DOD FINANCIAL 

MANAGEMENT

Actions Under Way 

Need to Be 

Successfully 

Completed to Address 

Long-standing Funds 

Control Weaknesses

Report to Congressional Requesters

April 2014

GAO-14-94

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-94, a report to 

congressional requesters

April 2014

DOD FINANCIAL MANAGEMENT

Actions Under Way Need to Be Successfully 

Completed to Address Long-standing Funds Control 

Weaknesses

Why GAO Did This Study

GAO, the DOD Inspector General (IG), 

and others have reported on DOD’s 

inability to provide effective control 

over the use of public funds (i.e., funds 

control). Funds control requires 

obligations and expenditures to comply 

with applicable law. Funds control 

weaknesses have prevented DOD 

from reporting reliable financial 

information, including information on 

the use of public funds, results of 

operations, and financial statements, 

and put DOD at risk of overobligating 

and overexpending its appropriations 

in violation of the Antideficiency Act 

(ADA). 

GAO was asked to review the status of 

DOD’s efforts to address its funds 

control weaknesses. GAO’s objectives 

were to determine the (1) extent of

reported weaknesses in DOD’s funds 

control and their effect and (2) status of 

DOD’s corrective actions to address 

known weaknesses. GAO analyzed 

333 GAO, DOD IG, and military 

department audit reports; DOD reports 

of ADA violations; and selected DOD 

financial reports. GAO also examined 

DOD actions to address audit findings 

and ADA violations, including actions 

under DOD’s FIAR Plan, and 

discussed corrective actions on funds 

control weaknesses with DOD and 

military department auditors and 

financial managers. 

What GAO Recommends

GAO is not making recommendations 

in this report because DOD already 

has numerous actions under way to 

address funds control weaknesses. 

DOD stated that it appreciates GAO’s 

review and that past deficiencies have 

informed actions it has under way to 

address its funds control weaknesses. 

What GAO Found

GAO’s analysis of 333 reports related to Department of Defense (DOD) funds 

control, issued in fiscal years 2007 through 2013, identified over 1,000 funds 

control weaknesses related to (1) training, supervision, and management 

oversight; (2) proper authorization, recording, documentation, and reporting of 

transactions; and (3) business system compliance with federal laws and 

accounting standards. Many of the reports GAO reviewed included multiple 

findings.

Reported DOD Funds Control Weaknesses by Major Category

GAO found that these weaknesses led DOD to make program and operational 

decisions based on unreliable data and impaired DOD’s ability to improve its 

financial management. Fundamental weaknesses in funds control significantly 

impaired DOD’s ability to (1) properly use resources, (2) produce reliable 

financial reports on the results of operations, and (3) meet its audit readiness 

goals.

DOD has actions under way to address its department-wide funds control 

weaknesses. These actions, several of which are targeted for completion in 

2017, include

• a DOD Financial Manager Certification Program intended to establish a 

framework to guide training and development of DOD’s 54,000 financial 

management personnel at the staff, supervisory, and leadership levels; 

• transaction control testing and corrective action plans under its Financial 

Improvement and Audit Readiness (FIAR) Plan for reporting on the use of 

budgetary resources with regard to categories of transactions, such as fund 

balances, outlays, military and civilian payroll, and contract pay; and

• testing under the FIAR Plan of material DOD component business system 

controls and service-provider systems and processes as well as military 

department actions to address enterprise resource planning system design 

and implementation issues. 

DOD leadership says it is committed to achieving effective fund controls to 

support financial accountability and reliable information for day-to-day

management decision making and auditable financial statements. However, 

because some of the corrective actions on long-standing funds control 

weaknesses are not expected to be completed until 2017, these weaknesses, 

until fully resolved, will continue to adversely affect DOD’s ability to achieve its 

goals for financial accountability, including the ability to produce consistent, 

reliable, and sustainable financial information for day-to-day decision making. 

Sustained leadership commitment will be critical to achieving success.

View GAO-14-94. For more information, 

contact Asif A. Khan at (202) 512-9869 or 

khana@gao.gov.
Page i GAO-14-94 DOD Funds Control

Letter 1 

Background 6

Pervasive Funds Control Weaknesses Impair the Effectiveness of 

DOD’s Financial Management Operations 11

DOD Has Actions Under Way to Address Many DOD-Wide Funds 

Control Weaknesses, but Effective Implementation Will Be 

Critical 34

Concluding Observations 45

Agency Comments 45

Appendix I Scope and Methodology 48

Appendix II Details of Reported DOD Funds Control Weaknesses by Category 52

Appendix III Comments from the Department of Defense 54

Appendix IV GAO Contact and Staff Acknowledgments 55

Tables

Table 1: Reported DOD Adjustments to Reconcile Its Fiscal Year 

2013 Fund Balance to Treasury Records 30

Table 2: DOD Suspense Account Balances for Fiscal Year-End 

2010 through Fiscal Year-End 2013 31

Table 3: DOD Financial Management Certification Program 

Training Requirements by Level 37

Table 4: Number, Type, and Time Frame of GAO, Department of 

Defense, Defense Inspector General, and Military Service 

Reports Reviewed 49

Figures

Figure 1: Comparison of DOD’s Requested Fiscal Year 2014 

Discretionary Budget Authority with That of Other Federal 

Agencies 6

Contents
Page ii GAO-14-94 DOD Funds Control

Figure 2: Reported DOD Funds Control Weaknesses by Major 

Category 12

Figure 3: Military Service ADA and Other Fiscal Law Violations 

Reported by DOD (Fiscal Year 2007 through Fiscal Year 

2012) 28

Figure 4: DOD Timeline for Validation of Corrective Actions on 

Transaction Controls by Statement of Budgetary 

Resources Assessable Unit 39

Figure 5: Timeline for Validation of Audit Readiness for DOD 

Service-Provider Operating System Controls 41

Figure 6: Reported DOD Funds Control Weaknesses by Major 

Category, Nature of Finding, and Reporting Agency 53
Page iii GAO-14-94 DOD Funds Control

Abbreviations

ADA Antideficiency Act

CPE Continuing Professional Education

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency

DDRS Defense Departmental Reporting System

DEAMS Defense Enterprise Accounting and Management System

DERF Defense Emergency Response Fund

DFAS Defense Finance and Accounting Service

DOD Department of Defense

ERP enterprise resource planning

FBWT Fund Balance with Treasury

FFMIA Federal Financial Management Improvement Act of 1996

FIAR Financial Improvement and Audit Readiness

FISCAM Federal Information System Controls Audit Manual

FMFIA Federal Managers’ Financial Integrity Act

FMR Financial Management Regulation 

GAAP U.S. generally accepted accounting principles

GFEBS General Fund Enterprise Business System

IG Inspector General

IPERA Improper Payments Elimination and Recovery Act

LMP Logistics Modernization Program

NASBA National Association of State Boards of Accounting

NDAA National Defense Authorization Act

OMB Office of Management and Budget

SBR Statement of Budgetary Resources

SFIS Standard Financial Information Structure

SSAE Statement on Standards for Attestation Engagements

USSGL U.S. Standard General Ledger

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Page 1 GAO-14-94 DOD Funds Control

441 G St. N.W.

Washington, DC 20548

April 29, 2014

The Honorable Thomas R. Carper

Chairman

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Claire McCaskill

Chairman

Subcommittee on Financial and Contracting Oversight

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable K. Michael Conaway

House of Representatives

In a time of fiscal and budgetary constraints, federal agencies need to 

make the best use of their allotted funds and demonstrate careful 

stewardship in their reporting to Congress and the public. The 

Department of Defense (DOD) is one of the largest and most complex 

organizations in the world. With over $1 trillion in total budgetary 

resources, DOD has reported that it obligates an average of $2 billion to 

$3 billion daily and makes hundreds of thousands of payments, such as 

payroll, travel, utility, and contract payments, including payments in war 

zones. DOD’s worldwide operations span a wide range of defense 

organizations and business functions and rely on over 2,200 business 
 

Page 2 GAO-14-94 DOD Funds Control

systems, including accounting systems and acquisition, logistics, and 

personnel systems that feed financial data to accounting systems.1

For years, we, the DOD Inspector General (IG), and others have reported 

on DOD’s inability to provide effective control over the public funds it is 

responsible for or to reliably report on its obligation and outlay of those 

funds. In September 2011, we testified that DOD’s weak internal control 

environment for funds control hindered its ability to ensure that 

transactions were accurately recorded, sufficiently supported, and 

properly executed by trained personnel subject to effective supervision.2

DOD’s funds control weaknesses have prevented it from reporting reliable 

financial information, including information on budget execution and 

results of operations. Funds control weaknesses have also resulted in 

violations of the Antideficiency Act (ADA), specifically through 

overobligating or overexpending available budgetary resources.3 Like 

other executive agencies, DOD is required by the ADA to prescribe by 

regulation a system of administrative control of funds, designed to restrict 

obligations or expenditures to the applicable legal limitations on their 

amount, and to enable the head of the agency to fix responsibility for any 

 

1

DOD excludes from its business systems those designated as national security systems 

under section 2222(j) of Title 10, United States Code. National security systems are 

information systems where the function, operation, or use involves intelligence activities, 

cryptologic (secure communication) activities related to national security, command and 

control of military forces, equipment that is an integral part of a weapon or weapon system 

or is critical to the direct fulfillment of military or intelligence missions (unless used for 

routine administrative and business applications), or is protected at all times by 

classification procedures in the interest of national defense or foreign relations, as 

authorized by law or executive order. 

2

GAO, DOD Financial Management: Weaknesses in Controls over the Use of Public 

Funds and Related Improper Payments, GAO-11-950T (Washington, D.C.: Sept. 22, 

2011). 

3

31 U.S.C. §§ 1341-42, 1349-52, 1511-19. Budgetary resources are amounts available to 

enter into new obligations and to liquidate them. Budgetary resources are made up of new 

budget authority (including direct spending authority provided in existing statute and 

obligation limitations) and unobligated balances of budgetary resources provided in 

previous years. 
 

Page 3 GAO-14-94 DOD Funds Control

obligation or expenditure exceeding these limits.4 These regulations are 

commonly referred to as “funds control regulations.”

5

DOD has acknowledged that long-standing weaknesses in its internal 

controls, business systems, and processes have prevented auditors from 

determining the reliability of its financial statements, including information 

on budgeted spending, which is reported in DOD’s Statement of 

Budgetary Resources (SBR) and information on the cost of operations, 

which is reported in DOD’s Statement of Net Cost.6 The Financial 

Improvement and Audit Readiness (FIAR) Plan, which was first prepared 

in 2005, is DOD’s strategic plan and management tool for guiding, 

monitoring, and reporting on the department’s financial management 

improvement efforts. As such, the plan communicates incremental 

progress in addressing the department’s financial management 

weaknesses and achieving financial statement auditability (i.e., audit 

readiness).

The National Defense Authorization Act (NDAA) for Fiscal Year 2010 

mandated that the FIAR Plan include the specific actions to be taken to 

correct the financial management deficiencies that impair the 

department’s ability to prepare timely, reliable, and complete financial 

management information.7 In May 2010, the DOD Comptroller issued the 

FIAR Guidance to implement the FIAR Plan. The FIAR Guidance 

provides a standardized methodology for DOD components to follow for 

achieving financial management improvements and auditability. The FIAR 

Guidance requires DOD components to identify and prioritize their 

 

4

31 U.S.C. § 1514(a). DOD’s regulations carrying out this requirement are in the DOD 

Financial Management Regulation (FMR), 7000.14R, vol. 14, ch. 1, “Administrative 

Control of Funds” (January 2009). DOD’s FMR is issued under the authority of DOD 

Instruction 7000.14, Department of Defense Financial Management Policy and 

Procedures (rev. Sept. 17, 2008). The DOD FMR directs statutory and regulatory financial 

management requirements, systems, and functions for all appropriated and 

nonappropriated working capital, revolving, and trust fund activities. 

5

Office of Management and Budget, Preparation, Submission, and Execution of the 

Budget, Circular No. A-11, Section150.1 (Aug. 3, 2012). 

6

Because DOD does not have appropriate cost accounting systems, it uses obligation and 

expenditure data to calculate costs. The reliability of this information is impaired not only 

because obligation data do not represent costs, but also because DOD obligation data are 

unreliable.

7

Pub. L. No.111-84, §1003(a)(2) (Oct. 28, 2009). 
 

Page 4 GAO-14-94 DOD Funds Control

business processes into assessable units, and then prepare a Financial 

Improvement Plan for each assessable unit in accordance with the FIAR 

Guidance.8 The FIAR Guidance also addresses the need for adequate 

transaction controls for each assessable unit, including proper 

authorization, accurate recording, adequate support, and accurate and 

timely reporting of obligation and disbursement transactions. These 

transaction controls are key to effective funds control.

