We discussed with DOD, DFAS, and Navy officials limitations on the Navy’s ability to research and correct problem in-transits, which resulted in the request for the policy change, and reviewed Navy and DFAS records on disbursements and collections not yet recorded in the Navy’s accounting system, including in-transit transactions recorded in DFAS’ problem disbursement database, and the Navy’s cuff records—separately prepared spreadsheets that are not reflected in the Navy’s accounting system. In addition, these problems have a major effect on the accuracy and reliability of the Navy’s financial reporting, including its annual financial statements required under the CFO Act. Funds Control Implications

We found evidence that as of September 30, 1997, the Navy may have overobligated 29 canceled and expired appropriations totaling $290 million. We reviewed Navy journal vouchers (documentation of transactions) used to record these obligations. The Navy uses these cuff records to track obligations that it concludes are necessary to resolve problem disbursements. However, if the obligations shown in the cuff records were recorded in the Navy’s accounting system, the obligation records for these 20 expired appropriations, like the records for the 9 canceled appropriations, would show that these appropriations also may have obligations in excess of available budget authority. As of the completion of our review, the Navy had not initiated an Antideficiency Act investigation of any of these 29 appropriations. Until transactions are recorded accurately and in a timely manner and reflected in these financial statements, the Navy and DOD will remain unable to achieve the goal of producing reliable financial statements. We also recommend that the Navy’s Assistant Secretary (Financial Management and Comptroller) in concert with DFAS record obligations in the Navy’s official accounting and funds control records for the 20 expired appropriations identified in the Navy’s cuff records, immediately investigate any of the 9 canceled appropriations and the 20 expired appropriations that are potentially overobligated, and report any overobligations to the Congress and the President pursuant to the Antideficiency Act and implementing guidance in OMB Circular A-34. 4. 6. 7. Current policies and procedures permit the Navy to delay for about 5 years (1) the recording of obligations needed to support payments already made, (2) avoid the initiation of Antideficiency Act investigations of any potential violations, and (3) any resulting reports of violations to the Congress and the President. During this time, the Navy’s appropriation balances are unreliable, leaving DOD and the Congress without assurance that the Navy has not incurred obligations in excess of available budget authority. 8.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed the effects of in-transit disbursements on the Navy's funds control and financial reporting.

What GAO Found

GAO noted that: (1) the Navy and the Department of Defense (DOD) have not established adequate funds control as required by the Antideficiency Act; (2) current policies and procedures permit the Navy to delay for about 5 years: (a) the recording of obligations in excess of available budget authority; (b) the initiation of required Antideficiency Act investigations; and (c) any resulting reports of violations to Congress and the President; (3) during this time, the Navy's appropriation balances are unreliable, leaving DOD and Congress without assurance that budget authority has not been exceeded; (4) according to Navy records, as of September 30, 1997, obligations for 9 cancelled and 20 expired appropriations may have exceeded available budget authority by a total of $290 million; (5) in accordance with DOD policy, obligations have been recorded in the nine appropriations that have cancelled; (6) at the time of GAO's review, the Navy's records indicated that these obligations may have exceeded budget authority; (7) although the Navy maintained cuff records (separately prepared spreadsheets used to track obligations) that it also would need to record to resolve problem in-transit disbursements in the 20 expired appropriations, these obligations were not recorded in the Navy's accounting system; (8) if these obligations had been recorded, the obligation records for the 20 expired appropriations would have shown that these appropriations also may have obligations that exceed available budget authority; (9) Navy officials stated that an investigation of these appropriations would show that they are not overobligated; (10) at the time of GAO's review, the Navy had not initiated an Antideficiency Act investigation of any of the 29 appropriations, although DOD policy requires investigations of the 9 cancelled appropriations with recorded obligations in excess of available budget authority; (11) in addition to the lack of control over funds, these problems have a major effect on the accuracy and reliability of the Navy's financial reporting, including its annual financial statements required under the Chief Financial Officers Act; and (12) until transactions are recorded accurately and in a timely manner, and reflected in these financial statements, the Navy and DOD will remain unable to achieve the goal of producing reliable financial statements.