oversight

Financial Management: Comments on DFAS' Draft Federal Accounting Standards and Requirements

Published by the Government Accountability Office on 1997-06-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      WasJxington, D.C. 20548

      Acc&ting  and Information
      Management Division

      B-277096


      June 16, 1997

      The Honorable John J. Hamre
      The Under Secretary of Defense (Comptroller)

      Subject:   FktanciaI Management: Comments on DFAS’ Draft Federal
                 Accounting Standards and Reauirements

      Dear Dr. Hamre:

       This letter is in response to your April 9, 1997, request for comments on the
       Defense Finance and Accounting Service’s (DFAS) draft Federal Accounting
       Standards and Reauirements, dated February 24, 1997. Based on this document
       and discussions we had with DFAS officials, we understand that these standards
       and requirements will be used by Department of Defense (DOD) system
      .managers to (1) help validate existing accounting and feeder systems”
      compliance with federal and DOD accounting standards and requirements and
      identify system changes that are needed to bring them into compliance with
      these standards and requirements and (2) plan and develop new systems.

      Your draft document is well-organized and represents a substantial effort for
      which DFAS compiled a great deal of worthwhile information. Our comments
      are intended to help DFAS complete this effort by (1) specifying additional
      needed requirements not presently included in the draft, (2) suggesting changes
      to information now in the draft, and (3) discussing where we believe the draft
      document should fit into DOD’s overall strategic planning and financial
      management systems architecture processes.

      The first part of this letter details our comments on each section of the DFAS
      document as well as certain overall observations. The second part discusses
      the importance of a concept of operations to defining how the Department
      plans to conduct its financial management operations. Ultimately, development



      ‘According to DOD’s Financial Management Regulation (DOD 7000.14-R,
      Volume l), feeder systems are the initial record of financial data processed by
      accounting systems.
                  a..                    GAO/AIMD-97-108R DFAS Draft Requirements
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of a concept of operations is central to DFAS completing a review of its
requirements.

COMMENTS ON THE DRAFT FEDERAL
ACCOUNTING STANDARDS AND REQUIREMENTS DOCUMENT

The following comments reflect our assessment of the draft Federal Accounting
Standards and Reauirements. We performed our assessment by comparing the
draft document to applicable federal and DOD criteria’ such as the standards
developed by the Federal Accounting Standards Advisory Board (FASAB) and
the Joint Financial Management Improvement Program @NIP). We also
compared the draft document to GAO’s Title 2, “Accounting,” Title 6, “Pay,
Leave, and Allowances,” and Title 7, “Fiscal Procedures.” The Federal Financial
Management Improvement Act of 1996 requires that each federal agency
implement and maintain financial management ~systemsthat comply
substantially with federal financial management systems requirements,
applicable federal accounting standards, and the U.S. Government Standard
General Ledger. Enclosure I lists the criteria used to assess the draft document

Tables 1 through IO contain specific fkancial management requirements that .:
did not find in the draft document, which DFAS should consider adding.
However, this letter does not include all of the requirements contained in the
criteria that we reviewed. We included those requirements that are (1) essenti
to ensuring an integrated financial management system, (2) critical to ensuring
an effective internal control system, or (3) misstated in the draft document. W
did not include many of the requirements because they were more detailed tb
those high-level requirements or standards contained in the draft document.
For example, we did not include many requirements relating to specific reports
such as what would be contained in the report and how it would be prepared
and transmitted.

In addition to our comments on specific sections of the draft document that ar
in the tables and related narrative, the following are general comments relating
to the entire document.

-   The draft document does not include travel, loans, acquisition, military
    retirees and related retirement fund investments, and budget formulation
    functional areas. Travel requirements and standards are found in the JFMIl
    Federal Financial Management System Requirements (l?FMSR) no. 3, TIZ<~:
    Svstem Reauirements, and DOD’s Financial Management Regulation (F’MR),
    volume 9, “Travel Policy and Procedures.” Loan requirements and standard
    are found in JFMIP’s Direct Loans Svstem Reauirements (FFMSR-5) and


2Where DOD criteria differed from federal criteria, we used the federal criteria

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    Guaranteed Loans Svstem Reauirements (F’FWfSR-6). Acquisition
    requirements can be found in the Federal Acquisition Regulation, the
    Defense Federal Acquisition Regulation Supplement, and applicable DOD
    directives. Military retirement requirements can be found in DOD FMR,
    volume 7B, ‘Military Pay Policy and Procedures for Retired Pay.”
    Investment requirements can be found in the Treasurv Financial Manual
    (TFM), volume 1. Budget formulation requirements can be found in the
    Of&e of Management and Budget (OMB) Circular A-11 and DOD FMR
    volume 2A, “Budget Presentation and Formulation,” chapters l-3, and ZB,
    ‘Budget Presentation and Formulation,” chapters 419.

    Not all information flows among the document’s major financial
    management functions are idenaed. For example, GAO’s Policv and
    Procedures Manual for Guidance of Federal Agencies, Title 6, “Pay, Leave,
    and Allowances,” calls for payroll systems to interface with personnel,
    general ledger, cost accounting, budget, and accounts receivable functions
    or systems. However, in the payroll section, the draft document only
    contains a draft standard that calls for the system to interface with the
    general ledger and cost accounting systems regarding the collection of items
    such as health and insurance premiums from employees on unpaid leave.
    DFAS could choose to develop these information flows in a separate
    document. Such a document should be completed prior to evaluating DOD’s
    financial management systems to enable an assessment of whether the
    appropriate information exchanges among DOD’s financial management
    systems are taking place.

-   DFAS did not include GAO’s Title 7, “F’Wal Procedures,” in the reference
    section. Title 7 provides guidance on the development, installation, and
    operation of an agency’s fiscal processes in its f%nancial management
    system. (Tables 5, 8, and 9 list the missing requirements related to Title 7.)

-   DFAS should clarify that the requirements in the document would apply to
    DOD’s financial management systems, using the demtions of financial
    management systems contained in the Federal F’inancial Management
    Improvement Act of 1996.3


%e Federal F’inancial Management Improvement Act of 1996 (P.L. 194208,
Title wil) defines a financial management system as the financial systems and
the financial portions of mixed systems necessary to support tiancial
management The Act defines a financial system as an information system
comprised of one or more applications that is used for (1) collecting,
processing, maintaining, transmitting, or repotig data about financial events,
(2) supporting financial planning or budgeting activities, (3) accumulating and
reporting costs information, or (4) supporting the preparation of financial

3                                   GAO/W-97-108R        DFAS Draft Requirements
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-       DFAS should include definitions of each of the functional areas, and the
        processes within each area’ to clarify the scope of each of the sections. In
        addition, the distinction between the funds control and budgetary
        accounting sections is unclear. For example, both sections contain related
        and redundant requirements regarding recording, tracking, or controlling
        appropriations, apportionments, and allotments. We combined our
        comments on these two sections in table 8, which addresses funds control.

        The draft document places the establishment of an account classification
        code structure standard in the accounts receivable and advances section.
        The account classification code structure is used by many other functions,
        such as funds control. We would suggest including it in the general ledger
        and financial reporting section. In addition, it is our understanding that the
        DFAS initiative to implement a Budget and Accounting Classikation Code
        (BACC) is an attempt to design a DOD-wide.accou.nt classifkation code
        structure. Therefore, the draft document should specify that (1) any military
        service or component agency classification structure should be consistent
        with, and roll up to, the BACC and (2) budget, expense, and revenue items
        should be recorded using both the BACC and any related service or
        component agency classification structure.

-       The draft document does not contain high-level requirements necessary to
        support other DOD initiatives such as the standard data elements initiative.
        For example, we suggest adding a requirement that DOD’s financial
        management systems comply with applicable approved standard data
        elements.

-       The draft document misstates which parts of GAO’s Title 2, “Accounting,”
        are still in effect. Our March 1997 guidance to federal agencies on
        accounting standards states that the following sections of appendix I of Title
        2 may still be used as authoritative guidance.

        -   Standard C30, “Compensated Absences”

        -   Standard ElO, “Entitlements”

        -   Standard EZO, “Equity of the US Government,” related to reversionary
            interest in property and trust funds

        -   Standard F30, “Foreign Currency”


    statements. A mixed system is defined as an information system that supports
    both financial and nonfinancial functions of the federal government or
    components thereof.

    4                                      GAO/AIMD-97-108R DFAS Draft Requirement
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    .- Standard F40, “Fund Accounting,” related to deposit, trust, and fiduciary
       flmds

    -   Standard GlO, “Grants and Cooperative Agreements”

    -   Standard 110, “hnputed Interest,” related to the cost of capital

    -   Standard 140, “Investments”

    -   Standard LlO, “Leases,”where the agency is the lessor

    -   Standard L40, “Long-term Contracts,” related to cost and expense
        recognition

    -   Standard P40, “Property, Plant, and Equipment,” related to reversionary
        interest in property

    -   Standard R20, “Regulatory Accounting”

    -   Standard R40, “Research and Development”

    In addition, Title 2, appendices II: and RI, relating to internal controls and
    accounting system standards, respectively, are still in effect.

The following sections address, by functional area, the requirements that we
believe need to be added or clarified.

General Ledger and Financial Renortinq

The following are our comments on the draft document’s “General Ledger and
Financial Reporting” section. In addition, table 1 lists specific standards or
requirements that were not included in the draft document.

-   In many places, the draft document discusses maintaining and recording
    transactions in accordance with the DOD Standard General Ledger (SGL).
    The Federal Financial Management Improvement Act of 1996 requires that
    federal agencies comply with the U.S. Government SGL. As long as the
    DOD SGL complies with the U.S. Government SGL, we do not object to
    requiring that the DOD SGL be used. However, we suggest that you add a
    footnote regarding the U.S. Government SGL.

-   This section of the draft document does not include all of the standards or
    requirements on the preparation, transmission, and reconciliation of
    financial or financial-related reports to Treasury, OMB, and other agencies.


5                                     GAO/AJMD-97-108R DFAS Draft Requirements
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         -For example, the draft document does not reference the DOD FhQ3 volume
         6, “Reporting Policy and Procedures.” This volume contains requirements
         regarding external reporting, that we believe should be included.

