oversight

Financial Management: Problems in Accounting for DOD Disbursements

Published by the Government Accountability Office on 1990-11-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                                                                                 [
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Accounting and Financial
                   Management Division

                   B-239403

                   November 9,199O

                   The Honorable Richard B. Cheney
                   The Secretary of Defense

                   Dear Mr. Secretary:

                   Recognizing the need to update and improve its financial management
                   operations and standardize its accounting information, the Department
                   of Defense (DOD) has recently initiated a Department-wide management
                    improvement project-the Corporate Information Management initia-
                   tive (CIM), which includes a financial operations functional work group.
                   DOD was considering another initiative independent of the CIM-the
                   Single Numbering project- also aimed at improving the consistency of
                   data in DOD financial management systems. The Single Numbering pro-
                   ject has been suspended due to resource constraints but is expected to be
                   pursued commencing January 1991. These projects, if implemented as
                   currently envisioned, will help solve DoD’S current problems in reliably
                   matching cross-disbursements with related obligations. Cross-
                   disbursements are those disbursements made by one organization on
                   behalf of another.

                   Earlier GAO reviews of payments made under procurement contracts by
                   the Defense Contract Administration Service Regions (DCASRS) for the
                   military services disclosed problems in matching cross-disbursements
                   with related obligations. The problems have been caused in large part by
                   the military services’ failure to use uniform procurement information,
                   including accounting and financial data.


                   We found that the services’ failure to use uniform financial information
Results in Brief   causes serious problems in accounting for cross-disbursements. The use
                   of nonstandard data makes the processing of the services’ cross-
                   disbursement transactions extremely complex and results in clerical
                   processing errors. Incomplete or erroneous cross-disbursement informa-
                   tion results in millions of dollars of disbursements remaining unmatched
                   with obligations, As of September 30, 1989, the services had $54 million
                   in cross-disbursements from the Department of State alone that could
                   not be matched with obligations. Data on total cross-disbursements pro-
                   vided by the Army as of December 1989, and by the Air Force as of
                   February 1990, showed they had an aggregate of almost $6 billion of
                   such disbursements unmatched with obligations. Of that amount, $440
                   million was over 180 days old.


                   Page 1                                      GAO/AFMD-91-9   DOD Disbursements
                                                                                                       c


             B-239493                                                                                          ,




             This report includes recommendations to the Secretary of Defense to
             ensure that the Single Numbering project is an integral part of both CIM
             and the systems that support the accounting and finance systems
             resulting from CIM.


                  agencies and the services routinely make cross-disbursements on
Background   DOD
             behalf of and against each other’s obligations. For example, service pro-
             curement offices contract with commercial vendors for equipment and
             other goods and services and establish obligations related to these con-
             tracts. A large number of these contracts are administered by the
             DCGRS, which make payments to the contractors on behalf of the ser-
             vices and report the payments to the services. In fiscal year 1989,
             DCASRs administered approximately 279,000 contracts on behalf of the
             services and disbursed over $50 billion in contract payments.

             Similarly, State routinely makes cross-disbursements on behalf of the
             services through its overseas activities in locations and instances where
             the services do not have disbursing offices. These disbursements include
             payments to service employees for travel expenses and payroll and to
             foreign vendors for such things as aircraft ground handling and
             refueling and for the procurement of miscellaneous goods and services.
             Overall, State disburses about $200 million annually on behalf of the
             services.

             State primarily makes cross-disbursements through its Financial Man-
             agement Centers. Generally, the centers receive payment requests and
             supporting documentation from overseas service representatives, Before
             making the payments, the centers ensure that payments are properly
             authorized by the service representatives, that required supporting doc-
             umentation is present, and that payments are requested under valid
             appropriations. After determining the validity of the requested pay-
             ments, the centers extract disbursement data from the source documents
             for processing through State’s overseas accounting system to make the
             payments and report the transaction data to the Department of Trea-
             sury and the appropriate service accounting and finance centers.’

             The services’ accounting and finance centers use the information from
             State to record the disbursements in their accounting systems and match

             ‘Specifically, the centers produce a report called the Voucher Auditor’s Detail report, which contains
             detailed information from supporting transaction documents such as purchase orders, vendor
             invoices, and disbursement vouchers.



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                        B289498




                        them with related obligations. Specifically, these centers process and
                        report the cross-disbursement information to the appropriate service
                        components on whose behalf State has made the disbursements. These
                        components match the cross-disbursements, based on accounting codes
                        and other identifying information, with appropriate obligations to deter-
                        mine the status of their appropriated funds.

                        In 1966, DOD developed standard contract accounting information and
                        processing requirements and required the services to follow them. These
                        requirements were contained in MIUCAP (Military Standard Contract
                        Administration Procedures) and were intended to simplify, standardize,
                        and automate the processing of procurement contract information,
                        including financial data, to minimize processing errors.

                        Over 20 years later, in 1988, DOD established its standard accounting
                        classification code structure, which includes seven standard data fields
                        and is designed to identify obligations and disbursements according to
                        (1) the organizational component that established the obligation and on
                        whose behalf the disbursement was made and (2) the specific obligation
                        related to the disbursement. The code structure also provides for a Com-
                        ponent Requirements Section which DOD components may structure to
                        meet their internal financial and related accounting, reporting, and man-
                        agement information needs.

