oversight

Improper Adjustments to Fiscal Year 1972 Other Procurement, Army Appropriation

Published by the Government Accountability Office on 1977-09-28.

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

                         DCCUMENT FF.SUME
03717 -   [R28334085

[Improper Adjustments to Fiscal Year 1972 Other Procurement,
Army Appropriation]. FGMSD-77-80; B-132900. September 28, 1977.
4 pp.

Report to Secretary, Department of Defense; by D. L.
Scantlebury, Director, Financial and General Management Studies
Div.
Issue Area: Accounting and Financial Reporting: Overobligations
    and Overexpenditures (2804).
Contact: Financial and General Management Studies Div.
Budget Function: Miscellaneous: Financial management and
    Intfrmation Systems (1002).
Organizaticn Concerned: Departr-nt of the Army.
Congressional Relevance- House Committee on Armed Services;
    Senate Committee on Armed Services.
Authority: Anti-Deficiency Act (31 U.S.C. 665).

          A review was conducted of financial management problems
in the Department cf the Army which have led tc violations of
the Anti-Deficiency Act in several procurement appropriaeions.
Findings/Conclusions: The Army made unsupported accounting
adjustments to its fiscal year (FY) 1972 Other Procurement, Army
account, improperly increasing fund resources to $33 million.
These entries involved $16.7 million at the Electronic Command
and $16.3 million at the Finance and Accounting Center. The Army
could not provide adequate support for recording the entries.
Recommendations: The Secretary of Defense should have the
Secretary of the Army direct that the entries in the P! 1972
Other Procurement, Army account be reversed. Entries to reverse
the improper adjustments should be made Defore the FY 1973 Other
Procurement, Army account is merged into the N account. If the
Army is unable to prepare properly supported adjustments to the
1972 Other Procurement, Army account, it should submit an
amended formal report of the overobligation to the President and
the Congress. (Author/SW)
                               UNITED STATES GENERAL ACCOUNTING OFFICE
                                       WA3HINGTON, D.C. 20548


NDIVISION OF P1NANCIAL AND
*,MGE.NqIL MANAGEMEMNT "'Il


               B-132900                                         SEP 28 1977,

i ยท.           The Honorable
               The Secretary of Defense

                lear Mr. Secretary:

                   As you know, we hate been asked by the Chairman of the House
              Appropriations Committee to review financial management problems in
              the Department of the Army which have led to violations of tile Anti,-
              Deficiency Act (31 U.S.C. 665) in several procurement appropiiations,
              Although our review is not completed, this report is to bring to your
              attention the need to (1) take prompt corrective action to reverse
              improper adjustments Lade to the fiscal year 1972 Other Procurement,
              Army appropriation and (2) submit ar amended report of violotion of
              the Anti-Deficiency Act to the President and the Congress.

              SCOPE OF REVIEW

                   Using pertinent Army and Defense regulations and Army accounting
              records, we made our review at the Office of the Secretary of Defense,
              Headquarters, Depart.nent of the Army, U.S. Army Finance and Accounting
              Center, U.S. Army Development and Readiness Comuand and each of its
              commodity commands. We also used work performed by the U.S. Army
              Audit Agency in its review of the Army customer order program.

              -BACKGROUND

                    In October 1975 the Army notified the Chairman of the House Appro-
              priations Committee of serious problems in the financial controls over
              its procurement appropriations. As indicated in our interim report to
              the Congress on the breakdown in the Army's finaneial management systems
              (FGMSD-76-74, Nov. 5, 1976), the Army has undergone a massive effot
              to reconcile its financial records and correct weaknesses in its pro-
              curement accounting system. The effort was prompted by violations of
              the Anti-Deficiency Act in several procurement appropriations including
              the fiscal year 1972 Other Procurement, Army appropria'iou. As of
              August 31, 1977, the Army had reported mi~re than $225 million in over-
              obligations and was continuing to research additional violations. As


                                                                         FCGMSD-77-30
                                                                         (90344)
B-132900


a result of these overobligations and the related overexpenditures,
the Army had to stop payments to contractors untii funds were approved
by the Congress to liquidate the deficiencies.

IMPROPER AUGMENTATION OF THE FISCAL YEAP. 1972
OTHER PROCUREMENT, ARMY APPROPRIATION ACCOUNT

     the Army made unsupported accounting adjustments to its fiscal
year 1972 Other Procurement, Army account, improperly increasing fund
resources by $33 million. The entries were recorded after the Army
determined that fund resource transfers authorized by the Cong.ess
were not sufficient to bring the account out of a deficit status.

     In April 1976 the Secretary of Defense. formally reported an over-
obligation of $'4.5 million in the fiscal year 1972 Other Procurement,
Army account and requested authority to transfer fund resources from
current accounts to cover the deficiency. On June 1, 1976, the     ngress
passed the Second Supplemental Appropriation, 1976, authorizing trans-
fer of fund resources to cover the deficit.

