FGMSD-77-21 Status, Progress, and Problems in Federal ...Act, the Director of the Office of Management and Budget on May 16, 1977, requested the Department of Defense to update and

DOCUMENT RESUME

03112 - rA24135431

Status, Progress, and Problems in Federal Agency Accountingduring 15 Months Ended September 30, 1976. FGMSD-77-21;B-115398. August 24, 1977. 50 pp. + 5 appendices (33 pp.).

Report to the Congress; by Elmer B. Staats, Comptroller General.

Issue Area: Accounting and Financial Reporting (2800).Contact: Financial and General Management Studies Div.Budget Function: Miscellaneous: Financial Management and

Information Systems (1002).Organization Concerned: Department of the Interior; Department

of the Treasury; Department of Agriculture; Department ofCommerce; Department of Defense; Department of Realth,Education, and Welfare; Depattment of Justice; Department ofState; Depbxtment of Transportation; General ServicesAdministration.

Congressional Relevance: House Committee on Armed Services;Senate Committee on Armed Services; Congress.

Authority: Accounting and Auditing Act of 1950, sac. 113 (31U.S.C. 66a).. 31 U.S.C. 66b. H. Rept. 90-1159.

During the 15 month period which ended September 30,1976, the Comptroller General approve;. the designs of 32executive agency accounting systems. Principles and standardshave been approved for 98% of the 338 accounting systems wbi.chare subject to approval, Fifty-two percent of the system designshave now been approved. Findings/Conclusions: The Departmentsof Labor, the Treasury, Commerce, and Transportation have all ormost of their accounting systems approved. The Department ofAgriculture is pursuing a program of accounting systemsdevelopment, but its completion is still several years away.Although a departmental system for the Department of Housing an!Urban Development has been approved, the Department has nevercompleted the designs of its subsystems, The Department ofDefense made little progress in obtaining approval of itssystems until recently. However, in the last 4 years 5asubsystems have been approved, mostly in the Air Force. TheDepartments of Health, Education, and Welfare (HEW); Interior;and State have progressed so little that there is concern thatthey will not have approved accounting systems in the nearfuture. Of the 19 accounting systems subject to approval in REW,only five have been approved. The unapproved systems includedthe Social Security Administration system, one of the largest inthe Government. HEW has consistently failed to meet target datesestablished for submitting the systems for approval. (Author/SC)

REPORT TO THE CONGRESS

BY THE COMPTROLLER GENERALOF THE UNITED SrTA TES

Status, Progress, And ProblemsIn Federal Agency AccountirigDuring 15 Months EndedSeptember 30, 1976During the 15 months ended September 30,1976, the Comptroller General approved thedesigns of 32 executive agency accountingsystems. Fifty-two nercent of the Govern-ment's accounting systems have r.ow been ap-proved. Major problems delaying approval ofthe remaining accounting systems are listed.

In the last 4 years, 54 Department of Defenseaccounting systems have been approved.Three departments, however, continue to pro-gress little: the Departments of the Interior;Health, Education, end Welfare; and State.

FGMSD-77-21 AUGUST 24, 1977

COMPTROLLER GENERAL OF THE UNITED STATES

*:'r~' WASHINGTON, D.C. ?0"n

B-115398

To the President cf the Senate and theSpeaker of the House of Representatives

Under section 113 of the Accountinq and Auditing Actof 1950 (31 U.S.C. 66a), the head of each executive agencyis responsible for establishing and maintaining accountingsystems that conform to principles and standards prescribedby the Comptroller General. T'hese principles and standardswere prescribed in 1952, but agencies' actions to obtain therequired approval have been varied.

Our work involves two phases. First, we approve theprinciples and standards the agencies adopt for theiraccounting systems. Then, we approve the designs of thesystems, including the basic controls provided for in theautomatic data processing of a computerized system. AtSeptember 30, 1976, principles and standards had been ap-proved for 98 percent of the 338 accounting systems subjectto approval. Fifty-two percent of the system designs hadbeen approved.

Some Federal agencies have worked hard to establishgood accounting systems to be approved by the Comptr-llerGeneral. These include the Departments of Labor, the Treas-ury, Commerce, and Transportation, which have all or mostof their accounting systems approved. The Department ofAgriculture is also pursuing a commen able program of ac-counting systems development, althouqn its completion isseveral years away. We approved a departmental system forthe Department of Housing and Urban Development, but theDepartment has never completed the designs of its subsystems.

Until recently, the Department of Defense made littleprogress in obtaining approval of its system:is. However, inthe last 4 years 54 systems have been approved. Most ofthis remarkable progress has been in the Navy and the PirForce, with the Army and some of the Defense agencies makingless progress.

Three departments progressed so little that we are con-cerned whether they will have approved accounting systems inthe near future. These departments are the followino:

B-115398

-- The Department of the Interior has 19 accountingsystems. Although 12 have been approved, progressin recent years has been very slow. It seems thattoo few systems accountants are being devoted tothis work.

-- The Department of Health, Education, and Welfarehas 19 accounting systems subject to approval.Only five have been approved. The unapprovedsystems include the Social Security Administra-tion system, one of the largest in the Government.The Department has consistently failed to meettarget dates it established to submit the systemsto us for approval. In a number of cases, systemsthat were scheduled to be submitted in 1971 or1972 still lave not been submitted. Recently, theDepartment advised us that it has given this worka high priority. We are now evaluating two of theDepartment's accounting systems.

-- The Department of State has seven accounting systems;four have been approved and three remain unapproved.The unapproved three, however, include the two mostimportant systems the PEpartment has--the generalaccounting systems for the Department and the Agencyfor International Development. The Department hasbeen missing target dates for submitting its generalaccounting system since 1967. In recent years theDepartment has brought effective systems developmentleadership into the program, but too little staffeffort is being devoted to the work and progresstherefore is slow.

Because of numerous violations of the Anti-DeficiencyAct, the Director of the Office of Management and Budget onMay 16, 1977, requested the Department of Defense to updateand submit for approval by August 15, 1977, its administrativecontrol of funds regulations. On June 28, 1977, the Directorrequested all other departments and the major independentagencies to update and revise their administrative control offunds regulations and submit them for approval by October 1,1977. We concur in both actions. However, there are manyunapproved accountinc systems which have defects and in-adequacies other than, or in addition to, the area of fundcontrol.

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B-115398

It is very important that agencies have approved systemsin operation because such systems can produce the type offinancial information that agency officials and the Congressneed to make financial decisions. The prcblems that can occurwhen good accounting systems do not exist have received con--siderable attention in the past year. The financial plightof New York City and the contribution of poor accountingpractices to that situation are well known. Foor practicesin unapproved accounting systems of the Department of theArmy and the District of Columbia government were also re-ported to the Congress by us during the past year. In thePrmy's case, over $200 million in overcbligation of funds oc-curred. In the District's case, the accounting was so un-reliable that an outside certified public accounting firmcalled it "misleading, out-of-date and inaccurate." A goodaccounting system can prevent these kinds of problems.

Our objective has been to initially approve all execu-tive branch accounting systems by the end of fiscal year1980. This is an ambitious undertaking when one considersthat it has taken 26 years to get 52 percent of the systemsapproved. But the objective could be reached if departmentsand agencies give this work the high priority it deservesin the assignment of resources and qualified personnel.

In examining future budget requests and the use offunds, we recommend that the Office of Management andBudget and the Congress make sure that the executive de-partments and agencies are devoting sufficient resourcesto qualify their accounting systems for approval by theComptroller General.

Approval of an accounting system design becomes mean-ingful only when an agency operates its accounting systemin accordance with that design. For this reasons fromtime to time we review total or partial accounting systemsto see if they are

-- operating in accordance with our approval and

--consequently furnishing reliable financial datain a meaningful manner to the agencies and theCongress.

The results of recently completed reviews are discussedin chapter 4 of this report.

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B-115398

We are sending copies of this report to the Director,Office of Management and Budget, and heads of other depart-ments and agencies.

)m roller Generalof the United States

4

Contents

CHAPTER Page

1 INTRODUCTION 1

2 STATUS OF DEPARTMENT AND AGENCY ACCOUNTINGSYSTEMS AT SEPTEMBER 30j 1976 2Comptroller General requirements 2Status of approvals 2Status of accounting systems 5

3 AGENCY PROGRESS AND PROBLEMS 6Approvals during 15 months ended

September 30, 1976 6Problems and status of systems 8

Department of Agriculture 8Department of Commerce 9Department of Defense 10Department of Health, Education,

and Welfare 18Department of the Interior 20Department of Justice 21Department of State 22Department of Transportation 23Department of the Treasury 23ACTION 25Civil Aeronautics Board 25Federal Energy Administration 25Federal Home Loan Bank Board 26Federal Mediation and ConciliationService 26

General Services Administration 26National Labor Relations Board 27Veterans Administration 27District of Columbia government 28

4 ACCOUNTING SYSTEMS IN OPERATION 29Need for management involvement in

acquiring financial managementinformation systems 30

Internal audits of accounting reportsand systems 30

Compliance with system designs approvedB- the Comptroller General 32

MeJical Materiel, Department of theAir Force 32

Printing and Duplicating IndustrialFund, Department of the Air Force 32

Bureau of Indian Affairs, De-p-rtment of the Interior 33Immigration and Naturaliza-tion Service

34Public Works Centers, De-partment of the Navy 34Civil Aeronautics Board 35Federal Power Commission 36Railroad Retirement Board 36The White House Office 37Review of Department of Defense systemsby internal audit agencies 37Usefulness of accounting information 38Billings and collections 38Tuition charges for foreign

military students 38Technical assistance andtraining services pro-vided to foreign govern-ments 39Mortgage insurance premiumsTaxes on acquired residentialproperties

40Sealift tariffs 41Depositing receipts 42Automated travel payments 43Property accounting

Contractor-held property,Employment and TrainingAdministration, Depart-ment of Labor

43National Aeronautics andSpace Administration 44Obligation accounting 45[ epartment of the Army 45Department of the Navy 46Equal Employment Oppor-tunity Commission 46Automated payroll accounting 47Department of the Army 47Department of Commerce 48Department of Health,

Education, and Welfare 49Other systems 49Direct deposit of pay 50pay ~~50

APPENDIX Page

I Status of approvals and evaluations 51

II Status of approval of accounting systemsat September 30, 1976 52

III Letter dated May 4, 1977, from the Assis-tant Secretary for Managemelit and Budget,Department of Health, Education, andWelfare 80

IV Letter dated April 29, 1977, from theDeputy Assistant Secretary - Polic ,Budget and Administration, Depart--ment of the Interior 82

V Letter dated April 12, 1977, from theDeputy Assistant Secretary for Budgetand Finance, Department of State 83

ABBREVIATIONS

DOD Department of Defense

GAO General Accounting Office

CHAPTER 1

INTRODUCTION

This seventh report on the status, progress, ard problemsin Federal agency accounting covers the 15-month period endedSeptember 30, 1976, and responds to the recommendation of theHouse Committee on Government Operations (H. Rept. 1159,90th Cong., 2d sess. 3 (1968)).

With the exception of Government corporations subjectto the Government Corporation Control Act (31 U.S.C. 841 etseq.) and certain quasi-government entities that, by law,are subject to that act, the accounting systems of all execu-tive departments and agencies are required by 31 U.S.C. 66ato adopt accounting systems that conform to principles andstandards prescribed by the Comptroller General and by 31U.S.C. 66(b) to obtain his approval that their accountingsystems do in fact so conform.

