DOD Problem Disbursements
Long-standing Accounting Weaknesses Result in Inaccurate Records and Substantial Write-offs Gao ID: GAO-05-521 June 2, 2005Over 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.
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Report to Congressional Committees:
June 2005:
DOD Problem Disbursements:
Long-standing Accounting Weaknesses Result in Inaccurate Records and
Substantial Write-offs:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-521]:
GAO Highlights:
Highlights of GAO-05-521, a report to congressional committees:
Why GAO Did This Study:
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.
What GAO Found:
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.
What GAO Recommends:
GAO recommends that DOD:
* Require the accounting centers and field sites to perform proper
reconciliations each month with Treasury records.
* Use the results of the reconciliations to improve the quality of its
suspense account reports.
* Enforce guidance requiring disbursements in suspense be resolved
within 60 days or be charged to current appropriations if research is
unsuccessful.
DOD concurred with our recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-521.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory D. Kutz at (202)
512-9505 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Actual Amount of Write-offs Cannot Be Calculated:
Write-off Process Reasonably Effective but Resource Intensive:
Write-offs Had Little Effect on Financial Reporting:
Current DOD Policies Are Not Being Enforced:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: DOD Reported Suspense Account Write-off Totals:
Figures:
Figure 1: DOD's Review Process:
Figure 2: Check Payment Write-off Process:
Figure 3: Suspense Amounts Older Than 60 Days:
Letter June 2, 2005:
Congressional Committees:
The Department of Defense's (DOD) inability to accurately account for
and record its disbursements and collections has been a serious, long-
standing, and much reported financial management problem. The
department's ability to improve its accounting has historically been
hindered by its reliance on fundamentally flawed financial management
systems and processes and a weak overall internal control environment.
Rather than promoting quality financial information, DOD's complex and
inefficient payment processes have all too often inhibited the proper
recording of transactions when they occur, including the prompt and
proper matching of disbursements with obligations, which is a critical
funds control measure. Having such payment recording problems means
that DOD does not know the true amount of funds that it has available
to obligate and spend in each appropriation account. As a result, DOD
may not be using its funds in accordance with legislative requirements
and risks overspending its appropriations or, conversely, forgoing
purchases of needed items. Such problems also create an environment
conducive to fraud, waste, and abuse because it is difficult, if not
impossible, to monitor and audit individual disbursement transactions.
Over the years, we and DOD auditors have reported that the department
recorded billions of dollars of disbursements and collections in
suspense accounts because the proper appropriation accounts could not
be identified. 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. The Antideficiency Act requires that no officer or
employee of DOD incur obligations or make expenditures in excess of the
amounts made available by the appropriation accounts.[Footnote 1]
Therefore, DOD must (1) properly record obligations against
appropriation accounts and (2) track disbursements related to such
obligations and collections that should properly be credited to the
account, in order to ensure that it is in compliance with the law. In
some ways, appropriation accounts are similar to private checking
accounts. 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 must also ensure
that the proper appropriation account is charged for each specific
disbursement and collection.
Auditors have also reported problems with DOD's ability to resolve
differences between the summary and detail amounts reported by DOD for
the paper checks it issued as well as differences with the amounts
reported by banks for the paper checks that were cashed. DOD has long
acknowledged that many disbursements, collections, and check
differences remained in suspense for years and that the support needed
to properly record them to specific appropriations no longer existed.
Therefore, DOD requested and received legislative authority to write
off certain aged suspense transactions and aged differences between
checks issued and checks paid, hereafter referred to as check payment
differences.
Section 1009 of the Bob Stump National Defense Authorization Act for
Fiscal Year 2003[Footnote 2] (NDA Act) authorized DOD to write off long-
standing debit and credit transactions that could not be cleared from
the department's books because DOD lacked the supporting documentation
necessary to record the transactions to the correct appropriations. To
be eligible for write-off,[Footnote 3] suspense account transactions
must have occurred prior to March 1, 2001, and check payment
differences before October 31, 1998. The Secretary of Defense was
required to make a written determination that further efforts to
identify the correct appropriation to charge are not in the best
interest of the government. The legislation specified that DOD must
complete any write-offs by December 2, 2004.
The conferees, in the report that accompanied the NDA Act,[Footnote 4]
directed that we review and report on DOD's use of this write-off
authority. As agreed with your offices, our objectives were to
determine (1) what amount DOD wrote off using its legislative
authority, (2) whether DOD had effective procedures and controls to
provide reasonable assurance that amounts were written off in
accordance with the legislation, (3) how the write-offs affected
Treasury and DOD financial reports, and (4) what aged DOD suspense
account balances and check differences are being reported after the
write-offs have been accomplished. In addressing this last objective,
we also looked at whether DOD had procedures in place to prevent
another build-up of aged, unsupported suspense transactions and check
payment differences.
In conducting this work, we visited various Defense Finance and
Accounting Service (DFAS) centers, the Department of the Treasury, and
the office of the Secretary of Defense and gathered, analyzed, and
compared information on how write-off amounts were identified and
processed. We interviewed DOD officials to obtain a general
understanding of DOD's use of suspense accounts and compared DOD's
policies and practices for the write-offs to the specific provisions
contained in the legislation and with any Treasury requirements. We
identified and tested DOD's primary controls over the suspense account
write-offs. We interviewed officials to identify the impact of the
write-offs on DOD and governmentwide suspense accounts and
appropriation balances. We also reviewed DOD management reports,
performance metrics data, and fiscal year 2004 financial statements to
identify current outstanding suspense account balances and check
differences. Because of serious data reliability deficiencies, which
the department has acknowledged, it was not our objective to--and we
did not--audit the completeness and accuracy of DOD reported amounts,
including the write-off amounts. We performed our work from June 2004
through April 2005 in accordance with generally accepted government
auditing standards. Appendix I provides details of our scope and
methodology. We requested comments from the Secretary of Defense or his
designee. We received written comments from the Principal Deputy Under
Secretary of Defense (Comptroller), which are reprinted in appendix II.
We also sent the draft report to the Secretary of the Treasury.
Treasury sent us a few technical comments, which we have incorporated
in the report as appropriate.
