DOD Problem Disbursements: Long-standing Accounting Weaknesses	 
Result in Inaccurate Records and Substantial Write-offs 	 
(02-JUN-05, GAO-05-521).					 
                                                                 
Over the years, the Department of Defense (DOD) has recorded	 
billions of dollars of disbursements and collections in suspense 
accounts because the proper appropriation accounts could not be  
identified and charged. DOD has also been unable to resolve	 
discrepancies between its and Treasury's records of checks issued
by DOD. Because documentation that would allow for resolution of 
these payment recording problems could not be found after so many
years, DOD requested and received legislative authority to write 
off certain aged suspense transactions and check payment	 
differences. The conference report (H.R. Conf. Rep. No. 107-772) 
that accompanied the legislation (Pub. L. No. 107-314) required  
GAO to review and report on DOD's use of this write-off 	 
authority.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-521 					        
    ACCNO:   A25642						        
  TITLE:     DOD Problem Disbursements: Long-standing Accounting      
Weaknesses Result in Inaccurate Records and Substantial 	 
Write-offs							 
     DATE:   06/02/2005 
  SUBJECT:   Accounting errors					 
	     Accounting procedures				 
	     Appropriation accounts				 
	     Check disbursement or control			 
	     Federal intrafund transactions			 
	     Federal records management 			 
	     Financial management				 
	     Financial records					 
	     Internal controls					 
	     Reporting requirements				 
	     Financial analysis 				 
	     Appropriated funds 				 
	     Defense appropriations				 
	     Budget obligations 				 
	     Federal funds					 

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GAO-05-521

                 United States Government Accountability Office

                     GAO Report to Congressional Committees

June 2005

DOD PROBLEM DISBURSEMENTS

Long-standing Accounting Weaknesses Result in Inaccurate Records and Substantial
                                   Write-offs

                                       a

GAO-05-521

[IMG]

June 2005

DOD PROBLEM DISBURSEMENTS

Long-standing Accounting Weaknesses Result in Inaccurate Records and Substantial
Write-offs

  What GAO Found

After decades of financial management and accounting weaknesses,
information related to aged disbursement and collection activity was so
inadequate that DOD was unable to determine the true value of the
write-offs. While DOD records show that an absolute value of $35 billion
or a net value of $629 million of suspense amounts and check payment
differences were written off, the reported amounts are not reliable. Many
of the write-offs represented transactions that had already been netted
together (i.e., positive amounts offsetting negative amounts) at lower
level accounting sites before they were recorded in the suspense accounts.
This netting or summarizing of transactions misstated the total value of
the write-offs and made it impossible for DOD to locate the support needed
to identify what appropriations may have been under-or overcharged or
determine whether individual transactions were valid. In particular, DOD
could not determine whether any of the write-off amounts, had they been
charged to the proper appropriation, would have caused an Antideficiency
Act violation.

It is important that DOD accurately and promptly charge transactions to
appropriation accounts since these accounts provide the department with
legal authority to incur and pay obligations for goods or services. DOD
has hundreds of current and closed appropriation accounts that were
authorized by law over the years. Similar to a checking account, the funds
available in DOD's appropriation accounts must be reduced or increased as
the department spends money or receives collections that it is authorized
to retain for its own use. Just as an individual who maintains multiple
checking accounts must be sure that transactions are recorded to the
proper account, DOD also must ensure that the proper appropriation account
is charged or credited for each specific disbursement and collection.

Our review found that DOD's guidance and processes developed to ensure
compliance with the legislation provided reasonable assurance that amounts
were written off properly except that check payment differences did not
have the required written certification. The write-off process did not
correct underlying records and significant DOD resources were needed to
ensure that write-off amounts were properly identified and handled. Also,
using staff resources to process old transactions resulted in fewer staff
to research and clear current problems. At December 31, 2004, DOD reports
showed that after the write-offs, more than $1.3 billion (absolute value)
of suspense amounts and $39 million of check differences remained
uncleared for more than 60 days. However, DOD has acknowledged that its
suspense reports are incomplete and inaccurate.

Until DOD complies with existing laws and enforces its own guidance for
reconciling, reporting, and resolving amounts in suspense and check
differences on a regular basis, the buildup of current balances will
likely continue, the department's appropriation accounts will remain
unreliable, and another costly write-off process may eventually be
required.

United States Government Accountability Office

Contents

     Letter                                                                 1 
                                           Results in Brief                 4 
                                              Background                    7 
                                Actual Amount of Write-offs Cannot Be      12 
                                              Calculated                   
                              Write-off Process Reasonably Effective but   14 
                                          Resource Intensive               
                              Write-offs Had Little Effect on Financial    21 
                                              Reporting                    
                             Current DOD Policies Are Not Being Enforced   23 
                                              Conclusion                   26 
                                 Recommendations for Executive Action      27 
                                  Agency Comments and Our Evaluation       27 
Appendixes                                                              
                Appendix I:       Objectives, Scope, and Methodology       30 
               Appendix II:    Comments from the Department of Defense     32 
              Appendix III:     GAO Contact and Staff Acknowledgments      35 

Table Table 1: DOD Reported Suspense Account Write-off Totals

Figures	Figure 1: DOD's Review Process 17 Figure 2: Check Payment
Write-off Process 20 Figure 3: Suspense Amounts Older Than 60 Days 25

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A

United States Government Accountability Office Washington, D.C. 20548

June 2, 2005

Congressional Committees

The Department of Defense's (DOD) inability to accurately account for and
record its disbursements and collections has been a serious,
long-standing, and much reported financial management problem. The
department's ability to improve its accounting has historically been
hindered by its reliance on fundamentally flawed financial management
systems and processes and a weak overall internal control environment.
Rather than promoting quality financial information, DOD's complex and
inefficient payment processes have all too often inhibited the proper
recording of transactions when they occur, including the prompt and proper
matching of disbursements with obligations, which is a critical funds
control measure. Having such payment recording problems means that DOD
does not know the true amount of funds that it has available to obligate
and spend in each appropriation account. As a result, DOD may not be using
its funds in accordance with legislative requirements and risks
overspending its appropriations or, conversely, forgoing purchases of
needed items. Such problems also create an environment conducive to fraud,
waste, and abuse because it is difficult, if not impossible, to monitor
and audit individual disbursement transactions.

