Improper Payments Information Act of 2002: Department of Defense 
Travel Expenditure Reporting (31-MAY-07, GAO-07-767R).		 
                                                                 
In November 2002, the Congress passed the Improper Payments	 
Information Act of 2002 (IPIA). The major objective of the	 
legislation was to enhance the accuracy and integrity of federal 
payments. This legislation, in conjunction with implementing	 
guidance from the Office of Management and Budget (OMB), requires
executive branch agency heads to review their programs and	 
activities annually, identify those that may be susceptible to	 
significant improper payments, estimate amounts improperly paid, 
and report on the amounts of improper payments and actions to	 
reduce them. Since passage of IPIA, the Department of Defense	 
(DOD) has continued to expand its annual disclosures in its	 
performance and accountability reports (PAR) and currently	 
discloses some detail of improper payment estimates for six	 
programs or activities, including civilian pay, commercial pay,  
travel pay, military retirement, military health benefits, and	 
military pay. DOD has reported improper payment information since
2003. The Congress mandated that we consider one facet of this	 
reporting related to DOD--travel pay. The DOD Office of the	 
Inspector General (OIG) first reported on whether the department 
complied with IPIA in fiscal year 2006 and identified several	 
significant flaws in DOD's efforts to comply with IPIA. Over the 
past several years, GAO has issued numerous reports that	 
highlighted problems with DOD travel practices that resulted in  
wasteful spending of millions of dollars, including weak controls
over first class travel, unused airline tickets, and the accuracy
of travelers' claims. Conference Report 109-676 accompanying the 
Department of Defense Appropriations Act, 2007 included a	 
requirement for GAO to assess the reasons why DOD is not fully in
compliance with IPIA related to travel expenditures and make any 
needed recommendations for corrective action. In response, this  
initial report provides an overview of DOD's IPIA reporting for  
fiscal years 2003 through 2006 and a discussion of the reasons	 
reported by the DOD OIG that DOD was not in compliance with IPIA 
for fiscal year 2006. To further respond to this mandate, we plan
to issue a separate report later this year that will include the 
results of a more comprehensive review of (1) the scope and	 
methodology DOD used in its IPIA travel-related improper payments
assessment and (2) DOD's internal control over travel-related	 
IPIA reporting disclosures.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-767R					        
    ACCNO:   A70084						        
  TITLE:     Improper Payments Information Act of 2002: Department of 
Defense Travel Expenditure Reporting				 
     DATE:   05/31/2007 
  SUBJECT:   Accountability					 
	     Erroneous payments 				 
	     Fraud						 
	     Internal controls					 
	     Military pay					 
	     Overpayments					 
	     Payments						 
	     Program abuses					 
	     Reporting requirements				 
	     Noncompliance					 
	     Travel						 

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GAO-07-767R

   

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May 31, 2007

Congressional Committees

Subject: Improper Payments Information Act of 2002: Department of Defense
Travel Expenditure Reporting

In November 2002, the Congress passed the Improper Payments Information
Act of 2002^1 (IPIA). The major objective of the legislation was to
enhance the accuracy and integrity of federal payments. This legislation,
in conjunction with implementing guidance^2 from the Office of Management
and Budget (OMB), requires executive branch agency heads to review their
programs and activities annually, identify those that may be susceptible
to significant improper payments, estimate amounts improperly paid, and
report on the amounts of improper payments and actions to reduce them.
Since passage of IPIA, the Department of Defense (DOD) has continued to
expand its annual disclosures in its performance and accountability
reports (PAR) and currently discloses some detail of improper payment
estimates for six programs or activities, including civilian pay,
commercial pay, travel pay, military retirement, military health benefits,
and military pay. DOD has reported improper payment information since
2003. The Congress mandated that we consider one facet of this reporting
related to DOD--travel pay. The DOD Office of the Inspector General (OIG)
first reported on whether the department complied with IPIA in fiscal year
2006 and identified several significant flaws in DOD's efforts to comply
with IPIA.

