Managers 

Accounting Systems 

Can Help You: 

-Plan and control agency operations 

-Decide on the best ways to use 

resources to achieve goals 

-Keep within appropriations and 

other legal requirements 

-Safeguard agency resources 

-Evaluate accomplishments 

By The Comptroller General Of 'chc United States 
FOREWORD 

I 

Our growing Federal budget and national debt 

are a concern to both taxpayer5 and public 

adrninistrdtors. We in Government must do all we 

can to achieve our goals at the least practicable 

cost and, more than ever, we must weigh the 

financial consequences of each decision we make. 

Accounting systems can and should give 

managers the information needed to conserve, 

control, protect, and wisely use resources. Accounting systems have become even more essential in 

view of recent acknowledgements that fraud in the 

Federal sector is a problem of critical proportions 

and that the opportunities for fraud are virtually 

limitless because of the number, variety, and value 

of Federal programs. 

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Responsibilities of Federal Managers 

Section 113 of The Accounting and Auditing Act 

of 1950 (31 U.S.C. 66a) requires the head of each 

executive agency to establish and maintain systems 

of accounting and internal controls that provide 

for: 

-Full disclosure of the results of financial operations. 

-Adequate financial information needed in 

managing operations and formulating and 

executing the budget. 

-Effective control over revenues, funds, 

property, and other assets. 

-Reliable financial information for use by the 

legislative and executive branches of Covernment. 

-Suitable financial information for central 

reports on overall results of Government 

operations. I The act also requires that the accounting systems 

of executive agencies conform to the principles, 

standards, and related requirements prescribed by 

the Comptroller General. 

1 
Some agencies are doing a good job in designing, implementing, and operdting accounting 

svstems, but others are experiencing serious 

problems in these efforts, Our work in evaluating 

the operations of agency accounting systems shows 

that most systems with serious problems have not 

been approved by GAO. Of course, approved 

5ysterns can have problems too-changes can occur 

in computer programming, new programs can be 

added, or prescribed procedures can be ignored. 

On the whole, however, we have found that 

agencies who devote adequate time and effort 

designing and implementing good systems and who 

involve managers in the design effort, generally 

have fewer problems and their systems better 

support managers’ information needs. 

At September 30,1978, 326 agency systems were 

subject to approval. We have approved the 

principles and standards for 323 of these systems 

and the designs of 195 systems. Our goal is to have 

all systems fully approved by the end of 1980. 

Purpose of Booklet 

This booklet highlights our experiences in 

auditing accounting systems and the experiences of 

agencies and consultants in designing and 

operating accounting systems. It builds on our 

August 1976 booklet, “Lessons Learned in Acquiring Financial Management and Other Information Systems.” 

This booklet is our way of telling Federal 

managers at all levels about problems and 

success some agencies have had in designing 

and operating accounting systems and in using the 

financial and related quantitative information 

produced. We believe managers can draw on these 

lessons as a means to avoid previously encountered 

problems and achieve or surpass the successes of 

others. 

The discussions and case skudies in this booklet 

highlight how an accounting system can get the 

right information to managers at the right time to 

-trigger actions to as! 

resources and assurt 

conform to plans, ar 

--integrate financial ai 

information into de( 

The ideas in this booklei 

better use their accountinf 

information they produce 

work with agency systems 

made by agency officials a 

accounting and consulting 

Institute of Certified Publil 

tion of Government Accoi 

Society for Public Adminis 

of this booklet and made 1 

studies were also reviewec 

volved. 

While this booklet is dir 

managers and accountants I 

be valuable to consulting 

firms that assist Federal ag 

designing, implementing, 

systems in the managemei 

and local government mar 

from this publication. 

In closing, I urge all Fec 

ants, auditors, computer s 

others involved in the use 

and operation of account 

together to achieve efficit 

economical systems. 

Cor 

of t 

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--trigger actions to assert con!rol wer 

resources and assure that agencv operations 

conform to plans, and 

information into decisionmaking. 

--integrate financial a n d re la t ed qu anti t a t ive 

The ideas in this booklet on how managers can 

better use their accounting systems and the 

information they produce came from our own 

work with agency systems and from suggestions 

made by agency officials and representatives of 

accounting and consulting firms. The American 

Institute of Certified Public Accountants, Association of Government Accountants, and American 

Society for Public Administration reviewed a draft 

of this booklet and made helpful suggestions. Case 

studies were also reviewed by the agencies involved. 

managers and accountants, we believe it will also 

be valuable to consulting and public accounting 

firms that assist Federal agencies and others in 

designing, implementing, and using accounting 

systems in the management process. I believe State 

and local government managers can also benefit 

from this publication. 

ants, auditors, computer system personnel, and 

others involved in the use, design, development, 

and operation of accounting systems to work 

together to achieve efficient, effective, and 

economical systems. 

While this booklet is directed primarily at Federal 

In closing, I urge all Federal managers, accountComptroller General 

of the United States 

3 
t,. OXTENTS 

FOREWORD , .. ............ ........ ,.I 

CHAPTER 

1 Financial Information Managers Need 6 ...................... 

How GAO tries to help agencies improve 

financial management ...................................... .8 

GAO’s Government-wide activities., ...................... 8 

GAO’s assistance to individual agencies .................. 9 

Structure of booklet ....................................... 10 

2 Financial Information Can Help Managers 

Better Control Public Funds and Resources ................... .I1 

Controt over appropriated funds 

(Case study 1) 13 

Cost accounting for industrial funds 

(Case study 2) 15 

Accounting for differences between 

Treasury and agency records 

Control over cash receipts 

Inventory management and controls 

System for managing accounts receivable 

........................................... 

........................................... 

(Case study 3) ........................................... 17 

(Case study 4) ........................................... .I9 

(Case study 5) ............................................ 21 

(Case study 6). ............................................ 23 

3 Financial Information Can Help Managers 

Make Better Decisions on How to Use 

Accounting for costs by responsibility 

center 

Pricing of services Sold to the public 

Reporting to the Congress on goals and 

accomplishments 

Managing problem loans 

Resources to Achieve Program Goals.. ..................... 25 

(Case study 7) ........................................... 27 

(Case study 8) ............................................ 29 

(Cdse study 9) ........................................... 

(Case study IO) ........................................... 34 

31 

Using financial inform 

assignments 

(Case study 11) . . Cost and workload re 

management tool 

(Case study 12) . I 

4 Steps Managers Can Tak 

Accounting Systems ir 

Make accounting and 

staffs part of the m: 

Open up and maintai 

with accounting anc 

Encourage participatic 

and his staff in deci 

Provide continuing er 

managers, accounta 

computer professio 

Use computer and so 

produce the financi 

analyses needed in 

Make sure accountin€ 

designed ........ Managers must si 

team designing 

Managers must p 

information ret 

systems ... Points to keep in 

Make sure accountinf 

properly ........... Managers should 

auditors to evaI 

and all phases I 

system operatic 

Managers must IC 

effectiveness of 

I information prc 

Your accounting syste 

you ............... 

I 

I 

i 

I systems and thc 

I 

4 
?age 

Using financial inforndtioi I in indking work 

assignments 

Cost and workload reports d5 a 

management tool 

........... 36 (Case study 11) ... .......... 

(Case study 12) . . ..................................... 38 

4 Steps Managers Can Take to Foster Effective 

Accounting Systems in Their Agencies 

Make accounting and computer support 

Open up and maintain communications 

Encourage participation by the controller 

Provide continuing education programs for 

................................ 42 

staffs part of the management team ..................................... .4 2 

with accounting and computer staffs ..................................... 43 

and his staff in decisionmaking ............................................ 44 

managers, accountants, auditors, and 

Use computer and software systems to 

computer professionals ................................................... 45 

produce the fin a nci a I information and 

analyses needed in making decisions ...................................... 46 

wake sure accounting systems are properly 

designed ................................... .......................... .47 

Managers must support the project 

team designing new systems.. ................. , ...................... .? 7 

Managers must participate in setting 

information requirements for new 

systems ........................................................... 48 

Points to keep in mind .................................................. 48 

Make sure accounting systems are working 

Managers should require internal 

auditors to evaluate the design 

and all phases of accounting 

system operations ......................................... ....... 51 

effectiveness of accounting 

systems and the quality of 

information produced ................................................ 52 

Your accounting system can do a lot for 

you ....................................................................... 54 

properly ......................................... ............... 51 

Managers must look at the 

5 
Chapter 1 1 he iridn,iger's job bas I 411) IC, to achieve godis c,t 

Iht- Irxdst practicable cost, t(i make the best posiih e 

LIW ot the rc?sourceS mtrusttd to him OF her, tirid 

tu .ita). within spending and other limitations. To (10 

rhii jab, mdnagers need timc.Iy. complete, and 

AC( ur'ite information on: 

--Legal limits and resources available. 

-Obligations And costs incurred and their 

relationship to budgeted amounts. 

-Work goals achieved and their cost. 

-The degree to which work goals are met. 

-Opportunities to achieve goals at a lower 

cost. 

These basic kinds of information must be tailored 

to the needs of managers at different levels in the 

organizational hierarchy: 

-Top agency executives need summaries of 

allotments, obligations, and disbursements to 

help them keep the agency within the limits 

set by the Congress. 

-Operating managers need comparisons of 

estimated costs versus costs incurred to help 

them keep within spending plans in the 

operating budget. 

-Financial managers need detailed analyses of 

allotments, obligations, and disbursements 

for each unit in the agency. 

This is where the accounting system comes into 

play. It should serve the information needs of each 

level of manager in the agency by summarizing 

information so that each manager is not burdened 

with extraneous information. 

Some managers might contend that we have 

described the outputs of a management information system (MlS) instead of an accounting system. 

The accounting system is an integra! part of the 

MIS, but to pinpoint just where a good accounting 

system stops and the larger MIS starts is difficult. 

Our purpose in this booklet is not to settle the 

accounting system versus MIS question. Rather, we 

will define, as accounting system outputs, the 

financial and related quantitative information and 

analyses managers need tc 

and other resources, (2) d 

these resources to achievi 

and evaluate program acc 

The accounting system 

but cannot do the manag 

should produce and deliv 

manager needs, but from 

must use this information 

to be done to keep oper: 

financial reports and anal 

prompt, decisive manage: 

This booklet highlights 

of information managers I 

accounting system, (2) ho 

information, and (3) how 

effective financial managt 

Topnotch accounting s: 

record and report financi 

information. They also (1) 

funds and other resource 

alert managers when ope 

financial plans, (3) produi 

spending levels with obli: 

(4) contrast planned worl 

actually done, and (5) prc 

needed to predict the fir 

alternative courses of act 

Our reviews of agency 

that some agencies have 

and can and do use the i 

while many other agenci 

systems or make scant UE 

information that is availa 

Accounting systems th 

result of poor system de! 

systems as designed, incc 

controls- particular I y ed 

mitted for computer pro 

of errors and unreliable 

underlying cause of thes 

6 
analyses managers need to {I I orit \)I i,ubiic tund5 

and other resources, (21 decide how best to use 

these resources to achieve pod 5, and (I) monitor 

and evaluate program arcarnpitshmrnts 

but cannot do the manager's job for him or her It 

should produce and deliver intormatian the 

manager needs, but from there on the manager 

must use this information in deciding what needs 

to be done to keep operations on track In short, 

financial reports and analyses must be coupled with 

prompt, decisive managerial action. 

The accounting system is there tu serve managers 

This booklet highlights examples of (1) the kinds 

of information managers can get from their 

accounting system, (2) how managers can use the 

information, and (3) how managers can promote 

effective financial management in their agencies. 

Topnotch accounting systems do more than just 

record and report financial and related quantitative 

information. They also (I) signal when controls over 

funds and other resources have broken down, (2) 

alert managers when operations deviate from 

financial plans, (3) produce comparisons of planned 

spending levels with obligations and costs incurred, 

(4) contrast planned work units with work units 

actually done, and (5) provide financial analyses 

needed to predict the financial consequences of 

alternative courses of action. 

