Financial Management:

Challenges Confronting DOD's Reform Initiatives

T-AIMD-95-143: Published: May 16, 1995. Publicly Released: May 16, 1995.

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GAO discussed the Department of Defense's (DOD) efforts to reform its financial management operations. GAO noted that: (1) DOD complex operations and multiple accounting systems have exacerbated its financial management problems; (2) DOD financial management reform plans include consolidating its finance and accounting operations and systems, establishing prevalidation for disbursements, reengineering DOD business practices, strengthening internal controls, and improving management incentives; (3) although DOD established the Defense Finance and Accounting Service (DFAS) in 1991 to improve its departmentwide finance and accounting operations, DOD still must overcome problems related to DFAS responsibility, internal controls, personnel requirements, documentation, reorganization, and downsizing; (4) DOD has begun consolidating its finance and accounting systems, but it has not addressed all the factors that should be considered during the consolidation; (5) DOD has implemented a policy that certain payments be validated prior to disbursement and it plans to require such validations for all payments; (6) DOD is studying how to reengineer its business practices to decrease costs and increase efficiency; (7) DOD recognizes the importance of the Chief Financial Officers Act and management support to improving its financial operations and controls; and (8) closer congressional and management oversight of the Defense Business Operations Fund (DBOF) would improve DBOF operations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Defense's Biennial Financial Management Improvement Plan dated September 1998, states that the Department has made efforts to develop training courses to help ensure the competency of its financial management personnel. However, the plan does not identify the specific skills or number of personnel needed to effectively carry out Defense's financial management operations.

    Recommendation: To help turn the reform blueprint into substantive improvements, the Secretary of Defense should determine what skills are required to ensure that the plan is developed and implemented.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In December 1995, GAO informed DFAS that its Business Plan does not accomplish the intent of the recommendation. For example, GAO informed DFAS that the Business Plan's 52 projects are not prioritized. There are 19 separate efforts related to the consolidation/standardization of accounting systems and the relationship between the various projects are not well defined. Further, 14 of the 52 projects did not have cost data and 20 of the projects lack completion dates, which precludes determining if slippages have occurred.

    Recommendation: To help turn the reform blueprint into substantive improvements, the Secretary of Defense should provide to Congress by October 1, 1995, more specific details on how the DOD reform blueprint will be implemented. This should be provided at two levels. First, a strategic overview providing more detail on the linkage between the individual reform elements, organizational responsibility, potential costs, and identification of barriers/impediments which could require congressional attention. Second, a tactical plan for fiscal year 1996 which provides specific details for each element on expected objectives to be reached, steps required to meet those objectives, milestones for each step, and performance measures so that progress can be tracked and evaluated.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Numerous reports by GAO and the DOD IG have identified financial management weaknesses in DOD's operations. DOD has many well-intentioned, planned and ongoing financial management reform and improvement efforts. DOD is developing a detailed action plan, in collaboration with OMB, GAO, and the DOD audit community, to identify short-term initiatives to address DOD's financial reporting deficiencies. Further, in October 1998, DOD issued its first Biennial Financial Management Improvement Plan. The plan sets out DOD's first-ever attempt to describe the overall concept of its future financial management operations. The plan is intended to encompass both DOD's financial systems and the program feeder systems that originate and provide an estimated 80 percent of the data processed in DOD's financial systems. Given the seriousness of the weaknesses in DOD's financial operations, GAO is continuing to monitor this area as part of its high-risk program.

    Recommendation: To help turn the reform blueprint into substantive improvements, the Secretary of Defense should clean up the existing data in the financial systems and place special emphasis on ensuring that basic accounting policies and procedures are followed so as to improve data accuracy in the current systems while new systems are under development.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: GAO is not aware of any Defense efforts to act in a responsive manner to this recommendation.

    Recommendation: To help turn the reform blueprint into substantive improvements, the Secretary of Defense should establish an independent, outside board of experts to provide counsel, oversight, and perspective to reform efforts.

    Agency Affected: Department of Defense

 

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