Management Response and OIG Comment

The Mint concurred with this recommendation. It stated in its response
that it has made progress in this area. Mint officials are working on an
extensive effort to develop standard operating procedures (SOPs) for
tracking and maintaining data Mint-wide. New reports are being
developed that will enable users to verify data input and facilitate a
reconciliation process. The Mint is also updating the COINS Library,
which provides users with written SOPs, “How To” documents and
User Tips on the efficient and proper use of the COINS system. In the
audit report, we acknowledged the Mint made some positive
adjustments in the personnel assigned to enter production data into
COINS. The OIG believes the Mint is making the changes necessary
to address this recommendation, but notes that no timeframes for
completion were provided.

4, The Director of the Mint should ensure that procedures are
implemented for verifying and validating performance data to ensure
that information collected and reported is accurate, reliable,
consistent and complete. This may include periodic sampling,
reconciling data, and reviewing data collection, maintenance, and
processing techniques as well as disclosing data limitations in
performance reports and performance plans.

Management Response and OIG Comment

The Mint concurred with the recommendation. The Mint will rely on
the review of performance measurement information by an Independent
Public Accountant as a part of the financial statement audit. In
addition, they agree that verification and validation of performance
measure information throughout the year should be enhanced. The
Mint plans to institute a multi-tiered review process, which will involve
the dual review of all performance measure information by an
independent staff member, one who is independent of the person
preparing the performance measurement data, as well as a review by an
appropriate supervisor. Additionally, the Mint plans to develop
methodologies to “spot check” data input into the COINS system.
These methodologies will include the development of a SOP to direct
financial managers to do a periodic verification of data entered into
COINS. The OIG believes that these efforts should satisfy the

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received. The Mint could not readily tell us which costs by
department and accounts should be correctly included in the measure.
Consequently, the Office of the Deputy Chief Financial Officer
(DCFO) undertook to clarify the definition and obtain correct

figures. They provided production payroll costs in support of this
measure of $15.2 million through the end of February 1999.

The DCFO staff also went to the Philadelphia Mint to work with the
accountant there to verify that the numbers we were given were
correct. After their reconciliation of the Philadelphia payroll to the
National Finance Center records, they discovered that general
expenses in a number of payroll accounts were omitted. The
expenses in these accounts needed to be prorated to the circulating
coin production and the numismatic coin production. After this was
accomplished, they determined that the payroll costs should be
increased to $16.6 million. We were not provided a reconciliation
for the Denver Mint’s payroll amounting to $6.6 million, but DCFO
staff stated that their comparison to National Finance Center records
showed the payroll was reasonably close. We did not independently
verify the payroll, as the results would not have changed the nature
of our findings.

In order to meet a requirement for mid-year performance measure
status reporting to the Department, the Mint had to estimate the labor
charges for March, because it stated that it would take too long to
obtain the information through COINS and perform a manual
allocation of charges to circulating coins. In our discussions, Mint
officials recognized and agreed that there were inconsistencies in
what was believed to be the proper definition of this performance
measure. They also acknowledged that work needs to be done to
create the proper queries into COINS, and on refining the allocation
of labor costs so that COINS can fully support this process with
accurate, reliable, valid and timely data. Until this is accomplished,
the process will be time consuming, require much manual gathering
and manipulation of data and be susceptible to errors. Also, users of
the performance data may not be obtaining accurate reports for
management or budget decisions.

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requirements continuously evolve. In addition, the auditors were advised at the entrance
conference that the executive management module of COINS had not yet been
implemented, due to the limited time available to implement COINS by October 1, 1998,
as mandated for Y2K compliance. We advised the auditors that although COINS had not
been programmed to generate on-line, real time GPRA performance data, the information
could and would be extracted from the PeopleSoft system.

Summary of Our Response

We chose to interpret the major direction of your recommendations to be focused on
improvements to data input and the reporting functionality of COINS, with which we
generally concur, rather than as unfounded criticisms of the basic system. In fact, since
the time you conducted your fieldwork, we have already refined our COINS processing
and/or taken action to correct some of the issues your report addresses.

While we generally agree with the recommendations, we do take exception to the manner
in which some of the findings are characterized and the failure of the report to properly
explain relevant contextual considerations-- such as the timing of the audit and the
normal “shake-out” that is encountered in large systems implementation. For example,
the draft report fails to properly distinguish between short-term concerns about data input
and reporting capabilities of COINS--- which are a natural extension of a complex ERP
implementation--- and fundamental systemic issues with COINS, which the evidence
simply does not support but the report implies. The overall accuracy and reliability of
basic COINS data is proven beyond question. We believe that the issues mentioned in
the OIG’s report are properly classified as reporting issues that are naturally encountered
during the implementation phase of a large scale, dynamic and complex ERP system such
as the Mint’s COINS system. This is especially relevant given the fact that your
fieldwork largely covered the first quarter of FY 1999, the very same period in which the
system was being implemented. We wished you would have characterized your findings
in this context rather than implying, as we believe your report does, that there are
systematic flaws in the COINS system and is therefore unreliable, which is not the case.

Mint’s Response to Each Recommendation

Recommendation #1: The Director of the Mint should ensure that its performance
measures are clearly defined and explained, and specifically identify the data components
that should be used to calculate the performance. The definition of the performance
measure should explain the nature of the performance that is being measured and also
disclose any data limitations. The working definitions and the calculation methods
should be clearly documented and disseminated to relevant offices throughout the
organization.

Mint Response: The performance measures used by the Mint are clearly and
concisely defined in the Mint’s annual performance plan. The Mint’s annual
performance plan is included in the Departmental Budget, the OMB Budget and
in the Congressional Justification, The Mint agrees that a detailed mapping must
be prepared of the data elements used with our performance measures to the data

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Overview

This report presents the results of our audit to determine whether the
United States Mint’s (Mint) Consolidated Information System
(COINS) provides accurate, timely, reliable and valid performance
measurement information. Such information is needed in order to
assess the progress of the Mint in achieving established performance
goals as required by the Government Performance and Results Act of
1993 (the Results Act). Mint officials stated that COINS is the first
Enterprise Resource Planning (ERP) system in the federal sector, and
will integrate 15 modules in manufacturing, finance, marketing and
customer service to provide accurate and timely information for
operational and strategic decisions. In order to become Year 2000
compliant, the Mint implemented COINS October 1, 1998.

