Short-term fixes not the solution for improper Defense payments

The Defense Department has made some headway in correcting more than $615 million in illegal and improper payments to closed accounts, but eliminating longstanding financial management problems will require long-term solutions, according to a new report from the General Accounting Office. GAO found that in early 2002, Defense officials corrected $593 million of the $615 million illegal and improper payments to old appropriations accounts in fiscal 2000. A 1990 account-closing law prohibits disbursements from closed appropriation accounts. "These short-term efforts serve as an example of what can be achieved when DoD takes prompt action to correct known problems through a strong top management commitment," GAO wrote in the report, "Canceled DoD Appropriations: Improvements Made but More Corrective Actions Are Needed" (02-747). But once the adjustments were reversed, poor accounting practices kept Defense officials from immediately crediting the funds to the correct accounts, according to GAO. For example, in 1999 the Defense Finance and Accounting Service (DFAS) in Columbus, Ohio, charged a $79 million payment to an old fiscal 1992 research and development appropriations account. DFAS officials said the adjustment should not have been made and reversed the charge, uncovering another $100 million in illegal and improper payments. Reversing those payments caused other errors that Defense officials now have to research and correct. "Neither DoD nor we can determine how much remains to be corrected as a result of reversing the adjustments," GAO said. During the 1990s, Defense adjusted 333 appropriations accounts valued at $26 billion, while all other federal agencies collectively adjusted only 21 accounts valued at $5 million. And though Defense officials did correct the fiscal 2000 errors, GAO found that more improper and illegal payments were made in fiscal 2001. An investigation of just $219 million of Defense's fiscal 2001 adjustments to old appropriations accounts uncovered $172 million in illegal and improper payments. "Controls necessary to ensure that adjustments to closed appropriation accounts were proper were not in place," the report said. The agency plans to investigate another $1.1 billion of fiscal 2001 closed-account adjustments to determine if other illegal and improper payments were made. GAO rejected the notion that Defense's financial and accounting management problems could be quickly fixed, and encouraged the agency to pursue long-term solutions, such as modernizing financial management systems, setting up a monitoring program for future adjustments, and emphasizing to managers that they are accountable if improper and illegal payments are made. In a written response, Defense Deputy Chief Financial Officer JoAnn Boutelle said DFAS officials would continue to work with auditors until the agency is able to implement GAO's recommendations.