Intragovernmental Revolving Funds: Commerce Departmental and Census Working Capital Funds Should Better Reflect Key Operating Principles
Published: 2011-11-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Agencies can improve their efficiency through the use of shared services, which are often financed through intragovernmental revolving funds (IRF). GAO was asked to (1) identify key operating principles the Commerce Departmental and Census Bureau Working Capital Funds (WCF), which are one type of IRF, should follow to ensure appropriate tracking and use of federal funds and (2) evaluate how departmental and Census policies and procedures for managing these WCFs reflect these principles. GAO identified four key operating principles based on a review of governmentwide guidance on business principles, internal controls, managerial cost accounting, and performance management. GAO also discussed the reasonableness of the principles with staff of the two WCFs and the Office of Management and Budget; these staff generally found the principles to be reasonable. GAO reviewed WCF authorizing legislation and statutory authorities, analyzed agency policies and data, and interviewed agency officials.
section_title: What GAO Found
paragraphs: Four key operating principles offer a framework for effective WCF management: (1) Clearly delineate roles and responsibilities; (2) Ensure self-sufficiency by recovering the agency's actual costs; (3) Measure performance; (4) Build in flexibility to obtain customer input and meet customer needs Commerce and Census guidance do not identify the roles and responsibilities of all key WCF personnel. While all involved had a clear informal understanding of who is responsible for managing the Departmental WCF, Commerce's guidance does not discuss its CFO Council--an entity with an important role related to WCF increases and changes. Census lacks a process to coordinate and consolidate information managed by disparate divisions and ensure appropriate tracking of funds. There are also opportunities for the agencies to achieve greater management efficiencies by consolidating certain WCF services. Commerce has a transparent process to ensure recovery of actual costs. However, Census' process could be more transparent. The Commerce Departmental WCF's rate setting and review processes are clearly described, coordinated, and designed to recover actual annual costs. Entities such as the Commerce CFO Council and algorithm review group help to facilitate shared understanding among fund managers, customers, and service providers. Census has a fragmented and limited description of its processes and lacks a formal process to communicate with customers. Census customers GAO spoke with had a mixed understanding about how certain WCF costs are determined, limiting their ability to make appeals and suggest improvements. Both WCFs could benefit from performance measures that assess operational effectiveness. Commerce and Census have identified performance measures related to organizational strategic goals. However, neither has established WCF operational performance measures such as responsiveness to customer inquiries and billing error rates. Moreover, both WCFs support similar management and administrative services that could potentially be consolidated. Both WCFs obtain customer input and have flexibility to adjust to customer needs, but challenges exist. In general, customers GAO interviewed said they had regular and ongoing discussions with fund managers or service providers. At Commerce, its CFO Council and WCF managers periodically assess and shift resources to address changes in customer needs and prioritize requests for services. However, the statutory cap on one bureau's payments into the WCF limits the level of services that can be provided to all Commerce bureaus. To provide services beyond the capacity of the WCF, Commerce enters into a memorandum of understanding with specific customers. The Census WCF's ability to build and maintain an operating reserve helps to provide price stability for customers throughout the decennial census cycle when the costs of management and administrative services supported through the WCF fluctuate dramatically. Similar to Commerce, Census has the flexibility to provide additional services by billing customers directly.
section_title: What GAO Recommends
paragraphs: GAO is making seven recommendations to improve the management of the two WCFs, including updating and consolidating WCF guidance, establishing a process to measure WCF performance, and examining opportunities to consolidate certain WCF services. The Commerce Secretary agreed with all of our findings and recommendations and has directed managers of both the departmental WCF and the Census WCF to begin implementing GAO's recommendations.

section_title: Letter
paragraphs: In an increasingly constrained budget environment, federal agencies are  asked to operate as efficiently as possible. One way federal agencies can  increase their efficiency is to share services, by consolidating services  used by multiple organizations within an agency or more than one agency  within a department. Consolidated services may be financed or supported  through an intragovernmental revolving fund (IRF). IRFs, such as working  capital funds (WCF), are primarily used to conduct business-like activities  within and between federal agencies.
This report is the second in response to the Committee’s request to  review IRFs and builds upon our work on the National Institute of  Standards and Technology’s (NIST) Working Capital Fund and its  interagency agreements.Department of Commerce (Commerce Departmental) and Census  Bureau (Census) WCFs—which collected approximately $143 million and  $912 million respectively in fiscal year 2010 to support a variety of  administrative and specialized activities. To analyze these funds, we (1)  identified key operating principles these WCFs should follow to ensure  the appropriate tracking and use of federal funds and (2) evaluated how  departmental and Census policies and procedures for managing these  WCFs reflect these principles.
