Department of Defense: Staus of Financial Management Weaknesses and
Actions Needed to Correct Continuing Challenges (Testimony, 05/04/99,
GAO/T-AIMD/NSIAD-99-171).

Pursuant to a congressional request, GAO discussed the status of
financial management at the Department of Defense (DOD), focusing on:
(1) DOD's most serious financial management weaknesses; (2) the
resulting impact on DOD's ability to effectively carry out its programs
and operations; and (3) DOD's efforts to address these deficiencies.

GAO noted that: (1) as part of the fiscal year (FY) 1998 financial
statement audits, auditors continued to find that DOD's inventory
management and control systems and practices are plagued with serious
problems that affect its ability to maintain accurate and complete
inventory data; (2) audit findings for FY 1998 include problems in
verifying inventory quantities and value, reporting all inventory, and
accounting for in-transit inventory; (3) DOD has not yet fully
implemented the federal accounting standard that requires it to
recognize and report liabilities associated with environmental cleanup
and disposal of its assets; (4) as a result, DOD's undisclosed liability
in this area is likely understated by tens of billions of dollars; (5)
GAO previously reported that DOD did not accumulate the data necessary
to accurately estimate its military post-retirement health benefits
liability, and this remained a problem in FY 1998; (6) DOD does not have
the basic, transaction driven, double-entry accounting systems that are
necessary to properly control assets and accumulative costs; (7)
auditors found several areas in which the systems and controls over
DOD's use of its budgetary resources were ineffective; (8) significant
weaknesses have been identified in contractor and vendor payments as
well as health care provider payments; (9) it is essential that DOD
establish a well-trained cadre of financial management personnel, a
short-term improvement action that will help address the financial
management weaknesses previously identified as well as help ensure that
the improvement actions cited are implemented as efficiently and
effectively as possible; (10) longer term actions addressed in DOD's
first Biennial Financial Management Improvement Plan also will be
essential for the Department to prepare reliable financial statements as
well as to make planned major financial management system improvements
throughout DOD's large and complex organization; and (11) this plan
presents DOD's concept of operations, the current environment, and the
transition plan intended to describe the goals of the Department for
achieving the target financial management environment and to identify
the strategies and corrective actions necessary to move through the
transition.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-AIMD/NSIAD-99-171
     TITLE:  Department of Defense: Staus of Financial Management
	     Weaknesses and Actions Needed to Correct Continuing
	     Challenges
      DATE:  05/04/99
   SUBJECT:  Accounting procedures
	     Financial management systems
	     Internal controls
	     Military inventories
	     Financial statement audits
	     Inventory control systems
	     Federal agency accounting systems
	     Government liability (legal)
	     Federal property management
IDENTIFIER:  DOD Biennial Financial Management Improvement Plan
	     DOD Global Combat Support System
	     DOD Total Asset Visibility Initiative
	     Air Force Working Capital Fund
	     DOD Defense Property Accountability System
	     Naval Vessel Register
	     Navy Combatant Craft and Boat Support System
	     Air Force Comprehensive Engine Management System
	     DOD Medical Expense and Performance Reporting System
	     DOD Composite Health Care System
	     DOD Planning, Programming, and Budgeting System
	     Defense Reform Initiative

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A499171T GAO United States General Accounting Office

Testimony Before the Subcommittee on Government Management,
Information and Technology, Committee on Government

Reform, House of Representatives For Release on Delivery Expected
at 10 a. m. Tuesday, May 4, 1999

DEPARTMENT OF DEFENSE

Status of Financial Management Weaknesses and Actions Needed to
Correct Continuing Challenges

Statement of Gene L. Dodaro Assistant Comptroller General
Accounting and Information Management Division

GAO/ T- AIMD/ NSIAD- 99- 171

Page 1 GAO/ T- AIMD/ NSIAD- 99- 171

Mr. Chairman and Members of the Subcommittee: I appreciate the
opportunity to discuss the status of financial management at the
Department of Defense (DOD). This discussion is particularly
timely in light of our recent report 1 on the fiscal year 1998
Financial Report of the U. S. Government. Material financial
management deficiencies identified at DOD, taken together,
represent the single largest obstacle

that must be effectively addressed to achieve an unqualified
opinion on the U. S. government's consolidated financial
statements. DOD's vast operations with an estimated $1 trillion in
assets, nearly $1 trillion in liabilities, and a net cost of
operations of $280 billion in fiscal year

1998 have a tremendous impact on the government's consolidated
reporting.

DOD has created and maintains the world's most powerful fighting
force and its effectiveness in protecting the safety and security
of our nation and national interests is unparalleled. Yet, without
more reliable financial and other management information, DOD
cannot ensure adequate accountability to the President, the
Congress, and the American public. In addition, decisionmakers and
managers are deprived of valuable tools to

control costs and address pressing management issues that drain
resources that could be better used to increase readiness and meet
other priorities, such as weapon systems modernization.

While in the past we have questioned the department's commitment
to fixing these long- standing problems, DOD has started to devote
additional resources to correct its financial management
weaknesses. The atmosphere of business as usual at DOD has changed
to one of marked effort at real reform. DOD is working on short-
term actions to improve financial accountability and to help
support the President's goal of obtaining an unqualified opinion
on the federal government's financial

statements. In addition, DOD has recently submitted to the
Congress a Biennial Financial Management Improvement Plan. This
plan presents, for the first time, the department' strategies,
including a concept of operations for modernizing its financial
management activities. The plan, which DOD has now committed to
updating annually, is an ambitious undertaking that represents an
important step toward long- term improvements.

1 Financial Audit: 1998 Financial Report of the United States Government (

GAO/AIMD-99-130
, March 31, 1999).
1 Financial Audit: 1998 Financial Report of the United States
Government (  GAO/AIMD-99-130 , March 31, 1999).

Lett er

Page 2 GAO/ T- AIMD/ NSIAD- 99- 171

These initiatives are all very important steps in the right
direction, but it is essential to keep in mind the magnitude of
DOD's financial management problems. These problems are pervasive
and entrenched in an extremely large decentralized organization.
It will take considerable effort, time, and sustained top
management attention to turn reform efforts into day- to- day
management reality. No major part of DOD has been able to pass the
test of an independent audit; auditors consistently have issued
disclaimers of opinion because of pervasive weaknesses in DOD's
financial management operations. Such

problems led us in 1995 to put DOD financial management on our
list of high- risk areas vulnerable to waste, fraud, abuse, and
mismanagement, a designation that continued in our recent high-
risk update. 2 The audits of DOD's and individual military
services' financial statements for fiscal year 1998 performed by
the DOD Inspector General (IG) and the military service audit
agencies, as well as our audit of the U. S. government's financial
statements, have provided further clarification of the scope and
magnitude

of the department's problems, and recommendations to correct them.
My testimony outlines DOD's most serious financial management
weaknesses, describes the resulting impact on the department's
ability to effectively carry out its programs and operations, and
highlights the efforts

underway to address these deficiencies. These actions must be
implemented effectively for DOD to be able to  properly account
for and report (1) billions of dollars of inventory and

property, plant, and equipment and (2) national defense assets,
primarily weapon systems and support equipment;  estimate and
report material amounts of environmental and disposal

liabilities and their related costs;  determine the liability
associated with post- retirement health benefits for military
employees;

 accurately report the net costs of its operations;  produce
accurate budget data; and  determine the full extent of improper
payments.

2 High- Risk Series: An Overview (GAO/HR-95-1, February 1995),
High- Risk Series: Defense Financial Management (GAO/HR-97-3,
February 1997), and Major Management Challenges and Program Risks:
A Governmentwide Perspective (GAO/OCG-99-1, January 1999).

Lett er

Page 3 GAO/ T- AIMD/ NSIAD- 99- 171

Short- term improvement strategies for DOD are imperative. Also,
enhancements are needed in updating DOD's Financial Management
Improvement Plan its long- term blueprint for financial management

reform. Control and Accountability Over Assets Impaired

As discussed in our recent report on the fiscal year 1998
consolidated financial statements, the federal government one of
the world's largest holders of physical assets does not have
accurate information about the amount of assets held to support
its domestic and global operations. DOD primarily relies on
various logistical systems to carry out its important stewardship
responsibility over an estimated $1 trillion in physical assets,
ranging from enormous inventories of ammunition, stockpile
materials, and other military items to buildings and facilities to
multimillion dollar

weapon systems. These logistics systems are the primary source of
information for (1) maintaining visibility over assets to meet
military objectives and readiness goals and (2) financial
reporting. However, as we testified last year, 3 these systems
have material weaknesses that, in addition to hampering central
visibility and financial reporting, impair

DOD's ability to safeguard those assets from physical
deterioration, theft, or loss or to prevent the purchase of assets
already on hand in sufficient quantities. Overall, these
weaknesses can seriously diminish the efficiency and

economy of the military services' support operations. For example,
as noted in our recent report, 4 DOD's lessons- learned studies
from Operation Desert Storm found that better asset tracking could
have saved $2 billion. In response to this problem, the department
initiated programs or renewed its emphasis on implementing
existing measures that would improve asset visibility and
tracking. The Global Combat Support System (GCSS), led by

the Defense Information Systems Agency, was established in
September 1995 to reengineer processes and procedures and provide
a technological base, including a common environment and shared
infrastructure, needed to rapidly deploy support to the
warfighter. In addition, DOD renewed its Total Asset Visibility
(TAV) initiative to provide department- level access to timely,
accurate information on the status, location, and movement of

3 Department of Defense: Financial Audits Highlight Continuing
Challenges to Correct Serious Financial Management Problems (GAO/
T- AIMD/ NSIAD- 98- 158, April 16, 1998). 4 Defense Inventory: DOD
Could Improve Total Asset Visibility Program With Results Act
Framework (GAO/NSIAD-99-40, April 12, 1999).

