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Incomplete and Planned Improvement Efforts Face Challenges' which was 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

December 2007: 

DOD Travel Improper Payments: 

Fiscal Year 2006 Reporting Was Incomplete and Planned Improvement 
Efforts Face Challenges: 

DOD Travel Improper Payments: 

GAO-08-16: 

GAO Highlights: 

Highlights of GAO-08-16, a report to congressional committees. 

Why GAO Did This Study: 

Fiscal year 2006 was the first year that the Department of Defense 
(DOD) reported improper payment information for its travel program 
under the Improper Payments Information Act of 2002 (IPIA). For fiscal 
year 2006, DOD reported obligations of approximately $8.5 billion for 
travel. Congress mandated that GAO assess the reasons why DOD is not 
fully in compliance with IPIA related to travel expenditures. In May 
2007, GAO issued an initial report in response to this mandate. To 
further respond, GAO assessed (1) the completeness and accuracy of 
DODís fiscal year 2006 IPIA travel disclosure in its performance and 
accountability report (PAR), and (2) DODís planned efforts to improve 
and refine its processes for estimating and reporting on travel 
improper payments. To complete this work, GAO reviewed DODís IPIA 
reporting, IPIA, Office of Management and Budgetís (OMB) IPIA 
implementing guidance, and met with cognizant DOD officials. 

What GAO Found: 

In its fiscal year 2006 PAR, DOD reported an estimate of approximately 
$8 million in travel improper payments, reflecting about 1 percent of 
reported travel payments. While this estimate would indicate the 
program was not at risk of significant erroneous payments under OMB 
guidance, DODís improper payment travel disclosure for fiscal year 2006 
was incomplete. The DOD travel payment data used to assess the 
programís risk of significant improper payments only included payments 
processed by the Defense Travel System (DTS)óapproximately 10 percent 
of the $8.5 billion of DOD travel obligations reported for fiscal year 
2006. Further, DODís 2006 PAR described a travel postpayment review 
process that may mislead readers to believe that the reported travel 
improper payment estimate represents more than DTS-processed travel. 
The travel improper payment estimate also excluded the largest user of 
DTS, the Army, which would likely have increased DODís estimate by over 
$4 million. Finally, the statistical sampling methodology and process 
used by DOD to estimate DTS improper payments as reported for fiscal 
year 2006 had several weaknesses and did not result in statistically 
valid estimates of travel improper payments. 

DOD is taking steps to more fully assess and report on its travel 
program for improper payments for future IPIA reporting. DODís planned 
assessment is to be based on an annual Improper Payments Survey 
conducted by the Office of the Undersecretary of Defense (Comptroller). 
However, GAOís review identified several weaknesses with the survey and 
reported results, including limited guidance on how to estimate travel 
improper payments and a lack of oversight and review over 
implementation of the survey and its results. As shown in the figure 
below, there were substantial discrepancies among the travel 
populations reported in the PAR, improper payment survey, and fiscal 
year 2006 travel obligations. The exclusion of such a significant 
portion of travel expenditures in the survey decreases its 
effectiveness as an improper payments assessment tool. DOD has also 
established a Program Officer for Improper Payment and Recovery 
Auditing, an improper payment working group, and held a ďDepartment of 
Defense Improper Payments Information Act Conference.Ē 

DOD Travel Populations for Fiscal Year 2006: 

Reported travel obligations for FY 2006: $8.5 billion; 
Travel payments reported by DOD agencies in FY 2006 survey: $3.4 
billion; 
Travel payments processed by DTS in FY 2006: $1.2 billion; 
Travel payments reported in FY 2006 PAR: $824 million. 

Source: GAO analysis. 

[End of table] 

What GAO Recommends: 

GAO makes four recommendations to DOD to improve the usefulness and 
completeness of IPIA reporting associated with its travel program. DOD 
concurred with three of the recommendations and partially concurred 
with the remaining one. DOD referred to a recently issued policy 
memorandum in its response. Additional action will be needed to fully 
and effectively implement this policy. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-16]. For more information, contact McCoy 
Williams at (202) 512-9095 or williamsm1@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD 
Travel Program Were Incomplete: 

DOD Faces Challenges in Plans to More Fully Assess Travel Improper 
Payments: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: Excerpts from DOD's Fiscal Year 2006 PAR: 

Appendix IV: GAO Contact and Staff Acknowledgements: 

Tables: 

Table 1: DOD's Reported Improper Payment Estimates for Fiscal Year 
2006: 

Table 2: Improper Payments Survey Results: Travel, Fiscal Year 2006: 

Figures: 

Figure 1: Fiscal Year 2006 DTS-Processed Travel: 

Figure 2: DOD Travel Populations for Fiscal Year 2006: 

Abbreviations: 

DFAS: Defense Finance and Accounting Service: 

DOD: Department of Defense: 

DOD OIG: Department of Defense Office of Inspector General: 

DTS: Defense Travel System: 

IATS: Integrated Automated Travel System: 

IPIA: Improper Payments Information Act of 2002: 

OMB: Office of Management and Budget: 

PAR: Performance and Accountability Report: 

PCS: permanent change of station: 

TDY: temporary duty: 

[End of section] 

United States Government Accountability Office: 

Washington, DC 20548: 

December 14, 2007: 

Congressional Committees: 

Fiscal year 2006 marks the third year that the Department of Defense 
(DOD), as well as other executive branch agencies, were required to 
report improper payment information under the Improper Payments 
Information Act of 2002 (IPIA).[Footnote 1] IPIA requires executive 
agency heads, based on guidance from the Office of Management and 
Budget (OMB),[Footnote 2] to identify programs and activities 
susceptible to significant improper payments,[Footnote 3] estimate 
amounts improperly paid under those programs and activities, and report 
on the amounts of improper payments and their actions to reduce them. 

DOD obligates billions of dollars annually to fund travel. For fiscal 
year 2006, DOD reported obligations of approximately $8.5 billion for 
travel,[Footnote 4] representing 60 percent of all travel 
obligations[Footnote 5] reported by the federal government that year. 
Over the past several years, GAO has issued numerous reports that 
highlighted problems with DOD travel practices that resulted in 
wasteful spending of millions of dollars and potentially improper 
travel, including weak controls over first class travel,[Footnote 6] 
unused airline tickets, and the accuracy of travelers' claims. The DOD 
Office of Inspector General (DOD OIG), first reporting on the 
department's overall compliance with IPIA in fiscal year 2006, 
identified several significant flaws. 

Conference Report 109-676,[Footnote 7] accompanying the Department of 
Defense Appropriations Act, 2007,[Footnote 8] included a requirement 
for GAO to assess the reasons why DOD was not fully in compliance with 
IPIA related to travel expenditures and make any needed recommendations 
for corrective action. In May 2007, we issued an initial 
report[Footnote 9] that provided an overview of DOD's IPIA reporting 
for fiscal years 2003 through 2006 and a discussion of the reasons 
reported by the DOD OIG for why the department was not in compliance 
with IPIA for fiscal year 2006. Our objectives for this report were to 
assess: (1) the completeness and accuracy of DOD's fiscal year 2006 
IPIA travel disclosure in its performance and accountability report 
(PAR), and (2) DOD's planned efforts to improve and refine its 
processes for estimating and reporting on travel improper payments. 

To complete our first objective, we reviewed DOD's fiscal year 2006 
PAR, prior GAO reports, applicable federal laws, prior DOD OIG reports, 
and OMB implementing guidance found in OMB Circular No. A-123, Appendix 
C. We also met with cognizant DOD officials. To complete our second 
objective, we reviewed DOD's annual improper payment survey, met with 
representatives from DOD components to determine how each calculated 
travel improper payments to be reported, and met with officials from 
the Office of the Under Secretary of Defense (Comptroller) (Office of 
the Comptroller) and other DOD components. Additional details on our 
scope and methodology are presented in appendix I. We conducted our 
review from November 2006 through September 2007 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

In its fiscal year 2006 PAR, DOD reported an estimate of approximately 
$8 million in travel program improper payments, which DOD reported as 
reflecting about 1 percent of reported travel payments for the year. 
While this estimate would indicate the program was not at risk of 
significant improper payments under OMB guidance, we found that DOD's 
travel improper payment disclosure for fiscal year 2006 was incomplete 
because it understated the full extent of travel improper payments. The 
DOD travel payment data used to assess the program's risk of 
significant improper payments only included payments processed by the 
Defense Travel System (DTS)--approximately 10 percent of the $8.5 
billion of DOD travel program obligations reported for fiscal year 
2006. Nonetheless, DOD's 2006 PAR describes a travel postpayment review 
process that may mislead the reader to believe that the reported travel 
improper payment estimate represents more than DTS-processed travel. 
Further, the travel improper payment estimate excluded the largest user 
of DTS, the Army, which would likely have increased DOD's estimate by 
over $4 million. Finally, the statistical sampling methodology and 
process used by DOD to estimate DTS improper payments for IPIA 
reporting as reported for fiscal year 2006 had several weaknesses and 
did not result in statistically valid estimates of travel improper 
payments. 

DOD is taking steps to more fully assess and report on its travel 
program for improper payments for future IPIA reporting. DOD's planned 
assessment is to be based on an annual Improper Payments Survey 
conducted by the Office of the Comptroller. However, our review 
identified several weaknesses with the survey and reported results, 
including limited guidance on how to estimate travel improper payments 
and a lack of oversight and review by the Office of the Comptroller 
over implementation of the survey and its results. For example, we 
noted four components reported nearly $17 million in travel payments 
with no associated improper payments for these payments. While it is 
possible there may not be any improper payments in a population, the 
review process was inadequate to provide a basis for reporting no 
improper payments on $17 million in travel payments. DOD has also 
established a Program Officer for Improper Payment and Recovery 
Auditing and an improper payment working group, and held a "Department 
of Defense Improper Payments Information Act Conference." 

We make four recommendations to the Secretary of Defense for the Office 
of the Comptroller to improve the usefulness and completeness of IPIA 
reporting for the DOD travel program. 

We provided a draft of this report to DOD for comment. In its response, 
DOD concurred with three of our recommendations and partially concurred 
with the fourth. For this recommendation, DOD agreed with the intent of 
the recommendation but expressed concern over the level of detailed 
guidance called for. DOD referred to a policy memorandum issued on 
November 27, 2007, in its response. This document consists of a cover 
memorandum, excerpts from Appendix C of OMB Circular No. A-123, and DOD 
improper payment component contact information. We continue to believe 
that additional guidance is needed. DOD must take action to ensure that 
policy guidance is fully and effectively implemented in order to 
improve the usefulness and completeness of its IPIA reporting for the 
travel program. DOD's comments, along with our evaluation, are 
discussed in the Agency Comments and Our Evaluation section of this 
report. The comments are also reprinted in their entirety in appendix 
II. DOD also provided technical comments, and we made revisions as 
appropriate. 

Background: 

During fiscal year 2006, DOD reported obligations of over $685 billion, 
the second largest amount reported by an executive branch entity. Of 
this, travel obligations were $8.46 billion for fiscal year 2006. 
Travel includes expenses such as air fare, lodging, per diem, and local 
transportation. Travel conducted by DOD represents an estimated 60 
percent of total travel obligations for the entire federal government. 
Travel is one of six programs for which IPIA information is reported in 
DOD's PAR. 

