The Department of Defense (DOD) provides a living quarters allowance (LQA) as an incentive to recruit eligible U.S. citizens for civilian employee assignments overseas. This allowance helps defray expenses, such as rent and utilities, associated with living overseas. In fiscal year 2014, the most recent year for which data are available, DOD paid about 16,880 U.S. civilian employees assigned overseas over $504 million for LQA. After conducting a worldwide audit in 2013, DOD determined some civilian employees had, over the course of their employment, erroneously received a total of about $104.5 million for LQA, in part because of misinterpretations of eligibility requirements for this allowance. Specifically, 444 employees were identified as having been erroneously paid LQA because they were incorrectly identified by DOD components as having been initially recruited in the United States or as having maintained continuous employment with only a single prior employer since being hired overseas.
Within DOD, the Deputy Assistant Secretary of Defense for Civilian Personnel Policy is to develop, revise, and monitor the implementation of overseas allowance and differential policies and procedures, including those for LQA. This responsibility has been delegated to the Defense Civilian Personnel Advisory Service (DCPAS), a component of the Defense Human Resources Activity. DCPAS is responsible for monitoring other DOD components’ LQA determinations.
 This recruitment must have been by the U.S. government, a private U.S. organization, an international organization in which the United States participates, or a foreign government, and having remained in continuous employment with that employer.
 This responsibility is outlined in DOD Instruction 1400.25, Volume 1250, DOD Civilian Personnel Management System: Overseas Allowances and Differentials (Feb. 23, 2012), which we refer to as the LQA Instruction.
 DOD makes LQA eligibility determinations in accordance with Department of State Standardized Regulations (DSSR); DOD Instruction 1400.25, Volume 1250; and department-wide and component-level guidance.
In June 2015, GAO found that DCPAS had not monitored DOD components’ LQA eligibility determinations for civilian employees overseas to help ensure the consistent application of eligibility requirements across the department. In 2010, the DOD Office of the Inspector General recommended that the Deputy Assistant Secretary of Defense for Civilian Personnel Policy conduct periodic quality assurance reviews of overseas allowance and differential payments, including LQA. In implementing the Office of the Inspector General’s recommendation, DOD updated its LQA Instruction in February 2012 to include a requirement that ongoing quality assurance reviews be conducted to verify that overseas allowance and differential payments are proper and consistent with applicable statutory and regulatory provisions. However, DOD delegated this requirement to its components that make the eligibility determinations for LQA, thereby having them periodically review their own actions, rather than having the office responsible for oversight of such allowances perform the reviews. Further, according to DCPAS officials, these reviews have not consistently been conducted. DCPAS officials explained that they became aware of issues with inconsistent LQA eligibility determinations shortly after the February 2012 LQA Instruction containing the new requirement for ongoing quality assurance reviews was issued. DCPAS officials chose not to have DOD components begin conducting the periodic quality assurance reviews because they anticipated that the components would soon be involved in the 2013 LQA audit, which was conducted by DCPAS. DCPAS officials also told GAO that they are not responsible for monitoring the LQA eligibility determinations of DOD components. In the absence of a specific requirement to conduct this monitoring, it is unclear whether DCPAS officials would fulfill this responsibility.
As a result of the issues that arose from the 2013 audit, DOD is in the process of revising its LQA Instruction. A February 2015 draft LQA Instruction that GAO reviewed included, among other things, a proposal that the heads of DOD components annually conduct an audit of employees who receive overseas allowances and differentials and report the results to the Deputy Assistant Secretary of Defense for Civilian Personnel Policy by March of each year. However, there is no specific requirement in the draft LQA Instruction for the Office of the Deputy Assistant Secretary or DCPAS to monitor the reviews conducted by DOD components to identify any potentially inconsistent eligibility determinations and ensure corrective action is taken. Furthermore, according to DCPAS officials, the draft was subsequently modified to require DOD components to report to the Deputy Assistant Secretary of Defense for Civilian Personnel Policy only when component officials identify a problem during the course of an audit.
Standards for Internal Control in the Federal Government state that internal control monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved. Without actively monitoring the reviews, DCPAS cannot independently verify that DOD components are making LQA eligibility determinations in accordance with applicable statutory and regulatory provisions and are promptly and appropriately taking action to resolve any findings and recommendations from their reviews. Further, DOD cannot ensure the consistent application of LQA eligibility requirements throughout the department and is at risk for future erroneous payments of this allowance to its civilian employees overseas. If, through consistent monitoring, DCPAS concludes that DOD components are improperly providing LQA to civilian employees who are not eligible to receive it, DOD may identify cost savings.