In this report, we examined two WCFs—the  To identify key principles, we reviewed governmentwide guidance on  business operating principles, internal controls, managerial cost  accounting, and performance management. In addition, we met with the  agency staff responsible for managing the two WCFs, as well as staff  from the Office of Management and Budget (OMB) to obtain their views  on the use of these principles to assess WCFs. Commerce Departmental,  Census, and OMB staff generally found the principles to be reasonable.  Moreover, our prior work on user fees, franchise funds,management, and customer service also informed the development of  these principles. Finally, we considered agency guidance and  requirements.
To evaluate each fund’s management against these key principles, we  reviewed Commerce Departmental and Census WCF authorizing  legislation and statutory authorities, supporting guidance and  transactional data, and various budget documents and data from fiscal  years 2001 through 2010. In addition, we analyzed policies and  procedures for charging and monitoring WCF resources. We also met  with budget and finance officials responsible for managing each WCF, as  well as their major customers. We identified the funds’ largest customers  based on the amounts they paid into the respective WCFs in fiscal year  2009. We interviewed customer agencies’ program and budget officials to  obtain their perspective on services they received, billing and payment  methods, and communication with WCF managers.
During our review, we identified discrepancies between aggregate and  the corresponding disaggregate amounts of funds collected in the Census  WCF. A Census official explained that the aggregate amounts are  reported externally, but the disaggregate amounts had to be created upon  our request. We worked with Census to resolve the discrepancies in the  data and received multiple data revisions that included unexplained  adjustments. In the final analysis, we considered the data to be  sufficiently reliable for the purpose of providing background information  on the relative size of WCF activity. We examined the rate-setting  process for both WCFs; however, we did not independently verify whether  the process resulted in the equitable distribution of costs among  customers or in the recovery of actual costs.
We conducted our review from July 2010 through November 2011 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: IRFs generally do not receive appropriations directly. Instead, they are  accounts that may receive reimbursements and advances from other  federal accounts. In addition, they may accept fees collected from  nonfederal sources for the sale of government products or services. The  use of IRFs to fund consolidated or shared services allows agencies to  benefit from economies of scale or take advantage of specialized  expertise that they may not have. The market-like atmosphere promoted  by IRF-supported services is intended to create incentives for federal  customers and managers to exercise cost control and economic restraint.  IRF management affects the success of the programs they support.
Within the Department of Commerce (Commerce), there are six IRFsthat support either management and administrative services—such as  building security and human capital management—or specialized  services based on the unique nature of the agency’s mission. For  example, Census maintains a nationwide survey infrastructure and has  expertise and address lists that would be uneconomical for others to  replicate. Thus, it conducts surveys on behalf of other organizations (e.g.,  Department of Housing and Urban Development’s (HUD) American  Housing Survey and the Bureau of Labor Statistics’ (BLS) Consumer  Expenditure Survey).
The Commerce Departmental and the Census WCFs were established to  support services and projects that are performed more advantageously  when centralized, such as information technology services and  acquisition management. The statutory authority requires both funds to  charge rates that recover agencies’ actual costs of operations. Customers  of both WCFs either pay in advance or reimburse the fund depending on  the terms of the agreement.
Three entities play important roles in the management of the Commerce  Departmental WCF. First, the Commerce Office of Executive Budgeting  (OEB) is responsible for overall management of the Commerce  Departmental WCF. Second, the algorithm review group, which includes  representatives from the fund’s customer bureaus and OEB, convenes  every other year to review rate-setting formulas. At this meeting, service  providers present their billing methods and implement any changes to the  rate-setting formulas that are agreed upon within the group. Finally, the  Commerce Chief Financial Officer Council (Commerce CFO Council) is  comprised of the CFOs from each of Commerce’s bureaus, giving each  customer bureau a “seat at the table.” This Commerce CFO Council has  an important role related to WCF increases and changes to the  algorithms used to determine charges. It meets at least annually to review  and update service rates, but may meet more frequently as needs arise.
