Financial Management:

Improvements Needed in the Navy's Reporting of General Fund Inventory

GAO-01-37R: Published: Oct 27, 2000. Publicly Released: Oct 27, 2000.

Contact:

McCoy Williams
(202) 512-3000
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The Navy improved the reporting of its general fund inventory on its fiscal year 1999 financial statement. The Navy properly accounted for equipment and supplies that were not reported in the prior year's statement, which included inventories held by contractors and the Coast Guard. Improvements in the Navy's financial reporting, however, are still needed. GAO found many errors and omissions that continue to affect the accuracy of the Navy's financial reporting. This report summarizes the issues that the Navy needs to address as it compiles its fiscal year 2000 financial information.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should revise the Navy's policies for compiling its financial statements so that they are in accordance with federal accounting standards and the DOD Financial Management Regulation. Specifically: (1) ammunition items needing repair and those categorized as excess, obsolete, and unserviceable should be revalued appropriately to comply with SFFAS No. 3 and the DOD Financial Management Regulation; and (2) shipboard inventories aboard smaller combatant ships should be reported as operating materials and supplies in accordance with federal accounting standards.

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

    Status: Open

    Comments: In August 2002, the Under Secretary of Defense (Comptroller) issued a directive that required DOD components, including the Navy, to stop using the Supply System Inventory Report (SSIR) for financial statement valuations of excess, obsolete, and unserviceable (including items needing repair) operating materials and supplies because the SSIR did not allow ammunition to be reported at less than full cost regardless of condition, which was not in compliance with federal accounting standards. Instead, the new directive required components to base their reporting of held-for-repair, excess, obsolete and unserviceable on certain condition codes as defined by the Military Standard Transaction Reporting and Accounting Procedures Manual (DOD 4000.25-2-M). In September 2002, a new condition code was established specifically for condemned ammunition--code V. To implement the directive, Navy began reporting the gross value of operating materials and supplies with an allowance for Held for Use, Held for Repair, and Excess, Obsolete and Unserviceable. These changes address part (1) of GAO's recommendation. As stated in the response to part (2) of this recommendation, Navy considers shipboard inventories aboard smaller combatant ships to be in the hands of the end users and therefore already in accordance with federal accounting standards. GAO still disagrees. Navy has developed an action plan to address deficiencies related to accounting for and reporting operating materials and supplies, but those plans do not address this issue. Navy's nonreporting of onboard materials and supplies could result in a significant underreporting of Inventory and Related Property in the consolidated governmentwide financial statements, so GAO will continue to follow up on this part of the recommendation each year.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should review the reporting of contractor held material to determine what portion of the $11.3 billion reported should not be classified as inventory and determine proper financial statement classification. This should include coordination with the Department of Defense (DOD)-wide Defense Contract Audit Agency project that is reviewing property in the possession of contractors.

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

    Status: Open

    Comments: Currently, the Navy does not report any amounts for contractor-held materials in its financial statements. However, Navy, along with other DOD components, has prepared a plan for addressing financial management deficiencies and achieving an unqualified opinion on its financial statements for fiscal year 2014. Operating Materials and Supplies deficiencies are included in the plan (including contractor-held material) but Navy's intended corrective actions lack sufficient detail for us to determine when and how contractor-held material will be identified, valued and reported. As a result, GAO will continue to follow up on this recommendation as part of its ongoing financial audit work each year.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should properly classify and disclose ammunition in the "excess, obsolete, and unserviceable" categories in accordance with Statement of Federal Financial Accounting Standard (SFFAS) No. 3.

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

    Status: Closed - Implemented

    Comments: In September 2002, DOD included a new condition code, "V", in its "excess, obsolete, unserviceable" category of operating materials and supplies. This new condition code was created for classifying and reporting condemned ammunition and munitions as part of excess, obsolete and unserviceable operating materials and supplies. The Navy used the new code for reporting condemned ammunition in its FY 2003 and FY 2004 financial statements and Footnote 9B in both statements provided the disclosures for excess, obsolete, and unserviceable ammunition required by Statement of Federal Financial Accounting Standard No. 3.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should develop a review process for ammunition reporting so that all types of ammunition are included in the Navy's financial reports including air-launched guided missile support items and anti-submarine rocket material.

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

    Status: Closed - Implemented

    Comments: The results of a Naval Audit Service review (Report # N2001-0016) found that the Navy took corrective action and included all types of ammunition in its data collection instrument for fiscal year 2000, including air-launched guided missile support items and anti-submarine rocket material, within OM&S. The items' value is included in the Inventory and Related Property Net line item of the DON General Fund Statements.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should document the basis of any estimates of sponsor owned material to facilitate managerial reporting and auditor review.

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

    Status: Open

    Comments: The Navy, along with other DOD components, has prepared a plan for addressing known financial management deficiencies and achieving an unqualified opinion on its financial statements by 2014. Operating Materials and Supplies deficiencies are addressed in the plan but Navy does not address this specific recommendation because it assumes that future reporting will be accurate and that estimates of sponsor-owned material will not be necessary. The DOD IG is currently auditing the reporting of sponsor owned material in Navy by determining whether Navy conducts periodic inventories of this material and whether any of the material should properly be reported as Property, Plant, and Equipment rather than Operating Materials and Supplies. Proper identifications and classification would be the first steps to accurate reporting and eliminating the need for estimates. We will review the results of the DOD IG audit to determine its impact on our recommendation.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should develop a review process so that data call information on sponsor owned material is correctly reported.

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

    Status: Open

    Comments: The Navy, along with other DOD components, has prepared a plan for addressing known deficiencies in financial management and achieving an unqualified opinion on its financial statements by 2014. Operating Materials and Supplies deficiencies are addressed in the plan (including the incorrect reporting of sponsor owned material) but it is unclear when and how Navy's intended corrective actions will be implemented. The DOD IG is currently auditing the reporting of sponsor owned material in Navy by determining whether Navy conducts periodic inventories of this material and whether any of the material should properly be reported as Property, Plant, and Equipments rather than Operating Materials and Supplies. Proper identification and classification would be the first steps to accurate reporting. We will review the results of the DOD IG audit to determine its impact on our recommendation.

    Recommendation: The Senior Civilian Official for the Office of the Assistant Secretary of the Navy should consider the issues discussed in this letter in the development and implementation of the long-term systems solution for proper accounting and improved visibility of the Navy's inventory.

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

    Status: Open

    Comments: The Navy is implementing new inventory/operating materials systems as part of their systems modernization program. Navy expects these new systems to address all of the deficiencies GAO reported. Because Navy operating materials and supplies are significant to the consolidated governmentwide financial statements, GAO will continue to follow up on this recommendation each year.

    Mar 27, 2014

    Mar 13, 2014

    Mar 12, 2014

    Feb 27, 2014

    Dec 23, 2013

    Dec 16, 2013

    Dec 12, 2013

    Dec 11, 2013

    Looking for more? Browse all our products here