CFO Act Financial Audits:

Increased Attention Must Be Given to Preparing Navy's Financial Reports

AIMD-96-7: Published: Mar 27, 1996. Publicly Released: Mar 27, 1996.

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GAO reviewed the Navy's fiscal year (FY) 1994 consolidated financial reports, focusing on how the Navy and the Defense Finance and Accounting Service (DFAS) can: (1) improve the credibility of the Navy's FY 1995 financial reports; and (2) enhance their ability to prepare the Navy's FY 1996 annual financial statements.

GAO found that: (1) the Navy's FY 1994 consolidated financial reports were not reliable and could not be used to assess the results of the Navy' operations, stewardship over assets, and use of budgetary resources; (2) the unreliability of the Navy financial reports adversely affects the reliability of the government's consolidated financial reports; (3) all aspects of the reports had inaccurate financial information, including omissions or misrecordings of assets and costs and failure to make required disclosures; (4) the Navy's financial reporting deficiencies are due to long-standing internal control weaknesses and the lack of accounting discipline; (5) in September 1995, DFAS directed its centers to pay closer attention to internal control problems, which may help correct the Navy's and other departments' deficiencies; (6) the joint DFAS and Navy Chief Financial Officers (CFO) Project Plan to improve the Navy's financial reporting is inadequate; (7) DFAS and the Navy will have to monitor and enforce efforts to improve financial control procedures and increase emphasis on preparing and executing improvement plans, assessing the skills, experience, and number of financial personnel needed, and improving financial systems; and (8) the Department of Defense (DOD) Comptroller needs to enforce the November 1995 DOD policy on DFAS and the Navy's financial management roles and responsibility.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD continues to report that the Navy and DFAS are working jointly to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable. The Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. The DOD Comptroller, DOD Auditors, OMB, and GAO are working together to develop a short term strategy for addressing material deficiencies that have precluded audit of significant DOD assets and liabilities. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should jointly act to improve the credibility of the Navy's financial reports and to adequately position the Navy and DFAS to prepare auditable financial statements for the Navy, beginning with those for FY 1996.

    Agency Affected: Department of Defense: Office of the Comptroller

  2. Status: Closed - Not Implemented

    Comments: Navy Office of the Comptroller continues to state that it is working with DFAS to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable. The Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. The DOD Comptroller, DOD Auditors, OMB, and GAO are working together to develop a short term strategy for addressing material deficiencies that have precluded audit of significant DOD assets and liabilities. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should jointly act to improve the credibility of the Navy's financial reports and to adequately position the Navy and DFAS to prepare auditable financial statements for the Navy, beginning with those for FY 1996.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary of the Navy (Financial Management)

  3. Status: Closed - Not Implemented

    Comments: The Navy Office of the Comptroller continues to state that it is working with DFAS to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable. The Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. The DOD Comptroller, DOD Auditors, OMB, and GAO are working together to develop a short term strategy for addressing material deficiencies that have precluded audit of significant DOD assets and liabilities. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should jointly act to improve the credibility of the Navy's financial reports and to adequately position the Navy and DFAS to prepare auditable financial statements for the Navy, beginning with those for FY 1996.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Comptroller of the Navy

  4. Status: Closed - Not Implemented

    Comments: DOD continues to assert that the recommendation has been implemented, in light of the establishment of the Department of Defense Federal Financial Management Act Executive Committee and because the Navy and DFAS continue to work together to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year (FY) 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable, and the Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. In FY 2000, the Deputy Secretary of Defense directed the Under Secretary of Defense, Comptroller, to establish an expanded "Financial Management Steering Committee" to oversee improving DOD's financial information. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should periodically report to the Secretary of Defense the status of their results.

    Agency Affected: Department of Defense: Office of the Comptroller

  5. Status: Closed - Not Implemented

    Comments: DOD continues to assert that the recommendation has been implemented, in light of the establishment of the Department of Defense Federal Financial Management Act Executive Committee and because the Navy and DFAS continue to work together to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year (FY) 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable, and the Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. In FY 2000 the Deputy Secretary of Defense directed the Under Secretary of Defense, Comptroller, to establish an expanded "Financial Management Steering Committee" to oversee improving DOD's financial information. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should periodically report to the Secretary of Defense the status of their results.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary of the Navy (Financial Management)

