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Successfully Completed to Address Long-standing Funds Control 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

April 2014: 

DOD Financial Management: 

Actions Under Way Need to Be Successfully Completed to Address Long-
standing Funds Control Weaknesses: 

GAO-14-94: 

GAO Highlights: 

Highlights of GAO-14-94, a report to congressional requesters. 

Why GAO Did This Study: 

GAO, the DOD Inspector General (IG), and others have reported on DOD's 
inability to provide effective control over the use of public funds 
(i.e., funds control). Funds control requires obligations and 
expenditures to comply with applicable law. Funds control weaknesses 
have prevented DOD from reporting reliable financial information, 
including information on the use of public funds, results of 
operations, and financial statements, and put DOD at risk of 
overobligating and overexpending its appropriations in violation of 
the Antideficiency Act (ADA). 

GAO was asked to review the status of DOD's efforts to address its 
funds control weaknesses. GAO's objectives were to determine the (1) 
extent of reported weaknesses in DOD's funds control and their effect 
and (2) status of DOD's corrective actions to address known 
weaknesses. GAO analyzed 333 GAO, DOD IG, and military department 
audit reports; DOD reports of ADA violations; and selected DOD 
financial reports. GAO also examined DOD actions to address audit 
findings and ADA violations, including actions under DOD's FIAR Plan, 
and discussed corrective actions on funds control weaknesses with DOD 
and military department auditors and financial managers. 

What GAO Found: 

GAO's analysis of 333 reports related to Department of Defense (DOD) 
funds control, issued in fiscal years 2007 through 2013, identified 
over 1,000 funds control weaknesses related to (1) training, 
supervision, and management oversight; (2) proper authorization, 
recording, documentation, and reporting of transactions; and (3) 
business system compliance with federal laws and accounting standards. 
Many of the reports GAO reviewed included multiple findings. 

Figure: Reported DOD Funds Control Weaknesses by Major Category: 

[Refer to PDF for image: horizontal bar graph] 

Training, supervision, and oversight: 
Number of weaknesses: 282. 

Transaction controls: 
Number of weaknesses: 658. 

Business system controls: 
Number of weaknesses: 66. 

Source: GAO analysis. 

[End of figure] 

GAO found that these weaknesses led DOD to make program and 
operational decisions based on unreliable data and impaired DOD's 
ability to improve its financial management. Fundamental weaknesses in 
funds control significantly impaired DOD's ability to (1) properly use 
resources, (2) produce reliable financial reports on the results of 
operations, and (3) meet its audit readiness goals. 

DOD has actions under way to address its department-wide funds control 
weaknesses. These actions, several of which are targeted for 
completion in 2017, include: 

* a DOD Financial Manager Certification Program intended to establish 
a framework to guide training and development of DOD's 54,000 
financial management personnel at the staff, supervisory, and 
leadership levels; 

* transaction control testing and corrective action plans under its 
Financial Improvement and Audit Readiness (FIAR) Plan for reporting on 
the use of budgetary resources with regard to categories of 
transactions, such as fund balances, outlays, military and civilian 
payroll, and contract pay; and; 

* testing under the FIAR Plan of material DOD component business 
system controls and service-provider systems and processes as well as 
military department actions to address enterprise resource planning 
system design and implementation issues. 

DOD leadership says it is committed to achieving effective fund 
controls to support financial accountability and reliable information 
for day-to-day management decision making and auditable financial 
statements. However, because some of the corrective actions on long-
standing funds control weaknesses are not expected to be completed 
until 2017, these weaknesses, until fully resolved, will continue to 
adversely affect DOD's ability to achieve its goals for financial 
accountability, including the ability to produce consistent, reliable, 
and sustainable financial information for day-to-day decision making. 
Sustained leadership commitment will be critical to achieving success. 

What GAO Recommends: 

GAO is not making recommendations in this report because DOD already 
has numerous actions under way to address funds control weaknesses. 
DOD stated that it appreciates GAO's review and that past deficiencies 
have informed actions it has under way to address its funds control 
weaknesses. 

View GAO-14-94. For more information, contact Asif A. Khan at (202) 
512-9869 or khana@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Pervasive Funds Control Weaknesses Impair the Effectiveness of DOD's 
Financial Management Operations: 

DOD Has Actions Under Way to Address Many DOD-Wide Funds Control 
Weaknesses, but Effective Implementation Will Be Critical: 

Concluding Observations: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Details of Reported DOD Funds Control Weaknesses by 
Category: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Reported DOD Adjustments to Reconcile Its Fiscal Year 2013 
Fund Balance to Treasury Records: 

Table 2: DOD Suspense Account Balances for Fiscal Year-End 2010 
through Fiscal Year-End 2013: 

Table 3: DOD Financial Management Certification Program Training 
Requirements by Level: 

Table 4: Number, Type, and Time Frame of GAO, Department of Defense, 
Defense Inspector General, and Military Service Reports Reviewed: 

Figures: 

Figure 1: Comparison of DOD's Requested Fiscal Year 2014 Discretionary 
Budget Authority with That of Other Federal Agencies: 

Figure 2: Reported DOD Funds Control Weaknesses by Major Category: 

Figure 3: Military Service ADA and Other Fiscal Law Violations 
Reported by DOD (Fiscal Year 2007 through Fiscal Year 2012): 

Figure 4: DOD Timeline for Validation of Corrective Actions on 
Transaction Controls by Statement of Budgetary Resources Assessable 
Unit: 

Figure 5: Timeline for Validation of Audit Readiness for DOD Service-
Provider Operating System Controls: 

Figure 6: Reported DOD Funds Control Weaknesses by Major Category, 
Nature of Finding, and Reporting Agency: 

Abbreviations: 

ADA: Antideficiency Act: 

CPE: Continuing Professional Education: 

DCAA: Defense Contract Audit Agency: 

DCMA: Defense Contract Management Agency: 

DDRS: Defense Departmental Reporting System: 

DEAMS: Defense Enterprise Accounting and Management System: 

DERF: Defense Emergency Response Fund: 

DFAS: Defense Finance and Accounting Service: 

DOD: Department of Defense: 

ERP: enterprise resource planning: 

FBWT: Fund Balance with Treasury: 

FFMIA: Federal Financial Management Improvement Act of 1996: 

FIAR: Financial Improvement and Audit Readiness: 

FISCAM: Federal Information System Controls Audit Manual: 

FMFIA: Federal Managers' Financial Integrity Act: 

FMR: Financial Management Regulation: 

GAAP: U.S. generally accepted accounting principles: 

GFEBS: General Fund Enterprise Business System: 

IG: Inspector General: 

IPERA: Improper Payments Elimination and Recovery Act: 

LMP: Logistics Modernization Program: 

NASBA: National Association of State Boards of Accounting: 

NDAA: National Defense Authorization Act: 

OMB: Office of Management and Budget: 

SBR: Statement of Budgetary Resources: 

SFIS: Standard Financial Information Structure: 

SSAE: Statement on Standards for Attestation Engagements: 

USSG: LU.S. Standard General Ledger: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

April 29, 2014: 

The Honorable Thomas R. Carper: 
Chairman: 
The Honorable Tom Coburn, M.D.
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Claire McCaskill: 
Chairman: 
Subcommittee on Financial and Contracting Oversight: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable K. Michael Conaway: 
House of Representatives: 

In a time of fiscal and budgetary constraints, federal agencies need 
to make the best use of their allotted funds and demonstrate careful 
stewardship in their reporting to Congress and the public. The 
Department of Defense (DOD) is one of the largest and most complex 
organizations in the world. With over $1 trillion in total budgetary 
resources, DOD has reported that it obligates an average of $2 billion 
to $3 billion daily and makes hundreds of thousands of payments, such 
as payroll, travel, utility, and contract payments, including payments 
in war zones. DOD's worldwide operations span a wide range of defense 
organizations and business functions and rely on over 2,200 business 
systems, including accounting systems and acquisition, logistics, and 
personnel systems that feed financial data to accounting systems. 
[Footnote 1] 

For years, we, the DOD Inspector General (IG), and others have 
reported on DOD's inability to provide effective control over the 
public funds it is responsible for or to reliably report on its 
obligation and outlay of those funds. In September 2011, we testified 
that DOD's weak internal control environment for funds control 
hindered its ability to ensure that transactions were accurately 
recorded, sufficiently supported, and properly executed by trained 
personnel subject to effective supervision.[Footnote 2] DOD's funds 
control weaknesses have prevented it from reporting reliable financial 
information, including information on budget execution and results of 
operations. Funds control weaknesses have also resulted in violations 
of the Antideficiency Act (ADA), specifically through overobligating 
or overexpending available budgetary resources.[Footnote 3] Like other 
executive agencies, DOD is required by the ADA to prescribe by 
regulation a system of administrative control of funds, designed to 
restrict obligations or expenditures to the applicable legal 
limitations on their amount, and to enable the head of the agency to 
fix responsibility for any obligation or expenditure exceeding these 
limits.[Footnote 4] These regulations are commonly referred to as 
"funds control regulations."[Footnote 5] 

DOD has acknowledged that long-standing weaknesses in its internal 
controls, business systems, and processes have prevented auditors from 
determining the reliability of its financial statements, including 
information on budgeted spending, which is reported in DOD's Statement 
of Budgetary Resources (SBR) and information on the cost of 
operations, which is reported in DOD's Statement of Net Cost.[Footnote 
6] The Financial Improvement and Audit Readiness (FIAR) Plan, which 
was first prepared in 2005, is DOD's strategic plan and management 
tool for guiding, monitoring, and reporting on the department's 
financial management improvement efforts. As such, the plan 
communicates incremental progress in addressing the department's 
financial management weaknesses and achieving financial statement 
auditability (i.e., audit readiness). 

The National Defense Authorization Act (NDAA) for Fiscal Year 2010 
mandated that the FIAR Plan include the specific actions to be taken 
to correct the financial management deficiencies that impair the 
department's ability to prepare timely, reliable, and complete 
financial management information.[Footnote 7] In May 2010, the DOD 
Comptroller issued the FIAR Guidance to implement the FIAR Plan. The 
FIAR Guidance provides a standardized methodology for DOD components 
to follow for achieving financial management improvements and 
auditability. The FIAR Guidance requires DOD components to identify 
and prioritize their business processes into assessable units, and 
then prepare a Financial Improvement Plan for each assessable unit in 
accordance with the FIAR Guidance.[Footnote 8] The FIAR Guidance also 
addresses the need for adequate transaction controls for each 
assessable unit, including proper authorization, accurate recording, 
adequate support, and accurate and timely reporting of obligation and 
disbursement transactions. These transaction controls are key to 
effective funds control. 

You asked us to review DOD's internal control over its use of public 
funds. Our objectives were to determine the (1) extent of reported 
weaknesses in DOD's funds control and their effect and (2) status of 
DOD's corrective actions to address known weaknesses. To address our 
first objective, we reviewed issues identified in our prior reports on 
DOD funds control and reports on DOD funds control issued by the DOD 
IG from fiscal years 2007 through 2012 and military department 
auditors from fiscal year 2010 through March 2012.[Footnote 9] We also 
reviewed all of DOD's reports to Congress on ADA violations for fiscal 
years 2007 through 2012 that were also sent to GAO, the military 
departments' annual reports on evaluation of their funds control 
processes and processing of ADA violations for 2011 and 2012, and DOD 
and military department fiscal year 2011 and 2012 Statements of 
Assurance under the law commonly known as the Federal Managers' 
Financial Integrity Act (FMFIA),[Footnote 10] and Agency Financial 
Reports[Footnote 11] for fiscal years 2011 through 2012. We analyzed 
internal control weaknesses identified in these reports to determine 
the effect of funds control weaknesses with regard to the proper use 
of resources, reliable financial reporting on operations, and the 
success of audit readiness efforts. In addition, we reviewed DOD ADA 
reports, FIAR Plan Status Reports, and DOD and military department 
Agency Financial Reports for fiscal year 2013 to determine if the 
identified weaknesses continued to exist. 

To address our second objective, we reviewed DOD corrective actions 
under DOD's FIAR Plan and actions being taken outside of the FIAR 
Plan, such as efforts to develop and implement enterprise resource 
planning (ERP) systems.[Footnote 12] We met with DOD IG and military 
department audit managers and reviewed auditor data on the status of 
military department actions to address funds control-related audit 
recommendations. We also met with DOD and military department 
financial managers, including managers responsible for audit 
readiness, to discuss their efforts to resolve findings of funds 
control weaknesses as well as corrective actions on related material 
weaknesses disclosed in their annual evaluations of funds control and 
annual Statements of Assurance regarding the effectiveness of internal 
controls, including controls over financial reporting.[Footnote 13] We 
assessed the DOD IG's audit quality procedures for assuring the 
reliability of support for reporting findings and recommendations and 
the status of corrective actions to address auditor recommendations. 
[Footnote 14] Our analysis of over 300 audit and financial reports on 
DOD financial management operations issued over the last 7 years 
identified over 1,000 funds control weaknesses. Based on our review of 
DOD's audit quality procedures and our comparison of auditor reports 
and DOD disclosures of financial management weaknesses, we determined 
the reported data and information to be reliable for the purposes of 
our work. 

We conducted this performance audit from November 2011 to April 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. Appendix I 
provides further details of our scope and methodology. 

Background: 

DOD's mission is to provide the military forces needed to deter war 
and protect the security of the United States. As shown in figure 1, 
the discretionary budget authority requested by DOD for fiscal year 
2014 comprises about 53 percent of the budget request for 
discretionary programs throughout the federal government.[Footnote 15] 
DOD's approximately $606 billion in requested fiscal year 2014 funding 
includes $526.6 billion in spending authority for departmental 
operations and $79.4 billion to support overseas contingency 
operations, such as those in Afghanistan. 

Figure 1: Comparison of DOD's Requested Fiscal Year 2014 Discretionary 
Budget Authority with That of Other Federal Agencies: 

[Refer to PDF for image: pie-chart] 

Department of Defense: 53%; 
Department of Health and Human Services: 7%; 
Department of Education: 6%; 
Department of Veterans Affairs: 6%; 
All other agencies: 28%. 

Source: GAO analysis of Historical Tables, Budget of the United States 
Government, Fiscal Year 2014. 

[End of figure] 

Legal Framework for Internal Control: 

The Budget and Accounting Procedures Act of 1950[Footnote 16] and 
FMFIA placed primary responsibility for establishing and maintaining 
internal control on the heads of federal agencies. FMFIA requires 
executive agencies to establish internal controls that reasonably 
ensure that obligations and costs comply with applicable law; that all 
assets are safeguarded against waste, loss, unauthorized use, and 
misappropriation; and that revenues and expenditures applicable to 
agency operations are recorded and accounted for properly.[Footnote 
17] Those internal controls that pertain to the obligation, 
disbursement, and receipt of agency funds, as well as the recording of 
those transactions, are referred to in this report as funds control. 
Internal control is an integral component of an organization's 
management that when properly implemented and operating effectively, 
provides reasonable assurance that the following objectives are being 
achieved: (1) effectiveness and efficiency of operations, (2) 
reliability of financial reporting, and (3) compliance with laws and 
regulations.[Footnote 18] Within this broad framework, DOD must design 
and implement effective controls, including funds control, and 
internal control over financial reporting. Auditors of DOD's financial 
statements are to assess the effectiveness of these controls as part 
of a financial statement audit. 

