The IG audited FAA’s fiscal year 1996 Statement of Financial Position, which reports the agency’s assets and liabilities, but disclaimed (did not express) an opinion primarily because of internal control weaknesses that precluded the IG from determining if FAA’s operating materials and supplies and property and equipment were fairly presented. In addition, because many of the problems identified by the IG were the result of the lack of a reliable system to accumulate costs, we reviewed several reports concerning FAA’s financial and cost accounting systems. The lack of accurate inventory information may also impair operational effectiveness, as shown in the following examples. Finally, the lack of accurate inventory information affects the reliability of financial management information. Agency Actions Related to Operating Materials and Supplies

FAA advised us that it has performed a wall-to-wall inventory of operating materials and supplies at the central warehouse, identified excess items, and adjusted records accordingly; revised policies and procedures to include an inventory count of operating materials and supplies every 3 years; counted 48 percent (dollar value) of field spares and plans to complete the field spares inventory by the end of fiscal year 1998; initiated a new project to provide physical and fiscal management of FAA assets both centralized at the Logistics Center and in field facilities; begun recording field spares as assets rather than expensing them as was revised methods to ensure timely review of excess operating materials and supplies stored at the Logistics Center; and made plans to implement bar coding for the asset tracking process in July 1998. These types of errors and omissions affect FAA’s ability to manage its real estate assets and make decisions about future needs. The inadequacy of FAA’s cost accounting system has been identified by GAO and others as a weakness that prevents FAA from reliably determining project and other costs. Our report concluded that without a system to capture and report the full cost of ATC projects, FAA cannot reliably measure the ATC projects’ actual cost performance against established baselines, and cannot reliably use information relating to actual cost experiences to improve future cost estimating efforts. Further, we reported that the Congress does not have reliable cost information to use in making funding decisions about FAA. The questions that could be answered in a cost-based environment cannot be answered today.”
The lack of reliable information about the costs of program activities limits the ability of FAA management and other decisionmakers to estimate future costs in preparing and reviewing budgets, to control and reduce costs, and to identify and avoid waste. Finally, the lack of reliable cost information limits the ability of FAA management and other decisionmakers to meaningfully evaluate performance measures. Measuring costs is an integral part of measuring performance in terms of efficiency and cost-effectiveness. Conclusion

Accountability over physical assets is a key step in avoiding waste, fraud, and abuse, and is essential to efficient and effective budgeting and management of resources. It is particularly critical in situations such as FAA’s, in which billions of dollars of assets are being acquired in connection with the ATC modernization program. We have added throughout our report a discussion of actions FAA stated it has taken since the date the IG audit report was issued.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Transportation (DOT) Inspector General's (IG) audit report on the Federal Aviation Administration's (FAA) fiscal year 1996 Statement of Financial Position, which reports FAA's assets and liabilities.

What GAO Found

GAO noted that: (1) the deficiencies concerning operating materials and supplies and property and equipment cited by the IG impair FAA's ability to efficiently and effectively manage programs that use these assets and expose the agency to waste, fraud, and abuse; (2) in addition, while not a specific focus of the IG report, GAO and others have identified the lack of a reliable cost accounting system as a weakness that prevents FAA from reliably determining costs; (3) the lack of cost accounting information impairs FAA's ability to make effective decisions about resource needs, to adequately control major projects such as the air traffic control (ATC) modernization program, and to identify and avoid waste; (4) for example, without good cost information FAA cannot reliably measure the ATC modernization program's actual cost performance against established baselines, and cannot reliably use information relating to actual cost experiences to improve future cost estimating efforts; (5) the lack of cost accounting information also limits the ability to meaningfully evaluate performance measures in terms of efficiency and cost-effectiveness; (6) the lack of reliable cost information also limits FAA's ability to meaningfully evaluate performance measures in terms of efficiency and cost-effectiveness; (7) overall, the lack of accountability over physical assets means that FAA and Congress may not have accurate financial management information to help make informed decisions about future funding; (8) the lack of accountability is of particular concern in situations such as FAA's where billions of dollars of assets are being acquired in connection with the ATC modernization program; (9) FAA advised GAO that since the IG report was issued on March 27, 1997, it has made significant progress and expended significant resources toward correcting the problems reported by the IG; (10) according to FAA, it has taken or plans corrective actions in three principal areas: (a) operating materials and supplies; (b) property and equipment; and (c) cost systems; (11) FAA informed GAO that it has counted a major portion of operating materials and supplies and property, identified excess items, adjusted its records, and created a Cost Accounting Division; and (12) GAO has not assessed the current status or sufficiency of these actions.