Financial Audit:

Air Force Does Not Effectively Account for Billions of Dollars of Resources

AFMD-90-23: Published: Feb 23, 1990. Publicly Released: Feb 23, 1990.

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GAO reviewed the Air Force's financial management operations and its efforts to consolidate financial statements.

GAO found that: (1) the Air Force's financial management systems did not provide adequate and reliable information on Air Force operations; (2) the Air Force did not have accurate cost data for such non-cash assets as inventory, equipment, aircraft, and missiles; (3) 70 percent of the assets listed on the Air Force's financial statement were unauditable; (4) the Air Force did not maintain a general ledger system to ensure full accountability of costs and assets; and (5) the inventory systems did not provide reliable data to support the quantities or values of inventories on hand. GAO also found that: (1) two of the Air Force accounting systems did not conform to prescribed principles and standards; and (2) the Air Force made unsupported and arbitrary adjustments to account balances throughout fiscal year (FY) 1988.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD is directing all the military services' system improvement plans and development as part of the CIM effort.

    Recommendation: The Secretary of the Air Force should ensure that a project management structure and plan are in place to avoid the potential pitfalls that have caused problems in past systems development efforts. This structure must include adequate representation and participation by top management and functional users in all phases of the development effort.

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

  2. Status: Closed - Implemented

    Comments: Air Force regulations and guidance were revised to provide additional directions for promptly recording obligations and expenditures and conducting required reconciliations.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to reconcile disbursements with obligations and promptly correct errors.

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

  3. Status: Closed - Implemented

    Comments: The Air Force issued a directive to its personnel responsible for reconciliations which reemphasized existing requirements and clarified procedures for reconciling subsidiary accounts with control accounts.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to reconcile subsidiary records periodically to the control accounts and correct errors and weaknesses.

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

  4. Status: Closed - Implemented

    Comments: The Air Force developed a separate FMFIA review guide to evaluate internal controls. It also emphasized internal control reviews and Title 2 reviews for FY 1991 reporting. However, the problems GAO had noted were not reported in the Air Force's FMFIA statement to DOD.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to report the internal control problems with reconciliations and documentation for adjustments in Federal Managers' Financial Integrity Act (FMFIA) reports to the Secretary of Defense.

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

  5. Status: Closed - Implemented

    Comments: DFAS reviewed existing regulations and procedures to identify changes needed to report in a more timely and accurate manner. Implementation of a new general ledger will enable more complete and timely reporting. The Air Force implemented procedures to eliminate intra-agency balances and capture and report losses due to aerospace vehicle destructions and dispositions. The Air Force Audit Agency, however, was unable to issue opinions on the reliability of the Air Force's fiscal year 1992 and 1993 financial statements because of pervasive weaknesses and deficiencies.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to generate more reliable and complete financial information for reports to the Department of the Treasury and for annual consolidated financial statements.

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

  6. Status: Closed - Implemented

    Comments: The Air Force is determining what system modifications are needed to accumulate actual costs of equipment. DOD, however, is relying on its Corporate Information Management effort to address the problem of accumulating actual costs of equipment. DFAS is evaluating a means to resolve problems in the area of property accounting. A standard DOD property accounting system has been chosen and now must be implemented. The Air Force Audit Agency found in its audits of the Air Force's fiscal years 1992 and 1993 financial statements that the Air Force had not reported reliable costs for capital assets (including equipment).

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to accumulate and report actual costs of equipment in accordance with Title 2 of the GAO Policy and Procedures Manual for Guidance of Federal Agencies.

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

  7. Status: Closed - Not Implemented

    Comments: DOD has decided to implement "cost-per-output" systems for selected operating activities. "Cost-per-output" is being used in the Defense Business Operations Fund.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to perform, to the fullest extent possible in light of existing systems deficiencies, comparative analyses of operating units across time periods and of other cost centers to determine efficiency of operations.

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

  8. Status: Closed - Implemented

    Comments: DFAS reviewed existing regulations and revised them to require periodic evaluation and analysis of account balances. Guidelines were established for variance analysis.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to perform a periodic comparative analysis of account balances from one period to the next and follow up and explain significant variances.

