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Followup Audit: Prior Recommendations to the Department of Navy Regarding the Triannual Review Process for Financial Transactions

DODIG-2018-085

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Objective

We determined whether the Department of the Navy (DON) effectively implemented corrective actions in response to open recommendations in reports, DoD OIG Report No. DODIG-2015-127, “Triannual Review Processes Need Improvement at Three Naval Budget Submitting Offices,” May 18, 2015, and DoD OIG Report No. DODIG-2015-072, “Improvements Needed for Navy’s Triannual Review,” January 22, 2015. We also determined whether the DON triannual review (TAR) for the period ending January 31, 2017, was performed in accordance with the DoD Financial Management Regulation (FMR).

Background
We initiated this audit in response to a March 2016 request by the DON Office of Budget within the Office of the Assistant Secretary of the Navy for Financial Management and Comptroller (ASN[FM&C]). Specifically, the DON Office of Budget requested that we review the actions it took to address the recommendations from the 2015 reports and if possible close the recommendations.

The TAR is an internal control practice that checks the timeliness, accuracy, and completeness of commitments, obligations, accounts payable, accounts receivable, and unfilled customer orders (financial transactions). The TAR occurs three times per fiscal year, with review periods ending on January 31, May 31, and September 30.  The goal of the TAR is to identify financial obligations that can be canceled or used for another purpose before the associated funds expire.

We issued two reports in 2015 that addressed problems with the DON’s TAR (DODIG-2015-127 and DODIG-2015-072). Specifically, we found that DON Budget Submitting Offices (BSOs) did not support the validity and accuracy of obligations reviewed during the TAR. Because the DON Office of Budget did not issue standard operating procedures (SOPs) and perform quality assurance, the DON’s TAR of obligations (both unliquidated obligations and unfilled orders) did not provide reasonable assurance that balances reported on the financial statements were correct. As of November 1, 2017, 11 recommendations from our prior reports remained open. In addition, in DoD OIG Report No. DODIG-2015-127, we found that BSOs did not have documentation to support whether $214.4 million in obligations were accurate and still needed.

Finding
We determined that the DON Office of Budget took corrective actions that implemented 2 of the 11 open recommendations made in our prior reports. Specifically, the DON Office of Budget trained BSO personnel regarding their TAR roles and responsibilities. The DON Office of Budget also developed a TAR SOP; however, it did not implement the SOP and take actions to correct the findings identified in our prior reports. Specifically, the DON Office of Budget did not:

  • implement its SOP to improve key TAR processes, such as uniformly collecting complete financial transactions and consistently reporting the TAR review results; or
  • conduct reviews of BSO TAR reports.    

In addition, the DON Office of Budget did not ensure that DON BSOs completed the TAR in accordance with the DoD FMR. Of the 11 BSOs we reviewed, only 3 BSOs complied with the DoD FMR.

This occurred because the DON Office of Budget officials focused on developing standard queries needed to extract data from many complex financial systems before developing and implementing an SOP. The DON has attempted multiple efforts since 2015 to implement tools and capabilities sufficient to remediate the previous recommendations. However, due to the complexities of multiple financial systems, this effort produced minimal results and was put on hold in favor of a manual, labor-intensive effort. The DON Office of Budget officials continue to work with DON system owners to find an automated solution to develop data sets from multiple DON accounting systems and alleviate the manual data call method currently in use.

As a result, the DON may not identify financial obligations that can be canceled or used for another purpose before the funds expire. Additionally, the TAR, as currently implemented, is not an effective internal control for monitoring financial transactions; as a result, the amounts reported on the DON financial statements might be inaccurate.

Recommendations
Although we are not making new recommendations, 9 of the 11 resolved recommendations from the prior reports remain open.

Management Comments Required
The DON Office of Budget did not provide comments to the draft report. We request that the DON Office of Budget provide comments on the final report.