GAO-06-1002R Managerial Cost Accounting Practices 

United States Government Accountability Office

Washington, DC 20548 

September 21, 2006 

The Honorable Todd R. Platts 

Chairman, Subcommittee on Government Management, 

Finance, and Accountability 

Committee on Government Reform 

House of Representatives 

Subject: Managerial Cost Accounting Practices: Department of Agriculture and the 

Department of Housing and Urban Development 

Dear Mr. Chairman: 

Authoritative bodies have promulgated laws, accounting standards, information 

system requirements, and related guidance to emphasize the need for cost 

information and cost management 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 states 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 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. The Federal Financial Management Improvement Act 

of 19963 built on this foundation and required, among other things, CFO Act agencies 

to comply substantially with federal accounting standards and federal financial 

management systems requirements. 

In light of the requirements for federal agencies to prepare MCA information, you 

asked us to determine the extent to which federal agencies develop cost information 

and use it for managerial decision making. The objectives of our review were to 

determine how federal agencies generate MCA information as well as how 

 

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-06-1002R Managerial Cost Accounting Practices 

governmental managers use cost information to support managerial decision making 

and provide accountability. 

This report summarizes information provided during our briefing to your staff on 

September 7, 2006, concerning our review of MCA practices at the Department of 

Agriculture (USDA) and the Department of Housing and Urban Development (HUD). 

The slides from that briefing are presented in enclosure I. This was our fourth in a 

series of briefings concerning the status of MCA activities at large government 

agencies. Our first briefing covered the status of MCA activities at the Department of 

Veterans Affairs and the Department of Labor.4

 Our second briefing covered the 

status of MCA activities at the Departments of Education, Transportation, and the 

Treasury.5

 The third briefing covered the status of MCA activities at the Department 

of Health and Human Services and the Social Security Administration.6

 

MCA involves the accumulation and analysis of financial and nonfinancial data, 

resulting in the allocation of costs to organizational pursuits such as performance 

goals, programs, activities, and outputs. The data analyzed depend on the operations 

and needs of the organization. Nonfinancial data measure the occurrences of 

activities and can include, for example, the number of hours worked, units produced, 

claims paid, grants managed, or time needed to perform individual activities. 

Status of Efforts to Implement Managerial Cost Accounting at USDA and 

HUD 

Similar to issues that surfaced in our earlier reports, we found that stronger 

leadership would be needed to enhance the development and use of managerial cost 

information at USDA and HUD. The departments generally had not developed 

policies on the development and use of cost information, were not promoting the 

benefits of identifying the cost of performance, and were not monitoring 

implementation in the components. 

Department of Agriculture

USDA has not shown strong leadership to promote, guide, and monitor MCA 

implementation. USDA did not have a departmentwide MCA system in place and, 

instead, has delegated responsibility for MCA implementation to the component 

agencies. USDA, however, did not have procedures in place to monitor component 

agency MCA initiatives, and had only limited information on the status of MCA 

implementation at its 15 component agencies at the time of our review. 

 

4

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

Successful Implementation, GAO-05-1013R (Washington, D.C.: Sept. 2, 2005). 

5

 GAO, Managerial Cost Accounting Practices: Departments of Education, Transportation, 

and the Treasury, GAO-06-301R (Washington, D.C.: Dec. 19, 2005). 

6

 GAO, Managerial Cost Accounting Practices: Department of Health and Human Services 

and Social Security Administration, GAO-06-599R (Washington, D.C.: Apr. 18, 2006).
USDA’s current financial system, the Foundation Financial Information System 

(FFIS), was not designed to provide in-depth MCA information. FFIS analysis and 

reporting functions and its related data warehouses allow users to conduct inquiries 

and execute ad hoc reports on, for instance, the status of funds and open obligations. 

These analyses, however, do not integrate nonfinancial data with financial data to 

provide the cost of activities or outputs on an ongoing basis. 

According to USDA officials, the Financial Management Modernization Initiative

(FMMI) system is scheduled to replace FFIS by the end of fiscal year 2012. FMMI is 

expected to include a cost accounting module which officials said will incorporate 

MCA functionalities required by the Office of Federal Financial Management at OMB. 

Except for ongoing initiatives at the Farm Services Agency, the Forest Service, and 

Rural Development, USDA MCA planning initiatives did not set time frames or 

requirements for other component agencies to improve cost management. 

At USDA, we also selected for review larger component agencies in terms of number 

of employees and outlays, and those with cost recovery activities, such as working 

capital funds (WCF) and services with user fees. USDA’s WCF has 22 activity centers 

providing payroll, accounting, and other administrative and support services to 

internal and external customers. We reviewed MCA activities at four USDA 

component agencies: the Animal and Plant Health Inspection Service (APHIS), the 

Farm Service Agency (FSA), the Food and Nutrition Service (FNS), and the Forest 

Service (FS). 

WCF activity centers are intended to recover the full cost of goods and services they 

provide. WCF officials told us that the activity centers use a range of methodologies, 

from spreadsheets to more sophisticated activity-based costing systems, to assign 

costs to customers. WCF officials, however, did not have documented procedures to 

help ensure appropriate cost accounting methodologies are used by the activity 

centers to allocate costs to customers and set prices, and they could not centrally 

confirm that all of the activity centers were charging their customers the full cost of 

services rendered. 

According to APHIS officials, they used ABC costing techniques to manage around 10 

percent of their budget, primarily for administrative purposes. In addition, APHIS is 

developing the APHIS Cost Management System (ACMS), a system to track spending 

to cost centers that is to be implemented by fiscal year 2007. APHIS officials told us 

that ACMS has several data fields that could be used to include nonfinancial data and 

thus provide MCA information. However, an APHIS official said that procedures for 

using the ACMS data fields for MCA are not finalized and are still being documented. 

FSA plans to implement its Budget and Performance Management System (BPMS) by 

October 2008 to link and integrate FSA’s budget, cost, and performance management 

information. FSA reported that improvements are needed in nonfinancial data quality 

and consistency, including the nonfinancial data used in its current ABC system. FSA 

officials said that planned upgrades to labor and workload systems through BPMS are 

intended to address these issues. 

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FNS officials said that the agency designed its National Data Bank system to integrate 

detailed cost and program performance information with its state grantee program 

data reporting system, enhancing the usefulness of cost data for FNS program 

managers. That information is available by program at state, regional, and national 

levels at monthly, quarterly, and annual reporting intervals. 

FS, on the other hand, did not have a system in place with which it could routinely 

analyze cost information. The FS can use cost-finding techniques and FFIS data to 

prepare ad hoc cost information reports that are generally at the program or budget 

line item level. Special job codes required to track costs for specific projects below 

the budget line item level can be established. The FS CFO stated that implementation 

of MCA would not be a priority until outstanding financial reporting issues have been 

resolved. He said that reliable and timely financial information was necessary before 

pushing to develop MCA information. FS management is focused on completing 

implementation of a new centralized financial management system, and building 

strong internal control systems to address outstanding material weaknesses in 

financial management and reporting processes. 

