DOD Financial Management:

Marine Corps Statement of Budgetary Resources Audit Results and Lessons Learned [Reissued on October 17, 2011]

GAO-11-830: Published: Sep 15, 2011. Publicly Released: Sep 15, 2011.

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Long-standing weaknesses in Department of Defense (DOD) business processes, systems, and controls have hindered efforts to achieve financial audit readiness. Because DOD relies heavily on budget information for day-to-day management decisions, in August 2009, the DOD Comptroller designated the Statement of Budgetary Resources (SBR) as an audit priority. The U.S. Marine Corps was identified as the pilot military service for an SBR audit. GAO was asked to determine (1) the primary reasons the Marine Corps was unable to obtain an opinion on its fiscal year 2010 SBR; (2) the effectiveness and status of the Marine Corps' remediation plan, and (3) military service efforts to leverage Marine Corps SBR audit lessons. GAO reviewed auditor findings and recommendations, evaluated the Marine Corps corrective action plans, and reviewed documentation on military service audit readiness and lessons learned efforts. During its work, GAO met with DOD, Marine Corps, military service, and Defense Finance and Accounting Service (DFAS) officials and the auditors..

The Marine Corps received a disclaimer of opinion on its Fiscal Year 2010 SBR because it could not provide supporting documentation in a timely manner, and support for transactions was missing or incomplete. Auditors also reported that the Marine Corps did not have adequate processes, systems controls, and controls for accounting and reporting on the use of budgetary resources. Further, the Marine Corps could not provide evidence that reconciliations for key accounts and processes were being performed on a monthly basis. The auditor also identified ineffective controls in key information technology (IT) systems used by the Marine Corps to process financial data. The auditors provided 139 recommendations to correct identified weaknesses. The Marine Corps developed action items and milestones in response to the auditor's findings. But its remediation plan was focused on near-term outcomes and did not adequately specify key elements, including goals and objectives, actions for addressing those objectives, and associated performance measures. GAO previously reported that it is standard practice to have strategy that includes these features. GAO found that many of the Marine Corps' actions did not address the specific auditor recommendations, and other actions were not adequate to correct underlying problems or root causes. Further, many of the remediation actions would require steps on the part of other DOD components, such as DFAS and the Defense Contract Management Agency. As of July 2011, the Marine Corps reported that actions on 88 of the 139 auditor recommendations were fully implemented. Auditors will assess the effectiveness of these actions as part of the fiscal year 2011 SBR audit effort. However, because many of the actions do not address the underlying internal control weaknesses, the Marine Corps risks continuing disclaimers of opinion. The Marine Corps' fiscal year 2010 SBR audit results provide valuable lessons on preparing for a first-time financial statement audit. GAO identified five fundamental lessons that are critical to success. Specifically, the Marine Corps' experience demonstrated that prior to asserting financial statement audit readiness, DOD components must (1) confirm completeness of populations of transactions and address any abnormal transactions and balances, (2) test beginning balances, (3) perform key reconciliations, (4) provide timely and complete response to audit documentation requests, and (5) verify that key IT systems are compliant and auditable. These issues are addressed in Internal Control Standards and audit requirements as well as DOD's Financial Improvement and Audit Readiness Guidance, which the military services are to follow in developing their respective Financial Improvement Plans (FIP). Navy, Army, and Air Force FIP officials stated that they were aware of the Marine Corps lessons. Navy officials stated that they are in the process of updating their audit readiness plan to address all five areas. Army and Air Force officials indicated their plans addressed some but not all of the lessons. GAO makes recommendations to (1) the Marine Corps to develop a riskbased remediation plan and confirm its actions fully respond to auditor recommendations and (2) DOD to direct other military services to consider key lessons learned in their audit readiness plans, as appropriate. DOD concurred with three of four recommendations but said the recommendation for a risk-based plan was too prescriptive. GAO believes this is needed for the long term.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Marine Corps initially disagreed with our recommendation to develop a comprehensive, risk-based corrective action plan, stating that it was too prescriptive with regard to identifying roles and responsibilities and including performance indicators to measure performance against action plan objectives. During fiscal year 2014, the Marine Corps established the Risk and Compliance Branch to support its audit readiness efforts. The Marine Corps also assigned new leadership to its Remediation Team and moved the team under the Risk and Compliance Branch to provide more focus on remediation of identified weaknesses. The Remediation Team is responsible for coordinating, monitoring, and validating the design and effectiveness of corrective actions to address audit recommendations and findings from management and internal reviews. Further, the Marine Corps has developed a detailed remediation process that includes elements of a comprehensive, risk-based plan as called for in our recommendation. For example, according to the Marine Corps remediation process documents, it now identifies weaknesses associated with audit findings that the auditors grouped by categories and works with process owners and stakeholders to understand the causes of the weaknesses and develop corrective action plans that will be effective in resolving them. Our review of the Marine Corps' new remediation process documentation found that the Marine Corps has assigned a priority for addressing audit findings based on high, medium, or low risk and has developed written definitions for each risk level. These actions are essential for the Marine Corps to assure that its corrective actions focus first on the most significant areas of risk.