-        The DFAS draft document does not have all of the requirements in OMB’s
         guidance on the Form and Content of Agency Financial Statements.’


Table 1:          Listing of Missing Federal Accounting Reauirements and Standards-
                  General Ledger and Financial Renorting

                                I-
                                                  Missing requkementkandard
    F’FMSR-1,p. 21                   kchieve, to the extent possible, consistency in budget
                                     md accounting classifications and synchronization         ,
                                     between those classifications and the agency’s            ..
                                     organizational structure.                                 I
    FFMSR-1, p. 21                   Provide a fund structure that provides for the
                                     identification of appropriation or fund accounts          I’
                                     established by OMB and Treasury through the budget        i
                                     process, receipt accounts, credit program and financing   ‘.
                                     accounts, deposit funds, clearing accounts, and other     i
                                     accounts deemed necessary. The fund structure must        j
                                     provide for additional detail below the appropriation     ‘.
                                     level to support &cal year accounting, appropriation      1:
                                     subaccounts used for reporting to Treasury, and           1.
                                     financial statement preparation.
    F’F’MSR-1,p. 21                  Relate Federal Account Symbols and Titles structures      !
                                     established by Treasury to the system’s fund structure    I
                                     for reporting purposes.
    FFMSR-1, p. 21                   Provide a program structure with suffkient levels of       i
                                     detail to allow reporting for ah categories on which       i
                                     budgetary decisions are made, whether legally binding,
                                     policy guidance, or internal agency decisions.             I
                                                                                                I
        FFMSR-1, p. 22               Provide an organization structure based on
                                     responsibility assignments, such as offices, divisions,
        Title 2, app. III, p.        and branches.
        2-l


    40M13Bulletin 97-01, Form and Content of Agencv F’inancid Statements,
    October 16, 1996.

    6                                             GAO/AIMD-97-108R DFAS Draft Requirement
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    l?FMSR-1, p. 22   Use Agency Location Codes assigned by Treasury for all
                      transactions and reports involving ‘Ikeawry disbursing



                      structure must also accommodate additional levels




                      codes to update other information maintained in the
                      system, such as document balances and available




    FFMSR-1, p. 27    AU transactions to record financial events must post,


                      Distinguish between entity assets and nonentity assets.




7                                 GAO/AlMD-97-108R DFAS Draft Requirements
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        Reference”                       M&sing requirement&andard
    FTMSR-1, p. 51          Report events and transactions according to the
                            accounting classification structure and within a given
                            accounting period.
    Title 2, app. RI, p.    FYrogramming, budgeting, accounting, and reporting
    2-4                     classiiications should be consistent with each other and
                            synchronized with the organizational structure so that
    DOD FMR vol. 1,         actual activity can be compared with enacted budgets
    chap. 2,                and support future budget formulation for each
    addendum 1, sec.        management function.
    D
    Title 2, app. lIl, p.   Reports should be designed to highlight major problems,
    3-3                     exceptions, or trends and to facilitate the monitoring
                            and evaluation of operations.
    Title 2, app. Ill, p.   Reports should be designed so they can (1) provide
    3-4                     management with feedback when established controls
                            have been violated, (2) alert managers when operations
                            are deviating from financial plans, and (3) provide the
                            financial data needed to analyze and predict the
                            financial consequences of alternative courses of action.
    TFM, vol. 1, part       NOTES report(s) should correspond to department
    2, sec. 4030.30         code.

The abbreviations for the references can be found in enclosure I.


Propertv

The following are our comments on the draft document’s “Property” section. In
addition, table 2 lists specific standards or requirements that were not included
in the draft document

-      The draft document does not include a property management function. This
       function would include processes related to (1) maintaining property
       information, (2) determinin g property needs, (3) receiving and inspecting
       property, (4) servicing property, and (5) retiring, tiansferring, and disposing
       of property.

-      Draft standard 2.02.14 is misstated. Statement of Federal Financial
       Accounting Standards (SFFAS) no. 3, Accounting for Inventors and Related
       Pronertv, requires that forfeited assets not held for sale shall be reclass*ed

8                                        GAO/AIMD-97-108R DFAS Draft Requirements
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    as forfeited assets held for donation or use. The draft standard states that
    forfeited assets held for sale would be reclassified as held for donation or
    use. In addition, the draft document does not include the requirements
    contained in JFMIP’s Seized/Forfeited Asset Svstem Reauirements (J!‘FMSR-
    41,
-   SFFAS 3 and DOD FMR volume 4, “Accounting Policy and Procedures,”
    requires that the valuation of pre-1992 and post-1991 foreclosed property be
    treated differently. The draft document does not include this distinction.

-   Draft standard 2.06.25 misstates the reporting requirements categories set by
    FASAB’s Statement of Recommended Accounting Standards no. 8,
    Sunnlementarv StewardshiD Reporting, which are (1) heritage assets,
    (2) federal mission property, plant, and equipment, (3) stewardship land,
    (4) nonfederal physical property, (5) human capital, and (6) research and
    development

-   The draft document does not address standard R40 of GAO’s Title 2, which
    calls for property, plant, and equipment acquired or constructed for a
    particular research and development project with no alternative future use
    to be depreciated or amortized over the life of the project, where it is
    reasonable and estimable. Iit addition, during our assessment we noted that
    DOD FMR volume 4, “Accounting Policy and Procedures,” is inconsistent
    with GAO’s Title 2 in that it states that property, plant, and equipment for
    research and development testing activities with no alternative uses should
    normally be expensed.




9                                  GAO/AIMD-97-108R DFAS Draft Requirements
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Table 2:   Listing of Missing Federal Accounting Reauirements and Standards-
           ProDertv


      Reference=                       Missing requirement/standard
 DOD FMR vol. 4,         IJheestimated useful life of an asset for depreciation
 sec. 010505E and        xuposes shah be based on DOD experience. However,
 060210                  n no case shah the initially estimated useful life exceed
                         40 years.
 DOD F’MR vol. 4,        ?roperty is transferred within DOD at the transferor’s
 sec. 010504L            yecorded acquisition cost and accumulated depreciation.
                         Che property is capitalized by the recipient at these
                         ransferred amounts.
 DOD F’MR vol. 4,        Physical inventories andinspections of real property
 sec. 010507R and        shall be conducted to ensure that only property under
 060213                  DOD control is recorded in the general ledger. These
                         inventories and inspections shall be taken periodically
                         but no less frequently than every 3 years for personal
                         property and 5 years for real property. The accounting
                         records shah be adjusted to agree with the physical
                         counts when any identified differences cannot be
                         resolved. The Military Departments shah maintain
                         inventory property records of all real property under
                         their control and submit an annual summary.
 DOD FNR vol. 4,         For property awaiting disposal, DOD policy is to record
 sec. 070307F            the difference between the value of an asset before
                         identification as excess, obsolete, and unserviceable and
                         its net realizable value after such identification as a loss
                         in current period operations within the DOD Component
                         activity from which the asset is to be disposed. The loss
                         shall be recognized in general ledger account 7293 “0th~:
                         Miscellaneous Losses” at the time the determination is
                         made even though the disposition of the asset may not
                         occur until a later period. Any subsequent adjustments
                         to its net realizable value shall also be recognized as a
                         loss in the period in which such adjustments occur.




 10                                GAO/AIMD-97-108R DFAS Draft Requirements
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                                                                tern or can be




                          of minimum future rentals on noncancelable operating




The abbreviations for the references can be found in enclosure I.


Inventorv Accounting

The following are our comments on the draft document’s “Inventory
Accounting” section. In addition, table 3 lists specific standards or requirements
that were not included in the draft document.

-    In March 1997, the DOD Comptroller’s Office issued DOD FMR volume llA,
     “Reimbursable Operations, Policy, and Procedures.” The requirements
     document should include this new policy. In addition, the references to
     DOD FMR volume 11 in the draft document should be changed to reflect
     that there are two volumes. The second volume, volume llB, is entitled
     “Reimbursable Operations, Policy and Procedures-Defense Business
     Operations Fund.”

-    Draft standard 3.05.13 calls for inventory to be reported at the lower of cost
     or market value. This is not consistent with SFF’AS 3, Accounting for
     Inventors and Related Pronertv wh.ich.states that inventory shah be valued
     at either historical cost or late2 acquisition cost (with an adjustment for
     holding gains or losses).

11                                  GAO/AIMD-97-108R DFAS Draft Requirements
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Table 3:   I.&tine of Missing; Federal Accounting Reauirements and Standards-
           Inventorv Accountinq

      Reference’                       Missing requirementistandard
 SFFAS 3, par. 28        The criteria considered by management in identifying
                         inventory held in reserve for future sale shall be
                         disclosed. The criteria for disclosure should include
                         pilferage and the likelihood that a supply of the items
                         will be available in the future.
 SFFAS 3, par. 30        Excess, obsolete, or unserviceable inventory shah be
                         valued at its expected net realizable value.
 SFFAS 3, par. 32 and    Inventory held for repair may be treated by using the
 33                      direct method. Under the direct method, inventory he!*
                         for repair shall be valued at the same value as a
                         serviceable item less the estimated repair costs. When
                         the repair is actually made, the cost of the repair shah t:
                         capitalized in the inventory account up to the value of :
                         serviceable item.
 DOD F’MR vol. llB,      Work In Process-Government Furnished Material shall
 sec. 57-A3              be valued at the issued items’ standard price and
                         quantity. The Government Furnished Material account
                         shall be supported by records that identify quantities of
                         items and dollar amounts by contract number.
 SFFAS 3, par. 35        The system should track and record the data necessary
                         for required disclosures under SFFAS 3. Such
 DOD FMR, vol. llB,      disclosures should include the (1) general composition
 sec. 56F                inventory, (2) basis for determining values, (3) changes
                         from prior year’s accounting methods, (4) balances for
                         each category of inventory (i-e., inventory held for
                         current sale, inventory held in reserve for future sale,
                         excess, obsolete, and unserviceable inventory, and
                         inventory held for repair, (5) restrictions on sale of
                         material, (6) decision criteria for identifying categories ”
                         which inventory is assigned, and (7) changes in the
                          criteria.
  FFMSR-7, p. 45         Provide methods to support pricings by groupings or
                         commodities of items.




