Objective
Our objective was to identify and summarize any systemic weaknesses in the DoD’s accounting for costs associated with ongoing overseas contingency operations (OCOs) identified in six Cost of War (CoW) audit reports issued by the DoD Office of Inspector General (OIG), Army Audit Agency, Naval Audit Service, and Air Force Audit Agency from 2016 through 2018. We considered a weakness systemic when the same or similar issue occurred in two or more DoD Components involved in the CoW reporting process. In addition, we determined the status of recommendations from six CoW audit reports and the actions DoD Components took in response to those recommendations.
Background
The Chair of the Council of the Inspectors General on Integrity and Efficiency designated the DoD Inspector General as the Lead Inspector General for Operation Inherent Resolve (OIR) on December 17, 2014, and for Operation Freedom’s Sentinel (OFS) on April 1, 2015. The Inspector General Act of 1978, as amended, requires the Lead Inspector General to review and determine the accuracy of information provided by Federal agencies regarding OCO funds.
The Secretary of Defense is required to submit the CoW report to the Government Accountability Office within 45 days of the end of each reporting period. The CoW report summarizes obligation data by DoD Component, appropriation, and operation. It also includes the details of the obligations and disbursements for the Military Personnel and Operation and Maintenance appropriations.
From 2016 through 2018, the DoD OIG, Army Audit Agency, Naval Audit Service, and Air Force Audit Agency issued six CoW audit reports for OIR and OFS. In the six CoW audit reports, the DoD OIG and Service audit agencies made 26 recommendations to various DoD officials to address weaknesses in the CoW reporting process.
Finding
Based on our review of six CoW audit reports issued from 2016 through 2018, we determined that Deputy Comptroller (Program/Budget) personnel issued unreliable and outdated CoW reports from FYs 2015 and 2016 to Congress, DoD decision makers, the Government Accountability Office, and the Office of Management and Budget. Specifically, the DoD OIG and Service audit agencies identified the following systemic problems with inaccurate and untimely cost reporting for OIR and OFS.
- Army, Navy, and Air Force personnel underreported and overreported costs for OIR and OFS in the CoW reports. For example, Army personnel incorrectly allocated OFS costs to OIR. As a result, Army personnel underreported obligations for OIR and overreported obligations for OFS.
- Navy and Marine Corps personnel could not provide transaction-level detail to support their OFS obligations and disbursements.
- Deputy Comptroller (Program/Budget) and Army personnel did not submit CoW data by the required milestones.
According to the reports we reviewed, these problems occurred because of the following systemic internal control weaknesses in the CoW reporting process.
- Army, Navy, Air Force, and Marine Corps personnel did not develop or update standard operating procedures (SOPs) for documenting the receipt, review, and reporting of OIR and OFS costs.
- Army, Navy, Air Force, Marine Corps, and Defense Finance and Accounting Service personnel did not update management tools and systems that capture OIR and OFS costs.
- Deputy Comptroller (Program/Budget) and Army personnel prioritized other tasks, such as budget closeout activities, ahead of the CoW report.
In addition, the DoD OIG and Service audit agencies made 26 recommendations to DoD Components to address weaknesses in the DoD’s accounting for war-related OCO costs. The DoD OIG and Service audit agencies closed 19 of the 26 recommendations. The remaining seven recommendations are resolved and will remain open until DoD Components take corrective actions to implement the recommendations, and the DoD OIG and the Naval Audit Service verify that the corrective actions were completed.
Of the 19 closed recommendations, 14 recommendations were significant to the systemic internal control weaknesses identified in this CoW summary audit report. The actions taken to close the 14 recommendations included the development of SOPs to accurately report OIR and OFS costs, updating the management tools to identify war-related OCO costs, and coordination between the Office of the Deputy Comptroller (Program/Budget) and Congress to adjust the statutory CoW reporting requirement from monthly to quarterly. These corrective actions should result in more accurate CoW reports.
Recommendations
Based on our review of six CoW audit reports, we identified systemic internal control weaknesses in the CoW reporting process. Therefore, we developed the following higher-level recommendations to address the systemic internal control weaknesses. We recommend that the:
- Deputy Comptroller (Program/Budget), Office of the Under Secretary of Defense (Comptroller) (USD(C))/Chief Financial Officer (CFO), DoD, develop and implement review processes to verify that DoD Components develop, update, and implement SOPs, management tools, and accounting systems for accurate war-related OCO cost reporting.
- Under Secretary of the Navy, in coordination with the Assistant Secretary of the Navy (Financial Management and Comptroller) and the Deputy Commandant of the Marine Corps for Programs and Resources, develop and implement procedures to capture the required level of detail of war-related OCO costs in the respective accounting system.