Because budgetary information is widely and regularly used for 
management decision making on programs and operations, the Office of 
the Under Secretary of Defense (Comptroller)/Chief Financial Officer, 
commonly referred to as the DOD Comptroller, designated the SBR as 
DOD's first priority for improving its financial management and 
achieving audit readiness. The financial information in the SBR is 
predominantly derived from a federal entity's budgetary accounts, 
which are used by the entity to account for and track the use of 
public funds in accordance with budgetary accounting rules.[Footnote 
19] The SBR provides information about budgetary resources made 
available to an agency as well as the status of those resources at a 
specific point in time. According to the Office of Management and 
Budget (OMB), the SBR was added as a basic federal financial statement 
so that the underlying budgetary accounting information could be 
audited and would, therefore, be more reliable for routine management 
use and budgetary reporting, including reporting in the President's 
Budget. 

Statutory Requirements for Funds Control: 

As noted above, one of the objectives of internal control generally, 
and funds control in particular, is to ensure compliance with 
applicable law. Executive agencies' use of federal funds is governed 
by fiscal statutes that establish specific funds control requirements. 
Many of these laws have been codified in Title 31 of the United States 
Code, particularly in chapters 13, 15, and 33. These chapters contain 
the laws known commonly as the ADA, the Recording statute,[Footnote 
20] the Miscellaneous Receipts statute,[Footnote 21] the Purpose 
statute,[Footnote 22] and the Bona Fide Needs statute,[Footnote 23] as 
well as the provisions establishing the procedures and officials 
responsible for the disbursement of federal funds[Footnote 24] and the 
provisions that govern the closing of appropriations accounts known as 
the Account Closing Statute.[Footnote 25] Many other government-wide 
and agency-specific provisions of permanent law govern the use of 
federal funds, such as the Adequacy of Appropriations Act[Footnote 26] 
and limitations on DOD incurring obligations for business system 
modernization,[Footnote 27] as do the provisions of annual 
appropriations acts. Appropriations acts prescribe the purpose, 
amount, and time for which appropriations are available for obligation 
and expenditure, and they often include additional permanent and 
temporary fiscal guidance. 

The ADA, in particular, is central to Congress's ability to uphold its 
constitutional power of the purse, to hold executive branch officials 
accountable for proper use of budgetary resources, and to ensure 
proper stewardship and transparency of the use of public funds. As 
noted above, the act requires heads of federal agencies to establish 
by regulation a system of administrative controls over obligations and 
expenditures, commonly referred to as funds control regulations. The 
act also includes certain prohibitions, such as prohibiting federal 
officers and employees from authorizing or making obligations or 
expenditures in excess of the amount available in an apportionment or 
reapportionment,[Footnote 28] an appropriation or fund,[Footnote 29] 
or an allotment[Footnote 30] unless authorized by law. 

Once it is determined that there has been a violation, the ADA 
requires the agency head to report immediately to the President and 
Congress all relevant facts and a statement of actions taken, and 
transmit a copy of the report to the Comptroller General. The ADA also 
provides for possible administrative and criminal penalties for 
employees responsible for violations. 

Pervasive Funds Control Weaknesses Impair the Effectiveness of DOD's 
Financial Management Operations: 

Our analysis of over 300 audit and financial reports on DOD financial 
management operations issued over the last 7 years identified over 
1,000 funds control weaknesses. We grouped these weaknesses into three 
major categories: (1) inadequate training, supervision, and management 
oversight; (2) ineffective transaction controls; and (3) inadequate 
business systems. In fiscal year 2013, the DOD Comptroller and DOD 
auditors continued to report funds control weaknesses and ADA 
violations related to these same areas. For example, in its November 
2013 Agency Financial Report, DOD self-reported 16 material weaknesses 
in financial reporting, noting that it had no assurance of the 
effectiveness of the related controls. These weaknesses place DOD at 
risk of making program and operational decisions based on unreliable 
data and impair DOD's ability to improve its financial management 
operations and achieve the department's audit readiness goals. The 
long-standing, pervasive nature of funds control weaknesses poses a 
significant impediment to reliable financial management operations, 
including proper use of resources and achieving financial audit 
readiness as well as accountability and stewardship of taxpayer funds 
entrusted to DOD management. As discussed later in this report, DOD 
has numerous corrective actions under way to address these weaknesses, 
including actions related to its audit readiness efforts as well as 
efforts to address findings in auditor and ADA reports. 

Auditors and DOD Management Continue to Report Pervasive Funds Control 
Weaknesses: 

Our analysis identified long-standing weaknesses across DOD components 
related to the following three areas: 

(1) Inadequate training, supervision, and management oversight of 
budgetary processes and controls. Training assures that personnel have 
the skills to carry out their assigned duties. Supervision is day-to-
day guidance by a supervisor and management oversight involves 
assuring adequate supervisory guidance and training as well as overall 
monitoring of the subject matter area. 

(2) Inadequate transaction controls. These controls cover proper 
authorization and recording of budgetary transactions, such as 
obligations and disbursements (outlays); maintaining adequate 
supporting documentation; and proper and timely reporting of 
transactions, related summaries, and financial reports. 

(3) Ineffective business systems. This category refers to business 
systems that do not have effective controls for recording, supporting, 
and reporting financial transactions, including budgetary 
transactions, and therefore, do not provide adequate controls over 
financial reporting on the results of operations and do not assure 
compliance with laws, such as the Federal Financial Management 
Improvement Act of 1996 (FFMIA) and the ADA.[Footnote 31] Figure 2 
summarizes 1,006 reported funds control weaknesses that span DOD 
budgetary accounting, funds control, and financial reporting by three 
categories. 

Figure 2: Reported DOD Funds Control Weaknesses by Major Category: 

[Refer to PDF for image: horizontal bar graph] 

Training, supervision, and oversight: 
Number of weaknesses: 282. 

Transaction controls: 
Number of weaknesses: 658. 

Business system controls: 
Number of weaknesses: 66. 

Source: GAO analysis. 

[End of figure] 

Examples of findings related to the three major categories of funds 
control weaknesses follow. Many of the funds control reports 
identified more than one weakness. See appendix II for additional 
details on these findings. 

Training, supervision, and management oversight. In its November 2013 
FIAR Plan Status Report, DOD continued to identify unqualified or 
inexperienced personnel, not only at the working level but also in 
senior-level positions, as a risk to achieving sound financial 
management operations and auditability. Standards for Internal Control 
in the Federal Government states that effective management of an 
organization's workforce is essential to achieving positive results 
and is an important part of internal control.[Footnote 32] Qualified 
and continuous supervision should be provided to ensure that internal 
control objectives are achieved. In addition, deficiencies found 
during ongoing monitoring should be communicated to the individual 
responsible and to at least one level of management above that 
individual. Serious matters should be reported to top management. To 
help address skill needs, the NDAA for Fiscal Year 2012 authorized the 
DOD Comptroller to develop a financial management training and 
certification program.[Footnote 33] FIAR Plan Status Reports continue 
to identify the need for knowledgeable and qualified personnel as 
critical to achieving DOD's financial improvement and audit readiness 
goals. DOD's November 2013 FIAR Plan Status Report also identified a 
risk associated with identified control weaknesses not being 
corrected. DOD reported that the DOD Comptroller was formalizing a 
process and establishing a tracking system to closely monitor actions 
on independent auditor findings and recommendations resulting from 
financial audit readiness testing. Federal internal control standards 
also state that internal control monitoring should assess the quality 
of performance over time and ensure that the findings of audits and 
other reviews are promptly resolved. 

The following examples illustrate long-standing and persistent funds 
control weaknesses in the area of training, supervision, and 
management oversight that we and others have identified in the past. 
As discussed later in this report, DOD has corrective actions under 
way through audit readiness efforts under the FIAR Plan and through 
other efforts related to improving training. 

* In 2012, we reported[Footnote 34] that the training on the Army's 
General Fund Enterprise Business System (GFEBS)[Footnote 35] and the 
Air Force's Defense Enterprise Accounting and Management System 
(DEAMS)[Footnote 36] focused on a systems overview and how the systems 
were supposed to operate. While this was beneficial in identifying how 
GFEBS and DEAMS were different from the existing legacy systems, the 
training focused too much on concepts rather than the skills needed 
for users to perform their day-to-day operations. Without personnel 
with adequate skill sets and training to properly use the new systems, 
DOD staff members will not be positioned to control the use of funds 
for which they are responsible. We made five recommendations to the 
Secretary of Defense to ensure the correction of system problems prior 
to further system deployment, including user training. DOD concurred 
with four and partially concurred with one of the recommendations and 
described its efforts to address them. With regard to the partial 
concurrence, DOD stated that based on the nature of an identified 
system deficiency, it will determine whether to defer system 
implementation until it is corrected. 

* In March 2010, Navy auditors reported that the Navy provided 
insufficient supervision of personnel responsible for documenting 
receipt and acceptance of goods and services and for processing 
invoices. As a result, Navy commands had incomplete documentation with 
which to validate the accuracy of 53 invoices valued at $231,555 for 
19 contracts at three Navy Fleet Readiness Centers.[Footnote 37] 
Without effective supervision to ensure that sufficient documentation 
exists prior to payment, the reliability of Navy invoice payments 
(disbursements) is at risk. In addition, not properly managing the 
invoice process increases the risk of improper or fraudulent payments. 

* In June 2010, Air Force auditors reported on their audit of the Air 
Force's tri-annual review process, stating that the service 
experienced significant recurring difficulties in identifying and 
deobligating unneeded obligation amounts.[Footnote 38] From fiscal 
years 2006 through 2010, Air Force audit reports identified a 42-
percent error rate for periodic review to monitor and adjust 
obligations as required by DOD policy. The DOD Financial Management 
Regulation (FMR) requires component organizations to perform tri-
annual reviews to monitor commitment and obligation transactions for 
timeliness, accuracy, and completeness.[Footnote 39] Specifically, 
reviewers are required to review and determine the validity of 
commitments and obligations that have had no activity (expenditures or 
adjustments) for 120 days and deobligate any unneeded amounts of 
unliquidated obligations. Financial managers are required to implement 
effective internal controls to ensure timely completion of tri-annual 
reviews and any identified corrective actions. However, Air Force 
Audit Agency reviews have reported that the Tri-annual Review Program 
did not identify millions of dollars of unsupported obligations that 
could have been used for other mission requirements.[Footnote 40] 

* In July 2010, the DOD IG reported that the Army mismanaged $110 
million of its Defense Emergency Response Fund (DERF) funding. 
[Footnote 41] According to the DOD IG report, when the Army spent its 
DERF emergency supplemental appropriations for items such as unrelated 
building repairs, furniture, and spare parts, instead of DOD needs 
arising from the terrorist attacks of September 11, 2001, it 
potentially violated the Purpose Statute (appropriations are applied 
to the objects for which they were made) and the Bona Fide Needs Rule 
(appropriations may only be used for needs arising within the period 
of their availability). The DOD IG report stated that the potential 
ADA violations occurred because the Army commands involved did not 
follow DOD policies and procedures to ensure that appropriated funds 
were expended for their intended purposes. The DOD IG made 
recommendations directed at improving related training and monitoring 
activities to ensure compliance with legal requirements and DOD 
policies. 

Transaction controls. Auditors have reported on DOD's inability to 
provide effective funds control and report reliable financial 
information, including budgetary information for many years.[Footnote 
42] DOD's challenges in properly recording and adequately supporting 
its obligations and disbursements have impaired its ability to track 
and control the use of public funds. Standards for Internal Control in 
the Federal Government states that transactions should be promptly 
recorded to maintain their relevance and value to management in 
controlling operations and making decisions.[Footnote 43] All 
transactions and other significant events need to be clearly 
documented, and the documentation should be readily available for 
examination. Federal internal control standards further state that key 
duties and responsibilities need to be divided or segregated among 
different people to reduce the risk of error or fraud. According to 
DOD's FMR, obligations and expenditures are required to be recorded 
accurately and promptly, even if the recording results in a negative 
amount at the appropriation, fund, or other accounting level.[Footnote 
44] However, we, the DOD IG, and military department auditors have 
reported long-standing weaknesses in DOD's controls for proper 
authorization and recording, adequate support, and accurate reporting 
of budgetary transactions. In addition, we and the DOD IG have 
reported that DOD has not been able to locate support for transactions 
in order to satisfy audit requirements. 

The following examples demonstrate the persistent nature of DOD's 
funds control weaknesses related to ineffective transaction controls 
that we and others have identified in the past. As discussed later in 
this report, DOD has corrective actions under way to address its 
transaction control weaknesses, particularly in regard to its audit 
readiness efforts. 

* In March 2012, we reported that the Army was unable to locate 
supporting documentation for a sample of 250 active duty military 
payroll accounts.[Footnote 45] In March 2011, we worked with Army 
Human Resources Command, Army Finance Command, and Defense Finance and 
Accounting Service (DFAS) Indianapolis officials to obtain source 
documents that supported basic pay, allowances (such as allowances for 
housing costs), and entitlements (special pay related to type of duty, 
such as hazardous duty pay). After various offices were unable to 
provide supporting documentation, we suggested that the Army focus on 
the first 20 pay account sample items. When the Army continued to have 
difficulty locating supporting documentation, we suggested that the 
Army focus on the first 5 sample items. As of the end of September 
2011, 6 months after receiving our initial sample request, the Army 
and DFAS were able to provide complete documentation for 2 of our 250 
sample items, partial support for 3 sample items, and no support for 
the remaining 245 sample items. We recommended that the Secretary of 
the Army require personnel and pay-related documents that support 
military payroll transactions to be centrally located, retained in 
each service member's Official Military Personnel File, or otherwise 
readily accessible; and that the Army's Human Resources Command 
periodically review and confirm that service member Official Military 
Personnel File records are consistent and complete to support annual 
financial audit requirements. The Army concurred with our 
recommendations and is taking actions to address them. 

* In December 2011, Navy auditors reported[Footnote 46] that Marine 
Corps authorizing officials approved travel expense disbursements that 
were not supported by receipts or were not allowable under the related 
guidance because Defense Travel System travel administrator functions 
(1) allowed complete access to the system by preparers and reviewers 
of vouchers and (2) were not separated from travel voucher review and 
approval functions, as required by DOD guidance.[Footnote 47] As a 
result, employees received reimbursement for unsupported travel 
expenses of $15,208 and unallowable expenses of $3,385. 

* In January 2010, Army auditors reported significant weaknesses in 
transaction controls over disbursing functions at Multi-National 
Division-South.[Footnote 48] Army auditors reported that 16 out of 62 
voucher packages[Footnote 49] reviewed (26 percent) contained missing 
or inaccurate documentation, such as a certified voucher or invoice, 
contract or deliverables information for the first and the final 
payment, and the name of the government official documenting receipt 
and acceptance of goods and services. Army auditors also found 
inaccurate reporting of dollar values, differences in payee names on 
the voucher and the related supporting documentation, and inaccurate 
paying office and mailing address information. Army auditors concluded 
that the Army did not have (1) adequate controls over its vendor 
payments to ensure that payment authorizations and disbursements were 
accurate and that funds were obligated and available before 
disbursement or (2) reasonable assurance that vendor payments valued 
at over $1.5 million were valid or fully supported. Further, Army 
auditors reported that insufficient controls in high-risk areas leave 
the Army vulnerable to fraud, waste, and misuse and could result in 
duplicate payments, disbursements that are not matched to obligations, 
disbursements that exceed recorded obligations, or possible ADA 
violations. 