Over the years, we and DOD auditors have reported that the department
recorded billions of dollars of disbursements and collections in suspense
accounts because the proper appropriation accounts could not be
identified. It is important that DOD accurately and promptly charge
transactions to appropriation accounts since these accounts provide the
department with legal authority to incur and pay obligations for goods or
services. The Antideficiency Act requires that no officer or employee of
DOD incur obligations or make expenditures in excess of the amounts made
available by the appropriation accounts.1 Therefore, DOD must (1) properly
record obligations against appropriation accounts and (2) track
disbursements related to such obligations and collections that should
properly be credited to the account, in order to ensure that it is in
compliance with the law. In some ways, appropriation accounts are similar
to private checking accounts. The funds available in DOD's appropriation
accounts must be reduced or increased as the department spends money or
receives collections that it is authorized to retain for its own use. Just
as an

1 31 U.S.C. S:1341.

individual who maintains multiple checking accounts must be sure that
transactions are recorded to the proper account, DOD must also ensure that
the proper appropriation account is charged for each specific disbursement
and collection.

Auditors have also reported problems with DOD's ability to resolve
differences between the summary and detail amounts reported by DOD for the
paper checks it issued as well as differences with the amounts reported by
banks for the paper checks that were cashed. DOD has long acknowledged
that many disbursements, collections, and check differences remained in
suspense for years and that the support needed to properly record them to
specific appropriations no longer existed. Therefore, DOD requested and
received legislative authority to write off certain aged suspense
transactions and aged differences between checks issued and checks paid,
hereafter referred to as check payment differences.

Section 1009 of the Bob Stump National Defense Authorization Act for
Fiscal Year 20032 (NDA Act) authorized DOD to write off long-standing
debit and credit transactions that could not be cleared from the
department's books because DOD lacked the supporting documentation
necessary to record the transactions to the correct appropriations. To be
eligible for write-off,3 suspense account transactions must have occurred
prior to March 1, 2001, and check payment differences before October 31,
1998. The Secretary of Defense was required to make a written
determination that further efforts to identify the correct appropriation
to charge are not in the best interest of the government. The legislation
specified that DOD must complete any write-offs by December 2, 2004.

The conferees, in the report that accompanied the NDA Act,4 directed that
we review and report on DOD's use of this write-off authority. As agreed
with your offices, our objectives were to determine (1) what amount DOD
wrote off using its legislative authority, (2) whether DOD had effective
procedures and controls to provide reasonable assurance that amounts were
written off in accordance with the legislation, (3) how the write-offs
affected Treasury and DOD financial reports, and (4) what aged DOD

2 Pub. L. No. 107-314, 116 Stat. 2458, 2635 (Dec. 2, 2002).

3 A write-off is a removal or clearance of suspense account transactions
or check payment differences from DOD's accounting records.

4 H.R. Conf. Rep. No. 107-772, at 686 (2002).

suspense account balances and check differences are being reported after
the write-offs have been accomplished. In addressing this last objective,
we also looked at whether DOD had procedures in place to prevent another
build-up of aged, unsupported suspense transactions and check payment
differences.

In conducting this work, we visited various Defense Finance and Accounting
Service (DFAS) centers, the Department of the Treasury, and the office of
the Secretary of Defense and gathered, analyzed, and compared information
on how write-off amounts were identified and processed. We interviewed DOD
officials to obtain a general understanding of DOD's use of suspense
accounts and compared DOD's policies and practices for the write-offs to
the specific provisions contained in the legislation and with any Treasury
requirements. We identified and tested DOD's primary controls over the
suspense account write-offs. We interviewed officials to identify the
impact of the write-offs on DOD and governmentwide suspense accounts and
appropriation balances. We also reviewed DOD management reports,
performance metrics data, and fiscal year 2004 financial statements to
identify current outstanding suspense account balances and check
differences. Because of serious data reliability deficiencies, which the
department has acknowledged, it was not our objective to-and we did
not-audit the completeness and accuracy of DOD reported amounts, including
the write-off amounts. We performed our work from June 2004 through April
2005 in accordance with generally accepted government auditing standards.
Appendix I provides details of our scope and methodology. We requested
comments from the Secretary of Defense or his designee. We received
written comments from the Principal Deputy Under Secretary of Defense
(Comptroller), which are reprinted in appendix II. We also sent the draft
report to the Secretary of the Treasury. Treasury sent us a few technical
comments, which we have incorporated in the report as appropriate.

Results in Brief	DOD reported that it wrote off an absolute value of $35
billion, or a net value of $629 million,5 of suspense account amounts6 and
check payment differences using its legislative authority. However, these
reported amounts do not represent the true value of the write-offs.
Neither of these amounts accurately represents the total value of all the
individual transactions that DOD did not correctly record to
appropriations and, therefore, left in suspense for years. Many DOD
accounting systems and processes routinely offset individual
disbursements, collections, adjustments, and correcting entries against
each other and recorded only the net amount in suspense accounts. Over
time, amounts might even have been netted more than once. Because DOD had
not developed effective tools for tracking or archiving the individual
transactions that had been netted together, there was no way for DOD to
know how much of the suspense amounts recorded prior to March 1, 2001,
represented disbursements and collections versus how much represented
adjustments and correcting entries. For example, one of the write-offs
consisted of a single $326 million amount for which DFAS Cleveland was
unable to distinguish any of the underlying individual transactions and,
therefore, had no way of knowing what amounts might have been netted or
summarized to arrive at that figure. In order to calculate absolute values
for the suspense account write-offs, DOD could only add together the
already netted disbursement, collection, adjustment, and correcting
amounts. For check payment differences, DOD reported that it wrote off
$14.5 million of net differences. As with suspense account write-offs, DOD
could not calculate the true absolute value because officials could not
identify the individual underlying checks.

5 When absolute amounts are reported, collections and adjustments are
added to disbursements. When net amounts are reported, collections and
adjustments are offset against disbursements. Reporting net amounts can
significantly understate the magnitude and impact of transaction errors.

6 We use the word "amounts" rather than "transactions" because DOD's
suspense account entries and check payment differences are often not
recorded at the transaction level. DOD's write-offs included summarized
totals of monthly suspense account activity, net monthly differences
between Treasury and DOD check issue totals, reconciling adjustments, and
other non-transaction-level information.

