GAO-07-298R Managerial Cost Accounting Practice 

United States Government Accountability Office

Washington, DC 20548 

May 24, 2007 

The Honorable Brian Bilbray 

Ranking Minority Member 

Subcommittee on Government Management, Organization, and Procurement 

Committee on Oversight and Government Reform 

House of Representatives 

The Honorable Todd Russell Platts 

House of Representatives 

Subject: Managerial Cost Accounting Practices at the Department of the Interior 

Authoritative bodies have promulgated laws, accounting standards, information 

system requirements, and related guidance emphasizing the need for accurate and 

reliable cost information in the federal government. For example, the Chief Financial 

Officers (CFO) Act of 19901

 contains several provisions related to managerial cost 

accounting (MCA), one of which provides that an agency’s CFO should develop and 

maintain an integrated accounting and financial management system that provides 

for the development and reporting of cost information. Statement of Federal 

Financial Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting 

Concepts and Standards for the Federal Government, and the Joint Financial 

Management Improvement Program’s (JFMIP) Framework for Federal Financial 

Management Systems2

 established accounting standards and system requirements 

for MCA information at federal agencies. In addition, the Federal Financial 

Management Improvement Act of 19963

 required, among other things, that CFO Act 

agencies’ systems comply substantially with federal accounting standards and federal 

financial management systems requirements. 

In light of the provision related to MCA information in federal agencies, we were 

asked to review the status of MCA in 10 of the largest civilian agencies. Our 

objectives were to determine how (1) federal agencies generate MCA information and 

 

1

Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

2

In 2005, JFMIP’s responsibilities for financial management and policy oversight were realigned to the Office 

of Management and Budget, the Office of Personnel Management, and the Chief Financial Officers Council. 3

Pub. L. No. 104-208, div. A., § 101 (f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996). 
Page 2 GAO-07-298R Managerial Cost Accounting Practices 

 

(2) agency managers use cost information to support managerial decision making and 

accountability. 

This report on the Department of the Interior (Interior) is our fifth in a series of 

reports concerning the status of MCA activities at large government agencies. 4 In 

addition to reviewing the department-level systems, we selected three component 

bureaus with larger obligations and earned revenue as well as a working capital fund 

with cost recovery activities. These were the Bureau of Land Management (BLM), the 

Bureau of Reclamation (BOR), the Minerals Management Service (MMS), and the 

National Business Center (NBC) of the Departmental Working Capital Fund (WCF). 

Results in Brief 

Interior and the four bureau-level components we reviewed each have systems for 

generating MCA information. The driving force for implementing MCA at Interior was 

strong management commitment. However, there is no single or integrated 

information system from which MCA data are generated. Additionally, there are 

multiple, independent systems at the department and bureaus from which financial 

and nonfinancial data are obtained for MCA. Controls over nonfinancial data quality 

for these systems are generally limited to bureau-level reviews for reasonableness. 

Those bureau-level controls may not be adequate to help ensure the accuracy, and 

therefore the usefulness, of MCA data. Further, Interior does not allocate cost 

elements consistently between bureaus. For example, BOR uses the number of 

facilities to determine the cost of building maintenance whereas the department uses 

a square footage calculation. In addition, Interior does not have written procedures 

for monitoring the quality and accuracy of the data in its MCA system or a consistent 

methodology for pricing services at one of its components. In this regard, recognizing 

the need to help control risks resulting from multiple financial systems as well as a 

need for better functionality, Interior management is in early stages of implementing 

an integrated financial system, Financial Business Management System (FBMS), 

including developing a MCA module, for the department and each of its bureaus. 

Information from its various systems is routinely used by management at Interior and 

its bureaus for managerial decision making. At the department level, Interior uses 

cost information to highlight costs of department-wide activities, support 

recommendations for such things as changes to work processes, and to prepare 

budgets and performance targets. The bureaus we reviewed used MCA, among other 

things, to review and evaluate work processes, set prices and fees, identify workload 

trends, reallocate resources, and track performance indicators. 

