Financial Management: Improved Management Needed for DOD Disbursement
Process Reforms (Letter Report, 03/31/97, GAO/AIMD-97-45).
GAO reviewed the Defense Finance and Accounting Service's (DFAS)
development and implementation of its project to improve disbursement
processes and significantly reduce problem disbursements, focusing on 14
action items to improve transactions by others (TBO) disbursement
operations in the short term.
GAO noted that: (1) DFAS recognized the need to reform its TBO and cross
disbursing processes in the short term, and established aggressive
milestones to complete the 14 action items, with most slated for
completion in late 1995; (2) however, their implementation has been
significantly delayed; (3) as of October 1996, 10 of the 14 action items
had either not been implemented or were only partially completed; (4) of
the four items implemented, GAO's review of the two for which some
implementation information was available showed that they had not
effectively met their objectives; (5) GAO identified three issues that
limited DFAS' ability to effectively and promptly achieve its goal of
improved TBO processing; (6) DFAS did not develop adequate information
to effectively diagnose the causes of problem disbursements, implement
solutions, and evaluate progress; (7) DFAS managed its reform effort
based on the experience of knowledgeable staff without the benefit of
enough supporting analysis of processes, causes, and alternatives; (8)
without an analysis, DFAS does not know if its stated time frames are
reasonable or obtainable; (9) officials at two centers questioned
whether the time frames were reasonable and results at one processing
center validate that concern; (10) DFAS did not provide strong,
consistent management for the project; (11) at least three people headed
the project during the first 6 months of 1996; (12) management turnover
contributed to delays in issuing the DFAS report and implementing some
action items; (13) although a permanent project officer was appointed in
July 1996, a position description or formal tasking as to the
responsibilities and scope of the job had not been prepared as of the
completion of GAO's work in December 1996; (14) DFAS may not be
allocating sufficient resources to critical areas; (15) because DFAS did
not establish priorities based upon quantitative analysis, DFAS has
expended resources without ensuring that it is addressing the more
significant problems; (16) for example, after 2 months of work on one
action item dealing with rerouting payments between two sections of one
DFAS center, DFAS cancelled the action item because it was determined
that the completion would not have a significant impact; (17)
conversely, DFAS officials said that resource constraints had led to one
center's backlog of unprocessed transactions continuing to exist 1 year*
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-97-45
TITLE: Financial Management: Improved Management Needed for DOD
Disbursement Process Reforms
DATE: 03/31/97
SUBJECT: Federal agency accounting systems
Questionable payments
Accounting procedures
Budget outlays
Interagency relations
Internal controls
Financial management
Human resources utilization
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Cover
================================================================ COVER
Report to Agency Officials
March 1997
FINANCIAL MANAGEMENT - IMPROVED
MANAGEMENT NEEDED FOR DOD
DISBURSEMENT PROCESS REFORMS
GAO/AIMD-97-45
Problem Disbursements
(918863)
Abbreviations
=============================================================== ABBREV
DFAS - Defense Finance and Accounting Service
DOD - Department of Defense
NAPA - National Academy of Public Administration
TBO - transaction by others
TFO - transaction for others
Letter
=============================================================== LETTER
B-272999
March 31, 1997
The Honorable John J. Hamre
Under Secretary of Defense (Comptroller)
Mr. Richard Keevey
Director, Defense Finance and Accounting Service
Department of Defense (DOD) problem disbursements have been the
source of much concern for many years. Problem disbursements are
specific disbursements that have not been matched with corresponding
obligations. Such disbursements can increase the risks of (1)
fraudulent or erroneous payments being made without detection and (2)
cumulative amounts of disbursements exceeding appropriated amounts
and other legal spending limits. If DOD is to adequately manage its
fiscal operations and produce auditable financial statements as
required under the Chief Financial Officers Act of 1990 and related
acts, it must reduce its billions of dollars of problem
disbursements. In the 1996 annual report to the President and the
Congress, DOD noted that eliminating problem disbursements was one of
its key financial reform projects.
