DOD Bulk Fuel: Improved Management over Transactions Could Lead to More Reliable Financial Reporting
GAO-23-105531
Published: Jun 22, 2023. Publicly Released: Jun 22, 2023.
Fast Facts
The Department of Defense is the government's largest purchaser and consumer of bulk fuel, which totaled $10.3 billion in FY 2022.
DOD purchases fuel in bulk and sells it to a variety of DOD agencies, as well as foreign governments and other federal agencies. This process is complex and includes many different stakeholders and transactions. Consequently, it is important for DOD to document every step of this process to ensure accountability.
However, we found that DOD's offices and agencies do not always fully document their process for purchasing, selling, and recording fuel transactions. We recommended that they do.
Highlights
What GAO Found
The Department of Defense (DOD) is the U.S. government's largest purchaser and consumer of bulk fuel, expenditures for which totaled $10.3 billion in fiscal year 2022. DOD's fuel process is complex in that it includes a variety of process owners, stakeholders, locations, and systems and a large volume of transactions from a variety of entities. This complexity makes it important for management to create and maintain documentation that accurately depicts the end-to-end business process, including all relevant internal controls.
However, GAO found that the military services and selected DOD components have not fully documented their end-to-end business process for purchasing, selling, and recording fuel transactions in their financial accounting systems. The components have documented several aspects of the process in various procedure documents, but the existing documentation is outdated and incomplete. Without accurate bulk fuel end-to-end business process documentation, there is an increased risk that entities will not appropriately design and implement control activities for purchasing bulk fuel, affecting DOD's ability to ensure accountability and control costs. This could result in policy makers not having reliable information about how DOD is using the resources it is provided.
Complexities with DOD Bulk Fuel Process
The military services and the Defense Logistics Agency (DLA) have not established memorandums of agreement (MOA) in a number of cases to delineate the rights and responsibilities of the parties in using the military services' Defense Fuel Support Points to store and manage DLA-owned bulk fuel. A March 2019 policy required that the military installations establish MOAs with any DOD component (e.g., DLA) using the real property assets the military services owned. As of October 2022, though it needed MOAs with about 500 military installations that store fuel, DLA had established 10 MOAs and had no plan for establishing the additional MOAs. Having a plan to guide its work establishing MOAs with the different military installations would help DOD accomplish this effort, which will clarify the rights and responsibilities of the parties at each installation.
Why GAO Did This Study
DLA manages DOD's bulk fuel program. Auditors reported a material weakness in fiscal year 2022 relating to DLA's inability to provide documentation supporting the balances of fuel inventory held in pipelines and fuel in transit.
This report was developed in connection with GAO's audit of the U.S. government's consolidated financial statements. This report examines the extent to which DOD policies for recording and reporting bulk fuel purchase data are consistent with relevant guidance, and selected components' procedures for recording and reporting bulk-fuel purchase data are consistent with DOD policies.
GAO reviewed relevant reports, guidance, and documentation; interviewed DOD officials; conducted site visits; and selected four DOD components for the review: the Departments of the Air Force, Army, and Navy and the U.S. Transportation Command. These four components accounted for approximately 89 percent of DOD's total fuel purchased in fiscal year 2021.
Recommendations
GAO is making 21 recommendations to DOD, including that the components document their end-to-end business processes and that DOD develop a plan to delineate the rights and responsibilities of each party responsible for DOD bulk fuel functions. DOD concurred with all 21 recommendations and stated that it will ensure that the recommendations are addressed.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of the Air Force should fully document the Air Force's end-to-end fuel business process. (Recommendation 1) |
The Department of Defense concurred with this recommendation. In response to our recommendation, the Department of the Air Force (Air Force) updated its fiscal year 2025 guidance to document its end-to-end fuel business process. In the guidance the Air Force included process descriptions, supporting narratives, and process flows for purchasing fuel. The updated guidance will help the Air Force appropriately design and implement control activities for purchasing fuel and follow consistent processes to record fuel transactions.
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| Department of Defense | The Secretary of the Army should fully document the Army's end-to-end fuel business process. (Recommendation 2) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Army will create a working group composed of various Army and Defense Logistics Agency's stakeholders/organizations to update its end-to-end fuel business process. DOD's estimated completion date was April 2024. We will continue to follow-up on the status of this recommendation.
