U.S. Department of State

Note 16. Statement of Net Cost

FY 2005 Performance and Accountability Report

Bureau of Resource Management

November 2005

Report

 

The Consolidated Statement of Net Cost reports the Department's gross and net cost for its strategic objectives and strategic goals. The net cost of operations is the gross (i.e., total) cost incurred by the Department, less any exchange (i.e., earned) revenue.

The Consolidating Schedule of Net Cost categorizes costs and revenues by strategic goal and responsibility segment. A responsibility segment is the component that carries out a mission or major line of activity, and whose managers report directly to top management. For the Department, a Bureau (e.g., Bureau of African Affairs) is considered a responsibility segment. For presentation purposes, Bureaus have been summarized and reported at the Under Secretary level (e.g., Under Secretary for Political Affairs). For 2000 and beyond, a new responsibility segment has been added for the Under Secretary for Public Diplomacy and Public Affairs as a result of the merger of the former USIA. Information on the Bureaus (or equivalent) that report to each Under Secretary can be found on the Organization Chart for the Department provided in the MD&A Section of this report.

The presentation of program results by strategic objectives and strategic goals is based on the Department's current Strategic Plan established pursuant to the Government Performance and Results Act of 1993.

As outlined in the Strategic Plan, the United States conducts relations with foreign governments and others to pursue U.S. national interests, and create a more secure, democratic and prosperous world for the benefit of the American people and the international community. These strategic objectives and strategic goals are:

Strategic Objectives and Goals

Strategic Objective	Strategic Goal	Goal Description
Achieve Peace and Security	Regional Stability	Avert and resolve local and regional conflicts to preserve peace and minimize harm to the national interests of the United States.
	Counterterrorism	Prevent attacks against the United States, our allies, and our friends, and strengthen alliances and international arrangements to defeat global terrorism.
	Homeland Security	Protect the homeland by enhancing the security of our borders and infrastructure.
	Weapons of Mass Destruction	Reduce the threat of weapons of mass destruction to the United States, our allies, and our friends.
	International Crime and Drugs	Minimize the impact of international crime and illegal drugs on the United States and its citizens.
	American Citizens	Assist American citizens to travel, conduct business, and live abroad securely.
Advance Sustainable Development and Global Interests	Democracy and Human Rights	Advance the growth of democracy and good governance, including civil society, the rule of law, respect for human rights, and religious freedom.
	Economic Prosperity and Security	Strengthen world economic growth, development, and stability, while expanding opportunities for U.S. businesses and ensuring economic security for the nation.
	Social and Environmental Issues	Improve health, education, environment, and other conditions for the global population.
	Humanitarian Response	Minimize the human costs of displacement, conflicts, and natural disasters.
Promote International Understanding	Public Diplomacy and Public Affairs	Increase understanding for American values, policies, and initiatives to create a receptive international environment.
Strengthen Diplomatic and Program Capabilities	Management and Organizational Excellence	Ensure a high quality workforce supported by modern and secure infrastructure and operational capabilities.

 

The Management and Organizational Excellence strategic goal relates to the Department's responsibilities for managing infrastructure, information, and human resources. The ability of the Department to advance national and foreign policy interests depends on the quality of these items — the two largest and most visible of which are Diplomatic Security and Overseas Buildings Operations.

Department of State Consolidating Schedule of Net Cost
For the Year Ended September 30, 2005
(Dollars in Thousands)

