Status, Progress, and Problems in Federal Agency Accounting During 15 Months Ended September 30, 1976

Published by the Government Accountability Office on 1977-08-24.

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

                          DOCUMENT RESUME
 03112 - rA24135431
 Status, Progress, and Problems in Federal Agency Accounting
 during 15 Months Ended September 30, 1976. FGMSD-77-21;
 B-115398. August 24, 1977. 50 pp. + 5 appendices (33 pp.).

 Report to the Congress; by Elmer B. Staats, Comptroller General.

Issue Area: Accounting and Financial Reporting (2800).
Contact: Financial and General Management Studies Div.
Budget Function: Miscellaneous: Financial Management and
    Information Systems (1002).
Organization Concerned: Department of the Interior; Department
    of the Treasury; Department of Agriculture; Department of
    Commerce; Department of Defense; Department of Realth,
    Education, and Welfare; Depattment of Justice; Department of
    State; Depbxtment of Transportation; General Services
Congressional Relevance: House Committee on Armed Services;
    Senate Committee on Armed Services; Congress.
Authority: Accounting and Auditing Act of 1950, sac. 113 (31
    U.S.C. 66a).. 31 U.S.C. 66b. H. Rept. 90-1159.

          During the 15 month period which ended September 30,
 1976, the Comptroller General approve;. the designs of 32
 executive agency accounting systems. Principles and standards
have been approved for 98% of the 338 accounting systems wbi.ch
are subject to approval, Fifty-two percent of the system designs
have now been approved. Findings/Conclusions: The Departments
of Labor, the Treasury, Commerce, and Transportation have all or
most of their accounting systems approved. The Department of
Agriculture is pursuing a program of accounting systems
development, but its completion is still several years away.
Although a departmental system for the Department of Housing an!
Urban Development has been approved, the Department has never
completed the designs of its subsystems, The Department of
Defense made little progress in obtaining approval of its
systems until recently. However, in the last 4 years 5a
subsystems have been approved, mostly in the Air Force. The
Departments of Health, Education, and Welfare (HEW); Interior;
and State have progressed so little that there is concern that
they will not have approved accounting systems in the near
future. Of the 19 accounting systems subject to approval in REW,
only five have been approved. The unapproved systems included
the Social Security Administration system, one of the largest in
the Government. HEW has consistently failed to meet target dates
established for submitting the systems for approval. (Author/SC)


 Status, Progress, And Problems
 In Federal Agency Accountirig
 During 15 Months Ended
 September 30, 1976
 During the 15 months ended September 30,
 1976, the Comptroller General approved the
designs of 32 executive agency accounting
systems. Fifty-two nercent of the Govern-
ment's accounting systems have r.ow been ap-
proved. Major problems delaying approval of
the remaining accounting systems are listed.
In the last 4 years, 54 Department of Defense
accounting systems have been approved.
Three departments, however, continue to pro-
gress little: the Departments of the Interior;
Health, Education, end Welfare; and State.

FGMSD-77-21                                      AUGUST 24, 1977
*:'r~'                         WASHINGTON, D.C.   ?0"n


   To the President cf the Senate and the
   Speaker of the House of Representatives
        Under section 113 of the Accountinq and Auditing Act
   of 1950 (31 U.S.C. 66a), the head of each executive agency
   is responsible for establishing and maintaining accounting
   systems that conform to principles and standards prescribed
   by the Comptroller General. T'hese principles and standards
   were prescribed in 1952, but agencies' actions to obtain the
   required approval have been varied.
        Our work involves two phases. First, we approve the
   principles and standards the agencies adopt for their
   accounting systems. Then, we approve the designs of the
   systems, including the basic controls provided for in the
   automatic data processing of a computerized system. At
   September 30, 1976, principles and standards had been ap-
   proved for 98 percent of the 338 accounting systems subject
   to approval. Fifty-two percent of the system designs had
   been approved.
        Some Federal agencies have worked hard to establish
   good accounting systems to be approved by the Comptr-ller
   General. These include the Departments of Labor, the Treas-
   ury, Commerce, and Transportation, which have all or most
   of their accounting systems approved. The Department of
   Agriculture is also pursuing a commen able program of ac-
   counting systems development, althouqn its completion is
   several years away. We approved a departmental system for
   the Department of Housing and Urban Development, but the
   Department has never completed the designs of its subsystems.
         Until recently, the Department of Defense made little
    progress in obtaining approval of its system:is.   However, in
    the last 4 years 54 systems have been  approved.     Most of
    this remarkable progress has been in  the Navy   and  the Pir
    Force, with the Army and some of the  Defense   agencies  making
    less progress.

         Three departments progressed so little that we are con-
    cerned whether they will have approved accounting systems in
    the near future. These departments are the followino:

     -- The Department of the Interior has 19 accounting
        systems. Although 12 have been approved, progress
        in recent years has been very slow. It seems that
        too few systems accountants are being devoted to
        this work.

     -- The Department of Health, Education, and Welfare
        has 19 accounting systems subject to approval.
        Only five have been approved. The unapproved
        systems include the Social Security Administra-
        tion system, one of the largest in the Government.
        The Department has consistently failed to meet
        target dates it established to submit the systems
        to us for approval.  In a number of cases, systems
        that were scheduled to be submitted in 1971 or
        1972 still lave not been submitted. Recently, the
       Department advised us that it has given this work
       a high priority. We are now evaluating two of the
       Department's accounting systems.

     -- The Department of State has seven accounting systems;
        four have been approved and three remain unapproved.
        The unapproved three, however, include the two most
        important systems the PEpartment has--the general
        accounting systems for the Department and the Agency
        for International Development. The Department has
        been missing target dates for submitting its general
        accounting system since 1967.  In recent years the
        Department has brought effective systems development
        leadership into the program, but too little staff
        effort is being devoted to the work and progress
        therefore is slow.
     Because of numerous violations of the Anti-Deficiency
Act, the Director of the Office of Management and Budget
May 16, 1977, requested the Department of Defense to update
and submit for approval by August 15, 1977, its administrative
control of funds regulations. On June 28, 1977, the Director
requested all other departments and the major independent
agencies to update and revise their administrative control
funds regulations and submit them for approval by October of
1977. We concur in both actions. However, there are many 1,
unapproved accountinc systems which have defects and in-
adequacies other than, or in addition to, the area of fund


     It is very important that agencies have approved systems
in operation because such systems can produce the type of
financial information that agency officials and the Congress
need to make financial decisions. The prcblems that can occur
when good accounting systems do not exist have received con--
siderable attention in the past year. The financial plight
of New York City and the contribution of poor accounting
practices to that situation are well known. Foor practices
in unapproved accounting systems of the Department of the
Army and the District of Columbia government were also re-
ported to the Congress by us during the past year. In the
Prmy's case, over $200 million in overcbligation of funds oc-
curred. In the District's case, the accounting was so un-
reliable that an outside certified public accounting firm
called it "misleading, out-of-date and inaccurate." A good
accounting system can prevent these kinds of problems.
     Our objective has been to initially approve all execu-
tive branch accounting systems by the end of fiscal year
1980. This is an ambitious undertaking when one considers
that it has taken 26 years to get 52 percent of the systems
approved. But the objective could be reached if departments
and agencies give this work the high priority it deserves
in the assignment of resources and qualified personnel.
      In examining future budget requests and the use of
funds, we recommend that the Office of Management and
Budget and the Congress make sure that the executive de-
partments and agencies are devoting sufficient resources
to qualify their accounting systems for approval by the
Comptroller General.
     Approval of an accounting system design becomes mean-
ingful only when an agency operates its accounting system
in accordance with that design. For this reasons from
time to time we review total or partial accounting systems
to see if they are

     -- operating in accordance with our approval and
     -- consequently furnishing reliable financial data
        in a meaningful manner to the agencies and the
The results of recently completed reviews are discussed
in chapter 4 of this report.


     We are sending copies of this report to the Director,
Office of Management and Budget, and heads of other depart-
ments and agencies.

                               )m roller General
                             of the United States


CHAPTER                                                 Page

   1      INTRODUCTION                                    1

            SYSTEMS AT SEPTEMBER 30j 1976                 2
              Comptroller General requirements            2
              Status of approvals                         2
              Status of accounting systems                5

   3      AGENCY PROGRESS AND PROBLEMS                    6
              Approvals during 15 months ended
                September 30, 1976                        6
              Problems and status of systems              8
                  Department of Agriculture               8
                  Department of Commerce                  9
                  Department of Defense                  10
                  Department of Health, Education,
                    and Welfare                          18
                  Department of the Interior             20
                  Department of Justice                  21
                  Department of State                    22
                  Department of Transportation           23
                  Department of the Treasury             23
                  ACTION                                 25
                  Civil Aeronautics Board                25
                  Federal Energy Administration          25
                  Federal Home Loan Bank Board           26
                  Federal Mediation and Conciliation
                    Service                              26
                  General Services Administration        26
                  National Labor Relations Board         27
                  Veterans Administration                27
                  District of Columbia government        28
   4      ACCOUNTING SYSTEMS IN OPERATION                29
              Need for management involvement in
                acquiring financial management
                information systems                      30
              Internal audits of accounting reports
                and systems                              30
              Compliance with system designs approved
                B- the Comptroller General               32
                  MeJical Materiel, Department of the
                    Air Force                            32
                  Printing and Duplicating Industrial
                    Fund, Department of the Air Force    32
        Bureau of Indian Affairs,
           p-rtment of the Interior De-
        Immigration and Naturaliza-                33
           tion Service
        Public Works Centers, De-                  34
           partment of the Navy
        Civil Aeronautics                          34
        Federal Power Commission                  35
       Railroad Retirement Board                  36
       The White House Office                     36
  Review of Department of                         37
                             Defense systems
    by internal audit agencies
  Usefulness of accounting                        37
  Billings and collections    information         38
       Tuition charges for foreign                38
          military students
       Technical assistance and                   38
          training services pro-
          vided to foreign govern-
          ments                                  39
      Mortgage insurance
      Taxes on acquired residential
      Sealift tariffs                            40
      Depositing receipts                        41
 Automated travel payments                      42
 Property accounting                             43
      Contractor-held property,
         Employment and Training
         Administration, Depart-
         ment of Labor
     National Aeronautics and                   43
        Space Administration
Obligation accounting                           44
     [epartment of the Army                     45
     Department of the Navy                    45
     Equal Employment Oppor-                    46
        tunity Commission
Automated payroll accounting                   46
     Department of the Army                    47
     Department of Commerce                    47
    Department of Health,                      48
        Education, and Welfare
    Other systems                              49
    Direct deposit of pay                      49
                              pay              50
APPENDIX                                                  Page
       I   Status of approvals and evaluations             51
      II   Status of approval of accounting systems
             at September 30, 1976                         52
  III      Letter dated May 4, 1977, from the Assis-
             tant Secretary for Managemelit and Budget,
             Department of Health, Education, and
             Welfare                                      80
      IV   Letter dated April 29, 1977, from the
            Deputy Assistant Secretary - Polic ,
            Budget and Administration, Depart--
            ment of the Interior                          82
      V    Letter dated April 12, 1977, from the
             Deputy Assistant Secretary for Budget
             and Finance, Department of State             83
DOD           Department of Defense
GAO           General Accounting Office
                          CHAPTER 1

     This seventh report on the status, progress, ard problems
in Federal agency accounting covers the 15-month period ended
September 30, 1976, and responds to the recommendation of the
House Committee on Government Operations (H. Rept. 1159,
90th Cong., 2d sess. 3 (1968)).
     With the exception of Government corporations subject
to the Government Corporation Control Act (31 U.S.C. 841 et
seq.) and certain quasi-government entities that, by law,
are subject to that act, the accounting systems of all execu-
tive departments and agencies are required by 31 U.S.C. 66a
to adopt accounting systems that conform to principles and
standards prescribed by the Comptroller General and by 31
U.S.C. 66(b) to obtain his approval that their accounting
systems do in fact so conform.