Page 4 GAO/ T- AIMD/ NSIAD- 99- 171

units, personnel, equipment, and supplies including weapon
systems, secondary inventory, 5 and ammunition. The effectiveness
of these programs in achieving their common objectives of
supporting the warfighter will depend on the accuracy and
timeliness of information provided by the underlying systems. As
discussed in the following sections, because DOD's asset
accountability

systems and processes remain largely unchanged since last year,
audit findings continue to indicate serious weaknesses in controls
over inventory; general property, plant and equipment; and
national defense assets.

Continuing Control Weaknesses Over Inventory

As part of the fiscal year 1998 financial statement audits,
auditors continued to find that DOD's inventory management and
control systems and practices are plagued with serious problems
that affect its ability to maintain accurate and complete
inventory data. DOD inventory 6 includes ammunition (such as
machine gun cartridges, rocket motors, and grenades), repairable
items (such as navigational computers, landing gear, and hydraulic
pumps), consumables (such as clothing, bolts, and medical
supplies), and stockpile materials (such as industrial diamonds,
rubber, and tungsten). DOD's inability to effectively account for
and control its reported $122 billion investment in inventories
has been an ongoing area of major concern. Audit findings for
fiscal year 1998 include problems in verifying inventory
quantities and value, reporting all inventory, and

accounting for in- transit inventory. The sheer volume of DOD's
on- hand inventories also impedes the Department's efforts to
accumulate and report accurate inventory data.

On- hand Quantities Not in Agreement With Records. The Defense
Logistic Agency (DLA) distribution depots' inventory records,
which account for approximately 75 percent of DOD's reported
inventory, supply much of the information for management and
financial reporting. Over the years,

auditors have repeatedly found problems with the accuracy of DOD's
perpetual inventory records, although recent improvements in
reported

5 Secondary inventory includes spare parts, clothing, and medical
supplies to support DOD operating forces worldwide.

6 Statement of Federal Financial Accounting Standards No. 3
defines several categories of inventory. DOD primarily has
inventory held for sale, operating materials and supplies, and
stockpile materials. For purposes of this testimony, we refer to
all categories as inventory.

Page 5 GAO/ T- AIMD/ NSIAD- 99- 171

accuracy rates have been noted. For example, for 1996, the DOD IG
reported a 24 percent error rate at DOD's primary storage
locations 7 and, for 1997, Navy auditors reported a 23 percent
error rate for the 13 major storage locations they visited. 8 For
1998, preliminary results from Navy auditors' tests showed an
improved error rate of 14 percent for the 18 locations visited.
Navy officials attributed much of the improvement in inventory
record accuracy to extensive rewarehousing a wall- to- wall
physical inventory done to facilitate conversion to a new
logistics system.

However, preliminary results of tests we conducted for 1998,
identified control weaknesses that indicate DOD's reported rates
cannot be relied upon to provide a true measure of physical
inventory accuracy.

As part of our audit effort for the fiscal year 1998 financial
statements, we evaluated DOD procedures for verifying the accuracy
of its perpetual inventory records and found significant
weaknesses. We have provided our draft report on these issues to
DOD officials for their review and comment prior to its release.
Although DLA established a record accuracy goal of 95 percent for
fiscal year 1998, we found that, at the 14 distributions depots we
visited, reported accuracy rates fell below that goal. For fiscal
year 1998 counts, only two depots had inventory accuracy rates
above

90 percent. In addition, several significant control weaknesses in
the inventory count process affected the integrity of the counts
and these accuracy rates. For example, at all of the depots we
visited, counters could

access the inventory system to determine the expected number of
inventory items on hand. At one depot, we observed counters
obtaining system quantities for some of the sample items and
recording these amounts as the physical count for the items. When
we requested an actual physical count of these items, all had
variances. One of the items night

image intensifiers, a controlled item 9 commonly referred to as
night vision goggles with a unit price of about $1,300 had a
variance of 1,018 items, which resulted in a $1.3 million loss
adjustment to the inventory records.

7 Inventory Record Accuracy and Management Controls at the Defense
Logistics Agency Distribution Depots (DOD IG Report 98- 019,
November 10, 1997). 8 Fiscal Years 1997 and 1996 Consolidated
Financial Statements of the Department of the Navy Working Capital
Fund Reportable Conditions (NAS 049- 98, September 28, 1998).

9 Controlled inventory items are those designated as having
characteristics that require that they be identified, accounted
for, secured, segregated, or handled in a special manner to ensure
their safeguard or integrity. They include classified, sensitive,
and pilferable items.

Page 6 GAO/ T- AIMD/ NSIAD- 99- 171

In addition, at many depots, warehouse personnel whose duties
include storing, rewarehousing, and issuing items were used to
perform inventory counts of these items. Because these warehouse
personnel had such dual responsibilities, this arrangement did not
ensure adequate segregation of duties. These physical count
weaknesses prevented DOD's reported accuracy rates from providing
a reliable measure of its record accuracy and, as a result, DOD
cannot be assured that (1) inventory it has paid for has been
received, (2) inventory is not subject to theft, and (3) inventory
balances used to determine requirements reflect all acquired and
on- hand quantities. We also noted that DLA's current sampling
methodology could be improved. The sample process used in fiscal
year 1998 considered each

type of item equally in selecting those to be physically counted.
For example, an error for a $1 item was counted the same as an
error for a $50,000 item and common hardware items were counted
the same as controlled items. In addition, this sample process
results in the selection of

more items representing insignificant dollar amounts. For example,
at one location, an estimated $49.5 million of items were counted
out of a total of the reported $4.5 billion of items on hand,
accounting for about 1 percent of

the total inventory stored there. This type of sampling and the
resulting accuracy rates do not give management the opportunity to
respond appropriately to errors that reflect more serious problems
in accountability over high dollar or more sensitive, controlled
items. Our draft report on inventory accuracy includes specific
recommendations to address the

weaknesses identified. Inventory Values Questionable. Federal
accounting standards require inventories to be valued based on
historical cost or a method that will approximate historical cost.
Further, excess, unserviceable, or obsolete

inventory is required to be written down to net realizable value.
Valuation at historical cost is particularly important to capture
the cost of operations of the supply funds, which are required to
recover their inventory and overhead costs through the prices they
charge their internal customers. However, DOD values its
inventories at standard cost or latest acquisition cost and does
not capture the data necessary to value inventory at historical
cost.

As a result, DOD developed an agencywide model in 1994 for the
purpose of estimating historical cost for inventories. The
valuation model uses general ledger data to adjust recorded
inventory values to arrive at an estimate of historical costs and
to calculate costs of goods sold. However,

Page 7 GAO/ T- AIMD/ NSIAD- 99- 171

due to concerns about the accuracy of general ledger data, and
weak internal control over the development and operation of the
valuation model, auditors have been unable to evaluate the
effectiveness of the model, or the estimates of historical cost
and cost of goods sold.

Frequent, large adjustments raise concern about the accuracy of
general ledger data used in the valuation model. For example,
according to DOD IG preliminary results, DOD recorded over $30
billion of individual gain and loss adjustments for fiscal year
1998 to bring the value of inventory in the general ledger into
agreement with the value of inventory in the supply

activities' logistical records. Most of these adjustments were
made without sufficient investigation to determine the underlying
causes of differences. Further, to minimize fluctuations in
operating results, DOD is reluctant to treat these adjustments as
current period gains and losses. However, such treatment does not
comply with accounting standards because it defers recognition of
gains and losses from activities such as inventory counts,
rewarehousing of inventory, and shipping transactions and,
therefore, results in a misstatement of inventory and cost of
operations.

In addition to concerns about the accuracy of the data used in the
model, insufficient controls surrounding the development and
operation of the valuation model have resulted in application
errors, and further misstatements of reported inventory and cost
of goods sold. During 1997, DFAS identified a $3.9 billion error
in how the model was applied to the Navy's fiscal year 1996
inventory balances, resulting in an understatement in reported
inventory by the same amount. In 1998, Navy auditors discovered an
error in a 1997 calculation of estimated repair costs that
resulted in a $2. 3 billion overstatement of reported fiscal year
1997 cost of goods sold. Fiscal year 1998 preliminary audit
results indicate

that an application error in a reversing entry resulted in an
overstatement of Navy's reported inventory of $420 million.

DOD's reported $62. 5 billion of operating materials and supplies
for fiscal year 1998, including ammunition, were also not valued
properly at historical cost, or net realizable value, as required.
For example, the Air Force has acknowledged that an estimated $28
billion in operating materials and supplies are inappropriately
valued at latest acquisition cost. The Army also reported about
$20 billion of ammunition at latest acquisition cost and indicated
that almost none of this ammunition was

excess, unserviceable, or obsolete. Similarly, the Navy reported
over $11 billion of ammunition without identifying any as excess,
unserviceable,

Page 8 GAO/ T- AIMD/ NSIAD- 99- 171

or obsolete. However, we have previously reported that in 1996
about 39 percent of DOD's total ammunition stockpile was excess
and that about 27 percent was unserviceable. 10 Inventories Not
Reported. Our report on our audit of the fiscal year

1997 government financial statements disclosed that an estimated
$9 billion of known military operating materials and supplies were
not reported, including inventories on Army installations, at Navy
facilities, and on Navy ships. 11 Similarly, fiscal year 1998
financial statement audit work found that DOD generally excludes
information in several inventory accountability

systems from financial reports, including reports provided to the
Congress on inventory levels, and from overall visibility systems.
For example, Navy omissions, which primarily relate to spare and
repair parts, included an estimated (1) $9 billion in items
warehoused onboard ships, (2) $3 billion of inventory items held
by engineering and ordnance activities, and (3) $650 million of
items at redistribution centers. In addition, an estimated $19
billion of government owned material held by contractors is
omitted from inventory reports provided to the Congress. These
kinds of omissions adversely affected the department's financial
reporting and its reporting to the Congress on inventory
reductions. Further, the lack of complete visibility over
inventories increases the risk that responsible inventory item

managers may request funds to obtain additional, unnecessary items
that may be on- hand but not reported. For example, in February
1997, we reported that DOD had ordered $11.3 million in items such
as hydraulic pump valves and circuit card assemblies that were
already in excess supply. 12

In- transit Inventories. The vulnerability of in- transit
inventory to waste, fraud, and abuse is another area of concern.
Similar to last year's results, auditors were not able to confirm
the in- transit inventory, which is included in the reported
overall inventory balance on hand. For example, auditors could not
determine the reasonableness of almost $600 million of the

Army's reported inventory in- transit from procurement. In
addition, preliminary audit results indicate that the Navy's
reported in- transit 10 Defense Ammunition: Significant Problems
Left Unattended Will Get Worse (GAO/NSIAD-96-129, June 21, 1996).

