Managerial Cost Accounting Practices:

Department of Agriculture and the Department of Housing and Urban Development

GAO-06-1002R: Published: Sep 21, 2006. Publicly Released: Sep 21, 2006.

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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. For example, the Chief Financial Officers (CFO) Act of 1990 contains several provisions related to managerial cost accounting (MCA), one of which states that an agency's CFO should develop and maintain an integrated accounting and financial management system that provides for the development and reporting of cost information. Statement of Federal Financial Accounting Standards No.4, Managerial Cost Accounting Concepts and Standards for the Federal Government, and the Joint Financial Management Improvement Program's (JFMIP) Framework for Federal Financial Management Systems established accounting standards and system requirements for MCA information at federal agencies. The Federal Financial Management Improvement Act of 1996 built on this foundation and required, among other things, CFO Act agencies to comply substantially with federal accounting standards and federal financial management systems requirements. In light of the requirements for federal agencies to prepare MCA information, 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 MCA information as well as how governmental managers use cost information to support managerial decision making and provide accountability. This report summarizes information provided during our briefing to Congressional staff on September 7, 2006, concerning our review of MCA practices at the Department of Agriculture (USDA) and the Department of Housing and Urban Development (HUD). This was our fourth in a series of briefings concerning the status of MCA activities at large government agencies.

Similar to issues that surfaced in our earlier reports, we found that stronger leadership would be needed to enhance the development and use of managerial cost information at USDA and HUD. The departments generally had not developed policies on the development and use of cost information, were not promoting the benefits of identifying the cost of performance, and were not monitoring implementation in the components.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: USDA issued numerous guidance documents from May 2007 to March 2010 that collectively demonstrate greater department-level leadership support for MCA. For example, the USDA CFO issued a memorandum to Under Secretaries, Staff Offices and WCF activities that (a) stressed the benefits and importance of managerial cost accounting; (b) requested a designated MCA representative from each USDA organization; and (c) announced the intention to conduct a survey of all mission areas and agencies to determine the status of their MCA systems. Following-up on that memo, in June 2007, OCFO (Office of the Chief Financial Officer), in co-ordination with the designated MCA representative, commissioned a survey of all mission areas and agencies to determine the current status of their MCA systems. The survey gathered up-to-date MCA information to demonstrate how USDA has made improvements in the managerial cost accounting arena. On May 15, 2008, the OCFO published the survey results which were used to develop a plan of action to expand the Department's efforts in MCA. To facilitate the plan of action to expand the Department's efforts in MCA, the OCFO established a managerial cost accounting workgroup, led by OCFO, to focus on cost accounting issues, guidance, reporting requirements, and best practices within the Department. Agendas from several meetings beginning on June 7, 2007 have shown that the workgroup discussions have focused on topics such as MCA - "What is it and why should we do it;" "Linking Costs to Performance;" "Financial Data Improvement Plan;" and a more recent discussion on the March 2010 agenda, which focused on "the Follow-up on GAO-06-1002R MCA Practices - USDA." The totality of these actions demonstrates that USDA has instituted the necessary processes and procedures for appropriate officials to take an active leadership role in promoting the benefits and uses of MCA.

    Recommendation: To promote the implementation and use of reliable MCA methodologies to better inform managerial decision making in United States Department of Agriculture (USDA) and its components, the Secretary should direct appropriate officials to take an active leadership role to promote the benefits and uses of MCA.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: USDA has taken a number of actions directed at monitoring the implementation of its MCA policy at its components: First, USDA's Office of the Chief Financial Officer (OCFO) developed a Financial Data Integration Plan (updated as of June 22,2010) to focus on a number of infrastructure initiatives to improve the quality and accessibility of data that is crucial to accomplishing managerial cost accounting at USDA's components. The infrastructure initiatives provided key sources of financial information to be used in monitoring MCA implementation at the department and its components. Monitoring these initiatives will assist the OCFO in ascertaining the status of USDA's efforts to implement MCA systems. To assist in monitoring Department-wide MCA implementation, the OCFO established a managerial cost accounting workgroup, led by OCFO, which focuses on cost accounting issues, guidance, reporting requirements and best practices within the Department. For example, the March 2010 workgroup focused on follow-up to GAO's report on MCA Practices - USDA. As a result of these activities and initiatives, USDA has taken action to improve monitoring of the implementation of its MCA policy at its components.

