United States General Accounting Office

GAO Report to the Chairman, Permanent

Subcommittee on Investigations,

Committee on Governmental Affairs,

U.S. Senate

July 1998 YEAR-END

SPENDING

Reforms Underway But

Better Reporting and

Oversight Needed

GAO/AIMD-98-185

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-280218 

July 31, 1998

The Honorable Susan M. Collins

Chairman

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United State Senate

Dear Madam Chairman:

In fiscal year 1980, the Senate Subcommittee on Oversight of Government

Management held hearings and issued a report, Hurry-Up Spending,

1

 to

address problems with federal spending practices and the award of

government contracts. The Subcommittee found that the rush to obligate

expiring funds before the end of the fiscal year frequently resulted in a

lack of competition, poorly defined statements of work, inadequately

negotiated contracts, and the procurement of low-priority items or

services. This report responds to your request that we outline actions

taken to correct these management weaknesses. In addition, you asked us

to provide quarterly obligation2

 data for selected departments and

agencies to determine if fourth quarter obligations were higher than

obligations in earlier quarters of the fiscal year.

Results in Brief Changes in the budget environment and procurement reforms have

affected the opportunity and need to obligate funds quickly at year-end.

Agencies spend far less today than they did in 1980 on providing goods and

services directly, as payments to individual beneficiaries and grants to

state and local governments have increased. This trend, combined with

limits on discretionary spending, has significantly changed the budget

environment for most agencies. At the same time, Congress has made

funds available for longer periods for many agencies, which reduces the

pressure to spend funds at the end of each year. In addition, systemic

procurement reforms addressed most of the issues raised in the

Subcommittee’s report although problems persist in certain agencies and

with some procurements. Our work and that of others indicates that today

there are more safeguards against unplanned year-end spending and, in

1

Hurry-Up Spending. A report prepared by the Subcommittee on Oversight of Government

Management, Senate Committee on Governmental Affairs, July 23, 1980.

2

Obligations are recorded when the government makes a firm commitment to acquire goods or

services. In general, they consist of orders placed, contracts awarded, and similar transactions.

Page 1 GAO/AIMD-98-185 Year-End Spending
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most discretionary programs, fewer resources available for low-priority

purchases than in 1980.

Despite these changes, it is difficult to assess the patterns of spending

during the year because reported quarterly budget execution data are not

reliable. Without complete and timely information for oversight, the Office

of Management and Budget (OMB) and other decisionmakers do not have

an accurate assessment of the financial status of federal programs during

the year. Even at year-end, there are significant differences in three

comparable sets of data that agencies report to OMB and the Department of

the Treasury. Although OMB officials stated that a new system they have

built jointly with Treasury to collect year-end data starting in fiscal year

1999 should resolve or greatly alleviate the differences in year-end budget

data, more work is needed to assure compliance with the requirement for

quarterly data. Agencies’ failure to report and reconcile budget execution

information mirrors broader financial management problems found in our

financial audit of the fiscal year 1997 Consolidated Financial Statements of

the United States Government.3

Background Wasteful year-end spending can occur when agencies rush to use funds at

the end of the fiscal year. This is often an attempt to spend funds that

would otherwise expire, meaning they would no longer be available for

new obligations after the fiscal year ends.

In its 1980 report, the Subcommittee recognized that higher fourth quarter

obligations may not indicate a problem with wasteful spending. The

Subcommittee noted that spending at year-end may be the result of

legitimate, planned, and worthwhile spending intended by Congress.

However, the Subcommittee found numerous examples in which agencies

took short cuts in the last few weeks of the fiscal year that led to

questionable contracts. Hurry-up procurement practices resulted in the

purchase of millions of dollars worth of goods and services for which

there was no demonstrated current need. The Subcommittee found that to

spend quickly, the government frequently paid inflated prices, incurred

higher administrative costs for overtime, and awarded contracts that were

not in the government’s best financial interest. At the time the

Subcommittee issued its 1980 report, civilian and defense agencies

operated under separate procurement systems with different authorities

and regulations. Agencies were expected to use competition to the

3

Financial Audit: 1997 Consolidated Financial Statements of the United States Government

(GAO/AIMD-98-127, March 31, 1998).

Page 2 GAO/AIMD-98-185 Year-End Spending
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maximum extent practicable, but there was no statutory requirement for

the justification and approval of sole-source contracts.

Our prior work on year-end spending has shown that problems occurred in

the past when budget execution was not monitored effectively.