11 Financial Audit: 1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, March 31, 1998). 12
Defense Logistics: Much of the Inventory Exceeds Current Needs
(GAO/NSIAD-97-71, February 28, 1997).

Page 9 GAO/ T- AIMD/ NSIAD- 99- 171

inventory differed from subsidiary records by about $2 billion and
that the Navy had not determined the cause for the difference
between the detail records and the reported amount. We also
recently testified on the Navy's problems with controlling in-
transit items. 13 Specifically, we reported that Navy activities
were not adhering to control procedures to ensure that intransit
items are accounted for and that responsible commands had not been
performing adequate oversight. As a result, the Navy wrote off as
lost over $3 billion of in- transit inventory over the last 3
years, including some

classified and sensitive items such as aircraft guided- missile
launchers, military night vision devices, and communications
equipment. This lack of control leaves enormous amounts of
inventory at risk of undetected theft

or misplacement. Excess Inventories. The sheer size and volume of
DOD's on- hand inventories also impedes the Department's efforts
to accumulate and report accurate inventory data. We reported in
our January 1999 high- risk report on defense inventory management
that the department needs to avoid burdening its supply system
with large unneeded inventories. 14 In April

1999, we reported 15 that about 60 percent of on- hand items, or
an estimated $39.4 billion of DOD's reported secondary inventory,
exceeded DOD's requirements. The DOD IG has also reported 16 that
about $3 billion of

DLA's reported $9.8 billion of consumable inventory was inactive
and of uncertain future utility. As a result, DOD is incurring
unneeded inventory holding costs. In 1997, we estimated 17 that
the military services could save

about $382 million annually in inventory holding costs by
eliminating inventory at nonmajor locations that is not needed to
meet current requirements. DOD has also acknowledged the need to
reduce its inventories and has established goals to reduce supply
inventory by $12 billion by 2000.

13 Defense Inventory: Continuing Challenges in Managing
Inventories and Avoiding Adverse Operational Effects (GAO/T-NSIAD-
99-83, February 25, 1999). 14 Major Management Challenges and
Program Risks: Department of Defense (GAO/OCG-99-4, January 1999).
15 Defense Inventory: Status of Inventory and Purchases and Their
Relationship to Current Needs (GAO/NSIAD-99-60, April 16, 1999).
16 Valuation and Presentation of Inactive Inventory on the FY 1997
Defense Logistics Agency Working Capital Fund Financial Statements
(DOD IG Report 98- 195, August 27, 1998). 17 Defense Inventory:
Spare and Repair Parts Inventory Costs Can be Reduced (GAO/NSIAD-
97-47, January 17, 1997).

Page 10 GAO/ T- AIMD/ NSIAD- 99- 171

Short- term Improvements Underway. To begin addressing the
inventory accuracy issues raised by financial statement audits, in
March 1999, the Principal Deputy Under Secretary of Defense
(Acquisition and Technology) directed the military services and
DLA to evaluate how all transactions impacting inventory are
processed into financial management systems, determine the sources
and causes of processing errors, and develop a

remedial plan for correcting those errors. The military services
and DLA are tasked with ensuring that changes and corrective
actions are implemented by September 30, 1999. Further, the
Comptroller and the

Under Secretary of Defense for Acquisition and Technology have
committed to (1) improve DOD's physical count procedures to
address the weaknesses we identified, (2) implement risk- based
physical inventory measures that demonstrate a greater concern for
sensitive items and high

dollar items, (3) work with DFAS and the audit community to
determine the proper treatment of inventory gains and losses, (4)
continue refining current formulas for valuing inventory at
historical cost, and (5) develop procedures to properly account
for and report operating materials and supplies.

Unreliable Amounts Reported for General Property, Plant and
Equipment

DOD is responsible for almost one- half of the government's
general property, plant and equipment (PP& E). 18 For fiscal year
1998, DOD reported $126 billion of general property assets,
including $71.3 billion in real property (land, buildings,
facilities, capital leases, and improvements to those assets);
$34. 7 billion in personal property (such as vehicles,

equipment, telecommunications systems, and computers); and $20.3
billion in construction- in- progress, the largest portion of
which belongs to the Corps of Engineers. For fiscal year 1998, DOD
auditors found that real property databases were generally
accurate for recorded items; however, they did identify
significant problems with unrecorded items valued at less than
$100,000. In addition, DOD's dollar threshold for capitalizing its

property, plant and equipment needs to be reexamined to ensure
that the department accurately assesses the full cost of its
operations, carries out its fiduciary responsibility over its
assets, and prepares accurate and complete financial reports.

18 Statement of Federal Financial Accounting Standards No. 6
states that general PP& E is any property, plant and equipment
used in providing goods and services. It typically has one or more
of the following characteristics: (1) it could be used for
alternative purposes (e. g., by other Federal programs, state, or
local governments, or non- governmental entities) but is used to
produce goods or services, or to support the mission of the
entity, (2) it is used in business- type activities, or (3) 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).

Page 11 GAO/ T- AIMD/ NSIAD- 99- 171

Real Property. DOD's real property accounts represented
approximately 56 percent of DOD's reported PP& E for fiscal year
1998. In fiscal year 1998, DOD auditors performed a departmentwide
effort to test the reliability of each military service's real
property logistical databases for existence and completeness.
Based upon preliminary results of statistical samples, DOD
auditors concluded that assets in the databases with a unit

value greater than $100,000 existed at the audit date. However,
there were errors identified that may represent systemic problems
that will need to be addressed. For example, the Naval Audit
Service identified 17 sampled items, with a total reported value
of $20.1 million, that were inappropriately included in the
database. These assets included a building valued at $7 million
that was planned but never constructed, a communication

antenna valued at $1. 9 million that could not be located, and
buildings that were demolished but not removed from the database.
Army and Air Force auditors also found demolished assets that had
not been removed from the databases. In addition, tests of Air
Force assets reportedly valued at less than

$100,000 indicated potential accountability issues. For example,
based upon the preliminary results of a statistically selected
sample of 176 assets with recorded unit values of less than
$100,000, Air Force auditors concluded that the Air Force's real
property database had a 8.62 percent

error rate for assets valued at less than $100,000. Furthermore,
Navy auditors could not locate 32 of 478 judgmentally selected
items with a reported unit value of less than $100,000.

While evaluating the accuracy of assets included in DOD's real
property databases, auditors also performed limited tests on
whether all assets at DOD installations were included in the
databases, i. e., whether the databases were complete. Auditors
judgmentally selected assets on the installations and attempted to
trace them to the real property databases. For example, at the 62
Army locations reviewed, 48 of 161 items selected were not
recorded in the Army's real property databases. Most of the

unrecorded assets were support facilities and included parking
lots, fences, utilities, and storage sheds. In addition, when the
Corps of Engineers converted to a new property accounting system
this year, it did not transfer to the system approximately $4
billion of assets.

Valuation of real property assets in the databases is perhaps the
greatest hurdle the department must overcome. What the department
paid for its assets is an important component of determining costs
for operating its facilities. For fiscal year 1998, DOD auditors
found numerous valuation

Page 12 GAO/ T- AIMD/ NSIAD- 99- 171

errors due to duplications, misclassifications, omissions, and
lack of supporting documentation. Examples of audit finding of
errors in reported values include  approximately $9. 9 million in
capital improvements made at three Army base support battalions,
which were not recorded,  approximately 29,000 real property
records that were in the Army Corps of Engineers' financial system
but had no recorded book value, and  an estimated $95 million
overstatement of real property because the

same 48 buildings were included on both Air Force and Navy real
property databases. Ensuring the accuracy of asset valuation can
usually be done primarily by verifying acquisitions and disposals
during the year but DOD's beginning balances have never been
validated. Because DOD acquired many of its assets years ago,
adequate documentation is not generally available. Therefore, DOD
and the audit community have been working with a contractor to
develop an alternative method for supporting its asset values.
Personal Property. Because auditors focused on real property
testing for fiscal year 1998, only limited work was performed on
DOD personal property. However, auditors found that

 The Navy improperly excluded from its reported general PP& E
approximately $1. 5 billion in equipment identified as military
trainer devices and inadvertently omitted an additional $739
million in equipment.  The Air Force Working Capital Fund did not
report 155 equipment items

costing about $108 million that had been furnished to contractors.
An Army equipment pricing error had resulted in a $1. 2 billion

overstatement of personal property because computer monitors
valued at $1,345 were in the equipment database at a value of
$134.5 million each.

