Positive N/ Franchise -2 Department of the Treasury, Franchise Fund Consolidated Fund FEDSOURCE ARC Consolidated Fund TAS 02/03/03 FCG IGATI IGATI Consolidated Fund FCG FEDSOURCE ARC TAS § Department of the Treasury, Franchise Fund GOAL: ENSURE CUSTOMERS ARE SATISFIED WITH ALL ASPECTS OF SERVICE PROVIDED – QUALITY OF PRODUCTS/SERVICES, DELIVERY, PRICE AND CONDUCT OF BUSINESS. FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Final Plan Proposal FEDSOURCE ARC TAS - - FCG - 95% IGATI º - N/A Consolidated Fund - 93% FEDSOURCE ARC TAS FCG IGATI Consolidated Fund FEDSOURCE ARC TAS FCG IGATI Consolidated Fund 02/03/03 Franchise - 3 § GOAL: ENSURE COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS. FY 2001 Actual FY 2002 Actual FY 2003 Final Plan FY 2004 Proposal No Deficiencies No Deficiencies ualified Ion ified Opinion U t U ified Opinion U - J Opinion Unqualified Opinion Unqualified Opinion No Deficiencies No Deficiencies No Deficiencies No Deficiencies N/A No Deficiencies ied Opinion ied Opinion ied Opinion ied Opinion L - Unqualified Opinionſ No Deficiencies No Deficiencies No Deficiencies No No N/A No Deficiencies ified lified Unqualified Unqualified ( N/A Franchise - 4 Department of the Treasury, Franchise Fund 02/03/03 FEDSOURCE IGATI Consolidated Fund ARC FCG TAS TAS FCG ARC IGATI - Consolidated Fund FEDSOURCE § Department of the Treasury, Franchise Fund GOAL: ENSURE COMPETITIVENESS FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Final Plan Proposal FEDSOURCE ARC TAS FCG IGATI FEDSOURCE ARC TAS N/ 11% Consolidated Fund Ungualified Unaualified - Unqualified 02/03/03 Franchise - 5 g Department of the Treasury, Franchise Fund FY 2004 Performance Goals Explanation Result of Customer Surveys: Indicates an objective level of customer satisfaction. The result of the survey is derived form the following: a. Ongoing management service reviews with customers through on site visits b. Ongoing management contract review with contractors c. Customer Surveys using scale method with quantitative statistical analysis and results. Results of Audits/Reviews: Indicates an external review/opinion on the reasonable assurance about whether the financial statements are free of material misstatement. The review includes examining on a test basis: a. evidence supporting the amounts and disclosures in the financial statements; b. assessing the accounting principles used and significant estimates made by management; and c. evaluating the overall financial statement. - Sales Volume Growth: Indicates growth/decline over prior year. This measure is calculated by using customers serviced (current year)/customer serviced (prior year). % Cost of Goods Sold (COGS) to private sources: Indicates the total percentage value of business acquired from the private sector. This measure is calculated by total COGS/COGS private sector. Current Ratios: This ratio represents the number of times current assets will pay current liabilities. Break-Even Analysis: Reflects whether revenues exceed or are equal to expenses. 100% Voluntary Program Participation: Indicates whether customers are free to choose services from the Franchise Fund or select another service provider. - 02/03/04 Franchise - 6 § Financial Management Service, Salaries and Expenses FINANCIAL MANAGEMENT SERVICE TABLE OF CONTENTS volume 1–BUDGET REQUEST STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of FY 2003 President’s Budget Digest of FY 2004 Budget Estimates by Activity Summary Explanations of FY 2004 Request Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases Budget Authority, FTE and Performance Measures by Payments Activity Budget Authority, FTE and Performance Measures by Collections Activity Budget Authority, FTE and Performance Measures by Debt Collection Activity Budget Authority, FTE and Performance Measures by Governmentwide Accounting and Reporting Activity SUPPORTING MATERIAL Detail of Full-Time Equivalent Positions by Category Detail of Full-Time Equivalent Positions by Grade Explanation of Proposed FY 2003 Operating Budget Explanation of Congressional Action Appropriation Language Sheet and Justification of Language Changes SUMMARY JUSTIFICATION OF FY 2004 REIMBURSABLE PROGRAMINCOME ESTIMATES FISCAL AND FINANCIAL AGENT AGREEMENTS 02/03/2003 FMS - i | 12 13 14 15 17 18 22 § Financial Management Service, Salaries and Expenses STRATEGIC CONTEXT FORTHE FY2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Financial Management Service (FMS), and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission FMS’ mission is to provide central payment services to Federal program agencies, operate the Federal government’s collections and deposit systems, provide Governmentwide accounting and reporting services, and manage the collection of delinquent debt. This is accomplished by providing financial services, information, advice and assistance to customers, including taxpayers, the Department of the Treasury, Federal agencies, Government policymakers, and Congress. Key Strategic Issues Sufficient funding is requested by FMS to continue its excellent performance in providing critical services to millions of United States taxpayers and its other diverse base of customers and maintaining a high level of success in achieving Treasury’s and FMS’ strategic goals. FMS’ request for FY 2004 funding also provides significant support for the President’s Management Agenda to improve the financial performance of the United States Government and embodies Treasury’s leadership strategy to create value for the American people and focus on innovation. Key Strategy Impacts Payments: FMS continues to expand the use of electronic media to deliver Federal payments, improve service to payment recipients, and reduce Government program costs. These efforts help decrease the number of paper checks issued and minimize costs associated with postage; lost, stolen, and misplaced checks; and inefficiencies associated with the non-electronic delivery of benefits. Collections: FMS is focusing on expanding the use of the Electronic Federal Tax Payment System (EFTPS) and other electronic collection mechanisms to increase electronic collections and reporting. EFTPS accelerates the collection of tax dollars and information, and reduces reporting errors in the tax collection system. 02/03/2003 FMS - { § Debt Collection: The challenge for FMS is to incorporate all non-Treasury disbursed salary and vendor payments into FMS’ offset programs for collecting delinquent debt, develop policies and procedures for offsetting grant payments, and to continue to enhance mission-critical systems to provide better service to agencies that refer debts for collection. Governmentwide Accounting and Reporting: FMS will continue to place increased emphasis on program activities related to strengthening Governmentwide accounting operations, preparing the Government's consolidated financial statements, and providing increased guidance, direction and leadership to program agencies on Governmentwide accounting issues. FMS’ request includes funds for continued support of FMS’ obligations and court ordered responsibilities on behalf of the Department of the Treasury related to existing and anticipated Indian trust accounting litigation. Financial Management Service, Salaries and Expenses 02/03/2003 FMS - 2 g Financial Management Service, Salaries and Expenses Reprogramming (FTE only, except for inter-appropriation transfers) FY2003 Adjusted Presidents Budget Level, Plus/Minus Transfers........ Less Adjustment for Comparability with FY2004 Request under Homeland FY2003 Presidents Budget comparable with FY2004 Request........ Security Act ANALYsis of FY 2003 PRESIDENT's Budget LEveL Dollars in Thousands DiGEst of FY 2004 Budget Estimates. By activity 220,712 0. 220,712 º: º - 1. Payments 1,223 $129,347 1,173 $129,762 1,173 $136,565 o $6,803 0. o $6,803 2. Collections 81 $13,192 113 $16,063 113 $16,429 o $356 0. o $366 3. Debt Collection 134 $19,920 113 $19,680 113 $16,047 0 ($3,633) 0 o ($3,633) 4. Governmentwide Accounting and Reporting 380 $50,391 419 $55,207 419 $59,565 o $4,358 o o $4,358 Unobligated balance expiring Subtotal, Budget authority (All sources) 1,848 212,450 1,818 220,742 1,848 228,506 o 7,894 o o o 7,894 Loss adjustments for otherfunding sources: o o o o o o o o o o o o budget estimates (axcluding all transfers and reimbursements) 1,818. 212,850 1,818 220,742 1,814 225,606 0. 7,894 o o º 7,894 Less: Adjustment for Comparability with FY2004 Request underHomeland Security Act o o o 0. o o o 0 o 0. 0 o Enacted appropriations comparable with FY2004 1,818 ºz12,850 1,818 3220,742 1,818 5228,506 0. $7,894 0. so 0. $7,894 Memorandum. Under proposed legislation to reflect the ful costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added FY2002: $10,471; FY2003 $11,191, FY2004: $11,946. 1/ The FY 2002 enacted level presented it this digest does not include a $14 million rescission of unobligated balances perPublic Law 107-206. The rescinded amount is presented in the FMS Salaries and FY2003 Presidents Budget FY2003 Amendment(s)........ Adjustments (+/-) Proposed Transfers to/from other Accounts (list) Total enacted appropriations and Expenses section of the President's Budget Appendix 2/3/2003 FMS-3 3 Financis Management service, Salaries and Expenses summary ExPLANATIONS OF Fiscal-YEAR2004 REQUESTED CHANGEs BY ACTivity (Dollars in thousands) Fº º º: - -º-º-º: I . - - - PROGRAM CHANGEs: - º -i. #}} OTHERCHANGEs: adjustments Necessary to Maintain Current Levels: o 3,803 d 366 0. 367 o 1.358 o 5,894 Indian TrustAccounting o o o o o o o 2,000 O 2,000 |Nonrecurring Costs: o o o o o o o o 0. Productivity Savings: O o 0. o o 0. o o o Other Adjustments: 1. Re-direction of base resources: o 3,000 o 0. o (4,000) o 1,000 o o FMS will redirectFTE andfunding within and across Budget Activities to remain within its request and meet program and customer needs. º:#####sºft bºss. ſº ſº 02/03/2003 § Financial Management Service, Salaries and Expenses Explanation of Fiscal Year 2004 Budget Increases and Decreases EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Financial Management Service (FMS) are projected to be $228,606,000. This is a total increase of $7,894,000 over the FY 2003 total funding level of $220,712,000 for salaries and expenses. The associated FY 2004 FTE level is 1,818 the same level of FTE for FY 2003. OTHER CHANGES Total Request Other Chang - +$7,894,000 / 0 FTE Other Changes include adjustments necessary to maintain current levels (MCLs) and any other adjustments that may be required. They are as follows: 1. Adjustments Necessary to Maintain Current Levels +$5,894,000 / 0 FTE 2. Redirection of Base Resources.............................................................................................. +$ 0 / 0 FTE FMS will redirect FTE and funding within and across Budget Activities to remain within its request and meet program and customer needs. A total of $5,014,000 will be redirected to meet these needs with $1,014,000 redirected within budget activities and $4,000,000 redirected across budget activities. FMS will redirect ten FTE to align resources to more fully support security readiness and compliance. This redirection consists of two parts: 02/03/2003 FMS - 5 § The first part is to create a Bank Review Office to better ensure the security of over $2 trillion of Federal government receipts that are collected annually through banks and other financial institutions. The establishment of the Bank Review Office strengthens FMS’ aggressive, proactive security posture. This program will enable early detection of weaknesses and instances of non-compliance with Treasury’s security requirements. The redirection will provide staffing for the Bank Review Office. To staff the Bank Review Office, FMS will reduce its resources dedicated to developing and issuing collections program and cash management policy and regulatory pronouncements released to Federal program agencies and the public. The second part will enhance FMS’ entity-wide IT security management program. To accomplish this, FMS will reduce the staff devoted to the design and development of large new IT systems. - The proliferation of the Internet has added to the demand for a higher standard of IT security. The Government’s collection, payment, and accounting systems, which FMS manages, have become more exposed to the outside world through the Web. For example, online hacker tools are more readily available making it easier for individuals to find security weaknesses. An enhanced entity-wide IT security management program will provide additional focus on the development of security policies and standards; audit corrective action tracking; and certification and accreditation activities for FMS systems. Collections Security. - $ 406,000 / 4 FTE Entity-wide IT Security $ 608,000 / 6 FTE Reduction in Low-Value Efforts — Mining the Base - -$1,014,000 /-10 FTE As a result of increased debt revenues, FMS is able to redirect funds without adversely impacting the debt collection budget activity to other budget activities. FMS will redirect funding from the Debt Collection Budget Activity to the Payments and Governmentwide Accounting and Reporting Activities to align resources to more fully support workforce/skill needs and capital investments in those activities. This redirection consists of two parts: The first is to provide additional funding to support workforce restructuring across the Regional Financial Centers (RFCs) by upgrading the skill sets of employees who support payment operations. The change in technology and customer focus requires a different skill mix at each financial center to meet production and customer needs. Also, funding will be directed to replacing check production equipment that have reached its technical obsolescence and to enhance security related to issuing payments to continue to make accurate and on-time payments. Financial Management Service, Salaries and Expenses 02/03/2003 - FMS-6 ; The second is to provide additional funding to support workforce restructuring in the Governmentwide Accounting and Reporting activity to expand the analytical skills needed to review financial information in the new central accounting system (the Governmentwide Accounting redesign initiative) and evaluate agency data submitted, using a new reporting process, for the consolidated Financial Report of the U.S. Government. RFC Workforce Restructuring and Capital Investments Changes $3,000,000 / 0 FTE Governmentwide Accounting and Reporting Workforce Changes $1,000,000 / 0 FTE Debt Collection Direct Program Reduction Offset by Revenue Increases -$4,000,000 / 0 FTE 3. Indian Trust Accounting Support +$2,000,000 / 0 FTE Treasury is required by continuing court order in the Cobell, et al. v Norton et al. litigation to preserve, indefinitely, all records that may be needed by the Department of the Interior for an historical accounting due to Individual Indian Money (IIM) trust beneficiaries. The Department of the Interior has submitted to the court a comprehensive plan to undertake such an accounting for approximately 300,000 IIM beneficiaries. FMS has and will continue to be required to locate, segregate, analyze, duplicate and produce myriad accounting documents to support the historical accounting reconciliation being conducted by the Departments of the Interior and Justice. This funding would be used by FMS on behalf of Treasury to support all of these lawsuits. This would entail contracting with accounting firms and historians for discovery-related support such as assistance in locating, analyzing, duplicating and producing paper and electronic records. These funds would also be used to provide additional legal support, document production and for travel to meetings, court appearances, training and information gathering. Budget Authority. FTE and Performance Measures by Payments Activity BUDGET ACTIVITY 1: Payments The function of the Payments Activity is to develop and implement Federal payment policy and procedures, issue and distribute payments, promote the use of electronics in the payment process, and assist agencies in converting payments from paper checks to Electronic Funds Transfer (EFT). The control and financial integrity of the payments process includes reconciliation, accounting, and claims activities. The claims activity settles claims against the United States resulting from Government checks which have been forged, lost, stolen, or destroyed, and collects monies from those parties liable for fraudulent or otherwise improper negotiation of Government checks. It also includes processing claims and reclamations for electronic funds transfer payments. Financial Management Service, Salaries and Expenses 02/03/2003 - FMS – 7 § Financial Management Service, Salaries and Expenses sl29,095 $122,633 $167,460 2/ stºº,093 2/ $129,762 $136,565 Budget Authority (5000s) 1,257 1,259 1,163 1,223 1,111 1,173 1,173 Direct Fre Performance Goal: Provide Federal payments timely and accurately, move toward an all-electronic Treasury for payments, and determine the optimal payment processing environment for the future Performance Measures: 1. Percentage of paper check and Electronic Funds Transfer (EFT) payments made - -- accurately. (S)(CS) iſ Notin Plan Notinplan 100% 100% 100% 100% 100% 2. Percentage of paper checkmaelectronic Funds Transfer(EFT) payments made Notinplan Notinplan 100% 100% 100% 100%. 100% on time. (S) (CS) 3. Percentage of Treasury payments and associated information made el ically. (S) 6.8% 70% 72%. 3/ 73% 73%. 3/ 7.4% 75% 4. * of checkforgery and non-receipt claims adjudicated within 14 days. 93.5% 98.2% 96.3% 90% 98% 93% 9.4% 5. º payments customers indicating an overallrating of satisfactory or 99.3% 99% 100% 99% 99% 99% 99% 6. Percentage increase in dollarvalue loaded into stored - - 1.--> 15% value cards, compared to FY2002 baseline. (O) Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan Notin Plan 7. Percentage of EFT claims processed in one day. (CS) Not in Plan Not in Plan 100% 100% 100% Discontinued Discontinued 8. Number of electronic payments (thousands.) (W) 597,695 625,668 677,413 653,000 665,905 677,000 696,000 9. Number of checkpayments (thousands.) (W) 280,973 266,413 269,335.3/ 253,000 252,849/3 244,000 238,000 10. Number of check claims submitted (thousands.) (W) 1.391 1,429 1,490 1,300 1,736 1,400 1,350 1/Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). 2/Includes FY 2001 supplemental funding FMS received for disbursement of approximately 86 million tax relief (rebate) checks that was available and expended through FY2002. 3/Does not include tax relief (rebate) checks 02/03/2003 FMS-8 g Financial Management Service, Salaries and Expenses Budget Authority, FTE and Performance Measures by Collections Activity BUDGET ACTIVITY 2: Collections The function of the Collections Activity is the management of the Government’s collections infrastructure. This includes establishing and implementing collections policy, regulations, standards and procedures for the Federal government; facilitating collections; promoting the use of electronics in the collections process; and assisting agencies in converting collections from paper to electronic media. FMS develops and operates a variety of collection mechanisms and systems (e.g., Electronic Federal Tax Payment System (EFTPS), lockboxes, Treasury General Accounts, debit/credit cards, and Pay.gov) to meet program agency needs. ry 1999 perfºrmance Gºals, performance measures, and indicator. Perfor-ce $11,473 $12,165 siz,035 $13,192 $11,931 $16,063 $16,429 Budget Authority (5000s) 115 128 81 81 99 113 113 Direct FTE Performance Goal: Provide timely collection of Federal government receipts, at the lowest cost, through an all-electronic Treasury. Performance Measures: 1. Percentage collected electronically of total dollaramount of Federal govemment 72% 75% 75.3% 80% 79%. 2/ 80% 8-1- Receipts. (S)(CS) iſ 2. Percentage reduction in rate of increase in transaction costs to collect Federal government receipts through Electronic federal Taxpaymentsystem, compared Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan 70% to FY2002 baseline. (O) Performance Goal: Establish policies and processes to facilitate the integration oft-commerce technologies into the collections infrastructure. - Performance Measure: 1. The dollar amount of collections transacted through Pay-gov, a government-wide transaction portal. (O) Not in Plan Notin Plan Not in Plan $2 billion $2 billion $5 billion sidbillion l/Measure Coding: Strategic Measures (S), Operational Measures(O), Workload Indicators (W), and Customer Service Standards (CS). cally. Th ------ "-- - 2/The FY 2002 goal was not met because tax receipts were down d y. This was a ot payments and paper reccipts. IRS lockbox collections had the most impact with its decrease of 25.8%. FMS is working on strategies to accelerate EFTPS enrollment. 02/03/2003 FMS-9 § Budget Authority, FTE and Performance Measures by Debt Collections Activity BUDGET ACTIVITY 3: Debt Collection The function of the Debt Collection Activity is to provide debt collection operations and services to Federal program agencies. The services include, but are not limited to, collection of delinquent debt accounts, offset of Federal payments against debts owed the Government, post-judgment enforcement, consolidation of information reported to credit bureaus, reporting discharged debts or vendor payments, cross-servicing, administrative wage garnishment, and the use of private collection agencies. . DEE. . N.Bgpg|ELAQITYIT. - - FY 1999 FY2000 FY2001 . FY 2007 . . . . Fyzee, Performance Goals, PerformanceMeasures, and Indicators Performance Performance . . Performance Target Performance. Tere Proposed Target $19,943 $22,133 $20,746 $19,920 $19,418 $19,680 $16,047 Budget Authority ($000s) Direct FTE 185 191 129 134 89 113 113 Performance Goal A: Maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services. Performance Measures: 1. FMS will increase the annual collection of delinquent debt, not including delinquent * inued/ Federal tax debt, for FY 2003 by $120 million above that collected in FY 2001 for a - - - - * ---- Discontin total of $2.8 billion. (The FY 2001 base does not include debt collected from Not in Pian Not in Plan Not in Plan Not in Plan Not in Plan $2.8 billion Rewi Advanced Tax Relief payment offsets.) (This is a FY 2003 measure only.) (O) (CS) 1/ 2. Amount of delinquent debt collected through all available tools. (S) (CS) $2.6 billion $2.6 billion $2.7 billion 2/ $2.6 billion $2.84 billion $2.8 billion $2.9 billion 3. release of delinquent debt referred to FMS for collection compared to amount 7.1% 83% 89% 75% 93% 85% 90% eligible for referral. (O) 4. Percentage increase in amount of debt collected for every dollar of debt collection - ge Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan 7% Financial Management Service, Salaries and Expenses program cost, compared to FY 2002 baseline of $52.53. (O) l/Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). 2/Does not include collections received through Advance Refund Credit Payments (Tax Rebate), which totaled $470,713,301. The total collections for FY 2001 were $3,163,203,460. 02/03/2003 FMS - 10 § Budget Authority, FTE and Performance Measures by Governmentwide Accounting and Reporting Activity BUDGET ACTIVITY 4: GOVERNMENT ACCOUNTING AND REPORTING The function of the Governmentwide Accounting and Reporting Activity is to provide accounting, reporting, and financial services to the Federal government and to the Federal government’s agents such as financial institutions that participate in the payments and collections processes by generating a series of daily, monthly, quarterly, and annual Governmentwide reports including the consolidated Financial Report of the U.S. Government. FMS also provides support, guidance and training to assist Federal program their Governmentwide accounting and reporting responsibilities. rear-ºne 3. ăis --> imate ~~~~ --> indicator. Performance Performance - Performance target - reware targe. . . . . rwearine $43,704 $43,264 $50,522 . $50,391 $48,935 $55,207 $59,565 Budget Authority ($000s) Direct FTE 376 408 386 380 401 419 419 Performance Goal: Produce accurate, accessible, and timely Governmentwide financial information and reports, which contribute to the improved quality of the Nation's financial decision-making. Performance Measures: 1. tºº of G * * * ing reports issued accurately, (S) Not in Plan Not in Plan 100% 100% 100% 100% IOO}} 2. Percentage of G * … ing reports issued timely, (S) Not in Plan Not in Plan 100% 100% 100% 100% 100% 3. Receipt of unqualified audit opinion on FMS’ Schedule of Non-entity Assets, Non-entity Costs and Non-entity Custodial Revenues, and Not in Plan Not in Plan 100% 100% 100% 100% 100% Schedule of Non-entity Government-wide cash. (O) Performance Goal: Facilitate the achi f a clean audit op on the Financial Report of the U.S. G through our internal operations and support of Government agencies. Performance Measures: 4. Percentage of reporting locations with reconciliation differences, for º - e - - deposits and pa ts, less than four months old. (O) Not in Plan Not in Plan Not in Plan Not in Phan Not in Plan 95% 95% 5. Percentage of reporting locations with reconciliation differences, for * * Discontinued Discontinued/ deposits and payments, less than six months old. (O) Not in Plan Not in Plan 97% 95% 97% Revised Revised 6. Percentage of agency reports for the Financial Report of the U.S. - - - * , º, G p ed by FMS within the established standard . (O) 92% 98% 98% 2/ 100% NA 3/ Discontinued Discontinued l/Measure Coding: Strategic Measures (S), Operational Measures OWoºd Indicators (W), and Customer Service Standards (CS). : 2/FY 2001 target was 99%. Of 132 reporting entities, 130 (or 98.48%) were consistent. There were two large reporting entities that FMS could not get to submit an Accounting Group Worksheet that FMS considered to be consistent with their audited financial statements. After significant work with FMS’ auditor, it was decided that a new approach to verifying consistency would be developed. However, this corrective action, which will ensure 100% consistency, will not be fully implemented until 2004. Therefore, the 100% target for 2002 is achievable but not guaranteed. Financial Management Service, Salaries and Expenses 3/Performance data will not be available until April 2003. 02/03/2003 FMS - 11 § Financial Managementservice, Salaries and Expenses 2/3/2003 DETAIL of Ful-L-TIME Equival Ent positiuns BY category Statutory executive positions 1/ Policy/program professional staff 1/ This category includes one Senior Level position each fiscalyear 21 Direct FTE and Budget Authority levels in the FMS Salaries and Expenses section of the President's Budget aggregate appropriated amounts and fees retained for expenditures and FTE derived from Debt Collection activities. The Congressional Justification, however, separates appropriated amounts and retained fees for specific Debt Collection activities. The appropriated amounts are reported in the Salaries and Expenses portion of the Congressional Justification (please seepage 10), while the fees retained for expenses and FTE are reported in the Reimbursable Program section (please seepage:20). As a result, this Justification provides an accurate representation of FMS direct and reimbursable budget authority and FTE requests. FMS-12 § DETAL OFFULL-TIMEEDUMALENT positions BY GRADE ###########: º Senior Executive service Level 6. Senior Executive Service Level 5. Senior Executive Service Lewel 4. Senior Executive Service Level 3. Senior Executive Service Level Senkor Executive Service Lewel #${iº 1 º º Ictaliull-time equivalent positions := 1/ This Lovelinchudes one Senior Level positionin FY2002 2/ This Level includes one Senior Levelpositioninry 2003 and FY2004. 3/DirectFTB and Budget Authority levels in the FMS Salaries and Expenses section of the President's Budget aggregate appropriated amounts and fees retained for expenditures and FTB derived from Debt Collection activities. The Congressional Justification, however, separates appropriated amounts and retained fees for specific Debt collection activities. The appropriated amounts are reported in the Salaries and Expenses portion of the Congressional Justification (please seepage 10), while the foes retained for expenses and FTB are reported in the Reimbursable Program section (please seepage:20). As a result, this Justification provides an accurate representation of FMS direct and reimbursable budget authority and FTE requests FMS-13 Financial Management Service, Salaries and Expenses 2/3/2003 -mm- Explanation of Proposed Fiscal-Year 2003 Budget operatino Level. (Dollars in Thousands) FMS-14 º: º º - 107.084 1,848 107,084 1,818 1,818 107.084 1,818 1,500 1,500 1,500 2,500 2,500 2,500 111,084 1,818 - 111,084 1,8tº - - - 1,848 - - 111,084 1,818 23,282 23,282 11,191 34,473 -75 175 175 1,900 1,900 1,900 195 195 195 18.387 - 18.357 18,387 18,387 365 365 35- 365 13357 13357 13357 13357 900 900 ood goo 4,000 4,000 4,000 4,000 19,901 19,901 19,901 19,901 5,383 5,383 5,383 5,383 -o 950 950 950 1,000 7,000 7,000 7,000 25.8 Subsistence & Supportof Persons - - - - 25.0 Supples and Materials....... 4,456 4,456 4,456 4,456 31.0Equipment 8,924 8,924 8,924 8,924 32.0 Lands-nºsºructures...... 403 403 403 -03 tº) 33.0 ºnwestments & Loans- - - - - -P- 4.1.0-Gr-nt-Subsides_ - - - - - 42-0---ºr--ºnd- ad so 50 440 Rºunds.-- --------------- - - - Fººt ºzºtz ACIMIES 1) Payments 129,762 1,173 129,762 1,173 129,762 1,173 7.528 137,290 1,173 2) Co-ecºlons. 16,063 113 16,063 113 16,063 113 499 16,562 113 3) Debt Coºcºon..................... - 19,580 113 19,580 113 19,680 113 825 20.505 113 4)Governmenºwdeaccº and Reporting 419. 55.207 -19 55.207 419 2,339 ºn 5-6 419 º Lºubºurº ºº:: º ºzºn ºº:: - - s: § FMS - 15 Financial Management Service, Salaries and Expenses Explanation of Congressional Action 02/03/2003 § Financial Mi-agementservice, Salaries and Expenses 2/3/2003 standard CLASSIFICATION SCHEDULE Direct obligations (Dollars in Thousands) Personnel compensation: Permanent positions.......................................... 106,615 107,084 110,857 3,773 Positions other than permanent.......................... 860 1,500 1,500 - Benefits to former personnel. 175 - Travel and transportation of persons 1,655 1,900 1,900 - Transportation of things 306 195 195 - Rents, communications and utilities: - Rental payments to GSA.... 15,310 18,387 18,387 - Rental payments to others. 459 365 - Other rents, communications and utilities, --- 12,707 13357 13357 - Printing and reproduction....................................... 767 900 900 - Other services: - Advisory & assistance services.......................... 4,944 4,000 4,000 - Other services.................................................. 24,464 24,501 22,794 (1,707) Purchase of goods/services from Govt. accts.... 3,908 5,383 5,383 - Operation & maintenance of facilities.................. 1,075 950 950 - Research & development contracts, - - - - Medical care................................... - - - - Operation & maintenance of equipment. 7,193 7,000 7,000 - Subsistence & support of persons. -- - - - - --- --- 4,052 4,876 4,456 (420) --- 12,985 14,424 8,924 (5,500) 1,233 403 403 - 13 50 50 - ºlº -- -- - º - - Unobligated balance available, SOY....................... (24,520) (10,920) - 10,920 Unobligated balance available, EOY.... 10,920 - - - Unobligated balance expiring 652 400 400 - 1/ Direct FTE and Budget Authority levels in the FMS Salaries and Expenses section of the Presidents Budget aggregate appropriated amounts and ſees retained for expenditures and FTE derived from Debt Collection activities. The Congressional Justification, however, separates appropriated amounts and retained fees for specific Debt Collection activities. The appropriated amounts are reported in the Salaries and Expenses portion of the Congressional Justification (please seepage 10), while the ſees retained for expenses and FTE are reported in the Reimbursable Program section (please seepage:20). As a result, this Justification provides an accurate representation of FMS direct and Reimbursable budget authority and FTE requests. FMS-16 § Financial Management Service, Salaries and Expenses Appropriation Language Sheet and Justification of Language Changes DEPARTMENT OF THE TREASURY FINANCIAL MANAGEMENT SERVICE Federal Funds General and Special Funds: SALARIES AND EXPENSES For necessary expenses of the Financial Management Service, $220,712,000 $228,606,000 of which not to exceed $9.220,000 shall remain available until September 30, 2003 2004, for information systems modernization initiatives; and of which not to exceed $2,500 shall be available for official reception and representation expenses. Treasury Department Appropriations Act, 2002, as enacted by section of P.L. xxx-xxx. 02/03/2003 FMS - 17 § Financial Management Service, Salaries and Expenses SUMMARYJUSTIFICATION OFFY2004 REIMBURSABLE PROGRAMINCOMEESTIMATES FMS operates under the authority conferred upon the Secretary of the Treasury to act as an agent for improving the quality of financial management throughout the Federal government. FMS is responsible for helping its customers achieve success by providing financial services and information, consulting services, and assistance. FMS works with Federal program agencies and other clients to ensure that these services are timely, accurate, and meet the established standards for reporting integrity. In addition to activities funded through the budget authority received from direct appropriations, Federal agencies often perform work for other agencies on a reimbursable basis. Usually, this work is done under the auspices of the Economy Act (31 U.S.C. Section 1535). This act authorizes the inter- and intra-departmental furnishing of goods and services for which agencies can be reimbursed. Using this authority, FMS is reimbursed for providing a wide array of its goods and services to Federal agencies through interagency work agreements. FMS’ reimbursable activities include payment and claims processing, collections services, on-line financial services, accounting and financial operations, and fee income for debt management services. Reimbursable Income - Summary Table ($s in 000s) FY 2002 FY 2007. rºzºº * ºf Y2003.º. FY-2004 Enacted rºte Proposed FTE Estimate Payments $104,594 32 $109,163 35 $115,188 39 Collections 1/ $0 0 $0 0 $15,162 0 Debt Collection $23,792 239 $28,416 255 $31,049 268 Governmentwide Accounting and Reporting $900 4. $500 4 $500 Total 2/ $129,286 275 slºgº 2.94 ITFMS provides intermediary services between Federal program agencies and Financial Agents to establish and maintain electronic disbursing and cash managementsystems. Starting in FY2003, funding for these systems will be transferred from Federal program agencies, through FMS, to Financial Agents. In FMS FY2003 submission, these estimates were not included, however actuals, estimated at $8,840,000, will be reported. For FY2004, these costs have been included in the table above. 2/FY2004 funding and FTE totals provided in the table above differ from those provided in the President's BudgetAppendix due to adjustments made for the appropriated amounts and retained fees for specific Debt Collection activities and for other adjustments made after the President's BudgetAppendix database closed. 02/03/2003 FMs - 18 § Financial Management Service, Salaries and Expenses Reimbursable Program by Budget Activities Activity: Payments General Statement-The Payments Activity provides payment services on a reimbursable basis for several trust funds and Federal program agencies. The reimbursable income earned covers costs such as postage, check supplies, contractual services, and equipment. Some salary costs associated with executing these programs also are included in these estimates. Description of Services - Listed below are the payment activities FMS provides to the Social Security Administration (SSA) Trust Fund, Railroad Retirement Board (RRB) Trust Fund, and Federal program agencies. SSA Trust Fund Disbursement Services: Reimbursement is received for processing and mailing benefit checks and disbursing benefits using Electronic Funds Transfer (EFT) and associated aftermath services such as return payments, non-receipt claims and non-entitlement reclamation processing. Additionally, reimbursement is received for the cost of other activities related to the payment of benefits such as EFT marketing, resolving EFT non-receipt issues, and payment documentation. RRB Trust Fund Disbursement Services: Reimbursement is received for the full cost (personnel and non-personnel) of disbursement services through FY 2004. Postage for Mailing Paper Checks: Reimbursement is received for postage costs associated with mailing Internal Revenue Service tax refunds, Supplemental Security Income benefit payments, Veterans Administration benefit payments, and the Office of Personnel Management retirement payments. - Check Storage and Retrieval Activities: Reimbursement is received for check storage and check copy retrieval services to Federal program agencies and Non-Treasury Disbursing Offices. Mailing Promotional and Marketing Materials: Reimbursement is received from Federal program agencies for the costs of mailing/inserting marketing material, such as the U.S. Savings Bond Program promotions, with tax refund checks and other Federal payments. Specialized Disbursing Activities: Reimbursement is received from Federal program agencies for the cost of agency specific disbursement services, including statement enclosures, pre-authorized debit services, and notification mailings. 02/03/2003 FMS - 19 § Financial Management Service, Salaries and Expenses Reimbursable Program Table - Payments in Fºr 2002 ry 2002 Social Security Administration-SSA (includes Postage)- $64,553 $73,704 $78,507 Railroad Retirement Board–RRB (includes Postage)— $991 $678 $579 $30,952 $34,029 $443 *A25 $225 $35 $40 s56 412 792 $109,163 Activity: Collections General Statement - The Collections Activity manages the Government’s collections infrastructure. Description of Services: FMS receives reimbursement from Federal program agencies for the cost of agency specific collection services provided by Treasury’s Financial Agents. Reimbursable Program Table-Collections Total: Collections Activities Please Note: FMS provides intermediary services between Federal program agencies and Financial Agents to establish and maintain electronic disbursing and cash management systems. Funds transferred from Federal program agencies to Financial Agents for these systems are estimated at $8,840,000 in FY 2003. These costs have been included in the FY2004 column in the table above. Activity: Debt Collection General Statement - The Debt Collection Activity provides debt collection services to Federal program agencies and states. Description of Services—FMS' services include collection of delinquent debts through the Treasury Offset Program (TOP - which includes the Tax Refund Offset Program), State Tax Debt Program, Federal Tax Levy, and the Cross-Servicing Program. 02/03/2003 FMS-20 § Financial Management Service, Salaries and Expenses Reimbursable Program Table-Debt Collection $s in 000s) Total: Debt-Collection Activity: Governmentwide Accounting and Reporting General Statement - The Governmentwide Accounting and Reporting Activity provides services to Federal program agencies and to FMS Franchise Fund organization for information technology and administrative support. Reimbursement for the information technology services FMS provides to Federal program agencies terminated at the end of FY 2002. Description of Services - Accounting and Reporting Services * Agency Accounting: FMS provides mainframe computing and support services to FMS Treasury Agency Services, formerly called the Center for Applied Financial Management (Treasury Franchise Fund). This support terminated at the end of FY 2002. • Administrative Support: These activities support FMS Treasury Agency Services (Treasury Franchise Fund). Reimbursable Program Table - Governmentwide Accounting and Reporting ($s in 000s) -- - Fºº Hºry 2002- - - - - Agency Accounting-Systems/Audit Support $400 Treasury Agency Services-Administrative Support s300 3 $500 4. s300 4 Total: Governmentwide accounting and Reporting 02/03/2003 FMS-21 § Financial Management Service, Salaries and Expenses FISCAL AND FINANCIAL AGENTAGREEMENTS FY 2004 FEDERAL RESERVE PERMANENT AND INDEFINITE APPROPRIATION The Federal Reserve Banks (FRBs) act as fiscal agents of the United States when directed by the Secretary of the Treasury in accordance with 12 United States Code (U.S.C.) 391. The FRBs support the fiscal operations and provide banking and financial services on behalf of the U.S. Treasury. In the past, the cost of services provided by the FRBs to Treasury was charged against Federal Reserve System earnings, with net earnings paid to the Treasury. The Federal Reserve Reimbursement and Fiscal Responsibility Act of 1997 amended section 3302 (f) of title 31, U.S.C., and provided a permanent and indefinite appropriation of amounts necessary to pay the FRBs for the services provided as fiscal agents on behalf of the Treasury. Since the FRBS support all of FMS’ activities, the performance measures listed in the Salaries and Expense section of this budget apply to the work done by the FRBs. FMS estimated that the cost of FRB services for FY 2004 will be approximately $150 million. FY 2004 FINANCIAL AGENT AGREEMENTS Congress has given the Secretary of the Treasury longstanding, broad discretion to deposit money in financial institutions and to obtain banking services from those institutions which act/serve as financial agents of the U.S. Government. FMS used compensating balances to reimburse banks for facilitating the collection of more than $2.0 trillion of Government receipts in FY 2001. FMS’ budget does not include funds to compensate banks for these services. In FY 2002, banks have incurred approximately $379.7 million in expenses (which equates to the level of services provided to FMS), which have been offset using compensating balances totaling $27.4 billion as of September 30, 2002. FMS’ collection mechanisms, which improve cash management by accelerating the availability of funds to the Government, result in net interest earnings to the Government of $444.1 million. In FY 2004, the Department of the Treasury is proposing legislation to establish a permanent and indefinite appropriation to reimburse financial institutions for the services they provide as depositaries and financial agents of the Federal Government. The services provided by such financial institutions are authorized under numerous statutes including, but not limited to, 12 U.S.C. 3390 and 265. The services are in support of such programs as the Electronic Federal Tax Payment System (EFTPS), the Lockbox Network, plastic cards, Electronic Transfer Accounts (ETA), and CA$HLINK, a deposit reporting and cash concentration system. These and other programs are vital to FMS’ Strategic Goals, the government's critical infrastructure, and the President’s emphasis on expanding E-Government. This legislation is also expected to be at least deficit neutral, with the interest saved on lower borrowing being as much or more than the outlays to pay for the services. 02/03/2003 - FMS - 22 § February 3, 2003 - FINANCIAL MANAGEMENT SERVICE TABLE OF CONTENTS - VOLUME 2 - PERFORMANCE PLAN STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN RELATIONSHIPBETWEEN THE STRATEGICPLAN AND THE PERFORMANCE PLAN PERFORMANCE INFORMATIONBYBUDGET ACTIVITY 3 Budget Activity 1: Payments Budget Authority, FTE and Performance M FY 2004 Proposed Performance Plan FY 2003 Performance Plan Budget Activity 2: Collections Budget Authority, FTE, and Performance Measures FY 2004 Proposed Performance Plan FY 2003 Performance Plan Budget Activity 3: Debt Collection Budget Authority, FTE and Performance Measures FY 2004 Proposed Performance Plan FY 2003 Performance Plan Budget Activity 4: Governmentwide Accounting and Reporting Budget Authority, FTE, and Performance Measures FY 2004 Proposed Performance Plan FY 2003 Performance Plan SUPPORTING MATERIALs Major Management Challenges and High Risk Areas Cross-Cutting Coordination Efforts Verification and Validation of Data Performance Measurement Definitions FMS - i 5. Financial Management Service, Salaries and Expenses STRATEGIC CONTEXT FORTHE FY2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Financial Management Service (FMS), and how achievement of those goals is ascertained through performance goals, measures, and performance reports. * Mission FMS’ mission is to provide central payment services to Federal program agencies, operate the Federal government’s collections and deposit systems, provide Governmentwide accounting and reporting services, and manage the collection of delinquent debt. This is accomplished by providing financial services, information, advice and assistance to customers, including taxpayers, the Department of the Treasury, Federal agencies, Government policymakers, and Congress. Key Strategic Issues Sufficient funding is requested by FMS to continue its excellent performance in providing critical services to millions of United States taxpayers and its other diverse base of customers and maintaining a high level of success in achieving Treasury’s and FMS’ strategic goals. FMS’ request for FY 2004 funding also provides significant support for the President’s Management Agenda to improve the financial performance of the United States Government and embodies Treasury’s leadership strategy to create value for the American people and focus on innovation. Key Strategy Impacts Payments: FMS continues to expand the use of electronic media to deliver Federal payments, improve service to payment recipients, and reduce Government program costs. These efforts help decrease the number of paper checks issued and minimize costs associated with postage, lost, stolen, and misplaced checks; and inefficiencies associated with the non- electronic delivery of benefits. Collections: FMS is focusing on expanding the use of the Electronic Federal Tax Payment System (EFTPS) and other electronic collection mechanisms to increase electronic collections and reporting. EFTPS accelerates the collection of tax dollars and information and reduces reporting errors in the tax collection system. 02/03/2003 - ... • FMS - 1 § Financial Management Service, Salaries and Expenses Debt Collection: The challenge for FMS is to incorporate all non-Treasury disbursed salary and vendor payments into FMS’ offset programs for collecting delinquent debt, develop policies and procedures for offsetting grant payments, and to continue to enhance mission-critical systems to provide better service to agencies that refer debts for collection. Governmentwide Accounting and Reporting. FMS will continue to place increased emphasis on program activities related to strengthening Governmentwide accounting operations, preparing the Government’s consolidated financial statements, and providing increased guidance, direction and leadership to program agencies on Governmentwide accounting issues. FMS’ request includes finds for continued support of FMS’ obligations and court ordered responsibilities on behalf of the Department of the Treasury related to existing and anticipated Indian trust accounting litigation. 02/03/2003 FMS - 2 : I-IIIa IIvia I-IVI-IIITE-ITIVIITF-TVT-TTTTTTTT- RELATIONSHIPBETWEENTHESTRATEGICPLANAND THE PERFORMANCE PLAN PERFORMANCE INFORMATION BY BUDGETACTIVII Y FMS links its Strategic Plan, Annual Performance Plan, Annual Accountability and Performance Report, and Budget. FMS’ performance goals in its Annual Performance Plan and Annual Accountability and Performance Report are identical to FMS’ strategic goals in its Strategic Plan. Each of FMS’ budget activities has at least one strategic goal. To fulfill its mission, FMS developed general strategic goals that encompass all activities and link to Treasury’s goals and objectives. These strategic goals and the performance goals to measure their accomplishment are presented in the following table. - º º º - --- # º: ºº: -º-º-º-º-º: ** ºff ºº **º Collectrevenue due to the Federal Strategic Goal: Provide timely collection of Federal government government. receipts, at the lowest cost, through an all-electronic Treasury. Strategic Goal: Establish policies and processes to facilitate the integration of e-commerce technologies into the payment and collections infrastructure. Strategic Goal: Maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services. - --- - º - -- ----- - A. Performance Goal: Provide timely collection of Federal government receipts, at the lowest cost, through an all-electronic Treasury. - B. Performance Goal: Establish policies and processes to facilitate the integration of e-commerce technologies into the payment and collections infrastructure. C. Performance Goal: Maximi llection of G delinq debt by providing efficient and effective centralized debt collection services. - Manage the Federal government's accounts. Strategic Goal: Provide Federal payments timely and accurately, move toward an all-electronic Treasury for payments, and determine the optimal payment processing environment for the future. Strategic Goal: Produce accurate, accessible, and timely Governmentwide financial information and reports, which contribute to the improved quality of the Nation's financial decision making. Strategic Goal: Facilitate the achievement of a clean auditopinion on the Financial Report of the U.S. Government through FMS'internal operations and support to Governmentagencies. Strategic Goal: Provide timely collection of Federal government receipts, at the lowest cost, through an all-electronic Treasury. A. Performance Goal: Provide Federal payments timely and accurately, move toward an all-electronic Treasury for payments, and determine the optimal payment processing environment for the future B. Performance Goal: Produce accurate, accessible, and timely Governmentwide financial information and reports, which contribute to the improved quality of the Nation's financial decision making. C. Performance Goal: Facilitate the achievement of a clean audit opinion on the Financial Report of the U.S. Government through FMS' internal operations and support of Government agencies. D. Performance Goal: Provide timely collection of Federal government receipts, at the lowest cost, through an all-electronic Treasury. 02/03/2003 ; Financial Management Service, Salaries and Expenses Performance Plans for FY 2003 and FY 2004 and Performance Report Information for FY 2002 The FY 2004 performance budget is presented programmatically to align resources with performance. FMS’ operations are divided into four major budget activities. For each activity, budget and performance data are presented in table format to show historical trends and performance expectations associated with the FY 2004 budget. Following the table are narratives explaining the FY 2004 proposed performance plan, FY 2003 performance plan revised to reflect Congressional action, and the FY 2002 report on program performance. Budget Activity 1: Payments The function of the Payments Activity is to develop and implement Federal payment policy and procedures, issue and distribute payments, promote the use of electronics in the payment process, and assist agencies in converting payments from paper checks to Electronic Funds Transfer (EFT). The control and financial integrity of the payments process includes reconciliation, accounting, and claims activities. The claims activity settles claims against the United States resulting from Government checks which have been forged, lost, stolen, or destroyed, and collects monies from those parties liable for fraudulent or otherwise improper negotiation of Government checks. It also includes processing claims and reclamations for electronic funds transfer payments. 02/03/2003 FMS - 4 § Financial Management Service, Salaries and Expenses al Performançº als. Measures. Indicators a º º: º º º $129,095 $167.46021 $143,0932/ $129,762 Budget Authority (5000s) - Direct FTE 1.257 1,259 1,163 1.223 1,111 1,173 1,173 Performance Goal: Provide Federal payments timely and accurately, move toward an all-electronic Treasury for payments, and determine the optimal payment processing environment for the future Performance Measures: 1. reventº off-rºckadelectronic Fund, transfer(EFnpayments made Not in Plan Notin Plan 100% 100% 100% 100% 100% accurately. (S)-(CS) iſ 2. racetase of paper check and Electronic Funds Transfer(EFT) payments made Notinplan Not in Plan 100% 100% 100% 100- 100% on time. (S) (CS) 3. * of Treasury payments and associated information made electronically. 6.8% 70% 72%. 3/ 73% 73%. 3/ 74% 75% 4. º of checkforgery and non-receipt claims adjudicated within 14 days. 93.5- 98.2% 96.5% 90% 98% 93% 94%. 5. ºrg--------- rating of satisfactory or 99.3% 99% 100% 99% 99% º 99% 6. Percentage increase in dollarvalue loaded into stored - - - - - - valuecards, compared to FY2002 baseline. (O) Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan Notinplan -** 7. Percentage of EFT claims processed in one day. (CS) Not in Plan Not in Plan 100% 100% 100% Discontinued Discontinued 8. Number of electronic payments (thousands.) (W) 597,695 525,668 677,413 653,000 665,905 677,000 696,000 9. Number of checkpayments (thousands.) (W) 280,973 266,413 269,335.3/ 253,000 252,849/3 244,000 238,000 10. Number of checkclaims submitted (thousands.) (W) 1,391 1,429 1,490 1,300 1,736 1,400 1,350 I/Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). 2/Includes FY2001 supplemental funding FMS received for disbursement of approximately 86 million tax relief (rebate) checks that was available and expended through FY 2002. 3/Does not include tax relief (rebate) checks. 02/03/2003 FMS - 5 ; Financial Management Service, Salaries and Expenses FY2004 PROPOSED PERFORMANCE PLAN Description: The Payments Activity funding will provide resources necessary to continue timely and accurate payments, meet customer needs, handle payment claims in accordance with performance standards, and maintain the integrity of the Federal payments process. Payments Activity funding provides for operations and maintenance and repair and replacement of payment delivery systems, which will improve the efficiency of these systems. Significant FY 2004 Actions: O Develop and implement a new, state-of-the art payment certification system; Q Redesign payments and claims systems to take advantage of new technologies; O Work with agencies to increase vendor and miscellaneous payments made electronically; © Increase the use of Stored Value Cards, which significantly reduce cash requirements and support costs related to holding and securing cash at “closed” installations such as Army basic training sites and Navy ships. (Dollar value is loaded onto the card that can then be used to purchase goods and services.) O Conduct market research and marketing campaigns to accelerate use of EFT. FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: The percentage of Treasury payments and associated information made electronically should continue to increase although at a lower rate than previously. Growth is tempered by a liberal waiver policy adopted by Treasury in response to Congressional concern that permits certain payment recipients to choose to continue receiving check payments. 02/03/2003 FMS - 6 5. Financial Management SERVICE Sātañes and Expenses Budget Activity 2: Collections The function of the Collections Activity is the management of the Government's collections infrastructure. This includes establishing and implementing collections policy, regulations, standards and procedures for the Federal government; facilitating collections; promoting the use of electronics in the collections process; and assisting agencies in converting collections from paper to electronic media. FMS develops and operates a variety of collection mechanisms and systems (e.g., Electronic Federal Tax Payment System (EFTPS), lockboxes, Treasury General Accounts, debit/credit cards, and Pay.gov) to meet program agency needs. $13.192 $11,931 $16,063 81 99 113 113 Performance Goal: Provide timely collection of Federal govement receipts, at the lowest cost, through an all-electronic Treasury. Performance Measures: 1. Percentage collected electronically of total dollaramount of Federal 72% 75% 75.3% goº 79%. 2/ 80% 8.1% govemment receipts. (S)(CS) iſ 2. ***************teafedal government receipts through Electronic Federal Tax Payment System, - - - - - - to FY2002.baseline. (O) Notin Plan Not in Pian Notin Plan Notin Plan Not in Plan Not in Plan 70* Performance Goal: Establish policies and processes to facilitate the integration of e-commerce technologies into the collectious infrastructure. Performance Measure: 3. The dollaramount of collections transacted through Pay.gov, a government- Notin Plan Notiu Plan Notin Plan $2 billion $2 billion $5 billion $10 billion wide-transaction portal. (O) l/Measure Coding: Strategic Measures (S), Operational Measures (O), Workload indicators (W), and Customer Service Standards (CS). 2/The FY2002 goal was not metbecause tax receipts were down dramatically. This was a combination of electronic payments and paper receipts. IRS lockbox collections had the most impact with its decrease of 25.8%. FMS is working on strategies to increase EFTPS enrollment. 02/03/2003 FMS - 7 § Financial Management Service, Salaries and Expenses |FY2004 PROPOSED PERFORMANCE PLAN Funding will provide the resources necessary to continue implementation of collections guidance for the Federal government, facilitate collections, promote the use of electronics in the collections process, and assist agencies in converting collections from paper to electronic media. Significant FY 2004 Actions: Enhancement and marketing of: • Paper check conversion which changes paper checks into electronic funds transfer transactions. The result is a more reliable and efficient method for citizens and businesses to pay the Government. Plus, they leave each transaction with a cancelled check and transaction receipt; • EFTPS-OnLine which allows businesses and individuals to enroll and pay all Federal taxes through a secure Web site; and, • Pay.gov which is a secure Governmentwide collection (and payment) portal with the potential to process 80 million transactions totaling $125 billion each year. Pay.gov responds to the increasing demands of consumers and businesses for electronic alternatives. It provides customers the choice of interacting online with their Government to complete forms and applications, make payments, and submit queries 24 hours a day, 7 days a week, FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: In FY 2003 FMS will continue to move the Government to an all-electronic Treasury for collecting government receipts. FMS will accelerate the use of Internet technology to enable Federal agencies to process collections and related forms over the Internet and allow business and individual taxpayers to enroll and pay Federal taxes through FMS’ secure Internet website, Electronic Federal Tax Payment System-OnLine. Additionally, Pay.gov and the paper check conversion program will become available to more federal agencies. . 02/03/2003 FMS - 8 § Financial Management Service, Salaries and Expenses Budget Activity 3: Debt Collection The function of the Debt Collection Activity is to provide debt collection operations and services to Federal program agencies. The services include, but are not limited to, collection of delinquent debt accounts, offset of Federal payments against debts owed the Government, post-judgment enforcement, consolidation of information reported to credit bureaus, reporting discharged debts or vendor payments, cross-servicing, administrative wage garnishment, and the use of private collection agencies. DERT COLLECTION BUDGETACTIVITY - FY 1999 FY1000 FY2001 . . . FY2002 . . FY2003 FY2 Performance Goals, Performance Measures, and Indicators - Performance Performance . Performance tº target: . . Performance . . . Targes Target $19,943 $22,133 $20,746 $19,920 $19,418 $19,680 $16,047 Budget Authority ($000s) Direct FTE 185 191 129 134 39 113 ! 13 Performance Goal A: Maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services. Performance Measures: l. FMS will increase the annual collection of delinq debt, not including delinq - s inued/ Federal tax debt, for FY 2003 by $120 million above that collected in FY 2001 for a - e - - • - Discontinu total of $2.8 billion. (The FY 2001 base does not include debt collected from Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan $2.8 billion Revised Advanced Tax Relief payment offsets.) (This is a FY 2003 measure only.) (O) (CS) 1/ - 2. Amount of delinquent debt collected through all available tools. (S) (CS) $2.6 billion $2.6 billion $2.7 billion 2/ $2.6 billion $2.84 billion $2.8 billion $2.9 billion 3. Percentage of deli t debt ref to FMS - to t º ge of delinquent debt referred to for collection compared to amoun 71% 83% 89% 75% 93% 85% 90% eligible for referral. (O) 4. Percentage increase in amount of debt collected for every dollar of debt collection - . Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan 7% program cost, compared to FY 2002 baseline of $52.53 (O) 1/Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). 2/Does not include collections received through Advance Refund Credit Payments (Tax Rebate), which totaled $470,713,301. The total collections for FY2001 were $3,163,203,460. 02/03/2003 FMS - 9 § Financial Management Service, Salaries and Expenses FY2004 PROPOSED PERFORMANCE PLAN In FY 2004, FMS will continue to make significant gains in the collection of delinquent debt. This will include working toward incorporating all non-Treasury disbursed salary and vendor payments, developing policies and procedures for offsetting grant payments, and enhancing systems to provide better service to agencies that refer debts to FMS for collection. Significant FY 2004 Actions: • Fully implement a web-based system to enable agencies to access the delinquent debtor database for credit Screening; • Fully implement a number of debt collection programs, e.g., Federal salary offset, administrative wage garnishment, and non-Treasury disbursing office vendor payments; and . • Develop a new system to support FMS’ Cross-Servicing Program. The new system will further improve service to FMS’ customer agencies, replace two existing debt collection systems, and enhance debt collection efficiency for Federal creditor agencies and private collection agencies. Initial implementation is scheduled for January 2005. FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: FMS exceeded its debt collection performance targets for FY 2002 and we expect to continue to make significant gains in FY 2003. FMS’ debt collection budget activity forms one of Treasury’s Performance Measure Integration Pilots. An ambitious performance measure for FY 2003 was developed for the Pilot, namely, to collect $2.8 billion of delinquent debt, not including delinquent Federal tax debt. This will be an increase of $120 million above FY 2001 collections (not including delinquent Federal tax debt). - 02/03/2003 FMS - 10 5 Budget Activity 4: Governmentwide Accounting and Reporting The function of the Governmentwide Accounting and Reporting Activity is to provide accounting, reporting, and financial services to the Federal government and to the Federal government's agents such as financial institutions that participate in the payments and collections processes by generating a series of daily, monthly, quarterly, and annual Governmentwide reports including the consolidated Financial Report of the U.S. Government. FMS also provides support, guidance and training to assist Federal program agencies to improve their Governmentwide accounting and reporting responsibilities. rvisºs ry 2009 FY2001: ... Fyzon FY2003. FY2004 . reformance - Act,* ........... . . . . . Performance, Performance Performance Targe . . . Performance *Target Proposed Target $43,704 $43,264 $50,522 $50,391 $48,935 $55,207 $59,565 Budget Authority ($000s) - Direct FTE 376 408 385 380 401 419 419 Performance Goal: Produce accurate, accessible, and timely Governmentwide financial information and reports, which contribute to the improved quality of the Nation's financial decision-making. Performance Measures: I. * gº º ing reports issued accurately. (S) (CS) Not in Pian Not in Pian 100% 100% 100% 100% 100% 2. Percentage of G ingreſ issued timely. (S) Not in Plan Not in Plan 100% 100% 100% 100% 100% 3. Receipt of unqualified audit opinion on FMS’ Schedule of Non-entity Assets, i Non-entity Costs and Non-entity Custodial Revenues, and Schedule of Non- Not in Plan Not in Plan 100% . 100% 100% 100% 100% cntity Government-wide cash. (O) Performance tº Fº the achievement of a clean audit opinion on the Financial Report of the U.S. Government through our internal operations and support of Government agencies. Performance Measures: 4, Percentage of reporting locations with reconciliation differences, for deposits and payments, less than four months old. (O) Not in Plan . Not in Plan Not in Plan Not in Plan Not in Plan 95% 95% 02/03/2003 - FMS-11 § Financial Management Service, Salaries and Expenses - - - FY 1999 FY 2000 Fºr 2001 FY 2002 FY2003 FY 2004 Perſorsance Perſ “. . . .” Measure. and I. tors Performance Performance Performance Target ... Performance Target Proposed Target 5. Percentage of reporting kications with reconciliation differences, for deposits - - Discontinucd/ Discontinued/ and payments, less than six months old. (O) Not in Plan Not in Plan 97% 95% 97% Revised Revised 6. Percentage of agency reports for the Financial Report of the U.S. Goyºngyegº - - - - - - processed by FMS within the established standard range. (O) 92% 98% 98% 2/ 100% NA3/ Discontimued Discontinued ITMesurgCoding Sººyºung (S.Operation.TMesurgſ(0). Woºlmºgorºw) and Customerservice Sºndards (CS). 2/FY 2001 target was 99%. Of 132 reporting entities, 130 (or 98.48%) were consistent. There were two large reporting entities that FMS could not get to submit an Accounting Group Worksheet that FMS considered to be consistent with their audited financial statements. After significant work with FMS’ auditor, it was decided that a new approach to verifying consistency would be developed. However, this corrective action, which will ensure 100% consistency, will not be fully implemented until 2004. Therefore, the 100% target for 2002 is achievable but not guarant 3/Performance data will not be available until April 2003. FY2004 Proposed Performance Plan In FY 2004, FMS will continue to focus on program activities related to strengthening FMS’ Governmentwide accounting operations, preparing the Government’s consolidated financial statements, and providing increased guidance, direction and leadership to program agencies on Governmentwide accounting issues. FMS is currently redesigning the central accounting processes for reporting on the Government’s budget execution, which includes the surplus/deficit. Significant FY 2004 Actions: • Redesign the Governmentwide accounting and reporting system to eliminate redundant reporting and burdensome reconciliations; and Develop a new process for preparing the Financial Report of the U.S. Government that directly links agency financial statements to the Financial Report. This will mitigate the material weakness in the compilation process for the Financial Report that is within FMS’ purview. 02/03/2003 FMS - 12 § Financial Management Service, Salaries and Expenses FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: FMS anticipates meeting its performance targets for FY 2003 for the Budget Activity, Governmentwide accounting and reporting. FMS will also continue the multi-year project to rebuild the Government’s central accounting system for reporting budget execution information. In FY 2003, as part of the system redesign, FMS will provide agencies a web-based account statement resembling a bank statement. It will contain summarized Treasury fund account balance activity. In FY 2004, agencies will have daily access through a web-based system to the detail data supporting the items on the account statement for reconciliation and fund reclassification, rather than having to use multiple systems. As a result, final monthly and year-end fund balance information will be available to agencies a full week earlier than today. This will move the Government one step closer to achieving its objective of producing year-end financial information more quickly and more reliably. The actual performance for one of FMS’ FY 2001 measures was not available until April of 2002. For FY 2001, FMS achieved 98% on the measure, “Percentage of agency reports for the Financial Report of the U.S. Government processed by FMS within the established standard range.” FMS continues to work toward meeting its FY 2002 target of 100% and is developing a new process to ensure 100% consistency. This will be fully implemented by FY 2004. The actual results for FY 2002 will be available in April 2003. 02/03/2003 - FMS - 13 ; Financial Management Service, Salaries and Expenses SUPPORTING MATERIALS BUREAU-wide PERFORMANCE MEASURES Performance Goals, Performance Measures, and indicators Performance Measures: 1. Percentage reduction in total work-related injuries and illnesses rate. 2. Reduction in the number of new workers compensation claims accepted by the Office of Workers' Compensation Programs (OWCF), 1. Using the Office of Personnel Management survey of employee satisfaction as a baseline, FMS will assess the success of its ongoing effort to maintain a high level of employee satisfaction. 2. FMS will assess the success of its effort to address employee issues identified in a FY 2002 survey of employee satisfaction in FMS' Regional Financial Centers. FY 1999 Performance Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan FY 2000 Performance Not in Plan Not in Pian Not in Plan Not in Plan Not in Plan Performance Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan FY 2002 . Target Not in Plan Not in Plan Not in Plan Not in Plan Not in Plan - Performance Not in Plan Not in Plan Not in Plan Not in Plan Baseline FY 2003 Target Not in Plan Not in Plan Not in Plan Not Available Not in Plan FY 2004 Proposed Target 10% 10% 10% Basclinc TBD 1/ Performance Goal A: Health and Safety 3. Percentage reduction in the lost-time case-ratc. Performance Goal B: Employec Satisfaction Performance Measures: 1/ TBD — To be determined 02/03/2003 FMS - 15 5. Financial Management SEFTSE Salaries and Expenses MAJORMANAGEMENT CHALLENGES AND HIGHRISKAREAS 1. Management Challenge or High Risk Area: Collecting Delinquent Debt Owed to the Government Issue: Improvements are needed in collecting delinquent debt owed to the Government. FMS no longer considers this to be a mºmen challenge. FMS has expanded, strengthened and improved the debt collection program over the last three years by setting priorities and then accomplishing them. 2. Management Challenge or High Risk Area: Computer Security Controls Issue: Improvements are needed in computer security controls. FMS has taken a number of aggressive steps to address computer security controls and strengthen FMS’ information technology (IT) entity-wide security program. - Relevant Performance Measure(s) and/or FY 2002 Accomplishments: Examples of steps FMS took in FY 2002: Appointed Deputy Information Officers in each of FMS’ business areas; Assigned a senior executive responsibility for oversight of audit findings and FMS' security program; Revised and published IT security policies and standards; Developed business and project risk assessment methodologies; Completed an entity-wide risk assessment; and Updated background investigations and reinvestigations. 02/03/2003 FMS - 16 3. Financial Management Service, Salaries and Expenses Actions Planned or Underway: FMS will continue to focus its efforts on addressing/eliminating weaknesses in general computer controls. FMS has completed all corrective actions associated with Computer Security audit recommendations scheduled for 2002. The most significant accomplishment includes closing 54 of the 55 findings cited in the GAO audit (GAO-02-132) report conducted for the FY 2000 Financial Statements. The remaining finding is associated with the replacement of the Electronic Certification System (ECS) scheduled for July 2003. In addition, FMS has begun implementing a new access control system to support all Enterprise Applications and General support system access. This will streamline maintenance efforts and improve access control. By FY 04, FMS expects to achieve Level 5 of the Federal Information Technology Security Self-Assessment Framework. FMS has also ensured that all systems are operating under written authorization. Those systems operating with an Interim Authority to operate (LATO) will complete the certified and accredited process by the end of FY 2003. 3. Management Challenge or High Risk Area: Preparing Financial Statements for the Government Issue: Improvements are needed in preparing reliable U.S. financial statements. FMS continues to face challenges in preparing the Financial Report of the U.S. Government. Overcoming these challenges requires the cooperation and support of program agencies. Relevant Performance Measure(s) and /or FY 2002 Accomplishments: FMS has begun a multi-year effort to rebuild the processes it uses to prepare the Financial Report of the U.S. Government. FMS also worked closely with OMB in developing intra-governmental business rules. - Actions Planned or Underway: In FY 2003, FMS will finalize requirements and obtain contractual assistance in its effort to rebuild the processes it uses to prepare the Financial Report of the U.S. Government. The new process is projected to be used in preparing the FY 2004 financial statements, scheduled for publication in December 2004. When implemented, the new process and business rules will mitigate the material weakness in the current process. 02/03/2003 FMS - 17 § Financial Management Service, Salaries and Expenses CROSS-CUTTING COORDINATION EFFORTS Budget Activity 1: Payments Performance Goal: Provide Federal payments timely and accurately, move toward an all-electronic Treasury for payments, and determine the optimal payment processing environment for the future. FMS works with Federal program agencies to ensure Federal government payments are made timely and accurately. This is partly accomplished by FMS working with Federal agencies to identify and remove obstacles to enable more electronic payments. For example, FMS works with the Internal Revenue Service (IRS) to increase electronic payments for tax refunds. FMS, in consultation with Federal agencies, also researches, develops, and tests new technologies to improve Government payments processes. Budget Activity 2: Collections Performance Goal: Provide timely collection of Federal receipts, at the lowest cost, through an all-electronic Treasury. Performance Goal: Establish policies and processes to facilitate the integration of e-commerce technologies into the collections infrastructure. FMS administers the world’s largest collection system. It manages the collection of Federal revenues such as individual and corporate income tax deposits, customs duties, loan repayments, fines and proceeds from leases. FMS focuses on expanding the use of electronic collection mechanisms to assist remitters in making electronic payments to the Government. To accomplish this, FMS works closely with Federal program agencies. Budget Activity 3: Debt Collection Performance Goal: Maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services. 02/03/2003 FMS - 18 3. Financial Management Service, Salaries and Expenses FMS provides debt collection services to Federal program agencies and states. By working closely with these customers, FMS has achieved significant increases in agency referrals of tax debt, non-tax debt, child support debt, state tax debt and Federal non-tax debt. FMS works with Federal program agencies, states, the Department of Justice, private collection agencies, and other interested parties to further improve the Federal government’s collection of delinquent debt. Examples: - • FMS is now working closely with non-Treasury disbursed offices (NTDO) to incorporate salary and vendor payments, develop policies and procedures for offsetting grant payments, and enhance mission-critical systems to provide better service to agencies that refer debts to FMS for collection. - • FMS is examining the feasibility of and strategies for the offsetting of grant payments. • FMS began a major systems development effort known as FedDebt. FedDebt is designed to improve the efficiency of debt collection for Federal creditor agencies and private collection agencies. • FMS is also developing a program called Debt Check, that will allow Federal credit granting agencies and lenders to determine if a loan applicant owes a delinquent child support or Federal non-tax debt, in order to bar delinquent debtors from obtaining additional Federal monies. Budget Activity 4: Governmentwide Accounting and Reporting Performance Goal: Produce accurate, accessible, and timely Governmentwide financial information and reports, which contribute to the improved quality of the Nation’s financial decision-making. Performance Goal: Facilitate the achievement of a clean audit opinion on the Financial Report of the U.S. Government through our internal operations and support of Government agencies. FMS provides accounting, reporting, and financial services to the Government-at-large and to the Federal government’s agents who participate in the payments and collections processes by generating a series of daily, monthly, quarterly and annual Governmentwide reports. FMS also works directly with agencies to help them reconcile their reporting differences. 02/03/2003 - FMS - 19 § Financial Management Service, Salaries and Expenses The Governmentwide Accounting and Reporting (GWA) Modernization project is improving the quality, timeliness, and access of data and information, eliminating redundant data submission, and reducing the reporting and reconciliation burden on program agencies. The GWA Advisory Group, comprised of OMB, GAO, Federal Reserve Banks, and select Federal agency representatives, provides guidance and assistance with issues directly related to the GWA Modernization project. FMS is also working closely with Federal program agencies its effort to rebuild the processes it uses to prepare the Financial Report of the U.S. Government. 02/03/2003 FMS - 20 § Financial Management Service, Salaries and Expenses VERIFICATION AND VALIDATION OF DATA PERFORMANCE MEASUREMENT DEFINITIONS Performance Data Quality For each performance measure, a definition as well as verification and validation information is provided. Based on the verification and validation information, each measure's data is rated as having either “Reasonable Accuracy” (judged to be sufficiently accurate for program management and performance reporting purposes) or “Questionable or Unknown Accuracy.” Budget Activity 1: Payments • Performance Measure 01.P1. Percentage of paper check and Electronic Funds Transfer (EFT) payments made accurately. - Definition: The percentage of check and EFT payments that FMS makes which are not duplicate or double payments. How Data is Captured: FMS’ Regional Financial Centers (RFCs) submit statistics on duplicate payments and data for the performance measure. The payments are balanced with payment certifications submitted to FMS by Federal program agencies. How the data is verified and validated to make certain it is accurate: Payment processes and accounting systems are subject to numerous internal controls and audit review to ensure accuracy. RFC managers validate payment controls. Systems and accounting reports are used to independently validate payment accuracy and identify the number of duplicate payments. Data Accuracy: Reasonable Accuracy. • Performance Measure 01.P2. Percentage of paper check and Electronic Funds Transfer (EFT) payments made on time. Definition: "On time" means FMS releases checks to the U.S. Postal Service and EFT payments to the Federal Reserve Bank such that normal delivery by them results in timely receipt by payees. How Data is Captured: Data on check and EFT volumes are captured monthly in a report from FMS’ Production Reporting System (PRS). O2/03/2003 - FMS - 21 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: FMS’ Regional Financial Centers (RFCs) balance input to the PRS with a payment control file, i.e., the number of check payments certified must match the number of checks mailed. The volume of checks released to the Postal Service is verified against the volume of checks listed on Postal Form 3600, which is the receipt form utilized by the Postal Service to verify large-volume mailings. Form 3600 contains time and date of release of checks from RFCs to the U.S. Postal Service. For EFT, the volume of payments released is verified against the volume of payments listed on the transmission report, which also states the time and date of transmission from an RFC to the Federal Reserve Bank. If an RFC has a payment delay, the RFC prepares and submits a Payment Service Incident report (Flash Report) to Headquarters which explains the nature of the payment delay incident, when it occurred, who was notified, type of payment (check or EFT) and steps taken to remedy the situation. The RFC Director is also informed of the payment delay incident and separately notifies Headquarters. Both checks and EFT payments are released according to schedules. Release dates and times are subject to validation through random sampling of Form 3600 for checks and data in FMS’ systems. Data Accuracy: Reasonable Accuracy. Performance Measure 01.P3. Percentage of Treasury payments and associated information made electronically. Definition: The portion of the total volume of payments that is made electronically by FMS. Electronic payments include transfers through the automated clearinghouse and wire transfer payments through the FEDWIRE system. How Data is Captured: The volume of payments is tracked through FMS’ Production Reporting System. The amount and number of payments are also maintained under accounting control. How the data is verified and validated to make certain it is accurate. Accounting controls provide verification that the number of payments, both checks and EFT, is accurately tracked and reported. Additionally, payment files are balanced with payment authorizations that are electronically certified and submitted to FMS by Federal program agencies. The Federal Reserve Banks also validate the payment files. Data Accuracy: Reasonable Accuracy. Performance Measure 01.P4. Pércentage of check forgery and non-receipt claims adjudicated within 14 days. 02/03/2003 FMS - 22 § Financial Management Service, Salaries and Expenses Definition: The portion of claims analysts’ determinations made within 14 days to settle, defy or to defer a final disposition of a claim, pending receipt of additional information and/or investigative reports. How Data is Captured: From FMS' Check Payment & Reconciliation database. How the data is verified and validated to make certain it is accurate: Reports are reviewed by management on a monthly basis. Data Accuracy: Reasonable Accuracy. • Performance Measure 01.P5. Percentage of EFT claims processed in one day. Definition: FMS downloads EFT (electronic funds transfer) trace requests. FMS’ claims staff either mails the requests to the financial institutions or contacts the financial institutions by telephone. This contacting process takes place within one day. How Data is captured Trace requests run daily as part of automated processes supporting FMS’ claims function. FMS’ Regional Financial Centers (RFCs) submit monthly reports to Headquarters. How the data is verified and validated to make certain it is accurate: Trace requests are subject to overall systems controls and procedures including on-site reviews. RFC managers validate daily the number of EFT trace requests issued to financial institutions and the number of processing days. - Data Accuracy: Reasonable Accuracy. • Performance Measure 02.P1. Percentage of payments customers indicating an overall rating of satisfactory or better. Definition: Satisfaction of payments customers with check and electronic payment services provided by FMS to Federal agencies. - How Data is Captured: It is based on a survey sent to FMS disbursing customers. 02/03/2003 - FMS - 23 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: FMS’ Regional Financial Centers (RFCs) review survey results and contact any customer who made less than satisfactory comments. The RFCs provide Headquarters with the results of these contacts. Headquarters reviews the survey results. Data Accuracy: Reasonable Accuracy. • Performance Measure 04.P1 (New). Percentage increase in dollar value loaded onto stored value cards compared to FY 2002 baseline. . Definition: Amount of funds loaded onto stored value cards in comparison to the funds loaded in FY 2002. The stored value card program is an electronic payment system that offers an alternative to cash, checks, money orders and vouchers by loading funds onto smart cards for the purchase of goods and services at participating merchant locations. How Data is Captured: The stored value card program retains data on all load and point of sale transactions. How the data is verified and validated to make certain it is accurate: Data is verified and validated by agencies and merchants reconciling funds loaded onto the card and/or payments to their accounts for the purchase of goods and services. FMS also has checks and balance tools within the system for all data sent into and out of the system and for the integrity of the balance on the card. Data Accuracy: Reasonable Accuracy. Budget Activity 2: Collections • Performance Measure 01.C1. Percentage collected electronically of total dollar amount of Federal government receipts. Definition: Percentage of total dollar amount of Government receipts collected by electronic mechanisms compared to total amount of Government collections. How Data is Captured: FMS analysts gather deposit information from CASH-LINK which receives deposit and accounting information from local depositories. The analysts report totals and percentages on a monthly Collections Summary Report and the Total Government Collections Report. 02/03/2003 FMS - 24 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: Agencies are responsible for ensuring that their deposit reports are correct. Financial institutions (e.g., banks) and Federal agencies report deposits into the CA$H-LINK deposit reporting system using an Account Key which identifies the collection mechanism as electronic or non-electronic through which the collection was made. The Total Government Collections Report totals all deposits for electronic and non-electronic mechanisms. Data Accuracy: Reasonable Accuracy. • Performance Measure 02.C1. The dollar amount of collections handled through Pay.gov, a government-wide transaction portal. Definition: The dollar amount of collections processed through Pay.gov. How Data is Captured: Pay.gov retains information about payment transactions conducted. How the data is verified and validated to make certain it is accurate. Pay.gov ensures accuracy by daily proofing and balancing of each agency’s collections through Pay.gov. On a daily basis, this includes reconciling amounts authorized for collection, amounts collected, and amounts reported as deposited. Data Accuracy: Reasonable Accuracy. • Performance Measure 04.C1 (New). Percentage reduction in rate of increase in transaction costs to collect Federal + government receipts through the Electronic Federal Tax Payment System compared to FY 2002 baseline. Definition: This measure reflects FMS progress and results in ensuring the Government’s cost in operating its collection systems are minimized. The Electronic Federal Tax Payment System is Treasury’s electronic tax collection system that processes over three-quarters of the Government’s collections. How Data is Captured: FMS receives monthly statements from its Financial Agents (e. g., banks) which report the number of transactions and associated costs for providing the receipt and processing services related to FMS’ collection systems. How the data is verified and validated to make certain it is accurate: FMS reviews statements from Financial Agents on a monthly basis in order to verify and validate transaction volumes, service charges, and total costs of the services. These 02/03/2003 . FMS - 25 § Financial Management Service, Salaries and Expenses reports are also used to determine the amount of reimbursement provided to the Financial Agent for services rendered during the reporting period. . Data Accuracy: Reasonable Accuracy. Budget Activity 3: Debt Collection Performance Measure 01.D1. Amount of delinquent debt collected through all available tools. Definition: The total amount collected through debt collection tools operated by FMS. The tools include: Tax Refund Offset, administrative offset, state tax debt offset, tax levy, private collection agencies, demand letters, and credit bureau reporting. How Data is Captured: Data on debt collection is generated by FMS’ collection program systems and is reported on a monthly basis. How the data is verified and validated to make certain it is accurate: Data from the collection program systems is validated against data contained in FMS’ Debt Management Account System. The methodology and origin of the data are consistent from month to month. Data Accuracy: Reasonable Accuracy. Performance Measure 01.D2 (Reworded). Percentage of delinquent debt referred to FMS for collection compared to amount eligible for referral. Definition: Percentage of the dollar volume of debt referred to FMS for collection compared to the total dollar volume certified by Federal program agencies as eligible for referral. How Data is Captured: Referral data is captured in FMS’ collection program systems. 02/03/2003 FMS - 26 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: Referral data is loaded from files received from Federal program agencies, which are responsible for certifying debt referrals to Treasury. The methodology and origin of the data are consistent from month to month. Data Accuracy: Reasonable Accuracy. • Performance Measure 03.D1. FMS will increase the annual collection of delinquent debt, not including delinquent Federal tax debt, for FY 2003 by $120 million above that collected in FY 2001 for a total of $2.8 billion. (The FY 2001 base does not include debt collected from Advanced Tax Relief payment offsets.) (FY 2003 measure only) Definition: Total amount collected through debt collection tools operated by FMS. The tools include: Tax Refund Offset, administrative offset, state tax debt offset, private collection agencies, demand letters, and credit bureau reporting. How Data is Captured: Data on debt collection is generated by FMS' collection program systems and is reported on a monthly basis. How the data is verified and validated to make certain it is accurate: Data from the program systems is validated against data contained in FMS’ Debt Management Account System. The methodology and origin of the data are consistent from month to month. Data Accuracy: Reasonable Accuracy. • Performance Measure 03.D2 (New). Percentage increase in amount of debt collected for every dollar of debt collection program cost, compared to FY 2002 baseline of $52.53. Definition: The Debt Collection Improvement Act (DCIA) of 1996 established Treasury as the Government’s centralized debt collection agency. One of the purposes of the DCIA is to minimize the costs of debt collection by consolidating related functions and activities and utilizing interagency teams. This measure shows the efficiency of having a centralized debt collection program. - How Data is Captured: Collection of data and reporting on the cost of the debt collection program are performed on an annual basis. - 02/03/2003 - - - FMS-27 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: Data from FMS’ collection program systems is validated against data contained in the FMS’ Debt Management Account System. Program costs are derived from FMS’ accounting system and budget reports. The methodology and the origin of the data are consistent from year to year. Data Accuracy: Reasonable Accuracy. Budget Activity 4: Governmentwide Accounting and Reporting Performance Measure 01.G1 (Reworded). Percentage of Governmentwide accounting reports issued accurately. Definition: All Governmentwide financial information that FMS publishes relating to U. S. Treasury cash-based accounting reports (i.e., Daily Treasury Statement, Monthly Treasury Statement, and the annual Combined Statement of Receipts, Outlays, and Balances of the U.S. Government) is 100% accurate, i.e., there are no errata in any of the published Governmentwide financial information. How Data is Captured: A monthly tracking system reports on the various published statements. How the data is verified and validated to make certain it is accurate: A monthly tracking system monitors errata as it pertains to this measure. - Data Accuracy: Reasonable Accuracy. Performance Measure 01.G2 (Reworded). Percentage of Governmentwide accounting reports issued timely. Definition: All Governmentwide financial information that FMS publishes relating to U. S. Treasury cash-based accounting reports (i.e., Daily Treasury Statement, Monthly Treasury Statement, and the annual Combined Statement of Receipts, Outlays, and Balances of the U.S. Government) is on time 100% of the time. How Data is Captured: A monthly reporting system tracks dates of release to the public of the various Governmentwide statements. - How the data is verified and validated to make certain it is accurate: Procedures are in place to validate that the statements are released on time to the public 100% of the time. 02/03/2003 - - FMS - 28 j Financial Management Service, Salaries and Expenses Data Accuracy: Reasonable Accuracy. • Performance Measure 01.G3. (Reworded) Receipt of unqualified audit opinion on FMS’ Schedule of Non-entity Assets, Non-entity Costs and Non-entity Custodial Revenues, and Schedule of Non-entity Government-Wide Cash. Definition: FMS receives an unqualified opinion when the Schedule of Non-entity Assets, Non-entity Costs and Custodial Revenues and the Schedule of Non-entity Government-Wide Cash present fairly, in all material respects, the balances of the Treasury Managed Accounts, and Government-wide Cash reported on the schedules. Effective financial management of the Treasury Managed Accounts and Government-wide Cash that make up the schedules is critical to obtaining a clean/unqualified audit opinion on the Department of the Treasury's financial statements as well as the Financial Report of the U.S. Government. For this reason, FMS established a performance measure for the audit opinion on FMS’ financial audit. - How Data is Captured: The auditor’s opinions are provided in written reports. How the data is verification and validation to make certain it is accurate: Independent auditors verify and validate data quality. Data Accuracy: Reasonable Accuracy. • Performance Measure 01.G4 (Discontinued). Percentage of reporting locations with reconciliation differences, for deposits and payments, less than six months old. Definition: This measures the extent to which reports on deposits and payments from reporting sources in Federal agencies (ALCs) differ from FMS’ data. The ALC identifies an agency, bureau or other reporting source. (This performance measure is discontinued in FY 2003.) How Data is Captured: When a reporting ALC collects or disburses funds it must send FMS a statement of its monthly collections and disbursements. How the data is verified and validated to make certain it is accurate: FMS has two streams of data (agencies and banks/FMS' Regional Financial Centers) which provide a means to verify the accuracy of data. FMS' core accounting system, STAR, generates monthly reports. These reports show which reporting ALCs submit month end statements that 02/03/2003 - FMS - 29 § Financial Management Service, Salaries and Expenses include amounts that are different than control totals maintained by FMS. Each month FMS informs the reporting ALC that a discrepancy in deposits or disbursements exists and must be cleared. Data Accuracy: Reasonable Accuracy. • Performance Measure 01.G5 (Discontinued). Percentage of agency reports for the Financial Report of the U. S. Government processed by FMS within the established standard range. Definition: FMS collects and compiles agencies’ financial statements for the Financial Report of the U. S. Government. The reports are processed with specified data validity checks. FMS measures its processing performance against the established standard range. (This performance measure is discontinued in FY 2003.) How Data is Captured: FMS tracks this measure by first establishing the number of reports that it requires Federal program agencies to submit in order to produce a complete and accurate Financial Report. FMS then notifies the reporting agencies of reporting requirements and the due date. As the agency reports are received, they are logged in and the date the report is processed into FMS’ accounting system is noted. The number of reports processed more than three days after the established due date is calculated. FMS’ measurement data is then calculated by dividing the number of reports processed within three days after the due date by the total number of reports agencies are required to submit. How the data is verification and validation to make certain it is accurate. As part of the routine audit of the Financial Report by GAO, this data is independently verified by auditors for accuracy and establishment of performance by submitting Federal agencies. Data Accuracy: Reasonable Accuracy. • Performance Measure 03.G6 (New). Percentage of reporting locations with reconciliation differences, for deposits and payments, less than four months old. Definition: This measures the extent to which reports on deposits and payments from reporting sources in Federal agencies (ALCs) differ from FMS data. The ALC identifies an agency, bureau or other reporting source. How Data is Captured: When a reporting ALC collects or disburses funds it must send FMS a statement of its monthly collections and disbursements. 02/03/2003 - - . FMS - 30 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: FMS has two streams of data (agencies and banks/FMS' Regional Financial Centers) which provide a means to verify the accuracy of data. FMS' core accounting system, STAR, generates monthly reports. These reports show which reporting ALCs submit month end statements that include amounts that are different than control totals maintained by FMS. Each month FMS informs the reporting ALC that a discrepancy in deposits or disbursements exists and must be cleared. Data Accuracy: Reasonable Accuracy. Bureau-wide Health and Safety Performance Measure (New). Percentage reduction in total work-related injuries and illnesses rate. Definition: The Department has established a goal of zero workplace injuries and illnesses. To reach this goal, each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is calculated as the total number of OSHA reportable cases times 200,000 divided by the total hours worked by employees. This is an OSHA- defined calculation used to approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, in which Treasury's total case rate was 3.63. - How data is captured: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. - - How the data is verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Worker's Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and/or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit findings with the appropriate bureau offices. 02/03/2003 - FMS-31 3 Financial Management Service, Salaries and Expenses Data Accuracy: Reasonable Accuracy. • Performance Measure (New). Reduction in number of new workers’ compensation claims accepted by the Office of Workers’ Compensation Programs (OWCP). Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. How Data is Captured: Data for this measure is captured through the Safety and Health Information Management System (SHIMS). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted of OWCP. - How the data is verified and validated to make certain it is accurate: Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating. Data Accuracy: Reasonable Accuracy. • Performance Measure (New). Percentage reduction in lost-time case-rate. Definition: The goal is a lost-time case-rate of zero. To reach to this goal each bureau is expected to reduce its lost-time case-rate annually. The lost-time case rate is calculated as the number of OSHA reportable cases involving lost-time multiplied by 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost-time cases per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s lost-time case rate was 1.75. How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. 02/03/2003 - - FMS - 32 § Financial Management Service, Salaries and Expenses How the data is verified and validated to make certain it is accurate: Each quarter a statistically representative sample of SHIMS records are selected and the data input is audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audits findings with the appropriate bureau offices. Pata Accuracy. Reasonable Accuracy. Employee Satisfaction Performance Measure (New): Using the Office of Personnel Management survey of employee satisfaction as a baseline, FMS will assess the success of its ongoing effort to maintain a high level of employee satisfaction. Definition: FMS is currently participating in the Office of Personnel Management’s (OPM's) Governmentwide survey of employee satisfaction. FMS will use the survey results to help guide FMS management to identify employee issues and to establish a baseline measure of employee satisfaction. Through participation in future OPM surveys, FMS will assess the success of its ongoing effort to maintain a high level of employee satisfaction and identify any additional employee issues. How Data is Captured: OPM uses an Internet-based standardized questionnaire. How the data is verified and validated to make certain it is accurate. Data is drawn from OPM's survey results. FMS exercises no control over OPM's survey conduct or data compilation. Data Accuracy: Reasonable Accuracy. Performance Measure (New): FMS will assess the success of its effort to address employee issues identified in a FY 2002 survey of employee satisfaction in FMS’ Regional Financial Centers. Definition: In FY 2002, FMS surveyed employees in FMS’ Regional Financial Centers (RFCs) to establish a baseline measure of employee satisfaction. FMS also set a target for FY 2004 and initiated action to address employee issues identified in the survey. In FY 2004, FMS will conduct another survey of RFC employees to assess achievement of the target and identify any additional employee issues. 02/03/2003 FMS - 33 : Financial Management Service, Salaries and Expenses How Data is Captured: By an independent contractor. How the data is verified and validated to make certain it is accurate: An external vendor evaluates the survey’s internal validity. It then distributes collects, and analyzes survey results. Organization Development Specialists at FMS’ Headquarters provide feedback on survey findings to each RFC and prepare summary reports for FMS executives. Data Accuracy: Reasonable Accuracy. 02/03/2003 - r FMS - 34 : Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses ALCOHOL AND TOBACCO TAx AND TRADE BUREAU TABLE OF CONTENTS Volume 1 — BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET EXPLANATION OF THE FY 2004 PREFORMANCE BUDGET Analysis of FY 2003 President’s Budget Digest of FY 2004 Budget Estimates By Activity 4 g g º e s is g º is e is gº tº e º a tº * * * * Summary Explanations of Fiscal Year 2004 Request Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases Budget Authority, FTE, and Performance Measures Budget Activity; Collect the Revenue Budget Authority, FTE, and Performance Measures Budget Activity: Protect the Public Budget Authority, FTE, and Performance Measures Budget Activity: Management Program, Bureau-wide SUPPORTING MATERIAL Detail of Full-Time Equivalent Positions by Category Detail of Full-Time Equivalent Positions by Grade Standard Classification Schedule: Direct Obligations Appropriation Language Sheet and Justification of Language Changes 2/3/03 TTB-12 TTB-13 TTB-14 TTB-15 3. Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN Mission Prior to the Homeland Security Act of 2002, the Bureau of Alcohol, Tobacco, and Firearms was a law enforcement bureau of the Department of the Treasury dedicated to enforcing Federal laws and regulations and collecting revenue relating to alcohol, tobacco products, firearms and explosives. Subsequent to the provisions of the Homeland Security Act, the revenue and regulatory functions relating to excise tax and alcohol trade matters were retained by the Department of the Treasury in the newly authorized Alcohol and Tobacco Tax and Trade Bureau (TTB). TTB’s primary missions are to collect revenue for regulated commodities and to protect the consumer from deception and unsafe products through their regulatory functions. Extracted from the Bureau of Alcohol, Tobacco and Firearms, the newly formed TTB will continue to perform its core functions of maintaining a sound revenue management and regulatory system that reduces taxpayer burden, improves service, and collects the revenue due. The TTB is responsible for the protection of consumers by ensuring compliance with laws and regulations governing alcohol beverages. TTB will continue to have the responsibility for collecting alcohol, tobacco, firearms and ammunition excise taxes, implementing regulations and procedures, and ensuring trade and product compliance of the alcohol industry. The TTB serves as the nation’s expert on two uniquely regulated consumer products: alcohol and tobacco. These products generate significant tax revenue, which TTB is charged with collecting. Interrelated with the collection of taxes on these commodities, TTB must continue to fulfill its other unique responsibilities which protect the public by preventing consumer deception/fraud and ensuring that alcohol beverage products comply with Federal commodity, safety and distribution standards. The TTB represents a unique Federal resource for providing regulatory and tax collection functions as well as for providing technical, scientific, and legal expertise relating to these products. This unique combination of tools and skills allows TTB to provide a focused, flexible, and balanced approach to protecting the public and revenue collection. 2/3/03 - - TTB- 1 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Key Strategic Issues TTB and its predecessor organizations have a long history of dealing with the alcohol and tobacco industries and the controversies and debates that embroil their operations. In FY 2004, a key strategic issue facing the Bureau is the need to ensure a high level of stakeholder satisfaction throughout the transitional period of establishing the new Bureau, while fairly administering the alcohol and tobacco laws. Now more than ever, the success or failure of a Federal agency will be determined by the value it brings to the American public. In TTB’s quest to provide an ever-greater value of service to the American people, our vision will help us chart the course to change the way we do business and achieve new levels of effectiveness and teamwork as a part of the “World Class Treasury.” Key Strategy Impacts TTB has two strategic goals and a new management goal that support the Bureau’s overall mission. The first strategic goal, Collect the Revenue, is TTB’s revenue strategy with a goal to maintain a sound revenue management and regulatory system that continues reducing taxpayer burden, improving service, collecting the revenue due, and preventing tax evasion and other criminal conduct. The second strategic goal, Protect the Public, is TTB’s strategy to protect the public by preventing consumer deception/fraud and ensuring the regulated alcohol products comply with Federal labeling, advertising, and distribution standards. This activity uses community, industry, and government partnerships to supplement TTB programs to reduce public safety risks and potential consumer deception on regulated commodities. The TTB Bureau-wide management goal addresses the President’s Management Agenda, customer service, employee satisfaction, procurement performance, safety and health. The Bureau's Collect the Revenue strategy recognizes the need to provide the regulated industries with the option of electronically filing tax returns, reports, applications, claims, and other related forms and documents. TTB is developing several e-filing strategies to enable regulated industry members to conduct business with TTB via the Internet. The goal is to offer all alcohol and tobacco taxpayers the option of e-filing their excise tax returns and operational reports. Another key tactic supporting the Collect the Revenue strategy includes the application of statistically validated and state-of-the-art methods to measure and analyze compliance with tax law, and to identify any gaps in tax payment. Successful analysis will allow for a more effective and efficient use of the limited field resources available. TTB’s Protect the Public strategy assures integrity of products in the marketplace, ensures compliance with laws and regulations by regulated industries and provides information to the public. Under this activity, TTB will enforce compliance with Federal laws related to the production and distribution of alcohol products through education, inspection, investigation and laboratory testing. Providing technical expertise, training, information, and research results to industry members, government agencies and others is an essential component to successfully protecting the 2/3/03 - TTB- 2 & Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses public. TTB will work with industry, other Federal and State governments, and other interested parties to make it easier to comply with regulatory requirements, while maintaining the appropriate level of oversight to ensure the public’s safety. Innovation, partnerships, and open communication are paramount to achieving this strategic goal. As TTB strives to excel and to achieve its strategic goals, our successes can be measured in the collection of revenues and the public’s feeling of being well protected. TTB will continue monitoring trade practices of the alcohol industry and taking definitive actions on violations or discrepancies; and monitoring and reviewing international trade in alcoholic beverages to identify trade barriers, promote free access to foreign markets, and suppress incidents of international fraud and contaminated products. TTB will also continue to process applications for certificates of label approval and proposed formulas for imported and domestic distilled spirits, beer, and wine products to ensure that products are manufactured in accordance with standards of identity, are properly classified for excise tax and that labels and advertising are not misleading. The third, and latest, strategic goal area is Bureau-wide goal that includes the President’s Management Agenda, customer service, employee satisfaction and procurement performance. . 2/3/03 TTB- 3 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses analysis of fºr 2003 PRESIDEnt’s budget LEvel. DiGEst of FY2004 Burwoet Estimates. By Activity 883,775 (803,775) 80,000 & …tºº: --~~~~ º 2:…º. - 1. Reduce Violent Crime. . . . . . . . . . . . . . . . . . . . . . . -- $599,740 4,194 $725,921 o so (4,194) ($725,921) (4,194) ($725,921) 2. Collect the Revenue - - - - - - - - - - - - - 65,096 383 66,292 38.9 57,137 6 ($9,155) 6 (9,155) 3. Protect the Public. --- 155 89,911 529 91,562 155 22,863 (374) ($68,699) (374) (68,699) Unobligated balance expiring Subtotal, Budget Authority (All sources) 4,898 854,747 5,106 883,775 544 80,000 (4,562) (803,775) d 0 (4,562) (803,775) Less adjustments for other funding sources: 21 HIDTA, ONDCP, etc....... -- 0. 0. 0. o o d 0 o o 0 o o Total enacted appropriations and reimbursements) 4,898 354,747 5,106 sax,775 544 30,000 (4,562) (803,775) º 0 1 (4,562) (803,775) Less: Adjustment for Comparability with FY2004 Request underHomeland Security Act (4,355) (781,747). (4,562) (803,775) o o 4,562 803,775 0. 0 4,562 803,775 Enacted appropriations comparable with Fr 2004 543 $73,000 544 $30,000 544 $80,000 º -0 0. $0. o so Memorandum: Under proposed legislation to reflect the full costing of CSRS retirememt benefits and all retirement health benefits, the following amounts would be added: FY2002: $2,753, FY2003: $2,934, FY2004: $3,132. TTB-4 FY2003 Presidents Budget. FY2003 Amendment(s). Adjustments (+/-): Proposed Transfers to/from other Accounts (list)........................... Reprogramming (FTE only, except for inter-appropriation transfers). FY2003 Adjusted Presidents Budget Level, Plus/Minus Transfers..... - - Less adjustment for Comparability with FY2004 Request underHomeland Security Act FY2003 Presidents Budget Comparable with FY2004 Request..... - --------- Userſees (proposed new or increases) - budget estimates (excluding all transfers and 2/3/03 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses summary Explanations of FiscAL YEAR 2004 REQUESTED CHANGES BY Activity (Dollars. In Thousands) PROGRAM CHANGEs: 1. None OTHER CHANGEs: Adjustments Necessary to Maintain Current Levels: Transfer out to Department of Justice 2/3/03 TTB-5 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses EXPLANATION OF FY 2004 BUDGET INCREASES AND DECREASES In FY 2004 funding requirements for the Alcohol and Tobacco Tax and Trade Bureau are projected to be $80,000,000. This funding level represents full year support for the first year of operation. The decrease of $803,775,000 represents the portion of ATF that was transferred to the Department of Justice as required by the Homeland Security Act of 2002. OTHER CHANGES Total Requested Program Changes -$803,775,000/- 4,562 FTE The Homeland Security Act of 2002, P.L. 107-296, authorizes the transferofall the firearms, explosives, and arson functions of the Bureau of Alcohol Tobacco and Firearms (ATF) to the Department of Justice. The legislation authorizes the establishment within the Department of the Treasury the Alcohol and Tobacco Tax and Trade Bureau. The program change represents the funding transferred to the Department of Justice in FY 2003. - - - 2/3/03 . - TTB- 6 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses BUDGET ACTIVITY: COLLECT THE REVENUE Through this activity TTB plays a key role by collecting taxes and fees on alcohol, tobacco, firearms and ammunition. While it is important that the Government collect the revenue that is due, it is equally important that this revenue be collected with the least amount of burden on the taxpayer. These responsibilities will be accomplished through the implementation of electronic government, automation of internal business applications, audits and inspections of taxpayers, and prevention of tax evasion. Program Performance Annual Performance Goals. Measures, Indicators and Informational Table 1/ Direct FTE 389 Goal: Collect the Revenue 1. Taxes and fees collected from the alcohol, tobacco, and firearms regulated industries (in billions).2/ 12.1 14.1 - 13.6 15.1 15.1 15.1 2. Percent of tax related transactions (forms, reports & N/A N/A .1% .1% .1% 1% returns) processed electronically. 3. Ratio of taxes and fees collected vs. resources S 193:1 207:1 2.72:1 200:1 || 325:13, 21.1:1 21.1:1 expended. 1/Budget Authority and FTE tie to digest table, which reflects the establishment of TTB pursuant to the Homeland Security Act of 2002. 2/The performance data for this area includes firearms, ammunition and explosives excise taxes and licensing fees, estimated at $249K in FY2003 and FY2004 for each year. 3/In FY 2002 there was a tobacco tax increase. During the same year inspector resources were redirected towards explosives mission activities (inspection of explosives licensees in response to the September 11", 2001 tragedy). Measure coding: Strategic Measures(S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) 2/3/03 TTB- 7 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses BUDGET ACTIVITY: PROTECT THE PUBLIC Through this activity TTB oversees the production and distribution of alcohol and alcohol products, and ensures compliance through education, inspection, and investigation. TTB relies on innovation, partnerships, and open communication to fully achieve this strategic goal. TB works with industry, other Federal and State governments, and others to make regulation less burdensome. TTB trains, informs, and assists these industry members and government agencies, as well as the public, with the goal of protecting the public and preventing consumer deception/fraud. Program Performance Annual Performance Goals. Measures, Indicators and Informational Table Goal- . Percent of label approval applications submitted and s Responses to unsafe products and product S 1/Budget Authority and FTE tie to digesttable, which reflects the establishment of TTB pursuant to the Homeland Security Act of 2002. Measure coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) 2/3/03 TTB- 8 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses BUDGET ACTIVITY: MANAGEMENT PROGRAMS (BUREAU-wide) We are providing management programs as a new separate program activity area this year to better capture areas that are relative to the Bureau as a whole and support areas of the President’s Management Agenda and the Secretary’s priorities. As we move into the 21” century, we face complex social and cultural dynamics. Therefore, the recruitment and retention of a diverse and highly skilled work force, of sufficient size to meet the increasing demands of our mission, are essential. Open communication and constructive feedback are fundamental to the empowerment and growth of our professional team. We will continue to provide a high quality work environment that encourages creativity, promotes fair and equal treatment, and supports a balanced personal and professional life for all employees. Our ability to meet the Bureau's responsibilities is dependent upon fully developing our individual and collective skills. Excellence in programs and performance requires continuous training and development of all Bureau employees. * Measures of Employee Satisfaction — Our ability to meet the Bureau's responsibilities is dependent upon fully developing our individual and collective skills. Excellence in programs and performance requires continuous training and development of all Bureau employees. * Measures of Procurement Performance - The Small Business Act (15 U.S.C. 644(g)), as amended by P.L. 100-656, requires that the President establish annual Government-wide goals for procurement awards to small businesses, HUBZone small businesses, small disadvantaged businesses, women-owned small businesses, veteran-owned small businesses, and service disabled veteran-owned small businesses. The Assistant Secretary (Management) has established a Departmental Small Business Program (SBP) to implement sections 8 and 15 of the Small Business Act. * Measure of Customer Satisfaction - Maintaining the highest standard of integrity is essential to accomplishing our goals and retaining the trust of the American public. We will achieve this by continuing to build a culture that is intolerant of breaches of integrity. We will reinforce this through training, investigations, ethics training and internal control programs. 2/3/03 TTB- 9 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Program Performance Annual Performance Goals. Measures, Indicators and Informational Table FTE Goal: Measure of Customer Satisfaction Measures: of non-beverage drawback formula processed withinten(10) working days receipt. Unusually complex products may require time, but these account for less than 10% New in CS IFY2004 of specially denatured alcohol (SDA) submissions processed within ten(10) of CS 89% 85% of label approval applications processed 9 calendar - CS 74% 77% 5.9% 65% 65% Measure coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) 2/3/03 § - 113 113 - --------------------------------------------------- - 41 41 - A&T Specialist/inspector 2/.................................... 355 227 227 - F- DETAL OF Ful-L-TIME EquivaLENT STAFFYEARS BY CATEGORY Yº which tran Cigarette Trafficking Act programs 2/ This represents the 1854 job series, which includes ATF inspectors and alcohol & Tobacco. Specialist FY2003 and 2004 are TTB Specialists. TTB-12 alcotton 2/3/03 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses 2/3/03 Senior Executive Service Level 4..................... Senior Executive Service Level 3... Senior Executive Service Level 2. Senior Executive Service Level 1 DETAIL or Ful-L-TIME Equival Ent staffºrtars BY GRADE TTB-13 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses STANDARD CLASSIFICATION SCHEDULE Direct obligations Object Classification Personnel compensation: Permanent 26,652 29,916 33,024 3,108 5,524 4,708 610 (4,098) 13,232 10,496 (2,736) ºft --~~~~ 2,117 2,314 4,794 2,480 Transportation of things - Rents, communications and utilities: Rental payments to GSA..... 5,388 5,370 6,795 1,425 Rental payments to others. - Other rents, communications and utilities... 2,301 2,527 2,339 (188) Printing and reproduction - Other services............................ 11,268 11,396 19,442 8,046 Purchase of goods/services from Govt. accts...... - Operation & maintenance of facilities................... - R h & development contracts - Medical care.......................................................... - Operation & maintenance of equipment. -- - Subsistence & support of persons - - Supplies and materials -- 850 1,790 704 (1,086) Equinment 6,625 6,873 1,796 (5,077) 92nſidential Unobligated balance available, SOY -- - Unobligated balance available, EOY. ----- - Unobligated balance expiring Less L §§ 2/3/03 TTB-14 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Alcohol and Tobacco Tax and Trade Bureau Federal Funds General and special funds: SALARIES AND EXPENSES For necessary expenses of carrying out section 1111 of the Homeland Security Act of 2002, including hire of passenger motor vehicles, $80,000,000; of which not to exceed $2,000 for official reception and representation expenses; not to exceed $50,000 for cooperative research and development programs for Laboratory Services; and provision of laboratory assistance to State and local agencies with or without reimbursement. Treasury General Provisions: Sec. 117 of Public Law 105-119 (5 U.S.C. 3140 note), as amended, is further amended in subsection (g)(1), by striking “4 years” and inserting “5 years”. JUSTIFICATION OF LANGUAGE CHANGES The Homeland Security Act of 2002 funds the new Alcohol and Tobacco Tax and Trade Bureau. The Act provides for the continuation of the personnel management demonstration project, which is contained in Treasury Department’s General Provision language. The Homeland Security Act of 2002 also provides for the establishment of the Bureau of Alcohol, Tobacco, Firearms, and Explosives under Department of Justice. 2/3/03 TTB- 15 § Department of the Treasury, Franchise Fund DEPARTMENT OF THE TREASURY FRANCHISE FUND TABLE OF CONTENTS VOLUME 1 = BUDGET SECTION EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2004............................................................................................................. Franchise – 1 Digest of Fiscal Year 2004 Budget Estimates by Activity........................................................................... Franchise – 1 Summary Justification of FY 2004 Budget Estimates................................................................................. Franchise – 2 Treasury Franchise Fund (Proposed Language Change)............................................................................ Franchise — 3 Summary Statement of Operations – By Entity........................................................................................ Franchise — 4 Summary Statement of Operations — By Business Lines............................................................................. Franchise — 5 TREASURY AGENCY SERVICES Summary Justification of FY 2004 Budget Estimates................................................................................. Franchise – 6 Statement of Operations..............…........…............…. Franchise – 8 FEDERAL CONSULTING GROUP - - Summary Justification of FY 2004 Budget Estimates..................................................................... . . . . . . . . . . . Franchise — 9 Statement of Operations................................................................................................................... Franchise – 11 BUREAU OF THE PUBLIC DEBT – ADMINISTRATIVE RESOURCE CENTER z Summary Justification of FY 2004 Budget Estimates.......................... … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ Franchise – 12 Statement of Operations................................ ................................................................................... Franchise – 15 FEDSOURCE – Baltimore, Los Angeles, Cincinnati, Chicago, Seattle, St. Louis, San Antonio, - Beaufort, Denver * . - - - - Summary Justification of FY 2004 Budget Estimates..................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Franchise — 16 Statement of Operations (by FedSource).......................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Franchise – 18 Statement of Operations (by Product Line)............. … Franchise — 19 02/03/03 # Department of the Treasury, Franchise Fund ANALYSIS OF FISCAL YEAR 2004 DIGEST OF FISCALYEAR2004 BUDGETESTIMATES BY ACTIVITY . Amount FTE ($000) 530 1/ 347,018 543 1/ 383,711 (Dollars In Thousands) - FY 2003 Proposed FY 2004 Reimbursable FY 2002 Actuals Operating Level Budget Estimate Business Activities FTE Amount FTE Amount FTE Amount FedSource: Baltimore, Los Angeles, Chicago, Seattle, Cincinnati, Denver 49 $260,313 54 $286,564 54. $318,072 St. Louis, San Antonio, Beaufort - Administrative Resource Center 362 $40,779 405 $47,441 415 $52,204 Treasury Agency Services 58 $10,219 66 $9,529 68 $9,863 Federal Consulting Group 4 $1,841 5 $3,485 6 $3,572 Total Spending Authority from Offsetting Collections by Entity 473 $313,151 530 $347,018 543 $383,711 Consolidated/Integrated Admi Management Total 49 $260,313 54 $286,564 54 $318,072 Financial Systems, Consulting and Training Total 62 $12,060 71 $13,013 74 $13,435 Financial Management Administrative Support Services Total 362 $40,179 405. 47,441 415 52.204 Total by Business Line” 473 $313,151 530 $347,018 543 $383,711 iſ *Includes $4,127 of Intra-Fund Activity and excludes imputed finance sources. 2/ $313M reflects the amount of revenue earned for the current year only. The President's Budget (MAX) shows $354M which includes amounts from prior year changes in uncollected customer payments. /03 - FY 2003 Anticipated Reimb FY 2004 Anticipated Reimb 02/03 Franchise - 1 à Department of the Treasury, Franchise Fund SUMMARY JUSTIFICATION OF FY 2004 BUDGET ESTIMATES Summary General Statement The Government Management Reform Act of 1994 (Public Law 103-356) and the Treasury Appropriations Act of FY 1997 established the Treasury Franchise Fund on a pilot basis through FY 2001. The FY 2001 Treasury Appropriations bill has extended the authority of the Franchise Fund through FY 2002. Additionally, as of this printing, the Senate Governmental Affairs Committee voted to reauthorize all Franchise Fund pilot programs through FY 2003. These acts authorize the Department of Treasury to buy or provide common administrative support services between Federal organizations on a reimbursable basis, in a competitive environment. - The Treasury Franchise Fund (Fund) is an entrepreneurial governmental enterprise established to provide Treasury bureaus and/or other non-Treasury agencies common administrative support services on a competitive and fully cost-reimbursable basis. The desired result is to have internal administrative services delivered in the most effective and least costly manner. The Fund’s services/products are offered on a voluntary and competitive basis to promote greater economy (reduced costs) and increase productivity and efficiency in the use of resources while ensuring compliance with applicable rules and regulations. The Fund operates in a business-like manner by creating and maintaining a business relationship with its customers and an environment that promotes customer participation and satisfaction. The Fund currently consists of twelve business activities—Treasury Agency Services; the Federal Consulting Group (FCG); Bureau of the Public Debt – Administrative Resource Center (ARC); and FedSource: Baltimore, Los Angeles, Cincinnati, Chicago, Seattle, St. Louis, San Antonio, Beaufort, and Denver. . - The following pages discuss each Treasury Franchise Fund Business Activity in more detail. 