From the U.S. Government Accountability Office, www.gao.gov Transcript for: DOD Improper Payments Description: Audio interview by GAO staff with Asif Khan, Director, Financial Management and Assurance Related GAO Work: GAO-13-227: DOD Financial Management: Significant Improvements Needed in Efforts to Address Improper Payment Requirements Released: June 2013 [Background Music] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's June 2013. Federal agencies sometimes make improper payments, for example, to the wrong recipient or in the wrong amount. Agencies have a number of requirements to follow to help reduce these improper payments. The Department of Defense reported $1.1 billion in improper payments in fiscal year 2011. A team led by Asif Khan, a director in GAO's Financial Management and Assurance team, investigated DOD's implementation of improper payment auditing and reporting requirements. GAO's Sarah Kaczmarek sat down with Asif to talk about what they found. [ Sarah Kaczmarek: ] Can you give a few examples of DOD improper payments? [ Asif Khan: ] Yes, certainly. Government makes an improper payment when it pays a wrong amount. Typically speaking, for DOD civilians and active duty personnel, improper payments occur because of inaccurate personnel records. Just to give you an example. A soldier who's been in active duty and he has come back and his status has changed to reserve and DOD has not correctly accounted for the unused leave balance when he was in active duty, that could be considered an underpayment. [ Sarah Kaczmarek: ] What prompted GAO's review of DOD's reported improper payments? [ Asif Khan: ] The Congress and the public has been concerned about improper payments governmentwide for quite some time. Congress passed the first legislation addressing improper payments in 2002. In 2010, Congress passed the second improper payments legislation which was called the Improper Payments Elimination and Recovery Act of 2010, IPERA. Congress was again concerned. [ Sarah Kaczmarek: ] What are the biggest issues with DOD's implementation of laws requiring agencies to identify programs susceptible to improper payments? [ Asif Khan: ] The biggest issue we found was--DOD treats all their programs as being equally susceptible to improper payments. DOD does not perform any type of risk assessment to help them pinpoint where there's greater vulnerability to improper payments. Risk assessment would not only help DOD pinpoint the vulnerabilities, but it'll also help them develop corrective actions that they can take to address improper payments. [ Sarah Kaczmarek: ] Your team also found deficiencies in DOD's policies and procedures to address key requirements. Can you talk about what you found there? [ Asif Khan: ] We essentially found deficiencies in every key requirement of DOD's implementation of IPERA. We found that improper payment estimates were not reliable or statistically valid. Having said that, the $1.1 billion that DOD reported in 2011, had they followed the correct approach, these amounts could be very different. In addition, we also found problems with DOD's recovery procedures to recover improper payments once they have been made. We found an example where the Army Corps of Engineers had implemented a system in 2009 to identify improper payments. This system or this tool costs 64--65,000 a year to operate and in the 4 years since it was implemented, it was only able to identify 1 improper payment and that was in the amount of $20.79. So the point of this being is it's very important to do--also do a cost-benefit analysis if you're going to implement any recovery actions. [ Sarah Kaczmarek: ] We're talking about $1.1 billion in DOD improper payments. What is GAO recommending be done to improve this situation? [ Asif Khan: ] We made 10 recommendations to address DOD's improper payment processes and their activities. The recommendations surround DOD performing a risk assessment so they could prioritize their efforts. In addition to that, we're also recommending that DOD develop and implement policy and procedures, to develop reliable and valid improper payment estimates, for DOD to develop corrective action plans and corrective action procedures so that they could remediate the vulnerabilities that they have in their programs, which lead to improper payments. In addition, the corrective action plan is also going to help DOD to monitor how the mitigation plans are gonna work and also measure the amount of improper payments. [ Sarah Kaczmarek: ] For taxpayers interested in agencies' efforts to reduce improper payments, what's the bottom line here? [ Asif Khan: ] The bottom line is that DOD needs to significantly improve its efforts to address their improper payments. Even though the $1.1 billion that DOD reported in 2011, it is a large amount, however, if they had a valid and reliable estimate, that amount may even be larger than what they're reporting right now. Also it's important to note that the federal government should be a good steward of taxpayers' money. Given the current budget situation and the onset of sequestrations, it's very important for DOD to be able to pay the right amounts to the right parties for the goods and services they have received the first time around. Implementing our recommendation is going to go a long way to give the public and Congress confidence that DOD is addressing their improper payment problems. 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