Defense Travel System: Validity of Travel Payments Statistical
Sampling in Question (03-MAR-08, GAO-08-444R).
In response to a congressional mandate to assess the reasons why
the Department of Defense (DOD) is not fully in compliance with
the Improper Payments Information Act of 2002 (IPIA) related to
DOD travel expenditures, GAO issued two reports in 2007. In May
2007, we issued an initial report that provided an overview of
DOD's IPIA reporting for fiscal years 2003 through 2006 and a
discussion of the reasons reported by the DOD Office of Inspector
General why the department was not in compliance with IPIA for
fiscal year 2006. In December 2007, we issued our final report on
our assessment of the completeness and accuracy of DOD's fiscal
year 2006 IPIA disclosures related to travel expenditures, as
well as DOD's planned efforts to improve and refine its processes
for estimating and reporting on travel improper payments. The
purpose of this letter is to bring to Congress's attention and
action a matter that we discovered while preparing our final
report. This letter is based on work performed during our
assessment of the completeness and accuracy of DOD's fiscal year
2006 IPIA disclosures related to travel expenditures and DOD's
planned efforts to improve and refine its processes for
estimating and reporting on travel improper payments. That work
was conducted in accordance with generally accepted government
auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based
on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions
based on our audit objectives.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-444R
ACCNO: A81192
TITLE: Defense Travel System: Validity of Travel Payments
Statistical Sampling in Question
DATE: 03/03/2008
SUBJECT: Cost analysis
Data integrity
Defense appropriations
Defense cost control
Erroneous payments
Payments
Program evaluation
Reporting requirements
Risk assessment
Travel
Travel allowances
Travel costs
Accountability
Auditing standards
Cost estimates
Defense Travel System
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GAO-08-444R
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
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March 3, 2008:
The Honorable Claude M. Kicklighter:
Inspector General:
Department of Defense:
Subject: Defense Travel System: Validity of Travel Payments Statistical
Sampling in Question:
Dear Mr. Kicklighter:
In response to a congressional mandate to assess the reasons why the
Department of Defense (DOD) is not fully in compliance with the
Improper Payments Information Act of 2002 (IPIA) related to DOD travel
expenditures,[Footnote 1] GAO issued two reports in 2007. In May 2007,
we issued an initial report that provided an overview of DOD's IPIA
reporting for fiscal years 2003 through 2006 and a discussion of the
reasons reported by the DOD Office of Inspector General why the
department was not in compliance with IPIA for fiscal year
2006.[Footnote 2] In December 2007, we issued our final report on our
assessment of the completeness and accuracy of DOD's fiscal year 2006
IPIA disclosures related to travel expenditures, as well as DOD's
planned efforts to improve and refine its processes for estimating and
reporting on travel improper payments[Footnote 3] (see encl.) The
purpose of this letter is to bring to your attention and action a
matter that we discovered while preparing our final report.
This letter is based on work performed during our assessment of the
completeness and accuracy of DOD's fiscal year 2006 IPIA disclosures
related to travel expenditures and DOD's planned efforts to improve and
refine its processes for estimating and reporting on travel improper
payments. That work was conducted in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Further details on the scope and methodology of our work carried out as
part of that review are included in appendix I of our December 2007
report.
Specifically, during our assessment, we found the postpayment review
process used by DOD to prepare estimates of the amount of improper
payments for travel processed through the Defense Travel System (DTS)
(1) lacked documented sampling plans, (2) incorrectly categorized
certain errors found in samples, and (3) used a methodology to estimate
sampling results for nine DOD agencies that was not statistically
valid. As noted in footnote 19 to our final report, DOD reported in its
fiscal year 2006 performance and accountability report (PAR) that its
random postpayment sample reviews were originally performed to satisfy
the requirements of "certifying officers legislation." DOD did not
identify the specific legislation referred to in the PAR, so we did not
evaluate this assertion. However, our final report also noted that 31
U.S.C. �3521(b) authorizes heads of agencies to carry out a statistical
sampling procedure, within certain parameters, to audit vouchers when
the head of the agency determines that economies will result.
