Report | June 25, 2021

Audit of Accounting Corrections on the SF 1081 (DODIG-2021-095)

Audit

Publicly Released: June 30, 2021

 

Objective

The objective of this audit was to determine whether the DoD properly used the SF 1081, “Voucher and Schedule of Withdrawals and Credits,” to correct accounting errors.

 

Background

The DoD’s Fund Balance With Treasury (FBWT) is a group of individual accounts maintained by the Department of the Treasury (the Treasury) that reflect the funds available for the DoD to make expenditures and pay liabilities. The FBWT universe of transactions includes all valid funding, disbursements, collections, and transfers to or from a DoD Component over a given period. According to the DoD Financial Management Regulation, each DoD Component must record all FBWT transactions in the Component’s individual FBWT accounts and reconcile to the balance maintained by the Treasury each month. In addition, DoD Components must maintain all reconciliation documentation, including support for any corrections.

DoD Components and the Defense Finance and Accounting Service (DFAS) use the SF 1081 to transfer amounts between FBWT accounts and to make corrections to collections and disbursements. Therefore, DoD Components must maintain a complete population of SF 1081 transactions to comply with the FBWT reconciliation requirements.

DoD Component and DFAS personnel create, process, and store SF 1081 transactions in many DoD disbursement, general ledger, and feeder systems. This report discusses the following systems.

  • The Advancing Analytics Tool
     
  • The Defense Cash Accountability System
     
  • The DFAS Transaction Interface Module
     
  • The Logistics Modernization Program
     
  • The Standard Contract Reconciliation Tool

 

Findings

The DoD could not produce a complete or accurate universe of SF 1081 transactions processed during the first and second quarters of FY 2020 in accordance with the DoD Financial Management Regulation. The universe provided by the Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, and DFAS personnel contained populations of transactions from only four systems. In addition, these populations were unreliable because they contained transactions irrelevant to the scope of our audit and the populations were incomplete.

A complete and accurate universe of SF 1081 transactions is important for the DoD to achieve and sustain financial statement auditability. Because DoD Components process SF 1081 transactions to transfer funds between appropriations and make corrections to collections and disbursements, Components need to ensure that these transactions are valid, accurate, and supported by an audit trail. Otherwise, DoD Components cannot effectively reconcile their FBWT accounts, which could lead to material misstatements of FBWT balances on the Components’ financial statements. In addition, DoD Components did not implement procedures to ensure that all SF 1081 transactions were necessary or accurate. Of the 100 SF 1081 transactions in our sample, DoD Component personnel accurately processed

 

Recommendations

45 transactions, totaling $6.1 billion, to transfer funds and correct errors. While the SF 1081 transactions were necessary and accurate, the DoD needs to develop controls to prevent errors from occurring rather than relying on controls to detect the errors after they occurred.

Of the remaining 55 SF 1081 transactions, DFAS personnel processed 34 SF 1081 transactions, totaling $1.1 billion, to reclassify transactions from a temporary holding account to the proper DoD account. The transactions were unnecessary because DFAS could have recorded the transaction correctly at the time the transaction occurred.

Furthermore, Army Materiel Command personnel processed six SF 1081 transactions, totaling $105.2 million, to reallocate costs between accounts. These transactions were unnecessary because the accounting system could have processed the transactions automatically, thus eliminating the need for the SF 1081 transactions.

DFAS personnel did not provide adequate documentation to support the remaining 15 SF 1081 transactions, totaling $0.15, processed in the Defense Cash Accountability System; therefore, we could not verify whether the transactions were necessary or accurate. DFAS charged the DoD Components an hourly rate to perform accounting services, which included processing SF 1081 transactions on behalf of the Components. Therefore, unnecessary SF 1081 transactions created an administrative burden and wasted funds that the DoD Components could have put to better use.

Among other recommendations, we recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, work with DFAS and DoD Component Directors to:

  • establish and implement business rules between the systems that create, process, or store SF 1081 transactions and the Advancing Analytics tool to ensure that the DoD maintains a universe of SF 1081 transactions in a centralized database;
     
  • establish memorandums of understanding with the system owners and the Advancing Analytics owners to define roles and responsibilities; develop a plan to test SF 1081 transactions on a reoccurring basis to ensure that transactions are necessary, accurate, and supported by an audit trail;
     
  • develop metric reports to track SF 1081 transactions and a plan to reduce the number of SF 1081 transactions; and
     
  • ensure that all systems can differentiate between SF 1081 transactions and other types of transactions.

We recommend that the DFAS Director design and implement internal controls in the DFAS Transaction Interface Module and document the internal controls; and develop functional‑area training.

We recommend that the Commanding General of the Army Materiel Command work with the DFAS Director to determine why the SF 1081 population in the Operational Data Store did not reconcile with the population in the Logistics Modernization Program, and develop a corrective action plan.

We recommend that the Assistant Secretary of the Army (Financial Management and Comptroller) maintain an audit trail for systemically generated SF 1081 transactions.

We also made recommendations to the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, and the DFAS Director to improve their procedures and internal controls for processing SF 1081 transactions and to reduce the DoD’s cost for accounting services.

 

Management Comments and Our Response

The Deputy Chief Financial Officer (DCFO), responding for the Under Secretary of Defense (Comptroller)/ Chief Financial Officer, DoD, and the DFAS Director, agreed to implement corrective actions that met the intent for 10 of 23 recommendations addressed to them by FY 2025. Therefore, the recommendations are resolved but will remain open. We will close the recommendations once we verify that the DCFO has implemented the corrective actions.

The DCFO disagreed with 12 of 23 recommendations addressed to the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, and the DFAS Director. Therefore, the recommendations are unresolved. We request that the DCFO reconsider his position on the 12 recommendations and provide comments on the final report either explaining how he plans to meet the intent of the recommendations or proposing alternative corrective actions.

The DCFO agreed with the remaining recommendation and stated that he implemented the corrective action to close the recommendation. However, we do not agree that the implemented action adequately addressed the recommendation. Therefore, the recommendation is unresolved. We request that the DCFO provide comments on the final report explaining how he plans to meet the intent of the recommendation.

The Executive Deputy to the Commanding General, responding for the Commanding General of the Army Materiel Command, agreed to work with the DFAS Director to determine why the SF 1081 population in the Operational Data Store did not reconcile with the population in the Logistics Modernization Program by December 31, 2021. We will close the recommendation when we verify that the Executive Deputy has implemented corrective action in response to the analysis.

The Director for Financial Operations and Accounting Oversight, responding for the Assistant Secretary of the Army (Financial Management and Comptroller), agreed to maintain an audit trail for systemically generated SF 1081 transactions. Therefore, the recommendation is resolved but will remain open. We will close the recommendation once we verify that the Director has implemented the corrective action plans.

 

This report is a result of D2020-D000FP-0112.000.