 12                               I GAO/AIMD-97-108R DFAS Draft RequiremeL
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 FFMSR-7, p. 45          Identify separate methods of pricing needed based on
                         statutory authority or other agency policy, such as for


                         typically include, but not be limited to, the following
                         types of man&l measures:
                         1. price ratio of the cost of sample buys to published
                         prices in catalogs, etc. and


The abbreviations for the references can be found in enclosure I.


SUT~D~ tierations

The following are our comments on the draft document’s “Supply Operations”
section. In addition, table 4 lists speciik standards or requirements that were
not included in the draft document.

     The draft document does not address the standards regarding issues without
     reimbursement and loans and leases that are contained in DOD FMR volume
     llB, “Reimbursable Operations, Policy, and Procedures-Defense Business
     Operations Fund,” sections 555 and 55M and the JFMIP Inventor-v Svstem
     Reouirements (FFMSR-7).

     The draft document does not address the disposition and disposal of excess
     material requirements contained in DOD FMR volume llB, “Reimbursable
     Operations, Policy, and Procedures-Defense Business Operations Fund,”
     sections 55Q and 56D.




13                                 GAO/AI&ID-97-108R DFAS Draft Requirements
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Table 4:   Listing of Missing Federal Accounting Reauirements and Standards-
           SUDD~V Onerations


      Reference”                      Missing requirement/standard
 ?FMSR-7, p. 27         Provide for performing quantity and price conversions
                        between different units of measure.
 PFMSR-7, p. 27         Identify transportation discrepancies and initiate
                        transportation discrepancy reports.
 ?l?MSR-7,p. 27         Identify shipping discrepancies (e.g., SF 364) and produc
                        quality deficiencies (e.g., SF 368) between the items
                        received and the information provided on shipping
                        documents and purchase orders. Support the follow-up
                        of discrepancies.
 FFMSR-7, p. 32         The inventory system should provide at least the
                        following types of management information: unfilled
                        orders, discrepancies, acceptance and rejection
                        summary, days supply, item expiration/shelf life, cycle
                        count. and inventorv accuracv.
 FFMSR-7, p. 34         To support the repair process, an inventory system L&U,’
                        (I) identify the cost of repair activities, (2) account for
                        repair costs as a charge to the allowance account, a
                        capitalization in the inventory account up to the value c
                        the serviceable item, or a repair expense, and (3) when
                        transitioning to a new repair accounting method,
                        separately identify prior period amounts for repair
                        expense and record the appropriate adjustments.
 FFMSR-7, p. 34          To support the return to inventory function, an inventor.
                         system must (1) record the transfer of an inventory 5x--
                         from the status of “in repair” to its proper status and
                         location and (2) if the item is determined to be
                         unserviceable. transfer it to the disuosal nrocess.
  FFMSR-7, p. 36         The inventory system should provide at least the
                         following types of management information: repair
                         status, production order, and work-in-process tracldng.
  FFMSR-7, p. 39         To support the customer order process, the system must
                         if the customer is a federal agency, record the fund
                         citation provided.



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 FFMSR-7, p. 39   To support the customer order process, the system must,
                  when insufficient stock is available to fubill the total
                  requirement, issue stock and backorder the balance as

 FFMSR-7, p. 39   To support the customer order process, the system must
                  send special orders, orders for services or goods to be
                  manufactured to specification, and other similar orders



                  record it against the customer order and send the


                              ce to customers on

                  applicable, over shipments in transit from suppliers, and
                  to establish the point of transfer of title. Title to
                  inventory may be passed to the customer at the point of
                  sale or the point of detiation,   depending upon the sales
                      ement with the customer.




15                         GAO/AIMD-97-108R DFAS Draft Requirements
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                      -
      .Reference”                       Missing requirement/standard
 FFMSR-7, pp. 47-48        Performance measures for an inventory system should
                           typically include, but not be limited to, the following
                           ypes of program performance trends:
                           1. The percentage of reports of item discrepancies filed
                          7with suppliers and the types of discrepancies being
                          jincurred to the total number of buys by contractor.
                          2~.The percentage accuracy of the quantities and values
                             If inventory records versus quantities physically on
                          i and.
                          3I. The percentage of shipments-on-time accuracy. This
                          Llercentage should include warehouse denials and
                          14 ocation accuracy.
                          4:. The percentage of items disposed of as opposed to the
                          t otal dollar value of inventory.
                           5i. The percentage of losses or damage in storage, such
                           aIS exceeding shelf life, damage, or loss while storing or
                           r restoring an item.
                           Ei. The 6ll rate or percentage of demands met at the time
                           C)f initial processing of the customer order.

 F’FMSR-7,p. 48            performance measures for an inventory system should
                           ypicaby include, but not be limited to, the following
                           ypes of efficiency measures:
                           1.The ratio of the administrative acquisition or order
                           ead times to industry norms.
                           !. Cost per receipt and issue.
                           3. Response time
                           L. Report of discrepancy processing time.
 F’FMSR-7,p. 49            I’he inventory system should provide at least the
                           hollowing types of management information: cost per
                           dollars of sales and operations cost
 DOD F’MR voL llB,        kt least quarterly, line item accountability records shall
 sec.55E2                 be reconciled to balances recorded in the general ledger
                          inventory accounts. Differences between line item
                          accountability records and general ledger balances shall
                          be investigated to determine the cause(s) of the
                          differences. Errors found during the investigation shall
                          be corrected.
  DOD FMR vol. IlB,   The general ledger shall be adjusted for differences
  sec. 5533         A between the general ledger and physical counts.


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                          The cost of war reserve items shah be separately


                                                           major classes to facilitate




    FFMS 14.4.1.2                   atures to record receipt of items ordered from

    FFMS 14.4.1.12        Provide features to record discrepancies in delivered          ,
                          items (e.g.; incorrect item received, incorrect quantity,      j
                                          rial, material sent to incorrect receiving

    FFMS 14.4.2.13                  atures to age receipts that have not been

    FFMS 14.4.2.14        Provide features to record the acceptance of inspected




The abbreviations for the references can be found in enclosure I.


Accounts Receivable Including Advances

The following are our comments on the draft document’s “Accounts Receivable
Including Advances” section. In addition, table 5 lists specitlc standards or
requirements that were not included in the draft document.

-    Draft standard 5.06.26 states that the system should account for the
     midmonth payroll as an advance. This is a misstatement of the source of
     the requirement, 37 U.S.C. 1006, which states that a member of the
     uniformed service may be paid in advance in certain circumstances.

-    Draft standard 5.0633 states that advances should not be made for project
     orders to other DOD activities and cites 41 U.S.C. 23 as the source of this
     constraint. However, 41 USC. 23 does not address advances.


17                                  GAO/AIMD-97-108R DFAS Draft Requirements
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Table 5:   Listing of Missing Federal Accounting Reauirements and Standards-
           Accounts Receivable including Advances

      Reference”                      Missing requirementistandard
 3OD FMR vol. 4,        When management determines that resources should be
 ;ec. 030208            recovered from a defense contractor and the contracting
                        officer issues a demand for payment, a receivable shall
                        be recorded and collection action initiated. The
                        accounting and finance officer shall record the receivable
                        upon receipt of a copy of the demand for payment. The
                        date of demand for payment shall establish the point in
                        time when the receivable must be recorded.
 DOD FMR vol. 4,        DOD components must submit the TFS report 220.9,
 sec. 0307              Report on Accounts and ‘Loans Receivable Due From The
                        Public.
 DOD FMR vol. 4,        DOD Component financial management systems shall
 sec. 050303            incorporate sufficient internal controls and information
                        gathering techniques to monitor the use of advances
                        made. Unneeded and unused balances shall be
                        recovered as soon as information indicates they are
                        excess to the purposes for which originally made.
 E?FMSR-1,p. 45         Apply receipts to more than one receivable.
 SFFAS 1, par. 54       Payments received from debtors should be applied Erst
                        to penalties and administrative charges, second to
                        interest receivable, and thirdly to principal.
 SFFAS 1, par. 55       Interest accrued on uncollectible accounts receivable
                        should be disclosed.
 Title 7, sec. 5.2A      Control records which disclose collections that have not
                         been deposited, deposits in transit, and deposits that
                         have been confirmed by the depositaty should be
                         maintained.
  DOD FMR, vol. 5,       Disbursing Officers depositing a single check totaling
  sec.050205             $50 million or more, or several checks of a similar nature
                         excluding all Treasury checks, shall notify the Treasury
  TFM vol. 1, part 5,    on the same day the deposit is made.
  sec.4020




 18                                GAO/AM%97-108R DFAS Draft Requirements
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        Reference”                      Missing requirement/standard
    FFMS 4.2.2.5          Provide capability to maintain account and loan
                          receivable relationships between agency program
                         -(feeder) and financial functions
                          Provide features to determine that loans selected for
                          mite-off exceeding $100,000 have
                          been approved by the Department of Justice.
                          Provide features to produce and remit the Claims
                          Collection Litigation Report for each loan account
                          referred to agency counsel or the Department of Justice.

?I’he abbreviations for the references can be found in enclosure I.


Cost Accountinq

The following are our comments on the draft document’s “Cost Accounting”
section. In addition, table 6 lists specific standards or requirements that were
not included in the draft document.

     To ensure that the requirements of the draft JFMIP Managerial Cost
     Accounting &stem Reouirements (FFMSR-8) are fully addressed, we suggest
     that DFAS use the same organization of the JFMIP document in this section.
     The draft JFME document has five cost accounting functional requirements
     sections: (1) system administration, (2) data capture, (3) indirect cost
     distribution, (4) cost and revenue calculations, and (5) cost monitoring. In
     addition, we suggest that DFAS incorporate the requirements in the draft
     Managerial Cost Accounting Svstem Reauirements into its standards and
     requirements document.