At the department level, USDA uses cost information to prepare the Statement of Net 

Cost (SNC). Some component agency officials used cost information and analyses to 

make staff hiring decisions, adjust user fees, allocate administrative costs, investigate 

anomalies in program participation rates, and prepare ad hoc cost studies. 

Department of Housing and Urban Development

The absence of continual strong leadership to promote and monitor MCA 

implementation across HUD programs has contributed to HUD’s lack of reliable, 

comprehensive MCA information on its activities and outputs that is widely and 

routinely used. HUD had not issued departmentwide policy guidance on MCA, and 

did not accumulate the full costs of its activities or outputs for day-to-day managerial 

decision making. Instead, a HUD official stated that HUD is a budget-driven 

organization primarily focused on oversight of its programs, and manages its 

operations principally with required budgetary data. 

Although expanding the range of MCA information could help HUD better manage its 

programs and operations on a daily basis, HUD’s plans for current and future systems 

lack broad application of MCA functionalities. For example, management indicated 

that its Total Estimation and Allocation Mechanism–Resource Estimation and 

Allocation Process (TEAM-REAP) has the potential for supporting activity based 

costing, but during our review HUD management said it had no plans for using the 

system for MCA purposes beyond quarterly cost allocation for the SNC, management 

of staffing levels, and an ABC pilot project. In response to OMB concerns about the 

lack of management information at the Federal Housing Administration (FHA), HUD 

recently agreed to start an ABC pilot project to obtain the costs of activities, 

including loan origination, monitoring, and servicing. However, an FHA official 

commented that ABC and MCA were of limited benefit to FHA. Finally, in 2002, the 

department began the HUD Integrated Financial Management Improvement Project 

(HIFMIP)-–an enterprisewide initiative to develop and implement an integrated 

financial accounting system. According to HUD officials, however, HIFMIP 
requirements were based upon current system functionalities and do not include a 

more comprehensive MCA system. 

Agencies with nonintegrated financial systems expend major effort and resources to 

develop information that should be provided on a recurring basis. HUD’s OIG 

reported in November 2005 that the department relied on extensive compensating 

procedures that were costly, labor intensive, and not always effective to prepare its 

annual financial statements. Further, the OIG reported that HUD’s financial 

management systems did not enable it to generate and report accurate, timely 

information needed to manage operations on an ongoing basis. Improvement of 

internal control over financial and nonfinancial information will enhance the 

reliability of data available for MCA purposes at HUD. 

HUD MCA activities included preparation of the SNC, accumulation of project costs 

for IT systems financed through a HUD WCF, analysis and reporting of financial and 

operational data accumulated in Data Mart (a repository for selected financial and 

nonfinancial information that is primarily used as a cash management and financial 

reporting tool), and ad hoc, manual accumulation of costs to respond to external 

federal oversight parties, including OMB and the Congress. 

Recommendations for Executive Action 

We are making eight recommendations to the Secretary of the Department of 

Agriculture and five recommendations to the Secretary of the Department of Housing 

and Urban Development. 

Recommendations to the Secretary of the Department of Agriculture

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

inform managerial decision making in USDA and its components, we recommend that 

the Secretary direct appropriate officials to: 

• take an active leadership role to promote the benefits and uses of MCA, 

• develop procedures to monitor the implementation of its MCA policy at its 

components, 

• finalize appropriate USDA-specific functional specifications to ensure that the 

cost accounting module of the FMMI will provide MCA information to support 

decision making at USDA and its component agencies, and 

• expand ongoing MCA planning efforts to include time frames and 

requirements for all component agencies to help improve cost management. 

To promote the use of proper cost accounting methodologies to inform pricing and 

other managerial decisions at USDA WCF activity centers, we recommend that the 

Secretary of Agriculture direct appropriate WCF officials to design, document, and 

implement procedures to periodically review those methodologies. 

Page 5 GAO-06-1002R Managerial Cost Accounting Practices 
 

Page 6 GAO-06-1002R Managerial Cost Accounting Practices 

To promote the implementation and use of MCA methodologies at APHIS, we 

recommend that the Secretary of Agriculture direct appropriate APHIS officials to 

finalize and document procedures for using ACMS data fields for MCA as a step 

toward better informed managerial decision making. 

To enhance the reliability of MCA data at FSA, we recommend that the Secretary of 

Agriculture direct appropriate FSA officials to continue efforts to improve and 

upgrade workload systems as they implement BPMS. 

We agree that the FS should continue to place a high priority on addressing its 

remaining financial management and reporting problems. At the same time, we 

recommend that the Secretary of Agriculture direct appropriate FS officials to assess 

FS MCA needs and require that they are appropriately addressed in any new systems 

that are implemented. 

Recommendations to the Secretary of the Department of Housing and Urban 

Development

To improve HUD’s implementation and use of reliable MCA methodologies, we 

recommend that the Secretary of HUD direct appropriate officials to: 

• take an active leadership role to promote the benefits and uses of MCA; 

• establish and document a department-level policy for MCA; 

• develop potential uses of current systems (e.g. TEAM-REAP) to derive MCA 

functionalities; 

• develop financial system requirements that will fully address MCA capabilities 

needed for managerial decision making throughout the organization using 

appropriate, integrated financial and nonfinancial information systems; and 

• strengthen internal controls over financial and nonfinancial data in MCA 

systems. 

Agency Comments and Our Evaluation 

We requested comments on a draft of our briefing presentation from the Secretary of 

Agriculture and the Secretary of Housing and Urban Development or their designees. 

We considered and incorporated, as appropriate, the comments in HUD’s letter and 

the technical comments we received by e-mail from each department’s Office of the 

Chief Financial Officer. The comment letter from HUD is reprinted in enclosure II. 

Comments from the Department of Agriculture

In an e-mail from the Office of the Chief Financial Officer, USDA generally agreed 

with our findings and eight recommendations and stated that subsequent to our audit, 
its CFO modified the WCF budget review and approval process to require annual 

review of activity center costing methodologies, with the first review to be completed 

as part of the fiscal year 2008 budget formulation cycle. 

Comments from the Department of Housing and Urban Development

HUD’s Chief Financial Officer, in a letter commenting on a draft of this briefing, 

generally agreed with our findings. He neither agreed nor disagreed with our five 

recommendations but described actions HUD would take on four of the five. 

In response to our recommendations about promoting the benefits and uses of MCA 

and developing an MCA policy for the department, the letter indicated that a new 

Executive Financial Management Advisory Committee would address both of these 

issues. 

Concerning our recommendation to develop existing systems to derive MCA 

functionalities, the letter indicated the TEAM/REAP system was being modified to 

cost staffing data at the activity level and that the benefits of HUD’s pilot ABC project 

would be assessed to consider applying it more broadly. 

Concerning our recommendation that HUD develop financial system requirements 

that will fully address HUD MCA capabilities needed at HUD, HUD said that Data 

Mart and TEAM/REAP would be used for any increased MCA application, but not 

HIFMIP. We modified our recommendation to focus on the development of MCA 

capabilities generally, rather than specifying the use of HIFMIP. 