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

  9. Status: Closed - Implemented

    Comments: The Air Force reviewed existing regulations and revised them to require that abnormal balances be investigated and corrected. The Air Force Audit Agency's financial audit of the Air Force should ascertain whether the corrective actions are adequate.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to investigate unusual and abnormal account balances.

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

  10. Status: Closed - Implemented

    Comments: DOD has undertaken long-term initiatives to improve financial management systems within DOD and the military services. These initiatives will reportedly take a number of years to complete. Currently, DOD has implemented the Interim Migratory Accounting System (IMAS) project to reduce the number of financial systems and improve overall accounting processes.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to correct deficiencies identified in existing systems to the fullest extent possible.

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

  11. Status: Closed - Implemented

    Comments: The Air Force reviewed its management reports and the way in which the reports are used, revised its regulations, and developed training packages for its staff regarding reasonableness checks of accounting data. DFAS has assumed primary responsibility for accounting policies and is revising regulations and procedures, where necessary to meet GAO, Treasury, OMB, CFO Act, and DOD accounting standards and requirements.

    Recommendation: The Secretary of the Air Force should develop management reports designed to achieve cost-effectiveness and efficiency.

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

  12. Status: Closed - Not Implemented

    Comments: Overall, DOD initiatives are intended to develop a standardized system for all of DOD. The Air Force has also revised its regulations to clarify certain accounting guidance and requirements. Responsibility for developing adequate accounting systems now rests with DOD under its various systems and financial management initiatives. The Interim Migrating Accounting System (IMAS) project has been implemented to improve overall accounting processes and reduce the total number of financial systems.

    Recommendation: The Secretary of the Air Force should give high priority to developing an integrated accounting system capable of generating reliable financial management reports on a timely basis.

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

  13. Status: Closed - Implemented

    Comments: The Air Force reviewed its regulations on the need for adequate documentation and review of adjustments and published technical bulletins to its personnel stressing compliance with existing requirements.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to document all adjustments to subsidiary records and control accounts.

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

  14. Status: Closed - Implemented

    Comments: The Air Force has reviewed its regulations on adequate documentation and review of adjustments. It has published technical bulletins to its personnel stressing compliance with existing requirements. Guidance was issued requiring adjustments to be approved by the responsible officer. In fiscal year 1992, the Air Force issued regulations requiring all adjustments be approved.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to enforce the Air Force requirement that supervisors and managers review and approve all significant adjustments.

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

  15. Status: Closed - Not Implemented

    Comments: BLARS is no longer funded and DOD is directing systems plans and development now.

    Recommendation: The Secretary of the Air Force should review the systems requirements of the Base Level Accounting and Reporting System (BLARS) and all related systems to ensure that they are complete and that they address all the Air Force's concerns about its operations.

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

  16. Status: Closed - Not Implemented

    Comments: DOD is directing all the military services' system improvement plans now as part of the CIM effort. The Air Force is relying primarily on this effort to improve and integrate its systems.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to develop a comprehensive plan for improving and integrating the Air Force's financial management and accounting systems.

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

  17. Status: Closed - Implemented

    Comments: The Air Force and DFAS are relying on DMR initiatives to produce improved financial systems. In addition, the Air Force and DFAS have issued a corrective action plan (dated March 1993) to address financial deficiencies within the Air Force. Most of the actions are ongoing.

    Recommendation: The Secretary of the Air Force should make improving accounting practices and financial management systems an Air Force-wide priority, supported by adequate resources.

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

  18. Status: Closed - Implemented

    Comments: The Air Force has continuous action to reduce inventory. Teams from the Air Force Logistics Agency visited all air logistic centers and disposed of $600 million of inventory, freeing up 1.2 million cubic feet of storage space. DOD stated that the DMR initiatives are to address this problem. Also, an automated warehousing system has been implemented at all ALC to improve inventory accountability.

    Recommendation: The Secretary of the Air Force should emphasize the need to improve the accuracy of perpetual inventory records. In this regard, the Secretary should require the Chief Financial Officer to initiate a special effort to reduce the $10 billion of unrequired inventory and deal with the root causes of this problem.

