Payment Processing
Documentation Procedures For Electronic Billing and Payment Under the Families First Personal Property Program Gao ID: GAO-05-402R March 31, 2005This letter responds to a Department of the Army request for our views on whether certain payment procedures included in the Defense Department's (DOD) proposed Families First Personal Property Program conform with relevant criteria in GAO's Policy and Procedures Manual for Guidance of Federal Agencies. Families First is a DOD initiative to reengineer its processes for transporting household goods and personal property for its service members and civilians. Army's request is in response to a Defense Finance and Accounting Service (DFAS) recommendation that DOD seek our views specifically on whether the proposed procedures for electronic billing and payment meet the supporting documentation requirements in Title VII of GAO's Policy and Procedures Manual for Guidance of Federal Agencies. While the General Services Administration (GSA) is responsible for issuing federal regulations for transportation, including moves of household goods and personal property as well as agency prepayment and postpayment audit requirements for transportation payments, we are responsible for issuing fiscal guidance based on authorities in the U.S. Code. We considered DOD's proposed process of electronic billing and payment in light of our requirements established in Title VII for disbursements and related documentation. Our views are based on our understanding of DOD's planned implementation of the Families First program on a conceptual basis. We did not perform tests of the current or proposed system or validate information provided to us.
In order to respond to DOD's request, we contacted Army staff to gain an understanding of Families First. We considered additional information about the proposal provided by Army. We analyzed sections of the law pertaining to this request. We interviewed GSA staff concerning their audit responsibilities in the transportation area, including for Families First. As explained to us, Families First does not fully meet Title VII documentation requirements for federal payments because the documentation that DOD is to use as evidence of receipt of accessorial services does not provide adequate assurances about the propriety of these services. This is because the documentation is prepared by the transportation service provider (TSP) without independent corroboration upon preparation, and then the documentation is retained by the TSP. These documentation procedures increase the potential risk of improper transportation payments. Management must determine what changes to the documentation procedures or what additional controls will mitigate these risks so that the documentation requirements of Title VII are fully met. The objective of such controls should be to ensure that invoiced accessorial services are allowed, necessary, and were indeed rendered. Automated procedures do not reduce the need for effective internal control nor relieve a certifying/disbursing officer of his or her responsibility. These officers must have sufficient knowledge of the automated systems in order to carry out their responsibilities, and must make sure they can rely on the quality of the automated systems to ensure that transportation invoices authorized for payment are legal, proper, and correct.
GAO-05-402R, Payment Processing: Documentation Procedures For Electronic Billing and Payment Under the Families First Personal Property Program
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March 31, 2005:
Brigadier General Charles W. Fletcher, Jr.,
Commanding General:
Military Surface Deployment and Distribution Command:
Department of the Army:
200 Stovall Street:
Alexandria, VA. 22332-5000:
Subject: Payment Processing: Documentation Procedures For Electronic
Billing and Payment Under the Families First Personal Property Program:
Dear General Fletcher:
This letter responds to your request for our views on whether certain
payment procedures included in the Defense Department's (DOD) proposed
Families First Personal Property Program[Footnote 1] conform with
relevant criteria in GAO's Policy and Procedures Manual for Guidance of
Federal Agencies. As you know, Families First is a DOD initiative to
reengineer its processes for transporting household goods and personal
property for its service members and civilians. Your request is in
response to a Defense Finance and Accounting Service (DFAS)
recommendation that DOD seek our views specifically on whether the
proposed procedures for electronic billing and payment meet the
supporting documentation requirements in Title VII of GAO's Policy and
Procedures Manual for Guidance of Federal Agencies.
While the General Services Administration (GSA) is responsible for
issuing federal regulations for transportation, including moves of
household goods and personal property[Footnote 2] as well as agency
prepayment and postpayment audit requirements for transportation
payments, we are responsible for issuing fiscal guidance based on
authorities in the U.S. Code.[Footnote 3] We considered DOD's proposed
process of electronic billing and payment in light of our requirements
established in Title VII for disbursements and related documentation.
Our views are based on our understanding of DOD's planned
implementation of the Families First program on a conceptual basis. We
did not perform tests of your current or proposed system or validate
information provided to us.
In order to respond to DOD's request, we contacted your staff to gain
an understanding of Families First. We considered additional
information about the proposal provided by your staff. We analyzed
sections of the law pertaining to this request. We interviewed GSA
staff concerning their audit responsibilities in the transportation
area, including for Families First.