Improper Payments Information Act of 2002 and OMB Implementing 
Guidance: 

IPIA was enacted in November 2002 with the major objective of enhancing 
the accuracy and integrity of federal payments. Guidance for reporting 
under IPIA is provided in Appendix C of OMB Circular No. A-123 and 
requires agencies to: 

* Review all programs and activities and identify those that are 
susceptible to significant improper payments. 

* Obtain a statistically valid estimate of the annual amount of 
improper payments in those programs and activities. 

* Report estimates of the annual amount of improper payments in 
programs and activities and, for estimates exceeding $10 million, 
implement a plan to reduce improper payments. 

In addition, this guidance instructs agencies to institute a systematic 
method of reviewing all programs and identifying those which they 
believe to be susceptible to significant improper payments. The 
guidance defines "significant erroneous payments"[Footnote 10] as 
annual improper payments exceeding both 2.5 percent of program payments 
and $10 million.[Footnote 11] It further explains that agencies must 
then estimate the gross total of both over-and underpayments for those 
programs identified as susceptible. These estimates shall be based on a 
statistically random sample of sufficient size to yield an estimate 
with a 90 percent confidence interval of plus or minus 2.5 percentage 
points.[Footnote 12] The guidance also requires agencies to consult a 
statistician to ensure the validity of their sample design, sample 
size, and measurement methodology. If an agency cannot determine 
whether or not a payment was proper because of insufficient 
documentation, OMB Circular No. A-123 requires that the payment be 
considered an error. 

According to its guidance, OMB may also determine, on a case-by-case 
basis, whether certain programs should be reported even if those 
programs do not meet established thresholds. In February 2007, OMB 
notified DOD that it was requiring that an improper payment error 
measurement be reported for travel pay in the fiscal year 2007 PAR 
under IPIA due to congressional interest and concern regarding this 
program. For all programs and activities susceptible to significant 
improper payments, agencies are to determine an annual estimated amount 
of improper payments made in those programs and activities. If the 
estimate of improper payments exceeds $10 million, the agency must 
implement a plan to reduce the amount of such improper payments. If the 
improper payment estimate is less than $10 million, agencies are still 
required to report the total in their annual PAR. 

Travel Process at the Department of Defense: 

Although there are over 70 types or circumstances of travel at DOD, DOD 
travel is generally segregated into two broad types: temporary duty 
travel (TDY) and permanent change of station (PCS) travel. TDY is 
travel to one or more places away from a permanent duty station to 
perform duties for a period of time and, upon completion of assignment, 
return or proceed to a permanent duty station. PCS travel is the 
assignment, detail, or transfer of a member or unit to a different 
permanent duty station under a competent order that does not specify 
the duty as temporary, provide for further assignment to a new 
permanent duty station, or direct return to the old permanent duty 
station. 

DOD reported that in a typical year over 3 million DOD personnel 
perform TDY travel and generate over 5 million travel vouchers. For 
fiscal year 2006, DOD reported $8.5 billion was obligated for travel. 
The Institute for Defense Analyses estimates[Footnote 13] that $7.3 
billion of this amount is for TDY and the remaining $1.2 billion is for 
PCS travel. 

DOD has been working to upgrade its TDY travel system since 1993, when 
the National Performance Review recommended an overhaul of DOD's TDY 
travel system. Long-standing concerns about the efficiency and 
effectiveness of the existing travel systems resulted in the 
development of DTS to be a centralized, integrated system used to 
process TDY travel. DTS is envisioned as being DOD's standard end-to- 
end travel system. The Defense Finance and Accounting Service (DFAS) 
reported that about $1.2 billion was processed through DTS in fiscal 
year 2006. 

In January 2006 we reported[Footnote 14] on DOD's difficulties 
implementing DTS. DTS was originally intended to be fully implemented 
by April 2002, but this date was changed to September 2006--a slippage 
of over 4 years. The report specified two key challenges facing DTS in 
becoming DOD's standard travel system: (1) developing needed interfaces 
and (2) underutilization of DTS at sites where it has been deployed. 

Extensive travel is still processed through legacy systems. One such 
system is the Integrated Automated Travel System (IATS), which is used 
by the Army and several other DOD components. IATS is a manual travel 
system where the traveler submits paper travel documents (e.g., travel 
orders, travel voucher, and receipts) for entry into IATS. Once the 
information is entered into IATS, it is processed and a travel 
reimbursement is made to the traveler. Under current implementation 
plans, not all legacy travel systems will be eliminated due to current 
DTS functionality limitations. Despite difficulties implementing DTS, 
the Institute for Defense Analyses recently issued a report[Footnote 
15] stating that DTS is the only end-to-end system today with the 
capability to support all DOD policy and business rules. 

DOD Travel IPIA Reporting: 

Responsibility for assessing and reporting DOD's improper payments, 
including travel, for IPIA is the responsibility of the Office of the 
Comptroller. In its fiscal year 2006 PAR,[Footnote 16] DOD reported 
that its current IPIA review did not identify any programs or 
activities at risk of "significant improper payments" in accordance 
with OMB criteria. However, the department also reported that civilian, 
commercial, and travel pay potentially were susceptible to improper 
payments in excess of $10 million and reported estimated improper 
payment information for these programs. Further, the department again 
reported on its sampling and corrective actions concerning its military 
retirement, military health benefits, and military pay programs. Table 
1 shows the information DOD reported for estimated improper payments 
for six programs, including travel pay, in its fiscal year 2006 PAR. 

Table 1: DOD's Reported Improper Payment Estimates for Fiscal Year 
2006: 

Program: Commercial pay; 
Estimated improper payments (in millions): $550.0; 
Improper payments as a percentage of total program payments: 0.2%. 

Program: Military health benefits; 
Estimated improper payments (in millions): 140.0; 
Improper payments as a percentage of total program payments: 2.0. 

Program: Military pay; 
Estimated improper payments (in millions): 65.9; 
Improper payments as a percentage of total program payments: 0.1. 

Program: Civilian pay; 
Estimated improper payments (in millions): 62.8; 
Improper payments as a percentage of total program payments: 0.1. 

Program: Military retirement; 
Estimated improper payments (in millions): 48.8; 
Improper payments as a percentage of total program payments: 0.1. 

Program: Travel pay; 
Estimated improper payments (in millions): 8.0; 
Improper payments as a percentage of total program payments: 1.0. 

Program: Total; 
Estimated improper payments (in millions): $875.5; 
Improper payments as a percentage of total program payments: [Empty]. 

Source: DOD fiscal year 2006 PAR. 

[End of table] 

Further, in its 2006 PAR, DOD described the risk assessment process for 
each of the programs or activities that addressed the strength of the 
internal controls in place to prevent improper payments and reported on 
the results in its disclosure. DOD also described the statistical 
sampling and corrective action plans for these six programs. 
Additionally, DOD summarized the improper payment reduction outlook for 
the military retirement, military health benefits, and military pay 
programs. Finally, DOD described its improper payments auditing, 
accountability information, information system usage, and statutory and 
regulatory barriers limiting the department's corrective actions. 
Excerpts from DOD's fiscal year 2006 PAR related to improper payments 
are reprinted in appendix III of this report. 

Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD 
Travel Program Were Incomplete: 

In its fiscal year 2006 PAR, DOD estimated approximately $8 million in 
travel program improper payments, reported as reflecting about 1 
percent of reported program payments. While this estimate would 
indicate the program was not at risk of significant improper payments 
under OMB guidance, we found that DOD's travel improper payments 
disclosures for fiscal year 2006 were incomplete as to the full extent 
of total travel payments made by DOD. The estimate information reported 
by DOD, which DOD used to assess the travel program's risk of 
significant improper payments, only included payments from one system, 
DTS, which processed an estimated 10 percent of DOD's travel. 
Nonetheless, DOD's 2006 PAR describes a travel postpayment review 
process that may mislead the reader to believe that the reported travel 
improper payment estimate represents more than DTS-processed travel. 
Further, the travel improper payment estimate excluded the largest user 
of DTS, the Army, which would likely have increased DOD's estimate by 
over $4 million. Finally, the statistical sampling methodology and 
process used by DOD to estimate DTS improper payments as reported for 
fiscal year 2006 had several weaknesses and did not result in 
statistically valid estimates of travel improper payments. 

Travel Disclosure Reported Only DTS-Processed Travel and Excluded 
Information on Its Largest User: 

In its fiscal year 2006 IPIA disclosure for travel, DOD estimated $8 
million in improper payments for travel pay, which it reported as 
reflecting about 1 percent of DOD reported travel payments. Based on 
our review, we determined that DOD's estimate of travel improper 
payments was derived from approximately 10 percent of the $8.5 billion 
of DOD travel obligations reported by DOD for the fiscal year-- 
excluding a significant portion of travel payments from the PAR 
disclosure. Further, the DTS improper payments disclosure did not 
include data on the largest user of DTS, the Army. The reporting of 
only DTS travel pay and the exclusion of Army travel pay processed 
through DTS was incomplete. 

DOD's fiscal year 2006 reporting of travel improper payments based on 
travel processed by DTS (excluding the Army) also excluded travel 
processed in other systems used by several DOD components, including 
the following: 

* In fiscal year 2006, the Army Corps of Engineers used IATS to process 
all travel. According to information provided by DOD, the Army Corps of 
Engineers processed over $239 million in travel payments during fiscal 
year 2006. 

* Air Force officials reported using the Reserve Travel System[Footnote 
17] to process $1.5 billion in travel pay in fiscal year 2006. 

* The Army utilized IATS to process TDY, PCS, and other types of travel 
payments. The postpayment review of IATS-processed travel, completed by 
DFAS for the Army, indicated approximately $1.4 million in improper 
payments for fiscal year 2006, none of which were reported in the DOD 
fiscal year 2006 PAR disclosure.[Footnote 18] 

DOD also did not include Army travel processed using DTS in its fiscal 
year 2006 PAR. The Army is the largest user of DTS--processing a 
reported $437 million of travel through DTS. As shown in figure 1, the 
Army represented about 35 percent of the $1.2 billion of total DTS- 
processed travel in fiscal year 2006. The exclusion of Army improper 
payment information resulted in further incomplete reporting of travel 
improper payments in DOD's fiscal year 2006 PAR. Based on the 
information provided by DOD, the addition of Army travel payments 
processed through DTS would have increased estimated improper payments 
from $7.97 million to $12.6 million. DOD officials told us that the 
results from Army DTS postpayment reviews were not included in the PAR 
because the results were not available in time for the reporting 
deadline. DOD acknowledged that the PAR disclosures regarding this 
exclusion could have been improved. 

Figure 1: Fiscal Year 2006 DTS-Processed Travel: 

[See PDF for image] 

This figure is a pie-chart that depicts the following data: 

Fiscal Year 2006 DTS-Processed Travel: DTS Army: 35%; 
DTS Air Force: 28%; 
DTS Navy: 25%; 
DTS Marine Corps: 4%; 
DTS Other DOD agencies: 8%. 

Source: GAO analysis of data provided by DOD. 

[End of figure] 

Moreover, the descriptive information included in DOD's PAR did not 
disclose the limitation to its reported estimates. Within the 
statistical sampling section of the IPIA reporting in DOD's fiscal year 
2006 PAR, DOD describes reviews of vouchers from IATS and a review of 
travel conducted by the Army Corps of Engineers, but the results of 
these reviews were not actually included in the fiscal year 2006 
estimate of improper payments. Thus, the descriptive information may 
mislead readers to believe that the travel improper payment estimates 
are based on a larger population than is actually reported. 