STRATEGIC GOAL	Under Secretary for						Eliminations	Total
	Arms Control, Int'l Security	Economic, Business and Agriculture	Global Affairs	Political Affairs	Public Diplomacy and Public Affairs	Management - Consular Affairs
Regional Stability
Total Cost	$156,421	$11,370	$   34,694	$1,216,640	$        —	$      (20)	$  (49,683)	$ 1,369,422
Earned Revenue	(22,473)	(1,264)	(3,752)	(100,064)	—	(28)	49,683	(77,898)
Net Program Costs	133,948	10,106	30,942	1,116,576	—	(48)	—	1,291,524
Counterterrorism
Total Cost	124,385	9,041	27,589	967,464	—	(16)	(39,508)	1,088,955
Earned Revenue	(17,871)	(1,005)	(2,983)	(79,570)	—	(22)	39,508	(61,943)
Net Program Costs	106,514	8,036	24,606	887,894	—	(38)	—	1,027,012
Homeland Security
Total Cost	76,086	5,531	16,876	591,793	—	(10)	(24,167)	666,109
Earned Revenue	(10,931)	(615)	(1,825)	(48,673)	—	(14)	24,167	(37,891)
Net Program Costs	65,155	4,916	15,051	543,120	—	(24)	—	628,218
Weapons of Mass Destruction
Total Cost	71,101	5,168	15,770	553,018	—	(9)	(22,583)	622,465
Earned Revenue	(10,215)	(575)	(1,705)	(45,484)	—	(13)	22,583	(35,409)
Net Program Costs	60,886	4,593	14,065	507,534	—	(22)	—	587,056
International Crime and Drugs
Total Cost	—	—	1,858,968	47,620	2,046	—	(8,936)	1,899,698
Earned Revenue	—	—	(421,489)	(6,293)	(42)	—	8,936	(418,888)
Net Program Costs	—	—	1,437,479	41,327	2,004	—	—	1,480,810
American Citizens
Total Cost	—	—	65	956,422	304,857	1,232,783	(163,686)	2,330,441
Earned Revenue	—	—	(2,098)	(173,455)	(42,871)	(1,935,652)	163,686	(1,990,390)
Net Program Costs	—	—	(2,033)	782,967	261,986	(702,869)	—	340,051
Democracy and Human Rights
Total Cost	76,903	5,590	17,057	598,149	—	(10)	(24,426)	673,263
Earned Revenue	(11,049)	(622)	(1,844)	(49,195)	—	(14)	24,426	(38,298)
Net Program Costs	65,854	4,968	15,213	548,954	—	(24)	—	634,965
Economic Prosperity and Security
Total Cost	125,693	9,136	27,879	977,634	—	(16)	(39,923)	1,100,403
Earned Revenue	(18,059)	(1,016)	(3,015)	(80,406)	—	(23)	39,923	(62,596)
Net Program Costs	107,634	8,120	24,864	897,228	—	(39)	—	1,037,807
Social and Environment Issues
Total Cost	34,651	2,519	7,686	269,517	—	(4)	(11,006)	303,363
Earned Revenue	(4,978)	(280)	(831)	(22,167)	—	(6)	11,006	(17,256)
Net Program Costs	29,673	2,239	6,855	247,350	—	(10)	—	286,107
Humanitarian Response
Total Cost	—	—	1,032,991	2,147	87	—	(340)	1,034,885
Earned Revenue	—	—	(400	10	(1)	—	340	(51)
Net Program Costs	—	—	1,032,591	2,157	86	—	—	1,034,834
Public Diplomacy and Public Affairs
Total Cost	152,008	11,049	33,716	1,182,315	455,680	(19)	(48,282)	1,786,467
Earned Revenue	(21,839)	(1,229)	(3,646)	(97,241)	(46,355)	(27)	48,282	(122,055)
Net Program Costs	130,169	9,820	30,070	1,085,074	409,325	(46)	—	1,664,412
Executive Direction and Other Costs Not Assigned
Total Cost	3,335	4,099	80,557	4,265,518	459,022	2,480	(1,575,889)	3,239,122
Earned Revenue	(1,899)	(2,358)	(35,110)	(2,508,028)	(266,255)	(1,427)	1,545,936	(1,269,141)
Net Program Costs	1,436	1,741	45,447	1,757,490	192,767	1,053	(29,953)	1,969,981
Total Cost	820,583	63,503	3,153,848	11,628,237	1,221,692	1,235,159	(2,008,429)	16,114,593
Total Revenue	(119,314)	(8,964)	(478,698)	(3,210,566)	(355,524)	(1,937,226)	1,978,476	(4,131,816)
Total Net Cost	$701,269	$54,539	$2,675,150	$8,417,671	$  866,168	$ (702,067)	$  (29,953)	$11,982,777

 

Executive Direction and Other Costs Not Assigned relate to high-level executive direction (e.g., Office of the Secretary, Office of the Legal Adviser), international commissions, general management, and certain administrative support costs that cannot be directly traced or reasonably allocated to a particular program. For the year ended September 30, 2005 and 2004, these consist of costs and earned revenue summarized below (Dollars in Thousands).

