U.S. Special Operations Command Reporting of General Equipment on Its Financial Statements DODIG-2018-123

Objective:

We determined whether U.S. Special Operations Command (USSOCOM) accurately reported general property, plant, and equipment on its financial statements. We reviewed USSOCOM General Equipment because it represented 85 percent of USSOCOM FY 2015 general property, plant, and equipment.

Findings:

USSOCOM overstated its General Equipment account balance by $5.7 billion and could not support another $261 million in General Equipment on its FY 2015 financial statements. USSOCOM also understated its General Equipment account balance by $1.4 billion on its first quarter FY 2016 financial statements. In addition, USSOCOM did not obtain all the critical data elements needed from its Component Special Operations Command (SOC) property systems needed to accurately report its General Equipment and Accumulated Depreciation account balances. Furthermore, the Component SOC property systems did not contain accurate and complete data needed for USSOCOM to correctly report its General Equipment and Accumulated Depreciation account balances. Finally, $145 million in Marine Corps Forces Special Operations Command (MARSOC) General Equipment was reported on both USSOCOM and Marine Corps financial statements.

This occurred because USSOCOM did not develop adequate standard operating procedures (SOPs) to report its General Equipment and Accumulated Depreciation account balances. In addition, USSOCOM did not successfully coordinate with Component SOC personnel to obtain the information needed to accurately report its General Equipment and Accumulated Depreciation on its financial statements. Furthermore, Component SOC property systems were unable to accurately value General Equipment. Lastly, the Office of the Under Secretary of Defense (Comptroller)/Deputy Chief Financial Officer (OUSD[C]/DCFO) memorandum guidance was not clear regarding which entity should report the General Equipment on its financial statements.

Unless actions are taken, USSOCOM’s General Equipment and Accumulated Depreciation account balances will continue to be misstated and unsupported, and its financial statements will continue to be misstated. USSOCOM’s inability to produce accurate General Equipment and Accumulated Depreciation account balances may also impact the accuracy of the DoD Agency-Wide financial statements because the USSOCOM General Equipment account balance is significant to the DoD Agency-Wide financial statements. Furthermore, Component SOC General Equipment will continue to be reported on two sets of financial statements, resulting in duplicate reporting.

Management Comments and Our Response:

The Chief Financial Officer (CFO)/Comptroller, USSOCOM, stated that USSOCOM management self-identified and communicated to us many of the weaknesses and misstatements that we identified in the report, and that it was in the process of identifying the causes and taking corrective action. In addition, USSOCOM stated that it communicated to the audit team that numerous property system processes had changed during the audit time period. The CFO/Comptroller also stated that the financial reporting of General Equipment continues to evolve across the DoD and that the OUSD(C)/CFO is developing an updated policy on the financial reporting responsibilities for PP&E.

At the start of the audit, we recognized that USSOCOM General Equipment and Accumulated Depreciation account balances may be misstated and that USSOCOM was identifying the causes and developing corrective action plans to prepare for its FY 2018 financial statement audit. This report shows the pervasive problems that USSOCOM has with accurately reporting its General Equipment and Accumulated Depreciation account balances and makes formal recommendations to improve the reporting of General Equipment and Accumulated Depreciation within USSOCOM and throughout the DoD. We acknowledge in the report that many of the processes and Component SOC property systems that USSOCOM uses to calculate the General Equipment and Accumulated account balances are changing. We also acknowledge that the financial reporting of General Equipment within the DoD is evolving and will continue to change as new reporting requirements are established. However, we conducted this audit using the financial reporting requirements for General Equipment and Accumulated Depreciation that existed at the time of the audit.

Recommendations, Management Comments, and Our Response:

The Financial Improvement and Audit Remediation Director (FIAR Director), responding for the OUSD(C)/DCFO, agreed with the recommendations to update its accounting policy relating to the transferring and reporting of General Equipment balances between entities and clearly distinguish which entity should maintain the accounting of the General Equipment and Accumulated Depreciation balances and report the balances on the Component’s financial statements. Managements comments were responsive and met the intent of the recommendations; therefore, they are resolved but will remain open. We will close these recommendations once we verify that the FIAR Director has updated the policy and incorporated it into the DoD FMR.

