Department of Housing and Urban Development
Lack of Accountability for Computer Equipment Leaves These Assets Vulnerable to Loss or Misappropriation Gao ID: GAO-04-520R April 23, 2004In testimony in October 2002 and in a report issued in April 2003 we raised concerns about the Department of Housing and Urban Development's (HUD) accountability for computers and computer-related equipment bought with government purchase cards. Our review identified a large volume of computers and computer-related purchases for which HUD did not have adequate supporting documentation. In addition, HUD acknowledged that items bought with purchase cards were not being consistently entered in its asset management system thereby increasing its vulnerability to loss or theft. Given these findings, and the approximately $59 million HUD reported it has spent on computers and computer-related equipment and services over the last 3 fiscal years, Congress asked of us to further assess HUD's accountability for these vulnerable assets. Specifically, it was requested that we determine whether HUD had established an effective system of internal control for maintaining accountability over its computer equipment. Our review covered HUD's systems and controls in place during fiscal years 2001, 2002, and 2003.
HUD did not have an effective internal control system in place to maintain accountability over its computer equipment. Fundamental internal control activities were not performed, and as a result, computers and computer-related equipment were highly vulnerable to loss or misappropriation. We found that HUD did not consistently record computer equipment purchases in its asset management system or effectively maintain or reconcile its records. In addition, HUD did not perform regular physical inventories to verify the quantities and location of computer equipment. Because of these serious internal control weaknesses, neither HUD nor we were able to reliably determine the total amount of computer equipment purchases during the period of our review. However, for four of HUD's major computer equipment vendors, we were able to identify over $2.2 million in computer equipment purchased in fiscal years 2001, 2002, and 2003 that was not recorded in HUD's asset management system, of which we determined over $82,000 to be lost or missing. Given the seriousness of the identified control weaknesses, these numbers could be much higher. Although HUD has awarded a new information technology contract for essentially all of its information processing, telecommunications, and related needs on an agencywide basis, it will still be accountable for HUD-owned equipment at least through fiscal year 2006. Until HUD corrects the weaknesses in its internal controls, accountability over existing computer equipment will remain problematic, and these assets will continue to be vulnerable to loss or misappropriation.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-520R, Department of Housing and Urban Development: Lack of Accountability for Computer Equipment Leaves These Assets Vulnerable to Loss or Misappropriation
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April 23, 2004:
The Honorable Christopher S. Bond:
Chairman:
Subcommittee on VA, HUD, and Independent Agencies:
Committee on Appropriations:
United States Senate:
Subject: Department of Housing and Urban Development: Lack of
Accountability for Computer Equipment Leaves These Assets Vulnerable to
Loss or Misappropriation:
Dear Mr. Chairman:
In testimony in October 2002[Footnote 1] and in a report issued in
April 2003[Footnote 2] we raised concerns about the Department of
Housing and Urban Development's (HUD) accountability for computers and
computer-related equipment bought with government purchase cards. Our
review identified a large volume of computers and computer-related
purchases for which HUD did not have adequate supporting documentation.
In addition, HUD acknowledged that items bought with purchase cards
were not being consistently entered in its asset management system
thereby increasing its vulnerability to loss or theft.[Footnote 3]
Given these findings, and the approximately $59 million[Footnote 4] HUD
reported it has spent on computers and computer-related equipment and
services over the last 3 fiscal years, you asked us to further assess
HUD's accountability for these vulnerable assets. Specifically, you
requested that we determine whether HUD had established an effective
system of internal control for maintaining accountability over its
computer equipment. Our review covered HUD's systems and controls in
place during fiscal years 2001, 2002, and 2003.
We conducted our review from July 2003 through March 2004, in
accordance with generally accepted government auditing standards. We
requested comments from HUD's Assistant Secretary for Administration/
Chief Information Officer or her designee. HUD's written comments are
reprinted in the enclosure.
Results in Brief:
HUD did not have an effective internal control system in place to
maintain accountability over its computer equipment. Fundamental
internal control activities were not performed, and as a result,
computers and computer-related equipment were highly vulnerable to loss
or misappropriation. We found that HUD did not consistently record
computer equipment purchases in its asset management system or
effectively maintain or reconcile its records. In addition, HUD did not
perform regular physical inventories to verify the quantities and
location of computer equipment.