Ineffective business systems. DOD spends billions of dollars each year 
to acquire modern systems that it considers fundamental to achieving 
its business transformation goals. In February 2013, we reported that 
while DOD's capability and performance relative to business systems 
modernization has improved, significant challenges remain.[Footnote 
50] The department has not fully defined and established business 
systems modernization management controls, which are vital to ensuring 
that it can effectively and efficiently manage an undertaking with the 
size, complexity, and significance of its business systems 
modernization and minimize the associated risks. We designated this 
area as high risk in 1995 and since then have made about 250 
recommendations aimed at strengthening DOD's institutional approach to 
modernization and reducing the risk associated with key investments. 
While DOD has made progress toward implementing key institutional 
modernization management controls in response to statutory provisions 
and our recommendations, progress has been slow and DOD has been 
limited in its ability to demonstrate results. Further, we, the DOD 
IG, and military department auditors identified business system design 
and development weaknesses affecting funds control, such as 
noncompliance with DOD's Standard Financial Information Structure 
(SFIS),[Footnote 51] Business System Architecture,[Footnote 52] and 
the U.S. Standard General Ledger (USSGL).[Footnote 53] The following 
examples illustrate the scope of DOD's long-standing problems in the 
area based on prior GAO, DOD, and DOD IG findings. DOD is working to 
modernize its financial management systems and related business 
processes, as discussed later. 

* Army Logistics Modernization Program (LMP). In April 2010, we 
reported that the Army's LMP, which is intended to replace aging Army 
systems used to manage inventory and depot repair operations and 
support financial management and reporting, would require at least two 
additional deployments because problems with data quality, training, 
and metrics to measure success of LMP implementation had not been 
resolved.[Footnote 54] We recommended that the Army (1) improve 
testing activities to obtain reasonable assurance that the data used 
by LMP can support the LMP processes, (2) improve training for LMP 
users, and (3) establish performance metrics to enable the Army to 
assess whether the deployment sites are able to use LMP as intended. 
The Army concurred with our recommendations and noted actions under 
way to address them. In November 2010, we reported that the Army had 
implemented data audits and new testing activities to improve data 
accuracy, but data issues that could impede LMP functionality 
persisted.[Footnote 55] For example, we reported that it was unclear 
whether (1) the system would provide all the software functionality 
needed to conduct operations, (2) data maintained in the system were 
sufficiently accurate, and (3) the Army would achieve all the expected 
benefits from its investment in the system. We recommended that within 
90 days of the beginning of its third deployment, the Army 
periodically report to Congress on the progress of LMP, including its 
progress in ensuring that the data used in LMP can support the system, 
timelines for the delivery of software necessary to achieve full 
benefits, and the costs and time frames of its mitigation strategies. 
DOD concurred with our recommendation stating that the Army would 
comply with the reporting timetable and conditions in our 
recommendation. While DOD concurred with our recommendation, as of our 
last update in November 2013, it had not yet provided any such reports 
to Congress.[Footnote 56] 

In May 2012, the DOD IG reported that after spending about $1.8 
billion, Army managers had not accomplished the reengineering needed 
to integrate the LMP procure-to-pay functions[Footnote 57] to comply 
with DOD Business Enterprise Architecture requirements and correct 
material weaknesses.[Footnote 58] According to DOD IG auditors, as of 
August 31, 2011, LMP activities reported more than $10.6 billion in 
abnormal obligated balances.[Footnote 59] In addition, the DOD IG 
reported that (1) LMP did not record the actual invoice numbers from 
the vendors, (2) LMP incorrectly recorded the interface date with the 
pay entitlement system instead of the dates for invoice receipt and 
receipt of goods and services, and (3) its invoice and receiving 
report transaction screens did not identify the corresponding 
disbursement voucher information. Because more than one disbursement 
generally liquidated an obligation, LMP needed to link the various 
invoices and receiving reports to the corresponding disbursement 
vouchers. The absence of actual invoice numbers, accurate dates, and 
disbursement voucher information prevented Army activities from using 
LMP to detect duplicate payments and validate that payments complied 
with the Prompt Payment Act.[Footnote 60] According to DOD's November 
2012 FIAR Plan Status Report, the Army's abnormal obligated balances 
decreased during fiscal year 2012, but disbursements that could not be 
matched to a recorded obligation increased.[Footnote 61] 

* Navy ERP.[Footnote 62] In February 2012, the DOD IG reported that 
the Navy approved deployment of its ERP general ledger system without 
ensuring that it complied with DOD's SFIS and the USSGL.[Footnote 63] 
As a result, the Navy spent $870 million to develop and implement a 
system that may not produce accurate and reliable financial 
information. The DOD IG reported that this is a significant weakness 
because when fully deployed, the system is intended to manage 54 
percent of the Navy's total obligational authority, which was $155.9 
billion for fiscal year 2013. 

* Air Force DEAMS. In September 2012, the DOD IG reported that the Air 
Force's DEAMS lacked critical functional capabilities needed to 
generate accurate and reliable financial management information. 
[Footnote 64] According to the DOD IG, this weakness occurred because 
DEAMS managers did not maintain an adequate general ledger chart of 
accounts, and because DOD and Air Force management initially decided 
not to report financial data directly to the Defense Departmental 
Reporting System (DDRS) for financial reporting purposes until the 
fourth quarter of fiscal year 2016. Further, we recently reported that 
the Air Force did not meet best practices in developing a schedule for 
the DEAMS program.[Footnote 65] This raises questions about the 
credibility of the deadline for acquiring and implementing DEAMS to 
provide needed functionality for financial improvement and audit 
readiness. We recommended that the Air Force update the cost estimate 
as necessary after implementing our prior recommendation to adopt 
scheduling best practices.[Footnote 66] DOD concurred with our 
recommendation. 

Effect of Funds Control Weaknesses on DOD Financial Management 
Operations: 

Fundamental weaknesses in DOD funds control, including related 
business systems weaknesses, significantly impair DOD's ability to 
ensure the (1) proper use of resources, (2) reliability of reports on 
the results of operations, and (3) success of its financial audit 
readiness efforts. For example, billions of dollars in DOD-reported 
improper payments and continuing reports of millions of dollars in ADA 
violations underscore DOD's inability to assure proper use and 
accountability of resources provided to carry out its mission and 
operations. Further, DOD's transaction control weaknesses, including 
unsupported adjustments (plugs) to reconcile DOD fund balances with 
the Department of the Treasury's (Treasury) records, and suspense 
[Footnote 67] transactions that cannot be identified to a fund account 
impair accurate accounting for programs and results of operations. As 
a result, quarterly and annual financial statements, reports on budget 
execution, and reports on the results of operations, which could have 
a material effect on budget, spending, and other management decisions 
as well as determinations of agency compliance with laws and 
regulations, are unreliable. Military auditors also reported that 
these weaknesses leave their departments at risk of fraud and improper 
transactions. 

Additionally, funds control weaknesses continue to hinder DOD's 
ability to achieve its September 2014 SBR audit readiness goal and 
raise questions about DOD's ability to achieve audit readiness on a 
full set of financial statements by the end of fiscal year 2017. 
[Footnote 68] In response to component difficulties in preparing for a 
full SBR audit, the November 2012 FIAR Plan Status Report and the 
March 2013 FIAR Guidance included a revision to narrow the scope of 
initial audits to only current-year budget activity and expenditures 
on a Schedule of Budgetary Activity.[Footnote 69] Under this approach, 
beginning in fiscal year 2015, reporting entities are to undergo an 
examination of their Schedules of Budgetary Activity reflecting the 
amount of SBR balances and associated activity related only to funding 
approved on or after October 1, 2014. As a result, the Schedules of 
Budgetary Activity will exclude unobligated and unexpended amounts 
carried over from prior years' funding as well as information on the 
status and use of such funding in subsequent years (e.g., obligations 
incurred, outlays). These amounts will remain unaudited. Over the 
ensuing years, as the unaudited portion of SBR balances and activity 
related to this funding decline, the audited portion is expected to 
increase. However, the NDAA for Fiscal Year 2010, as amended by the 
NDAA for Fiscal Year 2013, requires that the FIAR Plan describe 
specific actions to be taken and the costs associated with ensuring 
that DOD's SBR is validated as ready for audit by not later than 
September 30, 2014. Because the audit of the Schedule of Budgetary 
Activity is an incremental step building toward an audit-ready SBR, 
the FIAR Plan does not presently comply with this requirement. 
Furthermore, all material amounts reported on the SBR will need to be 
auditable in order to achieve the mandated goal of full financial 
statement audit readiness by September 30, 2017. It is not clear how 
this can be accomplished if activity related to funding provided prior 
to October 1, 2014, remains unaudited. 

Proper Use of Resources: 

DOD does not know the accuracy or validity of billions of dollars it 
spends annually to carry out its mission and operations. For example, 
our work and the work of the DOD IG has shown that DOD does not have a 
valid methodology for estimating its annual improper payments, and it 
does not have assurance that its obligations and expenditures comply 
with applicable law, including the ADA. As a result, management 
decisions are being made using incomplete and unreliable data. The 
following examples from our past work and the past work of others 
illustrate the effect of these weaknesses. 

* We and the DOD IG have reported weaknesses in DOD's payment 
controls, including weaknesses in its process for assessing the risk 
of improper payments and reporting estimates of the magnitude of 
improper payments. In September 2011, we testified that in its Agency 
Financial Report for fiscal year 2010, DOD reported that it made an 
estimated $1 billion in improper payments under five of its programs. 
[Footnote 70] However, this estimate was incomplete because DOD did 
not include estimates from its commercial payment programs, which 
account for approximately one-third of the value of DOD-reported 
payments. In May 2013, we reported that DOD's fiscal year 2011 Agency 
Financial Report included commercial payment programs in its improper 
payment estimates, totaling over $1.1 billion.[Footnote 71] However, 
we found that DOD's improper payment estimates were neither reliable 
nor statistically valid. We also found that DOD did not conduct a risk 
assessment for fiscal year 2011 in accordance with the requirements of 
the Improper Payments Elimination and Recovery Act of 2010 (IPERA). 
[Footnote 72] Further, although DOD had a corrective action plan for 
fiscal year 2011 to address problems with the reliability of its 
improper payment estimates, the plan did not include the required risk 
assessment. We concluded that DOD's lack of a risk assessment made it 
difficult for the department to fully identify underlying reasons or 
root causes of improper payments in order to develop a comprehensive, 
effective corrective action plan. Additionally, DOD did not conduct 
recovery audits nor did it determine that such audits would not be 
cost effective, as required by IPERA. Finally, the department did not 
have procedures to ensure that improper payment and recovery audit 
reporting in its fiscal year 2011 Agency Financial Report was 
complete, accurate, and compliant. 

DOD has taken some actions to reduce improper payments, such as 
reporting a statistical estimate for DFAS commercial payments and 
issuing revised FMR guidance on improper payments and recovery audits. 
[Footnote 73] Further, in addendum A to DOD's Fiscal Year 2013 Agency 
Financial Report, the DOD IG reported that the department had taken 
many corrective actions to improve identification of its improper 
payments; however, more work is needed to improve controls over 
payments processed throughout the department.[Footnote 74] For 
example, the DOD IG reported that improper payments are often the 
result of unreliable data, a lack of adequate internal controls, or 
both, which increases the likelihood of fraud. As a result, DOD 
continues to lack assurance that billions of dollars of annual 
payments are disbursed correctly. The DOD IG also reported that the 
department's inadequate financial systems and controls hamper its 
ability to make proper payments, and that the pace of operations and 
volume of department spending create additional risk of improper 
payments. These challenges have hindered the department's ability to 
detect and recover improper payments. As stated in our May 2013 
report, until the department takes action to correct the deficiencies 
in underlying transaction controls and deficiencies we have found in 
the past related to identifying, estimating, reducing, recovering, and 
reporting improper payments and thereby fulfills legislative 
requirements and implements related guidance, DOD remains at risk of 
continuing to make improper payments and wasting taxpayer funds. We 
made 10 recommendations to improve DOD's processes to identify, 
estimate, reduce, recover, and report on improper payments. DOD 
concurred with 9 and partially concurred with 1 of the recommendations 
and described its plans to address them. 

* Continuing reports of ADA violations underscore DOD's inability to 
assure that obligations and expenditures are properly recorded and do 
not exceed statutory levels of control.[Footnote 75] The ADA requires, 
among other things, that no officer or employee of DOD incur 
obligations or make expenditures in excess of the amounts made 
available by appropriation, by apportionment, or by further 
subdivision according to the agency's funds control regulations. 
According to copies of ADA violation reports sent to GAO, DOD reported 
75 ADA violations from fiscal year 2007 through fiscal year 2012, 
totaling nearly $1.1 billion. We received reports of two additional 
ADA violations in 2013 totaling $148.6 million. However, the number of 
violations and dollar amounts reported may not be complete because of 
weaknesses in DOD's funds control and monitoring processes that may 
not have allowed all violations to be identified or reported. For 
example, DOD IG reports issued in fiscal years 2007 through 2012 (see 
fig. 3) identified $5.5 billion in potential ADA violations that 
required further investigation to determine whether an ADA violation 
had, in fact, occurred, or if adjustments could be made to avoid a 
violation. Further, while DOD's FMR limits the time from 
identification to reporting of ADA violations to 15 months,[Footnote 
76] our analysis identified several examples of time spans for 
investigations of potential ADA violations taking several additional 
months to several years before determinations of actual violations 
were reported. For example, as of September 30, 2013, 3 of the DOD IG-
reported potential violations totaling $713.1 million could not be 
fully corrected and have resulted in $108.8 million in actual, 
reported ADA violations. To the extent that ADA violations are not 
identified, corrected, and reported, DOD management decisions are 
being made based on incomplete and unreliable data. 

Figure 3: Military Service ADA and Other Fiscal Law Violations 
Reported by DOD (Fiscal Year 2007 through Fiscal Year 2012): 

[Refer to PDF for image: stacked horizontal bar graph] 

Year: 2007; 
Army: $126.1 million; 
Navy: $39.79 million; 
Marine Corps: $0; 
Air Force: $3.86 million; 
Other defense agencies: $0; 
Total: $169.8 million. 

Year: 2008; 
Army: $27.19 million; 
Navy: $5.19 million; 
Marine Corps: $4.19 million; 
Air Force: $0.82 million; 
Other defense agencies: $2.65 million; 
Total: $40.0 million. 

Year: 2009; 
Army: $51.13 million; 
Navy: $0; 
Marine Corps: $0; 
Air Force: $0.02 million; 
Other defense agencies: $0; 
Total: $51.2 million. 

