Financial Audit:

Financial Reporting and Internal Controls at the Air Force Systems Command

AFMD-91-22: Published: Jan 23, 1991. Publicly Released: Jan 23, 1991.

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David M. Connor, Jr
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contact@gao.gov

 

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GAO provided information on the Air Force Systems Command's (AFSC) financial management operation, focusing on AFSC need for improved internal controls and financial reporting.

GAO found that: (1) AFSC trial balances for fiscal year (FY) 1988 and FY 1989 were substantially incomplete and inaccurate, resulting in unreliable financial reports and statements; (2) AFSC product divisions failed to promptly record commitments and obligations in accounting system records; (3) AFSC product divisions did not always reconcile disbursement transactions with accounting records; (4) AFSC product divisions inconsistently documented their efforts to ensure that contract awards and modifications were proper; (5) material weaknesses relating to prompt recording of expenditures affected the accuracy of accounting reports concerning the amount of unliquidated obligations; (6) AFSC lacked adequate controls to ensure the proper reconciliation of expenditures and unliquidated obligations; (7) the AFSC Contract Management Division overstated its liabilities by about $400 million in FY 1988 and by about $192 million in FY 1989; (8) the AFSC Contract Management Division lacked adequate control over its inventory process; and (9) AFSC low priority on ensuring the accuracy of trial balances resulted in its failure to detect and correct many easily identified errors and inaccuracies in the accounting records.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Commander, AFSC, should direct the AFSC Comptroller to enforce Air Force policy and regulations requiring trial balances to be accurate, complete, and supported by reliable documentation.

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

    Status: Closed - Implemented

    Comments: DOD stated that it has stressed to comptrollers and staffs the need for accurate accounting data and that the System Command will continue implementing appropriate corrective action.

    Recommendation: The Commander, AFSC, should require the AFSC product divisions to identify the appropriate authorization document on each purchase request.

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

    Status: Closed - Not Implemented

    Comments: DOD did not concur in this recommendation and plans no action. It stated that the Air Force had complied with pertinent federal acquisition regulation requirements.

    Recommendation: The Commander, AFSC, should require AFSC product divisions to document the determinations of contractors' eligibility.

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

    Status: Closed - Not Implemented

    Comments: DOD did not agree with this recommendation and plans no action. It stated that the Air Force had complied with pertinent FAR requirements.

    Recommendation: The Commander, AFSC, should direct the AFSC Comptroller to ensure that commitments, obligations, and expenditures are promptly recorded in the Air Force General Accounting and Finance System.

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

    Status: Closed - Implemented

    Comments: DOD stated that the Systems Command would emphasize adequate staffing and training for reporting activities to resolve the deficiency GAO had reported. DFAS, in August 1993, reemphasized the requirement for accounting offices to promptly record all commitment, obligation, and disbursement transactions.

    Recommendation: The Commander, AFSC, should direct the AFSC Comptroller to ensure that the accounting and finance offices promptly conduct required reconciliations of disbursements and obligations and follow up on differences.

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

    Status: Closed - Implemented

    Comments: DOD stated that Air Force regulations and related directives require such reconciliations and that DFAS will now oversee and evaluate the reconciliation processes.

    Recommendation: The Director, Defense Logistics Agency (DLA), should ensure that the Contract Management Division's efforts to correct liability reporting problems are promptly completed and that its new report and liability data are validated.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that the methodology for calculating liabilities has been revised and refined to improve the reliability of resulting data.

    Recommendation: The Director, DLA, should direct the Contract Management Division to disclose its liability reporting problems, if uncorrected, as a material weakness in its annual statement of assurance on the status of internal controls for FY 1990.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that the formula for calculating liabilities was corrected before FY 1991. Also, the system used to report liabilities was modified to use actual, not estimated, amounts.

    Recommendation: The Director, DLA, should direct the Contract Management Division to continue counting Treasury checks on hand when performing monthly inventories.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that the verification of unused Treasury checks is now performed monthly.

    Recommendation: The Director, DLA, should direct contracting officers administering Division contracts to comply with Air Force Regulation 177-102 by notifying the division when a demand for payment is made of a contractor.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that the regulatory requirement for contracting officers to notify DLA when contract debts are incurred has been reemphasized to the officers.

    Recommendation: The Director, DLA, should make each Air Force plant representative office responsible for forwarding approved progress payment requests to the paying office.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that DLA Manual 8105.1 now requires contracting officers to forward approved progress payment requests to the proper paying office.

    Recommendation: The Director, DLA, should require Air Force plant representative offices to perform the follow-up necessary to ensure that progress payment requests are accurate and appropriately relate to incurred cost and physical progress.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that DLA Manual 8105.1 now requires contracting officers to perform periodic reviews of contractor progress payment requests to ensure the validity of costs.

    Recommendation: The Commander, AFSC, should direct the AFSC Comptroller to ensure that account balances of all AFSC organizations and activities are included in the consolidated trial balances.

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

    Status: Closed - Not Implemented

    Comments: The Department of Defense (DOD) partially concurred in this recommendation. It stated that the Air Force would implement short-term corrective actions but that ultimate corrective actions would result from the Corporate Information Management effort, which was ongoing. DFAS reviewed existing practices for the general funds trial balance and found no conflicts with DOD accounting policy. AFSC has now been merged with AFLC into the Air Force Materiel Command (AFMC).

    Recommendation: The Director, DLA, should direct Air Force plant representative offices to monitor more comprehensively and more frequently contractor systems and compliance procedures for recording and reporting government-owned property.

    Agency Affected: Department of Defense: Defense Logistics Agency

    Status: Closed - Implemented

    Comments: DOD stated that steps had been taken to improve contractor monitoring. DLA Manual 8135.1 now prescribes policies for ensuring compliance with procedures for reporting government-owned property. Controls have been established that provide for reporting contractor deficiencies and time limits for contractors to take corrective actions.

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