4

GAO, Managerial Cost Accounting Practices: Leadership and Internal Controls Are Key to Successful 

Implementation, GAO-05-1013R (Washington, D.C.: Sept. 2, 2005); Managerial Cost Accounting Practices: 

Departments of Labor and Veterans Affairs, GAO-05-1031T (Washington, D.C.: Sept. 21, 2005); Managerial 

Cost Accounting Practices: Departments of Education, Transportation, and the Treasury, GAO-06-301R 

(Washington, D.C.: Dec. 19, 2005); Managerial Cost Accounting Practices: Department of Health and Human 

Services and Social Security Administration, GAO-06-599R (Washington, D.C.: Apr. 18, 2006); and 

Managerial Cost Accounting Practices: Departments of Agriculture and Housing and Urban Development, 

GAO-06-1002R (Washington, D.C.: Sept. 21, 2006). 
Page 3 GAO-07-298R Managerial Cost Accounting Practices 

In its comments on a draft of this report, Interior concurred with six of our eight 

recommendations. It stated it had already taken actions to address the remaining two 

recommendations and is working diligently to address the weaknesses cited in the 

report. 

Background 

The CFO Act of 1990 was the beginning of a series of management reform laws to 

improve federal financial management and set the stage for other key reforms that 

followed. Among other things, the CFO Act established a leadership structure for 

financial management, required audited financial statements, and strengthened 

accountability reporting. It contains several provisions related to MCA, one of which 

states that an agency’s CFO should develop and maintain an integrated accounting 

and financial management system that provides for the development of cost 

information and systematic performance measurement. The goal of the CFO Act is to 

greatly enhance the ability of managers to do their jobs by providing the full range of 

financial information needed for day-to-day management. 

There are many potential applications for cost information in the federal government. 

This information can be used by federal executives for budgeting and cost control, 

performance measurement, determining reimbursements and setting fees and prices, 

program evaluations, and decisions that involve economic choices, such as whether 

to do a project in-house or contract it out.5

 The Congress can also use MCA 

information to determine how to fund programs and monitor agency performance, as 

well as to analyze the merits of proposals advocated by different parties. The public, 

in turn, can benefit from greater transparency about program performance and ready 

access to information on how its tax dollars are spent. 

Managerial Cost Accounting Provisions

The policies and standards prescribed for executive agencies to follow in developing, 

operating, evaluating, and reporting on financial management systems are included in 

Office of Management and Budget Circular No. A-127, Financial Management 

Systems. The components of an integrated financial management system are the core 

financial system,6

 an MCA system, and certain administrative and programmatic 

systems. Administrative systems are those that are common to all federal agency 

operations,7

 and programmatic systems are those needed to fulfill an agency’s 

mission. 

 

 

5

See Statement of Federal Financial Accounting Standards No. 4: Managerial Cost Accounting 

Concepts and Standards for the Federal Government. 6

Core financial systems, as defined by the Office of Federal Financial Management, include managing 

general ledger, funding, payments, receivables, and certain basic cost functions. 7

Examples of administrative systems include budget, acquisition, travel, property, and human 

resources and payroll. 
Page 4 GAO-07-298R Managerial Cost Accounting Practices 

SFFAS No. 4, which became effective in fiscal year 1998, sets forth the fundamental 

elements for MCA in government agencies.8 The five standards in SFFAS No. 4 

require government agencies to (1) accumulate and report the costs of activities on a 

regular basis for management information purposes; (2) establish responsibility 

segments, and measure and report the costs of each segment’s outputs and calculate 

the unit cost of each output; (3) determine and report the full costs of government 

goods and services, including direct9

 and indirect10 costs; (4) recognize the costs of 

goods and services provided by other federal entities; and (5) use and consistently 

follow costing methodologies or cost finding techniques most appropriate to the 

segment’s operating environment to accumulate and assign costs to outputs. SFFAS 

No. 4 states that MCA should be a fundamental part of the financial management 

system and, to the extent practical, should be integrated with other parts of the 

system. 