DOD has indicated that transactions paid at one location, but
accounted for at another are the costliest, most time-consuming,
complicated, and error-prone segment of its accounting. These
transactions are referred to as transactions by others (TBOs). Cross
disbursements are a special type of TBO that requires additional
processing because different military services are involved. Defense
Finance and Accounting Service (DFAS) officials have stated that TBOs
are major contributors to problem disbursements. To address the
deficiencies in the processes, in late 1995, DFAS established a
project to implement improvements to the current disbursement
processes and significantly reduce problem disbursements. In April
1996, DFAS issued a report containing, among other things, 14 action
items to improve TBO disbursement operations in the short term.
We reviewed the implementation status of the 14 action items. This
report presents our assessment of DFAS' development and
implementation of this project and includes recommendations to
improve DFAS' reform efforts.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
DFAS recognized the need to reform its TBO and cross disbursing
processes in the short term, and established aggressive milestones to
complete the 14 action items, with most slated for completion in late
1995. However, their implementation has been significantly delayed.
As of October 1996, 10 of the 14 action items had either not been
implemented or were only partially completed. Of the four items
implemented, our review of the two for which some implementation
information was available showed that DFAS had not effectively met
its objectives.
We identified three issues that limited DFAS' ability to effectively
and promptly achieve its goal of improved TBO processing. First,
DFAS did not develop adequate information to effectively diagnose the
causes of problem disbursements, implement solutions, and evaluate
progress. DFAS managed its reform effort based on the experience of
knowledgeable staff without the benefit of enough supporting analysis
of processes, causes, and alternatives. For example, DFAS officials
changed their policy regarding disbursement processing time frames
without a thorough analysis to know if the new time frames were
realistic or obtainable. DFAS managers estimated that cross
disbursements take 109 days to process. One action item was a new
policy that provided for up to 134 days to process a cross
disbursement--25 days longer than the process they already considered
too long. Without an analysis, DFAS does not know if its stated time
frames are reasonable or obtainable. Officials at two centers
questioned whether the time frames were reasonable and results at one
processing center validate that concern.
Second, DFAS did not provide strong, consistent management for the
project. For example, the official originally assigned to manage the
project in 1995 was reassigned and left the position before the
action items were implemented. At least three people headed the
project during the first 6 months of 1996. Management turnover
contributed to delays in issuing the DFAS report and implementing
some action items. Although a permanent project officer was
appointed in July 1996, a position description or formal tasking as
to the responsibilities and scope of the job had not been prepared as
of the completion of our work in December 1996.
Finally, DFAS may not be allocating sufficient resources to critical
areas. Because DFAS did not establish priorities based upon
quantitative analysis, DFAS has expended resources without ensuring
that it is addressing the more significant problems. For example,
after 2 months of work on one action item dealing with rerouting
payments between two sections of one DFAS center, DFAS canceled the
action item because it was determined that the completion would not
have a significant impact. Conversely, DFAS officials said that
resource constraints had led to one center's backlog of unprocessed
transactions continuing to exist a year after DFAS had planned to
eliminate it.
By better addressing these critical issues, DFAS will be in a
stronger position to achieve meaningful and timely reforms in its TBO
processing and ultimately reduce problem disbursements.
BACKGROUND
------------------------------------------------------------ Letter :2
DFAS, which provides accounting services for DOD, was established on
January 15, 1991, to improve, standardize, and consolidate DOD's
finance and accounting policy, systems, and operations. DFAS is
undergoing massive consolidation efforts to reduce its over 300
defense accounting offices into 5 existing large centers and not more
than 21 new operating locations. DOD is also undertaking efforts to
consolidate about 250 financial and accounting systems in use today
to standard integrated systems.\1 However, it will be several years
until DOD completes implementation of new and improved systems.
Until this occurs, DOD will have to rely on its existing systems.
Few of those systems electronically transfer data to each other and
thus require manual intervention to record transactions.
When a disbursing station disburses funds that are accounted for at
another station, the accounting station calls this a TBO.\2 Cross
disbursements are a special type of TBO wherein the disbursing
station is aligned with a different military service than the
accounting station (e.g., when an Army-aligned station makes
disbursements that are accounted for by a Navy-aligned station).
TBOs and cross disbursements can be the result of almost any
disbursement activity, including payments on contracts (both for
delivery of goods or services and progress payments), payroll, or
travel. Although the processes vary widely among the services,
figure 1 depicts the general TBO and cross disbursement processes.
Figure 1: DOD's TBO and Cross
Disbursing Processes
(See figure in printed
edition.)