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

  19. Status: Closed - Not Implemented

    Comments: DOD has indicated that a DMR initiative to develop standard financial management requirements is expected to address this area. The Air Force is relying on DMR initiative as the long-term solution. The Air Force Audit Agency found that in fiscal year 1993, the Air Force overreported and underreported asset (inventory) quantities.

    Recommendation: The Secretary of the Air Force should emphasize the need to improve the accuracy of perpetual inventory records. In this regard, the Secretary should require the Chief Financial Officer to adopt an improved standard cost accounting system, integrated with the general ledger that provides for accurate determination of standard costs on the basis of replacement costs, identification of inflation growth, and analysis of variance in purchase prices, material usage, and repair costs.

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

  20. Status: Closed - Implemented

    Comments: Reparable assets have been transferred from Air Force to the Defense Business Operations Fund (DBOF). DBOF values such items at acquisition cost less estimated repair costs.

    Recommendation: The Secretary of the Air Force should emphasize the need to improve the accuracy of perpetual inventory records. In this regard, the Secretary should require the Chief Financial Officer to establish a policy to value unserviceable items to reflect the estimated costs of repair.

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

  21. Status: Closed - Implemented

    Comments: The Air Force has implemented manual reporting procedures specifically for recording and reporting on the Air Force's satellites held by contractors. Under the procedures, the appropriate program management office is to submit satellite cost data to the local finance and accounting office on a monthly basis for inclusion in general ledger trial balance reports. However, agency action only covers satellites and not other government-furnished equipment held by contractors.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to establish and implement procedures to identify and record in the accounting records equipment paid for and accepted by the Air Force but held by contractors.

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

  22. Status: Closed - Implemented

    Comments: The Air Force directed its bases to start reporting satellites and engines in the Comprehensive Engine Management System. The Air Force System Command developed procedures for recording the value of satellites in the general ledger.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to account and report on satellites through either revisions to existing systems or a new system to provide oversight of those assets.

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

  23. Status: Closed - Not Implemented

    Comments: DOD and the Air Force consider the initiatives growing out of DMR as the long-term solution to the recommended action. But, the Air Force issued a January 1991 memorandum to its personnel that established procedures for preparing and submitting future Selected Acquisition Reports to Congress. Overall, DOD believes that applicable data from sources other than Air Force assets accounts are used to provide necessary information to Congress.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to report actual and planned cost data to Congress so better decisions can be made on program funding.

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

  24. Status: Closed - Implemented

    Comments: DOD and the Air Force consider the initiatives growing out of the Defense Management Report (DMR) as the long-term solutions to accounting and reporting actual costs. Efforts in this area are ongoing. The Air Force Audit Agency reported that the Air Force, in its fiscal years 1992 and 1993 financial statements, had not reported reliable acquisition costs for most of its assets, including weapon systems.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to accumulate and report actual costs of weapons systems, which include acquisition costs, government-furnished materials, operating and maintenance costs, and modifications.

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

  25. Status: Closed - Implemented

    Comments: The Air Force emphasized internal control reviews and title 2 reviews for FY 1991 reporting and stated that it had reported weaknesses it considered material. Many weaknesses GAO had identified have not been included in the Air Force's FMFIA reports.

    Recommendation: The Secretary of the Air Force should direct the Chief Financial Officer to report unsupported adjustments and reconciliation, if applicable, in future FMFIA reports.

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

  26. Status: Closed - Implemented

    Comments: Improvements in financial statements will result primarily because of other actions the Air Force is taking on the audit report. The Department of Defense (DOD) stated that an implementation plan submission of auditable financial statements had been developed. In March 1993, the Defense Finance and Accounting Service (DFAS) and the Air Force issued a joint action plan to correct the weaknesses and the deficiencies GAO had reported. Although the Air Force and DFAS have initiated actions to address the Air Force's financial problems, the Air Force Audit Agency was unable to express opinions on the Air Force's fiscal years 1992 and 1993 financial statements because of significant uncertainties in account balances and accounting systems.

    Recommendation: The Secretary of the Air Force should develop an overall plan specifying corrective actions and milestones for the Air Force to produce consolidated financial statements in accordance with Title 2 of the GAO Policy and Procedures Manual for Guidance of Federal Agencies that will be submitted for independent audit.

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

 

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