We are reporting information primarily obtained throughour cooperative accounting systems work with the departmentsand agencies and through the evaluation and approval proc-esses.

Chapter 2 summarizes the status of Federal agency ac-counting systems at September 30, 1976. Chapter 3 is ourobservation of agency progress and problems during the15 months ended September 30, 1976. Chapter 4 contains ob-servations resulting from our reviews of accounting systemsin operation.

CHAPTER 2

STA_''US OF DEPARTMENT AND AGENCY

ACCOUNTING SYSTEMS AT SEPTEMBER 30, 1976

COMPTROLLER GENERAL REQUIREMENTS

The head of each executive agency is responsible forestablishing and maintaining systems of accounting whichconform to the principles, standards, and related require-ments prescribed by the Comptroller General, 31 U.S.C. 66a.A two-phase procedure has been established for examiningagency accounting systems that are submitted to the Comp-troller General for approval--approval being agreement thatthe proposed systems conform to the prescribed principlesand standards. Under this two-phase procedure, we firstexamine the accounting principles and standards establishedby the agency as the basis for its accounting system. Afterthe principles and standards are approved, the next step isto get approval of the desiQn--procedures and practices thatwill be followed to perform the agency's accounting--to deter-mine whether it conforms to the approved principles and stand-ards. In addition, after the design of the system is imple-mented, we review the accounting systems of the agencies fromtime to time to see that they are being operated in accordancewith their designs and are serving management needs.

STATUS OF APPROVALS

During the 15-month period, the designs of 32 accountingsystems were approved. Allowing for reapprovals and adjust-ments, a net increase of 29 accounting system approvals re-sulted. Accounting system design approvals totaled 177 atSeptember 30, 1976, out of a total of 338 identified systemssubject to approval. Three statements of principles andstandards were approved during the period, making a total of333 systems now covered by approved principles and standards.

The number of accounting systems identified by agenciesas being subject to approval at the beginning of the periodwas 286. During the period the number of systems subject toapproval increased by 52 (2 in civil agencies and 50 in De-fense). The increase primarily resulted from a change inthe way the Navy Department has identified its systems,rather than an increase in the number of systems per se.(See p. 13.) We expect some further increases in thefuture. The Social Security Administration is now shownas having only one accounting system subject to approval

2

because the exact number of systems has not been agreedupon. We expect it will have about 10 identifiable systems.We have also shown the D.C. government with only one system.It has numerous accounting systems but has not as yet iden-tified how many.

Although the number of approved systems increased by29 during the period, the percentage of approvals remainedthe sa.ne, 52 percent, because of the increase in the numberof systems subject to approval. The chart on the followingpage shows the status of approval of accounting systems foreach department.

Of the 11 departments, 10 had principles and standardsapproved for all of their accounting systems, but only 3 hadall of their accounting system designs approved. In the De-partment of Housing and Urban Development, the designs of thesubsystems within its approved system had not yet been com-pleted.

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APPROVAL STATUS BY DEPARTMENTAt September 30, 1976

HOUSING AND URBANDEVELOPMENT . .......(NOTE a) ... :.....o....... ·. ,,...*..

LABOR I

TREASURY |..* ° : .' : "

COMMERCE ;i .....

TRANSPORTATION .

INTERIOR :

JUSTICE

AGRICULTURE :.:::: ;

DEFENSE" "' :

HEALTH, EDUCATION, X :-jWELFARE , :.:-._

STATE ::.(NOTE b)

I I I I i I I I I I0 10 20 30 40 50 60 70 80 90 100

Percent Approved

, DESIGNS AND PRINCIPLES AND STANDARDS

j PRINCIPLES AND STANDARDS ONLY

A/Designs of subsystems have not been completed..1 While four of seven systems have been approved, the largest

systems accounting for the major portion of State's operationshave not been approved.

4

STATUS OF ACCOUNTING SYSTEMS

The table beluw summarizes the status of accountingsystems subject to approval at September 30, 1976.

Principles Subjectand standards Designs to

Approved Una Appr-- ove d Uravprove-- - appro val

Civil departments andagencies:Agriculture 16 1 10 7 a/17Commerce 8 - 7 1 8Health, Education, and

Welfare 19 - 5 14 b/19Housing and UrbanDevelopment 1 - 1 - 1

Interior 19 - 12 7 19Justice 13 - 8 5 13Labor 2 - 2 - 2State 7 - 4 3 7Transportation 8 - 7 1 5Treasury 18 - 18 - c/18Executive Office of the

President 4 - 4 - 4Indeperdent agencies 52 4 41 15 56

Total 167 5 119 53 172

Percent 97 3 69 ?1 100

Department of Defense:Air Force 43 - 28 15 43Army 29 - 5 24 d/29Navy (including Marine

Corps) 75 - 20 55 75Defense agencies 18 - 5 13 18

Total 165 - 58 107 165

Percent 100 - 35 65 100

District of Columbiagovernment 1 - 1 e/1

Total 333 5 177 161 338

Percent 98 2 52 48 100

a/Number of systems will be reduced to six when planned consolidations havebeen made.

b/Number of systems in the Social Security Administration is expected toincrease by nine.

c/The bullion accounting system has not been included as it is to be mergedinto the Financial Management Information System, a new accounting systemplanned by the Bureau of the Mint. Work on the new system has been deferred.

d/For the most part, these systems are the principal automated ones.

e/Actual number of accounting systems not yet determined.

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CHAPTER 3

AGENCY PROGRESS AND PROBLEMS

APPROVALS DURING 15 MONTHSENDED SEPTEMBER 07 i1976

During this period statements of principles and standardswere approved for the Mining Enforcement and Safety Admini-stration of the Department of the Interior, for the FederalEnergy Administration, and for the Farm Credit Administration.

Designs were approved for the following 32 systems.

ApprovalCivil departments date

Department of Health, Education,and Welfare:

National Institutes of Healt.h,Administrative Accounting 6/11/76

Depaitment of the Interior:Bureau of Mines a/9/29/75

Department of Justice:Law Enforcement AssistanceAdministration, AdministrativeAccounting 9/28/76Department of State:

Agency for International Develop-ment, American Payroll 9/28/76

Department of Transportation:Federal Railroad Administration 9/24/76Transportation Systems Center 6/23/76

Independent agencies

Civil Aeronautics Board, Payroll 9/27/76Veterans Administration, Mortgage

Loan Program 9/28/76

a/Reapproval.

6

ApprovalMilitary departments date

Department of the Air Force:Departmental Stock Fund System 1/23/76General and Systems Support Stock

Fund, Division Office 1/23/76Fuels Stock Fund, Division Office 1/23/76Clothing Stc,- Fund, Division Office 1/23/76General and S tem Support Stock

Fund, Commanl Office 1/23/76Base Level Ma:-riel System 1/23/76Civil Engineer Cost System 3/ 4/76Civilian Payroll 5/25/76Military Aircraft Storage andDisEosition Center Cost/BillingSystem 5/27/76

Airlift Services Industrial FundSystem

6/17/76Departmental Industrial Fund System 9/21/76Department of the Army:Test and Evaluation Activities 8/ 3/76Department of the Navy:Industrial Fund, Ordnance Activities 8/ 6/76General Accounting at Marine Corps

Activities 8/10/76Joint Uniform Military Pay System 9/10/76Naval Academy Midshipmen Pay System 9/16/76Naval Education and Training

Command, Command Level 9/21/76Nonmechanized Command Level System 9/21/76Facilities Engineering Activities,Civilian Payroll 9/21/76General Accounting Fleet (Air),Field Level 9/21/76General Accounting at NonmechanizedResource Management SystemActivities 9/24/76

Industrial Naval Air Stations,Civilian Payroll 9/28/76Office of the Secretary and Defense Agencies:

National Security Agency/CentralSecurity Service 9/24/76

PROBLEMS AND STATUS OF SYSTEMS

Department of Agriculture

Accounting systems subject to approval 17Accounting system designs approved 10Unapproved systems 7

Although no accounting systems were approved for theDepartment of Agriculture during the 15-month period, wefeel this Department is progressing toward the goal of com-plete systems approval. Early in calendar year 1973 theDepartment of Agriculture began developing a central account-ing system for the administrative and program funds of itsagencies. Excluded from the central accounting system, andscheduled for separate designs, are five accounting systemsrequired to process and record transactions involving thefollowing programs:

-- Loan programs of the Farmers Home Administration.

-- Loan programs of the Rural Electrification Adminis-tration.

-- Grant and other programs administered by the Agricul-tural Stabilization and Conservatior Service.

--Programs administered by the Food and NutritionService.

-- Forest Service Timber Sales.

The 6 systems will eventually replace the 17 Departmentof Agriculture systems shown in appendix II.

Development and implementation efforts for the centralsystem are underway at the Department's National FinanceCenter in New Orleans, Louisiana. A statement of accountingprinciples and standards for the central system and thedesign for the automatic data processing portion of some ofthe subsystems have been informally submitted. The account-ing portion has not yet been received.

Statements of accounting principles and standards havebeen submitted for the program fund systems of the (1) Agri-cultural Stabilization and Conservation Service, (2) FarmersHome Administration, and (3) Rural Electrification Adminis-

8

tration. The Agricultural Stabilization and ConservationService has informally submitted the automatic data process-ing portion of most of its program system, but the accountingportion has not been submitted as yet. A system design hasnot been received for any of the four remaining program fundsystems. The Food and Nutrition Service, which had itsaccounting principles and standards approved in June 1973,plans to strive to develop a financial management systemrelating to the programs it administers. The Farmers HomeAdministration has engaged a contractor to develop its loanprogram system.

The Department of Agriculture plans to submit the designfor the central system in October 1977. Completion of systemdesigns for the program fund systems is expected as follows:

Forest Service Timber Sales Oct. 1977

Agricultural Stabilization andConservation Service Sept. 1977

Farmers Home Administration Jan. 1978

Rural Electrification Administration Jan. 1978

Food and Nutrition Service Dec. 1978

The Department and its constituent agencies have indi-cated they expect to expend about 80 staff-years on thesedesign efforts during fiscal year 1977. Consequently theyshould be able to meet their target dates.

Department of Commerce

Accounting systems subject to approval 8Accounting system designs approved 7Unapproved system 1

The Department of Commerce was the first Department tosecure approval of all of its accounting systems, then atotal of seven systems. Recently, a new accounting systemfor the National Technical Information Service has beenadded. Under development since March 1975, this new systemdesign was informally submitted to GAO for evaluation duringfiscal year 1976.

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Department of Defense

In the last 4 years, the Department of Defense hasprogressed substantially in obtaining approval of its ac-countirg systems. During this period, 54 systems wereapproved; only 4 had been approved in prior years. Mostprogress has been in the Air Force and the Navy, accountingfor 48 of the 54 approvals. The Army and certain Defenseagencies have not been as successful in developing and pre-paring their system designs and submitting them for evalua-tion.