In general, certifying officers designated in writing by the agency are
financially liable for any improper, illegal, or incorrect payment
made, and each payment made must be audited (or "examined"). See DOD
7000.14-R, Department of Defense Financial Management Regulation
(September 2007), vol. 5, ch. 11, para. 110203, and vol. 5, ch. 33
para. 330303 A. However, 31 U.S.C. �3521(c) provides that certifying
and disbursing officers are not liable for payments that are not
audited if they were made in good faith under a statistical sampling
procedure. See 68 Comp. Gen. 618 (1989); see generally, GAO's Policy
and Procedures Manual for Guidance of Federal Agencies, title 7, ��
6.5, 7.4, and 7.5 (Washington, D.C.: May 18, 1993). Because of the
weaknesses described in our December 2007 report, we have doubts that
the DTS postpayment sample reviews constitute a valid statistical
sampling procedure under 31 U.S.C. �3521(b) for travel payments
processed through DTS. See [hyperlink, http://www.gao.gov/cgi-bin/
getrpt?] at pages 11--15. If individual DTS travel payments are
unaudited (or not "examined"), a deficient statistical sampling
procedure would impede financial accountability at DOD for travel
payments.
We recommend the Inspector General determine whether DOD is satisfying
the requirements of "certifying officers legislation."
Please let us know of your initial disposition of this recommendation
within 60 days of receiving this letter and the final result of any
inquiry you conduct. We are sending copies of this letter to interested
congressional committees. We are also sending copies to the DOD Under
Secretary of Defense (Comptroller) and Chief Financial Officer and the
Director, Defense Finance and Accounting Service. Copies will be made
available to others upon request. In addition, this letter will also be
available at no charge on GAO's web site at [hyperlink,
http://www.gao.gov.]
If you or your staff have any questions about this letter please
contact me at (202) 512-2600 or [email protected]. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this letter. GAO staff who contributed to this
letter include Dianne Guensberg, Assistant Director; Jacquelyn
Hamilton, Deputy Assistant General Counsel; and Heather Dunahoo.
Sincerely yours,
Signed by:
McCoy Williams:
Managing Director Financial Management and Assurance:
Enclosure:
[End of section]
Enclosure:
This is the accessible text file for GAO report number GAO-08-16
entitled 'DOD Travel Improper Payments: Fiscal Year 2006 Reporting Was
Incomplete and Planned Improvement Efforts Face Challenges' which was
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
December 2007:
DOD Travel Improper Payments:
Fiscal Year 2006 Reporting Was Incomplete and Planned Improvement
Efforts Face Challenges:
DOD Travel Improper Payments:
GAO-08-16:
GAO Highlights:
Highlights of GAO-08-16, a report to congressional committees.
Why GAO Did This Study:
Fiscal year 2006 was the first year that the Department of Defense
(DOD) reported improper payment information for its travel program
under the Improper Payments Information Act of 2002 (IPIA). For fiscal
year 2006, DOD reported obligations of approximately $8.5 billion for
travel. Congress mandated that GAO assess the reasons why DOD is not
fully in compliance with IPIA related to travel expenditures. In May
2007, GAO issued an initial report in response to this mandate. To
further respond, GAO assessed (1) the completeness and accuracy of
DOD�s fiscal year 2006 IPIA travel disclosure in its performance and
accountability report (PAR), and (2) DOD�s planned efforts to improve
and refine its processes for estimating and reporting on travel
improper payments. To complete this work, GAO reviewed DOD�s IPIA
reporting, IPIA, Office of Management and Budget�s (OMB) IPIA
implementing guidance, and met with cognizant DOD officials.
What GAO Found:
In its fiscal year 2006 PAR, DOD reported an estimate of approximately
$8 million in travel improper payments, reflecting about 1 percent of
reported travel payments. While this estimate would indicate the
program was not at risk of significant erroneous payments under OMB
guidance, DOD�s improper payment travel disclosure for fiscal year 2006
was incomplete. The DOD travel payment data used to assess the
program�s risk of significant improper payments only included payments
processed by the Defense Travel System (DTS)�approximately 10 percent
of the $8.5 billion of DOD travel obligations reported for fiscal year
2006. Further, DOD�s 2006 PAR described a travel postpayment review
process that may mislead readers to believe that the reported travel
improper payment estimate represents more than DTS-processed travel.
The travel improper payment estimate also excluded the largest user of
DTS, the Army, which would likely have increased DOD�s estimate by over
$4 million. Finally, the statistical sampling methodology and process
used by DOD to estimate DTS improper payments as reported for fiscal
year 2006 had several weaknesses and did not result in statistically
valid estimates of travel improper payments.
