FAA Financial Management:

Further Actions Needed to Achieve Asset Accountability

AIMD-99-212: Published: Jul 30, 1999. Publicly Released: Jul 30, 1999.

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Pursuant to a congressional request, GAO assessed the Federal Aviation Administration's (FAA) property, plant, and equipment (PP&E) and inventory asset accountability problems, focusing on: (1) the key issues FAA must resolve in order to achieve accountability over its PP&E and inventory; and (2) whether FAA is taking appropriate actions to resolve these issues in a timely manner.

GAO noted that: (1) FAA's lack of accountability for PP&E and inventory generally stems from a historical lack of attention to basic recordkeeping, the continuing use of outdated systems that were not designed for financial management, and poor systems of internal controls to prevent and detect errors in accounting for these assets; (2) in order to address these issues for PP&E, FAA needs to determine what assets it has and then reconstruct its records to establish a historical cost baseline for those assets; (3) next it needs to establish adequate systems and controls to account for the assets on an ongoing basis; (4) with regard to inventory, FAA has made improvements in its Logistics Center inventory accounting, but still needs to strengthen its procedures and controls; (5) FAA has taken several actions that are likely to lead to or already have resulted in improved accountability; (6) during fiscal year (FY) 1999, FAA undertook an extensive effort to identify and record the baseline cost of unrecorded PP&E assets and to adjust its detailed records; (7) in FY 1999, FAA began to comprehensively address its systems needs, however, it does not expect full implementation of these new systems until 2001; (8) without systems capable of maintaining PP&E accountability on an ongoing basis, accounting for the acquisition of these assets will continue to require costly, time-consuming manual processes; (9) because these manual processes are inherently prone to error, strong internal controls are needed to ensure accurate accounting; (10) the accuracy of FAA's reported PP&E assets will remain uncertain until FAA establishes baseline costs for previously acquired PP&E and establishes effective systems and controls to properly account for ongoing PP&E activity; (11) as of September 30, 1997, FAA had completed a comprehensive physical inventory of its Logistics Center's operating materials and supplies, and established a baseline of the inventory quantities; (12) in addition, as of September 30, 1998, GAO had assessed the system used to track Logistics Center inventory quantities on an ongoing basis and determined that it was generally reliable; (13) an accurate baseline of FAA's field spares inventory has not been established through a comprehensive physical count that has been verified by independent audit testing; and (14) until an accurate inventory of field spares is taken and verified and inventory accountability procedures and controls are implemented, the reliability of FAA's inventory field spares quantities will be uncertain.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: As of September 30, 1999, the FAA prepared a baseline of PP&E. This baseline was audited by the DOT IG, who gave the FAA an unqualified audit opinion on its fiscal year 1999 financial statements.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to ensure timely completion of efforts to identify, record, and provide support for all PP&E owned by FAA in order to establish a baseline of PP&E costs.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: FAA implemented its standalone version of the Oracle Fixed Assets Module in fiscal year (FY) 2001. FAA property accounting is now controlled by a consolidated centralized system that includes controls over transactions presented to the system, processes to submit excepted transactions back for correction, and a quality assurance program to validate the supporting documentation for selected material transactions on a regular basis. For the first time in agency financial reporting, for FY2000 FAA property accounting was reduced to a reportable condition rather than an ongoing material internal control weakness.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to perform a comprehensive internal control assessment of PP&E accounting practices and identify and implement new PP&E controls where necessary to ensure ongoing accountability.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: The FAA has developed an action plan for new systems to account for PP&E on ongoing basis, and installed the fixed assets module of the new accounting system. The outputs of the new fixed assets module will be tested by the DOT IG during the fiscal year 2000 year-end audit.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to prioritize the acquisition of systems that are capable of accurately accounting for PP&E efficiently and effectively on an ongoing basis.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: During fiscal year (FY) 1999, the FAA started cycle counts at the Logistics Center totaling 30 percent of the inventory items and 63 percent of the inventory dollar value. FY1999 cycle counts were part of a 3 year inventory cycle. FAA received a clean audit opinion for its 1999 financial statements including the inventory accounts.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to ensure timely implementation of planned procedures to improve inventory accountability, including performing periodic cycle counts at the Logistics Center to substantiate inventory quantities on an ongoing basis.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: The FAA conducted physical inventories of all field-spares locations in fiscal year 1999. All count differences were resolved and audited by the DOT IG. By this the FAA established a baseline for field spares as of September 30, 1999. FAA received a clean audit opinion for its 1999 financial statements, including inventory accounts.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to ensure timely implementation of planned procedures to improve inventory accountability, including conducting a comprehensive field spares inventory by September 30, 1999, resolving count differences, and making appropriate adjustments to establish a field spares inventory baseline.

    Agency Affected: Department of Transportation

  6. Status: Closed - Not Implemented

    Comments: DOT issued its 60 day letter to Congress in December 1999, and concurred with the GAO recommendation. The bar coding system for the Logistic Center is in place for all current shipments and receipts, but the bar coding for field spares is not expected until additional property systems changes are made which is expected to take 3-4 years.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to ensure timely implementation of planned procedures to improve inventory accountability, including implementing the planned bar coding system for the Logistics Center and for field spares to capture inventory information from the time of receipt and through subsequent movements and ultimate disposition.

    Agency Affected: Department of Transportation

  7. Status: Closed - Not Implemented

    Comments: DOT issued its 60-day letter to Congress in December 1999, and concurred with the GAO recommendation. However, based on GAO's inquiry, no comprehensive internal control assessment of field spares has been performed and documented since the recommendation (July 1999).

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to perform an internal control assessment of field spares accountability practices and implement new field spares controls where necessary to ensure ongoing accountability.

    Agency Affected: Department of Transportation

  8. Status: Closed - Not Implemented

    Comments: As of September 2000, the FAA has made progress towards implementing perpetual inventory system for field-spares. During fiscal year (FY) 2000, the FAA performed a combination of cycle counts and annual counts based on the results of the FY1999 wall-to-wall field spares inventory. However, since perpetual system has not been fully implemented, this recommendation is closed as not implemented.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to implement a program of periodic field spares cycle counts to substantiate inventory quantities on an ongoing basis.

    Agency Affected: Department of Transportation

  9. Status: Closed - Implemented

    Comments: As of fiscal year (FY) 2003, FAA implemented a change in accounting principle and capitalized field spare inventory as Property, Plant and Equipment. This accounting change was made as part of the FY 2002 financial statement audit process, and was recommended by FAAs independent auditors. As a result of the accounting reclassification of field spares inventory, property custodial responsibles are now assigned in accordance with Order 4650.21C, Management and Control of In-Use Personal Property which states "Property custodian responsibles are assigned to the SMO Manager, who may delegate property custodian responsibles for specific custodial areas."

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to revise FAA order 4250.9B, Field Material Management and Control, to clearly indicate the official who has ultimate responsibility for the accountability of field spares and the procedures required to carry out this responsibility.

    Agency Affected: Department of Transportation

 

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