                        In October 1989, as part of a major management improvement initiative,
                        DOD established its CIM program to more effectively use information sys-
                        tems through the standardization of information. The CIM program
                        encompasses standardizing accounting and finance information as well
                        as information used in other functional areas, such as warehousing and
                        inventory management. DOD also plans a Single Numbering project to
                        develop a standard numbering or code structure to link planning, pro-
                        gramming, and budgeting with budget execution and accounting. A stan-
                        dard numbering or code structure is an essential foundation for a DOD-
                        wide financial management system.


                        We undertook this work to review the services’ problems in accounting
Objectives, Scope,and   for cross-disbursements. While we looked at previously reported
Methodology             problems with LKJASRS, our work focused primarily on cross-
                        disbursements that the Department of State makes on behalf of the ser-
          I
                        vices. Through interaction with the DOD Comptroller community, we
                        became cognizant of problems the services were experiencing with dis-
                        bursement information they received from State. The objectives of our


                        Page3                                       GAO/AFMD-91-9   DOD Disbursements
B-239403                                                                    ,




review were to (1) determine if the underlying causes of such problems
were similar to the causes we reported in the past and (2) identify and
evaluate corrective actions under way.

To determine the services’ problems in accounting for State cross-
disbursements and their underlying causes, we obtained the views of
cognizant DOD and State Comptroller officials and reviewed pertinent
documentation. Work was performed at the Air Force Accounting and
Finance Center in Denver, Colorado; the Department of State’s Office of
the Comptroller, in Rosslyn, Virginia; and DOD'S Comptroller Office of
Accounting Policy at the Pentagon. We also held discussions with
accounting officials at the Army Finance and Accounting Center in Indi-
anapolis, Indiana; the Navy Accounting and Finance Center located in
Crystal City, Virginia; and the Navy Regional Finance Center in Great
Lakes, Illinois. Our discussions with State regarding the services’ cross-
disbursement information problems were held with headquarters offi-
cials from State’s Office of Financial Systems. We also reviewed corre-
spondence between State and DOD regarding the cross-disbursement
problems.

Our review of documentation included past GAO reports that address the
services’ cross-disbursing problems and documentation of corrective
actions jointly developed by Air Force and State Comptroller officials to
alleviate problems the Air Force currently has with State cross-
disbursement information, We also reviewed relevant DOD Inspector Gen-
eral audit workpapers and military service and State Department Fed-
eral Managers’ Financial Integrity Act reports.

To identify and evaluate corrective actions under way to resolve the
cross-disbursing problems, we held discussions with cognizant DOD and
State officials. We held discussions with members of a DOD working
group responsible for solving the services’ problems with cross-
disbursement transactions from State. We also discussed with Office of
the Secretary of Defense officials, Defense-wide initiatives to update
accounting information standards and requirements which, when imple-
mented, are to solve, among other things, the services’ problems in
accounting for cross-disbursements from all sources.

We conducted our review in accordance with generally accepted govern-
ment auditing standards. The Departments of Defense and State pro-
vided written comments on a draft of this report. These comments are
presented in the report as appropriate and are included in appendixes I
and II.


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                            B-239493




                            The services’ problems in accounting for cross-disbursements arise
Long-Standing               whether the organizations making the disbursements are DOD agencies or
Problems in                 another federal agency.
Accounting for Cross-       DOD officials acknowledge that the underlying causes of the cross-
Disbursements               disbursement problems are (1) the services’ nonuniform implementation
                            of standard accounting information requirements and (2) the services’
                            failure to implement a prior DOD project, MIISCAP, which was aimed at
                            overcoming the problems associated with nonstandard information. To
                            date, however, DOD has been unable to establish servicewide implemen-
                            tation of accounting information requirements and standards.

                            In commenting on this report, DOD concurred with the underlying causes
                            of the services’ cross-disbursement problems as presented herein. DOD
                            also noted that there are other contributing factors to the problems such
                            as common processing errors and inadequate communication between
                            the services and the organizations making the disbursements.


Services Experience         We have repeatedly reported that due to the use of nonstandard finan-
Problems With DCASR         cial information, the services have been unable to accurately match
                            cross-disbursement information on procurement contracts made by
Cross-Disbursement          IXXSRS with the correct obligations.
Information
                            Our reports on the cross-disbursement problems stressed the need to
                            implement standard information requirements to reduce the numerous
                            errors that were being made because of the complexity of processing
                            contract obligation and cross-disbursement information. Specifically, we
                            reported the following problems and DOD’S reaction to our findings:

                        .   In 1980, that the services’ failure to fully implement MILSCAP caused sub-
                            stantial errors in reporting, recording, and controlling contract obliga-
                            tions and disbursements. Specifically, the use of nonstandard
                            procedures resulted in numerous errors by clerks in interpreting a
                            variety of nonstandard forms, codes, and financial transactions. As a
                            result, about $83 million in contract disbursements were charged to the
                            wrong appropriation and/or customer, and obligations were being incor-
                            rectly recorded by DC4SRS.2



                            “Defense’s Accounting For Its Contracts Has Too Many Errors-Standardized   Accounting Procedures
                            Are Needed (FGIvfSD-80-10,January 9, 1980).