When we discussed the exclusion of non-DTS travel improper payments 
with Office of the Comptroller staff they explained that they believed 
the August 2006 release of updated guidance by OMB (namely Appendix C 
of OMB Circular No. A-123) modified which programs must be reported. In 
fiscal year 2006, DOD reported three new programs--one of which was 
travel pay. DOD officials explained that because only DTS data were 
readily available for reporting by the November 15 deadline, they 
decided that was to be the only PAR input. DOD acknowledged that the 
disclosure of this reporting limitation could have been improved. 

DTS Improper Payments Estimates Were Not Prepared According to OMB 
Guidance and Were Not Statistically Valid: 

We also found weaknesses in the postpayment review process used to 
estimate improper payments for DTS-processed travel. Under OMB 
guidance, agencies are required to obtain a statistically valid 
estimate of the annual amount of improper payments. However, we found 
that DOD did not have documented sampling plans that detailed how the 
samples were planned, executed, and evaluated to derive a statistically 
valid improper payments estimate for DTS-processed travel. We also 
found that the methodology used to estimate sampling results for nine 
DOD agencies was not statistically valid.[Footnote 19] 

Lack of Sampling Plans: 

Appendix C of OMB Circular No. A-123 provides guidance on using 
statistical sampling to estimate improper payments. According to the 
guidance, improper payment estimates shall be based on a statistically 
valid random sample of sufficient size to yield an estimate with a 90 
percent confidence interval of plus or minus 2.5 percentage points 
(agencies may alternatively use a 95 percent confidence interval of 
plus or minus 3 percentage points around the estimate of the percentage 
of improper payments). The guidance also requires agencies to consult a 
statistician to ensure the validity of their sample design, sample 
size, and measurement methodology. 

DFAS was responsible for estimating improper payment information for 
over $1.2 billion in fiscal year 2006 DTS payments. DFAS was unable to 
provide us with its DTS postpayment review sampling plan, and according 
to our discussions with DFAS and Office of the Comptroller officials, 
one was not prepared. At the end of our fieldwork, DOD provided us a 
retrospective document describing the fiscal year 2006 sampling plan. 
The plan described information on the sampling method, payment and 
account selection, treatment of missing records and errors, and summary 
reporting. While OMB's guidance does not require a sampling plan, our 
Standards for Internal Control in the Federal Government[Footnote 20] 
identify control activities such as policies, procedures, and 
mechanisms that enforce management's directives and are an integral 
part of an entity's planning, implementing, reviewing, and 
accountability for stewardship of government resources and achieving 
effective results. The lack of a documented sampling plan, before and 
during sampling, is an internal control weakness in the process used by 
DFAS and could result in testing activities not being completed as 
anticipated by management. 

For example, our review of testing for fiscal year 2006 DTS payments 
raised questions as to the completeness of the testing prior to the 
projections being made that were included in the PAR. Based on our 
review of the DTS postpayment review results database, as of March 
2007, about 41 percent of the vouchers selected for sampling of fiscal 
year 2006 payments did not include an annotation that the review was 
completed. When we discussed this with DFAS and Office of the 
Comptroller staff, they responded by explaining that the population of 
DTS trips subject to postpayment review for any given month will not 
represent the actual DTS trip records settled or paid for that month 
due to the lag between payment and postpayment review. They also stated 
that statistics or population projections will not be reported for any 
incomplete monthly sample. DFAS staff further clarified that the fiscal 
year 2006 reporting was not necessarily based solely on fiscal year 
2006 transactions. A component's fiscal year 2006 projection could be 
based on activity from both fiscal years 2005 and 2006 due to the 
timing of postpayment review. For example, a component's fiscal year 
2006 estimate could be based on postpayment review of activity from 
April 1, 2005, through March 31, 2006--a 12-month period overlapping 2 
fiscal years. 

In order to assess this explanation, we requested additional 
information from DFAS that would detail what audit months of data were 
used to project and report fiscal year 2006 travel improper payments. 
Office of the Comptroller officials told us that they were unable to 
provide further support because the database did not have the needed 
information. If a written sampling plan, with appropriate detail, had 
been developed for fiscal year 2006 DTS postpayment review, it is more 
likely that DFAS would have performed procedures to assure that 
sampling was completed prior to projection and that appropriate 
documentation was maintained. 

Incorrect Categorization of Certain Errors: 

In order to determine the extent of improper payments for travel 
processed through DTS, DFAS officials explained that the DTS 
postpayment review was conducted using a monthly random sample for each 
component and agency. In fiscal year 2006, this methodology resulted in 
the selection of 168 unique samples from 168 distinct populations, with 
each sample varying in size from 20 test items for a defense agency to 
nearly 500 for a large military component. DOD reported that it 
randomly selected vouchers from the monthly population of vouchers 
based on a 95 percent confidence interval with a precision of 2.5 
percentage points; we did not verify whether the data from which the 
samples were selected were complete or the accuracy of the samples 
taken. 

Once a sample item was selected, DFAS reviewed the selected vouchers 
and recorded the results of its findings in a database. The review 
process included a recalculation of the travel entitlement based on 
information submitted on the travel authorization, DTS data, and 
supporting documents (e.g., travel receipts, credit card information, 
and DOD and federal travel regulations). The reviewer considered the 
overall validity of a payment as well as specific items such as 
appropriate use of organization codes, travel dates, per diem rates, 
airfare rates, and correct mathematical calculation on the voucher. 

If an error was found during the postpayment review process, staff 
recorded it in the database. Each error was classified as one of four 
error types (lodging, per diem, reimbursement paid incorrectly, or 
nonmonetary errors). Errors involving lodging, per diem, and 
reimbursement paid incorrectly are all monetary errors, and each error 
type had between 13 and 46 subclassification types reviewers used to 
more accurately describe the error. For example, "reimbursement paid 
incorrectly" errors could be classified as 1 of 46 more specific error 
types, such as airfare paid incorrectly, mileage paid incorrectly, and 
mileage over-or underpaid. DFAS used the review results and information 
in the database to estimate monthly improper payment amounts for each 
component and agency. 

During our review, we noted what could be an incorrect categorization 
of "receipts not received" as a nonmonetary error. OMB guidance states 
that "when an agency's review is unable to discern whether a payment 
was proper as a result of insufficient or lack of documentation, this 
payment must also be considered an error." While DFAS categorized this 
as a nonmonetary error, this type of error could potentially be a 
monetary error, but was not included in the estimate of improper 
payments.[Footnote 21] We noted nearly 200 instances where a payment 
was categorized as "receipts not received"--a nonmonetary error. 
However, because the monetary value of the error was not provided, we 
were unable to determine the effect of this incorrect classification on 
travel improper payments reported in DOD's fiscal year 2006 PAR. When 
we discussed this categorization error with DOD officials, they 
explained that during the review process, DFAS allows a traveler a 
maximum of 30 working days to submit receipts that were not available 
for review. During this time, the sample item is considered open and 
the error is categorized as nonmonetary. If after the allotted time 
period the receipts are not provided, the amount is considered a 
monetary error. DOD believes the approximately 200 cases are likely 
those where the examiner was awaiting receipts for final determination 
of their propriety. However, on the basis of our review, we noted that 
all of these items had a completed date annotated in the database, 
suggesting they were completed audits--not audits awaiting additional 
documentation. We requested additional documentation from DOD that 
would support its assessment of these vouchers. DOD did not provide any 
documentation but did note in a written response to us that "all items 
are reviewed and settled with a determination of whether or not they 
are improper payment errors, and improper payments are reported as 
such. Incorrect or incomplete documentation may relate to nonmonetary 
errors that are also not improper payments (such as the wrong form 
being used or missing elements that are DOD internal procedural 
requirements, but are not required by law to support the payment)." 

Flawed Methodology Used to Estimate Improper Payments at DOD Agencies: 

DOD also utilized a flawed methodology to estimate DTS improper 
payments at nine DOD agencies.[Footnote 22] Information reported for 
the defense agencies in the fiscal year 2006 PAR was prepared by 
totaling the monthly sample results from the nine defense organizations 
and then estimating an improper payment amount based on this aggregate 
data instead of deriving a monthly estimate, and then aggregating the 
estimated results and related confidence intervals. As described above, 
monthly samples were taken by component and agency for postpayment 
review. Despite the segmentation of the population during the testing 
process, the information reported by DFAS to the Office of the 
Comptroller has nine defense organizations reported as "other" and uses 
the sum of the nine organizations' sample results to estimate an error 
amount. By selecting samples for each organization separately and 
aggregating the results from the sample to estimate the total error 
rate, estimates made for the organizations were incorrectly projected 
to the population. DFAS reports that for fiscal year 2007 it will 
ensure that sample statistics and population estimates for defense 
agencies are computed at the agency level and then summarized. 

DOD Faces Challenges in Plans to More Fully Assess Travel Improper 
Payments: 

As discussed in the previous section, DOD's process for estimating and 
reporting improper payments for its travel program for inclusion in its 
fiscal year 2006 PAR was significantly flawed. Going forward, DOD plans 
to use the results from its annual Improper Payments Survey, conducted 
by the Office of the Comptroller, to determine the extent of improper 
payments in several programs, including travel. The survey of fiscal 
year 2006 payments[Footnote 23] was not prepared in time for inclusion 
in the fiscal year 2006 PAR, in November 2006, but has since been 
completed. DOD plans to use these results for its fiscal year 2007 PAR 
reporting. We reviewed this survey, as a component of the department's 
risk assessment for improper payments in the travel program. Our review 
identified several weaknesses in the survey and reported results which, 
if uncorrected, will limit the department's ability to fully assess 
improper payments in the travel program. We identified weaknesses in 
DOD's guidance regarding the estimation of travel improper payments and 
lack of oversight and review by the Office of the Comptroller over 
implementation of the survey and its results. The department is also 
taking other steps to improve its reporting under IPIA. To address 
reporting issues identified in its fiscal year 2006 auditor's report, 
DOD has established a Program Officer for Improper Payment and Recovery 
Auditing. Further, the department is establishing an improper payment 
working group and held a "Department of Defense Improper Payments 
Information Act Conference." 

Improper Payments Survey Results Unreliable Due to Limited Guidance and 
Oversight by the Office of the Comptroller: 

DOD assesses its programs, including travel, for improper payments, 
based on its departmentwide annual Improper Payments Survey. The 
survey, distributed annually by the Office of the Comptroller, queries 
DOD components[Footnote 24] to determine the extent of improper 
payments in several programs, including travel, across the department. 
We reviewed this survey as a component of the department's risk 
assessment for improper payments in the travel program. Our review 
indicated several weaknesses in the survey and reported results, 
including weaknesses in the guidance regarding the estimation of travel 
improper payments and lack of oversight and review of the survey and 
its results. These weaknesses, if uncorrected, will limit the 
department's ability to fully assess improper payments in the travel 
program. 

