The Air Force Has Incurred Numerous Overobligations in Its Industrial Fund

AFMD-81-53: Published: Aug 14, 1981. Publicly Released: Aug 14, 1981.

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GAO reviewed aspects of financial operations in the Air Force industrial fund to determine whether procedures for the financing of, accounting for, and reporting results of Air Force industrial fund operations were in accordance with existing statutes, the intent of Congress, and applicable federal guidance and regulations. GAO made this review pursuant to its responsibilities under the Accounting and Auditing Act for reviewing agency accounting systems from time to time.

The Air Force has incurred numerous overobligations in its industrial fund in recent years and failed to report the deficiencies to the President and Congress, as required by the Antideficiency Act. In addition, the Air Force illegally adjusted industrial fund account balances on year-end certified financial reports. Because of the adjustments, these violations of the act were not apparent on the year-end reports. The act provides for administrative control over funds by restricting obligations and expenditures to amounts appropriated by Congress and, where applicable, apportioned by the Office of Management and Budget (OMB). The Air Force industrial fund provides goods and services to customers on a cost-reimbursable basis. Fund obligations are limited to available budgetary resources which include balances on deposit with the Treasury, accounts receivable, and unfilled customer orders. The adjustments to the year-end reports have been approved each year by an Air Force internal financial management review committee, which contended that the practice of obligating the industrial fund against anticipated customer orders, and adjusting year-end balances accordingly, is supported by internal legal decisions. However, those rulings were based on the erroneous assumption that, because the Air Force industrial fund is exempt from the apportionment process, OMB provisions for administrative control of funds and restrictions on the use of reimbursements do not apply. Neither the Department of Defense (DOD) nor OMB have questioned the deficiencies in the Air Force monthly reports.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress took partial action on the report and those actions have been completed. The remaining open issues were addressed in a separate review, the results of which were reported to the Senate Committee on Appropriations on July 27, 1983, and superseded all of the outstanding issues in this report.

    Matter: If Congress wishes the Air Force to continue to fund these contracts through the industrial fund, it should enact legislation that will provide the budgetary resources to finance the contracts. To provide sufficient budgetary resources, Congress should authorize the industrial fund to be given contract authority. Such authority should be made subject to appropriate controls similar to those now being applied to certain Defense stock funds which currently have contract authority.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Congress took partial action on the report and those actions have been completed. The remaining open issues were addressed in a separate review, the results of which were reported to the Senate Committee on Appropriations on July 27, 1983, and superseded all of the outstanding issues in this report.

    Recommendation: The Secretary of Defense should have the Secretary of the Air Force: (1) stop the practice of obligating the Air Force industrial fund in excess of available budgetary resources; (2) report only those budgetary resources as defined by OMB on year-end financial reports; and (3) determine the correct industrial fund account balances since fiscal year (FY) 1970, together with all pertinent facts and circumstances concerning the overobligations, and report all overobligations to the President and Congress, as required by law.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: Congress took partial action on the report and those actions have been completed. The remaining open issues were addressed in a separate review, the results of which were reported to the Senate Committee on Appropriations on July 27, 1983, and superseded all of the outstanding issues in this report.

    Recommendation: The Secretary of Defense should have the Secretary of the Air Force: (1) stop the practice of obligating the Air Force industrial fund in excess of available budgetary resources; (2) report only those budgetary resources as defined by OMB on year-end financial reports; and (3) determine the correct industrial fund account balances since fiscal year (FY) 1970, together with all pertinent facts and circumstances concerning the overobligations, and report all overobligations to the President and Congress, as required by law.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The responsible officials in the Air Force, DOD, and OMB should make sure that their procedures for reviewing monthly and year-end financial reports are adequate to detect improper reporting practices and balances that indicate fund deficiencies.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The responsible officials in the Air Force, DOD, and OMB should make sure that their procedures for reviewing monthly and year-end financial reports are adequate to detect improper reporting practices and balances that indicate fund deficiencies.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The responsible officials in the Air Force, DOD, and OMB should make sure that their procedures for reviewing monthly and year-end financial reports are adequate to detect improper reporting practices and balances that indicate fund deficiencies.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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