-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-494		

TITLE:     Military Pay: Hundreds of Battle-Injured GWOT Soldiers 
Have Struggled to Resolve Military Debts

DATE:   04/27/2006 
				                                                                         
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GAO-06-494

     

     * Results in Brief
     * The Army Has Referred Debts of Nearly 1,300 Battle-Injured S
          * The Army Has Reported Debts of Battle-Injured GWOT Soldiers
          * The Number and Dollar Amount of Separated Battle-Injured Sol
          * Most Military Debts Relate to Pay Errors
     * Debt Collection Action Has Placed Significant Hardship on Ma
     * Opportunities Exist for Congress to Legislate a More Soldier
     * Conclusions
     * Matters for Congressional Consideration
     * Agency Comments and Our Evaluation
     * Appendix I: Background
     * Appendix II: Objectives, Scope, and Methodology
     * Appendix III: GAO Contact and Staff Acknowledgments
          * GAO Contact
          * Acknowledgments
               * Order by Mail or Phone

Report to Congressional Requesters

United States Government Accountability Office

GAO

April 2006

MILITARY PAY

Hundreds of Battle-Injured GWOT Soldiers Have Struggled to Resolve
Military Debts

Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt jured
Soldier Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier
Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt
Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt Injured
Soldier Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier
Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt
Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt Injured
Soldier Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier
Debt Injured Soldier Debt Injured Soldier Debt Injured Soldier Debt

GAO-06-494

Contents

Letter 1

Results in Brief 3
The Army Has Referred Debts of Nearly 1,300 Battle-Injured Soldiers for
Collection, and the Number May Be Greater 6
Debt Collection Action Has Placed Significant Hardship on Many Battle
-Injured Soldiers and Their Families 12
Opportunities Exist for Congress to Legislate a More Soldier-Friendly
Process for Collecting GWOT Debts 19
Conclusions 20
Matters for Congressional Consideration 21
Agency Comments and Our Evaluation 21
Appendix I Background 23
Appendix II Objectives, Scope, and Methodology 25
Appendix III GAO Contact and Staff Acknowledgments 27

Tables

Table 1: Number and Dollar Amount of Military Debts Incurred by Separated
Battle-Injured Soldiers and Fallen Army GWOT Soldiers by Fiscal Year 9
Table 2: Number and Amount of Separated Battle-Injured Soldier and Fallen
Soldier Debts by Army Component for Fiscal Years 2002 through 2005 9
Table 3: Stratification of Separated Battle-Injured and Fallen Soldier
Debts by Dollar Amount 10
Table 4: Examples of Battle-Injured Soldier Pay Problems Resulting in Debt
14

Figures

Figure 1: Dollar Amount of Battle-Injured and Fallen Soldier Debts by
Major Reason 11
Figure 2: Out of-Service Debt Collection Process for WIA and Fallen
Soldiers 24

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Abbreviations

AWOL Absent without leave

CFR Code of Federal Regulations

DDMS Defense Debt Management System

DFAS Defense Finance and Accounting Service

DOD Department of Defense

FMS Financial Management Service

GWOT Global War on Terrorism

OEF Operation Enduring Freedom

OIF Operation Iraqi Freedom

TOP Treasury Offset Program

USC United States Code

WIA Wounded-in-Action

United States Government Accountability Office

Washington, DC 20548

April 27, 2006 April 27, 2006

The Honorable Tom Davis Chairman Committee on Government Reform House of
Representatives The Honorable Tom Davis Chairman Committee on Government
Reform House of Representatives

The Honorable Christopher Shays Chairman Subcommittee on National
Security, Emerging Threats and International Relations Committee on
Government Reform House of Representatives The Honorable Christopher Shays
Chairman Subcommittee on National Security, Emerging Threats and
International Relations Committee on Government Reform House of
Representatives

The Honorable Todd Platts Chairman Subcommittee on Government Management,
Finance and Accountability Committee on Government Reform House of
Representatives The Honorable Todd Platts Chairman Subcommittee on
Government Management, Finance and Accountability Committee on Government
Reform House of Representatives

The Honorable C. A. Dutch Ruppersberger House of Representatives The
Honorable C. A. Dutch Ruppersberger House of Representatives

The Army continues to mobilize tens of thousands of soldiers each year in
support of the Global War on Terrorism (GWOT). Thousands of soldiers have
been injured or killed as a result of hostile fire since the initial
deployments to Afghanistan and Iraq in October 2001. Battle-injured
soldiers returning to the United States often face the daunting prospect
of adjusting to their postwar lives. Many soldiers are faced with multiple
surgeries and months of physical rehabilitation. Oftentimes, these
soldiers have to reassess their career goals and seek training to
accommodate their new physical limitations upon separation from military
service. Because these battle-injured soldiers return to the United States
before their unit's mobilization period ends, their duty status is not
always appropriately updated and they encounter payroll problems related
to the failure by the Army to adjust combat pay (entitlements such as
hostile fire pay, hardship duty pay, and family separation pay). Our
previous audits have detailed weaknesses in the Army's systems and
processes for providing service-related benefits to Army National Guard
and Army Reserve soldiers that The Army continues to mobilize tens of
thousands of soldiers each year in support of the Global War on Terrorism
(GWOT). Thousands of soldiers have been injured or killed as a result of
hostile fire since the initial deployments to Afghanistan and Iraq in
October 2001. Battle-injured soldiers returning to the United States often
face the daunting prospect of adjusting to their postwar lives. Many
soldiers are faced with multiple surgeries and months of physical
rehabilitation. Oftentimes, these soldiers have to reassess their career
goals and seek training to accommodate their new physical limitations upon
separation from military service. Because these battle-injured soldiers
return to the United States before their unit's mobilization period ends,
their duty status is not always appropriately updated and they encounter
payroll problems related to the failure by the Army to adjust combat pay
(entitlements such as hostile fire pay, hardship duty pay, and family
separation pay). Our previous audits have detailed weaknesses in the
Army's systems and processes for providing service-related benefits to
Army National Guard and Army Reserve soldiers that

have resulted in both over- and underpayments.1 The Defense Finance and
Accounting Service (DFAS) is responsible for collecting debts caused by
overpayments and other pay-related problems. The Debt Collection Act of
19822 provides a statutory basis for federal agencies to use appropriate
debt collection tools, such as interest charges, offset, and private
collection agencies. Thus, if debts are not paid before the soldier
separates from military service, DFAS can refer these debts to collection
agencies. A description of the collection process for separated soldier
debts is included in appendix I.