Periodically, Congress has asked that we review and report on agencies’

rates of obligations.4

 A continuing theme of these earlier reports was the

questionable quality of the data reported to Treasury and OMB. In our

earlier work, we used data published in the quarterly Treasury Bulletin,

which was aggregated by department, agency, and object classification,

that is, by items of expense. The source of this information was Treasury’s

Financial Management Service (FMS) Standard Form (SF) 225 - Report on

Obligations. In December 1995, according to Treasury officials, the

reporting requirement and the resulting data published in the Treasury

Bulletin were eliminated to reduce the reporting burden on agencies.

OMB continues to require that agencies report their quarterly obligations on

the SF 133 - Report of Budget Execution (SF 133), approximately 20 days

after the close of each calendar quarter. Unlike the SF 225, obligations are

not shown by object classification. Agencies are also expected to reconcile

their year-end SF 133 report with comparable data provided to the

Department of the Treasury on the FMS 2108 - Year-End Closing Statement

(FMS 2108) and the SF 224 -Statement of Transactions (SF 224). These

reports show budget execution data for each appropriation or fund

account established by Treasury for a specific period of availability, i.e.,

annual, multiyear, or without fiscal year limitation.

Scope and

Methodology

To identify reforms in procurement and management practices, we

reviewed major legislation enacted since the Subcommittee’s 1980 report

was published. Reforms include the Competition in Contracting Act of

1984, the Government Performance and Results Act of 1993, the Federal

Acquisition Streamlining Act of 1994, and the Clinger-Cohen Act of 1996.

We also interviewed knowledgeable OMB and inspectors general (IG) staffs

to ensure that we had a comprehensive view of these reforms, to identify

additional administrative efforts, and to obtain multiple perspectives on

whether improper year-end spending was a significant problem.

4

Correspondence to Representative Byron L. Dorgan transmitting Tables of Gross Federal Obligations

for Fiscal Years 1985-1990 by Object Class for the Major Departments and Agencies (July 12, 1991);

Federal Year-End Spending Patterns for Fiscal Years 1982, 1983, and 1984 (GAO/AFMD-85-75, Revised

November 4, 1985); and Federal Year-End Spending: Symptoms of a Larger Problem (GAO/PAD-81-18,

October 23, 1980).

Page 3 GAO/AIMD-98-185 Year-End Spending
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To collect current examples of problems in federal contracting, we

reviewed our work on federal contract management5

 and IG semiannual

reports dated from fiscal years 1995 through 1997 for 10 major

departments and agencies. We looked for examples of problem

procurements that paralleled concerns identified in the Subcommittee’s

report. We were interested in reports that attributed a rush to obligate

funds at year-end as a cause for improper contracting practices. We

reviewed all IG semiannual reports and selected additional IG reports from

fiscal years 1995 through 1997 for the Departments of Agriculture,

Commerce, Defense, Energy, Health and Human Services, Housing and

Urban Development, the Interior, and Transportation, and for the National

Aeronautics and Space Administration (NASA) and General Services

Administration (GSA). Additional details on agencies for which we have

identified contract management as a high-risk area—Defense, Energy, the

Environmental Protection Agency (EPA), and NASA—with corresponding

examples from IG reports, are included in appendix I.

For data on agencies’ obligation rates, we obtained an automated OMB

report containing detailed budget execution information provided by

agencies through Treasury’s Government On-Line Accounting Link System

(GOALS). Using agency-reported SF 133 year-end obligation data, we

calculated quarterly rates of spending for fiscal year 1997, and identified

examples of incomplete reporting by agency and bureau. In those cases

where fourth quarter cumulative data were missing, we included

cumulative data from the most recent quarter. In a second analysis, we

compared these data with budget formulation data published in the prior

year column of the President’s Fiscal Year 1999 Budget. We did not

independently verify the data that agencies provided to OMB.

Our work was performed in Washington, D.C., from October 1997 through

March 1998 in accordance with generally accepted government auditing

standards. We requested comments on a draft of this report from the

Director of the Office of Management and Budget or his designee. On

July 14, 1998, the Assistant Director for Budget; the Chief, Budget

Concepts Branch of Budget; and their staff provided us with comments,

which are discussed in the “Agency Comments and Our Evaluation”

section.

5

Our examples were taken from our High-Risk Series, which identified contract management as a

high-risk area at several civilian agencies and the Department of Defense. High-Risk Series: An

Overview (GAO/HR-97-1, February 1997); High-Risk Series: Quick Reference Guide (GAO/HR-97-2,

February 1997); High-Risk Series: Defense Contract Management (GAO/HR-97-4, February 1997); and

High Risk Series: Department of Energy Contract Management (GAO/HR-97-13, February 1997).

Page 4 GAO/AIMD-98-185 Year-End Spending
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Potential for Improper

Year-End Spending

Has Been Constrained

Changes in the budget environment and procurement reforms have

reduced the potential magnitude of problems with year-end spending.

