What GAO Found
The Schedules of Budgetary Activity (Budgetary Schedules) for the Army, Navy, and Air Force for fiscal year 2015 reflected current year budget activity as an interim step toward producing an auditable Statement of Budgetary Resources that will reflect multiyear budget activity. All three of the independent public accountants (IPA) contracted to audit these fiscal year 2015 Budgetary Schedules issued disclaimers, meaning that the IPAs were unable to express an opinion because of a lack of sufficient evidence to support the amounts presented. The IPAs for all three military services also identified material weaknesses in internal control and collectively issued a total of over 700 findings and recommendations. These weaknesses included, among other things, the military services' inability to reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. Army, Navy, and Air Force management generally concurred with these findings and stated that they would develop and implement corrective actions to address the IPAs' recommendations.
Office of Management and Budget (OMB) guidance and the Department of Defense's (DOD) Financial Improvement and Audit Readiness (FIAR) Guidance include the following steps for addressing these and other financial management-related findings and recommendations reported by external auditors: (1) identify and track them, (2) prioritize them, (3) develop corrective action plans (CAP) to remediate them, and (4) monitor the implementation status of the CAPs. GAO found that the remediation processes designed by each military service had deficiencies in one or more of these areas. For example, each military service's policies and procedures lacked sufficient controls to reasonably assure that they identified and tracked the complete universe of open findings and recommendations related to financial management. Without identifying and tracking the complete universe of unresolved deficiencies, the military services cannot provide reasonable assurance that the deficiencies will be addressed in a timely manner, which can ultimately affect the reliability of financial information and the auditability of their financial statements.
The DOD Comptroller has established several elements of a department-wide audit readiness remediation process, but it does not have comprehensive information on the status of CAPs throughout the department needed to fully monitor and report on the progress being made to resolve financial management-related deficiencies. Specifically, (1) the DOD Comptroller does not obtain complete, detailed information on all CAPs from the military services related to the department's critical capabilities to be able to fully assess progress and (2) reports to external stakeholders such as the Congress on the status of audit readiness do not provide comprehensive information. A lack of comprehensive information on the CAPs limits the ability of DOD and Congress to evaluate DOD's progress toward achieving audit readiness, especially given the short amount of time remaining before the statutory deadline to submit to Congress the results of an audit of the department-wide financial statements for fiscal year 2018.
Why GAO Did This Study
DOD remains on GAO's High-Risk List because of its long-standing financial management deficiencies. These deficiencies negatively affect DOD's audit readiness and its ability to make sound mission and operational decisions. The Army, Navy, and Air Force underwent their first Budgetary Schedule audits for fiscal year 2015.
This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines (1) the results of the audits of the fiscal year 2015 Budgetary Schedules for the Army, Navy, and Air Force; (2) the extent to which each military service designed a process to address financial management-related audit findings and recommendations; and (3) the extent to which DOD has designed a department-wide process to monitor and report on audit readiness remediation efforts. GAO reviewed IPA reports and documentation from the military services and DOD Comptroller and interviewed cognizant officials.
GAO is making a total of eight recommendations to the Army, the Navy, the Air Force, and DOD to improve processes for tracking and monitoring financial management-related audit findings and recommendations. The military services concurred with the five recommendations to them, while DOD concurred with one and partially concurred with two of the recommendations directed to it. GAO continues to believe that the recommendations are valid, as discussed in the report.
Recommendations for Executive Action
|Department of the Army||
Priority Rec.1. The Secretary of the Army should direct the Internal Review Directorate under the Assistant Secretary of the Army, Financial Management and Comptroller, to develop written policies and procedures for all financial management-related audit findings and recommendations under its purview that include the following: (1) how the status of the recommendations will be tracked; (2) the process and criteria to be followed for prioritizing the findings and recommendations; (3) the process for developing CAPs to remediate the findings and recommendations, including the detailed CAP elements recommended by the Implementation Guide for OMB Circular A-123; and (4) the process for monitoring the status and progress of the CAPs, including the documentation to be maintained for monitoring CAP status and any actions to be taken if a lack of progress is found.
|Department of the Army||
Priority Rec.2. The Secretary of the Army should direct the Accountability and Audit Readiness Directorate under the Assistant Secretary of the Army, Financial Management and Comptroller, to enhance the directorate's policies and procedures for (1) tracking and prioritizing all financial management-related audit findings and recommendations under its purview and (2) developing and monitoring CAPs for all such recommendations so that they include sufficient details, such as the criteria used to prioritize the CAPs, the recommended CAP elements, and the process for monitoring and documenting the progress and status of CAPs.
|Department of the Navy||
Priority Rec.3. The Secretary of the Navy should, when finalizing the Navy's policies and procedures for identifying and tracking its CAPs to remediate financial management-related audit findings and recommendations, enhance this guidance so it includes detailed steps and specific procedures for confirming and validating the completeness and accuracy of the status of these audit findings and recommendations.
|Department of the Air Force||
Priority Rec.4. The Secretary of the Air Force should design and document a comprehensive process to ensure that the complete universe of all financial management-related findings and recommendations from all audit sources is identified and tracked.
|Department of the Air Force||
Priority Rec.5. The Secretary of the Air Force should update the Air Force's written policies and procedures for prioritizing financial management-related audit findings and recommendations from all audit sources and for developing and monitoring CAPs so that they include sufficient details. These procedures should include the following details: (1) The process to be followed for prioritizing the financial management-related findings and recommendations from audit sources. (2) The guidance for developing CAPs for all financial management-related audit findings and recommendations from all audit sources to include complete details, including the elements recommended by the Implementation Guide for OMB Circular A-123. (3) The process for monitoring the status of the CAPs for all financial management-related audit findings and recommendations from all audit sources, including the documentation to support any corrective actions taken, as recommended by the Implementation Guide for OMB Circular A-123.
|Department of Defense||
Priority Rec.6. To improve DOD management's process for monitoring the military services' audit remediation efforts and to provide timely and useful information to stakeholders as needed, the Secretary of Defense should direct the Secretary of the Army, the Secretary of the Navy, and the Secretary of the Air Force to prepare and submit to the Under Secretary of Defense (Comptroller), on at least a bimonthly basis for availability at the FIAR Governance Board meetings, a summary of key information included in the CAPs that at a minimum contains the data elements recommended by the Implementation Guide for OMB Circular A-123 for each CAP related to critical capabilities for achieving audit readiness.
|Department of Defense||
Priority Rec.7. To reasonably assure that DOD management and external stakeholders have a comprehensive picture of the status of corrective actions needed for audit readiness throughout the department, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to prepare a consolidated CAP management summary on a bimonthly basis that includes the data elements referred to above on the status of all CAPs related to critical capabilities for the military services and for the service providers and other defense organizations.
|Under Secretary of Defense (Comptroller)||
Priority Rec.8. To facilitate the development of a consolidated CAP management summary and the ability to efficiently respond to stakeholder requests, the Under Secretary of Defense (Comptroller) should develop and implement a centralized monitoring and reporting process that at a minimum (1) captures department-wide information on the military services' and other defense organizations' CAPs related to critical capabilities, including the standard data elements recommended in the Implementation Guide for OMB Circular A-123, and (2) maintains up-to-date information on the status of these CAPs.