oversight

Need To Apply Adequate Controls in the Army Standard Payroll System Prior to Implementation Defense-Wide

Published by the Government Accountability Office on 1977-07-05.

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

                          DOC UMENT RESUME

02797 - [A1892946]

Need to Apply Adequate Controls in the Army Standard Payroll
System Prior to Implementation Defense-Wide. FGMSD-77-4;
B-146856. Jujy 5, 1977. 17 pp.   appendices (11 pp.).

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

Issue Area: Accounting and Financial Reporting (2800); Automatic
    Data Processing O100).
Contact: Financial and General Management Studies Div.
Budget Function: Miscellaneous: Financial Management and     ot
    Information Systems (1002); National Defense: Department
    Defense - Military (except procurement & contracts) (051}.
Organizatia  Concerned: Department of Defense; Department of s:he
    Army.
Congressional .Relevance: House Committee on Armed Services;
    Senate Committee on Armed Services; Congress.
Authority: Army Regulation 37-105.
          The Army's standard civilian payroll system, the model
for a s-steQ which may replace Department of Defense payroll
systems now paying about $15 bi' lion annually to one million to
civilians, does not contain adeqnate procedures and controls
prevent erroneous o. fraudulent payments. Findings/Conclusions:
The standard system now being implemented by the Army continues
to have many of the same problems reported in earlier GAO
reports, including: lack of an adequate separation of duties;
incomplete and outdated documentation snowing how the system
works; lack of sufficient edit checks to detect missing or
invalid data; and heavy reliance on manual procedures and
controls to assure accurate processing of data through the
system. The Army has taken or plans to take actions to eliminate
                                                               of a
most of the weaknesses and is reevaluating the feasibility
                                                             The
single Defense civilian payroll system. Recommendations:Army to:
Secretary of Defense should direct the Secretary of the
revise Army Regulation 37-105 and the standard system Users
                                                                the
Manval to provide for adequate separation of duties; revise
standard system to provide that a list of all permanent    pay
changes he forwarded directly to the personnel office each pay
period and that prepunched timecards be routed directly    to
                                                 into  the  Army's
timekeepers; incorporate additional edit checks
standard system in order to detect unusual situations;   and
 revise the standard system to better use computer capabilities
                                                                  be
to control payroll processing. All needed improvements should
 made to the Army's standard system before it is used
 Defense-wide. (Author/SC)
              REPORT TO THE CONGRESS

          o   BY TE COMPTROLLER GENERAL
 ';"',,
4OF              THE UNITED STATES




              Need To Apply Adequate Controls
              In The Army Standard Payroll
              System Prior To Implementation
              Defense-Wide
              Department of Defense

              The Army's standard civilian payroll system,
              the model for a system which may replace
              Department of Defense payroll systems now
              paying about $15 billion annually to 1 million
              civilians, does not contain adequate proce-
              dures and controls tr prevent erroneous or
              fraudulent payments. Many weaknesses are
              the same as GAO previously reported to the
              Congress.
              The Army hs taken or plans to take actions
              to eliminate most of the weaknesses and is
              also reevaluating the feasibility of a single
              Defense civilian payroll system. GAO is rec-
              ommending that the Army's system be im-
              proved before it s used Defense-wide.




              FGMSD-774                                        JULY 5, 1977
                COMPTROLLER GENERAL OF THE UNITED STATES
                           WASHINGTON, D.C.   248




B-146856




To the President of the Senate and the
Speaker of the House of Representatives

     This report describes improvements needed in the Army's
standard payroll system, which may be used as the standard
payroll system for all Department of Def nse activities.

     We believe that one system, if feasible, should pro-
mote efficiency and accuracy in payroll processing.

     We made our review pursuant to the Budget and Account-
ing Act, 1921 (31 U.S.C. 53), and the Accounting and Au-
diting Act of 1950 (31 U.S.C. 67).

     We are sending copies of this report to t    Director,
Office of Management and Budget; the Secretary of Defense;
the Secretaries of the Army, Navy, and Air Forage; and the
Director, Defense Logistics Agency.




                                   Comptroller General
                                   of the United States
COMPTROLLER GENERAL'S                 NEED TO APPLY ADEQUATE CONTROLS
REPORT TO THE CONCRES3                IN THE ARMY STANDARD PAYROLL SYSTEM
                                      PRIOR TO IMPLEMENTATION DEFENSE-WIDE
                                      Department of Defense

             DIGEST

             The Department of Defense kas selected the
             Army's standard civiliar payroll system as
             the model for    system which may be used
             for all Defense components.   Defense pays
             1 million civilians about $15 billion an-
             nually.   Improvements are needed in the
             Army's system before it is implemented
             Defense-wide.

             The types of weaknesses in the Army's sys-
             tem have been pointed out in previous GAO
             reports to the Congress on civilian pay
             opera-ions in the Army and throughout De--
             fense.  Although GAO was told that cle re-
             ported problems would be corrected, action
             had not been taken on all recommerJations.

            The standard system, now being implemenCed
            by the Army, had the following major defi-
            ciencies:

            -- The system did not adequately separate
               duties, a basic principle of internal con-
               trol in any payroll system.  All payroll
               processing functions for a group of em-
               ployees, including control over both per-
               manent and temporary changes, were handled
               by one payroll clerk.  Such systems are
               more susceptible to errors  nd unauthorized
               or fraudulent payments than those in which
               these duties are divided among several em-
               ployees.  (See pp. 5 to 7.)

            -- Documentation, i.e., the flow charts and
               other data that show how the system works,
               was incomplete and outdated.  Complete
               documentation is needed for operating,
               management, and review personnel to fully
               understand and evaluate the system and its
               internal controls, to maintain continuity
               of operations, and to obtain Comptroller
               General approval of the system, as required
               by law.  (See pp. 9 to 11.)
                                                        FGMSD-77-4
Tear heet. Upon removal, the report
Cover date should be noted hereon
 --The system did not include enough edit
   checks to detect missing or invalid data.
   Also, edit checks could be readily by-
   passed. Well-designed edit checks writ-
   ten into commuter programs greatly reduce
   the possibility of erroneous or incomplete
   data being entered into the system.  (See
   pp. 7 to 8.)