Tight fiscal controls coupled with requirements for full and open

competition and advance planning make it less likely that year-end

spending will lead to sole-source or unplanned procurements. This is not

to suggest that improper year-end spending no longer occurs or that the

procurement system cannot be improved further. We have identified

contract management as a high-risk area for certain agencies, and IGs

continue to find individual contracts that are poorly executed or

monitored.

Changes in the Budget

Environment Affect

Year-End Spending

Fewer funds, which have been made available for more than 1 year,

reduce the opportunity and need to spend funds quickly at year-end for

many agencies. Increasingly, federal government spending is made up of

direct payments to individuals or grants to states not subject to year-end

spending pressures. Correspondingly, funding for agency operating

expenses, e.g., costs for federal personnel, equipment, supplies, printing,

and contractual services, continues to decline as a share of total spending.

As illustrated in figure 1, funding for agency operations has decreased

from 48 percent of total gross obligations in fiscal year 1981 to 31 percent

in fiscal year 1997.

Page 5 GAO/AIMD-98-185 Year-End Spending
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Figure 1: Operating Expenses of Government as a Share of Total Gross Obligations

Fiscal Year

0

20

40

60

80

100

Percent of Total Gross Obligations

1981 1983 1985 1987 1989 1991 1993 1995 1997

Personal services and benefits

Contractual services and supplies

Acquisition of capital assets

All other

Deficit reduction legislation reinforced this trend by placing annual

limitations on the one-third of federal spending that is controlled through

the appropriations process—and that includes most government

day-to-day operations. At the same time, appropriators have made funds

available for more than 1 year. Today, approximately two-thirds of budget

accounts on an annual appropriations cycle have some funds available for

more than 1 year or available until spent without fiscal year limitation.

Agencies have been able to extend some contracts across fiscal years even

though their funding is appropriated annually. Recently, the National

Defense Authorization Act for Fiscal Year 1998 broadened the authority of

Page 6 GAO/AIMD-98-185 Year-End Spending
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the Department of Defense (DOD) to obligate appropriated funds for

severable service contracts that cross fiscal years if the contract periods

do not exceed 1 year. As part of this provision, Congress has asked that we

report on any abuses of the provision, including whether they have

occurred in an attempt to circumvent year-end spending limitations.6

Comparable authority was given to civilian agencies in the Federal

Acquisition Streamlining Act of 1994.

Procurement Changes

Address the

Subcommittee’s Concerns

OMB officials stated that in their view, improper or unnecessary contracts

associated with the rush to spend funds at year-end are far less of a

problem than they once were due to open competition requirements,

improved agency procurement planning, and fewer available resources.

The nine IG officials we contacted shared this view. Out of over 3,200 IG

reports reviewed, only 1 report explicitly identified a relationship between

poor contracting practices and the need to spend funds quickly at

year-end. However, GAO and the IGs continue to find weakness in some

agencies’ handling of contract management and with individual

procurements. In our High-Risk Series, we identified a number of agencies

with poor contract management practices, such as poor planning and

inadequate oversight, that make them vulnerable to some of the same

problems with wasteful year-end spending that were identified in the

Subcommittee’s 1980 report. See appendix I for a summary of our findings

and examples taken from IG reports for those agencies for which we

identified contract management as a high-risk area.

Despite problems with some agencies, the procurement system has

undergone significant changes since the Subcommittee’s report and now

substantially incorporates the Subcommittee’s recommendations. The

Competition in Contracting Act of 1984 (CICA),7

 for example, provided a

more common procurement system for defense and civilian agencies,

established a “full and open competition” standard more rigorous than the

“maximum practicable competition” that preceded it, and included

sole-source approval and procurement notice requirements in the

procurement statutes. The conference report on CICA suggests that some of

the act’s changes to the procurement system were intended to address the

year-end spending concerns raised by the Subcommittee.8

6

See H. Cong. Rep. 105-340, 771-772.

7

Public Law 98-369, Div. B, Title VII, 98 Stat. 1175 (1984).

8

See, e.g., S. Rpt. 98-50, 98th Cong., 1st Sess. pgs. 7, 12-13. The legislative history describes the 3 days of

hearings held by the Subcommittee on year-end spending that concluded that there was “a relationship

between negotiating under the crunch and unnecessary noncompetitive contracting.”

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The Defense Acquisition Workforce Improvement Act (DAWIA)9 addressed

many of the Subcommittee’s acquisition personnel-related concerns at DOD

by requiring improvements in the qualifications, training, and career

development of the defense acquisition workforce. Two more recent acts,

the Federal Acquisition Streamlining Act of 1994 (FASA),10 and the

Clinger-Cohen Act of 1996 (CCA)11 responded to Subcommittee concerns

regarding contract personnel performance incentives. Other CCA reforms

required comparable qualification and training standards for civilian

agencies.

