The sections below describe (1) NOAA’s organizational structure, (2) applicable standards for M&A services, and (3) the federal budget object classification system. NOAA is one of the largest bureaus within Commerce. As mentioned earlier, five line offices—NESDIS, NMFS, NOS, NWS, and OAR—are primarily responsible for executing the agency’s mission. Specifically: NESDIS provides access to global environmental data from satellites and NMFS manages, conserves, and protects living marine resources within the U.S. Exclusive Economic Zone; NOS provides science-based solutions to address issues concerning NWS provides weather, water, and climate forecasts and warnings; and OAR works with NOAA’s other line offices to provide a variety of research services in support of the agency’s mission. Each line office includes a headquarters office and several FMCs below the line office level. Line office headquarters units house NOAA’s assistant administrators and perform a variety of policymaking, budgeting, coordination, and oversight activities. FMCs below the line office level manage specific programs and projects within the purview of each line office and manage their own FMC activities. For example, 13 FMCs at OAR provide M&A services below the line office level, including the Office of Ocean Exploration and Research, which uses advanced undersea technologies to research and explore the oceans. Each of the five line offices receives funding from NOAA’s overall appropriation in two main budget accounts: Operations, Research and Facilities (ORF) and Procurement, Acquisition, and Construction (PAC). According to NOAA officials, in general, the ORF account funds salaries, benefits, utilities, and other programmatic services (such as legal services and IT). The PAC account does not fund program services, rather it funds capital assets and investments of $75 million or greater, such as the purchase of a new satellite. The ORF and PAC budget accounts each fund numerous programs, projects, or activities (PPA). For example, in fiscal year 2010, the ORF account funded 285 PPAs. Each FMC receives funding from one or more PPAs, and the FMC decides how it will fund its program and M&A services. For example, in fiscal year 2010, OAR’s National Sea Grant College Program received funding from three PPAs: (1) National Sea Grant College Program Base, (2) Aquatic Invasive Species Program, and (3) Marine Aquaculture Program. Figure 1 illustrates the four organizational levels discussed in this report—Commerce, NOAA’s headquarters, line offices, and FMCs—where M&A services are provided. The same broad types of M&A services, such as leadership and IT, are each provided at all four organizational levels, but the nature of these services varies depending on the needs of that level. Table 1 provides examples of how two types of M&A services—leadership and IT services—are generally provided at each organizational level. Federal cost accounting standards provide guidance to federal agencies on assigning the costs they incur to the programs they support, the activities within these programs, and the outputs of these activities. In practice, “assigning costs” for M&A services means that federal financial managers are to identify and document the costs of the M&A services that are provided to specific programs, activities, and outputs. For example, they should document what portion of the total costs for IT services is attributable to specific programs, activities, and outputs that benefit from the service. According to the standards, cost accounting helps improve financial management and managerial decision making by providing useful information to people inside and outside an agency on its budget and performance. The objectives of the federal cost accounting standards include: providing relevant and reliable information to program managers regarding the full costs of programs, their activities, and their outputs; providing relevant and reliable information to assist congressional and other decision makers in allocating federal resources, authorizing and modifying programs, and evaluating program performance; and ensuring consistency between costs reported in financial reports and costs reported to program managers. The standards do not impose a specific methodology on federal agencies to satisfy these objectives but allow them the flexibility to design their own cost accounting systems. However, the standards call for all cost accounting activities, processes, and procedures to be documented by a manual, handbook, or guidebook. The documentation should (1) outline the specific programs, activities, and outputs for which costs will be determined; (2) provide instructions for procedures and practices to be followed in assigning costs, including M&A costs, to those program, activities, and outputs; and (3) contain examples of forms and other documents to be used. In addition, standards for internal control in the federal government call for federal agencies to document their policies and procedures, which help managers exercise control over agency activities, including activities