Limited Guidance Provided to DOD Components to Direct IPIA Assessment: 

In order to more fully assess its travel program for improper payments, 
the Office of the Comptroller issues its annual Improper Payments 
Survey to DOD components. The survey requests that each component 
report to the Office of the Comptroller the amount of improper payments 
for several programs[Footnote 25] throughout the department and to 
specify additional programs or activities as needed. For fiscal year 
2006, the Office of the Comptroller issued guidance on completion of 
the IPIA survey to DOD officials. The guidance included a cover 
memorandum which requested that all services and agencies review and 
report on any program or activity payment for which the component 
computed the entitlement. Accompanying the memorandum were Appendix C 
of OMB Circular No. A-123, results of the previous year's Improper 
Payments Survey, and a survey template for the component to use to 
submit survey results. The survey for fiscal year 2006 was sent to the 
components in January 2007, with survey results due to the Office of 
the Comptroller by January 26, 2007. The completed survey was provided 
to us in April 2007. DOD also used the survey to report a more complete 
travel population to OMB. This report detailed improper payments 
information for $3.4 billion in travel payments rather than the $824 
million reported in the PAR. The survey also identified $20 million in 
travel improper payments, a $12 million increase from the $8 million 
reported in DOD's fiscal year 2006 PAR. Eight entities, other than 
DFAS, reported information in the fiscal year 2006 IPIA survey for 
travel pay. A summary of the improper payment survey results for travel 
is shown in table 2. 

Table 2: Improper Payments Survey Results: Travel, Fiscal Year 2006: 

Program/activity: Navy travel pay: Travel pay (non-DTS) by Navy; 
Dollar value total of FY 2006 payments: $50,038,158; 
Absolute dollar value total of improper payments in FY 2006: $564,795; 
Improper payment percentage: 1.1%. 

Program/activity: Navy travel pay: Marine Corp In-House Travel Pay 
(IATS); 
Dollar value total of FY 2006 payments: 467,678,749; 
Absolute dollar value total of improper payments in FY 2006: 1,064,000; 
Improper payment percentage: 0.2. 

Program/activity: Navy travel pay: Marine Corp Travel Pay (IATS); 
Dollar value total of FY 2006 payments: 144,159; 
Absolute dollar value total of improper payments in FY 2006: 0; 
Improper payment percentage: 0.0. 

Program/activity: Total Navy travel pay; 
Dollar value total of FY 2006 payments: 517,861,066; 
Absolute dollar value total of improper payments in FY 2006: 1,628,795; 
Improper payment percentage: 0.3. 

Program/activity: Army travel pay; Army-Korea - travel pay; 
Dollar value total of FY 2006 payments: 12,618,749; 
Absolute dollar value total of improper payments in FY 2006: 0; 
Improper payment percentage: 0.0. 

Program/activity: Army travel pay; Army-Europe - travel pay; 
Dollar value total of FY 2006 payments: 3,936,946; 
Absolute dollar value total of improper payments in FY 2006: 0; 
Improper payment percentage: 0.0. 

Program/activity: Army travel pay; Army Corps of Engineers - travel 
pay; 
Dollar value total of FY 2006 payments: 239,350,696; 
Absolute dollar value total of improper payments in FY 2006: 57,279; 
Improper payment percentage: 0.2. 

Program/activity: Total Army travel pay; 
Dollar value total of FY 2006 payments: 255,906,391; 
Absolute dollar value total of improper payments in FY 2006: 57,279; 
Improper payment percentage: 0.2. 

Program/activity: Other component travel pay; Air Force Reserve Travel 
System travel; 
Dollar value total of FY 2006 payments: 101,627,181; 
Absolute dollar value total of improper payments in FY 2006: 4,597,319; 
Improper payment percentage: 4.5. 

Program/activity: Other component travel pay; Defense Security Service 
PCS travel; 
Dollar value total of FY 2006 payments: 257,436; 
Absolute dollar value total of improper payments in FY 2006: 0; 
Improper payment percentage: 0.0. 

Program/activity: Total other components travel pay; 
Dollar value total of FY 2006 payments: 101,884,617; 
Absolute dollar value total of improper payments in FY 2006: 4,597,319; 
Improper payment percentage: 4.5. 

Program/activity: Travel pay processed by DFAS; IATS; 
Dollar value total of FY 2006 payments: 1,242,918,935; 
Absolute dollar value total of improper payments in FY 2006: 1,456,472; 
Improper payment percentage: 0.1. 

Program/activity: Travel pay processed by DFAS; DTS Air Force; 
Dollar value total of FY 2006 payments: 355,167,040; 
Absolute dollar value total of improper payments in FY 2006: 5,576,798; 
Improper payment percentage: 1.6. 

Program/activity: Travel pay processed by DFAS; DTS Navy; 
Dollar value total of FY 2006 payments: 312,163,900; 
Absolute dollar value total of improper payments in FY 2006: 373,029; 
Improper payment percentage: 0.1. 

Program/activity: Travel pay processed by DFAS; DTS Marine Corps; 
Dollar value total of FY 2006 payments: 49,545,238; 
Absolute dollar value total of improper payments in FY 2006: 1,301,866; 
Improper payment percentage: 2.6. 

Program/activity: Travel pay processed by DFAS; DTS Army; 
Dollar value total of FY 2006 payments: 437,230,722; 
Absolute dollar value total of improper payments in FY 2006: 4,629,209; 
Improper payment percentage: 1.1 

Program/activity: Travel pay processed by DFAS; DTS Other DOD agencies; 
Dollar value total of FY 2006 payments: 106,733,572; 
Absolute dollar value total of improper payments in FY 2006: 722,876; 
Improper payment percentage: 0.7. 

Program/activity: Total Travel pay processed by DFAS; 
Dollar value total of FY 2006 payments: 2,503,759,407; 
Absolute dollar value total of improper payments in FY 2006: 
14,060,250; 
Improper payment percentage: 0.6. 

Program/activity: Total travel pay; 
Dollar value total of FY 2006 payments: $3,379,411,481; 
Absolute dollar value total of improper payments in FY 2006: 
$20,343,643; 
Improper payment percentage: 0.6%. 

Source: DOD survey of fiscal year 2006 payments. 

[End of table] 

Going forward, considering the complexity of DOD, extent of travel 
throughout the department, and information reported in the survey of 
fiscal year 2006 payments, the guidance issued by the Office of the 
Comptroller does not provide adequate information to allow components 
to properly report improper payment information needed for a useful 
assessment. Our internal control standards[Footnote 26] identify 
information and communications as one of the five standards for 
internal control. This standard states that information should be 
communicated to those within the entity in a form that enables them to 
carry out their responsibilities. The guidance issued by the Office of 
the Comptroller to DOD components does not provide adequate guidance 
specific to DOD to allow for components to prepare reliable estimates 
of improper payments. For example, while OMB guidance requires that 
agencies obtain a statistically valid estimate of the annual amount of 
improper payments in a program, Office of the Comptroller guidance does 
not adequately address sampling methodologies to employ, or provide 
contact information on how to seek assistance with this matter. 
Further, the guidance does not offer detailed information on the steps 
needed to adequately implement IPIA at DOD or examples of improper 
payments relevant to DOD. 

In addition, the guidance does not provide sufficient procedures on how 
to identify or assess risk factors to assist DOD components in 
identifying programs and activities vulnerable to improper payments, 
such as assessments of internal control, audit report findings, and 
human capital risks related to staff turnover, training, or experience. 
Assessing the effect of risk conditions identified during the risk 
assessment plays a major role in effectively determining the overall 
risk level of an agency's operations. Some risk conditions may affect a 
program or activity to a greater or lesser degree. Likewise, not all 
risk conditions may be relevant to each program or activity. This type 
of risk identification and assessment is consistent with our previous 
recommendation[Footnote 27] that OMB establish risk factors in its 
guidance for agencies to consider, and is also consistent with our 
standards of internal control[Footnote 28] and executive guide on 
strategies to manage improper payments,[Footnote 29] which provides a 
framework for conducting a comprehensive risk assessment. 

Improper Payment Estimate Process for Non-DTS Travel Is Decentralized: 

The process each DOD component uses to estimate its travel improper 
payments and report to the Office of the Comptroller varies throughout 
the department and is largely decentralized. Further complicating the 
assessment for travel improper payments are the numerous systems used 
to process travel throughout the department. For survey reporting, DFAS 
(Indianapolis) is responsible for reporting all travel processed 
through DTS and certain payments processed through IATS for Army and 
some other defense agencies. The determination of all other travel pay 
and associated improper payments is the responsibility of the component 
that computed the entitlement. The Office of the Comptroller relies on 
each component to determine and report this information. In our review 
of the fiscal year 2006 Improper Payments Survey, we noted that the 
survey results were not always statistically valid and in some cases 
appear unreasonable. Improved guidance by the Office of the Comptroller 
will be necessary to assure that survey information is reliable and 
complete for IPIA reporting. 

DFAS is responsible for estimating and reporting travel improper 
payments for travel processed for the Army by the IATS system. In 
fiscal year 2006, DFAS (Indianapolis) did not conduct a statistically 
valid sample and review of travel payments processed through IATS. 
Instead, officials from DFAS performed limited reviews of IATS vouchers 
paid to determine if any such payments were improper. For example, DFAS 
reviewed payments to determine if payments for the same travel activity 
had been paid in both DTS and IATS--essentially a duplicate payment 
review. This review found $1.5 million in improper payments in fiscal 
year 2006, which was reported in the survey, as shown previously in 
table 2. Such DFAS IATS reviews cannot be used to estimate the value of 
improper payments to the entire IATS population. 

The Air Force reports improper payment information on travel processed 
through the Reserve Travel System. For fiscal year 2005, the Air Force 
sought the guidance of the Air Force Audit Agency to determine if the 
Air Force had developed and used an effective methodology to estimate 
and report the dollar amount of improper travel payments processed 
through the Reserve Travel System. The Air Force Audit Agency 
reported[Footnote 30] that the methodology used by the Air Force to 
estimate Reserve Travel System improper payments did not meet IPIA 
requirements. As part of the audit, the Air Force Audit Agency 
developed and provided the Air Force with a statistically valid 
sampling methodology for centralized reviews that it reported would 
meet IPIA reporting requirements.[Footnote 31] The Air Force told us 
that it now follows the sampling methodology developed by the Air Force 
Audit Agency. As shown in table 2, utilizing this methodology, the Air 
Force estimated nearly $4.6 million in travel improper payments were 
processed in fiscal year 2006 by the Reserve Travel System--an improper 
payment estimate of approximately 4.5 percent of the $101 million in 
payments processed by the Reserve Travel System during this period. 
However, after reporting its estimated results in the survey for fiscal 
year 2006 payments, the Air Force revised the results of its IPIA 
review. In a memo dated August 8, 2007, the Air Force disclosed an 
underestimation of total Reserve Travel System payments, revising the 
reported amount to $1.5 billion, instead of the $101 million originally 
reported. Based on a centralized review, the Air Force projected its 
improper payments to be $13.6 million--an error rate of 0.9 
percent.[Footnote 32] 

The Army also has a decentralized review process for non-DTS travel 
reimbursements for improper payments. As described above, DFAS 
(Indianapolis) is responsible for identifying and reporting Army IATS 
payments calculated and disbursed by DFAS. However, the Army also 
reported travel improper payments for three other programs or 
activities in the fiscal year 2006 improper payments survey: Army-- 
Korea; Army--Europe; and the Army Corps of Engineers. 

* Staff responsible for the improper payment review for the Korea 
command explained the process they follow to estimate and report 
improper payments, which is completed as part of the internal control 
process and includes an annual inspection. In fiscal year 2006, this 
review included a reinspection of every voucher for a 1-month period. 
This review discovered few improper payments. The future plans for 
improper payment reviews were unknown when we spoke to the Army-Korea 
staff due to ongoing DTS implementation there. In the fiscal year 2006 
survey, Army--Korea reported no improper payments and over $12.6 
million in travel payments. 