Results in Brief:
DOD reported that it wrote off an absolute value of $35 billion, or a
net value of $629 million,[Footnote 5] of suspense account
amounts[Footnote 6] and check payment differences using its legislative
authority. However, these reported amounts do not represent the true
value of the write-offs. Neither of these amounts accurately represents
the total value of all the individual transactions that DOD did not
correctly record to appropriations and, therefore, left in suspense for
years. Many DOD accounting systems and processes routinely offset
individual disbursements, collections, adjustments, and correcting
entries against each other and recorded only the net amount in suspense
accounts. Over time, amounts might even have been netted more than
once. Because DOD had not developed effective tools for tracking or
archiving the individual transactions that had been netted together,
there was no way for DOD to know how much of the suspense amounts
recorded prior to March 1, 2001, represented disbursements and
collections versus how much represented adjustments and correcting
entries. For example, one of the write-offs consisted of a single $326
million amount for which DFAS Cleveland was unable to distinguish any
of the underlying individual transactions and, therefore, had no way of
knowing what amounts might have been netted or summarized to arrive at
that figure. In order to calculate absolute values for the suspense
account write-offs, DOD could only add together the already netted
disbursement, collection, adjustment, and correcting amounts. For check
payment differences, DOD reported that it wrote off $14.5 million of
net differences. As with suspense account write-offs, DOD could not
calculate the true absolute value because officials could not identify
the individual underlying checks.
To manage the suspense account write-off process, DOD developed
detailed documentation and multilayered review procedures that provided
reasonable assurance of compliance with the legislation. Multiple
layers of review were performed by high-ranking DOD officials from
DFAS, the military service and defense agency financial management
offices (FMO), and the DOD Comptroller's office. In addition, a
thorough review was performed by DFAS internal review staff. DOD
reviewers identified and questioned or rejected proposed write-off
amounts that did not appear to comply with the legislation, including
18 of the original 116 packages[Footnote 7] submitted by DFAS centers.
One of the main reasons that the reviewers rejected packages was
because center officials had not included sufficient evidence that the
proposed write-off amounts were recorded in DOD systems prior to March
1, 2001. While reasonably effective, DOD's documentation and review
procedures were costly. Because DOD had not enforced the use of proper
accounting practices or complied with its own regulations, significant
staff and management resources were required to prepare, support, and
review the suspense write-off packages. For check payment differences,
the process was much less complicated. DFAS center officials prepared,
reviewed, and approved all of the proposed write-off amounts. All check
payment difference write-offs met the provisions of the legislation
except that the required written determination by the Secretary of
Defense was not obtained prior to the write-offs being recorded by
Treasury.
DOD left suspense account transactions and check payment differences
unresolved for so long that supporting documentation was lost or
destroyed. As a result, DOD could not identify which, if any, of the
aged underlying transactions would have resulted in Antideficiency Act
violations had they been correctly charged. The write-off of aged
suspense account amounts and check payment differences did not change
DOD's reported appropriation account balances or correct any of the
over-and undercharges that the department may have made to those
appropriations over the years. The write-off process simply
reclassified suspense amounts and check payment differences from DOD
accounts to general government accounts. The most significant result of
the write-off process was to ensure that current appropriation balances
would not be required to cover the aged unrecorded transactions.
The suspense account write-offs also did not affect the federal
cumulative budget deficit as reported by Treasury. Amounts in DOD
suspense accounts had already been counted against the federal deficit
in the years that DOD reported the related collection and disbursement
transactions to Treasury. For check payment differences, the surplus/
deficit had not been adjusted to recognize differences between issued
check amounts as reported by DOD and paid check amounts as reported by
banks. Since the check payment differences had not previously been
reported as disbursements by DOD and thus included in the deficit
calculation, the cumulative federal deficit was increased by DOD's
write-off amount of $14.5 million.
Even after the write-offs and despite policies requiring the resolution
of suspense account transactions and check differences within 60 days,
DOD continues to have significant aged amounts outstanding. According
to DOD reports for December 2004, the absolute value of suspense
account transactions over 60 days old was $1.3 billion. However, as
with DOD's write-off estimate, this figure is unreliable because DOD
officials were unable to reconcile the reports with Treasury records to
ensure that the information included was complete and accurate. DOD
guidance requires the reconciliation of the suspense account reports,
but DFAS management was not enforcing the guidance. For check
differences, Treasury reported that the absolute value of differences
aged over 60 days was $39 million as of December 2004. DFAS officials
explained that $36 million of this amount is related to the lengthy
processing times for expenditure transactions related to overseas
military deployments.
The keys to eliminating aged problem disbursements and preventing their
future occurrence include improved disbursement processes and better
management controls. In line with these goals, DOD is currently
developing and implementing a plan for improving its accounting systems
that is intended to, among other things, reduce the occurrence of
disbursement errors. However, we reported in January 2005[Footnote 8]
that DOD has made only limited progress in its system improvements. We
have made numerous systems-related recommendations that have not yet
been addressed and systems modernization is likely many years away.
Therefore, DOD cannot afford to wait until new systems are in place but
should take action now to prevent the buildup of aged, unidentifiable
transactions in suspense accounts. DOD has already developed policies
and procedures that if enforced would improve basic accounting
practices at DFAS centers and field sites. Therefore, we are
recommending that DOD (1) enforce its policy that DFAS centers and
field-level accounting sites perform proper reconciliations with
Treasury each month, (2) use the results of the reconciliations to
improve the quality of its suspense account reports, and (3) enforce
guidance requiring that disbursements in suspense be resolved within 60
days or be charged to current appropriations if research attempts are
unsuccessful.
In comments on a draft of this report, DOD agreed with our
recommendations and described actions being taken to implement them.
Background:
For decades, we and DOD auditors have reported that DOD has not
promptly or accurately charged its appropriation accounts for all of
its disbursements and collections. Instead, DOD has recorded billions
of dollars in suspense and other accounts that were set up to
temporarily hold disbursements and collections until the proper
appropriation account could be identified. But, rather than being a
temporary solution, amounts accumulated and remained in suspense for
years because DOD did not routinely research and correct its records.
Over time, DOD lost the ability to identify the underlying disbursement
and collection transactions in suspense because they had been
summarized and netted over and over. Also, in many cases the
documentation necessary to properly account for the transactions was
lost or destroyed.
It is important that DOD charge transactions to appropriation accounts
promptly and accurately because these accounts provide the department
with legal authority to incur and pay obligations for various kinds of
goods and services. DOD has hundreds of current and closed
appropriation accounts that were authorized by law over the years. In
some ways, appropriation accounts are similar to an individual's
checking account--the funds available in DOD's appropriation accounts
must be reduced or increased as the department disburses money or
receives collections that it is authorized to retain. 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 receipt. DOD's failure over the years to
promptly and correctly charge and credit its appropriation accounts has
prevented the department and Congress from knowing:
* whether specific appropriations were over-or underspent,
* whether money was spent for authorized purposes, and:
* how much money was still available for spending in individual
appropriation accounts.
Many disbursements and collections remained in DOD suspense accounts
well beyond the date that the associated spending authority expired and
canceled.[Footnote 9]
DOD's inability to properly record its financial transactions has also
created an environment conducive to fraud, waste, and mismanagement.