-    Several of the DFAS draft standards refer to section 1902 in DOD FMR
     volume 4, “Accounting Policy and Procedures,” which relates to the Cost
     Accounting Standards Board standards. We note that SFFAS 4, Managerki
     Cost Accounting Concerts and Standards for the Federal Government, has
     superseded Title 2 and the Cost Accounting Standards Board’s standards to
     the extent cost accounting subjects are covered in SF’FXS 4.

-    The draft document does not address using the cost accounting function to
     support performance measures. The JFMlP Core Financial Svstem
     Reauirements (FFMSR-1) standard states that the Core financial system
     must maintain the financial information required for program performance,
     financial performance, and financial management performance measures and

19                                  GAO/AND-97-108R DFAS Draft Requirements
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     needed for budgeting, program management, and iinancial statement
     presentation.


Table 6:    Listing of Missing Federal Accounting Reauirements and Standards-
            Cost Accounting

        Reference”                      Missing requirement/standard
 DOD F’MRvol. 4,          I’he number of units still within a process cost center arc
 sec.210305               expressed in terms of equivalent production units. The
                          calculation of equivalent production inventory is based
                          lpon a physical inventory to determine the production
                          ;tdUS.
 FFlWR-1, p. 47-48        Provide for a variety of ‘information to support the
                          iecision making process, the management of the agency
                          mindexternal reporting. This will include: (1) ability to
                          provide cost information directly to other systems in the
                          gency requiring this data, (2) ability to receive cost
                          nformation directly from the managerial cost accounting
                          vstem for reporting and analysis, (3) cost information
                          for comparison to other program data to determine
                          compliance with planned budgeted activities and
                          effective utilization of available budgetary resources, and
                          [4) support of the billing process by providing cost
                          information to the receivable function for producing
                          bills.
 OMB A-25, sec. 8a        Agencies are to identify the services and activities
                          covered under A-25 for user charges.
 OMB A-25, sec. 8b        Agencies are to determine the extent of the special
                          benefits provided.
 OMB A-25 , sec. 8e       Agencies are to review the user charges for agency
                          programs biennially.
 OMB A-25, sec. 8g        Maintain record of the services or activities covered
                          under A-25, the extent of special benefits provided, the
                          exceptions to the general policy of A-25, the information
                          used to establish charges and the specific methods used
                          to determine them, and the collections from each user
                          charge imposed.




20                                  GAO/AND-97-108R DFAS Draft Requirements
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     .Reference”                 M&&g    reqr.&ement&andard
 DOD FMR vol. 4,   The acquisition cost criteria in the case of computer and
 sec. 010504Ala    other systems is applied on the basis of the unit cost of a
                   complete system rather than on the individual items
                   which, when aggregated, becomes a system. A system
                   shah be considered to exist if a number of components
                   are part of, and function within, the context of a whole
                   to satis@ a requirement.
 DOD FMR vol. 4,   For purchased computer software, acqujsition costs shall
 sec. 010504P      include the salaries and benefits for DOD staff and
                   compensation to others for development and
                   motication     of the software, computer operating costs   i
                   for testing, developing and parallel processing, and other
                   direct and indirect cost& incurred during acquisition and
                   development. Off-the-shelf software shah be recorded at
                   acquisition cost. Software obtained by other means shall
                   be recorded at its estimated fair market value.
                   Computer software that is integrated into hardware and
                   is necessary to operate the hardware rather than perform
                   an application is considered and capitalized as part of
                   the hardware (if applicable) and is depreciated, when
                   required, as hardware.
 FFMSR-7, p. 46    The process used to validate work-m-process costs for
                   repair or manticturing performed by an independent
                   third party such as contractors or other government
                   agencies, should be based, to the maximum extent
                   possible, on reporting mechanisms used for contract
                   management, project management, or other similar
                   purposes.
 FF’MSR-1, p. 47   Use the agency’s accounting classification structure to
                   identify information such as fund, program organization,
                   project, and object class to support the cost
                   accumulation and distribution processes.




21                           GAO/AIMD-97-108R DFAS Draft Requirements
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        Reference”                      Missmg requirementM.andard
    DOD F’MR vol. llB,    The direct costs and allocated indirect costs and gener
    sec. 57A4             and administrative expenses recorded in work in procc:
                          accounts shall be transferred upon completion or
                          termination of the job to cost of goods sold or, if the
                          completed work is to be retained for use by the
                          producing activity, to an applicable asset or, if it does
                          not meet the DOD capitalization criteria, an expense
                          account The amount relieved shall be the costs
                          incurred that are associated with the revenue earned.
    FFMSR-1, p. 47        Provide support for the fees, royalties, rents, and other
                          charges imposed by the agency for services and things c
                          value that it provides. Sufficient information must be
                          accumulated to support CFO recommendations made
                          during biennial reviews on revising the charges to reflec
                          costs incurred by the agency in providing those services
                          and things of value.

The abbreviations for the references can be found in enclosure I.




The following are our comments on the draft document’s “Payroll” section. In
addition, table 7 lists specific standards or requirements that were not included
in the draft document.

-     The draft document does not adequately cover the Federal Employees
      Retirement System or the Thrift Savings Plan. For example, while there are
      draft standards that address employee withholdings and agency matching of
      contributions for Civil Service Retirement, there are no equivalent standards
      for the Federal Employees Retirement System. In addition, the draft
      document does not address Thrift Savings Plan requirements such as
      ceilings on the percentage of pay that employees can contribute to the
      savings plan.

-     The draft document does not include the DOD FMR volume 7A “Military Pay
      Policy and Procedures-Active Duty and Reserve Pay.” This regulation sets
      out, among other requirements, basic, special, and incentive pay provisions
      for active duty and reserve personnel.




22                                   GAO/AIMD-97-108R DFAS Draft Requirements
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     The draft document does not include requirements in DOD FMR volume 8,
     “Civilian Pay Policy and Procedures,” relating to miscellaneous actions,
     special category employees, and under-payments and indebtedness. In
     addition, the draft document does not include requirements in DOD FMR
     volume 8 relating to recruitment and relocation bonuses, severance pay,
     continuation of pay for federal employees, backpay, and emergency
     evacuation pay.

     Draft standard 7.04.15 is misleading. It states that the system should
     prevent premium pay on a holiday. We suggest that DFAS clarify this draft
     standard by using the language in DOD FMR volume 8 which states an
     employee who performs work on a holiday designated by federal statute is
     entitled to pay at the rate of basic pay plus premium pay at the rate equal to
     the rate of the basic pay, for that holiday work that is not in excess of the
     scheduled tour of duty or overtime work

     Draft standards 7.05.22, 7.05.23, 796.10, and 7.05.26 relate to an older
     version of GAO’s Title 6 which specified the order of precedence in
     deductions when gross pay was not enough to cover all deductions. In
     March 1996, Title 6 was revised to eliminate this order of precedence in
     response to the requirements of the Hatch Act Reform Amendments of 1993.

     Draft standard 7.02.15 should be clarified. It states that the system can
     receive electronic approvals of time and attendance data from supervisory
     personnel. This should be clarified to conform to GAO’s Title 6 which
     requires, in automated systems, that electronic signatures be used for time
     and attendance approvals. Further information on electronic signatures can
     be found in our comments on systems controls.




23                                  GAO/AIMD-97-108R DFAS Draft Requirements
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Table 7:   Listina of Missing Federal Accounting Reauirements and Standards-
           Pavroll

      Reference”                      Missing requirement/standard
 FFMSR-2, p. 11         Store lump sum leave hours to be paid to separating
                        employees. Reduce annual leave balances to zero after
                        lump sum payments are made.
 FFMSR-2, p. 21         Compute earnings amounts for partial pay periods when
                        entitlement dates do not coincide with pay period
 FFMS, sec. 6.4.2.3     beginning and ending dates. Process earnings
                        adjustments on a begin-date/end-date basis.
 FFMSR-2, p. 11         Calculate projected annual leave balances.
 FFMSR-2, p. 12         Allow the authorized user to add a new pay line
                        manually or to change or delete an erroneous pay line,
                        prior to calculation and disbursement of payroll.
 FFMSR-2, p. 14         Maintain current organizational component identifiers fc
                        reporting to the Office of Personnel Management’s
                        Central Personnel Data File.
 FFMSR-2, p. 22         Determine when a bond may be issued given its
                        denomination per pay deduction. The process for settirr;
                        bond issuance dates and issuing bonds may be
                        accomplished by systems outside the pay system.
 FFMSR-2, p. 24         Information should be made available to other functions
                        to generate internal and external payroll reports not
                        created directly in the pay processing function.
 FFMSR-2, p. 25          Generate required reports-SF 1150, Record of Leave
                         Data; SF 2806, Individual Retirement Record; and SF
                         2807, Register of Separations and Transfers-for
                         separating or transferring employees with the next
                         regular payroll.
  FFMSR-2, p. 26         Generate Monthly Employee Report (SF 113A) and the
                         Monthly Full-Time Equivalent Report (SF 113G) to the
                         Office of Personnel Management.
  FFMSR-2, p. 26         Notify agency payroll and personnel office staff of
                         incorrect or missing data.




24                                 GAO/AIMD-97-108R DFAS Draft Requirements
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      Referencea                       Missing requirementktandard
 FFMSR-2, p. 27         Generate retention records for Reduction in Force based
                        on competitive position, tenure, and retention
                        requirements.
 DOD FMR, vol. 8,       Corrections and other adjustments to data in official
 sec. 010406Af          records must be approved in writing or through
                        electronic signature (made by entering designated codes
 Title 6, sec. 2.2E     into an automated system under safeguards to prevent
                        unauthorized use) by an authorized official.
 DOD FMR, vol. 8,       Controls which would help ensure that computerized
 sec. 010406EM          payroll operations process transactions and produce
                        reports accurately by including the following techniques
 Title 6, sec. 2.2E2c   in the programmed instructions:
                        1. Verification of social security numbers or other
                        identiQing information for employees authorized to be
                        paid against a master list or file of such information for
                        valid current employees.
                        2. Use of proper authorization codes by authorized
                        payroll employees.
                        3. Acceptance of data entry from authorized terminals
                        only.
                        4. Use of master control totals for data elements by
                        computing such totals before payroll transactions are
                        entered, adding totals computed from transactions, and
                        computing a grand total at the completion of the
                        processing cycle. The software in use must ensure that
                        beginning totals plus transaction totals equal ending
                        totals.