This report responds to your request that we determine (1) the extent to
which Army GWOT battle-injured soldiers who were released from active duty
or killed3 in combat are having military debts referred to credit bureaus
and collection agencies and (2) the impact of Department of Defense (DOD)
debt collection action on these soldiers and their families. In addition,
because of the added burden that debt collection places on separated
battle-injured soldiers and fallen soldiers and their families, you asked
us to discuss ways that Congress could make the process for collecting
their debts more soldier friendly.

To identify the extent of reported debts of separated battle-injured
soldiers and fallen Army GWOT soldiers, we compared soldier records in the
Army's Wounded in Action (WIA) Program4 databases, which contain
information on battle-injured and fallen GWOT soldiers who served in the
Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF)
deployment from October 2001 through September 20055 to DFAS Defense Debt
Management System (DDMS) data on out-of-service debts.6 We evaluated the
reliability of the WIA databases and DDMS system data and found these data
to be sufficiently reliable for the purposes of our work. To determine the
effect of debt collection action on separated battle-injured soldiers and
their families, we invited soldiers to contact us and discuss their
experience with Army debts. We prepared case studies summarizing our
interviews with soldiers or family members. Where we were unable to
independently validate our case study information, we attributed it to the
soldiers and family members. We based our discussion of ways in which the
debt collection process can be made more soldier friendly on our previous
Army pay and travel-related reports; our review of applicable laws and
regulations and DOD and Army policies and procedures; discussions with key
Army, DFAS, DOD, and Treasury officials; and our interviews of case study
soldiers and their families. We conducted our work from June 2005 through
March 2006 in accordance with generally accepted government auditing
standards. A detailed discussion of our objectives, scope, and methodology
is presented in appendix II.

1 GAO, Military Pay: Inadequate Controls for Stopping Overpayments of
Hostile Fire and Hardship Duty Pay to Over 200 Sick or Injured Army
National Guard and Army Reserve Soldiers Assigned to Fort Bragg,
GAO-06-384R (Washington, D.C.: Apr. 27, 2006); Military Pay: Gaps in Pay
and Benefits Create Financial Hardships for Injured Army National Guard
and Reserve Soldiers, GAO-05-125 and GAO-05-322T (Washington, D.C.: Feb.
17, 2005); Army National Guard: Inefficient, Error-Prone Process Results
in Travel Reimbursement Problems for Mobilized Soldiers, GAO-05-79
(Washington, D.C.: Jan. 31, 2005) and GAO-05-400T (Washington, D.C.: Mar.
16, 2005); Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems, GAO-04-990T (Washington, D.C.: July
20, 2004) and GAO-04-911 (Washington, D.C.: Aug. 20, 2004); and Military
Pay: Army National Guard Personnel Mobilized to Active Duty Experienced
Significant Pay Problems, GAO-04-413T (Washington, D.C.: Jan. 28, 2004)
and GAO-04-89 (Washington, D.C.: Nov. 13, 2003).

2 Pub. L. No. 97-365, 96 Stat. 1749 (1982).

3 The Army refers to soldiers who were killed by hostile fire as fallen
soldiers.

4 During February 2005, DFAS and the Army established the Wounded in
Action Support Team for WIA pay account management and initiated action to
create a centrally managed corporate database, with decentralized pay
account management.

                                Results in Brief

Army and DFAS data as of September 30, 2005, showed that nearly 1,300 Army
GWOT battle-injured soldiers who left the service or were killed in combat
had military debts totaling $1.5 million during the first 4 years of the
OIF/OEF deployment.7 Within this total, almost 900 battle-injured soldiers
had debts totaling about $1.2 million and about 400 soldiers who died in
battle had debts totaling over $300,000. The actual number of separated
battle-injured soldiers and fallen soldiers reported for debt collection
may be greater due to inaccurate or incomplete information on these
soldiers.8 As a policy, DFAS does not pursue collection action on the
debts of fallen soldiers. However, according to DFAS officials, military
debt can be satisfied from the final pay of fallen soldiers,9 and DFAS may
pursue collection action on other deceased soldiers. DFAS records as of
September 30, 2005, showed that of the $1.5 million in military service
debts incurred by the nearly 1,300 battle-injured and fallen soldiers
identified in our analysis, debts totaling almost $959,000 were written
off, waived, or cancelled, including debts of fallen soldiers; debts
totaling about $124,000 were paid; and debts totaling $420,000 remained
open.

5 The Army's WIA databases include pay account and medical status
information on OEF and OIF soldiers who were injured and killed in combat
and soldiers who experienced disease and nonbattle injuries.

6 Out-of-service soldier debts occur when a soldier has separated from the
service and is not receiving salary or other payments from the department
that can be offset to collect debt owed to a defense agency or military
service.

7 As of September 30, 2005, the universe of soldiers in the WIA databases
used for our comparison to out-of-service debts totaled 11,142 soldiers,
including 9,682 battle-injured soldiers and 1,460 soldiers who died as a
result of combat injuries.

