However, obligated funds may be spent over a period of 5 additional years,  as bills for goods and services are received and paid. Navy Did Not Properly Account for Large Portion of Unliquidated Operating Obligations

An estimated two-thirds of the Navy’s unliquidated operating obligations  valued at $50,000 or more from the fiscal years 1997-99 operating  appropriations was not properly accounted for. Specifically, we estimated  that $929 million of the $1.4 billion in unliquidated operating obligations  was not properly accounted for. As shown in table 1, $452 million of the  unliquidated operating obligations was no longer needed for its original  purpose. These funds could have been used for other permissible purposes  of the same appropriation and fiscal year, such as contract modifications. Finally,   $489 million in unliquidated operating obligations was properly accounted  for and still needed for the original purpose. The Navy failed to deobligate an estimated $452 million that was no longer  needed for the original obligated purpose. The Navy had also not properly accounted for an estimated $147 million in  unliquidated operating obligations due to expenditures that were not  properly matched to a specific obligation recorded in the Navy’s records— problem disbursements. Navy Did Not Fully Adhere to DOD Review Regulations

The Navy did not fully adhere to DOD regulations to review all  unliquidated operating obligations, including those obligations valued at  $50,000 or more three times per year and those obligations valued at less  than $50,000 once every year. As a result, the Navy did not know how much  money was tied up in unliquidated operating obligations that could  potentially be used for other permissible needs. The Navy did not utilize internal control activities necessary to ensure that  fund managers performed thorough obligation reviews in accordance with  DOD regulations. The large dollar value of unliquidated Navy obligations that were  not properly accounted for contributes to inaccuracies in the Navy’s  budget and financial reports, and subsequently leads to inaccuracies in  federal financial statements and the President’s budget. Recommendations for Executive Action

We recommend that the Secretary of Defense direct the Secretary of Navy  to:    adhere to DOD unliquidated operating obligation review regulations; and    better apply existing internal control activities to ensure adherence to  these regulations, and to hold fund managers accountable for the accuracy  and completeness of their reviews. Appendix I: Scope and Methodology

Our objective was to determine whether the Navy’s unliquidated operating  obligations were (1) properly accounted for and (2) periodically reviewed  in accordance with DOD regulations. For our review, we selected unliquidated  operating obligations for fiscal years 1997-99.
Why GAO Did This Study

As of September 30, 2001, the Navy's operating appropriations had $2.1 billion in unliquidated--or unpaid--funds that were obligated during fiscal years 1997-99. Unliquidated obligations that are no longer needed to pay for goods and services tie up funds that could be used for other permissible purposes. In addition, inaccurate obligation data result in misstatement of budgetary information. Because of the large dollar value, we examined the Navy's management of unliquidated obligations. Specifically, we reviewed a statistically representative sample of the Navy's $1.4 billion in unliquidated operating obligations valued at $50,000 or more for fiscal years 1997-99 to determine whether these obligations were (1) properly accounted for and (2) reviewed in accordance with DOD regulations.

What GAO Found

We estimated that $929 million of the $1.4 billion in unliquidated operating obligations valued at $50,000 or more for fiscal years 1997-99 was not properly accounted for (see table). Specifically, the Navy failed to deobligate $452 million of unliquidated operating obligations that was no longer needed and potentially available for other permissible purposes, such as contract modifications. In addition, $147 million of unliquidated operating obligations was inaccurately recorded because of problem disbursements--payments not properly matched to the correct obligation. A further $330 million was inaccurately recorded due to unresolved errors, such as bills that were not processed properly. The remaining $489 million in unliquidated operating obligations was properly accounted for and still needed for the original purpose. An estimated two-thirds of the unliquidated operating obligations over $50,000 were not properly accounted for as a result of the Navy's failure to review such obligations three times each year as required by DOD regulations. In addition, the Navy did not fully adhere to the regulation that unliquidated operating obligations of any value be reviewed at least once each year. Consequently, the Navy did not know how much money was tied up in unliquidated operating obligations that could potentially be used for other appropriate needs, and its budgetary reports to Congress and financial statements were inaccurate. Navy fund managers chose to selectively review their operating obligations, citing obstacles such as difficulties in obtaining accurate payment and billing data and the extensive length of time needed to review large numbers of obligations. Further, the Navy did not apply existing internal control activities to ensure that fund managers performed obligation reviews in accordance with DOD regulations, nor did it hold fund managers accountable for the accuracy and completeness of the reviews.