Auditors have issued numerous reports over the years that identify
specific problems related to DOD's poor controls over its accounting
for disbursements and collections.[Footnote 10] But DOD's ability to
improve its accounting has historically been hindered by its reliance
on fundamentally flawed financial management systems and processes and
a weak overall internal control environment. Complex disbursement
processes, missing information, and errors often combine to prevent DOD
from promptly and accurately charging its appropriation accounts.
Disbursement Problems:
In general, DOD's disbursement process begins with military service or
defense agency personnel obligating[Footnote 11] funds in specific
appropriations for the procurement of various goods and services. Once
the goods or services are received, DFAS personnel pay for them using
electronic funds transfers (EFT), manual checks, or interagency
transfers. Although the bill for goods and services received should be
matched to the relevant obligation to ensure that funds are available
for payment before any disbursement is made, DFAS, military service, or
defense agency personnel often do not identify the correct
appropriation and perform the match until after making the payment. If
the appropriation and obligation then cannot be identified based on the
available information, the disbursement is recorded in a suspense
account until research is performed, additional information is
received, or any errors are corrected. If DFAS staff cannot determine
the correct appropriation account to charge, DOD policies allow DFAS
staff to request approval for charging current funds.
Several military services and DOD agencies can be involved in a single
disbursement, and each has differing financial policies, processes, and
nonstandard nonintegrated systems. As a result, millions of
disbursement transactions must be keyed and rekeyed into the vast
number of systems involved in any given DOD business process. Also, DOD
disbursements must be recorded using an account coding structure that
can exceed 75 digits, and this coding structure often differs by
military service in terms of the type, quantity, and format of data
required. The manual entry and reentry of the account code alone often
results in errors and missing information about transactions. Automated
system edit checks identify transaction records with invalid or missing
account coding information, such as the appropriation account number or
the chargeable entity, and refuse to process the faulty records. DFAS
then records the problem disbursements[Footnote 12] in suspense
accounts until the individual transactions can be corrected and
reprocessed by the accounting systems.
Other reasons for disbursement transactions to be recorded to suspense
accounts include:
* no valid obligation data identified,
* DOD disbursement records and Treasury disbursement records differ,
and:
* unsupported charges between DOD services and defense agencies.
Collection Problems:
DOD uses suspense accounts to hold several different kinds of
collections until they can be properly credited to the relevant
appropriation account or organization. For example, contractors often
return overpayments they received for the goods and services they
provided without including sufficient information for DOD to identify
which account or which service location should be credited for the
reimbursement. DOD also routinely accumulates estimated payroll tax
withholding amounts in suspense accounts until the payments must be
transferred to the Internal Revenue Service. If the estimates are
higher than actual payments, amounts can be left in suspense
indefinitely. Similarly, DOD records user fees collected for various
purposes, such as grazing rights and forestry products, to suspense
accounts until the accumulated funds are credited to the correct
appropriation account or organization. DOD has recognized that using
suspense accounts for accumulating withholding taxes and user fees is
not appropriate and exacerbates its problems with these accounts but
has stated that system and other problems prevent establishment of
proper holding accounts for these collections.
Check Differences:
Check differences refer to differences between the summary and detail
amounts reported by DOD for the paper checks it issued as well as
differences with the amounts reported by banks for the paper checks
that were cashed. Monthly, Treasury compares the DOD summary and detail
amounts and bank discrepancy reports, identifies check issue and
payment differences, and sends a report to DOD with the cumulative
difference amount. While the check issue and payment differences could
occur for various reasons, some of the common reasons are:
* check issue records excluded from DOD detail reports but included in
DOD summary reports to Treasury,
* erroneous check amount reported by DOD,
* check paid by the bank but not reported by DOD,
* voided check erroneously reported by DOD as check issued, and:
* check dated and paid by the bank in a previous month but DOD reported
its issuance in the current month.
DOD does not record these differences in a suspense account or any
other holding account. However, Treasury continues to track and report
aged check differences monthly to DOD until they are cleared.
Legislative Requirements:
DOD recognized that it would never be able to correctly account for
billions of dollars of aged, unidentifiable, and unsupportable amounts
recorded in its suspense accounts or reported as check payment
differences. Therefore, DOD management requested and received statutory
authority to write off these problem transactions. The NDA Act
authorized DOD to cancel long-standing debit and credit transactions
that could not be cleared from the department's books because DOD
lacked the supporting documentation necessary to record the
transactions to the correct appropriations. The legislation specified
that the write-offs:
* include only suspense account disbursement and collection
transactions that occurred prior to March 1, 2001, and that were
recorded in suspense accounts F3875, F3880, or F3885;[Footnote 13]
* include only check payment differences identified by Treasury for
checks issued prior to October 31, 1998;
* be supported by a written determination from the Secretary of Defense
that the documentation necessary for correct recording of the
transactions could not be located and that further research attempts
were not in the best interest of the government;
* be processed within 30 days of the Secretary's written determination;
and:
* be accomplished by December 2, 2004.
Actual Amount of Write-offs Cannot Be Calculated:
DOD officials estimated the value of the suspense account and check
payment write-offs to be an absolute amount of nearly $35 billion, or a
net amount of $629 million. However, neither of these amounts
accurately represented the total value of all the individual
transactions that DOD could not correctly record to appropriations and,
therefore, left in suspense for years.
Many DOD accounting systems and processes routinely offset individual
disbursements, collections, adjustments, and correcting entries against
each other and record only the net amount in suspense accounts. Over
time, amounts might even have been netted more than once. Because DOD
had not developed effective tools for tracking or archiving the
individual transactions that had been netted together, there was no way
for DOD to know how much of the suspense amounts recorded prior to
March 1, 2001, represented disbursements and collections versus how
much represented adjustments and correcting entries. In order to
calculate absolute values for the suspense account write-offs, DOD
could only add together the already netted disbursement, collection,
adjustment, and correcting amounts. Table 1 shows the net and absolute
values of the suspense write-offs as calculated by DOD and illustrates
how the use of net values can present an entirely different picture
than the use of absolute values. While suspense account write-offs
related to Army appropriations represented nearly the total of the
calculated absolute values, they represented less than 30 percent of
the calculated net values--far less than the net write-off amounts
related to Navy appropriations.
Table 1: DOD Reported Suspense Account Write-off Totals:
Dollars in millions.
DFAS center: Cleveland;
Customer: Navy;
Absolute values: $724.5;
Percentage of total absolute values: 2.08%;
Net values: $489.1;
Percentage of total net values: 79.55%.
DFAS center: Denver;
Customer: Air Force;
Absolute values: $45.3;
Percentage of total absolute values: 0.13%;
Net values: ($5.5);
Percentage of total net values: -0.89%.
