DOD Financial Management: Significant Efforts Still Needed for Remediating Audit Readiness Deficiencies
Highlights
What GAO Found
The Schedules of Budgetary Activity (Budgetary Schedules) for the Army, Navy, and Air Force for fiscal year 2015 reflected current year budget activity as an interim step toward producing an auditable Statement of Budgetary Resources that will reflect multiyear budget activity. All three of the independent public accountants (IPA) contracted to audit these fiscal year 2015 Budgetary Schedules issued disclaimers, meaning that the IPAs were unable to express an opinion because of a lack of sufficient evidence to support the amounts presented. The IPAs for all three military services also identified material weaknesses in internal control and collectively issued a total of over 700 findings and recommendations. These weaknesses included, among other things, the military services' inability to reasonably assure that the Budgetary Schedules reflected all of the relevant financial transactions that occurred and that documentation was available to support such transactions. Army, Navy, and Air Force management generally concurred with these findings and stated that they would develop and implement corrective actions to address the IPAs' recommendations.
Office of Management and Budget (OMB) guidance and the Department of Defense's (DOD) Financial Improvement and Audit Readiness (FIAR) Guidance include the following steps for addressing these and other financial management-related findings and recommendations reported by external auditors: (1) identify and track them, (2) prioritize them, (3) develop corrective action plans (CAP) to remediate them, and (4) monitor the implementation status of the CAPs. GAO found that the remediation processes designed by each military service had deficiencies in one or more of these areas. For example, each military service's policies and procedures lacked sufficient controls to reasonably assure that they identified and tracked the complete universe of open findings and recommendations related to financial management. Without identifying and tracking the complete universe of unresolved deficiencies, the military services cannot provide reasonable assurance that the deficiencies will be addressed in a timely manner, which can ultimately affect the reliability of financial information and the auditability of their financial statements.
The DOD Comptroller has established several elements of a department-wide audit readiness remediation process, but it does not have comprehensive information on the status of CAPs throughout the department needed to fully monitor and report on the progress being made to resolve financial management-related deficiencies. Specifically, (1) the DOD Comptroller does not obtain complete, detailed information on all CAPs from the military services related to the department's critical capabilities to be able to fully assess progress and (2) reports to external stakeholders such as the Congress on the status of audit readiness do not provide comprehensive information. A lack of comprehensive information on the CAPs limits the ability of DOD and Congress to evaluate DOD's progress toward achieving audit readiness, especially given the short amount of time remaining before the statutory deadline to submit to Congress the results of an audit of the department-wide financial statements for fiscal year 2018.
Why GAO Did This Study
DOD remains on GAO's High-Risk List because of its long-standing financial management deficiencies. These deficiencies negatively affect DOD's audit readiness and its ability to make sound mission and operational decisions. The Army, Navy, and Air Force underwent their first Budgetary Schedule audits for fiscal year 2015.
This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines (1) the results of the audits of the fiscal year 2015 Budgetary Schedules for the Army, Navy, and Air Force; (2) the extent to which each military service designed a process to address financial management-related audit findings and recommendations; and (3) the extent to which DOD has designed a department-wide process to monitor and report on audit readiness remediation efforts. GAO reviewed IPA reports and documentation from the military services and DOD Comptroller and interviewed cognizant officials.
Recommendations
GAO is making a total of eight recommendations to the Army, the Navy, the Air Force, and DOD to improve processes for tracking and monitoring financial management-related audit findings and recommendations. The military services concurred with the five recommendations to them, while DOD concurred with one and partially concurred with two of the recommendations directed to it. GAO continues to believe that the recommendations are valid, as discussed in the report.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Army |
Priority Rec.
The Secretary of the Army should direct the Internal Review Directorate under the Assistant Secretary of the Army, Financial Management and Comptroller, to develop written policies and procedures for all financial management-related audit findings and recommendations under its purview that include the following: (1) how the status of the recommendations will be tracked; (2) the process and criteria to be followed for prioritizing the findings and recommendations; (3) the process for developing CAPs to remediate the findings and recommendations, including the detailed CAP elements recommended by the Implementation Guide for OMB Circular A-123; and (4) the process for monitoring the status and progress of the CAPs, including the documentation to be maintained for monitoring CAP status and any actions to be taken if a lack of progress is found. |
The Army concurred with this recommendation. The Army stated that the Internal Review Directorate has completed updating its written standard operating procedures to include monitoring financial management-related external audit findings and recommendations. The Army stated that this new guidance includes an explanation of how recommendations will be tracked; how findings and recommendations will be prioritized; how status and progress of corrective action plans (CAPs) will be developed; and how the status and progress of CAPs will be monitored. We received documentation from the Army in January 2018 and, after assessing the provided information, we determined that the actions taken were sufficient to close this recommendation.
|
| Department of the Army |
Priority Rec.
