DOD Financial Management:

Significant Improvements Needed in Efforts to Address Improper Payment Requirements

GAO-13-227: Published: May 13, 2013. Publicly Released: Jun 6, 2013.

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Asif A. Khan
(202) 512-9869
khana@gao.gov

 

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What GAO Found

The Department of Defense (DOD) did not adequately implement key provisions of the Improper Payments Information Act of 2002 (IPIA) and the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and Office of Management and Budget (OMB) requirements for fiscal year 2011. Most important, GAO found that DOD's improper payment estimates reported in its fiscal year 2011 Agency Financial Report were neither reliable nor statistically valid because of long-standing and pervasive financial management weaknesses and significant deficiencies in the department's procedures to estimate improper payments. For example, DOD did not

  • have key quality assurance procedures in place, such as reconciliations, to validate the completeness and accuracy of the populations used to estimate improper payments;

  • develop appropriate sampling methodologies for estimating improper payments;

  • produce a statistical estimate for its largest program, Defense Finance and Accounting Service (DFAS) commercial pay; and

  • maintain key documentation supporting its reported improper payment estimates.

Also, GAO found significant deficiencies in DOD's policies and procedures to address other key improper payment requirements for fiscal year 2011. Specifically, DOD did not

  • perform a required risk assessment to identify those programs susceptible to significant improper payments,

  • have procedures to identify root causes of improper payments and develop related corrective actions,

  • conduct recovery audits for any of its programs or determine that these audits would not be cost effective, and

  • have procedures to ensure that its annual improper payment and recovery audit reporting is complete, accurate, and in compliance with IPERA and OMB reporting requirements.

DOD has taken some actions since fiscal year 2011, such as reporting a statistical estimate for Defense Finance and Accounting Service commercial pay and issuing revised Financial Management Regulation chapters on improper payments and recovery audits. However, until the department takes action to correct the deficiencies GAO found related to identifying, estimating, reducing, recovering, and reporting improper payments and thereby fulfills legislative requirements and implements related guidance, it remains at risk of continuing to make improper payments and wasting taxpayer funds.

Why GAO Did This Study

DOD reported $1.1 billion in improper payments for fiscal year 2011, which marked the eighth year of implementation of IPIA, as well as the first year of implementation of IPERA. IPIA required executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.

GAO was asked to review the progress DOD has made to identify, estimate, and reduce improper payments. GAO's objective was to review the extent to which DOD has implemented key provisions of IPIA, IPERA, and OMB guidance. GAO reviewed improper payment requirements; analyzed agency financial reports, internal guidance and plans, and sampling methodologies; and interviewed cognizant officials. The scope for this engagement was DOD's reported improper payment information for fiscal year 2011 and DOD's plans and actions to estimate commercial pay improper payments for fiscal year 2012.

What GAO Recommends

GAO is making 10 recommendations to improve DOD's processes to identify, estimate, reduce, recover, and report on improper payments. DOD concurred with 9 and partially concurred with 1 of the recommendations and described its plans to address them.

For more information, contact Asif A. Khan at (202) 512-9869 or Khana@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that the department will work with the Defense Finance and Accounting Service (DFAS) to implement key quality procedures, such as reconciliations, to ensure the completeness and accuracy of the sampled populations. As of May 2014, DOD officials reported that since the conclusion of fiscal year 2011 reporting, DFAS has performed an annual reconciliation of the gross outlays reported on the Statement of Budgetary Resources (SBR) to the outlays reported as reviewed for improper payments. The reconciliation is performed at a summary level, as the trial balance information used in preparing the SBR does not include details needed to assign the outlay to a type of payment, e.g., there is no code identifying the outlay as being disbursed by vendor pay and reviewed for improper payments. Therefore, a 100 percent reconciliation of the two amounts is not possible. The estimated completion date for implementing this recommendation is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)with regard to estimating improper payments, to establish and implement key quality assurance procedures, such as reconciliations, to ensure the completeness and accuracy of the sampled populations.

    Agency Affected: Department of Defense

  2. Status: Open

    Comments: The Department of Defense (DOD) partially concurred with this recommendation, stating that the sampling methodologies will be reviewed for all payment types and will be modified as appropriate to produce valid improper payment estimates and appropriate confidence intervals around the dollars. As of May 2014, the Defense Finance and Accounting Service (DFAS) reviewed the sampling plans for the pay programs it reviews and identified the DFAS commercial pay program as an area to modify the statistical sampling methodology due to the wide-ranging dollar amounts. The new statistical sampling methodology is a more complex, variable design based on dollar stratification and will produce statistically valid improper payment estimates and appropriate confidence intervals around the dollar estimate. The population will be separated into quarterly extracts, and quarterly samples will be selected and reviewed. According to DOD officials, this will continue to be an ongoing process throughout the fiscal year until the final improper payment estimate is reported in the FY 2014 Agency Financial Report (AFR).

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)with regard to estimating improper payments, to revise the procedures documented in DOD's sampling methodologies so that they (1) are in accordance with OMB guidance and generally accepted statistical standards and (2) produce statistically valid improper payment error rates, statistically valid improper payment dollar estimates, and appropriate confidence intervals for both. At a minimum, such procedures should take into account the size and complexity of the transactions being sampled.

