To manage DOD’s programs effectively and efficiently, its managers need reliable cost information. DOD has acknowledged that its Defense Reform Initiative efforts have been hampered by limited visibility into true ownership costs of its weapons systems. Integrated Financial Management System Using Year 2000 Approach

Establishing an integrated financial management system—including both automated and manual processes—will be key to reforming DOD’s financial management operations. DOD has acknowledged that its present system has long-standing inadequacies and does not, for the most part, comply with federal system standards. DOD has set out an integrated financial management system goal. Further, the department is now well- positioned to adapt the lessons learned from addressing the Year 2000 issue and our recently issued survey of the best practices of world-class financial management organizationsand to use the information technology investment criteria included in the Clinger-Cohen Act of 1996. The inclusion of feeder systems in the department’s inventory of financial management systems is a significant landmark because of the importance of the programmatic functions to the department’s ability to carry out not only its financial reporting but also its asset accountability responsibilities. In addition, the goal of DOD’s Financial ManagementImprovementPlanshould be to improve DOD’s business processes in order to provide better information to decisionmakers and ensure greater control and accountability over the department’s assets.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed financial management issues at the Department of Defense (DOD).

What GAO Found

GAO noted that: (1) to date no major part of DOD has yet been able to pass the test of an independent audit--auditors consistently have issued disclaimers of opinion because of pervasive weaknesses in DOD's financial management systems, operations, and controls; (2) such problems led GAO in 1995 to put DOD financial management on a list of high-risk areas vulnerable to waste, fraud, abuse, and mismanagement, a designation that continued in last year's update; (3) lacking such key controls and information not only hampers the department's ability to produce timely and accurate financial information, but also significantly impairs efforts to improve the economy and efficiency of its operations; (4) unreliable cost and budget information affects DOD's ability to effectively measure performance, reduce costs, and maintain adequate funds control, while ineffective asset accountability and control adversely affect DOD's visibility over weapons systems and inventory; (5) establishing an integrated financial management system--including both automated and manual processes--will be key to reforming DOD's financial management operations; (6) DOD has acknowledged that its present system has long-standing inadequacies and does not, for the most part, comply with the federal system standards; (7) DOD has set out an integrated financial management system goal; and (8) further, the department is now well-positioned to adapt the lessons learned from addressing the year 2000 issue and GAO's recently issued survey of the best practices of world-class financial management organizations and to use the information technology investment criteria included in the Clinger-Cohen Act of 1996.