To manage the suspense account write-off process, DOD developed detailed
documentation and multilayered review procedures that provided reasonable
assurance of compliance with the legislation. Multiple layers of review
were performed by high-ranking DOD officials from DFAS, the military
service and defense agency financial management offices (FMO), and the DOD
Comptroller's office. In addition, a thorough review was performed by DFAS
internal review staff. DOD reviewers identified and questioned or rejected
proposed write-off amounts that did not appear to comply with the
legislation, including 18 of the original 116 packages7 submitted by DFAS
centers. One of the main reasons that the reviewers rejected packages was
because center officials had not included sufficient evidence that the
proposed write-off amounts were recorded in DOD systems prior to March 1,
2001. While reasonably effective, DOD's documentation and review
procedures were costly. Because DOD had not enforced the use of proper
accounting practices or complied with its own regulations, significant
staff and management resources were required to prepare, support, and
review the suspense write-off packages. For check payment differences, the
process was much less complicated. DFAS center officials prepared,
reviewed, and approved all of the proposed write-off amounts. All check
payment difference write-offs met the provisions of the legislation except
that the required written determination by the Secretary of Defense was
not obtained prior to the write-offs being recorded by Treasury.

DOD left suspense account transactions and check payment differences
unresolved for so long that supporting documentation was lost or
destroyed. As a result, DOD could not identify which, if any, of the aged
underlying transactions would have resulted in Antideficiency Act
violations had they been correctly charged. The write-off of aged suspense
account amounts and check payment differences did not change DOD's
reported appropriation account balances or correct any of the over-and
undercharges that the department may have made to those appropriations
over the years. The write-off process simply reclassified suspense amounts
and check payment differences from DOD accounts to general government
accounts. The most significant result of the write-off process was to
ensure

7 Each write-off package varied in content but generally included a
certification statement from the DFAS center director, an electronic file
and a narrative description of the individual amounts that made up the
package, and any additional system reports or documents that demonstrated
compliance with legislative limits regarding dates and accounts.

that current appropriation balances would not be required to cover the
aged unrecorded transactions.

The suspense account write-offs also did not affect the federal cumulative
budget deficit as reported by Treasury. Amounts in DOD suspense accounts
had already been counted against the federal deficit in the years that DOD
reported the related collection and disbursement transactions to Treasury.
For check payment differences, the surplus/deficit had not been adjusted
to recognize differences between issued check amounts as reported by DOD
and paid check amounts as reported by banks. Since the check payment
differences had not previously been reported as disbursements by DOD and
thus included in the deficit calculation, the cumulative federal deficit
was increased by DOD's write-off amount of $14.5 million.

Even after the write-offs and despite policies requiring the resolution of
suspense account transactions and check differences within 60 days, DOD
continues to have significant aged amounts outstanding. According to DOD
reports for December 2004, the absolute value of suspense account
transactions over 60 days old was $1.3 billion. However, as with DOD's
write-off estimate, this figure is unreliable because DOD officials were
unable to reconcile the reports with Treasury records to ensure that the
information included was complete and accurate. DOD guidance requires the
reconciliation of the suspense account reports, but DFAS management was
not enforcing the guidance. For check differences, Treasury reported that
the absolute value of differences aged over 60 days was $39 million as of
December 2004. DFAS officials explained that $36 million of this amount is
related to the lengthy processing times for expenditure transactions
related to overseas military deployments.

The keys to eliminating aged problem disbursements and preventing their
future occurrence include improved disbursement processes and better
management controls. In line with these goals, DOD is currently developing
and implementing a plan for improving its accounting systems that is
intended to, among other things, reduce the occurrence of disbursement
errors. However, we reported in January 20058 that DOD has made only
limited progress in its system improvements. We have made numerous
systems-related recommendations that have not yet been addressed and
systems modernization is likely many years away. Therefore, DOD cannot
afford to wait until new systems are in place but should take action now
to

8 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).

prevent the buildup of aged, unidentifiable transactions in suspense
accounts. DOD has already developed policies and procedures that if
enforced would improve basic accounting practices at DFAS centers and
field sites. Therefore, we are recommending that DOD (1) enforce its
policy that DFAS centers and field-level accounting sites perform proper
reconciliations with Treasury each month, (2) use the results of the
reconciliations to improve the quality of its suspense account reports,
and (3) enforce guidance requiring that disbursements in suspense be
resolved within 60 days or be charged to current appropriations if
research attempts are unsuccessful.

In comments on a draft of this report, DOD agreed with our recommendations
and described actions being taken to implement them.

Background	For decades, we and DOD auditors have reported that DOD has not
promptly or accurately charged its appropriation accounts for all of its
disbursements and collections. Instead, DOD has recorded billions of
dollars in suspense and other accounts that were set up to temporarily
hold disbursements and collections until the proper appropriation account
could be identified. But, rather than being a temporary solution, amounts
accumulated and remained in suspense for years because DOD did not
routinely research and correct its records. Over time, DOD lost the
ability to identify the underlying disbursement and collection
transactions in suspense because they had been summarized and netted over
and over. Also, in many cases the documentation necessary to properly
account for the transactions was lost or destroyed.

It is important that DOD charge transactions to appropriation accounts
promptly and accurately because these accounts provide the department with
legal authority to incur and pay obligations for various kinds of goods
and services. DOD has hundreds of current and closed appropriation
accounts that were authorized by law over the years. In some ways,
appropriation accounts are similar to an individual's checking account-
the funds available in DOD's appropriation accounts must be reduced or
increased as the department disburses money or receives collections that
it is authorized to retain. Just as an individual who maintains multiple
checking accounts must be sure that transactions are recorded to the
proper account, DOD also must ensure that the proper appropriation account
is charged or credited for each specific disbursement and receipt. DOD's
failure over the years to promptly and correctly charge and credit its

appropriation accounts has prevented the department and Congress from
knowing

o  whether specific appropriations were over-or underspent,

o  whether money was spent for authorized purposes, and

o 	how much money was still available for spending in individual
appropriation accounts.

Many disbursements and collections remained in DOD suspense accounts well
beyond the date that the associated spending authority expired and
canceled.9

DOD's inability to properly record its financial transactions has also
created an environment conducive to fraud, waste, and mismanagement.
Auditors have issued numerous reports over the years that identify
specific problems related to DOD's poor controls over its accounting for
disbursements and collections.10 But DOD's ability to improve its
accounting has historically been hindered by its reliance on fundamentally
flawed financial management systems and processes and a weak overall
internal control environment. Complex disbursement processes, missing
information, and errors often combine to prevent DOD from promptly and
accurately charging its appropriation accounts.

9 Generally, amounts made available to DOD by annual appropriations acts
are available to incur new obligations for 1 fiscal year unless expressly
otherwise provided by the appropriation act. Once the period of
availability for incurring new obligations expires with respect to an
appropriated amount, the amount remains available for 5 fiscal years for
the purpose of adjusting and paying obligations properly incurred prior to
the expiration of the appropriation. After 5 years in expired status, the
account is closed and remaining balances are canceled. Once an account is
closed, an obligation that is properly chargeable to the closed account is
payable from an account currently available for the same purpose up to
1percent.

