Defense Business Operations Fund:

DOD Is Experiencing Difficulty in Managing the Fund's Cash

AIMD-96-54: Published: Apr 10, 1996. Publicly Released: Apr 10, 1996.

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Jack L. Brock, Jr
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Pursuant to a congressional request, GAO reviewed the Defense Business Operations Fund's (DBOF) cash management practices, focusing on: (1) Department of Defense (DOD) efforts to manage cash; and (2) ways DOD could provide additional management oversight.

GAO found that: (1) DBOF cash management problems persist and reflect long-standing DOD financial management weaknesses; (2) DBOF managers do not have timely, accurate, and complete data on individual business areas' cash balances and do not fully disclose adjustments to account balances in their monthly financial reports; (3) the Defense Finance and Accounting Service consistently has the most severe problems in accurately accounting for and reporting the Navy's cash balances, but it is developing reporting procedures to identify monthly cash balances in each business area; (4) collection and disbursement data cannot be provided more promptly until DBOF financial systems and processes are improved; (5) DOD continues to rely on advance billing to supply cash for day-to-day operations, but billing and collection problems have resulted in billions of dollars in outstanding accounts receivable; (6) DOD needs to enhance accountability and employ tools to effectively manage its cash to prevent inaccurate, untimely, and incomplete cash balances, collections, and disbursements when new financial systems are implemented; and (7) if cash management practices do not change, DOD could require excessive cash amounts to maintain ongoing DBOF operations, violate the Antideficiency Act, and limit its opportunities to fulfill DBOF objectives.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In a January 1997 memorandum, DFAS' Assistant Deputy Director for Accounting provided detailed instructions and the appropriate operating procedures necessary to identify and report cash balances below the component level. However, because of continuous cash management problems, it is unlikely that the WCF will in the foreseeable future be able to identify the cash balance for each business area. For example, the Air Force and Navy continue to advance bill customers for work. The advance billing has been necessary in order to have sufficient cash to pay bills. In addition, as discussed in AIMD/NSIAD-98-118, the Air Force supply management activity group is experiencing difficulty in properly managing cash. GAO found that the Air Force did not accurately project cash collections from sales and disbursements for inventory items purchased from vendors. Until these types of problems are resolved, it will be impossible for the cash balance to be identified at the business area level.

    Recommendation: The Under Secretary of Defense (Comptroller) should identify the cash balance for each business area in the Fund's monthly 1307 financial report.

    Agency Affected: Department of Defense: Office of the Comptroller

  2. Status: Closed - Implemented

    Comments: DOD noted that, except for the Navy, DFAS has been providing footnotes on the DBOF financial statements to show the amount of undistributed disbursing and undistributed collections adjustments made to the accounts receivable and accounts payable. Subsequent to the report, GAO followed up with DFAS and the Navy and found that inappropriate adjustments were no longer made to the Navy Research and Development business area for undistributed transactions. GAO reviewed the March 1995 DBOF financial reports and verified that undistributed transactions that cannot be identified to the appropriate business area are now separately identified on the monthly reports as a component level adjustment.

    Recommendation: The Under Secretary of Defense (Comptroller) should fully disclose in the monthly 1176 and 1307 reports the amount of the adjustments made to the accounts receivable and payable balances for undistributed collections and disbursements.

    Agency Affected: Department of Defense: Office of the Comptroller

  3. Status: Closed - Implemented

    Comments: An official with the Office of the Under Secretary of Defense (Comptroller), stated that throughout the course of the fiscal year, all working capital fund activities may not be reimbursed in a timely manner for all services provided. However, at the end of the fiscal year virtually all activities are being reimbursed for the services provided. According to the DOD official, this issue is discussed with each working capital fund activity as part of the budget review process.

    Recommendation: The Under Secretary of Defense (Comptroller) should validate and aggressively pursue the collection of accounts receivable, especially those over 60 days old.

    Agency Affected: Department of Defense: Office of the Comptroller

  4. Status: Closed - Implemented

    Comments: In a December 1996 memorandum, the Deputy Chief Financial Officer acknowledged that the problem discussed in the report is contrary to DOD policy. The memorandum also reemphasized that DOD policy stipulates that no work or service should be performed by a DBOF activity, except on the basis of reimbursable orders received and accepted from federal entities or advances from non-federal entities, unless specifically excepted. DOD's action is in line with the recommendation.

    Recommendation: The Under Secretary of Defense (Comptroller) should direct DOD activities to follow existing DOD Financial Management Regulation and provide funding documents to the Fund prior to the Fund beginning work.

    Agency Affected: Department of Defense: Office of the Comptroller


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