MCA entails answering a very simple question. How much does it cost to do 

something, be it an extensive overall program effort or the incremental and iterative 

efforts associated with a project activity? As such, it involves accumulating and 

analyzing both financial and non-financial data11 to determine the costs of achieving 

performance goals, delivering programs, and pursuing other activities. The principal 

purpose is to consider how much it costs to do whatever is being measured, thus 

allowing management to analyze whether that cost seems reasonable, or to establish 

a baseline for comparison with others that do similar work. The factors analyzed and 

the level of detail depend on the operations and needs of the organization. Reliable 

financial and nonfinancial data are cornerstones of this assessment, because if the 

data are wrong, the resulting analysis can give a distorted view of how well the 

organization is doing, thereby affecting any decision making. 

Interior Operations

Interior’s mission is to protect and manage the nation’s natural resources and cultural 

heritage; provide scientific and other information about those resources; and honor 

its trust responsibilities or special commitments to American Indians, Alaska Natives, 

and affiliated island communities. For fiscal year 2006 Interior reported gross and net 

outlays of approximately $20.7 billion and $8.6 billion, respectively. Interior had 

approximately 73,000 employees, including 69,000 full-time equivalents (FTEs) and 

200,000 volunteers (4,600 FTEs). Interior has eight bureaus organized in distinct 

mission areas, in addition to departmental offices that support key Interior 

 

8

In March 1997, the Federal Accounting Standards Advisory Board delayed SFFAS No. 4’s 

implementation from fiscal year 1997 to fiscal year 1998. 9

Direct costs are costs that can be specifically identified with an output, including salaries and benefits 

for employees working directly on the output, materials, supplies, and costs for facilities and 

equipment used exclusively to produce the output. 10Indirect costs are costs that cannot be specifically identified with an output and may include costs for 

general administration, research and technical support, and operations and maintenance for building 

and equipment. 

11Non-financial data measure the occurrences of activities and can include such things as hours 

worked, units produced, grants managed, inspections conducted, or people trained. 
Page 5 GAO-07-298R Managerial Cost Accounting Practices 

operations and help carry out Interior’s mission. It also has four working capital 

funds and a franchise fund. 

BLM’s mission is to sustain the health, diversity, and productivity of the public lands 

for the use and enjoyment of present and future generations. For fiscal year 2005, 

BLM reported gross and net outlays of approximately $2.6 billion and $.9 billion, 

respectively, and had approximately 13,500 FTEs. 

BOR’s mission is to manage, develop, and protect water and related resources in an 

environmentally and economically sound manner in the interest of the American 

public. For fiscal year 2005, BOR reported gross outlays and net receipts of 

approximately $1.75 billion and $1 billion, respectively, and had approximately 5,900 

FTEs. 

MMS’s mission is to manage the ocean energy and mineral resources on the Outer 

Continental Shelf and federal and Indian mineral revenues to enhance public and 

trust benefit, promote responsible use and realize fair value. MMS also collects, 

accounts for, and disburses more that $8 billion per year in revenues from mineral 

leases on federal and Indian lands. For fiscal year 2005, MMS reported gross outlays 

and net receipts of approximately $3.5 billion and $.2 billion, respectively, and had 

approximately 1,700 FTEs. 

The WCF was established to provide common administrative services to Interior 

bureaus and other federal agencies on a reimbursable basis. In fiscal year 2006, the 

WCF reported gross and net outlays of approximately $1.5 billion and $.2 billion, 

respectively. NBC had approximately 1,100 FTEs and is the largest activity center in 

the department’s WCF, comprising more that 85 percent of the department’s WCF 

activities. In fiscal year 2006, Interior’s franchise fund, also known as GovWorks, had 

a budgetary authority of $1.2 billion and was merged with NBC. 