     We are reporting information primarily obtained through
our cooperative accounting systems work with the departments
and agencies and through the evaluation and approval proc-
     Chapter 2 summarizes the status of Federal agency ac-
counting systems at September 30, 1976. Chapter 3 is our
observation of agency progress and problems during the
15 months ended September 30, 1976. Chapter 4 contains ob-
servations resulting from our reviews of accounting systems
in operation.
                            CHAPTER 2



      The head of each executive agency is responsible
 establishing and maintaining systems of accounting       for
 conform to the principles, standards, and related    which
ments prescribed by the Comptroller General,         require-
A two-phase procedure has been established for31  U.S.C.   66a.
agency accounting systems that are submitted to  examining
                                                  the Comp-
 troller General for approval--approval being agreement
 the proposed systems conform to the prescribed principles that
and standards. Under this two-phase procedure,
examine the accounting principles and standards we first
by the agency as the basis for its accounting     established
the principles and standards are approved, the system.     After
                                                 next  step
to get approval of the desiQn--procedures and practices is
will be followed to perform the agency's accounting--to that
mine whether it conforms to the approved principles         deter-
ards. In addition, after the design of the system      and  stand-
                                                      is imple-
mented, we review the accounting systems of the
time to time to see that they are being operated agencies from
                                                   in accordance
with their designs and are serving management needs.

      During the 15-month period, the designs of 32
 systems were approved. Allowing for reapprovals      accounting
ments, a net increase of 29 accounting system approvals adjust-
sulted. Accounting system design approvals totaled          re-
September 30, 1976, out of a total of 338 identified   177  at
subject to approval. Three statements of principles systems
standards were approved during the period, making       and
333 systems now covered by approved principles      a  total  of
                                                and standards.
      The number of accounting systems identified by
as being subject to approval at the beginning of
was 286.                                           the  period
           During the period the number of systems subject
approval increased by 52 (2 in civil agencies and             to
fense). The increase primarily resulted from a      50  in  De-
the way the Navy Department has identified its change in
rather than an increase in the number of systemssystems,
                                                   per se.
(See p. 13.) We expect some further increases
future. The Social Security Administration is   in  the
                                                now shown
as having only one accounting system subject to

because the exact number of systems has not been agreed
upon. We expect it will have about 10 identifiable systems.
We have also shown the D.C. government with only one system.
It has numerous accounting systems but has not as yet iden-
tified how many.

     Although the number of approved    systems increased by
29 during the period, the percentage    of approvals remained
the sa.ne, 52 percent, because of the   increase in the number
of systems subject to approval. The     chart on the following
page shows the status of approval of    accounting systems for
each department.

     Of the 11 departments, 10 had principles and standards
approved for all of their accounting systems, but only 3 had
all of their accounting system designs approved.  In the De-
partment of Housing and Urban Development, the designs of the
subsystems within its approved system had not yet been com-

                          APPROVAL STATUS BY DEPARTMENT
                                At September 30, 1976

         DEVELOPMENT                  .             .......
        (NOTE a)                      ... .             ,,...*.. :.....o.......            ·

                       LABOR      I

                                                °                           ':         "
                  TREASURY |..*                          :          .

                 COMMERCE              ;i               .....


                  INTERIOR                :


            AGRICULTURE                        :.:::: ;

                  DEFENSE"                       :                               "'

             WELFARE    ,                      :.:-._

                     STATE            ::.
                   (NOTE b)

                                              I I          i    I            I                  I        I    I    I        I
                              0           10          20            30           40        50       60   70   80       90   100
                                                                                      Percent Approved


          A/Designs of subsystems have not been completed.
         .1 While four of seven systems have been approved, the
             systems accounting for the major portion of State's
            have not been approved.


     The table beluw summarizes the status of accounting
systems subject to approval at September 30, 1976.

                                   Principles                               Subject
                                 and standards             Designs             to
                              Approved Una         Appr--oved Uravprove--
                                                                 -          approval
Civil departments and
    Agriculture                  16            1      10           7          a/17
    Commerce                      8            -       7           1             8
    Health, Education, and
      Welfare                    19            -        5         14          b/19
    Housing and Urban
      Development                 1            -       1           -             1
    Interior                     19            -      12           7            19
    Justice                      13            -       8           5            13
    Labor                         2            -       2           -             2
    State                        7             -       4           3             7
    Transportation               8             -       7           1             5
    Treasury                    18             -      18           -          c/18
    Executive Office of the
      President                  4             -       4           -             4
    Indeperdent agencies        52             4      41          15            56
          Total                167             5     119          53           172
          Percent               97             3      69          ?1           100
Department of Defense:
    Air Force                   43         -          28          15           43
    Army                        29         -           5          24         d/29
    Navy (including Marine
      Corps)                    75         -          20          55            75
    Defense agencies            18         -           5          13            18
          Total                165         -          58        107            165
          Percent              100         -          35         65            100
District of Columbia
  government                     1                     -           1          e/1
Total                          333         5         177        161            338
Percent                         98         2          52         48            100
a/Number of systems will be reduced to six when planned consolidations have
  been made.
b/Number of systems in the Social Security Administration is expected to
  increase by nine.

c/The bullion accounting system has not been included as it is to be merged
  into the Financial Management Information System, a new accounting system
  planned by the Bureau of the Mint. Work on the new system has been deferred.
d/For the most part, these systems are the principal automated ones.

e/Actual number of accounting systems not yet determined.

                              CHAPTER 3
      During this period statements of principles and
 were approved for the Mining Enforcement and Safety   standards
 stration of the Department of the Interior, for      Admini-
 Energy Administration, and for the Farm Credit the Federal
      Designs were approved for the following 32 systems.

        Civil departments                       Approval
Department of Health, Education,
  and Welfare:
    National Institutes of Healt.h,
       Administrative Accounting                6/11/76
Depaitment of the Interior:
    Bureau of Mines                          a/9/29/75
Department of Justice:
    Law Enforcement Assistance
      Administration, Administrative
      Accounting                                9/28/76
Department of State:
    Agency for International Develop-
      ment, American Payroll                    9/28/76
Department of Transportation:
    Federal Railroad Administration             9/24/76
    Transportation Systems Center               6/23/76

       Independent agencies
Civil Aeronautics Board, Payroll                9/27/76
Veterans Administration, Mortgage
  Loan Program


        Military departments
  Department of the Air Force:
       Departmental Stock Fund System
       General and Systems Support Stock
         Fund, Division Office                   1/23/76
       Fuels Stock Fund, Division Office         1/23/76
      Clothing Stc,- Fund, Division Office
      General and S tem Support Stock
         Fund, Commanl Office
      Base Level Ma:-riel System                 1/23/76
      Civil Engineer Cost System
      Civilian Payroll                           3/ 4/76
      Military Aircraft Storage and
         DisEosition Center Cost/Billing
         System                                  5/27/76
      Airlift Services Industrial Fund
      Departmental Industrial Fund System       6/17/76
 Department of the Army:                        9/21/76
      Test and Evaluation Activities
                                                8/ 3/76
 Department of the Navy:
      Industrial Fund, Ordnance Activities
                                                8/ 6/76
     General Accounting at Marine Corps
     Joint Uniform Military Pay System          8/10/76
        Naval Academy Midshipmen Pay System     9/16/76
     Naval Education and Training
        Command, Command Level
     Nonmechanized Command Level System         9/21/76
     Facilities Engineering Activities,
        Civilian Payroll
     General Accounting Fleet (Air),            9/21/76
        Field Level
     General Accounting at Nonmechanized        9/21/76
        Resource Management System
        Activities                              9/24/76
     Industrial Naval Air Stations,
        Civilian Payroll                        9/28/76
Office of the Secretary and Defense Agencies:
     National Security Agency/Central
     Security Service

Department of Agriculture
     Accounting systems subject to approval         17
     Accounting system designs approved             10
     Unapproved systems                              7
     Although no accounting systems were approved for the
Department of Agriculture during the 15-month period, we
feel this Department is progressing toward the goal of com-
plete systems approval.  Early in calendar year 1973 the
Department of Agriculture began developing a central account-
ing system for the administrative and program funds of its
agencies. Excluded from the central accounting system, and
scheduled for separate designs, are five accounting systems
required to process and record transactions involving the
following programs:
     -- Loan programs of the Farmers Home Administration.
     -- Loan programs of the Rural Electrification Adminis-
     -- Grant and other programs administered by the Agricul-
        tural Stabilization and Conservatior Service.
     -- Programs administered by the Food and Nutrition
     -- Forest Service Timber Sales.

     The 6 systems will eventually replace the 17 Department
of Agriculture systems shown in appendix II.
     Development and implementation efforts for the central
system are underway at the Department's National Finance
Center in New Orleans, Louisiana. A statement of accounting
principles and standards for the central system and the
design for the automatic data processing portion of some of
the subsystems have been informally submitted. The account-
ing portion has not yet been received.
     Statements of accounting principles and standards have
been submitted for the program fund systems of the (1) Agri-
cultural Stabilization and Conservation Service, (2) Farmers
Home Administration, and (3) Rural Electrification Adminis-

tration. The Agricultural Stabilization and Conservation
Service has informally submitted the automatic data process-
ing portion of most of its program system, but the accounting
portion has not been submitted as yet. A system design has
not been received for any of the four remaining program fund
systems. The Food and Nutrition Service, which had its
accounting principles and standards approved in June 1973,
plans to strive to develop a financial management system
relating to the programs it administers. The Farmers Home
Administration has engaged a contractor to develop its loan
program system.

     The Department of Agriculture plans to submit the design
for the central system in October 1977. Completion of system
designs for the program fund systems is expected as follows:

     Forest Service Timber Sales              Oct.        1977
     Agricultural Stabilization and
       Conservation Service                   Sept.       1977
     Farmers Home Administration              Jan.        1978
     Rural Electrification Administration     Jan.        1978
     Food and Nutrition Service               Dec.        1978
     The Department and its constituent agencies have indi-
cated they expect to expend about 80 staff-years on these
design efforts during fiscal year 1977. Consequently they
should be able to meet their target dates.

Department of Commerce
     Accounting systems subject to approval           8
     Accounting system designs approved               7
     Unapproved system                                1
     The Department of Commerce was the first Department to
secure approval of all of its accounting systems, then a
total of seven systems. Recently, a new accounting system
for the National Technical Information Service has been
added. Under development since March 1975, this new system
design was informally submitted to GAO for evaluation during
fiscal year 1976.

Department of Defense

      In the last 4 years, the Department of Defense has
progressed substantially in obtaining approval of its ac-
countirg systems.   During this period, 54 systems were
approved; only 4 had been approved in prior years.   Most
progress has been in the Air Force and the Navy, accounting
for 48 of the 54 approvals.   The Army and certain Defense
agencies have not been as successful in developing and pre-
paring their system designs and submitting them for evalua-

     At October 1, 1976, we had about 21 additional systems
under evaluation and expected to have 41 more submitted
during fiscal year 1977.  We cannot approve most of these
systems at the present time because of several differences
between the accounting principles and standards which we
had approved for these systems and the system designs submit-
ted to us.  These differences included (1) lack of monetary
control over property, (2) lack of required fund control
for the last 2 months of the fiscal year, (3) lack of ade-
quate accounting for noncontractual claims against the Gov-
ernment, and (4) the need to identify capital versus current
operating costs on management reports.

