Financial Management

Serious and widespread weaknesses in financial systems that oversee $346 billion in assets have left the Army vulnerable to waste, inefficiencies, and losses. The Army has been trying to improve its accounting systems for nearly a decade but is still not generating reliable financial data. Inadequate controls over inventories, supplies, and spare parts have led to billions of dollars in ammunition and equipment going unrecorded in the Army's books. At the same time, obvious errors in inventory reports and records, such as negative balances, have gone uninvestigated, and large amounts of inventory stored at depots awaiting repair have not always been effectively protected against theft or weather damage. Despite assurances by the Secretary of the Army that assets are being adequately safeguarded, GAO doubts whether the Army has effective control over and accountability for many of these items. GAO's findings are not unexpected for a first-time audit. Unlike the private sector, the government has only recently required its own agencies to produce auditable financial statements. As agencies cope with weaknesses revealed by mandated audits, overall improvement in financial management as well as savings and benefits from lower costs and efficiency improvements can be expected. Defense Department initiatives are addressing many of the problems GAO identified. The Comptroller General summarized this report and GAO/AFMD-92-83 in testimony before Congress; see: Financial Audit: Immediate Actions Needed to Improve Army Financial Operations and Controls, by Charles A. Bowsher, Comptroller General of the United States, before the Senate Committee on Governmental Affairs. GAO/T-AFMD-92-14, Aug. 7, 1992 (21 pages).

GAO found that: (1) the Army's financial operations and accounting systems do not produce reliable information due to inadequate accounting policies and practices, and the lack of an integrated systems network for data collection; (2) although the Department of Defense (DOD) and the Army have begun to correct the deficiencies, the Army will be unable to produce reliable financial information unless additional action is taken; (3) because the Army's existing systems do not collect operational cost information, decisionmakers cannot compare the current cost of operations with the cost of operations under force and organizational structure alternatives; (4) the Army made its first attempt to link performance measurement with financial data, but needs to improve its performance measurement information; and (5) in recognition of its problems and the need to take immediate action, the Army has established a special action group to oversee implementation of corrections. GAO also found that: (1) the Army's system of internal controls over its assets has serious weaknesses and does not meet the required objectives for internal control systems, and its inventory systems do not provide accurate data; (2) although equipment reporting is generally accurate, equipment accountability is inadequate; (3) the Army acknowledges that its controls and accountability over resources are poor, and has established an initiative to improve controls and accountability; (4) the Army has developed a framework for assessing its internal controls system, but has not effectively implemented it; (5) the Army has not reported all of its material internal control weaknesses; and (6) accountability for program effectiveness is fragmented among different managerial levels, but Army is working to improve its internal management control.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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