We found that hundreds of separated battle-injured soldiers were pursued
for collection of military debts incurred through no fault of their own,
including 74 soldiers whose debts had been reported to credit bureaus,
private collection agencies, and the Treasury Offset Program (TOP) at the
time we initiated our audit.10 Overpayment of pay and allowances
(entitlements), pay calculation errors, and erroneous leave payments
caused 73 percent of the reported debts. Remaining debts related to
requirements to repay portions of enlistment bonuses and training due to
early separation and/or failure to fulfill requirements; unpaid expenses
for medical services, household moves, insurance premiums, and travel
advances;11 and lost or damaged military equipment.

Debt collection actions have placed significant hardship on separated GWOT
battle-injured soldiers and their families. When these soldiers leave the
Army, they generally do not have jobs and many of them face continuing
medical treatment for battle injuries, making it difficult to hold a job.
Our case studies showed that some battle-injured soldiers forfeited their
final separation pay to cover part of their military debt and they left
the service with no funds to cover immediate expenses while facing
collection action on their remaining debt. Due to their lack of income, 16
of our 19 case study soldiers told us that they had difficulty paying for
basic household expenses. For example, the Army's failure to record
separation paperwork in the pay system and other payment errors resulted
in over $12,000 of debt for one severely battle-injured soldier. Although
the soldier's family expected that he would receive retirement pay when
his active Army pay stopped upon his separation, the soldier had no income
for several months while the Army attempted to recover his military debt.
As a result, the soldier's family was unable to pay household bills, the
utilities were shut off, and the soldier's dependent daughter was sent out
of state to live with relatives. In addition, three soldiers told us that
they were erroneously listed as absent without leave (AWOL) by their units
while they actually were in the hospital or receiving outpatient care for
their war injuries. The AWOL status for at least two of these soldiers
created debt because it appeared that the soldiers received pay while they
were not in duty status when, in fact, the soldiers were receiving medical
treatment for their war injuries. When these soldiers did not respond to
formal debt notification or pay their debts, many of their debts were
reported to credit bureaus, private collection agencies, and TOP.

8 As of September 30, 2005, there were some problems with unreported
information on battle-injured and fallen soldiers. In addition, the WIA
databases of battle-injured and fallen soldiers contained some incomplete
or incorrect information, including type of injury and social security
numbers, which are key to identifying soldiers as battle injured and
matching battle-injured and fallen soldier records to out-of-service debt.
However, for purposes of our audit, we have concluded that the effect of
these errors is not material.

9 Circumstances in which debt can be offset against a deceased soldier's
final pay include normal adjustments to collect outstanding advance pay,
minimal overpayments within the current month, and other outstanding debt,
such as debt related to non-sufficient fund checks.

10 Under TOP, delinquent out-of-service soldier debts may be offset
against Internal Revenue Service tax refunds, federal retirement payments,
or specific approved federal benefit payments due to the debtor, such as
Social Security Administration benefits payments.

11 In accordance with S: 301-71.305, Federal Travel Regulations, federal
employees are required to account for outstanding travel advances when
they file a travel claim. Any unused amount of a travel advance is
required to be repaid.

There are two primary mechanisms in law to forgive soldier debt, including
(1) authority to waive debts that result from payroll, travel, and other
payment and allowance errors12 and (2) authority for remission
(forgiveness) of debts involving issues of hardship or fairness.13 The
Fiscal Year 2006 National Defense Authorization Act14 broadened remission
authority to include debts of officers and any soldiers no longer on
active duty for up to 1 year. However, the remission authority in the act
does not cover soldiers who were released from active duty more than 1
year ago and the waiver authority does not cover cancellation of debts due
to error after the applicable 3-year statute of limitations. As a result,
the debt relief provisions in the act do not apply to debts of
battle-injured soldiers who separated from the service during fiscal years
2002 through at least the first part of fiscal year 2005. In addition, the
debt relief provisions in the 2006 authorization act do not contain a
provision granting the Service Secretaries authority to refund any amount
of indebtedness previously paid by the soldier. Further, the expanded
authority under the act will terminate in December 2007, thereby making it
possible that some battle-injured and fallen soldier debts may be subject
to collection through credit bureau reporting and private collection
agency and TOP actions in the future.

12 10 U.S.C. S: 2774 and 32 U.S.C. S: 716.

13 10 U.S.C. S:S: 4837, 6161, and 9837.

14 Pub. L. No. 109-163, S: 683, 119 Stat. 3136, 3322 (2006).

Our past reports included over 80 recommendations to address Army payroll
problems, including timely recording of changes in soldier duty status and
processing related payroll changes. The Army and DFAS have taken a number
of actions to address these problems and help prevent them from occurring
in the future. Correcting these problems, many of which cause
service-related debt, is the best solution to pay-related debt problems
and thus, we are making no new recommendations in this report. DOD
concurred with our report. This report also presents several matters for
congressional consideration if Congress wishes to make the process for
collecting military debts more soldier friendly and help ensure that debt
relief for injured GWOT soldiers is handled equitably.

    The Army Has Referred Debts of Nearly 1,300 Battle-Injured Soldiers for
                   Collection, and the Number May Be Greater

Our analysis of Army and DFAS data through the end of fiscal year 2005
identified nearly 1,300 separated battle-injured soldiers15 and soldiers
who were killed in combat who had military debts totaling $1.5 million
that were reported to DFAS for debt collection action. Of the nearly 1,300
soldiers, almost 900 separated battle-injured soldiers had debts totaling
about $1.2 million and about 400 soldiers who died in combat had debts
totaling over $300,000. The actual number of separated battle-injured
soldiers and fallen soldiers who owed military debts may be greater due to
incomplete and inaccurate reporting of some information to the WIA
databases.16 Overpayment of pay and allowances (entitlements), pay
calculation errors, and erroneous leave payments caused 73 percent of the
reported debts. Remaining debts related to requirements to repay portions
of enlistment bonuses and training due to early separation and/or failure
to fulfill requirements; unpaid expenses for medical services, household
moves, insurance premiums, and travel advances; and lost military
equipment.