Management responsibility for the Census WCF is delegated across  various divisions of the bureau. For example, the Budget Division leads  the setting and reviewing of service rates each year as well as fund  reconciliation. The Finance Division records and tracks customer charges  and payments in the Commerce Business System (CBS), which is the  financial system used throughout the Department of Commerce. The  Acquisition Division reviews, approves, and tracks the status of  interagency agreements with Census’ external customers. The program  offices—also referred to as the sponsoring divisions—are responsible for  the day-to-day management of the agreements and build relationships  with the customer agencies.
subsections: section_title: Both WCFs Support Management and Administrative Services, but the Census WCF Also Supports Mission Activities
paragraphs: Both the Commerce Departmental and Census WCFs primarily support  centralized management and administrative services (M&A) for their  respective bureaus and programs. For example, almost all of the  Commerce Departmental WCF collections support centralized M&A  services for its 13 bureaus. In contrast, about half of the Census WCF  collections support M&A services for its internal divisions; most of the  remaining collections support survey-related services Census performs  for other federal agencies and a small share is provided to nonfederal  entities. This range of activities complicates management of the fund.  Accordingly, Census maintains separate fund components to account for  these different activities.
Figure 1 illustrates the flow of funds from customers into the Commerce  Departmental WCF for the provision of M&A services. The majority of  activity is attributed to services provided by four offices—General  Counsel, Human Resources Management, Security, and Administrative  Services. Customers of the Commerce Departmental WCF are billed  directly for services provided.
A combination of mostly federal customers, including internal Census  divisions/offices, pay into each of the various components of the Census  WCF: Reimbursable, Cost Collection, and Cost Allocation. As shown in  figure 2, the Reimbursable component supports services purchased by a  single federal agency or nonfederal entity, such as the American Housing  Survey for HUD, or services for New York City and Duke University. The  Cost Collection component supports services where multiple federal  agencies or customers share the costs and benefits of a single project,  such as the Current Population Survey.indirect costs for customers are distributed among separate components  of the Census WCF: direct costs are distributed to the Reimbursable and  Cost Collection components whereas indirect costs are distributed to the  Cost Allocation component.
section_title: Key Operating Principles Provide a Framework for Effective WCF Management
paragraphs: We identified four key operating principles that offer a framework to  effectively manage WCFs. As previously discussed, to identify key  principles, we reviewed governmentwide guidance on business operating  principles, internal controls, managerial cost accounting, and performance  management. In addition, we met with staff from the two WCFs and OMB  to obtain their views on the use of these principles to assess WCFs.  Commerce Departmental, Census, and OMB staff generally found the  principles to be reasonable. Moreover, we considered our past work. The  significance of these four principles is described below.  1.  Clearly Delineate Roles and Responsibilities: Appropriate delineation  of roles and responsibilities promotes a clear understanding of who  will be held accountable for specific tasks or duties such as  authorizing and reviewing transactions, implementing controls over  WCF management, and helping ensure that related responsibilities  are coordinated. In addition, this reduces the risk of mismanaged  funds and tasks or functions “falling through the cracks.” Moreover, it  helps customers know who to contact in the event they have  questions. 2.  Ensure Self-Sufficiency by Recovering the Agency’s Actual Costs:  Transparent and equitable pricing methodologies allow agencies to  ensure that rates charged recover agencies’ actual costs and reflect  customers’ service usage. If customers understand how rates are  determined or changed including the assumptions used, customers  can better anticipate potential changes to those assumptions, identify  their effect on costs, and incorporate that information into budget  plans. A management review process can help to ensure the  methodology is applied consistently over time and provides a forum to  inform customers of decisions and discuss as needed. 3.  Measure Performance: Performance goals and measures are  important management tools applicable to all levels of an agency,  including the program, project, or activity level. Performance  measures and goals could include targets that assess fund managers’  responsiveness to customer inquiries, the consistency in the  application of the funds’ rate-setting methodology, the reliability of  cost information, and the billing error rates. Performance measures  that are aligned with strategic goals can be used to evaluate whether,  and if so how, WCF activities are contributing to the achievement of  agency goals. A management review process comparing expected to  actual performance allows agencies to review progress towards goals  and potentially identify ways to improve performance. 4.  Build in Flexibility to Obtain Customer Input and Meet Customer  Needs: Opportunities for customers to provide input about WCF  services, or voice concerns about needs, in a timely manner enable  agencies to regularly assess whether customer needs are being met  or have changed. This also enables agencies to prioritize customer  demands and use resources most effectively, enabling them to adjust WCF capacity up or down as business rises or falls.
By incorporating these principles in written guidance, agencies promote  consistent application of management processes and provide a baseline  for agency officials to assess and improve management processes.  Moreover, agencies can use the guidance as a training tool for new staff  and as an information tool for customers, program managers,  stakeholders, and reviewers.