You asked us to review DOD’s internal control over its use of public 

funds. Our objectives were to determine the (1) extent of reported 

weaknesses in DOD’s funds control and their effect and (2) status of 

DOD’s corrective actions to address known weaknesses. To address our 

first objective, we reviewed issues identified in our prior reports on DOD 

funds control and reports on DOD funds control issued by the DOD IG

from fiscal years 2007 through 2012 and military department auditors 

from fiscal year 2010 through March 2012.9 We also reviewed all of 

DOD’s reports to Congress on ADA violations for fiscal years 2007 

through 2012 that were also sent to GAO, the military departments’ 

annual reports on evaluation of their funds control processes and 

processing of ADA violations for 2011 and 2012, and DOD and military 

department fiscal year 2011 and 2012 Statements of Assurance under 

the law commonly known as the Federal Managers’ Financial Integrity Act 

(FMFIA),10 and Agency Financial Reports11 for fiscal years 2011 through 

2012. We analyzed internal control weaknesses identified in these reports 

to determine the effect of funds control weaknesses with regard to the 

proper use of resources, reliable financial reporting on operations, and 

the success of audit readiness efforts. In addition, we reviewed DOD ADA 

reports, FIAR Plan Status Reports, and DOD and military department 

 

8

DOD defines an assessable unit as any part of the financial statements, such as a line 

item or a class of assets, a class of transactions, or a process or a system that helps 

produce the financial statements. 

9

DOD has three military departments: the Department of the Army, Department of the 

Navy, and Department of the Air Force. The Department of the Navy includes two military 

services: the Navy and the Marine Corps. Accordingly, the Naval Audit Service performs 

audits of both the Navy and the Marine Corps. 

1031 U.S.C. § 3512(c), (d). 

11DOD’s Agency Financial Reports provide an overview of the department’s financial 

information and performance goals and objectives. Additional information, such as the 

department’s reporting on improper payments, is in addendum A of the financial reports. 
 

Page 5 GAO-14-94 DOD Funds Control

Agency Financial Reports for fiscal year 2013 to determine if the identified 

weaknesses continued to exist.

To address our second objective, we reviewed DOD corrective actions 

under DOD’s FIAR Plan and actions being taken outside of the FIAR 

Plan, such as efforts to develop and implement enterprise resource

planning (ERP) systems.12 We met with DOD IG and military department 

audit managers and reviewed auditor data on the status of military 

department actions to address funds control-related audit 

recommendations. We also met with DOD and military department 

financial managers, including managers responsible for audit readiness, 

to discuss their efforts to resolve findings of funds control weaknesses as 

well as corrective actions on related material weaknesses disclosed in 

their annual evaluations of funds control and annual Statements of 

Assurance regarding the effectiveness of internal controls, including 

controls over financial reporting.13 We assessed the DOD IG’s audit 

quality procedures for assuring the reliability of support for reporting 

findings and recommendations and the status of corrective actions to 

address auditor recommendations.14 Our analysis of over 300 audit and 

financial reports on DOD financial management operations issued over 

the last 7 years identified over 1,000 funds control weaknesses. Based on 

our review of DOD’s audit quality procedures and our comparison of 

auditor reports and DOD disclosures of financial management 

weaknesses, we determined the reported data and information to be 

reliable for the purposes of our work.

We conducted this performance audit from November 2011 to April 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

 

12An ERP system is an automated system using commercial off-the-shelf software 

consisting of multiple, integrated functional modules that perform a variety of businessrelated tasks, such as general ledger accounting, payroll, and supply chain management. 

13A material weakness is a deficiency, or combination of deficiencies, in internal control 

such that there is a reasonable possibility that a material misstatement of the entity’s 

financial statements will not be prevented, or detected and corrected, on a timely basis. A 

deficiency in internal control exists when the design or operation of a control does not 

allow management or employees, in the normal course of performing their assigned 

functions, to prevent, or detect and correct, misstatements on a timely basis. 

14Department of Defense, DOD Audit Manual, Manual 7600.07-M, enc. 11 (Feb. 13, 

2009). 
 

Page 6 GAO-14-94 DOD Funds Control

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. Appendix I provides further 

details of our scope and methodology.

DOD’s mission is to provide the military forces needed to deter war and 

protect the security of the United States. As shown in figure 1, the 

discretionary budget authority requested by DOD for fiscal year 2014 

comprises about 53 percent of the budget request for discretionary 

programs throughout the federal government.15 DOD’s approximately 

$606 billion in requested fiscal year 2014 funding includes $526.6 billion 

in spending authority for departmental operations and $79.4 billion to 

support overseas contingency operations, such as those in Afghanistan.

Figure 1: Comparison of DOD’s Requested Fiscal Year 2014 Discretionary Budget 

Authority with That of Other Federal Agencies 

 

15Budget authority is authority provided by federal law to enter into financial obligations 

that will result in immediate or future outlays involving federal government funds. The 

basic forms of budget authority include (1) appropriations, (2) borrowing authority, 

(3) contract authority, and (4) authority to obligate and expend offsetting receipts and 

collections. “Discretionary” refers to the level of budget authority (other than those which 

fund mandatory programs) that is provided in and controlled by appropriation acts. 

Background
 

Page 7 GAO-14-94 DOD Funds Control

The Budget and Accounting Procedures Act of 195016 and FMFIA placed 

primary responsibility for establishing and maintaining internal control on 

the heads of federal agencies. FMFIA requires executive agencies to 

establish internal controls that reasonably ensure that obligations and 

costs comply with applicable law; that all assets are safeguarded against 

waste, loss, unauthorized use, and misappropriation; and that revenues 

and expenditures applicable to agency operations are recorded and 

accounted for properly.17 Those internal controls that pertain to the 

obligation, disbursement, and receipt of agency funds, as well as the 

recording of those transactions, are referred to in this report as funds 

control. Internal control is an integral component of an organization’s 

management that when properly implemented and operating effectively, 

provides reasonable assurance that the following objectives are being 

achieved: (1) effectiveness and efficiency of operations, (2) reliability of 

financial reporting, and (3) compliance with laws and regulations.18 Within 

this broad framework, DOD must design and implement effective controls, 

including funds control, and internal control over financial reporting. 

Auditors of DOD’s financial statements are to assess the effectiveness of 

these controls as part of a financial statement audit.

Because budgetary information is widely and regularly used for 

management decision making on programs and operations, the Office of 

the Under Secretary of Defense (Comptroller)/Chief Financial Officer, 

commonly referred to as the DOD Comptroller, designated the SBR as 

DOD’s first priority for improving its financial management and achieving 

audit readiness. The financial information in the SBR is predominantly 

derived from a federal entity’s budgetary accounts, which are used by the 

entity to account for and track the use of public funds in accordance with 

 

16Pub. L. No. 81-784, § 113, 64 Stat. 832, 836 (Sept. 12, 1950), codified as amended at

31 U.S.C. § 3512(b). 

1731 U.S.C. § 3512(c)(1)(A)-(C). 

18The concept of reasonable assurance recognizes that no matter how well-designed and 

well-operated, internal control cannot provide absolute assurance that an entity’s 

objectives will be met. Management should design and implement internal control based 

on the related costs and benefits. 

Legal Framework for 

Internal Control
 

Page 8 GAO-14-94 DOD Funds Control

budgetary accounting rules.19 The SBR provides information about 

budgetary resources made available to an agency as well as the status of 

those resources at a specific point in time. According to the Office of 

Management and Budget (OMB), the SBR was added as a basic federal 

financial statement so that the underlying budgetary accounting 

information could be audited and would, therefore, be more reliable for 

routine management use and budgetary reporting, including reporting in 

the President’s Budget.

As noted above, one of the objectives of internal control generally, and 

funds control in particular, is to ensure compliance with applicable law. 

Executive agencies’ use of federal funds is governed by fiscal statutes 

that establish specific funds control requirements. Many of these laws 

have been codified in Title 31 of the United States Code, particularly in 

chapters 13, 15, and 33. These chapters contain the laws known 

commonly as the ADA, the Recording statute,20 the Miscellaneous 

Receipts statute,21 the Purpose statute,22 and the Bona Fide Needs 

statute,23 as well as the provisions establishing the procedures and 

officials responsible for the disbursement of federal funds24 and the 

provisions that govern the closing of appropriations accounts known as 

the Account Closing Statute.25 Many other government-wide and agencyspecific provisions of permanent law govern the use of federal funds, 

 

19Budgetary accounting rules are incorporated into generally accepted accounting 

principles (GAAP) for the federal government. For additional information on the two 

methods of tracking the use of public funds, see app. III to GAO, A Glossary of Terms 

Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: September 

2005). 

2031 U.S.C. § 1501(a) (establishes the basic rules for when to record an obligation). 

2131 U.S.C. § 3302(b) (absent statutory authority to do otherwise, any funds received by 

an agency must be deposited in the general fund of the Treasury).

2231 U.S.C § 1301(a) (appropriations shall be applied only to the objects for which the 

appropriations were made, except as otherwise provided by law). 

2331 U.S.C. § 1502(a) (in general, appropriations may only be used for needs arising 

within the period of their availability for obligation).

2431 U.S.C. §§ 3321-36.

2531 U.S.C. §§ 1551-58. 

Statutory Requirements 

for Funds Control
 

Page 9 GAO-14-94 DOD Funds Control

such as the Adequacy of Appropriations Act26 and limitations on DOD 

incurring obligations for business system modernization,27 as do the 

provisions of annual appropriations acts. Appropriations acts prescribe 

the purpose, amount, and time for which appropriations are available for 

obligation and expenditure, and they often include additional permanent 

and temporary fiscal guidance.

The ADA, in particular, is central to Congress’s ability to uphold its 

constitutional power of the purse, to hold executive branch officials 

accountable for proper use of budgetary resources, and to ensure proper 

stewardship and transparency of the use of public funds. As noted above, 

the act requires heads of federal agencies to establish by regulation a 

system of administrative controls over obligations and expenditures, 

commonly referred to as funds control regulations. The act also includes 

certain prohibitions, such as prohibiting federal officers and employees 

from authorizing or making obligations or expenditures in excess of the 

 

2641 U.S.C. § 6301 (in general, bars any contract or purchase on behalf of the 

government unless it is authorized by law or is under an appropriation adequate to its 

fulfillment). 

2710 U.S.C. § 2222.
 

Page 10 GAO-14-94 DOD Funds Control

amount available in an apportionment or reapportionment,28 an 

appropriation or fund,29 or an allotment30 unless authorized by law.

Once it is determined that there has been a violation, the ADA requires 

the agency head to report immediately to the President and Congress all 

relevant facts and a statement of actions taken, and transmit a copy of 

the report to the Comptroller General. The ADA also provides for possible 

administrative and criminal penalties for employees responsible for 

violations.

 

28An apportionment is a plan, approved by OMB for executive branch agencies, to spend 

budgetary resources provided by one of the annual appropriation acts, a supplemental 

appropriations act, a continuing resolution, or a permanent law. The apportionment 

identifies amounts available for obligation and expenditure and specifies and limits the 

time periods, programs, activities, projects, objects, or any combination thereof. A 

reapportionment is a revision of a previous apportionment of budgetary resources for an 

appropriation or fund account. Agencies usually submit requests for reapportionment to 

OMB as soon as a change becomes necessary because of changes in amounts available, 

program requirements, or cost factors. 

29An appropriation is a basic form of budget authority to incur obligations and to make 

payments from the Treasury for specific purposes. Appropriations do not represent cash 

actually set aside in the Treasury. Instead, they represent amounts that agencies may 

obligate during the period of time specified in the respective appropriation acts. A fund is a 

group of accounts, other than trust funds, that are designated to collect and disburse 

moneys for a specific purpose. Federal funds include general funds (accounts holding 

money not allocated by law to any other fund account), special funds (accounts 

earmarked by law for a specific purpose), public enterprise funds (accounts for businesstype activity transactions), and intergovernmental funds (which facilitate financing 

transactions primarily within and between federal agencies). A trust fund is a type of 

account, designated by law, for accounting for receipts and expenditures of receipts 

dedicated to specific purposes. The Federal Highways Trust Fund is an example. 

30An allotment is an authorization by an agency head or another authorized employee to 

subordinates to incur obligations within a specified amount. The amount allotted by an 

agency cannot exceed the amount apportioned by OMB.
 

Page 11 GAO-14-94 DOD Funds Control

Our analysis of over 300 audit and financial reports on DOD financial 

management operations issued over the last 7 years identified over 1,000 

funds control weaknesses. We grouped these weaknesses into three 

major categories: (1) inadequate training, supervision, and management 

oversight; (2) ineffective transaction controls; and (3) inadequate 

business systems. In fiscal year 2013, the DOD Comptroller and DOD 

auditors continued to report funds control weaknesses and ADA violations 

related to these same areas. For example, in its November 2013 Agency 

Financial Report, DOD self-reported 16 material weaknesses in financial 

reporting, noting that it had no assurance of the effectiveness of the 

related controls. These weaknesses place DOD at risk of making program 

and operational decisions based on unreliable data and impair DOD’s 

ability to improve its financial management operations and achieve the 

department’s audit readiness goals. The long-standing, pervasive nature 

of funds control weaknesses poses a significant impediment to reliable 

financial management operations, including proper use of resources and 

achieving financial audit readiness as well as accountability and 

stewardship of taxpayer funds entrusted to DOD management. As 

discussed later in this report, DOD has numerous corrective actions 

under way to address these weaknesses, including actions related to its 

audit readiness efforts as well as efforts to address findings in auditor and 

ADA reports.

