DOD Financial Management - High Risk Issue
Long-standing deficiencies in the Department of Defense’s financial management, related systems, and reporting practices hinder mission and operation decision-making and affect the auditability of DOD financial statements. Sound financial management practices and reliable, useful, and timely financial information could help DOD ensure accountability and efficient and effective management of the department’s extensive resources.
DOD financial management has been on GAO's High Risk list since 1995 because of long-standing internal control deficiencies, the effects of which extend beyond financial reporting and adversely affect the economy, efficiency, and effectiveness of its operations. For example, DOD's financial management problems have contributed to
(1) inconsistent and sometimes unreliable reports to Congress on weapon system operating and support costs, limiting the visibility that Congress needs for effective oversight of weapon system programs, and
(2) an impaired ability to make cost-effective choices, such as deciding whether to outsource specific activities or how to improve efficiency through technology.
Given the federal government's continuing fiscal challenges, reliable, useful, and timely financial and performance information is important to help federal managers ensure fiscal responsibility and demonstrate accountability. This is particularly true for DOD, whose reported discretionary spending makes up about half of the federal government's and whose physical assets represent more than 70 percent of the federal government's. However, DOD remains one of the few federal entities that cannot demonstrate its ability to accurately account for and reliably report its spending or assets. DOD's financial management problems remain one of three major impediments preventing GAO from expressing an opinion on the consolidated financial statements of the federal government.
Here are some examples of the ramifications of DOD's financial management issues:
- DOD's inventory, buildings, and other property and equipment represent about 75 percent of the federal government's reported physical assets as of September 30, 2016. However, DOD cannot demonstrate that it has accurately and completely accounted for all of these assets, including their location and condition.
- DOD's reported fiscal year 2016 procurement obligations represent over 60 percent of the federal government's. However, DOD lacks effective systems, processes, and controls related to its procurement activity, including contract pay.
- DOD is unable to reconcile its fund balances with Treasury's records. As a result, DOD cannot demonstrate that its reported amount of funds available is reliable, and is therefore in danger of obligating and disbursing more funds than it has.
DOD has not fully implemented its own plans for improving financial management and achieving financial audit readiness. In recent years, the Army, Navy, and Air Force have not fully identified and remediated their systems, processes, and internal control deficiencies. However, in an effort to meet congressional requirements, the military services asserted that they were ready to undergo an audit of 1 year's budget activity beginning with fiscal year 2015, although the statutory target called for audit readiness of multi-year budget activity.
In the initial audits covering fiscal year 2015 and 2016 budget activity, all three military services received disclaimers of opinion from their auditors, which means that the auditors were not able to complete their work or issue an opinion because they lacked sufficient evidence to support the amounts presented. In this case, the disclaimers were a result of fundamental deficiencies in controls over financial record keeping that have resulted from problems with financial systems and related business processes and controls. During the fiscal year 2015 and 2016 audits, the auditors collectively issued hundreds of findings and recommendations. The three military services have generally concurred with the findings in the respective auditor reports and are at various stages of developing and implementing corrective actions to address the recommendations.
DOD's financial management improvement efforts have been hindered by its
- decentralized environment;
- cultural resistance to change;
- lack of skilled financial management staff;
- lack of effective processes, systems, and controls;
- incomplete corrective action plans; and
- ineffective monitoring and reporting.
DOD and its components leadership's recent commitment to improving its financial management has been encouraging. The statements, testimony, and actions of senior leaders have emphasized the importance of effective financial management and audit readiness to DOD's stewardship over the substantial funding and other resources entrusted to the department. Consistent with statutory requirements, DOD leadership directives have set out a strategy and methodology for improving financial management through Financial Improvement and Audit Readiness (FIAR) Plan Status Reports and FIAR Guidance. In addition, DOD's budget activity audits are providing insights through auditor recommendations on actions needed to correct financial systems, business practices, and financial reporting deficiencies.
However, DOD has not yet demonstrated that its leadership has the ability to achieve effective financial management reform, and DOD lacks a sufficient cadre of financial managers with the qualifications and level of expertise needed to lead reform throughout the department. Further, given the need to reduce or consolidate DOD's hundreds of nonstandard financial systems and business processes, implementation of effective corrective actions will take some time. DOD and its components' management will need to overcome the significant financial management challenges the department faces in reaching the ultimate goal of implementing lasting reform to ensure that it can routinely generate reliable, timely, and useful financial and other information critical to sound decision making and effective operations.
GAO-16-47: Published: Aug 19, 2016. Publicly Released: Aug 19, 2016.
The Navy has made progress in performing audit readiness activities, including developing a financial improvement plan (FIP) for its Fund Balance with Treasury (FBWT). These activities are critical to the Navy's General Fund Statement of Budgetary Resources (SBR) improvement efforts. The Navy's FBWT FIP is particularly important as it addresses improvement efforts across multiple business processe...
GAO-16-383: Published: May 26, 2016. Publicly Released: May 26, 2016.
The Department of Defense (DOD), reporting about $630 billion total Property, Plant, and Equipment (PP&E) net of accumulated depreciation as of September 30, 2015, is responsible for over 70 percent of the U.S. government's reported PP&E. However, as GAO and others have previously reported—and made recommendations to address—DOD's accountability over and ability to value its PP&E assets has fo...
GAO-16-68: Published: Dec 17, 2015. Publicly Released: Dec 17, 2015.