02/03/04 - Franchise - 2 s Department of the Treasury, Franchise Fund TREASURY FRANCHISE FUND (Proposed Language Change) Sec. XXX. The Treasury Department Appropriations Act, 1997 (as contained in section 101(f) of Division A of Public Law 104- 208), under the heading "Treasury Franchise Fund", as amended by section 120 of the Treasury Department Appropriations Act, 2001 (as enacted into law by section 1(a)(3) of Public Law 106-554), is further amended by striking "There is hereby established in the Treasury a franchise fund until October 1, 2002," and inserting "Hereafter, there is in the Treasury a franchise fund,". Explanation of Language Changes – This language removes the sunset date of the current legislation, making the Treasury Franchise Fund permanent. Once these changes are enacted, the language will read as follows: Department of the Treasury Treasury Franchise Fund ºf X...ſº - Cºº ºn º EFG-HS-#6:F&B-º-º:SE8 3++SHHHB6-#H#2-HFºs+HFºº-º-EF##3+++Sº-FEHºº-ºº: Bteber–H-2992] Hereafter, there is in the Treasury a franchise fund to be available without fiscal year limitation for expenses and equipment necessary for the maintenance and operation of such financial and administrative support services as the Secretary determines may be performed for Treasury Bureaus, other Federal agencies, and entities as authorized by law; Provided, That any inventories, equipment, and other assets pertaining to the services to be provided by such fund, either on hand or on order, less the related liabilities or unpaid obligations, and any appropriations made for the purpose of providing capital, shall be used to capitalize such fund; Provided further, That such fund shall be reimbursed or credited with the payments, including advanced payments, from applicable appropriations and funds available to the Department and other Federal agencies and other sources authorized by law for which such administrative and financial services are performed, at rates which will recover all expenses of operation, including accrued leave, depreciation of fund plant and equipment, amortization of Automated Data Processing (ADP) software and systems, and an amount necessary to maintain a reasonable operating reserve, as determined by the Secretary; Provided further, That such fund shall provide services on a competitive basis; Provided, further That an amount not to exceed four percent of total income to such fund may be retained in the fund for fiscal year 1997 and each fiscal year thereafter, to remain available until expended to be used for the acquisition of capital equipment and for the improvement and implementation of Treasury financial management, ADP, and other support systems; Provided further, That no later than thirty days after the end of each fiscal year, amounts in excess of this reserve limitation shall be deposited as miscellaneous receipts in the Treasury. - 02/03/04 - Franchise - 3 § -------d-tº-sur- raanchis->t suM-Yst-tº-nºtor --- º no or-lons-----it- --- $260,313 $40,779 -10,219 -1,441 rua ºix, 151 -->ix --- -on- -13-15- -245,44- Nua -7.965 -1.241 na $154,494 -45,4- 39,294 ry- 3286,564 $47,441 sº,529 $3,445 rua sº-tai- ---01- $47,441 -7-01- Na -1.77- -7--> º,727 NIA ---,770 --- $318,072 $52,204 39,463 53.572 Nua º,711 ºl-ºn- six,433 $333,711 $301.271 N/A -01- $2,467 Na 3.11.454 $301,971 -170,356 $34,174 sia,029 $1,4- -1,067 -5al- 317-154 stºo-3 -º-,17- -15.5- -160,733 run T- -12.291 roo -1.326 call sºlº tota- -17-15 c-ir-t-. -140,725 ---------Tº-T- si-Man ------------ ----- sits, ii- - - - FEDsource sm,544 anc $35,336 Tas -1,600 Fºº -505 Iºan --> TOTAL -45.30% ------- --- -------tra-- --- --------- º ----- --> slı,652 $44,679 sl.999 slots N/A º,376 ------ --- º $59,374 six,404 -,764 +19.311 $64,682 ------- $2,077 --------T- -174 -d--sur-rºanservº-tau -ºil ---- - $5,094 Departmentor-tº-ry, Franchi-Fu- # Department of the Treasury, Franchise Fund DEPARTMENT OF TREASURY FRANChiSE FUND STATEMENT OF OPERATIONS by BUSINESS LINES FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Estimate Estimate - $170,356 $260,313 $286,564 $318,072 Financial Systems, Consulting and Training Total $16,983 $12,060 $13,013 $13,435 Financial Management Administrative Support Services Total $38,178 $40,779 $47,441 $52,204 TOTAL $225,518 $313,151 $347,018 $383,711 --- -º-º: º º: º º ſº Consolidated/Integrated Administrative Management Total $160,735 $245,488 $272,043 $301,971 Financial Systems, Consulting and Training Total $14,380 $9,206 $9,727 $10,485 Financial Management Administrative Support Services Total N/A N/A N/A N/A TOTAL $175,115 $254,694 $281,770 $312,456 cºmmºn d'Administrative Management Total $7,544 $9,717 $11,652 $12,404 Financial Systems, Consulting and Training Total $2,429 $2,299 $3,045 $2,766 Financial Management Administrative Support Services Total $35,336 $38,204 $44,679 $49,517 TOTAL $45,309 $50,219 $59,376 $64,688 $2,077 $5,108 $2,870 $3,698 Financial Systems, Consulting and Training Total $174 $555 $241 $183 Financial Management Administrative Support Services Total $2,843 $2,575 $2,762 $2,686 TOTAL $5,094 $8,238 $5,873 $6,567 02/03/03 Franchise - 5 š Department of the Treasury, Franchise Fund - Franchise Business Activity Name: Treasury Agency Services SUMMARY JUSTIFICATION OF FY 2004 BUDGET ESTIMATES General Statement Treasury Agency Services (TAS) shares one common mission with Treasury’s Financial Management Service (FMS) — to help agencies improve the quality of government financial management. TAS is a reimbursable source of information, advice, assistance, and training that is geared to today’s environment and customized to meet client agencies’ requirements. These services provide the venue for linking program objectives with best financial manager vert practices. Our vision is to be the partner of choice for federal managers seeking financial management improvements and slº. ss. Our strength is FMS expertise combined with entrepreneurial initiative. - TAS achieves its mission by offering a variety of integrated financial management services through its four business lines. Accounting Operations provides cash reconciliation services for agencies’ fund balances with Treasury and reconciliation of disbursing officers’ cash reporting as well as the preparation of monthly and year-end reports. Financial Systems Consulting assists agencies in selecting and implementing financial management systems that meets Treasury, OMB, Joint Financial Management Improvement Program (JFMIP), and the agency’s own requirements to improve the quality of financial decision-making; improving compliance with Treasury and OMB regulations; and enhancing the quality of financial reporting to Treasury and OMB. Management Consulting provides financial management assistance, such as operational reviews, internal control reviews, financial reporting - compliance reviews, standard general ledger conversions, strategic planning, and cost management. The Financial Education area provides open enrollment and agency on-site courses, conferences, seminars, and workshops to financial and non-financial program managers and staff. This program supports compliance with existing and new financial legislation and regulations. TAS phased out its Accounting Cross-Servicing business line in April 2002. A decline in the number of new clients contracting for accounting cross-servicing and an increase in clients requiring more current technology prompted the phase out. TAS is facing a major challenge–management of its talent pool. It must contend with the economy, private industry, and other franchise funds to maintain it staffing of accountants, new business, and IT expertise. Other challenges include accessing capital for new business development and software purchases, maintaining cost efficiencies, and increasing our retained earnings. As a means of increasing retained earnings, TAS continues to restructure and build its businesses, expand into new markets by providing financial 02/03/04 - - - - - Franchise - 6 # Department of the Treasury, Franchise Fund - Franchise Business Activity Name: Treasury Agency Services management training, and pursue cost reductions. Finally, TAS continues to focus on building operating reserves to ensure continuity of operations and payment of unforeseen contingencies. Highlights and Accomplishments > TAS is projecting annual surpluses from FY 2002 through FY 2004. Since annual surpluses (i.e., net income) are expected to decline during that timeframe, however, we will pursue cost reductions and new revenue aggressively. > The Accounting Operations business line signed long-term interagency agreements with various Intelligence Agencies and the Department of Education (Financial Student Aid) to provide assistance with reconciliation and accounting operations. This area expects to experience the most dramatic revenue and net income increases from FY 2002 through FY 2004. > The Financial Management Consulting business line signed interagency agreements with the Department of Education (Grants), Alcohol Tobacco and Firearms, a Department of Defense Intelligence Agency, and Department of Treasury/Departmental Offices to provide assistance in cash management improvements and financial statements review. > The Financial Systems Consulting business line extended its multi-year interagency agreement with Peace Corps, which provides assistance with the worldwide implementation of a new core financial system. Nevertheless, this unit experienced a reduction in overall revenue and net income due to a reduced value of signed agreements. > The Professional Development Division (formerly Financial Education) business line implemented 56 on-line courses, increased student enrollment by 39%, increased class convenings by 45% and put on a very successful Year-End Closing Seminar and Annual Financial Conference in FY 2002. However, the Professional Development Division’s net income is expected to decline considerably from FY 2002 through FY 2004 due to sizeable cost increases related to salaries and the Learning Management System. 02/03/04 - Franchise - 7 3. Department of the Treasury, Franchise Fund Franchise Business Activity Name: Treasury Agency Services, FMS 02/03/03 department OF TREASURY FRANchise FUND state MENT or OPERATIONS TREASURYAGENCY SERVICES-FMS FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Estimate Estimate Accounting $2,106 $2,580 $2,980 $3,200 Financial Education $1,747 $2,848 $2,616 $2,810 Financial Management Consulting $1,333 $1,820 $2,053 $2,108 Financial Systems Consulting $6,999 $1,655 $1,880 $1,745 Technical Services $1,844 $1,315 $0 $0 TOTAL $14,029 $10,219 $9,529 $9,863 Accounting $1,404 $1,566 $2,399 $2,731 Financial Education $1,344 $2,122 $2,125 $2,409 Financial Management Consulting $971 $1,279 $1,229 $1,338 Financial Systems Consulting $6,714 $1,757 $1,567 $1,540 Technical Services $1,858 $1,241 $0 $0 TOTAL $12,291 $7,965 $7,320 $8,018 $510 $678 $574 $597 Personnel Benefits $92 $122 $101 $105 Travel $24 $12 $22 $23 Transportation $0 $2 $0 $0 Rent, Communications, & Utilities $92 $65 $103 $126 Printing $17 $10 $43 $46 Other Services $840 $741 $737 $737 Supplies $20 $32 $32 $34 Equipment $6 $0 $387 $26 Land and Structures $0 $0 so $0 TOTAL $1,600 $1,663 $1,999 $1,694 sis? $590 $210 $151 Franchise-8 # Department of the Treasury, Franchise Fund Franchise Business Activity Name: Federal Consulting Group SUMMARY JUSTIFICATION OF FY 2004 BUDGET ESTIMATES General Statement The mission of the Federal Consulting Group (FCG) is to consult with other Federal government agencies to facilitate transformation efforts to being a more efficient, results-oriented government that all Americans can be proud. The FCG achieves its mission through its three Centers of Excellence: Customized and Collaborative Consulting and Facilitation Services, Executive Coaching through its National Network of Qualified Coaches, and Strategies for Customer Service Improvement. Through our Centers of Excellence we provide our customers with facilitations services, business career leaders to create solutions specifically designed to meet unique organizational needs. - Highlights and Accomplishments X- Introduced to the government community a new product related to the American Customer Satisfaction Index. This product is a web-based survey produced through the University of Michigan and Foresee Results and measures customer satisfaction with organizational websites. The interest and acceptance of this measure has been extraordinary. A customer Service Forum was initiated in FY 2002. These forums, usually conducted every two months provided learning programs, presentations, and meetings in which federal employees can share best practices, engage in benchmarking, and learn about new developments in public and private sector customer satisfaction initiatives. Successfully forged new partnerships with the Federal Executive Institute (FEI) to jointly offer Executive Coaching services to FEI attendees. FCG is forging new partnerships with the Office of Personnel Management. FCG executives continue to serve as speakers at many conferences throughout the United States. Many play an integral role in the planning and presenting at the National 2002 Excellence in Government Conference. In addition planning the Excellence in Government Conference, the FCG co-sponsored the Environmental Protection Agency’s (EAP) National Customer Service Conference. This is the largest event of its kind and provides tremendous training opportunities to federal, state, and local employees from throughout the United States. - - Participation at key events continues to be an effective means for sharing best practices. FCG continues to maintain its membership and actively participate in the Leadership Forum sponsored by the American University and the Alliance for Business Excellence (a partnership between the private and public sector). 02/03/04 Franchise - 9 § Department of the Treasury, Franchise Fund Franchise Business Activity Name: Federal Consulting Group > In keeping with our desire to facilitate the transformation of the federal government, FCG provided leadership development opportunities to SES candidates from the Department of State and the Federal Deposit Insurance Corporation (FDIC) to develop and enhance their executive skills. Creative Learning Groups (CLG) were established at NASA/Goddard and the EPA, FCG partnered with EDIN Associates to provide leadership development to high potential employees. The intent is to develop future leaders who can lead through excellent communication skills and the ability to coach and build relationships with the individuals and teams. - > During FY 2002, FCG lead a major strategic planning and performance measurement effort with the Immigration and Naturalization Service. The results to date have been remarkable and expansion of the delivery of our services within the cabinet level department is evolving. FCG expanded its comprehensive marketing strategy to expand its visibility and broaden its customer base. This strategy included the updating of both the www.fcg.gov website and the www.customerservice.gov site, developing new marketing materials, and exhibiting a number of major conferences within the Washington, DC metro aſ Ca. 02/03/04 - Franchise - 10 £ Department of the Treasury, Franchise Fund Franchise Business Activity Name: Federal Consulting Group DEPARTMENT OF TREASURY FRANCHISE FUND SUMMARY STATEMENT OF OPERATIONS FEDERAL CONSULTING GROUP FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Estimate Estimate Management Consulting $1,888 $1,841 $3,485 $3,572 TOTAL $1,888 $1,841 $3,485 $3,572 gººd Consultants $1,326 $1,241 $2,407 $2,467 TOTAL $1,326 $1,241 $2,407 $2,467 $239 $289 $622 $638 Personnel Benefits $33 $54 $85 $87 Travel $20 $12 $37 $38 Transportation - $1 $0 $0 $0 Rent, Communications, & Utilities $10 $9 $84 $86 Printing $4 $7 $8 $8 Other Services $179 $184 $1.78 $182 Supplies $11 $13 $24 $25 Equipment $9 $68 $8 $8 Land and Structures $0 $0 $0 $0 TOTAL $505 $636 $1,046 $1,072 $57 ($36) $32 $32 02/03/03 Franchise - 11 É Department of the Treasury, Franchise Fund Franchise Business Activity Name: Bureau of the Public Debt – Administrative Resource Center SUMMARY JUSTIFICATION OF FY 2004 BUDGET ESTIMATES General Statement The Bureau of Public Debt’s Administrative Resource Center (ARC) began operations as an entity of the Treasury Franchise Fund on September 1, 1998. The services run the gamut of traditional administrative support functions. ARC’s mission is to aid in improving overall government effectiveness by delivering responsive and cost effective administrative support to customers, thereby improving the customers’ ability to effectively discharge their missions. ARC has been very successful in meeting our mission goals as evidenced by the increasing demands for our services. The staff is organized into six divisions, each having responsibility for one or more main service categories: accounting, procurement, personnel management, budget, facilities management, printing and graphics, and web support. Business continues to grow at a pace that still enables us to assure quality service to all customers. The demand for our services is expected to increase; likewise ARC will continue to increase staff and space occupied to meet this customer demand. ARC continues to analyze and evaluate costs of doing business to keep the costs to customers to a minimum and still recover all costs of operations. ARC is also mindful of operating reserve goals as growth continues, and is cognizant of the costs related to expansion. In summary, the demand for services has negated the need for aggressive marketing. ARC’s challenge is to maintain quality in an environment of rapid expansion. 02/03/04 - - - Franchise - 12 : Department of the Treasury, Franchise Fund Franchise Business Activity Name: Bureau of the Public Debt – Administrative Resource Center Highlights and Accomplishments X- The increasing demand for ARC services has been a major accomplishment of our business. This demand is being seen within Treasury as well as from external customers. There has been a great demand for accounting services within the Department of Treasury to date, and ARC expects to continue expansion of accounting services within the Department. - The cost savings to customers is clearly of benefit to the government. This is especially evident for external customers. The ten small independent agencies that ARC services realize savings because it doesn’t take a full staff year in most of the service lines to provide the level of service they require. ARC charges the customer portions of a staff year for accounting, procurement, and personnel work. If those agencies had to maintain their own administrative staffs, their costs to do so would be much higher. - ARC’s internal processes have been greatly enhanced by the increased use of our website and automated processes to service customers. This has been a highlight of our business. ARC plans to continue to use the website as a tool to process work and communicate with customers. This feature saves time and money for our business and our customers. The applications developed to process work requests such as procurement requests, personnel actions and travel vouchers are maintained centrally on the website. All the customer needs to use these tools is Internet access. This saves the customer money because they do not have to maintain applications at their sites in order to do business with ARC. It saves ARC time and money in that all work requests from customers are standardized. t ARC has replaced its mainframe core accounting system to offer additional benefits to its customer agencies. By the end of FY 2003, ARC will have transitioned the majority of its customers to Oracle Financials, an off-the-shelf JFMIP certified system that uses Internet technology. The new system offers many enhanced features and benefits, including the ability to cost-effectively provide system access to remote users. The new system provides a complete financial management solution, including project cost accounting and property management capabilities. The system also includes interfaces to external systems for procurement, payroll, and travel. Finally, routing and notification capabilities, used in conjunction with existing e- mail systems, provide the potential for ongoing process automation. This system is an important enhancement to our suite of services. The high degree of customer satisfaction with ARC services is evidenced by the continued use of service as well as expansion of service packages subscribed to by various customers. 02/03/04 Franchise - 13 : Department of the Treasury, Franchise Fund - Franchise Business Activity Name: Bureau of the Public Debt – Administrative Resource Center > In summary, the franchising effort has fostered an environment where employees are continually challenged to identify ways to streamline processes which enable us to provide services “faster, better, and cheaper” than our competition. This environment has led to tangible benefits for the organization. 02/03/04 - Franchise - 14 # Department of the Treasury, Franchise Fund Franchise Business Activity Name: Bureau of the Public Debt-Administrative Resource Center 02/03/03 DEPARTMENT OF TREASURY FRANCHISE FUND STATEMENT OF OPERATIONS ADMINISTRATIVE RESOURCE CENTER FY 2001 FY 2002 FY 2003 FY 2004 Actual Actual Estimate Estimate PRºº. º Administrative Resources $38,178 $40,779 $47,441 $52,204 TOTAL $38,178 $40,779 $47,441 $52,204 N/A N/A N/A N/A º Personnel Compensation $15,803 $18,488 $19,898 $21,630 Personnel Benefits $3,933 $4,834 $5,174 $5,624 Travel $247 $275 $256 $260 Transportation $35 $30 $40 $41 Rent, Communications, & Utilities $130 $287 $427 $434 Printing $2,402 $699 $1,642 $1,670 Other Services $11,207 $9,370 $15,640 $18,236 Supplies $158 $144 $138 $140 Equipment $1,395 $4,076 $1,464 $1,482 Land and Structures $25 $0 $0 $0 TOTAL $35,336 $38,204 $44,679 $49,517 $2,843 $2,575 $2,762 $2,686 Franchise - 15 # Department Of the Treasury, Franchise Fund - º FedSource: Baltimore, Chicago, St. Louis, San Antonio, Seattle, Beaufort, Denver, Los Angeles, Cincinnati SUMMARY JUSTIFICATION OF FY 2004 BUDGET ESTIMATES General Statement FedSource (Cincinnati, Baltimore, Chicago, St. Louis, San Antonio, Seattle, Los Angeles, Beaufort, and Denver) provides entrepreneurial business solutions for the acquisition, delivery and financial management of common administrative services and products in support of agencies missions and objectives. Common administrative products and services include consolidated mail room management services, computer repair maintenance, court reporter services, employee assistance programs, conference/training programs and telecommuting centers, office services, laser cartridge services, moving services, records management, resource management programs, and training services. - Common administrative support services are provided to the Department and other agencies where the services can be provided more efficiently than by other means. Each of the product groupings is designed to meet the stated needs of the customer. The essential elements of quality packaging and delivery combined with volume consolidation are built into each FedSource contract and agreement. The services are provided to more than one hundred and fifty (150) federal departments and offices throughout the nation, all of which are provided by private sector contracts and by other government agencies, the latter method used only where specific criteria establish unique circumstances or a government agency is the only source of the required service. The strategy for value added service is the principle application of cooperative purchasing and the integration of the economic principle of economy of scale, i.e., combined purchasing power for a larger group and inherently larger volume results in economically beneficial conditions and other efficiencies, both qualitative and quantitative. Highlights and Accomplishments > FedSource increased their customer base reflecting customer’s satisfaction and perceived values of products and services. > FedSource provides a streamlined system with a focus on full cost accountability, simplified processes, and service delivery based on competition and timeliness as compared to Federal competitors and vendors, and other agencies. > Although growth by itself is not inherently good, growth for FedSource and the Treasury Franchise Fund results in increased competition throughout the government and lower administrative costs. As franchise services grow, the government works 02/03/04 l - Franchise - 16 : Department of the Treasury, Franchise Fund FedSource: Baltimore, Chicago, St. Louis, San Antonio, Seattle, Beaufort, Denver, Los Angeles, Cincinnati Smarter and the taxpayers win. Customers are now located all over the globe. But the true testament to customer satisfaction is the repeat and/or increased business by the same entities. 02/03/04 Franchise - 17 É wiTTTTTTTTTTTTTTTTTTTTTT FedSource: Baltimore, Cincinnati, Chicago, St. Louis, San Antonio, Seattle, Los Angeles, Beaufort, Denver 02/03/03 DEPARTMENT OF TREASURY Franchise Fund statement of operations redsource ry 2001 FY 2002 FY 2003 FY2004 Actual Actual Estimate Estimate $6,005 $9,544 $8,880 $9,480 $49,079 $62,280 $66,392 576,351 $6,280 $6,372 $7,332 $9,365 - $10.835 $13,544 $18,361 $23,799 San Antonio $44,166 $59,724 $69.966 $72,650 Seattle $13,138 $18,273 $20,180 $22,178 $31,317 $44,692 $48,500 $53,350 $0 $27,147 $26,000 $27,000 $9,537 $18,737 $20,953 323,899 $170,356 $260,313 $286,564 $318,072 $5,190 $8.245 $8,055 $8,545 $46,924 $58,255 $62.909 $72,345 $5,152 $5,292 $6,199 $8,059 $9,826 $12,793 $17,585 s22,788 $42,822 $57,613 $67,854 $70,459 $12,406 $17,421 $19,173 521,052 $29,550 $42,431 $46,272 550,979 30 $26,165 $24,500 $25,480 38.866 $17,273 $19,496 -22,263 $160,735 $245,488 5272,043 sºul,571 Cincinnati $4.08 $514 3510 sºad Baltimore $2,645 $3,014 $3,304 $3,569 Chicago $691 s?07 $818 $359 St. Louis $466 $545 $666 $82.5 San Antonio $996 $1,201 $1,449 $1.308 Scattle $621 $829 3956 $1,041 Los Angeles $1,120 $1,550 $1,772 $1,880 Beaufort -0 $482 $1,097 $1,242 Denver s396 $874 $1,080 $1,140 TOTAL $7,544 $9,717 $11,652 s12,404 $406 s?86 $31.5 $395 ($490) $1,011 31.78 $436 Chicago $436 s372 $316 $447 St. Louis $544 $206 $110 *186 San Antonio $348 sold $664 w883 Seattle $111 $23 $51 s&s Los Angeles $647 sºlo 3455 $491 Beaufort 30 s300 3403 $278 Denver $75 s390 3378 $496 TOTAL $2,077 $5,108 $2,870 $3,698 Franchi---- : Department of the Treasury, Franchise Fund Fedsource: Baltimore, Cincinnati, Chicago, St. Louis, San Antonio, Seattle, Los Angeles, Beaufort, Denver 02/03/03 department or Treasury Franchise Fund statement of operations-BY Product Line redsource FY 2001 ry 2002 ry 2003 FY 2004 Actual Building/Office Services -508 sl.223 si,177 $1,293 Mail Room and Management Services $1,138 $1,961 $1,916 $1.959 Miscellaneous $1,092 $3,387 $5,930 $7,195 Personnel Services $118,214 $186,172 $218,334 $241,463 ProjectManagement sis, 258 $32,865 slº,512 $20,569 Reprographics Management $26,986 $31,713 $35,463 $40,547 IT Services si,005 -63 sl.000 $1,100 Training $784 saga $1,055 $1,160 Wellness/Fitness $2,331 $2,063 $2,178 $2,386 Public Transportationservice --0 so so 30 TOTAL $170,356 $260,313. $286,564 $318,071 … Building/Office Services $373 $1,052 sl,048 $1,145 Mail Room and Management Services -948 -1.809 -1.822 $2,010 Miscellaneous $838 $3,099 $5,340 $6,499 Personnel Services $113,499 $175,551 $207,562 $229,304 ProjectManagement $17,560 $31,732 sia,043 $19,969 Reprographics Management $23,569 $29,446 $33,373 $38,162 It services $976 $77 son- $1,063 Training $800 $797 $1.001 $1,120 wellness/Fitness $2,156 si,925 $1.983 $2.194 Public Transportations.crwice sia so so Total. $160,735 $245,488 $272,043 $301,971 Personnel Compensation $2,104 $2,919 $3,384 $3,732 Personnel Benefits s306 $572 --56 ººza Travel $207 $283 $411 -445 Transportation slo $21 -3.3 -35 Rent, Communications, & Utilities $421 -501 -654 $683 Printing -15 $17 $127 -112 Other Services $3,935 $4,670 $5,519 $5,962 $97 s271 *191 $207 s2.49 $462 s327 3304 so $0 $150 $0 $7,544 $9,717 $11,652 $12,404 $2,077 $5,108 $2,870 $3,698 Franchise-19 : Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses ALCOHOL AND TOBACCO TAX AND TRADE BUREAU TABLE OF CONTENTS Volume 2 – PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 PERFORMANCE BUDGET TTB-1 RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN TTB-4 PERFORMANCE INFORMATION BY BUDGET ACTIVITY TTB-5 Budget Authority, FTE, and Performance Measures Budget Activity: Collect the Revenue FY 2004 Proposed Performance Plan . FY 2003 Performance Plan Budget Authority, FTE, and Performance Measures Budget Activity: Protect the Public TTB-6 TTB-7 TTB-8 FY 2004 Proposed Performance Plan FY 2003 Performance Plan Budget Authority, FTE, and Performance Measures Budget Activity: Management Program, Bureau-wide FY 2004 Proposed Performance Plan FY 2003 Performance Plan SUPPORTING MATERIAL Cross-Cutting Coordination Efforts Verification and Validation of Data and Performance Measurement Definition TTB-9 TTB-10 TTB-11 TTB-12 OMB Program Assessment Rating Tool (PART) Summary 2/3/03 s tº s is & & tº e º 'º a v e º tº g º e º e < e < a. º. º e s is º º tº tº * * * g e º 'º e º 'º we e º & e g º s & a 4 & 9 s tº s e º a s g º e º a tº & e º ºs & ſº s & e g SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN Mission Prior to the Homeland Security Act of 2002, the Bureau of Alcohol, Tobacco, and Firearms was a law enforcement bureau of the Department of the Treasury dedicated to enforcing Federal laws and regulations and collecting revenue relating to alcohol, tobacco products, firearms and explosives. Subsequent to the provisions of the Homeland Security Act, the revenue and regulatory functions relating to excise tax and alcohol trade matters were retained by the Department of the Treasury in the newly authorized Alcohol and Tobacco Tax and Trade Bureau (TTB). TTB’s primary missions are to collect revenue for regulated commodities and to protect the consumer from deception and unsafe products through their regulatory functions. Extracted from the Bureau of Alcohol, Tobacco and Firearms, the newly formed TTB will continue to perform its core functions of maintaining a sound revenue management and regulatory system that reduces taxpayer burden, improves service, and collects the revenue due. The TTB is responsible for the protection of consumers by ensuring compliance with laws and regulations governing alcohol beverages. TTB will continue to have the responsibility for collecting alcohol, tobacco, firearms and ammunition excise taxes, implementing regulations and procedures, and ensuring trade and product compliance of the alcohol industry. The TTB serves as the nation’s expert on two uniquely regulated consumer products: alcohol and tobacco. These products generate significant tax revenue, which TTB is charged with collecting. Interrelated with the collection of taxes on these commodities, TTB must continue to fulfill its other unique responsibilities which protect the public by preventing consumer deception/fraud and ensuring that regulated alcohol beverage products comply with Federal commodity, safety and distribution standards. The TTB represents a unique Federal resource for providing regulatory and tax collection functions as well as for providing technical, scientific, and legal expertise relating to these products. This unique combination of tools and skills allows TTB to provide a focused, flexible, and balanced approach to protecting the public and revenue collection. Key Strategic Issues TTB and its predecessor organizations have a long history of dealing with the alcohol and tobacco industries and the controversies and debates that embroil their operations. In FY 2004, a key strategic issue facing the Bureau is the need to ensure a high level of stakeholder satisfaction throughout the transitional period of establishing the new Bureau, while fairly administering the alcohol and tobacco laws. 2/3/03 - TTB-1 ~" x § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Now more than ever, the success or failure of a Federal agency will be determined by the value it brings to the American public. In TTB’s quest to provide an ever-greater value of service to the American people, our vision will help us chart the course to change the way we do business and achieve new levels of effectiveness and teamwork as a part of the “World Class Treasury.” Key Strateg Im. acts TTB has two strategic goals and a new management goal that support the Bureau's overall mission. The first strategic goal, Collect the Revenue, is TTB’s revenue strategy with a goal to maintain a sound revenue management and regulatory system that continues reducing taxpayer burden, improving service, collecting the revenue due, and preventing tax evasion and other criminal conduct. The second strategic goal, Protect the Public, is TTB’s strategy to protect the public by preventing consumer deception/fraud and ensuring the regulated alcohol products comply with Federal labeling, advertising, and distribution standards. This activity uses community, industry and government partnerships to supplement TTB programs to reduce public safety risks and potential consumer deception on regulated commodities. The TTB Bureau-wide management goal addresses the President's Management Agenda, customer service, employee satisfaction, procurement performance, safety and health. : The Bureau's Collect the Revenue strategy recognizes the need to provide the regulated industries with the option of electronically filing tax returns, reports, applications, claims, and other related forms and documents. TTB is developing severale-filing strategies to enable regulated industry members to conduct business with TTB via the Internet. The goal is to offer all alcohol and tobacco taxpayers the option of e-filing their excise tax returns and operational reports. Another key tactic supporting the Collect the Revenue strategy includes the application of statistically validated and state-of-the-art methods to measure and analyze compliance with tax law, and to identify any gaps in taxpayment. Successful analysis will allow for a more effective and efficient use of the limited field resources available. . . . . . : . TTB’s Protect the Public strategy assures integrity of products in the marketplace, ensures compliance with laws and regulations by regulated industries and provides information to the public. Under this activity, TTB will enforce compliance with Federal laws related to the production and distribution of alcohol products through education, inspection, investigation and laboratory testing. Providing technical expertise, training, information, and research results to industry members, government agencies and others is an essential component to successfully protecting the public. TTB will work with industry, other Federal and State governments, and other interested parties to make it easier to comply with regulatory requirements, while maintaining the appropriate level of oversight to ensure the public's safety. Innovation, partnerships, and open communication are paramount to achieving this strategic goal. As TTB strives to excel and to achieve its. strategic goals, our successes can be measured in the collection of revenues and the public's feeling of being well protected. TTB will continue monitoring trade practices of the alcohol industry and taking definitive actions on violations or discrepancies; and monitoring and reviewing international trade in alcoholic beverages to identify trade barriers, promote free access to foreign 2/3/03 - - - TTB-2 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses markets, and suppress incidents of international fraud and contaminated products. TTB will also continue to process applications for certificates of label approval and proposed formulas for imported and domestic distilled spirits, beer, and wine products to ensure that products are manufactured in accordance with standards of identity, are properly classified for excise tax and that labels and advertising are not misleading. The third, and latest, strategic goal area is Bureau-wide goal that includes the President’s Management Agenda, customer service, employee satisfaction, and procurement performance. 2/3/03 TTB-3 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Treasury Strategic Goal or Objective HoNSHPºſt wºn THE TTB Strategic Goal Goal Collect Revenue Due to the Federal Government Collect the Revenue: • Reduce taxpayer burden and improve • Improve and simplify tax laws and administrative service; guidance, consistent with other important tax policy • Maintain a sound revenue management and • Collect all the revenue that is rightfully due; guidance; regulatory system that continues reducing taxpayer and Manage the Federal Government's Accounts: • Ensure all Federal payments are accurate and timely; and • Strengthen the government's financial infrastructure to improve the efficiency of program management across the government. burden, improves service, collects the revenue, and prevents illegal diversion. • Prevent tax evasion and other criminal conduct in the regulated industries. Promote Domestic Economic Growth: • Protect the public and prevent consumer deception in specific regulated commodities Protect the Public: • Protect the public and prevent consumer deception in TTB's regulated commodities. • Ensure the integrity of the products, people and companies in the marketplace; • Ensure compliance with laws and regulations through education, inspection and investigation; and • Inform the public on TTB policies and regulations, product safety, and theft prevention using the Internet, trade publication, seminars and industry meetings Continue to Build a Strong Institution • Support the Achievement of Business Results • Improve Customer Satisfaction • Improve Employee Satisfaction TTB Management Strategic Goal: • Ensure that all TTB programs operate at maximum efficiency and effectiveness by providing them with high quality management and administrative support. • Link resources to results via the TTB strategic plan • Align and link information systems to support mission performance and B- government • Obtain and manage human resources to support achievement of TTB goals, and will be provided a supportive work environment conducive to performance excellence and employee development • Train TTB employees in the core competencies required for successful job performance 2/3/03 TTB-4 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Performance Plans for FY 2003 and FY 2004 and Performance Report Information for FY 2002 The FY 2004 performance budget is presented programmatically to better align resources with performance. These programs either relate directly to a budget activity, or are aggregations or disaggregations of budget activities as flexibility of the Government Performance and Results Act allows. The operations of TTB are divided into major activities. For each of these activities, budget and performance data are presented in table format to show historical trends and performance expectations associated with the FY2004 budget. Following the table are narratives explaining the FY 2004 proposed performance plan, FY 2003 final performance plan revised to reflect Congressional action, and the FY 2002 report on program performance. We are in the process of establishing a Strategic Plan for TTB. Until we have completed the independent Strategic Plan for TTB, the applicable portions of the ATF's strategic plan will be used as the basis upon which this budget requestis constructed. We anticipate completing a new strategic plan and identifying additional performance measures during 2003. BUDGET ACTIVITY: COLLECT THE REVENUE Program Performance Annual Performance Goals, Measures, Indicators and Informational Table º 1/ Direct FTE Goal: Collect the Revenue 1. Taxes and fees collected from the alcohol, tobacco, and firearms regulated industries (in billions).2/ Measure coding: Strategic Measures(S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) 2/3/03 TTB-5 § - Alcohol and Tobacco Tax and Trade Bureau, Sălăneşāna EEEISES 2. Percent of tax related transactions (forms, reports & o o oz O returns) p sed electronically. S N/A N/A N/A .1% .1% .1% 1% 3. Ratio of taxes and fees collected vs. resourc - º e • - - -1 expended. - S 193:1 207:1 27.2:1. 200:1 325:1 3/ 211:1 211:1 1/Budget Authority and FTE tie to digest table, which reflects the establishment of TTB pursuant to the Homeland Security Act of 2002. - 2/The performance data for this area includes firearms, ammunition and explosives excise taxes and licensing fees, estimated at $249Kin FY2003 and FY2004 for each year. - - 3/In FY 2002 there was a tobacco tax increase. During the same year inspector resources were redirected towards explosives mission activities (inspection of explosives licensees in response to the September 11*, 2001 tragedy. Measure coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) Through this activity TTB plays a key role by collecting taxes and fees on alcohol, tobacco, firearms and ammunition. While it is important that the Government collect the revenue that is due, it is equally important that this revenue be collected with the least amount of burden on the taxpayer. These responsibilities will be accomplished through the implementation of electronic government, automation of internal business applications, audits and inspections of taxpayers, and prevention of tax evasion. |FY2004 PROPOSED PERFORMANCE PLAN The FY 2004 resource request enables the continuation of efforts which will be underway in FY 2003 towards achieving the performance measures within TTB’s strategic goal of maintaining a sound revenue management and regulatory system that continues reducing taxpayer burden, improves service, collects the revenue due, and prevents tax evasion. TTB will continue to employ a number of key strategies to ensure that all the revenue that is rightfully due is collected. The first strategy is to identify possible underpayment of excise taxes through audits at the National Revenue Center of tax returns and industry members’ monthly operating reports. TTB will also continue its efforts to integrate systems at the NRC, to establish the groundwork necessary for analytical processing and trend analysis (e.g. identify if plant operations are within in norms and if unusual patterns/trends in operations exist—including increases in exports). This effort will limit work done on time consuming, manual processes, which are currently stretching resources, ultimately enabling more essential analytical review. Another key strategy that maximizes the effectiveness of the available resources is identifying industry members with weakened financial or operating controls, poor compliance history, or tax evasion schemes and referring them for field audits during FY 2004. TTB will continue to build the new Tax Audit Division, which will initially focus on the audits of larger excise taxpayers and areas of greater risk. 2/3/03 TTB-6 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses In addition to collecting the revenue that is rightfully due, the goal of reducing taxpayer burden and improving service remains a priority. As mentioned above, in FY 2004, TTB will continue the 5-year project to increase the number of taxpayers who can file their returns electronically. The ultimate goal is to allow permittees and taxpayers to file all payments, returns and applications online with the National Revenue Center. |FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: The FY 2003 resource request enables the continuation of efforts underway in FY 2002 towards achieving the performance measures within TTB’s strategic goal of maintaining a sound revenue management and regulatory system that continues reducing taxpayer burden, improves service, collects the revenue due, and prevents tax evasion. . TTB will employ a number of key strategies to ensure that all the revenue that is rightfully due is collected. The first strategy is to identify possible underpayment of excise taxes through audits at the National Revenue Center of tax returns and industry members’ monthly operating reports. Another key strategy that maximizes the effectiveness of the available resources is identifying industry members with weakened financial or operating controls, poor compliance history, or evasion schemes and referring them for field audits. In addition to collecting the revenue that is rightfully due, the goal of reducing taxpayer burden and improving service remains a priority. In FY 2003 TTB will continue the 5-year project to increase the number of taxpayers who can file their returns electronically. The ultimate goal is to allow permittees and taxpayer to file all payments, returns and applications online with the National Revenue Center. In order to achieve this goal TTB will continue working to integrate databases necessary to facilitate electronic government. 2/3/03 - - TTB-7 § AIEUTRTTTTTTTTTTTTTT-Tº-Tºre -- T BUDGET ACTIVITY: PROTECT THE PUBLIC Program Performance Annual Performance Goals, Measures, Indicators and Informational Table FTE Goal- . Percent of label approval applications submitted and s New S ſº - - 1/Budget Authority and FTE tie to digest table, which reflects the of TTB pursuant to the Homeland Security Act of 2002. Responses to unsafe products and product 190 Measure coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) Through this activity TTB oversees the production and distribution of alcohol and ensures compliance through education, inspection, and investigation. TTB relies on innovation, partnerships, and open communication to fully achieve this strategic goal. TTB works with industry, other Federal and State governments, and others to make regulation less burdensome. TTB trains, informs, and assists these industry members and government agencies, as well as the public, with the goal of protecting the public and preventing consumer deception/fraud. 2/3/03 TTB-8 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses [FY2004 PROPOSED PERFORMANCE PLAN TTB’s goal to protect the public complements collecting the revenue with training and prevention strategies through industry regulation, industry partnership, and reducing public safety risk and consumer deception on regulated commodities. The FY 2004 resource request enables the continuation of efforts underway in FY 2003 toward achieving the performance measures within this strategic goal. The performance measures supporting the “Protect the Public” programs will remain in line with the FY 2003 levels. In FY 2004 TTB plans to measure the number of responses to unsafe conditions and product deficiencies discovered related to alcohol to better evaluate the success of our programs. Several other performance measures are being developed. To ensure alcohol beverage labels do not contain misleading information and adhere to regulatory mandates, TTB examines all label applications for approval prior to use. TTB has also added two new measures of performance regarding this responsibility to review label applications for certificates of label approval and certificates of exemption from label approval. The first of these measures, percent of label approval applications submitted and processed electronically, measures TTB’s success in implementing electronic government, including providing industry members the ability to submit and TTB the ability to electronically process TTB Forms 5100.31, Application for and Certification/Exemption of Label/Bottle Approval (COLAs). The electronic submission and processing of COLAs will reduce the overall processing time by eliminating the mail handling, as well as by utilizing business rules, such as mandatory data fields, which will ensure complete applications, thereby reducing the number of rejected applications. Electronic filing of COLAs will be optional and TTB will still accept paper applications. Additionally to protect the consumer, TTB will continue a number of programs in the alcohol industry to ensure the integrity of the products, people, and companies in the marketplace. For example in FY 2004, TTB will continue conducting national, regional and local investigations of the business or trade practices which are being used to market alcoholic beverages by producers, importers, and wholesalers. Investigations are conducted of illegal trade practices, such as commercial bribery, consignment sales, exclusive outlet agreements, and tied house, which jeopardize the ability of alcohol retailers to conduct independent business operations. In FY 2004, TTB will also continue its product integrity and market sampling program. Through this prºgram, TTB tests samples of alcoholic beverages sold at the retail level to ensure that alcoholic beverages marketed in the United States meet ingredient (formulation) and standard of identity (labeling) requirements, do not contain unauthorized substances or contaminants, and are properly classified for tax purposes. The program consisting of onsite audits to verify label claims will be continued in FY 2004 to prevent label fraud and consumer deception. TTB will continue to respond to complaints or requests from consumers on alcoholic beverages and will test samples of the suspect beverages. Possible incidents of consumer product tampering will be referred to the Food and Drug Administration for investigation under the Federal Anti-Tampering Statute. 2/3/03 TTB-9 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and EXECTSES Informing industry members and the public on changes in our alcohol and tobacco statutes and implementing regulations through seminars, providing information available on the TTB web page, and responding to inquiries via email, regular mail, and telephone responses remain important elements for protecting the consumer. TTB also works with other Federal, State, local, and foreign governments to provide information through seminars and other means on TTB regulatory matters. | FY2003 PERFORMANCE PLAN Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: TTB’s goal to protect the public compliments collecting the revenue with training and prevention strategies through industry regulation, industry partnership, and reducing public safety risk and consumer deception/fraud on regulated commodities. Protecting the public has become increasingly important since the incidents of September 11, and TTB will help by ensuring the integrity of the companies, individuals and products in the marketplace. The FY 2004 resource request enables the continuation of efforts underway in FY 2002- 2003 toward achieving the performance measures within this strategic goal. The performance measures supporting the “Protect the Public” programs will remain in line with the FY 2003 levels. In FY 2004, TTB plans to measure the number of responses to unsafe conditions and product deficiencies discovered related to alcohol to better evaluate the success of our programs. TTB informs industry members and the public on changes in our alcohol and tobacco statutes and implementing regulations through seminars, providing information available on the TTB web page, and responding to inquiries via email, regular mail, and telephone responses. TTB also works with State, local, and foreign governments to provide information through seminars and other means on TTB regulatory matters. Informing the public on TTB policies and regulations, product safety, and theft prevention using the Internet, trade publications, seminars and industry meetings will remain an important element towards securing the safety of the public. 2/3/03 TTB-10 g Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses BUDGET ACTIVITY: MANAGEMENT PROGRAMS (BUREAU-WIDE) Program Performance Annual Performance Goals. Measures, Indicators and Informational Table Goal: Measure of Customer Satisfaction Measures: of non-beverage drawback formula processed within ten(10) working days receipt. Unusually complex products may require time, but these account for less than 10% Newin submissions. CS IFY2004 of specially denatured alcohol (SDA) submissions processed withinten(10) of CS 4 89% 82% 85% 85% of label approval applications processed 9 calendar CS I 74% 77% 5.9% 65% 65% Measure coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) [FY2004 PROPOSED PERFORMANCE PLAN We are providing Bureau-Wide programs as a separate program activity area this year to better capture areas that are relative to the Bureau as a whole and support areas of the President's Management Agenda and the Secretary’s priorities. Also, new for this fiscal year with potential future costs to be captured in this area, is the No FEAR Act, signed into law on May 15, 2002, which requires agencies to pay court settlements and judgments in discrimination and whistleblower cases from their own budgets. 2/3/03 TTB-11 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses From that benchmark, TTB will set targets for continuous improvement of processes and customer service standards for this industry. The TTB offices providing frontline services will continue to conduct customer surveys for input on ways to improve processes and service delivery (e.g. Alcohol Laboratory surveys of customers seeking approval of product formulas), | FY2003 PERFORMANCE PLAN Evaluation of FY2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: This program area is new for FY 2004. 2/3/03 - - TTB-12 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses CROSS-CUTTING COORDINATION EFFORTS As the agency responsible for regulating alcohol and tobacco products, two commodities taxed and regulated by the Federal, State, local and foreign governments, working with other agencies is essential to the success of TTB’s programs. The following partnerships are examples of the crosscutting efforts TTB has been actively involved in to best fulfill the mandates of the Bureau: TTB has partnered with other Federal agencies and with State, and foreign governments in an ongoing effort to ensure public safety with regard to alcohol products. TTB has worked jointly with the Food and Drug Administration (FDA), United States Department of Agriculture (USDA), Federal Trade Commission (FTC) and the Drug Enforcement Administration (DEA). Through the Alcohol Beverage Sampling Program, products are routinely secured in the marketplace and analyzed by our TTB laboratories for compliance. When questionable/prohibited ingredients are found or ingredients are found, we work with FDA to determine the impact on consumers’ health and safety. When alcohol beverage products containing hemp were being marketed in the United States, TTB worked with DEA to determine the effect, if any, this ingredient would have on consumers. TTB has recently partnered with USDA and initiated a memorandum of understanding (MOU) to address issues regarding the term “organic” on alcohol beverage labels. TTB’s partnership with the USDA provided an opportunity to assess the impact of these changes and to also make provisions for processing Certificates of Label Approval that make organic references. The MOU will clarify and delineate the enforcement responsibilities of each agency. TTB is also involved in issues concerning alcohol and youth. TTB participates in joint efforts with FTC regarding advertising of alcohol beverage products. TTB also works with the States regarding Internet sales of alcohol beverage products to underage youth. TTB continues to provide technical assistance regarding winemaking practices and participates in the World Wine Trade Group in an effort to promote the trade of wine between participating countries. TTB is also participating in two separate interagency committees regarding bioterrorism and food products, including alcohol beverage products, and the writing of regulations. Both of these committees are being lead by FDA. The committee regarding bio-terrorism and food products is committed to sharing information on how agencies should work together to respond to specific situations as they relate to the intentional contamination of food products, including means of bio-terrorism. The goal is to develop an action plan to handle the situation from original identification of the problem through the containment, decontamination, and disposal of the decontaminated product and any by-products. 2/3/03 - TTB-14 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS COLLECT THE REVENUE: Performance Measure: Taxes/Fees Collected from Alcohol and Tobacco Industries Definition: This measure includes revenue collected through alcohol, tobacco, firearms and ammunition excise taxes, and special occupational taxes. How Data is Captured: Data for this measure is obtained through tax systems at the National Revenue Center. How the data is verified and validated to make certain it is accurate: The information reported in this measure is subject to our annual financial audit or review. Data Accuracy: Reasonable Accuracy Performance Measure: Ratio of Taxes and Fees Collected vs. Resources Expended Definition: This measure represents the amount of taxes and fees collected, divided by the amount of resources expended to collect such taxes and fees. - How Data is Captured: Data for this measure is obtained through tax systems at the National Revenue Center and the net cost of operations for “Collect the Revenue” activities. How the data is verified and validated to make certain it is accurate: The information reported in this measure is subject to our annual financial audit or review. Data Accuracy: Reasonable Accuracy 2/3/03 TTB-15 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Performance Measure: Percent of Entities Filing Electronically Definition. This measure represents the percent of our alcohol and tobacco customers, as well as the firearms excise taxpayers, who use electronic filing instead of paper filing. We believe burden will be lower because the cost of processing electronically is vastly lower than paper filing. - How Data is Captured: Data for this measure is obtained through tax systems at the National Revenue Center. How the data is verified and validated to make certain it is accurate. This data is manually reviewed by TTB's E-Government . Office. Data Accuracy: Reasonable Accuracy PROTECT THE PUBLIC: Performance Measure: Percent of label approval applications submitted and processed electronically Definition: TTB has set a goal of implementing electronic government, including providing industry members the ability to submit and TTB the ability to electronically process TTB Forms 5100.31, Application for and Certification/Exemption of Label/Bottle Approval (COLAs). The electronic submission and processing of COLAs will reduce the overall processing time by eliminating the mail handling, as well as by utilizing business rules, such as mandatory data fields, which will ensure complete applications and reduce the number of rejected applications. Electronic filing of COLAs will be optional and TTB will still accept paper applications. This measure is calculated by dividing the number of e-filed applications by the total COLA submissions (paper and electronic). - . - * , How Data is Captured: Data for this measure is currently not captured, however, upon successful implementation of the electronic filing system all data needed to perform this calculation will be maintained within the COLAs Online database. (the system should be available during 2003). * How the data is verified and validated to make certain it is accurate: Verification and validation checks of this measure will be developed as the COLAs Online database is developed. - 2/3/03 - TTB-16 § Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses Data Accuracy: Reasonable Accuracy. Performance Measure: Response to Unsafe Conditions and Product Deficiencies Discovered (Alcohol) Definition: This measure tracks the number of corrections made to unsafe conditions and product deficiencies reported to TTB and discovered from inspector activities. TTB responds to consumer complaints concerning unsafe products and conducts a program of product integrity to ensure products do not pose potential risks to public health and are not fraudulently labeled. How Data is Captured: Data obtained by TTB’s Field Operations through the results of inspections. How the data is verified and validated to make certain it is accurate: To ensure validity the Field Operations reviews the lab analyses and recommendation before the assignment is closed. All entries are made by the project manager and reviewed by Field Operations. Should there be any concern as to the accuracy of the findings the appropriate staff member will validate. Data Accuracy: Reasonable Accuracy MANAGEMENT PROGRAMS (BUREAU-WIDE): Performance Measure: Employees overall satisfaction ranks X on a scale of Y (This measure is under development) Performance Measure: TTB employees overall satisfaction with training programs (This measure is under development) Performance Measure: Percentage of performance-based service contracts (goal will increase each year) (This measure is under development) Performance Measure: Percent of non-beverage drawback formula submissions processed within ten (10) working days of receipt. e Definition: It tracks the ability of the laboratory to examine samples and report findings within 10 days of receipt. 2/3/03 - TTB-17 g Alcohol and Tobacco Tax and Trade Bureau, Salaries and Expenses How the data is verified to make certain it is accurate: The data is compiled monthly from the sample entry log that is used to track receipt and disposition of samples. Data Accuracy: 95% + Performance Measure: Percent of specially denatured alcohol (SDA) formula submissions processed within ten (10) days of receipt Definition: It tracks the ability of the laboratory to examine samples and report findings within 10 days of receipt. How the data is verified to make certain it is accurate: The data is compiled monthly from the sample entry log that is used to track receipt and disposition of samples. Data Accuracy: 95%+ Performance Measure: Percent of label approval applications processed within 9 calendar days following receipt Definition: TTB has set a customer service goal of reviewing TTB Forms 5100.31, Application for and Certification/Exemption of Label/Bottle Approval (COLAs) within 9 calendar days of receipt. This measure is based on time taken to process COLAs starting with the date of receipt and ending with the date action is taken on the application (approved, needs correction or rejected). The percentage is calculated by dividing those applications responded to within 9 days of receipt by the total number of applications received. - How Data is Captured: Data for calculating this measure is currently not available (due to pending issues with the current database), however upon successful implementation of the electronic COLAs Online system this percentage will be calculated by a reporting function of the system. - How the data is verified and validated to make certain it is accurate: To verify the data, various reports and queries are run in the database and the data from these reports are compared to one another. The Division Chief reviews any questionable results with pertinent staff to determine their validity. Data Accuracy: Reasonable Accuracy. 2/3/03 - TTB-18 § Program: ATF Consumer ProductSafety Activities Agency: Department of the Treasury Bureau; Bureau of Akohol, Tobacco and Firearms Purpose -- - tº 100 Planning ################ § 71. Management 93 Resuits / 47 Accountability . O 100 [...] Results Achieved [...] Results Not Demonstrated Measures Adequate [I] New Measures Needed Aey Performance Measures Year Target Actual Long-term Measure: 2003 10% The percentage of Certificate of Label Approvals issued, by initiating electronic application and approval procedures 2008 75% (New measure for 2004) Long-term Measure: Measures under development Annual Measure: Measures under development Atating: Adequate Program 7 ype: Regulatory Program Summary: This program protects the public against contaminated alcohol products. It does this by verifying the content of alcohol products and evaluating the claims on the product łabels. Under the provisions of the Homeland Security Act of 2002, the consumer product safety activities and alcohol and tobacco excise tax collections of the ATF are being removed from the ATF and established as the Alcohol and Tobacco Tax and Trade Bureau in the Department of the Treasury. The program assessment indicates the overall purpose of the program is clear, and the program has demonstrated results based on its historical performance measures. tºowever, the current measures do not sufficiently capture the impact of the program's performance on public safety. In response to these findings the Alcohol and Tobacco Tax and Trade Bureau will: 1. Refine performance measures to more accurately reflect the goals and achievements of the program. 2. Establish clear guidelines and procedures to insure that goals are very specific. Establish written guidelines and supporting documentation for all aspects of the program. - Program Funding Level (In miſſions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 23 23 21 TTB-l9 2/3/03 3. BUREAU OF ENGRAVING AND PRINTING TABLE OF CONTENTS VOLUME 1 - BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMACE PLAN.............................................. BEP-01 EXPLANATION OF FY 2004 BUDGET REQUEST Analysis of FY 2003 President's Budget.................................................................................... BEP-02 Digest of FY 2004 Budget Estimates by Activity.................................................. s u s e s = e s e e s = e s = s = e s s a s is s BEP-02 Summary of Bureau Activities.................................................................................................. BEP-03 Statement of Financial Condition............................................................................................. BEP-04 Statement of Revenue and Expense......................................................................................... BEP-06 Budget Authority,FTE, and Performance Measures by Budget Activity 1 Manufacturing..................... BEP-08 Budget Authority,FTE, and Performance Measures by Budget Activity 2 Protection........................... BEP-10 Budget Authority, FTE and Performance Measures by Budget Activity 3 Resource Management......... BEP-11 SUPPORTING MATERIAL Detail of Full-Time Equivalent Positions by Category.................................................................... BEP-12 Detail of Full-Time Equivalent Positions by Grade........................................................................ BEP-13 § STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of The Bureau of Engraving and Printing, and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The Bureau’s mission is to securely and efficiently produce United States currency, postage stamps, and other government securities that satisfy the current and future needs of the American public and the government agencies which serve them. Key Strategic Issues In achieving its mission, the key strategic issue facing the Bureau is the need to maintain its capability to produce and deliver quality products to its customers in the most cost-effective manner, while moving forward aggressively to implement a major redesign of currency for delivery to the Federal Reserve in 2003/2004. These strategic challenges are being met through a coordinated program to update technology, develop the workſorce and improve work processes. Key Strategic Impacts The redesigned notes include additional sophisticated counterfeit deterrent features to complement and strengthen the existing array of features in the present design. New counterfeit deterrent features were considered for inclusion in currency paper and inks as well as new print designs for each redesigned denomination. Production of the Next Generation (NexGen) design is necessary to thwart the technological advances available to counterfeiters, and to maintain the integrity of the Nation's money supply. These efforts required multi-million dollar capital investments in printing technology, personnel and support processes. ^*3/03 BEP-ſhi É Bureau of Engraving and Printing Proposed Adjustments (+/-): Proposed Transfers to/from Other Accounts (list). Reprogramming (FTE only, except for i Fr--r FY 2003 Adjusted President's Budget, Plus/Minus Transfers transfers) ANALYSIS or FY 2003 president's BUDGET LEVEL Less Adjustment for Comparability with FY2004 Request under Ilomeland Scourity Act FY2003 President's Budget Comparable with FY2004 Request 1. Engraving and Printing Unobligated balance expiring.............................. Total enacted appropriations and budget est. 1.css: Adjustment ſor Comparability with FY 2004 Request under Homeland Security Act Enacted Appropriations Comparable with FY 2004 DiGiest of FY 2004 budget Estimates by activity (Dollars in Thousands) º - 2,442 2,442 2,627 2,627 2,627 2,627 2,627 2,627 º FTE 2,627 2.627 Amount ($000) o 0. : FY2003 President's Budget FY2003 amendment(s)..... Subtotal, Budget Authority (All Sources) Less adjustments for other funding sources: * Reflects approved FTE positions. 2/3/03 BEP-02 É DEPARTMENT OF THE TREASURY BUREAU OF ENGRAVING AND PRINTING FUND BUREAU OF ENGRAVING AND PRINTING Summary of Bureau Activities for Fiscal Years 2002, 2003, and 2004 Number of Units Delivered Revenue (In Millions) (In Thousands) Actual Planned Actual Planned 2002 2003 2004 2002 2003 2004 Currency 7,000 8,200 8,500 $383,917 $465,000 $488,000 Postage Stamps 12,200 9,000 7,000 46, 181 40,000 38,000 Other - 13,341 8,000 7,000 Total Bureau Products 19,200 17,200 15,500 $443,439 $513,000 $533,000 Space utilized by others agency $0 $0 $0 Total income from operations $443,439 $513,000 $533,000 Total cost of operations $472,445 $533,000 $533,000 Revenue in excess of expenditures ($29,006) ($20,000) $0 2/2 aq * BEP-03 É DEPARTMENT OF THE TREASURY BUREAU OF ENGRAVING AND PRINTING BUREAU OF ENGRAVING AND PRINTING FUND Financial Condition (in thousands of dollars) 2002 2003 2004 Actual Estimate Planned Assets: - Fund balance with Treasury $137,329 $117,000 $117,000 Accounts receivable (net) 71,394 61,000 58,000 Inventories 79,495 69,000 72,000 Prepaid Expenses 3,839 1,016 1,016 Fixed Assets (net) 306,673 337,000 338,000 Other Assets (net) 20,665 20,000 20,000 TOTAL ASSets $619,395 $605,016 $606,016 Liabilities: Accounts Payable 8,188 10,000 30,000 Accrued Liabilities 28,130 35,000 . 21,000 Workers Compensation Costs 63,061 60,000 55,000 TOTAL Liabilities $99,379 $105,000 $106,000 Capital Invested Capital 32,435 32,435 32,435 Retained Earnings 487,581 467,581 467,581 TOTAL Government Equity $520,016 $500,016 $500,016 Total Liabilities & Equity $619,395 $605,016 $606,016 BEP-04 2/3/03 É DEPARTMENT OF THE TREASURY BUREAU OF ENGRAVING AND PRINTING BUREAU OF ENGRAVING AND PRINTING FUND l'inancial Condition (in thousands of dollars) 2002 2003 2004 Actual Planned Planned Analysis of Changes in Government Equity Paid in capital; Opening balance $32,435 $32,435 $32,435 Transactions sº sº º * * * * & e- Closing balance $32,435 $32,435 $32,435 Retained income: Opening balance 516,587 487,581 467,581 Transactions: Net operating income (29,006) (20,000) 0 Net non-operating loss (-): Loss from disposal of equipment º ºg wº & E wº as sº ame Prior period adjustment {º º ºs &º & º * * * Closing balance 487,581 467,581 467,581 Total Balance equity (end of year) $520,016 $500,016 $500,016 BEP-05 2/3 in3 É DEPARTMENT OF THE TREASURY BUREAU OF ENGRAVING AND PRINTING BUREAU OF ENGRAVING AND PRINTING FUND Revenue and Expense (in thousands of dollars) 2002 2003 2004 Actual Planned Planned Revenue from Sales: Currency $383,917 $465,000 $488,000 Postage Stamps 46,181 40,000 38,000 Other Services 13,341 8,000 7,000 Total Revenue from Sales & Services (carried forward) $443,439 $513,000 $533,000 BEP-06 2/3/03 § DEPARTMENT OF THE TREASURY BUREAU OF ENGRAVING AND PRINTING BUREAU OF ENGRAVING AND PRINTING FUND Revenue and Expense (in thousands of dollars) 2002 2003 2004 Actual Planned Planned Revenue from Sales & Services (brought forward) $443,439 $513,000 $533,000 ()ncruling C Manufacturing Labor 37,335 39,000 41,000 Salarics and othcrindirect labor 123,778 130,600 136,500 Employer's sharc of personnel benefits 42,401 46,000 48,500 Benefits for former employecs 350 400 450 Direct material 142,610 168,000 162,000 Factory and other supplies 12,033 35,000 17,750 Depreciation and amortization 49,059 50,000 52,550 Standard level user charges 2,135 2,250 2,250 Rent, communicutions and utilities 16,830 14,000 ió,750 Uncut currency 7,490 5,000 5,000 Other Services 45,072 48,000 50,000 Repair parts and supplies 2,256 6,000 5,000 Travel and transportation of persons 1,268 l,500 1,500 Transportation of things 368 150 150 Printing and reproduction 195 500 500 Minor equipment 1,415 1,000 1,000 insurance claims and indemnities 100 100 100 TOTAL Operating Costs 484,695 547,500 541,000 less: Maintenance shop costs capitalized 2,250 2,500 3,000 Add: Net increase (-) or decrease (+) in finished goods and work in process inventories (10,000) (12,000) (5,000) Adjusted Cost of Sales $472,445 $533,000 $533,000 Ecº-º-º-º-EE -Exº- iº-º-E-CE: Net income for the year ($29,006) ($20,000) $0 +EEEEEEEEEEzzº xEEE= BEP-07 2/3/03 # |PROGRAM PERFORMANCE ANNUAL GOALS, MEASURES, INDICATORS AND INFORMATION TABLE The operations of the Bureau of Engraving and Printing are divided into three major activities: Manufacturing, Protection and Accountability of Assets, and Resource Management. For each of these activities, performance data are presented in table format to show historical trends and performance expectations associated with the FY 2004 budget. Following the table are narratives explaining the FY2004 proposed performance plan, 2003 final performance plan, and the FY2002 report on program performance. Activity: 1. Manufacturing Functions: The Bureau is the sole source provider of United States currency and a major source of postage stamps and othersecurity documents issued by the Government. For FY2004, currency production is budgeted at 8.5 billion notes. Postage stamp production is budgeted at 7.0 billion stamps. These program targets will be accomplished through the most efficient and effective use of production equipment, personnel, and inventory resources available. Manufacturing includes operations directly related to design, engraving, printing, processing, and delivery of U.S. currency, stamps, and othersecurity products. It also includes the following support services: engineering, quality, procurement, inventory management, and research (including counterfeit deterrence research and development). FY 2000 FY 2001 FY 2002 Performance Performance Performance Performance 1,851 1 1,855 1,845 Performance Plan FY T Measures Percent of Federal Reserve orders met as *** Revised standard reflects currency paper price adjustment and change in program mix. 100% 100% 100% 100% 100% 100% Percent of USPS orders met as 100% 100% 100% 100% 100% 100% in from Prior Year 15.9% -15.6% -16.6% -10% -6% 0% . Manufacturing Costs for Currency *(O) dollar cost perthousand notes $25.87 $22.65 $23.88 $30.45 $27.13 $31.00 Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) * FY 03& FY 04 targets subject to change pending final orders from the customer agency ** Measure discontinued for FY2004. 2/3/03 BEP-08 § Activity: 1. Manufacturing (continued) FY 1999 Performance Performance Number of Notes Returned by Federal Reserve due to mfg. defects. million notes FY 2001 Federal Reserve Note Deliveries (in billions 0. Percent of currency notes delivered to the Federal Reserve that meet customer quality requirements. (S) Deliveries (in billions ISO Certification ** Measure discontinued for FY2004. 2/3/03 Certified Baseline Certified # Activity: 2. Protection and Accountability of Assets Functions: The physical plantsecurity and personnel security, product accountability, and asset control. - º º º º º º º º º - º jºº - --~~ - º º º - FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Performance Performance Target Performance Target Proposed Target Reimbursable FTE 342 358 363 400 365 400 400 Performance Plan erformance Measure(s): 1. Currency shipment discrepancies (permillion notes) (O) 0092 0012 .0000 .01.00 0000 .01.00 .01.00 Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) 2/3/03 BEP-10 § Functions: Managementservices provided by the Office of the Director, the Chief Financial Officer, and the Associate Director (Management). FY 1999 Performance 296 unqualified . Annual Financial Statement Audit General and administrative costs as a of total costs. (O) . Lost-time case-rate. N/A Measure Measures (S), Operational Measures (O), Activity: 3. Resource Management . Percent of Contracts awarded turnovct ratc. N/A Percent of reduction in total work-related and illness rate. N/A Percent of reduction in workers claims. N/A 2/3/03 FY 2000 FY 2001 Performance Performance 285 272 Performance Plan unqualified unqualified FY 2002 Performance 232 unqualified unqualified unqualified unqualified N/A N/A N/A N/A and Customer (CS) BEP-11 g Bureau of Engraving and Printing, Salaries and Expenses DETAIL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Manufacturing Protection and Accountability of Assets Resource Management 2/3/03 BeP-12 3. Bureau of Engraving and Printing, Salarics and Expenses DETAiL OF FULL-TIME EQUIVALENT STAFFFYEARS BY GRADE Executive Scrwice Level 6.................................................. Exccutive Service level 5... Executive Service Level 4 Senior Executive Service Level 3........ ior Executive Service Level 2.... Senior Executive Service Level 1 BEP-13 § BUREAU OF ENGRAVING AND PRINTING TABLE OF CONTENTS VOLUME 2 - PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN................................ RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN ........................... PERFORMANCE INFORMATION BY BUDGET ACTIVITY Budget Activity 1: Manufacturing Budget Authority, FTE, and Performance Measures......................................................................................................... 3 FY 2004 Proposed Performance Plan........................................................................................................................... FY 2003 Preliminary Performance Plan.......................................................................................................................... Budget Activity 2: Protection and Accountability of Assets Budget Authority, FTE, and Performance Measures................................................. FY 2004 Proposed Performance Plan................................................................................ FY 2003 Preliminary Performance Plan........................................................................................... Budget Activity 3: Resource Management Budget Authority, FTE, and Performance Measures................................ FY 2004 Proposed Performance Plan..................................... FY 2003 Preliminary Performance Plan.............................. Bureau Wide Performace Measure: Budget Authority, FTE, and Performance Measures......................................................................................................... FY 2004 Proposed Performance Plan................................. - - - - * * * * * * * * * * * * * * * * * * * - - - - - - - - - - - * * * * * s = * * * * * * * * * * - - - - SUPPORTING MATERIALS Cross Cutting Efforts................................................................................................ Verification and Validation of Data and Performance Measurement Definition........................................................................ 13 § | STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of The Bureau of Engraving and Printing, and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The Bureau’s mission is to securely and efficiently produce United States currency, postage stamps, and other government securities that satisfy the current and ſuture needs of the American public and the government agencies which serve them. Key Strategic Issues In achieving its mission, the key strategic issue facing the Bureau is the need to maintain its capability to produce and deliver quality products to its customers in the most cost-effective manner, while moving forward aggressively to implement a major redesign of currency for delivery to the Federal Reserve in 2003/2004. These strategic challenges are being met through a coordinated program to update technology, develop the workforce and improve work processes. Key Strategic Impacts The redesigned notes include additional sophisticated counterfeit deterrent features to complement and strengthen the existing array of features in the present design. New counterfeit deterrent features were considered for inclusion in currency paper and inks as well as new print designs for each redesigned denomination. Production of the Next Generation (NexGen) design is necessary to thwart the technological advances available to counterfeiters, and to maintain the integrity of the Nation’s money supply. These efforts required multi-million dollar capital investments in printing technology, personnel and support processes. ^/3/03 - ()] § RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN Treasury Strategic Goals and Objective Bureau Strategic Goal Performance Goals linked to Strategic Goal -Increase the productivity and efficiency of coin and currency manufacturing 2 . Improve the quality, productivity and |Improve the Efficiency of Production Operations and Maintain the Integrity of U.S. Coin and Currency cost effectiveness of the Bureau's core manufacturing processes. . Enhance the security of U.S. currency and counter future threats by developing and incorporating new counterfeit resistant features and means to detect counterfeit notes. A. Meet customer's delivery requirements cost effectively. B. Produce consistently high quality counterfeit deterrent notes. |Improve the Efficiency of Production Operations and Maintain the Integrity of U.S. Coin and Currency -Continue to explore mechanisms for |maintaining the integrity of U.S. Coin and Currency 3 . Ensure an environment of comprehensive security and accountability for the Bureau's personnel, facilities and products. A. Maintain an accurate and cost effective system of accountability for Bureau's products, which will ensure that products are accounted for during production and that customers receive the correct quantities of product, Improve the Efficiency of Production Operations and Maintain the Integrity of U.S. Coin and Currency |-Increase the productivity and efficiency of coin and currency manufacturing 4 . Manage the Bureau's resources to increase internal efficiency and effectiveness in support of the goals of customer satisfaction, manufacturing, and security. A. Continue to provide reliable and timely financial information for executives and program managers. 2/3/03 02 3. |PROGRAM PERFORMANCE ANNUAL GOALS, MEASURES, INDICATORS AND INFORMATION TABLE | The operations of the Bureau of Engraving and Printing are divided into three major activities: Manufacturing, Protection and Accountability of Assets, and Resource Management. For each of these activities, performance data are presented in table format to show historical trends and performance expectations associated with the FY2004 budget. Following the table are narratives explaining the FY2004 proposed performance plan, 2003 final performance plan, and the FY 2002 report on program performance. Activity: 1. Manufacturing Functions: The Bureau is the sole source provider of United States currency and a major source of postage stamps and othersecurity documents issued by the Government. For FY2004, currency production is budgeted at 8.5 billion notes. Postage stamp production is budgeted at 7.0 billion stamps. These program targets will be accomplished through the most efficient and effective use of production equipment, personnel, and inventory resources available. Manufacturing includes operations directly related to design, engraving, printing, processing, and delivery of U.S. currency, stamps, and other security products. It also includes the following support services: engineering, quality, procurement, inventory management, and research (including counterfeit deterrence research and development). and --- - - - FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 Performance Performance Performance Performance T FTE 1.851 1,867 1,855 1,845 1 Performance Plan Gºal: Meet cost effectively, Measures Percent of Federal Reserve orders met as 100% 100% 100% 100% 100% 100% Percent of USPS orders met as 100% 100% 100% 100% 100% 100% - in from Prior Year 15.9% -15.6% -16.6% -10% -6% 0% Manufacturing Costs for Currency * (O) dollar cost per thousand notes $25.87 $22.65 $23.88 $30.45 $27.13 $31.00 Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) * FY 03 & FY 04 targets subject to change pending final orders from the customer agency. ** Measure discontinued for FY2004. *** Revised standard reflects currency paper price adjustment and change in program mix. 2/3/03 03 g Activity: 1. Manufacturing (continued) FY 1999 Performance Number of Notes Returned by Federal Reserve due to mfg. defects. million notes Federal Reserve Note Deliveries Deliveries * ISO Certification 0. Percent of currency notes delivered to the Federal Reserve that meet customer quality (S) ** Measure discontinued for FY 2004. 2/3/03 • ***, , , * -- * ~ * 4 ºv - g : * * - t + FY 2000 Performance ** * r FY 2001 Performance Certified Certified FY 2002 FY 2004 Performance Certified Certified Baseline § MANUFACTURING FY 2004 Proposed Performance Description of Performance Plan: The mission of the Bureau is to securely and efficiently produce United States currency, postage stamps, and other government securities. BEP utilizes the latest technologies for security printing, processing, and automated inspection equipment in order to produce the Nation's currency. This equipment is operated by highly skilled craft personnel that have developed their unique skills through multi-year, in-house apprenticeship programs. FY 2004 currency production is expected to be about 8.5 billion notes, a slight increase from the previous year. Postage stamp production is budgeted at 7.0 billion stamps, a reduction of about 2 billion stamps from 2003. This is consistent with the five-year interagency agreement between the U.S. Postal Service and BEP that plans for the phase out of the production of postage stamps at the Bureau. Production of Next Generation (NexGen) currency design will be expanded with the redesign of another denomination(s) in addition to the introduction of a redesigned $20 note in FY 2003. A new performance measure has been established for 2004 that will provide information on the percent of currency notes delivered that meet customer quality requirements, a measure that is more outcome-oriented. FY 2003 Final Performance Plan Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: FY 2003 is expected to be a transition year for the Bureau particularly in the currency-manufacturing program with the planned redesign of the $20 note. Currency production is expected to be about 8.2 billion notes while the postage stamp production is budgeted at 9 billion stamps, a reduction of over 3 billion stamps from 2002, which is consistent with the five-year interagency agreement between the U.S. Postal Service and BEP. Preparations underway for the Next Generation (NexGen) currency design will intensify and consume considerable resources as the 13ureau moves into production of the NexGen $20 currency note. This redesign is necessary to thwart the technological advances available to counterfeiters and maintain the integrity of the Nation's money supply. Staffing in the currency-manufacturing program will increase as resources are deployed to operate an additional manufacturing process and provide the necessary technical support. However, this will be offset somewhat by staffing reductions in the postage- manufacturing program as volume trends downward. 2/2/03 05 % Activity: 2. Protection and Accountability of Assets Functions: The physical plant security and personnel security, product accountability, and asset control. - º - FY 1999 FY 2000 FY 2002 FY 2003 FY 200 Performance Performance Performance Target Performance Target Proposed Target Reimbursable FTE 342 358 363 400 365 400 400 Performance Plan Performance Measure(s): 1. Currency shipment discrepancies (per million notes) (O) .0092 .0012 .0000 .01.00 .0000 .01.00 .01.00 Measure Coding: Strategic Measures (S), Operationa I Measures (o), workload indicators (W), and customer Service standards (CS) ºº: - -- - - - - -- - º: º - º rice: - - - - --- - º- - 2/3/03 06 § PROTECTION AND ACCOUNTABILITY OF ASSETS FY 2004 Proposed Performance Plan Description of Performance Plan: The performance target for currency shipment discrepancies was established based on the average discrepancy rate experienced over the past five years. This goal is achieved by a series of automated quality and accountability checks performed throughout the entire production process as well as a final manual verification prior to shipment to the customer. FY 2003 Final Performance Plan Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals. The performance target for currency shipment discrepancies was established based on the average discrepancy rate experienced over the past five years. The performance measure for postage stamps was discontinued in 2003 due to the phased out of the postage stamp program. 2 fre ºn3 07 § Functions: Management services provided by the Office of the Director, the Chief Financial Officer, and the Associate Director (Management). FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Performance Performance Performance T t . Percent of Contracts awarded N/A Baseline and Service (CS) Activity: 3. Resource Management 296 285 272 232 300 300 Performance Plan unqualified unqualified unqualified unqualified unqualified unqualified unqualified . Annual Financial Statement Audit General and administrative costs as a of total costs. N/A Baseline 2/3/03 08 3. RESOURCE MANAGEMENT FY 2004 Proposed Performance Plan Description of Performance Plan: The Bureau does not foresee any circumstance that would preclude receiving an unqualified audit opinion for FY 2004. The Bureau will continue its effort to streamline financial reporting. Successful financial reporting at the Bureau is a joint effort that requires coordination between BEP financial management, operations, and information technology personnel as well as close coordination with the independent, certified public accounting firm contracted to perform our annual audit. Additional measures for 2004 have been established to provide information on BEP business results. FY 2003 Final Performance Plan Evaluation of FY 2003 Performance Plan Relative to Performance Achieved Toward the FY 2002 Performance Goals: The Bureau does not foresee any circumstance that would preclude receiving an unqualified audit opinion for FY 2003. 212103 . 09 § Measures (W), and Customer Bureau Wide Performance Measure: Employee Satisfaction FY 1999 FY 2000 FY 2001 Performance Performance Performance Performance Plan turnover rate. Percent of reduction in total work-related and illness rate. Percent of reduction in workers claims. . Lost-time case-rate. 2/3/03 FY 2002 Performance N/A N/A N/A N/A FY 2003 T Baseline Baseline Baseline Baseline FY 2004 T § EMPLOYEE SATISFACTION FY 2004 Proposed Performance Plan Description of Performance Plan: The Bureau has established measures for 2004 to track employee safety as well as job satisfaction. The Bureau's employees have always been its most important resource; customer satisfaction depends greatly on a safe, highly qualified, and motivated workforce that has access to state-if-the-art equipment and cutting edge technology, 2 ” O3 * 11 § Cross Cutting Coordination Efforts The Bureau is an active member of the interagency Advanced Counterfeit Deterrence (ACD) Committee, which was established by the Department of the Treasury in 1981 to coordinate counterfeit deterrence strategy for U.S. currency. The Bureau works closely with the other committee members: the U.S. Secret Service (USSS), the Federal Reserve Board, and the Treasury Department; to investigate new design features that will safeguard currency from potential counterfeiting threats posed by advancing technology. The effectiveness of new design features is the critical element in the overall counterfeit deterrence strategy and, as such, is vital to maintaining a safe and stable monetary system. It is also critical to the U.S. Secret Service efforts to suppress counterfeiting of U.S. currency. In recognition of our role in the shared responsibility for counterfeit prevention, the Bureau participates in a joint project with other federal agencies to determine the effectiveness of current counterfeit deterrence features. This effort represents a true partnership between the Bureau as a manuſacturer and the USSS and the Federal Reserve as its customers. The focus of the program is on both the reliability and accuracy of the manufacturing process in incorporating advanced counterfeit deterrent features in bank notes and the effectiveness of these features through the course of daily cash transactions. Specifically, the partnership examines counterfeit notes for the quality of the counterfeit feature, determine the method by which the notes were counterfeited, and the method by which they were “passed” to the public. The objective is to assess the efficacy of each counterfeit deterrent feature. 2/3/03 - | 2 § Verification and Validation of Data and Performance Measurement Definitions Performance Data Quality: For each performance measure, a definition as well as verification and validation information for measured values of actual performance is provided below. Based on the verification and validation information, each measure’s data of actual performance is rated as having either: “Reasonable Accuracy” (judged to be sufficiently accurate for program management and performance reporting purposes) or as “Questionable or Unknown Accuracy.” In the case of measures where statistical confidence intervals are available, these are provided instead of the rating statements above. Measures designated as “Strategic” or “Operational” are considered measures of actual performance as addressed in OMB Circular A-1 l 220.5. Activity 1, Manufacturing • Performance Measure 1: Federal Reserve Orders Met As Requested. Definition: A measure of BEP’s ability to meet customer order delivery schedules. The customer considers this measure satisfied when complete shipments of finished currency are received in the Federal Reserve vault where it is held prior to final distribution to Federal Reserve district banks. How the Data is captured: Product delivery data is collected through BEP’s product accountability system. How the data is verified and validated to make certain it is accurate: Product delivery data is reconciled to invoices generated by BEP, and confirmed by the customer. Data Accuracy: Reasonable Accuracy. 2/3/03 13 § Performance Measure 2: Postage Stamp Orders Met As Requested. Definition: A measure of BEP's ability to meet customer order delivery schedules. The customer considers this measure satisfied if all postage product lines (i.e. coils, books, sheets) are shipped by BEP in accordance with shipping/ordering instructions received by BEP directly from Postmasters. How the Data is captured Product delivery data is collected through BEP’s management information system. How the data is verified and validated to make certain it is accurate: Product delivery data collected is reconciled to invoices generated by BEP, and confirmed by the customer. - Data Accuracy: Reasonable Accuracy. Performance Measure 3: Change in Productivity from Prior Year. Definition: A measure of manufacturing efficiency. This statistic is measured using Bureau of Labor Statistics (BLS) methodology to calculate the increase or decrease in productivity from one year to the next. Productivity measures operational output per work year, whereby the number of units produced per work year is compared to the previous year. How the Data is captured: Production output data is collected through BEP's product accountability system. How the data is verified and validated to make certain it is accurate: Work year data is collected from payroll reports generated by BEP’s payroll service provider, Department of Agriculture's National Finance Center. Productivity measures are also reported in BEP's CFO Annual Report, and the reported results are reviewed by the independent public accounting firm that audits the financial statements. BEP's accrual-based cost accounting system is audited annually as part of the financial statement audit. Data Accuracy: Reasonable Accuracy. 2” as - |4 3. Performance Measure 4: Manufacturing Costs for Currency (dollar cost per 1000 notes produced) Definition: An indicator of currency manufacturing efficiency and effectiveness of program management. This standard is developed annually based on the past year’s performance, contracted price factors, and anticipated productivity improvements. Actual performance against the standard depends on BEP's ability to meet annual spoilage, efficiency, and capacity utilization goals established for this product line. The formula used to calculate this measure is the total cost of production divided by the number of notes produced divided by 1000. How the Data is captured: Cost data is collected through BEP's accrual-based cost accounting system. How the data is verified and validated to make certain it is accurate: BEP’s accrual-based cost accounting system is audited annually as part of the financial statement audit. Data Accuracy: Reasonable Accuracy. Performance Measure 6: Number of Notes Returned by Federal Reserve Due to Manufacturing Defects (per million delivered). Definition: A qualitative indicator reflecting the Bureau's ability to provide quality products to our customer. The measure refers to any manufacturing flaw, which the Federal Reserve determines renders the note unsuitable for circulation. How the Data is captured: Defective product data is reported by the customer to BEP on a monthly basis. How the data is verified and validated to make certain it is accurate: Defective product data reported to BEP by the customer is reconciled to the returned notes by the Federal Reserve. Data Accuracy: Reasonable Accuracy. 2/3/03 15 ź Performance Measure 9: Maintain/Upgrade International Organization for Standardization (ISO) Certification Definition: ISO is an internationally recognized quality assurance program aimed at improving the quality of manufactured products. Certification requirements entail implementation and adherence to written procedures and detailed work instructions which document all processes that affect the quality of each product line. ISO certification signifies that the certified organization follows a rigorous quality control program under stringent international standards and provides current and future Bureau customers assurance that our currency-manufacturing program will deliver high quality security products. How the Data is captured: Certification is achieved based on a successful compliance audit by an independent firm under the auspices of the International Organization for Standardization. How the data is verified and validated to make certain it is accurate: ISO compliance is verified by periodic audits of the Bureau's quality management system by an independent ISO designated firm. Periodically the International Organization for Standardization updates the quality standards, thereby, requiring organizations already ISO certified to upgrade their quality management systems in order to maintain certification. Data Accuracy: Reasonable Accuracy. Performance Measure 10: Percent of currency notes delivered to the Federal Reserve that meet customer quality requirements Definition: A qualitative indicator reflecting the Bureau's ability to provide a quality product. All notes delivered to the Federal Reserve go through rigorous quality inspections. These inspections ensure that all counterfeit deterrent features, both overt and covert are functioning as designed. How the Data is captured: Quality inspections are performed at each Federal Reserve Bank. Any discrepancies found are reported to BEP on a per shipment basis. - - - How the data is verified and validated to make certain it is accurate: Quality review audits are performed by internal BEP auditors on all Federal Reserve inspection systems as well as the procedures followed in reporting data to BEP. These audits are conducted on an annual basis with additional audits performed upon request by the Federal Reserve Banks. Data Accuracy: Reasonable Accuracy § Verification and Validation of Data and Definitions of Performance Measures and Other Terms Activity 2, Security and Accountability • Performance Measure 1: Currency Shipment Discrepancies Definition: A qualitative indicator reflecting the Bureau’s ability to provide effective product security and accountability. This measure refers to product overages or underage of as little as a single currency note in shipments of finished notes to the Federal Reserve Banks. How the Data is captured: The customer captures this data and reports to BEP on a monthly basis. How the data is verified and validated to make certain it is accurate: BEP reports product discrepancy data based on monthly information provided by the customer. - Data Accuracy: Reasonable Accuracy 2/3/03 - 17 # Verification and Validation of Data and Performance Measurement Definitions Activity 3, Resource Management • Performance Measure 1: Annual Financial Statement Audit Opinion Definition: This measure represents an assessment by an independent, certified public accounting firm of the integrity of the Bureau's revolving fund and the reliability of financial data used for managerial decision-making, How the Data is captured: An independent, certified public accounting firm performs BEP's annual financial statement audit. How the data is verified and validated to make certain it is accurate: Treasury's Office of Inspector General provides a co- Contracting Officer’s Technical Representative for technical oversight and to conduct a quality review of the external auditor’s working papers. Data Accuracy: Reasonable Accuracy • Performance Measure 2: General and administrative costs as a percent of total costs. Definition: This measure is a quantitative indicator of the Bureau's ability to control and minimize its general and administrative support costs. How the Data is captured: Cost data is collected through BEP's accrual-based cost accounting system. How the data is verified and validated to make certain it is accurate: BEP's accrual-based cost accounting system is audited annually as part of the financial statement audit. Data Accuracy: Reasonable Accuracy 2 ºn 103 - 18 § • Performance Measure 3: Percent of Contracts awarded competitively Definition: This measure tracks the Bureau's commitment to promoting fair and open competition in awarding contracts for goods and services. Competition for goods and services will ensure that they are provided to the government in the most cost efficient and effective means possible. - How the Data is captured: Department of Treasury’s personnel within the Contracts Administration Division, Office of Procurement, will collect and report data. How the data is verified and validated to make certain it is accurate: Procurement performance data will be verified and validated through the Treasury Acquisition Data System. . Data Accuracy: Reasonable Accuracy • Performance Measure 4: Employee turnover rate. Definition: This measure tracks the percentage of Bureau employees that separate from Bureau employment annually (excluding retirements). - - How the Data is captured: The Department of Treasury’s HR Connect system, an automated Human Resource database. How the data is verified and validated to make certain it is accurate: This measure can be verified and validated by the Department’s Office of Personnel through the HR Connect System. - Data Accuracy: Reasonable Accuracy • Performance Measure 5: Percent of reduction in total work related injuries and illness rate Definition: The Secretary has established a goal of zero injuries and illnesses as a result of working at Treasury. To reach this goal each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is 2/3/03 19 § calculated as the total number of OSHA reportable cases times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s total case rate was 3.63. How the Data is captured: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. How the data is verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers’ Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and/or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit finding what the appropriate bureau offices. - Data Accuracy: Reasonable Accuracy Performance Measure 6: Reduction in number of new worker’s compensations claims accepted by the Office of Workers’ Compensation Programs (OWCP) Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. How Data is Captured: Data for this measure are captured through the Safety and Health linformation Management System (SHIMS). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted to OWCP, 2 ºn 103 20 § How the data is verified and validated to make certain it is accurate: Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating. Data Accuracy: Reasonable Accuracy. Performance Measure: Percent reduction in lost-time case-rate Definition: The goal is a lost-time case-rate of zero. To reach this goal each bureau is expected to reduce its lost-time case-rate annually. The lost-time case rate is calculated as the total number of OSHA reportable cases involving lost-time times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost- time cases per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s lost-time case rate was 1.75. How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. . How the data is verified and validated to make certain it is accurate: Each quarter a statistically representative sample of SHIMS records are selected and the data input is audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audits findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. 2/3/03 g 21 § United States Mint Public Enterprise Fund UNITED STATES MINT TABLE OF CONTENTS VOLUME 1–BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN ...... - MINT – 1 EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003. MINT – 3 Digest of Fiscal Year 2004 Budget Estimates by Activity.... MINT – 3 Budget Authority, FTE, and Performance Measures by Budget Activity 1..... MINT — 4 Budget Authority, FTE, and Performance Measures by Budget Activity 2A MINT – 7 Budget Authority, FTE, and Performance Measures by Budget Activity 2B - MINT – 9 Budget Authority, FTE, and Performance Measures by Budget Activity 3. MINT – 11 Overview of Capital Investments...... MINT - 12 SUPPORTING MATERIALS Bureau-wide Performance Measures, Indicators and Information Table...... MINT – 17 Detail of Full-Time Equivalent Positions by Category ........ MINT – 18 Detail of Full-Time Equivalent Positions by Grade............. .......... MINT – 19 Business Financing Statements MINT – 20 2/3/03 § United States Mint Public Enterprise Fund [STRATEGIC CONTEXT FORTHE FY2004 BUDGETFERFORMANCE FLAN Mission The Mint is the world’s largest coin manufacturer with operations in California, Colorado, Kentucky, New York, Pennsylvania, and Washington, D.C. Our mission is to apply world-class business practices in making, selling, and protecting our nation’s coinage and aSSets. Since FY 1996, the Mint has been operating under the Mint Public Enterprise Fund (PEF). As authorized by Public Law 104-52 (31 U.S.C. § 5136), the PEF eliminates the need for appropriations to support the mission of the Mint, and makes the proceeds from the Sale of circulating coins to Federal Reserve Banks and from the sale of numismatic items to the public the Mint’s sole source for funding its operations. Because the PEF affords the Secretary of the Treasury broad discretion to incur expenses for Mint operations and programs without fiscal year limitation, the Mint has gained the flexibility needed to quickly adjust to changes in its business environment, thus allowing operation in a more business-like manner. The Mint remains committed to holding down costs, streamlining operations, and providing value to the American people. Strategic Planning and Key Strategic Issues During FY 2002, the Mint Director and Senior Management Team composed a new Mint Vision that focuses on adding value, ensuring integrity, and realizing world-class performance. To support the new vision, the Mint developed a new strategic plan. The new plan is a Mint-wide integrated plan supported by goals and measures that cut across budget activities. It places a strong commitment on incorporating safety and security into everything we do; respecting and valuing our co-workers; and benchmarking Mint performance against best-in-class. We are currently working to share our new plan with our congressional stakeholders to get their thoughts and ideas. We are also including our new operating measures in this submission. Although the Mint has a clear, Strong mission, we are confronted with several key strategic issues that could significantly affect our ability to meet our goals: 1) Cost Containment – To have a cost-effective work environment, we must reduce the cost of selling, general and administrative expenses and gain efficiencies in our production processes. 2) Employee Health and Safety — Just one injury or illness of an employee as a result of coming to work is one too many. We must move towards the goal of zero. )3 MIN 1 : United States Mint Public Enterprise Fund 3) Estimating Coin Production – We must scrupulously meet the needs of our customers by having a more accurate forecast from which we can implement a more stable production schedule. - 4) Security–The September 11"terrorist attacks have heightened the Mint's awareness of the need to expand its capabilities to prevent and counteract security threats against its operations. 5) Innovation – We must be more innovative in the way we do business, employing technology to simplify and add efficiency to our work. Key Strategy Impacts- Strategies Affected by FY 2004 Resources. The Mint is committed to continuous improvements and has developed new strategies for achieving our vision of becoming a world- class business enterprise. The new strategies are shared across the Mint, as opposed to separate strategies by business unit in the current plan. Our FY 2004 resource requirements will greatly affect those strategies relative to safety and security, respecting and valuing our co-workers, innovating in every aspect of our business, benchmarking Mint performance against world-class standards and practices, and meeting or exceeding our stakeholders’ and customers’ expectations. The United States Mint is presenting this financial and performance plan to show how our FY2004 resources are affected by our strategies and priorities--a performance driven approach. The strategic plan includes bureau-wide strategic performance measures such as conversion cost per coin equivalents. By setting budget targets that are lower using the targets for the selling, general and administrative cost and the conversion cost measures to establish resource levels, we can encourage our headquarters operations and our production facilities to innovate processes to improve efficiency, and make more with less. | We recognize the importance of integrating budget and performance information for more effective management of resources, greater transparency, and accountability--one of the five major government-wide initiatives of the President’s Management Agenda. This FY 2004 plan reflects our desire to begin to formally produce a performance-based budget by which resource requirements are set forth in several ways: 1) Mint-wide, 2) by program, 3) by product—including product targets; and 4) aligned with people and measures. We believe the strategies we are undertaking in FY 2004 are optimal because they improve our performance as an organization and encourage the operational efficiencies necessary to attain world-class performance. 2/3/03 MINT - 2 § United States Mint Public Enterprise Fund ANALYSIS OF FISCAL YEAR 2003 FTE FY 2003 Proposed...................................................................................................................................................................... 2,467 * FY2004 Estimate......................................................................................................................................................................... 2,610° DIGEST OFFISCALYEAR2004 BUDGETESTIMATES BY ACTIVITY - (Dollars in Thousands) " The FY2002 Actual FTE usage in the OMB MAX system is 2,428. The President's BudgetAppendix shows actual FY2002 FTE usage is 2,421, which is reflected in the financial schedules and performance plan presented in this request. 1. Circulating Colnage............... 2. Numismatic Coinage (inc. 50 STOTR). 3. Protection of Assets............... * The FY2003 numbers presented above reflects the FY2003 President's Budget. More recentestimates that represent planned performance for FY2003 and which reflect OMB apportionment levels are as follows. The financial schedules and performance plan presented in this request are based on these updated numbers. FY 2003 FTE amount 1. Circulating Coinage............... T.231 $205,935 2. Numismatic Coinage (inc. 50 STOTR). . 1,000 664,802 3. Protection of assets. . . . . . . . . . . . . . . 376 34,930 Total all activities 2,507 $905,667 * The FY2004 FTE number presented above reflects the OMB MAX system. More more recentestimates that coincide with the plans presented herein are as follows. The financial schedules and performance plan presented in this request are based on these updated numbers. FY2004 FTE 1. Circulating Coinage............... 7235 2. Numismatic Coinage (inc. 50 STOTR). 1,006 3. Protection of Assets............... 376 Total all activities 2,577 03 MIN : United States Mint Public Enterprise Fund PROGRAM 1: CIRCULATING COINAGE Circulating coinage includes the penny, nickel, dime, half-dollar, and dollar. (The quarter-dollar is also a circulating coin; however, it currently is budgeted as a separate program because of the ten-year 50 States Commemorative Quarter Program). The Mint produces these coins and ships them to Federal Reserve Banks (FRB) for their use as currency to conduct commercial transactions. The commercial demand for coins from the FRB determines the amount of coins ordered from the Mint. The production and shipment of circulating coins is based upon estimates for the coin demand, which is largely dependent on the condition of the U.S. economy. Program Performance Annual Performance Goals. Measures, Indicators and Information Table º - º FY 2004 Performance Goals, performance Measures, and FY 1999 |ºry 2000 || FY2001: FY 2002 FY2003 ºf Proposed Indicators Performance|Performance Perfºrmance. Tº Target Target |Budget Authority ($000s) $309,226 $422,833 $258,668 || $158,984 $156,438 $205,935 $207,969 Direct FTE | 1,017 1,282 1,330 1,206 1,162 1,231 1,235 Performance Goal: Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations Circulating Operational Measures Per Unit Costs—Annual Report 1. Per Unit Cost–Penny (O) 0.0084 0.0082 0.0080 N/A 0.0089 0.0095 0.0096 2. Per Unit Cost–Nickel (O) 0.0258 0.0316 0.0331 N/A 0.0332 0.0308 0.0311 3. Per Unit Cost-Dime (O) 0.0214 0.0192 0.0230 N/A 0.0278 0.0231 0.0235 4. Per Unit Cost–Half-dollar (O) 0.1065 0.1000 0.0892 N/A 0.1110 0.1196 0.1213 5. Per Unit Cost–Dollar (O) N/A 0.1032 0.1292 N/A 0.1667 N/A N/A The Mint-wide financial planestimate includes $208 million in operating expenses for the circulating coinage program to satisfy the needs of commerce. Generally, in a strong economy there is a need for more coins, while in a weaker economy fewer coins are needed. The demand for circulating coinage at the Federal Reserve level is defined as net payments, which are total coin deposits from commerce, less total coin payments. The forecasted demand drives the estimated production levels, which in turn drives the estimated level of effort and expenditure. Significantly, the forecasts are regularly revised and economic conditions can change. To better deal with the fluctuations in coin demand, the Mint and FRB jointly implemented a coin inventory management and forecasting 'The United States Mintreportsper unit costs only at the end of the fiscal year based on Audited financial statements within the Annual Report. 2/3/03 MINT - 4 § United States Mint Public Enterprise Fund (IMF) tool. By using this tool, significant improvements are anticipated in coin forecasting, coin ordering, and inventory management. Even if the forecasted demand and production levels are highly accurate, the cost information may vary from the plan due to the variable nature of some input costs, specifically the price of the raw metals in the commodities markets. The Mint is able to mitigate some of the price variation for inputs in the structure of its contracts; however, as is the case with any commodity purchase, it is impossible to reduce our exposure entirely. The following table shows the estimated resource requirements for the United States Mint circulating coinage program. United States Mint FY 2004 Performance Budget for Circulating Coinage -- Resource Overview Total Resources Needed ($ Thousands) $207,96 Forecasted Units (Millions) 13,76 Forecasted Revenues ($ Thousands) $489,98 Penny - Resources Needed ($ Thousands) $88,426 Forecasted Units (Millions) 9,183 Forecasted Revenues ($ Thousands) $91,83 Nickel - Resources Needed ($ Thousands) $47,495 Forecasted Units (Millions) - 1,525 Forecasted Revenues ($ Thousands) $76,250 Dime - Resources Needed ($ Thousands) $71,078 Forecasted Units (Millions) 3,029 Forecasted Revenues ($ Thousands) $302,900 Half-Dollar - Resources Needed ($ Thousands) $970 Forecasted Units (Millions) 8 Forecasted Revenues ($ Thousands) $4,000 Dollar - Resources Needed ($ Thousands) - º Forecasted Units (Millions) 15 Forecasted Revenues ($ Thousands) $15,000 03 % United States Mint Public Enterprise Fund (IMF) tool. By using this tool, significant improvements are anticipated in coin forecasting, coin ordering, and inventory management. Even if the forecasted demand and production levels are highly accurate, the cost information may vary from the plan due to the variable nature of some input costs, specifically the price of the raw metals in the commodities markets. The Mint is able to mitigate some of the price variation for inputs in the structure of its contracts; however, as is the case with any commodity purchase, it is impossible to reduce our exposure entirely. The following table shows the estimated resource requirements for the United States Mint circulating coinage program. United States Mint FY 2004 Performance Budget for Circulating Coinage -- Resource Overview Total Resources Needed ($ Thousands) - $207,96. Forecasted Units (Millions) 13,76 Forecasted Revenues ($ Thousands) $489,98 Penny - Resources Needed ($ Thousands) s38,426 Forecasted Units (Millions) 9,183 Forecasted Revenues ($ Thousands) $91,830 Nickel- Resources Needed ($ Thousands) $47,495 Forecasted Units (Millions) 1,525 Forecasted Revenues ($ Thousands) $76,250 Dime - Resources Needed ($ Thousands) - $71,078 Forecasted Units (Millions) - 3,029 Forecasted Revenues ($ Thousands) $302,900 Half-Dollar - Resources Needed ($ Thousands) s970 Forecasted Units (Millions) 8 Forecasted Revenues ($ Thousands) $4,000 Dollar - Resources Needed ($ Thousands) - Forecasted Units (Millions) 15 Forecasted Revenues ($ Thousands). $15,000 2/3/03 MINT - 5 3. United States Mint Public Enterprise Fund The United States Mint is working hard to develop performance based budgeting practices. The numbers in the preceding table are metal costs for the forecasted units plus administrative overhead and other non-production costs. FY 2004 is nine months into the future and these numbers will be revised as economic conditions change and the plan year approaches. As part of our effort to implement performance based budgeting, the Mint is taking steps to implement Activity Based Costing and Management (ABC/M) models bureau-wide. The Mint had already implemented ABCM models in some of our operating units. When complete, these efforts will enable the Mint to more accurately predict the cost of the circulating coinage activities and enhance our ability to prepare performance based budgets. ..~ * - By spending $208 million we will accomplish the following: • Produce and ship 9 billion pennies, generating revenue of $92 million at a budgeted cost of $88 million. This translates to a per unit cost of $0.0096 which is slightly elevated from FY 2003 forecasts. • Produce and ship 1.5 billion nickels, generating revenue of $76 million at a budgeted cost of $47 million. This translates to a per unit cost of $0.0311 which is slightly elevated from FY 2003 forecasts. • Produce and ship 3 billion dimes, generating revenue of $303 million at a budgeted cost of $71 million. This translates to a per unit cost of $0.0235 which is slightly elevated from FY 2003 forecasts. • Produce and ship 8 million half-dollars, generating revenue of $4 million at a budgeted cost of $1 million. This translates to a per unit cost of $0.1213 which is slightly elevated from FY 2003 forecasts. • There presently is no targeted dollar coin production for FY 2004 because the Mint and Federal Reserve System have surplus inventories. At current demand levels (subject to change), the inventory will be depleted in FY05, and thus production is unlikely in FY 2004. The Mint will potentially recognize revenue from dollar coin shipments made to the FRB from Mint inventories in FY 2004. The dollar coin is included in the FY 2004 cost estimates for the circulating coinage as shown in the supplemental financial information (starting at page MINT-20). These data are included in the overall estimates for the circulating production. Measures of Success for the dollar coin are intertwined with the success for all coin products--namely that we have no lost time accidents in the course of producing and shipping them; that we increase the rate at which we turn over our inventories, that we improve the yield of good coins from the raw material inputs, and that our conversion costs decrease (another way of saying that our performance contributes to success for our bureau-wide strategic performance measures on page MINT-17). A more definitive measure of success is the demand for the Golden Dollar in commerce (i.e., net payment). The annual net payout of dollar coins in 1999 (prior to the new Golden Dollar) was approximately 50 million coins, compared with current annual demand rate of approximately 150 million for the '03 - MIN 6 § United States Mint Public Enterprise Fund Golden Dollar. This equates to a tripling of dollar coin demand since the introduction of the Golden Dollar. Even with the increase demand for the dollar coin, it is still only a small fraction of all currency transactions. The United States Mint budget does not include specific advertising/marketing funds for the Golden Dollar. We have earmarked funds to conduct market research and analysis to support a plan that will increase the Golden dollar's long-term circulation. This is consistent with guidance we have received from our stakeholders. Note: The cost per coin operating measures in the table above are reported by the Mint only at the end of the fiscal year via the audited financial statements in the United States Mint Annual Report. The FY 2004 budget numbers show a slight increase in these numbers compared to FY 2003. These increases are driven by conservative metal price estimates, lower production volumes, new contracting conventions in the purchase of raw materials, and changes in the production mix, specifically the dollar coin. Because it is a better measure of success in the circulating coinage, the Mint is focused on the conversion cost per 1,000 coin equivalents. This measure is focused on the controllable costs of producing the coinage and is unaffected by changes in product mix. PROGRAM 2A: 50 STATES COMMEMORATIVE QUARTER (NUMISMATIC) The quarter-dollar is a circulating coin; however, it currently is budgeted as a separate program because of the ten-year 50 States Commemorative Quarter Program. The program was launched in 1999 to commemorate and honor the history of each of the 50 states over a ten-year period. Five new State Quarters are produced each year. Each quarter’s reverse will celebrate one of the 50 states with a design honoring its unique history, traditions, and symbols. This program has changed the nature of coin collecting. Young and old, from east to west, collect each new state coin as it becomes available in daily pocket change. The quarters are released in the same order that the states were admitted into the Union, and the planned releases for 2004 are Michigan, Florida, Texas, Iowa, and Wisconsin. By statute, the revenues from the 50 State Quarters Program are considered numismatic for budgetary purposes. However, the program is displayed separately in the financial schedules to present a clearer financial picture of the program’s impact. The Mint produces the quarters and ships them to Federal Reserve Banks (FRB) for their use as currency to conduct commercial transactions. The commercial demand for quarters from the FRB determines the amount of coins ordered from the Mint. The production and shipment of quarters is based upon estimates for the coin demand, which is largely dependent on the condition of the U.S. economy. . 2/3/03 - MINT - 7 É United States Mint Public Enterprise Fund Program Performance Annual Performance Goals. Measures, Indicators and Information Table N/A N/A N/A FTE N/A N/A N/A N/A Goal: Be a more effective and efficient with controls to enture of Mint Goal: Educate the American about coin and the Mint Measure 1. Per Unit Cost— 0.0453 0.0524 0.0438 N/A 0.0637 0.0515 0.0527 There are $236.9 million in operating expenses to continue to provide the circulating commemorative quarters for commerce. The table below summarizes the Fifty States Commemorative Quarter Program resource request and production goals. United States Mint FY 2004 Performance Budget for Fifty States Commemorative Quarters -- Resource Overview Total Resources Needed ($ Thousands) $236,91 Forecasted Units (Millions) - 4,49 ForecastedRevenues (SThousands) $1,124,50 We expect to produce and ship 4.5 billion quarters at a budgeted cost of $236.9 million, generating revenues of $1.1 billion dollars. The per unit cost equates to $0.0527. Please see the above section on circulating coinage for a discussion of per unit costs and the increases in FY 2004. *Prior to this submission, the Mint had not reported the 50 State Quarters Program budget amounts separately. *The Mint does not try to break out the FTE's specifically for the 50 State Quarters Program. The Numismatic table below includes the FTE's attributed to this rogram. The United States Mint reports per unit costs only at the end of the fiscal year based on Audited financial statements within the Annual Report. 