     In making its initial computation of the overobligation in the
fiscal year 1972 Other Procurement, Army account, the Army used official
record balances for January 31, 1976, and included :everal adjustments
it telt would eventually be recorded in the account as a result of on-
going review and reconciliation work.

     When the transfer of funds was approved, however, the Army had
still not documented support for, or recorded, a large projected adjust-
ment. As a result, when the authorized transfer in fund resources was
recorded on June 1, 1976, the fiscal year 1972 Other Procurement, Army
account still had a deficit balance of $19 million.

     Subsequently, the Army recorded unsupported entries to correct ap-
parent erroneous balances in the fiscal year 1972 Other Procurerent,
Army account. These entries, involving $16.7 million at the U.S. Army
Electronics Command and $16.3 million at the U.S. Army Finance and
Accounting Center, resulted in improper augmentation of fund resources
in the account by $33 million. Details of these entries follow.

Improper adjustments at the
U.S. Army Electronics Command

     In June 1976, Headquarters, Department of the Amnny, directed the
U.S. Army Electronics Command to record adjustments in the fiscal year
1972 Other Procurement, Army account, increasing the balance of orders
received and earnings by $16.7 million. This had the effect of increas-
ing the account's fund resources by a like amount. The entry was
recorded to correct an erroneous accounts receivable balance. During
the ongoing reconciliation effort, the Electronics Command had documented
$11.7 million in valid accounts receivable. Official records, however,


                                    2
B-132900



reflected a negative accounts receivable balance o' $5 million. The
erroneous balance could have been caused by (1) col.ections recorded
in the account that were properly chargeable to another account, (2)
reimbursable orders that were properly chargeable to the account but
were not recorded there-., or (3) a combination of these two condi-
tions. Alchough the Electronics Comand had recently verified the
recorded value of reimbursable orders, the Army chose to arbitrarily
increase the value of orders received, and therefore fund resources by
$16.7 million which resulted in an $11.7 million accounts receivable
balance on official records. The other possible adjustments, i.e.,
reducing collections in the account or a combination of reducing col-,
lections and increasing orders received, were apparently not seriously
considered. Such entries would have reduced the overall cash balance
in She account, thereby possibly precluding resumnption of payments to
contractors.

improper adjustments at the U.S. Army
Finance and Accounting Center

     Also in June 1976, as directed by Headquarters, Department of tse
Army, the U.S. Army Finance and Accounting Center arbitrarily reduced
unliquidated obligations in the fiscal year 1972 Other Procurement,
Army account on departmental records by recording a negative obligation
and a negative disbursement of $15.9 million. In addition, at the
direction of Headquarters, Department of the Army, the Finance Center
arbitrarily increased the balance of orders received and earnings by
$0.4 million. The journal voucher on which these entries were recorded
was prepared on June 21, 1976, but was backdated to be included in
May 31, 1976, official reports. Together, these entries had the effect
of increasing fund resources in the fiscal year 1972 Other Procurement,
Army account by $16.3 million.

     Army officials stated that the entries were recorded to bring
balances of disbursements and collections reported by accounting sta-
tions into agreement with amounts reported by disbursing offices.
Although we agree with the need to bring the two sets of figures into
agreement, we found no justification to write off, in effect, obliga-
tions and disbursements on departmental records,

CONCLUSION

     Adjusting entries recorded at the Electronics Command and the
Finance Center improperly augmented fund resources in the fiscal year
1972 Other Procurement, Army account by $33 million. The Army could not
provide adequate support for recording the entries and, accordingly,
they should be reversed.



                                    3
B-132900



RECOMMENDATION

     We recommend that the Secretary of Defense have the Secretary of
the Army direct that the above described entries in the fiscal year
1972 Other Procurement, Army iccount be reversed. Entries to reverse
the improper adjustments shN-...d ba made before the fiscal year 1973
Other Procurement, Army acconlt is merged into the M account.

     If the Army inl unable to prepare properly supported adjustmenm.ts
to the 1972 Other F'rocuremen.t, Army account, it should submit an amended
formal report of the overobligation to the President and the Congress.



     As you know, section 236 of the Legislative Reorganization Act of
1970 requires the head of a Federal agency to submit a written statemeat
on actions taken on our re;ommendations to the House Committee on
Government Operations and the Senate Committee on Governmental Affairs
not later than 60 days after the date of the report and to the House
and Senate Committees on Appropriations with the agency's first request
for appropriations made more than 60 days after the date of the report.

     We are sending copies of thie report today to the House Committee
on Government Operations and the Senate Committee on Goverw;ental
Affairs; the House and Senate Committees on Appropriations and Armed
Services; the Director, Office of Management and Budget; and the Secre-
tary of the Army.

                                   Sincerely your<,




                                   D. L. Scantlebury
                                   Director