Report | June 27, 2016

Improvements Needed in Managing Army Suspense Accounts

DODIG-2016-103

Objective

We determined whether DoD had controls in place to record Department of the Army suspense account balances on the proper component-level financial statements. In addition, we determined whether the accounts were used for the intended purpose and transactions were resolved in a timely manner.

Findings

The Defense Finance and Accounting Service (DFAS) did not have sufficient controls in place to record Army suspense account transactions on the proper component-level financial statements. This occurred because DFAS personnel did not perform an analysis of historical data to determine what portion of the balances should be posted to the Army financial statements or to other components’ financial statements. DFAS–Indianapolis (DFAS-IN) also did not identify transactions that supported Army suspense account balances. Specifically, DFAS-IN personnel prepared $94 million in unsupported adjustments to match Army suspense account balances to Treasury balances and included an additional $79.10 million in transactions they could not support. This occurred because DFAS-IN did not require accounting activities to report detailed transactions or include all suspense transactions in the Army Fund Balance with Treasury Tool. In addition, DFAS-IN personnel did not verify accounting activities researched and cleared suspense transactions within 60 business days because they did not track clearance actions of accounting activities. As a result, DFAS-IN personnel misstated the FY 2014 Army General Fund Financial Statements. Additionally, transactions in suspense accounts represent an area of uncertainty that increases testing procedures and the likelihood of material misstatements on financial statement audits. The transactions could also conceal problem disbursements and erroneous payments.

DFAS-IN incorrectly used three suspense accounts for other than their intended purpose. This occurred because DoD did not use or request use of other fund accounts after receiving Treasury approval for suspense accounts. As a result, DFAS-IN misstated Army financial statements by $189.87 million on September 30, 2014, and $223.70 million on September 30, 2015.

Additionally, DFAS-IN inappropriately used journal vouchers, ranging in value from $55.67 million to $1,837.72 million, to reduce Intra-governmental Payment and Collection suspense account balances at month’s end in the Suspense Account Report and in performance metrics information. This occurred because DFAS-IN established a maximum $50 million threshold for the monthly reporting of these suspense account balances. As a result, DFAS and Office of the Secretary of Defense managers did not have accurate information to monitor progress in reducing suspense account balances.

Recommendations

We recommend the Director, DFAS-IN, perform a trend analysis to support allocating suspense account balances to proper component-level financial statements, require accounting activities maintain details on suspense transactions, include detailed transactions from legacy systems in the Army Fund Balance with Treasury Tool, and implement a formal process to identify and track suspense transactions to be cleared. The Director, DFAS-IN, should also coordinate with the Under Secretary of Defense (Comptroller) to establish special and deposit fund accounts to more appropriately record and report non-suspense account transactions.

Management Comments and Our Response

Comments from the Director, DFAS-IN, addressed all specifics of the recommendations and no further comments are required.