                            Page 6                                                     GAO/AFMD-91-9    M)D Disbursements
                           B-239403




                         9 In 1986, that the services continued to experience problems in
                           accounting for cross-disbursements made by DCASRS     and that more stan-
                           dardization was needed to alleviate processing errors. These problems
                           included disbursements being charged to wrong appropriations, missing
                           and/or incomplete payment data, and payment data being sent to the
                           wrong service component. The report pointed out that DCASRpersonnel
                           processing contract financial data needed a basic knowledge of the ser-
                           vices’ accounting systems and regulations to facilitate the recording of
                           contract financial data, which was often a confusing and difficult pro-
                           cess. DODconcurred with us that greater standardization of contract
                           data was needed and that implementing the standard procedures-
                           MILXAP-would resolve the problems3
                         . In 1989, that due to processing errors, approximately $119 million in
                           disbursements that M=ASRS    made on behalf of the Air Force was recorded
                           in excess of available obligations.4

                           We made recommendations in two of these reports to standardize infor-
                           mation through fully implementing MILSCAP.   In commenting on the third
                           report, DODstated that (1) the further standardization of accounting
                           data for obligation and disbursement documents and (2) the implemen-
                           tation of MIUXAPwould alleviate the reported errors.


Services Experience        As with DCASRS’   cross-disbursements, the services cannot reliably match
Similar Problems Wi th     all State cross-disbursements with related obligations because State’s
                           cross-disbursement information does not always include all the data
Cross-Disbursement
- ^       . -    _         needed to identify (1) the service component on whose behalf the dis-
ktformation Keceived       bursements were made and/or (2) the specific obligations to which the
From State                 disbursements relate. Missing or incomplete information may include
                           appropriation data, voucher or document numbers, bureau control num-
                           bers, purchase order or travel order numbers, social security numbers,
                           and aircraft tail numbers. Most often, the complete accounting station
                           identification information is not received.

                           Incomplete cross-disbursement information results in millions of dollars
                           of cross-disbursements remaining unmatched with specific obligations.
                           For example, as of September 30,1989, the services had $54 million in
                           State cross-disbursements that could not be matched with obligations.

                           3Management Review: Progress and Challenges at the Defense Logistics Agency (GAO/NSIAD-86-64,
                           April 7,1986).
                           4Financial Management: Air Force Records Contain $612 Million in Negative Unliquidated Obligations
                           (GAUT        - - , June 30,1989).
                                       D8-973



                           Page 6                                                     GAO/AFMD-91-9     DOD Disbursements
  n-239493




  State cannot consistently send all the cross-disbursement information
  the services need because uniform implementation of DOD’S standard
  accounting classification code structure has not occurred, and, as a
  result, the codes for any particular type of disbursement transaction are
  different for each of the services. Also, State does not always know for
  all types of disbursements each service’s transaction information
  requirements.

  DOD’S accounting classification code structure allows up to 94 characters
  broken down into seven fields and is designed to provide the means to
  uniquely identify and match appropriated funds, obligations, and dis-
  bursements. According to both service and DOD Comptroller officials, the
  services have not implemented the code structure uniformly, as shown
  in the following examples:

. Field six was reserved for the accountable station code, but one service
  might use this field for the accountable station code while another may
  use field four for that purpose. This same situation exists for other
  fields in the code structure.
. For any field, the services use different types of characters-alpha
  versus numeric, for example-to represent essentially the same transac-
  tion information.
. Different terms are used for the same type of information. For example,
  the Army uses the term “fiscal station” for the component responsible
  for establishing obligations and accounting for related disbursements,
  while the Air Force uses the term “accounting and disbursing station,”
  and the Navy uses the term “authorized accounting activity.”

  To further complicate the cross-disbursement accounting problems, the
  code structure provides for a Component Requirements Section to record
  additional information to meet each service’s unique accounting and
  financial management information requirements. This section is
  unstructured, and each service is free to use it for as much information
  as needed. Given the diversity of each service’s assigned missions and
  resulting operations, the variations in the Component Requirements Sec-
  tion can be great.

  State officials told us that for the Army and Navy, they do not know
  exactly what data are to be extracted from transaction source docu-
  ments and how these data are to be recorded and reported to the ser-
  vices. While these services have provided State with certain guidance
  for processing their cross-disbursement information, the guidance does



  Page 7                                      GAO/AF’MD-91-9   DOD Disbursements
                           B-239403




                           not provide State with enough details about their information require-
                           ments. Because of the differences in the services’ information require-
                           ments and the lack of adequate guidance, State cannot ensure that the
                           information it sends the services is accurate, complete, and properly
                           formatted. The Air Force, on the other hand, has provided State with
                           detailed cross-disbursement guidelines which clearly set forth the infor-
                           mation Air Force needs by type of transaction.

                           In providing report comments, DOD pointed out that Army, like the Air
                           Force, has provided State with detailed instructions for use in
                           processing Army cross-disbursements. State officials have reiterated
                           that Army’s instructions do not provide sufficient processing guidance
                           and that Army and State need to jointly develop an action plan, as has
                           already been done with Air Force, to resolve the cross-disbursing
                           problems.

                           Overall, our examination of data obtained disclosed that the nonstan-
                           dard implementation of DOD accounting standards and requirements and
                           the resulting variations in the services’ accounting information needs
                           preclude State from effectively reporting cross-disbursement informa-
                           tion to the services. DOD acknowledges that, just as with the earlier
                           failure to fully implement MILSCAP, the services have not uniformly
                           implemented DOD'S standard accounting classification code structure
                           because to do so, technically complex and costly system modifications
                           would be required.


DOD-wide Cross-            The services’ different accounting information requirements make it dif-
I;lY”Ul
Disbursement and Related   ficult for organizations such as State and DCASRSto identify (1) the ser-
                           vice component for which cross-disbursements were made and (2) the
I..-” *
Undistributed              specific obligations to which the cross-disbursements relate. These diffi-
Dis bursemel Problems
Disbursement               culties result in millions of dollars of undistributed disbursements.

