Military Personnel
DOD Needs to Strengthen the Annual Review and Certification of Military Personnel Obligations Gao ID: GAO-05-87R November 29, 2004Each year, Congress appropriates billions of dollars to pay and support U.S. military personnel at home and overseas. In fiscal year 2003, military personnel (MILPERS) appropriations amounted to more than $109 billion. Once the funds are appropriated, the military services are responsible for ensuring that the funds are properly obligated and disbursed. Their end-of-the-fiscal-year review is critical to the next year's budget formulation process because the services use the obligations for the most recent fiscal year completed as a point of reference in developing their new budgets, and Congress uses this information as a point of comparison in its review of the new budget requests. In our prior work for the House and Senate appropriation and authorization committees, reviewing the services' budget justifications, we found that although the services were conducting annual reviews and certifications, the services did not review transactions by matching obligations to individual disbursements in all of the years that disbursements can occur, as required by the Department of Defense (DOD) Financial Management Regulation. We also found that the services disbursed some obligations for purposes other than those reported in their budget submission, but their year-end reviews did not show how these funds were actually disbursed. As a result of our work, the report by the conferees for the House and Senate defense appropriations committees for fiscal year 2004 directed "the Secretary of Defense to ensure that the services strengthen the annual review process by including a review of the accuracy of prior year appropriations below the budget activity level. To facilitate this review, the financial management improvement initiative should include financial decision-making processes that provide transparency of disbursements at the same level as the budget submission." In its report for fiscal year 2005, the House Appropriations Committee reiterated this direction. For this letter, we examined whether the military services are reviewing the accuracy of their MILPERS obligation balances as required by DOD's Financial Management Regulation and as directed by congressional conferees, and, if not, what factors are preventing the services from doing this.
The military services are not matching obligations to disbursements at the individual disbursement transaction level in all of the years that disbursements can occur as required by the Financial Management Regulation. Additionally, the services are not reporting the obligation balances at the budget submission level as directed by congressional conferees. This has made it difficult, if not impossible, for decision makers to oversee how the services actually use MILPERS funds. One reason for this is that OSD has not provided the services with explicit instructions in the Financial Management Regulation requiring them to review MILPERS obligations at the budget justification level, especially as related to disbursements made after the first year of the appropriation. Moreover, OSD has not effectively monitored the services' compliance with the Financial Management Regulation's requirement to review obligation balances. Unless the services strengthen their year-end reviews and certification processes, the actual use of MILPERS funds will continue to be masked and the baseline for future budget requests may be inaccurate. In addition, OSD has not ensured that the detailed financial data from DFAS that the services need to conduct their reviews have been readily available. DFAS only produces the detailed data for the first year of the appropriation. Nevertheless, some of the services have begun to gather MILPERS budget execution data at the budget justification level for all years of the appropriation. For example, the Army and Marine Corps have started to obtain needed data from DFAS to improve their review and follow the congressional direction. Until all the services can strengthen their budget execution accounting and related year-end review process to ensure that their MILPERS obligations are valid, accurate, and matched to individual disbursements and summarized at the level at which funds were justified to Congress, decision makers will find it difficult, if not impossible, to properly oversee how the services actually use the appropriations. As a result, neither DOD nor the Congress has reliable information on the status of MILPERS appropriations and future budget submissions could be over- or understated.
RecommendationsOur 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.
Director: Team: Phone:GAO-05-87R, Military Personnel: DOD Needs to Strengthen the Annual Review and Certification of Military Personnel Obligations
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Report to the Secretary of Defense:
United States Government Accountability Office:
GAO:
November 2004:
Military Personnel:
DOD Needs to Strengthen the Annual Review and Certification of Military
Personnel Obligations:
GAO-05-87R:
United States Government Accountability Office:
Washington, DC 20548:
November 29, 2004:
The Honorable Donald H. Rumsfeld:
Secretary of Defense:
Subject: Military Personnel: DOD Needs to Strengthen the Annual Review
and Certification of Military Personnel Obligations:
Dear Mr. Secretary:
Each year, Congress appropriates billions of dollars to pay and support
U.S. military personnel at home and overseas. In fiscal year 2003,
military personnel (MILPERS) appropriations amounted to more than
$109 billion.[Footnote 1] Once the funds are appropriated, the military
services are responsible for ensuring that the funds are properly
obligated and disbursed. Their efforts include conducting an annual
review and certification to ensure that obligations are still needed in
the amounts and for the purposes obligated and that disbursements are
supported by a proper obligation of funds. The end-of-the-fiscal-year
review is critical to the next year's budget formulation process
because the services use the obligations for the most recent fiscal
year completed as a point of reference in developing their new budgets,
and Congress uses this information as a point of comparison in its
review of the new budget requests.
