From the U.S. Government Accountability Office, www.gao.gov Transcript for: DOD Financial Management Description: Audio Interview by GAO staff with Asif Khan, Director, Financial Management and Assurance Related GAO Work: GAO-15-463: DOD Financial Management: Continued Actions Needed to Address Congressional Committee Panel Recommendations Released: September 2015 [Background Music] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's September 2015. The Department of Defense accounts for more than half the government's discretionary spending, but problems such as inabilities to control costs, ensure basic accountability, and prepare auditable financial statements have put DOD's financial management on GAO's high-risk list. A team led by Asif Khan, a director in our Financial Management Assurance team, recently reviewed DOD's response to several recommendations from the House Armed Services Committee. GAO's Jacques Arsenault sat down with Asif to talk about what they found. [ Jacques Arsenault: ] When we talk about the federal government, the Department of Defense is a huge organization. Can you give me some context about the size and scope of its operations? [ Asif Khan: ] We need to understand the mission of the Department of Defense. It's to provide the military force needed to deter war and to protect the security of our country. It's one of the nation's most complex and largest organizations. With a budget of over $560 billion, DOD is one of the nation's largest employers. Between active duty servicemen and women and civilian employees, DOD has over two million people on its payroll. In addition to several hundred thousand military installations, DOD also operates hospitals, schools, retails facilities to serve the needs of the servicemen and women. DOD's annual budget is larger than the revenue of WalMart. If it was a Fortune 500 company, it would be number one. DOD's annual budget is larger than the GDP of many countries. It's comparable to the GDP of Poland. [ Jacques Arsenault: ] Certainly DOD is quite large and has a lot of resources. Why does it have trouble managing its finances? [ Asif Khan: ] DOD systems and processes were not designed to support financial management, but to support the war fighting mission, focusing on logistics and generally do not comply with federal financial management requirements. The DOD systems that support financial management and other business function comprise of approximately 2,500 separate business systems. Some of these systems are very old. Others are very basic, no more than a spreadsheet. So you can see it's a very fragmented system. This fragmentation makes it difficult to establish controls for managing financial data, from when it enters into one of these 2,500 systems to what is reported by the financial system. The military services and other components have undertaken several initiatives to address these problems, the major one being the financial improvement and audit readiness program, which is ongoing. [ Jacques Arsenault: ] Now in this report in particular, your team focused on DOD's response to a number of recommendations that made by a congressional panel. What are some of these recommendations and how is DOD responding to them? [ Asif Khan: ] The work of the House Armed Services panel on DOD financial management reform is very significant in that it shows the increasing importance that Congress places on DOD financial management, especially in a period of budget constraints and an increasing demand for accountability of our taxpayer dollars. The panel's recommendations touched on some most critical challenges the department faces in achieving lasting financial management reform and also achieving financial statement audit readiness. The panel made 29 recommendations in four broad areas. These are financial management and audit readiness strategies and methodologies, challenges to achieving financial management reform and auditability, financial management workforce, and finally DOD systems. We found DOD actions remediated six recommendations and that 23 remain open; however, DOD considered another three were also addressed, while we believe further action is needed. In commenting on this report, the DOD comptroller agreed with our recommendation to reconsider whether further action is needed to address the remaining three panel recommendations where we had a difference. However, it's also important to know that these recommendations are not the only action DOD needs to take, to address their financial management problems. [ Jacques Arsenault: ] So finally, for the American public, what would you say is the bottom line of this report? [ Asif Khan: ] DOD is entrusted with more taxpayer dollars than any other federal department or agency. DOD is the only executive level agency that is unable to produce auditable financial statements and it is one of the three impediments preventing the US government wide consolidated financial statements from receiving an audit opinion. Given the fragmented condition of DOD financial management system, there is a risk that billions of dollars are wasted, are unaccounted annually. This money could be freed up for higher priority needs. Stronger financial management practices will provide more confidence in DOD's ability to provide reliable financial information to the decision makers as well as the taxpayers. [ Background Music ] [ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's watchdog report for more from the Congressional Watchdog, the U.S. Government Accountability Office.