                           Undistributed disbursements are those that have not yet been matched
                           with related obligations. Undistributed disbursements do not necessarily
                           result from missing, incomplete, or erroneous information. They can also
                           result from the time lag associated with processing disbursements
                           through an accounting system.

                           We believe, however, that undistributed disbursements remaining out-
                           standing after 180 days indicate incomplete or erroneous information, as
                           evidenced by the following examples.



                           Page 8                                       GAO/AF’MD-91-9   DOD Disbursements
                              B238403




                          l As of December 1989, the Army had approximately $4.9 billion in undis-
                            tributed disbursements resulting from cross-disbursing activities. Of this
                            amount, about $208 million was over 180 days old; $154 million
                            involved disbursements made by organizations outside the Army.6
                          . As of February 1990, Air Force undistributed disbursements for cross-
                            disbursements made by organizations outside the Air Force totaled
                            approximately $770 million. Of this amount, about $232 million was
                            over 180 days old.

                              We were unable to obtain similar data for the Navy, as it does not age its
                              undistributed disbursements nor does it break out that portion attribut-
                              able to cross-disbursing activities.


                                   acknowledges that the overall lack of uniformity in service
Defense Initiatives to        DOD
                              accounting and finance operations has resulted in problems in matching
Improve Financial             cross-disbursements. The services have developed different operating
Management                    philosophies and accounting procedures because of their different inter-
                              pretations of DOD policies and procedures. Further, DOD recognizes that
                              the standardization of procedures and information requirements is
                              essential to implementing DOD-wide standard accounting information,
                              operations, and systems.

                              DOD  has a major recent management initiative-GM-aimed       in part at
                              improving the effectiveness and efficiency of financial operations
                              through standardizing information and consolidating financial opera-
                              tions and related systems to reduce unnecessary operational redundan-
                              cies. DOD also plans a Single Numbering project which will focus on
                              improving the usefulness and consistency of data used in DOD’S various
                              planning, budgeting, and accounting systems.


CIM Program and Related       CIM’S overall objective is to develop standard, uniform information
Financial Management          requirements and data formats to eliminate the multiple information
                              systems that currently support the same functional areas. Under the CIM
Improvements                  program, a review of information requirements according to specified
                              functional areas is being performed to determine levels of information
                              compatibility and redundancy.


                              bArmy’s undistributed disbursement data include cross-disbursements that take place within the
                              Army-one Army activity disbursing for another-as well as cross-disbursements other entities
                              make on Army’s behalf, such as State and DCASRs.



                              Page 9                                                      GAO/AFMD-91-9     DOD Disbursements
                           5239403




                           To implement CIM,DODhas established groups of individuals from
                           various DODcomponents who will address information standardization
                           issues within the groups’ assigned functional areas. Currently, there are
                           eight groups, one of which is addressing the standardization of informa-
                           tion in the functional area of financial management.

                           Closely related to the CIMprogram is a financial management initiative
                           to improve the effectiveness and efficiency of DOD’Sfinancial operations
                           through consolidating related accounting and finance activities. Under
                           this initiative, DODis planning the establishment of a single DOD-wide
                           accounting and finance organization and the consolidation of a number
                           of accounting activities and related systems. DOD’Sintention is to facili-
                           tate the uniform implementation of DODaccounting and finance policies
                           and standards, such as the information standards to be developed under
                           the CIMprogram.

                           Overall, DODrealizes that control of its accounting and finance opera-
                           tions and related supporting systems through a single organization is
                           essential to ensuring that DOD-wide standard financial information, oper-
                           ations, and systems are implemented and remain standard. Both CIMand
                           the consolidation initiatives are viewed as a way of ultimately imple-
                           menting a single, integrated DOD-wide financial management system.


Single Numbering Project   DOD’Sprogramming, planning, and budgeting system (PPBS)and related
                           activities currently rely on three separate or nonintegrated data bases.
                           As such, DODcomponents have developed data bases and coding struc-
                           tures to meet their individual PPBSrequirements. In addition, because
                           DODcomponent financial systems are not designed to provide budget
                           execution data at the level of detail required by PPBS,other processes
                           outside the formal accounting systems are used to obtain desired
                           information.

                           This use of different systems with inadequate information linkage
                           makes it difficult to readily identify identical resources even within the
                           same component. As a result, both consistency and integrity of financial
                           data throughout DOD’S PPBS process, including budget execution, are
                           lacking.

                           To alleviate this situation, DODplans to develop a single, uniform num-
                           bering or coding structure. This initiative is aimed at using such a coding
                           structure to link planning, programming, and budgeting phases with
                           budget execution and accounting. DOD envisions that such a structure


                           Page 10                                      GAO/AF’MD-91-9   DOD Disbursements
                    B-239493




                    would allow comparable or standard data to be captured and used
                    throughout DOD’SPPBSphases and in DOD’Saccounting systems, with the
                    result that better, more timely, and accurate data would be available for
                    management decision-making. We believe the Single Numbering project,
                    as envisioned by WD, should address, among other issues, the financial
                    management problems that DOD'S standard accounting code structure
                    was intended to solve but has not yet accomplished.

                    While a single numbering system or coding structure is needed to link
                    PPBSwith budget execution and accounting, such a structure should also
                    be made an integral part of any DOD effort to standardize financial infor-
                    mation or develop standard systems. Consequently, the Single Num-
                    bering project should not be pursued separately from DOD'S CIM initiative
                    to standardize accounting and finance information DoD-wide.