Because of these serious internal control weaknesses, neither HUD nor
we were able to reliably determine the total amount of computer
equipment purchases during the period of our review. However, for four
of HUD's major computer equipment vendors, we were able to identify
over $2.2 million in computer equipment purchased in fiscal years 2001,
2002, and 2003 that was not recorded in HUD's asset management system,
of which we determined over $82,000 to be lost or missing.[Footnote 5]
Given the seriousness of the identified control weaknesses, these
numbers could be much higher.
Although HUD has awarded a new information technology contract for
essentially all of its information processing, telecommunications, and
related needs on an agencywide basis,[Footnote 6] it will still be
accountable for HUD-owned equipment at least through fiscal year 2006.
Until HUD corrects the weaknesses in its internal controls,
accountability over existing computer equipment will remain
problematic, and these assets will continue to be vulnerable to loss or
misappropriation.
This report makes seven recommendations for actions that if fully
implemented, should help the department better protect and account for
its computer equipment. In written comments on a draft of this report,
HUD concurred with our findings and recommendations and outlined
actions it plans to take in response.
Background:
HUD's reported purchases of computers and computer-related equipment,
hereinafter referred to as computer equipment, and services in fiscal
years 2001, 2002, and 2003 totaled about $27.6 million, $22.1 million,
and $9.3 million, respectively. HUD uses its asset management system to
account for all accountable inventory, which includes:
computer equipment (both capitalized and noncapitalized) as well as
other items, such as furniture, weapons, and audiovisual
equipment.[Footnote 7] HUD issued new inventory process Standard
Operating Procedures (SOP) on July 1, 2001, to supplement HUD Handbook
2200.01, Administrative Services Policy Handbook, dated December 2000.
Together, the handbook and the new SOPs make up HUD's personal property
management policy as it relates to computer equipment. According to
HUD's policies and procedures, all computer equipment is to be
purchased through the Office of Information Technology (OIT) in
headquarters. OIT works under the guidance of its own policies and
procedures manual dated November 1991, HUD Handbook 2400.13 CHG 1, Word
Processing and Microcomputer Technology Policies and Procedures.
The Office of Administrative and Management Services (OAMS) is
responsible for maintaining HUD's asset management system, called the
Facilities Integrated Resource Management System (FIRMS). As of
September 2003, the total amount of inventory recorded in FIRMS was
over $167 million, of which recorded accountable computer equipment
totaled about $96 million. While OAMS is responsible for maintaining an
accurate account of HUD-owned computer equipment in FIRMS, it must rely
on the Office of the Chief Procurement Officer (OCPO), OIT, and the
administrative resource divisions (ARD) for the necessary information.
OCPO and OIT are required to notify OAMS in advance of all purchases of
accountable computer equipment. When new equipment is received directly
by ARDs or field offices or when equipment is transferred from one
field office to another, the ARDs are responsible for providing OAMS
with the documentation needed to update FIRMS. The receiving department
personnel, who report to OAMS, use Palm Pilots to capture required data
elements, such as equipment type, equipment standard, serial numbers,
and barcodes. This information is then uploaded to FIRMS thereby
recording the equipment in FIRMS.
OIT makes computer equipment purchases using purchase cards, or if the
amounts exceed the purchase card limits, HUD Form 10.4, Requisition for
Supplies, Equipment, Forms, Publications and Procurement Services, is
completed and forwarded to OCPO to make the purchase. As required by
its own handbook, OIT maintains the Request Ordering System (ROS), an
inventory database of computer equipment, separately from FIRMS. OAMS
has access to the ROS database, but OIT does not have access to FIRMS.
HUD has three administrative service centers that cover 10 regions.
There are six ARDs, two within each administrative service center, that
are responsible for the individual field offices within each region.
Internal control is a major part of managing an organization and is key
to ensuring proper use of government resources. As mandated by 31
U.S.C.§3512, commonly known as the Federal Managers' Financial
Integrity Act of 1982, the Comptroller General has issued standards for
internal control.[Footnote 8] These standards provide the overall
framework for establishing and maintaining internal control and for
identifying and addressing major performance and management challenges
and areas at greatest risk of fraud, waste, abuse, and mismanagement.
According to these standards, internal control comprises the plans,
methods, and procedures used to meet missions, goals, and objectives.
