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Improvements Needed in Managing the Other Defense Organizations' Suspense Accounts DODIG-2016-126

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Objective

We determined whether DoD had controls in place to record Other Defense Organizations’ (ODO) (Treasury Index 97) suspense account balances on the proper component-level financial statements. In addition, we determined whether the accounts were being used for their intended purpose and that transactions were resolved in a timely manner.

Findings

The Defense Finance and Accounting Service (DFAS) did not have controls in place to accurately record ODO suspense account balances on the proper component-level financial statements or to clear the suspense account transactions in a timely manner.  DFAS personnel incorrectly concluded that suspense accounts were immaterial and did not develop adequate procedures to manage and account for the transactions in the ODO suspense accounts.  As a result, DFAS reported inaccurate amounts on the consolidated ODO financial statements and could not support the balances with source documentation.  In addition, the consolidated suspense account balances are material to most of the individual ODOs’ financial statements.  Therefore, not allocating the consolidated suspense account balances to the individual ODOs could have a significant impact on the auditability of the individual ODOs’ financial statements. Further, unresolved transactions residing in the suspense accounts can conceal problem disbursements and improper payments.

DFAS incorrectly used the ODO suspense accounts to record collections generated from revenue programs and to temporarily hold Thrift Savings Plan and tax withholdings collected from civilian employees. DoD did not take the necessary action to implement the appropriate accounting treatment for the transactions. In addition, DoD guidance required DoD agencies to use the suspense accounts for purposes that were inconsistent with OMB and Treasury’s stated purpose of the suspense accounts. As a result, as of September 30, 2015, DFAS inappropriately included $17.9 million in transactions in the suspense accounts. Also, DoD understated its budgetary resources by not including the revenue-generating programs in an identifiable appropriation as available to spend.

Recommendations

We recommend that the Directors, DFAS–Indianapolis and DFAS–Columbus, perform regular and recurring reconciliations of the suspense account data and remediate any deficiencies that impact the accuracy of the balances.  Further, the Directors, DFAS–Indianapolis and DFAS–Columbus, should develop an estimate using relevant, sufficient, and reliable information to record the consolidated ODO suspense account balances on the individual ODOs’ financial statements. 

We also recommend that the Directors, DFAS–Indianapolis and DFAS–Columbus, coordinate with the Office of the Under Secretary of Defense (Comptroller) to establish special and deposit fund accounts to more appropriately record and report on-suspense account transactions.

Management Comments and Our Response

Comments from the Director, DFAS Audit Readiness on behalf of the Director DFAS–Indianapolis and DFAS–Columbus, were generally responsive. However, DFAS did not present an actionable plan for removing the Intragovernmental Payments and Collections amounts from the suspense accounts in response to Recommendation A.1.c. As a result, we ask that the Director, DFAS Audit Readiness provide additional comments in response to this recommendation.

This report is a result of Project No. D2015-D000FE-0186.000.