                    The services have experienced long-standing, continuing problems in
Conclusion          accounting for cross-disbursements. These problems occurred with both
                    DCASRS  and the Department of State. They exist, in a large part, due to
                    the complexity of processing cross-disbursement information which
                    results from the services’ failure to uniformly implement DOD-wide
                    accounting information standards and processing requirements.

                    The standardization of accounting information and related procedures is
                    essential to reducing the complexity of processing cross-disbursement
                    transactions. DOD’Scurrent CIMinitiative to develop standard financial
                    information requirements and data formats will simplify the processing
                    of transactions, thus alleviating the services’ cross-disbursement
                    problems. However, the Single Numbering project should be an integral
                    element of the CIM.

                    Through these initiatives, DOD can better ensure the implementation of
                    DoD-wide standard accounting information requirements and standard,
                    integrated systems. The foundation for those initiatives must be based
                    on a standard coding structure such as that planned under DOD'S Single
                    Numbering project.


                    We recommend that the Secretary of DOD
Recommendations
                  . require that a single numbering structure be made an integral part of
                    DOD'S CIM program and




                    Page 11                                      GAO/AFMD-91-9   DOD Msbursementa
                      B-239493




                  l   incorporate the single numbering coding structure in all service feeder
                      systems that will support-provide  information to-the non-wide stan-
                      dard accounting and finance systems to be developed as a result of the
                      CIM prOgraIn.


                      The Departments of State and Defense concurred with our findings and
Agency Comments       recommendations. DOD agreed that the lack of data standardization
                      within the services causes problems in processing and accounting for
                      cross-disbursements. Corrective actions DOD plans to take will ade-
                      quately respond to our report recommendations. (See appendix I.)


                      We are sending copies of this report to the Secretary of State and other
                      interested parties. We will also make copies available to others upon
                      request.

                      Please contact me at (202) 275-9454 if you or your staff have any ques-
                      tions concerning this report. Major contributors to this report are listed
                      in appendix III.

                      Sincerely yours,




                      Jeffrey C. Steinhoff
                      Director, Financial Management
                        Systems and Audit Oversight




                      Page 12                                      GAO/AF’MD91-9   DOD Diabunwments
Page 13   GAO/AF’MD@l-9   DOD Disbursementa
                                                                                    ~-
Contents


Letter                                                                                                1

Appendix I                                                                                        16
Comments From the
Department of
Defense
Appendix II                                                                                       24
Comments From the
Department of State
Appendix III                                                                                      25
Major Contributors to
This Report




                        Abbreviations

                        CIM       Corporate Information Management Initiative
                        DC4SHS    Defense Contract Administration Service Regions
                        DOD       Department of Defense
                        MILSCAP   Military Standard Contract Administration Procedures
                        PPEE      programming, planning, and budgeting system


                        Page 14                                   GAO/AFMD-91-9   DOD Disbursements
Page 15   GAO/AFMD-91-9   DOD Disbursements
                                                                                                             1
Appendix I

Comments From the Department of Defense ’



                                   OFFICE OF ME   COMPTltOLLER      OF THE DEPARTMENT       OF DEFENSE

                                                      WASHlNGTON.    LIC 20301.1100




             (Management Systems)                                                                        OCT2    19%

                     Ir. Jeffrey C. Steinhoff
                     Director,   Financial Management
                        Systems and Audit Oversight
                     Accounting and Financial   Management
                        Division
                     U. S. General Accounting Office
                     Washington, D.C. 20548
                     Dear   Mr.   Steinhoff:
                          This is the Department of Defense (DOD) response to the
                     General Accounting Office (GAO) Draft Report entitled   --
                     "FINANCIAL MANAGEMENT:Current Initiatives     Could Help Solve
                     Standardization   Problems," dated August 2, 1990 (GAO
                     Code 903104/OSD Case 8105-A).
                           The Department concurs with the draft report findings   and
                     recommendations.     The detailed  DOD comments on the report
                     findings   and recommendations are provided in the enclosure.      The
                     DOD appreciates    the opportunity  to comment on the draft report.
                                                                      Sincerely,




                     Enclosure




                       Page 16                                                        GAO/AFMIMU-9   DOD Disbmnementa
     AppendhI
     C!ommentaFromtheDepartmentofDefense




                GAO    DRAFT RBPORT -           DATED AUGUST 2, 1990
                      GAO CODE 903104           - OSD CASE 8105-A

       "FINANCIAL    MANAGBMElW:   CURRENT                  INITIATIVES    COULD
                 HELP SOLVE STANDARDIZATION                    PROBLBMS"

