With a countdown clock ticking until Sept. 30, 2017, when all military service branches are required by law to be audit-ready, a report released this month by the Government Accountability Office finds the Navy still has work to do to be on track to reach that goal.
The 52-page GAO report found the Navy had made some improvements toward reaching audit readiness, including the creation of a financial improvement plan to manage its fund balance with treasury, an account showing its available budget spending authority.
But the service has not taken all the actions outlined in the improvement plan and has failed to fully prioritize the account's audit readiness efforts, the report found.
"Addressing these shortfalls is critical to achieving audit readiness," GAO staff said in the report.
A cover letter for the report, addressed to the bipartisan leadership of the Senate committees on Homeland Security and Governmental Affairs and Oversight and Government Reform, notes that the Navy accounts for $160 billion in Defense Department spending, about one-quarter of the DoD budget. This makes the service the second largest component of the department, the letter said.
The letter described the Navy's fund balance with treasury, or FBWT, as similar to a corporate bank account, showing remaining spending authority in appropriations rather than a cash balance.
The Navy's plan to improve FBWT management was especially important, GAO staff said, because it is tied to improvement of processes involving vendor and contractor payments and payroll activities -- billions of dollars' worth of transactions.
The Navy first asserted its FBWT process was audit-ready in 2013, the report states. The service expanded the scope of its account audit readiness efforts in 2014 in response to DoD Inspector General feedback.
However, the GAO report, which surveyed from April 2014 to August 2016, found that some processes were incomplete and risked Navy efforts to be auditable.
For example, the Navy provided narratives describing how the FBWT systems worked, but did not include "significant events" in the flow of collection and spending transactions, the report found. The Navy's process for reconciling its FBWT is "complex and time consuming," with 19 separate funds and four reconciliations per month.
As of March 2015, GAO staff found, it took Navy officials two to three months from the end of each fiscal quarter to complete the reconciliation process, according to the report.
And the process often requires human intervention: The report found Defense Finance and Accounting Services processed an average of 1.6 million non-payroll transactions per month for the Navy. On average, 22,000 of those needed staff intervention to be properly posted, investigators found.
This is significant because transactions that lack needed information are placed in suspense accounts: an accounting feature that has proven a barrier to military auditability. In March 2015, the DoD Inspector General revoked the Marine Corps' FY 2012 clean audit because of suspense accounts at the U.S. Treasury that had not been properly categorized.
A DoD IG report released in June found that the Navy needed to improve its suspense account management, noting the service had missed reconciliation deadlines and had incorrectly calculated suspense account balances in the past, overstating the total by $57 million in fiscal 2014.
"Suspense accounts have been a long-standing problem at DoD," GAO staff wrote.
In a response to the GAO report, Karen Fenstermacher, deputy assistant secretary of the Navy for Financial Transactions, wrote that the Navy concurred with the agency's seven recommendations for improvement, including better process descriptions, increased prioritization of audit readiness efforts, and work to address missing transaction information and errors. All requested improvements will be in place by the end of this year, she wrote.
A Navy spokeswoman, Lt. Kara Yingling, declined to add anything further to Fenstermacher's comments.
"The Navy is making steady progress towards the congressional mandate for the department to achieve full auditability by FY17," she said.
