Financial Audit: Air Force Does Not Effectively Account for Billions of Dollars of Resources

Improvements in financial statements will result primarily because of other actions the Air Force is taking on the audit report. The Department of Defense (DOD) stated that an implementation plan submission of auditable financial statements had been developed. In March 1993, the Defense Finance and Accounting Service (DFAS) and the Air Force issued a joint action plan to correct the weaknesses and the deficiencies GAO had reported. Although the Air Force and DFAS have initiated actions to address the Air Force's financial problems, the Air Force Audit Agency was unable to express opinions on the Air Force's fiscal years 1992 and 1993 financial statements because of significant uncertainties in account balances and accounting systems.

The Air Force reviewed its management reports and the way in which the reports are used, revised its regulations, and developed training packages for its staff regarding reasonableness checks of accounting data. DFAS has assumed primary responsibility for accounting policies and is revising regulations and procedures, where necessary to meet GAO, Treasury, OMB, CFO Act, and DOD accounting standards and requirements.

DOD has undertaken long-term initiatives to improve financial management systems within DOD and the military services. These initiatives will reportedly take a number of years to complete. Currently, DOD has implemented the Interim Migratory Accounting System (IMAS) project to reduce the number of financial systems and improve overall accounting processes.

The Air Force reviewed existing regulations and revised them to require that abnormal balances be investigated and corrected. The Air Force Audit Agency's financial audit of the Air Force should ascertain whether the corrective actions are adequate.

DFAS reviewed existing regulations and revised them to require periodic evaluation and analysis of account balances. Guidelines were established for variance analysis.

The Air Force is determining what system modifications are needed to accumulate actual costs of equipment. DOD, however, is relying on its Corporate Information Management effort to address the problem of accumulating actual costs of equipment. DFAS is evaluating a means to resolve problems in the area of property accounting. A standard DOD property accounting system has been chosen and now must be implemented. The Air Force Audit Agency found in its audits of the Air Force's fiscal years 1992 and 1993 financial statements that the Air Force had not reported reliable costs for capital assets (including equipment).

DFAS reviewed existing regulations and procedures to identify changes needed to report in a more timely and accurate manner. Implementation of a new general ledger will enable more complete and timely reporting. The Air Force implemented procedures to eliminate intra-agency balances and capture and report losses due to aerospace vehicle destructions and dispositions. The Air Force Audit Agency, however, was unable to issue opinions on the reliability of the Air Force's fiscal year 1992 and 1993 financial statements because of pervasive weaknesses and deficiencies.

The Air Force developed a separate FMFIA review guide to evaluate internal controls. It also emphasized internal control reviews and Title 2 reviews for FY 1991 reporting. However, the problems GAO had noted were not reported in the Air Force's FMFIA statement to DOD.

The Air Force issued a directive to its personnel responsible for reconciliations which reemphasized existing requirements and clarified procedures for reconciling subsidiary accounts with control accounts.

Air Force regulations and guidance were revised to provide additional directions for promptly recording obligations and expenditures and conducting required reconciliations.

The Air Force reviewed its regulations on the need for adequate documentation and review of adjustments and published technical bulletins to its personnel stressing compliance with existing requirements.

The Air Force has reviewed its regulations on adequate documentation and review of adjustments. It has published technical bulletins to its personnel stressing compliance with existing requirements. Guidance was issued requiring adjustments to be approved by the responsible officer. In fiscal year 1992, the Air Force issued regulations requiring all adjustments be approved.

The Air Force emphasized internal control reviews and title 2 reviews for FY 1991 reporting and stated that it had reported weaknesses it considered material. Many weaknesses GAO had identified have not been included in the Air Force's FMFIA reports.

DOD and the Air Force consider the initiatives growing out of the Defense Management Report (DMR) as the long-term solutions to accounting and reporting actual costs. Efforts in this area are ongoing. The Air Force Audit Agency reported that the Air Force, in its fiscal years 1992 and 1993 financial statements, had not reported reliable acquisition costs for most of its assets, including weapon systems.

The Air Force directed its bases to start reporting satellites and engines in the Comprehensive Engine Management System. The Air Force System Command developed procedures for recording the value of satellites in the general ledger.

The Air Force has implemented manual reporting procedures specifically for recording and reporting on the Air Force's satellites held by contractors. Under the procedures, the appropriate program management office is to submit satellite cost data to the local finance and accounting office on a monthly basis for inclusion in general ledger trial balance reports. However, agency action only covers satellites and not other government-furnished equipment held by contractors.

Reparable assets have been transferred from Air Force to the Defense Business Operations Fund (DBOF). DBOF values such items at acquisition cost less estimated repair costs.

The Air Force has continuous action to reduce inventory. Teams from the Air Force Logistics Agency visited all air logistic centers and disposed of $600 million of inventory, freeing up 1.2 million cubic feet of storage space. DOD stated that the DMR initiatives are to address this problem. Also, an automated warehousing system has been implemented at all ALC to improve inventory accountability.

The Air Force and DFAS are relying on DMR initiatives to produce improved financial systems. In addition, the Air Force and DFAS have issued a corrective action plan (dated March 1993) to address financial deficiencies within the Air Force. Most of the actions are ongoing.