Year: 2010; 
Army: $28.17 million; 
Navy: $1.13 million; 
Marine Corps: $0.9 million; 
Air Force: $0.5 million; 
Other defense agencies: $1.92 million; 
Total: $32.6 million. 

Year: 2011; 
Army: $115.43 million; 
Navy: $191.46 million; 
Marine Corps: $8.64 million; 
Air Force: $124.32 million; 
Other defense agencies: $0; 
Total: $439.9 million. 

Year: 2012; 
Army: $220.84 million; 
Navy: $0.1 million; 
Marine Corps: $0; 
Air Force: $33.05 million; 
Other defense agencies: $78.08 million; 
Total: $332.1 million. 

Source: GAO analysis of unaudited DOD-reported Antideficiency Act 
violations. 

[End of figure] 

Our analysis of DOD's reports of ADA violations determined that the 
increases in violations reported in fiscal years 2011 and 2012 relate 
primarily to the military services' use of "bulk" (estimated) amounts 
used to record obligation transactions for permanent change-of-station 
moves and significant increases in bonuses paid from their respective 
Military Personnel appropriations. These violations are specific to 
the ADA with regard to prohibiting federal officers and employees from 
authorizing or making obligations or expenditures in excess of 
available amounts. The use of estimated obligations requires periodic 
monitoring and reconciliation of estimated obligations to the related 
disbursement transactions and the recording of appropriate adjustments 
to the estimated obligations based on actual disbursement amounts; 
however, these ADA violations occurred largely because the military 
services did not have adequate procedures for monitoring and 
reconciling disbursements to bulk obligations. During fiscal year 
2011, the Navy and the Air Force reported violations related to 
permanent change-of-station moves totaling $183 million and $87.5 
million, respectively. In fiscal year 2012, after an extended 
investigation, the Army reported a related violation of $155 million. 
Additionally, the reason for the Army's large spike in fiscal year 
2011 violations related primarily to $100.2 million in transportation 
services that were also recorded using bulk obligations. Our recent 
coordination with the DOD IG and the military departments on the 
status of corrective actions indicated that the military departments 
continue to be at risk of ADA violations related to using estimated 
bulk obligations because they have not yet corrected process 
weaknesses that prevent them from recording transaction-level 
obligations for these activities and estimating methodologies are not 
automatically adjusted for changes in fuel costs and increases in 
other costs, such as insurance. 

Reliability of Reports on Results of Operations and Budget Execution: 

DOD has stated that its major financial decisions are based on 
budgetary data (e.g., the status of funds received, obligated, and 
expended). The department's ability to improve its budgetary 
accounting has historically been hindered by its reliance on 
fundamentally flawed financial management systems and processes and 
transaction control weaknesses. In its November 2013 Agency Financial 
Report, DOD self-reported 16 material weaknesses in financial 
reporting, noting that it has no assurance of the effectiveness of the 
related controls. These weaknesses affect reporting on budgetary 
transactions and balances, including budget authority, fund balance, 
outlays, and categories of transactions, such as civilian pay, 
military pay, and contract payments, among other areas. As a result, 
reports on budget execution and reports on the results of operations 
that could have a material effect on budget, spending, and other 
management decisions are unreliable. 

The following examples illustrate the effect of transaction control 
and system weaknesses on DOD's operational and budgetary reporting. 

* DOD continues to make billions of dollars of unsupported, forced 
adjustments, or "plugs," to reconcile its fund balances with 
Treasury's records. In the federal government, an agency's Fund 
Balance with Treasury (FBWT) accounts are similar in concept to 
corporate bank accounts. The difference is that instead of a cash 
balance, FBWT represents unexpended spending authority in 
appropriation accounts. Similar to bank accounts, the funds in DOD's 
appropriation accounts must be reduced or increased as the department 
spends money or receives collections that it is authorized to retain 
for its own use. For fiscal year 2012, DOD agencies reported making 
$9.2 billion in unsupported reconciling adjustments to agree their 
fund balances with Treasury's records. As shown in table 1, DOD's 
unsupported reconciling adjustments to agree its fund balances to 
Treasury records grew to $9.6 billion in fiscal year 2013. 

Table 1: Reported DOD Adjustments to Reconcile Its Fiscal Year 2013 
Fund Balance to Treasury Records: 

Dollars in billions: 

Fund balances: Fund balance per Treasury; 
Army: $136.4; 
Navy: $144.2; 
Air Force: $103.1; 
Defense agencies: $108.6; 
DOD-wide: $492.3. 

Fund balances: Fund balance per agency; 
Army: $132.4; 
Navy: $142.7; 
Air Force: $101.0; 
Defense agencies: $106.6; 
DOD-wide: $482.7. 

Fund balances: Reconciling adjustment; 
Army: $4.0; 
Navy: $1.5; 
Air Force: $2.1; 
Defense agencies: $2.0; 
DOD-wide: $9.6. 

Source: GAO analysis of unaudited Balance Sheet Fund Balance with 
Treasury data in DOD and military department Agency Financial Reports 
for Fiscal Year 2013. 

Note: Reconciling adjustments are generally reported at the summary 
level as a net amount, or plug. When net amounts are reported, 
collections and adjustments are offset against disbursements. Reporting 
net amounts can significantly understate the magnitude and impact of 
transaction errors. 

[End of table] 

* Over the years, DOD has recorded billions of dollars of disbursement 
and collection transactions in suspense accounts because the proper 
appropriation accounts could not be identified and charged, generally 
because of a coding error. Accordingly, Treasury does not accept DOD 
reporting of suspense transactions, and suspense transactions are not 
included in DOD component FBWT reconciliations. It is important that 
DOD accurately and promptly charge transactions to appropriation 
accounts since these accounts provide the department with legal 
authority to incur and pay obligations for goods and services. Table 2 
shows DOD-reported suspense balances for fiscal years 2010 through 
2012. Reported suspense account balances could be understated because 
of DOD's process for complying with Treasury's rule for clearing 
suspense amounts within 60 days. For example, as we previously 
reported, during our audit of the Navy and Marine Corps FBWT 
reconciliation processes,[Footnote 77] we observed the transfer of 
unresolved suspense disbursement transactions to canceled accounts and 
the transfer of unresolved collection transactions to Miscellaneous 
Receipts of the Treasury without supporting documentation to show the 
adjustments were proper. We also identified subsequent accounting 
entries that moved these transactions back to the suspense accounts. 
When we asked DFAS personnel about this pattern, they explained that 
they transfer transactions from suspense to these accounts to comply 
with Treasury's 60-day rule for clearing (i.e., resolving) them. DFAS 
personnel told us they later transfer the transactions back into 
suspense to restart the clock on the 60-day period for resolving them. 
Consequently, it is not possible to determine the number and 
significance of these unsupported transactions, and DOD does not know 
the balance of budget authority that is truly available in its 
appropriation and fund accounts. Further, this practice runs contrary 
to Treasury's requirements, which is to fully resolve these 
transactions within a reasonable time frame. 

Table 2: DOD Suspense Account Balances for Fiscal Year-End 2010 
through Fiscal Year-End 2013: 

Absolute value, dollars in billions[A]: 

Fiscal year-end: 2013; 
Army: $0.68; 
Navy: $0.73; 
Air Force: $0.56; 
Defense agencies: $0.22; 
Total: $2.19. 

Fiscal year-end: 2012; 
Army: $1.44; 
Navy: $0.59; 
Air Force: $0.57; 
Defense agencies: $0.08; 
Total: $2.68. 

Fiscal year-end: 2011; 
Army: $0.92; 
Navy: $0.65; 
Air Force: $0.52; 
Defense agencies: $0.26; 
Total: $2.35. 

Fiscal year-end: 2010; 
Army: $0.29; 
Navy: $0.48; 
Air Force: $0.42; 
Defense agencies: $0.14; 
Total: $1.33. 

Source: GAO analysis of unaudited DOD-wide data reported by DFAS. 

[A] When absolute amounts are reported, collections and adjustments are 
added to disbursements. 

[End of table] 

Financial Audit Readiness Efforts: 

Funds control weaknesses continue to hinder DOD's ability to achieve 
successful audits of its financial statements and raise questions 
about its ability to achieve the department's goals of validating SBR 
audit readiness by the end of fiscal year 2014 and undergoing an audit 
on a full set of financial statements for fiscal year 2018. The DOD 
Comptroller represented to the DOD IG that DOD's Fiscal Year 2012 and 
Fiscal Year 2013 Consolidated Financial Statements did not 
substantially conform to U.S. generally accepted accounting principles 
(GAAP) and that DOD financial management and business systems that 
report financial data were unable to adequately support material 
amounts on the financial statements as of September 30, 2012, and 
September 30, 2013. Accordingly, the DOD IG reported disclaimers of 
opinion in its efforts to audit DOD's consolidated financial 
statements. DOD's FIAR Plan Status Reports continue to identify 
unqualified or inexperienced personnel and information system control 
weaknesses as significant risks to audit readiness. In addition, 
military department and DOD service-provider efforts have not yet 
resolved continuing transaction control weaknesses related to proper 
recording, adequate supporting documentation, and accurate and timely 
reporting in order to correct material weaknesses that impede DOD's 
audit readiness efforts. As a result, DOD has not yet asserted audit 
readiness for most military department SBR assessable units. 

The following examples illustrate the effect of additional funds 
control and system weaknesses on DOD's financial audit readiness 
efforts that we and others have identified in our previous work. 

* In December 2012, we reported on the status of DOD efforts to 
address audit backlogs needed to close certain aging contracts and 
ensure that DOD deobligates and uses unspent funds before they are 
canceled.[Footnote 78] Contract closeout backlogs also can contribute 
to overstatements in reported contract obligations because of the lack 
of support for obligated amounts that should have been, but were not, 
deobligated. For fiscal years 2007 through 2011, DOD reported 
obligations of more than $1.8 trillion on contracts for acquiring 
goods and services needed to support its mission.[Footnote 79] As of 
the end of fiscal year 2011, DOD reported it had a large backlog of 
contracts--numbering in the hundreds of thousands--that have not been 
closed within the time frames required by federal 
regulations.[Footnote 80] The Defense Contract Audit Agency (DCAA) is 
addressing DOD's contract closeout backlog through an initiative to 
reduce the backlog of incurred cost audits,[Footnote 81] which will 
ultimately allow the Defense Contract Management Agency (DCMA) and 
others to make final adjustments to obligated balances on completed 
contracts and close the contracts.[Footnote 82] In addition, while 
DCMA is attempting to accelerate efforts to close contracts that are 
physically complete, the success of its efforts depends on DCAA's 
ability to complete annual incurred cost audits in a timely manner and 
the reliability of information on contract statuses. We also reported 
that at the local level, seven out of the nine contracting offices we 
spoke with collected some information about their overage contracts, 
such as the total number of contracts in the backlog and the type of 
contracts, but the offices generally were unable to provide us with 
detailed information as to where the contracts were in the closeout 
process, such as the number awaiting a DCAA incurred cost audit. We 
recommended that DCAA develop a plan to assess its incurred cost audit 
initiative and that DCMA improve data on over-age contracts. We also 
recommended that the military departments develop contract closeout 
data and establish performance measures. DOD concurred with the 
recommendations and identified ongoing and planned actions to address 
them. 

* In a series of reports, the DOD IG reported that DOD managers did 
not take the steps needed to ensure that four component ERPs (GFEBS, 
LMP, Navy ERP, and DEAMS) had the capability to record and track 
transaction data.[Footnote 83] Instead of recording transactions in 
the ERPs, such as budget authority, obligations, collections, and 
disbursements (at the time of the related events), DOD managers relied 
on DFAS to record journal vouchers (adjusting entries) in DDRS and 
used other offline electronic processes, such as spreadsheets, to 
record accounting entries in the four ERPs. According to the DOD IG, 
because most funds control accounting is not being managed in the 
accounting and business information systems, DOD continues to build 
its budget execution reports and SBRs using budgetary status data that 
cannot be traced to actual transaction data within any official 
accounting system.[Footnote 84] This weakness impairs the reliability 
of DOD's budgetary reports, including periodic reports to Congress. In 
addition, the DOD IG reported that the lack of effective oversight of 
the development and implementation of system access templates left LMP 
data at risk of unauthorized and fraudulent use. The DOD IG also 
reported the lack of support for feeder system transactions imported 
in Defense Departmental Reporting System-Budgetary that if not 
corrected, will hinder DOD's audit readiness efforts. The DOD IG is 
continuing to monitor DOD's actions to resolve these system weaknesses. 

DOD Has Actions Under Way to Address Many DOD-Wide Funds Control 
Weaknesses, but Effective Implementation Will Be Critical: 

DOD is addressing corrective actions on funds control weaknesses 
through audit readiness efforts under the FIAR Plan and related FIAR 
Guidance, through other efforts mainly related to improving training 
and business system controls, and through efforts to address findings 
in auditor and ADA reports. Many of these actions have not been fully 
implemented so their effectiveness is yet to be determined. Because 
several critical DOD-wide corrective actions to improve financial 
management and address open audit recommendations are targeted for 
completion in 2017, funds control issues are likely to persist during 
this time. The following discussion highlights DOD actions under way 
to address funds control weaknesses related to (1) training, 
supervision, and management oversight; (2) transaction controls; and 
(3) business systems. 

Training, supervision, and management oversight. A key principle for 
effective workforce planning is that an agency needs to define the 
critical skills and competencies that it will require in the future to 
meet its strategic program goals.[Footnote 85] Once an agency has 
identified critical skills and competencies, it can develop strategies 
to address gaps in the number of personnel, needed skills and 
competencies, and deployment of the workforce. FIAR Plan Status 
Reports continue to identify the need for knowledgeable and qualified 
personnel as critical to achieving DOD's financial improvement and 
audit readiness goals. Currently, FIAR training, which focuses on 
audit readiness efforts, and military department financial management 
training are not tied to mission-critical financial management 
competencies, staff experience and proficiency levels, or identified 
skill gaps. 

DOD is addressing financial management workforce competencies and 
training through complementary efforts by (1) the Office of the Under 
Secretary of Defense for Personnel and Readiness (DOD Personnel and 
Readiness) to develop a strategic civilian workforce plan that 
includes financial management,[Footnote 86] pursuant to requirements 
in the NDAA for Fiscal Year 2010, as amended,[Footnote 87] and (2) the 
DOD Comptroller to develop and implement a Financial Management 
Certification Program, pursuant to requirements in the NDAA for Fiscal 
Year 2012.[Footnote 88] Financial management personnel are expected to 
possess the competencies that are relevant to and needed for their 
assigned positions. These competencies include fundamentals of 
accounting, accounting analysis, budget execution, financial 
reporting, and audit planning and management, among others. DOD 
Personnel and Readiness is currently working on a department-wide 
competency assessment tool that will be used by the department, 
including the financial management functional community, to capture 
information related to competencies, such as proficiency level, 
importance, and criticality, and to identify any gaps in support of 
the Comptroller's financial management certification program. 

