Department of Defense

Serious financial management problems continue to plague the Defense Department. Recent audits of the military's financial statements for fiscal year 1997 done by the DOD Inspector General and the service audit agencies, as well as GAO's audit of the U.S. government's financial statements, provide further evidence of the scope and magnitude of the Pentagon's problems. DOD cannot properly account for billions of dollars worth of property and equipment, estimate its costs to clean up contaminated military facilities and dispose of chemical weapons, determine its liability for the future cost of health care benefits for military retirees, or accurately report disbursements and account for basic transactions. These problems leave DOD highly vulnerable to the loss of assets and inefficient operations. Outlays for wasteful or inefficient operations also divert scarce resources from military priorities, such as weapon systems modernization and readiness. This testimony also discusses two key areas that will affect the ultimate resolution of these long-standing problems: financial management personnel training and financial systems improvement. GAO also touches on DOD's efforts to deal with the Year 2000 problem and steps needed to counter computer security threats.

GAO noted that: (1) serious material weaknesses were found in DOD systems and processes relied on to maintain accountability and to control physical assets under its purview, including military equipment; general property, plant and equipment; and inventories; (2) auditors found that DOD's logistical systems could not be relied upon to provide basic information; (3) as a result, senior DOD officials did not have accurate information to use in making operational decisions or for financial reporting; (4) the Navy does not have a central system that supports both financial reporting and worldwide visibility over various categories of military equipment; (5) instead it relies on various systems and publications to provide this information; (6) the Army relies on a central logistics system, the Continuing Balance System-Expanded, to maintain worldwide visibility for all military equipment, including the Army's most critical war fighting equipment; (7) GAO reported that the compatibility rate calculation used by the Army does not provide a complete indicator of the central system's accuracy because it does not include errors associated with equipment that is in-transit between locations; (8) GAO's recent work identified problems with the Air Force's Reliability and Maintainability Information System, which is intended to provide worldwide visibility over its equipment and timely maintenance and logistical information; (9) this central logistical system is used to support Air Force field and operational commanders; (10) both the Army and Air Force have indicated that they have either taken, or are taking, actions to address auditor concerns and improve these critical systems; (11) DOD's inability to effectively account for and control its reported $170-billion investment in inventories has been an ongoing area of major concern; (12) in addition to not having a complete inventory of its financial management systems, DOD has not documented how it conducts its financial management operations now and plans to in the future; (13) GAO is continuing to monitor DOD inventory management as one of the areas it considers as high risk because of its vulnerability to waste, fraud, and abuse; (14) DOD has not fully implemented the federal accounting standard that requires it to recognize and report liabilities associated with environmental cleanup and disposal of its assets; (15) DOD faces a formidable task in providing assurance that its thousands of systems will be compliant and that the data among these systems will be accurate; and (16) DOD has a number of financial management reform efforts planned or under way.