     We have established a special working arrangement with
Defense Department officials to attempt to solve the prob-
lems created by these differences and to qualify the systems
for approval.  Failure to eliminate these differences may
adversely affect the number of approvals granted in fiscal
year 1977.

     Department of the Air Force

     Accounting systems subject to approval         43
     Accounting system designs approved             28
     Unapproved systems                             15

     During fiscal year 1976, including the transition quar-
ter, we approved 11 Air Force accounting system designs.
The Air Force has made great strides in its effort to obtain
approval of all accounting system designs by using improved
methods of describing their systems and by acting promptly
to resolve problems we find while evaluating their system
designs.  Five accounting system designs should be approved
in fiscal year 1977, if already identified problem areas are
resolved in a timely manner.

     Among the unapproved systems are eight Air Force
Logistics Command Systems. These accounting systems are
replacements for three basic systems of the Advanced Logis-
tics System which were included in our 1975 inventory report.
In December 1975 the Senate and House Committees on Appropri-
ations instructed the Department of the Air Force to termi-
nate the design and development of its Advanced Logistics
System.  Consequently, the Air Force will have to submit eight
accounting systems for our approval to accomplish what had
been planned for three systems.  To meet the approved target
date planned for the Advanced Logistics System (fiscal year
1978), the Air Force plans to expend the necessary staff-years
in fiscal year 1977 to permit us to evaluate and approve
seven of the eight systems by the end of fiscal year 1978.

     Department of the Army

     Accounting systems identified as subject
       to approval                                    29
     Accounting system designs approved                5
     Unapproved systems                               24
     The Army has not satisfactorily progressed in obtaining
approval of its accounting system designs.  The only approval
during the 15-month period was a portion of the accounting
system design for test and evaluation activities of the Test
and Evaluation Command, Army Materiel Development and Readi-
ness Command, approved in August 1976.  The industrial fund
general ledger portion of that system design was not included
and will, therefore, be approved at a later date as a separate

     Of the 24 unapproved systems, 14 were classified by the
Army as under development; that is, they are in the process
of design. or major design changes are contemplated.  Target
dates for their submission for approval were not determinable.

     We were evaluating 3 of the remaining 10 systems at
September 30, 1976, and are advising Army officials on their
preparation of system designs for 5 other systems.

     Fund control problems, including Anti-Deficiency Act
violations, in the accounting systems relating particularly
to the procurement accounts and foreign military sales were

quite serious and extensive. 1/ As a result, financial
management attention and resources were concentrated on
measuri.ng the effect and reporting on the problems, as well
as identifying and ini iating corrective measures.   Also, a
longstanding problem Jf not reconciling accounting and dis-
bursing records is now receiving management attention in
order that accurate reports may be issued.   A short-range
effect of this focus was to continue in fiscal year 1976 the
Army's relatively small effort to the objective established
by the Office of the Secretary of Defense to obtain our
approval of Department of Defense accounting systems by
December 1976.

     Problem areas include (1) identification of all the
Army's accounting 3ystems and their interrelationsh.ps,
(2) both incomplete and inadequate designs, (3) deviations
from the prescribed accounting principles and standards, and
(4) unresponsiveness to identified issues.  The Comptroller
of the Army and certain Army commands have not, in the past,
applied sufficient numbers or quality of personnel to the
planning and execution necessary for obtaining system design
approvals at the rate scheduled by the Office of the Secre-
tary of Defense.  In many instances, the personnel worked on
this objective only when other duties permitted.

     The Army has agreed to prepare and p,.blish a system
design overview to identify the functions and scope of each
accounting system and the control interrelationships among
accounting systems, programs, and organizations.   (A similar
commitment made by the Army last year to provide us such an
overview by September 1975 was not met.)  This overview
should also identify the organizational element responsible
for the design of each system in accordance with Army Comp-
troller guidance and should contribute to an understanding
of the Army financial systems.

     The Army plans in fiscal year 1977 to devote 28 staff-
years in developing, designing, and redesigning accounting
systems.  We do not believe that this level of effort will
be sufficient to complete the work by 1980.  The Army needs
to apply additional resources and qualified personnel to:

1/See our report "Serious Breakdowns in the Army's Financial
  Management Systems," FGMSD-76-74, Nov. 5, 1976.

      -- Describe the system design changes or
                                               new designs
         needed in unapproved systems and make plans
         submission for approval.                    for their

      -- Insure that accounting and payroll system
         describe the systems adequately.  In our experience
         in evaluating Army system designs, the
         uses its regulations and automatic data Army often
         user's manuals. We find this ineffectiveprocessing
         regulations and manuals are fragmented     because the
                                                 and do not give
        an adequate or complete description of
        system designs.                          the accounting

      -- Strength in the headquarters accounting
                                                 system staff
         so it can deal responsively and in a
                                               more timely man-
         ner with the design problems our evaluations
                                                       find, and
         assign such staff to advise and assist
                                                 those Army com-
         mands which have limited system design
     Since September 1976, we have observed
increase in the Army's efforts to obtain    a substantial
and to correct the identified problems.  system approvals

     Department of the Navy
     Accounting systems subject to approval
     Accounting system designs approved                75
     Unapproved systems                                20
     The Department of the Navy progressed more
                                                   than in any
past period. During the 15 months ended
10 Navy accounting systems were approved  September    30, 1976,
approved system designs. We are currently for  a  total  of 20
the remaining unapproved systems and expect reviewing    13 of
mit 22 additional system designs during       the  Navy  to sub-
                                         fiscal year 1977.
       As anticipated in last year's report,
Navy accounting systems identified as        the number of
                                        being subject to ap-
proval has increased to 75 as of September
                                             30, 1976. The
Navy did not increase its accounting systems;
changed its method of classifying existing       it just
                                             Navy systems and
canceled some planned standard system
celing standard system design efforts design efforts. Can-
of systems to be approved because if a increases the number
                                         standard design is
usecd, one approval may apply to 10 similar
a standard system is not used, each of       systems. If
                                         the 10 systems must
be approved separately.






     0-"0 CO)


     U             L


     The scheduling of systems for submission to us is being
controlled by the Office of the Navy Comptroller to allow
consideration of long-ralge system development work in rela-
tion to our target of 1980 for approval of all systems.

     Standard system designs--The Navy's operating philosophy
empasizes maximum automatc data processing design flexi-
bility at local installations. As a result, most Navy ac-
counting system central design efforts cease at a relatively
high level. Local installations are thus provided consider-
able latitude in developing support procedures to implement
the central design, including controls to insure timeliness,
accuracy, and completeness of accounting processes. Under
this concept of decentralization, naval systems managers
must rely on local commanders, internal review teams, and
internal auditors for assurance that adequate controls have
been provided at local levels for locally designed systems
and for insurance of system output quality. This concept
also makes our automatic data processing evaluation of the
adequacy of internal controls and audit trails more difficult
and requires additional time to determine the adequacy and
acceptability of many Navy systems.
     The Navy Integrated Financial Management Improvement
Program was begun several years ago by the Navy Comptroller
to provide centralized control over financial system develop-
ment efforts and to foster uniformity in system design. Its
major objectives are to identify deficiencies in financial
management systems and to program and provide budgetary sup-
port for corrective action. Several major standard systems
resulting from this effort are currently scheduled for our
review. We support the objectives of standard design and
encourage their rapid completion and use.
     Tntegration of disbursing and accounting--The integra-
tion o-      rsing and accounting will-represent a signifi-
cant improvement in accounting, disbursing, and use of assets.
Much progress has been made with prototype activities, and
an implementation plan has been developed. We continue to
encourage an early decision to implement.
     Navy Joint Uniform Military Pay System--During fiscal
year 1976 we approved the final version of the Joint Uniform
Military Pay System for the Navy. For about 10 years the De-
partment of Defense and its military services have been work-
ing on the project of developing their military pay systems.
We congratulate the Department and its military services on
completing their design work for these very substantial pay-
roll systems.

Source: Department of Defense


     Department of Defense agencies
     Accounting systems subject to approval         18
     Accounting system designs approved              5
     Unapproved systems                             13

     Only one accounting system design was approved in the
15-month period ended September 30, 1976. However, we are
currently evaluating five systems and expect to approve seven
by the end of fiscal year 1977.
     Three of the unapproved systems not scheduled for sub-
mission in 1977 are in the Defense Supply Agency. Two of
the three are among the largest and most important systems
in that Agency's operations. Since 1974 the Agency has rec-
ognized the need for financial control and improved financial
reporting in the petroleum and subsistence management areas.
Consequently, it has undertaken several projects to develop
reliable accounting systems for these two areas. To date
these projects have not been successful. The agency has
once again indicated that all three of these accounting sys-
tems will be submitted for evaluation by the end of 1980.
However, based on the resources assigned to this work and
the priority it has been given by the Agency. we are skepti-
cal about whether these designs will be submitted by then.
Until these projects are given high priority and adequate
resources are devoted to them, we cannot assure the Congress
that these accounting systems will be approved in the near
     The Defense agencies plan to expend 6 staff-years during
fiscal year 1977 on the design and submission of accounting
systems. We feel this time is insufficient to provide satis-
factory progress.
     Department of Defense-wid    Eproblems

     As noted in last year's report, an ad hoc committee was
established to develop requirements for a Department-wide
standard civilian payroll system. This committee, which
we represent in an advisory and consultative capacity, has
made significant progress. The committee published a docu-
ment containing the general functional systems requirements
for a standard pay system incorporating the needs of all
services and is currently working on the detailed specifi-

      The Department of Defense is now reevaluating
 direction the standardization effort                 the
                                       is to take. The under-
 lying implication is that standardization
                                            within each service
 is all that can be achieved at the present
                                             time. We suggest
 that no decision be made to abandon development
 Department-wide standard civilian payroll        of the
                                            system without con-
 clusive evidence that it is not attainable
                                             or economical.
 DePartment of Health, Education, and Welfare

      Accounting systems subject to approval
      Accounting system designs approved                 19
      Unapproved systems                                  5
      In the past, this Department has progressed
getting its accounting systems approved.          slowly in
system design approved for the Department  The only accounting
fiscal year was the National Institutes    during the past
                                         of Health's adminis-
trative accounting system design.
tration's administrative accounting The Health Services Adminis-
                                     system and the Office of
Education accounting system were informally
currently being evaluated.                   submitted and are

      The Social Security Administration ;s operating
an unapproved accounting system. An agreement             under
June 1976 providing for a joint Social Security  was   signed   in
tion, Office of the Secretary, and GAO project Administra-
                                                 to further
Social Security's preparation, review, and
The one accounting system currently shown   approval    effort.
Security Administration in appendix II willfor  the  Social
separated, because of its magnitude, into    eventually be
systems to facilitate evaluation and approval.       discrete
Security Administration has currently identified  The   Social
ing systems which may have to be evaluated          10  account-
ing target dates for submitting them.       and  is  establish-

     In a report to the Congress, 1/ we recommended
Secretary of Health, Education, an3 Welfare           that the
priority to the redesign of the DeFartment's  ssign a  high
and closely watch these efforts until the     payroll  system
                                           redesign was suc-
cessfully completed. Subsequently, target
Department set for submitting the sy:tem    dates which the
                                          design for approval

1/B-164031, Jan. 17, 1969.

were never met. The Department advised us that delays
resulted because available staff was assigned to improve the
system berore submitting it to us. The payroll system is
presently operational, and a task force established in July
1976 is preparing material necessary for our approval.
system is currently scheduled for approval in fiscal yearThe
     Since 1969 we have issued 10 reports to the Congress
calling attention to inadequacies in the financial manage-
ment of the Guaranteed Student Loan Program. In the latest
report, 1/ we again reported that the accounting system for
this fund was so unsatisfactory that the financial statements
did not fairly present the financial position of the fund.

