ASSESSMENT OF COST ACCOUNTING 

SYSTEM AND PRACTICES 

Federal Aviation Administration 

Report Number: FI-2008-045 

Date Issued: March 21, 2008 
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: Assessment of Cost Accounting System 

and Practices 

Federal Aviation Administration 

Date: March 21, 2008 

Report No. FI-2008-045 

From: Mark H. Zabarsky 

Assistant Inspector General for 

 Acquisition and Procurement Audits 

Reply to 

Attn. of: JA-60 

To: Acting Federal Aviation Administrator 

In accordance with the Wendell H. Ford Aviation Investment and Reform Act for 

the 21st Century [(AIR-21), Public Law 106-181], we assessed the Federal 

Aviation Administration’s (FAA) progress in implementing a cost accounting 

system. AIR-21 required five assessments of eight specific areas covering FAA’s 

methods for calculating and assigning costs to specific users, including whether 

these methods are appropriate, reasonable, and understandable. This is our final 

assessment report as required by AIR-21.1 

FAA began developing its cost accounting system in 1996, as directed by the 

Federal Aviation Reauthorization Act of 1996. The Act required FAA to develop 

a cost accounting system that adequately and accurately reflected the investments, 

operating and overhead costs, revenue, and other financial measurements and 

reporting aspects of its operations. In 1997, the National Civil Aviation Review 

Commission also recommended that FAA establish a cost accounting system to 

manage its resources in a businesslike manner. 

Since 1996, FAA has spent more than $66 million to complete the implementation 

of its cost accounting system. During this same period, FAA’s total budget almost 

doubled, from about $8 billion in fiscal year (FY) 1996 to about $14 billion in FY 

2007 (see figure 1). A multibillion-dollar organization such as FAA must have a 

cost accounting system that provides visibility into the cost of its operations to 

help management shape decisions and establish priorities. FAA’s cost accounting 

 

1

 VISION-100, the Century of Aviation Reauthorization Act (Public Law 108-176), followed AIR-21, expired at the 

end of September 2007 and did not retain this specific provision. 
 2

system should provide managers and executives with the information they need to 

identify and eliminate wasteful spending, hold or reduce operating costs, and 

better link financial performance to mission objectives. 

Figure 1. Growth in FAA’s Annual Budget, FYs 1996–2007 

($ in billions) 

 

Our audit objectives were to determine the status of the cost accounting system 

implementation and assess the eight areas specified in AIR-21 concerning FAA’s 

methods of calculating and assigning costs to specific users, including whether 

these methods are appropriate, reasonable, and understandable.2

 We conducted 

this performance audit in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit 

objectives. A detailed description of our audit scope and methodology is 

presented in exhibit A. 

 

2

 This review focuses on the cost accounting system. It does not address FAA’s proposed cost allocation or user fee 

calculation. 

0

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 $15 

FY

1996

FY

1997

FY

1998

FY

1999

FY

2000

FY

2001

FY

2002

FY

2003

FY

2004

FY

2005

FY

2006

FY

2007

Operations and Maintenance Expenses

Facilities and Equipment, Airports, and Research and Development Expenses

Source: FAA’s enacted budgets and budget submissions from FY 1996 through FY 2007. The 

actual dollar amounts comprising figure 1 are in exhibit B. 
 3

On December 13, 2007, we briefed FAA’s Office of Financial Management staff 

on the results of our assessment. The charts from that briefing are included in 

exhibit D. We also conducted meetings with these managers to discuss our 

conclusions and recommendations on April 12, September 26, and October 22, 

2007. The results of our assessment are summarized as follows. 

FINDINGS 

AIR-21 requires that OIG assess eight specific areas regarding FAA’s progress in 

implementing a congressionally-mandated cost accounting system. This report 

summarizes key findings concerning FAA’s cost accounting and labor distribution 

systems as of September 30, 2007. 

FAA has made significant progress since our last assessment report in November 

2004. During FY 2006, it completed the implementation of the cost accounting 

system. Executives in all four FAA lines of business—the Air Traffic 

Organization (ATO), Aviation Safety, Airports, and Commercial Space—are 

receiving management reports from the cost accounting system on a quarterly 

basis. Additionally, in FY 2007, FAA finalized implementation of the labor 

distribution system to manage its $6.6 billion annual labor costs—FAA’s single 

largest cost element. 

Overall, FAA’s cost accounting system is properly designed to assign costs 

directly to responsible service organizations; however, management needs to (1) 

stay vigilant in order to maintain the integrity of the underlying financial data, 

(2) continue enhancing controls over labor cost distribution, (3) identify the full 

cost of facilities and use these cost data to manage operations, and (4) ensure the 

cost accounting processes are properly documented. 

Congress is currently considering legislation to reauthorize FAA’s programs 

through FY 2011. One legislative proposal calls for cost-based fees for aircraft 

certification and registration and air traffic control for overflights—those aircraft 

flights that neither take off nor land in the United States. FAA’s cost accounting 

system is capable of supporting these fees. 

Integrity of the Underlying Financial Accounting Data for Property 

and Related Expenses Remains Unstable 

In FY 2006, FAA received a qualified audit opinion on its financial statements 

because it could not adequately support the Construction in Progress (CIP) asset 

balance, totaling $4.7 billion as of September 30, 2006. FAA lacked sufficient 

internal controls over its financial management practices for capitalizing Property, 

Plant, and Equipment, which included CIP asset balances. 
 4

During FY 2007, FAA executed an extensive corrective action plan, including a 

complete review of the CIP balance reported as of September 30, 2006. FAA’s 

review of CIP resulted in a significant restatement of the DOT FY 2006 financial 

statements, including a reclassification of $1.7 billion from CIP to in-use fixed 

assets and more than $900 million from CIP to expense. Since more than $900 

million should have been recorded as expenses through FY 2006, costs associated 

with individual service delivery points were understated in the cost accounting 

system. 

In its FY 2007 audit report, KPMG3

 again identified the processing of transactions 

and accounting for Property, Plant, and Equipment including the CIP account, as a 

material weakness. KPMG noted that FAA had not fully complied with 

standardized policies and procedures on unit costs, overhead allocations, and entry 

of transactions in the fixed asset subsidiary ledger, to ensure CIP and related Plant, 

Property & Equipment balances were accurate, complete, and recorded in a timely 

manner throughout the year. Substantial manual processes were necessary for 

FAA to account for and report CIP transactions occurring during FY 2007 and to 

determine the appropriate balances reported at year end. The accuracy of the CIP 

account and FAA’s corrective actions were addressed in our report FI-2008-011, 

“DOT's Consolidated Financial Statements for FY07 and FY06,” dated November 

13, 2007.4

Accurate CIP data would permit ATO financial managers to gain better insight 

into the full costs of facilities and activities, allowing them to better identify ways 

to increase efficiency and productivity leading to cost savings. FAA must stay 

vigilant in maintaining the integrity of its underlying financial accounting data. 

