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Highlights

According to the Department of Defense's (DOD) fiscal year 2007 budget estimates, working capital fund activity groups (depot maintenance, ordnance, and research and development) will have about $6 billion of funded work that will be carried over from fiscal year 2007 into fiscal year 2008. The congressional defense committees recognize that these groups need some carryover to ensure a smooth work flow from one fiscal year to the next. However, the committees have previously raised concern that the amount of carryover may be more than is needed. GAO was asked to determine if (1) the Naval Air Warfare Center's (NAWC) reported actual carryover was reliable for fiscal years 2003 through 2006 and (2) NAWC was utilizing the required triannual review process to improve the reliability of its carryover information and underlying financial data.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Secretary of the Navy to reiterate its guidance that clearly prohibits Navy working capital fund activities from deobligating reimbursable customer orders at fiscal year end and immediately reobligating them in the next fiscal year, a process that results in artificially reducing the carryover balances that are ultimately reported to Congress.
Closed - Implemented
DOD concurred with the recommendation and on August 6, 2008, issued a memorandum reiterating the Department's current policy prohibiting the manipulation of customer order balances in an attempt to reduce reported carryover levels to the Navy as well as the other services. Further DOD directed the components to conduct internal reviews of accounting procedures currently in use, to include year end adjustments, to ensure that this type of manipulation of carryover levels is not occurring as stipulated in DOD Instruction 5010.40, dated January 4, 2006. The memorandum reported that if it is discovered that an activity is employing any intentional manipulation of customer order balances in an attempt to reduce reported carryover levels, the practice is to be discontinued immediately. DOD will evaluate any future violations and take appropriate actions as warranted.
Department of Defense 2. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Secretary of the Navy to develop and implement procedures for the Naval Air Warfare Center's aircraft and weapons divisions to provide assurance that triannual reviews of obligation and accrued expenditure balances are performed in accordance with the DOD Financial Management Regulation.
Closed - Implemented
In response to our recommendation, NAWC aircraft and weapons division developed and implemented procedures to ensure the accuracy, timeliness and completeness of transactions in their financial system. Further, in June 2008, the Assistant Secretary of the Navy (Financial Management and Comptroller) updated the triannual review confirmation statement to specifically include Defense Working Capital Funds, and added an item to the statement concerning contract closeout and accrued expenditures.
Department of Defense 3. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Secretary of the Navy to develop and implement a required training course for business financial managers (BFM) that provides instructions on performing the triannual review requirements for the Naval Air Warfare Center's aircraft division.
Closed - Implemented
In fiscal year 2009, the Navy developed a training course to ensure triannual reviews are completed by BFMs as instructed by DOD guidance. The course is required for all BFMs including those employees performing the triannual review requirementsat at the Naval Air Warfare Center's aircraft division.
Department of Defense 4. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Secretary of the Navy to require individuals, including BFMs responsible for performing the reviews at the Naval Air Warfare Center's aircraft division, to attend the training to ensure that they are aware of the triannual review requirements.
Closed - Implemented
In July 2009, the Navy's Office of the Assistant Secretary (Financial Management and Comptroller) directed the Navy's fund control personnel, including NAWC aircraft division's BFMs, to attend training on triannual reviews to ensure that they are aware of the triannual review requirements. The Navy requires employees, including BFMS responsible for performing the reviews at the Naval Air Warfare Center's aircraft division, to attend the training.
Department of Defense 5. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Secretary of the Navy to review and validate the accuracy of NAWC's aircraft and weapons divisions' reported outstanding obligations and accrued expenditures, especially those that have remained outstanding since the conversion to SIGMA, prior to its conversion to a new accounting system in October 2007.
Closed - Implemented
DOD concurred with the recommendation and directed the Navy to review and validate the accuracy of NAWC's outstanding obligations and accrued expenditure, and report the results to the Office of the Under Secretary of Defense (Comptroller). According to Office of the Secretary of Defense (Comptroller), the Navy has demonstrated major progress in reviewing and validating outstanding obligations and accrued expenditures. For example, the Naval Air Warfare Center weapons division reduced their dormant obligations and accrued expenditures between fiscal year 2006 and 2007 by about $4 million and $12 million, respectively.
Department of Defense 6. In order to improve the reliability of carryover information at NAWC, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to clarify the triannual review guidance for the January and May reviews in the DOD Financial Management Regulation as it pertains to the dollar threshold for reviewing outstanding commitments and obligations for the capital budget and operating portion of the working capital fund.
Closed - Implemented
In response to our recommendation, the Office of the Under Secretary of Defense (Comptroller) issued a memorandum dated September 27, 2007 to the Assistant Secretary of the Navy (Financial Management and Comptroller) clarifying the triannual review guidance in the DOD Financial Management Regulations. The memorandum specified that the working capital fund has two thresholds, one for operations and one for capital investment programs. The requirement for reviews of commitments and obligations is not based on source funding but on the appropriation cited on the commitment and obligation document.

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