2/. - - MINT . % United States Mint Public Enterprise Fund Success factors are twofold. First, success in the quarter program depends on our performance for the bureau-wide strategic measures (see pg. MINT-17), including yield, inventory turnover, and lost time accident rate. Second, success in the quarter program is measured by demand for the quarter. Since launching the program in 1999, the Mint has increased quarter production by 300% to meet the demand for these coins. PROGRAM 2B: NUMISMATIC The Mint’s numismatic programs include four types of coin products, which the Mint markets and sells to the public including 1) Bullion Coins, 2) American Eagle Proof Coins, 3) Recurring Coin Programs, and 4) Commemorative Coins. Bullion coins are largely bought and sold by precious metal dealers to consumers that desire precious metals as part of a financial investment portfolio. The demand for bullion coins is inversely related to the equities markets, and therefore highly unpredictable. American Eagle Proof Coins are the Mint's premier collectible products, and include the American Eagle Gold Proof Coin, a coin-collecting standard for the serious collector. Commemorative coins are authorized by Congress to celebrate and honor American people, places, events, and institutions. Each commemorative coin is produced by the United States Mint in limited quantity and is available only for a limited time. Included in the price of these coins is a surcharge that goes to the designated recipient organizations and projects that benefit the community. For instance, surcharge proceeds from the Capitol Visitor Center Commemorative Coin Program went towards building a new visitor center under the U.S. Capitol’s East Plaza. Recurring Programs are circulating-derived products such as five- and ten-coin proof sets, uncirculated sets, and bags of 50-State Quarters and Golden Dollars designed for mass appeal, from the tinkering hobbyist to the serious collector. - 2/3/03 MINT - 9 3. United States Mint Public Enterprise Fund Program Performance Annual Performance Goals. Measures, Indicators and Information Table Measures, and FY2000. | $1 779 $417,773 FTE 1,000 1 968 Goal: Provide excellent customer service and satisfaction Goal: Educate the American about coin and the Mint Workload Measures . Revenue-Bullion 751 $1 $1 N/A $1 $151 Revenue-American Proof N/A $67 . Revenue-Commemorative (excl. $1 $27,210 $23,815 N/A $2 1 $27,431 $23,100 Revenue- Coin Products $78,618 $205.375 $166,573 N/A $174,828 $191,212 $213,793 For this program, there are $440 million in operating expenses included in the Mint-wide financial plan estimate to provide coin collectors, bullion investors, and the American public with numismatic and investment products. The table below summarizes the numismatic resource request and the revenue forecasts. *Budget Authority for Numismatics from FY 1999–FY2001 includes the 50 States Commemorative Quarters program. *The FTE information for Numismatics includes FTE's allocated for the 50 States Commemorative Quarters program for all years shown. 2/. MINT. § United States Mint Public Enterprise Fund United States Mint FY 2004 Performance Budget for Numismatics — Resource Overview Total Resources Needed ($ Thousands) . : Forecasted Revenues ($ Thousands) $454,48 Bullion-Resources Needed (SThousands) $149,985 Forecasted Revenues ($ Thousands) $151,500 American Eagle Proof-Resources Needed ($ Thousands) $60,897 Forecasted Revenues (s Thousands) - $66,087 Commemorative-Resources Needed ($ Thousands $21,286 Forecasted Revenues ($ Thousands) $23,100 Recurring-Resources Needed ($ Thousands) - $197,002 Forecasted Revenues ($ Thousands) $213,793 In the collectibles industry, the Mint advertises its products. This includes direct mail, print and other traditional forms of advertising to inform customers on how and where to order Mint products and when they become available for sale. The Mint has planned an advertising program designed to bolster numismatic sales. Through this program we expect to 1) increase sales, 2) acquire new customers, 3) build and differentiate the United States Mint brand, and 4) educate the public about coins and coin collecting. Success in the numismatics operations is tied to meeting the bureau-wide strategic performance measures (see pg MINT-17). In this light, success means a higher yield, a lower lost time accident rate, higher turnover of inventories, and higher customer satisfaction. Success in the Mint's numismatic program is also in growing the numismatic business through customer acquisition and higher revenues. We will use the latest production and service technologies to provide better customer service, to grow the numismatic demand, and to produce the most beautiful and innovative coins. - 2/3/03 MINT - 11 3. United States Mint Public Enterprise Fund PROGRAM 3: PROTECTION The Mint guards the Nation’s gold and silver reserves and other assets at Mint locations and protects employees and visitors. By maintaining a highly trained police force, the Mint secures approximately $79 billion in market value' of the nation's gold and silver reserves. U.S. Mint Police protect these assets while safeguarding thousands of Mint employees against potential threats at our facilities across the country. Program Performance Annual Performance Goals. Measures, Indicators and Information Table 18 407 FTE 273 330 357 Goal: to deter and to all threats . Total Losses N/A N/A N/A N/A N/A Baseline TBD There are $36.3 million in operating expenses budgeted for Protection. The cost of the protection function has increased. Higher- level security requirements are needed in the wake of the September 11, 2001, terrorist attacks to ensure that our facilities are secure. The Mint must achieve balance between the threat level and the level of protection provided by the Mint. To achieve balance in the current environment, increased spending is required. There are several examples of factors that need to be addressed by the Protection unit to accomplish its mission. Due to the professional law enforcement training of our police force, our officers are highly sought after to fill roles in the Transportation Department's Air Marshall program as well as a variety of other important law enforcement posts offering career advancement. Accordingly, the Mint experiences a high turnover rate of police officers, necessitating greater overtime, recruiting, hiring, and subsequent training costs to maintain the force at adequate levels, all translating into higher costs. This is shown by an increase in the time it is taking to fill positions, doubling from three months to six months. The Mint is not alone in addressing these challenges in an environment of increased security needs and spending. 'S79billion is from the FY2002 United States Mint Annual Report. FY2004 reserves market value will be different as the price of precious metals fluctuates. The Mint does not estimate the future market value of reserve assets. § United States Mint Public Enterprise Fund Protection’s success will be achieved through minimizing the Mint’s vulnerability to theft or unauthorized access to critical assets. This success will be reflected by minimizing the measure of Total Losses, which addresses financial losses, productivity losses and intrusion losses. Protection both safeguards our national treasure and also enables the Mint to operate. Operating success is performing background checks on all Mint employees and contractors, ensuring that only qualified individuals are admitted to the Federal workforce and gain access to our facilities. The converse is also a measure of outcome success, specifically ensuring that people who should not enter our facilities -- do not enter our facilities. By “guarding the gate,” so to speak, successful Protection program performance spills over into the core operation, ensuring that there are no distractions to the successful production of coinage and collectible products. Successful Protection of the Mint also creates positive externalities for the communities within which our facilities are located. The presence of our officers securing Mint facilities creates a high visibility of law enforcement in these areas, deterring neighborhood crime and providing a sense of security for nearby residents and businesses. overview OF CAPITAL INVESTMENTS In FY 2004, $60.3 million is designated for capital expenditures. Investment in capital is crucial to the Mint’s ability to meet public demand for coinage, fulfill its mandate to sell numismatic items to the public, maintain Mint and Federal Reserve Bank inventories, and protect its facilities and assets, while managing costs. Major capital investments identified in our capital plan include $6.6 million for production improvements; $10.1 million for equipment replacements; $3.4 million for health and safety improvements; $4.0 million for facility upgrades and plant improvements; and $4.3 million to increase Mint security. Additionally, in our effort to address the e-government initiatives included in the President's Management Agenda, we have included $8.2 million to upgrade our enterprise resource planning (ERP) system, and enhance our Internet operations. E-Government requires us to “unify and simplify” our processes, eliminate redundancy and re-engineer what we do, making government more accessible and responsive to its citizens. Accordingly, the Mint is employing Internet technology to simplify ordering and delivery for customers purchasing Mint merchandise through an on-line catalog. The following table summarizes the capital plan by category. . 2/3/03 - - MINT - 13 § United States Mint Public Enterprise Fund Capital Plan by Category FY 2002 - FY 2004 ($ thousands) =º-gº FY 02 FY 03 FY 04 (Actual) (Plan) (Budget) Circulating 30,689.2 30,515.0 36,337.0 Protection 12,859.0 4,385.0 4,315.0 Total 43,548.2 34,900.0 40,652.0 Numismatic | 10,524.8 | 17.590.0 | 19,618.1 Total Capital | 54,073.0 | 52,490.0 |60,270.1 To further our pursuits in new innovative technology, the Mint has established a plan to perform advanced research and development activities on emerging technology initiatives that will enable us to implement leading edge business practices, Included in our capital investment plan is $10.5 million for new technology initiatives. The work will involve benchmarking best practices with other Mints and private industry leaders and suppliers, developing technology joint ventures and partnerships, and establishing advanced research and development capabilities within the Mint, Surrounding this project are several specific initiatives designed to increase production efficiencies and process improvements. Such initiatives include Rapid Coin Design/Prototyping and Die Life Extension. This initiative is designed to reduce the amount of time from coin concept through trial strike approval as well as improve die life to increase productivity, reduce scrap, and minimize costs. Other initiatives will automate manual processes such as raw material and finished goods transportation; automate the method for tracking Work In Process (WIP); and link internal and external System databases to improve information gathering and customer service. Consistent with previous budget submissions, the Mint would like to move forward with plans to construct a Mint Visitor Center in our Washington, DC Headquarters building. A Mint Visitor Center in the Washington, DC area would enable the Mint to educate non-collectors, sell products and broaden our customer base. In addition, the Visitor Center would be a much-used resource by serious coin collectors to learn about their hobby. Many serious coin collectors make up the majority of customers for the Commemorative Coin program. The Commemorative Coin program is utilized by Congress to support and raise money for many 03 - MIN 14 § United States Mint Public Enterprise Fund worthy causes such as the renovation of the Botanical Gardens facility and the construction of the Capitol Visitors Center, both in Washington, DC. - The Visitor Center is estimated at $10.4 million to cover construction costs, exhibit fabrication, design fees and media/interactive exhibits. Because this proposal has not yet received congressional approval, funding for the Mint Visitor Center is not included in the Mint’s capital investment request outlined in the table above. The Mint will continue to work with the appropriate Congressional stakeholders to obtain approval. If Congress does concur with our recommendation to construct a Visitor Center, our Numismatic capital investment plan will increase by $10.4 million, most likely in FY 2004. - - This proposed capital investment plan will enable the Mint to better control and reduce production costs, maintain product quality while improving overall equipment effectiveness, provide improved working conditions and safety for our employees, and advance our ability to better serve our customers through the use of automated tools, 2/3/03 . . MINT - 15 3. United States Mint Public Enterprise Fund BUREAU-WIDE PERFORMANCE MEASURES, INDICATORS...AND INFORMATION TABLE Bureau-wide Performance Goals, Performance FY1999 FY2000 ºf ry 2001 FY 2002 FY 2003 Prºposed Measures, and Indicators Performance|Performance#Performance Target Performance Target Target |Budget Authority ($000s) $1,365,523 $1,119,638 $947,450 $811,656 $733,891 $905,667 $920,913 Direct FTE 2,200 2,676 2,760 2,541 2,421 |_2,607 2,617 Performance Goal A: Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations Performance Goal B: Strengthen the Mint’s ability to deter and respond to all security threats Performance GoalC: Provide excellent customer service and satisfaction Performance Goal D: Eliminate all Lost Time Accidents Performance Goal E: Educate the American public about coin collecting and the Mint - ureau-wide Key Performance Measures - 1. Lost Time Accident Rate (O) 4.12 4.97 3.93 1.78 2.24 1.44 1.24 . Workforce Climate (O) N/A N/A N/A N/A N/A Baseline TBD 3. Cycle Time (O) N/A N/A N/A 280 112 150 128 4. Inventory Turnover (S) N/A N/A N/A 1.3 1.6 2.4 3.3 5. Machine Availability (O) N/A N/A N/A 45% 52% 51% 57% 6. Yield (S) N/A N/A N/A 96% 86% 96% 97% *** Cost per 1000 Coin Equivalents N/A N/A N/A $8.69 N/A $9.96 $8.88 Fº Costs as a % of Revenue (excl. Bullion) N/A N/A N/A 7.70% 12.70% 7.70% 7.70% 9. Customer Service Index (CS) N/A N/A N/A N/A N/A Baseline Ted 10. Total Losses (O) N/A N/A N/A N/A N/A Baseline TBD Other Bureau-wide Operational Measures º†: º in total work-related injuries N/A N/A N/A N/A N/A Baseline TBD 2. Reduction in number of new workers compensation claims accepted by the Office of N/A N/A N/A N/A N/A Baseline TBD Workers’ Compensation Programs (OWCP) (O) 3. Percent reduction in lost-time case-rate (O) N/A N/A N/A N/A N/A Baseline TBD 2/3/03 MINT - 17 § United States Mint Public Enterprise Fund Detail of FullTime Equivalent positions by category Actual . . . Level 1, Definitions r Police Officers: Protection Police Officers - Production Staff. Wage grade employees at manufacturing facilities Customer Service: Customer Care Center, Internet & Web catalog development and maintenance, Print catalog support, & FRB order and shipment support Management: SES and GS-14 level employees and above AdministrativelAnalysts: Staff employees at HQ and non-production staff at manufacturing facilities 03 MIN 18 § United States Mint Public Enterprise Fund 2/3/03 Detail of Full-Time Equivalent Positions by FY 2002 Actual SES Level 4 5 SES Level 3 - SES Level 2 1 1 1 SES Level 1 1. 1 1 Subtotal Zl 7 SL-Maximum 1 1 1 GS-15 41 42 42 GS - 14 116 121 121 GS - 13 195 204 204 GS - 12 152 159 159 GS - 1 1 99 104 104 GS - 10 8 8 8 GS - 9 78 82 82 GS - 8 20 21 21 GS - 7 131 137 137 GS - 6 50 52 52 GS - 5 22 23 23 GS - 4 17 18 18 GS - 3 3 3 3 GS - 2 s &= * GS - 1 5 5 5 Subtotal ~535 350 Other: TR - 14 6 7 7 TW - 14 2 2 2 TR - 12 6 7 7 TW - 12 2 2 2 TR - 10 21 23 23 TW - 10 5 6 6 TR - 9 34 38 38 TW - 9 2 2 2 TR - 7 222 244 244 TW - 7 34 38 38 TR - 6 23 26 26 TW - 6 6 —- 7 Subtotal 363 402 402 Ungraded 1,113 || 1,218, TZ25 Total positions 2,421 2,507 2,617 § United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Revenue from Operations (Thousands of Dollars) Number of Units Delivered Revenue (In Millions) (In Thousands) - FY 2002 FY 2003 FY2004 FY 2002 FY 2003 FY 2004 TTCUaſing CSIRage. * * * 1 Cent 7,518 9,208 9,183 $75,183 $92,080 $91,830 5 Cent 1,301 1,511 1,525 65,055 75,550 76,250 10 Cent - 2,633 3,059 3,029 263,346 305,900 302,900 25 Cent O 0 O O 0 0 50 Cent 9 8 8 4,447 4,000 4,000 1 Dollar 52 15 15 52,153 15,000 15,000 Total Circulating Coins Delivered —TTEIT –TSECT -15750- . . - Revenue from Circulating Coinage (Face Value) $460,184 $492,530 $489,980 Circulating Commemorative Quarters Total Circulating Commemorative Quarters 3,616 4,390 4,498 Revenue from Circulating Commemorative Quarters (Face Value) t $903,992 $1,097,500 $1,124,500 Numismatic and investment Products: Bullion Investment Coin Program 9 8 8 $186,758 $165,000 $151,500 American Eagle Proof Program 1 1 1 56,589 67,099 66,087 Commemorative Program 1 1 1 29,581 34,431 30,100 Recurring Numismatic Program 6 6 6 174,828 191,212 213,793 Total Numismatic and Investment Products 17 -T5- 16 Revenue from Numismatic and Investment Products $447,756 $457,742 $461,480 Space Utilized by Other Agency: Secured Storage Space Leased to DLA $8 $0 $0 2/3/03 MINT - 21 § United States Mint Public Enterprise Fund CFCUſating Coſſage . Numismatic and Investment Products Total Mint Products DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Summary of Mint Activities for Fiscal Years 2002, 2003, and 2004 Number of Units Delivered Revenue Space Utilized by Other Agency Total Revenue from Operations Less: Surcharges Net Revenue Total Cost of Operations Net income (In Millions) * • * “ . . . (In Thousands) AGüäITEstimata Esfīāſā Actual Estimãìà Estimate FY 2002 FY2003 FY 2004 FY 2002 FY 2003 FY 2004 11,514-13,801 13,760 $460,184 ;432,; g Circulating Commemorative Quarter 3,616 4,390 4,498 903,992 1,097,500 1,124,500 17 16 16 447,756 457,742 461,480 15,147 18,207 18,274 $1,811,932 $2,047,772 $2,075,960 8 O O $1,811,940 $2,047,772 $2,075,960 7,741 7,000 7,000 $1,804,200 $2,040,772 $2,068,960 733,891 905,667 920,913 $1,070,309 $1,135,105 $1,148,047 MIN 22 03 § United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Mint Activity by Line of Business Fiscal Year 2002 (Dollars in Thousands) Commemorative Basic Circulating Quarter Numismatic Protection Actual Actual Actual Actual” Total Revenue $460,184 $903,992 $447,756 $8 $1,811,940 Surcharges 0 0 7,741 O 7,741 Net Revenue $460,184 $903,992 $440,016 $8 $1,804,200 Cost of Operations 156,438 172,488 375,988 28,977 733,891 Net Income from Operations $303,746 $731,504 $64,027 ($28,969) $1,070,309 * The protection activity is funded from the profits of the Public Enterprise Fund. 2/3/03 MINT - 23 § United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Mint Activity by Line of Business Fiscal Year 2003 (Dollars in Thousands) - - - commemorative Basic Circulating Quarters Numismatic Protection Estimate Estimate Estimate Estimate" Total Revenue $492,530 $1,097,500 $457,742 $0 $2,047,772 Surcharges O O 7,000 0 7,000 Net Revenue - $492,530 $1,097,500 $450,742 $0 $2,040,772 Cost of Operations 205,935 226,150 438,651 34,930 905,667 Net Income from Operations $286,595 $871,350 $12,091 ($34,930) $1,135,105 * The protection activity is funded from the profits of the Public Enterprise Fund. MIN 24 /03 § United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Mint Activity by Line of Business Fiscal Year 2004 (Dollars in Thousands) Commemorative . Basic Circulating Quarters Numismatic Protection Estimate Estimate Estimate Estimate” Total Revenue $489,980 $1,124,500 $461,480 $0 $2,075,960 surcharges O O 7,000 O 7,000 Net Revenue $489,980 $1,124.500 $454,480 $0 $2,068,960 Cost of Operations 207,969 236,918 439,720 36,306 920,913 Net income from Operations $282,011 $887,582 $14,760 ($36,306) $1,148,047 * The protection activity is funded from the profits of the Public Enterprise Fund. MINT - 25 2/3/03 § United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND (Thousands of Dollars) Commemorative TBasic * Circulating Quarters Numismatic Protection Fiscal Year 2002 - Actual Actual Actual Actual Total Cost of Operations: . - Personnel compensation and benefits $41,343 - $44,788 $62,073 $26,062 $174,266 Travel and transportation of persons 582 630 643 1,021 2,875 Transportation of things 5,844 6,331 15,132 21 27,327 Rent, communications and utilities 10,562 11,442 7,999 249 30,252 Printing and reproduction 129 139 2,136 2 2,406 Other services 16,832 18,235 49,163 1,102 85,332 Metal & fabrication and Supplies 70,393 76,260 220,041 521 367,214 Insurance claims and indemnities 5 6 1 O 13 Depreciation of equipment & buildings 10,749 14,658 18,800 0 44,207 Total cost of operations —$155.435–$172,455–$375.955–525.577–$733,851- Capital Investment: Equipment & building improvements 52,891 Total operations and capital investment $786,782 Full Time Equivalent Position (FTEs) Usage: 2,421 /03 - MII 26 s United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND (Thousands of Dollars) Commemorativeſ TEäsſ: Circulating Quarters Numismatic Protection Fiscal Year 2003 - Estimate Estimate Estimate Estimate Total Cost of Operations: - Personnel compensation and benefits $40,254 $47,908 $66,760 $31,854 $186,775 Travel and transportation of persons 687 818 1,153 759 3,416 Transportation of things 2,851 3,393 19,936 27 26,207 Rent, communications and utilities 9,833 11,703. 12,558 249 34,344 Printing and reproduction 91 108 7,191 O 7,391 Other services 26,241 31,231 65,029 1,494 123,996 Metal and fabrication 103,423 104,145 234,513 0 442,081 Supplies 6,623 7,882 12,819 547 27,872 Insurance claims and indemnities 33 39 39 O 112 Depreciation of equipment & buildings 15,899 18,922 18,652 * O 53,474 Total cost of operations –$205.535–5:25150–$435.857–$34,930–$505,657– Capital Investment: Equipment & building improvements - 52,489 Total operations and capital investment $958,156 Full Time Equivalent Positions (FTEs) Authorized: 2,607 *Numismatic depreciation has been revised since the FY 2004 OMB Budget Submission 2/3/03 MINT - 27 5 United States Mint Public Enterprise Fund DEPARTMENT of THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND (Thousands of Dollars) • . Circulating quarters Numismatic Protection Fiscal Year 2004 Estimate £stimate Estimate Estimate Total Cost of Operations: . . . . . . . -- Personnel compensation and benefits $41,039 $50,664 $69,714 $33,154 $194,571 Travel and transportation of persons 691 854 1,184 779 3,508 Transportation of things 2,870 3,543 20,474 27 26,915 Rent, communications and utilities 9,898 12,220 12,897 256 35,271 Printing and reproduction 92 113 7,385 ſ 7,591 Other services 26,790 33,073 69,846 1,527 131,236 Metal and fabrication 103,270 107,663 226,035 O 436,968 Supplies - 6,667 8,230 13,165 562 28,624 insurance claims and indemnities 34 - 42 41 O 117 Depreciation of equipment & buildings 16,619 20,516 18,978 - 0 56,112 Total cost of operations ~$207,969 $236,918 54 20 Sºſs $! Capital Investment: Equipment & building improvements 60,270 Total operations and capital investment $981,183 Full Time Equivalent Positions (FTEs) Authorized: 2,617 *Numismatic depreciation has been revised since the FY2004 OMB Budget Submission ſ()3 MIN 5 United States Mint Public Enterprise Fund DEPARTMENT OF THE TREASURY UNITED STATES MINT PUBLIC ENTERPRISE FUND Statement of Financial Position (Thousands of Dollars) FYZUUW FY2JJZ FYZUU3 FY2JJT Actual Actual Estimate Estimate AS36ts Current assets: - Fund balance with Treasury $278,180 $301,067 $357,540 $422,452 Accounts receivable 7,508 17,956 6,348 6,435 Operating inventories, net 465,804 336,194 275,107 200,632 Deferred costs, advances and prepayments 6,712 4,677 4,677 4,677 Total Current assets —755:04– —555,554- —gºszz- —831.155– Non-current assets: Property, plant and equipment, net 326,548 313,501 334,640 361,446 Other assets 5,146 12,744 12,744 12,744 Total non-current assets 33T.654 325.245 347,384 374.150 Total assets $1,089,898 $986,139 $991,056 $1,008,387 Liabilities and Net Position Liabilities: - Accounts payable $190,559 $194,844 $181,133 $184, 183 Surcharges payable 10,816 8,396 7,000 7,000 Unearned revenue 2,730 1,747 1,747 1,747 Accrued salaries and benefits 9,751 4,120 11,207 11,674 Accrued worker's compensation benefit 34,635 36,486 37,355 38,914 Accrued annual leave 9,106 8,960 9,677 10,451 Other liabilities O O 0 O Total liabilities - 257-597 253,553 245.TTg 253,555 Net position: - Fund balance 832,301 731,586 742,937 754,418 Total liabilities and net position – 1,089,898 $986,139 $991,056 $1,008,387 2/3/03 MINT - 29 à FEBRUARY 3, 2003 UNITED STATES MINT TABLE OF CONTENTS VOLUME 2 — PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN ...... RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN... PERFORMANCE INFORMATION BY BUDGET ACTIVITY Aggregated Mint-wide narrative explanation of FY 2004 and 2003 Performance Plans Bureau-wide Performance Measures, Indicators and Information Table...... Budget Activity 1 – Circulating Coinage...... Budget Activity 2A–50 States Commemorative Quarter.... Budget Activity 2B — Numismatic.... Budget Activity 3 – Protection.......... SUPPORTING MATERIALS Verification and Validation of Data and Performance Measurement Definition Strategic Plan Modification... MINT – 1 MINT – 3 MINT — 4 MINT – 7 MINT – 9 MINT – 10 MINT – 11 MINT – 13 MINT – 15 MINT – 25 É United States Mint Public Enterprise Fund [STRATEGICCONTEXT FORTHE FY2004 BUDGET/PERFORMANCE PLAN Mission The Mint is the world’s largest coin manufacturer with operations in California, Colorado, Kentucky, New York, Pennsylvania, and Washington, D.C. Our mission is to apply world-class business practices in making, selling, and protecting our nation’s coinage and aSSetS. Since FY 1996, the Mint has been operating under the Mint Public Enterprise Fund (PEF). As authorized by Public Law 104-52 (31 U.S.C. § 5136), the PEF eliminates the need for appropriations to support the mission of the Mint, and makes the proceeds from the sale of circulating coins to Federal Reserve Banks and from the sale of numismatic items to the public the Mint’s sole source for funding its operations. Because the PEF affords the Secretary of the Treasury broad discretion to incur expenses for Mint operations and programs without fiscal year limitation, the Mint has gained the flexibility needed to quickly adjust to changes in its business environment, thus allowing operation in a more business-like manner. The Mint remains committed to holding down costs, streamlining operations, and providing value to the American people. Strategic Planning and Key Strategic Issues During FY 2002, the Mint Director and Senior Management Team composed a new Mint Vision that focuses on adding value, ensuring integrity, and realizing world-class performance. To support the new vision, the Mint developed a new strategic plan. The new plan is a Mint-wide integrated plan supported by goals and measures that cut across budget activities. It places a strong commitment on incorporating safety and security into everything we do; respecting and valuing our co-workers; and benchmarking Mint performance against best-in-class. We are currently working to share our new plan with our congressional stakeholders to get their thoughts and ideas. We are also including our new operating measures in this submission. Although the Mint has a clear, strong mission, we are confronted with several key strategic issues that could significantly affect our ability to meet our goals: 1) Cost Containment-To have a cost-effective work environment, we must reduce the cost of selling, general and administrative expenses. # United States Mint Public Enterprise Fund 2) Employee Health and Safety — Just one injury or illness of an employee as a result of coming to work is one too many. We must move towards the goal of zero. - 3) Estimating Coin Production – We must scrupulously meet the needs of our customers by having a more accurate forecast from which we can implement a more stable production schedule. 4) Security – The September 1 1"terrorist attacks have heightened the Mint’s awareness of the need to expand its capabilities to prevent and counteract security threats against its operations. Innovation – We must be more innovative in the way we do business, employing technology to simplify and add efficiency to our work. . 5 ) Key Strategy Impacts – Strategies Affected by FY 2004 Resources The Mint is committed to continuous improvements and has developed new strategies for achieving our vision of becoming a world- class business enterprise. The new strategies are shared across the Mint, as opposed to separate strategies by business unit in the current plan. Our FY 2004 resource requirements will greatly affect those strategies relative to safety and security, respecting and valuing our co-workers, innovating in every aspect of our business, benchmarking Mint performance against world-class standards and practices, and meeting or exceeding our stakeholders’ and customers’ expectations. The United States Mint is presenting this financial and performance plan to show how our FY 2004 resources are affected by our strategies and priorities--a performance driven approach. The strategic plan includes bureau-wide strategic performance measures such as conversion cost per coin equivalents. By Setting budget targets that are lower using the targets for the selling, general and administrative cost and the conversion cost measure to establish resource levels, we can encourage our Headquarters operations and our production facilities to innovate processes to improve efficiency, and make more with less. We recognize the importance of integrating budget and performance information for more effective management of resources, greater transparency, and accountability--one of the five major government-wide initiatives of the President’s Management Agenda. This FY 2004 plan reflects our desire to begin to formally produce a performance-based budget by which resource requirements are set forth in Several ways: 1) Mint-wide, 2) by program, 3) by product – including product targets; and 4) aligned with people and measures. We believe the strategies we are undertaking in FY 2004 are optimal because they improve our performance as an organization and encourage the operational efficiencies necessary to attain world-class performance. MINT - 2 # United States Mint Public Enterprise Fund RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE MINT*S ANNUAL PERFORMANCE PLAN Treasury Strategic ... Goal/Objective NEW Mint Strategic Goal Performance Goals Linked to Strategic Goal Increase the productivity and efficiency of coin and currency manufacturing Be a model government agency that matches world-class business practices A. Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations B. Strengthen the Mint’s ability to deter and respond to all security threats Continue to explore mechanisms for maintaining the integrity of U.S. coin and currency Be a model government agency that matches world-class business practices A. Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations B. Strengthen the Mint’s ability to deter and respond to all security threats Improve Customer Design, sell & deliver quality products C. Provide excellent customer service and satisfaction Satisfaction - Improve Employee Respect & value our co-workers D. Eliminate all Lost Time Accidents Satisfaction Improve Customer Value & communicate with the American people | E. Educate the American public about coin collecting Satisfaction and the Mint s United States Mint Public Enterprise Fund BUREAU-WIDE CONSOLIDATED PERFORMANCE PLAN AND MEASURES Pursuant to the Government Performance and Resutls Act, Section 4, (b) (c) the Mint has aggregated the program activity description of the FY 2004 and FY 2003 performance plans, but separately presents the funding, FTE, annual performance goals, and measures targets for programmatic clarity. This approach is taken under the “One Mint” philosophy where strategies are bureau-wide, while full disclosure of program performance is provided through operational, workload and customer satisfaction measures. FY 2004 Proposed Performance Plan The United States Mint mission is to apply world-class business practices in making, selling, and protecting our nation’s coinage. Even with changes in the business environment and increasing security threats, the Mint remains mission-centered and focused on its future. The FY 2004 Proposed Financial Plan reflects efforts to better align our operating costs to our projected revenues and the Mint’s resolve to implement performance based budgeting as required under the President’s Management Agenda. The Mint-wide FY 2004 proposed financial plan is based on forecasted demand, with the total amount of $918.3 million in operating expenses (compared with FY 2003 $904.4 million) and $60.3 million in capital investments (compared with FY 2003 $52.5 million). It provides funding for the proper mix of skilled personnel, operational expenses — including training, production materials and supplies, and major capital investments for the purpose of achieving the following: • Produce and ship 13.8 billion circulating coins (excluding the quarter), level with FY 2003 forecast • Produce and ship 4.5 billion circulating commemorative quarters, slightly higher than FY 2003 forecast. • Generate $461 million in revenues from numismatic and investment grade coins, slightly higher than FY 2003 forecast. • Protect over 2,600 employees and billions of dollars of Treasury assets. - The Mint’s new strategic plan (discussed above in the Strategic Context section), focuses on adding value, ensuring integrity, and realizing world-class performance. To focus our efforts, the Mint has devised key performance measures that cut across our budget activity. Tied to these measures are aggressive targets and substantive initiatives to reach our goals. These measures replace the FY 2002 performance measures as described in the FY 2003 Final Performance Plan section. They are presented as bureau-wide strategic performance measures, which fit in with the direction provided by the Secretary of the Treasury to establish a single, critical set of measures to manage our business effectively. In addition to being the critical measures used by management, many of these key measures can be delineated to the program level. Highlighted below are these new measures and the key strategies the Mint will pursue to achieve success (see also the table on page MINT-7): MINT - 4 # United States Mint Public Enterprise Fund Lost Time Accidents—The United States Mint is implementing a comprehensive, aggressive safety program to Search for, identify, and correct safety issues in all of our facilities. Workforce Climate – Initiatives include examining our work and planning practices, attempting to reduce volatility in the workflow and better employing our computer systems to streamline our policies and processes. Cycle time – The Total Productive Manufacturing initiative is working to better streamline our manufacturing processes, and the Mint and Federal Reserve are working together to facilitate a more accurate coin ordering process. The result will be a more nimble Mint that can react quickly to changes in the underlying demand. Inventory Turnover-The Total Productive Manufacturing initiative is working to better streamline our manufacturing processes, and the Mint and Federal Reserve are working together to facilitate a more accurate ordering process thus better anticipating demand and reducing the need for buffer inventories. $ Machine availability – Due to a combination of maintenance, staff planning, and antiquated equipment, the Mint has had a historically low machine availability rate. Newer equipment, improved technology to schedule and monitor maintenance and improved production management are enabling the Mint to have machines available for production more hours each day. As machine availability improves, it augments the overall capacity of our facilities without having to rely on significant amounts of overtime or capacity enhancement through equipment acquisition. Yield–The Mint will look into innovative solutions for its metal and fabrication needs, including outsourcing, new metals contracts and cutting-edge technologies. Improved machine maintenance and machine availability are also expected to improve the yield of our raw material inputs. Conversion Cost per 1000 Coin Equivalents (a production efficiency measure)—Initiatives to improve our cost effectiveness include Total Productive Manufacturing and the new production scheduling conventions that will reduce the need for overtime. Selling, General & Administrative (SG&A) Costs as a Percentage of Revenue (excluding bullion revenue) – Initiatives to efficiently use our SG&A and reduce it as a percentage of revenue include better targeted marketing campaigns to generate revenue, reduced reliance on expensive contracted staff in administrative and technical functions, greater reliance on automation to produce reports and analysis, and more effective organizational alignment and processes. Customer Service Index – Initiatives to improve our customer service index score include outsourcing a large portion of our order fulfillment and customer service functions to improve response time, consolidating portions of our customer Service function into the Headquarters building in Washington DC, and greater reliance on our customer focused information technology solution that relies greatly on real time customer data. Total Losses — Minimizing risk of losses will be accomplished by additional investment in protection infrastructure, and by adequately staffing the police force, matching our protection capability with the level of threat. ë United States Mint Public Enterprise Fund The Mint is looking to foster an increasingly cost-effective work environment, capture cost savings, and develop and embrace a one report-one system format in conducting our business simply and efficiently. We are reducing and holding down costs by undertaking value-added initiatives that will increase productivity by better utilizing investments in our human and physical capital, refining and streamlining Mint processes and procedures, making policy adjustments and employing new technologies. Additionally, we are focusing on aligning our costs with the production requirements. To do so, we are examining all of our operations to identify where we can save costs. This includes operating costs at our production facilities, capital costs, and our selling, general, and administrative COSts. FY 2003 Final Performance Plan The Mint recently revised its strategic plan and is currently in the process of having it reviewed by our Congressional stakeholders. This Strategic Plan is different from prior Mint strategic plans that separated goals, objectives, and strategies according to the Mint’s budget activities. The new Strategic Plan is an integrated plan supported by strategic goals and measures that are shared across the organization and budget activities so that all offices contribute towards achieving Mint-wide goals. Although the mission of the Mint has not changed, the vision has evolved to one focused on adding value, ensuring integrity, and realizing world-class performance – a vision all Mint employees have a shared responsibility for achieving. This Strategic Plan places a strong commitment on incorporating safety and security into everything we do; respecting and valuing our co-workers; and benchmarking Mint performance against best-in-class. Realizing the importance of accountability for results, the Mint will not just set performance targets and benchmark itself against the best, but also apply theoretical limits for ideal performance (e.g. zero lost time accidents). This reflects the Mint’s responsibility to serve the American people, meet the expectations of the world’s numismatists in the best possible manner, and strive for world-class performance in all we do. The United States Mint will be utilizing ten new Mint-wide strategic performance measures in FY 2003. These measures are the result of Strategic Planning, as well as an extensive review of the performance plan. Mint management has approved the ten measures to determine whether the Mint is achieving desired results. These measures are currently being tracked on a monthly basis and are utilized by management to make strategic decisions. For example, aggressive steps are being taken to reduce workplace injuries at Mint production plants and at headquarters. Initiatives such as Total Productive Management and the implementation of Supervisory Control & Data Acquisition (SCADA) systems at each Mint facility are aimed at increasing the efficiency of all Mint coin production operations. Better planning in conjunction with the Federal Reserve should lead to better inventory management and a more efficient, cost-effective operation. These ten measures are listed in the Performance Measure Table and are described in detail later in the Verification and Validation of Data & Performance Measurement Definition section. MINT - 6 # United States Mint Public Enterprise Fund BUREAU-WIDE PERFORMANCE MEASURES, INDICATORS, AND INFORMATIONAL TABLE - - FY 2004 Bureau-wide Performance Goals, Performance FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 Proposed Measures, and Indicators Performance|Performance; Performance Target_Ferformance Target Target Budget Authority ($000s) $1,365,523 $1,119,638 || $947,450 $811,656 || $733,891 $905,667 $920,913 irect FTE 2,290 2,676 2,760 2,541 2,421 2,607 2,617 Performance Goal A: Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations |Performance Goal B: Strengthen the Mint’s ability to deter and respond to all security threats Performance Goal C: Provide excellent customer service and satisfaction |Performance Goal D: Eliminate all Lost Time Accidents |Performance Goal E: Educate the American public about coin collecting and the Mint |Bureau-wide Key Performance Measures . 1. Lost Time Accident Rate (O) 4.12 4.97 3.93 1.78 2.24 1.44 1.24 2. Workforce Climate (O) N/A N/A N/A N/A N/A Baseline TBD 3. Cycle Time (O) N/A N/A N/A 280 112 150 128 4. Inventory Turnover (S) N/A N/A N/A 1.3 1.6 2.4 3.3 5. Machine Availability (O) N/A N/A N/A 45% 52% 51% 57% |6. Yield (S) N/A N/A N/A 96% 86% 96% 97% *** Cost per 1000 Coin Equivalents N/A N/A N/A $8,69 N/A $9.96 $8.88 ** Costs as a % of Revenue (excl. Bullion) N/A N/A N/A 7.70% 12.70% 7.70% 7.70% 9. Customer Service Index (CS) N/A N/A N/A N/A N/A Baseline TBD 10. Total Losses (O) N/A N/A N/A N/A N/A Baseline TBD Other Bureau-wide Operational Measures * ºi. º in total work-related injuries N/A N/A N/A N/A N/A Baseline TBD 2. Reduction in number of new workers compensation claims accepted by the Office of N/A N/A N/A N/A N/A Baseline TBD Workers' Compensation Programs (OWCP) (O) 3. Percent reduction in lost-time case-rate (O) N/A N/A N/A N/A N/A Baseline TBD MINT •r t United States Mint Public Enterprise Fund The Mint uses the ten key performance measures that cut across budget activities, and therefore we are listing the performance goals and then the key measures as a group in the table above. The Mint has designated three of the key bureau-wide performance measures as the Strategic Measures that will most readily provide evidence of success at fulfilling the mission. These are Inventory Turnover, Yield, and Conversion Cost per 1000 Coin Equivalents. The other measures in the list often key bureau-wide measures also will continue to be tracked and analyzed internally on a monthly basis. MINT - 8 5 United States Mint Public Enterprise Fund PROGRAM 1: CIRCULATING COINAGE Circulating coinage includes the penny, nickel, dime, half-dollar, and dollar. (The quarter-dollar is also a circulating coin; however, it currently is budgeted as a separate program because of the ten-year 50 States Commemorative Quarter Program). The Mint produces these coins and ships them to Federal Reserve Banks (FRB) for their use as currency to conduct commercial transactions. The commercial demand for coins from the FRB determines the amount of coins ordered from the Mint. The production and shipment of circulating coins is based upon estimates for the coin demand, which is largely dependent on the condition of the U.S. economy. Program Performance Annual Performance Goals, Measures, Indicators and Information Table - FY 2004 Performance Goals, Performance Measures, and FY 1999 FY 2000 FY 2001 FY 2002 - FY 2003 Proposed Indicators - Performance|Performance|Performancel Target Performance Target Target |Budget Authority ($000s) $309,226 $422,833 $258,668 $158,984 || $156,438 $205,935 $207,969 Direct FTE 1,017 1,282 1,330 1,206 1,162 1,231 1,235 Performance Goal: Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations Circulating Operational Measures Per Unit Costs – Annual Report' 1. Per Unit Cost–Penny (O) 0.0084 0.0082 0.0080 N/A 0.0089 0.0095 0.0096 2. Per Unit Cost–Nickel (O) 0.0258 0.0316 0.0331 N/A 0.0332 0.0308 0.0311 3. Per Unit Cost-Dime (O) 0.0214 0.0192 0.0230 N/A 0.0278 0.0231 0.0235 4. Per Unit Cost–Half-dollar (O) 0.1065 0.1000 0.0892 N/A 0.1110 0.1196 0.1213 5. Per Unit Cost–Dollar (O) N/A 0.1032 0.1292 N/A 0.1667 N/A N/A The production and shipment of circulating coins is based upon projected coin demand, which is largely dependent on the condition of the U.S. economy. Generally, in a strong economy there is a need for more coins, while in a weaker economy fewer coins are needed. The demand for circulating coinage at the Federal Reserve level is defined as net payments, which are total coin deposits from commerce, less total coin payments. The forecasted demand drives the estimated production levels, which in turn drives the estimated level of effort and expenditure. Significantly, the forecasts are regularly revised and economic conditions can change. 'The United States Mint reports per unit costs only at the end of the fiscal year based on Audited financial statements within the Annual Report. MINT #. --~~~~~~~~~~ -------- ~~~~~~~~-1--~~~~ ----- PROGRAM 2A: 50 STATES COMMEMORATIVE QUARTER (NUMISMATIC) The quarter-dollar is a circulating coin; however, it currently is budgeted as a separate program because of the ten-year 50 States Commemorative Quarter Program. The program was launched in 1999 to commemorate and honor the history of each of the 50 states over a ten-year period. Five new State Quarters are produced each year. Each quarter’s reverse will celebrate one of the 50 states with a design honoring its unique history, traditions, and symbols. This program has changed the nature of coin collecting. Young and old, from east to west, collect each new state coin as it becomes available in daily pocket change. The quarters are released in the same order that the states were admitted into the Union, and the planned releases for 2004 are Michigan, Florida, Texas, Iowa, and Wisconsin. By statute, the revenues from the 50 State Quarters Program are considered numismatic for budgetary purposes. However, the program is displayed separately in the financial schedules to present a clearer financial picture of the program’s impact. Program Performance Annual Performance Goals, Measures, Indicators and Information Table . . . . - - - . . . - FY 2004 Performance Goals, Performance Measures, and FY 1999 || FY 2000 || FY 2001 FY 2002 | FY 2003 Proposed Indicators Performance|Performance|Performance Ta rget [Performance Target Target |Budget Authority ($000s)? N/A N/A N/A $205,661 $172,488 $226,150 $236,664 Direct FTE * N/A N/A N/A N/A N/A N/A N/A Performance Goal: Be a more effective and efficient Mint, with controls to ensure integrity of Mint operations Performance Goal: Educate the American public about coin collecting and the Mint Commemorative Quarters Operational Measure 1. Per Unit Cost-Quarter" (O) | 0.0453 || 0.0524 || 0.0438 || N/A || 0.0637 || 0.0515 || 0.0527 Success factors are twofold. First, success in the quarter program depends on our performance for the bureau-wide strategic measures, including yield, inventory turnover, and lost time accident rate. Second, success in the quarter program is measured by demand for the quarter. Since launching the program in 1999, the Mint has increased quarter production by 300% to meet the market demand for these coins. *Prior to this submission, the Mint had not reported the 50 State Quarters Program budget amounts separately. *The Mint does not try to break out the FTE's specifically for the 50 State Quarters Program. The Numismatic table below includes the FTE's attributed to this rogram. . - The United States Mint reports per unit costs only at the end of the fiscal year based on Audited financial statements within the Annual Report. MINT - 10 # United States Mint Public Enterprise Fund PROGRAM 2B: NUMISMATIC The Mint’s numismatic programs include four types of coin products, which the Mint markets and sells to the public including 1) Bullion Coins, 2) American Eagle Proof Coins, 3) Recurring Coin Programs, and 4) Commemorative Coins. Bullion coins are largely bought and sold by precious metal dealers to consumers that desire precious metals as part of a financial investment portfolio. The demand for bullion coins is inversely related to the equities markets, and therefore highly unpredictable. American Eagle Proof Coins are the Mint’s premier collectible products, and include the American Eagle Gold Proof Coin, a coin-collecting standard for the serious collector. Commemorative coins are authorized by Congress to celebrate and honor American people, places, events, and institutions. Each commemorative coin is produced by the United States Mint in limited quantity and is available only for a limited time. Included in the price of these coins is a surcharge that goes to the designated recipient organizations and projects that benefit the community. For instance, surcharge proceeds from the Capitol Visitor Center Commemorative Coin Program went towards building a new visitor center under the U.S. Capitol’s East Plaza. Recurring Programs are circulating-derived products such as five- and ten-coin proof sets, uncirculated sets, and bags of 50-State Quarters and Golden Dollars designed for mass appeal, from the tinkering hobbyist to the serious collector. Program Performance Annual Performance Goals, Measures, Indicators and Information Table FY 2004 Performance Goals, Performance Measures, and FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 *. Indicators Performance Performance Performance Target Per for mance Target Target |Budget Authority ($000s)* $1,033,779 || $668,567 $658,375 $417,773 $375,988 $438,651 $439,720 |Direct FTE * 1,000 1,064 1,073 968 924 1,000 1,006 |Performance Goal: Provide excellent customer service and satisfaction - Performance Goal: Educate the American public about coin collecting and the Mint Numismatic Workload Measures 1. Revenue – Bullion (W) $806,751 $182,547 $148,139 N/A $186,758 $165,000 $151,500 2. Revenue — American Eagle Proof (W) $56,975 $66,394 $63,500 N/A $56,589 $67,099 $66,087 3. Revenue – Commemorative (excl. surcharge) (W) $18,687 $27,210 $23,815 N/A $21,841 $27,431 $23,100 4. Revenue – Recurring Coin Products (W) $78,618 $205,375 $166,573 N/A $174,828 $191,212 $213,793 . Budget Authority for Numismatics from FY 1999–FY 2001 includes the 50 States Commemorative Quarters program. The FTE information for Numismatics includes FTE's allocated for the 50 States Commemorative Quarters program for all years shown. MINT ; United States Mint Public EnterpriseTUnd In the collectibles industry, the Mint advertises its products. This includes direct mail, print and other traditional forms of advertising to inform customers on how and where to order Mint products and when they become available for sale. The Mint has planned an advertising program is designed to bolster numismatics sales. Through this program we expect to 1) increase sales, 2) acquire new customers, 3) build and differentiate the United States Mint brand, and 4) educate the public about coins and coin collecting. Success in the numismatics operations is tied to meeting the bureau-wide strategic performance measures. In this light, success means a higher yield, a lower lost time accident rate, higher turnover of inventories, and higher customer satisfaction. Success in the Mint’s numismatic program is also in growing the numismatic business through customer acquisition and higher revenues. We will use the latest production and service technologies to provide better customer service to grow the numismatic demand and to produce beautiful and innovative coins. MINT - 12 # United States Mint Public Enterprise Fund PROGRAM 3: PROTECTION The Mint guards the Nation’s gold and silver reserves and other assets at Mint locations and protects employees and visitors. By maintaining a highly trained police force, the Mint secures approximately $79 billion in market value' of the nation's gold and silver reserves. U.S. Mint Police protect these assets while safeguarding thousands of Mint employees against potential threats at our facilities across the country. Program Performance Annual Performance Goals. Measures, Indicators and Information Table Goals, Performance Measures, and FY1999 || FY2000 | FY 2001 ... www.r- FY 2003 Indicators ‘. . . . - : . . . . . Target 18 407 FTE . 273 330 357 376 Goal: the Mint’s to deter and to all threats - Measure Total Losses - N/A N/A N/A N/A N/A Baseline TBD Protection’s success will be achieved through minimizing the Mint’s vulnerability to theft or unauthorized access to critical assets. This success will be reflected by minimizing the measure of Total Losses, which addresses financial losses, productivity losses and intrusion losses. Protection both safeguards our national treasure and also enables the Mint to operate. Operating success is performing background checks on all Mint employees and contractors, ensuring that only qualified individuals are admitted to the Federal workforce and gain access to our facilities. The converse is also a measure of outcome success, specifically ensuring that people who should not enter our facilities -- do not enter our facilities. By “guarding the gate,” successful Protection program performance spills over into the core operation, ensuring that there are no distractions to the successful production of coinage and collectible products. Successful Protection of the Mint creates positive externalities for the communities within which our facilities are located. The presence of our officers securing Mint facilities creates a high visibility of law enforcement in these areas, deterring neighborhood crime and providing a sense of security for nearby residents and businesses. '879 billion is from the FY 2002 United States Mint Annual Report. FY 2004 reserves market value will be different as the price of precious metals fluctuates. The Mint does not estimate the future market value of reserve assets, MINT 5 United States Mint Public Enterprise Fúñd - VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS For each performance measure, a definition as well as verification and validation information is provided below. Based on the verification and validation information, each measure's data are rated as having either “Reasonable Accuracy” (judged to be sufficiently accurate for program management and performance reporting purposes) or “Questionable or Unknown Accuracy.” In the case of measures for which statistical confidence intervals are available, these are provided instead of the rating statements above. Measures designated as “Strategic” or “Operational” are considered measures of actual performance as addressed in OMB Circular A- 11.220.5. In general, the Mint considers its performance measure data quality to be reasonably accurate. The data source for many of our performance measures is internal Mint financial data from the Enterprise Resource Planning (ERP) System which is subject to the CFO Act audit by independent auditors each fiscal year. The Ten Key Bureau-wide Performance Measures o Performance Measure 1: Lost Time Accident Rate Definition: Lost Time Accidents (LTA) are unsafe acts that lead to an employee missing at least one full day of work. Production of coinage brings people in contact with heavy machinery on a daily basis. The United States Mint values its employees. Consistent with those values, the Mint strives to maintain a work environment that promotes the safety and well- being of employees on the job at all times. The Lost Time Accidents rate is reported as the number of LTAs for every 200,000 hours worked. - How Data are Captured: The number of accidents is captured in the Treasury’s Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report (STAR). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. How the data are verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers’ Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and/or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter a statistically representative sample of SHIMS records is selected and MF 15 : United States Mint Public Enterprise Fund the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. Performance Measure 2: Workforce Climate Definition: This will be a quarterly survey of a sample of Mint employees. The Mint values its employees and strives to be an employer of choice, where staff are motivated and enthusiastic about coming to work. In addition to a respectful, civil work environment, we also are working to create a stable work environment for employees by making the work more streamlined and consistent. Our objective is to create a work environment where employees feel empowered, where differences are resolved constructively, and where employees can be productive. The intent of the survey is to put a finger on the “pulse” of the Mint workforce, getting quality information at a minimal burden to respondents. How Data are Captured: A Survey of 25% of Mint Staff every 3 months. How the data are verified and validated to make certain it is accurate: Survey contractor will use accepted survey techniques to ensure accuracy. Data Accuracy: Reasonable Accuracy Performance Measure 3: Cycle Time Definition: Cycle time is the length of time from when material enters a production facility until it is delivered to the customer. The United States Mint wants to minimize the amount of time it takes to process raw material into finished goods, eliminating non-value added steps from the processes. How Data are Captured: Cycle time is divided into the following elements: o Metal: The number days supply of raw metal inventory at our fabrication vendors. o Coils/Blanks: The number of days supply of coil and blanks inventory. o Manufacture: The number of days of work in process inventories at the Mints. MINT - 16 : 3ICS IV11 I* UIIIUI o Finished Goods: The number of days supply of finished goods available to ship to the customer. o Planning. The number of days it takes to plan, release, fulfill, and ship orders. Data for each element is pulled from the ERP's production management system. How the data are verified and validated to make certain it is accurate: United States Mint analysts review the data pulled from the ERP system for reasonableness and accuracy on a monthly basis. Data Accuracy: Reasonable Accuracy Performance Measure 4: Inventory Turnover (Strategic Measure) Definition: Inventory consists of all materials owned by the Mint regardless of form (raw materials, work-in-process, finished goods, or stores inventories). Inventory turnover is the number of times per year in which the average inventory is sold. There is an imputed cost to store inventory while it waits to be sold or converted to a finished good. The Mint seeks to determine the optimum level for its inventory of raw materials, work in process and finished goods to reduce the associated costs. The formula for Inventory Turnover is cost of goods sold divided by average inventory. How Data are Captured: The cost of goods sold and inventory data are automatically pulled from the ERP system on a monthly basis and are converted into an annualized inventory turnover measure that is reported to United States Mint management. How the data are verified and validated to make certain it is accurate: The monthly inventory turnover measure is compared to monthly financial statements for reasonableness and accuracy. Data Accuracy: Reasonable Accuracy. Performance Measure 5: Machine Availability Definition: This measures the amount of time the production equipment is available to produce finished goods. The formula is amount of time machines are run divided by the expected run time. Expected run time excludes scheduled downtime. The MIT 17 111te § United States Mint Public Enterprise Fund Mint wants to ensure that it is running production equipment in the most efficient and effective manner possible to produce coins and meet demand. How Data are Captured: Supervisory Control & Data Acquisition (SCADA) systems at each Mint facility monitor the status of each machine. SCADA allows the Mint to capture critical information (including run time, down time, production rates, operating parameters) on our production equipment in real time. Machine availability data is pulled from the SCADA system on a monthly basis for reporting. How the data are verified and validated to make certain it is accurate: United States Mint analysts review the data from SCADA for reasonableness and accuracy on a monthly basis. Data Accuracy: Reasonable Accuracy, Performance Measure 6: Yield (Strategic Measure) Definition: The Mint seeks to use its resources effectively, transforming raw materials into finished goods. Yield assesses the amount of metal or other material that results in a finished good, not including web scrap. We want to minimize wasted material and transform as much of our raw material into finished goods as is feasible. Yield is calculated by dividing the actual number of coins produced by the expected number of coins that should have been produced based on the raw materials consumed. How Data are Captured: The coin production and material consumption data are automatically pulled from the ERP production management system on a monthly basis and are converted into a Yield measure that is reported to management. How the data are verified and validated to make certain it is accurate: United States Mint analysts review the data pulled from the ERP system for reasonableness and accuracy on a monthly basis. Data Accuracy: Reasonable Accuracy. MINT - 18 § - *** **** ~ *~~~~~ * * * **** * ~~~~~~ *-***** Prize--- Performance Measure 7: Cost per 1000 Coin Equivalents (CEs) (Strategic Measure) Definition: Cost per 1000 coin equivalents is the cost of production (conversion cost) divided by the number of products made. Conversion costs are controllable costs within manufacturing. Those costs include manufacturing payroll, production, and depreciation cost. To determine the coin equivalents, an equivalency factor is assigned to each circulating denomination and numismatic product based on the resources required to make the product (indexed against the resources required to make one product – the quarter). The production quantity for each product is multiplied by the equivalency factor, resulting in a coin equivalent quantity. Thus, all denominations and products are equivalized to the quarter denomination. The Mint's costs vary by product. The Mint's product mix has varied over time. The cost per 1000 coin equivalents indicates how effectively we turn materials into revenue generating products, regardless of changes in the product mix. This allows comparison of performance over time by canceling out the effects of product mix changes. How Data are Captured: Conversion costs are pulled from financial reports from the ERP accounting system. Production data is pulled from the ERP production management system via queries and converted to coin equivalents. How the data are verified and validated to make certain it is accurate: United States Mint analysts review the data pulled from the Peoplesoft system for reasonableness and accuracy on a monthly basis. - Data Accuracy: Reasonable Accuracy. Performance Measure 8: SG&A Costs as a Percent of Revenue (excl. Bullion) Definition: Selling, General & Administrative (SG&A) are the costs not directly tied to the production of Mint products. While SG&A are necessary costs, it is important for a business-like operation to focus its resources on activities that contribute to revenue generation. This measure uses the SG&A from our financial statements and divides by the Mint-wide revenue (excluding the bullion revenue) to arrive at the percentage result. The accepted practice in the private sector is to compare SG&A to revenues. The Mint-wide target was developed using different thresholds for the circulating coinage and the numismatic products. These are then weighted and combined into one overall target for the Mint. The main point of this measure is to encourage appropriate levels of spending to manage the Mint and to sell and deliver to our customers. How Data are Captured: The SG&A expenses and revenue data are automatically pulled from the ERP accounting system on a monthly basis and are converted into a SG&A as a percentage of Revenue measure that is reported to management. MI. 19 § United States Mint Public Enterprise Fund How the data are verified and validated to make certain it is accurate: The monthly SG&A costs and revenue are compared to monthly financial statements for reasonableness and accuracy. Data Accuracy: Reasonable Accuracy. Performance Measure 9: Customer Service Index (CSI) Definition: This measure is an indicator of quality of our products and services to the customer. Production of quality products and excellent customer service are paramount. The retention of customers and generation of sales are at stake. The Customer Service Index will consist of equal weights to three elements: 1. One minus the number of returns divided by the total number of orders for the period 2. The percent of all calls answered within 1 minute threshold (total calls includes abandoned calls). 3. One minus the percent of orders fulfilled beyond 7 days ship time due to Mint fault. The formula for the CSI multiplies each of the three elements by 0.33 and sums the results to get a composite index of customer service. Perfect performance in all three areas (no returns, all calls answered in a timely fashion, and all orders shipped within standards) would result in a value of 100%. Ideally, we will get the customer what they want, when they want it, therefore lowering the resources needed to resolve problems. How Data are Captured: Orders and returns data are pulled via a query from the United States Mint’s order management system. Call data are pulled from telephone reports. How the data are verified and validated to make certain it is accurate: United States Mint analysts review the data for reasonableness and accuracy on a monthly basis. Data Accuracy: Reasonable Accuracy, MINT - 20 § United States Mint Public Enterprise Fund © Performance Measure 10: Total Losses - Definition: The Mint performs its protection function by minimizing the vulnerability to theft or unauthorized access to critical assets. Total losses measures the dollar amount of losses incurred due to the realization of threats against the Mint. The Measure is comprised of the sum of three elements 1. Financial Losses: Losses, that nave been reported, investigated and verified as unrecoverable, from a. Strategic reserves (Theft of Treasury Reserves) b. Coining products (Theft from the production facilities) c. Sales of products to the public (1 heft by fraud) d. Other losses (Other theft) 2. Productivity losses: The cost of intentional damage or destruction of Mint production capability and the cost to utilize alternative productivity as needed as a result of the intentional damage or destruction. 3. Intrusion losses: The cost to repair and/or recover from intentional intrusions into United States Mint facilities and systems, either physically or electronically How Data are Captured: The United States Mint Police maintain a secure database of monthly reports on incidents included in the categories above. Any theft or fraud amount determined as unrecoverable is assessed on a case-by-case basis. In the event that cost information is needed, data on the value of Mint assets and costs are in the ERP system. How the data are verified and validated to make certain it is accurate: Analysts in the Protection Business Unit compile and analyze the incident data on a monthly basis. Protection senior management reviews the total losses report for reasonableness and accuracy and reports to United States Mint management on a monthly basis. Data Accuracy: Reasonable Accuracy. The Other Bureau-wide Performance Measures • Performance Measure: Percent reduction in total work-related injuries and illness rate Definition: The Secretary has established a goal of zero injuries and illnesses as a result of working at Treasury. To reach this goal each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is calculated as the total number of OSHA reportable cases times 200,000 divided by the total hours worked by employees. This MIN 21 § United States Mint Public Enterprise Fund is an OSHA-defined calculation used to approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s total case rate was 3.63. How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report (STAR). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. How the data is verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers' Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and /or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. • Performance Measure: Reduction in number of new workers compensations claims accepted by the Office of Workers’ Compensation Programs (OWCP) Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. - How Data is Captured: Data for this measure are captured through the Safety and Health Information Management System (SHIMS). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted to OWCP. How the data is verified and validated to make certain it is accurate: Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating, Data Accuracy: Reasonable Accuracy. MINT - 22 § United States Mint Public EnTEFETSETTING Performance Measure: Percent reduction in lost-time case-rate Definition: The goal is a lost-time case-rate of zero. To reach to this goal each bureau is expected to reduce its lost-time case- rate annually. The lost-time case rate is calculated as the total number of OSHA reportable cases involving lost-time times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost-time cases per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s lost- time case rate was 1.75. How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. How the data is verified and validated to make certain it is accurate: Each quarter a statistically representative sample of SHIMS records are selected and the data input is audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audits findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. The Circulating Operational Measures Circulating Operational Measures 1 - 5: Per Unit Cost (by denomination) Definition: Per Unit Cost for each denomination is calculated by dividing each denomination’s costs (including costs of goods sold and the selling, general & administrative (SG&A) costs) by the number of units delivered. By minimizing costs, the return from the circulating deliveries is maximized. Tracking this measure is also important for the smaller face-value denominations to ensure that costs do not exceed the revenues. How Data are Captured: The data are captured by the Mint’s ERP accounting system. The information can be tracked throughout the year, however the Mint only publishes per unit cost in the Annual Report. This ensures that only the final audited financial statements are the source for this information. MIP 23 § United States Mint Public Enterprise Fund How the data are verified and validated to make certain it is accurate: The Mint financial statements are subject to annual audit. The final audited statements are made available through publication of the United States Mint Annual Reports. Data Accuracy: Reasonable Accuracy. The Commemorative Quarters Operational Measure • Commemorative Quarters Operational Measure 1: Per Unit Cost - Quarter Definition: Per Unit Cost for the quarter is calculated by dividing costs (including costs of goods sold and the selling, general & administrative – SG&A – costs) by the number of units delivered. By minimizing costs, the return from the circulating deliveries is maximized. How Data are Captured: The data are captured by the Mint's ERP accounting system. The information can be tracked throughout the year, however the Mint only publishes per unit cost in the Annual Report. This ensures that only the final audited financial statements are the source for this information. How the data are verified and validated to make certain it is accurate: The Mint financial statements are subject to annual audit. The final audited statements are made available through publication of the United States Mint Annual Reports. Data Accuracy: Reasonable Accuracy. Numismatic Workload Measures The numismatic operations are geared toward selling coin products to the public. The Mint can approximate the resources needed by setting targets for the overall workload – as set by revenue levels. Each product’s revenue is tracked throughout the year to look for trends and to assist with forecasting demand and resource usage. The Mint publishes official revenue information in the Annual Report. Protection Operational Measure Performance Measure: Total Losses [See above section on Key Bureau-wide Performance Measures for information on this measure]. MINT - 24 ū United States MITPTBTC Enterprise-rm STRATEGIC PLAN MODIFICATION The Mint has established a new strategic plan subject to Congressional review and approval. In this plan, the Mint’s new strategic goals are: (1) to be a model government agency that matches world class business practices, (2) value and communicate with the American people, (3) design, sell, and deliver quality products, and (4) respect and value our co-workers. On page MINT 3, Relationship between the Treasury Department Strategic Plan and The Mint’s Annual Performance Plan, shows the four Treasury strategic goals and related new Mint goals, which define how the Mint supports Treasury’s Department-wide strategic plan. These four new goals and related objectives and strategies to achieve these goals have been established under no new legislation, nor has the Mint mission—to apply world class business practices in making, selling, and protecting our nation’s coinage and assets—changed in any way. The Mint has established these new goals primarily to encourage all Mint staff to focus on “One Team and One Vision”. The four new Mint goals and their objectives underlie the Mint’s strategic plan. The goal objectives provide guidance to achieve the goals. To become a model government agency, the Mint will: (a) focus on being a more effective and efficient organization, with controls to ensure the integrity of Mint operations, and (b) strengthen the Mint’s ability to deter and respond to all security threats. To value and communicate with the American people, the Mint will: (a) ensure that communication with our external stakeholders is responsive, honest, open, and timely, and (b) educate the American public about coin collecting and the Mint. To design, sell, and deliver quality products, the Mint will: (a) seek to increase revenue and profits, provide excellent customer service and satisfaction, and (b) redesign America’s coinage. To respect and value our co-workers, the Mint will: (a) seek to eliminate lost time accidents, (b) educate and communicate with co-workers about the Mint, and (c) implement a learning organization. MI* . 25 : Bureau of The Public Debt, Administering the Public Debt BUREAU OF THE PUBLIC DEBT TABLE OF CONTENTS volume 1–BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN..................................................................... BPD - 1 EXPLANATION OF THE FY 2004 BUDGET REQUEST - Analysis of FY 2003 President’s Budget................................................ s m e º e º 'º e º s e s = < e < e < e s is a e s = e a e < e s s ∈ n e º e s e s is e < * * * * * * * * * * * * * * BPD - 4 Digest of FY 2004 Budget Estimates by Activity................................................................................................ BPD - 4 Summary Explanations of FY 2004 Request Changes by Activity........................................................................... BPD – 5 Explanation of FY 2004 Budget Increases and Decreases.................................................................. * - - - - - - - - - - - - - - - - - - - BPD – 6 Budget Authority, FTE, and Performance Measures for Savings Securities............................................................... BPD - 11 Budget Authority, FTE, and Performance Measures for Marketable & Special Purpose Securities..................................... BPD - 14 SUPPORTING MATERIAL Detail of Full-Time Equivalent Positions by Category........................................................................................ BPD - 16 Detail of Full-Time Equivalent Positions by Grade............................................................................................ BPD - 17 Explanation of Proposed FY 2003 Operating Budget..................................................................... ....... . . . . . . . . . . . . . . BPD - 18 Explanation of Congressional Action............................................................................................................. BPD - 19 Standard Classification Schedule: Direct Obligations.......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • - - - - - - - - - - - - - - - - - - - - - - - - - - - BPD - 20 Appropriation Language Sheet and Justification of Language Changes..................................................................... BPD - 21 REIMBURSEMENTS TO THE FEDERAL RESERVE BANKS...................................................................................... FRB - 1 GOVERNMENT LOSSES IN SHIPMENT............................................................................................................... GLIS - 1 2/3/03 g Bureau of The Public Debt, Administering the Public Debt STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN Mission The mission of the Bureau of the Public Debt is to borrow the money needed to operate the Federal Government and to account for the resulting public debt. Key Strategic Issues For two decades, Public Debt has used strategic planning to identify the most efficient means of implementing our stated mission. We have identified seven key strategic priorities that will further enhance our ability to provide quality services to all of our customers. 1. Provide Treasury with the operational capability to accomplish its debt financing at the lowest possible cost. Treasury’s objective is to meet the financing needs of the Federal government at the lowest cost over time. Public Debt is supporting this goal with two major operational initiatives. The first is to achieve a consistent release of Treasury securities auction results to the public in two minutes plus or minus 30 seconds. Shorter and consistent release times will reduce the period of time bidders are exposed to uncertainty as to whether and at what price they purchased Treasury securities. By reducing this risk, Treasury will no longer need to compensate bidders for the implicit premium associated with the extended period of uncertainty. A uction process improvements coupled with significant automated systems enhancements will allow us to reach the goal of consistent two-minute auctions. A second Treasury initiative is to increase the number of competitive bidders submitting bids in our auctions. This will cause more competition for the securities being offered and more competition lowers the cost of borrowing. We will continue to enhance our automated auction systems and streamline procedures to make it even easier for investors to bid directly online in our auctions. 2. Provide timely and accurate debt accounting information for financial statements. This objective relates directly to the Bureau's mission of borrowing the money needed to operate the Federal government and accounting for the resulting public debt. The Bureau has historically committed significant resources to accurate accounting. Since the passage of the Government Management Reform Act in 1994 (the law requiring Executive Agencies to secure independent audits of their financial statements), the Bureau has always received unqualified audit opinions on the Schedules of Federal Debt and Loans Receivable. Public Debt’s accounting operations are 2/3/03 - BPD - 1 g Bureau of The Public Debt, Administering the Public Debt dedicated to ensuring that all financial statements prepared in FY 2004 and beyond maintain this level of accuracy. Further, we will continue to make our financial data available within three business days of the end of each accounting period as required by Treasury. 3. Deliver excellent investment and accounting services to the Federal Investment Accounts. The Bureau issues and accounts for more than $2.8 trillion of Government Account Series (GAS) securities currently outstanding in the Federal Investment Program. These are Treasury securities purchased by Federal agencies such as the Social Security Administration, Federal Highway Administration, and the Department of Defense. The objective is to provide the same high level of service to our customer agencies as we do with those investors who hold marketable or savings securities. As such, we are dedicated to processing 100% of agency investment transactions accurately and within established timeframes. Further, we will work to provide agencies greater levels of electronic account access, by providing online Internet access to conduct investment transactions and access account information. We also plan to actively monitor proposed legislation for new trust funds, and press for standard investment language to minimize the differences amongst existing funds. Maximizing electronic access and standardization will not only reduce Bureau costs, but will produce even more significant resource savings for the customer agencies, and simultaneously improve customer service. 4. Competitively provide high-quality administrative services to other organizations to allow them to reduce administrative costs. The Bureau of the Public Debt’s Administrative Resource Center (ARC) began providing administrative services on a fee-for-service basis in FY 1997. At that time the Bureau and ARC were complete unknowns in the administrative servicing arena, and were competing with large, well-known organizations such as Agriculture's National Finance Center, Interior's National Business Center, GSA, and others. Today, ARC has more than 35 Federal entities as customers, providing them with accounting, travel, procurement, budget, human resources, and other administrative services. Such rapid growth in a highly competitive arena is the outcome of a number of independent determinations by Federal managers that ARC offered the best value in terms of customer service, staff competence, and quality of automated systems. By providing Treasury and other Federal managers the opportunity to obtain important support services at reasonable prices from a competent provider with a strong customer focus, ARC is providing a valuable service by enabling Federal managers to focus more attention on their program responsibilities. ARC plans to continue to make the necessary investments in developing trained staff and implementing state-of-the-art automated systems so as to increase the number of customers serviced and the services offered existing customers. As an example, ARC implemented a JFMIP certified, fully integrated, Web-accessible financial system that is being offered to its existing customers in FY 2003. This highly sophisticated system is available to existing and new customers at a small fraction of the cost it would take for an organization to attempt to implement such a system on its own, and thus results in more effective use of taxpayer dollars. We expect to roll this application out to additional customers in FY 2004, and anticipate making enhancements that will make the system even more beneficial to users and potential CustomerS. 2/3/03 - BPD - 2 5 Bureau of The Public Debt, Administering the Public Debt 5. Continuously improve customer service and reduce costs through technology. Public Debt is fully committed to providing the highest level of electronic services to investors in Treasury securities. To meet our objective of providing a more citizen-centric investing environment, we will offer more information and services over the Internet and increase the number of investment-related transactions that our customers can conduct electronically. We will do this by implementing three major enhancements to increase the number of features in our new TreasuryDirect system by the end of FY 2004. We will also increase the number of State and Local Government Securities transactions processed electronically to 75% during the same period. To ensure that all transactions continue to be conducted securely, we will work closely with the Financial Management Service on the Pay. Gov authentication initiative, which we use for customer validation. We will also increase customer access by expanding the hours that electronic services are available. By the end of the first quarter of FY 2004, we will add four hours of availability to the weekday electronic services window for both marketable securities and H/HH savings bonds customers. We will continue to use technology to improve offerings to customers and will maintain a technical infrastructure that provides sufficient capacity and processing capability to meet customer service performance objectives, as well as expectations of security, reliability, and timeliness. These measures will help ensure that our current objectives of issuing 99.95 percent of over-the-counter savings bonds within three weeks, and completing 90 percent of customer service transactions within 13-days are not only maintained, but exceeded, by the end of FY 2004. - - 6. Cultivate a values-based work environment that respects all employees. For the past several years, Public Debt has dedicated significant executive level attention to creating a “values-based” organization. The values we have emphasized include: Individual Respect, Information Sharing, Integrity, Informality, and Inclusion. We believe that dedicating resources to this effort is of significant importance. Such values are consistent with creating a pleasant and comfortable work environment, where employees can be productive and responsive to our customers. This in turn has helped improve the efficiency of Public Debt. We also believe this focus contributes to maximizing the retention rate of employees. Our low turnover rate has reduced training and other administrative costs associated with hiring new employees, and has allowed the Bureau to develop a highly productive and knowledgeable workforce. Our plans call for continuing this effort in FY 2004 and beyond. We will monitor our effectiveness in achieving this objective through an annual employee satisfaction survey. 7. Maintain a safe work environment. Public Debt will continue to make maintaining a safe work environment a major priority in FY 2004. We will continue to dedicate resources to employee training emphasizing work place safety, identifying and eliminating “un-safe” work areas, and working in partnership with the National Treasury Employee's Union to ensure this message is disseminated to all employees. Our objectives are to reduce and ultimately eliminate work-related incidents and illnesses, reduce workers’ compensation claims, and reduce lost-work day case rates. - - 2/3/03 BPD - 3 § Amount FTE ($900) FY2003 President's Budget... -------------------------- IATE - FY 2003 Amendment(s) - --------------- 0. o Proposed Transfers to/from Other Accounts (list).....................................................................................................------------------........................... 0 0. Repro ing (FTE only, except for inter-appropriation transfers).......... ---------------------------------------------------------------------------------------------------------- 0. 0. FY2003 Adjusted Presidents Budget Level, Plus/Minus Transfers 1,478 191,119 Less Adjustment for Comparability with FY 2004 Request under Homeland Security Act...................................................................................................... 0. 0. FY 2003 Presidents Budget Comparable with FY2004 Request............................................. 1,478 191,119 Bureau of the Public Debt, Administering the Public Debt ANALYsis or FY 2003 PRESIDENT's BUDGETLEVEL Adjustments (+/-): digest of FY2004 budget Estimates by Activity º & tº: º: & & º: - 1. Savings and retirement securities. 1,056 $137,700 1,020 $141,273 875 $122,482 (145) ($18,791) (145) ($22,525) o $3,734 2. Marketable and special purpose securities... 462 $51,424. 458 $54,246 458 $55,616 0 $1,370 0. $125 o $1,245 Unobligated balance expiring................... . . . . . . 2,229 Subtotal, Budget Authority (All Sources) 1,518 191,353 1,478 195,519 1,333 178,098 (145) (17,421) (145) (22,400) 0. 4,979 Less adjustments for other funding sources: 2/ User fees (proposed new or increases). . . . . . . . . . . . . . . . . (3,320) (4,400) (4,400) Total enacted appropriations and budget estimates (excluding all transfers and reimbursements) 1,518 188,033 1,478 191,119 || 1,333 173,698 (145) (17,421) (145) (22,400) 0 4,979 Less: Adjustment for Comparability with FY2004 Request under Homeland Security Act o o o o 0 o 0. o 0 o o 0 lºnisted Appropriations Comparable with Fººd 1,518 S188,033 L1,478 $191,119 || 1,333 $173,698 L (145) ($17,421) (145) ($22,400) 0. $4,979 Memorandum. Underproposed legislation to reflect the full costing of CSRs retirementbenefits and all retirement health benefits, the following amounts would be added: FY 2002: $8,415; FY2003: $8,668; FY2004: $9,253 2/3/03 BPD-4 : Bureau of the Public Debt, Administering the Public Debt 2/3/03 SUMMARY EXPLANATIONS OF FISCALYEAR2004 REQUESTED CHANGES BY ACTIVITY (Dollars in Thousands) PROGRAMCHANGES: 1. Implementation of FAIRAct/Competitive Sourcing Requirements d 75 2. Enhance Customer Service 0 390 3. Implementation of PATRIOT Act 0 0 4. Implement. An Image System for Archiving and Retrieving Retired Bond Images BPD-5 : Bureau of The Public Debt, Administering the Public Debt EXPLANATION OF FY 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Bureau of the Public Debt are projected to be $178,098,000. Total increases of $5,569,000 are offset by $22,990,000 in reductions, resulting in a net decrease of $17,421,000 under the FY 2003 funding level of $195,519,000. In addition, there is a reduction of 145 FTE under FY 2003 levels. PROGRAM CHANGES Total Program Changes............ * º tº G & º * * -$22,400,000/-145 FTE 1. Implementation of FAIR Act/Competitive Sourcing Requirements..................................................................... +$100,000 The President’s Management Agenda includes a competitive sourcing objective to help ensure that government services are delivered in the most cost effective manner possible. By the end of FY 2002, the Bureau met the Administration’s competitive sourcing goal of competing 5% of its commercial activities with private sector sources; by the end of FY 2003, the Bureau has committed to meeting the Administration’s 10% goal. Given the increasing demands to compete more and more positions, the Bureau proposes to reallocate some resources in FY 2004, and devote them to supporting this effort. These resources will be used to secure contractor support to conduct the necessary cost analyses required by the competitive sourcing rules/regulations (A-76). 2. Enhance Customer Service................................ * - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - +$390,000 Public Debt proposes utilizing $390,000 to increase the number of FTEs in frontline customer service delivery positions. These individuals would be primarily devoted to completing servicing transactions (e.g. processing complex securities transactions, maintaining customer accounts) for current and potential securities customers. These resources will help the Bureau reduce the time to process customer service transactions by 15 percent. The current measure requires Public Debt to complete 90 percent of customer service transactions within three weeks (15 business days); the new measure will require 90% within 13 business days. 3. Implementation of PATRIOT Act....................... . . . . e. f * * * * * * * * * * * * * * is e a s s 4 ~ * * * * * * * * * * ~ e º e º 'º a tº s s º º e º sº e º a 9 s tº e s g º e a w w & 4 - - - e s = e s s e s is e s - +$100,000 Title III of the USA PATRIOT Act, International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, broadly outlines a strategy to “increase the strength of... measures to prevent, detect, and prosecute international money laundering and the financing of terrorism.” Its provisions most greatly impact the banking ard financial communities, particularly those segments doing business with foreign banks and individuals, but Public Debt’s systems and opºrtions will feel its effects as well. 2/3/03 BPD – 6 § Bureau of The Public Debt, Administering the Public Debt At this early stage, it is difficult to anticipate the full scope of the Act’s influence. Subtitle A, International Counter Money Laundering and Related Measures, calls for enhanced detection of funds, accounts, and individuals involved in money laundering or terrorism financing; opens the door to advanced record keeping and expanded reporting requirements for suspicious activity; encourages increased cooperation and information sharing among financial institutions and law enforcement; and demands increased vigilance in identifying and confiscating assets received from individuals, banks, and other organizations engaged in money laundering or terrorist activities. It is reasonable to expect that efforts to strengthen existing counter-terrorism and anti-money laundering safeguards—and to introduce new protections—will involve system modifications to expand edits and use electronic filters for targeted names, addresses, etc. Additionally, we foresee the need for sustained coordination and communication with the Federal Reserve processing sites and agent and financial communities as they, too, work to improve their ability to detect and prevent illicit financial activities. Analytical and information technology resources are already at work in these areas; we project a need for additional resources in FY 2004 to enhance and build the systems necessary to prevent the use of Treasury securities to further crimes against the United States. 5. Implement An Image System for Archiving and Retrieving Retired Bond Images................................................... -$590,000 Public Debt plans to implement a tape-based image system for archiving and retrieving digitized images of retired savings bonds. The image system will replace microfilm as the primary storage medium for retired bonds. As a result of implementing the new system, the Bureau will achieve productivity savings—primarily from reductions in the number of personnel devoted to searching microfilm—which will be redirected to enhancing customer service. Reductions in equipment, maintenance, supplies, and space will also be realized. 6. Savings Bonds Marketing Reduction......................................................................................... -$22,400,000/-145 FTE Consistent with the President’s program, Public Debt is reducing resources devoted to marketing paper savings bonds. As a first step in a transition to an all electronic environment, the Bureau introduced its new TreasuryDirect system in early FY 2003 that will ultimately offer “one-stop shopping” for the full range of Treasury securities including book-entry savings bonds. Investors will be able to learn about our book-entry savings bond products through our website, which will become our primary vehicle for educating our retail securities CustomerS. 2/3/03 - BPD - 7 g Bureau of The Public Debt, Administering the Public Debt OTHER CHANGES Total Other Changes......... A. * ~~~~ * * * > * * * * * * ſº tº e º e g º ſº tº ſº +$4,979,000.0 FTE Other changes include adjustments necessary for mandatory cost increases and any other adjustments that may be required. They are as follows: 1. Adjustments Necessary to Maintain Current Levels.................................................................................... +$4,979,000 2/3/03 BPD – 8 Bureau of The Public Debt, Administering the Public Debt FY 2004 Planning Level Program Name: Savings Securities Description of Program - The Savings Securities program includes all Public Debt, Federal Reserve, and agent activities involved in marketing, issuing, servicing, and redeeming United States Savings Bonds. Public Debt maintains 12 billion ownership, accounting, and status records for savings bonds issued and redeemed since 1935. These records support large-scale claims, correspondence, and customer service operations. Approximately 55 million individuals own 747 million bonds worth $193 billion, equivalent to 3.1 percent of the public debt. Savings bonds are sold over-the-counter at more than 40,000 financial institution locations, through thousands of payroll savings plans, and on Public Debt’s website. Most banks that sell savings bonds also redeem them. Five Federal Reserve Banks serve as regional centers for bond issue functions, paid bond processing, and some customer service transactions. In recent years, annual sales have been on the order of $4–6 billion and redemptions $13–15 billion (principal and interest). Three series of savings bonds are currently offered: Series EE, Series I, and Series H.H. Series EE and I bonds are accrual securities with interest paid as part of the redemption value, Since 1997, interest rates for Series EE bonds are adjusted each May 1 and November 1 to equal 90% of the average yield for five-year Treasury securities during the preceding six months. The Series Ibond interest rate is a combination of a fixed rate set at the time of issue that remains in effect for the life of the bond and an inflation rate adjusted each May 1 and November 1 based on the change in the consumer price index (CPI-U) during the previous six months. Series HH bonds are current-income bonds available only in exchange for eligible Series E/EE bonds or by reinvesting the proceeds of matured Series H/HH bonds. The interest rate remains fixed for the life of the bond, and interest is paid semiannually by direct deposit. Among Public Debt’s costs for issuing, servicing and redeeming savings bonds are fees paid to agents; postage (bonds inscribed by Federal Reserve Banks and most other issuers are delivered by mail); printing bond stock; and internal operations. The program is resource-intensive because of the size of records systems and the number of bond owners. Although automation has minimized the impact and cost of processing large numbers of bond sales and redemptions, Public Debt must maintain and support these systems independent of the number of issue, Servicing, or redemption transactions that take place during a given time period. Customer service consumes the bulk of Public Debt’s staffing resources devoted to savings bonds. This activity includes researching electronic and microfilm records; processing claims for lost, stolen, or destroyed bonds; responding to customer inquiries; processing transactions that involve examination of legal evidence or determinations of entitlement; and collecting debts. - - 2/3/03 BPD - 9 : Bureau of The Public Debt, Administering the Public Debt In the past, Treasury marketing efforts for savings bonds have centered around public service announcements and campaigns in the workplace to promote the payroll savings plan. In October 2002, Public Debt began using interactive technologies and other media to educate Americans about the choices for investing in Treasury securities and to reach customers more effectively and efficiently. A new TreasuryDirect website will offer “one-stop shopping” for customers for savings and marketable securities and services. Customers can establish accounts in a secure environment, purchase securities, conduct a variety of online transactions, and obtain information on a wide range of topics with point-and-click convenience. The first product implemented under the new TreasuryDirect website is the book-entry Series I savings bond. Later releases of TreasuryDirect will support conversion of definitive (paper) bonds to book-entry form and incorporate new online services. Public Debt expects savings bond operating costs to be lower in a full book-entry environment where investors are able and expected to manage their own holdings. Since much depends on the pace of customer acceptance, no timetable has been established for discontinuing the issuance of definitive bonds, and both paper and book-entry savings bonds will be available for some time to come. As book-entry becomes the norm, costs for agent fees, printing bond stock, and mailing bonds will be greatly reduced, and Public Debt’s resource requirements will change as the type of services provided to customers evolve. - 2/3/03 BPD - 10 § Bureau of The Public Debt, Administering the Public Debt Budget Authority, FTE, and Performance Measures by Budget Activity Budget Activity #1: Savings and Retirement Securities FY FY Performance Goal A: Provide accurate and timely public 1. Debt and Loans Receivable. (S)* Performance Goal B: Provide quality customer service and customer service .28% .63% Customer transactions weeks. N/A N/A CuStomer within 13 N/A N/A Percentage three weeks. 99.75% 99.07% 3. N/A N/A 4. Percentage Of N/A N/A measure, Customer measure, and Operational measure 2/3/03 FY 2001 FY 2002 N/A N/A 99.97% 99.95% N/A A FY 2003 || FY 2004 N/A Unqualified N/A N/A 99.95% 99.95% N/A N/A BPD - 11 5 Bureau of The Public Debt, Administering the Public Debt Program Name: Marketable and Special Purpose Securities Description of Program The Marketable and Special Purpose Securities programs encompass all Public Debt and Federal Reserve activities for marketable Treasury bills, notes, and bonds; inflation-indexed bonds and notes; and non-marketable special purpose securities. The majority of all these securities are held in book-entry form. The commercial book-entry program involves auction, issue, transfer, and buyback functions for investors who choose to hold securities through commercial custodians. Approximately 99 percent of Treasury marketable securities are held through the commercial book-entry system. The Federal Reserve, acting as Treasury’s fiscal agent, maintains the top tier of accounts for financial institutions; they in turn hold and service, on their own books, accounts for their customers. Treasury does not maintain ownership records of securities held in commercial custodial accounts. All secondary market transfers occur through the commercial book-entry system, either on the books of a single custodian or through multiple custodians. Treasury conducts about 180 marketable security auctions annually and raises more than $2.6 trillion. All successful bidders are awarded securities at the price equal to the highest rate or yield of the competitive bids accepted. The automated systems that support transfers of securities between accounts and account maintenance (including principal and interest payments) are operated by the Federal Reserve. By maximizing the use of technology, Public Debt will provide investors with easier access to the auction process; broader participation will promote competition and enable Treasury to borrow the money needed to operate the Federal government at the lowest cost over time. TreasuryDirect is Public Debt’s direct-access program through which investors purchase and hold book-entry marketable securities directly with Treasury without requiring the services of a custodian or intermediary. The system contains more than 500,000 active accounts with a par value of $68.8 billion. Payments are made by direct deposit to the investor's bank account, and statements are sent directly to the investor. Established investors can buy securities and manage their accounts online or by phone. Although book-entry TreasuryDirect securities do not have the attendant costs of definitive securities, Public Debt and the Federal Reserve . provide significant support services to investors. These include accepting purchase applications by mail; establishing accounts; mailing statements and tax documents; making semiannual interest payments by direct deposit; processing purchase, reinvestment, and entitlement transactions; assisting account holders in selling their securities in the secondary market; providing electronic account access; and responding to customers’ written and phone inquiries. Public Debt also provides support services for approximately 10,000 customer accounts for paper marketable registered securities issued prior to the inception of TreasuryDirect (the last of which will mature in 2016), as well as a small number of marketable securities held in bearer form. 2/3/03 BPD - 12 É Bureau of The Public Debt, Administering the Public Debt The two major non-marketable special purpose securities are the State and Local Government Series and the Government Account Series. State and local government securities are offered in book-entry form to state and local governments as investment alternatives to assist issuers of tax-exempt securities in complying with yield restriction and arbitrage rebate provisions of the Internal Revenue Code. Public Debt’s system for managing these securities contains 52,000 active accounts valued at $153 billion. Government account series securities are issued only to Federal agencies that have statutory authority to invest in them. There are over 215 funds, administered by approximately 80 agencies, that have this investment authority. Public Debt maintains the investment accounts for these funds. For 15 of the funds, Public Debt also acts for the Secretary in his role as managing trustee. Approximately $2.8 trillion is invested in government account series securities—more than 40 percent of the public debt outstanding. 2/3/03 BPD - 13 5 z Bureau of The Public Debt, Administering the Public Debt Budget Authority, FTE, and Performance Measures by Budget Activity Budget Activity #2: Marketable and Special Purpose Securities 1999 2000 FY 2001 FY FY 2002 FY FY Performance | Performance Performance 2002 Performance 2003 Performance Goal A: Provide accurate and timely public Loans Performance Goal B: Borrow what is necessary to meet the Orłę minutes. two minutes 30 Performance Goal C: Provide quality customer service and Government transactions 100% 100% 2. Process 99.90% 99.9% 3. Percentage of N/A 2/3/03 - BPD - 14 # Bureau of The Public Debt, Administering the Public Debt FY 1999 FY 2000 FY 2001 FY FY FY 2004 Performance | Performance | Performance | 2002 | Performance | 2003 Proposed Customer within - 98.32% 99.70% 99.70% Customers 100% N/A measure, measure, IºaSure 2/3/03 BPD - 15 f Bureau of the Public Debt, Administering the Public Debt DETAL OFFULL-TIMEEQUIVALENT STAFFYEARS BY CATEGORY Statutory executive positions............... ------------------ ------------------------------ 10 10 10 - - - Policy/program professional staff........................................................... 426 450 432 (18) (18) - Administrative staff.…............. 715 656 534 (122) (122) - Secretarial and clerical......................................................................... 271 326 321 (5) (5) - Crafts and custodial * 3. 11 - 11 - - - Part-time & temporary full-time ivalent staff years 25 25 25 2/3/03 BPD - 16 # e DETAIL OFFULL-TIME EQUIVALENT STAFFYEARS BY GRADE Executive Service Level 6.... Executive Service Level 5.... Executive Service Level 4.... Executive Service Level 3.... Senior Executive Service Level 2.... Executive Service Level 1 BPD-17 Bureau o 2/3/03 # Bureau of the Public Debt, Administering the Public Debt Insert Explanation of Proposed FY 2003 Operating Budget Nothing to insert at this time per instructions 2/3/03 BPD - 18 5 Insert Explanation of Congressional Action Nothing to insert at this time per instructions 2/3/03 BPD - 19 £ STANDARD CLASSIFICATION SCHLºu Lº Note: Inchwearyover --reflect-ºn-fºr-out balances of unexpired - Pleasenote that ouro3 columnis going to differ from what was reported in the Presidents Budget due to the fact that with the continuing uncertainty of ouros states and the fact that a 3% reduction may occur, we do notaºuicipate moving an additional $2,000,000 into our Noyer Arcoantianeither FY 03.orryow, Wedo, however, plan to obligate the entire carryoverbalance of our No Year account of $4,853,000 in FY 03. BPD-20 Bureau of the Public Debt, administering the Public Debt 2/3/03 # Duitzau UILIrv Tu-UITUTEzctrº- Department of the Treasury BUREAU OF THE PUBLIC DEBT Federal Funds General and special funds: ADMINISTERING THE PUBLIC DEBT For necessary expenses connected with any public-debt issues of the United States $178,098,000; of which not to exceed $2,500 shall be available for official reception and representation expenses; and, of which not to exceed $2,000,000 shall remain available until expended for systems modernization: Provided, That the sum appropriated herein from the General Fund for fiscal year 2004 shall be reduced by not more than $4,400,000 as definitive security issue fees and TreasuryDirect Investor Account Maintenance fees are collected, so as to result in a final fiscal year 2004 appropriation from the General Fund estimated at $173,698,000 and in addition, $40,000, to be derived from the Oil Spill Liability Trust Fund, to reimburse the Bureau for administrative and personnel expenses for financial management of the Fund as authorized by section 1012 of Public Law 101-380. 2/3/03 BPD – 21 g Bureau of the Public Debt, Administering the Public Debt Reimbursements to the Federal Reserve Banks Public Law 101-509, 104 Stat. 1394, established a permanent indefinite appropriation to pay such sums as necessary to reimburse the Federal Reserve Banks (FRB) for acting as fiscal agents of the Federal government in support of financing the public debt. A permanent indefinite account was established in FY 1992. Claims for reimbursements or services related to this account are closely monitored for compliance with the instructions for Reporting Billable Costs and Support Statistics on Account of the Public Debt Transactions (FRB Memorandum 1082). The FY 2004 funding to support FRB reimbursements is $131,642,069. 2/3/03 g FRB -1 5. Bureau of the Public Debt, Administering the Public Debt Government Losses in Shipment The Government Losses in Shipment Act was approved July 8, 1937, to dispense with the necessity for insurance by the Government against loss or damage to valuables in shipment and for other purposes. The Act was amended in 1943 to cover losses resulting from the redemption of savings bonds (for example, stolen bonds which are fraudulently negotiated even though the paying agent followed identification - guidelines established by the Treasury). All authority of the Treasury under the Act has been delegated to the Commissioner of the Bureau of the Public Debt. Public Law 103-329 established a permanent indefinite appropriation to pay such sums as necessary to make payments for the replacement of valuables, or the value thereof, lost, destroyed, or damaged in the course of United States government shipments. In FY 2004, the funding estimated to support payments for the replacement of valuables is $500,000. 2/3/03 GLIS - 1 § Bureau of the Public Debt, Administering the Public Debt BUREAU OF THE PUBLIC DEBT TABLE OF CONTENTS VOLUME 2 – PERFORMANCE PLAN STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN..................................................................... BPD - 1 RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN............................. . . . . . . . . . . . . . . . . . . . . BPD - 4 PERFORMANCE INFORMATION BY BUDGET ACTIVITY Budget Activity 1: Savings Securities Budget Authority, FTE, and Performance Measures ............................................................................................ BPD -5 FY 2004 Proposed Performance Plan.............................................................................................................. BPD – 6 FY 2003 Preliminary Performance Plan.......................................................................................................... BPD – 6 Budget Activity 2: Marketable and Special Purpose Securities - Budget Authority, FTE, and Performance Measures............................................................................................ BPD - 7 FY 2004 Proposed Performance Plan.............................................................................................................. BPD - 8 FY 2003 Preliminary Performance Plan..................................................................................................... ......BPD - 9 SUPPORTING MATERIAL - Verification and Validation of Data and Performance Measurement Definitions............................................... • gº è g º tº e e g º ºr ſº BPD - 1 1 2/3/03 § STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN Mission The mission of the Bureau of the Public Debt is to borrow the money needed to operate the Federal Government and to account for the resulting public debt. Key Strategic Issues For two decades, Public Debt has used strategic planning to identify the most efficient means of implementing our stated mission. We have identified seven key strategic priorities that will further enhance our ability to provide quality services to all of our customers. 1. 2/3/03 Provide Treasury with the operational capability to accomplish its debt financing at the lowest possible cost. Treasury’s objective is to meet the financing needs of the Federal government at the lowest cost over time. Public Debt is supporting this goal with two major operational initiatives. The first is to achieve a consistent release of Treasury securities auction results to the public in two minutes plus or minus 30 seconds. Shorter and consistent release times will reduce the period of time bidders are exposed to uncertainty as to whether and at what price they purchased Treasury securities. By reducing this risk, Treasury will no longer need to . compensate bidders for the implicit premium associated with the extended period of uncertainty. A uction process improvements coupled with significant automated systems enhancements will allow us to reach the goal of consistent two-minute auctions. A second Treasury initiative is to increase the number of competitive bidders submitting bids in our auctions. This will cause more competition for the securities being offered and more competition lowers the cost of borrowing. We will continue to enhance our automated auction systems and streamline procedures to make it even easier for investors to bid directly online in our auctions. Provide timely and accurate debt accounting information for financial statements. This objective relates directly to the Bureau’s mission of borrowing the money needed to operate the Federal government and accounting for the resulting public debt. The Bureau has historically committed significant resources to accurate accounting. Since the passage of the Government Management Reform Act in 1994 (the law requiring Executive Agencies to secure independent audits of their financial statements), the Bureau has always received unqualified audit opinions on the Schedules of Federal Debt and Loans Receivable. Public Debt’s accounting operations are dedicated to ensuring that all financial statements prepared in FY 2004 and beyond maintain this level of accuracy. Further, we will continue to make our financial data available within three business days of the end of each accounting period as required by Treasury. BPD – 1 § Bureau of the Public Debt, Administering the Public Debt 3. 2/3/03 Deliver excellent investment and accounting services to the Federal Investment Accounts. The Bureau issues and accounts for more than $2.8 trillion of Government Account Series (GAS) securities currently outstanding in the Federal Investment Program. These are Treasury securities purchased by Federal agencies such as the Social Security Administration, Federal Highway Administration, and the Department of Defense. The objective is to provide the same high level of service to our customer agencies as we do with those investors who hold marketable or savings securities. As such, we are dedicated to processing 100% of agency investment transactions accurately and within established timeframes. Further, we will work to provide agencies greater levels of electronic account access, by providing online Internet access to conduct investment transactions and access account information. We also plan to actively monitor proposed legislation for new trust funds, and press for standard investment language to minimize the differences amongst existing funds. Maximizing electronic access and standardization will not only reduce Bureau costs, but will produce even more significant resource savings for the customer agencies, and simultaneously improve customer service. . Competitively provide high-quality administrative services to other organizations to allow them to reduce administrative costs. The Bureau of the Public Debt’s Administrative Resource Center (ARC) began providing administrative services on a fee-for-service basis in FY 1997. At that time the Bureau and ARC were complete unknowns in the administrative servicing arena, and were competing with large, well-known organizations such as Agriculture's National Finance Center, Interior's National Business Center, GSA, and others. Today, ARC has more than 35 Federal entities as customers, providing them with accounting, travel, procurement, budget, human resources, and other administrative services. Such rapid growth in a highly competitive arena is the outcome of a number of independent determinations by Federal managers that ARC offered the best value in terms of customer service, staff competence, and quality of automated systems. By providing Treasury and other Federal managers the opportunity to obtain important support services at reasonable prices from a competent provider with a strong customer focus, ARC is providing a valuable service by enabling Federal managers to focus more attention on their program responsibilities. ARC plans to continue to make the necessary investments in developing trained staff and implementing state-of-the-art automated systems so as to increase the number of customers serviced and the services offered existing customers. As an example, ARC implemented a JFMIP certified, fully integrated, Web-accessible financial system that is being offered to its existing customers in FY 2003. This highly sophisticated system is available to existing and new customers at a small fraction of the cost it would take for an organization to attempt to implement such a system on its own, and thus results in more effective use of taxpayer dollars. We expect to roll this application out to additional customers in FY 2004, and anticipate making enhancements that will make the system even more beneficial to users and potential CustomerS. Continuously improve customer service and reduce costs through technology. Public Debt is fully committed to providing the highest level of electronic services to investors in Treasury securities. To meet our objective of providing a more citizen-centric BPD - 2 § - - ---- - ------ – - - -> --------------—E--— investing environment, we will offer more information and services over the Internet and increase the number of investment-related transactions that our customers can conduct electronically. We will do this by implementing three major enhancements to increase the number of features in our new TreasuryDirect system by the end of FY 2004. We will also increase the number of State and Local Government Securities transactions processed electronically to 75% during the same period. To ensure that all transactions continue to be conducted securely, we will work closely with the Financial Management Service on the Pay.Gov authentication initiative, which we use for customer validation. We will also increase customer access by expanding the hours that electronic services are available. By the end of the first quarter of FY 2004, we will add four hours of availability to the weekday electronic services window for both marketable securities and H/HH savings bonds customers. We will continue to use technology to improve offerings to customers and will maintain a technical infrastructure that provides sufficient capacity and processing capability to meet customer service performance objectives, as well as expectations of security, reliability, and timeliness. These measures will help ensure that our current objectives of issuing 99.95 percent of over-the-counter savings bonds within three weeks, and completing 90 percent of customer service transactions within 13-days are not only maintained, but exceeded, by the end of FY 2004. Cultivate a values-based work environment that respects all employees. For the past several years, Public Debt has dedicated significant executive level attention to creating a “values-based” organization. The values we have emphasized include: Individual Respect, Information Sharing, Integrity, Informality, and Inclusion. We believe that dedicating resources to this effort is of significant importance. Such values are consistent with creating a pleasant and comfortable work environment, where employees can be productive and responsive to our customers. This in turn has helped improve the efficiency of Public Debt. We also believe this focus contributes to maximizing the retention rate of employees. Our low turnover rate has reduced training and other administrative costs associated with hiring new employees, and has allowed the Bureau to develop a highly productive and knowledgeable workforce. Our plans call for continuing this effort in FY 2004 and beyond. We will monitor our effectiveness in achieving this objective through an annual employee satisfaction survey. Maintain a safe work environment. Public Debt will continue to make maintaining a safe work environment a major priority in FY 2004. We will continue to dedicate resources to employee training emphasizing work place safety, identifying and eliminating “un-safe” work areas, and working in partnership with the National Treasury Employee's Union to ensure this message is disseminated to all employees. Our objectives are to reduce and ultimately eliminate work-related incidents and iflnesses, reduce workers’ compensation claims, and reduce lost-work day case rates. BPD-3 *** we sº-wr- 2/3/03 § Bureau of the Public Debt, Administering the Public Debt |RELATIONSHIPBETWEENTHESTRATEGICPLANAND THE ANNUAL PERFORMANCE PLAN Treasury Strategic Goal Manage the Federal Government’s Accounts Bureau Strategic Goal * * Effectively Finance Government Operations Fulfill Customer Expectations Bureau Performance Goal linked to Strategie Goal Borrow what is necessary to meet the monetary needs of the Government Minimize the cost of the Federal Government’s borrowing activities Provide mechanisms for participation by a wide range of investors in Treasury debt financing Provide accurate and timely public debt accounting information Protect investors through effective regulation of the government securities market Provide quality customer service and transaction processing for investors in Treasury securities Provide accurate and timely payments to investors in Treasury securities Provide quality administrative support to franchising customers Cost-Effectively Finance the Government's Operations I Effectively Finance Government Operations Fulfill Customer Expectations Borrow what is necessary to meet the monetary needs of the Government Minimize the cost of the Federal Government’s borrowing activities Provide mechanisms for participation by a wide range of investors in Treasury debt financing Provide accurate and timely public debt accounting information Protect investors through effective regulation of the government securities market - Provide quality customer service and transaction processing for investors in Treasury securities Provide accurate and timely payments to investors in Treasury securities Provide quality administrative support to franchising customers 2/3/03 BPD - 4 § ureau Of the Pubilc 2 …ar wrºtº Budget Authority, FTE, and Performance Measures by Budget Activity Budget Activity #1: Savings and Retirement Securities FY 1999 FY 2000 FY 2001 FY 2002 FY 2002 FY 2003 || FY 2004 Performance | Performance | Performance | Target | Performance | Target Proposed Budget Authority ($000s)........... $133,466 $137,166 $145,242 $144,561 $137,700 $141,273 || $122,482 Direct FTE................... © e & e º ºs e º 'º 1,063 1,044 1,056 1,056 1,056 1,020 875 Performance Goal A: Provide accurate and timely public debt accounting information. Performance Measure: 1. Receive unqualified audit opinions on the Schedule of Federal Debt and Loans Receivable. (S)* N/A N/A N/A N/A N/A N/A Unqualified Opinion Performance Goal B: Provide quality customer service and transaction processing for investors in Treasury securities. Performance Measures: 1a. Percentage of customer service transactions completed within four weeks. (CS)* 97.28% 97.63% 95.80% N/A N/A N/A N/A 1b. Percentage of customer service transactions completed within three weeks. (CS) N/A N/A N/A 90% 98.3% 90% N/A 1c. Percentage of customer service transactions completed within 13 business days. (CS) N/A N/A N/A N/A N/A N/A 90% 2. Percentage of over-the-counter savings bonds issued within three weeks. (CS) 99.75% 99.07% 99.97% 99.95% 99.95% 99.95% 99.95% 3. Percentage of customers rating their overall satisfaction as good or excellent. (CS) - N/A N/A N/A N/A N/A N/A 90% 6. Percentage of employees rating their job satisfaction level as “satisfied” or better. (O)* - N/A N/A N/A N/A N/A N/A 70% *-(S) Strategic measure, (CS) Customer Service measure, and (O) Operational measure 2/3/03 BPD – 5 § Bureau of the Public Debt, Administering the Public Debt [FY 2004 Proposed Performance Plan Explanation - Description of Budget Request: The table includes the budget request for dollars and FTE in FY 2004. This level of funding represents a decrease of $18,791,000, or 13.3 percent below the FY 2003 President’s budget level (excluding the imputed cost of the legislative proposal). This is comprised of $3,734,000 for maintaining current levels offset by $22,525,000 for various program changes. This level of funding for the Savings Securities activity will allow Public Debt to continue current operations and to meet the goals set forth in our strategic plan. We have changed some of the performance measures for this activity. We will reduce the period for completing savings bonds customer service transactions from three weeks (15 business days) to 13 business days, a reduction of nearly 40 percent from the FY 2003 standard. The Bureau will also introduce a strategic measure of receiving unqualified opinions on the Schedule of Federal Debt and Loans Receivable audits, as well as an operational measure on employee satisfaction. w While the Bureau has identified three small initiatives for this activity, which are currently our highest priorities, there are other important issues that we may need to address that could compete for resources in FY 2004. For example, one issue is the potential need to use resources for tribal litigation support. Numerous Indian tribes have filed lawsuits against the Government relating to its administration and management of tribal trust funds and property. Presently, 18 lawsuits have been filed, and we expect this number to rise. The Bureau has been, and will likely continue to be involved in this litigation. We are uncertain of the resources that will need to be directed in this area. FY 2004 circumstances may be such that we have no need to allocate resources toward this effort. On the other hand, it is possible, that significant resources will be required. |FY2003 Performance Plan - - | Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: Public Debt has set high standards of performance, consistently met them, and will continue to strive for excellence. Although there are no major changes planned for our performance measures in FY 2003, we are determining performance standards for our employee and customer satisfaction measures in FY 2004. 