Financial Management:

Further Actions Are Needed to Establish Framework to Guide Audit Opinion and Business Management Improvement Efforts at DOD

GAO-04-910R: Published: Sep 20, 2004. Publicly Released: Sep 20, 2004.

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As the Comptroller General recently testified and as discussed in our latest financial audit report, the Department of Defense's (DOD) financial management deficiencies, taken together, continue to represent the single largest obstacle to achieving an unqualified opinion on the U.S. government's consolidated financial statements. For example, to date, none of the military services has passed the test of an independent financial audit because of pervasive weaknesses in internal control, processes, and fundamentally flawed business systems. Problems with the department's financial management operations go far beyond its accounting and finance processes and systems. The department continues to rely on a reported 4,000 or more fundamentally flawed finance, logistics, personnel, acquisition, and other management information systems to gather the data needed to support day-to-day management decision making and reporting. These systems were not designed to be, but rather evolved into the overly complex and error-prone operation--vulnerable to fraud, waste, and abuse--that exists today. Further, inefficiencies in DOD's current business operations, such as (1) little standardization across DOD components, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, (4) manual entry of the same data into multiple systems, and (5) a large number of data transactions, combine to exacerbate problems with data integrity. This report answers the following questions: (1) Does DOD have a comprehensive, integrated plan for obtaining an unqualified audit opinion on the department's fiscal year 2007 consolidated financial statements? (2) Has the DOD Comptroller established effective processes and procedures for monitoring the implementation of the plan(s) to increase the likelihood of sustainable progress and to ensure that component auditability assertions are supported? (3) Has DOD established a clear link between DOD component improvement efforts and the department's BMMP?

DOD's goal to obtain an unqualified audit opinion on its fiscal year 2007 consolidated financial statements is not yet supported by a comprehensive and integrated plan. Although most of the DOD components, including the Army, Navy, and Air Force, have submitted improvement plans to the DOD Comptroller, DOD has not yet developed an integrated departmental strategy, key milestones, accountability mechanisms, or departmental cost estimates for achieving its fiscal year 2007 audit opinion goal. Further, there is little evidence of a direct linkage between component midrange financial improvement plans and the department's Business Management Modernization Program (BMMP). Our review of key individual component plans revealed that the plans varied in levels of detail, completeness, and scope, such that it will be difficult for DOD Comptroller staff to use its departmental database of component plans to oversee and monitor component efforts. In this regard, we found that the component plans did not consistently identify how staff, processes, or business systems would be changed to implement corrective actions. Such changes are key elements in assessing the adequacy of a component's plan and in monitoring progress and sustainability. DOD also does not yet have effective oversight and accountability mechanisms in place to ensure that the plans are implemented and corrective actions are sustainable. The database the department is currently using is not integrated electronically with subordinate component plans. Rather, the department currently relies upon DOD components to resubmit their plans when revisions are made so the departmental database can be updated. Because component plans are continually changing, the information contained in the departmental database will only be as current as the latest version of component plans received and input into the database. To date, DOD has not established a clear link between DOD component improvement efforts and BMMP--the department's long-term improvement initiative. According to DOD officials, DOD components plan to rely primarily upon manual work-arounds and modifications to existing legacy business systems rather than on new business system deployments to support DOD's fiscal year 2007 audit opinion effort. However, we found that the component plans we reviewed did not consistently identify whether a proposed corrective action included a manual work-around or business system modification or deployment. In addition, the department currently lacks a mechanism to effectively identify, monitor, and oversee business system investments, including modifications, occurring within the department.

Status Legend:

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  • 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: To expand DOD's ability to effectively oversee and monitor component and departmental financial improvement initiatives intended to improve the timeliness, accuracy, and reliability of business management information for DOD decision makers and financial reporting, the Under Secretary of Defense (Comptroller) should direct DOD components to include in their plans sufficient corrective action information, such as changes affecting people, process, and business systems, and to link their plans electronically to a DOD database, with appropriate results-oriented performance measures, to facilitate oversight and monitoring.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The OSD Comptroller established the Financial Improvement and Audit Readiness (FIAR) Directorate during fiscal year 2005 to develop the FIAR Plan and oversee and coordinate financial management improvement efforts (including business processes and systems) at component and departmental levels. Through membership on various cross-cutting committees and staff detailees, including representatives from the Business Transformation Agency and DOD components, the FIAR Directorate is working to ensure improved linkages between financial management improvement efforts at the component/department level and DOD's business transformation effort. As of May 2006, the FIAR Directorate had approximately 8 full-time personnel and 18 contractors responsible for monitoring components progress against milestone dates/measures identified in component financial improvement plans (subcomponents of the DOD-wide FIAR Plan). DOD components and the FIAR Directorate are now required to utilize a web-based tool to develop and update the status of actions taken as part of their component financial improvement plans, which includes sufficiently detailed data regarding corrective action tasks, milestone dates, accountable personnel, etc. against financial management deficiencies. Further, DOD components are now required to provide monthly reports through the FIAR web-based tool on the status of actions related to key milestones for the up-coming 2 quarters. Those reports are reviewed by FIAR personnel for exceptions to the component plan. If exceptions are noted, the component is asked to justify the exceptions. The oversight structure established by DOD, if sustained and focused on directing components toward corrective actions that extend beyond financial reporting, should contribute to improvements in DOD's ability to provide timely, reliable, and useful information for decisionmaking, oversight, and reporting.