To illustrate the way in which changes to the procurement system have

addressed the Subcommittee’s concerns, table 1 associates the

Subcommittee’s recommendations with descriptions of statutory

provisions that implement them in whole or in part.

9

Public Law 101-510, Div. A, Title XII, 104 Stat. 1638 (1990).

10Public Law 103-355, 108 Stat. 3243 (1994).

11Public Law 104-106, Divisions D and E, 110 Stat. 642-703 (1996).

Page 8 GAO/AIMD-98-185 Year-End Spending
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Table 1: Subcommittee

Recommendations and Corresponding

Reforms

Subcommittee

recommendation Corresponding reforms

Better planning and

development of advance

procurement agendas

CICA requires that agencies use advance procurement

planning and market research in preparing a

procurement, and prohibits noncompetitive procedures

based on funding uncertainties or lack of planning

justifications.

CCA specifically requires the application of capital

planning to information technology investments.

Restrictions on sole-source

contracts

Under CICA, sole source acquisitions must be justified;

the justification must include a description of efforts the

agency may take to eliminate barriers to competition.

Agencies must publish notices of all procurements over

$25,000, with certain exceptions, and must consider all

responses to notices of sole-source acquisitions.

The basic principles of full and open competition have

been maintained in subsequent procurement reforms.

Procedures for appraising

civil service performance in

contract management

DAWIA required the Secretary of Defense to develop and

implement a program to improve the qualifications,

training, and career development of the defense

acquisition workforce.

FASA required OMB to establish policies, to the maximum

extent consistent with current law, to provide for pay for

performance and performance consideration in promotion

decisions for acquisition positions.

CCA required qualification and training standards for

civilian agencies comparable to DOD and encouraged

career development and the use of performance

compensation incentives.

Increased oversight and

monitoring through a

government contracts

database

Executive agencies are required to establish and maintain

a computer file containing records of all acquisitions

above the simplified acquisition threshold for a period of 5

years. Agency material is to be transmitted to the General

Services Administration for inclusion in the Federal

Procurement Data System.a

a41 U.S.C. § § 405(d)(4), 417.

Procurement and management reforms continue to evolve and influence

the issue of year-end spending. Two of the most significant procurement

reforms were enacted within the last 4 years and other management

reforms are in early phases of implementation. As a result, it is too early to

assess their full impact or to determine what further refinements may be

Page 9 GAO/AIMD-98-185 Year-End Spending
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needed.12 FASA was intended to simplify the procurement system and CCA

added requirements for information technology capital planning and

career development and performance incentives for non-DOD acquisition

personnel.

In addition, management reforms outside of the strictly procurement

sphere have influenced the procurement process, particularly

procurement planning. The strategic planning provisions of the

Government Performance and Results Act of 1993 (Results Act), require

integration of capital procurement, budget, and program planning. The

National Defense Authorization Act for Fiscal Year 1998 requires

expanded use of streamlined micropurchase procedures in DOD.

Budget Execution

Data Not Reliable

Reliable quarterly obligation rates for fiscal year 1997 for the major

departments and agencies, as well as the government as a whole, were not

available because of incomplete reporting of budget execution data.

Additionally, there were significant differences in the three sets of data

that agencies reported for fiscal year 1997. Data are reported in (1) final

budget execution reports to OMB (SF 133), (2) the prior year column of the

President’s Fiscal Year 1999 Budget, and (3) Treasury’s Fiscal Year 1997

Annual Report. OMB told us that the OMB and FMS project to merge these

separate year-end reporting requirements will resolve or greatly alleviate

the differences in year-end reporting data. However, it is less likely to

address problems with quarterly reporting or ensure adequate oversight of

budget execution during the fiscal year. Agencies’ failure to report and

reconcile budget execution information is another example of the broader

financial management concerns we raised in our financial audit of the

fiscal year 1997 Consolidated Financial Statements of the United States

Government.13

Rates of Obligation Could

Not Be Determined

Because agencies did not report complete quarterly budget execution

data, we could not determine whether agencies obligated at a higher rate

in the fourth quarter than in previous quarters of fiscal year 1997. Our

review of OMB-provided agency quarterly budget execution reports (SF

133) showed significant gaps in all major agencies as a result of

nonreporting. Of the 1,054 treasury accounts in major department and

agencies that we reviewed, 332, or 32 percent, showed no information in

12Acquisition Reform: Implementation of Key Aspects of the Federal Acquisition Streamlining Act of

1994 (GAO/NSIAD-98-81, March 9, 1998).

13GAO/AIMD-98-127, March 31, 1998.

