I. The I er 1983 GAOREVIEW i f-" . ___ I REVIEW The Winter 1983 Contents Volume 18 Issue 1 1 From Our Bridcase Accounting Update President Signs Internal Control Legislation GAO StafFAppointed to AICPA Committees and Councils Auditing/Accounting Compendium Available Standards-Setting for Financial Reporting Financial Management Issues of the 1980’s Auditing and Accounting Trends Better Information Security Needed Toward a Government-wide Procurement Regulation Regulatory Process-Puzzling to Public Public Fund Digest 4 Onhcation Comptroller General Announces Organizational Changes GAO’s Honor Awards Ceremony Toward the Office of the Future Hispanic Heritage Celebration National Association of Accountants Holds Annual International Conference Association of Government Accountants Gives National Awards San Francisco Regional C%ce Staffer Honored Headquarters’ Writer-Editor Staffs Meet with Comptroller General IPS Director Receives Myrdal Award Third Annual Health Fair Management Development Center Moves s Manager’s Corner 11 Topics in Evaluation 0453~/3 CarlE. Wisler 14 Why AU the Puss Over Olympic Csins? Charles S. Cotton and Leonard W. Ellis 635-3 7 4” i 16 Equal Pay-Fair Play Margaret M. Armen dJ 5’345 21 me fiture of Cost Aeooutltting Stamdards Clark G. Adams and Ralph C. Dawn (57-5546 $44 what‘”ge” Tom Pastore 28 Trmspodation for &heElderly asld Hatldicapped: The Answer Remhs E~MS~VG 6d5-547 d Joanne E. Weaver er er PaulF. Math 3% At Home and Abroad in Paradise: GAO’s Far Ead Branch 88 Is mere a Greater Role fop GAO in hdy&mg the Defense Budget? 82 534% George E. Breen, Jr. and Donna M. Heivslin rL-1 Report Wd&ir@-h or Drudgery? Experknees 011 the Defense Budget Task Force r -&$.&*$&+ Werner Grosshans 43 “AWee’s Worth” Anne Rucker 45 Boobimmk William k Broadus, Jr. 46 Boobark ]Laurie E. Ekstrand 47 [email protected] Judith Hatter 4s Reflecthams DianeE. Grant 52 GAO Staff Ch-es 55 New Staff Membem 58 ProfessSond Activitiies In thearticle ”Nuclear Deterrence-A Short Primer forthe Uninitiated” published in the Fall 1982 issueofthe GAOReview(p. 15), the photographs of authors Robert P. Kissel, Jr. and Elmer Taylor, Jr. were mistakenly transposed. We apologize for the error. ii From Our Briefcase Administration, the Municipal Finance Offi- cers Association, the Office of Manage- ment and Budget, and the Securities and Exchange Commission. Copies of the compendium are available for $1 (postage and handling) by contacting Marti Dillon at (202) 872-8190. To obtain more information on the items in Accounting Update or to suggest topics for future columns, call Bruce Michelson, (202)275-6222. Standards-Sewfor Finaxmeid Reporting Ed. Note: In a recent speech, Joseph E. Connor, Chairman and Senior Partner of Price the GAO Policy and Procedures Man- Waterhouse, the accounting firm, dis- ual for Guidance of Federal Agencies. cussed a subject which is close to The new legislation requires that each President Signs GAOers- improved financialreporting. Internal Federal agency include with its annual With permission from Price Waterhouse, Control Legislatiom statement on internal controls a report the Review staff abstracted some of Mr. on whether its accounting system con- Connor’s thoughts. The following gives a President Reagan, on September 8, forms to GAO’s principles,standards, and private-sector perspective on standards- 1982, signed into law the Federal related requirements. setting for financial reporting. Managers’ Financial Integrity Act of 1982, Public Law 97 - 255. The law establishes GAO Staff Appointed to InflationAccounting: Inflationaccount- within each executive agency a continu- MCPA Committees and ing is one issue on the Financial Account- ous process for reviewing and monitor- colunccils ing Standards Board’s agenda that could ing the effectivenessofits internal control significantly change present reporting system. The head of each executive Three GAO staff members have been practices. Mr. Connor described the agency must prepare an annual state- appointed or reappointedto 3-year posi- FASB’s ”Changing Prices” Statement ment on the quality of the agency’s inter- tions on four committees and councils of (FAS 33) as a step forward in providing nal controls, any weaknesses in them, the American Institute of Certified Public more meaningful financial reports, but and plans for correcting those weak- Accountants (AICPA). Those members he recommended that the impact of infla- nesses. and the committee or council are Ron- tion be reported in the primary income Federal agencies will also now be ald J. Points, Special Advisory Commit- statement. This would lead to a more required to establish internal controls in tee on Internal Controls in the Federal meaningful reflection of profits, and the accordance with standards