                        Title 6 also requires (1) verification of data entry using
                        batch control totals, where applicable, and (2) proper
                        backup of data
 Title 6, sec. 2.2C.2   Reports must be based on, supported by, and
                        periodically validated against, appropriate detailed
                        information in the payroll system.




25                                GAO/AIM&97-108R DFAS Draft Requirements
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      Reference”                       Missing requirementktandard
  Me 6, sec. 2.2Elb      There must be separation of duties for the following:
                         1. Authorization of pay and entitlements.
                         2. Cetication of payments.
                         3. Payroll computation.
                         4. Recording of payroll data in the accounts.
                         5. Distribution of pay.
                         6. Review of payroll transactions.
                          ‘. Automated system development.
                          L System testing.
                          1.System implementation.
                          10.System maintenance.
  Rtle 6, sec. 2.2Elc    kcess to personnel, payroll, and disbursement records
                         x data files must be re&icted to authorized personnel.
  lltle 6, sec. 2.2Ele   ro the extent practical, data entered into automated
                         payroll systems must be subjected to computerized edits
                         when entered. Data elements not susceptible to such
                         xlits must be edited at the earliest practical time.
                         Inappropriate data detected must be promptly
                         investigated, corrected, and, if appropriate, reprocessed.
                         A record of such data, its originator, and its disposition
                         must be generated and maintamed.
  Title 6, sec. 3.5A     Time and attendance reports should generally cover no
                         more than one biweekly pay period and include the
                         following information:
                         1. Employee name and identifying number.
                         2. Pay period number or dates.
                         3. Aggregate number of hours of premium pay, by type of
                         premium pay, to which the employee is entitled.
                         4. Evidence of approval by an authorized official.
                         5. Any required supporting documentation or records of
                         absences.
                         6. Such other information as agencies believe necessary
                         in support of operations.
  Title 6, sec. 3.5B      The time and attendance system must able to identify the
                          individual responsible for recording the data




 26                                 GAO/W-97-108R        DFAS Draft Requirements
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          Referencea                      Missing requiremenMandard
    Title 6, see 3.5C and   Overtime must be distinguished between regular
    sec. 3.6B               overtime, imegular overtime, or occasional overtime (or
                            compensatory time in lieu of overtime, where allowed) in
                            order to properly calculate an employees overtime pay
                            entitlements.
    Title 6, sec. 3.7       The system used to transmit time and attendance data to
                            payroll must protect time and attendance data from
                            unauthorized change or alteration and must generate a
                            record of any change made.
    Title 6, sec. 3.11      When reservists perform duties suited to the application
                            of civilian time and attendance requirements, those
                            requirements should be imposed and met. However,
                            when resenists perform duties where the application of
                            these requirements are impractical or infeasible, the
                            mihtary service member time and attendance
                            requirements must be imposed and met. When placed
                            on active duty status, reservists will be subject to the
                            time and attendance criteria for military personnel.
    Title 6, sec. 5.2C      Agencies must ensure timely payment of deductions that
                            are made &om employee/service.member salaries and
                            wages to those authorized to receive the payments.
    Title 6, sec. 7%        A voucher must be prepared for each disbursement or
                            group of disbursements, and each voucher must be
                            certified by a duly authorized certifying officer before
                            payment. No employee/service member may certify her
                            or his own individual disbursements, but may certify a
                            voucher for the agency payroll which includes her or his
                            own pay.

The abbreviations for the references can be found in enclosure I.


Funds Control

The following are our comments on the draft document’s “Funds Control”
section. In addition, table 8 lists specific standards or requirements that were
not included in the draft document.

-     Draft standard 8.01.17 does not meet Jl?MIP standards. The draft standard
      cab for placing a transaction in an error or suspense file when funds are

27                                   GAO/AIMD-97-108R DFAS Draft Requirements
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         not available for orders which have been delivered. JFMPs Core Financial
         &stem Reouirements (FFMSR-1) calls for this type of transaction to be
         recorded.

-        Draft standard 8.07.29 is misstated. The draft standard precludes recording
         obligations when there is no related commitment. However, JFMIP’s Core
         Financial Svstem Reouirements (FFMSR-1) states that the system must
         record obligations when there is no related commitment

-        while the draft document contains standards regarding the modification of
         records to reflect transfers or reprogr amming actions, the draft document
         does not contain the restrictions and reporting requirements for these
         actions that are contained in DOD F’MR volume 3, “Budget Execution-
         Availability and Use of Budgetary Resources,” chapters 3 and 6.


Table 8:        Listing of Missing Federal Accounting Reauirements and Standards-
                Funds Control



                              In cases where a transaction fails the funds availability
                              test and the request for goods and services is not filled
                              yet, the appropriate action is to place the transaction in
                                      r file and/or suspense account for corrective

                                      budgetary limitations in accordance with

                                                    r rescrssion




    28                                   GAO/AIMD-97-108R DFAS Draft Requirements
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      Reference”                    %&sing requirement/standard
 FTMSR-1, p. 30       Establish limitations in accordance with credit reform
                      objectives for loan programs, including program lending
                      limits and available subsidy amounts.
 FFMSR-1, p. 33       Provide for modifications to commitment documents,
                      including ones which change the dollar amounts or the
                      accounting classiscation structure cited. Invoke funds
                      availability editing for the changed amounts.
 Title 7, sec. 3.5G   Each agency shall establish a reasonable cutoff date for
                      (1) recording obligations which are applicable to the
                      tical year but received after the close of the fiscal year
                      and (2) making any necessary adjustments in amounts of
                      recorded obligations.
 DOD FMR, vol. 3,     In order to prevent overpayments and ensure that
 sec. 100’201G        applicable limitations are not exceeded, DOD
                      components shall:
                      1. Identify the unobligated balance and unpaid
                      obligations of all expired appropriations at the time they
                      expire.
                      2. Identify the unobligated balance and unpaid
                      obligations of all cancelled appropriations at the time
                      they are cancelled.
                      3. Maintain identification of the amount for which it is
                      permissible to charge current appropriations for
                      obligations and payments which otherwise would have
                      been properly chargeable to a cancelled appropriation.
                      4. Maintain proper general ledger controls for valid
                      unpaid obligations and receivables pertaining to
                      cancelled accounts.
 Title 7, sec. 3.3B   Any obligation increases for contract changes must be
                      approved before being incurred for increases related to
                      contract changes for expired fixed period appropriations
                      that total over $4 million during a fiscal year within a
                      program, project, or activity of an appropriation.
 Title 7, sec. 3.3B   Proper authorization must be received before an
                      obligation is incurred when anticipated obligations
                      related to contract changes for expired fixed period
                      appropriations will exceed $25 million within a program,
                      project, or activity of an appropriation.


29                              GAO/AlMD-97-108R DFAS Draft Requirements
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 Title 7, sec. 4.2B         Noyear appropriations expire if no disbursements have
                            been made for 2 consecutive fiscal years, and the
 DOD FMR vol. 3,            President, the Secretary of Defense or his designee
 sec. 100201C,              determines the      oses for which the appropriation was


                            obligating the contract will remain available for 90
                            working days after the date on which a Cnal ruling is


                            an obligation that would have been properly chargeable
 Title 7, sec. 4.4          to a cancelled appropriation, the total of such payments
                            may not exceed the lesser of (1) the unexpended balance
 DOD FMR vol. 3,            of the cancelled appropriation, (2) the unexpired
 sec. 100201F               unobligated balance of the currently available obligation,
                            or (3) one percent of the total amount appropriated to

 Title 2, app. III, p. 2-   Records maintained as part of the accounting system
                            must show the status of each appropriation or limitation-
                            -amounts available, obligated, expended, and disbursed,




                                                authority whether expired or

 l?FMs, sec. 1.8.6.1                               to identify by document which

                                                   to summme


The abbreviations for the references can be found in enclosure I.




30                                    GAO/AIMD-97-108R DFAS Draft Requirements
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Svstems Controls

The following are our comments on the draft document’s “Systems Control”
section. In addition, table 9 lists specific standards or requirements that were
not included in the draft document.

-    The DFAS document includes separate sections on audit trails and system
     controls. We believe that audit trails are a subset of system controls.
     Therefore, we included our detailed comments on the draft document’s audit
     trail section in table 9 on systems controls.

-    DFAS did not include internal control references from GAO’s Standards For
     Internal Controls In The Federal Government. (Table 9 lists missing internal
     control requirements related to this document.) We are revising the
     Standards For Internal Controls In The Federal Government The revised
     document, which will be released as an exposure draft shortly, will contain
     additional standards, including those contained in the Committee of
     Sponsoring Organizations of the Treadway Commission (COSO), Internal
     Control - Integrated Framework, that should be incorporated in the final
     DFAS document. In addition, since the DFAS draft only included one
     process in this section, data integrity, we suggest that DFAS organize this
     section to better meet the following three control objectives set out by
     COSO, (1) effective and efficient use of an entity’s resources (operations),
     (2) preparation of reliable published financial statements (financial
     reporting), and (3) compliance with laws and regulations. To meet these
     objectives, the COSO document contained five interrelated components:
     (1) control environment, (2) risk assessment, (3) control activities,
     (4) information and communication, and (5) monitoring.

     The draft DFAS document does not discuss electronic signatures. For
     transactions where individual accountability is required and electronic
     signatures are utilized, the generation process must ensure that the signature
     is (1) unique to the signer, (2) under the signer’s sole control, (3) capable of
     being verified, and (4) linked to the data in such a manner that if the data
     are changed, the signature is invalidated upon the verification process. The
     necessary attributes of electronic signatures are contained in 71 Camp. Gen.
     109 (1991).




