Financial Management: DOD's Approach to Financial Control Over Property
Needs Structure (Letter Report, 09/30/97, GAO/AIMD-97-150).
GAO determined whether the Defense Property Accountability System
(DPAS): (1) was designed to meet functional accounting requirements for
general property, plant, and equipment (PP&E); and (2) was implemented
at the Defense Information System Agency's (DISA) Defense Megacenters in
a manner that ensures it meets functional accounting requirements for
general PP&E.
GAO noted that: (1) as functionally designed, DPAA can provide financial
control and generate information to account for most general PP&E;
however, DPAS cannot yet meet requirements that become effective for
accounting periods beginning after September 30, 1997; (2) DPAS does not
contain the information needed to meet new federal accounting standards
for deferred maintenance and environmental clean-up costs; (3) the DPAS
design does not meet several current DOD accounting requirements for
certain minor types of PP&E; for example, DPAS does not have the
information to meet the requirements for recording depletion of natural
resources, which represent 1.2 percent of DOD's total general PP&E; (4)
DPAS needs to be modified with the addition of data elements and
financial transactions to meet new standards and requirements as well as
the current ones not yet covered; (5) implementation of DPAS at DISA did
not ensure financial control and accurate reporting of general PP&E; (6)
DPAS was not correctly interfaced with the accounting system due to
errors in the interface program used to translate DPAS data to data
understandable to DISA's general ledger; (7) this caused transactions to
be recorded incorrectly in the general ledger, resulting in a material
difference of over $118 million in property values between DPAS detailed
records and the general ledger summary records; (8) the problem with the
interface program could have been mitigated if transactions using the
standard general ledger accounts were created in DPAS; (9) in addition,
compensating controls, such as routine reconciliations between the two
systems, were in place; (10) many of the problems with the accuracy of
property data experienced at DISA can be linked to several issues that
affect DOD-wide implementation of DPAS; (11) DOD, as part of its DPAS
strategic planning process, has not defined the roles, responsibilities,
and relationships among the various DOD entities involved, interfaces,
and related controls; (12) this part of the strategic planning has not
developed a detailed DPAS implementation schedule that identifies at
what sites and when the system will be implemented; and (13) DOD has
left it up to each military service to determine where, when, and how
DPAS is to be implemented without providing adequate implementation
guidance or ensuring that the implementation schedule includes all
sites, making it unlikely that DPAS will be implemented across DOD by
the Comptroller's target date of 2000.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-97-150
TITLE: Financial Management: DOD's Approach to Financial Control
Over Property Needs Structure
DATE: 09/30/97
SUBJECT: Accountability
Federal agency accounting systems
Accounting procedures
Requirements definition
Internal controls
Strategic information systems planning
Systems conversions
Federal property management
IDENTIFIER: DOD Defense Property Accountability System
DISA Automated Contract Preparation System
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Cover
================================================================ COVER
Report to the Deputy Secretary of Defense
September 1997
FINANCIAL MANAGEMENT - DOD'S
APPROACH TO FINANCIAL CONTROL OVER
PROPERTY NEEDS STRUCTURE
GAO/AIMD-97-150
DOD Financial Control Over Property
(918883)
Abbreviations
=============================================================== ABBREV
ACPS - Automated Contract Preparation System
CFO - Chief Financial Officer
DFAS - Defense Finance and Accounting Service
DISA - Defense Information System Agency
DOD - Department of Defense
DPAS - Defense Property Accountability System
FASAB - Federal Accounting Standards Advisory Board
FFMS - Federal Financial Management System
FMFIA - Federal Managers' Financial Integrity Act
FMLO - Financial Management Liaison Office
FMR - Financial Management Regulation
GMRA - Government Management and Reform Act
ILSC - Industrial Logistics Systems Center
JFMIP - Joint Financial Management Improvement Program
OMB - Office of Management and Budget
PP&E - property, plant, and equipment
SFFAS - Statement of Federal Financial Accounting Standards
Letter
=============================================================== LETTER
B-275088
September 30, 1997
The Honorable John J. Hamre
Deputy Secretary of Defense
Dear Dr. Hamre:
The Department of Defense (DOD) identified its long-standing problem
with accurately reporting its real and personal property as a
high-risk area as far back as fiscal year 1990. Recent financial
statement audits continued to find unreliable financial balances of
real and personal property. Further, the Department's Federal
Managers' Financial Integrity Act (FMFIA) Annual Statement of
Assurance\1 for fiscal year 1996 indicated that accounting for real
and personal property was still a problem area. DOD stated that a
contributing factor was that its financial systems were not designed
to satisfy accounting and reporting requirements.