undertaken to manage and administer programs. Policies and procedures include the methods federal agencies use to assign their M&A costs. The internal control standards also state that the documentation should be complete and periodically updated to reflect any changes to the policies and procedures. To adhere to both internal control and federal cost accounting standards, as they relate to M&A services, federal agencies need to document their policies and procedures. Specifically, to meet internal control standards, agencies need to document: their policies regarding the types of M&A services they provide, and the procedures they use each year to determine the budget for their M&A services. Furthermore, to meet both internal control and federal cost accounting standards, agencies also need to document: the policies and procedures they use for assigning the costs of their M&A services to specific programs, activities, or outputs that benefit from the services and the results of the cost assignments, and the justification for why those assignments are appropriate. The federal budget object classification (object class) system is one of several ways to array financial data, such as salaries and expenses, in budgetary presentations. Federal agencies are required to report object class information in their budgets and track the goods, services, or items agencies purchase. There are five major object classes; by number, they are as follows: (10) personal compensation and benefits; (20) contractual services and supplies; (30) acquisition of assets; (40) grants and fixed charges; and (90) other. These major classes are divided into smaller classes. For example, object classes 11, 12, and 13 all fall under major object class 10 and include (11) personnel compensation, (12) personnel benefits, and (13) benefits for former personnel. Commerce, NOAA’s headquarters, line offices, and FMCs use a variety of mechanisms to fund M&A services. These mechanisms include NOAA payments, appropriations identified for specific functions, direct billings, assessments, and receipts from reimbursable agreements. According to our analysis of Commerce documents and interviews with departmental officials, Commerce charges NOAA for certain M&A services it provides, which NOAA pays for through reimbursements to the department’s Working Capital Fund and its Advances and Reimbursements account. The Working Capital Fund finances services that the Secretary of Commerce determines can be performed more advantageously or efficiently as central services, rather than separately by each of Commerce’s bureaus. In addition, according to Commerce officials, Commerce uses the Advances and Reimbursements account for two things: (1) pass-through payments to external organizations for services provided to the department as a whole, and (2) payments for short-term projects that benefit Commerce’s bureaus. The services funded through both the Working Capital Fund and the Advances and Reimbursements account include services such as mail management, library services, and legal counsel. The services funded through the Advances and Reimbursements account include services provided by the National Finance Center to support processing NOAA’s payroll and services provided by Commerce’s Office of Budget to prepare and finalize the department’s Performance and Accountability Reports as required by the Government Performance and Results Act. The following 12 offices within Commerce provide M&A services through these mechanisms: (1) Acquisition Management, (2) Administrative Services, (3) Budget, (4) the Chief Information Officer, (5) Chief of Staff, (6) Civil Rights, (7) Financial Management, (8) the General Counsel, (9) Human Resources Management, (10) Management and Organization, (11) Public Affairs, and (12) Security. NOAA, like other bureaus in Commerce receiving services paid for through these mechanisms, pays the Working Capital Fund and the Advances and Reimbursements account from its own funding for services received. Commerce’s documents show that its billings to NOAA for the Working Capital Fund were about $34 million in fiscal year 2007, about $34.5 million in fiscal year 2008, and about $36 million in fiscal year 2009. Commerce’s billings to NOAA for the Advances and Reimbursements account ranged from about $5.6 million in fiscal year 2007 to about $8.9 million in fiscal year 2009. In fiscal year 2009, according to NOAA documents, NOAA paid for 39 projects through the Working Capital Fund, ranging in cost from $6,800 to help pay for the upkeep of facilities shared by several Commerce bureaus, to about $5.2 million to pay for NOAA’s share of costs for the Commerce Business System, which is the department’s financial management system. In that same year, Commerce documents show, Commerce billed NOAA for 31 projects through the Advances and Reimbursements account, ranging in cost from about $5,200 to pay for Commerce’s grant management support for funding provided through the American Recovery and Reinvestment Act of 2009 to about $1.8 million for rent to the U.S. General Services Administration.