DOD Financial Management:

Ongoing Challenges with Reconciling Navy and Marine Corps Fund Balance with Treasury

GAO-12-132: Published: Dec 20, 2011. Publicly Released: Dec 20, 2011.

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What GAO Found

Neither the Navy nor the Marine Corps have implemented effective processes for reconciling their FBWT. The Treasury Financial Manual and DOD’s Financial Management Regulation require DOD components to perform monthly FBWT reconciliations and maintain detailed reconciliation worksheets and documentation to provide an adequate audit trail for the resolution of differences. GAO’s Standards for Internal Control in the Federal Government states that the supervisory review and approval process is a key control activity for federal agencies. The Navy and the Marine Corps rely on the Defense Finance and Accounting Service located in Cleveland (DFAS-CL) to perform their FBWT reconciliation steps; however, GAO found numerous deficiencies in the FBWT process that impair the Navy’s and the Marine Corps’s ability to reconcile their FBWTs with Treasury records, including the following:

  • The Navy and Marine Corps rely on the data from Defense Cash Accountability System (DCAS) to reconcile their FBWT to Treasury’s records; however, they have not taken the necessary actions to ensure that the data are reliable. Specifically, DOD has not tested the application controls over DCAS since its implementation to determine if the system is processing data as intended. The Navy, the Marine Corps, and DFAS have identified a list of over 650 DCAS system change requests that needed to be addressed in order to correct DCAS data reliability and security problems or process required system updates; over 200 of these system change requests are deficiencies that affect audit readiness and 20 require immediate attention.

  • DFAS did not maintain adequate documentation for the nongeneralizable sample of items GAO tested to enable an independent evaluation of its efforts to research and resolve differences. In addition, there was no evidence of supervisory review and approval.

  • DFAS records forced-balance entries (plugs) to account for differences between Navy and Marine Corps appropriation balances and Treasury’s.

DFAS is unable to reconcile the cash activity recorded in the Navy’s general ledger accounting systems to that recorded in DCAS. DFAS officials stated they acquired the Business Activity Monitoring (BAM) tool to perform this reconciliation; however, after 4 years of effort and $29 million, the BAM tool does not yet provide the information needed to identify and resolve the underlying causes of differences between DCAS and Navy general ledger systems. As of April 2011, there were more than $22 billion unmatched disbursements and collections affecting more than 10,000 lines of accounting. DOD IG officials stated they were performing substantive testing to confirm the balance of the Marine Corps FBWT as part of their audit of the Marine Corps’s Fiscal Year 2011 Statement of Budgetary Resources. This testing did not include internal control and did not provide assurance on the effectiveness of the Marine Corps’ FBWT reconciliation process. Navy, Marine Corps, and DFAS-CL officials agreed existing FBWT policies and procedures are inadequate. DFAS-CL and Navy officials stated the base realignment and closure changes 2006–2008 resulted in loss of experienced DFAS-CL personnel and that remaining staff have not received needed training. The Navy is developing a plan of action and milestones (POAM) to address weaknesses in audit readiness.

Why GAO Did This Study

In November 2010, the Department of Defense (DOD) Inspector General (IG) issued a disclaimer of opinion on the Department of the Navy’s financial statements because of pervasive, long-standing material internal-control weaknesses, including Fund Balance with Treasury (FBWT). In the federal government, an agency’s FBWT account is similar in concept to a corporate bank account. The difference is that instead of a cash balance, FBWT represents unexpended spending authority in appropriations. Because DOD relies heavily on budget information for day-to-day management decisions, in August 2009, the DOD Comptroller designated the Statement of Budgetary Resources (SBR) as an audit priority. FBWT will need to be auditable in order for the SBR to be reliable. GAO was asked to determine whether the Navy and the Marine Corps have implemented effective FBWT reconciliation processes. To assess these processes, GAO analyzed Navy and Marine Corps policies and procedures for FBWT reconciliations, and met with Navy, Marine Corps, and Defense Finance and Accounting Service (DFAS) officials. GAO also tested nongeneralizable samples of FBWT transactions and adjustments and reviewed associated supporting documentation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Navy provided copies of their 2014 approved standard operating procedures for the key FBWT reconciliation processes, which include requirements for supervisory review and approval. The Department of Navy provided a copy of their March 2013 signed mission work agreement with Defense Finance and Accounting Service (DFAS). This document along with the standard operating procedures establishes the roles and responsibilities for the FBWT reconciliation process and documentation requirements.

    Recommendation: To help ensure that the Navy and Marine Corps implement effective FBWT reconciliation processes, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) and the Secretary of the Navy to develop and implement policies and standard-operating procedures to guide the FBWT reconciliation process-including the assignment of specific roles and responsibilities, supervisory review and approval, and documentation requirements.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Department of Navy provided a copy of training materials developed and utilized to train staff responsible for performing the FBWT reconciliations. The training took place in November 2012.

    Recommendation: To help ensure that the Navy and Marine Corps implement effective FBWT reconciliation processes, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) and the Secretary of the Navy to develop and implement a training curriculum for staff performing FBWT reconciliations to communicate the policies and procedures.

