Defense Business Operations Fund: DOD Is Experiencing Difficulty in Managing the Fund's Cash

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.

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.

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.

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.