10 See GAO, Canceled DOD Appropriations: $615 Million of Illegal or
Otherwise Improper Adjustments, GAO-01-697 (Washington, D.C.: July 26,
2001); DOD Contract Payments: Management Action Needed to Reduce Billions
in Adjustments to Contract Payment Records, GAO-03-727 (Washington, D.C.:
Aug. 8, 2003); Military Pay: Army National Guard Personnel Mobilized to
Active Duty Experienced Significant Pay Problems, GAO-04-89 (Washington,
D.C.: Nov. 13, 2003). Also, see Department of Defense, Office of Inspector
General, Independent Auditor's Report on the Fiscal Year 2004 DOD
Agency-wide Financial Statements, Report No. D-2005-017 (Washington, D.C.:
Nov. 12, 2004).

Disbursement Problems	In general, DOD's disbursement process begins with
military service or defense agency personnel obligating11 funds in
specific appropriations for the procurement of various goods and services.
Once the goods or services are received, DFAS personnel pay for them using
electronic funds transfers (EFT), manual checks, or interagency transfers.
Although the bill for goods and services received should be matched to the
relevant obligation to ensure that funds are available for payment before
any disbursement is made, DFAS, military service, or defense agency
personnel often do not identify the correct appropriation and perform the
match until after making the payment. If the appropriation and obligation
then cannot be identified based on the available information, the
disbursement is recorded in a suspense account until research is
performed, additional information is received, or any errors are
corrected. If DFAS staff cannot determine the correct appropriation
account to charge, DOD policies allow DFAS staff to request approval for
charging current funds.

Several military services and DOD agencies can be involved in a single
disbursement, and each has differing financial policies, processes, and
nonstandard nonintegrated systems. As a result, millions of disbursement
transactions must be keyed and rekeyed into the vast number of systems
involved in any given DOD business process. Also, DOD disbursements must
be recorded using an account coding structure that can exceed 75 digits,
and this coding structure often differs by military service in terms of
the type, quantity, and format of data required. The manual entry and
reentry of the account code alone often results in errors and missing
information about transactions. Automated system edit checks identify
transaction records with invalid or missing account coding information,
such as the appropriation account number or the chargeable entity, and
refuse to process the faulty records. DFAS then records the problem
disbursements12 in suspense accounts until the individual transactions can
be corrected and reprocessed by the accounting systems.

11 Obligations include amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payment during the same or a future period.

12 For this report, we define problem disbursements as transactions that
contain errors, missing information, or other problems that prevent DOD
from properly accounting for them.

Other reasons for disbursement transactions to be recorded to suspense
accounts include

o  no valid obligation data identified,

o 	DOD disbursement records and Treasury disbursement records differ, and

o  unsupported charges between DOD services and defense agencies.

Collection Problems	DOD uses suspense accounts to hold several different
kinds of collections until they can be properly credited to the relevant
appropriation account or organization. For example, contractors often
return overpayments they received for the goods and services they provided
without including sufficient information for DOD to identify which account
or which service location should be credited for the reimbursement. DOD
also routinely accumulates estimated payroll tax withholding amounts in
suspense accounts until the payments must be transferred to the Internal
Revenue Service. If the estimates are higher than actual payments, amounts
can be left in suspense indefinitely. Similarly, DOD records user fees
collected for various purposes, such as grazing rights and forestry
products, to suspense accounts until the accumulated funds are credited to
the correct appropriation account or organization. DOD has recognized that
using suspense accounts for accumulating withholding taxes and user fees
is not appropriate and exacerbates its problems with these accounts but
has stated that system and other problems prevent establishment of proper
holding accounts for these collections.

Check Differences	Check differences refer to differences between the
summary and detail amounts reported by DOD for the paper checks it issued
as well as differences with the amounts reported by banks for the paper
checks that were cashed. Monthly, Treasury compares the DOD summary and
detail amounts and bank discrepancy reports, identifies check issue and
payment differences, and sends a report to DOD with the cumulative
difference amount. While the check issue and payment differences could
occur for various reasons, some of the common reasons are

o 	check issue records excluded from DOD detail reports but included in
DOD summary reports to Treasury,

o  erroneous check amount reported by DOD,

o  check paid by the bank but not reported by DOD,

o  voided check erroneously reported by DOD as check issued, and

o 	check dated and paid by the bank in a previous month but DOD reported
its issuance in the current month.

DOD does not record these differences in a suspense account or any other
holding account. However, Treasury continues to track and report aged
check differences monthly to DOD until they are cleared.

Legislative Requirements	DOD recognized that it would never be able to
correctly account for billions of dollars of aged, unidentifiable, and
unsupportable amounts recorded in its suspense accounts or reported as
check payment differences. Therefore, DOD management requested and
received statutory authority to write off these problem transactions. The
NDA Act authorized DOD to cancel long-standing debit and credit
transactions that could not be cleared from the department's books because
DOD lacked the supporting documentation necessary to record the
transactions to the correct appropriations. The legislation specified that
the write-offs

o 	include only suspense account disbursement and collection transactions
that occurred prior to March 1, 2001, and that were recorded in suspense
accounts F3875, F3880, or F3885;13

o 	include only check payment differences identified by Treasury for
checks issued prior to October 31, 1998;

o 	be supported by a written determination from the Secretary of Defense
that the documentation necessary for correct recording of the transactions
could not be located and that further research attempts were not in the
best interest of the government;

13 The legislation defined F3875 as a general Budget Clearing Account,
F3880 as the Unavailable Check Cancellations and Overpayments Account, and
F3885 as the Undistributed Intergovernmental Payments Account.

o 	be processed within 30 days of the Secretary's written determination;
and

o  be accomplished by December 2, 2004.

  Actual Amount of Write-offs Cannot Be Calculated

DOD officials estimated the value of the suspense account and check
payment write-offs to be an absolute amount of nearly $35 billion, or a
net amount of $629 million. However, neither of these amounts accurately
represented the total value of all the individual transactions that DOD
could not correctly record to appropriations and, therefore, left in
suspense for years.

Many DOD accounting systems and processes routinely offset individual
disbursements, collections, adjustments, and correcting entries against
each other and record only the net amount in suspense accounts. Over time,
amounts might even have been netted more than once. Because DOD had not
developed effective tools for tracking or archiving the individual
transactions that had been netted together, there was no way for DOD to
know how much of the suspense amounts recorded prior to March 1, 2001,
represented disbursements and collections versus how much represented
adjustments and correcting entries. In order to calculate absolute values
for the suspense account write-offs, DOD could only add together the
already netted disbursement, collection, adjustment, and correcting
amounts. Table 1 shows the net and absolute values of the suspense
write-offs as calculated by DOD and illustrates how the use of net values
can present an entirely different picture than the use of absolute values.
While suspense account write-offs related to Army appropriations
represented nearly the total of the calculated absolute values, they
represented less than 30 percent of the calculated net values-far less
than the net write-off amounts related to Navy appropriations.

