Canceled DOD Appropriations:

Improvements Made but More Corrective Actions Are Needed

GAO-02-747: Published: Jul 31, 2002. Publicly Released: Jul 31, 2002.

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Congress changed the law governing the use of appropriation accounts in 1990 because it found that the Department of Defense (DOD) may have spent hundreds of millions of dollars for purposes that Congress had not approved. The 1990 law provided that, 5 years after the expiration of the period of availability of a fixed-term appropriation, the appropriation account be closed and all remaining balances canceled. After closing, the appropriation account could no longer be used for obligations or expenditures for any purpose. DOD has started the process of correcting the illegal or improper closed account adjustments made during fiscal year 2000. However, this will require substantial effort and, according to DOD, estimates will not be complete before the end of fiscal year 2002. DOD had upgraded its system control features by the end of fiscal year 2001 to preclude many of the wholesale adjustments that GAO had previously identified. Because its system enhancements were done in stages, including some near the end of fiscal year 2001, DOD continued to make large amounts of illegal and otherwise improper closed account adjustments during the year. However, given the intensity of staff efforts to address these issues, it did not expect to complete the correct accounting for transactions found to be in error until September 2004. A lack of fundamental controls and management oversight over the closed accounts was the primary reason DOD was making so many closed account adjustments. DOD's action to resolve its problems with closed account adjustments is beginning to produce positive short-term results. However, if DOD fails to sustain these positive results, Congress could require DOD to validate and report to the Congress all closed account adjustments.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Director of the Defense Finance and Accounting Service to continue with DFAS's top-level management attention and monitoring of the program for future adjustments to closed appropriation accounts.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to DOD's December 18, 2002 response to GAO's recommendation, DFAS continues to pay close attention to and monitor closed account adjustments, as well as ensure a periodic review of internal controls is performed to evaluate their adequacy. According to DFAS Columbus, the standards for all Reconciliation personnel, including the Reconciliation and Contract Pay Directors, now reflect the responsibility for ensuring the propriety of cancelled fund adjustments. In addition, changes have been made to the Contract Reconciliation System to identify and prevent cancelled fund adjustment violations. Finally, a reconciliation matrix has been updated to include a quarterly review of cancelled fund adjustments for necessity and sufficiency of supporting documentation.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Director of the Defense Finance and Accounting Service to help ensure that DFAS Columbus completes the review and correction of the additional $1.1 billion of fiscal year 2001 adjustments it has scheduled for detailed review.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In July 2001, GAO reported that DOD did not have adequate systems, controls, and managerial attention to ensure that about $615 million of the $2.2 billion in closed account adjustments made during fiscal year 2000 that we reviewed were legal and otherwise proper. One year later, GAO reported that DOD had started the process of correcting these adjustments, but the process to correct the adjustments required substantial time and resources to sort through DOD's complex accounting processes to correct these types of errors. Before DOD could enhance its system control features to preclude many of the wholesale adjustments that had led to the problems we identified during our prior review, DOD continued to make large amounts of illegal or otherwise improper adjustments. Our review of $291 million of fiscal year 2001 closed account adjustments showed that $172 million (59 percent) were either illegal or otherwise improper. We recommended that the Secretary of Defense direct the Under Secretary of Defense (Comptroller) to direct the Director of Defense Finance and Accounting Service to review and correct an additional $1.1 billion in fiscal year 2001 closed account adjustments it had scheduled for detailed review. On December 5, 2005, the DFAS Columbus Center completed its review and correction of the $1.1 billion in fiscal year 2001 closed account adjustments to ensure that the transactions were properly accounted for and posted to the correct appropriation accounts. As a result, DOD can better ensure that the adjustments contained on the contracts are in compliance with the 1990 account closing law.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Director of the Defense Finance and Accounting Service to determine the entries necessary to correct the accounting for reversed fiscal year 2001 transactions.