DFAS center: Indianapolis;
Customer: Army;
Absolute values: $33,963.0;
Percentage of total absolute values: 97.45%;
Net values: $180.8;
Percentage of total net values: 29.41%.
DFAS center: Columbus;
Customer: Defense agencies;
Absolute values: $9.1;
Percentage of total absolute values: 0.03%;
Net values: $5.7;
Percentage of total net values: 0.92%.
DFAS center: Indianapolis;
Customer: Defense agencies;
Absolute values: $111.1;
Percentage of total absolute values: 0.32%;
Net values: ($55.5);
Percentage of total net values: -9.02%.
DFAS center: Kansas City;
Customer: Marine Corps;
Absolute values: $0.3;
Percentage of total absolute values: 0.00%;
Net values: $0.2;
Percentage of total net values: 0.03%.
Total;
Absolute values: $34,853.3;
Percentage of total absolute values: 100.00%;
Net values: $614.8;
Percentage of total net values: 100.00%.
Source: GAO analysis of DOD data.
[End of table]
Also, amounts that have been netted and that cannot be traced back to
the underlying transactions cannot be audited. For the nearly $34
billion of suspense write-offs related to Army appropriations, DFAS had
almost no transaction level information that could differentiate
between:
* individual disbursement and collection transactions that related to
specific Army appropriations;
* net reconciling adjustments that resulted from comparing monthly
totals for Army records with Treasury records;
* net cumulative monthly charges from other military services, defense
agencies, or federal agencies for goods or services provided to the
Army;
* summarized suspense account activity reported by Army field
accounting sites; and:
* correcting entries from center or field staff meant to clear amounts
from suspense.
According to DFAS officials, the system used to account for Army
appropriations had accumulated about 30 years worth of individual,
netted, summarized, and correcting entries that could not be identified
and therefore were eligible for write-off.
Unlike the accounting system used for Army, the systems used by DFAS
centers to account for the other military services and the defense
agencies did not accumulate billions of dollars in correcting entries
that were meant to clear amounts from suspense. However, they did
include significant amounts of non-transaction-level information, such
as reconciling adjustments, net charges, and summarized account
activity. For example, one of the write-offs processed for the Navy
consisted of a single $326 million amount for which DFAS Cleveland was
unable to distinguish any of the underlying individual transactions. As
a result, DFAS Cleveland had no way of knowing what amounts might have
been netted or summarized in order to arrive at the $326 million
figure.
DOD also wrote off $14.5 million of differences between what DOD
reported as its check payment amounts and what Treasury reported as
check amounts cleared through the banking system. Treasury had
accumulated these check payment differences and reported them to DOD
monthly on its Comparison of Checks Issued reports. Since the Treasury
reports contained only the cumulative net check payment differences and
DOD could not identify all of the underlying checks, as with suspense
account write-offs, it was not possible to calculate an absolute value
for all of the individual check errors. All of the monthly summary
totals reported by Treasury for paper checks cashed during the period
covered by the legislation were higher than the totals reported by DOD
for paper checks issued during that period.
Write-off Process Reasonably Effective but Resource Intensive:
To manage the suspense account write-off process, DOD developed
detailed guidance and review procedures that provided reasonable
assurance, given the limitations in the quality of the underlying data,
that the department complied with legislative requirements. Before
suspense amounts were approved for write-off, multiple layers of DOD
officials and internal auditors reviewed the packages submitted by the
five DFAS centers. The write-off packages varied in content but
generally included a certification statement from the DFAS center
director, an electronic file and a narrative description of the
individual amounts that made up the package, and any additional system
reports or documents that demonstrated compliance with legislative
limits regarding dates and accounts. For check payment differences,
DOD's management process was less complicated--written instructions on
how to submit the write-off amounts to Treasury were prepared, but
there were no reviews other than those done at the DFAS centers. The
check differences write-offs also met the legislative requirements
except that the Secretary of Defense did not make a written
determination regarding the necessity for the write-offs. The overall
write-off process was not without cost to DOD, however; DOD's lack of
enforcement of proper accounting procedures and its own regulations
meant that significant management and staff resources were required to
prepare, support, and review the packages submitted for write-off.
Suspense Account Write-off Guidance and Review Processes:
DOD developed guidance for the preparation of the write-off packages
and implemented a series of reviews by high-ranking DOD officials. The
guidance identified different types of transactions in suspense and
specified the documentation requirements for each. For example, nearly
a quarter of the write-offs represented disbursement transactions for
which vouchers existed, but the vouchers did not contain sufficient
information for the transactions to be posted to valid lines of
accounting. For this type, the DFAS center director had to certify that
steps were taken to obtain the missing information to clear the
transactions and that further action was not warranted. For more than
half of the write-off amounts, the underlying transactions could not be
identified and vouchers and supporting documentation did not exist.
Guidance included requirements that this write-off type be accompanied
by written narrative from the DFAS center that described in detail the
reason why amounts could not be cleared through normal processing.
DFAS centers identified amounts to be written off in various ways
depending upon the systems and processes in place at each center. Using
the guidance discussed above, center officials then separated the
amounts into transaction types, prepared the required supporting
documentation or narratives, and grouped the amounts into "packages" to
be sent forward for review.
DOD's multilayered review process served as the primary control for
providing reasonable assurance that the suspense account write-offs met
legislative requirements. As illustrated in figure 1, the reviews were
performed sequentially by officials from the DFAS centers, the military
service and defense agency FMOs, DFAS Arlington[Footnote 14] and DFAS
internal review and by the DOD Comptroller, the Secretary of Defense's
designee. As each level of review was completed, the reviewing official
was required to sign a certification statement or memorandum. The
certification was a DOD requirement to demonstrate that reviews had
been performed by various management officials and all agreed that the
proposed write-off amounts met the legislative requirements.
Figure 1: DOD's Review Process:
[See PDF for image]
[End of figure]
DOD's review process was effective in identifying write-off amounts
that did not appear to meet legislative requirements. DOD reviewers
told us--and documentary evidence supports their claims--that
additional information was requested from DFAS centers to support
various questioned amounts or that packages with unsupported amounts
were rejected and returned to the centers. For example, a $326 million
package, consisting of a single amount supposedly representing
transactions dating back to May 1992, was questioned by DFAS Arlington,
DFAS internal review, and the Comptroller's office. Because no
supporting detailed transactions were identified and because the
package did not clearly demonstrate that the amount had been recorded
prior to March 1, 2001, the package was flagged. Reviewers contacted
the originating DFAS center and requested additional documentation and
explanation. The center provided the reviewers with detailed analyses
demonstrating that the proposed write-off amounts had to represent
transactions transferred into the center's suspense accounts when the
center was established in May 1992. Based on the additional evidence,
the reviewers concluded that the proposed write-off met legislative
requirements and approved the package. DOD reviewers rejected numerous
proposed write-off amounts that did not comply with the legislation,
including 18 of the original 116 packages submitted by the DFAS
centers, often because they did not clearly support a transaction date
prior to March 1, 2001.