                       DEPARTMENT      OF DEFENSE           COMMENTS

                                      *     *   *   l   *


                                          FINDINGS

0   FINDING    A:   Standardization           of Accountins     Structures.      The
    GAO observed that the DOD Agencies and the Services
    routinely     make cross-disbursements             on behalf      of and against
    each other's     obligations.           The GAO noted that,          in FY 1989,
    the Defense Contract            Services    Administration        Regions
    administered     approximately           279,000 contracts        on behalf  of
    the Services     and disbursed          over $50 billion        in contract
    payments.
    The GAO also pointed          out that the Department        of State
    routinely       makes cross-disbursements        on behalf    of the
    Services      through    its overseas activities        in locations     and
    instances       where the Services      do not have disbursing
    offices.        The GAO explained     that those disbursements
    include     payments to Service       employees for travel         expenses
    and payroll        and to foreign    vendors--covering       such things     as
    aircraft      ground handling      and refueling      and the procurements
    of miscellaneous         goods and services.        The GAO estimated
    that,     overall,    the Department     of State disburses        about $200
    million     annually     on behalf   of the Military      Services.
    The GAO observed that,             in 1966, the DOD developed           standard
    contract       accounting     information       and processing      requirements
    and directed         the Services      to follow    them.    The GAO pointed
    out, however,          that it was not until        20 years later,        in
    1988, that the DOD established                its standard      accounting
    classification           code structure,      which includes      seven
    standard       data fields      and is designed       to identify
    obligations         and disbursements       according     to (1) the
    organizational           component that established         the obligation
    and on whose behalf           the disbursement        was made and (2) the
    specific       obligation     related     to the disbursement.
    The GAO also pointed     out that,    in October 1989, as part of
    a major management improvement        initiative,      the DOD
    established  its Corporate     Information        Management Program,
    one of the objectives     of which is to use information
    systems more effectively     through      the standardization     of
    information.
    DoD RESPONSE: Concur.




    Page17                                                        GAO/AFMD91-9DoDMsbumements
    Appendix I
    Comments From the Department       of Defense




0   FINDING B: Services Exoerience                  Problems With DeSense
    Contract Administration  Service                Reqion Cross-Disbursement
    Information.  The GAO reiterated            that,    due to the use of
    nonstandard    financial       information,    the Services     have been
    unable to accurately         match cross-disbursement        information
    on procurement      contracts       made by contract    administrators
    with the correct       obligations.
    According      to the GAO, prior         reports   on the cross-
    disbursement       problems stressed         the need to implement
    standard     information       requirements      to reduce the numerous
    errors    that were being made because of the complexity                of
    processing       contract    obligation      and the cross-disbursement
    information.         Previously,      the GAO found the following:
            The Services'       failure     to implement       the Military
            Standard Contract          Administration       Procedures      fully
            caused substantial          errors     in reports,      recording,      and
            controlling      contract      obligations      and disbursements
            (Defense's      Accountinq       for Its Contracts         Has Too Many
            Errors--Standardized           Accountinq      Procedures      Are Needed,
            FGMSD-80-10, dated January 9, 1989).                    In that report,
            the GAO found that the use of nonstandard                    procedures
            resulted      in numerous errors          by clerks     in interpreting     a
            variety     of nonstandard         forms, codes, and financial
            transactions.         The GAO estimated         that about $83 million
            in contract      disbursements         were charged to the wrong
            appropriation       and/or customer--and           obligations        were
            being incorrectly          recorded by contract           administrators.
            The Services        also continued        to experience        problems in
            accounting       for cross-disbursements            made by contract
            administrators         and, therefore,        more standardization          was
            needed to alleviate            processing     errors      (MANAGEMENT
            REVIEW: Proqress and Challenqes                  at the Defense
            Loqistics      Aqency, GAO/NSIAD-86-64/OSD                Case 6882, dated
            April    7, 1986).        The GAO identified           problems with
            (1) disbursements           being charged to wrong
            appropriations,          (2) missing      and/or     incomplete      payment
            data, and (3) payment data being sent to the wrong
            Service     component.         The Department       concurred      that a
            greater     standardization         of contract        data was needed and
            indicated      that implementing          the standard        procedures--
            Military      Standard Contract         Administration         Procedures--
            would resolve         the problems.
    -       Approximately       $119 million     in disbursements        that
            Defense Logistics         Agency contract     administrators        made
            on behalf     of the Air Force was recorded            in excess of
            available     obligations      (FINANCIAL MANAGEMENT: Air Force
            Records contain        $512 million    in Neqative       Unliquidated
            Obliaations,       GAO/AFMD-89-78/OSD Case 8091, dated
            June 30, 1989).




        Page 18                                                GAO/AFMD-91-9     DOD Disbureementa
     Comnwmta From the Department       of Defense




    The GAO indicated          that    recommendations         in two of the cited
    reports     were made to standardize              information       through      fully
    implementing         the Military         Standard Contract         Administration
    Procedures.          According        to the GAO, in Commenting on the
    third     report,      the DOD stated that (1) further
    standardization           of accounting          data for obligation         and
    disbursement         documents and (2) tha implementation                    of the
    Military      Standard Contract             Administration       Procedures       would
    alleviate       the reported          errors.       The GAO concluded        that
    problems in processing                cross-disbursements          nevertheless
    continue      to exist,        in part,       due to the complexity          of
    processing        cross-disbursement             information,      which results
    from the Services'             failure      to uniformly       implement     the DoD-
    wide accounting           information         standards      and processing
    requirements.
    DOD RESPONSE: Concur.             Problems in processing              cross-
    disbursements       are due, in part,          to the use of nonstandard
    accounting      data.    However, other problems,              such as common
    errors    and inadequate       communication,        are also causes.
    Efforts    have been initiated          to resolve      those problems.              For
    example, in response to a recent GAO report                      (FINANCIAL
    MANAGEMENT: Armv Records Contain Millions                      of Dollars         in
    Neqative    Unliouidated       Obliqations,       GAO/AFMD-90-41/0SD
    Case 8258, dated May 2, 1990), representatives                        from
    Headquarters,       Department     of the Army, the Defense Logistics
    Agency Comptroller,         and the Army Materiel            Command agreed to
    establish     a review committee of senior              Army and Defense
    Logistics    Agency accounting          managers and a working
    subcommittee.         The committees       are responsible          for ensuring
    the adequacy of communication              and cooperation,           identifying
    oroblems.     oronosino     solutions.        and implementing          corrective
    actions..     'In ;esponse     to another GAO deport             (FINANCIAL
    MANAGEMENT: Air Force Records contain                   $512 million           in
    Neqative    Unliauidated       Obligations,       GAO/AFMD-89-78/OSD
    Case 8091, dated June 30, 1989). the Air Force is also
    working with representatives              of.the    Defense Logistics
    Agency to resolve        problem areas within           Military        Standard
    Contract    Administration        Procedures.
0   FINDING C: Services Experience Similar  Problems with
    Cross-Disbursinu Information Received From State.   The GAO
    found that the Services               cannot reliablv         match all State
    cross-disbursements             with related        obligations        because
    State's      cross-disbursement            information       does not always
    include      all the data needed to identify                   (1) the Service
    component on whose behalf                the disbursement           the
    disbursements         were made and/or           (2) the specific           obligations
    to which the disbursements                 related.       According       to the GAO,
    missing      or incomplete         information       may include        appropriation
    data, voucher or document numbers, social                         security       numbers,
    and aircraft        tail      numbers.       The GAO explained,           however,
    that most often            the complete accounting             station
    identification           information       is not received.




