AD-A127 046 INTERNAL CONTROL SYSTEMS FOR PURCHASING TRANSACTIONS 1/1 WITHIN THE FOURTH MARINE DIVISION USING UNITS(U) NAVAL POSTGRADUATE SCHOOL MONTEREY CA C A RILEY DEC 82 UNCLASSIFIED F/G 541 NL II
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AD-A127 046 INTERNAL CONTROL SYSTEMS FOR PURCHASING TRANSACTIONS 1/1WITHIN THE FOURTH MARINE DIVISION USING UNITS(U) NAVALPOSTGRADUATE SCHOOL MONTEREY CA C A RILEY DEC 82UNCLASSIFIED F/G 541 NL
II
I. WIII=-L~
11.4, m6
MICROCOPY RESOLUTION TEST CHART
NATIONAL BUREAU Of STANDARDS- 1963-A
NAVAL POSTGRADUATE SCHOOL0, ,- Monterey, California
THESISINTERNAL CONTROL SYSTEMS FOR PURCHASING
TRANSACTIONS WITHIN THE FOURTHMARINE DIVISION USING UNITS
by
Chester Arthur Riley III
December 1982
U-
Thesis Advisor: S. S. Liao
Approved for public release; distribution unlimited
-J
LA-
93 04 21 1031
SECURITY CLASSIICATION@Im TWIGS MSS, fEm 041. a*________________
NEPORT 0OCUMWTATMO PAGE K9SRu1r4ee_ GVT ACCI.ae M S. 46CIPSMYS CATALOG 61UNGER
4. TITLE (and Subfl" S. TYPE 00 REPORT A PERIOD COV6E0
Internal Control systems for Purchasing Trans- Master's Thesis;actions within the Fourth Marine Division December 1982
4PERFORMING ONG. "ItOOTMUNZUsing Units
7. AU T"00(0) I- CONTRACT ON GAAN Wq.,MUEj[0
Chester Arthur Riley III
9 MA616 AND A864688 4AUELENENPOJ 04,61C , TAS.
Naval Postgraduate SchoolMonterey, California 93940
'I VCONTROLLING OFVICE "AMC AMC ADDRESS 12. 4gPORy OATE
Naval Postgraduate School December 1982Monterey, California 93940 is. "Unman OFPAGES
69'a.NONTOUNG GENY AMEA AwmE~raEU n CamILM *me*)j St. 89CUOITY CLASS. We thi rdbet)
UnclassifiedIS&. OecL ASSUICATION/ oe@NIGRAOINE
Approved for public release; distribution unlimited
17. DISTRIBUTION STATEMENT (ad tA. 864~m aWWOd In Block 30. of doet~in Rean)
Wa SUPPLEMENTARY NOTES
19. Key W0006 (Cowtowe - romes. .4f it nwoo OW 8~1P OF use& abl)
Internal control, Small purchase control, Marine Corps small purchases.
2.A PACT (C&AMWa u.. .1IID asi.t -f 000010 WNAM OF UsIN M~bW)
!IThis thesis presents a suggested generalized design base to be utilizedby the using units of the 4th Marine Division when establishing a system ofinternal controls for purchasing transactions. It stresses administrativecontrols which help ascertain the need for a purchase instead of how a
purA. .4: -,cc'omplished. 'fte- -. 2 tt~~ f t",, ec .n enl-: f- -nadequate system of internal controls, suggested generalized controls werepresented. A redesigned purchase request document and simplified flow-charts
Cc 0"1473 EaIeu oo I Nev5 sois 0006LIE2
1 *CU01V CLASICAfleO OF ?"Is 304 (WAN DIO nm
7;
dlwqu9' 6k.ao4aYoem 0 OWS v~a a... e...w
Block #20 Contd.
4or the source of supply and purchasing method decision questions are themajor controls given consideration. A methodology for the implementationand maintenance of the final tailored system of internal controls (developedultimately by the Purchasing Officer of the Using Unit) has been includedto assist the Purchasing Officer in accomplishing a smooth and completetransition of all personnel who participate in the purchasing process.The final recommendation was that all of the controls be implemented andthen adjusted as required.
2
D oric 1473
V4 -
.. . .. .. . .. i -,m .. .. . .. ... 4
Approvel for public release: diStri&butian unliuited
Internal Control Systems for Purzzhling rraasictions withinthe Fourth Marine Division Using Uits
by
Chester Arthur Riley riiCaptaiLn, United States Aarina C:r:p-
B.S., University of Pug~t Souni, 1375
sabmi-ttrd --a partial fal-2111ant :)f thsrequirements for the degree :-f
MASTER OF SCIENCE 1N IANA3EMENr
from the
NAVAL POSTGRADUATE SCHOOL:)9c-aber 1332
Appr-:wsd by: -------/,6L- ----th-asis Advisor-
Second Reader
Ch -anepartme 3F ;riminist~itive Scieaces
Dean of Inf~rukatloa and P3licy Scietces
3
kBSTRA&T
This thesis presents a suggested ;snerilizel Issign base to
be utilized by the using units of the 4Ith Sirine Division
when establishing a system of inte:2al =ontrol3 for purchas-
ing t--arsactIons. V! stresses alministrative controls which
help iscertiin the- need for a purchaise irsteal of how a! Dur-
chase is aczcupished. After a prasnt!L-:_n f the require-
ments for an adequate system of Lnra-. c,3ntrols, suggested
qene~alized conitrols were presenr3a.. k reIssigned purzaise
request document and simpliLfied fl~v-charts for the s.ource
of supply and purchasing methol Icslor. quaestilors are the
major conr:)s given con sileratio.-. I metho)!ology for the
-mp eientation and maintenarce of the final tilored system
of intarnal controls (developed altim2ately by the Purchasing
Officar of the Using Unit) has been iazlula! to assist the
Purchasing officer in accomplishing a 3mooth and complete
transition of all personnel who participatq in the purchas-
inq process. The final recommenl!atior- was titt all of the
controls be Implemented and then aijusted as cagaired.
CoWy available to DTIC does rnot4 Permit fully legible reproduction
TABLE OF CONTENTS
I. INTR3DUCTION . . . .. . . . .. . . . .. 11
A. BACKGROUND .................. 11
1. Accounting vs. Adzinistritiv_ :ontrols . . 11
2. The Impact of Ini~alaate Systass of
In% ,_rnal Ccntrcl .. .. .. . . .. . .. 14
B. PROBLEM . . . . . . . . . . . . . . . . . . . 16
C. RESEARCH QUESTIONS ........... . 17
D. PURPOSE AND SCCPE OF tHESIS . . . .......... 18
E. !IETHODOLOGY . . . . . . . . . . . . . .... 19
I. REQUIREMENTS ?OR AN ADEQUATE sysrEm )F INTERNAL
CONTROLS ..................... 21
A. :E:T!EIA FOR SYST2EM DEVELOPMENT . ....... .21
1. Mat erialit.y . . . . . . .. 21
2. Risk Assessment . . . . . . . . . . . . . 23
3. Cost-effectiveness ZD nsileratiDns .... 24
B. REQUIREMENTS FOR AN IDE UATE SYSE! ..... 26
1. Documentation 26
2. Clearly Defined Control )bJectives . . . . 27
C. INTERNAL CONTROL TECHNI2UES . . . . . . . . . 27
A 1. Detective Controls ............ 27
2. Preventative Controls . . . . . . . . . . 28
D. IMPLEMENTATION AND MAINTENANCE . . . . . . . . 30
5
- .-. , .
1. Supervision . . . . . . . . . . . .... 30
2. Competent Personnel ........... 30
3. Prcper Execution ant Recordiag 3f
Transactions . . . . . . . . . . . .... 31
4. External Review . . . . . . . . . .... 31
III. GENERALIZED DESIGN BASE FDR riHe SYSTEM 3F INTERNAL
CONTROLS . . . . . . . . . . ... . . .................. 32
A. PURCHASING OBJECTIVES . . . . . . . . .... 32
B. XSSIGNHENT OF PURCHASIN3 DUTIES . . . . ... 35
1. Standards of Conduct and Duty Is3ignmen-s. 35
2. Separation of Duties . . . . . . . .... 36
C. &CCESS TO RESOURCES ............. 37
D. PURCHASE REQUEST DOCUIE r . . .... ......... 38
E. SELECTING THE SOURCE OF 3UPPLY 44........
1. Federal Supply Schealas . . . . . . ... 44
2. General Services Adz-'nistrati~n Stores
Depots . . . . . . . . . . . . . . . . . 46
3. FP - and BS3 Made Pr~lucts .6...... 46
4. Local Sources of Supply ..... ........ 47
5. Source of Supply Des3t-top Pr 3=lures . . 47
F. SELECTING THE PURCHASING HETHOD .4.9.. . (9
G. PROCESSING PURCHASES ............ 53
1. Imprest Fund .............. 53
2. Blanket Purchase Agraements ...... 54
6
3. Purchase Orders . . . . . . . . . .... 55
4. Delivery Orders . . . . . . . . . .... 56
H. ESTABLISHING THE SYSTEM ZO BE IMPLEMENTED . 56
IV. IMPLEMENTATION AND MAINTENANCE METHODL3GY ... 58
A. IMPLEMENTkTION METHOD3L);T . . . . . . . . . . 58
B. MAINTENANCE METHODOLO3Y . . . . . . . . . . . 60
V. SUMMARY A!!D CONCLUSIONS ............. 63
A. SU'MAPY ................... 63
B :ONCLUSION . . . . . . . . . . . . . . . . . . 6
LIST 3F REFERENCES . . . . . . . . .... . . ................. 66
INITIAL DISTRIBUTION LIST ................ 68
7
i1
LIST OF FIURES
3.1 THE IMPACT OF "HY" ON & PURCH&SE DEZ-ISION . . . 39
3.2 PURCHASE REQUEST DOCUMENT . . . . . . . . . . . 41
3.3 SELECTING APPROPRIATE SOURCE OF SUPPLY ..... 48
3.4 SELECTING APPROPIATE PURZ11ASZG mErlIOD .... 51
8
- . . ' Il . . ". . . " . ... . . . . . . . . . I li I i m . . . i --.. . -
LIST OF ABBREVIRZION3
BPA - Blanket Purchase Agreement
BSH - Blind and Severely Handizappel
CONUS - Cntinental United States
DIVSUP - Division Supply
DPSC - D.fsnsse Personnel and Supoort Csnt.r
FPI - Y=.deral Pr-son "ndustris, I:i:.