15 As of September 30, 2005, the universe of soldiers in the WIA databases
used for our comparison to out-of-service debts totaled 11,142 soldiers,
including 9,682 battle-injured soldiers and 1,460 soldiers who died as a
result of combat injuries.

16 The Army's WIA databases capture data on all injured, sick, and
deceased GWOT soldiers for pay and debt account management purposes.

Because the Army lacks a centralized automated system that integrates
payroll, personnel, and medical data on its soldiers, the Army and DFAS
formed a Wounded in Action Support Team and created WIA databases that
included soldier personnel, payroll, and medical information using weekly
data calls from five separate Army systems.17 The Army and DFAS are using
ad hoc work-around processes to research, verify, and correct incomplete
and inaccurate data. These labor-intensive, manual procedures are
necessary due to continuing, uncorrected weaknesses in Army personnel and
payroll systems and the growing number of battle-injured soldiers whose
pay accounts need to be researched and verified to determine whether
overpayments or other problems have resulted in debt. As a policy, DFAS
does not pursue collection of debts of fallen soldiers. However, DFAS
officials told us that military debt may be satisfied from the final pay
and allowances of fallen soldiers18 and DFAS may pursue collection of
debts of other deceased soldiers. During the past 2 fiscal years, the Army
pursued hundreds of battle-injured soldiers for collection of their
military debts after they left the service. Collection action begins with
monthly debt notification letters and escalates to credit bureau reporting
and private collection agency and TOP action when there is no response or
debts are not paid.

The Army Has Reported Debts of Battle-Injured GWOT Soldiers to Credit Bureaus
and Private Collection Agencies

At the time we initiated our audit in June 2005, the Army was taking
collection action on active debts of over 300 battle-injured soldiers. Our
initial analysis of Army and DFAS data as of June 30, 2005, identified 331
battle-injured soldiers, whose military service debts were undergoing
collection action, including at least 74 soldiers whose military debts had
been reported to credit bureaus and to private collection agencies and
TOP. However, in response to our audit, Army and DFAS officials told us
that they had suspended collection action on these soldiers' debts and
recalled their reports to credit bureaus and their referrals to the
Department of the Treasury for private collection agency and TOP
collection action until a determination could be made as to whether these
soldiers' debts were eligible for relief.

17 The five Army systems are the Joint Personnel Tracking and
Accountability, Patient Accountability Real-time Reporting Tracking,
Medical Operational Data System, Patient Tracking Module, and Electronic
Military Personnel Office systems.

18 Circumstances in which debt can be offset against a deceased soldier's
final pay include normal adjustments to collect outstanding advance pay,
minimal overpayments within the current month, and other outstanding debt,
such as debt related to non-sufficient fund checks.

We independently confirmed the recall of credit bureau reporting and
Treasury referrals with those entities. DFAS records as of September 30,
2005, showed that of the $1.5 million in military service debts incurred
by the nearly 1,300 battle-injured and fallen soldiers identified in our
analysis, debts totaling almost $959,000 were written off, waived, or
cancelled, including debts of fallen soldiers; debts totaling about
$124,000 were paid; and debts totaling $420,000 remained open. In
addition, at the end of our audit, the Army and DFAS advised us that
waivers had been approved for active debts of 202 of the 331 separated
battle-injured soldiers' debts that were being pursued for collection when
we initiated our audit in June 2005.

The Number and Dollar Amount of Separated Battle-Injured Soldier and Fallen
Soldier Debts Increased from Fiscal Years 2002 through 2005

While many soldiers had only one or two debts, other soldiers had three or
more debts. The nearly 1,300 separated battle-injured soldiers and fallen
soldiers identified in our analysis had a total of 2,324 debts. Debts for
these soldiers grew from 404 debts totaling $128,230 at the end of fiscal
year 2002 to 2,324 debts totaling over $1.5 million at the end of fiscal
year 2005.

As shown in table 1, the number of debts generally has increased each
fiscal year as more soldiers have been deployed and Army payroll problems
remained unresolved. More than 40 percent of these soldier debts totaling
over half of the $1.5 million were incurred during fiscal year 2005.

Table 1: Number and Dollar Amount of Military Debts Incurred by Separated
Battle-Injured Soldiers and Fallen Army GWOT Soldiers by Fiscal Year

Source: GAO analysis.

Previously, we reported that most soldier payroll problems related to Army
National Guard and Army Reserve soldiers. Our analysis of military service
debts of the nearly 1,300 separated Army battle-injured soldiers and
fallen soldiers showed that for the first 4 years of the GWOT deployment,
661 (51 percent) of the debts related to active component Army soldiers,
346 (about 27 percent) of the debts related to Army National Guard
soldiers, and 248 (about 19 percent) of the debts related to Army Reserve
soldiers. The field units that reported debts for the remaining 35 Army
soldiers (about 3 percent) did not identify these soldiers by component.
Table 2 shows the relative number and amount of debts by component.

Table 2: Number and Amount of Separated Battle-Injured Soldier and Fallen
Soldier Debts by Army Component for Fiscal Years 2002 through 2005

Source: GAO analysis.

Because Congress passed legislation19 that permitted the Secretary of
Defense to cancel up to $2,500 in individual soldier debt during Desert
Shield/Desert Storm, your offices asked us to determine the dollar amount
of debts of separated battle-injured and fallen soldiers by incremental
thresholds. Our analysis of the amounts of debt reported for separated
battle-injured soldiers and fallen soldiers who served in OIF and OEF
during fiscal years 2002 through 2005 showed that about 82 percent of
these soldiers had debts that totaled $1,500 or less and the vast
majority, about 90 percent of the soldiers, had debts that totaled $2,500
or less. While making this comparison, it is appropriate that debt relief
is adjudicated prudently in consideration of individual circumstances.
Table 3 shows the stratification of battle-injured and fallen soldier debt
in $500 increments up to $3,500 and total amounts over $3,500.

