Financial Management:

Improvements in Air Force Fund Balance With Treasury Reconciliation Process

GAO-01-847: Published: Jul 18, 2001. Publicly Released: Jul 18, 2001.

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The Department of Defense (DOD) has had longstanding problems in reconciling the transaction activity in its Fund Balance with Treasury accounts. These reconciliation problems hamper DOD's ability to prepare auditable financial statements and have prompted GAO to place DOD financial management on its list of government activities at high risk for waste, fraud, abuse, and mismanagement. In August 1998, DOD developed a strategic plan to improve the reconciliation process for the activity in its Fund Balance with Treasury accounts. DOD reported that the Defense Finance and Accounting Service's (DFAS) Denver Center, which provides support for the Air Force, has made the most progress in implementing this plan and that its process for reconciling the activity in the Air Force General Funds is more comprehensive than that of the other DOD components. This report reviews the Denver center's reconciliation processes to determine (1) the progress the Denver center has made in reconciling the transaction activity in the Air Force General Funds and (2) whether the Denver center's reconciliation concepts, policies, and practices could be used in reconciling the Fund Balance with Treasury activity of other DOD components. GAO found that (1) the Denver center has made progress in developing a comprehensive reconciliation process for the Air Force General Funds' transaction activity in the Fund Balance with Treasury accounts, primarily by increasing management attention. GAO also found that the concepts and policies developed by the Denver center to identify and resolve transaction differences could improve the reconciliation processes of the other DFAS centers that have not made as much progress.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Since GAO's recommendation was issued, Denver has continued to refine its FBWT reconciliations. According to DFAS, Denver has improved the comprehensiveness/completeness of its reconciliation procedures, and still managed to reduce its unreconcilable variance from $35 million as of September 2000, to $4.4 million as of June 2004. DFAS Denver has added steps for identifying and resolving differences related to two types of transactions that had been excluded from the process prior to July 2001--those recorded in FBWT suspense accounts and those recorded in certain field level accounting systems. In addition to adding transaction types, DFAS Denver has continued to refine its processes and update its Standard Operating Procedures.

    Recommendation: To further improve the reconciliation of the activity in Air Force Fund Balance with Treasury General Fund accounts and to ensure that the process is comprehensive and institutionalized with continuity of effort, the Director, DFAS, should direct the Director, DFAS Denver, to further refine the reconciliation process to identify and include all transactions that make up the differences between Air Force and Treasury records and resolve these differences within established time frames.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  2. Status: Closed - Implemented

    Comments: In December 2001, DFAS Denver issued a standard operating procedure (SOP) for the analysis of undistributed amounts. The SOP describes the detailed steps to be followed by the accountants assigned to the undistributed analysis function, and it includes steps for researching and determining the cause of the unidentified undistributed amounts, which was one of the audit's primary concerns underlying the recommendation. This SOP, along with the July 2000 DFAS Denver SOP that covers monitoring and controlling general funds undistributed disbursements and collections, adequately address GAO's concerns and fulfills the requirement of the recommendation.

    Recommendation: To further improve the reconciliation of the activity in Air Force Fund Balance with Treasury General Fund accounts and to ensure that the process is comprehensive and institutionalized with continuity of effort, the Director, DFAS, should direct the Director, DFAS Denver, to document the entire Fund Balance with Treasury General Funds activity reconciliation process, including specific procedures for the various reconciliations within the overall process.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  3. Status: Closed - Implemented

    Comments: DOD has focused substantial resources on improving FBWT reconciliations since GAO issued this report. In response to GAO's recommendations, DFAS management developed Standard Operating Procedures, developed training classes, and conducted a DOD-wide FBWT conference using DFAS Denver best practices for identifying, categorizing, and tracking differences. After relying heavily on DFAS Denver best practices for the 2001-2002 FBWT improvement efforts, DFAS management has since taken a more centralized approach and has continued to work with all the centers to improve and standardize FBWT reconciliation processes.

    Recommendation: To improve and expedite the reconciliation processes at other DOD components, the Director, DFAS, should require the other DFAS centers to adapt DFAS Denver's reconciliation concepts and practices to their own environments.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

  4. Status: Closed - Implemented

    Comments: DFAS has focused substantial resources on improving FBWT since GAO issued this report. In response to GAO's recommendation, DFAS Denver best practices played a central role in DFAS management's 2001-2002 FBWT improvement efforts. However, DFAS management has since taken a more centralized approach and has dedicated significant resources to leading the other centers and Denver towards improved and consistent FBWT reconciliation processes. With continued input from GAO, DFAS management has conducted annual FBWT conferences, overseen a comprehensive internal audit of FBWT, conducted training classes, issued guidance to improve the accuracy of management reports to track differences, and developed new performance metrics. As a result of the continuing leadership of DFAS, DOD management believes that they will be able to demonstrate the accuracy of reported FBWT amounts to external auditors within the next 2 fiscal years.

    Recommendation: To ensure that each center's adaptations are consistent and in accordance with DFAS policies, the Director, DFAS, should provide leadership and assistance in transferring knowledge from DFAS Denver to the other centers.

    Agency Affected: Department of Defense: Defense Finance and Accounting Service

 

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