The Hindu Business Line : Breakdown in internal control leads to improper payments

ON July 8, we got an important document tabled in the House, the Budget. Same day, the US Government Accountability Office (GAO) released the statement of McCoy Williams, Director Financial Management and Assurance, on the `financial management challenges' of the Department of Homeland Security (DHS), rendered as testimony before a Senate subcommittee.

DHS was born after 9/11. The Homeland Security Act of 2002 brought together 22 agencies and formed this new department with a brief to reduce US vulnerability to terrorist attacks, and minimise damages and assist in recovery from attacks that do occur.

The 16-page document is of interest to accountants because it talks of two types of weaknesses in the DHS — those "inherited from component agencies", and those "newly identified". Inherited worries are due to component entities using "legacy financial management systems that have a myriad of problems, such as disparate, non-integrated, outdated, and inefficient systems and processes."

A bigger challenge, more widespread, is that of `improper payments', which the GAO traces to "lack of or breakdown in internal control". DHS has an annual budget of about $40 billion and employs more than 1,80,000 staff, so need for better controls is high.

Now, what do improper payments include? "Inadvertent errors, such as duplicate payments and miscalculations; payments for unsupported or inadequately supported claims; payments for services not rendered; payments to ineligible beneficiaries; and payments resulting from outright fraud and abuse by program participants and/or federal employees." Shockingly, a table provided by the GAO shows "reported estimates of improper payments exceeding $35 billion" from 15 agencies.

Coast Guard's "Deepwater Procurement Project (Deepwater), which began in 2002 and currently has an estimated cost of $17 billion over 20 years— the largest in Coast Guard's history" comes under the GAO's lens: "It is already difficult to determine the degree to which the Deepwater project is on track with regard to its original acquisition schedule because the Coast Guard has not maintained and updated its acquisition schedule... Further, a recent disclosure that, just a few years into the acquisition, costs have risen by $2.2 billion indicates the need for a clear understanding of what assets are being acquired, when they are being acquired, and at what cost."

The GAO cautions the DHS about its ambitious eMerge "electronically Managing enterprise resources for government effectiveness and efficiency" estimated to cost $146 million: "Similar projects have proven challenging and costly for other federal agencies".

Example given is of National Aeronautics and Space Administration (NASA) which is "on its third attempt in 12 years to modernise its financial management process and systems, and has spent about $180 million on its two prior failed efforts."

A report to catch up with.

mail to:dmurali@thehindu.co.in