Table 3: Stratification of Separated Battle-Injured and Fallen Soldier
Debts by Dollar Amount

Source: GAO.

aUnder the $225 collection threshold, 526 of the 763 soldiers (41 percent)
had debts that were subject to write-off.

Ninety soldiers had debts that totaled more than $3,500, including
original soldier debts that ranged from $3,528 to $34,124. Sixty-seven of
these soldiers had debts that totaled less than $10,000, 16 soldiers had
debts totaling between $10,000 and $20,000, and 7 soldiers had debts that
totaled more than $20,000.

19 Department of Defense Appropriation Act, Pub. L. No. 102-172, S: 8138,
105 Stat. 1150, 1212 (1991).

Most Military Debts Relate to Pay Errors

Consistent with our case studies, which are discussed in the next section,
DOD data showed that most of the debts of the nearly 1,300 soldiers who
were injured or killed in combat related to errors in pay calculations and
overpayment of combat pay entitlements and erroneous payments for unused
leave. As illustrated in figure 1, Army and DFAS data for fiscal years
2002 through 2005 showed that 73 percent of the debts for the nearly 1,300
separated battle-injured soldiers and fallen soldiers related to errors in
pay calculations, entitlement errors, and erroneous leave payments during
fiscal years 2002 through 2005. The remaining 27 percent of these
soldiers' debts related to repayment of enlistment bonuses (11 percent)
where soldiers did not complete the required term of service or they
improperly received more than one bonus; payments for tuition and training
(6 percent) where soldiers did not complete their training or they did not
fulfill service requirements related to their training; and other expenses
(8 percent) related to unpaid bills for medical services, housing and
household moves, insurance premiums, travel advances,20 and loss or damage
of government property. The reasons for the remaining debt (2 percent)
were not recorded in DDMS.

Figure 1: Dollar Amount of Battle-Injured and Fallen Soldier Debts by
Major Reason

20 In accordance with 41 C.F.R. S: 301-71.305, federal employees are
required to account for outstanding travel advances when they file a
travel claim. Any unused amount of a travel advance is required to be
repaid.

According to DFAS officials, while unit commanders and finance offices are
authorized to write off debts for lost and damaged equipment when soldiers
who were injured or killed by hostile fire are medically evacuated from
the theater of operation, they have not always done so. In addition,
because Army units and medical facilities have not always prepared or
processed changes in orders when soldier duty status changed, soldiers do
not have required documentation needed to submit a voucher for travel
reimbursement. Because the travel system is not integrated with the
payroll and debt management systems, neither DFAS nor the Army could tell
us the amount of soldier debt that could potentially be offset by travel
reimbursements owed to soldiers. The new WIA Support Team's standard
operating procedures for soldier pay account review require identification
and processing of all soldier travel claims.

 Debt Collection Action Has Placed Significant Hardship on Many Battle -Injured
                          Soldiers and Their Families

Debt collection actions have caused a variety of problems for separated
GWOT battle-injured soldiers. When these soldiers leave the Army, they
generally do not have jobs and many of them face continuing medical
treatment for battle injuries, making it difficult to hold a job. If these
soldiers have military debt that has been identified, their final
separation pay may be offset to cover the debt and they may leave the
service with no funds to pay immediate expenses. Due to the lack of
income, 16 of the 19 soldiers we interviewed told us that they had
difficulty paying for basic household expenses. In addition, 3 soldiers
told us that they were erroneously identified as AWOL by their units while
they were actually in the hospital or receiving outpatient care for their
war injuries. The AWOL status for at least 2 of these soldiers created
debt because it appeared that the soldiers received pay when they were not
in duty status. At the time these soldiers were listed as AWOL by their
Army units, they were actually receiving medical treatment. One soldier
was receiving outpatient therapy for her knee injury under the care and
direction of an Air Force physician based on an Army medical referral and
the other soldier was in a military hospital at Fort Campbell.
Debt-related experiences of 19 separated battle-injured soldiers who
contacted us included the following.

           o  Sixteen soldiers had their military debts reported to credit
           bureaus, 9 soldiers had debts turned over to private collection
           agencies, and 8 soldiers had their income tax refunds withheld
           under TOP.
           o  Sixteen could not pay their basic household expenses.
           o  Four soldiers were unable to obtain loans to purchase a home,
           meet other needs, or obtain VA educational benefits due to
           service-related debt on their credit reports.
           o  At least 8 soldiers were owed travel reimbursements at the same
           time they were being pursued for collection of their
           service-related debts.

           The Army's failure to record separation paperwork in the pay
           system and other payment errors resulted in over $12,000 of debt
           for one severely battle-injured soldier. Although the soldier's
           family expected that he would receive retirement pay when his Army
           pay stopped upon his separation, the soldier had no income for
           several months while the Army attempted to recover his military
           debt. As a result, his family was unable to pay household bills,
           the utilities were shut off, and the soldier's dependent daughter
           was sent out of state to live with relatives. In addition,
           although the soldier had been receiving treatment at an Army
           medical center and a VA polytrauma center over a 5-month period,
           the day the soldier was released to go home, his Army unit called
           his wife to ask why he was not reporting for duty-an indication
           that his Army unit had considered him to be AWOL.

           Table 4 illustrates examples of the effects of debt collection
           actions on selected separated Army battle-injured soldiers and
           their families based on our case studies. Five soldiers and family
           members told us that they had contacted their unit finance offices
           multiple times for assistance in resolving their pay and debt
           problems. However, the soldiers said that finance personnel either
           did not get back to them as promised or the finance personnel they
           spoke with said they could not help them with their problems. DFAS
           and Army officials we spoke with acknowledged that finance office
           personnel at some locations lacked the knowledge needed to
           accurately input transactions to soldier pay accounts. DFAS
           officials told us they recently initiated actions to train finance
           office personnel at several locations. Debts imposed the greatest
           hardship on battle-injured soldiers who have had to endure
           financial problems while they cope with adjusting to physical
           limitations due to their injuries.

