Financial Management:

FDA's Controls Over Property Have Improved, But Weaknesses Remain

AIMD-99-51: Published: Feb 22, 1999. Publicly Released: Feb 22, 1999.

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Pursuant to a congressional request, GAO assessed the adequacy and status of the Food and Drug Administration's (FDA) planned actions to correct internal control weaknesses related to property and equipment identified in prior financial statement audit reports, focusing on FDA's: (1) inadequate controls over the physical quantities of property and equipment and their locations; (2) improper reconciliations between its general ledger and property subsidiary ledger systems; and (3) internal controls related to the safeguarding and reporting of automated data processing (ADP) equipment that is lost, stolen, destroyed, or surplussed.

GAO noted that: (1) FDA developed an action plan that should correct the weaknesses identified in the financial audit reports regarding property and equipment; (2) FDA has made progress in implementing various actions, but it has not yet resolved some of the reported weaknesses; (3) according to FDA officials, as of January 21, 1999, 23 of the 41 tasks in the corrective action plan related to property and equipment had been completed; (4) GAO found 9 of these 23 tasks had not yet fully achieved their anticipated outcomes; (5) one of these tasks was for FDA's management to create and validate a new property database; (6) while FDA conducted several physical inventories to create this database, GAO's testing showed that the database was not accurate; (7) FDA did not have adequate controls in place to effectively monitor the loss, theft, or destruction of ADP equipment; (8) FDA procedures for reporting and recording missing equipment were ineffective, with the result that information on missing equipment sometimes never reached the property management database, thus compromising database accuracy and completeness; (9) the reliability of the database was further hampered because FDA used the same code to identify lost, stolen, and destroyed property and thus could not determine individual quantities and values in each of these categories; (10) this was the case for $10.1 million in property, including ADP equipment, that FDA reported in 1998 as having been lost, stolen, or destroyed; (11) for $7.4 million of the $10.1 million, FDA was unable to determine how much represented lost versus stolen or destroyed property even when it reviewed source documents; (12) FDA management could not effectively analyze the nature and severity of problems related to missing equipment and develop related management strategies to address its risks; (13) FDA was unable to provide assurance that the proper authorizations were in place before ADP equipment was designated for surplus and removed from FDA premises; (14) FDA's procedures for surplussing equipment called for filing related paperwork that included the original signatures of the property management personnel who authorized the surplus; (15) GAO found that in 8 of the 27 cases it reviewed, FDA staff altered the forms used to designate equipment for surplus; (16) such alterations of required paperwork seriously compromised the control environment and increased the risk of theft and inappropriate removal of equipment; and (17) GAO also found an instance in which a computer donated to a school contained information that should have been removed before it was donated.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FDA completed the "Personal Property Management Guide" in 1998, the "FDA Internal Audit Program Management Guide," and the "Lost, Stolen, Damaged or Destroyed Property Guide" in 1999. During fiscal years 1999, 2000, and 2001, inventories were taken according to these procedures, which are continually updated as needed. According to officials in FDA's Division of Central Services-Administrative Branch, FDA components at Headquarters, and all components nationwide, conduct a comprehensive inventory of all accountable/sensitive assets each year. FDA also conducts 100 percent annual observations of all capital assets acquired by every major component in the current fiscal year. In addition, a spot audit of accountable/sensitive assets of every major component is carried out annually during an internal audit at FDA headquarters. Furthermore, a national internal audit program is carried out at selected sites among the five FDA national regional/district operational locations. Beginning in fiscal year 1999, and for each fiscal year subsequently, FDA has received a "clean" audit opinion for fiscal years 1999, 2000, and 2001, and resolved reportable conditions related to property.

    Recommendation: To correct weaknesses identified in prior audit reports and strengthen controls over ADP equipment, the Commissioner of the Food and Drug Administration should finalize and implement proposed procedures for conducting comprehensive property inventories and component-specific spot audits.

    Agency Affected: Department of Health and Human Services: Public Health Service: Food and Drug Administration

  2. Status: Closed - Implemented

    Comments: FDA continues to perform manual interim reconciliations of property transactions between its current property asset management subsidiary and financial management system (general ledgers). FDA replaced its prior property subsidiary system with a commercial, off-the-shelf, Peoplesoft system called the "Asset Management System" in fiscal year 2002. FDA conducts monthly (manual) reconciliations for all accountable/sensitive assets acquired during the fiscal year. For example, capital assets are recorded at cost, per line item, in the Asset Management System, and subsequently in the general ledger. Other assets, characterized as non-capital, are recorded at cost in the subsidiary ledger and expensed in the general ledger as required using generally accepted accounting principles. The FDA's financial management system is currently being modified to implement an "automated" transaction for property acquisitions. For example, capital asset transactions will be recorded in the general ledger at the same time they are recorded in the subsidiary ledger (property asset management system). According to FDA management, the Division of Accounting plans to continue these manual reconciliations until a fully automated Asset Management System is completed in fiscal year 2004. This approach has proven to be sustainable to address the recommendation.

    Recommendation: To correct weaknesses identified in prior audit reports and strengthen controls over ADP equipment, the Commissioner of the Food and Drug Administration should ensure that interim reconciliations of the general ledger system to the property subsidiary ledger system using manual processes are performed until the new property management system is fully operational, as stipulated in FDA's corrective action plan.

    Agency Affected: Department of Health and Human Services: Public Health Service: Food and Drug Administration

  3. Status: Closed - Implemented

    Comments: FDA has updated its policies and procedures for the treatment of lost, stolen, and damaged property and equipment. GAO's analysis indicates that these policies and procedures include appropriate guidance to account for and dispose of personal property, including ADP resources. Also, FDA included steps to address these policies and procedures in its quality control reviews that are carried out annually. GAO's review of the most recent quality control program, and the results of two of these quality control reviews provide assurance that FDA's procedures are being followed.

    Recommendation: To correct weaknesses identified in prior audit reports and strengthen controls over ADP equipment, the Commissioner of the Food and Drug Administration should finalize and implement proposed procedures to ensure the reliability of information on lost, stolen, and destroyed property and equipment and conduct periodic quality control reviews to ensure that new procedures are followed.

    Agency Affected: Department of Health and Human Services: Public Health Service: Food and Drug Administration

  4. Status: Closed - Implemented

    Comments: FDA has made progress in following surplus procedures through improved monitoring and providing training to property officials. FDA continually updates its policies and procedures that address accounting, inventory controls, utilization, and disposal of personal property (including ADP equipment). Also, each property custodial officer must satisfactorily complete a Department of Health and Human Services Property Custodial Officer Certificate program with a score of 80 percent or better. In addition, a review of staff performance in this area is verified at the same time the FDA performs its personal property internal audits each year. Specifically, the quality control reviewers ensure that the property custodial officers have (1) been designated and confirmed in writing, (2) have received training, and (3) have been certified to perform custodial property functions.

    Recommendation: To correct weaknesses identified in prior audit reports and strengthen controls over ADP equipment, the Commissioner of the Food and Drug Administration should ensure compliance with established policies and procedures that address the surplus of ADP equipment. Specifically, during the March 1999 training for the Personal Property Coordinators and the Property Custodial Officers, ensure that proper documentation procedures are covered to prevent the use of altered documents.

    Agency Affected: Department of Health and Human Services: Public Health Service: Food and Drug Administration

 

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