DOD Financial Management
GAO-12-501T, Mar 22, 2012
GAO-12-501T, Mar 22, 2012
What GAO Found
We found that the Army could not readily identify a complete population
of Army payroll accounts for fiscal year 2010, given existing procedures and
systems. The
Army and DFAS-IN did not have an effective, repeatable process for identifying
the population of active duty payroll accounts. In
addition, the Defense Manpower Data Center (DMDC), DOD’s central source for
personnel information, did not have an effective process for comparing military
pay account files to military personnel files to identify a valid population of
military payroll transactions. For example, it took 3 months and repeated
attempts before DFAS-IN could provide a population of service members who
received active duty Army military pay in fiscal year 2010.
Similarly, it took DMDC over 2 months to compare the total number of fiscal
year 2010 active duty payroll accounts to its database of personnel files.
"Standards for Internal Control in the Federal Government" requires
all transactions and other significant events to be clearly documented and the
documentation readily available for examination. DOD’s "Financial
Improvement and Audit Readiness (FIAR) Guidance" sets out key tasks
essential to achieving audit readiness, including defining and identifying the
population of transactions for audit purposes. The "GAO/PCIE Financial
Audit Manual" provides guidance concerning typical control activities,
such as independent checks on the validity, accuracy, and completeness of
computer-processed data. Without effective processes for identifying a complete
population of Army military pay records and comparing military pay accounts to
personnel records, the Army will have difficulty meeting DOD’s 2014 Statement
of Budgetary Resources audit readiness goal and its 2017 goal for a complete
set of auditable financial statements.
We
identified deficiencies in DFAS-IN and Army processes and systems for readily
identifying and providing documentation that supports payments for Army
military payroll. First, DFAS-IN
had difficulty retrieving and providing usable Leave and Earnings Statement
files for our sample items. Second, the Army and DFAS-IN were able to provide
complete documentation for 2 of our 250 military pay account sample items,
partial support for 3 sample items, but no support for the remaining 245 sample
items. Because the Army was unable to provide documents to support
reported payroll amounts for our sample of 250 soldier pay accounts, we were
unable to determine whether the Army’s payroll accounts were valid and we could
not verify the accuracy of payments and reported active duty military payroll.
Further, because military payroll is significant to the financial statements,
the Army will not be able to pass an audit of its Statement of Budgetary
Resources without resolving these control weaknesses.
Why GAO Did This
Study
This testimony discusses our work
on the significant challenges the Army faces in achieving audit readiness for
its military pay. The Army’s military pay is material to the Army’s financial
statements. The Chief Financial Officers Act of 1990, as amended, established
requirements for 24 agencies, including the Department of Defense (DOD), to
prepare annual financial statements and have them audited. Further, the
National Defense Authorization Act (NDAA) for Fiscal Year 2010 mandated that
DOD be prepared to validate (certify) that its consolidated financial
statements are ready for audit by September 30, 2017. On October 13, 2011, the
Secretary of Defense directed the department to achieve audit readiness for the
Statement of Budgetary Resources, one of the principal financial statements, by
the end of fiscal year 2014 as an interim milestone for DOD to meet the legal
requirement in the NDAA for Fiscal Year 2010 to achieve full audit readiness
for all DOD financial statements by 2017.
The Army’s active duty military payroll, comprising about 20 percent of
its reported $233.8 billion in fiscal year 2010 net outlays, is significant to
both Army and DOD efforts to meet DOD’s 2014 Statement of Budgetary Resources
auditability goal as well as the mandate to achieve full audit readiness for
all DOD financial statements by 2017. For years, we and others have reported continuing
deficiencies with the Army’s military payroll processes and controls. These
reported continuing deficiencies in Army payroll processes and controls have
called into question the extent to which the Army’s military payroll
transactions are valid and accurate, and whether the Army’s military payroll is
auditable. Further, other military components, such as the Air Force and the
Navy, share some of the same process and system risks as the Army.
Today's remarks are based on our report,
"DOD Financial Management: The Army Faces Significant Challenges in
Achieving Audit Readiness for Its Military Pay," which is being released today.
The testimony focuses on problems that impede the Army’s ability to (1)
identify a valid population of military payroll transactions and (2) provide
documentation that supports the validity and accuracy of payments for Army
military payroll.
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