Interior Generates MCA Information through Systems at the Agency and 

Component Levels 

Each bureau we reviewed has its own stand-alone MCA system, which feeds 

information to Interior’s department-wide MCA system. Additionally, there are 

multiple, independent systems at the department and bureaus from which financial 

and nonfinancial data are obtained for MCA. Controls over nonfinancial data quality 

for these multiple systems are generally limited to bureau-level reviews for 

reasonableness. Those bureau-level controls may not be adequate to help ensure the 

accuracy, and therefore the usefulness, of MCA data. In addition, Interior does not 

have written procedures for monitoring the quality and accuracy of its activity-based 

cost management data. Recognizing the need to help control increased risk resulting 

from multiple financial systems as well as to increase functionality, Interior 

management is in early stages of implementing an integrated financial system, 

including an MCA module, for the department and each of its bureaus. 
Page 6 GAO-07-298R Managerial Cost Accounting Practices 

Interior Has a Department-Level MCA System in Place

Interior has a department-wide MCA system, called ABC/M, which provides 

information about the cost of work activities. Financial data are extracted daily from 

the bureaus’ stand-alone general ledger systems, and nonfinancial data are obtained 

from other bureau source systems. Interior has adopted an activity-based costing 

(ABC) approach to departmental MCA. ABC is intended to measure the cost of 

activities, such as issuing permits, maintaining trails, and performing site inspections. 

ABC/M includes approximately 300 work activities that align with the department’s 

four strategic mission objectives. Nonfinancial data such as hours, miles, or acres are 

obtained from various bureau source systems (entered manually or extracted from 

bureau systems). For financial data the bureaus use either Federal Financial System 

(FFS) or Advanced Budget/Accounting Control and Information System (general 

ledger systems). Interior and its component bureaus use non-integrated FFS, with the 

exception of MMS and Office of Surface Mining, which migrated to FBMS in midNovember 2006. 

Interior’s Bureaus Have Developed Systems and Processes to Generate MCA Data

Interior leadership, including the Secretary, took an active role in promoting MCA 

implementation and use at its bureaus. Interior actions included directing the bureaus 

to take the lead developing MCA; establishing a department-level steering committee 

to provide overall guidance; facilitating issue coordination across the department; 

enlisting additional bureau-level input through several groups, including the 

Performance Management Council and the FBMS Steering Committee; creating a 

team to oversee bureau efforts toward implementing the departmentwide ABC vision; 

and issuing department-wide policy and procedural guidance to ensure that bureau 

cost data are in line with Interior strategic goals. The four Interior components we 

reviewed all had their own stand-alone MCA systems. 

BLM

BLM developed its ABC system in 1999, 2 years prior to the departmentwide 

directive. The bureau established an ABC core team to assist in the development of a 

model. Once the model was developed, the team assisted in the implementation of 

ABC throughout the bureau. Financial data are extracted from BLM’s general ledger 

and nonfinancial data are added to the bureau’s MCA system from a BLM-specific 

system called the Performance Management System. 

Personnel costs are accumulated as a product of time charged to activities in BLM’s 

time and attendance system (QuickTime). Direct costs, including annual leave plus 

indirect costs (generally allocated proportionally to personnel costs) are accumulated 

for each program activity. BLM officials stated that they reconcile ABC/M data to the 

Statement of Net Costs (SNC) on a quarterly and annual basis. BLM received an 

unqualified (clean) audit opinion for fiscal year 2005, but the auditors identified 

weaknesses in internal controls, which could result in inaccurate cost data 
Page 7 GAO-07-298R Managerial Cost Accounting Practices 

throughout the year. BLM has a cost policy that contains directives, instructions, and 

internal budget processes; however, it does not have a written policy on verification 

and validation of its performance data. 