Page 10 GAO/AIMD-98-185 Year-End Spending
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the first quarter. Although some programs may not incur obligations until

later in the fiscal year, a similar comparison in the last quarter showed that

88, or 8 percent, of the accounts reported no cumulative obligations.

Although OMB did not systematically follow up with nonreporting agencies

during the year, it did publish a comparison of year-end differences in

budget execution and formulation information for fiscal year 1997.14 In

addition to the nonreporting we identified, OMB found 114 accounts—or

10 percent of the accounts published in the President’s Budget

Appendix—that were expected to submit budget execution data on SF 133

submissions but did not. We found that three agencies—DOD, the

Department of Energy, and the Department of Housing and Urban

Development (HUD)—showed quarterly rates of obligations that were

particularly misleading because nonreporting (1) was widespread, with

Energy and HUD failing to report in two or more quarters for at least half of

their total accounts, and (2) included accounts with significant resources.

Year-End Budget

Execution and

Formulation Data Differed

Significantly

We found significant differences when we compared year-end budget

execution obligation data with comparable data reported by agencies in

formulating the President’s Fiscal Year 1999 Budget. OMB Circular A-11

requires that agencies report consistent year-end data to Treasury for its

Annual Report and to OMB for the final SF 133 - Report on Budget

Execution and prior year information for the President’s Budget. We found

that of the 14 major departments, 5 reported total fiscal year 1997

obligations that were at least 50 percent higher in the President’s Fiscal

Year 1999 Budget than the amounts reported in their respective year-end

SF 133s. Of the major departments and agencies, Education, HUD, and NASA

each reported total obligations that were over 85 percent higher in the

President’s Fiscal Year 1999 Budget, while only DOD, Energy, EPA, and GSA

reported essentially the same information to OMB and Treasury.

In its report,15 OMB stated that the absolute value—that is, the combined

over-reporting and under-reporting of fiscal year 1997 obligations shown

on agencies’ SF 133s compared with actual obligations reported in the

President’s Fiscal Year 1999 Budget—was $324 billion, a reporting

difference of 15 percent. OMB reached conclusions similar to ours, that

(1) data in the actual-year column in the President’s budget request should

14Budget Review and Concepts Division, OMB, Differences in FY 1997 Formulation and Execution

Data, March 1998.

15See footnote 14. OMB’s report differed from our analysis because it (1) used more recent

information—it reflected adjustments made through the first quarter of fiscal year 1998, (2) compared

data only at an account level, and (3) included only those accounts with discrepancies of $5 million or

greater.

Page 11 GAO/AIMD-98-185 Year-End Spending
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agree with year-end budget execution data reported to OMB, but did not

and (2) governmentwide, SF 133 data were understated when compared to

data reported in the President’s Fiscal Year 1999 Budget. According to

OMB, governmentwide obligations were understated by a net $152 billion in

the final fiscal year 1997 SF 133 reports.

A New Data System Is

Unlikely to Resolve

Quarterly Reporting

Problems

FACTS II is a new data collection system that according to OMB, will satisfy

most of its and FMS’ year-end reporting requirements. Currently, agencies

report accounting information, including the FMS 2108 - Year-End Closing

Statement, through GOALS, Treasury’s automated reporting system. This

system is also used to transmit agencies’ SF 133 reports to OMB, although

Treasury does not verify the accuracy or completeness of this information.

FACTS II will collect a single set of year-end data from agencies beginning

in fiscal year 1999; OMB expects this to improve the link between budget

execution data and prior year information in the President’s Budget.

Merging separate Treasury and OMB reporting requirements should

eliminate discrepancies between budget execution and formulation data

for the prior fiscal year because FACTS II will be the only source for this

information. However, there is nothing in this change that fosters

compliance with quarterly reporting requirements or the oversight of the

budget execution process during the fiscal year.

Budget Execution

Reporting Problems

Reflect Broader Financial

Management Concerns

Agencies’ unreliable reporting and reconciliation of budget execution data

mirrors problems with other financial information found in the first audit

of the federal government’s consolidated financial statements. For

example, we found that government agencies reported hundreds of

billions of dollars of assets that were not adequately supported by

financial records. Also, several major agencies were not effectively

reconciling their fund balances with Treasury accounts. For example,

there were billions of dollars of unresolved gross differences between

agencies’ and Treasury’s records of cash disbursements as of the end of

fiscal year 1997. The accuracy of the appropriation and fund account

balances reported on FMS 2108 - Year-End Closing Statements and SF 224 -

Statements of Transactions, which are used to prepare the Treasury’s

Annual Report, depend on agencies properly reconciling differences

reported by Treasury during the year.