In our prior work for the House and Senate appropriation and
authorization committees, reviewing the services' budget
justifications, we found that although the services were conducting
annual reviews and certifications, the services did not review
transactions by matching obligations to individual disbursements in all
of the years that disbursements can occur, as required by the
Department of Defense (DOD) Financial Management Regulation.[Footnote
2] We also found that the services disbursed some obligations for
purposes other than those reported in their budget submission, but
their year-end reviews did not show how these funds were actually
disbursed. Specifically, the year-end reviews did not provide
transparency over disbursements that occurred after the first year of
the appropriation. As a result of our work, the report by the conferees
for the House and Senate defense appropriations committees for fiscal
year 2004 directed "the Secretary of Defense to ensure that the
services strengthen the annual review process by including a review of
the accuracy of prior year appropriations below the budget activity
level. To facilitate this review, the financial management improvement
initiative should include financial decision-making processes that
provide transparency of disbursements at the same level as the budget
submission."[Footnote 3] In its report for fiscal year 2005, the House
Appropriations Committee reiterated this direction.[Footnote 4]
For this letter, we examined whether the military services are
reviewing the accuracy of their MILPERS obligation balances as required
by DOD's Financial Management Regulation and as directed by
congressional conferees, and, if not, what factors are preventing the
services from doing this.
To answer this objective, we reviewed applicable Office of the
Secretary of Defense (OSD) regulations and the services' procedures for
performing the reviews; interviewed OSD officials in the Office of
Accounting, Finance, Policy and Analysis, within the office of the
Under Secretary of Defense (Comptroller/Chief Financial Officer), as
well as service Comptroller officials; and reviewed Defense Finance and
Accounting Service (DFAS) financial reports. We conducted our review
from August 2004 to October 2004 in accordance with generally accepted
government auditing standards. We determined that the data used in this
letter are generally reliable for the purposes for which we used them.
(See encl. I for more information on our scope and methodology.)
Results in Brief:
The military services are not matching obligations to disbursements at
the individual disbursement transaction level in all of the years that
disbursements can occur as required by the Financial Management
Regulation. Additionally, the services are not reporting the obligation
balances at the budget submission level as directed by congressional
conferees. This has made it difficult, if not impossible, for decision
makers to oversee how the services actually use MILPERS funds. One
reason for this is that OSD has not provided the services with explicit
instructions in the Financial Management Regulation requiring them to
review MILPERS obligations at the budget justification level,
especially as related to disbursements made after the first year of the
appropriation. Moreover, OSD has not effectively monitored the
services' compliance with the Financial Management Regulation's
requirement to review obligation balances. Unless the services
strengthen their year-end reviews and certification processes, the
actual use of MILPERS funds will continue to be masked and the baseline
for future budget requests may be inaccurate. In addition, OSD has not
ensured that the detailed financial data from DFAS that the services
need to conduct their reviews have been readily available. DFAS only
produces the detailed data for the first year of the appropriation.
Nevertheless, some of the services have begun to gather MILPERS budget
execution data at the budget justification level for all years of the
appropriation. For example, the Army and Marine Corps have started to
obtain needed data from DFAS to improve their review and follow the
congressional direction. Until all the services can strengthen their
budget execution accounting and related year-end review process to
ensure that their MILPERS obligations are valid, accurate, and matched
to individual disbursements and summarized at the level at which funds
were justified to Congress, decision makers will find it difficult, if
not impossible, to properly oversee how the services actually use the
appropriations. As a result, neither DOD nor the Congress has reliable
information on the status of MILPERS appropriations and future budget
submissions could be over-or understated.
