[Congressional Record Volume 140, Number 62 (Wednesday, May 18, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 18, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                     FINANCIAL MISMANAGEMENT AT DOD

  Mr. GRASSLEY. Madam President, I would like to speak about gross, 
continuing financial mismanagement at the Department of Defense [DOD] 
and the need for some accountability.
  I have spoken on the subject a number of times over the past year.
  Today, I would like to focus on financial mismanagement at one of the 
major Defense Finance and Accounting Service or DFAS centers.
  I would like to discuss the recon file at DFAS' Denver center.
  Mr. John S. Nabil is Director of the Denver Center.
  The recon file could be another magic vault in the making.
  The recon file is like a festering boil on the books at DFAS' Denver 
Center. It needs medical attention.
  Recon stands for reconciliation. But that's a misnomer, because the 
recon file is a dumping ground for financial transactions that either 
cannot be or have not been reconciled.
  Worse yet, they may never be reconciled. What records exist have been 
stuffed in storage boxes. They defy reconciliation, and Mr. Nabil has 
no tools for reconciling them.
  Mr. Nabil's recon file is identified in an audit report prepared by 
the DOD Inspector General [IG].
  The IG report is entitled ``Uncleared Transactions By and For 
Others,'' Report No. 94-048, dated March 2, 1994.
  The DOD IG states that Mr. Nabil is not providing complete and 
accurate figures on unmatched disbursements.
  The DOD IG says that Mr. Nabil is just not reporting some unmatched 
disbursements and the rest--those over 9 months old--are placed in the 
recon file.
  The DOD IG says that as of January 31, 1993, Mr. Nabil had stashed 
$8.8 billion in unreported unmatched disbursements in his recon file.
  The $8.8 billion figure includes $6.2 billion in cross disbursements 
and a negative $2.6 billion in intra-service transactions.
  The negative number should be treated as a positive number when 
determining the true dollar value of unmatched disbursements. DOD likes 
to net them out to arrive at a lower figure.
  The negative numbers could be erroneous payments to contractors that 
were voluntarily returned.
  Even though Mr. Nabil has over 125 accounting clerks dedicated to the 
recon file, Mr. Nabil has no idea how long the $8.8 billion in 
unmatched and unreported transactions have been in the recon file. He 
really doesn't know what's in the file. He has lost control.
  Mr. President, I ask unanimous consent to have pages 22 through 24 of 
the DOD IG report printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  Audit Report--Office of the Inspector General, Department of Defense