Control activities are the policies, procedures, techniques, and
mechanisms that enforce management's directives and help ensure that
actions are taken to address risks. Control activities are an integral
part of an entity's planning, implementation, review, and
accountability for stewardship of government resources and achieving
effective results. They include a wide range of diverse activities.
Some examples of control activities include reconciliations, physical
control over vulnerable assets, and accurate and timely recording of
transactions and events.
Scope and Methodology:
To determine whether HUD has an effective system of internal control
for maintaining accountability over its computer equipment, we
performed walk-throughs of the purchasing and receiving processes,
reviewed HUD's policies and procedures, reviewed reports by HUD's
Office of Inspector General (OIG) and an independent contractor with
regard to computer equipment, and interviewed HUD staff.
We obtained data on fiscal years 2001, 2002, and 2003 computer
equipment purchases by vendor from OIT. This information had to be
manually generated by OIT from purchase orders and other available data
because it was not available by vendor in HUD's asset management
system. We attempted to verify the completeness of the purchase
information by comparing it to HUD's total recorded purchases in its
general ledger system. However, because HUD does not specifically
identify computer equipment purchases in its general ledger, we were
unable to validate the purchase information provided by HUD using the
general ledger. In addition, as discussed later in the report, we
identified completeness issues with regard to HUD's asset management
system, and therefore neither HUD nor we could use this as a source for
determining the overall completeness of the purchase information.
However, from the information HUD provided us we were able to identify
four vendors from which HUD made significant computer equipment
purchases during the period of our review. In the course of our review,
we also determined that HUD's information technology contractor made
significant purchases of computer equipment for HUD during the period
of our review. However, we limited our testing to computer equipment
purchases made directly by HUD employees from the four vendors
selected.
We requested and obtained information on HUD computer equipment
purchases directly from these four vendors for fiscal years 2001, 2002,
and 2003. We imported the data into data analysis software. We used the
software to perform matching tests on the data to determine whether the
computer equipment purchases were included in FIRMS.[Footnote 9]
We prepared spreadsheets listing the items purchased by HUD from these
vendors that were not included in FIRMS. We then electronically sent
these spreadsheets to the directors of the HUD field offices who were
the designated recipients of the items as listed on the invoices and
requested that they identify for us the specific location of the items
(for example, building name, street address, floor number, and room
number) and to whom the items were assigned. We requested shipping
documentation for items that HUD indicated had been transferred
elsewhere. Additionally, we performed physical inspections of selected
computer equipment at HUD field offices in Richmond, Denver, and New
York to validate, on a test basis, whether the items were at the
locations cited by HUD.
We obtained copies of the journal vouchers and the capitalized
equipment depreciation reports HUD used to perform adjustments to the
general ledger at September 30 for fiscal years 2001, 2002, and 2003.
We reviewed these documents and interviewed the officials responsible
for preparing them to gain an understanding of the methodology used to
make the year-end adjustments to the general ledger balances.
Ineffective Internal Controls Resulted in a Lack of Accountability over
Computer Equipment:
HUD did not have effective internal controls in place to maintain
accountability over its computer equipment. We identified the following
weaknesses in HUD's system of internal control over these assets: (1)
computer equipment was not consistently recorded in HUD's asset
management system, (2) asset management system records were not
reconciled to HUD's general ledger, and (3) physical inventories of
computer equipment were not regularly performed. These conditions
created an environment where computer equipment became highly
vulnerable to loss or misappropriation with little risk of detection.
HUD awarded a new information technology contract in August 2003, to
provide for its future computer equipment needs. However, HUD will
remain accountable for its existing computer equipment at least through
2006.
Computer Equipment Was Not Consistently Recorded in HUD's Asset
Management System:
Our review of selected purchases of computers and computer-related
equipment from four key vendors disclosed that at least $2.2 million of
these purchases were not recorded in HUD's asset management system,
FIRMS, thus limiting accountability and control over these assets, many
of which are portable.
Based on data provided to us by OIT personnel, we identified four major
vendors from which HUD made computer equipment purchases. We requested
documentation related to HUD purchases of computer equipment directly
from these vendors. We compared the corresponding information against
FIRMS and determined that approximately 21 percent of the purchases
made from these vendors had not been recorded in FIRMS.[Footnote 10]
Table 1 details the unrecorded purchases during fiscal years 2001
through 2003.