31                                   GAO/AI&ID-97-108R DFAS Draft Requirements
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Table 9:   Listing of Missing Federal Accounting Reouirements and Standards-
           Svstents Controls

      Reference”                          Missing requirement/standard
  ;A0 LC. Std.              Features that ensure alI transactions are properly
                            authorized.
  IMB A-130, p. 10          Features that ensure information is protected
                            commensurate with the risk and magnitude of the harm
                            that would result Tom loss, misuse, or unauthorized
                            access to or modification of information.
  MB A-130, p. 44           Features that aUow access to be restricted to the
                            minimum necessary to perform job requirements.
  MB A-123, p. 7            Features to ensure that transactions and other significant
  ind GAO LC. Std.          events are accounted for, and that timely accounts and
                            reliable financial and other reports are prepared.
  Title                     Processing controls should provide reasonable assurance
  _ 2, app. III, p. 2-
                            that alI transactions have been processed and that the
                            application processing was correct, using processing
                            logic.
  FFMSR-1, p. 25            The system should provide standard record formats for
                            interface of transactions i?om other systems to the core
                            financial system.
  OMB A-123, p. 7,          The system should provide that key duties and
  GAO I.C. Std., and        responsibilities in authorizing, processing, recording, and
  OMB A-130, p. 44          reviewing system transactions are separated among
                            individuals.
  OMB A-123, p. 7 and       The system should provide that access to resources and
  GAO I.C. Std.             records is limited to authorized individuals.
  OMB A-127, pe 6           Internal controls over data entry, transaction processing
                            and reporting (input, processing, and output) should be
                            consistently applied throughout the system to ensure the
                            validity of information and protection of Federal
                            government resources.
  OMB A-127, p. 8 and       The system should be designed and documented in a
  Title 2, app. III, sec.   manner that wilI facilitate efficient and effective
  5                         oneration. and modification as the environment changes.



 32                                    GAO/AlMD-97-108R DFAS Draft Requirements
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     Reference”                   Missing requirement/standard
 OMB A-130, p. 13   The system should be developed in a manner that
                    facilitates necessary interoperability, application
                    portability, and scalability of computerized applications
                    across networks of heterogeneous hardware, software,
                    and communications platforms.
 OMB A-130, p. 37   Management should establish a set of rules concerning
                    use of and behavior within the application that includes
                    clearly delineating responsibilities, expected behavior of
                    all individuals with access to the application, and
                    consequences of behavior not consistent with the rules.
 OMB A-130, p. 37   All individuals should receive specialized training
                    focused on their responsibilities and the application
                    rules, before being granted access to the application.
 OMB A-130, p. 38   Management should establish and periodically test the
                    capability to perform the agency function supported by
                    the application in the event of failure of the automated
                    support.
 OMB A-130, p. 38   Management should ensure that appropriate security
                    (technical) controls are specked, designed into, tested,
                    and accepted in the application in accordance with
                    National Institute of Standards and Technology guidance.
 OMB A-130, p. 38   For applications that permit public access, additional
                    controls should be added to protect the integrity of the
                    application and the confidence the public has in the
                    application, including segregating information made
                    directly accessible to the public from official agency
                    records.
 OMB A-130, p. 38   Controls should be established to protect information
                    shared from the application that is comparable to the
                    protection provided within the application.
 FFMSR-1, p. 25     Provide control over the processing and reprocessing of
                    all erroneous transactions through the use of error file(s)’
                    and/or suspense accounts. Erroneous transactions must
                    be maintained and tracked until either corrected and
                    posted or deleted at the request of an authorized user.




33                            GAO/AlMD-97-108R DFAS Draft Requirements
B-277096




                                            management contra

                               prescribed standards and procedures, the integrity of
                               data in the system is maintained, and access is restricted


                               overall operation of the system to determine if
                               operations are on schedule, a?l necessary operating steps



                               determine the functionsand operations performed by

 FFMSR-1, p. 52                Perform and report the result of data integrity
                               verifications such as reconciliations between


     tle 2, app. III, p. 3-.                         with restrictions on information




34                                        GAO/AIMD-97-108R DFAS Draft Requirements
B-277096




                  information needed efficiently and effectively through
                  electronic means but does not mean that all information
                  is physically located in the same database. Interfaces,
                  where one system feeds data to another system following
                  normal busmesskansaction cycles, such as salary
                  payroll charges recorded in the general ledger control
                  accounts at the time the payroll payments are made, may
                  be acceptable if the supporting detail is maintained and
                  accessible to managers. In such cases, interface linkages
                  must be electronic unless the number of transactions is
                  so small that is it not cost-beneficial. Easy
                  reconciliations between systems, where interface
                  linkages are appropriate, must be maintained to ensure




 FFMSR-2, p. 31   Provide for well-defined organizational responsibilities to
                  the data element level for the collection of, maintenance


                  transactions are accurate an


                  userdefined cri




35                          GAO/AIMD-97-108R DFAS Draft Requirements
B-277096




 -R-I,      p. 26            To support the archiving and purging process, the Core
                             financial system must:
                             1. Archive transactions and related information needed
                             for audit trails in a format accessible by audit software.
                             2. Provide the capability to archive or purge closed

                             3. Allow documents to be reopened.
                             4. Purge (or archive) other core financial system data
                             stores to limit data maintained to that appropriately
                             needed for analysis and control.
                             5. Retain system records in accordance with federal
                             regulations established by the National Archives and
                             Records Administration, .GAO, and others.


                                               including those which are computer-
 )                                            be referenced to individual source
                             records. Referencing must be done in a manner that
                             enables tracing or replicating a transaction from its
                             source to the resulting record or report, and from the
                             resulting record or report to the source, or by tracing
                             indirectly to source records through summaries and
                             calculations contained in general and specik journals.
 Ikle 2, app. III, p. 2-     Items in source records necessary for audit trail
                             purposes include transaction type, record or account
                                               processing references, and approver of


                             list of transactions processed during a processing cycle

 Title 2, app. III, p. 2-    Systems must provide procedures for control over errors
                             to ensure that, once errors are detected, (1) corrections
                             are made in a timely manner and reentered into the


  Title 2, app. III, p. 2-    A system should be capable of providing management
                              with reports that list errors by category and corrective




 36                                     GAO/AlMD-97-108R DFAS Draft Requirements
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         Reference”                        Missing requirement/standard
    Title 2, app. LQ p. 2-   To facilitate tracing a transaction forward from the
    6                        source or back from the result, a ledger account must
                             include transaction references-that is, a record of all
                             postings to the account.
    Title 7, sec. 4.5        Any audit requirement, limitation on obligations, or
                             reporting requirement that is applicable to an
                             appropriation account, shall remain applicable to that
                             account after the end of the period of availability for
                             obligation of that account.
    FFMSR-2, p. 31           Provide audit trail reports and error listings to support   /
                             data transferred from external systems to the standard      /
                             personnel/payroll system.
    DOD FMR, vol. 6,         The numbers, types, and dollar amounts of transactions      /
    sec. 020203B2            received from customers, as well as those generated by      1
                             DFAS, are processed timely and entered accurately into
                             the finance and accounting systems.
    DOD FMR vol. 6,          Specific edits shall be applied by type of transaction in
    sec. 020203EM            each finance or accounting system. Those transactions
                             failing to pass edits, and/or otherwise not entered, are
                             controlled and assigned for research and correction by
                             DFAS and/or customer and, to the degree feasible, are     1
                             recorded in suspense accounts in the accounting system. ’

“I’he abbreviations for the references can be found in enclosure L


Accounts Pavable

The following are our comments on the draft document’s “Accounts Payable+’
section. In addition, table 10 lists specific standards or requirements that were
not included in the draft document.

-     Draft standard 11.09.01,which addresses categorizing advances and
      prepayments to others, is included under the establishing liabilities process.
      Under SFFAS 1, Accounting for Selected Assets and Liabilities, advances and
      prepayments to others is an asset, not a Liability.

-     The draft document does not include the DOD FMR volume 10, “Contract
      Payment Policy and Procedures.”


37                                     GAOMMD-97-108R DFAS Draft Requirements
B-277096


Table 10: Listing of Missing Federal Accountinp: Reauirements and Standards-
          Accounts Pavable



 DOD FMR, vol. 1,       Maintain an on-line history file of closed out documents
 chap. 2, addendum      for a user-defined period of time.




                                                               livered orders and
                                                               anges in amounts.




                                                      e agency usrng agency

 DOD FMR, vol. 4,       DOD components shall record liabilities for advances or
 sec. 130201            prepayments received from the public and other
                        government agencies for goods and services to be




38                                GAO/AIL097-108R DFAS Draft Requirements
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 TFM, vol. 1, part 4,   Payments for services of a continuing nature which are
                        performed under agency-vendor agreements providing for
                        payments of definite amounts at fixed periodic intervals
                        may be made without submission of vouchers, invoices,
                        or bills by the vendor. The basic voucher prepared by
                        the agency to support payments of this nature should
                        show as a minimum the contract number, the period
                        covered by the payment, the name of the vendor, the
                        amount of the payment, and the account to be charged.

                        Administrative controls should be established for
                        insuring that recurrent payments are: (1) on unexpired


 TFM, vol. 1, part 4,   It is required that each agency certifying officer be
                        assigned a range of prenumbered voucher-schedules and


                        the voucher-schedule, any erroneous voucher-schedule or
                        any alteration noted should be reported immediately to

 TFM vol. 1, part 4,    Payments should be scheduled in the currency billed
 sec. 2075.4Ob          unless the payment is for a payee located in a restricted
                        country or excess or near-excess currency country.
                        OMB issues listings of excess or near-excess countries.
 TFM vol. 1, part 4,    Agency financial officers certifying payments of
 sec. 2550.20f          $50 million or more in a single transaction or in multiple
                        transactions of a common nature that will be disbursed
                        via the Treasury Financial Communications System will
                        report to Treasury at least 2 days prior to the date of
                        payment the name of the agency, the intended date of
                        issuance, the identification of the intended recipient, and
                        the amount to be disbursed.




39                                GAO/AIMD-97-108R DFAS Draft Requirements
B-277096




 TFM vol. 1, part 4,   The cardholder statement (for small purchase cards)
 sec. 4535             must be submitted to the designated bilhng office within
                       a timeframe that allows them to process and pay the
                       consolidated invoice within the Prompt Payment
                       deadline. The designated billing office will pay the


 TFM vol. 1, part 4,    For small purchase cards, agencies may receive invoices
 sec. 4540              electronicahy, make payments electronically, access and
                                        and master iUe data, and receive reports

 FFMS, sec. 5.2.2.4                    s to enter and modify Treasury foreign




The abbreviations for the references can be found in enclosure I.


