Our objective was to determine whether the Department of the Navy (DoN) performed its triannual review (TAR) of unliquidated obligations and unfilled orders in accordance with regulations. The audit determined whether the review provided reasonable assurance of the accuracy and validity of balances reported on the financial statements.
The TAR of obligations (both unliquidated obligations and unfilled orders) did not provide reasonable assurance that the balances reported on the financial statements were accurate and valid. The Office of the Assistant Secretary of the Navy (Financial Management and Comptroller) Office of Budget could not provide a complete list of obligations reviewed for the period ending January 31, 2014, because the office did not have a standard process for compiling the universe of obligations.
Budget submitting offices (BSOs) provided incomplete obligation documentation to the Office of Budget, and the data did not reconcile to the reported amounts on the TAR. This occurred because the Office of Budget did not develop standard procedures for what would constitute adequate TAR supporting documentation.
The Office of Budget did not perform comprehensive reviews of TAR reports or follow up on inconsistencies the BSOs reported. This occurred because the Office of Budget did not conduct proper oversight of the TAR reports.
As a result of the Office of Budget’s inability to provide a complete list of obligations, its lack of performing comprehensive reviews of the TAR reports, and incomplete obligation documentation, the TAR is not reliable as an internal control. In turn, the reported obligation amounts on the DoN Financial Statements may be misstated. If the DoN cannot rely on the TAR as an effective control for monitoring obligations, upcoming audits of the Schedule of Budgetary Activity will require additional, substantive testing. Secondly, without a reliable TAR process, the Navy cannot promptly identify funds that can be deobligated. As a result, the DON is at risk of allowing funds to expire that the DON could use for other valid purposes.
The Director, Office of the Assistant Secretary of the Navy (Financial Management and Comptroller) Office of Budget should develop standard queries for the BSOs to ensure completeness of data extracted for TARs and conduct comprehensive reviews of the TAR results.
In addition, the Office of Budget should use the U.S. Marine Corps best practices to develop and implement Navy TAR standard procedures to:
- validate that all BSOs consistently extract data on obligations from the Navy accounting systems and include and report the results of the TAR in a standard format;
- compile a universe of obligations for the BSOs to perform the TAR; and
- record the status of each obligation that will identify obligations as valid, canceled, or awaiting review by the Defense Contract Audit Agency.
Management Comments and Our Response
Comments from the Assistant Secretary of the Navy (Financial Management and Comptroller) addressed the specifics of the recommendation, and no further comments are required.