DOD Financial Management

Why It's High Risk

Given the size and complexity of the Department of Defense (DOD)’s world-wide operations, involving hundreds of billions of dollars of resources, accurate and timely financial management information and effective accountability are critical. Nonetheless, pervasive financial and related business management systems and control deficiencies resulted in GAO designating DOD financial management as high risk in 1995. These deficiencies adversely affected DOD’s ability to control costs; ensure basic accountability; anticipate future costs and claims on the budget; measure performance; maintain funds control; prevent and detect fraud, waste, and abuse; address pressing management issues.

^ Back to topWhat We Found

DOD has taken encouraging steps, through its Financial Improvement and Audit Readiness (FIAR) plan, toward establishing departmentwide financial management that provides timely, reliable, accurate, and useful information for decision making and financial reporting, though full audit readiness remains a long-term goal. Although DOD as a whole will require years to achieve readiness for a full financial statement audit, some individual reporting entities have received unqualified, or “clean,” audit opinions , including the Army Corps of Engineers and Military Retirement Fund. The U.S. Marine Corps has sought, as a first step, to prepare for a financial audit focused on its Statement of Budgetary Resources (SBR.) While its initial efforts have not yet been successful, it can provide lessons learned for the Corps and other DOD components.

A key element of financial management improvement under the FIAR Plan is the successful implementation of the department enterprise resource planning systems. However, these programs continue to present challenges in implementation. DOD has yet to take important steps to address inadequate requirements management and systems testing, data quality issues, and other problems that continue to hinder its efforts to implement its automated systems on schedule, within cost, and with the intended capabilities.

DOD has identified steps taken to address our recommendations for strengthening the FIAR Plan strategy, including the establishment of shared priorities and methodology, including guidance to develop component financial improvement plans, and an improved governance framework that includes Chief Management Officers (CMO) in the military departments.

DOD’s strategy and methodology focus on two departmentwide priorities:

• strengthening processes, controls, and systems that produce budgetary information and support the department’s Statement of Budgetary Resources; and
• improving the accuracy and reliability of management information pertaining to mission-critical assets, including military equipment and real property, and validating improvement through existence and completeness testing.

The plan is now organized into five phases, or waves, that focus on audit readiness for the SBR (waves 1 and 2), the existence and completeness of assets (wave 3), and a full financial statement audit (waves 4 and 5).

^ Back to topWhat Needs to Be Done

DOD needs to

• add the specific steps for achieving a full audit through waves 4 and 5,
• identify the specific roles and responsibilities of the military-department CMOs in implementing FIAR through their individual financial improvement plans (FIP),
• improve requirements management, systems testing, and data quality, and resolve other problems that continue to hinder its efforts to implement its automated systems on schedule, within cost, and with the intended capabilities,
• establish performance measurement monitoring mechanisms,
• sustain the commitment of its top leadership, departmentwide and within its components, needed for the long-term goal of transforming DOD financial management, and
• allocate resources needed for corrective actions to succeed.

^ Back to topKey Reports

U.S. Government Financial Statements

Fiscal Year 2008 U.S. Government Financial Statements

Financial Management

DOD Business Transformation

Department of Defense

Department of Defense

Defense Business Transformation

Business Systems Modernization

More Reports