Controls Over the Distribution of Labor Costs Have Improved, 

Continued Enhancement Needed 

FAA has implemented its labor distribution system to manage its annual labor 

costs. It has corrected various control deficiencies that we reported in the past, 

such as allowing controllers to override system clocks when checking in and out 

of their shifts. Despite these improvements, we continue to find that FAA 

employees are not consistently charging their time to valid projects. This results 

in excessive labor costs being processed as “No Project” and recorded as overhead 

(indirect cost), instead of direct labor hours in the labor distribution system. 

Recording hours as “No Project” overstates overhead costs and understates costs 

associated with direct projects at facilities’ air traffic control towers and en route 

centers. 

 

3

 KPMG was under contract to us and under our supervision. 4

 OIG products can be found on our website at: www.oig.dot.gov 
 5

FAA has taken steps to reduce its “No Project” labor charges. For example, it 

reduced the number of labor hours not charged to valid projects from 27 percent, 

valued at about $1.8 billion as of September 30, 2004, to about 4.4 percent, valued 

at about $290 million, as of September 30, 2007. Although it is not realistic for a 

large organization such as FAA to achieve perfect accuracy, more can be done to 

further reduce the labor hours charged to “No Project.” Areas needing attention, 

sometimes resulting in inaccurate reporting of labor costs, are discussed below. 

Employees and Supervisors Are Not Consistently Following Labor 

Distribution System Policies 

FAA employees are not consistently entering time charges to projects in the labor 

distribution system in a timely manner. FAA Order 2700.37, which established 

agencywide FAA policy on labor distribution reporting, requires that employee 

time charges be entered into the labor distribution system, noting the hours worked 

by project during a pay period, which a supervisor then approves. If employees’ 

labor hours are not entered into the system and certified by the required date, they 

are automatically charged to "No Project." 

FAA placed its emphasis on completing the labor distribution system for its entire 

organization. During this past year, management began focusing its attention on 

training employees to properly use the system. As of August 9, 2007, all FAA 

employees completed such training. Also, at the Headquarters level, FAA began 

tracking labor hours charged to “No Projects.” FAA needs to monitor this process 

to ensure employees are following its policies to enter time charges in the system 

in a timely manner. 

System Interface Problem Contributing to Controllers’ Labor Hours Being 

Charged to “No Project” 

An interface deficiency between two computerized timekeeping systems—Air 

Traffic Organization (ATO) Resource Tool (ART) and CruSupport—contributed 

to labor costs that could not be identified by specific project. Approximately 

14,500 air traffic controllers enter their time charges into ART. The ART 

collection system then inputs time charges into the CruSupport timekeeping 

system for all ATO employees. 

The interface problem between the two systems occurs because ART records time 

charges in minutes and CruSupport converts those minutes into 

fractions-of-an-hour. For example, 80 minutes in ART converts to 1.33333 hours 

in CruSupport; however, CruSupport would only display 1.33 hours. More than 

80.00 hours can accumulate per pay period when these additional fractional hours 

are summed, resulting in direct project charges being defaulted to the “No Project” 

code. This conversion problem understates time spent on direct projects at air 

traffic control facilities. 
 6

During our review in June 2007, FAA took action to address these problems by 

modifying CruSupport to add an extra decimal place when totaling hours worked 

per day. FAA timekeepers can now make manual adjustments using a Minute-toDecimal Conversion Table to help ensure exactly 80 hours are computed in 

CruSupport. Although this will not fully correct the problem, it helps identify if 

80 hours are exceeded in CruSupport. A system change request is planned to fully 

correct the problem; however, due to higher priorities, FAA does not have a 

planned date to implement it. 

New Project Codes Are Delayed and “No Project” Charges Are Not Being 

Corrected Timely 

New project codes are taking up to 3 weeks to become available in the Cru-X 

labor distribution system. Delays exist because the processes to obtain these new 

codes are cumbersome. New projects first require funding approval from the 

Budget Office. Upon obtaining this approval, new project information is 

established in Delphi, the financial management system, and subsequently in the 

cost accounting system. Adding to administrative delays is the fact that new 

projects are only updated and made available once a week in the Cru-X labor 

distribution system. In the absence of new project codes, FAA employees charge 

“No Project.” 

According to FAA financial managers, it takes 2 weeks to either correct or amend 

“No Project” charges; however, we found that it often took a great deal longer. 

We judgmentally selected 14 employees who had a total of 6,593 hours charged as 

“No Project” during FY 2006. Only 224 hours, which represented a portion of 

“No Project” hours recorded for one employee, were corrected within 2 weeks. 

None of the remaining 6,369 hours were corrected during the entire fiscal year. 

FAA has standard compliance reports that identify individuals with “No Project” 

charges; however, not all managers were aware of, or had been trained in using, 

the reports. 

FAA Did Not Identify Full Cost of Individual Facilities or Use Cost 

Accounting Data to Manage Operations 

FAA does not accumulate the full costs of its individual facilities. Federal 

Accounting Standards require agencies to report the full cost of outputs by 

responsibility segment.5

 Outputs are the services or products produced and 

delivered by the responsibility segment or the missions or tasks performed by the 

segment. As such, the costs assigned to outputs are direct and indirect costs 

incurred within the responsibility segment. Knowing the full operating costs for 

 

5 A responsibility segment is a component of a reporting entity that is responsible for carrying out a 

mission, conducting a major line of activity, or producing one or a group of related products or services. 

FAA defines responsibility segments as its lines of business.
 7

each facility is essential for developing benchmarks and performance goals that 

will reduce costs and improve services. With reliable facility-level cost 

information, FAA managers could compare the full costs of similar facilities and 

focus on costs that should be reduced. 

Also, FAA does not consistently use data in the cost accounting system to manage 

its operations. Using the available cost accounting information to identify 

opportunities to reduce costs or increase efficiency is a primary purpose of a cost 

accounting system. 

