In 2004,  Congress provided Treasury with a permanent, indefinite appropriation to  reimburse financial agents, and Treasury uses that appropriation to pay  financial agents supporting Fiscal Service’s revenue collections,  payments, and other programs. Although the National Bank  Act and other statutes authorize Treasury to use financial agents, they do  not require Treasury to report to Congress on its use of such agents. Treasury’s Use of Financial Agents Has Evolved in Response to Changes in Technology and New Laws, but Treasury Does Not Disclose in a Central Location How It Uses or How Much It Pays Each Agent

Since the 1980s and continuing today, Treasury has been using financial  agents to modernize its systems and keep pace with technological  changes in providing financial services to the public. Although  Treasury discloses in its annual budget the total amount paid to financial  agents, it has not publicly disclosed in a central location information about  Fiscal Service’s individual financial agents, including their compensation  and services provided. Treasury’s Traditional Use of Financial Agents Has Evolved to Promote Electronic Collections and Payments

While Treasury historically has used financial agents to physically hold  and disburse public money, its use of financial agents began to evolve in  the mid-1980s as it sought to reduce the number of paper-based  collection and payment transactions by moving them to electronic  systems in response to technological advancements, new laws, and other  factors. Increased Transactions and Services Provided Have Partly Driven Growth in Financial Agent Compensation since Fiscal Year 2004

Since Treasury received the permanent, indefinite appropriation to  reimburse financial agents, the total amount (outlays) that Treasury has  paid Fiscal Service’s financial agents has increased steadily from  approximately $378 million in fiscal year 2005 to approximately $636  million in fiscal year 2015 (see fig. For example, the Card Acquiring Service, the largest  revenue collections program in terms of cost, uses a financial agent to  process debit and credit card payment transactions at federal agencies. According to the Office of Management and Budget’s directive on open  government, transparency promotes accountability by providing the public  with information about government activities. While Fiscal  Service did not fully document compliance with its process, including  controls, for financial agents designated between 2010 and 2015, it  adopted new procedures in November 2015 to provide greater assurance  that its documentation will be complete. The  FASP process and related controls help provide reasonable assurance  that the selection and designation process is effective and efficient,  documents important information, and complies with applicable laws and  regulations. The 2015 FASP guidance directs the program office responsible for  designating the financial agent to provide Fiscal Service’s Bank Policy  and Oversight (BPO) Division with an electronic copy of its administrative  record. None contained all of the documents listed in the 2010  FASP guidance, but three contained the majority. For example, the record  for myRA, a new retirement savings program using a financial agent to  provide custodial services, contained 6 of 11 key documents—missing,  for example, certain planning and approval documents. As a result, the  documents comprising the administrative records varied in the extent to  which they complied with Fiscal Service’s internal controls set forth in the  2010 FASP guidance. Fiscal Service agreed with the  recommendation and noted that it was revising its FASP guidance and  expected to complete the revisions by year-end 2015. Unlike the 2010 guidance, the 2015 guidance instructs not only Fiscal  Service’s program offices to provide BPO with an electronic copy of their  administrative records at the end of a FASP, but it also instructs BPO to  use a checklist to ensure that the necessary documents have been  created and electronically delivered to BPO. As noted, the 2015 FASP  guidance was not in effect for the administrative records that we  reviewed. In addition, Treasury provided technical comments on  the draft report, which we incorporated as appropriate. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) how the Department of the Treasury’s  (Treasury) use and compensation of financial agents has changed as it  has modernized its payment and collection systems and (2) the Bureau of  the Fiscal Service’s (Fiscal Service) process and related internal controls  for selecting and designating financial institutions as financial agents. To examine how Treasury’s use and compensation of financial agents  has changed as it has modernized its payment and collection systems,  we reviewed federal statutes, regulations, and directives that have guided  Treasury’s use of financial agents; Treasury’s annual budget documents;  documentation on current and former Treasury programs using financial  agents, including compensation data and descriptions of services  provided by financial agents; financial agency agreements and  amendments to those agreements; audit or similar reports issued by  GAO, Treasury’s Office of the Inspector General, or others; and  congressional testimony from a Treasury official. To examine Fiscal Service’s process and related internal controls for  selecting and designating financial institutions as financial agents, we  reviewed federal statutes and regulations authorizing or governing  Treasury’s use of financial agents; Fiscal Service’s policies and  procedures and related documentation for selecting and designating  financial agents, including financial agency agreements, financial agent  solicitations, and selection decision memoranda; and audit or similar  reports issued by GAO, Treasury’s Office of the Inspector General, or  others. Under the 2010 FASP guidance, Fiscal  Service’s program offices were required to maintain an administrative  record comprised of documents generated during a FASP that describes  and supports the decision-making process.
Why GAO Did This Study