We are recommending that OSD clarify the Financial Management
Regulation provisions applicable to the year-end review and
certification process for MILPERS obligations, monitor the services'
annual review results, and take steps to ensure that the services have
the financial information they need to conduct proper reviews.
Background:
MILPERS appropriations are available for obligation for a period of
1 year (or for the duration of the fiscal year in which the budget
authority was appropriated). However, the appropriated funds remain
available for 5 additional fiscal years for the payment of obligations
(e.g., for permanent change-of-station contracts or pay adjustments
that were incurred during the year of appropriation). Thus, the
military services can disburse MILPERS obligations over a period of up
to 6 years. For example, about 94 percent of fiscal year 2003 MILPERS
obligations were disbursed during the first year. The remaining
6 percent, or about $6.5 billion, was not disbursed (i.e., remained as
unliquidated obligations) and is available to disburse for up to 5
additional fiscal years. MILPERS obligations differ from other
obligations such as for operations and maintenance and procurement
where payments are made for specific transactions, such as under a
contract. MILPERS individual payments are made against a planned level
of obligations for like items,[Footnote 5] such as incentive bonuses
and payroll checks. The MILPERS fund manager allots an amount to DFAS
to expend for like disbursements.
The annual review and certification process for MILPERS appropriations
serves as an important oversight and internal control tool for decision
makers in OSD, the military services, and the House and Senate
appropriation and authorization committees, as well as input to
financial statements, to ensure that appropriated funds are properly
obligated and disbursed at the end of each fiscal year. OSD officials
responsible for Financial Management Regulations (the Office of
Accounting, Finance, Policy and Analysis) within the office of the
Under Secretary of Defense (Comptroller/Chief Financial Officer) stated
that the services are required to review commitments and obligation
transactions for timeliness, accuracy, and completeness and ensure that
unliquidated amounts are valid.[Footnote 6] The review covers the
obligation balances for each year, starting with the appropriation year
plus 5 years to expend until the appropriation cancels.[Footnote 7]
Only the first year of the appropriation is reviewed at the line item
level. The subsequent 5 years of obligations can only be reviewed at
the budget activity and subactivity level because of data limitations.
Based on this review, the services must then certify to the President
and the Secretary of the Treasury[Footnote 8] that obligations are
accurate and that disbursements from the account are supported by an
obligation and are otherwise proper.[Footnote 9] When the year-end
reviews identify funds that are no longer needed, the services should
deobligate the funds and make them available for other permissible
purposes.[Footnote 10]
In our prior work on MILPERS budgets, we found that the obligations
reported at the end of the appropriation year were not always disbursed
as reported. In researching some of the differences, we also found that
the services' obligation reviews for the 5 years after the obligations
were made could not identify the changes at the same level of detail as
that used in the budget request to Congress. Moreover, the reports used
for the review did not provide information on where the funds were
moved or an audit trail to the disbursements.
DOD submits its MILPERS budget request, including a report of actual
obligations for the fiscal year just completed, at three levels of
detail. The broadest level is the budget activity (BA), followed by
subactivity groups (SAG) and line items.[Footnote 11] As an example,
table 1 shows these three levels in the Air Force's fiscal year 2003
budget request to Congress. The fiscal year 2003 budget data is the
most recent year available for which the services have certified their
obligations as valid and accurate.
Table 1: Examples of Levels of Budget Submission in the Air Force's
Fiscal Year 2003 MILPERS Budget Justification Book:
Dollars in millions;
Levels of budget submission: Budget activity;
Title: Pay and allowance for officers;
Actual FY 2001: $6,129.5;
Estimate FY 2002: $6,609.0;
Requested FY 2003: $7,204.3.
Levels of budget submission: Subactivity group;
Title: Basic allowance for housing, officers;
Actual FY 2001: $642.8;
Estimate FY 2002: $717.8;
Requested FY 2003: $778.9.
Levels of budget submission: Line item;
Title: Domestic with dependents, officers;
Actual FY 2001: $421.4;
Estimate FY 2002: $473.4;
Requested FY 2003: $517.7.
Source: Air Force.
[End of table]
* The Air Force requested nearly $7.2 billion in the Pay and Allowance
budget activity for officers. Within this broad budget activity were
several SAGs, one of which was Basic Allowance for Housing. Finally,
within this SAG were several different line items, one of which was
Domestic with Dependents.