To better ensure that DOD components are determining LQA eligibility consistently with applicable regulations and policies, GAO recommended in June 2015 that the Secretary of Defense
Estimated cost savings in this area cannot be determined because the net savings will depend on the results of DOD components’ periodic quality assurance reviews. If DOD components identify a significant number of civilian employees who have improperly received LQA for a number of years, then DOD could realize significant cost savings if the relevant component(s) discontinue LQA for those employees. Further, DOD may altogether avoid costs that it would have otherwise incurred through improper payments of LQA by identifying and discontinuing LQA for such employees earlier than would have occurred without monitoring the reviews of LQA determinations. For example, in its 2013 audit, DOD concluded that LQA payments totaling $104.5 million were paid to employees who should not have been authorized to receive LQA at all. By monitoring the components’ reviews, the Deputy Assistant Secretary of Defense for Civilian Personnel Policy or DCPAS, as delegated, can ensure that potential improper payments are promptly identified and resolved and do not result in conditions similar to those that were revealed in the 2013 LQA audit.
The information contained in this analysis is based on findings in the report identified in the related GAO product section. For this report, GAO reviewed the DSSR, DOD’s current LQA Instruction, and DOD’s draft LQA Instruction dated February 2015. GAO interviewed officials from DCPAS and DOD components with employees who were determined to have been erroneously paid LQA in DOD’s 2013 audit to assess DCPAS’s oversight of LQA eligibility determinations. GAO used Defense Finance and Accounting Service’s payroll data for fiscal years 2011 through 2014 to identify the number of employees who received LQA, the total dollar amount of LQA spent, and the debt incurred by the employees determined by DOD’s 2013 LQA audit to have been erroneously paid LQA. GAO also interviewed officials from the Army, Navy, Air Force, and Marine Corps who are involved in creating and implementing LQA guidance for the military services as well as providing support to the overseas officials who make LQA eligibility determinations.
Table 9 in appendix V lists the program GAO identified that might have opportunities for cost savings or revenue enhancement.
In commenting on GAO’s June 2015 report on which this analysis is based, DOD concurred with the recommendation to monitor reviews of LQA eligibility determinations. DOD stated that it was in the process of revising DOD’s LQA Instruction. As stated earlier, according to DCPAS officials, the updated LQA Instruction is to require the DOD components to conduct annual reviews of LQA payments and communicate any inconsistencies to the Deputy Assistant Secretary of Defense for Civilian Personnel Policy. While a notable development, the draft LQA Instruction still does not require the Office of the Deputy Assistant Secretary or DCPAS to monitor the reviews conducted by DOD components to identify any potentially inconsistent eligibility determinations and ensure corrective action is taken, as was the intent of GAO’s June 2015 recommendation. As of March 2016, DOD had not yet issued the revision to DOD LQA Instruction, but according to DCPAS officials, they had begun the intradepartmental coordination process that is necessary prior to issuance. DCPAS officials submitted the draft for internal legal review in September 2015, which was still underway as of March 2016. According to the officials, this review has taken longer than expected due to legal staff working on other department priorities. DCPAS officials estimated that the LQA Instruction would not be finalized and issued until April 2016 at the earliest.
GAO provided a draft of this report section to DOD for review and comment. In an email received on March 11, 2016, DOD officials stated their intent to meet the recommendation when the LQA Instruction is finalized and issued. The Department also recently directed components to complete another review and submit a report of overseas allowances and differentials paid to a sampling of overseas employees. Component headquarters are required to submit specific information on each allowance approved by their subordinate offices along with supporting laws and regulations that authorize each allowance. DOD officials stated that this will allow the department to review and monitor LQA eligibility determinations.The issuance of such a review is a positive interim step, but until DOD issues its revised LQA Instruction to include a requirement to monitor DOD components’ reviews of LQA determinations, there is no assurance that such monitoring will be regularly conducted in the future.
Johana Ayers, (202) 512-5741 or email@example.com.
The Department of Defense (DOD) and its components have taken steps to clarify living quarters allowance (LQA) eligibility requirements for civilian employees overseas, but DOD has not monitored its components' LQA eligibility determinations. DOD and its components are to make LQA eligibility determinations in accordance with Department of State (State) Standardized Regulations (DSSR) as well as d...