Notes:
1. Cross disbursements take an estimated 109 days to process.
2. TBO process varies by military service.
Source: GAO analysis of DFAS documentation.
To record a disbursement in the accounting records, disbursement data
must be sent from the disbursing station to the accounting station.
The transaction is routed through one or more processing centers that
report the financial data to the Department of the Treasury and
translate the accounting codes among the different computer systems.
The accounting station records the transaction in the accounting
records and matches the payment to its corresponding obligation. The
proper matching of disbursements with recorded obligations is a vital
control to ensure that funds are used in accordance with the purposes
and limitations specified by the Congress through appropriations acts
and the Antideficiency Act. In systems that do not electronically
transfer data to each other, hard copy documents are used to transmit
the disbursement data. DFAS personnel must then manually reenter the
disbursement data into the accounting systems. Frequently, the hard
copy documents take months to reach the cognizant accounting station.
DFAS estimates the cycle time for processing cross disbursements at
109 days.\3 If documents are missing or illegible, the process for
that transaction stops until the appropriate station locates and
mails the required documents.
From the time a disbursement is made until it is recorded in the
accounting records, the transaction is said to be "in-transit." DOD
officials have stated they have reluctantly accepted as "normal"
periods of 60 days or less (120 days or less for cross
disbursements), and therefore do not report these in-transits as
problem disbursements. After these time periods, DFAS reports aged
in-transit transactions as problem disbursements that require the
agency to take additional follow-up action. In October 1996, DFAS
reported that it had about $19 billion in problem disbursements; $9
billion (about 45 percent) of that was made up of items reported as
being aged in-transit. The other $10 billion comprised payments for
which DFAS could locate no known obligation against which to match
the payment.\4 In reviewing DFAS' May 1996 problem disbursement
report we found that the amounts of problem disbursements are greater
than reported. Based on the results of our preliminary testing, in a
February 20, 1997, report, we noted that the May 1996 reported total
problem disbursements of about $18 billion were understated by at
least $25 billion, with most of the understatement related to aged
in-transits.\5
Partly due to the extended in-transit period, DFAS has been charged
with reengineering its disbursement processes. DFAS has undertaken
many projects to resolve problem disbursements and improve its
disbursement processes, including over 70 longer term, mostly systems
related, projects listed in the May 1996 DFAS business plan. DFAS'
future systems plans include having electronic transfers of data that
should eliminate DFAS' dependency upon hard copy documents. However,
until those new systems are in place, DFAS is working to improve its
current processes.
In April 1996, DFAS summarized its short-term actions to improve its
current processes in a report titled Summary Report: Standardization
of the DOD Expenditure/Collection Processes. The report discusses
actions that had been ongoing since late 1995 and provides a status
of the continuing action items. The report's primary focus was on
improving current DFAS operations to reduce the number of problem
disbursements. Among other things, it presented 14 action items to
"help stem the tide of aged in-transit disbursements" and to
specifically improve the TBO and cross disbursement processes.
--------------------
\1 However, as noted in our recent report Financial Management: DOD
Inventory of Financial Management Systems is Incomplete
(GAO/AIMD-97-29, January 1997) this number does not include many
systems that DOD relies upon to produce financial management
information and reports.
\2 From a disbursing station's point of view, these transactions are
called transactions for others (TFOs).
\3 DFAS uses a voucherless process to make several types of
disbursements, including some travel payments, contract payment
notices, and civilian payroll payments. According to DFAS officials,
voucherless payments are processed faster because they are not
dependent upon sending hard copy support.
\4 This included $7.7 billion of items that were not matched against
any obligation (unmatched disbursements), and $2.3 billion that
matched against an obligation that was not large enough to cover the
payment (negative unliquidated obligations-NULOs).
\5 DOD Problem Disbursements (GAO/AIMD-97-36R, February 20, 1997).
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To identify DOD's ongoing reform efforts, and to assess DFAS'
attempts to implement them, we obtained and evaluated DFAS' report
containing the 14 action items. We obtained and reviewed minutes
from the DFAS teams working on the action items listed in the report
and gathered available data on the action items to assess the basis
of the projects and the analysis supporting their objectives. To
evaluate the projects and their status, we requested centers provide
status updates for each of the action items and any results or
improvements resulting from their implementation as of the end of
October 1996. Additionally, we met with officials at DFAS
headquarters in Arlington, Virginia, and at each of the five DFAS
centers in Cleveland, Ohio; Columbus, Ohio; Denver, Colorado;
Indianapolis, Indiana; and Kansas City, Missouri.