Figure 3 summarizes the four principles and their underlying components.
section_title: Principle 1: Clearly Delineate Roles and Responsibilities
subsections: section_title: Agencies’ Guidance Does Not Identify Roles and Responsibilities of All Key Personnel
paragraphs: The responsibility for managing and overseeing aspects of the Commerce  Departmental and Census WCFs is segregated across a number of  offices and entities, thus minimizing the risk of error in fund management.  However, neither agency’s WCF guidance includes complete information  on the roles and responsibilities of all key personnel.
The Commerce Department’s Office of Executive Budgeting has created  a working environment that promotes communication, according to  customers and service providers. This has resulted in a clear  understanding among Commerce Departmental WCF managers, service  providers, and customers about the roles and responsibilities of key  personnel who manage the Commerce Departmental WCF. Customers  and service providers we interviewed said that OEB is where they go to  get answers or raise concerns. In addition, customers and service  providers said they communicate directly with each other or through OEB  about services they receive and rates charged. Service providers  expressed appreciation for OEB’s role in facilitating and coordinating  regular communication between the service providers and customers. For  example:  two of the four service providers said they interact with OEB on a daily  basis, and all four service providers said that communication occurs on at least a  monthly or quarterly basis through meetings or status reports.
However, while the Commerce Departmental WCF handbook includes  the roles and responsibilities of many key personnel and review groups  involved with fund management, it leaves out information on the cross- departmental role of the Commerce CFO Council, which is comprised of  the CFOs from each of Commerce’s bureaus and has an important role  regarding increases or changes to the WCF. The absence of this entity  from the handbook results in an incomplete reflection of the process and  a missed opportunity to promote understanding by new staff and  customers.
In contrast to the centralized management of the Commerce  Departmental WCF, management responsibilities for the Census WCF  are delegated across several divisions including the Census Budget,  Finance, and Acquisition Divisions. Although decentralization provides  segregation of duties, Census does not have a formal process to  coordinate and consolidate information managed by these disparate  divisions to provide a corporate view of the WCF. In addition, information  about the roles and responsibilities of Census management is incomplete,  spread across three documents, and contains varying levels of detail and  clarity. For example, the Census WCF Manual lists key personnel  responsible for management of the WCF but does not describe their  duties and responsibilities or provide specific contact information. This  limits the usefulness of the guidance for bureau staff, customers, and  other stakeholders. For example, one of the Census WCF’s larger  customers we interviewed was unsure who to speak with about questions  relating to service needs (e.g., the level of service to expect and the wait  times before receiving services) and suggested that the Census WCF  develop guidelines about service needs and expectations.
section_title: Commerce Business System Does Not Facilitate Appropriate Tracking and Use of Funds
paragraphs: The Commerce Business System (CBS), which is the financial system  used throughout most of Commerce, does not provide a mechanism to  record the period of availability of appropriations advanced from  customer agencies. The Commerce Department advised us that both  WCFs accept advances or reimbursements. When customers pay in  advance, those advances have not yet been “earned” in performance of  an agreed-upon service and still retain the period of availability from the  original appropriation. If the providing agency were to obligate against  advanced funds after the appropriation account closes, the customer  agency would be required to transfer currently available funds to the  WCF. If the customer does not have such funds available, they could be  exposed to possible Anti-Deficiency Act violations. Thus, to  appropriately manage the use of funds, agencies need a way to track  whether funds remain available for purposes of the interagency  agreement when it bills against the advance.
Similar to what we found in our prior work at NIST, Census tracks  customer funds by the period of performance, which may not always  coincide with the availability of the funds. Although customer agencies  bear ultimate responsibility for proper use of their funds, we have  previously reported that the performing agency shares responsibility with  its customer agencies to ensure the proper use of federal funds when  entering into interagency agreements. Census officials can verify the  availability of advanced funds through the Treasury Account Symbol  (TAS); however, TAS is not electronically captured in CBS. Unless CBS  is updated to include a mechanism for tracking the availability of funds,  the performing agency cannot ensure that funds are legally available  when it bills against the advances. This is an indication of a potential  internal control weakness over resources and, as mentioned above,  creates a risk that customer agencies may incur an Anti-Deficiency Act  violation.