Mint officials expressed concern that our review covered the first two
quarters of their implementation. They stated that a temporary
degradation of reporting capabilities is common when initially
implementing a complex and dynamic ERP system. Also, not all
modules of the system were completely developed. They told us that
the executive management module was not yet available, so on-line,
real time Government Performance and Results Act (GPRA)
performance data and reports could not be produced by COINS.
However, the PeopleSoft system, the core management information
system of COINS, should provide the necessary data that would be
used to formulate the performance equations and reports.

We found that although COINS may eventually be capable of
providing the necessary data for performance reporting, it is not
currently able to fully support the performance reporting
requirements of the Mint. The system could not provide essential
cost information and contained erroneous production information.
Also, thie Mint needed to better define its measures, refine its cost
allocations, and improve management controls over data collection
and reporting. As a result, the Mint could not rely on COINS to
produce timely, accurate, or valid data for its performance reporting.
To meet a mid-year performance status reporting requirement, the
Mint had to estimate certain costs, and manually collect and
manipulate data from the system or other financial and production
reports to use in its performance measures.

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recommendation, but notes that no timetable for completion was
provided.

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MANAGEMENT RESPONSE

‘We agree that besides the assurance the annual audit provides, verification and
validation of performance measure information throughout the year should be
enhanced. We plan to institute a multi-tiered review process. This process will
involve the dual review of all performance measure information by an
independent staff member, independent of the person preparing the performance
measure data, as well as by appropriate supervisory personnel. This multi-tiered
review will be evidenced by the initialing of relevant supporting documentation
by the supervisor and by the independent staff. Additionally, we will be
developing methodologies to “spot check” data input into the COINS system.
These methodologies will include the development of a SOP to direct financial
managers to do a periodic verification of data entered into COINS.

Additional Information to Correct Factual Errors or Negative Connotations
Contained in the IG’s Draft Report

In addition to responding to each of your recommendations, [ would also like to provide
additional information that addresses some of the more troubling factual errors or
negative connotations contained in the report.

Issue A: On page 6, the report states Mint officials acknowledged that currently they
could not rely on COINS to provide all the information they need to develop and report
those three measures.

Mint Response: During the entrance conference on November 30, 1998, the
auditors were advised that the executive management module of COINS had not
yet been implemented, due to the limited time available to implement COINS by
the Y2K mandated October 1, 1998, timeframe. We advised the auditors that
although COINS had not been programmed to generate on-line, real time
GPRA performance data, the information could and would be extracted
from the PeopleSoft system. To recast this straightforward provision of relevant
information by saying “Mint officials acknowledged that currently they could not
rely on COINS... is inaccurate and incorrectly characterizes our high level of
confidence in our ERP system. The choice of such language in your report does
nothing except to place unwarranted doubt on the capabilities and functionality of
our newly implemented ERP system.

Issue B: On page 7, the report states, “We learned that the Mint developed a FY 1999
standard cost for each coin denomination and used these standard costs to prepare its
quarterly profit and loss statements. In May 1999, Mint officials used data from the
profit and loss statements to report the performance measure information in their mid-
year status report to the Department. Mint officials told us that there was a problem with
extracting the needed actual cost data from COINS, because the system did not have all
the programs and mechanisms needed for the performance measures and therefore, could
not generate all of the required reports.” Several sentences later the report states “Since
COINS could not provide actual and complete cost data in the manner needed, we could

Appendix 2
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Appendix 2
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MANAGEMENT RESPONSE _

DEPARTMENT OF THE TREASURY
UNITED STATES MINT
WASHINGTON, D.C. 20220

Jin 31 2na9

MEMORANDUM FOR DENNIS S. SCHINDEL
ASSISTANT INSPECTOR GENERAL FOR AUDIT

\
FROM: Jay Weinstein Py I Wit toh
Associate Directot/Chief Financial Officer

SUBJECT: Draft audit report entitled “Review of Results Act
Implementation through the Consolidated Information System
at the United States Mint (ADO-99-013)”

The purpose of this memorandum is to respond to the draft audit report entitled “Review
of Results Act Implementation through the Consolidated Information System at the
United States Mint (ADO-99-013) dated March 27, 2000.” We appreciate the
opportunity to review the draft report and provide our response for the record.

Bacl und

In the first quarter of FY 1999, we brought our Mint-wide Consolidated Information
System (COINS) on-line. The first Enterprise Resource Planning system (ERP) in the
federal sector, COINS integrates 15 modules in manufacturing, finance, marketing and
customer service to provide accurate, timely information for operational and strategic
decisions. COINS has so streamlined financial reporting that we now close our books
within 10 days of the end of the month in contrast to the 70 days after the end of the
quarter common before the implementation of COINS. The effectiveness of COINS is
evident by our earning of a sixth consecutive unqualified opinion on our financial
statement audit. This sixth consecutive unqualified opinion was rendered in the initial
year of implementation for our complex and comprehensive ERP system. The Mint’s
implementation of the COINS system has been properly recognized as a tremendous
positive achievement by the information technology and financial communities in both
the federal and non-federal arena and has been cited in numerous publications as a
resounding success.

It is unfortunate that the OIG chose to audit COINS data following the first quarter of
implementation. The OIG was advised at the entrance conference on November 30",
1998, that an audit following the first quarter of ERP implementation would not be the
most efficient use of its scarce audit resources. A temporary degradation of reporting
capabilities is common after the implementation of a complex and dynamic ERP system
as an organization becomes accustomed to using the new system, as processes are
reengineered for enhanced efficiency in an ERP environment, and as reporting

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definitions should be clearly documented so that all personnel will be
consistent and clear as to their composition. Information systems
personnel will also need these details in order to “map” the measures
to the system so that COINS will be able to extract the data needed,
manipulate it, and arrange it in such a way that will fully support
management. Mint officials stated that they were confident in the
capabilities of COINS and that it was designed to collect and store
accounting and operational information at the lowest level of detail so
that it could support any anticipated need.

