Department of Defense

Material financial management weaknesses at the Defense Department (DOD) continue to represent the single largest obstacle to achieving an unqualified opinion on the U. S. government's consolidated financial statements. So far, no major part of DOD has been able to pass the test of an independent audit because of pervasive weaknesses in the military's financial management systems, operations, and controls. The lack of such key controls and information not only hampers DOD's ability to produce timely and accurate financial information but also impairs efforts to improve the economy and efficiency of its operations. DOD has made genuine progress in many areas, and the DOD Comptroller and his counterparts have shown a strong commitment to addressing the department's serious financial management problems. However, major problems remain that are pervasive, long-standing, deeply rooted, and complex in nature.

GAO noted that: (1) to date no major part of DOD has yet been able to pass the test of an independent audit--auditors consistently have issued disclaimers of opinion because of pervasive weaknesses in DOD's financial management systems, operations, and controls; (2) such problems led GAO in 1995 to put DOD financial management on a list of high-risk areas vulnerable to waste, fraud, abuse, and mismanagement, a designation that continued in last year's update; (3) lacking such key controls and information not only hampers the department's ability to produce timely and accurate financial information, but also significantly impairs efforts to improve the economy and efficiency of its operations; (4) unreliable cost and budget information affects DOD's ability to effectively measure performance, reduce costs, and maintain adequate funds control, while ineffective asset accountability and control adversely affect DOD's visibility over weapons systems and inventory; (5) establishing an integrated financial management system--including both automated and manual processes--will be key to reforming DOD's financial management operations; (6) DOD has acknowledged that its present system has long-standing inadequacies and does not, for the most part, comply with the federal system standards; (7) DOD has set out an integrated financial management system goal; and (8) further, the department is now well-positioned to adapt the lessons learned from addressing the year 2000 issue and GAO's recently issued survey of the best practices of world-class financial management organizations and to use the information technology investment criteria included in the Clinger-Cohen Act of 1996.