Payment Processing: Documentation Procedures For Electronic
Billing and Payment Under the Families First Personal Property
Program (31-MAR-05, GAO-05-402R).
This 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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-402R
ACCNO: A20585
TITLE: Payment Processing: Documentation Procedures For
Electronic Billing and Payment Under the Families First Personal
Property Program
DATE: 03/31/2005
SUBJECT: Billing procedures
Civilian employees
Financial analysis
Government employees
Payments
Program evaluation
Program management
Military personnel
General management reviews
Internal controls
Risk management
Claims processing
Relocation expense claims
Household goods
Federal regulations
Policies and procedures
DOD Families First Personal Property
Program
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GAO-05-402R
United States Government Accountability Office Washington, DC 20548
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 Program1 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 property2 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.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
1The 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.
2Federal regulations for transportation are published in the Code of
Federal Regulations, 41 C.F.R. Parts
102-117 and 102-118 (2004).
3General 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.
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 accessorial4 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. SDDC5
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,
6
internal control, and systems standards. Title VII does not provide
specific guidance on
4Accessorials are services such as packing or special boxing that are
performed by a carrier in addition to
the linehaul transportation charges.
5SDDC is a major command of the United States Army that is under the
control of the United States
Transportation Command.
6In 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).
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, 1996.7 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 audit8
in accordance with the requirements prescribed by GSA.9 The official
certifying a transportation voucher is responsible for computation
10
of payment amounts and for the legality of payments. 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.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.12 SDDC
indicated that GSA has tentatively approved its prepayment audit
procedures,13 although at the time of our inquiries GSA had not yet
audited any Phase I transactions.
Our understanding is that linehaul14 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 Regulations15 require
the TSP to furnish the original DD Form 619, Statement of Accessorial
Services Performed, and DD 619-1, Statement of Accessorial Services
7Public 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.
8According to 41 C.F.R. S: 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.
9GSA 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. S: 3726 (a) (2).
10See 31 U.S.C. S: 3528 (a); Title VII, chapter 6, section 6.5, page
7.6-8.
1131 U.S.C. S:S: 3528 (a) (5), 3726(a) (2); and see 41 C.F.R. 102-118.160.
1231 U.S.C S: 3726(h).
13In 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.
14Linehaul 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.
15DOD 4500.9-R, subject: Defense Transportation Regulation, Part IV (Aug.
2003), chapter 405.F.1
Performed (Storage in Transit Delivery and Reweighs)16 to the
transportation officer within the Personal Property Shipping Office. The
Personal Property Shipping Officer (PPSO)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.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
19
personal property. 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
preapproval20 by either facsimile, e-mail or telephone conversation for
those authorized accessorial line items or special services that require
PPSO preapproval.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.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 CWA23 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
16Throughout this document, we will refer to the DD Form 619 generically,
to encompass both the DD
Form 619 and the DD Form 619-1.
17Throughout 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.
18We did not review the rights and responsibilities that may have been
agreed to between DOD and U.S.
Bank with respect to these payments.
19Throughout this document, the term "household goods" will be used
generically to refer to household
goods and personal property.
20These services do not need to be entered in the DD Form 619.
21Certain accessorial services require preapproval, while others do not.
Preapproval is not required to be
documented on the DD Form 619.
22The weight ticket is from a third-party, state-regulated weighing
station, and documents the shipment
weight.
23Technically, the PPSO enters the amount from the weight ticket into a
local database, which then
populates CWA.
Notice of Service Completion (NOSC)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)25 prints and reviews the PowerTrack
Summary Invoice (PSI),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
elements27 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.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
24NOSC is a requirement before any consideration of payment on invoice can
proceed.
25The 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.
26This occurs after the 15th of each month, or when U.S. Bank generates
the PSI, whichever occurs later.
27Examples of necessary data elements include a complete line of
accounting for each line item and, where
required, a standard documentation number for each transaction.
28The 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).
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 copies29 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
29SDDC indicated that the copies would most likely be faxed to the PPSO or
scanned by the TSP and sent electronically to the PPSO.
and services, but these procedures call for proper documentation of such
receipt.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 guidance31 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.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.
3048 C.F.R. S:13.402(f)(2004).
31Streamlining the Payment Process While Maintaining Effective Internal
Control, GAO/AIMD-21.3.2
(Washington, D.C.: May 2000).
32Purchase Cards: Increased Management Oversight and Control Could Save
Hundreds of Millions of
Dollars, GAO-04-71T (Washington, D.C.: April 28, 2004).
In this regard, the Federal Managers' Financial Integrity Act of 198233
(FMFIA) requires all executive branch agencies to periodically assess
their systems of internal control using the assessment guidance issued by
the OMB.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,
McCoy Williams
Director, Financial Management
and Assurance
(195035)
3331 U.S.C. 3512 (c), (d), commonly referred to as FMFIA.
34OMB 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.
*** End of document. ***