DOD is taking steps to more fully assess and report on its travel
program for improper payments for future IPIA reporting. DOD�s planned
assessment is to be based on an annual Improper Payments Survey
conducted by the Office of the Undersecretary of Defense (Comptroller).
However, GAO�s review identified several weaknesses with the survey and
reported results, including limited guidance on how to estimate travel
improper payments and a lack of oversight and review over
implementation of the survey and its results. As shown in the figure
below, there were substantial discrepancies among the travel
populations reported in the PAR, improper payment survey, and fiscal
year 2006 travel obligations. The exclusion of such a significant
portion of travel expenditures in the survey decreases its
effectiveness as an improper payments assessment tool. DOD has also
established a Program Officer for Improper Payment and Recovery
Auditing, an improper payment working group, and held a �Department of
Defense Improper Payments Information Act Conference.�
DOD Travel Populations for Fiscal Year 2006:
Reported travel obligations for FY 2006: $8.5 billion;
Travel payments reported by DOD agencies in FY 2006 survey: $3.4
billion;
Travel payments processed by DTS in FY 2006: $1.2 billion;
Travel payments reported in FY 2006 PAR: $824 million.
Source: GAO analysis.
[End of table]
What GAO Recommends:
GAO makes four recommendations to DOD to improve the usefulness and
completeness of IPIA reporting associated with its travel program. DOD
concurred with three of the recommendations and partially concurred
with the remaining one. DOD referred to a recently issued policy
memorandum in its response. Additional action will be needed to fully
and effectively implement this policy.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-16]. For more information, contact McCoy
Williams at (202) 512-9095 or [email protected].
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD
Travel Program Were Incomplete:
DOD Faces Challenges in Plans to More Fully Assess Travel Improper
Payments:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: Excerpts from DOD's Fiscal Year 2006 PAR:
Appendix IV: GAO Contact and Staff Acknowledgements:
Tables:
Table 1: DOD's Reported Improper Payment Estimates for Fiscal Year
2006:
Table 2: Improper Payments Survey Results: Travel, Fiscal Year 2006:
Figures:
Figure 1: Fiscal Year 2006 DTS-Processed Travel:
Figure 2: DOD Travel Populations for Fiscal Year 2006:
Abbreviations:
DFAS: Defense Finance and Accounting Service:
DOD: Department of Defense:
DOD OIG: Department of Defense Office of Inspector General:
DTS: Defense Travel System:
IATS: Integrated Automated Travel System:
IPIA: Improper Payments Information Act of 2002:
OMB: Office of Management and Budget:
PAR: Performance and Accountability Report:
PCS: permanent change of station:
TDY: temporary duty:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
December 14, 2007:
Congressional Committees:
Fiscal year 2006 marks the third year that the Department of Defense
(DOD), as well as other executive branch agencies, were required to
report improper payment information under the Improper Payments
Information Act of 2002 (IPIA).[Footnote 1] IPIA requires executive
agency heads, based on guidance from the Office of Management and
Budget (OMB),[Footnote 2] to identify programs and activities
susceptible to significant improper payments,[Footnote 3] estimate
amounts improperly paid under those programs and activities, and report
on the amounts of improper payments and their actions to reduce them.
DOD obligates billions of dollars annually to fund travel. For fiscal
year 2006, DOD reported obligations of approximately $8.5 billion for
travel,[Footnote 4] representing 60 percent of all travel
obligations[Footnote 5] reported by the federal government that year.
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 and potentially improper
travel, including weak controls over first class travel,[Footnote 6]
unused airline tickets, and the accuracy of travelers' claims. The DOD
Office of Inspector General (DOD OIG), first reporting on the
department's overall compliance with IPIA in fiscal year 2006,
identified several significant flaws.
Conference Report 109-676,[Footnote 7] accompanying the Department of
Defense Appropriations Act, 2007,[Footnote 8] included a requirement
for GAO to assess the reasons why DOD was not fully in compliance with
IPIA related to travel expenditures and make any needed recommendations
for corrective action. In May 2007, we issued an initial
report[Footnote 9] that provided an overview of DOD's IPIA reporting
for fiscal years 2003 through 2006 and a discussion of the reasons
reported by the DOD OIG for why the department was not in compliance
with IPIA for fiscal year 2006. Our objectives for this report were to
assess: (1) the completeness and accuracy of DOD's fiscal year 2006
IPIA travel disclosure in its performance and accountability report
(PAR), and (2) DOD's planned efforts to improve and refine its
processes for estimating and reporting on travel improper payments.