Our analysis identified long-standing weaknesses across DOD 

components related to the following three areas:

(1) Inadequate training, supervision, and management oversight of 

budgetary processes and controls. Training assures that personnel have 

the skills to carry out their assigned duties. Supervision is day-to-day 

guidance by a supervisor and management oversight involves assuring 

adequate supervisory guidance and training as well as overall monitoring 

of the subject matter area.

(2) Inadequate transaction controls. These controls cover proper 

authorization and recording of budgetary transactions, such as obligations 

and disbursements (outlays); maintaining adequate supporting 

documentation; and proper and timely reporting of transactions, related 

summaries, and financial reports.

(3) Ineffective business systems. This category refers to business 

systems that do not have effective controls for recording, supporting, and 

reporting financial transactions, including budgetary transactions, and 

Pervasive Funds 

Control Weaknesses 

Impair the 

Effectiveness of 

DOD’s Financial 

Management 

Operations

Auditors and DOD 

Management Continue to 

Report Pervasive Funds 

Control Weaknesses
 

Page 12 GAO-14-94 DOD Funds Control

therefore, do not provide adequate controls over financial reporting on the 

results of operations and do not assure compliance with laws, such as the 

Federal Financial Management Improvement Act of 1996 (FFMIA) and 

the ADA.31 Figure 2 summarizes 1,006 reported funds control 

weaknesses that span DOD budgetary accounting, funds control, and 

financial reporting by three categories.

Figure 2: Reported DOD Funds Control Weaknesses by Major Category

Examples of findings related to the three major categories of funds control 

weaknesses follow. Many of the funds control reports identified more than 

one weakness. See appendix II for additional details on these findings.

Training, supervision, and management oversight. In its November 

2013 FIAR Plan Status Report, DOD continued to identify unqualified or 

inexperienced personnel, not only at the working level but also in seniorlevel positions, as a risk to achieving sound financial management 

operations and auditability. Standards for Internal Control in the Federal 

Government states that effective management of an organization’s 

workforce is essential to achieving positive results and is an important 

part of internal control.32 Qualified and continuous supervision should be 

provided to ensure that internal control objectives are achieved. In 

addition, deficiencies found during ongoing monitoring should be 

communicated to the individual responsible and to at least one level of 

management above that individual. Serious matters should be reported to 

 

31Pub. L. No. 104-208, div. A, title VIII, § 803, 110 Stat. 3009, 3009-390 (Sept. 30, 1996). 

DOD’s financial management systems are required by FFMIA to comply with federal 

financial management systems requirements, applicable federal accounting standards, 

and the U.S. Government Standard General Ledger at the transaction level.

32GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 
 

Page 13 GAO-14-94 DOD Funds Control

top management. To help address skill needs, the NDAA for Fiscal Year 

2012 authorized the DOD Comptroller to develop a financial management 

training and certification program.33 FIAR Plan Status Reports continue to 

identify the need for knowledgeable and qualified personnel as critical to 

achieving DOD’s financial improvement and audit readiness goals. DOD’s 

November 2013 FIAR Plan Status Report also identified a risk associated 

with identified control weaknesses not being corrected. DOD reported that 

the DOD Comptroller was formalizing a process and establishing a 

tracking system to closely monitor actions on independent auditor findings 

and recommendations resulting from financial audit readiness testing. 

Federal internal control standards also state that internal control 

monitoring should assess the quality of performance over time and 

ensure that the findings of audits and other reviews are promptly 

resolved.

The following examples illustrate long-standing and persistent funds 

control weaknesses in the area of training, supervision, and management 

oversight that we and others have identified in the past. As discussed 

later in this report, DOD has corrective actions under way through audit 

readiness efforts under the FIAR Plan and through other efforts related to 

improving training.

• In 2012, we reported34 that the training on the Army’s General Fund 

Enterprise Business System (GFEBS)35 and the Air Force’s Defense 

 

33Pub. L. No. 112-81, § 1051 (Dec. 31, 2011), codified at 10 U.S.C. § 1599d.

34GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force 

Business Systems Could Jeopardize DOD’s Auditability Goals, GAO-12-134 (Washington, 

D.C.: Feb. 28, 2012). 

35GFEBS, initiated by the Army in October 2004, is intended to support the Army’s 

standardized financial management and accounting practices for the Army’s general fund, 

with the exception of the Army Corps of Engineers, which will continue to use its existing 

financial system, the Corps of Engineers Financial Management System. The Army 

estimates that when fully implemented, GFEBS will be used to control and account for 

about $140 billion in annual spending. An agency’s general fund accounts are those 

accounts in the Treasury holding all federal money administered by an agency that is not 

allocated by law to any other fund account. 
 

Page 14 GAO-14-94 DOD Funds Control

Enterprise Accounting and Management System (DEAMS)36 focused 

on a systems overview and how the systems were supposed to 

operate. While this was beneficial in identifying how GFEBS and 

DEAMS were different from the existing legacy systems, the training 

focused too much on concepts rather than the skills needed for users 

to perform their day-to-day operations. Without personnel with 

adequate skill sets and training to properly use the new systems, 

DOD staff members will not be positioned to control the use of funds 

for which they are responsible. We made five recommendations to the 

Secretary of Defense to ensure the correction of system problems 

prior to further system deployment, including user training. DOD 

concurred with four and partially concurred with one of the 

recommendations and described its efforts to address them. With 

regard to the partial concurrence, DOD stated that based on the

nature of an identified system deficiency, it will determine whether to 

defer system implementation until it is corrected.

• In March 2010, Navy auditors reported that the Navy provided 

insufficient supervision of personnel responsible for documenting 

receipt and acceptance of goods and services and for processing 

invoices. As a result, Navy commands had incomplete documentation 

with which to validate the accuracy of 53 invoices valued at $231,555 

for 19 contracts at three Navy Fleet Readiness Centers.37 Without 

effective supervision to ensure that sufficient documentation exists 

prior to payment, the reliability of Navy invoice payments 

(disbursements) is at risk. In addition, not properly managing the 

invoice process increases the risk of improper or fraudulent payments.

• In June 2010, Air Force auditors reported on their audit of the Air 

Force’s tri-annual review process, stating that the service experienced 

significant recurring difficulties in identifying and deobligating 

 

36DEAMS was initiated in August 2003 and is intended to provide the Air Force with the 

entire spectrum of financial management capabilities, including collections, commitments 

and obligations, cost accounting, general ledger, funds control, receipts and acceptance, 

accounts payable and disbursement, billing, and financial reporting for the general fund. 

According to Air Force officials, when DEAMS is fully operational, it is expected to 

maintain control and accountability for about $160 billion in annual spending. 

37Naval Audit Service, Invoice Management at Fleet Readiness Centers, N2010-0015 

(Washington, D.C.: Mar. 10, 2010). 
 

Page 15 GAO-14-94 DOD Funds Control

unneeded obligation amounts.38 From fiscal years 2006 through 2010, 

Air Force audit reports identified a 42-percent error rate for periodic 

review to monitor and adjust obligations as required by DOD policy. 

The DOD Financial Management Regulation (FMR) requires 

component organizations to perform tri-annual reviews to monitor 

commitment and obligation transactions for timeliness, accuracy, and 

completeness.39 Specifically, reviewers are required to review and 

determine the validity of commitments and obligations that have had 

no activity (expenditures or adjustments) for 120 days and deobligate 

any unneeded amounts of unliquidated obligations. Financial 

managers are required to implement effective internal controls to 

ensure timely completion of tri-annual reviews and any identified 

corrective actions. However, Air Force Audit Agency reviews have 

reported that the Tri-annual Review Program did not identify millions 

of dollars of unsupported obligations that could have been used for 

other mission requirements.40

• In July 2010, the DOD IG reported that the Army mismanaged 

$110 million of its Defense Emergency Response Fund (DERF) 

funding.41 According to the DOD IG report, when the Army spent its 

DERF emergency supplemental appropriations for items such as 

unrelated building repairs, furniture, and spare parts, instead of DOD 

needs arising from the terrorist attacks of September 11, 2001, it 

potentially violated the Purpose Statute (appropriations are applied to 

the objects for which they were made) and the Bona Fide Needs Rule 

(appropriations may only be used for needs arising within the period 

of their availability). The DOD IG report stated that the potential ADA 

violations occurred because the Army commands involved did not 

 

38Deobligating refers to the process of adjusting unneeded obligations by decreasing or 

eliminating amounts previously obligated to the extent that obligated amounts are not 

needed to cover expenditures.

39DOD, FMR, vol. 3, ch. 8, “Standards for Recording and Reviewing Commitments and 

Obligations,” § 0804 (September 2009). DOD’s FMR defines the tri-annual review process 

as an internal control practice used to assess whether commitments and obligations 

recorded are bona fide needs of the appropriations charged. 

40Air Force Audit Agency, Tri-annual Review Program Implementation, F2010-0008-

FB3000 (Washington, D.C.: June 29, 2010), and Air National Guard Tri-annual Review 

Process, F2010-0007-FB3000 (Washington, D.C.: Apr. 6, 2010). 

41Department of Defense Inspector General, Management of Emergency Supplemental 

Appropriations at Selected Department of the Army Commands in Response to the 

Terrorist Attacks, D-2010-072 (Arlington, VA: July 12, 2010). 
 

Page 16 GAO-14-94 DOD Funds Control

follow DOD policies and procedures to ensure that appropriated funds 

were expended for their intended purposes. The DOD IG made 

recommendations directed at improving related training and 

monitoring activities to ensure compliance with legal requirements and 

DOD policies.

Transaction controls. Auditors have reported on DOD’s inability to 

provide effective funds control and report reliable financial information, 

including budgetary information for many years.42 DOD’s challenges in 

properly recording and adequately supporting its obligations and 

disbursements have impaired its ability to track and control the use of 

public funds. Standards for Internal Control in the Federal Government

states that transactions should be promptly recorded to maintain their 

relevance and value to management in controlling operations and making 

decisions.43 All transactions and other significant events need to be 

clearly documented, and the documentation should be readily available 

for examination. Federal internal control standards further state that key 

duties and responsibilities need to be divided or segregated among 

different people to reduce the risk of error or fraud. According to DOD’s 

FMR, obligations and expenditures are required to be recorded accurately 

and promptly, even if the recording results in a negative amount at the 

appropriation, fund, or other accounting level.44 However, we, the DOD 

IG, and military department auditors have reported long-standing 

weaknesses in DOD’s controls for proper authorization and recording, 

adequate support, and accurate reporting of budgetary transactions. In 

addition, we and the DOD IG have reported that DOD has not been able 

to locate support for transactions in order to satisfy audit requirements.

 

42For example, see GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: 

February 2011), and Department of Defense Inspector General, Independent Auditor’s 

Report on the Department of Defense FY 2013 and FY 2012 Financial Statements,

DODIG-2014-024 (Alexandria, VA: Dec. 16, 2013). 

43GAO/AIMD-00-21.3.1. 

44DOD, FMR, vol. 14, ch. 2, “Antideficiency Act Violations,” § 020203 (November 2010). 

DOD’s guidance also describes common types of violations, including exceeding statutory 

thresholds for the use of certain funds for certain purposes, such as operations and 

maintenance funds for military construction and procurement activities, which cannot be 

corrected by adjusting DOD’s accounts to charge the correct appropriation because 

sufficient funds were not available at the time of erroneous obligation or are no longer 

available. 
 

Page 17 GAO-14-94 DOD Funds Control

The following examples demonstrate the persistent nature of DOD’s 

funds control weaknesses related to ineffective transaction controls that 

we and others have identified in the past. As discussed later in this report, 

DOD has corrective actions under way to address its transaction control 

weaknesses, particularly in regard to its audit readiness efforts.

• In March 2012, we reported that the Army was unable to locate 

supporting documentation for a sample of 250 active duty military 

payroll accounts.45 In March 2011, we worked with Army Human 

Resources Command, Army Finance Command, and Defense 

Finance and Accounting Service (DFAS) Indianapolis officials to 

obtain source documents that supported basic pay, allowances (such 

as allowances for housing costs), and entitlements (special pay 

related to type of duty, such as hazardous duty pay). After various 

offices were unable to provide supporting documentation, we 

suggested that the Army focus on the first 20 pay account sample 

items. When the Army continued to have difficulty locating supporting 

documentation, we suggested that the Army focus on the first 5 

sample items. As of the end of September 2011, 6 months after 

receiving our initial sample request, the Army and DFAS were able to 

provide complete documentation for 2 of our 250 sample items, partial 

support for 3 sample items, and no support for the remaining 245 

sample items. We recommended that the Secretary of the Army 

require personnel and pay-related documents that support military 

payroll transactions to be centrally located, retained in each service 

member’s Official Military Personnel File, or otherwise readily

accessible; and that the Army’s Human Resources Command 

periodically review and confirm that service member Official Military 

Personnel File records are consistent and complete to support annual 

financial audit requirements. The Army concurred with our 

recommendations and is taking actions to address them.