Our reviews of agency accounting systems show 

that some agencies have sound accounting systems 

and can and do use the information produced, 

while many other agencies maintain marginal 

systems or make scant use of the financial 

information that is available. 

Accounting systems that are only marginal are a 

result of poor system designs, failure to implement 

systems as designed, incomplete files, inadequate 

controls-particularly edits of information submitted for computer processing-or poor followup 

of errors and unreliable reports. In most cases the 

underlying cause of these problems is managers, 

7 
,i cco ,.I n td n t 5, a u d i tor s , and c:~ mi pu te r profess io n a 15 

1\01 working together to develop and operate 

systems That give managers the information they 

need to do their jobs. 

in many cases executives do not foster, get 

involved in, or actively support changes needed to 

improve their accounting systems and computer 

operations. For example, operating and financial 

managers often do not work closely with the 

system design team to help assure that designers 

know and understand financial information needs. 

Accountants many times do not try to view 

financial reports from the manager’s perspective, 

and computer professionals often do not take time 

to understand accounting and managerial principles and techniques. 

a team spirit among managers, accountants, 

auditors, and computer professionals have caused 

agencies to: 

-Incur excessive costs to achieve goals. 

-0verobligate and misuse public funds. 

-Lose control over cash, property, and other 

-Fail to collect accounts receivable. 

-Unnecessarily delay collection of receivables. 

-Lose control over accounts payable and, as a 

result, fail to identify and pay debts on time. 

Weak accounting systems coupled with a lack of 

assets. 

How GAO Tries to Help Agencies 

Improve Financial Management 

CAO seeks to improve the responsiveness of 

accounting systems by (1) participating in Covernment-wide activities and (2) furnishing assistance to 

individual agencies. 

GAOs Government-wide Activities 

Government include: 

Activities intended to reach the entire Federal 

-Publication and maintenance of a Policy and 

Procedures Manual for Guidance of Federal 

Agencies, which sets 

standards, and proce 

and financial reporti! 

agencies and the fin; 

responsibilities of Fe 

operating per so n ne1 . several volumes and 

agencies. 

--Participation in the J 

ment Improvement I 

Office of Managemc 

Treasu ry De part men 

Personnel Managem 

studies are made of 

such as cash manage 

Government. 

-Participation in the I 

men t I m provemen t 

technical assistance 

ing and implementir 

cia1 management sy! 

-Participation with th 

visory committee of 

ants, economists, an 

develop meaningful 

statements for the F 

effort is an attempt 

ment’s financial con 

operations, and futL 

ments and resource, 

easily understandab 

those used in busini 

mittee hopes 10 cor 

develop a business 1 

ment for the Cover 

GAO’s Assistance to Indiv 

We work with individL ’ design, implement, and I 

systems. This work inch 

agency accounting syster 

of the implementation ai 

systems. 

8 
Agencies, which sets forth the principles, 

standards, and procedures lor dccounting 

and financial reporting in the executive 

agencies and the financial rrianagement 

responsibilities of Federal managers dnd 

operating personnel. This manual consists of 

several volumes and is available to all 

agencies. 

-Participation in the Joint Financial Management Improvement Program along with the 

Office of Management and Budget, the 

Treasury Department, and the Office of 

Personnel Management. Under this program 

studies are made of specific financial topics, 

such as cash management in the Federal 

Government. 

-Participation in the Joint Financial Management Improvement Program to provide 

technical assistance to agencies in developing and implementing accounting and financial management systems. 

-Participation with the Treasury on an advisory committee of distinguished accountants, economists, and business people to 

develop meaningful, comprehensive financial 

statements for the Federal Government. This 

effort is an attempt to present the Government's financial condition, results of 

operations, and future financial commitments and resources in plain language using 

easily understandable formats which relate to 

those used in business. The advisory committee hopes to complete its work and 

develop a business type of financial statement for the Government early in the 1980s. I 

GAO's Assistance to Individual Agencies 

We work with individual agencies to help them 

design, implement, and use sound accounting 

systems. This work includes review and approval of 

agency accounting system designs and evaluation 

of the implementation and operation of these 

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' systems. 

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Financial Informati 

Control Public Fun 

1 lZie review the. clt~~igii~~~ .:)t ‘iccounting 

\ystems prior TO 1inplerncbntation to assuit! 

that the requiremeit; SC’I forth in1 our 

Policy dnd Procedures Manual are met. 

Design approval rs J ‘wo-stage process, 

iirst, the accounting principles and standards are reviewed and dpproved, and 

then the overall system design is reviewed 

and approved. 

1. We follow up with reviews of the operation of these systems to assure that they 

are implemented a5 designed, properly 

controlled, and satisfy the information 

needs of managers and operating personnel and other agencies and individuals 

outside the organization. System weaknesses and deficiencies observed in our 

various reviews are reported to the agencies and the Congress along with recommendations to effect needed corrective 

action. 

Structure of Booklet, 

This booklet highlights our experiences in 

reviewing agency accounting systems. Managers 

can draw on these experiences for ideas on how to 

make their systems more responsive to their 

financial information needs and how to creatively 

use the information already produced by their 

systems. 

For ease of discussion and presentation of case 

studies, we have divided the booklet into two basic 

discussion areas: how financial information can be 

used to better control public funds and resources 

and how financial information can be used to 

better decide how to use resources to achieve 

program goals at the least practicable cost. The 

distinction between these two subject areas is 

minor, of course, but this division allows us to 

better emphasize the fine points of managers’ use 

of financial information. Then, as a wrap-up, we 

will concentrate on how managers can foster the 

development of more effective accounting systems 

and promote better cooperation between themselves and the accounting and computer support 

staffs. 

Funds and other resour 

managers are a public tru 

managers are accountable 

-Spending limits are 

-Presidential, legisla 

requirements are m 

--Resources are not I 

stolen. 

Accounting systems can i 

managers do these jobs i 

management troubles by 

accurate status of allottet 

resources. The various ty 

specific information fron 

Top echelon managers 

summarizing appropriatii 

obligations, and expendi 

--Stay within spendi 

-Use funds and res 

purposes mly. 

-Report accurate a1 

and expenditure ii 

Management and 

for inclusion in Gc 

statements. 

Financial managers shc 

receipts, deposits certifif 

reconciliations of receip 

them assure that cash is 

deposited with the Trear 

receive reports on accoi 

to help them to make sc 

-Receivables are c( 

-Special followups 

delinquent receiv 

-Bills are paid whe 

after. 

-The Treasury doe 

cessive interest c(: 

meet the Govern! 

needs because re 

collected or bills 

due. 

70 
Funds ,ind other resouii t" piI I 1 1 I,II 

rnan~gers dre a public true' 'ht.1 I' 11 t' I tit2 

managers dre accountable t[)r i(-~ it! tbi'ii 

--Spending limits art' not t)itJcj( t rcl 

-Presidential, legislati\r arid dgerii v budget 

--Resources are not misused vv t\teij, lost, or 

requirements are met 

stolen 

Accounting systems can and should help all 

managers do these jobs and avoid financial 

management troubles by giving them the current, 

accurate status of allotted funds and other 

resources. The various types of managers will need 

specific information from the system. 

Top echelon managers should get reports 

summarizing appropriations, allotments, 

obligations, and expenditures to help them: 

-Stay within spending limits. 

-Use funds and resources for authorized 

-Report accurate appropriation, obligation, 

purposes mly. 

and expenditure information to the Office of 

Management and Budget and to the Treasury 

far inclusion in Government-wide financial 

statements. 

Financial managers should get reports on cash 

receipts, deposits certified by the Treasury, and 

reconciliations of receipts with deposits to help 

them assure that cash is promptly collected and 

deposited with the Treasury. They should also 

receive reports on accounts receivable and payable 

to help them to make sure that: 

-Receivables are collected in full and on time. 

-Special followups are made promptly for 

-Bills are paid when due and not before or 

-The Treasury does not have to incur excessive interest cost to borrow money to 

meet the Government's short-term cash 

needs because receivables are not promptly 

collected or bills are paid before they are 

due. 

delinquent receivables. 

~ after. 

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Chapter 2 

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Property managers should get property reporti 

showing the dollar value, niimber of items, 

locarion, and status-idle or in-use-of agency 

property to help them assure that property is 

protected and fully utilized and that unnecessary 

purchases are avoided. 

The tollowing five case studies highlight how 

some agencies ran into financial management troubles because their accounting systems were not up 

to par and their managers did not pay enough 

attention to signals from the systems that controls 

over funds and resources had broken down. The 

sixth case study points out how an agency’s managers used their accounting system and the information produced to effectively control resources. A 

valuable lesson can be learned from each study. 

1. Case study 1 points out how an agency 

overobligated its appropriated funds by 

more than $200 million because the accounting system did not effectively tell 

managers how much money was left to 

spend. 

2. Case study 2 tells how managers allowed 

appropriated funds to be used for unauthorized purposes even after they received early warning signals from their 

auditors that breakdowns had occurred. 

3. Case study 3 shows how an agency’s control over appropriated funds was weakened because agency people ignored the 

discrepancies between Treasury and 

agency records. 

4. Case study 4 points out how an agency lost 

control over cash receipts for four years 

because its automated accounting system 

could not match cash receipts with deposits certified by the Treasury. 

control over billions of dollars of equipment because its property accounting system was ineffective. 

5. Case study 5 tells how an agency lost 

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6. Case study 6 higt 

collected accoun 

on time because 

managers what rc 

they were due, a 

needed special a. 

This agency runs a mu1 

ment program through si 

Procurement authority is 

units by the agency head 

appropriations.’ Operatin 

additional spending authc 

bursable orders from org 

agency. Operating units 

status of their obligationa 

value of orders received, 

determines the overall ap 

identifies funds that miglwhen authorized by law, 

The agency experience 

its financial management 

resulted in overobligatiol 

priations by about $225 r 

factors that caused the p 

below. 

Operating units made 

recording and controllin 

-Recording orders 

-Failing to record v 

-Recording orders 

-Failing to process 

-Failing to periodic 

records with sour( 

The inclusion of erronec 

propriation accounts inc 

authority on the books c 

tion. 

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6 Case study 6 highlights hofi d 1 ,tguncy 

collected accounts recei\,,ble in full and 

on time because tts accobnting system told 

managers what receivables thty hdd, when 

they were due, and whic-i- receivables 

needed special attention 

Control over Appropriated Funds 

This agency runs a multibillion dollar procurement program through subordinate operating units. 

Procurement authority is allocated to the operating 

units by the agency headquarters from various 

appropriations.' Operating units get substantial 

additional spending authority in the form of reirnbursable orders from organizations outside the 

agency. Operating units periodically report the 

status of their obligational authority, including the 

value of orders received, to headquarters which 

determines the overall appropriation status and 

identifies funds that might be available for transfer, 

when authorized by law, to other appropriations. 

The agency experienced a general breakdown in 

its financial management system which ultimately 

resulted in overobligations of procurement appropriations by about $225 million. The two main 

factors that caused the problem are discussed 

below. 

Operating units made a variety of errors in 

recording and controlling orders, including: 

-Recording orders that did not materialize. 

--failing to record valid orders. 

-Recording orders in the wrong appropria- 

-Failing to process order cancellations. 

-Failing to periodically reconcile accounting 

The inclusion of erroneous receivables in the appropriation accounts increased the obligational 

authority on the books of operating units. Consetion. 

records with source documents. 

(Case Study 1) 

1 To provide better control ower 

procurement funds, the Congress 

recently split this agency's single 

procurement appropriation into 

several separate appropriations. 

13 
The headquarters office u5ed the inaccurate stdtu5 reports in conjunction with other information 

to identify apparently excess funds in some appropriations and to transfer hundreds of millions of 

dollars of excess funds to other appropriations, 

when authorized by law. In addition to the bookkeeping errors made by operating units, the headquarters office made a major error by not notifying 

these units that obligational authority had been 

transferred out of the overstated appropriations. 

