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entitled 'Payment Processing: Documentation Procedures For Electronic 
Billing and Payment Under the Families First Personal Property Program' 
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March 31, 2005:

Brigadier General Charles W. Fletcher, Jr.,
Commanding General:
Military Surface Deployment and Distribution Command:
Department of the Army:
200 Stovall Street:
Alexandria, VA. 22332-5000:

Subject: Payment Processing: Documentation Procedures For Electronic 
Billing and Payment Under the Families First Personal Property Program: 

Dear General Fletcher:

This letter responds to your request for our views on whether certain 
payment procedures included in the Defense Department's (DOD) proposed 
Families First Personal Property Program[Footnote 1] conform with 
relevant criteria in GAO's Policy and Procedures Manual for Guidance of 
Federal Agencies. As you know, Families First is a DOD initiative to 
reengineer its processes for transporting household goods and personal 
property for its service members and civilians. Your request is in 
response to a Defense Finance and Accounting Service (DFAS) 
recommendation that DOD seek our views specifically on whether the 
proposed procedures for electronic billing and payment meet the 
supporting documentation requirements in Title VII of GAO's Policy and 
Procedures Manual for Guidance of Federal Agencies.

While the General Services Administration (GSA) is responsible for 
issuing federal regulations for transportation, including moves of 
household goods and personal property[Footnote 2] as well as agency 
prepayment and postpayment audit requirements for transportation 
payments, we are responsible for issuing fiscal guidance based on 
authorities in the U.S. Code.[Footnote 3] We considered DOD's proposed 
process of electronic billing and payment in light of our requirements 
established in Title VII for disbursements and related documentation. 
Our views are based on our understanding of DOD's planned 
implementation of the Families First program on a conceptual basis. We 
did not perform tests of your current or proposed system or validate 
information provided to us.

In order to respond to DOD's request, we contacted your staff to gain 
an understanding of Families First. We considered additional 
information about the proposal provided by your staff. We analyzed 
sections of the law pertaining to this request. We interviewed GSA 
staff concerning their audit responsibilities in the transportation 
area, including for Families First.

As explained to us, Families First does not fully meet Title VII 
documentation requirements for federal payments because the 
documentation that DOD is to use as evidence of receipt of 
accessorial[Footnote 4] services does not provide adequate assurances 
about the propriety of these services. This is because the 
documentation is prepared by the transportation service provider (TSP) 
without independent corroboration upon preparation, and then the 
documentation is retained by the TSP. These documentation procedures 
increase the potential risk of improper transportation payments.

Management must determine what changes to the documentation procedures 
or what additional controls will mitigate these risks so that the 
documentation requirements of Title VII are fully met. The objective of 
such controls should be to ensure that invoiced accessorial services 
are allowed, necessary, and were indeed rendered. Automated procedures 
do not reduce the need for effective internal control nor relieve a 
certifying/disbursing officer of his or her responsibility. These 
officers must have sufficient knowledge of the automated systems in 
order to carry out their responsibilities, and must make sure they can 
rely on the quality of the automated systems to ensure that 
transportation invoices authorized for payment are legal, proper, and 
correct.

Background:

The Surface Deployment and Distribution Command (SDDC) is DOD's Traffic 
Manager for the Household Goods and Personal Property Program. 
SDDC[Footnote 5] provides an interface between DOD's local shipping 
offices and the commercial shipping industry. SDDC is developing the 
Families First program under DOD's business process reengineering 
efforts. SDDC staff estimate that Families First will process over 
500,000 shipments at a cost of almost $2 billion annually. The goal for 
Phase I of Families First is to implement a new electronic bill payment 
process in a Web-based environment.

Our Title VII procedures are designed to complement existing federal 
accounting, internal control, and systems standards.[Footnote 6] Title 
VII does not provide specific guidance on how to process financial 
transactions involving travel and transportation. Those functions, 
originally covered under Title V of GAO's Policy and Procedures Manual 
for Guidance of Federal Agencies, were transferred to the Executive 
branch on June 30, 1996.[Footnote 7] However, Title VII does provide 
general guidance on disbursements, including necessary steps to help 
ensure disbursement transactions can be verified as to their legality, 
propriety, and correctness and to spell out the responsibilities of 
accountable officials.

