Financial Management:

Immediate Actions Needed to Improve Army Financial Operations and Controls

AFMD-92-82: Published: Aug 7, 1992. Publicly Released: Aug 7, 1992.

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Pursuant to a legislative requirement, GAO reviewed the Department of the Army's financial management operations, focusing on the problems uncovered by its audit.

GAO found that: (1) the Army's financial operations and accounting systems do not produce reliable information due to inadequate accounting policies and practices, and the lack of an integrated systems network for data collection; (2) although the Department of Defense (DOD) and the Army have begun to correct the deficiencies, the Army will be unable to produce reliable financial information unless additional action is taken; (3) because the Army's existing systems do not collect operational cost information, decisionmakers cannot compare the current cost of operations with the cost of operations under force and organizational structure alternatives; (4) the Army made its first attempt to link performance measurement with financial data, but needs to improve its performance measurement information; and (5) in recognition of its problems and the need to take immediate action, the Army has established a special action group to oversee implementation of corrections. GAO also found that: (1) the Army's system of internal controls over its assets has serious weaknesses and does not meet the required objectives for internal control systems, and its inventory systems do not provide accurate data; (2) although equipment reporting is generally accurate, equipment accountability is inadequate; (3) the Army acknowledges that its controls and accountability over resources are poor, and has established an initiative to improve controls and accountability; (4) the Army has developed a framework for assessing its internal controls system, but has not effectively implemented it; (5) the Army has not reported all of its material internal control weaknesses; and (6) accountability for program effectiveness is fragmented among different managerial levels, but Army is working to improve its internal management control.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In September 1992, the acting CFO requested that DFAS ensure that implementation plans for migratory systems included steps to correct data inaccuracies. However, GAO was informed that DOD is still reviewing its entire migration system strategy. In addition, DOD has stated that improvements in inventory cannot be emphasized at the expense of other equally or more important areas. DOD reported that it would pursue inventory systems and policies in a "balanced, prioritized approach" to accounting improvements.

    Recommendation: The Secretary of Defense should direct the CFO and service secretaries to ensure that existing accounting and control policy requirements are applied rigorously until changed systems are actually implemented. Because of the high payoff potential, special emphasis should be given to systems and policies relating to inventory.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: In September 1992, the acting CFO requested that DFAS ensure that implementation plans for migratory systems included steps to correct data inaccuracies. However, as of March 1996, DOD had not decided on a migration system strategy. In addition, DOD stated that improvements in inventory cannot be emphasized at the expense of equally or more important areas. DOD reported that it would pursue inventory systems and policies in a "balanced, prioritized approach" to accounting improvements.

    Recommendation: The Secretary of Defense should direct the CFO and service secretaries to ensure that the planned implementation of migratory systems includes steps to correct data inaccuracies in existing systems. Because of the high payoff potential, special emphasis should be given to systems and policies relating to inventory.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In September 1992, the DOD Comptroller issued a memo providing policy guidance on the division of responsibilities between the Assistant Secretary for Financial Management for the Army, DFAS, and service operating units. However, DOD has no structure in place to ensure that these components are actually operating as described in the policy. DOD has closed this recommendation.

    Recommendation: The Secretary of Defense should, in consultation with the Chief Financial Officer (CFO) and service secretaries, clearly delineate the respective responsibilities and authorities of the Assistant Secretaries for Financial Management and DFAS and their relationships with service operating units having responsibility for data integral to accounting operations and systems.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The Army states that the objectives of the Federal Managers' Financial Integrity Act are being met and that DOD supports this position. DOD has closed this recommendation.

    Recommendation: The Secretary of the Army should advise the Secretary of Defense that the Federal Managers' Financial Integrity Act's objectives are not being met.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Comments: The Army reviewed the weaknesses identified in the audit report. Seven were determined to be material and were reported to the Secretary of Defense in the Army's Statement of Assurance submitted on November 16, 1992. DOD has closed this recommendation.

    Recommendation: The Secretary of the Army should disclose the material weaknesses identified in this report in the Army's fiscal year 1992 annual statement of assurance, and in subsequent annual statements, until the weaknesses are corrected.

    Agency Affected: Department of Defense: Department of the Army

  6. Status: Closed - Implemented

    Comments: Under the Army's "Internal Management Control Program," operational managers are held responsible for ensuring effective internal controls. This policy was reiterated to principal officials of the Headquarters Department of the Army and to commanders of major Army commands by the Secretary of the Army. The special action group is providing oversight.

    Recommendation: The Secretary of the Army should give operational managers responsibility for ensuring effective internal controls and, as recommended in this report, make the special action group responsible for overseeing that internal control system weaknesses are identified and corrected.

