While this report focuses on cash management problems, they are symptomatic of the persistent weaknesses in DOD’s and the Fund’s financial management operations. Having systems and reports that provide timely and accurate information on the Fund’s cash balances for individual business areas and on collections and disbursements is integral to having effective controls over cash management. Cash Management Information Lacking

The Fund’s financial reports are untimely, incomplete, and inaccurate and, therefore, do not provide Fund managers with the information they need to manage cash. Specifically, we found that (1) the monthly financial reports do not contain cash balances for each individual Fund business area, (2) collection and disbursement data are not timely since the data are reported approximately 3 to 4 weeks after the month in which the transaction took place, and (3) monthly financial reports do not fully disclose billions of dollars of adjustments made to accounts receivable and payable balances, which could mask the actual amount of future collections and disbursements. As part of our ongoing work, we will continue to monitor the Fund’s effort to eliminate the outstanding advance billing balances. Successful implementation of the CFO Act will be key to solving DOD’s long-standing financial management weaknesses. In fiscal year 1993, a system change request was made to automate the billing process. Navy Faces Formidable Challenge in Managing Fund Cash

The Navy—and DFAS activities providing accounting services to the Navy—had the most problems accurately accounting for and reporting on the Fund’s cash. These problems could (1) result in an increase in the Fund’s cash requirement to cover the day-to-day fluctuations in the Fund’s cash balance and (2) impact major programmatic decisions, which may be driven largely by cash balance considerations. Financial Management: Opportunities to Strengthen Management of the Defense Business Operations Fund (GAO/T-AFMD-93-6, June 16, 1993).
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Defense Business Operations Fund's (DBOF) cash management practices, focusing on: (1) Department of Defense (DOD) efforts to manage cash; and (2) ways DOD could provide additional management oversight.

What GAO Found

GAO found that: (1) DBOF cash management problems persist and reflect long-standing DOD financial management weaknesses; (2) DBOF managers do not have timely, accurate, and complete data on individual business areas' cash balances and do not fully disclose adjustments to account balances in their monthly financial reports; (3) the Defense Finance and Accounting Service consistently has the most severe problems in accurately accounting for and reporting the Navy's cash balances, but it is developing reporting procedures to identify monthly cash balances in each business area; (4) collection and disbursement data cannot be provided more promptly until DBOF financial systems and processes are improved; (5) DOD continues to rely on advance billing to supply cash for day-to-day operations, but billing and collection problems have resulted in billions of dollars in outstanding accounts receivable; (6) DOD needs to enhance accountability and employ tools to effectively manage its cash to prevent inaccurate, untimely, and incomplete cash balances, collections, and disbursements when new financial systems are implemented; and (7) if cash management practices do not change, DOD could require excessive cash amounts to maintain ongoing DBOF operations, violate the Antideficiency Act, and limit its opportunities to fulfill DBOF objectives.