Summary

Serious cash management problems at the Defense Business Operations Fund (DBOF), which disburses about $75 billion annually, jeopardize the goal of enhancing military readiness through business operations efficiencies. DBOF managers lack accurate information on cash balances and, to cover cash shortages, have relied on advance billing for work yet to be performed. At the end of fiscal year 1995, the Defense Department had $2.6 billion in outstanding advance billings; the Navy accounted for nearly $2 billion of that amount. At the same time, DBOF had about $1 billion in outstanding accounts receivable that were more than 120 days old and was unable to collect more than $200 million for completed work because the billing documents did not specify the activities to bill. If these problems are not resolved, DOD may require excessive amounts of cash to pay for ongoing Fund operations, and opportunities for violations of the Antideficiency Act may increase.

GAO found that: (1) DBOF cash management problems persist and reflect long-standing DOD financial management weaknesses; (2) DBOF managers do not have timely, accurate, and complete data on individual business areas' cash balances and do not fully disclose adjustments to account balances in their monthly financial reports; (3) the Defense Finance and Accounting Service consistently has the most severe problems in accurately accounting for and reporting the Navy's cash balances, but it is developing reporting procedures to identify monthly cash balances in each business area; (4) collection and disbursement data cannot be provided more promptly until DBOF financial systems and processes are improved; (5) DOD continues to rely on advance billing to supply cash for day-to-day operations, but billing and collection problems have resulted in billions of dollars in outstanding accounts receivable; (6) DOD needs to enhance accountability and employ tools to effectively manage its cash to prevent inaccurate, untimely, and incomplete cash balances, collections, and disbursements when new financial systems are implemented; and (7) if cash management practices do not change, DOD could require excessive cash amounts to maintain ongoing DBOF operations, violate the Antideficiency Act, and limit its opportunities to fulfill DBOF objectives.