By ANDRE FRANCISCO
The Department of Defense (DoD) has a weak system for managing its budget and lacks even basic controls to properly track its spending, according to a report released yesterday by the Government Accountability Office (GAO).
The report details a long list of problems that add up to the DoD not being able to control or track its disbursement of payments. For fiscal year 2010, the DoD made $1 billion in improper payments—but that isn’t the end of it. “This estimate is incomplete because DOD did not include estimates from its commercial payment programs, which account for approximately one-third of the value of DOD payments,” according to the report.
DoD’s money mismanagement has also caused it to be in violation of the Antideficiency Act (ADA). This table shows the Department’s record of ADA violations from 2007 to 2011.
As you can see, the Army is responsible for more than half the total dollar amount of ADA violations. The report provides one frustrating example of how the Army over-obligated more than half a billion dollars:
The overobligation likely stemmed, in part, from lack of communication between the Army budget office and program managers so that the Army budget office’s accounting records reflected estimates instead of actual amounts until it was too late to control the incurrence of excessive obligations in violation of the act. Thus, at any given time in the fiscal year, the Army budget office did not know the actual obligation and expenditure levels of the account. The Army budget office explained that it relies on estimated obligations—despite the availability of actual data from program managers—because of inadequate financial management systems.
The Army over-obligated its funds because it didn’t use the number for how much things actually cost. It’s like estimating your monthly budget using round numbers that you think are close to your rent, food, and transportation costs. It might be an adequate way to plan a budget, but if at the end of the month you use your estimates instead of the pile of receipts on your kitchen table, your finances are going to get away from you. Except screwing up your personal budget isn’t a violation of law, and presumably doesn’t result in half of a billion dollars in mistakes.
Another issue the report identified is “problem disbursements,” but luckily, in this area, the Army comes off looking downright responsible compared with the Navy. Problem disbursements are when information for a transaction does not match the information for the same entry in accounting records. Fixing these mismatches helps the DoD avoid ADA violations and gives each service a more accurate picture of their financial state. For this reason, the DoD is aiming to have no mismatched documents older than 120 days. They are improving, but in the second quarter of 2011 there were still $110 million worth of transactions with mismatched documents that were older than 120 days. The Navy accounted for $41 million of those transactions, down from $565 million in the second quarter of fiscal year 2009. The Army’s highest level since 2009 was only $156 million.
These problems of tracking and accounting for a $617 billion budget broken up into millions of transactions across such a giant department makes fixing the problems identified in the GAO report difficult, and moving the Pentagon towards auditability daunting. To comply with the Financial Improvement and Audit Readiness Plan, the DoD is aiming to be able to be audited by 2017, but this GAO report said that even though the DoD is working hard towards auditability, “it faces significant challenges in addressing those persistent weaknesses.”
In a July 27 hearing before the Senate Armed Services Committee’s Subcommittee on Readiness and Management Support, Under Secretary Robert F. Hale defended the DoD’s record on ADA violations:
Over the last 5 years, if you look at violations of the major Federal law governing financial management, the Anti-Deficiency Act, 20 cents out of every $1,000—20 cents out of $1,000—actually resulted in an ADA violation. That is 20 cents too much. My goal is zero, and it is the only right goal. But it is 200th of 1 percent.
But in a letter sent two weeks ago, a bipartisan group of 13 Members of Congress questioned Hale and the DoD about their response to ADA violations.
The ultimate goal of strong financial controls and management is to have reliable information about funding available and expenditures made. Without a thorough process to track appropriations, obligations, and expenditures, the risk for ADA violations is high.
The letter also called out the DoD for $817 million in ADA violations that have been identified, but not yet reported to Congress. The reporting of ADA violations to Congress is part of the ADA legislation. Not reporting violations to Congress also excludes those violations from being included in official ADA totals.
Andre Francisco is a POGO Communications Associate.