• In December 2011, Navy auditors reported46 that Marine Corps 

authorizing officials approved travel expense disbursements that were 

not supported by receipts or were not allowable under the related 

guidance because Defense Travel System travel administrator 

 

45GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving 

Audit Readiness for Its Military Pay, GAO-12-406 (Washington, D.C.: Mar. 22, 2012).

46Naval Audit Service, Defense Travel System – Marine Corps, N2012-0010 (Washington, 

D.C.: Dec. 21, 2011). 
 

Page 18 GAO-14-94 DOD Funds Control

functions (1) allowed complete access to the system by preparers and 

reviewers of vouchers and (2) were not separated from travel voucher 

review and approval functions, as required by DOD guidance.47 As a 

result, employees received reimbursement for unsupported travel 

expenses of $15,208 and unallowable expenses of $3,385.

• In January 2010, Army auditors reported significant weaknesses in 

transaction controls over disbursing functions at Multi-National 

Division-South.48 Army auditors reported that 16 out of 62 voucher 

packages49 reviewed (26 percent) contained missing or inaccurate 

documentation, such as a certified voucher or invoice, contract or 

deliverables information for the first and the final payment, and the 

name of the government official documenting receipt and acceptance 

of goods and services. Army auditors also found inaccurate reporting 

of dollar values, differences in payee names on the voucher and the 

related supporting documentation, and inaccurate paying office and 

mailing address information. Army auditors concluded that the Army 

did not have (1) adequate controls over its vendor payments to ensure 

that payment authorizations and disbursements were accurate and 

that funds were obligated and available before disbursement or 

(2) reasonable assurance that vendor payments valued at over 

$1.5 million were valid or fully supported. Further, Army auditors 

reported that insufficient controls in high-risk areas leave the Army 

vulnerable to fraud, waste, and misuse and could result in duplicate 

payments, disbursements that are not matched to obligations, 

disbursements that exceed recorded obligations, or possible ADA 

violations.

Ineffective business systems. DOD spends billions of dollars each year 

to acquire modern systems that it considers fundamental to achieving its 

business transformation goals. In February 2013, we reported that while 

DOD’s capability and performance relative to business systems 

 

47DOD, FMR, vol. 9, ch. 2, “Defense Travel System,” § 020301 (August 2011). 

48Army Audit Agency, Audit of Controls Over Vendor Payments – Southwest Asia (Phase 

II), A-2010-0012-ALL (Alexandria, VA: Jan. 5, 2010). Upon the completion of its tour in 

2008, the Army’s 10th Mountain Division (Light Infantry) became part of Coalition Forces 

operations and was designated the Multi-National Division-South, overseeing provinces 

that encompass almost the entire southern portion of Iraq. 

49A voucher package contains the supporting documentation for each payment. 
 

Page 19 GAO-14-94 DOD Funds Control

modernization has improved, significant challenges remain.50 The 

department has not fully defined and established business systems 

modernization management controls, which are vital to ensuring that it 

can effectively and efficiently manage an undertaking with the size, 

complexity, and significance of its business systems modernization and 

minimize the associated risks. We designated this area as high risk in 

1995 and since then have made about 250 recommendations aimed at 

strengthening DOD’s institutional approach to modernization and 

reducing the risk associated with key investments. While DOD has made 

progress toward implementing key institutional modernization 

management controls in response to statutory provisions and our 

recommendations, progress has been slow and DOD has been limited in 

its ability to demonstrate results. Further, we, the DOD IG, and military 

department auditors identified business system design and development 

weaknesses affecting funds control, such as noncompliance with DOD’s 

Standard Financial Information Structure (SFIS),51 Business System 

Architecture,52 and the U.S. Standard General Ledger (USSGL).53 The 

following examples illustrate the scope of DOD’s long-standing problems 

in the area based on prior GAO, DOD, and DOD IG findings. DOD is 

working to modernize its financial management systems and related 

business processes, as discussed later.

• Army Logistics Modernization Program (LMP). In April 2010, we 

reported that the Army’s LMP, which is intended to replace aging 

Army systems used to manage inventory and depot repair operations 

and support financial management and reporting, would require at 

 

50GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013).

51SFIS is DOD’s comprehensive “common business language” that supports departmentwide information and data requirements for budgeting, financial accounting, cost and 

performance management, and external reporting purposes. 

52An enterprise architecture, or modernization blueprint, provides a clear and 

comprehensive picture of an entity, whether it is an organization (e.g., federal department 

or agency) or a functional or mission area that cuts across more than one organization 

(e.g., financial management). This picture consists of snapshots of the enterprise’s current 

or “as-is” operational and technological environment and its target or “to-be” environment, 

and contains a capital investment road map for transitioning from the current to the target 

environment. These snapshots consist of “views,” which are basically one or more 

architecture products that provide conceptual or logical representations of the enterprise.

53The USSGL provides a uniform Chart of Accounts and technical guidance to be used in 

standardizing federal agency accounting practices. The Department of the Treasury 

issues USSGL Implementation Guidance.
 

Page 20 GAO-14-94 DOD Funds Control

least two additional deployments because problems with data quality, 

training, and metrics to measure success of LMP implementation had 

not been resolved.54 We recommended that the Army (1) improve 

testing activities to obtain reasonable assurance that the data used by 

LMP can support the LMP processes, (2) improve training for LMP 

users, and (3) establish performance metrics to enable the Army to 

assess whether the deployment sites are able to use LMP as 

intended. The Army concurred with our recommendations and noted 

actions under way to address them. In November 2010, we reported 

that the Army had implemented data audits and new testing activities 

to improve data accuracy, but data issues that could impede LMP 

functionality persisted.55 For example, we reported that it was unclear 

whether (1) the system would provide all the software functionality 

needed to conduct operations, (2) data maintained in the system were 

sufficiently accurate, and (3) the Army would achieve all the expected 

benefits from its investment in the system. We recommended that 

within 90 days of the beginning of its third deployment, the Army 

periodically report to Congress on the progress of LMP, including its 

progress in ensuring that the data used in LMP can support the 

system, timelines for the delivery of software necessary to achieve full 

benefits, and the costs and time frames of its mitigation strategies. 

DOD concurred with our recommendation stating that the Army would 

comply with the reporting timetable and conditions in our 

recommendation. While DOD concurred with our recommendation, as 

of our last update in November 2013, it had not yet provided any such 

reports to Congress.56

In May 2012, the DOD IG reported that after spending about 

$1.8 billion, Army managers had not accomplished the reengineering 

needed to integrate the LMP procure-to-pay functions57 to comply with 

DOD Business Enterprise Architecture requirements and correct 

 

54GAO, Defense Logistics: Actions Needed to Improve Implementation of the Army 

Logistics Modernization Program, GAO-10-461 (Washington, D.C.: Apr. 30, 2010).

55GAO, Defense Logistics: Additional Oversight and Reporting for the Army Logistics 

Modernization Program Are Needed, GAO-11-139 (Washington, D.C.: Nov. 18, 2010).

56GAO, Defense Logistics: Army Should Track Financial Benefits Realized from Its 

Logistics Modernization Program, GAO-14-51 (Washington, D.C.: Nov. 13, 2013).

57Procure-to-pay refers to the end-to-end procurement process from initiation of an 

acquisition to final payment.
 

Page 21 GAO-14-94 DOD Funds Control

material weaknesses.58 According to DOD IG auditors, as of 

August 31, 2011, LMP activities reported more than $10.6 billion in 

abnormal obligated balances.59 In addition, the DOD IG reported that 

(1) LMP did not record the actual invoice numbers from the vendors, 

(2) LMP incorrectly recorded the interface date with the pay 

entitlement system instead of the dates for invoice receipt and receipt 

of goods and services, and (3) its invoice and receiving report 

transaction screens did not identify the corresponding disbursement 

voucher information. Because more than one disbursement generally 

liquidated an obligation, LMP needed to link the various invoices and 

receiving reports to the corresponding disbursement vouchers. The 

absence of actual invoice numbers, accurate dates, and disbursement 

voucher information prevented Army activities from using LMP to 

detect duplicate payments and validate that payments complied with 

the Prompt Payment Act.60 According to DOD’s November 2012 FIAR 

Plan Status Report, the Army’s abnormal obligated balances 

decreased during fiscal year 2012, but disbursements that could not 

be matched to a recorded obligation increased.61

 

58Department of Defense Inspector General, Logistics Modernization Program System 

Procure-to-Pay Process Did Not Correct Material Weaknesses, DODIG-2012-087 

(Alexandria, VA: May 29, 2012). 

59A general ledger account balance is abnormal when the reported balance does not 

comply with the normal debit or credit balance established in the general ledger chart of 

accounts. An abnormal general ledger account balance is an accounting irregularity 

caused by the incorrect posting of transactions or by an operational issue such as 

overobligation of an appropriation. In its FIAR Plan metrics, DOD defines an abnormal 

balance as an appropriation with a negative balance that occurred when expenditures 

exceeded the appropriated amount and the problem was not resolved within 3 months. 

6031 U.S.C. §§ 3901-3907. Generally, the Prompt Payment Act requires agencies to add 

interest penalties to payments made to business concerns after the contractually 

established payment date, or 30 days after the date they receive a proper invoice, if the 

contract specifies no due date. 

61Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, Financial 

Improvement and Audit Readiness (FIAR) Plan Status Report (November 2012).
 

Page 22 GAO-14-94 DOD Funds Control

• Navy ERP.62 In February 2012, the DOD IG reported that the Navy 

approved deployment of its ERP general ledger system without 

ensuring that it complied with DOD’s SFIS and the USSGL.63 As a 

result, the Navy spent $870 million to develop and implement a 

system that may not produce accurate and reliable financial 

information. The DOD IG reported that this is a significant weakness 

because when fully deployed, the system is intended to manage 54 

percent of the Navy’s total obligational authority, which was 

$155.9 billion for fiscal year 2013.

• Air Force DEAMS. In September 2012, the DOD IG reported that the 

Air Force’s DEAMS lacked critical functional capabilities needed to 

generate accurate and reliable financial management information.64

According to the DOD IG, this weakness occurred because DEAMS 

managers did not maintain an adequate general ledger chart of 

accounts, and because DOD and Air Force management initially 

decided not to report financial data directly to the Defense 

Departmental Reporting System (DDRS) for financial reporting 

purposes until the fourth quarter of fiscal year 2016. Further, we 

recently reported that the Air Force did not meet best practices in 

developing a schedule for the DEAMS program.65 This raises 

questions about the credibility of the deadline for acquiring and 

implementing DEAMS to provide needed functionality for financial 

improvement and audit readiness. We recommended that the Air 

Force update the cost estimate as necessary after implementing our 

 

62The Navy ERP system, initiated in August 2004, is intended to standardize the 

acquisition, financial, program management, maintenance, procurement, plant and 

wholesale supply, and workforce management capabilities of the Navy. The Navy ERP is 

expected to replace 96 legacy systems. According to Navy officials, on an annual basis, 

the Navy ERP is intended to control and account for $82.5 billion of total appropriations; 

$33.8 billion of total inventory; and $1.1 billion of plant, property, and equipment. 

63Department of Defense Inspector General, Navy Enterprise Resource Planning System 

Does Not Comply With the Standard Financial Structure and U.S. Government Standard 

General Ledger, D-2012-051 (Alexandria, VA: Feb. 13, 2012). 

64Department of Defense Inspector General, An Unreliable Chart of Accounts Affected 

Auditability of Defense Enterprise Accounting and Management System Financial Data, 

DODIG-2012-140 (Alexandria, VA: Sept. 28, 2012). 

65GAO, DOD Business System Modernization: Air Force Business System Schedule and 

Cost Estimates, GAO-14-152 (Washington, D.C.: Feb. 7, 2014).
 

Page 23 GAO-14-94 DOD Funds Control

prior recommendation to adopt scheduling best practices.66 DOD 

concurred with our recommendation.

Fundamental weaknesses in DOD funds control, including related 

business systems weaknesses, significantly impair DOD’s ability to 

ensure the (1) proper use of resources, (2) reliability of reports on the 

results of operations, and (3) success of its financial audit readiness 

efforts. For example, billions of dollars in DOD-reported improper 

payments and continuing reports of millions of dollars in ADA violations 

underscore DOD’s inability to assure proper use and accountability of 

resources provided to carry out its mission and operations. Further, 

DOD’s transaction control weaknesses, including unsupported 

adjustments (plugs) to reconcile DOD fund balances with the Department 

of the Treasury’s (Treasury) records, and suspense67 transactions that 

cannot be identified to a fund account impair accurate accounting for 

programs and results of operations. As a result, quarterly and annual 

financial statements, reports on budget execution, and reports on the 

results of operations, which could have a material effect on budget, 

spending, and other management decisions as well as determinations of 

agency compliance with laws and regulations, are unreliable. Military 

auditors also reported that these weaknesses leave their departments at 

risk of fraud and improper transactions.

Additionally, funds control weaknesses continue to hinder DOD’s ability to 

achieve its September 2014 SBR audit readiness goal and raise 

questions about DOD’s ability to achieve audit readiness on a full set of 

 

66GAO, DOD Business Transformation: Improved Management Oversight of Business 

System Modernization Efforts Needed, GAO-11-53 (Washington, D.C.: Oct. 7, 2010). 