Over the past several years, GAO has issued numerous reports that
highlighted problems with DOD travel practices that resulted in wasteful
spending of millions of dollars, including weak controls over first class
travel, unused airline tickets, and the accuracy of travelers' claims.^3
Conference Report 109-676^4 accompanying the Department of Defense
Appropriations Act, 2007^5 included a requirement for GAO to assess the
reasons why DOD is not fully in compliance with IPIA related to travel
expenditures and make any needed recommendations for corrective action. In
response, this initial report provides an overview of DOD's IPIA reporting
for fiscal years 2003 through 2006 and a discussion of the reasons
reported by the DOD OIG that DOD was not in compliance with IPIA for
fiscal year 2006. To further respond to this mandate, we plan to issue a
separate report later this year that will include the results of a more
comprehensive review of (1) the scope and methodology DOD used in its IPIA
travel-related improper payments assessment and (2) DOD's internal control
over travel-related IPIA reporting disclosures. Our follow-on report will
also include recommendations for any needed corrective actions.

^1 Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).

^2 Appendix C to OMB Circular No. A-123, Requirements for Effective
Measurement and Remediation of Improper Payments (Aug. 10, 2006).

^3 See the Related GAO Products section at the end of this correspondence.

^4 H.R. Conf. Rep. No. 109-676, at 94 (Sept. 25, 2006).

^5 Pub. L. No. 109-289, 120 Stat. 1257 (Sept. 29, 2006).

To complete this work, we reviewed DOD's PAR for fiscal years 2003, 2004,
2005, and 2006. We also reviewed prior GAO reports, applicable federal
laws, prior DOD OIG reports, and OMB implementing guidance found in OMB
Circular No. A-123, Appendix C.^6 We did not independently validate the
improper payment data reported by DOD. However, we are providing this
agency-reported data as descriptive information that will inform
interested parties about DOD improper payments and other improper
payment-related information. We believe the data to be sufficiently
reliable for this purpose. We also did not independently assess whether
DOD was in compliance with IPIA related to travel expenditures. We
performed our work from November 2006 through April 2007 in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Secretary of Defense or his
designee. Written comments from DOD's Acting Deputy Chief Financial
Officer are reprinted in enclosure I.

Results in Brief

In fiscal year 2003, DOD began improper payment reporting in its annual
PAR. As required under OMB Circular No. A-11,^7 it reported improper
payments for military health benefits and military retirement. In fiscal
year 2004, DOD reported that its improper payment survey^8 did not
identify any programs or activities that were susceptible to risk of
significant improper payments for purposes of IPIA. As in the prior year,
DOD provided additional information for military retirement and military
health benefits. In fiscal year 2005, DOD reported that none of its
programs or activities met OMB's criteria for risk of significant improper
payments under IPIA. Its survey, however, did find military pay
susceptible to significant risk of improper payments. DOD's fiscal year
2005 reporting included information on statistical sampling and corrective
action plans for its military retirement, military health benefits, and
military pay programs.

^6 Appendix C to OMB Circular A-123 consolidates three memorandums
previously issued by OMB. These memorandums are: M-03-07, "Programs to
Identify and Recover Erroneous Payments to Contractors" (Jan. 16, 2003);
M-03-12, "Allowability of Contingency Fee Contracts for Recovery Audits"
(May 8, 2003); and M-03-13, "Improper Payments Information Act of 2002
(Public Law 107-300)" (May 21, 2003).

^7 Prior to the executive branchwide IPIA reporting requirements,
beginning with fiscal year 2004, former section 57 of OMB Circular No.
A-11 required certain agencies to submit similar information, including
estimated improper payment target rates, target rates for future
reductions in these payments, the types and causes of these payments, and
variances from targets and goals established. In addition, these agencies
were to provide a description and assessment of the current methods for
measuring the rate of improper payments and the quality of data resulting
from these methods.

^8 DOD conducts an annual survey of all programs and activities that may
be susceptible to improper payments. The survey requires identification of
underpayments and overpayments and a description of the methodology used
to estimate improper payments.

In its most recent PAR for fiscal year 2006, DOD continued to expand its
annual reporting, including information in varying levels of detail
concerning improper payment estimates for civilian pay, commercial pay,
travel pay, military retirement, military health benefits, and military
pay. In total, DOD identified $875.5 million in improper payments.
Specifically, for travel pay for fiscal year 2006, DOD estimated about $8
million in improper payments. For fiscal year 2006, the DOD OIG reported
that the department did not fully comply with the requirements of IPIA and
implementing OMB guidance. The DOD OIG cited, for example, an inadequate
control process at the Defense Finance and Accounting Service as well as
control weaknesses identified in GAO's prior assessments demonstrating
that programs related to military pay, travel, property, contract
payments, and automated systems may be at risk of making significant
improper payments. The DOD OIG also reported on steps the department was
taking to improve IPIA compliance, including the establishment of a
Project Officer for Improper Payments and Recovery Auditing.

