DOD Financial Management:

Improvements Needed in Army's Efforts to Ensure the Reliability of Its Statement of Budgetary Resources

GAO-14-60: Published: May 30, 2014. Publicly Released: May 30, 2014.

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Asif A. Khan
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khana@gao.gov

 

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What GAO Found

The Army has made important progress in developing its financial improvement plan (FIP) for budget execution to help guide its General Fund Statement of Budgetary Resources (SBR) audit readiness efforts. This FIP covers current year activity associated with the recently deployed General Fund Enterprise Business System (GFEBS) emphasizing the implementation of effective business processes. However, the Army did not fully complete certain tasks in accordance with the Financial Improvement and Audit Readiness (FIAR) Guidance to ensure that its FIP adequately considered the scope of efforts required for audit readiness. For example, the Army did not consider the risks associated with excluding current year activity associated with legacy systems and did not adequately identify significant SBR activity attributable to service provider business processes and systems. These activities may continue to represent material portions of future SBRs and, if not auditable, will likely affect the Army's ability to achieve audit readiness goals as planned.

For GFEBS-related audit readiness activities within the scope of its FIP for budget execution, the Army documented controls in narratives and flowcharts and performed monthly tests to assess their effectiveness. Based on test results from June 2012 through May 2013, the Army identified extensive deficiencies, such as lack of appropriate reviews or approvals, and had an average failure rate of 56 percent.

Army's Reported SBR Internal Control Test Failure Rates for Commands Tested

Army's Reported SBR Internal Control Test Failure Rates for Commands Tested

The Army did not fully follow the FIAR Guidance in performing the tasks required. For example, the Army's documentation and assessment of controls were not always complete or accurate. Further, extensive deficiencies identified by Army had not been remediated prior to an independent public accountant's (IPA) examination of its audit readiness efforts.

Overall, the gaps and deficiencies identified above are largely due to the Army's focus on (1) the audit readiness of new GFEBS processes despite continued reliance on legacy systems and service providers and (2) asserting audit readiness before correcting extensive control deficiencies. Army officials cited adherence to assertion and IPA examination milestones as essential. However, this approach raises serious concerns regarding the likelihood that SBR audit readiness will occur as planned and the Army's ability to ensure the accuracy of financial information used to monitor budgetary resources to achieve its mission.

Why GAO Did This Study

The National Defense Authorization Act for Fiscal Year 2013 requires the Department of Defense (DOD) to describe how its SBR will be validated as ready for audit by September 30, 2014. The DOD Comptroller issued the FIAR Guidance to provide a standard methodology for DOD components to use to develop and implement FIPs, improve financial management, and achieve audit readiness. The Army's FIP for budget execution provides a framework for planning, executing, and tracking essential steps with supporting documentation to achieve audit readiness of its General Fund SBR.

GAO is mandated to audit the U.S. government's consolidated financial statements, including activities of executive branch agencies such as DOD. This report identifies the extent to which the Army developed and implemented its General Fund SBR FIP for budget execution in accordance with the FIAR Guidance with regard to (1) determining the scope of activities included in the FIP and (2) completing those activities included in the scope of the FIP. GAO reviewed the Army's FIP to determine whether it contained the elements required by the FIAR Guidance and reviewed test results, status reports, and other deliverables.

What GAO Recommends

GAO recommends that among other things, the Army take steps to improve implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and ensure that all significant SBR processes, systems, and risks are adequately considered and identified deficiencies are resolved. The Army concurred with GAO's recommendations.

For more information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: The Army concurred with this recommendation. In March 2015, Army officials indicated that the Army has leveraged object class codes in its ERP systems to stratify business processes that have a significant impact on the Schedule of Budgetary Activity for fiscal year 2015 activity. Army provided documentation supporting this effort; however, this documentation did not identify all activity attributable to assessable units associated with service provider systems and business processes having a significant impact on the Army's Statement of Budgetary Resources.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should identify activity attributable to assessable units associated with service provider systems and business processes having a significant impact on the Army's SBR.

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

  2. Status: Open

    Comments: The Army concurred with this recommendation. The Army has established a Mission Work Agreement (MWA) with DFAS, its most significant service provider, and has documented concept of operations (CONOPS) regarding various business processes, such as civilian pay and Fund Balance with Treasury. However, the MWA and CONOPS do not include sufficient detail required to adequately understand roles and responsibilities for processing and reporting Army financial data. For example, the MWA does not describe roles and responsibilities related to complementary end user controls identified by DFAS that Army should establish to achieve DFAS control objectives for processing and reporting Army financial activity.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should coordinate efforts with service providers to obtain and document within memorandum of understanding memorandums of understanding a shared understanding of roles and responsibilities for processing Army data.