     In a February 17, 1977, report to the Congress on the
Health Services Administration, 2/ we reported that the seri-
ous weaknesses of the accounting systems could allo;. fraud
and misuse of Federal funds. Health Services accounts could
not be reconciled with the Treasury's accounts and the Anti-
Deficiency Act may have been violated.

     The Department has informed us that it has given system
approvals a high priority and intends to devote adequate re-
sources co it. Since April 1976, the Department's activities
in expediting the submission and review process have resulted
in the following accomplishments:

     -- Signing the agreement of the Social Security Adminis-
        tration; the Office of the Secretary of the Depart-
        ment of Health, Education, and Welfare; and GAO as
        discussed above.
     -- Instituting a presubmission review process by the
     -- Developing a procedure for establishing and
        tracking "milestone" events throughout the review
        process, which should provide a tool for measuring
        progress and evaluating the status of system reviews

1/FOD-76-23, Feb. 10, 1977.
2/"Improvements Needed in Recording and Reporting Appropria-
  tion Data at Fiscal Year End," FGMSD-76-63.

     Despite past assurances of a desire to secure
of its accounting systems and the establishment of approval
target dates, the Department has not accomplished its  objec-
tives. Unless the Department is persistent in its current
determination to qualify its remaining accounting systeis
for approval and can devote adequate resources on a continu-
ing basis, we are skeptical that the remaining systems will
be approved in the near future.

     Agency_ comments

     In response to a draft of this report (see app. III),
the Department said it had made obtaining accounting  system
approval a high priority item. The problem, according
to the Department, was our inability to assign sufficient
resources to review system documentation the Department
veloped and provided to us. The Social Security Administra-
tion was cited as a specific example in which its personnel
had been waiting since June 1976 for our personnel to work
with them on reviewing their system before submission.

      It is our policy to give priority in the assignment of
our limited accounting systems staff to those systems which
have been completed and are ready for evaluation. To the
extent possible, we also cooperate with requesting agencies
in developing their accounting systems. In the Social Secur-
ity case cited above, we had been following our normal prac-
tice of assigning personnel to examine system documentation
as an agency made it available. A systems accountant was
examining, on a part-time basis, documents submitted by
Social Security between September and December 1976. In
December the Department asked us to assign a systems account-
ant on a full-time basis at Social Security Administration
headquarters. We plan to do so as soon as staff on other
work become available. Meanwhile, we will continue to have
any completed work reviewed by staff members assigned to
other sites.
Department of the Interior

     Accounting systems subject to approval         13
     Accounting system designs approved
     Unapproved systems                             12
     This Department has progressed little since 1974 in
ting its accounting systems approved. During the 15-monthget-
period, we approved the principles and standards of the

 Mining Enforcement and Safety Administration and reapproved
 the accounting system design of the Bureau of Mines.

      Five of-the seven unapproved systens of the Department
had been scheduled for submission during fiscal year  1976.
However, these submissions have been postponed to either
fiscal year 1977 or 1978. In addition, the Department has
added one more accounting system to the 18 listed on June 30,
1975. This system is forecast for submission during f:scal
year 1977. These accounting systems have remained unapproved
principally because of a lack of in-house staffing at Depart-
ment and bureau levels to properly design and submit their

     The Department established the Office of Management
Consulting within the Office of the Secretary in 1974 to be
responsible for assisting offices and bureaus in developing
system designs and improving financial management informa-
tion. However, due to budgetary restrictions, only two
professional staff members in the Office of Management Con-
sulting are engaged in system design work. The Office
urgently needs to add more systems accountants to its staff.

     We also believe that staffing should be increased in
the bureaus having unapproved systems. Unless the Department
provides the necessary resources and gives accounting system
design work a higher priority, we cannot assure the Congress
that the remaining unapproved accounting systems will be ap-
proved in a reasonable length of time.

     The Department of the Interior has indicated (see app.
IV) its basic agreement with our analysis. The Department's
letter states that it is trying to increase its efforts in
order to submit all of its accounting systems to us by the
end of fiscal year 1978.
Department of Justice

     Accounting systems subject to approval         13
     Accounting system designs approved              8
     Unapproved systems
     The Department has progressed well the past several
years in securing approval of its accounting systems. How-
ever, the administrative accounting system design of the

Law Enforcement Assistance Administration was the only
approval in this Department during the 15 months ended Sep-
tember 1976.

      The administrative accounting system design of the Fed-
eral Bureau of Investigation was approved in 1977 aL'er the
period covered by this report. The Bureau has progressed
substantially in developing this system and will soon have
it operational. Submission of the remaining unapproved Depart-
ment accounting systems is scheduled before the end of calen-
dar year 1977. The Department and its constituent agencies
have committed about 9 staff-years to submitting these sys-
tems.   vie believe this commitment is sufficient to attain
approval of most of the Department's systems before the end
of fiscal year 1978.

Deeartment of State

     Accounting systems subject to approval            7
     Accounting system designs approved                4
     Unapproved systems                                3

     Progress in securing approval of accounting, systems
in this Department has been very slow. During 'ne 15-month
period we approved only one system:     the American payroll
system design for the Agency  for  International  Development.
Among the unapproved systems  are  the  departmental  and Agency
general accounting systems,  the  Department's  two  largest and
most important systems.  Since   1959  the Department  has set
and missed several target dates for submitting these systems
for approval.
     The design of the unapproved departmental accounting
system has been under development for the past 4 years.
Although many portions have been informally submitted to us
for comments, the Department acknowledges that a sizable
task remains on the material it has submitted.
     In addition to its departmental accou..ting system, the
Department has developed a combined payroll-personnel system
which covers most of its employees. During the period from
July 1976 to September 1976, the description of this payroll
system was informally submitted to us for evaluation.

     The Agency for International Development has two account-
ing systems subject to approval--the American payroll system

and the general accounting system. The American payroll
system was approved in September 1976. The general account-
ing system design consists of nine segments. Four segments
had been approved through January 1969; the remaining five
segments of this system are planned for submission by Novem-
ber 1977.

      The Department is currently devoting about 8 staff-
years to accounting system approval work. We believe this
staffing should be increased in order that all of the Depart-
ment's accounting system designs will have been formally
submitted for approval through fiscal year 1978 as forecast.
Until the Department gives these projects high priority and
devotes adequate resources, including the assignment of qual-
ified, full-time personnel, we cannot assure the Congress that
these accounting systems will be ready for approval as sched-

     We submitted a draft of this section of our report to
the Department of State and have incorporated the pertinent
portions of its response. The Department's letter is included
in appendix V.
Department of Transportation

     Two accounting system designs were
15 months ended September 1976, one for approved during the
                                        the Federal Railroad
Administration and one for the Transportation Systems Center.
Seven of the Department's eight accounting systems have now
been approved; four were approved during the past 2-1/2 years,

     The accounting system for the Federal Aviation Adminis-
tration is the only remaining unapproved system in the
Department. Except for the payroll portion, it is being
designed by a contractor. The contractor had submitted the
major portion of the system, and the Federal Aviation was re-
viewing it at September 30, 1976.  The design of the remain-
ing portion is expected to be submitted for the Federal Avia-
tion's review early in 1977.  It expects to complete the
design of the payroll portion in July 1979.

Department of the Treasury
     All of the Department of the Treasury accounting systems
shown in appendix II have been approved.

     The Bureau of Government Financial Operations is design-
ing a unified Treasury accounting and financial reporting

system.  This system will replace three systems which are
presently approved: (1) central accounting for cash opera-
tions, (2) central accounting for foreign currency, and (3)
investments accounting operations. The overall project,
known as the Accounting Information Management System, will
consist of multiple subsystems and modules. Target dates
for implementing the subsystems and modules extend through
fiscal year 1982.
     We reported last year that the U.S. Customs Service was
redesigning its cost accounting system to provide cost data
under a recently revised program structure. In February
1976 a productivity management review was conducted jointly
by the Department of the Treasury and a private contractor.
It confirmed that the Customs Service does not have a cost
accounting system which would enable the determination of
costs for its various activities and programs. The review
also confirmed that the development of a comprehensive cost
accounting system by the Service is an essential prerequisite
to productivity management. Although Customs Service's pro-
ject to redesign its cost accounting system would enhance
budget preparation and fund allocation and facilitate pro-
ductivity management, it has been deferred pending a further
review of the automatic data processing resources relating
to ongoing programs.
     The Department of the Treasury is implementing a
Department-wide integrated payroll/personnel system to replace
its fiscal service and Internal Revenue Service payroll sys-
tems. We are working with the Department in developing
necessary procedures and controls, but a target date for sub-
mission and approval has not yet been established.
     We reported last year that the Bureau of the Mint was
planning to revise, update, and automate its general and
bullion accounting systems into a single financial manage-
ment information system. It was to be completed and submit-
ted for evaluation in September 1977. Plans for implementing
this system, however, have been postponed pending completion
of a long-range automatic data processing plan.
     The Bureau of Alcohol, Tobacco and Firearms is develop-
ing a financial ma.iagement/planning system. We expect to
evaluate tnis system informally during fiscal year 1977.

     Accounting systems subject to approval         3
     Accounting system designs approved             0
     Unapproved systems                             3
     During September 1974 ACTION hired a public accounting
firm to design and document a revised general accounting sys-
tem. ACTION began submitting draft portions of its revised
accounting system for our evaluation in January 1976. We
expect the system design to be completed and submitted for
approval in 1977.

      At present ACTION employs three staff systems account-
ants. One accountant assists the contractor full time in
completing the general accounting system design. The systems
accountants will be solely responsible for documenting the
accounting system designs for ACTION'S unapproved volunteer
readjustment allowances and payroll systems. The scheduled
submissions of these two system designs have been delayed
from March 1976 and June 1976 to September 1977 and September
     A lack of personnel to complete the assignments and a
concentrated effort during fiscal year 1976 on the general
accounting system design caused the submission delays. ACTION
estimates that about 3 staff-years will be expended during
fiscal years 1977 and 1978 to complete its accounting system.
Also, ACTION believes it has adequate resources to accomplish
this objective.

Civil Aeronautics Board

     The accounting system of the Civil Aeronautics Board
was originally approved in January 1968.  The Board is plan-
ning to resubmit its accounting system subdivided into three
systems:  (1) administrative accounting system, (2) payroll
Fystem, and (3) carrier subsidy payment accounting system.
The payroll system was approved September 27, 1976. A re-
vised statement of accounting principles and standards has
been submitted.
Federal Energy Administration

     The Federal Energy Administration, established as an
independent agency on June 27, 1974, has one accounting system
subject to approval.  Its statement of accounting principles

and standards was approved in July 1975. The Federal Ene.-gy
Administration plans to submit its accounting system design
for our evaluation by June 1977, but it has not done so as
of May 31, 1977.