FSS - Federal Supply Schedule
GAO - General Accounting Office
GSA - General Services AdministcatiDn
IAW - !- acccrdance with
:IARD:7 - Ma-ire Division
MCO - ftrine Corps Order
OB - Office of Management and Budget
PIIN - Procurement Instrument II-antifica=ir gumber
PO - Parchase Order
PRD - Purchase Request Document
SOP - Standard Operating Pro--1ure
T/E - Table of Equipment
TAMCN - Table of &ulthorized Miterial Contr~l Number
UNKIPS - Uniform Material Movement and Issue PrioritySystem
9
ACKNOWLEDGEMENT
The author wishes to thank Professor S.S. Liao a n d
Lieutanant Colonel J.F. Mullanie for their constructive
criticism and timely review.
The staidy o~n the Fourth Macine Divisi~n Usirqg (Jraits
Pu--h s 4-,: cculi not6 ha ve beep-n ace iol-sh~l without the
assistance of personnel at the ?ourth Daia Divi-s I ..
While all the p~rsonnel were both opsa and extremely
helpfal, I would like to extend a spec-il thiaaks to Majoc L.
Willia1ms, the Offi.zer-!n-Charge of the D:, w s ::n Saipply
IInsDEz:;or learn. His professional alvice was :fixmasire-
abeass-s:a'-ce.
10
Lai. i
I.I 2 2 -
A. BACKGROUND
The Budget and Accounting Procedures Act of 1950
-: : hs the hea7 of each depar-tm--t a-d age-.y -:o =s-a0!ig-
and miintain adequate systems of iaternal control 'Ref. 1:
p. 1]. The Office of Management and Budget amplified the
requirements to include all levels of managem et in theic 28
October, 1931 ci=cular, number A-123. The :eason fo- this
resurqence is to curb fraud, waste., ar abusq of Govern:znt
--sourz es, ind promzte :prati orL -ff. ai--ns-s and =-,
ciencv thrugh -ffeczive use of Lnternal rtro.s, h-
Marin- Corps has responded to this directive through the
development of MCO P7000.88, "Eslol-ishment and Ma.renance
of Internal Control Systems." Piragraph 3 of the order
directs that "appropriate action to establi-sa: and mairtain
an effective internal control system in acrorance with the
policies, procedures, and standards set forth herein by 31
December, 1982" (Ref. 2: p. 9].
The vernacular use of the ters "Internal Control"
has oroduced considerable speculation as to its precise
Copy avaiable to DTIC dc-21 1 Detmit fully legible roproducticn
' = ,, .-- * =-' .-- ' , ' tI - r--T- - ..-- 'u -i -
meaning. In reality, the only pre:ise meaniag it will have
is the one ultimately defined by its use: for his own
purpOses. To this end, the :omptroller 39aeral of the
Unitsi States has defined the meaaing of internal controls
in t. _4gdjrjs fr &_41 _o GalernMIG1. _raiz4a_,
PrMogra, _:tai-es, and Functi r.3, which is is follows:
inzernil ccr*tols inclule tna :lap of orgaaizationa t a'. the coordinate t hods and m.tasliresadopted to safequard assets; check thz accuracyand reLiability of accountina !.-ta; prosote opera-tional efficiency and econozy; ani enccurageidhereacs to ana qerial policies, practices, andprocedares [Ref. 3: pp. 53-541.
Marine Corps Order (MCO) ?7000.89 has expaa.med upon ctis
definition to include the Americia Institut. of Certified
Publi Acccant.ant's or;iinazed -hac a_:zatior of conzrz-DI
as be.nq account'r.g or aMinistrative. The -eason fz_ "-his
chara terization is to categorize the basic _Iincticn of a
particular ccntro.. Whereas aczoanrin; controls deal with
proper procedures involved with the acquisition, safe-
quarding, and reporting of assets; administ:ative controls
deal with the proper procedures that ralate_ to the decision
processes leading to management's authorization of transac-
tions and disposition of assets. Zhes. generalizations ,re.
uot an attempt to delineate controls into t#2 distinct and
definitive catagories, but rather to highlight the two basic
and overlapping types of controls to help dispel the tradi-
t onal notion that internal controls are strictly for
accouating and financial purposes. [Efa. 4: ?. 243]
12
The importance of including guidelines for manage-
ment's deci sion-making process (aidministrative controls)
along with the traditional accounting controls can be illus-
tratel by 3 well-known example of fraud In the Federal
Government.
In 1977, a low level employ.e was charged withembezzling 3800,000.00 from thE D=o-:t1eLt ofTrsPi:taticn. dis r -sponsi4ility wa- the prepa-6at ion of public vouchers wdich listel naes,i I dresses, and amounts oded iadiviluals and:ontracto zs. He would then forwird nma vouchersto the Certify-ng Officer who would vSrify theauthenticity and correctness. Then, tha voucherswere submitted to the Departa.zr- of the !reasu:ywhere checks were prepared ind aailed to thoseappearing on the vouchers. The employee krn-w thatthe Certifyinq officer di1 not closely =hack th=vouchers before signina and that he id not:_qui =a mandatcry markinus prevqnt - 'giona!
M :Z4es. ApDa-en-ly he simply adied - i' own nameo he vouchers, sometimes ocfor S .ga turq andsomet'ies afts.rwa~rs. His abezzlensnt iiht nothave been detected if a- alart baak amlpysa hainot questioned federal checks ranging from355,000.00 :c $315,000.00 being depcsite. in hispersonal acccunt (Ref. 5: P. 3-4].
If the accounting control of marking the vouchers so as to
prevent any additional entries was closely followed, the
lackadaisical authorizaticn by the Certifyin Officer would
have made the embezzlement still feasible. Conversely,
close scrutiny of the vouchers by the Certifying Officer
would not have detected postings sade ifter his signature.
Avoiding fraud in this case was dependent upon adherence to
both accounting and administrative controls.
13
.-- - -', " " Am. - -
The combining of the traditional aa-omating controls
with controls ccordinating authorization decisions with
operational effectiveness and efficiency forms an inter-
locking system of internal controls. When ipplied with full
management support, this system will substantially minizize
the potential for misuse of governient resour-es.
Recent audit findings have shown general lack of, or
weaknesses in, systems of internil :onzrols ii the finaa:ial
management system among Federal PrDcurement kgencies. 3ne
of the mcst notable reports was rhe Relitio-.shio between
inzrial Conrzols and Fraud, Weste, and bus., subm4i_-.1 on
Auqus: 23, 1980, by the General Ac:;unt-ing ffize (GAO). 1n
their review of eleven Federal Agency Fiscal Offices, :hey
found widespread, similiar, and p:evalent fiaancial control
weaknesses. The GAO believed that these weakness-, exist
throughout the Government since the operations reviewed
represented a cross section of the major a:tivities carried
out by the Federal Government. ne report ended with some
generalized conclusions, which may be summarized as follows:
1. In many cases, the agenciss' own procelre manuals orregulations (implementing standards published byTreasury and GAO) specify the controls 2eeded, but thecontrols had not been in.orporated into fiscaloffices' day-to-day operations.
14
4 -* '"r " .-T " .... ... . .. . .. . . . m. f . . . ___'- ' " ". . .. . . ". . . . . . ".. . . ..
2. Experience has shown that constiat vigilance bymanagement is necessary to i7sure cotinued effectiveoperation of internal controls.
3. Direct costs due tc weaknesses in internal controlsare not individually large, but are significant whenprojected Government-wide.
4. Weakn-sses n systems of intarnal contcoIs -=sult ininaccurate accounting records, which produce erroneous
in.cial st a- ment s 5nl _fii ciad? 3 :i o .
5. Failure to ccntrol financial operations reduces fundsotherwise available for operating agery programs.
6. Stronger measurs are nee el tc bring about lastingimprovements to the systems of int=_nal zontrols.
The r-port recommended that the Co)gress 9naic lecislatio.
to place greater resocnsibility unon -he hi.s Of -efa-ral.
aqnczis fcr the souniness of th.ei: crganizit-_r'), system cf
intsznal ccntrols. [Ref. 6: pp. 53-54]
Results such as these have created a resurgence of
emphasis on systems of internal c3ntrols. rhe Office of
Manaa-ment and Budget (OMB) has reiterated ind expounded
upcn the Budget and Accounting P:ocedures .ct . of 195) intheir UJ Qj. ..__- &-i3_ dated 28 )-tober, 1981.
Directives such as the aforementioaed have cumulated,
resulting in CCo P7000.88, which directs tha establishient
and maintenance of a1equate internal contr31 systems in the
Marin.e Corps by 31 December, 1982.
15
B. PROBLEM
Unlike the rest of the Marine Zorps (which has central-
ized Contricting/Purchasing Offize s), the Fourth Marine
Division Using Units are normally LsolatEI fr3 procursent
suppor t , necessitating the use of inlepeni nt purch-sina
fron within the u.it. 1n most =a-=es, the_ poe.nnel cha-ed
with he purchastng duties have little (if anyl prior f'Liil-
iarity with the proper procedures. This is sipoorted by the
last three summation analysis reports f'r inspectiias
conduored by the 4th Marine Division Sapplf Inspecticn ]i
during the period of 1 November, 1930 :.z:)ugh 15 Ap:i.,
1982. All three of these summatior, remoras stioulated thae
the "eo ographic dispersion of subor--inate ani'.s and lack of
clcse proximity -to czmmand aad support :inies -
consilered the malor contributiag fact)rs to azted dis-ze-
pancia-s" [Raf. 7: p. 3]: [Ref. S: p. %]: (Rf. 9: p. 5].
Though the expertise needed for iausuil proolems is aivi-
lable throu;h a phone call, day-to-day pur:a-sing transac-
tions must be performed at the using unit level.
MCO P70)0.88 (effective 31 December, 19921 raquires that
an adequate system of internal coitrols be implementel by
management to help curb fraud, wste and abase (Ref. 2: p.
91. This requirement has createl an irduOQ3 task for the
Purchasing 3fficer of the Using Onit, since he also normally
16
has little pr-cr experience itith proper purchasing
procel ures.
