DOD accounting system off-balance, Inspector General's report finds

Long-standing glitches in one of the Defense Department's main finance and accounting systems have caused the Pentagon's financial managers to lose track of more than $1.8 billion during a seven-year period.

According to a report released today by DOD's Inspector General's (IG) Office, known weaknesses in the Headquarters Accounting and Reporting System—an information system used by the Defense Finance and Accounting Service to track and report cash collections and disbursements—led to more than $1 billion in unsupported adjustments to the Defense Logistics Agency's financial balance sheet.

The Chief Financial Officers Act of 1990 requires DOD to produce financial statements and report the data to the Treasury Department. DFAS' Columbus Center in Ohio compiles financial statements for the DLA, the Defense Commissary Agency and the Defense Contract Audit Agency. In addition, DLA is the cash manager for the DOD-wide Working Capital Fund, which includes DLA, DFAS and the Defense Information Systems Agency.

DLA's fiscal 1998 financial statements reported more than $1 billion in non-reconciled cash transactions, which means that the amount entered into the agencies' general ledgers differed from the amount reported to Treasury. While collections and disbursements may not be reconciled for many reasons, including poor record-keeping and lack of resources, the IG report concluded that the DFAS centers did not reconcile the transactions because the systems used to compile and report data to the Treasury did not maintain adequate records of the transactions.

"The HQARS weaknesses are long-standing," the IG stated, referencing similar studies conducted as far back as 1994. The IG's 1994 report identified a lack of audit trails as a critical flaw in the system and prompted the DFAS centers in Columbus and Indianapolis to sign an agreement promising to fix the problems.

However, as of May 1999, the IG found that none of the 11 corrective measures deemed necessary to fix the system had been completed.

"The HQARS system did not give the DFAS Columbus Center adequate visibility over cash transactions reported to the U.S. Treasury from March 1995 through February 1999," the report stated. "Unless those conditions are corrected, the DLA financial statements for [fiscal] 1999 and later will not be compiled accurately or consistently."

In fiscal 1998, cash transactions compiled in the DLA's financial statements totaled $28.6 billion.