            Table 1: DOD Reported Suspense Account Write-off Totals

Dollars in millions

                                           Percentage            
                                             of total              Percentage 
                                  Absolute   absolute            of total net 
          DFAS center   Customer    values     values Net values       values 
            Cleveland       Navy    $724.5      2.08%     $489.1       79.55% 
               Denver  Air Force      45.3      0.13%      (5.5)       -0.89% 
         Indianapolis       Army  33,963.0     97.45%      180.8       29.41% 
             Columbus    Defense                                 
                        agencies       9.1      0.03%        5.7        0.92% 
         Indianapolis    Defense                                 
                        agencies     111.1      0.32%     (55.5)       -9.02% 
          Kansas City     Marine                                 
                           Corps       0.3      0.00%        0.2        0.03% 
                Total            $34,853.3    100.00%     $614.8      100.00% 

Source: GAO analysis of DOD data.

Also, amounts that have been netted and that cannot be traced back to the
underlying transactions cannot be audited. For the nearly $34 billion of
suspense write-offs related to Army appropriations, DFAS had almost no
transaction level information that could differentiate between

o 	individual disbursement and collection transactions that related to
specific Army appropriations;

o 	net reconciling adjustments that resulted from comparing monthly totals
for Army records with Treasury records;

o 	net cumulative monthly charges from other military services, defense
agencies, or federal agencies for goods or services provided to the Army;

o 	summarized suspense account activity reported by Army field accounting
sites; and

o 	correcting entries from center or field staff meant to clear amounts
from suspense.

According to DFAS officials, the system used to account for Army
appropriations had accumulated about 30 years worth of individual, netted,
summarized, and correcting entries that could not be identified and
therefore were eligible for write-off.

Unlike the accounting system used for Army, the systems used by DFAS
centers to account for the other military services and the defense
agencies did not accumulate billions of dollars in correcting entries that
were meant to clear amounts from suspense. However, they did include
significant amounts of non-transaction-level information, such as
reconciling adjustments, net charges, and summarized account activity. For
example, one of the write-offs processed for the Navy consisted of a
single $326 million amount for which DFAS Cleveland was unable to
distinguish any of the underlying individual transactions. As a result,
DFAS Cleveland had no way of knowing what amounts might have been netted
or summarized in order to arrive at the $326 million figure.

DOD also wrote off $14.5 million of differences between what DOD reported
as its check payment amounts and what Treasury reported as check amounts
cleared through the banking system. Treasury had accumulated these check
payment differences and reported them to DOD monthly on its Comparison of
Checks Issued reports. Since the Treasury reports contained only the
cumulative net check payment differences and DOD could not identify all of
the underlying checks, as with suspense account write-offs, it was not
possible to calculate an absolute value for all of the individual check
errors. All of the monthly summary totals reported by Treasury for paper
checks cashed during the period covered by the legislation were higher
than the totals reported by DOD for paper checks issued during that
period.

  Write-off Process Reasonably Effective but Resource Intensive

To manage the suspense account write-off process, DOD developed detailed
guidance and review procedures that provided reasonable assurance, given
the limitations in the quality of the underlying data, that the department
complied with legislative requirements. Before suspense amounts were
approved for write-off, multiple layers of DOD officials and internal
auditors reviewed the packages submitted by the five DFAS centers. The
write-off packages varied in content but generally included a
certification statement from the DFAS center director, an electronic file
and a narrative description of the individual amounts that made up the
package, and any additional system reports or documents that demonstrated
compliance with legislative limits regarding dates and

accounts. For check payment differences, DOD's management process was less
complicated-written instructions on how to submit the write-off amounts to
Treasury were prepared, but there were no reviews other than those done at
the DFAS centers. The check differences write-offs also met the
legislative requirements except that the Secretary of Defense did not make
a written determination regarding the necessity for the write-offs. The
overall write-off process was not without cost to DOD, however; DOD's lack
of enforcement of proper accounting procedures and its own regulations
meant that significant management and staff resources were required to
prepare, support, and review the packages submitted for write-off.

    Suspense Account Write-off Guidance and Review Processes

DOD developed guidance for the preparation of the write-off packages and
implemented a series of reviews by high-ranking DOD officials. The
guidance identified different types of transactions in suspense and
specified the documentation requirements for each. For example, nearly a
quarter of the write-offs represented disbursement transactions for which
vouchers existed, but the vouchers did not contain sufficient information
for the transactions to be posted to valid lines of accounting. For this
type, the DFAS center director had to certify that steps were taken to
obtain the missing information to clear the transactions and that further
action was not warranted. For more than half of the write-off amounts, the
underlying transactions could not be identified and vouchers and
supporting documentation did not exist. Guidance included requirements
that this write-off type be accompanied by written narrative from the DFAS
center that described in detail the reason why amounts could not be
cleared through normal processing.

DFAS centers identified amounts to be written off in various ways
depending upon the systems and processes in place at each center. Using
the guidance discussed above, center officials then separated the amounts
into transaction types, prepared the required supporting documentation or
narratives, and grouped the amounts into "packages" to be sent forward for
review.

DOD's multilayered review process served as the primary control for
providing reasonable assurance that the suspense account write-offs met
legislative requirements. As illustrated in figure 1, the reviews were
performed sequentially by officials from the DFAS centers, the military
service and defense agency FMOs, DFAS Arlington14 and DFAS internal review
and by the DOD Comptroller, the Secretary of Defense's designee. As each
level of review was completed, the reviewing official was required to sign
a certification statement or memorandum. The certification was a DOD
requirement to demonstrate that reviews had been performed by various
management officials and all agreed that the proposed write-off amounts
met the legislative requirements.

14 According to DFAS officials, DFAS Arlington is responsible for
overseeing and coordinating many of the accounting functions performed at
the other five DFAS centers, including overseeing the write-off of
suspense account transactions and check payment differences.