We found that the administration or documentation of the
performance measurement and reporting process as well as some
management controls need to be improved. How performance
measures are developed or changed and the logic that supports them
should be documented. The various processes or subsystems the
Mint uses to address, identify, collect, assemble, and report actual
performance data should also be outlined and documented to
eliminate misinterpretation internally as well as support a verification
and validation process. Management controls should be established
at critical points in the data collection and reporting process to help
ensure accuracy. Mint officials recognized the weaknesses noted and
have begun the process of addressing them.

Recommendations

1. The Director of the Mint should ensure that the Mint’s performance
measures are clearly defined and explained, and specifically identify
the data components that should be used to calculate the
performance. The definition of the performance measure should
explain the nature of the performance that is being measured and also
disclose any data limitations. The working definitions and the
calculation methods should be clearly documented and disseminated
to relevant offices throughout the organization.

Management Response and OIG Comment

The Mint concurred with the recommendation. They agreed that the
performance measures they use should be clearly and concisely
defined and documented. They agree that they should perform a
detailed mapping of the data elements used with their performance

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Audit Results

COINS Is Not Currently Able To Fully Support Results Act
Reporting

Although the Consolidated Information System may be capable of
providing the necessary data for reporting performance, it is not
currently able to fully support the performance reporting
requirements of the Mint. Under the Results Act, agencies are
responsible for developing credible verification and validation
procedures to report performance information, identifying data
limitations, and discussing how the data limitations affect the
credibility of performance information in performance plans and
reports. During our audit, Mint officials stated that COINS is the
first Enterprise Resource Planning system in the federal sector, and
will integrate 15 modules in manufacturing, finance, marketing and
customer service to provide accurate and timely information for
operational and strategic decisions. Mint officials presented or
demonstrated various applications that COINS can perform and the
associated benefits of an integrated Mint-wide resource planning
system. However, the system is newly implemented and has not
been completely developed to include data and analysis necessary to
fully support Results Act reporting requirements.

We focused our review of performance reporting on three of the five
circulating coin performance measures shown in Appendix 1.

During the review, Mint officials acknowledged that currently they
could not rely on COINS to provide all the information they needed
to develop and report those three measures. They acknowledged that
the system could not provide actual cost data broken out by
departments and accounts for two measures. Also, for the third
measure, COINS production and payroll data (detailed labor charges)
was either erroneous or unreliable, and management controls over
data input needed to be improved. Finally, for all three measures we
found that clear, detailed working definitions of exactly what data
elements were needed to support each measure were lacking, and the
development and refinement of some cost allocations needed to be
performed. As a result, COINS is not able to timely generate
complete and accurate data needed to address the performance
measures.

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Appendix 2
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MANAGEMENT RESPONSE

making it appear that the Mint’s estimates were whimsical and that COINS is
flawed. Specifically, the Mint began monthly closing of our ERP system in late
February/early March 1999 after the conclusion for the FY 1998 audit. We
started by closing October 1998 and rolling forward sequentially. This method of
monthly sequential closing was preferred to quarterly closings because it provided
a greater degree of data integrity and allowed us to become more familiar with the
intricacies of the system. By early May 1999, coinciding with the due date of the
mid-year budget execution review, monthly ERP closings were completed
through February 1999. Accordingly, labor charges had to be estimated for
March 1999. By the summer of 1999, the Mint was able to close the books and
produce actual financial information by 10 days after month end. It is unfortunate
that this explanation, which was told to the auditors, was not included in the
Teport.

I am requesting that you include our complete response in your final report. If you have
any questions, please do not hesitate to call me.

CC: John Mitchell
Terry Bowie
Jackie Fletcher
Mike Gordon
Gil Knarich
Howard Hyman
Rich McKay
Cathy Williams
Mike Zuckerman

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To meet these reporting requirements, the Mint needs accurate,
timely, reliable, and valid data. Accuracy is the extent to which the
data items are free from error. Timeliness is whether data sources
about recent performance are available when needed to improve
program management and report to Congress. Reliability refers to
the precision, or accuracy, with which performance is measured.
Validity is whether the data collected match the intended area of
performance or the extent to which the measure represents actual
performance.

Based on the mission mandated by Congress, the Mint identified its
three major business activities: Production of Circulating Coinage;
Production and Sales of Numismatic and Bullion Coinage; and
Protection of Assets. Only the Mint facilities located in Philadelphia,
Pennsylvania and Denver, Colorado manufacture circulating coinage
for the American people.

In FY 1996, the Mint began setting the stage for acquiring the
COINS. In October 1998, the Mint implemented COINS at the
Philadelphia and Denver Mint facilities. COINS replaced most of the
Mint’s legacy systems and enabled the Mint to become Year 2000
compliant. The new system fulfills the Mint’s strategic objective to
acquire an integrated business information system to address most of
its manufacturing, marketing, and financial requirements. To
provide accurate, meaningful, and timely information required by
management, COINS implementation was a critical success factor in
the attainment of many Mint information technology goals.

For FY 1999 Results Act reporting, the Mint officials revised their
previous performance measures pertaining to circulating coins.
Current measures focus on producing coins and maintaining
inventories at sufficient levels to meet Federal Reserve Bank
requirements, reducing the cost of producing circulating coins, and
improving other major business activities at the Mint. As a result,
more than half of the Mint’s Results Act measures involved
circulating coinage.

In June 1998, the U.S. General Accounting Office (GAO) reported
on its observations of the Treasury’s Fiscal Year 1999 Annual
Performance Plan submitted to Congress as required by the Results

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ens SEN EE ot SED EE EEE SESE TINE

The Results Act requirements are a priority for Mint officials,
however, before and during our audit, other factors affected their
ability to develop COINS capabilities to fully support their
performance measurement needs. COINS was in its initial
implementation phase, some of the performance measures were
changed for the new fiscal year, and the Mint was focused on other
critical priorities such as Year 2000 (Y2K) compliance, the
introduction of the new commemorative quarters, and record bullion
sales. The Mint also experienced substantial personnel losses to its
information system staff that hampered its ability to work on all these
problems effectively. We recognized that the Mint faced many
challenges simultaneously and changed its performance measures in
an evolving process to better meet Results Act goals. We are making
four recommendations to help the Mint develop a better systematic
process for ensuring that future performance results are timely,
accurate, reliable and valid.