C. RESEARCH QUESTIONS
Though specif _c guidance is given as to the aprri-taI )ccoua.t:c roceiures that shcu!l be u.iiiz _! f.r =ff;-tive
inter.-.-l ccntrol, 1 .1 6 1e ;u idan.za :s ;-iva Da -h'e a .i. i -
trative procedures or the development of admi.-strativ: _
controls. Additionally, if the Purchasiag Office: has
little prior purchasing experi.znze, even the accounting
procelures :an become cumbersome. If - the ?r:;asing OffZ"er
is t bef" ective in :he completion of the di- ectiV
establish L.d Mran.tin an ade ite systam of in-arnal
controls, he must have a well .evelopei -oncept of :he
necessary raquirsmen-.s.
The following questions will have a dirert affect o. the
Purchasing )fficsr's ability to uilerstand th_ requirements
needel for an adequate system of iat.rnal zoartols for his
Using Unit:
1. What is needed prior to control d.velopnent?
2. What ire the mandatory control requirements?
3. Where should control emphasis be pla-.1?
4. What restrictions shoull be placel on controlievelopmert?
17
. -- . M
5. What is the purpose of administrative :ontrols?
6. How is administrative control acc::mplisied?
7. How should the final system of internil controls bei mplemented?
8. How is the system of internal zont:ots effectively%a int a ined ?
D. PURPOSE AND SCOPE OF THESIS
This thesis will attempt to establish a generalized
foundation to facilitate the fD:_:-lizing f a syate :f
"int:a7 co'ntros tfor da y- ,o-! a c p ta t io a o lirchd 3 in
transicticns qxScut=_i by the isig Jri:-s 3f the Four-:h
,arn e Division.
The flacine Corps Purchasing Prozedure -s .4 anua! (MCD
P4200.15E) is highly informative and detailad with respect
to proper accounting procedures and offers some relief to
the difficult purchasing process. This th.sis will con==n-
trate on administrative controls, which f)cus on ascer-
taiting the need for a purchase instead of how the purchase
is aczomplished. This will fazilitate the proper utiliza-
tion of funds through more complete and izzurate criteria
for purchase authorization. Guidance will also be provided
to help focus on the applicable i:countin; procedures and
methods that ar _ promulgated in 4C P423O.15E.
18
E. METHODOLOGY
An extansive review of zurrent literature on the
requirements for an effective system of internal controls
was conducted. The literature serves as the aisis for evil-
uatin7 the strength and weakness Df th 4th Ma:rne
Di i -' sI, n ut srnal con t 7o n r1z- !Cr :-_ -
update the axpertise that was cnce held by this author th_--
years ago as the Officer-in-Chi.-ge of the 4th l--:ine
Division Supply inspection Unit, phone covaersations wers
condu.ted with the marine Officer currently holding tha -:
same ille:. Relevant documents suppliea. oy the cur~rnt
Office:-i..-Z harge were. .xa-mined. During th-- w_-iting Df the-
thesis, pcints of otential abiuity were i isc'Issed dith
he ifficer-in-Chargq of the Insp-tion Uniit to conf-ri or
correct the authcr's perception of the intent of the appli-
cable order or manual.
The current and pertinent xinuals ain orders were
obtained vii the publication section it the larine :orps
Logistics and Suppor4 Base located at Albany, 33orgia.
Chapter II presents the generilize! reqairements for an
adequate system of internal controls by offering an approach
to the heuristics of development, levelopment requiremeats,
techniques, and the implementation ind 2aintarance require-
ments that can be used by the Purchasing Offtz:ar. Chapter
19
el ~_W " . .. . . . ." -1 1 II_
III 4s a suggested generalized design bass that shoull be
utilized when the Purchasing Offia3r is tailoring a system
of internal controls for his using unit. :hipter IV offers
an explanation to the potential problems of implementing and
maintaining a system of internal comtrcls. It also suggests
a methodology that can be used to lea! with these potential
problems by shading the isplementatio ind maintenance. rhe
final chapter will summarize this thasis and prssent
concluding remarks.
20
II. JM MNTS 0 AE9 bl A g DEj_&C aII 1al I!IT;._jAI
A. CRITERI& FOR SYSTEM DE7ELOPMENr
e ha r is'_ ics involved in levelopiag in "o9-iiai."
system of: internal controls far e.tcaei tas -urrent capa-
bility of management science. Beciase of the Iivergenca and
subjeztivity of the factors that ia!lueaze zc.rrols, manage-
men must use its best estimate is to whathaz a certiin
contr)1 will or will not be incirpDrat.d iatD -he ultinats
sysm=m. :e oest -nat cnagem-nt ca: do zrrsrn-ly is to
-nvestiqate -he orimse criteria tLiat iMpct uogn the heuris-
tics of ccnt:rol development.
The process of developing Interaal :ortrols is aimed
to arrive at a satisfactory level of assuranz regarding the
performance of the organization. iowevsr, it is not econom-
ical or necessary to arriv- at 13)% assuriace.
Consequently, the limited time a manager can devote to
obtaining a desired level of issurance must be spent on
matters of importance and substana-e. The term used to
* describe this segregation of what is important and what is
21
4
"When generally expressed, it is a sinple concept to
understand. However, applicatioa of the coacept is diffi-
cult due to the relativity of the term" [Ref. 10: P. 331].
The environsent (both internal and external tD the organiza-
tion), the obJectives of the crginization, ail the level of
hierarchy concerned with the appl.=itioa, a 1 all periia ent
facto.s in the determinaticn cf maer_ _ .I wZ-1knesses. he
manag-: cf a public affirs departiant zou! ?oDssibly have a
budqet in excess of a million lallars and he is highly
concerned as to its utilization. 4 seior Sxezutive of the
same zompany sees it as less thin 1% of tne Drganiza-ion's
o nsratinq bidget and deems it as i-a:orse=qunt _il comparsd to
prcduz:on ir personnel costs.
There i.S no way currektly k.cwn t qeralIz- th-
appiization of the term materiality. 3ovqwre:, managerS in
spec'fic positicns have experienced "events that shcw the
wisdoz (or error) of the judgemenr that was 2ade and these
cases then become the building blocks of a more complete,
improved, and integrated materiility concept" "Ref. 10! P.
3163. With experience as the key and judgement as the sode
of quantifying the experience, guiles can be sxpressed for
specific maaagement positions thr igh some sort of policy
quidance that can be disseminated to a larger interest group
and turnover files for the next idividual that wi.l fill
the position.
22U
Whether the manager has axperienze, has policy
guidance from the previous manager, has guidaace from higher
authority, or is just left holding the Dag, h-3 aust draw the
line for materiality.
A well-developed concept of materiality is required
when evaluating weaknesses in a pccess bein; scruntinized,
otherwise the manager will be mixing the r.?!svant info.za-
tion with ilconsequential data.
2. £isk AsesU2ss:t
Risk assessment is an essenial iag.e.ient to the
materiality process. It zonsist.- of two zalar factors --
the m.1.2u1 and f,_.1_!1ena 9f o; _,_Z-_gE of ths risk. Zhe
"Maanitude" is basically the estizated amount of poten- i- i
loss from each occrrence. The "frequency of 3=currenc." is
self-lefinig. Together, the two faztors sill express an
"exposure" rate for some set time frame. [Raf. 2: encl. 2,
p. 21 Without looking at both aspezzts of the exposure rate,
one would be evaluating control. l.velpment upon isolated
incidents vice the total effect.
much like materiality, risk assessment is a julge-
ment call. Whether one uses past experienzas as guides or
pulls astimates from the air, exposure rates must be given
consileration in the development of internal zontrols.
23
"4II I -, I I*..1.. -i , , , ,
3." .:!t~eD~
Once the material weakn=s3ss have been identified,
the manager must decide the most :ost-effeative alternative
to employ. Since the cost of coatcls can be estimated with
a fair degree Cf accuracy, it is basically la exdercise in
devisanq vi.ble a:ternatives to solwe :h- oroble-. However,-he -ectiencss of each altenative cor-trol :ul agai4 be
based upon . manager's speculation. A Ma-i- r must ccoin.e
the cost and effectiveness and apply it to the weakness ir a
way that best supports the objactives. '-- ern resilts
shou.lA :ep=?ser.t P. s--ep c.ose: t:) th=e s~rosr-an
A cz st-b & fit. -= analysis is a ;oo a-oroach., the
attempt tc optirize -he projected -esul-s :f i ccn-rol. By
estima ing the benefit ta:t is de_-ivei froi) each proDo se.
ccntrol and deducting the control cost, yoa are able to
compare all the con-rols since they are ill based upon the
same scale.
By analyzing the interaction between the pr3cesses, p_.-
ple ani environment in the fori 3f attribute=s of perfor-
mance, the current state of the )rganizatio,. is inferred.
The comparison of the organization, the objectives, and the
desired results will lay the foundation in the developmental
and ultimate decision criteria. $.1aeral questions shoull be
inciaed while deciding as to thae adequacy of any one
214
control. Some cf the more pertinent questions are as
follow s:
1. Is the control compatible with the organization,people, procedures, and processes?
2. Does the control attack the potential cause and notthe effect?
3. Does the control --educe the t-sentia! f and/or flag asignal at an occurrence of an error o- .:r-gularity?
4. Is the control cost-effective?
The accumula-:ion of acceptable =on'rols will _:m the sys:=m
wh ch again must !- .?valuated, but j _ with ; s-
ticns such as th.e following:
1. Can tie data - su!iing from the -vs- (vae-her ame-back :n the system cr resu1-s of -:ne -- nsacrions} z=readily evaluated into us _f1i and !n i r San 1ieinforzation by the end users?
2. Is the information adequate to base na.?ded decisionsu Don ?
3. Does the information fulfil. both mandatory anddesired requirements?
4i. Does the system address both short-ringe and long-range requirements?
5. Does the system help maxiiize the itilization ofresources to the fullest extent possibl_, while minim-izing the cost?
25
Aft er imple ment at ion, the accepted system of intacnal
controls will be constantly revised using the same process
to improve weaknesses discovered ind mandatocy changes fcom
hiqher headquarters. The ultinat- results should be what
management has determined as being Eeaaakz issurance that
the objectives of the system are being iccczolished.