Background

IPIA was enacted in November 2002 with the major objective of enhancing
the accuracy and integrity of federal payments. IPIA requires executive
branch agency heads to review their programs and activities annually and
identify those that may be susceptible to significant improper payments.
OMB provided implementing guidance for reporting under IPIA in Appendix C
of OMB Circular No. A-123. The OMB guidance defines significant improper
payments^9 as those in any particular program exceeding both 2.5 percent
of program payments and $10 million annually.^10 In addition, the guidance
provides that agency programs that were included in former section 57 of
OMB Circular No. A-11 must estimate improper payments even if the estimate
does not exceed $10 million and 2.5 percent of program payments.

In its guidance, OMB may also determine, on a case-by-case basis, whether
certain programs should be reported even if those programs do not meet
established thresholds. For all programs and activities susceptible to
significant improper payments, agencies are to determine an annual
estimated amount of improper payments made in those programs and
activities. If the estimate of improper payments exceeds $10 million, the
agency must implement a plan to reduce the amount of such erroneous
payments. Agencies that have identified programs or activities that may be
susceptible to significant improper payments are also required to include
the amount of estimated improper payments in their annual PAR, regardless
of whether they meet the $10 million threshold.

^9 "Improper payment" and "erroneous payment" have the same meaning under
Appendix C of OMB Circular No. A-123.

^10 IPIA does not include a similar threshold for defining significant
improper payments.

DOD IPIA Reporting for Fiscal Years 2003 through 2006

DOD has continued to expand its annual reporting on improper payments in
its PAR. Its most recent report covering fiscal year 2006 included varying
levels of detail concerning improper payment estimates for civilian pay,
commercial pay, travel pay, military retirement, military health benefits,
and military pay. The following provides an overview of DOD's reporting
for fiscal years 2003 through 2006, with special emphasis on fiscal year
2006.

Fiscal Year 2003. In fiscal year 2003, DOD began reporting information as
required under IPIA and OMB Circular No. A-11 in its annual PAR.^11 DOD
reported on improper payments for military health benefits and military
retirement. DOD also reported it "is reviewing all programs and activities
and identifying those which are susceptible to significant improper
payments." The department went on to describe its planned actions,
including estimating the amount of improper payments and establishing
goals to reduce the amounts of these payments. DOD also provided further
detail on the projected improper payments and approximate error rate for
military health benefits and military retirement.

Fiscal Year 2004. In its fiscal year 2004 PAR,^12 DOD reported that its
improper payments survey did not identify any programs or activities where
erroneous payments exceeded the established thresholds, nor were any found
to be susceptible to significant risk. Further, DOD described the risk
assessments performed on nine programs/activities that the department
identified as being susceptible to improper payments. As a result of this
assessment, DOD determined that none of the programs/activities were
susceptible to high risk. Further, for two programs--military retirement
and military health benefits--DOD described the statistical sampling
process, planned corrective actions, reduction outlook, existence of
information systems, and other infrastructure needed to reduce improper
payments, as well as the statutory or regulatory barriers that might limit
corrective action.

Fiscal Year 2005. In its fiscal year 2005 PAR,^13 DOD reported that its
survey did not identify any programs or activities where payments met
OMB's criteria for reporting as "significant" improper payments. DOD
reported that its survey, however, did find military pay susceptible to
significant risk of improper payments. DOD reported information on
statistical sampling and corrective action plans related to its military
retirement, military health benefits, and military pay programs. DOD also
provided information on information systems, accountability for improper
payments, and recovery auditing at the department.

Fiscal Year 2006. In its fiscal year 2006 PAR,^14 DOD reported that its
current IPIA review did not identify any programs or activities at risk of
"significant erroneous payments" in accordance with OMB criteria. However,
the department also reported that civilian, commercial, and travel pay
potentially were susceptible to improper payments in excess of $10 million
and reported estimated improper payments information for these programs.
Further, the department again reported on its sampling and corrective
actions concerning its military retirement, military health benefits, and
military pay programs. Table 1 shows the information DOD reported on
estimated improper payments for six programs in its fiscal year 2006 PAR.