Finally, concerning our recommendation that HUD strengthen internal controls over 

financial and nonfinancial data in MCA systems, HUD stated that it was not aware of 

any significant data quality problems in HUD’s existing MCA practices. We were 

referring to concerns raised by the HUD OIG and independent auditors about the 

reliability of financial data due to control weaknesses in HUD’s financial management 

systems. These weaknesses could negatively affect data integrity and indicate 

uncertain data reliability during the year. Such conditions would affect MCA data 

reliability as well as other financial reporting. 

Scope and Methodology 

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

practices.7

 To obtain an understanding of how MCA systems at USDA and HUD 

generate cost information, we reviewed documentation and interviewed officials on 

the status of MCA system implementation and the related obstacles to managerial 

costing. We also examined departmental guidance and looked for evidence of 

leadership and commitment to the implementation of entitywide cost management 

practices. Using the Standards for Internal Control in the Federal Government 8

 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 

 7

GAO-05-1013R, p.12; GAO-06-3O1R, p. 7; GAO-06-599R, p. 5. 8 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-

21.3.1 (Washington, D.C.: November 1999). 

Page 7 GAO-06-1002R Managerial Cost Accounting Practices 
 

Page 8 GAO-06-1002R Managerial Cost Accounting Practices 

support decision making and provide accountability for government resources, we 

obtained an understanding of how USDA and HUD use cost accounting data for 

budgeting, costing services or products, preparing the Statement of Net Cost, 

managing contractors’ reimbursable costs, and other managerial uses through a 

review of documentation provided by the agencies and interviews of agency officials. 

During our review, we visited USDA and HUD headquarters in Washington, D.C. At 

USDA, we visited four component agencies – the Animal and Plant Health Inspection 

Service (APHIS) in Riverdale, Maryland; the Farm Service Agency (FSA) and the 

Food and Nutrition Service (FNS) in Alexandria, Virginia; and the Forest Service (FS) 

in Washington, D.C. – and the Departmental Working Capital Fund (WCF) in 

Washington, D.C. We also held teleconferences with APHIS policy and program 

development officials in Minneapolis, Minnesota; and FS staff in Custer, South 

Dakota, and in Albuquerque, New Mexico. At HUD, we reviewed MCA practices at the 

Federal Housing Administration (FHA) and the Office of Federal Enterprise Housing 

Oversight (OFHEA), an independent office within HUD, in Washington, D.C. 

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 MCA activities, systems, and data. The agencies provided 

comments on a draft of this report, which we considered and incorporated as 

appropriate. We performed this work from March 2006 through July 2006 in 

accordance with U.S. generally accepted government auditing standards. 

We are sending copies of this report to the Secretary of the Department of 

Agriculture and the Secretary of the Department of Housing and Urban Development; 

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 

correspondence, please contact me at (202) 512-6131 or martinr@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs can be found on 

the last page of this report. GAO staff who made major contributions to this report 

are listed in enclosure III. 

Sincerely yours, 

Robert E. Martin 

Director, Financial Management and Assurance 
Enclosure I 

Page 9 GAO-06-1002R Managerial Cost Accounting Practices 

Managerial Cost Accounting Practices 

1

Managerial Cost Accounting Practices

Department of Agriculture and

Department of Housing and Urban Development

Briefing to the staff of the Subcommittee on Government 

Management, Finance, and Accountability, Committee on 

Government Reform, House of Representatives

September 7, 2006

2

Briefing Agenda

• Introduction and Objectives

• Scope and Methodology

• Results in Brief

• Background

• Department of Agriculture

• Department of Housing and Urban Development

• Conclusions

• Recommendations for Executive Action

• Agency Comments and Our Evaluation
Enclosure I 

Page 10 GAO-06-1002R Managerial Cost Accounting Practices 

3

Introduction and Objectives 

• Authoritative bodies have promulgated laws, accounting 

standards, system requirements, and related guidance to 

emphasize the need for cost information and cost 

management in the federal government, including: 

• Congress 

• Federal Accounting Standards Advisory Board (FASAB) 

• Joint Financial Management Improvement Program 

(JFMIP)

• Office of Management and Budget (OMB)

• In light of these requirements, you asked us to determine 

the extent to which federal agencies develop cost 

information and use it for managerial decision making.

4

Introduction and Objectives

• The objectives of our review were to determine how

• federal agencies generate managerial cost accounting (MCA) information and 

• government managers use cost information to support 

managerial decision making and provide accountability 

for government resources.

• This is the fourth in a series of briefings concerning the 

status of MCA activities at large government agencies; we 

reported on our reviews at seven other agencies in previous 

phases of this work. 

• This briefing summarizes our observations at the 

Department of Agriculture (USDA) and the Department of 

Housing and Urban Development (HUD).
Enclosure I 

Page 11 GAO-06-1002R Managerial Cost Accounting Practices 

5

Scope and Methodology

• To determine how USDA and HUD generate MCA 

information, we reviewed documentation and interviewed 

officials at the USDA and HUD headquarters and at 

selected component agencies and offices on

• the status of MCA system implementation; 

• departmental guidance, leadership, and commitment to 

the implementation of cost management practices 

entitywide; 

• departmental internal controls to help ensure the 

reliability of financial and nonfinancial information used

in MCA; and 

• any obstacles to managerial costing.

6

Scope and Methodology

• To determine how USDA and HUD managers use cost 

information to support decision making and provide 

accountability for government resources, we reviewed

documentation provided by the agencies and interviewed 

officials at USDA and HUD headquarters and at selected 

USDA components on the use of MCA data for 

• budgeting; costing activities, services, or products; 

monitoring operations; and enhancing performance 

measures and operational efficiency; and

• preparing the Statement of Net Cost (SNC).
Enclosure I 

Page 12 GAO-06-1002R Managerial Cost Accounting Practices 

7

Scope and Methodology

• We selected for review the agencies’ larger components and 

programs in terms of number of employees and outlays, and 

those with cost recovery activities, such as working capital funds 

and services with user fees.

• We conducted our reviews at USDA and HUD headquarters in 

Washington, D.C. At USDA, we visited four component 

agencies—the Animal and Plant Health Inspection Service 

(APHIS) in Riverdale, Maryland; the Farm Service Agency (FSA) 

and the Food and Nutrition Service (FNS) in Alexandria, Virginia; 

and the Forest Service (FS) in Washington, D.C.—and the 

Departmental Working Capital Fund (WCF) in Washington. We 

also held teleconferences with APHIS policy and program

development officials in Minneapolis, Minnesota; and FS staff in

Custer, South Dakota , and Albuquerque, New Mexico.

8

Scope and Methodology

• At HUD, we reviewed MCA practices at HUD’s Federal 

Housing Administration (FHA) and the Office of Federal 

Enterprise Housing Oversight (OFHEO), an independent 

office within HUD, in Washington, D.C.

• 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 (OIG), 

independent public accountant (IPA), and GAO reports

regarding MCA activities, systems, and data.