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| Department of Defense | The Secretary of the Navy should ensure that the Commandant of the Marine Corps fully documents the Marine Corps' end-to-end fuel business process. (Recommendation 3) |
DOD concurred with this recommendation. In its response, DOD stated that the Marine Corps is currently working on defining a Business Enterprise Architecture for all classes of supplies to include bulk fuel. This entails the development of business process narratives capturing the end-to-end process for fuel transactions with subsequent yearly updates. DOD's estimated completion date was July 2024. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Navy should fully document the Navy's end-to-end fuel business process. (Recommendation 4) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Navy has accepted the risks associated with not implementing this recommendation. DOD further stated that Navy will prioritize the recommendation based on Navy's senior leadership prioritization to meet key audit assertion goals, in coordination with Navy's independent public accountants. DOD did not provide an estimated completion date for this recommendation. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of Defense should document the end-to-end process for purchasing fuel in the open market and selling to its customers. (Recommendation 5) |
DOD concurred with this recommendation. In its response, DOD stated that it will work with its components and the Defense Logistics Agency to document the end-to-end process for purchasing fuel in the open market and selling to its customers. DOD did not provide an estimated completion date for this recommendation. We will continue to follow-up on the status of this recommendation.
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| Department of Defense | The Commander of the U.S. Transportation Command should fully document the command's end-to-end fuel business process. (Recommendation 6) |
DOD concurred with this recommendation. In its response, DOD stated that the United States Transportation Command (USTRANSCOM) plans to document its end-to-end fuel business process and implementing new controls and procedures by working with applicable DOD military service point of contacts to research current fuel processes. The end-to-end fuel business process documentation they develop will include, among other things, the scope, financial reporting objectives, and systems that impact the process. DOD clarified that the completion of this documentation is dependent upon the timing of the completion of the Department of the Air Force's documentation and implementation of its end-to-end fuel business process. DOD estimated completion date is November 30, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of Defense should ensure that the roles and responsibilities of the organizations and personnel that manage and oversee the DOD fuel program at Defense Fuel Support Points are clearly defined and documented. (Recommendation 7) |
DOD concurred with this recommendation. In its response, DOD stated that the Office of the Deputy Assistant Secretary of Defense for Environment and Energy Resilience is coordinating with civilian and military personnel at different DOD components to update DOD Instruction 4140.25, DOD Management Policy for Energy Commodities and Related Services. The Washington Headquarters Services will complete formal coordination with all DOD components. DOD's estimated completion date is September 30, 2024. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Under Secretary of Defense (Comptroller) should update the guidance for the Fund-15 Fuel Data budget exhibit to clearly define the data inputs used in reconciling yearly fuel purchase and sale data. (Recommendation 8) |
DOD concurred with this recommendation. In its response, DOD stated that the Office of the Undersecretary of Defense (Comptroller) will improve the budget data inputs and the process for developing the budget exhibits. DOD further stated that a fuel working group has been established to identify and develop improvements for fuel consumption and requirements process, including utilizing DOD's Advanced Analytics tool to display transactional data for fuel purchases and sales by appropriation. DOD's estimated completion date is May 31, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of Defense should develop a plan for implementing memorandums of agreement that delineate the rights and responsibilities of each party responsible for DOD fuel functions at all DOD sites where military service-owned real property assets are used to store bulk fuel. (Recommendation 9) |
DOD concurred with this recommendation. In its comments, DOD stated that it will develop a plan for using memorandums of agreement to delineate the rights and responsibilities of fuel functions at DOD sites where military-service-owned real property assets are used to store bulk fuel. DOD did not provide an estimated completion date for this recommendation. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Air Force should establish a process to verify that Air Force military installations that purchase aviation fuel consistently perform the responsibilities outlined in Air Force Guidance Memorandum AFI 11- 253. (Recommendation 10) |