Federal accounting standards identify general property, plant, and
equipment (PP&E)\2 as a separate category of assets to be accounted
for and reported in DOD's financial statements. General PP&E
includes assets such as mainframe computers, office equipment, and
vehicles. DOD reported over $182 billion of general PP&E in its
fiscal year 1996 financial statements, which represents over half of
the more than $358 billion of general PP&E reported governmentwide
for this period.
In December 1994, the DOD Comptroller nominated the Defense Property
and Accountability System (DPAS) to account for real and personal
property throughout the Department in order to bring DOD assets under
proper accountability and financial control, remedy its problem of
inaccurate financial reporting and meet the objectives of recent
financial management reform legislation. The selection of DPAS as
the DOD migratory property system was approved by the Deputy
Assistant Secretary of Defense for Command, Control, Communication
and Intelligence in May 1995. The Chief Financial Officers (CFO) Act
of 1990, as expanded by the Government Management Reform Act (GMRA)
of 1994, and federal accounting standards,\3 are aimed at gaining
better control over government operations, providing reliable costs
and performance measures for decision-making, and improving financial
reporting. In addition, the Federal Financial Management Improvement
Act of 1996 requires agencies to comply with federal accounting
standards, federal financial management system requirements,\4 and
the U.S. Government Standard General Ledger.\5 Successfully meeting
these requirements for having reliable data is essential for ensuring
effective management of government activities, safeguarding assets
entrusted to the federal government, and achieving reliable financial
reporting.
Our objectives were to determine whether (1) DPAS was designed to
meet functional accounting requirements\6 for general PP&E and (2)
DPAS was implemented at the Defense Information System Agency's
(DISA) Defense Megacenters in a manner that ensures it meets
functional accounting requirements for general PP&E. We chose DISA
because it represents one fourth of the sites where DPAS has been
implemented. Through our work at DISA, we also identified several
opportunities for improvements to DOD's agencywide implementation
strategy for DPAS.
--------------------
\1 FMFIA requires that the head of each executive agency provide an
annual statement to the President and the Congress stating whether
the systems of internal accounting and administrative control fully
comply with standards issued by the Comptroller General.
\2 According to Statement of Federal Financial Accounting Standards
(SFFAS) No. 6, PP&E consists of tangible assets, including land,
that has an estimated useful life of 2 years or more; is not intended
for sale in the ordinary course of operations; and has been acquired
or constructed with the intention of being used, or being available
for use by the entity. General PP&E has one or more of the following
characteristics: it could be used for alternative purposes (e.g., by
other Federal programs, etc.) but is used to produce goods or
services or to support the mission of the entity; it is used in
business-type activities; or it is used by entities in activities
whose costs can be compared to those of other entities performing
similar activities (e.g., federal hospital services in comparison to
other hospitals).
\3 The Federal Accounting Standards Advisory Board (FASAB) recommends
accounting standards, and the Office of Management and Budget (OMB),
Treasury, and GAO decide whether to adopt the recommended standards;
if they are adopted, the standards are published by OMB and GAO.
\4 Federal financial management system requirements are defined in
OMB Circular A-127 and the Joint Financial Management Improvement
Program's systems requirements series.
\5 The purpose of the U.S. Government Standard General Ledger is to
provide a uniform chart of accounts and supporting transactions to be
used to standardize federal agency accounting and to support the
preparation of standard external reports.
\6 Functional accounting requirements are contained in Statements of
Federal Financial Accounting Standards and DOD Financial Management
Regulations.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
As functionally designed, DPAS can provide financial control and
generate information to account for most general PP&E. However, DPAS
cannot yet meet requirements that become effective for accounting
periods beginning after September 30, 1997. For example, DPAS does
not contain the information needed to meet new federal accounting
standards for deferred maintenance and environmental clean-up costs.
These items will be significant to the financial statements. Also,
the DPAS design does not meet several current DOD accounting
requirements for certain minor types of general PP&E. For example,
DPAS does not have the information to meet the requirements for
recording depletion of natural resources, which represent 1.2 percent
of DOD's total general PP&E. DPAS needs to be modified with the
addition of data elements and financial transactions to meet new
standards and requirements as well as the current ones not yet
covered.
Implementation of DPAS at DISA did not ensure financial control and
accurate reporting of general PP&E. For example, DPAS was not
correctly interfaced with the accounting system due to errors in the
interface program used to translate DPAS data to data understandable
to DISA's general ledger. This caused transactions to be recorded
incorrectly in the general ledger, resulting in a material difference
of over $118 million in property values between DPAS detailed records
and the general ledger summary records. The problem with the
interface program could have been mitigated if transactions using the
standard general ledger accounts were created in DPAS. In addition,
compensating controls, such as routine reconciliations between the
two systems, were not in place.