At October 1, 1976, we had about 21 additional systemsunder evaluation and expected to have 41 more submittedduring fiscal year 1977. We cannot approve most of thesesystems at the present time because of several differencesbetween the accounting principles and standards which wehad approved for these systems and the system designs submit-ted to us. These differences included (1) lack of monetarycontrol over property, (2) lack of required fund controlfor the last 2 months of the fiscal year, (3) lack of ade-quate accounting for noncontractual claims against the Gov-ernment, and (4) the need to identify capital versus currentoperating costs on management reports.

We have established a special working arrangement withDefense Department officials to attempt to solve the prob-lems created by these differences and to qualify the systemsfor approval. Failure to eliminate these differences mayadversely affect the number of approvals granted in fiscalyear 1977.

Department of the Air Force


During fiscal year 1976, including the transition quar-ter, we approved 11 Air Force accounting system designs.The Air Force has made great strides in its effort to obtainapproval of all accounting system designs by using improvedmethods of describing their systems and by acting promptlyto resolve problems we find while evaluating their systemdesigns. Five accounting system designs should be approvedin fiscal year 1977, if already identified problem areas areresolved in a timely manner.

10

Among the unapproved systems are eight Air ForceLogistics Command Systems. These accounting systems arereplacements for three basic systems of the Advanced Logis-tics System which were included in our 1975 inventory report.In December 1975 the Senate and House Committees on Appropri-ations instructed the Department of the Air Force to termi-nate the design and development of its Advanced LogisticsSystem. Consequently, the Air Force will have to submit eightaccounting systems for our approval to accomplish what hadbeen planned for three systems. To meet the approved targetdate planned for the Advanced Logistics System (fiscal year1978), the Air Force plans to expend the necessary staff-yearsin fiscal year 1977 to permit us to evaluate and approveseven of the eight systems by the end of fiscal year 1978.

Department of the Army

Accounting systems identified as subjectto approval 29

Accounting system designs approved 5Unapproved systems 24

The Army has not satisfactorily progressed in obtainingapproval of its accounting system designs. The only approvalduring the 15-month period was a portion of the accountingsystem design for test and evaluation activities of the Testand Evaluation Command, Army Materiel Development and Readi-ness Command, approved in August 1976. The industrial fundgeneral ledger portion of that system design was not includedand will, therefore, be approved at a later date as a separatesystem.

Of the 24 unapproved systems, 14 were classified by theArmy as under development; that is, they are in the processof design. or major design changes are contemplated. Targetdates for their submission for approval were not determinable.

We were evaluating 3 of the remaining 10 systems atSeptember 30, 1976, and are advising Army officials on theirpreparation of system designs for 5 other systems.

Fund control problems, including Anti-Deficiency Actviolations, in the accounting systems relating particularlyto the procurement accounts and foreign military sales were

11

quite serious and extensive. 1/ As a result, financialmanagement attention and resources were concentrated onmeasuri.ng the effect and reporting on the problems, as wellas identifying and ini iating corrective measures. Also, alongstanding problem Jf not reconciling accounting and dis-bursing records is now receiving management attention inorder that accurate reports may be issued. A short-rangeeffect of this focus was to continue in fiscal year 1976 theArmy's relatively small effort to the objective establishedby the Office of the Secretary of Defense to obtain ourapproval of Department of Defense accounting systems byDecember 1976.

Problem areas include (1) identification of all theArmy's accounting 3ystems and their interrelationsh.ps,(2) both incomplete and inadequate designs, (3) deviationsfrom the prescribed accounting principles and standards, and(4) unresponsiveness to identified issues. The Comptrollerof the Army and certain Army commands have not, in the past,applied sufficient numbers or quality of personnel to theplanning and execution necessary for obtaining system designapprovals at the rate scheduled by the Office of the Secre-tary of Defense. In many instances, the personnel worked onthis objective only when other duties permitted.

The Army has agreed to prepare and p,.blish a systemdesign overview to identify the functions and scope of eachaccounting system and the control interrelationships amongaccounting systems, programs, and organizations. (A similarcommitment made by the Army last year to provide us such anoverview by September 1975 was not met.) This overviewshould also identify the organizational element responsiblefor the design of each system in accordance with Army Comp-troller guidance and should contribute to an understandingof the Army financial systems.

The Army plans in fiscal year 1977 to devote 28 staff-years in developing, designing, and redesigning accountingsystems. We do not believe that this level of effort willbe sufficient to complete the work by 1980. The Army needsto apply additional resources and qualified personnel to:

1/See our report "Serious Breakdowns in the Army's FinancialManagement Systems," FGMSD-76-74, Nov. 5, 1976.

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-- Describe the system design changes or new designsneeded in unapproved systems and make plans for theirsubmission for approval.

-- Insure that accounting and payroll system designsdescribe the systems adequately. In our experiencein evaluating Army system designs, the Army oftenuses its regulations and automatic data processinguser's manuals. We find this ineffective because theregulations and manuals are fragmented and do not givean adequate or complete description of the accountingsystem designs.

-- Strength in the headquarters accounting system staffso it can deal responsively and in a more timely man-ner with the design problems our evaluations find, andassign such staff to advise and assist those Army com-mands which have limited system design capability.

Since September 1976, we have observed a substantialincrease in the Army's efforts to obtain system approvalsand to correct the identified problems.

Department of the Navy


The Department of the Navy progressed more than in anypast period. During the 15 months ended September 30, 1976,10 Navy accounting systems were approved for a total of 20approved system designs. We are currently reviewing 13 ofthe remaining unapproved systems and expect the Navy to sub-mit 22 additional system designs during fiscal year 1977.

As anticipated in last year's report, the number ofNavy accounting systems identified as being subject to ap-proval has increased to 75 as of September 30, 1976. TheNavy did not increase its accounting systems; it justchanged its method of classifying existing Navy systems andcanceled some planned standard system design efforts. Can-celing standard system design efforts increases the numberof systems to be approved because if a standard design isusecd, one approval may apply to 10 similar systems. Ifa standard system is not used, each of the 10 systems mustbe approved separately.

13

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The scheduling of systems for submission to us is beingcontrolled by the Office of the Navy Comptroller to allowconsideration of long-ralge system development work in rela-tion to our target of 1980 for approval of all systems.

Standard system designs--The Navy's operating philosophyempasizes maximum automatc data processing design flexi-bility at local installations. As a result, most Navy ac-counting system central design efforts cease at a relativelyhigh level. Local installations are thus provided consider-able latitude in developing support procedures to implementthe central design, including controls to insure timeliness,accuracy, and completeness of accounting processes. Underthis concept of decentralization, naval systems managersmust rely on local commanders, internal review teams, andinternal auditors for assurance that adequate controls havebeen provided at local levels for locally designed systemsand for insurance of system output quality. This conceptalso makes our automatic data processing evaluation of theadequacy of internal controls and audit trails more difficultand requires additional time to determine the adequacy andacceptability of many Navy systems.

The Navy Integrated Financial Management ImprovementProgram was begun several years ago by the Navy Comptrollerto provide centralized control over financial system develop-ment efforts and to foster uniformity in system design. Itsmajor objectives are to identify deficiencies in financialmanagement systems and to program and provide budgetary sup-port for corrective action. Several major standard systemsresulting from this effort are currently scheduled for ourreview. We support the objectives of standard design andencourage their rapid completion and use.

Tntegration of disbursing and accounting--The integra-tion o- rsing and accounting will-represent a signifi-cant improvement in accounting, disbursing, and use of assets.Much progress has been made with prototype activities, andan implementation plan has been developed. We continue toencourage an early decision to implement.

Navy Joint Uniform Military Pay System--During fiscalyear 1976 we approved the final version of the Joint UniformMilitary Pay System for the Navy. For about 10 years the De-partment of Defense and its military services have been work-ing on the project of developing their military pay systems.We congratulate the Department and its military services oncompleting their design work for these very substantial pay-roll systems.

15

Source: Department of Defense

GAO CLEVELAND SUBOFFICE STAFF MEMBERS AND NAVY FINANCECENTER PERSONNEL DISCUSS THE NAVY JOINT UNIFORM MILITARYPAY SYSTEM DESIGN DOCUMENTATION.

16

Department of Defense agencies


Only one accounting system design was approved in the15-month period ended September 30, 1976. However, we arecurrently evaluating five systems and expect to approve sevenby the end of fiscal year 1977.

Three of the unapproved systems not scheduled for sub-mission in 1977 are in the Defense Supply Agency. Two ofthe three are among the largest and most important systemsin that Agency's operations. Since 1974 the Agency has rec-ognized the need for financial control and improved financialreporting in the petroleum and subsistence management areas.Consequently, it has undertaken several projects to developreliable accounting systems for these two areas. To datethese projects have not been successful. The agency hasonce again indicated that all three of these accounting sys-tems will be submitted for evaluation by the end of 1980.However, based on the resources assigned to this work andthe priority it has been given by the Agency. we are skepti-cal about whether these designs will be submitted by then.Until these projects are given high priority and adequateresources are devoted to them, we cannot assure the Congressthat these accounting systems will be approved in the nearfuture.

The Defense agencies plan to expend 6 staff-years duringfiscal year 1977 on the design and submission of accountingsystems. We feel this time is insufficient to provide satis-factory progress.

Department of Defense-wid Eproblems

As noted in last year's report, an ad hoc committee wasestablished to develop requirements for a Department-widestandard civilian payroll system. This committee, whichwe represent in an advisory and consultative capacity, hasmade significant progress. The committee published a docu-ment containing the general functional systems requirementsfor a standard pay system incorporating the needs of allservices and is currently working on the detailed specifi-cations.

17

The Department of Defense is now reevaluating thedirection the standardization effort is to take. The under-lying implication is that standardization within each serviceis all that can be achieved at the present time. We suggestthat no decision be made to abandon development of theDepartment-wide standard civilian payroll system without con-clusive evidence that it is not attainable or economical.

DePartment of Health, Education, and Welfare


In the past, this Department has progressed slowly ingetting its accounting systems approved. The only accountingsystem design approved for the Department during the pastfiscal year was the National Institutes of Health's adminis-trative accounting system design. The Health Services Adminis-tration's administrative accounting system and the Office ofEducation accounting system were informally submitted and arecurrently being evaluated.

The Social Security Administration ;s operating underan unapproved accounting system. An agreement was signed inJune 1976 providing for a joint Social Security Administra-tion, Office of the Secretary, and GAO project to furtherSocial Security's preparation, review, and approval effort.The one accounting system currently shown for the SocialSecurity Administration in appendix II will eventually beseparated, because of its magnitude, into several discretesystems to facilitate evaluation and approval. The SocialSecurity Administration has currently identified 10 account-ing systems which may have to be evaluated and is establish-ing target dates for submitting them.

In a report to the Congress, 1/ we recommended that theSecretary of Health, Education, an3 Welfare ssign a highpriority to the redesign of the DeFartment's payroll systemand closely watch these efforts until the redesign was suc-cessfully completed. Subsequently, target dates which theDepartment set for submitting the sy:tem design for approval

1/B-164031, Jan. 17, 1969.

18

were never met. The Department advised us that delaysresulted because available staff was assigned to improve thesystem berore submitting it to us. The payroll system ispresently operational, and a task force established in July1976 is preparing material necessary for our approval. Thesystem is currently scheduled for approval in fiscal year1980.

Since 1969 we have issued 10 reports to the Congresscalling attention to inadequacies in the financial manage-ment of the Guaranteed Student Loan Program. In the latestreport, 1/ we again reported that the accounting system forthis fund was so unsatisfactory that the financial statementsdid not fairly present the financial position of the fund.