Section 3726 of title 31, U.S. Code requires each agency that receives 
a bill from a carrier or freight forwarder for transporting property 
for the U.S. government to verify the bill's correctness using a 
prepayment audit[Footnote 8] in accordance with the requirements 
prescribed by GSA.[Footnote 9] The official certifying a transportation 
voucher is responsible for computation of payment amounts and for the 
legality of payments.[Footnote 10] The certifying official is also 
responsible for verifying transportation rates, freight classification, 
and other information provided on a government bill of lading or 
transportation request, unless GSA has determined that the prepayment 
audit of such vouchers will not adequately protect the interest of the 
government.[Footnote 11] The law makes a special provision that permits 
advance payment for transportation services, provided certain usual 
documentation, such as an invoice or bill of lading, is 
submitted.[Footnote 12] SDDC indicated that GSA has tentatively 
approved its prepayment audit procedures,[Footnote 13] although at the 
time of our inquiries GSA had not yet audited any Phase I transactions.

Our understanding is that linehaul[Footnote 14] charges make up the 
single largest component of programwide billings. The second largest 
cost component, and the topic dealt with in this letter, is 
accessorials, which are services such as packing or special boxing that 
are performed by a TSP in addition to linehaul charges. Existing 
Defense Transportation Regulations[Footnote 15] require the TSP to 
furnish the original DD Form 619, Statement of Accessorial Services 
Performed, and DD 619-1, Statement of Accessorial Services Performed 
(Storage in Transit Delivery and Reweighs)[Footnote 16] to the 
transportation officer within the Personal Property Shipping Office. 
The Personal Property Shipping Officer (PPSO)[Footnote 17] uses these 
forms to validate receipt of accessorial services submitted with the 
TSP's invoice.

Proposed Process for Phase I of Families First:

The focus under Phase I of the Families First program is on 
streamlining payments to the TSPs by using a third-party Web-based 
payment system called PowerTrack. PowerTrack, which is owned and 
operated by U.S. Bank, has automated prepayment audit and verification 
procedures that are to be satisfied prior to payment. U.S. Bank remits 
electronic payments to TSPs for system-approved transactions and DFAS 
subsequently reimburses U.S. Bank.[Footnote 18]

As described to us, the business process begins when the local DOD PPSO 
receives a service member's movement order, calling for transport of 
household goods and personal property.[Footnote 19] Upon receipt of the 
order, the PPSO is to procure the services of the TSP, and prepare an 
electronic Bill of Lading (BOL) that functions as a contract for 
shipping the household goods. The TSP or its agent is to visit the 
origin site, conduct a move survey, and obtain preapproval[Footnote 20] 
by either facsimile, e-mail or telephone conversation for those 
authorized accessorial line items or special services that require PPSO 
preapproval.[Footnote 21] The PPSO indicates approved or denied status 
with a record in the SDDC's Central Web Application (CWA). The TSP is 
to prepare an inventory of what is to be moved and the DD Form 619. The 
TSP and service member are to sign these documents and copies are to be 
provided to the service member. Under the proposal, the TSP would 
retain all original source documents, except for the weight 
ticket.[Footnote 22] Within 7 days of picking up the shipment, the TSP 
is to physically send the original weight ticket to the PPSO, who then 
is to enter the shipment weight into the CWA[Footnote 23] and retain 
the document.

Once the move is completed and the household goods have reached their 
destination, the TSP provides the service member a copy of the 
inventory listing and the DD Form 619-1. Then, the TSP is to prepare 
and send an electronic invoice to the PPSO that includes a Notice of 
Service Completion (NOSC)[Footnote 24] stating that the shipping 
services were provided. The PPSO is to review invoiced services 
submitted for payment, in terms of linehaul charges, and for 
accessorial services, compare those charges against the PPSO recorded 
preapproved services in CWA. In addition, the PPSO is to select a 
sample from the invoices submitted daily and request copies of 
supporting documentation from the TSP for those invoices selected. The 
PPSO is to review the scanned or faxed copies of supporting 
documentation, such as the DD Form 619 and inventory listing for the 
accessorial portion of the invoiced charges before approving them for 
payment. The PPSO's review is aimed at ensuring the services in CWA 
were performed and the quantities are correct. Once approved, an 
automated matching process is to occur within PowerTrack, where the TSP-
submitted invoice data are compared to the cost data in CWA. Items that 
match successfully within established tolerances and threshold levels 
are to be automatically paid to the TSP by U.S. Bank.

