Financial Management:

DOD Needs to Lower the Disbursement Prevalidation Threshold

AIMD-96-82: Published: Jun 11, 1996. Publicly Released: Jun 11, 1996.

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Pursuant to congressional requests, GAO reviewed, in conjunction with the Department of Defense's (DOD) Inspector General (IG), DOD efforts to reduce problem disbursements and its implementation of a statutory requirement to match each disbursement exceeding $5 million to the appropriate obligation before the disbursement is made.

GAO found that: (1) DOD reduced its problem disbursements from $37.8 billion to $23.1 billion as of September 1995; (2) DOD disbursement problems persist due to long-standing system weaknesses and DOD failure to comply with basic accounting procedures for validating, reconciling, and reporting transactions; (3) DOD has automated the prevalidation process for the Defense Finance and Accounting Service's (DFAS) Columbus Center contract payment system and eight other primary contract accounting systems to handle their large volume of transactions; (4) there are deficiencies in the automated programs for prevalidating Army and Air Force disbursements; (5) DOD has lowered the prevalidation threshold to $1 million for all disbursement centers except DFAS-Columbus; (6) this limited implementation hampers DOD ability to resolve its disbursement problems, since DFAS-Columbus is responsible for about 40 percent of DOD contractor and vendor payments; (7) from July 1995 through January 1996, DFAS-Columbus prevalidated only about one-third of the total dollar amount of its disbursements; and (8) to resolve disbursement problems, DOD needs to prevalidate as many transactions as practical, further lower the prevalidation threshold, and follow basic accounting procedures until it has corrected serious weaknesses in its accounting and contracting systems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD lowered the threshold at DFAS Columbus to $4 million. A formal plan to continue to lower the disbursement threshold below the $4 million level was presented to the DOD IG for review in January 1997. The plan called for gradual reductions of the threshold at DFAS Columbus to a level of $1 million by June 1999 for disbursements made against all contracts awarded in fiscal year 1996 or earlier. For all new contracts awarded in fiscal year 1997 and later, all disbursements made by DFAS Columbus are to be prevalidated 100 percent. The plan also called for 100 percent prevalidation of all payments, at all non-DFAS Columbus locations regardless of when the contract was awarded. In its letter of assessment to the Congress, the DOD IG agreed with the overall approach. The DOD IG noted, however, that any corrective action plan in this difficult area cannot avoid significant risk. The DOD IG agreed to continue to monitor DOD management on the success of lowering the threshold.

    Recommendation: The Secretary of Defense should direct the Comptroller, DOD, to develop a plan to prevalidate all disbursements in the short term to protect the integrity of the DOD disbursement process while long-term improvements are made to DOD contract pay, disbursing, and accounting processes and systems. As a first step, the Comptroller should reduce the threshold at the DFAS Columbus Center to $4 million and continuously lower the threshold in accordance with the plan.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: See responses to prior recommendation. One plan was developed that addresses both recommendations.

    Recommendation: The Secretary of Defense should direct the Comptroller, DOD, to develop similar plans for prevalidating all disbursements at all the other DOD disbursing activities. These plans should incorporate DOD IG recommendations.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The DOD Comptroller and the Director, DFAS have reemphasized the importance of accurately accounting for and reporting obligations and disbursements. For example, the Comptroller issued new guidance effective July 1, 1996, requiring quarterly reviews of obligations to ensure that transactions recorded in the accounting systems are accurate and complete. The Comptroller noted that to the extent that obligation records in the official accounting systems are not fully accurate, the associated disbursements cannot be successfully matched to the correct obligation. The requirement for quarterly reviews extends to all appropriations and funds in the Department of Defense and sets minimum dollar thresholds of obligations that must be reviewed each quarter of $200,000 or more for investment appropriations, such as Procurement, RDT&E, and Military Construction, and $50,000 or more for operating appropriations, such as Operation and Maintenance, Revolving Funds, and DBOF.

    Recommendation: The Secretary of Defense should direct the Comptroller, DOD, to ensure that existing accounting policies and procedures are followed in recording obligations, detecting and correcting errors, and posting complete and accurate accounting information in systems supporting the disbursement process.

    Agency Affected: Department of Defense

 

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