-- The system relied heavily on manual proce-
   dures and controls to assure accurate
   processing of data through the system.
   Better use of automated controls such as
   batch totals, predetermined control totals,
   and an automated suspense file for rejected
   data would improve system efficiency and
   internal control.  (See ch. 4.)
GAO is making recommendations for improvements
to the Aay's standard system.   (See pp. 7, 9,
14, and 16.) The Army generally agreed w:th
GAO's recommendation  and said that corrective
actions would be  nitiated.

The military services have made progress in
standardizing their systems which has re-
sulted in reducing the number of payroll
systems in operation.  For example, in the
last 2 years, the Army reduced the number of
pay systems from 54 to 12 and the Navy re-
duced systems from 57 to 10.  The Air Force
uses one system to pay all its civilians.

Whether the military srvices will eventually
be required to convert to one Defense-wide
standard system depends largely on the results
of a study the Army is now performing.  The
Army will reassess the cost effectiveness and
feasibility of the original concept of one
standard payroll system.

Since inception of the project, Defense has
vacillated in its support for implementation
of one standard system.  To help assure
orderly progress of standardizing civilian
payroll systems, Defense must make a firm
decision as to the degree of standardization
that should eventually be accomplished.   To
facilitate this decision, the Army's study


                       ii
should be thorough and objective.  GAO        lans
to evaluate the study when completed.

GAO believes that one system, if feasible,
should promote efficiency and accuracy in
payroll processing.

GAO is recommending that all needed improve-
ments be made to the Army's standard system
before it is used Defense-wide.

Defense officials indicated that the Army
would be required   to make all   important
changes to improve system controls before
implementation Defense-wide.




                      ii
                      C o n t e n t s
                                                     Pag
DIGEST

CHAPTER

     1     INTRODUCTION                                   1
     2    PROGRESS TOWARD STANDARDIZATION
                                                          2
              Conclusion                                  4
     3    FAILURE TO CORRECT PREVIOUSLY REPORTED
            PAYROLL SYSTEM DEFICIENCIES
              Inadequate separation of duties              5
                                                          5
                  Conclusic-                              6
                  Recommendation                          7
                  Agency comments
                                                          7
              Insufficient edit checks
                                                          7
                  Conclusion                              8
                  Recommendation                          9
                  Agency comments
                                                          9
              Need for improved system documenta-
                tion                                  9
                  Conclusions                        11
                  Agency comments and our evalua-
                     tion                            11
                  Recommendation                     11
  4       MORE EFFECTIVE USE OF COMPUTER CAPABILI-
            TIES NEEDED                              12
              Control over rejected data needs im-
                provement                            12
              Better control over source data and
                documents needed                     12
              Other manual procedures should be
                automated                            13
              Inefficient printing of master em-
                ployee records
                                                     13
              Conclusion                             14
              Recommendation                         14
              Agency comments
                                                     14
 5        ADDITIONAL SYSTEM CHANGES  EEDED           15
              Requests for system changes from
                user activities                      15
              Requirements identified by Defense
                working group                        16
             Conclusion
                                                     16
             Recommendation                          16
             Agency comments
                                                     17
APPENDIX                                                Page
    I      Letter dated April 21, 1977, from Assist-
             ant Secretary of Defense (Comptroller)      18
   II      Principal officials responsible for admin-
             istering activities dcussed in this
             report                                      28
                         CHAPTER 1

                        INTRODUCTION

      Ir September 1974 the Assistant Secretary of Defense
(Compttoller advised the military departments and Department
of Defense agencies that, based on results of a task group
study, Defense civilian payroll systems would be standard-
ized.   Subseauertly, the Assistant Secretary directed that
the Army's system would be used as the basis for he stand-
ard Defense system. Currently, there are about 1 million
Defense civilian enployees being paid approximately $15 bil-
licn annually.

     We reviewed the Army's syste:m to determine if control
weaknesses disclosed in ou: earlier payroll system reviews
were corrected in the development of the new system and if
the system would be adequate for Defense-wide use. We evalu-
ated he adequacy f internal controls over preparation of
payroll and leave dta, conversion of data into computer in-
put form, and automated procssing f data including detec-
Lion aiid correction of missing or erroreous data.
     The law requires such systems to be submitted to the
Comptroller General for approval. The Army as not yet
submitted its payroll system.  It plans to submit design
documentation by August 1977.

     We performed our work at the Office of the Comptroller
of the Army; U.S. Army Computer Systems Command; Fort Sam
Housten, Texas; Fort Belvoir, Virginia; Fort Benjamin
Harrison, Indiana; and Fort McPherson, Georgia.
                          CHAPTER 2

               PROGRESS TOWARD STANDARDIZATION

      In August 1974 a Department of Defense task group study
concluded that one standard Defense civilian payroll system
would
     -- save money,

     -- allow uniform interpretation and application of regu-
        lations and requirements at one level for all Defense
        civilians,

     -- provide a better opportunity for regionalization of
        pay activities, and
     -- require obtaining Comptroller General approval of only
        one pay system rather than many.

     Such a system would also facilitate internal review, as
auditors would need to know only one payroll system.
     After announcing the decision to develop a standard ci-
vilian payroll system for Defense in his September 1974
memorandum, the Assistant Secretary of Defense (Comptroller)
asked Defense components for suggestions on how Zo best
achieve the standardization. Based on comments    from the
components, the Assistant Secretary  directed  in a February
1975 memorandum that standardization  be  accomplished  in a
two-step process.  During the  first step  the military  com-
ponents were to develop and  install standard  payroll  systems
internally. This was to be followed by standardization
Defense-wide, with the Army's standard system as the model.
     Under the first of the two-step process, the military
services made substantial progress in reducing the number
of payroll systems.
     When the decision to develop a standard Defense system
was made, the military services were operating more than
10u different payroll systems to pay its 1 million civilian
employees.
      In February 1975 the Army had 54 separate civilian pay-
 roll systems. Since then, the Army's system has replaced
 43 systems and as of April 30, 1977, about 68 percent of the
 civilians within the Army were being paid about $3 billion
 annually by the standard system.

                                2
      Navy officials said that the Navy ,us operating 57
                                                          sys-
 tems when it was told to standardize.  By April 30, 1977, the
 Navy was paying most of its more than 300,000 civilians
                                                          ap-
 proxima'ely $4.7 billion annually using 10 automated
                                                       systems.
 Officials said that the Navy was working toward a goal
                                                         of
 eight separate systems by the time a standard Defense
                                                        system
 is implemented.