DOD's review process was effective in identifying write-off amounts that
did not appear to meet legislative requirements. DOD reviewers told us-
and documentary evidence supports their claims-that additional information
was requested from DFAS centers to support various questioned amounts or
that packages with unsupported amounts were rejected and returned to the
centers. For example, a $326 million package, consisting of a single
amount supposedly representing transactions dating back to May 1992, was
questioned by DFAS Arlington, DFAS internal review, and the Comptroller's
office. Because no supporting detailed transactions were identified and
because the package did not clearly demonstrate that the amount had been
recorded prior to March 1, 2001, the package was flagged. Reviewers
contacted the originating DFAS center and requested additional
documentation and explanation. The center provided the reviewers with
detailed analyses demonstrating that the proposed write-off amounts had to
represent transactions transferred into the center's suspense accounts
when the center was established in May 1992. Based on the additional
evidence, the reviewers concluded that the proposed write-off met
legislative requirements and approved the package. DOD reviewers rejected
numerous proposed write-off amounts that did not comply with the
legislation, including 18 of the original 116 packages submitted by the
DFAS centers, often because they did not clearly support a transaction
date prior to March 1, 2001.

To ensure suspense write-off amounts were recorded within 30 days of the
determination by the Secretary of Defense's designee15 and before the
legislative deadline of December 2, 2004, DFAS center officials reviewed
accounting system records and requested additional information from their
staff. The Columbus, Denver, and Indianapolis DFAS centers provided us
with information that demonstrated the time frames were met with a few
exceptions.16 DFAS Cleveland and DFAS Kansas City officials told us that
they met the time frames for write-offs but could not provide any
supporting documentation. Officials at these centers explained that as
soon as the Comptroller's office certified each write-off package, center
staff sent data files to system technicians specifying the information to
be deleted from suspense account records. According to officials, once the

15 The Secretary of Defense delegated certification responsibility to the
DOD Comptroller to make the required written determinations.

16 Three of the 53 write-off amounts we reviewed were recorded 42 days,
rather than 30 days, after the certification. Also, one write-off amount
was approved on December 2, 2004, and recorded in center accounting
systems on December 6, 2004.

technicians had deleted the records, they sent e-mails back to the
requesting center officials confirming that they had deleted the
information within the required time frames. However, center officials
were unable to provide us with copies of these e-mails or the deleted
files.

    Check Payment Differences Write-off Process

Although DOD did not establish a multilayered review process for check
payment differences, the department did comply with legislative
requirements for the write-offs with one exception-the Secretary of
Defense did not provide the required written determination prior to
Treasury's recording of the write-off amounts.

As specified in the legislation, DFAS centers used Treasury reports (the
Treasury Comparison of Checks Issued reports) to identify check payment
differences dated prior to October 31, 1998. DFAS staff reviewed available
documents to determine that sufficient information was no longer available
to identify the proper appropriation account. Even for very large
differences, DOD's accounting records provided no information to help
explain the difference in checks issued and paid or to identify what
records needed correction. For example, the Treasury report included a
single difference of almost $6 million (over 40 percent of the total
write-off amount) that represented a check issued on October 31, 1991, by
DFAS Columbus payable to the U.S. Treasury. DFAS Columbus was unable to
locate any documentation to support the reason for the check payment, the
amount of the check, or the associated appropriation.

DOD established a much abbreviated process for check payment differences
write-offs. Rather than having check payment write-offs reviewed by the
Comptroller's office, DFAS Arlington, DFAS internal review, and military
service and defense agency FMOs prior to submission to Treasury, DOD
relied solely on DFAS center management to ensure compliance with the
legislation. Our review indicated that center officials adequately
documented that all amounts written off were dated prior to October 31,
1998, and were reported on the Treasury Comparison of Checks Issued
report. However, DOD did not comply with the requirement in the
legislation that prior to submission to Treasury, the Secretary of Defense
make a written determination that DOD officials have attempted without
success to locate the documentation necessary to identify which
appropriation should be charged with the amount of the check and that
further efforts to do so are not in the best interests of the United
States. In October 2004, after DOD had submitted all of the check payment
difference write-offs to Treasury and Treasury had recorded them,

their work in order to prevent a backlog related to current suspense
account balances, they could not keep up with their daily activities and
current suspense account balances increased over the period. Also, several
DFAS center officials told us that for much of 2003, DFAS Arlington, the
Comptroller's office, and Treasury officials tried to reach an agreement
on exactly how to process the write-off amounts. Because the official
guidance was not issued by DFAS Arlington until January 2004, there was a
significant delay in preparing the write-off packages. Although DOD had
hoped to finish the write-offs by the end of fiscal year 2004, only 24
packages had been approved by that time. DOD had to assign additional
resources to enable the remaining 71 packages to be reviewed, approved,
and processed by December 2, 2004, the legislative cutoff date.

  Write-offs Had Little Effect on Financial Reporting

Writing off aged suspense account amounts and check payment differences
did not change DOD's reported appropriation account balances. Nor did the
write-offs correct any of the over-and undercharges that may have been
made to those appropriations over the years as a result of not promptly
resolving suspense account transactions and check payment differences. DOD
will never identify which, if any, of the aged underlying transactions in
suspense would have resulted in Antideficiency Act violations had they
been correctly charged. The suspense account write-offs also did not
affect the reported federal cumulative budget deficit; however, the
write-off of check payment differences increased the deficit by $14.5
million. The most significant result of the write-off process was to
guarantee that current appropriation balances would not be required to
cover the aged unrecorded transactions.

Appropriation Account The legislated write-off of aged suspense account
amounts and check

Reports	payment differences did not change DOD's current or past
appropriation account balances. Because amounts in suspense and check
payment differences had never been recorded to the proper appropriation
accounts, DOD had over-or undercharged these appropriations. To accomplish
the write-off, Treasury reclassified the aged suspense amounts that met
legislative requirements from DOD-specific suspense accounts to

non-agency-specific general government suspense accounts.17 The check
payment differences, which had never been recorded in any DOD accounts,
were simply "sent" to Treasury for recording in that same general
government suspense account. Although it was unlikely that DOD would ever
identify individual aged transactions and the support for their proper
recording, the write-off process was the final step in ensuring that the
overand undercharged DOD appropriation accounts will never be corrected.

While the write-off authority did not change or correct any DOD
appropriation balances, it did mean that DOD's current appropriations
would not be used to pay for the uncharged disbursements. Generally,
authorized disbursements may be made only to pay valid obligations
properly chargeable to an appropriation account. If the correct
appropriation and obligation cannot be identified and charged with a
disbursement, DOD regulations provide that the disbursement be treated as
an obligation that is chargeable against current appropriations. However,
using current funding authority to cover past disbursements reduces the
funds available to purchase goods and services needed to support current
operations.