Based on GAO's testing of the first 10 months of fiscal year 2014, the Air Force and its service provider, the Defense Finance and Accounting Service, had in place systems and processes designed to provide a complete universe of Air Force active duty military payroll transactions. In addition to reconciling payroll information with accounting, financial reporting, and disbursement information, the...
GAO-15-463: Published: Sep 28, 2015. Publicly Released: Sep 28, 2015.
The Department of Defense (DOD) has made progress toward implementing each of the 29 recommendations made by the House Armed Services Committee Panel on Defense Financial Management and Auditability Reform (the panel). GAO determined that DOD's actions met 6 of the panel's recommendations and partially met the other 23. In its May 2015 Financial Improvement and Audit Readiness (FIAR) Plan Status R...
GAO-15-658: Published: Sep 15, 2015. Publicly Released: Oct 15, 2015.
Based on documentation provided by the Navy and the results of audit procedures, an independent public accountant (IPA) concluded that information reported on the Navy's schedule of military pay activity for April 2013 reconciled to a complete population of pay transactions that were adequately supported and valid. GAO reviewed the Navy's documentation and the IPA's related audit documentation. No...
GAO-19-209: Published: Mar 25, 2019. Publicly Released: Mar 25, 2019.
DOD relies on a mix of government personnel and contractors to carry out its multi-billion dollar major acquisition programs for new ships, planes, and more. We reviewed, among other things, the number and type of personnel working at 11 major programs. DOD does not specify one way for structuring programs and they varied widely. Programs: Had staff sizes ranging from 30 to 397 Generally had mo...
GAO-19-392T: Published: Mar 6, 2019. Publicly Released: Mar 6, 2019.
Every 2 years, we report on federal programs/operations that are vulnerable to waste, fraud, abuse, and mismanagement, or that need broad reform—our High Risk List. Our 2019 report reviews the status of areas on the list and outlines steps to lasting solutions. We testified in front of the House that the ratings for over half the 35 areas on our list remain unchanged. Since our last update, 7 a...
GAO-19-393T: Published: Mar 6, 2019. Publicly Released: Mar 6, 2019.
Every 2 years, we report on federal programs/operations that are vulnerable to waste, fraud, abuse, and mismanagement, or that need broad reform—our High Risk List. Our 2019 report reviews the status of areas on the list and outlines steps to lasting solutions. We testified in front of the Senate that the ratings for over half the 35 areas on our list remain unchanged. Since our last update, 7...
GAO-19-86R: Published: Nov 14, 2018. Publicly Released: Nov 14, 2018.
Financial management at DOD has been a High Risk issue since 1995, with unreliable financial reporting and little accountability over a trillion-dollar budget. Now DOD is trying to build a cadre of qualified financial managers to lead reforms. We reviewed DOD's 2018 report to Congress on its training for officers assuming command or other financial management positions. DOD reported 147 financial...
GAO-18-289: Published: May 10, 2018. Publicly Released: May 10, 2018.
Although the United States Navy (Navy) has taken actions to become audit ready for its real property, GAO identified internal control deficiencies that impaired the Navy's ability to assert that (1) buildings recorded in the internet Navy Facility Assets Data Store (iNFADS), the Navy's real property system, and reported as assets in its financial statements existed and (2) all of the Navy's buildi...
GAO-18-221: Published: Apr 3, 2018. Publicly Released: Apr 3, 2018.
The Department of Defense (DOD) revised its foreign currency exchange rates (“budget rates”) during fiscal years 2014 through 2016 for each of the nine foreign currencies it uses to develop its Operation and Maintenance (O&M) and Military Personnel (MILPERS) budget request. These revisions decreased DOD's projected O&M and MILPERS funding needs. DOD's revision of the budget rates during these...
GAO-18-27: Published: Oct 20, 2017. Publicly Released: Oct 20, 2017.
Since February 2015, the Journal Voucher Working Group (Working Group), which is comprised of Department of the Army (Army) and Defense Finance and Accounting Service personnel, has been actively working toward implementing new processes to address inadequate support for journal vouchers (JV) in the Army's general fund. JVs are accounting entries manually entered or system generated to record corr...
GAO-17-465: Published: Jun 30, 2017. Publicly Released: Jun 30, 2017.
The Defense-wide Working Capital Fund's (DWWCF) reported monthly cash balances were outside the upper and lower cash requirements as defined by the Department of Defense's (DOD) Financial Management Regulation (FMR) for 87 of 120 months, and more than 12 consecutive months on three separate occasions during fiscal years 2007 through 2016. Reasons why the balances were outside the requirements at s...
GAO-17-369: Published: Jun 13, 2017. Publicly Released: Jun 13, 2017.
The Department of Defense (DOD) faces five key challenges that significantly affect the department's ability to accomplish its mission. These include the need to (1) rebalance forces and rebuild readiness; (2) mitigate threats to cyberspace and expand cyber capabilities; (3) control the escalating costs of programs, such as certain weapon systems acquisitions and military health care, and better m...
GAO-17-317: Published: Feb 15, 2017. Publicly Released: Feb 15, 2017.
to waste, fraud, abuse, and mismanagement, or that need transformative change—our High Risk List. This report reviews the status of areas on the list and outlines steps to lasting solutions. This year, we added 3 areas, expanded 2 existing ones, and found many areas still in need of substantial attention. Yet, a number of agencies have made solid progress, including in 1 area that we removed an...