* The Air Force also included the amount it certified as obligated for
each of the three levels of detail for (1) the fiscal year that was
just completed (2001) as a point of comparison for the budget request
and (2) the estimate of how much it planned to use for the current
fiscal year (2002).
Table 2 shows how the military services would review their obligations
at the three levels of budget detail for the prior-year 2001
appropriation and the subsequent 5 years before the appropriation
cancelled. For example, the services would track the fiscal year 2001
obligations at all three levels of detail, but they would track the
fiscal year 2002 to fiscal year 2006 obligations at only the budget
activity and subactivity levels and not at the line item level. Thus,
the way that obligations are disbursed after the initial year of
appropriation is not transparent. For example, Congress and decision
makers in OSD and the services would assume that the $421.4 million
obligation for the line item "Domestic with Dependents" which was
certified as correct at the end of the fiscal year would disburse for
this purpose. However, because disbursements are not tracked at this
level after the first year, the Air Force cannot determine if the
$421.4 million obligated was actually disbursed for Domestic with
Dependents in fiscal years 2002 through 2006. Consequently, if the
$421.4 million is not dispersed, or is dispersed differently, the
baseline of the budget will be incorrect and may mask true requirements
and actual spending patterns.
Table 2: Financial Tracking of Services' Disbursements to Obligations
for Fiscal Year 2001 Appropriations:
Levels of budget submission: Budget activity;
Title: Pay and allowance for officers;
Financial tracking of disbursements to obligations:
Fiscal year of appropriation: 2001: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2002: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2003: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2004: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2005: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2006: Yes.
Levels of budget submission: Subactivity group;
Title: Basic allowance for housing, officers;
Financial tracking of disbursements to obligations:
Fiscal year of appropriation: 2001: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2002: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2003: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2004: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2005: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2006: Yes.
Levels of budget submission: Line item;
Title: Domestic with dependents, officers;
Financial tracking of disbursements to obligations:
Fiscal year of appropriation: 2001: Yes;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2002: No;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2003: No;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2004: No;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2005: No;
Financial tracking of disbursements to obligations:
5 years to expend (fiscal years): 2006: No.
Source: GAO analysis of DOD information.
Note: The line item level is usually a summary level of like
disbursements. Fiscal years 2005 and 2006 are displayed as if the
services followed the current reporting format.
[End of table]
The Army had financial information at the line item level, but the
information was cumbersome to crosswalk to the budget submission level
of detail. Starting in fiscal year 2004, a new accounting structure
will allow the Army to compare disbursement data to the budget
submission level of detail.
Services Are Not Reviewing the Accuracy of Obligations Because OSD Has
Not Provided Instructions, Monitored Compliance, or Ensured Access to
Detailed Data:
The military services are not reviewing the accuracy of their MILPERS
obligation balances, as required by the Financial Management Regulation
and as directed by congressional conferees. OSD has not provided the
services with explicit instruction in the Financial Management
Regulation to guide them in their year-end reviews and has not
effectively monitored their compliance with the regulation as it is
currently written. Also, OSD has not ensured that the services have
available the detailed financial data they need for their annual
reviews. Despite this, some of the services have begun to gather the
necessary financial reporting data. Until the services can strengthen
their year-end review process, the actual use of MILPERS funds will
continue to be masked and the baseline for budget requests may be
inaccurate. Additionally, it will be difficult, if not impossible, for
decision makers to oversee properly how the services actually use
MILPERS funds.
OSD Has Not Provided Clear Guidance or Monitored Annual Reviews:
DOD's Financial Management Regulation sets out general instructions on
the review process that DOD components are to follow. The services are
responsible for conducting reviews of outstanding commitments and
obligation transactions for timeliness, accuracy, and
completeness.[Footnote 12] As part of this process, they are to perform
a review of obligations that have not disbursed (unliquidated
obligations).[Footnote 13] Even though DOD's Financial Management
Regulation requires that the services review and match individual
disbursements to obligations,[Footnote 14] it does not provide explicit
instructions requiring them to review MILPERS appropriations at the
transaction level until the appropriation cancels.