67A Suspense account is a temporary account or repository, referred to by DOD as a 

Clearing account, for monetary transactions (cash receipts, cash disbursements, and 

journal entries that were recorded using invalid appropriation or fund account numbers). 

Effect of Funds Control 

Weaknesses on DOD 

Financial Management 

Operations
 

Page 24 GAO-14-94 DOD Funds Control

financial statements by the end of fiscal year 2017.68 In response to 

component difficulties in preparing for a full SBR audit, the November 

2012 FIAR Plan Status Report and the March 2013 FIAR Guidance 

included a revision to narrow the scope of initial audits to only currentyear budget activity and expenditures on a Schedule of Budgetary 

Activity.69 Under this approach, beginning in fiscal year 2015, reporting 

entities are to undergo an examination of their Schedules of Budgetary 

Activity reflecting the amount of SBR balances and associated activity 

related only to funding approved on or after October 1, 2014. As a result, 

the Schedules of Budgetary Activity will exclude unobligated and 

unexpended amounts carried over from prior years’ funding as well as 

information on the status and use of such funding in subsequent years 

(e.g., obligations incurred, outlays). These amounts will remain unaudited. 

Over the ensuing years, as the unaudited portion of SBR balances and 

activity related to this funding decline, the audited portion is expected to 

increase. However, the NDAA for Fiscal Year 2010, as amended by the 

NDAA for Fiscal Year 2013, requires that the FIAR Plan describe specific 

actions to be taken and the costs associated with ensuring that DOD’s 

SBR is validated as ready for audit by not later than September 30, 2014. 

Because the audit of the Schedule of Budgetary Activity is an incremental 

step building toward an audit-ready SBR, the FIAR Plan does not 

presently comply with this requirement. Furthermore, all material amounts 

reported on the SBR will need to be auditable in order to achieve the 

mandated goal of full financial statement audit readiness by 

September 30, 2017. It is not clear how this can be accomplished if 

 

68The NDAA for Fiscal Year 2010 mandated that DOD develop and maintain a Financial 

Improvement and Audit Readiness (FIAR) Plan that among other things, describes the 

specific financial management improvement actions to be taken and costs associated with 

ensuring that its department-wide financial statements are validated as audit ready by 

September 30, 2017. Pub. L. No. 111-84, § 1003(a), (b) (Oct. 28, 2009). In October 2011, 

the Secretary of Defense directed the department to accelerate audit readiness efforts for 

key elements of its financial statements. Subsequently, the NDAA for Fiscal Year 2013 

amended the legal requirement to add that the FIAR Plan’s financial management 

improvement efforts should also support the goal of validating audit readiness of the 

department’s Statement of Budgetary Resources (SBR) no later than September 30, 

2014. Pub. L. No. 112-239, § 1005 (a) (Jan. 2, 2013). Further, the NDAA for Fiscal Year 

2014, Pub. L. No. 113-66, § 1003 (Dec. 26, 2013) mandates that a full audit of DOD’s 

financial statements occur for fiscal year 2018, and that it be completed by March 31, 

2019. 

69DOD’s FIAR Plan Status Reports describe the status of FIAR Plan implementation and, 

as required by the NDAA for Fiscal Year 2010, are submitted to Congress semi-annually 

by May 15 and November 15.
 

Page 25 GAO-14-94 DOD Funds Control

activity related to funding provided prior to October 1, 2014, remains 

unaudited.

DOD does not know the accuracy or validity of billions of dollars it spends 

annually to carry out its mission and operations. For example, our work 

and the work of the DOD IG has shown that DOD does not have a valid 

methodology for estimating its annual improper payments, and it does not 

have assurance that its obligations and expenditures comply with 

applicable law, including the ADA. As a result, management decisions are 

being made using incomplete and unreliable data. The following 

examples from our past work and the past work of others illustrate the 

effect of these weaknesses.

• We and the DOD IG have reported weaknesses in DOD’s payment 

controls, including weaknesses in its process for assessing the risk of 

improper payments and reporting estimates of the magnitude of 

improper payments. In September 2011, we testified that in its Agency 

Financial Report for fiscal year 2010, DOD reported that it made an 

estimated $1 billion in improper payments under five of its programs.70

However, this estimate was incomplete because DOD did not include 

estimates from its commercial payment programs, which account for 

approximately one-third of the value of DOD-reported payments. In 

May 2013, we reported that DOD’s fiscal year 2011 Agency Financial 

Report included commercial payment programs in its improper

payment estimates, totaling over $1.1 billion.71 However, we found 

that DOD’s improper payment estimates were neither reliable nor 

statistically valid. We also found that DOD did not conduct a risk 

assessment for fiscal year 2011 in accordance with the requirements 

of the Improper Payments Elimination and Recovery Act of 2010 

(IPERA).72 Further, although DOD had a corrective action plan for

fiscal year 2011 to address problems with the reliability of its improper 

payment estimates, the plan did not include the required risk 

assessment. We concluded that DOD’s lack of a risk assessment 

made it difficult for the department to fully identify underlying reasons 

 

70GAO-11-950T. 

71GAO, DOD Financial Management: Significant Improvements Needed in Efforts to 

Address Improper Payment Requirements, GAO-13-227 (Washington, D.C.: May 13, 

2013).

72Pub. L. No. 111-204 (July 22, 2010).

Proper Use of Resources
 

Page 26 GAO-14-94 DOD Funds Control

or root causes of improper payments in order to develop a 

comprehensive, effective corrective action plan. Additionally, DOD did 

not conduct recovery audits nor did it determine that such audits 

would not be cost effective, as required by IPERA. Finally, the 

department did not have procedures to ensure that improper payment 

and recovery audit reporting in its fiscal year 2011 Agency Financial 

Report was complete, accurate, and compliant.

DOD has taken some actions to reduce improper payments, such as 

reporting a statistical estimate for DFAS commercial payments and 

issuing revised FMR guidance on improper payments and recovery 

audits.73 Further, in addendum A to DOD’s Fiscal Year 2013 Agency 

Financial Report, the DOD IG reported that the department had taken 

many corrective actions to improve identification of its improper 

payments; however, more work is needed to improve controls over 

payments processed throughout the department.74 For example, the 

DOD IG reported that improper payments are often the result of 

unreliable data, a lack of adequate internal controls, or both, which 

increases the likelihood of fraud. As a result, DOD continues to lack 

assurance that billions of dollars of annual payments are disbursed 

correctly. The DOD IG also reported that the department’s inadequate 

financial systems and controls hamper its ability to make proper 

payments, and that the pace of operations and volume of department 

spending create additional risk of improper payments. These 

challenges have hindered the department’s ability to detect and 

recover improper payments. As stated in our May 2013 report, until 

the department takes action to correct the deficiencies in underlying 

transaction controls and deficiencies we have found in the past 

related to identifying, estimating, reducing, recovering, and reporting 

improper payments and thereby fulfills legislative requirements and 

implements related guidance, DOD remains at risk of continuing to 

make improper payments and wasting taxpayer funds. We made 10 

recommendations to improve DOD’s processes to identify, estimate, 

reduce, recover, and report on improper payments. DOD concurred 

with 9 and partially concurred with 1 of the recommendations and 

described its plans to address them.

 

73DOD, FMR, vol. 4, ch. 14, “Improper Payments” (October 2012). 

74Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, 

Department of Defense Agency Financial Report for Fiscal Year 2013, p. A-7.
 

Page 27 GAO-14-94 DOD Funds Control

• Continuing reports of ADA violations underscore DOD’s inability to 

assure that obligations and expenditures are properly recorded and 

do not exceed statutory levels of control.75 The ADA requires, among 

other things, that no officer or employee of DOD incur obligations or 

make expenditures in excess of the amounts made available by 

appropriation, by apportionment, or by further subdivision according to 

the agency’s funds control regulations. According to copies of ADA 

violation reports sent to GAO, DOD reported 75 ADA violations from 

fiscal year 2007 through fiscal year 2012, totaling nearly $1.1 billion. 

We received reports of two additional ADA violations in 2013 totaling 

$148.6 million. However, the number of violations and dollar amounts 

reported may not be complete because of weaknesses in DOD’s 

funds control and monitoring processes that may not have allowed all 

violations to be identified or reported. For example, DOD IG reports 

issued in fiscal years 2007 through 2012 (see fig. 3) identified 

$5.5 billion in potential ADA violations that required further 

investigation to determine whether an ADA violation had, in fact, 

occurred, or if adjustments could be made to avoid a violation. 

Further, while DOD’s FMR limits the time from identification to 

reporting of ADA violations to 15 months,76 our analysis identified 

several examples of time spans for investigations of potential ADA 

violations taking several additional months to several years before 

determinations of actual violations were reported. For example, as of 

September 30, 2013, 3 of the DOD IG-reported potential violations 

totaling $713.1 million could not be fully corrected and have resulted 

in $108.8 million in actual, reported ADA violations. To the extent that 

ADA violations are not identified, corrected, and reported, DOD 

management decisions are being made based on incomplete and 

unreliable data.

 

75Our analysis of DOD reports of ADA violations sent to us determined that DOD 

categorizes violations of various fiscal laws and violations of the ADA collectively as ADA 

violations. For example, DOD has reported violations of the Purpose Statute as ADA 

violations. In some cases, reports of ADA violations included both ADA and other fiscal 

law violations.

76DOD, FMR, vol. 14, ch. 7, “Antideficiency Act Report,” § 070102 (November 2010). 
 

Page 28 GAO-14-94 DOD Funds Control

Figure 3: Military Service ADA and Other Fiscal Law Violations Reported by DOD 

(Fiscal Year 2007 through Fiscal Year 2012)

Our analysis of DOD’s reports of ADA violations determined that the 

increases in violations reported in fiscal years 2011 and 2012 relate 

primarily to the military services’ use of “bulk” (estimated) amounts used 

to record obligation transactions for permanent change-of-station moves 

and significant increases in bonuses paid from their respective Military 

Personnel appropriations. These violations are specific to the ADA with 

regard to prohibiting federal officers and employees from authorizing or 

making obligations or expenditures in excess of available amounts. The 

use of estimated obligations requires periodic monitoring and 

reconciliation of estimated obligations to the related disbursement 

transactions and the recording of appropriate adjustments to the 

estimated obligations based on actual disbursement amounts; however, 

these ADA violations occurred largely because the military services did 

not have adequate procedures for monitoring and reconciling 

disbursements to bulk obligations. During fiscal year 2011, the Navy and 

the Air Force reported violations related to permanent change-of-station 

moves totaling $183 million and $87.5 million, respectively. In fiscal year 

2012, after an extended investigation, the Army reported a related 

violation of $155 million. Additionally, the reason for the Army’s large 

spike in fiscal year 2011 violations related primarily to $100.2 million in 
 

Page 29 GAO-14-94 DOD Funds Control

transportation services that were also recorded using bulk obligations. 

Our recent coordination with the DOD IG and the military departments on 

the status of corrective actions indicated that the military departments 

continue to be at risk of ADA violations related to using estimated bulk 

obligations because they have not yet corrected process weaknesses that 

prevent them from recording transaction-level obligations for these 

activities and estimating methodologies are not automatically adjusted for 

changes in fuel costs and increases in other costs, such as insurance.

DOD has stated that its major financial decisions are based on budgetary 

data (e.g., the status of funds received, obligated, and expended). The 

department’s ability to improve its budgetary accounting has historically 

been hindered by its reliance on fundamentally flawed financial 

management systems and processes and transaction control 

weaknesses. In its November 2013 Agency Financial Report, DOD selfreported 16 material weaknesses in financial reporting, noting that it has 

no assurance of the effectiveness of the related controls. These 

weaknesses affect reporting on budgetary transactions and balances, 

including budget authority, fund balance, outlays, and categories of 

transactions, such as civilian pay, military pay, and contract payments, 

among other areas. As a result, reports on budget execution and reports 

on the results of operations that could have a material effect on budget, 

spending, and other management decisions are unreliable.

The following examples illustrate the effect of transaction control and 

system weaknesses on DOD’s operational and budgetary reporting.

• DOD continues to make billions of dollars of unsupported, forced 

adjustments, or “plugs,” to reconcile its fund balances with Treasury’s 

records. In the federal government, an agency’s Fund Balance with 

Treasury (FBWT) accounts are similar in concept to corporate bank 

accounts. The difference is that instead of a cash balance, FBWT 

represents unexpended spending authority in appropriation accounts. 

Similar to bank accounts, the funds in DOD’s appropriation accounts 

must be reduced or increased as the department spends money or 

receives collections that it is authorized to retain for its own use. For

fiscal year 2012, DOD agencies reported making $9.2 billion in 

unsupported reconciling adjustments to agree their fund balances with 

Treasury’s records. As shown in table 1, DOD’s unsupported 

reconciling adjustments to agree its fund balances to Treasury 

records grew to $9.6 billion in fiscal year 2013.