Many of the problems with the accuracy of property data experienced
at DISA can be linked to several issues that affect DOD-wide
implementation of DPAS. For example, DOD, as part of its DPAS
strategic planning process, has not defined the roles,
responsibilities, and relationships among the various DOD entities
involved, including identification of needed manual and automated
interfaces and related controls. This part of the strategic planning
process is referred to as a concept of operations. In addition, DOD
has not developed a detailed DPAS implementation schedule that
identifies at what sites and when the system will be implemented.
Rather, DOD has left it up to each military service to determine
where, when, and how DPAS is to be implemented without providing
adequate implementation guidance or ensuring that the implementation
schedule includes all sites, making it unlikely that DPAS will be
implemented across DOD by the Comptroller's target date of 2000.
BACKGROUND
------------------------------------------------------------ Letter :2
DOD has been reporting problems with its data accuracy for real and
personal property since at least 1990. The Department has provided a
number of reasons for the unreliable reporting, including property
systems that maintain item accountability not being integrated with
financial accounting systems. In fiscal year 1995, the DOD
Comptroller concluded that this lack of integration adversely
affected the accuracy of accounting systems data and financial
reporting. The DOD Comptroller also stated that general ledger
control over property, which is necessary to ensure that all
financial transactions are recorded in the official accounting
records, is lacking or inadequate. Accordingly, the DOD Comptroller
selected DPAS to remedy these deficiencies and had implemented the
system at over 150 sites as of June 1997.
The DOD Comptroller designated DPAS as the property accounting system
for all DOD real and personal property\7 in order to bring DOD assets
under proper accountability and financial control. DPAS is expected
to provide on-line capability to support all functions that are
associated with property accountability and equipment management, as
well as financial control and reporting. In addition, DPAS is
expected to produce the financial transactions necessary to record
additions, reductions, or changes in the value of capital assets to
the various general ledgers used in DOD.\8 DPAS is also the
subsidiary ledger containing all the detailed property information
necessary to support the general ledger summary totals.
DPAS was adapted from the Army Materiel Command's Installation
Equipment Management System by the Army's Industrial Logistics
Systems Center (ILSC) personnel. Under the oversight of the DOD
Comptroller, the Financial Systems Activity (from the Defense Finance
and Accounting Service's (DFAS) Columbus, Ohio, operating location)
and ILSC are responsible for maintaining and enhancing (1) the DPAS
software, (2) all systems documentation, such as the user's manual,
functional description, and system specifications, and (3) processing
equipment required to host DPAS. The DOD Comptroller is responsible
for defining all accounting requirements, including any new
accounting requirements.
One of the organizations where DPAS was implemented is DISA, the DOD
agency responsible for information technology. One of DISA's
organizations is the Defense Megacenter business area which consists
of a headquarters and 16 Defense Megacenters that provide information
processing services to DOD customers on a fee-for-service basis.
DPAS has been implemented at 39 DISA sites overall, including the 16
Defense Megacenters as of June 1997.
The DOD Comptroller's office published an overall Implementation
Handbook for DPAS. The current version at the time of our review was
dated April 1996. A specific implementation plan is also developed
for each implementing agency, of which DISA is one. DISA's
implementation plan for DPAS was dated February 6, 1996. Some of the
items included in the plan were (1) an implementation schedule, (2) a
description of each organization's responsibilities, (3) equipment
requirements, and (4) a description of training to be provided.
Also, the plan stated the Director, DISA, is responsible for
specifying interface requirements for each DISA DPAS location and
working with the DOD Comptroller's implementation team to develop the
required interfaces.
--------------------
\7 According to DOD's Financial Management Regulation, Volume 4, real
property includes land, buildings, and related structures. Personal
property includes weapons systems and other military equipment.
However, the DPAS program manager and DPAS documentation indicated
that weapons systems and tactical systems are not included in the
DPAS design. The real and personal property included in DPAS is
consistent with the SFFAS No. 6 definition of general PP&E.
\8 As described in DOD's Chief Financial Officer's Financial
Management Status Report and Five Year Plan, finance and accounting
systems lack a single standard transaction driven general ledger--an
essential ingredient for sound reliable financial reports.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To determine whether DPAS meets federal accounting standards, we used
relevant public laws, Office of Management and Budget (OMB)
Circulars, Statements of Federal Financial Accounting Standards
(SFFAS), Joint Financial Management Improvement Program (JFMIP)
publications, and DOD's Financial Management Regulation (FMR). We
also used our Draft Federal Financial Management System (FFMS) review
methodology\9 sections on Fixed Assets, Funds Control, General
Ledger, and Cost Accounting to evaluate the financial control
functions of DPAS and how general PP&E information is shared or
exchanged with other financial areas such as cost accounting.
Financial control functions include ensuring that the system design
allows proper recording of transactions for general PP&E in the
general ledger. It also includes ensuring the system has been
implemented with adequate internal controls to ensure data accuracy.