OSD officials who are responsible for the financial management
regulation on obligation reviews told us that they are considering
revisions that would require the services to review MILPERS obligations
three times a year, as they require for other appropriation accounts.
The triannual review would enhance DOD's and the services' ability to
ensure that individual disbursements are being matched to obligations
and are complying with DOD regulations and sound accounting and
internal control requirements. Showing budget execution data at the
same level of detail at which it was requested would be useful for both
agency and congressional oversight and financial decision-making.
However, OSD officials said that specific instructions on how MILPERS
obligations should be reviewed are not needed because they believe the
regulation is adequate. We found that the regulations do not
specifically state how MILPERS obligations are to be reviewed. Specific
language on how MILPERS obligations reviews are to be conducted would
make clear to the services how detailed the reviews should be. But the
officials agreed that a revision requiring DOD components to submit
copies of their review results to OSD for monitoring purposes is
needed.[Footnote 15] In addition, OSD officials told us they are
considering whether to follow the congressional conferee's direction,
which calls for providing transparency of disbursements at the same
level (line item level) as the budget submission until the
appropriation cancels.
OSD Has Not Ensured Availability of Detailed Financial Data, but
Services Have Taken Steps to Obtain Data:
The financial information provided by DFAS does not provide the
detailed information that the services need to match obligations to
disbursements at the budget submission (or line item) level for the
5 years after the year of appropriation, nor does it provide an audit
trail to the individual disbursements, required for sound management
and internal control. The services' fund holders use monthly reports
(Accounting Report M-1002)[Footnote 16] provided by DFAS to review
their obligation balances and disbursements. While these reports
contain summaries of obligations and disbursements for all 6 years of
the appropriation, they do not include data down to the line item level
(budget submission level) for any of the years. For the first year of
appropriation, the services have relied on other financial data
(i.e., summaries of like items) to perform their year-end reviews to
the line item level. However, they do not have similar data to make the
review at the line item level for the subsequent 5 years that funds can
be disbursed or until the appropriation cancels.[Footnote 17] Moreover,
OSD and service officials acknowledge that there is no requirement that
the services use funds remaining after the year of appropriation for
the purposes obligated and reported in the budget submission. If funds
are used differently than reported, the actual use of funds is masked,
and the baseline for the budget requests may be inaccurate and/or
misleading. For example, obligated MILPERS funds that are not disbursed
for officers' basic pay in the year of appropriation could be used for
another authorized purpose for that year of appropriation, such as
enlisted personnel bonuses, within the next 5 years of availability.
However, current financial reports would not show this variance. As a
result, the reported obligations in the budget submission may not
represent how the services actually expend the funds and may not be an
accurate point of comparison for future budget requests.
Recently, the military services have taken steps--albeit different
ones--to get access to the detailed financial information they need to
strengthen their review of the accuracy of obligation balances.
Officials in each service provided the following descriptions on what
they are currently doing and their limitations for making a more
detailed review.
* The Air Force has started to review the accuracy of prior-year
obligations, but it does not yet have the financial information needed
to make the review at the line item level. Air Force comptroller
officials told us that DFAS will be able to provide financial reports
at the line item level by November 2005 and will be able to match
obligations to disbursements at this level beginning in fiscal year
2006.
* Beginning with the fiscal year 2004 appropriations, the Army has been
able to match disbursements to obligations at the line item level
because the service built a data warehouse that can be used to research
and summarize obligations and disbursements. Army officials told us
that, starting with the fiscal 2004 MILPERS appropriation, they would
be able to produce financial reports at the budget submission level.
* The Marine Corps has a different DFAS system than the other services.
It has an integrated personnel and pay system and data history that
allows it to compare disbursements to obligations at the most detailed
level of each individual disbursement. The Marine Corps also has a data
warehouse that can be used to research obligations and individual
disbursement transactions that make up the financial reports. Officials
told us that, although they do not currently get financial reports from
DFAS at the line item level after the year of appropriation, DFAS could
revise its reporting format to provide such detail for a one-time cost
of about $90,000. With revised reports (M-1002) and the data warehouse,
the Marine Corps could review and certify the accuracy of outstanding
obligations at the line item level and research related transactions by
matching disbursements to obligations.
