Millions in Stock Funds Mismanaged at Defense Personnel Support Center

AFMD-81-2: Published: Nov 21, 1980. Publicly Released: Nov 21, 1980.

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GAO reviewed the inability of the Defense Personnel Support Center to control hundreds of millions of stock fund dollars because of its ineffective accounting systems. The Center could not accurately determine amounts paid and amounts of unliquidated obligations. In an attempt to correct its records, the Center made financial adjustments during fiscal years 1978 and 1979. However, the validity of most of these adjustments could not be determined because they were not supported by adequate documentation. Even after the adjustments, many of the records were still inaccurate.

In its review, GAO found that the chaotic condition of the Center's funds control systems and records prevented it from systematically detecting fraudulent contract payments. Additionally, the Center's problems were compounded when erroneous account balances were certified as correct. The balances were certified even though the Center was aware that it had serious funds control problems. In addition, full disclosure was not made in financial statements of either the Center's funds control problems or the large amount of adjustments that were made without adequate supporting documentation. Although the Defense Logistics Agency (DLA) was aware of the Center's problems, it did not require withdrawal or adequate qualification of certification statements. Moreover, DLA certified the Center's accounts as correct despite knowledge of the Center's problems and unsupported adjustments. The Center's funds control problems occurred because its two major commodities are managed under ineffective financial accounting systems. The systems lack adequate controls to ensure timely, accurate processing and recording of financial transactions. Further, the Center's operational problems included problems in funds control system procedures, practices, and documentation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should provide an overall plan to the Chairmen of the House and Senate Committees on Appropriations defining the Defense Personnel Support Center's funds control problems and their causes, specifying corrective actions and milestones for implementing the actions, and specifying the criteria to measure the effectiveness of actions taken.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should direct the Director, DLA, to: (1) establish a project team to develop an overall plan for resolving the Defense Personnel Support Center's funds control problems; (2) closely monitor and submit progress reports on the full implementation of the DLA standard automated materiel management system at the Defense Personnel Support Center to ensure that the milestone dates for the various conversion phases are met; (3) ensure that the Defense Personnel Support Center's financial control account balances are reconciled with supporting records, and that amounts recorded in supporting records are validated before the financial data is incorporated into the standard automated materiel management system; and (5) ensure that the Defense Personnel Support Center's future reports of financial condition are qualified as necessary.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should investigate the fiscal 1978 and 1979 certificates submitted by the Center and DLA to determine if they were made when known to be false, which would be in violation of Federal law. If a violation has occurred, the Justice Department should be informed.

    Agency Affected: Department of Defense

 

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