To evaluate DPAS as designed and implemented, we obtained and
reviewed the DPAS system documentation and reviewed the DPAS
Implementation Handbook. In addition, we reviewed DPAS
implementation at the Huntsville DISA Defense Megacenter. We
selected Huntsville because a DISA official stated that this center
had the fewest implementation problems. At the time we began audit
work, DISA was one of the larger DOD agencies that had implemented
DPAS at multiple sites.
We visited DFAS-Pensacola, Florida, and the DISA Financial Management
Liaison Office (FMLO) in Pensacola to review how the DISA Defense
Megacenter's DPAS financial transactions were processed and to better
understand the processing logic for the interface between DPAS and
the DISA general ledger. DFAS Pensacola provides finance and
accounting services to some DOD activities. The FMLO serves as the
liaison between DISA and DFAS on financial matters.
Our scope did not include assessing technical design and software
development issues, with the exception of DPAS' integration with
other functional areas such as procurement. Also, our review was
limited to the financial control functions of DPAS and therefore did
not include logistics functions. We did not evaluate, from either a
cost-benefit or a technical standpoint, the DOD Comptroller's
selection of DPAS as a standard migration system, nor did we assess
whether there are viable alternatives to DPAS.
We reviewed documents and interviewed officials at the following
locations: (1) DISA headquarters, Arlington, Virginia, (2) DISA's
western hemisphere office, Falls Church, Virginia, (3) DISA's Defense
Megacenter, Huntsville, Alabama, (4) Industrial Logistics Systems
Center at Letterkenny Army Depot, Chambersburg, Pennsylvania, (5)
DFAS-Pensacola, Florida, (6) DFAS-Columbus, Ohio, and (7) Information
Technology Financial Management Directorate, Office of the
Comptroller, Arlington, Virginia.
We performed our work from August 1996 to August 1997 in accordance
with generally accepted government audit standards.
We requested written comments from the Secretary of Defense or his
designee on a draft of this report. The Acting Under Secretary of
Defense (Comptroller) provided us with written comments. These
comments are evaluated in the "Agency Comments and Our Evaluation"
section and are reprinted in appendix I.
--------------------
\9 GAO's draft methodology incorporates JFMIP's systems requirements
and will be finalized when JFMIP completes its development of the
requirements. The FFMS methodology has been endorsed by the Chief
Financial Officer Council as one method for reviewing systems.
AS DESIGNED, DPAS CAN PROCESS
MOST GENERAL PP&E TRANSACTIONS
------------------------------------------------------------ Letter :4
DPAS is designed to provide information to account for most general
PP&E. This information is created based on information recorded in
the DPAS property book. However, DPAS does not have the financial
information to process certain minor types of general PP&E, such as
foreclosed assets and the depletion of natural resources, in
accordance with DOD policy and existing accounting requirements.
Although DPAS, as DOD's property system, should be able to record all
required transactions, the omitted items do not affect a significant
portion of DOD's assets. For example, natural resources represent
only 1.2 percent of DOD's total general PP&E.
Also, the DOD Comptroller has not yet provided guidance to ILSC on
implementing federal accounting standards that become effective for
periods beginning after September 30, 1997. In contrast to the
omitted items referred to in the previous paragraph, implementation
of these new standards may have a significant effect on DOD's
financial reporting. For example, accounting for deferred
maintenance costs for assets such as buildings, facilities, and
equipment is a new requirement under SFFAS No. 6 and therefore was
not included in the original DPAS design. According to a DOD
Comptroller official, DOD is currently updating its Financial
Management Regulation to incorporate the new standards' requirements.
A DPAS project office official indicated that specific system changes
to DPAS needed to meet the new standards cannot be identified until
the DOD Financial Management Regulation is updated.
The DPAS functional design can be modified to meet all current and
pending property accounting requirements through changes that include
the addition of data elements and financial transactions. DPAS as
designed does not include the standard general ledger postings in its
financial transactions. As a result, each site must determine the
general ledger posting logic for DPAS financial transactions.
The following are specific areas where DPAS should be expanded to
meet these requirements.
-- DPAS does not provide the capability to calculate the cost of a
capital lease. Capital leases transfer substantially all the
benefits and risks of ownership to the lessee. Agencies are
required by federal accounting standards (SFFAS No. 5 currently
in effect and SFFAS No. 6 effective October 1, 1997) to
calculate the net present value of lease payments to determine
the cost of capital leases.
