Fast Facts

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The policies and procedures that DOD issued to address these accounts were insufficient, outdated, and inconsistently implemented.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.

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Highlights

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their suspense account policies and procedures with relevant federal guidance, GAO found that they were insufficient, outdated, and inconsistently implemented.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

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.

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Recommendations

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

Agency Affected Recommendation Status
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)
Open
The Department of Defense (DOD) concurred with this recommendation. In consultation with DOD's legal counsel, the Office of the Under Secretary of Defense (OUSD) (Comptroller) is requesting DOD components and the Defense Finance and Accounting Service to identify cases where DOD is holding custodial collections on behalf of another federal entity, or sharing custodial collections with another federal entity other than the General Fund of the U. S. Government. Additionally, OUSD (Comptroller) plans to compile and document a list and description of collections from DOD components that meet the requirement of custodial suspense account transactions, the statutory authority for these collections, and the recipient entity of the collections. OUSD (Comptroller) also plans to request a Treasury Account Symbol from the Department of the Treasury to account for custodial collections and update the applicable chapter(s) of the DOD Financial Management Regulation, if needed. The estimated completion date for this recommendation is December 31, 2021. We will continue to follow up with DOD on the status of this recommendation.
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)
Open
The Department of Defense (DOD) partially concurred with this recommendation. The Office of the Undersecretary of Defense (OUSD) (Comptroller) stated that DOD's Financial Management Regulation (FMR) currently defines the use of suspense and deposit accounts in volume 4, chapter 12, paragraph 120405 (deposit accounts) and paragraph 120406 (suspense accounts), and provides examples for each type of account. OUSD (Comptroller) further stated that it corrected DOD's FMR, volume 8, by removing the one suspense account that was commingled with deposit accounts. However, in our report, we identified another section of DOD's FMR that also does not clearly define the use of suspense and deposit accounts. Specifically, DOD's FMR volume 5, chapter 8, "Collections," refers to deposit accounts as suspense accounts. The estimated completion date for this recommendation is December 31, 2022. We will continue to follow up with DOD on the status of this recommendation.
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)
Open
The Department of Defense (DOD) partially agreed with this recommendation. The Office of the Under Secretary of Defense (OUSD) (Comptroller) stated that it provides implementing guidance to the Defense Finance and Accounting Service and DOD components, when appropriate, for complex accounting issues based on professional judgment. However, the lack of guidance for implementing the December 2019 memorandum "Policy for Monthly Review of Suspense Account Transactions" and the March 2020 policy memorandum "U.S. Department of Treasury Aged Suspense Account Balances" contributed to inconsistencies in the way DOD components consolidated and cleared suspense account transactions and removed aged balances from suspense accounts. Without a process for providing guidance that results in consistent implementation of complex suspense account policies department-wide, there is an increased risk that consolidated data reported in DOD's core financial reporting system may be unreliable. OUSD (Comptroller) has stated that it does not plan to issue formal suspense account policy at this time. We will continue to work with DOD and follow up on the implementation of this recommendation.
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)
Open
The Office of the Undersecretary of Defense (OUSD) (Comptroller) developed a Corrective Action Plan (CAP) to address this recommendation. OUSD (Comptroller) stated that it partially concurred with this recommendation because the March 2020 policy memorandum "U.S. Department of the Treasury Aged Suspense Account Balances" was a one-time clean-up effort of aged suspense account balances. As a result, they do not plan to provide additional guidance related to this policy memorandum. OUSD (Comptroller) plans to work with the Defense Finance and Account Service (DFAS) to review the December 2019 "Policy for Monthly Review of Suspense Transactions" to determine if additional guidance is needed. The estimated completion date for this recommendation is December 2021. We will continue to follow up with DOD on the status of this recommendation.
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)
Open
The Department of Defense (DOD) partially concurred with this recommendation. The Office of the Undersecretary of Defense (OUSD) (Comptroller) stated that it corrected the inconsistent use of Retirement Insurance Transfer System (RITS) transactions and created a deposit account to record all RITS transactions to ensure consistent use. OUSD (Comptroller) further stated that the inconsistent use of suspense accounts to record Intra-governmental Payments and Collection (IPAC) transactions identified in our report was limited to some Defense Finance and Accounting Service (DFAS) sites, and that guidance on suspense account transactions is included in DOD's Financial Management Regulation (FMR). In response to our recommendation, OUSD (Comptroller) plans to (1) work with DFAS to survey the different DOD components and DFAS sites to determine if the current use of suspense account numbers F3875.000 and F3885.000 complies with DOD's FMR; (2) provide additional training, as needed; and (3) review DOD's FMR to determine if suspense account numbers F3875.000 and F3885.000 need a separate distinct section for IPAC and interfund transactions in DOD's FMR. The estimated completion date for this recommendation is December 2022. We will continue to follow up with DOD on the status of this recommendation.
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)
Open
The Department of Defense (DOD) concurred with this recommendation. The Office of the Undersecretary of Defense (OUSD) (Comptroller) developed a Corrective Action Plan (CAP) to address this recommendation. OUSD (Comptroller) stated that DOD plans to explore the use of the DOD's Advanced Analytics tool to prepare a suspense account universe of transactions at the consolidated level and that DOD has not established an estimated completion date for the use of DOD's Advance Analytics tool to prepare a suspense account universe of transactions because the project plan has not been finalized. DOD expects to fully implement this recommendation by December 2022. We will continue to follow up with DOD on the status of this recommendation.
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)
Open
The Department of Defense (DOD) did not concur with this recommendation. The Office of the Undersecretary of Defense (OUSD) (Comptroller) stated that it has already established a requirement for remediating root causes in DOD's Financial Management Regulation and cited several sections where the requirement is included. OUSD (Comptroller) further stated that it has an internal control guide for financial reporting that provides guidance on root cause analysis. As stated in our report, while the requirement for identifying root cause is included in the guidance that DOD cited, none of the guidance is specific to suspense account processes. Given the complexity of suspense account processes, the established general guidance that DOD noted has not been sufficient to enable identification of root causes and development of corrective action plans, even though they are stated objectives of DOD's current suspense account initiatives. DOD's initiatives have resulted in suspense account balances that are considerably smaller than they were in previous fiscal years. However, without corrective actions to address the underlying root causes, large balances may accumulate and affect the reliability of suspense account balances in DOD financial reports.
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)
Open
The Department of Defense (DOD) concurred with this recommendation. The Office of the Undersecretary of Defense (Comptroller) developed a Corrective Action Plan to address this recommendation. The Defense Finance and Accounting Service (DFAS) plans to develop and implement DFAS-wide guidance for creating monthly suspense account metrics. We will continue to follow up with DOD on the status of this recommendation.

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