* The improper payment review for Army--Europe is even more 
decentralized, with finance officers throughout the region preparing 
improper payment information independently. From our discussion with 
Army--Europe staff, there is no formal process for reviewing and 
reporting improper payment information throughout the region beyond the 
IPIA guidance provided by the Office of the Comptroller. In the fiscal 
year 2006 survey, Army--Europe reported no improper payments and over 
$3.9 million in payments. 

* During fiscal year 2006, the Army Corps of Engineers processed all of 
its travel using IATS. The Army Corps of Engineers finance center is 
responsible for compiling and reporting travel improper payments. 
Officials from the Army Corps of Engineers finance center reported that 
all TDY and PCS vouchers greater than or equal to $2,500 were subject 
to postaudit review, and a sample of every 366th TDY voucher less than 
$2,500 was also reviewed by finance center staff. The sampling plan was 
designed to have a 95 percent confidence level plus or minus 2 percent. 
A DFAS statistician attested to the validity of the sampling 
methodology used by the Army Corps of Engineers. In the fiscal year 
2006 survey, the Army Corps of Engineers reported $57,279 in travel 
improper payments. 

Limited Oversight by Office of the Comptroller Contributes to 
Unreliable Assessment: 

Our review indicated weaknesses in the survey and reported results for 
travel were caused, in part, by limited oversight and review by the 
Office of the Comptroller of the survey and its results. These 
weaknesses include a survey that does not consider the entire 
population of travel payments for fiscal year 2006 and information 
reported that appears unreliable. Without improved oversight by Office 
of the Comptroller, the department's future reporting under IPIA could 
be compromised. 

Our internal control standards[Footnote 33] include monitoring as one 
of the five standards for internal control. The standards provide that 
internal control should generally be designed to assure that ongoing 
monitoring occurs in the course of normal operations and includes 
regular management and supervisory activities, comparisons, and 
reconciliations. During our review of the fiscal year 2006 improper 
payments survey, we noted several weaknesses that indicate a lack of 
appropriate monitoring or oversight by the Office of the Comptroller. 
The most notable weakness we found in the survey is the population of 
travel payments from which improper payments were estimated. As shown 
in figure 2, in fiscal year 2006, $8.5 billion was obligated for travel 
by DOD as reported in the DOD budget for fiscal year 2008. The improper 
payments survey for this same time period reported a total travel 
expenditure population of $3.4 billion--a difference of $5.1 billion. 
The survey results were more complete than the PAR reporting, which 
reported on approximately $824 million in travel payments. The 
exclusion of such a significant portion of travel payments in the 
survey decreases its effectiveness as an improper payments assessment 
tool and indicates inadequate monitoring of the survey process by the 
Office of the Comptroller. A strong internal control environment, 
particularly monitoring, should have included regular reconciliations 
and comparisons that would have brought this discrepancy to 
management's attention in a timely manner. 

Figure 2: DOD Travel Populations for Fiscal Year 2006: 

[See PDF for image] 

Reported travel obligations for FY 2006: $8.5 billion; 
Travel payments reported by DOD agencies in FY 2006 survey: $3.4 
billion; 
Travel payments processed by DTS in FY 2006: $1.2 billion; 
Travel payments reported in FY 2006 PAR: $824 million. 

Source: GAO analysis. 

[End of figure] 

The Office of the Comptroller did not clearly define DOD's travel 
population before collecting the improper payment information for its 
fiscal year 2006 improper payment survey. Because DOD did not clearly 
define the full population of travel payments, the full extent of 
travel improper payments at the department is unknown. Further, until 
DOD establishes guidance with sufficiently detailed procedures on how 
to define its population for travel IPIA reporting, future annual 
reporting is unlikely to be comparable across fiscal years, which could 
prevent users of IPIA information from determining progress made in 
reducing improper payments. 

When we met with Office of the Comptroller officials in March 2007, we 
discussed the importance of a complete travel payment population. At 
that time, Office of the Comptroller officials said they were not aware 
that the travel payment population was a potential problem. However, 
after discussion they agreed to reconcile the difference between the 
budget obligation amounts ($8.5 billion) and the payment amounts 
reported in the fiscal year 2006 improper payments survey ($3.4 
billion). In September 2007, the Office of the Comptroller provided 
reconciliation information for approximately $1.9 billion in travel 
payments and described the following factors that may have contributed 
to the remaining variance: 

* classified program expenditures that are not included in IPIA 
reporting; 

* timing differences between obligations and expenditures; and: 

* reviews and reporting based on audit month rather than actual 
reporting period (e.g., audit and reporting year may run from August 
through July while the fiscal year is October through September). 

As reported in the PAR, DOD travel improper payments appear immaterial 
and the fiscal year 2006 reported travel payment population was 
substantially less than other programs reported on by DOD. While this 
might decrease the focus given to the travel program, we do not 
consider the information reliable and if, for example, the total 
population of $8.5 billion was reported on, with an improper error rate 
of 1 percent as estimated by DOD, travel improper payments would be 
approximately $85 million. This is a substantial amount of improper 
payments and would exceed the improper payment estimates for all but 
two programs as reported in fiscal year 2006--military health benefits 
and commercial pay. 

In addition to the incomplete travel payment population, we noted 
weaknesses in the oversight and review of some data reported in the 
improper payments survey. Four program/activities (Marine Corp Travel 
Pay (IATS), Army-Korea, Army-Europe, and the Defense Security Service 
PCS travel) reported no improper payments on $17 million in associated 
travel payments. We did not review vouchers to determine if any 
improper payments existed in this population but based on the 
description of the improper payments review we obtained from Army-Korea 
and Army--Europe, we do not believe the review process used provided a 
reliable basis for IPIA reporting for those components. For example, 
Army-Korea's review only considered a review of payments during a 1- 
month period, instead of a statistically valid sample of payments for 
the fiscal year. Additionally, one entity reporting under Army-Europe 
reported that because they preaudit their travel vouchers they have 
very few improper payments. Another official told us that Army-Europe 
does little to identify and report travel improper payments. Army- 
Europe staff told us they were not trained in the proper method for 
reporting improper payment information. While it is possible there may 
not be any improper payments in a population, the review process was 
inadequate to provide a basis for reporting no improper payments on $17 
million in travel payments. When we discussed these concerns, Office of 
the Comptroller staff informed us that they are doing further analysis 
to determine the accuracy and completeness of the information. Further, 
the staff told us that they use variance analysis to determine if the 
information submitted is reasonable based on previously reported 
information. 

Office of the Comptroller Taking Steps to Improve Reporting of Travel 
Improper Payments: 

While there are serious challenges facing the Office of the Comptroller 
in the assessment and reporting of travel improper payments, the office 
is taking steps to improve its oversight of the IPIA estimating and 
reporting process. Recently, the Office of the Comptroller established 
a Project Officer for Improper Payments and Recovery Auditing. 
Additionally, the DOD Project Officer has established a working group, 
comprised of representatives from numerous components, intended to 
further improve DOD's compliance with IPIA reporting. 

To introduce DOD component participants to improper payment issues, 
including identifying and reporting improper payments, establishing and 
achieving reduction targets, and recovery auditing, the Office of the 
Comptroller held the "Department of Defense Improper Payments 
Information Act Conference." The conference, held in May 2007, included 
presentations by officials from OMB, DFAS, Navy, DOD OIG, and Office of 
the Comptroller. Additionally, there was a 3-hour session dedicated to 
statistical analysis, with presentations by OMB and DFAS on statistical 
methodologies. Such conferences or other training activities, if held 
on a regular basis, could serve to better train DOD staff responsible 
for improper payment reporting and help assure that information 
provided to the Office of the Comptroller for reporting is reliable and 
prepared in accordance with OMB and DOD guidance. 

Further, the Office of the Comptroller provided us with a draft of the 
"Recommended Post Payment Sampling Plan for Defense Travel System, 
WinIATS & PCS Travel Claims," for fiscal year 2008. This sampling plan 
details the sampling method, selection process, treatment of missing 
records, information on completing the target sample, reporting errors, 
and summary reporting. If implemented effectively, this methodology 
should result in simple random sampling of DTS payments by component 
and the sampling of DOD agencies in aggregate. The plan is estimated to 
reduce the number of DTS sample items from approximately 43,600 in 
fiscal year 2007 to 17,600 in fiscal year 2008--a 26,000 decrease in 
tested sample items for the year, largely from a reduction in sampling 
of DOD agencies. This decrease should allow DFAS to perform more timely 
postpayment reviews because the number of sample items to be reviewed 
would be less. 

Conclusions: 

Although DOD has made some progress in implementing the requirements of 
IPIA for its travel program, challenges remain in ensuring that the 
complete population of all appropriate travel payments has been 
identified and reviewed to reliably determine its susceptibility to 
significant improper payments. As DOD continues to improve its IPIA 
efforts in the travel program, the agency should be better able to 
identify and report improper payments. This is not a simple task and 
will not be easily accomplished, particularly in light of the 
decentralized nature of DOD's travel program. For example, although DTS 
is intended to centralize travel processes at DOD, that goal has not 
yet been achieved, and an estimated 90 percent of DOD's travel payments 
for fiscal year 2006 were computed outside of DTS. Improved guidance 
and oversight by the Office of the Comptroller will be key to ensuring 
that complete and reliable estimates of improper payments are reported. 
With the ongoing imbalance between revenues and outlays across the 
federal government, and the Congress's and the American public's 
increasing demands for accountability over taxpayer funds, improving 
DOD's ability to identify, reduce, and recover travel improper payments 
is even more critical. 

Recommendations for Executive Action: 

In order to improve the usefulness and completeness of IPIA reporting 
for DOD's travel program, we recommend that the Secretary of Defense 
direct the DOD Comptroller to take the following four actions: 

* Establish and implement policies and procedures to reliably identify 
the complete population of DOD travel payments. 

* Establish and implement policies and procedures to report a valid 
improper payment estimate for the population. 

* Develop and implement guidance for the preparation of improper 
payment estimates, to include (1) how to compute a statistically valid 
estimate of improper payments, and (2) the consideration of risk 
factors associated with vulnerability to improper payments. 

* Establish and implement policies and procedures specifying actions to 
oversee the data collection process for travel improper payments to be 
included in the annual PAR, including, at a minimum: (1) periodic 
reviews of processes used by components to prepare improper payment 
estimates, and (2) reviews of information reported in the improper 
payment survey to assure that the population being reported is 
complete, and the improper payment estimate data reported are reliable 
and complete. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report, which are 
reprinted in appendix II. In its written response, DOD concurred with 
three of the recommendations and partially concurred with the fourth. 
DOD partially agreed with our recommendation that the department 
develop and implement guidance for the preparation of improper payments 
estimates, including how to compute a statistically valid estimate of 
improper payments and the consideration of risk factors associated with 
vulnerability to improper payments. Although it concurred with the 
intent of our recommendation, DOD stated that OMB's Circular No. A-123, 
Appendix C, provided guidance for statistical sampling and for 
identifying risk factors and that the decentralized nature of the DOD 
components and the varying systems used for travel pay computations 
make a detailed universal approach impractical. We agree that DOD is a 
decentralized organization, with a wide breadth of activities and 
components. Indeed, this is the primary reason for our recommendation 
that DOD develop and implement additional guidance for use by its 
components. OMB's guidance provides a broad framework for use by 
agencies across the federal government. However, individual agencies 
are responsible for implementing OMB's guidance with policies and 
procedures that meet the specific needs of their operations. Therefore, 
we continue to recommend that DOD issue guidance to provide potential 
sampling methodologies, contact information on how to seek assistance 
with this matter, information on the steps needed to adequately 
implement IPIA at the component level, and examples of improper 
payments relevant to DOD. This guidance should be developed in a form 
that enables DOD staff across the broad range of DOD activities and 
components to carry out their responsibilities. 