  6. Status: Closed - Not Implemented

    Comments: DOD continues to assert that the recommendation has been implemented, in light of the establishment of the Department of Defense Federal Financial Management Act Executive Committee and because the Navy and DFAS continue to work together to fully implement CFO reporting requirements for Navy general funds, the working capital fund, and trust funds. However, the Navy's fiscal year (FY) 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable, and the Naval Audit Service noted numerous material weaknesses in both the general fund and working capital fund financial statements and reporting process. In FY 2000 the Deputy Secretary of Defense directed the Under Secretary of Defense, Comptroller, to establish an expanded "Financial Management Steering Committee" to oversee improving DOD's financial information. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The DOD Comptroller and the Assistant Secretary of the Navy for Financial Management and Navy Comptroller should periodically report to the Secretary of Defense the status of their results.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Comptroller of the Navy

  7. Status: Closed - Implemented

    Comments: While DOD has taken steps to ensure Navy financial statements are prepared in accordance with OMB and DOD requirements, the Navy's financial statements continue to be unauditable for fiscal year 1996, 1997, 1998, and 1999. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort by DFAS and Navy will be needed for the Navy to fully implement the requirements of the CFO Act and produce meaningful financial information in accordance with the applicable guidelines. GAO continues to review the Navy's compliance with all applicable financial reporting guidance relating to the governmentwide financial statement audit.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that financial statements and reports be compiled in accordance with applicable Treasury, Office of Management and Budget, and DOD requirements.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  8. Status: Closed - Implemented

    Comments: The Navy's fiscal year 1996, 1997, 1998, and 1999 financial statements were unauditable. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort by Navy and DFAS will be needed for the Navy to fully implement the requirements of the CFO Act and produce meaningful financial information in accordance with the applicable guidelines. GAO will continue to review the Navy's compliance with all applicable financial reporting guidance on an ongoing basis relating to the governmentwide financial statement audit.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that financial statements and reports be compiled in accordance with applicable Treasury, Office of Management and Budget, and DOD requirements.

    Agency Affected: Department of Defense: Department of the Navy

  9. Status: Closed - Implemented

    Comments: DOD reported that a review of financial statement information was required in guidance approved in November 1995, and that the Under Secretary of Defense (Controller), the Assistant Secretary of the Navy, and DFAS continue to work together to instill a high priority and a sense of urgency for meeting the objective of the CFO Act. However, the Navy's fiscal year (FY) 1996 financial statements were unauditable. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort will be needed to resolve key accounting and auditing issues and to achieve the objectives of the CFO Act and produce meaningful financial information. Because the recommendation related to the Navy's FY 1995 financial statement, GAO is closing it as only partially implemented.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that financial information be reviewed thoroughly to determine its reasonableness, accuracy, and completeness.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  10. Status: Closed - Implemented

    Comments: DOD reported that a review of financial statement information was required in guidance approved in November 1995, and that the Under Secretary of Defense (Controller), the Assistant Secretary of the Navy and DFAS continue to work together to instill a high priority and a sense of urgency for meeting the objective of the CFO Act. However, the Navy's fiscal year (FY) 1996 financial statements were unauditable. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort will be needed to resolve key accounting and auditing issues to achieve the objectives of the CFO Act, and produce meaningful financial information. Because the recommendation relates to the Navy's FY 1995 financial statement, GAO is closing it as only partially implemented.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that financial information be reviewed thoroughly to determine its reasonableness, accuracy, and completeness.

    Agency Affected: Department of Defense: Department of the Navy

  11. Status: Closed - Implemented

    Comments: DOD reported that a review of financial statement information was required in guidance approved in November 1995, and that the Under Secretary of Defense (Controller), the Assistant Secretary of the Navy, and DFAS continue to work together to instill a high priority and a sense of urgency for meeting the objective of the CFO Act. However, the Navy's fiscal year (FY) 1996 financial statements were unauditable. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort will be needed to resolve key accounting and auditing issues and to achieve the objectives of the CFO Act and produce meaningful financial information. Because the recommendation related to the Navy's FY 1995 financial statement, GAO is closing it as only partially implemented.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1996 consolidated financial reports, requiring that adjustments to account balances and reports be fully documented as to their basis and purpose.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  12. Status: Closed - Implemented

    Comments: DOD reported that a review of financial statement information was required in guidance approved in November 1995, and that the Under Secretary of Defense (Controller) and the Assistant Secretary of the Navy and DFAS continue to work together to instill a high priority and a sense of urgency for meeting the objective of the CFO Act. However, the Navy's fiscal year (FY) 1996 financial statements were unauditable. The Naval Audit Service observed numerous material weaknesses and errors. A sustained effort will be needed to resolve key accounting and auditing issues to achieve the objectives of the CFO Act, and produce meaningful financial information. Because the recommendation related to the Navy's FY 1995 financial statement, GAO is closing it as only partially implemented.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1996 consolidated financial reports, requiring that adjustments to account balances and reports be fully documented as to their basis and purpose.

