We determined the accuracy of the Navy’s obligations and disbursements supporting Operation Freedom’s Sentinel (OFS), as reported, for select Navy appropriations, in the Cost of War (CoW) report.
We performed this audit to determine the accountability of DoD funds supporting overseas contingency operations (OCO), as required by the Inspector General Act of 1978, as amended.
Under OFS, an OCO that began January 1, 2015, U.S. Forces transitioned from a combat mission to a train, advise, and assist mission for the Afghan National Defense and Security Forces. OFS also supports counterterrorism operations against the remnants of al Qaeda and its associates.
The Office of the Assistant Secretary of the Navy (Financial Management and Comptroller), Deputy Assistant Secretary of Financial Operations, Accounting and Financial Reporting Division, and Deputy Assistant Secretary for Budget could not support $866.3 million (91.3 percent) in obligations reported in the first quarter FY 2016 CoW reports. This occurred because they did not establish adequate processes to identify transactions for OCOs within the Standard Accounting and Reporting System–Field Level, a Navy accounting system. As a result, the Navy could not provide assurance that it accurately reported the OFS obligations and disbursements to Congress for first quarter FY 2016, and it could not ensure accountability for the spending of OCO funds.
Our review of the Navy’s internal controls identified significant inaccuracies within the Navy’s first quarter FY 2016 CoW reports. Specifically, the Navy inaccurately reported $20.1 million in obligations and $85.4 million in disbursements for first quarter FY 2016 due to the lack of adequate standard operating procedures (SOPs).
Additionally, the Navy inappropriately reported more than the incremental costs in the CoW report. Incremental costs are additional costs to the DoD that would not have been incurred if the contingency operation had not been supported. Public Law 113-235, as implemented in the DoD Financial Management Regulation, volume 12, chapter 23, limits the DoD to reporting incremental contingency operation costs for OFS in the CoW report. The Navy misstated the costs reported because Deputy Assistant Secretary for Budget personnel did not include the requirement to limit reporting to incremental costs in its implementing guidance.
The Navy could not identify all transactions for Navy OCOs which impacted us determining the full amount of the misstatements reported in the CoW report.
Deputy Assistant Secretary of Financial Operations, Accounting and Financial Reporting Division, and Deputy Assistant Secretary for Budget, in coordination with the Comptroller, Pacific Fleet Command, and the Comptroller, U.S. Fleet Forces Command, should reengineer processes to identify all transactions for Navy OCOs. The Deputy Assistant Secretary for Budget, in coordination with budget submitting offices and support activities, should develop and implement SOPs that cover end-to-end CoW reporting processes. Furthermore, the Deputy Assistant Secretary for Budget should develop and implement a consistent methodology to report only incremental costs.
Management Comments and Our Response
The Associate Director for the Office of Budget, responding for the Deputy Assistant Secretary of Financial Operations, Accounting and Financial Reporting Division, and Deputy Assistant Secretary for Budget, agreed with our findings and recommendations.
The Associate Director stated that the transition to the Standard Accounting, Budgeting, and Reporting System (SABRS), the Marine Corps’ accounting system, and development and implementation of SOPs would allow the Navy to identify all transactions for OCOs. The Navy anticipates the completion of the SABRS transition for Fleet Commands in FY 2019 and the development and implementation of SOPs by June 30, 2017. However, the Associate Director did not provide the procedures they will implement to identify Navy’s OCO transactions prior to the transition to SABRS. Therefore, the recommendation is unresolved.
In addition, the Naval Audit Service is currently conducting an audit of the Marine Corps obligations and disbursements supporting OFS and should be able to verify whether SABRS can produce a universe of OCO transactions supporting the CoW report. Therefore, we will close this recommendation once the Naval Audit Service verifies that SABRS can produce a universe of Marine Corps OCO transactions, we verify that SABRS can produce a universe of Navy OCO transactions, and we verify that the SOPs clearly identify the methodology for calculating operational costs allocated to OCOs.
The Associate Director also agreed that an updated SOP is required and has already started updating the SOP and existing guidance. Therefore, the recommendation is resolved and remains open. We will close this recommendation once we are provided a copy of the new SOP and verify that it includes procedures for the receipt, review, and reporting of obligations and disbursements for the CoW reports.
Furthermore, the Associate Director agreed to develop revised guidance for determining and reporting incremental costs. Therefore, the recommendation is resolved and remains open. We will close this recommendation once we receive the new guidance from the Associate Director and verify that it identifies a consistent methodology for allocating and documenting operational costs for OCOs.
Because management comments did not fully address the recommendation to reengineer processes to identify Navy OCO transactions, we request that the Deputy Assistant Secretary of Financial Operations, Accounting and Financial Reporting Division, and Deputy Assistant Secretary for Budget address the recommendation specifics by March 31, 2017.
This report is a result of Project No. D2016-D000JB-0150.000.