DOD has also hired a contractor to assist it in assessing the
existence, completeness, and valuation of assets recorded in its
personal property databases. It is expected that this effort may
take over a year to complete departmentwide, due to the large
number of DOD databases used to maintain accountability.
Capitalization Threshold Needs Evaluation. As we testified last
year, DOD's

ability to accurately report its property, plant and equipment
values has

Page 13 GAO/ T- AIMD/ NSIAD- 99- 171

been further hampered by the 20- fold increase in its
capitalization threshold from $5,000 in 1991 to $100,000 in 1996,
and by the retroactive application of the $100,000 threshold in
1998 to all DOD components, except working capital fund
activities. As a result of the higher capitalization threshold,
DOD has expensed billions of dollars of assets, which has
effectively removed them from accounting control. These assets
have useful lives of more than 2 years. For example, over 100,000
vehicles

costing approximately $2. 6 billion that are held by the Army, Air
Force, and Navy, do not meet the $100,000 capitalization
threshold. In addition, financial audits have repeatedly found
that DOD's detailed property records are not accurate. For
example, based on a statistical sample, Air Force auditors
concluded that the Air Force's real property database did

not provide accountability over assets valued at less than
$100,000. Use of high capitalization thresholds can adversely
affect the measurement of operating costs. Because assets are
expensed in their year of acquisition, as opposed to the costs of
the assets being allocated over their useful lives, the costs
associated with their acquisition and use may not be adequately
considered in decision- making. In addition, by not accounting for
all its

costs, DOD's ability to capture the data needed to make valid cost
comparisons for decisions, such as outsourcing, is hampered. The
Army Corps of Engineers, which accounts for approximately 26
percent of DOD's total reported PP& E, has requested a waiver from
implementing the threshold because of its expected impact on the
Corps' budget and customers. Corps of Engineers' assets that do
not meet the new threshold include other floating plant equipment
(e. g., barges, boats, launches, and pumps) valued at more than
$31 million and mobile land plant equipment (e. g., tractors,
cranes, and bulldozers) totaling over $48 million.

Short- term Improvements Underway. The DOD Comptroller and the
Under Secretary of Defense for Acquisition and Technology are
responsible for actions directed at developing more credible
valuation data for the

department's plant, property and equipment. To help, the DOD
Comptroller has obtained contractor support in addressing both
real and personal property issues. DOD has also directed that its
components have or expeditiously develop fully operational
property accountability systems that meet federal accounting and
systems requirements, including the capability to capture and
maintain historical cost data and calculate depreciation for
general

Page 14 GAO/ T- AIMD/ NSIAD- 99- 171

PP& E assets. Although the DOD Comptroller has designated the
Defense Property and Accountability System (DPAS) as DOD's real
property accounting system, the department has encouraged but not
mandated that components migrate to DPAS. DPAS databases accounted
for approximately $23 billion, or 18 percent, of DOD's general PP&
E reported

for fiscal year 1998. As of March 1999, DOD had approximately 115
DPAS databases operational throughout DOD and an additional 220
scheduled for implementation through May 2000. In our 1997 report
on DPAS, 19 we made several recommendations to ensure that
financial control and accountability over general property is
attained. These recommendations included developing an
implementation plan with milestones for DPAS, revising the
handbook accompanying the system, and modifying the software to
update it for new accounting standards. Actions have been taken to
address our recommendations, although DOD has still not developed
a detailed DPAS implementation plan.

Finally, DOD has recently asked its contractors to evaluate its
current capitalization policy. We have offered to work with DOD,
its contractors, and the DOD IG to arrive at an approach for
reviewing DOD's capitalization policy that will lead to a mutually
acceptable conclusion.

Accountability Lacking Over National Defense Assets

The new Stewardship Reporting accounting standard, 20 which was
effective for the first time for fiscal year 1998, required that
DOD remove military equipment (now called national defense
property, plant and equipment and reported at more than $600
billion in fiscal year 1997) from its balance sheet and report it
on a separate stewardship statement. Although the reporting
standards were new, the fiscal year 1998 audit results were
similar to last year's because many of the military services'

logistics systems used to track and support weapon systems and
other military equipment were still unable to provide accurate
information to support DOD's asset visibility objectives and
financial reporting.

For fiscal year 1997, auditors performed specific tests to
validate the data in the logistics systems reporting military
equipment. Because of the sensitive nature of the equipment items
selected, auditors' audit tests were 19 Financial Management:
DOD's Approach to Financial Control Over Property Needs Structure
(GAO/AIMD-97-150, September 30, 1997). 20 Statement of Federal
Financial Accounting Standards No. 8, Supplementary Stewardship
Reporting, was effective for federal agencies' financial reporting
beginning after September 30, 1997.

Page 15 GAO/ T- AIMD/ NSIAD- 99- 171

designed to either pass or fail the accuracy of logistical system
information. For a number of critical systems tested, it was
agreed with the military leaders who used those systems that a
system would pass only

where all assets selected from the system were found. For other
systems, which generally carry information on less critical
assets, it was agreed that the system could still receive a
passing grade with up to two errors

identified. Auditors tested recorded information for 11 categories
of Navy military equipment. Fiscal year 1997 testing of critical
Navy logistics systems showed that the Navy's systems failed for 3
of 11 categories of military equipment tested. Specifically,
auditors determined that the Navy's systems relied on for
visibility or accountability over active boats, service craft, and
uninstalled engines failed because the data were either incomplete
or included assets that no longer existed. For example, tests of
these mission critical systems found the following.

 Of 45 boats selected for examination, 2 were included in the
Combatant Craft and Boat Support System even though they had been
disposed of or sold.

 Of 79 inactive service craft reported in the Naval Vessel
Register (NVR) and tested by auditors, 6 could not be located.
Fifteen other service craft had been sold or disposed of but were
still included in the NVR as inactive, indicating their
availability to meet rapid mobilization requirements.  Of 105
uninstalled engines sampled, 10 valued at up to $4 million could

not be found. Because of the severity of these problems, a working
group was established in 1998 to begin addressing them. Navy
officials indicated that not adhering to established policies and
procedures for example, those related to the disposal of assets
coupled with disincentives to accurately report asset activity,
significantly contributed to these inaccuracies.

Officials stated that steps have been taken, including training
personnel in existing procedures, and that weapon systems activity
is expected to be accurately reported in fiscal year 1999.
However, because the problems had not been addressed at the time
of their audit, Navy auditors did not repeat tests of national
defense assets for fiscal year 1998.

For fiscal year 1997, the Air Force logistics systems tested,
including those supporting aircraft, missiles, and uninstalled
engines, passed auditors' tests and auditors made recommendations
to correct the minimal number of

Page 16 GAO/ T- AIMD/ NSIAD- 99- 171

inaccuracies found during the tests. However, as part of the
fiscal year 1998 financial statement audit work, auditors were
unable to verify the reported data on 8,387 uninstalled engines,
with an estimated value in excess of $8 billion. This occurred
because the Comprehensive Engine Management System (CEMS), which
is used to report data on these assets,

could not separately identify additions and deletions of engines
during the fiscal year a basic control for ensuring accountability
over assets.

Audit tests for fiscal year 1997, using the pass- fail approach
previously discussed, found that the Army's property books
maintained by the local units were generally accurate for major
equipment items held by those units. However, CBS- X, which is
intended to provide Army leadership with worldwide visibility over
the Army's reportable equipment items, has significant accuracy
problems. For example, we have reported 21 that CBS- X was
inaccurate because it (1) does not effectively capture data on
equipment transactions from all Army units, (2) reflects software
errors, and (3) contains transaction posting errors. In addition,
like the Air Force's CEMS, CBS- X does not provide accountability
and control over Army

assets by tracking additions and deletions to asset quantities on
hand. Our January 1998 report included over 20 specific
recommendations, with which the Army generally concurred, directed
towards improving CBS- X accuracy.

Recognizing that CBS- X could not provide effective visibility
over equipment maintained by Army units, the Army used a data call
to complete its financial reporting for fiscal year 1998 of this
equipment and to correct inaccuracies in CBS- X. Army Audit
reported that this data call and other procedures identified 1,
837 items, which included 10 Army reconnaissance aircraft, 81 Tow
missile launchers, and 174 Javelin command- launch units that were
not reported to CBS- X. Because these results were based on only
78 percent of the units reporting, as of October 28, 1998, the
Army continued to follow up with units that had not reported, and
by mid- December, 90 percent of the units had reported. For

example, as a result of these additional units reporting, the Army
identified another 43 reconnaissance aircraft that were not
reported in CBS- X. Short- term Improvements Underway. The Army
and Navy have established working groups to develop plans for
addressing problems related to 21 Army Logistics Systems:
Opportunities to Improve the Accuracy of the Army's Major
Equipment Item System (GAO/AIMD-98-17, January 23, 1998).

Page 17 GAO/ T- AIMD/ NSIAD- 99- 171

national defense asset accountability. In addition, the Air Force
has hired a contractor to assist in implementing accounting
standards by developing definitions for differentiating national
defense assets from general plant, property and equipment assets.

Reported Environmental/ Disposal Liability Significantly
Understated

As we testified last year, DOD has not yet fully implemented the
federal accounting standard 22 that requires it to recognize and
report liabilities associated with environmental cleanup and/ or
disposal of its assets. DOD reported $34 billion in estimated
liabilities in its fiscal year 1998 financial statements for
environmental restoration of active and inactive bases, cleanup of
formerly used sites, and cleanup and disposal of certain chemical
weapons. However, it did not estimate environmental cleanup and
disposal costs associated with military weapon systems (such as
aircraft, missiles, ships, and submarines), and ammunition.
Further, DOD reported only a small portion of the total cost,
estimated to be over $10 billion, for removing unexploded ordnance
from its training ranges. As a result, DOD's undisclosed liability
in this area is likely understated by

tens of billions of dollars. This was a significant factor
contributing to our conclusion that the government's environmental
and disposal liabilities were understated in its financial
statements. 23 The Congress has also recognized the importance of
accumulating and

considering such liability information. The National Defense
Authorization Act for Fiscal Year 1995 requires the Secretary of
Defense to determine, as early in the acquisition process as
feasible, the life- cycle environmental costs for major defense
acquisition programs, including the materials to be used and
methods of disposal. These life- cycle cost estimates are required
before proceeding with a major acquisition since reliable
information on disposal activity can contribute to the ongoing
dialogue on funding comparable weapon systems.

22 Statement of Federal Financial Accounting Standards No. 5,
Accounting for Liabilities of the Federal Government. 23 Financial
Management: Factors to Consider in Estimating Environmental
Liabilities for Removing Hazardous Materials in Nuclear Submarines
and Ships (GAO/AIMD-97-135R, August 7, 1997), Financial
Management: DOD's Liability for Aircraft Disposal Can Be Estimated
(GAO/AIMD-98-9, November 20,

1997), Financial Management: DOD's Liability for the Disposal of
Conventional Ammunition Can Be Estimated (GAO/AIMD-98-32, December
19, 1997), Financial Management: DOD's Liability for Missile
Disposal Can Be Estimated (GAO/AIMD-98-50R, January 7, 1998).