     The Air Force had been operating a standard civilian
                                                            pay-
roll system since 1968 which covered most of its employees.
In November 1976 the last civilian payroll operation
ver:ed to the standard system so that now the entire war con-
                                                      Air Force
civilian strength of approximately 20,000, with an
                                                     annual
salary of about $4.1 billion, are being paid from one
                                                       system.
     After the As: istant Secretary announced plans to stand-
ardize pay systems, a Defense working group, consisting
                                                         of
representatives from major Defense components, ws made
                                                         re-
sponsible for identifying needed modifications to the
system.                                                Army
          In the ensuing months members of the group expressed
concern over the desirability of implementing one standard
system. One major problem was that because all of the
fense components do not have the same kind of automaticDe-
                                                         data
processing equipment, creating and maintaining payroll
                                                        com-
puter programs for the different equipment would probeLly
                                                            be
difficult and costly.   Defense officials also said that some
payroll systems are now integrated with personnel systems
and cost accounting systems.   Since the Army's standard pay-
roll system will not accommodate these features without
                                                         a
major modification, some question exists as to the value
                                                           f
implementing the standard system.

     Defense officials also said that now that the Air Force
has one standard payroll system for all of its civilian
                                                         em-
ployees and because of the time elapsed since the original
study, the Air Force ants another study made of the
bility of one standard Defense system before it incursfeasi-
                                                        the
expense and effort of converting.

     In view of the above, the Assistant Secretary, in
June 1976, announced that he was directing the Army
                                                    to con-
duct a study to determine

    -- whether the original conclusions regarding the de-
       sirability of implementing one standard Defense system
       were still valid and

    -- the feasible approaches to implementing a single
                                                        stand-
       ard system.


                              3
     The study was to be completed in December 1976. The
Army, however, has encountered delays. Defense officials
said they are pressing for completion of the study by the
end of the fiscal year.

CONCLUSION

     To some degree Defense has vacillated in its support to
implement one standard payroll system. To insure orderly
progress towards standardizing civilian payroll systems, De-
fense needs to make a firm decision on standardization after
the Army reports on the study, scheduled for completion be-
fore the end of the fiscal year. To facilitate this deci-
sion, the Army's study should be thorough and objective.

     In view of the Army's study, directed by the Assistant
Secretary of Defense (Comptroller), we are not making any
specific recommendations. We will, however, evaluate the
study and its conclusions and recommendations when completed.




                             4
                         CHAPTER   3

           FAILURE TO CORRECT PREVIOUSLY REPORTED

                PAYROLL SYSTEM DEFICIENCIES

     In two reports to the Congress (FGMSD-75-15, Mar. 24,
1975, and FGMSD-75-26, Oct. 9, 1975), we noted serious
internal control weaknesses in the military services' payroll
systems.  Defense and Army officials agreed that improve-
ments were needed and that the Army's standard system, which
would be the model for the standard Defense system, would
contain the necessary controls.

     In another report to the Congress (FGMSD-76-27, Apr. 27,
1976), we pointed out that a high potential exists for
computer-related crimes.   In 9 instances involving improper
use of computers in Federal programs, the Government incurred
losses of over $2 million because controls over the systems
were inadequate.  Computer-related crimes can be hard to de-
tect because there are fewer written records and fewer in-
dividuals involved in computer operations. Therefore, it is
important that adequate controls be included in automated
systems. We believe that improved controls in the Army's
standard system would reduce the possibilities of erroneous
or fraudulent payments. However, our review of th-   ystem
showed that the following previously reported deficiencies
still exist.

INADEQUATE SEPARATION OF DUTIES

     One basic principle of internal control is the division
of critical functions between two or more persons.  Errors
are more likely to be detected when duties are separated,
and fraud is less likely to occur when it depends on col-
lusion.

     In our report to the Congress on the Military District
of Washington pay system (FGMSD-75-26, Oct. 9, 1975), we
pointed out that Army Regulation 37-105, which governs
civilian pay operations, did not provide for adequate separ-
ation of duties.  The regulation provides that a payroll
clerk will have total responsibility for all payroll process-
ing operations pertaining to a group of employees, including
maintaining control records.  In response to our recommenda-
tion for revision of the regulation to provide for adequate
separation of duties, the Acting Assistant Secretary of the
A-my, in his July 18, 1975, letter, said that the regulation
would be revised with implementation of the new Army standard




                              5
system.  The standard system had since been implemented at
many installations, but the ::egulation had still not been re-
vised.

      Consistent with the regulation, the standard system's
Users Manual also specified that the payroll clerk will have
total responsibility for all payroll processing pertaining
to an assigned group of civilian employees.   Payroll clerks
were also responsible for controlling both permanent changes
from the personnel office (i.e., new hires, promotions, separ-
ations, and other personnel actions) and temporary changes
(i.e., cash awards, one-time pay adjustments, or leave charged
during a pay period), and correcting without supervisory re-
view, invalid or incomplete data detected by the computer.

     In addition, no feedback was provided to the personnel
office showing what permanent pay change; were processed.
As a result, the personnel office was not aware of whether
all and only authorized permanent changes to payroll records
were recorded.  Further, the Army's standard system automat-
ically provided prepunched timecards for each employee each
pay period, but the prepunched cards were routed through the
payroll section on the way to the appropriate timekeeper.
To reduce the possibility of timecards being processed for
fictitious employees, prepunched timecards should be sent di-
rectly to timekeepers, bypassing the payroll section.

     Because of these weaknesses in the Army's standard sys-
tem controls, a high potential for errors and unauthorized
or fraudulent payments exists.  For example, a pay clerk
could establish a pay record for a fictitious employee, and
because the pay clerk has control over all processing func-
tions, and no feedback to the personnel office on permanent
changes is recorded, a paycheck could be printed for the
fictitious employee without detection.  Pay clerks could also
process, with little chance of detection, other changes in-
cluding promotions, cash awards, or adjustments to leave
balances for any employee in the group.

Conclusion

     To prevent possible errors or fraud, the Army's regula-
tion governing civilian payroll operations and standard sys-
tem documentation should be revised co provide adequate con-
trol over payroll operations, including review and control
over the critical payroll processing steps.




                              6
 Recommendation

     We recommend that the Secretary of Defense direct the
Secretary of the Army to revise Army Regulation 37-105 and
the standard system Users Manual to provide for adequate
separation of duties. Further, the system should be revised
to provide that:

     ---A list of all permanent pay changes be forwarded di-
        rectly to the personnel office each pay period for
        verification that all actions were recorded.