Next, the Certifying Officer (CO)[Footnote 25] prints and reviews the 
PowerTrack Summary Invoice (PSI),[Footnote 26] listing the monthly 
total of all TSP invoices paid by U.S. Bank. The CO is to check for the 
presence of the necessary elements[Footnote 27] for all transactions 
and verify their accuracy primarily from information available in 
PowerTrack. The CO is to review all transactions over $2,500, those 
that meet a DOD-established threshold for price variances, and a random 
selection of additional PowerTrack transactions. The overall objective 
of these steps, according to SDDC, is to ensure the invoices contain 
the necessary substantiation and documentation for lawful and proper 
payment. Once the CO has verified the accuracy of the PSI, he or she is 
to sign the PSI to certify it as correct and proper for payment and 
DFAS reimburses U.S. Bank.

GAO's View of Proposed Documentation Policy:

Improvements to streamline the disbursement process related to service 
member's moves should be made within a framework of adequate controls 
that reasonably ensure that payment transactions are properly 
authorized and sufficient records of these transactions are maintained. 
In theory, proper application of technology makes it possible to 
perform prepayment examination without assembling physical 
documentation. However, implementation of such technology does not 
change the basic objectives of prepayment examinations.[Footnote 28] 
Title VII identifies three essential steps to ensure that proper 
payment is authorized: (1) the acquisition of goods and services has 
been properly authorized as evidenced by an approved purchase order or 
contract; (2) the goods and services ordered have been delivered and 
accepted, evidenced by a receiving and inspection report; and (3) a 
claim has been made against the government as evidenced by receipt of 
an invoice or bill.

Families First does not fully meet Title VII documentation requirements 
for federal payments because the documentation that DOD is to use as 
evidence of receipt of accessorial services does not provide adequate 
assurances about the propriety of these services as intended in step 2 
above. The documentation is not able to provide the necessary 
assurances on accessorial services because it is prepared by the TSP 
without independent corroboration upon preparation. Although the 
service member is to sign the inventory sheets and DD Form 619 upon 
pickup, when the documentation is prepared, and upon delivery of the 
household goods, the service member's role in signing this 
documentation is not designed in such a way as to provide government 
verification of receipt of approved services. Further, the service 
member or other designated representative may lack the ability or 
incentive to verify all accessorial services. In addition, the 
documentation does not necessarily include all accessorial services 
applicable to a particular move. Apart from the copies viewed as part 
of sampling, the only evidence of service delivery that the PPSO would 
see for all shipments is the TSP's NOSC on the invoice. To create the 
invoice the TSP is to extract accessorial and other shipment data from 
original source documents in their custody and input the information 
into PowerTrack as part of invoice submission. Then the TSP in essence 
self-certifies that the services ordered have been delivered and 
accepted, carrying out step 2 above through the NOSC indication in 
PowerTrack.

The proposal also increases potential risk because the generated 
documentation supporting certain accessorial services is to be retained 
by the TSP. Phase I of SDDC's Families First increases the level of 
automation in DOD's personal property program, but does not completely 
eliminate all paper documentation. Therefore, physical document control 
remains an important part of the proposed process. One core objective 
of document control is to preserve and protect the integrity and 
validity of the information contained in the documents. Because the 
process is structured so that the original source documents are created 
by and remain in the custody of the TSP, and the PPSO reviews 
copies[Footnote 29] of original documents on a sample basis, the 
assurance to be gained by review of such documents is hindered by the 
increased risk that they may contain invalid data or be subject to 
potentially undetected alteration, whether intentional or 
unintentional. 

Preparation and custody of original source documentation by a service 
provider rather than the agency, though not expressly prohibited, does 
increase risk to the payment process. Other permissible modifications 
to the traditional practice that agencies confirm receipt of services 
prior to payment have been made. For example, agency payment of 
transportation charges in advance of completion of services is 
specifically allowed by statute. Federal "Fast Pay" procedures also 
contemplate payment to vendors for purchases under $25,000 before the 
agency processes evidence of its receipt of goods and services, but 
these procedures call for proper documentation of such receipt. 
[Footnote 30] Each permissible modification to the traditional payment 
practice increases the risk of improper payments and the combination of 
such practices further increases such risk, absent compensating 
controls.

