Financial Management

Problem disbursements are payments that have not been matched with corresponding obligations, thereby increasing the risk of undetected fraudulent or erroneous payments. Problem disbursements also increase the likelihood that cumulative disbursement amounts will exceed appropriated amounts and other spending limits. This report reviews the Defense Department's (DOD) reporting on the amount of its problem disbursements. GAO focuses on whether DOD's reporting of problem disbursements is producing accurate and consistent data needed to effectively measure its progress and manage the reduction of its problem disbursements.

GAO noted that: (1) to ensure that problem disbursement reports are an effective management tool, DOD's reports, at a minimum, need to accurately identify the amount of problem disbursements; (2) however, the reports by the Defense Finance and Accounting Service (DFAS) do not provide this needed information; (3) GAO's testing of problem disbursement amounts reported by DFAS as of May 31, 1996, shows that the $18 billion total reported by DOD was understated by at least $25 billion; (4) accordingly, neither the Congress nor DOD management can rely on DOD's reported amount to determine the extent of problem disbursements or to monitor progress made in resolving them; (5) furthermore, the underlying data for DFAS' reports are not sufficient to ensure consistent reporting and do not provide basic information about the sources and causes of problem disbursements; (6) additional data are essential if DOD is to prioritize and focus reengineering efforts and other corrective actions on those organizations, activities, and actions that are the more significant contributors to disbursement problems and to measure its success in addressing specific problems; (7) while summary data would be acceptable for some analyses, the ability to identify sources and causes of problem disbursements depends on the availability of detailed data about transactions that result in problem disbursements; (8) while DOD and DFAS have committed significant resources to reducing problem disbursements, they have not taken the steps needed to ensure accurate and consistent reporting and the availability of underlying data that are needed to quantitatively measure and manage reduction efforts; (9) although DFAS prepared its first comprehensive reporting guidance in May 1996, the understatement GAO identified resulted from the guidance not: (a) being followed because DFAS did not establish adequate oversight and controls over the reporting process; (b) offering detailed instructions for offsetting transactions; and (c) appropriately identifying certain types of transactions as problems; (10) DOD disagreed with GAO's findings and stated that it no longer characterizes in-transit transactions as problem disbursements; (11) GAO believes aged in-transits are problem disbursements, and, until recently, they have been treated as such by DOD; (12) DOD also stated that it officially reports in-transit disbursements on a net basis, which is inconsistent with the written policies of DOD and DFAS; and (13) to report these balances on a net basis grossly understates and masks the magnitude and seriousness of DOD's long-standing disbursing problems.

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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