    Agency Affected: Department of Defense: Department of the Army

  7. Status: Closed - Not Implemented

    Comments: With the changes in the federal accounting standards with respect to inventories, this recommendation is no longer applicable. Further, DOD and Army financial management officials determined that DOD and Army financial management resources could be better spent elsewhere until the requirements and priorities stemming from the new federal accounting requirements are better understood. The DOD IG has closed out this recommendation and AAA officials have concurred with this decision. While GAO is closing this recommendation, it plans to conduct additional follow-up work in this area as part of its financial audit work concerning the Army.

    Recommendation: The Secretary of the Army should direct that a high priority be given to the Army's initiative to record spare parts and supply inventories held at the division level in logistics records made visible to item managers in order to consider these inventories in procurement decisions.

    Agency Affected: Department of Defense: Department of the Army

  8. Status: Closed - Implemented

    Comments: In its March 1996 report accompanying the Army's FY 1995 Annual Financial Report, the Army Audit Agency reported that management controls were sufficient to ensure accurate reporting of $27.9 billion of wholesale munitions, and that storage activities reported accurate balances on hand. Compliance with existing performance measures concerning physical inventories and reconciliations is evaluated by logistics review teams and reported in the DOD Inventory Control Effectiveness Report.

    Recommendation: The Secretary of the Army should ensure compliance with existing control policies and procedures over resources. Specifically, goals and performance measures should be established for compliance with such requirements as: (1) conducting annual physical inventories of equipment and supplies, researching the differences, and adjusting the custodial records to reflect the results of these inventories (using statistical sampling methods to help reduce the resources required to accomplish the physical inventories); (2) reconciling differences between the custodial records and accountable records, and researching discrepancies; and (3) safeguarding and protecting assets from deterioration and theft.

    Agency Affected: Department of Defense: Department of the Army

  9. Status: Closed - Not Implemented

    Comments: As DOD has acted to clarify the roles and responsibilities of DFAS, it has become clear that DOD does not intend to grant DFAS the authority to obtain the military services' cooperation needed to bring about the integration of DOD's logistics systems with DFAS accounting systems. DOD has granted DFAS the authority to oversee and direct only the department's accounting and finance systems.

    Recommendation: The Secretary of Defense should ensure that the Defense Finance and Accounting Service (DFAS) has sufficient authority to obtain the individual military services' cooperation necessary for the integration of logistics and financial systems. Specifically, resources must be committed and established milestones met.

    Agency Affected: Department of Defense

  10. Status: Closed - Not Implemented

    Comments: With the changes in the federal accounting standards, this recommendation is no longer applicable. Further, DOD and Army financial management officials determined that a plan addressing the priorities for improvement highlighted in this report would be of limited additional value. Instead, they decided that the Army's financial management resources would be better spent elsewhere until the requirements and priorities stemming from the new federal accounting requirements are better understood. The DOD IG has closed out this recommendation and Army Audit Agency officials have concurred with this decision.

    Recommendation: The Secretary of the Army should approve a plan for improving financial management and demonstrate sufficient commitment and involvement so that all concerned Army functions and activities understand the priorities for improvement and have the special action group report quarterly to him on progress made in achieving milestones set in the improvement plan.

    Agency Affected: Department of Defense: Department of the Army

  11. Status: Closed - Not Implemented

    Comments: With the establishment of DFAS and DISA, which are now responsible for carrying out and overseeing many of the systems and processes relied on to carry out Army's financial management operations, the Secretary of the Army is not in a position to oversee and direct these DOD organizations.

    Recommendation: The Secretary of the Army should ensure that the recently formed special action group will be effective in dealing with the many financial management problems the Army faces. Specifically, the Secretary should consider: (1) whether this group has sufficient broad authority to accomplish needed corrective actions, considering the urgency of the problems and the need for full cooperation from direct support operations functions, such as logistics, maintenance, and supply, as well as from accounting activities; (2) what needed improvements have the highest priority and when those high-priority improvements should be achieved; and (3) whether there are sufficient resources available to achieve the priority objectives.

    Agency Affected: Department of Defense: Department of the Army

  12. Status: Closed - Not Implemented

    Comments: Subsequent to this recommendation, a new set of standards has been adopted for federal accounting, including the inventory valuation area, making this recommendation no longer applicable. GAO is identifying actions DOD and the Army should take to ensure that inventories are properly valued under those new standards. In addition, GAO plans to follow up on this area as part of its planned financial statement audit work concerning the Army.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that inventory values for spare and repair parts are priced in a consistent manner.