These factors, when considered collectively in context with the 
objectives of Title VII documentation requirements, increase the risk 
of improper transportation payments. Management must determine what 
changes to the documentation procedures or what additional controls 
will mitigate these risks so that the documentation requirements of 
Title VII are fully met. The objective of such controls should be to 
help ensure that invoiced accessorial services are allowed, necessary, 
and were indeed rendered. Recognizing that cost-benefit considerations 
are important to any control procedures, management must make such 
assessments and determinations based on its experience, through both 
quantitative and qualitative analysis. Such analysis should be applied 
to the full range of potential options for possible solutions. In our 
discussions, SDDC told us of certain planned procedures, such as 
quality control inspections where DOD quality control inspectors would 
be present at selected shipments when being picked up or delivered. If 
based on relevant analysis and potential deterrence for shipments not 
inspected is factored in, these inspections may be part of the 
solution. Another possibility would be strengthening the service 
member's role in representing the government's interest. A fully 
electronic signature system that complies with GAO guidance[Footnote 
31] is another option for management consideration from a cost-benefit 
standpoint.

As with any control procedure, effectiveness is dependent upon many 
factors, including whether the control activity is directly related to 
the control objective, how the control is applied, including the 
frequency with which it is applied and the proficiency of the personnel 
who apply the control, the reasonableness and relevance of the criteria 
used, and actions taken when an exception is identified, including 
follow-up. Therefore, monitoring of these procedures is needed to 
verify that they properly address the related risks, particularly 
related to the validity of the underlying transactions.

As discussed earlier, the changes to transportation billing and payment 
proposed under Families First Phase I and the use of PowerTrack do not 
influence one way or the other the need for effective internal 
controls. In fact, GAO and Inspectors General audits of another bank 
sponsored electronic billing and payment system, the government-wide 
purchase card program, have found many instances of improper and 
fraudulent payments.[Footnote 32] While new technologies and 
reengineered business processes may change how accountable officials 
operate, their basic responsibilities and accountabilities remain 
unaltered. Consequently, these officials must have valid and documented 
assurances that the systems and key controls on which they rely for 
authorizing payments are working as intended and remain intact and 
effective over time.

In this regard, the Federal Managers' Financial Integrity Act of 
1982[Footnote 33] (FMFIA) requires all executive branch agencies to 
periodically assess their systems of internal control using the 
assessment guidance issued by the OMB.[Footnote 34] Title VII also 
provides that FMFIA reviews be designed, executed, and reported in ways 
that show that payment processing controls are reliable. As part of 
DOD's required internal control review under FMFIA, special emphasis 
could be given to testing controls of the Families First Phase I 
process, in order to help ensure effective implementation.

The contents of this report were discussed with Mr. George Thomas, Jr. 
of your staff. We hope our comments are responsive. If you have any 
questions, or would like to discuss these matters further, please 
contact me at (202) 512-6906 or Mary Arnold Mohiyuddin, Assistant 
Director, at (202) 512-3087. This report will be available at no charge 
on GAO's Web site at http://www.gao.gov.

Sincerely yours,

Signed by: 

McCoy Williams:

Director, Financial Management and Assurance:

(195035):

FOOTNOTES

[1] The Families First program is being implemented over three phases. 
In reviewing a draft of this report for factual accuracy, SDDC 
indicated that the procedures for billing, payment, and supporting 
documentation, which are the subject of this request, were implemented 
as part of Phase I on March 29, 2005. 

[2] Federal regulations for transportation are published in the Code of 
Federal Regulations, 41 C.F.R. Parts 102-117 and 102-118 (2004).

[3] General authorizations and requirements for agency accounting and 
auditing are set forth in numerous statutes, primarily in chapter 35 of 
Title 31, U.S. Code. The fiscal guidance in Title VII is based on the 
Comptroller General's authority to settle accounts of accountable 
officers and conduct audits.

[4] Accessorials are services such as packing or special boxing that 
are performed by a carrier in addition to the linehaul transportation 
charges. 

[5] SDDC is a major command of the United States Army that is under the 
control of the United States Transportation Command.

[6] In May 2000, GAO issued a guide to agencies in reengineering 
payment systems, entitled Streamlining the Payment Process While 
Maintaining Effective Internal Control, GAO/AIMD-21.3.2. (Washington, 
D.C.: May 2000).

