DOD Financial Management: Actions Are Needed on Audit Issues Related to the Marine Corps' 2012 Schedule of Budgetary Activity
Highlights
What GAO Found
GAO found that in certain key audit areas, the Department of Defense (DOD) Office of Inspector General (OIG) did not perform sufficient procedures, under professional standards, and consequently did not obtain sufficient, appropriate audit evidence to support the audit opinion on the Marine Corps' Fiscal Year 2012 Schedule of Budgetary Activity (Schedule). GAO found that the OIG did not perform sufficient procedures to determine (1) the completeness of transactions reported on the Schedule, (2) the reliability of certain evidence used to support transactions included on the Schedule, (3) whether budgetary activity was recorded in the proper period and shipment obligations were properly recorded. In addition, the OIG did not properly consider and evaluate the audit evidence in concluding and reporting on the results of the audit.
For example, about half of the Marine Corps' reported fiscal year 2012 budgetary activity originated in non-payroll feeder systems. However, the OIG did not perform sufficient procedures to determine the completeness of the data transferred to the general ledger from the non-payroll feeder systems, although the OIG had reported control weaknesses over feeder system transfers in the 2 prior year audits that the Marine Corps had not yet fully addressed. Also, the OIG did not perform sufficient procedures to determine the reliability of data in certain feeder systems that were used as support when the Marine Corps could not locate or provide original support for some of the OIG's sampled transactions. The OIG stated that certain audit testing in subsequent audits was expanded to address GAO's concerns.
On March 23, 2015, the OIG withdrew its fiscal year 2012 audit report, stating that facts identified in the audit of the Marine Corps' fiscal year 2014 Schedule raised questions about the completeness of information on which the 2012 opinion was based. The OIG has indicated that once additional information has been gathered and analyzed, it will revisit its fiscal year 2012 audit opinion in light of its analysis and determine whether the report should be reissued.
GAO also found that the Marine Corps had made limited progress in addressing auditor recommendations since the audit of its fiscal year 2010 Statement of Budgetary Resources (SBR). For example, as of December 2013, the Marine Corps had not completed action on 130 of the 177 OIG recommendations. In commenting on GAO's report, the Marine Corps noted that it has subsequently remediated numerous recommendations. GAO has not assessed these subsequent corrective actions.
GAO identified DOD-wide implications from the Marine Corps audit related to challenges in assuring the (1) completeness of budgetary transactions, (2) reliability of data generated by DOD agencies' business processes and systems, and (3) proper fiscal year recording of obligations and outlays. Actions to address these challenges will help ensure the reliability of DOD component agencies' financial information; however, until such actions are complete, DOD and its component agencies likely will continue to face significant challenges in having reliable budgetary information for decision making on DOD missions and operations and achieving auditability of their budgetary information.
Why GAO Did This Study
After being identified in August 2009 as the pilot military service for an audit of its SBR, the Marine Corps received disclaimers of opinion on its fiscal year 2010 and 2011 SBRs. Because of difficulties in locating supporting documents for prior fiscal years, in June 2012, DOD leadership decided that the Marine Corps would prepare and subject to audit a Schedule of Budgetary Activity that would include only current year activity on fiscal year 2012 appropriations. In December 2013, the DOD OIG issued an unqualified opinion on the Schedule.
GAO was asked to assess the 2012 audit results. GAO (1) determined the extent to which the OIG's audit met professional standards, (2) analyzed the status of Marine Corps actions on recommendations, and (3) identified any DOD-wide implications from the audit. GAO reviewed auditor documentation, re-performed certain tests, evaluated Marine Corps corrective action plans and statuses, and determined whether other military services and DOD would likely encounter similar issues. GAO met with DOD OIG auditors and Marine Corps and DOD Comptroller officials.