Each agency will need to consider these reporting and reconciliation

problems in order to prepare its Statement of Budgetary Resources and

Statement of Financing for its financial statements beginning in fiscal year

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1998. Agencies whose financing is wholly or partially from budgetary

resources will need to report in these statements on the availability and

status of these funds for the reporting period. Since the Statement of

Budgetary Resources is budget rather than accrual-based, Statement of

Federal Financial Accounting Standards No. 7, Accounting for Revenue

and Other Financing Sources and Concepts for Reconciling Budgetary and

Financial Accounting, requires that agencies reconcile obligations and

outlays reported on the SF 133 with other financial accounting information,

which is then included in the agency’s audited financial statements. The

Statement of Financing requires that agencies show the relationship

between budgetary resources obligated for a federal program entity and its

operations, and the net cost of operating that entity by reporting

differences and reconciling proprietary and budgetary accounts. OMB has

the lead responsibility, in consultation with the Chief Financial Officers

Council and others, in developing the form and content of these

statements and in ensuring that agencies comply with reporting

requirements.

Observations Since the Subcommittee’s 1980 report, substantial reforms in procurement

planning and competition requirements have changed the environment, as

has the declining share of federal funds available for agency operations.

Agencies may still be tempted to quickly spend funds that will expire, but

year-end spending is unlikely to present the same magnitude of problems

and issues as before.

Although agencies have the primary responsibility for ensuring that their

budgets are executed and accounted for properly, our study revealed that

the ability of Congress and OMB to oversee the rate and timing of federal

spending across agencies is limited in the absence of complete and

accurate reporting. In addition, it points to inadequate central oversight of

the financial status of the federal government because of agencies’

widespread reporting noncompliance. Even at year-end, budget execution

data reported to OMB and year-end accounting data provided to Treasury

do not agree for many agencies. The joint OMB and Treasury proposal to

merge year-end reporting requirements through a shared database will

eliminate the potential for discrepancies between reports, but by itself

does nothing to increase compliance with quarterly reporting

requirements or oversight of budget execution during the year.

OMB needs to reemphasize the existing OMB Circular A-34 requirement that

agencies report budget execution information no later than 20 days after

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the close of the calendar quarter and investigate agency nonreporting or

questionable reporting of quarterly and year-end data. OMB also needs to

examine areas in which obligations vary significantly from planned or

historical rates to ascertain the reasons for these differences and to

monitor agencies’ implementation of their Statements of Budgetary

Resources and Statements of Financing, which should provide additional

insights.

Recommendation To improve oversight of agencies’ execution of the budget, we recommend

that the Office of Management and Budget reemphasize compliance with

the OMB Circular A-34 requirement that agencies provide quarterly data no

later than 20 days after the close of a calendar quarter, and examine

quarterly reporting by agencies that varies significantly from planned or

historical rates. We also recommend that the Office of Management and

Budget continue its efforts to integrate budget and accounting reporting at

year-end and report periodically on progress made.

Agency Comments

and Our Evaluation

In oral comments, OMB stated that in the last 3 years it has taken several

steps to improve the quality of budget execution data. OMB officials said

that they have actively directed a Treasury contractor to build a new SF

133 data collection system that has been used since 1996 to allow OMB to

access data directly. Using these data, OMB staff developed reports that

present the data in different ways to assist analysis by OMB examiners and

agency analysts. In addition, OMB has embarked on a training program and

is continuing to provide extensive training within OMB and to the agencies

on the value of SF 133 data.

OMB’s increased attention to monitoring budget execution data is

important and we support its effort to increase the quality and use of this

information. OMB’s inclusion of crosswalks in recent budget formulation

and execution circulars that show data relationships between year-end

reports should be particularly helpful to agencies. Persistent attention,

including follow-up by OMB examiners when agencies either do not provide

data, do not provide data timely, or when data are questionable, should

signal the need for agencies to take budget and financial management

reporting and reconciliation requirements seriously.

OMB officials also provided clarifying comments, which we have

incorporated in the report where appropriate.

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We are sending copies of this report to other interested Members of

Congress and the Director of the Office of Management and Budget. We

will make copies available to others on request. Please call me at

(202) 512-9573 if you or your staff have any questions. Major contributors

to this report are listed in appendix II.