Background

Congress enacted the Results Act to improve the confidence of the
American people in the capability of the Federal Government to
operate efficiently. The Results Act systematically holds Federal
agencies accountable for achieving program results. Accordingly,
the Results Act requires Federal agencies to more effectively plan,
budget, execute, evaluate, and account for their programs and
activities. Federal managers are required to establish performance-
based management systems to accomplish goals and measure results.
The goals are to be expressed in objective, quantifiable, and
measurable form.

The Results Act also requires Federal agencies to meet the following
time frames for implementation:

© report annually on actual performance compared to goals with the
first report due March 2000; and

e include actual program performance results for the past three
fiscal years (FYs) in annual reports beginning in FY 2002.

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measures to the data elements included in the COINS system. They
project that this should be accomplished by December 2000. The
OIG is satisfied that the Mint understands the points raised within our
recommendation and will take satisfactory action to address them.
The Mint initiated the data mapping process during the course of the
audit.

2. The Director of the Mint should ensure that all performance
measurement cost elements are included in COINS and completely
and accurately reflect performance data for all measures that rely on
COINS. This would include all programs and allocation mechanisms
to determine and compute the actual unit costs for all circulating
coinage manufactured, and the number of clad coins produced for a
specific payroll amount. It should also include an improved query to
retrieve the payroll data from COINS, and an appropriate and
finalized method for allocating labor costs that may not be easily
attributable to particular strategic business units.

Management Response and OIG Comment

The Mint generally concurred with the recommendation. The Mint
correctly understood that we are specifically referring to a detailed
distribution of labor costs to specific products. Although labor
distribution information is currently included in summary form in
COINS, the Mint indicated the detailed labor distribution data will be
included within COINS with the implementation of a Human Resources
Information System. This module is scheduled for implementation in
July 2001, and the Mint believes it will allow the “capturing of labor
charges within PeopleSoft by individual employee, and permit the full
functionality of tracking an individual’s labor to a product.” We
believe the efforts currently underway within the Mint will ultimately
satisfy our recommendation.

3. The Director of the Mint should ensure that proper procedures are
established for making daily production counts and entries, and for
checking and verifying the data; that staff is trained to enter daily
production data into COINS, and check and verify the input data; and
that COINS production reports are periodically reconciled to Mint
input to ensure reliability of COINS data.

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COINS planned operations for measuring performance against goals
and objectives.

The Mint has nine performance measures, five of which are
associated with circulating coins, three with numismatic operations,
and one with its protective services. Because of the number of
measures, we chose to focus on circulating coin operations in this
review. We selected three of the five measures for circulating coins
that dealt with productivity and efficiency (see Appendix 1) and that
relied on COINS for reporting. Because COINS was not
implemented at the circulating production sites until October 1998,
our audit scope was limited to coins produced at the Philadelphia and
Denver Mint facilities during FY 1999. We performed audit work at
Mint Headquarters in Washington, D.C., and obtained production
and payroll data for the Philadelphia and Denver Mint facilities to
help evaluate the performance measures. We identified the source
documents, such as production reports and verified data to the
production statistics generated in COINS printouts up to March 31,
1999. We also reviewed and analyzed payroll statistics generated in
COINS printouts and related payroll documents up to February 28,
1999. In addition, we reviewed support documentation for FY 1999
mid-year performance results reported to the Department on May 17,
1999.

We did not assess the overall capability of the COINS system
modules implemented in terms of their ability to support
manufacturing, finance, marketing, customer service, and other
activities. Also, our audit was limited to assessing the performance
data generated and provided by the Mint, rather than assessing
whether the performance measures themselves were appropriate. We
did not determine whether the Mint could have developed better
measures to assess the achievement of performance goals. Our on-
site fieldwork was conducted between January and June 1999.

We conducted this audit in accordance with Government Auditing
Standards issued by the Comptroller General of the United States and
included such audit tests as were determined necessary.

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Appendix 2
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MANAGEMENT RESPONSE

elements included with the COINS system. This detailed mapping should be
completed by December 2000 and, as recommended, will be disseminated to
relevant offices throughout the organization.

Recommendation #2: The Director of the Mint should ensure that all performance
measurement cost elements are included in COINS and completely and accurately reflect
performance data for all measures that rely on COINS. This would include all programs
and allocation mechanisms to determine and compute the actual unit costs for all
circulating coinage manufactured, and the number of clad coins produced for a specific
payroll amount. It should also include an improved query to retrieve the payroll data
from COINS; and an appropriate and finalized method for allocating labor costs that may
not easily be attributable to particular strategic business units.

Mint Response: This recommendation consists of several distinct parts and we
will address each separately. With the exceptions noted below, we concur with
the recommendation.

‘The first part of the recommendation is that “The Director of the Mint should
ensure that all performance measurement cost elements are included in COINS
and completely and accurately reflect performance data for all measures that rely
on COINS”. It is important to note that labor distribution information is included
at a summary level in the current version of the Mint’s ERP. Accordingly, payroll
data in total, is resident within the current COINS system. Detailed labor
distribution data will be included within the Mint’s ERP system with the
implementation of the Human Resources Information System (HRIS). The HRIS
is scheduled for implementation in July 2001. With HRIS, labor distribution will
be accomplished in the PeopleSoft project module and should provide labor data
in a more timely manner than the current labor distribution system. Specifically,
the greater detail provided by the labor distribution functionality of HRIS will
include the capturing of labor charges within PeopleSoft by individual employee
and permits the full functionality of tracking an individual’s labor to a product.
We believe that all relevant performance measurement cost elements are currently
included in COINS, but that a better audit trail could be developed. The
implementation of the HRIS and the detailed data element mapping discussed in
recommendation #1 will adequately address this issue.

The development of an improved payroll query from COINS is the second part of
the recommendation. The detailed data mapping outlined in our response to
recommendation #1 and the implementation of HRIS mentioned above will
facilitate an improved payroll query, as recommended.