• We performed this work from March 2006 through July 2006 

in accordance with U.S. generally accepted government 

auditing standards.
Enclosure I 

Page 13 GAO-06-1002R Managerial Cost Accounting Practices 

9

Results in Brief

• At the department level, USDA did not have an MCA system 

focused on managerial decision making. USDA assigned 

responsibility for MCA implementation to its components, 

but did not take an active leadership role to promote MCA or 

monitor its implementation at its components.

• USDA officials told us that the departmentwide Financial 

Management Modernization Initiative, a program to replace 

the current USDA financial system, is currently in the early 

planning stages, is expected to be implemented in 2012, 

and is to include a cost accounting module.

• None of the four USDA component agencies that we 

reviewed had integrated, agencywide MCA systems,

although they used cost finding techniques.

10

Results in Brief

• FNS maintained a system that combines state grantee 

program data with its cost and benefit data to produce unit 

cost and trend information for program management.

• At WCF, management identified weaknesses in its 

oversight of WCF activity centers and is taking steps to 

improve activity center financial systems and reporting.

• USDA used cost information at the department level to 

prepare the SNC. At the component agencies we 

reviewed, uses of cost information included comparing 

program costs by location, making staffing decisions, 

identifying program participation anomalies, and 

determining rates for user fees and reimbursable 

agreements.
Enclosure I 

Page 14 GAO-06-1002R Managerial Cost Accounting Practices 

11

Results in Brief

• HUD does not have an MCA system in place that is 

routinely used to accumulate full costs of its activities or 

outputs for periodic managerial decision making. Instead, 

HUD management stated that HUD is a budget-driven 

organization with sufficient information to effectively support 

budget formulation and management of enacted programs.

• HUD’s MCA activities include the allocation of salary and 

expense costs to its major programs reported on the SNC, 

allocation of project costs for its information technology (IT) 

systems, review of other budget-based cost and human 

capital reports and data, and manual accumulation of costs 

for special studies reported to external parties.

12

Results in Brief

• An integrated financial management system being phased 

in at HUD from 2009 to 2013 is expected to generate 

program and performance measures upon completion. 

HUD officials told us the system is not expected to provide 

more MCA functionalities than HUD’s current systems.

• To address our findings, we made eight recommendations 

to USDA and five recommendations to HUD. We provided 

a draft of these briefing slides to the agencies. We received 

a comment letter from HUD and technical comments by email from both agencies. We have incorporated the 

agencies’ comments herein, as appropriate.
Enclosure I 

Page 15 GAO-06-1002R Managerial Cost Accounting Practices 

13

Background

• The Chief Financial Officers (CFO) Act of 1990 calls for the 

development and reporting of cost information and the

systematic measurement of performance. FASAB Statement of 

Federal Financial Accounting Standards (SFFAS) No. 4, 

Managerial Cost Accounting Concepts and Standards for the 

Federal Government, and JFMIP's Framework for Federal

Financial Management Systems establish accounting standards 

and requirements for MCA at federal agencies.1

• The Federal Financial Management Improvement Act of 1996 

builds on the foundation provided by the CFO Act and includes 

requirements for CFO Act agencies to comply with federal 

accounting standards and for the agencies’ systems to comply 

substantially with, among other things, federal financial 

management systems requirements.

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

of Management and Budget, the Office of Personnel Management, and the CFO Council.

14

Background

• MCA involves accumulating and analyzing financial and 

nonfinancial data to allocate costs to organizational pursuits, 

such as performance goals, programs, activities, and 

outputs, to establish cost and performance baselines in 

support of managerial decision making. The data analyzed 

depend on the operations and needs of the organization. 

• Financial data include the costs of all activities associated 

with a given output, including direct and indirect costs.

• Nonfinancial data measure the occurrences of activities and 

outputs to which costs are assigned. 

• Nonfinancial data could include, for example, information 

on the number of hours worked, units produced, grants 

managed, inspections conducted, or people trained or 

the amount of time needed to perform activities.
Enclosure I 

Page 16 GAO-06-1002R Managerial Cost Accounting Practices 

15

USDA

Background

• USDA’s mission is to provide leadership on issues related to nutrition, agriculture, natural resources, and quality of life in rural America.

• In fiscal year 2005, USDA reported net outlays of about 

$85 billion and had approximately 99,400 employees.

• USDA has 15 component agencies organized in distinct 

mission areas, including food nutrition and consumer 

services, farm and foreign agricultural services, and natural 

resources and environment. It also has a WCF with 22 

activity centers that provide various support services to 

internal and external customers.

16

USDA

MCA Systems in Place

• USDA does not have a departmentwide MCA system in place. 

• USDA delegated responsibility for MCA implementation to the 

component agencies because of their mission differences but did 

not have procedures in place to monitor component agency MCA 

initiatives. 

• The department’s Agriculture Financial Standards Manual

required agencies to develop MCA capabilities to satisfy their 

unique needs in accordance with departmentwide standards, to 

the extent practicable.

• USDA had only limited information on the status of MCA 

implementation at the 15 components. USDA officials referred us 

to components and a 2002 study on 10 of the agencies for 

information on the status and application of MCA at major 

programs and activities.
Enclosure I 

Page 17 GAO-06-1002R Managerial Cost Accounting Practices 

17

USDA

MCA Systems in Place

• Other than issuing its Agriculture Financial Standards 

Manual and updating a user fee biennial reporting directive, 

USDA did not provide the component agencies with 

guidance or leadership on implementing MCA. 

• Two component agency officials stated that managers 

focused on budget authority and obligations data, instead of 

using cost data to achieve efficiencies and manage 

expenses.

18

USDA

MCA Systems in Place

• USDA’s current financial system, the Foundation Financial 

Information System (FFIS), is a financial accounting and 

reporting tool, which, according to USDA officials, provides 

all of the financial reporting necessary to meet government 

mandates. However, it was not designed to provide indepth MCA information.

• Officials at two of the four component agencies that we 

visited told us that FFIS generally does not provide cost 

information below program or budget line item level. 

• FFIS analysis and reporting functions and its related 

data warehouses allow users to conduct inquiries and

execute ad hoc reports on, for instance, the status of 

funds, detailed transaction registers, and open 

obligations. However, these analyses do not integrate 

nonfinancial data with financial data to provide the cost 

of activities or outputs on an ongoing basis.
Enclosure I 

Page 18 GAO-06-1002R Managerial Cost Accounting Practices 

19

USDA

MCA Systems in Place

• Although USDA obtained an unqualified audit opinion on its 

financial statements in 2005, the OIG reported that stronger 

internal controls are needed to improve the timeliness and 

accuracy of financial data available to managers and cited 

material weaknesses related to overall financial 

management across USDA. For example, the auditor 

identified “abnormal balances” in more than 90 accounts, 

totaling over $1 billion, that had not been fully researched or 

corrected before the end of the fiscal year. 

• Weaknesses in internal control can result in inaccurate cost 

data throughout the year, which may adversely affect any 

decision based on these data. 