     --An independent review of temporary changes and cor-
       rection of rejected data be made by a control clerk
       or supervisor.

     -- Prepunched timecards be routed directly to timekeepers.
Agency comments
      2he Assistant Secretary of Defense (Comptrollet  in an
April 21, 1977, letter (see app. I) generally concul.ed with
our findings, conclusions, and recommendations and provided
detailed comments from the Army. The Army said a draft re-
vision of Regulation 37-105 has been prepared and is being
reviewed by field commands. The draft provides for more de-
tailed separation of duties, including independent review of
temporary changes and correction of rejected data. The Army
also stated that a change will be incorporated into the re-
vised regulation providing for better control over prepunched
timeca ds. Further, Defense has developed a system change
request to report all permanent payroll changes co the per-
sonnel office for verification.

INSUFFICIENT EDIT CHECKS

     Computer programs should contain sufficient edit checks
to detect missing or invalid data to help assure that data
entering the payroll system is accurate and reliable. To
determine the exten. of edit tests included in programs of
the Army's standard system, we processed numerous simulated
payroll transactions through the system and found conditions
we believe should have been detected by edit checks but were
not.

     Examples of test transactions not detected by the Army's
standard system, including several which were pointed out in
our previous reports, follow.




                             7
     -- We simulated a payment to ar employee at a base rate
        inconsistent with his grade and step.  The test showed
        that the employee would have been paid tne erron-
        eous amount.

     --Using a temporary change transaction card, we simulated
       a payment to an employee of $9,999.99 for 1 biweekly
       pay period.  This amount exceeds the maximum biweekly
       salary permitted frr General Schedule employees.

     -- We simulated payments that, if processed as actual
        payments, would have violated Federal regulations which
        state that an employee cannot receive more than 80 hours
        of basic (straight time) pay or 32 hours of Sunday pay
        in a biweekly period.

     -- We simulated a promotion higher than grade 5 for a
        General Schedule employee before his year in grade had
        expired.  Civil Service regulations require that a
        General Schedule employee above grade 5 must be in a
        grade at least 1 year before promotion to the next
        higher grade.

     --We entered codes into the computer (i.e., symbols
       representing information in a brief form) which, ac-
       cording to system documentation, were invalid.  In
       several cases the system accepted the invalid codes,
       some of which resulted in a simulated erroneous pay-
       ment to the employee.

     --We simulated a payment to an employee for 380 hours
       (80 hours regular time and 300 hours overtime) in a
       pay period and no error message was printed.

     We also found that the edit checks included in the
Army's standard system could be avoided by using cards nor-
mally used to process a temporary pay change (i.e., leave
used, cash award, etc,) and that the Army's system did not
print messages for temporary changes processed.  As a re-
sult, edit checks could be bypassed with little chance of
detection.

Conclusion

     The Army's standard system did not include sufficient
edit checks to detect erroneous or incomplete data entering
the system. Many of the test transactions that we processed
through the system without detection during our recent re-
view were the same as those used i earlier reviews.    The
results of these tests were included in reports to the


                              8
Congress. We consider such checks to be an essential part
of a payroll system, particularly a standard system, and
believe prompt action should be taken to see that they are
installed.
Recommendation

     We recommend that the Secretary of Drefense have the
Secretary of the Army incorporate additional edit checks
into the Army's standard system to detect unusual situations
such as those discussed above. Also the system should be
revised to alert management when edits have been avoided.

Agency-comments
     In the enclosure to the Assistant Secretary's April 21,
L977, letter, the Army said that additional edit checks
will be incorporated into the system.
NEED-FOR IMPROVED SYSTEM-DOCUMENTATION

     The Army's standard system was not fully documented.
Problems of inadequate system documentation were also in-
cluded in our two previous reports to the Congress on pay-
roll systems in the military services.

      System documentation should describe the system objec-
tives, the flow of data through the system, the processing
steps, and their interrelationships. Adequate documentation
is required to (1) permit operating, management, and review
personnel to understand the system's design and operations,
(2) evaluate internal controls, and (3) facilitate continuity
in maintaining and operating the system, especially when per-
sonnel turnover is a problem. Complete documentation is also
needed to obtain Comptroller General approval of the system
design.

     Our review showed that four of the six volumes of
documentation for the Army's standard system were incomplete,
unclear, and out of date, as described below.

     1. Users Manual. The system's Users Manual, which
        prescribes forms and procedures for processing
        payrolls, contained the following deficiencies:
        -- Instructions -i how payroll control registers
           should be prepared were inadequate.




                              9
   -- Detailed procedures for correcting errors detected
      by the computer were not provided.

2. Operations and Scheduling Manual.  This manual, which
   provides the data processing personnel with detailed
   information necessary to schedule the system, operate
   the computer, and generate output, contained the
   following deficiencies:

   -- Instructions for data processing personnel were not
      sufficient.  For example, adequate information re-
      garding the files necessary to process data, the
      number of copies, anc specific disposition of re-
      ports were not clearly provided.

   -- Programs necessary to run the various processing
      cycles were not clearly identified.

   -- Procedures were not clearly provided on how to rees-
      tablish the status of information being processed
      without rerunning the entire cycle in case of an
      unscheduled interruption.

3. Subsystem Analysis Manual.  This manual, which
   dzscribes the system's files and data elements,
   had the following deficiencies:

   -- Changes in the files being used had not been incor-
      porated into the manual.  We identified 17 files
      which had been added to the system but were not
      described in the manual and 29 files which were no
      longer in use in the system but had not been de-
     leted   from the manual.

   --Changes to the format of some files had not been
     incorporated into the manual.

4. Program Documentation Manual.  This manual is in-
   tended to provide detailed documentation for all
   programs in the system.  Following are some of
   the deficiencies noted in this manual:

  --Changes in programs being used in the Army's
    standard system were not reflected in the manual.
    Of 68 active programs, 13 were not documented and
    6 programs in the manual were no longer in use.




                          10
        -- Prog:ram logic flow charts showing tasks performed
           by a program were insufficient.

        -- Types and purposes of edit and validation routines
           in the Army's standard system were not adequately
           described.

Conclusions

     Documentation in the Army's standard system needs to be
completed, updated, and clarified to insure that operating,
management, and review personnel have a basis for understand-
ing the system and how it operates.