FAA Did Not Fully Allocate Operating Expenses to FAA Service Facilities 

In November 2004, we reported that FAA did not properly assign more than 

$1 billion in investment costs—development, asset implementation, and asset 

depreciation—annually to its individual facilities. As of June 30, 2007, FAA 

continues to report these costs, now more than $1.5 billion, as lump-sum amounts 

rather than as costs of individual facilities. This practice does not comply with 

Federal accounting standards, which require agencies and responsibility segments 

to account for the full cost of their outputs and services in cost accounting systems 

and general purpose financial reports. The standards also require that costs not 

directly identifiable with a final cost objective or facility, or benefiting more than 

one facility, be assigned on a cause-and-effect basis or allocated as overhead to 

those objectives or facilities. 

ATO assigns these investment costs at the service level,6

 one level above its 

individual facilities. While the service level is an integral part of ATO’s 

operations, they represent costs at too high a level to be useful to managers for 

decision-making purposes. Also, the costs associated with this level are too broad 

to tie to a particular output, such as the services being performed at an individual 

air traffic control facility. 

FAA Still Is Not Using Cost Accounting Information When Managing Its 

Operations 

FAA placed emphasis on completing the implementation of the cost accounting 

system for each line of business. Since that completion in FY 2006, FAA has 

made little use of this information when managing its operations and reporting on 

performance measures, instead relying on other information, such as budget data 

and Delphi data, to do so. 

According to Statement of Federal Financial Accounting Standard No. 4, a 

primary reason for using information in the cost accounting system is to measure 

performance. The standard notes that such information should be used to assess 

 

6

 ATO defines service level as en-route centers, oceanic centers, terminals, and flight service stations. 
 8

how much it costs to perform whatever is being measured, thus allowing an 

assessment of whether that cost seems reasonable. It also allows the opportunity 

to establish a baseline for comparison against what it costs others to perform 

similar work or achieve similar results. Using the system as intended would help 

FAA identify ways to reduce costs and determine the most efficient practices at all 

locations. 

FAA Has Not Adequately Documented Procedures Governing Cost 

Accounting System Processes 

System documentation is a standard information technology control often 

overlooked and undervalued. FAA’s documentation of the cost accounting 

system’s procedures does not contain the level of detail necessary to provide 

employees and users with an adequate understanding of the system. Documents 

such as the memorandum of agreement for each line of business defining system 

objectives and scope are vague and missing important information. To illustrate, 

the memorandums do not contain procedures for producing cyclical reports or 

making manual adjustments in the system. Statement of Federal Financial 

Accounting Standard No. 4 states, “All managerial cost accounting activities, 

processes, and procedures should be documented by a manual, handbook, or 

guidebook of applicable accounting operations. This reference should outline the 

applicable activities, provide instructions for procedures and practices to be 

followed, list the cost accounts and subsidiary accounts related to the standard 

general ledger, and contain examples of forms and other documents used.” 

As a result, system knowledge and processes, such as adjusting costs not charged 

to projects or lines of business, are retained by only a few key personnel within the 

Cost Accounting Division. By relying on individual knowledge, FAA is subjected 

to unnecessary risks, in the absence of these individuals, that it could be deprived 

of the requisite knowledge and information necessary to address system and 

operational issues. 

FAA managers acknowledge the importance of adequate documentation and, in 

June 2007, contracted with an outside party to create a plain language document 

explaining the process for each line of business. FAA plans to complete the 

system documentation in early 2008. 

Our recommendations to FAA are designed to ensure that employees charge valid 

projects, including making system changes to enhance the accuracy of data 

reported in the cost accounting system; ensure more equitable allocation of 

acquisition and indirect costs; and ensure that FAA documents and uses the cost 

accounting system to manage operations. Our detailed recommendations follow.
 9

RECOMMENDATIONS

We recommend that the Acting FAA Administrator direct the Chief Financial 

Officer to: 

1. Strengthen procedures and controls to ensure that hours worked are charged to 

the proper projects, instead of “No Project,” 

2. Comply with Statement of Federal Financial Accounting Standard No. 4 and 

use cost accounting system data to measure performance and manage 

operations for all lines of business, and 

3. Ensure that the cost accounting system documentation complies with Federal 

accounting standards. 

The Acting FAA Administrator should also direct the Chief Operating Officer, 

ATO, to: 

4. Implement the system change request in the ART system to prevent hours 

being charged to “No Project” by March 31, 2008; and 

5. Distribute all acquisition costs for ATO to each service delivery point, and 

report the results to FAA management. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

We provided FAA with a draft of this report on December 26, 2007, and received 

FAA’s reply on February 20, 2008. FAA concurred with recommendations 1 

through 4, and partially concurred with recommendation 5. FAA’s entire response 

is included as an appendix to this report. 

Recommendation 1: FAA stated that it will train staff on the use of labor 

distribution system reporting tools by April 2008 and continue actions to improve 

timekeeping internal controls and reduce “No Project” charges. For example, 

FAA stated that they will continue to use labor distribution system quality 

assurance and finance groups to monitor labor distribution system issues and help 

reduce non-compliance rates for labor charging. 

Recommendation 2: FAA stated that it is continuing efforts to use cost 

accounting system data to examine and improve agency operations. As a new 

business plan goal beginning in FY 2007, the CFO requested that each line of 

business report on cost efficiency metrics using the cost accounting system within 
 10

90 days of the end of each reporting quarter. The first set of “90 Day” reports 

were received in February 2008 and FAA provided us copies of these reports. 

FAA officials stated that they will continue to work with lines of business to 

improve the quality of the “90 Day” reports. As part of the “90 Day” reviews, the 

Office of Financial Management will: 

• Work with lines of business to identify cost efficiency metrics using cost 

accounting data. For instance, comparing costs of operations between two 

similar units within a line of business. 

• Determine the utility of using cost accounting system data in daily 

operations. 

Recommendation 3: FAA stated that its cost methodology report is being 

updated to reflect how the cost accounting system operated in FY 2006. On 

February 29, 2008, FAA provided us with a copy of its FY 2006 Costing 

Methodology Report. FAA also stated that it is in the process of documenting the 

methodology used for FY 2007 cost accounting system data, including the portion 

of the system for the Offices of Airports and Aviation Safety. FAA plans to 

complete the documented version of the system for FY 2007 by June 30, 2008. 

Recommendation 4: FAA stated that the May 1, 2008, release of CRU-X/ART 

will no longer convert time to decimals and the May 15, 2008, release of CruSupport will record all time in minutes. 

Recommendation 5: FAA stated that it will first conduct a cost-benefit analysis 

by June 30, 2008, to determine the additional processes and reports needed to fully 

distribute and manage all costs at the service delivery point. FAA stated it will 

notify us of their decision by July 31, 2008. 

