Managerial Cost Accounting Practices: Leadership and Internal Controls Are Key to Successful Implementation
GAO-05-1013R
Published: Sep 02, 2005. Publicly Released: Sep 02, 2005.
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Highlights
Authoritative bodies have promulgated laws, accounting standards, information system requirements, and related guidance to emphasize the need for cost information and cost management in the federal government. In particular, the (1) Chief Financial Officers (CFO) Act of 1990, (2) Statement of Federal Accounting Standards No. 4: Managerial Cost Accounting Concepts and Standards for the Federal Government, and (3) Joint Financial Management Improvement Program's (JFMIP) Framework for Federal Financial Management Systems established requirements and accounting standards for managerial cost accounting (MCA) information at federal agencies. The Federal Financial Management Improvement Act of 1996 (FFMIA) built on this foundation and required, among other things, CFO Act agencies' systems to comply substantially with federal accounting standards and federal financial management systems requirements. MCA involves the accumulation and analysis of financial and nonfinancial data, resulting in the allocation of costs to organizational pursuits such as performance goals, programs, activities, and outputs. The data analyzed depend on the operations and needs of the organization. Nonfinancial data measure the occurrences of activities and can include, for example, the number of hours worked, units produced, grants managed, inspections conducted, people trained, or time needed to perform certain functions. In light of the requirements for federal agencies to prepare MCA information and its interest in financial management and accountability, Congress asked us to determine the extent to which federal agencies develop cost information and use it for managerial decision making. The objectives of our review were to determine how federal agencies generate managerial cost accounting information as well as how governmental managers use cost information to support managerial decision making and provide accountability.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Labor | In order for DOL to develop MCA information sufficiently reliable for ongoing managerial decision-making, leveraging the substantial efforts already undertaken by the agency, the Secretary of Labor should direct the Chief Financial Officer of the Department of Labor to continue steps to verify the accuracy of nonfinancial data used for MCA and assess related internal controls over nonfinancial data quality to help ensure data reliability. |
Closed – Implemented
The Secretary of Labor issued Order No. 14-2006, redefining the Department's internal control program and establishing a departmental Internal Control Board (ICB) to monitor progress of internal control assessments and implementation of corrective actions to audit findings. The ICB is comprised of senior department-level officials responsible for systems, financial management, operations, and other administrative functions. The order also assigned responsibility to an assistant secretary for the regular evaluation of internal controls over non-financial reporting, including an attestation to the validity of internal controls over the Department's performance management information. Management reported improved quality of non-financial data used for Managerial Cost Accounting purposes in fiscal year 2006, which was validated by the inspector general.
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| Department of Labor | In order for DOL to develop MCA information sufficiently reliable for ongoing managerial decision-making, leveraging the substantial efforts already undertaken by the agency, the Secretary of Labor should direct the Chief Financial Officer of the Department of Labor to complete the planned update of MCA policies and procedures to ensure that department-level guidance is comprehensive and current. |
Closed – Implemented
In March 2007, the Department of Labor published the Department of Labor Manual Series (DLMS) 6 Chapter 800, Managerial Cost Accounting. DLMS 6-800 updated the Department's policies, organization, and personnel responsibilities for the recording, reporting, reconciling, and controlling of managerial cost accounting information. The policy reflected the procedures and policies established through the implementation of the Cost Analysis Manager (CAM) - DOL's initiative to develop a Department-wide managerial cost accounting capability.
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| Department of Labor | In order for DOL to develop MCA information sufficiently reliable for ongoing managerial decision-making, leveraging the substantial efforts already undertaken by the agency, the Secretary of Labor should direct the Chief Financial Officer of the Department of Labor to complete the compilation and dissemination of component-specific Cost Accounting Manager (CAM) reference materials so that the documentation is in a consolidated resource that is readily available to system users, managers, and auditors. |
Closed – Implemented
DOL's Office of the Chief Financial Officer completed and issued a nearly 50-page reference manual, including system definitions, model descriptions, uses of model information, and other resource appendices for each of DOL's component agencies.
|
| Department of Labor | The Secretary of Labor should direct appropriate personnel to perform and document a post-implementation review of CAM to evaluate whether managerial cost information meets organizational objectives and users' needs. This review should also determine and document the extent to which managers use CAM-generated data in managing day-to-day operations. |
Closed – Implemented
After GAO made the 2005 recommendations, DOL implemented a CAM project which provided a dashboard from information provided by the department's new core financial management system (NCFMS). However, DOL found that the CAM project was not an effective use of its resources at that time. In addition, ESC is now Labor's Federal Shared Services provider for its core financial management system.
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| Department of Veterans Affairs | To help ensure that VA components implement and use reliable MCA methodologies, the Secretary of Veterans Affairs should direct appropriate department-level officials to exercise more effective leadership and oversight in order to develop, implement, and operate an appropriate MCA system at the Veterans Benefits Administration to improve managerial decision-making. |
Closed – Implemented
In 2007, VBA implemented an MCA system.
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| Department of Veterans Affairs | To help ensure that VA components implement and use reliable MCA methodologies, the Secretary of Veterans Affairs should direct appropriate department-level officials to exercise more effective leadership and oversight in order to periodically validate the nonfinancial data used by the Veterans Health Administration's Decision Support Services (DSS) team for MCA and assess related internal controls. |
Closed – Implemented
VA has implemented procedures to periodically validate the nonfinancial data used by VHA's DSS team for MCA and assess related internal controls.
|
| Department of Veterans Affairs | To help ensure that VA components implement and use reliable MCA methodologies, the Secretary of Veterans Affairs should direct appropriate department-level officials to exercise more effective leadership and oversight in order to document the DSS processes and controls for assigning indirect costs to cost objects to help ensure that costs are properly assigned. |
Closed – Implemented
VA implemented the FY 2007 guidance for allocating indirect costs to cost objects and the FY 2007 Decision Support Office (DSO) audit plan used to test control activities to ensure that costs were properly assigned.
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| Department of Veterans Affairs | To help ensure that VA components implement and use reliable MCA methodologies, the Secretary of Veterans Affairs should direct appropriate department-level officials to exercise more effective leadership and oversight in order to provide adequate numbers of properly trained staff at field locations to administer DSS to maximize system availability and utilization. |
Closed – Implemented
In 2007, VA provided GAO with the Decision Support System (DSS) Site Level Staffing document, which recommended a staffing model which would support efforts to assign an adequate number of properly trained DSS personnel at all levels in VHA. In addition, VA provided GAO with the syllabus for the FY 2007 DSS User Conference for the Veterans Benefit Administration (VBA) and the National Cemetery Administration (NCA) as well as documentation of selected bi-weekly teaching calls used to keep DSS staff aware of the latest developments.
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| Department of Veterans Affairs | In an effort to reduce the risks of errors and delays inherent with manual processes, the Secretary of Veterans Affairs should direct appropriate VA officials to further automate the Statement of Net Cost preparation process. |
Closed – Implemented
In FY 2010, VA completely automated the Statement of Net Cost preparation process.
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| Department of Veterans Affairs | In an effort to reduce the risks of errors and delays inherent with manual processes, the Secretary of Veterans Affairs should direct appropriate VA officials to update the Statement of Net Cost compilation procedure documentation. |
Closed – Implemented
In FY 2010, VA automated the process for preparing the Statement of Net Cost. With this new process, the information comprising the Statement of Net Cost is pulled directly, without manual intervention, from its Management Information Exchange reporting system which interfaces with the general ledger. As a result, it is no longer necessary for VA to have a procedure manual.
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