Our objective was to determine whether the Department of the Army effectively managed its Financial Improvement Plan (FIP), including contractor support, to meet Financial Improvement and Audit Readiness (FIAR) goals. Specifically, we focused on the FIAR priorities of improving budgetary information and verifying the existence and completeness of mission critical assets. We also assessed the Army’s compliance with FIAR Guidance when developing 10 FIPs.
Assistant Secretary of the Army (Financial Management and Comptroller) (ASA[FM&C]) personnel generally managed 10 Army General Fund FIPs in an effective manner and made 6 assertions focused on the 2 FIAR priorities. However, FIAR Directorate personnel approved three Army financial statement assertions for examination despite significant internal control problems. This occurred because FIAR Directorate personnel deviated from FIAR Guidance. As a result, ASA(FM&C) personnel expended funds on examinations in areas with known internal control weaknesses.
The ASA(FM&C) contracting officer’s representative (COR) did not perform appropriate contract oversight and surveillance on the Army General Fund audit readiness contract. Specifically, the COR did not perform onsite monitoring of the contractor, adequately document contractor performance or report the contractor’s performance in accordance with the COR designation memorandum, or complete thorough reviews of contractor invoices. This occurred because the four primary U.S. Army Corps of Engineers – Huntsville Engineering and Support Center (CEHNC) contracting officers did not ensure that the COR had the necessary resources to perform adequate oversight. As a result, ASA(FM&C) had reduced assurance that the $90.1 million spent on Army General Fund audit readiness services represented the actual quality and quantity of work performed.
CEHNC personnel used inadvisable accounting practices. This occurred because the U.S. Army Corps of Engineers did not definitize its reimbursable orders policy before contract issuance and CEHNC personnel did not record obligations in accounting records properly. As a result, CEHNC personnel processed $21.5 million in contractor payments, citing an incorrect obligation, and was at increased risk of overobligating Army military construction accounts.
We recommend that the Under Secretary of Defense (Comptroller)/ Deputy Chief Financial Officer, DoD, require a cost-benefit analysis when a reporting entity does not demonstrate that significant internal controls are operating effectively. Among other recommendations, we recommend that the ASA(FM&C) increase oversight of audit readiness contracts and the Chief of Contracting, CEHNC, verify compliance with the reimbursable orders policy.
Management Comments and Our Response
The response from the Under Secretary of Defense (Comptroller)/ Deputy Chief Financial Officer, DoD, on Recommendation A partially addressed the recommendation; however, we request additional comments. The response from the ASA(FM&C) was partially responsive on Recommendation B.2.b, but not on Recommendation B.2.a. Additionally, the response from the Chief of Contracting, CEHNC, addressed all of the aspects of the recommendations, and we do not require additional comments.