FAA also indicated that their review of the Statement of Federal Financial 

Accounting Standard No. 4 indicates that they have considerable flexibility 

defining its cost centers. FAA stated that distributing costs to its service delivery 

points would degrade the usefulness of the reporting structure and apply costs for 

which the service delivery point does not manage or is not responsible. 

OIG Response: 

Regarding recommendation 5, we agree that Statement of Federal Financial 

Accounting Standard No. 4 allows some flexibility in defining cost centers; 

however, in our opinion, FAA needs to collect and report costs by service delivery 

point locations to the greatest extent practical. Specific cost information for each 

service delivery point is necessary for managers to compare performance among 

delivery point locations. 
 11

ACTIONS REQUIRED 

FAA’s response and planned actions address the intent of our recommendations. 

We therefore consider recommendations 1 through 5 resolved but open until FAA 

completes its proposed actions. We request that FAA provide us with its costbenefit analysis on whether it intends to fully distribute and manage all costs to 

service delivery points. 

We appreciate the courtesies and cooperation of FAA representatives during this 

audit. If you have any questions concerning this report, please call me at (202) 

366-5225, or Terrence Letko, Program Director, at (202) 366-9917. 

# 

cc: Chief Financial Officer 

Chief Operating Officer, ATO 

Director, Office of Financial Management 

 Anthony Williams, ABU-100 

 Martin Gertel, M-1 
 12

EXHIBIT A. OBJECTIVES, SCOPE, AND METHODOLOGY 

AIR-21 requires that OIG assess eight specific areas regarding FAA’s progress in 

implementing a congressionally-mandated cost accounting system. This report 

summarizes key findings concerning FAA’s cost accounting and labor distribution 

systems as of September 30, 2007. 

Our audit objectives were to determine the status of the cost accounting system 

implementation and to assess the following eight areas specified in AIR-21 

concerning FAA’s methods of calculating and assigning costs to specific users, 

including whether these methods are appropriate, reasonable, and understandable: 

(1) method for calculating and assigning costs to users, (2) integrity and reliability 

of cost input data, including source documents and data collection processes, (3) 

system for tracking assets, (4) methods for establishing asset values and 

depreciation, (5) internal controls over cost data, (6) definition of services to 

which it attributes costs, (7) overhead pools and the reliability of the bases used 

for assigning common costs, and (8) use of cost and performance management for 

improving performance and productivity. 

We assessed control risks and compliance with applicable laws and regulations. 

Our assessment of control risks account for the fact that we did not specifically 

examine all internal controls that may be applicable to FAA’s cost accounting 

system while the system was still under development. The analyses we performed 

(1) provided an understanding of the design of the internal controls, (2) 

determined whether the internal controls had been placed in operation, and 

(3) determined whether the internal controls were sufficient to assess the control 

risks associated with the cost accounting system. Our audit was not an audit of 

FAA’s Cost Allocation Plan for Reauthorization and establishing user fees. 

Consequently, our audit results should not be used as a basis to evaluate user fees. 

This report also relies on evaluations of financial, labor distribution, and cost 

accounting system records and prior work we performed on FAA’s cost 

accounting system and annual financial statements. We interviewed FAA financial 

managers, including those responsible for developing and operating the cost 

accounting system; reconciled expenses, revenue, gains, and losses in Delphi to 

the amounts reported in the cost accounting system; floorchecked managers and 

staff to understand the reasonableness of the design of the system and adherence to 

timekeeping procedures; judgmentally tested financial transactions, tracing them 

to supporting records; reviewed procedures for recording transactions without cost 

centers; and verified whether all air traffic control facilities were accounted for in 

the cost accounting system. 

Exhibit A. Objectives, Scope, and Methodology 
 13

We conducted this performance audit between March 2004 and November 2007. 

We performed our audit at FAA Headquarters in Washington, DC; the William J. 

Hughes Technical Center in Atlantic City, New Jersey; and the Mike Monroney 

Aeronautical Center in Oklahoma City, Oklahoma. We performed this audit in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit 

objectives. We included our response to the eight required assessment areas as 

part of the briefing slides at exhibit D. 

Exhibit A. Objectives, Scope, and Methodology 
 14

Exhibit B. Growth in FAA’s Annual Budget, Fiscal Years 1996-2007 

(Dollars in Billions) 

EXHIBIT B. GROWTH IN FAA’S ANNUAL BUDGET, FISCAL 

YEARS 1996–2007 (DOLLARS IN BILLIONS) 

Fiscal 

Year 

Operations and 

Maintenance 

Expenses 

F&E, Airports, 

and R&D 

Expenses Total Budget 

1996 $4.6 $3.6 $8.2 

1997 $5.0 $3.56 $8.56 

1998 $5.3 $3.81 $9.11 

1999 $5.6 $4.15 $9.75 

2000 $6.0 $3.94 $9.94 

2001 $6.6 $5.92 $12.52 

2002 $6.9 $6.63 $13.53 

2003 $7.1 $6.41 $13.51 

2004 $7.48 $6.39 $13.87 

2005 $7.70 $6.12 $13.82 

2006 $8.10 $6.21 $14.31 

2007 $8.37 $6.16 $14.53 
 15

Exhibit C. Major Contributors to This Report 

EXHIBIT C. MAJOR CONTRIBUTORS TO THIS REPORT 

NAME TITLE 

Terrence Letko Program Director 

Thomas Wiener Project Manager 

Adam Schentzel Project Manager 

Jill Cottonaro Management Analyst 

Leslie Mitchell Auditor 

Narja Hylton Auditor 

Michael P. Fruitman Communications Adviser 

Jean Diaz Writer/Editor 

Harriet Lambert Writer/Editor 
16

 

Exhibit D. Briefing to FAA on Cost Accounting System 

EXHIBIT D. BRIEFING TO FAA ON COST ACCOUNTING 

SYSTEM 

Assessment of FAA Cost 

Accounting System and 

Practices

Office of the Inspector General

FAA Briefing

December 13, 2007

2

Table of Contents

 Wendell H. Ford Aviation Investment and Reform Act for 

the 21st Century (AIR-21, Pub. L. 106-181) 

 Scope and Methodology

 Findings

1. Integrity of Underlying Financial Accounting Data for Property 

and Related Expenses Remains Unstable.

2. Controls Over Distribution of Labor Costs Improved, 

Continued Enhancement Needed.

