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DOD Financial Management: Greater Attention and Accountability Needed over Government-Furnished Property

GAO-23-105198 Published: Jan 17, 2023. Publicly Released: Jan 17, 2023.
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Fast Facts

The DOD has struggled for decades to accurately account for government property in the possession of its contractors. DOD estimated that the value of such unaccounted property is over $220 billion—but that amount is likely significantly understated. This is one of the reasons that federal auditors are unable to audit DOD's financial statements.

We found that DOD doesn't have a comprehensive, department-wide strategy to address this issue. We recommended that DOD develop such a strategy to identify root causes and implement common solutions across its agencies, and more.

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Highlights

What GAO Found

For years, the Department of Defense (DOD) has struggled to accurately account for government property in the possession of contractors, known as government-furnished property (GFP). DOD has repeatedly revised its planned dates to address a GFP-related material weakness since auditors first reported it in 2001.

Department of Defense's Revisions to Remediation Dates for Addressing the Government-Furnished Property (GFP) Material Weakness

Department of Defense's Revisions to Remediation Dates for Addressing the Government-Furnished Property (GFP) Material Weakness

DOD management has issued multiple memorandums to remediate the long-standing GFP-related material weakness, including a May 2019 memorandum that directed DOD components to establish a baseline of GFP assets. However, GAO found that DOD did not achieve its stated objective for the May 2019 memorandum as a result of challenges with (1) an inefficient and incomplete initial memorandum distribution process, (2) confusion among department officials over memorandum terminology, (3) components' logistical struggles to identify and provide requested data, and (4) a lack of effective management review of the components' progress. Additionally, GAO identified challenges with the Property Functional Council (Council), which DOD established in part to oversee efforts to address the material weakness. For example, the Council did not routinely discuss GFP or the May 2019 memorandum, and did not consistently meet or include all key participants when it did. Without documented processes and procedures for GFP-related memorandum guidance and the Council's operations, DOD increases the risk that it will continue to encounter challenges with its efforts to remediate the GFP-related material weakness.

While DOD has taken steps to address the GFP-related material weakness, GAO found that department-wide efforts have not been comprehensive and sufficiently detailed. Developing a comprehensive department-wide strategy, separate from DOD's overarching financial management strategy, would assist the department in identifying root causes of deficiencies with common solutions across the departments, and clearly defining detailed procedures for achieving tasks and meeting target dates. Without such a strategy, DOD is at an increased risk that its efforts to remediate the GFP material weakness will continue to be insufficient and that it will continue to miss or push back target remediation dates.

Why GAO Did This Study

DOD's lack of accountability over government property in the possession of contractors has been reported by auditors for decades. This long-standing issue affects the accounting and reporting of GFP and is one of the reasons DOD is unable to produce auditable financial statements. DOD estimated the value of its GFP at over $220 billion; however, that amount is likely significantly understated.

This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines the (1) challenges DOD has encountered in department-wide efforts to address weaknesses related to its accounting for GFP and (2) extent to which DOD has developed a department-wide strategy to address the GFP-related material weakness.

GAO reviewed relevant audit reports, memorandums issued by DOD management, DOD strategy documents, and Council meeting documents; interviewed officials; and analyzed military department reports.

Recommendations

GAO is making three recommendations, specifically, for DOD to (1) document and implement a process for memorandum distribution and for reviewing components' compliance, (2) document procedures for how the Council and related oversight groups will function, and (3) develop a comprehensive strategy to clearly articulate the detailed DOD-wide efforts to address the GFP material weakness. DOD concurred with one and partially concurred with two of GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should ensure that the Under Secretary for Defense (Acquisition and Sustainment), in collaboration with the Under Secretary of Defense (Comptroller), documents and implements a process for (1) developing and distributing DOD-wide GFP-related guidance in the form of memorandums, including procedures to obtain and incorporate input from military departments, and (2) reviewing military departments' compliance with this guidance. (Recommendation 1)
Open
The Department of Defense (DOD) partially concurred with this recommendation. In its response, DOD stated it was their belief that creating additional policy specific to Government Furnished Property (GFP) was not necessary as such policy currently exists (DOD Manual 5110.04). However, DOD acknowledged the current policy was not being adhered to and would take action to ensure implementation of the existing guidance. With regard to the second part of the recommendation, DOD acknowledged the military departments struggled with internal distribution of the May 2019 Office of the Undersecretary of Defense, Acquisition and Sustainment (OUSD A&S) memo for establishing a GFP baseline and OUSD did not obtain timely or consistent responses. Going forward, in similar requests for information tasked to the military departments, OUSD stated it will include a requirement for the military departments to establish a point of contact for follow-up and compliance. We will continue to follow-up with DOD on actions to address this recommendation.
Department of Defense The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller), in collaboration with the Under Secretary of Defense (Acquisition and Sustainment), documents specific written procedures, such as in a charter, for how the PFC and other related oversight groups will function. The procedures should (1) establish expectations for meeting frequency; (2) establish the group's specific goals and objectives, including expectations for regularly assessing the effectiveness and timeliness of remediation efforts; and (3) identify key participants. (Recommendation 2)
Open
The Department of Defense (DOD) concurred with this recommendation. Specifically, DOD stated that both the Acquisition and Sustainment and the Comptroller's office, within the Office of the Undersecretary of Defense Office, would collaborate to develop specific written procedures, such as a charter, for how the Property Functional Council and other related oversight groups will function. We will continue to follow-up with DOD on actions to address this recommendation.
Department of Defense The Secretary of Defense should ensure that the Under Secretary of Defense (Acquisition and Sustainment), in collaboration with the Under Secretary of Defense (Comptroller), develops and documents a comprehensive strategy, separate from the financial management strategy, to clearly articulate the detailed DOD-wide efforts to address the GFP material weakness. The comprehensive strategy should document (1) steps to identify and address root causes of deficiencies, (2) an overall planned remediation date with specific interim target dates based on an analysis of feasible time frames, and (3) steps to reassess actions after significant target dates so that plans can be adjusted as needed. (Recommendation 3)
Open
The Department of Defense (DOD) partially concurred with this recommendation. As of March 2024, DOD identified steps to address the root causes of its government-furnished property (GFP) deficiencies and planned a remediation date with interim target dates and steps to reassess actions by evaluating progress on a periodic basis. To fully implement this recommendation, DOD should document these steps in a comprehensive strategy that clearly articulates detailed DOD-wide efforts to address the GFP material weakness through a collaborative effort between the offices of the Under Secretaries of Defense for Acquisition and Sustainment and Comptroller. We will continue to follow-up with DOD on actions to address this recommendation.

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Topics

Compliance oversightFinancial managementFinancial statement auditsFinancial statementsInternal controlsMaterial weaknessesPolicies and proceduresRemediationMilitary departmentsFederal contractors