BOR

BOR principally uses an asset and maintenance management system known as 

MAXIMO to identify costs, as its authorization and funding sources are generally tied 

to specific projects. MAXIMO is not a cost accounting system, but it does have the 

capability to track labor and material costs throughout the life of an asset or project. 

MAXIMO interfaces with both the general ledger (FFS) and the time and attendance 

system (TAAS). BOR electronically transmits selected budgetary information from 

FFS to the department’s ABC/M system. Financial data are extracted from BOR’s 

general ledger, FFS, and nonfinancial data are added to the bureau’s MCA systems 

from a BOR-specific system. Personnel costs are accumulated as a product of time 

charged to activities in BOR’s TAAS. All formal cost accounting is accomplished 

through FFS, which provides valid cost accounts for charging work that is planned 

and scheduled through MAXIMO. MAXIMO is used to track material costs and 

approximate labor costs at a work order level. It uses cost accounts that are 

previously coded as reimbursable or nonreimbursable in FFS. 

According to BOR officials, they crosswalk bureau costs from their general ledger to 

the departmental ABC/M system for departmental cost accumulation, but do not 

reconcile BOR’s SNC prepared from general ledger data to ABC/M data because of 

the lack of necessary proprietary accounting data.12 BOR received a clean audit 

opinion for fiscal year 2005, but did have one reportable condition concerning 

financial reporting. BOR officials also told us that the project authorization and 

funding structure can make it difficult to roll BOR activities and outputs into the four 

Interior strategic goals. 

Additionally, BOR identified maintenance work activity output measures related to 

recreational sites that are inconsistent with Interior output measures. The 

department’s policy is to use square footage as a unit measure, whereas BOR uses the 

number of facilities. A BOR official stated this was because of a lack of square 

footage data on its facilities. A department official told us that BOR will determine 

and provide the square footage of the recreation facilities for which it is responsible 

so the department can accurately accumulate and analyze the full costs for this 

activity. 

 

12Proprietary accounting data records financial transactions, whereas the cost accounting system 

contains budgetary accounting data that are used to facilitate compliance with fiscal laws and reflects 

estimated costs and financial condition. 
Page 8 GAO-07-298R Managerial Cost Accounting Practices 

MMS

MMS implemented an ABC/M system based on an OROS (SAS) platform, and began 

coding employee time and activity records to work elements in 2003. The ABC/M 

system accumulates financial information from its general ledger, FBMS and 

nonfinancial information in its Performance Data Gathering and Reporting System. 

MMS does not reconcile its SNC to its ABC/M data because of a lack of proprietary 

accounting data. 

 

NBC/WCF

Officials at NBC have a manual process to identify costs. The WCF does not have 

written policies and procedures regarding recovery of costs by products lines to 

prevent over- and undercharging customers. NBC officials also told us that they 

currently do not uniformly apply costs across NBC’s directorates. Recognizing the 

need for better information on which to base pricing and other managerial decisions, 

officials at NBC told us that they are developing a new activity-based cost system that 

is expected to become operational in fiscal year 2007. 

Nonfinancial Data Must Be Extracted from Multiple Department-Level and 

Component Systems

While Interior has done much to develop MCA information, officials acknowledged 

that the integrity of the ABC/M system data depends on the effectiveness of the 

internal controls of the bureaus’ systems that provide data used in the departmental 

ABC/M. Weaknesses in internal controls can result in inaccurate cost data throughout 

the year, which may impede the department’s ability to make well-informed decisions 

based on accurate data. Further, Interior officials told us that it currently does not 

reconcile the SNC and ABC/M data at the corporate level because of differences 

between financial accounting data of the general ledger and budgetary data of the 

cost systems. Such reconciliations provide assurance that data from different sources 

are accurate and complete. According to Interior’s fiscal year 2006 performance and 

accountability report (PAR), Interior is beginning to validate costs reported in the 

SNC by implementing a reconciliation process. 