Reliability of Reports on 

Results of Operations and 

Budget Execution
 

Page 30 GAO-14-94 DOD Funds Control

Table 1: Reported DOD Adjustments to Reconcile Its Fiscal Year 2013 Fund Balance to Treasury Records

Dollars in billions

Fund balances Army Navy Air Force Defense agencies DOD-wide

Fund balance per Treasury $136.4 $144.2 $103.1 $108.6 $492.3

Fund balance per agency 132.4 142.7 101.0 106.6 482.7

Reconciling adjustment $4.0 $1.5 $2.1 $2.0 $9.6

Source: GAO analysis of unaudited Balance Sheet Fund Balance with Treasury data in DOD and military department Agency Financial 

Reports for Fiscal Year 2013.

Note: Reconciling adjustments are generally reported at the summary level as a net amount, or plug. 

When net amounts are reported, collections and adjustments are offset against disbursements. 

Reporting net amounts can significantly understate the magnitude and impact of transaction errors.

• Over the years, DOD has recorded billions of dollars of disbursement 

and collection transactions in suspense accounts because the proper 

appropriation accounts could not be identified and charged, generally 

because of a coding error. Accordingly, Treasury does not accept 

DOD reporting of suspense transactions, and suspense transactions 

are not included in DOD component FBWT reconciliations. It is 

important that DOD accurately and promptly charge transactions to 

appropriation accounts since these accounts provide the department 

with legal authority to incur and pay obligations for goods and 

services. Table 2 shows DOD-reported suspense balances for fiscal 

years 2010 through 2012. Reported suspense account balances could 

be understated because of DOD’s process for complying with 

Treasury’s rule for clearing suspense amounts within 60 days. For 

example, as we previously reported, during our audit of the Navy and 

Marine Corps FBWT reconciliation processes,77 we observed the 

transfer of unresolved suspense disbursement transactions to 

canceled accounts and the transfer of unresolved collection 

transactions to Miscellaneous Receipts of the Treasury without 

supporting documentation to show the adjustments were proper. We 

also identified subsequent accounting entries that moved these 

transactions back to the suspense accounts. When we asked DFAS 

personnel about this pattern, they explained that they transfer 

transactions from suspense to these accounts to comply with 

Treasury’s 60-day rule for clearing (i.e., resolving) them. DFAS 

personnel told us they later transfer the transactions back into 

 

77GAO, DOD Financial Management: Ongoing Challenges with Reconciling Navy and 

Marine Corps Fund Balance with Treasury, GAO-12-132 (Washington, D.C.: Dec. 20, 

2011). 
 

Page 31 GAO-14-94 DOD Funds Control

suspense to restart the clock on the 60-day period for resolving them. 

Consequently, it is not possible to determine the number and 

significance of these unsupported transactions, and DOD does not 

know the balance of budget authority that is truly available in its 

appropriation and fund accounts. Further, this practice runs contrary 

to Treasury’s requirements, which is to fully resolve these transactions 

within a reasonable time frame.

Table 2: DOD Suspense Account Balances for Fiscal Year-End 2010 through Fiscal Year-End 2013

Absolute value, dollars in billionsa

Fiscal year-end Army Navy Air Force Defense agencies Total

2013 $0.68 0.73 0.56 0.22 $2.19

2012 $1.44 0.59 0.57 0.08 $2.68 

2011 $0.92 0.65 0.52 0.26 $2.35 

2010 $0.29 0.48 0.42 0.14 $1.33 

Source: GAO analysis of unaudited DOD-wide data reported by DFAS.

a

When absolute amounts are reported, collections and adjustments are added to disbursements.

Funds control weaknesses continue to hinder DOD’s ability to achieve 

successful audits of its financial statements and raise questions about its 

ability to achieve the department’s goals of validating SBR audit 

readiness by the end of fiscal year 2014 and undergoing an audit on a full 

set of financial statements for fiscal year 2018. The DOD Comptroller 

represented to the DOD IG that DOD’s Fiscal Year 2012 and Fiscal Year 

2013 Consolidated Financial Statements did not substantially conform to 

U.S. generally accepted accounting principles (GAAP) and that DOD 

financial management and business systems that report financial data 

were unable to adequately support material amounts on the financial 

statements as of September 30, 2012, and September 30, 2013. 

Accordingly, the DOD IG reported disclaimers of opinion in its efforts to 

audit DOD’s consolidated financial statements. DOD’s FIAR Plan Status 

Reports continue to identify unqualified or inexperienced personnel and 

information system control weaknesses as significant risks to audit 

readiness. In addition, military department and DOD service-provider 

efforts have not yet resolved continuing transaction control weaknesses 

related to proper recording, adequate supporting documentation, and 

accurate and timely reporting in order to correct material weaknesses that 

impede DOD’s audit readiness efforts. As a result, DOD has not yet 

asserted audit readiness for most military department SBR assessable 

units.

Financial Audit Readiness 

Efforts
 

Page 32 GAO-14-94 DOD Funds Control

The following examples illustrate the effect of additional funds control and 

system weaknesses on DOD’s financial audit readiness efforts that we 

and others have identified in our previous work.

• In December 2012, we reported on the status of DOD efforts to 

address audit backlogs needed to close certain aging contracts and 

ensure that DOD deobligates and uses unspent funds before they are 

canceled.78 Contract closeout backlogs also can contribute to 

overstatements in reported contract obligations because of the lack of 

support for obligated amounts that should have been, but were not, 

deobligated. For fiscal years 2007 through 2011, DOD reported 

obligations of more than $1.8 trillion on contracts for acquiring goods 

and services needed to support its mission.79 As of the end of fiscal 

year 2011, DOD reported it had a large backlog of contracts—

numbering in the hundreds of thousands—that have not been closed 

within the time frames required by federal regulations.80 The Defense 

Contract Audit Agency (DCAA) is addressing DOD’s contract closeout 

backlog through an initiative to reduce the backlog of incurred cost 

audits,81 which will ultimately allow the Defense Contract Management 

Agency (DCMA) and others to make final adjustments to obligated 

balances on completed contracts and close the contracts.82 In 

addition, while DCMA is attempting to accelerate efforts to close 

contracts that are physically complete, the success of its efforts 

depends on DCAA’s ability to complete annual incurred cost audits in 

a timely manner and the reliability of information on contract statuses. 

We also reported that at the local level, seven out of the nine 

contracting offices we spoke with collected some information about 

their overage contracts, such as the total number of contracts in the 

 

78GAO, Defense Contracting: DOD Initiative to Address Audit Backlog Shows Promise, 

but Additional Management Attention Needed to Close Aging Contracts, GAO-13-131

(Washington, D.C.: Dec. 18, 2012).

79DOD unaudited contract obligations reported in the Federal Procurement Data SystemNext Generation. 

80See Federal Acquisition Regulation, 48 C.F.R. § 4.804-1. 

81Incurred cost audits are conducted on a contractor’s annual proposal that includes all 

costs incurred on certain types of contracts in that fiscal year. DCAA performs these 

audits to ensure that the costs that contractors incur and propose for settlement are 

permissible under government regulations. 

82DCMA performs contract administration services for DOD. 
 

Page 33 GAO-14-94 DOD Funds Control

backlog and the type of contracts, but the offices generally were 

unable to provide us with detailed information as to where the 

contracts were in the closeout process, such as the number awaiting 

a DCAA incurred cost audit. We recommended that DCAA develop a 

plan to assess its incurred cost audit initiative and that DCMA improve 

data on over-age contracts. We also recommended that the military 

departments develop contract closeout data and establish 

performance measures. DOD concurred with the recommendations 

and identified ongoing and planned actions to address them.

• In a series of reports, the DOD IG reported that DOD managers did 

not take the steps needed to ensure that four component ERPs 

(GFEBS, LMP, Navy ERP, and DEAMS) had the capability to record 

and track transaction data.83 Instead of recording transactions in the 

ERPs, such as budget authority, obligations, collections, and 

disbursements (at the time of the related events), DOD managers 

relied on DFAS to record journal vouchers (adjusting entries) in DDRS 

and used other offline electronic processes, such as spreadsheets, to 

record accounting entries in the four ERPs. According to the DOD IG, 

because most funds control accounting is not being managed in the 

accounting and business information systems, DOD continues to build 

its budget execution reports and SBRs using budgetary status data 

that cannot be traced to actual transaction data within any official 

accounting system.84 This weakness impairs the reliability of DOD’s 

budgetary reports, including periodic reports to Congress. In addition, 

the DOD IG reported that the lack of effective oversight of the 

development and implementation of system access templates left 

LMP data at risk of unauthorized and fraudulent use. The DOD IG 

also reported the lack of support for feeder system transactions 

 

83Department of Defense Inspector General, An Unreliable Chart of Accounts Affects 

Auditability of Defense Enterprise Accounting and Management System Financial Data,

DODIG-2012-140 (Alexandria, VA: Sept. 28, 2012); Logistics Modernization Program 

System Procure-to-Pay Process Did Not Correct Material Weaknesses, DODIG-2012-087 

(Alexandria, VA: May 29, 2012); General Fund Enterprise Business System Did Not 

Provide Required Financial Information, D-2012-066 (Alexandria, VA: Mar. 26, 2012); 

Navy Enterprise Resource Planning System Does Not Comply with the Standard Financial 

Information Structure and U.S. Government Standards General Ledger, DODIG-2012-051 

(Alexandria, VA: Feb. 13, 2012); and Insufficient Governance Over Logistics 

Modernization Program System Development, D-2011-015 (Arlington, VA: Nov. 2, 2010).

84Department of Defense Inspector General, Defense Departmental Reporting SystemBudgetary Was Not Effectively Implemented for the Army General Fund, DODIG-2012-

096 (Alexandria, VA: May 31, 2012). 
 

Page 34 GAO-14-94 DOD Funds Control

imported in Defense Departmental Reporting System-Budgetary that if 

not corrected, will hinder DOD’s audit readiness efforts. The DOD IG 

is continuing to monitor DOD’s actions to resolve these system 

weaknesses.

DOD is addressing corrective actions on funds control weaknesses 

through audit readiness efforts under the FIAR Plan and related FIAR 

Guidance, through other efforts mainly related to improving training and 

business system controls, and through efforts to address findings in 

auditor and ADA reports. Many of these actions have not been fully 

implemented so their effectiveness is yet to be determined. Because 

several critical DOD-wide corrective actions to improve financial 

management and address open audit recommendations are targeted for 

completion in 2017, funds control issues are likely to persist during this 

time. The following discussion highlights DOD actions under way to 

address funds control weaknesses related to (1) training, supervision, and 

management oversight; (2) transaction controls; and (3) business 

systems. 

Training, supervision, and management oversight. A key principle for 

effective workforce planning is that an agency needs to define the critical 

skills and competencies that it will require in the future to meet its 

strategic program goals.85 Once an agency has identified critical skills and 

competencies, it can develop strategies to address gaps in the number of 

personnel, needed skills and competencies, and deployment of the 

workforce. FIAR Plan Status Reports continue to identify the need for 

knowledgeable and qualified personnel as critical to achieving DOD’s 

financial improvement and audit readiness goals. Currently, FIAR training, 

which focuses on audit readiness efforts, and military department 

financial management training are not tied to mission-critical financial 

management competencies, staff experience and proficiency levels, or 

identified skill gaps.

DOD is addressing financial management workforce competencies and 

training through complementary efforts by (1) the Office of the Under 

Secretary of Defense for Personnel and Readiness (DOD Personnel and 

Readiness) to develop a strategic civilian workforce plan that includes 

 

85GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003). 

DOD Has Actions 

Under Way to 

Address Many DODWide Funds Control 

Weaknesses, but 

Effective 

Implementation Will 

Be Critical
 

Page 35 GAO-14-94 DOD Funds Control

financial management,86 pursuant to requirements in the NDAA for Fiscal 

Year 2010, as amended,87 and (2) the DOD Comptroller to develop and 

implement a Financial Management Certification Program, pursuant to 

requirements in the NDAA for Fiscal Year 2012.88 Financial management 

personnel are expected to possess the competencies that are relevant to 

and needed for their assigned positions. These competencies include 

fundamentals of accounting, accounting analysis, budget execution, 

financial reporting, and audit planning and management, among others. 

DOD Personnel and Readiness is currently working on a departmentwide competency assessment tool that will be used by the department, 

including the financial management functional community, to capture 

information related to competencies, such as proficiency level, 

importance, and criticality, and to identify any gaps in support of the 

Comptroller’s financial management certification program.

For example, as of March 2012, the Office of Personnel and Readiness, 

Strategic Human Capital Planning Program Office, had identified 32 

mission-critical occupations, including four financial management 

occupations: accounting, auditing, budget analysis, and financial 

administration. The Program Office currently assesses skills or staffing 

gaps, which relate to unfilled positions by occupation, by analyzing the 

differences between the number of positions by occupational series that 

DOD was authorized to fill and the number of occupational positions that 

are currently filled. DOD is working toward completing its gap 

assessments by 2015.

In support of the new certification program, the DOD Comptroller has 

identified 23 mission-critical financial management competencies and five 

levels of proficiency for each competency. The new Financial Manager 

Certification Program will require training in three areas: (1) selected 

financial management competencies at the proficiency level 

commensurate with the required certification level for that position; 

(2) leadership competencies as defined by the DOD Leadership 

 

86The details of DOD’s financial management workforce assessment are contained in the 

Fiscal Year 2010 Department of Defense Strategic Workforce Plan, appendix B-15, 

Financial Management.