     We believe the Federal Energy Administration is cur-
rently not devoting enough effort to designin- its accounting
system. Unless it provides additional resources and giegs
accounting system design work a higher priority, we canri
assure the Congress that the accounting system of the Feaeral
Energy Administration will be approved in a reasonable length
of time. (This system may be absorbed into the new Depart-
ment of Energy if the proposal to create that Department is
Federal Home Loan Bank Board

     The Board's statement of accounting principles anu
standards was approved in June 1972. Its accounting system
design, exclusive of the automated portions, was submitted
in August 1975 for our informal evaluation. In November 1975
we provided our informal comments on needed improvements, but
have not yet received a response. Approval is expected in
September 1977.
Federal Mediation and Conciliation Service

     The Service's statement of accounting principles and
standards was approved in December 1969. The Service esti-
mates that it will complete the accounting system design and
informally submit it for evaluation by December 1977. The
previously estimated date was December 1976. The Service has
committed 1 staff-year to the design efforts during the next
fiscal year. We believe that is adequate, provided the work
efforts concentrate on design development and submission to
avoid further slippages.
General Services Administration
     Accounting systems subject to approval         3
     Accounting system designs approved             2
     Unapproved system                              1
     The Public Buildings Amendments of 1972 Act (Act of
July 16, 1972, Public Law 92-313, 86 Stat. 216) created the
Federal Building Fund.  Effective July 1, 1974, it required

 a new accounting system for activities conducted by the
  Vrulic Building Service. '"he design of the system has been
 subject to revisions during the past 2 years to overcome
 problems and to provide more fully for management needs.
 Portions of the revised system design were submitted to
 for evaluation beginning in March 1976. Originally scheduled
 for submission in December 1974, then extended to December
 1975, the complete design was submitted in May 1977. Approv-
 al should occur during fiscal yvcr 1977.

National Labor Relations Board

     The National Labor Relations Bcard has one accounting
system subject to approval. Its submission for our evalua-
tion has been postponed on more than five occasions since
June 30, 1972. The latest postponement was from December
1976 to December 1977. A lack of personnel ssigned to the
system design has caused the delays. Accorc ig to the
Board's Chairman, five accountants are working principally
on the accounting system design. During the year, however,
this staff produced limited design material.

     The Board must give this project higher priority ped
devote its assigned resources to designing the system,
particularly the data processing functions. Otherwise, we
cannot assure the Congress that the system will be ready
approval in the near future.

Veterans Administration
     Accounting systems subject to approval           8
     Accounting system designs approved               7
     Unapproved system                                1
     In September 1976 we approved the mortgage loan account-
ing system.. This system takes the place of the direct loan
program and the loan guaranty program accounting systems
approved in 1953 and 1954, respectively.

     The compensation, pension, and education accounting sys--
tem has not been approved. We reported las. year that
approval was scheduled for fiscal year 1978. The Veterans
Administration reported that this system will not be ready
until fiscal year 1980 and that 3-1/2 staff-years have
committed to the design of t..is system during the next been
year. If consistently applied until fiscal year 1980, this
effort should result in approval of the remaining systell,
that time.

District of Columbia government

     On December 19, 1975, the Chairman of the House
Committee on the District of Columbia requested that we pre-
pare a report to (1) summarize the major improvements the
District government must make to get its financial systems
in order, (i) evaluate the District government's plans for
revising its accounting systems, (3) determine the priorities
for the work which can best be done in the next 2 years by a
contractor, and (4) suggest how the Congress, the District
government, and GAO can best proceed to meet the objective
of good financial management and financial reporting by the
District government. Our report (FGMSD-76-42) was issued on
February 27, 1976.

     In early February 1976 the Senate Committee on the Dis-
trict of Columbia contracted Arthur Andersen & Co. to (1)
survey the accounting and financial management practices of
the District government, (2) define and analyze existing
problems, and (3) develop a plan "leading to the implementa-
tion of generally accepted accounting principles and the
eventual statement of an auditor's opinion."  Arthur Andersen
& Co. submitted its report to the Chairman of the Committee
on June 19, 1976.

     Primarily as a result of these two reports, Public
Law 94-399 was enacted on September 4, 1976.  Authorizing
$16 million, section 2(a) assigns the Temporary Commission on
Financial Oversight cf the District of Columbia responsibil-
ity for improving the District government's accounting and
other financial management systems.  Section 3(a)(1) also
authorizes the Commission to E£cure an audit of the District's
financial statements for fiscal years 1977 through 1979.

     Contractors engaged by the Commission are required to
prepare a design or improvement plan for each system. The
plan or design, however, cannot be implemented until it is
approved by the Comptroller General or the Congress (if the
Congress elects to override the Comptroller General).

     The Commission is composed of six Members of Congress,
the Mayor, and the Chairman of the City Council.  It first
met on September 27, 1976, and selected Senator Thomas F.
Eagleton as Chairman.  We have offered our assistance to
the Chairman of the Commission and have assured him of our

     As of May 31. 1977,   the Commission had awarded no

                          CHAPTER 4

     In addition to approving executive agencies' accounting
systems, section 112(c) of the Accounting and Auditing Act
of 1950 requires us to review both approved and unapproved
systems from time to time. These reviews determine whether
accounting operations are carried out efficiently, effec-
tively, economically, and in conformity with the principles,
standards, and related requirements prescribed by the Comp-
troller General and approved system designs. We also evaluate
the usefulness of the information provided by the systems and
the effectiveness of internal controls, including internal
audit, over receipts and disbursements, assets and liabili-
ties, and obligations and expenditures of appropriations.

     During the 15-month period ended September 30, 1976, we
completed surveys or reviews of about 40 accounting systems,
system segments, or related matters. The reviews showed
deficiencies in
     -- management involvement in designing and acquiring
        computer-based financial management systems;
     --internal audits of accounting reports and systems;

     -- compliance with system designs approved by the
        Comptroller General;
     -- usefulness of accounting information;

    -- billing, collecting, and depositing procedures;

    -- property accounting;
    -- obligation accounting;

    -- automated payroll system controls; and

    -- automated travel payments.

     We suggest that agencies review systems we have not
recently reviewed to assure themselves that similar deficien-
cies do not exist in such systems. The results of some of
our reviews are summarized in the following sections.


      Federal agencies spend millions of dollars each
                                                      year to
 develop computer-based financial management information
 tems. Contracts with public accounting and management sys-
 sultina firms are used extensively to provide           con-
                                               technical as-

      In reviewing accounting systems, we observed
developmental projects were unduly lengthy, costly,that many
frustrating, but that other projects proceeded       and
To gain an insight into the reasons for the varying
of success, we interviewed Federal agency officials degrees
                                                     and senior
members of contractor firms and professional societies.
told us their experiences, good and bad, in developing    They
ccmputer-based information systems. They also
                                                suggested ways
for improving the contracting and systems development

     With this information, we prepared a booklet
managers involved in information system developmentfor quiding
The booklet discusses the need for management involvement
in 68 key steps in the processes of planning,
designing, developing, testing, implementing, contracting,
computer-based management information systems. and operating
                                                 It should
be useful to Federal agencies, State and local governments,
and contractors. 1/

     Section 113(a)(3) of the Accounting and Auditing
of 1950 requires the heads of executive departments      Act
cies to provide appropriate internal audit of their   and   agen-
of accounting and internal control. Internal audit    systems
sibilities include determining whether financial      respon-
are conducted properly and whether financial reports
presented fairly. Proper conduct of financial           are
requires compliance with the principles, standards,
related requirements for accounting prescribed        and
troller General. At June 30, 1975, the departments  the  Comp-
agencies had about 11,000 professional and administrative
personnel engaged in internal audit activities.

l/"Lessons Learned About Acquiring Financial Management
  Other Information Systems," Aug. 1976, by the Comptroller
  General of the United States, Stock No. 020-000-00138-1,
  may be purchased from the Government Printing Office.

     We recently began an overview of the level of audit
effort by the Federal agency internal audit organizations
in financial operations and have issued reports on our find-
ings to the heads of the Departments of Labor and Agriculture
and the Veterans Administration. At September 30, 1976, we
had completed reviews at the Departments of Justice and the
Interior, and we planned to provide for similar reviews at
other departments and agencies.

     Our review at the Department of Labor indicated that
the current audit effort did not adequately cover internal
financial operations. Personnel 'shortages limited most of
the audit work to external operations. 1/ The study at the
Department of Agriculture, however, showed that the internal
auditors were providing adequate financial coverage. 2/

     Our Veterans Administration review disclosed a need
for the staff to identify fully all of its programs (such
as the various benefit programs representing 75 percent of
the agency's obligations) and to implement a plan to provide
audit coverage for those programs. Also, the appropriate
audit staff size and its location within the organization
should be determined. 3/

     We surveyed the extent of internal audits of financial
reports submitted to the Department of the Treasury and of
the accounting systems that produced the reports in 28 de-
partments and agencies. These agencies account for about
90 percent of the Government's gross obligational authority
and operate about 250 accounting systems.

     Twenty-eight percent of the agencies said their policy
was to audit their accounting systems, and 22 percent to
audit their Treasury reports, on cycles ranging from 1 to
7 years. The remainder said thei. policies were to make
such audits irregularly or not at all. Twenty-five percent
of the agencies, however, said they planned to change their
policies to permit more reports to be audited.

     In a report to the heads of audit agencies, we recom-
mended increased emphasis on internal audits of accounting
systems and accounting reports sent to the Treasury. We

1/FGMSD-76-67, June 25, 1976.
2/FGMSD-76-84, Oct. 8, 1976.

3/FGMSD-77-3, Nov. 19, 1976.

 based this recommendation on the results
 numerous reports on major deficiencies   of our survey, our
                                        in systems, and the
 Treasury's need for reliable information
 financial statements. 1/                 for its consolidated

       In other reviews, we found that the Civil
 Board, Federal Power Commission, Railroad
                                            Retirement Board,
 and White House Office all needed to increase
 audits.                                         their internal


      During the 15-month period, we reviewed
 that had been previously approved by the      nine systems
 to determine whether they were being operated          General
 with their approval designs. Changes requiring in  compliance
 had been made, or were being made, in four        reapproval
                                            of the following
 nine systems.
Medical Materiel,
 epartment of the Air Force

      The Air Force Medical Materiel accounting
proved in October 1973. The system is the         system was ap-
reporting system for the Air Force Medical-Dental        financial
                                                     Stock Fund.
      We found that the accounting system
in accordance with the system design. Ourhad been implemented
tem in operation, however, disclosed an      test of the sys-
which the system processed invalid transactions      weakness in
rejected or identified as errors. Air Force        which were not
                                               officials stated
they are taking action to improve the system's
to insure that transactions are processed        program edits
                                            correctly. 2/
Printin and Duplicatin Industrial Fund,
  _Departmet of the Alr Force

     The industrial fund accounting system for
                                                printing and
duplicating services was approved in February
     Based on our work at Robins Air Force Base,
(the host installation), we concluded            Georgia
                                      that the accounting
system was operating in accordance with the
                                            approved system

1/FGMSD-76-43, June 18, 1976.
2/FGMSD-76-35, Jan. 2, 1976,

design. (The same system design had been implemented at six
other Air Force printing and duplicating plants.) We found,
however, that Robins had no procedures for obtaining reim-
bursement from the printing plant industrial fund for the
cost of support services, including the costs to (1) prepare
and maintain the employment records of civilian personnel as-
signed to the printing plant, (2) process and prepare the
payroll and maintain related records for civilian employees,
and (3) provide fire protection, plant security, and auto-
matic data processing.

     Officials at the Air Force Accounting and Finance Center
stated that the Air Force was in the process of revising in-
structions to require that all Air Force industrially funded
printing plants reimburse host installations for support
services. 1/
Bureau of Indian Affairs,
Department of the Interior
     The Bureau of Indian Affairs accounting system design
was approved in January 1953. The system is being redesigned
and will be submitted to the Comptroller General for approval
in fiscal year 1978.

     We reported to the Secretary of the Interior that the
system being operated needed improvements in

     -- controlling receivables and advances,
     -- recording and reporting obligations,
     -- taking avai]able discount.s,

     -- controlling and documenting its automated personnel-
        payroll system, and
     -- managing and accounting for personal property.
     We made several recommendations to the Secretary of the
Interior to improve the Bureau's accounting system. The
Department agreed with all of our recommendations and advised
us of specific actions taken, underway, or planned by the
Bureau for improving accounting practices throughout the or-
ganization. 2/

1/FGMSD-76-4, Aug. 18, 1975.
2/FGMSD-76-15, Mar. 11, 1976.