Further, DOD commented that it had completed action on all 
recommendations. Specifically, DOD stated that a policy memorandum 
issued by the Deputy Chief Financial Officer, dated November 27, 2007, 
addressed all needed actions. This document consists of a cover 
memorandum, excerpts from Appendix C of OMB Circular No. A-123, and DOD 
improper payment component contact information. As part of our standard 
recommendation follow-up process, we will consider this policy 
memorandum as well as DOD's progress in implementing it throughout the 
department. It is important that DOD takes action to ensure that such 
policy guidance is fully and effectively implemented if DOD is to 
improve the usefulness and completeness of its IPIA report for the 
travel program. 

DOD also provided technical comments, which we incorporated as 
appropriate. 

We are sending copies of this report to other interested congressional 
committees and to affected federal agencies. Copies of this report will 
be made available to others upon request. In addition, this report is 
available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-9095 or at williamsm1@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix IV. 

Signed by: 

McCoy Williams: 
Director, Financial Management and Assurance: 

[End of section] 

List of Congressional Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

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

The Honorable Thomas R. Carper: 
Chairman: 
The Honorable Tom Coburn: 
Ranking Member: 
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

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

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

[End of section] 

Appendix I: Scope and Methodology: 

To assess the completeness and accuracy of the Department of Defense's 
(DOD) fiscal year 2006 Improper Payments Information Act of 2002 (IPIA) 
disclosure for travel improper payments, we reviewed the IPIA 
disclosures in its performance and accountability reports (PAR) for 
fiscal years 2003, 2004, 2005, and 2006. We also contacted 
representatives from DOD Office of Inspector General to discuss their 
assessment of DOD's compliance with IPIA for fiscal year 2006. We met 
with representatives from the Office of the Under Secretary of Defense 
(Comptroller) (Office of the Comptroller) to discuss their preparation 
of IPIA disclosure information included in the DOD PAR. We met with and 
obtained supporting documentation from the Defense Finance and 
Accounting Service (DFAS) officials responsible for estimating and 
reporting improper payment information for travel processed by the 
Defense Travel System (DTS). We observed the processing of Army travel 
through the Integrated Automated Travel System (IATS) and the 
postpayment review process for both Army IATS-processed travel and DTS- 
processed travel. We analyzed information provided by DFAS officials 
related to travel postpayment review to determine if it was complete 
and reliable for reporting purposes. We also reviewed associated 
improper payment reporting information. Additionally, we reviewed 
applicable laws, Office of Management and Budget guidance, DOD 
procedural directives, DOD memos, and other guidance used by DOD to 
guide IPIA reporting to determine what legislation and guidance was in 
place. 

To assess DOD's planned efforts to improve and refine its processes for 
estimating and reporting on travel improper payments we met with staff 
from the Office of the Comptroller. We obtained information from 
representatives from Army-Korea, Army-Europe, the Army Corps of 
Engineers, Air Force, and Navy to determine how each component reviewed 
travel payments processed through its respective legacy systems for 
improper payments and the reporting of that information to the Office 
of the Comptroller. We reviewed the Improper Payments Survey for fiscal 
year 2006 payments and met with officials from the Defense Travel 
Management Office and the Project Management Office for the Defense 
Travel System. We attended the "Department of Defense Improper Payments 
Information Act Conference." 

We did not independently verify the reliability of all information 
provided. However, we did compare it with other supporting documents, 
when available, to determine data consistency and reasonableness. Based 
on our analysis, we believe the information we obtained is sufficiently 
reliable for its use in this report. 

We conducted this performance audit from November 2006 through 
September 2007 in accordance with generally accepted government 
auditing standards. 

We provided a draft of this report to DOD for comment. DOD provided 
written comments, which are presented in the Agency Comments and Our 
Evaluation section of this report and are reprinted in appendix II. DOD 
also provided technical comments, and we made revisions as appropriate. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Comptroller: 
Office Of The Under Secretary Of Defense: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

December 6, 2007: 

Mr. McCoy Williams: 
Director: 
Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Williams: 

This is the Department of Defense (DOD) response to the Government 
Accountability Office (GAO) draft report GAO-08-16, "DOD Travel 
Improper Payments: Fiscal Year 2006 Reporting Was Incomplete and 
Planned Improvement Efforts Face Challenges," dated November 8, 2007,
(GAO Code 195114). The DOD concurs with three recommendations and 
partially concurs with one recommendation in the draft report. 
Additionally, the Department has taken corrective actions to resolve 
the four recommendations. Our detailed responses are enclosed. 

The Department appreciates the opportunity to comment on the draft 
report. We fully support providing accurate and timely reporting of 
improper payments for all of the Department's programs, and we will 
continue to work toward that goal. My staff point of contact is Mr. 
Mike Weber. He may be reached by email: michael.weber@osd.mil or by 
telephone at 703-697-6149. 

Sincerely, 

Signed by: 

J. David Patterson: 
Principal Deputy: 

Enclosure: As stated: 

GAO Draft Report Dated November 8, 2007: 
GAO-08-16 (GAO CODE 195114): 

"DOD Travel Improper Payments: Fiscal Year 2006 Reporting Was 
Incomplete And Planned Improvement Efforts Face Challenges" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the DOD Comptroller to establish and implement policies and 
procedures to reliably identify the complete population of DOD travel 
payments. (Page 37/GAO Draft Report) 

DOD Response: Concur. The Office of the Under Secretary of Defense 
(Comptroller) (OUSD(C)) has taken corrective action to provide for 
complete reporting. The annual Improper Payments Survey for FY 2007 was 
performed and reviewed prior to finalizing the Agency Financial Report 
(AFR). The Department of the Air Force also completed a review of the 
Reserve Travel System, allowing this data to be included in the FY 2007 
AFR. Finally, a Deputy Chief Financial Officer (DCFO) policy 
memorandum, dated November 27, 2007, provided Components with 
additional guidance and directed them to submit their FY 2008 travel 
pay sampling plans, including their risk assessment analysis, for 
OUSD(C) review. Action is complete. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
direct the DOD Comptroller to establish and implement policies and 
procedures to report a valid improper payment estimate for the 
population. (Page 37/GAO Draft Report) 

DOD Response: Concur. A DCFO policy memorandum, dated November 27, 
2007, provided Components with additional guidance and directed them to 
submit their FY 2008 travel pay sampling plans, including their risk 
assessment analysis, for OUSD(C) review. Additionally, the Defense 
Finance and Accounting Service developed a sampling plan that includes 
testing data from the Army Integrated Automated Travel System beginning 
in FY 2008. Action is complete. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
direct the DOD Comptroller to develop and implement guidance for the 
preparation of improper payment estimates, to include: (1) how to 
compute a statistically valid estimate of improper payment, and (2) the 
consideration of risk factors associated with vulnerability to improper 
payments. (Page 37/GAO Draft Report) 

DOD Response: Partially concur. We agree with the intent of the 
recommendation; however, the Office of Management and Budget's Circular 
A-123, Appendix C, provides guidance for statistical sampling and for 
identifying risk factors. The decentralized nature of the DOD 
Components and the varying systems used for travel pay computations 
makes a detailed universal approach impractical. Additionally, larger 
Components have professional staff available to assist with 
implementing this requirement. Therefore, the DCFO issued a policy 
memorandum, dated November 27, 2007, providing Components with 
additional guidance and directing them to submit their FY 2008 travel 
pay sampling plans, including their risk assessment analysis, for 
OUSD(C) review. Action is complete. 

Recommendation 4: The GAO recommends that the Secretary of Defense 
direct the DOD Comptroller to establish and implement policies and 
procedures specifying actions to oversee the data collection process 
for travel improper payments to be included in the annual Performance 
and Accountability Report, including, at a minimum: (1) periodic 
reviews of processes used by Components to prepare improper payment 
estimates, and (2) reviews of information reported in the improper 
payment survey to assure that the population being reported is 
complete, and the improper payment estimate data reported are reliable 
and complete. (Page 38/GAO Draft Report) 

DOD Response: Concur. A DCFO policy memorandum, dated
November 27, 2007, provided Components with additional guidance and 
directed them to submit their FY 2008 travel pay sampling plans, 
including their risk assessment analysis, for OUSD(C) review. 
Additionally, OUSD(C) will continue reviewing the annual survey 
results, supporting the improper payments reported for travel in the 
AFR data, for completeness and accuracy. Action is complete. 

[End of section] 

Appendix III: Excerpts from DOD's Fiscal Year 2006 PAR: 

Department of Defense Performance and Accountability Report FY 2006: 

Page 16: 

Section 1: Management's Discussion and Analysis: 

... solutions, the plan addresses known major deficiencies and captures 
work done or to be done by large Components in assessing their 
weaknesses and developing plans to overcome those weaknesses. The 
Department will continue to maximize resources by aligning its Appendix 
A efforts with the FIAR plan. 

Training and Education: 

Management understands that training and education are crucial to the 
successful execution of the internal management control program and the 
conduct of adequate assessments. The Department conducted training for 
21 of the 34 Components at locally-sponsored training workshops. In 
addition, the Department conducted a Department-wide conference 
attended by more than 200 representatives from all 34 Components. 

To increase the education of managers and employees on the importance 
of internal management controls and effective assessment techniques, 
the Department is conducting a Department-wide survey of Department-
sponsored schools to assess the extent to which training is already 
available for internal management controls. The results of the survey 
will be an indicator of how much additional course work for the 
internal management controls is needed at the Department of Defense 
schools. 

Systems: 

The Federal Financial Management Improvement Act requires federal 
agencies to conform to the U.S. Government Standard General Ledger, 
comply with all applicable federal accounting standards, establish 
financial management systems that meet government-wide standards and 
requirements, and support full disclosure of federal financial data, 
including the costs of federal programs and activities. 

The Department's Inspector General and the audit agencies within the 
Military Services have reported on the Department's failure to comply 
with the Act's requirements. The Department's inability to comply 
materially with the Act primarily results from structural problems 
related to legacy accounting systems that do not accurately account for 
both budgetary and proprietary activities. Quite simply, the Department 
does not have the systems and accounting structures in place to enable 
compliance. 

To remedy these challenges, the Department of Defense has placed an 
unprecedented emphasis on reforming its financial management systems 
and accounting processes. Primarily through the Business Enterprise 
Architecture and the Enterprise Transition Plan, the Department is 
identifying the business capabilities and standards at the Department-
wide level that will support compliance. The Standard Financial 
Information Structure and U.S. Standard General Ledger initiatives 
discussed earlier in this section are major steps toward achieving 
compliance with the Federal Financial Management Improvement Act. 

Improper Payments Information Act Reporting: 

The Improper Payments Information Act of 2002, as implemented by the 
Office of Management and Budget, requires federal agencies to review 
all programs and activities annually and identify those that may be 
susceptible to significant erroneous payments. 