To ensure suspense write-off amounts were recorded within 30 days of
the determination by the Secretary of Defense's designee[Footnote 15]
and before the legislative deadline of December 2, 2004, DFAS center
officials reviewed accounting system records and requested additional
information from their staff. The Columbus, Denver, and Indianapolis
DFAS centers provided us with information that demonstrated the time
frames were met with a few exceptions.[Footnote 16] DFAS Cleveland and
DFAS Kansas City officials told us that they met the time frames for
write-offs but could not provide any supporting documentation.
Officials at these centers explained that as soon as the Comptroller's
office certified each write-off package, center staff sent data files
to system technicians specifying the information to be deleted from
suspense account records. According to officials, once the technicians
had deleted the records, they sent e-mails back to the requesting
center officials confirming that they had deleted the information
within the required time frames. However, center officials were unable
to provide us with copies of these e-mails or the deleted files.
Check Payment Differences Write-off Process:
Although DOD did not establish a multilayered review process for check
payment differences, the department did comply with legislative
requirements for the write-offs with one exception--the Secretary of
Defense did not provide the required written determination prior to
Treasury's recording of the write-off amounts.
As specified in the legislation, DFAS centers used Treasury reports
(the Treasury Comparison of Checks Issued reports) to identify check
payment differences dated prior to October 31, 1998. DFAS staff
reviewed available documents to determine that sufficient information
was no longer available to identify the proper appropriation account.
Even for very large differences, DOD's accounting records provided no
information to help explain the difference in checks issued and paid or
to identify what records needed correction. For example, the Treasury
report included a single difference of almost $6 million (over 40
percent of the total write-off amount) that represented a check issued
on October 31, 1991, by DFAS Columbus payable to the U.S. Treasury.
DFAS Columbus was unable to locate any documentation to support the
reason for the check payment, the amount of the check, or the
associated appropriation.
DOD established a much abbreviated process for check payment
differences write-offs. Rather than having check payment write-offs
reviewed by the Comptroller's office, DFAS Arlington, DFAS internal
review, and military service and defense agency FMOs prior to
submission to Treasury, DOD relied solely on DFAS center management to
ensure compliance with the legislation. Our review indicated that
center officials adequately documented that all amounts written off
were dated prior to October 31, 1998, and were reported on the Treasury
Comparison of Checks Issued report. However, DOD did not comply with
the requirement in the legislation that prior to submission to
Treasury, the Secretary of Defense make a written determination that
DOD officials have attempted without success to locate the
documentation necessary to identify which appropriation should be
charged with the amount of the check and that further efforts to do so
are not in the best interests of the United States. In October 2004,
after DOD had submitted all of the check payment difference write-offs
to Treasury and Treasury had recorded them, DOD asked DFAS internal
review to look at all the submissions and determine whether they
complied with the legislation. According to a DFAS Arlington official,
internal review completed its work and concluded that the check payment
write-offs sent to Treasury were certified by disbursing officers, DFAS
centers, and the services (either in writing or orally) prior to
clearing the transactions. The official also stated that this matter
has been forwarded to the DOD Comptroller's office for a formal
determination to meet the legal requirements under the now expired law.
Figure 2 below illustrates the write-off process for check payment
differences.
Figure 2: Check Payment Write-off Process:
[See PDF for image]
[End of figure]
Resource Intensive Write-off Process:
The write-off process itself could not and did not fix DOD's underlying
problems--outdated, nonstandard, and nonintegrated financial systems
and lack of enforcement of proper accounting policies and procedures--
that led to the build-up of aged, unsupported suspense transactions and
check payment differences. To the extent that DOD allows large aged
suspense and check difference balances to recur, the department will
again be required to undertake costly procedures to try to support the
proper recording of those transactions or to write them off.
According to DOD officials, numerous staff members at every level were
needed to prepare, support, and review the write-off packages and, in
some instances, to rework previously submitted packages. For example,
DOD officials told us that for the most part, the research and
preparation of the write-off packages represented additional tasks that
were added to the staff's normal workload. We were told that, although
staff tried to prioritize their work in order to prevent a backlog
related to current suspense account balances, they could not keep up
with their daily activities and current suspense account balances
increased over the period. Also, several DFAS center officials told us
that for much of 2003, DFAS Arlington, the Comptroller's office, and
Treasury officials tried to reach an agreement on exactly how to
process the write-off amounts. Because the official guidance was not
issued by DFAS Arlington until January 2004, there was a significant
delay in preparing the write-off packages. Although DOD had hoped to
finish the write-offs by the end of fiscal year 2004, only 24 packages
had been approved by that time. DOD had to assign additional resources
to enable the remaining 71 packages to be reviewed, approved, and
processed by December 2, 2004, the legislative cutoff date.
Write-offs Had Little Effect on Financial Reporting:
Writing off aged suspense account amounts and check payment differences
did not change DOD's reported appropriation account balances. Nor did
the write-offs correct any of the over-and undercharges that may have
been made to those appropriations over the years as a result of not
promptly resolving suspense account transactions and check payment
differences. DOD will never identify which, if any, of the aged
underlying transactions in suspense would have resulted in
Antideficiency Act violations had they been correctly charged. The
suspense account write-offs also did not affect the reported federal
cumulative budget deficit; however, the write-off of check payment
differences increased the deficit by $14.5 million. The most
significant result of the write-off process was to guarantee that
current appropriation balances would not be required to cover the aged
unrecorded transactions.
Appropriation Account Reports:
The legislated write-off of aged suspense account amounts and check
payment differences did not change DOD's current or past appropriation
account balances. Because amounts in suspense and check payment
differences had never been recorded to the proper appropriation
accounts, DOD had over-or undercharged these appropriations. To
accomplish the write-off, Treasury reclassified the aged suspense
amounts that met legislative requirements from DOD-specific suspense
accounts to non-agency-specific general government suspense
accounts.[Footnote 17] The check payment differences, which had never
been recorded in any DOD accounts, were simply "sent" to Treasury for
recording in that same general government suspense account. Although it
was unlikely that DOD would ever identify individual aged transactions
and the support for their proper recording, the write-off process was
the final step in ensuring that the over-and undercharged DOD
appropriation accounts will never be corrected.
While the write-off authority did not change or correct any DOD
appropriation balances, it did mean that DOD's current appropriations
would not be used to pay for the uncharged disbursements. Generally,
authorized disbursements may be made only to pay valid obligations
properly chargeable to an appropriation account. If the correct
appropriation and obligation cannot be identified and charged with a
disbursement, DOD regulations provide that the disbursement be treated
as an obligation that is chargeable against current appropriations.
