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The Treasury Index 97 Cash Management Report DODIG-2018-120

DODIG-2018-120

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Objective:

We determined whether the Treasury Index (TI) 97 Cash Management report (CMR) was complete, accurate, and supported by the details necessary to perform Fund Balance With Treasury (FBWT) reconciliations.

Background:

The Defense Finance and Accounting Service (DFAS)-Indianapolis developed the CMR to help Other Defense Organizations (ODOs) reconcile their FBWT accounts because the Department of the Treasury (the Treasury) does not record individual ODO FBWT account balances. The CMR is similar to a commercial bank statement in that it provides a summary cash position for each ODO FBWT account by fiscal year and appropriation at the limit level. Limits are four-character codes that help identify, manage, and report the financial activity of each ODO. DFAS and the ODOs use the CMR to perform individual ODO FBWT account balance reconciliations by the four-character limit. DFAS Manual 7097.01 lists all the valid limits for ODOs.

Finding:

We determined that the September 2016 TI-97 CMR was not complete, accurate, or supported by the details necessary for ODOs to perform FBWT reconciliations.

Specifically:

  • DFAS-Indianapolis personnel excluded 69 TI-97 appropriations form the CMR that were reported in the Treasury Central Accounting and Reporting System (CARS). Additionally, DFAS-Indianapolis personnel did not report $3.6 billion in financial activity for the Defense Working Capital Fund (DWCF) on the CMR. This occurred because DFAS-Indianapolis personnel did not design the CMR to report all financial activity for each of the ODOs, as required by the DoD Financial Management Regulation (DoD FMR). In addition, the DFAS-Indianapolis standard operating procedures (SOPs) did not require a reconciliation of all TI-97 FBWT accounts in the CMR with all TI-97 FBWT accounts in CARS.
  • DFAS-Indianapolis personnel made unsupported adjustments of $322.6 million to TI-97 FBWT accounts to resolve differences identified while reconciling the CMR with FBWT account balances in CARS. This occurred because DFAS-Indianapolis did not have SOPs that included detailed steps to identify and resolve the root cause of the differences identified when reconciling the CMR with account balances in CARS in accordance with the DoD FMR. In addition, DFAS-Indianapolis personnel did not maintain supporting documentation for all adjustments made to TI-97 accounts while reconciling the CMR with CARS.
  • DFAS-Indianapolis personnel reported an absolute amount of $11 billion in unidentified limits on the CMR; therefore, the ODOs did not have the details needed to perform FBWT reconciliations. This occurred because DoD personnel did not record and submit account balances and transactions in DoD accounting and disbursing systems with limits required by DFAS Manual 7097.01. In addition, DFAS-Indianapolis did not design the Headquarters Accounting and Reporting System to convert all unidentified limits into limit “*999” as required by the DoD FMR.

As a result, DFAS-Indianapolis and the ODOs lacked the information needed to perform complete FBWT account reconciliations for September 2016. In addition, the $322.6 million in unsupported adjustments to resolve differences and the use of $11 billion in unidentified limits indicate that the accounting records did not reflect an accurate and supported financial position for the ODO FBWT accounts. This will cause FBWT accounts to be misstated on the individual ODO financial statements and the DoD Agency-wide financial statements. Additionally, without accurate financial data, ODOs management will not be able to make informed budged decisions regarding operations.

Recommendations, Management Comments, and Our Response:

The Deputy Chief Financial Officer (DCFO) disagreed with the recommendation to create individual DWCF accounts for the Defense Information Systems Agency, Defense Logistics Agency, and DFAAS. Additionally, the DCFO disagreed with the recommendation to establish FBWT accounts or four-digit limits for ODOs in CARS. The comments from the DCFO did not address the specifics of the recommendations; therefore, the recommendations are unresolved. The DCFO stated that splitting up the DWCF will remove valuable flexibility in managing cash balances and may put the ODOs at greater risk of experiencing cash shortages. Additionally, the DCFO state that establishing individual FBWT accounts for ODOs may expose sensitive activities and create an unnecessary burden that would remove much of the flexibility within Defense-wide appropriations.