20

USDA

MCA Systems in Place

• USDA's draft Financial Data Integration Improvement Plan

(FDIIP) refers to incorporating MCA into the department's 

financial management improvement efforts only in general terms, 

not clearly defining its future MCA system.

• The FDIIP includes the Financial Management Modernization 

Initiative (FMMI) system to replace FFIS. FMMI is scheduled to 

be implemented by the end of fiscal year 2012 and is expected to

include a cost accounting module. According to USDA officials, 

they intend to incorporate into FMMI the MCA functionalities 

required by the Office of Federal Financial Management (OFFM).2

• However, except for FMMI and ongoing initiatives at FSA, FS, and Rural Development, the FDIIP did not set time frames or 

requirements for other component agencies to improve cost 

management.

2 Responsibilities of OFFM, an office within OMB, include establishing financial management policies for

executive branch agencies.
Enclosure I 

Page 19 GAO-06-1002R Managerial Cost Accounting Practices 

21

USDA

MCA Systems in Place

• USDA’s WCF has 22 activity centers that provide payroll, 

accounting, and other administrative and support services to 

internal and external customer agencies.

• For fiscal year 2005, the WCF reported total gross costs of 

$498 million and 2,412 employees at the activity centers.

• The WCF activity centers are intended to recover the full 

cost of goods and services they provide. WCF officials told 

us that the activity centers use a range of methodologies, 

from spreadsheets to more sophisticated activity based 

costing (ABC) systems, to assign costs to customers.

22

USDA

MCA Systems in Place

• WCF officials identified areas for improving internal controls over 

WCF activities. For example, they are taking steps to improve 

activity center financial systems and reporting as well as 

divisional oversight of activity center costing methodologies.

• However, the WCF did not have documented procedures to help 

ensure appropriate cost accounting methodologies are used by 

the activity centers to allocate costs to customers and set prices 

for services.

• Therefore, WCF officials could not centrally confirm that all of

the activity centers were charging their customers the full cost

of services rendered. 

• Those officials told us WCF did not routinely review and 

monitor MCA techniques used by activity centers.
Enclosure I 

Page 20 GAO-06-1002R Managerial Cost Accounting Practices 

23

USDA

MCA Systems in Place

• APHIS helps ensure the health and care of animals and 

plants and improve agricultural productivity. For fiscal year 

2005, APHIS had outlays of $1.1 billion, 1.3 percent of 

USDA’s net outlays, and 7,078 (7.1 percent) of USDA’s 

employees. APHIS administered over 300 types of user 

fees, according to agency officials.

• APHIS does not have an agencywide MCA system.

• According to APHIS officials, they used ABC costing 

techniques to manage around 10 percent of their budget, 

primarily for administrative purposes rather than routine

program management. They said that each ABC project 

stands alone and is not routinely linked to any other 

financial or nonfinancial system.

24

USDA

MCA Systems in Place

• Financial data come from a data warehouse that is populated 

from FFIS. 

• Nonfinancial data are drawn from personnel and procurement 

systems and a quarterly survey where employees report their 

time by type of activity. APHIS ABC officials rely on controls in 

place over the personnel, procurement, and other sources to 

ensure the reliability of nonfinancial data used by the ABC

systems.

• APHIS is developing the APHIS Cost Management System

(ACMS), a system to track spending to cost centers that is to be

implemented by fiscal year 2007.

• APHIS officials told us that ACMS has several data fields that 

could be used to include nonfinancial data and thus provide 

MCA information.

• However, an APHIS official said that procedures for using 

these ACMS data fields for MCA are not finalized and are still 

being documented.
Enclosure I 

Page 21 GAO-06-1002R Managerial Cost Accounting Practices 

25

USDA

MCA Systems in Place

• FSA administers credit and loan programs and manages

conservation, commodity, and disaster relief programs 

through a national network of offices. For fiscal year 2005, 

FSA had outlays of $23.1 billion, 27 percent of USDA’s net 

outlays, and 5,577 (5.6 percent) of USDA’s employees.

• FSA does not have an agencywide MCA system.

• FSA does, however, have an ABC system to track costs 

related to reimbursable agreements at the two locations that 

administer those agreements, covering about $100 million, 

or 10 percent of FSA’s administrative budget. Officials said 

that financial data come from the FFIS. Nonfinancial data 

come from ABC online surveys related to employee time 

charges and FSA’s Work Status Reporting System, a labor 

activities data collection system.

26

USDA

MCA Systems in Place

• FSA plans to implement its Budget and Performance 

Management System (BPMS) by October 2008 to link and 

integrate FSA’s budget, cost, and performance 

management information. Officials told us that in 2003, after 

significant budget cuts, FSA determined that an MCA

system could help it defend its budget. Until then, FSA 

officials said that having an MCA system was not a priority, 

as the emphasis was on executing the initiatives of the 

President’s Management Agenda.

• FSA expects the BPMS MCA module to improve existing 

labor and workload data systems.
Enclosure I 

Page 22 GAO-06-1002R Managerial Cost Accounting Practices 

27

USDA

MCA Systems in Place

• FSA reported that BPMS is expected to provide the full cost 

of services and activities, including FSA and departmentlevel indirect costs. The MCA model in BPMS is intended to 

formalize cost management practices for FSA and help 

decision makers answer questions concerning the full cost 

of programs, expenditure trends, and activity locations.

• FSA reported that improvements are needed in nonfinancial 

data quality and consistency, including the nonfinancial data 

used in its current ABC system. Planned upgrades to its 

labor and workload systems are intended to address these 

issues.

28

USDA

MCA Systems in Place

• FNS helps provide low-income people access to a healthy 

diet and nutrition education. For fiscal year 2005, FNS 

reported having budgetary outlays of $50.2 billion, 58.7 

percent of USDA’s outlays, and 1,451 (1.4 percent) of 

USDA’s employees.

• FNS officials said the agency designed its National Data 

Bank (NDB) system to integrate detailed cost and program 

performance information with its state grantee program data 

reporting system, enhancing the usefulness of cost data for 

its program managers. That information is available by 

program at state, regional, and national levels at monthly, 

quarterly, and annual reporting intervals.

• States submit financial and nonfinancial data online for 

NDB. According to FNS officials, NDB includes both FNS 

and department-level direct and indirect costs.
Enclosure I 

Page 23 GAO-06-1002R Managerial Cost Accounting Practices 

29

USDA

MCA Systems in Place

• FNS officials said the agency uses state auditors and CPA

firms under the OMB Circular No. A-133 single audit 

process to determine whether state program and 

administrative costs charged to FNS are allowable. FNS 

also performs edit checks, analytical reviews, and 

comparisons of the data submitted by the states.

30

USDA

MCA Systems in Place

• FS sustains the health, diversity, and productivity of the 

nation's forests and grasslands to meet the needs of 

present and future generations. For fiscal year 2005, FS had 

outlays of $5 billion, 5.9 percent of USDA’s net outlays, and 

36,631 (36.9 percent) of USDA’s employees.

• FS does not have an MCA system with which it can 

routinely analyze cost information.

