Summary: Financial data deficiencies cited by auditors examining the Navy's fiscal year 1996 financial statements have serious programmatic and budgetary implications. These shortcomings have put Navy funds at greater risk for waste, fraud, and misappropriation and can lead to the draining of resources needed for defense mission priorities. Critical weaknesses identified by the auditors include the following: Information on $7.8 billion in inventories on board ships was not included in the Navy's year-end financial statements. Failure to follow prescribed procedures for controlling the Navy's cash account with Treasury has contributed to continuing disbursement accounting problems that not only prevent reporting reliable financial statements, but also increase the risk of overspending or overobligating Navy appropriations. Until duplicate and erroneous vendor payments were identified and collected as a result of the financial audit, the Navy not only paid too much for goods and services but, more importantly, was unable to use these funds to meet other critical program needs. Breakdowns in the controls used to prevent or detect material financial errors mean that the Navy cannot tell if its business-type support operations are operating on a break-even basis as intended. Although the Navy's 1996 financial statements--its first attempt to prepare comprehensive financial statements--did not include all the required information and were not verifiable, they still provided data that could be used to identify several financial issues that may be of interest to budget and program managers. Also, if properly implemented, new accounting standards that require such information as data on asset disposal costs and deferred maintenance will provide the Navy and the Defense Finance and Accounting Service with an opportunity to improve information that is now available to support programmatic decisionmaking and accountability.