To determine if DFAS was complying with its cross disbursements
policy regarding time frames, we analyzed electronic logs from one
DFAS center to determine the timeliness of processing and forwarding
transactions. We then compared these calculations to the timeframes
provided for in DFAS' policy to determine the percentage of
transactions that complied with the policy. We did not verify the
data provided by DFAS.
We performed our work from June 1996 through December 1996 in
accordance with generally accepted government auditing standards.
DOD provided written comments on a draft of this report. These
comments are presented and evaluated in the "Agency Comments and Our
Evaluation" section and are reprinted in appendix I.
IMPLEMENTATION OF ACTION ITEMS
WAS DELAYED
------------------------------------------------------------ Letter :4
The 14 actions listed in the DFAS report to improve the disbursement
processes were significantly delayed in implementation. Table 1
lists the 14 action items, DFAS' planned completion dates, and our
assessment of their status as of October 1996. The items relate to
three types of activities: (1) establishing and implementing
policies, (2) gathering basic information, and (3) changing TBO and
cross disbursement processes.
Table 1
DFAS Action Items
Initial Revised
estimated estimated
completion completion Status as of October
Action item \a \a 1996
------ ----------------------- ---------- ---------- -----------------------
Establish and implement policies
--------------------------------------------------------------------------------
1 Establish standard time 11/30/95 1/12/96 Implemented. Policy
frames policy for issued 2/96.
processing cross
disbursements.
2 Publish implementing 3/1/96 4/1/96 Implemented by centers
guidance for cross separately, effective
disbursements policy. 4/1/96.
3 Publish implementing 3/1/96 4/1/96 Implemented by centers
guidance for DOD travel separately, effective
policy. 10/1/96.
4 Develop a plan to use 3/1/96 10/31/97 Not complete. Pending
standard accounting finalization of
classification codes. standard accounting
codes.
Gather basic information on TBO processes and
develop corrections
--------------------------------------------------------------------------------
5 Identify and eliminate 11/27/95 4/15/96 Not complete. DFAS
unnecessary TBOs and working to eliminate
cross disbursements. unnecessary TBOs.
6 Identify and develop 11/27/95 none Not complete.
corrections for Correction plans not
accounting and developed.
disbursing stations'
backlogs.
7 Clear backlogs of 11/27/95 1/31/96 Not complete. Backlogs
unprocessed at some centers not
transactions at DFAS cleared.
centers.
8 Identify specific 11/27/95 8/31/96 Not complete. DFAS
problem areas and working to resolve
develop solutions (19 known problems.
were identified in the
report).
Change transaction routing or processes
--------------------------------------------------------------------------------
9 Reroute travel 12/22/95 3/1/96 Implemented. Effective
documents to eliminate 10/1/96.
most from the cross
disbursement processes.
10 Change processing of 11/15/95 6/1/96 Partially implemented.
adjustments for both Change processing of
open and canceled adjustments for
accounts from cross canceled accounts not
disbursements to TBOs. developed.
11 Change cross 12/31/95 4/15/96 Not complete. To be
disbursements from a implemented 1/1/97.
major contract payment
system to TBOs.
12 Develop full-scale use 8/1/96 10/7/96 Not complete. Being
of a Treasury tested.
electronic payment
system.
13 Reroute disbursements 11/27/95 2/29/96 Canceled. Unneeded due
for Washington to other organizational
Headquarters Service. changes.
14 Simplify routing of 11/30/95 1/31/96 Canceled. Volume too
payments within low to justify change.
sections of one DFAS
center.
--------------------------------------------------------------------------------
\a The initial estimate was established in the January 1996 draft
DFAS report. The revised estimate is generally based on the minutes
of an April 1996 DFAS status meeting (the most recent minutes
available).