Table 4: Examples of Battle-Injured Soldier Pay Problems Resulting in Debt

Source: GAO.

The following case summaries provide additional details of selected
soldier debt experiences. The first soldier, case study #1, battled for
1-1/2 years after he separated from the service to resolve his debts and
obtain a reimbursement related to travel expense during his deployment.

21 Pursuant to 10 U.S.C. S: 1448, SBP is a mandatory program unless both
the soldier and his/her spouse, after being fully briefed on the program,
decline participation in writing.

Case study #2 involved a seriously injured Army National Guard soldier who
went without pay for several months when his separation paperwork was not
entered in the pay and personnel systems.

An Army Reserve soldier, case study #4, was faced with debt due to an
erroneous AWOL report while she was receiving treatment at a private
health facility under direction of an Air Force physician.

Our past four reports22 have discussed numerous problems related to Army
pay and travel reimbursements and made over 80 recommendations for
correcting weaknesses in human capital, processes, and systems that caused
these problems. Effective action to address pay and travel reimbursement
problems will also help prevent the occurrence of military debts.

22 See footnote 1.

 Opportunities Exist for Congress to Legislate a More Soldier-Friendly Process
                           for Collecting GWOT Debts

As a result of concern regarding the indebtedness of soldiers resulting
from pay-related problems during deployments, Congress on occasion has
provided authority to the Secretary of Defense to cancel such debts. For
example, in the Department of Defense Appropriation Acts for fiscal years
1992 through 1996,23 the Secretary was given authority to cancel military
debt up to $2,500 owed by soldiers or former soldiers so long as the
indebtedness was incurred in connection with Operation Desert
Shield/Desert Storm. Further, these appropriation acts authorized the
Secretary to provide refunds to soldiers who had satisfied their debts.

Facing similar concerns with military debts incurred by GWOT soldiers,
Congress recently gave the Secretary authority, in the National Defense
Authorization Act for Fiscal Year 2006, to cancel debts occurring on or
after October 7, 2001, the date designated as the beginning of the OIF/OEF
deployment. However, unlike the authority granted to provide debt relief
for Operation Desert Shield/Desert Storm, the Secretary's discretion under
the fiscal year 2006 authorization act is generally more limited. For
example, the Secretary was not given authority to issue refunds and he can
not uniformly provide debt relief to all GWOT soldiers. Rather, the
Secretary may only cancel debts of soldiers who are (1) on active duty or
in active status; (2) within 1 year of an honorable discharge; or (3)
within 1 year of active release from active status in a Reserve component.
Additionally, the Secretary's authority under the fiscal year 2006
authorization act terminates on December 31, 2007, and a more narrow
statutory cancellation authority will be revived.24

There are two primary mechanisms in law to forgive soldier debt, including
(1) authority to waive debts that result from payroll, travel, and other
payment and allowance errors25 and (2) authority for remission
(forgiveness) of debts involving hardship or fairness.26 The Fiscal Year
2006 National Defense Authorization Act broadened remission authority to
include debts of officers and any soldiers no longer on active duty for up
to 1 year. However, the remission authority in the act does not cover
soldiers who were released from active duty more than 1 year ago and the
waiver authority does not cover cancellation of debts due to error after
the applicable 3-year statute of limitations. In addition, unlike waivers,
soldiers who paid debts are not eligible for refunds under the remission
statute. Further, the debt relief eligibility period for the three case
study soldiers who separated in June 2005 will expire in the next few
months.

23 Pub. L. No. 102-172, S: 8138, 105 Stat. 1212 (1991); Pub. L. No.
102-396, S: 9100, 106 Stat. 1926 (1992); Pub. L. No. 103-139, S: 8071, 107
Stat. 1457 (1993); Pub. L. No. 103-335, S: 8060, 108 Stat. 2633 (1994);
Pub. L. No. 104-61, S: 8052, 109 Stat. 662 (1995).

24 Under the more narrow statute, the Secretary will only be able to
cancel an enlisted soldier's debts existing before or at the time of the
soldier's discharge.

25 10 U.S.C. S: 2774 and 32 U.S.C. S: 716.

26 10 U.S.C. S:S: 4837, 6161, and 9837.

Our case studies showed that some battle-injured soldiers did not receive
debt notification letters until 8 to 10 months after they separated from
the Army. One soldier who separated in October 2004 told us that he
received his debt notification letter in November 2005-more than 1 year
after he separated from the Army. All but three of our case study soldiers
separated from the Army more than 1 year ago and these soldiers'
eligibility for debt relief under the fiscal year 2006 authorization act
has already expired. Further, the debt relief eligibility period for the
three case study soldiers who separated in June 2005 will expire in the
next few months.

                                  Conclusions

Since the OIF/OEF deployment in October 2001, separated, battle-injured
Army soldiers have faced considerable hardships related to collection
action on their military service debts through no fault of their own,
including forfeiture of separation pay and tax refunds; credit bureau
reporting; and action by private collection agencies. The best solution to
this problem is for DOD to prevent debts for these soldiers from happening
in the first place, and our past reports have included numerous
recommendations for correcting weaknesses in Army payroll systems and
processes. Over the past year, DOD and the Army have taken a number of
actions to identify and relieve debts of separated battle-injured GWOT
soldiers, and Congress has enacted broader authority for relief of some
soldier debts. There are additional actions available to Congress if it
wishes to make debt relief more soldier friendly. Because of a restriction
in the current law, injured Army GWOT soldiers who separated from the
service at different times have been treated differently, which raises
questions of equity. Some of these soldiers may obtain debt relief, while
others may not. Further, there is no current authority to issue refunds to
battle-injured soldiers who previously paid debts that are now eligible
for relief. Because the current debt relief authority expires on December
31, 2007, injured soldiers and their families who have GWOT-incurred
military debts could face the prospect of bad credit reports, visits by
collection agencies, and offsets of their tax refunds if the authority is
not available throughout the OIF/OEF deployment and a reasonable period
after the deployment ends.