Agency comments andour evaluation

     The Army said that it would update and complete system
documentation for three of the four manuals we found inade-
quate.  The Army believes the Operations and Scheduling Manual
to be adequate. We noted that it was necessary for several
users of the standard system to augment the manual's instruc-
tions so that operating personnel would know what was re-
quired of them.

Recommendation

     We recommend that the Secretary of Defenise direct the
Secretary of the Army to update and complete all system
documentation, including the Operations and Scihduling
Manual, to clearly provide system objectives, data flow,
processing steps, and their interrelationships.




                              11
                               CHAPTER 4

                     MORE EFFECTIVE USE OF

                  COMPUTER CAPABILITIES    hEEDED
      The Amy's standard system does not use efficiently
 the computer's capabilities.  As a result, the system relies
 heavily on manual procedures and controls to assure
                                                     that data
 is properly processed.  Detection of errors would be more ef-
 fectively and efficiently accomplished if automated
                                                     controls
 were used more extensively.

CONTROL OVER REJECTED   )ATA
NEEDS IMPROVEMENTS

     In the Army's standard system, rejected items appear
on an error listing and, although pay clerks are
                                                  responsible
for correcting the erroneous data, there is no
                                               automated
suspense file to help assure that all corrections
                                                   are made.
      An effective method for controlling rejected data
                                                         in an
automated syst-m is through the use of an automated
                                                     suspense
file.   Such a file contains all invalid or incomplete
                                                        infor-
mation rejected by the system.   Items in a suspense fil.e
continue to be printed until corrected.

      In the Army's system, documents are submitted
                                                     for proces-
sing only when there is a change affecting an employee's
                                                            pay
or leave status.   If no input documents are submitted, em-
ployees are automatically paid and accrue leave
                                                 at their
normal rate.   This is known as an exception reporting system.
It is particularly susceptible to errors if proper
                                                     controls
over rejected items are not established, since failure
                                                         to
quickly correct data rejected by the computer can
                                                    result in
erroneous payments to employees.

BETTER CONTROL OVER
SOURCE DATA AND DOCUMENTS NEEDED

     Two techniques often used in automated systems
                                                    to help
assure complete and accurate processing of data
                                                are (1) batch
totals and (2) predetermined control totals.  The Army's
standard system does not efectively use either.

     Batch totals, representing the number of documents
                                                         in
a group being processed, provide an effective way
                                                  to assure
that all source documents are recorded.  These totals should
be determined when documents are prepared and should
                                                     accom-
pany the documents throughout the processing cycle.
                                                     For


                                 12
example, timekeepers should count the number of timecards sub-
mitted to the payroll section.  Pay cerks can then verify
that all timecards submitted by timekeepers are received, and
in turn, can compute a cumulative total for all timekeepers
which can be used to assure that all documents are entered
into the machine.

      Another technique often used in automated systems to
assure complete and accurate processing of information is to
determine the total for a selected data field in a group of
source documents and then compare them with totals generated
by the computer.   Although the Army's standard system provides
for use of such predetermined control totals, pay clerks must
manually compare these amounts to totals generated by the com-
puter.   A more efficient method would be to enter the manu-
ally predetermined totals into the computer for automatic
comparison to machine-generated totals after payroll proces-
sing.

OTHER MANUAL PROCEDURES
SHOULD BE AUTOMATED

     Several other procedures were being performed manually
which should have been automated.  For example, the Army's
standard system does not maintain records on advanced sick
and annual leave.  As a result, pay clerks must maintain
manual records on persons who are in such leave categories.
Also, the number of days worked by limited appointment em-
ployees, that is, hired for a set period of time (usually
not to exceed 90 days), must be maintained manually.

     Full use of computer capabilities by automating as many
procedures as possible, increases the efficiency and relia-
bility of the system.

INEFFICIENT PRINTING OF
MASTER EMPLOYEE RECORDS

     The Army's system does not provide an efficient method
for printing master employee records.  The records reflect
all pay information on an employee for the year.  Under the
Army's system, the option exists for the computer to produce
master records for all employees in a cycle, or not to pro-
duce any master records.

     To get only selected master records printed (i.e.,
those involving a change in pay or leave), a special input
card for each record desired must be prepared and submitted.
This is a time-consuming process.  As a result, to obtain



                             13
 selected records without preparing and submitting input cards
 fot each record, installations we visited were printing mas-
 ter employee records for all employees every pay period.

     FoL example, at one installation, where 6,000 civilians
were being paid, producing master records for all employees
required approximately 4 hours of print time per pay period.
Since this installation averaged only about 1,100 changes per
pay period, approximately 80 percent, or more than 3 hours of
print time per pay period could be saved if master records
were automatically printed on an exception basis.

     A more desirable approach would be to program the com-
puter to automatically produce a master employee record only
when there is a change to an employee's pay o leave status.

CONCLUSION

     The Army's standard system should better use computer
capabilities. Automation of manually performed functions
would improve system efficiency and the reliability of out-
put.

RECOMMENDATION

     We recommend that the Secretary of Defense direct the
Secretary of the Army to revise the Army's standard pay sys-
tem to better use computer capabilities to control payroll
processing, including techniques such as batch totals, pre-
determined control totals, automated suspense files for re-
jected data, printing of master employee records on an ex-
ception basis, and, to the extent possible, automating furnc-
tions now performed manually.

AGENCY COM4ENTS

     The Army generally agreed with our findings and recom-
mendations and said that action has been taken or is planned
to provide for the specific controls we suggested, includ-
ing use of batch totals and predetermined control totals.
In zaddition, the Army will provide for more efficient use
of the computer capabilities, including printing of master
employee records and automating certain manually performed
functions.   Although the Army agrees that controls over re-
jected data need improvement, the Army says that it is not
necessary to institute an automated suspense file to achieve
the improvement.

     While we believe that an automated suspense file is an
effective method of control, an alternative method would be
acceptable if it adequately controlled rejected data.


                             14
                              CHAPTER 5

                 ADDITIONAL SYSTEM CHANGES NEEDED

     In addition to correcting the deficiencies discussed in
chapters 3 and 4, the Army must resolve certain system change
requests made by users of the system and certain requirements
identified by a Department of Defense working group.