2/3/03 - BPD – 6 § Bureau of the Public Debt, Administering the Public Debt Budget Authority, FTE, and Performance Measures by Budget Activity Budget Activity #2: Marketable and Special Purpose Securities FY 1999 FY 2000 FY 2001 FY FY 2002 FY 2004 Performance | Performance | Performance 2002 Performance Proposed T Performance Goal A: Provide accurate and timely public Performance Goal B: Borrow what is necessary to meet the Performance Goal C: Provide quality customer service and of Debt and Loans Receivable. in one 25 1c, Percent of auction two minutes 30 seconds. 1. I Program - * 100% 100% 100% 2. Process 99.9% of Government Investment Program 99.98% 99.99% 99.90% 3. Percentage Investment and - N/A N/A 2/3/03 - BPD – 7 § Bureau of the Public Debt, Administering the Public Debt FY 1999 FY 2000 FY 2001 FY FY 2002 FY FY 2004 Performance | Performance Performance | 2002 || Performance | 2003 Proposed • ‘ Target Target 4. Make 100% of TreasuryDirect interest and redemption payments timely. (O)* 100% 100% 100% 100% 100% 100% N/A 5. Make 99.9% of TreasuryDirect interest and redemption payments accurately. (O) 100% 100% 100% 99.9% 100% 99.9% N/A 6. Percentage of TreasuryDirect interest and redemptio - payments made timely and accurately. (O) - N/A N/A N/A N/A N/A N/A 100% 7. Percentage of Commercial Book Entry interest and redemption payments made timely and accurately. (O) 100% 100% 100% 100% 100% 100% 100% 8. Percentage of TreasuryDirect customer service transactions completed within three weeks. (CS) 98.32% 96.97% 99.70% 90% 99.70% 90% 90% 9. Percentage of customers rating their overall satisfaction as good or excellent. (CS) N/A N/A N/A N/A N/A N/A 90% 10. Percentage of employees rating their job satisfaction level as “satisfied” or above. (O) N/A N/A N/A N/A N/A N/A 70% * (S) Strategic measure, (CS) Customer Service measure, and (O) Operational measure |FY 2004 Proposed Performance Plan Explanation T Description of Budget Request: The table includes the budget request for dollars and FTE in FY 2004. This level of funding represents an increase of $1,370,000, or 2.5 percent above the FY 2003 President’s budget level (excluding the imputed cost of the legislative proposal). This is comprised of $1,245,000 for maintaining current levels (MCL) and $125,000 for various program changes. This level of funding for the Marketable and Special Purpose Securities activity will allow Public Debt to continue current operations and to meet the goals set forth in our strategic plan. We have changed some of the performance measures for this activity. The Bureau will further reduce auction processing time from 5 minutes plus or minus 60 seconds to 2 minutes plus or minus 30 seconds. This is a continuation of our efforts to reduce risks for auction participants and to further reduce borrowing costs. The Bureau will also introduce a strategic measure of receiving unqualified opinions on the Schedule of Federal Debt and Loans Receivable audits. Finally, we continue to “raise the bar” for our Federal Investment and TreasuryDirect interest 2/3/03 BPD – 8 5 Bureau of the Public Debt, Administering the Public Debt and redemption payments by setting a target of 100%. While the Bureau has identified two small initiatives for this activity, which are currently our highest priorities, there are other important issues that we may need to address that could compete for resources in FY 2004. For example, one issue is the potential need to use resources for tribal litigation support. Numerous Indian tribes have filed lawsuits against the Government relating to its administration and management of tribal trust funds and property. Presently, 18 lawsuits have been filed, and we expect this number to rise. The Bureau has been, and will likely continue to be involved in this litigation. We are uncertain of the resources that will need to be directed in this area. FY 2004 circumstances may be such that we have no need to allocate resources toward this effort. On the other hand, it is possible, that significant resources will be required. |FY 2003 Performance Plan - - | Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: One of our priorities is to provide Treasury with the capability to accomplish its debt financing at the lowest possible costs. To address that priority, we are expanding the use of marketing resources to increase the number of direct bidders in our auctions of government securities. This is a significant departure from past experience where marketing resources were used exclusively to promote the sale and retention of savings securities. In addition, we are reducing auction turnaround times to reduce risks for auction participants and to further reduce borrowing costs. In FY 2002, our standard for releasing auction results was 25 minutes. The standard is being reduced to 5 minutes + 60 seconds for FY 2003. 2/3/03 BPD - 9 § Bureau of the Public Debt, Administering the Public Debt BUREAU WIDE PERFORMANCE MEASURES. FY 1999 FY 2000 FY 2001 FY FY 2002 FY FY 2004 Performance | Performance Performance 2002 | Performance | 2003 | Proposed Target Target Performance Measures: 1. Percentage reduction in total work-related injuries and illnesses. N/A N/A N/A 15%. TBD 15% 15% (O)” 2. Percentage reduction in new workers compensations claims. (O) N/A N/A N/A 20% TBD 20% 20% 3. Lost work-day case rate. (O) N/A N/A N/A }5% TBD 15% 15% * (O) Operational Measure 2/3/03 BPD - 10 § Bureau of the Public Debt, Administering the Public Debt | Verification and Validation of Data and Performance Measurement Definitions Performance Data Quality: The Bureau of the Public Debt developed its performance measures after a thorough evaluation process on the part of senior bureau officials. Those selected are measurable, outcome-oriented and reflective of our strategic goals. Our measures are re- evaluated annually. Nearly all of our performance measures are derived from information contained in automated systems. These systems and the information contained in them are evaluated by staff in the responsible office, as well as program evaluation staff conducting periodic reviews. For Public Debt, the data quality for all of our measures is rated with having “Reasonable Accuracy”. Activity 1: Savings Securities Performance Goal A: Provide accurate and timely public debt accounting information. • Performance Measure 1: Receive unqualified audit opinions on the Schedule of Federal Debt and Loans Receivable. Definition: The responsibility to account for and report on Treasury financing through the Schedule of Federal Debt and Loans Receivable financial statements is a fundamental Public Debt mission. Our summary level accounting system and various subsidiary securities systems process billions of dollars in transactions daily. Verification and Validation of Data Quality: The audit report issued by the General Accounting Office will serve as the means to determine our performance in this measure. Data Accuracy: Reasonable accuracy. Performance Goal B: Provide quality customer service and transaction processing for investors in Treasury Securities. • Performance Measure 1: Percentage of customer service transactions completed within 13 business days. Definition: Savings bonds have been sold for more than 60 years. Our customer service goal is to provide timely customer service by completing 90 percent of customer transactions within 13 business days. These transactions include providing requested forms, 2/3/03 BPD - 11 à Bureau of the Public Debt, Administering the Public Debt information, and assistance; processing account changes; and reissuing savings bonds to reflect new ownership or to replace bonds that have been lost or stolen. For the convenience of our customers, we complete transactions by mail, telephone, fax, and/or email. Verification and Validation of Data Quality. Each Division in Public Debt’s Office of Investor Services has a workload or casefile tracking system which measures the length of time it takes to complete customer service transactions. Times are measured from the date such transactions are received to the date they are completed. Divisions prepare weekly reports which are recorded in a PC application that totals the data and generates an Office-wide report. This Office-wide report of the performance data could be generated monthly. Twice a year, the accuracy of system-generated data is cross-checked by manual counts. Data Accuracy: Reasonable accuracy. • Performance Measure 2: Percentage of over-the-counter savings bonds issued within three weeks. Definition: Our customers can purchase savings bonds directly from more than 40,000 financial institution locations throughout the United States. Our goal is to mail 99.95 percent of these over-the-counter bonds to customers within three weeks of purchase. Verification and Validation of Data Quality: Five Federal Reserve Banks process purchase orders for savings bonds. They use automated systems to measure the time it takes to complete purchase transactions. These systems count the number of days between the date a customer submits a purchase order and the date the bond is printed and mailed. Each Bank submits a monthly report to Public Debt where the information is reviewed and a summary report printed showing year-to-date performance. A Federal Reserve Bank Officer certifies the accuracy of the data submitted to Public Debt on a monthly basis. Data Accuracy: Reasonable accuracy. • Performance Measure 3: Percentage of customers rating their overall satisfaction as good or excellent. Definition: Our goal is to be determined in terms of customers rating Public Debt’s online services as excellent or good. These services include activities such as purchasing marketable securities and savings bonds, reviewing account information, and calculating the value of savings bonds. Customers rate the various services by completing online surveys on our website. Our goal is for 90 percent of customers to rate their overall satisfaction with savings bonds as excellent or good. Verification and Validation of Data Quality: We produce automated reports that summarize our customer's ratings of each online service and provide total satisfaction percentages for online services. These reports can be generated monthly. System generated totals are reviewed manually each month to ensure accuracy. Data Accuracy: Reasonable accuracy. 2/3/03 BPD - 12 5 of the Public Debt, Administering the Public Debt Performance Measure 4: Percentage of employees rating their job satisfaction level as “satisfied” or better. Definition: Our goal is to have 70% of employees rate their job satisfaction as “satisfied” or better. A 30-question survey was developed, using an Office of Personnel Management survey as a model, and will be administered to Public Debt employees electronically via the Internet. - Verification and Validation of Data Quality: A contracto" places the survey on their website and sends employees an email asking them to complete the survey. Each email contains a unique user identification code that prevents multiple survey responses from individual employees. The contractor’s commercial-off the-shelf software package summarizes employee's ratings and provides total job satisfaction percentages. Data Accuracy: Reason, ble accuracy. BPD - 13 Bureau 2/3/03 ã Bureau of the Public Debt, Administering the Public Debt Activity 2: Marketable Securities Performance Goal A: Provide accurate and timely public debt accounting information. Performance Measure 1: Receive unqualified audit opinions on the Schedule of Federal Debt and Loans Receivable. Definition: The responsibility to account for and report on Treasury financing through the Schedule of Federal Debt and Loans Receivable financial statements is a fundamental Public Debt mission. Our summary level accounting system and various subsidiary securities systems process billions of dollars in transactions daily. Verification and Validation of Data Quality. The audit report issued by the General Accounting Office will serve as the means to determine our performance in this measure. Data Accuracy: Reasonable accuracy. Performance Goal B: Borrow what is necessary to meet the monetary needs of Government. 2/3/03 Performance Measure 1: Percent of auction results released in two minutes + 30 seconds. Definition: Treasury securities are broadly distributed to all financial markets throughout the world. To maintain an efficient market for Treasury securities and to minimize uncertainty in these markets, it is crucial that our securities auctions be completed and the results announced as quickly as possible. Our goal is to announce auction results within two minutes + 30 seconds of close of the auction 95 percent of the time. Verification and Validation of Data Quality. For every auction performance is measured from the auction close to the time the results are available on the financial wire services. Both the auction close time and posting times are validated against the US Naval Observatory Master Clock. Data Accuracy: Reasonable accuracy. BPD - 14. Bureau of the Public Debt, Administering the Public Debt Performance Goal C: Provide quality customer service and transaction processing for investors in Treasury securities. 2/3/03 Performance Measure 1: Percentage of Federal Investment Program transactions processed timely and accurately. Definition: Federal Program Agencies contact us daily to request investments and redemptions for more than 200 trust and deposit funds that participate in the Federal Government Securities Investment Program. The Office of Public Debt Accounting currently receives requests via fax transmission from agencies. Our goal is to process 100 percent of Federal Investment Program transactions timely and accurately. - - Verification and Validation of Data Quality: Quarterly production reports presenting timeliness of transactions are prepared. However, these reports could be prepared on a monthly basis, if necessary. To ensure validity and verify the data, production reports from InvestOne are reconciled to agency reporting. Data Accuracy: Reasonable Accuracy. Performance Measure 2: Percentage of TreasuryDirect interest and redemption payments made timely and accurately. . Definition: Our customers invest in Treasury securities with the expectation that the U. S. Government will make payments when due. Timely payments bolster investor confidence and ensure that Treasury securities remain an attractive investment option. As custodians of our TreasuryDirect customers’ investments, it is our job to correctly calculate and deliver payments to them. Virtually all of our payments are calculated automatically by our automated systems. Our goal is to make 100 percent of TreasuryDirect interest and redemption payments accurately and timely. Verification and Validation of Data Quality: Automated controls and reports are in place to ensure prompt payment processing. Payment processing schedules are prepared for each payment and compared to system-generated reports. Each payment is audited and the results are validated to various expected results from system-generated reports. An internal tracking system ensures payment accuracy and overall calculations are validated by accounting controls. Automated reports for determining prompt payment and accuracy are available immediately after a payment is processed. Data Accuracy: Reasonable accuracy. - Performance Measure 3: Percentage of Commercial Book Entry interest and redemption payments made timely and accurately. Definition: More than $3 trillion of the public debt outstanding is maintained in accounts on the Commercial Book-Entry system. The operations and computer systems that comprise the commercial book-entry system annually make interest and redemption - BPD - 15 -P- ON ~l § Bureau of the Public Debt, Administering the Public Debt payments totaling approximately $2.3 trillion. Account owners expect and rely on receiving their payments when they are due. Our goal is to ensure that Treasury makes 100 percent of the payments timely. Verification and Validation of Data Quality. Our summary public debt accounting system detects late payments and independently verifies the accuracy of these payments by comparing expected payments with those actually made and reported by the National Book Entry System. Discrepancies would indicate late or inaccurate payments. The reports for determining prompt interest and redemption payments as well as the reports for determining accuracy can be generated monthly. Data Accuracy: Reasonable accuracy. • Performance Measure 4: Percentage of TreasuryDirect customer service transactions completed within three weeks. Definition: We are responsible for providing quality customer service to approximately 500,000 Treasury Direct investors who have purchased Treasury bills, notes and bonds. Investor transaction requests vary from straightforward account changes to complex changes in ownership. Public Debt's goal is to complete 100 percent of all customer service transactions within three weeks of receipt. Verification and Validation of Data Quality: Data for this measure is captured by the Bureau’s Automated Tracking System, which enables us to track inquiries from the time of receipt until a response is sent to the investor. The system provides reports which allow us to determine the turnaround times achieved. These reports can be generated on a monthly basis. The Bureau performs periodic reviews to ensure that the location of the physical records are consistent with the reported location of the records in the Tracking System. Data Accuracy: Reasonable Accuracy. • Performance Measure 5: Percentage of customers rating their overall satisfaction as good or excellent. Definition: Our goal is to be determined in terms of customers rating Public Debt’s online services as excellent or good. These services include activities such as purchasing marketable and savings securities, reviewing account information, and calculating the value of savings securities. Customers rate the various services by completing online surveys on our website. Our goal is for 90 percent of customers to rate their overall satisfaction with marketable securities as excellent or good. Verification and Validation of Data Quality: We produce automated reports that summarize our customers’ ratings of each online service and provide total satisfaction percentages for online services. These reports can be generated monthly. System generated totals are reviewed manually each month to ensure accuracy. Our goal is for customers to rate their overall satisfaction with marketable securities Data Accuracy: Reasonable accuracy. 2/3/03 BPD - 16 § Lºui vau UI Liiv L uu Liv L’vu u > 1 xuir tº ~~~~ • Performance Measure 6: Percentage of employees rating their job satisfaction level as “satisfied” or better. Definition: Our goal is to have 70% of employees rate their job satisfaction as “satisfied” or better. A 30-question survey was developed, using an Office of Personnel Management survey as a model, and will be administered to Public Debt employees electronically via the Internet. Verification and Validation of Data Quality: A contractor places the survey on their website and sends employees an email asking them to complete the survey. Each email contains a unique user identification code that prevents multiple survey responses from individual employees. The contractor’s commercial-off-the-shelf software package summarizes employee’s ratings and provides total job satisfaction percentages. Data Accuracy: Reasonable accuracy. 2/3/03 BPD - 17 s Bureau of The Public Debt, Administering the Public Debt |Verification and Validation of Data and Performance Measurement Definitions for Health & Safety Measures | • Performance Measure: Percent reduction in total work-related injuries and illness rate Definition: The Secretary has established a goal of zero injuries and illnesses as a result of working at Treasury. To reach to this goal each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is calculated as the total number of OSHA reportable cases times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, in which Treasury’s total case rate was 3.63. Verification and Validation of Data Quality: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers' Compensation Program (OWCP) at the Department of Labor (DOL). Incidents missing from SHIMS for which COP and /or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audit findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. - • Performance Measure: Reduction in number of new workers compensations claims accepted by the Office of Workers’ Compensation Programs (OWCP) 2/3/03 Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. Verification and Validation of Data Quality: Data for this measure are captured through the Safety and Health Information Management System (SHIMS). The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted to OWCP. Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating. Data Accuracy: Reasonable Accuracy. BPD-18 § Bureau of The Public Debt, Salaries and Expenses • Performance Measure: Percent reduction in lost work-day case rates 2/3/03 Definition: The goal is a lost-time case-rate of zero. To reach to this goal each bureau is expected to reduce its lost-time case-rate annually. The lost-time case rate is calculated as the total number of OSHA reportable cases involving lost-time times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost-time cases per one hundred employees. The base year for the reduction is FY 2001, in which Treasury's lost-time case rate was 1.75. Verification and Validation of Data Quality: Data for this measure is captured in the Safety and Health Information Management System and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. Each quarter a statistically representative sample of SHIMS records are selected and the data input is audited for completeness, accuracy and timeliness. The Office of Safety, Health and Environment reviews audits findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy. BPD-19 § INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS VOLUME 1 – FY 2004 BUDGET REQUEST Volume 1–FY2004 BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET REQUEST EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Appropriation Summary Explanations of Fiscal Year 2004 Requested Changes by Appropriation SUPPORTING MATERIAL Detail of Full-Time Equivalent Staff Years by Category Detail of Full-Time Equivalent Staff Years by Grade Explanation of Proposed Fiscal Year 2003 Operating Budget Standard Classification Schedule: Direct Obligations Appropriation Language 2/3/03 SD-1 ...SD-11 SD-11 SD-12 SD-13 § IT ©Weilüe Se 3. FY 2004 Congressional Budget Justification Strategic Context RRA 98, STRATEGIC GOALS, AND PROGRESS TO DATE S ince RRA 98 was enacted, the IRS has made much progress toward reaching its strategic goals of: => Top quality service to each taxpayer in every interaction. => Top quality service to all taxpayers through fair and uniform application of the law. => Productivity through a quality work environment. Examples of that progress include: Skyrocketing use of E-filing and taxpayer use of the IRS Web site; Improved quality of telephone responses; Increased public confidence in the agency; Stabilization of some compliance activities; Reorganization of the agency along customer segments; Reduction of management layers; Implementation of balanced performance measures; A clean audit opinion on financial statements; and, Simplified forms and regulations. The IRS is proud of these achievements, but much work remains to be done. 2/3/03 - IRS, SD-1 § Internal 1 nue Service, Summary Description WORK THAT REMAINS n general, the IRS is still not providing service at a level that taxpayers expect or deserve nor is the agency ensuring that everyone is complying with the tax law and paying what they owe. The remaining deficiencies at the IRS cannot be fixed in one, two, or even five years. Thus, the FY 2004 request reflects an annual need that is developed in the context of a long-term plan. In the past year, the IRS has made further progress in our strategic planning process, which is designed to make the best possible allocation of limited resources in achieving our strategic goals. In particular, the IRS Chief Financial Officer and Research Office working with the business units has succeeded in quantifying the universe of work required for the IRS’s essential tax administration programs. For each category of compliance, the universe includes only those cases that the IRS has sufficient data to know with reasonable certainty that taxes have been underpaid by a sufficiently significant amount to justify working the case. By comparing this universe to the work currently done, it is possible to compute the gap in units of work and the resources in FTE and budget dollars required to close the gap with our current technology and work processes. In addition, the direct revenue gap from failing to perform this work can also be estimated. This data is a key tool in understanding the ultimate target level of work required of the IRS and in prioritizing the near term allocation of resources. What this analysis shows is that there is a very large universe of work, comprising millions of cases and tens of billions of dollars of lost revenue per year that the IRS should be working to administer the tax laws effectively but is not able to work with current resources, technology and work processes. Furthermore, this gap will increase every year because of growth in the economy if action is not taken to reverse the trend of the past ten years that has created this gap. This gap has already undermined the fairness of the tax system and the attitude of compliant taxpayers toward their obligation to pay taxes. If not addressed, the entire tax system is at risk. In preparing the FY 2004 budget, the IRS senior management team used this data along with all other material presented in our strategic assessment to systematically prioritize use of resources for the FY 2004 budget. 2/3/03 IRS, SD-2 § THE MODERNIZATION PLAN T. long-term plan for modernizing the IRS is based on four essential components: => Reinvestment of base resources to higher priority programs. => Appropriate staffing. => Short-term IT investments (Tier B projects) that improve service and productivity. => Long-term IT investments (BSM) that improve service and productivity and provide the data and security infrastructure for all future systems. These components are interdependent and each is crucial to the reform of the IRS. For example, without the base investment in Tier B projects, shorter-term productivity gains cannot be fully realized and efforts to reinvest on-board staff will not occur. Based on this strategy and modernization plan, the IRS will be able to deliver in FY 2004 performance improvement that is much greater than the 1% growth in staffing requested in the budget. Chart 1, on the next page, shows that the growth in resources in the key tax administration programs where there is a current gap in performance will be 5.2%, 5.8 times the growth in the total staff. T This is possible because of the reinvestments made possible from modernization. In addition, the other essential IRS programs, such as submissions processing, correspondence and taxpayer accounting, will need to absorb the normal increase in workload of 1.8% per year with level or decreased TCSOUTCCS. 2/3/03 IRS, SD-3 ; Internal enue Service, Summary Description - Chart 1 Key Tax Administration Programs Increase at 5.8 Times the Overall Increase in IRS Resources FY 2004 T axpayer of Known Tax Debts Field Collection 4.0% Phone Collection 13.5% 4.2% and Collection of Tax from Non-Filers of Income Document 1 10.4% & Collection of Field Exam 5.3% Exam - - - 4.1% 4.9% 5.2% Total 0.9% Ratio of Increases in to Total - 5.8 * These initiatives increase net compliance resources by reducing the need to detail Compliance staff to Customer Service during the Filing Season. TOTAL OF KEY PROGRAMIS 2/3/03 IRS, SD-4 § How IRS modernization Increases Productivity RS investments in modernization through the Business Systems Modernization program and related Tier B project investment enable the IRS to It productivity in four distinct ways: • Cost reduction. By automating and eliminating work and thereby freeing up FTE for higher valued work. This method occurs chiefly in “back office” operations such as submission processing. Projects that enable the increase in electronic filing increase productivity in this 1Tºn CT. • Cost avoidance. By enabling more work to be done without proportionately increasing FTE or operational costs. This occurs when operations are converted to taxpayer self-service, such as with Customer Communications and Internet Refund Fact of Filing (IRFOF) automated refund inquiry. It also occurs when IRS employees are enabled to handle more cases or to complete cases with higher accuracy—e.g. CRM exam and Customer Communications call routing. • Burden ion. By reducing burden on the taxpayer, the cost of the tax system is reduced. Taxpayers spend in time and money more than eight times the IRS budget to comply with the tax system. Modernization can reduce this burden by making it easier to comply. Examples include Electronic Federal Tax Payment System (EFTPS) Internet service and E-Services Electronic Account Resolution. Another example: Customer Account Data Engine (CADE) will also reduce the taxpayer burden in lost interest by speeding up refunds. • Increased tax collection. By improving the speed and effectiveness of tax collection activities. Examples include Filing and Payment Compliance BSM project which will cut tax collection time for overdue accounts from years to months, and the Tier B Unreported Income DIF project which will identify exam cases more accurately that contain unreported income. In the Tax Administration Vision and Strategy (TAVS) and Enterprise architecture, these overall effects from the modernization program were estimated in broad ranges. From these estimates, the IRS developed its overall modernization strategy of four essential components – BSM and tier B investment projects, reinvestment of base resources to higher priority programs and modest sustained growth in staff. As each BSM or Tier B project proceeds through the life cycle, a specific business case computing these benefits is estimated and re-estimated. Each year in the IRS strategic planning process, the effect of these productivity enhancements is reflected in the resources allotments through the DRIPs and in performance measures included in program plans for each PAC within each operating unit. Impact of Unforeseen Costs on Staffing Levels he IRS has made progress in Tier B (e.g., e-filing projects), BSM (e.g., Customer Communications 2001 project, Customer Relations Management-Examination, and Internet Refund Fact of Filing (IRFOF), and reinvestment of on-board staff(e.g., reducing the number of compliance staff diverted to filing season details, thereby increasing staff for compliance and reducing submission processing costs). 2/3/03 IRS, SD-5 : Internal >nue Service, Summary Description However, it has not been able to sustain an appropriate staffing level. Although increases in staffinghave been supported in recent President's Budgets, that intent has not occurred, because of unexpected cost increases. The table below presents the consistent overestimate of FTE in each President’s Budget since FY 2000. - * - IRS Dollar Budget Has Consistently Under-funded Advertised Staffing Level (FullTime Equivalent(FTE) Personnel without EITC) FY 2000 President's Budget 95,767 FY 2001 President’s Budget 95,523 98,051 FY 2002 President’s Budget 95,155 97,273 99,116 - FY 2003 President's Budget 95,511 97,548 98,727 FY 2004 President's Budget 96,714 96,802 97,049 For FY 2003, the President supported a level of performance by the IRS that produced a need for 98,727 FTE. As the table above shows, the total FTE for FY 2003 is currently expected to be 96,802. This is 1,925 FTE less than the President’s Request. This reduction is driven by several budget changes highlighted below. It must be noted that the IRS Operations Budget consists of 71% salaries and benefits for staff. Therefore, any major negative changes in the agency’s financial posture in any fiscal year will have a negative effect on staffing levels, despite efforts to reduce non-labor COSts. => Unfunded increase in the FY 2002 annual pay raise cost $43 million from the President’s request of 3.6% to the enacted level of 4.6%. => Legislative savings for postage and FMS levy assumed in the budget, but not enacted cost $23 million. == Postage increase above initial budget projections cost $22 million. => Unfunded increase in security cost $20 million. The total for all budget changes amounted to $170 million. These are examples of what drove projected FY 2003 FTE down below the President’s Request by 1,925. To put the staffing problem in even greater perspective over time, the current FY 2003 FTE projection is 1,249 FTE less than what was requested in the President’s Budget for FY 2001. It is also important to note that another unfounded pay increase in FY 2003 could total up to $69 million. This would further reduce the IRS staff level by an estimated 700 FTE. These reductions in staff levels directly affect the IRS ability to deliver on performance projections included in the FY 2003 budget request. 2/3/03 - IRS, SD-6 § FY 2004 BUDGET REQUEST-HIGHLIGHTS efore summarizing the budget request itself, several Highlights for FY 2004 are milestones in the management of the IRS and, therefore, are important to discuss. First, the budget includes reinvestment of staff and funding associated with the partial closing of two submissions processing pipelines and the complete closing of a third. This will occur because of e-filing and the continued decline in paper filings by taxpayers. This is the first-ever closing of submissions processing pipelines. . Second, the budget reflects a “no-real-growth” policy from FY 2003 through FY 2004 for the Information Systems budget, while at the same time bringing major improvements in level of service. Almost $64 million will be redirected due to network reengineering and reduction of contractor support costs for end users and computer centers to fund higher precedence Modernization projects. This will include support for the transition of modernized business systems releases including e-Services, Customer Account Data Engine, and Custodial Account Processing. We will redirect over $7 million to expand Virtual Private Network (VPN) service to LMSB agents at taxpayer sites. Moreover, in FY 2004, IRS will allocate $15M to the development and deployment of the Registered User Portal. During this same period, IRS is increasing mainframe volume by 49%, to: (1) support the needs of the modernization project releases listed above; (2) provide increased support for the Integrated Collection System (ICS) Centralization; (3) further growth in existing databases; (4) permit migration to a new operating system; (5) provide increased support for weekend processing at Service Centers; and (6) provide increased compatibility for development and unit testing. In addition, for the first time MITS now has performance measures for the major IT programs. Because of concerns in ensuring taxpayers pay their fair share of the tax burden, our budget request includes $133 million, and 1,700 FTE in increased funding needs to enhance compliance particularly for high risk, high-income taxpayers and businesses and abusive schemes. This funding will provide resources across all major compliance programs. In addition to increases in Field Examination and Field Collection, program increases are included for ACS and major Service Center compliance programs. Funds will also be used to increase exam capacity for flow-through entities and corporate transactions. And, to enhance customer service while increasing compliance, $1 million, and 10 FTE are requested to reduce filing season details for compliance staff. OMB stated, in their Program Assessment Rating Tool (PART), that the EITC initiative established in 1998 to reduce the high EITC erroneous payments rate was ineffective. While the current EITC initiative prevents roughly $1 billion in erroneous payments annually, it fails to reduce the EITC noncompliance rate to acceptable levels. Consequently, $100 miliion in our budget request will be used to carry out an integrated approach to enhancing EITC administration. This approach, suggested by the Department of Treasury EITC Task Force, concludes that further information must be provided to the IRS by EITC claimants in order to validate eligibility before payment. A major portion of the request will be used to invest in suitable information technology and develop business processes. The remaining funds will be used to begin certification proposals by identifying and certifying a specific group of claimants. OMB also stated, in their PART assessment of Collections, that IRS does not work enough collection cases with its current resources, work processes, and technology to ensure fair tax enforcement. To improve this performance, the President’s Budget proposes legislation to allow the IRS to use Private Collection Agencies to support IRS in specific, limited areas. The IRS resource limits and collection priorities do not permit the IRS to 2/3/03 IRS, SD-7 # Internal. 2nue Service, Summary Description continually pursue all outstanding tax liabilities. Many taxpayers with outstanding liabilities, such as those who have filed a balance-due return but have not paid the tax due, clearly are aware of their tax liabilities but have chosen not to pay them. The use of private collection agencies (PCAs) to support IRS collection efforts would enable the Government to obtain payment from these taxpayers and allow the IRS to focus its own enforcement resources on more complex cases. PCAs would not have any enforcement power, and they would be strictly prohibited from threatening enforcement action or violating any taxpayer confidentiality protection or other taxpayer right. The IRS would be required to closely monitor PCA activities and performance, including the protection of taxpayer rights. PCAs would be compensated out of the revenue collected through the PCAs activities, although compensation would be based on quality of service, taxpayer satisfaction, and case resolution, in addition to collection results. FY 2004 BUDGET REQUEST – SUMMARY T: total net program increase in the IRS FY 2004 request is $288 million and 888 FTE. The total in the FY 2004 budget that will be devoted to enhancing programs is $454 million and 3,033 FTE. The difference of $166 million and 2,145 FTE are the reinvestments that the IRS would make from its base resources. In addition to this program increase, $267 M is needed to maintain current levels of operation. The Reapplications and added resources requested are best presented in six categories: Mining and Reinvestment of Mined Resources, Compliance and Customer Service Enhancements, Counterterrorism, Modernization, the EITC Reform Initiative, and Maintenance of Current Levels of Performance and Non-Recurs. Mining and Reinvestment of Mined Resources ($0M and -1,496 FTE): Reengineering Actions (-$166M and -2,145 FTE) Compliance Reinvestments (+$34M and +274 FTE) Customer Service Reinvestments (+$30 M and 363 FTE) Internal Services and Support Reinvestments (+$44M and +12 FTE) Employee Satisfaction Reinvestments (+$6M) Service-wide (+$52 M) Compliance and Customer Service Enhancements (+$134M and +1,710 FTE) Counterterrorism (+$6M and +24 FTE) Modernization Investments (+$49M) EITC Reform Initiative ($100M and 650 FTE) 2/3/03 IRS, SD-8 & Maintenance of Current Levels of Performance and Non-Recurs (+$232M): • Labor and Benefits (+$226M) • Non-Labor Inflation (+$41M) • Non-Recur of Health Insurance Tax Credit Administration (-$35M) A Tining and Reinvestment of Mined Resources. In FY 2004, the IRS will be able to mine $166 million and 2,145 FTE from current "... programs in the form of internal productivity growth and MITS internal productivity gains. The total high priority needs identified through the IRS strategic planning process ($454 million) can be offset to yield a net operational need of only $134 million and 1,710 FTE to meet high priority compliance and customer service needs. Mined Resources. Reengineering projects in Examination, Collection and Compliance Support together with Offers in Compromise Centralization will yield $26 million and 394 FTE. Two reengineering projects to reduce contractor support costs in end user services and reengineering personnel services support will yield an extra $25 million and 222 FTE. Another $23 million will be realized by reducing low value efforts in Computer Centers. In addition, the IRS has chosen to absorb labor cost increases resulting from required within-grade increases and career promotions. All of these and other mined resources from other reengineering projects will be reapplied to higher priority areas. Reinvestment of Mined Resources. The service expects to reapply resources resulting from base mining to offset 91 percent of the staff increases projected in compliance and customer service. Over $64 million will be reapplied to compliance and customer service. For example, $11 million will be used to hire 184 staff to improve telephone service to SBSE taxpayers. Other reapplications address needs in internal services and support. $10 million will be used to replace Tier II hardware in support of modernization efforts. An additional $15 million will provide outsourced operations for registered users and employee portals. ompliance and Customer Service Enhancements. Our budget request includes $134 million and 1,710 FTE in increased funding needs to enhance compliance and customer service. Examples of enhanced compliance proposals include the ABLE initiative that will provide $67 million and 887 FTE across all major compliance programs and leverage new workload selection systems and case building approaches from on-going reengineering efforts. In addition to increases in Field Examination and Field Collection, program increases are included for ACS and major Service Center compliance programs. $24 million and 258 FTE will also be used to increase exam capacity for flow-through entities and corporate transactions. Also among the proposals will be $1 million and 10 FTE devoted to reducing filing season details for compliance staff. ounterterrorism. The IRS is heavily involved in the fight against both global and domestic terrorism. Demand for the financial investigative skills of Criminal Investigation special agents remains high. They are not only involved in the Joint Terrorism Task Force efforts to investigate the September 11, 2001 attacks but in deterring future attack. Since September 11, 2001, Criminal Investigation has expended nearly 206 FTE of its direct investigative time (DIT) on counterterrorism related activities. This is substantially above the FY 2003 funding of 42 FTE for this purpose. To allow more resources to be placed on counterterrorism functions, IRS requests added resources of 24 FTE and $6 million. 2/3/03 IRS, SD-9 ; Internal 1 nue Service, Summary Description service to our customers. Near-term improvements include a secure self-service Internet product for taxpayers to check refund status and fact-of-filing. Another secure Internet product will provide tax practitioners, taxpayers, state tax representatives, and the Department of Education with the ability to perform electronic taxpayer account resolution, TIN matching, transcript delivery, and disclosure authorization. Additional improvements will be seen in faster refund processing and authoritative account data for selected Form 1040 taxpayers. Internal IRS improvements will include initial releases of a fully integrated human resources system bringing improved position management, internal recruitment, and personnel actions. Further internal improvements will come from the initial releases of an integrated financial management system that will provide a new Core Financial System. This system will comply with requirements of the Joint Financial Management Improvement Program. In the long-term, more accurate and timely data on hand to assistors, more customer friendly collection capabilities and faster refund processing will enhance customer service. To accomplish the above, funding of $49 million is requested for Business Systems Modernization. M: The Business Systems Modernization program will continue as our most important investment necessary to improve aintenance of Current Levels of Performance and Non-Recurs. The IRS is a labor-intensive organization. To maintain current operations, protect the integrity of the filing season, oversee tax administration programs, and continue business systems modernization, the IRS must have the resources to pay for the increased costs associated with statutory pay and other required increases. Any funding reductions will result in reducing the FTE devoted to providing customer service and compliance activities and reduce performance in essential areas. Consequently, the IRS is requesting $267 million to fund the estimated cost of non-pay inflation and statutory pay and benefit increases. Without this funding, the IRS would need to reduce over 4,300 FTE in customer service and compliance functions. In addition, $35 million is being non-recurred from the FY 2003 base for Health Insurance Tax Credit Administration. The amount requested in the FY 2003 budget amendment ($70 million) will be used to provide software, hardware, and contract services to develop the system mandated by Public Law. After development, operation and maintenance costs will be needed on an annual basis. 2/3/03 IRS, SD-10 : Analysis of FY 2003 President's BUDGET LEVEL FY2003 President's Budget FY2003. A __ Proposed Adjustments (++-): Reprogramming (FTE only, except for inter-appropriation transfers) FY 2003 Adjusted President's Budget Level, Plus/Minus Transfers DiGest of Fiscal YEAR 2004 budget estimates BY ACTIVITY Memorandum. Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY 2002: $465,606M; FY2003: $502.535M; FY2004: $536,456M. "The FY2003 total for this appropriation does not includes 70Minuser fees. *The FY2004 total for this appropriation does not includes?0Minuser fees. Amount —Hº- —ººl- 101,080 $9,915,853 0 0. 1. o - 99,155 $9,915,853 IRS, SD-11 2/3/03 # Internal enue Service, Summary Description SUMMARY EXPLANATIONS OF FISCALYEAR2004 REQUESTED CHANGES BY APPROPRIATION (Dollars in Thousands) 1) 2) Customer Service 3) Counterterrorism Business Modernization EITC Task Force Initiative CHANGES: Labor Annualiztion Labor and Benefits Non-Labor Costs Non-Recur 2/3/03 IRS, SD-12 # DETAIL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Statutory executive positions Policy/program professional staff 71,721 Secretarial and clerical 9,525 Crafts and custodial 2/3/03 IRS, SD-13 # enue Service, Summary Description Executive Level 1 Executive Level 2 - Executive Level 3 - Executive Level4 Executive 5 Senior Executive Ser Senior Executive S Senior Executive Senior Executive St Senior Executive Service I E GS-06 GS-05 GS-04 GS-03_ GS-02 I DETAIL OFFULL-TIME EQUIVALENT STAFFYEARS BY GRADE 10 24 n 9,095 2,397 º 59 IRS, SD-14 Internal 2/3/03 & - _Blººl_ _487,862. 17,300L o IRS, SD-1: 2/3/03 % Internal. enue Service, Summary Description standard-classification schedule Direct 2/3/03 IRS, SD-16 & DEPARTMENT OF TREASURY INTERNAL REVENUE SERVICE Administrative Provisions The Committees on Appropriations have recommended approval of the following administrative provisions for the Internal Revenue Service: Section 101. Not to exceed 5% of any appropriation made available in this Act to the Internal Revenue Service may be transferred to any other Internal Revenue Service appropriation fifteen days after notification of the Committees of Appropriations Section 102. The Internal Revenue Service shall maintain a training program to ensure that Internal Revenue Service employees are trained in taxpayers’ rights, in dealing courteously with the taxpayers, and in cross-cultural relations. Section 103. The Internal Revenue Service shall institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information. Section 104. Funds made available by this or any other Act to the Internal Revenue Service shall be available for improved facilities and increased manpower to provide sufficient and effective 1-800 help line service for taxpayers. The Commissionershall continue to make the improvements of the Internal Revenue Service 1-800 help line service a priority and allocate resources necessary to increase phone lines and staff to improve the Internal Revenue Service 1-800 help line service. 2/3/03 IRS, SD-1’ § INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS PROCESSING ASSISTANCE, AND MANAGEMENT APPROPRIATION EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity PAM-1 PAM-1 Summary Explanations of Fiscal Year 2004 Requested Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases PAM-2 PAM-3 Appropriation Overview PAM-5 Budget Authority, FTE and Performance Measures: Pre-Filing Taxpayer Assistance and Education Budget Authority, FTE and Performance Measures: Filing and Account Services Management Budget Authority, FTE and Performance Measures: Shared Services Support Budget Authority, FTE and Performance Measures: General Management and Administration SUPPORTING MATERIAL 2/3/03 Detail of Full-Time Equivalent Staff Years by Category Detail of Full-Time Equivalent Staff Years by Grade Explanation of Proposed Fiscal Year 2003 Operating Budget Explanation of Congressional Action Standard Classification Schedule: Direct Obligations Appropriation Language PAM-16 PAM-19 PAM-23 PAM-26 PAM-27 PAM-28 PAM-29 PAM-30 PAM-31 , PAM-32 § ANALYsis or FY2003 PRESIDENT's BUDGet LEVEL FY2003 President's Budget-------------------------------------------- FY2003. A -- Proposed Adjustments (+/-): Reprogramming (FTE only, except for Inter-appropriation transfers) FY2003 Adjusted President's Budget Level, Plus/Minus Transfers DIGEST OF FISCALYEAR2004 BUDGet Estimates BY Activity Memorandum: Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY2002: $172,091M; FY2003: $19149M; FY20045204,416M. "The FY2003 total for this appropriation does not includes 40Minuser fees. *The FY2004 total for this appropriation does not includeş29Minuser fees. 2/3/03 IRS, PAM-1 § Internal R nue Service, Processing, Assistance, and Management SUMMARY EXPLANATIONS OF FISCALYEAR2004 REQUESTED CHANGES BY ACTIVITY (Dollars in Thousands) CHANGES: Customer Service Counterterrorism Business T of Service Services and Satisfaction CHANGES: to 1) Labor Annualiztion Labor and Benefits 2/3/03 IRS, PAM-2 : Internal Revenue Service, Processing, Assistance, TTWTTTägement T EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004 funding requirements for the Processing, Assistance and Management (PAM) Appropriation are projected to be $4,074,694,000. Total increases of $196,358,000 are offset by $80,001,000 in reductions, resulting in a net increase of $116,357,000 over the FY 2003 operating level of $3,958,337,000. In addition, there is a total net decrease of 839 FTE as compared with the FY 2003 staffing level. PROGRAM CHANGES Total Requested Program Changes.. tº º tº gº © tº e º O C & © tº 9 º' tº e º 'º e g º ºs e g tº tº gº tº • - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -+$10,704,000/-839 FTE 1. Reengineering............................ • a ſº e º e º O & e º 'º e º 'º e º e º e a g º e º ſº tº º º is º e º e º e s tº 6 e º ºs e º 'º e º e º 'o e º º ºs e º 'º e º 'º e º e º e º e s a e º e º is a s e g º e º ºs e s e º 'º e g c e g-$80,001,000/-1,427 FTE 2. Reinvestment of Freed-up Resources.... * @ & © tº º e º e º 'º º º w ºf * .......+$67,899,000/+453 FTE The IRS is reinvesting freed-up resources to fund PAM components of initiatives in the following areas: a) Compliance (+$4,346,000/+78 FTE) b) Customer Service (+$28,905,000/+363 FTE) c) Internal Services and Support (+$11,228,000/+12 FTE) d) Employee Satisfaction (+$6,000,000 / 0 FTE) e) Servicewide (+$17,420,000 / 0 FTE) 3. Additional Funding Needs.......................... • * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * e e s q ºn e º e º e º ſº e g c e º e e s sº e s a dº e º e s tº e º e e º e º ºs+$22,806,000/+135 FTE a) Compliance (+$21,766,000/+125 FTE) Of this amount, $10.9M will be applied to directly support new programs to restore compliance activities. The remainder of the funding, $10.9M, are Corporate Expenses for rent, media and publications, space and housing, and other expenses categories located in the PAM appropriation. These Corporate Expenses are related to programs to support compliance in other appropriations. - b) Customer Service (+$696,000/+10 FTE) This amount provides Customer Service by reducing filing season details of Compliance staff. c) Counterterrorism (+$344,000 / 0 FTE) This funding provides Corporate Expenses to provide international and domestic anti-terrorism activities. 2/3/03 IRS, PAM-3 § Internal 1 nue Service, Processing, Assistance, and Management OTHER CHANGES +$105,653,000 / 0 FTE Total Requested Other Changes.............. & © & 0 & 0 & 2 a g º º s º is a tº tº e º 'º e º O & © e º sº º e tº a º ºs e º 'º º 1. Adjustments Necessary to Maintain Current Levels e tº e º 'º tº º ſº tº e º G & º ºs º dº e g g g º e º sº e º gº e & gº & ºtº+$105,653,000 / 0 FTE a) Labor Annualization (+$21,019,000) b) Labor MCLs (+$62,504,000) c) Non-Labor MCLs (+$22,130,000) 2/3/03 IRS, PAM-4 § Internal Revenue Service, Processing Assistance, and Māmāgement APPROPRIATION OVERVIEW The Processing, Assistance, and Management (PAM) appropriation handles all functions related to processing tax returns, including both manual and electronic submissions, and provides assistance and education to taxpayers to enable them to file accurate returns. The PAM appropriation issues refunds, maintains taxpayer accounts, and provides tax law assistance that includes tax law interpretation and rulings and agreements related to tax law issues. This appropriation is responsible for IRS personnel, facilities, and procurement services. - The IRS will continue to focus on pre-filing services and is requesting funding for taxpayer communication and education and to ensure that all taxpayers comply with tax laws and assume their fair share of the tax burden. Funding is being requested for resources to warn taxpayers of abusive tax schemes and improve compliance by preventing fraud and abuse. The Service is redirecting funding to enhance customer service by reengineering processes to complement new technology and to develop an outreach strategy for the Child Tax Credit. The Service is reinvesting resources for filing and account services by providing funding for field assistance to reduce filing season details of compliance staff, funding the Business Master File workload increase, improving telephone level of service to taxpayers, and updating processes to complement technology. • * - As part of the shared services program, the IRS will reinvest resources in new training and training delivery methods to develop and to improve expert consultative skills. This effort will significantly improve administrative and resource management decisions that will enhance delivery of compliance initiatives. Additional resource reinvestments will be used to defer rent annualization costs (based on partial year costs extrapolated annually for approved FY 2003 space expansion projects) to fulfill the IRS' operational mission objectives. Shared services will implement HR Connect, the integrated Human Resources Management System over the next two years. This system will seamlessly link multiple Human Resource applications that should result in significant program efficiencies while achieving operational resource savings. 2/3/03 - IRS, PAM " # Internal. enue Service, Processing, Assistance, and Management DESCRIPTION OF BUDGET REQUESTABOVE CURRENT SERVICES The IRS request is derived from careful analysis and prioritization performed in the Strategic Planning, Budgeting and Performance Management Process. This process forces IRS operating units to scrutinize base resources and search for the most efficient allocation of these resources. Through a myriad of efficiency improvements, technology modernization and laborsaving initiatives, the IRS is able to redirect resources which it will reapply to other higher-priority areas of IRS. The detailed description of both reengineering and additional needs is described below. REENGINEERING In FY 2004 the IRS will be able to reengineer $80.0 million and 1,427 FTE from internal productivity growth in the PAM appropriation. These mined resources will be reinvested to fund other IRS priorities. The reengineered projects and programs are as follows: > Efficiency Savings in Personnel Services (-$14.6M/-222 FTE) Reengineering will be achieved through reengineering and productivity improvement actions in our Personnel Services Organization. We will be participating in numerous competitive sourcing assessments in Personnel, affecting several program areas, which will result in a significant reduction of staffing. Additionally, Personnel will be restructuring to align program areas with customer demand that will achieve productivity improvements that result in less resource requirements. Finally, a major automation initiative, HR Connect, a Human Resources Management System, will be implemented and achieve resource efficiencies through integrated personnel systems. > Remittance Transaction Research (RTR) and Information Returns Processing Productivity Improvements (-$13.9M/-320 FTE) The RTR system is an on-line researchable database containing Service Center deposit information (data only) processed by the Integrated Submission and Remittance Processing system (ISRP). The goal of this reengineering project is to expand RTR to provide a central repository of all payment documents (payment data and images) processed by both ISRP and the Lockbox banks. The enhanced RTR system will be expanded to include the Integrated Collection System (ICS), Error Resolution System, Unpostables, and Accounts Management System. RTR will improve accuracy of posting payments and assist with resolving missing and misapplied payments. This will benefit both Submissions Processing and Accounts Management employees who deal with payment-related inquiries via telephone or correspondence. Reengineering is based on the elimination of paper payment documents that would discontinue the process offiling, pulling, and re-filing these documents. Examples of projected reengineering areas include: Lockbox Tape Handling—Shipping and Receiving, Accounting, Error Resolution System, Unpostables, Files, Receipt & Control, Printing & Binding, and Payment Document Storage - Cycle Control Unit and Central Files Control. The new scanning technology using Bar Code applications for Tax Forms 1065 and 1120S will automate manual processes and improve the quality and accuracy of paper return processing. 2/3/03 - IRS, PAM-6 § - Internal Revenue Service, Processing, Assistance, and Management > Reengineering of FTE from Rulings and Agreements to Examination (-$12.5M/-132 FTE) Revenue Agents were detailed from Examination to handle an increase in Employee Plan Rulings and Agreements as a result of tax law changes. Now that these rulings and agreements have been processed, the Revenue Agents will return to their normal examination duties. > Absorb Servicewide Within-Grade Increases and Promotions (-$9.8M/-744 FTE) The IRs will have to find within-grade increases and promotions from existing resources. - - > Improve Submissions Processing Center Efficiency (-$6.9M/-203 FºE) IRS will refine the strategy for the decline of paper returns processing as electronic file projection milestones are met by improving efficiercy in all processing centers. We will be identifying specific areas where potential reengineering can be achieved. Processing will be reviewed for efficiency through standardization, streamlined policies and procedures, and elimination of unnecessary steps. This will require workflow re-iews and contractor funding to assist in targeting the most likely areas for immediate and long-term improvement. Although actual reenginee, ng has not been identified yet, we anticipate gain efficiencies in the range of 2 percent. Based on the FY 2003 FTE of 2003, we project a potential reengineering of 203 FTE and $6.9 million in salaries in FY 2004. The increased efficiencies identified in the centers will positively impact our Submission Processing Productivity measure. > Increase Productivity in Adjustments & EIN (-$6.9M/-121 FTE) The implementation of the Internet Employer Identification Number (EIN) project will give employers the ability to apply for and receive an EIN on-line through secured access. This paperless environment is anticipated to yield a reengineering of 100 FTE in FY 2004 based on the expectation of two million EIN requests processed electronically. In addition, the Accounts Management program expects to generate a reengineering of 21 FTE in SB/SE due to a one percent productivity gain in Adjustments work. > Electronic Filing (-$6.6M/-163 FTE) The IRS initiative to increase electronic filing will continue to have a significant impact on Wage & Investment (W&I) Submission Processing centers as Individual Master File (IMF) paper volumes decline. We anticipate reengineering of FTE and salaries from the decreased staffing required to process paper returns in the submissions processing centers. Applicable areas in which reengineering will be realized include receiving, sorting, batching, numbering, code and edit, data entry and Error Resolution System sections. IMF paper return volumes will decrease per year as shown below based on June 2002 projections because of the increase in e-filing. Total - e Year Individual Total E-File E-file % of Total Paper Return Paper Volume Reduction from Previous R Returns Volume Year eturns 2002 132.0 M 46 M 35% 86.0 M –4.6M 2003 132.5 M 54 M 41% 78.5 M –7.5 M 2004 134.5 M 60 M 45% 74.5 M –4.0 M 2/3/03 IRS, PAM T § Internal 1 nue Service, Processing, Assistance, and Management > Corporate Expenses (~$3.3M/0 FTE) Mined reengineered resources are from overhead accounts (rent, space and housing, and media and publications) that are located in the PAM appropriation. The activities that they support are funded from other appropriations. > e-Services Savings (-$3.0M/-75 FTE) e-Services is an automation initiative that includes the Transcript Delivery System (TDS) and enhancements to electronic filing for Electronic Return Originators (EROs). TDS will provide an automated on-line environment that replaces a manual process to allow practitioners and service employees to request transcripts of accounts. The ELF Application Registration provides an online application environment for EROs. Efficiencies implemented because of the Paper Return Processing Cost Reduction segment of e- Services will result in Submission Processing clerical cost reengineering. This will free up Submission Processing employees for other critical processing activities. In addition, e-Services support the President’s Management Plan to Expand Electronic Government. Reengineering is based on the elimination of manual processing activities for transcripts and ELF applications that are currently completed by seasonal employees. Those employees will be reassigned to filing season duties that will positively impact our Submission Processing Productivity measure. X- Embedded Quality Enhancement (-$2.5M/-47 FTE) A strategy has been developed to direct effort toward process improvement. Included in the strategy is an Embedded Quality initiative in Accounts Management. Currently, a taxpayer account quality sample size is determined through the Statistics of Income (SOI) volume of work. With continued enhancements and the rollout of Embedded Quality, the sample size will be determined by the projected quality rate, independent of the volume of work. Consequently, we anticipate a reduction to the sample size requirement as quality improves. Because we anticipate that our quality rate for 2004 will be roughly 90%, we will require about 65% less of a sample. This reduction in sample size will generate projected FTE and support reengineering. REINVESTMENT OF FREED-UPRESOURCES The reengineered funds from this appropriation ($80.0 million and 1,427 FTE) will be reinvested to fund higher-priority programs both within this appropriation and in other IRS appropriations. Of that amount, $67.9 million and 453 FTE will be reapplied within PAM These needs are detailed below: 1. Compliance Strategies ($4.0M / 78 FTE): > Cost of Business Master File (BMF) Workload Increases ($2.6%. 6°FTE) Submission Processing personnel process paper and electronic returns, tax payments and refunds by a staff focused on issues relºv... to SB/SE taxpayers. These activities require a base level of funding to provide timely processing of SB/SE tax returns and other reporting documents within established quality timeframes. The FTE and resource reengineering generated from the Submission Processing program (Reinittance Transaction Research–RTR-system and 2-D Bar Coding project) will be reinvested to fund increased BMF workload in the S3/"E organization. This reinvestment will realign existing staff resources within Submission Processing to meet increased FTE requirements res. Iting from unfunded legislative changes, additional BMF return growth, and loss of productivity given the high volume of BMF processing rela ed to the transition of the Individual Master File (IMF) and BMF 2/3/03 IRS, PAM-8 s Internal Revenue Service, Processing, Assistance, and Management workload. The reinvestment of the “mined” resources realized as a result of improved systemic capabilities to other critical manual processes within Submission Processing, will enable SB/SE to meet workload demands and provide quality customer service. > Enhance Tax Compliance Through Published Guidance ($0.5M/5 FTE) Counsel will enhance voluntary tax compliance by expanding its Published Guidance program and utilizing advance case resolution techniques that complement IRS enforcement efforts. In FY 2003, Counsel strategy will shift toward increasing Revenue Rulings and other Published Guidance and away from Private Letter Rulings as a principal means of clarifying legal issues for taxpayers and avoiding disputes. Field Service Advisories, Technical Assistance Memoranda, and certain other written products, currently classified as legal advice, will also be reclassified as Published Guidance and released to the public. These actions will consolidate Published Guidance into a single program area, ensuring consistent, comprehensive guidance available to taxpayers and their representatives. Counsel’s FY 2004 Published Guidance program will focus on abusive tax shelters and schemes. (This program is funded primarily in the Tax Law Enforcement appropriation.) - - > Attract/Retain High-Quality Attorneys ($0.5M/0 FTE) The quality of legal advice is directly related to the quality of the education, training, and experience of the attorneys who provide it. Attorney recruitment and retention is one of Counsel’s four Major Strategies for FY 2004 and is the single most critical factor in attaining performance objectives. Professional training and other support resources are an integral component of employee satisfaction, especially for attorneys. Since the government is limited in the direct financial incentives it can use to attract and retain highly qualified attorneys, non-monetary incentives are an essential element of successful retention. Ensuring that attorneys are well prepared as legal professionals and legal managers will benefit retention by encouraging talented attorneys to stay with the Counsel organization. (This program is funded primarily in the Tax Law Enforcement appropriation.) > Increase of Legal Support to IRS Units ($0.4M/4 FTE) One of Counsel’s critical core missions is to provide accurate and timely legal advice to all IRS units. This includes tax-related legal advice at the pre-filing stage of a matter. In FY 2003 and FY 2004, attorneys in the Division Counsel offices will spend more of their time providing legal advice to their Operating Division clients. Legal advice will continue to grow in FY 2004 as the relationships mature between Division Counsel and their clients, and Counsel assumes an increasingly active role in a wide range of client matters. The IRS will continue to generate significant need for legal advice in its day-to-day operations. IRS Operating Divisions will increasingly rely on Counsel to participate in training activities and initiatives, especially those concerning new compliance strategies highlighted in the Strategic Assessments. (This program is funded primarily in the Tax Law Enforcement appropriation.) 2. Customer Service ($28.8M/363 FTE): > Reduce Filing Season Details of Compliance Staff ($12.2M/154 FTE) Customer expectations for services tailored to specific needs are continuously increasing. W&I’s goal is to provide service to each and service to all taxpayers through a quality work environment. W&I will accomplish this by determining customer needs and values, identifying whether current or innovative methods are working, and providing education and assistance. To do this, however, additional staffing is needed to reach the authorized staffing level as outlined in the footprint design. Field Assistance has significant voids in authorized staffing plans that impact W&I in providing enhanced services to its taxpayers. In order to perform these functions staffing has been diverted to the Field Assistance operations from SB/SE. The continuing drain on SB/SE 2/3/03 IRS, PAM # Internal enue Service, Processing, Assistance, and Management resources adversely affects compliance closures and causes taxpayers to suffer increased delay in resolving their issues. Diverting the 154 FTE from SB/SE would result in an estimated reduction of 4,930 returns closed by Revenue Agents and 12,100 returns closed by Tax Compliance Officers. The diversion of resources from SB/SE significantly impacts these key performance measures, but more importantly, adversely affects taxpayers wanting to resolve their compliance issue. Field Assistance is currently concentrating on providing core services to the customer, specifically work that only IRS and/or Field Assistance can accomplish. Our short-term plans include reducing return preparation and assuming compliance workload. Beginning in FY 2003, we plan to conduct limited scope examinations and collection work involving W&I taxpayers. Staffing shortfalls will reduce services at Taxpayer Assistance Centers (TACs), limit the amount of compliance work to be assumed, and require continued reliance on SB/SE Support resources. Obtaining resources in Field Assistance to adequately staff all of our TACs is essential to providing quality service to W&I taxpayers. The SB/SE personnel detailed to Field Assistance cannot effectively deal with the issues that need to be addressed in a TAC because it is different than their normal job. When they work in a TAC they take longer to resolve issues and potentially provide a lower quality of service. Often this dictates additional assistance from Field Assistance employees to resolve customer issues. Replacing the details with permanent staffing will result in a higher skilled Field Assistance workforce, fully trained and capable of performing within our mission-driven scope of services. > Improve Telephone Service to Small Business/Self-Employed Taxpayers ($10.9M/184 FTE) Accounts Management assists taxpayers with a diverse range of issues, including some customized services, provided by a staff focused on issues relevant to the SB/SE community. These activities require a base level of funding to provide quality services and to meet the needs of all SB/SE taxpayers. The Customer Account Services (CAS) Accounts Management organization within SB/SE is, of course, only able to deliver a level of customer service commensurate with the number of FTE available. At a minimum, the FTE and resource reengineering generated from increased productivity in Accounts Management (Adjustments and Internet EIN) will be reinvested within Accounts Management to maintain its existing level of service to SB/SE taxpayers. The total FY 2004 funding request is essential to meet increased FTE requirements resulting from increased Adjustment volumes, higher-than-expected participation in the Employer Identification Number (EIN) program, and loss of productivity due to shifting employees from Individual Master File (IMF) to Business Master File (BMF) functions. The reinvestment of the “mined” resources realized from productivity gains and systemic improvements is critical for SB/SE to deliver services beyond FY 2003 levels as well as maintain basic levels of customer service. > Reengineer Processes to Complement Technology ($3.1M/0 FTE) Business processes must be reengineered, as new technology is being developed to maximize delivery of business operations and improve service. Technological advances are being made within the Service at an increasing rate. As this happens, we face the increasing challenge of reengineering processes to complement and maximize the capabilities of the new technology. Delivery of new systems requires existing business processes to be redesigned. Systems delivered must meet our needs to improve service to our customers and allow employees to provide high-quality service. We must position ourselves to proactively reengineer business processes that support the strategic vision of the organization and influence the development of our technology solutions. 2/3/03 IRS, PAM-10 3. Internal Revenue Service, Processing ASSIstance, TTNTTagement This initiative focuses on an approach to integrate new technological capabilities with current business systems. Additional resources are required to ensure that technology improvements and business process reengineering efforts align with the direction the organization must take to effectively service Wage & Investment (W&I) customers and are sequenced according to business strategy priorities. This initiative will serve to enhance the Joint Operations Center (JOC) Contractor Support system. The JOC uses contractors to provide service, support, and technology for contact centers in W&I, SB/SE, Tax Exempt/Government Entities (TEGE), Taxpayer Advocate and Criminal Investigation. For example, the JOCASPECT system answers and tracks all Taxpayer Advocate calls. This information is provided to the Taxpayer Advocate. IRS is reapplying $3.138M for contractor support in the JOC for the development and implementation of new initiatives. This funding represents requirements to support the base contract, increased requirements on the Enterprise Telephone Database, support to the Notice Gatekeeper, Intelligent Contact Monitoring and Automated Call Distributor (ACD) programming and scripting for the Compliance telephone systems. > SPEC Outreach Strategy for Child Tax Credit ($2.6M/25 FTE) Customer expectations for services tailored to specific needs are continuously increasing. W&I’s goal is to provide service to each and service to all taxpayers through a quality work environment. W&I will accomplish this by determining customer needs and values, identifying whether current or innovative methods are working, and providing education and assistance. In addition, legislation enacted for tax year 2001 removes the requirement that limited qualification for the Additional Child Tax Credit (ACTC) to persons with three or more qualifying children. This legislation is forecasted to increase the number of taxpayers eligible to receive the Additional Child Tax Credit by 8 million (1 million in 2000 vs. 9 million in 2001). Stakeholder, Partnership, Education and Communication (SPEC) has been tasked with developing an outreach strategy for the Child Tax Credit and assisting Taxpayer Education and Communication in their compliance efforts relating to outreach about tax schemes. Per advice from Counsel, the Service has no statutory requirement to notify individual taxpayers about unclaimed/under-claimed statutory credits. However, the Service has committed to TIGTA, the IRS Advisory Group and practitioner and professional groups that IRS would notify taxpayers about their potential eligibility for ACTC after the filing season. 3. Internal Services and Support ($11.2M/ 12 FTE): > Rent Annualization ($7.6M/0 FTE) This request is for funding to annualize rent costs in the base that are a result of approved acquisitions expected to occur during FY 2003. The expansion of the Service's space holdings are a result of new programs and expiring leases with higher market comparable rent rates that will cause a partial-year increase in rent requirements in FY 2003 and a full-year increase in FY 2004. > Increase Training of AWSS Personnel and Support HR Connect ($3.6M/12 FTE) AWSS customers rely on AWSS expert consulting services to make important administrative decisions and to manage their resources. Additional training and new training delivery methods will improve AWSS ability to meet customers’ requirements. This will be evident in: • A highly trained Real Estate and Facilities Management workforce enabling Business Units to realize improvements in the areas of quality workspace environments, safer work areas, and more secure offices for both Taxpayers and employees; © . the established measures included in the Memorandum of Understanding (MOU) and to better utilize the resources available to 2/3/03 IRS, PAMſ 3. § Internal 2nue Service, Processing, Assistance, and Management • Improvement of response times to customer inquiries in activities such as the Employee Resource Center (ERC); • Streamlining processes such as reducing the cycle time for filling positions; improving personnel regulatory compliance, and, reducing customer complaints regarding quality of information and services; and • Reduction in the number of EEO complaints filed by providing Alternate Dispute Resolution training to our staff as well as the embedded EEO staffs. The Department of Treasury has mandated the modernization and streamlining of Human Resources processes. To achieve standardization and interoperability, HR Connect has been selected as the system to implement. HR Connect is an IRS-wide integrated Personnel system that links several applications into a seamless platform to efficiently perform several Personnel functions. This funding request is to acquire, implement and maintain HR-Connect. This will impact both Personnel Services and the Operating Units using the system. 4. Employee Satisfaction ($6.0M 10 FTE) > Increased Cost of Enterprise Performance Awards (NTEU Contract) The Service will increase funding for performance awards for both Bargaining Unit and Non-Bargaining Unit employees in FY 2004 under a negotiated agreement. s.serviewide sizamuartel > Meet Increased Servicewide Labor Costs ($17.4M/0 FTE) These increased labor costs will be funded from mined resources. Increasing costs of WIGs and promotions have consistently exceeded the cost reengineering associated with attrition, creating a labor shortfall. This has forced the IRS to cut FTE to ensure that WIGs and promotions have adequate funding. There are two drivers behind these increasing labor costs: Career Ladder Promotions and Within-Grade Increases. Career Ladder promotions are an external driver of labor costs because they are required by OPM regulation. The IRS is required to promote employees until they reach their full working level in the GS scale, GS 12 or 13 in many professional job series. Career Ladder (C/L) promotions are generally given to employees at the beginning of their career; therefore, the cost of career ladder promotions will increase as hiring increases. Within-Grade Increases (WIGs) capture the cost associated with increasing an employee's step on the GS scale. WIGs, like Career Ladder Promotions, are mandated by OPM regulations. Therefore, timely payment of WIGs is a requirement. Delaying WIG payments is not a management option. The number of WIGs will increase slightly over the next couple of years, paralleling increases in hiring. The increasing number of WIGs will lead to a higher cost for WIGs. - 6. Corporate Expenses ($0.5M 10 FTE) > Resources freed up through reengineering will be reinvested to fund overhead (rent, media and publications, space and housing, and other expenses) of compliance and customer service activities that are primarily funded from other appropriations. 2/3/03 IRS, PAM-12 f 3. # ADDITIONAL ING NEEDS An additional $22.8M and 135 FTE are needed to enhance compliance improve customer service. These requests are as follows: 1 mpli tegies ($10.2M / 125 FTE): . > Resources to Warn Taxpayers of Abusive Tax Schemes ($10.2M/125 FTE) Funding for this initiative will permit Taxpayer Education and Communication (TEC) personnel to develop a strategy to combat abusive flow-throughs, tax shelters, trust filers, slavery reparation scams, and the participants and promoters of these fraudulent tax practices. This will bring an appropriate level of education and outreach to these areas and will balance planned compliance and enforcement activities. In addition, funding this program will increase the level of service and products that promote voluntary compliance within the SB/SE community. The addition of these FTE will allow TEC to directly and indirectly reach over 8 million taxpayers. TEC will also further develope-filing/e-payment options, increasing the number of SB/SE returns filed and payments made via electronic means. Additionally, TEC will focus more resources on coordinating all burden reduction initiatives throughout SB/SE. . Customer Service ($0. 10 > Reduce Filing Season Details of Compliance Staff ($0.7M/10 FTE) Customer expectations for services tailored to specific needs are continuously increasing. W&I’s goal is to provide service to each and service to all taxpayers through a quality work environment. W&I will accomplish this by determining customer needs and values, identifying whether current or innovative methods are working, and providing education and assistance. To do this, however, additional staffing is needed to reach the authorized staffing level as outlined in the footprint design. Field Assistance has significant voids in authorized staffing plans that impact W&I in providing enhanced services to its taxpayers. In order to perform these functions staffing has been diverted to the Field Assistance operations from SB/SE. The continuing drain on SB/SE resources adversely affects compliance closures and causes taxpayers to suffer increased delay in resolving their issues. The diversion of resources from SB/SE significantly impacts key performance measures, but more importantly, adversely affects taxpayers wanting to resolve their compliance issue. Field Assistance is currently concentrating on providing core services to the customer, specifically work that only IRS and/or Field Assistance can accomplish. Our short-term plans include reducing return preparation and assuming compliance workload. Beginning in FY 2003, we plan to conduct limited scope examinations and collection work involving W&Itaxpayers. Staffing shortfalls will reduce services at Taxpayer Assistance Centers (TACs), limit the amount of compliance work to be assumed, and require continued reliance on SB/SE support resources. Obtaining resources in Field Assistance to adequately staff all of our TACs is essential to providing quality service to W&Itaxpayers. The SB/SE personnel detailed to Field Assistance cannot effectively deal with the issues that need to be addressed in a TAC because it is different than their normal job. When they work in a TAC they take longer to resolve issues and potentially provide a lower quality of service. Often this 2/3/03 IRS, PAM "" É Internal enue Service, Processing, Assistance, and Management dictates additional assistance from Field Assistance employees to resolve customer issues. Replacing the details with permanent staffing will result in a higher skilled Field Assistance workforce, fully trained and capable of performing within our mission-driven scope of services. 3. Corporate Expenses ($11.9M / 0 FTE > Additional resources needed to fund the overhead (rent, media and publications, space and housing, and other expenses) portion of compliance, customer service, and counterterrorism activities that are funded primarily from other appropriations. 2/3/03 IRS, PAM-14 É erºzłł KeVerlul © Budget Activity 21; Pre-Filing Taxpayer Assistance & Education; Functions: This activity provides services to a taxpayer before a return is filed, to assist in filing a correct return. Programs include: • Pre-Filing Services Management to manage pre-filing, taxpayer assistance and education programs; • Tax law Interpretation and Published Guidance to interpret the tax law through published guidance, technical advice and other technical legal services; • Taxpayer Communication and Education to research customer needs, prepare tax forms and publications, develop and manage educational programs, establish partnerships with stakeholder groups and disseminate tax information to taxpayers and the general public through a variety of media including publications and mailings, web sites, broadcasting, and advertising; • Media and Publications to develop understandable notices, produce forms and publications for printed and electronic tax materials, and to supply media production services to taxpayers; • Rulings and Agreements for application of the tax law to specific taxpayers in the form of pre-filing agreements, determination letters, advance pricing agreements and other pre-filing determinations and advice; • Electronic Tax Administration to market electronic tax administration products and services; and • Taxpayer Advocacy to ensure that taxpayers have an advocate to prevent future problems by identifying the underlying causes of taxpayer problems and participating in the development of systemic and/or procedural remedies. Note: The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. - 2/3/03 º IRS, PAM # 2nue Service, Processing, Assistance, and Management IRS, PAM-16 Internal. 2/3/03 % Internal Revenue Service, Processing, Assistance, and Management Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table Direct FTE 4,179 Performance Goal: The IRS will access to assistance and 1. Number of assisted 2. 3. APAS and Performance Measures Number of assisted Total 'FY2002 count includes media contacts. 2/3/03 4,061 4,065 their tax return, IRS, PAM" " # Internal enue Service, Processing, Assistance, and Management Budget Activity 22: Filing and Account Services Functions: This activity supports services to a taxpayer in the process offiling returns and paying taxes, and includes the issuance of refunds and maintenance of taxpayer accounts. Programs include: Filing and Account Services Management to manage filing and account services in the program; Submission Processing that processes paper and electronically submitted tax returns and supplemental documents, accounts for tax revenues, and issues refunds and tax notices; Account Management and Assistance-Electronic/Correspondence Assistance to furnish assistance, education and compliance services to taxpayers through telephone, correspondence and electronic means and to resolve account and notice inquiries, either electronically or by telephone; - Account Management and Assistance-Field Assistance for face-to-face assistance, education and compliance services to taxpayers such as preparing returns, answering tax questions, resolving account and notice inquiries and supplying forms and publications; and Information Reporting to process information documents that enables the IRS to match this information with that provided by taxpayers on their returns. Note: The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. 2/3/03 IRS, PAM-18 # IRS, PAM “ 2/3/03 # Internal enue Service, Processing, Assistance, and Management r— Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table 2/3/03 FY2000 | FY2001 - FY2002 FY2003 FY 2004 Performance Measures 4- - I -, -ºº ºdº - . . . ºº - I - . . . . . . . - | Performance Performance i Target IPerformance. Target Proposed Budget Authority ($000s) $1,598,832 || $1,657,342 $1,587,477 $1,612,326 $1,656,745 Direct FTE 31,140 31,123 32,039 31,137 30,543 Performance Goal: Improve the quality of the service provided to taxpayers in filing their tax returns. 7. Individual 1040 returns (paper) (thousands) 92,319 90,586 86,000 84,740 79,000 75,000 (W) - 8. Business returns (paper) (thousands) (W) 36,690 33,883 34,080 37,126 34,000 33,000 9. Individual 1040 returns (electronic) 35,365 40,222 46,000 46,785 54,000 60,000 (thousands) (W) 10. Total primary electronic returns (thousands) 38,585 46,483 52,251 53,026 61,000 67,600 11. Total primary returns filed (thousands) (W) 167,594 170,952 172,331 174,892 174,000 175,600 12. Percent of individual returns filed 28% 31% 35% 36% 41% 44% electronically (S) 13. Information returns filed electronically 219,739 330,239 | 474,700 376,063 TBD TBD (thousands) (W) - 14. Information returns filed electronically (%) 17% 22% 34% 26% TBD TBD 15. IRS Digital Daily hits (billions) (W) 1.56 2.60 3.00 3.11 4.00 4.70 16. Customer account correspondence (O) 16,749,967 19,184,321 | 18,386,660 22,525,594 22,600,000 23,200,000 17. Teletax and toll-free automated calls 49,700 76,117 75,000 63,796 50,000 50,000 (thousands) (W) 18. Assistor calls answered (thousands) (O) 32,300 32,091 33,750 30,525 33,700 35,000 19. Toll-free customer satisfaction (% satisfied) 58% 59% N/A 56% 56% 57% O % dissatisfied) (W) 2% 2% N/A 2% 2% 2% 20, Toll-free level of service (O) 59.0% 56.4% 71.5% 68.0% 72.0% 73.0% IRS, PAM-20 : TY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures . Performance Performance Target | Performance Target Proposed 21. Toll-free tax law quality (O) 73% 76% 78% 81% 86%” 88%? 22. Toll-free account quality (O) 60% 70% 72% 74% 77% TBD 23. Customer satisfaction (walk-in) (% 91% 90% N/A 86% 88% 88% satisfied) (O) (% dissatisfied) (W) 6% 6% N/A 8% 7% 7% 24. Total returns prepared (W) 1,092,691 1,009,390 984,000 886,797 737,000 589,000 25. Payment received electronically 63,380 64,366 67,438 66,029 66,200 67,100 (thousands) (O) - 26. IRS Digital Daily downloads (millions) 149 317 473 438 496 579 ) 27. Tax law contacts (W) N/A 1,787,338 N/A 1,843,000 1,900,000 2,000,000 | 28. Customer accounts correspondence 78% 79% 85% 75% 79% TBD quality (O) 29. Accounts contacts (W) N/A 3,000,000° N/A 3,110,000 3,300,000 3,600,000 30. Toll-free tax law accuracy (O) N/A N/A N/A N/A 87% 89% 31. Toll-free accounts accuracy (O) N/A N/A N/A N/A 9.1% 93% 2 Represents W&I performance. Previous years include SB/SE performance. Estimate. 2/3/03 IRs, PAM - É Internal enue Service, Processing, Assistance, and Management Budget Activity 24: Shared Services Support Functions: This activity provides administrative services to all IRS employees agency-wide. Programs include: • Facilities Services for services and Supplies required to manage IRS facilities; - Personnel includes human resource programs of recruitment, labor and employee relations, workforce planning and evaluation, performance management, employee benefits, personnel security and transaction processing; Procurement to support the purchasing function of the IRS; EEO Field Operations for planning and managing the IRS EEO aud Diversity Program; Rent for IRS building space occupancy needs; Space and Housing/Non-ADP Equipment to manage all IRS building services, maintenance, space alterations, guard services, custodial overtime, utility services needs and non-ADP equipment; • Customer Support plans and manages financial services including relocation, travel, Imprest Fund, Purchase Cards, Corporate Express and employee clearance; • Treasury Complaint Centers to provide staffing, training, and direct support to plan and manage the Treasury Complaint Centers; Shared Support not provided by AWSS for shared cross-functional support not provided by AWSS, such as copiers, postage meters, shredders, courier services, Post Office Boxes, etc.; • Shared Services not in Rent or Space and Housing/Non-ADP Equipment to provide for more detailed tracking of those costs. Notes: 1. The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. 2/3/03 IRS, PAM-22 # IRS, PAM tº 2/3/03 # Internal enue Service, Processing, Assistance, and Management Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures 700 10 1 IRS the nation's tax 75. Employee health and safety — lost N/A 0.98% 0.49% CaSC 2/3/03 IRS, PAM-24 # Budget Activity 25; General Management and Administration Functions: This activity includes resources for top-level management in the operating units, and at IRS headquarters, IRS-wide communication and liaison programs, legal services and special benefits programs. Programs include: Unit General Management & Administration to operate unit headquarters’ management activities of strategic planning, communications and liaison, finance, human resources, EEO and diversity, and business systems planning; . National HQ Management & Administration to provide leadership and direction for the IRS, help build partner relationships with key stakeholders and provide IRS policy guidance for conducting planning and budgeting strategies, analysis of programs and investments to support strategic decision making and development and management of the human resources required to fulfill the IRS' mission, including career management, leadership and organizational development, education and learning and official reception and representation expenses; Communications and Liaison to set strategic direction IRS-wide for Communications, Governmental Liaison and Disclosure, Legislative Affairs and Public Liaison, coordinate local government and liaison relationships and initiatives with the Operating Divisions, handle Congressional, State and National stakeholder relationships and issues, coordinate cross-cutting issues including managing audits and legislative implementation, handle National media contacts and local media relationships, collaborate with Operating Divisions, Functional Divisions and Chief Areas to develop marketing campaigns, messages and products, and handle Disclosure requests and assurance of IRS compliance with Disclosure and Privacy Laws; General Legal Services for advice to IRS on non-tax legal issues including procurement, personnel, labor relations, equal employment opportunity, fiscal law, tort claims and damages, ethics and conflicts of interest; and - Benefit Payments that fund Worker’s Compensation benefits and Unemployment Compensation payments. 1. The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. 2. This budget activity does not have any specific performance measures. The resources for this activity contribute to meeting the targets for measures reported in the Pre-Filing Taxpayer Assistance and Education; Filing and Account Services; and Compliance Services program activities. Notes: 2/3/03 IRS, PAM r" # Internal enue Service, Processing, Assistance, and Management Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures 435 451 Performance Goal: Provide and direction in the administration of the nation's tax laws. 2/3/03 IRS, PAM-26 º DETAL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Statutory executive positions Policy/program professional staff Secretarial and clerical Crafts and custodial IRS, PAM-77 2/3/03 : enue Service, Processing, Assistance, and Management DETAL OFFULL-TIMEEQUIVALENT STAFFYEARS BY GRADE Level 1 Level 2 Level 3 Executive Level4 Executive Level 5 Senior Executive Service Level 6 Senior Executive Service Level 5 Senior Executive Service Level4 Executive Service Level 3 Executive Service Level 2 Senior Executive Service Level 1 15 14 13 12 11 10 IRS, PAM-28 Internal 2/3/03 # Explanation or Proposºdrºw 2003 op-ratunc EuroGLI ---, IRS, PAM tº 2/3/03 § Internal enue Service, Processing, Assistance, and Management Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS YET NOT BEEN PASSED. FTE 000 FY 2003 President’s Budget Request 44,356 3,958,337 Amended FY 2003 President’s Budget Request 44,356 3,958,337 2/3/03 IRS, PAM-30 º standard-classification SCHEDULE Directobligations IRS, PAM-at 2/3/03 § Internal 2nue Service, Processing, Assistance, and Management DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Processing, Assistance, and Management For necessary expenses of the Internal Revenue Service for pre-filing taxpayer assistance and education, filing and account services, shared services support, general management and administration; and services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $4,074,694,000, of which up to $3,950,000 shall be for the Tax Counseling for the Elderly Program, of which $7,000,000 shall be available for low-income taxpayer clinic grants, and of which not to exceed $25,000 shall be for official reception and representation expenses. 2/3/03 IRS, PAM-32 § INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS TAX LAW ENFORCEMENT APPROPRIATION ExPLANATION OF FISCALYEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity TLE-1 TLE-1 Summary Explanations of Fiscal Year 2004 Requested Changes by Activity TLE-2 Explanation of Fiscal Year 2004 Budget Increases and Decreases TLE-3 Appropriation Overview TLE-5 Budget Authority, FTE and Performance Measures: Compliance Services TLE-19 Budget Authority, FTE and Performance Measures: Research and SOI TLE-23 SUPPORTING MATERIAL 2/3/03 Detail of Full-Time Equivalent Staff Years by Category TLE-25 Detail of Full-Time Equivalent Staff Years by Grade Explanation of Proposed Fiscal Year 2003 Operating Budget. Explanation of Congressional Action Standard Classification Schedule: Direct Obligations Appropriation Language TLE-26 TLE-27 TLE-28 TLE-29 TLE-30 § Internal Revenue Service, Tax Law Enforcement ANALYSIS OFFY 2003 PRESIDENT's BUDGETLEVEL amount —ººl- FY 2003 President's Budget------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 46,872 $3,729,072 ry 2003. A -- (s).......................-------------------------------------------------------------------------------------------------------------------------------------------------------------- 0. 0. Proposed Adjustments (+/-): Reprogramming (FTE only, except for inter-appropriation transfers) ſlº 0. FY2003 Adjusted President's Budget Level, Plus/Minus Transfers 45,531 $3,729,072 DIGEST of Fiscal Year 2004 BUDGet Estimates by activity and Memorandum: Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY2002: $243.91.M.; FY2003: $259,286M; FY2004: $276.788 M. *The FY2003 total for this appropriation does not include $1M in user fees. *The FY2004 total for this appropriation does notinclude $10M in user fees. 2/3/03 IRS, TLE-1 § CHANGES: Increases summary ExPLANATIONS OF FISCALYEAR2004 REQUESTED CHANGES BY ACTIVITY (Dellars lathousands) Customer Service EITC Task Force of l Customer Service Internal Services and Satisfaction CHANGES: to Maintain Current Levels: 1) Labor Annualiztion Labor and Benefits Costs Non-Recur IRS, TLE-2 erna 2/3/03 § Internal Revenue Service, Tax Law Enforcement EXPLANATION OF FISCAL YEAR 2003 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Tax Law Enforcement Appropriation are projected to be $3,976,641,000. Total increases of $277,654,000 are offset by reengineered resources of $40,085,000, resulting in a net increase of $247,569,000 over the FY 2003 operating level of $3,729,072,000. In addition, there is a net increase of 1,125 FTE over the FY 2003 staffing level. PROGRAM CHANGES Total Requested Program Changes ......... sy e tº gº tº e º e º 'º e º e º 'º e º e º e s & e e º ºs e º ºs e e º º sº tº e g º e º 'º º ºs e º e g º e º ºs º ºs ºs e e º ºs º e º e º g e º ºs e e e $127,330,000/+1,125 FTE The program changes requested in Tax Law Enforcement for FY 2004 will support the Service's goals of restoring Compliance activities and combating domestic and international terrorism. 1. Reengineering....................... tº e º ſº tº e º gº e º gº dº º ºs º ºs e º 'º e g g g is tº tº º * * * * * * * * * * .-$40,085,000/-670 FTE 2. Reinvestment of Freed-Up Resources * “...................................... +$57,587,000/+196 FTE The IRS is reinvesting freed-up resources to fund TLE components of initiatives in the following areas: a) Compliance (+$29,244,000/+ 196 FTE) b) Servicewide (+$28,343,000 / 0 FTE) 3. Additional Funding Needs • -----------. . . . . . . . . . . . . --------- .....+$109,828,000/+ 1,599 FTE a) Compliance (+$104,502,000/+ 1,575 FTE) Compliance & Workload Increases: Of the $133 million requested in FY 2004 for Compliance initiatives, $104.5 million is in the Tax Law and Enforcement Appropriation. This funding will provide additional staffing to address complex enforcement issues, increase the examination of large flow-through entities and abusive corporate transactions, counter the increase of fraudulent returns, reduce non filer inventory as well as to combat other compliance areas. b) Counterterrorism (+$5,326,000/+ 24 FTE) Of the total $5.8 million requested in the FY 2004 for counterterrorism activities, $5.3 million is in the Tax Law and Enforcement appropriation. This funding will provide funding to enable the Criminal Investigation (CI) business unit to provide support to the National effort to combat domestic and international terrorist financing by integrating CI special agents into the Joint Terrorism Task Forces and other anti-terrorism task forces. 2/3/03 IRS, TLE-3 § Jº Altºſ ºldº I puuc servºucs-rax-Errrrr-rrºrrºr OTHER CHANGES Total Requested Other Changes * * * * * * * * * * * * * = ...........................+$120,239,000 / 0 FTE Other Changes include adjustments necessary to maintain current levels (MCLs) and any other adjustments that may be required and they are as follows: 3. Adjustments Necessary to Maintain Current Levels.......... * * * * * * +$120,239,000 / 0 FTE a) Labor Annualization (+$29,134,000) b) Labor MCLs (+$86,405,000) c) Non-Labor MCLs (+$4,700,000) 2/3/03 IRS, TLE-4 § Internal Revenue Service, Tax Law Enforcement APPROPRIATION OVERVIEW This appropriation ensures IRS’ ability to provide equitable application and enforcement of the tax laws, identify possible non-filers for examination, investigate violations of criminal statutes, support the Statistics of Income program, conduct research to identify compliance issues and support the National effort to combat domestic and international terrorism. The resources for the Tax Law Enforcement (TLE) Appropriation provide service to taxpayers after a return is filed and support activities such as research to identify compliance and tax administration problems as well as tabulation and publication of statistics related to tax filing. The IRS’ has established four divisions, Wage and Investment Income (W&I), Small Business and Self-Employed (SBSE), Tax Exempt and Government Entities (TEGE) and Large and Mid-Sized Business (LMSB) to provide service to the four major categories of taxpayers. Each of these business units has substantial operations within the Tax Law Enforcement appropriation. The Criminal Investigation (CI) business unit in addition to investigating criminal violations of Internal Revenue tax code also supports the National effort to combat terrorist financing by integrating CI special agents into the Joint Terrorism Task Forces and other anti-terrorism task forces. The largest part of CI’s operation is within the Tax Law Enforcement appropriation. - TLE is the primary source of funding for the compliance functions of the IRS, including automated, in-person and correspondence collection of delinquent taxpayer liabilities, the matching of reporting documents with taxpayer returns, to insure reporting compliance, face-to-face examination to determine taxpayers’ correct income levels and corresponding tax liabilities, service center support of the field examination function and correspondence with taxpayers regarding tax issues, investigation of criminal violations of the tax laws, processing of currency transaction reports over $10,000, tax litigation, an advocate to provide prompt resolution of taxpayer problems and a general counsel function to offer legal advice and guidance to all components of the IRS. The functions in TLE are essential to accomplishing the primary goals of the FY 2004 Budget Request. Ensuring that all taxpayers are treated equally and fairly requires making certain that all taxpayers assume their fair share of the tax burden. To accomplish this goal, the IRS must restore the strength of the Compliance function. Staffing devoted to compliance and enforcement operations have declined by more than 20% in recent years. Annual growth in return filings and additional work related to RRA 98 have contributed to a steady decline in enforcement presence, audit coverage and case closures in front-line compliance programs. 2/3/03 IRS, TLE-5 § DE ON OF BUDG ERVICES The IRS request is derived from careful analysis and prioritization performed in the Strategic Planning, Budgeting and Performance Management Process. This process forces IRS operating units to scrutinize base resources and search for the most efficient allocation of these resources. Through a myriad of efficiency improvements, technology modernization and labor reengineering initiatives, the IRS identified resources which it reapplied to other higher priority areas. - REENGINEERING In FY04 the IRS will be able to mine $40.1 million and 670 FTE from internal productivity growth in the TLE appropriation. The mined resources will be reinvested to fund other IRS priorities. Projects and program; it his area are as follows: 1. Compliance Strategies (-$24.2M /-461 FTE > Compliance Support Re-engineering (-$20.6M/-394 FTE) The Examination Reengineering project will continue to review and redesign examination work processes to improve operational efficiency and workload selection and reduce taxpayer burden. This effort will improve the Service's ability to increase the level of reporting and filing compliance, reduce "no-change" rates and focus available resources on cases involving abusive trusts/shelters and complex tax issues. Because of important process improvements and centralization from the reengineering of the Compliance Support organization, the new Compliance Support structure will need fewer positions to deliver the specialized support service offerings. This effort is expected to generate resource engineering of 89 FTE in FY 2004. In addition, for FY 2004, productivity gains averaging 1.5 percent will generate reengineering of an additional 95 FTE (75 Revenue Agents and 20 Tax Compliance Officers) from Examination Reengineering. > Filing Compliance — Increase Non-Filer Program (-$3.6M/-67 FTE) Payment Compliance Engineering – In the FY 2003 Budget, 104 FTE were estimated as productivity reengineering for Data Directed Call Routing, but this technology was not delivered. For FY 2004, we are projecting 2 percent productivity reengineering against the FY 2004 Planning Level, for a reengineering of 31 FTE in ACS resulting from process analysis improvements. Service Center Collection Branch (SCCB) Reengineering—For FY 2004, we are projecting 2 percent productivity reengineering against the FY 2004 Planning Level. This will result in the reengineering of 22 FTE from process reengineering improvements. These improvements include re-engineering the SCCB operation to address workload trends, improving processes to minimize reliance on paper intensive processes, shifting processing of Offer-In-Compromise (OIC) payments to Submission Processing, and imaging accepted OIC documents. An additional 14 FTE will be reengineered from document matching. 2/3/03 IRS, TLE-6 % Internal Revenue Service, Tax Law Enforcement 2. Servicewide (-$15.9M1-209 FTE): > Absorb Servicewide Within-Grade Increases and Promotions (-$15.9M/-209 FTE) The IRS will fund within-grade increases and promotions from existing resources. REINVESTMENT OF FREED-UPRESOURCES Funds redirected from the above programs ($40.1M and 670 FTE) will be reinvested to fund higher-priority programs within this appropriation and in other IRS appropriations. Of that amount, $57.6M and 196 FTE will be reapplied within TLE and the Service will require additional needs of $109.8M and 1,599 FTE to fund this appropriation. These needs are detailed below. - 1 Compliance Strategies ($29.2M / 196 FTE X Examination Needs ($12. 3M/132 FTE) IRS moved FTE from Tax Law Enforcement work to Rulings and Agreements, to eliminate a backlog of Employee Plan Determination Letters brought about by the accumulation of tax law changes. The backlog will be eliminated by FY 2004, allowing these FTE to be moved back to examining returns. Expand Outside Expert Program ($5.0M/0 FTE) The Outside Expert Program provides critical post-filing support on Field Examinations of the most complex and potentially highest impact compliance issues associated with the Service’s audits of Large Corporate Tax Returns. Funding from the Program supports the Service's assistance to Large Corporate Taxpayers formally accepted into the Service’s “Pre-Filing Program.” The Program supports uniform treatment of and early resolution of significant Industry issues through funding of outside expert assistance to “alternative approaches” such as the “Industry Issue Resolution” program. The Program supports uniform application of quality issue development with outside expert assistance to the “Industry Technical Advisers” program. A sample of historical data indicates an average return of approximately $2,900 in proposed tax for each dollar spent on outside experts in LMSB examinations. Thus potential revenue and compliance impact is high for abusive corporate tax shelters. Outside experts provide valuable support on quality development ºf the most complex and highest potential tax revenue issues. Utilization of highly qualified outside experts can increase the credibility of the Service's position on issues sent to the Federal Court and can increase the resolution of issues at the Field Examination level, thus relieving burden of taxpayers. Typically, the most significant issues that could benefit from assistance from outside experts come out of audits of corporations with global/international operations. Billions of dollars are associated with extremely complex valuation issues on “Section 482 Transfer Pricing,” “Buy-in” issues, and “Check-the-Box/Worthless Stock” issues. Also, audits of very significant and extremely complex valuation issues re.” ting from an increasing volume of transactions designed to maximize “after-tax income” critically need outside expert support at the pre-fili' g and post-filing levels of review by the Service. These audits review billions of dollars associated with issues such as “Abusive Corporate Tax Shelters” and “Charitable Contributions of Intellectual Properties.” 2/3/03 IRS, TLE-7 Outside experts at the Field Examination level and at the “Pre-File” support level can reduce burden on taxpayers by reducing audit cycle time and by increasing the resolution of issues at the earliest point in time. They can reduce employee frustration by providing critical resources needed to perform quality audits and needed to provide quality taxpayer service on a timely basis. Timely and adequate access to funds to hire outside experts at the Field Examination level and at the “Pre-File” support level can have a direct positive impact on quality issue development and audit cycle time. This should increase the “Field Exam Case Quality Score,” increase the “Number of Cases Examined (Large Case),” increase the “Number of Returns Closed (Large Case),” increase sustained “Appeals Cases Closed,” increase sustained “Tax Court Cases” closed and increase “Total Enforcement Revenue Collected.” The Deputy Director of the LMSB Field Specialist Program provides direct Executive oversight to the Program. An LMSB Outside Expert Program Budget Committee provides operational oversight. The Budget Committee controls all allocations of funds to the Field. The Budget Committee has direct responsibility for reviewing requests for funds to hire outside experts with an estimated cost of $100,000 or more and has direct responsibility for reviewing requests for funds to hire outside experts to assist on audits or projects that are coordinated at a National level; e.g., Corporate Tax Shelters, Pre-Filing assistance, etc. Engineer Territory Managers generally are authorized by the Budget Committee to review requests with an estimated cost of less than $100,000. The Budget Committee is represented by each of the LMSB Industries, by the Engineer Program, by the Economist Program, by the International Examinations Program and by Counsel. > Expand Information Exchange Agreements and Treaties ($4.4M/2 FTE) The focus of the increase to the FY 2004 budget and for future years is to fund international exchange of tax information. At the behest of former Treasury Secretary, Paul O’Neill, Treasury and the IRS are engaged § in a major initiative to expand the exchange of information, including exchanges with tax havens. The exchange of information with such }-A jurisdictions will play a key role in other Treasury and IRS initiatives to combat the use of abusive offshore trust arrangements and other abusive tax avoidance transactions. The IRS estimates that civil cases are expected to increase by 75 percent for FY 2003 and FY 2004 due to the credit card initiatives. After FY 2004, it is anticipated that the increase in U.S.-initiated requests will be 50 percent per year. With respect to the completed/closed U.S.-initiated requests, it is anticipated that the percent of completions/closings will be lower than that realized for fiscal years 2000 and 2001, as requests will be made to jurisdictions where newly implemented Tax Information Exchange Agreements (TIEA) are in place. Some of these jurisdictions do not have the know-how of the exchange of information process and will require additional time and assistance to provide the documents and information requested. Additional resources will also be required if the request is challenged in the court. This is anticipated to reduce the current 90 to 100 percent completion/closing rate with our treaty partners and some TIEAs to 50 percent beginning in FY 2003. The average increase in completion/closing percent rate is anticipated to increase by 10 percent per year. > Exempt Organization Examination Coverage ($3.0M/31 FTE): Over the past decade, the number of exempt organizations has grown dramatically, as have the size and complexity of these entities. As a result of this trend, the IRS compliance presence in this sector has 2/3/03 IRS, TLE-8 § Internal Revenue Service, Tax Law Enforcement deteriorated, a concern highlighted by the General Accounting Office in its April 2002 report, “TAXEXEMPTORGANIZATIONS: Improvement Possible in Public, IRS and State Oversight of Charities (GAO-02-526).” Improving examination coverage as the exempt organizations sector continues to grow depends upon both improving exam productivity and securing additional resources to keep up with the growth in this sector. This reinvestment provides additional resources in FY 2004 to hire revenue agents to increase EO examination efforts, in support of the Tax Exempt and Government Entities (TE/GE) Division’s strategy to Understand and Improve Compliance. Examinations completed by additional revenue agents will help to reverse the decline in EO examination coverage rates and will promote greater overall compliance and fairness in this sector. Moreover, these additional resources will support Market Segmentation examinations that address the segments of EO’s customer base considered most at risk for non-compliance. These resources will also bolster compliance efforts in EO's large-case program. > Increase Legal Support to IRS Units ($1.5M/11 FTE) One of Counsel’s critical core missions is to provide accurate and timely legal advice to all IRS units. This includes tax-related legal advice at the pre-filing stage of a matter. In FY 2003 and FY 2004, attorneys in the Division Counsel offices will spend more of their time providing legal advice to their Operating Division clients. Legal advice will continue to grow in FY 2004 as the relationships mature between Division Counsel and their clients, and Counsel assumes an increasingly active role in a wide range of client matters. The IRS will continue to generate significant need for legal advice in its day-to-day operations. IRS Operating Divisions will increasingly rely on Counsel to participate in training activities and initiatives, especially those concerning new compliance strategies highlighted in the Strategic Assessments. (This program is also funded from the Processing, Assistance and Management appropriation.) > Establish Exempt Organization Contact Unit ($1.3M/20 FTE) The operations of tax-exempt organizations are increasingly transparent to the public. Through the growing amount of Exempt Organizations (EO) return information freely available on the Internet, the general public now actively monitors the operations and conduct of many exempt organizations. Public concerns about organizations’ operations and compliance have also brought increased attention from the press and oversight bodies regarding the accuracy of EO customer account data and declining IRS enforcement activities. The Exempt Organizations Contact Unit (EOCU) will review EO customer returns for accuracy and completeness and will follow-up with organizations as necessary using compliance contacts short of traditional examinations (e.g., soft contact notices and other correspondence). The EOCU will also track and analyze trends in EO returns and use alternative data sources to develop strategies for improving voluntary compliance. This initiative supports the Tax Exempt and Government Entities (TE/GE) Division's strategies to Understand and Improve Compliance (through non-traditional compliance contacts) and Improve Organizational Performance (by improving data quality and efficiency). The initiative will cost approximately $1.3 million in FY 2004 and beyond to fund 20 FTE to staff the new unit. Although it does not generate resource reengineering, this initiative will enable EO to augment its customer contact rate at a lower cost than traditional examinations. > Enhance Tax Compliance Through Published Guidance ($0.8M/0 FTE) Counsel will enhance voluntary tax compliance by expanding its Published Guidance program and utilizing advance case resolution techniques that complement IRS enforcement efforts. In FY 2003, Counsel 2/3/03 - - IRS, TLE-0 § strategy will shift toward increasing Revenue Rulings and other Published Guidance and away from Private Letter Rulings as a principal means of clarifying legal issues for taxpayers and avoiding disputes. Field Service Advisories, Technical Assistance Memoranda, and certain other written products, currently classified as legal advice, will also be reclassified as Published Guidance and released to the public. These actions will consolidate Published Guidance into a single program area, ensuring consistent, comprehensive guidance available to taxpayers and their representatives. Counsel's FY 2004 Published Guidance program will focus on abusive tax shelters and schemes. (This program is also funded from the Processing, Assistance and Management appropriation.) > Attract/Retain High-Quality Attorneys ($0.7M/0 FTE) The quality of legal advice is directly related to the quality of the education, training, and experience of the attorneys who provide it. Attorney recruitment and retention is one of Counsel’s four Major Strategies for FY 2004 and is the single most critical factor in attaining performance objectives. Professional training and other support resources are an integral component of employee satisfaction. Since the government is limited in the direct financial incentives it can use to attract and retain highly qualified attorneys, non-monetary incentives are an essential element of successful retention. Ensuring that attorneys are well prepared as legal professionals and legal managers will help retain talented within the Counsel organization. (This program is also funded from the Processing, Assistance and Management appropriation.) 2. Servicewide ($28.3M/0 FTE) > Meet Increased Servicewide Labor Costs ($28.3M/0 FTE) These increased labor costs will be funded from mined resources. Increasing costs of WIGs and promotions have consistently exceeded the cost of reengineering associated with attrition, creating a labor shortfall, forcing the IRS to cut FTEs to ensure that WIGs and promotions have adequate funding. There are two drivers behind these increasing labor costs: Career Ladder Promotions and Within-Grade Increases. Career Ladder promotions are an external driver of labor costs because they are required by OPM regulation. The IRS is required to promote employees until they reach their full working level in the GS scale, GS 12 or 13 in many professional job series. Career Ladder (C/L) promotions are generally given to employees at the beginning of their career; therefore, the cost of career ladder promotions will increase as hiring increases. Within-Grade Increases (WIGs) capture the cost associated with increasing an employee's step on the GS scale. WIGs, like Career Ladder Promotions, are mandated by OPM regulations. Therefore, timely payment of WIGs is a requirement. Delaying WIG payments is not a management option. The number of WIGs will increase slightly over the next couple of years, paralleling increases in hiring. The increasing number of WIGs will lead to a higher cost for WIGs. 2/3/03 IRS, TLE-10 § Internal Revenue Service, Tax Law Enforcement ADDITIONAL FUNDING NEEDS An additional $109.8M and 1,599 FTE are needed to enhance compliance and improve customer service. These requests are as follows: 1. Compliance Strategies ($104.5M-1 1,575 FTE) > Address Complex Enforcement Issues (Achieving Balanced Levels of Enforcement—ABLE) ($55.5/887 FTE) The ABLE initiative will provide additional FTE and related resources across all major compliance programs and leverage new workload selection systems and case building from on-going reengineering efforts. Continuing concerns involving organized tax resistance, abusive trusts and shelters (including offshore credit cards) and special purpose entities argue for a new approach to combating noncompliance. Traditional approaches aimed at maintaining audit coverage and maintaining growing case inventories with a declining resource base have failed to adequately address complex enforcement issues associated with high-income individuals who use structured transactions and flow-through entities (e.g., partnerships) to conceal tax liability and avoid payment of taxes. In addition to increases in Field Examination and Field Collection, ABLE includes program increases for Automated Collection System (ACS) and major Service Center Compliance programs (i.e., Automated Underreporter System (AUR), Automated Substitute for Return (ASFR), Correspondence Exam). The guiding principles for ABLE are fairness, balance and equity through the application of new approaches and technology that minimize taxpayer burden. Field Programs ABLE will allow us to significantly increase our coverage and presence in the Field Examination and Field Collection program areas. The additional revenue agent and tax compliance officer resources will be used to address key compliance risk areas such as offshore credit cards and money laundering, abusive trusts and shelters, employment tax schemes, high-income taxpayers, and other priority work identified by Examination reengineering efforts. In FY 2003, Field Examination will shift its focus to address the growing compliance issues surrounding abusive tax practices. It is estimated that abusive tax schemes cost the government up to $40 billion annually in lost tax revenue. Many of these abusive tax schemes are complex and require lengthy and time-consuming investigations by our most skilled field revenue agents. The ABLE initiative will allow IRS’s SB/SE operating unit to combat these practices while maintaining a presence in our traditional examination programs. In addition, the “USA Patriot Act of 2001” tasked the Service with additional requirements to investigate and penalize money-laundering activities and disrupt terrorist financial networks. The resources provided by ABLE will contribute to the accomplishment of this goal. Expanding our resources in Field Examination will increase our coverage areas, improve our overall critical measures, and allow us to audit more returns. For example, the resource levels associated with the ABLE initiative will allow us to close 20,999 examinations on flow-through returns in FY 2004. This is a 110% increase over FY 2003 levels. Many participants of abusive tax schemes are high-income (>$100K) individuals. Consequently we anticipate closing 78,244 individual examinations on returns with income in excess of $100K. This represents a 33% increase, or over 19,600 more return closures, over FY 2003 levels. The additional Revenue Officer resources will allow for increased Collection coverage of “high-risk” taxpayers as identified by our reengineering efforts. In addition, we anticipate that our increased examination efforts surrounding abusive tax schemes will result in an increase in the number of abusive scheme balance due accounts on which we expect to see significant dollar 2/3/03 IRS, TLE-1s § values. Again, as in the examination of these entities, the collection issues surrounding these types of cases are likely to be complex, requiring significantly more time or work than the average case as well as the skills of our most experienced revenue officers. We anticipate a mid-year hiring of these additional revenue officer resources. Due to training requirements and a learning/experience curve, the positive impact on account Taxpayer Delinquent Account (TDA)/Taxpayer Delinquency Investigation (TDI)) closures will occur in the FY 2005/2006 timeframe—when TDA closures are expected to increase by nearly 155,000 to 961,000. TDI cases closed will increase from 102,000 in FY 2003 to over 120,000 by FY 2006. Service Center/Call Site Programs ABLE will also significantly increase our resources in Service Center/Call Site program areas by focusing additional resources on critical compliance risks. Additional resources in Compliance Services will fill our case development needs for the National Research Program and abusive schemes associated with tax shelter cases, ACS will establish a new site at the Detroit Computing Center that will specialize in out-calls (using predictive dialer technology) and offset levies. As a result of the concentration of our field collection resources on “high-risk” taxpayers, our ACS program will be required to respond to a growing inventory of traditional collection accounts. The additional Tax Examiner positions provided by ABLE to our ACS programs will support a uniform application of services to all our balance due customers. These additional resources will increase the number of TDA and TDI case entity closures by 5% and 10% respectively over FY 2003 levels. Even higher performance levels are anticipated in outgoing years as Tax Examiners gain knowledge and experience. The proposed increase of positions in ASFR will focus on high-income non-filers (freeing field revenue officers to focus on collecting delinquent accounts) and allow for the further development of the K-1 program by funding the non-filer portion of this program. An increase in the Underreporter program will expand coverage of the K-1 program, close 8% more cases than in FY 2003, and make more referrals to examination programs to address non-compliant beneficiaries receiving income from flow-through entities. Additional resources in our Correspondence Examination program will be used to address taxpayers filing frivolous returns and/or refund claims (e.g., slavery reparations claims). In recent years there has been a proliferation in the number of frivolous returns or claims submitted by taxpayers. Oftentimes, promoters of these schemes entice individuals with (false) promises of perceived benefits. A strong presence by the Service to address these frivolous returns and claims is needed to effectively counteract these practices. - Increase Examination Capacity for Large Flow-Through Entities and Abusive Corporate Transactions ($22.4M/258 FTE) Abusive tax shelters have been designated as the highest priority for Reporting Compliance resources. Our tax shelter workload is growing based on our 2002 disclosure initiative and promoter investigations. The Service will aggressively increase compliance actions on tax shelter promoter activity and ensure compliance with registrations and list maintenance requirements. Promoter investigation lists indicate a need to significantly increase reporting compliance resources for tax shelter investors. These tax shelters, tax-motivated transactions designed and promoted by sophisticated tax professionals and used by both corporations and very wealthy individuals to reduce their taxes, pose an enormous challenge for the Service. The longer a technical tax shelter remains hidden, the longer the government is denied the tax dollars it is rightly due and the greater the resources that must be devoted to collecting those tax dollars. 