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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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

    Priority recommendation

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that DOD will work with the Defense Finance and Accounting Service (DFAS) to implement key quality assurance procedures, such as reconciliations, to ensure the completeness and accuracy of sampled populations. As of August 2017, DOD officials stated that its Office of the Under Secretary of Defense (Comptroller) will continue its work with DFAS to annually reconcile gross outlays (as stated on its Statement of Budgetary Resources) with outlays as reported in its Agency Financial Report. These reconciliations are currently done only on a summary level. In the future, DOD's validation of its universe of transactions combined with planned reconciliations with the Defense Departmental Reporting System trial balance and transaction data from DOD's entitlement systems will provide more complete reconciliations. As of February 2018, this recommendation remains open.

    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: Closed - Implemented

    Priority recommendation

    Comments: The Department of Defense (DOD) partially concurred with this recommendation, stating that sampling methodologies would be reviewed for all payment types and the sampling plans would be modified as appropriate to produce valid improper payment estimates and related confidence intervals. In its May 2016 FIAR Plan Status Report, DOD officials stated that the department is reviewing the methodologies associated with identifying improper payments for its improper payment programs, and if warranted, will change their sampling plans (which describe the methodologies)used for sampling payments to estimate improper payments. In June 2016, DOD officials stated that the Office of the Under Secretary of Defense (Comptroller) will continue to coordinate with those DOD components currently using simple random sample designs, to develop methodologies that are stratified by an appropriate variable, such as an invoice or payment amount based on appropriate confidence intervals. In October 2017, GAO received revised sampling plans outlining the sampling methodologies, that included stratification, for all of DOD's improper payment programs reported in its Agency Financial Report. As of December 2017, this recommendation is closed, based on supporting documentation showing that confidence intervals are included in the sampling plans.

    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: Closed - Implemented

    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 December 2014, DOD reported that this recommendation was closed due to the documentation that DFAS was maintaining to support its improper payment estimates, which included additional documentation, such as SAS logs, from DMDC. To assess the status of the recommendation, GAO requested selected documentation supporting improper payment estimates of four programs reported in the DOD Annual Financial Report (AFR): DFAS commercial pay, civilian pay, USACE commercial pay, and military health benefits. For example, we requested software logs and output files used to select sample items for testing, component standard operating procedures for testing improper payment sample items, and spreadsheets used to calculate improper payment error rates and dollar estimates. Based on our review of documentation provided by DOD, we determined that DOD has generally maintained the supporting documentation necessary to support its improper payment estimates for these programs reported in the AFR. We concur with DOD's determination that this recommendation has been implemented.

    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

    Priority recommendation

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable Defense components to develop a framework to conduct risk assessments that are in compliance with the Improper Payments Elimination and Recovery Act (IPERA). According to DOD officials, risk assessments for six DOD programs (military health benefits, military pay, civilian pay, Defense Finance and Accounting Service (DFAS) travel pay, retiree & annuitant pay, and DFAS commercial pay) were done. DOD officials subsequently stated that, according to OMB guidance provided to the department, risk assessments are not required for those improper payment programs that are already reported in its Improper Payment Reduction Outlook Table. As of February 2018, we consider this recommendation to be open based on the interpretation that IPERA requires risk assessments to be performed.

    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

    Priority recommendation

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable 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 would 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. According to DOD's fiscal year 2015 Agency Financial Report, DOD's travel pay had the highest error rate among all DOD-reported improper payment programs, and therefore DOD would place its initial focus to achieve measurable progress more quickly in this area. In June 2016, DOD officials told us that the Office of the Under Secretary of Defense (Comptroller) (OUSD(C)) will revise and expand the DOD Travel Remediation Plan into a more comprehensive plan for travel improper payments which will include establishing Senior Accountable Officials (SAOs) within each military service. OUSD(C) will collaborate with each SAO to ensure the development of standardized procedures and corrective action plans to include training, root cause identification, and quality assurance goals that comply with improper payment law and regulatory guidance for travel pay. In October 2016, DOD issued its corrective/remediation plan entitled "Preventing Travel Pay Improper Payments and Recovery." This plan required the military services and major defense agencies to designate a Senior Accountable Official (SAO) at the Senior Executive Service level, for reducing travel pay improper payments. In April 2017, we learned that the Office of Management and Budget had done an assessment of this plan and provided helpful suggestions. In an August 2017 response to an inquiry on the status of DOD's implementation of GAO's improper payment recommendations, DOD officials stated that the Department's SAO (Deputy Chief Financial Officer) is considering expanding the focus of the travel pay improper payments working group to include the other major areas of DOD's improper payment program. In September 2017, the department's Senior Accountable Official (SAO) recommended the establishment of a SAO Steering Committee as well as Action Officer Working Groups for DOD's other improper payment programs. The SAO Steering Group would, among other duties, provide oversight and drive action for compliance with IPERA. The Action Officer Working Groups would be responsible for determining root causes and developing effective written corrective action plans, among other duties. As of February 2018, this recommendation remains open as DOD works to produce corrective action plans that comply fully with IPERA and OMB implementation guidance, including holding individuals responsible for implementing corrective actions and monitoring the status of those corrective actions.