Federal Deficit Reports	We found that the write-off of suspense amounts
had no effect on the cumulative federal deficit. The suspense account
transactions had already been charged to the federal surplus or deficit in
the specific year that DOD reported the related collection and
disbursement transactions to Treasury. The reclassification of suspense
amounts from DOD accounts to general government suspense accounts did not
affect Treasury's previous recording of the underlying collection and
disbursement transactions to the cumulative deficit.

With regard to the write-off of check payment differences, according to
Treasury, the surplus/deficit had not been adjusted to recognize
differences between issued check amounts as reported by DOD and paid check
amounts as reported by banks. Since the check payment differences had not
previously been reported as disbursements by DOD and thus included in the
deficit calculation, the cumulative federal deficit was increased by DOD's
write-off amount of $14.5 million.

17 While a non-agency-specific general government suspense account was
used, it was only used as a means of closing the write-off amounts against
the cumulative federal deficit. There is no remaining balance in these
general government suspense accounts.

  Current DOD Policies Are Not Being Enforced

We found that, even though DOD policies require that most suspense account
transactions and check differences be resolved within 60 days, DFAS
centers were reporting an absolute value of $1.3 billion in aged suspense
account amounts and an absolute value of $39 million in aged check
differences as of December 31, 2004. DFAS knows that the reported suspense
amounts are not complete and accurate because

o 	DFAS center officials are still not performing the required
reconciliations of their appropriation accounts, including suspense
accounts, with Treasury records;

o 	some field sites are not reporting any suspense activity to the centers
or are reporting inaccurate suspense account information; and

o 	some of the reported amounts for suspense and check differences still
reflect netted and summarized underlying transaction information.

Given these deficiencies with suspense account reporting, the actual value
of aged problem transactions could be significantly understated.

    Suspense Account Reconciliations

DFAS centers are not performing effective reconciliations of their
appropriation activity, including suspense account activity, even though
DOD policies have long required them. Similar to checkbook
reconciliations, DFAS centers need to compare their records of monthly
activity to Treasury's records and then promptly research any differences
in order to identify and correct erroneous or missing transactions. When
we reviewed the DFAS centers' December 31, 2004, reconciliations of
suspense account activity, we found that all of the centers had
unexplained differences between their records and Treasury
records-differences for which they could not identify transaction-level
information. DFAS excluded transactions related to the unexplained
differences from its reports on suspense account activity. In addition, we
noted that amounts recorded in DFAS suspense accounts often reflected
transactions that had been netted or summarized at a field site level. As
illustrated by the recent write-off activity, netting transactions often
obscures the underlying transactions, makes it more difficult for the
centers to identify and correct errors and omissions, and understates the
magnitude of suspense account problems.

Suspense Account Reports	In 1999, DFAS Arlington issued guidance that
instructed each of its centers to develop their own procedures for
preparing a monthly suspense account report (SAR) that would show the net
value, absolute value, and aging of amounts charged to each suspense
account. Because the systems and processes are not uniform across the
centers, they were instructed to develop their own procedures for
obtaining the necessary information from their systems, reconcile their
suspense account records to Treasury records to help ensure accuracy and
completeness, and explain any improper charges or overaged amounts.18

However, as discussed previously, we found that the centers were not
effectively reconciling their suspense accounts and, therefore, could not
demonstrate that their SARs were complete and accurate. In fact, center
officials told us that some field sites did not report any of their
suspense information or they reported inaccurate information in the SAR;
however, those officials could not quantify the missing information or
inaccuracies. As discussed above, the SARs also did not include
transactions related to the unreconciled differences between center and
Treasury records, including residual balances from prior to March 2001
that DOD was unable to write off. Figure 3 shows the aging of the $1.3
billion of suspense amounts reported on the December 31, 2004, SAR.

18 The suspense account aging categories include 0-30 days; 31-60 days;
61-90 days; 91 to 180 days; 181 days to 1 year; over 1 year to October 1,
1997; and older than October 1, 1997.

Figure 3: Suspense Amounts Older Than 60 Days $1.3 billion -Total

$40.0 million -In suspense 61-90 days

$74.0 million -In suspense 91 days - 1 year

$1.2 billion -In suspense over 1 year

Source: GAO analysis of DOD data.

We also found that DFAS Arlington officials had not performed any
comprehensive reviews to determine whether the centers were compiling the
SARs in accordance with their own guidance. DFAS Arlington officials and
other center officials told us that it would be an overwhelming task to
review the information submitted by the hundreds of DFAS field sites
responsible for compiling the SARs. Although not required, some centers
have documented the processes they are following to gather suspense
account information and prepare the SARs; however, DFAS Arlington
officials have not reviewed the written documentation. Arlington officials
also did not know whether the centers were using the same criteria for
reconciling and calculating absolute values.

    Required Recording Procedures

As previously stated, as of December 31, 2004, DFAS reports identified
$1.3 billion absolute value of aged suspense account amounts and Treasury
reports identified $39 million in absolute value of unresolved check
differences. These aged problem transactions persist despite the DOD
Financial Management Regulation (FMR) that requires staff to identify and
charge the correct appropriation account within 60 days.19 The FMR allows
DFAS to charge current appropriations for suspense account transactions
and problem disbursements that cannot be resolved through research if
approved by the fund holder, military service assistant secretaries, or
defense agency Comptroller.

For suspense account transactions, DFAS officials stated that the primary
reasons for not consistently following the FMR are (1) staff have been too
busy processing the write-off amounts and have not had the resources to
clear more recent suspense transactions promptly and (2) military service
and defense agency officials are unwilling to accept charges to current
appropriation accounts without DFAS supplying them with sufficient proof
that the charges actually belong to them.

For the $39 million of unresolved check differences, DFAS officials stated
that $36 million is related to transactions initiated by Army staff
overseas. DFAS officials claimed that with the exception of the $36
million, they have been able to resolve almost all check differences
within 60 days due to increased oversight and staff efforts,
implementation of new controls over the check reconciliation process, and
the increasing use of EFTs rather than checks.

Conclusion	Overall, the write-off process enabled DOD to clear aged,
unsupported amounts from its accounting systems and records and ensured
that current appropriations would not be required to cover these amounts.
However, the write-off did not correct appropriation account records or
fix any of

19 DOD revised the FMR in 2001 to allow DFAS to charge current
appropriations for aged problem disbursements, including those recorded in
suspense accounts, if staff are unable to locate sufficient supporting
documents. The FMR requires that suspense account transactions be resolved
within 60 days except for Interfund suspense, which must be resolved
within 180 days. DOD also revised the FMR and issued it as a draft in July
2003- the final version was issued in January 2005-to require staff to
research each check difference and clear it within 60 days from the check
issue date, a requirement that was excluded from the FMR previously.