2/3/03 IRS, TLE-12 3. Internal Revenue Service, Tax Law Enforcement The deficiency in staffing that currently exist will impact our ability to respond to the increase in tax shelter workload, as well as the time required to examine partnership and other flow-through entities. With the FY 2004 initiatives staffing level for this activity will return to the FY 2002 level. The planning level for FY 2004 is 16,934 returns, before the addition of budget increases. This funding request will allow IRS to apply the most experienced agents to address the highly complex and technical issues of abusive corporate tax shelter returns and maintain a minimum coverage of other high-risk, non-mandatory work. In FY 2003, we will allocate 691 FTE. With the additional 258 FTE requested for FY 2004, we will apply a total of 949 FTE in FY 2004 to the program. The performance measure of number of returns examined (closed) for the industry segment will initially decrease as a result of the significant staff years required for training newly-hired revenue agents, as well as support of SBSE training, and the corresponding decrease in direct examination time. Expected total closures will increase in the subsequent year as direct examination time returns to a pre-training level. > Counter Increasing Levels of Fraudulent Returns ($9.2M/185 FTE) Criminal Investigation (CI) currently operates ten Fraud Detection Centers (FDC) at the IRS Service Center Compliance Campuses. The FDCs primary mission is to identify, develop and analyze potentially fraudulent Questionable Refund Program (QRP) and Return Preparer Program (RPP) schemes for submission to CI field offices for investigation. Fraudulent scheme development requires that investigative analysts research various databases to obtain information in addition to that contained on the return(s) to prepare the package for investigation. The investigative analysts stay in touch with field offices to provide additional assistance during the investigation. By identifying fraudulent returns for scheme development, the FDCs also detect and stop fraudulent claims for refunds from being issued. Increased FDC staffing also relates directly to IRS tax administration compliance strategies and management challenges to address erroneous payments and noncompliance with Earned Income Tax Credit (EITC). The identification, investigation and successful prosecution of those individuals involved in refund crimes provide a deterrent effect for those persons considering similar actions, which directly affects taxpayer compliance. The fraud and abuse identified by both QRP and RPP continues to increase in both paper and electronically filed returns in both business and individual returns. Early projections indicate a potential for over 106,930 fraudulent claims on refund returns in 2004. This compares to 49,640 detected fraudulent returns in 2000. The projected fraudulent claims for 2008 is expected to be 251,871, a 135% increase over 2004 and a 204% increase over 2003. There are significant fraudulent claims for refund associated with the increased fraudulent filings. The projected 2008 fraudulent dollars total $1.9 Billion, which will almost equal the total QRP program from 1977 through 2001. The current 2002 staffing is expected to detect almost 87% of the fraudulent refunds filed and this decreases to 73% for 2003 because sufficient staffing is not available. The total detected fraudulent filings for the three processing years (PY) 1993 to 1995 was 217,930 returns. For the five years PY 1996 through 2000 the total detected fraudulent filings were 153,727 returns. This represents a decrease in detected fraudulent returns of more than 29%. The program realized 544 FTE in FY95. Staffing was significantly cut for 1996, and by FY 97 the program only realized 375 FTE. The program gained 66 FTE by the end of FY 02 to realize 441 FTE. There is a direct correlation between the decreased detection of fraudulent filings and the decreased staffing levels to support the refund crime detection functions. 2/3/03 IRS, TLE-13 § The current staffing is projected to allow the FDCs to detect 73.6% of the anticipated fraudulent filings in FY 2003, 82,830 in total. The projected fraudulent filings for 2008 are expected to be 204.1% greater, 251,871 in total, than those projected for FY 2003. At the current staffing level the 2008 detection rate would be 24.2% of the anticipated fraudulent filings. The additional staffing would allow for a detection rate of 65.2% in 2008. The current staffing will also allow the FDCs to detect about 73%, $463,818,126, of the anticipated fraudulent refunds to be filed in PY 2003. The projected fraudulent dollars associated with the claims is expected to increase 205% to a total of $1.9 billion in PY 2008. At the current staffing level the refund detection rate would be 24.1% of the anticipated fraudulent dollars. The additional staffing would allow for the detection of 65%, $1.250+ Billion, of the fraudulent refunds. All these figures have been projected using the average fraudulent refund for 2001; therefore all these figures are minimum dollar amounts. The increasing level of fraudulent returns filed by businesses was recognized during the design phases of modernization. There have been several fraudulent business return schemes that have been identified through the years. However, there are only limited resources to identify this type of abuse. As an example, in 1999, there was a business form 1041 (Trust Return) scheme with over 8,740 returns and $872 million in fraudulent claims. However, through a coordinated response, only $9.5 million in fraudulent refunds were issued, of which $4.5 million has been recovered. Fraud Detection Center staffing will also address "Service to All Taxpayers" and "Service to Each Taxpayer" strategies. One of the primary functions of the FDC is the early detection and identification of false claims for refund. Limiting refund crimes through various screening programs assures all taxpayers that a significant number of fraudulent refunds based upon false claims are being identified prior to distribution. In addition, identification of refund schemes with inflated EITC claims where the taxpayer/client may be an innocent victim of return preparer or promoter abuse will prevent future account problems for the unsuspecting taxpayer/client. > Expand Treaty-Based Exchanges of Information ($5.0M/2 FTE) Criminal Investigation uses information obtained through the exchange of information treaties with foreign governments to document tax administration matters. The focus of the increase to the FY 2004 budget and for future years is to fund international exchange of tax information. At the behest of the former Treasury Secretary, Paul O’Neill, Treasury and the IRS are engaged in a major initiative to expand the exchange of information treaties, including exchanges with tax haven jurisdictions. The exchange of information with such jurisdictions will play a key role in other Treasury and IRS initiatives to combat the use of abusive offshore trust arrangements and other abusive tax avoidance transactions. Criminal Investigation requests for information resulting from the increased number of exchange of information treaties is expected to grow by approximately fifty percent each year for the next two to three years. The primary cost of the requests for information is to reimburse foreign governments to research and reproduce the requested information. The new Treaty Information Exchange Agreements (TIEA) will allow IRS to obtain critical information from tax haven jurisdictions even when countries/jurisdictions have bank secrecy laws. Both the number of new exchange agreements with tax havens and their provisions for cost reimbursement to the foreign jurisdictions make this situation very different from past years. The IRS will be able to secure financial information and records to assist in the expeditious and accurate determination of both civil and criminal tax issues with regard to U.S. taxpayers. The expeditious receipt of TIEA information will substantially reduce taxpayer burden by decreasing the length of time required to complete investigations. - 2/3/03 - - IRS, TLE-14 % Internal Revenue Service, Tax Law Enforcement > Augment Tax Collection by Reducing Delinquencies ($4.5M/100 FTE) Improving W&I Enforcement Programs will reduce the likelihood of non-Compliance. Potentially Collectible Inventory (PCI) is up and will continue to grow due to the increase in the general population. The anticipated additional Automated Collection System (ACS) inventory will increase ACS resource requirements. Increased staffing in ACS call centers is required to address increased inventories. System enhancement reengineering will not be sufficient to maintain inventory levels and address non-compliance adequately. To accomplish this, there is a need of 100 FTEs and $4.5M. The increase in FTEs would result in an estimated additional 13,609 Tax Payer Delinquent Account (TDA) closures and 2,269 Taxpayer Delinquency Investigation (TDI) closures in FY 2004. The TDA closures should result in collection of approximately $21.5M. The TDI closures should result in collection of approximately $703K. To the extent possible, Compliance will work with Submission Processing to utilize Submission Processing personnel who are impacted by changes in Submission Processing campuses. > Boost Compliance by Reducing Non-Filer Inventory ($3.6M/67 FTE).The IRS has a non-filer inventory of 6.8 million taxpayers, of which only 1.6 million can be selected for potential contact in FY 2004 due to resource constraints. Additional resources are needed to identify and implement actions to address non-compliance with filing requirements in the W&Itaxpayer population. Potentially collectible delinquent inventory has grown due to an increase in the general population. The Questionable W-4 program is the first step in establishing voluntary compliance with the filing requirements. The number of questionable W-4s reviewed in recent years has decreased due to resource constraints. Reviewing additional W-4s will improve filing and paying compliance across the W&I population. With 17 (part of the 67 FTE request) additional FTE, we anticipate increasing the number of cases selected yearly to be worked by 42,500. The remaining 50 FTE will be utilized for the Automated Substitute For Return (ASFR) program. This will enable compliance to reduce further the number of potential non-filers in inventory. Migration of ASFR work will continue resulting in complete consolidation of routine ASFR work in the Fresno Service Center scheduled for January 2004 that will provide more efficient processing of responses. The initiative is estimated to result in approximately 82,000 closures, $74 million net assessments, and $14.5 million in dollars collected. > Increase Number of Automated Underreporter (AUR) Cases Processed ($2.2M/51 FTE) Of the approximately 5 million productive Automated Underreporter (AUR) cases noted in the Strategic Assessment, approximately 1.5 million cases are being worked on, leaving 3.5 million untouched cases due to FTE allocation and system capacity constraints. The increase of 51 FTE in FY 2004 would generate enable the service to work on additional 116,382 cases that will result in an estimated $97.7M additional assessments. To the extent possible, Compliance will work with Submission Processing to utilize Submission Processing's personnel who are impacted by changes in Submission Processing campuses. > Address Top-Priority Compliance Issues in Exempt Organizations ($2.1M/25 FTE) Over recent years, the number of exempt organizations filing returns has risen rapidly, from 456,000 returns (of all types) in CY 1990 to over 785,000 returns in CY 1999. During 2001, Exempt Organizations filed approximately 340,000 Form 990 returns (the primary return for exempt organizations); by 2010, IRS projects that over 450,000 organizations will file these returns. These organizations may become involved in very complex tax issues including mergers, joint ventures, abusive trust arrangements, etc. 2|3/03 IRS, TLE-15 § As the number of entities has grown, so has their size and complexity. Returns filed by large organizations with over $10,000,000 in assets or $1,000,000 in income have grown in recent years. In 1997, the universe of these returns was 44,225 (representing 8% of filed returns), while by 2000, this number had increased to 51,535 (10% of filed returns). These cases also include our largest taxpayers, who are examined using different methods. This universe of taxpayers has grown from about 900 in the early 1990s to approximately 3,000 organizations today. These largest exempt organizations have increasingly complex and diverse business operations and may involve multiple entities (both taxable and exempt) with an extensive geographic presence. Other emerging areas, such as donor-advised funds, the new legislation relating to Section 527 political organizations, abusive trusts and the increase in professional fundraising, have all contributed to the increase in the complexity of exempt organization work. 2. Counterterrorism ($5.3M/24 FTE): X International and Domestic Counterterrorism Activities ($5.3M/24 FTE) Criminal Investigation (CI) currently supports and will continue to support the National effort to combat terrorism. Prior to September 11, 2001, CI's role in counterterrorism primarily involved the investigation of domestic terrorists. Many extremist groups articulate anti-government and anti-taxation views, and engage in paramilitary and survivalist training. Criminal Investigation is often involved in investigations of individuals affiliated with these groups because of their reluctance to comply with tax laws. Prior to the September 11, 2001 attacks, CI was participating in the Federal Bureau of Investigation's Joint Terrorism Task Forces (JTTF) in accordance with the Attorney General's plan. However, the events of September 11, 2001, significantly increased Criminal Investigation's commitment to provide the additional special agent resources necessary to combat terrorism. Criminal Investigation special agents are assigned to those investigations that required their financial skills. Criminal Investigation’s initial additional resource commitment also included devoting 69 special agents to the Air Marshal program as well as 4 special agents to the FBI Strategic Operation Center (SIOC) and the financial task force that supports the SIOC. Criminal Investigation special agents also provided employee and building security. In addition, CI assigned an agent to the FBI Headquarters Financial Review Group (FRG). This group was organized after September 11 to rapidly gather both classified and non- classified financial information on terrorist organizations. Criminal Investigation is also a participant in Operation Green Quest, the Treasury Department initiative to capitalize on the investigative skills of its law enforcement components to attack the financial infrastructure and fundraising activities of terrorist groups. Through Operation Green Quest, CI has provided material assistance to the Office of Foreign Asset Control (OFAC) in freezing accounts controlled by “charitable” organizations and alternative remittance systems suspected of facilitating the movement of funds used to support terrorism. Criminal - Investigation's current commitment includes participation in Operation Green Quest and the FBI Headquarters Financial Review Group (FRG), as well as increased support of the JTTFs nationwide. The goal of detecting and eliminating terrorist organizations becomes substantially more feasible when the financial aspect is brought into an investigative plan. Like other types of criminal enterprise, terrorists cannot exist without financial support. In order to track the entire organization investigators must "follow the money.” The more complex the financial trail becomes, 2/3/03 IRS, TLE-16 # Internal Revenue Service, Tax Law Enforcement the more value CISpecial Agents lend to quickly unraveling the schemes. Criminal Investigation is adept at gathering and analyzing information from numerous sources. Integrating CI special agents into the JTTFs and the anti-terrorism task forces being established at the United States Attorney's offices dramatically increases the ability of these task forces to analyze financial data and transactions related to suspected terrorist activity. The commitment of the CI resources enables the task forces to pursue hundreds of money laundering and tax fraud investigations, and facilitates the disclosure of tax return and bank secrecy act information. International terrorists and their supporters often raise funds through the abuse of tax-exempt organizations, ostensibly engaged in humanitarian or religious activities. Terrorist fundraising activities are also carried out through participation in a variety of criminal activities such as dealing in stolen property, insurance fraud, and smuggling. Criminal Investigation special agents possess the unique financial investigative skills necessary to successfully investigate these crimes. Money Laundering investigations relating to terrorist fundraising activities and investigations involving the use of tax exempt organizations to finance terrorist activities are a high investigative priority. The IRS, and especially Criminal Investigation, is inextricably involved in the fight against both international and domestic terrorism. Demand for the financial investigative skills of CI's special agents remains high. They are not only involved in the JTTFs’ efforts to investigate the September 11, 2001 attacks, but also in deterring future attacks. Since September 11, 2001, Criminal Investigation has expended approximately 8% of its direct investigative time (DIT) on counterterrorism related activities. This percentage of DIT equates to approximately 206 FTE. The DIT devoted to terrorism in FY 2002 reduced available DIT for core mission tax administration investigations by approximately 185,000 hours. Criminal Investigation's primary focus must remain on tax administration, while continuing to support the counterterrorism efforts. Criminal Investigation's continued support of the counterterrorism commitment into FY 2004 and beyond requires additional funding for 24 FTE and $5.3 million. 2/3/03 - IRS, TLE-17 É Budget Activity 37; Compliance Services Functions: This activity includes resources to provide services to a taxpayer after a return is filed and to identify and correct possible errors or underpayment. Programs provided for include: Compliance Services Management for management of compliance services activities; Payment Compliance - Electronic/Correspondence Collection that centralizes automated collection efforts as well as collection activities via correspondence in the service centers. Includes contact and collection of delinquent taxpayer liabilities through written notices and automated means and processes, using automated telephone systems as a medium for outreach; Payment Compliance - Field Collection to conduct field investigations and collection efforts associated with delinquent taxpayer and business entity liabilities including direct taxpayer contact and outreach programs to protect the Government’s interest in delinquent tax liability situations; Tax Reporting Compliance - Document Matching for the Automated Underreporter (AUR), Combined Annual Wage Reporting (CAWR), Federal Unemployment Tax Act (FUTA), and other Document Matching Programs; Tax Reporting Compliance-Electronic/Correspondence Exam that operates the service center’s examination function which initiates correspondence with taxpayers related to tax issues arising from claims on their tax return; Tax Reporting Compliance - Field Exam to determine taxpayers’ correct income levels and corresponding tax liabilities; Criminal Investigations for enforcement of criminal statutes relating to violations of internal revenue laws and other financial crimes, including investigating cases of suspected intent to defraud involving both legal and illegal sources of income, and recommending prosecution as warranted, and the investigation and prosecution of tax and money laundering violations associated with narcotics organizations; Currency Transaction Reporting to report on currency transactions of $10,000 and higher; Appeals to oversee an administrative review process that provides a channel for impartial case settlement prior to cases being docketed in a court of law; Litigation for representing the IRS in litigation and all other tax-related legal support for the IRS; and Taxpayer Advocate Case Processing that ensures taxpayers have a voice to represent their interests within the IRS, to resolve taxpayer problems through prompt identification, referral, and settlement, Note: The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. 2/3/03 IRS, TLE-18 § IRS, TLE-1". Internal Revenue Service, Tax Law Enforcement 2/3/03 § Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures - - Performance | Performance Target Performance Target Proposed Budget Authority ($000s) $3,561,147 $3,684,170 $3,476,217 $3,638,924 $3,883,544 Direct FTE 44,852 45,362 44,331 44,646 45,776 Performance Goal: Identify and correct all substantive errors in filed tax returns, reporting of income, and payment of taxes. 32. Telephone customer satisfaction (ACS) 54% 56% N/A 53% 45% 48% (% satisfied) (W) (% dissatisfied) (W) 2% 2% N/A 3% 7% 6% 33. ACS closures—Taxpayer delinquent 1,052,221 1,006,600 1,012,628 950,696 1,050,000 1,138,000 accounts (O) 34. ACS closures—Taxpayer delinquent 412,150 297,791 317,906 190,411 202,000 220,500 investigations (O) 35. Automated collection system (ACS) 79% 78% 80% 69% 74% 80% level of service (O) 36. Customer satisfaction – collection field 47% 53% N/A 51% 50% 51% (% satisfied) (O) (% dissatisfied) (W) 29% 22% N/A 23% 15% 14% 37. Field collection — number of cases closed 771,455 757,392 804,085 724,430 714,000 769,000 (TDA) (O) 38. Field collection — number of cases closed 144,764 119,451 107,119 140,737 113,000 122,000 (TDI) (O) 39. Field collection quality (O) 84% 84% 85% 84% 87% 89% 40. Offers in compromised processed (W) 69,514 97,013 185,000 110,205 124,000" 125,000 41. Automated underreporter cases (O) 2,888,900 2,511,424 2,879,980 2,922,182 2,900,000 3,100,000 42. Automated underreporter quality (O) 93% 95% 97% 95% 95% TBD “Due to typographical error, the FY2003 OIC target is incorrectly shown as 100,000 closures in the President’s Budget. 2/3/03 IRS, TLE-20 É Internal Revenue Service, Tax Law Enforcement FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures - - Performance Performance Target Performance Target Proposed 43. Correspondence examination customer 34% 34% N/A 33% 33% 34% satisfaction (% satisfied) (O) % dissatisfied) (W) 38% 30% N/A 41% 35% 33% 44. Correspondence returns examined N/A 479,983 N/A 367,799 349,000 364,000 ITC) (O) non-EITC) (O) N/A 146,621 N/A 177,447 246,000 227,000 45. Correspondence examination quality 70% 71% 74% 71% 73% TBD 46. Field exam customer satisfaction (% 44% 47% N/A 47% 52% 53% satisfied) (O) % dissatisfied) (W) 29% 26% N/A 27% 17% 17% 47. Individual return examinations (> N/A 55,7615 N/A 64,911 62,000 82,000 $100,000 (O) 48. Individual return examinations (< N/A 146,790 ° N/A 140,350 121,000 | 148000 $100,000) (O) 49. Field exam quality (SB/SE) (Office) 58% 70% 73% 74% 73% 74% O ield) (O) 58% 70% 71% 71% 76% 78% 50. Field exam quality (LMSB) (industry N/A 70% N/A 69% 75% 77% cases) (O) - coordinated industry cases) (O) N/A 80% N/A 78% 85% 85% 51. Business returns examined (O) N/A 23,163 N/A 21,159 18,000 18,000 52. Corporate cases examined (large case) 369 417 566 528 486 486 53. Number of returns closed (large case) 3,578 3,734 3,453 4,851 4,100 4,100 O - *official computation of measure began in 2003. IRS, TLE.” § FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures -º-, - ę Performance Performance Target Performance Target Proposed 54. EP & EO exam customer satisfaction 67% 68% N/A 70% 71% 71% (% satisfied) (O) (% dissatisfied) (W) 11% 10% N/A 8% 7% 7% 55. EP/EO examinations closed (O) 19,080 15,988 11,900 13,549 15,000 20,400 56, EP / EP examination quality (O) 83% 73% 81% 75% 79% 82% 57. Innocent spouse determinations made 55,698 61,011 65,000 60,730 52,000 51,000 & claimant notified (W) 58. Appeals cases closed (disposals) (O) 54,986 || 54,748 67,560 68,015 77,000 77,000 59. Criminal investigations completed (O) 3,499 3,340 3,280 3,201 3,250 3,400 60. Total Tax Court cases (beginning 35,962 31,883 34,100 36,141 30,000 31,000 inventory & receipts) (W) 61. Taxpayer Advocate closure to receipt | N/A 97.6%% N/A 108% 1.05% 10.5% ratio (O) 62. Taxpayer Advocate casework quality 65% 72% 80% 78.5% 90% 90% index (O) 63. Total enforcement revenue (billions) $33,8 $33.8 $34.8 $34.1 $33.9 $34.5 (W) . 64. Agency-wide employee satisfaction (S 59% 51% 54% 55% 58% 62% 65. Servicewide FTE (including EITC) 97,074 97,938 99,901 100,363 98,934 99,864 (W) . 66. Individual return examinations (O) N/A 202,551 N/A 205,261 183,000 230,000 67. Number of Tax Court receipts (W) 13,478 14,766 13,500 17,371 18,000 18,500 68. Taxpayer contact FTE positions (with 65,415 65,730 68,306 68,243 67,534 69.290 EITC)(W) - 69. FTE positions per billion dollars of real 10.57 10.26 10.11 10.17 9.98 TBD GDP (W) *official computation of measure began in 2003. IRS, TLE-22 # Internal Revenue Service, Tax Law Enforcement Budget Activity 38: Research and SOI Functions: This activity includes resources for research and statistical analysis support for the IRS. Programs include: • Research for anticipating and identifying compliance and tax administration problems and performing strategic and tactical research aimed at identifying customer needs and developing programs to address those needs; and • Statistics of Income that performs research and statistical analysis and prepares publications of Statistics of Income. Note: The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so, budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. BUDGET AUTHORITY AND FTE FY FY Actual Actual Plan Actual 2/3/03 - IRS, TLE-23 § Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table 2/3/03 Budget Authority ($000s) FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures Performance Performance Target Performance Target Proposed $87,291 $102,631 $80,951 $90,147 $93,097 Direct FTE 831 913 843 885 880 Performance Goal: Perform strategic and tactical research to anticipate and identify compliance and tax administration problems. IRS, TLE-24 # Internal Revenue Service, Tax Law Enforcement DETAIL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Statutory executive positions Policy/program professional staff 37,634 Secretarial and clerical 4,376 4,427 4,545 Crafts and custodial 4 4 4 2/3/03 IRS, TLE-25 £ DETAL OF FULL-TIME EQUIVALENT STAFFYEARS BY GRADE Executive Level 1 Executive Level 2 Level 3 Level 4 Level 5 Executive Service Level 6 Executive Service Level 5 Senior Executive Service Level 4 Executive Service Level 3 Executive Service Level 2 Service Level 1 IRS, TLE-26 2/3/03 % Explanation of Proposed rºyzoo-operatinchud Get ---Tº-) - - - d D 0 1 IRS, TLE-27 Internal Revenue Service, Tax Law Enforcement 2/3/03 3. Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS YET NOT BEEN PASSED. FTE ($000) FY 2003 President’s Budget Request . 46,872 3,729,072 IRS, TLE-28 2/3/03 3. STANDARD CLASSIFICATION SCHEDULE Directobligations IRS, TLE ** Internal Revenue Service, Tax Law Enforcement 2/3/03 % DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Tax Law Enforcement For necessary expenses of the Internal Revenue Service for determining and establishing tax liabilities; providing litigation support; conducting criminal investigation and enforcement activities; securing unfiled tax returns; collecting unpaid accounts; conducting a document matching program; resolving taxpayer problems through prompt identification, referral and settlement; compiling statistics of income and conducting compliance research; purchase (for police-type use, not to exceed 850) and hire of passenger motor vehicles (31 U.S.C. 1343(b)); and services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $3,976,641,000 of which not to exceed $1,000,000 shall remain available until September 30, 2006, for research. 2/3/03 IRS, TLE-30 § INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS FORMATION SYST APPROPRIATION EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity Summary Explanations of Fiscal Year 2004 Requested Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases Appropriation Overview Budget Authority, FTE and Performance Measures: Information Systems Improvement Programs Budget Authority, FTE and Performance Measures: Information Services SUPPORTING MATERIAL 2/3/03 Detail of Full-Time Equivalent Staff Years by Category Detail of Full-Time Equivalent Staff Years by Grade Explanation of Proposed Fiscal Year 2003 Operating Budget Explanation of Congressional Action Standard Classification Schedule: Direct Obligations Appropriation Language % ANALYsis or FY 2003 PRESIDENT's BUDGet LEVEL FY2003 President's Budget ry 2003. A -- Proposed Adjustments (+/-): Reprogramming (FTE only, except for Inter-appropº - FY2003. Adjusted President's Budget Level, Plus/Mi Transfers DIGEST OF FISCAL YEAR2004 BUDGet Estimates BY activity Memorandum: Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY2002: $41.665M; FY2003: $43,413M, FY2004: $46,343M. 'The FY2003 total forthis appropriation does not includes 29Minuserſees. *The FY2004 total for this appropriation does not includesłiminuser fees. 2/3/03 $1,632,444 - $1,632,444 IRS, Is Amount (5000) o 0. g Internal enue Service, Information Systems suMMARY Explanations of Fiscal YEAR2004 REQUESTED CHANGEs BY ACTIVITY (Dollars in Thºusands) ----- PROGRAM CHANGES: CHANGES: to Maintain Current Levels: 1) Labor Annualiztion Labor and Benefits 3) Non-Labor Costs Non-Recur Increases Customer Service Internal Services and Satisfaction 2/3/03 IRS, IS-2 3. Internal Revenue Service, Information Systems EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Information Systems Appropriation are projected to remain essentially stable at $1,670,039,040. Total increases of $83,434,000 are offset by $45,839,000 in reductions, resulting in a net increase of $37,595,000 over the FY 2003 funding level of $1,632,444,482. Staffing requirements decreased by 39 FTE. PROGRAM CHANGES Total Requested Program Changes.......... * * * * * * & .........+$1,008,000/-39 FTE 1. Reengineering ........ * * e is e º º ºs e º e º 'o -$45,839,000/-39 FTE The Service will realize efficiencies through a series of IS-related projects: a) Compliance(+$286,000 / 0 FTE) b) Customer Service (+$1,330,000 / 0 FTE) c) Internal Services and Support (+$32,626,000 / 0 FTE) d) Servicewide (+$5,771,000 / 0 FTE) +$40,013,000 / 0 FTE 2. Reinvestment of Freed-Up Resources * w w is ºr w w = w w w w w w w w w y wº The IRS is reinvesting freed-up resources to fund IS components of initiatives in the following areas: 3. Additional Funding Needs........... * * * * * g º tº e º ſº e º e º 'º e º 'º gº tº tº º tº e º 'º º te º e e º 'º e º tº e º a tº & +$ 6,834,000 / 0 FTE a) Compliance (+$6,601,000/+ 0 FTE) b) Customer Service (+$43,000 / 0 FTE) c) Counterterrorism (+$190,000/+ 0 FTE) OTHER CHANGES Total Requested Other Changes .. * A & * * * +$36,587,000 / 0 FTE 1. Adjustments Necessary to Maintain Current Levels tº º w +$36,587,000 / 0 FTE a) Labor Annualization (+$5,709,000) b) Labor MCLs (+$16,777,000) c) Non-Labor MCLs (+$14,101,000) 2/3/03 IRS, IS ^ % Internal enue Service, Information Systems APPROPRIATION OVERVIEW This appropriation provides for Servicewide Information Systems (IS) operations, IRS staff costs for support and management of the Business Systems Modernization effort, and investments to support the information systems requirements of the IRS business units. The appropriation includes staffing, telecommunications, hardware and software (including commercial-off-the-shelf software), and contractual services. Staffing in this activity develops and maintains the millions of lines of programming code supporting all aspects of the tax-processing pipeline as well as operating and administering the Service's hardware infrastructure mainframes, minicomputers, personal computers, networks, and a variety of management information systems. In addition, the Information Systems “Tier B" modernization initiatives fund projects that modify or enhance existing IRS systems or processes, provide changes in systemic functionality, and establish bridges between current production systems and the new modernization architecture being developed as part of the Servicewide Business Systems Modernization efforts. Investment activities also include improvements or enhancements to business applications that support requirements unique to one of the IRS business units. These Tier B projects yield increased efficiency and allow the Service to progressively improve the quality of its interactions with the taxpaying public and its many other internal and external customers. 2/3/03 IRS, IS-4 % Internal Revenue Service, Information Systems DESCRIPTION OF BUDGET REQUESTABOVE CURRENT SERVICES The IRS request is derived from careful analysis and prioritization performed in the Strategic Planning, Budgeting and Performance Management Process. This process forces IRS operating units to scrutinize base resources and search for the most efficient allocation of these resources. Through a series of efficiency improvements, technology modernization and labor saving initiatives, the IRS identified FTE and Non-Labor Reengineering which it reapplied to other higher priority areas of IRS. The detailed description of both reengineering and additional needs is described below. REENGINEERING The IRS identified Information Systems-based reengineering and reduction efforts that are expected to yield efficiencies of -$45.8M and −39 FTE which will be reinvested to fund higher-priority IRS programs in FY 2004. 1. Compliance and Customer Service (-$1.8M / 0 FTE > Compliance Support Reengineering Redesign internal processes, policies, and procedures and update the antiquated workload selection and inventory delivery systems. 2. Internal Services and Support (-$17.8M / 0 FTE): > Reduce Contractor Support Costs in End User Services Organization (~$10.3M/0 FTE) Specific efforts to improve efficiencies in program delivery include: • Reduce contractor support to End Users. Changes in the organization and automated tools will allow End User Equipment and Services (EUES) to meet customer demand without contractor support. • Reduce contractor support to maintain desktop infrastructure. Organizational changes and deployment of new infrastructure will allow EUES to support the e-mail environment utilizing EUES employees and significantly reduce assistance from contractors in maintaining the workstation software image. • Reduce contractor support for ITS Initiatives. Contractors used in development and deployment of Active Directory and Secure Enterprise Messaging System will no longer be required. • Reduce contractor support for Modernization Enterprise Systems Management (ESM) & Tivoli Infrastructure. Contractors used to support the Tivoli software product will be released and their duties assumed by less-expensive in-house IRS staff. > Network Reengineering and Efficiency Gains (-$7.5M/0 FTE) Plans call for reduced operations and maintenance costs through efficiency gains in the following activities: Wide Area Data Services, Taxpayer Toll-Free, Local Data and Voice Services, and Governance Board and other 2/3/03 IRS, IS § Internal enue Service, Information Systems projects. Additional efficiencies will result from effective program management of wide area data services, taxpayer toll-free, and local data and voice services. 4. 3. Servicewide (-$26.2M/-39 FTE): Workload decreases in several areas will result in Information Systems-based efficiencies as the strain on critical IS resources is reduced and existing resources can be more effectively applied to high priority or problem areas. > Reduce Low-Priority Computing Center Support Efforts (-$23.0M/0 FTE) Reengineering will allow resources to be redirected from lower- priority Computing Center support efforts in the Data Processing Services (-$13 million) and Maintenance (-$10 million) areas. > Absorb Servicewide WIGs and Promotions (-$3.2M/-39FTE) The IRS will fund within-grade increases and promotions from existing TCSOUTCCS. REINVESTMENT OF FREED-UPRES CES The efficiencies from the above reengineering efforts will be reapplied to fund higher-priority programs within IRS, including the following efforts within this appropriation. 1. Compliance ($0.3M 10 FTE): > Corporate Expenses ($0.3M) Resources freed up through reengineering will be reinvested to fund the information technology/information systems requirements (telecommunications, hardware, and software) of compliance and customer service activities that are primarily funded out of other appropriations. 2. Customer Service ($1.3M10 FTE): > Corporate Expenses ($1.3M) Resources freed up through reengineering will be reinvested to fund the information technology/information systems requirements (telecommunications, hardware, and software) of compliance and customer service activities that are primarily funded out of other appropriations. 3. Internal Services and Support ($32.6M 10 FTE): > Registered Users and Employee Portal Outsourced Operations ($14.8M/0 FTE) This reinvestment will provide web services that will allow taxpayers and special tax agents to process and acquire information that will expedite taxation services. In addition, this funding will provide IRS 2/3/03 IRS, IS-6 Internal Revenue Service, Information Systems employees with web-based applications that will promote efficiency in the administration of internal tasks. The Registered User Portal provides taxpayers with access to IRS resources around the clock, in most cases without human intervention. The Employee User Portal will provide IRS employees with web-based applications that will promote efficiency in the administration of internal tasks. These tasks support management needs, internal tax information requirements, and human resource needs. > Tier IIIHardware/Software Replacement ($103M/0 FTE) Approxiºiately $2.3M of the funds will be used to provide software licensing/maintenance renewal for the Tier A Customer Relationship Management (CRM) Examination BNA software which becomes an operational expense to the IS appropriation in FY 2004. Approxima.c., $4.2M of the funds will be used to provide for increased Tivoli software installment agreement costs. The remaining $3.8M will fund contiLuca replacement of aged e-mail servers and file/print servers delayed from FY 2003. > Expand VPN Service for LMSB Revenue Agents at Taxpayer Sites tº 7.5M/0 FTE) As part of the Commissioner's initiative to provide high- speed, secure remote access to revenue agents, the $7.5M reinvested will be used to implement 121 fixed sites and contribute to the recurring High Speed Secure Remote Access (HSSRA) expense of $16.2M (for maintenance of 21,000 remote clients and 382 fixed sites). HSSRA will allow revenue agents to secure high-speed accessibility and significantly improved connectivity from remote work sites. > Meet Increased Servicewide Labor Costs ($5.8M/0 FTE) These increased labor costs will be funded from mined resources. Increasing costs of Oh WIGs and promotions have consistently exceeded the cost of reengineering associated with attrition, creating a labor shortfall, forcing the IRS to º cut FTEs to ensure that WIGs and promotions have adequate funding. There are two drivers behind these increasing labor costs: Career Ladder Promotions and Within-Grade Increases. Career Ladder promotions are an external driver of labor costs because they are required by OPM regulation. The IRS is required to promote employees until they reach their full working level in the GS scale, GS 12 or 13 in many professional job series. Career Ladder (CIL) promotions are generally given to employees at the beginning of their career; therefore, the cost of career ladder promotions will increase as hiring increases. > Within-Grade Increases (WIGs) capture the cost associated with increasing an employee's step on the GS scale. WIGs, like Career Ladder Promotions, are mandated by OPM regulations. Therefore, timely payment of WIGs is a requirement. Delaying WIG payments is not a management option. The number of WIGs will increase slightly over the next couple of years, paralleling increases in hiring. The increasing number of WIGs will lead to a higher cost for WIGs. 2/3/03 IRS, IS-" § Internal enue Service, Information Systems ADDITIONAL FUNDING NEEDS An additional $6.8M are needed for Information Systems support and they are as follows: 1. Compliance ($6.6M 10 FTE): X Additional resources are needed to fund the information technology/information systems requirements (telecommunications, hardware, and software) of compliance activities that are primarily funded out of other appropriations. 2. Customer Service ($0.04M 10 FTE): > Additional resources are needed to fund the information technology/information systems requirements (telecommunications, hardware, and software) of customer service activities that are primarily funded out of other appropriations. 3. Counterterrorism ($0.2M/0 FTE): > Additional resources are needed to fund the information technology/information systems requirements (telecommunications, hardware, and software) of counterterrorism activities that are primarily funded out of other appropriations. 2/3/03 IRS, IS-8 3. Internal Revenue Service, Information Systems Budget Activity 93: Info tion Systems Improvement (“Tier B.’’) Programs This function supports near-term improvements or enhancements to business applications for specific business units in the tax processing or administrative and internal management systems on which the IRS depends. Tier B projects differ from Tier A (BSM) projects in scope: Tier A projects are IRS-wide and generally have long implementation timeframes, while Tier B projects are owned by a single Operating Division and are of short duration (generally one to three years). IRS has implemented a portfolio management process to manage and prioritize these improvement projects (Tier B) at an enterprise level. Tier B projects are managed according to a formal life cycle methodology to ensure systemic conformity with the overall technical architecture being established by the Core Business Systems Programs. The Tier B improvement projects are monitored within the Business Performance Review process. Tier B projects are providing major bridge and component functionality for modernization. In fact, because much of the tax administration and internal management functionality from Tier A is planned for out-year deployments, many Tier B projects have become integral parts of the Tier A modernization release plan. The Tier B program supports near-term improvements or enhancements to business applications in the tax processing or internal management systems on which the IRS depends. Tier B provides non-labor support to single owner, small to medium investment-driven business sponsored initiatives. Without the investment in Tier B projects, shorter-term productivity gains cannot be fully realized and efforts to reinveston-board staff will not materialize. Tier B projects were considered with an overall enterprise view of agency-wide IT investments, as well as with a view of maintaining a strong linkage with the modernization initiatives and compliance with the Enterprise Architecture (EA). The EA describes the long-term business functionality to be provided by the Tier A or BSM program. The Release Architecture (RA) is the actual business functionality delivered, deployed and transitioned to operations and maintenance over time by the Tier A program. In this context, an excellent characterization of the purpose and expected accomplishments of the Tier B program is to fill the gap between the functional requirements of the EA and the delivered functionality of the RA. That is, the Tier B program provides “stay-in-business” functionality to the business while they wait for Tier A Modernization. In addition to providing this “gap functionality,” the Tier B program also provides missing functionality from the Tier A program (i.e., some internal management functions for some functional divisions and shared services divisions). Because of this “filling the gap” role of the Tier B program, it is important that the Tier B projects are not only compliant with the Enterprise Architecture, but they are managed in an integrated manner with the Tier A program. Integrated planning prioritization and management within MITS ensures programmatic links among the Tier A, B and C (desktop/infrastructure) projects. Specifically, the Tier B projects are implemented 2/3/03 IRS, IS-" § Internal /enue Service, Information Systems using Enterprise Life Cycle (ELC)-lite, an abbreviated version of the Tier AELC. The recent successful transfer of two Tier B projects, 1120/1120S e-File and 990 e-File, to the Tier A Modernized e-Services project serves as evidence of this tight linkage. With a business demand for Tier B projects totaling $243 Million, the prioritization and selection methodology and process are critical. This process utilizes the Business Systems Planner/Division Information Officer (BSP/DIO) Council to review proposed Tier B projects against a set offive criteria, rank the projects based on how they scored in the five criteria, and then make a recommendation considering available funding. The recommended projects are then presented to the IRS Senior Management Team (SMT) or its surrogate Enterprise Architecture Integration Council (EAIC) for approval. - We took steps in FY 2002 to further improve the implementation of a comprehensive investment management framework for managing our Tier B investment portfolio. This framework (Select, Control, Evaluate) is based on the investment management process being applied across government agencies, and supports the formulation, management, and maintenance of IT investments. This process is key to ensuring that the investment portfolio adequately addresses our business strategies. In April 2002, the first integrated prioritization was performed by the BSP/DIO Council to determine the recommended FY 2003 portfolio. This was the first integrated prioritization session with an enterprise perspective. Tier B Improvement initiatives took into account the relative dependencies and impacts from Tier A Modernization initiatives and Tier C Improvement initiatives, as well as gaining an understanding of IT platform infrastructure initiatives in regards to Tiers I (mainframes), II (servers), III (desktops), and IV (telecommunications). As part of the prioritization process, the BSP/DIO Council participated in an Equity Session to screen, brief and score existing and proposed Tier B projects, and considered other Tier initiatives for corresponding impacts. During the prioritization session, the BSPs and DIOS screened the IT project proposals, focusing on business value mission, impact, criticality, probability of success, and Tier A implications/dependencies. Projects were recommended for inclusion in the portfolio based on their business value and business unit priority, and this resulted in a ranked list of projects. This portfolio was presented to, and after minor adjustments, approved by the Senior Management Team. Based on lessons learned and good practices, improvements were made to the process. To effectively integrate prioritization with the budget cycle, the process was once again applied in November 2002 to select the current FY 2004 Tier B investment portfolio. For FY 2004, key weighted criteria were applied to rank projects based on achieving the best business value for the business units and the Enterprise. The revised prioritization process was successfully implemented, and the resulting portfolio was presented and approved by the EAIC and the SMT. The selected projects will follow a tailored Enterprise Life Cycle (ELC) process and the Resources Allocation and Measurement Division will monitor and control these IT investments to minimize the likelihood of project failure, excessive cost, and schedule over runs. 2/3/03 IRS, IS-10 § Internal Revenue Service, Information Systems Program Governance for Tier B Projects The Tier B projects adhere to a program governance structure that ensures compliance with the capital planning guidance components of selection, monitoring, and control. In addition to these three components of capital planning, the IRS has added an integration component because of its complexity and importance within IRS systems development efforts. This governance structure for Tier B meets the appropriate and rigorous requirements for comparable activities in IRS’ Business System's Modernization (BSM) Program in the following manner: Selection The governance program for the selection of Tier B projects is vested primarily in the Business Systems Planner and Divisional Information Officer (BSP/DIO) Council and the Enterprise Architecture Integration Council (EAIC). The BSP/DIO Council performs a rigorous, analytical and repeatable prioritization process for selecting Ticr B projects. Factors including business value, enterprise-wide value, cost, schedule, compliance with the BSM Enterprise Architecture (EA), opportunities for consolidation, and recognition of potential major integration issues are utilized and determinative in the prioritization process. - Monitoring The governance program for monitoring the implementation of approved Tier B projects is vested primarily within the business owner of the project, Resources Allocation and Measurement (RAM) division of IRS’ Modernization and Information Technology Services organization (MITS), and the BSP/DIO Council. In addition, a monitoring role and responsibility, which will primarily be an oversight function, is currently being defined for the EAIC. The initial and primary monitoring of the performance of each Tier B project resides with the business owner. Each operating or functional division owner of Tier B projects has an executive steering committee (ESC) to conduct monthly performance reviews of their projects. They report monthly to the IRS Commissioner via the business performance review (BPR) system process. RAM also reports on the performance of all Tier B projects on a quarterly basis as a part of the MITS BPR with the IRS Commissioner. Finally, RAM and the BSP/DIO Council beginning in February will conduct monthly performance reviews of Tier B projects to ensure schedule and cost compliance with plan and to raise and resolve any integration issues among Tier B projects, Tier A (BSM) programs and existing systems (Tier C) enhancemente. The goal is to review every Tier B project at least once every quarter. Control The primary control component of governance focuses on maintaining control over the release and expenditure of finds to Tier B projects. RAM and the Financial Management Services (FMS) divisions of MITS perform this governance. This control is performed in accordance with the capital planning requirements of OMB, Treasury and the IRS. The release and expenditure of funds are tied to deliverables required by an Enterprise Life Cycle tailored specifically for Tier B projects, called ELC-Lite. A major critical path item in controlling funds is the business case. In prior years, 2/3/03 IRS, IS ‘’ § Internal enue Service, Information Systems MITS has used a rigorous and comprehensive business case to justify release of funds and project continuation. The methodology for producing these business cases is being designed and implemented to be in 100 percent conformity and compliance with the Exhibit 300s. Integration Across ISY & BSM One of the major concerns of selecting, implementing and managing projects across multiple project levels within the IRS is the integration. Integrated prioritization and selection are performed initially by the BSP/DIO Council and finally by the EAIC as part of their oversight responsibilities. Integrated implementation and management are performed initially by the BSP/DIO Council via their monitoring and control process described above, but integration is also performed by many of the Sub-ESCs who have oversight responsibility for the full range of systems within their purview. For example, the Internal Management Sub-ESC has integration oversight responsibility for all internal management systems and projects. 2/3/03 IRS, IS-12 3. ©r 13.1 R&CW 3. FY 2002 In FY 2002, IRS Tier B Investments delivered the following functionality in support of the business objectives: • Electronic capture of Tax Form 990 images and data. • 90% electronic availability of forms and schedules associated with Tax Forms 1040, 1040A and 1040EZ. • Employee Organization Business Master File system enhanced to process Tax Form 990 images. • Offers in Compromise case processing at 10 campuses centralized into the Memphis and Brookhaven Compliance Centers. • Made available 90 percent of all forms and schedules associated with forms 1040, 1040A and 1040EZ electronically to taxpayers for the 2002 filing season (Phase I). • Provided a method of responding to taxpayer issues and concerns addressed to and from the Senate Finance Committee. • Provided the Business Units access to balanced measures and the underlying diagnostic data. • Reduced the response time for appeals cases. • Reduced taxpayer contact time and retained information to assist downstream contacts with the taxpayer. • Converted existing systems to provide electronic case processing for field revenue officers, managers and support staff. • Enhanced systems to allow secure dial-in access to current information. • Assisted revenue officers in the field in better answering taxpayer inquiries. • Redesigned and consolidated systems to support casework and advocacy services, • Consolidated examination databases to provide management with a better tool to identify examination inventory and workload needs. FY 2003 The Service is continuing the development and implementation of projects begun in FY 2002, and has identified new projects that will provide critical functionality in support of the Business and Functional Divisions. These projects increase customer value by modernizing existing business processes and technology consistent with the enterprise architecture, business priorities and legislative requirements. 2/3/03 IRS, IS § Internal enue Service, Information Systems Tier B improvement projects funded in FY 2003 will: Establish a centralized database system to receive taxpayer appeals case data electronically and reduce the time to respond to taxpayers. In addition, the system will provide appeals case data to the operating divisions. Provide a database that tracks the status and progress of taxpayer cases meeting the Taxpayer Advocate Service criteria mandated by Congress in RRA98. - Provide a centralized, automated system for processing Employee Plans and Exempt Organization determinations utilizing commercial-off-the- shelf products. The determination letter process is the foundation for all IRS interactions with EP and EO customers. Provide computer-based tools to IRS attorneys for preparation and circulation of tax briefs, electronic reference of documents, an interface with U.S. Court systems, and access to secure communication systems within and outside of IRS. Provide a system to capture tax examination progress and results, e.g. examination planning data, audit results and timekeeping data. A key feature will be the ability to work on-line or off-line. Make available 90 percent of all forms and schedules associated with forms 1040, 1040A and 1040EZ electronically to taxpayers for the 2003 filing season (Phase II). Provide a system to prioritize collection cases to allow productive cases to be worked at an earlier time and give the taxpayer the opportunity to satisfy a tax liability before excessive penalties and interest accrues. FY 2004 Tier B improvement projects funded in FY 2004 will: Provide an automated proof of claim computation and an electronic claim for filing in the court. Provide an on-line system, available at selected major Taxpayer Assistance Centers, to facilitate workload and resource distribution by screening and categorizing taxpayer needs at the point of registration. Provide caseworkers online access to all taxpayer payment data and images processed by IRS systems and deposits at Lockbox banks. Provide information to states and support applications to federal agencies in the area of fuel tax compliance. In addition, provides tools for conducting tax research, determining and improving case classification and monitoring Excise programs. Establish a web-based centralized database for managing case information for tracking, planning and reporting purposes. Provide caseworkers online access to all taxpayer payment data and images processed by IRS systems and deposits at Lockbox banks. Record customer calls and provide specific customer feedback based on actual events and improve the overall service to taxpayers. 2/3/03 IRS, IS-14 § ern evenue Service, Tier B investment projects provide near-term improvements or enhancements that support specific requirements of the taxpayer groups served by our Operating Divisions. BUDGETAUTHORITY AND FTE FY 2000 2001 || FY 2002 || FY 2002 || FY 2003 || FY 2004 Actual Actual Plan Actual B Direct FTE otal: NA Direct FTE NA Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table - $33,786 $39,864 $38,665 $49,865 $49,865 Direct FTE 0 0 0 0 0 Performance Goal: Develop and implement system projects that respond to the specific requirements of the taxpayer groups served by IRS Divisions. 2/3/03 IRS, IS ‘’s # Internal enue Service, Information Systems Budget Activity 99; Information Services This activity provides the information systems services required to effectively administer the nation’s tax laws. Programs include: BSMO Management—Provides executive direction of the Business Systems Modernization Program. The Program provides vision and strategy, release management, enterprise architecture support and ensures that all the integrated components of both technical and business modernization will provide a total business solution. - - Security Services – Ensures that IRS has effective security policies and programs in place to adequately safeguard taxpayer records, employees, facilities, business processes, systems and other resources. The program includes Security Policy Support and Oversight; Mission Assurance; and Modernization Security. - ITS Management – Covers the immediate office of the Chief, Information Technology Services (ITS) and provides executive direction for the ITS organization and the divisions: Infrastructure, Architecture & Engineering; Business Systems Development; Enterprise Operations; Enterprise Networks; End User Equipment & Services; and Web Services. The program also includes ITS Budgeting and Performance Management. Resources Allocation and Measurement — Provides executive leadership and supports the development of the Modernization, Information Technology and Security Services (MITS Services) Strategies and Plans in a manner that ensures their alignment with agency-wide corporate and operating/functional division strategies Product Assurance – Conducts system acceptability tests, which provide independent assessment of the quality of critical major tax processing application software prior to production implementation. Applications Analysis & Programming-Supports the design, development, testing, and implementation of approximately 85,000 applications programs that support critical tax processing, management information reporting, and financial and management support systems for the IRS. In addition, this program supports external trading partner data exchanges with other federal government agencies, state and local governments, and other external entities. Enterprise Technical Software and Services - Designs, develops, and maintains Information Technology that supports critical tax processing, management information reporting and financial and management support systems for the IRS. Enterprise Network-Provides efficient and cost effective telecommunications service delivery to all customer segments. Enterprise Computing Centers — Operations and maintenance functions located at the three Computing Centers in Memphis, Detroit and Martinsburg assure minute-by-minute operations of Individual and Business Taxpayer Information Files and all other IRS computer systems affecting all IRS business missions and other Treasury and Federal agencies. - Web Services - Implements new applications of WEB technologies to bring all IRS employees work improvement tools as well as the ability to share information more quickly and to reach a broader audience. End User Equipment and Services — Maintains IRS’ automated business processes at headquarters and field sites, effectively enabling IRS Business Units to fulfill their functional missions. This encompasses technical support to include systems and applications software support to 2/3/03 IRS, IS-16 § Internal Revenue Service, Information Systems end users, maintaining legacy operations, local and corporate systems administration activities, e-mail and domain user account maintenance, network and systems monitoring administration utilizing automated management tools and asset management activities. • Infrastructure, Architecture and Engineering - Provides the systems architecture, sequencing plans, release management, and high-level engineered designs supporting information systems applications, software development tools, and infrastructure products necessary to build and evolve enterprise-wide business solutions. • MITS Management - Provides executive direction for the MITS organization, including management and oversight of investments in Information Technology (IT). FY 2002 As part of its ongoing modernization efforts, IRS has consolidated notice printing and mid-range computers, and developing and managing telecommunication services. To keep reasonable pace with industry software advances, IRS continues to replace a portion of its desktop/laptop inventory annually. In addition, the IRS performs ongoing maintenance of hardware, software, virus detection and eradication capabilities, and standard commercial applications. FY 2003 In FY 2003, MITS Services is focused on perfecting the rigorous re-balancing of resources, priorities, and projects to meet IRS business priorities commenced in FY 2002. Fiscal Year 2003 program plans identify reengineering opportunities in base funding. These efficiencies created opportunities that could be reapplied to improve service levels and to support other MITS priority programs. After covering base operations, senior management reviewed program input and aligned resources to support the following priorities: Maintaining Operations A major portion of the efforts to support this budget activity is maintaining operations -- i.e., the ongoing operations of the IRS including telephones, toll-free services, e-mail messaging, voice messaging, workstations and desktop software for end-users, application software for tax administration and internal management, computer center operations (hardware, software, telecommunications) for day-to-day operations, the all-important filing season, and the people to make all this happen. This budget activity also includes support for many IT projects managed by the Business Operating Divisions and Functional Operating Divisions. Transition to Support and Operations and Maintenance Just as business integration addresses preparedness and acceptance of modernized systems into the business operations, transition to support and operations and maintenance address the preparedness and acceptance of modernized systems into MITS Services operations. At present, a rough order of magnitude estimate of the total cost of this activity ranges from $85 million to $150 million. The activities in this area for FY 2003 will be 2/3/03 IRS, IS ‘7 § Internal 'enue Service, Information Systems dominated by planning; increased understanding of the work of transition to support and operations and maintenance; refining the schedules, timing and cost estimates; and the piloting of developed operations approaches and processes on those modernized system deployments in FY 2003. Applying OMB A-11 Requirements and Clinger-Cohen Act Rigor Across all Information Systems Activities The IRS is implementing appropriately dimensioned project selection, investment, execution, priority setting and performance management and measurement processes across all Information Technology and Security Services efforts, to achieve the same results which we have achieved in Business Systems Modernization (BSM). So far, these processes extend across BSM (“Tier A*) investments and Information Systems Improvement (“Tier B") projects, but we are actively developing similar approaches to smaller projects, operations and maintenance work, and infrastructure efforts as well. FY 2004 Operating Efficiencies Although development of modernization systems and transition to modernization must take priority, MITS Services will continue to focus on identifying and implementing operational reengineering and discontinuing less productive work to free resources to re-invest in the IRS’ highest priority programs. MITS plans to significantly reduce contractor costs, implement changes in the organization, and deploy new infrastructure and effect program improvements. The resources freed by the above efforts will be reallocated to support business priorities including expanding the Virtual Private Network Service for LMSB Revenue Agents at taxpayer sites as part of the High-Speed Secure Remote Access project. This effort will provide our customers with high-speed access to corporate information resources using secure networking technology. Funds will also be used in FY 2004 to provide software licensing/maintenance renewal for the Tier A Customer Relationship Management Exam software that becomes an operational expense in that year. In FY 2004, the focus will be on the enormous task of transitioning the modernized deliveries to support, and then to operations and maintenance while maintaining and enhancing the supporting infrastructure and continuing the delivery of successful filing seasons. Despite a $90 million per year reduction in base Operations and Maintenance costs during this period, MITS Services will provide increases of 49% in mainframe and 150% in installed midrange server capacity, increase of almost 100% in data network bandwidth use, increase of 50% in the number of voice message boxes, increase of over 50% in public web site use, and increase of 25% in the number of e-mail messages. The major resource challenges facing the IRS are to continue support for base operations, business improvement projects and Information Technology improvement projects while addressing an increased level of support to Modernization Program projects, increasing risks associated with mission assurance, and maintaining the core infrastructure. 2/3/03 IRS, IS-18 § In FY 2004, we will realize reduced equipment maintenance costs and reduced labor dedicated to supporting Tier II platforms. To lessen taxpayer burden and improve their productivity, the Registered User Portal provides taxpayers with access to select IRS information around the clock. HR Connect will implement software upgrades and expand human resources management capabilities to include external recruitment. The Human Resources (HR) Connect project will leverage Treasury’s department-wide human resources modernization efforts to provide a state-of-the-art human resources management system. It will improve HR administration by providing a single, centralized repository of such data. It will allow staff self-service access and limited update capabilities to employee data, thereby reducing HR resource requirements, and will facilitate accurate financial data by centralizing all HR information into one database. To enhance internal management (especially administration) and improve employee productivity, the Employee User Portal will provide IRS employees with web-based applications that promote efficiency in the administration of internal tasks. Efficiency reinvestment will be used to support this new functionality. During FY 2004, the heavy lifting of actually transitioning modernized systems (release plan calls for seven major system/project releases in FY 2004) into the support and operations and maintenance organizations, processes and personnel of MITS Services is planned. This involves significant risk management, program management, training and re-training, hiring, resources re-balancing and new hardware, software and telecommunications infrastructure within the Information Technology Services organization of MITS Services. 2/3/03 - : IRS, IS ‘’” º Internal enue Service, Information Systems Note: IRS shifted to a new Program Activity Code Structure for this Appropriation during FY 2002. As a result, there are large differences between the FY 2002 “Planned” and “Actual” spending for Program Activities 9A through 9H, as these Program Activities were phased out early in the Fiscal Year and replaced by Program Activities 9J through 9Z. AUTHORITY AND FTE FY 2000 || FY 2001 FY 2002 FY 2002 2003 FY 2004 2/3/03 IRS, IS-20 § IRS, IS ‘’ 2:303 # enue Service, Information Systems FY 2001 AND FTE FY 2002 IRS, IS-22 Internal 2/3/03 § IRS, IS ºt 2/3/03 § enue Service, Information Systems IRS, IS-24 Internal 2/3/03 § Advocate Case IRS, IF 2/3/03 3. Internal enue Service, Information Systems Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table 2/3/03 Direct FTE Performance Goal: Provide the 70. Ticket Activity–Open (W) 71. Ticket — Closed (W) 72. Percent Resolution at First Contact 73. Percent Resolved on Time (W) 74. Mean Queue Time (minutes) (W) 7,441 N/A N/A N/A N/A N/A 1,581.041 7,499 IRS activities to N/A N/A N/A N/A N/A 7 8 administer the nation's tax law. 656,000 660,000 720,000 649,000 660,000 720,000 47% 60% 70% 71% 80% 85% 1 1 1 IRS, IS-26 % DETAL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Statutory executive positions Policy/program professional staff Secretarial and clerical - - - -------- IRS, IS "T 2/3/03 3. 'enue Service, Information Systems DETAL OF FULL-TIME EQUIVALENT STAFFYEARS BY GRADE Senior Executive Service Level 6 Executive Service Level 5 Executive Service Level 4 Executive Service Level 3 Executive Service Level 2 Executive Level 1 IRS, IS-28 Internal 2/3/03 % ExPLANATION or proposed rºy 2003 operating Budget (D-la-) lºud-tº-P-Position_ -nd |Pººna Rºzroduction_ ad-i-A-S- aoº-sarie- 2/3/03 IRS, IS-29 % Interna venue Service, Information Systems Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS YET NOT BEEN PASSED. FTE 000 FY 2003 President’s Budget Request 7,499 1,632,444 2/3/03 IRS, IS-30 % standaru-classification schedule Directobligations IRS, IE 2/3/03 % Internal ſenue Service, Information Systems DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Information Systems For necessary expenses of the Internal Revenue Service for information systems and telecommunications support, including developmental information systems and operational information systems; the hire of passenger motor vehicles (31 U.S.C. 1343(b)); and services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $1,670,039,000, of which $200,000,000 shall remain available until September 30, 2005. 2/3/03 IRS, IS-32 % INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS BUSINESS SYSTEMS MODERNIZATION APPROPRIATION EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity BSM-1 BSM-1 Summary Explanations of Fiscal Year 2004 Requested Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases BSM-2 BSM-3 Appropriation Overview BSM-4 Budget Authority, FTE and Performance Measures: Business Systems Modernization SUPPORTING MATERIAL Explanation of Proposed Fiscal Year 2003 Operating Budget Explanation of Congressional Action Standard Classification Schedule: Direct Obligations Appropriation Language 2/3/03 BSM-10 BSM-11 BSM-12 BSM-13 BSM-14 % Internal Revenue Service, Business Systems Modernization ANALYsis of FY 2003 PRESIDENT's budget LEVEL Amount —PTF- FY2003 President's Budget.........-................. d $450,000 FY2003 Amead 0. ($70,000) Proposed Adjustments (++-): Reprogramming (FTE only, except for inter-appropriation - 0. 0 - - FY2003 adjusted President's Budget Level, Plus/Minus Transfers o $380,000 DIGEST OFFISCALYEAR2004 Budget estimates by Activity 2/3/03 IRS, BSM-1 % Internal enue Service, Business Systems Mºrmation SUMMARY EXPLANATIONS OFFISCALYEAR2004 REQUESTED CHANGES BY ACTIVTTY (Dollar-In-Thousands) CHANGES: Increases l Customer Counterterrorism 4) Business EITC Task Force CHANGES: to Maintain Current Levels: 1) Labor Annualiztion Labor and Benefits 3) Non-Labor Costs Non-Recur 2/3/03 IRS, BSM-2 § Internal Revenue Service, Business Systems Modernization EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Business Systems Modernization (BSM) Appropriation are projected to be $429,000,000; an increase of $49,000,000 over the FY2003 funding level of $380,000,000 (adjusted from the original President's Budget level of $450,000,000 less $70,000,000 for the Budget Amendment). This appropriation funds no FTE. PROGRAMI CHANGES Total Requested Program Changes * º e º ºs e g g g g g tº +$49,000,000 A program increase of $49,000,000 is requested for Business Systems Modernization (BSM). The FY 2004 increase funds the contract, equipment and software costs needed to achieve BSM's goals to improve the speed, timeliness and accuracy of IRS’ administration of the tax system. The IRS has developed a set of interdependent projects that will operate in the modernized environment. The Service has thoroughly reviewed the tax system work streams within its business process reengineering effort. This process, known as Tax Administration Vision and Strategy (TAVS), developed a vision of future business practices for each work stream. The process also created Operating Models that bundle sets of capabilities to meet the differing needs of customer segments at different stages in the taxpayer lifecycle, and identify the business systems and processes that will most quickly provide benefits to customers. All of these operating models and capabilities have been incorporated into the Enterprise Architecture -- the blueprint for the Modernized IRS. 2/3/03 - IRS, BSM-3 § Internal enue Service, Business Systems Modernization APPROPRIATION OVERVIEW This appropriation provides for the planning and capital asset acquisition of information technology systems, including related contractual costs of such acquisition and contractual costs associated with operations authorized by 5 U.S.C. 3109, to modernize IRS’ antiquated business systems. The IRS Business System Modernization (BSM) Appropriation, provides for revamping business practices and acquiring new technology. The Agency is using a formal methodology to prioritize, approve, fund and evaluate its portfolio of BSM investments. This methodology enforces a documented, repeatable and measurable process for managing investments throughout their life cycle. Investment decisions are approved by the IRS Core Business System Executive Steering Committee, chaired by the Commissioner. This executive-level oversight ensures that products and projects delivered under the Business Systems Modernization program are fully integrated into IRS Business Units. The IRS collects $2 trillion in revenues annually through a collection of computer systems developed over a 40-year period. The most important systems that maintain all taxpayer records were developed in the 1960s and 1970s. These outdated systems do not allow the IRS to meet today’s taxpayer and business needs. Failure to modernize IRS’s tax administration business systems will result in a significant increase in resources required to maintain legacy systems — systems that no longer efficiently or effectively serve America's taxpayers. The IRS has undergone an intensive servicewide portfolio prioritization effort, leading to a long-term modernization plan identifying selected modernization projects, a release sequence for each project, and estimated costs for each project. The effort has been based on the vision and strategy initiatives that created an enterprise-wide view that unifies the business needs. IRS is now executing this strategy. This program increase of $49 million will fund the infrastructure, program management, and the releases of the core business applications to support the successful delivery of a modernized tax administration system. 2/3/03 - IRS, BSM-4 § Internal Revenue Service, Business Systems Modernization Budget Activity 86; Business Systems Modernization (BSM) Functions: The IRS is modernizing its business processes and implementing new technology. Ovel the next decade, through the BSM program, the IRS will fundamentally transform the way it delivers services and manages information. This transformation to a modernized state is successfully underway. The BSM program brings together best practices and expertise in business solutions from IRS, Business, and the Technology Sector to develop a world-class tax administration system that fulfills the revenue collection requirements of the United States and taxpayers needs and expectations. The IRS has embarked upon a comprehensive modernization program to produce world-class information systems that meet U.S. taxpayer needs and the tax administration goals of the Nation. The U.S. tax administration system collects $2 trillion in revenues annually. The IRS is critically dependent on obsolete, fundamentally deficient, computer systems developed over the last 40 years. They do not and will not allow the IRS to administer the tax system of the Nation and provide essential service to taxpayers at an acceptable level of efficiency, effectiveness, and risk. In FY 2002 the Business Systems Modernization (BSM) Program has implemented basic building blocks (secure online system and system management capability) and an initial taxpayer-facing application, Internet Refund/Fact of Filing. In FY 2003 and FY 2004, additional supporting infrastructure services will be added, and an increasing number of business and internal applications will be delivered, creating taxpayer value and enabling internal efficiencies. The IRS will augment the infrastructure components installed in FY 2002 to provide the capacity to handle increased numbers of users and additional applications. Security improvements will keep pace with the additional requirements, including increased usage of employee and registered user Internet portals. During the next decade, IRS’ Business Systems Modernization will provide improved: • Access to information and tax data through multiple channels (Internet, phone, walk-in, correspondence) for all taxpayers; • Accuracy of information provided by the IRS to all taxpayers; • Speed of response to taxpayers; • Timeliness of IRS initiated actions; and • Productivity of IRS staff. BSM is transforming the way the IRS does business through improved business processes and harnessing technology to increase productivity and efficiency. 2/3/03 IRS, BSM-5 § Internal. nue Service, Business Systems MOTEFITIZātūII The IRS has made substantial progress since the first release of BSM Funds on June 28, 1999. The IRS has undergone an intensive portfolio prioritization effort, leading to a long-term modernization plan identifying selected modernization projects, a release sequence for each project and estimated costs for each project. This effort has been based on the vision and strategy initiatives that created an enterprise-wide view that unifies the business needs. The IRS has laid the groundwork upon which a technologically advanced foundation is now being built to support a modernized tax administration system. This effort is led and managed by the IRS Commissioner and the Senior Management Team (SMT). FY 2002 Our initial FY 2002 applications, the Internet Refund/Fact of Filing (IR/"JF) and the first part of the Security and Technology Infrastructure Release (STIR) went into production in the planned timeframes. Also, the Eng: ced Call Routing application went live for this filing season, as planned. The Enterprise Systems Management application was about a month late, and began production operation on July 19, with two small releases completed after going into production. Although the Budget Amendment reducing BSM’s expected funding for FY 2003 forced us to refocus some BSM efforts and priorities, the Service is still on track to deliver all of the planned applications, and it is moving ahead on projects that are planned for deployment in FY 2003 and beyond. Additionally, the first two applications that we fielded in the summer of 2001, Customer Communications 2001 and Customer Relationship Management (CRM) Exam, have continued to run well and will deliver significant benefits to taxpayers and the IRS. We started the following new projects in FY 2002: • Modernized e-file: Provides a single standard for filing electronic tax returns. • Customer Account Management (CAM) Milestone 3a; IRS re-scoped efforts to ensure the Wage and Investment (W&I) Business Unit has a clear picture of its long-term direction for accounts management before going into detail of the next phase of the design of CAM. • Integrated Tax Administration Business Solutions (ITABS): A series of projects designed to ensure we understand requirements and select COTS solutions that can effectively integrate business processes in the IRS functions. Other BSM project progress in FY 2002 included: • Customer Account Data Engine (CADE). This has entered the first phase of a three-phase full-volume pilot. We are planning the first production release in the next filing season. • e-Services: Proceeded with development of secure Internet self-service applications for external IRS business partners to be delivered in FY 2003. 2/3/03 IRS, BSM-6 § Internal Revenue Service, Business Systerºs Modernization • Custodial Accounting Project (CAP): Application development for a system that will address compliance with legislative and policy directives related to revenue reporting and accounts receivable management proceeded and will enable an FY 2004 delivery of the first release. Based on the results of a cost-benefit study, IRS delayed starting work on CAP Release 2 until FY 2004. Enterprise Architecture (EA) and Tax Administration Vision and Strategy (TAVS): Delivery and acceptance of Release 2.0 of the Enterprise Architecture was a significant achievement. We aiso conducted a brief planning effort called “TAVS Refresh” to identify gaps and outdated information in TAVS. We plan to address these deficiencies into FY 2003. Integrated Financial System: The first release (core financials) of our new Integrated Financial System (IFS) remains on target for an October 1, 2003 implementation. * Infrastructure (STIR and Infrastructure Shared Services (ISS): Completed the build-out of the basic secure infrastructure necessary to support the modernization effort including e-Services R1, IR/FoE, Internet EIN and subsequent FY 2003 releases. FY 2003 The delivery plan for FY 2003 will be a challenge to achieve, but will move the BSM Program into a wide spectrum of critical new areas. Highlights of the FY 2003 delivery plan include: • CADE R1: In July 2003, we plan to put CADE into production, processing single 1040EZ filers (both electronic and paper). CADE will maintain synchronization with the Individual Master File to ensure no duplication of processing and will bridge back to the Current Processing Environment to enable us to provide customer service. Taxpayers covered under CADE will receive their refunds much faster than under Master File processing. Currently, e-file taxpayers receive their refunds through direct deposit in 8 to 16 days; under CADE, this window will be reduced between 5 and 9 days. Paper check refunds for e-filers currently take 16 to 25 days; under CADE, paper checks should be received in 6 to 10 days, More importantly, we will have taken the first of many steps to replace the 40-year old Master Files. • e-Services: We will deliver e-Services in two sub-releases. We will deliver the first, covering the registration of electronic return originators, Tax Identification Number (TIN) matching, and initial partner relationship management capabilities in March 2003; the second sub-release, covering electronic account resolution, transcript delivery, secure e-mail, and bulk TIN matching, in the June 2003 timeframe. • CAP: We will continue development and testing of Release 1, which will create a repository for modernized Individual Masterfile data and will address documented financial material weaknesses. CAP Release will provide for decision analyses, financial reporting, and create a requisite taxpayer account sub-ledger. CAP Release 1 deployment is schedu ºd for the first quarter of FY 2004. • Internet EIN: This application, which we will deliver by early February 2003, will automate the entry of requests for Employer Identification Number (EIN) over the Internet. Currently, the EIN request process is cumbersome and people-intensive, often resulting in unacceptable delays to establishing new businesses. We can deliver and deploy this appºcation in only a few months for a relatively small cost because it can ride on the Registered User Portal created in FY 2002 as part of the STIR p...isct. IR/FoR and e-Services will also use this application. • ISS: The Infrastructure Shared Services part of BSM combines the for Juer STIR and ESM components, as well as our telecommunications support. We will time new releases of ISS to support the applications we are deploying, ranging from hardware and systems software for CADE, 2/3/03 - IRS, BSM-7 § Internal . nue Service, Business Systems Modernization to new functionality for e-Services (e.g., outbound fax, secure e-mail). All application projects rely to a greater or lesser extent on ISS, hence its smooth integration with the other projects and timely deployments are critical to the overall Program success. In addition to projects that will go into production in FY 2003, we will be hard at work on a number of projects slated for delivery in FY 2004 and later, including: - . • Integrated Financial System (IFS). Although the first release of the new financial system will not go live until October 1, 2003 (therefore, an FY 2004 delivery project) it is likely to be our most intensive project during FY 2003 as the timeframe to finish the design and do the development and implementation of the financial system will be very challenging. • Modernized e-file. The Modernized e-file project will be in post-pilot evaluation for all of FY 2003, with initial deployment in early Calendar 2004, with Forms 1120 and 990 e-file capabilities. In parallel, we will conduct a Vision and Strategy project to look more broadly at modernizing all of submissions processing. We will establish downstream work in this area as part of that work. FY 2004 Increasingly, data will migrate to a modernized relational database. Taxpayers migrated to the Customer Account Data Engine (CADE) by the end of FY 2005 will include much of the 1040 family of electronically filed tax returns (full paid or refund), not including those with open issues or with power of attorney on the Centralized Authorization File. This migration will bring several million accounts onto the modernized databases and result in faster refunds for those taxpayers and set the stage for modernized customer service. The Internet will become an increasingly important source of information to customers, and provide increased capabilities for communicating with IRS personnel. E-services will provide practitioners and business partners additional automated service over the Internet and enable the IRS to improve relationship management among this important set of customers. It is anticipated that this will directly influence additional electronic filing. We will implement consolidated data for research and analysis, management information, and a host of operational uses through the first release of the Custodial Accounting Project (CAP). The first release of the CAP will create the repository for modernized individual taxpayer account data. CAP ensures effective financial management of revenue transactions including accurate and timely reporting of individual receipt and refund activity. The first release of CAP will be implemented in FY 2004. The second release of CAP will be developed in FY 2004 and will create the repository for Business Master File (BMF), Non-Master File (NMF) and Individual Retirement Account File (IRAF) data. Both releases provide for information decision analyses and reporting; infrastructure support for fat clients and terminal clients; auditing capabilities for on-line analytical processes; and taxpayer account sub-ledger to support Federal Financial Management Improvement Act Standard General Ledger requirements. In FY 2004, the Integrated Financial System (IFS) will enable the IRS to meet regulatory and oversight financial reporting requirements through the implementation of a Commercial Off the Shelf (COTS) solution. This project will deliver the internal financial reporting capabilities needed to develop and track budgets and expenditures. Core financial capability, including general ledger, accounts receivable, accounts payable, cash, cost 2/3/03 IRS, BSM-8 § Internal Revenue Service, Business Systems Modernization accounting, and financial reporting will be implemented. IFS will be a Joint Financial Management Improvement Program (JFMIP) compliant system. - Business Projects Modernized e-file will provide electronic filing for large and medium-sized businesses (Forms 1120 and 990), as well as a new Tax Return Data Base, which will greatly improve customer service and issue resolution. This project uses-state-of-the-art XML technology that will enable a revolutionary new way to exchange electronic data in the future over the Internet. - E-Services will provide support for the 2004 Filing Season as well as implement support structures for Modernized e-file planned for implementation later in the fiscal year. Internal Management Projects Integrated Financial System (IFS) will develop the detailed functional requirements for a COTS solution to support internal management requirements for financial and management planning, execution and reporting. Each release will represent a distinct usable segment. Release 1 will replace the Core Financial Systems (CFS) and include budget formulation information, plus implementation of a Cost Accounting System. Release 2 will focus on Property Accounting/Management, Travel Management, Procurement Management, Performance Management, Seized Property Management, and Administrative Data Warehousing. A re-plan of the original Release 2 is in process. The Custodial Accounting Project (CAP) will provide an integrated enterprise data warehouse to support organizational data needs, performance measurement, and tax operations process improvements for individual filers. CAP Release 1 will provide support for individual filers. CAP Release 2 will provide support for business filers. Data/Infrastructure Projects - Customer Account Data Engine will allow for electronic processing of selected Form 1040 Wage & Investment returns with additional taxpayer segments with increasingly more complex tax returns and/or balance due returns. Infrastructure Shared Services (ISS) will establish a program to build and deliver an agile infrastructure that is scalable, interoperable, flexible, manageable, and features standardized operations and a single security and enterprise systems management framework. This infrastructure will enable us to deploy modernized business systems and fully integrate with the current processing environment to support data access, databases, web based service delivery for taxpayers and internal users, and do so in a fully secure and optimally managed operational environment. ISS is an umbrella program for multiple projects including Security, Technology Infrastructure Release, Telecommunications Near-Term, and Enterprise Systems Management. 2/3/03 IRS, BSM-9 § erna 'enuese AUTHORITY AND FTE Business Systems Modernization FY 2000 FY FY 2002 Actual Actual A Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table - - - - - --- - Budget Authority ($000s) $93,616 || $391,593 $243,892 || $380,000 $429,000 Direct FTE 0 0 0 0 0 Performance Goal: Effectively manage the contract resources that support capital asset acquisition of business systems modernization. 2/3/03 IRS, BSM-10 % Internal Revenue Service, Business Systems Modernization explanation of proposed frzona operating budget 0--Tho-º. l cº-fºr-º 2/3/03 IRS, BSM-11 § Internal-7enue Service. Business systems wrotrermºzarror- Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS NOT YET BEEN PASSED FTE ($000) FY 2003 President’s Budget Request 0 450,000 Budget Amendment 0 -70,000 Amended FY 2003 President’s Budget Request 0 380,000 2/3/03 IRS, BSM-12 £ Internal Revenue Service, Business Systems Modernization standard-classification scardulº Directobligations 2/3/03 IRS, BSM-13 3. DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Business Systems Modernization For necessary expenses of the Internal Revenue Service, $429,000,000, to remain available until September 30, 2006 for the capital asset acquisition of information technology systems, including management and related contractual costs of said acquisitions, including contractual costs associated with operations authorized by 5 U.S.C. 31.09: Provided, That none of these funds may be obligated until the Internal Revenue Service submits to the Committees on Appropriations, a plan for expenditure that: (1) meets the capital planning and investment control review requirements established by the Office of Management and Budget, including Circular A-11 part 3; (2) complies with the Internal Revenue Service's enterprise architecture, including the modernization blueprint; (3) conforms with the Internal Revenue Service's enterprise life cycle methodology; (4) is approved by the Internal Revenue Service, the Department of the Treasury, and the Office of Management and Budget; (5) has been reviewed by the General Accounting Office; and (6) complies with the acquisition rules, requirements, guidelines, and systems acquisition management practices of the Federal Government. 2/3/03 IRS, BSM-14 § INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS EARNED INCOME TAX CREDIT COMPLIANCE INITIATIVE EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity Summary Explanations of Fiscal Year 2004 Requested Changes by Activity Explanation of Fiscal Year 2004 Budget Increases and Decreases Appropriation Overview Budget Authority, FTE and Performance Measures: Earned Income Tax Credit SUPPORTING MATERIAL 2/3/03 Detail of Full-Time Equivalent Staff Years by Category Detail of Full-Time Equivalent Staff Years by Grade Explanation of Proposed Fiscal Year 2003 Operating Budget Explanation of Congressional Action Standard Classification Schedule: Direct Obligations Appropriation Language.................................................................................................... tº e s a gº e º º ºs º ºs e tº e º ºs e s tº e º º à Internal Revenue Service, Earned Income Tax Credit Compliance Initiative Analysis or FY 2003 PRESIDENT's BUDGET LEVEL amount FY2003 President's Budget 2,353 $146,000 FY2003. A - o 0 Proposed Adjustments (+/-): Reprogramming (FTE only, except for Inter-appropriation transfers) d o FY2003 Adjusted President's Budget Level, Plus/Minus Transfers 2.353 siąg,000 DIGEST OF FISCALYear 2004 BUDGETESTIMATES BY ACTIVITY Memorandum: Under proposed legislation to reflect the full costing of CSRS retirement benefits and all retirement health benefits, the following amounts would be added: FY2002: $7.94M; FY2003: $8.346M; FY2004: $8,909M. 2/3/03 IRS, EITC-1 # Internal. nue Service, Earned Income Tax Credit Compliance Ini re SUMMary ExPLANATIONS OF FISCALYEAR2004 REQUESTED CHANGEs BY ACTIVITY (Dollars in thousands) CHANGES: Increases 1 Customer Service Counterterrorism T of Customer Service 3) Internal Services and 4 Satisfaction Servicewide CHANGES: to Maintain Current Levels: 1) Labor Annualiztion Labor and Benefits Non-Labor Costs Non-Recur 2/3/03 IRS, EITC-2 3. EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Earned Income Tax Credit (EITC) Compliance Initiative Appropriation are projected to be $251,167,000 and 2,994 FTE. Total increases of $ 105,713,000 are offset by $546,000 in reductions, resulting in a net increase of $105,167,000 over the FY 2003 operating level of $146,000,000. In addition, there is a total net increase of 641 FTE over the FY 2003 staffing level. PROGRAMI CHANGES 2. Reinvestment of Freed-up Resources... tº e º gº & +972,000 / 0 FTE a) Servicewide (+$972,000 / 0 FTE) Total Requested Program Changes * * * * * * * * * * * * +$101,426,000 / + 641 FTE 1. Reengineering dº º & x * w w w w w w w w ......... -$546,000/-9 FTE 3. Additional Funding Needs..... s ºr w tº e º 'º & © º * * * * * * * * +$100,000,000/+ 650 FTE a) EITC Task Force Initiative (+$100,000,000/+650 FTE) In FY 2004, the IRS will begin to implement the EITC Task Force recommendations that address the three major types of errors resulting from EITC overclaims. This initiative is the Earned Income Tax Credit Integrated Approach, which aims to establish that each EITC filer claiming a qualified child meets the relationship test and where necessary the residency test, and to address filing status errors and income misreporting as related to EITC. OTHER CHANGES Total Requested Other Changes .....+$4,741,000/0ETE 4. Adjustments Necessary to Maintain Current Levels ...... * & e º 'º e s tº e º e º 'º º w .........+$4,741,000/0 FTE a) Labor Annualization (+$1,121,000) b) MCLs for Labor (+$3,374,000) c) MCLs for Non-Labor (+$246,000) 2/3/03 IRS, EITC-3 3. Internal enue Service, Earned Income Tax Credit Compliance In ive APPROPRIATION OVERVIEW This appropriation provides for expanded customer service and public outreach programs, strengthened enforcement activities and enhanced research efforts to reduce overclaims and erroneous filings associated with the Earned Income Tax Credit (EITC). Expanded customer service includes dedicated toll-free telephone assistance, increased community-based tax preparation sites and a coordinated marketing and educational effort (including paid advertising and direct mailings) to assist low-income taxpayers in determining their eligibility for EITC. Improved compliance includes increased staff and systemic improvements in submission processing, examination, and criminal investigation programs. In returns processing, new procedures include expanded use of math error authority and the identification of EITC-based refund claims involving invalid or duplicate primary, secondary and dependent Taxpayer Identification Numbers (TINs). Increased examination coverage, prior to issuance of refunds, reduces overpayments and encourages compliance in subsequent filing periods; in addition, post-refund correspondence audits by service center staff aid in the recovery of erroneous refunds. Criminal investigation activities target individuals and practitioners involved in fraudulent refund schemes and generates referrals of suspicious returns for follow-up examination. Examination staff assigned to district offices audit return preparers and may apply penalties for non-compliance with “due diligence requirements.” Enhanced research activities and projects focus on EITC claimant characteristics and patterns of non-compliance and are designed to improve education and outreach products, strengthen IRS abuse detection capabilities, and measure the effects of Servicewide programs on compliance levels for EITC-eligible taxpayers. This appropriation also funds the development of specialized research databases and masterfile updates, reimbursement to the Social Security Administration (SSA) for enhancements to the SSA numbering systems and cooperative efforts with State vital statistics offices. 2/3/03 IRS, EITC-4 3. DESCRIPTION CEF fºr £ºSTAB&WE CURRENT SERVICES The IRS request is derived from careful analysis and prioritization performed in the Strategic Planning, Budgeting and Performance Management Process. This process forces IRS operating units to scrutinize base resources and search for the most efficient allocation of these resources. EEENGINEERING In FY 2004, the IRS will be able to reengineer $0.546 Million and 9 FTE fiom the EITC appropriation to fund part of the increased Servicewide labor costs. 1. Servicewide (-$0.5M1-9 FTE): X- Absorb Servicewide Within-Grade Increases and Promotions (-$0.5M/-9 FTE) The IRS will have to fund within-grade increases and promotions from existing resources. RE TMENT OF FKEED-UPRESOURCES The reengineered funds from programs within this appropriation and other appropriations ($41.0 million and 0 FTE) will be reapplied to fund the following: 1. Servicewide M / 0 : > Meet Increased Servicewide Labor Costs ($1.0M/0 FTE) These increased labor costs will be funded from mined resources. Increasing costs of WIGs and promotions have consistently exceeded the cost reengineering associated with attrition, creating a labor shortfall. This has forced the IRS to cut FTE to ensure that WIGs and promotions have adequate funding. There are two drivers behind these increasing labor costs: Career Ladder Promotions and Within-Grade Increases. Career Ladder promotions are an external driver of labor costs because they are required by OPM regulation. The IRS is required to promote employees until they reach their full working level in the GS scale, GS 12 or 13 in many professional job series. Career Ladder (C/L) promotions are generally given to employees at the beginning of their career; therefore, the cost of career ladder promotions will increase as hiring increases. Within-Grade Increases (WIGs) capture the cost associated with increasing an employee’s step on the GS scale. WIGs, like Career Ladder Promotions, are mandated by OPM regulations. Therefore, timely payment of WIGs is a requirement. Delaying WIG payments is not a management option. The number of WIGs will increase slightly over the next couple of years, paralleling increases in hiring. The increasing number of WIGs will lead to a higher cost for WIGs. - 2/3/03 IRS, EITC-5 # Internal 2nue Service, Earned Income Tax Credit Compliance Ini We ADDITIONAL FUNDING NEEDS Additional funding needs of $100 million and 650 FTE are needed to begin the implementation of the Earned Income Tax Credit Task Force Initiative. 1. EITC Task For tive ($100.0M / 650 FTE): > Earned Income Tax Credit Integrated Approach ($100.0M/650 FTE) The Earned Income Tax Credit benefits millions of low-income workers, but has proved difficult to administer. Despite use of extensive education and outreach, the program has continued to experience high error rateS. The resources requested will allow IRS to implement an integrated approach to EITC administration with the twin goals of ensuring that eligible taxpayers receive the tax credit they deserve (with minimum difficulty), while precluding payments to ineligible taxpayers. Using an integrated approach, the IRS will attempt to address potentially erroneous claims before they are accepted for processing and thus before any EITC benefits are paid. To ensure that each EITC filer claiming a child meets the EITC eligibility requirements before receiving benefits, IRS will implement a certification plan for qualifying child relationship and residency. The IRS will use all of its available data to determine that each EITC filer who is claiming a child meets the EITC relationship requirements -- without requiring any additional actions on the part of the claimant. This initiative will allow the IRS to systemically certify the “eligible relationship status” of nearly 80% of EITC claimants. The IRS will also use compliance study data and risk analysis to determine which EITC filers claiming children are most likely to meet the residency requirements. Using this information, the IRS will reduce the number of claimants required to certify residency by almost 80%. In circumstances where available data is insufficient to determine whether a claimant meets the qualifying child eligibility requirements (approximately 20% of claimants), the IRS will request additional information from the claimant before the refund is paid. In addition, the IRS will use error detection systems, in combination with historical data, third-party data and limited additional taxpayer information, to detect and freeze refunds with a high risk offiling status errors or a high risk of income misreporting. 2/3/03 IRS, EITC-6 3. Budget Activity 80: Earned Income Tax Credit Initiative Functions: This activity includes resources for expanded customer service and public outreach programs, strengthened enforcement activities, and enhanced research efforts to reduce claims and erroneous filings associated with the Earned Income Tax Credit (EITC). Notes: 1. The IRS reorganized in FY 2001 in accordance with the IRS Restructuring and Reform Act (RRA 98). In doing so budget activities were also changed and approved by Congress. In this chart the budget authority and FTE for fiscal year FY 2000 is not shown because it would not relate to the FY 2001 through FY 2004 budget structure. 2. This budget activity does not have any specific performance measures. The resources for this activity contribute to meeting the targets for measures reported in the Pre-Filing Taxpayer Assistance and Education; Filing and Account Services; and Compliance Services program activities. 2/3/03 IRS, EITC-7 £ enue Service, Earned Income Tax Credit Compliance In. Ive BUDGETAUTHORITY AND FTE_ m- Earned Income Tax Credit FY 2000 FY 2001 FY2002 || FY2002 || FY2003 I FY2004 Actual || Actual Plan L Actual Performance Plan Pre-Filing Services Mgmt (1A): - Budget Authority ($000s | NA | $2I $47|| $7] SOI SOI Direct FTE | NA I 0|| II 0|| 0|| 0. Taxpayer Communication and Education (1C): sº Budget Authority ($000s T NA | $3,348T $7,830 $4,362] $5,309|| $15,500 Direct FTE - | NA 30| 53] | 56] 179 Media and Publications (1D): 50T ~55] | $335T Budget Authority ($000s | NA | $0 $0 $3,394 $3,385 $3,446 Direct FTE | NA | T TO] | 4|| 4 Rulings and Agreements (i. * Budget Authority ($000s | NA | 5557] $307|| $73 || $342 E. $354 Direct FTE ſº | NA | —HT 3 || 1|| 3|| 3 Electronic Tax Administration (IH): - - Budget Authority ($000s) | NA SIT] $32T $2| 50] $0. Direct FTE | NA | 0|| 0 | 0|| 0|| 0 Taxpayer Advocacy (IJ): --- - Budget Authority ($000s | NA | $1 | $0 ISO] $0. $0 Direct FTE | NA || 0|| 0|| 0 0|| -ā- |Submission Processing (2B): - Budget Authority ($000s) | NA | $1309|| $2,512 $770. Sº I $1,600 Direct FTE | NA | 9|| 72 I- 25] 49 | 49 AccountMgmté Assist. - Electronic (2C): Budget Authority(8000s) | NA | $8,259 $9,947 $9,016 $7,497.| $24,279 Direct FTE | NA I77| 204 || 20II 165 | 435. Account t & Assist. - Field (2D): Budget Authority ($000s | NA | $4,208. $5,029 | $6,389 $4,207 $4,358 Direct FTE - | NA | 63 L 7 IT 98 || 68. 6 Space & Housing/Non-ADP Equipment (4H): - - - Budget Authority ($000s | NA' | $10 $0. $0.] # $0. Direct FTE | NA | TO] 0 -5] 0 0. Unit General Mgmt & Admin. (5A): * Budget Authority ($000s | NA | $8,273 || $5,277 || $2,112 || $5,977| $20,292 Direct FTE º | NA | 8|| 8 || 12T 18L 80 Communications and Liaison (5C): == Budget Authority ($000s TNA T $2,460 $1443 I SI366] $0 $4,700 | Direct FTE TNA | 0| 1 | I 0 —F. IRS, EITC-8 Internal 2/3/03 #. E. BUDGETAUTHORITY AND FTE º- Earned Income Tax Credit FY 2001 FY 2002 FY 2002 FY 2003 FY 2004 Actual Actual Plan Actual Performance Plan Compliance Services t(7A): I I | I - 555 I º Budget Authority(8000s) NA $ 41 $716 $1,702 _$879 $911 Direct FTE - gº E NAT 0. 11 || 14|| 9T —5. Tax Reporting Compliance-Document Matching (IE): º-º º sº Budget Authority (8000s) 1–3– $0. $0. $0 |SDI §IICO IDirect FTE — —l-Sè— 0|| 0|| 0 0T 19 Tax Reporting Compliance-Electronic/Correspondence Exam (IF): º ęgº - Budget Authority ($000s) L NA is 71,084 || $65,709. 6732 $67,738. I $75,111 Direct FTE º l—º- lºſºl 1,268 || 1,418 1,386 1461– Tax Reporting Compliance-Field Exam (TG): sº — º sº-º-º: Budget Authority ($000s) | NA $ 7584. $8,131 $428 $1,850 $1519 Direct FTE sº-sº L-A- 94 | 103 || 5] 25 25 Criminal Investigation (7H): | | I E. 03. I º JBudget Authority(8000s) NA $24,495 $24,949 $26,075 $25,034 $26,022 Direct FTE | NA | 393 || iii-Hål 310|| 408 Appeals (189: º- -º-º- =º Budget Authority(8000s) |NA|| $1,572 $1,655 $1,595 || $1,630 T. $1,688 Direct FTE TNATI 15|| 15|| 15|| 15 15 Litigation (IL): Budget Authority(8000s) | NAC I $723 || $924 | $1,336 $873 $905 Direct FTE | NA ſº 8|| 9 | 16| 9 Taxpayer AdvocateCareProcessing (IM): tºº _Budget Authority ($000s) | NA. I. $2,024 $4,260 $8,354 $73&TS14353 Direct FTE I NAT 28 67] -*#- 97] 192 Research (8A): sº- º- - sº Budget Authority(8000s) | NATT $2,018. $3,646 $2,198 || $2,132 $2,205. Direct FTE gºmºsº | NAT 16] *āī 20 18 18 tions Support (9B): Budget Authority ($000s) | NATT $10,819 $8,890. $1,880 SJI ISOI Direct FTE TNAT 17| 21 | 14|| so I $0 IRS, EITC-9 2/3/03 £ Internal Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table 2/3/03 enue Service, Earned Income Tax Credit Compliance II ive º º º: º: - º º - º $149,308 || $153,940 $146,000 || $146,000 || $251,167 Direct FTE 2,196 2,353 2,467 2,353 2,994 Performance Goal: Expand customerservice and enforcement activities to reduce erroneous filings and payments associated with the Earned Income Tax Credit. IRS, EITC-10 É DETAIL OFFULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY º º º Statutory executive positions 0 Policy/program professional staff 2,146 Secretarial and clerical 181 Crafts and custodial 0 º º --- º º º Part-time & temporary full-time equivalent staff years 139 º - --- º - - º |- - º 0 0 d 0 M.300 568 568 0 194 48 0 U 0 () 0 º º º º - º - º 500 25 25 0 º º - º º IRS, EITC-11 2/3/03 # enue Service, Earned Income Tax Credit Compliance In ive DETAL OF FULL-TIMEEQUIVALENT STAFFYEARS BY GRADE IRS, EITC-12 Internal 2/3/03 É. ExPLANATION OF PROPosiºn ºf 2003 opºrtating Budget (Dallars in Thºusands) IRS, EITC-13 2/3/03 # Internal enue Service, Earned Income Tax Credit Compliance In ve Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS YET NOT BEEN PASSED. FTE ($000) FY 2003 President’s Budget Request 2,353 146,000 Amended FY2003 President’s Budget Request 2,353 146,000 2/3/03 IRS, EITC-14 É standard-classification schedule Direct-obligations IRS, EITC-15 2/3/03 # Internal enue Service, Earned Income Tax Credit Compliance In ive DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Earned Income Tax Credit Compliance Initiative For funding essential earned income tax credit compliance and error reduction initiatives $251,167,000, of which not to exceed $10,000,000 may be used to reimburse the Social Security Administration for the costs of implementing section 1090 of the Taxpayer Relief Act of 1997 (Public Law 105-33). - - 2/3/03 IRS, EITC-16 É INTERNAL REVENUE SERVICE (IRS) TABLE OF CONTENTS AL S C CRED - TION EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of Fiscal Year 2003 President’s Budget Level Digest of Fiscal Year 2004 Budget Estimates by Activity Summary Explanations of Fiscal Year 2004 Requested Changes by Activity HITCA-1 HITCA-1 HITCA-2 Explanation of Fiscal Year 2004 Budget Increases and Decreases Appropriation Overview HITCA-3 HTTCA-4 Budget Authority and FTE: Health Insurance Tax Credit Administration HITCA-5 SUPPORTING MATERLAL Explanation of Proposed Fiscal Year 2003 Operating Budget HITCA-6 Explanation of Congressional Action HITCA-7 Standard Classification Schedule: Direct Obligations HITCA-8 Appropriation Language 2/3/03 HITCA-9 § Internal Revenue Service, Health Insurance Tax Credit Administration ANALYsis of FY2003 PRESIDENT's BUDGET LEVEL amount —HE- –Gººl- FY2003 President's Budget 0. d ry 2003. A -- 0. $70,000 Proposed Adjustments (+/-): Reprogramming (FTE only, except for inter-appropriation transfers) 0. 0. FY 2003 Adjusted President's Budget Level, Plus/M Transfers 0. $70,000 DIGEST of FISCALYear 2004 Budget estimates by activity 2/3/03 IRS, HITCA-1 £ summary ExPLANATIONS OF FISCAL YEAR 2004 REQUESTED CHANGEs By activity (Dollars in Thousands) CHANGEs: Increases Task Force -Prºgram of Customer Service Internal Services and Satisfaction Servicewide CHANGES: to Maintain Current Levels: 1) Labor Annualiztion Labor and Benefits Non-Labor Costs Non-Recur IRS, HITCA-2 erna, 2/3/03 § Internal Revenue Service, Health Insurance Tax Credit Administration EXPLANATION OF FISCAL YEAR 2004 BUDGET INCREASES AND DECREASES In FY 2004, funding requirements for the Health Insurance Tax Credit Administration (HITCA) Appropriation are projected to be $35,000,000, a decrease of $35,000,000 over the FY 2003 funding level of $70,000,000. PROGRAM CHANGES There are no program changes. OTHER CHANGES Total Requested Other Changes .......................................................... s ºr sº -$35,000,000 Non-Recur w w w w w w w w w y ºr y º ºs ºs ºr - º, º ºs ºs ºr & ..-$35,000,000 The $70 million requested in FY 2003 will be used to develop the Advance Payment Option system and have it available for operation by August 1, 2003. After development, $35 million will be needed in FY 2004 for contract operation of the system. 2/3/03 IRS, HITCA-3 É In August 2002, the President Signed Public Law 107-210, the Trade Act of 2002, which grants or extends certain trade benefits. Title II of this statute provides a refundable tax credit for the cost of health insurance for certain individuals who receive a trade readjustment allowance or a benefit from the Pension Benefit Guaranty Corporation (PBGC). The tax credit is equal to 65% of the health insurance premium paid by eligible persons to cover themselves and qualifying family members. - Advance Payment Option. The statute requires the Secretary of the Treasury, by August 1, 2003, to establish a program to pay the tax credit (65% portion of the premium) in advance directly to health insurance providers on behalf of the taxpayer. In other words, taxpayers will have the option of either claiming the health insurance credit on their tax returns or choosing to have 65% of the premium paid on their behalf on a monthly basis. Taxpayers are required to pay their 35% share of the premium before the 65% can be paid. This advance payment option is a complex undertaking for the IRS as it varies greatly from existing IRS operations. The plan is to use a contractor to develop and administer the advance payment portion. Even with a contractor, implementation of the advance payment presents challenges for the IRS. • Requires Systems, Processes, and Data Separate from Current IRS Tax Administration Systems. IRS systems are based on receiving information from a taxpayer, such as a tax return, check, etc. While some data, such as name and SSN is verified against another agency's records, the remaining data is obtained from a return that is filed by the taxpayer. Any payments/refunds that are due are paid to the taxpayer. Data for the advance payment will be received from state agencies and health insurance providers and payments will be made to these health insurance providers. Thus, new systems and processes that do not interact or exchange data with the IRS tax systems will have to be developed to receive, retain and verify data and issue payments. • Involvement and Role of Multiple Agencies. Two agencies (state workforce agencies and state insurance agencies) per state plus the District of Columbia, the Pension Benefit Guarantee Corporation, the Department of Labor, and Health and Human Services, health plans and insurers and employers are involved in either determining an individual's eligibility or whether the coverage qualifies. The IRS/contractor has to interact with and receive data from each before an advance payment is made. • Limited Expertise. Administration of this new law is extremely complex due to its interrelationship with labor and health insurance laws. IRS has little expertise with the complexities of health insurance and labor law. The skills and expertise will have to be acquired to implement this provision. • Effective Date. The statute requires the advance payment process to be in place by August 1, 2003. IRS has less than 1 year to determine specifications, issue an RFP, hire a contractor, and the contractor build, test, and bring the system on line. > *** wrºa ºn ~~~~~ --~~ * ~~~5 -------- ~~~~-- ~~~~~ - PR O VIEW 2/3/03 - IRS, HITCA-4 § Internal Revenue Service, Health Insurance Tax Credit Administration • This appropriation was not requested in the FY 2003 President's Budget. In order to obtain funding for the system due in late FY 2003, a budget amendment was submitted by OMB in January 2003. Until Congress passes an appropriation for this purpose, the IRS is using prior year carryover funds to ensure this system is brought on line according to the Public Law. Budget Activity 20: Health Insurance Tax Credit Administration CA Functions: This appropriation will fund the development and operation of a system to provide, in accordance with the Trade Act of 2002, an advanceable, refundable tax credit for 65 percent of cost of qualified insurance for certain individuals who receive a trade readjustment allowance or a benefit from the Pension Benefit Guaranty Corporation. AND FTE FY 2002 FY 2002 || FY Actual Actual Plan Actual Insurance Tax Credit 2/3/03 IRS, HITCA-5 § euue Servictº TTTTTTTTTTTTTTTTTTTTTTTT- explanation or proposed ºr 2003 operating eulocet ---T-) IRS, HITCA-6 iiittitutiºn 2/3/03 § Internal Revenue Service, Health Insurance Tax Credit Administration Explanation of Congressional Action THE FY 2003 APPROPRIATION TO TREASURY HAS YET NOT BEEN PASSED. FTE ($000) FY 2003 President’s Budget Request 0 0 Budget Amendment 0 70,000 Amended FY 2003 President’s Budget Request 0 70,000 2/3/03 IRS, HITCA-7 § enue se ce, ea STANDARD-CLASSIFICATION SCH-Dule Directobºgations IRS, HITCA-8 terna 2/3/03 § Internal Revenue Service, Health Insurance Tax Credit Administration DEPARTMENT OF TREASURY INTERNAL REVENUE SERVICE Health Insurance Tax Credit Administration For expenses necessary to implement the health insurance tax credit included in the Trade Act of 2002 (P.L. 107-210), $35,000,000, to remain available until September 30, 2005. 