      Page 19                                                     GAO/AFMD-91-9     DOD Disbursements
    Appendix1                                                                                      ,
    Comments    From the Department     of Defense




    The GAO pointed       out that  incomplete     cross-disbursement
    results   in millions     of dollars     of cross-disbursements
    remaining     unmatched with specific       obligations.       As an
    example,    the GAO estimated      that,   as of September 30, 1989,
    the Services     had $54 million      in Department      of State cross-
    disbursements      that could not be matched.
    The GAO found that the nonstandard                    implementation           of DOD
    accounting        standards        and requirements         and the resulting
    variations        in the Service's          accounting        information       needs
    preclude       the Department         of State from effectively                reporting
    cross-disbursement             information      to the Military           Services.
    The GAO reported            the DOD acknowledges            that,     just as with
    the earlier         failure      to implement     the Military           Standard
    Contract       Administration         Procedures      fully,       the Services        have
    not uniformly           implemented      the DOD standard            accounting
    classification           code structure--because              to do so would
    require      technically         complex and costly           system
    modifications.
    DoD REZEONSE:           Concur.     Nonstandard      accounting   data makes
    it difficult         for the Department          of State to effectively
    report     cross-disbursement           information.      However, the Army,
    like    the Air Force,          has provided      the Department    of State
    with detailed          processing     instructions,      as well as offered
    on-site      assistance       if needed.
0   FINDING D:        DoD-Wide Cross-Disbursement   and Related
    Undistributed       Disbursement Problems.    The GAO observed                  that
    the   Services'     different      accounting    information        requirements
    make it difficult          for organizations,       such as the Department
    of State and the Defense Contract               Administration          Service
    Regions,     to identify        (1) the Service     Component for which
    cross-disbursements           were  made and (2) the specific
    obligations       to which the cross-disbursements               relate.
    According      to the GAO, those difficulties             result      in millions
    of dollars       of undistributed       disbursements.
    The GAO explained         that undistributed            disbursements        are
    those disbursements          that have not yet been matched with
    related    obligations.         The GAO noted that undistributed
    disbursements        do not necessarily          result      from missing,
    incomplete,      or erroneous        information.           The GAO pointed       out
    that they can also result              from the time lag associated               with
    processing      disbursements        through an accounting              system.    The
    GAO concluded,        however,     that undistributed             disbursements
    remaining     outstanding       after     180 days is nonetheless
    indicative      of incomplete        or erroneous         information.        The GAO
    identified      $440 million       of undistributed            disbursements      that
    were over 180 days old in the Army and the Air Force.                             The
    GAO reported       that the Army had $208 million,                   $154 million
    of which involved        disbursements         made by organizations
    outside    the Army.        The GAO estimated           the Air Force




    Page 20                                                      GAO/AFMD-91-9      DOD Disbursements
    Appendix I
    Commentn F’rom the Department   of Defense




     undistributed      disbursements       from outside      the Air     Force   at
     $232 million.
     DoD RESPONSE: Concur.
0    FINDING Et Defense Initiatives       to Improve Financial
     Hanaaement--Corwrate     Information   Manaqement Proqram and
     Related Financial  Manaaement     Improvements.  The GAO
     observed that the overall               objective    of the Corporate
     Information       Management program is to develop standard,
     uniform     information       requirements        and data formats to
     eliminate      the multiple        information      systems that currently
     support the same functional                areas.     The GAO explained
     that,    under the Corporate            Information     Management program, a
     review of information            requirements       according   to specified
     functional       areas is being performed            to determine   levels   of
     information       compatibility         and redundancy.
     The GAO indicated         that the DOD has established     groups of
     individuals      from various      DOD Components who will     address
     information      standardization      issues within  the group’s
     assigned     functional      area.   The GAO noted that,   currently,
     there are eight groups --one of which is addressing              the
     standardization         of the information   in the functional      area
     of financial       management.
     The GAO also identified            a financial       initiative       to improve
     the effectiveness         and efficiency        of the DOD financial
     operations      through consolidating           related       accounting   and
     finance    activities.         According     to the GAO, the DOD is
     planning    the establishment          of a single         DOD-wide accounting
     and finance       organization      and the consolidation             of a number
     of accounting        and financial      policies       and standards,      such as
     the information        standards      to be developed           under the
     Corporate     Information       Management program.
     The GAO concluded    the DOD realizes      that        control     of its
     accounting  and financial  operations        and       related     supporting
     systems through a single   organization         is       essential     to
     ensure that DOD-wide standard      financial           information,
     operations,  and systems are implemented               and remain
     standard.
     DODRESPONSE: Concur.
0    FINDING F: Defense Initiatives   to Improve Financial
     Manaaement--Sinqle Numberinq Proiect.   The GAO explained
     that the DOD programming,          planning,      and budgeting     system
     and related   activities       currently      rely on three separate or
     nonintegrated    data bases.         The GAO pointed       out that,    as
     such, the DOD Components have developed data bases and
     coding structures        to meet their      individual     system
     requirements.      The GAO also found that,            because the DOD
     Component financial        systems are not designed to provide