• FS can use cost finding techniques and FFIS data to

prepare ad hoc cost information reports. However, for the 

majority of FS dollars, these reports are limited to data at 

the program or budget line item level. Special job codes 

required to track costs for specific projects below the budget 

line item level can be established.
Enclosure I 

Page 24 GAO-06-1002R Managerial Cost Accounting Practices 

31

USDA

MCA Systems in Place

• FS received an unqualified opinion on its fiscal year 2005

financial statements after making 177 accounting adjustments

with an absolute value of $1.9 billion. Year-end adjustments of 

this magnitude indicate impaired reliability of data during the year 

and of the cost analyses based on those data.

• The FS CFO stated that implementation of MCA would not be a 

priority until outstanding financial reporting issues have been 

resolved and that reliable and timely financial information was 

necessary before pushing to develop MCA information. Instead, 

FS management is focused on 

• completing implementation of a new centralized financial 

management system at its Albuquerque Finance Center,

• continuing to obtain an unqualified audit opinion, and

• building strong internal control systems to address outstanding material weaknesses in financial management 

and reporting processes.

32

USDA 

Uses of MCA Information

• At the department level, USDA uses cost information to prepare 

the SNC.

• The USDA SNC is broken down by strategic goal. Some 

component agencies support more than one goal.

• Component agencies submit cost information by performance 

goal using a template provided by USDA. 

• APHIS managers used ABC analyses to help

• make staff hiring decisions,

• adjust user fees at the National Veterinary Services 

Laboratory, and 

• set a new user fee for Plant Protection and Quarantine 

permits.
Enclosure I 

Page 25 GAO-06-1002R Managerial Cost Accounting Practices 

33

USDA 

Uses of MCA Information

• However, APHIS user fees did not recover the full cost of

providing some services because they did not include certain 

indirect and imputed costs incurred by other federal entities for its 

benefit. For example, in 2005, APHIS fees recovered $122 

million of the reported $147 million cost for agricultural 

quarantines and inspections and $5 million of the reported $12 

million cost for issuing plant health certificates.

• APHIS stated that those indirect and imputed costs were not 

included in user fees because it believed that it did not have legal 

authority to recover those costs and transfer the collections to the 

agency that incurred them.

• USDA policy requires its agencies to impose user charges 

consistent with the full cost principles of SFFAS No. 4 and section 

6 of OMB Circular No. A-25. Section 6(d) of Circular No. A-25 

provides that a user charge will recover the direct and indirect

costs to any part of the federal government for providing a 

service. According to 31 U.S.C. 3302(b), APHIS’s collections of 

costs incurred by other agencies need to be credited to the 

general fund of the Treasury if not otherwise specified in statute.

34

USDA 

Uses of MCA Information

• FSA officials said they used an ABC system to allocate 

administrative costs at the two locations that administer 

reimbursable agreements.

• FNS used NDB data to investigate anomalies in program

participation rates and cost.

• FNS officials told us they used NDB data to identify declining

Food Stamp Program participation rates and costs in one 

state.

• FNS officials also used NDB data to analyze Women, Infants, 

and Children (WIC) program cost increases. One reason for 

increased program costs was the proliferation of WIC-only 

stores, which often charged higher prices than stores that sell 

to the general public as well as WIC participants. Subsequent 

legislation required that average payments to WIC-only stores

not be higher than average payments to other stores.
Enclosure I 

Page 26 GAO-06-1002R Managerial Cost Accounting Practices 

35

USDA 

Uses of MCA Information

• FS used cost finding techniques and FFIS data in preparing 

the following ad hoc cost studies:

• An outsourcing study under OMB Circular No. A-76 

concerning information technology functions. 

• Reports on the cost of road maintenance, brush clearing, 

and other activities by region.

36

HUD

Background

• HUD's mission is to increase home ownership, support 

community development, and increase access to affordable 

housing free from discrimination. 

• HUD reports costs for eight major programs, including the 

Federal Housing Administration (FHA), Section 8 Rental 

Assistance, Community Development Block Grants, and the 

Government National Mortgage Association (GNMA). 

• HUD’s mission support activities include OFHEO, which oversees 

two government-sponsored enterprises—the Federal Home Loan 

Mortgage Corporation and the Federal National Mortgage

Association.

• In fiscal year 2005, HUD had approximately 9,100 employees 

with a salary and expense budget of about $1.1 billion and 

reported net outlays of about $42.7 billion. HUD bears the risk of 

a portfolio of over $900 billion in FHA-insured loans and GNMA 

mortgage-backed securities. 
Enclosure I 

Page 27 GAO-06-1002R Managerial Cost Accounting Practices 

37

HUD

MCA Systems in Place

• HUD senior management had not promoted the benefits of 

MCA activities beyond current basic uses. 

• Over the past 5 years, HUD did not have sustained 

department-level senior financial management whose 

responsibility was to develop and maintain financial 

management activities, one of which is MCA.

• The CFO position had been filled by three confirmed and 

three acting CFOs during this time frame.

• Although HUD issued procedures for specific systems and processes, it had not issued departmentwide policy guidance on MCA as required by federal accounting standards.

38

HUD

MCA Systems in Place

• HUD did not accumulate full costs of its activities or outputs for 

day-to-day managerial decision making. Instead, the full costs 

(including direct costs, such as labor, administrative, and other 

costs, and indirect costs allocated from other segments and 

entities) of HUD’s outputs were accumulated only to comply with 

federal reporting requirements, for example, in its annual

performance and accountability report.

• A HUD official stated that HUD is a budget-driven organization primarily focused on oversight of its programs, and manages its operations principally with required budgetary data, such as 

• the status of budgetary funds and resource data, including 

obligations incurred and outlays, and 

• human capital utilization as measured by expected and 

expended full-time equivalents (FTE) at the activity level.3

3FTEs are a workforce estimate based on the number of work years to achieve an agency mission or objective used as a substitute for the cost of employee salaries and benefits. Salaries and benefits represent approximately 2 percent of HUD’s total budget.
Enclosure I 

Page 28 GAO-06-1002R Managerial Cost Accounting Practices 

39

HUD

MCA Systems in Place

• Furthermore, HUD management stated it has sufficient 

information needed for managing the department. However both 

the President’s Management Council (PMC) and OMB have 

indicated the need for HUD to develop more robust MCA 

information.

• PMC’s 2005 report on the extent to which federal agencies 

have established efficiency measures, a key element of which 

is determining the costs of delivering services to improve 

program performance, showed that HUD lagged behind other 

federal agencies. HUD has agreed with OMB to establish 

additional efficiency measures.

• Because of OMB’s concerns about the lack of management 

information at FHA, HUD recently agreed to start an ABC pilot 

project to obtain costs of activities, including loan origination, 

monitoring, and servicing. However, an FHA official 

commented that ABC and MCA were of limited benefit to 

FHA.