Page 18 GAO/ T- AIMD/ NSIAD- 99- 171

Short- term Improvements Underway. The DOD Comptroller has been
working with the Under Secretary of Defense for Acquisition and
Technology to develop and issue policy guidance regarding the
recognition and reporting of environmental cleanup and asset
disposal liabilities. Final guidance has not been issued to DOD
components because DOD and the

audit community have not reached agreement on when to recognize
nonenvironmental disposal costs. Meanwhile, DOD components have
been tasked with developing plans that identify specific actions,
with expected completion dates, needed to properly estimate and
report liability amounts in accordance with the expected policy
guidance.

Reported Liability for Post- Retirement Health Care Unsupported

Last year, we reported that DOD did not accumulate the data
necessary to accurately estimate its military post- retirement
health benefits liability, and this remained a problem for fiscal
year 1998. Instead of the required cost data, DOD used budget
obligations to calculate its $223 billion estimated liability.
However, budget obligations may not capture the full costs of
treatment facilities or some personnel costs, such as pension
benefits. In addition, the costs represented by budget obligations
differed significantly from the costs in DOD's official medical
cost accounting system, the

Medical Expense and Performance Reporting System, and the two were
not reconcilable. DOD needs reliable cost data to estimate its
future retiree health care liability but, more importantly, to
properly allocate its resources, decide whether to provide
services internally or through an outside party, set third- party
billing rates, and benchmark its health care delivery system with
those of other providers. DOD also did not accumulate current or
complete historical claims data, which are necessary to determine
the type of health care services provided, to support its fiscal
year 1998 calculation; instead, 1994 claims and service data were
used. For outpatient services, which are estimated to comprise
over 40 percent of the dollar value of all claims and services,
data were available from only 15 of 121 military treatment
facilities. Finally, while

DOD relies on data from its Composite Health Care System (CHCS) to
determine the number of retiree outpatient visits to military
treatment facilities, and therefore retiree outpatient costs,
auditors found that CHCS data are often not supported by
documentation in medical records. In addition, auditors found that
visits were double counted and that invalid

telephone conversations were counted as visits. Short- term
Improvements Underway. DOD has made progress in addressing the
issues noted in prior years and has additional improvements

Page 19 GAO/ T- AIMD/ NSIAD- 99- 171

underway or planned to support its reporting in this area. DOD has
(1) established a working group to identify changes needed in its
medical cost accounting system, (2) gathered outpatient data from
all of its military treatment facilities that are now operating,
(3) obtained claims data as recent as fiscal year 1997 to be used
in the calculation, and (4) established a

working group to develop standardized management controls for the
Military Health System's automation systems. DOD also reports that
detailed information on the nature of outpatient visits, including
the actual medical procedures performed, may be available through
a recently implemented DOD outpatient data system to support its
reporting for this area beginning with fiscal year 1999. Auditors
have been and will continue

working with DOD to improve its cost accounting for health care.
Cost of DOD Operations Not Accurate

Our audit of the U. S. government's consolidated financial
statements found that the government was unable to support
significant portions of the more than $1. 8 trillion reported as
the total net cost of government operations.

DOD accounts for about $280 billion of that amount but its
financial management systems do not capture the full cost of its
activities and programs. The accuracy of the department's reported
operating costs was affected by DOD's inability to properly value
and capitalize its facilities and

equipment, properly account for and value its inventory, identify
its environmental and disposal costs, determine its costs
associated with postretirement health care for military personnel,
and reconcile its records with those of Treasury and other
agencies. In addition, DOD does not have the basic, transaction
driven, double- entry accounting systems that are

necessary to properly control assets and accumulate costs. To
effectively, efficiently, and economically manage DOD's programs,
its managers need reliable cost information for (1) evaluating
programs, such as, for example, measuring actual results of
management's actions against expected savings or determining the
effect of long- term liabilities created by current programs, (2)
making economic choices, such as whether to

outsource specific activities and how to improve efficiency
through technology choices, (3) controlling costs for its weapon
systems and business activities funded through working capital
funds, and

Page 20 GAO/ T- AIMD/ NSIAD- 99- 171

(4) measuring performance. As we recently testified, the lack of
reliable, cost- based information hampers DOD in each of these
areas. 24 For example:

 DOD has acknowledged that the lack of a cost accounting system is
the single largest impediment to controlling and managing weapon
systems costs, including costs of acquiring, managing, and
disposing of weapon systems.  DOD is unable to provide actual data
on the costs associated with functions to be considered for A- 76
outsourcing competitions, including

the capital costs associated with its operations.  DOD has long-
standing problems accumulating and reporting the full costs
associated with working capital fund operations, which provide

goods and services in support of the military services. As a
result, there have been large fluctuations in working capital fund
surcharges and, therefore, in the prices charged to customers.  As
part of its Results Act Performance Plan for fiscal year 2000, DOD

has developed 43 unclassified performance measures and indicators
to measure a wide range of activities from force levels to asset
visibility, but these measures and indicators contain few
efficiency measures based on cost. 25

Short- term Improvements Underway. As discussed in earlier
sections, DOD has begun addressing problems with assets and
liabilities that affect the reliability of its reported net costs.
However, developing the needed basic, double- entry accounting
systems and cost accounting systems is a longterm

effort towards which DOD has taken only the first steps.
Reliability of Budget Data Impaired

For fiscal year 1998 reporting, federal accounting standards
required agencies to prepare a new Statement of Budgetary
Resources that would reconcile their reported net costs to budget
information. As part of the DOD fiscal year 1998 financial
statement audit, auditors found several areas in which the systems
and controls over DOD's use of its budgetary resources were
ineffective: (1) DOD does not know the true amount of funds that
are available to obligate and spend in its appropriation accounts

24 DOD Financial Management: More Reliable Information Key to
Assuring Accountability and Managing Defense Operations More
Efficiently (GAO/ T- AIMD/ NSIAD- 99- 145, April 14, 1999).

25 Results Act: DOD's Annual Performance Plan for Fiscal Year 1999
(GAO/NSIAD-98-188R, June 5, 1998).

Page 21 GAO/ T- AIMD/ NSIAD- 99- 171

because obligated balances are not always correct or supported,
(2) reconciliations between DOD and Treasury records are not being
adequately performed, (3) interagency transactions are not being
identified and reconciled, and (4) certain disbursements are not
being recorded

promptly in DOD's accounting records. As a result, the Congress
cannot be assured that DOD did not overexpend its budget authority
for individual appropriation accounts or spend more for specific
programs for which the

Congress established spending limits. Conversely, these fund
control weaknesses also result in the department s inability to
properly identify and manage remaining budget authority, so that
funds the Congress

intended for specific DOD programs may be unused and eventually
cancelled. Some Recorded Obligations Are Incorrect. Auditors found
that recorded obligations included amounts that were no longer
correct or were unsupported. Specifically, at the Air Force, the
only DOD component performing a full financial audit of its
obligated balances, an estimated $4. 3 billion of a $34 billion
balance in obligations was found to be incorrect or unsupported.
For example, obligated balances may not have been

adjusted when goods or services were delivered at a lesser cost or
when contracts were modified. In limited tests, the Naval Audit
Service found that $101 million of $592 million of unliquidated
Navy contract obligations, or approximately 17 percent, were
incorrect. Army auditors also found evidence of unsupported
obligations but were unable to quantify the extent of the problem.

Reconciliations Not Adequately Performed. Comparable to an
individual reconciling his or her checkbook to a bank statement,
DOD's records on its available funds should be reconciled to
Treasury records. An effective reconciliation of DOD's and
Treasury's records requires not only identifying differences but
also determining the appropriate adjustments to resolve the
differences. As important as these reconciliations are to all
federal agencies, they are critical for DOD. This is because
authorized transactions are often charged to DOD's appropriation
accounts by entities not directly responsible for the
appropriations; for example, the Army may write a

check to pay a Navy vendor and cite a Navy appropriation account.
As of September 30, 1998, a comparison of DOD's and Treasury's
records showed that the absolute value of unresolved differences
amounted to $9. 6 billion, of which $7. 4 billion related to
checks disbursed and the remainder to deposits, electronic funds
transfers, and interagency transactions. These unresolved
differences could significantly affect the

Page 22 GAO/ T- AIMD/ NSIAD- 99- 171

status of budget authority available to be obligated and expended.
Differences between DOD and Treasury records can result from one
or more of the following: (1) DOD delays in reporting transactions
to Treasury, (2) Treasury delays in posting transactions to DOD
accounts, and (3) errors or fraud.

Reconciliations are a key control for detecting errors or fraud.
For example, in 1991, an Army disbursing station made a deposit
for nearly $2. 1 million, but the bank mistakenly recorded the
deposit for only

$3, 458.89 the deposit ticket number. Because the Army failed to
reconcile its records with Treasury's records, this error went
undetected until auditors found it during 1998. The bank
subsequently repaid the government the correct deposit amount plus
$640,000 in interest.

DOD's records also show that an estimated $823 million held in
suspense accounts at the end of fiscal year 1998 have not been
properly reported to Treasury and are not reflected in the
differences between Treasury and DOD records noted above. Until
these transactions are posted to the proper appropriation account,
the department will have little assurance that the collections and
adjustments recorded in these accounts are authorized transactions
and that its disbursements do not exceed appropriated amounts.
Moreover, the reported $823 million represents the offsetting
(netting) of collections and adjustments against disbursements,
thus understating the magnitude of the unreported amounts. For
example, audit work for fiscal year 1997 found that, while the
Navy had a net balance

of $464 million in suspense accounts recorded in its records for
fiscal year 1997, the individual transactions, collections as well
as disbursements, totaled about $5.9 billion.