The final part of the recommendation calls for an “appropriate and finalized
method for allocating labor costs that may not easily be attributable to particular
strategic business units”. Labor costs that may not easily be attributable to
particular strategic business units are largely General and Administrative
expenses (G&A). Currently, the Mint allocates G&A expenses based on a study

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REVIEW OF THE RESULTS ACT IMPLEMENTATION
THROUGH THE CONSOLIDATED INFORMATION
SYSTEM AT THE UNITED STATES MINT

OIG-00-123 SEPTEMBER 15, 2000

Office of Inspector General

sees

United States Department of the Treasury



Mint officials told us that there was a problem with extracting the
needed actual cost data from COINS, because the system did not have
all the programs and mechanisms needed for the performance measures
and, therefore, could not generate all of the required reports. In
addition, there were data allocation and query problems that needed to
be corrected to satisfy the performance measurement requirements.
Since COINS could not provide actual and complete cost data in the
manner needed, we could not determine whether the system would
provide timely, accurate, and valid information for the two
performance measures.

COINS Did Not Provide Complete and Accurate Data for the
Performance Measure (1-8) - Clad Coins Produced Per
Circulating Production Payroll Dollar

Production data in COINS was inaccurate and needs to be improved

We found that the coin production data obtained from the COINS at
Headquarters did not reconcile with the production data available at
the Philadelphia Mint. First quarter FY 1999 production entry data
contained errors in about 98 percent of the daily entries. This made
it impossible to verify the daily production counts in COINS. Mint
officials explained that since COINS was new, their personnel made
mistakes inputting the daily production data. They further explained
that during initial system implementation, production personnel and
supervisors input the data rather than personnel fully trained on the
use of the COINS system. After this problem was identified, in
February 1999, an individual with more system capability was used
to input the data. Consequently, we compared the source
documentation for March 1999, with the COINS output and found,
that accuracy was substantially better. However, there were still
some input errors, including inconsistent entry dates and omitted
production.

The Mint was required to submit a mid-year budget execution review
to the Department that provided a status of the performance
measures. Because of the problems mentioned above, Mint officials
could not rely on COINS to provide accurate production information
for this performance measure. They told us that the first and second
quarter production figure of 3.4 billion clad coins used in the
performance measure equation had to be obtained from manual
records and reporting. However, Mint staff determined after

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At the time of our audit, the Mint could not sufficiently address these
performance measurement data and reporting issues. The Mint was
under some pressure to implement COINS by October 1, 1998, in
order to become Y2K compliant, however not all modules of COINS
were completed or ready for use. The executive management
module, which would provide on-line, real time GPRA performance
data had not yet been addressed. Mint officials told us that although
the Results Act is a priority for them, other priorities such as the
implementation of COINS, efforts for Year 2000 compliance, the
introduction of the new commemorative quarters, and certain other
factors including loss of critical information system staff have
impacted on their ability to address these issues.

Mint officials plan to develop assurances that: (1) the necessary data
is in or will be in COINS; (2) the data items are accurate, reliable,
valid, and available in a timely manner; and (3) the performance
measure definitions will be established with needed detail. The Mint
officials plan to use the services of an Independent Public Accountant
and a private information technology contractor to assist them and
perform an independent system verification and validation test.

COINS Did Not Provide Actual Costs Needed for Performance
Measures Related to the Average Cost for 1,000 Units of
Circulating Clad Coinage (1-6) and Circulating Pennies (1-7)

We found that COINS was not able to generate or report data at the
level of detail needed for these two performance measures --
“average cost per 1000 units of circulating clad coinage (including
metal)” and “average cost per 1000 units of circulating pennies
(including metal).” Mint officials told us that total costs included
labor, metal cost, fabrication, and other services and expenses, as
well as shipping costs to the Federal Reserve Banks. However,
COINS could not readily provide actual costs for each of these cost
categories or support for the various cost elements by department and
accounts that should be included in the measures. We learned that
the Mint developed a FY 1999 standard cost for each coin
denomination and used these standard costs to prepare its quarterly
profit and loss statements. In May 1999, Mint officials used data
from the profit and loss statements to report the performance measure
information in their mid-year status report to the Department.

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Appendix 4
REPORT DISTRIBUTION

Treasury Departmental Offices

Assistant Secretary (Management)

Treasurer of the United States

Director, Office of Organizational Improvement
Director, Office of Budget

Director, Office of Strategic Planning

Director, Office of Finance and Budget Execution
Assistant Director, Office of Internal Control

Desk Officer, Office of Accounting and Internal Control

United States Mint

Director

Deputy Director

Associate Director, Circulating Coinage

Associate Director for Policy and Management/
Chief Financial Officer

Chief Information Officer

Deputy Chief Financial Officer

Assistant Director, Office of COINS

Office of Management and Budget

Esther Rosenbaum, Budget Examiner

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Appendix 3
MAJOR CONTRIBUTORS TO THIS REPORT

Audit Directorate

Barry L. Savill, Director, Program Audit
George W. Tabb, Audit Manager

Irene Aultman, Auditor-in-Charge
Jerry Garbinski, Auditor

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ssc ESSE SS SSIES SS SSS oS ST LAE ESOS

Act.' The Mint was not specifically included in GAO’s report.
However, GAO’s observations identified areas for all bureaus to give
focus. Included in GAO’s findings was one that stated that
Treasury’s Results Act plan was incomplete in that some of the
performance measures for its bureaus and offices were still being
developed and defined. As an example, the GAO report highlighted
one bureau’s performance measure as not being supported by
complete information such as definitions, data sources, level of
detail, and data reliability.

This audit is one in a series of audits planned by the Office of the
Inspector General designed to assist Treasury bureaus in meeting the
requirements of the Results Act. We focused on the four Treasury
bureaus that were pilot programs for Results Act implementation, the
Mint being one. The 1998 GAO report and its findings further
highlighted the need to continue to systematically review all aspects
of Results Act implementation at the Treasury bureaus, and since the
Mint was not specifically addressed in the GAO report, we planned
and initiated this effort.

Appendix 1 shows the Mint’s two strategic goals for circulating
coinage, the associated performance measures for the goals, and
whether the measures were included in our review.

Objective, Scope and Methodology

Our overall audit objective was to determine whether the Mint’s
COINS provides accurate, timely, reliable, and valid information in
order to assess the progress towards achieving established
performance goals as required by the Results Act. Specifically, we
determined to what extent control weaknesses and data limitations
affected the Mint’s ability to assess its achievement of performance
goals. We interviewed Departmental personnel to identify
established policies and oversight activities. We discussed or
reviewed relevant Federal laws, regulations, policies, procedures,
reports, and other guidance. We interviewed Mint officials and staff
to obtain current information for implementing the Results Act and

| The Results Act: Observations on Treasury’s Fiscal Year 1999 Annual Performance Plan (GAO/GGD-98-
149), dated June 30, 1998.