 Immigration and Naturalization Service
       Our review of the Immigration and Naturalization
 accounting system showed that it was                   Service
 in accordance with the system design  being operated generally
                                       approved on April 18.
      We found certain weaknesses in a regional
                                                 office in ac-
 counting for property, collecting delinquent
 able, and handling collections. We observed accounts receiv-
 issued a receipt for collection only          that the Service
 it. We also noted that the Service    when the payer requested
                                      had no statement of policy
 on how fees were to be established.
       We reported to the Commissioner that
                                             corrective action
 had been promised on all matters except
 collections. We recommended, therefore,   issuing receipts for
 issue prenumbered or cash register receiptsthat the Service
 collections to record the transaction         for all cash
                                        and give the payer a
 receipt. 1/
      As a result of our recommendation, the
 its controls over cash and valuables.       Service studied
 the Service was evaluating its results At September 30, 1976,
                                        to determine what
 actions it would take.

Public Works Centers,
Department oY th-e Nav
      The industrial fund accounting system
                                             for Navy Public
Works Centers was approved in March 1974.
     We reported to the Secretary of Defense
was being operated in accordance with          that the system
design. We also found it was substantially  approved system
with the principles, standards, and related   in compliance
for accounting prescribed by the Comptroller requirements
requirements, however, had not been fully      General. Two
     -- Funding by customers of major maintenance,
        and alterations (before the industrial      repairs,
                                                fund incurs
        such costs) will be restricted to a 12-month
        beginning with the date of approval of        period
                                               the project.
     -- Funded and unfunded liability for unused
        of employees of revolving fund activities annual leave
        separately identified.                     will be

1/FGMSD-76-22, Nov. 12, 1975.

  The above requirements apply
                               to all Department of Defense
  dustrial funds.                                           in-

        At September 30, 1976, we
  industrial fund system design.  were evaluating another
  the Department of Defense        We will determine whether
  require the above features has taken appropriate action to
  trial fund activities. 1/ to be implemented at all indus-
  Civil Aeronautics Board
          The Board's accounting
  1968.                          system was approved in

      In our report 2/
 the Board's system Had wenotstated that although our review of
 the Board had already agreedbeen completed at June 30, 1975,
 we brought to its attention, to take action on several matters
       -- reporting internal audit
          Managing Director instedd findings to the Board's
                                     of to the Comptroller,
      -- resubmitting to the Comptroller
          three segments of the accounting General for approval
         been substantially changed         system that had
                                      subsequent to approval,
      -- providing quarterly independent
         of pay actions,                   reviews and audits

      -- performing annual inventories
                                         of property, and
      -- developing a 5-year internal
         comprehensive coverage        audit program for
                                 of financial activities.
     In a report to the Chairman
                                    of the Civil Aeronautics
Board, we pointed out that
been taken. The Board        the  actions  promised
                         informed us of steps takenhad not
to correct the deficiencies                           or planned
ing the review and in our     we brought to its attention
                            report. 3/                      dur-

1/FGMSD-76-52, Mar. 18,
2/FGMSD-76-13, fiscal year
  and Problems in Federal   1975 report on "Status,
                           Agency Accounting."      Progress,
3/FGMSD-76-20, Dec. 19,

Federal Power Commission

     The Commission's accounting system was approved in
June 1965.

      We found that the payroll subsystem had been substan-
tially changed since the system was approved but had not
been resubmitted to the Comptroller General for approval.
l;e also observed that

     -- not all the accounts were maintained on a double
        entry basis,
     -- not all property was inventoried annually and recon-
        ciled to property records and the general ledger con-
        trol accounts, and
     -- internal audits were not made annually.
Their manual for the approved system required all of the

     We reported these matters to the Chairman and recom-
mended that they be corrected. We also recommended ways to
simplify the procedures used to process and record billings
and collections. 1/ The Chairman informed s that the Com-
mission has corrected all of these matters.
Railroad Retirement Board

     The accounting system of the Railroad Retirement Board
was approved in 1971.

     We reported to the Chairman of the Board that the ac-
counting system was being operated in accordance with the
approved system design. However, the internal reviews of
accountable officer functions and financial reports, inven-
tories of personal property, and procedures for controlling
collections should be improved.

     We proposed several actions to the Board for strengthen-
ing and expanding its procedures. The Board agreed with our
proposals and is implementing our recommendations. 2/

1/FGMSD-76-19, Oct. 16, 1975.
2/FGMSD-75-50, July 30, 1975.

      The Board was in the process of converting its general
and subsidiary ledgers from a manual system to an automatic
data processing system. We advised the Board that these
changes should be discussed with our representatives and, if
appropriate, submitted for approval of the Comptroller Gen-

The White House Office

     The accounting system for the White House Office was
approved in October 1969. The Office is planning major
revisions to the accounting system, including extensive use
of automatic data processing techniques.

     In response to a request from the Counsel to the Presi-
dent, we reviewed the system of control over funds, property,
and other assets for the period July 1, 1969, to August 9,
1974. We reported that (1) many disbursements were not sup-
ported by documentation needed to show that goods and services
purchased were properly authorized and received, (2) equip-
ment was lost or missing, indicating that property account-
ing controls (including physical inventory procedures) needed
improvement, and (3) improvements were needed in controls and
procedures for preparing payrolls, keeping time and atten-
dance records, and accounting for employees' leave to prev..it
erroneous salary payments. The White House Office agreed with
our findings and suggestions to correct weaknesses in its
accounting operations and have taken or are planning to take
corrective actions.

     We commented that Fame of the problems we identified
might have been corrected sooner if the White House Office
had had an internal audit staff to review its operations on
a regular basis. We recommended that the Staff Secretary to
the President establish an internal audit staff to serve
the White House Office and other agencies in the Executive
Office of the President. The Counsel to the President said
that the Office would study further the feasibility of such
a staff and pursue it with other agencies in the Executive
Office of the President. 1/

     The Department of Defense had been obtaining the ap-
proval of the Comptroller General of a substantial number

1/FGMSD-76-34, Sept. 2, 1976.

of accounting systems the past few years. We      have encouraged
the internal audit agencies in the Department     to review sys-
tems shortly after they have been approved to     determine
whether they are being operated in compliance     with their ap-
proved designs.

     During the 15-month period ended September 30, 1976,
interral audits of five Air Force, five Navy, and one Office
of the Secretary of Defense systems were completed or in pro-
cess at the close of the period.

     Our review of hospital accounting systems in the Depart-
ment of Defense inricated that the information they produced
was of limited usefulness. For example:

     -- The hospital accounting system prescribed by the
        Navy produced reports which were of no use to hos-
        pital managers, because the reports did not accumu-
        late costs by responsibility area. A locally de-
        vised system reported costs by responsibility area,
        but excluded the most significant co .s--the costs
        of civilian and military personnel.
     -- The information provided to the Department of De-
        fense by the Army, Navy, and Air Force systems was
        accumulated on different bases and, therefore,
        could not be compared.
     We recommended that the Navy system be modified to ac-
commodate the cost-information needs of hospital management.
We concluded that a standardized Defense-wide accounting sys-
tem for hospital cost and workload data is desirable. 1/


     Several deficiencies in the systems and practices used
to bill, collect, and deposit amounts owed to the Govern-
ment were observed.
Tuition charsforesforforein   military students
     The Air Force used obsolete or incorrectly computed
tuition rates to establish the charges to foreign governments

1/FGMSD, July 8, 1975, and FGMSD-76-70, Aug. 23, 1976.

for training their students in Air Force schools. We esti-
mated that at least $5.7 million of costs incurred in train-
ing such students during fiscal year 1975 was not recovered.
     Actina on our recommendations, the Air Force changed its
billing sy.tem to insure that current tuition rates are used.
We estimated that, as a result, the Air Force will collect
an additional $17.3 million in revenues from foreign govern-
ments for training provided during fiscal year 1976. In ad-
dition, the Air Force is rebilling foreign governments to
recover about $4 million not previously charged because out-
dated and incorrect tuition rates were used. 1/
Technical assistance and training
servi-ceseov-e    tofeigien governments

     We reported to the Secretary of Defense that no action
had been taken on recommendations made by the Department's
internal auditors. They had recommended that a study deter-
mine all the costs of providing technical assistance and
training to the armed forces of Iran and that reimbursement
for such costs be obtained. The auditors estimated that
about $28 million in fiscal year 1976 costs would not be
recovered unless such action is taken.
     We recommended that DOD make the study and recover the
full costs for technical assistance and training services
provided to Iran. 2/ The Department has told us that it is
acting to assure that all costs incurred in support of the
.Government of Iran will be recovered.
Mortgage insurance premiums

     The Department of Housing and Urban Development insures
lenders against losses on home mortgages guaranteed under a
number of Federal programs. The homeowners pay insurance
premiums monthly to the lenders. The lenders are required
to send the premiums to the Department when billed for them.
The Department is supposed to bill the lenders annually and
follow up to see that the bills are paid.

     We observed that the Department's records of insured
mortgages were not complete and accurate (which resulted in

1/FGMSD-76-21, Dec. 1, 1975.

2/FGMSD-76-64, July 13, 1976.

incomplete and inaccurate billings) and the Department did
not effectively follow up delinquent payments. The accounts
showed that on February 1, 1976, about 6,400 lenders were
delinquent in paying about 285,000 mortgage insurance pre-
miums totaling over $20 million. About $9 million had been
delinquent for 6 months or longer. After learning of our
intention to audit the lender's records, a lender who had
not made payments for 10 months remitted over $1.6 million
to the Department.

     In our report to the Secretary of Housing and Urban
Development, we recommended that the Department improve its
system of accounting for billing and collecting mortgage
insurance premiums and take prompt and aggressive action to
collect delinquent accounts. We also recommended that the
Secretary consider whether interest should be charged on de-
linquent payments. 1/
     The Department told us it is taking action to collect
delinquent premiums and that a new, automated system, sched-
uled for implementation in June 1978, will correct the other

     On August 20, 1976, the Chairman of the Subcommittee
on Manpower and Housing of the House Committee on Govern-
ment Operations requested the Department to explain in de-
tail what it has done in response to the shortcomings dis-
closed in our report.
Taxes on   Scquired residential _properties
     On November 26, 1975, we reported to the Congress that
the Department of Housing and Urban Development lacked ade-
quate controls in its tax payment system for single residen-
tial properties acquired by the Department to insure accurate
and prompt payment of taxes. Also, the tax data records con-
tained numerous errors. As a result, the Department

     -- paid taxes on properties it did not own,
     -- failed to pay taxes it owed,
     -- made late tax payments and thereby incurred unneces-
        sary penalty and interest costs,
     --duplicated payments on some properties, and

1/FGMSD-76-54, May 5, 1976.

      -- did not receive credit from local tax authorities
         for delinquent taxes paid to property buyers at
         the time of sale.
     We furnished the Department with details on our findings
and suggested ways to improve the system. We recommended it
consider using automatic data processing, establish an ac-
curate accounting of tax liabilities, and have local offices
verify the status of acquired property and related tax data.

     We presented the results of our review in testimony on
September 25, 1975, before the Subcommittee on Manpower and
Housing, House Committee on Government OpeLations. The De-
partment generally concurred with our findings and agreed
to take corrective action in line with our suggestions. 1/
Sealift tariffs

     The accounting and billing system of the Military Sea-
lift Command was not structured to identify the costs of
specific shipments to various parts of the world. As a re-
sult, the tariff structure did not contain rates which were
commensurate with the cost of the services provided. Custom-
ers were not aware of the costs incurred in satisfying their
requirements. Nor were Military Sealift Command management
and the Defense Department provided with adequate cost infor-
mation regarding sealift route services.

