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UPDATED: 30 years after Chuck Spinney on Time's cover, Pentagon IG fails DOD financial audit unit

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Photo - The Internal Review office of the Pentagon's Defense Finance and Accounting Service - the world's largest finance and accounting operation, with more than $1.4 trillion in annual payments to process - failed a Department of Defense Inspector-General assessment due to lack of required cost and quality controls. (AP Photo)
The Internal Review office of the Pentagon's Defense Finance and Accounting Service - the world's largest finance and accounting operation, with more than $1.4 trillion in annual payments to process - failed a Department of Defense Inspector-General assessment due to lack of required cost and quality controls. (AP Photo)
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Pentagon officials responsible for making sure Department of Defense military and civilian employees, retirees and contractors get paid on schedule have failed an Inspector-General review of their quality control program.

Although it is likely hardly known outside of government, the Defense Finance and Accounting Service "is the world's largest finance and accounting operation," according to the DOD IG.

Not only is DFAS responsible for getting DOD people and contractors paid, the office also handles process paychecks for employees of the Executive Office of the President, the Department of Veterans Affairs and the Department of Health and Human Services.

To illustrate the magnitude of responsibility lodged with DFAS, the DOD IG noted in a 42-page report made public today that in 2011, DFAS:

* Processed 171.7 million pay transactions,

* Made 7.7 million travel payments.

* Paid 11.8 million commercial invoices,

* Managed $559.4 billion in military retirement and health benefits funds,

* Made $608 billion in disbursements to pay recipients, and

* Maintained 264.1 million general ledger accounts.

That's a total in excess of $1.4 trillion for which DFAS is responsible. That means problems in its quality control systems are potentially extemely serious for millions of people and companies, a reality reflected in the DOD IG's report with its observation that "an audit organization's system of quality control encompasses the audit organization's leadership, emphasis on performing high-quality work, and the audit or ganization's policies and procedures designed to provide reasonable assurance of complying with professional standards and applicable legal and regulatory requirements."

The problem here, according to the report, is that due to problems in its Internal Review group, DFAS cannot presently provide such assurance, "therefore, we are issuing a fail opinion on its external quality control review."

Among the problems identified by the report are these:

* DFAS-IR did not exercise sufficient professional judgment as evidenced by substantive noncompliance with Generally Accepted Government Auditing Standards (GAGAS), American Institute of Certified Public Accountants (AICPA) standards, and its system of quality control on seven of eight assignments reviewed;

* Internal quality control monitoring of projects was not effective;

* Quality control checklists for a project were not effective;

* Supervisory reviews of work performed did not prevent repeated instances of noncompliance with GAGAS, AICPA standards, or DFASIR policies and procedures;

* Project type changes caused significant noncompliance with GAGAS and DFAS-IR policies and procedures;

* Performance of nonaudit services created an organizational impairment to independence;

* An onaudit service was reported on as an engagement survey, and;

* Substantive noncompliance with GAGAS, AICPA Standards for Performing and Reporting on Agreed-Upon Procedures and Examination Attestation Engagements, and DFAS-IR policies and procedures.

If those problems sound like bureaucratese, the DOD IG report spoke more directly in summarizing them, saying DFAS-IR officials "did not exercise professional judgment due to the vast array of noncompliances found in the majority of auditing standards areas including, but not limited to, independence, planning, supervision, performing and reporting attestation engagements, reporting, and quality control."

Go here for the full report.

UPDATE: The more things change ...

Thirty years ago this coming week, Time magazine's cover story focused on a young Pentagon analyst's appearance before a Senate Armed Services Committee hearing on waste and fraud in the Pentagon that would ultimately lead to a landmark reform known as the Department of Defense Reorganization Act of 1986.

That law was primarily the product of collaboration between Sen. Sam Nunn, D-GA, and Sen. Barry Goldwater, R-AZ, and it established much of the operational and procurement structures still in place today throughout DOD.

Many of the problems highlighted in that Time cover story were addressed by the 1986 law, but the latest DOD-IG report on the lack of quality controls in the DFAS-IR area points to the reality that watchdogs and reformers are perennial requirements for good government.

HT: Andre Francisco, Project on Government Oversight

 

 

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