* Although the Navy has taken a number of steps to improve its review
of the accuracy of obligations in the year of appropriation, Navy
officials told us they have no plans to request a change in the monthly
account reports (M-1002) to show obligations and disbursements at the
line item level for the additional 5 years. Navy comptroller officials
do not view the improved oversight that such information would provide
as either necessary or required.
Conclusions:
Each year, transparency over the disbursement of several billion
dollars of MILPERS appropriations is placed at risk because the
military services are not reviewing the accuracy of their obligation
balances at the level of detail required by DOD's Financial Management
Regulation and as directed by congressional conferees. Although the
services conduct the annual reviews, it is OSD's responsibility to
ensure that the services have clear guidance and sufficiently detailed
data to undertake these reviews at the level of detail required.
Although three of the four services have initiated steps to obtain
financial data at the necessary level of detail, their efforts have
varied. Until OSD can ensure that the services are doing the reviews as
required, the actual use of some MILPERS funds will continue to be
masked and the baseline for budget requests may be inaccurate.
Recommendations for Executive Action:
We are making two recommendations to ensure that the services are
reviewing the accuracy of MILPERS obligations and disbursements as
required. You should direct the Under Secretary of Defense
(Comptroller/Chief Financial Officer) to require:
* the Office of Accounting, Finance, Policy and Analysis to monitor the
services' review results and to clarify the regulation that applies to
the review and certification of the accuracy of MILPERS obligations, by
including MILPERS accounts in its triannual review requirements and
providing specific guidance to the services to match obligations to
individual disbursement transactions until the appropriation cancels
and:
* the Defense Finance and Accounting Service to change the format in
the monthly financial reports for MILPERS appropriations to include
information at the line item level (budget submission level) for all
6 years that funds can be disbursed until the appropriation cancels.
Title 31 U.S.C. § 720 requires the head of a federal agency to submit a
written statement of the actions taken on our recommendations to the
Senate Committee on Governmental Affairs and the House Committee on
Government Reform no later than 60 days after the date of this letter.
A written statement must also be sent to the House and Senate
Committees on Appropriations with the agency's first request for
appropriations made more than 60 days after the date of this letter.
Agency Comments and Our Evaluation:
The Under Secretary of Defense (Comptroller) provided written comments
to a draft of this letter. The Department of Defense's comments are
included in enclosure II. DOD concurred with both of our
recommendations. DOD concurs with the intent to clarify the
requirements of the year-end certification process by requiring
triannual reviews for MILPERS accounts. DOD stated that it will include
MILPERS appropriations in the triannual review requirements of the
Department of Defense Financial Management Regulation. DOD also concurs
with the intent to ensure that the services have the financial
information they need to conduct proper reviews of MILPERS accounts.
DOD stated that it will direct the departments of the Navy and the Air
Force, in conjunction with the Defense Finance and Accounting Service,
to conduct a study of the feasibility of modifying the financial
systems to record and report prior year disbursements at the budget
submission level.
We are sending copies of this letter to House and Senate appropriation
and authorization committees. We will also make copies available to
others upon request. In addition, this letter is available at no charge
on GAO's Web site at http://www.gao.gov. If you have any questions
concerning this letter, please contact me on (202) 512-5559. Key
contributors to this assignment were Don Snyder, Tom Pantelides, Gary
Billen, Pawnee Davis, and Nancy Benco.
Sincerely yours,
Signed by:
Derek B. Stewart, Director:
Defense Capabilities and Management:
Enclosures:
[End of section]
Enclosure I: Scope and Methodology:
To identify the reasons why the military services were not properly
conducting annual reviews of MILPERS obligation balances, we reviewed
applicable Financial Management Regulations, the services' procedures
for performing the reviews, and monthly financial reports issued by
DFAS. We reviewed the results of our prior budget justification issue
papers that were provided to the House and Senate appropriation and
authorization committees. We also interviewed Air Force, Army, Navy,
and Marine Corps comptroller officials to determine what actions they
were taking to improve their year-end review and certification process
and what limitations they were encountering in these efforts, including
problems in obtaining needed financial information from DFAS. To
determine the ability of DFAS to provide the military services with
needed financial information, we interviewed DFAS and service officials
responsible for financial information used in the review of obligations
and disbursements and reviewed existing financial reports on the status
of MILPERS appropriations and obligations. We conducted our review from
August 2004 to October 2004 in accordance with generally accepted
government auditing standards. We determined that the data used in the
letter are generally reliable for the purposes for which we used them.
