Department of Defense

Office of the Inspector General -- Audit
Department-Level Accounting Entries for FY 1999 -- Report No. D-2000-179 (PDF)
Date: August 18, 2000

To obtain copies of Office of the Assistant Inspector General for Auditing Reports, contact the Secondary Reports Distribution Unit of the Analysis, Planning and Technical Support Directorate at (703) 604-8937 or FAX (703) 604-8932.

The Chief Financial Officers Act of 1990 as amended by the Federal Financial Management Act of 1994, requires DoD to prepare annual audited financial statements. This is the third in a series of reports related to the DoD Agency-Wide financial statements for FY 1999. In Inspector General, DoD, Report No. D-2000-091, "Internal Controls and Compliance With Laws and Regulations for the DoD Agency-Wide Financial Statements for FY 1999," February 25, 2000, we identified $6.9 trillion of department-level accounting entries. An additional $0.7 trillion identified after the issuance of the first report, bringing the total to $7.6 trillion. On February 16, 2000, we issued a disclaimer of opinion on the DoD Agency-Wide financial statements for FY 1999.

The Military Departments, Defense agencies, and the Defense Finance and Accounting Service (DFAS) are responsible for the reliable processing of financial management data reported on the DoD financial statements. When DoD Components input data into the finance and accounting systems, the reliability of the data as they are further processed becomes the responsibility of DFAS. The DFAS centers provide finance and accounting support to DoD organizations, including maintaining department-level accounting records and preparing financial statements. The DFAS centers use amounts reported through the accounting systems and information collected from data calls and from other sources to compile the annual financial statements for DoD. The compilation process is complicated because much of the financial data submitted to the DFAS centers are not generated by integrated, transaction-driven, general ledger accounting systems.

Our overall objective was to determine whether the DoD Agency-Wide financial statements for FY 1999 were prepared in accordance with Office of Management and Budget Bulletin No. 97-01, "Form and Content of Agency Financial Statements," October 16, 1996, as amended January 2000. In support of the objective, we identified the department-level accounting entries made to the DoD Component financial data that were used to prepare departmental reports and the DoD financial statements for FY 1999. We also reviewed the management control program as it related to the audit objective. This audit was originally announced under Project No. 0FI-2115.04.

The DFAS centers processed approximately $7.6 trillion in department-level accounting entries to DoD Component financial data used to prepare departmental reports and DoD financial statements for FY 1999. Of the $7.6 trillion in department-level accounting entries, $3.5 trillion were supported with proper research, reconciliation, and audit trails. However, department-level accounting entries of $2.3 trillion were made to force financial data to agree with various sources of financial data without adequate research and reconciliation, were made to force buyer and seller data to agree in preparation for eliminating entries, did not contain adequate documentation and audit trails, or did not follow accounting principles. We identified but did not have adequate time or staff to review another $1.8 trillion in department-level accounting entries. The DoD Agency-Wide financial statements for FY 1999 were subject to a high risk of material misstatement. The sheer magnitude of department-level accounting entries required to compile the DoD financial statements for FY 1999 highlights the difficulties and problems that DoD encountered in attempting to produce accurate and reliable financial information using existing systems and processes. The largest number of department-level accounting entries were made for the Navy General Fund because DFAS Cleveland Center processed both monthly and year-end department-level accounting entries for the Navy General Fund. For details of the audit results, see the Finding section of the report. See Appendix A for details of the management control program as it relates to the processing of department-level accounting entries.

We recommend that the Under Secretary of Defense (Comptroller) establish an implementation strategy to eliminate unsupported department-level accounting entries and to minimize other department-level accounting entries to the data used to compile the DoD financial statements.

The Under Secretary of Defense (Comptroller) agreed that DoD lacked integrated financial and non-financial feeder systems that would minimize the need for department-level accounting entries to prepare financial statements. He stated that DoD has drafted an implementation strategy to address the issue of unsupported accounting entries during the preparation of financial statements. He also stated that the $1.4 trillion of accounting entries for the Navy General Fund were related to Marine Corps budgetary data that are entered and later reversed, and the data have no impact on the official Navy General Fund financial statements. See the Finding section for a discussion of management comments, and the Management Comments section for the text of the comments.

The Under Secretary of Defense (Comptroller) comments on the recommendation are responsive, but the statement regarding the $1.4 trillion of Navy General Fund accounting entries is incorrect. Only approximately $948 billion of the accounting entries were related to Marine Corps appropriations, and not all of the accounting entries affecting Marine Corps appropriations came from budgetary data. DFAS Cleveland Center was given the opportunity to provide evidence documenting the reversal of the accounting entries and was not able to do so. Our audit of accounting entries for the FY 2000 financial reporting cycle will include a more detailed review of the process the DFAS Cleveland Center uses to make accounting entries for the Marine Corps budgetary data.

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