Suspense accounts are meant to temporarily record transactions that require more research before they are permanently recorded. The Department of Defense has lacked internal controls over its suspense accounts for decades, leading to large balances and costly write-offs.
The policies and procedures that DOD issued to address these accounts were insufficient, outdated, and inconsistently implemented. Other efforts have reduced account balances but haven't identified the problem's root causes. Large balances could accumulate again.
We made 8 recommendations to address this issue.
DOD financial management has been on our High Risk List since 1995.
What GAO Found
Federal agencies use suspense accounts to temporarily hold financial transactions—such as transactions with missing or incomplete documentation—that require further research before they are permanently recorded to the proper accounts in an accounting system. Over the years, both GAO and the Department of Defense (DOD) Office of Inspector General (OIG) have reported that DOD and the Defense Finance and Accounting Service (DFAS) have lacked the controls needed to account for and clear suspense account transactions properly. This has contributed to unreliable financial information as the underlying transactions are not properly recorded in the accounting records.
Although DOD and DFAS have taken steps to align their suspense account policies and procedures with relevant federal guidance, GAO found that they were insufficient, outdated, and inconsistently implemented. For example, in March 2020 DOD issued a policy memorandum requiring its component organizations to clear aged suspense account balances—those more than 30 days old—by June 2020. If components could not appropriately research and clear these balances, components were instructed to remove the balances from suspense accounts by transferring them to other accounts. While these efforts reduced the aged balances by roughly $30 billion, guidance on the specific steps to remove the balances was not provided. The lack of specific guidance contributed to components inconsistently removing aged suspense account balances and increased the risk of transactions not being recorded, reconciled, removed, and documented in a consistent and timely manner. As of June 30, 2020, DOD's suspense account balance was $1.6 billion, of which $366 million was more than 30 days old.
DOD and DFAS have undertaken initiatives to clear certain types of non–suspense account transactions from suspense accounts and reduce suspense account balances. GAO found that these initiatives did not identify and address the root causes of DOD's suspense account control deficiencies.
DOD Actions to Address Deficiencies with Suspense Account Transactions
Not establishing corrective actions to address the long-standing control deficiencies with suspense account transactions affects the reliability of suspense account balances in financial reports, even though the balances are considerably smaller than they were in previous fiscal years. Without such corrective actions, large suspense account balances may once again accumulate and another costly write-off could eventually be required.
Why GAO Did This Study
DOD remains the only major federal agency that has been unable to obtain a financial audit opinion. One contributing factor is DOD's long-standing control deficiency in suspense account transactions.
GAO was asked to review DOD's suspense accounts and determine their impact on DOD's consolidated financial reporting. This report examines the extent to which DOD has (1) established and implemented policies and procedures for recording, reconciling, and clearing suspense account transactions at the DOD consolidated level and (2) addressed identified deficiencies in recording, reconciling, and clearing suspense account transactions that may affect the reliability of DOD's financial information.
GAO reviewed DOD and DFAS policies and procedures, interviewed DOD and DOD OIG officials, and reviewed initiatives related to suspense account transactions.
GAO is making eight recommendations to DOD, including that it update and implement policies and procedures for suspense account transactions and develop and implement DOD-wide guidance for identifying and remediating the root causes of control deficiencies in its suspense account processes. DOD concurred with three of GAO's recommendations, partially concurred with four recommendations, and did not concur with one recommendation. GAO continues to believe that all the recommendations are warranted.
Recommendations for Executive Action
|Department of Defense||The Under Secretary of Defense (Comptroller) should finalize the assessment of the applicability of custodial accounts at DOD and, if necessary, update DOD policies to define the use of custodial suspense accounts, in accordance with OMB and Treasury guidance. (Recommendation 1)|
|Department of Defense||The Under Secretary of Defense (Comptroller) should update DOD's FMR to clearly define the use of suspense and deposit accounts, in accordance with OMB and Treasury guidance. (Recommendation 2)|
|Department of Defense||The Under Secretary of Defense (Comptroller) should establish a process to provide specific implementing guidance to DFAS and DOD components, including field submitters, when new suspense account policy memorandums are issued. (Recommendation 3)|
|Department of Defense||The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should provide specific guidance to the DFAS sites and DOD components on implementing the requirements stipulated in the December 2019 memorandum Policy for Monthly Review of Suspense Transactions and the March 2020 policy memorandum U.S. Department of the Treasury Aged Suspense Account Balances. (Recommendation 4)|
|Department of Defense||The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should provide guidance on suspense account transactions to DOD components and the DFAS sites to help ensure that they develop consistent policies and procedures that are accurate and up-to-date. (Recommendation 5)|
|Department of Defense||The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should establish a process and associated guidance to (1) prepare a department-wide suspense account universe of transactions at the consolidated level and (2) ensure that the DFAS sites gather consistent information for preparing the suspense account universe of transactions for the DOD components. (Recommendation 6)|
|Department of Defense||The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should develop and implement DOD-wide guidance, applicable to both DFAS sites and DOD components, for assessing, identifying, and remediating the root causes of control deficiencies in DOD's suspense account processes. (Recommendation 7)|
|Department of Defense||The Director of DFAS should develop guidance for DFAS sites to use when developing metrics for measuring the progress of their efforts to address issues with and reduce the balances of suspense accounts. (Recommendation 8)|