DOD stated that it concurred with this recommendation. In its comments, DOD cited several actions the Department of the Air Force is taking to provide additional guidance on the use and management of Air Force Guidance Memorandum AFI 11-253, which was scheduled to be updated by February 2024.. In the updated guidance memorandum, Air Force plans to include instructions on Aviation Into-Plane Reimbursement (AIR) Card transaction disputes and authorized contractor usage. It also plans to incorporate the Federal Acquisition Regulations' definition of 'reasonable costs' and will clarify the accounts payable and reconciliation process. Further, Air Force plans to create training guides for major commands and wing-level accountable officers that offer step-by-step instructions to manage the AIR Card and Fuels Management program. DOD's estimated completion date is September 30, 2024. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Army should establish a process to review and validate the accuracy of fuel transactions recorded in the Army's financial accounting systems. (Recommendation 11) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Army will establish a working group with various Army, Defense Logistics Agency (DLA) and United States Transportation Command (USTRANSCOM) representatives. DOD further stated that it will use documentation from 1) Army's current end-to-end fuel business process developed from the implementation of recommendation no. 2 (i.e., the Secretary of the Army should fully document the Army's end-to-end fuel business process), and 2) USTRANSCOM and DLA's end-to-end fuel business process to change and reengineer its own business processes. DOD's estimated completion date is December 31, 2028. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Navy should establish a process for reviewing and validating the accuracy of fuel transactions recorded in the Navy's and Marine Corps' financial accounting systems. (Recommendation 12) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Navy has accepted the risks associated with this recommendation. DOD further stated that Navy will address the recommendation based on Navy's senior leadership's prioritization to meet key audit assertion goals, in coordination with Navy's independent public accountants. DOD did not provide an estimated completion date. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Army should establish a process, such as using a unique identifier, to readily trace a bulk fuel transaction from Army financial accounting systems to supporting documentation. (Recommendation 13) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Army will establish a working group with various Army, Defense Logistics Agency (DLA), and United States Transportation Command (USTRANSCOM) representatives. DOD further stated that it will ensure that bulk-fuel transactions are uniquely identified in the support to facilitate matching the transactions to supporting documentation. DOD also plans to use documentation of 1) Army's current end-to-end fuel business process developed from the implementation of recommendation no. 2 (i.e., the Secretary of the Army should fully document the Army's end-to-end fuel business process), and 2) USTRANSCOM and DLA's end-to-end fuel business process to change and reengineer its own processes. DOD estimated completion date is December 31, 2028. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Air Force should establish a process, such as using a unique identifier, to readily trace a fuel transaction from Air Force financial accounting systems to supporting documentation. (Recommendation 14) |
DOD concurred with this recommendation. In its response, DOD stated that the Assistant Secretary of the Air Force, Financial Management and Comptroller is working with stakeholders to fully document the unique identifiers used when processing fuel transactions in Air Force's General Accounting and Finance System-Base Level and Defense Enterprise Accounting and Management System accounting systems. DOD's estimated completion date is April 30, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Navy should establish a process, such using as a unique identifier, to readily trace a fuel transaction from Navy and Marine Corps financial accounting systems to supporting documentation. (Recommendation 15) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Navy has accepted the risks associated with not implementing this recommendation. DOD also stated that Navy will prioritize the recommendation based on Navy's senior leadership prioritization to meet key audit assertion goals, in coordination with Navy's independent public accountants. DOD further stated that Marine Corps currently receives bulk-fuel transactions from Defense Logistics Agency (DLA)-Energy via an interface of DLA's Enterprise Business Suite (EBS) with the Marine Corps' Defense Agencies Initiative accounting system. Each bulk-fuel transaction generates a unique identifier in the form of a Military Standard Requisitioning and Issue Procedures (MILSTRIP) number. According to Navy, the MILSTRIP within the financial system ties back to the supporting documentation generated at the time is purchased from DLA. Based on the established process employing unique identifiers recommended by GAO, the Marine Corps requested that GAO close this recommendation. However, as found during our audit, we were unable to trace Marine Corps' transaction information from Marine Corps accounting system to supporting documentation using the MILSTRIP number. DOD did not provide an estimated completion date for this recommendation. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Commander of the U.S. Transportation Command should establish a process, such as using a unique identifier, to readily trace a fuel transaction from the command's financial accounting systems to supporting documentation. (Recommendation 16) |