-- DPAS cannot track deferred maintenance costs. Deferred
maintenance, as defined in SFFAS No. 6, paragraph 77, is
maintenance that was not performed when it should have been or
was scheduled to be and which, therefore, is put off or delayed
for a future period. SFFAS No. 6 requires a line item on the
statement of net cost with a note reference for deferred
maintenance, if the amount is determined by management to be
material. It also requires the activity to identify each major
class of asset for which maintenance has been deferred and the
method of measuring it. Also DOD's draft Federal Accounting
Standards and Requirements, dated February 24, 1997, which
applies to Defense accounting systems, includes requirements to
account for deferred maintenance.
Further, DPAS does not allow the user to designate deferred
maintenance as critical or noncritical. The standard allows the
optional disclosure of deferred maintenance to be stratified between
critical and noncritical amounts needed to return each major class of
asset to its acceptable operating condition. If management elects to
disclose critical and noncritical amounts, the disclosure shall
include management's definition of these categories.
-- DPAS does not provide features to record, value and report
foreclosed property, or record any increase or decrease in the
value of these assets. SFFAS No. 3 (effective October 1, 1993)
contains explicit guidance on recognizing, valuing, disposing,
and disclosing each of these assets. Also DOD's draft Federal
Accounting Standards and Requirements, dated February 24, 1997,
which applies to defense accounting systems, includes
requirements to account for foreclosed property.
-- DPAS does not have the capability to provide a transaction to
the accounting system to record gain or loss amounts. For
example,
SFFAS No. 6 requires that the net realizable value of an asset
be used to calculate a gain or loss upon disposal or exchange
with a non-federal entity.
-- DPAS does not provide the ability to record the total estimated
environmental clean-up costs for an asset when it is placed in
service, or upon discovery of the need for clean up, nor to
periodically update these costs. Also, the capability is not
provided to calculate the annual expense and accrued liability
amounts. SFFAS No. 5 requires recognition of the liability for
cleanup from federal operations resulting in hazardous waste.
SFFAS No. 6 contains detailed guidance for accounting for
clean-up costs and recognizing the annual expense and accrued
liability amounts.
-- DPAS does not provide features to deplete assets such as natural
resources. While SFFAS No. 6 does not address natural
resources, DOD's FMR, Volume 4, requires DOD activities to use
the depletion of natural resources account when management deems
that depletion accounting is necessary.
IMPLEMENTATION OF DPAS AT DISA
DOES NOT ENSURE FINANCIAL
CONTROL AND ACCURATE REPORTING
------------------------------------------------------------ Letter :5
An objective of implementing DPAS DOD-wide is to ensure financial
control and accurate reporting of general PP&E. Figure 1 illustrates
how, in general, information must flow among property and related
systems to ensure financial control over property. Although the DPAS
design allows it to be implemented as shown in figure 1, which gives
DOD the ability to have a fully automated property system that
assures financial control and data integrity, DISA's implementation
of DPAS failed to achieve this objective.
Figure 1: Financial Control
Over Property
(See figure in printed
edition.)
Financial control over property is established when detailed
transactions maintained at one location are also maintained in a
summary form in the financial records--referred to as the general
ledger. For example, when it is determined that property is needed,
the property book officer notifies both the supply/procurement
officer and core accounting personnel. When the contract is issued,
procurement personnel, in turn, notify both the property book officer
to expect the item and core accounting, which includes the general
ledger. When the item is received, receiving personnel notify both
the property book officer and core accounting officials.
This duality provides not just financial control, such as ensuring
accurate recording of purchase price, but also operational control,
such as recording the location and condition of the asset. Ensuring
data accuracy in this process requires that the transaction be edited
for the processing requirements of each system. In addition, if data
reside in two systems, periodic reconciliations must be performed to
ensure that the data in the two systems remain in balance.
The only automated interface implemented for DPAS at DISA is between
the property book and the core accounting system. There is no
interface between DPAS and procurement, and interfaces between DPAS
and the other functions, such as receiving, are manual. As such,
achieving operational and financial control over assets is highly
dependent on the accuracy of data that are manually processed or
maintained, and on manual compensating controls, such as routine
reconciliations.
As shown in figure 2, the DISA procurement system--the Automated
Contract Preparation System (ACPS)--did not send information to the
property book, DPAS, at the same time it was sent to the core
accounting system. According to DISA officials, the interface
between ACPS and DPAS was not built because it would have required an
extensive interface development effort. The absence of this
interface, either automated or manual, means that DPAS is not used to
record initial procurement activities. Therefore, DPAS data cannot
be completely reconciled with DISA's core accounting system data.
Figure 2: Property Accounting
Function as Implemented at DISA
(See figure in printed
edition.)
We found over $100 million in differences between the values shown in
the DPAS detailed property records and the summary- level records
maintained in the DISA general ledger. Although the DISA Financial
Management Liaison Office representative was aware of the differences
and was preparing reconciliation procedures, he could not explain the
reasons for the differences, nor had a reconciliation been attempted
at the time of our review. As discussed below, one cause was DPAS
transactions were incorrectly recorded in the DISA general ledger.