    Recommendation: To promote the implementation and use of reliable MCA methodologies to better inform managerial decision making in USDA and its components, the Secretary should direct appropriate officials to develop procedures to monitor the implementation of its MCA policy at its components.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: As part of the Financial Management Modernization Initiative contained in USDA's Financial Data Integration Plan, most recently updated in June 2010, USDA issued a Financial Systems Requirements specifications document, detailing an overview of FMMI, where USDA established its MCA requirements specifications. The cost accounting module incorporates 34 mandatory federal cost management requirements and 12 additional USDA-specific functional and mandatory requirements. These requirements will enable cost management activity, including financial and non-financial data setup and accumulation, cost distribution and full cost reporting functions for USDA. With these actions, USDA should have greater assurance that the cost accounting module of FMMI will provide appropriate MCA information needed to support decision making at USDA and its component agencies.

    Recommendation: To promote the implementation and use of reliable MCA methodologies to better inform managerial decision making in USDA and its components, the Secretary should direct appropriate officials to finalize appropriate USDA-specific functional specifications to ensure that the cost accounting module of the FMMI will provide MCA information to support decision making at USDA and its component agencies.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: As part of USDA's Financial Data Integration Plan, most recently updated in June 2010, USDA established a MCA component for its Financial Management Modernization Initiative (FMMI) which all component agencies within the Department will be required to implement. The cost accounting module of FMMI incorporates 34 mandatory federal cost management requirements and 12 additional USDA-specific functional and mandatory requirements, which will enable cost management activity, including financial and non-financial data setup and accumulation, cost distribution and full cost reporting functions for all USDA components. USDA also developed a timeline for the deployment of FMMI for all component agencies across the Department, which began in October 2009 and is expected to be completed by December 2011. Based on these actions, USDA has expanded ongoing MCA planning efforts to include time frames and requirements for all component agencies to help improve cost management. If fully and effectively implemented, these actions should result in improving the quality and accessibility of MCA data across the department.

    Recommendation: To promote the implementation and use of reliable MCA methodologies to better inform managerial decision making in USDA and its components, the Secretary should direct appropriate officials to expand ongoing MCA planning efforts to include time frames and requirements for all component agencies to help improve cost management.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Implemented

    Comments: Beginning with its budget formulation for fiscal years in FY 2008 and 2009, all USDA Working Capital Funds (WCF) are to include as part of their annual operating budget formulation instructions, a requirement that all WCF activity centers provide descriptions of the cost accounting methodologies used (consistent with principles of managerial cost accounting) in the budget estimate formulation process. In addition, WCF modified its guidance for preparation of the fiscal years 2010 and 2011 budget estimates to provide for evaluating WCF center' cost recovery methodologies, and implement a performance based business case-driven budget formulation process. This guidance calls for WCF activity centers to identify estimated costs and revenue by business line (including cost recovery methodologies)as outlined in a business plan and resource instructions workbook and to identify and document the source of outcome-based performance metrics to evaluate performance. Based on the accumulation of these actions related to Working Capital Fund activities, USDA has substantially addressed our recommendation to design, document and implement procedures to periodically review its WCF activity cost accounting methodologies.

    Recommendation: To promote the use of proper cost accounting methodologies to inform pricing and other managerial decisions at USDA working capital funds (WCF) activity centers, the Secretary of Agriculture should direct appropriate WCF officials to design, document, and implement procedures to periodically review those methodologies.

    Agency Affected: Department of Agriculture

  6. Status: Closed - Implemented

    Comments: In 2009, the Animal and Plant Health Inspection Service (APHIS) issued a APHIS Cost Management System (ACMS) User Guide that provided instructions on recording and accumulating cost data into appropriate ACMS data fields in the system's spending and collections module to track costs associated with APHIS information and technology investments. The spending and collections module is to provide important information, such as planned and committed costs related to APHIS program agreements and cost centers. At the same time, APHIS also expanded reporting capabilities in ACMS to include managerial reports for tracking costs for component organizations and programs to include reporting on allocations, agreements, strategic funds, forecasting and performance. Further, in March 2010, APHIS conducted three training sessions on using ACMS specifically for APHIS managers who have responsibility for managing agency funding and making spending decisions. Based on these collective APHIS actions, if fully and and effectively implemented, APHIS will have greater assurance that relevant managerial cost accounting data is available to support APHIS program decisionmaking.