Delays in implementing the action items postponed much needed change
in DFAS' disbursement processes. As shown in the table, the four
items to implement new policies were delayed, but less significantly
than the other types of actions. None of the four items directed at
gathering additional information about the TBO processes and taking
corrective actions had been completed. Finally, five of the six
action items designed specifically to change the transaction routing
or processes originally were to be completed by December 1995.
However, as of October 1996, only one had been implemented (item 9).
One other item had been partially implemented (10), one was pending
future implementation (11), and a third was being tested (12). The
final two projects (13 and 14) were canceled.
For the four items implemented, data were available to assess the
implementation of portions of two action items (items 1 and 2--both
related to DFAS policy to establish time frames for cross
disbursement processing). We found that the required processing
times were not being achieved. Our analysis of DFAS' logs from one
processing center showed that less than 10 percent of the vouchers
were forwarded from the disbursing station to the appropriate
processing center within the policy's time frames. Less than 70
percent of the transactions were forwarded between processing centers
within the required time frames. The two other implemented items
(items 3 and 9--both related to DFAS rerouting of travel payments)
had not been implemented long enough to assess their impact. The new
travel policy did not go into effect until October 1996 and at the
time of our review, DFAS had not developed data to determine
compliance with the new policy or its effectiveness in decreasing
problem disbursements.
We support DFAS' continuing efforts to reform its current process,
and its recognition that improvements are needed in the short term.
In its report, DFAS established aggressive milestones and goals for
its reform efforts. DFAS established a goal for the 14 action items
of eliminating over $300 million per month from the TBO processes and
clearing over $1 billion of items in suspense--most of which related
to backlogs at DFAS processing centers. However, DFAS did not
establish a mechanism to determine how well the action items, once
implemented, were accomplishing these goals. Because of the large
number of ongoing DFAS projects and changes, DFAS will not know if
actions are having the desired effects without measures that relate
the actions to specific improvements. As discussed in the following
section, fact-based analysis is needed to identify problems, develop
effective solutions, and measure progress.
PROJECT MANAGEMENT COULD BE
MORE EFFECTIVE
------------------------------------------------------------ Letter :5
DFAS' management of these reform efforts did not ensure that the most
effective action items were selected and, once selected, that the
action items were effectively and promptly implemented.
Specifically, DFAS did not (1) develop adequate basic information
about the TBO processes and proposed action items, (2) establish
strong project management to oversee and coordinate efforts, or (3)
allocate its resources on the basis of identified problems
prioritized as to their severity. If DFAS better addresses these
issues it will be in a stronger position to achieve meaningful and
timely reforms in its TBO processing, which will ultimately lead to
reductions in problem disbursements.
MORE THOROUGH ANALYSIS
ESSENTIAL
---------------------------------------------------------- Letter :5.1
DFAS did not develop adequate information about the TBO processes to
effectively analyze the causes of problems in the TBO processes and
design corrective action items. Consequently, DFAS' efforts did not
ensure that it had chosen the most effective action items that would
result in meaningful and timely reforms. A fact-based analysis of
performance problems helps an organization prioritize candidates for
improvement and makes a compelling argument for investing time and
resources in changing specific aspects of business processes to
achieve better results. Studies by the National Academy of Public
Administration (NAPA) show that "organizations sometimes start
reengineering without really knowing if they are focusing on the most
important issues."\6
DFAS' efforts to improve its TBO processes are an example of this.
For instance, in a June 1995 report, DOD stated that quantitative
data were unavailable to determine the precise causes of problem
disbursements. According to DFAS officials, problem disbursement
reform efforts are being managed based on managers' observations,
experiences, and knowledge of DFAS systems. While a limited number
of prioritized corrective actions could be started on such a basis,
quantitative data are needed to validate those actions and prioritize
additional specific reforms.
DFAS did not analyze the processes in enough detail to identify the
costs and causes of performance breakdowns. For example, the DFAS
report containing the action items states that not receiving
disbursement data promptly or not receiving them with sufficient
support are causes of aged in-transits. However, DFAS did not
further analyze these causes to identify why sites fail to provide
prompt and accurate information. Without such an analysis, DFAS does
not have the information needed to establish priorities for reform
efforts and direct resources to achieve meaningful and timely
reforms.