section_title: Principle 2: Ensure Self-sufficiency by Recovering the Agency’s Actual Costs
subsections: section_title: Commerce Has a Transparent Process for Ensuring Recovery of Actual Costs
paragraphs: According to service providers and customers, the rate-setting processes  for the Commerce Departmental WCF are transparent, clearly  coordinated, and designed to recover annual actual costs. For example,  the meetings of the Commerce CFO Council—which is comprised of  CFOs from each of the Commerce Department’s bureaus—provide a  regular source of information on the status of funding recommendations  to Commerce’s CFO. In addition, the algorithm review group and OEB  review rates charged at least annually to determine how much each  customer bureau will pay into the Commerce Departmental WCF. These  rates are based on algorithms that include variables such as prior year  actual costs associated with customers’ service usage. For example,  when determining rates for building maintenance, one important variable  is the square footage of the customer office space. Similarly, when  determining rates for human resource management services, the number  of full-time equivalents is an important variable. This rate-setting process,  including the method for setting and distributing charges among users, is  clearly explained in the Commerce Departmental WCF handbook.  Moreover, Commerce customers said they understood how rates were  determined and were satisfied with the amount of input they had in the  process. Managers of the Commerce Departmental WCF said that their  goal each year is to set rates that cover annual WCF costs and maintain  at least the same level of services as the prior year. OEB officials said  that the WCF has a limited number of significant cost increases, so a  large carryover balance is not needed to sustain the fund.
section_title: Census’ Process to Recover Actual Costs Could Be More Transparent
paragraphs: The Census WCF is also designed to recover actual costs and bases its  M&A service rates on algorithms linked to expected service usage. In  contrast to the Commerce Departmental WCF, managers of the Census  WCF maintain an operating reserve to help keep rates stable throughout  the decennial census cycle. The Census WCF charges rates that are  higher than needed earlier in the decennial cycle to break even later in  the decennial cycle. Information about how rates are charged and costs  distributed is incomplete and dispersed across three documents. Census  customers we spoke with had mixed responses about how M&A costs are  determined. For example, five of the seven customers we spoke with said  Census informed them of the charges in general terms but did not  describe how the individual costs that make up the total M&A costs are  determined. However, the customers provided no detail about their efforts  to obtain such information from Census. Nonetheless, the lack of clarity in  how M&A costs are determined makes it difficult for customers to  challenge rates or suggest improvements. A recent Census task force  report on cost-saving opportunities related to survey work performed for  other federal agencies found that no one Census division had authority to  oversee and manage the allocation of resources or the timing of  delivering services to any one customer. This report recommended that  Census provide greater details on survey costs and establish a “single  point of authority” for communicating with customers.
section_title: Both Commerce and Census Have a Management Review Process, but Census’ Process Could Be Improved
paragraphs: Both Commerce and Census WCFs have a management review process  that examines how rates are set. However, the level of transparency  differs between the two organizations. For example, each month OEB  creates and updates a “status of funds” document that tracks available  funding in the Commerce Departmental WCF throughout the fiscal year.  Commerce officials said OEB uses this document to regularly monitor the  WCF and the document is shared with the Commerce CFO each month.  In addition, OEB reconciles actual obligations with estimates to identify  and investigate variances of 10 percent or more. The service providers  meet quarterly with OEB to review budget status and any changes in  customer service needs. This process is also documented in the  Commerce WCF handbook and helps ensure that rates recover the  agency’s actual costs.
In contrast, Census’ WCF reconciliation and review process lacks  transparency. Census provides a fragmented and limited description of  how it sets rates and there is no formal process to communicate with  customers. According to Census officials, the rates for the M&A services  are reviewed annually and the costs of the survey services are reconciled  when a project concludes. However, two of the three Census WCF  internal customers said they have limited discussions and input with  Census WCF managers about how rates were determined. Moreover, it is  unclear what information is provided, or when, to senior Census  management (e.g., Census’ CFO). Documentation provided by Census  officials did not show what assumptions were used to set rates, whether  they were applied consistently, and if actual costs are fully recovered.  Although the Census WCF is subject to periodic reviews conducted by  the Budget Division to compare revenues generated with the costs  captured, it does not include further details on how this is done or with  whom the information is shared. Census officials said the WCF is  discussed during quarterly budget review meetings with senior  management. However, the document that Census officials shared with  us, which is used to explain the components of the WCF balance,  includes amounts only related to the Cost Allocation component. Without  transparent processes for reviewing and updating the service rates,  Census misses the opportunity to assure customers and other  stakeholders that rates charged are set fairly and to receive suggestions  from stakeholders on potential improvements.
section_title: Principle 3: Measure Performance
subsections: section_title: Both WCFs Could Benefit from Performance Measures to Assess Operational Effectiveness
paragraphs: OEB has processes in place that help it manage the operations of the  Commerce Departmental WCF. For example:
A “status of funds” report is updated monthly and provided to  Commerce’s CFO. This report helps WCF managers track the  remaining balance of customers’ funds to pay for WCF services.
Variances of 10 percent or more in the Commerce Departmental  WCF’s estimated and actual obligations are investigated to obtain  justification. In addition, OEB meets quarterly with the director of each  office to review the current status of the organization’s budget.