Unaware of these fund reductions, operating units 

continued to incur obligations which caused several procurement appropriations to be overobligated, 

The agency has taken steps to tighten control 

over appropriated funds by: 

-Setting up a program for better reconcilia- 

-Establishing procedures to insure that the 

tion of accounting records with orders from 

other organizations. 

obligational authority proposed for transfer is 

actually available. 

-Setting up a management task force to review and improve agency procedures for 

con t ro I I i n g appropriated f u nds. 

-Increasing internal audit coverage of appropriated funds from about 10 percent of internal audit workload to about 50 percent. 

The agency spent millions of doltars to audit and 

reconcile customer accounts, to determine the 

extent of overobligations, etc. Had this reconciliation not been necessary, the money could have 

been spent to design an effective system, 

- lesson learned 

Basic recordkeeping err4 

management attention car 

fund control problems. M 

their accounting systems g 

and accurate readings on 

to spend. Any system that 

failure. 

The agency in this case 

industrial funds that sell c 

vices to other agencies at 

recover costs. Industrial fl 

annual appropriations; th 

charge to give them the r 

operations. 

The President and the 1 

funds through appropriat 

agencies. Included in the 

cific amounts of money v 

goods and services from 

effect, the customer ager 

lish the ultimate purpose 

funds can spend money. 

The internal auditors rl 

sions that many industria 

transfers of costs betwee 

report stated that of 313 

than $60 million, 40 perc 

invalid and in another 4! 

transfers could not be dc 

improperly transferred b 

because (1) some writter 

I operating personnel for 

include enough informa 

personnel to evaluate th 

accounting personnel di 

cations to determine wh 

proper and should be a1 

14 
Basic recordkeeping error) coupled with a lack of 

management attention can be the pdth to serious 

fund control problems. Managerr mmf insist that 

their accounting systems give thwn clear, current, 

and accurate readings on how much money js left 

to spend. Any system that falls hort of rhis is a 

failure. 

Cost Acclrunting for Industrial 

E unds (Case Study 2) j The agency in this case operates d number of j industrial funds that sell commercial type of ser1 vices to other agencies at rates that should fully 

I recover costs. Industrial funds usually do not get i 

~ annual appropriations; they rely on the fees they 

I charge to give them the money needed to conduct 

a operations. 

1 The President and the Congress control industrial 

funds through appropriations given to customer 

! agencies. Included in these appropriations are specific amounts of money which are provided to buy 

goods and services from the industrial funds. In 

effect, the customer agency appropriations establish the ultimate purposes for which industrial 

funds can spend money. 

The internal auditors reported on several occasions that many industrial funds made improper 

transfers of costs between customer orders. One 

report stated that of 313 cost transfers for more 

than $60 million, 40 percent of the transfers were 

invalid and in another 45 percent the propriety of 

transfers could not be documented. Costs were 

improperly transferred between customer orders 

because (1) some written justifications prepared by 

operating personnel for the cost transfers did not 

include enough information to enable accounting 

personnel to evaluate the justifications, and (2) 

accounting personnel did not review all the justifi- 

, cations to determine whether the transfers were 

proper and should be approved. 

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[h spit^ thtb interndl auditc#ic h‘irnings, ITdndgPr- 

(1id riot listen. Although thw, received reports that 

N osts were being improper’y transferred between 

q ustorner orders, they did riot take effective actiocl 

o make sure these improper pracrtces reased 

A later CAO review of cost transfers made by 

one of the involved industrial funds showed that 

conditions there had not improved. Seventy-five 

percent of the costs were first charged to the 

correct customer order but later improperly 

transferred to another order to 

-avoid showing a loss on an order where 

there was a cost overrun and 

-retain funds that otherwise would have been 

returned because the customer’s order was 

expiring. 

In other cases, costs were incurred for new work 

even though no customer order had been received. 

Besides the obvious violations of regulations, 

improper transfers defeat the purpose of the 

industrial fund because they 

-result in fees unrelated to costs being 

charged customers thus impairing the ability 

of customers (1) to relate costs to benefits 

and (2) to select the most economical 

sources of supply and 

-result in distortion of actual costs thus 

precluding managers from being able to 

analyze costs in relation to budget amounts 

and to identify cost overruns. 

In response to CAO’s report, agency internal 

auditors increased their coverage of industrial fund 

operations focusing their efforts on disclosing to 

management cases of improper cost transfers 

between customers’ orders. 

Lesson learned 

~~ 

People and procedures i 

accounting system and aut. 

information on how that 5: 

auditors find that people c 

or that the procedures do 

smart manager wilf take sti 

needed corrective action. 

The reconciliation proce 

internal control feature be 

that similar information in 

accounting records is the ! 

Government-wide apprt 

records, reports, and cont 

the Treasury Department 

accounting system. Agenc 

appropriation accounting 

report their obligations, e 

bursernents to the Treasu 

accounting records. 

Agencies are required i 

pended balance in their s 

yearend. To facilitate the 

Treasury tells each agenc! 

of funds shown for each I 

Treasury’s central accoun 

supposed to compare thit 

accounting records to set 

agree. When differences 

analyze the differences at 

error. If the agency cannj 

it must get the Treasury’s 

unexpended balance diff 

the Treasury’s books. 

16 
lesson learned 

People and procedures are key part5 of any 

accounting system and auditors are a key source of 

information on how that system is operating. When 

auditors find that people do not follow procedures 

or that the procedures do not go far enough, the 

smart manager will take steps immediately to effect 

needed corrective action. 

Accounting for Differences Between 

Treasury and Agency Records 

The (Case Study 3) reconciliation process is a fundamental 

internal control feature because it helps guarantee 

that similar information in independently kept 

accounting records is the same. 

Government-wide appropriation accounting 

records, reports, and controls are maintained by 

the Treasury Department through its central 

accounting system. Agencies must keep their own 

appropriation accounting records and monthly 

report their obligations, expenditures, and reimbursements to the Treasury for posting to its central 

accounting records. 

Agencies are required to reconcile the unexpended balance in their appropriations at fiscal 

yearend. To facilitate the yearend reconciliation, 

Treasury tells each agency the unexpended batance 

of funds shown for each appropriation in the 

Treasury’s central accounting records. The agency is 

supposed to compare this information with its own 

accounting records to see whether the records 

agree. When differences do occur, the agency must 

analyze the differences and adjust its records if in 

error. If the agency cannot account for differences, 

it must get the Treasury’s permission to report an 

unexpended balance different from that shown in 

the Treasury’s books. 

17 
(.>ne agency recently discc.jvered that its record< 

shc)wed availabte funds that were quite different 

from the Treasury’s records for the balance 

remaining in its previous fiscal year appropriation!,. 

These differences resulted from many accounting 

errors made throughout the year. The errors were 

nor found and corrected because agency accountmg units did not routinely compare their records 

with the Treasury’s records. Accounting units did 

nor make monthly comparisons, as required by 

regulations because, according to the agency, they 

did not have enough people to do the job. 

instead of identifying the errors and correcting 

the records, the agency’s accounting staff simply 

accepted the Treasury’s balances as correct and 

made more than $16 million in unsupported adjustments to its appropriation accounts. These adjustments included establishing fictitious accounts 

receivable and payable. To compound these errors, 

the agency told the Treasury that the receivables 

had been collected and the payables paid. This, in 

turn, resulted in improper transfers of $2 million in 

funds between appropriations. 

The agency repeated the error in the next fiscal 

year. It made additional unsupported adjustments 

of more than $190 million to force agreement 

between agency and Treasury balances. 

management or the Treasury about these 

differences and made no attempt to reconcile them 

because they had no instructions on what to do if 

differences occurred or how to reconcile the 

accounts. 

In response to our report, the agency set up a 

special task force to research the differences 

between agency and Treasury appropriation data 

and to correct the agency’s records. Procedures 

have been established to guide accounting personnel in routinely reconciling agency and Treasury 

appropriation data and in correcting the agency’s 

accounting records when differences are disclosed. 

Agency accounting personnel did not tell top 

A reconciliation can isc 

system problems. If two ! 

do not reconcile, managt 

identify and correct the t 

weaknesses. 

This agency sells coup< 

to purchase food items. t 

accounting system to kec 

records and control cash 

inventory. 

For a number of years 

could not control cash rt 

system did not guarantet 

-All cash receipts \I\ 

the Treasury. 

-Cash receipts wert 

automated accour 

-Thefts of cash wer 

The end result: cash recl 

reconciled for 4 years. 

Managers knew this, y 

was wrong or try to fix t 

managers taken steps to 

they could have identific 

The automated accoul 

to match cash receipts r’ 

with certified deposits rc 

reviewing this system, w 

could not do this simple 

First, coupon vendors 

supply of deposit ticket: 

preprinted on the tickel 

their supply of deposit 1 

18 
lesson learried 

A reconciliation can isolate major accounting 

system problems. If two sets of accounting records 

do not reconcile, management must act quickly to 

weaknesses. 

‘ identify and correct the errors and the system’s 

! Control ober Cash Receipts 

’ (Case Study 4) i to purchase food items. !t uses an automated 

i accounting system to keep program accounting 

records and control cash receipts and coupon 

t inventory. 

i ’ 

I 

I 

This agency sells coupons to program participants 

For a number of years the accounting system 

could not control cash receipts. Specifically, the 

system did not guarantee that: 

-All cash receipts were promptly deposited in 

-Cash receipts were properly recorded in the 

-Thefts of cash were immediately reported. 

the Treasury. 

automated accounting records. 

The end result: cash receipts were not fully 

reconciled for 4 years. 

Managers knew this, yet did not find out what 

was wrong or try to fix the system’s problems. Had I! managers taken steps to dbgnose the problems, 

3 they could have identified and cured the following. 

\ The automated accounting system was designed 

I to match cash receipts reported by coupon vendors 

with certified deposits reported by the Treasury. In 

, reviewing this system, we found that the computer 

could not do this simple job for two reasons. 

First, coupon vendors did not receive the proper 

supply of deposit tickets with their vendor numbers 

preprinted on the tickets. Many vendors exhausted 

5, their supply of deposit tickets before they got more 

19 
I 

~icki-~ts 10 make depositc, ri'dnv ,(eridois klCJrrOW<!c! 

' icktnts from another vend1.1~ I-lidki?g it impossibltf 

'or the computer to match vendor cash receipt 

'e,pc:lrts with corresponding cvrtified deposlt tickers 

Secondly, all cash receipt rpports and certified 

jeposit tickets were not processed through the 

computer in the same run. The master file was 

broken up into fiscal year segments, and each 

;egment was updated in a separate computer run. 

If a cash receipt was reported in one fiscal year and 

the corresponding deposit certified in the next 

fiscal year, the computer c,ould not match the two 

transactions. 

Before our review, the computer rejected about 

30,000 transactions a month. The agency's accounting staff had a major task in sorting out simple 

mismatched cash receipts and deposits from true 

deposit discrepancies requiring followup. Consequently, cash receipts and deposits were not fu!ly 

reconciled for 4 years. 

We suggested that: 

-The automated deposit ticket supply system 

be revised to assure that coupon vendors got 

all the deposit tickets they needed. 

-The fiscal year segments of the master file be 

combined into a single file and that cash 

receipt reports and certified deposit tickets 

be processed through the computer in a 

single run. 

The agency accepted our suggestions and, as a 

result, eliminated their backlog of cash reconciliations. 

Lesson learned 

An automated accounting system is asking for 

help when it cannot do a simple job that 

computers were designed to do like matching cash 

receipts and certified deposits. Managers must 

respond to this call for help. If they do, they will 

usually find that relatively straightforward improvements in the computer system will solve the 

problem. 

This agency develops an 

vehicles. The job requires 

personal property ranging 

sophisticated test equipms 

property is located at bot1 

installations. 

The agency lost control 

billions of dollars becausc 

did not follow establishec 

accounting records and b 

sonnel did not notify the 

when equipment was disl 

Further, managers did no 

breakdowns in the accou 

controls over equipment. 

not have an effective pro 

As a result, the agency hi 

$3.2 billion investment in 

Originally, the agency 

accounting system consis 

control accounts and var 

porting accounts. Separa 

(1) inexpensive and expe 

bolts, and paint and (2) r 

durable capital items, SU~ 

electronic test gear. 