[End of section]
Enclosure II: Comments from the Department of Defense:
UNDER SECRETARY OF DEFENSE:
COMPTROLLER:
1100 DEFENSE PENTAGON:
WASHINGTON, DC 20301-1100:
NOV 23 2004:
Derek B. Stewart, Director:
Defense Capabilities and Management:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Stewart:
This is the Department of Defense response to the Government
Accountability Office (GAO) draft report, "Military Personnel: Annual
Review and Certification of Military Personnel Obligations" (GAO-05-
87R). The Department appreciates the opportunity to review the draft
report and provide comments.
I agree with the intent of the recommendations to clarify the
requirements applicable to the year-end certification process by
requiring triannual reviews and to ensure that the Services have the
financial information they need to conduct proper reviews. More
detailed comments are at the enclosure.
My point of contact for this matter is Mr. Oscar Covell. He may be
reached by e-mail: oscar.covell@osd.mil or by telephone at (703) 697-
6149.
Sincerely,
Signed by:
Robert J. Henke:
Principal Deputy:
Enclosure: As stated:
GAO DRAFT REPORT / DATED OCTOBER 28, 2004 GAO-05-87R (CODE 350489):
MILITARY PERSONNEL: Annual Review and Certification of Military
Personnel Obligations:
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
To ensure that the Services are reviewing the accuracy of MILPERS
obligations and disbursements as required, you should direct the Under
Secretary of Defense (Comptroller/Chief Financial Officer) to require:
RECOMMENDATION 1: The Office of Accounting and Finance Policy and
Analysis to clarify the regulation that applies to the review and
certification of the accuracy of MILPERS obligations, by including
MILPERS accounts in its triannual review requirements and providing
specific guidance to the Services to match obligations to individual
disbursement transactions until the appropriation cancels, and to
monitor the Services' review results. (p. 12/GAO Draft Report):
DoD RESPONSE: Concur. We will clarify the guidance in the Department of
Defense Financial Management Regulation (DoDFMR) during the second
quarter of Fiscal Year (FY) 2005 to include the Military Personnel
appropriations in the triannual review requirements.
RECOMMENDATION 2: The Defense Finance and Accounting Service to change
the format in the monthly financial reports for MILPERS appropriations
to include information at the line item level (budget submission level)
for all 6 years that funds can be disbursed until the appropriation
cancels. (p. 12/GAO Draft Report):
DoD RESPONSE Concur. As stated in the report, the Department of the
Army has recently modified its procedures to record and report
disbursements for prior year entitlement obligations at the line item
level on the DD Compt 1002, "Appropriation Status by Fiscal Year
Program and Subaccounts," for its Military Personnel appropriations.
Consequently, the Under Secretary of Defense (Comptroller) will direct
the Departments of the Navy and the Air Force, in conjunction with the
Defense Finance and Accounting Service (DFAS), to conduct a feasibility
study of the cost and time required to modify financially related
systems to record and report disbursements for prior year entitlement
obligations at the line item level and forward the results to this
office by January 31, 2005.
[End of letter]
UNDER SECRETARY OF DEFENSE:
COMPTROLLER:
1100 DEFENSE PENTAGON:
WASHINGTON, DC 20301-1100:
NOV 23 2004:
MEMORANDUM FOR ASSISTANT SECRETARY OF THE NAVY (FINANCIAL MANAGEMENT
AND COMPTROLLER) ASSISTANT SECRETARY OF THE AIR FORCE (FINANCIAL
MANAGEMENT AND COMPTROLLER) DIRECTOR, DEFENSE FINANCE AND ACCOUNTING
SERVICE:
SUBJECT: Government Accountability Office (GAO) Draft Report: "MILITARY
PERSONNEL: DoD Needs to Strengthen the Annual Review and Certification
of Military Personnel Obligations," dated October 28, 2004 (GAO Code
350489/GAO 05-87R):
The attached GAO draft audit report revealed that the Military Services
track current fiscal year obligations at the line item level for the
military personnel appropriations while expired year obligations are
tracked at only the budget activity level. The GAO concluded that
disbursements made during the expired years of an appropriation are not
matched to line item obligations. The GAO also concluded the Military
Services are not reviewing the accuracy of their Military Personnel
appropriations as required by Volume 3, Chapter 8, of the Department of
Defense Financial Management Regulation (DoDFMR).