Customers are surveyed annually about the quality of OEB’s  assistance and written guidance for the services OEB provides.  However, this survey asks broad questions that are not targeted to a  specific activity or level of performance. For example, the only  references to the Commerce Departmental WCF are general  questions about customer interactions with OEB staff and whether the  Commerce WCF handbook is useful.
While OEB finds these processes helpful in day-to-day management of  WCF activities—such as tracking available balances of customer funds— it does not define these processes as measures to assess WCF  performance. We believe that Commerce could use these processes as a  starting point to determine what specific measures would be helpful to  continuously improve WCF management.
As part of its strategic plan, Commerce outlined departmentwide strategic  goals and performance measures in its “balanced scorecard approach.”
The offices that provide services supported through the Commerce  Departmental and Census WCFs are assessed as part of this approach,  but currently this does not include measures to assess how the WCFs are  operating or if they could each function better as an entity.
Customers corroborated receiving surveys from other service providers, such as the  Acquisition and Finance Divisions, but were unable to provide copies of these surveys. participating divisions. Further, Census WCF managers could not provide  any examples of fund-specific performance measures.
section_title: Opportunities Exist for Management to Potentially Consolidate WCF Services
paragraphs: Although the Commerce Departmental and Census WCFs are intended to  achieve economies of scale by supporting services and projects that are  performed more advantageously when centralized, both WCFs support  similar M&A services that could potentially be supported by one WCF.  Officials at Commerce and Census were unable to clearly explain why  each WCF provides the same or similar services, or why these services  could not be consolidated. For example, both the Commerce  Departmental and Census WCFs support a range of space management,  travel, and training services for staff, as well as other personnel-related  activities. These are potential areas that could be consolidated. In  addition, by establishing WCF-specific performance measures, fund  managers could benchmark or compare fund performance, which would  be useful in identifying improvement opportunities and deciding whether  or not to consolidate services.
section_title: Principle 4: Build in Flexibility to Obtain Customer Input and Meet Customer Needs
subsections: section_title: Both WCFs Regularly Obtain Customer Input and Allow Some Flexibility to Adjust to Customer Needs, but Challenges Exist
paragraphs: In general, customers we interviewed said they had regular and ongoing  interactions with fund managers or service providers. Commerce  Departmental customers said they communicate regularly about the type  and amount of services received and rates charged. Census customer  concerns about overhead costs initiated the recent Census task force  report previously described. As a result of the report findings, Census  made several rate changes. Also in response to customer input, the  Census Bureau recently decided to close six field offices.
The Commerce CFO Council actively seeks WCF managers’ involvement  in setting customer priorities and addressing customer needs. The council  meets to discuss individual bureau requests and recommends final  allocations to Commerce’s CFO, including identifying any potential need  to shift funds across programs. When prioritizing customer demand,  Commerce Departmental WCF managers also have to incorporate the  statutory cap that limits the amount NOAA pays into the Commerce  Departmental WCF. Because fund managers strive to ensure self- sufficiency of the WCF and equitably distribute costs across customers,  this cap limits the amount other bureaus pay into the Commerce  Departmental WCF and thus the level of services that can be supported  for all customers. As a result, Commerce Departmental WCF managers in  the past have had to propose reductions to services to compensate for  the NOAA cap and still provide needed services. When the needs of  customers exceed the capacity of the Commerce Departmental WCF, the  department and the customer enter into a memorandum of understanding  (MOU), outside of the standard suite of services offered through the  WCF. However, this additional process somewhat works against the  efficiencies that WCFs are intended to provide as WCF managers must  rely on a separate mechanism to provide the same type, but a higher  level, of service to customers.
Although the Commerce Departmental WCF carries over some balances,  the NOAA cap’s effective limit on revenues hinders the ability to build a  reserve. During fiscal years 2001 through 2010, the Commerce  Departmental WCF carryover balance ranged from $3 million to $13  million. Census uses its operating reserve to maintain price stability for  customers throughout the decennial cycle. During fiscal years 2001  through 2010, the Census WCF carryover balance ranged from $21  million to $430 million as reported in the President’s budget. According to  Census officials, the operating reserve is a portion of the Census WCF  carryover balance. In fiscal year 2010, they estimated the amount of the  operating reserve ranged from $45 million to $75 million. However, they  did not provide documentation to support this range.
