Managerial Cost Accounting Practices:

Department of Health and Human Services and Social Security Administration

GAO-06-599R: Published: Apr 18, 2006. Publicly Released: Apr 18, 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, 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 managerial cost accounting (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 concerning our review of MCA practices at the Department of Health and Human Services (HHS) and the Social Security Administration (SSA). This was our third in a series of briefings concerning the status of MCA activities at large government agencies. Our first briefing covered the status of MCA activities at the Department of Veterans Affairs and the Department of Labor. Our second briefing covered the status of MCA activities at the Departments of Education, Transportation, and the Treasury.

Similar to issues that surfaced in our earlier reports, we found a need for stronger leadership at HHS to promote and monitor the implementation of MCA departmentwide. SSA took a strong leadership role in implementing MCA and promoting the use of MCA information departmentwide. According to an HHS official, MCA at the department level was limited to aggregating costs from its operating divisions (OPDIV) to prepare the Statement of Net Cost (SNC) and did not focus on preparing MCA information for managerial decision making. Furthermore, HHS assigned responsibility for MCA implementation at the component level to its 11 OPDIVs, which are disparate in mission and focus, but HHS did not take an active leadership role to promote MCA or monitor its implementation at its OPDIVs. As a result, department officials did not have information about which components had and used MCA, and they had to refer to component officials to obtain information on the status and application of MCA for their major programs and activities. Neither of the two components we reviewed--the Centers for Medicare and Medicaid Services (CMS), and the Centers for Disease Control and Prevention (CDC)--had an MCA system in place at the component level to routinely allocate costs to activities, services, and outputs in support of managerial decision making. In the absence of strong leadership to promote and monitor MCA implementation across its OPDIVs, HHS management lacks routine access to reliable cost information to inform management decisions. This absence also contributed to a difference between HHS expectations and the plans of two OPDIVS for implementing an Oracle Projects cost accounting module. SSA's strong leadership promoting MCA and monitoring its usage and implementation, aided by a centrally managed organizational structure and fostered by legislative requirements, has resulted in routine use of MCA information for management decision making. Further, management focused on establishing a system of controls to help ensure the reliability of the data used. SSA reported that it started using cost information to manage its programs 30 years ago and is continuing to improve and expand its financial management efforts. Enhancements to SSA's MCA system, planned for completion in September 2008, are intended to improve the quality, consistency, and accessibility of information used by managers and analysts throughout SSA. SSA officials said that cost information was used for budgeting, resource allocation, and managing operations by determining unit costs and production rates, as well as SNC preparation. They also said SSA uses MCA information to allocate administrative expenses to the Social Security and Medicare trust funds as required by law.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In September 2014, HHS had provided a status update for this recommendation. Specifically, the update stated that OPDIVs and PSC are directed to use reliable MCA methodologies through HHS policy. This policy provides OPDIVs with the latitude to implement procedures based upon the OPDIV operating environment to ensure sound business decisions. HHS considers this recommendation to be implemented and closed.

    Recommendation: To help ensure that HHS and its OPDIVS and Program Support Center (PSC) implement and use reliable MCA methodologies, the Secretary of HHS should take an active leadership role to promote the benefits and uses of MCA.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: In September 2014, HHS provided a status update for this recommendation. The update specified that the HHS policy on Managerial Cost Accounting directs OPDIVs to develop procedures to monitor, track and report cost information for management decisions. This policy, in accordance with FASAB Statement of Federal Financial Standards 4: Managerial Cost Accounting Standards and Concepts, provides latitude to agencies to accumulate and report the costs of its activities for management information purposes either through the use of cost accounting systems or through the use of cost finding techniques.

    Recommendation: To help ensure that HHS and its OPDIVS and PSC implement and use reliable MCA methodologies, the Secretary of HHS should direct appropriate department-level officials to develop procedures to monitor the implementation of its MCA policy at its OPDIVs and PSC.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: In September 2014, HHS had provided a status update for this recommendation. The update stated that, as part of the UFMS implementation, HHS had evaluated and implemented Oracle Projects. In accordance with SFFAS No. 4 and HHS policy, OPDIVs use either the Oracle Projects module, or alternative cost methodologies to support decision making at HHS, its OPDIVs, and PSC. In addition to routine reports for management decision-making within an OPDIV, HHS annually reports the net cost of its programs by OPDIV, and also provides supplementary information for the net cost of its top 10 programs.

    Recommendation: To help ensure that HHS and its OPDIVS and PSC implement and use reliable MCA methodologies, the Secretary of HHS should direct appropriate officials to evaluate whether the Oracle Projects module will provide MCA information to support decision making at HHS, its OPDIVs, and PSC.

    Agency Affected: Department of Health and Human Services

  4. Status: Open

    Comments: As of 4/12/16, correspondence received from SSA officials stated that this recommendation remains open. The SSA is continuing with the roll out of the Employee Office Sampler to all field offices across the nation. According to SSA, this tool removes the manual aspect of the District Office Work Sampling process. A decision was made by SSA to update the Standard Time Values (STVs) used for costing out the full cost SSA incurs for processing state SSI claims. SSA stated that it completed these studies in FY 2012 and placed the new STVs into its Cost Analysis System for use in FY 2013. According to SSA, this update allows SSA to more accurately capture the full cost of this work for the agency.

    Recommendation: To better understand the relationship of costs and revenues related to fees SSA collects for administering state SSI supplementation programs, the Commissioner of SSA should direct appropriate officials to study those costs to determine the full cost, including the cost of services provided by other entities for the benefit of SSA.

    Agency Affected: Social Security Administration

 

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