For example, as of March 2012, the Office of Personnel and Readiness, 
Strategic Human Capital Planning Program Office, had identified 32 
mission-critical occupations, including four financial management 
occupations: accounting, auditing, budget analysis, and financial 
administration. The Program Office currently assesses skills or 
staffing gaps, which relate to unfilled positions by occupation, by 
analyzing the differences between the number of positions by 
occupational series that DOD was authorized to fill and the number of 
occupational positions that are currently filled. DOD is working 
toward completing its gap assessments by 2015. 

In support of the new certification program, the DOD Comptroller has 
identified 23 mission-critical financial management competencies and 
five levels of proficiency for each competency. The new Financial 
Manager Certification Program will require training in three areas: 
(1) selected financial management competencies at the proficiency 
level commensurate with the required certification level for that 
position; (2) leadership competencies as defined by the DOD Leadership 
Continuum;[Footnote 89] and (3) other technical training in key areas, 
such as how to respond to an audit, fiscal law, and ethics. Training 
on fiscal law would cover funds control and ADA requirements. 

The certification program includes three levels of certification 
covering staff, supervisors, and management, with requirements for 
initial hours of training, continuing-education, and experience. (See 
table 3.) While DOD's Certification Program requirements do not 
specify that the recommendations for attaining bachelor's and master's 
degrees are specific to degrees in financial management-related areas, 
the Certification Program is designed to accept college courses in 
financial management as fulfilling certain of the certification 
program course requirements. If effectively implemented, these three 
levels of certification could help address training, supervision, and 
management oversight weaknesses. Employees will have 2 years to 
complete courses, training, and professional development requirements 
for the certification level required for their assigned positions. 
DOD's Financial Manager Certification Program received National 
Association of State Boards of Accounting (NASBA) approval in March 
2013.[Footnote 90] 

Table 3: DOD Financial Management Certification Program Training 
Requirements by Level: 

Certification level: 1 - Staff; 
Course hours: 
Initial course hours: 46; 
Continuing education and training (CET) units: 40 every 2 years; 
Minimum required experience: 2 years DOD financial management; 
Recommended additional experience: None. 

Certification level: 2 - Supervisors; 
Course hours: 
Initial course hours: 71; 
Continuing education and training (CET) units: 60 every 2 years; 
Minimum required experience: 4 years financial management with 2 years 
at DOD; 
Recommended additional experience: One 3-month developmental 
assignment; Work towards bachelor's degree; Complete one DOD-approved 
test-based certification program. 

Certification level: 3 - Management; 
Course hours: 
Initial course hours: 81; 
Continuing education and training (CET) units: 80 every 2 years; 
Minimum required experience: 8 years financial management with 2 years 
at DOD; One 3-month developmental assignment; 
Recommended additional experience: Work towards a master's degree; 
Complete one DOD-approved test-based certification program. 

Source: Office of Under Secretary of Defense (Comptroller), Human 
Capital and Resource Management. 

[End of table] 

The DOD Comptroller initiated the pilot for the certification program 
in July 2012, which was completed at the end of March 2013. Phased 
implementation began in June 2013, and the current target date for 
full implementation is the end of fiscal year 2014. The Certification 
Program is to be mandatory for DOD's approximately 54,000 civilian and 
military financial management personnel. 

Effective implementation of the certification program is critical to 
ensure that financial management personnel obtain the needed skills to 
make effective improvements in financial management, including 
improved funds control and audit readiness as well as appropriate 
supervision and management oversight. 

Transaction controls. DOD officials are addressing transaction control 
weaknesses under the department's FIAR Plan efforts. In December 2011, 
the DOD Comptroller updated the FIAR Guidance to identify key SBR-
related transaction control objectives within military department 
assessable units related to the funds control and budget execution 
processes. These key transaction controls include proper authorization 
and recording, adequate supporting documentation, and accurate 
reporting of obligation and disbursement transactions. DOD components 
are testing these key transaction controls for each assessable unit, 
including civilian pay, military pay, contract pay, and net outlays as 
reflected in FBWT, as a basis for determining whether they can achieve 
audit readiness for the SBR by September 2014.[Footnote 91] Once the 
military departments deem their transaction support and other controls 
to be effective for a particular assessable unit of the SBR, they will 
assert audit readiness for that assessable unit and request an audit 
by an independent public accountant to validate their audit readiness 
assertion. Figure 4 shows the SBR audit readiness milestone dates for 
the military departments and other defense agencies as of the November 
2013 FIAR Plan Status Report. While DOD has made progress toward 
financial audit readiness, milestone dates for the Navy have slipped 
and SBR milestone dates for the Army and the defense agencies have 
been compressed, making it questionable that corrective actions for 
these DOD components will be completed by September 2014 for all 
assessable units. Further, the Air Force has revised its milestone 
dates for achieving SBR audit readiness to the third quarter of fiscal 
year 2015. With a reported $187.8 billion in fiscal year 2013 General 
Fund budgetary resources, the Air Force is material to DOD's SBR and 
if the Air Force cannot meet DOD's September 2014 SBR audit readiness 
goal, DOD will not be able to meet this goal. This, in turn, raises 
concerns about DOD's ability to undergo an audit on a full set of 
financial statements for fiscal year 2018. 

Figure 4: DOD Timeline for Validation of Corrective Actions on 
Transaction Controls by Statement of Budgetary Resources Assessable 
Unit: 

[Refer to PDF for image: timeline] 

Interim SBR audit goal: Q2, FY 2015; 
Financial statements audit goal: Q4, FY 2017. 

Army: 

Contractual Service and Acquisition of Assets: 
November 2010 baseline or when first reported: Q1, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Reimbursables - Inbound (Acceptor): 
November 2010 baseline or when first reported: Q2, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Civilian pay: 
November 2010 baseline or when first reported: Q2, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Military pay: 
November 2010 baseline or when first reported: Q2, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Financial reporting: 
November 2010 baseline or when first reported: Q2, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Fund Balance with Treasury: 
November 2010 baseline or when first reported: Q2, FY 2015; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FY 2014. 

Navy: 

Civilian pay: 
November 2010 baseline or when first reported: Q2, FY 2011; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q1, FY 2013. 

Transportation of people: 
November 2010 baseline or when first reported: Q2, FY 2011; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q1, FY 2013. 

Reimbursable work orders: 
November 2010 baseline or when first reported: Q1, FY 2012; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2014. 

Supply requisition (MILSTRIP): 
November 2010 baseline or when first reported: Q1, FY 2012; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FT 2014. 

Financial statement compilation and reporting: 
November 2010 baseline or when first reported: Q2, FY 2013; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FT 2014. 

Contract and vendor pay: 
November 2010 baseline or when first reported: Q2, FY 2012; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q4, FT 2014. 

Military pay: 
November 2010 baseline or when first reported: Q2, FY 2013; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2014. 

Net Outlays (Fund Balance with Treasury): 
November 2010 baseline or when first reported: Q2, FY 2013; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q3, FY 2014. 

Air Force: 

Civilian pay: 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Military pay: 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Reimbursable budget authority and execution: 
November 2010 baseline or when first reported: Q3, FY 2013; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Net Outlays (Fund Balance with Treasury): 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Contracts (Major): 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Contracts (Minor): 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Supply requisition (MILSTRIP): 
November 2010 baseline or when first reported: Q2, FY 2014; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

Financial reporting: 
November 2010 baseline or when first reported: Q1, FY 2017; 
Change in milestone from DOD's November 2010 Financial Improvement and 
Audit Readiness Plan baseline: Q2, FY 2015. 

MILSTRIP - Military Standard Requisitioning and Issue Procedures. 

Source: GAO analysis of DOD's November 2013 FIAR Plan Status Report. 

[End of figure] 

DOD uses service providers to improve efficiency and standardize 
business operations in various functional areas, including accounting, 
personnel and payroll, logistics, contracting, and system operations 
and hosting support. DOD service providers and their business systems 
are fundamental to reliable accounting and reporting and financial 
audit readiness. The FIAR Guidance[Footnote 92] requires DOD service 
providers, such as DFAS, the Defense Logistics Agency, the Defense 
Information Systems Agency, and DCMA, to obtain an examination of 
their operating controls, including system controls, under Statements 
on Standards for Attestation Engagements (SSAE) No.16, when their 
controls are likely to be relevant to reporting entities' internal 
controls over financial reporting.[Footnote 93] DOD service providers 
plan to use the results of their SSAE No. 16 examinations as a basis 
for improving their operating processes and controls. Figure 5 shows 
the service providers and the operating systems supporting business 
functions that are targeted for SSAE No. 16 examinations under FIAR 
and the related milestone dates for audit readiness assertions and 
their validation. 

Figure 5: Timeline for Validation of Audit Readiness for DOD Service-
Provider Operating System Controls: 

[Refer to PDF for image: timeline] 

Interim SBR audit goal: Q1, FY 2015. 

Civilian pay: 

DCPAS (Includes DCPDS): 
Audit readiness assertion: Q1, FY 2013; 
Validation of audit readiness assertion: Q2, FY 2013. 

DFAS (Includes DCPS, ADS, and ATAAPS): 
Audit readiness assertion: Q1, FY 2013; 
Validation of audit readiness assertion: Q4, FY 2013. 

Military pay: 

DFAS (Includes DJMS and DMO): 
Audit readiness assertion: Q1, FY 2013; 
Validation of audit readiness assertion: Q4, FY 2013. 

Contract pay: 

DCMA (Includes MOCAS and MDO): 
Audit readiness assertion: Q1, FY 2014; 
Validation of audit readiness assertion: Q3, FY 2014. 

DFAS (Includes MOCAS, EAS, APVM, and PPVM): 
Audit readiness assertion: Q1, FY 2014; 
Validation of audit readiness assertion: Q3, FY 2014. 

DLA (Includes WAWF and EDA): 
Audit readiness assertion: Q4, FY 2013; 
Validation of audit readiness assertion: Q4, FY 2014. 

Standard disbursing service: 

DFAS (Includes ADS): 
Audit readiness assertion: Q1, FY 2013; 
Validation of audit readiness assertion: Q3, FY 2013. 

Financial reporting: 

DFAS (Including DDRS): 
Audit readiness assertion: Q4, FY 2013; 
Validation of audit readiness assertion: Q4, FY 2014. 

DOD-wide computing services: 

DISA: 
Audit readiness assertion: [Empty];
Validation of audit readiness assertion: Q3, FY 2012. 

DLA (Includes DAI): 
Audit readiness assertion: Q4, FY 2013; 
Validation of audit readiness assertion: Q4, FY 2014. 

DLA (Includes DAAS/GEX): 
Audit readiness assertion: Q4, FY 2013; 
Validation of audit readiness assertion: Q3, FY 2014. 

DLA (Includes DTS): 
Audit readiness assertion: Q1, FY 2014; 
Validation of audit readiness assertion: Q4, FY 2015. 

Business functions, service providers, and relevant systems: 

Civilian Pay: 

Defense Civilian Personnel Advisory Service (DCPAS): 
* Defense Civilian Personnel Data System (DCPDS). 

DFAS:
* Defense Civilian Pay System (DCPS); 
* Automated Disbursing System (ADS); 
* Automated Time, Attendance, and Production System (ATAAPS). 

Military Pay: 

DFAS:
* Defense Joint Military System (DJMS); 
* Defense Military Pay Office (DMO). 

Contract Pay: 

DCMA:
* Mechanization of Contract Administration Services (MOCAS); 
* Modification/Delivery Order (MDO). 

DFAS:
* Mechanization of Contract Administration Services (MOCAS); 
* Entitlement Accounting System (EAS); 
* Accounting Prevalidation Module (APVM); 
* Pay Prevalidation Module (PPVM). 

DLA:
* Wide Area Work Flow (WAWF); 
* Electronic Document Access (EDA). 

Standard Disbursing Service: 

DFAS:
* Automated Disbursing System (ADS). 

Financial Reporting: 

DFAS:
* Defense Departmental Reporting System (DDRS). 

DOD-Wide Computing Services: 

DISA: 

Note. DISA's hosting services have had SAS 70/SSAE-16 examinations 
since 2005. Received an unqualified opinion in June 2012. 

DLA:
* Defense Agency Initiative (DAI); 
* Defense Activity Addressing System/Global Exchange (DAAS/GEX); 
* Defense Travel System (DTS); 
* Enterprise Fund Distribution (EFD). 

Source: GAO analysis of DOD's November 2013 FIAR Plan Status Report. 

[End of figure] 

In August 2013, we reported that DOD did not have an effective process 
for identifying audit-readiness risks, including risks associated with 
its reliance on service providers for much of its components' 
financial data, and it needed better department-wide documentation 
retention policies. [Footnote 94] Effective service-provider controls 
are critical to ensuring improvements in DOD funds control. 

With regard to corrective actions related to ADA violations associated 
with military personnel appropriations, significant process 
improvements related to proper recording of transactions are needed 
and according to the military departments, the time frame for 
completing corrective actions depends on implementation of their 
respective integrated personnel and payroll systems, referred to by 
DOD as IPPS, for military payroll--in late 2016 and 2017. 

Business systems. In February 2012, we reported that DOD, in an 
attempt to modernize and develop an effective standardized financial 
management process throughout the department, had initiated various 
efforts to implement new ERP financial management systems and 
associated business processes.[Footnote 95] We further reported that 
based upon data provided by DOD, 6 of the 10 ERPs DOD had identified 
as critical to transforming its business operations had experienced 
schedule delays ranging from 2 to 12 years, and 5 had incurred cost 
increases totaling an estimated $6.9 billion. In its Summary of 
Challenges discussed in addendum A to DOD's fiscal year 2013 Agency 
Financial Report, the DOD IG reported that timely and effective 
implementation of the ERPs is critical for DOD to achieve its 
financial improvement efforts and audit readiness goals.[Footnote 96] 
However, the DOD IG reported that not all of the ERP systems will be 
implemented by the department's September 2014 goal for validating 
audit readiness for the SBR or its goal for undergoing an audit on a 
full set of financial statements for fiscal year 2018. Moreover, 
without fully deployed ERPs, the department will be challenged to 
produce reliable financial data and auditable financial statements 
without resorting to extreme efforts, such as data calls or manual 
workarounds, to provide financial data on a recurring basis. The DOD 
IG also reported that the department has not reengineered its business 
processes to the extent necessary; instead, it has often customized 
commercial ERPs to accommodate existing processes, creating the need 
for system interfaces and weakening controls built into the ERP 
systems. 

In the March 2013 FIAR Guidance, DOD reported that material internal 
control weaknesses were classified in DOD's Agency Financial Report by 
the financial statement line item or type of activity affected by the 
weakness. DOD's fiscal year 2013 Agency Financial Report lists 16 
material weaknesses over financial reporting and relates these 
weaknesses to ERP systems and end-to-end business processes.[Footnote 
97] DOD reported one overall material weakness related to financial 
systems. Together, these 17 material weaknesses impact military pay, 
civilian pay, FBWT, contracts, and military supply requisitions. We 
and the DOD IG have reported that DOD component ERPs lack the 
functionality needed to support reliable financial reporting, 
including accurate and complete USSGL and DOD-wide SFIS information 
and data requirements and the ability to record budgetary data at the 
transaction level. DOD has stated that several of the department's 
ERPs have been or will be implemented to support the 2018 financial 
statement audit goal. However, in its summary of management and 
performance challenges included in DOD's fiscal year 2012 Agency 
Financial Report, the DOD IG stated that because of schedule delays 
ranging up to 13 years, DOD will continue using outdated legacy 
systems and poorly developed and implemented ERP systems, increasing 
the risks that (1) the SBR will not be audit ready by September 30, 
2014, and (2) DOD may not be able to produce reliable financial data 
and auditable financial statements without resorting to "heroic 
efforts, such as data calls and manual workarounds." In DOD's fiscal 
year 2013 Agency Financial Report, the DOD IG reiterated this concern 
and noted that the department has not reengineered its business 
processes to the extent necessary, stating that instead it has often 
customized commercial ERPs to accommodate existing processes. 