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

  3. Status: Closed - Implemented

    Comments: The Army concurred with this recommendation. In the May 2015 Financial Improvement Audit Readiness (FIAR) Plan Status Report, the Army identified qualitative risks and other factors related to its reliance on service providers and processes and systems excluded from the scope of its readiness efforts. For example, the Army identified risks related to the ability of the Defense Finance and Accounting Service to ensure that journal vouchers are fully supported and documented. Additionally, in its assessment of financial reporting risks and major processes, the Army assessed the complexity and other factors associated with beginning balances which had been excluded from the scope of its readiness efforts. Further, the Army included its assessment of legacy systems in the May 2015 FIAR Plan Status Report. The Army reported that it is still relying on legacy systems to support business processes and operations and that replacing these systems is critical to being audit ready in fiscal year 2017.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should identify and document qualitative risks and other factors, including those associated with the Army's reliance on service provider readiness efforts as well as other processes and systems supporting significant portions of its SBR that the Army excluded from the scope of its readiness efforts and assess their potential impact on SBA and full SBR auditability and established timelines required to effectively achieve audit readiness.

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

  4. Status: Closed - Implemented

    Comments: The Army concurred with this recommendation. In the May 2015 FIAR Plan Status Report, the Army updated its determination that it would achieve Statement of Budgetary Resources (SBR) audit readiness by September 30, 2017. As a result, the Army complied with National Defense Authorization Act (NDAA) requirements.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should update the Army's determination for achieving SBR audit readiness included in DOD's FIAR Plan Status Report to address NDAA requirements.

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

  5. Status: Open

    Comments: The Army concurred with this recommendation. In June 2015, Army officials indicated that the Army four financial reporting objectives (FROs) have not yet been linked to control activities. Army officials stated that the Army is continuing to analyze collection, disbursement, and Fund Balance with Treasury processes and anticipates linking these FROs to control activities based on these efforts.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should completely and accurately document the linkage of financial reporting objectives to control activities.

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

  6. Status: Open

    Comments: The Army concurred with this recommendation. In March 2015, Army officials indicated that the Army is in the process of determining IT systems with a significant impact on the Army's Statement of Budgetary Resources (SBR) audit readiness. Furthermore, Army officials stated that for the fiscal year 2015 Schedule of Budgetary Activity Audit, the independent public accountant is conducting walkthroughs and assessing information technology systems for significant impact on Army's SBR audit readiness.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should document criteria and processes for identifying key information technology systems that have a significant impact on the Army's SBR audit readiness.

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

  7. Status: Open

    Comments: The Army concurred with this recommendation. As of June 2015, Army officials indicated that the Army has obtained all applicable SSAE No. 16 examination reports but is still in the process of assessing them.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should obtain and assess the results of service provider SSAE No. 16 examinations upon completion to determine the adequacy of internal controls and document complete end-to-end business processes.

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

  8. Status: Open

    Comments: The Army concurred with this recommendation. In March 2015, Army officials provided documentation indicating that the Army included actions to address identified deficiencies along with its assessment of their severity, including references to current control activities with estimated completion dates in its corrective action plans. However, the Army has not updated its financial improvement plan (FIP) as required by the FIAR Guidance. According to the April 2015 FIAR Guidance, updating the FIP at least monthly remains an important requirement.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should update the Army's FIP status reports to include actions to address identified deficiencies related to service providers, systems, and other known issues, along with an assessment of their severity, including references to current control activities with accurate estimates of the completion status.

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

  9. Status: Open

    Comments: The Army concurred with this recommendation. In March 2015, Army officials indicated that the Army has developed corrective action plans and are in the process of implementing them. However, Army officials indicated that the Army is still working to identify underlying causes and determine expected dates for completion.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should link corrective actions and estimates for their completion in FIP status reports to (1) specific CAP tasks to resolve deficiencies and their underlying causes and (2) dates for their expected completion.

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

  10. Status: Open

    Comments: The Army concurred with this recommendation. In March 2015, Army officials indicated that the Army is still working to resolve identified significant deficiencies and material weaknesses.

    Recommendation: To improve the Army's implementation of the FIAR Guidance for its General Fund SBR FIP for budget execution and facilitate remaining efforts to achieve SBR auditability, the Assistant Secretary of the Army, Financial Management and Comptroller should correct significant deficiencies or material weaknesses identified before asserting audit readiness and engaging an IPA to validate the assertion.

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

 

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