In a February 17, 1977, report to the Congress on theHealth Services Administration, 2/ we reported that the seri-ous weaknesses of the accounting systems could allo;. fraudand misuse of Federal funds. Health Services accounts couldnot be reconciled with the Treasury's accounts and the Anti-Deficiency Act may have been violated.

The Department has informed us that it has given systemapprovals a high priority and intends to devote adequate re-sources co it. Since April 1976, the Department's activitiesin expediting the submission and review process have resultedin the following accomplishments:

--Signing the agreement of the Social Security Adminis-tration; the Office of the Secretary of the Depart-ment of Health, Education, and Welfare; and GAO asdiscussed above.

-- Instituting a presubmission review process by theDepartment.

-- Developing a procedure for establishing andtracking "milestone" events throughout the reviewprocess, which should provide a tool for measuringprogress and evaluating the status of system reviewsunderway.

1/FOD-76-23, Feb. 10, 1977.

2/"Improvements Needed in Recording and Reporting Appropria-tion Data at Fiscal Year End," FGMSD-76-63.

19

Despite past assurances of a desire to secure approvalof its accounting systems and the establishment of numeroustarget dates, the Department has not accomplished its objec-tives. Unless the Department is persistent in its currentdetermination to qualify its remaining accounting systeisfor approval and can devote adequate resources on a continu-ing basis, we are skeptical that the remaining systems willbe approved in the near future.

Agency_ comments

In response to a draft of this report (see app. III),the Department said it had made obtaining accounting systemapproval a high priority item. The problem, accordingto the Department, was our inability to assign sufficientresources to review system documentation the Department de-veloped and provided to us. The Social Security Administra-tion was cited as a specific example in which its personnelhad been waiting since June 1976 for our personnel to workwith them on reviewing their system before submission.

It is our policy to give priority in the assignment ofour limited accounting systems staff to those systems whichhave been completed and are ready for evaluation. To theextent possible, we also cooperate with requesting agenciesin developing their accounting systems. In the Social Secur-ity case cited above, we had been following our normal prac-tice of assigning personnel to examine system documentationas an agency made it available. A systems accountant wasexamining, on a part-time basis, documents submitted bySocial Security between September and December 1976. InDecember the Department asked us to assign a systems account-ant on a full-time basis at Social Security Administrationheadquarters. We plan to do so as soon as staff on otherwork become available. Meanwhile, we will continue to haveany completed work reviewed by staff members assigned toother sites.

Department of the Interior


This Department has progressed little since 1974 in get-ting its accounting systems approved. During the 15-monthperiod, we approved the principles and standards of the

20

Mining Enforcement and Safety Administration and reapprovedthe accounting system design of the Bureau of Mines.

Unapproved _ystems

Five of-the seven unapproved systens of the Departmenthad been scheduled for submission during fiscal year 1976.However, these submissions have been postponed to eitherfiscal year 1977 or 1978. In addition, the Department hasadded one more accounting system to the 18 listed on June 30,1975. This system is forecast for submission during f:scalyear 1977. These accounting systems have remained unapprovedprincipally because of a lack of in-house staffing at Depart-ment and bureau levels to properly design and submit theirsystems.

The Department established the Office of ManagementConsulting within the Office of the Secretary in 1974 to beresponsible for assisting offices and bureaus in developingsystem designs and improving financial management informa-tion. However, due to budgetary restrictions, only twoprofessional staff members in the Office of Management Con-sulting are engaged in system design work. The Officeurgently needs to add more systems accountants to its staff.

We also believe that staffing should be increased inthe bureaus having unapproved systems. Unless the Departmentprovides the necessary resources and gives accounting systemdesign work a higher priority, we cannot assure the Congressthat the remaining unapproved accounting systems will be ap-proved in a reasonable length of time.

The Department of the Interior has indicated (see app.IV) its basic agreement with our analysis. The Department'sletter states that it is trying to increase its efforts inorder to submit all of its accounting systems to us by theend of fiscal year 1978.

Department of Justice


The Department has progressed well the past severalyears in securing approval of its accounting systems. How-ever, the administrative accounting system design of the

21

Law Enforcement Assistance Administration was the onlyapproval in this Department during the 15 months ended Sep-tember 1976.

The administrative accounting system design of the Fed-eral Bureau of Investigation was approved in 1977 aL'er theperiod covered by this report. The Bureau has progressedsubstantially in developing this system and will soon haveit operational. Submission of the remaining unapproved Depart-ment accounting systems is scheduled before the end of calen-dar year 1977. The Department and its constituent agencieshave committed about 9 staff-years to submitting these sys-tems. vie believe this commitment is sufficient to attainapproval of most of the Department's systems before the endof fiscal year 1978.

Deeartment of State


Progress in securing approval of accounting, systemsin this Department has been very slow. During 'ne 15-monthperiod we approved only one system: the American payrollsystem design for the Agency for International Development.Among the unapproved systems are the departmental and Agencygeneral accounting systems, the Department's two largest andmost important systems. Since 1959 the Department has setand missed several target dates for submitting these systemsfor approval.

The design of the unapproved departmental accountingsystem has been under development for the past 4 years.Although many portions have been informally submitted to usfor comments, the Department acknowledges that a sizabletask remains on the material it has submitted.

In addition to its departmental accou..ting system, theDepartment has developed a combined payroll-personnel systemwhich covers most of its employees. During the period fromJuly 1976 to September 1976, the description of this payrollsystem was informally submitted to us for evaluation.

The Agency for International Development has two account-ing systems subject to approval--the American payroll system

22

and the general accounting system. The American payrollsystem was approved in September 1976. The general account-ing system design consists of nine segments. Four segmentshad been approved through January 1969; the remaining fivesegments of this system are planned for submission by Novem-ber 1977.

The Department is currently devoting about 8 staff-years to accounting system approval work. We believe thisstaffing should be increased in order that all of the Depart-ment's accounting system designs will have been formallysubmitted for approval through fiscal year 1978 as forecast.Until the Department gives these projects high priority anddevotes adequate resources, including the assignment of qual-ified, full-time personnel, we cannot assure the Congress thatthese accounting systems will be ready for approval as sched-uled.

We submitted a draft of this section of our report tothe Department of State and have incorporated the pertinentportions of its response. The Department's letter is includedin appendix V.

Department of Transportation

Two accounting system designs were approved during the15 months ended September 1976, one for the Federal RailroadAdministration and one for the Transportation Systems Center.Seven of the Department's eight accounting systems have nowbeen approved; four were approved during the past 2-1/2 years,

The accounting system for the Federal Aviation Adminis-tration is the only remaining unapproved system in theDepartment. Except for the payroll portion, it is beingdesigned by a contractor. The contractor had submitted themajor portion of the system, and the Federal Aviation was re-viewing it at September 30, 1976. The design of the remain-ing portion is expected to be submitted for the Federal Avia-tion's review early in 1977. It expects to complete thedesign of the payroll portion in July 1979.

Department of the Treasury

All of the Department of the Treasury accounting systemsshown in appendix II have been approved.

The Bureau of Government Financial Operations is design-ing a unified Treasury accounting and financial reporting

23

system. This system will replace three systems which arepresently approved: (1) central accounting for cash opera-tions, (2) central accounting for foreign currency, and (3)investments accounting operations. The overall project,known as the Accounting Information Management System, willconsist of multiple subsystems and modules. Target datesfor implementing the subsystems and modules extend throughfiscal year 1982.

We reported last year that the U.S. Customs Service wasredesigning its cost accounting system to provide cost dataunder a recently revised program structure. In February1976 a productivity management review was conducted jointlyby the Department of the Treasury and a private contractor.It confirmed that the Customs Service does not have a costaccounting system which would enable the determination ofcosts for its various activities and programs. The reviewalso confirmed that the development of a comprehensive costaccounting system by the Service is an essential prerequisiteto productivity management. Although Customs Service's pro-ject to redesign its cost accounting system would enhancebudget preparation and fund allocation and facilitate pro-ductivity management, it has been deferred pending a furtherreview of the automatic data processing resources relatingto ongoing programs.

The Department of the Treasury is implementing aDepartment-wide integrated payroll/personnel system to replaceits fiscal service and Internal Revenue Service payroll sys-tems. We are working with the Department in developingnecessary procedures and controls, but a target date for sub-mission and approval has not yet been established.

We reported last year that the Bureau of the Mint wasplanning to revise, update, and automate its general andbullion accounting systems into a single financial manage-ment information system. It was to be completed and submit-ted for evaluation in September 1977. Plans for implementingthis system, however, have been postponed pending completionof a long-range automatic data processing plan.

The Bureau of Alcohol, Tobacco and Firearms is develop-ing a financial ma.iagement/planning system. We expect toevaluate tnis system informally during fiscal year 1977.

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ACTION


During September 1974 ACTION hired a public accountingfirm to design and document a revised general accounting sys-tem. ACTION began submitting draft portions of its revisedaccounting system for our evaluation in January 1976. Weexpect the system design to be completed and submitted forapproval in 1977.

At present ACTION employs three staff systems account-ants. One accountant assists the contractor full time incompleting the general accounting system design. The systemsaccountants will be solely responsible for documenting theaccounting system designs for ACTION'S unapproved volunteerreadjustment allowances and payroll systems. The scheduledsubmissions of these two system designs have been delayedfrom March 1976 and June 1976 to September 1977 and September1978.

A lack of personnel to complete the assignments and aconcentrated effort during fiscal year 1976 on the generalaccounting system design caused the submission delays. ACTIONestimates that about 3 staff-years will be expended duringfiscal years 1977 and 1978 to complete its accounting system.Also, ACTION believes it has adequate resources to accomplishthis objective.

Civil Aeronautics Board

The accounting system of the Civil Aeronautics Boardwas originally approved in January 1968. The Board is plan-ning to resubmit its accounting system subdivided into threesystems: (1) administrative accounting system, (2) payrollFystem, and (3) carrier subsidy payment accounting system.The payroll system was approved September 27, 1976. A re-vised statement of accounting principles and standards hasbeen submitted.

Federal Energy Administration

The Federal Energy Administration, established as anindependent agency on June 27, 1974, has one accounting systemsubject to approval. Its statement of accounting principles

25

and standards was approved in July 1975. The Federal Ene.-gyAdministration plans to submit its accounting system designfor our evaluation by June 1977, but it has not done so asof May 31, 1977.

We believe the Federal Energy Administration is cur-rently not devoting enough effort to designin- its accountingsystem. Unless it provides additional resources and giegsaccounting system design work a higher priority, we canriassure the Congress that the accounting system of the FeaeralEnergy Administration will be approved in a reasonable lengthof time. (This system may be absorbed into the new Depart-ment of Energy if the proposal to create that Department isaccepted.)

Federal Home Loan Bank Board

The Board's statement of accounting principles anustandards was approved in June 1972. Its accounting systemdesign, exclusive of the automated portions, was submittedin August 1975 for our informal evaluation. In November 1975we provided our informal comments on needed improvements, buthave not yet received a response. Approval is expected inSeptember 1977.