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Appendix 1
CIRCULATING PERFORMANCE MEASURES

The following table shows the Mint’s two strategic goals for circulating coins, their
associated performance measures, and whether the measures were included in our review.

Table 1
Mint Performance Measures for Circulating Coinage
September 11, 1998 to May 17, 1999

Included
Strategic Goal/Performance Measure In Our
Review

Strategic Business Activity: Circulating Coinage

Produce coins and maintain inventories at sufficient levels to meet
Federal Reserve Bank demand.

1. Frequency of time meeting a minimum inventory level.

2. Federal Reserve Bank Customer Satisfaction Survey - 85 %.

By 2003, reduce the average unit cost of circulating coinage by 15
percent (including metal costs). The baseline year is FY 1998.

3. Average cost per 1000 units of circulating clad coinage (including
metal). (Performance Measure # 1-6) x

4. Average cost per 1000 units of circulating pennies (including
metal). (Performance Measure # 1-7) x

5. Clad coins produced per circulating production payroll dollar. x
(Performance Measure # 1-8)

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Appendix 2
Page 6 of 8

MANAGEMENT RESPONSE

not determine whether the system would provide timely, accurate, and valid information
for the two performance measures.”

Mint Response: The COINS system produces actual cost data. Actual profit and
loss statements are issued monthly. Variances are applied against standard costs
to produce the monthly actual results. This actual cost functionality was in place
in May 1999, rendering the OIG’s statement above as incorrect. Additionally, the
issue of whether COINS produces timely, accurate and valid information was
determined conclusively with the sixth consecutive unqualified opinion on our FY
1999 financial statements,

In regard to statements that the COINS system could not provide “actual cost” or
did not contain actual costs elements by department, we feel that these are
misleading and inaccurate statements. During the review, there were a number of
discussions conceming standard vs. actual costs and how the COINS system was
configured. The Mint explained that the COINS system is a standard costing
system and that differences between standard and actual cost are captured in
variance accounts. In addition, we explained that the amounts contained in the
variance accounts are allocated to the products sold by the Mint, thereby arriving
at actual cost. These practices are the normal convention used in costing products
manufactured in a continuous process operation as was explained to the auditor
assigned to this review.

Issue C: On page 8, the report states, “The Mint was required to submit a mid-year
budget execution review to the Department that provided a status of the performance
measures. Because of the problems mentioned above, Mint officials could not rely on
COINS to provide accurate production information for this performance measure. They
told us that the first and second quarter production figure of 3.4 billion clad coins used in
the performance measure equation had to be obtained from manual records and reporting.
However, Mint staff determined after submitting their report to the Department that this
number was incorrect and should have been 3.8 billion clad coins”.

Mint Response: As we stated in our response to recommendation #4, we will be
taking measures to further enhance the already high level of reliability of our
performance measure information. Such measures will include improving the
verification of performance measure computations and developing procedures to
validate data input into the Mint’s ERP system. The Mint’s FY 1999 mid year
budget execution review was an extremely accurate document. Data from the
COINS system was the foundation of this document. The mid year budget
execution review used coins shipped as the basis to calculate our circulating
performance measures. Since we were shipping all that we produced, using coins
shipped as the calculation basis provided a very close approximation of the result
that could be expected from using coins produced as the basis to calculate these
performance measures. Nevertheless, we agree with the auditors that we should
be reporting on the basis of coins produced and we will develop a methodology to

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Table of Contents

Overview

Background ...

Objective, Scope and Methodology

Audit Results ...........cccccccccccccccceeee cece erences ene e esse nea e anna ante aan n ee eee ea eeeeeaeeeeee tees 6
COINS Is Not Currently Able To Fully Support Results Act Reporting ............... 6

Performance Measures Need To Be Clearly Defined And Documented ..

COMCIUSIONS .......... ce ceeeeeeeeeeeee eee e eect tees eeeetneeeeeeeeeettteeeeseeaaaeeeeaueeeeeenegs 13
Recommendations ..............c6ccccceeeeeeeeeeeeesenseeeeeeeeeeeseeeeeeeneeeeeeaaaeseeeeoes 14
Appendix 1 - Circulating Performance MeasuTes.............:::cssseeeeeeeeeeeeenaneeeeeees 18
Appendix 2 - Management Respomse..............::::sssssseeeeeeeeeseeeeeeeneneeeeaaeeeeeeeens 19

Appendix 3 - Major Contributors To This Report

Appendix 4 - Report Distribution

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Performance Measures Need To Be Clearly Defined And
Documented

We found that the three performance measures we reviewed needed
to be more clearly and consistently defined and documented.
Management officials need clearly documented data elements for all
performance measures to track actual performance and subsequently
provide the necessary performance reports. In its mid-year status
report to the Department, the Mint used a different definition than it
started with for two measures (1-6 and 1-7), and included invalid
labor costs in the third (1-8). Throughout the course of our audit, we
received different working definitions of the measures depending on
with whom we talked. If the definitions of these measures and their
composite elements are not clearly defined in detail, the Mint would
provide inconsistent, unreliable, and potentially invalid results in its
performance reports. It is important to resolve these problems in
order to support verification and validation audits in the future. Mint
officials recognized the inconsistencies we found and our concerns
over the definitions, and began addressing the issues during our
Teview.

Performance Measures 1-6 and 1-7 Need Clarification,
Refinement and Better Documentation

We found that the definitions associated with these two measures --
“average cost per 1000 units of circulating clad coinage (including
metal)” and “average cost per 1000 units of circulating pennies
(including metal)” need to be clarified, refined, and better
documented. The Mint reported to OMB and Congress that the
calculation for the two selected performance measures involved total
costs divided by production multiplied by 1,000 units of coins.
However, in providing support for its May 17, 1999 mid-year budget
execution and status of performance measures report, the Mint
indicated that instead of using the amount of coins manufactured or
produced during the period, it used the amount of coins shipped to
represent production. The decision to change an element of the
performance measure’s composition was not well documented, nor
were justifications for making a change in the measure during the
year. In our opinion, this change was not adequately disclosed in the
mid-year status report.

