DOD Problem Disbursements:

Long-standing Accounting Weaknesses Result in Inaccurate Records and Substantial Write-offs

GAO-05-521: Published: Jun 2, 2005. Publicly Released: Jun 2, 2005.

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Over the years, the Department of Defense (DOD) has recorded billions of dollars of disbursements and collections in suspense accounts because the proper appropriation accounts could not be identified and charged. DOD has also been unable to resolve discrepancies between its and Treasury's records of checks issued by DOD. Because documentation that would allow for resolution of these payment recording problems could not be found after so many years, DOD requested and received legislative authority to write off certain aged suspense transactions and check payment differences. The conference report (H.R. Conf. Rep. No. 107-772) that accompanied the legislation (Pub. L. No. 107-314) required GAO to review and report on DOD's use of this write-off authority.

After decades of financial management and accounting weaknesses, information related to aged disbursement and collection activity was so inadequate that DOD was unable to determine the true value of the write-offs. While DOD records show that an absolute value of $35 billion or a net value of $629 million of suspense amounts and check payment differences were written off, the reported amounts are not reliable. Many of the write-offs represented transactions that had already been netted together (i.e., positive amounts offsetting negative amounts) at lower level accounting sites before they were recorded in the suspense accounts. This netting or summarizing of transactions misstated the total value of the write-offs and made it impossible for DOD to locate the support needed to identify what appropriations may have been under- or overcharged or determine whether individual transactions were valid. In particular, DOD could not determine whether any of the write-off amounts, had they been charged to the proper appropriation, would have caused an Antideficiency Act violation. It is important that DOD accurately and promptly charge transactions to appropriation accounts since these accounts provide the department with legal authority to incur and pay obligations for goods or services. DOD has hundreds of current and closed appropriation accounts that were authorized by law over the years. Similar to a checking account, the funds available in DOD's appropriation accounts must be reduced or increased as the department spends money or receives collections that it is authorized to retain for its own use. Just as an individual who maintains multiple checking accounts must be sure that transactions are recorded to the proper account, DOD also must ensure that the proper appropriation account is charged or credited for each specific disbursement and collection. Our review found that DOD's guidance and processes developed to ensure compliance with the legislation provided reasonable assurance that amounts were written off properly except that check payment differences did not have the required written certification. The write-off process did not correct underlying records and significant DOD resources were needed to ensure that write-off amounts were properly identified and handled. Also, using staff resources to process old transactions resulted in fewer staff to research and clear current problems. At December 31, 2004, DOD reports showed that after the write-offs, more than $1.3 billion (absolute value) of suspense amounts and $39 million of check differences remained uncleared for more than 60 days. However, DOD has acknowledged that its suspense reports are incomplete and inaccurate. Until DOD complies with existing laws and enforces its own guidance for reconciling, reporting, and resolving amounts in suspense and check differences on a regular basis, the buildup of current balances will likely continue, the department's appropriation accounts will remain unreliable, and another costly write-off process may eventually be required.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To prevent the future buildup of aged suspense accounts and check payment differences, the Secretary of Defense should enforce DOD's policy that the Defense Finance and Accounting Service (DFAS) centers and field-level accounting sites perform proper reconciliations of their records with Treasury records each month.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: OSD provided GAO with a copy of a December 2004 DFAS policy memorandum requiring that DFAS central sites modify the existing Suspense Account Report (SAR) to reconcile it to the Treasury Trial Balance. The memorandum required that the sites' reconciliation documentation contain narratives explaining what portion of the differences are supported and what portion cannot be explained. The policy required that the DFAS sites meet the new requirements with the submission of the February 2005 SAR report.

    Recommendation: To prevent the future buildup of aged suspense accounts and check payment differences, the Secretary of Defense should use the results of the monthly reconciliations to improve the quality of DFAS suspense account reports.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD responded to this recommendation by developing a Plan of Actions and Milestones (POA&M) to improve the quality of DFAS suspense account reports (SAR). The POA&M lists detail inflow analysis categorizing all suspense transactions by source drivers and emphasizes the development of a uniform reconciliation process as well as improving the content of the SAR to report all suspense transactions and more thoroughly explain the supported portion of the difference between the SAR and the Treasury Trial Balance.

    Recommendation: To prevent the future buildup of aged suspense accounts and check payment differences, the Secretary of Defense should enforce guidance requiring that disbursements in suspense be resolved within 60 days or be charged to current appropriations if research attempts are unsuccessful.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Office of the Undersecretary of Defense (OSD), Financial Management and Comptroller, issued a memorandum in May 2005 directing the military departments, defense agencies, and DFAS to strictly enforce and resolve transactions within the 60 day time frame specified in the DOD Financial Management Regulation. The memo noted that OSD will monitor compliance through its established metrics program. GAO has requested that OSD provide evidence that the policy is being enforced. In response to our recommendation, the Office of the Secretary of Defense issued a memorandum in 2005 directing the military service assistant secretaries and the directors of the defense agencies and DOD field activities to strictly comply with the FMR, Volume 3, chapter 11. This requires that transactions not transferred to proper expenditure accounts within 60 days be obligated. DFAS center officials acknowledged that it has taken several years to research and resolve the aged suspense account balances remaining at the end of 2004. Though many of the aged balances were resolved through research and the charging of appropriate prior year accounts, many were charged against current appropriations. For example, DFAS Indianapolis submitted a write off in Feb 2007 for approximately $117,000. In this example, staff could not locate supporting documentation to identify the correct appropriations since the amounts were recorded in suspense by field staff before 2006. They charged O&M of the Defense Threat Reduction Agency for the disbursements. In addition to research and resolution efforts by center staff, increased DFAS oversight, including monthly meetings and the reporting of metrics to the DFAS director, have also contributed to DFAS centers reducing aged suspense account balances to $44 million as of December 2007. Removing aged suspense accounts will allow DFAS staff to focus on the current activity in suspense accounts and help ensure that appropriation accounts are charged in a more timely manner than in the past.

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