As explained to us, Families First does not fully meet Title VII
documentation requirements for federal payments because the
documentation that DOD is to use as evidence of receipt of
accessorial[Footnote 4] services does not provide adequate assurances
about the propriety of these services. This is because the
documentation is prepared by the transportation service provider (TSP)
without independent corroboration upon preparation, and then the
documentation is retained by the TSP. These documentation procedures
increase the potential risk of improper transportation payments.
Management must determine what changes to the documentation procedures
or what additional controls will mitigate these risks so that the
documentation requirements of Title VII are fully met. The objective of
such controls should be to ensure that invoiced accessorial services
are allowed, necessary, and were indeed rendered. Automated procedures
do not reduce the need for effective internal control nor relieve a
certifying/disbursing officer of his or her responsibility. These
officers must have sufficient knowledge of the automated systems in
order to carry out their responsibilities, and must make sure they can
rely on the quality of the automated systems to ensure that
transportation invoices authorized for payment are legal, proper, and
correct.
Background:
The Surface Deployment and Distribution Command (SDDC) is DOD's Traffic
Manager for the Household Goods and Personal Property Program.
SDDC[Footnote 5] provides an interface between DOD's local shipping
offices and the commercial shipping industry. SDDC is developing the
Families First program under DOD's business process reengineering
efforts. SDDC staff estimate that Families First will process over
500,000 shipments at a cost of almost $2 billion annually. The goal for
Phase I of Families First is to implement a new electronic bill payment
process in a Web-based environment.
Our Title VII procedures are designed to complement existing federal
accounting, internal control, and systems standards.[Footnote 6] Title
VII does not provide specific guidance on how to process financial
transactions involving travel and transportation. Those functions,
originally covered under Title V of GAO's Policy and Procedures Manual
for Guidance of Federal Agencies, were transferred to the Executive
branch on June 30, 1996.[Footnote 7] However, Title VII does provide
general guidance on disbursements, including necessary steps to help
ensure disbursement transactions can be verified as to their legality,
propriety, and correctness and to spell out the responsibilities of
accountable officials.
Section 3726 of title 31, U.S. Code requires each agency that receives
a bill from a carrier or freight forwarder for transporting property
for the U.S. government to verify the bill's correctness using a
prepayment audit[Footnote 8] in accordance with the requirements
prescribed by GSA.[Footnote 9] The official certifying a transportation
voucher is responsible for computation of payment amounts and for the
legality of payments.[Footnote 10] The certifying official is also
responsible for verifying transportation rates, freight classification,
and other information provided on a government bill of lading or
transportation request, unless GSA has determined that the prepayment
audit of such vouchers will not adequately protect the interest of the
government.[Footnote 11] The law makes a special provision that permits
advance payment for transportation services, provided certain usual
documentation, such as an invoice or bill of lading, is
submitted.[Footnote 12] SDDC indicated that GSA has tentatively
approved its prepayment audit procedures,[Footnote 13] although at the
time of our inquiries GSA had not yet audited any Phase I transactions.
Our understanding is that linehaul[Footnote 14] charges make up the
single largest component of programwide billings. The second largest
cost component, and the topic dealt with in this letter, is
accessorials, which are services such as packing or special boxing that
are performed by a TSP in addition to linehaul charges. Existing
Defense Transportation Regulations[Footnote 15] require the TSP to
furnish the original DD Form 619, Statement of Accessorial Services
Performed, and DD 619-1, Statement of Accessorial Services Performed
(Storage in Transit Delivery and Reweighs)[Footnote 16] to the
transportation officer within the Personal Property Shipping Office.
The Personal Property Shipping Officer (PPSO)[Footnote 17] uses these
forms to validate receipt of accessorial services submitted with the
TSP's invoice.
Proposed Process for Phase I of Families First:
The focus under Phase I of the Families First program is on
streamlining payments to the TSPs by using a third-party Web-based
payment system called PowerTrack. PowerTrack, which is owned and
operated by U.S. Bank, has automated prepayment audit and verification
procedures that are to be satisfied prior to payment. U.S. Bank remits
electronic payments to TSPs for system-approved transactions and DFAS
subsequently reimburses U.S. Bank.[Footnote 18]
As described to us, the business process begins when the local DOD PPSO
receives a service member's movement order, calling for transport of
household goods and personal property.[Footnote 19] Upon receipt of the
order, the PPSO is to procure the services of the TSP, and prepare an
electronic Bill of Lading (BOL) that functions as a contract for
shipping the household goods. The TSP or its agent is to visit the
origin site, conduct a move survey, and obtain preapproval[Footnote 20]
by either facsimile, e-mail or telephone conversation for those
authorized accessorial line items or special services that require PPSO
preapproval.[Footnote 21] The PPSO indicates approved or denied status
with a record in the SDDC's Central Web Application (CWA). The TSP is
to prepare an inventory of what is to be moved and the DD Form 619. The
TSP and service member are to sign these documents and copies are to be
provided to the service member. Under the proposal, the TSP would
retain all original source documents, except for the weight
ticket.[Footnote 22] Within 7 days of picking up the shipment, the TSP
is to physically send the original weight ticket to the PPSO, who then
is to enter the shipment weight into the CWA[Footnote 23] and retain
the document.