    Recommendation: To promote the implementation and use of MCA methodologies at the Animal and Plant Health Inspection Service (APHIS), the Secretary of Agriculture should direct appropriate APHIS officials to finalize and document procedures for using ACMS data fields for MCA as a step toward better informed managerial decision making.

    Agency Affected: Department of Agriculture

  7. Status: Closed - Implemented

    Comments: USDA's Farm Services Agency (FSA) implemented an upgraded WebTA Employee Entry and Activity Reporting System in June 2010. This system upgrade is designed to improve quality, completeness and consistency of FSA labor information. FSA also took action to better integrate its workload system with its Activity Reporting System (which tracks employees' time, together with relevant activities and accounting codes). As a result, if fully and effectively integrated, FSA should be better able to effectively facilitate implementation of a fully-operational BPMS capable of linking and integrating FSA's budget, cost and performance management information.

    Recommendation: To enhance the reliability of MCA data at the Farm Service Agency (FSA), the Secretary of Agriculture should direct appropriate FSA officials to continue efforts to improve and upgrade workload systems as they implement the Budget and Performance Management System.

    Agency Affected: Department of Agriculture

  8. Status: Closed - Implemented

    Comments: In 2010, the USDA Office of the Chief Financial Officer (OCFO) and Forest Service (FS) officials assessed and defined its managerial cost accounting needs and requirements. FS assessed its managerial cost accounting needs through participation in the USDA Managerial Cost Accounting Workgroup ongoing discussions led by the OCFO, including discussions in FY 2008-2010 of a strategic framework for MCA practices across the Department. Additionally, at that time, FS, along with USDA's OCFO, was charged with responsibility for identifying and ensuring MCA requirements are incorporated in the cost accounting module of USDA's Financial Management Modernization Initiative (FMMI). The MCA requirements identified included 34 mandatory Financial Systems Integration Office (FSIO) cost management requirements and 12 additional USDA-mandatory requirements. These requirements are to enable USDA-wide cost management, including recording and accumulating financial data, cost distribution and full cost reporting. If fully and effectively implemented, USDA's actions to identify and establish MCA requirements for the FMMI cost accounting module, should enable FS obtain more relevant MCA information to help support decision making at USDA and its components, including Forest Service.

    Recommendation: We agree that the Forest Service (FS) should continue to place a high priority on addressing its remaining financial management and reporting problems. At the same time, the Secretary of Agriculture should direct appropriate FS officials to assess FS MCA needs and require that they are appropriately addressed in any new systems that are implemented.

    Agency Affected: Department of Agriculture

  9. Status: Open

    Comments: AS OF 9/15/10: Additional documentation requested to support the closing of this recommendation.

    Recommendation: To improve HUD's implementation and use of reliable MCA methodologies, the Secretary of HUD should direct appropriate officials to take an active leadership role to promote the benefits and uses of MCA.

    Agency Affected: Department of Housing and Urban Development

  10. Status: Closed - Implemented

    Comments: HUD issued a MCA policy on 9/29/2010 to establish a department-level policy on MCA.

    Recommendation: To improve HUD's implementation and use of reliable MCA methodologies, the Secretary of HUD should direct appropriate officials to establish and document a department-level policy for MCA.

    Agency Affected: Department of Housing and Urban Development

  11. Status: Closed - Implemented

    Comments: HUD identified potential uses for its current systems. For example, HUD provided us with TEAM-REAP MCA reports.

    Recommendation: To improve HUD's implementation and use of reliable MCA methodologies, the Secretary of HUD should direct appropriate officials to develop potential uses of current systems (e.g. TEAM-REAP) to derive MCA functionalities.

    Agency Affected: Department of Housing and Urban Development

  12. Status: Open

    Comments: As of 9/30/10: Additional documentation requested to support the closing of this recommendation.

    Recommendation: To improve HUD's implementation and use of reliable MCA methodologies, the Secretary of HUD should direct appropriate officials to develop financial system requirements that will fully address MCA capabilities needed for managerial decision making throughout the organization using appropriate, integrated financial and nonfinancial information systems.

    Agency Affected: Department of Housing and Urban Development

  13. Status: Open

    Comments: As of 9/30/2010: Additional documentation requested to support the closing of this recommendation.

    Recommendation: To improve HUD's implementation and use of reliable MCA methodologies, the Secretary of HUD should direct appropriate officials to strengthen internal controls over financial and nonfinancial data in MCA systems.

    Agency Affected: Department of Housing and Urban Development

 

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