May 10, 2018 —
We determined whether the Department of the Navy (DON) provided adequate oversight of its qualified recycling programs (QRPs). Specifically, we verified if DON headquarters personnel performed QRP assessments. We also verified whether the DON headquarters personnel ensured that the QRP managers followed guidance requiring them to segregate duties, deposit checks timely, ensure checks are made payable to the Department of the Treasury, reject cash payments, develop business plans, reconcile transactions to the accounting system and maintain supporting documentation.
A QRP is a program that collects and sells eligible scrap materials, such as paper, cardboard, plastics, glass, scrap metal, and brass. Sales proceeds are used to cover the costs directly attributable to operating expenses of the program. After the costs are recovered, up to 50 percent of the remaining proceeds can be used for pollution reduction and similar projects at the installation or region, and any remaining proceeds can be transferred to the nonappropriated morale, welfare, and recreation account. If the balance available at the end of any fiscal year is more than $2 million, the amount of that excess is deposited into the Department of the Treasury account as miscellaneous receipts.
The DON did not provide adequate oversight at the 10 QRPs reviewed. Specifically, DON headquarters personnel did not adequately perform assessments, which include a review of QRP financial records, and oversight to verify that the QRP managers were following guidance for operating a QRP.
Because guidance was not followed, the QRP managers did not:
- segregate incompatible duties to decrease the risk of fraud of error. At 6 QRPs, the QRP manager was solely responsible for requesting bids, selecting the winning bidder, performing the sales transaction, and collecting the check or proceeds.
- deposit checks from QRP sales in a timely manner at 7 QRPs, increasing the risk of lost revenue due to lost or expired checks.
- require checks from QRP sales to be made payable to the Department of the Treasury or reject cash payments at 3 QRPs. When checks are not made payable to the Department of the Treasury or when payments are made in cash, theft could occur. For example, checks not made out to the Department of the Treasury can be deposited into individual bank accounts and not recorded in the QRP records.
- develop business plans or include all required elements in a business plan that could be used to evaluate the success of the 10 QRPs we reviewed. A business plan details QRP operations, such as its mission, goals, and objectives.
- reconcile revenue and expense transactions with the accounting system to ensure accurate reporting at 4 QRPs.
- maintain supporting documentation, such as contracts or sales agreements, weight tickets, and receipts, at 9 QRPs to ensure the accurate reporting of revenues and expenses.
These deficiencies occurred because the DON did not have standard operating procedures (SOPs) defining how to perform assessments and oversee the QRPs.
As a result, the DON cannot accurately assess the performance of its QRPs, the QRPs may not be operating in the most efficient and effective manner, and the QRPs are vulnerable to fraud.
We recommend that the Assistant Secretary of the Navy (Financial Management and Comptroller), Office of Financial Operations, develop and implement SOPs to provide guidance to DON headquarters personnel on overseeing the QRP.
We also recommend that the Commander, Navy Installations Command, Facility Services; and Commander, Marine Corps Installations Command, include a requirement in the Commander, Navy Installations Command Instruction 7300.1A and the U.S. Marine Corps Qualified Recycling Program Guidance, Version 2.x., to require the QRP managers to document bid information, weights of material sold, and prices of materials.
Management Comments and Our Response:
The Office of the Assistant Secretary of the Navy (Financial Operations) (FMO), responding on the behalf of the Assistant Secretary of the Navy (Financial Management and Comptroller), Office of Financial Operations, agreed with the recommendation to develop and implement SOPs to provide guidance to DON headquarters personnel on overseeing the QRPs. FMO will develop guidance to provide oversight and contain instructions regarding assessments, financial reviews, and compliance, which will address annual reviews of business plans, segregation of duties and placement of mitigating controls, and proper check endorsement and receipt of non-cash vendor payment procedures. Additionally, FMO guidance will include procedures for timely deposit and end-to-end data reconciliations ensuring revenue and expense are properly recorded and reported in the financial statements.
The Commander, Navy Installations Command, and Commander, Marine Corps Installations Command, agreed with the recommendation to include a requirement in Commander, Navy Installations Command Instruction 7300.1A and U.S. Marine Corps Qualified Recycling Program Guidance, Version 2.x., to require the QRP managers to document bid information, weights of material sold, and prices of materials. Guidance will be revised to include requirements for the QRP managers to document the list of bidders, responses for the bidders, winning bids for recyclable materials, contract or sales agreements, weight tickets of the material sold, and market price or other agreed-upon sale price.
The comments addressed the recommendations; therefore, the recommendations are resolved. We will close the recommendations when we verify that management has completed the agreed-upon actions and that the guidance has been implemented.