87See Pub. L. No. 111-84, § 1108(a)(1), (Oct. 28, 2009), codified as amended at 10 

U.S.C. § 115b.

88Pub. L. No. 112-81, § 1051, (Dec. 31, 2011), codified at 10 U.S.C. § 1599d. 
 

Page 36 GAO-14-94 DOD Funds Control

Continuum;89 and (3) other technical training in key areas, such as how to 

respond to an audit, fiscal law, and ethics. Training on fiscal law would 

cover funds control and ADA requirements.

The certification program includes three levels of certification covering 

staff, supervisors, and management, with requirements for initial hours of 

training, continuing-education, and experience. (See table 3.) While 

DOD’s Certification Program requirements do not specify that the 

recommendations for attaining bachelor’s and master’s degrees are 

specific to degrees in financial management-related areas, the

Certification Program is designed to accept college courses in financial 

management as fulfilling certain of the certification program course 

requirements. If effectively implemented, these three levels of certification 

could help address training, supervision, and management oversight 

weaknesses. Employees will have 2 years to complete courses, training, 

and professional development requirements for the certification level 

required for their assigned positions. DOD’s Financial Manager 

Certification Program received National Association of State Boards of 

Accounting (NASBA) approval in March 2013.90

 

89Department of Defense, Growing Civilian Leaders, DOD Instruction 1430.16 (Nov. 19, 

2009), is the department’s policy for periodically assessing workforce competencies and 

providing appropriate learning opportunities. The DOD Civilian Leadership Continuum 

depicts the progression of competencies needed as a DOD civilian rises through the 

leadership ranks, from fundamental competencies required of all leaders to strategic 

capabilities required of the most senior leaders.

90NASBA approves Continuing Professional Education (CPE) Sponsors after a review of 

each sponsor’s system of quality control to ensure that it is in conformity with the joint 

NASBA/American Institute of Certified Public Accountants Statements on Auditing 

Standards for CPE requirements. 
 

Page 37 GAO-14-94 DOD Funds Control

Table 3: DOD Financial Management Certification Program Training Requirements by Level

Certification level

Course hours

Minimum required 

experience

Recommended additional 

experience

Initial

course hours

Continuing education 

and training units

1 – Staff 46 40 every 2 years 2 years DOD financial 

management

None

2 – Supervisors 71 60 every 2 years 4 years financial management

with 2 years at DOD 

One 3-month developmental

assignment

Work towards bachelor’s 

degree

Complete one DODapproved test-based 

certification program

3 – Management 81 80 every 2 years 8 years financial management 

with 2 years at DOD

One 3-month developmental

assignment

Work towards a master’s 

degree

Complete one DODapproved test-based 

certification program

Source: Office of Under Secretary of Defense (Comptroller), Human Capital and Resource Management.

The DOD Comptroller initiated the pilot for the certification program in 

July 2012, which was completed at the end of March 2013. Phased 

implementation began in June 2013, and the current target date for full 

implementation is the end of fiscal year 2014. The Certification Program 

is to be mandatory for DOD’s approximately 54,000 civilian and military 

financial management personnel.

Effective implementation of the certification program is critical to ensure 

that financial management personnel obtain the needed skills to make 

effective improvements in financial management, including improved 

funds control and audit readiness as well as appropriate supervision and 

management oversight.

Transaction controls. DOD officials are addressing transaction control 

weaknesses under the department’s FIAR Plan efforts. In December 

2011, the DOD Comptroller updated the FIAR Guidance to identify key 

SBR-related transaction control objectives within military department 

assessable units related to the funds control and budget execution 

processes. These key transaction controls include proper authorization 

and recording, adequate supporting documentation, and accurate 

reporting of obligation and disbursement transactions. DOD components 

are testing these key transaction controls for each assessable unit, 

including civilian pay, military pay, contract pay, and net outlays as 
 

Page 38 GAO-14-94 DOD Funds Control

reflected in FBWT, as a basis for determining whether they can achieve 

audit readiness for the SBR by September 2014.91 Once the military 

departments deem their transaction support and other controls to be 

effective for a particular assessable unit of the SBR, they will assert audit 

readiness for that assessable unit and request an audit by an 

independent public accountant to validate their audit readiness assertion. 

Figure 4 shows the SBR audit readiness milestone dates for the military 

departments and other defense agencies as of the November 2013 FIAR 

Plan Status Report. While DOD has made progress toward financial audit 

readiness, milestone dates for the Navy have slipped and SBR milestone 

dates for the Army and the defense agencies have been compressed, 

making it questionable that corrective actions for these DOD components 

will be completed by September 2014 for all assessable units. Further, 

the Air Force has revised its milestone dates for achieving SBR audit 

readiness to the third quarter of fiscal year 2015. With a reported 

$187.8 billion in fiscal year 2013 General Fund budgetary resources, the 

Air Force is material to DOD’s SBR and if the Air Force cannot meet 

DOD’s September 2014 SBR audit readiness goal, DOD will not be able 

to meet this goal. This, in turn, raises concerns about DOD’s ability to 

undergo an audit on a full set of financial statements for fiscal year 2018.

 

91Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, Financial 

Improvement and Audit Readiness (FIAR) Plan Status Report (November 2013).
 

Page 39 GAO-14-94 DOD Funds Control

Figure 4: DOD Timeline for Validation of Corrective Actions on Transaction Controls by Statement of Budgetary Resources 

Assessable Unit

DOD uses service providers to improve efficiency and standardize 

business operations in various functional areas, including accounting, 

personnel and payroll, logistics, contracting, and system operations and 

hosting support. DOD service providers and their business systems are 
 

Page 40 GAO-14-94 DOD Funds Control

fundamental to reliable accounting and reporting and financial audit 

readiness. The FIAR Guidance92 requires DOD service providers, such as 

DFAS, the Defense Logistics Agency, the Defense Information Systems 

Agency, and DCMA, to obtain an examination of their operating controls, 

including system controls, under Statements on Standards for Attestation 

Engagements (SSAE) No.16, when their controls are likely to be relevant 

to reporting entities’ internal controls over financial reporting.93 DOD 

service providers plan to use the results of their SSAE No. 16 

examinations as a basis for improving their operating processes and 

controls. Figure 5 shows the service providers and the operating systems 

supporting business functions that are targeted for SSAE No. 16 

examinations under FIAR and the related milestone dates for audit 

readiness assertions and their validation.

 

92Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer Financial 

Improvement and Audit Readiness (FIAR) Plan Status Report (November 2013). 

93SSAE No. 16, Reporting on Controls at a Service Organization, replaced Statements on 

Auditing Standards No. 70 as the authoritative guidance for reporting on service 

organizations. SSAE No. 16 was formally issued in April 2010 with an effective date of

June 15, 2011.
 

Page 41 GAO-14-94 DOD Funds Control

Figure 5: Timeline for Validation of Audit Readiness for DOD Service-Provider Operating System Controls

In August 2013, we reported that DOD did not have an effective process 

for identifying audit-readiness risks, including risks associated with its 

reliance on service providers for much of its components’ financial data, 
 

Page 42 GAO-14-94 DOD Funds Control

and it needed better department-wide documentation retention policies.94

Effective service-provider controls are critical to ensuring improvements in 

DOD funds control.

With regard to corrective actions related to ADA violations associated with 

military personnel appropriations, significant process improvements 

related to proper recording of transactions are needed and according to 

the military departments, the time frame for completing corrective actions 

depends on implementation of their respective integrated personnel and 

payroll systems, referred to by DOD as IPPS, for military payroll—in late 

2016 and 2017.

Business systems. In February 2012, we reported that DOD, in an 

attempt to modernize and develop an effective standardized financial 

management process throughout the department, had initiated various 

efforts to implement new ERP financial management systems and 

associated business processes.95 We further reported that based upon 

data provided by DOD, 6 of the 10 ERPs DOD had identified as critical to 

transforming its business operations had experienced schedule delays 

ranging from 2 to 12 years, and 5 had incurred cost increases totaling an 

estimated $6.9 billion. In its Summary of Challenges discussed in 

addendum A to DOD’s fiscal year 2013 Agency Financial Report, the 

DOD IG reported that timely and effective implementation of the ERPs is 

critical for DOD to achieve its financial improvement efforts and audit 

readiness goals.96 However, the DOD IG reported that not all of the ERP 

systems will be implemented by the department’s September 2014 goal 

for validating audit readiness for the SBR or its goal for undergoing an 

audit on a full set of financial statements for fiscal year 2018. Moreover, 

without fully deployed ERPs, the department will be challenged to 

produce reliable financial data and auditable financial statements without 

resorting to extreme efforts, such as data calls or manual workarounds, to 

provide financial data on a recurring basis. The DOD IG also reported that 

the department has not reengineered its business processes to the extent 

necessary; instead, it has often customized commercial ERPs to 

 

94GAO, DOD Financial Management: Ineffective Risk Management Could Impair Progress 

toward Audit-Ready Financial Statements, GAO-13-123 (Washington, D.C.: Aug. 2, 2013). 

95GAO-12-134. 

96Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, United 

States Department of Defense, Agency Financial Report, Fiscal Year 2013, pp. A-4 and 

A-5. 
 

Page 43 GAO-14-94 DOD Funds Control

accommodate existing processes, creating the need for system interfaces 

and weakening controls built into the ERP systems.

In the March 2013 FIAR Guidance, DOD reported that material internal 

control weaknesses were classified in DOD’s Agency Financial Report by 

the financial statement line item or type of activity affected by the 

weakness. DOD’s fiscal year 2013 Agency Financial Report lists 16 

material weaknesses over financial reporting and relates these 

weaknesses to ERP systems and end-to-end business processes.97 DOD 

reported one overall material weakness related to financial systems. 

Together, these 17 material weaknesses impact military pay, civilian pay, 

FBWT, contracts, and military supply requisitions. We and the DOD IG 

have reported that DOD component ERPs lack the functionality needed to 

support reliable financial reporting, including accurate and complete 

USSGL and DOD-wide SFIS information and data requirements and the 

ability to record budgetary data at the transaction level. DOD has stated 

that several of the department’s ERPs have been or will be implemented 

to support the 2018 financial statement audit goal. However, in its 

summary of management and performance challenges included in DOD’s 

fiscal year 2012 Agency Financial Report, the DOD IG stated that 

because of schedule delays ranging up to 13 years, DOD will continue 

using outdated legacy systems and poorly developed and implemented 

ERP systems, increasing the risks that (1) the SBR will not be audit ready 

by September 30, 2014, and (2) DOD may not be able to produce reliable 

financial data and auditable financial statements without resorting to 

“heroic efforts, such as data calls and manual workarounds.” In DOD’s 

fiscal year 2013 Agency Financial Report, the DOD IG reiterated this 

concern and noted that the department has not reengineered its business 

processes to the extent necessary, stating that instead it has often 

customized commercial ERPs to accommodate existing processes.

In addition, the FIAR Plan requires the military departments and DOD 

service providers to use GAO’s Federal Information System Controls 

Audit Manual (FISCAM) reviews to test business system general and 

application controls for material systems, including general ledger 

accounting systems and selected feeder systems, as part of their audit 

 

97Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, 

Department of Defense Agency Financial Report, Fiscal Year 2012, pp. A-32, A-46, and 

A-47. 
 

Page 44 GAO-14-94 DOD Funds Control

readiness efforts.98 FISCAM provides a methodology for performing 

information system control audits of federal and other governmental 

entities in accordance with professional standards. FISCAM focuses on 

evaluating the effectiveness of general99 and application controls.100 The 

November 2013 FIAR Guidance provides a detailed description of DOD’s 

audit readiness requirements related to financial system controls. The 

Guidance states that the FIAR Directorate has identified the FISCAM 

control activities and techniques needed to address the key internal 

controls over financial management reporting risk and includes a link to 

them. The Guidance further states that DOD reporting entities have 

ultimate responsibility for information technology controls for those 

systems through which their transactions flow and will need to 

communicate and coordinate audit readiness efforts with service 

providers. The shared understanding between the reporting entity and the 

service provider is required to be documented in a service-level 

agreement or memorandum of understanding. According to DOD’s 

November 2013 FIAR Plan Status Report, the military departments plan 

to complete their FISCAM general and application control tests as follows:

• The Army plans to achieve relevant FISCAM general and applicationlevel control objectives for material systems supporting its SBR 

assessable units, including GFEBS, by June 2014.

 

98GAO, Federal Information System Controls Audit Manual (FISCAM), GAO-09-232G

(Washington, D.C.: February 2009).

99General system controls are intended to provide reasonable assurance of security 

management (periodic evaluation and testing of the effectiveness of information security 

policies, procedures, and practices); access controls (access to data, equipment, and 

facilities is reasonable); configuration management (changes to information system 

resources are authorized and systems are configured and operated securely and as 

intended); segregation of duties (incompatible duties and responsibilities are effectively 

separated); and contingency planning (protects information resources and minimizes the 

risk of unplanned interruptions and provides for recovery of critical operations should 

interruptions occur).