The GAO observed that the Department of the Army has developed a data
warehouse to produce prior year financial reports at the line item
level. This action was necessary because the Army's entitlement systems
do not provide information regarding prior year obligation adjustments
to accounting systems.
The Departments of the Navy and the Air Force, in conjunction with the
Defense Finance and Accounting Service (DFAS), are to conduct a
feasibility study of the cost and time required to modify financially
related systems to record and report disbursements for prior year
entitlement obligations at the line item level. I encourage you to the
extent possible to capitalize on the Army's accomplishments in this
matter. The results of your study are to be forwarded to this office by
January 31, 2005.
My point of contact is Mr. Oscar G. Covell. He may be reached by e-
mail: oscar.covell@osd.mil or by telephone at (703) 697-6149.
Signed by:
Robert J. Henke:
Principal Deputy:
Attachment: As stated:
cc:
Deputy Comptroller (Program/Budget):
Assistant Secretary of the Army (Financial Management & Comptroller):
[End of memorandum]
[End of section]
FOOTNOTES
[1] MILPERS appropriations are used for pay, benefits, incentives,
allowances, housing, subsistence, travel for military personnel, and
reserve training.
[2] DOD 7000.14-R, vol. 3, chapter 8, paragraph 080402.B(2), November
2000; chapter 11, paragraph 110301, January 2001.
[3] H.R. Conf. Rep. No. 108-283, 62 (2003).
[4] H.R. Rep. No. 108-553, 20 (2004).
[5] OSD and service officials referred to this as an open allotment
where the fund manager provides DFAS with authority to make appropriate
disbursements for transactions that meet the criteria.
[6] DOD 7000.14-R, vol. 3, chapter 8, paragraph 080401, and paragraph
080403, November 2000.
[7] As of October 2004 (fiscal year 2005), for example, the services
would have obligation balances subject to review for prior-year
appropriations for fiscal years 2000, 2001, 2002, 2003, and 2004.
[8] 31 U.S.C. § 1554(b)(1).
[9] 31 U.S.C. § 1554(b)(2)(E).
[10] Funds also can be released to OSD for transfer into the Foreign
Currency Fluctuation account if they are transferred within 2 years
after the appropriation year; this account exists to minimize the
effect to the Operations and Maintenance and the MILPERS accounts of
unanticipated declines in the value of the dollar vis-à-vis foreign
currencies.
[11] The services use different terms to denote these levels. For
example, the Air Force refers to subactivity groups as project codes
and line items as subproject codes; the Army refers to them as
subactivity groups and program elements; the Navy refers to them as
subactivity groups and summary account identifiers; and the Marine
Corps refers to them as subactivity groups and line items. We use
budget activity, subactivity, and line item to generically describe
these various levels within a budget request.
[12] DOD 7000.14-R, vol. 3, chapter 8, paragraph 080401, November 2000.
[13] DOD 7000.14-R, vol. 3, chapter 8, paragraph 080403, November 2000.
[14] DOD 7000.14-R, vol. 3, chapter 11, paragraph 110302(D), January
2001.
[15] The regulation requires the services' fund managers to confirm to
their assistant secretaries (Financial Management and Comptroller) that
a review has been performed, but it does not require them to notify
OSD. DOD 7000.14-R, vol. 3, chapter 8, paragraph 080405(B), November
2000.
[16] DOD 7000.14-R, vol. 6A, chapter 4, paragraph 0406, January 2002.
[17] DOD is also working to implement a new military personnel and
payroll system--the Defense Integrated Military Human Resource System
(DIMHRS). DIMHRS eventually will provide uniform personnel and payroll
services to each of the Services, the Reserves, and the Air and Army
National Guard, but this review did not cover the extent it will
interface with the DFAS financial systems and provide the type of
reports discussed in this letter.