In addition, the FIAR Plan requires the military departments and DOD 
service providers to use GAO's Federal Information System Controls 
Audit Manual (FISCAM) reviews to test business system general and 
application controls for material systems, including general ledger 
accounting systems and selected feeder systems, as part of their audit 
readiness efforts.[Footnote 98] FISCAM provides a methodology for 
performing information system control audits of federal and other 
governmental entities in accordance with professional standards. 
FISCAM focuses on evaluating the effectiveness of general[Footnote 99] 
and application controls.[Footnote 100] The November 2013 FIAR 
Guidance provides a detailed description of DOD's audit readiness 
requirements related to financial system controls. The Guidance states 
that the FIAR Directorate has identified the FISCAM control activities 
and techniques needed to address the key internal controls over 
financial management reporting risk and includes a link to them. The 
Guidance further states that DOD reporting entities have ultimate 
responsibility for information technology controls for those systems 
through which their transactions flow and will need to communicate and 
coordinate audit readiness efforts with service providers. The shared 
understanding between the reporting entity and the service provider is 
required to be documented in a service-level agreement or memorandum 
of understanding. According to DOD's November 2013 FIAR Plan Status 
Report, the military departments plan to complete their FISCAM general 
and application control tests as follows: 

* The Army plans to achieve relevant FISCAM general and application-
level control objectives for material systems supporting its SBR 
assessable units, including GFEBS, by June 2014. 

* The Navy planned to complete relevant FISCAM general and application 
control objectives for Navy ERP in February 2014 and plans to achieve 
a relevant review or perform a self-assessment of material legacy 
systems and selected feeder systems by September 2014. 

* The Air Force plans to achieve relevant FISCAM general and 
application control objectives for material systems supporting its SBR 
between November 2012 and June 2014. Air Force audit readiness efforts 
will rely on manual controls and legacy system improvements because 
its ERP general ledger system--DEAMS--will not be fully deployed until 
sometime after 2017. 

Concluding Observations: 

DOD has committed significant resources to improving funds controls 
for achieving sound financial management operations and audit 
readiness. While DOD expects that these improvements, once realized, 
will also strengthen the department's controls in support of proper 
use of resources, reliable reporting on the results of operations and 
budget execution, and financial audit readiness, the department 
continues to face pervasive, long-standing internal control and 
business system challenges that not only impair its control over funds 
entrusted to it, but also pose continuing challenges to achieving 
reliable financial reporting. DOD leadership remains committed to 
achieving financial accountability and reliable information for day-to-
day management decision making as well as financial audit readiness. 
However, corrective actions are not expected to be completed for 
several years on long-standing funds control weaknesses related to (1) 
training, supervision, and management oversight; (2) proper 
authorization, recording, documenting, and reporting of budgetary 
transactions; and (3) business systems controls. As a result, these 
weaknesses will continue to adversely affect DOD's ability to achieve 
its goals for effective funds controls, including reductions in ADA 
violations, financial accountability, and reliable financial 
reporting. In addition, to the extent that DOD and its components 
continue to rely on data calls or manual work-arounds to achieve 
auditability of the SBR and other financial statements, it is unlikely 
that DOD will be able to produce consistent, reliable, and sustainable 
financial information for day-to-day decision making. 

Agency Comments: 

We received written comments on a draft of this report from DOD's 
Deputy Chief Financial Officer (CFO) on April 14, 2014, stating that 
the department appreciates our review of past reports as the 
identified deficiencies have informed DOD's current corrective 
actions. The Deputy CFO expressed the department's commitment to 
building a stronger business environment with regard to people, 
processes, and systems and noted progress in each of the three 
weakness areas discussed in this report, including (1) enrollment of 
22,300 financial managers in the new DOD Financial Management 
Certification Program; (2) audit readiness assertions within several 
organizations, supported in part by transaction control testing; and 
(3) ongoing efforts to review financial and financial feeder systems 
for data reliability. Effective implementation of outstanding 
recommendations from past reports will better position the department 
to minimize the occurrence of ADA violations. DOD's comments are 
reprinted in appendix III. 

We are sending copies of this report to the Chairmen and Ranking 
Members of the Senate Committee on Armed Services, the Senate 
Committee on Appropriations, the House Committee on Oversight and 
Government Reform, the House Committee on Armed Services, and the 
House Committee on Appropriations. We also are sending copies to the 
Secretary of Defense; the Under Secretary of Defense (Acquisition, 
Technology and Logistics); the Under Secretary of Defense (Personnel 
and Readiness); the Under Secretary of Defense (Comptroller) and Chief 
Financial Officer; the Deputy Chief Financial Officer; the Director 
for Financial Improvement and Audit Readiness; the FIAR Governance 
Board; the Assistant Secretaries (Financial Management and 
Comptroller) of the Army, the Navy, and the Air Force; the Commandant 
of the Marine Corps; the Director of the Defense Finance and 
Accounting Service; the Director of the Office of Management and 
Budget; and other interested parties. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees, Secretary of Defense, and other 
interested parties. In addition, the report will be available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-9869 or khana@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff members who made key 
contributions to this report are listed in appendix IV. 

Signed by: 

Asif A. Khan: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the extent of long-standing funds control weaknesses, we 
analyzed 333 audit and financial reports on the Department of 
Defense's (DOD) financial management operations issued over the last 7 
years--including 190 DOD audit reports, 30 GAO reports, 36 DOD 
financial reports, and 77 DOD reports of Antideficiency Act (ADA) 
violations provided to GAO and identified over 1,000 funds control 
weaknesses. Our reports and DOD Inspector General (IG) reports covered 
fiscal years 2007 through 2012 and the military department audit 
reports covered fiscal years 2010 through the first half of fiscal 
year 2012. We assessed the DOD IG's audit quality assurance procedures 
for assuring the reliability of data and findings presented in auditor 
reports.[Footnote 101] We also reviewed the military departments' 
January 2012 Annual Evaluations of Funds Control Processes and 
Processing of ADA Violations and their Annual Financial Reports and 
Statements of Assurance for fiscal years 2011 and 2012. In addition, 
we reviewed all DOD reports of ADA violations sent to GAO in fiscal 
years 2007 through 2013. (See table 4.) To determine whether reported 
weaknesses continued, we reviewed fiscal year 2013 reports of ADA 
violations sent to GAO and DOD IG reports of potential ADA violations; 
recent auditor reports; DOD financial management reports, including 
DOD and military department Agency Financial Reports; 2013 Financial 
Improvement and Audit Readiness (FIAR) Plan Status Reports; and FIAR 
Guidance. While these documents are included in the 333 reports of 
funds control weaknesses, the related findings are not included in the 
1,006 weaknesses identified through fiscal year 2012. 

Table 4: Number, Type, and Time Frame of GAO, Department of Defense, 
Defense Inspector General, and Military Service Reports Reviewed: 

Agency: GAO; 
Number of reports: 30; 
Type of report: GAO products related to DOD budgetary funds control; 
Time frame: Fiscal years 2007 through 2012. 

Agency: DOD Comptroller; 
Number of reports: 75; 
Type of report: Reports of ADA violations; 
Time frame: Fiscal years 2007 through 2012. 

Number of reports: 1; 
Type of report: Reports of ADA violations; 
Time frame: Fiscal year 2013. 

Agency: DOD Comptroller; 
Number of reports: 3; 
Type of report: Statement of Assurance; 
Time frame: Fiscal years 2011 through 2013. 

Agency: DOD Comptroller; 
Number of reports: 3; 
Type of report: Agency Financial Report; 
Time frame: Fiscal years 2011 through 2013. 

Agency: DOD Comptroller; 
Number of reports: 7; 
Type of report: DOD Financial Improvement and Audit Readiness Plans 
and Status Reports; 
Time frame: November 2010 through November 2013. 

Agency: DOD IG; 
Number of reports: 57; 
Type of report: Audits that identified potential ADA violations; 
Time frame: Fiscal years 2007 through 2012. 

Agency: DOD IG; 
Number of reports: 29; 
Type of report: Audit reports on budgetary fund controls; 
Time frame: Fiscal years 2010 through 2012. 

Agency: Military departments; 
Number of reports: 9; 
Type of report: Statements of Assurance; 
Time frame: Fiscal years 2011 through 2013. 

Agency: Military departments; 
Number of reports: 9; 
Type of report: Agency Financial Report; 
Time frame: Fiscal years 2011 through 2013. 

Agency: Military departments; 
Number of reports: 5; 
Type of report: Annual evaluations of funds control processes[A]; 
Time frame: January 2011 and 2012. 

Agency: Army Audit Agency; 
Number of reports: 22; 
Type of report: Audit reports on budgetary fund controls; 
Time frame: Fiscal year 2010 through March 2012. 

Agency: Naval Audit Service - Navy; 
Number of reports: 38; 
Type of report: Audit reports on budgetary fund controls; 
Time frame: Fiscal year 2010 through March 2012. 

Agency: Naval Audit Service - Marine Corps; 
Number of reports: 6; 
Type of report: Audit reports on budgetary fund controls; 
Time frame: Fiscal year 2010 through March 2012. 

Agency: Air Force Audit Agency; 
Number of reports: 38; 
Type of report: Audit reports on budgetary fund controls; 
Time frame: Fiscal year 2010 through March 2012. 

Agency: Total reports; 
Number of reports: 333. 

Source: GAO analysis. 

[A] The Army did not provide its January 2011 report. 

[End of table] 

To determine the effect of reported weaknesses, we considered problems 
associated with (1) proper use of resources; (2) accurate accounting 
and support for transactions (primarily obligations and disbursements) 
with regard to reports on program and project statuses, results of 
operations, and budget execution; and (3) financial audit readiness. 
We also reviewed DOD reports of ADA violations reported in fiscal 
years 2007 through 2012 to identify DOD's reported causes of the 
violations and the corrective actions noted in these reports.[Footnote 
102] To frame our discussion of identified funds control weaknesses 
and DOD-reported corrective actions, we grouped the identified 
weaknesses into three categories that are consistent with those 
identified in DOD and GAO reports. Many of the reports on funds 
control weaknesses identified more than one weakness. The three 
categories relate to the following areas: 

(1) Inadequate training, supervision, and management oversight. 
Supervision is day-to-day guidance by a supervisor and management 
oversight involves assuring adequate supervisory guidance and training 
as well as overall monitoring of the subject matter area. 

(2) Ineffective transaction controls. These controls cover proper 
authorization and recording of budgetary transactions, such as 
obligations and disbursements (outlays); maintaining adequate 
supporting documentation for the transactions; and proper and timely 
reporting of transactions and related summaries and financial reports. 

(3) Ineffective business systems. This category refers to business 
systems that do not have effective controls for recording, supporting, 
and reporting financial transactions, including budgetary 
transactions, and therefore, do not provide adequate controls over 
financial reporting on the results of operations and do not assure 
compliance with laws and regulations. 

To determine the status of DOD's corrective actions to address 
identified funds control weaknesses, we reviewed corrective action 
statuses in response to mandates in National Defense Authorization 
Acts related to financial management competencies, skill gaps, and 
training; corrective actions on transaction-level accounting and 
financial reporting under DOD's FIAR Plan; the status of actions to 
address business system weaknesses; and actions to address DOD ADA 
violations and DOD IG and military department audit recommendations. 
We met with DOD IG and military department audit officials to obtain 
information on open audit recommendations and discuss recurring 
findings of funds control weaknesses and their effect on reliable 
financial reporting. In addition, we met with DOD and military 
department financial managers and audit readiness officials to discuss 
their efforts to resolve findings of funds control weaknesses, 
including material weaknesses related to financial reporting disclosed 
in DOD annual Agency Financial Reports, as well as how funds control 
is being addressed in Statement of Budgetary Resources audit readiness 
initiatives and the status of those initiatives.[Footnote 103] We 
analyzed DOD's FIAR Plan Status Reports and FIAR Guidance and military 
department audit readiness plans from November 2010 through November 
2013 to identify and evaluate audit readiness efforts related to funds 
control. Based on our review of DOD's audit quality procedures and our 
comparison of auditor reports and DOD disclosures of financial 
management weaknesses, we determined the reported data and information 
to be reliable for the purposes of our work. 

[End of section] 

Appendix II: Details of Reported DOD Funds Control Weaknesses by 
Category: 

As shown in figure 6, we identified over 1,000 separately reported 
funds control weaknesses. We noted but did not count Department of 
Defense (DOD) financial management reports that discussed weaknesses 
identified in audit reports. We grouped funds control weaknesses 
identified in our reports analysis into three categories: (1) 
inadequate training, supervision, and management oversight; (2) 
ineffective transaction controls; and (3) inadequate business systems. 
These categories are consistent with those identified in DOD and GAO 
reports. 

Figure 6: Reported DOD Funds Control Weaknesses by Major Category, 
Nature of Finding, and Reporting Agency: 

[Refer to PDF for image: horizontal bar graph and illustrated table] 

[Refer to PDF for image: horizontal bar graph] 

Training, supervision, and oversight: [A]
Number of weaknesses: 282. 

Transaction controls: [B]
Number of weaknesses: 658. 

Business system controls: [C] 
Number of weaknesses: 66. 

(1) Inadequate training, supervision, and management oversight: 

Federal control weaknesses: Inadequate training in fiscal law or 
budgetary regulations; 
DOD Antideficiency Act (ADA) violation reports: 36; 
DOD Inspector General potential ADA violation reports: 7; 
DOD Inspector General audit reports: 2; 
GAO audit reports: 10; 
Military department audit reports: 
Army: 7; 
Air Force: 10; 
Navy: 7; 
Subtotal: 24; 
Total: 79. 

Federal control weaknesses: Inadequate supervision, monitoring, and 
oversight; 
DOD Antideficiency Act (ADA) violation reports: 16; 
DOD Inspector General potential ADA violation reports: 92; 
DOD Inspector General audit reports: 23; 
GAO audit reports: 18; 
Military department audit reports: 
Army: 13; 
Air Force: 22; 
Navy: 19; 
Subtotal: 54; 
Total: 203. 

Federal control weaknesses: Subtotal; 
DOD Antideficiency Act (ADA) violation reports: 52; 
DOD Inspector General potential ADA violation reports: 99; 
DOD Inspector General audit reports: 25; 
GAO audit reports: 28; 
Military department audit reports: 
Army: 20; 
Air Force: 32; 
Navy: 26; 
Subtotal: 78; 
Total: 282[A]. 