REQUESTS FOR SYSTEM CHANGES
FROM-USER ACTIVITIES

     Since early 1974, when the Army's standard system was
being tested, a continuous flow or system change requests
from user activities experiencing payroll processing prob-
lems has resulted in a growing backlog of unresolved items
at the Army design center.  Many of these change requests
involve improved control features.  At Jlne 30, 1976, there
were 260 unresolved system change requests.

     Examples of problems covered by the requests follow.

     -- The system was deducting health benefits, group life
        insurance, optional insurance, bonds, allotments,
        charity deductions, and union dues from lump sum
        annual leave payments to employees being separated.
        Only Federal, State, city, and social security taxes
        should be deducted from lump sum leave payments.

    -- The system did not properly handle unused leave
       balances for an employee transferring to another
       location.  Leave balances for transferring employees
       should be carried over to the new location.  Under
       the Army's standard system, however, the employee
       was paid for any unused leave at the time of trans-
       fer.

    -- We recognize that any new system will require changes
       during implementation and in the early stages of
       operation.  However, during our review, when the Army's
       standard system had been operating for nearly 3 years,
       unresolved requests fr system changes were still in-
       creasing.  After our review, Army officials said that
       as of April 30, 1977, there were 325 unresolved re-
       quests for system changes or an increase of 65 since
       June 30, 1976.




                               15
REQUIREMENTS IDENTIFIED BY
DEFENSE WORKING GROUP

     To identify modifications needed in the Army's system,
including requirements of the various military components,
the Department of Defense Standard Civilian Payroll System
Working Group, was established.  The group consisted of
representatives from the Army, Navy, Air Force, and Defense
Supply Agency.  At April 30, 1977, the group had identified
70 requirements. Some of these follow:

     -- Developing computer programs to meet the require-
        ments of the Fair Labor Standards Act.  For example,
        the act states that overtime for employees must
        be computed in two ways and the employee paid in
        accordance with the higher of the two results.   The
        Army's standard system does not automatically make
        this dual computation.

     -- Redesigning and expanding the master employee record
        to provide information to meet needs of a11 military
        services.

     -- Determining requirements for interfa:e with other
        automated systems such as accounting and budgeting.

     Many of the rquirements the Defense working group
identified would improve control and should be included   in
any automated payroll system.

CONCLUSION

      If it is decided that one standard payroll system will
be implemented Defense-wide, it is important that the Army's
standard system (which would be the model for the Defense-
wide system) be strengthened first to help prevent errors
and !    thorized or fraudulent pa-'ments.
RECOMMENDATION

     Accordingly,   we recommend that the Secretary of Defense
see to it that before the Army's system is used Defense-wide
(1) the recommendations listed in chapter 3 are implemented
and (2) those system change requests made by users and re-
quiremenLs identified by the Defense working group which
pertain to strengthening system controls are fully resolved.




                               16
AGENCY COMMENTS

     The Army advised that the backlog of system change re-
quests will be reduced and that emphasis is being placed on
acting on the more important requests for change. The Army
also said that changes requested by the Defense working
group have been reviewed. Those determined to be a signi-
ficant improvement either have been or will be programed
into the system. In general, the Army is taking action on
our recommendations for improved controls.
     Defense officials advised that the Army would be re-
quired to make all important changes to improve system con-
trols before implementing the system Defense-wide.




                             17
APPENDIX I                                                                  AFDENDIX       I




                                  ASSISTAN   SECRETARY OF OENSE
                                      WASOII4TON, D.C.   SelI



 COMPTROLLER




      !ir.Donaid i. Scantlebury
      Director, Financial and General
        IManagement Studies Division
      U.S. General Accounting Office
      Washington, D.C.   20548

      Dear Mr. Scantlebury:

      This is reply to your letter to the Secretary of Defense regarding
      your report, dated February 11, 1977, "Need to Implement Adequate
      Controls in the Army Standard Payroll System Prior to Impiementation
      Defense-Wide," (OSD Case #4548).

      The Army is taking the necessary action to improve its standard civilian
      payroll system. Details are provided in the Enclosures to this letter.

      We concur with the report subject to the following comments and recom-
      mended revisions:

           1. Page i. DIGEST. Recommend replacement of the first two
      sentences with: "The Department of Defense, which pays approximately
      one million civilians about $15 billion annually, has selected the
      Standard Army Civilian Payroll System (STARCIPS) as the baseline for
      a system which could eventually be used by other Services. Improve-
      ments to thp procedures and controls are needed to STARCIPS, however,
      before it could be implemented Defense-wide."   (See GAO note,           p.   27.)
               2.   Page ii. Reference the first three sentences in the paragraph
      starting with:      "The military services are . . . ." Recommend replace-
      ment with: "In recognizing the need to improve civilian payroll systems,
      the Denartment of Defense studied the feasibility of standardization. As
      a consequence of the study and subsequent deliberations, a etermination
      was made to approach the possibility of standardization by a two-step
      process. As a first step, the payroll systems are being converted to
      Service-designated standard payroll systems. Concurrently, a Defense
      work group, under Army leadership, is developing changes needed to im-
      prove and upgrade STARCIPS. This will make t usable by the other Mili-
      tary Services. The second step is the accomplishment of an economic
      analysis to determine whether it would be beneficial or economical or
      the other Military Services to convert from their i.ternally designated
      standard payroll systems to STARCIPS after it is upgraded."           0 goTI0V

                              (See GAO note, p.                 27.)




                                                 18
APPENDIX 1                                                           APPENDIX I


    We would appreciate being advised of any situations noted by you, in
    addition to those cited as examples on pages 8 ad 9 of the report,
    which require the establishment of edit checks. Your comments and
    suggestions have been helpful in improving STARCIPS.

                                       Sincerely,




    Enclosurie   (5)              4s




                                       19
APPENDIX I                                                                APPENDIX I


                                                             (OSD Case   4548)
  FINDING:     Inadequate Separation of Duties

  To prevent possible errors or fraud, the Army regulation governing civilian
  payroll operations and standard system documentation should be revised to
  provide adequate control over payroll operations, including review and
  control over the critical payroll processing steps.

  RECOMMENDAT ION:

  We recommend that the Secretary of Defense direct the Secretary of the Army
  to revise Army Regulation 37-105 and the standard system users manual to
  provide for adequate separation of duties., Further, the system should
  be revised to provide that:

       a. A listing of all permanent changes'affecting pay be forwarded directly
  to the personnel office each pay period so it can verify that ll actions
  were recorded.

       b. An independent review of temporary .:anges and correction of rejected
  data be made by a control clerk or supervisor.

       c. Prepunched timecards be routed directly to timekeepers so that
  timekeepere be provided a listing of all prepunched timecards prepared.