    Recommendation: To expand DOD's ability to effectively oversee and monitor component and departmental financial improvement initiatives intended to improve the timeliness, accuracy, and reliability of business management information for DOD decision makers and financial reporting, the Under Secretary of Defense (Comptroller) should establish an infrastructure, including staff, processes, procedures, and performance metrics, to facilitate efficient and effective oversight and monitoring of the development and execution of component improvement plans to ensure that corrective actions are sustainable and will result in timely, accurate, and reliable business management information.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The OSD Comptroller established the Financial Improvement and Audit Readiness (FIAR) Directorate during fiscal year 2005 to develop the FIAR Plan and oversee and coordinate financial management improvement efforts (including business processes and systems) at the component and departmental levels. Through membership on various cross-cutting committees and staff detailees, including representatives from the Business Transformation Agency and DOD components, the FIAR Directorate is working to ensure improved linkages between financial management improvement efforts at the component/department level and DOD's business transformation effort. As of May 2006, the FIAR Directorate had approximately 8 full-time personnel and 18 contractors responsible for monitoring components progress against milestone dates/measures identified in component financial improvement plans (a subcomponent of the FIAR Plan). In 2005, DOD components and the FIAR Directorate began utilizing an web-based tool, to develop and update component financial improvement plans, which include data provided by each component regarding corrective action tasks, milestone dates, accountable personnel, etc. related to individual component efforts to identify and address financial management deficiencies. DOD components provide monthly reports through the FIAR web-based tool on the status of key milestones for the up-coming 2 quarters. Those reports are reviewed by FIAR directorate personnel for exceptions to the component plan. If exceptions are noted, the component is asked to justify the exceptions. The web-based tool and the processes developed by the FIAR Directorate to develop, implement, and monitor corrective actions for addressing financial management deficiencies, if properly implemented and sustained, should result in improved financial management information and processes within DOD.

    Recommendation: To expand DOD's ability to effectively oversee and monitor component and departmental financial improvement initiatives intended to improve the timeliness, accuracy, and reliability of business management information for DOD decision makers and financial reporting, the Under Secretary of Defense (Comptroller) should develop an integrated departmental plan, including a brief executive summary, which ties currently disparate improvements at the component and departmental levels together with accountable personnel, milestones, and required resources.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: Consistent with GAO's recommendation and in response to section 376 of the National Defense Authorization Act for 2006, DOD developed and submitted a comprehensive, integrated plan (referred to as the Defense Financial Improvement and Audit Readiness Plan (FIAR)) for addressing its financial management deficiencies to congressional defense committees in December 2005. The FIAR Plan ties planned improvement activities at the component and departmental levels together with accountable personnel, milestones, and required resources. The steps outlined in DOD's FIAR Plan for addressing financial management deficiencies and achieving auditability, if implemented properly, should result in improvements in DOD's ability to produce timely, reliable, and useful financial management information.

    Recommendation: To expand DOD's ability to effectively oversee and monitor component and departmental financial improvement initiatives intended to improve the timeliness, accuracy, and reliability of business management information for DOD decision makers and financial reporting, the Under Secretary of Defense (Comptroller) should direct BMMP, including its domains, to use component plans as an aid in identifying system investments occurring at the DOD component level.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The DOD Financial Improvement and Audit Readiness (FIAR) web-based tool, implemented in 2005, is utilized by DOD components, Business Transformation Agency (former BMMP), and FIAR Directorate personnel to plan and monitor financial management improvement efforts, including system solutions (investments). DOD management at all levels (including the business process areas, Business Transformation Agency personnel, components, and the Office of the Secretary of Defense) now use the web-based tool to obtain information necessary to identify specific system requirements/solutions/progress to aid in system investment reviews. In addition, the DOD FIAR Plan (the high-level summary of the individual financial improvement plans contained in the web-based tool) states that DOD financial management improvement efforts are directed at integrating component financial improvement actions with DOD's business transformation and systems solutions contained in the Enterprise Transition Plan (ETP). The ETP was developed by DOD's Business Transformation Agency to guide business transformation and system solution efforts. Successful integration should improve the efficiency and effectiveness of DOD's efforts to address its financial management deficiencies through the implementation of sustained improvements in its business processes, systems, and controls.

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