Inter- and Intra- agency Transactions Not Properly Reconciled. In
order to portray DOD as a single entity and the federal government
as a single economic unit, certain transactions that occur between
DOD and its components and DOD and other federal agencies must be
identified and

eliminated. If interagency transactions are not properly
reconciled and eliminated, both the costs and revenues of DOD and
the government are overstated. In addition, agency payables and
receivables, when not reconciled, can lead to agencies exceeding
their total budget resources. For example, a DOD receivable from
another federal agency represents an

increase in net budget authority to DOD. If the agency that owes
DOD does not record a corresponding payable or obligation and the
amounts are not reconciled, then both agencies have overstated
their available budgetary

resources.

Page 23 GAO/ T- AIMD/ NSIAD- 99- 171

To make the fiscal year 1998 consolidated governmentwide financial
statements balance, Treasury had to record a net $24 billion item
on the Statement of Changes in Net Position, which it labeled
unreconciled transactions. This out- of- balance amount was the
net of more than $250 billion of unreconciled transactions both
positive and negative

amounts which Treasury attributed largely to the government's
inability to properly identify and eliminate transactions between
federal government entities. DOD's inability to identify and
eliminate activity and balances resulting from transactions among
DOD entities and DOD and other federal agencies significantly
contributed to this problem.

Recently, the Comptroller requested from all DOD components,
information on transactions between organizational entities and
between the department and other federal agencies. The Comptroller
has stated his intention to use the gathered information to
develop departmentwide guidance and procedures for reporting
elimination entries for the fiscal year 1999 financial statements.
However, DOD components have indicated

that it is unlikely that reliable information will be forthcoming
for both the buyer and the seller side of DOD transactions to
permit intra- DOD and interagency transactions to be properly
eliminated next year.

Disbursements Not Properly Recorded. The auditors' concerns raised
about the reliability of the department's budget information are
further exacerbated by the department's problem disbursements
disbursements that are not properly matched to specific
obligations recorded in the department's records. DOD's continuing
problems with its complex and inefficient payment processes
generally result in transactions not being recorded until long
after they have occurred. This is because DOD's payment and
accounting processes are generally separate functions carried out
by separate offices in different locations without integrated
systems. As a result, accounting for a payment does not occur
until after a disbursing station has issued a payment and has
forwarded the payment information

to the accounting station. Problems in transaction processing
arise when the accounting stations are not provided the
information or documentation that permits them to properly record
transactions.

DOD reported problem disbursements at $17.3 billion as of
September 30, 1998. To the extent that these disbursements cannot
be matched to existing recorded obligations, DOD would be required
to

Page 24 GAO/ T- AIMD/ NSIAD- 99- 171

record a new obligation, which could create an Antideficiency Act
26 violation if the available unobligated balances in the
department's applicable appropriation accounts were insufficient
to cover the amount of the obligation. Overspending/ Cancellation
of Funds Can Occur. Recent audit reports have described the
consequences of the department's inability to keep track of its
obligations and expenditures. Specifically, auditors found several

instances in which the department may have spent more than
authorized amounts. For example, the Air Force Audit Agency
reported that the Air Force's Depot Maintenance Activity a
component of one of the department's working capital funds may
have incurred obligations of $1. 1 billion in excess of available
budgetary resources as of September 30, 1998. In addition, as we
previously reported, 27 according to

Navy records, as of September 30, 1997, obligations in 29 canceled
and expired appropriations may have exceeded available budget
authority by a total of $290 million.

DOD's inability to properly identify and manage its remaining
budget authority can result in funds that the Congress intended
for specific DOD programs being unused and eventually canceled.
For example, at the end of fiscal year 1998, the department had
$4.3 billion in expired budget authority that canceled.

Short- term Improvements Underway. DOD has not yet developed a
short- term action plan to address problems with incorrect and
unsupported obligation data that were identified as a result of
auditing this information for the first time as part of the fiscal
year 1998 financial statement audit. However, DOD has acknowledged
that these issues cannot be resolved without the underlying
process and systems improvements identified in its long- term
financial management improvement strategy. DOD has a number of
initiatives to address problem disbursements, including (1)
implementation of a single cash accountability system that

will be used to report disbursements to the U. S. Treasury and 26
The Antideficiency Act provides that an officer or employee of the
United States government may not "make or authorize an expenditure
or obligation exceeding an amount available in an appropriation or
fund" or enter into a contract or other obligation for the payment
of money "before an appropriation is made." (31 U. S. C. 1341 (a))

27 Financial Management: Problems in Accounting for Navy
Transactions Impair Fund Control and Financial Reporting
(GAO/AIMD-99-19, January 19, 1999).

Page 25 GAO/ T- AIMD/ NSIAD- 99- 171

(2) prevalidation. The prevalidation initiative requires that
obligations be matched to disbursements before the payment is
made. In addition, DOD has been taking actions to improve its
processes for reconciling its records with those of Treasury. The
Defense Finance and Accounting Service (DFAS) has drafted
standardized procedures for its centers to follow in reconciling
DOD and Treasury accounts monthly, including researching and
resolving any differences. DFAS centers are also

required to begin reconciling balances in budget clearing accounts
and suspense accounts with the transaction- level detail
maintained for each military service.

Extent of Improper Payments Not Fully Determinable

While our work continues to identify numerous examples of improper
and unsupported DOD payments, such as the problem disbursement
issues previously discussed, the true magnitude of DOD's payment
problems is unknown. Significant weaknesses have been identified
in contractor and

vendor payments as well as health care provider payments. Improper
Contract and Vendor Payments. We have long reported on DOD's
problems in making accurate payments to defense contractors. 28
Our work continues to identify problems with overpayments and
erroneous payments to contractors. For example, in the 5 fiscal
years 1994 through

1998, defense contractors returned about $4.6 billion to the DFAS
Columbus Center, including $746 million in fiscal year 1998, due
to overpayments caused by contract administration actions and
payment processing errors.

In compiling the Navy's fiscal year 1998 financial statements,
DFAS identified a negative (debit) accounts payable balance of
$3.6 billion. Typically, such negative accounts payable balances
would represent duplicate or overpayments to vendors or
contractors; however, DFAS did

not conduct an investigation to determine the cause of this
negative balance. Instead, DFAS and the Navy made unsupported
adjustments of more than $6 billion to bring the accounts payable
balance to the reported credit balance of $2.4 billion.

28 DOD Procurement: Funds Returned by Defense Contractors
(GAO/NSIAD-98-46R, October 28, 1997) and DOD Procurement: Millions
in Overpayments Returned by DOD Contractors (GAO/NSIAD-94-106,
March 14, 1994).

Page 26 GAO/ T- AIMD/ NSIAD- 99- 171

In addition to the amounts voluntarily returned by defense
contractors, the Defense Contract Audit Agency (DCAA) also
identifies funds for recovery from major defense contractors.
Defense contractors submit bills for goods and services to DOD for
payment. Prior to the submission of these bills, the contractor
certifies that the bills are proper and payment is warranted. DOD
pays these bills pending an audit by DCAA. DCAA contract audits
determine whether the billed amounts comply with prescribed
overhead

rates, contract ceilings, or certain Federal Acquisition
Regulations. If DCAA determines that the amount billed and paid
was not warranted, DCAA disallows the costs and DOD recovers the
funds. For fiscal years 1994 through 1998, the Defense Contract
Audit Agency disallowed $6. 8 billion$ 1 billion or more per year
in certified bills from defense contractors.

DOD also has problems with improper and fraudulent vendor payments
payments for goods and support services.

 An August 1998 Naval Audit Service report 29 identified $6. 2
million in duplicate and erroneous Navy vendor payments out of
$369.2 million tested. Naval Audit concluded that these improper
payments were caused by a lack of written policies and procedures
for certifying and processing vendor invoices, certifying officer
errors, accounting technician data input errors, and payment by
two different paying activities for the same goods and/ or
services.  In September 1998, we reported 30 on internal control
and systems

weaknesses that contributed to two cases of Air Force vendor
payment fraud one resulting in the embezzlement of over $500,000
and the other resulting in the embezzlement of $435,000 and
attempted theft of over

$500,000. We found that the lack of segregation of duties and
other control weaknesses, such as weak controls over remittance
addresses, created an environment where employees were given broad
authority and the capability, without compensating controls, to
perform functions that should have been performed by separate
individuals under proper supervision. We also found that over
1,800 DFAS and Air Force employees had a level of access to the
vendor payment system that allowed them to submit all the
information necessary to create

fraudulent and improper payments. 29 Duplicate and Erroneous
Payments (Naval Audit Service Report No. 041- 98, August 7, 1998).
30 Financial Management: Improvements Needed in Air Force Vendor
Payment Systems and Controls (GAO/AIMD-98-274 and related
testimony GAO/T-AIMD-98-308, September 28, 1998).

Page 27 GAO/ T- AIMD/ NSIAD- 99- 171

Health Care Fraud. In February 1999, the DOD IG reported 31 that
the Defense Criminal Investigative Service (DCIS) had about 500
open criminal investigations on health care fraud. DCIS efforts
over the last 5 fiscal years

have resulted in 343 convictions and $1 billion in recoveries.
Generally, the health care fraud cases investigated by DCIS cover
defective and fraudulent claims the same issues as Medicare fraud.
Under DOD's fee- for- services health care programs, most provider
fraud was accomplished through ordering and billing for
unnecessary care, laboratory tests, durable medical equipment, or
x- rays. For example, a pharmaceutical company submitted greatly
inflated insurance billings

through the unbundling of clinical test profiles, fabricating test
codes, and double billing for tests not performed. The company
agreed to pay $325 million to resolve issues of civil false claims
to Medicare and military and other federal and state health care
programs.

Short- term Improvements Underway. Due to the seriousness of DOD
vendor and contractor payment systems and control weaknesses, DOD
has initiated corrective actions to strengthen system and internal
controls over its payment operations. In the area of contractor
overpayments, DOD has

developed procedures intended to help identify and collect such
amounts promptly. Other actions include revising internal control
guidance to better assure separation of duties for all its
financial operations and limiting access to payment and accounting
systems. To address health care fraud,

DCIS is participating in national Department of Justice- sponsored
working groups to identify emerging trends in health care fraud
and coordinate activities of members conducting investigations
involving new schemes in managed care fraud.