    Agency Affected: Department of Defense: Department of the Navy

  13. Status: Closed - Not Implemented

    Comments: DOD points out that the existing requirement for a management representation letter accompanying the Navy's financial statements precludes the need for separate certification. While this is true, until the basic underlying financial problems are corrected and the Navy produces auditable financial statements, the utility of management representations will continue to be diminished. GAO is closing the recommendation as no longer applicable.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that the Assistant Secretary of the Navy for Financial Management and Comptroller certify that financial reports comply with applicable requirements.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  14. Status: Closed - Not Implemented

    Comments: DOD points out that the existing requirement for a management representation letter accompanying the Navy's financial statements precludes the need for separate certification. While this is true, until the basic underlying financial problems are corrected and the Navy produces auditable financial statements, the utility of management representations will continue to be diminished. GAO is closing the recommendation as no longer applicable.

    Recommendation: To avoid the mistakes made in preparing the Navy's FY 1994 consolidated financial reports, the Navy and DFAS should diligently attain the greatest degree of accuracy possible in finalizing the Navy's FY 1995 consolidated financial reports, requiring that the Assistant Secretary of the Navy for Financial Management and Comptroller certify that financial reports comply with applicable requirements.

    Agency Affected: Department of Defense: Department of the Navy

  15. Status: Closed - Implemented

    Comments: DOD contends that the recommended actions are now required by DOD Comptroller guidance issued on November 15, 1995. However, the Navy's fiscal year 1996 financial statements continued to contain numerous material errors and omissions related to property, plant, and equipment and inventory due to the lack of underlying accounting systems and processes. In its role as auditor of the governmentwide financial statements, GAO will continue to follow up on progress being made by the Navy in improving its financial management and producing reliable financial information and financial statements, including information on equipment, property, and inventory.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that the Navy's periodic physical inventories of equipment, property, and inventories are taken, the results are reported to DFAS, and any discrepancies are investigated as to cause and resolved.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  16. Status: Closed - Implemented

    Comments: DOD contends that the recommended actions are required by DOD Comptroller guidance issued on November 15, 1995. However, the Navy's fiscal year 1996, 1997, 1998, and 1999 financial statements contained numerous material errors and omissions related to property, plant, and equipment and inventory, due to the lack of underlying accounting systems and processes. The DOD Comptroller, DOD auditors, OMB, and GAO are working together to develop a short-term strategy for addressing material deficiencies that have precluded audit of significant DOD assets, including inventory and PPE. As part of this strategy, milestones and responsible parties are assigned for needed improvement actions. Both GAO and DOD auditors are tracking progress against the milestones.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that the Navy's periodic physical inventories of equipment, property, and inventories are taken, the results are reported to DFAS, and any discrepancies are investigated as to cause and resolved.

    Agency Affected: Department of Defense: Department of the Navy

  17. Status: Closed - Not Implemented

    Comments: DOD continues to state that actions now required by DOD Comptroller guidance issued on September 1, 1995, are responsive to the recommendation. However, during its review of the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements, the Naval Audit Service noted instances in which reconciliations were still not being performed or adequately documented (e.g., inadequate reconciliations between the property records and the accounting records and inadequate system to reconcile within OPAC the Treasury amounts against Navy amounts). The Defense Authorization Act of 2002, requires DOD to scale back its financial statement and audit workloads and redirect resources toward fixing financial management problem. DOD has stated that its systems will not be fixed until October 2007, and DOD's financial statements will be unauditable for at least the next 4 years. Therefore, GAO decided to close the recommendation as not implemented.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that reconciliations of accounts and records are made, significant discrepancies are examined and resolved, and appropriate adjustments are made.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  18. Status: Closed - Not Implemented

    Comments: DOD continues to state that actions now required by DOD Comptroller guidance issued on September 1, 1995, are responsive to the recommendation. However, during its review of the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements, the Naval Audit Service noted instances in which reconciliations were still not being performed or adequately documented (e.g., inadequate reconciliations between the property records and the accounting records and inadequate systems to reconcile within OPAC the Treasury amounts against Navy amounts). The Defense Authorization Act of 2002 requires DOD to scale back on its financial statement and audit workloads and redirect resources toward fixing financial management problems. DOD has stated that its systems will not be fixed until 2007 or later, and that its financial statements will be unauditable until that time. Therefore, GAO has decided to close this recommendation as not implemented.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that reconciliations of accounts and records are made, significant discrepancies are examined and resolved, and appropriate adjustments are made.

