Report | April 3, 2015

Additional Actions Needed to Effectively Reconcile Navy's Fund Balance With Treasury Account

DODIG-2015-102

Objective

Our objective was to determine whether the process used by the Department of the Navy (DON) to reconcile its Fund Balance With Treasury (FBWT) account was effective, providing reasonable assurance to support the accuracy, timeliness, and completeness of the account’s audibility.

Finding

The DON FBWT reconciliation process was not effective. Specifically:

DON did not use general ledger detail as source data for FBWT reporting as required by Treasury regulations. Navy Office of Financial Operations (FMO) stated it used Program Budget Information System (PBIS) and Defense Cash Accountability System (DCAS) feeder data instead. As a result, DON could not identify a universe of transactions supporting its FBWT balance.

DON may have used unreliable computer-processed data as DCAS and PBIS had significant control deficiencies identified during Federal Information Systems Controls Audit Manual testing. In addition, DON did not identify compensating controls to ensure the reliability of the data. As a result, DON has no assurance that the FBWT amounts reported on its Financial Statements and Schedules are reliable for auditability and decision making purposes.

Navy FMO also did not have approved standard operating procedures. As a result, DON did not have a proven, repeatable process that can be extended to future periods.

Navy FMO personnel did not resolve $226 million in net differences out of $767 million in net activity between Treasury records for Navy disbursements and Navy’s detailed disbursement records for transactions processed by non-Navy disbursing offices. DON did not use the “Statement of Differences – Disbursements” reconciliation as a key control required by Treasury. As a result, Navy FMO could not determine whether these amounts were included in DON’s general ledger supporting details and in its reports to Treasury. These unresolved differences compromise the integrity of FBWT balances and the reliability of published financial reports, which will include the Schedule of Budgetary Activity that is currently being audited.

In addition, DON has not demonstrated an effective FBWT transaction-level reconciliation. The inability to reconcile at the transaction level for current-year appropriations represents a significant obstacle the DON must overcome to show it has the controls in place to produce a complete universe of transactions for an auditable Schedule of Budgetary Activity.

Recommendation

We recommend that the Assistant Secretary of the Navy (Financial Management and Comptroller):

  • develop a reconciliation process that is based on detail-level transaction data from DON’s general ledger systems to its financial statements;
  • review the control weaknesses identified for DCAS and PBIS to minimize risk and reduce any weaknesses identified;
  • review and approve current standard operating procedures; and
  • design and implement controls within the end-to-end FBWT business process for resolving amounts reported on the “Statement of Differences – Disbursements.”

Management Comments and Our Response

Comments from the Navy addressed all specifics of the recommendation, and no further comments are required.