Financial Management:

Problems in Accounting for Navy Transactions Impair Funds Control and Financial Reporting

AIMD-99-19: Published: Jan 19, 1999. Publicly Released: Jan 19, 1999.

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Pursuant to a legislative requirement, GAO reviewed the effects of in-transit disbursements on the Navy's funds control and financial reporting.

GAO noted that: (1) the Navy and the Department of Defense (DOD) have not established adequate funds control as required by the Antideficiency Act; (2) current policies and procedures permit the Navy to delay for about 5 years: (a) the recording of obligations in excess of available budget authority; (b) the initiation of required Antideficiency Act investigations; and (c) any resulting reports of violations to Congress and the President; (3) during this time, the Navy's appropriation balances are unreliable, leaving DOD and Congress without assurance that budget authority has not been exceeded; (4) according to Navy records, as of September 30, 1997, obligations for 9 cancelled and 20 expired appropriations may have exceeded available budget authority by a total of $290 million; (5) in accordance with DOD policy, obligations have been recorded in the nine appropriations that have cancelled; (6) at the time of GAO's review, the Navy's records indicated that these obligations may have exceeded budget authority; (7) although the Navy maintained cuff records (separately prepared spreadsheets used to track obligations) that it also would need to record to resolve problem in-transit disbursements in the 20 expired appropriations, these obligations were not recorded in the Navy's accounting system; (8) if these obligations had been recorded, the obligation records for the 20 expired appropriations would have shown that these appropriations also may have obligations that exceed available budget authority; (9) Navy officials stated that an investigation of these appropriations would show that they are not overobligated; (10) at the time of GAO's review, the Navy had not initiated an Antideficiency Act investigation of any of the 29 appropriations, although DOD policy requires investigations of the 9 cancelled appropriations with recorded obligations in excess of available budget authority; (11) in addition to the lack of control over funds, these problems have a major effect on the accuracy and reliability of the Navy's financial reporting, including its annual financial statements required under the Chief Financial Officers Act; and (12) until transactions are recorded accurately and in a timely manner, and reflected in these financial statements, the Navy and DOD will remain unable to achieve the goal of producing reliable financial statements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: At a March 30, 1999 meeting, DoD officials told GAO that they were able to deobligate funds to achieve positive balances for 23 of the 29 potentially overobligated appropriations that GAO identified. The remaining six appropriations continued to be researched. In March 2000, the Navy concluded its research and processed a journal voucher which resulted in positive balances in the six remaining appropriations.

    Recommendation: The Navy's Assistant Secretary for Financial Management (Comptroller), in concert with DFAS, should immediately investigate any of the 9 cancelled appropriations and the 20 expired appropriations that are potentially overobligated.

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

  2. Status: Closed - Not Implemented

    Comments: DOD's Deputy Chief Financial Officer advised GAO that the Navy had determined that 23 of 29 appropriations are not, in fact, overobligated and the Navy is continuing to review the remaining six appropriations. Navy officials said that they were able to deobligate funds to achieve positive balances for the 23 appropriations and that they were preparing journal vouchers needed to record obligations. The Navy is continuing to review the remaining six potentially overobligated appropriations. In March 2000, the Navy concluded its research and processed a journal voucher that resulted in positive balances in the six remaining appropriations. Consequently, the DOD reports that it has no overobligations subject to legislative or OMB reporting requirements.

    Recommendation: The Navy's Assistant Secretary for Financial Management (Comptroller) in concert with the DFAS, should record obligations in the Navy's official accounting and funds control records for the 20 expired appropriations identified in the Navy's cuff records.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary for Financial Management and Comptroller

  3. Status: Closed - Not Implemented

    Comments: DOD's Deputy Chief Finanical Officer advised GAO that the Navy determined that 23 of the 29 appropriations are not, in fact, overobligated and that the Navy is continuing to review the remaining six appropropriations. Navy officials said that they were able to deobligate funds to achieve positive balances for the 23 appropriations and that they were preparing the journal vouchers needed to record the obligations. The Navy is continuing to review the remaining six potentially overobligated appropriations. In March 2000, the Navy concluded their research and processed a journal voucher that resulted in positive balances in the six remaining appropriations. Consequently, the DOD reports that it has no overobligations subject to legislative or OMB reporting requirements.