- Deputy Secretary of Defense, in coordination with the Deputy Comptroller (Program/Budget), Office of the USD(C)/CFO, the Defense Finance and Accounting Service Director, and each Service’s Assistant Secretary for Financial Management and Comptroller, enforce the requirement for DoD Components involved in the CoW reporting process to submit their CoW data within the established timelines and issue the CoW report within 45 days of the end of the reporting period, or coordinate with Congress to request an adjustment to the legal requirements for the reporting timetable.
- Auditor General of the Army, Auditor General of the Navy, and Auditor General of the Air Force include followup audits that verify the accuracy of the CoW data in their FY 2020 audit plans.
Management Comments and Our Response
The Operations Director, responding for the Deputy Comptroller (Program/Budget), Office of the USD(C)/CFO, agreed with the recommendation to develop and implement a review process to verify that the Services develop, review, update, and implement their CoW SOPs to accurately and consistently report war-related OCO costs. The Operations Director stated that the Office of the USD(C)/CFO will include language in the yearly CoW reporting guidance and instructions to require DoD Components to review, update, and implement their CoW SOPs. However, the Operations Director did not specify how the Office of the USD(C)/CFO would confirm that DoD Components implemented the DoD Financial Management Regulation. According to the DoD Instruction, the USD(C)/CFO is responsible for monitoring DoD Components’ compliance with DoD financial reporting requirements. Therefore, this recommendation is unresolved. We request that the Deputy Comptroller (Program/Budget) provide additional comments that describe the specific actions that she will take to verify that DoD Components have developed, reviewed, updated, and implemented their CoW SOPs to ensure accurate and consistent reporting of war-related OCO costs.
In addition, the Operations Director, responding for the Deputy Comptroller (Program/Budget), Office of the USD(C)/CFO, disagreed with the recommendation to develop and implement a review process to verify that DoD Components update their management tools and accounting systems to properly identify and record war-related OCO costs. The Operations Director stated that DoD Components are required to update their management tools and accounting systems to properly identify and record war-related OCO costs. However, based on our review of six CoW audit reports, we determined that Army, Navy, Air Force, Marine Corps, and Defense Finance and Accounting Service personnel did not update their management tools and systems that captured war‑related OCO costs from FYs 2015 and 2016. According to the DoD Instruction, the USD(C)/CFO is responsible for monitoring DoD Components’ compliance with DoD financial reporting requirements. Therefore, this recommendation is unresolved. We request that the Deputy Comptroller (Program/Budget) provide additional comments that describe the specific actions that she will take to verify that DoD Components updated their management tools and accounting systems to properly identify and record war-related OCO costs.
The Under Secretary of the Navy agreed with the recommendation to develop and implement procedures to capture the required level of detail of war-related OCO costs in the respective accounting systems. The Under Secretary of the Navy stated that the Navy established a methodology to identify an appropriate portion of OCO obligations as incremental costs for the CoW report, and that the Marine Corps implemented a policy to manage the codes that identify OCO obligations and disbursements in the Marine Corps accounting system. However, the Under Secretary of the Navy did not specify how the Navy would provide transaction‑level details to allow source data to be traced to the amounts reported in the CoW report, or whether the Marine Corps policy included procedures to capture transaction-level details of war‑related OCO costs. Therefore, this recommendation is unresolved. We request that the Under Secretary of the Navy provide additional comments that describe the specific actions that he will take to enable Navy and Marine Corps personnel to capture the required transaction-level details of war-related OCO costs in the Marine Corps accounting system.
The Auditor General of the Army, Acting Auditor General of the Navy, and Auditor General of the Air Force agreed to include followup audits that verify the accuracy of the CoW data in their FY 2020 audit plans. Therefore, the recommendation is resolved but will remain open. We will close this recommendation once we receive the final audit reports that assess the accuracy of the CoW data from the Auditors General of the Army, Navy, and Air Force.
The USD(C)/CFO, performing the duties of the Deputy Secretary of Defense, agreed with the recommendation to enforce the requirement for DoD Components to submit their CoW data within the established deadlines and issue the CoW report within 45 days of the end of the reporting period. The USD(C)/CFO stated that the Office of the USD(C)/CFO will enforce the requirements of the CoW reporting process. Therefore, the recommendation is resolved but will remain open. We will close this recommendation once we verify that the Office of the USD(C)/CFO issued a quarterly FY 2019 CoW report within 45 days of the end of the reporting period.
This report is a result of Project No. D2018-D000RM-0164.000.