Recommendations
GAO makes three recommendations related to the quality of DOD OIG audits. The OIG agreed with GAO's recommendations, but disagreed with many of its findings; the Marine Corps disagreed with certain findings; and the Office of the DOD Comptroller generally agreed with GAO's findings on the DOD-wide audit readiness implications from GAO's work. GAO acknowledges DOD's continuing efforts to become audit ready. GAO maintains that its findings are accurate.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of the Inspector General of the Army | To improve the quality of DOD's financial statement audits and ensure that corrective actions to address audit recommendations are fully and effectively implemented prior to their closure, the Department of Defense Inspector General should, in addition to analyzing additional information related to the withdrawal of the auditor's opinion on the Marine Corps' Fiscal Year 2012 General Fund Schedule, reconsider the conclusions made in the OIG's initial audit report based on the findings in our report before determining whether the auditor's opinion should be reissued or revised, or whether additional work should be performed. |
GAO's assessment of the results of the DOD IG's audit of the Marine Corps' Fiscal Year 2012 Schedule of Budgetary Activity (General Fund Schedule) found that the unqualified opinion the DOD IG issued on that audit was not supported by sufficient audit procedures or sufficient, appropriate audit evidence. Specifically, the audit documentation did not provide evidence that the auditors had (1) performed sufficient procedures to determine the completeness of budgetary transactions reported on the Marine Corps' Fiscal Year 2012 General Fund Schedule, (2) performed sufficient procedures to determine the reliability of certain evidence used to support transactions included on the Marine Corps' Schedule, (3) performed sufficient procedures to determine whether budget activity was recorded in the proper period and shipment obligations were properly recorded, and (4) properly considered and evaluated the audit evidence in concluding and reporting on the audit results. On March 23, 2015, the DOD OIG withdrew its unqualified audit opinion on the Marine Corps' Fiscal Year 2012 General Fund Schedule citing that this was due to suspense accounts issues identified in the audit of the Marine Corps' Fiscal Year 2014 General Fund Schedule that raised questions concerning the completeness of transactions in the Fiscal Year 2012 General Fund Schedule on which its opinion was based. The DOD IG indicated that once additional information has been gathered and analyzed, the fiscal year 2012 audit opinion will be revisited in light of its analysis and reissued. GAO recommended to the DOD IG that in addition to analyzing additional information related to the withdrawal of the auditor's opinion on the Marine Corps' Fiscal Year 2012 General Fund Schedule, to reconsider the conclusions made in the OIG's initial audit report based on the findings in our report before determining whether the auditor's opinion should be reissued or revised, or whether additional work should be performed. In response to GAO's recommendation, the DOD OIG executed four audits on DOD's suspense accounts, which are ongoing. No DOD IG audit report was issued on the FY 2013 financial statements, the IPA (independent public accountant) issued a disclaimer on its audit of the USMC FY 2014 financial statements, and no audit opinion on the FY 2015 USMC financial statements will be issued as the IPA contract was terminated on April 21, 2016. As a result of these events, the auditor's opinion on the audit of the USMC fiscal year 2012 financial statements was not reissued or revised. This will allow the USMC to focus on remediating control deficiencies that resulted in previous disclaimers and improve its audit readiness for future financial statement audits.
|
| Office of the Inspector General of the Army | To improve the quality of DOD's financial statement audits and ensure that corrective actions to address audit recommendations are fully and effectively implemented prior to their closure, the Department of Defense Inspector General should develop and document a quality assurance process for elevating disagreements between the audit team and OIG management to ensure appropriate, objective resolution of the disagreements. |
Our assessment of the results of the Marine Corps' fiscal year 2012 audit reported that the DOD OIG lacked policy and procedures for resolving disagreements among the audit team and documenting the basis for the resolution of such disagreements. Specifically, our review of audit documentation identified numerous e-mail communications that indicated a disagreement between the audit team and DOD OIG management regarding whether there was sufficient, appropriate audit evidence to support an unqualified ("clean") audit opinion. DOD OIG management instructed the audit team that a decision was made that the Marine Corps had "earned" an unqualified opinion and that the audit documentation needed to be updated to support the clean opinion. However, the audit documentation did not include an explanation of the basis for the DOD OIG management judgment related to the opinion. Consequently, the audit documentation showed a gap between the audit team's conclusions of a disclaimer and the clean opinion that was issued. GAO recommended to the DOD IG to develop and document a quality assurance process for elevating disagreements between the audit team and OIG management to ensure appropriate, objective resolution of the disagreements. In response to GAO's recommendation, the DOD IG developed a policy for resolving disagreements among team members, effective August 3, 2015. Further DOD IG developed a detailed quality assurance process for resolving disputes and contentious issues among audit team members, which DOD IG incorporated in its audit handbook, issued November 6, 2015. These actions should significantly improve the DOD IG's audit quality for future financial statements and other audits.
|
| Office of the Inspector General of the Army | To improve the quality of DOD's financial statement audits and ensure that corrective actions to address audit recommendations are fully and effectively implemented prior to their closure, the Department of Defense Inspector General should ensure that Marine Corps corrective actions fully address audit recommendations and document auditor review of the actions taken before closing the related recommendations. |
Per the contract with an Independent Public Accountant (IPA) for the USMC's fiscal year 2017 financial statement audit, the IPA is to follow up on status of efforts to address prior year recommendations. In February 2017, the DODIG noted "We will ensure that Independent Public Accountants are in compliance with GAGAS requirements for tracking and closing recommendations. Our practice has been to continually follow-up on the previous year's open recommendations as part of the current year audit. While we have procedures for reviewing, testing, and documenting the results of corrective actions taken by the auditee prior to closing recommendations, we will ensure that all ongoing and future DOD audits have well documented procedures for recording the status of recommendations made and any corrective actions taken." In October 2017, the auditor for the Marine Corps' fiscal year 2017 financial statements provided a worksheet noting the status of current and prior year recommendations and noted procedures performed responding to current and prior year recommendations. The DODIG's practice of including follow up on the previous year's open recommendations as part of the current year audit should help ensure that corrective actions to address audit recommendations are fully and effectively implemented prior to their closure.
|