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Navy Shows Progress Toward Clean Books

GAO and independent accountant largely validate military pay controls.

The Pentagon’s quest for auditability overall has been a story with a shortage of good news. But the Navy has weighed in as a bright spot on the horizon.

The Navy’s audit procedures controlling $2.25 billion in military pay during a selected period in April 2013 produced sufficient and accurate documentation, according to both an independent public accountant and the Government Accountability Office. “Nothing came to GAO's attention that raised concerns regarding the adequacy of the Navy's documentation beyond those the IPA identified and determined to be immaterial,” GAO said in a report released Thursday to members of the Senate Homeland Security and Governmental Affairs Committee and one House member.

The Navy pays $29 billion a year to about 384,000 uniformed personnel.

But both the independent accountant’s examination and the Navy's assertions identified “additional risks to the Navy's future audit readiness,” the GAO report said. The independent firm “found that 14 of 34 military pay controls it examined were either not designed effectively or not operating effectively. Further, the Navy limited the scope of the IPA's examination to focus on one month of activity to address any deficiencies identified prior to the audit of its fiscal year 2015 Statement of Budgetary Activity, which is currently under way,” GAO said.

Tougher challenges may materialize when the controls are applied beyond a one-month period, auditors warned, and the success in military pay activity may not readily transfer to financial reporting controls related to reconciling the Navy's Fund Balance with the Treasury Department.

GAO recommended that the Navy establish milestones for assessing and implementing certain controls associated with payroll services and create a policy to coordinate with auditors on providing required management representation letters in a timely manner. The Navy agreed.

Several lawmakers weighed in with statements on plans to continue working with the Pentagon to achieve auditability by the mandatory goal of 2017. “This GAO report gives us some hope that the Navy is making progress toward conducting and passing a financial audit,” said Sen. Tom Carper, D-Del., ranking member of the Homeland Security panel. “Just three years ago, GAO found that the Army payroll was not even auditable…. The Navy deserves credit in making solid progress towards solving the financial management puzzle, although there is still more work to be done.”

Sen. Claire McCaskill, D-Mo., said, “While this report provides some good news on the auditability of the Navy’s payroll system, it also makes clear they must address ongoing weaknesses in order to fully audit the Navy and the rest of the Defense Department. It’s my hope the leadership of the Navy, and of all the services, will commit themselves to aggressively implementing the financial procedures critical to ensuring their books can be audited and taxpayer dollars can be protected.”

Rep. Mike Conaway, R-Texas, who serves on the Armed Services panel, said, “The transparency in this report provides important lessons for the Navy and the Defense Department as a whole….While this report highlights some areas for the Navy to work on, I consider it a step forward towards the greater goal of Department of Defense auditability.”

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