To complete our first objective, we reviewed DOD's fiscal year 2006
PAR, prior GAO reports, applicable federal laws, prior DOD OIG reports,
and OMB implementing guidance found in OMB Circular No. A-123, Appendix
C. We also met with cognizant DOD officials. To complete our second
objective, we reviewed DOD's annual improper payment survey, met with
representatives from DOD components to determine how each calculated
travel improper payments to be reported, and met with officials from
the Office of the Under Secretary of Defense (Comptroller) (Office of
the Comptroller) and other DOD components. Additional details on our
scope and methodology are presented in appendix I. We conducted our
review from November 2006 through September 2007 in accordance with
generally accepted government auditing standards.
Results in Brief:
In its fiscal year 2006 PAR, DOD reported an estimate of approximately
$8 million in travel program improper payments, which DOD reported as
reflecting about 1 percent of reported travel payments for the year.
While this estimate would indicate the program was not at risk of
significant improper payments under OMB guidance, we found that DOD's
travel improper payment disclosure for fiscal year 2006 was incomplete
because it understated the full extent of travel improper payments. The
DOD travel payment data used to assess the program's risk of
significant improper payments only included payments processed by the
Defense Travel System (DTS)--approximately 10 percent of the $8.5
billion of DOD travel program obligations reported for fiscal year
2006. Nonetheless, DOD's 2006 PAR describes a travel postpayment review
process that may mislead the reader to believe that the reported travel
improper payment estimate represents more than DTS-processed travel.
Further, the travel improper payment estimate excluded the largest user
of DTS, the Army, which would likely have increased DOD's estimate by
over $4 million. Finally, the statistical sampling methodology and
process used by DOD to estimate DTS improper payments for IPIA
reporting as reported for fiscal year 2006 had several weaknesses and
did not result in statistically valid estimates of travel improper
payments.
DOD is taking steps to more fully assess and report on its travel
program for improper payments for future IPIA reporting. DOD's planned
assessment is to be based on an annual Improper Payments Survey
conducted by the Office of the Comptroller. However, our review
identified several weaknesses with the survey and reported results,
including limited guidance on how to estimate travel improper payments
and a lack of oversight and review by the Office of the Comptroller
over implementation of the survey and its results. For example, we
noted four components reported nearly $17 million in travel payments
with no associated improper payments for these payments. While it is
possible there may not be any improper payments in a population, the
review process was inadequate to provide a basis for reporting no
improper payments on $17 million in travel payments. DOD has also
established a Program Officer for Improper Payment and Recovery
Auditing and an improper payment working group, and held a "Department
of Defense Improper Payments Information Act Conference."
We make four recommendations to the Secretary of Defense for the Office
of the Comptroller to improve the usefulness and completeness of IPIA
reporting for the DOD travel program.
We provided a draft of this report to DOD for comment. In its response,
DOD concurred with three of our recommendations and partially concurred
with the fourth. For this recommendation, DOD agreed with the intent of
the recommendation but expressed concern over the level of detailed
guidance called for. DOD referred to a policy memorandum issued on
November 27, 2007, in its response. This document consists of a cover
memorandum, excerpts from Appendix C of OMB Circular No. A-123, and DOD
improper payment component contact information. We continue to believe
that additional guidance is needed. DOD must take action to ensure that
policy guidance is fully and effectively implemented in order to
improve the usefulness and completeness of its IPIA reporting for the
travel program. DOD's comments, along with our evaluation, are
discussed in the Agency Comments and Our Evaluation section of this
report. The comments are also reprinted in their entirety in appendix
II. DOD also provided technical comments, and we made revisions as
appropriate.
Background:
During fiscal year 2006, DOD reported obligations of over $685 billion,
the second largest amount reported by an executive branch entity. Of
this, travel obligations were $8.46 billion for fiscal year 2006.
Travel includes expenses such as air fare, lodging, per diem, and local
transportation. Travel conducted by DOD represents an estimated 60
percent of total travel obligations for the entire federal government.
Travel is one of six programs for which IPIA information is reported in
DOD's PAR.
