United States GAO General Accounting Office Washington, D.C. 20548 Accounting and Information Management Division B-274856 February 20, 1997 The.Honorable John J. Hamre The Under Secretary of Defense (Comptroller) Dear Dr. Hamre: We are completing our review of the accuracy and completenessof the Department of Defense’s (DOD) reporting on the amount of its problem disbursements. As you know, problem disbursementsare specific disbursements that have not been properly matched with corresponding obligations. Matching disbursements with obligations is an important control for ensuring that funds are used in accordance with the purposes and limitations spe&ied by the Congress. Without such matching, there is risk that (1) fraudulent or erroneous payments may be made without being detected and (2) cumulative amounts of disbursements may exceed appropriated amounts and other legal limits. DOD has numerous important initiatives under way to resolve its long-standing problems in this area, which we support. The Defense Finance and Accounting Service (DFAS) is responsible for producing a monthly report on the amount of problem disbursements. In turn, the data from these reports are presented to the President, Congress,DOD top managers, and others for use in monitoring DOD’s progress in eliminating these problems. We are issuing this interim report becausewe are concerned that your December 6, 1996,memorandum, which directed that certain problem disbursements be excluded from the monthly reporting, adversely affects the reports’ accuracy, completeness,and usefulnessas an oversight tool. The Director, DFAS, implemented the change and excluded certain transactions from the monthly report, beginning with the November 1996problem disbursement report. We are bringing our concerns to your attention at this time so that you may reconsider this change before DOD’s Annual Report to the President and the Congress,expected to be issued in February, is finalized. GAO/AIMD-97-36RDOD Problem Disbursements - .. B-274856 IN-TRANSITSARE A KEY PROBLEMDISBURSEMENTCATEGORY Prior to the November 1996report, three categoriesof problem disbursements were included in the monthly reports: (1) unmatcheddisbursements,which are transactions that were not matched to obligationsbecausethe obligations had not been identified in the accountingrecords, (2) negativeunliquidated obligations, which are disbursementsthat have been posted to specific obligations by the accounting station, but exceededthe obligations,and (3) in-transits, which are disbursementsand collections that have been reported to Treasury, but have either not been receivedby the accountingstation or have been received but not processedor posted by the accountingstation. For the in-transit category, DFAS reports as problem disbursementsonly those (1) over 60 days old when the disbursing and accountingstations are assignedto the same DFAS Center or (2) over 120days old made by a disbursing office assigned to one DFAS Center and accountedfor by a station assignedto another DFAS Center, DOD component or Federal agency. We fulIy agreewith the portions of your December6, 1996,memorandumthat deal with the developmentof more detailedinformation to track m-transits, such as by type of transaction and by origination. In earlier discussionswith your staff and DFAS officials, we suggestedthat more basic information is needed about the sources and causesof all problem disbursements. We are also in full agreementwith your decision to identify a single DFAS coordinator for tig the in-transit disbursementproblem. We will continue to assessthe Department’s efforts as it strives to resolve this long-standingand complex problem. Your memorandumfurther directs that the current reporting process be stopped and that a new methodologybe developedfor reporting in-transits. This is where we have concern. DFAS officials have advisedus that it may be severalmonths before a new methodologyis developedand, in the interim, in-transits have already been dropped from the monthly reports, as stated above. The memorandum states that “In-transits representa different kind of problem, and one that has been masked by groupingthem in with NULOs [negative unliquidated obligations] and UMDs [unmatcheddisbursements].”DOD included in-transits in its problem disbursementreports in responseto our recommendationin an October 1994report,l and we believethat the rationale for doing so remains valid today, as discussedbelow. Financial Management: Status of DefenseEfforts to Correct Disbursement Problems (GAO/AIMD-957,October 5, 1994). 2 GAO/AIMD-97-36RDOD Problem Disbursements B-274356 Prior to our 1994report, DOD did not include disbursementtransactions in its reports if matching efforts had not yet been attempted, regardless of how old the transactions were. At that time, DOD officials indicated that such transactions were excluded becausedata were not readily available to show how long the transactions had remained outstanding. However, in an April 21, 1994, memorandum, the DFAS Deputy Director for General Accounting required the DFAS Centers to maintain aging schedulesfor disbursementsand stated that it should never take over 60 days for disbursementtransactions to be forwarded to and received by an accounting station for matching. Following this guidance,the DFAS Centers reported that as of April 30, 1994,their records included at least $14.8billion of disbursementsthat were over 60 days old and had not yet been received by an accounting station. DOD’s official response to our 1994report, a letter dated April 17, 1995,from the Deputy Chief Financial Officer, clearly states: The Department agreesthat m-transit transactions over 60 days old are disbursing problems.” More current data indicate that this category remains a serious problem. As of May 31, 1996,DOD’s reported problem disbursement balance of $18 billion included $7.7 billion of m-transits. According to DOD’s aging information on these transactions, $3.8 billion, or about 50 percent, were over 180 days old. Even more significantly, $1.4 billion were originally processed before April 1, 1994,yet still remained in the nin-transit~category over 2 years later. Clearly, these are problem transactions that should be monitored, and maintaining their visibility by including them in monthly reports that are received by top DOD managersand eventually reported to the President and Congressis an important means of ensuring that they are resolved. Thus, we are concerned that your December 6 memorandum characterizesas a 3nistaketfthe decision made 2 years ago to