Fast Facts

DOD remains unable to receive a clean audit opinion on its financial statements, partly due to inaccurate records for its 573,000 real property assets and 26 million acres of land. Better data could help the government identify unneeded buildings, reduce costs, and potentially save millions of dollars.

DOD has not yet developed a department-wide strategy to address this issue. Instead, each military service is independently developing actions to improve its data. We made 2 recommendations, including that DOD develop such a strategy.

Managing federal real property and DOD's financial management are key issues included in our High Risk List.

aerial view of the Pentagon

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Highlights

What GAO Found

As required by the National Defense Authorization Act for Fiscal Year 2018, the Department of Defense (DOD) for fiscal year 2019 underwent a financial statement audit. In the military services' full financial statement audit reports for fiscal year 2019, the independent public accountants reported serious control issues related to events that occur during the life cycle of real property, consisting of adding, disposing, reconciling, valuing, and performing physical inventory counts. These control issues affect not only the reliability of financial statement reporting but also the quality of property record data that DOD officials need to make decisions for budget and mission planning, space management, and buying versus leasing options. Further, with DOD having almost half of the government's buildings, better data could help the federal government identify opportunities to dispose of unneeded buildings and reduce lease costs, thus potentially saving it millions of dollars.

DOD has not yet developed a comprehensive, department-wide strategy—an element of leading practices for enterprise-wide real property management—to address the reported real property issues. Instead, each of the military services is independently developing corrective actions to address control issues, without applying common solutions among the services or department-wide. A department-wide strategy for remediating control issues would better position DOD to develop sustainable, routine processes that help ensure accurate real property records and, ultimately, auditable information for financial reporting for the department. Additionally, a DOD-wide strategy could help the military services more effectively and efficiently address reported control issues, particularly for those categorized as DOD-wide issues.

The Acting Secretary, noting that the services had not accurately accounted for DOD's buildings and structures, required existence and completeness (E&C) verifications to be performed for all real property for fiscal year 2019. Given the lack of department-wide instructions for how to carry out the requirement, the military services independently developed approaches for performing the E&C verifications. Their approaches differed in both scope (what assets were verified) and methodology (how the assets were verified), including the extent to which instructions were written. Reporting and monitoring of the results by service and department-level management also differed. Without department-wide instructions for performing the fiscal year 2019 E&C verifications, the results were not comparable among the military services. Further, DOD and the military services did not obtain the complete and consistent information needed to create a DOD real property baseline or to help ensure that the department's real property records are reliable. DOD-wide instructions would help DOD obtain complete and comparable E&C verifications results, which would help DOD achieve an auditable real property baseline and, ultimately, its objective of an unmodified (“clean”) audit opinion.

Why GAO Did This Study

DOD manages one of the federal government's largest portfolios of real property. This engagement was initiated in connection with the statutory requirement for GAO to audit the U.S. government's consolidated financial statements. DOD's uncorrected deficiencies, including those affecting real property, prevent DOD from having auditable financial statements, one of the three major impediments preventing GAO from expressing an opinion on the accrual-based consolidated financial statements of the U.S. government.

This report (1) identifies the real property control issues that independent public accountants reported that may affect the ability of the military services to establish and maintain accurate and complete real property records, (2) examines the extent to which DOD had a strategy to address the control issues, and (3) assesses the extent to which DOD provided guidance for the required E&C verifications during fiscal year 2019 and how each military service implemented the directive. GAO analyzed fiscal year 2019 audit findings, reviewed key DOD documents, and interviewed DOD and military service officials.

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Recommendations

GAO is recommending that DOD (1) develop and implement an enterprise-wide strategy to remediate real property control issues and (2) issue DOD-wide instructions for the E&C verifications. DOD concurred with GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
The Under Secretary of Defense (Comptroller) should, in collaboration with the Under Secretary of Defense (Acquisition and Sustainment), develop and implement a DOD-wide strategy to remediate real property asset control issues. (Recommendation 1).
Open
DOD concurred with this recommendation and stated that it was committed to placing increased leadership emphasis on real property asset controls to ensure mission readiness, audit readiness, testing for existence and completeness, and maintaining internal controls. DOD identified five key corrective actions needed to address this recommendation. The first of the five key corrective actions is to realign the financial reporting responsibilities for real property assets to the military services and the Washington Headquarters Services. The second key corrective action is to review and update policy and procedures to incorporate the necessary controls to ensure that real property assets are accurately accounted through the asset's lifecycle. The third key corrective action is to identify control issues related to regular reconciliations of real property, as well as adding, disposing, valuing, and taking physical inventories of real property assets. The fourth key corrective action is to determine each military service's current status of efforts to value real property. The fifth corrective action is to develop a framework for sharing best practices for remediating real property issues. We will continue to monitor DOD's efforts to implement these corrective actions.
Department of Defense
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
The Under Secretary of Defense (Comptroller) should, in collaboration with the Under Secretary of Defense (Acquisition and Sustainment), develop department-wide instructions for performing the E&C verifications. (Recommendation 2).
Open
DOD concurred with this recommendation and stated that it was committed to placing increased leadership emphasis on real property asset policies and instructions to ensure consistent and repeatable existence and completeness verifications. DOD has identified four key corrective actions to be taken by the Office of the Under Secretary of Defense (Comptroller) (OUSD(C)). For the first key corrective action, OUSD(C) will analyze the different real property existence and completeness (E&C) methodologies that the military services have implemented to determine which method helped to produce the most auditable information. For the second key corrective action, OUSD(C) will determine where policies and procedures need updating to incorporate DOD-wide E&C methodology. For the third key corrective action, OUSD(C) will assist with updating policies and procedures to ensure that they clearly demonstrate requirements for (1) conducting E&C verifications to include verification of data elements and minimum internal controls; (2) supporting documentation; and (3) how leadership at each of the services will report their progress to the OUSD(C). For the fourth key corrective action, the Real Property Financial Working Group will monitor progress of key corrective actions related to E&C verifications for real property. We will continue to monitor DOD's efforts to address this recommendation.

Full Report

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