Federal Mediation and Conciliation Service

The Service's statement of accounting principles andstandards was approved in December 1969. The Service esti-mates that it will complete the accounting system design andinformally submit it for evaluation by December 1977. Thepreviously estimated date was December 1976. The Service hascommitted 1 staff-year to the design efforts during the nextfiscal year. We believe that is adequate, provided the workefforts concentrate on design development and submission toavoid further slippages.

General Services Administration


The Public Buildings Amendments of 1972 Act (Act ofJuly 16, 1972, Public Law 92-313, 86 Stat. 216) created theFederal Building Fund. Effective July 1, 1974, it required

26

a new accounting system for activities conducted by theVrulic Building Service. '"he design of the system has beensubject to revisions during the past 2 years to overcomeproblems and to provide more fully for management needs.Portions of the revised system design were submitted to usfor evaluation beginning in March 1976. Originally scheduledfor submission in December 1974, then extended to December1975, the complete design was submitted in May 1977. Approv-al should occur during fiscal yvcr 1977.

National Labor Relations Board

The National Labor Relations Bcard has one accountingsystem subject to approval. Its submission for our evalua-tion has been postponed on more than five occasions sinceJune 30, 1972. The latest postponement was from December1976 to December 1977. A lack of personnel ssigned to thesystem design has caused the delays. Accorc ig to theBoard's Chairman, five accountants are working principallyon the accounting system design. During the year, however,this staff produced limited design material.

The Board must give this project higher priority peddevote its assigned resources to designing the system,particularly the data processing functions. Otherwise, wecannot assure the Congress that the system will be ready forapproval in the near future.

Veterans Administration


In September 1976 we approved the mortgage loan account-ing system.. This system takes the place of the direct loanprogram and the loan guaranty program accounting systemsapproved in 1953 and 1954, respectively.

The compensation, pension, and education accounting sys--tem has not been approved. We reported las. year thatapproval was scheduled for fiscal year 1978. The VeteransAdministration reported that this system will not be readyuntil fiscal year 1980 and that 3-1/2 staff-years have beencommitted to the design of t..is system during the next fiscalyear. If consistently applied until fiscal year 1980, thiseffort should result in approval of the remaining systell, atthat time.

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District of Columbia government

On December 19, 1975, the Chairman of the HouseCommittee on the District of Columbia requested that we pre-pare a report to (1) summarize the major improvements theDistrict government must make to get its financial systemsin order, (i) evaluate the District government's plans forrevising its accounting systems, (3) determine the prioritiesfor the work which can best be done in the next 2 years by acontractor, and (4) suggest how the Congress, the Districtgovernment, and GAO can best proceed to meet the objectiveof good financial management and financial reporting by theDistrict government. Our report (FGMSD-76-42) was issued onFebruary 27, 1976.

In early February 1976 the Senate Committee on the Dis-trict of Columbia contracted Arthur Andersen & Co. to (1)survey the accounting and financial management practices ofthe District government, (2) define and analyze existingproblems, and (3) develop a plan "leading to the implementa-tion of generally accepted accounting principles and theeventual statement of an auditor's opinion." Arthur Andersen& Co. submitted its report to the Chairman of the Committeeon June 19, 1976.

Primarily as a result of these two reports, PublicLaw 94-399 was enacted on September 4, 1976. Authorizing$16 million, section 2(a) assigns the Temporary Commission onFinancial Oversight cf the District of Columbia responsibil-ity for improving the District government's accounting andother financial management systems. Section 3(a)(1) alsoauthorizes the Commission to E£cure an audit of the District'sfinancial statements for fiscal years 1977 through 1979.

Contractors engaged by the Commission are required toprepare a design or improvement plan for each system. Theplan or design, however, cannot be implemented until it isapproved by the Comptroller General or the Congress (if theCongress elects to override the Comptroller General).

The Commission is composed of six Members of Congress,the Mayor, and the Chairman of the City Council. It firstmet on September 27, 1976, and selected Senator Thomas F.Eagleton as Chairman. We have offered our assistance tothe Chairman of the Commission and have assured him of ourcooperation.

As of May 31. 1977, the Commission had awarded nocontracts.

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CHAPTER 4

ACCOUNTING SYSTEMS IN OPERATION

In addition to approving executive agencies' accountingsystems, section 112(c) of the Accounting and Auditing Actof 1950 requires us to review both approved and unapprovedsystems from time to time. These reviews determine whetheraccounting operations are carried out efficiently, effec-tively, economically, and in conformity with the principles,standards, and related requirements prescribed by the Comp-troller General and approved system designs. We also evaluatethe usefulness of the information provided by the systems andthe effectiveness of internal controls, including internalaudit, over receipts and disbursements, assets and liabili-ties, and obligations and expenditures of appropriations.

During the 15-month period ended September 30, 1976, wecompleted surveys or reviews of about 40 accounting systems,system segments, or related matters. The reviews showeddeficiencies in

--management involvement in designing and acquiringcomputer-based financial management systems;

--internal audits of accounting reports and systems;

-- compliance with system designs approved by theComptroller General;

-- usefulness of accounting information;

-- billing, collecting, and depositing procedures;

--property accounting;

--obligation accounting;

-- automated payroll system controls; and

-- automated travel payments.

We suggest that agencies review systems we have notrecently reviewed to assure themselves that similar deficien-cies do not exist in such systems. The results of some ofour reviews are summarized in the following sections.

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NEED FOR MANAGEMENT INVOLVEMENTIN ACQUIRING FINANCIALMANAGEMENT INFORMATION SYSTEMS

Federal agencies spend millions of dollars each year todevelop computer-based financial management information sys-tems. Contracts with public accounting and management con-sultina firms are used extensively to provide technical as-sistance.

In reviewing accounting systems, we observed that manydevelopmental projects were unduly lengthy, costly, andfrustrating, but that other projects proceeded smoothly.To gain an insight into the reasons for the varying degreesof success, we interviewed Federal agency officials and seniormembers of contractor firms and professional societies. Theytold us their experiences, good and bad, in developingccmputer-based information systems. They also suggested waysfor improving the contracting and systems developmentprocess.

With this information, we prepared a booklet for quidingmanagers involved in information system development projects.The booklet discusses the need for management involvementin 68 key steps in the processes of planning, contracting,designing, developing, testing, implementing, and operatingcomputer-based management information systems. It shouldbe useful to Federal agencies, State and local governments,and contractors. 1/

INTERNAL AUDITS OF ACCOUNTINGREPORTS AND SYSTEMS

Section 113(a)(3) of the Accounting and Auditing Actof 1950 requires the heads of executive departments and agen-cies to provide appropriate internal audit of their systemsof accounting and internal control. Internal audit respon-sibilities include determining whether financial operationsare conducted properly and whether financial reports arepresented fairly. Proper conduct of financial operationsrequires compliance with the principles, standards, andrelated requirements for accounting prescribed by the Comp-troller General. At June 30, 1975, the departments andagencies had about 11,000 professional and administrativepersonnel engaged in internal audit activities.

l/"Lessons Learned About Acquiring Financial Management &Other Information Systems," Aug. 1976, by the ComptrollerGeneral of the United States, Stock No. 020-000-00138-1,may be purchased from the Government Printing Office.

30

We recently began an overview of the level of auditeffort by the Federal agency internal audit organizationsin financial operations and have issued reports on our find-ings to the heads of the Departments of Labor and Agricultureand the Veterans Administration. At September 30, 1976, wehad completed reviews at the Departments of Justice and theInterior, and we planned to provide for similar reviews atother departments and agencies.

Our review at the Department of Labor indicated thatthe current audit effort did not adequately cover internalfinancial operations. Personnel 'shortages limited most ofthe audit work to external operations. 1/ The study at theDepartment of Agriculture, however, showed that the internalauditors were providing adequate financial coverage. 2/

Our Veterans Administration review disclosed a needfor the staff to identify fully all of its programs (suchas the various benefit programs representing 75 percent ofthe agency's obligations) and to implement a plan to provideaudit coverage for those programs. Also, the appropriateaudit staff size and its location within the organizationshould be determined. 3/

We surveyed the extent of internal audits of financialreports submitted to the Department of the Treasury and ofthe accounting systems that produced the reports in 28 de-partments and agencies. These agencies account for about90 percent of the Government's gross obligational authorityand operate about 250 accounting systems.

Twenty-eight percent of the agencies said their policywas to audit their accounting systems, and 22 percent toaudit their Treasury reports, on cycles ranging from 1 to7 years. The remainder said thei. policies were to makesuch audits irregularly or not at all. Twenty-five percentof the agencies, however, said they planned to change theirpolicies to permit more reports to be audited.

In a report to the heads of audit agencies, we recom-mended increased emphasis on internal audits of accountingsystems and accounting reports sent to the Treasury. We

1/FGMSD-76-67, June 25, 1976.

2/FGMSD-76-84, Oct. 8, 1976.

3/FGMSD-77-3, Nov. 19, 1976.

31

based this recommendation on the results of our survey, ournumerous reports on major deficiencies in systems, and theTreasury's need for reliable information for its consolidatedfinancial statements. 1/

In other reviews, we found that the Civil AeronauticsBoard, Federal Power Commission, Railroad Retirement Board,and White House Office all needed to increase their internalaudits.

COMPLIANCE WITH SYSTEM DESIGNSAPPROVED BY THE COMPTROLLER GENERAL

During the 15-month period, we reviewed nine systemsthat had been previously approved by the Comptroller Generalto determine whether they were being operated in compliancewith their approval designs. Changes requiring reapprovalhad been made, or were being made, in four of the followingnine systems.

Medical Materiel,epartment of the Air Force

The Air Force Medical Materiel accounting system was ap-proved in October 1973. The system is the base-level financialreporting system for the Air Force Medical-Dental Stock Fund.

We found that the accounting system had been implementedin accordance with the system design. Our test of the sys-tem in operation, however, disclosed an operating weakness inwhich the system processed invalid transactions which were notrejected or identified as errors. Air Force officials statedthey are taking action to improve the system's program editsto insure that transactions are processed correctly. 2/Printin and Duplicatin Industrial Fund,

_Departmet of the Alr Force

The industrial fund accounting system for printing andduplicating services was approved in February 1970.

Based on our work at Robins Air Force Base, Georgia(the host installation), we concluded that the accountingsystem was operating in accordance with the approved system

1/FGMSD-76-43, June 18, 1976.

2/FGMSD-76-35, Jan. 2, 1976,

32

design. (The same system design had been implemented at sixother Air Force printing and duplicating plants.) We found,however, that Robins had no procedures for obtaining reim-bursement from the printing plant industrial fund for thecost of support services, including the costs to (1) prepareand maintain the employment records of civilian personnel as-signed to the printing plant, (2) process and prepare thepayroll and maintain related records for civilian employees,and (3) provide fire protection, plant security, and auto-matic data processing.

Officials at the Air Force Accounting and Finance Centerstated that the Air Force was in the process of revising in-structions to require that all Air Force industrially fundedprinting plants reimburse host installations for supportservices. 1/

Bureau of Indian Affairs,Department of the Interior

The Bureau of Indian Affairs accounting system designwas approved in January 1953. The system is being redesignedand will be submitted to the Comptroller General for approvalin fiscal year 1978.

We reported to the Secretary of the Interior that thesystem being operated needed improvements in

--controlling receivables and advances,

--recording and reporting obligations,

-- taking avai]able discount.s,

-- controlling and documenting its automated personnel-payroll system, and

-- managing and accounting for personal property.