      Our legal analysis of statutes governing the operations
of the Military Sealift Command indicated that tariffs are
required which more accurately reflect true cost. Private
carriers doing business with the Mi.itarv Sealift Command
are required to make available actual cost data by route.
The Military Sealift Command, however, had not made - study
to determine the feasibility of accumulating costs by traf'fic

     Accordingly, in our report to the Secretary of Defense
we recommended that a task force be established. It should
identify and evaluate alternative methods for developing
rates reasonably commensurate with the cost of providing
sealift services on a traffic route basis.

     The Defense Department agreed that tariff rates for
ocean transportation should be generally commensurate with.

1/FGMSD-76-24, Nov. 26, 1975,

the cost of providng the services but did not agree that a
task force was needed.  Consequently, no action has been taken
on our recommendation. 1/
Dep    i      ceipts

     We surveyed six Federal agency field offices in Chicago
to see whether collections were being deposited promptly to
help minimize Treasury borrowings and associated interest
costs to the Government. The agencies included the Depart-
ments of the Army, Labor, and State; the Social Security Ad-
ministration; the Veterans Administration; and the U.S. Dis-
trict Court.

     We reported to the agencies that our survey showed that
some offices were not making timely deposits because:

      -- No formal instructions existed requiring that deposits
         be made promptly.

      ---Cash was being held unnecessarily until the collection
         transactions were processed and recorded.

      --Cas., was transferred to other field offices for deposit
         in banks rather than using local banks.

The agencies took or planned to take actions to improve their
cash management practices. 2/

     We reported to the Department of Agriculture that the
Food and Nutrition Service did not verify that cash collected
for the food stamp program was promptly and fully deposited
by the issuing agents for the account of the United States.
Also. the Service did not reconcile its cash accounts with
the Treasury's accounts. During fiscal year 1975 collections
from the sale of food stamps amounted to about $3 billion.
We will evaluate the corrective actions the Department takes
on these matters. 3/

     We found the processing of cash receipts needed improve-
ment at the Civil Aeronautics Board, Federal Power Commission,
Immigration and Naturalization Service, and Railroad Retire-
ment Board.

1/FGMSr'-75-51, July 29, 1975.

2/FGMSD. Apr. 7, 1976.

3/FGMSD-76-36, Apr. 7, 1976.


     The Department of Agriculture has centralized and auto-
mated the processing of employees' travel advances and travel
vouchers in its National Finance Center in New Orleans.
Our review of its controls showed:

      --Procedures to identify and recover excessive out-
        standing travel advances, including those made to
        former employees, needed improvement.
     -- About $4.4 million in excessive or unwarranted travel
        advances needed to be collected.
     -- Computer system documentation needed to be improved
        and physically controlled.
     -- Duplicate copies of computer system documentation and
        data files needed to be stored at a remote location
        to permit operations to continue if the computer site
        were to be damaged or destroyed.
     -- A computer edit check was needed to prevent duplicate
     -- Clarification of responsibility for preauditing travel
        vouchers to eliminate duplication of effort was needed.
The Department began correcting the problems. 1/

     We found that many agencies had problems with property
accounting. The problems of two agencies are described be-
low. Somewhat similar, if less severe, problems were also
noted in reviews of the accounting systems of the Bureau of
Indian Affairs, Civil Aeronautics Board, Federal Power Com-
mission, Immigration and Naturalization Service, Railroad
Retirement Board, and the White House Office.
Contractor-held property, Employment and
Tr-ii -    Adminstration, Department of Labor
     Our review, made at the request of the Department's Con-
troller, showed that the Employment and Training Administra-
tion (1) had no systematic way of following up to insure that
property acquired by contractors nad been accurately reported
for inclusion in property accounting records, (2) was not

1/FGMSD-76-38, Jan. 19, 1976.

using predetermined control totals to assure that all data
was controlled when entered into the computerized system and
processed, (3) had inadequate controls to insure that all
transactions rejected because of errors were corrected and
processed, and (4 had not fully implemented physical inven-
tory verification of property.

     During our review we discussed with Employment and
Training officials the need for improvement in the pro-
perty control system and our suggested corrective actions.
We believe the corrective actions taken or planned by the
officials on our suggestions will improve the accountability
for the Government's investments in property in the custody
of contractors and grantees. 1/

National Aeronautics and Space Administration

     At June 30, 1974, the National Aeronautics and Space
Adminstration had equipment and material valued at about
$4.3 billion.

     On January 16, 1976, in a report to the Congress, we
described how major deficiencies in the operation of the
property accounting system of the National Aeronautics and
Space Adminstration had weakened its control over equipment.
In some cases, it had even resulted in the purchase of equip-
ment identical to idle items already on hand.

     Our review demonstrated that:

    -- Millions of dollars worth of property was not
       recorded in accounting records.

    -- Improve0 accounting for unused capital equipment
       could result in substantial savings.

    -- Property losses could be reduced through improved
       control and followup procedures.

    -- Physical inventory procedures needed strengthening.

    We made a series of recommendations to the Administrator,
National Aeronautics and Space Adminstration, to improve the
property accounting and control system.  In addition, we
recommended that the Adminstrator direct his internal audit
staff and inspection teams to review actions taken to correct

1/FGMSD-76-39, Mar. 3, 1976.

the deficiencies. We also suggested he direct responsible
officials to give the property management functions con-
tinuous attention warranted by the sizable investment.

    The National Aeronautics and Space Adminstration said
it will emphasize to line managers the importance of pro-
perty management, correct all known deficiencies, review
property management at each center every 2 years, and have
its internal auditors systematically follow up to see wheth-
er corrective actions have been taken.

    This is the fifth report we have made since 1968 on de-
ficiencies in its property accounting. Its internal audit
activities have also repeatedly shown weaknesses in property
accounting. 1/
    Many of the deficiencies cited in the report could have
been prevented if the National Aeronautics and Space Adminis-
tration had responded effectively to findings and recommenda-
tions in our prior reports. 2/


    Violations of the Anti-Deficiency Act and other problems
are likely to occur when obligations of appropriations are
not properly controlled and accounted for. Some examples
Department of the Army

    The Chairman of the House Committee on Appropriations
asked us to review an alleged violation of the Anti-Deficiency
Act (31 U.S.C. 665) by the U.S Army Electronics Command. We
reported that an audit performed by the Army showed a de-
ficiency of about $40 million existed in a fiscal year 1972
procurement appropriation. We also reported that the precise
reasons for the overobligation may never be determined be-
cause ledgers and journal vouchers had apparently been lost
during a reorganization and move and also the Army may find
more overobligations. 3/

1/FGMSD-75-27, Jan 16, 1976.
2/B-164674, Aug. 28, 1968; B-158390, Nov. 8, 1968, and
  July 31, 1970; and B-169658, Aug. 11, 1970.

3/FGMSD-76-2, Sept. 8, 1975.

      In October 1975, the Army notified the
                                              Chairman that
 there had beei a serious breakdown in controls
                                                  over procure-
 ment appropriations and that more overobligations
 occurred. In April 1976, the Army reported          may have
 identified $205 million of overohligations    that it had
 ment appropriations and was investigating    in three procure-
 parent violations of the law.               nine other ap-

     In accordance with a second request
 we are reviewing the procedures the Army from the Chairman,
                                           used to determine
 the amounts and causes of the overobligations
 improvements have been made in accounting      and whether
                                            systems to help
 prevent future violations.
 Department of the Navy

     Each year the Navy was systematically
out proper justification, millions of       deobligating, with-
and accounts receivable pertaining to  dollars  of obligations
                                       expired appropriations.
From June 30, 1973, to June 30, 1975,
writeoffs amounted to $90 million. As such deobligations and
                                        a result, the Navy
did not have adequate accounting control
and receivables. Further, its financial over obligations
                                           reports did not ac-
curately show (1) obligations and liabilities
(2) accounts receivable, and (3) withdrawals    it had incurred,
tions to expired appropriations.               from and restora-

     In our report to the Secretary of Defense,
that the Navy (1) change accounting procedures we recommended
that obligations and receivables be accounted    to require
successor accounts, (2) reestablish in          for  in
                                        successor accounts
those obligations and accounts receivable
gated or written off and against which     which were deobli-
                                        future expenditures
or collections were anticipated, and (3)
                                          have its accounting
staff or internal auditors periodically
of obligations and the balances of accounts      the validity
                                             receivable. 1/
    The Department of Defense informed us that
                                                 the Navy will
implement our recommendations.
Equal Emlloment O   ortunity Commission
    At the request of the Chairman,
Justice, Commerce, the Judiciary and Subcommittee on State,
                                      Related Agencies, Senate
Committee on Appropriations, we reviewed
                                          violations of the

1/FGMSD-76-45, July 2, 1976.

Anti-Deficiency Act and other financial management matters
at the Equal Employment Opportunity Commission.
    We reported to the Chairman of the Subcommitee that we
had identified $128,961 in overobligations of the fiscal
year 1974 appropriation and the Cvmmission had identified
$55,000 in overobligations.  These amounts were in addition
to the $800,000 in overobligations of the fiscal year 1974
appropriation which the Commission had previously reported
to the Congress and the President. Also, the Commission
did not validate its 1974 obligations, even though this is
required under section 1311 of the Supplemental Appropria-
tion Act of 1955.  Its fiscal records were chaotic, con-
tracting procedures and practices needed improvement, and a
move to a new office was costly and poorly administered.
    We informed the Chairman that as a result of strong
corrective measures taken during our review, the Com-
mission had progressed in establishing controls over its
obligations. The Commission had taken action to insure
that funds were available before obligations were incurred
and to improve the accuracy and timeliness of its financial
    We made several recommendations to the Chairman of the
Commission to improve its control over financial operations
and reporting and to strengthen and improve its contracting
procedures and practices.
    The Commission agreed with our recommendations and has
taken or plans to take actions to correct the deficiencies
identified in our reports. The Commission is redesigning
its accounting system and plans to submit the redesign to
the Comptroller General for approval. 1/

    Out reviews of automated payroll systems showed that
controls in automated systems should be strengthened and
that the use of composite checks should be increased.

Department of the Army
    In fiscal year 1975 the auton.ated payroll system of the
U.S. Army Military District of Washington processed pay and
allowances of about $383 million for 24,00 employees. We

1/FGMSD-76-12, Apr. 5, 1976.

reported to the Congress that because of weaknesses in the
District's computerized payroll system, it could not be re-
lied upon to produce accurate payrolls or to protect the
Government from improper payments.

    The District's payroll system did not contain essen-
tial internal controls necessary to reduce the possibility
of unauthorized payments, fraud, and errors. We therefore
recommended that the duties of pay clerks and other em-
ployees should be separated, computer programs should pro-
vide necessary checks and edits of data, and effective
physical control over equipment, files, and negotiable in-
struments should exist. The Army had taken or planned to
take actions on our recommendations where feasible to assure
that the District's civilian payroll system included adequate
controls. The Army pointed out, however, that it was devel-
oping a standard Army civilian payroll system and that it
would contain all the controls discussed in our report. 1/

Department of Commerce
    The accounting system design was approved in February
    On November 10, 1975, we reported to the Secretary of
Commerce on the results of our review of the Department's
computerized payroll system. Our review showed there were
many opportunities to improve payroll operations by

    -- improving controls over source documents,

    -- providing for more effective edit checks,
    --improving reports and records,
    -- reconciling personnel and payroll files to source
       documents, and
    -- improving security over computer resources.