 ARMY COMMENT:

 The initial draft revision of AR 37-105 has been completed and is in the
 process of being distributed for MACOM review and comment. Included in
 the revision is a more detailed separation of duties than contained in the
 current AR. In addition, the requirement for a separation of duties was
 published in the October 1976 and February 1977 issues of the US Army Finance
 and Accounting Center's ALL POINTS BULLETIN.

      a. A System Change Request has been developed by the DODSCIPS Working
 Group that will provide a report of all permanent changes to the personnel
 office for verification.

      b. The revised AR 37-105 will contain provisions for an independent
 review of temporary changes nd correction of rejected data.  Finance Officers
 will be advised of these requirements prior to final publication of AR 37-105.

      c.     Concur in the concept of timecards by-passing civilian pay clerks.
 Do not, however, ecessarily agree that the data processing unit should be
 made responsible for this function. A necessary change will be incorporated
 li the revised AR 37-105 to accomplish this function.




                                           20
APPENDIX I                                                             APPENDIX I



                                                           (OSD Case   4548)
   IINDING:   Insufficient Edit Checks

   The Army's standard system does not include ufficient edit checks to detect
   erroneous or incomplete data entering the system. Many of the test trans-
   actions that we processed through the system without detection dur.ng our
   review were the same as those used in earlier reviews and included in reports
   to the Congress. We consider such hecks to be an essential part of a payroll
   system, particularly a standard system, and believe prompt action should be
   taken to see that they are installed.

  RECOMMENDATION:

  We recommend that the Secretary of Defense have the Secretary of the Army
  incorporate additional edit checks into the Army's standard system to detect
  unusual situations such as those discussed above. Also the system should be
  revised to alert management when edits have been avoided.

  ARMY COMMENT:

  While edit checks are included in the system to preclude fraudulent payments;
  action is being taken to include the additional edit checks recommended oy GAO.
  Further, as part of the SCR review process, edit routines will be incorporated
  wherever necessary.




                                         21
APPENDIX I                                                                  APPENDIX I



                                                            (OSD Case #45

  FINDING:   Need for Improved System Documentation

  Documentation in the Army's standard system needs to be completed, updated,
  and clarified to insure that operating, management, and review personnel have
  a basis for understanding the system and how it operates.

  PECOMMENDATION:

  We recommend that the Secretary of Defense direct the Secretary of the Army
  to update and complete system documentation to clearly provide system
  oojectives, data flow, processing steps, and their interrelationships.
  Documentation for the standard system should provide:

  Us rs Manual:

       a.    Instructions on how payroll control registers should be prepared.

       b.    Detailed procedures for correcting errors detected by computer.

  Operations and Schedulirg l-lanual:

       a.    Adequate instructions for data processing personnel.

       b.    Identification of programs required for the various processing cycles.

       c. Detailed procedures to restart processing in case of an unscheduled
  interruption.

  Subsystem Analysis Manual:

       a.    Description of all files currently used in the system.

       b.    Deletion of descriptions of all files no longer used.

  Program Documentation Manual:

       a.    Documentation on all programs currently in the system.

       b.    Deletion of documentation on all programs io lounger used.

      .c. Program logic flow charts for each program.

       d.    Description of the types and purposes of all edits in the system.

  ARMY COMMENT:

  Users Manual:

       a.    Concur in the findings that the Users Manual does not provide




                                            22
APPENDIX I                                                            APPENDIX I



                                                          (OSD Case   548)
  adequate instructions on the preparation of payroll control registers and
  detailed procedures for correcting errors detected by computers.

       b. Final publication of the revised AR 37-105 which incorporates the
  procedures contained in the Users Manual will contain more specific
  instructions in hese areas.

  Operations and Scheduling Manual:

       a. Non-concur that the Operations and Scheduling Manual contains
  inadequate instructions for data processing personnel. The Operations and
  Scheduling manual is presently used at 61 installations. The limited number
  of CRs that have been received to correct' deficiencies does not support
  the finding that the instructions are not sufficient.

        b. Files and programs necessary to run any Standard Army Civilian
  Payro.l System (STARCIPS) job re identified in the manual, as is the
  disposition of all reports. Number of copies and ultimate disposition of
  reports are properly included in the Users Manual.

       c. Automated restart procedures were added to the system in December
  1976 to reestablish the status of information being processed without re-
  running the entire cycle. Prior to this, manual restart procedures were
  available to field operators.

  Subsystem Analysis Manual (a-b):

       The Subsystem Analysis Manual has been completely updated to reflect the
  current STARCIPS and will be maintained to reflect future changes as they
  are made.

  Program Documentation Manual (a-d):

       Concur in the finding that the Program Documentation Manual provided
  detailed documentation for all programs in the system. A concerted effort
  is underway to update the manual and to maintain it on a current basis.




                                        23
APPENDIX I                                                              APPENDIX I


                                                           (OSD Case #4548)


  FINDING:   Need for More Effective Utilization of Computer Computations

  The Army's st-.     system should provide for better utilization of the
  capabilities of the computer. Automation of functions now performed manually
  would improve system efficiency and the reliability of output.

  RECOMMENDATION:

  We recommended that the Secretary of Defense direct the sqcretary of the Army
  to revise the Army's standard pay system to provide better utilization of
  computer capabilities to control payloll rocessing, including:

       a. Using batch totals to provide better control over the flow of source
  documents.

       b. Programming the computer to accept and automatically compare
  selected predetermined control totals to totals generated by the computer.

       c. Establishing an automated suspense file for all erroneous or invalid
  data rejected by the computer to make sure that data is corrected and re-
  submitted on a timely basis.

       d. To the extent possible, automating functions now performed manually,
  including maintenance of advanced annual and sick leave balances and the
  recording of the number of days worked by limited appointment employees; and

       e. Programming the computer t automatically print master employee
  records on an exception basis, i.e., whenever thert, is a change to the
  individual's pay or leave status.