Table 1: Items Not Recorded in HUD's Asset Management System as of
September 2003:
Fiscal year: 2001;
Purchases tested: $5,029,007;
Number of tested items not recorded: 192;
Value of tested items not recorded: $172,814;
Percentage of purchase dollars tested that were not recorded: 3%.
Fiscal year: 2002;
Purchases tested: 5,165,160;
Number of tested items not recorded: 2,165;
Value of tested items not recorded: 2,006,129;
Percentage of purchase dollars tested that were not recorded: 38%.
Fiscal year: 2003;
Purchases tested: 262,845;
Number of tested items not recorded: 31;
Value of tested items not recorded: 41,198;
Percentage of purchase dollars tested that were not recorded: 16%.
Total Purchases tested: $10,457,012;
Number of tested items not recorded: 2,388;
Value of tested items not recorded: $2,220,141;
Percentage of purchase dollars tested that were not recorded: 21%.
Source: GAO analysis of HUD data.
[End of table]
Given the serious internal control weaknesses we identify in this
report, and the fact that we tested purchases only from selected
vendors, there may be additional purchases of computer equipment that
are not recorded in HUD's asset management system.
HUD's policy requires that all accountable computer equipment purchases
be recorded in FIRMS. OAMS is to receive notice of the purchase within
2 days of the approval to purchase or the actual purchase from OIT or
within 3 days of the approval to purchase or the actual purchase from
OCPO. OAMS is required by HUD policy to follow up with the purchaser if
the equipment has not been received within 30 days of the purchase
notification to ensure that all items purchased are recorded in FIRMS.
As shown above, for the purchases we reviewed, these policies were not
consistently followed. For example, while OAMS received the proper
advance notification of a large single purchase of 4,763 computers
totaling about $4.4 million in July 2002, it failed to follow up with
OIT when records indicated that not all of the equipment had been
received after 30 days. As a result, 2,106 computers totaling about
$1.9 million of this single purchase were not recorded in the asset
management system, which make up the majority of the fiscal year 2002
unrecorded purchases we identified.
We requested location information on the 2,388 items we identified that
were not recorded in HUD's asset management system from the directors
of the field offices where the items were originally shipped. HUD was
ultimately able to provide location information on 2,284 items totaling
about $2.1 million. This information was based on OIT records, which
are maintained separately from FIRMS. The department was unable to
provide location information for 104 items totaling over $82,000. While
not significant compared to total computer purchases during the period
of review, HUD's inability to locate this equipment demonstrates that
lapses in accountability for these portable assets can and do occur
under HUD's current system of controls.
In our efforts to locate this equipment, we also determined that
supporting documentation for equipment transfers that occurred between
HUD offices during the period of our review often did not exist. HUD
was not able to provide supporting documentation for most of the items
it recorded as being shipped to another location. For example, we sent
requests for location information to each field office that received
equipment. Based on the responses we received, we requested shipping
documentation for the computers that were listed as no longer at the
receiving field office. HUD was unable to provide the requested
shipping documentation, stating that type of information is not
maintained. HUD's failure to regularly maintain supporting
documentation for transfers is another factor that erodes its chain of
accountability for this equipment and increases the risk of loss or
misappropriation.
Asset Management System Was Not Reconciled to HUD's General Ledger:
An effective reconciliation of an entity's detailed list of assets to
its general ledger, the official record of accounts, is a key internal
control necessary to help ensure the accuracy and completeness of both
sets of records and thus to maintain accountability and control over
the assets. We found that HUD was not effectively reconciling its asset
management system inventory records (FIRMS reports) to its general
ledger, as required by its policies and procedures. Thus, errors in the
detailed records went unnoticed, and inaccurate adjustments were made
to the general ledger to "balance" it to the erroneous inventory
records in FIRMS.
When an obligation for the purchase of computer equipment is made, the
obligating official is to establish an accounting code that initially
classifies the purchase as a capitalized asset or an expense. When the
invoice is received by the Office of the Chief Financial Officer
(OCFO), the purchase order number or contract number that appears on
the invoice is entered into the accounting system, indicating whether
the transaction should be recorded as a capitalized asset or an expense
in the general ledger. However, for fiscal years 2001, 2002, and 2003
all such items were recorded initially as expenses in the general
ledger.