prescribed Government; W.A. Broadus, Auditing effective tax rates and dividend payouts by the Comptroller General. GAO began Standards Advisory Council and the Man- on those profits, which would in turn result refining and consolidating GAO’s poli- agement Advisory Services Practice Stan- in better informed operating, investment, cies and standards of internal control in dards Committee; and Bruce K. Michel- and fiscal decisions. Mr. Connor added March 1982 (see GAO Review, Fall 1982, son, State and Local Government Ac- that standards should be set to facilitate p. 1 ). That project will be a starting counting Committee. consistent reporting practices regarding point for establishing a comprehensive the treatment of general purchasing power set of internal control standards for the gains on net monetary liabilities. Federal Government. AmIi~Aew-~ In a related move, GAO has embarked Compendium Avdable Pension Accounting: He also ad- on a major overhaul of the principles and dressed the controversy surrounding standards it has established for Federal A compendium of certain accounting pension accounting. “There is a basic agencies. Under the Budget and Account- and auditing pronouncements of inter- disagreement on whether a promise to ing Procedures Act of 1950, GAO is est to CPAs in Government has been pay employee pensions at some far-off required to take the initiative in establish- prepared by the AICPA Committee on future date creates a present liability- ing accounting principles and standards Members in Government. The listing which ought to be recorded-or a pres- for Federal agencies. Those principles includes pronouncements from the ent contingency-which need not be,” and standards are contained in title II of AICPA, GAO, the General Services he explained. GAO ReVlewNinter 1983 I From Our Briefcase Mr. Connor’s view is that pensionsare with his suggestions or existing action 0 Clark Adams, PLRD, “Cost Account- aformof compensation, the cost of which underway to resolve them, including ing Standards Implementation.” (See this should be allocated to the periods in which 0 the Federal budget process, issues’s article on Cost Accounting services are rendered. 0 accounting system approval, Standards.) Income Tax Accounting: Existing 0 accounting principles and standards, 0 Dave Bryant, OFM, “Financial Man- accounting principles require that tax 0 internal controls, and agement Improvement-An Agenda for benefits arising currently from timing dif- 0 the single audit concept. Managers.” ferences be deferred by all commercial At the end of his speech, Mr. Bowsher For details, contact GAO individual and industrial companies in all circum- emphasized how progress can be made speakers or write for a summary of the stances. According to Mr. Connor, reex- on these important financial management conference proceedings to C. Hamilton, amination of income tax accounting rules issues: Editor, Government Financial Manage- must consider the fact that some regu- ment TOPICS, Association of Govern- lated industries would suffer serious eco- First and foremost, we must be willing ment Accountants, 727 South Twenty- nomic setbacks if deferred tax accounting to exert necessary effort to effect posi- third Street, Arlington, Virginia 22202. were to disappear without compensa- tive change. Secondly, we must pro- tory changes to rate structures. He pro- vide leadership and communication not Better Mormatian posed that any new standards issued only within the financial management Sedty should preserve present exceptions that community, but with policymakers, pro- Needed recognize the unique circumstances of gram managers, and the public. regulated industries. Two 1982 GAO reports focused on Consolidations: Mr. Connor predicted A brochure of Mr. Bowsher‘s full speech issues within information systems devel- that another important business topic likely is available from GAO’s Office of Public opment and design, including the vulnera- to be debated in the near future isconsoli- Information,Room701 5, (202)275-2812. bility of informationsystems to fraud and dations and the equity method. He felt other illegal practices. The Mission Analy- that the predominant practice of not con- Auditing and sis and Systems Acquisition Division solidating finance subsidiaries will surely Accounting fiends (MASAD) and the Human Resources Divi- come under intense scrutiny because of sion (HRD), in close coordination with the increasing number of bankruptcy the General Government Division and candidates. In addition to Mr. Bowsher’s speech, the Accounting and Financial Manage- Closure: Mr. Connor said that, although numerous auditing and accounting topics ment Division, issued the complemen- the standards-setting process may seem made up the proceedings