3. FAA Has Not Identified Full Cost of Facilities to Manage 

Operating Costs.

4. FAA Has Not Adequately Documented Procedures 

Governing Cost Accounting System Process.

 Recommendations

 Assessment Areas
17

 

Exhibit D. Briefing to FAA on Cost Accounting System 

3

Wendell H. Ford Aviation

Investment and Reform Act for

the 21st Century (AIR-21)

 AIR-21 directed OIG assessment of FAA’s progress 

in implementing a cost accounting system.

 AIR-21 requires assessments of eight specific 

areas covering FAA’s methods for calculating and 

assigning costs to specific users, and whether 

these methods are appropriate, reasonable, and 

understandable.

4

Scope and Methodology

 Our audit steps included the following procedures:

 Interviewed FAA financial managers, including those 

responsible for developing and operating the cost 

accounting system (CAS).

 Reconciled expenses, revenue, gains, and losses in 

Delphi to the amounts reported in the cost accounting 

system for FY 2006. 

 Conducted floorchecks of managers and staff to 

understand the reasonableness of the design of the 

system and adherence to timekeeping procedures.
18

 

Exhibit D. Briefing to FAA on Cost Accounting System 

5

Scope and Methodology (cont’d)

 Judgmentally sampled transactions, traced them to 

supporting documentation, and reviewed procedures for 

recording transactions without cost centers, and other 

adjustments. 

 Developed an understanding of the design of the internal 

controls and determined whether they had been placed in 

operation and were sufficient to assess the control risk. 

 Coordinated with auditors on reviews of FAA’s financial 

statements and CAS, and followed up on significant findings 

and recommendations.

6

Finding 1

Integrity of the Underlying Financial

Accounting Data for Property and Related

Expenses Remains Unstable

 In FY 2006, FAA received a qualified opinion on its 

financial statements because it could not adequately 

support the Construction in Progress (CIP) asset balance 

totaling $4.7 billion as of September 30, 2006.

 FAA had not institutionalized internal controls over its 

financial management practices for capitalizing Property, 

Plant, & Equipment (PP&E), which includes CIP.
19

 

Exhibit D. Briefing to FAA on Cost Accounting System 

7

Finding 1 (cont’d.)

 Polices and procedures lacked clear instruction on 

capitalizing research and development. 

 Controls were lacking to ensure CIP projects are 

capitalized and depreciated timely after assets are in 

service.

 CIP balances were not reconciled to subsidiary records.

 In October 2007, FAA completed a detailed review of 

CIP balances and revised its FY 2006 financial 

statements. These procedures helped FAA receive an 

unqualified audit opinion for its revised FY 2006 

financial statements and an unqualified opinion for FY 

2007.

8

Finding 1 (cont’d.)

 As part of its review, FAA reclassified $2.6 billion of 

the $4.7 billion CIP balance due to accounting errors. 

Of the $2.6 billion, $1.7 billion should have been 

capitalized because assets reported in CIP were in 

use. Also, more than $900 million should have been 

recorded as expense rather than CIP.

 Although FAA’s intensive effort corrected CIP 

balances, the FY 2007 financial statement audit 

concluded a material weakness still exists because 

the design and implementation to ensure that CIP 

and related processes are operating effectively are 

not in place. Not all of the conditions that led to 

material weakness for FY 2006 were corrected.
20

 

Exhibit D. Briefing to FAA on Cost Accounting System 

9

Finding 1 (cont’d.)

 Not properly accounting for CIP resulted in the 

understatement of depreciation and acquisition 

expenses in CAS.

 FAA plans to contract for a review of internal controls 

of its capitalization process and execute a 

Capitalization Program Management Plan to 

institutionalize needed changes. 

10

Finding 2

Controls Over Distribution of Labor Costs Improved, Continued Enhancement Needed

 In FY 2006, labor costs accounted for 46 percent of FAA’s 

total costs. FAA made significant progress by 

implementing labor distribution system (LDR) for 

employees. LDR involves recording actual hours worked 

on projects and enhances accuracy of labor costs 

assigned to facilities and activities.

 FAA has corrected all previously reported deficiencies 

related to how air traffic controllers account for labor in 

LDR.

 Actual start times and time spent on indirect activities for 

controllers are being recorded.
21

 

Exhibit D. Briefing to FAA on Cost Accounting System 

11

Finding 2 (cont’d.)

 In FY 2004, when FAA began implementing LDR, about 

27 percent or $1.8 billion of labor was recorded as “No 

Project.”

 Based on our prior findings, FAA is taking action to reduce 

the amount of labor hours charged to an invalid “No 

Project” code in LDR. “No Project” charges misstate labor 

charges, causing overhead (indirect costs) to be higher 

and direct charges to be lower than actual.

12

Finding 2 (cont’d.)

 As a result of corrective actions taken, “No Project” hour 

charges were reduced to about 13 percent, or $820 

million, for FY 2006 and were further reduced to 4.4 

percent, or about $290 million, for FY 2007.

 Despite the improvement, we continue to identify 

opportunities to reduce invalid “No Project” charges by 

strengthening controls and correcting a design weakness. 
22

 

Exhibit D. Briefing to FAA on Cost Accounting System 

13

Finding 2 (cont’d.)

 Misstating the direct hour charges to projects reduces 

reliability of the labor costs assigned to individual facilities

and activities in CAS, such as air traffic control towers and 

aircraft repair stations. 

 Misstating direct hour charges impacts accuracy of 

overhead costs being allocated to direct projects. For 

example, each $100 of direct project costs at an air traffic 

control tower should include an allocation of $105 of 

overhead costs for FY2006.

14

Finding 2 (cont’d.)

 Several reasons exist why significant numbers of labor 

codes continue to be charged “No Project”:

 Lack of accountability for completing and certifying 

timesheets.

 Employees not entering their time into the system, and 

managers not verifying accuracy of the charges by required 

date. Missing or uncertified hours reported as “No Project.”

 FAA concentrated on finalizing implementation of the labor 

distribution system. FAA since shifted focus on training and 

monitoring compliance for the LDR timekeeping order. These 

efforts decreased “No Project” cost rates.

 Employees completed training by August 9, 2007.

 FAA managers began tracking organizations with significant 

“No Project” costs. 
23

 

Exhibit D. Briefing to FAA on Cost Accounting System 

15

Finding 2 (cont’d.)

 Systems interface problem contributing to controllers’ labor 

hours charged to “No Project.”