The system was design 

periodic inventory repor 

and their dollar value, IC 

idle, or excess to needs) 

available inventory befo 

Property records were tc 

periodic physical counts 

custodians were to repo 

department those items 

the agency's needs. 

From a design standpi 

have worked effectively 

make the best use of th 

20 
Inventory Management and C'ontrols 

(< ase Study 5) 

This agency develops and bullds ildecudl ~)urpose 

vehicles. The job requires a wide v,iriety 07 

personal property ranging from general supplies to 

sophisticated test equipment and vehicles. This 

property is located at both agency ,ind contractor 

installations. 

The agency lost control over equtpment worth 

billions of dollars because accounting personnel 

did not follow established rules in maintaining 

accounting records and because operating personnel did not notify the accounting department 

when equipment was disposed of or transferred. 

Further, managers did not follow up on reported 

breakdowns in the accounting system and physical 

controls over equipment. In short, the agency did 

not have an effective property accounting system. 

As a result, the agency had problems controlling its 

$3.2 billion investment in equipment. 

Originally, the agency set up a good property 

accounting system consisting of general ledger 

control accounts and various subsidiary and supporting accounts. Separate accounts were set up for 

(7) inexpensive and expendable items, such as nuts, 

bolts, and paint and (2) more expensive and 

durable capital items, such as machines and 

electronic test gear. 

periodic inventory reports showing items on hand 

and their dollar value, location, and status (in use, 

idle, or excess to needs). Managers could then use 

available inventory before buying anything new. 

Property records were to be verified through 

periodic physical counts of the inventory. Property 

custodians were to report to the accounting 

department those items that were idle or excess to 

the agency's needs. 

From a design standpoint, the system should 

have worked effectively and helped managers 

make the best use of the agency's investment in 

The system was designed to give managers 

21 
i: 

iii 6’ 1101 \r t-lowrJ\tlr, rndniiKI-*iiirrit prtw>ntt.d then 

vLtcrn tiom working by nl)t jern,jnding that 

i(~ (.Iclnling personnel to~!~~A t sldk~lished ruIt?s tjert 

5 niht merit wrong 

tern5 d\ expense items and a I onsequrnce, 

rhese items were not properly recorded in the 

acccjunting records The clerk5 bypassed normal 

prot edures for recording inventory transfers 

between contractor and agent-y locations, and, as a 

result, the transfers were not reflected in the 

accounting records. Operating personnel did not 

prepare reports identifying idle or excess inventor) 

They did not monitor contractor use of Government-owned property and did not promptly report 

inventory losses. Managers did not analyze inventory reports to determine why items found were 

not shown on the accounting records or why items 

shown on the accounting records could not be 

located. 

41 counting clerks irnpruprrly I lasified cdpital 

For several years, the agency’s internal auditors as 

well as us reported to agency management that the 

system was not working to minimize losses of 

equipment and to prevent purchases of unneeded 

items. But management did not react to overcome 

the problems identified. Management should have 

taken steps to assure that accounting and operating 

personnel followed established rules and 

procedures. 

certain deficiencies persisted: 

A followup on the CAO review showed that 

-Equipment acquisitions were not being 

recorded promptly. Over $140 million worth 

of equipment was not picked up in the 

accounting records until several years after 

its receipt. 

amounting to over $47 million was not 

identified. 

-Equipment worth millions of dollars was, 

according to accounting records, on hand 

but could not be located. 

-Equipment in an idle or excess status, 

In response to our report, 

-tightened controls i 

cording capital equ 

-improved accountir 

transferred to contr 

-promptly investigat, 

equipment, and 

-set up procedures 1 

investigate propert! 

contractor location 

Lessons learned 

The best designed systt 

only on paper. Managers 

is put into action and wo 

can help the manager do 

gaps between system des 

tation. 

This agency sells highlb 

vices to commercial custt 

and in foreign countries. 

large volume of account! 

at the end of a recent fis 

reported more than $319 

from the public. 

The agency runs a hig 

-Records amounts 

accurately . -Generates ti rnel y 

services are rendc 

-Produces followu 

after invoices are 

-Refers accounts t! 

overdue to the le 

-Charges custome 

annum for all inv 

days of the billin) 

system which: 

22 
\n response to our report, the ,igt-n 

-tightened control5 dritl pia( e jurth5 tor re. 

cording capital equipmerit 

-improved accounting controls wer property 

transferred to contractor\' installations, 

-promptly investigated cafes crf unrecorded 

equipment, and 

-set up procedures to promptly report and 

investigate property tosses at agency and 

contractor locations 

lessons learned 

The best designed system is worthless if it exists 

only on paper. Managers mu5t 5ee that the system 

is put into action and works as intended. Auditors 

can help the manager do this job by pinpointing 

gaps between system design and system implementation. 

. 

System for Managing Accounts 

Receivable (Case Study 6) This agency sells highly technical, scientific services to commercial customers in the United States 

and in foreign countries. These sales generate a 

large volume of accounts receivable. For example, 

at the end of a recent fiscal year, the agency 

reported more than $319 million in receivables 

from the public. 

The agency runs a highly effective accounting 

system which: 

-Records amounts due and paid promptly and 

accurately. 

senerates timely invokes to customers when 

services are rendered. 

-Produces followup letters at 30-day intervals 

after invoices are overdue. 

-Refers accounts that are more than 180 days 

overdue to the legal department. 

-Charges customers interest at 12 percent per 

annum for all invoices not paid within 30 

days of the billing date. 
1 he ,.lgency’i accounts ret:r!ii,ible .ysterrr helps 

t-ndndgers collect amounts due the Government .II 

~JII and on time. For example 

.--95 percent of all bills wire pard within .KJ 

---Followup on overdue ar.counts is highly 

days of the invoice date. 

effective; in a recent fiscal year, the agency 

wrote off only one account, amounting to 

$5,000. 

---8724,000 in interest on overdue invoices was 

levied on and collected from customers by 

one of the agency’s Installations in a recent 

fiscal year. 

lesson learned 

A topnotch accounting system for accounts 

receivable will tell managers what is owed the 

agency, who owes the money, when payment is 

due, and which accounts are delinquent. Armed 

with this information, managers can take prompt 

action to collect amounts due by isolating problem 

accounts and thus heading off bad debts. 

Financial lnformatic 

Decisions on How tc 

Program Goals 

The successful manager 

resources to produce the I 

practicable cost. The accol 

managers financial reports 

these basic but crucial qut 

-Did we produce prc 

the least practicable 

-How can we changc 

accomplish more fc 

Spec if ical I y , the accou ni 

together financial reports 

-Expenses and oblig, 

relationship to avail 

allotments. 

-Projected work uni 

costs. 

-Actual work units c 

costs. 

-Comparisons betwc 

units and anticipatt 

completed and cos 

Armed with this informati 

measure the: 

-Products or service! 

-Extent that work go 

-Opportunities to PI 

the same or lower I 

For example, the manat 

the volume, dollar value, 

services produced. This in 

track the agency’s produc 

ensure that the Governmi 

the least cost. Such repor 

(1) making “make or buy’ 

prices to charge others fo 

sold. I 

The reports the managc 

work units to be done an 

work units done and cosi 

tion would help the man 

24 
The successful manager gets iwt\blt I h) iisirrg 

re~otirces to produce the most here~i- at the least 

practicable cost. The accounting sy5ttarri LDhould give 

rnandgers financial reports dnd .~t~dlv,f- to an5w~r 

these basic but crucial question‘ 

-Did we produce product\ dnd’or bervires at 

the least practicable cost? If nr,t, then 

-How can we change our operdtinns to 

accomplish more for each dollar spent? 

Specifically, the accounting system should put 

together financial reports and analyses that show: 

-Expenses and obligations incurred and their 

relationship to available appropriations and 

allotments 

costs. 

costs. 

-Projected work units tied to anticipated 

-Actual work units completed tied to incurred 

-Comparisons between (I) projected work 

units and anticipated costs and (2) work units 

completed and costs incurred. 

Armed with this information, the manager can 

measure the : 

-Products or services produced and their cost. 

-Extent that work goals are being met, 

--Opportunities to produce more benefit at 

For example, the manager should get reports on 

the same or lower cost. 

the volume, dollar value, and cost of products or 

services produced. This information will help him 

track the agency’s productivity and help him 

ensure that the Government gets the job done at 

the least cost. Such reports could be the basis for 

(1) making “make or buy” decisions and (2) setting 

prices to charge others for products or services 

sold. 

1 

The reports the manager gets should contrast 

work units to be done and anticipated costs with 

work units done and costs incurred. That information would help the manager: 

! 

25 
-.Assign people 10 w(.i~k tdsk!. 

--Measure the amount t.)f products or \ervice’j 

produced dgainst (:oil< ond obligdtions 

incurred to deterrniriv wherher more output 

could reasonably be p:rodu( ed for the 5ame 

money. 

targets are being met 

-Determine whether work unit and cost 

--Develop future work. pl,ins and budgets. 

The following case studies show how some 

agency accounting systems help managers do a 

good job in achieving program goals while others 

fall far short of giving managers the essential 

information needed to guide their programs. 

1. Case study 7 shows how an agency did a 

good job in building an automated accounting system to give managers at all 

levels measures of work to be done and 

anticipated costs and work actually done 

and costs incurred so they could better 

ptan and run future operations. 

2. Case study 8 points out how one agency 

underbilled its customers by $12 million a 

year because its accounting system did not 

collect and report the full cost of sales. 

3. Case study 9 shows how an agency 

developed an effective accounting system 

that integrates financial and related quantitative information on work done under 

the agency’s programs. Because the system 

provides for recording financial and 

related quantitative information in the 

accounting records, it can give the Congress and agency managers the information 

and analyses needed to measure whether 

program goals and financial plans were 

being met and whether changes were 

needed to achieve more at a faster rate. 

4. Case study 10 focuses on how an accountting system fetl short of giving managers 

information to evaluate whether a loan 

refinancing program was ehective. 

5. Case study 11 I 

one agency ca 

financial and r’ 

tion already pr 

system to assig 

productive tad 

management’s 

budgeting, cos 

measurement 

Department nc 

its personnel a 

6. Case study 12 

The agency helps prc 

agricultural products rL 

fair prices for their con 

providing inspection, SI 

regulatory, and other rl 

farm com mod it ies. 

The agency is organi 

headquarters, regional 

located throughout the 

is divided into a series 

commodity basis. Each 

part of the agency’s mi 

ment divisions provide 

tivities. At the regional 

are responsible for car1 

program in the field. S 

offices actually deliver 

agricultural commu nit) 

1 The agency’s financi: 

centralized at its headc 

-Accu m u lates, rei 

cia1 and related 

work done for a 

agency . -Provides comple 

track operating I 

1 

26 
5 Case study 11 highligiltk t'ou tldrlligers 111 

one agency capitalireti i Iri nrrti uwd 

financial and re dted {Iudrititdtibe tnforrnation already produced bk accounting 

system to assign people to the rnmr 

productive task5 

6 Case study 12 shows how top 

management's failure to Set uniform 

budgeting, cost accounting, and workload 

measurement requirements resulted in the 

Department not delivering medical care to 

its personnel at the least practicable cost 

Accounting for Costs by Responsibility 

Center (Case Study 7) The agencv helm Droducers and handlers of Y, 

agricultural prod&; run orderly markets and get 

fair prices for their commodities, It does this job by 

providing inspection, standardization, marketing, 

regulatory, and other related programs for certain 

farm commodities. 

The agency is organized into a Washington, D.C., 

headquarters, regional offices, and field offices 

located throughout the country. The headquarters 

is divided into a series of divisions, generally on a 

commodity basis. Each division carries out a specific 

part of the agency's many programs. Four management divisions provide management support activities. At the regional level, individual managers 

are responsible for carrying out each division's 

program in the field. Staff assigned to the field 

offices actually deliver program services to the 

agricultural community. 

