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Improvements Needed in Managing Department of the Navy Suspense Accounts

DODIG-2016-104

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June 30, 2016 — Objective

Our objective was to determine whether DoD had controls in place to record Department of the Navy (DON) suspense account balances on the proper component-level financial statements, whether the accounts were being used for the intended purpose, and whether transactions were resolved in a timely manner.

Findings

Defense Finance and Accounting Service–Cleveland (DFAS-CL) and the DON did not have controls in place to properly account for the DON suspense account transactions we reviewed. Specifically, DFAS-CL did not exclude $3.6 million in suspense account transactions that may not belong on the DON financial statements. Consequently, the FY 2014 DON suspense account balances and the DON General Fund balance sheet were potentially overstated by $3.6 million. In addition, DFAS-CL erroneously included $1 million in Army transactions in the DON suspense account. This occurred because DFAS-CL did not conduct research to resolve suspense account transactions or perform a review of DON’s suspense accounts before fiscal yearend.

In addition, DON and DFAS-CL incorrectly used suspense accounts to manage their recycling, agricultural leasing, forestry and trademark programs, and Thrift Savings Plan contributions because the DoD Financial Management Regulation (FMR) incorrectly required the use of suspense accounts to record these transactions. As a result, DON overstated its FY 2014 suspense account balance by $57 million by recording income from its revenue-generating programs and TSP transactions in suspense accounts.

Finally, DFAS-CL did not resolve 1,713 of the 3,576 DON suspense account transactions found in the FY 2014 suspense account universe within 60 business days as required by the Treasury Financial Manual. This occurred because DFAS-CL did not have adequate processes in place to ensure transactions were monitored, tracked, and resolved within required timeframes. Consequently, DON’s suspense account balance and FY 2014 General Fund financial statements would have been reduced by 1,713 transactions with a net value of $5 million.

Recommendations

We recommend the Assistant Secretary of the Navy (Financial Management and Comptroller) work with DFAS, the Under Secretary of Defense (Comptroller), and U.S. Department of the Treasury to remove DON revenue-generating program transactions from suspense accounts, disclose the suspense account balances and the potential that transactions may resolve to other DoD or Federal agencies in the DON Annual Financial Report Notes, and write off significantly overaged suspense account transactions identified by DFAS-CL, per DoD Financial Management Regulation guidance.

We recommend the Director, Defense Finance and Accounting Service, develop a corrective action plan with implementation timelines to ensure Thrift Savings Plan transactions are not recorded in suspense accounts.

We also recommend that the Director, DFAS-CL, review DON suspense account balances before yearend closing to identify and remove transactions from DON suspense accounts that belong to other Services or organizations, review and correct business processes to ensure only DON suspense transactions are posted to and included in DON suspense account balances, and work with their business partners to establish a process to ensure DON suspense account transactions post to the correct account within 60 business days.

Management Comments and Our Response

Comments from the Assistant Secretary of the Navy (Financial Management and Comptroller); the Director, Enterprise Solutions & Standards, responding for the Director, Defense Finance and Accounting Service; and the Director, DFAS-CL, addressed all specifics of the recommendations, and no additional comments are required.