(2) Inadequate transaction controls: 

Federal control weaknesses: Inadequate policies and procedures for 
budgetary Inadequate policies and accounting; 
DOD Antideficiency Act (ADA) violation reports: 53; 
DOD Inspector General potential ADA violation reports: 48; 
DOD Inspector General audit reports: 40; 
GAO audit reports: 22; 
Military department audit reports: 
Army: 8; 
Air Force: 29; 
Navy: 9; 
Subtotal: 46; 
Total: 209. 

Federal control weaknesses: Improper authorization and approval of 
transactions; 
DOD Antideficiency Act (ADA) violation reports: 19; 
DOD Inspector General potential ADA violation reports: 44; 
DOD Inspector General audit reports: 5; 
GAO audit reports: 2; 
Military department audit reports: 
Army: 3; 
Air Force: 2; 
Navy: 15; 
Subtotal: 20; 
Total: 90. 

Federal control weaknesses: Improper recording of transactions; 
DOD Antideficiency Act (ADA) violation reports: 9; 
DOD Inspector General potential ADA violation reports: 54; 
DOD Inspector General audit reports: 42; 
GAO audit reports: 29; 
Military department audit reports: 
Army: 19; 
Air Force: 3; 
Navy: 20; 
Subtotal: 42; 
Total: 176. 

Federal control weaknesses: Inadequate supporting documentation; 
DOD Antideficiency Act (ADA) violation reports: 0; 
DOD Inspector General potential ADA violation reports: 69; 
DOD Inspector General audit reports: 30; 
GAO audit reports: 20; 
Military department audit reports: 
Army: 11; 
Air Force: 16; 
Navy: 37; 
Subtotal: 64; 
Total: 183. 

Federal control weaknesses: Subtotal; 
DOD Antideficiency Act (ADA) violation reports: 81; 
DOD Inspector General potential ADA violation reports: 215; 
DOD Inspector General audit reports: 117; 
GAO audit reports: 73; 
Military department audit reports: 
Army: 41; 
Air Force: 50; 
Navy: 81; 
Subtotal: 172; 
Total: 658[B]. 

(3) Ineffective business systems: 

Federal control weaknesses: Noncompliance with Federal Financial 
Management Improvement Act; 
DOD Antideficiency Act (ADA) violation reports: 4; 
DOD Inspector General potential ADA violation reports: 4; 
DOD Inspector General audit reports: 26; 
GAO audit reports: 15; 
Military department audit reports: 
Army: 3; 
Air Force: 11; 
Navy: 3; 
Subtotal: 17; 
Total: 66[C]. 

Federal control weaknesses: Total: 
DOD Antideficiency Act (ADA) violation reports: 137; 
DOD Inspector General potential ADA violation reports: 318; 
DOD Inspector General audit reports: 168; 
GAO audit reports: 116; 
Military department audit reports: 
Army: 64; 
Air Force: 93; 
Navy: 110; 
Subtotal: 267; 
Total: 1,006. 

Source: GAO analysis. 

[End of figure] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office of The Under Secretary Of Defense: 
Comptroller: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

April 14, 2014: 

Mr. Asif Khan: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Khan, 

We have reviewed your report, GAO-14-94, "Actions Under Way Need to be 
Successfully Completed to Address Long-standing Funds Control 
Weaknesses." While it recommends no new actions, our commitment to 
building a stronger business environment via our people, processes, 
and systems remains paramount. As you point out, we have actions 
underway to comprehensively address funds control weaknesses. They are 
producing results, specifically: 

* The newly implemented 000 Financial Management Certification Program 
has already enrolled 22,300 financial managers and certified over 30. 
The program's framework includes regular training in fiscal law and 
audit fundamentals. 

* We have begun broadly asserting audit readiness within several 
organizations, supported in part by transaction control testing. To 
date, 22 percent of our budgetary resources have an audit opinion or 
are asserted as audit-ready. Many spending streams have received a 
review under an examination by an independent public accounting firm. 

* We are reviewing financial and financial feeder systems for reliance 
under financial audit conditions, to include Enterprise Resource 
Planning and legacy systems. Several key service provider systems have 
a positive assessment under Statements on Standards for Attestation 
Engagements Number 16 criteria. 

Other outcomes associated with these improvement efforts include the 
incidence of Antideficiency Act violations (the most serious potential 
risk), which remains very small compared to the size of DoD's budget 
authority. Further, we have dramatically reduced the number of 
overaged cases, ending Fiscal Year 2013 with only one case. We 
appreciate your team's review of past reports, as past deficiencies 
continue to inform our current corrective actions. We particularly 
appreciate your acknowledgment that our ongoing initiatives are
targeting the right areas. 

Sincerely, 

Signed by: 

Mark E. Easton: 
Deputy Chief Financial Officer: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Asif A. Khan, (202) 512-9869 or khana@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Gayle L. Fischer (Assistant 
Director), Lisa Brownson, Francine DelVecchio, Maxine Hattery, Donald 
D. Holzinger, Jason Kelly, Jason Kirwan, Gregory Marchand (Assistant 
General Counsel), Sheila D. M. Miller, Marc Molino, Heather Rasmussen, 
and Robert Sharpe made key contributions to this report. 

[End of section] 

Footnotes: 

[1] DOD excludes from its business systems those designated as 
national security systems under section 2222(j) of Title 10, United 
States Code. National security systems are information systems where 
the function, operation, or use involves intelligence activities, 
cryptologic (secure communication) activities related to national 
security, command and control of military forces, equipment that is an 
integral part of a weapon or weapon system or is critical to the 
direct fulfillment of military or intelligence missions (unless used 
for routine administrative and business applications), or is protected 
at all times by classification procedures in the interest of national 
defense or foreign relations, as authorized by law or executive order. 

[2] GAO, DOD Financial Management: Weaknesses in Controls over the Use 
of Public Funds and Related Improper Payments, [hyperlink, 
http://www.gao.gov/products/GAO-11-950T] (Washington, D.C.: Sept. 22, 
2011). 

[3] 31 U.S.C. §§ 1341-42, 1349-52, 1511-19. Budgetary resources are 
amounts available to enter into new obligations and to liquidate them. 
Budgetary resources are made up of new budget authority (including 
direct spending authority provided in existing statute and obligation 
limitations) and unobligated balances of budgetary resources provided 
in previous years. 

[4] 31 U.S.C. § 1514(a). DOD's regulations carrying out this 
requirement are in the DOD Financial Management Regulation (FMR), 
7000.14R, vol. 14, ch. 1, "Administrative Control of Funds" (January 
2009). DOD's FMR is issued under the authority of DOD Instruction 
7000.14, Department of Defense Financial Management Policy and 
Procedures (rev. Sept. 17, 2008). The DOD FMR directs statutory and 
regulatory financial management requirements, systems, and functions 
for all appropriated and nonappropriated working capital, revolving, 
and trust fund activities. 

[5] Office of Management and Budget, Preparation, Submission, and 
Execution of the Budget, Circular No. A-11, Section150.1 (Aug. 3, 
2012). 

[6] Because DOD does not have appropriate cost accounting systems, it 
uses obligation and expenditure data to calculate costs. The 
reliability of this information is impaired not only because 
obligation data do not represent costs, but also because DOD 
obligation data are unreliable. 

[7] Pub. L. No.111-84, §1003(a)(2) (Oct. 28, 2009). 

[8] DOD defines an assessable unit as any part of the financial 
statements, such as a line item or a class of assets, a class of 
transactions, or a process or a system that helps produce the 
financial statements. 

[9] DOD has three military departments: the Department of the Army, 
Department of the Navy, and Department of the Air Force. The 
Department of the Navy includes two military services: the Navy and 
the Marine Corps. Accordingly, the Naval Audit Service performs audits 
of both the Navy and the Marine Corps. 

[10] 31 U.S.C. § 3512(c), (d). 

[11] DOD's Agency Financial Reports provide an overview of the 
department's financial information and performance goals and 
objectives. Additional information, such as the department's reporting 
on improper payments, is in addendum A of the financial reports. 

[12] An ERP system is an automated system using commercial off-the-
shelf software consisting of multiple, integrated functional modules 
that perform a variety of business-related tasks, such as general 
ledger accounting, payroll, and supply chain management. 

[13] A material weakness is a deficiency, or combination of 
deficiencies, in internal control such that there is a reasonable 
possibility that a material misstatement of the entity's financial 
statements will not be prevented, or detected and corrected, on a 
timely basis. A deficiency in internal control exists when the design 
or operation of a control does not allow management or employees, in 
the normal course of performing their assigned functions, to prevent, 
or detect and correct, misstatements on a timely basis. 

[14] Department of Defense, DOD Audit Manual, Manual 7600.07-M, enc. 
11 (Feb. 13, 2009). 

[15] Budget authority is authority provided by federal law to enter 
into financial obligations that will result in immediate or future 
outlays involving federal government funds. The basic forms of budget 
authority include (1) appropriations, (2) borrowing authority, (3) 
contract authority, and (4) authority to obligate and expend 
offsetting receipts and collections. "Discretionary" refers to the 
level of budget authority (other than those which fund mandatory 
programs) that is provided in and controlled by appropriation acts. 

[16] Pub. L. No. 81-784, § 113, 64 Stat. 832, 836 (Sept. 12, 1950), 
codified as amended at 31 U.S.C. § 3512(b). 

[17] 31 U.S.C. § 3512(c)(1)(A)-(C). 

[18] The concept of reasonable assurance recognizes that no matter how 
well-designed and well-operated, internal control cannot provide 
absolute assurance that an entity's objectives will be met. Management 
should design and implement internal control based on the related 
costs and benefits. 

[19] Budgetary accounting rules are incorporated into generally 
accepted accounting principles (GAAP) for the federal government. For 
additional information on the two methods of tracking the use of 
public funds, see app. III to GAO, A Glossary of Terms Used in the 
Federal Budget Process, [hyperlink, 
http://www.gao.gov/products/GAO-05-734SP] (Washington, D.C.: September 
2005). 

[20] 31 U.S.C. § 1501(a) (establishes the basic rules for when to 
record an obligation). 

[21] 31 U.S.C. § 3302(b) (absent statutory authority to do otherwise, 
any funds received by an agency must be deposited in the general fund 
of the Treasury). 

[22] 31 U.S.C § 1301(a) (appropriations shall be applied only to the 
objects for which the appropriations were made, except as otherwise 
provided by law). 

[23] 31 U.S.C. § 1502(a) (in general, appropriations may only be used 
for needs arising within the period of their availability for 
obligation). 

[24] 31 U.S.C. §§ 3321-36. 

[25] 31 U.S.C. §§ 1551-58. 

[26] 41 U.S.C. § 6301 (in general, bars any contract or purchase on 
behalf of the government unless it is authorized by law or is under an 
appropriation adequate to its fulfillment). 

[27] 10 U.S.C. § 2222. 

[28] An apportionment is a plan, approved by OMB for executive branch 
agencies, to spend budgetary resources provided by one of the annual 
appropriation acts, a supplemental appropriations act, a continuing 
resolution, or a permanent law. The apportionment identifies amounts 
available for obligation and expenditure and specifies and limits the 
time periods, programs, activities, projects, objects, or any 
combination thereof. A reapportionment is a revision of a previous 
apportionment of budgetary resources for an appropriation or fund 
account. Agencies usually submit requests for reapportionment to OMB 
as soon as a change becomes necessary because of changes in amounts 
available, program requirements, or cost factors. 

[29] An appropriation is a basic form of budget authority to incur 
obligations and to make payments from the Treasury for specific 
purposes. Appropriations do not represent cash actually set aside in 
the Treasury. Instead, they represent amounts that agencies may 
obligate during the period of time specified in the respective 
appropriation acts. A fund is a group of accounts, other than trust 
funds, that are designated to collect and disburse moneys for a 
specific purpose. Federal funds include general funds (accounts 
holding money not allocated by law to any other fund account), special 
funds (accounts earmarked by law for a specific purpose), public 
enterprise funds (accounts for business-type activity transactions), 
and intergovernmental funds (which facilitate financing transactions 
primarily within and between federal agencies). A trust fund is a type 
of account, designated by law, for accounting for receipts and 
expenditures of receipts dedicated to specific purposes. The Federal 
Highways Trust Fund is an example. 

[30] An allotment is an authorization by an agency head or another 
authorized employee to subordinates to incur obligations within a 
specified amount. The amount allotted by an agency cannot exceed the 
amount apportioned by OMB. 

[31] Pub. L. No. 104-208, div. A, title VIII, § 803, 110 Stat. 3009, 
3009-390 (Sept. 30, 1996). DOD's financial management systems are 
required by FFMIA to comply with federal financial management systems 
requirements, applicable federal accounting standards, and the U.S. 
Government Standard General Ledger at the transaction level. 

[32] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[33] Pub. L. No. 112-81, § 1051 (Dec. 31, 2011), codified at 10 U.S.C. 
§ 1599d. 

[34] GAO, DOD Financial Management: Implementation Weaknesses in Army 
and Air Force Business Systems Could Jeopardize DOD's Auditability 
Goals, [hyperlink, http://www.gao.gov/products/GAO-12-134] 
(Washington, D.C.: Feb. 28, 2012). 

[35] GFEBS, initiated by the Army in October 2004, is intended to 
support the Army's standardized financial management and accounting 
practices for the Army's general fund, with the exception of the Army 
Corps of Engineers, which will continue to use its existing financial 
system, the Corps of Engineers Financial Management System. The Army 
estimates that when fully implemented, GFEBS will be used to control 
and account for about $140 billion in annual spending. An agency's 
general fund accounts are those accounts in the Treasury holding all 
federal money administered by an agency that is not allocated by law 
to any other fund account. 

[36] DEAMS was initiated in August 2003 and is intended to provide the 
Air Force with the entire spectrum of financial management 
capabilities, including collections, commitments and obligations, cost 
accounting, general ledger, funds control, receipts and acceptance, 
accounts payable and disbursement, billing, and financial reporting 
for the general fund. According to Air Force officials, when DEAMS is 
fully operational, it is expected to maintain control and 
accountability for about $160 billion in annual spending. 

[37] Naval Audit Service, Invoice Management at Fleet Readiness 
Centers, N2010-0015 (Washington, D.C.: Mar. 10, 2010). 

[38] Deobligating refers to the process of adjusting unneeded 
obligations by decreasing or eliminating amounts previously obligated 
to the extent that obligated amounts are not needed to cover 
expenditures. 

[39] DOD, FMR, vol. 3, ch. 8, "Standards for Recording and Reviewing 
Commitments and Obligations," § 0804 (September 2009). DOD's FMR 
defines the tri-annual review process as an internal control practice 
used to assess whether commitments and obligations recorded are bona 
fide needs of the appropriations charged. 

[40] Air Force Audit Agency, Tri-annual Review Program Implementation, 
F2010-0008-FB3000 (Washington, D.C.: June 29, 2010), and Air National 
Guard Tri-annual Review Process, F2010-0007-FB3000 (Washington, D.C.: 
Apr. 6, 2010). 

[41] Department of Defense Inspector General, Management of Emergency 
Supplemental Appropriations at Selected Department of the Army 
Commands in Response to the Terrorist Attacks, D-2010-072 (Arlington, 
VA: July 12, 2010). 