The agency's financial management system is 

centralized at its headquarters where it: 

-Accumulates, records, and reports all financial and related quantitative information on 

work done for all organizational units in the 

agency . 

track operati ng budgets. 

-Provides complete cost data to prepare and 

27 
Jrobides timely, comp fit?, dnd dccuratr 

l I n a 11 ci a I d nd re I a ted q u d ri t I ta t i\ e i n fo I' rn a t io ri 

m work done so managers cdn constantly 

#::heck the quality of their operations. 

The roo1 that makes this system work to deliver 

needed information to managers is the account 

code. This code-called the Cost Responsibility 

Center Code-links the account structure and the 

agency's organizational hierarchy. A cost responsibility center is a specific operation, program, or 

administrative function under the control of a 

single manager who is given the authority to incur 

costs, and is responsible for planning and controlling costs for program operations, Cost-based 

financial plans are developed at this level and 

entered into the accounting records. A cost 

responsibility center is made up of one to several 

subcenters which are subordinate operating units 

or activities of a cost responsibility center. For 

example, a subcenter could be a field office that 

delivers a specific program service to the 

agricultural community, a specific activity within a 

particular program, or a separate, special fund 

under a cost responsibility center. 

All financial and related quantitative information 

is accumulated, recorded, and identified in the 

accounting system by the cost responsibility center/subcenter code. This coding structure makes it 

easy for the accounting system to satisfy the 

information needs of all levels of managers in the 

agency. 

28 days. The financial report structure is based on 

the pyramidal reporting concept, that is, information detailed in lower level reports is summarized 

for reports prepared for the next higher level. 

internal management reports are produced every 

Each report in the series of internal management 

reports produced by the accounting system is 

tailored to meet the specific financial information 

needs of a particular level manager. The Subcenter 

Payroll and Detailed Cost and Cost Responsibility 

Center reports help cos 

managers keep tabs on 

terms of keeping costs i 

shown in their operatin: 

managers identify units 

cost and producing too 

program report shows h 

tors the costs incurred t 

quantity of product pro 

In summary, the acco 

manager the financial rt 

part of the agency's mal 

manager controls witho 

with extraneous inform; 

compare the results ach 

products or services prc 

plan-the operating but 

and future program OPE 

track with plans. 

Lesson learned 

/f the goal of producir 

least practicable cost is I 

the financial results of G 

manager who has the at 

operations. 

This agency spends at 

operate a number of ml 

overseas locations wher 

provided to military per 

dependents. People wh 

or dependents can also 

they have to pay for it. 

percent of the medical 

related regulations whi< 

medical care require th4 

cover the full cost of pr 

28 
Center reports help cost reipofisibility t enrer 

managers keep tabs on how well they are doing in 

terms of keeping costs in line with projected costs 

shown in their operating budgets. They also help 

managers identify units that are incurring too much 

cost and producing too little output. The division 

program report shows headquarters division directors the costs incurred by their divrsions and the 

quantity of product produced. 

In summary, the accounting system gives each 

manager the financial results of operations for the 

part of the agency’s many programs that the 

manager controls without burdening that manager 

with extraneous information. The managers (1) 

compare the results achieved-costs incurred and 

products or services produced-with the financial 

plan-the operating budget and (2) adjust current 

and future program operations so achievements 

track with plans. 

Lesson learned 

If the goal of producing the desired output at the 

least practicable cost is to be achieved, reports OR 

the financial results of operations must get to the 

manager who has the authority to act and change 

operations. 

Pricing of Services Sold to the Public 

(Case Study 8) This agency spends about $200 million a year to 

operate a number of medical facilities at various 

overseas locations where free medical care is 

provided to military personnel and their 

dependents. People who are not military personnel 

or dependents can also receive medical care but 

they have to pay for it. They account for about 8 

percent of the medical care workload. The law and 

related regulations which authorize providing this 

medical care require that reimbursement rates 

cover the full cost of providing the services. 

29 
Fetts charged for reimbu-catjle medicdl cdre djd 

riot cover costs. Fees in many lases were complere. 

1y inadequate and were alway5 low compared to 

‘what was charged by commercial facilities. Agenc-y 

policies contributed to this 5ituation as well as the 

+act that medical activities did not uniformly 

account for and report medical care costs. We 

estimated that rates calculated to recover full costs 

‘would increase reimbursements to the agency by 

almost $12 million annually. 

In computing standard medical care reirnbursemen1 rates, many elements of cost were excluded. 

The computations were made by agency headquarters based on budget submissions by subordinate medical activities. But these presented an 

incomplete cost picture because some cost 

elements were not included in the budgets. The 

medical activities had a variety of automated and 

manual accounting systems to accumulate costs and 

workload data, but the systems were not uniform. 

As a result, inconsistencies between the systems 

made determining the total cost for care at each 

medical facility difficult. For instance, 

--Some hospitals did not report millions of 

dollars in food purchase costs for inclusion 

in the rate computation. 

-Patient care costs in general were understated by millions of dollars. 

In addition, the headquarters office did not 

consider all indirect costs in setting the reimbursement rate computation. 

The upshot of all this was that reimbursement 

rate calculations were made using incompIete data 

resulting in rates inadequate to cover the cost of 

services provided. The agency needed to do two 

things. First, it needed to clearly define to the 

medical activities the direct operating costs they 

must report to headquarters. Secondly, headquarters had to decide for itself what indirect costs it 

must add to those direct costs reported by each 

activity to set reasonable reimbursement rates. 

In response to our re 

Its medical facilities to i 

military personnel and 1 

systems to provide the 

10 develop more accuri 

After the new rates we1 

expected a $4.4 million 

reimbursement revenui 

Lesson learned 

-1 

Managers cannot be4 i 

services sold to custom 

system captures, summa j 

appropriate factors for , 

those services. 

7- ; 

This agency manage! 

lands to make sure tha 

resources are conserve 

used. It is organized in 

quarters and nine regit 

regions are subdivided 

which are in turn divic 

centers. The officer-in, 

converts the paper pla 

planted tree seedlings 

lakes, streams, and rivi 

recreation areas. 

The growing, across 

renewable and nonrei 

i n tensif ied cong ressiol 

programs to protect, c 

natural resources. To t 

sight responsibilities, t 

a law requiring the ag 

Congress annual repo 

1 

30 
In response to our report, hp igericy instructed 

its medical facilities to incred5e r<ites charged noli. 

military personnel and to rekise their accounting 

systems to provide the neces5ary cost information 

to develop more accuiate reimbursement rates 

After the new rates were put in effect, the agency 

expected a 64.4 million increase In medical care 

reimbursement revenues for the first year 

Lesson 

~ -. learned 

Managers cannot begin to set the right prices for 

services sold to customers unless the accounting 

system captures, summarizes, and reports all 

appropriate factors for computing the full cost of 

those services. 

Reporting to the Congress on Goals 

and Accomplishments (Case Study 9) 

This agency manages large tracts of open Federal 

lands to make sure that renewable natural 

resources are conserved, protected, and wisely 

used. It is organized into a Washington, D.C., headquarters and nine regions. The land tracts in the 

regions are subdivided into administrative units 

which are in turn divided into districts, or cost 

centers. The officer-in-charge of each district 

converts the paper plans and budgets into actual 

planted tree seedlings; healthy grasslands; clean 

lakes, streams, and rivers; and new outdoor 

recreation areas. 

renewable and nonrenewable natural resources 

intensified congressional interest in Federal 

programs to protect, conserve, and manage our 

natural resources. To effectively carry out its oversight responsibilities, the Congress recently passed 

a law requiring the agency, in this case, to give 

Congress annual reports showing 

The growing, across-the-board shortages in both 

31 
-work planned to preserve renewable 

resources and the projected costs, 

-work done and actual costs, and 

-variances between planned and actual work 

units and costs. 

The Congress uses these reports to (1) track the 

agency’s accomplishments in preserving our 

renewable natural resources-in terms of work 

done and costs-with congressionally set production goals in legislation and appropriations and (2) 

set future work production goals and funding 

levels. 

This mandate required the agency to develop a 

new accounting system to tie costs to specific 

accomplishments. The new system uses a 6-digit 

account number-called a management code-to 

identify the different kinds of work done in the 

districts. Directories built into the computer relate 

the 6-digit code to the proper appropriation and 

Treasury symbol, functional area of work, category 

of work, collection account, specific work project 

and program budget activity, and work process 

code. Briefly, the system works as follows. 

Plans 

Yearly, each district officer-in-charge prepares 

multiyear project plans which include information 

for the coming year, as well as for the additional 

years required to complete the project. A separate 

plan is prepared for each project and shows the 

following information by organizational unit 

(region, administrative unit and district; and related 

State congressional district): 

-Projected multiyear accomplishment in such 

terms as volumes of timber harvest, number 

of visitor-days of recreation use, etc, 

-Multiyear resource (money and people) 

requirements in relation to the accomplishment of specific units of work, such as 

volume of timber to be prepared for sale, 

miles of trail to be constructed, etc. 

The district project plai 

regional project plans, an 

are combined into agenc 

submitted to the Office c 

Budget for review in the 

After Presidential revie 

submitted for approval b, 

agencyw ide project plans 

approved annual budget 

multiyear plans. 

All the project plans ar 

agency’s computer maste 

central accounting systen 

Management Reports 

The district officers-inaccounting source docur 

wide accounting system i 

example, time and attenc 

vouchers, contract purch 

invoices, etc.). The accoLi 

identified by the new 64 

The information on thc 

entered into the departn 

system which maintains i 

and prepares the financii 

Monthly summary accc 

transfer data from the de 

system to the agency’s ac 

agency’s system then ma 

actual costs and produce 

paring work done with p 

managers use for plannir 

tion of budget alternativa 

Agency managers at al 

(1) measure their accom 

work done and resourcE 

plans set by them and ai 

(2) focus their attention 

program operations that 

plans, and (3) set future 

estimates. 

I 

32 
The district project plans are combined into 

regional project plans, and finally, regional plans 

are combined into agencywide plans which are 

submitted to the Office of Management and 

Budget for review in the form of a budget. 

submitted for approval by the Congress. The 

agencywide project plans become the agency’s 

approved annual budget for the first year of the 

multiyear plans. 

agency’s computer master file and the department’s 

central accounting system. 

Management Reports 

The district officers-in-charge send the normal 

accounting source documents to the departrnentwide accounting system as work is done (for 

example, time and attendance records, travel 

vouchers, contract purchase orders, vendors‘ 

invoices, etc.). The accounting documents are 

identified by the new 6-digit management code. 

The information on these source documents is 

entered into the departmentwide accounting 

system which maintains all the accounting records 

and prepares the financial reports for the Treasury. 

Monthly summary accounting reports are used to 

transfer data from the departmentwide accounting 

system to the agency’s accounting system. The 

agency’s system then matches work plan data with 

actual costs and produces various reports comparing work done with projections that agency 

managers use for planning purposes and projection of budget alternatives. 

(1) measure their accomplishments-in terms of 

work done and resources used-against program 

plans set by them and approved by the Congress, 

(2) focus their attention on those aspects of 

program operations that deviate significantly from 

plans, and (3) set future work plans and budget 

estimates, 

After Presidential review the project plans are 

All the project plans are entered into the 

Agency managers at all levels use these reports to 

33 
Reports of Goals versus Attainments 

reports the Congress asked for on approved 

resource conservation work programs-that is, 

reforestation, rangeland maintenance, watershed 

maintenance, and development of recreational 

areas. The system can produce these reports 

because the system integrates in the accounting 

records both financial and related quantitative 

information on units of work. The reports show: 

-Planned work units to be done and costsfor example, number of seedlings to be 

planted and costs, and acres of brush to be 

removed and costs. 

-Actual work units done and coSts incurred. 

At yearend, the accounting system prepares the 

The Congress uses these reports to Pvaluate the 

agency’s work plans and funding requests for 

subsequent years’ operations and to monitor our 

efforts to achieve administration and congressionally set goals for preserving renewable natural 

resources. 