DFAS officials diagrammed the existing cross disbursement payment
processes and concluded that cross disbursements took 109 days to
process. Although the officials acknowledged that the processes were
too long, they did not analyze the time frames to identify
bottlenecks, determine how many transactions fall outside the
average, or establish realistic improvement goals. Using available
information, DFAS officials subsequently developed and issued a
policy (action items 1 and 2) to regulate and reduce the time to
process a transaction. The processing time frames established in the
policy provided for up to 134 days to process a cross
disbursement--25 days longer than the processes they already
considered to be too long. Without an analysis, DFAS does not know
if its stated time frames are reasonable or obtainable. Officials at
two DFAS processing centers said that even the new time frames were
unrealistic.
Our review of the policy's implementation at one site found that it
complied with the policy's time frames for less than 10 percent of
the vouchers. While a standard policy may have been needed, policy
directives alone will not address the problems or achieve the desired
results. Addressing the problems will require both basic data
against which to track the implementation and mechanisms to ensure
that the policy is followed.
Because DFAS has not developed adequate basic information such as
where and why problems occur in the processes, we believe it has
decreased the likelihood for successfully reforming its disbursement
processes or decreasing the volume of problem disbursements in the
short term. As reported in our June 1996 study\7
of the best practices of leading organizations in the implementation
of the Government Performance and Results Act, three key steps of
management reform are to (1) define missions and desired outcomes or
results, (2) measure performance to gauge progress, and (3) use
performance information as a basis for decision-making.
DFAS managers stated that the 14 action items we reviewed were
relatively straightforward and may not have required extensive
analysis. We disagree. While actions are needed in reforming DFAS'
disbursement processes, a thorough analysis of the processes would
help ensure that DFAS focuses its resources on the most significant
problems. As DFAS moves into more complex areas of reform, an
analysis of the processes and problems will be even more critical.
--------------------
\6 Caudle, Sharon, Ph.D, Reengineering for Results: Keys to Success
From Government Experience, (Center for Information
Management-National Academy of Public Administration, August 1994),
page 61.
\7 Executive Guide: Effectively Implementing the Government
Performance and Results Act (GAO/GGD-96-118, June 1996).
STRONGER PROJECT MANAGEMENT
NEEDED
---------------------------------------------------------- Letter :5.2
Although strong management is critical to successful reform efforts,
DFAS provided short-term, temporary project management, which
contributed to delays in issuing the report and implementing the
projects. In 1995, DFAS formally designated a project officer to,
among other things, improve the current cross disbursement and TBO
processes as well as reduce problem disbursements. However, after
about 5 months, the project officer rotated out of the position
before the actions were complete. For the first 6 months of 1996, at
least three other people were in charge of implementing these action
items. The final report containing the action items was delayed for
3 months because of the rotation of the project officer. In July
1996, DFAS headquarters assigned a permanent project officer;
however, the person assigned had received no formal tasking or
position description at the completion of our work.
Due to a lack of consistent management with clearly defined duties
and authorities, the various DFAS centers have attempted to work out
solutions to disbursement problems individually. This was not always
done seamlessly. One reengineering expert has stated that without
strong aggressive, committed, and knowledgeable leadership, there
will be no one to persuade the elements within the organization to
subordinate the interests of their functional areas to those of the
organization as a whole.\8 We found this to be true at DFAS. For
example, one action item we reviewed (item 11) was to eliminate all
of one DFAS center's cross disbursements and convert them to a
TBO-type transaction, which would take a shorter period to record.
DFAS estimated this should eliminate about $115 million in cross
disbursements each month. However, implementation was delayed
because another center was proposing a conflicting project.
Management officials did not intervene to direct a resolution of the
problem. After 6 months, the other center withdrew the conflicting
project, allowing the action item to proceed. However, much of the
initial work had to be redone, and, in the interim, DFAS disbursed
over $1 billion through the cumbersome cross disbursement processes.
At the time of our review, the action item was pending implementation
in January 1997. DFAS headquarters officials agreed that this action
item should not have been delayed, and stated that poor communication
among the centers contributed to the delay.
--------------------
\8 Hammer & Champy, Reengineering the Corporation: A Manifesto for
Business Revolution (New York: Harper Collins Publishers, 1993),
page 107.