The Department of Defense reports its progress in reducing erroneous 
payments to both the President and the Congress. The Department's FY 
2006 review did not identify any programs or activities at risk for 
"significant erroneous payments" in accordance with the Office of 
Management and Budget's criteria (i.e., programs with erroneous 
payments exceeding both $10 million and 2.5 percent of program 
payments). During this review, however, the Department noted that 
civilian, commercial, and travel pay potentially were susceptible to 
erroneous payments in excess of $10 million. For FY 2006, the 
Department reports on three high risk programs: military health 
benefits, military retirement, and military pay. 

In accordance with guidance, the Department calculated statistically-
valid estimates of erroneous payments and is implementing plans to 
reduce them within each of the six programs. Current estimates for FY 
2006 improper payments are presented in the table below. 

FY 2006 Estimated Improper Payments (Dollars in Millions): 
		
Program: Military Retirement; 
Estimated Amount: $48.8; 
Estimated Percentage: 0.1% 

Program: Travel Pay; 
Estimated Amount: $8.0; 
Estimated Percentage: 1.0%. 

Program: Military Health Benefits; 
Estimated Amount: $140.0; 
Estimated Percentage: 2.0%, 

Program: Military Pay; 
Estimated Amount: $65.9; 
Estimated Percentage: 0.1%. 

Program: Civilian Pay; 
Estimated Amount: $62.8; 
Estimated Percentage: 0.1% 

Program: Commercial Pay; 
Estimated Amount: $550.0; 
Estimated Percentage: 0.2%. 

[End of table] 

While the Department's overall improper payment percentage is quite low 
for the over $750 billion it pays each year to individuals, 
contractors, agencies, and other entities, the Department has numerous 
pre-and post-payment controls in place to minimize and eliminate 
improper payments. For further reporting details about these controls 
and the Department's Improper Payments Information Act reporting 
results, see Section 4: Other Accompanying Information. 

Other Management Information, Initiatives, and Issues: 

President's Management Agenda: 

The President's Management Agenda has been inculcated throughout the 
Department and has made significant progress since implementation. 
Further information is available at [hyperlink, 
http://www.results.gov]. The President's Management Agenda identifies 
the following five government-wide initiatives: 

* Electronic Government (e-Gov); 
* Strategic Management of Human Capital; 
* Competitive Sourcing; 
* Improved Financial Performance; 
* Budget and Performance Integration. 

In addition, the President's Management Agenda includes the following 
four program initiatives that apply to the Department: 

* Eliminating Improper Payments; 
* Real Property Management; 
* Coordination of Department of Veterans Affairs and Department of 
Defense Programs and Systems; 
* Privatization of Military Housing. 

As of September 30, 2006, the Department's grades were mixed: 

Department Scorecard Results (September 30, 2006): 

Government-Wide Initiatives: Electronic Government (e-Gov); 
Status Score: Failure; 
Progress Score: Success. 

Government-Wide Initiatives: Strategic Management of Human Capital; 
Status Score: Mixed results; 
Progress Score: Success. 

Government-Wide Initiatives: Competitive Sourcing; 
Status Score: Mixed results (improvement in score since FY 2005); 
Progress Score: Mixed results (improvement in score since FY 2005). 

Government-Wide Initiatives: Improved Financial Performance; 
Status Score: Failure; 
Progress Score: Success (improvement in score since FY 2005). 

Government-Wide Initiatives: Budget & Performance Integration; 
Status Score: Mixed results; 
Progress Score: Success. 

Program Initiatives: Eliminating Improper Payments Initiative;
Status Score: Mixed results; 
Progress Score: Success. 

Program Initiatives: Real Property Management Initiative; 
Status Score: Mixed results (improvement in score since FY 2005); 
Progress Score: Mixed results (decline in score since FY 2005). 

Program Initiatives: Coordination of VA and DOD Programs and Systems; 
Status Score: Mixed results; 
Progress Score: Mixed results. 

Program Initiatives: Privatization of Military Housing*; 
Status Score: Success; 
Progress Score: Success. 

Note: * = Results as of June 30, 2006. 

[End of table] 

Section 4: Other Accompanying Information: 

Page 206: 

However, the Department must be vigilant in ensuring that the strategy 
for logistics transformation is continuously reevaluated and that new 
initiatives and systems are adequately funded and effectively 
implemented. 

Government Accountability Office High-Risk Areas: 

Since 1990, the Government Accountability Office has periodically 
reported on government operations that it has designated as high risk. 
Its audits and evaluations identify federal programs and operations 
that, in some cases, are high risk due to their greater vulnerabilities 
to fraud, waste, abuse, and mismanagement. In its latest report, the 
Government Accountability Office designated 26 high-risk areas. Eight 
involved Department of Defense programs and operations; five involved 
the Department as well as other federal agencies. The Department-
related high-risk areas are listed below. 

Department of Defense: 

* Approach to Business Transformation; 
* Business Systems Modernization; 
* Personnel Security Clearance Program; 
* Support Infrastructure Management; 
* Financial Management; 
* Supply Chain Management (formerly Inventory Management); 
* Weapon Systems Acquisition; 
* Contract Management. 

Department of Defense and Other Federal Agencies: 

* Strategic Human Capital Management; 
* Managing Federal Real Property; 
* Protecting the Federal Government's Information Systems and the 
Nation's Critical Infrastructures; 
* Establishing Appropriate and Effective Information-Sharing Mechanisms 
to Improve Homeland Security; 
* Management of Interagency Contracting. 

Management's Response to Auditor Challenges: 

In general, the Department concurs with the concerns identified by the 
Inspector General in his Summary of Management and Performance 
Challenges and the issues presented in the Government Accountability 
Office's High Risk List. The Department is taking progressive steps to 
evaluate weaknesses across the Department in systems, processes and 
internal controls. The Department established comprehensive plans, 
presented throughout this report, that describe the steps necessary to 
improve these areas of concern within the Department. Without question, 
the path forward to implement solutions will be challenging, expensive, 
and require much time. However, the Department has made a good start 
and has made substantial progress in many areas. The support of the 
Congress and the Department's many stakeholders, as well as the efforts 
of individuals and organizations across the entire Department, have 
contributed to the development of these plans and the progress made in 
implementing solutions. 

Improper Payments Information Act Reporting Details: 

As discussed in Section 1: Management's Discussion and Analysis, the 
Department conducted a review of the improper payments per the Office 
of Management and Budget guidance. 

Risk Assessment: 

The Department reviewed all of its programs and activities and 
determined that six programs/activities were susceptible to improper 
payments: Military Retirement, Travel Pay, Military Health Benefits, 
Military Pay, Civilian Pay, and Commercial Pay. These programs 
represent approximately 86 percent of the Department's total payments. 
The Department of Defense performed risk assessments for each of these 
programs/activities that addressed the strength of the internal 
controls in place to prevent improper payments (such as prepayment 
reviews), system weaknesses identified internally or by outside audit 
activities, voluntary returns of overpayments by vendors, etc. The 
subsequent paragraphs summarize the process and results of these 
assessment surveys. There are two other types of payment programs/ 
activities that the Department did not conduct surveys for and as a 
result are not discussed below, intragovernmental payments 
(approximately $75 billion in fiscal year (FY) 2005) and payments for 
afloat and deployed forces (approximately $600 thousand in FY 2005). 
The Department is developing a program to cover these remaining 
program/activity payments. 

Statistical Sampling: 

Military Retirement. During FY 2006, the Department continued the 
process, implemented in FY 2004, of monthly random reviews of confirmed 
deceased retiree accounts, in addition to monthly random reviews from 
the overall population of retired and annuitant pay accounts. Both of 
these sampling plans are designed to produce annual estimates of 
improper payments, with probability of 95 percent and sample precision 
of plus or minus 2.5 percent. 

A monthly sample of accounts is selected from the population of 
confirmed deceased accounts. Each account is audited to determine if 
the member was overpaid after the member's death. Statistics collected 
from the review include the number of accounts reviewed, number with 
overpayments, dollar amount of the overpayment, amount of correct pay 
(what the payment should have been), and the dollar amount collected 
back from the member's account/estate within the first 60 days after 
notification. These sample statistics are projected to the population 
of deceased retirees to then determine an improper payment rate 
population estimate for deceased accounts. 

Population estimates from the deceased account reviews are then added 
to any improper payments identified through other than retired pay 
random or special audits, to determine an overall improper payments 
population estimate for retired pay. 

Travel Pay. The Department performs monthly random post-payment reviews 
of travel records settled through the Defense Travel System and 
Integrated Automated Travel System. These reviews satisfy requirements 
of Certifying Officers Legislation and ensure payments are legal, 
accurate, and have supporting documentation. These random reviews are 
designed to produce annual estimates of improper payments, with 
probability of 95 percent and sample precision of plus or minus 2.5 
percent, at the Military Service component level (Army, Navy, Air 
Force, and Marine Corps). 

For travel payments made by the U. S. Army Corps of Engineers, all 
temporary duty and permanent change of station travel vouchers greater 
than or equal to $2,500 are subject to a post audit review. A sample 
composed of every 366th temporary duty travel voucher less than $2,500 
is also reviewed. These reviews are designed to produce annual 
estimates of improper payments, with probability of 95 percent and 
sample precision plus or minus 2 percent. 

Military Health Benefits. To determine the statistically valid estimate 
of the annual amount of improper payments, the Department uses the 
following sampling methodology to pull TRICARE (i.e., triple option 
health benefit plan available for military families) encounter data 
records for the annual target health care cost audits of the managed 
care support services contracts. 

For each contract option period, a statistically valid sample of claims 
with care end dates within the specified option period is selected for 
payment error auditing. Variable sampling, using stratified sampling 
with optimum allocation, is used to calculate the sample size for the 
payment errors. The sample size is designed to produce annual estimates 
of improper payments, with probability of 90 percent and sample 
precision plus or minus 1 percent. 

Section 4: Other Accompanying Information: 

Page 206: 

Corrective Action Plans: 

Military Retirement. The improper payments rate for the military 
retirement is projected to remain nearly the same from FY 2005 ($49.3 
million or .1381 percent) to FY 2006 ($48.8 million or .137 percent). 
The majority of the improper payments are made to deceased retirees 
(approximately $48.5 million). Random reviews from FY 2006 indicate 95 
percent of the overpaid dollars to deceased retirees is recovered 
within the first 60 days after notification. To reduce the initial 
improper payment primarily caused by the delay in death notification to 
the paying office by family members, the Department has substantially 
improved its internal processing methods and is using data mining 
techniques with the Social Security Administration. This process allows 
the Department to receive death notice information through an automated 
system and helps prevent improper payments by the pay system. 

Travel Pay. The Defense Travel System contains numerous automated 
prepayment flags to alert travelers and approving officials of 
potential inconsistencies that could result in an improper payment. In 
addition, results of monthly random reviews of Defense Travel System 
trip records are summarized and presented to applicable Service 
component representatives and to Defense Travel System management 
personnel. These reports include number, dollar value, and reasons for 
errors discovered among the sampled claims, as well as recommendations 
to prevent similar errors on future travel records. Analysis indicates 
most errors are attributed to traveler input or authorizing official 
oversight. Training of both travelers and authorizing officials is one 
of the primary tools the Department uses to alleviate these types of 
discrepancies. 

In FY 2006, over 783,000 trip records, with total settlement dollar 
value of $823.6 million, were processed through the Defense Travel 
System. As of September 30, 2006, the Department randomly selected and 
reviewed 30,100 settled trip records with a value exceeding $32.6 
million. Improper payments accounted for .968 percent of the tested 
sample, so projected improper payments in the population of settlements 
could approach $7.97 million. 

