bCost estimates do not include installation and communication costs.

CA definitive date had not been set, but officials estimated it would take approximately 15-18 months once the plan was approved.

Includes $5.9 million for acquisition and implementation of the software and $3.5 million for maintenance over 8 years. In commenting on our report, HHS indicated that SSA recently awarded a $12.3 million contract to replace its existing accounting system.

eThis system will consist of four modules. The last module relating to supply management is scheduled for implementation by April 1, 1990.

In commenting on our report, the Department stated that the initial implementation of new core accounting system software for the SSA, the Center for Disease Control, the Health Care Financing Administration, and the Health Resources and Service Administration would be completed by December 1988. Initial implementation of all seven primary accounting systems is expected by fiscal year 1991.

While the Phoenix Project Plan is an important first step in addressing some of the Department's long-standing financial management problems, additional actions will be necessary to enhance the success of this effort. Specifically, we believe that the Department should

closely monitor the current developmental projects to make sure that known system problems are corrected;

integrate programmatic system' enhancement efforts with the Phoenix
Project Plan; and

establish a focal point for financial management in the operating
divisions.

'The programmatic system collects, processes, transmits, and disseminates information on the results

Top Management's Continued Involvement Is
Needed to Improve HHS'
Financial Management

Our booklet, Critical Factors in Developing Automated Accounting and Financial Management Systems, dated January 1987, discusses 14 major factors that are critical to the successful development and implementation of a system. These include management commitment, basic features, target dates, independent testing, and quality assurance review. These five factors, which we considered most relevant to addressing the problems identified during the review, are discussed below.

1. Management commitment. If a project is to succeed, management
must agree that the project is needed and accept its goals. In the case of
the Phoenix Project, and in contrast to past major system design initia-
tives at HHS, this seems to have been accomplished. For accountability
and timely completion, management needs to maintain continuity among
the people assigned to manage and help with the project. Top manage-
ment support also needs to be continued across successive administra-
tions until the project is completed and the problems are corrected. Only
with top-level support can a major system become an accepted, integral
part of the organization. Top management should actively participate at
key decision points throughout the system's development and
implementation.

2. Basic features. It is essential that planned automated systems include features such as the following:

a comprehensive set of automated internal controls to ensure the accu

racy and reliability of information in files and reports;

audit trails allowing transactions to be traced from reports to their originators;

appropriate sets of automated subsidiary ledgers, such as accounts payable and accounts receivable ledgers;

one-time recording of transactions;

automated matching of related transactions (for example, matching disbursements with related payables); and

adequate manual procedures, since not all transactions will be automatically entered and almost all will require some manual work.

3. Target dates. While we recognize that it is difficult to accurately estimate costs to be incurred and milestones for implementing each system project, realistic estimates should be made with the understanding that variances will occur as the project proceeds and there is greater understanding of the project's scope and complexity. When changes are made to these estimates, everyone from top management down must be notified. The reasons for slippages must be clearly identified, and variances

Top Management's Continued Involvement Is
Needed to Improve HHS'

Financial Management

must be analyzed in order to maintain accountability and control over the project.

4. Independent testing. Acceptance testing is needed to make certain
that the system is operating as designed. Consequently, acceptance test-
ing should be performed by a group independent of the developer. For
complex systems, acceptance testing is a very formal process. A test
plan identifies the documentation, equipment, and software needed for
the tests. It also describes test methodology, test controls, and tests to be
performed. Problems are noted in a formal test analysis report, and
retesting continues until all problems have been satisfactorily resolved.

5. Quality assurance review. The system under development should be
independently reviewed by someone who has technical knowledge but is
not close to the project in order to identify problem areas, omissions, or
better ways of accomplishing the system's tasks. The independent
reviewer should use a checklist to consider and document all relevant
points. The reviewer should be equal to or higher in rank than the pro-
ject manager and must be able to exercise independent judgment, similar
to that of an inspector general. The reviewer also should try to make
constructive recommendations for resolving any problem he or she
finds.

Successful implementation of the factors discussed in our booklet would contribute significantly to correcting some of the problems that we identified in chapter 2. For example, the one-time recording of a transaction should greatly reduce differences between the general ledger system and the subsidiary system. Also, the one-time recording of a transaction should greatly enhance the operating division's ability to perform the required reconciliations and more accurately report on its financial position.

tegrate

matic System

ent Efforts With

The Phoenix Project Plan focuses primarily on HHS' efforts to enhance
its accounting systems. Our review of available documentation shows
that the plan does not clearly delineate how or if the accounting system
enhancement efforts will be integrated with the Department's efforts to
improve its programmatic systems. The integration of the Department's
enhancement efforts should make it unnecessary to enter data more
than once and help reduce the probability of errors. In addition, the inte-
gration of the system will help avoid unnecessary developmental cost
and ensure the compatibility of systems-both hardware and software.