 

Executive Direction and Other Costs Not Assigned
For the Years Ended September 30, 2005 and 2004
(Dollars in thousands)

Program	2005			2004 Restated
	Total Prior to Eliminations	Intra-Departmental Eliminations	Total	Total Prior to Eliminations	Intra-Departmental Eliminations	Total
Costs:
Executive Direction	$2,577,586	$  327,607	$2,249,979	$2,307,455	$  284,605	$2,022,850
FSRDF	788,524	385,508	403,016	877,574	369,338	508,236
ICASS	1,174,812	859,989	314,823	1,075,703	862,758	212,945
International Commissions	274,089	2,785	271,304	298,178	1,366	296,812
Total Costs	$4,815,011	$1,575,889	$3,239,122	$4,558,910	$1,518,067	$3,040,843
Earned Revenue:
Executive Direction	$  436,405	$  327,607	$  108,798	$  492,876	$  284,605	$  208,271
FSRDF	1,206,883	355,555	851,328	1,185,546	337,227	848,319
ICASS	1,158,916	859,989	298,927	1,095,169	862,758	232,411
International Commissions	12,873	2,785	10,088	9,686	1,366	8,320
Total Earned Revenue	$2,815,077	$1,545,936	$1,269,141	$2,783,277	$1,485,956	$1,297,321
Total Net Cost for Executive Direction and Other Costs Not Assigned	$1,999,934	$   29,953	$1,969,981	$1,775,633	$   32,111	$1,743,522

 

Program Costs

These costs include the full cost of resources consumed by a program, both direct and indirect, to carry out its activities. Direct costs can be specifically identified with a program. Indirect costs include resources that are commonly used to support two or more programs, and are not specifically identified with any program. Indirect costs are assigned to programs through allocations. Full costs also include the costs of goods or services received from other Federal entities (referred to as inter-entity costs), whether or not the Department reimburses that entity.

Indirect Costs: Indirect costs consist primarily of Management and Organizational Excellence charges for central support functions performed in 2005 and 2004 under the Under Secretary for Management by the following organizations (Dollars in Thousands):

 

Indirect Costs by Organization in 2005 and 2004
(Dollars in Thousands)

Bureau (or equivalent)	2005	Restated 2004
Bureau of Diplomatic Security	$1,577,271	$  965,145
Office of Overseas Buildings Operations	1,066,393	1,082,432
Bureau of Administration	608,459	654,033
Bureau of Information Resource Management	283,294	306,249
Bureau of Personnel	337,069	311,659
Bureau of Resource Management	287,581	761,382
Foreign Service Institute	127,178	121,908
Medical Services and Other	210,719	185,195
Total Central Support Costs	$4,497,964	$4,388,003

 

These support costs were distributed to programs on the basis of a program's total base salaries for its full-time employees, as a percentage of total base salaries for all full-time employees, except for the Office of Overseas Buildings Operations. Since the Office of Overseas Buildings Operations supports overseas operations, its costs were allocated based on the percentage of budgeted cost by program for the regional bureaus. The distribution of support costs to programs in 2005 and 2004 was as follows (Dollars in Thousands):

 

Distribution of Support Costs to Programs in 2005 and 2004
(Dollars in Thousands)

Program Receiving Allocation	2005	Restated 2004
Regional Stability	$  384,704	$  385,357
Counterterrorism	305,914	306,434
Homeland Security	187,126	187,444
Weapons of Mass Destruction	174,865	175,162
International Crime and Drugs	57,030	65,899
American Citizens	1,026,953	1,023,009
Democracy and Human Rights	189,136	189,457
Economic Prosperity and Security	309,130	309,655
Social and Environmental Issues	85,222	85,366
Humanitarian Response	20	20
Public Diplomacy and Public Affairs	373,850	374,485
Executive Direction and Other Costs Not Assigned	1,404,014	1,285,715
Total	$4,497,964	$4,388,003

 

Since the cost incurred by the Under Secretary for Management and the Secretariat are primarily support costs, these costs were distributed to the other Under Secretaries to show the full costs under the responsibility segments that have direct control over the Department's programs. One exception within the Under Secretary for Management is the Bureau of Consular Affairs, which is responsible for the American Citizens program. As a result, these costs were not allocated and continue to be reported as the Under Secretary for Management.