2/3/03 IRS, HITCA-9 § II. February 3, 2003 INTERNAL REVENUE SERVICE TABLE OF CONTENTS VOLUME 2 – PERFORMANCE PLAN SC-1 Strategic Context Program Activities Pre-filing Taxpayer Assistance and Education Filing and Account Services Compliance Services Research and Statistics of Income (SOI) Information Services Information Services Improvement Projects Business Systems Modernization Earned Income Tax Credit Program Shared Services Support General Management and Administration PA-1 PA-4 PA-8 PA-14 PA-16 PA-19 PA-26 PA-29 PA-31 PA-33 FY 2004 IRS Annual Performance Plan February 3, 2003 Table of Contents § III. Supporting Material Major Management Challenges and High Risk Areas Cross-Cutting Coordination and Partnering Efforts SM-1 SM-24 Validation and Verification Methodology SM-31 IV. Appendix Resource and Measures Summary FY 2004 IRS Annual Performance Plan February 3, 2003 Table of Contents 3. I. Strategic Context I.A. Mission/Goals/Objectives IRS’ mission is to provide America's taxpayers top-quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. This mission statement accurately describes the IRS’ role, as well as the public’s expectation as to how we should perform that role. In the United States, the Congress passes tax laws and requires taxpayers to comply with them. The taxpayer's role is to understand and meet their tax obligations - and most do, since roughly 98% of the taxes collected are paid without active intervention by the IRS. Its role is to help the large majority of taxpayers who are willing to comply with the tax law, while seeing to it that the minority who are unwilling to comply are not allowed to burden their fellow taxpayers. The IRS recognizes that it must meet the highest of standards in performing this role. While a mission statement and clarification of the public's expectations are fundamentally important, it is equally important that the IRS defines the specific goals and objectives needed to achieve its mission. In a practical sense, these goals and objectives represent what the IRS is striving to achieve and how it will judge its success both qualitatively and quantitatively. The IRS has formulated three strategic goals: • Top-quality service to each taxpayer in every interaction • Top-quality service to all taxpayers through fair and uniform application of the law • Productivity through a quality work environment If progress is made on all three of these goals, the IRS can be confident that it is moving toward achieving its mission and meeting the public’s expectations. Major strategies are the approaches the IRS will use to achieve progress on its strategic goals over a two-to-three year timeframe. The IRS has developed these strategies based upon senior management's consideration of internal research and analysis, external stakeholder input, Treasury Inspector General for Tax Administration (TIGTA) and General Accounting Office (GAO) recommendations, and employee input on the key trends, issues, and problems that most affect the IRS. Guiding principles help link the IRS mission and goals to the everyday actions of IRS employees from all levels of the organization. It will take thousands of everyday actions to accomplish IRS goals, and the guiding principals help employees understand the relationship between their actions and its goals. The relationship between the IRS Mission, Goals and Objectives, Guiding Principles and Major Strategies is shown in Figure 1 on the following page. FY 2004 IRS Annual Performance Plan - - - Strategic Context SC-1 February 3, 2003 - § Figure I Missionº Provide America's taxpayers top-quality service by helping them understand and meet their tax responsibilities by applying the tax law with integrity and fairness to all. • Understand and solve problems from taxpayers point of Service to Each Taxpayer view • Enable managers to be accountable — knowledge, responsibility, authority, action • Making filing easier • Provide first-quality service to each taxpayer needing help with his or her return or account • Provide prompt, professional, helpful treatment of taxpayers in cases where additional taxes may be due • Align measures of performance at all organizational levels Service foalſ Taxpayers • Faster open, honest communication • Insist on total integrity Meet the needs of taxpayers Reduce taxpayer burden Broaden the use of electronic interactions Address key areas of noncompliance Stabilize traditional compliance activities Deal effectively with the giobal economy • Increase fairness of compliance • Increase overall compliance Productivity Through a Qualify Work Environment • Increase employee job satisfaction • Increase productivity and staffing to levels necessary to adequately close the tax gap and manage workload growth and expansion in scope MajorsTRATEGIEsº • Meet the special needs of the tax-exempt community • Recruit, develop, and retain a quality workforce • Provide high-quality, efficient, and responsive information services and shared support services • Promote effective asset and information stewardship FY 2004 IRS Annual Performance Plan February 3, 2003 Strategic Context SC-2 É I.B. Pre-Filing, Filing, and Post-Filing Services The IRS FY 2004 Annual Performance Plan (APP) presents the high-level programs and services that the agency carries out to accomplish its mission, goals and strategies outlined in its strategic plan. The APP is the linkage between the Strategic Plan and the program activities in the budget request. The IRS provides three primary services: Pre-Filing Services, Filing Services and Post-Filing Services. Pre-Filing Services — These are services that are provided to a taxpayer before the return is filed to assist in filing a correct return. A very strong emphasis is being placed on pre-filing education and assistance of all customers. In general, the focus is on increasing time spent on education and outreach, increasing volunteer support time and locations, expanding pre-filing agreements and rulings, and enhancing pre- filing customer support through electronic media. . Filing Services - These are services provided to a taxpayer in the process offiling a return and paying taxes, including electronic filing and payment. The focus is on decreasing paper returns processed and increasing electronic returns, increasing the use of electronic payments, increasing telephone and in-person customer service levels and volume of calls answered. Post-Filing Services – Traditionally known as compliance, these services are provided to taxpayers after a return is filed to identify underreporting, non-filing and nonpayment. Compliance efforts will focus on decreasing the number of abusive and frivolous returns and claims that are filed. Emphasis will be placed on high-income taxpayers, K-1 matching and flow through entities. We will target promoters of abusive tax avoidance transactions, including Internet promoters. These services are applicable to all taxpayers including wage earners, small businesses, self-employed individuals, large and mid-size businesses, tax-exempt organizations and government entities. The three primary services are also sub-divided into ten programs that are explained in the Program Activities section. To ensure a consistent approach to planning for and delivering the agency’s strategic goals, ERS organizes its strategy and program plans, budgets, financial plans and reports, and accounting systems around these three services and their underlying programs. In addition, to ensure that IRS can achieve its mission and goals, the IRS Commissioner and his Senior Management Team established a new Strategic Planning, Budgeting and Performance Management (SPBPM) process in early 2000. This new process significantly changes the prior strategic planning and performance management practices. With the SPBPM process, each organizational unit commissioner or chief executive officer works with his/her senior management team to develop and execute the Strategy and Program Plans that best address the trends, issues and problems that impact their taxpayers and that accomplish the FY 2004 IRS Annual Performance Plan - - Strategic Context SC-3 February 3, 2003 £ agency mission and goals. Strategy and Program Plans along with the Strategic Plan provide the basis for developing annual performance plans, for formulating program justification, and for evaluating and reporting progress in meeting annual performance targets. The APP reflects the major strategies, operational priorities, and improvement projects developed by every IRS organizational unit in their Strategy and Program Plans that are designed to provide internally specific program direction. A brief description of the IRS strategic framework is included to set the context for IRS’ services and programs. It is followed by sections on each of the IRS major programs that describe its annual performance goal and what specific activities, resources and performance measures will be accomplished in FY 2003 and FY 2004 to achieve these goals. This performance plan projects significant increases in performance indicators for most programs in fiscal years 2003 and 2004. These increases are projected based on goals we have established for increased productivity and effectiveness as a result of the new more focused organization structure and the benefits from technology investments and other improvement projects. They are very aggressive goals and they depend on many assumptions. We are committed to achieving these stretch goals. I.C. Programs/Performance Goals The Pre-Filing, Filing, and Post-Filing services are supported by ten high level programs. To ensure a consistent approach to planning for and delivering our strategic goals and objectives, we organize our strategy and program plans, budgets, financial plans and reports, and accounting systems around these three service categories and their supporting programs. These programs are shown below along with the corresponding annual performance goal. The subsequent sections of the Annual Performance Plan describe in more detail what specific activities, resources and performance measures will be accomplished in FY 2002 and FY 2003 to achieve these annual goals. Pre-Filing Taxpayer Assistance and Education - The IRS will provide taxpayers with greater access to information, assistance and support before they file their tax return. - IRS is taking action to promote taxpayer education, improve outreach education efforts and expand partnerships with key stakeholders. The IRS is offering enhanced electronic services including the IRS Website, electronic filing, and electronic payments. The IRS is working to have more effective pre-filing guidance and to reduce the burden of complying with the tax laws. Filing and Account Services - Improve the quality of the service provided to taxpayers in filing their tax returns. – The IRS is modernizing its work processes and expanding its partnership with individuals and organizations by providing help filing returns, increasing electronic filing options, ensuring that notices and letters and are more understandable, expanding our assistance into different languages, and paying refunds faster. Compliance Services - Identify and correct all substantive errors in filed tax returns, reporting of income, and payment of taxes. – The IRS will focus on bringing the highest risk taxpayers into compliance with the tax laws. We will also emphasize improving compliance through better and more targeted taxpayer education, better reporting, voluntary agreements, improved regulations, earlier intervention and reducing the length of the appeals process. The IRS will increase the level of enforcement activity and take appropriate action in each case. FY 2004 IRS Annual Performance Plan . . Strategic Context SC-4 February 3, 2003 § Research and SOI - Perform strategic and tactical research to anticipate and identify compliance and tax administration problems. -The IRS will collect and tabulate data with respect to individuals, corporations, partnerships, sole proprietorships, estates, nonprofit organizations and trusts. Information Services – Provide the information systems services required by IRS activities to effectively administer the nation's tax law. — The IRS is consolidating notice printing and mid-range computers, and developing and managing telecommunication services. To keep reasonable pace with industry software advances, IRS will replace a portion of its desktop/laptop inventory annually. In addition, the IRS will perform ongoing maintenance of hardware, software, virus detection, and other standard commercial applications. Information Systems Improvement Programs - Develop and implement systems projects that respond to the specific requirements of one or more of the taxpayer groups served by IRS Operating Divisions. – The IRS will improve its financial and administrative systems, ensure the security, privacy and reliability of its Information Technology (IT) infrastructure, and standardize and expand the range of services to taxpayers and Service employees. Business Systems Modernization - Effectively manage the contract resources that support capital asset acquisition of business systems modernization. – The IRS will make fundamental improvements in the way it carries out business by taking advantage of all appropriate technology. The IRS has published and updated a comprehensive technology blueprint to guide it through this multi-year project. Initiatives to expand electronic government and increase electronic filing alternatives will be pursued. Earned Income Tax Credit - Expand customer service and enforcement activities to reduce erroneous filings and payments associated with the Earned Income Tax Credit. – IRS will attempt to address potentially erroneous claims before they are accepted for processing and before any EITC benefits are paid. Shared Services Support - Effectively provides the logistical services required by IRS activities to administer the nation's tax laws. – The IRS is reengineering standardized processes and identifying areas to continue expanding electronic government. E-commerce alternatives are being explored to improve customer access, streamline vendor interactions and ensure effective use of stewardship and property assets. General Management and Administration - Provide effective leadership and direction in the administration of the nation's tax laws. – The IRS’ organization and business practices are designed to reflect its customer's needs and address significant human capital issues. Competitive sourcing alternatives are being identified and financial systems are being updated to improve financial performance. The IRS is fully integrating its strategic planning, budget and performance management process to more effectively achieve its strategic goals and objectives. FY 2004 IRS Annual Performance Plan Strategic Context SC-5 February 3, 2003 § II. Key Strategic Issues Our success in achieving the IRS mission, goals, and objectives is influenced by the environment in which we operate. The IRS budget request is based upon key drivers identified through our Strategic Planning, Budgeting and Performance Management process that are directly related to accomplishment of our basic mission. The IRS Annual Performance Plan describes the high-level programs or services that the agency carries out to accomplish its mission, goals, objectives, and strategies as expressed in the IRS Strategic Plan. The most significant challenges have been organized around the following themes: Service to Taxpayers. Providing taxpayers with consistent, accurate account information, timely processing of tax returns, and immediate account resolution with the minimum number of encounters with employees. Providing taxpayer education opportunities and outreach programs. Communication with Taxpayers. Improving our written communications to make them easier to understand and more responsive to taxpayer needs. Improving the timeliness of notices sent to taxpayers. Providing taxpayers with easy access to our toll-free number with minimal use of voice mail and recorders. Electronic Tax Administration. Expanding operations for electronic filing, payment, communication, and other automated services. Complexity of the Tax Law. Relieving taxpayer burden by removing as much complexity from the tax law as possible. Globalization. Continually improving our globalization efforts as large and mid-sized business taxpayers continue to grow significantly in global trading and U.S. multi-national corporations are increasingly involved in foreign activities. Compliance Services. Striving to increase our examination coverage and improve the compliance rate of individual taxpayers and small business and self-employed taxpayers. Implementing a balanced compliance program and targeted education efforts to increase voluntary compliance. Combating formation, use, and impact of abusive tax non-compliance. Developing regular and up-to-date measures of overall compliance and compliance by major customer sectors. Human Resource Issues. Recruiting, developing, and maintaining a highly qualified and skilled workforce. Promoting employee satisfaction by improving practices that maintain a quality workforce. Ensuring health, safety, and security of facilities and employees. FY 2004 IRS Annual Performance Pian Strategic Context SC-6 February 3, 2003 3. Technology in Support of Business Operations. Continuing to improve our technology to provide a level of service to taxpayers consistent with today's standards for a finance-oriented, public service institution. Shared Services in Support of Business Operations. Continuing to improve personnel and payroll processing systems and services. Ensuring health, safety, and security of facilities and employees. - III. Relationship Between the Strategic Plan and the Annual Performance Plan The tax administration function is large and complex. The IRS developed goals and strategies to address these complex functions and performance goals to address our progress on our goals and toward achievement of the IRS mission. The table on the following page depicts how all of our Performance Goals support and address our three strategic goals that in turn support four of the Treasury Strategic Goals. FY 2004 IRS Annual Performance Plan - Strategic Context SC-7 February 3, 2003 3. ſº - Fº - º º: º º º Provide taxpayers with greater access to assistance before they file their tax return. Improve the quality of the service provided to taxpayers in Financial Mission: filing their tax returns. Goal (1 of 4): Collect revenue due to the Identify and correct all substantive errors in the filing of tax Federal Government returns, reporting of income, and payment of taxes. - Provide the logistical services required by IRS activities to Objectives (2 of 3): Service to Each Taxpayer administer the nation's tax laws. Provide effective leadership and direction in the administration of the nation's tax laws. Improve and simplify tax laws Increase compliance Service to All Taxpayers Perform strategic and tactical research to anticipate and identify compliance and tax administration problems. ******- Expand customer service and enforcement activities to Management Mission: reduce erroneous filings associated with the EITC. Goal: Support the Achievement of Business Productivity through a Results Quality Work Environment Develop and implement systems projects that respond to the specific requirements of one or more of the taxpayers groups served by the IRS Operating Divisions. Goal: Improve Customer Satisfaction Provide the information systems services required by IRS Goal: Improve Employee Satisfaction activities to effectively administer the nation's tax law. Manage the resources associated with non-labor costs that support capital asset acquisitions of information technology systems. Treasury has 4 missions (Economic, Financial, Law Enforcement, and Management), 14 goals, and 40 objectives. The above table originally appeared in the FY2003 IRSAnnual Performance Plan. It depicts how IRS’ ten Performance Goals support and address its three Strategic Goals, and how these goals support Treasury’s Strategic Goals. FY 2004 IRS Annual Performance Plan Strategic Context SC-8 February 3, 2003 § II. Program Activities PRE-FILING TAXPAYER ASSISTANCE AND EDUCATION Performance Goal: The IRS will provide taxpayers with greater access to information, assistance and support before they file their tax return. —IRS is taking action to promote taxpayer education, improve outreach education efforts and expand partnerships with key stakeholders. The IRS is offering enhanced electronic services including the IRS website, electronic filing, and electronic payments. The IRS is working to have more effective pre-filing guidance and to reduce tax law complexity. - FY 2004 IRS will continue to expand and improve programs that focus pre-filing efforts on reducing taxpayer burden and increasing tax compliance. Integrated information management systems will be refined to support partnerships with key stakeholders, development and delivery of educational materials, management metrics, and the assessment of results. Expansion of education and targeted partner- and compliance-oriented outreach programs will increase the value of national and local customer education, support, and service delivery. DRS will expand automated electronic and web-based systems to provide taxpayers and partners with 24-hour access to a greater array of products and services, training, volunteer guides, and self-help frequently asked questions. Research will focus on customizing marketing tools to better address needs of taxpayer target segments. IRS will continue efforts to combat non-compliance and fraud through outreach and partnership programs. EITC law education will be provided to partners and return preparers to promote compliance and discourage fraudulent claims. Tax forms, publications, and other documents will continue to be clarified and simplified. Electronic document repositories will be expanded and the development of a multilingual centralized database will be completed. The availability and accessibility of electronic products will be enhanced for all customers. A new 1040 e-filing system will be developed. Department of Treasury, IRS, and tax industry representatives will work together to offer free online tax preparation and filing to a significant portion of individual taxpayers. Expanded electronic tax products for businesses will reduce burden and improve IRS operational efficiency and effectiveness. FY 2003 Pre-filing services provide taxpayers with the information, assistance, and support they need to understand and fulfill their tax obligations before they file their tax returns. Pre-filing services attempt to reduce taxpayer burden and increase tax compliance by making it easier for taxpayers to understand and comply with their tax responsibilities. Partnerships will be enhanced and expanded through programs that build relationships with organizations and groups actively involved in tax administration and that regularly interact with taxpayers. Volunteers will be trained and equipped FY 2004 IRS Annual Performance Plan Pre-Filing Taxpayer Assistance and Education PA-1 February 3, 2003 £ to assist taxpayers in meeting their annual tax filing requirements. Internal Revenue Service FY 2004 Proposed Performance Plan and FY 2003 Final Plan Education outreach programs will focus on providing products and services tailored to the needs of specific taxpayers, using more convenient, easy-to-use distribution channels. The IRS public web site (www.irs.gov) will be enhanced with registered user capability, electronic transcripts, and greater information availability. Multilingual services, including development of a multilingual document database, will be implemented to reduce burden on taxpayers with limited English proficiency. Reducing taxpayer burden is a key priority at ERS. Publications and documents will be clarified and simplified. Incentives and promotion for electronic filing of tax returns and other documents will be expanded in efforts such as the Self-Select PIN program and Internet Employee Identification Numbers. All efforts will be designed to maximize customer satisfaction and enhance service delivery. IRS will use an integrated research and customer feedback strategy to identify customer segments, values, and needs. Gaps in taxpayer understanding of tax law and emerging compliance issues and trends will be addressed. Balanced measures will be implemented and results baselined to identify taxpayer issues, filing patterns, and emerging needs. - Resource Summary Budget Authority ($000s) $570,401 $581,465 $628,440 $646,500 Direct FTE 3,280 3,724 4,061 4,065 FY 2004 IRS Annual Performance Plan Pre-Filing Taxpayer Assistance and Education PA-2 February 3, 2003 £ Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures Number of assisted EP/EO APAS Number 'FY2002 count includes media contacts. FY 2004 IRS Annual Performance Plan Pre-Filing Taxpayer Assistance and Education February 3, 2003 PA-3 § FILING AND ACCOUNT SERVICES in filing their tax returns.--TH ons by providing help filing returns, increasing dy giispartnership with individuals and organizati FY 2004 IRS will continue its efforts to improve delivery, access, and customer satisfaction in processing tax returns and answering inquiries. E-filing options will increase as additional electronic forms are offered. In addition, as the growth in electronic filing achieves the projected goals, fewer return processing sites will be needed. As a result, IRS will close the Brookhaven Submission Processing site. Taxpayer communication will be enhanced by the ability to submit questions on IRS’ public web site (www.irs.gov) and by online access to filing and refund status information. Overall taxpayer services and delivery locations will continue to be expanded. Taxpayer assistance will be enhanced by the Electronic Research System, which provides high-level search capabilities that will improve response time and quality to customers. The Remittance Transaction Research system will improve the accuracy of payment posting and will assist in the resolution of missing or misapplied payments. Toll-free telephone support via live assistors and automated systems will continue, as will the expansion of service delivery locations begun in FY 2003. The Queuing Management System will be fully implemented, reducing paperwork and increasing employee efficiency. Embedded quality scores will enable IRS to better measure and improve service quality, and efforts to increase and enhance customer support and accuracy will continue. FY 2003 IRS will focus on accurate and timely processing of tax returns and payments along with electronic filing, payment of taxes, and information access. IRS will expand e-file options by offering new electronic forms and increasing credit card, phone and direct debit payment options. Online information delivery will speed access to correspondence for more efficient account management and case resolution and enable greater public and practitioner access to information. Overall service delivery locations will be increased, and the use of mobile units, alternative sites, and kiosks will be expanded. Taxpayers with limited English language proficiency will be provided with products and services to assist them in meeting their tax obligations. - IRS will differentiate business and individual returns to provide more specialized service to taxpayers. IRS’ ten Submission Processing centers will continue to transition to eight individual tax return sites and two business tax return sites. Teletax automated toll-free telephone service will provide taxpayers with service 24 hours a day. Additional modifications to the intelligent call routing system will enable calls to go to sites dedicated to FY 2004 IRS Annual Performance Plan - Filing and Account Services PA-4 February 3, 2003 É specific types of work, as well as to specialized Customer Service Representatives. The online Electronic Account Resolution system will allow IRS to better serve the needs of the taxpayer practitioner community. The Internal Revenue Service will continually strive towards quality in its focus on improving taxpayer access levels and customer satisfaction. Enhanced tools and training will allow Customer Service Representatives to better assist taxpayers. Networking will begin on the Queuing Management System, which will reduce paperwork and increase employee efficiency. Quality review systems will be implemented to measure accuracy, professionalism, and timeliness levels in IRS service delivery. Resource Summary . . . . . . . . . . . . . . . . . . . FY2001 | FY 2002 | FY2003 | FY 2004 Budget Authority ($000s) $1,598,832 $1,578,477 $1,612,326 $1 ,656,745 Direct FTE 31,140 32,039 31,137 30,543 FY 2004 IRS Annual Performance Plan Filing and Account Services PA-5 February 3, 2003 # Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures Individual 1040 returns Business returns Individual 1040 returns . Total electronic returns . Total returns . Percent of individual . Information returns filed 219,739 Information returns filed 1 . IRS hits 1.56 . Teletax . Assistor calls answered . Toll-free customer satisfaction 2% 20. Toll-free level of Service 59.0% 21. T tax 22. Toll-free account 2 Represents W&I performance. Previous years include SB/SE performance. FY 2004 IRS Annual Performance Plan Filing and Account Services PA-6 February 3, 2003 § Performance Measures 24. Total 25. 29. 30. T 31. Toll-free 3 Estimate. FY 2004 IRS Annual Performance Plan February 3, 2003 Filing and Account Services PA-7 # COMPLIANCE SERVICES Performance Goal: Identify and correct all substantive errors in filed tax returns, reporting of income, and payment of taxes -The IRS will emphasize improving compliance through better and more targeted taxpayer education, better reporting, voluntary agreein improved regulations, earlier intervention, and reducing the length ofthe appeals process. The IRS will stabilize the level. of enforcementactivity and take proper action in each case. FY 2004 Achieving a balanced level of compliance and enforcement will be a major focus for the IRS in 2004. The overall direction will be the re- assignment of resources from lower income individuals and lower asset corporate entities to higher income individuals and larger asset corporate entities. In addition, resources will be applied to areas of critical compliance risks such as abusive tax avoidance transactions, electronic crimes, refund and preparer fraud, non-filers, noncompliance with employment tax laws, flow-through entities, offshore trusts and international and domestic terrorism. Additionally, resources will be used to identify and implement alternative treatments that positively impact compliance. Filing Compliance Filing compliance initiatives in process during FY 03 will continue to be developed and enhanced during FY 04. The non-filer strategy, partnering service-wide compliance areas with Criminal Investigation, will identify new methods and efficiencies to encourage voluntary compliance and reduce taxpayer burden. Traditional compliance techniques, tailored to the high-risk taxpayers, will be utilized for those taxpayers that do not respond to voluntary compliance overtures. Payment Compliance The IRS continues to perfect case selection criteria and case building techniques through the Collection and Examination Re-engineering projects. The goal is to deliver an inventory of higher yield cases for further compliance activity. In an effort to reduce non-compliance in the area of employment tax withholding, the improved Federal Tax Deposit Alert model was tested in FY 03. This model should provide advance knowledge of pyramiding of employment taxes and will allow the IRS to develop better techniques to respond in timely and effective manner. For those taxpayers who are unable to pay their tax liabilities in full, the Automated Offer-in-Compromise program will continue to expand and will enhance customer service while reducing the need for field Offer-in-Compromise staff. These resources can be re-directed to payment compliance efforts that address those situations where the taxpayer chooses not to pay. We will continue efforts to lessen the growth of accounts receivable (A/R) through process improvements, research and analysis of A/R trends. In this regard, payment compliance has a strategic measure component known as the Potentially Collectible Inventory (PCI). PCI quantifies the portion of the A/R portfolio that will actually be collected or is potentially collectible. Finally, the Budget proposes legislation to allow IRS to supplement its collection staff with private collection agents. These contractors will be paid from receipts. This initiative will help ensure fair tax compliance, and will begin in the fourth quarter of FY 04. FY 2004 IRS Annual Performance Plan Compliance Services PA-8 February 3, 2003 f Reporting Compliance Reporting compliance efforts will continue to migrate to higher income and asset cases and abusive/frivolous filing of returns and claims. Tax scheme promoters will be identified with examination and enforcement efforts appropriately focused to address those schemes. The Automated Under Reporter program will continue to be utilized to address compliance on individual returns. Research in other areas, including additional work in examination, re-engineering, e-commerce, and tax-reporting studies, will continue to help us effectively allocate resources in the future. FY 2003 IRS Compliance Services provides resources to support services to taxpayers after a return is filed, to identify and correct possible errors or underpayment. Filing Compliance focuses IRS efforts to maximize the percentage of returns that are timely filed. Payment Compliance activities are centered on assisting taxpayers owing additional taxes through the fair and uniform application of the law. Reporting Compliance encourages tax return accuracy through programs that determine taxpayer's correct income levels and corresponding tax liabilities. Filing Compliance Business units will work together to develop and implement a cross-functional nonfiler strategy, and will profile segments of the nonfiler population. Compliance-related entities will convert the current Nonfiler Master File Odyssey Program application into a national application in order to match current state employment tax data with federal nonfiler tax information. Payment Compliance The IRS will continue to impact and deter the growth of accounts receivable through re-engineering efforts and process improvements. The IRS will also perform root cause analysis to determine accounts receivable trends. IRS business units will continue to upgrade payment compliance-related systems and equipment in an effort to improve workplace efficiency. The maturation of our Centralized Offer In Compromise program will allow experienced field collection personnel to return to more traditional duties. Reporting Compliance The IRS will focus resources on expanding the high-income and unreported-income programs (UIDIF). In this regard, the IRS will redirect audit programs to include Schedule K-1 taxpayers and other taxpayers with incomes over $100K. Compliance-related entities will continue to fully participate in the National Research Program. The IRS will profile Internet promoters of abusive tax avoidance transactions. We will also address promoters and participants of offshore abusive tax avoidance transactions or trusts and we will research offshore credit card holder information. The IRS will continue to fulfill the vision of the Examination Re-engineering project helping to identify non-compliance electronically and to automate routine examination processes. Limited Issue Focused Examinations, which concentrate examination resources on selected issues versus traditional issues, will better serve the taxpayer and the government in measuring reporting compliance. FY 2004 IRS Annual Performance Plan Compliance Services PA-9 February 3, 2003 £ Resource Summary FY2001 || FY2002 FY2003 | FY2004 Budget Authority ($000s) $3,561,147 $3,476,217 $3,638,924 $3,883,544 Direct FTE 44,852 44,331 44,646 45,776 FY 2004 IRS Annual Performance Plan Compliance Services PA-10 February 3, 2003 § Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures 32. Telephone customer satisfaction (ACS) - of 297,791 collection — number of cases 41. 42. 43. Correspondence examination customer satisfaction “Due to typographical error, the FY2003 OIC target is incorrectly shown as 100,000 closures in the President's Budget. FY 2004 IRS Annual Performance Plan Compliance Services PA-11 February 3, 2003 3. 400 , EP / examinations closed EP / EP examination 8 65,000 52,000 51,000 . Innocent spouse determinations made & claimant 61,011 Performance Measures eXam CuStoner return i examinations (< $1 148000 74% coordinated of returns closed €Xàſſ! satisfaction 748 67 77 77 400 ° Official computation of measure began in 2003, FY 2004 IRS Annual Performance Plan Compliance Services PA-12 February 3, 2003 3. Performance Measures 60. Total Tax Court cases (beginning inventory & 35,962 31,883 FTE return . Number of Tax 68. FTE 69, FTE billion dollars of real 6 Advocate to T T T revenue 6 Official computation of measure began in 2003, FY 2004 IRS Annual Performance Plan February 3, 2003 36,141 30,000 31,000 1. Compliance Services PA-13 § RESEARCH AND STATISTICS OF INCOME sanimals. Approachestomersingtºpsy-cºmpliancemebeigexploreland developed FY 2004 IRS will enhance analytical capabilities to address strategic goals through more efficient issue identification, risk management, workload selection, and resource allocation. Studies will continue to focus on abusive schemes, e-commerce, non-filers / underreporters, and electronic filing and paying. Efforts to create infrastructure and practices for developing, sharing, and maintaining institutional knowledge and data will continue. Efforts will be aimed at not only measuring and improving compliance, but also enhancing customer service. Through partnerships and behavioral research, IRS will identify taxpayer needs and develop services and outreach programs to help taxpayers better understand and fulfill their tax responsibilities. Improved electronic data-capturing techniques will be adopted to more efficiently process and compile statistics of income and compliance. Balanced measure studies will be undertaken to enhance customer satisfaction and service delivery at all levels. Better understanding of the drivers affecting taxpayer burden will remain a key initiative. The ultimate goal of all studies is to reduce taxpayer burden, increase overall compliance, and improve customer and employee satisfaction. Research that helps IRS better understand taxpayer knowledge and compliance trends will ensure accurate and fair service to all and better focus education, outreach, and partnership efforts. FY 2003 The IRS research community will conduct studies and develop models to support improved tax administration. Research provides analytical, statistical, and technology services that enable IRS to develop, implement, and improve critical strategies, programs, and processes. Customer- driven studies cover all areas of IRS, including compliance risks, globalization, e-filing, abusive tax avoidance transactions, and human capital. IRS will create infrastructure and practices for creating, sharing, maintaining, and storing institutional knowledge and data. The Tax Administration Toolkit / Internal Revenue Manual Knowledge Base will provide a comprehensive source of IRS administrative policies and procedures as well as tax law research. Data capture and document imaging will be expanded to increase the efficiency of statistical research. Project scheduling software FY 2004 IRS Annual Performance Plan Research and SOI PA-14 February 3, 2003 Performance Goal: Perform strategic and tactical research to anticipate and identiff compliance and tax administration problems.- - Swill collect and tabulate data with respect to individuals, corporations, partnerships, sole proprietorships, estates, nonprofit É will be implemented to enhance research planning, timeliness, and quality. Resource Summary FY 2001 | FY 2002 FY 2003 FY 2004 Budget Authority ($000s) $87,291 $80,951 $90,147 $93,097 Direct FTE 831 843 885 880 FY 2004 IRS Annual Performance Plan February 3, 2003 Research and SOI PA-15 3. INFORMATION SERVICES Performance Goal: Provide the information systems services required by IRS activities to effectively administer the nation's tax laws. -The IRS is consolidating notice printing and mid-range computers, and developing and managing telecommunication services. To keep reasonable pace with industry software advances, IRS will replace a portion of its desktop/laptop inventory annually. In addition, the IRS will perform ongoingmaintenanceofhardware, software virus detection, and otherstandard commercial applications. FY 2004 Information Services accounts for approximately 80% of the entire Modernization Information Technology and Security (MITS) Services budget and as such incorporates all major automation and information technology efforts in support of tax administration and internal management. This budget activity encompasses daily operations and maintenance, security, development and improvement of management processes (governance, program management, risk management, configuration management), and leadership aspects including human resources, investment portfolio management and budget planning and management. In FY 2004, the focus of activities in this area will be on transitioning modernized deliveries first to support, and then to operations and maintenance while maintaining and enhancing the supporting infrastructure and continuing the delivery of successful filing seasons. IRS will provide increases of 49% in mainframe and 150% in installed midrange server capacity, almost 100% in data network bandwidth use, 50% in the number of voice message boxes, 50% in public web site use, and 25% in the number of e-mail messages. During FY 2004, the heavy lifting of actually transitioning modernized systems into support and operations and maintenance is planned. The release plan calls for eight major project releases in FY 2004: CADE Rel 2, CAP Rel 1, e-Services Rel 2.0, HR Connect Rel 1 & 2, IFS Rel 1, and Modernized e-File Rel 1 & 2. This involves significant risk management, program management, training, hiring, resource balancing, and new hardware, software and telecommunications infrastructure within the IRS. Efforts will support ongoing operations of the IRS including telephones, toll free services, e-mail messaging, voice messaging, workstations, desktop software, application software for tax administration and internal management, and computer center operations. Based on past experience, IRS will have approximately 350 active development projects (both sustaining operations and improvement projects) during FY 2003 and FY 2004 in addition to a steady increase in the number of modernization initiatives. In FY2004, daily transactions processed will increase 12%, the number of telephones serviced will increase 2%, and end user services to IRS employees will remain constant. The new Business Integration Office will develop an Executive Communications Plan and Program, and deliver an updated Program Architecture for common business processes and commercial off the shelf use. IRS will continue to focus on identifying and implementing operational efficiencies and discontinuing less productive work to free resources to re- FY 2004 IRS Annual Performance Plan Information Services PA-16 February 3, 2003 § invest in our highest priority programs. IRS plans to recognize savings by significantly reducing contractor costs, implementing changes in the organization, deploying new infrastructure and effecting program improvements. Through these efforts, we have identified $19.5 million in Savings in FY 2004 that will be reapplied to higher priority work. We also identified an additional $150 million of work that will be discontinued or not undertaken. Savings will be reallocated to support business priorities including expanding the Virtual Private Network Service for Revenue Agents at taxpayer sites. Funds will also be used to provide software licensing/maintenance renewal for the Tier A Customer Relationship Management Exam BNA software that becomes an operational expense in that year. IRS will continue replacement of aged e-mail servers and file/print servers delayed from FY 2003. The Human Resources (HR) Connect project will leverage Treasury’s department-wide human resources modernization efforts to provide a state-of- the-art human resources management system. It will improve HR administration by providing a single, centralized repository of such data. It will allow staff self-service access and limited update capabilities to employee data, thereby reducing HR resource requirements, and will facilitate accurate financial data by centralizing all HR information into one database. HR Connect R1 (Pilot) will deploy a fully integrated human resources system. Release 1 will replace Position Management, Recruitment, and Personnel Action Requests (PAR) with an enterprise resource planning Commercial Off the Shelf (COTS) package for better integration and efficiency. It will also provide two new features: Employee Self-Service and Manager Self-Service. Release 2 will implement software upgrades and expand human resources management capabilities to include external recruitment. FY 2003 In FY 2003, IRS will focus on perfecting the rigorous re-balancing of resources, priorities, and projects to meet business priorities commenced in FY 2002. IRS will continue to perform an expanded level of compliance reviews, sensitive systems certifications, and other mission assurance activities. Transition to support and operations and maintenance address preparedness and acceptance of modernized systems into IRS. At present, a rough order of magnitude estimate of the total cost of this activity ranges from $85 to $150 million. Activities in this area for FY 2003 will be dominated by planning; increasing our understanding of the work of transitioning, refining schedules, timing and cost estimates; and piloting operations approaches and processes on those modernized system deployments in FY 2003. The release plan calls for five project releases in FY 2003. Recognizing the need for closer coordination and integration with the business customers of modernization, BSMO created the Business Integration Office in mid-FY 2002, headed by a Deputy Associate Commissioner. In FY 2003 the Business Integration Office will stand up as a small organization, become established and build some key relationships. While it will never be a large organization, it is expected to expand in step with the Business Systems Modernization (BSM) program as BSM grows and becomes increasingly complex. FY 2004 IRS Annual Performance Plan Information Services PA-17 February 3, 2003 § Resource Summary FY 2001 FY 2002 FY 2003 FY 2004 Budget Authority ($000s) $1,584,682 $1,530,888 $1,582,579 $1,620,174 Direct FTE 7,441 7,674 8,025 7,986 Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table Performance Measures 71. Ticket - 72. Percent Resolution at First Contact . Percent on Time FY 2004 IRS Annual Performance Plan - - Information Services PA-18 February 3, 2003 3. INFORMATION SYSTEMS IMPROVEMENT PROJECTS Operating Divisions -The IRS will improve its financial and administrative systems, ensure the security, ility of its Information Technology (IT) infrastructure, and standardize and expand the range of services to taxpayers FY 2003 / FY 2004 The Tier B program funds near-term improvement or enhancement projects that modify/enhance existing systems or processes; provide limited change in functionality; provide a bridge between current and Modernization architecture; and provide new capabilities to fill missing functional gaps in the modernized enterprise architecture. These are small to medium projects. And, although these projects are owned by a single IRS Business Unit, they may provide capability and functionality that serve multiple Business Units, Treasury Performance Budgeting Application Criteria Addressed Timeliness/Urgency – The information systems activities funded are required to maximize the effectiveness and efficiency of the modernized IRS business structure. Ties to IRS Core Mission – This activity directly supports the core mission of the IRS by supporting the information needs of the IRS Business Units in most mission areas, including submissions, compliance, filing and payment and internal management. Performance Measure(s) Proposed for Improvement IRS is requesting $49.87 million to provide quality systems that will deliver the business vision of the IRS by continuing to support current near-term and new Tier B projects that require funding in FY 2004. Tier B projects were considered with an overall enterprise view of agency-wide IT investments, as well as with a view of maintaining a strong linkage with the modernization initiatives and compliance with the Enterprise Architecture (EA). is FY 2004 IRS Annual Performance Plan . Information Systems Improvement Projects PA-19 February 3, 2003 . § The EA describes the long-term business functionality to be provided by the Tier A or BSM program. The Release Architecture (RA) is the actual business functionality delivered, deployed and transitioned to operations and maintenance over time by the Tier A program. In this context, an excellent characterization of the purpose and expected accomplishments of the Tier B program is to fill the gap between the functional requirements of the EA and the delivered functionality of the RA. That is, the Tier B program provides “stay-in-business” functionality to the business while they wait for Tier A Modernization. In addition to providing this “gap functionality,” the Tier B program also provides missing functionality from the Tier A program (i.e., some internal management functions for some functional divisions and shared services divisions). Because of this “filling the gap.” role of the Tier B program, it is important that the Tier B projects are not only compliant with the Enterprise Architecture (one of the six criteria for ranking and selecting Tier B projects), but they are managed in an integrated manner with the Tier A program. Integrated planning prioritization and management within MITS ensures programmatic links among the Tier A, B and C projects. Specifically, the Tier B projects are implemented using Enterprise Life Cycle (ELC)-lite, an abbreviated version of the Tier A ELC. And, selected Tier B projects (termed Strategic Tier B) are subject to the Sub-Executive Steering Committee governance processes of the Tier A or BSM program. The recent successful transfer of two Tier B projects, 1120/1120S e-File and 990 e-File, to the Tier A Modernized e-Services project serves as evidence of this tight linkage. With an increasing business demand for Tier B projects, the prioritization and selection methodology and process are critical. This process utilizes the Business Systems Planner/Division Information Officer (BSP/DIO) Council to review all Tier B projects (a five. day exercise) against a set offive criteria, rank the projects based on their total scores in the five criteria, and then these projects are presented to the IRS Senior Management Team (SMT) or its surrogate Enterprise Architecture Integration Councii (EAIC) for approval. We took steps in FY 2002 to further improve the implementation of a comprehensive investment management framework for managing our Tier B investment portfolio. This framework (Select, Control, Evaluate) is based on the investment management process being applied across government agencies, and supports the formulation, management, and maintenance of IT investments. This process is key to ensuring that the investment portfolio adequately addresses our business strategies. In addition, we conducted the first FY 2003/2004 integrated prioritization session with an enterprise perspective. This meant that Tier B Improvement initiatives took into account the relative dependencies and impacts from Tier A Modernization initiatives and Tier C FY 2004 IRS Annual Performance Plan Information Systems Improvement Projects PA-20 February 3, 2003 - 3. Improvement initiatives, as well as gaining an understanding of IT platform infrastructure initiatives in regards to Tiers I (mainframes), II (servers), III (desktops), and IV (telecommunications). As part of the prioritization session, the BSP/DIO Council participated in an Equity Session to screen, brief and score existing and proposed Tier B projects, and considered other Tier initiatives for corresponding impacts. During the prioritization session, the BSPs and DIOs screened the IT project proposals, focusing on business value mission, impact, criticality, probability of success, and Tier A implications/dependencies. Projects were recommended for inclusion in the portfolio based on their business value and business unit priority, and this resulted in a ranked list of projects. The selected projects will follow a tailored Enterprise Life Cycle (ELC) process and the Resources Allocation and Measurement division will monitor and control these IT investments to minimize the likelihood of project failure, excessive cost, and schedule over Tuns. The following are the approved Tier B projects in the FY 2004 investment portfolio that total to the requested $49.9Million, along with their general project descriptions. More detailed descriptions can be found in Exhibit 53 of the Information Technology Investment Portfolio Systems (I-TIPS) database. Only one project was considered a major project (Enterprise E-Learning Strategy) and was submitted via an Exhibit 300. Business Unit Project Description SBSE Collection Strategy Prioritize collection cases that will allow productive cases to be worked at an earlier time, increasing the taxpayer's opportunity to satisfy his/her tax liability $ 0.09M before excessive penalties and interest accumulate. LMSB Issue Management An issue based tracking system that captures examination progress and results. System (IMS) Information to be captured includes examination planning data, audit results and timekeeping data. A key feature will be the ability to work on-line (connected to $ 0.45M a data repository) or off-line (data is stored on the local computer for transfer to the data repository later). FY 2004 IRS Annual Performance Plan Information Systems Improvement Projects PA-21 February 3, 2003 3. Business Unit Project Description Wazi Queuing Management Anon-line system available at selected major taxpayer assistance centers to System facilitate workload and resource distribution by screening and categorizing taxpayer needs at the point of registration. $3.39M LMSB RGS Enhancement Establish an automated tool that allows 25,000 users in all operating divisions of System IRS to create cases for audit through user input of taxpayer data or through the automatic download of taxpayer data from Returns Transaction File; maintain $3.50M administrative case files; preplan examinations; create work papers; request taxpayer information; compute tax, penalties and interest; generate audit adjustments, forms and letters to the taxpayer; and maintain an inventory of Cases. LMSB Issue Based Establishes a Web-based centralized system for managing case information for Management tracking, planning, and reporting purposes. This provides Team Managers, Information System Territory Managers, and Executives a centralized, online management information reporting system for Coordinated Industry Cases, Industry Cases, $3.55M International Cases, and Specialist. In addition, it will allow managers the ability to report on case activity; monitor examination plans and Specialist measures and activity; and, capture vital statistics for their area of responsibility. SHR Enterprise E-Learning Business strategy that leverages technology to deliver competency-based Strategy learning to ODs/FDs online, using standard interfaces, content repositories, and a learning administration system. Outcomes include increased productivity, $2.95M increased direct time spent on compliance, customer service, and other mission critical work, increased access to leaming for all employees. W&I Desktop Integration Desktop Integration will provide access to various Compliance systems (e.g. ICS (Common Desktop) and RGS) from a common Integrated Case Processing (ICP) interface. It will allow end-users to capture, manage and respond to all taxpayer inquiries or $1.80M follow-up activity using a single system. In addition, it will further improve “one-stop” service by reducing the length of time spent on responding to taxpayer inquiries and increasing the number of taxpayers serviced. FY 2004 IRS Annual Performance Plan February 3, 2003 Information Systems Improvement Projects PA-22 3. - º Business Unit Project Description W&I Management Reduces the cost expended with use of the current system. Allows management Information System real time monitoring of program results, providing the ability to take timely (MIS) for SPEC corrective action. $ 0.90M TAS Taxpayer Advocate TAMIS provides a database that tracks the status and progress of taxpayer cases Service Management that meet Taxpayer Advocate Service criteria as mandated by Congress in the Information and Restructuring and Reform Act of 1998 (RRA98). The TAMIS system is mission Control Systems critical for the receipt, control, processing and analysis of TAS criteria cases; (TAMIS).(Taxpayer the recordation and analysis of all Congressional cases, tax and non-tax related; Advocate MIS Case the control of all taxpayer cases resulting from Problem Solving Day events; and Assignment) taxpayer issues/concerns addressed to and forwarded from the Senate Finance Committee. The data is used in required reports to Congress and Treasury, to $ 0.89M analyze Service processes, practices and policies as well as existing tax laws with a view to changing and/or improving them if they appear burdensome or inequitable for taxpayers. Many sources such as GAO, TIGTA, and Operations, also use the data for analysis. W&I Remittance Transaction|Provides a more efficient means of researching payments. RTR will be a one- Research System stop shop for checks, images, thus eliminating search through storage archives (RTR) for source documents. Provide ability for real-time queries to a database for all MIS data resulting in improved productivity. $0.50M W&I Correspondence An image-based correspondence system would enable the CSR's to work from a Imaging stored image using the same workstation they use to access DRS. IDRS connectivity would enable management, as well as the Adjustments Control $3.42M Unit, to batch, control and assign cases in a more efficient manner, thereby reducing the time it takes correspondence to reach the CSR for resolution. Once a case is closed, images of the correspondence and related case documentation can be retained online which will assist the CSR in subsequent contacts by the taxpayer. FY 2004 IRS Annual Performance Plan February 3, 2003 Information Systems Improvement Projects PA-23 3. º º ºr tº: º ----- º ºf ºf º: Business Unit Project Description W&I Media & Publishing Streamline end-to-end business processes associated with IRS publishing and Architecture and distribution. This will include procurement and integration of multiple COTS Publication (End-To- products to improve value and address document creation, document End Publishing) management, printing procurement, electronic publishing, order fulfillment, warehouse management and transportation management. $3.60M SBSE Integrated Insolvency This system provides for an automated proof of claim computation and an System electronic claim form for filing in the court. The bankruptcy courts are imposing the requirement for electronic filing of all claims. Accurate proof of claim filing $ 1-10M is one of the primary requirements for Insolvency. Automation will enhance that effort, and accommodate the increasing number offilings. CFO/NHQ Business Performance |A logical growth of IRS’s efforts over the last 2 years to establish performance Management System measures and business performance review system in response to IRS’ need to measure and report on its performance, as well as to comply with the mandates $3.04M of the Government Performance Review Act. TEGE TE/GE Reporting and Consolidate end user (revenue agents & managers) examination tools to increase Electronic Examination|the accuracy and efficiency of the examination process, and enhance System (TREES) management information report capabilities. $3.40M CI Criminal Investigation (CIMIS provides the vehicle to collect, compile, and deliver accurate, real time Management investigative information to all levels of CImanagement. Much of the data is Information System required by congressional mandates, Treasury regulations, and OMB (CIMIS) requirements, and is relied upon heavily for preparing congressional testimony. Phase I: 10/1/2002, Phase II: 3/1/2004, Phase III: 10/1/2005 $2.75M SBSE Automated Trust Fund The Automated Trust Fund Recovery is an approved National Standard Recovery (ATFR) Application developed by Headquarters Office and The Mid-America Development Center in Austin, Texas. The application design divides the $ 0.98M application into two distinct but interactive parts; the Area Office (AO) and the Compliance Center(CC). The AO portion was implemented nationwide in October 2000 and the CCPhase I is currently being piloted at the Philadelphia Campus. FY 2004 IRS Annual Performance Plan February 3, 2003 Information Systems Improvement Projects PA-24 3. Project Description W&I Contact Recording Recording customer calls will support the Service's quest to improve the quality Project of service provided to our customers by allowing employees to provide specific |customer feedback based the actual events that did/did not occur on the call. It $5.30M will focus the review discussions directly on the performance that actually occurred on the call. In addition, by setting sampling parameters to ensure that a random call sample is reviewed, we address a significant TIGTA concern with our current quality measurement system (CQRS). Call recording will enable us to more efficiently and effectively review telephone calls, develop and evaluate employees and improve the overall quality of service provided to our customers. TEGE Determination System Willfully realize TE/GE's business objective. Release 2 of the Determination Redesign-Release 2 System will allow for greater functionality of the system by EP, EO, and GE users. This functionality will greatly expand the capability of the system to users $3.30M within the organization. SBSE Excise Files Tremendously enhances the information currently available to both federal and Information Retrieval state governments in the area of fuel tax compliance. System (ExFIRS) $4.96M Resource Summary FY2001 FY 2002 FY 2003 FY 2004 Budget Authority ($000s) $33,786 $38,665 $49,865 $49,865 Direct FTE 0 0 0 0 FY 2004 IRS Annual Performance Plan February 3, 2003 Information Systems Improvement Projects PA-25 à BUSINESS SystEMs MoDERNization Rs has published and updated a comprehensive techn - - hdelectronic government and increase electronic filing alternatives will be pursued. FY 2003 / FY 2004 The IRS has embarked upon a comprehensive modernization program to produce world-class information systems that meet U.S. taxpayer needs and the tax administration goals of the Nation. The U.S. tax administration system collects $2 trillion in revenues annually. The IRS is critically dependent on obsolete, fundamentally deficient, computer systems developed over the last 40 years. They do not and will not allow the IRS to administer the tax system of the Nation and provide essential service to taxpayers at an acceptable level of efficiency, effectiveness, and risk. In 2002 the Business Systems Modernization (BSM) Program implemented basic building blocks (secure online system and system management capability) and an initial taxpayer-facing application, Internet Refund/Fact of Filing. In 2003 and 2004, additional supporting infrastructure services will be added, and an increasing number of business and internal applications will be delivered, creating taxpayer value and enabling internal efficiencies. - The IRS will augment the infrastructure components installed in FY 2002 to provide the capacity to handle increased numbers of users and additional applications. Security improvements will keep pace with the additional requirements, including increased usage of employee and registered user Internet portals. - Increasingly, data will migrate to a modernized relational database. Taxpayers migrated to the Customer Account Data Engine (CADE) by the end of FY 2005 will include much of the 1040 family of electronically filed tax returns (full paid or refund), not including those with open issues or with power of attorney in the IRS’ Centralized Authorization File. This migration will bring an estimate of 35 million accounts onto the modernized databases and result in faster refunds through daily processing for those taxpayers and sets the stage for modernized customer service. The Internet will become an increasingly important source of information to customers, and provide increased capabilities for communicating with IRS personnel. E-services will provide practitioners and business partners additional automated service over the Internet and enable the IRS to improve relationship management among this important set of customers. It is anticipated that this will directly influence additional electronic filing. FY 2004 IRS Annual Performance Plan Business Systems Modernization PA-26 February 3, 2003 - logy blueprinto guide it through this multi-year 3. We will implement consolidated data (Individual Master File (IMF) data going to CAP for FY 2004) for research and analysis, management information, and a host of operational uses through the Custodial Accounting Project (CAP). CAP ensures effective financial management of revenue transactions including accurate and timely reporting of individual receipt and refund activity. The first release of CAP will be implemented in FY2004 and will create the repository for modernized individual taxpayer account data. The second release of CAP will be developed in FY2004 and will support the Business Master File (BMF), Non-Master File (NMF) and Information Returns Account File (RAF). Both releases provide for information decision analytics and reporting; infrastructure support for fat clients and terminal clients; auditing capabilities for on-line analytical processes; and taxpayer account sub ledger to support FFMLA SGL. In FY 2004, the Integrated Financial System (IFS) will enable the IRS to meet regulatory and oversight financial reporting requirements through the implementation of a Commercial Off the Shelf (COTS) solution. This project will deliver the internal financial reporting capabilities needed to develop and track budgets and expenditures. Core financial capability, including general ledger, accounts receivable, accounts payable, cash, cost accounting, and financial reporting will be implemented. IFS will be a Joint Financial Management Improvement Program (JFMIP) compliant system. FY 2004 Business Projects • E-Services will provide support for the 2004 Filing Season as well as implement support structures for Modernized e-file planned for implementation later in the fiscal year. • Modernized e-file will provide electronic filing for large and medium-sized businesses (Forms 1120 and 990), as well as a new Tax Return Data Base, which will greatly improve customer service and issue resolution. This project uses state of the art XML technology that will enable a revolutionary new way to exchange electronic data in the future over the Internet. Internal Management Projects • Integrated Financial Services (IFS) will develop the detailed functional requirements for a Commercial Off the Shelf (COTS) solution to Support internal management requirements for financial and management planning, execution and reporting. Each release will represent a distinct usable segment. Release 1 will replace the Core Financial Systems (CFS) and include budget formulation information, plus implementation of a Cost Accounting System. Release 2 will focus on Property Accounting/Management, Travel Management, Procurement Management, Performance Management, Seized Property Management, and administrative Data Warehousing. * The Custodial Accounting Project (CAP) will provide an integrated enterprise data warehouse to Support organizational data needs, performance measurement, and tax operations process improvements for individual filers. CAP R1 will provide support for individual filers. CAPR2 will provide support for business filers. FY 2004 IRS Annual Performance Plan Business Systems Modernization PA-27 February 3, 2003 3. Data/Infrastructure Projects Customer Account Data Engine (CADE) will allow for electronic processing of selected 1040 Wage & Investment returns with additional taxpayer segments with increasingly more complex tax returns and /or balance due returns. Infrastructure Shared Services (ISS) will continue a program to build and deliver an agile infrastructure that is scalable, interoperable, flexible, manageable, and features standardized operations and a single security and enterprise systems management framework. This infrastructure will enable us to deploy modernized business systems and fully integrate with the current processing environment to support data access, databases, web based service delivery for taxpayers and internal users, and do so in a fully secure and optimally managed operational environment. ISS is an umbrella program for multiple projects including Security, Technology Infrastructure Release (STIR), Telecommunications Near-Term, and Enterprise Systems Management (ESM). FY 2003 Business Projects • E-Services will provide online application for third party status, authentication and authorization, access to education and communication resources available on the IRS Intranet and Intranet sites, exchange of secure communications, electronic Power of Attorney/Tax Information Authorization (POA/TIA) application, electronic Taxpayer Identification Number (TIN) matching and electronic transcript delivery request. Internet EIN will bring Internet capability to new businesses to be able to apply for an Employer Identification Number (EIN). In hearings before the IRS Oversight Board, this was one of the three most desired functions that business representatives sought. Internet Refund Fact OF Filing (IRFOF) improves customer self-service by instantly providing refund status information and instructions for resolving refund problems to taxpayers with Internet access. Resource Summary - - - FY 2001 || FY 2002 FY 2003 || FY2004 Budget Authority ($000s) $93,616 $243,892 $380,000 $429,000 Direct FTE O 0 0 0 FY 2004 IRS Annual Performance Plan Business Systems Modernization PA-28 February 3, 2003 3. EARNED INCOME TAX CREDIT PROGRAM Swill attempt to address potentially erroneous claims before th FY 2004 IRS will attempt to address potentially erroneous claims before they are accepted for processing and before any EITC benefits are paid by using an integrated strategy. IRS will begin to implement a certification plan for qualifying child relationship and residency to ensure that each EITC filer claiming a child meets the EITC eligibility requirements before receiving benefits. IRS will use all of its available data to determine that each EITC filer claiming a child meets the EITC relationship requirements-without requiring any additional actions on the part of the claimant. IRS will systemically certify nearly eighty percent of EITC claimants on the relationship issue. IRS will also use compliance study data and risk analysis to determine which EITC filers claiming children are most likely to meet the residency requirements. Using this information, IRS will eliminate by nearly eighty percent the number of claimants required to certify residency. In circumstances where available data is insufficient to determine whether a claimant meets the qualifying child eligibility requirements (approximately 20% of claimants), IRS will seek information from the claimant before the refund is paid. In addition, IRS will use historical data, third party data and limited additional taxpayer information, in combination with error detection systems, to detect and freeze refunds with high risk offiling status errors and will use historical data, in combination with error detection systems, to detect and freeze refunds with high risk of income misreporting. FY 2003 IRS will direct efforts to increase taxpayer and preparer compliance through a balance of research, outreach, education, assistance, and enforcement activities. These efforts will assist taxpayers and tax preparers in determining EITC eligibility and ensuring accurately filed claims. Taxpayer education will play a vital role in curbing erroneous EITC claims through extensive community education and outreach activities. IRS will refine existing Dependent Database business rules to validate EITC and other family-related issue claims. IRS will also develop EITC research strategies to include cataloguing internal and external research, understanding taxpayer behavior, identifying unique taxpayer segment treatments, and understanding reasons for noncompliance and nonparticipation. An Executive Advisory Council will provide oversight and leadership for the EITC program within IRS, ensuring timely accomplishment of operational priorities and resolution of cross-functional issues. FY 2004 IRS Annual Performance Plan Earned Income Tax Credit Program PA-29 February 3, 2003 3. Resource Summary FY2001 | Fyzon | FY2003 || FY2004 Budget Authority ($000s) $149,308 $146,000 $146,000 $251,167 Direct FTE 2,196 2,467 2,353 2,994 FY 2004 IRS Annual Performance Plan - Earned Income Tax Credit Program PA-30 February 3, 2003 3. SHARED SERVICES SUPPORT § dized processes and identifying areas to continue expanding electronic government. E-commerce * - - ---- - - . . . . . . . . . . * ***,2,.. and operty assets. º gai: Effectively provides the logistical services required by IRS activities to administer the nation's tax laws. --Theº FY 2004 Efforts initiated in FY 2003 will continue. There will be continued emphasis on rent containment, prioritization and implementation of a long-term capital plan, and employee/building safety and security. IRS will continue investing in employee training and development in areas such as professional skills, cultural sensitivity, workplace diversity, and the Alternate Dispute Resolution (ADR) process. Continuing Professional Education modules will also be developed to enhance learning opportunities. Competitive sourcing programs that were introduced in FY 2002 continue to expand in FY 2003-2004 requiring significant resources. However, the program is expected to improve efficiencies and create program savings for the IRS, either through outsourcing or improved government performance. Efforts to continue expanding electronic government will continue. The use of IT in e-commerce and knowledge management will continue to be pursued. By FY 2005, HR Connect will be significantly implemented. It will provide accurate information for management of the IRS workforce, improve the accuracy and timeliness of personnel actions, and improve communications to all customers. Developing and implementing processes to promote greater financial control and accountability by operating divisions will be a special priority. FY 2003 The shared services program provides internal management of the human, logistical, contractual, and labor /management resources necessary to fulfill IRS’ mission and strategic goals. Efforts to implement and enhance automation initiatives for systems supporting space and property, rent, security and safety, and project tracking will be undertaken. IRS will pursue programs that promote employee development and continuity, such as training, succession planning, and workplace conflict prevention. A new Diversity Awareness Council will be developed to advise managers and employees on workplace conduct that supports inclusion, independence, and empowerment. IRS continues to expand its electronic capabilities through a growing number of methods for procuring products and services, such as electronic catalogs, reverse auctioning and increased interfaces. Web-based interfaces such as WebRTS (Requisition Tracking System), WebIPS (Integrated Procurement System), and e-commerce initiatives will be pursued to improve customer service and vendor access, as well as reduce costs and user FY 2004 IRS Annual Performance Plan - Shared Services Support PA-31 February 3, 2003 # burden. Additionally, although not a shared services' initiative, significant commitment will be made to the development and implementation of the Integrated Financial System (IFS) in order to ensure that it includes the capabilities, and performs the critical activities, necessary to achieve acceptance in the IRS financial community. Special emphasis will be given to rent containment and reduction, further development of the long-term capital plan, the availability of ergonomically appropriate furniture, and most importantly, workplace safety and security. IRS is committed to process refinements that increase efficiency and timeliness of service delivery, reduce burden, and improve customer and employee satisfaction. Resource Summary FY 2001 FY 2002 FY 2003 FY 2004 Budget Authority ($000s) $1,175,700 $1,190,879 $1,196,875 $1,230,970 Direct FTE 4,640 4,917 4,837 4,604 Program Performance Annual Performance Goals, Measures, Indicators, and Informational Table FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Performance Measures Performance | Performance Target Performance Target Proposed 75. Employee health and safety – lost workday case rate NA N/A 0.49% 0.98% 0.49% TBD FY 2004 IRS Annual Performance Plan Shared Services Support PA-32 February 3, 2003 3 .*. are designed to reflect its customer's needs and address significant human capital issues. organization and business practices Competitive sourcing alternatives are being identified and financial systems are being updated to improve financial performance. • ,- IRS is fully integrating its strategic planning, budget and performance management process to more effectively achieve its strategic goals and objectives. . . . . . . . . . . . . . . . . . . : e FY 2004 IRS will continue its focus on delivering customer-defined services that meet taxpayer needs. IRS will develop and expand educational products and communication efforts to assist taxpayers and practitioners in fulfilling their tax obligations. Customer satisfaction surveys will be migrated from paper to non-paper channels to improve information timeliness and trend identification. Balanced measures will be used improve service delivery, performance, and compliance, IRS will continue to address human capital resource issues by implementing programs to recruit and retain highly skilled personnel and expand training opportunities. IRS will also continue succession planning, manager/employee relationship building, and EEO/diversity activities. Efforts to expand employee training and development will continue. Employee surveys will be used to refine the focus of new initiatives and areas for improvement. Efforts will be undertaken to provide quality service while reducing taxpayer burden. IRS will continue responding timely to inquiries from GAO, TIGTA, Congress, and other parties and communicating its message via print, broadcast, and online media. IRS will continue pursuing partnerships and data sharing opportunities with external organizations and groups that are actively involved in tax administration. FY 2003 IRS will focus on delivering customer-defined services that meet taxpayer demands in the manner most convenient and appropriate for the particular taxpayer. IRS will develop and expand educational products and communication efforts to assist taxpayers and practitioners in fulfilling their tax obligations. Customer satisfaction surveys will be used to refine objectives and critical measures. Efforts will focus on improving customer satisfaction, compliance, and internal performance. IRS will address human capital resource issues by implementing programs to align compensation with performance, recruit and retain highly skilled personnel, and expand training opportunities. Succession planning, manager/employee relationship building, and EEO/diversity activities are FY 2004 IRS Annual Performance Plan General Management and Administration PA-33 February 3, 2003 § important human capital issues. IRS will expand knowledge management and training initiatives for all employees. Employee surveys will be used to refine the focus of new initiatives and areas for improvement. Competitive sourcing programs will be pursued to increase program efficiency and effectiveness. Efforts will be undertaken to provide quality service while reducing taxpayer burden. IRS will respond to inquiries from GAO, TIGTA, Congress, and other parties and communicate its message via print, broadcast, and online media. IRS will also pursue partnerships and data sharing with external organizations and groups that are actively involved in tax administration. Resource Summary FY 2001 FY2004, ... - - FY 2002 FY 2003. Budget Authority ($000s) $548,435 $461,637 $520,696 $540,479 Direct FTE 3,327 3,186 3,211 3,195 FY 2004 IRS Annual Performance Plan February 3, 2003 General Management and Administration PA-34 § III. Supporting Materials --- ges and High-RiskAreas Over the last several years the General Accounting Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA) have identified several Management Challenges and High-Risk Areas facing IRS. IRS has identified specific steps and actions to address these issues through its existing program activities. Measures of these program activities serve to show progress in addressing the management challenges and high-risk areas. Below is a crosswalk showing the relationship between management challenges and IRS program activities. - Major Management Challen Management Challenge or High Risk Area | | | i i º i ; g tºy) ſº 5: .º - 75. ur E 92 O Cl. C fo The following pages summarize each Management Challenge and High-Risk issue, FY 2002 accomplishments, and actions identified for completion in FY 2003 and beyond. - FY 2004 IRS Annual Performance Pian Major Management Challenges and High-Risk Areas SM-1 February 3, 2003 § Management Challenge or High Risk Area: Systems Modernization of the IRS The ability to balance the goals of helping taxpayers meet their tax responsibility and improving overall compliance with tax laws depends on the successful completion of the modernization effort. Modernization of technology is crucial to implementing the new business vision of providing world-class service to taxpayers. While the development of new technology evolves, existing operations must continue, and improvements must be made to meet the needs of tax administration and demonstrate IRS’ commitment to improved service to taxpayers. FY 2002 Accomplishments: Critical to the successful modernization of IRS business processes and enabling information technology are disciplined management processes. Through focused development and implementation of repeatable management processes this year, IRS has made considerable progress in the ability to manage the Business Systems Modernization Program. Continued strict adherence to these processes will effectively allow the IRS to meet the challenges identified by GAO and TIGTA. In FY 2002, IRS addressed this challenge through the following accomplishments: * Matured Business Systems Modernization Office (BSMO) management processes as evidenced in TIGTA audits and GAO reviews. * PRIME achieved Software Acquisition Capability Maturity Model (SA-CMM) level 3 rating, first in world to do so. * Delivered Internet Refund Fact of Filing (IRFoE), Secure and Technical Infrastructure Release (STIR), Enterprise Systems Management (ESM), and Enhanced Call Routing applications. * Began Customer Account Data Engine Release 1 (CADE R1) pilot. * Fully matured program governance (established framework for and implemented fully functional Executive Steering Committee [ESC] and Sub-Executive Steering Committee [SUB-ESC] structure), which includes extensive participation of key executives across the IRS and external stakeholders. * Achieved SA-CMM level 2 rating for BSMO, first civilian government agency to achieve that level of management maturity. Actions Planned or Underway: The following actions will enhance the IRS’ ability to modernize technology: * Implement CADE R1 to allow the first processing of individual taxpayer returns on a system other than the Individual Master File (IMF) in 40 years. (09/2003) Focus on better cost and schedule estimating and building reserves in plans. (09/2004) Implement E-Services R1.1 and R1.2, providing electronic support to third party providers. (09/2004) Implement HR Connect R1, establishing new HR system in selected business units. (09/2004) Implement Internet Employee Identification Number (EIN), providing Internet based applications for employer identification number online. (09/2004) • Improving the Spend Plan process. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-2 February 3, 2003 § Management Challenge or High Risk Area: Tax Compliance Initiatives IRS’ goal of providing world-class service to taxpayers hinges on the theory that if IRS provides the right mix of education, support, and up-front problem solving to taxpayers, the overall rate of voluntary compliance with the tax laws will increase. The compliance program (examining tax returns and collecting tax liabilities) addresses taxpayers that do not voluntarily comply. During the last decade, the number of tax returns selected for examination by IRS has decreased while the number of tax returns filed has increased. The challenge to IRS management is to establish a tax compliance program that identifies those citizens who do not meet their tax obligation, either by not paying the correct amount of tax or not filing proper tax returns, and effectively bring them into compliance. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: • Analyzed Correspondence Examination programs to determine areas of non-compliance that can be addressed through the use of soft notice and math error treatments. • Developed improvement strategies to address escalating and aged Offers in Compromise (OIC) inventory and to reduce open OIC inventory within six to twelve months. • Enhanced and realigned the current Examination legacy systems to help identify the most productive returns to examine. Information will be made available to examiners to conduct more effective examinations. - * Expanded the range of information documents and returns that may be filed electronically for Corporate Taxpayers. * Estimated payment compliance measures by type of tax and by Operating Division for tax year 1999; estimated filing rate measures for individual income tax for tax years 1990-1999. * Completed training for all technical large and mid-size business employees on the Limited Issue Focus Examination (LIFE). Actions Planned or Underway Efforts in FY 2003 and beyond will address compliance areas through better education of the public; systematically identifying promoters and participants; improving the efficiency of exam and collection efforts through reengineering; and reinvigorating enforcement actions such as summons enforcement, injunctions and criminal investigation of promoters. IRS must continue to make significant progress in collecting better compliance and non-compliance data as well as quantifying corporate level strategic compliance measures. These two goals will be achieved in large part through the new National Research Program (NRP). The first available NRP data on payment and filing compliance recently became available, with updated measures available in FY 2003. Data on reporting compliance will be available in FY 2004. The following activities will allow IRS to implement a balanced compliance program: FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-3 February 3, 2003 § * Deploy a range of initiatives using education and outreach to improve the overall rate of voluntary compliance. (09/2004) * Increase efficiency and effectiveness by updating and re-engineering work processes to make better use of resources. (09/2004) • Advance the use of Voluntary Compliance Agreements, reducing the need for traditional enforcement actions. (09/2003) * Fully implement K-1 matching program and target enforcement efforts towards promoters and participants of abusive tax avoidance transactions. (09/2003) * Implement improved processes to move to an issue-driven compliance process that will result in productivity savings and redirect these savings to the highest compliance work. (09/2003) - . * Explore the use of limited scope examination processes to increase our ability to improve case resolution. (09/2003) * Analyze the Potentially Collectible Inventory reports to identify the causes of growth and develop a course of action to impact continued growth. (09/2004) * Apply alternative dispute resolution procedures and other issue resolution programs to resolve abusive tax avoidance transactions and other issues in a timely and consistent manner. (09/2004) * Identify methodologies that will most positively impact non-compliant taxpayers using Research data. (02/2004) * Use Filing Compliance rate estimates for individual income tax to develop dollar gap estimates. (09/2004) * Continue Reporting Compliance study of individual income tax. Most examinations will be done in FY 2003. Data will become available in FY 2004. * Establish and staff the Exempt Organizations Contact Unit to improve the IRS presence in the exempt organizations community. (10/2004) * Collaborate with Department of Labor to identify and contact Form 5500 nonfilers. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-4 February 3, 2003 . § Management Challenge or High Risk Area: Security of the IRS – Employees and Facilities Recent terrorist attacks highlighted vulnerabilities in many businesses and government agencies. This terrorist activity within the United States demonstrated very graphically that the physical security of IRS employees, equipment, and structures should be of utmost concern to IRS management. The IRS must remain vigilant to all opportunities to enhance the safety of employees. FY 2002 Accomplishments: In FY 2002, IRS addressed this challenge through the following accomplishments: * Developed National Physical Standards that establish security enhancements for areas such as guard services, blast mitigation, and IRS infrastructure. Conducted an assessment of all IRS buildings and facilities based upon current and proposed security standards. Developed contingency plans for all ten IRS campuses to address hazardous materials threats for the upcoming filing season. Purchased and distributed protective equipment, such as gloves, masks, and lab coats, as a result of the anthrax threats. Consolidated and/or contained many mail-opening activities throughout IRS. Participated in government-wide programs that plan for and minimize the risk of catastrophic events on mission achievement, Developed posters, tri-fold brochures, and a Director's briefing package to provide information and instruction to managers and employees regarding anthrax and other hazardous materials threats. - Developed a plan to upgrade communications systems such as public address and closed circuit television for all ten IRS campuses. * Developed an action plan to address deficiencies in offices that do not meet the National Physical Security Standards. * Completed Phase 1 and 2 initiatives to contain Service Center Automated Mail Processing System and mail extraction units in all campuses to isolate these areas from other units. • Enhanced and tested headquarters’ continuity of operations (COOP) capabilities * Developed and tested enterprise situation awareness management capabilities (SAMC) Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: * Continue to work with GSA and law enforcement agencies to safeguard personnel and assets. (09/2004) * Closely monitor procedures regarding the inspection of incoming mail and packages. (09/2004) * Continue implementation of security enhancements. (09/2003) * Continue to participate in government-wide programs that plan for disaster response. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-5 February 3, 2003 § * Take actions to improve and institutionalize changes for campus mail operations. (09/2003) * Continue to enhance and maintain COOP and SAMC initiatives. (09/2004) * Complete security risk assessments of Level 1, 2, and 3 buildings. Implement appropriate corrective measures and/or upgrades, subject to funds availability and consistent with comparable GSA scheduling for Level 4 buildings. (09/2003) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-6 February 3, 2003 § Management Challenge or High Risk Area: Security of the IRS – Information Systems Whereas the IRS’ computer security capabilities have measurably improved, the remaining computer security control weaknesses continue to expose the Service’s automated systems and taxpayer data to unacceptable risks associated with both internal and external threats. As the primary revenue collector for the United States, the IRS is a highly visible target for hackers, unhappy taxpayers, disgruntled employees, and other types of dissatisfied people. This threat has increased over the last few years with more interconnectivity of systems. In addition, business continuity, disaster recovery, asset management, and stored data became key concerns after the events of September 11, 2001. Loss of tax processing systems for extended periods would have a major economic impact and would result in lost productivity for many IRS functions that are totally dependent on these systems. FY 2002 Accomplishments: In FY 2002, IRS addressed this challenge through the following accomplishments: * Refocused Security Services organization to create corporate security solutions. * Focused on evaluating and improving IRS security programs and processes, and identifying how to implement security capabilities that are balanced with operational requirements. * Conducted reviews of IRS facilities and programs to evaluate and test security controls, and assisted IRS organizations to set up internal security review processes. * Monitored IRS networks to prevent cyber attacks. • Enhanced incident response capability (CSIRC) to 24X7 operation; initiated more detailed analysis process to better protect and defend IRS systems and networks; provided daily status reports to executive leadership. * Improved certification process through deployment of an automated tool. * Conducted agency-wide awareness activity to better enable employees to understand their responsibilities and use good practices. * Began earlier engagements with Modernization project offices and BSMO with regard to development process to ensure consistent, satisfactory implementation of security methodologies and to ensure that all new systems meet the security certification mandate. * Established in-house mainframe disaster recovery capabilities. Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: * Conduct reviews to evaluate security performance in key business areas, such as remittance processing, and work with IRS business units to mitigate these weaknesses. (09/2004) - * Improve the adequacy of physical, logical, communications, and personnel security, operating practices, software quality assurance activities FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-7 February 3, 2003 3. and business resumption plans to mitigate the IRS’ computer security material weaknesses. (09/2004) * Use a model facilities approach to improve the consistency of security controls across IRS facilities. (09/2004) * Continue to improve the ability to prevent, identify and resolve cyber attacks by completing build-out and improving operational readiness of the Computer Security Incident Response Center. (09/2004) * Conduct regular assessments of the overall state of security in IRS; use the security assessment framework as a guide to improve and better measure IRS security capabilities. (09/2004) * Develop and disseminate security guidelines for the businesses that will facilitate implementation of security mechanisms, encourage business area participation and foster understanding of the business area role in the security process. (09/2004) * Better define & implement the security roles and responsibilities for all IRS executives, managers, and employees to ensure compliance with security policies and new legislative requirements. (09/2004) FY 2004 IRS Annual Performance Plan - Major Management Challenges and High-Risk Areas SM-8 February 3, 2003 3. Management Challenge or High Risk Area: Integrating Performance and Financial Management - Performance Management The Government Performance and Results Act of 1993 (GPRA) is intended to increase agency accountability and improve the quality and delivery of Government services. The GPRA holds Federal agencies accountable for program results by emphasizing goal setting, customer satisfaction, and results measurement. The President’s Management Reform Agenda addresses integrating performance review with budget decisions. The IRS Strategic Planning and Budget process, which includes the Annual Performance Plan and Annual Performance Report, satisfies a major requirement of the GPRA. However, IRS’ critical performance measures do not address all of the strategies listed in the IRS Strategic Plan and do not support a significant portion of the IRS’ budget request. FY 2002 Accomplishments: In FY2002, IRS completed the following actions: * Almost all functions have approved balanced measures composed of business results quantity and quality, customer satisfaction and employee satisfaction. - * Divisions used balanced measures to report to the Commissioner on executing their workplans, and also as the cornerstones for building their strategic plans. . * Divisions are in the process of deploying and setting targets for their balanced measures down to the Area office (or equivalent) level. * Began implementing Embedded Quality (EQ), which revamps the way quality is measured, calculated, and reported in the sites. EQ will create accountability by connecting employee evaluations directly to the corporate balanced measures in a fair and meaningful way. * IRS replaced the manual process to collect, collate and report performance data by automating these steps through the Data Mart and Business Performance Management System (BPMS) for most of the IRS critical measures. * IRS continues to develop its strategic measures, and included seven strategic measures in the FY2004 OMB Budget Submission - four related to tax administration and three on worker safety. Three of the tax administration strategic measures in the budget had historical data: Payment Compliance, Filing Compliance and Potentially Collectible Inventory (PCI). Data for the fourth, Reporting Compliance, will be available in FY 2004. * Expanded participation in American Customer Satisfaction Index. Actions Planned or Underway IRS will continue to respond to this challenge through the following actions: * Continue to automate data collection and reporting through Data Mart and BPMS. (09/2004) * Beginning with linking collection workplans to reducing PCI, divisions are in the process of linking their operational critical measures to relevant strategic measures to better align resource decisions to achieving strategic outcomes. (09/2004) * Major operating divisions are developing their own strategic measures. (09/2004) FY 2004 IRS Annual Performance Plan - Major Management Challenges and High-Risk Areas SM-9 February 3, 2003 3. Management Challenge or High Risk Area: Integrating Performance and Financial Management - Financial Management The IRS’ financial management systems remain a challenge to the IRS management, despite producing, for the second consecutive year, combined financial statements covering the IRS’ tax custodial and administrative activities, and achieving an unqualified audit opinion from the General Accounting Office (GAO) on all financial statements for FY 2001. IRS’ current financial systems alone cannot produce reliable information necessary to prepare financial statements in accordance with federal accounting standards. The data produced from the current financial system has to be reconciled with other subsidiary systems to produce reliable financial statements. The IRS lacks the timely, accurate, and useful information needed to make informed management decisions on an ongoing basis. FY 2002 Accomplishments: To improve overall financial management, IRS is implementing two major systems: the Custodial Accounting Project (CAP) and the Integrated Financial System (IFS). In FY2002, IRS completed the following actions: Completed the Architecture Phase of the CAP. Merged the Enterprise Data Warehouse (EDW) project and CAP Closed the year-end books and prepared all financial statements in 45 days. Implemented new three-day month end close procedures. Actions Planned or Underway IRS will continue to respond to this challenge through the following actions: * The Systems Development Phase of the CAP is scheduled for completion in December 2002. * End use deployment of EDW providing the first tier of detailed data in the data warehouse, first tier of summarized data in the Revenue Data Mart and the first suite of tools for data analysis and report generation is scheduled for May 2003. * The first release of IFS is scheduled for deployment on October 1, 2003 and will include the Core Financial System as defined by the Joint Financial Management Improvement Program (General Ledger, Accounts Payable, Accounts Receivable, Funds and Cost Management, and Financial Reporting), as well as Budget Formulation. FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-10 February 3, 2003 . 3. Management Challenge or High Risk Area: Processing Returns & Implementing Tax Law Changes during the Filing Season The filing season impacts every American taxpayer and is therefore always a highly critical program. Many programs, activities and resources have to be planned and managed effectively for the filing season to be successful. Critical programming changes for the filing season must receive priority over other programming requests. Although the FY 2002 filing season was a great success, the IRS still needs to address some problems in processing tax returns, specifically in the areas of the Rate Reduction Credit (RRC), Additional Child Tax Credit (ACTC), undelivered refund checks and processing of small business corporate returns. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: * Implemented a secure transaction-based web site. * Incorporated new procedures required by the Economic Growth and Tax Relief Reconciliation Act of 2001. * Completed centralization of all employment tax processing, including information returns, by consolidating operations in two Submission Processing sites. Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: * Continue to use workload forecasting to ensure the required number of employees is available for each telephone product line and ensure tools are updated and available timely. (09/2004) * Continue to identify training needs and develop training plans to improve performance. (09/2004) * Conduct CPE training to ensure assistors are knowledgeable of tax law changes. (09/2004) * Ensure the Corporate Filing Season Readiness Process is operational and covers all aspects of the filing season, including the Annual Readiness Certification. (June of each year) * Conduct pilot and roll out the Remittance Transaction Research (RTR) system. (Early 2004) * Implement registered user access to enable authorized third parties and practitioners to request and receive transcripts electronically and submit account inquiries, powers of attorney and disclosure authorizations electronically. (09/2003) * Implement taxpayer identification number (TEN) matching with payers. (04/2003) * Expand e-filing options by adding and converting additional forms. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-11 February 3, 2003 % Management Challenge or High Risk Area: Complexity of the Tax Law According to the FY 2000 Taxpayer Advocate’s Annual Report to the Congress, the highest-ranked problem individual and business taxpayers had with IRS was tax law complexity. The problems caused by this complexity range from individual to corporate and international tax issues. Stakeholders from diverse constituencies have informed decision-makers about the problems and recommended solutions. It is unlikely that the Internal Revenue Code will be simplified at one time. Therefore, IRS has the challenge to remove as much complexity as possible as a service to taxpayers. The effect of tax law complexity is compounded as IRS modernizes. Since complexity can be a major factor in the cost of operations, IRS must devote resources to simplifying taxes while at the same time modernizing its systems and processes. - FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: * Integrated Probe and Response (P&R) methodology into IRS publications and made their use the standard tool for Field Assistance technical employees. * Trained Customer Service Representatives in one or more technical and account topics, enabling them to be more proficient in assisting customers quickly and accurately. * Issued a report on tax law complexity that highlighted areas taxpayers find to be particularly difficult. * Issued regulations changing the thresholds for requiring businesses to use accrued accounting, allowing many taxpayers to use the less complicated cash accounting method. Actions Planned or Underway The following actions will enhance IRS’ ability to reduce the complexity of the tax law: * The National Taxpayer Advocate’s FY2001 Annual Report contains 28 legislative proposals, 19 of which are described in detail as key recommendations. The legislative recommendations, taken as a whole represent, proposals that the NTA believes will reduce complexity of the Code, reduce taxpayer burden in complying with the tax requirements, and reduce IRS’ burden in administering the tax system. (09/2004) * The NTA has also identified potential legislative issues to be developed for the 2002 Annual Report to Congress and continues to work with members of Congress and their staff to increase understanding and support of the key legislative recommendations contained in the 2001 report. The NTA has addressed complex issues such as family status, alternative minimum tax, installment agreements for less than full payment, joint and several liability, penalty and interest, and collection procedures. (09/2004) * The IRS will deploy a model to estimate the impact on taxpayer burden of changes to tax law or tax administration procedures for individual taxpayers. (09/2003). - . FY 2004 IRS Annual Performance Plan - Major Management Challenges and High-Risk Areas SM-12 February 3, 2003 - 3. Management Challenge or High Risk Area: Providing Quality Customer Service Operations Providing top quality service to every taxpayer in every transaction is an integral part of IRS’ modernization plans. IRS provides customer service in many ways, including toll-free telephone service, electronic customer service, written communications to taxpayers, walk-in service, and accurate and timely tax refunds. Each of these services affects taxpayers’ ability and desire to voluntarily comply with the tax laws. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: * Created a bar-coding system for adjustment notices and refund checks so they can be mailed in the same envelope. * Developed a formal training plan and schedule to improve employee knowledge of tax law, marketing, communication, and relationship management skills. " Targeted and built quality relationships with internal and external partners and intermediaries to educate and support taxpayer and practitioner programs. * Provided employers with access to on-line employment tax and wage information through the Simplified Tax and Wage Reporting System (STAWRS). * Reconfigured the Practitioner Hotline into a centralized system. * Trained Customer Service Representatives in one or more technical and account topics, enabling them to be more proficient in assisting customers quickly and accurately. * Analyzed and trained the volunteer workforce to create subject matter experts both internally and externally. Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: • Add 7 new forms that can be electronically filed in 2003. (01/2003) * Implement and continue to improve the availability of on-line services such as Internet Employer Identification Number (EIN), Centralized Authorization File, and Practitioner Priority Services. (09/2003) • Improve e-services for practitioners. (04/2003) * Enhance electronic interactions (such as e-filing and e-paying), augment communication with taxpayers through the development of e- government operations and provide employers with access to on-line employment tax and wage information. (09/2003) * Implement recommendations developed as part of the Service’s Multilingual Initiative (MLI). (09/2004) * Review computer generated notices and correspondence to improve quality and clarity. (09/2004) FY 2004 IRS Annual performance Plan Major Management Challenges and High-Risk Areas SM-13 February 3, 2003 3. * Configure outward facing Toll-Free numbers to relate directly to taxpayers' inquiries. (01/2003) Provide new and expanded services through Internet Refund/Fact of Filing (IRFOF) to reduce toll-free demand and offer customers alternative methods of service. (09/2003) * Provide taxpayers a way to resolve tax problems every day at Taxpayer Assistance Centers (TACs). (09/2004) * Provide assistance to US taxpayers working abroad by using Tax Attaches stationed overseas. (09/2004) * Rollout embedded quality initiatives. (09/2004) * Network a queuing management system to monitor, control and manage customer traffic flow more efficiently. (09/2004) * Hire and train a highly skilled workforce. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-14 February 3, 2003 3. Management Challenge or High Risk Area: Erroneous Payments Both the President and the Congress have expressed concerns with the large amount of erroneous payments made by Federal agencies each year. The risk of improper payments increases in programs with complex criteria for computing payments, a significant volume of transactions or emphasis on expediting payments. Although many IRS programs are susceptible to erroneous payments, the Earned Income Tax Credit (EITC) Program is particularly vulnerable. Each year the IRS spends over $100 million to help ensure that eligible taxpayers claim the EITC and to reduce over-claims and fraud, waste and abuse. However, IRS does not have a process to identify and stop refunds on many tax returns using non-work social security numbers and erroneously claiming the EITC. IRS also faces erroneous payment issues in other program areas such as vendor over payments and specious tax claims. FY 2002 Accomplishments: Despite IRS’ compliance initiative, which has saved the Government over $5 billion over five years, the most recent compliance study, Compliance Estimates For Earned Income Tax Credit Claimed on 1999 Returns, released in February 2002, estimates a 31-36% error rate and a 27–32% unrecovered overclaim rate. EITC non-compliance results from three major error sources: (1) taxpayers claiming EITC amounts based on children with whom they do not have the required relationship and/or with whom they did not reside for at least six months of the tax year; (2) taxpayers claiming EITC amounts based on erroneously reporting their filing status and (3) income misreporting. To address the systemic flaws in the current EITC program, and to address the complexity of the EITC law, which was highlighted in a then-recent Taxpayer Advocate Report to Congress, Secretary O’Neill convened an EITC task force. This mission of this joint Treasury-IRS task force was to achieve the objectives of the EITC program while reducing taxpayer confusion and increasing the accuracy of the administration of benefits. The task force was convened in March 2002 and presented final recommendations in July 2002. In August 2002, Secretary O'Neill approved the recommendations and also approved the formation of an IRS implementation team charged with development of an implementation plan. This team began a study of the cost and business process changes necessary for implementation, and is on-going at this time. In FY 2002, IRS completed the following actions: * Convened a Task Force to thoroughly examine complexity and compliance issues of EITC and recommend fundamental program changes to reduce complexity and improve compliance. - Expanded use of the Dependent Database (DDb) as an external data source to identify non-compliant taxpayers. Expanded examinations of the Duplicate TIN repeater population, Began study of data supplied to DDb by the Federal Case Registry of Child Support Orders. Created the EITC Executive Advisory Council. Realigned EITC Project Office to enhance strategic program development and execution. Participated in a government-wide task force on erroneous payments. FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-15 February 3, 2003 % Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: Assess overall EITC compliance, identify knowledge gaps and plan additional research. (09/2004) Assess marketing/awareness campaigns that target eligible EITC non-claimant population. (09/2004) Analyze processing year 2002 audit results to refine existing DDb business rules. (10/2003) - Identify, investigate, and prosecute promoters of EITC-related refund schemes. (09/2004). - Finalize EITC preparer cases being actively investigated and prepared for prosecution, (09/2004) - Assess Federal Case Registry of Child Support Orders study data to determine if using expanded math error authority to deny EITC will improve compliance efforts. (09/2004) . Continue to address the EITC Task Force recommendations. (09/2004) Continue participation in a government-wide task force on erroneous payments. (09/2004) Better integrate EITC Program Office into the IRS’ established strategic planning process. (09/2004) Continue to expand and refine tools used by campus examiners in EITC examinations. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-16 February 3, 2003 . 3. Management Challenge or High Risk Area: Taxpayer Protection and Rights The Restructuring and Reform Act of 1998 (RRA 98) contains 71 provisions that increase or help protect taxpayers’ rights. RRA 98 included fundamental changes to tax law procedures, and required IRS to change its organizational structure from one that was geographically structured to one that was set up to serve particular groups of taxpayers with similar needs. IRS has made significant progress in complying with RRA 98 and most provisions, including massive training programs for thousands of employees, have been modified or implemented. Significant management attention is still required to ensure that taxpayers’ rights are not restricted by any IRS enforcement actions. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: • Implemented a secure transaction-based web site. * Ensured alternative signature initiatives comply with IRS authentication policy. * Implemented the next phase of the Checkbox initiative to allow taxpayers to designate an individual preparer to serve as their designee to discuss tax matters and notices with IRS. - * Combined the Centralized Authorization Files into a central repository to eliminate the need for taxpayers to submit multiple third party authorization requests for numerous issues. Evaluated performance by deploying balanced measures to the appropriate levels. Linked employee Critical Job Elements and performance expectations to organizational quality goals. Redesigned examination work processes and assessed legal requirements. Redesigned internal Collection processes, policies and procedures, and updated workload selection and inventory delivery systems. Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: Continue to administer the credit card contract to ensure protection of taxpayer data and credit card numbers. (09/2004) Reduce the volume of paperjurats and expand alternative methods of signature. (09/2004) Evaluate computer security to ensure protection of taxpayer information. (09/2004) Review and assess implementation of Title VI of the Civil Rights Act of 1964 to certify that all tax preparation sites provide equal access and non-discriminatory services. (09/2004) Ensure documentation does not include specific labeling of taxpayers raising frivolous tax arguments. (09/2004) * Reinforce the requirements to provide a statement to taxpayers at initial meetings that advise them of the Taxpayer Advocate’s independence. (09/2004) • Develop a standard practice for IRC Section 7803 (c)(4)(iv) which states that local taxpayer advocates may choose not to disclose contact with or information provided by a taxpayer. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-17 February 3, 2003 § Management Challenge or High Risk Area: Human Capital GAO considers strategic human capital management as a high-risk area for the government, and the President's FY 2001 budget has added human capital to its list of Priority Management Objectives. Inadequate attention to strategic human capital management has created a government-wide risk of eroding the capacity of some agencies to perform their missions. Like many other government agencies, IRS continues to face a range of serious personnel management issues, ranging from recruiting, training, and retaining employees to problems associated with IRS’ recent reorganization and modernization efforts. Although IRS initiated actions to incorporate a workforce planning process into its strategic planning process, IRS management has not established a project plan that assigns responsibilities and includes milestones for each step in the process. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: * Used the Senior Manager Pay Band system to more effectively allocate salary resources to promote and encourage individual and organizational excellence, * Expanded the pay band system to all front-line and mid-level managers. * Continued to offer an extensive array of web- and computer-based training for employees via the Internet, Intranet, and by CD-ROM covering subjects such as communications, customer service, project management, finance, accounting, and leadership. * Continued to provide an extensive array of executive development training activities that prepare our participants for top-level leadership positions, Continued to encourage executives establish relationships with their alma mater or with schools in their local areas. Continued partnerships with employee organizations to help recruiters establish relationships with community-based organizations. Continued the state-of-the-art advertising campaign that was established to promote IRS as an employer of choice. - Established a strategic human capital strategy that consists of four principle elements: Renewal, Training and Development, Performance and Transition. Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: * Sustain recruitment efforts over the long term with continued entry-level intake in key front-line occupations remaining a high priority. (09/2004) * Maintain a continued labor market presence through electronic and p-int advertising. (09/2004) * Continue to streamline and automate the hiring process. (09/2004) FY 2004 IRS Annual Performance Pian Major Management Challenges and High-Risk Areas SM-18 February 3, 2003 3 * Emphasize a management development pipeline. (09/2004) * Implement a mid-career recruiting strategy. (09/2004) • Implement an IRS-wide learning strategy, (09/2004) * Continue expansion of pay-for-performance system to all remaining front-line managers. (09/2004) * Increase bonus and staffing flexibility to strengthen the linkage between executive performance and compensation. (09/2004) * Capitalize future transition efforts on past experience and coordinate efforts such as workload realignment to maximize placement of employees while addressing business needs. (09/2004) - FY 2004 IRS Annual Performance Plan - Major Management Challenges and High-Risk Areas SM-19 February 3, 2003 § Management Challenge or High Risk Area: Collect Unpaid Taxes Reliable and timely financial, operational, and compliance data is not available to help target efforts to collect billions of dollars in unpaid taxes. As a result, the Federal government is exposed to significant losses of tax revenue while compliant taxpayers bear an undue burden of financing the government’s activities. Certain key collection actions, such as levies and seizures, have declined since 1997 during IRS modernization efforts and because of RRA impacts. These declines may increase the incentives for taxpayers to either not report or underreport their tax obligations. Attempts to identify taxpayers that have not paid the taxes they owe are made through various enforcement programs. IRS inability to fully pursue such cases is attributable to a decrease in staff, reassignment of collection employees to support customer service activities, and additional staff time needed to implement certain taxpayer protections that were included in the IRS Reform and Restructuring Act of 1998. Additionally, inadequate financial and operational information has hindered development of cost-based performance information for tax collection and enforcement programs. