Naval Audit Service:

Effectiveness of Navy's Internal Audit Organization Is Limited

AFMD-88-12: Published: Feb 24, 1988. Publicly Released: Feb 29, 1988.

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In response to a congressional request, GAO reviewed the Naval Audit Service's (NAS) effectiveness, specifically its: (1) allocation of audit resources; (2) report quality; and (3) independence.

GAO found several problems which significantly reduced NAS audit effectiveness, including: (1) the concentration of audit resources in areas not likely to produce significant monetary savings; (2) management's undue emphasis on auditors' strict adherence to standard work programs and to time limitations, preventing the full development of findings; (3) audits with insufficient evidence to support their findings; (4) a lack of management concurrence with findings and recommendations, delaying some reports and causing auditors to drop others that warranted action; (5) inaccurate and incomplete audit reports; and (6) an apparent inability to correct systemic weaknesses. GAO also found that, although there was no evidence that NAS was not conducting its activities independently and impartially, there were conditions which gave the appearance of impaired independence, including the: (1) close working relationship between NAS and the Office of the Assistant Secretary for Financial Management; and (2) rotation of military officers as auditors and directors to units to which they were once assigned or to which they could be assigned in the future.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Policy clarification was sent to each NAS regional office director and headquarters manager.

    Recommendation: The Auditor General of the Navy should issue policy clarifications to ensure that authorized staff-hours for completing audits are viewed as flexible milestones which can be extended to allow for developing audit issues.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  2. Status: Closed - Implemented

    Comments: Policy has been revised and clarified.

    Recommendation: To ensure that all material findings are reported by NAS auditors, the Auditor General of the Navy should clarify NAS policy on when findings and recommendations should be deleted from draft reports.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  3. Status: Closed - Implemented

    Comments: The Naval Audit Manual was modified to encompass this recommendation.

    Recommendation: To ensure that all material findings are reported by NAS auditors, the Auditor General of the Navy should issue NAS policy requiring all auditors to include in working papers a detailed explanation of why findings and recommendations are not in draft or final audit reports.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  4. Status: Closed - Implemented

    Comments: The Navy Audit Manual was revised to clarify this requirement of all supervisors.

    Recommendation: To ensure that audit reports are accurate and have adequate supporting evidence, the Auditor General of the Navy should issue a policy requiring supervisors to review all audit findings and recommendations before requesting management comment, to ensure that findings and conclusions are adequately supported.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  5. Status: Closed - Implemented

    Comments: The Auditor General has instituted a report referencing process.

    Recommendation: To ensure that audit reports are accurate and have adequate supporting evidence, the Auditor General of the Navy should strengthen quality controls over audit reports by developing and implementing a mechanism such as effective referencing.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  6. Status: Closed - Implemented

    Comments: NAS has increased its prepublication review program to cover more draft reports.

    Recommendation: To ensure that audit reports are accurate and have adequate supporting evidence, the Auditor General of the Navy should initiate a program of publication review of draft audit reports in NAS headquarters. This review process should continue until a consistently high quality is achieved in audit reports.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  7. Status: Closed - Implemented

    Comments: A policy statement was issued.

    Recommendation: To obtain management comments on draft findings and recommendations and to eliminate delays in issuing audit reports, the Auditor General of the Navy should revise NAS policy to require comments only from management of the audited organization or others directly responsible for implementing audit recommendations.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  8. Status: Closed - Implemented

    Comments: A policy revision was issued.

    Recommendation: To obtain management comments on draft findings and recommendations and to eliminate delays in issuing audit reports, the Auditor General of the Navy should revise NAS policy to state clearly that report issuance will not be delayed to get concurrence from Navy management on draft findings and recommendations. When management disagrees with audit findings and recommendations, NAS should evaluate its supporting evidence and change findings and recommendations only when additional information can be presented by management to invalidate audit conclusions and recommendations as presented in draft reports.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  9. Status: Closed - Implemented

    Comments: The Auditor General has issued a revised policy on conducting/reporting multilocation audits, including the preparation and use of consistent guidelines.

    Recommendation: To improve the consistency between local and summary reports issued after multilocation audits, the Auditor General of the Navy should issue NAS policy to require audit guidelines on multilocation audits providing identical audit scope and methodology for the individual audit sites.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  10. Status: Closed - Implemented

    Comments: The Auditor General has revised the structure for managing multilocation audits, giving regional AIC more responsibility, including review of draft reports.