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Conclusions

indirect labor at the production facilities, and to adding certain
headquarters labor charges.

We also found that the circulating production payroll amount used to
calculate the measure included payroll (labor) charges for the penny.
The production part of the equation only (and correctly) used clad
coins produced. Therefore, we stated that the measure should only
include costs associated with clad coins. Where the Mint has
production labor charges that are directly or indirectly related to
manufacturing, but cannot be attributed to a specific coin or
applicable overhead labor charges, these charges need to be prorated
between circulating and numismatic coin manufacture. Next, the
circulating portion of the prorated charges should be allocated among
the specific coin denominations.

Mint officials acknowledged the inconsistencies in the definitions that
were provided us, and the need to firmly establish and document the
exact definition for this measure to include a detailed description of
the labor cost accounts used and any allocation methodologies
employed. Mint officials recognized that they did not have a
procedure in place to ensure that the correct definitions for the
measures were clarified, documented and consistently applied. We
discussed the inconsistency of including penny costs and the
allocation methodology with the Chief Financial Officer on May 27,
1999. He agreed that the penny labor charges should not be included
in the measure. Financial personnel are now working to establish
these definitions and labor cost allocation methodologies.

We found that COINS could not provide essential cost information
and contained erroneous production information. Also, the Mint
maintained inconsistent working definitions and cost allocations for
each measure. Mint officials represented that COINS is a highly
sophisticated and capable system that can, or will in the future,
provide for most of their information needs. However, they
recognized that more work is necessary before it can fully support
Mint management in terms of the Results Act. Their performance
measures need to be defined in detail to include the specific accounts
and departments from which actual cost data will be obtained. These

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Page 2

factors including loss of critical information system staff have
impacted Results Act reporting. Also, since our review focused on
COINS’ ability to support performance measure data only, our
results are not representative of the overall effectiveness of the
COINS system.

We made four recommendations to improve the data quality and
timeliness needed to enhance the Mint’s efforts to move forward
in reporting its performance goals. The Mint concurred with all
our recommendations and provided, collectively, a satisfactory
action plan to improve the reporting of performance measures and
results through COINS. The Mint's response to our
recommendations is included as Appendix 2. We have made
adjustments to the report where appropriate based on these
comments.

We appreciate the courtesies and cooperation provided to our
auditors during the audit. If you wish to discuss this report,
you may contact me at (202) 927-5400 or a member of your staff
may contact Barry L. Savill, Director, Program Audits at

(202) 283-0151.

Attachment


MANAGEMENT RESPONSE

conducted in 1996 by Coopers and Lybrand, and subsequently reviewed by our
independent public accountant. The Mint has received four consecutive
unqualified opinions since the implementation of this allocation methodology.

Recommendation #3: The Director of the Mint should ensure that proper procedures are
established for making daily production counts and entries, and checking and verifying
the data; staff is trained to enter daily production data into COINS, and check and verify
the input data; and COINS production reports are periodically reconciled to Mint input to
ensure reliability of COINS data.

Mint Response: The Mint agrees to ensure proper procedures are in place for the
recording of production entries into our ERP system. Daily production is
currently counted. Therefore, we recommend that the first sentence should be
changed from “the Director of the Mint should ensure that proper procedures are
established for making daily production counts and entries...” to “the Director of
the Mint should ensure that proper procedures are established for making daily
production entries...” With the change noted in the previous sentence, the Mint
concurs with this recommendation.

In fact, since the completion of the audit fieldwork, much progress has been made
in this area. We are currently undertaking an extensive effort to develop SOP’s
for tracking and maintaining data Mint-wide. Many new reports are being
developed that will enable users to verify data input and to facilitate the
reconciliation process. The Mint has also undertaken efforts to update the COINS
Library, which provides users with written SOP’s, How-To documents and user
tips on the efficient and proper use of the COINS system.

Recommendation #4: The Director of the Mint should ensure that procedures are
implemented for verifying and validating performance data to ensure that information
collected and reported is accurate, reliable, consistent and complete. This may include
periodic sampling, reconciling data, and reviewing data collection, maintenance, and
processing techniques as well as disclosing data limitations in performance reports and
performance plans.

Mint Response: The Mint concurs with this recommendation. On an annual
basis, performance measures included in the Mint’s annual performance plan and
performance report are included in the Management Discussion and Analysis
(MD&A) section in the Mint’s annual report that accompanies the Mint’s annual
audited financial statements. As such, performance measurement information
included in the MD&A is subject to review by the Mint’s Independent Public
Accountant (IPA). During this review, the Independent Public Accountant
analyzes Mint performance data for reasonableness and for consistency with the
Mint’s audited financial statements. Currently, a subset of measures from the
Mint’s annual performance plan and performance report is included in the MD&A
section of the Mint’s annual report.

Appendix 2
Page 4 of 8

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DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

September 15, 2000

OFFICE OF
INSPECTOR GENERAL

MEMORANDUM FOR JAY W. JOHNSON, DIRECTOR

UNITED STATES MINT i jtle

FROM: Dennis S. Schindel
Assistant Inspector General for Audit

SUBJECT: Audit Report on Review of the Results Act
Implementation Through the Consolidated
Information System at the United States Mint

This memorandum transmits the subject final audit report. The
overall audit objective was to determine whether the Mint’s
Consolidated Information System (COINS) provides accurate,
timely, reliable, and valid information in order to assess the
progress towards achieving established performance goals as
required by the Government Performance and Results Act of 1993
(Results Act). We did not question whether the performance
measures adopted by the Mint were the best possible measures of
the circulating coin activities. Nor did we conduct a complete
systems capability review of COINS and all its composite modules.
We limited our review to assessing the ability of COINS and its
modules to support performance reporting.

Our audit revealed that although COINS may eventually be capable
of providing the necessary data for performance reporting, it is
not currently able to fully support the performance reporting
requirements of the Mint. We focused our performance reporting
review on three performance measures for circulating coinage. We
found that COINS production data contained errors and could not
always be relied upon, and management controls over data input
needed to be improved. We also found that clear working
definitions of data elements were needed, and the development and
refinement of some cost allocations needed to be performed.

