Financial Management

Problem disbursements result from difficulties in properly recording transactions, including matching disbursements with related obligations, well after the transactions have occurred. Problem disbursements can increase the risk of (1) fraudulent or erroneous payments going undetected, (2) disbursement amounts exceeding appropriated amounts and other legal spending limits, and (3) inaccurate and unreliable financial reporting. The Navy's inability to accurately account for its disbursements and collections is a serious, long-standing problem. GAO reported in 1996 that errors in recording billions of dollars of Navy disbursements caused the Treasury Department to understate the government's overall budget deficit by at least $4 billion as of June 1995. (See GAO/AIMD-96-7, Mar. 1996.) This report focuses on the effects of one type of problem disbursements--in-transits--on the Navy's funds control and financial reporting.

GAO noted that: (1) the Navy and the Department of Defense (DOD) have not established adequate funds control as required by the Antideficiency Act; (2) current policies and procedures permit the Navy to delay for about 5 years: (a) the recording of obligations in excess of available budget authority; (b) the initiation of required Antideficiency Act investigations; and (c) any resulting reports of violations to Congress and the President; (3) during this time, the Navy's appropriation balances are unreliable, leaving DOD and Congress without assurance that budget authority has not been exceeded; (4) according to Navy records, as of September 30, 1997, obligations for 9 cancelled and 20 expired appropriations may have exceeded available budget authority by a total of $290 million; (5) in accordance with DOD policy, obligations have been recorded in the nine appropriations that have cancelled; (6) at the time of GAO's review, the Navy's records indicated that these obligations may have exceeded budget authority; (7) although the Navy maintained cuff records (separately prepared spreadsheets used to track obligations) that it also would need to record to resolve problem in-transit disbursements in the 20 expired appropriations, these obligations were not recorded in the Navy's accounting system; (8) if these obligations had been recorded, the obligation records for the 20 expired appropriations would have shown that these appropriations also may have obligations that exceed available budget authority; (9) Navy officials stated that an investigation of these appropriations would show that they are not overobligated; (10) at the time of GAO's review, the Navy had not initiated an Antideficiency Act investigation of any of the 29 appropriations, although DOD policy requires investigations of the 9 cancelled appropriations with recorded obligations in excess of available budget authority; (11) in addition to the lack of control over funds, these problems have a major effect on the accuracy and reliability of the Navy's financial reporting, including its annual financial statements required under the Chief Financial Officers Act; and (12) until transactions are recorded accurately and in a timely manner, and reflected in these financial statements, the Navy and DOD will remain unable to achieve the goal of producing reliable financial statements.

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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