We made several recommendations to the Secretary of theInterior to improve the Bureau's accounting system. TheDepartment agreed with all of our recommendations and advisedus of specific actions taken, underway, or planned by theBureau for improving accounting practices throughout the or-ganization. 2/

1/FGMSD-76-4, Aug. 18, 1975.

2/FGMSD-76-15, Mar. 11, 1976.

33

Immigration and Naturalization Service

Our review of the Immigration and Naturalization Serviceaccounting system showed that it was being operated generallyin accordance with the system design approved on April 18.1967.

We found certain weaknesses in a regional office in ac-counting for property, collecting delinquent accounts receiv-able, and handling collections. We observed that the Serviceissued a receipt for collection only when the payer requestedit. We also noted that the Service had no statement of policyon how fees were to be established.

We reported to the Commissioner that corrective actionhad been promised on all matters except issuing receipts forcollections. We recommended, therefore, that the Serviceissue prenumbered or cash register receipts for all cashcollections to record the transaction and give the payer areceipt. 1/

As a result of our recommendation, the Service studiedits controls over cash and valuables. At September 30, 1976,the Service was evaluating its results to determine whatactions it would take.

Public Works Centers,Department oY th-e Nav

The industrial fund accounting system for Navy PublicWorks Centers was approved in March 1974.

We reported to the Secretary of Defense that the systemwas being operated in accordance with the approved systemdesign. We also found it was substantially in compliancewith the principles, standards, and related requirementsfor accounting prescribed by the Comptroller General. Tworequirements, however, had not been fully implemented:

-- Funding by customers of major maintenance, repairs,and alterations (before the industrial fund incurssuch costs) will be restricted to a 12-month periodbeginning with the date of approval of the project.

-- Funded and unfunded liability for unused annual leaveof employees of revolving fund activities will beseparately identified.

1/FGMSD-76-22, Nov. 12, 1975.

34

The above requirements apply to all Department of Defense in-dustrial funds.

At September 30, 1976, we were evaluating another Navyindustrial fund system design. We will determine whetherthe Department of Defense has taken appropriate action torequire the above features to be implemented at all indus-trial fund activities. 1/

Civil Aeronautics Board

The Board's accounting system was approved in January1968.

In our report 2/ we stated that although our review ofthe Board's system Had not been completed at June 30, 1975,the Board had already agreed to take action on several matterswe brought to its attention, including

-- reporting internal audit findings to the Board'sManaging Director instedd of to the Comptroller,--resubmitting to the Comptroller General for approvalthree segments of the accounting system that hadbeen substantially changed subsequent to approval,-- providing quarterly independent reviews and auditsof pay actions,

-- performing annual inventories of property, and-- developing a 5-year internal audit program forcomprehensive coverage of financial activities.In a report to the Chairman of the Civil AeronauticsBoard, we pointed out that the actions promised had notbeen taken. The Board informed us of steps taken or plannedto correct the deficiencies we brought to its attention dur-ing the review and in our report. 3/

1/FGMSD-76-52, Mar. 18, 1976.

2/FGMSD-76-13, fiscal year 1975 report on "Status, Progress,and Problems in Federal Agency Accounting."

3/FGMSD-76-20, Dec. 19, 1975.

35

Federal Power Commission

The Commission's accounting system was approved inJune 1965.

We found that the payroll subsystem had been substan-tially changed since the system was approved but had notbeen resubmitted to the Comptroller General for approval.l;e also observed that

-- not all the accounts were maintained on a doubleentry basis,

-- not all property was inventoried annually and recon-ciled to property records and the general ledger con-trol accounts, and

-- internal audits were not made annually.

Their manual for the approved system required all of theabove.

We reported these matters to the Chairman and recom-mended that they be corrected. We also recommended ways tosimplify the procedures used to process and record billingsand collections. 1/ The Chairman informed s that the Com-mission has corrected all of these matters.

Railroad Retirement Board

The accounting system of the Railroad Retirement Boardwas approved in 1971.

We reported to the Chairman of the Board that the ac-counting system was being operated in accordance with theapproved system design. However, the internal reviews ofaccountable officer functions and financial reports, inven-tories of personal property, and procedures for controllingcollections should be improved.

We proposed several actions to the Board for strengthen-ing and expanding its procedures. The Board agreed with ourproposals and is implementing our recommendations. 2/

1/FGMSD-76-19, Oct. 16, 1975.

2/FGMSD-75-50, July 30, 1975.

36

The Board was in the process of converting its generaland subsidiary ledgers from a manual system to an automaticdata processing system. We advised the Board that thesechanges should be discussed with our representatives and, ifappropriate, submitted for approval of the Comptroller Gen-eral.

The White House Office

The accounting system for the White House Office wasapproved in October 1969. The Office is planning majorrevisions to the accounting system, including extensive useof automatic data processing techniques.

In response to a request from the Counsel to the Presi-dent, we reviewed the system of control over funds, property,and other assets for the period July 1, 1969, to August 9,1974. We reported that (1) many disbursements were not sup-ported by documentation needed to show that goods and servicespurchased were properly authorized and received, (2) equip-ment was lost or missing, indicating that property account-ing controls (including physical inventory procedures) neededimprovement, and (3) improvements were needed in controls andprocedures for preparing payrolls, keeping time and atten-dance records, and accounting for employees' leave to prev..iterroneous salary payments. The White House Office agreed withour findings and suggestions to correct weaknesses in itsaccounting operations and have taken or are planning to takecorrective actions.

We commented that Fame of the problems we identifiedmight have been corrected sooner if the White House Officehad had an internal audit staff to review its operations ona regular basis. We recommended that the Staff Secretary tothe President establish an internal audit staff to servethe White House Office and other agencies in the ExecutiveOffice of the President. The Counsel to the President saidthat the Office would study further the feasibility of sucha staff and pursue it with other agencies in the ExecutiveOffice of the President. 1/

REVIEW OF DEPARTMENT OF DEFENSE SYSTEMSBY INTERNAL AUDIT AGENCIES

The Department of Defense had been obtaining the ap-proval of the Comptroller General of a substantial number

1/FGMSD-76-34, Sept. 2, 1976.

37

of accounting systems the past few years. We have encouragedthe internal audit agencies in the Department to review sys-tems shortly after they have been approved to determinewhether they are being operated in compliance with their ap-proved designs.

During the 15-month period ended September 30, 1976,interral audits of five Air Force, five Navy, and one Officeof the Secretary of Defense systems were completed or in pro-cess at the close of the period.

USEFULNESS OF ACCOUNTINGINFORMATION

Our review of hospital accounting systems in the Depart-ment of Defense inricated that the information they producedwas of limited usefulness. For example:

-- The hospital accounting system prescribed by theNavy produced reports which were of no use to hos-pital managers, because the reports did not accumu-late costs by responsibility area. A locally de-vised system reported costs by responsibility area,but excluded the most significant co .s--the costsof civilian and military personnel.

-- The information provided to the Department of De-fense by the Army, Navy, and Air Force systems wasaccumulated on different bases and, therefore,could not be compared.

We recommended that the Navy system be modified to ac-commodate the cost-information needs of hospital management.We concluded that a standardized Defense-wide accounting sys-tem for hospital cost and workload data is desirable. 1/

BILLINGS AND COLLECTIONS

Several deficiencies in the systems and practices usedto bill, collect, and deposit amounts owed to the Govern-ment were observed.

Tuition charsfores for forein military students

The Air Force used obsolete or incorrectly computedtuition rates to establish the charges to foreign governments

1/FGMSD, July 8, 1975, and FGMSD-76-70, Aug. 23, 1976.

38

for training their students in Air Force schools. We esti-mated that at least $5.7 million of costs incurred in train-ing such students during fiscal year 1975 was not recovered.

Actina on our recommendations, the Air Force changed itsbilling sy.tem to insure that current tuition rates are used.We estimated that, as a result, the Air Force will collectan additional $17.3 million in revenues from foreign govern-ments for training provided during fiscal year 1976. In ad-dition, the Air Force is rebilling foreign governments torecover about $4 million not previously charged because out-dated and incorrect tuition rates were used. 1/

Technical assistance and trainingservi-ces eov-e tofeigien governments

We reported to the Secretary of Defense that no actionhad been taken on recommendations made by the Department'sinternal auditors. They had recommended that a study deter-mine all the costs of providing technical assistance andtraining to the armed forces of Iran and that reimbursementfor such costs be obtained. The auditors estimated thatabout $28 million in fiscal year 1976 costs would not berecovered unless such action is taken.

We recommended that DOD make the study and recover thefull costs for technical assistance and training servicesprovided to Iran. 2/ The Department has told us that it isacting to assure that all costs incurred in support of the.Government of Iran will be recovered.

Mortgage insurance premiums

The Department of Housing and Urban Development insureslenders against losses on home mortgages guaranteed under anumber of Federal programs. The homeowners pay insurancepremiums monthly to the lenders. The lenders are requiredto send the premiums to the Department when billed for them.The Department is supposed to bill the lenders annually andfollow up to see that the bills are paid.

We observed that the Department's records of insuredmortgages were not complete and accurate (which resulted in

1/FGMSD-76-21, Dec. 1, 1975.

2/FGMSD-76-64, July 13, 1976.

39

incomplete and inaccurate billings) and the Department didnot effectively follow up delinquent payments. The accountsshowed that on February 1, 1976, about 6,400 lenders weredelinquent in paying about 285,000 mortgage insurance pre-miums totaling over $20 million. About $9 million had beendelinquent for 6 months or longer. After learning of ourintention to audit the lender's records, a lender who hadnot made payments for 10 months remitted over $1.6 millionto the Department.

In our report to the Secretary of Housing and UrbanDevelopment, we recommended that the Department improve itssystem of accounting for billing and collecting mortgageinsurance premiums and take prompt and aggressive action tocollect delinquent accounts. We also recommended that theSecretary consider whether interest should be charged on de-linquent payments. 1/

The Department told us it is taking action to collectdelinquent premiums and that a new, automated system, sched-uled for implementation in June 1978, will correct the otherproblems.

On August 20, 1976, the Chairman of the Subcommitteeon Manpower and Housing of the House Committee on Govern-ment Operations requested the Department to explain in de-tail what it has done in response to the shortcomings dis-closed in our report.

Taxes on Scquired residential _properties

On November 26, 1975, we reported to the Congress thatthe Department of Housing and Urban Development lacked ade-quate controls in its tax payment system for single residen-tial properties acquired by the Department to insure accurateand prompt payment of taxes. Also, the tax data records con-tained numerous errors. As a result, the Department

-- paid taxes on properties it did not own,

-- failed to pay taxes it owed,

-- made late tax payments and thereby incurred unneces-sary penalty and interest costs,

--duplicated payments on some properties, and

1/FGMSD-76-54, May 5, 1976.

40

-- did not receive credit from local tax authoritiesfor delinquent taxes paid to property buyers atthe time of sale.

We furnished the Department with details on our findingsand suggested ways to improve the system. We recommended itconsider using automatic data processing, establish an ac-curate accounting of tax liabilities, and have local officesverify the status of acquired property and related tax data.