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: In response to our recommendation the Under Secretary of Defense, (Comptroller/CFO) directed the Defense Logistics Agency (DLA) to perform periodic testing of the systems that impact audit readiness and timely address any identified deficiencies. In October 2012, the Defense Finance and Accounting Service (DFAS) Enterprise Systems Directorate, assumed responsibility for the implementation and execution of the Federal Information System Controls Audit Manual (FISCAM) testing of Defense Cash Accountability System (DCAS). According to the Under Secretary/Comptroller, a team was established to refine controls, tailor tests, perform testing, and document and record compliance with FISCAM guidance. Standard test plans and tests, designed in accordance with the FISCAM, are in place and are to be evaluated in the future. The DFAS DCAS Program Office is refining a related element of its Financial Improvement Plan (FIP). The Under Secretary/Comptroller stated that potential improvements to functions, processes, and regulatory enforcement have been identified to enhance the DCAS support of customer and DFAS objectives. As of May 2013, DOD reported that the Business Enterprise Information Services (BEIS) DCAS Program Management Office (PMO) is working with the DLA Audit Readiness Team to support the Secretary of Defense's accelerated audit readiness of the General Fund Statement of Budgetary Resources by the end of fiscal year 2014. They are currently in Phase 2 of the Discovery stage of the effort which entails discussion, examination and prioritization of Financial Improvement and Audit Readiness (FIAR)/FISCAM Information Technology (IT) Controls, as well as applicable federal financial management regulations. Completion of the Discovery stage was targeted for the end of the second quarter of fiscal year 2013 with corrective actions identified to be completed by the end of fiscal year 2013. The DOD Inspector General is initiating an examination engagement to validate the Navy's FBWT audit readiness assertion. The validation will cover the reconciliation of DCAS to the Navy's general ledger accounting systems and a reconciliation of DCAS collection and disbursement transactions to Treasury's Central Accounting and Reporting System (CARS). GAO is following up for documentation to confirm the status of these actions.

    Recommendation: To ensure that the data in DCAS are reliable, the Secretary of Defense should direct the Director of the Defense Logistics Agency to perform periodic testing of the system and timely address any deficiencies identified.

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: In April 2013, the Deputy Chief Financial Officer (DCFO) stated that the Defense Logistics Agency (DLA) Business Enterprise Information Services (BEIS) Defense Cash Accountability System (DCAS) Program Management Office (PMO) has established procedures within their Configuration Control Board (CCB) process to identify System Change Requests (SCR) specifically related to audit concerns; whether they are in response to formal Notice of Finding and Recommendations (NFRs), or are categorized as potential audit findings via an audit assessment. To date, there are 23 SCRs identified as deficiencies impacting audit readiness. The DCFO asserted that DLA is ensuring these SCRs are given priority and that they are promptly slated for system releases. Of these 23 SCRs, 13 have been corrected and implemented, 3 have been canceled, and 7 are currently scheduled for future releases. Additionally, of the 461 DCAS SCRs currently reflected in the Configuration Management Information System (CMIS); ongoing reviews by DFAS's Electronic Security System (ESS) and Operations personnel have resulted in the cancellation of 186 SCRs due because they were addressed by other SCRs/system releases, with 126 SCRs identified as being valid, and 149 SCRs still pending validation. Of the 126 SCRs deemed as being still valid, none have been identified as being associated with deficiencies impacting audit readiness. While DOD has closed this recommendation, GAO is following up for documentation to confirm the status of these actions.

    Recommendation: To ensure that the data in DCAS are reliable, the Secretary of Defense should direct the Director of the Defense Logistics Agency to prioritize the known deficiencies and address those that affect audit readiness, including the ability to reconcile FBWT accounts.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: The Department of Navy provided a copy of the BAM functional requirements document which establishes the BAM tool system requirements. To document user validation testing Navy provided a copy of their BAM traceability matrix used in their September and October 2012 user validation testing. The BAM traceability matrix provides the methodology and description of tests performed as well as the results of the user validation tests.

    Recommendation: To ensure that the BAM tool system and user validation testing are adequately documented, the Under Secretary of Defense (Comptroller) should direct the Director of the DFAS to maintain supporting documentation for the BAM tool system requirements and user-validation testing-including the methodology, performance, and detailed results of the testing.

    Agency Affected: Department of Defense: Office of the Comptroller

  6. Status: Closed - Implemented

    Comments: The Department of Navy provided a copy of their September/October 2012 BAM traceability matrix that was developed and used to record the results of the BAM user validation testing. This matrix links each test performed to the BAM system requirements that can be traced to the BAM functional requirements document.

    Recommendation: To ensure that the BAM tool system and user validation testing are adequately documented, the Under Secretary of Defense (Comptroller) should direct the Director of the DFAS to develop and maintain a traceability matrix to track approved BAM tool system requirements to those tested by the contractor to ensure that all requirements are tested.

    Agency Affected: Department of Defense: Office of the Comptroller

 

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