Under the National Bank Act and other statutes, Treasury is authorized to designate certain financial institutions as depositaries of public money and financial agents of the federal government. Treasury uses financial agency agreements to designate financial agents. In 2004, Congress provided Treasury with a permanent, indefinite appropriation to reimburse financial agents for their services, which replaced its use of non-appropriated funds.
GAO was asked to review Treasury's use of financial agents. This report examines (1) how Treasury's use and compensation of financial agents has changed as it has modernized its payment and collection systems and (2) Fiscal Service's process and related internal controls for selecting and designating financial agents. GAO examined documents on Treasury's programs using financial agents; budget and other data on financial agent compensation; and laws and regulations governing the use of financial agents. GAO also reviewed Fiscal Service's FASP guidance and internal records supporting its selection and designation of five financial agents between 2010 and 2015. GAO interviewed Fiscal Service officials about its FASP and its use of financial agents.

What GAO Found

The Department of the Treasury's (Treasury) use of financial agents has evolved as it has moved from paper to electronic transactions in response to changes in technology and new laws. Treasury has a long history of using financial agents to support its core functions of disbursing payments and collecting revenue. Since the 1980s, Treasury has used agents to move from paper to electronic transactions as it has modernized its systems. For example, Treasury began using financial agents to collect tax revenue electronically in response to a 1984 law and to make payments electronically in response to a 1996 law. Such changes have continued since Congress enacted a permanent, indefinite appropriation in 2004 for Treasury to reimburse financial agents, after which Treasury began including in its annual budget the total amount paid to financial agents. Compensation to financial agents has grown from $378 million in fiscal year 2005 to $636 million in fiscal year 2015, partly due to increases in the number of debit and credit card payments made to federal agencies that are processed by financial agents. While Treasury discloses in its annual budget the total amount paid to financial agents, it has not fully disclosed in a central location information about individual agents, including their compensation and services provided. Treasury officials said they are not required and have not determined a need to publicly disclose compensation under each financial agency agreement. According to an Office of Management and Budget directive on open government, transparency promotes accountability by providing the public with information about government activities. Greater disclosure and transparency could enhance the accountability of Treasury's use of financial agents by informing the public and Congress about how much and for what purposes it is spending federal funds to obtain services from financial agents.
The Bureau of the Fiscal Service (Fiscal Service)—the largest user of financial agents within Treasury—developed its financial agent selection process (FASP) guidance to document the steps and internal controls that its program offices generally are expected to follow in selecting and designating financial agents. The guidance provides assurances that a FASP is effective and efficient, documents key information, and complies with applicable laws and regulations. The guidance directs program offices to maintain an administrative record of key documents generated during a FASP. GAO selected five financial agents designated between 2010 and 2015 to review their administrative records but could review only four because the record for one was not created. None contained all the documents listed in the guidance, but three contained the majority. For example, the record for my RA®, a new retirement savings program using a financial agent to provide custodial services, contained 6 of 11 key documents—missing, for example, certain planning and approval documents. As a result, the records varied in the extent to which they complied with Fiscal Service's guidance, including controls. In November 2015, Fiscal Service revised its guidance to require not only program offices to deliver an electronic copy of their administrative records to the Bank Policy and Oversight (BPO) Division but also BPO to use a checklist to ensure that the records are complete. The 2015 guidance was not in effect for the records GAO reviewed. However, BPO's implementation of the new procedure should provide assurances that future designations are in compliance with the FASP guidance, including controls.

What GAO Recommends

GAO recommends that Treasury publicly disclose in a central location information about its financial agents, including their compensation and services provided. Treasury agreed with GAO's recommendation and provided technical comments, which were incorporated as appropriate.