                    Matters for Congressional Consideration

There are several matters that Congress should consider if it wishes to
strengthen the Secretary's authority to provide debt relief so that it can
be applied uniformly for all GWOT-incurred debt. First, Congress could
consider legislation to grant DOD the following authorities.

           o  Give the Service Secretaries authority to make debt relief
           available to all injured GWOT soldiers regardless of when they
           separate from active duty.

           o  Give the Service Secretaries authority to provide refunds to
           soldiers who have paid debts incurred while in an active status.

           o  Ensure that the Secretary of Defense has authority to cancel
           GWOT-incurred debt throughout, and a reasonable period following,
           the deployment and thus, can exempt injured soldiers from debt
           collection action through credit bureau reporting and private
           collection agency and TOP action.

           Second, we suggest that Congress consider directing the Secretary
           of Defense to take the following actions, as appropriate, in
           concert with any changes to debt relief provisions in law.

           o  Take immediate action to make debt relief policy applicable to
           all GWOT soldiers who sustain battle injuries or are killed in
           combat-related actions.

           o  Identify the military debts of battle-injured soldiers that
           were previously paid and were not subject to remission or waiver
           and issue refunds.

           We provided a draft of our report to DOD for comment. In oral
           comments received from the Office of the Secretary of Defense, the
           department concurred with our report.

           We are sending copies of this letter to interested congressional
           committees; the Secretary of Defense; the Deputy Under Secretary
           of Defense for Personnel and Readiness; the Under Secretary of
           Defense Comptroller; the Secretary of the Army; the Director of
           the Defense Finance and Accounting Service; and the Director of
           the Office of Management and Budget. We will make copies available
           to others upon request.

           Please contact Gregory D. Kutz at (202) 512-7455 or [email protected]
           , if you or your staffs have any questions concerning this report.
           Contact points for our Offices of Congressional Relations and
           Public Affairs may be found on the last page of this report. Major
           contributors to this report are acknowledged in appendix III.

           Gregory D. Kutz Managing Director Forensic Audits and Special
           Investigations

           The Federal Claims Collection Act of 1966, the Debt Collection Act
           of 1982, the Debt Collection Improvement Act of 1996,1 and related
           federal regulations provide for collection of debts owed to the
           federal government, including the debts of battle-injured soldiers
           who had separated from the Army and fallen Army soldiers2 who
           served in the Global War on Terrorism. These laws and related
           federal regulations3 establish authority for the Department of
           Defense (DOD) and the Department of the Treasury to engage in
           federal debt collection actions.

           Out-of-service soldier debts occur when a soldier has separated
           from the service and is not receiving salary or other payments
           from the department that can be offset to collect debt owed to a
           defense agency or military service. DOD is authorized to write off
           debts of fallen soldiers; however, it may pursue collection of
           other deceased soldiers' debts.4 Out-of-service debts arise from a
           large number of circumstances, including overpayments of pay and
           allowances (entitlements), such as hostile fire pay, hazardous
           duty pay, and family separation pay; travel advances for which
           expense vouchers have not been submitted; indebtedness related to
           public use of the DOD facilities or services, such as family
           medical services; and loss or damage of government property.
           Figure 2 illustrates the out-of-service debt collection process,
           including DOD actions and Department of the Treasury debt
           collection actions.

                       Agency Comments and Our Evaluation

Appendix I: Background Appendix I: Background

1 Pub. L. No. 89-508, 80 Stat. 308 (1966); Pub. L. No. 97-365, 96 Stat.
1749 (1982); and Pub. L. No. 104-134, 110 Stat. 1321-1358 (1966).

2 Army soldiers discussed in this report include Active Component, Army
National Guard, and Army Reserve soldiers.

3 31 C.F.R. Parts 900-904, Federal Claims Collection Standards (2005) and
31 C.F.R. Part 285, Debt Collection Authorities under the Debt Collection
Improvement Act (2005).

4 31 C.F.R. 903.3 (a)(1).

Figure 2: Out of-Service Debt Collection Process for WIA and Fallen
Soldiers

Note: Process actions are noted as the day on which a particular action
begins. In some cases there are intervening days to assess fees or prepare
paperwork before the next step in the process begins. Debts of fallen
soldiers are written off on Day 1 of this process; however, collection
action may proceed against the estates of other deceased soldiers,
depending on individual circumstances.

Appendix II: Objectives, Scope, and Methodology Appendix II: Objectives,
Scope, and Methodology

The purpose of our audit was to determine the (1) extent to which Army
soldiers serving in the Global War on Terrorism (GWOT) who were injured or
killed by hostile fire and were released from active duty are having debts
referred to credit bureaus and collection agencies and (2) the impact of
Department of Defense (DOD) debt collection action on these soldiers and
their families. You also asked us to discuss ways that Congress could make
the process for collecting out-of-service debts more soldier friendly.

To determine the extent of debt related to Army soldiers who served in
Operation Iraqi Freedom and Operation Enduring Freedom and sustained
battle injuries and left the service or were killed in action, we compared
Army Wounded in Action and Killed in Action databases (referred to
collectively in this report as WIA databases) maintained by the Defense
Finance and Accounting Service (DFAS) Wounded-in-Action Support Team and
compared the soldier records in these databases with debt records in the
Defense Debt Management System (DDMS) for out-of-service personnel.
Soldier records are identified by soldier name and social security number
in both the WIA databases and DDMS. The data used in our audit covered
fiscal years 2002 through 2005-the first 4 years of the Operation Iraqi
Freedom and Operation Enduring Freedom deployments.