 Controller time is rounded during conversion from minutes in 

the Air Traffic Organization Resource Tool “ART” (the time 

collection system for controllers) to fractions-of-an-hour in 

CruSupport (the timekeeping system). This can result in 

more than 80 hours charged for bi-weekly pay periods. 

When more than 80 hours charged, all direct project hours 

default to “No Project” (overhead).

 For example, 100 minutes in ART converts to 1.66666 hours 

in CruSupport; however, CruSupport displays 1.66 hours. 

More than 80.00 hours can occur when additional fractional 

hours are summed for a pay period resulting in direct project 

charges defaulting to “No Project.”

16

Finding 2 (cont’d.)

 FAA implemented procedure to identify when 80 hours are 

exceeded in CruSupport. This allows manual adjustments to 

prevent conversion errors. FAA also established a system 

change request to eliminate the conversion problem; 

however, it is being delayed due to other priorities.

 The creation of new project codes are delayed and could 

take up to 3 weeks to become available for labor charging. 

The Budget Office must approve funds for each new 

project request. New project codes are established in 

Delphi and the cost accounting system; however, they are 

only updated weekly in the Cru-X labor distribution system.
24

 

Exhibit D. Briefing to FAA on Cost Accounting System 

17

Finding 2 (cont’d.)

 In absence of the new project codes, FAA employees charge 

their labor hours to “No Project.”

 “No Project” charges not being corrected timely. FAA 

officials indicated all “No Project” charges should be 

corrected within two weeks. Despite this emphasis, our 

judgmental review of 14 employees’ “No Project” charges 

for FY 2006 found only one employee had any invalid 

charges corrected by year end. Only 224 of the 6,593 “No 

Project” hours reviewed were corrected. 

18

Finding 3

FAA Did Not Identify Full Cost of Facilities

to Manage Operating Costs

 Federal accounting standards require agencies to identify full 

costs of outputs, which Air Traffic Organization (ATO) defines 

as service delivery points or facilities, such as individual air

traffic control towers.

 Managers could compare the full costs of similar activities and 

focus on types of costs requiring attention to operate more 

efficiently.

 The accounting standards require agencies to identify full cost 

information before establishing user fees. Government policy 

provides, with exceptions, user fees should recover full costs of 

services.
25

 

Exhibit D. Briefing to FAA on Cost Accounting System 

19

Finding 3 (cont’d.)

 FAA does not assign significant investment costs to ATO’s 

specific facilities and activities. 

 In FY 2007, $1.5 billion was not assigned directly to specific 

facilities and activities or indirectly through overhead 

allocations. 

 FAA excluded investment, acquisition, and substantial 

depreciation costs from the costs of its outputs. 

 FAA managers only account for these costs at higher 

organizational levels because facility managers indicated the 

costs are not subject to their facility management control. 

20

Finding 3 (cont’d.)

 Federal accounting standards address managers’ concerns 

that they should be accountable for costs they control. The 

standards permit agencies to make a distinction between 

controllable and uncontrollable costs, but require identification 

of full costs. Full cost information is essential for comparing 

services produced by other entities within Government or the 

private sector.

 Federal accounting standards require costs benefiting more 

than one facility be assigned on a cause-and-effect basis or 

allocated as overhead (indirect costs) to the service output 

(cost objectives).

 The costs making up the $1.5 billion benefited more than one 

facility or activity, and therefore, should have been allocated to 

overhead.
26

 

Exhibit D. Briefing to FAA on Cost Accounting System 

21

Finding 3 (cont’d.)

 Accounting for full costs at individual facility levels is 

essential for developing benchmarks and performance 

goals to reduce FAA’s costs, and ensure Congressional 

and Governmental decisions are based on accurate cost 

information.

 FAA does not use data from the cost accounting system to 

set goals to measure performance and operate more 

efficiently. 

 Instead of relying on CAS reports, FAA is relying on other 

information such as budget data and labor distribution 

reports that do not provide the precision and level of 

detail, such as costs of individual activities, provided by 

CAS.

22

Finding 3 (cont’d.)

 Federal regulation states the objective of a cost accounting 

system is to provide management with accurate cost data to 

help manage and improve operational efficiency and 

economy. 

 Cost data can be used to assess the costs of what is 

measured. By not using CAS as intended, FAA is missing 

opportunities to achieve performance efficiencies and 

operational cost savings.
27

 

Exhibit D. Briefing to FAA on Cost Accounting System 

23

Finding 4

FAA Has Not Adequately Documented 

Procedures Governing Cost Accounting

System Processes

 Despite repeated recommendations from our prior 

assessments, FAA’s documentation of the CAS policies and 

procedures is not adequate.

 Significant procedures are retained only in the memories of a few 

key staff, for example, recording financial statement adjusting 

entries as expenses in the cost accounting system. 

 Documentation is vague, limited, or missing.

 For example, the process for producing quarterly cost accounting

reports was not documented.

24

Finding 4 (cont’d.)

 The language of the documents is technical and not 

presented in layman’s terms. 

 For example, cost allocation methodologies were not 

described in understandable terms.

 FAA is taking action to document the system processes. 

A consultant’s summarization is estimated to be 

completed by January 2008.
28

 

Exhibit D. Briefing to FAA on Cost Accounting System 

25

Recommendations

We recommend that the FAA Acting Administrator:

1. Direct the Chief Financial Officer to:

a. Strengthen procedures and controls to ensure 

hours worked are charged to the proper projects, instead 

of “No Project,”

b. Comply with Federal accounting standard Number 4 

and use cost accounting system data to measure 

performance and manage operations for all lines of 

business, and

c. Ensure that the cost accounting system documentation 

contains sufficient detail and procedures to comply with 

Federal accounting standards.

26

Recommendations (cont’d.)

2. Direct the Chief Operating Officer, ATO, to:

a. No later than March 31, 2008, implement the system 

change request to be added in the ART system to prevent 

hours being charged to “No Project,” and

b. Distribute all costs, including investment costs, to each 

service delivery point and report the results to FAA 

management.
29

 

Exhibit D. Briefing to FAA on Cost Accounting System 

27

Eight Required Assessment

Areas of FAA’s Cost

Accounting System

AIR 21 required assessments of:

1. The method for calculating overall costs and attributing these 

costs to specific users is appropriate, reasonable, and 

understandable.

FAA’s method is reasonable and amounts reported in the CAS were 

consistent with amounts in the financial accounting system; however, 

FAA does not use the CAS to assign all costs to specific facilities and 

activities.

2. Cost input data, including reliability of the administration’s source 

documents and the integrity and reliability of the administration’s 

data collection process.