report in-transits along with unmatched disbursementsand negative unliquidated obligations. We do not take exception to allowing a nnormalnprocessing time before considering an in-transit transaction a problem disbursement. DOD officials told us that DOD reluctantly accepts the current 60- and 120day processing times due to limitations of existing systems,but that this will be addressedas part of DFAS’s efforts to reengineer the disbursement and collection reporting process. However, a transaction that an accounting station has not even attempted to match with an obligation within DOD’s 2- or 4month “grace period” is clearly a problem disbursementthat should be reported, researched, and resolved. In addition, the reasons stated in your December 6 memorandum for previously including m-transits in problem disbursementreports remain valid today: ‘... to make sure that the Services (and DFAS, for that matter) did& report artificial 3 GAO/AlMD-97-36RDOD Problem Disbursements B-274856 progress in resolving NULOs and UMDs’by putting them back into the processing cycle where they would show up as in-transit disbursements. I felt by reporting all three together I would keep the pressure on everyoneto get at the underlying problems.” The possibility of “recycling transactions to the in-transit category is again a concern now that in-transits have been dropped from DFAS’smonthly reports as directed by your memorandum. Moreover, eliminating the in-transit category from the problem disbursement report removes from scrutiny not only those in-transits that DOD had been reporting on, but also the additional transactions that we found as part of our ongoing work. As early as September 1996,we had briefed DOD officials on our preliminary results of testing the May 31, 1996,reported problem disbursement balance. These results showed that the $18 billion total was understated by at least $25 billion, most of which related to in-transits. CONCLUSIONS An important step towards effective resolution of DOD’sproblem disbursements is accurate and complete information on the scope and magnitude of the problem. An accurate benchmark of the amount of problem disbursementsis necessaryto ensure that visibility over this issue is maintained and that DOD managers as well as the President and the Congresshave the complete and consistent information necessaryto monitor the Department’sprogress in resolving its problems over tie. RECOMMENDATIONS We recommend that you (1) direct the Director, DefenseF’inanceand Accounting Service, to report in-transit transactions, in accordancewith the Department’s 60- and 120day criteria, along with unmatched disbursementsand negative unliquidated obligations in the monthly problem disbursementreports and (2) ensure that in-transits are included as problem disbursementsin all external report;ing,including DOD’s annual report to the President and the Congress. AGENCY COMMENTSAND OUR EVALUATION In written comments on a draft of this letter (see enclosure),the Department of Defensepartially concurred with our recommendations. DOD agreedto continue reporting in-transits with unmatched disbursementsand negative unliquidated obligations in external communications. DOD did not agreeto reestablish the reporting of in-transits along with unmatched disbursementsand negative uuhquidated obligations in its monthIy problem disbursementreports. DOD 4 GAOKIMD-97-36R DOD Problem Disbursements B-274856 contended that the visibility of in-transit problem disbursementswould not be lost becauseDFAS continues to prepare separatemonthly reports on in-transit disbursementsfor internal managementreview and analysis. We reaffirm our position that DOD needs to consistently and completely report the Department’s problem disbursementsregardless of the type. Becausethe monthly internal reports serve as the basis for external reporting on problem disbursement issues, the intent of our recommendation was to ensure that the monthly reports are as complete and a&rate as possible. Our primary concern is that the President, the Congress,and other interested decisionmakers continue ‘to have a complete picture of the Department’sproblem disbursements,including over-agedin-transits, to ensure that focus is maintained on resolving these problems. As long as DOD’s monthly reporting mechanism provides accurate ’ and consistent information on all types of problem disbursements,we would consider DOD’s actions responsiveto .our recommendation. ----- This report contains recommendationsto you. Within 60 days of the date of this . letter, we would appreciate receiving your written statement on actions taken to address these recommendations. We are sending copies of this letter to the Chairmen and Ranking Minority Members of the SenateCommittee on Armed Services,the House Committee on National Security, the SenateCommittee on GovernmentalA&&s, the House Committee on Government Reform and Oversight, and the Director of the Office of Managementof Budget. We are also sending a copy to the Secretary of Defense. Copies will also be made availableto others upon request. Please contact me at (202) 512-9095if you or your staff have any questions. David Childress, Miguel Castillo, and CeceliaBall were major contributors to this letter. sincerely yours, . &ie- Director, Defense Financial Audits Enclosure 5 GAOkIMD-9736R DOD Problem Disbursements ENCLOSURE EWCLOSURE CoMnawr!3 FROM THE DEPARTMENT OF DEFENSE UNDER SECRETARY OF DEFENSE 1100 DEFENSE PENTAGON WASHINGTON. DC 20301-l 100 CDMmOCLER Mr. GeneL. Dodam AssistantCompdler General AccountingandInformationManagement Division U. S. GeneralAccountingOffice washington.DC 20548 DearMr.Dodmx This is theDepanment of Defense (DoD)response to theGeneralAccountingOffice (GAO) draft mpxt.TINANCIAL MANAGEMENT:DODProblemDisbmsement Reportin&”dated January24.1997(GAO Code 9188611OSD Case1285). 7%edransiidisbursementpmcessne+abushesspma5s rangirveriag(BFR)evalwim ton&imizethcSem Sudaanevaluaamisinp CheBPRhitiativeinvd~ providingaccustotbcFmanciaRepo~@Systemattbeactivibthat~~ drsbursemmDcmbehalfoftix?Navy. Anothermo~compnhdveBPRiaitiariveinvolves developinga data-tocoueudisbrusemenatilatallaawmtingstatialcan~and PO* (918861) GAOhUMD-97-36R DOD Problem Disbursements Ordering Information The-first copy of each GAO report and testimony is &ee. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit csrds are accepted, also. 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DOD Problem Disbursements
Published by the Government Accountability Office on 1997-02-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)