Financial Management

As the Comptroller General recently testified and as discussed in our latest financial audit report, the Department of Defense's (DOD) financial management deficiencies, taken together, continue to represent the single largest obstacle to achieving an unqualified opinion on the U.S. government's consolidated financial statements. For example, to date, none of the military services has passed the test of an independent financial audit because of pervasive weaknesses in internal control, processes, and fundamentally flawed business systems. Problems with the department's financial management operations go far beyond its accounting and finance processes and systems. The department continues to rely on a reported 4,000 or more fundamentally flawed finance, logistics, personnel, acquisition, and other management information systems to gather the data needed to support day-to-day management decision making and reporting. These systems were not designed to be, but rather evolved into the overly complex and error-prone operation--vulnerable to fraud, waste, and abuse--that exists today. Further, inefficiencies in DOD's current business operations, such as (1) little standardization across DOD components, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, (4) manual entry of the same data into multiple systems, and (5) a large number of data transactions, combine to exacerbate problems with data integrity. This report answers the following questions: (1) Does DOD have a comprehensive, integrated plan for obtaining an unqualified audit opinion on the department's fiscal year 2007 consolidated financial statements? (2) Has the DOD Comptroller established effective processes and procedures for monitoring the implementation of the plan(s) to increase the likelihood of sustainable progress and to ensure that component auditability assertions are supported? (3) Has DOD established a clear link between DOD component improvement efforts and the department's BMMP?

DOD's goal to obtain an unqualified audit opinion on its fiscal year 2007 consolidated financial statements is not yet supported by a comprehensive and integrated plan. Although most of the DOD components, including the Army, Navy, and Air Force, have submitted improvement plans to the DOD Comptroller, DOD has not yet developed an integrated departmental strategy, key milestones, accountability mechanisms, or departmental cost estimates for achieving its fiscal year 2007 audit opinion goal. Further, there is little evidence of a direct linkage between component midrange financial improvement plans and the department's Business Management Modernization Program (BMMP). Our review of key individual component plans revealed that the plans varied in levels of detail, completeness, and scope, such that it will be difficult for DOD Comptroller staff to use its departmental database of component plans to oversee and monitor component efforts. In this regard, we found that the component plans did not consistently identify how staff, processes, or business systems would be changed to implement corrective actions. Such changes are key elements in assessing the adequacy of a component's plan and in monitoring progress and sustainability. DOD also does not yet have effective oversight and accountability mechanisms in place to ensure that the plans are implemented and corrective actions are sustainable. The database the department is currently using is not integrated electronically with subordinate component plans. Rather, the department currently relies upon DOD components to resubmit their plans when revisions are made so the departmental database can be updated. Because component plans are continually changing, the information contained in the departmental database will only be as current as the latest version of component plans received and input into the database. To date, DOD has not established a clear link between DOD component improvement efforts and BMMP--the department's long-term improvement initiative. According to DOD officials, DOD components plan to rely primarily upon manual work-arounds and modifications to existing legacy business systems rather than on new business system deployments to support DOD's fiscal year 2007 audit opinion effort. However, we found that the component plans we reviewed did not consistently identify whether a proposed corrective action included a manual work-around or business system modification or deployment. In addition, the department currently lacks a mechanism to effectively identify, monitor, and oversee business system investments, including modifications, occurring within the department.

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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