FAA has adequate source documents and cost input data for reporting 

costs of activities in its cost accounting system; however, weaknesses 

were found in timely and accurate reporting in CIP account, and “No 

Project” labor hours were reported without correction.

28

Eight Required Assessment

Areas of FAA’s Cost

Accounting System

3. The system for tracking assets.

Since FY 2004, FAA implemented an integrated property management

system to track assets. For FY 2007, KPMG LLP identified a lack of timely 

processing of transactions and accounting for property, plant, and equipment, 

including the CIP account as a material weakness, which was similar to the 

weaknesses reported for FY 2006. The untimely processing, and other 

internal control weaknesses, resulted in expenses not being accurately 

accounted for in the CAS.

4. Methods for establishing asset values and depreciation.

The material weakness of FAA’s lack of timely processing of transaction and 

reconciliation accounts identified by KPMG mostly affected the CIP account. 

FAA did not have effective policies, procedures, and internal controls to 

capitalize CIP projects in a timely manner and could not adequately support 

the CIP account balance totaling $4.7 billion (as of September 30, 2006). This 

resulted in FAA’s receiving a qualified audit opinion. In FY 2007, FAA 

completed a review of CIP, resulting in the reclassification of $1.7 billion from 

CIP to in-use fixed assets and more than $900 million from CIP to expense.

Since more than $900 million should have been recorded as expenses, costs 

for facilities were understated in CAS.
 

Exhibit D. Briefing to FAA on Cost Accounting System 

30

29

Eight Required Assessment

Areas of FAA’s Cost

Accounting System

5. The system of internal controls for ensuring the consistency and

reliability of reported data.

FAA has made marked progress in improving accuracy in accounting

for labor costs; however, internal control weaknesses still exist in its 

labor distribution system, which is an essential part of the CAS. FAA 

has not institutionalized controls over its practices for capitalizing 

property, plant, and equipment, including CIP. Additionally, FAA has 

not developed a clear set of documented policies, procedures, and 

practices for CAS and associated internal controls, as required by 

Federal accounting standards. 

6. The definition of the services to which FAA ultimately attributes 

its cost.

FAA has implemented cost accounting and defined services for each 

of its four lines of business. The definition of services for each line of 

business is reasonable.

30

Eight Required Assessment

Areas of FAA’s Cost

Accounting System

7. Cost pools that FAA uses and the rationale for and reliability of 

the bases it proposes to use in allocating costs of services to 

users.

FAA collected its agency-wide indirect costs for all of its lines of 

business into cost pools and used allocation bases in compliance with 

Federal accounting standards. An exception is that $1.5 billion of 

acquisition and investment costs were excluded from overhead cost 

pools. The costs should have been included in overhead since they 

are not directly identifiable with service delivery points/ATO facilities or 

assignable on a cause-and-effect basis. 

8. Progress of FAA in cost and performance management, including 

the use of internal and external benchmarking in improving the 

performance and productivity of the administration.

As reported in prior assessments, FAA continues to not use cost 

accounting data to set goals to manage operations more efficiently.
Appendix. Agency Comments 

31

APPENDIX. AGENCY COMMENTS 

Date: February 20, 2008 

To: Mark H. Zabarsky, Assistant Inspector General for Acquisition and 

Procurement Audits 

From: Ramesh K. Punwani, Assistant Administrator for Financial Services/CFO 

Prepared by: Anthony Williams, x79000 

Subject: OIG Draft Report: Assessment of Cost Accounting System and Practices 

Federal Aviation Administration 

Thank you for the opportunity to comment on the findings and recommendations of the 

subject draft report, dated December 26, 2007. We concur with recommendations 1 

through 4 and partially concur with recommendation 5. Please refer to the attachment for 

the agency’s response and actions taken or planned for each recommendation. 

If you have any questions or need further information, please contact Anthony Williams, 

Budget Policy Division, ABU-100. He can be reached at (202) 267-9000. 

Attachment 

Federal Aviation

Administration 

Memorandum 
Appendix. Agency Comments 

32

FAA Response to Inspector General’s Draft Report 

“Assessment of Cost Accounting System and Practices,” 

Project No. 04F3019F000 

Recommendation 1: Strengthen procedures and controls to ensure the hours worked are 

charged to the proper projects, instead of “No Project”. 

FAA Response: Concur. 

Action Planned:

In July 2007 FAA completed the labor distribution reporting (LDR) implementation of 

six staff offices, thereby completing the full agency-wide implementation of LDR. FAA 

plans to train staff on the use of LDR reporting tools. The training will be conducted 

during March and April 2008. 

FAA monitors the compliance rate of all lines of business (LOB) and Staff Offices and 

compliance rates are reported to senior FAA management on a monthly basis. FAA units 

falling below corporate goals will be scheduled for re-familiarization training. FAA is 

determining the feasibility of undertaking this effort and will have a plan of action after 

discussion with senior management. 

The Air Traffic Organization (ATO), the major line of business within FAA, uses a twopronged approach to eliminate “NoProject” charging. The activities in this approach 

outlined below are ongoing and do not have a specific due date. 

1) Utilize ATO LDR Quality Assurance Resource (QAR)/Timekeeper Network 

a) ATO Finance will continue to hold regular telecons with the ATO LDR 

QAR/Timekeeper Network of over 3,200 personnel to provide current LDRrelated guidance, monitor LDR-related issues across ATO, and address them as 

soon as possible. Subject Matter Experts (SME) from ATO-A, Cru-X Program 

Office; the Office of Financial Services, RADS Program Office; and the Office of 

Human Resource Management, CASTLE Program Office will continue to 

participate in the meetings to hear the issues and provide system updates with 

real-time answers to questions. 

b) ATO Finance will continue to provide as-needed LDR-related training for the 

ATO LDR QAR/Timekeeper Network to ensure an educated LDR support 

network. 

c) ATO Finance will continue to send regular email messages to the ATO LDR 

QAR/Timekeeper Network with updates on LDR-related system issues and 

current LDR-related guidance. 

d) ATO Finance will continue to provide a live Help Desk, backed up by Finance 

System SMEs, to answer questions and address LDR-related issues for ATO 

managers, employees, and members of the ATO LDR QAR/Timekeeper Network. 