However, using current funding authority to cover past disbursements
reduces the funds available to purchase goods and services needed to
support current operations.
Federal Deficit Reports:
We found that the write-off of suspense amounts had no effect on the
cumulative federal deficit. The suspense account transactions had
already been charged to the federal surplus or deficit in the specific
year that DOD reported the related collection and disbursement
transactions to Treasury. The reclassification of suspense amounts from
DOD accounts to general government suspense accounts did not affect
Treasury's previous recording of the underlying collection and
disbursement transactions to the cumulative deficit.
With regard to the write-off of check payment differences, according to
Treasury, the surplus/deficit had not been adjusted to recognize
differences between issued check amounts as reported by DOD and paid
check amounts as reported by banks. Since the check payment differences
had not previously been reported as disbursements by DOD and thus
included in the deficit calculation, the cumulative federal deficit was
increased by DOD's write-off amount of $14.5 million.
Current DOD Policies Are Not Being Enforced:
We found that, even though DOD policies require that most suspense
account transactions and check differences be resolved within 60 days,
DFAS centers were reporting an absolute value of $1.3 billion in aged
suspense account amounts and an absolute value of $39 million in aged
check differences as of December 31, 2004. DFAS knows that the reported
suspense amounts are not complete and accurate because:
* DFAS center officials are still not performing the required
reconciliations of their appropriation accounts, including suspense
accounts, with Treasury records;
* some field sites are not reporting any suspense activity to the
centers or are reporting inaccurate suspense account information; and:
* some of the reported amounts for suspense and check differences still
reflect netted and summarized underlying transaction information.
Given these deficiencies with suspense account reporting, the actual
value of aged problem transactions could be significantly understated.
Suspense Account Reconciliations:
DFAS centers are not performing effective reconciliations of their
appropriation activity, including suspense account activity, even
though DOD policies have long required them. Similar to checkbook
reconciliations, DFAS centers need to compare their records of monthly
activity to Treasury's records and then promptly research any
differences in order to identify and correct erroneous or missing
transactions. When we reviewed the DFAS centers' December 31, 2004,
reconciliations of suspense account activity, we found that all of the
centers had unexplained differences between their records and Treasury
records--differences for which they could not identify transaction-
level information. DFAS excluded transactions related to the
unexplained differences from its reports on suspense account activity.
In addition, we noted that amounts recorded in DFAS suspense accounts
often reflected transactions that had been netted or summarized at a
field site level. As illustrated by the recent write-off activity,
netting transactions often obscures the underlying transactions, makes
it more difficult for the centers to identify and correct errors and
omissions, and understates the magnitude of suspense account problems.
Suspense Account Reports:
In 1999, DFAS Arlington issued guidance that instructed each of its
centers to develop their own procedures for preparing a monthly
suspense account report (SAR) that would show the net value, absolute
value, and aging of amounts charged to each suspense account. Because
the systems and processes are not uniform across the centers, they were
instructed to develop their own procedures for obtaining the necessary
information from their systems, reconcile their suspense account
records to Treasury records to help ensure accuracy and completeness,
and explain any improper charges or overaged amounts.[Footnote 18]
However, as discussed previously, we found that the centers were not
effectively reconciling their suspense accounts and, therefore, could
not demonstrate that their SARs were complete and accurate. In fact,
center officials told us that some field sites did not report any of
their suspense information or they reported inaccurate information in
the SAR; however, those officials could not quantify the missing
information or inaccuracies. As discussed above, the SARs also did not
include transactions related to the unreconciled differences between
center and Treasury records, including residual balances from prior to
March 2001 that DOD was unable to write off. Figure 3 shows the aging
of the $1.3 billion of suspense amounts reported on the December 31,
2004, SAR.
Figure 3: Suspense Amounts Older Than 60 Days:
[See PDF for image]
[End of figure]
We also found that DFAS Arlington officials had not performed any
comprehensive reviews to determine whether the centers were compiling
the SARs in accordance with their own guidance. DFAS Arlington
officials and other center officials told us that it would be an
overwhelming task to review the information submitted by the hundreds
of DFAS field sites responsible for compiling the SARs. Although not
required, some centers have documented the processes they are following
to gather suspense account information and prepare the SARs; however,
DFAS Arlington officials have not reviewed the written documentation.
Arlington officials also did not know whether the centers were using
the same criteria for reconciling and calculating absolute values.
Required Recording Procedures:
As previously stated, as of December 31, 2004, DFAS reports identified
$1.3 billion absolute value of aged suspense account amounts and
Treasury reports identified $39 million in absolute value of unresolved
check differences. These aged problem transactions persist despite the
DOD Financial Management Regulation (FMR) that requires staff to
identify and charge the correct appropriation account within 60
days.[Footnote 19] The FMR allows DFAS to charge current appropriations
for suspense account transactions and problem disbursements that cannot
be resolved through research if approved by the fund holder, military
service assistant secretaries, or defense agency Comptroller.
For suspense account transactions, DFAS officials stated that the
primary reasons for not consistently following the FMR are (1) staff
have been too busy processing the write-off amounts and have not had
the resources to clear more recent suspense transactions promptly and
(2) military service and defense agency officials are unwilling to
accept charges to current appropriation accounts without DFAS supplying
them with sufficient proof that the charges actually belong to them.
For the $39 million of unresolved check differences, DFAS officials
stated that $36 million is related to transactions initiated by Army
staff overseas. DFAS officials claimed that with the exception of the
$36 million, they have been able to resolve almost all check
differences within 60 days due to increased oversight and staff
efforts, implementation of new controls over the check reconciliation
process, and the increasing use of EFTs rather than checks.
Conclusion:
Overall, the write-off process enabled DOD to clear aged, unsupported
amounts from its accounting systems and records and ensured that
current appropriations would not be required to cover these amounts.
However, the write-off did not correct appropriation account records or
fix any of DOD's deficient systems or accounting procedures. Therefore,
DOD needs to continue its focus on the keys to eliminating aged problem
disbursements and preventing their future occurrence, including
improved disbursement processes and better management controls. Until
DOD enforces its own guidance for reconciling and resolving its
suspense accounts and check differences regularly, balances will likely
grow. Without adequate tools for tracking and archiving the individual
transactions charged to suspense, DOD will continue to have difficulty
researching and determining proper accounting treatment. DOD's
inability over the years to promptly and correctly charge its
appropriation accounts has prevented the department and Congress from
knowing whether specific appropriation accounts were overspent or
underspent and from identifying any potential Antideficiency Act
violations. Unless DOD complies with existing laws and its own
regulations, its appropriation accounts will remain unreliable and
another costly write-off process may eventually be required.
