Navy Shipyard Accounting System Needs Improvement

FGMSD-79-34: Published: Jun 6, 1979. Publicly Released: Jun 6, 1979.

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The accounting system at Long Beach and Pearl Harbor Naval Shipyards has not been implemented in full accordance with the documented standard system design for Navy shipyards which was approved in June 1975. As a result, inventory values reported to Navy headquarters and Congress were incorrect, accounts receivable were not properly shown on financial statements, and control over appropriated funds was inadequate.

The shipyards' administrative control over customer funds was not adequate to insure that funds are used for only authorized purposes and obligations and expenditures do not exceed the amounts authorized. Project orders were combined, thereby, precluding the shipyards from matching expenditures incurred with funds received from the customer during the year. Adequate controls were not exercised to insure proper cost transfers between customer orders. Expired appropriations were used in renegotiating fixed price orders. Current operating procedures at the shipyards do not provide administrative control over funds. The balance of the direct material inventory account was not accurate because the general ledger and the subsidiary records were not reconciled as required. Although the approved system design requires the use of three separate accounts to classify accounts receivable, the shipyards were using only one account.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should direct the Secretary of the Navy to require the Long Beach and Pearl Harbor shipyards to strengthen their controls over the use of appropriated funds and to review the transactions specifically identified in this report and make any appropriate adjustments. The Secretary of the Navy should establish procedures to ensure that all shipyards comply with Navy instructions and control procedures for project orders, fixed pricing, and cost reimbursable orders; and effectively implement Navy instructions on controls over cost transfers between customer orders. Emphasis should be placed on eliminating the practice of recording and reporting improper transactions in the material-in-transit account, insuring that general ledger and subsidiary direct material inventory accounts are properly reconciled, and properly classifying accounts receivable on financial statements.

    Agency Affected:


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