 
Appendix. Agency Comments 

33

2) Monitor LDR-Related Financial Systems 

a) ATO Finance will continue to monitor LDR-related financial systems for errors 

and software bugs. They will process System Change Requests (SCRs) for issues 

encountered and provide follow up to correct the problem. 

b) ATO Finance will continue to follow projects and tasks through the system to 

ensure correct processes are followed (i.e., syntax, templates, LOB entry into 

system) and any errors are corrected as necessary. 

c) ATO Finance will ensure that LDR compliance results are reported to each ATO 

Vice President and the Senior Vice President for Finance each pay period. 

d) ATO Finance will work closely with the Cru-X Program Office to scrutinize NDC 

data tables for accuracy. 

e) ATO Finance will push system owners (e.g., ATO-A for Cru-X) to provide 

system fixes rather than continue to rely on employee work-arounds for software 

problems. 

Management Comments: The training processes, and procedures listed above were 

developed during fiscal years (FY) 2006 and 2007 and have proven effective in 

eliminating “NoProject” hours. The ATO LDR compliance has improved steadily thru 

2007 with compliance in pay period 1 at 95.94 percent. By pay period 26, it had 

improved to 98.4 percent -- a 2.5 percent increase. Annualized that equates to the 

elimination of approximately 2 million “NoProject” hours. 

Along with these advances, the Department of Transportation CASTLE Program Office 

corrected their amendment process, which fixed an issue that kept several hundred 

thousand amendments from successfully processing. The Cru-X Program Office plans 

two software releases in FY 2008 intended to address long-standing issues of decimal 

rounding and annual leave in non-allowable increments. 

Our focus on improving the accuracy and user-friendliness of LDR-related financial 

systems, coupled with continued support for and by the LDR QAR/Timekeeper Network, 

should positively impact future ATO LDR compliance rates. 

As of pay period 02 in FY 2008, ATO-wide LDR Compliance was 98.57 percent. That 

equates to 358,542 No Project out of a possible 6.4 million hours charged. 87.7 percent 

of No Project hours are attributed to two service units--Tech Ops (45.6percent) and 

Terminal (42.1 percent). 

Terminal LDR is collected systematically in Cru-X/ART and sent to CASTLE thru CruSupport. With the Cru-X/ART/Cru-Support release in May 2008, we expect a dramatic 

increase in Terminal LDR Compliance. 

In February, ATO will work with their LDR QAR’s and Program Managers, thru 

financial systems query, to detect and correct any system problems causing delays in 

project availability for charging and issue SCR’s when necessary. 
Appendix. Agency Comments 

34

Recommendation 2: Comply with Statement of Federal Financial Accounting Standard 

No. 4 and use cost accounting system data to measure performance and manage 

operations for all lines of business. 

FAA Response: Concur. 

Action Planned: FAA is continuing efforts to use Cost Accounting System (CAS) data to 

examine and improve agency operations. As a new business plan goal beginning in 

FY 2007 and continuing today, the CFO requests LOBs to report on cost efficiency 

metrics using CAS data within 90 days of the end of the reporting quarter. As part of the 

“90 Day” reviews, ABA will: 

• Work with LOBs to identify cost efficiency metrics using CAS data. For instance 

a comparison of costs of operations between two similar units within an LOB 

would be useful, or cost per unit of output, if the respective LOB has that program 

data readily available, 

• Determine the utility of using CAS data in daily operations, taking into account 

that: 

o CAS processes and reports are updated quarterly 

o Short and intermediate term plans are to process CAS data within 38 days 

of quarter closing for FY 2008 and 30 days in FY 2009. In FY 2010 CAS 

processing should be monthly and reports will be available 30 days after 

month end, 

o Longer term plans are for FY 2012 (or possibly later), CAS may be better 

integrated with the Oracle Federal Financial product. This will depend on 

what the manufacturer (assumed to be Oracle) offers and what DOT 

acquires and implements. The hope is to integrate CAS with the future 

version of what is currently Delphi and have more timely data and 

reporting capabilities, 

• Gather recommendations for future reporting improvements, 

• Examine possible methods for LDR improvements in compliance rates or 

charging practices, 

• Review overhead and/or indirect expense charging, and 

• Post accruals for major contracts utilized by ATO improving the accuracy and 

completeness of CAS data. 

Results in working with each LOB may vary. There is no actual target date for this 

effort, but a goal of making CAS data more useful for each LOB’s cost management 

processes. Therefore FAA can only provide a status of the effort at the end of each 90 

day reporting period. 
Appendix. Agency Comments 

35

Recommendation 3: Ensure that the cost accounting system documentation complies 

with Federal accounting standards. 

FAA Response: Concur. 

Action Planned: The Cost Methodology Report is being updated to reflect how the CAS 

operated in FY 2006 and will be finalized by the end of February. The report is designed 

for a reader to understand the CAS configuration and how it treats ATO costs. In 

addition, we will be documenting the methodology used for FY 2007 CAS data. This 

version will serve as the basis for the update to the FY 2009 overflight fee rates. Planned 

for completion by the end of June, it will reflect the use of CAS by the Office of Airports 

and the Office of Aviation Safety. 

Recommendation 4: Implement the system change request in the ART system to 

prevent hours being charged to “No Project” by March 31, 2008, 

FAA Response: Concur. 

Action Planned: This change is being accomplished in two steps. First, the May 1 

release of CRU-X/ART will no longer convert time to decimal, but remain in minutes. 

Second, the May 15 release of Cru-Support will record all time in minutes. 

Recommendation 5: Distribute all acquisition costs for ATO to each service delivery 

point, and report the results to FAA management. 

FAA Response: Partially Concur. 

Action Planned: FAA will conduct a cost-benefit analysis (CBA) by June 30 to 

determine the additional processes and reports needed to fully distribute and manage all 

costs to service delivery points (SDPs). Once the CBA is completed, a decision will be 

made on whether or not to proceed with system changes or leave the system as is. The 

FAA will notify the Office of the Inspector General of their decision no later than 

July 31. 

Management Comments: A review of SFFAS #4 allows FAA latitude in defining 

responsibility and cost segments. For financial and budgetary reporting, the 

responsibility segment is FAA. For cost accounting, FAA has defined the responsibility 

segment as the LOBs. ATO has further defined SDPs as cost centers and not 

responsibility segments. 

ATO has designed management cost reports by service area at four levels of 

manageable/responsible costs. All costs have been fully allocated to the levels at which 

ATO manages. The issue of distributing costs to the lowest level (from level two to level 

one) would: 1) degrade the usefulness of the current reporting structure, 2) apply costs 

that ATO does not manage at the Service Delivery Point level, and 3) apply costs for 

which the SDP is not responsible. ATO management does not intend to manage certain 

indirect costs at the SDP level.