B. ?E UIPE-iENTS FOR AN ArEQUATE SY3TEM
1. Docaimert ation
Written records are =egaui .d urig all stages of
the system of internal controls. Docui -tation of the
objezt've.s ievelop t.he basis and reason --- the sys-tei of
in~ta.nz coatrols. Recoraing o S _-s--s allows _- the
standardization of the controls, which eases itpl: t.-
tion and evaluation of the system. Dcumer- a,:ion is aso
required to prcmulagat-3 any and all changes required f-om
weaknesses discovered during the :view proc.=ss. Finally,
documentation of compliance increases the zinfidence level
of actual utilization of the systes, and alluIes to, if not
designates, the individual(s) responsible for errors and
irregularities. [Ref. 2: p. 6]
26
VIM-
Focusing the development of coatro.s is established
by the docuientati1on of objectives. Formulating objectives
dqpenis upon the organization's policy statament, any iden-
tifiable Daculiarities of the orcanizatioi, wpaktesses
discco:ve:ed from past- ex~er--erces, an! dssi:able sD e c 4:21c
OurPos 9s. The results of controls based upD) :nhese ooj=-c-
tives shoull produce any mandatory infrormati~n for manage-
ment and hi-gher headquarters, and icheive tha-i-?dsire-d leavel
of perf--ormaace In tha fulfillment af all dut--zs. [Ref. 11:
p. 1214~
C. IT.EPNAL COITROL TECHNIQUES
when developinrg +I-e internal c-Datrol(s) f~r a particular
objecti4ve, there are two basic techniues that can be
employed, w~ich are as follows:
These controls are primarily used tD liscover the
occurrence of errors and irregalirities after they oczur.
Although these controls are necessary to help alert aage-
ment 3f ineffective preventative controls on a timely basis,
they leter in~dividuals from making errors ia Irregularities
only to the extent that they feel detection will be aide.
27
This Indirectly contributes to pravention, but Lacks the
reinforcement of the other technique.
This technique _U~~j I et ecs inlividuals from
makirzg e::ors and irregularitias. U- U ke a eteCt ivea
conr:~ols, these controls are dssi:nel so is to zeducs ths
2.2Rrtunit! to commit errors and coaceal irrs;i2.ariti6-es frocm
the day-to-day cperations. Addit4i raily, =z~firmation of a
prevsrntativa ccn-rol might detect nc-azompltia ze, chaaging
the control to a dual-purpose dsvi,:a. :Ref. 5: p. 49]
The deveonent of preveaitive coat:os is c~u=-ia
to an adec'ite -zsst-m of interna. c0:1t r:,1s. A..org di-th
po:cp=: procedural. inemhod-: ard i neisurss, s :, I-a %asI
should be placed upon the following preventat'_ve conrols:
a. SeparatiJon of Duties
Proper development of t~is key rs~airement dill
reduce the probability of Intentional Irr gal aritles, a nd
unintantionil errors by the cross-chacking of pertinent
~nforuation by other individuals withnte trnato
flow. Duties such as authorizing, making payments,
aud-iting, issuing and receiving, etz., shoull be considered
when deciding the appropriate duties to separate. (Rtef. 2:
p. 6]
28
b. Access to Resources
By authorizing a limited numomr of personnel
access to resources, responsibility of errors and irregular-
ities is also narrowed. The more pilferaola the resource,
the more restrictive the control smoull be. In cases such
as cash, only cr.e person should be rqspoasil-_- so th=r? Ls
no doubt wto is resoonsible for 3ay shorta s. .. _.c
access, such as dccuments authoriziag -h use or d. spos*.tior
of resources, should be limited :o those licctly involved
in the transaction process. [Ref. 2: p. 7]
C. Author±zat.ion
laragennt snou:.d take ar-at :i:e 4f and wher
they shcuid Ever decids to :el quish _nzy :f :f i de :-
making authority since it is the best cor.trol nanagement has
on the status of day-to-day operations. Aitaoriza.ion from
someone not completely indoctrinat.d in both the short-run
and long-rua needs of the organization =an it the very least
reduce the potential for optimal *tilization of resourzes.
Any operation that is not in soxe day author'_zed by manage-
ment is an open door for fraud, waste, and abuse.
29
A- ' W . ... . . .. . . ... . .. . . . .. . . . . I I I . ..- I I
D~. IIPL EIEN TATIOW AND ?FAD1TENANCE
Managemert's participation will gratly determine
the degrae to which the system of internal :ontrols will be
actiLveay implemerte. continuioas sup=arvis;_r) will help
assure that apprcved oroceiduras r e Aolwd I A !: r
p ar-tion of this supervi.sion should be the fcsuert Q-ara
Z jyvew of the system of izternal =ort:o ls r-- Aetermine the
qffsctiveness of 4the procsiures an! results, aad to ccflt;fl.1-
ously update -the system. Rfef. 2: p. 71 rhis process ,of
internai review wculd be accomplisZqed usiri thz same f:or~at
as xaie in thi-.s chaD-a:. 1,: aust aJlwav= be rzmsmbere~i
c-a in s=te r: :~ra ;c-rol.s M a as .'S
responsiblity"l [Ref. 3: p. 361.
2. Corn tP.1t ze--2r1-
Reasonable care should be takea to assure that key
personnel have high standards of tategrity, and ire coape-
tent via educaticn, training, aal/or experience to a::zu-
rately accomplish their assigned duties. Efforts shoull be
made ito retain this competence through continual education
and ttaining -In order to keep abre!-ast 3f current trends and
chances. (&ef. 2: p. 71
30
Tramsactions shall be recorded as arecuted, when
executed, -and in accordance with the procelura1 methods and
measures as specifi'4ed by the systsem of intariil controls to
effect timely and accurate results. 3pot zhqcks shoull be
accotpolished lur~nc in-ternal raeview to nii nt ai;n a 4
deqr:e cf co)mpl:ancs. R ef . 2: p. 71
To afford an oblec-tive ezviluati-_n o)f !hs svsteua of
:z-:ial coatrols, Lhz ate hQ e;tlz.
oosib~. xte!-a inspectors et'a co.. basel ipon
-he actual. efseC t *o "hne ccntro-s i no-: the . e or
assuzmed effect:. nknown i-efricianzi~es 1,-ipo n.s:e-
lir-Ing of tae system of in=aa otrclls Is iUso brought in
by thi-rd parties. However, it should ba re~alizsd that
externial inspec-tcrs cannot understand the iatent and impact
of the orgaanizati--cn and its objectives as veill as personnel
parti;.cipating inthe day-to-day opleratio'ns.
31
T,", following qeneralized lesi .a base has been develDped
to fozelitat, thp Purchasina ffzrs task :f 'ailo-iz a
syst=n of interna±i controls for his unit's day-t!:-Iay
purchsing oper a.tions. The aspect :f "1day-to-lay" shouli be
stressed, since the intent is to ilantify th-_ processing and
procedures required on a recurr-i and continuous basis.
All requier .en-s that are accomplishe l only oncs (o. at
least se].dcn) win ot be includel as oa t of -his Is-Lan.
(owvsr, or.e shou! not that the frsquency of nerformance
alo r is n ot an indicaticn of tha aorzance D-5
requirament and applicable controls shoull b-2 Iveloped for
all aspects of purchasing that wrcant their lavelopment.)
A. PURCHASING OBJECTIVES
Standarizing objectives for all pitential contingenaies
that could confront the using units of the 4th MARDIV is
impossible lue to the variety of their missions and loca-
tions. However, some generalized objectives are applicable
for small purchase functions aczomplished by ill the using
units, such as those that follows:
32
-~~ ~~~ . .................... .. ... .. .
1. AcceS3 to purchasi-ng documants and resoirces should becontro lied.
2. Suffi~ient funds should be available to cover theobligat~ion of the purchase.
3. The type of goods or services, method obtafined, guan.-ti-ties, prices, source, and when to buy them should beproperly authorized.
4. All. adjustments nio-- cover-ad by the inaitial pu~c-asesubmission should be prcpecly aut'lorizzei.
5. Purchases should be acquirel through tahe appropratSo urce.
6. ?urchases should be properly t1si ~ - '
a pprop riate; nethol.
7. Pu~chases should b-a processal o.- a an i a ppd arno -oriata basis.
8. Access to receiving should be li-mital to those i-niv-duals concerned.
9. Goods and services received should be -accounted forproperly and on a timely basis. 7Ref. 12: pp. 20]
MCO P4200.15E spells out the exict accouating controls
mandatory to accompli.sh small pur--hases. 3at accounting
controls are not enough to ensure proper utilization of the
using unit's resources.
The Purchasing Officer's function Is muzi zore than an
authorizing signature and veri-fication of projperly processed
33
purchases. Since it is seldom that approved funding is
sufficiett for all needs of a unit, his !cii 2.s of what to
buy and when to buy have a direct influes--e 3n the effec-
tiveress ant efficiency of unit. To complicate matters,
requests are staggered over the entire fiscal year and 19_ i-
sions are made nct always knowing the futa.-- requirements.
Witho1t adeiuate information and evliuaton, Less than esi-
rahle results could be produced. rhough _?valation depeads
upon the Purchasing Officeas jaigee3. , properly
cons-ructed admiristrative controls car. do ika: -o fai-
tate that judgemental process by zquiring assful decision
inforian--cn. Examples of useful administ.at" vs control
inforutrion are as follows:
1. What is the iiPact cf the :is or u-'-: f vzn!ss?
2. What is the impact of the aedi on unit afficiency?
3. What is the impact without the necBi?
4. Are there alternatives to the neel?
5. Is the need mandatory?
6. Is the need cost-beneficial?
7. Can the need be delayed? If so, 2oW k01?
8. How toes the need compare to other actual andprojected needs?
34
9. What is the effect of the need on the status of fundsif approved?
The and result should be the best ittexpt possible at
achieving the ultimate objective of "the tizely and proper
util-zation of funds when accomplisaing purzhises. ,,
B. ASSIGNdENT O1 PJZCHASING ZUTIES
Great care should be taken whan assiqniag _ndividaals
entrusted with controlling funds and/or r3-ources of the
marin. Corps. The individuals caDsen shoi2!I have dexons-
-rated high moral standards and i.tegrity. Anything less
coulI ir.crsas _ the potential for c orci:.s e-s 4_- the funt -_on
:einq performed.