Lesson learned 

How well an agency has achieved goals can only 

be measured if reports on the financial results of 

operations show: 

-Projected work units to be done tied to 

-Actual work units done tied to costs in- 

-Comparisons of projected work units to be 

anticipated costs. 

curred. 

done and anticipated costs with actual work 

units done and costs incurred. 

Managing Problem Loans 

(Case Study 10) 

The agency in this case runs a variety of loan 

programs which include direct loans to the public 

and guarantees of the payment of interest and 

principal on loans made by banks and other 

financial institutions. 

34 

The agency uses a cor 

system to gather, procec 

information needed by 

loan programs are carrit 

ticable cost. It was a we 

produced useful extern; 

reports. However, as pri 

identified new informat 

system remained static. 

pace with managers’ grc 

even though the basic i 

the agency’s manual filt 

The agency’s direct IC 

current, delinquent, de 

loans. The computerize 

managers information r 

and delinquent loans, I: 

and refinanced loans, tl 

short of meeting manal 

The system was desig 

refinanced loans as cur 

trouble. For deferred It 

suspends principal pay1 

payment amounts by IC 

loan. Refinanced loans 

which borrowers use tr 

As a result, managers c 

were deferred or refin 

balances are, or how n 

have been deferred or 

they cannot determine 

experienced with indii 

categories (that is, whi 

deferred or refinancec 

meaningful assessmen’ 

trends for these Ioans. 

knowing whether the 

refinancing policy is SI 

Seven data element 

have been incorporatq 

ing system. This new c 

means to evaluate the 
The agency uses a computerized accounting 

system to gather, process, and record the financial 

information needed by managers to assure that 

loan programs are carried out at the least practicable cost. It was a well-designed system that 

produced useful external and internal financial 

reports. However, as programs grew and managers 

identified new information needs, the accounting 

system remained static. It was not changed to keep 

pace with managers’ growing information needs 

even though the basic information was available in 

the agency’s manual files. 

The agency’s direct loan portfolio includes 

current, delinquent, deferred, and refinanced 

loans. The computerized accounting system gives 

managers information needed to manage current 

and delinquent loans, but in the case of deferred 

and refinanced loans, the accounting system falls 

short of meeting managers’ information needs. 

The system was designed to classify deferred and 

refinanced loans as current instead of as loans in 

trouble. For deferred loans, the agency temporarily 

suspends principal payments or decreases the 

payment amounts by lengthening the term of the 

loan. Refinanced loans are usually larger loans 

which borrowers use to pay off delinquent loans. 

As a result, managers cannot tell how many loans 

were deferred or refinanced, what their principal 

balances are, or how many times particular loans 

have been deferred or refinanced. Consequently, 

they cannot determine the seriousness of problems 

experienced with individual loans in these 

categories (that is, which loans had been repeatedly 

deferred or refinanced), nor can they make any 

meaningful assessment of collection patterns and 

trends for these loans. Thus, they have no way of 

knowing whether the agency’s deferral and 

refinancing policy is successfu! in reducing losses. 

Seven data elements relative to deferral actions 

have been incorporated into the agency’s accounting system. This new data will give the agency the 

means to evaluate the effectiveness of the deferral 

35 
program. Specific reporting requirements have 

been determined and are being incorporated into 

the computerized reporting system. With respect to 

refinanced loans, the information needed to 

manage these loans is being collected, but specific 

reporting requirements have not as yet been set. 

Lesson learned 

Good accounting systems are flexible and 

adaptable to changing business conditions. 

Managers must make sure their systems evolve to 

keep pace with changing information needs 

mandated by changing programs, new financial 

management techniques, developments in the 

computer sciences, and changing business practices. 

Using Financial Information in Making 

Work Assignments 

(Case Study 11) This case shows how managers in one agency 

capitalized on and used financial and quantitative 

information already produced by the accounting 

system to assign people to the most productive 

tasks. 

A bureau in a city government has the job of 

collecting taxes due from individuals, corporations, 

and other businesses. To assure that taxes are 

propeAy collected, the city relies primarily on 

voluntary compliance with tax laws, backed up by 

selected audits of tax returns. 

The agency’s staff is small and only a fraction of 

the large number of tax returns filed each year can 

be audited. In selecting returns for audit, agency 

managers have to assure that: 

-An appropriate number of returns from each 

type of tax return is audited to encourage a 

satisfactory degree of voluntary taxpayer 

compliance. 

-The audit staff is assigned to reviewing the 

returns that would provide the greatest 

potential for additional tax collection. 

To establish the best 

audit, the agency devel 

and correlate: 

-The time needec 

return, such as ii 

-The number of i 

collected for eac 

The information requiri 

calculations comes fron 

system. 

For several years, the 

information on (1) the I 

the salary spent in audi 

(2) the number and typ 

(3) amounts of addition 

audits. This informatior 

prepare statistical repot 

information as the bask 

follows: 

-The agency selec 

of time as a base 

productivity indc 

each type of retr 

of audits perforn 

hours spent. lnd 

were computed 

plotted on a gral 

show the relativt 

of each type of I 

-The agency com 

of return showin 

resulting from ei 

spent. This infori 

graph to show w 

the most additio 

-The two graphs 

the best combin 

return that woul 

additional reven 

The initial analysis of 

interesting results. For 

5-year period of the at 

36 
To establish the best Combination of returns for 

audit, the agency developed a system to measure 

and correlate: 

-The time needed to audit each type of 

return, such as individual and corporate. 

-The number of additional tax dollars 

collected for each audit dollar spent. 

The information required to make these 

calculations comes from the agency’s accounting 

system. 

information on (1) the number of staff-hours and 

the salary spent in auditing each type of tax return, 

(2) the number and types of returns audited, and 

(3) amounts of additional taxes resulting from these 

audits. This information had been used primarily to 

prepare statistical reports. The agency now uses this 

information as the basis for cosvbenefit analyses as 

follows: 

For several years, the agency accumulated 

-The agency selected a representative period 

of time as a base period. Base period 

productivity indexes were computed for 

each type of return by dividing the number 

of audits performed by the number of staffhours spent. Indexes for subsequent periods 

were computed in the same way and were 

plotted on a graph for each type of audit to 

show the relative amount of time the audit 

of each type of return required. 

-The agency computed a ratio for each type 

of return showing the additional taxes 

resulting from each dollar of audit salary 

spent. This information was plotted on a 

graph to show where audits were producing 

the most additional tax revenues. 

-The two graphs were analyzed to establish 

the best combination of audits by type of tax 

return that would yield the maximum 

additiona I revenue. 

The initial analysis of the graphs disclosed some 

interesting results. For example, an analysis over a 

$year period of the audits of one type of return 

37 
showed that (7) the average amount of taxes 

collected for each audit dollar spent ranged from a 

high of $1.12 to a low of $0.02 and (2) it cost the 

agency more in audit salary than it realized in 

additional taxes in 4 of the 5 years. This disclosure 

resulted in a management decision to shift some of 

the staff to higher revenue producing audit areas, 

with auditing in the low-payoff areas limited to the 

minimum needed to sustain voluntary taxpayer 

compliance. 

The agency found that staff productivity and 

audit effectiveness measurements had to be 

considered together if sound,staff allocation 

decisions were to be made. For example, if 

emphasis were placed only on improving staff 

productivity (the number of audits performed per 

staff-hour), the staff might do only easy audits, 

which would likely be those that produce less tax 

revenue. Thus, in deciding how best to use the 

audit staff, agency managers not only had to 

consider the need for increased staff productivity 

but also had to make sure that audit effectiveness 

(tax revenue generated in relation to audit cost) did 

not suffer. The productivity and cost data available 

through the accounting system provides a sound 

basis for these decisions. 

Lesson learned 

Financial information can help the sharp manager 

pinpoint opportunities for increased productivity. 

Cost and Workload Reports as 

a Management Tool 

(Case Study 12) The Federal Department in this case is composed 

of three large agencies. These agencies have a 

number of similar missions and personnel support 

services. One of the personnel support services is 

to provide medical care to military personnel. 

Consequently, the agencies run a large number of 

medical facilities ranging 

tient clinics to large mod 

range of dental, medical, 

services. These services a 

the Department spent $2 

alone on medical care pi 

As the parent organiza 

overall policies, guidelinc 

subordinate agencies, inr 

accounting and financial 

and measuring work don 

assures that the budget, I 

reports prepared and sut 

ment by the subordinate 

results of program opera 

These reports give Dcpai 

cost and productivity infi 

compare the results of o 

programs run by each su 

decide where to focus it! 

costs are kept down and 

In the case of the med 

partmental accounting gl 

standards. It did not set I 

policies, guidelines, and 

dinate agencies to use in 

estimates, accounting foi 

measuring work done ur 

programs. As a result, ag 

Department medical carc 

reports that were not un 

Department could not e 

medical programs to see 

-each agency was c 

care at the least p 

-efficient medical ( 

best run agency M 

efficient sister age 

A CAO review highlig 

shortcomings in the bud 

and workload measurer 

subordinate agencies. TIings prevented top man; 

30 
medical facilities ranging in size from small outpatient clinics to large modern hospitals offering a full 

range of dental, medical, surgical, and psychiatric 

services. These services are expensive. For example, 

the Department spent $2.3 billion in fiscal year 1976 

alone on medical care programs. 

As the parent organization, the Department sets 

overall policies, guidelines, and procedures for its 

subordinate agencies, including those governing 

accounting and financial reporting, staffing levels, 

and measuring work done. Accounting guidance 

assures that the budget, cost, and productivity 

reports prepared and submitted to the Department by the subordinate agencies present the 

results of program operations on a common basis. 

These reports give Department top management 

cost and productivity information needed to (1) 

compare the results of operations of similar 

programs run by each subordinate agency and (2) 

decide where to focus its attention to assure that 

costs are kept down and productivity is kept high. 

In the case of the medical care programs, Departmental accounting guidance did not meet these 

standards. It did not set uniform accounting 

policies, guidelines, and procedures for the subordinate agencies to use in preparing budget 

estimates, accounting for and reporting costs, and 

measuring work done under medical care 

programs. As a result, agencies submitted to the 

Department medical care cost and productivity 

reports that were not uniform. Consequently, the 

Department could not effectively monitor agency 

medical programs to see that 

-each agency was delivering required medical 

care at the least practicable cost and 

-efficient medical care techniques used in the 

best run agency were transplanted to its less 

efficient sister agencies. 

A GAO review highlighted examples of the 

shortcomings in the budgeting, cost accounting, 

and workload measurement systems used by the 

subordinate agencies. These accounting shortcomings prevented top management from identifying 

39 
opportunities to increase the efficiency of agency 

medical care programs because costs to do specific 

medical jobs reported by each agency were not 

computed on the same basis. Consequently, top 

managers could not make interagency cost comparisons to identify efficient practices, Illustrations 

follow. 

-One agency’s budget did not include the 

costs to run small outpatient clinics; as a 

result, about $2 million was excluded from 

the medical care budget. 

-Another agency’s medical program budget 

did not include the cost of support services-heat, light, custodial services, building 

maintenance, etc.-provided by host bases 

for medica! facilities. 

-One agency accounted for dental laboratory 

costs separately from other dental care costs, 

while its two sister agencies lumped 

laboratory costs with other dental costs. 

-Two agencies measured radiological workloads and costs by tracking the number of Xray exposures, while the other agency 

recorded the number of X-ray films usednormally more than one exposure is made 

on a single sheet of film. 

The accounting system problems were exacerbated by the fact that the subordinate agencies 

lacked uniform criteria for staffing medical facilities 

and measuring work done. We found, for example, 

that two agencies assigned staff to medical facilities 

based on periodic staffing studies while the other 

agency assigned staff on a case-by-case basis. 

These differences in (1) accumulating and 

presenting medical care budgets, costs, and workload information and (2) staffing and measuring 

work done at medical facilities made it impossible 

to effectively compare the results of operations of 

medical care programs between agencies. 