ALLOCATION OF RESOURCES
COULD BE IMPROVED
---------------------------------------------------------- Letter :5.3
Because DFAS has many projects to reform its processes and a limited
number of resources, the allocation of resources based on the
priority of projects assumes a greater importance. With regard to
problem disbursements, DFAS officials stated that reform projects
have to compete for resources along with every other need. Without
establishing priorities for multiple competing projects, sufficient
resources may not be provided to fully implement and complete the
more critical reforms.
Because a thorough analysis of the TBO processes was not conducted,
DFAS may not be concentrating its resources to resolve the largest
sources of problems. As a result, some of DFAS' efforts may have
been directed at projects that, even if completed, would have had
only a minimal impact on the disbursement process. For example, one
action item was to improve the disbursement processes by rerouting
payments made between two sections of a center (item 14). However,
after 2 months of work, officials decided that too few transactions
would be affected to warrant the needed systems changes and therefore
canceled the action item.
Where DFAS has identified what it believes to be causes of problem
disbursements, it has not dedicated sufficient resources to resolve
the problems. For example, one action item (item 7) was for DFAS
centers to resolve their backlogs of unprocessed cross disbursement
transactions by November 1995. DFAS officials stated that these
backlogs, for the most part, were the result of a onetime rerouting
of cross disbursement transactions. Until processed and sent to the
accounting stations these transactions remain as problem
disbursements; i.e., aged in-transits. However, almost a year after
the backlogs were to be resolved, one center still had a large
backlog of about 110,000 vouchers. We estimate the center would need
about 6 months to clear this backlog of unprocessed vouchers, even
without considering the normal in-flow of new transactions.
Officials at the center said that without additional staffing the
backlog may never be eliminated. DFAS headquarters officials stated
that their resources were concentrated on reducing the number of new
cross disbursements rather than clearing the backlogs of unprocessed
transactions. However, in January 1997, DFAS assigned a team to
review the backlog and determine what actions were needed to
eliminate it.
Finally, DOD has not implemented a standard line of accounting--a
problem it has acknowledged since the 1960s. The lack of standard
accounting classification codes necessitates that DOD rely, to a
large extent, on hard copy vouchers and manual intervention for its
TBO and cross disbursement processes. Since each military service
uses a different set of accounting codes to designate how
disbursements should be recorded, cross disbursements must be
translated among the different service's accounting codes. One
action item to develop a plan to use standardized accounting codes
(item 4) is on hold pending completion of the DOD standard codes, now
scheduled for the beginning of fiscal year 1998. We reported in
1980,\9 1986,\10 and 1990\11 that DOD needed to allocate resources to
develop standardized accounting classification codes and implement
them throughout its finance and accounting systems.
In responses to our prior reports, DOD agreed that not having
standard accounting information was a source of problem
disbursements. DOD has not fully implemented the standard codes,
citing technical complexity and costly system modifications.
Implementing a standard line of accounting may be costly in the short
term and could involve complex system integration issues. However,
if DFAS does not address such root causes of its disbursement
problems, those causes will continue to drain resources and prevent
the effective reform of slow, cumbersome, and error-prone processes.
Accordingly, we reiterate our previous recommendation that the DOD
Comptroller finalize and implement a standard accounting
classification code for all DOD accounting and finance systems.
--------------------
\9 Defense's Accounting for Its Contracts Has Too Many
Errors--Standardized Accounting Procedures Are Needed (FGMSD-80-10,
January 9, 1980).
\10 Management Review: Progress and Challenges at the Defense
Logistics Agency (GAO/NSIAD-86-64, April 7, 1986).
\11 Financial Management: Problems in Accounting for DOD
Disbursements (GAO/AFMD-91-9, November 9, 1990).
CONCLUSIONS
------------------------------------------------------------ Letter :6
Because basic data are lacking, neither we nor DFAS can assess
whether tangible progress is being made toward resolving TBO
disbursement problems. In order to resolve entrenched problems such
as DOD's problem disbursements, a thorough analysis of the processes
and problems is required. DFAS has not performed the analysis needed
to identify the most severe sources of problems. Without such an
analysis, DFAS could continue to undertake numerous projects to
address what could be significant problems without the data to
identify underlying causes and provide a basis for measuring
progress.