1. 11t-aidas of ConductI an! 21t! i.r:
Personnel representing the governz-nt in business
dealings with industry are in positions of ;rve resDooIi-
bility. To encourage nothing bit the higest degree of
conduct, [CO P4200.15E requires that indo-trination and
reindoctrination as to the Standards of :onduzt be condu-ted
every [arch and September. The parpose of ti- standards is
to eliminate the potqntial of compromising aad embarrassing
both the Marine Corps and [arine Corps personnel due to
actual or apparent conflict of i2terests. hcceptanca of
35
mom
gratuities, actions resulting ia personal profit either
directly or through financial interests, or aiy other actaal
or U2e _t influences which redu-.s strict impartiality is
prohibited. Though there is no day of ensuring compliance
with the above requirement, appointing individuals with no
appi-able outside interests cr associltior.s would at least
limit the o:tential. (Ref. 13: Chip. 4, pp. 3-6]
2. S~ .1_-ticn. 2f Daz=i _s
Purzhasing may be segregated iato zhre_ main finc-
tions of administrative processing, autaorization, and
rsceiving the requeste! purchase. Seoarati~n of the !uty
assignment of each of the functions hzips t safeauarl -:h-?
ui-t's :escu-ces. since the da'itin Of rit - h
Purchasing Officer is accomplis-a.d by za? 4th MARDIV
Commaaling General and the adiiaistrativ, processing is
normally aczomplished by the supply chief, tie only post'on
left to ponler is the receiving of thq requested 4tem(s) or
services.
It is suggested that the c&questor o the need also
be the recsiver of the purchase *hen it is actually being
physically obtained. This allows for the verification of
the servicaability and asuitability of the request before
actual acceptance. Though confirmat ion is oot always needed
(especially if the request is commonly known or an industry
36
standard), many mistakes can normally be corrected prior to
acceptance. However, verification is to the iaithenticity of
receipt should be made to prevent the potential for
collusi.on.
C. AZZ-ESS "LO RESOURCES
mo maniat o ryv de a a e qu ir--a in t af z: s a fzg ua r g t'.
imprest funi are specified In C) P42)0.15E. Along w-i-h
suitable physical security measures, it sttoutateas that :)~
iithe idividual charged with custoly of thte funds will ihaveaccsss to --he funds. It is obvious that caszh is hi-zhly
I i Cu -*i and non-t_=aceable. Howeve r, toe ooten'ial f'-
pilf--iage --: mzsuss -:)Ss not st~o taere.
Purchasa Ozders could be :-m::Dp erly aill- --fe ifc:es=
to these forms i-s not c cnt rolls d. Although --he pu::hise
order is negotiable only afte: an authorize! signatare,
acceptance of fraudulent submissions by public sources cof
supply may :ompromise effective utilizationr of resources or
damage the larine Corps' standing within the :ommunity when
payment is denied. Access to parchase Driers should be
li-M1ik0d to the Purchasing Offic-er and Administrative
Processing z:lerk or Chief.
Lack of accoutability for purchasel items can also lead
to potential pilferage. Recai~t of an item does not
37
constitute a completed transacti-. Proper and timely
recording of items purchased shoull be verifial.
D. PURCHASE REQUEST DOCUMENT
The first required alministrative stco t virchasin3 i
tha minimum infc-maticzn :uir: n:s or. eaza :-f these u-
ments. This imformation helps to establish a firm fcuanda-
tion for ths accounting controls ia the pur:iasiLg process.
The m-inimum requirements answer tha "what" an! "when" . the
proposd purchase, and alludes to the "whre=_" ' and "how" :he
eurhase shouA. he accomphished. owevr, the i tfornatio~n
tha- is a viajor ccnsideration ia the altimata _ncsio
the curchase h h a 1ministratve ron%-Do questio f
"why." This does not mean that the Purca3sing offic--
doesn't acquire the information ori:r to the decision. I'
does mean that the "why" is required to zaic a practical
decision. Figure 3. 1 illustrates the impact of "why" on the
decision.
Though the example is exaggerated and ove:s aplifie.d, it
shows that thouqh the requested aeed was the same, the
actual need was censiderably diffBcant. If further clarifi-
catioa (which should already knowa by the r.squestor) was
added to the PRD, there would be no neal for inquicies.
38
momI
Additionally, there would be 12cumentatiDn that would
support every purchase made. (This process would also work
for services.)
Three units have submitted purcnise request documen-s-.:- their- respective Purchasing 3)fic_-r. T_= _.forr.-:i n C: zach is s:iaia and tne i-a L ; ein : =uas-: :is a refrigerator. However, the= "why" is -)t on -.hsrequest 3nd scme further infocmation is re;lired. he_rsults of a simple in.ui ry prolace the lowing,
1 . Unit 1. The ref:igerator is an 1uthrize1 pic=- zof equipment and is necessary for the fulfill-merit of the mission, wh-c, is food service.
2. Unit 2. The refrigeratDr is a local allowanceitem an will be used zo e=ore small batteri - s(and probablv thm Soda mess) Of a infantry unit.
3. U:t 3. The refrigerator is a local illowancaani is needel to store fi! boaah- ii oulk by iu::i wi-h a Mission of p.';to -_caassance.
Figure 3.1 THE IMPACT OF "WHY" 3N A PURC3ASE DECISIN
Though this infcrmation links the operitional DEro=ss
with the be;inning of the purchasia; p-ocess, what informa-
tion closes purchasing back tc the operational process?
The pur-hasing process results in some sort of ohysical
supplies or services. The safegaarding of these results
would close the purchasing process into the operational
process. In short, the item(sl or servi-:es received were
utilized for their intended purposes. Agai:I, this is not
39
II z" Ill f l- , i -. - -
" t I ~ ~ II II 111 . . .I I . ..
_7 __ w'1
some sort of inhibiting request, It s just d:)cumentation of
information that should already be known.
Figure 3.2 illustrates the proo:)sed PRD. All mandatory
entriss reiuired by ICO P42OO.15E have ba;en annotated.
Further clarification of the exh4ibited PRD) information is as
1. 1I-em/Services Descriptior. Requ:edanet-y which g-7eS
Speci-fica-ticns ofl i-:em(s) sh oul d 3 -3 f=:m -:h zilentifiLcation List Fils vnea appli.cBole. Cotherwise,all physical and furcticnal =haracte:s,:cs neeled tcaxpress the minimum reguiraeats of th-= request sail!be fully explainel. reef. 13: Chip. 7, p. 5)
2. souzce= cf NJeei. ThII S gi te n:iaiv liuncif ac'oiicable. (Thz T/ TA'!Z:, ::e IIocal a"I-w-
heeriisan o r~ation 3. :a in1.s -:7a t Ve,t na 'xpe:abe i - 4 i:f irz al Cam-es of Sa30le
------- 1': Shculd also s:in k-eze 1h ibebeen dropped frzom zi-e recorIs Z-cantiv due 1-complation, of -an investlgatior or lus to 2.-1v =-r, t:=yshortaqges. Any additional camarks that help clari-fythe need should be annotated.
3. Priority/Delivery Date. Rellired antry which seifies the UMMIPS priority ani/or the required deliverylate. (Ref. 13: Chap. 7, p. 5]
4~. Special Shipping/Marking Instructiors. a &!Iired zntryspecifying any special packaging, marking;, or handlitginstraictiors. (Re f. 13 : Chap. 7, p. 51
5. Impact i6f Denied. This supports both the need and thepriority specified in the aforementionel requireme3ts.it a130 gives the Purchasia; Officer valuable deci-
ior-aaking information, such as the impact on theunit's effecti.-veness and efficiency, zompli-ance withmandatory requiremerts, and tae effect on normal Doer-
4*0
~"'#' - -
PURCHASE REQUEST DOCUMENT
ItfM(S) OR SERVICES DESCRIPTION:
SOUIRCE OF N[EO.
PRLORITY/OELIV(RY DATE:
SPECIAL SIHIPPINGUNARKING INSTRUCTIONS:
IMPACT IF DENIED:
REOISTOR S IGITURE "CTI 'TE
CITATION OF FUNDS-APPROP IATION OATA:_
ESTIMATED COST:RECOENDD PURCHASING METHOO:RECOMMENDED SOWCE:
PUl OfIEF SIGNATURE: NTE
PURCHASING OFFICER SIGNATURE- SATE
PUIN MNMR:.
PuR CHIEF SIGATIRE: .ATE -
ITEMS (SERICS) SUITAILE AND SERVICEABLE:_
KOEST0 SIGNATLJE: DATE
PLACE COMMENTS ON BACK
Figure 3.2 PUR~CHASE REU $ES? nOCrIlEN?
(41
A& l
6. Requestor Siqnature, Section, and Date. This speci-fies the who and when of the request wi-Ich begins thetime frame for Judging the trinsaztion timeliness.
7. Citation of Funds. Ieai__l_ entry that specifies thez-vailibiiity of the funds at the time if the request.(Purchasing IS accomplishal utiliziag the 05MMCapprooriation, 2710 subhead finds.) "Ref. 13: Chap.7, P. 5]
S. Appropriation Da-ta. Require! en-ry .aat confirms -a-the type of funds the amount was c:-e from i. thetype that will be used in processin aa Ipprzvei ?RD.[Ref. 13: Chap. 7, p. 5]
9. Estimated Cost. This will flcilitat-e th- decisi o _ ofthe Purchasina Officer by . stimating the amount offunds that wi. be deplat ad 3 ue t3 an approvedpurchase - o appzcval. it will also serve is a
onrtro to help stop a po--.tial ove-,-bligat'io off uns.
10. "ecomnerde! Puirchase Mt--? . Tis Wii nroviie -ePurchasing Officer the abii:y -o vyif[ -he ;u::aosemethod prior to the admi.n:strativs i::K needed toaccompish a purchasing method. (Thi_ -s especiallyuseful when more than one methcd is a ailable or theamcunt is close to a monetary limit tat, if excez..ed,would be inappropriate for the method chosen.)
11. Recommended Source. Rja__qd entry t at allows forverification of the source of supply. hny deviationsfrom xandatory sources should be bri.efly stated as tothe aathorized reason for :ircumventii; the source.(Since some exceptions do not reguire statementsexplaining the reason, this entry is documentationthat helps establish a better audit trail.) [Ref. 13:Chap. 7, p. 51
12. Purchasing Chief Signature and Date. rraces the time-liness of processing the purchase r:-qiest document.(Especially important on high priority caguests.)
42
13. Purchasing Officer Signature and Date. Zajq41re_ entrythat authenticates the authorization and gives theeffective date the preparation of the iatual purchasemay beqin. "Denied" shoull be annotated in the signa-ture block for nonapproval. :Ref. 13: Zhap. 7, p. 5]
14. Document and P!IN numbers. rhe docusait number i- anaudit control number that traces the item(s) orservicas purchased until properly accounted andrecorled or cancelled. (Exp-ndable supplies are Porp-:rly accounted for upon raceit by rtlestor.) rhe?IN number is similar, eXceBpt tt :tr::s the -::a...aourchase documents until cmltin or :zaceliation.
