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Budget Issues: Franchise Fund Pilot Review
GAO-03-1069 August 22, 2003
Highlights Page (PDF)   Full Report (PDF, 57 pages)   Accessible Text


Congress is considering the reauthorization of the six franchise fund pilots authorized by the Government Reform Act of 1994. These self-supporting business-like entities were established to provide common administrative services on a fully reimbursable basis.

The authorization for most of the pilots will expire at the end of fiscal year 2003. In addition to the suggestion of giving the pilots permanent authorization, there has been some discussion in recent years of expanding the franchise fund concept so that all departments and independent agencies can set up a franchise fund.

To provide the context to evaluate franchise fund pilots and fully understand reauthorization issues, GAO agreed to identify the many funds, called intragovernmental revolving funds, that operate with purposes similar to that of franchise funds and to analyze their legal authorities to determine if franchise funds were somehow unique.

In addition, we examined the operations and managerial cost accounting processes of the franchise fund pilots at the Departments of the Interior and Commerce.

We determined if they had taken into account the criteria suggested by the Office of Management and Budget (OMB), including: (1) adhering to OMB/Chief Financial Officers (CFO) Council’s 12 business operating principles, (2) accounting for full cost, and (3) conducting audits of financial statements at the fund level.

The six franchise fund pilots are part of a group of 34 intragovernmental revolving (IR) funds that were created to provide the common support services required by many federal agencies. In general, the legal authorities for these 34 funds are very similar.

Twelve of the 34 funds–including 5 of the franchise fund pilots–have explicit authority to charge for an operating reserve and/or to retain a reserve for acquisition of capital equipment and financial management improvements.

The franchise fund pilots at the Departments of Interior and Commerce have both (1) taken into account many of the 12 business operating principles, (2) designed their cost accounting processes to set fees to recover the full cost of operations, and (3) progressed toward implementing the main cost accounting standards.

The Interior Franchise Fund’s (IFF) major business line, GovWorks, provides acquisition services and has seen dramatic growth in revenue and workload since fiscal year 1997. GovWorks expects continuing growth through fiscal year 2007. The IFF has been subject to an audit of its financial statements at the franchise fund level through fiscal year 2002.

The Commerce Franchise Fund’s (CFF) only business line, Office of Computer Services (OCS), provides information technology infrastructure support services and has had a declining revenue and customer base. However, OCS expects its revenues to remain stable through fiscal year 2005. The CFF was subject to financial audits at the franchise fund level for fiscal years 1997 and 1998, and at the department level for fiscal years 2001 and 2002. No audits were conducted for fiscal years 1999 or 2000.

Longer-term reauthorization (more than 1 or 2 years) would be helpful to the operation of franchise fund pilots, but neither their legal authority nor their operation makes franchise funds unique compared to other IR funds.

A primary attraction to the franchise fund label is the explicit ability to retain reserves, and Congress could, and has, given this authority to other IR funds. The explicit authority provisions granted to franchise fund pilots (and a few other IR funds) could be considered case-by-case for individual IR funds.

In deciding whether to provide these authorities to any individual fund, Congress could use the same criteria suggested by OMB for franchise fund pilots, including: (1) examining operations against OMB/CFO’s 12 business operating principles, (2) determining if managerial cost accounting processes are in place to account for the full unit costs of outputs produced, and (3) considering if annual or periodic independent audits are being conducted at the fund level to ensure the reliability of the fund’s financial information.

Individual case-by-case authority would also permit Congress to consider and evaluate the agency’s commitment and the strength of the IR fund’s leadership, which are additional factors that can influence the success of the fund.

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In 1940, the United States Department of the Treasury established the Fiscal Service, which consisted of the Bureau of Accounts, the Bureau of the Public Debt, and the Office of the Treasurer. A 1974 reorganization of the Fiscal Service created the Bureau of Government Financial Operations, which was formed from a merger of the Bureau of Accounts and most functions of the Office of the Treasurer. In 1984, the Bureau of Government Financial Operations was renamed the Financial Management Service (FMS); the new name reflected Treasury’s renewed emphasis on achieving greater efficiency and economy in government financial management.

For more detailed information on FMS’ background and history, click here.