While generally such an analysis should be performed before
proceeding with reform efforts, we do not advocate that DFAS
discontinue all of its ongoing reform efforts in favor of additional
analysis. However, we believe that work can continue on a select
number of significant actions in conjunction with developing better
quantitative analysis of problem areas. An analysis would help to
validate that those actions would result in significant improvements
and help prioritize additional actions. A concurrent process would
help ensure that DFAS' most significant problems are being addressed
and that resources are focused on those reform efforts identified as
high priority.
In addition, strong, consistent management with clearly defined
responsibilities and authorities would help coordinate the centers'
work, and the effective and prompt implementation of needed reforms.
Finally, an investment of adequate resources to make the reforms
identified and prioritized by an analysis would help ensure that
these problems will not continue to drain future resources.
RECOMMENDATIONS
------------------------------------------------------------ Letter :7
To ensure the effective management of ongoing and future disbursement
reform efforts, we recommend that the Director, Defense Finance and
Accounting Service
-- develop more complete analysis to identify underlying causes,
define solutions, and measure progress;
-- provide for consistent project management with clearly defined
responsibilities and authority; and
-- prioritize reform efforts to ensure that sufficient resources
are allocated to the most severe sources of problems.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :8
In written comments on a draft of this report (see appendix I), DOD
generally agreed with our findings and concurred with all of our
recommendations. DOD stated that the effective management of ongoing
and future disbursement reform efforts depends on the three factors
we cited. DOD also noted specific actions taken or planned in
response to the recommendations.
DOD disagreed with our statement that a preliminary analysis of DOD's
problem disbursements shows that they are underreported by up to $25
billion. We have previously provided DOD officials with detailed
data showing the basis for our position that reported problem
disbursement amounts are understated and DOD officials have not
provided data that refutes the amount of underreporting. This issue
is the subject of an ongoing review that will address our finding
that DOD's problem disbursement reporting is not producing accurate
and consistent data needed to effectively measure its progress and
manage the reduction of its problem disbursements.
DOD also commented that the report, by being limited to one of the
Department's major initiatives, does not capture the results of the
many other major initiatives that are underway--many of which are
expected to help reduce in-transit disbursements. We agree that DOD
has been working in many areas to resolve problem disbursements, and
our report notes that DOD lists over 70 ongoing projects in a May
1996 business plan. However, this report focuses on the 14 action
items specifically related to TBOs and cross disbursements. We also
are evaluating other initiatives that are in varying stages of
completion. The large number of initiatives supports our conclusion
that the reform projects must be (1) prioritized on the basis of
strong analysis to determine which ones will produce the greatest
results and (2) managed by an experienced project manager with clear
responsibility and authority.
In addition, DOD stated that it has internal controls in place to
reduce the risks associated with fraudulent payments. We strongly
disagree. Our audits, and those of the DOD Inspector General and
audit services, have identified material internal control weaknesses
in areas such as general electronic data processing, basic
reconciliations, and supervisory reviews. DOD's inability to match
over $40 billion of disbursements with recorded obligations,
including disbursements that cite closed bases and decommissioned
ships, is also indicative of major control weaknesses. All of these
weaknesses would contribute to making DOD's payment processes
vulnerable to fraudulent payments and diminish the Department's
ability to detect fraudulent and other improper payments that occur.
DOD also noted that the military departments and Defense agencies are
committed to reducing problem disbursements as quickly as feasible
and that, by most reasonable standards, the Department has been
successful in that regard. As stated above, our preliminary work on
DOD's reporting of problem disbursement data indicates that reported
amounts are substantially understated and raises concerns over
whether DOD has sufficient, reliable information to determine the
extent to which disbursement problems have been reduced.
---------------------------------------------------------- Letter :8.1
This report contains recommendations to the Director, DFAS. Within
60 days of the date of the report, we would appreciate receiving a
written statement on actions taken to address these recommendations.
We are sending copies of this report 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, and the House Committee on Government Reform and Oversight;
and the Director of the Office of Management and Budget. We are also
sending a copy to the Secretary of Defense. Copies will also be made
available to others upon request.
Please contact me at (202) 512-9095 if you have any questions on this
report. Major contributors to this report are listed in appendix II.
Lisa G. Jacobson
Director, Defense Financial Audits
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.
David Childress
ATLANTA REGIONAL OFFICE
William Cordrey
Bob Crowl
Marshall Hamlett
Sue Piyapongroj
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