    Recommendation: To improve Marine Corps and Department of Defense (DOD) audit readiness efforts, the Secretary of the Navy should direct the Commandant of the Marine Corps to, using the results of the fiscal year 2010 and 2011 SBR audit efforts, develop a comprehensive, risk-based plan for designing and implementing corrective actions that provide sustainable solutions for SBR auditor recommendations. Such a plan should identify goals and objectives, identify and prioritize actions for addressing those objectives, allocate resources, assign roles and responsibilities, and measure performance against objectives.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Implemented

    Comments: The Marine Corps concurred with this recommendation. As part of its efforts to address this recommendation, the Marine Corps assigned new leadership to its Remediation Team and moved the team under its new Risk and Compliance Branch to provide more focus on remediation of identified weaknesses. The Remediation Team is responsible for coordinating, monitoring, and validating the design and effectiveness of corrective actions to address audit recommendations and findings from management and internal reviews. As part of the new remediation process, the Marine Corps incorporated an independent stakeholder review and monitoring role with responsibility for ensuring that corrective actions fully address auditor recommendations as well as any recommendations resulting from internal management reviews. In September 2015, the Marine Corps provided us examples of two Notices of Findings and Recommendations (NFR) that went through this new independent stakeholder review of the corrective actions taken. These fully remediated NFRs related to (1) the lack of proper segregation of duties within the Standard Accounting, Budgeting and Reporting System, and (2) an outdated service-level agreement between the Defense Information Service Agency and the Marine Corps for the Marine Corps Total Force System. As a result of the new stakeholder review process, the Remediation team determined that both of these NFRs were fully remediated. By ensuring that actions taken are fully responsive to the auditor recommendations, the Marine Corps is in a better position to sustain financial statement audit readiness efforts, and assure the integrity of ongoing financial management operations. We reviewed the supporting documentation provided and confirmed that the recommendations were fully remediated. By ensuring that actions taken are fully responsive to the auditor recommendations, the Marine Corps is in a better position to sustain financial statement audit readiness efforts, and assure the integrity of ongoing financial management operations.

    Recommendation: To improve Marine Corps and Department of Defense (DOD) audit readiness efforts, the Secretary of the Navy should direct the Commandant of the Marine Corps to review Marine Corps SBR remediation actions under way and confirm that actions are fully responsive to the auditor recommendations.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: During fiscal years 2014 and 2015, Marine Corps officials told us that they had initiated efforts to develop agreements for audit readiness support with the appropriate DOD components. For example, the Marine Corps' audit readiness support from the Defense Finance and Accounting Service (DFAS) is covered under the Department of the Navy's Mission Work Agreement with DFAS. The Marine Corps also has a Service Level Agreement with the Defense Information Systems Agency (DISA) for information processing, information assurance, storage, and continuity of operation services for the Standard Accounting, Budgeting and Reporting System (SABRS) general ledger system and the Marine Corps Total Force System (MCTFS) military personnel and payroll system. These are material systems with regard to financial statement audits. The Marine Corps' draft service level agreement with the Defense Logistics Agency (DLA) covers audit support related to DLA-performed business processes that generate financial information the Marine Corps relies on for financial statement reporting and audit purposes. These DLA business processes include (1) receiving and accepting goods, (2) storing material, (3) issuing and distributing material, (4) disposing of material, and (5) updating accountability records. The Marine Corps' service level agreements describe roles and responsibilities and include performance measures related to delivery of specified services and, in some cases, audit readiness milestone dates. In addition, Marine Corps officials told us that where audit support depends on DOD-wide systems, processes, and controls related to MILSTRIP and U.S. Transportation Command shipments, they believe the DOD Comptroller and FIAR Directorate should take the lead in developing the service-level agreements. In September 2013, the DOD Comptroller and the Office of the Under Secretary of Defense (Acquisition, Technology and Logistics), Office for Transportation Policy, established the DOD-wide Transportation Financial Auditability Working Group to facilitate DOD component audit readiness in the department's freight (military equipment and supplies and materials) and personal property (household goods) process readiness issues in two phases: (1) developing an obligation methodology with enterprise guidance based on FIAR requirements and input from financial management function representatives and (2) achieving overall improvements in transportation processes, systems, and controls. The Marine Corps is participating with the Working Group to address audit readiness issues in these areas. The Marine Corps' actions meet the intent of our recommendation.

    Recommendation: To improve Marine Corps and Department of Defense (DOD) audit readiness efforts, the Secretary of the Navy should direct the Commandant of the Marine Corps to, for remediation actions that require coordination and action on the part of other DOD components, such as Defense Finance and Accounting Service (DFAS), Defense Contract Management Agency (DCMA), and Defense Contract Audit Agency (DCAA), require the Marine Corps to develop and implement timely and effective service-provider agreements with the appropriate DOD components in accordance with the Financial Improvement and Audit Readiness (FIAR) Guidance. These agreements should identify roles and responsibilities, the individuals responsible for those activities, and performance measures that establish accountability.

    Agency Affected: Department of Defense: Department of the Navy

  4. Status: Closed - Implemented

    Comments: Our review of Marine Corps' fiscal year 2010 Statement of Budgetary Resources (SBR) audit effort identified five overall lessons that are critical to a successful audit. Specifically, the Marine Corps' experience demonstrated that prior to asserting financial statement audit readiness, DOD components must (1) confirm completeness of transaction populations and address any abnormal balances; (2) test beginning balances; (3) perform key reconciliations, (4) provide a timely and complete response to audit documentation requests; and (5) verify that key information technology systems are compliant comply with the Federal Financial Management Improvement Act of 1996 and are auditable. Our follow-up meetings determined that the Navy was addressing some of the Marine Corps lessons, but the Army and the Air Force were not. In December 2011, DOD updated its Financial Improvement and Audit Readiness (FIAR) Guidance to help ensure the success of the department's audit readiness assertion efforts by adding a list of issues, which included the five areas identified in our report that prevented the Marine Corps from achieving audit readiness for its SBR.

    Recommendation: To help fully leverage lessons learned from the first-year Marine Corps SBR audit effort, the Secretary of Defense shoud direct the Secretaries of the Army, the Navy, and the Air Force to consider the fundamental lessons resulting from the Marine Corps effort and incorporate the lessons, as appropriate, in their respective Financial Improvement Plan (FIPs).

    Agency Affected: Department of Defense

 

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