100Application controls are intended to provide reasonable assurance of completeness (all 

transactions that occurred are input into the system, processed only once, and properly 

included in output); accuracy (transactions are properly recorded, with correct data and 

amounts, in the proper period, are processed accurately, and produce reliable results); 

validity (all recorded transactions actually occurred, relate to the organization, are 

authentic, and were properly approved, and output contains only valid data); confidentiality 

(application data and reports and other output are protected against unauthorized access); 

and availability (application data and reports and other relevant business information are 

readily available to users when needed). 
 

Page 45 GAO-14-94 DOD Funds Control

• The Navy planned to complete relevant FISCAM general and 

application control objectives for Navy ERP in February 2014 and 

plans to achieve a relevant review or perform a self-assessment of 

material legacy systems and selected feeder systems by September 

2014.

• The Air Force plans to achieve relevant FISCAM general and 

application control objectives for material systems supporting its SBR 

between November 2012 and June 2014. Air Force audit readiness 

efforts will rely on manual controls and legacy system improvements 

because its ERP general ledger system—DEAMS—will not be fully 

deployed until sometime after 2017.

DOD has committed significant resources to improving funds controls for 

achieving sound financial management operations and audit readiness. 

While DOD expects that these improvements, once realized, will also 

strengthen the department’s controls in support of proper use of 

resources, reliable reporting on the results of operations and budget 

execution, and financial audit readiness, the department continues to face 

pervasive, long-standing internal control and business system challenges 

that not only impair its control over funds entrusted to it, but also pose 

continuing challenges to achieving reliable financial reporting. DOD 

leadership remains committed to achieving financial accountability and 

reliable information for day-to-day management decision making as well 

as financial audit readiness. However, corrective actions are not expected 

to be completed for several years on long-standing funds control 

weaknesses related to (1) training, supervision, and management 

oversight; (2) proper authorization, recording, documenting, and reporting 

of budgetary transactions; and (3) business systems controls. As a result, 

these weaknesses will continue to adversely affect DOD’s ability to 

achieve its goals for effective funds controls, including reductions in ADA 

violations, financial accountability, and reliable financial reporting. In 

addition, to the extent that DOD and its components continue to rely on 

data calls or manual work-arounds to achieve auditability of the SBR and 

other financial statements, it is unlikely that DOD will be able to produce 

consistent, reliable, and sustainable financial information for day-to-day 

decision making.

We received written comments on a draft of this report from DOD’s 

Deputy Chief Financial Officer (CFO) on April 14, 2014, stating that the 

department appreciates our review of past reports as the identified 

deficiencies have informed DOD’s current corrective actions. The Deputy 

Concluding 

Observations

Agency Comments
 

Page 46 GAO-14-94 DOD Funds Control

CFO expressed the department’s commitment to building a stronger 

business environment with regard to people, processes, and systems and 

noted progress in each of the three weakness areas discussed in this 

report, including (1) enrollment of 22,300 financial managers in the new 

DOD Financial Management Certification Program; (2) audit readiness 

assertions within several organizations, supported in part by transaction 

control testing; and (3) ongoing efforts to review financial and financial 

feeder systems for data reliability. Effective implementation of outstanding 

recommendations from past reports will better position the department to 

minimize the occurrence of ADA violations. DOD’s comments are 

reprinted in appendix III.

We are sending copies of this report to the Chairmen and Ranking 

Members of the Senate Committee on Armed Services, the Senate 

Committee on Appropriations, the House Committee on Oversight and 

Government Reform, the House Committee on Armed Services, and the 

House Committee on Appropriations. We also are sending copies to the 

Secretary of Defense; the Under Secretary of Defense (Acquisition, 

Technology and Logistics); the Under Secretary of Defense (Personnel 

and Readiness); the Under Secretary of Defense (Comptroller) and Chief 

Financial Officer; the Deputy Chief Financial Officer; the Director for 

Financial Improvement and Audit Readiness; the FIAR Governance 

Board; the Assistant Secretaries (Financial Management and 

Comptroller) of the Army, the Navy, and the Air Force; the Commandant 

of the Marine Corps; the Director of the Defense Finance and Accounting 

Service; the Director of the Office of Management and Budget; and other 

interested parties. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, Secretary of Defense, and other interested 

parties. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov. 
 

Page 47 GAO-14-94 DOD Funds Control

If you or your staff have any questions about this report, please contact 

me at (202) 512-9869 or khana@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff members who made key contributions to 

this report are listed in appendix IV.

Asif A. Khan

Director, Financial Management and Assurance
Appendix I: Scope and Methodology

Page 48 GAO-14-94 DOD Funds Control

To determine the extent of long-standing funds control weaknesses, we 

analyzed 333 audit and financial reports on the Department of Defense’s 

(DOD) financial management operations issued over the last 7 years–

including 190 DOD audit reports, 30 GAO reports, 36 DOD financial 

reports, and 77 DOD reports of Antideficiency Act (ADA) violations 

provided to GAO and identified over 1,000 funds control weaknesses. Our 

reports and DOD Inspector General (IG) reports covered fiscal years 

2007 through 2012 and the military department audit reports covered 

fiscal years 2010 through the first half of fiscal year 2012. We assessed 

the DOD IG’s audit quality assurance procedures for assuring the 

reliability of data and findings presented in auditor reports.1 We also 

reviewed the military departments’ January 2012 Annual Evaluations of 

Funds Control Processes and Processing of ADA Violations and their 

Annual Financial Reports and Statements of Assurance for fiscal years 

2011 and 2012. In addition, we reviewed all DOD reports of ADA 

violations sent to GAO in fiscal years 2007 through 2013. (See table 4.) 

To determine whether reported weaknesses continued, we reviewed 

fiscal year 2013 reports of ADA violations sent to GAO and DOD IG 

reports of potential ADA violations; recent auditor reports; DOD financial 

management reports, including DOD and military department Agency 

Financial Reports; 2013 Financial Improvement and Audit Readiness 

(FIAR) Plan Status Reports; and FIAR Guidance. While these documents 

are included in the 333 reports of funds control weaknesses, the related 

findings are not included in the 1,006 weaknesses identified through fiscal 

year 2012.

 

1

Department of Defense, DOD Audit Manual, DOD Manual 7600.07-M, enc. 11 (Feb. 13, 

2009). 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 49 GAO-14-94 DOD Funds Control

Table 4: Number, Type, and Time Frame of GAO, Department of Defense, Defense Inspector General, and Military Service 

Reports Reviewed

Agency Number of reports Type of report Time frame

GAO 30 GAO products related to DOD budgetary funds 

control

Fiscal years 2007 through

2012

DOD Comptroller 75

2 

Reports of ADA violations Fiscal years 2007 through

2012

Fiscal year 2013

DOD Comptroller 3 Statement of Assurance Fiscal years 2011 through 

2013

DOD Comptroller 3 Agency Financial Report Fiscal years 2011 through 

2013

DOD Comptroller 7 DOD Financial Improvement and Audit Readiness 

Plans and Status Reports

November 2010 through 

November 2013

DOD IG 57 Audits that identified potential ADA violations Fiscal years 2007 through

2012

DOD IG 29 Audit reports on budgetary fund controls Fiscal years 2010 through 

2012

Military departments 9 Statements of Assurance Fiscal years 2011 through

2013

Military departments 9 Agency Financial Report Fiscal years 2011 through 

2013

Military departments 5 Annual evaluations of funds control processesa January 2011 and 2012

Army Audit Agency 22 Audit reports on budgetary fund controls Fiscal year 2010 through

March 2012

Naval Audit Service – 

Navy

38 Audit reports on budgetary fund controls Fiscal year 2010 through

March 2012 

Naval Audit Service – 

Marine Corps

6 Audit reports on budgetary fund controls Fiscal year 2010 through

March 2012 

Air Force Audit Agency 38 Audit reports on budgetary fund controls Fiscal year 2010 through

March 2012 

Total reports 333

Source: GAO analysis.

a

The Army did not provide its January 2011 report.

To determine the effect of reported weaknesses, we considered problems 

associated with (1) proper use of resources; (2) accurate accounting and 

support for transactions (primarily obligations and disbursements) with 

regard to reports on program and project statuses, results of operations, 

and budget execution; and (3) financial audit readiness. We also 
Appendix I: Scope and Methodology

Page 50 GAO-14-94 DOD Funds Control

reviewed DOD reports of ADA violations reported in fiscal years 2007 

through 2012 to identify DOD’s reported causes of the violations and the 

corrective actions noted in these reports.2 To frame our discussion of 

identified funds control weaknesses and DOD-reported corrective actions, 

we grouped the identified weaknesses into three categories that are 

consistent with those identified in DOD and GAO reports. Many of the 

reports on funds control weaknesses identified more than one weakness.

The three categories relate to the following areas:

(1) Inadequate training, supervision, and management oversight. 

Supervision is day-to-day guidance by a supervisor and management 

oversight involves assuring adequate supervisory guidance and training 

as well as overall monitoring of the subject matter area.

(2) Ineffective transaction controls. These controls cover proper 

authorization and recording of budgetary transactions, such as obligations 

and disbursements (outlays); maintaining adequate supporting 

documentation for the transactions; and proper and timely reporting of 

transactions and related summaries and financial reports.

(3) Ineffective business systems. This category refers to business 

systems that do not have effective controls for recording, supporting, and 

reporting financial transactions, including budgetary transactions, and 

therefore, do not provide adequate controls over financial reporting on the 

results of operations and do not assure compliance with laws and 

regulations.

To determine the status of DOD’s corrective actions to address identified 

funds control weaknesses, we reviewed corrective action statuses in 

response to mandates in National Defense Authorization Acts related to 

financial management competencies, skill gaps, and training; corrective 

actions on transaction-level accounting and financial reporting under 

DOD’s FIAR Plan; the status of actions to address business system 

weaknesses; and actions to address DOD ADA violations and DOD IG 

 

2

The ADA requires agencies violating its proscriptions to report to the President and the 

Congress all relevant facts and a statement of actions taken, and to transmit a copy of 

each report to GAO. Our analysis included the compilation and categorization of the 

unaudited information from such reports. We did not do any further analysis regarding the 

underlying facts or the legal conclusions discussed therein. Summaries of all the ADA 

reports received by GAO are available at 

http://www.gao.gov/legal/lawresources/antideficiencyrpts.html. 
Appendix I: Scope and Methodology

Page 51 GAO-14-94 DOD Funds Control

and military department audit recommendations. We met with DOD IG 

and military department audit officials to obtain information on open audit 

recommendations and discuss recurring findings of funds control 

weaknesses and their effect on reliable financial reporting. In addition, we 

met with DOD and military department financial managers and audit 

readiness officials to discuss their efforts to resolve findings of funds 

control weaknesses, including material weaknesses related to financial 

reporting disclosed in DOD annual Agency Financial Reports, as well as 

how funds control is being addressed in Statement of Budgetary

Resources audit readiness initiatives and the status of those initiatives.3

We analyzed DOD’s FIAR Plan Status Reports and FIAR Guidance and 

military department audit readiness plans from November 2010 through 

November 2013 to identify and evaluate audit readiness efforts related to 

funds control. Based on our review of DOD’s audit quality procedures and 

our comparison of auditor reports and DOD disclosures of financial 

management weaknesses, we determined the reported data and 

information to be reliable for the purposes of our work.

 

3

A material weakness is a deficiency, or a combination of deficiencies, in internal control 

such that there is a reasonable possibility that a material misstatement of the entity’s 

financial statements will not be prevented, or detected and corrected, on a timely basis. 
Appendix II: Details of Reported DOD Funds 

Control Weaknesses by Category

Page 52 GAO-14-94 DOD Funds Control

As shown in figure 6, we identified over 1,000 separately reported funds 

control weaknesses. We noted but did not count Department of Defense 

(DOD) financial management reports that discussed weaknesses 

identified in audit reports. We grouped funds control weaknesses 

identified in our reports analysis into three categories: (1) inadequate 

training, supervision, and management oversight; (2) ineffective 

transaction controls; and (3) inadequate business systems. These 

categories are consistent with those identified in DOD and GAO reports.

Appendix II: Details of Reported DOD Funds 

Control Weaknesses by Category
Appendix II: Details of Reported DOD Funds 

Control Weaknesses by Category

Page 53 GAO-14-94 DOD Funds Control

Figure 6: Reported DOD Funds Control Weaknesses by Major Category, Nature of 

Finding, and Reporting Agency
Appendix III: Comments from the Department 

of Defense

Page 54 GAO-14-94 DOD Funds Control

Appendix III: Comments from the 

Department of Defense
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 55 GAO-14-94 DOD Funds Control

Asif A. Khan, (202) 512-9869 or khana@gao.gov

In addition to the contact named above, Gayle L. Fischer (Assistant 

Director), Lisa Brownson, Francine DelVecchio, Maxine Hattery, 

Donald D. Holzinger, Jason Kelly, Jason Kirwan, Gregory Marchand 

(Assistant General Counsel), Sheila D. M. Miller, Marc Molino, Heather 

Rasmussen, and Robert Sharpe made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(197110)
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