DOD Financial Management: The Army Faces Significant Challenges in Achieving Audit Readiness for Its Military Pay
Highlights
What GAO Found
The Army could not readily identify the population of Army military payroll accounts given its existing procedures and systems. The Army and DFAS-IN did not have an effective, repeatable process for identifying the population of active duty payroll records. For example, it took 3 months and repeated attempts before DFAS-IN could provide a population of service members who received active duty Army military pay in fiscal year 2010. Further, because the Army does not have an integrated military personnel and payroll system, it was necessary to compare the payroll file to active Army personnel records. However, the Defense Manpower Data Center (DMDC), DOD’s central repository for information on DOD-affiliated personnel, did not have an effective process for comparing military pay account files with military personnel files to identify a valid population of military payroll transactions. It took DMDC over 2 months and labor-intensive research to compare and reconcile the total number of fiscal year 2010 active duty payroll accounts to its database of personnel files. DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance states that identifying the population of transactions is a key task essential to achieving audit readiness. Without effective processes for identifying the population of Army military pay records and comparing military pay accounts to personnel records, the Army will have difficulty meeting DOD’s 2014 audit readiness goal for the Statement of Budgetary Resources.
In addition, the Army does not have an efficient or effective process or system for providing supporting documents for Army military payroll. For example, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files and the Army was unable to locate or provide supporting personnel documents for GAO’s statistical sample of fiscal year 2010 Army military pay accounts. GAO’s Standards for Internal Control in the Federal Government and DOD’s FIAR Guidance provide that audited entities document transactions and events and assure that supporting documentation can be identified, located, and provided for examination. Although the Army deployed the Interactive Personnel Management System (iPERMS) as the Army’s Official Military Personnel File in 2007, it had not consistently or completely populated iPERMS with personnel records. At the end of September 2011, 6 months after receiving GAO’s 250 statistical sample items, the Army and DFAS-IN were able to provide complete documentation for 2 of GAO’s sample items and provided partial documentation for 3 items, but provided no documentation for 245 of GAO’s 250 sample items.
The Army has begun several military pay audit readiness efforts that, if successfully implemented, could help increase the likelihood of meeting DOD’s 2014 Statement of Budgetary Resources audit readiness goal and the 2017 mandate for audit readiness on a complete set of DOD financial statements. These efforts include documenting and testing payroll system application controls, documenting Army military pay business processes, identifying the range of supporting documents for military pay, and developing an integrated military personnel and payroll system. Most of these efforts are not yet documented and, therefore, there is no assurance that they will be implemented timely and effectively.
Why GAO Did This Study
The Defense Finance and Accounting Service-Indianapolis (DFAS-IN) reported that fiscal year 2010 active Army military payroll totaled $46.1 billion. However, for several years, GAO and others have reported continuing deficiencies with Army military payroll processes and controls, raising questions about the validity and accuracy of reported Army military pay and whether it is auditable. The Department of Defense (DOD) has recently accelerated its Statement of Budgetary Resources audit readiness goal by 3 months to 2014 and is required to achieve audit readiness for a full set of DOD financial statements by 2017. GAO performed basic audit procedures for the Army’s active duty military payroll to assess the Army’s ability to (1) identify a valid population of payroll transactions and (2) test a sample of payroll transactions for validity and accuracy. GAO reviewed applicable laws and regulations, analyzed DOD and Army policies and procedures, drew a statistical sample of payroll transactions to test their accuracy and validity, and met with DOD, DFAS-IN, Army, and Defense Manpower Data Center officials.
Recommendations
GAO is making four recommendations to help the Army develop the processes and controls necessary to achieve financial statement audit readiness, including identifying and validating the population of military payroll transactions and obtaining and retaining necessary pay-affecting documents. The Army concurred with GAOs four recommendations and noted actions it is taking.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Army | To help the Army develop the processes and controls necessary to achieve financial statement audit readiness for military pay, the Secretary of the Army should direct the Assistant Secretary of the Army for Financial Management and Comptroller to work with Army Personnel (G-1), DFAS-IN, and audit readiness officials to document and implement a process for identifying and validating the population of payroll transactions for fiscal year periods at a minimum. |
Closed – Implemented
During a June 2013 meeting with Army Financial Management Command and Defense Finance and Accounting Service-Indianapolis (DFAS-IN) officials, the DFAS-IN Director told us they had developed and implemented a process for identifying and validating the population of monthly military payroll transactions for the Army's active and reserve military personnel. The Director stated that this process validates detailed Army military payroll transactions to summary-level transaction data generated by the Defense Joint Military Pay System (DJMS). In addition, the DFAS-IN Director told us that DFAS-IN is performing monthly comparisons between payroll and personnel data. In July 2013, DFAS-IN provided us a spreadsheet example of a monthly comparison that was based on information, such as name, rank, and service date, in the military personnel systems with the same information in the military pay system. According to the DFAS-IN Director, these comparisons are identifying military payroll accounts that do not have an active military personnel record and active military personnel records with no corresponding military pay account. A DFAS official also stated that cases are being created in the Case Management System to track corrective actions. We requested additional documentation to confirm these actions. In September 2013, the Army provided a summary level overview and a more detailed explanation along with the relevant flowchart for the file comparison process. In addition, DFAS-IN provided us documentation on monthly reconciliations of DJMS soldier pay account transaction detail to DJMS summary-level information. Our review of the additional documentation confirmed that appropriate corrective actions have been implemented to reasonably assure the completeness and accuracy of the Army's active duty military payroll population.