The Secretary of the Army should direct the Accountability and Audit Readiness Directorate under the Assistant Secretary of the Army, Financial Management and Comptroller, to enhance the directorate's policies and procedures for (1) tracking and prioritizing all financial management-related audit findings and recommendations under its purview and (2) developing and monitoring CAPs for all such recommendations so that they include sufficient details, such as the criteria used to prioritize the CAPs, the recommended CAP elements, and the process for monitoring and documenting the progress and status of CAPs. |
The Army concurred with this recommendation. The Army stated that the Accountability and Audit Readiness Directorate had completed actions to enhance its current standard operating procedures to include (1) updating its corrective action plan (CAP) database and reporting tool, (2) documenting its reporting procedures, and (3) updating its CAP template to include additional elements recommended by the Implementation Guide for OMB Circular A-123. In addition, the Army stated that its policies and procedures included steps to incorporate external financial management-related audit findings assigned to the Accountability and Audit Readiness Directorate by the Internal Review Directorate and that the existing process the Army used to prioritize findings and the related CAPs and to monitor the progress and status of CAPs was documented. In April 2022, we reviewed new documentation from Army. Through our assessment, we determined that Army enhanced their policies and procedures to track and prioritize notices of findings and recommendations (NFRs) and develop and monitor CAPs. Additionally, we found that DOD-wide policies and procedures included detailed instructions for tracking and prioritizing audit findings as well as developing and monitoring action plans within DOD's NFR and CAP database. Therefore, we concluded that the actions taken were sufficient to close this recommendation.
|
| Department of the Navy |
Priority Rec.
The Secretary of the Navy should, when finalizing the Navy's policies and procedures for identifying and tracking its CAPs to remediate financial management-related audit findings and recommendations, enhance this guidance so it includes detailed steps and specific procedures for confirming and validating the completeness and accuracy of the status of these audit findings and recommendations. |
The Navy concurred with this recommendation. The Navy stated that it is (1) recording new findings and recommendations on a weekly basis in its deficiency database, (2) reviewing historical audits to ensure that previous findings and recommendations are recorded, and (3) collaborating with audit agencies to establish a process to reconcile the status of recommendations to ensure that its deficiency database accurately reports open and closed recommendations. In response to our recommendations, the Navy restructured its deficiency database to allow for the monthly reporting of current open findings and recommendations by source and status. The Navy also completed its development of more detailed SOPs that established specific steps and procedures for maintaining and validating its database of audit deficiencies on a continuous basis. The Navy's restructured database and revised SOPs should improve the Navy's ability to accurately identify and track the status of auditor findings and recommendations from external sources.
|
| Department of the Air Force |
Priority Rec.
The Secretary of the Air Force should design and document a comprehensive process to ensure that the complete universe of all financial management-related findings and recommendations from all audit sources is identified and tracked. |
The Air Force concurred with this recommendation. Air Force developed three guidance documents in response to this recommendation to help ensure that the complete universe of financial management-related findings and recommendations from the independent public accountant (IPA) and non-IPA auditors are identified and tracked. These documents include information for tracking deficiencies reported by the IPA, Department of Defense Office of Inspector General, GAO, and the Air Force Audit Agency. According to these guidance documents, tracking of the findings and recommendations are conducted using the Office of the Deputy Chief Financial Officer (ODCFO) Notice of Findings and Recommendations (NFR) Database. The process starts with the relevant audit organization communicating the existence of the deficiency and the Air Force entering it in the ODCFO NFR Database and ends with the closure of the NFR Corrective Action Plan. As a result of our review of the documentation provided, we determined that the actions taken were sufficient to close the recommendation.
|
| Department of the Air Force |
Priority Rec.