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: * Developed a risk-based compliance strategy to use knowledge regarding taxpayer behavior, history, and needs in the collection decision process to ensure that the highest priority cases get worked first and reduce the number of accounts closed as currently not collectible. * Centralized the processing of Offers in Compromise. * Used non-Compliance resources during the filing season to minimize impact on Compliance casework. * Redesigned internal processes, policies, and procedures, and updated the antiquated system of workload selection and inventory delivery. Actions Planned or Underway: IRS will continue to respond to this challenge through the following planned actions: * Provide credit card payment option for delinquent taxes (individuals), installment agreement payments and extension-related payments and expand credit card options to BMF returns. (01/2003) Develop and implement a comprehensive nonfiler strategy. (09/2003) Identify and target noncompliance with employment tax deposit and payment requirements. (09/2003) Continue efforts to gain full participation in the State Income Tax Levy Program. (09/2003) Align Collection legacy systems. (09/2003) Implement a modernized collection system. (09/2004) Tailor treatment streams and route cases to appropriate function and employee. (09/2004) Develop educational products and a marketing plan to address abusive flow-throughs, abusive tax avoidance transactions, trust filers and their FY 2004 IRS Annual Performance Plan - Major Management Challenges and High-Risk Areas SM-20 February 3, 2003 § practitioners. (09/2003) * Develop and implement a strategy for High-Income Taxpayers. (09/2003) * Fully implement the K-1 matching program, reconciling partnership income reporting documents to the beneficiaries of this income on federal. income tax returns. (09/2003) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-21 February 3, 2003 - * Management Challenge or High Risk Area: Revamp Business Practices to Meet Taxpayer Needs The ability to balance the goals of helping taxpayers comply with tax laws and improving overall compliance depends on successful modernization of business practices. FY 2002 Accomplishments: In FY 2002, IRS completed the following actions: Completed centralization of all employment tax processing to two Submission Processing sites. Tested feasibility of correspondence imaging to allow Customer Service Representatives immediate on-line access to customer correspondence. Improved and enhanced employee manuals and tools. - Improved training to Toll-free/Adjustments workforce by determining skill gaps. - Integrated business systems such as Automated Offer in Compromise, Automated Lien System, Inventory Delivery System and Automated Trust Fund Recovery System onto a single platform. Provided a single-point for electronic filing and test prototype solutions for the combined electronic transmission of federal and state employer quarterly tax and wage reports. - : Prototyped an application to provide employers a quicker method to securely access, apply for, and receive a Federal EIN on-line. Reconfigured the Practitioner Hotline to a centralized system. Centralized the processing of Offers in Compromise (OIC). Continued efforts to ensure that work is allocated to the proper operating division by implementing standardized criteria to reassign compliance CaSCS. Responded to taxpayer demand and implemented pre-filing agreement program. - - Restored the IRM as the authoritative source of IRS policies, procedures, guidelines, and delegations. Specific accomplishments include: (1) 82% of the overall IRM has been realigned into a process based structure and all remaining old format 6x9 IRM eliminated; (2) IRM index issued quarterly; and (3) increased accessibility and currency of IRM on the Digital Daily. Ensured that employees have access to the source documents upon which the IRS bases is operating procedures. Promoted standardized plans and implemented accelerated processing procedures to manage a cyclical spike in Employee Plan determination requests. FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-22 February 3, 2003 § Actions Planned or Underway IRS will continue to respond to this challenge through the following planned actions: Establish customer liaisons for media and publications. (09/2004) Continue to work with industry to enable online tax return entry and submission at no cost. (09/2004) Improve and enhance employee manuals and tools: Implement streamlined clearance process for the IRM to facilitate more timely updates. (09/2004) Engage new electronic research contracts to replace existing contracts that expire in June 2003. Includes enhanced content and capabilities to help employees locate tax and legal research services. (09/2004) Work with stakeholders to develop long-term solutions to stabilize the flow of Employee Plan determination receipts. (1/2004) Expand electronic tax products. (09/2004) Enhance customer experience by routing calls to appropriate assistors. (09/2004) Improve and enhance employee manuals and tools. (09/2004) Continue to deploy the Integrated Case Processing system. (09/2004) Redesign business processes to provide service around an industry rather than geographically to provide better service for each taxpayer. (09/2004) Move to an issue-driven examination process for large and midsize businesses. (09/2004) Re-engineer the Published Guidance process. (09/2004) FY 2004 IRS Annual Performance Plan Major Management Challenges and High-Risk Areas SM-23 February 3, 2003 § IRS has formed many strategic partnerships with other Federal agencies, state and local governments, and private sector organizations to help achieve its mission, goals, and objectives. The crosscutting coordination efforts outlined below help improve customer service, manage compliance risks, and make tax administration more efficient. The following matrix shows how these efforts are linked to our three primary programs and performance goals: improving pre-filing, filing, and compliance services. Descriptions of the crosscutting actions are provided after the Matrix. Note that the release of Federal tax returns and/or tax information will only take place in compliance with the confidentiality requirements of Title 26, Section 6103 of the Internal Revenue Code of 1986. Coordination on Cross-Cutting Goals Compliance - laentify and Criminal investigation Program / Pre-Filing – Provide Filing — Improve the quality of Performance taxpayers with greater the service provided to correct all substantive errors in Goal access to information, taxpayers in filing their tax filed returns, reporting of assistance and support returns. income and payment of taxes. Title of before they file their return. Cross-Cutting Action - . State and Local Government State Tax Agencies State Tax Agencies State Tax Agencies Partnerships — - - Departmént of Treasury Department of Justice Drug Enforcement Agency Federal Bureau of investigation U.S. Secret Service Department of Transportation Department of Homeland Security Immigration Naturalization and Specialization (INS) Database Sharing Social Security Administration Health & Human Services Department of Education Federal Emergency Mgmt. Agency Small Business Administration Department of Agriculture Department of Veterans Affairs Housing & Urban Development State Tax Agencies Financial Management Service Treasury IG for Tax Administration U. S. Postal Service Department of Transportation Department of Treasury FY 2004 IRS Annual Performance Plan February 3, 2003 Social Security Administration ealth & Human Services Départment of Education Federal Emergency Mgmt. Agency Small Business Administration Department of Agriculture Department of Veterans Affairs Housing & Urban Development State Tax Agencies Financial Management Service Treasury IG for Tax Administration U. S. Postal Service Department of Transportation Department of Treasury Cross-Cutting Coordination and Partnership Efforts SM-24 & Coordination on Cross-Cutting Goals Programſ Performance N. Goal Title of Yº Cross-Cutting Action S Pre-Filing - Provide taxpayers with greater access to Information, assistance and support before they file their return. Filing-improve the quality of Complianc … -- | correct all substantive errors in the service provided to taxpayers in filing their tax returns. y, Compliance – Identify and filed returns, reporting of income and payment of taxes. Document Matching Social Security Administration Department of Justice President's Management Agenda e-Government Initiatives . Office of Management and Budget Tax Software Professionals Department of the Treasury Department of Education Education and Assistance Programs Small Business Administration Taxpayer Associations Department of Labor Social Security Administration Department of Education Federal Deposit Insurance Corporation Federal Emergency Management Agency Other Govemment Entitles (including Indian Tribal governments) Military Financial Institutions State Tax Agencies Treasury IG for Tax Administration Volunteer and Community Agencies Large Employers Veterans Administration National Credit Union Administration Practitioner and Preparer Associations Educational Institutions Community-Based Coalitions Low-income Tax Clinics Department of Health and Human Services State Tax Agencies Department of Labor Social Security Administration General Services Administration Tax Software Professionals Social Security Administration * Department of Justice Small Business Administratkon Social Security Administration Make Filing Easler Financial Institutions State Tax Agencies Treasury IG for Tax Administration FY 2004 IRS Annual Performance Plan February 3, 2003 Social Security Administration Department of Labor Department of Treasury Cross-Cutting Coordination and Partnership Efforts Department of Education Small Business Administration | Treasury Department State Tax Agencies Department of Labor - SM-25 § State and Local Government Partnerships IRS partners with state and local law enforcement and revenue organizations to accomplish the operational priorities of the Pre-Filing Taxpayer Education and Assistance program. IRS is partnering with the states of Illinois, Maryland, Pennsylvania, and Washington to develop a web-based application that would allow small businesses in these states secured access to apply for and receive Employee Identification Numbers on-line. Additional cooperative efforts are underway with state governments such as an effort to streamline the Employer Identification Number assignment process so that new businesses only have to obtain one number for Federal, state, and local government tax purposes. IRS has also partnered with the states of California, Georgia, Iowa, Louisiana, Minnesota, Montana, Nevada, and Texas to study how Federal and state employment tax and wage reporting laws could become more uniform, thus simplifying reporting for small businesses. IRS also engages in cooperative efforts with the State Vital Statistics offices and with Commercial Off-The-Shelf tax return preparation developers to maintain consistency in software programming with the updated Earned Income Credit tax law requirements. The Volunteer Income Tax Assistance and Tax Counseling for the Elderly Program sometimes works in tandem with state and Federal agencies to provide tax assistance to low income, elderly, and non-English-speaking taxpayers. In some states, equipment and space is provided by the state functions for these sites and in other states, training is provided by IRS entities for the volunteers. IRS partners with state and local governments to provide customers with one- stop service relative to tax responsibilities by engaging in development of non-traditional sites for servicing customers that will result in a more convenient and comprehensive level of service. The Federal Unemployment Tax Act (FUTA) certification program is the method IRS uses to verify with states/agencies that credits claimed on Form 940 or Schedule H was actually paid into the states' unemployment funds. The 50 states, District of Columbia, Puerto Rico and the Virgin Islands participate in this program. IRS is exploring partnering opportunities with local and state government taxpayer advocates with a specific focus on activities to ensure the protection of taxpayer rights. Preliminary meetings are being scheduled in FY 2003 to identify goals and objectives and coordinate the joint efforts of the local, state, and federal government. The IRS is partnering with state tax agencies to develop joint initiatives for dealing with abusive tax avoidance transactions and high-income non- filers and improving the mutual exchange of compliance enforcement data. Criminal Investigation In response to the recommendations of the Webster Commission, Criminal Investigation (CI) developed a compliance strategy that increases emphasis on legal source income and other tax related investigations. This strategy, implemented in FY 2000, establishes objectives and priorities FY 2004 IRS Annual Performance Plan Cross-Cutting Coordination and Partnership Efforts SM-26 February 3, 2003 - § in support of overall IRS compliance efforts. It divides CI's investigative workload into the three distinct categories of Legal Source Tax Crimes, Illegal Source Financial Crimes and Narcotics Related Financial Crimes. The document also specifies workload guidelines and selection criteria in each category. The strategy also provides field offices with annual guidance on how to develop plans and strategies to meet overall organizational goals. External stakeholders, such as the Department of Treasury, Department of Justice Tax Division and the executive Office of the Organized Crime and Drug Enforcement Task Force, were consulted during the development of the compliance strategy. IRS continues to commit resources to support the National Drug Control Strategy and anticipates a significant increase in the level of reimbursement for the narcotics related financial crimes program. Criminal Investigation plays a key role in the development and implementation of the National Money Laundering Strategy (NMLS). The NMLS sets forth a series of action items to accomplish goals fundamental to the fight against money laundering. A key action item calls for the designation of High-Risk Money Laundering and Related Financial Crime Areas (HIFCAs). Six HIFCAs have been designated thus far, with more designations expected this fiscal year. The HIFCAs are used to coordinate law enforcement efforts at the federal, state, and local level to combat money laundering, whether based on drug trafficking or other criminal activity. Since September 11, 2001, the HIFCAs are being used to assist in identifying terrorist financing and fundraising activity. IRS is actively supporting the national effort to combat terrorism through its participation in the Federal Bureau of Investigation’s Joint Terrorism Task Forces (JTTFs), the U.S. Attorney's Offices' Anti-Terrorism Task Forces (ATTFs), and "Operation Green Quest", the Treasury Department initiative to identify and disrupt terrorist financing and fundraising. The unique financial investigative skills of CI's special agents have traditionally proved useful in the investigation of domestic extremist elements that espouse anti-government, anti-taxation philosophies or file fictitious financial instruments. These financial skills are equally useful in investigating international terrorist groups and groups that engage in fundraising efforts in support of them. IRS will support the U.S. Secret Service in their efforts to provide security and protection for major presidential and vice presidential candidates during the 2004 national campaign. CI will be called upon to support the Department of Justice initiatives including Public Corruption, High Technology Crimes, International Commerce and Corporate Fraud. The United States Attorney's Office has traditionally requested CI’s assistance in these types of financial investigations. Historically, there has been a nexus with White Collar Crime and Tax Evasion. Database Sharing The Social Security Administration provides enhancements to their Social Security Number database, which interfaces with IRS’ databases to validate Taxpayer Identification Numbers. IRS continues to coordinate with Health and Human Services to obtain data that can be used as a filter for the purpose of administering those sections of the Internal Revenue Code of 1986 that grant tax benefits to individuals supporting a child and/or providing a residence for a child. The Electronic Tax Administration office is working with the prime contractor on development of a Transcript Delivery System. The system will be FY 2004 IRS Annual Performance Plan - Cross-Cutting Coordination and Partnership Efforts SM-27 February 3, 2003 s deployed in 2003 and provide return and account transcripts, W-2s and Verifications of Non-Filing. Other Federal agencies have contacted IRS seeking an electronic means to verify income for disaster relief programs and federally backed loan, grant or subsidy guarantees. IRS is currently working with the Department of Education to determine their need for income verification for student financial assistance. The Federal Emergency Management Agency and the Small Business Administration for disaster relief programs have contacted IRS. The Departments of Agriculture, Veterans Affairs, and Housing and Urban Development have expressed an interest in this system as well. The Departments of Education and State are some of the customer segments included in the 2003 release. IRS has interaction with the United States Postal Service on a National Change of Address program to update master file addresses with taxpayer address information listed with the Postal Service. IRS is receiving weekly updates to the database from the Postal Service to reduce redundant mail, mail sent to the same taxpayer at different addresses and undeliverable mail. l A provision of the Tax Reform Act of 1997 authorized the collection of tax debts through continuous levies on Federal payments. As a result, IRS has entered into an interagency agreement with the Financial Management Service (FMS) that allows IRS to provide information on delinquent taxpayers that receive Federal payments to them. The agreement also requires IRS to reimburse FMS for each Federal payment they process for the IRS. IRS has agreed to pay a preset fee amount in FY 2003 of over $8.8 million dollars. This amount represents the cost to FMS to administer the program. When the preset amount is reached, FMS will discontinue billing for the remainder of the fiscal year. Additionally, an effort by IRS is underway to examine the potential for modifying congressional language to assess the processing fee from the taxpayer. The result of this program funding issue will impact the agreement between these two agencies. IRS continues to solicit participation with state taxing agencies for the State Income Tax Levy Program. This program issues a levy to the state for potential income tax refunds of individuals who have an unresolved tax debt with the Service. The Service negotiates and enters into an agreement with each participating state regarding the procedures to be used to administer this program. IRS is currently partnering with Immigration and Naturalization Services (INS), Treasury Inspector General for Tax Administration (TIGTA), Criminal Investigation Division (CID), Small Business and Self Employed (SB/SE), Large and Mid-Size Business (LMSB), and Disclosure to address Individual Tax Identification Number (ITIN) issues as they relate to identify theft. The task force is concentrating on the continued utility of the ITIN program, the restructuring of the program to deter fraudulent use of the ITIN number, employee procedures for proper implementation, resources needed to properly manage the program, methods to effectively curtail fraud, and deliverable(s). FY 2004 IRS Annual Performance Plan Cross-Cutting Coordination and Partnership Efforts SM-28 February 3, 2003 s Document Matching The Combined Annual Wage Reporting Program is a joint effort between IRS and the Social Security Administration to reconcile employer payroll tax data filed with the IRS and wage data reported for Social Security purposes on forms W-3 and W-2. The result of funding this program through the STABLE Initiative will be a more accurate recordation of employee-employer contributions and enhanced integrity of the Social Security Trust Fund by ensuring that employee earnings are timely and properly posted to Social Security's database. IRS and external stakeholders such as the Department of Justice Tax Division have committed to supporting the Trust Fund Compliance Initiative with legal action when necessary. President’s Management Agenda e-Government Initiatives In November of 2001, the Office of the Management and Budget (OMB) established, through its Quicksilver Task Force, 24 e-government initiatives that are part of the President’s Management Agenda (PMA). These initiatives are designed to improve Government-to-Government (G2G), Government to Business (G2B), and Government to Citizen (G2C) services while improving the internal efficiency and effectiveness of the Federal Government. Under this umbrella of initiatives, IRS was assigned the managing partner of two: Free Tax Filing and Expanding Electronic Tax Products for Businesses. Both of these initiatives support the goals and requirements set forth in the IRS Restructuring and Reform Act of 1998 (RRA ‘98) and are aligned with IRS’ Strategic Goals and objectives. The first initiative, Free Tax Filing, is designed to make tax return preparation and filing more accessible by providing free online tax preparation and filing services to a significant portion of individual taxpayers. To accomplish this initiative, IRS is partnering with members of the tax software community. Other key partners for a successful implementation include the Department of Treasury and OMB. The Expanding Electronic Tax Products for Businesses initiative includes seven projects that will deliver benefits by reducing the number of the business tax forms that must be filed, providing timely and accurate tax information to businesses, increasing the availability of electronic tax filing and modeling simplified federal and state tax employment laws. These projects include Form 94x Series, Form 1120/1120S, Form 8850, Internet Employer Identification Number (EIN), Harmonized Wage Reporting, Single Point of Filing W-2/3 (SPEF) and Standardized EIN. In addition to managing two of the PMA initiatives, IRS is also supporting other managing partners within the PMA e-government portfolio. Some of these partners and projects include Social Security Administration (e-Authentication and Digital Signature), Small Business Administration (One- Stop Compliance), Department of Labor (Govbenefits), General Services Administration (e-Vital and eTravel), and Department of Education (Online Access for Loans). Education and Assistance Programs IRS will be focused on expanding business partnerships with established institutions, including the Small Business Administration and industry/professional organizations to provide specialized education and assistance programs. IRS has already partnered with the Small Business FY 2004 IRS Annual Performance Plan - Cross-Cutting Coordination and Partnership Efforts SM-29 February 3, 2003 š Administration to create tax products and services that make it easier to access and understand tax information, services, and products. For example, the Small Business Resource Guide CD-ROM was created and produced by the IRS as a major step to addressing the educational tax needs of the small business community. The development of the CD-ROM was a collaborative effort among IRS, Small Business Administration, the U.S. Department of Labor, and the Social Security Administration subject matter experts. In addition, IRS continues to leverage partners by building community coalitions that provide tax education, preparation and assistance to reach targeted taxpayer segments. One recently established coalition utilizes the resources of the United Way, the Federal Reserve Bank and state government agencies to develop initiatives to provide education and outreach on the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) to its low-income citizens. This is just one example of many where IRS is expanding its programs to reach EITC and CTC-eligible taxpayers while empowering cities and communities. Make Filing Easier IRS has entered into an Interagency Agreement with the Department of Labor (DOL) to process Return of Employee Benefit Plan forms (Form 5500) shared by Labor, IRS, and the Pension Benefit Guaranty Corporation (PBGC). IRS and Labor share the costs of Form 5500 processing. The Employee Retirement Income Security Act Filing Acceptance System was created by the agencies working to streamline pension plan reporting and disclosure per a National Performance Review initiative. The Department of Labor fully funded the development and scale-up costs of enhancing the prototype, and requires a commitment of funding from IRS for each processing year. IRS has worked cooperatively for many years with the other agencies charged with enforcing the Employee Retirement Income Security Act of 1974 (ERISA). Employee Plans, DOL and PBGC work together to continuously improve the annual reporting and disclosure requirements of Titles I and II of ERISA, as well as administer compliance programs and develop and issue guidance to the employee benefit community. IRS created a Permanent Disaster Response Team, which, in coordination with the Federal Emergency Management Agency, is to assist taxpayers in clarifying and resolving tax matters associated with a Presidentially declared disaster. One of the duties of the Disaster Response Team is to postpone certain tax-related deadlines for up to 120 days for taxpayers determined to be affected by a presidentially declared disaster. The Simplified Tax and Wage Reporting System is a partnership among the Department of Labor, Social Security Administration, IRS, Small Business Administration, and Department of Treasury. IRS seeks to partner with federal government agencies and businesses to simplify the employment tax and wage reporting process. This effort has three major components designed to provide taxpayers with alternative and less burdensome filing options: single-point filing, streamlined customer service, and simplified requirements. IRS will be working with these agencies to develop a multi-jurisdictional authentication for electronic interaction with government and to improve electronic filing allowing the disclosure of taxpayer information to non-tax agencies for other than tax-related purposes. - IRS and the Department of Labor are partnering to implement the recent Trade Act of 2002 legislation. Form 1040 will be revised to reflect legislation changes to ensure eligible taxpayers receive the refundable tax credit for defraying the cost of health insurance for displaced workers. FY 2004 IRS Annual Performance Plan Cross-Cutting Coordination and Partnership Efforts SM-30 February 3, 2003 s The Balanced Measurement System provides a means for collecting and reporting data about the levels of customer satisfaction, employee satisfaction and business results for the organization. It is critical that this information be accurate and reliable because it is used across the organization and by stakeholders and oversight bodies to make informed business decisions on the future direction and course of the IRS. The IRS follows departmental guidance in the preparation of templates about the verification and validation of data and definitions for performance measures and other terms. Consistent with this guidance, measures for which a process or system is in place to verify and validate the data collected are denoted as “reasonably accurate.” Measures for which there is not a system in place to verify and validate the data collected are denoted as “questionable or unknown accuracy” and a statement is included about the steps being taken to address the accuracy issue in these cases. Internal Revenue Manual policy on the IRS Balanced Measurement System (IRM 105.4) also requires the completion of detailed templates for performance measures. The templates fäcilitate a common understanding across the organization of a measurement’s definition, formula, reliability, reporting frequency, and other criteria. The verification and validation of data quality for each measure is the primary responsibility of the respective Business owners. For example, in compiling measurement results for the Annual Program Performance Report, the Business owners provide a Performance Indicator Worksheet that is completed as part of the process and which calls for identification of any limitations to the data provided. These templates for IRS performance measures culminate in the Data Dictionary, which is available on the IRS website at http://www.irs.gov/pub/irs-utl/data dictionary.pdf. FY 2003 ERS Annual Performance Plan Validation and Verification Methodology SM-31 February 4, 2002 - ; Program Performance Resources, Annual Performance Goals, Measures, Indicators, and Informational Table Measures Coding: IRS Operational Measures that for Treasury-wide GPRA reporting purposes will be utilized as “Treasury Strategic Measures” until IRS finalized development of its: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standard (CS) Performance Measures Payment Compliance (S) N/A Baseline Filing Compliance (S) - - | N/A Baseline Reporting Compliance (S) N/A Baseline Collectable N/A Baseline Percent of individual returns filed 36% 41% satisfaction 7 55% 58% health and — lost Case rate 0.98% 0.49% Goal: IRS will (ICCéSS fo assistance their tax 7 1, Number of assisted 2. AP "This measure also appears under related Budget Activity. FY 2004 IRS Annual Performance Plan Appendix A A-1 February 3, 2003 3. 1 Performance Goal: Improve the quality of the service provided to taxpayers in filing their tax returns. T 167 *. individual 1 36% . Information returns filed electronically 219,739 330,239 474,700 376,063 Performance Measures calls * FY2002 count includes media contacts. FY 2004 IRS Annual Performance Plan Appendix A A-2 February 3, 2003 3. Performance Measures Performance Performance T 21. Toll-free law Toll-free 23, satisfaction 25 received tax 18. Assistor 24. Total 27, Tax law 28, accounts Accounts 9 Represents W&I performance. Previous years include SB/SE performance. "Estimate. FY 2004 IRS Annual Performance Plan February 3, 2003 Appendix A s Performance Measures . Telephone customer satisfaction (ACS) ACS -- } . ACS closures – Taxpayer delinquent 412,150 297,791 317,906 5. Automated collection system (ACS) level of 79% 78% 80% . Customer satisfaction — collection field 47% 53% N/A . Field - . Field collection — number of cases closed . Field 40. Offers in 41. 42. 43. Correspondence examination customer satisfaction 44. returns examined "Due to typographical error, the FY2003 OIC target is incorrectly shown as 100,000 closures in the President's Budget. FY 2004 IRS Annual Performance Plan February 3, 2003 190,411 69% 51% 202,000 220,500 74% 80% 50% 51% Appendix A A-4 3. Performance Measures 4 46. Field exam customer satisfaction % 47. Individual examinations 49. Field exam 50. Field exam 51. Business returns examined CaSCS 53. of closed 54, EP & EO exam customer Satisfaction 55. EP / 56. EP / EP examination 57. Innocent spouse determinations made & claimant 55,698 notified * official computation of measure began in 2003. FY 2004 IRS Annual Performance Pian February 3, 2003 11 8.1% 61,011 65,000 Appendix A 7% 148000 à Performance Measures Performance 60. Total Tax Court cases (beginning inventory & 35,962 31,883 34,100 36,141 31,000 T 13 1 Performance Goal: Perform strategic and tactical research to anticipate and identify compliance and tax administration problems. FTE - 7,441 the activities to 70. Ticket Activity – Open (W) N/A 656,000 660,000 720,000 * official computation of measure began in 2003, FY 2004 IRS Annual Performance Pla Appendix A A-6 February 3, 2003 - = Performance Measures FY 2000 FY 2001 FY 2002 FY 2003. FY 2004 Performance Performance Target Performance *— Proposed 71. Ticket Activity – Closed (W) N/A N/A N/A 649,000 660,000 720,000 72. Percent Resolution at First Contact (w) N/A N/A N/A 47% 60% 70% 73. Percent Resolved on Time (W) N/A N/A N/A 7.1% 80% 85% 74. Mean Queue Time (minutes) (W) N/A N/A N/A 1 1 f Information Systems Improvement Programs Budget Authority ($000s) $33,786 $39,864 $38,665 $49,865 $49,865 Direct FTE 0 0 0 () 0 Performance Goal: Develop and implement system projects that respond to the specific requirements of the taxpayer groups served by IRS Operating Divisions. Business Systems Modernization February 3, 2003 Budget Authority ($000s) $93,616 $391,593 $243,892 $380,000 $429,000 Direct FTE ? . . 0 0 0 0 () Performance Goal: Effectively manage the contract resources that support capital asset acquisition of business systems modernization. Earned Income Tax Credit Budget Authority ($000s) $149,308 $153,940 $146,000 $146,000 $251,167 Direct FTE 2,196 2,353 2,467 2,353 2,994 * Goal: Expand customer service and enforcement activities to reduce erroneous filings and payments associated with the Earned Income Tax Shared Services Support Budget Authority ($000s) $1,175,700 $1,101,209 $1,190,879 $1,196,875 $1,230,970 Direct FTE 4,640 4,968 4,917 4,837 4,604 Performance Goal: Effectively provides the logistical services required by IRS activities to administer the nation's tax laws. FY 2004 IRS Annual Performance Pian Appendix A A-7 redit. E Performance Measures 75. Employee health and safety - lost workday case Performance Goal: 0.49% in the N/A N/A N/A N/A cost of health insurance FY 2004 IRS Annual Performance Plan February 3, 2003 Appendix A A-8 F. \º 2 *>.” Community Development Financial Institutions Fund 2/3/03 COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND TABLE OF CONTENTS VOLUME 1 - BUDGET REQUEST STRATEGIC CONTEXT FOR FY 2004 BUDGET/PERFORMANCE PLAN CDFI-2 EXPLANATION OF FISCAL YEAR 2004 BUDGET REQUEST Analysis of FY 2003 President's Budget Digest of Fiscal Year 2004 Budget Estimates by Activity CDFI-4 Summary Explanations of Fiscal Year 2004 Request Changes by Activity Budget Authority, FTE, and Performance Measures by Budget Activity FY 2002 Performance Information Report.................................................................................. SUPPORTING MATERIAL Detail of Full-Time Equivalent Positions by Category Detail of Full-Time Equivalent Positions by Grade Standard Classification Schedule: Direct Obligations Appropriation Language Sheet and Justification of Language Changes CDFI-1 : - - “s.n-" Community Development Financial Institutions Fund | STRATEGICCONTEXT FORTHE FY2004 BUDGETPERFORMANCE PLANT | This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Community Development Financial Institutions (CDFI) Fund, and how achievement of those goals is ascertained through performance goals, measures, and performance reports. - - Mission The mission of the Community Development Financial Institutions (CDFI) Fund is to expand the capacity of financial institutions to provide credit, capital, and financial services in economically distressed urban and rural communities. The Fund promotes access to capital and local economic growth in the following ways: 1) through its program by directly investing in and supporting community development financial institutions' (CDFIs) that provide loans, investments, financial services and technical assistance to underserved people in economically distressed communities; 2) through its Bank Enterprise Award (BEA) Program by providing an incentive to banks to invest in their communities and in other CDFIs, and 3) through its New Markets Tax Credit (NMTC) Program by providing an allocation of tax credits to Community Development Entities (CDEs) which enable them to attract investment from the private sector and reinvest these amounts in low income communities. - Key Strategic Issues For FY 2004, the Fund is requesting $51 million to support its three programs: The Community Development Financial Institutions Fund (CDFI) Program, the Bank Enterprise Award (BEA) Program and the New Markets Tax Credit (NMTC) Program. The approach for FY 2004 revolves around three major strategies: 1) focusing CDFIProgram awards on the most distressed geographic areas; 2) incorporating a “growth continuum” strategy in award decisions, whereby assistance is provided to grow CDFIs to the point where Fund financial assistance is no longer required, and 3) taking actions to obtain the information necessary to measure and report on the impact of the Fund’s investments. 'CDFIs are specialized financial institutions whose mission is to fill credit gaps. By successfully providing affordable and flexible financial products and services to low-income populations and communities, CDFIs demonstrate the untapped market potential that exists in these communities. CDFIs existin part due to market failures and from banks and thrifts acting responsibly and investing money and expertise to create community development lending initiatives with their local community. Included in the various types of CDFIs are community development banks, credit unions, business loan funds, housing/facilities loan funds, micro-enterprise loan funds, and venture capital funds. 2/3/03 CDFI-2 F. ‘S.2 ... * Community Development Financial Institutions Fund º * * > *_- changes were not enacted in time to meet to the Administration's stringent budget requirements for integrating performance results criteria into government programs. The buiget for the BEA program was therefore decreased to provide a level of basic services pending approved revisions to enhance the program’s effectiveness. The new focus of the BEA Program implemented in FY 2003 targets awards to “personal wealth” and “community asset” building activities for investments in affordable housing, homeownership, and small business lending and not just merely for the support they provide to CDFIs. . - Administrative Expenses The increased funding of $2,000,000 will s]pport staffing requirements of the New Markets Tax Credit program and technology requirements to support our investment in E-grants and E-government. These investments will also help support a “Green” rating on the “E-Grants” initiative on the Presidential Management Agenda Scorecard and to meet the OMB E-Grants requirements. Although funding for awards has been reduced, staff support will increase to ensure thorough reviews and analyses of the award applications since the number of applications for funding should remain the same and/or increase. Staff support is also required formonitoring of awards previously provided. Because the New Markets Tax Credits Program does not require the award of program funds, but rather an allocation of tax credits, all costs associated with the development, implementation and monitoring of this program are administrative in nature. During FY 2004, the CDFI Fund will incur a full year of costs for administrative support of this program. This will include significant costs for technology and mandatory site visits as part of the monitoring of the CDEs that will receive tax allocations (through the end of calendar 2003) under the New Markets Tax Credit Program. OTHER CHANGES Adjustments necessary to maintain current levels.............. * A A * • 3 º' a tº e & e - º e º e º e s e e e us +249,000/0 FTE This level reflects $126,000 for pay and benefits, $75,000 for non-pay expenses and $48,000 for pay annualizations. 2/3/03 CDFI-6 : Community Development Financial Institutions Fund 2/3/03 SUMMARY EXPLANATIONS OF FISCAL YEAR 2004 REQUESTED CHANGES BY ACTIVITY (Dollars in Thousands) Requested Changes PROGRAM CHANGES: 1. Financial Assistance 2. Technical Assistance 3. Bank Enterprise Award Program 4. Administrative Expenses less McLamount subtotal, PROGRAMcHANGEs OTHER CHANGES: Adjustments Necessary to Maintain Current Levels: Adjustment(s) to Allow for Transfer to/from Other Accounts in FY2004: Initiative Annualizations: Nonrecurring Costs: Etc.: º º Amount ($6,000) ($4,000) ($9,000) 1,751. (17,249). --- 249 . ***** Community Development Financial Institutions Fund BUDGETAUTHORITY, FTE, AND PERFORMANCE INFORMATIONBY BUDGETACTIVITY BUDGET ACTIVITY: IMPROVE ECONOMIC CONDITIONS IN UNDERSERVED COMMUNITIES The Fund has consolidated all prior budget activities into this single activity. This budget activity uses limited Federal resources to improve the economic conditions of underserved communities by providing capital and technical assistance to community development financial institutions (CDFIs) and insured depository institutions, and by providing tax credit allocations to community development entities (CDEs). The CDFIS, depository institutions, and CDEs in turn provide credit, capital, financial services, and development services to underserved markets. The intent of this activity is to “fill the gap.” left by traditional regulated financial institutions. Traditional regulated financial institutions (commercial banks, savings and loan associations, and credit unions) address credit needs in America in a safe and sound financial environment. They provide checking, savings and investment accounts, mortgage loans, home equity loans, business loans, and consumer loans. Yet there are an estimated 12 million people in this country that do not have bank accounts, and many more who do not have the good credit histories required to get a loan from a traditional lender. Many of these consumers turn to higher cost alternatives for financial services: check cashing stores to cash checks and buy money orders; and pawnshops, payday lenders, and title companies for short-term loans. The most vulnerable — the elderly and financially uneducated — may become victims of predatory mortgage lenders, whose excessive interest rates, fees and prepayment penalties regularly lead to foreclosure and loss of the home. . This budget activity is comprised of four separate sub-activities: 1) Financial assistance; 2) Technical Assistance; 3) Bank Enterprise Awards; and 4) General and administrative expenses (including the New Markets Tax Credit Program). * Through the Financial Assistance Component of the CDFIProgram, the Fund makes financial investments in and may provide Technical Assistance (“TA”) grants to CDFIs that have comprehensive business plans for creating demonstrable community development impact through the deployment of capital within their respective target markets. Financial assistance is provided to both category I and category IICDFIs as defined above in addition to entities in the Native American, Alaska Native, and Native Hawaiian communities. While the Financial Assistance Component offers TA grants in conjunction with financial investments, TA only grants are accounted for as Technical Assistance. 2/3/03 - CDFI-8 g ~~ - º - * Community Development. Financial Institutions Fund * Through the Technical Assistance Component of the CDFIProgram, the Fund provides technical assistance (“TA”) grants to CDFIs, and entities proposing to become CDFIs, in order to build their capacity to better address the community development and capital access needs of their particular target markets, including Native American, Alaska Native, and Native Hawaiian communities. " The Bank Enterprise Award (BEA) Program recognizes the key roleplayed by traditional financial institutions incommunity development lending and investing. It provides incentives for these regulated banks and thrifts to invest in CDFIs and to increase their lending and financial services in distressed communities. Providing monetary awards for community reinvestment leverages the Fund's dollars and puts more capital to work in distressed cornmunities throughout the nation. * General and administrative expenses relate to administrative costs to administer the Fund's programs. These costs also include costs to administer the New Markets Tax Credit (NMTC) Program. The NMTC Program is a major focus for FY 2004, as tax credits are to be provided supporting $1.5 billion in investor capital. This program is a key part of the Fund's mission by augmenting the return on investments provided by the private sector. The NMTC provides an allocation of tax credits to CDEs, which in turn will provide tax credits to private sector investors in exchange for their investment dollars. Investments received by the CDEs will be used to make loans and equity investments in low-income communities. FY 2003 will be the first time in which an allocation of these credits will be provided to CDEs, supporting private sector investment of $2.5 billion. 2/3/03 : - . - CDFI-9 § *... ...? “w” Community Development Financial Institutions Fund In FY 2002, the Fund made significant changes to its performance plan by re-examining the way that the Fund achieves its mission. Fund staff worked extensively with Treasury's Office of Performance Budgeting to develop the FY 2004 plan. The Fund has made significant progress in shifting from a plan based largely on output measures to one based on outcome and impact measures. The next section details new performance measures and targets for FY 2003 and FY 2004. The charts on pages 11 and 12 show the projected performance projected tº result from the FY 2003 and FY 2004 funding levels as shown, irrespective of the years in which the performance is achieved. It is important to note that there is a significant time lag between the time the appropriated funds are received and the time they are disbursed to awardees, invested by awardees in the identified activities, and the related outcomes produced. In addition, the outcomes will occur over a period of several years. This performance information is referred to in the tables on pages 11 through 12 as “Funding Level Performance”. “Fiscal Year Performance” refers to the performance to be reported by the Fund, which occurs during a given fiscal year. This performance is a result of the investment by awardees of amounts received from the Fund in prior years. “Fiscal Year Performance” is shown on pages 17 through 19 of Volume II. r The original performance targets and report data for FY 2002 and previous fiscal years follow FY 2003 and FY 2004 performance measure and target information. - 2/3/03 - CDFI-10 § - ~ º Community Development Financial Institutions Fund easures. Indicators and In - º formation Table Total Budget Authority (000s) Direct FTE (based on percentage of staff time) Performance Goal 1: Increase financing to businesses (including non-profit businesses) and individuals that are low wealth, have limited collateral, are located in underserved communities, or have other characteristics that inhibit them from getting business or commercial real esate loans or equity investments from traditional financial sources, Performance Measures 1.1 Number of full-time equivalent jobs in underserved communities created or maintained by businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees. (S) 1.2 Number of businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees that provide services or employment to underserved markets. (S) 1.3 Number of commercial real estate properties financed by CDFI awardees and BEA applicants that provide access to essential community products and services in underserved communities. (S) 33,780 7,290 455 24,680 5,485 345 Performance Goal 2: Expand the supply and quality of housing units in underserved communities and increase |homeownership in these markets by increasing the availability of housing financing that leverages conforming mortgages or that would not likely be made. |Performance Measures 2.1 Number of affordable housing units (including rental units) in underserved communities whose development or rehabilitation is financed by CDFI Program awardees, BEA Program applicants, or NMTC Program allocatees with financing not likely available from traditional sources. 2.2 Number of homebuyers in underserved markets who obtain non-conforming purchase money mortgages, including subordinated financing, or financing that leverages conforming mortgages, from CDF1 Program awardees or BEA Program applicants. N/A N/A Baseline Baseline (S) = Strategic Measures 2/3/03 CDFI-11 § - Community Development Financial Institutions Fund 2/3/03 ce Gºals, Measures and Indicators: º Performance Goal 3:3. Expand access to affordable financial services for the “unbanked,” low-income people and others in underserved communities. Performance Measures 3.1. Number of accounts opened at insured depository institutions that are CDFI Program awardees or BEAProgram applicants in underserved communities. N/A Baseline 3.2Number of individuals provided financial literacy, home ownership, business and other training or technical assistance that counters predatory lending, by CDFIProgram awardees and BEA Program applicants in underserved communities. N/A Baseline 3.3 Number of businesses and individuals provided financial or other counseling services by NMTC Program allocatees. N/A Baseline Performance Goal 4: Build the self-sufficiency and capacity of CDFIFund awardees and certified CDFIs. Performance Measures 4.1 Dollars of private and non-CDFIFund investments that CDFIFund awardees were able to leverage because of their CDFIFund assistance. (in thousands) N/A Baseline 4.2. Number of CDFIs serving underserved communities that have accessed the Fund's institution-building technical assistance (TA) or training. N/A Baseline CDFI-12 § - *-* º * Community Development Financial Institutions Fund C PERFORMANCE DATA FOR FY 2002 BUDGET ACTIVITY 1: INVESTMENTS IN CDFIs: This budget activity uses limited Federal resources to investin and build the capacity of private, for-profit and non-profit community-based financial institutions to address community development finance needs. º Chri Fund carentern Budget Authority ($000s) $74,864 $70,437 $53,231 $39,814 $43,234 Direct FTE (based on percentage of staff time) 22 24 29 32 32 Performance Goal A: Increase participation in the Fund's CDFIProgram to facilitate local economic growth. Performance Measures: 1. Number of certified CDFIs as of year-end. 334 415 468 495 625 Performance Goal B: Increase private sector investment in CDFIs. Performance Measures: 1. Number of CDFIs receiving financial assistance awards. 60 77 94 65 74 2. Non-Federal matching funds raised by CDFIs during the year ($ millions). N/A $52 $185 $110 $123 Performance Goal C: Increase diversity of CDFI awardees. Performance Measure: 1. Number of states/territories (and District of Columbia) to date with at least 49 52 53 (All) 53 (All) 53 (All) one CDFI program awardee. 2/3/03 CDFI-13 § - Community Development Financial Institutions Fund BUDGETACTIVITY 2: CAPACITY ANDEXPERTISE OFCDFIs: This budget activity covers the Fund's activities relating to the Technical Assistance Component of the CDFIProgram (which in FY2001 was replaced by the Small Capitalization Component of the CDFIProgram, and training activities and technical assistance grants relating to the Native American CDFITechnical Assistance (NACTA) Component of the CDFIProgram. ry:1999 FY 2000 FY 2001 º CDFIFund Performance Measures Performance Performance Performance. $11,038 $7,539 $11,922 $14,137 $9,191 Budget Authority ($000s) 7 17 10 10 12 Direct FTE (based on percentage of staff time) Performance Goal A: Increase the capacity and expertise of CDFIs. Performance Measures: 1. Number of organizations that received technical assistance awards during the 88 87 84 95 119 year 2. Amount of technical assistance grants awarded during the year ---- gr gtney $4 $4 $10 $13 $6 ($ millions) 3. Number of first-time awardees under the Technical Assistance and Small Capitalization Component Components. N/A 49 52 45 87 Performance Goal B: Increase customersatisfaction 1. Customer Satisfaction Measure N/A N/A N/A Measure Discontinued Performance Goal C: Increase employee satisfaction Performance Measure: Treasury's Human Resources Advisory Council is to develop Department-wide employee satisfaction performance measures by the 3"quarter of FY 2002. 2/3/03 CDFI-14 § sº * * Community Development Financial Institutions Fund FY 1999 FY-2000 FY-2001 FY 2002 CDFIFundPerformance Measures Performance Performance Performance Target Performance 1.Employee Satisfaction Measure. N/A N/A N/A Measure Discontinued BUDGET ACTIVITY 3: FINANCIAL SERVICE ORGANIZATIONS' LENDING AND INVESTMENT: This budget activity relates to the Bank Enterprise Award (BEA) Program, which provides financial incentives for insured depository institutions to increase their investments in CDFIs and to increase their lending and provision of financial services in distressed communities. Measures º º Performance º Budget Authority ($000s) $34,155 $23,982 Direct FTE (based on percentage of staff time) 13 11 6 6 8 Performance Goal A: Increase direct lending, investment and services by depository institutions in distressed communities. Performance Measure: 1, Increase in dollar amount of community development loans, investments and services in distressed communities by BEA N/A $166 $250 $185 $167 applicants that submitted a final report (assessment period over baseline period) ($ millions) Performance Goal B: Increase depository institution support of CDFIs. Performance Measures: 1. Amount of financial assistance provided to CDFIs by BEA applicants that submitted a final report ($ millions) N/A $244 $275 $148 $142 2/3/03 CDFI-15 § Community Development Financial Institutions Fund 2. Number of CDFIs receiving financial assistance by BEA applicants that submitted a final report. 3. Number of BEA applicants that submitted a final report that provided financial assistance to CDFIs Report on BEA Targets: The current BEA Program regulations call for eligible institutions to submit Initial Applications prior to the start of the Assessment Period reporting on actual levels of activity during the Baseline Period and providing projected levels of activity for the Assessment Period. (The Fund also uses the Initial Application to get some required paperwork completed in order to facilitate Final Report reviews.) After the end of the Assessment Period, applicants submit a Final Report containing the actual level of Qualified Activities carried out during the Assessment Period. The Final Report contains a list of Qualified Activities and documentation evidencing that the transaction was closed and disbursed during the Assessment Period (required for all Development and Service transactions over $250,000 and all CDFIRelated transactions.) The Fund calculates awards based on the information provided in the Final Report. - Not all institutions that submit an Initial Application end up submitting a Final Report. The Final Report is considered part of the application process for receiving an award. Typically, the Fund sees a 25% drop off between the Initial Application and the Final Report. The main reason for not submitting a Final Report is that the applicant realizes that the institution did not increase its Qualified Activities enough to warrant an award. Applicants also drop out of the program because the employee responsible for applying to the program left the institution or the bank was acquired. BEAProgram awards and the corresponding measures depend on: (1) the amountofavailable funding, and (2) applicants’ and potential applicants' perception of the probability of receiving an award. If applicants or potential applicants perceive that they have a low probability of receiving an award, then they will not apply to the Program. It is very difficult to accurately measure this perception. The FY2002 estimates for the increase in activity, which was lower than the FY2001 actual, was based on the assumption that available funding would decrease, as would the probability of receiving an award. As it turned out, applicants and potential applicants felt that they had a lower probability of receiving an award than the Fund anticipated. The likely cause of this perception was the low number of awardees in the Development and Services category in the FY2001 round combined with the significant decrease in available funding for the program. As a result, the target for FY2002 estimates for the increase in Development and Services activity as well as the number of applicants providing support to 2/3/03 - CDFI-16 § º Community Development Financial Institutions Fund CDFIs was much higher than the actual. BUDGET ACTIVITY 4: NEWMARKETSTAX CREDITS This budget activity relatestoarelatively new program called the New Markets Tax Credits Program. The Community Renewal Act of 2000 authorized this program. Because this program was initiated as a result of Congressional action during the FY 2001 budget process, the Fund created a separate budget activity to facilitate accurate implementation and reporting activities. Under this program, the Fund will allocate tax credits to qualified community developmententities (CDEs), which allocate the tax credits to investors; the proceeds of such investments must be used by the CDE to make qualified low- income community investments. The allocation of tax credits is to be provided by the Fund to CDEs by December 31* of each year. º - º: º FY2001. - - - - [. º - º --- ------ - N/A $280 $2,618 $3,615 Direct FTE (based on percentage of staff time) N/A N/A 8 16 12 Performance Goal: Increase private sector investment in community development entities. Performance Measures: 1. Dollar amount of private sector investments in CDEs resulting - - from NMTC Program. N/A N/A N/A Measure Discontinued 2/3/03 CDFI-17 Community Development Financial Institutions Fund DETAIL OF FULL-TIME EQUIVALENT STAFFYEARS BY CATEGORY Actual Estimated Position Category FY 2002 FY 2003 FY 2004 Statutory executive positions 2 2 2 Policy/program professional staff 29 32 33 Administrative staff 26 28 30 Secretarial and clerical 7 6 6 Crafts and custodial 0 0 0 S \O Subtotal 64 68 71 Part-time & temporary full-time 0 0 O Total full-time equivalent staff years 64 68 71 2/3/03 CDFI-18 g Community Development Financial Institutions Fund DETAL OF FULL-TIME EQUIVALENT STAFFY Senior Executive Service Level 6 Senior Executive Service Level 5 Senior Executive Service Level 4 Senior Executive Service Level 3 Senior Executive Service Level 2 Senior Executive Service Level 1 º … 2/3/03 *-* Executive Levels 1- 5 Subtotal subtotal. GS-15 GS-14 GS-13 GS-12 GS-11 GS-10 GS-09 GS-08 GS-07 GS-06 GS-05/ GSO1 Other º EARS BY GRADE - - T FY2004 Budget Estimate 1 1 1 1 1 1 11 12 12 11 12 12 13 14 16 5 6 7 9 9 9 5 5 5 1 1 1 4 4 4 3 3 3 71 2. ** *- - Community Development Financial Institutions Fund STANDARD CLASSIFICATION SCHEDULE Operatin 4,098 4,541 4,891 350 Special personal services pay - º ºtstºp - -- -- i..….... - - º: - 4,541. - º,891. - - - Civilian personnel benefits...................................................................................... --- 1,050 1,122 1,261 139 Benefits to former personnel - Travel and transportation of persons.......................................... ---------------- 200 132 262 130 Transportation of things.….........…........…........... 21 25 25 - Rents, communications and utilities: Rental payments to GSA....................................................................................... 1,094 1,117 1.267 150 Rental payments to others ---- - Other rents, ications and utilities ---- 203 309 350 41 Printing and reproduction..............…..….............…................. 35 50 50 - 3,242 3.289 4,473 1,184 85 100 106 6. 136 315 315 - 39,175 2/3/03 pººr Unobligated bºne. available, SOY. Unobligated balance available, EOY..... Unohli d balance expiring § - - . . º -> r w - 4- *:::... ...A.' * ... J. *...” #####" ****** DEPARTMENT OF THE TREASURY COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND Community Development Financial Institutions Fund Program Account To carry out the Community Development Banking and Financial Institutions Act of 1994, including services authorized by 5 U.S.C. 3109, but at rates for individuals not to exceed the per diem rate equivalent to the rate for ES-3, $51,000,000, to remain available until September 30, 2005, of which $3,000,000 shall be for financial and technical assistance and training programs designed to benefit Native American, Native Hawaiian, and Alaskan Native Communities, and up to $13,000,000 may be used for administrative expenses, including administration of the New Markets Tax Credit, up to $6,000,000 may be used for the cost of direct loans, and up to $250,000 may be used for administrative expenses to carry out the direct loan program: Provided, That the cost of direct loans, including the cost of modifying such loans, shall be as defined in section 502 of the Congressional Budget Act of 1974, as amended: Provided further, That these funds are available to subsidize gross obligations for the principal amount of direct loans not to exceed $11,000,000. Note, - A regular 2003 appropriation for this account had not been enacted at the time the budget was prepared; therefore this account is operation under a continuing resolution (P.L. 107-229, as amended). The amounts included for 2003 in this budget reflect the Administration's 2003 policy proposals. 2/3/03 - CDFI-21 § COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND TABLE OF CONTENTS VOLUME 2 — PERFORMANCE PLAN STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN ... CDFI-2 RELATIONSHIPBETWEEN THE STRATEGICPLAN AND THE ANNUAL PERFORMANCE PLAN CDFI-4 PERFORMANCE INFORMATION BY BUDGET ACTIVITY Budget Activity: Improve Economic Conditions in Underserved Communities Budget Authority, FTE, and Performance Measures........................................................................................... CDFI-7 FY 2004 Proposed Performance Plan ... . . . . . . . . . . . . . . . .................................................................... . . . . . . . . . . . . .CDFI-11 FY 2003 Preliminary Performance Plan CDFI-14 SUPPORTING MATERLALS Cross-Cutting Coordination Efforts - CDFI-15 Fiscal Year Performance . . CDFI-15 Verification and Validation of Data and Performance Measurement Definition - CDFI-19 Program Assessment Rating Too! (Part) Summary............................................... • . . . . . . . . . . . . . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CDFI-27 2/3/03 - CDFI-1 § Community Duvelopment Financial Institutions Fund SUMMARY JUSTIFICATION OF FY 2004 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT | STRATEGIC CONTEXT FOR THE FY 2004 BUDGET/PERFORMANCE PLAN This document presents justification of the FY 2004 budget by demonstrating how funding enables achievement of the strategic plan goals of the Community Development Financial Institutions (CDFI) Fund, and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The mission of the Community Development Financial Institutions (CDFI) Fund is to expand the capacity of financial institutions to provide credit, capital, and financial services in economically distressed urban and rural communities. The Fund promotes access to capital and local economic growth in the following ways: 1) through its program by directly investing in and supporting community development financial institutions' (CDFIs) that provide loans, investments, financial services and technical assistance to underserved people in economically distressed communities; 2) through its Bank Enterprise Award (BEA) Program by providing an incentive to banks to invest in their communities and in other CDFIs, and 3) through its New Markets Tax Credit (NMTC) Program by providing an allocation of tax credits to Community Development Entities (CDEs) which enable them to attractinvestment from the private sector and reinvest these amounts in low income communities. Key Strategic Issues For FY 2004, the Fund is requesting $51 million to support its three programs: The Community Development Financial Institutions Fund (CDFI) Program, the Bank Enterprise Award (BEA) Program and the New Markets Tax Credit (NMTC) Program. The approach for FY 2004 revolves around three major strategies: 1) focusing CDFI Program awards on the most distressed geographic areas; 2) incorporating a “growth continuum” strategy in award decisions, whereby assistance is provided to grow CDFIs to the point where Fund financial assistance is no longer required, and 3) taking actions to obtain the information necessary to measure and report on the impact of the Fund’s investments. 'CDFIs are specialized financial institutions whose mission is to fill credit gaps. By successfully providing affordable and flexible financial products and services to low-income populations and communities, CDFIs demonstrate the untapped market potential that exists in these communities. CDFIs existin part due to market failures and from banks and thrifts acting responsibly and investing money and expertise to create community development lending initiatives with their local community. Included in the various types of CDFIs are community development banks, credit unions, business loan funds, housing/facilities loan funds, micro-enterprise loan funds, and venture capital funds. 2/3/03 CDFI-2 3. Community Development financial Institutions Fund Key Strategic Impacts Although the budget request for FY 2004 reflects a decrease from the prior year levels, the funding request is aligned with CDFI’s Growth Continuum strategy. This new strategy, started in FY 2003, acknowledges the growth and sophistication of the community development finance industry where several organizations have reached significant size and scale. Therefore, less direct federal investment is required. The New Markets Tax Credit Program, introduced in FY 2001, is projected to supplement the decrease in funding by providing another source of capital (through tax credit offsets) to the larger and more sophisticated CDFIs. The NMTC Program is a tax allocation award requiring no direct appropriation. CDFI projects between $500 million and $1 billion in investor capital will be raised in FY 2003 from the New Markets Tax Credits allocated. During FY 2002 the Fund initiated an internal evaluation of the BEA Program and concluded that the Fund could more effectively achieve its vision and strategic objectives if the BEA Program targeted its awards to wealth building activities. Changes are being made to the BEA Program to effect these shift in emphasis. These changes were not enacted in time to meet to the Administration’s stringent budget requirements for integrating performance results criteria into government programs. The budget for the BEA program was therefore decreased to provide a level of basic services pending approved revisions to enhance the program's effectiveness. In addition, technology support for many of the new performance measures will not exist until FY 2003; therefore, FY 2004 will be the first reporting year for many of the measures. 2/3/03 . - CDFI-3 g Community Levelopment Financial Institutions Fund RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE ANNUAL PERFORMANCE PLAN Treasury Strategic Goal CDFIFund Strategic Goal Performance Goals Linked to Strategic Goal Results Promote Domestic Economic Growth Improve the economic conditions of underserved communities by providing capital and technical assistance to community development financial institutions (CDFIs), capital to insured depository institutions and tax credit allocations to community development entities (CDEs), which provide credit, capital, financial services, and development services to these markets. 1. Increase financing to businesses (including non- profit businesses) and individuals that are low wealth, have limited collateral, are located in underserved communities, or have other characteristics that inhibit them from getting business or commercial real estate loans or equity investments from traditional financial sources. Expand the supply and quality of housing units in underserved communities and increase homeownership in these markets by increasing the availability of housing financing that leverages conforming mortgages or that would not likely be made by traditional financial institutions. Expand access to affordable financial services for the “unbanked,” low-income people and others in underserved communities. Build the self-sufficiency and capacity of CDFI Fund awardees and certified CDFIs. 2/3/03 CDFI-4 § Community Levelopment Financial Institutions Fund Performance Plans for FY 2003 and FY 2004. The FY 2003 and FY 2004 plans reflect the Fund’s strategy of targeting its limited federal resources to areas of greatest need and to CDFIs that can produce the most impact. While previous performance plans had four budget activities that corresponded to the Fund’s funding programs, the proposed FY 2003 and FY 2004 plans are condensed into one budget activity that focuses on the Fund's single strategic goal. The prior budget activities being merged into the single activity “Improve Economic Conditions in Underserved Communities” are: Investments in CDFIS Capacity and Expertise of CDFIs FSOs Lending and Investment New Markets Tax Credits Program This change results from a re-examination during FY 2002 of the way the Fund achieves its mission. The Fund worked extensively with Treasury’s Office of Performance Budgeting to develop the FY 2003 and FY 2004 performance plans. One main area of focus was to shift from a plan based largely on output measures to one based on outcome and impact measures. Previous performance measures focused on outputs such as the number and dollar amount of awards. Performance measures in the FY 2003 and FY 2004 performance plans focus on the outcomes that will be produced in underserved communities: job creation, homeownership, the development of affordable housing, and critical consumer financial services. It was determined that these measures are sufficiently similar for all Fund programs so that only one budget activity was needed. The Fund has also adopted two strategies which have a significant effect on the FY 2003 and 2004 performance plans -- “Hot Zones” and “Growth Continuum”. Hot Zones are the Fund’s new method for targeting its CDFI Program investments to the most economically distressed areas of the United States and its Territories. Hot Zones are a sub-group of Investment Areas. There are two types of Hot Zones. Economic Development Hot Zones are areas with a combination of high poverty, low median family incomes and high unemployment. Housing Hot Zones are areas that have low median family incomes, high homeowner or rental cost burdens for low-income families, and high poverty. In the FY 2003 funding round, CDFIS serving Hot Zones will be given funding priority. The Growth Continuum strategy is based on the concept that as CDFIs grow in size and scale, they are better able to attract private sector funding. The Fund will implement this strategy by targeting its financial assistance awards based on the size of the assets of the applicants. Two classes of asset size will be used: 1) category I, pertaining to CDFIs with capitalization needs of up to $1 million and assets up to: $250 million for insured “Poverty is included in the Housing Hot Zone definition only when rental cost burdens are high. 2/3/03 - CDFI-5 g Community Development Financial Institutions Fund depository institutions and depository holding companies, $25 million for insured credit unions and $15 million for other CDFIs; and 2) category II, which includes CDFIs with capitalization needs in excess of $1 million and assets which exceed the category I limits. As a result of these changes, the classification of CDFI Program activities in the FY 2003 and FY 2004 performance plans differs from prior year plans. In prior years, these activities were classified by the type of component within the CDFI Program: the Core / Intermediary Component and the Small and Emerging CDFI Technical Assistance (SECA) Component. Separate Notices of Funds Availability (NOFAs) were issued for each component. With the implementation of the “Hot Zones” and “Growth Continuum” strategies, this classification is no longer necessary. CDFI Program activities will now be reflected as either financial assistance (FA) or technical assistance (TA). This enables the Fund to separately target its FA and TA awards to the areas of greatest need. . The new performance measures are listed in the table starting on page 9. 2/3/03 CDFI-6 § Community Development Financial Institutions Fund BUDGET ACTIVITY: IMPROVE ECONOMIC CONDITIONS IN UNDERSERVED COMMUNITIES The Fund has consolidated all prior budget activities into this single activity. This budget activity uses limited Federal resources to improve the economic conditions of underserved communities by providing capital and technical assistance to community development financial institutions (CDFIs) and insured depository institutions, and by providing tax credit allocations to community development entities (CDEs). The CDFIs, depository institutions, and CDEs in turn provide credit, capital, financial services, and development services to underserved markets. The intent of this activity is to “fill the gap" left by traditional regulated financial institutions. Traditional regulated financial institutions (commercial banks, savings and loan associations, and credit unions) address credit needs in America in a safe and sound financial environment. They provide checking, savings and investment accounts, mortgage loans, home equity loans, business loans, and consumer loans. Yet there are an estimated 12 million people in this country that do not have bank accounts, and many more who do not have the good credit histories required to get a loan from a traditional lender. Many of these consumers turn to higher cost alternatives for financial services: check cashing stores to cash checks and buy money orders; and pawnshops, payday lenders, and title companies for short-term loans. The most vulnerable — the elderly and financially uneducated – may become victims of predatory mortgage lenders, whose excessive interest rates, fees and prepayment penalties regularly lead to foreclosure and loss of the home. - This budget activity is comprised of four separate sub-activities: 1) Financial assistance; 2) Technical Assistance; 3) Bank Enterprise Awards; and 4) General and administrative expenses (including the New Markets Tax Credit Program). * Through the Financial Assistance Component of the CDFI Program, the Fund makes financial investments in and may provide Technical Assistance (“TA”) grants to CDFIs that have comprehensive business plans for creating demonstrable community development impact through the deployment of capital within their respective target markets. Financial assistance is provided to both category I and category II CDFIs as defined above in addition to entities in the Native American, Alaska Native, and Native Hawaiian communities. While the Financial Assistance Component offers TA grants in conjunction with financial investments, TA only grants are accounted for as Technical Assistance. - Through the Technical Assistance Component of the CDFI Program, the Fund provides technical assistance (“TA”) grants to CDFIs, and entities proposing to become CDFIs, in order to build their capacity to better address the community development and capital access needs of their particular target markets, including Native American, Alaska Native, and Native Hawaiian communities. • The Bank Enterprise Award (BEA) Program recognizes the key role played by traditional financial institutions in community development lending and investing. It provides incentives for these regulated banks and thrifts to investin CDFIs and to increase their lending and financial services in distressed communities. Providing monetary awards for community reinvestment leverages the Fund's dollars and puts more capital to work in distressed communities throughout the nation. - - 2/3/03 º - CDFI-7 s Community Duvelopment Financial Institutions Fund * General and administrative expenses relate to administrative costs to administer the Fund's programs. These costs also include costs to administer the New Markets Tax Credit (NMTC) Program. The NMTC Program is a major focus for FY 2004, as tax credits are to be provided supporting $1.5 billion in investor capital. This program is a key part of the Fund's mission by augmenting the return on investments provided by the private sector. The NMTC provides an allocation of tax credits to CDEs, which in turn will provide tax credits to private sector investors in exchange for their investment dollars. Investments received by the CDEs will be used to make loans and equity investments in low-income communities. FY 2003 will be the first time in which an allocation of these credits will be provided to CDEs, supporting private sector investment of $2.5 billion. The charts on pages 9 through 10 show the projected performance projected to result from the FY 2003 and FY 2004 funding levels as shown, irrespective of the years in which the performance is achieved. It is important to note that there is a significant time lag between the time the appropriated funds are received and the time they are disbursed to awardees, invested by awardees in the identified activities, and the related outcomes produced. In addition, the outcomes will occur over a period of several years. This performance information is referred to in the tables on pages 9 through 10 as “Funding Level Performance". “Fiscal Year Performance” refers to the performance to be reported by the Fund which occurs during a given fiscal year. This performance is a result of the investment by awardees of amounts received from the Fund in prior years. “Fiscal Year Performance” is shown on pages 17 through 19. 2/3/03 CDFI-8 E Community Levelopment Financial Institutions Fund Performance Goals, Measures arid Indicators Funding Level Program Performance, Annual Performance Goals, Measures, indicators and Information Table Total - Total Budget Authority (000s) $68,000 Direct FTE (based on percentage of staff time) Performance Goal 1: Increase financing to businesses (including non-profit businesses) and individuals that are low wealth, have limited collaterai, are located in underserved communities, or have other characteristics that inhibit them from getting business or commercial real esate loans or equity investments from traditional financial sources. Performance Measures 1.1. Number of full-time equivalent jobs in underserved communities created or maintained by businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees. (S) 33,780 1.3 Number of commercial real estate properties financed by CDFI awardees and BEA applicants that provide access to essential community products and services in underserved communities. (S) 455 24,680 345 Note - FTEs are not shown for Financial Assistance and Technical Assistance Components of the CDFI Program since program staff are not aligned by component. Total CDFI Program FTEs for FY 2003 and FY 2004 are 18 FTEs each year. Fº Goal 2: Expand the supply and quality of housing units in underserved communities and increase homeownership in these markets by increasing the availability of housing financing that leverages conforming mortgages or that would not likely be made. Performance Measures 2.1 Number of affordable housing units (including rental units) in underserved communities whose development or rehabilitation is financed by CDFI Program awardees, BEA Program applicants, or NMTC Program allocatees with N/A £: - - - - - - - - - - - " : * ~ - 1 ... - - - - : * ~ *- : - c. - --- *... • * : * : - - - - " -- - - - - - - - 2.2 Number of homebuyers in underserved markets who obtain non-conforming purchase money mortgages, including subordinated financing, or financing that leverages conforming mortgages, from CDFI Program awardees or BEA Program applicants.[6] N/A Baseline Baseline 1.2 Number of businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees that provide services or employment to underserved markets. (S) 7,290 5,485 2/3/03 CDFH-9 § Community Levelopment Financial Institutions Fund º; tº . . . . . 2003 2004 Performance Goal 3: Expand access to affordable financial services for the “unbanked,” low-income people and others in underserved communities. Performance Measures 3.1 Number of accounts[7] opened at insured depository institutions that are CDFI Program awardees or BEA Program applicants in underserved communities. N/A Baseline 3.2 Number of individuals provided financial literacy, home ownership, business and other training or technical assistance that counters predatory lending, by CDFI Program awardees and BEA Program applicants in underserved communities. N/A Baseline 3.3 Number of businesses and individuals provided financial or other counseling services by NMTC Program allocatees. N/A Baseline Performance Goal 4: Build the self-sufficiency and capacity of CDFI Fund awardees and certified CDFIs. Performance Measures 4.1 Dollars of private and non-CDFIFund investments that CDFIFund awardees were able to leverage because of their CDFI Fund assistance.[8] (in thousands) N/A Baseline 4.2 Number of CDFIs serving underserved communities that have accessed the Fund's institution-building technical assistance (TA) or training. N/A Baseline 2/3/03 g CDFI-10 i. Community Levelopment Financial Institutions Fund FY2004 Proposed Performance Plan Description: The FY 2004 request of $51 million represents a decrease of $17 million from the $68 million projected funding level for FY 2003 (as of the date of preparation of this submission, the Fund was under a continuing resolution for FY 2003). The most significant portion of this decrease - $9 million - relates to the BEA Program, although the Financial Assistance (FA) and Technical Assistance (TA) Components of the CDFI Program also reflect decreases from the FY 2003 funding levels. In FY 2003, the Fund made substantial changes to the regulations of the BEA Program. These changes were not enacted in time to meet to the Administration's stringent budget requirements for integrating performance results criteria into government programs. The budget for the BEA program was therefore decreased to provide a level of basic services pending approved revisions to enhance the program’s effectiveness. The new focus of the BEA Program implemented in FY 2003 target awards to “personal wealth” and “community asset” building activities for loans like affordable housing, homeownership, and small business lending and not just merely for the support they provide to CDFIs. Achievement of Goals To achieve its goals, the Fund is doing the following: 1) ensuring our limited dollars produce the greatest benefit by making awards to those entities that serve the neediest areas (“Hot Zones”); 2) modifying the BEA Program to give greater priority to bank investment in distressed areas, and provide awards to those banks that partner with CDFIs that serve the neediest areas; 3) making the first round of tax credit allocations under the NMTC Program; 4) making other changes to program policy; 5) making use of information technology to more effectively administer and monitor the Funds programs; and 6) improving the performance collection and measurement process. 1. Focusing CDFI Program Awards on Hot Zones In FY 2004, the Fund will use the newly developed concept of Hot Zones to help prioritize and direct the Fund's investments. Hot Zones are areas with high levels of economic distress. CDFI Program awards target those applicants serving Hot Zones. The strategic targeting of Hot Zones will take place primarily within the smaller CDFIs. This will result in a greater number of awards, resulting in a greater CDFI presence in, and services to, Hot Zones, and the potential to grow these CDFIs into larger organizations to better serve these distressed areas. 2/3/03 CDFI-1 1 f Community Development Financial Institutions Fund 2/3/03 2. Planned Changes to the BEA Program During FY 2002, the Fund initiated an internal evaluation of the BEA Program and concluded that the Fund could more effectively achieve its vision and strategic objectives if the BEA Program targeted its awards to wealth building activities. Consequently, the BEA Program team has developed a plan to restructure the BEA Program. Possible changes that the Fund is considering include: * Greater emphasis on priority areas, i.e., “wealth-building” activities such as affordable home mortgages and small business lending as well as financial education and products designed to help Low Income families maximize savings (e.g., low minimum CDs and mutual funds). * Focusing the CDFI-Related category to those CDFIs with a greater need for incentive of the BEA Program award to facilitate their bank partnerships. By narrowing the CDFI-Related category, the Fund also hopes to make additional financial resources available for the Development and Services category. The BEA Program statute provides the structural framework and definition of the program (i.e., what the program is all about). The above changes are those that can be affected without any changes to the existing statutory authority for the program. Statutory changes may be necessary in order to achieve a BEA Program that is ideally structured to build the capacity of banks to engage in community development activities in severely distressed communities. 3. Initial Allocation of Tax Credits Under the New Markets Tax Credit Program The NMTC Program is a major focus for FY 2004. This program is a key part of the Fund's mission. The NMTC Program provides an allocation of tax credits to Community Development Entities (CDEs). The CDEs in turn provide tax credits to private sector investors in exchange for their investment dollars; investments received by the CDEs are then used to make loans and equity investments in low-income communities. Early FY 2003 will be the first time in which an allocation of these credits will be provided to CDEs. The key program measure is the extent to which CDEs raise equity from their allocation of tax credits. The Fund estimates that CDEs will raise between $500 million and $1 billion from an allocation of $4 billion in tax credits by 12/31/03. The Fund introduced the NMTC Program and began accepting applications for certification as CDEs in December 2001. As of November 20, 2002, 669 CDEs have been certified by the Fund. The Fund expects a number of additional entities to become CDEs over the next two years, and expects to make allocations of New Markets Tax Credits supporting private sector investment of $4 billion over the next two years to such entities. Additional administrative funds will be needed to collect, store and analyze information relating to CDEs’ use of NMTC allocations, performance and compliance with the terms of their allocation agreements. Costs include modifications and enhancements to the NMTC databases and CDFI-12 5. Community Development Financial Institutions Fund 2/3/03 technology tools. Since this is a new program, the Fund is unable to project FY 2004 performance targets for this program with an y accuracy. Actual performance based on CDEs usage of equity funds will be measured and used as a baseline to project future performance targets. 4. Other Policy Changes Given that the Fund has limited resources for the BEA Program and does not seek to provide multiple subsidies for carrying out the same activity, the BEA Program will be revised to: (1) eliminate the possibility of receiving a “double subsidy” for the same activity through the BEA Program and the NMTC Program, and (2) encourage banks to utilize the NMTC Program instead of the BEA Program for the activities that are more likely to be pursued by CDEs. For example, in order to prevent an applicant or a CDFIPartner from receiving “double subsidy” for the same activity, the BEA Program includes a direct prohibition on certain activities (e.g., an Applicant cannot receive a Bank Enterprise Award for any financial assistance provided to a CDFIPartner if that CDFI is also a CDE that has received an allocation of New Markets Tax Credits). In addition, activities likely to be carried out through the NMTC Program are investments in larger, more established CDFIs as well as CDFIs focusing on larger Commercial Real Estate Projects and Business Lending. In order to encourage banks or CDFIs to utilize the NMTC Program for such activities, the new BEA Program caps amount of eligible transactions and assigns higher priority factors to activities unlikely to be carried out through the NMTC Program (e.g., service activities, housing finance, housing development, micro loans). 5. Making Use of Information Technology For FY 2004, the Fund continues to move toward an “e-work and e-government” environment. Applicants will use web-based, user-friendly electronic systems to submit applications and reporting data, including loan level data. The Fund will use the system to review and track applications and reporting data. This will allow better management of workflows, the tracking of performance of CDFIS, reduce effort in the administration of paper applications, and provide better information about the review process. The Fund’s improvements in technology permit the integration of databases that allow management to track the flow of applications and the status of obligated awards. The Fund has already implemented regulatory changes that will give Fund managementenhanced flexibility to de-obligate and re-obligate undisbursed balances given issues pertaining to compliance or delays in demonstrating the required match of funds. Applicants who apply for only Technical Assistance will apply and receive funding on a rolling basis. This process improvement allows even faster funding decisions and disbursements. This directly impacts the customer by providing the quickest turn around timeforessential requirements (such as for computer purchases, obtaining staff training, etc.) for CDFIs with the greatest need. CDFI-13 # Community Levelopment Financial Institutions Fund Only applicants that meet a “threshold” funding criteria will be reviewed. Past or current awardees with significant compliance issues will not be reviewed for funding. This will allow the Fund to focus review efforts on those applicants that have shown an ability to effectively deploy awards and meet reporting requirements. The Fund will develop Assistance Agreements with simplified performance goals and financial covenants and with shorter terms. This will allow for quicker negotiations, completion of the assistance agreements and approval of disbursements, and less staff time for review and monitoring. These areas will directly impact the customer. The reduction in the term of the assistance agreements will reduce the awardees reporting burden, and the improved turnaround time for completion of the assistance agreement and disbursements will result in quicker deployment of the CDFIs investments in their communities. 6. Improvements to the Performance Measurement Process The FY 2003 changes to the Fund’s strategic plan represent a shift from measuring outputs such as the number of awards made, to measuring impacts such as the number of jobs created in highly distressed areas. To measure its success against the new strategic plan, the Fund must begin to collect information on the specific location, terms and borrower characteristics for each loan made by a CDFI awardee or a CDE allocatee. In FY 2003, the Fund plans to contract an outside expert to develop a data collection system for such “transaction-level data,” as well as other data. This new data collection system will collect annual survey and transaction level data from hundreds of CDFIs and CDEs. It will be designed to minimize the reporting burden on CDFIs and CDEs, as well as to minimize the time the Fund needs to analyze the data. * This system should be operational during FY 2003, during which baseline information will be collected. * Training Program Surveys: The Fund contracts with training vendors to train applicants and awardees in community development financing. In the past the vendors have collected information such as demographics of participants, quality of training and participant satisfaction with the training, but the Fund has not required the vendors to provide this information to the Fund. The Fund is currently identifying the specific information needed to determine the overall effectiveness of the training and will provide this to the training vendors so they can collect and provide it to the Fund. FY 2003 Preliminary Performance Plan As stated above, the performance measures included in the FY 2003 and FY 2004 performance plans have been completely revised. Accordingly, FY 2003 performance based on these new measures cannot be evaluated relative to the FY 2002 performance goals since these measures were not in place during FY 2002. 2/3/03 CDFI-14 § Community Development Financial Institutions Fund SUPPORTING MATERIALS | - CRoss-CUTTING CoorDINATIONEFFORTS - | The Fund worked very closely with the I.R.S. in developing the guidance and regulations necessary to implement the New Markets Tax Credit Program, and will continue to work collaboratively with them to modify or enhance the final regulations. The Fund also consults regularly with the IRS to develop systems for monitoring CDE compliance with program regulations. The Fund engages in extensive discussion and meetings with SBA, in an effort to determine how best to match program requirements of the New Markets Tax Credit Program with program requirements of the New Markets Venture Capital Program. The Fund and IRS have agreed to issue a “look-back period” under which CDEs could offer tax credits to investors who made investments dating back to April 2001. This agreement was in part due to discussions that were held with staff from the New Markets Venture Capital Program at SBA. Finally, the Fund has had discussion and meetings with GAO to help CDFI determine appropriate compliance and performance measurements for NMTC Allocatees. The Fund co-facilitated aroundtable discussion with GAO, to which approximately 30 researchers and practitioners were invited. The purpose was to develop “best practices” regarding the collection and utilization of relevant information from NMTC Allocatees to evaluate the performance of the program. | FISCAL YEAR PEFORMANCE - The charts on pages 17 through 19 show the projected performance projected to occur for FY 2003 and FY 2004. This performance results from awards provided in prior years and is referred to as Fiscal Year Performance. This information differs from the performance information shown on pages 9 through 11, which show performance resulting from the FY 2003 and FY 2004 funding levels as shown, irrespective of the years in which the performance is achieved. 2/3/03 . CDFI-15 3. Community L., elopment Financial Institutions Fund Fiscal Year Program Performance, Annual Performance Goals, Measures, and indicators Performance Goals. Measures and Indicators *- . . |Performance Goal 1: Increase financing to businesses (including non-profit businesses) and individuals that are low wealth, have limited collateral, are located in underserved communities, or have other characteristics that inhibit them from getting business or commercial real esate loans or equity investments from traditional financial sources. Performance Measures 1.1 Number of full-time equivalent jobs in underserved communities created or maintained by businesses financed by CDFIProgram awardees, BEA Program applicants, and NMTC Program allocatees. (S) 12 Number of businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees that provide services or employment to underserved markets. (S) 13 Number of commercial real estate properties financed by CDFI awardees and BEA applicants that provide access to essential community products and services in underserved communities. (S) . 56,870 16,620 604 55,940 16,890 (S) = Strategic Measures 2/3/03 CDFI-16 3. Community Development Financial Institutions Fund Performance Goal 2: Expand the supply and quality of housing units in underserved communities and increase homeownership in these markets by increasing the availability of housing financing that leverages conforming mortgages or that would not likely be made by traditional financial institutions. 2.1 Number of affordable housing units (including rental units) in underserved communities whose development or rehabilitation is financed by CDFI Program awardees, BEA Program applicants, or NMTC Program allocatees with financing not likely available from traditional financing sources. (S) 43,980 45,270 22 Number of homebuyers in underserved markets who obtain non-conforming purchase money mortgages, including subordinated financing, or financing that leverages conforming mortgages, from CDFI Program awardees or BEA Program applicants. (S) 3,420 3,410 Performance Measures 2/3/03 CDFI-17 g Community Levelopment Financial Institutions Fund mance Goals, Measures and ind ... Total º |Performance Goal 3: 3. Expand access to affordable financial services for the “unbanked,” low-income people and others in underserved communities. |Performance Measures - 3.1 Number of accounts opened at insured depository institutions that are CDFI Program awardees or BEA Program applicants in underserved communities (S). 116,300 62,690 32 Number of individuals provided financial literacy, home ownership, business and other training or technical assistance that counters predatory lending, by CDFI Program awardees and BEA Program applicants in underserved communities (S). 494,090 271,360 |Performance Goal 4: Build the self-sufficiency and capacity of CDFIFund awardees and certified CDFIs. |Performance Measures 4.1 Dollars of private and non-CDFIFund investments that CDFIFund awardees were able to leverage because of their CDFIFund assistance. (S) . $661 $649 million million 42 Number of CDFIs serving underserved communities that have accessed the Fund's institution-building technical assistance (TA) or training. (S) - 447 224 2/3/03 CDFI-18 3. Community Levelopment Financial Institutions Fund | VERIFICATION AND VALIDATION OF DATA AND PERFORMANCE MEASUREMENT DEFINITION limited collateral, are located in underserved communities, or have other characteristics that inhibit them from getting business or commercial real estate loans or equity investments from traditional financial sources. Performance Measure 1.1: Number of full-time equivalent jobs in underserved communities created or maintained by businesses financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees. Definition: A full-time equivalent job is defined as a minimum of 35 hours per week. Employees that work less than 35 hours per week are aggregated into full-time equivalents. Jobs maintained are jobs at the business at the time the loan or investment is made. Jobs created are new jobs created after the loan or investment is made. Jobs created and maintained serve as an important indicator of the economic vitality of underserved areas, Underserved communities are those that qualify as CDFI Program Target Markets (which include a specific geography called an Investment Area) or a specific community of people with demonstrated lack of access to credit, equity or financial services called a Low-Income Targeted Population or an Other Targeted Population), New Markets Tax Credit Program Low-Income Communities, or Bank Enterprise Award Program Distressed Communities, How Data is Captured: Each CDFI Program awardee and NMTC Program allocatee is required to complete a Transaction Level Report. Each BEA Program applicant is required to submit an application containing a Report of Transactions. The Financial Strategies and Research Unit administers the Transaction Level Reports. The BEA Program Unit administers the BEA application. All reports are submitted electronically and the data is stored in databases. This data will be collected for the first time from BEA applicants in FY 2003 and from NMTC Allocatees in FY 2004. For CDFI awardees, this data has been collected at the institution level since 1999. In FY 2003, Transaction Level data was collected from a sample of CDFI awardees. It will be collected from all CDFI awardees for the first time in FY 2004. Verification and Validation: The information is self-reported by awardees.” Most CDFI Program awardees, and it is expected that most CDE allocatees, track jobs maintained. Many track the number of jobs projected to be created. A smaller number collect annual information on actual number of jobs created. Some do not collect the data and respond “don’t know.” Information is not yet available on how many BEA awardees collect jobs data. Each awardee collects and tracks transaction level data in its own management information system(s). The Fund will provide a list of transaction level data points, with definitions, that each awardee is expected to track. If an awardee does not already track all of the required data points, they will be expected to modify their systems as needed to collect and track them. There will likely be a one-year phase-in period during which time new awardees and existing awardees will make the necessary system modifications. The Fund plans to develop the technology for all awardees to export their transaction level data * Throughout this section, “awardee” refers to CDFI Program awardees, NMTC Program allocatees, and BEA Program applicants, unless otherwise specified. 2/3/03 - * CDFI-19 § Community Development Financial Institutions Fund directly from their internal systems to the Fund's data collection system. This will eliminate transcription errors. The Fund's data collection system shall have automatic business rules that check data points for reasonableness and consistency. In addition, the Fund shall review a random sample of responses for reasonableness and consistency. While this review does not provide information regarding the accuracy of the figures and third parties do not independently verify the information, there are no known integrity problems. Data Accuracy: Unknown Accuracy. Performance Measure 1.2: Number of businesses financed by CDFIProgram awardees, BEAProgram applicants, and NMTCProgram allocatees that provide services or employment to underserved markets. Definition: Businesses include for-profit and non-profit businesses. They include microenterprises, defined as a business with five or fewer employees and receiving a loan or investment of up to $35,000, as well as larger businesses. The number of businesses financed is the number of unique businesses receiving a loan or investment from an awardee during the reporting period. A business that received more than one loan or investment is counted once. Businesses financed are an important indicator of the economic health of a community because businesses generate employment and taxes, and may provide community services. How Data is Captured: CDFI Program and NMTC Program Transaction Level Reports. BEA Report of Transactions. This data will be collected for the first time from NMTC Allocatees in FY 2004. For CDFI awardees, this data has been collected at the institution level since 1999; it will be collected at the transaction level for the first time in FY 2004. Verification and Validation: The data is self-reported. Each awardee collects and tracks transaction level data in its own management information system(s). Type of loan (business, housing, etc.) is standard data that most CDFIs track as a normal course of business. If an awardee does not already include “business” as a loan type, they will be expected to modify their systems. The Fund plans to develop the technology for all awardees to export their transaction level data directly from their internal systems to the Fund's data collection system. This will eliminate transcription errors. The Fund's data collection system shall have automatic business rules that check data points for reasonableness and consistency. In addition, the Fund shall review a random sample of responses for reasonableness and consistency, While third parties do not independently verify the information, this staff review provides a reasonable check for the accuracy of the figures. - Data Accuracy: Reasonable accuracy. 2/3/03 CDFH-20 3. Community Levelopment Financial Institutions Fund Performance Measure 1.3: Number of commercial real estate properties financed by CDFI Program awardees, BEA Program applicants, and NMTC Program allocatees that provide access to essential community products and services in underserved communities. Definition: Commercial real estate is defined as non-residential real estate construction or rehabilitation, including office, retail, industrial, and community facilities. It is an important measure of economic condition because it may generate profits, expand the tax base, provide employment, and provide needed services such as health care and child care to the community. Underserved communities are those that qualify as CDFI Program Target Markets (which include a specific geography called an Investment Area) or a specific community of people with demonstrated lack of access to credit, equity or financial services called a Low-Income Targeted Population or an Other Targeted Population), New Markets Tax Credit Program Low-Income Communities, or Bank Enterprise Award Program Distressed Communities. How Data is Captured: CDFI Program and NMTC Program Transaction i.evel Reports. BEA Report of Transactions. This data will be collected for the first time from CDFI Awardees and NMTC Allocatees in FY 2004. Verification and Validation: The data is self-reported. Each awardee collects and tracks transaction level data in its own management information system(s). Type of loan (business, commercial, etc.) is standard data that most CDFIs track as a normal course of business. If an awardee does not already track the necessary “commercial” loan categories, they will be expected to modify their systems. The Fund plans to develop the technology for all awardees to export their transaction level data directly from their internal systems to the Fund’s data collection system. This will eliminate transcription errors. The Fund’s data collection system shall have automatic business rules that check data points for reasonableness and consistency. In addition, the Fund shall review a random sample of responses for reasonableness and consistency. While third parties do not independently verify the information, this staff review provides a reasonable check for the accuracy of the figures. Data Accuracy: Reasonable accuracy. Performance Goal 2: Expand the supply and quality of housing units in underserved communities and increase homeownership in these markets by increasing the availability of housing financing that leverages conforming mortgages or that would not likely be made by traditional financial institutions. Performance Measure 2.1: Number of affordable housing units (including rental units) in underserved communities whose development or rehabilitation is financed by CDFIProgram awardees, BEA Program applicants, or NMTC Program allocatees with financing not likely available from traditional financial institutions or that leverages additional financing from traditional financial sources." * Financing that would not likely be made by traditional financial institutions includes subordinated financing for affordable housing development and non-conforming mortgages (i.e. mortgages that cannot be sold on the secondary market), such as loans to borrowers with poor credit histories or high loan to value ratios. 2/3/03 CDFI-21 § Community Levelopment Financial Institutions Fund Definition: Housing unit is defined as a single-family rental or for-purchase housing unit. It includes single-family homes, condominiums and apartments. Affordable housing unit is defined as arental unit whose monthly rent does not exceed 30 percent of the monthly income of a low-income family (defined as earning no more than 80 percent of area median family income), or an owner-occupied unit whose median monthly homeowner cost does not exceed 30 percent of the monthly income of a low-income family. The availability of affordable housing is a critical to healthy communities. How Data is Captured: CDFI Program and NMTC Program Transaction Level Reports. BEA Report of Transactions. This data will be collected for the first time from NMTC Allocatees in FY 2004. For CDFI awardees, this data has been collected at the institution level since 1999; it will be collected at the transaction level for the first time in FY 2004. This data will be collected for the first time from BEA applicants in FY 2003. Verification and Validation: The data is self-reported. Each awardee collects and tracks transaction level data in its own management information system(s). The number of affordable housing units financed per housing loan is a figure that is included in the awardees’ loan applications. If awardees do not yet enter this information into their management information systems, they will be required to make the necessary modifications so that they may begin to do so. The Fund plans to develop the technology for all awardees to export their transaction level data directly from their internal systems to the Fund's data collection system. This will eliminate transcription errors. The Fund's data collection system shall have automatic business rules that check data points for reasonableness and consistency. In addition, the Fund shall review a random sample of responses for reasonableness and consistency. While third parties do not independently verify the information, this staff review provides a reasonable check for the accuracy of the figures Data Accuracy: Reasonable accuracy. Performance Measure 2.2: Number of homebuyers in underserved markets who obtain non-conforming purchase money mortgages, including subordinated financing, or financing that leverages conforming mortgages, from CDFI Program awardees or BEA Program applicants Definition: Non-conforming purchase money mortgage is defined as a loan that is made for the purpose of purchasing a home and that does not meet the standards required for sale on the secondary market (to such government-sponsored entities as Fannie Mae and Freddie Mac). The ability to sell mortgages is critical to a mortgage lender's business: mortgage loans are long-term and tie up a lender's supply of capital, preventing the lender from making additional loans. By selling the loans, the lender gets access to a new supply of capital with which to make additional loans. Loans that do not meet specific conditions (minimum loan-to-value ratios and borrower credit scores) cannot be sold. Subordinated financing is financing that assumes a higher risk of non-repayment in the case of a default. Financing that leverages conforming mortgages is financing without which a conforming mortgage would not be made to a borrower. These are important measures because home ownership can be a critical means for low-income individuals to accumulate wealth. How Data is Captured: CDFIProgram Transaction Level Report and BEA Report of Transactions. This data will be collected for the first time from CDFI Awardees in FY 2004. 2/3/03 * CDFH-22 3. Community Development Financial Institutions Fund Verification and Validation: The data is self-reported. Each awardee collects and tracks transaction level data in its own management information system(s). Type of loan (business, commercial, mortgage, etc.) is standard data that most CDFIs track as a normal course of business. If an awardee does not already track the necessary information needed to determine if the mortgage loan is non-conforming, they will be expected to modify their systems so they may begin to do so. The Fund plans to develop the technology for all awardees to export their transaction level data directly from their internal systems to the Fund's data collection system. This will eliminate transcription errors. The Fund’s data collection system shall have automatic business rules that check data points for reasonableness and consistency. In addition, the Fund shall review a random sample of responses for reasonableness and consistency. While third parties do not independently verify the information, this staff review provides a reasonable check for the accuracy of the figures. Data Accuracy: Reasonable accuracy. Performance Goal 3: Expand access to affordable financial services for the “unbanked,” low-income people and others in underserved communities. Performance Measure 3.1: Number of accounts opened at insured depository institutions that are CDFI Program awardees or BEA Program applicants in underserved communities. Definition: Accounts consist of Electronic Transfer Accounts (for federal benefits recipients who do not have accounts with financial institutions), First Accounts (for low and moderate-income individuals who are currently “unbanked”), Individual Development Accounts (for low-income individuals), and other checking and savings accounts. New accounts are an important measure because they demonstrate that individuals are being brought into the financial mainstream. Underserved communities are those that qualify as CDFI Program Target Markets (which include a specific geography called an Investment Area) or a specific community of people with demonstrated lack of access to credit, equity or financial services called a Low-Income Targeted Population or an Other Targeted Population), or Bank Enterprise Award Program Distressed Communities. How Data is Captured: CDFI Program annual survey and BEA Report of Transactions. Verification and Validation: The data is self-reported. CDFIProgram awardees’ account data is compared against the financial information itsubmits to its regulator. Data Accuracy: Reasonable Accuracy. 2/3/03 CDFI-23 g Community L-velopment Financial Institutions Fund Performance Measure 3.2: Number of individuals provided financial literacy, home ownership, business and other training or technical assistance that counters predatory lending, by CDFI Program awardees and BEA Program applicants in underserved communities. Definition: Training is defined as classroom or group-based training. Technical assistance is defined as one-on-one counseling. Financial literacy training is defined as credit counseling and basic money management. Home ownership training covers home maintenance, finance, and protecting the value of the home. Business training teaches entrepreneurs how to manage a business. Training and technical assistance are important measures because they improve the capacity of individuals to manage finances and build wealth. Underserved communities are those that qualify as CDFI Program Target Markets (which include a specific geography called an Investment Area) or a specific community of people with demonstrated lack of access to credit, equity or financial services called a Low-Income Targeted Population or an Other Targeted Population), or Bank Enterprise Award Program Distressed Communities. How Data is Captured: CDFI Program annual survey and BEA Report of Transactions. Verification and Validation: Each awardee's training and technical assistance data is reviewed by Fund staff for consistency with the awardee’s reported number of clients and lines of business. This information is not tracked by all awardees. While third parties do not independently verify the information, there are no known integrity problems with the data. Data Accuracy: Unknown Accuracy. Performance Measure 3.3: Number of businesses and individuals provided financial or other counseling services by NMTC Program allocatees. Definition: Financial or other counseling is advice provided by a CDE relating to the organization or operation of a trade or business. Financial and other counseling is important because it improves business management and the health of businesses. How Data is Captured; NMTC Program annual survey. This information will be collected for the first time in FY 2004. Verification and Validation. Each NMTC allocatee's training and technical assistance data is reviewed by Fund staff for consistency with the allocatee's reported number of clients and lines of business. It is not known how many CDEs track this information. Data Accuracy: Unknown accuracy. 2/3/03 - CDFI-24 3. Community Lovelopment Financial Institutions Fund Performance Goal 4: Build the self-sufficiency and capacity of CDFI Fund awardees and certified CDFIs. Performance Measure 4.1: Dollars of private and non-CDFI Fund investments that CDFIFund awardees were able to leverage because of their CDFIFund assistance. - Definition: For CDFIs, leverage is defined as the 1:1 non-federal match (as required by the CDFI Program), plus funds the CDFI is able to leverage with CDFIFund financial assistance grant and equity dollars, plus dollars that the awardees’ borrowers leverage for projects that the awardees investin (i.e., if the total financing needed for a housing development is $5 million, the awardee lends $1 million for this development, and other investors lend the remaining $4 million, then $4 million is the project-level leverage). For BEA applicants, leverage is defined as the value of qualified activities. There will be some double counting of investments in CDFIs, in that BEA applicant investments in CDFIs will be counted as BEA Program “Qualified Activities” and may also be counted by CDFIs as “other non-CDFIFund dollars.” How Data is Captured: Financial assistance award disbursements are made once CDFIS provide documentation showing that they have received or been committed matching funds. Disbursements of financial assistance are tracked by the Financial Manager and are used as the proxy for matching funds raised. The CDFI Program annual survey captures the leverage ratio for financial assistance grants and equity dollars, as well as project-level leverage. BEA Program data is captured in the BEA Report of Transactions. Verification and Validation: CDFI awardees' 1:1 match is equal to the amount disbursed to awardees. The financial assistance grant and equity dollar leverage ratio is taken from the awardees' financial statements. (In most cases, the financial statements have been audited.) Project-level leverage is reported by the awardee and is not verifiable by the Fund. Data Accuracy: Reasonable accuracy for BEA leverage. Unknown accuracy for CDFI leverage (due to inability to verify project-level leverage). Performance Measure 4.2: Number of CDFIs serving underserved communities that have accessed the Fund’s institution-building technical assistance (TA) or training. - Definition: The Fund’s institution-building technical assistance refers to a CDFI Program Technical Assistance (TA) award, including Native American Technical Assistance (NATA) and Native American CDFI (NACDI). The Fund’s training refers to the Fund's Training Program, in which the Fund contracts vendors to develop and offer training courses of relevance to CDFIs. The measure counts the number of CDFIs that have participated in these training courses. How Data is Captured: The number of CDFIs receiving TA awards is tracked internally by the Fund’s Financial Manager. The number of participants in training courses is tracked and reported by the training vendors. Most vendors track whether or not the participants were sent by a certified CDFI. 2/3/03 CDFI-25 g Community Levelopment Financial Institutions Fund Verification and Validation: The number of awards provided annually by the Fund is part of the financial information subject to audit annually by the Fund auditors. Training vendor participant reports are reviewed by staff for reasonableness. Data Accuracy: Reasonable accuracy. 2/3/03 CDFI-26 § Arogram: Bank Enterprise Award Agency: Department of the Treasury Bureau: Departmenta/ Offices Purpose Planning Management Results / Accountability T. Results Achieved & Results Not Demonstrated 100 v. Measures Adequate New Measures Needed Aey Performance Measures Year Target Actuaſ Long-term Measure: 2003 4,930 Jobs in underserved communities created or maintained by businesses financed by BEA Program applicants 2004 4,930 (New measure adopted in 2003) Long-term Measure: 2003 61.2 Commercial real-estate properties financed by BEA Program applicants that provide access to essential 2004 612 community products and services in underserved Communities - (New measure adopted in 2003) Annual Measure: 2003 391 Number of affordable housing units in underserved communities whose development or rehabilitation is 2004 391 financed by BEA Program applicants l (New measure adopted in 2003) Rating; Results /Vot Demonstrated Program Type: Competitive Grants Program Summary: The Bank Enterprise Awards (BEA) Program offers financial awards to banks that participate in community development activities. Such activities include supporting community development financial institutions, financing affordable housing and economic development projects, and the provision of financial services. The assessment indicates that while there is some evidence that BEA awardees use awards to reinvest in community development initiatives, program results are hard to measure because it cannot be determined how awardees would behave in the absence of the program. Additional findings include: 1. The program purpose is clear, but design limitations hamper the program's effectiveness. Under the current structure, it cannot be determined if banks participate in community development activities because of regulatory requirements (under the Community Reinvestment Act) or because of the money provided by the awards program. Thus, the results of the program cannot be determined until the Fund collects additional data. 2. In the last year, the program has developed new outcome-oriented goals and has taken steps to collect additional data on program results. However, as the award is for past performance, there are no prospective performance requirements on how awardees spend award funds. This prevents the Fund from ensuring that program awardees commit to the long-term goals of the program. 3. The program is efficiently managed, In response to these findings, the Budget proposes to: 1. Reduce the funding for the BEA until statutory changes to the authorizing . legislation are made that would clearly distinguish this program from the mandates of the Community Reinvestment Act and would insure that award funds are spent on community development activities. Program Funding Leveſ (in millions of dollars) 2002 Actual 2003 Estimate 2004 Estimate 23 17 8 CDFI-97 3. Comptroller of the Currency, Salaries and Expenses CoMPTROLLER OF THE CURRENCY (OCC) TABLE OF CONTENTS VOLUME 2 — PERFORMANCE PLAN OCC - 1 STRATEGIC CONTEXT FOR FY 2003 BUDGET/PERFORMANCE PLAN RELATIONSHIP BETWEEN THE STRATEGICPLAN AND THE PERFORMANCE PLAN OCC-4 PERFORMANCE INFORMATION BY PROGRAM ACTIVITY Program Activity 1: Supervise OCC - 5 Budget Authority, FTE, and Performance Measures FY 2003 Final Performance Plan OCC - 8 Program Activity 2: Charter Budget Authority, FTE, and Performance Measures FY 2003 Final Performance Plan Program Activity 3: Regulate Budget Authority, FTE, and Performance Measures FY 2003 Final Performance Plan Program Activity 4: Analyze Risk Budget Authority, FTE, and Performance Measures FY 2003 Final Performance Plan ...... SUPPORTING MATERIALS Bureau-wide Performance Measures Major Management Challenges and High Risk Areas Cross-Cutting Coordination Efforts Verification and Validation of Data and Performance Measurement Definition Deleted Performance Measures . 2/3/03 OCC - 10 OCC - 11 OCC-13 OCC - 13 OCC - 14 OCC - 15 OCC - 17 OCC - 18 OCC – 21 OCC - 23 OCC - 34 s Comptroller of the Currency, Salaries and Expenses SUMMARY JUSTIFICATION OF FY 2003 BUDGET REQUEST, ANNUAL PERFORMANCE PLAN AND REPORT | STRATEGIC CONTEXT FOR THE FY 2003 BUDGET/PERFORMANCE PLAN | This document presents justification of the FY 2003 budget by demonstrating how funding enables achievement of the strategic plan goals of the Office of the Comptroller of the Currency (OCC), and how achievement of those goals is ascertained through performance goals, measures, and performance reports. Mission The OCC's mission is to charter, regulate, and supervise national banks to ensure a safe, sound, and competitive banking system that supports the citizens, communities, and economy of the United States (U.S.). Key Strategic Issues During FY 2003, national banks will continue to operate in an uncertain economy. Additionally, the recent accounting scandals raise concerns about ethical business operations throughout the U.S. Accordingly, key issues to be addressed by OCC's FY 2003 supervision activities include: credit quality, adequacy of Allowance for Loan and Lease Losses, scrutiny of accounting practices, integrity of management information systems, off- balance sheet activities, funding issues, preparation for implementation of the revised Basel Capital Accord, and risks associated with managing third- party service providers. Bank Secrecy Act/Anti-Money Laundering issues in the post-September 11" environment, security of customer information, and business continuity also will be prominent supervision issues during FY 2003. Early resolution of problem bank situations will continue to be pursued to minimize losses to the bank insurance fund (BIF) and interagency collaboration and coordination remains important in resolving critical issues impacting the banking industry. The OCC will fully integrate risk-based supervision into its supervisory activities and resource allocations. The risk-based approach to supervision helps to sustain the overall health of the national banking system by applying resources to the highest risk institutions and minimizing resource deployment to lower risk institutions. As part of this initiative, the OCC also will continue to expand and integrate the use of technology to make supervisory efforts more efficient and risk-focused. OCC will continue to expand and enhance the Canary system that allows banks to be stratified by various financial and risk benchmarks. The resulting risk profiles are used to set exam strategies and allocate supervisory resources. The OCC has 2/3/03 OCC - 1 g Comptroller of the Currency, Salaries and Expenses also developed and will be expanding the use of various credit analytic tools that draw upon bank and industry data sources to monitor the credit portfolios of large national banks. In addition, OCC has partnered with the other banking agencies and bank software vendors to develop a common loan file that will facilitate more efficient and focused reviews of the credit portfolios of smaller banks. The OCC continues to enhance and improve its technology solutions for responding to and dealing with the public and the population of national banks in the most efficient manner. OCC implemented CAGNet, an application available to national banks through National BankNet, a secure extranet site. Through CAGNet, banks with access can receive and respond electronically to customer complaints received through the OCC's Ombudsman office. OCC will continue to work with the industry to bring more banking companies online with CAGNet, OCC is developing e-Corp which allows national banks to submit various types of corporate applications electronically through National BankNet. - The OCC will continue to enhance the applications (e.g., Supervisory Information System and Examiner View) used by Community, Mid-size, and Federal Branches bank examiners and is developing a series of applications to begin implementation in 2003 that are designed to support Large Bank examiners. These solutions allow examiners to better supervise and ensure the safety and soundness of national banks. The OCC will continue to improve the data and access security of its information management systems and ensure the technology architecture and information technology initiatives support OCC’s mission and objectives. OCC is undertaking major information technology infrastructure upgrades to increase security and reliability, to improve performance, and to decrease costs. The complex nature and operations of the financial institutions present increasing challenges for OCC’s examiners. The OCC must continue to build bank supervision expertise to ensure examiners have the tools and skills for effective supervision as technology advances and more complex financial products and services are offered by the industry. OCC’s Examiner Specialized Skills Program is underway to provide further training in the following areas: Bank Technology, including E-Commerce; Capital Markets; Retail Credit Risk; Asset Management; and Compliance, especially credit card banks. The OCC also is planning to implement a revised credit curriculum and prepare examiners for the revised Basel Capital Accord. The OCC is actively participating in the Basel Committee's efforts to revise the current risk-based capital standards for internationally active banks to make those standards more risk-focused and reflective of current risk measurement and management practices. - 2/3/03 OCC - 2 3. Comptroller of the Currency, Salaries and Expenses The OCC is partnering with other government entities on anti-terrorist initiatives, including implementing the provisions of the USA PATRIOT Act and providing technical assistance to foreign supervisors. OCC’s extensive banking expertise and experience will be made available for these initiatives. In addition, the OCC will devote resources to detection and interdiction of potential avenues of terrorist financing through its examination procedures. Key Strategy Impacts The strategies for accomplishing the OCC’s mission as identified in the 2000–2005 Strategic Plan have not changed based on the FY 2003 budget. As a non-appropriated bureau, the OCC is self-funded through revenues received from assessments and fees. The OCC continually monitors its projected revenue using a five-year window so that it can respond to potential shortfalls in advance of the impact to the budget. Additionally, the OCC has established a contingency reserve that can be used to fund budget shortfalls without significantly impacting mission delivery and the long- term strategies set forth for the bureau. - 2/3/03 OCC - 3 § Comptroller of the Currency, Salaries and Expenses [RELATIONSHIFBETWEENTHESTRATEGICPLANAND THE ANNUAL PERFORMANCE PLAN * Treasury Strategie Goal Promote Domestic Economic Growth Improve Customer Service OCCStrategic Goal A safe and sound national banking system Performance Goals Linked to Strategie Goal . Maintain a well-capitalized national banking system A B . Maintain a safe and sound national banking system through effective supervision - C . Achieve effective rehabilitation of problem national bank D. Conduct bank examinations in a highly competent and effective manner Promote Domestic Economic Growth Improve Customer Service Fair access to financial services and fair treatment of bank customers. A . Maintain a national banking system that effectively complies with consumer laws and regulations B C community development opportunities . Maintain a national banking system that is responsive to . Facilitate the timely and effective resolution of consumer complaints Promote Domestic Economic Growth Improve Customer Service . A flexible legal and regulatory framework that enables the national banking system to provide a full competitive array of financial services. A . Increase the proportion of institutions that use the Internet to file licensing applications B . Complete licensing decisions timely C . Provide highly effective and professional licensing services D . Issue external legal opinions within established timeframes Improve Employee Satisfaction An expert, highly motivated and diverse workforce that makes effective use of OCC resources. A . Maintain a diverse workforce in a fair and inclusive work environment B. Achieve an optimal employee to management services staff ratio for the efficient and effective support of OCC operations . C . Maintain OCC reserves at the annual targeted levels to fund potential shortfalls . Improve the safety of OCC’s work environment 2/3/03 OCC - 4 3. Comptroller of the Currency, Salaries and Expenses Performance Plans for FY 2003 and FY 2004 and Performance Report Information for FY 2002 The operations of the OCC are divided into four major programs: Supervise; Charter; Regulate; and, Analyze Risk. For each of these programs, budget and performance data are presented in table format to show historical trends and performance expectations associated with the FY 2003 budget. During FY 2002, the OCC initiated a comprehensive review of its Government Performance and Results Act (GPRA) performance measures. As a result, the OCC adopted an almost entirely new set of more strategic, outcome-oriented measures that better depict the impact of OCC’s regulatory activities on the condition of the national banking system and the benefits to the American public. Previously, OCC’s performance plan was presented by strategic goal. To better link costs and program results, OCC has organized its FY 2003 performance plan by program area. In 2001, OCC developed its first programmatic budget. This was done without any historical data and was based on program estimates on how resources would be expended. Because OCC converted from a calendar year to a fiscal year basis at the beginning of FY 2002, historical programmatic data for an entire year was also not available when the FY 2002 budget was developed. Accordingly, any conclusions about changes to program delivery by comparing the FY 2002 and FY 2003 budgets would be erroneous. The OCC’s FY 2003 budget has been more closely aligned with the current projection of FY 2002 expenditures. For FY 2003, there are no substantive changes in the direction and focus of the OCC’s programs. Following the table are narratives explaining the FY 2003 final performance plan and the FY 2002 report on program performance. Results of FY 2002 program performance on deleted measures are shown under Supplemental Information in the Supporting Materials. PROGRAMACTIVITY 1: SUPERVISE The Supervise program includes all of OCC’s activities that relate to the ongoing supervision of portfolios, individual national banks, or their subsidiaries or Service providers. This includes enforcement activities and activities that relate to banks’ providing fair access and treatment to bank customers. The sub-programs are Examining, Enforcing and Ensuring Fair Access and Fair Treatment. 2/3/03 - - OCC - 5 g Comptroller of the Currency, Salaries and Expenses Program Performance Annual Performance Goals, Measures, Indicators and Informational Table Performance Goals, Performance Measures and CY 1999 || CY 2000 FY 2001 - FY 2002 FY 2003 FY 2004 Indicators, Performance Performance Performance T Target Performance Target Proposed Budget Authority ($000s) N/A N/A $344,356 $344,957 $356,135 $370,021 $387,623 Direct FTE N/A N/A 2,404 2,377 2,372 2,426 2,428 Performance Goal A: Maintain a well-capitalized national banking system Performance Measure: 1. Percentage of national banks that are well- N/A N/A 98% N/A 99% 95% 95% capitalized (S) Performance Goal B: Maintain a safe and sound national banking system through effective supervision Performance Measures: 1. Percentage of national banks with composite no 0. CAMELS rating of 1 or 2 (S) N/A N/A 94% N/A 95% 90% 90% 2. Percentage of critically undercapitalized banks on which responsible action is taken within 90 calendar N/A N/A N/A N/A N/A 100% 100% days after they become critically undercapitalized (O) Performance Goal C: Achieve effective rehabilitation of problem national banks Performance Measure: 1. Rehabilitated problem national banks as a percentage of the prior fiscal year-end’s problem national banks N/A N/A 44% N/A 47% 40% 40% (CAMELS 3, 4 or 5) (O) OCC - 6 2/3/03 5. Comptroller of the Currency, Salaries and Expenses FY 2004 OCC - 7 Performance Goals, Perfºrmance Measures and CY 1999 CY 2000. FY 2001 FY 2002 | FY2003 || FY 2004 • , Indicators Performance Performance Performance F Target | Performance Target | Proposed Performance Goal D: Maintain a national banking system that effectively complies with consumer laws and regulations Performance Measure: 1. Percentage of national banks with consumer N/A N/A N/A N/A N/A 94% 94% compliance rating of 1 or 2 (S) Performance Goal E: Maintain a national banking system that is responsive to community development opportunities Performance Measure: 1. Percentage of community banks that are within one year of its first large bank Community Reinvestment Act examination where the OCC offers to provide N/A N/A N/A N/A N/A 100% 100% consultation on community development opportunities (O) Performance Goal F: Facilitate the timely and effective resolution of consumer complaints Performance Measures: 1. Percentage of consumer complaints closed within 60 N/A N/A N/A N/A N/A 80% 80% calendar days of receipt (O) - 2. Number of consumer complaints closed during the N/A N/A N/A N/A N/A 75,000 75,000 fiscal year (W) Performance Goal G: Conduct bank examinations in a highly competent and effective manner Performance Measures': ''The examination survey is based on a five-point rating scale where 1 indicates complete agreement and 5 indicates complete disagreement with the statement. 2/3/03 g Comptroller of the Currency, Salaries and Expenses Performance Goals, Performance Measures and Indicators CY 1999 Performance Cy 2000 Performance FY 2001 Performance FY 2002 TTarger T FY2003 Performance | Target FY 2004 Proposed ſ . Average survey response that the examiner-in-charge and the examination team were knowledgeable (CS) N/A N/A N/A N/A N/A * 1.5 . Average survey response that the examiner’s requests for information were reasonable and justified by the examination scope (CS) N/A 1.36 1.36 < 1.75 1.36 3 1.75 > 1.75 3 . Average survey response that the examination team conducted the examination in a professional manner (CS) N/A 1.22 1.21 * 1.75 1.21 < 1.75 < 1.75 4 . Average survey response that the examiner-in-charge and examination team clearly and effectively communicated their findings and concerns (CS) N/A 1,30 < 1.75 1.32 3 1.75 < 1.75 . Average survey response that the report of examination clearly communicated examination findings, significant issues and the corrective actions management needed to take (CS) N/A 1.32 1.31 < 1.75 1,30 3 1.75 < 1.75 6. Average Survey response that ongoing communication by the examiner-in-charge with senior management and the board was appropriate (CS) N/A 1.29 1.29 < 1.75 1.29 < 1.75 < 1.75 Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) | FY2003 FINAL PERFORMANCE PLAN | Description: The general strategies for FY 2003 were discussed in the Key Strategic Issues section of this plan. To achieve the performance goals, the OCC will devote approximately 2,426 FTEs to its Examining, Enforcing and Ensuring Fair Access and Fair Treatment programs. These FTEs include highly trained bank examiners, attorneys, compliance and consumer development specialists and staff within the OCC’s Ombudsman and Customer Assistance units. Examining includes performing regularly scheduled or targeted safety and soundness, compliance, and other types of examinations of individual banks or service providers to identify emerging risks, evaluate the adequacy of risk management systems and controls, and ensure that appropriate actions are taken to correct identified problems and weaknesses. The OCC will use its early warning system (Canary) to 2/3/03 OCC - 8 3. Comptroller of the Currency, Salaries and Expenses develop appropriate examination strategies and to allocate resources to areas and institutions with the greatest risk. Examining also includes a process by which individual national banks may appeal supervisory results through the Ombudsman's Office. Enforcing includes those activities that enforce laws, rules, regulations, and policies in an individual national bank, and the issuance of informal and formal enforcement actions under OCC’s legal authorities. Ensuring Fair Access and Fair Treatment are those activities that ensure a national bank meets its responsibilities to serve its community and to provide fair access and treatment to bank customers. This includes facilitating the resolution of consumer complaints by the Ombudsman’s office. During FY 2003, OCC will work to increase the number of consumer complaints that are processed using CAGNet, Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: A careful review of operations and progress in meeting FY 2002 targets indicated the basic strategies in the Supervision program were sound. However, an entirely new set of performance measures for this program was adopted for FY 2003, which will better enable OCC to portray the success of this program in the future. The FY 2003 performance targets for the Supervise program are established at levels lower than what was achieved in prior years. The OCC believes prior years performance is reflective of a stronger economy. The targets established for FY 2003 anticipate the impact of a weaker economy on the operations and capital of national banks. Problem bank resolutions often take longer in a weaker economy because resolution options are more limited. All of these factors were considered in establishing the FY 2003 targets. The FY 2003 customer service targets have been established to maintain a consistently high level of performance while also recognizing the nature of the examination function, i.e., maintaining objectivity and independence in reporting examination results that are not always received favorably by bank officials. The OCC believes the established targets reflect the high level of professionalism to be maintained when conducting bank examinations balanced with the statutory requirements of a bank regulator. 2/3/03 OCC - 9 s Comptroller of the Currency, Salaries and Expenses PROGRAM ACTIVITY 2: CHARTER The Charter program includes all of OCC’s activities that result in the chartering of national banks and the evaluation of the permissibility of structures and activities of national banks and their subsidiaries. The sub-programs are Organizing and Licensing. Program Performance Annual Performance Goals. Measures, Indicators and Informational Table Performance Goals, Performance Measures and CY 1999 || CY 2000 || FY 2001 FY 2002 FY 2003 || FY 2004 Indicators | Performance | Performance Performance Target | Performance Target | Proposed Budget Authority ($000s) N/A N/A $11,740 $16,206 $11,185 $14,501 $15,227 Direct FTE N/A N/A 82 97 79 85 85 Performance Goal A: Increase the proportion of institutions that use the Internet to file licensing applications Performance Measures: 1. Percentage of licensing applications filed N/A N/A N/A N/A N/A Baseline 15% electronically (O) 2. Number of licensing applications filed electronically * during the fiscal year (W) N/A N/A N/A N/A N/A Baseline 285 Performance Goal B: Complete licensing decisions timely Performance Measures: 1. Percentage of licensing applications completed within 0 0. d {} Q 0. established timeframes (O) > 95% 96% 96% 95% 96% 95% 95 % OCC - 10 2/3/03 s Comptroller of the Currency, Salaries and Expenses Performance Goals, Performance Measures and CY 1999 CY 2000 FY2001 | FY 2002 || FY 2003 | FY 2004 - Indicators Performance Performance || Performance {T Target | Performance Target | Proposed 2. Number of licensing applications completed during N/A N/A N/A N/A TBD 1,900 1,900 the fiscal year (W) Performance Goal C: Provide highly effective and professional licensing services Performance Measures’. 