REQUIREMENTS SHOULD BE
BASED ON CONCEIT OF OPERATIONS

A concept of operations defies how the Department plans to conduct its
financial management operations now and in the future. It is the foundation
upon which the rest of the systems planning process is built.” While we fully


5Strate9ic Information Planning: Framework for Designing and Developing
Svstem Architectures (GAO/MTEC-92-51, June 1992) and Air Traf5c Control

40                                GAO/AI&ID-97-108R DFAS Draft Requirements
B-277096


support DOD’s efforts to develop the draft Federal Accounting Standards and
Reauirements document as a means to help define DOD’s financial management
requirements, the Department will not know whether these requirements will
meet the needs of the organization until and unless it defines its concept of
operations.

A concept of operations is a particularly critical step at DOD because of the
organizational complexity of its financial management activities. According to
the DFAS September 1996 Chief Financial Officer Financial Management &Year
Plan, it is estimated that the financial community is reliant on data captured in
other communities, such as logistics and acquisition, for about 80 percent of the
data used in its processes. The Department has recognized, and we have
reported,6 that these organizations have developed their own processes and
business practices which has led to non-standard, non-integrated systems.
Therefore, the Comptroller’s office must secure the cooperation and
commitment of organizations outside of its control to implement its financial
management requirements. Without such a collaborative effort, which may be
diflicult to secure if DFAS’requirements do not reflect how these organizations
operate, the Department’s current systems environment may be perpetuated.

The Chief Financial Officers Act of 1990 requires that agency CFOs develop and
maintain an integrated agency accounting and financial management system. In
addition, implementing an integrated financial management system is key to
complying with the Federal Financial Management Improvement Act of 1996,
which requires that each federal agency implement and maintajn financial
management systems that comply substantially with federal &xr&il
management systems requirements, applicable federal accounting standards, and
the U.S. Government Standard General Ledger. While DOD has issued several
plans7 that are intended to help DOD achieve an integrated financial
management system, none of these plans call for developing a concept of
operations for DOD’s financial activities, a crucial omission. In addition, these
plans do not fully detie how the Comptroller’s office and DFAS will achieve




Comulete and Enforced Architecture Needed for FAA Svstems Modernization
(GAOLAIMD-97-30,February 3, 1997).
‘Defense Financial Management (GAO/FIR-97-3, February 1997).
‘The Chief Financial Officer’s Financial Management Status Renort and Five
Year Plan 199&2090, DFAS’Chief Financial Officer Financial Management 5
Year Plan. SeDtember 1996 Annual Report, and DFAS’ Accounting Svstems
Strategic Plan For The Der@rtrnent of Defense,

41                                GAO/AIMD-97-108R DFAS Draft Requirements
B-277096


this Megration with processes performed and systems owned by other
organizations.

ConceDt of berations
ResDonsibilities and ADDrOaCheS

Figure 1 shows the relationship of a concept of operations to the design and
implementation of a financial management architecture. The draft DFAS
Federal Accounting Standards and Reauirements document could be viewed as
a start towards developing the high-level functional requirements part of a
logical architecture. (Enclosure II provides additional information on
architectures.) However, DOD has not developed a concept of operations for
its financial activities, which is a prerequisite to finalizing the definition of
requirements.




42                                 GAO/AND-97-108R DFAS Draft Requirements
B-2770!36




                                                ,
STRATEGK: PLANNING                              !




DESIGN                   FINANCIAL MANAGEdENT         ARCHITECTURES
                     I




                                      Technical Architecture




IMPLEMENTATION
                                 +,
                                             DFAS              t
                                                               I
                                      AccountingfFinaf7c-e     j




43                                GAO/AlMD-97-108R DFAS Draft Requirements
B-277096


A concept of operations defines how the entity’s operations are (or will be)
carried out. It includes a high-level description of the operations that must be
performed and who must perform them. It also defines where and how the
operations would be carried out and the relationships between the mission(s)
and operations. For example, a DOD financial management concept of
operations would include a discussion of how DOD would manage and account
for its over $900 billion in property and inventory. This discussion would
delineate, at a high level, how this function is accomplished and define the
roles, responsibilities, and relationships among the various DOD entities
involved, such as the Comptroller’s office, DFAS, DOD component agencies, and
the military services’ financial management, materiel, and warfighter operations.

 The Clinger-Cohen Act of 1996 requires agency heads, in consultation with the
 Chief Information Officer (CIO) and the Chief Financial Officer (CFO), to
 establish policies and procedures, consistent with the CFO Act of 1990, that
 ensure that (1) accounting, financial, and asset management systems and other
 information systems of the executive agency are designed, developed,
 maintained, and used effectively to provide financial or program performance
 data for financial statements and (2) financial and related program performance
 data are provided on a reliable, consistent, and timely basis to executive agency
 financial management systems. In addition, the Clinger-Cohen Act of 1996,
-among other provisions, requires that department-level Chief Information
 Officers develop, maintain, and facilitate integrated system architectures.

A concept of operations is part of a strategic information system planning
process that would help achieve these requirements. The concept of
operations, in turn, would be the driver for designing DOD’s financial
management architecture. We would expect that DOD’s financial management
concept of operations and financial management architecture would be
developed under the direction and oversight of the Comptroller’s office (DOD’s
CFO) and DOD’s CIO (the Assistant Secretary of Defense, Command, Control,
Communications, and Intelligence) because of their joint responsibilities. In
addition, as figure 1 illustrates, the strategy outlined by the concept of
operations and the financial management architecture would be implemented by
DFAS, the military services, and DOD’s component agencies.

 There are many approaches that DOD could take in developing and
 documenting a concept of operations. For example, DOD could develop

 -    a single DOD financial management concept of operations,




 44                                 GAO/Al&ID-97-108R DFAS Draft Requirements
B-277096


-            service and DOD agency specific fmancial management concepts of
     inilitary
     operations under the umbrella of an overall DOD-wide financial management
     concept of operations, or

-    concepts of operations by major functional area such as logistics, under the
     umbrella of a DOD-wide financial management concept of operations that
     would address, at a high level, the basic information flow of the function-
     from beginning to end. Under this approach, DOD could rank its functional
     areas according to risk and concentrate its resources on the most
     problematic areas.

Regardless of which approach is taken, for the concept of operations to be
useful, it should encompass (1) all of DOD financial management, not just the
finance and accounting functions performed by DFAS and (2) both current and
future financial management operations to document how the Department is
working today and obtain mutual agreement from all of the parties on how
DOD will conduct its financial management operations in the future. In
addition, the financial management concept of operation needs to be developed
through a collaborative approach among the DOD Comptroller’s office, the CIO,
DFAS, and the financial offices and applicable program offices (such as logistics
and acquisition) within each service or DOD component agency. Moreover, the
concept of operations should result in a formal agreement among the applicable
parties that establishes each party’s responsibility for implementing the concept
of operations. It is critical that the military services and Defense component
agencies be an integral part of this endeavor because the vast majority of the
data used by the DOD financial community is captured by other DOD
communities.

ConceDt of ODerations Needed
to Validate Reauirements

Once a DOD financial management concept of operations is developed, DOD
would vaLidate the standards and requirements and high-level information flows
among financial management functions to the concept of operations. This is
necessary to ensure that the requirements document supports how DOD plans
to conduct its financial management operations. The following example
illustrates why it is important that the requirements document accurately reflect
how DOD plans to operate. DOD’s financial management concept of operations
could discuss in what situations, such as in the payroll and travel functions,
electronic signatures would be its preferred approach to ensuring transaction-
level data integrity. Next, in its high-level requirements, DOD would define the
specific types of processes, such as approving time and attendance data, that
would need electronic signature capabilities and the internal control structure



45                                 GAO/AIMD-97-108R DFAS Draft Requirements
B-277096


surrounding such a process. Without electronic signatures identified and
defined in both of these documents, DOD would run the risk of not identifying
the (1) situations where electronic signatures are the preferred technique to
provide transaction-level data integrity or (2) internal control environment in
which the electronic signature is expected to operate.

Once the validation process is completed, DOD would be in a position to
evaluate the financial management systems of DFAS, the military services, and
the Defense component agencies to determine not only whether these systems
comply with federal and DOD functional requirements, but also whether each
system is appropriately interfaced/integrated with other systems to meet the
financial management needs of the Department. During this evaluation process,
the information collected would include information on each system, such as
software, communications, and security. This information would then be used
to develop DOD’s financial management systems architecture. Moreover, the
information obtained during the evaluation process would provide DOD, for the
first time, a comprehensive inventory of its kancial management systems and
would be essential to ensuring that all tinancial management systems are
identified. As discussed in our January 1997 report,’ such an inventory does not
currently exist.

We recognize that DOD is worl&g to improve its financial operations. For
instance, in April 1996, DFAS established the Defense Accounting System
Program Management Office, which was chartered, among other tasks, with
establishing and managing actions to achieve a defense accounting system
architecture. In addition, in February 1997, the CFO and the DFAS Director
issued the Defense Finance and Accounting Service Accountin,a Svstems
Stratedic Plan for the Denarhnent of Defense. We believe these efforts should
be closely coordinated with the concept of operations, and reevaluated after the
concept of operations is completed and formally agreed upon in order to ensure
that they are consistent with the approved DOD fmancial management concept
 of operations.



A concept of operations is a critical first step towards de-g   DOD’s financial
management needs. Once DOD has taken the initial step of developing and
documenting a concept of operations and validating its functional requirements
and information flows against this document, it will be positioned to begin




*l?inancial Management: DOD Inventors of Financial Management Svstems is
Incomnlete (GAO/AIMD-97-29, January 31, 1997).

46                                  GAO/AIMD-97-108R DFAS Draft Requirements
B-277096


evaluating its current and planned financial management systems. This
evaluation could then be used to help build DOD’s logical financial management
systems architecture which should form the basis, in conjunction with a
technical architecture, for DOD to develop an integrated financial management
system.