The Secretary of the Air Force should update the Air Force's written policies and procedures for prioritizing financial management-related audit findings and recommendations from all audit sources and for developing and monitoring CAPs so that they include sufficient details. These procedures should include the following details: (1) The process to be followed for prioritizing the financial management-related findings and recommendations from audit sources. (2) The guidance for developing CAPs for all financial management-related audit findings and recommendations from all audit sources to include complete details, including the elements recommended by the Implementation Guide for OMB Circular A-123. (3) The process for monitoring the status of the CAPs for all financial management-related audit findings and recommendations from all audit sources, including the documentation to support any corrective actions taken, as recommended by the Implementation Guide for OMB Circular A-123. |
The Air Force concurred with this recommendation. In 2020, Air Force provided three guides that it updated to provide additional guidance requiring Air Force officials to develop corrective action plans (CAP), prioritize deficiencies, monitor the status of corrective actions detailed in the CAPs, and support actions taken to address CAPs for all financial related deficiencies identified. These deficiencies included those identified by the IPA and non-IPA auditors, which included DOD's Office of Inspector General, the Air Force Audit Agency, and GAO. In addition, Air Force updated guidance for developing CAPs to address elements recommended by the Implementation Guide for OMB Circular A-123, including responsible office and stakeholders, priority level, root cause analysis and results, determination of resources, specific milestones start and estimated completion dates, status information, validation of whether the corrective actions effectively remediated the deficiency, and documentation of closure with supporting documentation. As a result of our review of these guides, we determined that the actions taken were sufficient to close this recommendation.
|
| Department of Defense |
Priority Rec.
To improve DOD management's process for monitoring the military services' audit remediation efforts and to provide timely and useful information to stakeholders as needed, the Secretary of Defense should direct the Secretary of the Army, the Secretary of the Navy, and the Secretary of the Air Force to prepare and submit to the Under Secretary of Defense (Comptroller), on at least a bimonthly basis for availability at the FIAR Governance Board meetings, a summary of key information included in the CAPs that at a minimum contains the data elements recommended by the Implementation Guide for OMB Circular A-123 for each CAP related to critical capabilities for achieving audit readiness. |
DOD concurred with this recommendation. DOD developed a Notice of Finding and Recommendation (NFR) Database to track, monitor, and communicate the status of DOD's financial statement audit remediation efforts. In 2019 and 2020, we met with DOD officials, reviewed guidance, and examined the NFR Database. We found that DOD requires all of its reporting entities, including the Army, Navy, and Air Force (military services), to prepare and submit key corrective action plan (CAP) information to the database within 60 days of the issuance of an NFR. We reviewed the database and determined that the military services are able to prepare and submit their CAP information on a real-time basis. Finally, we noted that the required OMB Circular A-123 elements are collected in the database for each CAP and the database reports can be used for monitoring. As a result of the DOD entities' ongoing CAP submissions and the inclusion of the OMB Circular A-123 required data elements, we determined that DOD's use of the NFR Database addresses the intent of our recommendation.
|
| Department of Defense |
Priority Rec.
To reasonably assure that DOD management and external stakeholders have a comprehensive picture of the status of corrective actions needed for audit readiness throughout the department, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to prepare a consolidated CAP management summary on a bimonthly basis that includes the data elements referred to above on the status of all CAPs related to critical capabilities for the military services and for the service providers and other defense organizations. |
DOD partially concurred with this recommendation. DOD developed a Notice of Finding and Recommendation (NFR) Database to track, monitor, and communicate the status of DOD's financial statement audit remediation efforts. DOD requires all of its reporting entities, including the Army, Navy, and Air Force (military services), to prepare and submit key corrective action plan (CAP) information to the database within 60 days of the issuance of an NFR, including those related to service providers and other defense organizations. We reviewed the database and determined that the required OMB Circular A-123 elements are collected in the database for each CAP, including those related to service providers and other defense organizations. Given the nature of real-time access and DOD's ability to prepare comprehensive reports, we confirmed that by using the NFR Database, DOD and the Under Secretary of Defense (Comptroller) have the capability to provide DOD management and external stakeholders a comprehensive picture of the status of corrective actions in near real time. We believe DOD has taken sufficient action to close this recommendation.
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| Under Secretary of Defense (Comptroller) |
Priority Rec.
To facilitate the development of a consolidated CAP management summary and the ability to efficiently respond to stakeholder requests, the Under Secretary of Defense (Comptroller) should develop and implement a centralized monitoring and reporting process that at a minimum (1) captures department-wide information on the military services' and other defense organizations' CAPs related to critical capabilities, including the standard data elements recommended in the Implementation Guide for OMB Circular A-123, and (2) maintains up-to-date information on the status of these CAPs. |
DOD partially concurred with this recommendation. DOD has established an NFR database to monitor the status of NFRs and CAPs. As part of our engagement on the Status of the DOD Audit Remediation, we reviewed how DOD uses this database and determined that it fully addresses this recommendation.
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