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| Department of the Army | To help the Army develop the processes and controls necessary to achieve financial statement audit readiness for military pay, the Secretary of the Army should direct the Assistant Secretary of the Army for Financial Management and Comptroller to work with Army Personnel (G-1), DFAS-IN, and audit readiness officials to identify key finance (i.e., pay-affecting) documents that support military payroll transactions and develop and implement procedures for maintaining them, including responsibility for coordination with Army Personnel (G-1) and audit readiness officials. |
Closed – Implemented
The Army developed a matrix of key supporting documents (KSDs) to support military payroll. The matrix includes a listing of entitlements, the relevant supporting documents, and the point of retention of those documents. In June 2013, the Secretary of the Army directed retention of the documents identified in the KSD listing for a period of 6 years and 3 months from the date of a soldier's separation or retirement. Also in June 2013, the Army Human Resources Command issued MILPER message 13-155, Initial Implementing Guidance for Secretary of the Army Directive, "Key Supporting Document Required for Army Military Pay Audit Readiness." This guidance states that all newly generated documents that are identified in the KSD listing are required to be filed in the Interactive Personnel Electronic Records Management System (iPERMS). The primary work center identified in the KSD listing will upload the completed KSDs to iPERMS within 20 working days after all actions are completed. In addition, all supporting battalion personnel sergeants, referred to as S-1's; unit administrators; and installation military personnel divisions will conduct an initial review to verify the KSDs that substantiate current basic pay and current basic allowance for housing are in iPERMS. This includes: latest promotion order, initial service contract, and latest assignment or permanent change-of-station order. If the service member is eligible to receive basic allowance for housing with dependents or family separation pay, documents that establish family member relationships should also be verified as filed in iPERMS. In addition, to provide support for military payroll transactions, in April 2014 Army Personnel (G-1) updated Army Regulation (AR) 600-8-104, "Army Military Human Resources Records Management," to require that iPERMS be maintained as the central repository for military personnel records. Finally, in September 2012, the Defense Finance and Accounting Service-Indianapolis (DFAS-IN) designated the use of its existing Corporate Electronic Data Management System (CEDMS) as its central repository for military pay substantiating documents processed by installation military pay offices within the DFAS Defense Military Pay Office network.
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| Department of the Army | To help the Army develop the processes and controls necessary to achieve financial statement audit readiness for military pay, the Secretary of the Army should direct the Assistant Secretary of the Army for Manpower and Reserve Affairs to revise AR No. 600-8-104, Military Personnel Information Management/Records, to require that key personnel and other pay-related documents that support military payroll transactions are centrally located, retained in the service members' Official Military Personnel File, or otherwise readily accessible. Consider first using the Interactive Personnel Management System (iPERMS) for this purpose. |
Closed – Implemented
On April 13, 2012, the Army Assistant Deputy Chief of Staff, G-1, directed the Human Resources Command (HRC) to update Army Regulation (AR) 600-8-104, Military Personnel Information Management/Records, by March 29, 2013. The update to (AR) 600-8-104 requires HRC to develop and execute a plan to centrally store pay-substantiating military personnel documents. HRC estimates that it will take approximately 9 to 12 months to reach full operational capability to upgrade iPERMS to incorporate the additional military pay-related documentation. According to the Army Financial Management Command Director, AR 600-8-104 is currently out for comment by Army units with a planned issuance date in October 2013. Additionally, on August 16, 2013, a DFAS-IN Internal Review official advised us that DFAS has established an arrangement with Army HRC to ship hard copy documents, after they are scanned into CDEMS, to HRC for entry into iPERMS. When IPPS-A is fully implemented, the plan is that all pay-related military personnel and finance documents created from that point on would be documented in IPPS-A. AR 600-8-104, dated April 7, 2014, was revised to require that key personnel and pay-related documents that support military payroll transaction be centrally located in iPERMS.
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| Department of the Army | To help the Army develop the processes and controls necessary to achieve financial statement audit readiness for military pay, the Secretary of the Army should direct the Assistant Secretary of the Army for Manpower and Reserve Affairs to revise AR No. 600-8-104, Military Personnel Information Management/Records, to require that the Army's Human Resources Command periodically review and confirm that service member Official Military Personnel File records in iPERMS or other master personnel record systems are consistent and complete to support annual financial audit requirements. |
Closed – Implemented
On April 13, 2012, the Army Assistant Deputy Chief of Staff, G-1,directed the Human Resources Command (HRC) to update Army Regulation (AR) 600-8-104, Military Personnel Information Management/Records. On April 7, 2014, the Army issued its revised AR 600-8-104, which included requirements for human resource personnel to periodically review and update personnel records. The revised regulation states that the official records custodian--the HRC Army Personnel Division--is responsible to maintain the Army Military Human Resource Records in the Interactive Personnel Management System (iPERMS), which includes the Official Military Personnel File (OMPF). The updated regulation also states that the Records Manager from the Army's Army's Personnel Division, or other authorized personnel are to assist soldiers in reviewing their personnel and finance records during in-processing to a new duty station, annually, and prior to a separation from the Army. The annual review requirement helps soldiers reasonably assure the accuracy and completeness of their pay records on an ongoing basis. The records manager or other official also assists soldiers in updating, validating, and uploading substantiating documents in the OMPF. HRC estimated that it would take 9 to 12 months to reach full operational capability to upgrade iPERMS to incorporate the additional military pay documentation. The periodic review and update of military personnel and payroll records, if effectively implemented, would provide reasonable assurance of the accuracy of military pay accounts and better position the Army for achieving financial statement audit readiness for its military pay.
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