40

HUD

MCA Systems in Place

• Information that HUD could use for cost analyses must be 

accumulated and integrated from a number of financial 

and nonfinancial data sources that included

• a workload survey;

• the Total Estimation and Allocation MechanismResource Estimation and Allocation Process 

(TEAM-REAP);

• the Project Cost Accounting System (PCAS);

• Financial Data Mart (Data Mart); and

• other cost finding techniques, such as manual, ad hoc 

systems queries.
Enclosure I 

Page 29 GAO-06-1002R Managerial Cost Accounting Practices 

41

HUD

MCA Systems in Place

• According to HUD management, a workload survey was used 

prior to fiscal year 2006 to allocate costs to its major programs 

reported on the SNC. The survey is a spreadsheet-based

allocation methodology summarized by an outside contractor.

• TEAM-REAP, designed and currently used to provide a basis for 

staffing requests for budget development and human resource

management, will partially replace the workload survey for fiscal 

year 2006.

• However, FHA (one of HUD’s largest programs), OFHEO, and 

the OIG decided to continue using an annual survey to 

allocate their costs to programs reported on the SNC.

• Management indicated that TEAM-REAP has the potential for 

supporting activity based costing, but during our review, HUD 

management said it had no plans for using the system for 

MCA purposes beyond quarterly cost allocation for the SNC, 

the ABC pilot project, and management of staffing levels.

42

HUD

MCA Systems in Place

• PCAS is used expressly to track working capital funds 

appropriated for IT systems costs, inform program managers of 

the progress and costs of over 100 projects, and provide the 

basis for allocating systems costs to various users.

• Data Mart is HUD’s repository for selected information extracted

from its general ledger and other sources of financial and

nonfinancial data. Data Mart has been used primarily as a cash 

management and financial reporting tool.

• Additionally, HUD employed other cost finding techniques that 

used spreadsheets and informal procedures to provide ad hoc 

analyses. These included reporting about conference-type

activities to Congress and calculating budgetary costs for

counseling activities.
Enclosure I 

Page 30 GAO-06-1002R Managerial Cost Accounting Practices 

43

HUD

MCA Systems in Place

• In 2002, the department began the HUD Integrated Financial 

Management Improvement Project (HIFMIP)—a four-phase, 

enterprisewide initiative to develop and implement an integrated 

financial accounting system. 

• HUD asserted that the system, currently being implemented, will ensure full OFFM compliance, correct material 

weaknesses, strengthen financial system data integrity, and 

improve controls when fully implemented in 2013.

• However, when questioned about future system capabilities 

specific to MCA, HUD management said that, while HIFMIP is 

expected to enable improved MCA information, HIFMIP 

requirements were based upon current system functionalities 

and do not include a more comprehensive MCA system. 

• GAO previously reported that HUD had not sufficiently 

planned for the implementation of HIFMIP.4

4 GAO, Department of Housing and Urban Development: Status of Efforts to Implement an Integrated

Financial Management System, GAO-03-447R (Washington, D.C.: Apr. 9, 2003).

44

HUD

MCA Systems in Place

• GAO has reported that agencies with nonintegrated financial 

systems expend major effort and resources to develop 

information that should be provided on a recurring basis, 

increasing the likelihood for errors in that information.5

• HUD’s OIG reported in November 2005 that the 

department relied on extensive compensating 

procedures that were costly, labor intensive, and not 

always effective to prepare its annual financial 

statements. Key reported information had to be manually 

posted, verified, reconciled, and traced. 

• Further, the OIG reported that HUD’s financial 

management systems did not enable it to generate and 

report accurate, timely information needed to manage 

operations on an ongoing basis.

5 GAO, Financial Management: Achieving FFMIA Compliance Continues to Challenge Agencies, GAO- 05-881 (Washington, D.C.: Sept. 20, 2005).
Enclosure I 

Page 31 GAO-06-1002R Managerial Cost Accounting Practices 

45

HUD 

Uses of MCA Information

• HUD management stated that HUD is a budget-driven 

agency with a focus on the oversight of its programs. MCA 

activities included the following:

• A spreadsheet-based allocation of salary and expense 

costs to its major programs on the SNC.

• Accumulation of project costs for its working-capital- funded IT systems.

• Analysis and reporting of financial and operational data 

accumulated in Data Mart.

• Ad hoc, manual accumulation of costs to respond to external federal oversight parties, including OMB and 

Congress.

• Review of other budgetary reports and data, including FTE effort and workload information at the activity level.

46

Conclusions

• Strong leadership and commitment by top management is 

required to achieve the cultural change needed to 

implement MCA across government. This is true regardless 

of whether a departmentwide system is selected or 

responsibility for system development is delegated to 

component agencies. In either case, sound systems of

internal control and implementation monitoring are required 

to help ensure that data used by the system, and therefore, 

data provided by the system, are reliable.
Enclosure I 

Page 32 GAO-06-1002R Managerial Cost Accounting Practices 

47

Conclusions

USDA

• Although USDA has delegated responsibility for MCA to its 

components, it has not shown strong leadership to promote, 

guide, and monitor MCA implementation. As a result, most 

components that we reviewed lacked reliable cost 

information to routinely inform managerial decisions 

concerning the reasonableness of costs for performing 

activities, providing programs, or pursuing department goals 

on an ongoing basis. Further, it has resulted in managers 

continuing to focus on budget management rather than 

improved cost management. Clearly defined MCA 

information needs and implementation time frames are 

lacking at some components and in USDA's current 

financial systems plan, putting at risk the opportunity to 

better inform agency decision-making processes and 

improve program efficiency.

48

Conclusions

HUD

• The absence of continual strong leadership to promote and 

monitor MCA implementation across HUD programs has 

contributed to HUD’s lack of reliable, comprehensive MCA 

information on its activities and outputs that is widely and 

routinely used. Developing a department-level MCA policy 

and strengthening internal controls over financial and 

nonfinancial data would improve the reliability of MCA 

information. Although expanding the range of MCA 

information beyond current rudimentary practices could help 

HUD better manage its programs and operations on a daily 

basis, HUD’s plans for current and future systems lack 

broad application of MCA functionalities.
Enclosure I 

Page 33 GAO-06-1002R Managerial Cost Accounting Practices 

49

Recommendations

for Executive Action

Recommendations to the Secretary of Agriculture

• We recommend that the Secretary of Agriculture take the

following eight actions to promote the implementation and use of

reliable MCA methodologies to better inform managerial decision 

making in USDA and its components. We recommend that the 

Secretary direct appropriate officials to

• take an active leadership role to promote the benefits and 

uses of MCA,

• develop procedures to monitor the implementation of its MCA 

policy at its components,

• finalize appropriate USDA-specific functional specifications to

ensure that the cost accounting module of the FMMI will 

provide MCA information to support decision making at USDA 

and its component agencies, and 

• expand ongoing MCA planning efforts to include time frames 

and requirements for all component agencies to help improve 

cost management.

50

Recommendations

for Executive Action

• To promote the use of proper cost accounting 

methodologies to inform pricing and other managerial 

decisions at USDA WCF activity centers, we recommend 

that the Secretary of Agriculture direct appropriate WCF 

officials to design, document, and implement procedures to 

periodically review those methodologies.