    Recommendation: To improve the consistency between local and summary reports issued after multilocation audits, the Auditor General of the Navy should issue NAS policy to require review of draft local audit reports by the auditor-in-charge (AIC) who will be preparing the summary report for issuance to top Navy management.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  11. Status: Closed - Implemented

    Comments: NAS policy was modified to address this recommendation.

    Recommendation: To improve the consistency between local and summary reports issued after multilocation audits, the Auditor General of the Navy should issue NAS policy to require recommendations to top Navy management on actions to be taken to correct or eliminate the systemic deficiencies reported in summary reports.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  12. Status: Closed - Implemented

    Comments: This training program has been offered to NAS auditors.

    Recommendation: To improve overall compliance with generally accepted government auditing standards, the Auditor General of the Navy should require that all auditors, supervisors, and managers in both regional offices and headquarters attend training that emphasizes generally accepted government auditing standards and, in particular, the standards for supervision, evidence, reporting, and due professional care.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  13. Status: Closed - Implemented

    Comments: Procedures for obtaining advice on financial and other matters has been revised to preclude auditors going directly to ASN/FM.

    Recommendation: To reduce the possibility of perceived or actual impairments to NAS independence, the Secretary of the Navy should direct the Auditor General and the Assistant Secretary for Financial Management (ASN/FM) to limit the nature and extent of technical advice provided to NAS so as not to impact the reporting of findings relating to financial matters; advice in these instances can be obtained from other organizations such as the Department of Defense (DOD) Office of the Comptroller.

    Agency Affected: Department of Defense: Department of the Navy

  14. Status: Closed - Implemented

    Comments: The reporting structure for NAS legal counsel has been changed. Legal counsel now reports directly to the Auditor General.

    Recommendation: To reduce the possibility of perceived or actual impairments to NAS independence, the Secretary of the Navy should create a legal counsel for NAS that is completely independent of any activity subject to audit by NAS, and that legal counsel should report directly to the Auditor General.

    Agency Affected: Department of Defense: Department of the Navy

  15. Status: Closed - Implemented

    Comments: These positions have been designated as civilian positions, advertised as such, and civilian auditors have been selected for each position.

    Recommendation: To reduce the possibility of perceived or actual impairments to NAS independence, the Secretary of the Navy should address the perception of impaired independence created by having military officers rotate into the positions of Deputy Auditor General and regional directors, either by designating these positions as civilian positions, or at least, by ensuring that the military personnel: (1) have knowledge and experience in auditing and accounting; (2) will not be responsible for audits of those units from which they were recently assigned; and (3) are not likely to be subsequently assigned to work for a superior officer whose unit is subject to audit.

    Agency Affected: Department of Defense: Department of the Navy

  16. Status: Closed - Implemented

    Comments: The Undersecretary of the Navy has testified before the House Armed Services Committee of his intent to improve NAS operations. This, combined with all other actions taken to implement the recommendation, appears sufficient to close this recommendation.

    Recommendation: To reduce the possibility of perceived or actual impairments to NAS independence, the Secretary of the Navy should commit the Navy to an internal audit service which operates free of any impairments to its independence and foster this commitment among all levels of Navy management.

    Agency Affected: Department of Defense: Department of the Navy

  17. Status: Closed - Implemented

    Comments: The Secretary of the Navy has submitted a letter to the Secretary of Defense.

    Recommendation: Because of the severity of the deficiencies noted during the GAO review and because they have been reported in the past, the Secretary of the Navy should report to the Secretary of Defense on actions to resolve the issues identified in this report.

    Agency Affected: Department of Defense: Department of the Navy

  18. Status: Closed - Implemented

    Comments: Standardized programs are no longer used for most NAS audits. Policy has been revised to specify that, when used, standardized programs are not to restrict auditors from pursuing potentially significant issues.

    Recommendation: The Auditor General of the Navy should issue clarifications on the use of standardized audit programs for certain types of audits and for segments of other audits, so that auditors are able to pursue potentially significant issues identified during audits even though these issues are not included in standardized audit programs.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Auditor General

  19. Status: Closed - Implemented

    Comments: The DOD Office of the Inspector General (DOD/IG) has reviewed NAS operations. DOD/IG evaluated the effectiveness of NAS actions to correct the deficiencies reported by GAO. DOD/IG issued its report on November 6, 1989.

    Recommendation: One year after receiving the report from the Secretary of the Navy, the Secretary of Defense should conduct, or should have conducted, a review to evaluate the effectiveness of actions taken to correct the reporting, evidence, supervision, and independence deficiencies cited in this report. This review should provide Congress and the Secretary of Defense assurance that actions have been taken to improve the effectiveness of the Navy's internal audit function.

    Agency Affected: Department of Defense

 

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