As of January 31, 1996, DOD reported that it had reduced the $37.8 billion of problem disbursement balances to $25.4 billion. The law directed the Secretary of Defense to require that each disbursement in excess of $5 million be matched to a particular obligation before the disbursement is made. On February 28, 1995, DOD submitted its plan—which was a general overview plan describing processes and milestones for automating the prevalidation process and lowering the prevalidation threshold to $1 million—to the Congress, and the DOD IG provided the defense congressional committees with its independent assessment, which generally agreed with the plan and DOD’s overall approach for implementation. The team leader also told us that the inflow of new problem disbursements has not slowed down because the same long-standing weaknesses regarding system problems and failure to comply with basic accounting procedures, which we previously reported in 1994, generally still exist. Description of the Prevalidation Process

DOD had automated prevalidation to electronically process certain disbursement data between the DFAS Columbus Center’s disbursing system, known as the Mechanization of Contract Administration Services (MOCAS), and eight DOD primary contract accounting systems. Prevalidation Threshold Needs To Be Lowered

Although section 8102 of DOD’s Appropriations Act for Fiscal Year 1996 required DOD to prevalidate only disbursements in excess of $5 million, on October 1, 1995, DOD lowered the prevalidation threshold to $1 million at all activities except the DFAS Columbus Center. However, since prevalidation at DFAS Columbus is made only for payments exceeding $5 million, large numbers of transactions, amounting to tens of billions of dollars, are excluded from this important accounting control. This is less than one-fourth of one percent of the total payments and only about one-third of the total dollars. DOD’s problems with accounting for and reporting on disbursements will not be resolved until (1) weaknesses in control procedures that allow problem disbursements to occur are corrected and (2) improvements are made to DOD’s contract pay, disbursing, and accounting processes and systems.
Why GAO Did This Study

Pursuant to congressional requests, GAO reviewed, in conjunction with the Department of Defense's (DOD) Inspector General (IG), DOD efforts to reduce problem disbursements and its implementation of a statutory requirement to match each disbursement exceeding $5 million to the appropriate obligation before the disbursement is made.

What GAO Found

GAO found that: (1) DOD reduced its problem disbursements from $37.8 billion to $23.1 billion as of September 1995; (2) DOD disbursement problems persist due to long-standing system weaknesses and DOD failure to comply with basic accounting procedures for validating, reconciling, and reporting transactions; (3) DOD has automated the prevalidation process for the Defense Finance and Accounting Service's (DFAS) Columbus Center contract payment system and eight other primary contract accounting systems to handle their large volume of transactions; (4) there are deficiencies in the automated programs for prevalidating Army and Air Force disbursements; (5) DOD has lowered the prevalidation threshold to $1 million for all disbursement centers except DFAS-Columbus; (6) this limited implementation hampers DOD ability to resolve its disbursement problems, since DFAS-Columbus is responsible for about 40 percent of DOD contractor and vendor payments; (7) from July 1995 through January 1996, DFAS-Columbus prevalidated only about one-third of the total dollar amount of its disbursements; and (8) to resolve disbursement problems, DOD needs to prevalidate as many transactions as practical, further lower the prevalidation threshold, and follow basic accounting procedures until it has corrected serious weaknesses in its accounting and contracting systems.