We request that the DCFO reconsider his position on these recommendations and provide additional comments in response to the final report. Specifically the current cash management philosophy prioritizes flexibility within the ODOs’ FBWT accounts rather than accountability. Each agency should establish its own DWCF account and be responsible for managing its individual cash position. Establishing separate accounts will allow for ODOs and the DoD to accurately account for and manage TI-97 FBWT accounts through accountability and direct oversight. The current cash management process adds unnecessary complexities and makes it difficult for DoD personnel to provide reliable and clear audit trail.

The DCFO agreed to develop a single, consolidated TI-97 FBWT reconciliation tool; issue policy establishing a list of approved limits; develop a plan to reduce the number and dollar amount of unidentified limits; establish metrics that report the number and amount of unidentified limits by system monthly; and develop a FBWT reconciliation process that incorporates the entire universe of transactions. The comments from the DCFO either partially addressed the recommendations or did not address all of the specifics of the recommendations. Therefore, the recommendations are unresolved. We request that the DCFO provide additional comments in response to the final report.

The DCFO agreed to require DoD disbursing stations to report transaction level data to the Treasury on a daily basis. The DCFO addressed all specifics of the recommendation; therefore, the recommendation is resolved but will remain open.

We provided the draft report to the Assistant Secretary of the Navy (Financial Management and Comptroller) and requested comments to the draft report and the recommendation to correct the Navy’s financial systems to report TI-97 transactions with the limits approved by the DCFO. However; the Assistant Secretary of the Navy (Financial Management and Comptroller) did not respond to the draft report or the recommendation. Therefore, the recommendation is unresolved.

We request that the Assistant Secretary of the Navy (Financial Management and Comptroller) provide comments on the final report.

The Director, DFAS-Indianapolis, disagreed with the recommendation to produce a consolidated CMR that supports TI-97 FBWT account reconciliations; to document the updated CMR process in process maps and process narratives; to revise existing SOPs to require reconciliation of all TI-97 FBWT accounts to CARS; and to require DFAS personnel to obtain written approval for any adjustment made to TI-97 accounts. The comments from the Director did not address the specifics of the recommendations; therefore, the recommendations are unresolved. The Director stated that the DoD OIG audit team narrowly focused on the CMR, which is only a portion of the comprehensive FBWT reconciliation process. The Director disagreed with the DoD OIG interpretation that the DoD FMR requires the CMR to be the exclusive FBWT reconciliation tool. Lastly, the Director stated that identifying differences at an absolute value misstates the impact to an entity’s cash position.

We request that the Director reconsider his position on these recommendations and provide additional comments in response to the final report. We acknowledge that the DoD FMR does not require a single FBWT reconciliation tool. However, the DoD FMR requires DFAS and the Components to reconcile the Government-Wide Accounting statement in CARS with the CMR. DFAS and the Components could not demonstrate that they could reconcile the Government-Wide Accounting statement to the CMR without unsupported summary level variances. Lastly, each transaction should be scrutinized in terms of absolute value, regardless of the transaction’s net impact.

The Director, DFAS-Indianapolis, agreed to develop SOPs that provide steps on identifying differences between TI-97 FBWT accounts in the CMR and in CARS and to require DFAS-Indianapolis to maintain supporting documentation for any adjustment made to TI-97 FBWT accounts. The comments from the Director partially addressed the recommendations; therefore, the recommendations are unresolved. We request that the Director provide additional comments in response to the final report that detail his plan for developing SOPs that provide steps on identifying and resolving differences between the CMR and in CARS; and requiring DFAS-Indianapolis personnel to maintain supporting documentation for any adjustment made to TI-97 FBWT accounts.

The Director, DFAS-Indianapolis, agreed to produce a CMR that reports only TI-97 activity and to report the absolute dollar amount of the balances recorded in unidentified limits to the ODOs monthly. The comments from the Director addressed all specifics of the recommendations, and no further comments are required. Therefore, the recommendations are resolved but will remain open.

This report is a result of Project No. D2017-D000FP-0085.000.