Statutory Requirements for Funds Control

As noted above, one of the objectives of internal control generally, and  funds control in particular, is to ensure compliance with applicable law. These weaknesses place DOD at risk of making program  and operational decisions based on unreliable data and impair DOD’s  ability to improve its financial management operations and achieve the  department’s audit readiness goals. Auditors have reported on DOD’s inability to  provide effective funds control and report reliable financial information,  including budgetary information for many years. DOD’s challenges in  properly recording and adequately supporting its obligations and  disbursements have impaired its ability to track and control the use of  public funds. As discussed later in this report,  DOD has corrective actions under way to address its transaction control  weaknesses, particularly in regard to its audit readiness efforts. Effect of Funds Control Weaknesses on DOD Financial Management Operations

Fundamental weaknesses in DOD funds control, including related  business systems weaknesses, significantly impair DOD’s ability to  ensure the (1) proper use of resources, (2) reliability of reports on the  results of operations, and (3) success of its financial audit readiness  efforts. DOD Has Actions Under Way to Address Many DOD- Wide Funds Control Weaknesses, but Effective Implementation Will Be Critical

DOD is addressing corrective actions on funds control weaknesses  through audit readiness efforts under the FIAR Plan and related FIAR  Guidance, through other efforts mainly related to improving training and  business system controls, and through efforts to address findings in  auditor and ADA reports. The Certification Program  is to be mandatory for DOD’s approximately 54,000 civilian and military  financial management personnel. However, in its  summary of management and performance challenges included in DOD’s  fiscal year 2012 Agency Financial Report, the DOD IG stated that  because of schedule delays ranging up to 13 years, DOD will continue  using outdated legacy systems and poorly developed and implemented  ERP systems, increasing the risks that (1) the SBR will not be audit ready  by September 30, 2014, and (2) DOD may not be able to produce reliable  financial data and auditable financial statements without resorting to  “heroic efforts, such as data calls and manual workarounds.” In DOD’s  fiscal year 2013 Agency Financial Report, the DOD IG reiterated this  concern and noted that the department has not reengineered its business  processes to the extent necessary, stating that instead it has often  customized commercial ERPs to accommodate existing processes. DOD  leadership remains committed to achieving financial accountability and  reliable information for day-to-day management decision making as well  as financial audit readiness. However, corrective actions are not expected  to be completed for several years on long-standing funds control  weaknesses related to (1) training, supervision, and management  oversight; (2) proper authorization, recording, documenting, and reporting  of budgetary transactions; and (3) business systems controls. As a result,  these weaknesses will continue to adversely affect DOD’s ability to  achieve its goals for effective funds controls, including reductions in ADA  violations, financial accountability, and reliable financial reporting. Appendix I: Scope and Methodology

To determine the extent of long-standing funds control weaknesses, we  analyzed 333 audit and financial reports on the Department of Defense’s  (DOD) financial management operations issued over the last 7 years– including 190 DOD audit reports, 30 GAO reports, 36 DOD financial  reports, and 77 DOD reports of Antideficiency Act (ADA) violations  provided to GAO and identified over 1,000 funds control weaknesses. To determine the status of DOD’s corrective actions to address identified  funds control weaknesses, we reviewed corrective action statuses in  response to mandates in National Defense Authorization Acts related to  financial management competencies, skill gaps, and training; corrective  actions on transaction-level accounting and financial reporting under  DOD’s FIAR Plan; the status of actions to address business system  weaknesses; and actions to address DOD ADA violations and DOD IG  and military department audit recommendations.
Why GAO Did This Study

GAO, the DOD Inspector General (IG), and others have reported on DOD's inability to provide effective control over the use of public funds (i.e., funds control). Funds control requires obligations and expenditures to comply with applicable law. Funds control weaknesses have prevented DOD from reporting reliable financial information, including information on the use of public funds, results of operations, and financial statements, and put DOD at risk of overobligating and overexpending its appropriations in violation of the Antideficiency Act (ADA).
GAO was asked to review the status of DOD's efforts to address its funds control weaknesses. GAO's objectives were to determine the (1) extent of reported weaknesses in DOD's funds control and their effect and (2) status of DOD's corrective actions to address known weaknesses. GAO analyzed 333 GAO, DOD IG, and military department audit reports; DOD reports of ADA violations; and selected DOD financial reports. GAO also examined DOD actions to address audit findings and ADA violations, including actions under DOD's FIAR Plan, and discussed corrective actions on funds control weaknesses with DOD and military department auditors and financial managers.

What GAO Found

GAO's analysis of 333 reports related to Department of Defense (DOD) funds control, issued in fiscal years 2007 through 2013, identified over 1,000 funds control weaknesses related to (1) training, supervision, and management oversight; (2) proper authorization, recording, documentation, and reporting of transactions; and (3) business system compliance with federal laws and accounting standards. Many of the reports GAO reviewed included multiple findings.
GAO found that these weaknesses led DOD to make program and operational decisions based on unreliable data and impaired DOD's ability to improve its financial management. Fundamental weaknesses in funds control significantly impaired DOD's ability to (1) properly use resources, (2) produce reliable financial reports on the results of operations, and (3) meet its audit readiness goals.
DOD has actions under way to address its department-wide funds control weaknesses. These actions, several of which are targeted for completion in 2017, include
a DOD Financial Manager Certification Program intended to establish a framework to guide training and development of DOD's 54,000 financial management personnel at the staff, supervisory, and leadership levels;
transaction control testing and corrective action plans under its Financial Improvement and Audit Readiness (FIAR) Plan for reporting on the use of budgetary resources with regard to categories of transactions, such as fund balances, outlays, military and civilian payroll, and contract pay; and
testing under the FIAR Plan of material DOD component business system controls and service-provider systems and processes as well as military department actions to address enterprise resource planning system design and implementation issues.
DOD leadership says it is committed to achieving effective fund controls to support financial accountability and reliable information for day-to-day management decision making and auditable financial statements. However, because some of the corrective actions on long-standing funds control weaknesses are not expected to be completed until 2017, these weaknesses, until fully resolved, will continue to adversely affect DOD's ability to achieve its goals for financial accountability, including the ability to produce consistent, reliable, and sustainable financial information for day-to-day decision making. Sustained leadership commitment will be critical to achieving success.

What GAO Recommends

GAO is not making recommendations in this report because DOD already has numerous actions under way to address funds control weaknesses. DOD stated that it appreciates GAO's review and that past deficiencies have informed actions it has under way to address its funds control weaknesses.