DOD Financial Management: Greater Attention and Accountability Needed over Government-Furnished Property
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.
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
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) |
The Department of Defense (DOD) partially concurred with this recommendation. DOD stated that policy for developing and distributing DOD-wide government-furnished property (GFP) related guidance existed in current policy. However, DOD acknowledged that additional action was needed to ensure adherence to such policy and points of contact needed to be established across DOD to facilitate follow-up, compliance, and tracking of any GFP-related corrective actions. In June 2024, a memorandum signed by both the Office of the Under Secretary of Defense for Acquisition and Sustainment and the Office of the Under Secretary of Defense (Comptroller) was issued entitled, "Updating Government Furnished Property Data in Component Logistics Information Technology Systems - Request for Implementation Status." The memorandum highlighted the critical nature of timely and accurately accounting for the status, value, and location of property in the possession of contractors--including GFP--to address the related material weakness and, resultantly, achieve and maintain an unqualified financial statement audit opinion. Further, the memorandum assigned the military department comptrollers and financial managers as the primary points of contact for implementation of GFP related guidance due to the cross functional nature of the corrective actions. Through the issuance of this memorandum, these individuals will be used as the focal points for follow-up and tracking compliance for any GFP-related actions. As a result, the actions taken by DOD meet the intent of our recommendation.
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| 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) |
The Department of Defense (DOD) concurred with this recommendation. In August 2024, DOD stated that the OUSD (Comptroller) and OUSD (Acquisition and Sustainment) will collaboratively develop and publish specific written procedures in a charter for how the Property Functional Council (PFC) will function with a planned completion date of January 2025. However, as of April 2025, the development and publishing of such specific written procedures related to how the PFC will function has yet to be completed. We will continue to follow-up on DOD's efforts to address this recommendation.
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| Department of Defense |
Priority Rec.
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) |
The Department of Defense (DOD) partially concurred with this recommendation. As of August 2024, DOD identified steps in its fiscal year 2023 agency financial report (AFR), within its Summary of Financial Statement Audit and Management Assurances section, to address the root causes of its government-furnished property (GFP) deficiencies and established an overall remediation date. The DOD-wide corrective actions included (1) develop policy supporting reporting and accountability of GFP; (2) develop data standards and automated solutions for reporting GFP; and (3) implementation of policy, data standards, and automated solutions by components. However, based on DOD's fiscal year 2023 AFR, the target date for completing these corrective actions was adjusted from 2025 to 2031 due to a shift in major weapon system financial reporting responsibility to the military departments and the accompanying interpretations of the Federal Acquisition Regulation. No interim target dates were noted based on an analysis of feasible time frames with associated steps to reassess actions after significant target dates so that plans can be adjusted as needed. To fully implement this recommendation, DOD should document interim steps necessary to meet the estimated 2031 remediation date, with steps to reassess actions taken after significant target dates, in a comprehensive strategy that clearly articulates detailed DOD-wide efforts to address the GFP material weakness. We will continue to follow-up with DOD on actions to address this recommendation.
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