The Judgment Fund:

Status of Reimbursements Required by the No FEAR Act and Contract Disputes Act

GAO-08-295R: Published: Feb 26, 2008. Publicly Released: Feb 26, 2008.

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J. Christopher Mihm
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The Notification and Federal Employee Antidiscrimination and Retaliation (No FEAR) Act of 2002 has, since October 1, 2003, required federal agencies to reimburse the Judgment Fund for payments made to claimants to cover judgments, awards, and settlements in equal employment opportunity (EEO) and whistleblower cases. As we previously reported in 2004, the reimbursement provision of the No FEAR Act was intended to make agencies more accountable for their violations of employment discrimination and whistleblower protection laws brought against the agencies. Similarly, the Contract Disputes Act of 1978 (CDA) also has, since March 1, 1979, required agencies to reimburse the Judgment Fund for payments to claimants in cases involving federal contract disputes. The No FEAR Act mandated that we conduct a study of the payments, reimbursements, and effects of the reimbursement provisions of both No FEAR Act and CDA cases. In 1956, Congress established the Judgment Fund, which is a permanent, indefinite appropriation to pay judgments against federal agencies that are not otherwise provided for by other appropriations. In 1961, legislation was enacted allowing the Judgment Fund to pay, among other things, Department of Justice (DOJ) settlements of ongoing or imminent lawsuits against federal agencies. The Judgment Fund is intended to allow for prompt payment of settlements and awards to claimants, thereby reducing the assessment of interest against federal agencies (where allowed by law) during the period between the rendering and payment of such settlements and awards. The Judgment Fund makes such payments upon certification that a court has handed down an award or that a settlement has been reached. The Judgment Fund is currently managed by the Department of the Treasury's Financial Management Service (FMS). In response to the mandate, the objectives of our review, for both No FEAR Act and CDA cases, were to: (1) determine in how many cases payments were made from the Judgment Fund for judgments, settlements, or awards resulting from (a) EEO and whistleblower protection complaints after the No FEAR Act became effective, and (b) contract disputes; (2) determine in how many cases and to what extent agencies made reimbursements to the Judgment Fund and how long reimbursements took; and (3) obtain agency official and stakeholder views of the effects of the requirement to reimburse the Judgment Fund on operations, appropriations, employee relations and other human capital matters, and settlement practices at federal agencies.

From fiscal year 2004, when the No FEAR Act took effect, through fiscal year 2006, the Judgment Fund paid $45.1 million to claimants for settlements, awards, and other costs involving 625 No FEAR cases at 36 federal agencies. Of this amount, federal agencies had repaid $44.9 million, or 99 percent, as of March 31, 2007. These No FEAR agency reimbursements were made, on average, 4.8 months after the original Judgment Fund payment. For fiscal years 2002 through 2006, the Judgment Fund paid approximately $1 billion for 475 cases under CDA on behalf of 30 federal agencies. Of this amount, federal agencies had repaid $510 million, or about 50 percent, as of March 31, 2007. Agencies completed these full CDA reimbursements, on average, 9.6 months after the original Judgment Fund payment. Our work, including interviews with agency officials, indicates that several factors, including the much greater amounts involved, and agencies' lack of success in obtaining funds through the appropriations process, may be contributing to the difference in reimbursement rates for No FEAR cases compared to CDA cases. Also, one agency, which according to FMS owes a substantial amount to the Judgment Fund, claims that it does not have the authority to pay the unreimbursed balance that FMS attributes to it. In May 2007, after we discussed collection management with FMS officials, FMS drafted a new strategy, based in part on an internal assessment of its approach to successfully obtaining No FEAR Act reimbursements from agencies, to encourage agency reimbursements for CDA obligations, such as direct discussions with agency chief financial officers (CFOs). During our exit conference with FMS in November 2007, FMS officials told us that FMS is implementing its new collection strategy, which principally involves working with relevant agencies and ensuring that it has complete information about the status of each agency with regard to CDA reimbursement obligations. The new FMS strategy could increase transparency regarding federal agencies' obligations to reimburse the Judgment Fund and aid congressional decision making with regard to any appropriations for relevant agencies if it also included notification to Congress of the amounts owed by individual agencies related to CDA cases. Officials at the seven departments and agencies we visited told us that the reimbursement provisions of the No FEAR Act have not had a substantial impact on the operations or budgets of their respective agencies, or on any awards and settlements made.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 2009, we contacted the Manager, Internal Control Branch, Financial Management Service (FMS) regarding this recommendation. The manager indicated that FMS continues to update the Judgment Fund/Contract Disputes Act (CDA) website, including the outstanding balances of various agencies every quarter. As this does not achieve the intent of our recommendation of a separate periodic report to the Congress on the status of amounts owed to the Judgment Fund by agencies on CDA obligations, we plan to continue to follow up on this recommendation. During the spring of 2010, we had discussions with an official of FMS and of the Treasury Inspector General concerning our recommendation, and specifically which committee or member of Congress the reporting should be directed to. On March 31, 2011, the Financial Management Service, in response to our recommendation, sent an update on CDA obligations to the Chairmen and ranking members of the House and Senate Appropriations Committees, the House Committee on Oversight and Government Reform, and the Senate Committee on Homeland Security and Government Affairs. FMS provided us copies of the letters and update in May 2011 in response to a GAO inquiry. On June 13, 2011, FMS notified GAO that it intends to send an accounting to the same chairs and ranking members no later than January 31 of each year

    Recommendation: The Commissioner of FMS should notify Congress on a periodic basis of the amounts owed the Judgment Fund by each federal department and agency for all CDA obligations.

    Agency Affected: Department of the Treasury: Financial Management Service


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