Although Interior has received an unqualified audit opinion on its financial 

statements since 1997, it reported in its fiscal year 2006 PAR that internal control 

weaknesses continue to hinder its financial management systems. Additionally, 

Interior reported that it confronts challenges as it operates costly and duplicative 

financial and business management systems. Controls over nonfinancial data are 

generally limited to bureau-level review for reasonableness. Interior acknowledged 

the need for independent department-level validation and verification of nonfinancial 

ABC/M data. Further, Interior does not have written procedures for monitoring the 

quality and accuracy of its ABC/M data. Interior officials told us that not all bureaus 

have written procedures for performance data validation and verification. The 

department plans to follow up to ensure that all bureaus implement data validation 

and verification standards and procedures in 2007. 
Page 9 GAO-07-298R Managerial Cost Accounting Practices 

Interior is in the process of implementing a new department-wide integrated financial 

management system, FBMS, in part because Interior leadership has recognized that 

its current environment of nonintegrated systems increases its risk and does not 

provide all needed MCA information. While Interior’s current system provides only 

budgetary data, Interior officials stated that FBMS plans include provisions for both 

budgetary and proprietary accounting data. Interior officials stated that they plan to 

include an integrated ABC/M system in FBMS. Although a working model for ABC/M 

is being developed, an Interior official told us at the time of our review that the user 

requirements for the model have not yet been fully developed. A department official 

further stated that once the requirements for FBMS’s ABC/M system are developed, 

and depending on the availability of funding and other scheduling considerations, the 

working model could be implemented approximately 18 months after the 

requirements are finalized. The current FBMS implementation plan for the general 

ledger module calls for a phased implementation with seven successful deployments 

beginning in April 2006 and ending in fiscal year 2011. 

Interior and Its Bureaus Use MCA to Support a Variety of Managerial 

Decisions 

At the department level, Interior uses cost information to provide visibility on the 

costs of activities. For example, a graphical report to senior Interior executives called 

the Executive Dashboard provides department leadership with access to some 

department-level program cost information. MCA is also used for a number of 

purposes, including supporting recommendations to change work processes to 

improve efficiencies and generate cost savings, supporting decisions on redirecting or 

reallocating resources, and preparing budgets and performance targets. Interior 

officials reported that MCA is used to provide visibility on the costs of activities and 

initiatives of interest to departmental leadership, and one of its emerging capabilities 

is the use of marginal cost models to identify and understand the extent to which 

activities consume costs. 

BLM officials use information from the Cost Management System for a number of 

purposes, including projecting future resource needs based on estimated workloads. 

Additionally, the BLM MCA system provides cost information by organizational code, 

unit cost, and the number of work outputs. It enables BLM to review and evaluate 

work processes across the bureau to find ways to improve effectiveness, to reallocate 

resources, set fees and prices, and monitor progress in achieving performance goals. 

BOR officials use MCA for a number of purposes including identifying activities and 

outputs that could be useful in budget decision making. For example, BOR reported 

in its fiscal year 2007 budget justification that ABC/M data are refined and analyzed to 

support its efforts to produce cost information to enhance budget decision making. 

BOR also uses MCA data to review routine MCA reports on an ongoing basis to 

identify budgetary shortages and surpluses associated with projects, to identify and 

examine bureau workload trends, and to assist in the reallocation of resources. 
Page 10 GAO-07-298R Managerial Cost Accounting Practices 

MMS officials reported that they use ABC/M for a number of purposes including 

reporting management results, preparing cost recovery calculation, and tracking and 

accessing key performance indicators. However, MMS official also stated that it is 

difficult to find the right level of detail to capture information to meet Interior, 

bureau, and program needs, and there is a need for more timely access to ABC/M and 

performance information for decision making. 

Officials at NBC use a manual process incorporating prior year financial information 

to determine prices charged to their customers. However, NBC does not have written 

policies and procedures regarding recovery of costs by product lines to prevent overand under-charging of customers. Additionally, financial analysis conducted to 

determine whether reserves were established within authorized limits, was not 

documented. 