    Page 21                                                GAO/AFMDQl-9     DOD Disbursements
     Appendix I
     Comments Prom the Department     of Defense




    budget execution        data at a level     of detail     required by the
    programming,     planning,      and budgeting   system, other
    processes    outside      the formal accounting       systems are used to
    obtain desired       information.
    According     to the GAO, this use of different                systems with
    inadequate      information       linkage    makes it difficult       to
    identify    identical       resources     readily--even       within  the same
    Component.        The GAO concluded         that,    as a result,    both
    consistency       and integrity        of financial     data throughout       the
    DOD programming,         planning,      and budgeting      process,   including
    budget execution,         are lacking.
    The GAO observed that the DOD plans to develop a single
    uniform     numbering or coding structure            to alleviate      that
    situation.        The GAO noted that this initiative              is aimed at
    using such a coding structure               to link planning,
    programming,       and budgeting      phases with budget execution             and
    accounting.        According     to the GAO, the DOD envisions            that
    such a structure         would allow comparable         or standard      data to
    be captured       and used throughout         the planning,     programming,
    and budgeting       phases and in the DOD accounting              systems,
    with the result        that better,       more timely    and accurate       data
    would be available          for management decision-making.              The GAO
    concluded      that the Single Numbering Project             should address,
    among other issues,           the financial      management problems that
    the DOD standard         accounting     code structure      was intended       to
    solve,     but has not yet accomplished.

    The GAO concluded         that a single         numbering     system coding
    structure     is not only needed to link               the planning,
    programming,       and budgeting        system with budget execution              and
    accounting--but        should also be made an integral                part of any
    DOD effort      to standardize        financial      information      or develop
    standard     systems.       The GAO pointed        out that,      currently,      the
    Single Numbering Project            is being pursued separately              from
    the DOD’S Corporate          Information        Management initiative          to
    standardize       accounting      and finance      information       DOD-wide.

    DOD   RESPONSE: Concur.
                                     * * * * *

                                 RECOMMENDATIONS
0   RECOMMENDATION1: The GAO recommended that the Secretary
    of Defense require    that a single numbering structure   be
    made an integral   part of the DOD Corporate  Information
    Management program.
    DOD RESPONSE: Concur.             The DOD Corporate    Information
    Management program will           develop the functional      requirements
    for a single  numbering          structure  to link planning,




     Page 22                                                  GAO/APMD-91-9    DOD Disbursements
    Appendix I
    Commenta From the Department   of Defense




    programming,  and budgeting phases with budget execution                   and
    accounting.   That task is expected to commence in
    January 1991.
e   RECOMMENDATION        2:    The GAO recommended that the Secretary
    of Defense incorporate            the single     numbering coding
    structure      in all Service        feeder systems that will      support--
    i.e.#    provide    information        to--the   DOD-wide standard
    accounting       and finance      systems to be developed       as a result
    of the Corporate         Information        Management program.

0   DoD RESPONSE: Concur.             The DOD will     study the feasibility
    of incorporating        the functional      requirements     for a single
    numbering structure          in all feeder systems that support           the
    DOD-wide standard         accounting   and finance      systems developed
    as a result      of the Corporate      Information      Management
    program.       However,    conversion    of data received       from feeder
    systems to a single         numbering coding structure          may be more
    cost-beneficial.          Resolution   is expected      by June 1991.




    Page 23                                              GAO/AFMD-91-9   DOD Disbursements
Appendix   II

Comments From the Department of State



                                                        United States Department of State

                                                        Wahington. D.C.   20520




                Mr. Jeffrey C. Steinhoff
                Director,  Financial Management
                   Systems and Audit Oversight
                General Accounting Office
                Washingt    DC 20548
                Dear Mr.        nhoff:
                          v
                We have reviewed your draft report to the Secretary
                                                                . . .    of Defense
                entitled,   Financlal~anaaement:
                                 .      .             Currmves            COILU,H&~
                &dye Standardlzatlon        ProWems and are in general agreement
                with the findings      in the report.
                Thank you for providing  us the opportunity  to review and
                comment on the the report prior to its publication    in final.

                                                        Sincerely    yours,



                                                        Elizabeth A. Gibbons
                                                        Associate Comptroller
                                                        Office of Financial
                                                        Management




                     Page 24                                     GAO/AFMD-91-9    DOD Disbursements
Appendix III

Major Contributors to This Report


                             Ernst F. Stockel, Assistant Director
Accounting and               Ron Tobias, Project Manager
Financial Management         Mary Hyman, Evaluator
Division,      Washington,   Tracy Coleman, Accountant

DC.




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