                reporting of undistributed disbursements

       Statistics. DFAS-Cleveland, DFAS-Denver, and DFAS-Columbus 
     substantially understated the numbers and dollar values of 
     undistributed disbursements over 180 days old as of January 
     31, 1993. DFAS-Indianapolis accurately reported information 
     on undistributed disbursements. We did not include DFAS-
     Kansas City in our review because January 1993 was the first 
     month that DFAS-Kansas City submitted data, and only part of 
     the undistributed disbursements could be collected. Our 
     analysis showed that the numbers and dollar values of 
     undistributed disbursements were understated by about 860,000 
     transactions and at least $7.2 billion. See Appendix A for a 
     breakdown by DFAS Center.
       Personnel at the DFAS Centers did not report the same data 
     and had different methods of collecting and calculating the 
     numbers and dollar values of undistributed disbursements. 
     Consequently, the data reported to DFAS Headquarters were 
     incomplete, inaccurate, and not comparable.
       Reported Data. Each DFAS Center reported different 
     information to DFAS Headquarters. DFAS-Indianapolis 
     appropriately considered a disbursement distributed when the 
     accountable station accepted the transaction and recorded it 
     against the corresponding obligation. Unlike DFAS-
     Indianapolis, DFAS-Cleveland and DFAS-Denver considered 
     disbursements identified to the appropriation level to be 
     distributed. DFAS-Columbus did not submit an ``Undistributed 
     Disbursements'' report. Only DFAS-Indianapolis reported 
     complete and accurate data in the ``Undistributed 
     Disbursements'' report.
       The DFAS Centers also were inconsistent in reporting 
     information on the ``Uncleared TBO'' report. DFAS-
     Indianapolis included uncleared intra-Service transactions 
     and some uncleared cross-disbursing transactions, as well as 
     uncleared interfund billings, in its ``Uncleared TBO'' 
     report. The same information, along with the balance of the 
     uncleared cross-disbursing transactions, was appropriately 
     included in DFAS-Indianapolis' ``Undistributed 
     Disbursements'' report. DFAS-Denver included data on 
     undistributed transactions in its ``Uncleared TBO'' report, 
     but omitted it, along with other undistributed disbursement 
     data, from its ``Undistributed Disbursements'' report. DFAS-
     Cleveland did not submit an ``Uncleared TBO'' report until 
     February 1993, and then reported only uncleared cross-
     disbursing transactions. DFAS-Columbus reported only some 
     disbursements that had been rejected by Army accountable 
     stations in its ``Uncleared TBO'' reports. The lack of 
     complete, accurate, and comparable data from the DFAS Centers 
     obscured DoD's problems with undistributed disbursements.
       DFAS-Denver. DFAS-Denver did not report complete and 
     accurate data on the numbers and dollar values of 
     undistributed disbursements. In its ``Uncleared TBO'' report, 
     DFAS-Denver identified 4,157 transactions valued at about 
     $53.0 million. These intra-Service transactions represented 
     disbursements and collections that had cleared the Merged 
     Accountability and Fund Reporting System and had been placed 
     in a temporary file, waiting to be accepted or rejected by 
     accountable stations. Consequently, these disbursements 
     and collections had not yet been matched against 
     corresponding obligations. However, these data, along with 
     similar data on cross-disbursing transactions (2,939 
     transactions, valued at about $21.3 million), were not 
     included in DFAS-Denver's ``Undistributed Disbursements'' 
     report. Undistributed disbursements not shown on either 
     report included about 6,200 transactions, valued at about 
     $114.1 million, that had been rejected for more than 180 
     days by accountable stations. Collectively, DFAS-Denver 
     understated undistributed disbursements over 180 days old 
     by at least $188.4 million. In addition, undistributed 
     transactions over 9 months old were placed in another 
     file, called a reconciliation file, that contained other 
     undistributed disbursements. The reconciliation file 
     contained about $3.6 billion in undistributed 
     disbursements as of January 31, 1993 ($6.2 billion related 
     to cross-disbursements and a negative $2.6 billion related 
     to intra-Service transactions). We could not obtain the 
     numbers of dollar values of undistributed disbursements 
     over 180 days old because DFAS-Denver could not determine 
     how long the undistributed disbursements remained in this 
     file. Consequently, Appendix A does not include an 
     estimate of the numbers and dollar values of undistributed 
     disbursements in this file. The inability to age these 
     undistributed disbursements means that management has less 
     oversight.
       DFAS-Cleveland. DFAS-Cleveland understated undistributed 
     disbursements over 180 days old by about $6.7 billion. DFAS-
     Cleveland did not report disbursements and collections that 
     did not match corresponding obligations in accounting systems 
     at its DAOs. In some cases, dollar values that other DFAS 
     Centers had made and reported to the Treasury on behalf of 
     Navy accountable stations differed from the amounts that 
     other DFAS Centers reported in cycles to DFAS-Cleveland. 
     DFAS-Cleveland did not report these differences as 
     undistributed disbursements.
       Data Collection and Reporting. DFAS-Cleveland did not 
     routinely collect the numbers and dollar values of 
     undistributed disbursements from any of its 13 DAOs. We 
     obtained undistributed disbursement data from DFAS-
     Cleveland's DAO Arlington (the office that accounted for 
     about 57 percent of the Navy's funds). STARS contained 
     932,342 transactions, valued at $7.1 billion, in 
     undistributed disbursements. The other accounting system, the 
     Integrated Disbursing and Accounting Resource Management 
     System, contained 91,258 transactions, valued at $140.6 
     million, in undistributed disbursements. We calculated that 
     about 864,000 transactions, totaling $6.0 billion, were more 
     than 180 days old. For the other 12 DAOs, the numbers and 
     dollar values of undistributed disbursements were not readily 
     available. Data collected on a one-time basis by DFAS-
     Cleveland showed that the other DAOs had over $37.5 million 
     in undistributed disbursements over 180 days old as of the 
     end of December 1992. However, all DAOs did not report the 
     requested data, and the data were not available as of the end 
     of January 1993.
       Understated Treasury Data. We requested information that 
     showed differences between the dollar values of disbursements 
     that other DFAS Centers had made and reported to the Treasury 
     on behalf of Navy accountable stations, and the amounts the 
     other DFAS Centers reported in cycles to DFAS- Cleveland, 
     that were more than 180 days old as of the end of January 
     1993. Records at DFAS-Cleveland showed that $547.8 million 
     more had been reported to the Treasury as disbursements 
     than had been reported to DFAS-Cleveland. DFAS-Cleveland 
     also understated undistributed disbursements by not 
     reporting disbursements and collections that failed to 
     clear the Consolidated Expenditure and Reimbursement 
     Processing System. As of March 29, 1993, accounts at DFAS-
     Cleveland contained 11,484 disbursements, valued at about 
     $90.0 million, and 628 collections, valued at $2.2 
     million, for the period ending January 31, 1993. 
     Conversely, personnel at DFAS-Cleveland overstated the 
     number of undisturbed interfund transactions by 35,427 
     because they incorrectly reported the total instead of 
     reporting only the transactions that were over 180 days 
     old.
       DFAS-Columbus. DFAS-Columbus reported only part of the 
     undistributed disbursements it was responsible for clearing. 
     All disbursements and collections made by or for DFAS-
     Columbus and Defense Logistics Agency activities were 
     processed through the DFAS-Indianapolis Transactions By and 
     For Other System. DFAS-Indianapolis omitted from its reports 
     the disbursements that had not been matched to corresponding 
     obligations, and DFAS-Columbus reported only part of them to 
     DFAS Headquarters. Of the 55 accountable and disbursing 
     stations that DFAS-Columbus could have reported on, we found 
     that DFAS-Columbus reported only part of the undistributed 
     disbursements for 14 disbursing stations. DFAS-Columbus also 
     had not reported any data on undistributed interfund 
     disbursements. DFAS-Indianapolis' records showed that a total 
     of 4,498 transactions, valued at about $163.0 million, should 
     have been reported by DFAS-Columbus as undistributed 
     disbursements on Program Appraisal Review reports. DFAS-
     Columbus also should have reported other undistributed 
     disbursements, but we could not determine the amounts.
       Negative Unliquidated Obligations. The practice of not 
     posting disbursements when obligations are insufficient to 
     cover them gives an inaccurate picture of the true account 
     balance and can result in the failure to detect and correct 
     violations of the Antideficiency Act. At DFAS-Cleveland's DAO 
     Arlington, when disbursements were related to obligations 
     that had insufficient unliquidated obligation authority to 
     cover them, these disbursements were inappropriately recorded 
     as undistributed. The Navy's STARS automatically rejected 
     each disbursement as unmatched if the corresponding 
     unliquidated obligation balance was not sufficient to cover 
     the disbursement. Consequently, disbursements were not 
     matched with obligations and posted to accounting records. 
     Records showed that disbursements exceeded available 
     unliquidated obligations for $4.0 billion of the $7.1 billion 
     unmatched in STARS as of January 31, 1993. This practice 
     differed from other accounting organizations and from good 
     accounting practice. DFAS Headquarters should take immediate 
     action to standardize DFAS-Cleveland's accounting and 
     reporting practices for negative unliquidated obligations 
     with those of the other DFAS Centers.