DOD's deficient systems or accounting procedures. Therefore, DOD needs to
continue its focus on the keys to eliminating aged problem disbursements
and preventing their future occurrence, including improved disbursement
processes and better management controls. Until DOD enforces its own
guidance for reconciling and resolving its suspense accounts and check
differences regularly, balances will likely grow. Without adequate tools
for tracking and archiving the individual transactions charged to
suspense, DOD will continue to have difficulty researching and determining
proper accounting treatment. DOD's inability over the years to promptly
and correctly charge its appropriation accounts has prevented the
department and Congress from knowing whether specific appropriation
accounts were overspent or underspent and from identifying any potential
Antideficiency Act violations. Unless DOD complies with existing laws and
its own regulations, its appropriation accounts will remain unreliable and
another costly write-off process may eventually be required.

  Recommendations for Executive Action

To prevent the future buildup of aged suspense accounts and check payment
differences, we recommend that the Secretary of Defense take the following
three actions:

o 	enforce DOD's policy that DFAS centers and field-level accounting sites
perform proper reconciliations of their records with Treasury records each
month,

o 	use the results of the monthly reconciliations to improve the quality
of DFAS suspense account reports, and

o 	enforce guidance requiring that disbursements in suspense be resolved
within 60 days or be charged to current appropriations if research
attempts are unsuccessful.

Agency Comments and 	In written comments on a draft of the report, the
Principal Deputy Under Secretary of Defense (Comptroller) stated that the
department concurred

Our Evaluation	with our recommendations and described actions that are
being taken to address them. DOD's comments are reprinted in appendix II.

We are sending copies of this report to other interested congressional
committees; the Secretary of the Treasury; the Secretary of Defense; the
Under Secretary of Defense (Comptroller); the Director, Defense Finance
and Accounting Service; and the Assistant Secretaries for Financial
Management (Comptroller) for the Army, the Navy, and the Air Force.
Copies will be made available to others upon request. In addition, this
report is available at no charge on the GAO Web site at
http://www.gao.gov.

Please contact me at (202) 512-9505 or [email protected] if you or your staffs
have any questions about this report. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Other GAO contacts and key contributors to this report are
listed in appendix III.

Gregory D. Kutz
Managing Director
Forensic Audits and Special Investigations

List of Committees

The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate

The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye Ranking
Minority Member Subcommittee on Defense Committee on Appropriations United
States Senate

The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representatives

The Honorable C. W. Bill Young Chairman The Honorable John P. Murtha
Ranking Minority Member Subcommittee on Defense Committee on
Appropriations House of Representatives

Appendix I

                       Objectives, Scope, and Methodology

As required by the conference report (H.R. Conf. Rep. No. 107-772) that
accompanied the Bob Stump National Defense Authorization Act for Fiscal
Year 2003 (Pub. L. No. 107-314 S: 1009, 116 Stat. 2458, 2635), we
undertook a review of the Department of Defense's (DOD) use of authority
to write off certain aged suspense account transactions and check payment
differences. Our objectives were to determine (1) what amount DOD wrote
off using the legislative authority, (2) whether DOD had effective
procedures and controls to provide reasonable assurance that amounts were
written off in accordance with the legislation, (3) how the write-offs
affected Treasury and DOD financial reports, and (4) what aged DOD
suspense account balances and check payment differences remain after the
write-offs have been accomplished.

In conducting this work, we identified prior audit reports and other
background information to determine the events that led DOD to request
write-off authority. We visited DOD Comptroller offices, visited DFAS
centers in Arlington, Indianapolis, Cleveland, and Denver, and contacted
officials in DFAS Columbus and Kansas City to perform the following:

o 	Interviewed Comptroller and DFAS officials to obtain a general
understanding of DOD's use of suspense accounts and the department's
request for write-off authority.

o 	Gathered, analyzed, and compared information on how write-off amounts
were identified and processed.

o 	Compared DOD's policies and practices for the write-offs (including
those policies and practices in effect at the relevant DFAS centers) to
the specific provisions contained in the legislation and with any Treasury
requirements.

o 	Identified DOD's primary controls over the suspense account
write-offs-a series of reviews performed by DOD/DFAS management and DFAS
internal review-and tested the effectiveness of these controls by
reviewing all certification statements resulting from the control
procedures, comparing amounts reviewed to amounts written off, inquiring
about and reviewing examples of rejected write-off amounts, and reviewing
all of the support available for selected individual write-off amounts.

Appendix I
Objectives, Scope, and Methodology

o 	Compared all check payment difference write-offs to Treasury reports to
ensure the amounts were in compliance with the legislative requirements.

To determine the impact of the suspense account and check payment
write-offs on DOD's budgetary and financial reports, we determined which
specific DOD/Treasury accounts were affected by the write-off entries. We
asked DOD and Treasury officials how the write-off entries affected DOD
budgetary accounts and the federal deficit. We also reviewed financial
reports, journal vouchers, and other documents provided by DOD and
Treasury.

To identify the current outstanding suspense account balances and check
payment differences, we reviewed amounts disclosed in DOD's fiscal year
2004 financial statements and obtained relevant performance metrics as of
September 30, 2004, and December 31, 2004. We identified any remaining
aged suspense account or check differences being monitored by DOD
management. To determine whether DOD reconciles its records to Treasury,
we requested proof of DOD's most current suspense account reconciliations
and check difference reports.

We performed our work from June 2004 through April 2005. Because of
serious data reliability deficiencies, which the department has
acknowledged, it was not our objective to-and we did not-verify the
completeness and accuracy of DOD reported amounts, including current
suspense account report amounts. We requested comments from the Secretary
of Defense or his designee. We received written comments from the
Principal Deputy Under Secretary of Defense (Comptroller), which are
reprinted in appendix II. We also sent the draft report to the Secretary
of the Treasury. Treasury sent us a few technical comments, which we have
incorporated in the report as appropriate. We performed our work in
accordance with generally accepted government auditing standards.

                                  Appendix II

                    Comments from the Department of Defense

Appendix II
Comments from the Department of Defense

Appendix II
Comments from the Department of Defense

Appendix III

                     GAO Contact and Staff Acknowledgments

GAO Contact Gregory D. Kutz (202) 512-9505

Acknowledgments	Staff making key contributions to this report were Shawkat
Ahmed, Rathi Bose, Molly Boyle, Sharon Byrd, Rich Cambosos, Francine
Delvecchio, Gloria Hernandez-Saunders, Wilfred Holloway, Jason Kelly, and
Carolyn Voltz.

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