We appreciate the opportunity to provide our input to the draft document. On
May 30, 1997, we provided an advance copy of our observations to the DFAS
Defense Accounting System Program Manager. The Program Manager did not
have any comments on the advance copy. Copies will also be made available to
others upon request. If we can provide any further assistance or if you have
questions regarding this letter, please contact me at (202) 512-2600 or Janett P.
Smith, Assistant Director, Defense Financial Audits, at (202) 512-8646.

Sincerely yours,




Assistant Comptroller General




47                                GAO/ATMD-97-108RDFAS Draft Requirements
ENCLOSURE I                                                              ENCLOSURE I
                   CRITERIA USED TO ASSESS THE DRAFT
       FEDERAL ACCOUNTING STANDARDS AND REQUIREMENTS DOCUMENT


1.     Statement of Federal Financial Accounting Standards, Accounting for Selected
       Assets and Liabilities, (SFFAS 1)

2.     Accounting for Direct Loans and Loan Guarantees, (SFFAS 2)

3.     Accounting for Inventors and Related Pronerty, (SFFAS 3)

4.     Managerial Cost Accounting Concents and Standards for the Federal Government,
       (SFFAS 4)

5.     Accounting for Liabilities of the Federal Government (SFFAS 5)

6.     Accounting for Prone&v. Plant. and Eauinment, (SFFAS 6),

7.     Accounting for Revenue and Other Financing Sources and Concents for
       Reconciling Budaetarv and Financial Accounting, (SFFAS 7)

8.     Statement of Recommended Accounting Standards no. 8, Sunnlementarv
       Stewardshin Renorting, FASAB

9.     Statement of Federal Financial Accounting Concepts, Obiectives of Federal
       Financial Renortinq, (SFFAC 1)

10.    Statement of Federal Financial Accounting Concepts, Entitv and Disolav,
       (SFFAC 2)

11.    Office of Management and Budget (OMB) Bulletin 97-01, Form and Content of
       Agencv Financial Statements

12.    OMB Circular A-25, User Charges

13.    OMB Circular A-34, Instructions on Budget Execution

14.    OMB Circular A-123, Management Accountabilitv and Control

15.    OMB Circular A-125, Promnt Pavment

 16.   OMB Circular A-127, Financial Management Svstems

48                                          GAO/A.IMD-97-108RDFAS Draft Requirements
ENCLOSURE I                                                             ENCLOSURE I

17.   OMB Circular A-130, Management of Federal Information Resources

18.   Treasury Financial Manual (TFM), volume 1

19.   Federal Financial Management System Requirements (FFMSR), Framework for
      Federal Financial Management Svstems, (FFMSR-0), Joint Financial Management
      Improvement Program (JFMIP)

20.   Core Financial Svstem Reauirements, (FFMSR-l), JFMIP

21.   Personnel-PavroIl Svstem Reauirements, (FFMSR-2), JFMIP

22.   Travel Svstem Reauirements, (FFMSR-3), JFMIP

23.   Seized/Forfeited Asset Svstem Reauirements, (FFMSR-Q JFMIP

24.   Direct Loans Svstem Reauirements, (FFMSRd), JFMIP

25.   Guaranteed Loans Svstem Reauirements, (F’FMSR-6), JFMIP

26.   Inventorv Svstem Reauirements, (FFMSR-7), JFMIP

27.   Draft Managerial Cost Accounting Svstem Reauirements, (FFMSR-8)

28.   Standards For Internal Controls In The Federal Government, GAO

29.   GAO Policv and Procedures Manual for Guidance of Federal Agencies, Title 2,
      “Accounting”

30.   GAO PoIicv and Procedures Manual for Guidance of Federal Agencies, Title 6, “Pay,
      Leave, and Allowances”

31.   GAO Policv and Procedures Manual for Guidance of Federal Agencies, Title 7,
      “Fiscal Procedures”

32.   DOD Financial Management Regulation (FMR) DOD 7000.14-R,Volume 1, “General
      Financial Management Information, Systems, and Requirements” (DOD FMR 1)

33.   DOD FMR, Volume 2A, “Budget Presentation and Formulation” (Chapters l-3)
      (DOD FMR 2A)




49                                        GAO/AIh$D-97-108RDFAS Draft Requirements
ENCLOSURE I                                                            ENCLOSURE I
34.   DOD FMR, Volume 2B, “Budget Presentation and Formulation” (Chapters 419),
      (DOD FMR 2B)

35.   DOD FMR, Volume 3, “Budget Execution-Availability   and Use of Budgetary
      Resources,” (DOD FMR 3)

36.   DOD FMR, Volume 4, “Accounting Policy and Procedures,” (DOD FMR 4)

37.   DOD FMR, Volume 5, “Disbursing Policy and Procedures,” (DOD FMR 5)

38.   DOD FMR, Volume 6, “Reporting Policy and Procedures,” (DOD FMR 6)

39.   DOD FMR, Volume 7A, “Military Pay Policy and Procedures-Active Duty and
      Reserve Pay,” (DOD FMR 7A)

40.   DOD FMR, Volume 7B, “Military Pay Policy and Procedures for Retired Pay,” (DOD
      FMR 7B)

41.   DOD FMR, Volume 8, “Civilian Pay Policy and Procedures,” (DOD FMR 8)

42.   DOD FMR, Volume 9, “Travel Policy and Procedures,” (DOD FMR 9)

43.   DOD FMR, Volume 10, “Contract Payment Policy and Procedures,” (DOD FMR 10)

44.   DOD FM.R, Volume llA, “Reimbursable Operations, Policy and Procedures,” (DOD
      FMR 1lA)

45.   DOD FMR, Volume llB, “Reimbursable Operations, Policy and Procedures-Defense
      Business Operations Funds,” (DOD FMR 11B)

46.   DOD FMR, Volume 12, ‘Special Accounts Funds and Programs,” (DOD FMR 12)

47.   DOD FMR, Volume 13, “Nonappropriated Funds Policy and Procedures,” (DOD
      FMR 13)

48.   DOD FMR, Volume 14, “Administrative Control of Funds and Antideficiency Act
      Violations,” (DOD FMR 14)

49.   DOD FMR, Volume 15, “Security Assistance Policy and Procedures,” (DOD FMR 15)

50.   GAO draft Federal Financial Management Svstem methodology (FFMS)


50                                         GAO/AIMD-97-108R DFAS Draft Requirements
ENCLOSURE II                                                               ENCLOSUREII


                 BASIC FRAMEWORK OF A SYSTEMS ARCHITECTURE

A systems architecture is the centerpiece of sound systems development and
maintenance. Leading public and private sector organizations, such as the Software
Engineering Institute at Carnegie Mellon University, strongly endorse defining and
enforcing systems architectures as an integral and vital aspect of modernizing information
systems.’ The Congress and OMB have also recognized the importance of a systems
architecture. The Congress passed the Clinger-Cohen Act of 1996 which, among other
provisions, requires that department-level Chief Information Officers develop, maintain,
and facilitate integrated system architectures. Also, in the OMB October 25, 1996,
memorandum ‘Funding Information Systems Investments,” the Director of OMB stated
“investments in major information systems proposed for funding in the President’s budget
should be consistent with Federal, agency, and bureau information architectures which:
integrate agency work processes and information flows with technology to achieve the
agency’s strategic goals... ” OMB has also drafted a conceptual overview of information
technology architecture concepts and elements which addresses key issues in
implementing an architecture in an agency. This overview document is currently out for
comment.

As we have described in other reports,’ the purpose of the logical architecture is to
ensure that the systems meet the business needs of the organization. Therefore, the
logical architecture is derived from a strategic information systems planning process that
clearly defines the organization’s current and future missions and concepts of operations.
It then defines the business functions required to carry out the mission and the
information needed to perform the functions. Finally, it describes the systems that
produce the information. In addition, an essential element of the logical architecture is
the definition of component interdependencies (i.e., information flows). Once the logical
architecture is defined, an organization knows its portfolio of desired systems and has a
clear understanding of how these systems will collectively carry out the organization’s
objectives.



‘Executive Guide: Imnrovinn Mission Performance Through Strategic Information
Management and Technology (GAO/mD-94115, May 1994) and A Svstems Engineering
Canabihtv Maturitv ModelSM,Version 1.1, Carnegie Mellon University, Software
Engineering Institute, (SECMM-9501, CMU/SEI-95MM-003, November 1995).
“Strategic Information Planning: Framework for Designing and Develoninp: Svstem
Architectures (GAO/IMTEC-92-51, June 1992) and Air Traffic Control: Comnlete and
Enforced Architecture Needed for FAA Svstems Modernization (GAO/AIMD-97-30,
February 3, 1997).

51                                           GAO/AIMD-97-108R DFAS Draft Requirements
ENCLOSURE II                                                                ENCLOSURE II


The technical level details specific information technology and communications standards
and approaches that will be used to build systems, including those that address critical
hardware, software, communications, data management, security, and performance
characteristics. The purpose of the technical architecture is to ensure that systems are
interoperable, function together efficiently, and are cost-effective over their life-cycles.

The DOD C4ISR Integration Task Force has also recognized the importance of developing
an architecture. This group has written guidance for DOD organizations on developing
and presenting architectures.” This guidance, which is directed at warfighter systems but
could also be applicable to other functions, defines and provides illustrative examples of
the products associated with a suggested 3-tiered architecture. This 3-tiered architecture
includes (1) an operational architecture which contains a description of the tasks,
operational elements, and information flows required to accomplish or support a
warfighting function, (2) a systems architecture which describes the systems and
interconnections which support the warfighter functions, and (3) a technical architecture
which is a minimal set of rules governing the a.irangement, interaction, and
interdependence of the parts or elements whose purpose is to ensure that a conformant
system satisfies a specified set of requirements. While not identical to the GAO
definitions, the first two architectural tiers are consistent with the logical architecture
described above while the third tier is consistent with the technical architecture.




(918903)


“Command, Control, Communications, Computers, Intelligence, SurveilIance, and
Reconnaissance (C4ISR) Architecture Framework, Version 1.0.

52                                            GAO/A&ID-97-108R DFAS Draft Requirements
Ordering    Information

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