We presented the results of our review in testimony onSeptember 25, 1975, before the Subcommittee on Manpower andHousing, House Committee on Government OpeLations. The De-partment generally concurred with our findings and agreedto take corrective action in line with our suggestions. 1/

Sealift tariffs

The accounting and billing system of the Military Sea-lift Command was not structured to identify the costs ofspecific shipments to various parts of the world. As a re-sult, the tariff structure did not contain rates which werecommensurate with the cost of the services provided. Custom-ers were not aware of the costs incurred in satisfying theirrequirements. Nor were Military Sealift Command managementand the Defense Department provided with adequate cost infor-mation regarding sealift route services.

Our legal analysis of statutes governing the operationsof the Military Sealift Command indicated that tariffs arerequired which more accurately reflect true cost. Privatecarriers doing business with the Mi.itarv Sealift Commandare required to make available actual cost data by route.The Military Sealift Command, however, had not made - studyto determine the feasibility of accumulating costs by traf'ficroute.

Accordingly, in our report to the Secretary of Defensewe recommended that a task force be established. It shouldidentify and evaluate alternative methods for developingrates reasonably commensurate with the cost of providingsealift services on a traffic route basis.

The Defense Department agreed that tariff rates forocean transportation should be generally commensurate with.

1/FGMSD-76-24, Nov. 26, 1975,

41

the cost of providng the services but did not agree that atask force was needed. Consequently, no action has been takenon our recommendation. 1/

Dep i ceipts

We surveyed six Federal agency field offices in Chicagoto see whether collections were being deposited promptly tohelp minimize Treasury borrowings and associated interestcosts to the Government. The agencies included the Depart-ments of the Army, Labor, and State; the Social Security Ad-ministration; the Veterans Administration; and the U.S. Dis-trict Court.

We reported to the agencies that our survey showed thatsome offices were not making timely deposits because:

-- No formal instructions existed requiring that depositsbe made promptly.

---Cash was being held unnecessarily until the collectiontransactions were processed and recorded.

--Cas., was transferred to other field offices for depositin banks rather than using local banks.

The agencies took or planned to take actions to improve theircash management practices. 2/

We reported to the Department of Agriculture that theFood and Nutrition Service did not verify that cash collectedfor the food stamp program was promptly and fully depositedby the issuing agents for the account of the United States.Also. the Service did not reconcile its cash accounts withthe Treasury's accounts. During fiscal year 1975 collectionsfrom the sale of food stamps amounted to about $3 billion.We will evaluate the corrective actions the Department takeson these matters. 3/

We found the processing of cash receipts needed improve-ment at the Civil Aeronautics Board, Federal Power Commission,Immigration and Naturalization Service, and Railroad Retire-ment Board.

1/FGMSr'-75-51, July 29, 1975.

2/FGMSD. Apr. 7, 1976.

3/FGMSD-76-36, Apr. 7, 1976.

42

AUTOMATED TRAVEL PAYMENTS

The Department of Agriculture has centralized and auto-mated the processing of employees' travel advances and travelvouchers in its National Finance Center in New Orleans.Our review of its controls showed:

--Procedures to identify and recover excessive out-standing travel advances, including those made toformer employees, needed improvement.

-- About $4.4 million in excessive or unwarranted traveladvances needed to be collected.

-- Computer system documentation needed to be improvedand physically controlled.

--Duplicate copies of computer system documentation anddata files needed to be stored at a remote locationto permit operations to continue if the computer sitewere to be damaged or destroyed.

--A computer edit check was needed to prevent duplicatepayments.

--Clarification of responsibility for preauditing travelvouchers to eliminate duplication of effort was needed.

The Department began correcting the problems. 1/

PROPERTY ACCOUNTING

We found that many agencies had problems with propertyaccounting. The problems of two agencies are described be-low. Somewhat similar, if less severe, problems were alsonoted in reviews of the accounting systems of the Bureau ofIndian Affairs, Civil Aeronautics Board, Federal Power Com-mission, Immigration and Naturalization Service, RailroadRetirement Board, and the White House Office.

Contractor-held property, Employment andTr-ii - Adminstration, Department of Labor

Our review, made at the request of the Department's Con-troller, showed that the Employment and Training Administra-tion (1) had no systematic way of following up to insure thatproperty acquired by contractors nad been accurately reportedfor inclusion in property accounting records, (2) was not

1/FGMSD-76-38, Jan. 19, 1976.

43

using predetermined control totals to assure that all datawas controlled when entered into the computerized system andprocessed, (3) had inadequate controls to insure that alltransactions rejected because of errors were corrected andprocessed, and (4 had not fully implemented physical inven-tory verification of property.

During our review we discussed with Employment andTraining officials the need for improvement in the pro-perty control system and our suggested corrective actions.We believe the corrective actions taken or planned by theofficials on our suggestions will improve the accountabilityfor the Government's investments in property in the custodyof contractors and grantees. 1/

National Aeronautics and Space Administration

At June 30, 1974, the National Aeronautics and SpaceAdminstration had equipment and material valued at about$4.3 billion.

On January 16, 1976, in a report to the Congress, wedescribed how major deficiencies in the operation of theproperty accounting system of the National Aeronautics andSpace Adminstration had weakened its control over equipment.In some cases, it had even resulted in the purchase of equip-ment identical to idle items already on hand.

Our review demonstrated that:

-- Millions of dollars worth of property was notrecorded in accounting records.

-- Improve0 accounting for unused capital equipmentcould result in substantial savings.

--Property losses could be reduced through improvedcontrol and followup procedures.

-- Physical inventory procedures needed strengthening.

We made a series of recommendations to the Administrator,National Aeronautics and Space Adminstration, to improve theproperty accounting and control system. In addition, werecommended that the Adminstrator direct his internal auditstaff and inspection teams to review actions taken to correct

1/FGMSD-76-39, Mar. 3, 1976.

44

the deficiencies. We also suggested he direct responsibleofficials to give the property management functions con-tinuous attention warranted by the sizable investment.

The National Aeronautics and Space Adminstration saidit will emphasize to line managers the importance of pro-perty management, correct all known deficiencies, reviewproperty management at each center every 2 years, and haveits internal auditors systematically follow up to see wheth-er corrective actions have been taken.

This is the fifth report we have made since 1968 on de-ficiencies in its property accounting. Its internal auditactivities have also repeatedly shown weaknesses in propertyaccounting. 1/

Many of the deficiencies cited in the report could havebeen prevented if the National Aeronautics and Space Adminis-tration had responded effectively to findings and recommenda-tions in our prior reports. 2/

OBLIGATION ACCOUNTING

Violations of the Anti-Deficiency Act and other problemsare likely to occur when obligations of appropriations arenot properly controlled and accounted for. Some examplesfollow.


The Chairman of the House Committee on Appropriationsasked us to review an alleged violation of the Anti-DeficiencyAct (31 U.S.C. 665) by the U.S Army Electronics Command. Wereported that an audit performed by the Army showed a de-ficiency of about $40 million existed in a fiscal year 1972procurement appropriation. We also reported that the precisereasons for the overobligation may never be determined be-cause ledgers and journal vouchers had apparently been lostduring a reorganization and move and also the Army may findmore overobligations. 3/

1/FGMSD-75-27, Jan 16, 1976.

2/B-164674, Aug. 28, 1968; B-158390, Nov. 8, 1968, andJuly 31, 1970; and B-169658, Aug. 11, 1970.

3/FGMSD-76-2, Sept. 8, 1975.

45

In October 1975, the Army notified the Chairman thatthere had beei a serious breakdown in controls over procure-ment appropriations and that more overobligations may haveoccurred. In April 1976, the Army reported that it hadidentified $205 million of overohligations in three procure-ment appropriations and was investigating nine other ap-parent violations of the law.

In accordance with a second request from the Chairman,we are reviewing the procedures the Army used to determinethe amounts and causes of the overobligations and whetherimprovements have been made in accounting systems to helpprevent future violations.

Department of the Navy

Each year the Navy was systematically deobligating, with-out proper justification, millions of dollars of obligationsand accounts receivable pertaining to expired appropriations.From June 30, 1973, to June 30, 1975, such deobligations andwriteoffs amounted to $90 million. As a result, the Navydid not have adequate accounting control over obligationsand receivables. Further, its financial reports did not ac-curately show (1) obligations and liabilities it had incurred,(2) accounts receivable, and (3) withdrawals from and restora-tions to expired appropriations.

In our report to the Secretary of Defense, we recommendedthat the Navy (1) change accounting procedures to requirethat obligations and receivables be accounted for insuccessor accounts, (2) reestablish in successor accountsthose obligations and accounts receivable which were deobli-gated or written off and against which future expendituresor collections were anticipated, and (3) have its accountingstaff or internal auditors periodically review the validityof obligations and the balances of accounts receivable. 1/The Department of Defense informed us that the Navy willimplement our recommendations.

Equal Emlloment O ortunity Commission

At the request of the Chairman, Subcommittee on State,Justice, Commerce, the Judiciary and Related Agencies, SenateCommittee on Appropriations, we reviewed violations of the

1/FGMSD-76-45, July 2, 1976.

46

Anti-Deficiency Act and other financial management mattersat the Equal Employment Opportunity Commission.

We reported to the Chairman of the Subcommitee that wehad identified $128,961 in overobligations of the fiscalyear 1974 appropriation and the Cvmmission had identified$55,000 in overobligations. These amounts were in additionto the $800,000 in overobligations of the fiscal year 1974appropriation which the Commission had previously reportedto the Congress and the President. Also, the Commissiondid not validate its 1974 obligations, even though this isrequired under section 1311 of the Supplemental Appropria-tion Act of 1955. Its fiscal records were chaotic, con-tracting procedures and practices needed improvement, and amove to a new office was costly and poorly administered.

We informed the Chairman that as a result of strongcorrective measures taken during our review, the Com-mission had progressed in establishing controls over itsobligations. The Commission had taken action to insurethat funds were available before obligations were incurredand to improve the accuracy and timeliness of its financialreports.

We made several recommendations to the Chairman of theCommission to improve its control over financial operationsand reporting and to strengthen and improve its contractingprocedures and practices.

The Commission agreed with our recommendations and hastaken or plans to take actions to correct the deficienciesidentified in our reports. The Commission is redesigningits accounting system and plans to submit the redesign tothe Comptroller General for approval. 1/

AUTOMATED PAYROLL ACCOUNTING

Out reviews of automated payroll systems showed thatcontrols in automated systems should be strengthened andthat the use of composite checks should be increased.


In fiscal year 1975 the auton.ated payroll system of theU.S. Army Military District of Washington processed pay andallowances of about $383 million for 24,00 employees. We

1/FGMSD-76-12, Apr. 5, 1976.

47

reported to the Congress that because of weaknesses in theDistrict's computerized payroll system, it could not be re-lied upon to produce accurate payrolls or to protect theGovernment from improper payments.

The District's payroll system did not contain essen-tial internal controls necessary to reduce the possibilityof unauthorized payments, fraud, and errors. We thereforerecommended that the duties of pay clerks and other em-ployees should be separated, computer programs should pro-vide necessary checks and edits of data, and effectivephysical control over equipment, files, and negotiable in-struments should exist. The Army had taken or planned totake actions on our recommendations where feasible to assurethat the District's civilian payroll system included adequatecontrols. The Army pointed out, however, that it was devel-oping a standard Army civilian payroll system and that itwould contain all the controls discussed in our report. 1/

Department of Commerce

The accounting system design was approved in February1970.