15. Purchasing Chief Signature ail Date. Xnother verifi-catioa as tc the timeliness :f processiag the :eqa.st.(The julian late on the docien- numbe: should ma:chthe date of the signature.)
16. Items(s) or services rcBIved were suitable andservi:eable. This verifie that -.he :-_eivi .d iten(s)Tr srvices fulfilled th? requi=entaas of thereauestor.
17. Comments or back. This should specify peculiaritiesof the purchase such as the specific B?k call number,the Iocumertation of all oral quotations, or anyunusual problems encount_=rel luriag the purchaseprocessing. Additionally, any specific informationthat aelps to establish a btter audit trail (such asthe general contract number for a delivery orlar)should be annotated on the back of the ?RED.
This PRD establishes basic and sorely needed administrative
controls and builds upon the accounting c:ntrols of the
mandatory (ICO P4200.15E) PRD. By iocumentia; the confiria-
tion of the timeliness, need, benefit, and :ceipt of each
purchase, the PRD is utilized mcre is a central control
document than an initiating request. All iajor stages of
43
- - " ' ' . . . . . . . " r t -L -- - ' l , . . . . . . .. II 7 1 I I l l lIAI I I Z 1
the reques-t are acknovledged (in writing) -y the indivilual
charged with performance of that requirement. The audit
trail of each purchase becomes more definitive with little
additional effort, thereby reducing the potential for misuse
of resources.
. SEL!C1I:JG THE SOURCE CF SUPPLY
Aiminis-:rative processing of -n approv- ?ED cannot be
performed without a ieter-ination :n .h? si:a-_: of supply.
Furchising documents are determined (or lininged) by che
approDia-e source of supply. IC) P42)3.13! or:scr-s the
ex-.-ve manda-cry and suacest=ei scurces :ia.t shou.d be
uti:.:zsd for purchasinq.
1. Federal sau2i - uch_ ulas
Federal Supply Schedules ire listiags of contracts
established by GSA every year of selected items. rhase
contracts have the advantage of 9o .ol.ie Df scale sir.ce
they're utilized DOD wide and are the prime source of supply
when applicable. Mandatcry usage 3f FSS is stipulated for
each scheduled item. However, overriding ax:eptions to the
schedules apply under certain conditions, which are as
follows:
1. Delivery Requirements. If the stated le.ivery periodof the FS$ is in excess of requirements and no reliefcan be supplied by the appliible -ontriztor, another
44
2. Acceptability of Similar rtem(s) . When specificitem(s) are required and t~a FSS lists similar butunacceptable mandatory item(sI, a stat-zent as to thereason must be forwarded to the Corliissioner of GSAfor approval ;jro to purchase.
3. Emergency Requirements. rn exergen:y situatiioas,item(s) car be bought from other sourz.s of supply.However, a statement as to what prompted the circum-vention will be forwarded to the Zomnissioner of 3SAwithin 15 'lays.
4. ?urchases cf $50.00 or e-s. heD. or-rs ar=_ u:rthis minimum limitation, thes scheduls a-e not manda-tory and other sources of supply can 5a sougat if n.r-economical to process. (However GSA Stores have aminimam order requirement of $25.33.)
5. )uts-i~e Conus. FSS apply only to ths .axtent that the
geogra phic ar_-a i inclule d i t- aplica ble
6. A axinu m Order Limitatic r. Zch .scti=4 1 w.._''- u-a-,e t'h1 Maxi-MUM orle_- lua.-1tv al; "fl .s
exception should be rare -:=ince cortra:. t. auan-i- .. es,asually are sufficient for a os-. usec's needs. It,never-the-less, is an exception for Validrequi-oements. [Ref. 13: Chap. 5, pp. 5-19]
Close adherence to FSS is required to oromote fLit ar_
contracts placed by GSA. Without atilizatiDa, the economies
of szale prrinciple will fall by the wars"de. rhese
contracts serve large geographical areas ml though the
price may be less in some areas, the ov-rall area the
contract serves will be at a prie equal to or less than
most local prices. For this reason, priza is n21 a valid
reason for zircumventing FSS. 4 smill siviags to some units
4j5
I
can eventually add up to a large price loss to DOD in the
form of higher contract prices ia tie Ionq raa.
Similar tc FSS, the GSA Stores Depot also usqs the
econoiies oE sca-l principle. Hoflever, its a jor function
fC: 2ost uaits are the mandatory se.rv"_as : :ntracts f:or
maintsnance, repair, =ehabiltiatioa, and ze-clation. w'ith
only tan regional offices, -he vast mijority of units nust
utilize the commerical sources as soecified I-i the "Gui - to
Source of Supply and Service." iowever, ths Purchasing
Officar should verify the appliza bility o the neaces-
regional office (MCO Pa20W. 15E, 3a:a 3521) av-a if the iapc:
'-as ravver be.en utilized b=efore. Ref. 13: :hap. 5, pp.
23-251
Zxcapticns to GSA Stores usag3 incl/e purchases
less than 325.00, unacceptable llivery iitas, and all
subsistence and medical items inde.r DPS3 cognizance.
[Ref. 13: Chap. 5, p. 23]
All Federal Prison Industries and vost Blind and
Severely Handicapped-made products ire ivaili3lt through GSA
Stores. However, if purchasing di:ectly frov FPI or BS is
determined to be practical and economical by the Purchasiag
46
Mg-- -
Officer, it should be utilized. O.:e this de:ision has been
approved, the only exception thit should be applied is
delivery tize restrictions. (Ref. 13: --hap. 5, pp. 27-30]
4. so ofures
The last source of supply is !:.:al pa.-i asing. The
det riinati~n of what is deemed the ain.m prac:icai a-d
eccnomical purchase through other sources has already oeer
determined, thereby eliminating price as an exception.
Local procurement should be used only after ill alt.ernative
sources of supply have been determined to be inapplicable or
inadequate.
5. Source of Sup'y Desk-toa ?-ocsiiures
Verification of 'he proper sou-e of supply can bezome
extraemly difficult :o implement into day-to-Ily operatizas.
Figure 3.3 has been developed as a workable guide that can
facilitate the verification of appropriate soar;es of supply
compliance. The extent of utilizatlon is dependent upon the
Purchasing afficer's judgement.
It should be noted that thece is a doninating ezcep-
tion that applies in most instincs, which is the D var.
T1M a i eeu. No one can filly predict 1 the needs of
the future. However, trends in .xcessiva atilizatiom of
short delivery periods should be scrutinized by the
47
IN YES CONTACTss DIVSUP
$901.
NO
OFYES LIVERY V isCRs's'"OF I AVEx ORDER
NO bin CONTACT
SM OFPOL YES VAILAIL S .1 is
QUIREMEE S USING SF149 CREDITF149 CARD
TNO
VAILA YES LES NO LIVERY Y S IKE ITE YES METHAN im OUIREMENTS ACCEPTABLE IT NO
F S MET
No No NO YES
A YEi EXPLANAT Y EXPLANATORYOWNWTRACT STATEME r TO STATEMENT TO
CHOICE IT DELIVER lCOMMISSI R OF COMMISSIONERATE I GSA PA TO WITHIN IS DAYS
OUTSIDCc"
MWEDI YES VAILASL YES SOURCE OFSUISISTE THROUGH DPSC SUPKY is ICA&
ITEM OPSC CONTRACT
No
SOURCE OFVAIL Its LESS LIVERY YES vvc SUPPLY isIN c THAN QUIREMENTS
$29 MET SUPPLY
ND NO
SOURCE orCHOICE SUPPLY is
GSA STORES.
a YES L VE YES CESSAILOut MINTS LOCATION MAL
rpt IT PQ SONS
NO
SOURCE orVA lway CES7 RE s LOCATIONIsm 14T LY
SOURCE OF40 SUPPLY is
OCAL
Figure J.3 SELBC.:ING APPRUPLU&TE QU A.:B JF a jUi iLk
4 8
Purchasing Officer in attempt to curb fatare usage. A
little trouble-shooting could reveil poor pLinning at the
section level, excessive losses )f 2issi, .ssential or
important items, or even a Pur-hising Clerk attempting to
follow a path of least resistan-e by exclasive utilization
of looal sources. orrective ac tion a. zt .h source of the
proo0sn no: only inceases ::ore: ope=ai~ z D--ceia-ss,
but improves the overall unit :r editability when a ng
restrictive delivery requirements or other surce of supply
except ions.
Improper utilization of tae sourc.s of suppy is
more than a violation of Marine _orps Directives. It i-
avoidable a.d:icna. cos- o ft ce cn: :-,,: -ha- a zffa
all cf DOD iue rc the lack of being abl to toI~ment -:ono-
mies of scai. to its fullest potsntial.
F. SELECTING THE PURCHASING METHOD
In many cases, the source of supply will reaui-- the
utilization of a certain purchasing method. rhis is not the
case with local sources of supply. There Is considerable
overlapping between a BPA, PO, and the imprest fund. A SPA
is strongly suggested for filling anticipitl, repetitive
needs such as hardware items. The purchase order allows for
written spezifications and/or more than one 1_livery. rhe
49
imprest fund is a simple method for routine items tot in
excess of $150.00. Which method should be usaI?
M:O P4200.15E gives mandatory usage ia only certain
cases. The final decision cn whi:h methol should be ased
when overlapping occurs depends on factors 3ui:h as follows:
1. Which methcd is mandatory? (If the pur:hase _-gairesZ' r a u utation_--, a PC w u 11 ib s
2. Which local source is the most e:ononi:al? (An iteunder an establish-ed BPA :ay not oe the best buywithin the local sources of sapply.)
3. Which method is the most praztical . (74ime restric-tions could neccessitate :he utilization of the
inprest fund method.)
14. Whica methcd is the most, --conomizal to process? (Ansxampls th- c.eaper prozessin_ cos-S of the B9.3ver the :O method,.)
5. is the merhod acceptable to the local source? (Anexample might be the acceptince of only cash atlocal source as the method of payient.)
Fiqure 3.4 lepicts the author's intarpretation of the intent
of MC3 P4200. 15E as it applies to the total process for
determining the appropriate puchasing iathod. rhis
desk-top procedure is not totally mandatory, though the
price limitations are structural 1AW .3 P4200.15E.
Howev.r, general utilization of the chart should facilitate
the s-lectiag of the appropriate method.