DOD concurred with this recommendation. In its response, DOD stated that the United States Transportation Command will coordinate with the applicable Departments of the Air Force and Navy personnel to implement a process to ensure a unique identifier is utilized to trace fuel transactions from the accounting system to supporting documentation. DOD's estimated completion date is November 30, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Under Secretary of Defense (Acquisition and Sustainment) should develop a process to verify that the yearly bulk fuel reconciliations are performed in accordance with volume 2B, chapter 9, of the DOD Financial Management Regulation. (Recommendation 17) |
DOD concurred with this recommendation. In its response, DOD stated that it will work with its components, the Defense Logisitics Agency, the Office of the Undersecretary of Defense (Comptroller) and the Office of the Undersecretary of Defense (Aquisition and Sustainment) to develop a process for verifying that yearly bulk-fuel reconciliations are performed in accordance with applicable guidance. DOD did not provide an estimated completion date. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Air Force should develop a process to verify that (1) the Air Force consistently performs the monthly fuel reconciliations that Air Force guidance requires and (2) Air Force personnel retain and enter their own bulk fuel-purchase data in the Air Force's financial accounting systems. (Recommendation 18) |
In its comments on our draft report, DOD stated that it concurred with this recommendation. However, subsequently DOD stated that it partially concurred. According to DOD, the Department of the Air Force Financial Management and Comptroller did not agree with the need for Air Force to enter their own bulk-fuel-purchase data in its financial accounting system. According to DOD, Air Force's accounting system interfaces with the Defense Logistics Agency's (DLA) accounting system and receives transactional information directly from DLA's accounting system. Having to enter their own bulk fuel-purchase data in Air Force's financial accounting systems and switch to a manual process would cause significant audit risk and increase the risks of posting errors. DOD cited several actions it will take to address this recommendation. For example, it will 1) perform walkthroughs to obtain an understanding of the Air Force Accounting and Finance Office's (AFAFO) role and responsibilities in reviewing Unmatched Disbursements, 2) identify control gaps in the AFAFO process, and 3) design and review controls to address identified gaps. DOD's estimated completion date is May 30, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Army should develop a process to verify that Army personnel retain and enter their own fuel-purchase data in the Army's financial accounting systems. (Recommendation 19) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Army will establish a working group with various Army, Defense Logistics Agency (DLA), and United States Transportation Command (USTRANSCOM) representatives. DOD cited additional actions it will take to address the recommendation. For example, it will use documentation of 1) Army's current end-to-end fuel business process developed from the implementation of recommendation no. 2 (i.e., the Secretary of the Army should fully document the Army's end-to-end fuel business process), and 2) USTRANSCOM and DLA's end-to-end fuel business process to change and reengineer its own processes. DOD estimated completion date is December 31, 2028. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Secretary of the Navy should develop a process to verify that (1) the Navy consistently performs weekly reconciliations of fuel that its ships purchase and (2) Navy personnel retain and enter their own bulk fuelpurchase data in the Navy's financial accounting systems. (Recommendation 20) |
DOD concurred with this recommendation. In its response, DOD stated that the Department of the Navy has accepted the risks associated with not implementing this recommendation. DOD also stated that Navy will prioritize the recommendation based on Navy's senior leadership prioritization to meet key audit assertion goals, in coordination with Navy's independent public accountants. DOD did not provide an estimated completion date for this recommendation. We will continue to follow-up with DOD on the status of this recommendation.
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| Department of Defense | The Commander of the U.S. Transportation Command should develop a process to verify that the command performs monthly fuel reconciliations that Air Force guidance requires. (Recommendation 21) |
DOD concurred with this recommendation. In its response, DOD stated that the United States Transportation Command will coordinate with the Office of the Assistant Secretary of the Department of the Air Force, Financial Management and Comptroller (SAF/FM) to implement a process to ensure monthly fuel reconciliations related to the Transportation Working Capital Fund (TWCF) fuel transactions are performed, in accordance with Air Force guidance. It also plans to 1) research current Air Force fuel reconciliation processes and documentation, 2) document the reconciliation procedures in the end-to-end process for TWCF fuel transitions, 3) coordinate the draft process cycle narrative for review and approval, and 4) finalize the end-to-end TWCF fuel process documentation. DOD's estimated completion date is November 30, 2025. We will continue to follow-up with DOD on the status of this recommendation.
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