    Agency Affected: Department of Defense: Department of the Navy

  19. Status: Closed - Not Implemented

    Comments: While DOD reports that the roles and responsibilities for adequate audit trails is required by DOD Comptroller guidance, the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable. The Naval Audit Service continued to note numerous material weaknesses in the financial reporting process. The principal primary weakness is an accounting system that is not integrated, transaction-driven, or uses double-entry accounting. These capabilities are needed to help ensure that all transactions required to compile financial information reported on the Statement of Financial Position and Statement of Net Cost are recorded. The DOD Comptroller, DOD auditors, OMB, and GAO are working together to develop a short-term strategy for addressing material deficiencies that have precluded audit of significant DOD assets and liabilities. As part of this strategy, milestones and responsible parties are assigned for needed improvement actions. Both GAO and DOD auditors are tracking progress against the milestones. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that transactions are clearly and completely documented and such documentation is retained and readily available to support account balances.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  20. Status: Closed - Not Implemented

    Comments: While DOD reports that the roles and responsibilities for adequate audit trails is required by DOD Comptroller guidance, the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable. The Naval Audit Service continued to note numerous material weaknesses in the financial reporting process. The principal primary weakness is an accounting system that is not integrated, transaction-driven, or uses double-entry accounting. These capabilities are needed to help ensure that all transactions required to compile financial information reported on the Statement of Financial Position and Statement of Net Cost are recorded. The DOD Comptroller, DOD auditors, OMB, and GAO are working together to develop a short-term strategy for addressing material deficiencies that have precluded audit of significant DOD assets and liabilities. As part of this strategy, milestones and responsible parties are assigned for needed improvement actions. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that transactions are clearly and completely documented and such documentation is retained and readily available to support account balances.

    Agency Affected: Department of Defense: Department of the Navy

  21. Status: Closed - Not Implemented

    Comments: DOD reports that the recommended actions are now required by DOD Comptroller guidance issued on November 15, 1995. In addition, system enhancements have been made to STARS-FDR, intended to provide a mechanical capability to identify abnormal balances within and between reports and to perform trend analysis. However, a significant portion of the dollar information presented on the financial statements is not derived from STARS, but is derived from the logistical systems that are not designed to detect abnormal dollar values. As a result, the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable, and the Navy's Working Capital Fund financial statements continued to contain a number of unusual variances. The Defense Authorization Act of 2002, requires DOD to scale back its financial statement and audit workloads and redirect resources toward fixing financial management problems. DOD has stated that its systems will not be fixed until October 2007, therefore, DOD's financial statement will be unauditable for at least 4 years; GAO decided to close the recommendation as not implemented. In addition, DOD has hired a contractor to develop department-wide financial management system enterprise architecture. STARS-FDR, as one of many DOD systems, will be included in the financial management system enterprise architecture. Transforming the system will take a long time and will span over 4 to 5 years.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that account balances are analyzed and financial reports are reviewed to detect abnormal account balances and unusual fluctuations and trends, any significant variances are researched and are explainable, and any necessary corrections are made.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  22. Status: Closed - Implemented

    Comments: Beginning in fiscal year 2003, the DOD Comptroller required the Navy to produce quarterly financial statements, not just annual statements. The Comptroller also required the Navy Assistant Secretary for Financial Management (CFO) to brief him, as well as the DOD IG and GAO, on the statements prepared for March 31 and September 30. As part of the briefing, the Navy CFO (or designee) is required to note and explain any abnormal balances and to calculate and explain any material fluctuations between the current period statements and those for the same period in the previous year. While Navy statements continue to be unreliable, the required procedures have resulted in some limited systems and data improvements.

    Recommendation: So that FY 1996 and subsequent financial statements for Navy operations are auditable, the Navy and DFAS should place high priority on implementing basic required financial controls over Navy financial accounts and reports, ensuring that account balances are analyzed and financial reports are reviewed to detect abnormal account balances and unusual fluctuations and trends, any significant variances are researched and are explainable, and any necessary corrections are made.