We assessed the reliability of data obtained from the WIA databases and
the DDMS systems by obtaining an understanding of the processes used to
collect and report the data, verifying control totals of data extracted
and used for file comparisons, validating the computer program used to
perform the file comparison, asking systems officials to complete our data
reliability questionnaire, and analyzing selected transaction data for
accuracy. We also considered findings and recommendations related to
payroll problems and unidentified soldier debt in our previous audits1 and
our recent Fort Bragg investigation.2 DFAS and the Army have implemented
procedures for reviewing and correcting soldier status and pay account
information in the WIA databases and DDMS data is subjected to periodic
DOD audits.

To determine the impact of debt collection actions on Army battle-injured
and fallen soldiers and their families, we reached out to WIA soldiers and
invited soldiers to contact us and share their experience. We focused on
soldiers whose debts had been reported to credit bureaus and collection
agencies. We were contacted by 19 separated battle-injured Army GWOT
soldiers. We used the experiences of these soldiers to illustrate the
hardships posed by debt collection action on battle-injured soldiers and
their families. For all of the soldiers with debt problems who contacted
us, we worked with the Army and DFAS to help resolve their debts. Where we
were unable to independently validate our case study information, we
attributed it to the soldiers and family members. We analyzed the DDMS
data to confirm management assertions that DFAS does not pursue collection
of debts of fallen soldiers.

1 See footnote 1.

2 GAO-06-348R .

To determine ways that Congress could help make the debt collection
process more soldier friendly, we considered debt relief provisions in
current law, DOD and Army policy, and the experience of soldiers who
contacted us as well as information obtained for case studies included in
our prior reports.3 We reviewed federal laws and regulations and DOD and
Army policies and procedures related to debt collection and relief of
debt.

We met with Army, DFAS, and DOD officials to discuss their efforts to
identify and resolve soldier debt. We also met with Department of the
Treasury Financial Management Service (FMS) officials about their
processes for collecting Army soldier debt referred by DFAS. In addition,
we obtained independent confirmation from credit bureaus and FMS that DFAS
had recalled credit bureau reporting and private collection agency and
Treasury Offset Program referrals for WIA soldiers for active debt cases.
On April 5, 2006, we requested comments on a draft of this report. We
worked closely with the Army and DFAS to ensure the accuracy of the
factual information in our report. We received oral comments from the
Office of the Secretary of Defense on April 21, 2006, and have summarized
those comments in the Agency Comments and Our Evaluation section of this
report. We conducted our work from June 2005 through March 2006 in
accordance with generally accepted government auditing standards.

3 See footnotes 1 and 3.

Appendix III: GAOA Appendix III: GAO Contact and Staff Acknowledgments

                                  GAO Contact

Gregory D. Kutz, 202-512-7455

                                Acknowledgments

Staff making key contributions to this report include Stephen P. Donahue,
Dennis B. Fauber, Gayle L. Fischer, Danielle Free, Gloria
Hernandezsaunders, Wilfred B. Holloway, John B. Ledford, Barbara C. Lewis,
Renee McElveen, Richard C. Newbold, John P. Ryan, and Barry Shillito.

(192174)

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www.gao.gov/cgi-bin/getrpt? GAO-06-494 .

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Highlights of GAO-06-494 , a report to congressional requesters

April 2006

MILITARY PAY

Hundreds of Battle-Injured GWOT Soldiers Have Struggled to Resolve
Military Debts

As part of the Committee on Government Reform's continuing focus on pay
and financial issues affecting Army soldiers deployed in the Global War on
Terrorism (GWOT), the requesters were concerned that battle-injured
soldiers were not only battling the broken military pay system, but faced
blemishes on their credit reports and pursuit by collection agencies from
referrals of their Army debts. GAO was asked to determine (1) the extent
of debt of separated battle-injured soldiers and deceased Army soldiers
who served in the GWOT, (2) the impact of DOD debt collection action on
separated battle-injured and deceased soldiers and their families, and (3)
ways that Congress could make the process for collecting these debts more
soldier friendly.

What GAO Recommends

DOD concurred with GAO's report.

Matters that Congress should consider to make debt relief more soldier
friendly include strengthening the DOD's authority to provide uniform debt
relief to injured GWOT soldiers and exempting these soldiers from credit
bureau reporting and private collection agency and tax refund offset
actions.

Pay problems rooted in the complex, cumbersome processes used to pay Army
soldiers from their initial mobilization through active duty deployment to
demobilization have generated military debts. As of September 30, 2005,
nearly 1,300 separated Army GWOT soldiers who were injured or killed
during combat in Iraq and Afghanistan had incurred over $1.5 million in
military debt, including almost 900 battle-injured soldiers with debts of
$1.2 million and about 400 soldiers who died in combat with debts of
$300,000. As a policy, DOD does not pursue collection of debts of soldiers
who were killed in combat. However, hundreds of battle-injured soldiers
experienced collection action on their debts. The extent of these debts
may be greater due to incomplete reporting. GAO's case studies of 19
battle-injured soldiers showed that collection action on military debts
resulted in significant hardships to these soldiers and their families.
For example, 16 of the 19 soldiers were unable to pay their basic
household expenses; 4 soldiers were unable to obtain loans to purchase a
car or house or meet other needs; and 8 soldiers' debts were offset
against their income tax refunds. In addition, 16 of the 19 case study
soldiers had their debts reported to credit bureaus and 9 soldiers were
contacted by private collection agencies. The table below illustrates the
experience of 4 case study soldiers.

Case Study Examples of the Impact of Injured Soldier Pay Problems
Resulting in Debt

Source: GAO analysis.

Due to concerns about soldier indebtedness resulting from pay-related
problems during deployments, Congress recently gave the Service
Secretaries authority to cancel some GWOT soldier debts. Because of
restrictions in the law, debts of injured soldiers who separated at
different times can be treated differently. For example, soldiers who
separated more than 1 year ago are not eligible for debt relief and
soldiers who paid their debts are not eligible for refunds. Further,
because this authority expires in December 2007, injured soldiers and
their families could face bad credit reports, visits from collection
agents, and tax refund offsets in the future.
*** End of document. ***