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The mission of FMS 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. No longer just the government’s “bookkeeper,” the FMS of the new millennium is an organization that is on the technology forefront in its use of automated systems. The bureau also supports federal agencies’ financial management improvement efforts in the areas of education, consulting, and accounting operations through a franchise fund business. FMS’ express and explicit mission strategically supports the overarching Treasury goal of managing the government’s finances effectively, as well as two of the governmentwide initiatives under the President’s Management Agenda – Improved Financial Performance and Expanded Electronic Government.

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Disbursing Federal Payments: FMS is the primary disburser of payments to individuals and businesses on behalf of federal agencies (e.g., benefit payments paid by the Social Security Administration or the Department of Veterans Affairs; federal income tax refund payments; payments to businesses for goods and services provided to the federal government). The majority of the payments are disbursed through electronic funds transfers; the remaining are check payments. Annually, FMS disburses nearly a billion payments, with an associated dollar value of more than $1.6 trillion. In keeping with the FMS strategic goal of moving toward an all-electronic Treasury, FMS continually invests in state-of-the-art technology systems that are integral to processing payments accurately, efficiently, and securely.

Collecting Federal Revenue: FMS administers the world’s largest government funds collections systems through a network of more than 10,000 financial institutions. Each year, the bureau collects more than $2.45 trillion in federal revenues, such as individual and corporate income tax deposits, customs duties, fees for government services, fines, and loan repayments. Using cutting-edge technology, FMS has taken a leadership role in providing federal agencies, individuals, businesses, tax practitioners, and financial institutions with a wide variety of electronic collection alternatives. The options are designed and developed with some major goals in mind: to offer a service that is easy to use, convenient and secure; to streamline the collection process; to make full use of web technologies; to manage the depositary services provided to Treasury by financial institutions, and to monitor the cash position of the federal government.

Issuing Governmentwide Financial Reports: FMS has the critical responsibility of maintaining the federal government’s set of accounts and serving as the repository of information About the Financial position of the United States government. The bureau closely monitors the government’s monetary assets and liabilities at all times through its oversight of central accounting and reporting systems. FMS’ oversight responsibilities include assisting federal agencies with adopting uniform accounting and reporting standards and systems and assuring the continuous exchange of financial information among federal agencies, the Executive Branch’s Office of Management and Budget, and financial institutions. The bureau also gathers and publishes governmentwide financial information for use in establishing fiscal and debt management policies. The public and private sectors are able to monitor the government’s financial status using this financial data. FMS publications include the Combined Statement of Receipts, Outlays, and Balances of the United States Government (the official publication of receipts and outlays), the Monthly Treasury Statement (a report of the government receipts and outlays and the budget surplus or deficit that is based on agency reporting), the Daily Treasury Statement (a report summarizing data on the cash and debt operations of the Treasury, which is based on reporting of the Treasury account balances of the Federal Reserve Banks), and the Financial Report of the United States Government (the consolidated audited financial statements for the preceding fiscal year that cover the Executive Branch, as well as parts of the Legislative and Judicial Branches.

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Supporting Federal Agencies’ Financial Improvement Efforts: FMS, by taking an entrepreneurial approach, supports the financial improvement efforts of federal agencies. Over the last five years, through course offerings, conferences, and workshops, FMS has trained thousands of federal agency representatives in a myriad of financial management areas (e.g., financial reporting assistance, review and closeout activities). In addition, FMS offers professional consulting services to federal agencies seeking assistance with activities such as reconciliations of funds balances with Treasury, Standard General Ledger compliance reviews, internal controls reviews, financial reporting compliance reviews, cost accounting assistance, and financial systems services.

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Federal Agencies: Because of the very unique governmentwide mission of FMS, the bureau interacts and forges partnerships with virtually every Executive Branch agency. Through FMS’ state-of-the-art information technology systems, for example, agencies are able to submit certified requests for payment disbursements, determine the status of disbursements, initiate claims, verify deposits and funds transfers, and report and view financial information for accounting purposes. On a regular basis, FMS also conducts workshops and conferences for agency representatives to assist them with all aspects of government financial management, including cash management, governmentwide accounting and reporting and debt management.

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THE FINANCIAL MANAGEMENT SERVICE, a bureau of the United States Department of the Treasury, provides central payment services to Federal Program Agencies, operates the federal government’s collections and deposit systems, provides government-wide accounting and reporting services, and manages the collection of delinquent debt owed to the government. FMS also supports federal agencies’ financial management improvement efforts in the areas of education, consulting, and accounting operations.

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