Sincerely yours,

Paul L. Posner

Director, Budget Issues

Page 15 GAO/AIMD-98-185 Year-End Spending
Contents

Letter 1

Appendix I 

High-Risk Contract

Management Agencies

18

Appendix II 

Major Contributors to

This Report

21

Related GAO Products 24

Table Table 1: Subcommittee Recommendations and Corresponding

Reforms

9

Figure Figure 1: Operating Expenses of Government as a Share of Total

Gross Obligations

6

Abbreviations

BIA Bureau of Indian Affairs

CCA Clinger-Cohen Act of 1996

CICA Competition in Contracting Act of 1984

DAWIA Defense Acquisition Workforce Improvement Act

DOD Department of Defense

EPA Environmental Protection Agency

FAR Federal Acquisition Regulations

FASA Federal Acquisition Streamlining Act of 1994

FMS Financial Management Service

GOALS Government On-Line Accounting Link System

GSA General Services Administration

HUD Department of Housing and Urban Development

IG inspector general

NASA National Aeronautics and Space Administration

OMB Office of Management and Budget

SF Standard Form

Page 16 GAO/AIMD-98-185 Year-End Spending
Page 17 GAO/AIMD-98-185 Year-End Spending
Appendix I 

High-Risk Contract Management Agencies

In 1990, we began reporting on federal program areas that were at risk

because of vulnerabilities to waste, fraud, abuse, and mismanagement. We

periodically report on agencies’ progress in correcting deficiencies and on

where additional actions need to be taken. Our most recent High-Risk

Series, published in February 1997, includes high-risk contract

management in certain civilian agencies and DOD. Since the problems

associated with wasteful year-end spending—poor planning, insufficient

competition, and inadequate contract oversight—can occur at any time

during the fiscal year, we have included the following summary of our

findings regarding high-risk agencies based on our work. We also include

some related examples drawn from our reviews of IGs’ reports.

We have identified contract management as a high-risk area at DOD,

Energy, NASA, and EPA and noted long-standing problems with their

contract payment and oversight functions. For example, as noted in our

1997 High-Risk Series, we found that in recent years, DOD experienced

numerous problems in making accurate payments to defense contractors.

We noted that while DOD had taken steps to address its payment problems,

it should also (1) improve and simplify its contract payment system and

(2) further strengthen its oversight of contractor cost-estimating systems.

Doing so would enable DOD to achieve effective control over contract

expenditures.1

 The DOD IG also found examples of overpayment or

unreasonable pricing. In fiscal year 1996, the DOD IG reported that

overpayments of $43.6 million were made to a contractor because requests

for progress payments had not been prepared properly.2

 In another case,

the IG found that various defense construction and supply centers had paid

$15.8 million more than they should have on 63 procurements of spare

parts.3

We also designated Energy’s contract management as high risk because its

extensive reliance on contracting and history of inadequate oversight of

contractors failed to protect the federal government’s financial interests.

In our 1997 High-Risk Series, we reported that Energy had made progress

in developing an extensive array of policies and procedures, such as

publishing a new regulation adopting a standard of full and open

competition for the award of its management and operating contracts. We

concluded that the department would need to continually monitor the

1

High-Risk Series: Defense Contract Management (GAO/HR-97-4, February 1997).

2

Office of the Inspector General, Department of Defense, Contract Financing of the Family of Medium

Tactical Vehicles Program, 1996 (96-228).

3

Office of the Inspector General, Department of Defense, Price Challenges on Selected Spare Parts,

1995 (96-035).

Page 18 GAO/AIMD-98-185 Year-End Spending
Appendix I 

High-Risk Contract Management Agencies

award of these contracts to maintain its momentum and priority in

implementing contract reform.4

 During 1997 and 1998, the Energy IG

reported on problems with the performance-based incentives for fiscal

years 1995 and 1996 at four sites. They ranged from incentive payments in

excess of the cost of labor and materials for the work performed to the

award of incentive fees for work either not completed or for work done

prior to establishing the incentive program.5

 In addition, the IG for Energy

reported during 1997 on its assessment of the implementation of

performance-based incentive contracts. In its report, Energy’s IG raised

concerns about insufficient formal guidance for developing and

administering performance incentives and the lack of criteria for

measuring performance or allocating fees.6

EPA has had long-standing problems in controlling contractors’ charges,

particularly in its Superfund program. In fact, we have repeatedly reported

that EPA has not overseen its cost-reimbursable contracts to prevent

contractors from overcharging the government. We also found that

although EPA had recently strengthened its management and oversight of

Superfund contractors, the agency remained too dependent upon

contractors’ own cost proposals to establish the price of cost reimbursable

work. Thus, we suggested that EPA could better estimate the costs of

contractors’ work, use the estimates to negotiate reasonable costs, provide

contractors with appropriate incentives to hold down their administrative

expenses, and increase the timeliness of contract audits.7

Although NASA has improved its contract and procurement operations by

placing greater emphasis on contract cost control and contractor

performance, we and NASA’s IG continue to identify problems in NASA’s

contract management and opportunities to improve procurement

oversight. For example, NASA’s IG concluded that one NASA-negotiated

contract included $22.7 million in financing, insurance interest, and

termination liability insurance costs that are generally prohibited under

Federal Acquisition Regulations (FAR).8

 In 1997, we suggested that NASA

identify its contract management problems early on so they could be

4

High-Risk Series: Department of Energy Contract Management (GAO/HR-97-13, February 1997).