50
NOTE: ALWAYS USE THE SF149 CRED[T CAD FRa POL REQU1RIENTS IF APPLICASLE.
DAESTS FIAQ,
OF US SING AECONOMCAL 0co$EoEOOELVR
TOIVR USE ORERACETAL
RAOALE PUHSE OREUPRHAEORE
NEYES
US PAIPRS FN
OF ur $so TH SALECTI G PAEPtT PCHSIN ETOD
U RCOMEDE
raw1011
VICES No AVA X No VA ILAIL No PUR04ASESao THROUGM USING SPA ORDER
METHOD
YES YES YES
CEPT I S NOTO DOD REASONAILE
PRICE
NO YES
USEDELIVER USE SPA
ORDER METHODMETHOD
P ASEEX S NO AVAILA VAtLA8L NO R
OF $3 00 HROUGH DOD USING SPA THOOWITH 3T T
YES YES YES
CEpT I() ES NO0 DOD SOURCE EAS014ABLE
PRICE
No YES
USE SPA METHODDELIVERY WITH SPECIALORDER CALL
METHOD REQUIREMENTS
Excirs NO jr Ifil YES USEDELIVERY
OF ELIVERY-TY ORDERRACT METHOD
YES NO
CONTACTDi~
-71 GTJ R - 4 - C 0 N U 7 0
52
It should be remembered that the purchases accomplished
with the local sources of supply have a maximum limitation
of only $3300 per request unless the supplier is under a
current delivery o-der contract dith the government, as
outlined in the aforementioned sources of saply section.
G. .=ROCESSING PUFCHASES
Ths ultimate preparation and prcc= ssi.; a f puchasin a
documents is, at the ve--y least, tedious. With all the
r-culaticns required for different purchasi-ag athods,
near impossible tc develop a checklist that iill take ev--ery
possible contingency in-o considration. 1: wever, 1:h
follcwinq questicns shol:1 ba aasdzed oa d- perti.n-
cuestznrs s-ipulated it the DIVSJP lnspoezti. Chz:'_S-
during the utilization of the =orrespoaliag purchasin g
method. All questions following that lo not have an answer
of "yes" should be fully researched in ICO P4200.15E.
1. Is the PRD completely filled out?
2. Are the specificatians relatively simpl.?
3. Does the purchase require one delivery and onepayment?
53
V.-
4. Are the item(s) and/or sarvices available within 30days?
5. can recurring requests be handled tarough the SPAmethod?
6. Is a subvoucher number assigaed and anaotated on the:PRD?
7. Is an in:erim receipt fo _ cash .orocn t at-'iized fo_cas h itzhrawals?
8. Are receipts tendered prop-.rly a. n: t.t ed wi-:h theamount, date, and seller's name and position
9. :s an SF1034 used when payment by chek is required?
.. 3-ake - Purchase Acqreene.&§s
1. :s the . D comcletely f...d u-?
2. Do individuals authcrized to aake calls have a spe::-fied oLlar amount ,mitat oa that they :-an place?
3. Does the supplier have an up-to-date list of indivi-duals authorized to place calls and taeir respectivedollar amount limitation?
4. Do receipts tendered show the followiag?
a. Supplier's Name
b. BPA number
c. Date of the call
d. Call number
s. Total 1-st )f items(s) or services furnished
54
- U-- -•
f. Quantities, unit prices, and discounts
q. Date of delivery or shipment
h. Naze of individual placing call
5. Does the supplir submit at 1eas: a moathly summary ofall deliveries?
6. Does the EPA contain the siplement t: the dispatesclause IAW £CO P4200.153, pari 0674.17?
1. --a th_ PRD completely filled ,it?
2. Can the purchase bh acccmoI_-b-hed by uti.lizing thq P0methol cnly?
3. A:e ;uota.ir.s fro pu-chaias i -x:ess of $53;.C3annomtaed on the back of the PRD?
4. Are pu:chase crders filled oat prooerly and IAW NCO?4200.15E, para 0651.3?
5. Are written solicitations prepared when:
a. Suppliers are outside of the local a.ea?
b. Special specifications tr_ involvel?
z. A large number of items a:9 in a sin;le proposal?
d. Oral quotations are not considered e.zonomical orpossible?
6. Are the required clauses inzludel in tie PO to cDverthe fllowinq?
a. Unpriced orders?
55
~I.4t
b. Variations in quantity lua to unit of issue or balk
quantities?
c. All periodical subscriptions?
3. When supplies are ordered Dn other than F.O.B.destination basis?
e . For the humane slaughter of livestDck?
f. As directed by the Ccmminlint of the marin .
Corps (Code LB) ?
4. De ive; Ordes
1. Is the P-D comPletealy fill Dut?
2. Ar - d%-!ivevi criers fi2le -t p::p-Ly an! IA:? MCOP4200. 15E, para 065 1.3?
3. AZ e la dv4.ua .s designa ted L a w r4Jit i si-gn a=
H. 72STABLISHING THE SYSTEM TO BE IMPLE ENTED
The responsibility of an adequate system of intecnal
control rests upon the Purchasing )fficsr. rherefore, the
systex to be implemented must be l-signed to fit his parti-
cular needs at the unit. The abilities of pertinent
personnel, the requirements and naeds of the unit, and the
availability of the sources of saply all impact on the type
of purchasing that must be performed by tha unit. ThDugh
not necessarily an accurate foreca&3 t, historizal data can be
56
, 1
invaluable when ascertaining the strengths anl weaknesses 4n
the zurrent purchasing process. Jtilizatioi of the afre-
mentianed levelopment methodology s.ztin could reveal
potential problems or weed out un23cessary tCivia. But in
the erd, there is no absolkte system of int3rtal conzr3.s,
and th e Purchasing 3fficsr must leteci.-6a ahere ber.efit
S-Cp in.d eXZZssI;,C C:st = -ein.
57
.0.-I I L I _i I II I I _I
IV. %J j IOj A!jf l___ M__U2O. _GT
A. IMPLEENTATION METHODCLOGY
The ability to successfully implement a syste3 of
internal coatZrols (oZ changes the3:-n) will ;r-atly .paand
upocn :hc amoun- of resistanze to chang? z_ nco un-z : ad .
Pesistance to change can be overt (leliberata rasistance) or
covert (resistarce due to other fa:tozss [R.f. 14: P. 378].
Though deliberate resistance cn be identifiI.: and dealt
wi h as apprcpriaze, t overt rasi-stence is au:h hard_ - to
ilen-Kf7 az1 _liminate. A: examole of covr: resistance is
fuinc-ion ai :ixa:cn.
Psychclogists have found -hat there appears to be"functional fixation" in most human 3,i2vior inwhich the person attaches a zaaning to a title oroblect and is unable to sea ilternativ. zeaningsor uses CRef. 15: P. 194].
In short, the individual consciously or subconsciously does
not 1192..1 the change due to his past -xperiences and
personal definitions.
To overzome resistance to change, the Purchasing Officer
must carefully gap change implementation to fully insti-
tute needed internal controls. Foc this reason, this author
suggests using the three phase change process of
"unfreezing, change, and refreezing" [Ref. 14: P. 380].
58
Ai r 'Wqi_ ih I _ ~ .-
The first two phases car be accomplis.ied through an
education and training session given to ill participating
personnel. The "unfreezing" is showing the a~e for change.
This antails an explanation of hoiw the cont.ro)ls will affect
decision-making, the processing of purchase transactioris,
the directive requirements from hi;her ealjaa:lars, and iny
cu:: d2ii eshor-:comnin; L _- :: D .u:: 4
procedures. "Change" is 4"e acc:mP.sae1=d -:h~oagn
dietailed explanation of the new prccedures and con-.rols.
The fullJ intent o-f each control should also: be exo~.ainsl to
emphasize the impcrtance of the zhiaes.
Th ? firal phase of --~ez~~ s acc:)olhshed thr!ouah
-the uz= :oqn_: ve d--ssonance.
:cqni4m~ive d sonaczeca a be seaen is aa n tscedeIlntzor.c_-i:icn w~ich *ea'5s -c a:ct riz--tai towar!4issonance reduction just as hange: leads tolctivity criernted toward hunger raductionrRef. 16: P. 31.
Active suparvisiocn will act as a cognitive d4-s so.nnc e
vehc-Ile through the follow-ups thit confirz :.ompli-ance w-ith
newly instituted controls. Subordinates aot wishing to: be
confronted with non-compliance by the Purziasing Officer
will strive toward close attention to the system of Internal
controls.
Artive supervision will do a-3ce than J13t comRUniCate
the requirements established by the Purchasin; officer. if
effectively utilized, '#newly i:juirad behavior besomes
59
-- A
permaent, thereby offsetting the regression toward the old
pattern of behavior after the pressures toward change are
relaxed" [Ref. 14: P. 377).
B. IIAINTENXNCE MZTHODOLOGY
Active 3tnerv.sin e Iso works as i ssth) If mana~iain
the status juc compli-ane once the ,atte=:ns :- behavior a.ive
become permanent. However, the totality of th.e purcha-sing
process ani environment are tot static and changes will
occur. B it the participating personnel, sources of
supp.y, higher healquarter's di.e-t.-v's, t. the type of
surn-:t :sqiirei, changes are i.nvitabie.
in the cont'Inuous strive for :ascable issurance I'at
the system cf internal controls is ade4ui:r, cons6l-_
internal rz.view is required. (1:O P703).33 requires an
interaal control review at least bi.nniilly.) MCO P700).88
has conceptualized the review into four generil steps, which
are as follows:
1. Define internal control obje:tives anI pirameters.
2. Develop internal control dDcamentatioa.
3. Inalyze existing internal aontrols.
4. Correct deficiencies in existing interal controls.
The now aspect of evaluation and correction DE weaknesses in
the existing system of internal -ontrols 2a3 been broight
60 4
out is a integral part of the internal review process.
Though all of the aforementioned thesis iaE3rmation still
applies, new questions should be raised durin; this review
process. Part of internal review is the ability to look in
retrospect and make assumptions on the present by evaluati.ng
the past. rherefore, much of the 1irection of the questions
needsi for this svaiua-ior. are bis ed upor. taB :su-:s of h--
performance, and not the developiant of s:f:mance stan.-
dards for desired results.