Critical Areas to Be Addressed to Meet Financial Reform Goals

On May 26, 1998, the President directed the head of each agency
designated by OMB to identify corrective actions to resolve
financial reporting deficiencies and to make quarterly progress
reports to OMB. The administration's goal is to have individual
agencies, as well as the government as a whole, complete audits
and gain unqualified opinions on their financial statements. In
response, the DOD Comptroller has been developing and implementing
short- term steps in collaboration with DOD's functional and audit
communities, OMB, and GAO, as discussed in the previous sections.

31 Statement of DOD Inspector General on Department of Defense
Vulnerabilities to Waste, Fraud and Abuse, Before the Subcommittee
on National Security, Veterans Affairs, and International
Relations, Committee on Government Reform (February 25, 1999).

Page 28 GAO/ T- AIMD/ NSIAD- 99- 171

However, an unqualified audit opinion, while certainly important,
is not an end in itself. Efforts to obtain reliable year- end data
that are not backed up by fundamental improvements in DOD's
underlying financial management systems and operations to support
ongoing program management and

accountability, will not achieve the intended results of the Chief
Financial Officers Act fundamentally reforming financial
operations to enable the production of reliable financial
management information supporting day- to- day decision- making.
In this context, it is essential that DOD also establish a well-
trained cadre of financial management personnel, a short- term
improvement action that will help address the financial management
weaknesses previously identified as well as help ensure that

the improvement actions cited are implemented as efficiently and
effectively as possible. Longer term actions addressed in DOD's
first Biennial Plan also will be essential for the department to
prepare reliable

financial statements as well as to make planned major financial
management system improvements throughout DOD's large and complex
organization. Enhanced Training for

Financial Management Personnel

One of the key issues facing DOD is the need to ensure that its
financial management personnel have the knowledge and skills
required to reliably carry out the basic transaction processing
activities that were previously discussed throughout DOD's large
and complex organization. Our work 32 has shown that state
governments and private sector organizations place a

strong emphasis on training as a means of upgrading financial
workforce knowledge of accounting and financial management
requirements. In contrast, the results of a survey we conducted of
key DOD financial managers showed that over half of those surveyed
had received no

financial- or accounting- related training during 1995 and 1996.
33 DOD leadership has acknowledged that it needs to improve the
capabilities of its financial managers, and DFAS is developing a
program intended to identify the kinds of skills and developmental
activities needed to improve the competencies of its financial
personnel. We have recommended that DOD modify its planned program
to better ensure that financial

management personnel throughout the department receive necessary
32 Financial Management: Profile of Financial Personnel in Large
Private Sector Corporations and State Governments (GAO/AIMD-98-34,
January 2, 1998). 33 Financial Management: Training of DOD
Financial Managers Could Be Enhanced (GAO/AIMD-98-126, June 24,
1998).

Page 29 GAO/ T- AIMD/ NSIAD- 99- 171

training, including establishing minimum training requirements
emphasizing technical accounting and related financial management
courses. This recommended approach is similar in scope to the
program recently put in place to improve the skills of the
department's acquisition workforce.

Updates to Long- term Improvement Plan Need to Incorporate
Additional Elements

The National Defense Authorization Act for Fiscal Year 1998
(Public Law 105- 85) required the Secretary of Defense to
biennially submit to the Congress a strategic plan for the
improvement of financial management within DOD. The plans are to
address all aspects of financial management within DOD, including
the finance systems, accounting systems, and data feeder systems
that support its financial functions, including the

department's concept of operations for financial management. DOD
submitted its first Biennial Plan to the Congress on October 26,
1998. The department has committed to update the plan annually
rather than biennially as required by law. This first plan
presents DOD's concept of operations, the current environment, and
the transition plan intended to describe the goals of the
department for achieving the target financial management
environment and to identify the strategies and corrective

actions necessary to move through the transition. It also provides
information on the specific financial management improvement
initiatives intended to implement the transition plan.

We have analyzed DOD's first plan and, in January 1999, reported
34 the results of our analysis to the Senate and House Armed
Services Committees. As we stated in our report, DOD's plan
represents a great deal of effort and provides a first- ever
vision of the department's future financial management
environment. In developing this overall concept of its envisioned
financial management environment, DOD has taken an

important first step in improving its financial management
operations. The department's plan also represents a significant
landmark because it includes, for the first time, a discussion of
the importance of the

programmatic functions of personnel, acquisition, property
management, and inventory management to the department's ability
to support consistent, accurate information flows to all
information users. In addition, DOD's plan includes an extensive
array of initiatives intended to move the

34 Financial Management: Analysis of DOD's First Biennial
Financial Management Improvement Plan (GAO/AIMD-99-44, January 29,
1999).

Page 30 GAO/ T- AIMD/ NSIAD- 99- 171

department from its current state to its envisioned financial
management environment. If effectively implemented, the
initiatives discussed should result in improving DOD's financial
management operations. However, we also reported that
modifications to the plan are needed if DOD is to achieve the full
range of reforms needed. Specifically, the department's planned
update should include the following.

 A revised concept of operations. A revised concept of operations
needs to reflect, at a high level, the full range of the
department's financial management operations, including (1) how it
will support budget formulation and (2) how its financial
management operations will effectively support not only financial
reporting, but also asset accountability and control. In
particular, including the role of department's Planning,
Programming, and Budgeting System (PPBS) in its concept of
operations will be essential to the development of a fully
integrated financial management system. Such an integrated system
will help ensure that budgets consider financial implications and
that policy decisions are based on sound financial information.
Shared servicing and outsourcing strategies. Many leading
organizations have used shared servicing strategies built on a
three- staged process

focused on (1) consolidation, (2) standardization, and (3)
reengineering financial operations to reduce the cost of, and
improve control over, day- to- day accounting operations. With
respect to outsourcing, our October 1997 report 35 on the results
of our survey of selected private sector and nonfederal public
organizations' use of outsourcing showed that the following
factors were fundamental to achieving projected cost savings,
process cycle time reductions, and other expected financial

management improvements: (1) developing a structured approach for
identifying functional areas to be considered for outsourcing, (2)
identifying the criteria to be used in determining whether or not
to outsource a specific function, and (3) establishing effective
controls to oversee outsourcing vendors.

 Clarification of Transition Plan. The transition plan needs to
clarify the role that the 200 planned improvement initiatives will
play in bridging the gap between the current environment and the
envisioned future

35 Financial Management: Outsourcing of Finance and Accounting
Functions (GAO/ AIMD/ NSIAD- 98- 43, October 17, 1997).

Page 31 GAO/ T- AIMD/ NSIAD- 99- 171

concept of operations and the steps the department will take to
ensure that it will build reliability into the data provided by
its feeder systems.  Concepts of Clinger- Cohen. The plan should
include the concepts established in the Clinger- Cohen Act (40 U.
S. C. 1401) for effectively implementing the technology
improvement initiatives contained in the

plan, including establishing processes to help ensure that such
initiatives are implemented at acceptable costs, within reasonable
and expected time frames, and are contributing to tangible,
observable improvements in mission performance.

While these problems must be addressed over the long term, we
recognize that in the short term, the department still must focus
on the Year 2000 computing challenge. 36 However, DOD now has a
unique opportunity to capitalize on the valuable lessons it has
learned in addressing the Year 2000

issue and apply them to its overall management of financial
management and information technology. Doing so can enable the
department to acquire high performing, cost- effective systems and
to avoid repeating costly mistakes. For example:

 Without the continuing, active involvement of top- level
managers, major management reform efforts cannot succeed.
Maintaining a reliable, up- to- date inventory of systems is
fundamental to well- managed financial management and information
technology

programs.  DOD has spent 3 years identifying system interfaces and
implementing controls at the system level that should help prevent
future data

exchange problems in its systems and resolve conflicts between
interface partners.  Once the Year 2000 effort is completed, DOD
can use the operational and functional evaluations to further
identify and retire duplicative and

unproductive systems. The Secretary of Defense has expressed the
department's commitment to financial management reform. He
recently announced that he was expanding his Defense Reform
Initiative to include financial management. Achieving effective
reform will entail the involvement and dedication of top
management. Working through the Defense Management Council or a
similar structure of the department's high- ranking leadership,
such as that 36 Year 2000 Computing Crisis: Defense Has Made
Progress, But Additional Management Controls Are Needed (GAO/T-
AIMD-99-101, March 2, 1999).

Page 32 GAO/ T- AIMD/ NSIAD- 99- 171

used to address the Year 2000 computing crisis, is a key factor in
achieving major change within the organization.

In closing, Mr. Chairman, sustained congressional attention to
governmentwide financial management reform, such as that provided
by this hearing, will be critical to instilling expected
accountability in DOD and other agencies across government.

Mr. Chairman, this concludes my statement. We will be glad to
answer any questions you or the other Members of the Subcommittee
may have at this time.

Page 33 GAO/ T- AIMD/ NSIAD- 99- 171

Page 34 GAO/ T- AIMD/ NSIAD- 99- 171

Page 35 GAO/ T- AIMD/ NSIAD- 99- 171

Related GAO Products Property, Plant and Equipment

Financial Management: Accounting Implications of DOD's Facilities
Demolition Programs (GAO/AIMD-98-194R, August 28, 1998). Financial
Audit: DOD Mission Asset Existence Verification (GAO/AIMD-98-196R,
May 29, 1998). Army Logistics Systems: Opportunities to Improve
the Accuracy of the Army's Major Equipment Item System (GAO/AIMD-
98-17, January 23, 1998). Financial Management: DOD's Approach to
Financial Control Over Property Needs Structure (GAO/AIMD-97-150,
September 30, 1997).