Top Management's Continued Involvement Is
Needed to Improve HHS'
Financial Management

ocal Point for Financial anagement in the perating Divisions Would nhance Development fforts

For example, since 1982, SSA has been trying to implement its Systems
Modernization Plan, an effort aimed at correcting difficult to maintain,
obsolete computer systems that were creating serious service problems.
The plan's objectives were to improve software, equipment, and data
communications, and to implement an integrated data base in order to
provide better service to the public. Improvements were to take place
over a 5-year period (1982-1986) at an estimated cost of $479 million.
SSA currently projects the costs through fiscal year 1988 to be about
$643 million, which includes improvements in other areas. Successful
implementation of the Systems Modernization Plan would also improve
SSA's ability to account for and control payments made to program bene-
ficiaries. It is, therefore, vitally important that SSA's system enhance-
ment efforts under the Systems Modernization Plan and Phoenix Project
Plan are integrated to ensure the efficient and effective exchange of
data between the program and accounting systems.

In addition, it is equally important that enhancement efforts to improve the programmatic systems in other HHS operating divisions be integrated with the systems efforts under the Phoenix Project Plan. For example, efforts to improve programmatic systems in the areas of procurement, contracts, grants management, and disbursements need to be integrated with efforts to enhance the accounting systems. It is critical that accounting systems not simply satisfy financial reporting requirements but also be an important tool for the manager in administering the Department's billion dollar programs.

A key element in improving HHS' financial management systems is leadership. As we testified before the Senate Governmental Affairs Committee,2 agencies must have consistent, continuous, and strong financial management leadership to solve the serious and long-standing accountability problems they face. This would provide the continuity needed for improved agency financial management, support for central agency financial initiatives, and a conduit for accounting policy and guidance.

As we discussed earlier, the Assistant Secretary for Management and Budget has been designated as the Department's Chief Financial Officer with responsibility for providing overall guidance and direction. Also,

2Testimony by the Comptroller General on (1) “The Federal Management Reorganization and Cost
Control Act of 1986" (May 13, 1986), (2) "Improving Government Management and Accountability”
(GAO/T-AFMD-87-1, February 18, 1987), and (3) "The Federal Financial Management Reform Act of
1987" (GAO/T-AFMD-87-18, July 23, 1987).

Top Management's Continued Involvement Is
Needed to Improve HHS'
Financial Management

onclusions

acting upon a recommendation in our report, Social Security Administration: Stable Leadership and Better Management Needed to Improve Effectiveness (GAO/HRD-87-39, March 18, 1987), a Chief Financial Officer has been appointed in SSA. Furthermore, in October 1987, the Deputy Assistant Secretary for Finance informed us that the Department plans to establish a chief financial officer position in each of the other operating divisions.

We support the Department in these efforts. We believe that given the size and diversity of HHS' operations, the appointment of a chief financial officer in each operating division would provide the continuing leadership needed to help resolve many of the financial management problems discussed in this report. Also, it would increase the likelihood that future financial management issues would receive prompt and sufficient attention. As a focal point for financial management, the chief financial officer would (1) account for the utilization of resources, including the cost associated with performance of activities, (2) monitor progress and costs relative to major procurement initiatives to ensure early and timely identification of problems, and (3) assess the effectiveness and integrity of the operating division's program and accounting systems to ensure that the information is accurate, that internal controls are working, and that these systems comply with the Comptroller General's accounting principles and standards.

The Department has developed a plan aimed at correcting its accounting system weaknesses through long-term system enhancement efforts. The plan, which has the support of managers in the HHS operating divisions, is an important first step. If successfully implemented, the Phoenix Project Plan can help HHS bring about improvements in its accounting system operations and provide a framework for the operating divisions to follow.

It is imperative that the Phoenix Project Plan be well managed throughout its implementation. This plan must be given top management priority and sustained effort by the operating divisions in order to succeed. The continued involvement of the operating divisions is vital to building consensus for the plan and is the primary means of ensuring that all viewpoints are considered.

In addition, it is vitally important that enhancement efforts related to the programmatic systems be integrated with the efforts under the Phoenix Project Plan to avoid unnecessary development cost and to