    Agency Affected: Department of Defense: Department of the Navy

  23. Status: Closed - Not Implemented

    Comments: DOD reports that such actions will be taken in accordance with the requirements of a September 1, 1995, memorandum on the preparation of CFO Act financial statements. However, during the audit of the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements, the Naval Audit Service continued to note numerous material weaknesses. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: To ensure that these basic internal control requirements are enforced, the Navy and DFAS should develop and implement strategies for monitoring progress throughout the year.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  24. Status: Closed - Not Implemented

    Comments: DOD reports that such actions will be taken in accordance with the requirements of a September 1, 1995, memorandum on the preparation of CFO Act financial statements. However, during the audit of the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements, the Naval Audit Service continued to note numerous material weaknesses. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: To ensure that these basic internal control requirements are enforced, the Navy and DFAS should develop and implement strategies for monitoring progress throughout the year.

    Agency Affected: Department of Defense: Department of the Navy

  25. Status: Closed - Not Implemented

    Comments: While Navy and DFAS Cleveland have reported some progress in filling vacant positions, the Navy's fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were unauditable, and more needs to be done. DFAS Cleveland has also started using contractors in fiscal year 1999, to assist in preparing the financial statements. However, the Defense Authorization Act of 2002, requires DOD to scale back its financial statement and audit workloads and redirect resources toward fixing financial management problems. DOD has stated that its systems will not be fixed until October 2007, therefore, DOD's financial statement will be unauditable for at least 4 years; GAO decided to close the recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996 that address staffing issues, such as filling financial management vacancies, upgrading the experience of financial managers, and using contractors, as necessary to improve financial management operations.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  26. Status: Closed - Not Implemented

    Comments: While Navy and DFAS Cleveland reported some progress in filling vacant positions, the Navy's financial statements remain unauditable. The Defense Authorization Act of 2002 requires DOD to scale back its financial statement and audit work and redirect resources toward fixing financial management problems. DOD has stated that its systems will not be fixed until fiscal year 2007 or later, and that its financial statements will remain unauditable until then. Therefore, GAO has decided to close this recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996 that address staffing issues, such as filling financial management vacancies, upgrading the experience of financial managers, and using contractors, as necessary to improve financial management operations.

    Agency Affected: Department of Defense: Department of the Navy

  27. Status: Closed - Not Implemented

    Comments: DOD continues to report that actions, as outlined in its CFO Plan, address this recommendation; however, Navy's financial statements remain unauditable. Improved Navy and DFAS financial management and reporting systems are key to implementing this recommendation. Rent legislation and related DOD policies have limited DFAS's and Navy's ability to make systems changes and/or acquire new systems until coordination with the Business Management Modernization Program and DOD's Business Enterprise Architecture has been accomplished and approval received. Because DFAS and Navy do not expect to have the requisite new/improved financial systems until 2007 or later, GAO is closing this recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996, that include short-term measures to improve the data in existing financial systems, follow existing systems operating and transaction processing requirements, and use standard data elements, such as object class codes.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  28. Status: Closed - Not Implemented

    Comments: DOD continues to report that actions, as outlined in its CFO Plan, address this recommendation; however, the Navy's financial statements remain unauditable. Improved Navy financial management and reporting systems are key to implementing this recommendation. Recent legislation and related DOD policies have limited DFAS's and Navy's ability to make systems changes and/or acquire new systems until coordination with the Business Management Modernization Program and DOD's Business Enterprise Architecture has been accomplished and approval received. Because DFAS and Navy do not expect to have the requisite new/improved financial systems until 2007 or later, GAO is closing this recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996, that include short-term measures to improve the data in existing financial systems, follow existing systems operating and transaction processing requirements, and use standard data elements, such as object class codes.