    We also reported opportunities for improving internal
audits of the payroll operations. The Office of Audit had
made only limited reviews of the automated parts of the pay-
roll system and had not participated in designing and devel-
oping the system.

1/FGMSD-75-26, Oct. 9, 1975.

    We recommended to the Secretary of Commerce ways of
improving the operations of the payroll system, including
more effective use of internal auditors in the design and
development of automated systems and reviews of the systems
after they become operational.

    The Department generally agreed with our recommendations
and has taken or plans to take actions to insure that the
payroll system includes adequate internal controls. 1/
Department of Health, Education, and Welfare

    On August 24, 1976, we issued the first of a series of
reports to the Secretary of Health, Education, and Welfare
on our review of the Department's centralized payroll system.
We advised the Secretary that we would be reporting as soon
as each segment of the review was completed so that timely
corrective action could be taken.

    The report covered that part of the payroll system
related to the Department's procedures for processing  un-
deliverable payroll checks returned to the Department of the
Treasury for canceling, remailing, or reissuing. The report
also included comments on erroneous pay records and wage and
tax statements (W-2s) of selected employees whose checks the
Treasury had canceled. We pointed out that the Department
needs to (1) improve its procedures and practices to mini-
mize the possibility of errors and irregularities involving
underliverable payroll checks and (2) record canceled check
adjustments more promptly and in the proper year's pay record.

    We made several recommendations to the Secretary of
Health, Education, and Welfare for correcting the defi-
ciencies noted in the report. 2/

Other systems
    Somewhat similar weaknesses were noted in the payroll
systems of the Bureau of Indian Affairs and the Civil
Aeronautics Board.

__------   ----
1/FGMSD-76-3, Nov. 10, 1975.
2/FGMSD-76-68, Aug. 24, 1976.

Direct deposit of eay

    In 1974, the pay of 864,000 Federal employees (about
19 percent of the Federal work force) was sent directly
to banks. By use of composite checks for such deposits,
the Treasury estimated the Government saved about $2.3
million in check-writing costs. There is potential for
even greater savings if Federal agencies encourage more
employees to have their pay directly deposited in banks.

    Efforts by agencies to promote employee participation
have varied considerably. The Air Force had 45 percent
participation and about $1.2 million of the $2.3 million
Government-wide savings. Several other agencies either
had not implemented direct deposit or composite check
procedures or had £mplemented them only to a limited
extent. If the AiL Force's 45 percent participation rate
was achieved Government-wide, an additional $3 million
could be saved.
    In view of such potential savings, we concluded that
Federal agencies should more positively promote the direct
deposit of paychecks and the use of composite checks. tie
Treasury should also assist agencies in promoting tne program.
    The report was sent to the heads of all Federal depart-
ments and major agencies who were asked to make sure the
program received appropriate management emphasis and that
responsibility for the program be assigned at a high level.
The Treasury generally agreed with the recommendations. 1/

1/FGMSD-76-11, Nov. 11, 1975.

                                                                             APPENDIX          I

                       STATUS OP APPROVALSAND

                                               Defense    Civil        (note a)      Total
      Approved during fiscal year
      APproved as of June 30,                         0            2                       2
                              1975, adjusted
                                                 165       165                   1    331
         Approvals as of Sept. 30, 1976
                                                 165       167                1       333
     Submitted formally for approval
                                     as of
       Sept. 30, 1976

         Approved or submitted on Sept.
                                                 165       167               1        333
     Submitted informally for evaluation
     Not under evaluation                         -             5                          5

            Total systems subject to ap-
              proval at Slpt. 30, 1976
                                                 165      172                1       338
     Approved during fiscal year
     Approved as of June 30, 1975,               23            8                      31
                                                 35       111                        146
        Approvals as of Sept. 30, 1976
                                                 58       119            -           177
    Submitted formally for approval
                                    as of
      Sept. 30, 1976
                                                  -        -

        Approved or submitted on Sept.
                                                 58       119            -           177
    Submitted informally for evaluation
    Not under evaluation                         21       18             1            40
                                                 86       35             -           121
           Total systems subject to ap-
             proval at Sept. 30, 1976
                                               165      172             1            338
I/Actual number of accounting
                              systems not yet determined.

APPENDIX II                                                                                                                                                                                                  APPENDIX II

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APPENDIX III                                                     APPENDIX     III

                               OFFICE OF THE SECRETARY

                                  WASHING-TON. DC. 2aaOI

                                    MAY 4 1977

       Mr. Donald L. Scantlebury
       Director, Financial and General
          Management and Studies Division
       United States General Accounting Office
       Room 60001
       441 G Street, N.W.
       Washington, D.C. 20548

       Dear Mr. Scantlebury:
       Thank you for the opportunity to comment on the proposed
                                                                draft report
       which you are pla'ning to send to Congress on the status of
       systems approval.
       My main concern is that the tone of your report indicates
                                                                  HEW has little
        interest in obtaining approval of systems whereas a year
       an important priority on our agenda. Conversely the report we made it
                                                                     does not rec-
       ognize that GAO has been unable to assign sufficient resources
                                                                        to review
       systems documentation developed by HEW and provided to GAO.
       you have only two persons assigned to the HEW project. At
                                                                   times in the
       past the assigned staff were reassigned to higher priorities,
                                                                       some of
       which lasted several months, or given additional assignments
       overall oroduction schedule slipped.                           while the

      SSA is a recent case that illustrates slippage. Over
                                                            a year ago we
      agreed to develop a three party (OS, SSA, GAO) memorandum
                                                                of understand-
      ing. This was signed in June 1976. The memorandum calls
                                                                for a review
      of SSA systems by joint effort of all parties. SSA has hiad
                                                                   its people
      ready since last June; but your staff has advised us several
      GAO has been unable to find staff for the review.             times that

       It is true that HEW has mazy systems which a.re subject to
                                                                   approval by
      the Comptroller General and, to date, they have not been
                                                                  formally sub-
      mitted for review and approval. However, your proposed report
       (which is all that most people read) showing that only 5 of      summary
                                                                     19 systems
      have been approved is misleading since it gives no recognition
      fact that your office has two systems under current review,       to the
                                                                     one awaiting
      review, and still another to be submitted tr you shortly.
      not recognize that the remaining systems are in various stages also does
      opment, some of which will be submitted for review within         of devel-
                                                                   the current
      year. The reader is left with the erroneous impression that
      tems little or no progress has been made to date. We believe for 14 sys-
                                                                       that our

APPENDIX III                                                       APPENDIX III

    desire and commitment to have HEW systems approved should be recognized.
    I am pleased to learn that your representatives agreed at a meeting with
    Dave Dukes on April 27 that the review of systems should "freeze" the
    documentation as of a specific point of time rather than insist, as has
    been past practice, that all changes be reflected through the current
    date. This change should recuce significantly your overall review time
    and improve productivity. I am also pleased to learn that your staff
    will explore alternative methods of reviewing HEW's systems as part of
    your upcoming review of the National Institute of Education system. In
    this respect we are considering elimination of the cumbersome and time-
    consuming informal review phase.
    HEW staff made attempts this past year to   have your office participate
    in a tracking system whereby progress can   be monitored and evaluated.
    It is my understanding that agreement was   reached at the April 27 meet-
    ing to establish such a tracking system.    This will help to identify
    issues which need higher level attention.
    I hope that these comments will be incorporated in your summary and de-
    tailed report to the Congress. Furthermore, we believe it is important
    that GAO make a firm conuitment to the Department that adequate resources
    will be r;signed to maintain the review schedule.
                                           Sincerely yours,

                                              D. YoUng
                                         Asi stant Secretary for
                                         LAanagement and Budget

APPENDIX IV                                                             APPENDIX IV

                       United States Department of the Interior
                                   OFFICE OF THE SECRETARY
                                    WASHINGTON, D.C.   20240
                                            APR 2 .9 77
          Mr. Donald L. Scantlebury
          Director, Financial and General
            Management Studies Division
          General Accounting Office
          441 G Street, NW
          Washington, D.C. 20548

           Dear Mr. Scantlebury:

           Thank you for forwarding an advance draft of relevant portions of the
           General Accounting Office's annual report 'o the Congress on the
           "Status, Progress ard Problems in Federal Agency Accounting." We
           basically agree with your findings relative to the Department of Interior.

           As you know, Congress has imposed strict budgetary constraints on the
           Department and its bureaus thereby limiting our ability to assign staff
           to system documentation and approval areas. This situation is particularly
           serious in the Office of the Secretary since it has further influenced
           our ability to provide direction and assistance to the bureaus. Further-
           more, much of the bureaus' efforts must, of necessity, be spent on their
           own operation and maintenance ploblems. This has diverted their staff
           from working toward GAO approval of their systems.

           However, the situation is brighter than it appears in the draft report.
           We ere pleased to report that the Denver Inter-Bureau Payroll System
           design was submitted by the Bureau of Mines in April 1976 to GAO for
           review and approval. GAO completed its review in January 1977 and is with-
           holding approval of the system in its entirety solely because of the
           timekeeping practices followed by one of the system's participants. As
           soon as this problem is resolved, this system should be approved. In addition,
           extensive work took place durinlg fiscal year 1976 on the documentation of
           the Office of the Secretary's system. As you know, this system was submitted
           in December 1976 to GAO for review and approval. We appreciate the promise
           made by members of your staff to provide consolidated comments on the
           documentation as soon as possible. It is anticipated that this system
           will also be approved this fiscal year.

           Be ae;ured that the Department is now making every effort to accelerate
           its efforts and commitments toward the submission of all of its accounting
           systems to GAO by the end of fiscal year 1978.

                                                  Sincerely yours,

                BylT                           bD Richard R. Hite
 fo d I   a dnDeputy                                     Assistant Secretary-
                  >m   w   ^4Policy,                      Budget and Administration

    1'?,· .19                                82

                                                               APPENDIX V

                        DEPARTMENT OF STATE
                            IWatt0to·   D.C
                                          C   22n

                                              April 12, 1977
    Mr. D. L. Scantlebury, Director
    Division of Financial and
         General Management Studies
    United States General Accounting Office
    Washington, D.C.            20548
    Dear Mr. Scantlebury:

   I certainly appreciate the opportunity
                                          to conment upon
   your draft report to the Congress.
    I can concur that the Department has,
                                           for a number of years,
   missed its deadlines. however, I would
   you to modify your report to reflect       like to encourage
   closely represents our present status. what   we feel more
                                               vhen I read the
   Comptroller's letter there is no indication
   we informally subaiitted to GAO our payroll     that uuring 1976
   one of our major systems.                      system which is
                               itr, is there
   eithr in the letter or the att~aclnexnLs any indication
   formally submitted the majority of its that State has in-
                                            overall accounting
   system. I recognize that the GAO has
   our submissions and a sizeable task     some   problems with
                                        remains to be accom-

   I believe the Department has ma~L more
                                          progress than the
   letter or report
   would appreciate would lead the reader to believe, and
                    your cooperation in modifying your stance.

   It is true our Systems Staff is small,
   tions in personnel the Department has but with th'. redLt-
                                           been requirjd to absorb
   over the past few years, and with the
                                           additional reductions
   v'eizig projected over the next two years,
                                              we cannot forecast
   "n increase in the Systems Staff at this
  We will continue to make every effort
                                         to achieve a financial
  management system which will satisfy
                                        the needs of the Depart-
  ment's management and will at the same
                                          time satisfy the legal
  and regulatory requirements. We will
                                         be pleased to discuss
  these matters further should you so desi:e.

                                   Sincerely, ,

                                   Di, r   . Williamson, Jr.
                                   Deputy Assistant Secretary
                                       for Budget End Finance