We analyzed the medical care cost and workload reports submitted by the Department’s 

subordinate agencies and recast the information 

presented so each agenc‘ 

information was presente 

%me interesting results 

our cost analyses follows. 

Analysis of Workloa 

Facilities at Medi 

Weighted numl 

of work unit! 

Hospital completed (no1 

Agency 

No. 1 167,818 

Agency 

No. 2 103,l71 

Agency 

No. 3 81,784 

a One agency u5es a weighted 

workload. This procedure gin 

complex dental proceduressimpler procedures--such as 

procedure was used in exprt 

units accomdished by all aR 

Analyses of this type c 

management to find out 

per dental procedure is 

of Agency No. 2 and No 

The Department, in re 

developed a uniform ho 

system and is testing thir 

hospitals before implem 

partmentwide basis. 

Lesson learned 

Cost and workload re 

items are useless. Top n 

uniform accounting anc 

financial and workload 

organizational units are 

reports, top managemel 

questions that will lead 

the same or less money 

40 
presented so each agency’s cost and workload 

information was presented on a common basis. 

Some interesting results were noted. An example of 

our cost analyses follows. 

Analysis of Workload and Costs of Dental 

Facilities at Medium-sized Hospitals 

Weighted number Total Cost per 

of work units operating weighted 

Hospital completed (note a) cost work unit 

Agency 

Agency 

Agency 

No. 1 167,818 $864,000 $5.15 

No. 2 103,171 353,962 3.43 

No. 3 81,784 323,960 3.96 

’ One agency uses a weighted procedure to measure dental 

workload. This procedure gives greater weight to the more 

complex dental procedures-such as, root canal-thal) to the 

simpler procedures-such as, fillings. This agency’s weighting 

procedure was used in expressing the number of dental work 

units accomplished by all agencies included in this review. 

Analyses of this type could allow Department top 

management to find out why Agency No, 1’s cost 

per dental procedure is significantly more than that 

of Agency No. 2 and No. 3. 

The Department, in response to our report, 

developed a uniform hospital cost accounting 

system and is testing this system in 10 major 

hospitals before implementing the system on a departrnentwide basis. 

lesson learned 

Cost and workload reports that compare unlike 

items are useless. Top managers must require 

uniform accounting and reporting to insure that 

financial and workload reports for different 

organizational units are comparable. With these 

reports, top management can start asking the 

questions that will lead to better performance at 

the same or less money. 

41 
Chapter 4 

Steps Managers Can Take to Foster Effective 

Accounting Systems in Their Agencies 

Managers will get good financial information 

only if their agency has designed and put an 

effective accounting system in motion. However, 

effective accounting systems do not just happen. 

They result when managers, accountants and 

auditors, and computer professionals work as a 

team to develop and operate systems that give 

managers the information they need to do their 

jobs and do them well. Managers have to take the 

initiative to build this team spirit. They must: 

-Recognize that accountants, auditors, and 

computer professionals are there to help 

them get the information needed to run the 

agency. 

-Make accounting and computer support 

staffs part of the management team. 

-Make sure that accounting systems are 

properly designed. 

-Make sure that accounting systems are 

working properly. 

In the same spirit, accountants, auditors, and 

computer specialists must respond positively to 

managers’ invitations and initiatives to make them 

part of the decisionrnaking process in the agency. 

Make Accounting and Computer Support 

Staffs Part of the Management Team 

Accounting and computer support staffs can be 

key members of the agency’s management team, 

but managers must take the initiative to make these 

staffs part of the team. To do this managers should: 

-Open up and maintain communications with 

their accounting and computer staffs. 

-Provide the controller and his or her staff the 

opportunity to participate in the agency‘s decisionmaking process. 

the accounting and related areas for 

themselves, accountants, auditors, and computer professionals. 

-Provide continuing education programs in 

-Welcome the use c 

ware systems to ob 

tion and analyses r 

decisions. 

Open up and Maintain Co 

with Accounting and Corn] 

Many managers do not 

acquaint themselves with 

computer systems-how 

how financial informatiot 

jobs. This inattention disc 

and computer staffs from 

information needs. Wher 

follows a chain reaction. 

claim that the accounting 

not give them the data tl 

ting staff frequently blan 

incorrect I y p r ocessi ng t h 

computer staff blames bc 

tants for not understandi 

tendency for placing bla 

constructive dialogue to 

and solutions. Both man 

staffs have to respond to 

open up lines of commL 

Managers and their acc 

support staffs must stay a 

perspectives when the at 

corn puter ized accou n tin1 

management team must 

build needed computer 1 

system to guarantee that 

added to, or improperly 

processing, Each group r 

Managers must ask: 

-What financial infc 

--In what format shc 

financial informati 

-What financial infi 

receive 7 

-Do I receive usele 

42 
-Welcome the use of new computer and software systems to obtain the financial information and analyses needed in making 

decisions. 

Open up and Maintain Communications 

with Accounting and Computer Staffs 

Many managers do not take enough time to 

acquaint themselves with their accounting and 

computer systems-how their systems operate and 

how financial information can help them do their 

jobs, This inattention discourages the accounting 

and computer staffs from trying to satisfy managers’ 

information needs. When problems arise the blame 

follows a chain reaction. The managers frequently 

claim that the accounting and computer staffs did 

not give them the data they needed, the accounting staff frequently blames the computer staff for 

incorrectly processing the information, and the 

computer staff blames both managers and accountants for not understanding the computer. The 

tendency for placing blame must be replaced with 

constructive dialogue to identify problems, causes, 

and solutions. Both managers and their support 

staffs have to respond to each others’ initiatives to 

open up lines of communication. 

Managers and their accounting and computer 

support staffs must stay attuned to one another’s 

perspectives when the agency is moving from one 

computerized accounting system to another. This 

management team must work hand in hand to 

build needed computer edits into the automated 

system to guarantee that information is not lost, 

added to, or improperly manipulated during 

processing. Each group must ask certain questions: 

-What financial information do I need? 

-In what format should I receive the needed 

-What financial information do I currently 

-Do I receive useless information? 

Managers must ask: 

financial information? 

receive? 

43 
-How shauld I use the financial information I 

currently receive? 

-How should I use the additional financial 

information I need? 

-How can the automated system be designed, 

developed, and implemented to deliver 

complete, accurate, and timely information 

in the proper format? 

Accountants must ask: 

-What financial information do managers 

-What format is required for that financial 

-How often is the information required? 

-How can this information be better integrated into the total decisionmaking 

process in my agency? 

manual tasks can be automated? 

need? 

information? 

-What traditional manual controls and other 

Computer professionals must ask: 

-How can automated data processing systems 

be designed to deliver more timely financial 

information and reports to the managers? 

-How can we improve the automated financial reporting systems to remain current, and 

even to anticipate future changes with the 

managers financial reporting needs. 

-How can we assure that the information 

received and processed generates valid data? 

-How can we help the managers determine 

the best report format and data fields to 

meet the manager’s analysis needs? 

-How can we automate the analysis of 

financial data so the manager’s decisionmaking task is expedited? 

Encourage Participation by the Controller I 

and His Staff in Decisionmaking 

The cost of Government grows each year. 

Consequently, managers must, more than ever, 

weigh the financial consequences of each decision 

made so goals can be achieved at the least 

practicable cost. This is \ 

help. In most agencies tl 

for accounting, financial 

auditing, and other spec 

and that person’s expert 

managers evaluate alterr 

under consideration. 

The controller should 

to be more than a finani 

should be encouraged a 

expected to participate i 

process. The controller, 

strive to meet managers 

not be passive, but shou 

anticipate managers’ infc 

them the data needed tc 

-Develop operatin) 

-Control and accoi 

-Make day-to-day 

-Optimize the use 

-Monitor the resul 

The controller can bette 

viewing financial inform 

perspective, (2) presenti: 

simpler than accounting 

and statistics into trends 

following up on suggest 

to management. 

Meetings with managc 

controllers to take the ir 

their expertise to the de 

Provide Continuing Edur 

Programs for Managers, 

Auditors, and Computer 

Advances in compute 

and financial analysis tel 

new opportunities to cr 

systems and financial in 

wisely use resources to 

advances are being dew 

Continuing education p 

44 
practicable cost, This is where the controller can 

help. In most agencies the controller is responsible 

for accounting, financial reporting, budgeting, 

auditing, and other specialized financial activities, 

and that person’s expertise can be used to help 

managers evaluate alternative courses of action 

under consideration. 

The controller should be given the opportunity 

to be more than a financial scorekeeper. He or she 

should be encouraged and in fact should be 

expected to participate in the decisionmaking 

process. The controller, on the other hand, should 

strive to meet managers halfway. He or she should 

not be passive, but should take initiatives to 

anticipate managers’ information needs and give 

them the data needed to 

-Develop operating plans and budgets. 

-Control and account for resources. 

-Make day-to-day operational decisions. 

-Optimize the use of resources. 

-Monitor the results of operations. 

The controller can better serve managers by (1) 

viewing financial information from management’s 

perspective, (2) presenting information in language 

simpler than accounting jargon, (3) translating facts 

and statistics into trends and relationships, and (4) 

following up on suggestions made by the controller 

to management. 

controllers to take the initiative and contribute 

their expertise to the decisionmaking process. 

Meetings with managers are opportunities for 

Provide Continuing Education 

Programs for Managers, Accountants, 

Auditors, and Computer Professionals 

Advances in computer technology, accounting, 

and financial analysis techniques have opened up 

new opportunities to creatively use accounting 

systems and financial information to control and 

wisely use resources to achieve goals. These 

advances are being developed at a very rapid pace. 

Continuing education programs are a must for 

45 

i 

i 

I 

I 

! 

I 

E 

i 

j 
managers, accountants, auditors, and computer 

professionals to keep them current on advances in 

their disciplines and to enable them to apply new 

techniques to their day-to-day work. 

Managers and their accounting and computer 

support staffs need to continually update their 

particular skills. For example: 

-Managers must learn how to use financial 

statements and special reports to evaluate 

the financial results of past decisions and 

predict the financial consequences of 

decisions they are making today. 

-Accountants and auditors must learn how 

computer and software systems can be uied 

to quickly accumulate, record, manipulate, 

and report financial information, so they can 

better give managers the financial summaries 

and analyses they need to make operating 

decisions. 

current on the state-of-the-art in the computer sciences and (2) learn accounting and 

managerial techniques, so they can design, 

implement, and operate accounting systems 

that give managers the financial information 

they need when they need it. 

Use Computer and Software Systems 

to Produce the Financial Information 

and Analyses Needed in Making Decisions 

Computers-with their ability to rapidly accept, 

store, manipulate, summarize and print data-can 

provide more meaningful information for use in 

making decisions. Special features can be added to 

a computerized accounting system to make the 

best use of information in the accounting records. 

These special features include data retrieval and 

analysis systems, accounting models, and decisionmaking systems. 

terminals, give managers almost instantaneous access to the latest accounting 

information. 

-Computer professionals need to (1) keep 

-Retrieval and analysis, via cathode ray tube 

-Accounting modi 

future financial ii 

considered. 

-Decisionmaking I 

select the best c< 

of alternative act 

puter optirniratic 

mine the types c 

the medically in( 

largest number ( 

medical facilities 

Managers must part' 

accounting systems to 

reports and analyses tl 

useful. To assure that 

designed to meet thei 

support the project te 

improving current sys 

setting data base and 

or enhanced systems. 

Managers Must Suppoi 

Team Designing New S 

Effective accounting 

puterized ones-will t 

managers fully suppor 

design of new system! 

existing systems. 

Agency accounting 

produced are costly a 

A lot of time and mol 

develop, and irnplemc 

Managers must deper 

for much of the infor 

conserve, and protecl 

to decide how best tC 

achieve goals. 

46 
-Accounting models can help estimate the 

future financial impact of decisions being 

conside red. 

-Decisionmaking systems can help managers 

select the best course of action from a series 

of alternative actions. For example, a computer optimization model could help determine the types of medical help programs for 

the medically indigent that would serve the 

largest number of people based on available 

medical facilities, costs of care, and budget. 

