Financial Management

Because of continuing problems with disbursements, the Defense Department (DOD) is now required to match disbursements above a certain amount with the appropriate obligation in its accounting records before making the disbursement--a process known as disbursement prevalidation. GAO found that prevalidation allowed DOD to spot errors and prevent problem disbursements from being recorded in its accounting records. However, unless the $5 million threshold is lowered at the Defense Finance and Accounting Service's center in Columbus, Ohio, and the $1 million threshold is lowered at the other payment centers, tens of billions of dollars in transactions will continue to bypass this important control. Until a detailed plan is developed to ensure that all payments are properly prevalidated before taxpayer dollars are disbursed, the full benefits of prevalidations will not be realized. More importantly, even at its best, prevalidation will not solve the military's disbursement problems, as evidenced by nearly $22 billion worth of new problem disbursements that surfaced between October 1995 and January 1996. Prevalidation seeks to impose quality near the end of the disbursement process. As a result, it does not address the root problems inherent in poor systems and processes, as well as failure to use basic internal controls. DOD needs to (1) overcome weaknesses in control procedures that enable problem disbursements to occur and (2) improve its contract pay, disbursing, and accounting processes and systems.

GAO found that: (1) DOD reduced its problem disbursements from $37.8 billion to $23.1 billion as of September 1995; (2) DOD disbursement problems persist due to long-standing system weaknesses and DOD failure to comply with basic accounting procedures for validating, reconciling, and reporting transactions; (3) DOD has automated the prevalidation process for the Defense Finance and Accounting Service's (DFAS) Columbus Center contract payment system and eight other primary contract accounting systems to handle their large volume of transactions; (4) there are deficiencies in the automated programs for prevalidating Army and Air Force disbursements; (5) DOD has lowered the prevalidation threshold to $1 million for all disbursement centers except DFAS-Columbus; (6) this limited implementation hampers DOD ability to resolve its disbursement problems, since DFAS-Columbus is responsible for about 40 percent of DOD contractor and vendor payments; (7) from July 1995 through January 1996, DFAS-Columbus prevalidated only about one-third of the total dollar amount of its disbursements; and (8) to resolve disbursement problems, DOD needs to prevalidate as many transactions as practical, further lower the prevalidation threshold, and follow basic accounting procedures until it has corrected serious weaknesses in its accounting and contracting systems.

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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