Financial Management: Air Force Budget Request Could Be Enhanced
with More Complete Aircraft Data (GAO/AIMD-97-137R, August 21,
1997). Financial Management: Accuracy of Air Force Aircraft and
Missile Data Could Be Improved (GAO/AIMD-97-141R, August 15,
1997). CFO Act Financial Audits: Navy Plant Property Accounting
and Reporting Is Unreliable (GAO/AIMD-96-65, July 8, 1996).

Inventory Defense Inventory: Status of Inventory and Purchases and
Their Relationship to Current Needs (GAO/NSIAD-99-60, April 16,
1999). Defense Inventory: DOD Could Improve Total Asset Visibility
Initiative With Results Act Framework (GAO/NSIAD-99-40, April 12,
1999). Defense Inventory: Navy's Procedures for Controlling In-
Transit Items Are Not Being Followed (GAO/NSIAD-99-61, March 31,
1999). Defense Inventory: Continuing Challenges in Managing
Inventories and Avoiding Adverse Operational Effects (GAO/NSIAD-
99-83, February 25, 1999).

Department of Defense In- Transit Inventory (GAO/NSIAD-98-80R,
February 27, 1998).

Related GAO Products Page 36 GAO/ T- AIMD/ NSIAD- 99- 171

Financial Reporting: DOD's Fiscal Year 1996 Financial Statements
Inventory Reporting Does Not Meet Standards (GAO/AIMD-98-16,
December 24, 1997). Defense Inventory: Inadequate Controls Over
Air Force Suspended Stocks (GAO/NSIAD-98-29, December 22, 1997).
Defense Logistics: Much of the Inventory Exceeds Current Needs
(GAO/NSIAD-97-71, February 28, 1997).

Defense Inventory: Spare and Repair Parts Inventory Costs Can Be
Reduced (GAO/NSIAD-97-47, January 17, 1997). Navy Financial
Management: Improved Management of Operating Materials and
Supplies Could Yield Significant Savings (GAO/AIMD-96-94, August
16, 1996).

Defense Ammunition: Significant Problems Left Unattended Will Get
Worse (GAO/NSIAD-96-129, June 21, 1996). Environmental/ Disposal
Liability

Financial Management: DOD's Liability for Missile Disposal Can Be
Estimated (GAO/AIMD-98-50R, January 7, 1998).

Financial Management: DOD's Liability for the Disposal of
Conventional Ammunition Can Be Estimated (GAO/AIMD-98-32, December
19, 1997). Financial Management: DOD's Liability for Aircraft
Disposal Can Be Estimated (GAO/AIMD-98-9, November 20, 1997).
Financial Management: Factors to Consider in Estimating
Environmental Liabilities for Removing Hazardous Materials in
Nuclear Submarines and Ships (GAO/AIMD-97-135R, August 7, 1997).

Disbursements Financial Management: Problems in Accounting for
Navy Transactions Impair Funds Control and Financial Reporting
(GAO/AIMD-99-19, January 19, 1999).

Related GAO Products Page 37 GAO/ T- AIMD/ NSIAD- 99- 171

Internal Controls: Reporting Air Force Vendor Payment System
Weaknesses Under the Federal Managers' Financial Integrity Act
(GAO/AIMD-99-33R, December 21, 1998). Financial Management:
Improvements Needed in Air Force Vendor Payment Systems and
Controls (GAO/AIMD-98-274, September 28, 1998 and GAO/T-AIMD-98-
308, September 28, 1998). Financial Management: Seven DOD
Initiatives That Affect the Contract Payment Process (GAO/AIMD-98-
40, January 30, 1998).

DOD Procurement: Funds Returned by Defense Contractors (GAO/NSIAD-
98-46R, October 28, 1997). Financial Management: DOD Progress
Payment Distribution Procedures (GAO/AIMD-97-107R, June 21, 1997).
Financial Management: The Prompt Payment Act and DOD Problem
Disbursements (GAO/AIMD-97-71, May 23, 1997). Financial
Management: Improved Reporting Needed for DOD Problem
Disbursements (GAO/AIMD-97-59, May 1, 1997). DOD Problem
Disbursements Contract Modifications Not Properly Recorded in
Payment System (GAO/AIMD-97-69R, April 3, 1997). Financial
Management: Improved Management Needed for DOD Disbursement
Process Reforms (GAO/AIMD-97-45, March 31, 1997). DOD Problem
Disbursements (GAO/AIMD-97-36R, February 20, 1997). Navy Anti-
Deficiency Act Training (GAO/AIMD-96-53R, April 12, 1996). Navy
Negative Undelivered Orders (GAO/AIMD-96-37R, January 12, 1996).

Personnel Financial Management: Training of DOD Financial Managers
Could Be Enhanced (GAO/AIMD-98-126, June 24, 1998). Financial
Management: Profile of Defense Finance and Accounting Service
Financial Managers (GAO/AIMD-98-133, May 28, 1998).

Related GAO Products Page 38 GAO/ T- AIMD/ NSIAD- 99- 171

Financial Management: Profile of Navy and Marine Corps Financial
Managers (GAO/AIMD-98-86, April 15, 1998). Financial Management:
Profile of Army Financial Managers (GAO/AIMD-98-58, February 25,
1998). Financial Management: Profile of Financial Personnel in
Large Private Sector Corporations and State Governments (GAO/AIMD-
98-34, January 2, 1998). Financial Management: Profile of Air
Force Financial Managers (GAO/AIMD-98-4, November 28, 1997).

Financial Management: Outsourcing Finance and Accounting (GAO/
AIMD/ NSIAD- 98- 43, October 17, 1997). Financial Management:
Profile of DOD Comptroller/ CFO Financial Managers (GAO/AIMD-97-
97, June 27, 1997). Financial Management: Opportunities to Improve
Experience and Training of Key Navy Comptrollers (GAO/AIMD-97-58,
May 5, 1997). Financial Management: An Overview of Finance and
Accounting Activities in DOD (GAO/ AIMD/ NSIAD- 61, February 19,
1997). DFAS Hiring Opportunities (GAO/AIMD-96-916R, July 18,
1996).

Systems Year 2000 Computing Crisis: Defense Has Made Progress, But
Additional Management Controls Are Needed (GAO/T-AIMD-99-101,
March 2, 1999).

Financial Management: Comments on DFAS's Draft Federal Accounting
Standards and Requirements (GAO/AIMD-97-108R, June 13, 1997).
Financial Management: DOD Inventory of Financial Management
Systems Is Incomplete (GAO/AIMD-97-29, January 31, 1997). DOD
Accounting Systems: Efforts to Improve System for Navy Need
Structure (GAO/AIMD-96-99, September 30, 1996). Information
Security: Computer Attacks at Department of Defense Pose
Increasing Risks (GAO/AIMD-96-84, May 22, 1996).

Related GAO Products Page 39 GAO/ T- AIMD/ NSIAD- 99- 171

Other DOD Financial Management: More Reliable Information Key to
Assuring Accountability and Managing Defense Operations More
Efficiently (GAO/ T- AIMD/ NSIAD- 99- 145, April 14, 1999).
Financial Audit: 1998 Financial Report of the United States
Government (GAO/AIMD-99-130, March 31, 1999). Auditing the
Nation's Finances: Fiscal Year 1998 Results Highlight Major Issues
Needing Resolution (GAO/T-AIMD-99-131, March 31, 1999). Financial
Management: Analysis of DOD's First Biennial Financial Management
Improvement Plan (GAO/AIMD-99-44, January 29, 1999). Major
Management Challenges and Program Risks: A Governmentwide
Perspective (GAO/OGC-99-1, January 1999). Major Management
Challenges and Program Risks: Department of Defense (GAO/OGC-99-4,
January 1999). Results Act: DOD's Annual Performance Plan for
Fiscal Year 1999 (GAO/NSIAD-98-188R, June 5, 1998). Department of
Defense: Financial Audits Highlight Continuing Challenges to
Correct Serious Financial Management Problems (GAO/ T- AIMD/
NSIAD- 98- 158, April 16, 1998).

Financial Audit: 1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, March 31, 1998). CFO
Act Financial Audits: Programmatic and Budgetary Implications of
Navy Financial Data Deficiencies (GAO/AIMD-98-56, March 16, 1998).
Defense Management: Challenges Facing DOD in Implementing Defense
Reform Initiatives (GAO/ T- AIMD/ NSIAD- 98- 122, March 13, 1998).
Financial Management: Issues To Be Considered by DOD in Developing
Guidance for Disclosing Deferred Maintenance on Ships (GAO/AIMD-
98-46, February 6, 1998).

Related GAO Products Page 40 GAO/ T- AIMD/ NSIAD- 99- 171

Financial Management: Issues to Be Considered by DOD in Developing
Guidance for Disclosing Deferred Maintenance on Aircraft
(GAO/AIMD-98-25, December 30, 1997). Financial Management: DOD
Needs to Expedite Plans to Implement Deferred Maintenance
Accounting Standard (GAO/AIMD-97-159R, September 30, 1997). DOD
High- Risk Areas: Eliminating Underlying Causes Will Avoid
Billions of Dollars in Waste (GAO/ T- AIMD/ NSIAD- 143, May 1,
1997).

High- Risk Area: Actions Needed to Solve Pressing Management
Problems (GAO/ T- AIMD/ GGD- 97- 60, March 5, 1997). High- Risk
Series: Benefits to Be Gained by Continued Emphasis on Addressing
High- Risk Areas (GAO/T-AIMD-97-54, March 4, 1997). High- Risk
Area: Update on Progress and Remaining Challenges (GAO/T-HR-97-22,
February 13, 1997). High- Risk Series: Defense Inventory
Management (GAO/HR-97-5, February 1997). High- Risk Series:
Defense Financial Management (GAO/HR-97-3, February 1997).

CFO Act Financial Audits: Increased Attention Must Be Given to
Preparing Navy's Financial Reports (GAO/AIMD-96-7, March 27,
1996). High- Risk Series: An Overview (GAO/HR-95-1, February
1995).

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