Upon receipt of purchased computer equipment, OAMS is to record the
equipment in FIRMS. If the value of a single asset or a group of
similar assets is $100,000 or more, the item is to be coded as
capitalized equipment in FIRMS. OAMS sends OCFO a quarterly[Footnote
11] FIRMS report that lists all assets to be capitalized and
depreciated.[Footnote 12] OCFO is to compare the amounts in the OAMS
report to the general ledger balances and use the report to adjust the
amount of equipment purchases for the period that should be capitalized
as assets in the general ledger and to record the related depreciation
expense.
Neither OAMS nor OCFO attempts to reconcile total purchases of
equipment in FIRMS (both capitalized and noncapitalized) to the general
ledger records.[Footnote 13] HUD also does not, in its general ledger,
segregate accountable assets that are required to be recorded in FIRMS
from nonaccountable assets, which would be necessary to facilitate such
a reconciliation. These issues, combined with the other serious
internal control weaknesses we identified, precluded HUD or us from
being able to reliably determine the total amount of equipment
purchases for the period of our review.
Because HUD does not reconcile FIRMS activity to the general ledger, if
purchases are not recorded in FIRMS or coding errors are made in
establishing whether equipment is capitalized or not within FIRMS,
there is not an established process to promptly identify and correct
errors. Because FIRMS is used to adjust the general ledger for
capitalized assets, any errors in FIRMS are transferred to the general
ledger. For example, according to officials in OCFO, in fiscal year
2001, OAMS staff initially recorded the purchase of several servers
totaling approximately $23 million to expense codes in FIRMS, but it
was later determined that these servers should have been capitalized as
assets. Thus a year-end adjustment to the general ledger was required.
Two years later in fiscal year 2003, based on a reassessment of the
transactions, OAMS staff determined that those items should not have
been capitalized after all and yet another year-end adjustment to the
general ledger was required. Thus, assuming the capitalization
determination by OAMS was correct, the general ledger balances were
misstated in fiscal year 2001 and fiscal year 2002. In addition, if
OAMS fails to record computer equipment purchases in FIRMS, as we found
during our review, this also misstates the general ledger--overstating
expensed assets and understating capitalized assets and depreciation
expense, thus skewing HUD's operating results.
Because HUD does not perform meaningful reconciliations of FIRMS to the
general ledger, errors of this nature can continue without detection,
thus compromising the accuracy of HUD's general ledger computer
equipment accounts and its detailed asset management system inventory.
Thus, both accountability and control over these vulnerable assets are
compromised.
Based on discussions with HUD officials, we understand that once the
new information technology contract discussed below is in place, HUD
will no longer be making computer purchases, since essentially all
computer equipment will be supplied and owned by the contractor. While
this will simplify the process, regular reconciliations of FIRMS and
the general ledger will still be necessary to help ensure that disposal
and depreciation activity is properly reflected in the general ledger
and to verify accountability in FIRMS.
Physical Inventories of Computer Equipment Not Regularly Performed:
We also found that HUD had not been regularly performing physical
inventories of computer equipment, another key internal control
necessary to secure and safeguard vulnerable assets. HUD's property and
equipment policies and procedures require that a physical inventory be
completed at least every 2 years. In its Management Letter[Footnote 14]
for fiscal year 1999, HUD's OIG stated that it had noted this issue in
its financial audit since at least 1993. The OIG discusses the issue
again in its Management Letters for fiscal years 2000 and 2001. To
address this ongoing problem, HUD hired a contractor in fiscal year
2001 to perform a physical inventory and update the computer equipment
inventory records. However, no physical inventory was performed in
fiscal year 2002 and only a partial[Footnote 15] physical inventory was
completed in 2003. Ongoing errors in recording equipment, combined with
the other problems we identified, increase the risk of continuing
inaccuracies in HUD's asset management system that have not been
corrected through regular physical inventories. HUD officials told us
that a physical inventory had been completed in December 2003; however,
as of the end of our fieldwork, the results of the physical inventory
had not been provided to OAMS so that it could update FIRMS. The
officials stated that due to the sustained protest of the contract
award discussed below, all contractor work related to the equipment
inventory has been put on hold.