5

Office of Inspector General, Department of Energy, Inspection of the Performance Based Incentive

Program at the Richland Operations Office, 1997 (IG-0401).

6

Department of Energy, Assessment of the Use of Performance-Based Incentives in

Performance-Based Management and Management and Integration Contracts (October 1997).

7

High-Risk Series: An Overview (GAO/HR-97-1, February 1997) and High-Risk Series: Quick Reference

Guide (GAO/HR-97-2, February 1997).

8

Office of the Inspector General, National Aeronautics and Space Administration, Commercial

Middeck Augmentation Module (CMAM) Contract Negotiated Price, 1995 (KE-95-009).

Page 19 GAO/AIMD-98-185 Year-End Spending
Appendix I 

High-Risk Contract Management Agencies

evaluated, monitored, and corrected before becoming systemic. We also

suggested that additional agencywide guidance could help NASA ensure

more consistent and thorough coverage of the procurement cycle.9

 While

recent reforms have allowed agencies the option of making small

purchases by credit card, a NASA IG survey report entitled NASA

Procurement Initiatives, Credit Card Program found that NASA split a

$168,000 computer procurement into 80 single purchases, enabling each

purchase to fall below the Government Credit Card limit of $2,500. The IG

concluded that NASA violated the FAR prohibition against splitting

requirements. Similar problems were reported by IGs at Commerce,

Energy, and Transportation.

Only one of the IG reports we reviewed explicitly identified a relationship

between poor contracting practices and the need to spend funds quickly.

In its report, Interior’s IG detailed the results of its evaluation of the

Bureau of Indian Affairs’ (BIA) road construction projects.10 The IG

reported that some of BIA’s road projects were poorly designed and

planned because BIA rushed to award contracts to avoid returning unspent

funds to the Federal Highway Administration at the end of the fiscal year.

The report concluded that BIA’s practices led to construction delays that

increased costs by $3.3 million.

9

GAO/HR-97-1, February 1997 and GAO/HR-97-2, February 1997.

10Office of the Inspector General, U.S. Department of the Interior, Road Construction Program, Bureau

of Indian Affairs, 1996 (96-I-870).

Page 20 GAO/AIMD-98-185 Year-End Spending
Appendix II 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Denise M. Fantone, Assistant Director

San Francisco Field

Office

Inez M. Azcona, Senior Evaluator

George R. Senn, Senior Evaluator

Office of the General

Counsel

William Woods, Assistant General Counsel

John A. Carter, Attorney

Page 21 GAO/AIMD-98-185 Year-End Spending
Page 22 GAO/AIMD-98-185 Year-End Spending
Page 23 GAO/AIMD-98-185 Year-End Spending
Related GAO Products

U.S. Government Financial Statements: Results of GAO’s Fiscal Year 1997

Audit (GAO/T-AIMD-98-128, April 1, 1998).

Executive Guide: Leading Practices in Capital Decision-Making (Exposure

Draft) (GAO/AIMD-98-110, April 1998).

Financial Audit: 1997 Consolidated Financial Statements of the United

States Government (GAO/AIMD-98-127, March 31, 1998).

Defense Acquisition: Improved Program Outcomes Are Possible

(GAO/T-NSIAD-98-123, March 18, 1998).

Best Practices: DOD Can Help Suppliers Contribute More to Weapon

System Programs (GAO/NSIAD-98-87, March 17, 1998).

Defense Management: Challenges Facing DOD in Implementing Defense

Reform Initiatives (GAO/T-NSIAD/AIMD-98-122, March 13, 1998).

Acquisition Reform: Implementation of Key Aspects of the Federal

Streamlining Act of 1994 (GAO/NSIAD-98-81, March 9, 1998).

Best Practices: Successful Application to Weapon Acquisition Requires

Changes in DOD’s Environment (GAO/NSIAD-98-56, February 24, 1998).

Financial Audit: Reconciliation of Fund Balances with Treasury

(GAO/AIMD-97-104R, June 24, 1997).

Budget Issues: Budgeting for Federal Capital (GAO/AIMD-97-5, November 12,

1996).

Information Technology Investment: Agencies Can Improve Performance,

Reduce Costs, and Minimize Risks (GAO/AIMD-96-64, September 30, 1996).

Budget and Financial Management: Progress and Agenda for the Future

(GAO/T-AIMD-96-80, April 23,1996).

(935268) Page 24 GAO/AIMD-98-185 Year-End Spending
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