    Recommendation: The Navy's Assistant Secretary for Financial Management (Comptroller) in concert with the DFAS, should record obligations in the Navy's official accounting and funds control records for the 20 expired appropriations identified in the Navy's cuff records.

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

  4. Status: Closed - Implemented

    Comments: At a March 30, 1999, meeting, DOD officials told GAO that they do not plan to report any overobligations as Antideficiency Act violations to the Congress and the President. They informed GAO that they were able to deobligate funds to achieve positive balances for 23 of the 29 potentially overobligated appropriations that GAO identified. However, they indicated that the resolution of the remaining six potentially overobligated appropriations would require additional research. In March 2000, the Navy concluded its research and processed a journal voucher that resulted in positive balances in the six remaining appropriations. Consequently, the DOD reports that it has no overobligations subject to legislative or OMB reporting requirements.

    Recommendation: The Navy's Assistant Secretary for the Financial Management (Comptroller), in concert with Defense Finance and Accounting Service (DFAS), should report any overobligations to Congress and the President pursuant to the Antideficiency Act and implementing guidance in Office of Management and Budget Circular A-34.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary for Financial Management and Comptroller

  5. Status: Closed - Implemented

    Comments: At a March 30, 1999, meeting, DOD officials told GAO that they do not plan to report any overobligations as Antideficiency Act violations to the Congress and the President. They informed GAO that they were able to deobligate funds to achieve positive balances for 23 of the 29 potentially overobligated appropriations that GAO identified in the report. However, they indicated that the resolution of the remaining six potentially overobligated appropriations would require additional research. In March 2000, the Navy concluded its research and processed a journal voucher that resulted in positive balances in the six remaining appropriations. Consequently, the DOD reports that it has no overobligations subject to legislative or OMB reporting requirements.

    Recommendation: The Navy's Assistant Secretary for the Financial Management (Comptroller), in concert with Defense Finance and Accounting Service (DFAS), should report any overobligations to Congress and the President pursuant to the Antideficiency Act and implementing guidance in Office of Management and Budget Circular A-34.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary for Financial Management and Comptroller

  6. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, DoD stated that it has implemented various policies and procedures intended to ensure that the funds control systems of each of the DoD Components maintain accurate unobligated and unexpended balances. Additionally, the Department's policies are designed to better ensure compliance with Antideficiency Act requirements and to produce accurate financial reports. Further, the Department will monitor these policies to assess whether the policies are accomplishing their intended purpose. As a result of its assessment of these policies, the Department revised the DOD Financial Management Regulation, Volume 3, Chapter 8 in November 2000 to require the prompt recording of obligations in the official accounting records and, if a payment has been made and an obligation has not been recorded within the required timeframe, the Defense Finance and Accounting Service (DFAS) is to process an obligation within 10 days on behalf of the fund holder. The Department also revised the DOD Financial Management Regulation, Volume 3, Chapter 11 in January 2001 to establish milestones for recording obligations to resolve problem disbursements (disbursements that exceed or cannot be matched to an existing obligation). Under Chapter 11, if an obligation has not been recorded within the required timeframe, DFAS is to process an obligation within 10 days on behalf of the fund holder.

    Recommendation: The DOD Comptroller should revise the problem disbursement policies and procedures to ensure that the Navy's funds control system maintains, on an ongoing and current basis, accurate and reliable unobligated and unexpended balances for the Navy's expired and cancelled appropriations consistent with the Antideficiency Act and requirements for accurate and timely financial reporting. The DOD Comptroller should monitor compliance with the revised policies and procedures.

    Agency Affected: Department of Defense: Office of the Comptroller

  7. Status: Closed - Implemented

    Comments: At a March 30, 1999, meeting, DOD officials told GAO that they were able to deobligate funds to achieve positive balances for 23 of the 29 potentially overobligated appropriations that GAO identified. In March 2000, the Navy concluded their research and processed a journal voucher which resulted in positive balances in the six remaining appropriations.

    Recommendation: The Navy's Assistant Secretary for Financial Management (Comptroller), in concert with DFAS, should immediately investigate any of the 9 cancelled appropriations and the 20 expired appropriations that are potentially overobligated.

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

 

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