Audits of the Army’s, Navy’s, and Air Force’s Fiscal Year 2015 Budgetary Schedules Resulted in Disclaimers of Opinion

The Army, Navy, and Air Force asserted audit readiness for their  Budgetary Schedules in 2014 and underwent their first Budgetary  Schedule audits for fiscal year 2015. The IPAs for  all three military services reported each of these reportable findings as a  stand-alone material weakness or as part of a larger, combined material  weakness. Army, Navy, and Air Force management generally concurred  with the findings in the respective IPA reports and stated that they will  develop and execute corrective actions to address the IPAs’ related  findings. For all three military services, auditors found  that adequate documentation to support disbursements and obligations  was not always available. The Military Services Did Not Sufficiently Design Their Processes to Address Financial Management Deficiencies

The IPAs for the Army, Navy, and Air Force collectively issued over 700  notices of findings and recommendations to the respective military  services during the course of the fiscal year 2015 Budgetary Schedule  audits. Each military service is responsible for establishing its own processes for  addressing these findings and recommendations by (1) identifying and  tracking them, (2) prioritizing them, (3) developing corrective action plans  (CAP) to address them, and (4) monitoring the status of CAP  implementation. If the Air Force does not identify and track the complete universe of its unresolved deficiencies related to  financial management, it cannot provide reasonable assurance that all  such deficiencies will be addressed in a timely manner, which can  ultimately affect the reliability of its financial information and the  auditability of its financial statements. DOD’s Process for Monitoring and Reporting on Audit Remediation Efforts Lacks Comprehensive Information

Although the DOD Comptroller’s office has established several elements  of a department-wide audit readiness remediation process, it does not  have the comprehensive information on the status of all CAPs throughout  the department needed to fully monitor and report on the progress being  made to resolve financial management-related deficiencies that preclude  DOD from being auditable. Specifically, (1) the DOD Comptroller’s office  is not able to fully assess the military services’ progress because it does  not obtain complete, detailed information on all of their CAPs related to  critical capabilities—those identified in the FIAR Guidance as necessary  to achieve auditability—and (2) reports to internal stakeholders and  external stakeholders, such as DOD OIG, OMB, GAO, and Congress, on  the status of audit readiness do not provide comprehensive information. We recommend that the Secretary of the Army direct the Internal  Review Directorate under the Assistant Secretary of the Army,  Financial Management and Comptroller, to develop written policies  and procedures for all financial management-related audit findings  and recommendations under its purview that include the following: how the status of the recommendations will be tracked;  the process and criteria to be followed for prioritizing the findings  and recommendations;  the process for developing CAPs to remediate the findings and  recommendations, including the detailed CAP elements  recommended by the Implementation Guide for OMB Circular A- 123; and  the process for monitoring the status and progress of the CAPs,  including the documentation to be maintained for monitoring CAP  status and any actions to be taken if a lack of progress is found. In their written comments, reprinted in appendix IV,  the Army, Navy, and Air Force concurred with our respective  recommendations to them, while DOD concurred with one  recommendation and partially concurred with two other recommendations  that we made to it. Given the short amount of time remaining before the statutory date of  March 31, 2019, for submitting to Congress the results of an audit of  DOD’s fiscal year 2018 financial statements, having complete and  reliable, detailed information on the department-wide status of CAPs  related to critical capabilities is essential for DOD and its stakeholders so  that they can (1) measure and communicate DOD’s progress in  addressing the financial management deficiencies and (2) determine if  additional actions are necessary to expedite the remediation process. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) report the results of the audits of the fiscal year  2015 Schedules of Budgetary Activity (Budgetary Schedule) for the  military services, (2) determine the extent to which each military service  designed a process to address identified financial management-related  findings and recommendations, and (3) determine the extent to which the  Department of Defense (DOD) has designed a department-wide strategy  to monitor and report on audit readiness remediation efforts. Budgetary resources.
Why GAO Did This Study

DOD remains on GAO's High-Risk List because of its long-standing financial management deficiencies. These deficiencies negatively affect DOD's audit readiness and its ability to make sound mission and operational decisions. The Army, Navy, and Air Force underwent their first Budgetary Schedule audits for fiscal year 2015.
This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines (1) the results of the audits of the fiscal year 2015 Budgetary Schedules for the Army, Navy, and Air Force; (2) the extent to which each military service designed a process to address financial management-related audit findings and recommendations; and (3) the extent to which DOD has designed a department-wide process to monitor and report on audit readiness remediation efforts. GAO reviewed IPA reports and documentation from the military services and DOD Comptroller and interviewed cognizant officials.

What GAO Found

The Schedules of Budgetary Activity (Budgetary Schedules) for the Army, Navy, and Air Force for fiscal year 2015 reflected current year budget activity as an interim step toward producing an auditable Statement of Budgetary Resources that will reflect multiyear budget activity. All three of the independent public accountants (IPA) contracted to audit these fiscal year 2015 Budgetary Schedules issued disclaimers, meaning that the IPAs were unable to express an opinion because of a lack of sufficient evidence to support the amounts presented. The IPAs for all three military services also identified material weaknesses in internal control and collectively issued a total of over 700 findings and recommendations. These weaknesses included, among other things, the military services' inability to reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. Army, Navy, and Air Force management generally concurred with these findings and stated that they would develop and implement corrective actions to address the IPAs' recommendations.
Office of Management and Budget (OMB) guidance and the Department of Defense's (DOD) Financial Improvement and Audit Readiness (FIAR) Guidance include the following steps for addressing these and other financial management-related findings and recommendations reported by external auditors: (1) identify and track them, (2) prioritize them, (3) develop corrective action plans (CAP) to remediate them, and (4) monitor the implementation status of the CAPs. GAO found that the remediation processes designed by each military service had deficiencies in one or more of these areas. For example, each military service's policies and procedures lacked sufficient controls to reasonably assure that they identified and tracked the complete universe of open findings and recommendations related to financial management. Without identifying and tracking the complete universe of unresolved deficiencies, the military services cannot provide reasonable assurance that the deficiencies will be addressed in a timely manner, which can ultimately affect the reliability of financial information and the auditability of their financial statements.
The DOD Comptroller has established several elements of a department-wide audit readiness remediation process, but it does not have comprehensive information on the status of CAPs throughout the department needed to fully monitor and report on the progress being made to resolve financial management-related deficiencies. Specifically, (1) the DOD Comptroller does not obtain complete, detailed information on all CAPs from the military services related to the department's critical capabilities to be able to fully assess progress and (2) reports to external stakeholders such as the Congress on the status of audit readiness do not provide comprehensive information. A lack of comprehensive information on the CAPs limits the ability of DOD and Congress to evaluate DOD's progress toward achieving audit readiness, especially given the short amount of time remaining before the statutory deadline to submit to Congress the results of an audit of the department-wide financial statements for fiscal year 2018.

What GAO Recommends

GAO is making a total of eight recommendations to the Army, the Navy, the Air Force, and DOD to improve processes for tracking and monitoring financial management-related audit findings and recommendations. The military services concurred with the five recommendations to them, while DOD concurred with one and partially concurred with two of the recommendations directed to it. GAO continues to believe that the recommendations are valid, as discussed in the report.