^11 DOD, Performance and Accountability Report: Fiscal Year 2003 (Dec. 23,
2003).

^12 DOD, Performance and Accountability Report: Fiscal Year 2004 (Nov. 15,
2004).

^13 DOD, Performance and Accountability Report: Fiscal Year 2005 (Nov. 15,
2005).

^14 DOD, Performance and Accountability Report: Fiscal Year 2006 (Nov. 15,
2006).

Table 1: DOD's Reported Improper Payment Estimates for Fiscal Year 2006

Program             Estimated improper     Improper payments as a          
                       payments (in millions) percentage of total program     
                                              payments                        
Commercial Pay              $550.0                      0.2%               
Military Health             140.0                        2.0               
Benefits                                                                   
Military Pay                 65.9                        0.1               
Civilian Pay                 62.8                        0.1               
Military Retirement          48.8                        0.1               
Travel Pay                   8.0                         1.0               
Total                       $875.5                                         

Source: DOD fiscal year 2006 PAR.

Further, DOD described the risk assessment process for each of the
programs or activities that addressed the strength of the internal
controls in place to prevent improper payments and reported on the results
in its disclosure. DOD also described the statistical sampling and
corrective action plans for these six programs or activities.
Additionally, DOD summarized the improper payment reduction outlook for
the military retirement, military health benefits, and military pay
programs. Finally, DOD described its improper payments auditing,
accountability information, information system usage, and statutory and
regulatory barriers limiting the department's corrective actions.

With regard to improper payments reporting related to its travel program
in DOD's fiscal year 2006 PAR, the department described the process in
place to conduct monthly random postpayment reviews of travel records
settled through the Defense Travel System (DTS) and Integrated Automated
Travel System (IATS). DOD reported that these random reviews were designed
to produce annual estimates of improper payments, with a probability of 95
percent and sample precision of plus or minus
2.5 percent, at the component level (e.g., Army, Navy, Air Force, and
Marine Corps). Further, at the U.S. Army Corps of Engineers, DOD reported
that all temporary duty travel (TDY) and permanent change of station
vouchers greater than or equal to $2,500 were subject to postaudit review,
and a sample of every 366^th TDY voucher less than $2,500 was also
reviewed.

DOD's fiscal year 2006 PAR also described the risk assessment DOD
completed for several programs, including travel, to address the strength
of internal controls in place to prevent improper payments, system
weaknesses identified internally or by outside audit activities, and
voluntary returns of overpayments. In Section 4 of its fiscal year 2006
PAR, DOD described its corrective action plans regarding improper
payments, including specific information on travel. In this section, the
department only reported information on travel processed through DTS,
although DOD uses other systems, such as IATS, to process travel in
addition to DTS. In its PAR, DOD reported that in fiscal year 2006, over
783,000 trip records with a total settlement dollar value of $823.6
million were processed through DTS. However, based on our ongoing work,
this amounted to only 11 percent of the $7.483 billion of DOD travel
obligations reported for fiscal year 2006 in the 2008 Budget of the U.S.
Government.^15 DOD reported that as of September 30, 2006, the department
had randomly selected and reviewed 30,100 settled trip records related to
DTS transactions, with a value exceeding $32.6 million. Based on these
reviews, DOD projected that improper payments accounted for .968 percent
of the tested sample and thus DOD projected that improper payments in the
population of DTS settlements could approach

$7.97 million.

The DOD OIG Raised Concerns with DOD's IPIA Reporting for Fiscal Year 2006

DOD's independent auditor, the DOD OIG, determined that the department's
fiscal year 2006 reporting did not fully comply with the requirements of
IPIA and implementing OMB guidance. The auditors reported that their
conclusion was based, in part, on an inadequate control process at the
Defense Finance and Accounting Service as well as control weaknesses
identified in GAO's prior assessments demonstrating that programs related
to military pay, travel, property, contract payments, and automated
systems may be at risk of making significant improper payments.

The DOD OIG also reported that the department had taken steps to resolve
some previously identified issues regarding the methodologies and
processes used in reporting improper payments. Further, the OIG reported
that DOD had recently established a Project Officer for Improper Payments
and Recovery Auditing. The project officer's reported responsibilities
include (1) reviewing DOD's statistical methodologies and processes to
verify that DOD's reported information is accurate, complete, and meets or
exceeds OMB minimum reporting requirements; and (2) establishing an
Improper Payments and Recovery Auditing working group to help DOD modify
improper payment methodologies and processes as needed.