Conclusion 

Interior’s strong leadership has promoted the benefits of MCA and facilitated strong 

cross-bureau collaboration. However, it continues to confront challenges as it moves 

toward replacing its multiple, nonintegrated systems with one that includes a cost 

accounting module to serve the department and all its bureaus. Developing and 

implementing a system to verify and validate nonfinancial data at the department 

level would strengthen Interior’s internal controls, both with the current and planned 

systems. Although some of the bureaus have written policies and procedures for 

performance data validation and verification, having these policies and procedures at 

the department level would enhance Interior’s ability to monitor the quality and 

accuracy of its nonfinancial data. In addition, attention to ongoing MCA system 

implementation monitoring will help ensure that functions of the new system will 

meet user needs. Finally, establishing clear cost accounting methodologies will help 

ensure that data used and provided by the system are reliable, timely, and useful in 

making day-to-day decisions. 

Recommendations for Executive Action 

We are making eight recommendations to the Secretary of the Interior. 

To promote the implementation and use of reliable MCA methodologies to support 

more informed managerial decision making in Interior and its bureaus and 

department offices, we recommend that the Secretary direct department officials to: 

• Perform an assessment of the internal controls related to nonfinancial data, 

including key indicators used for executive decision making, such as the 

Executive Dashboard and determine whether the current internal controls are 

adequate and meet the department’s published guidance. 

• Monitor bureau’s development and implementation of written procedures for 

performance data validation and verification at all bureaus. 

• Continue to monitor the FBMS implementation plan to determine that MCA 

functionalities that meet user requirements are included. 
Page 11 GAO-07-298R Managerial Cost Accounting Practices 

To promote the implementation and use of reliable MCA methodologies to support 

more informed managerial decision making in BOR, we recommend that the 

Secretary direct BOR officials to: 

• Identify and address any inconsistent work output measures between the 

bureau and departmental systems that are essential to Interior management to 

help form the basis for consistent cost measurement. 

To promote the effective use of proper cost accounting methodologies to support 

pricing and other managerial decision making at NBC, we recommend that the 

Secretary of the Interior direct appropriate NBC officials to: 

• Monitor compliance to existing policies in relation to the application of direct 

costs, including annual leave and holidays. 

• Document all policies and procedures to help ensure the recovery of costs by 

product lines to help prevent over and under charging of customers. 

• Complete determination of methodology, and implement a consistent 

methodology for pricing of services at NBC. 

• Document policies and procedures for establishing reserves. 

Agency Comments and Our Evaluation 

In a letter from the Assistant Secretary of Policy, Management, and Budget, Interior 

stated that the draft report provides an accurate representation of its MCA 

implementation efforts and status. Interior fully concurred with six out of the eight 

recommendations and that it will work to address the weaknesses cited in the draft 

report, particularly in the areas of process documentation, data validation and 

verification, reconciliation of MCA, financial reporting, and unit costing. 

Interior did not agree with two of our recommendations because it believed it had 

already taken action to address these recommendations. The recommendations 

address performing an assessment of the internal controls related to nonfinancial 

data, including key indicators used for executive decision making, and having the 

department develop written procedures for performance data validation and 

verification at all bureaus. 

Interior stated that it conducted the assessment of internal controls related to 

nonfinancial data in 2006, and that it provided guidance to its bureaus on developing 

data validation and verification standards. We revised our recommendation to 

acknowledge Interior’s published guidance to its bureaus. However, not all bureaus 

had written policies on data validation and verification at the time of our review. 

Accordingly, we continue to believe our recommendations for assessing internal 

controls over nonfinancial data and the need for departmental-level management to 

monitor bureaus’ progress with policy direction have not yet been fully addressed. 

