Financial Management:

Status of Defense Efforts to Correct Disbursement Problems

AIMD-95-7: Published: Oct 5, 1994. Publicly Released: Oct 5, 1994.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) efforts to properly match disbursements with corresponding obligations, focusing on: (1) DOD progress in resolving its disbursement problems; (2) DOD criteria for identifying and reporting improperly matched disbursements; and (3) systemic control weaknesses that prevent DOD from resolving disbursement problems.

GAO found that: (1) as of June 30, 1994, DOD reduced its $19.1 billion of reported problem disbursements by $9.4 billion; (2) the $3.6 billion that DOD reclassified as negative unliquidated obligations still need to be resolved; (3) the DOD $19.1-billion benchmark for problem disbursements was understated because DOD criteria for identifying and reporting disbursements did not include all types of problem disbursements; (4) as of June 30, 1994, DOD records contained at least $24.8 billion in problem disbursements, including $5 billion in unreconciled "M" account balances; (5) DOD plans to revise its benchmark figure to reflect its disbursement problems more accurately, but it has not set a date for reporting the revised data; (6) DOD needs to maintain current and accurate disbursement records to justify using current appropriations to pay for obligations from closed accounts; (7) in March 1994, the DOD Inspector General issued guidance to stop DOD from disbursing funds in excess of recorded obligations and account balances; (8) DOD initiatives to resolve its disbursement problems include identifying the extent of the problem and improving its contract pay and accounting systems; and (9) DOD needs to emphasize and enforce sound accounting principles and internal controls to properly match disbursements with obligations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: A benchmark was established using the criteria we recommended in the report. However, because there are millions of transactions involved, it is not possible to validate all of DOD's figures. In addition, the numbers change daily as new balances are identified during routing reconciliations. This recommendation will always be valid as long as DOD disburses monies.

    Recommendation: The Comptroller, DOD, should establish a new benchmark to measure progress in reducing DOD disbursement problems. At a minimum, the new benchmark figure should: (1) include all DOD activities; (2) be comprised of gross values; and (3) include all disbursements that have not been received by an accountable activity for matching with an obligation within 60 days after a payment is made.

    Agency Affected: Department of Defense: Office of the Comptroller

  2. Status: Closed - Implemented

    Comments: Both the Deputy Secretary of Defense and the DOD Comptroller issued memorandums reinforcing the need to follow DOD policies and procedures.

    Recommendation: The Comptroller, DOD, should enforce existing regulations requiring DOD activities to record obligations and disbursements in an accurate and timely manner.

    Agency Affected: Department of Defense: Office of the Comptroller

  3. Status: Closed - Implemented

    Comments: In response to GAO's work, the DOD Comptroller has issued several memoranda reemphasizing the importance of reviewing and correcting unmatched disbursement transactions.

    Recommendation: The Comptroller, DOD, should require DOD activities to reconcile disbursements that have not been properly matched to obligations and correct its accounting records for all appropriation accounts, including those accounts that have been closed.

    Agency Affected: Department of Defense: Office of the Comptroller

  4. Status: Closed - Implemented

    Comments: The DFAS Director instructed DFAS Columbus to reconcile over disbursed contracts. In addition, DFAS Columbus implemented a policy that requires supervisory approval before a disbursement can be made that would cause a negative obligation contract. This procedure should provide management with more control and visibility over contracts that have recorded expenditures in excess of recorded obligations.

    Recommendation: The Director, Defense Finance and Accounting Service (DFAS), should direct the DFAS-Columbus office to resolve the $1 billion of negative balances for the 2,551 contracts in the Mechanization of Contract Administration Services.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  5. Status: Closed - Implemented

    Comments: DFAS Columbus developed a monthly report to show the status of contracts in overdisbursed status.

    Recommendation: The Director, DFAS, should require the DFAS-Columbus office to report monthly to DFAS headquarters on the number of contracts that have expenditures in excess of obligations. The report should include: (1) an aging schedule to show specific periods of time that the contracts and the related dollar values have been in a negative status; (2) the number and dollar amounts of new overdisbursed contracts added during the period; and (3) the number and dollar amounts of overdisbursed contracts resolved during the period.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

 

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