As of May 31, 1997, DISA had submitted journal vouchers totaling over
$118 million to correct the differences.
We identified the following DPAS implementation problems at DISA.
These contributed to the material difference discussed above and have
the potential to erode both operational and financial control over
property.
-- DPAS transactions were incorrectly recorded in the DISA general
ledger. The DISA general ledger contained items that were
recorded incorrectly due to errors in the automated interface
program which allows DPAS to communicate directly with DISA's
general ledger. This interface program contains processing
rules\10 for recording DPAS transactions based on the
transaction function code and certain other fields in DPAS as
increases or decreases in the appropriate DISA general ledger
accounts. Because these processing rules are neither included
in DPAS nor the DOD Comptroller's DPAS Implementation Handbook,
DISA developed general ledger processing rules for the interface
program. However, errors in the processing rules resulted in
increases being recorded as decreases and decreases as increases
in the balance of assets held. For example, transfers-in of
assets were recorded as decreases instead of increases. As a
result of our work, DISA and DFAS officials began taking actions
to correct the interface program and the account balances.
-- Procedures were not adequate to ensure control of rejected
transactions. In order to ensure control of rejected
transactions, ideally, data should be edited for all systems at
the original point of entry, and those which failed the edits
should be placed in a suspense file.\11 If all edits are not
performed at the original point of entry, additional edits can
be included in automated interface programs and a second
suspense file created. DISA used edits in the interface
programs, but failed to set up the needed suspense file.
Therefore, DISA cannot ensure that DPAS transactions rejected in
the automated interface program to the general ledger were
corrected and recorded properly in the general ledger.
-- Reconciliations were not performed. Internal controls were not
in place to ensure that discrepancies were corrected promptly.
DISA was not performing reconciliations between DPAS and its
general ledger. For example, transactions had been posted
incorrectly to the DISA general ledger as decreases instead of
increases, as noted in our first example above, since processing
began in September 1996. These posting errors went unresolved
because reconciliations were not performed. The DPAS
Implementation Handbook said that reconciliations should be
performed but did not provide guidance on how to perform them
nor state how often or who should perform them. DISA was
developing reconciliation procedures but as of July 1997 they
were not finalized.
-- The DPAS financial transaction for equipment in transit was not
used. DISA does not use the financial transaction for equipment
in transit which DPAS provides. Equipment in transit
information updates the general ledger to provide visibility
over assets that are no longer under a site's physical control
but for which the site is still accountable. However, when DISA
assets are moved from one site to another, instead of processing
an equipment in transit transaction, the assets remain in the
DISA general PP&E asset accounts until the receiving activity
indicates receipt of the asset. If a physical inventory were
taken, assets identified as lost might actually be in transit to
another location. DOD FMR, Volume 4, requires that equipment in
transit be recorded as such in an agency's accounting system
when transfer begins and that the equipment be removed from the
account only when it is received and accepted by the gaining
activity. The DPAS Implementation Handbook did not specifically
require users to use certain DPAS financial transactions.
--------------------
\10 Processing rules lay out the specific debit and credit postings
to general ledger accounts in a double entry accounting system in
accordance with the U.S. Government Standard General Ledger.
\11 A DPAS project office official indicated that site-specific edits
could be added by making a program change request. The official
indicated that such changes would not be difficult to make or to
maintain.
DOD DOES NOT HAVE A DETAILED
DPAS IMPLEMENTATION STRATEGY
------------------------------------------------------------ Letter :6
Many of the problems experienced at DISA and resulting in inaccurate
property data can be linked to several issues that affect DOD-wide
implementation of DPAS. Specifically, DOD has not completed its
strategic planning process for agencywide systems integration, which
would include defining how the property function is accomplished and
the responsibilities of all involved parties. Also, DOD's
implementation strategy for DPAS relies on the services and Defense
agencies to determine where and when to implement the system, with no
overall oversight to ensure that the DOD Comptroller's stated goal of
full implementation by the year 2000 is met. Finally, as illustrated
by the problems we found at DISA, the DPAS Implementation Handbook
lacks specific guidance on several important factors, such as
reconciliations.
CONCEPT OF OPERATIONS WOULD
HELP ENSURE FUNCTIONALITY
---------------------------------------------------------- Letter :6.1
Development of a concept of operations for DOD's property function
would help ensure that DPAS is able to achieve data accuracy and the
financial control it was designed to produce, in both DOD's current
and future operating environments. As we stated in our June 1997
letter\12 on DFAS' draft Federal Accounting Standards and
Requirements, the strategic planning process for systems should
include a concept of operations that delineates how the property
function is (or will be) accomplished and defines the roles,
responsibilities, and relationships among the various DOD entities
involved. Validating DPAS and the services' and Defense agencies'
related property systems against the concept of operations would
allow DOD to determine whether each system is appropriately
interfaced, either manually or automated, with other systems to
provide data accuracy and property accountability.