The Under Secretary for Management/Secretariat costs (except for the Bureau of Consular Affairs) were allocated to the other Department responsibility segments based on the percentage of total costs by organization for each program. The allocation of these costs to the other Under Secretaries and to the Bureau of Consular Affairs was as follows (Dollars in Thousands):

 

Under Secretary for Management/Secretariat Costs Allocated to Other Under Secretaries
(Dollars in Thousands)

Under Secretary	2005	Restated 2004
Political Affairs	$4,905,502	$4,569,079
Public Diplomacy	666,619	692,126
Management (Consular Affairs)	711,964	586,646
Arms Control, International Security Affairs	445,251	328,789
Global Affairs	216,155	150,662
Economic, Business and Agriculture Affairs	34,596	34,451
Total	$6,980,087	$6,361,753

 

Inter-Entity Costs and Imputed Financing: The Department is an agency of the U.S. Government, which performs many services for other U.S. Government agencies, especially overseas. Conversely, other U.S. Government agencies make financial decisions and report certain financial matters on behalf of the U.S. Government as a whole, including matters to which the Department may be an interested party.

To measure the full cost of activities, SFFAS No. 4, Managerial Cost Accounting, requires that total costs of programs include costs that are paid by other U.S. Government entities, if material. As provided by SFFAS No. 4, OMB issued a Memorandum in April 1998, entitled "Technical Guidance on the Implementation of Managerial Cost Accounting Standards for the Government." In that Memorandum, OMB established that reporting entities should recognize inter-entity costs for (1) employees' pension benefits; (2) health insurance, life insurance, and other benefits for retired employees; (3) other post-retirement benefits for retired, terminated and inactive employees, including severance payments, training and counseling, continued health care, and unemployment and workers' compensation under the Federal Employees' Compensation Act; and (4) payments made in litigation proceedings. This requirement to recognize specific inter-entity costs was extended in September 2001 and September 2000 to FY 2002 and 2001 financial statements by Bulletin 01-09 and OMB Memorandum M-00-14, "Technical Amendments to OMB Bulletin 97-01, Form and Content of Agency Financial Statements," respectively.

The Department recognizes an imputed financing source on the Statement of Changes in Net Position for the value of inter-entity costs paid by other U.S. Government entities. This consists of all inter-entity amounts as reported below except for the Federal Workers' Compensation Benefits (FWCB). For FWCB, the Department recognizes its share of the change in the actuarial liability for FWCB as determined by the Department of Labor (DoL). The Department reimburses DoL for FWCB paid to current and former Department employees.

The following inter-entity costs and imputed financing sources were recognized in the Statement of Net Cost and Statement of Changes in Net Position, respectively, for the years ended September 30, 2005 and 2004 (Dollars in Thousands):

 

Inter-Entity Costs
For the Years Ended September 30, 2005 and 2004
(Dollars in Thousands)

Inter-Entity Cost	2005	Restated 2004
Other Post-Employment Benefits:
Civil Service Retirement Program	$25,272	$25,603
Federal Employees Health Benefits Program	93,648	64,621
Federal Employees Group Life Insurance Program	269	246
Litigation funded by Treasury Judgment Fund	283	847
Subtotal - Imputed Financing Source	$119,472	$91,317
Future Workers' Compensation Benefits	10,198	6,245
Total Inter-Entity Costs	$129,670	$97,562

 

Intra-departmental Eliminations. Intra-departmental eliminations of cost and revenue were recorded against the program that provided the service. Therefore the full program cost was reported by leaving the reporting of cost with the program that received the service.

Earned Revenues

Earned revenues occur when the Department provides goods or services to the public or another Federal entity. Earned revenues are reported regardless of whether the Department is permitted to retain all or part of the revenue. Specifically, the Department collects but does not retain passport, visa, and certain other consular fees. Earned revenues for the year ended September 30, 2005 and 2004, consist of the following (Dollars in Thousands):

Earned Revenues
For the Years Ended September 30, 2005 and 2004
(Dollars in thousands)