A ccmpr-hensive listing of simpl gue-tions for th e
review process can only be developed by the ir dvilual
responsible for judging the existing svs -tea f .- rna_
con:r:is. owever, some prospect:v.v qus:!.ns isalig iz
qereral witn the ccntrois as scaci fie . the po=_v:
chapter are as follows:
1. Purchasing ?Request Document
a. Ara item(s) and/or services requestal part of thefunded budget?
b. Were exceptions to the if3cemention l question hi7hen3ungh in priority to waccant a repciiritization?
c. Is UMMIPS being properly utilized?
d. Are cost estimations reasDoably aczu:ate?
e. Ara requests handled in a timely f1si3n?
f. Are requests being split t3 fulfill actual needs?
g. Ara short notice delivery lates actuilly required?
h. Was the itea(s and/or se:icss raceivsd sufficientto fulfill the needs?
61i..
2. Sourca of Supply
a. Is the normal supply sourze being atilized?
b. Is there a valid reason for circumveiting theproper scurce?
c. Have the sources of supply chaaged?
3. .urchasinq Methods
a. Is -:he proper purchase st..od being -itilize_?
b. s there a valid reason fo. circumveiting theproper purchasing methol?
c. Ara purchasing method liaiatizns bzaig adhered to?
in some cases, using units have already estalished forial-
ized systems of ir.ternal controls, ncess-i t-g the use Sf
the MCO P7300.88 f.ur generalizel :eviw stns from the
stazt, In a.-. cass., "nt e rn ol .-3 V 6W is 2.lw;ys requir-
because what works today may fail tomorrow.
62
A. SUMMARY
Afte--=r a brief di-scussion of systems of Jintarnal contcols
az e-~aazect or an inadequate Sys- an, :az -jec-ti11=
idm r" tratlyt jcLr.--o1 vas revealed as --ea m.r- d-rezt-Or.
of th*is the:si-s.
Th a beginnIng s-atemqnt6s for the qL i eent4:s o f a r.
Adequate Syszen of Internal Controls exploreIl three asper=ts
that i mpact upon the heuristi-cs of system d-zaeipment. rhe
= CS':z - the. ca :er i is a s u mm a a cr :)OL aE *vs .o z- a :
requirements, tcniquts and a t~na~ a an maintenaaica
requirements that can be utili1-zed by the Parzhasing Offi-ce-
when ieveloping his own system of internal zzoatrols.
In Chapter III, the presentation was :he gen~eralized
administrative controls, with- the major emphasis on, the PRO
as the central control document. the fl~w-charts ware
developed to facilitate the decisi as aide oa the where and
how for each purchase in a simplified format.
The final chapter was an attemat to explain the need for
a plan to implement and maintain a systas of internal
control. lajor points of consilerition shoild be given to
the internal review process and the resistenas to change.
63
_ _ _ _ _ _ _ __0_ _ _ -
B. CONCLUSION
The rebirth in the concern for curbing fraud, waste, and
abuse has had a great impact on D3D. With this resurgence
has come renewed Interest in adeliate systsis of internal
con-trols. However, 'he .aditionl controls of "HOW" sie-
thina :s dczq has been lo-ned with "WHV' s.iino is none.
Thl in-ent of this -esis was :o CCZe.tr.t on fL S-
trative contrcis for the day-to-dav one. ti n%. The t
recent GAO Repcrr specified that orocelure .anuals or regu-
lations had not been inco:porited into Ity-to-day op.:a-
ticns. -n order to facilitate tea ac:omplShment of :-is
ohiective, the p:opcsed cont-ols w re k- sinM .
require little (" any) a.di :.-nal wo-k to accomolish.
(Because c. -hl simis-ic design, it is su ;-;Sted t'at all
proposed controls be utilized.) 0weve-, i proper adher-
ence to the contrcls is maintaiaer, suffici-nt information
to make viable ard practical decisions shoull be possible.
The generalized design is far !:om zomplate. Mandatory
requirements are well specified ia MCO P4230.15E, and this
a,rhor felt that further accounting contrDl developi.nt
woull not only be an unnecessary form of plagiarizing, but
would beliltle the needed impact of administritive controls.
Additionally, further accounting :ontrol levelopment would
be too restrictive to the Purchasia; Officar'3 authority and
64
responsibility of tailoring his -ontrol systes to his parti-
cular needs. But, with Chapter II ani the applicable
orders, he should have sufficient eKplaaatory informatior to
complate a system suited to his situation waile fulfilling
all mandatory requirements.
There is ao sbs*itute for r-aling and =ala-standing the
apprpr:ate manuals and directives. Hcwvz:, appD-ie
controls -that help limit and fc:Lzs upon ta:e appropriate
referances not crly save time, bit !acilita:e the strive for
an adequate system of internal zontrols.
CoPY ovQoi!Lb1e to DTlC does notPermit fully legible reproduction
65
I,
LIST OF REFERENCES
1. United States of fice of a ana ge men t and Budge:.Ir~UUI C0 0 :--tll ircalar 1,1. A- 123, 28
October, 19F1.
2. n it*z-I St at es Ma rin- corc= zt i bh-, - mm a intnc sa i -4f ~e r na!. ohnt~o r!)I CMS. 1MC0P 7000. 98 , 31 Decem bar, 1982.
3. Unite! States Comptroller -,neral. Draft of theaandards for judi o6f 3ovesr P -a t I r,1n aZ0.1s,Z. = ~ ~ ~ S2 d F u iat i o r . ~iiircaton D.C.:
U n iei States Genera A= o u:,!:i. g fice, 1480-e v,-si on.
Amri-can Isu f Cert~fi~ ?ubl-i' Acccin- ts.?=c:f, sinal stindards. Zh --zaqc: :zvierceCainIiouse, Nov=rnber 1972.
5. Staats, Elmer. "Internal Co trois In G-3wernment: Arethey 3ood Encugh to Prevent Fraud?" Ihs Goverament!Z.99QM121ts jaral Summec 1980, pp. 1-5.-
6. Unitel States 39neral A ~un ti ng )f fice. ,rheRelationship Between Interail :ontr:)Ls and Fraud,Waste, and Abuse." Reprint ed., 1. = GovezniantAgccoa2..tsz Joj.; Fall, 1930, pp. 39-56.
7. Commanding General, 4th Marina D-*vis1:)r, F1JF, us j::R."Summition of FSMAC Analysis Reports -Cndacted withi-nthe 4th Marine Division (Raiat Durnn; tiia Period .7f 1Nov 1980 through 20 April1 1981." Letter bySUPO:LW:pjm over 5041 dated 23 April 1931.
8. Commanding General, 4th Marine Divistion, ?MP, USI CR."Summition of FS1MAO Analysis Reports f: inspectionsconducted vithin the 4th f3rine Divisioa (Rein) during'he iosr--od 21 Aor! '1 1981 t4 Oug~l 21 1:t~er 1931."1ettsr 1;y Ui:Li.g over J))41 daz.a j -ct 1 ,1.
66 OWyafle to DIM am. *a
9. Commanding General, 4th arfiaa Di4visi-*:n, FM1P, USXZR."Summation of FSMAO Analysis Reports fzr inspections
conurtd -thin the (tth Mar.ie DiV4:Isil (Rein) duringthe pariod 21 October 1981 through 15 April 1982."1Letter by SUPO:CLR:qcs over K1C-4400-25 dated 21 April1982.
10. 3o0u-t~ -3 ayn~e S., el. £C ne 3 a Y !id t aa.Belmorv D cik-ns:)n Plabisa'ag Caitpa-f,i:cL..
11. Herbert, Leo. Au4 n tIz Parforman:;- :) Manaaemzn:
Be 1moit: Lifetime Learning P~l~z~,197".
12. Burns, David C. "Aralytical Zechniguas ffr: Eva2.uati-n-;Interaa: Control Systems," ipublishxed clIassinrLC
August, 1982.
13. Uni-ted Startes :larine-:n Zorps. ~aieZr w~sn
14. M i ton, Charles R. aliMaa eBhaVioa :Ln :za:1hee Lin's§ of Behavioc. Englevood Ciiffs:Prentice-Hall=, Inc. , 1981.
15. Jaedi-*ke, F. K. , I ji -7i1, Y., and Nielsen, 0., ED.Researcch in Accountina !je6&uremen:- . lanasha: GeorgeBanta Compary, Inc., 1966.---
Stanfor-d: Standford University Press,197
67
INITIAL DISTRIBLJTI)N LIST
No. Co)P,-s-
1. tDefemse Techr-fcal InfCrMa-ion Canter- 2C 3 Me -C n S ta --"C n
L- n r F ;- :r a -i a 2231.4
2. D-aense Lcqistics Studies In :cczation E-xclne 1U.S. Azrmy Loqis'tics :ianagamen: e:-?'-=- Lee, VIrgina 23301
3. LarCode 0142 2Naval Postgradua-,:, SchoolMonrterey, Cal-ifornia 93940
'4. DBoartmart Chpairmnan, Code 543S 11? r -in c~ -- ministrative ir.c
"-va3.?solu- co
5. 7:fesso3: S.3. Li-ao, Ccie 54LZ IDeoartmernt of A'dmnsrati-ve Szf.enaczNiaval Postgradua,:e SchoolMnteray, Calif!ornia 93940
6. Co)mmandar~t of '-he Marine corps 1Code FDR (At-In: Mr Don Callaway)Headquarters, United States larinp :orpsWashirnqtoc, D.C. 20308
7 . Commanding General 3Attn: Divsi-on Suppy4th Marine Division, FM?, USMCR4400 Daaphi.ne StreetNaw Orleans, Loui-siana 70146
8. Commanding General 2*Attn: Division Comptroller
4th Marine Divisi.on, FM?, USMCR44$30 Daulphine StreetNew Orleans, Louisiana 701146
68
9. c:)mmanding General 3AttIr: Wi~ng supply (Code 21)4th marine Aircraft Wing, FIIF& JSM1CR4400 Dauiphine StreetNew Orleans, Louisiana 70146
10. C:)smand-ng General 2Attn: Arnq Comptrolleru-;,h lazinre AiLrcraft Wing, FMF, JS!MCR
N: w Orlsans, Louisiana 701145
11. Ljesumeflaft Colonsl 3.F. Niullaa, J=., U511: 2Code 03)9~Iaval Postgraduate SchoolMonnterey, Califcrnia 93940
12. Captain Ches-er A. Riley 10Ii-duarters !aieCorps (Fisz'il Divisi:)i)Buidget 3ranch (Code FDB)Wshinqton, D.C. 20301
69
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