Once the move is completed and the household goods have reached their
destination, the TSP provides the service member a copy of the
inventory listing and the DD Form 619-1. Then, the TSP is to prepare
and send an electronic invoice to the PPSO that includes a Notice of
Service Completion (NOSC)[Footnote 24] stating that the shipping
services were provided. The PPSO is to review invoiced services
submitted for payment, in terms of linehaul charges, and for
accessorial services, compare those charges against the PPSO recorded
preapproved services in CWA. In addition, the PPSO is to select a
sample from the invoices submitted daily and request copies of
supporting documentation from the TSP for those invoices selected. The
PPSO is to review the scanned or faxed copies of supporting
documentation, such as the DD Form 619 and inventory listing for the
accessorial portion of the invoiced charges before approving them for
payment. The PPSO's review is aimed at ensuring the services in CWA
were performed and the quantities are correct. Once approved, an
automated matching process is to occur within PowerTrack, where the TSP-
submitted invoice data are compared to the cost data in CWA. Items that
match successfully within established tolerances and threshold levels
are to be automatically paid to the TSP by U.S. Bank.
Next, the Certifying Officer (CO)[Footnote 25] prints and reviews the
PowerTrack Summary Invoice (PSI),[Footnote 26] listing the monthly
total of all TSP invoices paid by U.S. Bank. The CO is to check for the
presence of the necessary elements[Footnote 27] for all transactions
and verify their accuracy primarily from information available in
PowerTrack. The CO is to review all transactions over $2,500, those
that meet a DOD-established threshold for price variances, and a random
selection of additional PowerTrack transactions. The overall objective
of these steps, according to SDDC, is to ensure the invoices contain
the necessary substantiation and documentation for lawful and proper
payment. Once the CO has verified the accuracy of the PSI, he or she is
to sign the PSI to certify it as correct and proper for payment and
DFAS reimburses U.S. Bank.
GAO's View of Proposed Documentation Policy:
Improvements to streamline the disbursement process related to service
member's moves should be made within a framework of adequate controls
that reasonably ensure that payment transactions are properly
authorized and sufficient records of these transactions are maintained.
In theory, proper application of technology makes it possible to
perform prepayment examination without assembling physical
documentation. However, implementation of such technology does not
change the basic objectives of prepayment examinations.[Footnote 28]
Title VII identifies three essential steps to ensure that proper
payment is authorized: (1) the acquisition of goods and services has
been properly authorized as evidenced by an approved purchase order or
contract; (2) the goods and services ordered have been delivered and
accepted, evidenced by a receiving and inspection report; and (3) a
claim has been made against the government as evidenced by receipt of
an invoice or bill.
Families First does not fully meet Title VII documentation requirements
for federal payments because the documentation that DOD is to use as
evidence of receipt of accessorial services does not provide adequate
assurances about the propriety of these services as intended in step 2
above. The documentation is not able to provide the necessary
assurances on accessorial services because it is prepared by the TSP
without independent corroboration upon preparation. Although the
service member is to sign the inventory sheets and DD Form 619 upon
pickup, when the documentation is prepared, and upon delivery of the
household goods, the service member's role in signing this
documentation is not designed in such a way as to provide government
verification of receipt of approved services. Further, the service
member or other designated representative may lack the ability or
incentive to verify all accessorial services. In addition, the
documentation does not necessarily include all accessorial services
applicable to a particular move. Apart from the copies viewed as part
of sampling, the only evidence of service delivery that the PPSO would
see for all shipments is the TSP's NOSC on the invoice. To create the
invoice the TSP is to extract accessorial and other shipment data from
original source documents in their custody and input the information
into PowerTrack as part of invoice submission. Then the TSP in essence
self-certifies that the services ordered have been delivered and
accepted, carrying out step 2 above through the NOSC indication in
PowerTrack.