In addition, for the concept of operations to be useful, it should
encompass (1) all financial management functions related to property
not just those under the control of the DOD Comptroller and (2) both
current and future property operations to document how DOD is working
today and obtain mutual agreement from all of the parties on how DOD
will conduct its property operations in the future. Not preparing a
concept of operations may result in development efforts in other
business areas being incompatible with DPAS, the selected property
system. For example, during the course of our audit we learned that
Air Force officials have expressed concern as to whether DPAS will
fit into their planned functionality.
In the absence of an overall concept of operations that would lay out
how the system is to be implemented to maintain data accuracy, each
implementing site essentially is charged with developing its own
concept of operations with no assurance of adequate controls or
consistency among sites. When DPAS was selected as DOD's standard
property system, it was anticipated that it would be interfaced with
a single standard system in each business area such as accounting,
supply, and procurement. Under this scenario, a limited number of
automated interfaces would need to be developed. However, due to the
long-term nature of DOD's standard systems development effort, DOD is
currently using multiple systems in these areas and will continue to
do so for the foreseeable future. For example, DOD has at least 76
procurement systems. DOD plans to replace 10 of these systems with
the Standard Procurement System. However, the standard system will
not be fully implemented until at least 2001.
Currently, data accuracy at DOD can be maintained either through
automated interfaces with numerous nonstandard systems or through
manual procedures such as reconciliations between stand-alone
systems. According to JFMIP systems standards, interfaces should be
electronic unless the number of transactions is so small that it is
not cost beneficial to automate the interface. In either case,
reconciliations, including automated matching, between systems should
be maintained to ensure accuracy of the data. In general, manual
interfaces that rely on the physical keying and rekeying of data
substantially increase the opportunity for error and create the need
for manual compensating controls.
Although a relatively small organization such as DISA could use
manual procedures, if effectively implemented, to maintain data
accuracy, such procedures would be too labor-intensive and
inefficient on a DOD-wide basis. However, the DOD Comptroller's
implementation strategy relies on individual sites to specify
property system interfaces and determine how data accuracy is to be
maintained. Therefore, DOD has no assurance that automated
interfaces and automated matching processes will be developed
wherever cost-effective and in accordance with an overall strategy
and that manual controls will be maintained where necessary.
--------------------
\12 Financial Management: Comments on DFAS' Draft Federal Accounting
Standards and Requirements (GAO/AIMD-97-108R, June 16, 1997).
DOD DOES NOT HAVE AN
IMPLEMENTATION SCHEDULE
---------------------------------------------------------- Letter :6.2
Although DOD has established a goal of achieving financial control
over its assets by the year 2000, the DOD Comptroller does not have a
schedule to implement DPAS consistently at all sites by that date.
DOD has not identified its universe of DPAS users--those sites in the
services and Defense agencies that must use DPAS to ensure control
over property is maintained--DOD-wide. Rather, the DOD Comptroller
has left it up to each military service and Defense agency to
identify where and when they want to implement DPAS without providing
time frames for identification of sites or ensuring that the correct
sites are identified. Thus, DOD could not tell us how many sites
remain to be implemented and associated time frames for meeting its
year 2000 goal. A complete implementation schedule would also help
ensure that the DPAS program office is able to allocate its resources
to adequately support the implementation schedule.
DOD'S IMPLEMENTATION
HANDBOOK COULD BE IMPROVED
---------------------------------------------------------- Letter :6.3
In addition, the guidance DOD has developed for implementing DPAS is
inadequate, as illustrated by the problems we found at DISA.
Specifically, the DPAS Implementation Handbook does not provide
instruction for accurately posting DPAS transactions to the general
ledger. This may result in inconsistent and inaccurate reporting of
DOD property. Further, the Handbook does not specify that all
transactions generated by DPAS, which are applicable to the agency,
should be used. Inaccurate and inconsistent financial reporting may
result. Also, the Handbook states that reconciliations should be
performed but does not specify how or by whom. Failure to perform
reconciliations, as we found at DISA, may result in inaccurate data
going undetected.
CONCLUSIONS
------------------------------------------------------------ Letter :7
As designed, DPAS produces transactions to provide financial control
and to account for most general PP&E, but needs to be enhanced to
meet all applicable federal accounting standards. Also, issues
related to the need for planning and implementation guidance must be
addressed. As evidenced by DISA's implementation problems, DOD has
not defined how the property function is to be performed or provided
implementation guidance to ensure internal controls are in place.
