T-AIMD/NSIAD-99-171 Department of Defense: Status of Financial Management Weaknesses and Actions Needed to Correct Continuing Challenges

Department of Defense: Status of Financial Management Weaknesses and Progress Toward Reform

The U.S. Government Accountability Office (GAO) is an independent agency that works for Congress. The GAO watches over Congress, and investigates how the federal government spends taxpayers dollars. The Comptroller General of the United States is the leader of the GAO, and is appointed to a 15-year term by the U.S. President. The GAO wants to support Congress, while at the same time doing right by the citizens of the United States. They audit, investigate, perform analyses, issue legal decisions and report anything that the government is doing. This is one of their reports.

Pursuant to a congressional request, GAO discussed financial management issues at the Department of Defense (DOD). GAO noted that: (1) to date no major part of DOD has yet been able to pass the test of an independent audit--auditors consistently have issued disclaimers of opinion because of pervasive weaknesses in DOD's financial management systems, operations, and controls; (2) such problems led GAO in 1995 to put DOD financial management on a list of high-risk areas vulnerable to waste, fraud, abuse, and mismanagement, a designation that continued in last year's update; (3) lacking such key controls and information not only hampers the department's ability to produce timely and accurate financial information, but also significantly impairs efforts to improve the economy and efficiency of its operations; (4) unreliable cost and budget information affects DOD's ability to effectively measure performance, reduce costs, and maintain adequate funds control, while ineffective asset accountability and control adversely affect DOD's visibility over weapons systems and inventory; (5) establishing an integrated financial management system--including both automated and manual processes--will be key to reforming DOD's financial management operations; (6) DOD has acknowledged that its present system has long-standing inadequacies and does not, for the most part, comply with the federal system standards; (7) DOD has set out an integrated financial management system goal; and (8) further, the department is now well-positioned to adapt the lessons learned from addressing the year 2000 issue and GAO's recently issued survey of the best practices of world-class financial management organizations and to use the information technology investment criteria included in the Clinger-Cohen Act of 1996.

As an integral part of an effective budget execution system, an agency is responsible for determining and maintaining its available fund balance. Treasury also has information about activity in the agency's accounts, and Treasury's and the agency's records must be periodically reconciled to determine the actual amount of funds available. This is analogous to reconciling one's personal checking account with the monthly bank statement. DOD weaknesses in accounting for its funds include (1) the inability to reconcile its balances to Treasury's, (2) frequent adjustments of recorded payments from one appropriation to another appropriation account, including to canceled appropriations, (3) problem disbursements-disbursements that are not properly matched to specific obligations recorded in the department's records, and (4) obligated balances that are incorrect or unsupported. As a result of these weaknesses, auditors have been unable to verify DOD's Fund Balance With Treasury and its major components -obligate and unobligated balances. This means that DOD does not know with certainty the amount of funding that is available. This information is essential for DOD and the Congress to be able to determine the status of funds and if unobligated balances are available that could be used to reduce current funding requirements or that could be reprogrammed to meet other critical program needs.