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.

Status Legend:

More Info
  • 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: 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

    Status: Open

    Comments: The Navy's Fund Balance with Treasury (FBWT) Reconciliations are primarily performed by its Service-provider--the Defense Finance and Accounting Service in Cleveland (DFAS-CL). On May 22, 2013, the Navy reported that because various components of the Navy's FBWT reconciliations are still under development or are undergoing testing, Standard Operating Procedures (SOP) are not yet finalized. For example, while some of these reconciliations are in place, the key reconciliation, which uses the Business Activity Monitoring (BAM) Audit Assertion Workbench reconciliation tool is still in process. DFAS-CL has completed and approved user testing of the initial functionality of the BAM tool. This reconciliation is intended to provide a monthly, systemic reconciliation of balances and transactions recorded at Treasury in its Central Accounting and Reporting System (CARS), and in Navy accounting systems. During testing, additional necessary functionality was identified, and DFAS-CL worked with its developers to implement enhancements. The BAM tool is not fully operational at this point; however, DFAS-CL is currently producing an off-line reconciliation as a temporary control. The off-line process has a detailed SOP. In addition, DFAS-CL performs several other reconciliations related to FBWT (such as reconciling DCAS transitions to accounting system transactions and reconciling Cross Disbursement transactions). These other reconciliations have operating procedures that are currently going through updates and management approval. The Navy and DFAS-CL are working to document roles and responsibilities related to all key business processes, including FBWT. In addition, the Navy and the DFAS-CL Audit Readiness Division met with DFAS-CL operational staff to inform them of the requirement for supervisory review and approval of reconciliations. As a result, some reconciliations have started to include a supervisory approval / signature and the remaining reconciliations are being developed to include supervisory review and approval. In May 2013, the Navy also stated that as part of its FBWT audit readiness efforts, DFAS-CL implemented a monthly FBWT reconciliation using the BAM tool. This systemic reconciliation reconciles balances recorded at the Department of Treasury in CARS to balances recorded in the Navy's field-level general ledger accounting systems. The control environment supporting this reconciliation is also part of the audit readiness testing effort that DFAS-CL and Navy performed. Included within the control environment are the policies and procedures, along with roles and responsibilities, for staff performing the reconciliations, supervisory review and approval, and documentation requirements are targeted to be finalized by the end of fiscal year 2013 and will be reviewed by the DOD Inspector General as part of it's validation of the Navy's assertion that its FBWT is audit ready for the Statement of Budgetary Resources.

    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

    Status: Open

    Comments: DOD's Deputy Chief Financial Officer (DCFO) stated that the Defense Finance and Accounting Service (DFAS) has developed and currently maintains a traceability matrix to track approved Business Activity Monitoring (BAM) tool system requirements to those tested by the contractor to ensure that all requirements are tested. GAO has requested copies of the Navy's Updated Treaceability Matrix, the BAM Requirements Matrix, and the Consolidated Test Matrix. GAO is following up for the referenced documents to confirm that DFAS actions are completed.

    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

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    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

    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 perform periodic testing of the system and timely address any deficiencies identified.

    Agency Affected: Department of Defense

    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 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

    Status: Open

    Comments: In May 2013, the Deputy Chief Financial Officer (DCFO) stated that as the Navy's service-provider for accounting and finance services, one key responsibility of the Defense Finance and Accounting Service in Cleveland (DFAS-CL) is to perform the Navy's Fund Balance with Treasury (FBWT) reconciliations. Accordingly, FBWT reconciliation training will focus on DFAS-CL staff. Also, while the Navy supports the DFAS-CL reconciliation process, it currently will not have wide-spread access to the Business Activity Monitoring (BAM) Audit Assertion workbench tool. DFAS staff performing the reconciliation participated in the user validation testing of the BAM tool and also received post-implementation training on the reconciliation process once it was implemented. The training included a detailed PowerPoint document that outlined the functionality, screen shots, etc. for the BAM Audit Assertion Workbench. In addition, the DFAS E-Portal houses a BAM User Community page that includes a generic instruction guide on how to use the BAM tool. Further, management communicates policies and procedures to staff so staff are aware of their roles and responsibilities. The DCFO stated that training on and improvement of the tool and FBWT reconciliation process will continue, even though the BAM reconciliation tool is operational. The DCFO asserts that the requirement to implement the system and supporting processes and ensure staff were trained initially and that new users have reference materials available to help learn the system has been completed. GAO is requesting documentation to confirm that these actions have been completed appropriately. The Navy asserted that its FBWT was audit ready for the Statement of Budgetary Resources in December 2012, and the DOD Inspector General is initiating an examination engagement to independently validate the Navy's audit readiness assertion, including audit readiness for the BAM Audit Assertion Workbench.

    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

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    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

    Status: Open

    Comments: In response to our recommendation, the Under Secretary of Defense (Comptroller)/Chief Financial Officer (USD(C)/CFO) directed DFAS to maintain supporting documentation for the Business Activity Monitoring (BAM) tool system requirements and user validation testing, including the methodology, performance, and detailed results of testing. DFAS recognizes the need for more stringent quality assurance procedures and is in the process of implementing such procedures. Formal test scripts will identify test conditions and expected outcomes for each requirement. The BAM Requirements Traceability Matrix (RTM) will tie each requirement to a test condition, ensuring 100 percent coverage. Test results and any associated activity (code changes, retesting, requirements change) will be documented for each test condition. The DFAS estimated completion for required actions was April 2012. In April 2013, the Deputy Chief Financial Officer (DCFO) stated that DFAS maintains supporting documentation for the BAM tool system requirements and user validation testing, including the methodology, performance, and detail results of testing. To confirm actions have been completed, GAO is following up for copies of the BAM Fund Balance with Treasury (FBWT) Navy Audit Assertion (AA) Test Plan supporting documents, the RTM that ties each requirement to a test condition with results, and the Configuration Management Information System (CMIS) Reports with test results. Further, as part of its validation testing of the Navy's FBWT Reconciliation, we expect the DOD Inspector General will review the sufficiency of these documents.

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