Make Sure Accounting Systems 

Are Properly Designed 

Managers must participate in the design of new 

accounting systems to make sure that the financial 

reports and analyses they receive are complete and 

useful. To assure that accounting systems are 

designed to meet their needs, managers should (7) 

support the projert team designing new or 

improving current systems, and (2) participate in 

setting data base and report requirements for new 

or enhanced systems. 

Managers Must Support the Project 

Team Designing New Systems 

Effective accounting systems-especially computerized ones-will be developed only if 

managers fully support and become involved in the 

design of new systems and major modifications of 

existing systems. 

Agency accounting systems and the information 

produced are costly and valuable agency resources. 

A lot of time and money will be spent to design, 

develop, and implement a new accounting system. 

Managers must depend on their accounting system 

for much of the information they need to control, 

conserve, and protect agency resources as well as 

to decide how best to use these resources to 

achieve goals. 

47 
Managers Must Participate in Setting 

Information Requirements for New Systems 

Managers must actively support and be involved 

in the design of new systems or the modification of 

existing systems from the start to help assure that 

the system, when implemented, will give them the 

information they need when they need it. 

Managers must participate in setting information 

requirements for new systems to help assure that 

their information needs are met. In short, managers 

should require that new accounting systems be 

designed, built, and run to produce reports that 

show accurately and completely, in financial and 

corresponding quantitative terms: 

-Planned work and projected costs and 

o bl igations. 

-Work done and costs and obligations incurred. 

-Significant deviations between planned and 

actual work accomplishments and costs and 

obligations. 

-Current status of appropriated funds. 

-Value of agency assets, liabilities, and Cov- 

-Expected revenues and revenues received. 

ernment equity. 

Points to Keep in Mind 

In moving a system from concept to reality, 

managers should keep the following points in 

mind. 

1. Early and continuous involvement of an 

agency’s top management is important. 

Their positive commitment to a system 

development effort will set the tone for 

accelerating the project. Top management 

must participate in selecting the project 

coordinator, committing resources, and 

making contract decisions. Top management should arrange for periodic reviews 

and briefings to keep abreast of the projects, evaluate problems and progress, and 

make key decisions. 

2. The project lea( 

the most impor 

development ai 

individual shou 

have the full su 

and be fully att 

tion needs and 

3. An important s 

is to precisely c 

Not only must 

defined, but to 

officials must ai 

defined and thi 

needed. 

4. During each pr 

natives and cor 

and decisions a 

Adequate reco 

and circulated 

munication an( 

5. Communicatio 

ect team and a 

be open so tha 

free to bring d 

problems to th 

Managers mu5 

project team a 

6. The systems pr 

the views and 

users inside thl 

organizations i 

agency who cc 

an impact on t 

outside the agl 

Office of Man 

General Servic 

gress, and GA4 

did not consid 

outside the ag 

development I 

The system wa 

use computer 

48 
2. The project leader or coordinator is one of 

the most important individuals in system 

development and implementation. This 

individual should be selected early and 

have the full support of top management 

and be fully attuned to managers’ information needs and desires. 

3. An important step in developing a system 

is to precisely determine its requirements. 

Not only must problems be identified and 

defined, but top-level and other key 

officials must agree on the problems 

defined and the scope of the system 

needed. 

4. During each project phase, various alternatives and constraints will be considered 

and decisions and commitments made. 

Adequate records of these should be kept 

and circulated to assure effective communication and coordination. 

5. Communication between the system project team and agency top managers must 

be open so that the project team will feel 

free to bring design and implementation 

problems to the attention of managers. 

Managers must be willing to listen to the 

project team and help to solve problems. 

6. The systems project team must consider 

the views and information needs of all 

users inside the agency as well as 

organizations and individuals outside the 

agency who could have an interest in and 

an impact on the system. Interested parties 

outside the agency could include the 

Office of Management and Budget, 

General Services Administration, the Congress, and GAO, One agency, for example, 

did not consider all interested parties 

outside the agency during the design and 

development phase of the system project. 

The system was conceived and designed to 

use computer terminals in all of the 

49 
agency’s 1,780 field offices. General Services, the Office of Management and 

Budget, and a congressional committee 

objected to the use of so many computer 

terminals for a variety of reasons, and the 

agency had to modify the new system after 

much of the design work had been 

completed. 

7. The project team must guard against overselling the system to affected organizational units and individuals inside and outside the agency. In short, the project team 

should promise only what it can deliver 

and deliver what it promises, 

8. Top managers must also realize, however, 

that before analysts can start to build the 

detailed system specifications, they have to 

know the computer hardware that the 

system will run on and that programming 

will be delayed pending hardware selection. For example, one agency’s project 

team estimated that it would take 10 

months from the time the computer 

equipment contract was awarded until the 

system could be programmed and made 

ready for field test. 

9. Top managers must understand that the 

Federal procurement process for buying 

computer equipment and related software 

is a long, complex, and time-consuming 

process and that the procurement Ieadtimes must be factored into any schedule 

for system implementation. 

point so that programmers can build the 

needed computer programs. Programmers 

cannot program against a system design 

that is constantly changing. Yet, design 

changes mandated by changing business 

conditions must be considered. One 

agency solved the problem by accepting 

suggestions for design changes from users 

and other interested parties after the 

IO. System design must be frozen at some 

system design H 

were evaluated 

priority and inc 

while final syste 

11. Organizations 2 

outside the age 

interest in and 

system should I 

system test and 

interested parti 

of the test and 

assure that the! 

the test results. 

12. The system can 

people. It musl 

derstandable, a 

Most of these points ar 

elaborated upon in our 

The best designed ac 

if it exists only on pape 

with the continuing chi 

managers’ information 

and business practices. 

that systems are well dl 

designed, and continut 

needs during the life o 

managers should: 

--Require internal 

design and all pl 

--Measure periodi 

usefulness of acr 

Managers Should Requi 

Evaluate the Design and 

System Operations 

Managers should ret 

to (1) participate in thf 

(2) review on a regular 

operations. This will hi 

I 

I 

! 

i 

i 

1 

I 

I 

I 

x 

50 
system design was frozen. The changes 

were evaluated and put in an order of 

priority and included in the system design 

while final system field tests were run. 

11. Organizations and individuals, inside and 

outside the agency, who could have an 

interest in and an impact on the new 

system should participate in designing the 

system test and evaluation plan. Having all 

interested parties participate in the design 

of the test and evaluation plan will help 

assure that they will be willing to live with 

the test results, 

12. The system cannot be all things to all 

people. It must be kept as simple, understandable, and useful as possible. 

Most of these points and other guidance are 

elaborated upon in our previous booklet.’ 

Make Sure Accounting Systems 

Are Working Properly 

The best designed accounting system is worthless 

if it exists only on paper and does not keep pace 

with the continuing changes in programs, 

managers’ information needs, and general financial 

and business practices. Managers must make sure 

that systems are well designed, put into place as 

designed, and continue to meet their information 

needs during the life of the system. To do this job 

managers should: 

-Require internal auditors to evaluate the 

-Measure periodically the quality and 

design and all phases of system operations. 

usefulness of accounting system outputs. 

Managers Should Require Internal Auditors to 

Evaluate the Design and All Phases of Accounting 

System Operations 

Managers should require their internal auditors 

to (1) participate in the design of new systems and 

(2) review on a regular basis accounting system 

operations. This will help assure that 

51 

’ “leshons Learned Abou! Acquiring Financial Management and 

Other lniorrnatron Systerni,” dug. 

1976 For ,ale by the Superrnrerrdent of Documents, L, S Governrn en 1 Print ing Offire, bVa5 h i n g t o n . D c 20402, Stock KO 

020-000-007 38-1 
I 

I 

-Needed controls and audlt trails are inciudt.r: 

-Design weaknesses are identified and cor- 

--Internal controls are implemented as design- 

-Accounting procedures are followed. 

-Transactions are recorded promptly, comin the system designs. 

rected. 

ed and remain effective. 

pletely, and accurately. 

Managers must go further. They must see that JI! 

system weaknesses found by their auditors are 

corrected as rapidly as possible. if managers do nor 

correct system deficiencies disclosed by auditors, 

they may be making operational decisions based on 

incorrect information. This, in turn, will most likelb 

lead to loss of control over resources and excessive 

use of resources to achieve goals. 

Managers Must Look at the Effectiveness of 

Accounting Systems and the Quality of Information 

Produced 

Periodically, managers must take a hard look at 

how well their systems are perforriring. Even the 

best accounting system can lose its effectiveness 

over time if the system is not evaluated and 

updated on a regular basis. A good accounting 

system is dynamic; that is, it keeps pace with 

changes in (1) programs, (2) general business 

practices, (3) managers’ information needs, and (4) 

accounting and recording-computer hardware 

and software-techniques. Managers must insist 

that their accounting system keep pace with the 

evolution in the agency’s programs and operating 

procedures. 

The system evaluations should help managers 

answer such questions as 

7. Do we know our current obligations, 

expenditures, and unobligated balances for 

our appropriations and/or allotments? 

(Case Study 1) 

2. Are we warned h 

incurred and exp 

poses other than 

Congress? (Case 

3. Are the financial 

our accounting s’ 

plete for inclusio 

consolidated stat 

4. Are cash receipts 

routinely reconci 

by the Treasury? 

5. Are property rep 

do they show all 

are, where they ; 

and whether the 

(Case Study 5) 

6. Do we have con: 

receivable and IY 

collect accounts 

Study 6) 

7. Are accounts pa! 

produced that st 

when bills shoull 

8. Are we consider 

elements of cost 

of accomplishing 

(Case Studies 7 i 

9. Can we compare 

ed costs and ob1 

done and costs i 

(Case Studies 7 i 

IO. Can we measure 

vices/goods pro 

producing them 

assign people to 

11. Do we know tht 

services/goods s 

customers an ec 

8) 

12. Do we get the f 

help us decide I 

ment decisions 

(Case Studies 10 

52 
2. Are we warned before obligations are 

incurred and expenditures made for purposes other than those authorized by the 

Congress? (Case Study 2) 

3. Are the financial statements prepared by 

our accounting system accurate and complete for inclusion in the Treasury’s 

consolidated statements? (Case Study 3) 

4. Are cash receipts deposited quickly and 

routinely reconciled with deposits certified 

by the Treasury? (Case Study 4) 

5. Are property reports used and useful and 

do they show all items onhand, what they 

are, where they are, how much they cost, 

and whether they are being fully utilized? 

(Case Study 5) 

6. Do we have control over our accounts 

receivable and make adequate efforts to 

collect accounts that are overdue? (Case 

Study 6) 

7. Are accounts payable reports routinely 

produced that show what we owe and 

when bills should be paid? 

elements of cost in computing the expense 

of accomplishing a specific unit of work? 

(Case Studies 7 and 9) 

9. Can we compare work goals and projected costs and obligations with actual work 

done and costs and obligations incurred? 

(Case Studies 7 and 9) 

10. Can we measure the dollar value of services/goods produced with the cost of 

producing them so we can effectively 

assign people to tasks? (Case Study 11) 

11. Do we know the full cost of producing our 

services/goods so we can charge our 

customers an equitable price? (Case Study 

8) 12. Do we get the financial information to 

help us decide whether program management decisions we have made are sound? 

(Case Studies 10 and 12) 

8. Are we considering all appropriate 

53 

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p 

F 

I 

x 

i 

E 

j 

i 

i 

I 

I 

! 

1 
Your Accounting System Can Do 

A Lot for You 

In this booklet we hope we have achieved oui 

objective of convincing managers at all levels that 

an effective accounting system tan help them: 

--Plan and control agency operations. 

--Decide on the best ways to use resources to 

-Keep within appropriations and other legal 

-Safeguard resources. 

-€valuate accomplishments. 

achieve goals. 

requirements. 

Remember, however, it’s up to the manager to 

make sure that accounting systems are developed 

and operated effectively. 

8 

I