2000 - Audit Report

U.S. Department of Labor
Office of Inspector General
Office of Audit

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Managerial Cost Accounting
-Identifying the Specific Costs for Each Program

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] New Requirements Mandate Managerial Cost Accounting

In order to meet the requirements of both the Government Performance and Results Act (GPRA), which mandated performance measurement and set the stage for performance budgeting for Federal agencies, and the Statement of Federal Financial Accounting Standards No. 4 (SFFAS No. 4) Managerial Cost Accounting Standards , which required Federal agencies to provide the full costs of their programs, the Department must now develop the capacity to identify the specific costs for each of its programs.

OMB Bulletin 97-01 Form and Content of Agency Financial Statements , requires preparation of a "Statement of Net Cost", which includes the full costs of responsibility segments. In FY 1998 the DOL consolidated financial statements included the Statement of Net Cost for the first time. The notes to the Statement of Net Cost provided cost and revenue information by Agency for five crosscutting programs in the Department. The FY 1999 financial statements further allocated costs into the Department’s eleven outcome goals. However, to become a useful tool to support managing for results, performance budgeting, and identifying cost inefficiencies, specific cost information needs to be provided for each program in conjunction with that program’s results.

Joint OIG - MSHA Pilot to Develop a Cost-Based Program Results Statement

During FY 1999,the OIG and the Mine Safety and Health Administration (MSHA) began a joint effort to develop a Cost-Based Program Results Statement that would attach the actual costs to each program's results. This pilot project was similar to efforts being conducted by the Department with the Veterans Employment and Training Service (VETS) and the Occupational Safety and Health Administration (OSHA). These pilot projects represent the first steps the OIG and the Department are making toward implementing managerial cost accounting at the agency and program levels. However, work on these pilot projects has uncovered several obstacles to rapid progress.

Obstacles Identified in Initial Efforts to Link Costs to Results

Paramount among the obstacles to implementing cost accounting identified thus far during the MSHA pilot is the lack of information systems that capture and report full costs at the program activity level. In addition, other obstacles have been encountered in attempting to determine the following:

how allocations supporting cost accounting will be updated on a regular basis;

how to allocate activity costs which impact two or more performance measures;

how to account for costs of activities not covered by current performance measures;

the level at which costs should be allocated to satisfy multiple users;

how to measure and report on external influences that limit management’s decision making capabilities; and

each DOL component’s understanding of the mandate and usefulness of managerial cost accounting.

OIG Concerns With DOL's Efforts to Develop Cost Accounting

The Department is making an effort to develop a cost accounting system that will eventually accumulate the specific costs for each program and link these costs to the program's results. The Department intends to implement this process within each agency by the end of FY 2001. However, to date, only two agencies have voluntarily agreed to work with the Department to implement a cost accounting process. A third agency, MSHA, is considering whether to work with the Department at this time. The Department's remaining agencies, including the two largest, ETA and ESA, are neither working with the Department nor have current plans to work with the Department to implement cost accounting. To achieve the full benefits of managerial cost accounting the Department must reach an accord with these agencies. Even with the best of efforts, the Department is a few years away from linking specific costs with each program's results.

Currently, costs are being allocated to DOL outcome goals at year-end only, based on percentages as determined by the agencies. Cost information must be provided at the program level on a regular and consistent basis throughout the year to enable cost accounting to support program management decisions. This will require a methodology to continually assess and update allocation procedures at the program level.

Benefits of Linking Program Costs to Results

To meet GPRA reporting and budgetary submission requirements, costs must be linked to program activities and agency or program specific performance measures and strategic goals. By linking costs to results, the Department and Congress can assess the value of past expenditures and chart the future direction of Federal programs based on reported results and their costs. This new level of informed oversight will finally provide the type of accountability demanded by the public and allow a more reasoned guidance of Federal efforts.

Report No. 12-00-010-06-001, (September 28, 2000)

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