Weak Internal Controls Make Some Navy Activities Vulnerable to Fraud, Waste, and Abuse

AFMD-81-30: Published: Apr 3, 1981. Publicly Released: Apr 3, 1981.

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GAO reviewed the Naval Sea Systems Command (NAVSEA) including two shipyards and two other activities which provide support services to NAVSEA to determine whether the internal control systems of these activities adequately protect federal funds and assets from fraud, waste, and abuse.

GAO found inadequate controls over several functions at NAVSEA, two shipyards, and two activities. Specific weaknesses included: (1) inadequate controls over payroll at the Navy Regional Finance Center (NRFC) and the Norfolk and Charleston shipyards; (2) inadequate controls over blank and negotiable U.S. Government checks at NRFC; (3) poor security over computer facilities and equipment at the Navy Regional Data Automation Center and at the two shipyards; (4) a circumvention of procurement regulations at NAVSEA; (5) insufficient review of payment requests and a lack of necessary checks of automated system disbursements at NRFC; (6) a 7-month, $8 million backlog of accounts payable at the Charleston shipyard that had not been reconciled to supporting documentation to determine if only legitimate invoices were paid; (7) accounts receivable valued at about $5.8 million at the Charleston shipyard written off the general ledger from fiscal year (FY) 1978 through FY 1979 without adequate justification; and (8) a lack of basic controls at NAVSEA over approving and processing employee travel claims. GAO found that Navy internal controls do not always identify the underlying cause of audit findings and reasons for noncompliance with regulations, too few staff members are assigned to internal auditing and review functions to review all activities at recommended intervals, and internal audit personnel do not participate in automated data processing (ADP) planning. GAO believes that internal controls can be made more effective by strengthening existing laws.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The latest response, March 16, 1984, indicates that procedures intended to implement this recommendation are partially implemented because of an incremental phase process. The agency feels that strengthened internal controls will limit vulnerability to fraud, waste, and abuse.

    Recommendation: The Secretary of the Navy should ensure that the NRFC improves its review of payment requests and automated system edits by thoroughly examining documentation supporting expenditures before making payments, and by ensuring that the more sophisticated computer system being designed requires an adequate number of matching invoice elements to preclude duplicate payments.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Not Implemented

    Comments: Passage of Federal Managers Financial Integrity Act of 1982.

    Recommendation: The Secretary of the Navy should require the Charleston shipyard to match payments to supporting documentation and to properly classify accounts receivable so that they are collected promptly.

    Agency Affected: Department of Defense: Department of the Navy

  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 the Navy should direct all installations to assign an ADP security officer, implement a security training program, and restrict access to computer equipment, computer tapes, and system documentation.

    Agency Affected: Department of Defense: Department of the Navy

  4. Status: Closed - Implemented

    Comments: Congress passed the Federal Managers Financial Integrity Act of 1982 which requires the head of an agency to submit an annual report to Congress by December 31 on the agency's systems of internal accounting and administrative controls.

    Recommendation: The Secretary of the Navy should emphasize to all management levels the significance of good internal controls and the need for managers to make sure that tasks and functions for which they are responsible are adequately controlled to prevent, or at least reduce, the risk of intentional or accidental misuse or abuse of federal funds.

    Agency Affected: Department of Defense: Department of the Navy

  5. 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 the Navy should: (1) establish a central internal control officer to oversee the controls and ensure that each command and major location establish its own officer to see that improvements are made to correct the problems noted during the GAO review and that surveillance is constantly maintained to prevent recurrence of these problems; and (2) require proper segregation of payroll functions at NRFC so that no one person can handle all phases of a transaction.

    Agency Affected: Department of Defense: Department of the Navy

  6. Status: Closed - Not Implemented

    Comments: Passage of Federal Managers Financial Integrity Act of 1982.

    Recommendation: The Secretary of the Navy should improve other controls over payroll at NAVSEA headquarters and the shipyards, such as requiring: (1) control totals to be determined when source documents are prepared; (2) personnel offices to be informed by the payroll staff of actions processed to payroll files; and (3) a routine, periodic reconciliation of payroll and personnel files.

    Agency Affected: Department of Defense: Department of the Navy

  7. Status: Closed - Not Implemented

    Comments: Passage of Federal Managers Financial Integrity Act of 1982.

    Recommendation: The Secretary of the Navy should improve controls over travel at NAVSEA headquarters by: (1) requiring appropriate officials to approve travel; (2) seeing that travel advances are liquidated promptly and that claims are properly reviewed; and (3) ensuring that managers receive reports containing information needed for controlling and planning travel expenditures.

    Agency Affected: Department of Defense: Department of the Navy

  8. Status: Closed - Not Implemented

    Comments: Passage of Federal Managers Financial Integrity Act of 1982.

    Recommendation: The Secretary of the Navy should require the Charleston shipyard to improve its control over travel by addressing the weaknesses that were identified in the travel processes at the Charleston shipyard.

    Agency Affected: Department of Defense: Department of the Navy

  9. Status: Closed - Implemented

    Comments: According to the Department of the Navy, part 2 of this recommendation is the responsibility of the Defense Contract Audit Agency. The Navy will request audits when appropriate.

    Recommendation: The Secretary of the Navy should direct the NAVSEA to implement procedures for: (1) expediting the processing of requests for office equipment; (2) performing internal reviews of contract overhead charges to ensure that only authorized items are charged; (3) reviewing the contract and funding documents used in acquiring office equipment to ensure that other charges are proper and are accounted for; and (4) providing specific detailed guidelines on the use of funding documentation.

    Agency Affected: Department of Defense: Department of the Navy

  10. 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 the Navy should make internal audits more effective by: (1) reassessing staffing priorities at all levels to adequately emphasize internal auditing in light of decreasing size and other factors which make Navy activities more vulnerable to fraud, waste, and abuse; (2) requiring internal audit participation in the design, development, and test phases of a new computer system to ensure that factors to enhance auditability, audit trails for security, and quality output are designed and developed into new systems; and (3) requiring internal auditors to identify underlying causes of problems uncovered so that action can be taken to prevent recurrence.

    Agency Affected: Department of Defense: Department of the Navy

 

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