• To promote the implementation and use of MCA 

methodologies at APHIS, we recommend that the Secretary 

of Agriculture direct appropriate APHIS officials to finalize 

and document procedures for using ACMS data fields for 

MCA as a step toward better informed managerial decision 

making.
Enclosure I 

Page 34 GAO-06-1002R Managerial Cost Accounting Practices 

51

Recommendations

for Executive Action

• To enhance the reliability of MCA data at FSA, we 

recommend that the Secretary of Agriculture direct 

appropriate FSA officials to continue efforts to improve and 

upgrade workload systems as they implement BPMS.

• We agree that the FS should continue to place a high 

priority on addressing its remaining financial management 

and reporting problems. At the same time, we recommend 

that the Secretary of Agriculture direct appropriate FS 

officials to assess FS MCA needs and require that they are 

integrated in any new systems that are implemented.

52

Recommendations

for Executive Action

Recommendations to the Secretary of Housing and Urban 

Development

• To improve HUD’s implementation and use of reliable MCA 

methodologies, we recommend that the Secretary of HUD 

direct appropriate officials to take the following five actions:

• take an active leadership role to promote the benefits 

and uses of MCA;

• establish and document a department-level policy for 

MCA;

• develop potential uses of current systems (e.g.,TEAMREAP) to derive MCA functionalities;
Enclosure I 

Page 35 GAO-06-1002R Managerial Cost Accounting Practices 

53

Recommendations

for Executive Action

• develop financial system requirements that will fully 

address MCA capabilities needed for managerial 

decision making throughout the organization using 

appropriate, integrated financial and nonfinancial 

information systems; and

• strengthen internal controls over financial and 

nonfinancial data in MCA systems.

54

Agency Comments

and Our Evaluation

• We requested comments on a draft of our briefing 

presentation from the Secretary of Agriculture and the Secretary of Housing and Urban Development or their 

designees. We considered and incorporated, as 

appropriate, the comments in HUD’s letter and the technical 

comments we received by e-mail from each department’s 

Office of the Chief Financial Officer.

• In an e-mail from the Office of the Chief Financial Officer, 

USDA generally agreed with our findings and eight 

recommendations and stated that subsequent to our audit, 

its CFO modified the WCF budget review and approval

process to require annual review of activity center costing 

methodologies, with the first review to be completed as part 

of the fiscal year 2008 budget formulation cycle.
Enclosure I 

Page 36 GAO-06-1002R Managerial Cost Accounting Practices 

55

Agency Comments

and Our Evaluation

• HUD’s Chief Financial Officer, in a letter commenting on a 

draft of this briefing, generally agreed with our findings. He 

neither agreed nor disagreed with our five recommendations 

but described actions HUD would take on four of the five.

• In response to our recommendations about promoting the 

benefits and uses of MCA and developing an MCA policy for 

the department, the letter indicated that a new Executive 

Financial Management Advisory Committee would address 

both of these issues.

• Concerning our recommendation to develop existing 

systems to derive MCA functionalities, the letter indicated 

the TEAM/REAP system was being modified to cost staffing 

data at the activity level and that the benefits of HUD’s pilot 

ABC project would be assessed to consider applying it more 

broadly.

56

Agency Comments

and Our Evaluation

• Concerning our recommendation that HUD develop financial 

system requirements in the HIFMIP that will fully address MCA 

capabilities needed for managerial decision making throughout 

the organization, HUD’s comments did not indicate a commitment 

to expanding its use of MCA but said Data Mart, TEAM/REAP, 

and other data sources would be used for any increased MCA 

application.

• During our review, HUD management had indicated the 

department would use HIFMIP, its future integrated core financial management system, rather than Data Mart and 

TEAM/REAP, for any expansion of MCA.

• We continue to believe that HUD could improve efficiency of its programmatic operations through use of a well-planned 

MCA system departmentwide, regardless of the systems 

employed. We modified our recommendation to focus on 

development of MCA capabilities generally, rather than 

specifying the use of HIFMIP. 
Enclosure I 

Page 37 GAO-06-1002R Managerial Cost Accounting Practices 

57

Agency Comments

and Our Evaluation

• Concerning our recommendation for HUD to enhance the 

reliability of data in MCA systems by continuing to assess internal 

control over financial and nonfinancial information, HUD stated it 

was not aware of any significant data quality problems in HUD’s 

existing MCA practices.

• MCA involves the accumulation and integration of financial 

and nonfinancial information. As such, we were referring to the concern that HUD’s OIG and independent auditors have 

raised over the reliability of financial data due to control 

weakness in HUD’s financial management systems.

• For example, the OIG reported for fiscal year 2005 that HUD relied on extensive compensating procedures to prepare its 

annual financial statements. This indicates uncertain data

reliability during the year. In its report on HUD’s fiscal year 2005 financial statements, an IPA stated that financial 

information system control weaknesses could negatively affect data integrity. Such conditions would affect MCA data 

reliability as well as other financial reporting.

58

Agency Comments

and Our Evaluation

• In HUD’s comments, they advised that HUD disagreed that 

its limited application of MCA was due to a lack of 

leadership. 

• Our conclusion was based on the fact that we found no

evidence that senior leadership had actually promoted the 

benefits and uses of MCA or developed a department-level 

policy for MCA. HUD’s comment letter says it will take steps 

to address these issues. Specifically, it says HUD has now 

established an executive committee that will consider 

enhanced MCA practices and is taking steps to develop a 

department-level policy for MCA. These leadership 

initiatives, taken following our review, should help facilitate 

the development of MCA in the future. Continuing 

leadership such as this will be crucial to the implementation 

of MCA at HUD, and throughout government.
Enclosure I 

Page 38 GAO-06-1002R Managerial Cost Accounting Practices 

59

Agency Comments

and Our Evaluation

• HUD also disagreed that a lack of a more widespread 

application of MCA deprives the department of essential 

management information. 

• We continue to believe that implementing MCA to help 

inform the department's day-to-day managerial decision 

making could increase the efficiency of delivering the 

department's programs and pursuing its performance goals 

under its more than $40 billion program budget, as well as 

its $1.1 billion administrative budget. We are encouraged 

by HUD’s expanded use of TEAM/REAP and Data Mart as 

MCA tools, and implementation of an MCA pilot program, as 

discussed in HUD's letter. 
Enclosure II 

Page 39 GAO-06-1002R Managerial Cost Accounting Practices 

Comments from the Department of Housing and Urban Development
Enclosure II 

Page 40 GAO-06-1002R Managerial Cost Accounting Practices 
Enclosure III 

Page 41 GAO-06-1002R Managerial Cost Accounting Practices 

GAO Contact and 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 

Jack Warner, Assistant Director; Lisa Crye; Dan Egan; Fred Evans; Barry Grinnell; 

Tom Hackney; Barbara House; Jeff Isaacs; Paul Kinney; Lisa Knight; James Moses; 

and Glenn Slocum. 

(197012) 
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Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

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