Military Health Benefits. The Department has had contracts with payment 
performance standards for military health benefit claims processing in 
place for many years. Under the existing managed care support 
contracts, the Department has a zero tolerance for unallowable costs. 
If the contractor pays a claim that is not allowable, the Department 
will not reimburse the contractor. In addition to placing the 
contractors at risk for unallowable costs, this contractual design 
provides a built-in incentive for contractors to continually perfect 
their claims processing system, up to the point where financial costs 
outweigh the benefits. 

The Department currently audits statistically valid samples that over 
the years have consistently produced an error rate of less than the 2 
percent standard contained in the TRICARE contracts. Improperly 
submitted claims by the provider community, as well as a minimal degree 
of human error that can be expected with handling a large volume of 
claims within the tight time parameters established through the prompt 
payment regulations, cause errors in health care claims processing. 
Based on the FY 2006 survey, the FY 2006 improper payments rate for the 
military health benefits is projected to be $140.0 million or 2.0 
percent. 

Numerous prepayment and post-payment controls are built into the 
military health benefits' claims processing system to minimize improper 
payments. Every TRICARE claim is adjudicated against this system of 
checks and balances. The managed care support contractors are required 
to utilize specialized software containing specific auditing logic 
designed to ensure appropriate coding on professional service claims 
and eliminate overpayments. The software does not set coverage/benefit 
policy; it merely audits claims for appropriate code combinations. For 
calendar... 

Section 4: Other Accompanying Information: 

Page 214: 

provisional billing rates. The Defense Contract Audit Agency also 
performs paid voucher reviews at major contractors and special purpose 
audits at contractor locations when a risk factor for improper payments 
is identified and neither a billing system review nor a test of paid 
vouchers is planned. 

Accountability: 

Certifying officer legislation currently in effect holds certifying and 
disbursing officers accountable for government funds. Pecuniary 
liability attaches automatically when there is a fiscal irregularity, 
i.e., (a) a physical loss of cash, vouchers, negotiable instruments, or 
supporting documents, or (b) an improper payment. Pecuniary liability 
for accountable officials attaches if a commander/director determines 
an improper payment was the result of the accountable official's 
negligence. For certifying officers and disbursing officers, there is a 
presumption of negligence and those individuals bear the burden of 
proof in establishing the absence of negligence, i.e., they must 
produce evidence to establish that there was no contributing fault or 
negligence on their part. A presumption of negligence does not apply to 
accountable officials. Efforts to recover from the recipient must be 
undertaken in accordance with the debt collection procedures in Volume 
5, Chapters 29 and 30, of the Department's Financial Management 
Regulation. 

In addition, the Department actively monitors performance metrics to 
further reduce improper payments. These metrics include all programs/ 
activities the Department has identified as having a risk of improper 
payments (i.e., military retired, military health benefits, and 
military, civilian, travel, and commercial pay areas). 

Information Systems: 

The Department has the information and infrastructure needed to reduce 
improper payments for five of the six major program/activity areas. For 
commercial payments, as previously mentioned, the Department is 
currently in the process of procuring business activity monitoring 
services, which will employ the latest technology to increase the 
efficiency and effectiveness of improper payment detection efforts. The 
Department will prioritize the use of this capability first toward 
commercial payments and then to all payment areas. 

Statutory or Regulatory Barriers: 

There are currently no statutory or regulatory barriers limiting the 
Department's corrective actions for five of the six major 
program/activity areas. 

For military retirement, two barriers impede the agency's ability to 
take corrective actions in reducing improper payments: the Federal 
Acquisition Regulation and the Retired and Annuitant Pay service 
contract. In January 2002, the Defense Finance and Accounting Service 
awarded the Retired and Annuitant Pay service operations to a 
government contractor. Although most functions remain unchanged from 
when the government performed these functions, there are now 
contractual limits to the government's involvement in the day-to-day 
operations of Retired and Annuitant Pay. The Continuing Government 
Activity Office was formed to oversee the Retired and Annuitant Pay 
contract. To ensure the contractual requirements are followed, however, 
the government can no longer direct how the work is accomplished. To 
bring about an operational change, both the government and the 
contractor must agree on how to effect and fund the change. The Federal 
Acquisition Regulation requires any deviation from the current contract 
be accomplished via a contract modification. 

Additional Comments: 

The Office of Management and Budget requested that the Department 
identify Iraq improper payment indicators. In support of this request, 
additional reviews are conducted on payments for Iraq by the... 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgements: 

GAO Contact: 

McCoy Williams, (202) 512-9095 or williamsm1@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, the following individuals also 
made significant contribution to this report: Dianne Guensberg, 
Assistant Director; Sharon Byrd; Francine DelVecchio; Heather Dunahoo; 
and Bradley Klingsporn. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). Prior to IPIA, 
former section 57 of OMB Circular No. A-11 required certain agencies to 
submit similar information, including estimated improper payment target 
rates, target rates for future reductions in these payments, the types 
and causes of these payments, and variances from targets and goals 
established. In addition, these agencies were to provide a description 
and assessment of the current methods for measuring the rate of 
improper payments and the quality of data resulting from these methods. 
DOD began reporting improper payment information for military health 
benefits and military retirement in fiscal year 2003. 

[2] Appendix C to OMB Circular No. A-123, Requirements for Effective 
Measurement and Remediation of Improper Payments (Aug. 10, 2006). 

[3] Improper payments are defined as any payment that should not have 
been made or that was made in an incorrect amount (including 
overpayments and underpayments) under statutory, contractual, 
administrative, or other legally applicable requirements. It includes 
any payment to an ineligible recipient, any payment for an ineligible 
service, any duplicate payment, payments for services not received, and 
any payment that does not account for credit for applicable discounts. 

[4] DOD, Department of Defense Budget for Fiscal Year 2008: Financial 
Summary Tables (February 2007). 

[5] An obligation is a definite commitment that creates a legal 
liability of the government for the payment of goods and services 
ordered or received, or a legal duty on the part of the United States 
that could mature into a legal liability by virtue of actions on the 
part of the other party beyond the control of the United States. 
Payment may be made immediately or in the future. An expenditure is the 
actual spending of money--an outlay. We use the terms payment and 
expenditure interchangeably. 

[6] A recent GAO report shows that DOD has substantially reduced its 
use of premium class travel charged to government credit cards since 
2004, following our DOD premium class travel report. See GAO, Premium 
Class Travel: Internal Control Weaknesses Governmentwide Led to 
Improper and Abusive Use of Premium Class Travel, GAO-07-1268 
(Washington, D.C.: Sept. 28, 2007). 

[7] H.R. Conf. Rep. No. 109-676, at 94 (Sept. 25, 2006). 

[8] Pub. L. No. 109-289, 120 Stat. 1257 (Sept. 29, 2006). 

[9] GAO, Improper Payments Information Act of 2002: Department of 
Defense Travel Expenditure Reporting, GAO-07-767R (Washington, D.C.: 
May 31, 2007). 

[10] "Improper payment" and "erroneous payment" have the same meaning 
under Appendix C of OMB Circular No. A-123. 

[11] IPIA does not include a similar threshold for defining significant 
improper payments. 

[12] Agencies may alternatively use a 95 percent confidence interval of 
plus or minus 3 percentage points around the estimate of the percentage 
of improper payments. 

[13] Institute for Defense Analyses, Assessment of the Potential to 
Improve the Cost-Effectiveness of the Defense Travel System, IDA Paper 
P-4200 (March 2007). 

[14] GAO, DOD Business Transformation: Defense Travel System Continues 
to Face Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan. 
18, 2006). 

[15] IDA Paper P-4200, March 2007. 

[16] DOD, Performance and Accountability Report: Fiscal Year 2006 (Nov. 
15, 2006). 

[17] The Reserve Travel System processes PCS travel, Air National Guard 
travel, and deployments. 

[18] We did not perform a detailed review of the IATS postpayment 
review results; however, we did observe the process and obtained 
information on the results of the review in fiscal year 2006. 

[19] According to DOD's fiscal year 2006 PAR, the random postpayment 
sample reviews were originally performed to satisfy the requirements of 
"certifying officers legislation." 31 U.S.C. ß3521(b) authorizes heads 
of agencies to carry out a statistical sampling procedure, within 
certain parameters, to audit vouchers when the head of the agency 
determines that economies will result. In general, certifying officers 
designated in writing by the agency are financially liable for any 
improper, illegal, or incorrect payment made, and each payment made 
must be audited. However, 31 U.S.C. ß3521(c) provides that certifying 
and disbursing officers are not liable for payments that are not 
audited if they were made in good faith under a statistical sampling 
procedure. Because of the weaknesses we describe below, we have doubts 
that the DTS postpayment sample reviews constitute a valid statistical 
sampling procedure under 31 U.S.C. ß3521(b) for payments processed 
through DTS. We are referring this matter to the DOD OIG for further 
review. 

[20] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[21] DOD travel regulations require submission of receipts for lodging 
expenses regardless of amount and for all other expenditures of $75 or 
more. These regulations implement Internal Revenue Service requirements 
for an "accountable plan." 

[22] These 9 include 8 defense agencies and 1 unified combatant 
command. There are 16 defense agencies in total. Samples were also 
selected for a population group labeled "unknown" but from 
documentation provided, testing of these samples was not completed nor 
was an estimate of improper payments. 

[23] DOD officials refer to the improper payments survey of payments 
made in fiscal year 2006 as the fiscal year 2007 survey, because it was 
prepared in fiscal year 2007. For the purposes of this report, the 
improper payments survey of payments made in fiscal year 2006 will be 
known as the fiscal year 2006 survey, because it discloses information 
related to fiscal year 2006 payments. 

[24] The memorandum issuing guidance on completion of the survey of 
2006 payments was addressed to the assistant secretaries of the 
military departments (Financial Management and Comptrollers), the U.S. 
Marine Corps Assistant Deputy Commandant for Programs and Resources, 
the Inspector General of the Department of Defense, the directors of 
defense agencies, the Commander of the Army Corps of Engineers, and the 
directors of DOD field activities. 

[25] The programs and activities provided were based on the prior year 
survey and included total military pay; retired/annuitant pay and 
descendent pay; civilian pay; travel pay; health care; commercial pay; 
afloat & deployed forces; and intra-and intergovernment payments. 

[26] GAO/AIMD-00-21.3.1. 

[27] GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under 
the Improper Payments Information Act Remains Incomplete, GAO-07-92 
(Washington, D.C.: Nov. 14, 2006). 

[28] GAO-AIMD-00-21.3.1. 

[29] GAO, Strategies to Manage Improper Payments: Learning From Public 
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October 
2001). 

[30] Air Force Audit Agency, Improper Payments Information Act of 2002- 
Travel Payments, F2007-0002-FB1000 (Nov. 20, 2006). 

[31] The report recommended that the Air Force "select a statistical 
sample of payments for review from the Reserve Travel System database. 
According to OMB guidance, the sample should be of sufficient size to 
yield an estimate with a 90 percent confidence interval of plus or 
minus 2.5 percent around the erroneous payment estimate." 

[32] The Air Force also reported that the reviews were still ongoing as 
of August 8, 2007, and they were awaiting documentation for 42 vouchers 
(of the 463 sample items) in order to complete the audit. However, the 
Air Force did not believe these outstanding items would significantly 
change the final report. 

[33] GAO/AIMD-00-21.3.1. 

[End of section] 

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