[7] Public Laws 104-53 (Nov 19, 1995 ) and 104-316 (Oct 19,1996) 
transferred GAO's authority over claims settlements and related advance 
decisions, waivers, and other functions to the Director of the Office 
of Management and Budget (OMB), who in turn delegated specified 
functions to various executive agencies. Among those functions 
delegated to the General Services Administration are settling claims 
for travel, transportation, and relocation expenses of federal civilian 
employees and reviewing transportation carrier appeals. See B-275605, 
March 17, 1997.

[8] According to 41 C.F.R.  102-118.265 (2004), prepayment audit for 
transportation consists of comparison of charges on the TSP's bill 
against charges permitted under the applicable contract, rate tender, 
or other agreements.

[9] GSA may exempt bills from prepayment audit and verification and, in 
lieu thereof, require postpayment audit as determined by the public 
interest, cost effectiveness, or other factors. See 31 U.S.C.  3726 
(a) (2).

[10] See 31 U.S.C.  3528 (a); Title VII, chapter 6, section 6.5, page 
7.6-8.

[11] 31 U.S.C.  3528 (a) (5), 3726(a) (2); and see 41 C.F.R. 102- 
118.160.

[12] 31 U.S.C  3726(h).

[13] In a memo from GSA to SDDC on October 23, 2003, GSA granted 
tentative approval to SDDC's prepayment audit procedures pending 
certain action steps critical to the audit process, and an in-depth 
analysis after Phase I has been more widely implemented.

[14] Linehaul charges include transportation of cargo over carrier 
routes from point of origin to destination, with the exclusion of 
certain charges such as local pickup or delivery.

[15] DOD 4500.9-R, subject: Defense Transportation Regulation, Part IV 
(Aug. 2003), chapter 405.F.1

[16] Throughout this document, we will refer to the DD Form 619 
generically, to encompass both the DD Form 619 and the DD Form 619-1.

[17] Throughout this document, we will use the term Personal Property 
Shipping Officer (PPSO) to refer to the transportation officer within 
the local DOD Personal Property Shipping Office.

[18] We did not review the rights and responsibilities that may have 
been agreed to between DOD and U.S. Bank with respect to these payments.

[19] Throughout this document, the term "household goods" will be used 
generically to refer to household goods and personal property.

[20] These services do not need to be entered in the DD Form 619.

[21] Certain accessorial services require preapproval, while others do 
not. Preapproval is not required to be documented on the DD Form 619. 

[22] The weight ticket is from a third-party, state-regulated weighing 
station, and documents the shipment weight.

[23] Technically, the PPSO enters the amount from the weight ticket 
into a local database, which then populates CWA.

[24] NOSC is a requirement before any consideration of payment on 
invoice can proceed.

[25] The certifying official is appointed by the commander, activity 
director, or others of equivalent rank in writing and does not need to 
be part of the transportation office. 

[26] This occurs after the 15th of each month, or when U.S. Bank 
generates the PSI, whichever occurs later.

[27] Examples of necessary data elements include a complete line of 
accounting for each line item and, where required, a standard 
documentation number for each transaction.

[28] The objectives of prepayment voucher examinations are described in 
Title VII, section 6.5 entitled, "Prepayment Examination of Vouchers, 
General Requirements." See also page 6 of Streamlining the Payment 
Process While Maintaining Effective Internal Control, GAO/AIMD-21.3.2. 
(Washington, D.C.: May 2000).

[29] SDDC indicated that the copies would most likely be faxed to the 
PPSO or scanned by the TSP and sent electronically to the PPSO.

[30] 48 C.F.R. 13.402(f)(2004).

[31] Streamlining the Payment Process While Maintaining Effective 
Internal Control, GAO/AIMD-21.3.2 (Washington, D.C.: May 2000).

[32] Purchase Cards: Increased Management Oversight and Control Could 
Save Hundreds of Millions of Dollars, GAO-04-71T (Washington, D.C.: 
April 28, 2004).

[33] 31 U.S.C. 3512 (c), (d), commonly referred to as FMFIA.

[34] OMB Circular A-123, Management's Responsibility for Internal 
Control, was revised on December 21, 2004, and this revised version is 
effective for fiscal year 2006.