As we reported two weeks ago, the Defense Department’s inspector general has withdrawn its clean opinion of the Marine Corps’ 2012 partial financial audit, saying new information has come to light that calls its earlier confidence into question.

It now seems fairly clear though that the problems that impacted the Marines aren’t isolated to the Marines. The underlying issues involve the Defense Finance and Accounting Service, which handles a huge array of payments and other financial transactions for all three military departments and the defense agencies.

To recap, the problems involve suspense accounts, which are supposed to serve as short-term accounting placeholders for transactions that can’t immediately be connected to any of appropriations that fund the military’s various accounts. The Treasury Department has restricted their use for most federal agencies, but DoD is still allowed to use them under a waiver because of its ongoing accounting challenges.

But a clarifying statement the IG provided last week confirms what sources had already told us they suspected: The accounts had been holding unidentified transactions for multiple years, not just the 60 days they’re supposed to last for, and that fact alone calls into question the earlier audit opinion. Perhaps more importantly, this appears to be a DFAS problem, not necessarily just a Marine Corps one, according to the IG statement.

“The [independent public accountant] identified that some transactions are being held in suspense accounts for extended periods of time because key information to determine which accounts the transactions should be posted to is lacking. DFAS indicated that suspense account balances can continue to grow from month-to-month and year-to-year as some suspended transactions remain in that status without a documented, accurate aging process.”

Although the auditability problems first came to light in the context of the Marine Corps audit, the IG’s broader worries boil down to three things:

• DFAS can’t adequately document how it’s using suspense accounts in the current budget year, or prior ones.
• DFAS doesn’t always move DoD transactions from the suspense accounts to their proper place within the 60 days required
• The volume of transactions flowing through DoD suspense accounts

Points one and three may be the most important, at least in the short run. Even if some transactions have been languishing in phantom accounts for years, auditors might not be terribly concerned if DoD can prove that they involve a miniscule amount of money, and they might just reinstate the Marine Corps audit.

If, on the other hand, the new review that’s now being conducted shows that the dollar figures are big enough to have shaken the confidence of auditors two years ago — had they known about them — this looks like another major stumbling block on the path toward 2017, the point at which DoD’s entire financial statement is supposed to join the rest of the government in being auditable.

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