CFO Act Financial Audits

After performing a broad-based review of the Navy's financial management operations, GAO concludes that the Navy has made little progress in improving its general funds financial management and reporting since passage of the Chief Financial Officers Act in 1990. Top military officials must make achievement of the act's objectives a higher priority. Preparing reliable financial statements is critical to (1) safeguarding and effectively managing the public's substantial investment in Navy operations; (2) providing the Navy, the Defense Department (DOD), and Congress with a clear understanding of the Navy's financial condition so that they can control costs while maintaining military readiness; and (3) ensuring the reliability of agencywide consolidated financial statements that DOD must prepare beginning with fiscal year 1996. The Navy, including the Marine Corps, accounts for about one-third of DOD's gross budget authority, controls nearly half of DOD's assets, and employs one-third of all DOD personnel. This report focuses on the challenges that the Navy and the Defense Finance and Accounting Service (DFAS) face to strengthen the Navy's financial management and reporting and to adequately plan for preparing auditable financial statements for the Navy within the required time frame. It also recommends ways to improve the Navy's and DFAS' financial management and reporting processes and internal controls.

GAO found that: (1) the Navy's FY 1994 consolidated financial reports were not reliable and could not be used to assess the results of the Navy' operations, stewardship over assets, and use of budgetary resources; (2) the unreliability of the Navy financial reports adversely affects the reliability of the government's consolidated financial reports; (3) all aspects of the reports had inaccurate financial information, including omissions or misrecordings of assets and costs and failure to make required disclosures; (4) the Navy's financial reporting deficiencies are due to long-standing internal control weaknesses and the lack of accounting discipline; (5) in September 1995, DFAS directed its centers to pay closer attention to internal control problems, which may help correct the Navy's and other departments' deficiencies; (6) the joint DFAS and Navy Chief Financial Officers (CFO) Project Plan to improve the Navy's financial reporting is inadequate; (7) DFAS and the Navy will have to monitor and enforce efforts to improve financial control procedures and increase emphasis on preparing and executing improvement plans, assessing the skills, experience, and number of financial personnel needed, and improving financial systems; and (8) the Department of Defense (DOD) Comptroller needs to enforce the November 1995 DOD policy on DFAS and the Navy's financial management roles and responsibility.

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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