The proposal also increases potential risk because the generated
documentation supporting certain accessorial services is to be retained
by the TSP. Phase I of SDDC's Families First increases the level of
automation in DOD's personal property program, but does not completely
eliminate all paper documentation. Therefore, physical document control
remains an important part of the proposed process. One core objective
of document control is to preserve and protect the integrity and
validity of the information contained in the documents. Because the
process is structured so that the original source documents are created
by and remain in the custody of the TSP, and the PPSO reviews
copies[Footnote 29] of original documents on a sample basis, the
assurance to be gained by review of such documents is hindered by the
increased risk that they may contain invalid data or be subject to
potentially undetected alteration, whether intentional or
unintentional.
Preparation and custody of original source documentation by a service
provider rather than the agency, though not expressly prohibited, does
increase risk to the payment process. Other permissible modifications
to the traditional practice that agencies confirm receipt of services
prior to payment have been made. For example, agency payment of
transportation charges in advance of completion of services is
specifically allowed by statute. Federal "Fast Pay" procedures also
contemplate payment to vendors for purchases under $25,000 before the
agency processes evidence of its receipt of goods and services, but
these procedures call for proper documentation of such receipt.
[Footnote 30] Each permissible modification to the traditional payment
practice increases the risk of improper payments and the combination of
such practices further increases such risk, absent compensating
controls.
These factors, when considered collectively in context with the
objectives of Title VII documentation requirements, increase the risk
of improper transportation payments. Management must determine what
changes to the documentation procedures or what additional controls
will mitigate these risks so that the documentation requirements of
Title VII are fully met. The objective of such controls should be to
help ensure that invoiced accessorial services are allowed, necessary,
and were indeed rendered. Recognizing that cost-benefit considerations
are important to any control procedures, management must make such
assessments and determinations based on its experience, through both
quantitative and qualitative analysis. Such analysis should be applied
to the full range of potential options for possible solutions. In our
discussions, SDDC told us of certain planned procedures, such as
quality control inspections where DOD quality control inspectors would
be present at selected shipments when being picked up or delivered. If
based on relevant analysis and potential deterrence for shipments not
inspected is factored in, these inspections may be part of the
solution. Another possibility would be strengthening the service
member's role in representing the government's interest. A fully
electronic signature system that complies with GAO guidance[Footnote
31] is another option for management consideration from a cost-benefit
standpoint.
As with any control procedure, effectiveness is dependent upon many
factors, including whether the control activity is directly related to
the control objective, how the control is applied, including the
frequency with which it is applied and the proficiency of the personnel
who apply the control, the reasonableness and relevance of the criteria
used, and actions taken when an exception is identified, including
follow-up. Therefore, monitoring of these procedures is needed to
verify that they properly address the related risks, particularly
related to the validity of the underlying transactions.
As discussed earlier, the changes to transportation billing and payment
proposed under Families First Phase I and the use of PowerTrack do not
influence one way or the other the need for effective internal
controls. In fact, GAO and Inspectors General audits of another bank
sponsored electronic billing and payment system, the government-wide
purchase card program, have found many instances of improper and
fraudulent payments.[Footnote 32] While new technologies and
reengineered business processes may change how accountable officials
operate, their basic responsibilities and accountabilities remain
unaltered. Consequently, these officials must have valid and documented
assurances that the systems and key controls on which they rely for
authorizing payments are working as intended and remain intact and
effective over time.
In this regard, the Federal Managers' Financial Integrity Act of
1982[Footnote 33] (FMFIA) requires all executive branch agencies to
periodically assess their systems of internal control using the
assessment guidance issued by the OMB.[Footnote 34] Title VII also
provides that FMFIA reviews be designed, executed, and reported in ways
that show that payment processing controls are reliable. As part of
DOD's required internal control review under FMFIA, special emphasis
could be given to testing controls of the Families First Phase I
process, in order to help ensure effective implementation.
The contents of this report were discussed with Mr. George Thomas, Jr.
of your staff. We hope our comments are responsive. If you have any
questions, or would like to discuss these matters further, please
contact me at (202) 512-6906 or Mary Arnold Mohiyuddin, Assistant
Director, at (202) 512-3087. This report will be available at no charge
on GAO's Web site at http://www.gao.gov.
Sincerely yours,
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
(195035):
FOOTNOTES
[1] The Families First program is being implemented over three phases.
In reviewing a draft of this report for factual accuracy, SDDC
indicated that the procedures for billing, payment, and supporting
documentation, which are the subject of this request, were implemented
as part of Phase I on March 29, 2005.
[2] Federal regulations for transportation are published in the Code of
Federal Regulations, 41 C.F.R. Parts 102-117 and 102-118 (2004).
[3] General authorizations and requirements for agency accounting and
auditing are set forth in numerous statutes, primarily in chapter 35 of
Title 31, U.S. Code. The fiscal guidance in Title VII is based on the
Comptroller General's authority to settle accounts of accountable
officers and conduct audits.