  ARMY COMMENT:

       a. Improvements can be made to internal controls over the flow of
  documents throughout the processing cycle. A project has been established to
  develop detailed operating procedures and methods, e.g., batch totals, that
  will bring civilian pay documents under the same type of controls as
  employed by the Army's military pay system.

       b. The DODSCIPS Working Group is currently working on     requirement to
  identify those areas ,.,-re the computer can be programmed to automatically
  compare selected predetermined control totals to those generated by the
  computer.

       c. Concur in the need to improve contrc    over rejected data. We do
  not concur, however, i   he necessity to design and program an automated
  suspense file into the system to achieve the improvement. STARCIPS operates
  on the technique of updating transaction files after editing in the daily
  cycle. Each time the daily cycle is run all transactions ace re-edited and
  error listings produced. Master files are updated and pay is computed only




                                          24
APPENDIX I                                                              APPENDIX I


                                                          (( ) Case   454 8)


  after all errors are corrected and/or tile user decides to correct in a
  subsequent cycle. The same would be true in an automated suspense file;
  errors will print out only when the cycle is run. Under eitcher method,
  the user has the option of rerunning until error free or pr>ceMnP with
  pay computation. This flexibiliev should be retained to permit pay ofices
  to override minor errors to meet pay deadlines. In this regard, SARCIPS
  includes an Adjustment and Supplemental Pay Cycle for use in adjusting pay
  in these instances.

       d. An SCR has been developed by the DODSCIPS Working Group that will
  provide an automated accounting of advanced annual and sick leave and to
  provide to management the amount of advanced leave used and remaining
  balance each pay period. The system is being changed whereby limited
  appointment employees will be identified with a not to exceed date or hours
  whichever is applicable. The system will automatically discontinue payment
  whenever an eployee exceeds the termination date or total hours. In
  addition, other areas have been identified that are presently being
  accomplished manually that should be perrmd automatically, e.g.; Summary
  and Certification Sheet preparation, changes in leave category, and
  automatec increase in optional insurance premium.

        e. Th current system design automatically prints master employee
  records in the absence of user input to preclude it. As this represented
  an additional workload, most users did not prepare the required input and
  allowed the system to print all the records whether needed or not. The
  resulting wasteful printing of employee records was identified and a system
  change was developed to print the master employee record on an exception
  basis. This change is scheduled for implementation in April 1977.




                                        25
APPENDIX I                                                            APPENDIX


                                                          (OSD Case #4548)


  FINDING:   Additional System Changes Needed

  Procedures and controls in the Army's standard civilian payroll system,
  which has been selected as the model of a standard Defense system, muqst he
  improved to reduce the possibilities of erroneous or fraudulent payments.
  Many of the weaknesses in the Army's system are the same as the dficiencies
  reported to the Congress twice before. In addition, the Army must address the
  numerous unresolved system change requests from user activities and the
  requirements identified by the Defense working group, particularly those
  pertaining to improvement of system controls.

  RECOMMENDAT ION:

  We recommend that the Secretary of Dfeise see to it that, prior to imple-
  menting the standard Army system Defense-wide (I) the recommendations listed
  in chapter 3 are implemented and (2) those system change requests ::ade by
  users of the system and those requirements identified by the Defense working
  group which pertain to strengthening system controls are acted upon and
  fully resolved.

  REQUESTS FOR SYSTEM CHANGE FROM USER ACTIVITIES

  AIRMY COMMENT:

  STARCIPS was approved for extension in August 1975. Since that time, STARCIPS
  has been extended to 61 sites, spauning nine major commands. This accelerated
  pace is unequaled by any other multi-command standard system in the Armv today.
  During the extension period as installations were converted to the      a,
  additional variables were detected that were not contained in the in     L.
  design of the system. The extension of the system has resulted in the input
  of SCRs from each new user as variances were detected between features in
  STARCIPS and their previous comnmand unique system. Many of the SCRs can
  also be classified in the "nice to have" category. Emphasis has been directed
  to accommodate requirements critical to user's processing of civilian pay by
  prioritizing outstanding SCRs and to broadcast resulting system changes through
  an orderly process. It is agreed that the backlog should be reduced. However,
  evaluation of the performance ef a system must be based on the content of the
  SCRs received and not on the number received.

  REQUIRETEN       OF OTHER MILITARY SRViCES

  ARMY COMMENT:

  The Defense working group has processed 54 system change requests to upgrade
  the Army's standard system to meet the requirements of the various Department
  of Defense components. These system changes were reviewed by the Army and
  where determined to represent a significant improvement to STARCIPS they
  have been and are being programmed into the system for broadcast to all Army
  activities without waiting for full development and implementation of the
  Defense system.




                                           26
APPENDIX I                                                           APPENDIX I


                                                          (OSD Case #4548)

   Sueh changes are: Fair Labor Standards Act; Fderal Employees Compensation
   Act; new Earnings and Leave Statement, expansion of the master eployee
   record.




Note:    Defense officials advised that these changes were
         recommended so that the report would not indicate
         that Defense had definite plans to implement a
         single payroll system. The intent of the change
         has been incorporated in the report.




                                     27
APPENDIX   II                                        APPENDIX II


                     PRINCIPAL OFFICIALS

            RESPONSIBLE FOR ADMINISTERING ACTIVITIES

                   DISCUSSED IN THIS REPORT

                                           Tenure of office
                                           From         To

                     DEPARTMENT OF DEFENSE

SECRETARY OF DEFENSE:
    Dr. Harold Brown                   Jan.   1977     Present
    Donald H. Rumsfeld                 Nov.   1975     Jan. 1977
    Dr. James R. Schlesinger           July   1973     Nov. 1975

ASSISTANT SECRETARY OF DEFENSE
  (COMPTROLLER):
    Fred P. Wacker                     Sept. 1976      Present
    Terence E. McClary                 June  1973      Aug. 1976

                     DEPARTMENT OF THE ARMY

SECRETARY OF THE ARMY:
    Clifford L. Alexander, Jr.         Feb.   1977     Present
    Martin R. Hoffman                  Aug.   1975     Feb. 1977
    Howard H. Callaway                 May    1973     July 1975

ASSISTANT SECRETARY OF THE ARMY
  (FINANCIAL MANACEMENT):
    Jack E. Hobbs (acting)             Apr.   1977     Present
    Hadlai A. Hull                     Mar.   1973     Apr. 1977

COMPTROLLER OF THE ARMY:
    James J. Leonard (acting)          June   1977     Present
    Lt. Gen. John A. Kjellstroil       July   1974     June 1977




                               28