    Agency Affected: Department of Defense: Department of the Navy

  29. Status: Closed - Not Implemented

    Comments: DOD continues to report that actions, as outlined in its CFO Plan, address this issue; however, Navy's financial statements remain unauditable. DOD's Business Management Modernization Program (and Business Enterprise Architecture) require that new/improved systems use the U.S. Standard General Ledger and be able to transmit financial statement information to Treasury in the required format, etc. DOD has stated that new/improved systems will not be available until 2007 or later, and that financial statements will not be auditable until that time. Therefore, GAO is closing this recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996 that incorporate strategies for promptly meeting the DOD requirement to use the U.S. Standard General Ledger and the Treasury's Federal Agencies Centralized Trial Balance System.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  30. Status: Closed - Not Implemented

    Comments: DOD continues to report that actions, as outlined in its CFO Plan, address this issue; however, Navy's financial statements remain unauditable. DOD's Business Management Modernization Program (and Business Enterprise Architecture) require that new/improved systems use the U.S. Standard General Ledger and be able to transmit financial statement information to Treasury in the required format, etc. DOD has stated that new/improved systems will not be available until 2007 or later, and that financial statements will be unauditable until that time. Therefore, GAO is closing this recommendation as not implemented.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996 that incorporate strategies for promptly meeting the DOD requirement to use the U.S. Standard General Ledger and the Treasury's Federal Agencies Centralized Trial Balance System.

    Agency Affected: Department of Defense: Department of the Navy

  31. Status: Closed - Not Implemented

    Comments: DOD has said that actions outlined in DOD's final CFO Plan identify participating organizations and responsible elements within these organizations for preparing reliable financial statements. In addition, DFAS and the Navy hold monthly CFO Core Team Meetings to discuss financial reporting issues and responsibility for reporting elements. While these are positive actions, the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable and contained numerous material weaknesses, and much more is needed. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996, that identify the specific offices or positions accountable for accomplishing the actions established by the strategies and provide a means for monitoring implementation throughout the year.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  32. Status: Closed - Not Implemented

    Comments: DOD has said that actions outlined in DOD's final CFO Plan identify participating organizations and responsible elements within these organizations for preparing reliable financial statements. In addition, DFAS and the Navy hold monthly CFO Core Team Meetings to discuss financial reporting issues and responsibility for reporting elements. While these are positive actions, the fiscal year 1996, 1997, 1998, 1999, and 2000 financial statements were not auditable and contained numerous material weaknesses, and much more is needed. GAO is concerned that many of DOD's planned financial management improvement initiatives are mainly focused on one-time, year-end numbers for financial statement purposes, and as such, they will not result in the production of timely and reliable financial performance information. Instead of concentrating extensive resources on the preparation of one-time, year-end numbers for financial statement purposes, the Navy needs to focus on improving its routine processes and controls to manage its every day operations and to generate reliable financial information. As a result, this recommendation is no longer applicable.

    Recommendation: The Navy and DFAS should immediately prepare implementing strategies for producing reliable financial statements for the Navy, beginning with those for FY 1996, that identify the specific offices or positions accountable for accomplishing the actions established by the strategies and provide a means for monitoring implementation throughout the year.

    Agency Affected: Department of Defense: Department of the Navy

  33. Status: Closed - Implemented

    Comments: DOD reported that DFAS-Cleveland and the Department of the Navy formed an executive steering group. These individuals rely on scheduled phone contacts, formal monthly briefings, information provided by the functional steering committee and informal discussions. As part of the governmentwide financial statement audit, GAO will follow up with the executive steering group to determine the subjects covered as part of these scheduled phone contacts, formal briefings, and informal discussions.

    Recommendation: The DOD Comptroller's November 15, 1995, policy on roles and responsibilities of DOD components and DFAS should be supplemented with strategies to hold organizations and individuals accountable for effectively carrying them out.

    Agency Affected: Department of Defense: Office of the Comptroller

  34. Status: Closed - Implemented

    Comments: The Navy and DFAS (including the Naval Audit Service and the DOD Inspector General) have monthly CFO Core Team Meetings to discuss a variety of CFO-related issues including accountability and implementation issues and responsibility for action.

    Recommendation: The DOD Comptroller's November 15, 1995, policy on roles and responsibilities of DOD components and DFAS should be supplemented with milestones for monitoring implementation progress during the year.

    Agency Affected: Department of Defense: Office of the Comptroller

  35. Status: Closed - Implemented

    Comments: The Navy and DFAS (including the Naval Audit Service and the DOD Inspector General) have monthly CFO Core Team Meetings to discuss a variety of CFO-related issues including accountability and implementation issues and responsibility for action.

    Recommendation: The DOD Comptroller's November 15, 1995, policy on roles and responsibilities of DOD components and DFAS should be supplemented with periodic assessments during annual financial reporting cycles to ensure that the roles and responsibilities are continually enforced.

    Agency Affected: Department of Defense: Office of the Comptroller

 

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