Managerial Cost Accounting Practices at the Department of the Interior
GAO-07-298R
Published: May 24, 2007. Publicly Released: May 24, 2007.
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Highlights
Authoritative bodies have promulgated laws, accounting standards, information system requirements, and related guidance emphasizing the need for accurate and reliable cost information 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 provides 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 (SFFAS) 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. In addition, the Federal Financial Management Improvement Act of 1996 required, among other things, that CFO Act agencies' systems comply substantially with federal accounting standards and federal financial management systems requirements. In light of the provision related to MCA information in federal agencies, we were asked to review the status of MCA in 10 of the largest civilian agencies. Our objectives were to determine how (1) federal agencies generate MCA information and (2) agency managers use cost information to support managerial decision making and accountability.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status Sort descending |
|---|---|---|
| Department of the Interior | To promote the implementation and use of reliable MCA methodologies to support more informed managerial decision making in Interior and its bureaus and department offices, the Secretary of Interior should direct department officials to perform an assessment of the internal controls related to nonfinancial data, including key indicators used for executive decision making, such as the Executive Dashboard and determine whether the current internal controls are adequate and meet the department's published guidance. |
Closed – Implemented
In May 2007 Interior directed bureaus and office officials to conduct an assessment of internal controls related to nonfinancial data and to certify data completeness and reliability as required in its January 2003 guidance on performance data reliability. Of the 7 major bureaus (BIA, BLM, BOR, NPS, FWS, USGS, and MMS (re-organized into Office of Surface Mining), all but NPS and USGS submitted adequate documentation to Interior between June and August 2007 demonstrating their internal controls are adequate and meet the department's published guidance. Interior's corrective actions substantially addressed our recommendation.
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| Department of the Interior | To promote the implementation and use of reliable MCA methodologies to support more informed managerial decision making in Interior and its bureaus and department offices, the Secretary of Interior should direct department officials to monitor bureau's development and implementation of written procedures for performance data validation and verification at all bureaus. |
Closed – Implemented
Interior Deputy Assistant Secretary issued a memo dated May 2007 directing bureaus and office officials to implement prescribed data validation and verification (V&V) standards on the performance data. Between June and August 2007, Interior bureau officials provided certifications to the department that they are implementing the prescribed V&V standards.
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| Department of the Interior | To promote the implementation and use of reliable MCA methodologies to support more informed managerial decision making in Interior and its bureaus and department offices, the Secretary of Interior should direct department officials to continue to monitor the Financial Business Management System implementation plan to determine that MCA functionalities that meet user requirements are included. |
Closed – Implemented
Interior took action to monitor the phases of Financial Business Management System (FBMS) relating to master data maintenance, the allocation of costs, and the calculation and application of overhead costs. The master data maintenance process, initially set up in January 2007, was subsequently updated 8 times through October 2010 during FBMS implementation. These updates included such activities as setting up cost centers for bureaus. The business process for allocation of costs and the calculation and application of overhead costs was initially set up in December 2007 and updated for comments from bureaus as well as reexamination for subsequent FBMS deployments. Interior's monitoring actions over user implementation substantially addresses our recommendation.
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| Department of the Interior | To promote the implementation and use of reliable MCA methodologies to support more informed managerial decision making in the Bureau of Reclamation (BOR), the Secretary of Interior should direct BOR officials to identify and address any inconsistent work output measures between the bureau and departmental systems that are essential to Interior management to help form the basis for consistent cost measurement. |
Closed – Implemented
In September 2008, BOR established a plan to change its work activity output measure from number of facilities to square footage to be consistent with Interior's work output measure. BOR began using square footage data as its work activity measurement for fiscal year 2010. The resulting data on asset usage, value, and square footage should help Interior and BOR consistently accumulate and accurately analyze the cost of its activities and thereby support more informed managerial decision making at Interior and BOR.
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| Department of the Interior | To promote the effective use of proper cost accounting methodologies to support pricing and other managerial decision making at the National Business Center (NBC), the Secretary of the Interior should direct appropriate NBC officials to monitor compliance to existing policies in relation to the application of direct costs, including annual leave and holidays. |
Closed – Implemented
In September 2015, the Department of the Interior issued a series of policies directing all Interior service providers operating in Interior's Revolving Funds, including the Interior Business Center (IBC formally the National Business Center), to effectively monitor and manage service costing and pricing. Interior provided documentation that directed appropriate IBC officials to monitor compliance with existing policies regarding the application of direct costs, including annual leave and holidays. Interior's corrective actions substantially addressed our recommendation.
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| Department of the Interior | To promote the effective use of proper cost accounting methodologies to support pricing and other managerial decision making at NBC, the Secretary of the Interior should direct appropriate NBC officials to document all policies and procedures to help ensure the recovery of costs by product lines to help prevent over and under charging of customers. |
Closed – Implemented
In March 2008, the National Business Center (NBC) revised its Cost Accounting Policy (NBCM-BF-6600-003) to call for full cost recovery though a cost model intended to ensure that certain costs, direct and indirect, are accumulated and assigned to product lines for purposes of determining charges to its customers. Also, in September 2008, NBC released Franchise Fund Policy (NBCM-FM-6600-007) to provide a framework, responsibilities, operating principles, and procedures for setting rates that include the costs of accrued annual leave, depreciation and amortization, and an amount necessary to maintain reasonable operating reserves. Finally, in September 2010, NBC completed actions to substantially address the intent of our recommendation with the release of the Franchise Fund Policy to clarify its lines of business, appropriate levels for reserves, and fee approval procedures.
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| Department of the Interior | To promote the effective use of proper cost accounting methodologies to support pricing and other managerial decision making at NBC, the Secretary of the Interior should direct appropriate NBC officials to complete determination of methodology, and implement a consistent methodology for pricing of services at NBC. |
Closed – Implemented
Interior's National Business Center (NBC) took action to implement a methodology for pricing its services to Interior and non-Interior agencies. Specifically, in September 2008, NBC released a policy (NBCM-FM-6600-007) that provided the framework, responsibilities, operating principles, and procedures for setting rates for services provided by the Interior Franchise Fund. The rates are to return in full all expenses of operation, including accrued annual leave pay, depreciation of plant and equipment, amortization of data processing software and systems, and an amount necessary to maintain reasonable operating reserves. Additionally, a percentage of fiscal year total income after expenses may be retained to fund capital investments. The policy was revised in September 2010 to clarify NBC's lines of business fee procedures.
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| Department of the Interior | To promote the effective use of proper cost accounting methodologies to support pricing and other managerial decision making at NBC, the Secretary of the Interior should direct appropriate NBC officials to document policies and procedures for establishing reserves. |
Closed – Implemented
Interior's National Business Center (NBC) took action to document guidance for establishing reserves. Specifically, in September 2008 NBC released a policy (NBCM-FM-6600-007) that provided the framework, responsibilities, operating principles, and procedures for setting rates for services provided by Interior Franchise Fund. The rates are to return in full all expenses of operation, including accrued annual leave, depreciation of plant and equipment, amortization of data processing software and systems, and an amount necessary to maintain reasonable operating reserves. Additionally, a percentage of fiscal year total income after expenses may be retained to fund capital investments. NBC revised the policy in September 2010 to clarify appropriate reserve levels.
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AccountabilityAccounting standardsCost accounting standards complianceData collectionFinancial managementFinancial management systemsInternal controlsManagement information systemsPerformance measuresSystems evaluation