B-115312, DEC. 18, 1963

B-115312, DEC. 18, 1963

TO THE SECRETARY OF AGRICULTURE:

BY LETTER DATED MARCH 9, 1959, THE ADMINISTRATIVE ASSISTANT SECRETARY OF THE DEPARTMENT OF AGRICULTURE SUBMITTED FOR REVIEW AND APPROVAL THE REVISED ACCOUNTING SYSTEM FOR THE WORKING CAPITAL FUND OF THE AGRICULTURAL RESEARCH CENTER, AGRICULTURAL RESEARCH SERVICE, DEPARTMENT OF AGRICULTURE. THE SYSTEM HAS BEEN REVIEWED, AND VARIOUS MATTERS RELATING TO THE OPERATION OF THE SYSTEM HAVE BEEN DISCUSSED FROM TIME TO TIME WITH REPRESENTATIVES OF THE DEPARTMENT.

WE ARE PLEASED TO NOTE THAT SUBSTANTIAL PROGRESS HAS BEEN MADE IN BRINGING THE SYSTEM INTO CLOSER CONFORMITY WITH THE OBJECTIVES OF THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950 AND PUBLIC LAW 863, 84TH CONGRESS, APPROVED AUGUST 1, 1956 (31 U.S.C. 66A), AS WELL AS WITH THE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS FOR ACCOUNTING PRESCRIBED BY OUR OFFICE. HOWEVER, THERE ARE STILL CERTAIN ASPECTS OF THE SYSTEM THAT NEED FURTHER DEVELOPMENT OR MODIFICATION BEFORE APPROVAL CAN BE GRANTED.

ON THE BASIS OF OUR REVIEW, WE ARE OF THE OPINION THAT THE ACCOUNTING SYSTEM DOES NOT PROVIDE FOR ADEQUATE ACCOUNTING CONTROL OVER A SUBSTANTIAL PORTION OF THE MATERIALS AND SUPPLIES PURCHASED IN CONNECTION WITH SERVICING THE NEEDS OF THE RESEARCH ACTIVITIES AT THE CENTER. MATERIALS AND SUPPLIES PURCHASED FOR SPECIFIC JOBS OR COST AREAS ARE NOT RECORDED IN THE PERPETUAL INVENTORY RECORDS BUT ARE CHARGED DIRECTLY TO THE ACTIVITY FOR WHICH PURCHASED. AT THE END OF THE MONTH THE COSTS OF THESE MATERIALS AND SUPPLIES ARE BILLED TO THE REQUESTING RESEARCH DIVISIONS OR OTHER GOVERNMENT AGENCIES REGARDLESS OF WHETHER THE ITEMS HAVE BEEN INSTALLED OR USED IN THAT MONTH. DEPARTMENT OFFICIALS HAVE INFORMED US THAT IT IS COMMON PRACTICE TO ORDER ALL MATERIALS WHEN A JOB IS BEGUN AND, WHEREVER POSSIBLE, TO SCHEDULE DELIVERIES OVER A PERIOD OF TIME TO MEET WORK SCHEDULES. WE WERE ALSO INFORMED, HOWEVER, THAT SUBSTANTIAL QUANTITIES OF MATERIALS PURCHASED FOR SPECIFIC JOBS, FOR WHICH REIMBURSEMENT HAS BEEN RECEIVED, MAY NOT BE USED ON THE JOBS FOR EXTENDED PERIODS OF TIME, IN SOME INSTANCES FOR LONGER THAN A YEAR. WE NOTED ALSO THAT MATERIALS AND SUPPLIES WHICH REMAIN UNUSED AT THE COMPLETION OF SPECIFIC JOBS ARE NOT PLACED UNDER ACCOUNTING CONTROL NOR ARE THE BILLINGS TO THE REQUESTING RESEARCH DIVISIONS OR OTHER GOVERNMENT AGENCIES REDUCED BY THE VALUE OF UNUSED MATERIALS.

THE ACCOUNTING SYSTEM SHOULD PROVIDE FOR INVENTORY CONTROL OVER MATERIALS AND SUPPLIES PURCHASED FOR SPECIFIC JOBS TO MAINTAIN CONTROL OVER UNUSED ITEMS AND TO PERMIT PROPER BILLINGS FOR SERVICES RENDERED. UNTIL APPROPRIATE REVISIONS ARE MADE IN THE ACCOUNTING SYSTEM TO PROVIDE THIS KIND OF ACCOUNTING, OUR OFFICE WILL BE UNABLE TO APPROVE THE SYSTEM.

ALTHOUGH IT IS NOT A REQUIREMENT FOR APPROVAL OF THE ACCOUNTING SYSTEM, WE STRONGLY URGE THE AGENCY TO GIVE SERIOUS CONSIDERATION TO EXTENDING ITS INTERNAL SYSTEM OF FINANCIAL REPORTING WHEREBY MONTHLY STATEMENTS SHOWING COMPARISONS OF ACTUAL COSTS INCURRED WITH ESTIMATED OR STANDARD COSTS ARE PREPARED. THIS PRACTICE IS NOW APPLIED IN ONLY TWO OF THE NUMEROUS COST AREAS INTO WHICH THE AGENCY'S OPERATIONS ARE DIVIDED. WE UNDERSTAND THAT AGRICULTURAL RESEARCH SERVICE OFFICIALS CONTEND THAT SIMILAR STATEMENTS FOR THE OTHER COST AREAS ARE NOT FEASIBLE BECAUSE OF THE VARIETY OF SERVICES REQUESTED BY THE RESEARCH ACTIVITIES AND THE CHANGES IN THE VOLUME AND FREQUENCY OF THE REQUESTED SERVICES. HOWEVER, WE BELIEVE THAT FOR CERTAIN RECURRING SERVICES SUCH AS FARMING, MILLING, AUTOMOTIVE SHOP, AND TRADE AND CRAFT SHOP, THE ESTABLISHMENT OF COST AND PERFORMANCE STANDARDS AND THEIR INCORPORATION IN THE FINANCIAL REPORTING SYSTEM WOULD BE USEFUL TO THE MANAGEMENT IN REVIEWING THE EFFICIENCY OF OPERATIONS.

OUR REPRESENTATIVE WILL CONTINUE TO BE AVAILABLE FOR CONSULTATION AND ADVICE IN CONNECTION WITH THE CONTINUING IMPROVEMENTS IN THE ACCOUNTING SYSTEMS OF YOUR DEPARTMENT.