Department of Defense:

Financial Audits Highlight Continuing Challenges to Correct Serious Financial Management Problems

T-AIMD/NSIAD-98-158: Published: Apr 16, 1998. Publicly Released: Apr 16, 1998.

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GAO discussed the status of financial management at the Department of Defense (DOD), focusing on: (1) serious material weaknesses now confronting DOD; (2) the resulting impact on DOD's ability to effectively carry out its programs and operations; and (3) the efforts under way to address these deficiencies.

GAO noted that: (1) serious material weaknesses were found in DOD systems and processes relied on to maintain accountability and to control physical assets under its purview, including military equipment; general property, plant and equipment; and inventories; (2) auditors found that DOD's logistical systems could not be relied upon to provide basic information; (3) as a result, senior DOD officials did not have accurate information to use in making operational decisions or for financial reporting; (4) the Navy does not have a central system that supports both financial reporting and worldwide visibility over various categories of military equipment; (5) instead it relies on various systems and publications to provide this information; (6) the Army relies on a central logistics system, the Continuing Balance System-Expanded, to maintain worldwide visibility for all military equipment, including the Army's most critical war fighting equipment; (7) GAO reported that the compatibility rate calculation used by the Army does not provide a complete indicator of the central system's accuracy because it does not include errors associated with equipment that is in-transit between locations; (8) GAO's recent work identified problems with the Air Force's Reliability and Maintainability Information System, which is intended to provide worldwide visibility over its equipment and timely maintenance and logistical information; (9) this central logistical system is used to support Air Force field and operational commanders; (10) both the Army and Air Force have indicated that they have either taken, or are taking, actions to address auditor concerns and improve these critical systems; (11) DOD's inability to effectively account for and control its reported $170-billion investment in inventories has been an ongoing area of major concern; (12) in addition to not having a complete inventory of its financial management systems, DOD has not documented how it conducts its financial management operations now and plans to in the future; (13) GAO is continuing to monitor DOD inventory management as one of the areas it considers as high risk because of its vulnerability to waste, fraud, and abuse; (14) DOD has not fully implemented the federal accounting standard that requires it to recognize and report liabilities associated with environmental cleanup and disposal of its assets; (15) DOD faces a formidable task in providing assurance that its thousands of systems will be compliant and that the data among these systems will be accurate; and (16) DOD has a number of financial management reform efforts planned or under way.

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