    Agency Affected: Department of Defense: Department of the Army

  13. Status: Closed - Implemented

    Comments: In September 1992, the acting DOD CFO requested DFAS to accelerate development of functional requirements for migratory financial systems under the Corporate Information Management initiative. Milestones were set through 1993, which included completing a review of a proposed "data model." A data model of the basic data architecture was developed on May 20, 1993. The DOD CFO Financial Management 5-Year Plan was updated and contains current milestones and target dates for the migratory systems. DOD has closed this recommendation. A copy of the DOD 5-Year Plan is in the DFA files.

    Recommendation: The Secretary of Defense should require the CFO to accelerate the definition of functional requirements for the remaining migratory systems to be selected under the Corporate Information Management initiative and establish specific milestones and target dates for meeting the set implementation dates of migratory systems throughout DOD.

    Agency Affected: Department of Defense

  14. Status: Closed - Implemented

    Comments: DOD submitted a financial management 5-year plan to OMB in September 1992 including financial management improvement initiatives planned over the FY 1993-1996 timeframe. However, there is no indication that financial management will be given priority treatment in resource allocation or budgeting as GAO recommended. DOD has closed this recommendation.

    Recommendation: The Secretary of Defense should: (1) make financial management improvement projects of DOD-wide priority to be supported by adequate resources; and (2) direct DOD managers to consider the projects in setting budget priorities.

    Agency Affected: Department of Defense

  15. Status: Closed - Implemented

    Comments: Following issuance of a memorandum from the Acting DOD CFO to all DOD components in September 1992, cash on hand at disbursing offices and related liabilities were included in disbursing offices in the Army's fiscal year 1992, 1993, and 1994 financial statements. DOD revised the accounting policy to require that cash held by disbursing officers be recorded as an asset with a corresponding liability.

    Recommendation: The Secretary of Defense should direct that DOD accounting policy be revised to require that cash held by disbursing officers be recorded as an asset with a corresponding liability.

    Agency Affected: Department of Defense

  16. Status: Closed - Implemented

    Comments: With the changes in the federal accounting standards with respect to cost accounting, DOD and Army financial management officials determined that DOD and Army financial management resources could be better spent elsewhere until the requirements and priorities stemming from the new federal accounting requirements are better understood. DOD has acknowledged that it still has a long way to go develop and implement systems that will provide reliable actual cost data. Under the Federal Financial Management Improvement Act, GAO will be required to report on DOD's actions in this area. While GAO is closing this recommendation as not fully implemented, it will continue to monitor this important area as part of its planned financial statement audit work.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that performance measures presented in financial statements relate to the Army's overall mission and include actual cost data.

    Agency Affected: Department of Defense: Department of the Army

  17. Status: Closed - Not Implemented

    Comments: On September 30, 1993, the reorganization and implementation of direct reporting of financial data, resulted in a movement of the responsibility to resolve abnormal balances from the accounts office to the DFAS Indianapolis Center.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that all commands promptly investigate any unusual and abnormal account balances.

    Agency Affected: Department of Defense: Department of the Army

  18. Status: Closed - Implemented

    Comments: The Army Materiel Command continues to use a system that has not been upgraded to incorporate the standard general ledger requirements. In contrast, the Corps of Engineers has developed the Corps of Engineers Financial Management System (CEFMS) and is finalizing implementation. CEFMS incorporates the standard general ledger. The recently enacted Federal Financial Management Improvement Act requires that all federal agencies assess their financial systems' compliance with systems requirements, including the extent to which their systems incorporate the standard general ledger, and develop remediation plans to correct any deficiencies. While acknowledging actions taken, GAO is closing this recommendation as action taken not being fully responsive. But, GAO plans to work with the DOD IG, who will be reviewing and evaluating DOD's systems compliance under this new legislation.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that the Army Materiel Command and the Corps of Engineers use the standard general ledger.

    Agency Affected: Department of Defense: Department of the Army

  19. Status: Closed - Not Implemented

    Comments: In March 1995, Army Audit reported in its FY 1994 Financial Statement audit that DOD accounting policies prevent the Army from reporting material amounts of contingent liabilities in the Statement of Financial Position in accordance with prevailing guidance set forth by the federal government accounting standards hierarchy. Unless this problem is resolved, the Army's total liabilities will continue to be significantly understated.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that contingent liabilities are disclosed in financial statements.