We recognize that at the time of this review, the Mint had not
been able to sufficiently address a number of the data and
reporting issues due to other priorities. While the

Results Act is a priority for the Mint, other priorities such as
full implementation of COINS, efforts for Year 2000 compliance,
introduction of the new commemorative quarters, and certain other


MANAGEMENT RESPONSE

Appendix 2
Page 7 of 8

provide this information for GPRA reporting purposes at the earliest practical
date.

Issue D: On page 9, the report states, “COINS was not able to provide complete, accurate
and timely labor cost data at the detailed level needed to support the reporting of
performance measure 1-8. We requested that Mint headquarters staff provide specific
production payroll data from COINS so that we could then compare it to source data
from the two Mints. For a variety of reasons, it required several attempts to obtain usable
data.”

Mint Response: I would like to add for the record additional information to
clarify this issue for anyone reading the audit report unfamiliar with the Mint’s
current payroll system. The payroll data contained in the COINS system is
complete and accurate and is easily tied back to the source data received from the
National Finance Center (NFC). As in any payroll data collection, it is dependent
upon employees filling out their time cards correctly and the timekeepers entering
the data correctly into the PC-Tare system. This information is transmitted to
NEC, payroll is processed, disbursements made, and the data returned to the Mint
ona tape. The Mint receives the payroll data tape from NFC approximately two
weeks after the end of each pay period. The Mint has no control over the time
period required for NFC to produce this tape and therefore must live within this
time constraint. The tape is processed through the Mint’s Labor Distribution
System (LDS) and a summary data file is created for posting into the COINS
system. The data from the LDS system is summarized by account, cost center
(department), and project code/product code for posting into the COINS system.
From a data perspective, the only detail information not transferred to the COINS
system pertains to employees’ personnel data (name, social security, etc.) and
detailed payroll data (hours worked, per hour rate, GS schedule, etc), thereby
making it nearly impossible for the auditors to track an individual’s labor to a
specific product. It was never intended that the design of the COINS system
would include this level of detail. Nevertheless, summary payroll data from the
COINS system can be traced back to the LDS system and data from the LDS
system can be traced back to the individual employee’s timesheet. Data is
checked each time payroll data is posted and corrections are made to the original
documents and provided for processing by timekeepers and NFC. Corrections are
posted in COINS in subsequent pay periods.

Issue'E: On page 10, the report says “In order to meet a requirement for mid-year
performance measure status reporting to the Department, the Mint had to estimate the
labor charges for March, because it stated that it would take too long to obtain the
information through COINS and perform a manual allocation of charges to circulating
coins.”

Mint Response: We agree that the Mint had to estimate labor charges for March
and that the performance measure reporting included this estimate. However, the
audit report does not include the explanation that was provided to the auditors,

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submitting their report to the Department that this number was
incorrect and should have been about 3.8 billion clad coins. In this
case, productivity was understated. New commemorative quarters
produced during the period at the Denver and Philadelphia Mint had
not been included.

In an additional issue related to production reporting, we found some
areas relating to data entry and internal controls that could be
improved. The original production data entry documents did not
specify which day’s production was being reported, the person
making the entry, and the person who checked and verified the data.
The input document contained a “transaction” date and time that we
were told usually reflected the day the data was entered into COINS,
and which usually represented the previous day’s production.
Consequently, neither Mint personnel nor we could determine from
the COINS printout information what the day of production was for
any given entry. This information is needed if the Mint is to
compare the COINS output data to the source input documents in
order to verify the accuracy of the data.

During the audit we suggested that it would be a good internal
control to have a person check and verify the daily counts and daily
COINS production entries and sign the input form. The COINS
output should include the day of production, the manufacturing site,
the various coin production figures and the identification of the
person who made the COINS entry and date of entry. Mint
management officials will need this data for internal control
purposes, and auditors will need this data in order to verify and
validate Results Act reports in the future.

COINS could not provide the detailed labor cost data needed

COINS was not able to provide complete, accurate and timely labor
cost data at the detail level needed to support the reporting of
performance measure 1-8. We requested that Mint Headquarters
staff provide specific production payroll data from COINS so that we
could then compare it to source data from the two Mints. For a
variety of reasons, it required several attempts to obtain usable data.
For example, we received different payroll figures from different
sources within the Mint. Also, confusion about the definition
(discussed later) of the labor categories that should be used in
developing the measure also contributed to the erroneous data we

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The number of coins shipped is not necessarily the same as the number
produced and using one instead of the other can produce different
results when entered into the performance formula. For example, in
FY 1998, the Mint produced 15.1 billion circulating coins and shipped
16.6 billion coins to the Federal Reserve Banks. By using shipped
coins in this case, it would appear that the Mint’s cost to produce 1,000
coins would be less and, thereby, be considered more efficient.
Admittedly, small changes in large numbers will not yield significant
variation. However, in our opinion, if the numbers used in the formula
change from period to period, it would dilute the strength of any
conclusions that could be drawn or render invalid trends that could be
established.

In our discussion of this issue, Mint officials made arguments why the
measure would be better using shipped coins, which we could accept.
However, the definition of the costs used for these measures (the other
half of the performance equation) is more complicated and requires
allocations of costs between business lines as well as between clad coins
and the penny. The specific cost accounts used and departments
involved in creating the overall cost used in the formula need to be
identified. The allocation formulas used need to be described and
defined. Costs associated with penny production should not be
included in the clad coin measure and vice versa. Mint officials agreed
that these measures needed to be set and clearly defined in detail. It is
important that this is done so that COINS can be programmed to extract
the correct data and formulate and compute the equations supporting
each measure. This will help ensure the accurate reporting needed to
satisfy Results Act requirements.

Performance Measure 1-8 Needs Clarification, Consistency and
Better Documentation

We encountered difficulties in establishing the proper definition of
the payroll amount used in the equation for this performance measure
“clad coins produced per circulating production payroll dollar.”
During the audit, we found inconsistencies and some confusion as to
what labor categories or accounts were included in this measure.
Various Mint officials provided different definitions of the terms
“circulating production payroll dollar.” Mint officials provided three
different definitions for the payroll data used in calculating the
projected and actual results for the performance measure. The
definitions varied from excluding to including the penny, adding certain

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