Agency Comments and Our Evaluation

We requested comments on a draft of this report from the Secretary of
Defense or his designee. The Acting Deputy Chief Financial Officer of DOD
provided written comments, which are reprinted in enclosure I. DOD's
comments correctly noted that this report does not contain any audit
conclusions or recommendations, but does provide a summary of the DOD
OIG's conclusions contained in DOD's fiscal year 2006 PAR that the
department did not fully comply with IPIA for fiscal year 2006. DOD
commented that our report would achieve a more balanced reporting of the
department's compliance with IPIA if it included the positive comments
made by the DOD OIG, also included in the fiscal year 2006 PAR, as well as
an acknowledgement of DOD's ongoing efforts to continually improve
oversight and reporting of improper payments. Inasmuch as the mandate to
which this report responds specifically required GAO to assess the reasons
why DOD is not fully in compliance with IPIA related to travel
expenditures, our draft report necessarily focused on the noncompliance
aspects of the DOD OIG's fiscal year 2006 reporting. Nonetheless, we have
modified the report to include the positive steps DOD had taken, as
reported by the DOD OIG. Further, while we agree that DOD is taking steps
intended to improve IPIA reporting, including holding an IPIA conference
and continuing to work with OMB, the scope of our initial review did not
include assessing the effectiveness of such steps.

^15 Fiscal Year 2008 Budget of the U.S. Government, Object Class Analysis
(Feb. 5, 2007).

DOD's comments also included a status update on the department's efforts
to reconcile the amount of its travel payments reported in the fiscal year
2006 PAR, which represents 11 percent of the $7.483 billion of DOD travel
obligations reported in object class 21 (travel and transportation of
persons) in the fiscal year 2008 Budget of the U.S. Government. We
appreciate DOD's ongoing efforts to reconcile the disparate amounts
reported in its PAR and fiscal year 2008 budget for travel and will assess
the results of these efforts as part of our ongoing work.

                                   - - - - -

We are sending copies of this report to other interested congressional
committees. Copies will be made available to others upon request. In
addition, this report will also be available at no charge on GAO's Web
site at http://www.gao.gov.

If you or your staffs have any questions regarding this report, please
contact me at (202) 512-9095 or at [email protected]. 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 include
Dianne Guensberg, Assistant Director; Heather Dunahoo; and Bradley
Klingsporn.

McCoy Williams
Director, Financial Management and Assurance

List of Congressional Committees

The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Daniel K. Inouye
Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Thomas R. Carper
Chairman
The Honorable Tom Coburn
Ranking Member
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security
Committee on Homeland Security and Governmental Affairs
United States Senate

The Honorable Ike Skelton
Chairman
The Honorable Duncan L. Hunter
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable John P. Murtha
Chairman
The Honorable C.W. Bill Young
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

Enclosure I

                    Comments from the Department of Defense

Related GAO Products

DOD Business Transformation: Defense Travel System Continues to Face
Implementation Challenges. GAO-06-18. Washington, D.C.: January 18, 2006.

Army National Guard: Inefficient, Error-Prone Process Results in Travel
Reimbursement Problems for Mobilized Soldiers. GAO-05-400T. Washington,
D.C.: March 16, 2005.

Army National Guard: Inefficient, Error-Prone Process Results in Travel
Reimbursement Problems for Mobilized Soldiers. GAO-05-79. Washington,
D.C.: January 31, 2005.

DOD Travel Cards: Control Weaknesses Led to Millions of Dollars of
Improper Payments. GAO-04-576. Washington, D.C.: June 9, 2004.

DOD Travel Cards: Control Weaknesses Led to Millions in Fraud, Waste, and
Improper Payments. GAO-04-825T. Washington, D.C.: June 9, 2004.

DOD Travel Cards: Control Weaknesses Led to Millions of Dollars Wasted on
Unused Airline Tickets. GAO-04-398. Washington, D.C.: March 31, 2004.

Travel Cards: Internal Control Weaknesses at DOD Led to Improper Use of
First and Business Class Travel. GAO-04-229T. Washington, D.C.: November
6, 2003.

Travel Cards: Internal Control Weaknesses at DOD Led to Improper Use of
First and Business Class Travel. GAO-04-88. Washington, D.C.: October 24,
2003.

(195105)

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