DOD implementation strategy relies on individual sites to determine
whether and what interfaces to develop--automated or manual--and
establish necessary controls. Given the size and complexity of DOD,
this approach is unlikely to result in an efficient and
cost-effective implementation of DPAS by the year 2000.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
To ensure that DPAS meets the DOD Comptroller's stated goal of
achieving financial control and accountability over general PP&E by
the year 2000, we recommend that the Deputy Secretary of Defense take
the following steps.
-- Develop, in consultation with the appropriate Assistant
Secretaries, a concept of operations that (1) lays out how the
property function is to be accomplished, including
identification of needed manual and automated interfaces and
related controls, and (2) defines for both the current and
future operating environments the roles, responsibilities, and
relationships among the various DOD entities involved, such as
the Comptroller's office, DFAS, DOD component agencies, and the
military services.
-- Develop a detailed DPAS implementation plan that includes a
schedule that identifies at what sites and when the system will
be implemented.
-- Revise the DPAS Implementation Handbook to (1) specify the
complete financial transactions for posting DPAS data to the
general ledger, (2) include specific guidance on how and when to
perform reconciliations and who should be performing them,
including automated matching of DPAS records to the general
ledger, where appropriate, and (3) require that all financial
transactions generated by DPAS, such as equipment in transit, be
used.
-- Expand DPAS functionality to ensure it includes transactions to
meet all current and pending requirements related to property
found in federal accounting standards and DOD financial
management regulations. Transactions produced by DPAS for
updating the general ledger should reflect the posting logic for
both the debit and credit in accordance with the U.S.
Government Standard General Ledger.
In addition, to resolve the implementation problems specific to DISA,
we recommend that the Director, DISA, (1) submit a request to the
DPAS project office to include appropriate additional transaction
edits required by DISA for general ledger processing, (2) correct the
interface program, and (3) finalize procedures for reconciliation of
DISA's general ledger accounts for property to DPAS property records,
including provisions to ensure timely reconciliations are
accomplished and general ledger control is maintained over general
PP&E.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :9
In written comments on a draft of this report, DOD's Acting Under
Secretary of Defense (Comptroller) stated that the Department
generally agreed with the report findings and recommendations. The
letter also stated that the Department will provide comments on each
recommendation later.
Although DOD generally agreed with the report findings and
recommendations, DOD stated that it believes that it is erroneous to
find deficiencies in DPAS' ability to comply with requirements that
have not been finalized by the Federal Accounting Standards Advisory
Board (FASAB) and for which implementation instructions have not been
issued by the Office of Management and Budget (OMB).
All accounting requirements for general PP&E which are addressed in
this report, as were developed by FASAB, were approved by GAO, OMB,
and Treasury and issued by GAO and OMB in 1995. These requirements
are currently in effect or will become effective October 1, 1997.
OMB guidance in Bulletin No. 97-01, Form and Content of Agency
Financial Statements, was issued October 16, 1996 for the preparation
of financial statements for the fiscal year ending September 30,
1998.
In commenting on our draft report, DOD asked that we clarify that the
DISA posting problem did not involve a deficiency in the internal
operations of DPAS. We believe that the implementation issue which
arose at DISA could have been mitigated if the DPAS design included
the standard general ledger posting logic. Because all DOD general
ledgers do not currently use the U.S. Government Standard General
Ledger, any crosswalks required to enter DPAS transactions in these
nonstandard general ledgers should be in interface programs. In
response to DOD's comments, we clarified our recommendation to
include that transactions produced by DPAS for updating the general
ledger should reflect the posting logic for both the debit and credit
in accordance with the U.S. Government Standard General Ledger.
---------------------------------------------------------- Letter :9.1
This report contains recommendations to you. Within 60 days of the
date of this letter, we would appreciate receiving a written
statement on actions taken to address these recommendations.
We are sending copies of this letter to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services, the House
Committee on National Security, the Senate Committee on Governmental
Affairs, the House Committee on Government Reform and Oversight, and
the Senate and House Committees on Appropriations. We are also
sending copies to the Director of the Office of Management and
Budget; the Acting Under Secretary of Defense (Comptroller); the
Acting Director, Defense Finance and Accounting Service; and the
Director, Defense Information System Agency. Copies will be made
available to others upon request.
Please contact me at (202) 512-9095 if you have any questions
concerning this report. Major contributors to this report are listed
in appendix II.
Sincerely yours,
Lisa G. Jacobson
Director, Defense Audits
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.
Janett P. Smith, Assistant Director
William D. Grindstaff, Assistant Director
James L. Ariail, Jr., Senior Auditor
Francine DelVecchio, Communications Analyst
NORFOLK REGIONAL OFFICE
J. Jose Watkins, Senior Evaluator
Susan J. Schildkret, Evaluator
V. Malvern Saavedra, Evaluator
*** End of document. ***