    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

    Priority recommendation

    Comments: The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable 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 would 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. According to DOD's fiscal year 2015 Agency Financial Report, DOD's travel pay had the highest error rate among all DOD-reported improper payment programs, and therefore DOD would place its initial focus to achieve measurable progress more quickly in this area. In June 2016, DOD officials told us that the Office of the Under Secretary of Defense (Comptroller) (OUSD(C)) will revise and expand the DOD Travel Remediation Plan into a more comprehensive plan for travel improper payments which will include establishing Senior Accountable Officials (SAOs) within each military service. OUSD(C) will collaborate with each SAO to ensure the development of standardized procedures and corrective action plans to include training, root cause identification, and quality assurance goals that comply with improper payment law and regulatory guidance for travel pay. In October 2016, DOD issued its corrective/remediation plan entitled "Preventing Travel Pay Improper Payments and Recovery." This plan required the military services and major defense agencies to designate a Senior Accountable Official (SAO) at the Senior Executive Service level, for reducing travel pay improper payments. In April 2017, we learned that the Office of Management and Budget had done an assessment of this plan and provided helpful suggestions. In an August 2017 response to an inquiry on the status of DOD's implementation of GAO's improper payment recommendations, DOD officials stated that the Department's Deputy Chief Financial Officer is considering expanding the focus of the travel pay improper payments working group to include the other major areas of DOD's improper payment program. In September 2017, the department's Senior Accountable Official (SAO) recommended the establishment of a SAO Steering Committee as well as Action Officer Working Groups for DOD's other improper payment programs. The SAO Steering Group would, among other duties, provide oversight and drive action for compliance with IPERA. The Action Officer Working Groups would be responsible for determining root causes and developing effective written corrective action plans, among other duties. As of February 2018, this recommendation remains open as DOD determines root causes and develops corrective action plans for its other improper payment programs.

    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: Closed - Implemented

    Priority recommendation

    Comments: Department of Defense (DOD) officials concurred with this recommendation, stating that the DOD would review its procedures for improper payment recovery activities to ensure currency and accuracy and that it would also perform analyses to ensure that its recovery efforts are cost-effective. In July 2015, DOD reported that the development of cost estimates for recovery auditing was ongoing. In addition, DOD officials indicated that only the United States Army Corps of Engineers (USACE) has developed an analysis to evaluate the cost effectiveness of performing recovery audits. As of April 2017, DOD's efforts to develop cost-estimates for recovery audits were still under way. In August 2017, DOD officials told us that all components that spend $1 million or more annually for each program and activity, must annually submit a payment recapture plan. One of the elements this plan is to include is a cost-effectiveness analysis. We consider this recommendation to be closed as implemented.

    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

    Priority recommendation

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would work with the applicable components to monitor the implementation of the revised Financial Management Regulation (FMR) chapter on recovery audits. According to DOD officials, this action would help to ensure that recovery audits are developed, or will demonstrate that it is not cost-effective to do these audits. In July 2015, DOD was working to update the FMR chapter on recovery audits to reflect revised Office of Management and Budget (OMB) guidance issued in October 2014. DOD issued its revised FMR chapter in November 2015. This chapter requires components to develop cost-effective payment recapture audits or to submit a quantitative justification to the Office of the Under Secretary (Comptroller) for approval. However, we consider this recommendation to be open because DOD did not provide documentation demonstrating that the Office of the Under Secretary of Defense (Comptroller) is monitoring component implementation of recovery auditing. Further, as of April 2017, DOD's efforts to develop cost-estimates for recovery audits were still under way. As of February 2018, this recommendation remains open.

    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

    Priority recommendation

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would develop and submit to the Office of Management and Budget (OMB) a payment recapture plan that fully complies with OMB guidance and is informed by a cost-effectiveness analysis. In July 2015, DOD's Office of the Under Secretary of Defense (Comptroller) efforts to develop a payment recapture audit plan to ensure cost-effectiveness were ongoing and these efforts must be completed before a plan can be submitted to the OMB. In June 2016, DOD officials stated that the Comptroller's efforts to develop a payment recapture audit plan to ensure cost-effectiveness were ongoing. As of August 28, 2017, DOD officials stated that the Office of the Under Secretary of Defense (Comptroller) will determine if a payment recapture audit plan was developed and submitted to OMB for approval in the previous fiscal years. If so, the Office of the Under Secretary of Defense (Comptroller) will determine its relevance and significance (i.e. cost effectiveness)to the improper payments program. If the payment recapture audit plan is considered to be applicable, the Office of the Under Secretary of Defense (Comptroller) will update the previous plan to comply with current OMB guidance. As of February 2018, this recommendation remains open.

    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

    Priority recommendation

    Comments: Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would design and implement procedures to further ensure that its annual improper payment and recovery audit reporting is complete, accurate, and in compliance with the Improper Payments Elimination and Recovery Act (IPERA) requirements and Office of Management and Budget (OMB) guidance. In June 2015, DOD revised its FMR chapter on improper payments to require components to provide information needed to report on improper payment and recovery audit activities in its annual financial report (AFR) in accordance with IPERA requirements and OMB guidance. DOD's fiscal year 2015 AFR reflected its implementation of the revised FMR. We found that DOD's improper payment reporting in its fiscal year 2015 AFR had improved. However, we were not provided with evidence that Office of the Under Secretary of Defense (Comptroller) is performing oversight and monitoring activities to ensure the accuracy and completeness of the improper payment and recovery audit data submitted by DOD components for inclusion in the AFR. As of April 2017, DOD is continuing to work on procedures for ensuring that its reporting on improper payment and recovery audits is accurate, complete, and in compliance with IPERA and OMB guidance. As of February 2018, this recommendation remains open.

    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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