In certain cases, Census also provides separate services to customers  outside the WCF’s standard offerings. Census’ process to meet changes  in customer demand is designed to address the fluctuating costs of  providing services to internal customers during the decennial cycle while  equitably distributing costs among all internal customers. For example, in  the peak years of the decennial cycle, the decennial program requires  such an increased level of M&A services to support temporary staff that  not all of those costs can be supported by the WCF reserve without  undermining the goal of equitable cost distribution among customers.  Therefore, Census directly bills these additional costs to the decennial  program.
section_title: Conclusions
paragraphs: WCFs provide agencies with an opportunity to operate more efficiently by  consolidating services and creating incentives for customers and  managers to exercise cost control and economic restraint. Given the  fiscal pressures facing the federal government, consolidating operations  could potentially achieve cost savings and help agencies provide more  efficient and effective services. Agencies can maximize the potential of  these opportunities by following four key WCF operating principles.  Incorporating these principles in written guidance could promote  consistent application, provide a baseline for officials to assess and  improve management processes, and serve as an information tool for  customers, program managers, stakeholders, and reviewers.
Clear guidance on the roles and responsibilities of key personnel for  managing the WCF promotes understanding of who will be held  accountable, helps ensure that related responsibilities are coordinated,  and reduces the risk that funds will be mismanaged. While the roles and  responsibilities of the Commerce Departmental WCF’s management are  well understood by customers, the guidance does not include complete  information about all key participants. Because Census WCF guidance is  fragmented and incomplete, it lacks clarity and is of limited use for  employees and customers. Additionally, Census does not have a process  to facilitate coordination among key WCF personnel to ensure appropriate  tracking of funds.
To appropriately manage the use of funds advanced from customers for  projects spanning multiple fiscal years, performing agencies need a way  to track whether funds advanced remain available to bill against. Both  Commerce and Census use the Commerce Business System (CBS) to  manage funds, but the system does not track a key element to confirm  that funds advanced in support of an interagency agreement are available  to cover the costs of performance. Modifying CBS would help ensure that  customer funds are legally available and avoid potential Anti-Deficiency  Act violations for the customer agencies. A transparent rate-setting  process helps assure that customers are being charged accurately and  fairly for services supported through the WCF. Commerce clearly explains  its rate-setting process and customers feel they have sufficient input on  the process. Census’ rate-setting process is less transparent, which limits  the ability of fund managers to confirm that the WCF is self-sufficient and  makes it difficult for customers to make appeals.
WCF managers can better foster a results-oriented environment focused  on continuous improvement by establishing performance measures and  goals for WCF operations, ensuring those performance measures and  goals align with the agency’s strategic goals, and by establishing a  management review process to track WCF performance. The purpose of  the WCFs is to achieve economies of scale through shared services.  However, the lack of performance measures makes it difficult to know  whether these economies are being achieved. Moreover, WCF-specific  performance information and a corresponding management review  process could be used to hold fund managers accountable for achieving  the efficiencies that WCFs were designed to produce. Furthermore, the  two WCFs may provide services in overlapping areas, which warrants  further examination.
section_title: Recommendations for Executive Action
paragraphs: We make seven recommendations to the Secretary of Commerce.
To improve the management of the Commerce Departmental Working  Capital Fund, we recommend that the Secretary of Commerce take the  following actions:  1.  Update the Commerce Departmental WCF handbook to include a  description of the Commerce CFO Council and its roles and  responsibilities. 2.  To meet its responsibilities in ensuring the proper use of federal funds  and to help guard against the use of canceled appropriations, revise  its financial systems to electronically record and monitor the period of  availability of appropriations advanced to Commerce and its bureaus  from client agencies. 3.  Establish performance measures to assess performance of WCF  operations, such as billing error rates, and determine what additional  measures would be helpful to improve WCF management. 4.  Coordinate with the Census Bureau to examine the M&A services  provided through both WCFs to determine what services might be  consolidated.
To improve the management of the Census Bureau Working Capital  Fund, we recommend that the Secretary of Commerce require the Under  Secretary for Economic Affairs as well as the Census Director to take the  following actions:  5.  Develop guidance that clarifies and consolidates existing WCF  policies to include:  a.  roles and responsibilities of key personnel responsible for WCF        management, and  b.  a process to coordinate information managed by disparate        divisions to provide an overarching view of the WCF and ensure        the appropriate tracking of funds.  6.  Include a more detailed explanation in WCF guidance on the rate- setting process for all components of the fund, such as an explanation  of how rates are determined and costs distributed, and establish a  formal process similar to the Departmental WCF’s process to  communicate with customers. 7.  Establish performance measures to assess performance of WCF  operations and determine what would be helpful to improve WCF  management.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of the Department of  Commerce for official review and comment. In his letter that is reprinted in  appendix II, the Secretary agreed with our findings and recommendations  and has directed the managers of both the Commerce Departmental  WCF and the Census Bureau WCF to begin implementing our  recommendations. Commerce and Census provided technical comments  that were incorporated into the report as appropriate. We also provided  portions of the report to the customer agencies with which we met. None  of these customer agencies offered any technical comments.
