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. 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. The Budget and Accounting Procedures Act of 1950 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. 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. 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 budgetary accounting rules. 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, the Miscellaneous Receipts statute, the Purpose statute, and the Bona Fide Needs statute, as well as the provisions establishing the procedures and officials responsible for the disbursement of federal funds and the provisions that govern the closing of appropriations accounts known as the Account Closing Statute. Many other government-wide and agency- specific provisions of permanent law govern the use of federal funds, such as the Adequacy of Appropriations Act and limitations on DOD incurring obligations for business system modernization, 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 amount available in an apportionment or reapportionment, an appropriation or fund, or an allotment 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. 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 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. Figure 2 summarizes 1,006 reported funds control weaknesses that span DOD budgetary accounting, funds control, and financial reporting by three categories. 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 senior- level 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. 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 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. 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 reported that the training on the Army’s General Fund Enterprise Business System (GFEBS) and the Air Force’s Defense Enterprise Accounting and Management System (DEAMS) 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.