Cash and Investment Management of Department of Defense Nonappropriated Funds Need To Be Improved

FPCD-78-15: Published: Jan 19, 1978. Publicly Released: Jan 19, 1978.

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The Department of Defense (DOD) supplements the cost of morale, welfare, and recreation (MWR) programs with nonappropriated funds. These programs generate approximately $5 billion in receipts each year which are managed by central offices in each military department. As of June 30, 1977, central funds had investments totaling approximately $813 million.

Several options were considered for involving the Treasury in holding and investing the cash, the most logical option being to transfer banking functions to the Treasury and to limit investments to Treasury obligations. This practice would be consistent with Federal fiscal and accounting policies and would have the most safeguards, but it would reduce interest income and investment flexibility. Management of MWR activities did not maximize the effectiveness of cash and investment functions, thus reducing interest earnings. While many central activities used some centralized banking, the Army and Marine Corps did not. In central banking, receipts from many activities are pooled into one or a few banks, enabling central management to invest larger amounts of funds. Deficiencies noted in investment management practices were: defense collateral requirements were not being followed in all cases; the Army, Navy, and Navy Resale System Office had large percentages of their central investments concentrated in single banks or geographic areas; the Army borrowed approximately $14 million to invest at a higher rate of interest than allowed by DOD instructions; the Army lacked specific investment objectives and policies; and the Marine Corps lacked central control over revenues.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should: direct the Army to adopt a centralized banking and accounting system to establish formalized objectives, goals, and procedures for cash flow management and to monitor its investment program; direct the Army, Navy, and Marine Corps to comply with DOD requirements for collateral; and direct the Marine Corps to adopt a centralized banking and accounting system and consider incorporating these functions with the Navy's.

    Agency Affected:

 

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