We found that the Navy’s fiscal year 1994 consolidated financial reports did not disclose obligation and disbursement problems. Lack of Basic Internal Controls and Discipline Cause Financial Reporting Problems

A root cause of the Navy’s financial reporting deficiencies is the lack of basic internal controls and well-disciplined financial operations. Does not have sufficient personnel experienced in Navy operations. To follow through and determine whether all provisions of the new policy are enforced and effectively implemented, or whether refinements are necessary, it is important for the DOD Comptroller to establish time frames within which to achieve results from the clarified roles and responsibilities, and establish milestones for assessing progress toward financial management improvement; designate specific offices or positions to be held accountable for actions to improve the Navy’s financial management and reports; and discipline managers for failing to improve the Navy’s financial management operations and to meet the CFO Act’s requirements to enhance financial systems. Recommendations

We recommend that the DOD Comptroller and the Navy’s Assistant Secretary for Financial Management and Comptroller jointly act to improve the credibility of the Navy’s financial reports and to adequately position the Navy and DFAS to prepare auditable financial statements for the Navy, beginning with those for fiscal year 1996, and periodically report to the Secretary of Defense the status of their results. We examined the overall reliability of the Navy’s fiscal year 1994 financial reports, and the adequacy of the processes and controls the Navy and DFAS used to prepare them; the adequacy of the Navy’s and DFAS’s financial management planning, staffing, and systems; and the effectiveness of accountability for ensuring the reliability of the Navy’s financial reporting. GAO Comments

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Why GAO Did This Study

GAO reviewed the Navy's fiscal year (FY) 1994 consolidated financial reports, focusing on how the Navy and the Defense Finance and Accounting Service (DFAS) can: (1) improve the credibility of the Navy's FY 1995 financial reports; and (2) enhance their ability to prepare the Navy's FY 1996 annual financial statements.

What GAO Found

GAO found that: (1) the Navy's FY 1994 consolidated financial reports were not reliable and could not be used to assess the results of the Navy' operations, stewardship over assets, and use of budgetary resources; (2) the unreliability of the Navy financial reports adversely affects the reliability of the government's consolidated financial reports; (3) all aspects of the reports had inaccurate financial information, including omissions or misrecordings of assets and costs and failure to make required disclosures; (4) the Navy's financial reporting deficiencies are due to long-standing internal control weaknesses and the lack of accounting discipline; (5) in September 1995, DFAS directed its centers to pay closer attention to internal control problems, which may help correct the Navy's and other departments' deficiencies; (6) the joint DFAS and Navy Chief Financial Officers (CFO) Project Plan to improve the Navy's financial reporting is inadequate; (7) DFAS and the Navy will have to monitor and enforce efforts to improve financial control procedures and increase emphasis on preparing and executing improvement plans, assessing the skills, experience, and number of financial personnel needed, and improving financial systems; and (8) the Department of Defense (DOD) Comptroller needs to enforce the November 1995 DOD policy on DFAS and the Navy's financial management roles and responsibility.