Defense Business Operations Fund

The Pentagon faces formidable challenges in overcoming problems plaguing the Defense Business Operations Fund. Many of these shortcomings, such as inadequate financial and accounting systems, are the result of years of neglect and date from the old industrial and stock funds. The Fund's financial systems cannot produce accurate and reliable information on Fund operations. Until these antiquated systems are eliminated, (1) the infrastructure costs of maintaining multiple systems for the same purpose will persist and (2) the Defense Department (DOD) and Congress will continue to receive inaccurate and unreliable information on Fund operations. Also, the recent decision to devolve cash management abandons one of the Fund's goals. DOD can cut costs only if it is more conscious of operating expenses and makes fundamental improvements in the way it conducts business. Although the Fund is supposed to operate on a break-even basis, it has not been able to meet this goal. Fiscal year 1994 marked the third consecutive year of reported losses. If top management does not reverse this trend, potential savings from the Fund will not be realized.

GAO found that: (1) DOD has no systematic process in place to ensure consistent implementation of the Fund's policies; (2) Fund managers lack guidance to execute daily Fund operations; (3) DOD lacks the financial systems necessary to provide for successful Fund operations; (4) DOD has been unable to improve the accuracy and reliability of its financial systems; and (5) DOD has reversed its cash management policy to return cash control to DOD components, however, there is no assurance that this policy change will enhance DOD cash accountability.

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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