[42] For example, see GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011), and Department of Defense Inspector General, Independent 
Auditor's Report on the Department of Defense FY 2013 and FY 2012 
Financial Statements, DODIG-2014-024 (Alexandria, VA: Dec. 16, 2013). 

[43] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[44] DOD, FMR, vol. 14, ch. 2, "Antideficiency Act Violations," § 
020203 (November 2010). DOD's guidance also describes common types of 
violations, including exceeding statutory thresholds for the use of 
certain funds for certain purposes, such as operations and maintenance 
funds for military construction and procurement activities, which 
cannot be corrected by adjusting DOD's accounts to charge the correct 
appropriation because sufficient funds were not available at the time 
of erroneous obligation or are no longer available. 

[45] GAO, DOD Financial Management: The Army Faces Significant 
Challenges in Achieving Audit Readiness for Its Military Pay, 
[hyperlink, http://www.gao.gov/products/GAO-12-406] (Washington, D.C.: 
Mar. 22, 2012). 

[46] Naval Audit Service, Defense Travel System - Marine Corps, N2012- 
0010 (Washington, D.C.: Dec. 21, 2011). 

[47] DOD, FMR, vol. 9, ch. 2, "Defense Travel System," § 020301 
(August 2011). 

[48] Army Audit Agency, Audit of Controls Over Vendor Payments - 
Southwest Asia (Phase II), A-2010-0012-ALL (Alexandria, VA: Jan. 5, 
2010). Upon the completion of its tour in 2008, the Army's 10th 
Mountain Division (Light Infantry) became part of Coalition Forces 
operations and was designated the Multi-National Division-South, 
overseeing provinces that encompass almost the entire southern portion 
of Iraq. 

[49] A voucher package contains the supporting documentation for each 
payment. 

[50] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: February 
2013). 

[51] SFIS is DOD's comprehensive "common business language" that 
supports department-wide information and data requirements for 
budgeting, financial accounting, cost and performance management, and 
external reporting purposes. 

[52] An enterprise architecture, or modernization blueprint, provides 
a clear and comprehensive picture of an entity, whether it is an 
organization (e.g., federal department or agency) or a functional or 
mission area that cuts across more than one organization (e.g., 
financial management). This picture consists of snapshots of the 
enterprise's current or "as-is" operational and technological 
environment and its target or "to-be" environment, and contains a 
capital investment road map for transitioning from the current to the 
target environment. These snapshots consist of "views," which are 
basically one or more architecture products that provide conceptual or 
logical representations of the enterprise. 

[53] The USSGL provides a uniform Chart of Accounts and technical 
guidance to be used in standardizing federal agency accounting 
practices. The Department of the Treasury issues USSGL Implementation 
Guidance. 

[54] GAO, Defense Logistics: Actions Needed to Improve Implementation 
of the Army Logistics Modernization Program, [hyperlink, 
http://www.gao.gov/products/GAO-10-461] (Washington, D.C.: Apr. 30, 
2010). 

[55] GAO, Defense Logistics: Additional Oversight and Reporting for 
the Army Logistics Modernization Program Are Needed, [hyperlink, 
http://www.gao.gov/products/GAO-11-139] (Washington, D.C.: Nov. 18, 
2010). 

[56] GAO, Defense Logistics: Army Should Track Financial Benefits 
Realized from Its Logistics Modernization Program, [hyperlink, 
http://www.gao.gov/products/GAO-14-51] (Washington, D.C.: Nov. 13, 
2013). 

[57] Procure-to-pay refers to the end-to-end procurement process from 
initiation of an acquisition to final payment. 

[58] Department of Defense Inspector General, Logistics Modernization 
Program System Procure-to-Pay Process Did Not Correct Material 
Weaknesses, DODIG-2012-087 (Alexandria, VA: May 29, 2012). 

[59] A general ledger account balance is abnormal when the reported 
balance does not comply with the normal debit or credit balance 
established in the general ledger chart of accounts. An abnormal 
general ledger account balance is an accounting irregularity caused by 
the incorrect posting of transactions or by an operational issue such 
as overobligation of an appropriation. In its FIAR Plan metrics, DOD 
defines an abnormal balance as an appropriation with a negative 
balance that occurred when expenditures exceeded the appropriated 
amount and the problem was not resolved within 3 months. 

[60] 31 U.S.C. §§ 3901-3907. Generally, the Prompt Payment Act 
requires agencies to add interest penalties to payments made to 
business concerns after the contractually established payment date, or 
30 days after the date they receive a proper invoice, if the contract 
specifies no due date. 

[61] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, Financial Improvement and Audit Readiness (FIAR) 
Plan Status Report (November 2012). 

[62] The Navy ERP system, initiated in August 2004, is intended to 
standardize the acquisition, financial, program management, 
maintenance, procurement, plant and wholesale supply, and workforce 
management capabilities of the Navy. The Navy ERP is expected to 
replace 96 legacy systems. According to Navy officials, on an annual 
basis, the Navy ERP is intended to control and account for $82.5 
billion of total appropriations; $33.8 billion of total inventory; and 
$1.1 billion of plant, property, and equipment. 

[63] Department of Defense Inspector General, Navy Enterprise Resource 
Planning System Does Not Comply With the Standard Financial Structure 
and U.S. Government Standard General Ledger, D-2012-051 (Alexandria, 
VA: Feb. 13, 2012). 

[64] Department of Defense Inspector General, An Unreliable Chart of 
Accounts Affected Auditability of Defense Enterprise Accounting and 
Management System Financial Data, DODIG-2012-140 (Alexandria, VA: 
Sept. 28, 2012). 

[65] GAO, DOD Business System Modernization: Air Force Business System 
Schedule and Cost Estimates, [hyperlink, 
http://www.gao.gov/products/GAO-14-152] (Washington, D.C.: Feb. 7, 
2014). 

[66] GAO, DOD Business Transformation: Improved Management Oversight 
of Business System Modernization Efforts Needed, [hyperlink, 
http://www.gao.gov/products/GAO-11-53] (Washington, D.C.: Oct. 7, 
2010). 

[67] A Suspense account is a temporary account or repository, referred 
to by DOD as a Clearing account, for monetary transactions (cash 
receipts, cash disbursements, and journal entries that were recorded 
using invalid appropriation or fund account numbers). 

[68] The NDAA for Fiscal Year 2010 mandated that DOD develop and 
maintain a Financial Improvement and Audit Readiness (FIAR) Plan that 
among other things, describes the specific financial management 
improvement actions to be taken and costs associated with ensuring 
that its department-wide financial statements are validated as audit 
ready by September 30, 2017.Pub. L. No. 111-84, § 1003(a), (b) (Oct. 
28, 2009). In October 2011, the Secretary of Defense directed the 
department to accelerate audit readiness efforts for key elements of 
its financial statements. Subsequently, the NDAA for Fiscal Year 2013 
amended the legal requirement to add that the FIAR Plan's financial 
management improvement efforts should also support the goal of 
validating audit readiness of the department's Statement of Budgetary 
Resources (SBR) no later than September 30, 2014. Pub. L. No. 112-239, 
§ 1005 (a) (Jan. 2, 2013). Further, the NDAA for Fiscal Year 2014, 
Pub. L. No. 113-66, § 1003 (Dec. 26, 2013) mandates that a full audit 
of DOD's financial statements occur for fiscal year 2018, and that it 
be completed by March 31, 2019. 

[69] DOD's FIAR Plan Status Reports describe the status of FIAR Plan 
implementation and, as required by the NDAA for Fiscal Year 2010, are 
submitted to Congress semi-annually by May 15 and November 15. 

[70] [hyperlink, http://www.gao.gov/products/GAO-11-950T]. 

[71] GAO, DOD Financial Management: Significant Improvements Needed in 
Efforts to Address Improper Payment Requirements, [hyperlink, 
http://www.gao.gov/products/GAO-13-227] (Washington, D.C.: May 13, 
2013). 

[72] Pub. L. No. 111-204 (July 22, 2010). 

[73] DOD, FMR, vol. 4, ch. 14, "Improper Payments" (October 2012). 

[74] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, Department of Defense Agency Financial Report for 
Fiscal Year 2013, p. A-7. 

[75] Our analysis of DOD reports of ADA violations sent to us 
determined that DOD categorizes violations of various fiscal laws and 
violations of the ADA collectively as ADA violations. For example, DOD 
has reported violations of the Purpose Statute as ADA violations. In 
some cases, reports of ADA violations included both ADA and other 
fiscal law violations. 

[76] DOD, FMR, vol. 14, ch. 7, "Antideficiency Act Report," § 070102 
(November 2010). 

[77] GAO, DOD Financial Management: Ongoing Challenges with 
Reconciling Navy and Marine Corps Fund Balance with Treasury, 
[hyperlink, http://www.gao.gov/products/GAO-12-132] (Washington, D.C.: 
Dec. 20, 2011). 

[78] GAO, Defense Contracting: DOD Initiative to Address Audit Backlog 
Shows Promise, but Additional Management Attention Needed to Close 
Aging Contracts, [hyperlink, http://www.gao.gov/products/GAO-13-131] 
(Washington, D.C.: Dec. 18, 2012). 

[79] DOD unaudited contract obligations reported in the Federal 
Procurement Data System-Next Generation. 

[80] See Federal Acquisition Regulation, 48 C.F.R. § 4.804-1. 

[81] Incurred cost audits are conducted on a contractor's annual 
proposal that includes all costs incurred on certain types of 
contracts in that fiscal year. DCAA performs these audits to ensure 
that the costs that contractors incur and propose for settlement are 
permissible under government regulations. 

[82] DCMA performs contract administration services for DOD. 

[83] Department of Defense Inspector General, An Unreliable Chart of 
Accounts Affects Auditability of Defense Enterprise Accounting and 
Management System Financial Data, DODIG-2012-140 (Alexandria, VA: 
Sept. 28, 2012); Logistics Modernization Program System Procure-to-Pay 
Process Did Not Correct Material Weaknesses, DODIG-2012-087 
(Alexandria, VA: May 29, 2012); General Fund Enterprise Business 
System Did Not Provide Required Financial Information, D-2012-066 
(Alexandria, VA: Mar. 26, 2012); Navy Enterprise Resource Planning 
System Does Not Comply with the Standard Financial Information 
Structure and U.S. Government Standards General Ledger, DODIG-2012-051 
(Alexandria, VA: Feb. 13, 2012); and Insufficient Governance Over 
Logistics Modernization Program System Development, D-2011-015 
(Arlington, VA: Nov. 2, 2010). 

[84] Department of Defense Inspector General, Defense Departmental 
Reporting System-Budgetary Was Not Effectively Implemented for the 
Army General Fund, DODIG-2012-096 (Alexandria, VA: May 31, 2012). 

[85] GAO, Human Capital: Key Principles for Effective Strategic 
Workforce Planning, [hyperlink, http://www.gao.gov/products/GAO-04-39] 
(Washington, D.C.: Dec. 11, 2003). 

[86] The details of DOD's financial management workforce assessment 
are contained in the Fiscal Year 2010 Department of Defense Strategic 
Workforce Plan, appendix B-15, Financial Management. 

[87] See Pub. L. No. 111-84, § 1108(a)(1), (Oct. 28, 2009), codified 
as amended at 10 U.S.C. § 115b. 

[88] Pub. L. No. 112-81, § 1051, (Dec. 31, 2011), codified at 10 
U.S.C. § 1599d. 

[89] Department of Defense, Growing Civilian Leaders, DOD Instruction 
1430.16 (Nov. 19, 2009), is the department's policy for periodically 
assessing workforce competencies and providing appropriate learning 
opportunities. The DOD Civilian Leadership Continuum depicts the 
progression of competencies needed as a DOD civilian rises through the 
leadership ranks, from fundamental competencies required of all 
leaders to strategic capabilities required of the most senior leaders. 

[90] NASBA approves Continuing Professional Education (CPE) Sponsors 
after a review of each sponsor's system of quality control to ensure 
that it is in conformity with the joint NASBA/American Institute of 
Certified Public Accountants Statements on Auditing Standards for CPE 
requirements. 

[91] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, Financial Improvement and Audit Readiness (FIAR) 
Plan Status Report (November 2013). 

[92] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer Financial Improvement and Audit Readiness (FIAR) 
Plan Status Report (November 2013). 

[93] SSAE No. 16, Reporting on Controls at a Service Organization, 
replaced Statements on Auditing Standards No. 70 as the authoritative 
guidance for reporting on service organizations. SSAE No. 16 was 
formally issued in April 2010 with an effective date of June 15, 2011. 

[94] GAO, DOD Financial Management: Ineffective Risk Management Could 
Impair Progress toward Audit-Ready Financial Statements, [hyperlink, 
http://www.gao.gov/products/GAO-13-123] (Washington, D.C.: Aug. 2, 
2013). 

[95] [hyperlink, http://www.gao.gov/products/GAO-12-134]. 

[96] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, United States Department of Defense, Agency 
Financial Report, Fiscal Year 2013, pp. A-4 and A-5. 

[97] Office of the Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, Department of Defense Agency Financial Report, 
Fiscal Year 2012, pp. A-32, A-46, and A-47. 

[98] GAO, Federal Information System Controls Audit Manual (FISCAM), 
[hyperlink, http://www.gao.gov/products/GAO-09-232G] (Washington, 
D.C.: February 2009). 

[99] General system controls are intended to provide reasonable 
assurance of security management (periodic evaluation and testing of 
the effectiveness of information security policies, procedures, and 
practices); access controls (access to data, equipment, and facilities 
is reasonable); configuration management (changes to information 
system resources are authorized and systems are configured and 
operated securely and as intended); segregation of duties 
(incompatible duties and responsibilities are effectively separated); 
and contingency planning (protects information resources and minimizes 
the risk of unplanned interruptions and provides for recovery of 
critical operations should interruptions occur). 

[100] Application controls are intended to provide reasonable 
assurance of completeness (all transactions that occurred are input 
into the system, processed only once, and properly included in 
output); accuracy (transactions are properly recorded, with correct 
data and amounts, in the proper period, are processed accurately, and 
produce reliable results); validity (all recorded transactions 
actually occurred, relate to the organization, are authentic, and were 
properly approved, and output contains only valid data); 
confidentiality (application data and reports and other output are 
protected against unauthorized access); and availability (application 
data and reports and other relevant business information are readily 
available to users when needed). 

[101] Department of Defense, DOD Audit Manual, DOD Manual 7600.07-M, 
enc. 11 (Feb. 13, 2009). 

[102] The ADA requires agencies violating its proscriptions to report 
to the President and the Congress all relevant facts and a statement 
of actions taken, and to transmit a copy of each report to GAO. Our 
analysis included the compilation and categorization of the unaudited 
information from such reports. We did not do any further analysis 
regarding the underlying facts or the legal conclusions discussed 
therein. Summaries of all the ADA reports received by GAO are 
available at [hyperlink, 
http://www.gao.gov/legal/lawresources/antideficiencyrpts.html]. 

[103] A material weakness is a deficiency, or a combination of 
deficiencies, in internal control such that there is a reasonable 
possibility that a material misstatement of the entity's financial 
statements will not be prevented, or detected and corrected, on a 
timely basis. 

[End of section] 

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