On November 10, 1975, we reported to the Secretary ofCommerce on the results of our review of the Department'scomputerized payroll system. Our review showed there weremany opportunities to improve payroll operations by

-- improving controls over source documents,

-- providing for more effective edit checks,

--improving reports and records,

-- reconciling personnel and payroll files to sourcedocuments, and

-- improving security over computer resources.

We also reported opportunities for improving internalaudits of the payroll operations. The Office of Audit hadmade only limited reviews of the automated parts of the pay-roll system and had not participated in designing and devel-oping the system.

1/FGMSD-75-26, Oct. 9, 1975.

48

We recommended to the Secretary of Commerce ways ofimproving the operations of the payroll system, includingmore effective use of internal auditors in the design anddevelopment of automated systems and reviews of the systemsafter they become operational.

The Department generally agreed with our recommendationsand has taken or plans to take actions to insure that thepayroll system includes adequate internal controls. 1/

Department of Health, Education, and Welfare

On August 24, 1976, we issued the first of a series ofreports to the Secretary of Health, Education, and Welfareon our review of the Department's centralized payroll system.We advised the Secretary that we would be reporting as soonas each segment of the review was completed so that timelycorrective action could be taken.

The report covered that part of the payroll systemrelated to the Department's procedures for processing un-deliverable payroll checks returned to the Department of theTreasury for canceling, remailing, or reissuing. The reportalso included comments on erroneous pay records and wage andtax statements (W-2s) of selected employees whose checks theTreasury had canceled. We pointed out that the Departmentneeds to (1) improve its procedures and practices to mini-mize the possibility of errors and irregularities involvingunderliverable payroll checks and (2) record canceled checkadjustments more promptly and in the proper year's pay record.

We made several recommendations to the Secretary ofHealth, Education, and Welfare for correcting the defi-ciencies noted in the report. 2/

Other systems

Somewhat similar weaknesses were noted in the payrollsystems of the Bureau of Indian Affairs and the CivilAeronautics Board.

__------ ----

1/FGMSD-76-3, Nov. 10, 1975.

2/FGMSD-76-68, Aug. 24, 1976.

49

Direct deposit of eay

In 1974, the pay of 864,000 Federal employees (about19 percent of the Federal work force) was sent directlyto banks. By use of composite checks for such deposits,the Treasury estimated the Government saved about $2.3million in check-writing costs. There is potential foreven greater savings if Federal agencies encourage moreemployees to have their pay directly deposited in banks.

Efforts by agencies to promote employee participationhave varied considerably. The Air Force had 45 percentparticipation and about $1.2 million of the $2.3 millionGovernment-wide savings. Several other agencies eitherhad not implemented direct deposit or composite checkprocedures or had £mplemented them only to a limitedextent. If the AiL Force's 45 percent participation ratewas achieved Government-wide, an additional $3 millioncould be saved.

In view of such potential savings, we concluded thatFederal agencies should more positively promote the directdeposit of paychecks and the use of composite checks. tieTreasury should also assist agencies in promoting tne program.

The report was sent to the heads of all Federal depart-ments and major agencies who were asked to make sure theprogram received appropriate management emphasis and thatresponsibility for the program be assigned at a high level.The Treasury generally agreed with the recommendations. 1/

1/FGMSD-76-11, Nov. 11, 1975.

50

APPENDIX IAPPENDIX I

STATUS OP APPROVALSAND EVALUATIONS

D.C.govern-ment

Defense Civil (note a) Total

PRINCIPLES AND STANDARDS:Approved during fiscal year 0 2 2APproved as of June 30, 1975, adjusted

total 165 165 1 331

Approvals as of Sept. 30, 1976 165 167 1 333Submitted formally for approval as of

Sept. 30, 1976

Approved or submitted on Sept. 30,1976

165 167 1 333Submitted informally for evaluation - 5 5Not under evaluation

Total systems subject to ap-proval at Slpt. 30, 1976 165 172 1 338

SYSTEM DESIGNS:Approved during fiscal year 23 8 31Approved as of June 30, 1975, adjustedtotal

35 111 146Approvals as of Sept. 30, 1976 58 119 - 177

Submitted formally for approval as ofSept. 30, 1976 - -

Approved or submitted on Sept. 30,1976 58 119 - 177

Submitted informally for evaluation 21 18 1 40Not under evaluation 86 35 - 121

Total systems subject to ap-proval at Sept. 30, 1976 165 172 1 338

I/Actual number of accounting systems not yet determined.

51

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APPENDIX II APPENDIY II

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79

APPENDIX III APPENDIX III

DEPARTMENT OF HEALTH,. EDUCATION. AND WELFAREOFFICE OF THE SECRETARY

WASHING-TON. DC. 2aaOI

MAY 4 1977

Mr. Donald L. ScantleburyDirector, Financial and GeneralManagement and Studies Division

United States General Accounting OfficeRoom 60001441 G Street, N.W.Washington, D.C. 20548

Dear Mr. Scantlebury:

Thank you for the opportunity to comment on the proposed draft reportwhich you are pla'ning to send to Congress on the status of accountingsystems approval.

My main concern is that the tone of your report indicates HEW has littleinterest in obtaining approval of systems whereas a year ago we made itan important priority on our agenda. Conversely the report does not rec-ognize that GAO has been unable to assign sufficient resources to reviewsystems documentation developed by HEW and provided to GAO. Presently,you have only two persons assigned to the HEW project. At times in thepast the assigned staff were reassigned to higher priorities, some ofwhich lasted several months, or given additional assignments while theoverall oroduction schedule slipped.

SSA is a recent case that illustrates slippage. Over a year ago weagreed to develop a three party (OS, SSA, GAO) memorandum of understand-ing. This was signed in June 1976. The memorandum calls for a reviewof SSA systems by joint effort of all parties. SSA has hiad its peopleready since last June; but your staff has advised us several times thatGAO has been unable to find staff for the review.

It is true that HEW has mazy systems which a.re subject to approval bythe Comptroller General and, to date, they have not been formally sub-mitted for review and approval. However, your proposed report summary(which is all that most people read) showing that only 5 of 19 systemshave been approved is misleading since it gives no recognition to thefact that your office has two systems under current review, one awaitingreview, and still another to be submitted tr you shortly. It also doesnot recognize that the remaining systems are in various stages of devel-opment, some of which will be submitted for review within the currentyear. The reader is left with the erroneous impression that for 14 sys-tems little or no progress has been made to date. We believe that our

80

APPENDIX III APPENDIX III

desire and commitment to have HEW systems approved should be recognized.

I am pleased to learn that your representatives agreed at a meeting withDave Dukes on April 27 that the review of systems should "freeze" thedocumentation as of a specific point of time rather than insist, as hasbeen past practice, that all changes be reflected through the currentdate. This change should recuce significantly your overall review timeand improve productivity. I am also pleased to learn that your staffwill explore alternative methods of reviewing HEW's systems as part ofyour upcoming review of the National Institute of Education system. Inthis respect we are considering elimination of the cumbersome and time-consuming informal review phase.

HEW staff made attempts this past year to have your office participatein a tracking system whereby progress can be monitored and evaluated.It is my understanding that agreement was reached at the April 27 meet-ing to establish such a tracking system. This will help to identifyissues which need higher level attention.

I hope that these comments will be incorporated in your summary and de-tailed report to the Congress. Furthermore, we believe it is importantthat GAO make a firm conuitment to the Department that adequate resourceswill be r;signed to maintain the review schedule.

Sincerely yours,

D. YoUngAsi stant Secretary forLAanagement and Budget

81

APPENDIX IV APPENDIX IV

United States Department of the InteriorOFFICE OF THE SECRETARY

WASHINGTON, D.C. 20240

APR 2 .9 77Mr. Donald L. ScantleburyDirector, Financial and General

Management Studies DivisionGeneral Accounting Office441 G Street, NWWashington, D.C. 20548


Thank you for forwarding an advance draft of relevant portions of theGeneral Accounting Office's annual report 'o the Congress on the"Status, Progress ard Problems in Federal Agency Accounting." Webasically agree with your findings relative to the Department of Interior.

As you know, Congress has imposed strict budgetary constraints on theDepartment and its bureaus thereby limiting our ability to assign staffto system documentation and approval areas. This situation is particularlyserious in the Office of the Secretary since it has further influencedour ability to provide direction and assistance to the bureaus. Further-more, much of the bureaus' efforts must, of necessity, be spent on theirown operation and maintenance ploblems. This has diverted their stafffrom working toward GAO approval of their systems.

However, the situation is brighter than it appears in the draft report.We ere pleased to report that the Denver Inter-Bureau Payroll Systemdesign was submitted by the Bureau of Mines in April 1976 to GAO forreview and approval. GAO completed its review in January 1977 and is with-holding approval of the system in its entirety solely because of thetimekeeping practices followed by one of the system's participants. Assoon as this problem is resolved, this system should be approved. In addition,extensive work took place durinlg fiscal year 1976 on the documentation ofthe Office of the Secretary's system. As you know, this system was submittedin December 1976 to GAO for review and approval. We appreciate the promisemade by members of your staff to provide consolidated comments on thedocumentation as soon as possible. It is anticipated that this systemwill also be approved this fiscal year.

Be ae;ured that the Department is now making every effort to accelerateits efforts and commitments toward the submission of all of its accountingsystems to GAO by the end of fiscal year 1978.

Sincerely yours,

BylT AVi- bD Richard R. Hitefo d a d I nDeputy Assistant Secretary-

>m w ^4Policy, Budget and Administration

1'?,· .19 82

82

APPENDIX V APPENDIX V

DEPARTMENT OF STATE

IWatt0to· D.C C 22n

April 12, 1977Mr. D. L. Scantlebury, DirectorDivision of Financial and

General Management StudiesUnited States General Accounting OfficeWashington, D.C. 20548


I certainly appreciate the opportunity to conment uponyour draft report to the Congress.

I can concur that the Department has, for a number of years,missed its deadlines. however, I would like to encourageyou to modify your report to reflect what we feel moreclosely represents our present status. vhen I read theComptroller's letter there is no indication that uuring 1976we informally subaiitted to GAO our payroll system which isone of our major systems. itr, is there any indicationeithr in the letter or the att~aclnexnLs that State has in-formally submitted the majority of its overall accountingsystem. I recognize that the GAO has some problems withour submissions and a sizeable task remains to be accom-plished.

I believe the Department has ma~L more progress than theletter or report would lead the reader to believe, andwould appreciate your cooperation in modifying your stance.

It is true our Systems Staff is small, but with th'. redLt-tions in personnel the Department has been requirjd to absorbover the past few years, and with the additional reductionsv'eizig projected over the next two years, we cannot forecast"n increase in the Systems Staff at this time.

We will continue to make every effort to achieve a financialmanagement system which will satisfy the needs of the Depart-ment's management and will at the same time satisfy the legaland regulatory requirements. We will be pleased to discussthese matters further should you so desi:e.

Sincerely, ,

Di , r . Williamson, Jr.Deputy Assistant Secretary

for Budget End Finance

83

Documents

FGMSD-77-21 Status, Progress, and Problems in Federal ...Act, the Director of the Office of Management and Budget on May 16, 1977, requested the Department of Defense to update and