The Deputy Assistant Secretary of the Army (Financial Operations), responding for the Assistant Secretary of the Army (Financial Management and Comptroller), neither agreed nor disagreed with the recommendations to provide accurate and complete data elements to USSOCOM and develop milestones for providing these data elements. However, the Deputy Assistant Secretary stated its working with USSOCOM to identify all the USSOCOM assets that are managed in Army property systems and that its efforts have resulted in the identification of the data elements needed for USSOCOM to report General Equipment on its financial statements. The Army expects to complete these actions by the fourth quarter of FY 2018. The proposed and ongoing actions addressed the intent of our recommendations; therefore, the recommendations are resolved but will remain open. We will close these recommendations once we verify that the Army has identified all of USSOCOM assets in Army property systems and has provided accurate and complete data elements to USSOCOM.

The Deputy Assistant Secretary of the Navy (Financial Operations), responding for the Assistant Secretary of the Navy (Financial Management and Comptroller), disagreed with the recommendations to provide accurate and complete data elements to USSOCOM and develop milestones for providing these data elements. Comments from the Deputy Assistant Secretary did not address the specifics of the recommendation; therefore, we request that the Deputy Assistant Secretary reconsider her position on these recommendations and provide additional comments to the final report.

The Associate Deputy Assistant Secretary of the Air Force (Financial Operations), responding for the Assistant Secretary of the Air Force (Financial Management and Comptroller), agreed with the recommendations to provide accurate and complete data elements to USSOCOM and develop milestones for providing this information. The Air Force comments were responsive to the intent of the recommendations; therefore, they are resolved but will remain open. We will close these recommendations once we verify that the Air Force has identified all of USSOCOM assets in Air Force property systems and has provided accurate and complete data elements to USSOCOM.

The Audit Coordination Head, responding for the Marine Corps Comptroller, agreed with the intent of the recommendations to provide accurate and complete data elements to USSOCOM and develop milestones for providing this information to the extent property systems can accommodate implementation. The Marine Corps comments only partially addressed the recommendation to provide accurate and complete data elements to USSOCOM. We request the CFO/Comptroller provide additional comments to these recommendations in response to the final report.

The USSOCOM CFO/Comptroller, responding for the Director of Accounting, agreed or partially agreed with the recommendation or the intent of the recommendations to revise USSOCOM SOPs on the reporting of General Equipment and Accumulated Depreciation. The CFO/Comptroller stated that USSOCOM has updated and will continue to update its SOPs to include the following: identify the critical data elements needed from the Component SOC property systems (Recommendation 6.a.1); identify the source of USSOCOM General Equipment (6.a.2); identify the documentation needed to support USSOCOM General Equipment and Accumulated Depreciation journal voucher (6.a.3); identify the staff positions for determining whether the journal voucher is accurate and supported (6.a.4); provide the policies and procedures for calculating Depreciation and Accumulated Depreciation account balances when this information is not provided by the Component SOC property systems (6.a.5); and include procedures for reconciling the USSOCOM General Equipment and Accumulated Depreciation account balances regarding additions and subtraction from these account balances from one reporting period to the next reporting period (6.a.6). The CFO/Comptroller comments to Recommendations 6.a.1 and 6.a.6 addressed all the specifics of the recommendations and no further action is needed. The CFO/Comptroller comments to Recommendations 6.a.3 and 6.a.4 addressed all the specifics of the recommendations and are considered resolved, but additional information is needed to close these recommendations. The CFO/Comptroller comments for Recommendations 6.a.2 and 6.a.5 only partially addressed the recommendations. We request the CFO/Comptroller provide additional comments to these recommendations in response to the final report.

The CFO/Comptroller agreed or partially agreed with the recommendations to assist Component SOC personnel in identifying all the critical data elements USSOCOM needs (6.b); obtain read only access to Component SOC property systems (6.c); to review and verify that the General Equipment being reported on the USSOCOM Balance Sheet reconciles to the Component SOC property systems (6.d), and request the USD(C)/CFO to make a determination on whether USSOCOM or the Marine Corps should report certain General Equipment (6.e). The CFO/Comptroller comments to Recommendations 6.b addressed all the specifics of the recommendation and is considered resolved, but additional information is needed to close the recommendation. The CFO/Comptroller comments for Recommendations 6.c, 6.d, and 6.e only partially addressed the recommendations. We request the CFO/Comptroller provide additional comments to these recommendations in response to the final report.

This report is a result of Project No. D2016-D000FP-0158.000.