Defense books still don't comply

Report on the Department of Defense- Fiscal Year 2003 Agency-Wide Principal Financial Statements

Continuing a trend that has been ongoing for years, the Defense Department's Office of the Inspector General today said it can't issue a credible audit of the department's financial statements.

According to the Chief Financial Officers Act of 1990, the Inspector General is supposed to audit the department's financial statements at the end of each fiscal year. But the report issued last month indicates that DOD's financial systems do not comply with federal financial management requirements and so-called Generally Accepted Accounting Principles, and can't provide evidence to support financial statements.

"Therefore, we did not perform auditing procedures to determine if material amounts on the financial statements were fairly presented," the IG's report states.

The Defense Department's financial woes have been well documented, although CFO Dov Zakheim has said the department is cleaning up its financial statements. Government officials acknowledge that even when the department's financial management enterprise architecture is in place, it will probably be years before officials from the General Accounting Office will be able to audit the department's books.

Defense officials have noted that creating the department's financial management architecture is the first step toward fixing the department's financial mess. The next moves require implementing systems that conform to that architecture.

Officials last spring unveiled the initial version of DOD financial management architecture. It provides the foundation for breaking down inefficient stovepipe processes and systems.

The next major milestone comes in April, when the second version is unveiled. Department officials expect it will lead to developing the initial information exchanges, data process models and business rules.

A number of DOD's subordinate agencies — including the Defense Finance and Accounting Office, the Defense Contract Audit Agency, the Defense Commissary Agency and the Military Retirement Trust Fund — received favorable opinions on their audits for fiscal 2003, Zakheim said.

DOD officials last year developed detailed financial improvement plans to allow the department to receive a favorable audit opinion on its fiscal 2007 agencywide financial statements.

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