1. Average survey rating of OCC’s timeliness on 1.26 1.22 1.15 3 1.5 1.19 3 1.5 * 1.5 licensing applications (CS) - 2. Average surveyrating of the knowledge of OCC's 1.20 1.16 1.17 • 1.5 1.19 > 1.5 sº 1.5 licensing staff (CS) 3. Average survey rating of the professionalism of - OCC's licensing staff (CS) - 1.12 1.11 1.10 * 1.5 1.12 3 1.5 < 1.5 4. Average survey rating of the appropriateness of OCC's filing location and contact person for 1.21 1.20 1.20 3 1.5 1.28 < 1.5 3 1.5 licensing services (CS) 5. Average survey rating of the overall licensing < 1.5 | < 1.5 < 1 services provided by OCC (CS) 1.21 1.17 1.16 <1.5 | 1.17 - * * 3 1.5 [FY2003 FINAL PERFORMANCE PLAN | Description: The general strategies for FY 2003 were discussed in the Key Strategic Issues section of this plan. To achieve the performance goals, approximately 85 FTEs will be devoted to the OCC’s Charter program. These FTEs include attorneys, examiners, and legal staff involved in approving new national charters and reviewing national bank activities and structures. The staff will use expanded e-Corp capabilities to begin processing more licensing applications electronically during FY 2003. Organizing entails those legal and technical support activities that relate to bringing new banks into the national banking system or approving new federal branches or agencies. Licensing involves the legal and technical review of applications for existing institutions in the national banking system including interpretations of permissible banking activities. OCC’s licensing activities include reviews and approvals of mergers between national banks; changes in control applications; national bank acquisitions; *The licensing survey is based on a five-point rating scale where 1 indicates outstanding, 3 indicates neutral, and 5 indicates significantly deficient. 2/3/03 - OCC - 11 § Comptroller of the Currency, Salaries and Expenses operating subsidiaries; capital and subordinated debt; corporate restructures; banking activities; new branches or branch relocations; minority interests; and, stock appraisals for minority shareholders. Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: A careful review of operations and progress in meeting FY 2002 targets indicated the basic strategies in the Charter program were sound. A new performance measure for this program was added for FY 2003, which will better enable OCC to portray the success of this program in the future. The performance goal of timely processing of licensing applications that is carried over to FY 2003 has the same targeted level of performance as in FY 2002. The FY 2003 customer service targets for the licensing function have been established to maintain a consistently high level of performance while at the same time maintaining cost effective operations. The OCC believes the established target of 1.5 or better exceeds expectations of the applicants and reflect high quality licensing services. Establishing even higher performance levels could become cost prohibitive. 2/3/03 * OCC - 12 § Comptroller of the Currency, Salaries and Expenses PROGRAM ACTIVITY 3: REGULATE The Regulate program includes OCC’s activities that establish regulations, policies, and procedures that apply to all national banks and the supervision of those banks, or activities that defend the OCC’s supervisory authority over the national banking system. The sub-programs are Establishing Policy/Rulemaking and Representing/Defending OCC’s Authority. Program Performance Annual Performance Goals, Measures, Indicators and Informational Table Performance Goals, Performance Measures and Cy 1999 CY 2000 || FY2001 FY 2002 ... [. FY 2003 FY 2004 - Indicators . Performance Performance Performance TargetTTPerformance Target | Proposed Budget Authority ($000s) N/A N/A $26,326 $35,209 $24,660 $32,232 $33,821 Direct FTE N/A | N/A 184 202 173 181 181 Performance Goal A: Issue external legal opinions within established timeframes Performance Measures: 1. Percentage of external legal opinions issued within - O established timeframes (O) N/A N/A N/A N/A N/A 85% 85% 2. Number of external legal opinions issued during the * fiscal year (W) N/A N/A N/A N/A N/A Baseline. TBD | FY2003 FINAL PERFORMANCE PLAN | Description: The general strategies for FY 2003 were discussed in the Key Strategic Issues section of this plan. To achieve the performance goals, approximately 181 FTEs will be involved in issuing regulations and policies, and defending OCC’s authority. These FTEs include staff from the OCC’s legal, policy and economic divisions. Establishing Policy/Rulemaking involves activities to establish or interpret national regulations, policies, procedures, and operating guidance for bankers and examiners on areas of emerging risks. This also includes reviewing and analyzing public comments on proposed regulations and policies; establishing policies and procedures related to corporate activities; working on interagency regulations, policies or guidance that apply generally to the banking industry and specifically to national banks; and, revising or developing 2/3/03 OCC - 13 s Comptroller of the Currency, Salaries and Expenses accounting standards for national banks. Representing/Defending OCC’s Authority involves all activities to develop OCC positions or defend national bank powers through interpretation or litigation. These activities include: preparing litigation that challenges OCC’s authority to authorize bank activities or powers; representing OCC’s position on the applicability of state law to national bank activities; and, preparing testimony or other issuances that explain the OCC’s position on national bank powers. Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY2002 Performance Goals: A careful review of operations and progress in meeting FY 2002 targets indicated the basic strategies in the Regulate program were sound. However, a new performance measure for this program was adopted for FY 2003, which will better enable OCC to portray the success of this program in the future. PROGRAM ACTIVITY 4: ANALYZE RISK The Analyze Risk program includes OCC’s activities that identify, analyze, and respond to emerging systemic risks and market trends that could impact the safety and soundness of national banks, the national banking system, the financial services industry or the economic and regulatory environment in which banks operate. This also includes: participating in the Shared National Credit Reviews and participating in international efforts, such as the Basel Committee on Bank Supervision and the Joint Forum, to address systemic risks that may affect national banks. Program Performance Annual Performance Goals, Measures, Indicators and Informational Table Performance Goals, Performance Measures and CY 1999 || CY 2000 FY 2001 FY 2002 FY 2003 FY2004 Indicators - . . Performance Performance Performance T Target | Performance Target Proposed Budget Authority ($000s) N/A N/A $23,911 $27,307 $25,422 $21,754 $22,566 Direct FTE N/A N/A 167 165 168 120 119 2/3/03 OCC - 14 s Comptroller of the Currency, Salaries and Expenses | FY2003 FINAL PERFORMANCE PLAN | Description: The general strategies for FY 2003 were discussed in the Key Strategic Issues section of this plan. In FY 2003, the OCC will devote approximately 120 FTEs to conduct the various risk analyses that guide OCC’s supervision activities and to participate in the interagency Shared National Credit Program. These FTEs include economists, analysts, and examiners. Evaluation of FY 2003 Performance Plan Relative to Expected Performance Achieved Toward the FY 2002 Performance Goals: At this time, the OCC has no separate GPRA performance measures for this program area. The Analyze Risk program is closely linked to the Supervision program, in that, the risks analyses form the basis for the focus and direction of the supervision activities. Although the Analyze Risk program has outputs, the outcomes are those that flow from the Supervision program. OCC has strived to maintain its GPRA performance measures at the outcome level. For purposes of compliance with GPRA, this program should be considered for measures purposes as consolidated with the Supervise program per OMB Circular A-11. 2/3/03 OCC - 15 s Comptroller of the Currency, Salaries and Expenses SUPPORTING MATERIALS BUREAU-WIDE PERFORMANCE MEASURES Bureau-wide Performance Goals, Performance FY 1999 FY 2000 FY 2001 | FY 2002 - | FY 2003 FY 2004 Measures, and Indicators P Performance | Performance || erformance | Target [Performance | Target Proposed . Performance Goal A: Maintain a diverse workforce in a fair and inclusive work environment Performance Measures: 1. OCC’s workforce distribution by race, national origin, and gender compares favorably with the N/A N/A N/A N/A N/A Met civilian labor force (O) Met 2. Percentage of the nine merit system principles that are rated favorably by at least 75% of OCC 44% N/A N/A N/A N/A 55% 67% employees surveyed (O) Performance Goal B: Achieve an optimal employee to management services staff ratio for the efficient and effective support of OCC operations Performance Measure: 1. Ratio of OCC employees to management services t & support staff at fiscal year-end (O) N/A | N/A N/A N/A N/A | 13:1 14:1 Performance Goal C: Maintain OCC reserves at the annual targeted levels to fund potential shortfalls Performance Measure: 1. Percentage of the annual targeted amount for the OCC’s reserves that is achieved (O) N/A N/A N/A | N/A N/A 100% 100% 2/3/03 OCC - 17 S; Comptroller of the Currency, Salaries and Expenses FY 1999 || FY 2000 FY2001 || FY 2002 | FY 2003 FY 2004 Bureau-wide Performance Goals, Performance Performance | Performance | Performance | Target [Performance | Target Proposed Measures, and Indicators Performance Goal D: Improve the safety of OCC’s work environment Performance Measures: 1. Percent reduction in total work-related injuries and - illness rate (O) N/A N/A .607 N/A (24%) 100% 100% 2. Reduction in number of new workers compensations claims accepted by the Office of Workers’ N/A N/A 17 N/A (24%) 100% 100% Compensation Programs (OWCP) (O) 3. Percent reduction in lost-time case-rate (O) N/A N/A .1784 N/A 0% 100% 100% MAJORMANAGEMENT CHALLENGES AND HIGHRISKAREAs The Inspector General’s January 30, 2002, memorandum to the Secretary cited five overarching challenges for the Department. The OCC has focused attention on four of these challenges at the bureau level and its activities are described below. The last challenge related to duplicated/wasteful practices for similar activities performed across bureaus. This challenge is more appropriately addressed at the Department level. I. Management Challenge or High Risk Area: Prompt Corrective Action Issue: Treasury management has not been willing to promptly correct material weaknesses and other serious deficiencies in programs and operations. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: • The OCC has no open material weaknesses at this time. • In FY 2002, OCC’s Office of Program and Management Accountability developed a quarterly report on the status of open corrective actions taken on General Accounting Office and Office of Inspector General reports. The primary audience for this report is the Comptroller and the Executive 2/3/03 - OCC - 18 : Comptroller of the Currency, Salaries and Expenses Committee. The purpose of the report is to bring more executive level attention and involvement in establishing realistic completion dates for planned corrective actions and the timely implementation of those actions. The report includes the average number of days to implement recommendations and the percentage of recommendations implemented on or before the original due dates. These measures supplement those reported by the Department. This report is in addition to an audit status report that resides on the OCC’s intranet and is updated monthly for all employees. • Actions Planned or Underway: The OCC will continue to monitor open audit recommendations to ensure implementation of effective corrective actions. II. Management Challenge or High Risk Area: Linking Resources to Results Issue: Treasury management has not integrated managerial cost accounting into its business activities. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: • In FY 2002, OCC developed its budget by program area, in addition to the traditional organizational approach. OCC also will have expenditures for an entire year by program area. OCC developed more strategic, outcome-oriented performance measures to better demonstrate the impact of OCC’s regulatory activities on the national banking system. The new performance measures have been linked to both the program areas and strategic goals. The OCC implemented a more integrated planning, budgeting and evaluation process for the development of the FY 2003 budget and performance plan. The results of program reviews and budget performance were used in the budget deliberations. Additionally, organizational operating plans were developed in concert with budget requests. • Actions Planned or Underway: OCC has initiated efforts to develop staffing models to better substantiate budget requests and to develop a project/activity tracking structure to better capture how labor hours are expended. These efforts will lay the foundation to capture cost accounting/unit cost information in greater detail for business decision making. The new project/activity structure will be implemented when the OCC’s new time and labor allocation tracking system becomes operational on October 1, 2003. III. Management Challenge or High Risk Area: Financial Management Systems Issue: Treasury management continues to operate financial management systems that are not capable of producing timely, accurate and reliable information. 2/3/03 -- OCC - 19 § Comptroller of the Currency, Salaries and Expenses Relevant Performance Measure(s) and/or FY 2002 Accomplishments: “Statement of Reasonable Assurance under the Federal Managers' Financial Integrity Act (FMFIA) and Substantial Compliance under the Federal Financial Management Improvement Act (FFMIA) is issued” was included in OCC's FY 2002 Performance Plan (See Supplemental Information, Performance Measure #9). In FY 2002, OCC received a clean opinion on its FY 2001 financial statements. On October 1, 2001, the OCC implemented a federally compliant financial management system that provides timely and accurate financial data to manage operations. This action will allow the OCC to issue a statement of substantial compliance with FFMIA. During the year, OCC completed each month’s close in both a timely (3 days or less) and aCCurate manner. - Actions Planned or Underway: No further actions are required in this area. IV. Management Challenge or High Risk Area: Information Security Issue: Treasury management has not corrected long-standing information security problems and vulnerabilities. Relevant Performance Measure(s) and/or FY 2002 Accomplishments: In April 2002, OCC’s Information Security Staff completed security plans for the agency's three General Support Systems and nine Major Applications that include certification and accreditation. By September 30, 2002, all employees are required to complete an information security briefing emphasizing the importance of and techniques for securing sensitive data at the OCC. Actions Planned or Underway: As part of the continuing move toward full compliance with OMB Circular A-130, Management of Federal Information Resources, and the Government Information Security Reform Act (GISRA), a Risk Assessment program was initiated in FY 2002. By July 2003, all General Support Systems and Major Applications will have had risk assessments completed. This cycle will be repeated at three-year intervals. In addition, an OCC Enterprise-wide Information Security Program will be completed by July 2003, that will establish Information Security Administrators in all business units to manage sensitive information resources. 2/3/03 OCC - 20 3. Comptroller of the Currency, Salaries and Expenses CROSS-CUTTING COORDINATION EFFORTS The OCC works with other regulators, industry, and community groups to further the OCC’s mission and to accomplish its strategic goals and objectives in an effective and efficient manner. There are no GPRA performance measures related to these cross-cutting coordination efforts. Federal Financial Regulators Primarily through the Federal Financial Institutions Examination Council (FFIEC), the OCC works closely with the other federal financial regulators (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and National Credit Union Administration) to coordinate supervisory policies, regulations and regulatory reporting requirements, and examiner training on issues that are applicable across the banking system. Such efforts reduce regulatory burden by promoting greater uniformity, consistency, and efficiency in the supervision of insured depository institutions. Interagency Country Exposure Risk Committee (ICERC) The ICERC members, the Federal Deposit Insurance Corporation, the Federal Reserve, and the OCC, are responsible for providing an objective opinion concerning the degree of transfer risk that is inherent in the cross-border and cross-currency lending by U.S. banks. OCC’s participation in ICERC helps ensure that global economic and market events are assessed and their potential impact is uniformly integrated into the supervisory process. Shared National Credit Program The Shared National Credit Program is an interagency program designed to perform a uniform credit review of bank loans exceeding $20 million and shared by three or more regulated institutions. The reviews are performed annually with results distributed to all examining personnel as well as to the agent and participant institutions. - 2/3/03 OCC - 21 3. Comptroller of the Currency, Salaries and Expenses Other Domestic and International Regulators The OCC also works with other state, federal, and international regulators and supervisors on matters of mutual interest. Consistent with the functional supervision provisions of the Gramm-Leach-Bliley Act, the OCC has entered into information sharing agreements with over 36 state insurance departments and meets regularly with the National Association of Insurance Commissioners. The OCC also works closely with the Securities and Exchange Commission on various securities, brokerage and accounting and disclosure issues and with the Federal Trade Commission on various consumer protection and privacy issues. The OCC is a member of the Administration’s Financial and Banking Infrastructure Information Committee (FBIIC) and is working actively with Treasury to implement the President’s anti-terrorist initiatives. On the international front, the OCC is actively involved in the Basel Committee on Banking Supervision’s efforts to update and revise the Basel Capital Accord to make the capital standards required of internationally active banks more comprehensive, risk sensitive and reflective of advances in banks’ risk measurement and management practices. Industry and Community Groups The OCC maintains an active dialog with other key constituents that are affected by and interested in the OCC’s mission. The Comptroller and other Senior OCC management seekinput and feedback on issues facing the banking industry through numerous outreach meetings with various industry and trade associations. The OCC’s Community Affairs, Community Bank Activities, and Banking Relations Divisions hold frequent meetings with bankers and community groups to discuss issues of mutual interest and partner with other groups to hold forums and conferences as appropriate. GPRA Interagency Working Group The GPRA Interagency group works on issues related to the general goals and objectives that cross the programs and activities of federal financial regulatory agencies as well as other general GPRA requirements. The GPRA interagency working group, composed of the federal financial regulatory agencies, identifies and coordinates interagency cross-cutting initiatives. This group's activities include: sharing “best practices” used to comply with GPRA and addressing common planning and budgeting issues. . 2/3/03 OCC - 22 § Comptroller of the Currency, Salaries and Expenses VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS Performance Data Quality: Program Activity 1: Supervise • Performance Measure 1: Percentage of national banks that are well-capitalized Definition: This measure reflects whether the national banking system is well-capitalized at fiscal year-end. The Federal Deposit Insurance Act established a system of prompt corrective action (PCA) that classifies insured depository institutions into five categories (well-capitalized; adequately capitalized; undercapitalized, significantly undercapitalized; and critically undercapitalized) based on their relative capital levels. The purpose of PCA is to resolve the problems of insured depository institutions at the least possible long-term cost to the deposit insurance fund. Well-capitalized institutions are defined by the following: a) total risk-based ratios - 10.0%; b) tier 1 risk-based ratios - 6.0%; c) tier 1 leverage ratios > 5.0%; and, d) not subject to a capital order or directive. Definitions for these ratios are contained in the Uniform Bank Performance Report User's Guide (http://www.ffiec.gov/UBPR.htm). The percentage is determined by comparing the number of national banks that meet all of the established criteria for being well-capitalized to the total number of national banks at fiscal year-end. How data is captured: The Supervisory Information office reviews the Reports of Condition and Income (i.e., call reports) for each quarter to identify national banks that meet all of the criteria for a well-capitalized institution. The number of national banks at fiscal year-end is obtained from the Federal Reserve Board’s National Information Center database. How the data is verified and validated to make certain it is accurate: National banks file quarterly Reports of Condition and Income with the FFIEC through the Federal Deposit Insurance Corporation’s data processing center. The banks' boards of directors attest to the accuracy of the reported data. The reliability of these quarterly reports is evaluated by OCC examiners during bank examinations. Data Accuracy: Reasonable Accuracy • Performance Measure 2: Percentage of national banks with composite CAMELS rating of 1 or 2 Definition: This measure reflects the overall condition of the national banking system at fiscal year-end. Bank regulatory agencies use the Uniform Financial Institutions Rating System, CAMELS, to provide a general framework for assimilating and evaluating all significant financial, operational and compliance factors inherent in a bank. Evaluations are made on: Capital adequacy, Asset quality, Management, 2/3/03 - - OCC - 23 3. Comptroller of the Currency, Salaries and Expenses Earnings, Liquidity, and Sensitivity to market risk. The rating scale is 1 through 5 where 1 is the highest rating granted. CAMELS ratings are assigned at the completion of every bank examination or when there is a significant event leading to a change in CAMELS. These ratings are entered into OCC’s management information systems by the field Examiner-in-Charge and reviewed and approved by the Supervisory Offices’ Assistant Deputy Comptroller (Mid-Size/Community banks) or Deputy Comptroller (Large banks). The percentage is determined by comparing the number of national banks with current composite CAMELS ratings of 1 or 2 to the total number of national banks at fiscal year-end. How data is captured: The Supervisory Information office identifies the current composite ratings from EV and SMS at fiscal year-end. The number of national banks at fiscal year-end is obtained from the Federal Reserve Board’s National Information Center database. How the data is verified and validated to make certain it is accurate: See discussion of EV data under Supervise Performance Measure A.1 above. Data Accuracy: Reasonable Accuracy • Performance Measure 3: Percentage of critically undercapitalized banks on which responsible action is taken within 90 calendar days after they become critically undercapitalized 2/3/03 Definition: This measure reflects timely resolution of significant problem bank situations that can contribute to the effective maintenance of the Bank Insurance Fund. Bank regulatory agencies adopted regulations to implement prompt corrective action that classify insured depository institutions into five categories based on their relative capital levels. Critically undercapitalized banks are those with tangible equity of 2.0%. If the critical undercapitalization of the bank cannot be otherwise resolved (i.e., sold, merged, etc.), the OCC places the bank into either receivership or conservatorship to minimize potential losses to the Bank Insurance Fund. The percentage is determined by comparing the number of critically undercapitalized banks placed into receivership, conservatorship or are otherwise effectively resolved within 90 calendar days of becoming critically undercapitalized to the total number of banks that have been critically undercapitalized for more than 90 days at fiscal year-end. How data is captured: The Special Supervision/Fraud (SPSU) office in OCC’s headquarters office will use a tracking system to identify the elapsed calendar days for all critically undercapitalized banks during the fiscal year. How the data is verified and validated to make certain it is accurate: SPSU is delegated supervisory responsibility for critically undercapitalized banks. SPSU notifies banks when they become critically undercapitalized and the SPSU is responsible for the disposition of OCC - 24 # Comptroller of the Currency, Salaries and Expenses critically undercapitalized banks. The SPSU examiner/staff enters the date the bank is notified that it has become critically undercapitalized and the date the bank is placed into either receivership or conservatorship, or otherwise resolved, in the tracking system. Both of these actions are formally documented communications with the banks and are maintained in the SPSU files. Either quarterly or semi-annually, the SPSU staff verifies the accuracy of the data recorded in the tracking system. Data Accuracy: Reasonable Accuracy • Performance Measure 4: Rehabilitated problem national banks as a percentage of the prior fiscal year-end’s problem national banks (CAMELS3, 4 or 5) Definition: This measure reflects the successful rehabilitation of problem national banks during the fiscal year. Problem banks can ultimately reach a point where rehabilitation is no longer feasible. OCC’s early identification of and intervention with problem banks can lead to successful remediation of problem banks. The percentage is determined by comparing the number of national banks that have upgraded composite CAMELS ratings of 1 or 2 from composite CAMELS ratings of 3, 4, or 5 to the total number of national banks that had composite CAMELS ratings of 3, 4, or 5 at the end of the preceding fiscal year. How data is captured: The Supervisory Information office in OCC’s headquarters office uses Examiner View (EV) and the Supervisory Monitoring System (SMS) to identify and compare the current and prior fiscal year composite CAMELS ratings for problem banks. How the data is verified and validated to make certain it is accurate: Either quarterly or semi-annually, an independent reviewer compares a sample of Reports of Examination to the EV and SMS data to ensure the accuracy of the recorded composite ratings. Any discrepancies between the supporting documentation and the systems data are reported to the respective Assistant Deputy Comptroller or Deputy Comptroller for corrective action. Data Accuracy: Reasonable Accuracy • Performance Measure 5: Percentage of national banks with consumer compliance rating of 1 or 2 2/3/03 Definition: This measure reflects the national banking system's compliance with consumer laws and regulations. Bank regulatory agencies use the Uniform Financial Institutions Rating System, Interagency Consumer Compliance Rating, to provide a general framework for assimilating and evaluating significant consumer compliance factors inherent in a bank. Each bank is assigned a consumer compliance rating based on an evaluation of its present compliance with consumer protection and civil rights statutes and regulations, and the adequacy of its operating systems designed to ensure continuing compliance. Ratings are on a scale of 1 through 5 in increasing order of supervisory concern. OCC – 25 3. Comptroller of the Currency, Salaries and Expenses The percentage is determined by comparing the number of national banks with current consumer compliance ratings of 1 or 2 to the total number of national banks subject to consumer compliance examinations at fiscal year-end. How data is captured: The Supervisory Information office identifies the number of banks with current consumer compliance ratings of 1 or 2 and the total number of national banks from EV and SMS subject to consumer compliance examinations at fiscal year-end. How the data is verified and validated to make certain it is accurate: Consumer compliance ratings are assigned at the completion of each consumer compliance examination. These ratings are entered into OCC’s management information systems, EV and SMS, by the banks' Examiner-in-Charge and reviewed and approved by the Supervisorv Offices’ Assistant Deputy Comptroller (Mid-Size/Community banks) or Deputy Comptroller (Large banks). Data Accuracy: Reasonable Accuracy • Performance Measure 6: Percentage of community banks that are within one year of its first large bank Community Reinvestment Act examination where the OCC offers to provide consultation on community development opportunities - 2/3/03 Definition: This measure reflects the level of OCC’s proactive outreach to community banks before they become subject to an assessment of their Community Reinvestment Act (CRA) investments under large bank requirements. The CRA requires each bank regulatory agency to assess each covered depository institution’s record in helping to meet the credit needs of its entire community, including low-and moderate- income neighborhoods, consistent with safe and sound operations. The large bank CRA test is a three-pronged test. One of the prongs is the investment test. Feedback from bankers and community group advocates have identified the investment test as problematic for banks that have not previously been subject to the test. The percentage is determined by comparing the number of consultations offered during the fiscal year to community banks that are within one year of its first large bank CRA examination to the total number of community banks within one year of its first large bank CRA examination. How data is captured: Annually, the OCC’s Community Affairs office in headquarters develops a list of national banks that on January 1”, are within one year of its first large bank CRA examination, i.e., have exceeded $250 million in assets and is collecting large bank data. The district community affairs officer, in conjunction with the EIC, records in EV the offers of consultations made to the targeted banks. OCC - 26 3. Comptroller of the Currency, Salaries and Expenses How the data is verified and validated to make certain it is accurate: The offers of consultations are supported made by a letter, email, or documentation of a telephone call or a meeting with bank officials. See the discussion of Reports of Condition and Income under Supervise Performance Measure B.1 above, and the discussion of EV under Supervise Performance Measure A.1 above. Data Accuracy: Reasonable Accuracy • Performance Measure 7: Percentage of consumer complaints closed within 60 calendar days of receipt Definition: This measure reflects the timeliness of OCC in facilitating the resolution of consumer complaints within an established Standard. To promote fair access to financial services and fair treatment of bank customers, the OCC facilitates the resolution of consumer complaints involving national banks. The percentage is determined by comparing the number of complaints resolved within 60 calendar days during the fiscal year to the total number of complaints resolved during the fiscal year. How data is captured The OCC's Ombudsman office identifies the number of closed consumer complaints recorded in the Remedy Action Response System (RARS) for the fiscal year. For each closed consumer complaint, the elapsed days between receipt of complaint and closure is calculated. How the data is verified and validated to make certain it is accurate: Processing of customer complaints is tracked in the RARS. Both the receipt and closure dates are recorded in RARS. All customer complaints categorized as priority are reviewed by the manager before they are closed to ensure the accuracy of the RARS data. A sample of the remaining complaints is reviewed monthly by either the manager or the Quality Development manager to ensure the accuracy of RARS data, Data Accuracy: Reasonable Accuracy Program Activity 2: Charter • Performance Measure 1: Percentage of licensing applications filed electronically Definition. This measure reflects the extent to which institutions are using the Internet to file licensing applications with the OCC. The e- Corp component of OCC’s National BankNet allows banks to file branch and relocation applications electronically. Access to e-Corp is limited to certain individuals within each bank who have the need to draft or sign licensing applications filed with the OCC. The number 2/3/03 - OCC - 27 3. Comptroller of the Currency, Salaries and Expenses of applications received during the fiscal year through OCC’s e-Corp system is compared to the total number of licensing applications received during the fiscal year. - How data is captured: The Chief Counsel’s office will use an e-Corp database to identify all licensing applications received electronically and will use the Corporate Activity Information System (CAIS) to identify the total volume of applications received during the fiscal year. How the data is verified and validated to make certain it is accurate: The Licensing Department tracks processing of all applications through CAIS. CAIS includes receipt date, decision and consummation dates, and other application data. Applications filed on e-Corp are captured and maintained on a database. The analyst who is assigned the application will verify the accuracy of the CAIS data as the application is processed. The senior analyst or manager who approves the final decision also verifies the accuracy of the CAIS data. Data Accuracy: Reasonable Accuracy • Performance Measure 2: Percentage of licensing applications completed within established timeframes Definition: This measure reflects the extent to which OCC meets its established timeframes for reaching decisions on licensing applications. The OCC’s timely and effective approval of corporate applications contributes to the nation’s economy by enabling national banks to engage in corporate transactions and introduce new financial products and services. The percentage is determined by comparing the number of licensing applications processed within the required timeframes to the total number of licensing applications processed during the fiscal year. The processing time is the number of calendar days from the date of OCC receipt (or in some cases, publication of application) to the date of OCC’s decision. The established processing timeframe depends on the application type and if the application qualifies for expedited processing (applications filed by eligible banks qualify - with timeframes specified in appropriate sections of 12 CFR 5). Targeted timeframes are made available to all applicants in the Comptroller's Corporate Manual. How data is captured: The Chief Counsel's office uses the CAIS to identify applications completed during the fiscal year. For each filing, the actual decision date is compared to the target action date to determine whether the application was completed within established standards. How the data is verified and validated to make certain it is accurate: The Licensing Department tracks processing of all applications through CAIS. The established standard for each application is recorded as the target action date in CAIS. OCC’s decision date is recorded as the actual decision date. The validity of CAIS data is discussed in the Charter Performance Measure A.1 above. Data Accuracy: Reasonable Accuracy 2/3/03 - OCC - 28 3. Comptroller of the Currency, Salaries and Expenses Program Activity 3: Regulate • Performance Measure 1: Percentage of legal opinions are issued within established timeframes Definition: This measure reflects the extent to which OCC meets its establish timeframes for issuing legal opinions on external requests. Timely consideration of requests for legal opinions from the OCC is critical to supporting a flexible legal and regulatory framework that enables the national banking system to provide a full competitive array of financial services. The percentage is determined by comparing the number of external legal opinions issued within 60 calendar days of receipt during the fiscal year to the total number of external legal opinions issued or due to be issued during the fiscal year. Opinion requests of an exceptionally complex nature or that are characterized as non-routine for other valid reasons may be deleted from this calculation of the measure through a determination at the Deputy Chief Counsel level or higher. How data is captured: The Chief Counsel’s office will use the Lotus Notes Project Tracking System (PTS) to identify the legal opinions issued during the fiscal year (exclusive of approved exceptions). The elapsed days between receipt of the opinion request and the date of the signed opinion will be calculated for each opinion issued. How the data is verified and validated to make certain it is accurate: Attorneys assigned to prepare legal opinions will record start and end dates in PTS based on the date of receipt of a technically complete request for an opinion and the date of the signed final written opinion. On a periodic basis, a sample of legal opinions will be compared to the PTS data to ensure the accuracy of the data. Data Accuracy: Reasonable Accuracy Bureau-wide Performance Measures • Performance Measure 1: OCC’s workforce distribution by race, national origin, and gender compares favorably with the civilian labor force Definition: This measure reflects whether the OCC’s workforce is comparable to the civilian labor force (CLF) with respect to representation by race, national origin and gender. The OCC’s Strategic Plan for Active Recruitment, Retention, and Career Development (SPARC) is the five-year plan for creating and sustaining an expert, highly motivated, and diverse workforce. Creating an environment that values diversity and learning to manage a more diverse workforce are business imperatives for the OCC. National banks are global and diverse, foreign banks operate branches in major U.S. cities, and some large national banks are owned by foreign corporations. Increasingly, banks are seeking out 2/3/03 - OCC - 29 3. Comptroller of the Currency, Salaries and Expenses niche markets by offering products and services that appeal to diverse customer groups, many outside the U.S. The OCC considers the workforce as comparing favorably when the distribution is consistent with the CLF data, and will report this measure as “Met.” How data is captured: The Office of Workforce Effectiveness staff enters employees’ self identification of race, national origin, gender and disability into the Peoplesoft personnel system. The staff then identifies the distribution of the OCC’s employees on board at fiscal year-end and compares it to the most current civilian labor force data published by the Department of Labor. How the data is verified and validated to make certain it is accurate; OCC’s employee records are maintained in its personnel system that is administered by the Workforce Effectiveness staff. Employees are asked to verify the accuracy of their race, national origin, gender and disability data through the annual statement of benefits. The categories tracked for this measure are those established and defined by the Department of Labor. Workforce Effectiveness personnel management evaluations of OCC’s personnel offices are conducted biannually to ensure the personnel system data is accurate. Data Accuracy: Reasonable Accuracy • Performance Measure 2: Percentage of the nine merit system principles that are rated favorably by at least 75% of OCC employees surveyed 2/3/03 Definition: This measure reflects employee satisfaction with the overall work environment at the OCC. The Office of Personnel Management (OPM) conducts a government-wide employee satisfaction survey. The survey asks employees to rate work issues around the nine merit system principles: 1) Recruit, select and advance on the basis of merit; 2) Treat employees and applicants fairly and equitably; 3) Provide equal pay for equal work and reward excellent performance; 4) Maintain high standards of integrity, conduct, and concern for the public interest; 5) The workforce is used efficiently and effectively; 6) Retain or separate employees on the basis of their performance; 7) Educate and train employees when it will result in better organizational or individual performance; 8) Protect employees from improper political influence; and, 9) Protect employees against reprisal for lawful disclosure of information. This measure will be reported when OPM conducts these surveys, approximately bi-annually. The long term goal is that at least 75% of employees will rate OCC favorably on each of the government’s merit system principles. The percentage is determined by dividing the number of merit principles for which at least 75% of OCC employees responded favorably to the survey questions by 9. How data is captured: The Office of Workforce Effectiveness will report the results as received from OPM. How the data is verified and validated to make certain it is accurate. The survey is developed and administered independent of the OCC and is used to assess employee satisfaction government-wide. OPM has extensive professional knowledge and expertise in the area of employee OCC - 30 3 Comptroller of the Currency, Salaries and Expenses surveys. The OCC relies on the controls established by the OPM in the conduct of this survey to ensure the overall validity of survey questions, the size and selection of employees included in the survey, and the integrity over the processes to administer and tabulate the results of the survey. Data Accuracy: Reasonable Accuracy • Performance Measure 3: Ratio of OCC employees to management services support staff at fiscal year-end Definition: This measure reflects the relative number of support staff required to meet the human resources, financial, administrative, and training needs of the front line operations of the OCC, OCC defines support staff as those employees assigned to the Office of Management. The Office of Management is comprised of staffs in Workforce Effectiveness, Financial Management, Management Services, and Continuing Education and Resource Alternatives. OCC’s goal is to identify and maintain an optimal level of support staff required to provide timely and accurate services to front line operations. This ratio is the total number of OCC employees compared to the total number of employees in OCC’s Office of Management at fiscal year-end. How data is captured: The Office of Workforce Effectiveness identifies the total number of OCC employees and the number of employees assigned to the Office of Management from the personnel system at fiscal year-end. i How the data is verified and validated to make certain it is accurate: All OCC employees are entered into the personnel system and organization codes identify the offices to which employees are assigned. Workforce Effectiveness personnel management evaluations of OCC’s personnel offices are conducted biannually to ensure the personnel system data is accurate. Data Accuracy: Reasonable Accuracy • Performance Measure 4: Percentage of the annual targeted amount for the OCC's reserves that is achieved Definition: This measure reflects the degree to which the amount set aside for OCC’s contingency and special reserves meet the annual targeted goal. The OCC sets aside a portion of its Net Position for its contingency and special reserves to fund generally foreseeable but rare events, that may interfere with the OCC’s ability to accomplish its mission or to supplement revenue from assessments and other sources. The OCC’s goal is to establish contingency and special reserves that amount to at least $225 million or six months of total operating expenses, whichever is greater, to effectively respond to funding shortfalls. The percentage is determined by comparing the fiscal year-end balance of the contingency and special reserves to the annual targeted amount established for these reserves at the start of the fiscal year. 2/3/03 - - - OCC - 31 § Comptroller of the Currency, Salaries and Expenses How data is captured: OCC’s Financial Management division identifies the fiscal year-end balance of its contingency and special reserves as reflected in a footnote to the Statement of Net Position. The annual budget authority is that amount approved by the Comptroller at the start of the fiscal year and the annual target for the reserves is $225 million or 50% of the budget authority, whichever is greater. How the data is verified and validated to make certain it is accurate: The dollar value of the contingency and special reserves is reported in OCC’s annual financial statements which are audited by external auditors each year. The annual budget authority is the planned funding level for the OCC as published both internally and externally. Data Accuracy: Reasonable Accuracy • Performance Measure 5: Percent reduction in total work-related injuries and illness rate Definition: The Secretary has established a goal of zero injuries and illnesses as a result of working at Treasury. To reach this goal, each bureau is expected to reduce its work-related injury and illness rate annually. The rate of injury and illness is calculated as the total number of Office of Safety, Health and Environment (OSHA) reportable cases times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of injuries and illnesses per one hundred employees. The base year for the reduction is FY 2001, when OCC’s total case rate was .607. How Data is Captured: Data for this measure is captured in the Safety and Health Information Management System (SHIMS) and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. How the data is verified and validated to make certain it is accurate: Data in SHIMS is compared to Continuation of Pay (COP) charges and compensation records from the Office of Workers' Compensation Program (OWCP) at the Department of Labor. Incidents missing from SHIMS for which COP and/or compensation are being paid are identified and directed to the appropriate bureau for resolution. Each quarter, a statistically representative sample of SHIMS records is selected and the data are audited for completeness, accuracy and timeliness. OSHA reviews audit findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy 2/3/03 - OCC - 32 § Comptroller of the Currency, Salaries and Expenses • Performance Measure 6: Reduction in number of new workers compensations claims accepted by the Office of Workers’ Compensation Programs Definition: The goal is zero new workers’ compensation claims. To reach this goal each bureau is expected to reduce the number of new workers compensation claims annually. How Data is Captured: Data for this measure are captured through SHIMS. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers and is transmitted to OWCP. How the data is verified and validated to make certain it is accurate: Data in each SHIMS claim is validated before transmission to OWCP. OWCP reviews each claim for completeness, accuracy and validity and also makes a determination about whether to accept the case for compensation. Incomplete or inaccurate claims are returned to Treasury for updating. Data Accuracy: Reasonable Accuracy • Performance Measure 7: Percent reduction in lost-time case-rate 2/3/03 Definition: The goal is a lost-time case-rate of zero. To reach to this goal each bureau is expected to reduce its lost-time case-rate annually. The lost-time case rate is calculated as the total number of OSHA reportable cases involving lost-time times 200,000 divided by the total hours worked by employees. This is an OSHA-defined calculation used to approximate the number of lost-time cases per one hundred employees. The base year for the reduction is FY 2001, in which OCC’s lost-time case rate was .1784. - How Data is Captured: Data for this measure is captured in SHIMS and reported in the Safety Trends Analysis Report. The information is entered by bureau employees, supervisors, workers compensation staff and safety managers. - - How the data is verified and validated to make certain it is accurate. Each quarter a statistically representative sample of SHIMS records are Selected and the data input is audited for completeness, accuracy and timeliness. OSHA reviews audits findings with the appropriate bureau offices. Data Accuracy: Reasonable Accuracy OCC - 33 § Comptroller of the Currency, Salaries and Expenses Supplemental Information: Deleted Performance Measures During FY 2002, the OCC initiated a review of its GPRA performance measures and new, more outcome-oriented measures were developed and incorporated in the FY 2003 Performance Plan. The following measures were deleted from the performance plan. The FY 2002 performance on these measures is presented in the following table: ~ . . . ---------- Cy 1999 || CT2000 FY 2001. FY2002 Deleted Performance Measures *----------- " -------- t , ~ . . . is , -- . . . . . . +— - - - . . . . . . . . . . . . . . . . Performance Performance Performance Target |. Performance. 1. Percent of large and mid-size banks where quarterly risk assessments are completed N/A N/A N/A 100% 100% 2. Percent of large and mid-size banks that received an 3 annual report of examination N/A N/A N/A 100% 97% 3. Percent of community bank examinations conducted in accordance with the FDICIA 0. o g O ozº mandated schedule, exclusive of approved 92% 98% 94% 100% 98% exceptions 4. Percent of community bank examinations that are approved exceptions to the FDICIA mandated N/A N/A N/A < 10% 3% schedule . . - *The OCC establishes its annual target for this goal based on the statutory requirement. The OCC achieved 97 percent of its target for ROEs issued to large and mid-size banks. An ROE for 152 of the 157 large and mid-size bank charters was issued during the fiscal year. The OCC waived ROES for the remaining five charters due to mergers that were in process or other overriding circumstances. “The OCC establishes its annual target for this goal based on the statutory requirement. The OCC achieved 98 percent compliance with the FDICIA- mandated examination schedule for community banks. Mitigating circumstances prevent the OCC from achieving full compliance. For example, the prioritization of resources to higher risk institutions and scheduling anomalies preclude strict compliance with the FDICIA schedule. 2/3/03 OCC - 34 § Comptroller of the Currency, Salaries and Expenses ---- - - --~~~ CY1999 CT2000 FY 2001. FY2002 Deleted Performance Measures -- . . . . . Performance performance —r— - - - - . Performance erformance Performance T Target Performance 5. Average calendar days past due on community bank examinations that do no meet the approved N/A N/A N/A sº 15 173 exception criteria 6. Percent of regulations that incorporated plain - 0. 0/ o language criteria . N/A N/A 100% 100% 100% 7. Average days to process customer complaints and consumer inquiries 45 51 46 50 44 8. Percent of planned training accomplished N/A N/A 90% 90% 96% 9. Statement of Reasonable Assurance under the Federal Managers’ Financial Integrity Act (FMFIA) and Substantial Compliance under the N/A Not Met Not Met Met Met Federal Financial Management Improvement Act (FFMIA) is issued 10. Percent of selected capital projects that meet - N/A N/A 100% 100% 100% funding, schedule, and performance targets ° Delays in examinations that did not meet the approved exception criteria averaged 17 days. The OCC's managers will continue to monitor and manage the initiation of examinations and limit the length of delays when resources are diverted to problem banks whenever possible. 2/3/03 OCC - 35 § VIIIce OI . . Il Supervision OFFICE OF THRIFT SUPERVISION VOLUME 2 FY 2003 PERFORMANCE PLAN TABLE OF CONTENTS STRATEGIC CONTEXT FOR FY 2003 - 2004 PERFORMANCE PLAN 3 Mission Key Strategic Issues RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND THE PERFORMANCE PLAN. 5 PROGRAM: THRIFT SUPERVISION. 6 Strategic Goal 1: A safe and sound industry. 6 Expenses and Performance Measures Description of the operational processes, skills, technology and other resources needed to meet the strategic goal Strategic Goal 2: A flexible regulatory framework. 11 Expenses and Performance Measures Description of the operational processes, skills, technology and other resources needed to meet the strategic goal Strategic Goal 3: Fair access to financial services and fair treatment of thrift customers 16 Expenses and Performance Measures - Description of the operational processes, skills, technology and other resources needed to meet the strategic goal Strategic Goal 4: A motivated and expert workforce that provides exceptional service to all major groups. 19 Expenses and Performance Measures Description of the operational processes, skills, technology and other resources needed to meet the strategic goal Performance measures that appeared in OTS’s 2002 Plan that will not be used during 2003. 22 Program Performance Report. 23 OTS - 1 2/3/03 § Office of Thrift Supervision SUPPORTING MATERIALS Treasury-wide Performance Measures Major Management Challenges and High Risk Areas, Verification and Validation of Data and Performance Measurement Definitions. Supplemental Information 2/3/03 OT § ANNUAL PERFORMANCE PLAN AND REPORT |STRATEGIC CONTEXT FOR THE FY 2003 PERFORMANCE PLAN | OTS’s Mission To effectively and efficiently supervise thrift institutions to maintain their safety and soundness in a manner that encourages a competitive industry to meet America’s housing, community credit and financial service needs and to provide access to financial services for all Americans. Key Strategic Issue The key strategic issue facing the OTS is the safety and soundness of thrift institutions. Our society places a high value on a safe and accessible financial system, decent and affordable housing, and increased availability of financial services for the housing and business needs of all Americans, including those located in distressed areas, OTS’s goals and objectives bolster these values by emphasizing a safe and sound thrift system. To individuals, thrifts provide a place for their savings, a medium for financial transactions, and a source of credit for real estate and consumer loans. The mortgage and housing credit provided by thrifts is core to the OTS mission, but, increasingly, thrifts also support the needs of small businesses and communities. The strategic goals and objectives of OTS support economic growth and revitalization by providing for proactive supervision of the industry, reduced regulatory burden, and improved credit availability. Thrift industry statistics: The thrift industry continues to be healthy and profitable. Earnings for the nine-month period ending September 2002 totaled a record $8.9 billion. OTS Director James E. Gilleran announced: “The industry is as healthy and profitable as it has ever been, thanks in part to a favorable interest rate environment and sound business management. Equity capital is near record levels, while asset quality remains good. For the year, the industry is on a pace to eclipse records set in 2001 for profitability, return on average assets and mortgage originations.” Net income for the industry in the third quarter reached $2.97 billion, up 14 percent from the third quarter of 2001. Third quarter net income was the second best on record, falling short of the $3.05 billion record set in the first quarter of 2002. Profitability, as measured by return on average assets (ROA), was 1.22 percent, up from 1.08 percent in the third quarter of 2001. Equity capital stood at 8.99 percent of assets in the third quarter of 2002, up from 8.36 percent in the third quarter of 2001. 2/3/03 OTS - 3 § Office of Thrift Supervision More than 98 percent of all thrifts were well capitalized at the end of the quarter, accounting for 99.9 percent of industry assets. The number of problem thrifts remains low. The industry continues to maintain strong asset quality, and troubled assets, which include noncurrent loans and repossessed assets, remained unchanged from the prior quarter at 0.70 percent of assets. As of September 2002, loans 30-89 days past due stood at 0.71 percent of assets, down from 0.79 percent in the third quarter of 2001. Thrifts’ total share of one-to-four family mortgage originations (as estimated by the Mortgage Bankers Association of America) was 17.6 percent, down slightly from an estimated 18.3 percent in the second quarter. One-to-four family loans as a percentage of total thrift assets increased to 47.8 percent. An estimated 46 percent of thrift originations in the third quarter were adjustable rate mortgages, well above the 20 percent average for lenders of all types. The thrift industry’s exposure to interest rate risk as measured by OTS is the lowest it has been since 1998. Only 0.9 percent of the industry was at high risk from an adverse change in interest rates at the end of the second quarter and preliminary third quarter results indicate that interest rate sensitivity of the thrift industry continues to improve. “The current low interest rate environment coupled with enhanced risk management practices have minimized the industry’s interest rate risk and bolstered its bottom line,” said Director Gilleran. Consolidation of the industry continues to occur. Although total thrifts declined to 983, the increase in industry assets to $987 billion was the second highest in more than a decade. OTS-regulated thrifts declined at a rate comparable to that of national banks - 13 percent for thrifts compared to 14 percent for national banks from December 1998 through June 2002. The thrift industry remains a healthy and vital component of the American financial services sector. Most thrift industry financial indicators point to strong financial performance and a relatively modest risk profile. OTS closely monitors changes in economic and interest rate environments for potential concerns to the thrift industry. 2/3/03 OTC - 4 § [RELATIONSHIP BETWEENTHE STRATEGIC PLAN AND THE ANNUAL PERFORMANCE PLAN Promote Dome Growth TA safe and sound thriññāustry.T and sound manner or that OTS has taken appropriate supervisory or enforcement action. Maintain a thrift industry that is adequately capitalized. Conduct thrift examinations within scheduled timeframes. Promote Domestic Economic Growth A flexible regulatory framework that enables the thrift industry to provide a full competitive array of financial services. Minimize financial regulatory burden on thrifts. Process applications timely. Train OTS staff to help thrifts meet their regulatory responsibilities. Promote Domestic Economic Growth Fair access to financial services and fair treatment of thrift customers. Maintain a thrift industry that effectively complies with compliance laws and regulations. Educate industry representatives on community development issues to promote community reinvestment and increased access to financial services. Improve Customer Satisfaction A motivated and expert workforce that provides exceptional service to all major groups with which OTS interacts. Meet levels of customer service. Meet examination objectives and achieve customer satisfaction with examination process. 2/3/03 OTS - 5 à Office of Thrift Supervision OTS’s Program: Thrift supervision OTS was established by Congress as a bureau of the Department of the Treasury on August 9, 1989. OTS’s primary statutory authority is the Home Owners’ Loan Act (HOLA). Under HOLA, OTS is responsible for chartering, examining, supervising, and regulating federal savings associations and federal savings banks. HOLA also authorizes OTS to examine, supervise, and regulate state-chartered savings associations belonging to the Savings Association Insurance Fund (SAIF) and provide for the registration, examination, and regulation of savings association affiliates and holding companies. The authority over holding companies is unique among the four federal banking agencies in that OTS is the only federal banking agency overseeing both the depository institutions it charters and most of their holding companies. OTS is headed by a Director who is appointed by the President, with Senate confirmation, for a 5-year term. OTS’s Director also serves on the boards of the Federal Deposit Insurance Corporation (FDIC) and the Neighborhood Reinvestment Corporation. OTS is headquartered in Washington D.C. and has four regional offices located in Jersey City, Atlanta, Dallas, and San Francisco. The Washington D.C. office develops nationwide policies and programs for the agency and coordinates the operations of OTS. The regional offices, each headed by a Regional Director, are OTS’s front line, examining and supervising institutions, and processing most applications. Four strategic goals guide the operations of the Office of Thrift Supervision. For each strategic goal, budget and performance data are presented in table format to show historical trends and performance expectations. Following each table are narratives explaining the FY 2003 performance plan and the FY 2002 report. STRATEGIC GOAL 1: A safe and sound thrift industry. Description of Strategic Goal 1: Through the examination process, OTS assesses the financial condition and risk profile of thrift institutions and identifies violations of law and regulation and potential financial and economic problems. OTS’s examination process assists in preventing the development or continuation of unsafe operating practices and effects timely resolution of identified problems or weaknesses, including consumer protection and Community Reinvestment Act (CRA) weaknesses. 2/3/03 OT^ - 6 3 CY 1999 || CY 2000 | FY 2001 FY 2002 FY 2003 FY 2004 Performance [Performance|Performance | Target Actual Target Target -- * - a six) || $133.8 || $135.6 Projected Expenses for Strategic Goal 1 NA $133 million | $138 million million | million million NA |Performance Goal 1A: Ensure that OTS-regulated thrift institutions operate in a safe and sound manner or that OTS has taken appropriate supervisory or enforcement action. 1A-1 Performance Measure: Percent of thrifts with composite CAMELS ratings of 1 or 2. (S) - NA NA NA NA NA 90% 90% 1A-2 Performance Measure: Percent of thrift institutions issued formal or informal enforcement actions within 60 days after receiving an unsatisfactory safety and soundness or compliance examination rating, unless a waiver is appropriate. (O) - NA 100% 100% 100% 100% 100% 100% Performance Goal 1B: Maintain a thrift industry that is adequately capitalized. 1B-1 Performance Measure: Percent of thrifts that are well capitalized. (S) # Well capitalized thrifts have capital higher than adequately capitalized thrifts (see page 27). - - NA NA NA NA NA 95% # 95% # Performance Goal 1C: Conduct thrift examinations within scheduled timeframes. 1C-1 Performance Measure: Percent of exams completed as Scheduled for the following exam types: Safety and soundness Compliance (O) NA NA NA NA NA 95% 95% 95% 95% IC-3 Performance Measure: Percent of safety and soundness reports of exam ailed to thrift institutions within targeted timeframes after completion of fieldwork. (O) NA NA NA NA NA 80% 80% NA means that the performance measure was not used during that period. *-* *-** * * * * * ---- ~~~r -- . ~~~~~~ 1B-2 Performance Measure: Percent of OTS-regulated thrift institutions |adequately capitalized or operating under an approved Capital Plan or PCA Directive if capital-deficient, unless the thrift has been undercapitalized for less than 150 days, or has received prior approval by the Deputy Director for exceeding this timeframe. (O) 99.9% 100% 100% 100% 100% 100% 100% 2/3/03 Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). OTS – 7 É Office of Thrift Supervision Major Strategies for Achieving the Performance Goals Related to Strategic Goal 1 • Identify best practices and share them with the thrift industry. • Enhance OTS’s overall effectiveness by combining the safety and soundness and compliance examinations. Melding the safety and Soundness and compliance examinations will ensure that compliance issues do not compromise safety and soundness and that safety and soundness standards do not undermine compliance requirements. The melding process is underway. - • Increase interagency cooperation in areas common among the FDIC, OCC, and OTS; the agencies may share training and work to reduce other costs without abrogating the individual primary responsibilities. • Continue tailoring supervisory examinations to the risk profile of the institutions while effectively allocating resources to oversee and assess the safety and soundness and consumer compliance record of thrift institutions. - • Continue strong emphasis on examiner training to maintain skill set currency. • Work to reform areas of mortgage and securities laws that could enhance industry performance and OTS oversight. • To ensure consumer protection compliance, update the OTS Self Assessment Guide and revise OTS compliance oversight to focus on the value of enhanced institutional internal controls, self-evaluation, and self-correction. • Ensure that OTS-regulated thrift institutions are reviewed for compliance with the Office of Foreign Assets Control’s guidelines with regard to transactions with persons who commit, threaten to commit, or support terrorism. • Ensure that OTS-regulated thrift institutions are reviewed for compliance with the provisions of the USA Patriot Act and other anti-money laundering laws. These laws require financial institutions to develop written internal anti-money laundering policies, procedures, and controls, and implement an ongoing employee training program. Means to Accomplish the Performance Goals Related to Strategic Goal 1 Processes: OTS conducts risk-focused Safety and Soundness, Compliance (including CRA), Information Technology, Holding Company, and Trust examinations in accordance with statutory requirements and agency policy. In April 2002, Director Gilleran announced an initiative to improve examination strategy by combining safety and soundness and compliance examination functions. Rather than maintaining separate teams for Safety and soundness and compliance examinations, OTS began conducting joint examinations with one report of examination containing a comprehensive 2/3/03 OTS – 8 à assessment of an institution’s risk profile. The melded examination provides a clearer representation of the institution’s operations, ensures attainment of regulatory objectives, and results in more frequent monitoring of compliance requirements. In addition to on-site examinations, OTS performs off-site financial monitoring of each institution. Staff base off-site analyses on quarterly Thrift Financial Reports, the Uniform Thrift Performance Report, holding company and SEC reports, and other information, noting adverse trends, financial performance, and changes in business strategies and risk profile. Thrifts’ capital levels are closely monitored and OTS applies regulatory solutions to ensure institutions remain adequately capitalized or to achieve timely resolution of inadequately capitalized institutions. Policy staff in Washington develops new policies, many in coordination with other financial regulatory agencies, and communicates guidance to examiners. OTS modifies its policies on the supervision of thrift holding companies as insurance companies and other new entrants into the business implement new business strategies. Staff Skills; OTS employs a seasoned staff of examiners. OTS’s Professional Development Program enables examiners to assess their core competencies and identify individual training and development opportunities. The Professional Development Program, specialty examiner tracks, accreditation programs, and a management development program, keep employee skills at top levels. In October 2002, OTS introduced a certificate program for aspiring leaders and managers to enhance diversity in management positions on a pilot basis. Examiners receive training in: emerging risks, higher risk consumer and commercial lending, electronic banking, asset securitizations, and consumer protection laws and regulations. To support the new combined exam strategy, OTS examiners are being cross-trained to be fully accredited in both the safety and soundness and compliance disciplines. Many OTS examiners already hold dual accreditation. In addition, OTS maintains a cadre of compliance experts, to assist examiners in handling difficult, complex, or technical compliance matters. Examiners receive training designed for maximum impact with minimum disruption to the day-to-day operations of the agency. Training is delivered in various forms, including computer-based programs, video- conferencing, outside programs, and by pooling specialized examiner resources so individuals can share their expertise nationally. OTS’s trust and IT examiners, although regionally based, work across the country, and the agency’s retail and commercial loan specialists are on call to address specialized risks. Rotational assignments broaden work experiences. OTS staff works with agencies to identify areas that warrant extensive and coordinated training initiatives. The Federal Financial Institutions Examination Council (FFIEC) piloted the concept of just-in-time training on CDs for hot issues such as sub-prime lending and privacy to a wide audience. OTS conducts staff conferences and teleconferences to promote sharing of ideas and experiences among supervisory staff. Technological Resources; OTS staff use several systems to help accomplish strategic goal 1. The most important systems include: The net portfolio valuation model for the Interest Rate Risk System calculates measures of interest rate risk exposure and produces reports used by Washington and regional staff. Institutions retrieve individualized reports online. 2/3/03 OTS - 9 # Office of Thrift Supervision The Examination Data System collects and disseminates data pertaining to the examination process (the exam type, rating, and critical tracking dates). It collects information for Safety and Soundness, Compliance, CRA, IT, Trust, and Holding Company exams. The Thrift Examiner Support System (TESS) supports the Report of Examination (ROE) process. Examiners prepare reports of examination using pre-defined templates that include numerous exam specific items such as financial data and previous exam ratings. The data elements are extracted from OTS’s database of financial information filed by the regulated institutions. Completed reports of examination are uploaded to a central repository. Authorized OTS employees electronically access the completed reports of examination. The Electronic Continuing Exam Folder (ECEF) serves as a means to access reports and documents for each OTS-regulated institution and associated holding companies. The ECEF Docket Selector feature allows users to select information for a single institution or for a user-defined set of institutions chosen by size, location, charter type, or other criteria. Authorized regional users add and manage categories and documents for this System through the OTS Intranet Content Management system. OTS employees may view ECEF content published by any region. The Regulatory Action Data System tracks enforcement and supervisory actions. This system provides data for public and congressional reports regarding formal and informal enforcement actions. The Corporate Structure System contains critical information about OTS-regulated institutions including their name, docket number, address, charter type, and acquisitions. The National Application Tracking System provides a central file of all applications processed by OTS. Critical application dates are tracked throughout the process. Applications impacting a thrift's corporate structure automatically update the Corporate Structure System. Crosscutting Efforts with Other Federal Financial Regulatory Agencies Related to Achieving Strategic Goal 1 The OTS works closely with the four federal financial regulatory agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Comptroller of the Currency) and state bank regulators, through the FFIEC and individually. The FFIEC is a formal body responsible for promoting uniform supervisory policies and establishing uniform principles, standards, and report forms for bank examinations. It identifies emerging issues in the financial institutions industry and coordinates supervisory activities both in Washington and at the regional level, directly with other regulators and through the Conference of State Bank Supervisors (CSBS). Topics of mutual interest include emerging risks, adverse trends, and other supervisory matters. This is a mutually beneficial relationship that keeps all parties apprised of potential problems, emerging issues, and possible overlaps of regulatory authority posing potential regulatory burdens or gaps in regulatory coverage. OTS is represented in all FFIEC matters and chairs the FFIEC’s Task Force on Supervision. In April 2002, OTS hosted the Interagency Bank Supervision Conference. 2/3/03 - OTS - 10 3. OTS is also a member of the Results Act Banking Regulatory Working Group formed in October 1997 to address requirements of the Government Performance and Results Act (GPRA). The members of the group share “best practices” and common budget and planning issues. Key External Factors Potentially Affecting Achievement of Strategic Goal 1 Industry consolidation - Continued industry consolidation requires unique examination mechanisms and modified supervisory techniques to assess and monitor the increasingly complex structure of thrifts. More cross-regional OTS participation and increased cooperation with the other federal regulatory agencies and state authorities will be needed to adequately examine the largest thrifts. - Single event risk - Institution failures have been nominal over the past several years. However, a significant single event such as a stock market crash or international financial crisis could significantly impact the health of the thrift industry, increase OTS’s examiner workload, and alter current staffing projections for examiner, legal, and investigative personnel, Competitive disadvantages in the labor market - As with many other public and private sector employers, OTS is challenged keeping pace with salary escalation in the relevant labor markets for the knowledge and skill sets needed by OTS. Nevertheless, OTS offers a competitive salary and benefits package, including a series of worker-friendly features to attract and retain critical staff. OTS employees have access to a comprehensive professional development program. Emerging technology - Emerging technology introduces new ways for thrifts to offer traditional products and services. Future advances that could significantly affect the OTS’s examination function include the expansion and use of electronic banking initiatives, in particular the use of Internet banking, and the development of new and complex non-deposit investment products. STRATEGIC GOAL 2: A flexible regulatory framework that enables the thrift industry to provide a full competitive array of financial services. Description of Strategic Goal 2: One of OTS’s continuing initiatives is to reduce the regulatory burden on thrifts while maintaining effective supervision. This goal includes initiatives to improve the application process, maintain the current assessment rates, and continue training initiatives. In addition, Supervision will continue to streamline the examination process. OTS significantly reduced the amount of on-site examination time; redesigned approximately 71 percent of OTS’s regulations to make them easier to understand, and eliminated unnecessary restrictions. 2/3/03 OTS - 11 # Office of Thrift Supervision FY 2002 CY 1999 CY 2000 FY 2001 FY 2003 FY 2004 Performance | Performance Performancel "A" Actual Target Target— $19.6 $17.8 $17.3 NA |Projected Expenses for Strategic Goal 2 NA $20.6 million $19.5 million] million million million |Performance Goal 2A: Minimize financial regulatory burden on thrifts. 2A-1 Performance Measure: Increase assessment rates by no more than 0. the rate of inflation. The target for 2003 and 2004 is that there will be no (or NA NA NA NA NA 0% 0% 0%) assessment rate increase. (O) Performance Goal 2B: Process applications timely. 2B-1 Performance Measure: Percent of applications processed within NA NA NA NA NA 95% 95% |timeframes. (O) |Performance Goal 20: Train OTS staff to help thrifts meet their regulatory responsibilities. 2C-1 Performance Measure: Percent of regulatory staff receiving at least 30 hours of training designed to keep them current in regulatory issues and NA 69% 28% 60% 65.5% 60% 60% industry developments. (W) & NA means that the performance measure was not used during that period. Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (C S). Major Strategies for Achieving Annual Performance Goals Related to Strategic Goal 2 Reducing Regulatory Burden • Adjust OTS’s operations and budget to ensure no increases in assessment rates. • Work with the Senate Banking Committee and House Financial Services Committee staff to promote OTS’s regulatory burden reduction initiatives. 2/3/03 OTS – 12 à reduces processing timeframes. Seek input from the industry, community groups, and front-line OTS staff (using focus groups, town meetings, and public comment periods) on ways that regulations can be revised to address issues facing the thrift industry; be flexible enough to allow the industry to evolve safely; and recognize where differential regulation (based on size, condition, or other relevant considerations) may be appropriate. Review the outstanding delegation of applications to the regional offices and determine whether additional applications may be delegated. Application types that have become standard in terms of content, and where processing has become frequent and consistent in terms of treatment or resolution of issues, are candidates for delegation to the appropriate regional office. The delegation of standard applications significantly Ensure close coordination among application processing, legal, compliance, and supervision staffs, Request public input regarding opportunities for reducing regulatory burden and how OTS can communicate more clearly and effectively on regulatory and supervisory issues. Renew and identify outdated or unnecessary requirements imposed on insured depository institutions. Section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 mandated that each appropriate federal banking agency and the FFIEC review all regulations every 10 years. The agencies (Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the National Credit Union Association, and the Office of Thrift Supervision) must submit the review to Congress in 2006. In 2002, the FFIEC approved beginning the four-year project. - Update OTS’s interest rate risk model (IRR) and the schedule used for collecting IRR-related information from the industry. As part of this process, OTS plans to hold a series of town meetings to discuss how we can improve the quality of the informational inputs and the model output without increasing the overall regulatory burden. Training: Support the OTS’s examiner accreditation program, a structured progression of formal course work and on-the-job training combined with functional skill and experience requirements. Accreditation is usually achieved over a period of approximately 51 months for candidates having no prior relevant experience. The educational requirements combined with functional skill and experience requirements ensure that the candidate has sufficient knowledge to act in an accredited capacity. For individuals coming into the OTS system with no prior relevant experience, the program offers a complete curriculum in mandatory skill and experience areas. All OTS staff also complete an Individual Development Plan each year. Administer a Specialty Examination Program that encourages supervision staff to develop and maintain expertise in specialized risk areas. 2/3/03 OTS – 13 # Office of Thrift Supervision Means to Accomplish the Annual Performance Goals Related to Strategic Goal 2 Processes; OTS developed new Technology Risk Controls guidance and training, issued several updates to the Thrift Activities Handbook, and overhauled the Thrift Financial Report (TFR) with an eye towards reducing burden. OTS will continue to revise its regulations to reduce regulatory burdens consistent with safety and soundness. OTS continues to streamline the application process to be more simple, consistent, and regionally implemented. Applications that do not raise issues of law and policy are acted on as quickly as possible. In addition, the application process will be enhanced to help increase investment in underserved communities. Staff Skills: OTS management is committed to maintaining a high degree of competence and skill for OTS employees. Formal courses are a primary method of achieving these objectives; however, strong emphasis is placed on using alternative resources and means of development. Mentoring, cross-training, assignments to other offices or departments, research, reading, and self-study programs are examples of OTS’s broad approach to employee development, Staff conferences help OTS staff exchange new ideas and get to know each other better. Staff conferences are held every two to three years to help OTS staff plan, learn, and work together more productively. In February 2002, the OTS launched a major training initiative to establish a Washington-based program for enhanced training in accounting for examiners. The program, under the direction of the Chief Accountant, brings together the resources of OTS’s Office of Professional Development, and its Regional Accountants. The program establishes two additional delivery vehicles for such training: 1) video teleconference (VTC) modules, and 2) an Intranet website. The 2-hour WTC modules are conducted live on a national basis and are led by the Regional Accountants. The Accounting Policy Intranet website, designed for examiners, was established in April 2002. The site contains bulletins, training information, and various reference materials and links related to OTS, other banking agencies, and other relevant sources. OTS is currently developing an Intranet learning site to assist in the melding of safety and soundness and compliance examinations. It will provide self-study and self-testing programs, suggested on-the-job training assignments, and a tracking system. OTS is in its second year of a 15-month comprehensive management development program aimed at first and second level managers to ensure a common understanding about administrative policy and practices as well as to update skills in day-to-day management practices, such as communication, motivation, decision-making, and strategic thinking. Technological Resources: OTS staff use several systems to help accomplish strategic goal 2 as set forth below: 2/3/03 . OT" - 14 3. An Institution Directory system is available to all OTS employees through the OTS intranet web site. The system provides expansive search and report options for active, inactive, and proposed savings associations along with links to detailed information on branches, mergers, name changes, exams, enforcement actions, and financial data. The Branch Office Directory system provides access to current and historical branch data reported by savings institutions as of June 30 each year from 1992 to the present. Search results are available through summary and detail reports. Summary reports display totals of interstate and intrastate branches and deposits by region, state, or institution; detail reports provide data on individual branch offices. The Holding Company Directory system provides search and report options for thrift holding companies and Federal Reserve Board supervised holding companies owning thrifts. An Exam Search system provides summary and detailed reports to review examination ratings assigned to institutions as well as the status of exams underway. The Electronic Continuing Exam Folder (ECEF) serves as a means to access reports and documents for each OTS-regulated institution and affiliated holding companies. The ECEF Docket Selector feature allows users to select ECEF documents for a single institution or for a user-defined set of institutions chosen by size, location, charter type, or other criteria. Authorized regional users add and manage categories and documents for this system through the OTS Intranet Content Management system. OTS employees may view ECEF content published by any region. Crosscutting Efforts with Other Federal Financial Regulatory Agencies Related to Achieving Strategic Goal 2 OTS reached an agreement with the other banking regulators to allow examiners from other agencies to assist on each other's exams in certain specialized areas like securitization and asset management. These efforts are coordinated through monthly interagency conference calls, which are used to share regulatory concerns relating to industry risks. OTS participates with the Federal banking agencies in monthly problem bank meetings to discuss trends in 4 and 5 rated institutions. These meetings encourage a cooperative regulatory environment and provide OTS with important information on current trends at problem banks and thrifts. OTS continues to: • Participate in the Shared National Credit program which helps increase examiner efficiency by eliminating duplicative examiner effort. • Work with the other banking agencies to respond fully to the requirements of Section 303 of the Riegle Community Redevelopment and Regulatory Improvement Act of 1994 to streamline and modify regulations and improve interagency consistency. 2/3/03 OTS - 15 £ Office of Thrift Supervision • Work with the other banking agencies in using “plain English” techniques in interagency regulations consistent with Section 722 of the Gramm- Leach-Bliley Act. • Work with other banking agencies to adopt and implement regulations relating to the USA Patriot Act. STRATEGIC GOAL 3: Fair access to financial services and fair treatment of thrift customers. Description of Strategic Goal 3: Washington and regional representatives from safety and soundness, compliance, and community affairs offices encourage thrifts to strategically develop the diverse opportunities presented by the communities they are chartered to serve. Through education, training, technical assistance, partnership formation, and the reduction of regulatory barriers, staff help thrifts identify new market opportunities while supporting their efforts to meet credit and financial services needs in underserved segments of their communities. Through the Minority Owned Institutions Program, OTS staff provide technical assistance to minority owned institutions. examination ratings of 1 or 2. (O) FY 2002 CY 1999 CY 2000 FY 2001 FY 2003 FY 2004 Performance Performance |Performance | Target Actual Target Target Projected Expenses for Strategic Goal 3 NA $3.1 million $3.3 million [$3.3 million; $2.8 million $3.2 NA million Performance Goal 3A: Maintain a thrift industry that effectively complies with compliance laws and regulations. 3A-1 Performance Measure: Percent of thrifts with compliance NA NA NA NA NA 90% 90% Performance Goal 3B: Educate industry representatives on community development issues that promote community reinvestments and increased access to financial services. 3B-1 Performance Measure: Frequency of technical assistance or training events provided to industry executives annually regarding community NA NA NA NA NA 12 12 reinvestment responsibilities and opportunities. (O) Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS). NA means that the performance measure was not used during that period. OTS – 16 2/3/03 £ Major Strategies for Achieving the Performance Goals Related to Strategic Goal 3 • Curb predatory mortgage lending practices by eliminating regulations that pre-empt state law under the Alternative Mortgage Transaction Parity Act. In addition, continue to pilot an exam procedure overlay to focus on predatory lending risks in connection with sub-prime mortgage operations. • Provide examiners with new guidance concerning the consideration of CRA issues in connection with applications for approval of a new branch office, relocation of a branch office, merger, a Federal thrift charter, and acquisitions subject to the Home Owners’ Loan Act. • Encourage innovative solutions to obstacles that impede the provision of affordable housing and the meeting of other credit and financial services needs. • Evaluate all merger applications to consider the loss of service in single-family and multifamily lending, community outreach, and access to financial Services, and mitigate any negative impact to the extent feasible, consistent with statutory standards. • Use the application process to encourage the non-predatory, non-abusive provision of credit, including home equity lending and consumer credit, to low- and moderate-income individuals and neighborhoods. • Encourage a partnership approach to building and maintaining viable and healthy communities whose housing, credit, and financial services needs are met. - • Encourage thrifts to attend partnership events sponsored by non-profit organizations. • Hold meetings with mutual institutions to discuss mutuality and other topics of interest to mutual institutions. • Provide information to the industry about current community development issues, best practices, investment authority, training opportunities, Subsidy resources, reference materials, etc. • Clarify or change (as needed) the community development investment authority for thrifts and their service corporations. • Identify and help address regulatory barriers associated with CRA issues. • Ensure the examination is sensitive to unique aspects or characteristics of mutual, minority owned, and community development oriented financial institutions. 2/3/03 OTS – 17 É Office of Thrift Supervision Means to Accomplish the Annual Performance Goal Related to Strategic Goal 3 Processes; OTS works with other banking regulatory agencies to enhance the efficacy of the Community Reinvestment Act regulations encouraging lenders to provide credit, service, and investments to low and moderate income communities and households and other areas of greatest need. OTS works with financial institutions through the Community Affairs and minority-owned institutions programs. OTS holds town meetings and other industry forums as a means of soliciting input from the industry and conveying the message of applying sound strategic planning in pursuit of market opportunities that enhance franchise value and contribute to community growth. Staff Skills: OTS management is committed to maintaining a high degree of competence and skill for OTS employees. The OTS Community Affairs staff has a mix of regulatory experience and experience in the community development area. Those with regulatory backgrounds received Supplemental training from the National Development Council and received or are pursuing certifications as Housing Development Finance Professionals and Economic Development Finance Professionals. Staff attend training forums as a means of staying abreast of current issues, best practices, etc., in the area of community and economic development. OTS compliance examination staff has regulatory and Supervisory experience implementing the CRA regulations and the consumer protection laws. They also receive high-level training on these laws. Technological Resources: The Community Affairs (CA) and Compliance Examination staff subscribe to a number of community development- related publications. They use the Home Mortgage Disclosure Act (HMDA) data, CRA analysis software, and HUD statistical data for demographic information and lending patterns. - Crosscutting Efforts with Other Federal Financial Regulatory Agencies Related to Achieving Strategic Goal 3 OTS works closely with the other banking regulators on re-examining CRA regulations and implementation. OTS CA staff works with federal, state and local entities in its outreach, training and partnership building activities. Key External Factors Potentially Affecting Achievement of Strategic Goal 3 Economy - A downturn in the economy may impact thrifts’ appetites for and ability to engage in certain community development endeavors. It may also impact existing loan and investment portfolios. A downturn in the economy, however, will likely increase the need for credit, services, and affordable housing in underserved or distressed markets. Availability of Other Resources Targeting Community Development - Much of what the private sector does in community development is dependent on the availability of other resources to supplement or leverage private sector resources. 2/3/03 OTS - 18 É Uli lºº. U 3 11t Super VISIUII Demographics - The aging baby boomer generation and the growing immigrant population will likely impact credit needs and resources over the next decade, particularly in certain geographic locations around the country. STRATEGIC GOAL 4: A motivated and expert workforce that provides exceptional service to all major groups with which OTS interacts. Description of Strategic Goal 4: OTS interacts with the thrift institutions it charters, examines, and supervises and the customers these institutions serve. OTS provides the public with statistical reports, securities filings of stock institutions, chartering records, and other information. It assists thrift customers with inquiries and complaints concerning thrift institutions and provides thrifts with opinions on thrift law. To provide excellent service (in compliance with Executive Order 12862 dated September 11, 1993) without compromising safety and soundness, OTS developed service standards for the Examination process, Congressional Correspondence, Interpretive Opinions, Consumer Assistance, and Applications Processing. . 2/3/03 FY 2002 CY 1999 CY 2000 FY 2001 FY 2003 FY 2004 Performance | Performance Performance | Target Actual Target Target * - - - - - - - - - - $1.6 $1.3 $1.6 Projected Expenses for Strategic Goal 4 NA $1.6 million $1.6 million million million million NA Performance Goal 4A: Meet levels of customer service. 4A-1 Performance Measure: Percent of complaints involving OTS- o 09 regulated thrift institutions answered within 60 days. (O) NA NA NA NA NA 80% 80% 4A-2 Performance Measure: Percent of Congressional inquiries forwarding complaints involving OTS-regulated institutions answered within NA NA NA NA NA 80% 80% 30 business days. (O) 4A-3 Performance Measure: Percent of written External Interpretive Opinions processed within 60 or 90 days as specified in the External NA NA NA NA NA 80% 80% |Interpretive Opinions Customer Service Plan. (O) OTS - 19 É office of Thriſ Supervision FY 2002 CY 1999 CY 2000 FY 2001 FY 2003 FY 2004 Performance | Performance Performance | Target Actual Target Target Performance Goal 4B: Meet examination objectives and achieve customer satisfaction with examination process. 4B-1 Performance Measure: Percent of OTS-regulated thrifts provided a NA NA NA NA NA 100% 100% customer service feedback form. (W) 4B-2 Performance Measure: Percent of survey respondents that indicated the examiners took time at the start of the examination to gain an NA NA NA NA NA understanding of the thrift's business strategy and operating philosophy. (O) - 80% 80% 4B-3 Performance Measure: Percent of survey respondents that indicated - examiners maintained adequate communications with management during NA NA NA NA NA 80% 80% the examination. (CS) 4B-4 Performance Measure: Percent of survey respondents that indicated the tone and content of the Report of Examination was consistent with the NA NA NA NA NA 80% 80% board or management exit meeting. (CS) 4B-5 Performance Measure: Percent of survey respondents that indicated the examination was of value to their organization. (O) - - NA NA NA NA NA 80% 80% 4B-6 Performance Measure: Percent of survey respondents that indicated satisfaction with the accuracy, timeliness, and manner in which OTS offices NA NA NA NA NA 80% 80% interact with them. (CS) Measure Coding: Strategic Measures (S), Operational Measures (O), Workload Indicators (W), and Customer Service Standards (CS) NA means that the performance measure was not used during that period. Strategies for Achieving Annual Performance Goals Related to Strategic Goal 4 • Cross-train examiners to fully accredit them in the safety and soundness and compliance disciplines. Many OTS examiners already hold dual accreditation, and cross-training and full accreditation in both disciplines cultivates a highly skilled workforce that can adapt as the industry evolves. • Formalize an internal peer review process. The focus of the effort includes identifying “best practices” at OTS and ensuring information is shared among agency personnel to perpetuate those practices. 2/3/03 - OTS - 20 É VJ111CC O. 11u SuperVISIOH • Enhance problem resolution assistance across organizational lines of responsibility through mediation, facilitation, negotiation, or other alternative resolution methods appropriate to a particular issue. Staff will explore possible changes in policies, procedures, or processes in response to problems or trends. To accomplish this goal, staff will: F2 Ensure that the Directors’ Guide to Responsibilities, and Directors’ Guide to Management Reports are distributed to the directors of all OTS- regulated institutions. These pamphlets will also be made available, via the OTS website, to the management, boards of directors, attorneys, and consultants of all OTS-regulated thrifts. F2 Work with the industry to offer a program of instruction to assist thrift directors in becoming more aware of the best practices of efficient boards of directors. Means to Accomplish the Annual Performance Goals Related to Strategic Goal 4 Processes: The OTS Ombudsman is an independent, accessible, neutral source of assistance to thrift institutions and their customers. The Ombudsman troubleshoots and proposes different ways to improve the delivery of OTS services. The Ombudsman can materially improve public satisfaction with OTS and increase the level of voluntary compliance and cooperation, reduce litigation, and provide OTS decision-makers with the information needed to identify problems and resolve them. OTS works well with its sister banking agencies and with Congress. From June 2001 to June 2002, OTS staff testified before Congress five times and had 28 meetings on Capitol Hill. OTS also regularly consulted with Senate Banking Committee and House Financial Services Committee staff. OTS’s Director is the Vice-Chair of the FFIEC and serves on the FDIC audit committee. OTS chairs the FFIEC Supervision Task Force and its IT Subcommittee, as well as the Examiner Education Committee. Staff Skills; OTS management is committed to maintaining a high degree of competence and skill for OTS employees. All OTs staff members are aware of the importance of providing excellent customer service. Staff identify appropriate courses when the annual Individual Development Plans are developed. Technological Resources: Surveys are electronically supported by an Internet service provider or with the use of licensed software. 2/3/03 OTS – 21 # Office of Thrift Supervision PERFORMANCE MEASURES THAT APPEARED IN OTS’S 2002 PLAN THAT WILL NOT BE USED DURING 2003 number of service plans. CY 1999 CY 2000 FY 2001 FY 2002 FY 2002 e Reason for Deletion Performance | Performance | Performance Target Actual I. The percentage of thrift institutions that, after sixty days of having . Measures 1 and 2 received an unsatisfactory safety and soundness rating, are either subject to 86.7% 100% 100% 100% 100% were combined into a a formal or informal enforcement action or have had such action waived. single measure. 2. The percentage of thrift institutions that, after sixty days of having ived tisfact li ti ith biect to a f l - Measures 1 and 2 received an unsatislactory compliance rating, are either subjectio aloma 100% 100% 100% 100% 100% were combined into a or informal enforcement action or have had such action waived. - single measure. 3. The number of institutions that OTS provides one-on-one technical Or The di d strategic planning assistance to in their efforts to meet their CRA target The worf . and obligations or expand the full range of housing, other credit and financial NA NA NA was the 91 means of calculation services to all segments of their communities. The goal is the 2002 2002 for measure 3 were baseline. baseline updated Measure 4 was 4. The number of new partnerships formed, activities/programs commenced deleted because or investments made as a result of OTS’s outreach, training, or partnership - 26 28 27 26 26. accurate data was building activities. The goal is the 1999 baseline. difficult to obtain. e - * * A new examination 5. The percentage of thrift survey responses that rate the examination 98.4% 98.96% 98.8% 95% 99.7% survey measure was process as being “satisfactory” or “better than satisfactory. developed. OTS added several * - • * - - Service measures to 6. The number of service plans that met their standards divided by the total 80% 100% 50% 100% 80% the 2003 Plan that are more specific. 2/3/03 OTS - 22 : -- a. a. s. v.- wr we --- ~~~1. -- . ~~~~ PROGRAM PERFORMANCE REPORT OTS met all 2002 performance measure targets except one; namely, the customer service measure, number 6 on the deleted measures chart. The targets specified in four of OTS’s five customer service plans were met at least 80% of the time during 2002. The Customer Assistance service plan goal of answering all complaints within 30 days was met only 36.4 percent of the time. After consideration of OTS’s experience and the targets of the other bank regulators, the 2002 targets for this customer service plan were found to be unrealistic. OTS will modify the timeframe for answering complaints to 60 days in the 2003 Performance Plan to be consistent with the timeframes specified by the FDIC, OCC, and Federal Reserve. The 2003 Plan contains separate measures for each type of service plan including one for Customer Assistance. 2/3/03 OTS – 23 : Office of ft Supervision TREASURY-WIDE PERFORMANCE MEASURES : Performance. º º - - •,• . . . . . . . , ; : . . . ... • Target . | Performance . . . . . . Performance Goal A: Improve bureau-wide employee satisfaction level Performance Measures: 1. Number of work-related injuries and illness rate (O) N/A N/A N/A NA NA 0 0 2. Number of workers compensations claims (O) N/A N/A N/A NA NA 0 0 3. Lost time (in business days) (O) N/A N/A N/A NA NA 0 0 MAJORMANAGEMEN t CHALLENGES AND HIGHRISK AREAS GAO and OIG have not identified any high level management challenges applicable to OTS. CROSS-CUTTING COORDINATION EFFORTS OTS has presented its cross-cutting coordination efforts under each strategic goal. VERIFICATION AND VALIDATION OF DATA & PERFORMANCE MEASUREMENT DEFINITIONS Baseline for All Performance Measures: The projected success rate for all of OTS’s performance measures is determined after taking into consideration the measures’ past success rate, analyzing mission priorities for the coming year and budget constraints, and considering possible effects from external factors. 2/3/03 OTS - 25 É Performance Data Quality for All Performance Measures: The quantitative values reported for OTS’s performance measures are accurate and auditable. Several of the quantitative values are generated with the help of OTS’s automated systems, which are routinely validated to ensure they produce accurate villvu v1. 111111u supwl violvul information. How the Data is verified and validated to make certain it is accurate: A "contact person" is assigned to each OTS performance measure and is responsible for calculating, verifying, and validating the level of success reported in the Performance Report. The contact person is responsible for keeping auditable records. Quarterly press releases report several performance measures contained in the Plan and these measures are verified and validated before each press release. The programs, operations, and functions supporting the OTS mission are evaluated and assessed annually to comply with the Federal Managers’ Financial Integrity Act (FMFIA) standards. OTS established a new office in 2002, titled the Office of Supervisory Standards and Review (OSSR), which reports to the Managing Director of Supervision. OSSR is responsible for evaluating the effectiveness of OTS’s examination process in identifying and addressing industry risks. Yearly Financial Statement Audit: The foundation of OTS's financial management control program is its annual financial statement audit. Between 1990 and 2002 OTS has received thirteen consecutive unqualified opinions on its financial statements. In addition, no material weaknesses or instances of nonconformance are pending. OTS expects to continue receiving unqualified opinions from its independent auditors. Data Accuracy: All of the success rates reported for OTS’s measures are reasonably accurate and meet the accurate and auditable standards set forth above. The methodology used to capture the level of performance for each performance measure is described below: Measure: Percent of thrifts with composite CAMELS ratings of 1 or 2. Definition: On December 9, 1996, the Federal Financial Institutions Examination Council (FFIEC) adopted the CAMELS rating system as the internal rating system to be used by the federal and state regulators for assessing the soundness of financial institutions on a uniform basis. The CAMELS rating system puts increased emphasis on the quality of risk management practices. “CAMELS” stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. How Data is Captured: CAMELS ratings are stored in the EDS system. Data are retrievable via an intranet exam search. OTS calculates this measure by dividing the number of thrifts having a CAMELS rating of 1 or 2 by the total number of OTS-regulated thrifts. Measure: Percent of thrift institutions issued formal or informal enforcement actions within 60 days after receiving an unsatisfactory examination rating, unless a waiver is appropriate. Definition: OTS employs its enforcement powers to advance the agency’s supervisory mission of maintaining a safe and sound thrift industry that complies with applicable laws and regulations. Most new enforcement cases focus on correcting unsafe and unsound practices or significant compliance issues in thrifts before they result in the institution becoming undercapitalized or the severity of the institution’s noncompliance creates significant legal or financial exposure. 2/3/03 OTS - 26 § Office of ft Supervision How Data is Captured: To compute this measure, OTS uses a management report prepared monthly with information taken from the Regulatory Action Data System (RADS), which tracks institutions that are rated 4 or 5 in safety and soundness or compliance and also tracks whether these 4 or 5 rated institutions have received an enforcement action or a waiver from enforcement action within 60 days of the examination report. OTS calculates this measure by dividing the number of thrifts that have received a formal or informal enforcement action or had such action waived during the specified time period by the number of thrifts that should have received a formal or informal enforcement action or had such action waived, during the specified time period. Measure: Percent of thrift institutions that are well capitalized. Definition: Capital absorbs losses, promotes public confidence, and provides protection to depositors and the FDIC Insurance funds. It provides a financial cushion that can allow a thrift institution to continue operating during periods of loss or other adverse conditions. An objective of OTS’s capital adequacy program is to determine the quality and sufficiency of capital. Thrifts that are classified as being well capitalized must have a total risk-based ratio of 10% or above; they must have a Tier 1 (Core) risk-based ratio of 6% or above; and a Tier 1 (Core) leverage ratio of 5% or above. They also must not be subject to a capital directive or capital-related cease and desist order. How Data is Captured: Prompt Corrective Action (PCA) ratings are stored in the Examination Data System (EDS) and can also be found in the Thrift Overview Report. - - OTS calculates this measure by dividing the number of institutions that are well capitalized by the total number of OTS-regulated institutions. Measure: Percent of thrift institutions adequately capitalized or operating under an approved Capital Plan or PCA Directive if capital-deficient, unless the thrift has been undercapitalized for less than 150 days, or has received prior approval by the Deputy Director for exceeding this timeframe. 2/3/03 Definition; OTS has adopted a measure that addresses both of the objectives of Prompt Corrective Action (PCA): 1) to recapitalize undercapitalized thrifts at the least cost to the deposit insurance fund; and 2) to do it “promptly.” The statute requires that institutions submit capital restoration plans within 45 days of becoming undercapitalized, and for the agency to act on the capital plan generally not later than 60 days after submission. The OTS policy is to formally act on capital plans through the issuance of a PCA directive. The measurement adopted allows 150 days from the thrift becoming undercapitalized, to issue the PCA Directive. This time frame includes notification, capital plan submission, review, decision on the capital plan, and issuance of the PCA Directive. Alternatively, OTS can also comply with the measurement if the institution does not fail and is recapitalized, even if the 150 day time frame is exceeded. How Data is Captured: PCA ratings are stored in the Examination Data System (EDS) and can also be found in the Thrift Overview Report. OTS calculates this measure by adding a) the total number of institutions that are at least adequately capitalized, b) the institutions that are under a PCA directive or have been recapitalized to the adequately capitalized level and c) the institutions that are operating within an approved Capital Plan within 150 days of becoming undercapitalized, and then dividing that number by the total number of OTS-regulated institutions. OTS – 27 § Measure: Percent of exams completed as scheduled for the following exam types: safety and soundness and compliance. Definition: OTS performs safety and soundness examinations of its regulated institutions based on the OTS Examination Policy consistent with the requirements in the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) as amended by the Riegle Community Development and Regulatory Improvement Act of 1994. Compliance examinations are conducted pursuant to internally generated examination frequency requirements. How Data is Captured: When an institution is examined, OTS staff enters into the Examination Data System (EDS) the examination type, examination beginning and completion dates, report of examination mail date, and CAMELS or equivalent ratings. OTS staff with access to the TIM System can access the EDS examination information at any time. Performance Tracking Reports are generated monthly and reviewed by OTS’s Deputy Director and all four Regional Directors. Any examination or institution that falls outside of the specified guidelines for the examination time frame or duration is identified. When necessary, management will determine why standards are not being met and will initiate steps to improve performance. The percentage success rate for this measure will be calculated separately for both examination types by dividing the number of examinations that were conducted by the number of examinations that were scheduled to be conducted. Measure: Percent of safety and soundness reports of exam mailed to thrift institutions within targeted timeframes after completion of fieldwork. Definition: During the post examination process, OTS finalizes and mails the report of examination (ROE) to the thrift. To ensure a timely post- examination process, it is our objective to mail the report of examination within 30 days after completion of fieldwork to institutions rated 1 or 2, and within 45 days for those rated 3, 4 or 5. OTS staff often meets with the thrifts board of directors after delivery of the ROE to discuss findings and recommendations. Delivery of the ROE indicates the completion of the post-exam period and will trigger follow-up, measurement and off-site monitoring processes. - How Data is Captured: Data is captured using the Examination Data System described above. OTS calculates this measure by dividing the number of safety and soundness Reports of Examination that were mailed within the stated timeframes by the total number of safety and soundness Reports of Examination that were scheduled to be mailed. Measure: Increase assessment rates by no more than the rate of inflation. 2/3/03 Definition: OTS management strives to maintain the current assessment rates charged to thrift institutions. How Data is Captured: OTS’s current assessment rates are specified in Thrift Bulletin 48-18. OTS will calculate this measure whenever a new assessment rate bulletin is issued; the percentage increase in assessment rates will be calculated by comparing the new rate with the current assessment rates specified in Thrift Bulletin 48-18. OTS - 28 § Office of ift Supervision Measure: Percent of applications processed within established timeframes. Definition: OTS regulations require thrift institutions to file an application before engaging in certain activities. Most applications are reviewed and acted upon at OTS’s four regional offices. Certain complex transactions and those containing issues of policy or law are reviewed and acted upon in Washington. The mission of the applications program is to ensure that applications are processed within established timeframes and that decisions are consistent with current OTS regulations and policies. OTS will process applications to a decision within 60 days from the date they are deemed complete, except for applications eligible for "expedited treatment." Applications eligible for expedited treatment will be processed to a decision within 30 days from the date they are deemed complete. Decisions may be delayed beyond these timeframes if new potentially adverse information is received or the decision involves a question of law or policy. How Data is Captured: The National Applications Tracking System (NATS) tracks the number of days required to process each application to completion. - - OTS calculates this measure by dividing the number of applications that were processed within the established timeframes by the total number of applications that should have been processed. Applications that contain an issue of law or policy (a rare occurrence) will not be included in the calculation. Measure: Percent of regulatory staff receiving at least 30 hours of training designed to keep them current in regulatory issues and industry developments. Definition: Another aspect of OTS’s regulatory oversight is its focus on dynamic, needs-based employee training. OTS’s Professional Development Program enables examiners to assess their training and development needs, which in turn, identifies needed areas of training. Regional supervisors assess upcoming and emerging issues at institutions in the region, the strength of regional examiners in the skills required to address these needs, and the training which would address areas of need. The Professional Development Program, specialty examiner tracks, accreditation programs, and management development programs, keep employee skills at top levels. How Data is Captured: A training management data base allows OTS Professional Development staff to track the hours of training received by each OTS staff member. OTS calculates this measure by dividing the number of regulatory staff who received at least 30 hours of training by the total number of regulatory staff. OTS will retrieve the raw data from the training data base of the Office of Professional Development (OPD). Measure: Percent of thrifts with compliance examination ratings of 1 or 2. Definition: A uniform, interagency compliance rating system was first approved by the Federal Financial Institutions Examination Council (FFIEC) in 1980. The FFIEC rating system was designed to reflect, in a comprehensive and uniform fashion, the nature and extent of an association’s compliance with civil rights and consumer protection statutes and regulations. The OTS’s implementation expands that coverage to encompass compliance with a 2/3/03 OTS - 29 § number of other public interest regulations. Among these are the Bank Secrecy Act, Bank Protection Act, economic sanctions, and advertising. The Compliance Rating System is based upon a scale of 1 through 5 in increasing order of supervisory concern. A rating of 1 indicates excellence, while a rating of 5 represents the lowest, most critically deficient level of performance and the highest level of supervisory concern. How Data is Captured: Compliance examination ratings are stored in the EDS system. OTS calculates this measure by dividing the number of OTS-regulated thrifts that have received a compliance examination rating of 1 or 2 on their most recent examination by the total number of OTS-regulated thrifts. Measure: Frequency of technical assistance or training events provided to industry executives annually regarding community reinvestment responsibilities and opportunities. Definition: Part of OTS’s long term strategic goal is to support the industry’s efforts to meet its CRA obligations and expand the full range of housing, other credit and financial services to all segments of their communities. Thus, OTS will offer technical assistance to minority owned institutions and each institution that receives a “Needs to Improve” or lower CRA rating. OTS will also actively work with those institutions that want our assistance. In addition, OTS Community Affairs and Compliance Policy staff will provide industry training on community reinvestment responsibilities and opportunities. How Data is Captured: OTS staff manually add the number of technical assistance occurrences or training events that OTS provides to industry executives annually regarding community reinvestment responsibilities and opportunities. Measure: Percent of complaints involving OTS-regulated thrift institutions answered within 60 days. Definition: OTS consumer affairs staff in the four regional offices handle most complaints. All complaints are reviewed to ensure compliance with federal consumer protection laws and regulations and to identify any institution conduct that warrants further supervisory scrutiny. Complaints alleging discrimination in housing finance that are covered by the Fair Housing Act are also shared with the U. S. Department of Housing and Urban Development (HUD). How Data is Captured: The Consumer Complaints System tracks the receipt and processing times for complaints. OTS calculates this measure by using the processing time for each complaint as calculated by the Consumer Complaint System, and determining the percentage of complaints that are answered within the time period established by the performance standard. Measure: Percent of Congressional inquiries forwarding complaints involving OTS-regulated institutions answered within 30 business days. Definition: Constituent services, Congressional committee and document requests have different customer-imposed deadlines. OTS staff strives to meet those deadlines. The OTS is committed to providing timely responses to congressional correspondence. 2/3/03 - OTS - 30 § Office of ift Supervision How Data is Captured: Congressional inquiries are tracked using the Congressional Affairs Tracking System. OTS calculates this measure by dividing the number of Congressional inquiries involving OTS-regulated institutions that were answered within 30 business days by the total number of Congressional inquiries involving OTS-regulated institutions. Measure: Percent of written External Interpretive Opinions processed within 60 or 90 days as specified in the External Interpretive Opinions Customer Service Plan. Definition: Providing interpretive guidance to thrifts is an important OTS function. OTS receives written requests for interpretation of its regulations and laws. How Data is Captured: The Office of Chief Counsel opinions are tracked using an Access Data Base tracking system. OTS calculates this measure by dividing the number of External Interpretive Opinions processed within the appropriate timeframe by the total number of requests for External Interpretive Opinions due within that timeframe. Measure: Percent of OTS-regulated thrifts provided a customer service feedback form. Definition: Thrift institutions are the OTS's main customer. Thus, one of OTS's goals is to provide the thrifts with the best possible service. How the Data is Captured: OTS will distribute the Annual Thrift Satisfaction Survey to every OTS-regulated thrift that is in our institution database as of the form distribution date. OTS calculates this measure by dividing the number of OTS-regulated thrifts that are provided with the Annual Thrift Satisfaction Survey by the total number of OTS-regulated thrifts. * Measure: Percent of survey respondents that indicated the examiners took time at the start of the examination to gain an understanding of the thrift's business strategy and operating philosophy. 2/3/03 Definition: Examiners understand the importance of taking the necessary time at the beginning of the examination process to gain an understanding of the thrifts’ business strategy and operating philosophy. How Data is Captured: Data is captured by recording all thrift responses to item number 4a of the Annual Thrift Satisfaction Survey. OTS calculates this measure by dividing the number of survey respondents that indicated examiners took time at the start of the examination to gain an understanding of the thrift's business strategy and operating philosophy by the total number of respondents. OTS - 31 § Measure: Percent of survey respondents that indicated examiners maintained adequate communications with management during the examination. Definition: Thrift executives have sometimes conveyed uncertainty with the regulatory process. OTS endeavors to remove all mystery or obstacles surrounding examinations, as examinations are our primary supervisory and communication tool. OTS is committed to maintaining communication channels before, during and after the examination. How Data is Captured: Data is captured by recording all thrift responses to item number 4b of the Annual Thrift Satisfaction Survey, OTS calculates this measure by dividing the number of survey respondents that indicated examiners maintained adequate communications with management during the examination by the total number of respondents. Measure: Percent of survey respondents that indicted the tone and content of the Report of Examination was consistent with the board or management exit meeting. Definition: At the conclusion of an examination, OTS examiners conduct an exit meeting to summarize key findings, make recommendations and receive and consider management's responses. This measure ensures that the information and tone of the exit meeting is consistent with the information and tone of the Report of Examination. How Data is Captured: Data is captured by recording all thrift responses to item number 4c of the Annual Thrift Satisfaction Survey. OTS calculates this measure by dividing the number of survey respondents that indicated the tone and content of the Report of Examination was consistent with the board or management exit meeting by the total number of respondents. Measure: Percent of survey respondents that indicated the examination was of value to their organization. Definition: Our regulatory responsibility is an ongoing effort to maintain a safe and sound industry. A key aspect of this effort is to provide thrift executives prompt responses to inquiries to any concerns. A priority of our regulatory process is effective communication before, during and after the examination. We make every reasonable effort to staff examinations in the least disruptive and most efficient fashion. Frequent interaction with thrift executives is critical to the continuous change and improvement necessary for us to provide value-added services. How Data is Captured: Data is captured by recording all thrift responses to item number 4d of the Annual Thrift Satisfaction Survey. OTS calculates this measure by dividing the number of survey respondents that indicated the examination was of value to their organization by the total number of respondents. Measure: Percent of survey respondents that indicated satisfaction with the accuracy, timeliness, and manner in which OTS offices interact with them. Definition: Providing accurate and timely information to thrifts is one of OTS’s important functions. 2/3/03 OTS - 32 § Office of ft Supervision How Data is Captured: Data is captured by recording all thrift responses to item number 5 of the Annual Thrift Satisfaction Survey. OTS calculates this measure by dividing the number of survey respondents that indicated they were satisfied with the accuracy, timeliness and manner in which OTS offices interacted with them by the total number of respondents. SUPPLEMENTAL INFORMATION Aid by non-Federal Parties: Non-Federal persons or other entities were not used in the preparation of this Performance Plan. The only outside assistance utilized was provided by the Department of the Treasury and the Office of Management and Budget, in the form of guidance to help OTS prepare this Plan in accordance with OMB Circular A-11. Waivers; OTS does not require any waivers of administrative requirements associated with the preparation of this performance plan. 2/3/03 . th OTS - 33 § Interim Adjustments to OTS’s Strategic Plan: As a result of OMB's 2002 Program Assessment Rating Tool (PART) study, changes were made to the wording of OTS’s strategic goals. The following chart shows how OTS’s strategic goals were worded in its August 2, 2000 Strategic Plan and how they are now stated as a result of OMB's PART. Wording of OTS’s Strategic Goals as shown in OTS’s | Wording of OTS’s Strategic Goals due to OMB's Program August 2, 2000 Strategic Plan Assessment Rating Tool Through efficient and effective supervision, maintain a safe and sound industry that meets its responsibilities to those it A safe and sound thrift industry. supervises and to communities. Utilize in the most complete and efficient way the talents, knowledge and enthusiasm of the agency to keep regulatory A flexible regulatory framework that enables the thrift industry to operations at the minimum level consistent with effective provide a full competitive array of financial services. supervision. Actively support the thrift industry’s efforts to expand the full range of housing, other credit, and financial services to all segments of the community through outreach programs, industry partnerships, and proactive supervision. Fair access to financial services and fair treatment of thrift customers. Provide exceptional service to all major groups with which we interact, including the thrift institutions regulated by OTS and A motivated and expert workforce that provides exceptional service to members of the public that deal with those thrift institutions, all major groups with which OTS interacts. to make government more responsive. 2/3/03 OTS - 34 ||| UNIVERSITY OF MICHIGAN ? ..” —~~~~--~ 3901509041 3504