	CFO Act Audits Have Brought Greater Clarity to DOD’s Financial Management Problems

The CFO Act requirements have served as an important catalyst for focusing attention on the financial problems facing the Department. Serious problems in accounting for billions of dollars in annual disbursements. Also, we recently reported that DOD could not rely on its own financial data to detect errors in payments made to contractors. Financial audits have reported that DOD has not properly reported billions of dollars in potential future liabilities. Breakdowns in the Department’s ability to protect its assets from fraud, waste, and abuse. Continuing problems in reliably reporting on the cost of its operations. The following five areas were key elements of that blueprint: (1) consolidate finance and accounting operations, (2) consolidate finance and accounting systems, (3) establish pre-validation for disbursements, (4) reengineer DOD business practices, and (5) strengthen internal controls. DOD has acknowledged that its financial management systems are antiquated and cannot be relied upon to provide DOD management and the Congress with accurate and reliable financial information for use in decision-making. As discussed later, DOD has not yet been able to fully implement this initiative. Strong internal controls are critical to effectively controlling and accounting for the estimated $1 trillion in DOD assets worldwide.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the Department of Defense's (DOD) efforts to implement the Chief Financial Officer's (CFO) Act, focusing on the: (1) financial problems facing the department; (2) actions DOD plans to take; and (3) issues DOD must address to overcome its problems.

What GAO Found

GAO noted that DOD: (1) does not have adequate financial management processes or financial data to detect errors in annual disbursements; (2) has not properly reported billions of dollars in potential future liabilities; (3) continues to have problems protecting its assets from fraud, waste, and abuse; (4) has been unable to provide Congress with accurate accounts of its operating costs; (5) needs accurate financial information and appropriate internal controls to effectively manage over $1 trillion in assets, 3 million military and civilian personnel, and a budget of over $250 billion; and (6) has taken several initiatives to consolidate its finance and accounting systems, establish prevalidation procedures for annual disbursements, reengineer DOD business practices, and strengthen internal controls.