While the completion of the physical inventory is a positive step
forward, until FIRMS is updated to reflect the results, there will be
little benefit from these efforts. In addition, unless HUD performs
regular inventories and corrects the other deficiencies we identified
to keep its inventory records accurate on an ongoing basis, it will
have minimal assurances of the quantities and locations of its computer
equipment.
New Information Technology Contract Will Not Fully Resolve
Accountability Issues:
In August 2003, HUD awarded a new $860 million information technology
contract for essentially all of its information processing,
telecommunications, and related needs on a nationwide, agencywide
basis. Under the new information technology contract, the contractor
will provide contractor-owned equipment and services necessary to meet
HUD's information processing and telecommunications requirements.
Under this approach, HUD officials advised us that they no longer plan
on making direct purchases of computers and computer-related equipment.
However, HUD still retains ownership of previously purchased computer
equipment and will need to maintain accountability for this equipment
through at least fiscal year 2006, its estimated remaining useful life.
In December 2003, GAO sustained a protest filed against HUD's award of
this contract and recommended that HUD reopen the acquisition, obtain
revised proposals, and make a new award determination.[Footnote 16]
Regardless of HUD's ultimate contracting decisions, it will remain
responsible for ensuring that its information processing and
telecommunications needs are met and that the agency is expending funds
properly to meet those needs.
Conclusion:
The combination of weaknesses we found in HUD's controls over its
computer equipment limit HUD's ability to be accountable for these
assets, both in terms of physically safeguarding the assets from loss
or misappropriation and properly reflecting the assets and related
expenses in its financial records. Even with a new information
technology contract, HUD will still be accountable for resolving the
issues we identified related to currently owned HUD computer equipment.
Therefore it is important that HUD management act to establish adequate
internal control over these highly vulnerable assets.
Recommendations for Executive Action:
In order to establish adequate internal control over HUD-owned computer
equipment and reduce HUD's vulnerability to fraud, waste, and abuse, we
recommend that the Assistant Secretary for Administration/Chief
Information Officer take the following seven actions:
Reiterate to responsible HUD personnel the importance of following
HUD's established policies and procedures for recording computer
equipment purchases in FIRMS.
* Follow up on the items we identified as not recorded in FIRMS to
determine the location of the computer equipment and update FIRMS to
reflect the results.
* Establish specific requirements for maintenance of documentation and
records to support changes in the location of computer equipment.
* Perform quarterly reconciliations of HUD-owned computer equipment
balances in FIRMS, both capitalized and noncapitalized, to the recorded
amounts in the general ledger, including researching all differences
and correcting any identified errors.
* Segregate accountable equipment purchases from nonaccountable
purchases in the general ledger in order to facilitate the
reconciliation process.
* Update FIRMS to reflect the results of the recently completed
physical inventory of HUD-owned computer equipment.
* Perform a complete and accurate physical inventory of HUD-owned
computer equipment at least annually and update FIRMS as needed to
reflect the inventory results.
Agency Comments:
In written comments on a draft of this report, from HUD's Assistant
Secretary for Administration/Chief Information Officer, HUD concurred
with our findings and recommendations and outlined actions it plans to
take in response. The agency also provided one minor technical comment,
which we incorporated into the report.
If you or your staff has any questions, please contact me at (202) 512-
8341 or by e-mail at calboml@gao.gov or Robert Owens, Assistant
Director, at (202) 512-8579 or by e-mail at owensr@gao.gov.
Sincerely yours,
Linda M. Calbom:
Director, Financial Management and Assurance:
Enclosure:
Comments from the Department of Housing and Urban Development:
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000:
ASSISTANT SECRETARY FOR ADMINISTRATION/CHIEF INFORMATION OFFICER:
APR 19 2004:
Ms. Linda M. Calbom:
Director, Financial Management and Assurance
U.S. General Accounting Office:
Washington, DC 20548:
Dear Ms. Calbom:
Thank you for the opportunity to provide comments on the draft report
entitled "Department of Housing and Urban Development: Lack of
Accountability for Computer Equipment Leaves These Assets Vulnerable to
Loss or Misappropriation." We have reviewed the draft and concur:
with the findings and recommendations. However, we would like to
request one correction on page 12. The last sentence of the second
paragraph states that:
"When the invoice is received by the Office of the Chief Financial
Officer (OCFO), the accounting code that appears on the invoice is to
be entered into the system, thereby generating payment as well as
recording the assets in the general ledger as capitalized assets or
expenses.":
The sentence should be corrected to explain that,
"When the invoice is received by the OCFO, the purchase order number or
contract number that appears on the invoice is entered into the
accounting system, determining whether the transaction is recorded as a
capitalized asset or an expense in the general ledger.":
The Office of Administration and OCFO's Office of Accounting (OCFO/OA)
will work together to develop a process to adequately perform monthly
and quarterly reconciliation of HUD-owned computer equipment balances
in HUD's Facilities Integrated Resources
Management System (FIRMS), researching all differences and correcting
any identified errors in a timely manner. We understand that FIRMS can
be easily modified to include one or more data fields resident in HUD's
Centralized Accounting System. The Office of Administration and OCFO/OA
will work in a collaborative manner to reconcile the two systems. OCFO/
OA will research the feasibility of further segregating accountable
equipment purchases from non-accountable purchases in the general
ledger in order to facilitate the reconciliation process.