    Agency Affected: Department of Defense: Department of the Army

  20. Status: Closed - Implemented

    Comments: In its July 1996 internal controls report accompanying its financial statement audit, the Army Audit Service reported that the Army made significant progress in removing costs for completed projects from the military construction-in-progress accounts.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that the Corps of Engineers deletes completed projects from the construction-in-progress account.

    Agency Affected: Department of Defense: Department of the Army

  21. Status: Closed - Not Implemented

    Comments: Because DOD has now selected the Defense Property Accountability System as the department-wide system to be used to account for all DOD real property, GAO is closing this recommendation as no longer applicable. Problems remain, however, as in its February 1997 report on its audit of Army's FY 1996 financial statements. However, AAA reported that Army real property was misstated by an unknown but probably material amount because Army and DOD reporting guidance was not clear and was not consistently implemented. GAO is following up on implementation of DPAS DOD-wide and will continue to monitor this area as part of its financial audit work.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that real property records are reconciled with the Integrated Facilities System and accounting records.

    Agency Affected: Department of Defense: Department of the Army

  22. Status: Closed - Implemented

    Comments: The Army completed field work on the review for valuing military equipment at the latest acquisition cost and submitted a proposal to OSD in August 1993 to value the Army's military equipment at latest acquisition cost. The proposal included methods to collect costs using current automated systems. The DOD Comptroller denied the request and advised the Army that, if the Army must value its military equipment at a value other than actual (historical) cost, the Army should disclose that fact, as well as the valuation methods used, in footnotes to its audited financial statements. Military equipment was valued at the latest acquisition cost or standard price in Army's FY 1994 Financial Statements.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that military equipment is valued at actual cost.

    Agency Affected: Department of Defense: Department of the Army

  23. Status: Closed - Implemented

    Comments: Although the Army has taken some action to address this recommendation, the accuracy and reliability of Army financial data pertaining to property in the hands of contractors continues to be a problem. In its February 1997 report on its audit of Army's FY 1996 financial statements, the Army Audit Agency (AAA) stated that it was unable to attest to the reported value for PPE because, in part, the reported value for military equipment was misstated because contractor reports--used to account for equipment held by contractors--were not complete or accurate. In addition, information from the DOD IG indicates that the Department now has GFP "under control" and consequently has closed this recommendation. However, the information provided also indicated that full resolution will not be complete until Oct 2001. While GAO is closing this recommendation, with action taken not being fully responsive, it will continue to monitor this area as part of its planned financial statement audit work.

    Recommendation: The Secretary of the Army should improve the accuracy and reliability of financial data and reporting by establishing Army-wide goals and performance measures directed at ensuring the accomplishment of existing accounting policies and procedures and the use of those measures in evaluating senior managers' overall performance. A specific area needing attention is ensuring that commands have accurate records of the quantities and values of property held by contractors.

    Agency Affected: Department of Defense: Department of the Army

  24. Status: Closed - Implemented

    Comments: The DOD CFO submitted a revised CFO implementation plan in September 1992. However, resources needed to implement these plans were not addressed. Resource needs are to be reviewed and approved in conjunction with the formulation of the DOD budget. DOD has closed this recommendation.

    Recommendation: The Secretary of Defense should require the CFO to ensure that specific resource needs to implement financial management initiatives are also included in the DOD August 1992 revised CFO implementation plan.

    Agency Affected: Department of Defense

  25. Status: Closed - Implemented

    Comments: The Corps issued guidance on July 24, 1992, and August 27, 1992, directing all Corps activities to use authorization documents required in Corps of Engineers regulation 700-1-1 and to establish a process for reporting on compliance with these requirements. On October 27, 1992, the Corps implemented a procedure to ensure that weaknesses and corrective actions associated with property authorizations would be identified and monitored at the command level. Compliance will be monitored through quality assurance reviews and command inspections. Army Audit reported in its FY 1993 Financial Statement Audit that the Corps had established the Civil Property Authorization Document System, which established the use of allowance tables for the many types of commercial equipment acquired by Corps activities.

    Recommendation: The Secretary of the Army should direct that the Corps of Engineers develop and comply with tables of allowances.

    Agency Affected: Department of Defense: Department of the Army

  26. Status: Closed - Not Implemented

    Comments: DOD has continued to require that installation-level inventories be included in the Army's financial statements. The Army states that FASAB 3, released July 30, 1993, supports its position that retail inventory levels held at installations and divisions do not meet the definition of "inventory" and should be classified as operating materials and supplies.

    Recommendation: The Secretary of Defense should direct that DOD accounting policy be revised to require that all retail-level inventories and ammunition held at installations, and spare parts and supplies held at the division level, be recorded as assets.

    Agency Affected: Department of Defense

 

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