Program	2005			Restated 2004
	Total Prior to Eliminations	Intra-Departmental Eliminations	Total	Total Prior to Eliminations	Intra-Departmental Eliminations	Total
Consular Fees:
Passport, Visa and Other Consular Fees	$  826,058	$        —	$  826,058	$  673,719	$        —	$  673,719
Machine Readable Visa	636,478	—	636,478	623,679	—	623,679
Expedited Passport	154,745	—	154,745	108,563	—	108,563
Passport and Visa Surcharges	92,345		92,345	—	—	—
Fingerprint Processing, Diversity Lottery, and Affadavit of Support	59,197	—	59,197	21,631	—	21,631
Subtotal - Consular Fees	$1,768,823	$        —	$1,768,823	$1,427,592	$        —	$1,427,592
FSRDF	$1,206,883	$  345,581	$  861,302	$1,185,546	$  337,227	$  848,319
ICASS	1,162,774	859,989	302,785	1,095,169	862,758	232,411
Other Reimbursable Agreements	1,647,508	591,287	1,056,221	994,741	493,150	501,591
Working Capital Fund	297,410	171,645	125,765	307,290	138,973	168,317
Other	26,894	9,974	16,920	60,773	—	60,773
Total	$6,110,292	$1,978,476	$4,131,816	$5,071,111	$1,832,108	$3,239,003

 

Pricing Policies

Generally, a Federal agency may not earn revenue from outside sources unless it obtains specific statutory authority. Accordingly, the pricing policy for any earned revenue depends on the revenue's nature, and the statutory authority under which the Department is allowed to earn and retain (or not retain) the revenue. Earned revenue that the Department is not authorized to retain is deposited into the Treasury's General Fund.

The FSRDF finances the operations of the Foreign Service Retirement and Disability System (FSRDS) and the Foreign Service Pension System (FSPS). The FSRDF receives revenue from employee/employer contributions, a U.S. Government contribution, and interest on investments. By law, FSRDS participants contribute 7.25% of their base salary, and each employing agency contributes 7.25%; FSPS participants contribute 1.35% of their base salary and each employing agency contributes 20.22%. Employing agencies report employee/employer contributions biweekly. Total employee/employer contributions for 2005 and 2004 were $214.9 million and $203.5 million, respectively.

The FSRDF also receives a U.S. Government contribution to finance (1) FSRDS benefits not funded by employee/employer contributions; (2) interest on FSRDS unfunded liability; and (3) FSRDS disbursements attributable to military service. The U.S. Government contributions for 2005 and 2004 were $225.1 million and $218.0 million, respectively. FSRDF cash resources are invested in special non-marketable securities issued by the Treasury. Total interest earned on these investments in 2005 and 2004 was $766.8 million and $763.9 million, respectively.

Consular Fees are established primarily on a cost recovery basis and are determined by periodic cost studies. Reimbursable Agreements with Federal agencies are established and billed on a cost-recovery basis. ICASS billings are computed on a cost- recovery basis; billings are calculated to cover all operating, overhead, and replacement of capital assets, based on budget submissions, budget updates, and other factors. In addition to services covered under ICASS, the Department provides administrative support to other agencies overseas for which the Department does not charge. Areas of support primarily include buildings and facilities, diplomatic security (other than the local guard program), overseas employment, communications, diplomatic pouch, receptionist and selected information management activities. The Department receives direct appropriations to provide this support; individual costs for these activities have not been determined.

 

Gross Cost and Earned Revenue by Budget Functional Classification (BFC)

The Department's costs and revenue are included in the Financial Report of the United States Government - Fiscal 2005 (formerly the Consolidated Financial Statements of the United States Government), which is published by the Department of the Treasury. The Financial Report of the United States Government - Fiscal 2005 presents gross costs and earned revenue by BFC. Following is the Department's gross cost and earned revenue for both federal and non-federal vendors by BFC for the years ended September 30, 2005 and 2004 (Dollars in Thousands and reported net of intra-departmental eliminations):

Gross Cost and Earned Revenue by Budget Functional Classification
For the Years Ended September 30, 2005 and 2004
(Dollars in Thousands)

Budget Functional Classification	2005			Restated 2004
	Gross Cost	Earned Revenue	Net Cost	Gross Cost	Earned Revenue	Net Cost
International Affairs	$15,053,892	$3,096,147	$11,957,745	$12,902,359	$2,363,237	$10,539,122
Income Security	800,603	1,029,206	(228,603)	557,961	871,031	(313,070)
Natural Resources	260,098	6,463	253,635	281,788	4,735	277,053
Total	$16,114,593	$4,131,816	$11,982,777	$13,742,108	$3,239,003	$10,503,105

 

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