The Department appreciates the opportunity to comment on the report.
The point of contact
for this matter is Mary P. Barry, Director, Office of Management and
Planning. She may be reached at (202) 708-1027.
Signed by:
Vickers B. Meadows:
Assistant Secretary for Administration/Chief Information Officer:
[End of section]
(190115):
FOOTNOTES
[1] U.S. General Accounting Office, Financial Management: Strategies to
Address Improper Payments at HUD, Education, and Other Federal
Agencies, GAO-03-167T (Washington, D.C.: October 3, 2002).
[2] U.S. General Accounting Office, HUD Purchase Cards: Poor Internal
Controls Resulted in Improper and Questionable Purchases, GAO-03-489
(Washington, D.C.: April 2003).
[3] This information was provided in response to Office of Management
and Budget Memorandum M-02-05 requiring agencies to develop a remedial
action plan to manage the risk associated with purchase card usage.
[4] This total includes purchases of computer-related supplies and
services and nonaccountable equipment, which is not tracked in HUD's
asset management system.
[5] We define lost or missing computer equipment as that for which HUD
was unable to provide location information or that which HUD
specifically stated it was unable to locate.
[6] As discussed later in the report, in December 2003, GAO sustained a
protest filed against HUD's award of this contract.
[7] Accountable property is all capitalized and nonexpendable equipment
with an acquisition cost of $1,000 or more, per item. Items with
recurring monthly charges with life cycle costs of more than $1,000,
such as cellular phones, should be included as accountable property.
Sensitive items valued under $1,000 are also considered accountable
property and should be included in the Facilities Integrated Resource
Management System.
[8] U.S. General Accounting Office, Internal Control: Standards for
Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: November 1999).
[9] We were not able to perform these matching tests on approximately
$2.0 million in purchases from two of the four vendors because those
two vendors did not include serial numbers.
[10] Of the approximately $16.2 million in total purchases, as
represented by HUD, from these four vendors, we were able to perform
this comparison on approximately $10.5 million in purchases (as shown
in table 1). Vendor documentation related to $2.0 million in purchases
did not include serial numbers, and therefore we were unable to match
these purchases against FIRMS. The remaining
$3.7 million was not tested because it included items other than
equipment.
[11] Prior to the fourth quarter of fiscal year 2003, this report was
prepared manually based on OAMS staff's interpretation of the
capitalization policy and submitted annually. In fiscal year 2003, OAMS
began submitting this report quarterly. Beginning with the fourth
quarter of fiscal year 2003, the report was automated.
[12] Capitalized assets are recorded on the balance sheet, whereas
noncapitalized assets are recorded as expenses on the statement of net
cost in HUD's financial statements. Depreciation of capitalized assets
spreads the cost of the assets over the future periods benefited,
rather than expensing the total cost in the period acquired.
[13] There is currently no requirement in HUD's policies and procedures
to reconcile total equipment purchases in FIRMS to total purchases in
the general ledger.
[14] The Management Letters issued by HUD's OIG in connection with
audits of HUD's annual financial statements contain various findings
and recommendations that were in addition to those included in the
auditors' reports on internal controls.
[15] Although the physical inventory count has been completed, the
results have not been provided to OAMS so that it can reconcile the
count to FIRMS.
[16] Lockheed Martin Information Systems, B-292836 (Dec. 18, 2003).