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: The Department of Defense (DOD) concurred with this recommendation, stating that department will collaborate with the Defense Finance and Accounting Service (DFAS) and Defense Manpower Data Center (DMDC) to develop and implement procedures to collect and maintain the supporting documentation necessary to support improper payment estimates. As of May 2014, DOD officials stated that DFAS continues to maintain this documentation to support its improper payment estimates: 1) sampling plans; 2) spreadsheets with supporting sample size calculation for each program and strata; and 3) spreadsheets with the total number of items and dollar value totals for each population for each program and month. The DMDC provides the monthly population counts and dollars for civilian, military, and military retirement pay. However, now the DMDC provides the supporting SAS logs for these deliverables. In addition, the monthly population counts and dollars for DFAS commercial pay sampling are provided by the DFAS sites for the entitlement systems applicable. Moreover, for travel pay, supporting documentation is maintained of the monthly populations counts and dollars. DOD officials stated that ongoing auditability efforts by the Department will continue to improve data reliability and ensure that payment information is complete and accurate. The estimated completion date for implementation of this recommendation is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)with regard to estimating improper payments, to develop and implement procedures to collect and maintain the supporting documentation necessary to support improper payment estimates.

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that the department will work collaboratively with the applicable Defense components to develop a framework to conduct a risk assessment that is in compliance with the Improper Payments Elimination and Recovery Act (IPERA). As of May 2014, DOD officials stated that the Defense Finance and Accounting Service, Defense Health Agency, and U.S. Army Corps of Engineers all provided their risk assessment documentation to the DOD Office of Inspector General for its FY 2013 IPERA review.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)with regard to identifying programs susceptible to significant improper payments, to conduct a risk assessment that is in compliance with IPERA.

    Agency Affected: Department of Defense

  5. Status: Open

    Comments: The Department of Defense, in concurring with this recommendation, stated that DOD will work collaboratively with the applicable Defense components to establish procedures that produce corrective action plans that fully comply with the Improper Payment Elimination and Recovery Act and Office of Management and Budget (OMB) guidance. According to DOD officials, these established procedures will include individual accountability for implementing corrective actions and monitoring the status of corrective actions. As of May 2014, DOD published corrective action plans in its fiscal year 2013 Agency Financial Report.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)With regard to reducing improper payments, to establish procedures that produce corrective action plans that comply fully with IPERA and OMB implementation guidance, including at a minimum, holding individuals responsible for implementing corrective actions and monitoring the status of the corrective actions.

    Agency Affected: Department of Defense

  6. Status: Open

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that DOD will work collaboratively with the applicable Defense components to establish procedures that produce corrective action plans that incorporate best practices, including those recommended by the Chief Financial Officers Council. DOD's corrective action plans will include information on (1) measuring the progress made toward remediating root causes and (2) communicating to agency leaders and key stakeholders the progress made toward remediating the root causes of improper payments. As of May 2014, DOD officials stated that its efforts to complete this recommendation are still ongoing and the estimated completion date is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller)With regard to reducing improper payments, to establish procedures that produce corrective action plans that are in accordance with best practices, such as those recommended by the Chief Financial Officers Council (CFOC), and include (1) measuring the progress made toward remediating root causes and (2) communicating to agency leaders and key stakeholders the progress made toward remediating the root causes of improper payments.

    Agency Affected: Department of Defense

  7. Status: Open

    Comments: Department of Defense (DOD) officials concurred with this recommendation, stating that the department will review its procedures for improper payment recovery activities to ensure currency and accuracy. The department will also perform analyses to ensure that DOD's recovery efforts are cost-effective. As of May 2014, DOD officials stated that efforts to complete this recommendation are still ongoing and the estimated completion date is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to develop and implement procedures to (1) identify costs related to the department's recovery audits and existing recovery efforts and (2) evaluate existing improper payment recovery efforts to ensure that they are cost effective.

    Agency Affected: Department of Defense

  8. Status: Open

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that the department will work with the applicable Defense components to monitor the implementation of the revised Financial Management Regulation chapter on recovery audits. According to DOD officials, this action will help to ensure that recovery audits are developed, or will demonstrate that it is not cost-effective to do these audits. As of May 2014, DOD officials reported that efforts to complete this recommendation are still ongoing and the estimated completion date is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to monitor the implementation of the revised FMR chapter on recovery audits to ensure that the components either develop recovery audits or demonstrate that it is not cost effective to do so.

    Agency Affected: Department of Defense

  9. Status: Open

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that the department will develop and submit to OMB a payment recapture plan that fully complies with OMB guidance and is informed by a cost-effectiveness analysis. As of May 2014, efforts to complete this recommendation are still ongoing and the estimated completion date is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to develop and submit to OMB for approval a payment recapture audit plan that fully complies with OMB guidance.

    Agency Affected: Department of Defense

  10. Status: Open

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that the department will design and implement procedures to further ensure that DOD's annual improper payment and recovery audit reporting is complete, accurate, and in compliance with the Improper Payments Elimination and Recovery Act and Office of Management and Budget guidance. As of May 2014, efforts to complete this recommendation are still ongoing and the estimated completion date is during fiscal year 2015.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) with regard to reporting to design and implement procedures to ensure that the department's annual improper payment and recovery audit reporting is complete, accurate, and in compliance with IPERA and OMB guidance.

    Agency Affected: Department of Defense

 

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