Financial Management: Immediate Actions Needed to Improve Army Financial Operations and Controls

In its March 1996 report accompanying the Army's FY 1995 Annual Financial Report, the Army Audit Agency reported that management controls were sufficient to ensure accurate reporting of $27.9 billion of wholesale munitions, and that storage activities reported accurate balances on hand. Compliance with existing performance measures concerning physical inventories and reconciliations is evaluated by logistics review teams and reported in the DOD Inventory Control Effectiveness Report.

Under the Army's "Internal Management Control Program," operational managers are held responsible for ensuring effective internal controls. This policy was reiterated to principal officials of the Headquarters Department of the Army and to commanders of major Army commands by the Secretary of the Army. The special action group is providing oversight.

The Army reviewed the weaknesses identified in the audit report. Seven were determined to be material and were reported to the Secretary of Defense in the Army's Statement of Assurance submitted on November 16, 1992. DOD has closed this recommendation.

The Army states that the objectives of the Federal Managers' Financial Integrity Act are being met and that DOD supports this position. DOD has closed this recommendation.

In September 1992, the DOD Comptroller issued a memo providing policy guidance on the division of responsibilities between the Assistant Secretary for Financial Management for the Army, DFAS, and service operating units. However, DOD has no structure in place to ensure that these components are actually operating as described in the policy. DOD has closed this recommendation.

In September 1992, the acting DOD CFO requested DFAS to accelerate development of functional requirements for migratory financial systems under the Corporate Information Management initiative. Milestones were set through 1993, which included completing a review of a proposed "data model." A data model of the basic data architecture was developed on May 20, 1993. The DOD CFO Financial Management 5-Year Plan was updated and contains current milestones and target dates for the migratory systems. DOD has closed this recommendation. A copy of the DOD 5-Year Plan is in the DFA files.

DOD submitted a financial management 5-year plan to OMB in September 1992 including financial management improvement initiatives planned over the FY 1993-1996 timeframe. However, there is no indication that financial management will be given priority treatment in resource allocation or budgeting as GAO recommended. DOD has closed this recommendation.

The Corps issued guidance on July 24, 1992, and August 27, 1992, directing all Corps activities to use authorization documents required in Corps of Engineers regulation 700-1-1 and to establish a process for reporting on compliance with these requirements. On October 27, 1992, the Corps implemented a procedure to ensure that weaknesses and corrective actions associated with property authorizations would be identified and monitored at the command level. Compliance will be monitored through quality assurance reviews and command inspections. Army Audit reported in its FY 1993 Financial Statement Audit that the Corps had established the Civil Property Authorization Document System, which established the use of allowance tables for the many types of commercial equipment acquired by Corps activities.

The DOD CFO submitted a revised CFO implementation plan in September 1992. However, resources needed to implement these plans were not addressed. Resource needs are to be reviewed and approved in conjunction with the formulation of the DOD budget. DOD has closed this recommendation.

Although the Army has taken some action to address this recommendation, the accuracy and reliability of Army financial data pertaining to property in the hands of contractors continues to be a problem. In its February 1997 report on its audit of Army's FY 1996 financial statements, the Army Audit Agency (AAA) stated that it was unable to attest to the reported value for PPE because, in part, the reported value for military equipment was misstated because contractor reports--used to account for equipment held by contractors--were not complete or accurate. In addition, information from the DOD IG indicates that the Department now has GFP "under control" and consequently has closed this recommendation. However, the information provided also indicated that full resolution will not be complete until Oct 2001. While GAO is closing this recommendation, with action taken not being fully responsive, it will continue to monitor this area as part of its planned financial statement audit work.

The Army completed field work on the review for valuing military equipment at the latest acquisition cost and submitted a proposal to OSD in August 1993 to value the Army's military equipment at latest acquisition cost. The proposal included methods to collect costs using current automated systems. The DOD Comptroller denied the request and advised the Army that, if the Army must value its military equipment at a value other than actual (historical) cost, the Army should disclose that fact, as well as the valuation methods used, in footnotes to its audited financial statements. Military equipment was valued at the latest acquisition cost or standard price in Army's FY 1994 Financial Statements.

In its July 1996 internal controls report accompanying its financial statement audit, the Army Audit Service reported that the Army made significant progress in removing costs for completed projects from the military construction-in-progress accounts.

The Army Materiel Command continues to use a system that has not been upgraded to incorporate the standard general ledger requirements. In contrast, the Corps of Engineers has developed the Corps of Engineers Financial Management System (CEFMS) and is finalizing implementation. CEFMS incorporates the standard general ledger. The recently enacted Federal Financial Management Improvement Act requires that all federal agencies assess their financial systems' compliance with systems requirements, including the extent to which their systems incorporate the standard general ledger, and develop remediation plans to correct any deficiencies. While acknowledging actions taken, GAO is closing this recommendation as action taken not being fully responsive. But, GAO plans to work with the DOD IG, who will be reviewing and evaluating DOD's systems compliance under this new legislation.

With the changes in the federal accounting standards with respect to cost accounting, DOD and Army financial management officials determined that DOD and Army financial management resources could be better spent elsewhere until the requirements and priorities stemming from the new federal accounting requirements are better understood. DOD has acknowledged that it still has a long way to go develop and implement systems that will provide reliable actual cost data. Under the Federal Financial Management Improvement Act, GAO will be required to report on DOD's actions in this area. While GAO is closing this recommendation as not fully implemented, it will continue to monitor this important area as part of its planned financial statement audit work.

Following issuance of a memorandum from the Acting DOD CFO to all DOD components in September 1992, cash on hand at disbursing offices and related liabilities were included in disbursing offices in the Army's fiscal year 1992, 1993, and 1994 financial statements. DOD revised the accounting policy to require that cash held by disbursing officers be recorded as an asset with a corresponding liability.