Interior also stated that it intends to follow up with the bureaus in 2007 to ensure that 
Page 12 GAO-07-298R Managerial Cost Accounting Practices 

 

they have either implemented or are taking action to implement our recommendation 

for Interior’s bureaus to establish written data validation and verification standards 

and procedures for nonfinancial data. We agree that this follow-up is necessary and 

revised our recommendation to require department officials to monitor the bureaus’ 

development and implementation of written procedures for performance data 

validation and verification. Interior’s written comments are reprinted in enclosure I. 

Scope and Methodology 

Our methodology was consistent with the one employed in our prior reviews of MCA 

practices.13 To obtain an understanding of how MCA systems at Interior generate cost 

information, we reviewed documentation and interviewed officials at Interior 

headquarters and at selected bureaus and department offices on the status of MCA 

system implementation, departmental guidance and leadership’s commitment to the 

implementation of cost management practices entity-wide, departmental internal 

controls to help ensure the reliability of financial and nonfinancial information used 

in MCA, and any obstacles raised by Interior to implementing managerial costing. 

Using the Standards for Internal Control in the Federal Government14 as a guide, we 

identified internal controls over the reliability of financial and nonfinancial 

information used in MCA. To determine how managers use cost information to 

support decision making and provide accountability for government resources, we 

obtained an understanding of how Interior uses cost accounting data for budgeting, 

costing services or products, preparing the SNC, managing contractors’ reimbursable 

costs, and other managerial uses through a review of documentation provided by the 

agencies and interviews of agency officials. We selected for review Interior’s larger 

components in terms of their obligations and earned revenue, and those with cost 

recovery activities, such as working capital funds. 

During our review, we visited Interior headquarters in Washington, D.C. We visited 

three component bureaus–BLM, BOR, MMS, and the WCF in Washington, D.C. We 

also visited BOR and MMS offices at the Denver Federal Center and held 

teleconferences with bureau policy and program development officials in 

Washington, D.C. and at the Denver Federal Center. 

When possible, we corroborated information obtained in interviews with agency 

documents such as policies, procedures, system descriptions, and flowcharts. We 

also reviewed prior Office of Inspector General, independent public accountant, and 

GAO reports regarding Interior’s MCA activities, systems, and data. We requested 

comments on a draft of our letter from the Secretary of the Interior or his designee. 

We received written comment from the Assistant Secretary on January 22, 2007. We 

considered and incorporated Interior’s comments as appropriate. We performed this 

work from July 2006 through November 2006 in accordance with generally accepted 

government auditing standards. 

13GAO-05-1013R, p. 12; GAO-06-3O1R, p. 7; GAO-06-599R, p. 5; GAO-06-1002R, p. 7. 

14GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, 

D.C.: November 1999).
Page 13 GAO-07-298R Managerial Cost Accounting Practices 

We are sending copies of this report to the Secretary of the Interior, the Director of 

the Office of Management and Budget, and other interested parties. Should you or 

your staff have any questions on the matters discussed in this report, please contact 

me at (202) 512-6131 or martinr@gao.gov. Contact points for our Offices of

Congressional Relations and Public Affairs may be found on the last page of this 

report. GAO staff who made major contributions to this report are listed in enclosure 

II. 

Robert E. Martin 

Director, Financial Management and Assurance 

Enclosures - 2 
Enclosure I 

Page 14 GAO-07-298R Managerial Cost Accounting Practices 

Comments from the Department of the Interior
Enclosure I 

Page 15 GAO-07-298R Managerial Cost Accounting Practices 
Enclosure II 

Page 16 GAO-07-298R Managerial Cost Accounting Practices 

GAO Contact and Staff Acknowledgments

GAO Contact 

Robert E. Martin (202) 512-6131 or martinr@gao.gov

Acknowledgments 

In addition to the contact named above, key contributors to this assignment were 

Paul Kinney, Assistant Director; Lisa Brownson; Debra Cottrell; Lisa Crye; Dan Egan; 

Tiffany Epperson; Thomas Hackney; Jeff Isaacs; Diane Morris; Glenn Slocum; and 

Jack Warner. 

(197013) 
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