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In July 2001, GAO reported that DOD did not have adequate systems, controls, and managerial attention to ensure that about $615 million of the $2.2 billion in closed account adjustments made during fiscal year 2000 that we reviewed were legal and otherwise proper. One year later, GAO reported that DOD had started the process of correcting these adjustments, but the process to correct the adjustments required substantial time and resources to sort through DOD's complex accounting process to correct these types of errors. Before DOD could enhance its system control features to preclude many of the wholesale adjustments that had led to the problems we identified during our prior review, DOD continued to make large amounts of illegal or otherwise improper adjustments. Our review of $291 million of fiscal year 2001 closed account adjustments showed that $172 million (59 percent) were either illegal or otherwise improper. We recommended that the Secretary of Defense direct the Under Secretary of Defense (Comptroller) to direct the Director of Defense Finance and Accounting Service to determine the entries necessary to correct the accounting for the illegal or improper fiscal year 2001 transactions. On December 5, 2005, the DFAS Columbus Center completed its review of the contracts containing the $172 million in illegal or otherwise improper fiscal year 2001 adjustments to ensure that the transactions were properly accounted for and posted to the correct appropriation accounts. As a result, DOD can better ensure that the adjustments contained on the contracts are in compliance with the 1990 account closing law.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Director of the Defense Finance and Accounting Service to reverse closed account adjustments made during fiscal year 2001 identified in this report as illegal or otherwise improper.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In its July 2002 report on cancelled DOD appropriations, GAO reported that its review of $291 million of fiscal year 2001 adjustments affecting closed appropriation accounts found that about $172 million of those adjustments were illegal or otherwise improper and should not have been made. The adjustments should not have been made because the initial disbursements (1) occurred after the appropriation being charged had already cancelled, (2) occurred before the appropriation charged was enacted, or (3) were charged to the correct appropriation in the first place and no adjustment was necessary. Also included in the $172 million of illegal or otherwise improper closed account adjustments were adjustments that were not sufficiently documented to establish that they were proper. As a result, GAO recommended that the Defense Finance and Accounting Service (DFAS) Columbus Center reverse closed account adjustments made during fiscal year 2001, identified in this report as illegal and otherwise improper. In response to GAO's recommendation, DFAS Columbus reversed $169 million in illegal or improper adjustments. Furthermore, DFAS Columbus provided GAO with additional documentation to support $3 million in adjustments that the GAO determined were not sufficiently documented to establish that they were proper.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Director of the Defense Finance and Accounting Service to help ensure that DFAS Columbus completes its review and correction of the remaining fiscal year 2000 illegal and otherwise improper adjustments.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In July 2004, the Defense Finance and Accounting Service Columbus Center completed their review of the contracts containing the $615 million in illegal and improper fiscal year 2000 adjustments to ensure the transactions were properly accounted for and posted to the correct appropriation accounts. As a result, DOD can better ensure that the adjustments contained on the contracts are in compliance with the 1990 account closing law.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to continue to monitor these adjustments so that any potential Antideficiency Act violations that may occur are promptly investigated and reported as required by the Antideficiency Act, 31 U.S.C. 1351, and implementing guidance.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In July 2001, GAO reported that DOD did not have adequate systems, controls, and managerial attention to ensure that about $615 million of the $2.2 billion in closed account adjustments made during fiscal year 2000 that we reviewed were legal and otherwise proper. One year later, GAO reported that DOD had started the process of correcting these adjustments, but the process to correct the adjustments required substantial time and resources to sort through DOD's complex accounting processes to correct these types of errors. Before DOD could enhance its system control features to preclude many of the wholesale adjustments that had led to the problems we identified during our prior review, DOD continued to make large amounts of illegal or otherwise improper adjustments. Our review of $291 million of fiscal year 2001 closed account adjustments showed that $172 million (59 percent) were either illegal or otherwise improper. We recommended that the Secretary of Defense direct the Under Secretary of Defense(Comptroller) to continue to monitor the closed account adjustments so that any potential Antideficiency Act violations that may occur are properly investigated and reported. In response, DOD stated that corrections to charge the proper appropriation must be made irrespective of whether the correct appropriation has sufficient balances available or whether there is a potential violation of the Antideficiency Act. If an apparent violation of the Antideficiency Act occurs as a result of the correction, the applicable DOD component is required to conduct a review. On December 5, 2005, the DFAS Columbus Center completed its review and correction of about $1.4 billion in fiscal year 2001 closed account adjustments to ensure that the transactions were properly accounted for and complied with the provisions of the Antideficiency Act. In some cases, the contracts containing canceled account adjustments required additional funding to properly correct the out of balance accounts. Because the DOD components had sufficient balances to cover these adjustments and correct the accounts, DOD determined that no further actions were needed on these contracts. As a result, DOD better ensured themselves that the adjustments contained on these contracts were in compliance with the provisions of the Antideficiency Act.

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