Recommendations for Executive Action:
To prevent the future buildup of aged suspense accounts and check
payment differences, we recommend that the Secretary of Defense take
the following three actions:
* enforce DOD's policy that DFAS centers and field-level accounting
sites perform proper reconciliations of their records with Treasury
records each month,
* use the results of the monthly reconciliations to improve the quality
of DFAS suspense account reports, and:
* enforce guidance requiring that disbursements in suspense be resolved
within 60 days or be charged to current appropriations if research
attempts are unsuccessful.
Agency Comments and Our Evaluation:
In written comments on a draft of the report, the Principal Deputy
Under Secretary of Defense (Comptroller) stated that the department
concurred with our recommendations and described actions that are being
taken to address them. DOD's comments are reprinted in appendix II.
We are sending copies of this report to other interested congressional
committees; the Secretary of the Treasury; the Secretary of Defense;
the Under Secretary of Defense (Comptroller); the Director, Defense
Finance and Accounting Service; and the Assistant Secretaries for
Financial Management (Comptroller) for the Army, the Navy, and the Air
Force. Copies will be made available to others upon request. In
addition, this report is available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
Please contact me at (202) 512-9505 or [Hyperlink, kutzg@gao.gov] if
you or your staffs have any questions about this report. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Other GAO contacts and key
contributors to this report are listed in appendix III.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
List of Committees:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel K. Inouye:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Duncan L. Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Honorable C. W. Bill Young:
Chairman:
The Honorable John P. Murtha:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
As required by the conference report (H.R. Conf. Rep. No. 107-772) that
accompanied the Bob Stump National Defense Authorization Act for Fiscal
Year 2003 (Pub. L. No. 107-314 § 1009, 116 Stat. 2458, 2635), we
undertook a review of the Department of Defense's (DOD) use of
authority to write off certain aged suspense account transactions and
check payment differences. Our objectives were to determine (1) what
amount DOD wrote off using the legislative authority, (2) whether DOD
had effective procedures and controls to provide reasonable assurance
that amounts were written off in accordance with the legislation, (3)
how the write-offs affected Treasury and DOD financial reports, and (4)
what aged DOD suspense account balances and check payment differences
remain after the write-offs have been accomplished.
In conducting this work, we identified prior audit reports and other
background information to determine the events that led DOD to request
write-off authority. We visited DOD Comptroller offices, visited DFAS
centers in Arlington, Indianapolis, Cleveland, and Denver, and
contacted officials in DFAS Columbus and Kansas City to perform the
following:
* Interviewed Comptroller and DFAS officials to obtain a general
understanding of DOD's use of suspense accounts and the department's
request for write-off authority.
* Gathered, analyzed, and compared information on how write-off amounts
were identified and processed.
* Compared DOD's policies and practices for the write-offs (including
those policies and practices in effect at the relevant DFAS centers) to
the specific provisions contained in the legislation and with any
Treasury requirements.
* Identified DOD's primary controls over the suspense account write-
offs--a series of reviews performed by DOD/DFAS management and DFAS
internal review--and tested the effectiveness of these controls by
reviewing all certification statements resulting from the control
procedures, comparing amounts reviewed to amounts written off,
inquiring about and reviewing examples of rejected write-off amounts,
and reviewing all of the support available for selected individual
write-off amounts.
* Compared all check payment difference write-offs to Treasury reports
to ensure the amounts were in compliance with the legislative
requirements.
To determine the impact of the suspense account and check payment write-
offs on DOD's budgetary and financial reports, we determined which
specific DOD/Treasury accounts were affected by the write-off entries.
We asked DOD and Treasury officials how the write-off entries affected
DOD budgetary accounts and the federal deficit. We also reviewed
financial reports, journal vouchers, and other documents provided by
DOD and Treasury.
To identify the current outstanding suspense account balances and check
payment differences, we reviewed amounts disclosed in DOD's fiscal year
2004 financial statements and obtained relevant performance metrics as
of September 30, 2004, and December 31, 2004. We identified any
remaining aged suspense account or check differences being monitored by
DOD management. To determine whether DOD reconciles its records to
Treasury, we requested proof of DOD's most current suspense account
reconciliations and check difference reports.
We performed our work from June 2004 through April 2005. Because of
serious data reliability deficiencies, which the department has
acknowledged, it was not our objective to--and we did not--verify the
completeness and accuracy of DOD reported amounts, including current
suspense account report amounts. We requested comments from the
Secretary of Defense or his designee. We received written comments from
the Principal Deputy Under Secretary of Defense (Comptroller), which
are reprinted in appendix II. We also sent the draft report to the
Secretary of the Treasury. Treasury sent us a few technical comments,
which we have incorporated in the report as appropriate. We performed
our work in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II: Comments from the Department of Defense:
UNDER SECRETARY OF DEFENSE:
COMPTROLLER:
1100 DEFENSE PENTAGON:
WASHINGTON DC 20301- 1100:
MAY 18 2005:
Gregory D. Kutz:
Director:
Financial Management and Assurance:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Kutz:
This is the Department of Defense response to the Government
Accountability Office (GAO) draft report GAO-05-521, "DOD Problem
Disbursements: Long-Standing Accounting Weaknesses Result in Inaccurate
Records and Substantial Write-offs," dated April 18, 2005. The
Department appreciates the opportunity to review the draft report and
provide comments.
I agree with the intent of the recommendations to enforce DoD's policy
to perform proper monthly reconciliations with Treasury records, to use
the results of monthly reconciliations to improve the quality of DFAS
suspense account reports, and to enforce guidance requiring that
disbursements in suspense accounts be resolved within 60 days. More
detailed comments are at the enclosure.
My point of contact for this matter is Mr. Oscar Covell. He may be
reached by e-mail: oscar.covell@osd.mil or by telephone at (703) 697-
6149.