We are sending copies of this report to the Secretary of Commerce, the  Under Secretary for Economic Affairs, and the Director of the Census  Bureau. We are also sending copies to the appropriate congressional  Committees. In addition, the report is available at no charge on GAO’s  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Denise M. Fantone at (202) 512-6806 or fantoned@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix III.
section_title: Appendix I: Expanded Version of WCF Key Operating Principles
subsections: section_title: WCF Key Operating Principles
paragraphs: Principle  Clearly delineate roles and responsibilities  Appropriate delineation of roles and  responsibilities promotes a clear  understanding of who will be held accountable  for specific tasks or duties, such as authorizing  and reviewing transactions, implementing  controls over WCF management, and helping  ensure that related responsibilities are  coordinated. In addition, this reduces the risk  of mismanaged funds and tasks or functions  “falling through the cracks.” Moreover, it helps  customers know who to contact in the event  they have questions.
Written roles and responsibilities specify how key  duties and responsibilities are divided across multiple  individuals/offices and are subject to a process of  checks and balances. This should include separating  responsibilities for authorizing transactions,  processing and recording them, and reviewing the  transactions.
Written description of all WCF roles and  responsibilities in an accessible format such as a fund  manual. Discussions with providers and clients  confirm a clear understanding.
A routine review process exists to ensure proper  execution of transactions and events.
Ensure self-sufficiency by recovering the  agency’s actual costs  Transparent and equitable pricing  methodologies allow agencies to ensure that  rates charged recover agencies’ actual costs  and reflect customers’ service usage. If  customers understand how rates are  determined or changed including the  assumptions used, customers can better  anticipate potential changes to those  assumptions, identify their effect on costs, and  incorporate that information into budget plans.  A management review process can help to  ensure the methodology is applied consistently  over time and provides a forum to inform  customers of decisions and discuss as  needed.
Published price sheets for services are readily  available. Documentation of pricing formulas supports  equitable distribution of costs.
Pricing methodology and accompanying process  ensures that, in aggregate, charges recover the  actual costs of operations.
Management review process allows fund managers  to receive and incorporate feedback from customers.  Discussions with customers confirm an understanding  of the charges and that they are viewed as  transparent and equitable.
Principle  Measure performance  Performance goals and measures are  important management tools applicable to all  operations of an agency, including the  program, project, or activity level. Performance  measures and goals could include targets that  assess fund managers’ responsiveness to  customer inquiries, the consistency in the  application of the funds’ rate-setting  methodology, the reliability of cost information,  and the billing error rates. Performance  measures that are aligned with strategic goals  can be used to evaluate whether, and if so  how, WCF activities are contributing to the  achievement of agency goals. A management  review process comparing expected to actual  performance allows agencies to review  progress towards goals and potentially identify  ways to improve performance.
Performance indicators and metrics for WCF  management (not just for the services provided) are  documented.
Indicators or metrics to measure outputs and  outcomes are aligned with strategic goals and WCF  priorities.
WCF managers regularly compare actual  performance with planned or expected results and  make improvements as appropriate. In addition,  performance results are periodically benchmarked  against standards or “best in class” in a specific  activity.
Build in flexibility to obtain customer input  and meet customer needs  Opportunities for customers to provide input  about WCF services, or voice concerns about  needs, in a timely manner enable agencies to  regularly assess whether customer needs are  being met or have changed. This also enables  agencies to prioritize customer demands and  use resources most effectively, enabling them  to adjust WCF capacity up or down as  business rises or falls.
Established forum, routine meetings, and/or surveys  solicit information on customer needs and satisfaction  with WCF performance.
Established communication channels regularly and  actively seek information on changes in customer  demand and assess the resources needed to  accommodate those changes.
Established management review process that allows  for trade-off decisions to prioritize and shift limited  resources needed to accommodate changes in  demand across the organization.
section_title: Appendix II: Comments from the Department of Commerce
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Carol M. Henn, Assistant Director  and Leah Q. Nash, Analyst-in-Charge managed this assignment. Anna  Chung, Elisabeth Crichton, Wati Kadzai, Margit Myers, and Amrita Sen  made major contributions to this report. Tom Beall, Robert Gebhart,  Felicia Lopez, and Jack Warner also made key contributions to this  report.