[4] Accessorials are services such as packing or special boxing that
are performed by a carrier in addition to the linehaul transportation
charges.
[5] SDDC is a major command of the United States Army that is under the
control of the United States Transportation Command.
[6] In May 2000, GAO issued a guide to agencies in reengineering
payment systems, entitled Streamlining the Payment Process While
Maintaining Effective Internal Control, GAO/AIMD-21.3.2. (Washington,
D.C.: May 2000).
[7] Public Laws 104-53 (Nov 19, 1995 ) and 104-316 (Oct 19,1996)
transferred GAO's authority over claims settlements and related advance
decisions, waivers, and other functions to the Director of the Office
of Management and Budget (OMB), who in turn delegated specified
functions to various executive agencies. Among those functions
delegated to the General Services Administration are settling claims
for travel, transportation, and relocation expenses of federal civilian
employees and reviewing transportation carrier appeals. See B-275605,
March 17, 1997.
[8] According to 41 C.F.R. § 102-118.265 (2004), prepayment audit for
transportation consists of comparison of charges on the TSP's bill
against charges permitted under the applicable contract, rate tender,
or other agreements.
[9] GSA may exempt bills from prepayment audit and verification and, in
lieu thereof, require postpayment audit as determined by the public
interest, cost effectiveness, or other factors. See 31 U.S.C. § 3726
(a) (2).
[10] See 31 U.S.C. § 3528 (a); Title VII, chapter 6, section 6.5, page
7.6-8.
[11] 31 U.S.C. §§ 3528 (a) (5), 3726(a) (2); and see 41 C.F.R. 102-
118.160.
[12] 31 U.S.C § 3726(h).
[13] In a memo from GSA to SDDC on October 23, 2003, GSA granted
tentative approval to SDDC's prepayment audit procedures pending
certain action steps critical to the audit process, and an in-depth
analysis after Phase I has been more widely implemented.
[14] Linehaul charges include transportation of cargo over carrier
routes from point of origin to destination, with the exclusion of
certain charges such as local pickup or delivery.
[15] DOD 4500.9-R, subject: Defense Transportation Regulation, Part IV
(Aug. 2003), chapter 405.F.1
[16] Throughout this document, we will refer to the DD Form 619
generically, to encompass both the DD Form 619 and the DD Form 619-1.
[17] Throughout this document, we will use the term Personal Property
Shipping Officer (PPSO) to refer to the transportation officer within
the local DOD Personal Property Shipping Office.
[18] We did not review the rights and responsibilities that may have
been agreed to between DOD and U.S. Bank with respect to these payments.
[19] Throughout this document, the term "household goods" will be used
generically to refer to household goods and personal property.
[20] These services do not need to be entered in the DD Form 619.
[21] Certain accessorial services require preapproval, while others do
not. Preapproval is not required to be documented on the DD Form 619.
[22] The weight ticket is from a third-party, state-regulated weighing
station, and documents the shipment weight.
[23] Technically, the PPSO enters the amount from the weight ticket
into a local database, which then populates CWA.
[24] NOSC is a requirement before any consideration of payment on
invoice can proceed.
[25] The certifying official is appointed by the commander, activity
director, or others of equivalent rank in writing and does not need to
be part of the transportation office.
[26] This occurs after the 15th of each month, or when U.S. Bank
generates the PSI, whichever occurs later.
[27] Examples of necessary data elements include a complete line of
accounting for each line item and, where required, a standard
documentation number for each transaction.
[28] The objectives of prepayment voucher examinations are described in
Title VII, section 6.5 entitled, "Prepayment Examination of Vouchers,
General Requirements." See also page 6 of Streamlining the Payment
Process While Maintaining Effective Internal Control, GAO/AIMD-21.3.2.
(Washington, D.C.: May 2000).
[29] SDDC indicated that the copies would most likely be faxed to the
PPSO or scanned by the TSP and sent electronically to the PPSO.
[30] 48 C.F.R. §13.402(f)(2004).
[31] Streamlining the Payment Process While Maintaining Effective
Internal Control, GAO/AIMD-21.3.2 (Washington, D.C.: May 2000).
[32] Purchase Cards: Increased Management Oversight and Control Could
Save Hundreds of Millions of Dollars, GAO-04-71T (Washington, D.C.:
April 28, 2004).
[33] 31 U.S.C. 3512 (c), (d), commonly referred to as FMFIA.
[34] OMB Circular A-123, Management's Responsibility for Internal
Control, was revised on December 21, 2004, and this revised version is
effective for fiscal year 2006.