Sincerely,
Signed by:
Robert J. Henke:
Principal Deputy:
Enclosure: As stated:
GAO DRAFT REPORT DATED APRIL 18, 2005 GAO-05-521 (GAO CODE 192132):
"DOD PROBLEM DISBURSEMENTS: Long-standing Accounting Weaknesses Result
in Inaccurate Records and Substantial Write-offs"
DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
enforce DOD's policy that DFAS centers and field-level accounting sites
perform proper reconciliations of their records with Treasury records
each month. (p. 18/GAO Draft Report):
DOD RESPONSE: Concur. The Defense Finance and Accounting Service (DFAS)
Accounting Business Line issued a policy memorandum in December 2004
requiring that each central site modify the existing Suspense Account
Report (SAR) to reconcile it to the Treasury Trial Balance (TTB). The
reconciliation is to contain a narrative which explains what portion of
the difference is supported and what portion cannot be explained. At
least once a quarter, the client executive of each central site must
sign a certification statement for the reconciliation narrative. The
policy required that the central sites meet the new requirement with
the submission of the February 2005 SAR. Action is complete.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense use
the results of the monthly reconciliations to improve the quality of
DFAS suspense account reports. (p. 18/GAO Draft Report):
DOD RESPONSE: Concur. The Accounting Business Line adopted a strategy
to develop a Plan of Actions and Milestones (POA&M) for improving the
quality of the SAR. The POA&M is scheduled to be completed by June 30,
2005. The POA&M is to list detail inflow analysis categorizing all
suspense transactions by source drivers (payment type, business event,
root cause) and to distinguish transactions processing through the
Intra-governmental Payment and Collection System from those processing
through the Defense Cash Accountability System. Specific emphasis will
be placed on developing a uniform reconciliation process as well as on
improving the content of the SAR to report all suspended transactions
and to more thoroughly explain the supported portion of the difference
between the SAR and the TTB. Other initiatives will involve documenting
the end-to-end transaction level audit trail from sources to SAR and
the Treasury along with securing commitments from the other DFAS
product lines to reduce the occurrence of suspense postings. Estimated
completion date is June 30, 2005.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
enforce guidance requiring that disbursements in suspense be resolved
within 60 days or be charged to current appropriations if research
attempts are unsuccessful. (p.18/ GAO Draft Report):
DOD RESPONSE: Concur. The Department of Defense concurs that guidance
must be properly enforced and suspended transactions be resolved in a
timely manner. Consequently, I have directed the Military Departments,
Defense Agencies, and the DFAS to strictly enforce and resolve
transactions within the 60 day time frame specified in Volume 3,
Chapter 11, paragraph 1115, "Budget Clearing Account (Suspense), F3875,
and Undistributed Intergovernmental Payments, F3885" of the Department
of Defense Financial Management Regulation. We will monitor compliance
through our established metrics program. Estimated completion date is
May 31, 2005.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Gregory D. Kutz (202) 512-9505:
Acknowledgments:
Staff making key contributions to this report were Shawkat Ahmed, Rathi
Bose, Molly Boyle, Sharon Byrd, Rich Cambosos, Francine Delvecchio,
Gloria Hernandez-Saunders, Wilfred Holloway, Jason Kelly, and Carolyn
Voltz.
(192132):
FOOTNOTES
[1] 31 U.S.C. §1341.
[2] Pub. L. No. 107-314, 116 Stat. 2458, 2635 (Dec. 2, 2002).
[3] A write-off is a removal or clearance of suspense account
transactions or check payment differences from DOD's accounting
records.
[4] H.R. Conf. Rep. No. 107-772, at 686 (2002).
[5] When absolute amounts are reported, collections and adjustments are
added to disbursements. When net amounts are reported, collections and
adjustments are offset against disbursements. Reporting net amounts can
significantly understate the magnitude and impact of transaction
errors.
[6] We use the word "amounts" rather than "transactions" because DOD's
suspense account entries and check payment differences are often not
recorded at the transaction level. DOD's write-offs included summarized
totals of monthly suspense account activity, net monthly differences
between Treasury and DOD check issue totals, reconciling adjustments,
and other non-transaction-level information.
[7] Each write-off package varied in content but generally included a
certification statement from the DFAS center director, an electronic
file and a narrative description of the individual amounts that made up
the package, and any additional system reports or documents that
demonstrated compliance with legislative limits regarding dates and
accounts.
[8] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[9] Generally, amounts made available to DOD by annual appropriations
acts are available to incur new obligations for 1 fiscal year unless
expressly otherwise provided by the appropriation act. Once the period
of availability for incurring new obligations expires with respect to
an appropriated amount, the amount remains available for 5 fiscal years
for the purpose of adjusting and paying obligations properly incurred
prior to the expiration of the appropriation. After 5 years in expired
status, the account is closed and remaining balances are canceled. Once
an account is closed, an obligation that is properly chargeable to the
closed account is payable from an account currently available for the
same purpose up to 1 percent.
[10] See GAO, Canceled DOD Appropriations: $615 Million of Illegal or
Otherwise Improper Adjustments, GAO-01-697 (Washington, D.C.: July 26,
2001); DOD Contract Payments: Management Action Needed to Reduce
Billions in Adjustments to Contract Payment Records, GAO-03-727
(Washington, D.C.: Aug. 8, 2003); Military Pay: Army National Guard
Personnel Mobilized to Active Duty Experienced Significant Pay
Problems, GAO-04-89 (Washington, D.C.: Nov. 13, 2003). Also, see
Department of Defense, Office of Inspector General, Independent
Auditor's Report on the Fiscal Year 2004 DOD Agency-wide Financial
Statements, Report No. D-2005-017 (Washington, D.C.: Nov. 12, 2004).
[11] Obligations include amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payment during the same or a future period.
[12] For this report, we define problem disbursements as transactions
that contain errors, missing information, or other problems that
prevent DOD from properly accounting for them.
[13] The legislation defined F3875 as a general Budget Clearing
Account, F3880 as the Unavailable Check Cancellations and Overpayments
Account, and F3885 as the Undistributed Intergovernmental Payments
Account.
[14] According to DFAS officials, DFAS Arlington is responsible for
overseeing and coordinating many of the accounting functions performed
at the other five DFAS centers, including overseeing the write-off of
suspense account transactions and check payment differences.
[15] The Secretary of Defense delegated certification responsibility to
the DOD Comptroller to make the required written determinations.
[16] Three of the 53 write-off amounts we reviewed were recorded 42
days, rather than 30 days, after the certification. Also, one write-off
amount was approved on December 2, 2004, and recorded in center
accounting systems on December 6, 2004.
[17] While a non-agency-specific general government suspense account
was used, it was only used as a means of closing the write-off amounts
against the cumulative federal deficit. There is no remaining balance
in these general government suspense accounts.
[18] The suspense account aging categories include 0-30 days; 31-60
days; 61-90 days; 91 to 180 days; 181 days to 1 year; over 1 year to
October 1, 1997; and older than October 1, 1997.
[19] DOD revised the FMR in 2001 to allow DFAS to charge current
appropriations for aged problem disbursements, including those recorded
in suspense accounts, if staff are unable to locate sufficient
supporting documents. The FMR requires that suspense account
transactions be resolved within 60 days except for Interfund suspense,
which must be resolved within 180 days. DOD also revised the FMR and
issued it as a draft in July 2003--the final version was issued in
January 2005--to require staff to research each check difference and
clear it within 60 days from the check issue date, a requirement that
was excluded from the FMR previously.
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