  Mr. GRASSLEY. Madam President, this section of the report identifies 
$7.2 billion in unreported, unmatched disbursements at various DFAS 
centers. The figure excludes the $8.8 billion in the ``Recon'' file.
  And the ``Recon'' file continues to fester. As of April 30, 1994, it 
had grown to $11 billion--an increase of $2.2 billion in the last year.
  The ``Recon'' file underscores the continuing lack of effective 
internal controls and the breakdown of discipline in accounting at 
DFAS.
  DOD Comptroller Hamre directed DFAS to reduce unmatched disbursements 
by 50 percent by June 1994.
  Mr. Hamre is trying to get rid of unmatched disbursements because 
they leave DOD accounts vulnerable to theft and abuse.
  Now, by hiding unmatched disbursements in the ``Recon'' and other 
temporary files, is Mr. Nabil really helping Mr. Hamre fix the problem?
  Mr. Nabil's ``Recon'' file also tells me that the current estimate of 
$41 billion for unmatched disbursements is nothing more than a wild 
guess. The real figure is probably much higher.
  But there is an even more disturbing aspect to Mr. Nabil's ``Recon'' 
file.
  It is a new disguise for an old problem--another problem that DFAS 
was directed to fix.
  Mr. Nabil's ``Recon'' file is nothing more than a ``Roll-Up'' of 
discrepancies between the accounting records maintained at the base 
level and the books maintained at the departmental level.
  Now, does not that sound familiar?
  The ``Recon'' file takes us right back to square one.
  It takes us right back to the $649.1 million caper engineered by the 
former Director of the Denver Center, Mr. Clyde E. Jeffcoat.
  Several years ago the Air Force discovered a $649.1 million 
discrepancy between the balances in its departmental books versus base-
level books. To correct the problem, the Air force took $649.1 million 
from the M accounts to plug the gap. And presto, the books balanced.
  The Air Force had to use the M accounts to force the books into 
balance, because the Air Force was not doing bookkeeping.
  Instead of recording obligations and expenditures in a ledger as they 
occur, the Air Force was using algorithms--mathematical equations--to 
estimate the missing numbers.
  Well, as any first-year accounting student would know, you can't 
balance your books that way.
  Both the DOD IG and the GAO examined the $649.1 million transaction 
and reached the same conclusion:
  There was no documentary evidence to support the use of $649.1 
million.
  Without documentary evidence, as required by law, we do not know what 
happened to the money. There is no audit trail. It could have been 
stolen.
  Based on the DOD IG and GAO findings, I concluded that the $649.1 
million should be returned to the Treasury.
  So I planned to offer an amendment to the fiscal year 1993 
supplemental appropriations bill to rescind the money. That was on June 
22, 1993.
  But my good friend from Hawaii, Senator Inouye, who chairs the 
Defense Subcommittee, persuade me to pursue ``a more positive approach 
to fixing the DOD accounting system.'' He offered to have the DOD IG 
review the base-level records to pinpoint the problem.
  I agreed and withdrew my amendment.
  Madam President, I would like to return this subject again tomorrow.
  I will try to show how the director of DFAS, Mr. John P. Springett, 
and the Director of the Denver Center, Mr. Nabil, have failed to honor 
their mandate: to balance the books and clean up the mess.
  Based on lessons learned from recent IG reports, I will recommend 
that these two officials be held accountable for the deepening 
financial crises at DOD.
  I yield the floor.

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