Improper Payments Information Act of 2002 and OMB Implementing
Guidance:
IPIA was enacted in November 2002 with the major objective of enhancing
the accuracy and integrity of federal payments. Guidance for reporting
under IPIA is provided in Appendix C of OMB Circular No. A-123 and
requires agencies to:
* Review all programs and activities and identify those that are
susceptible to significant improper payments.
* Obtain a statistically valid estimate of the annual amount of
improper payments in those programs and activities.
* Report estimates of the annual amount of improper payments in
programs and activities and, for estimates exceeding $10 million,
implement a plan to reduce improper payments.
In addition, this guidance instructs agencies to institute a systematic
method of reviewing all programs and identifying those which they
believe to be susceptible to significant improper payments. The
guidance defines "significant erroneous payments"[Footnote 10] as
annual improper payments exceeding both 2.5 percent of program payments
and $10 million.[Footnote 11] It further explains that agencies must
then estimate the gross total of both over-and underpayments for those
programs identified as susceptible. These estimates shall be based on a
statistically random sample of sufficient size to yield an estimate
with a 90 percent confidence interval of plus or minus 2.5 percentage
points.[Footnote 12] The guidance also requires agencies to consult a
statistician to ensure the validity of their sample design, sample
size, and measurement methodology. If an agency cannot determine
whether or not a payment was proper because of insufficient
documentation, OMB Circular No. A-123 requires that the payment be
considered an error.
According to 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. In February 2007, OMB
notified DOD that it was requiring that an improper payment error
measurement be reported for travel pay in the fiscal year 2007 PAR
under IPIA due to congressional interest and concern regarding this
program. 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 improper payments. If the
improper payment estimate is less than $10 million, agencies are still
required to report the total in their annual PAR.
Travel Process at the Department of Defense:
Although there are over 70 types or circumstances of travel at DOD, DOD
travel is generally segregated into two broad types: temporary duty
travel (TDY) and permanent change of station (PCS) travel. TDY is
travel to one or more places away from a permanent duty station to
perform duties for a period of time and, upon completion of assignment,
return or proceed to a permanent duty station. PCS travel is the
assignment, detail, or transfer of a member or unit to a different
permanent duty station under a competent order that does not specify
the duty as temporary, provide for further assignment to a new
permanent duty station, or direct return to the old permanent duty
station.
DOD reported that in a typical year over 3 million DOD personnel
perform TDY travel and generate over 5 million travel vouchers. For
fiscal year 2006, DOD reported $8.5 billion was obligated for travel.
The Institute for Defense Analyses estimates[Footnote 13] that $7.3
billion of this amount is for TDY and the remaining $1.2 billion is for
PCS travel.
DOD has been working to upgrade its TDY travel system since 1993, when
the National Performance Review recommended an overhaul of DOD's TDY
travel system. Long-standing concerns about the efficiency and
effectiveness of the existing travel systems resulted in the
development of DTS to be a centralized, integrated system used to
process TDY travel. DTS is envisioned as being DOD's standard end-to-
end travel system. The Defense Finance and Accounting Service (DFAS)
reported that about $1.2 billion was processed through DTS in fiscal
year 2006.
In January 2006 we reported[Footnote 14] on DOD's difficulties
implementing DTS. DTS was originally intended to be fully implemented
by April 2002, but this date was changed to September 2006--a slippage
of over 4 years. The report specified two key challenges facing DTS in
becoming DOD's standard travel system: (1) developing needed interfaces
and (2) underutilization of DTS at sites where it has been deployed.
Extensive travel is still processed through legacy systems. One such
system is the Integrated Automated Travel System (IATS), which is used
by the Army and several other DOD components. IATS is a manual travel
system where the traveler submits paper travel documents (e.g., travel
orders, travel voucher, and receipts) for entry into IATS. Once the
information is entered into IATS, it is processed and a travel
reimbursement is made to the traveler. Under current implementation
plans, not all legacy travel systems will be eliminated due to current
DTS functionality limitations. Despite difficulties implementing DTS,
the Institute for Defense Analyses recently issued a report[Footnote
15] stating that DTS is the only end-to-end system today with the
capability to support all DOD policy and business rules.
DOD Travel IPIA Reporting:
Responsibility for assessing and reporting DOD's improper payments,
including travel, for IPIA is the responsibility of the Office of the
Comptroller. In its fiscal year 2006 PAR,[Footnote 16] DOD reported
that its current IPIA review did not identify any programs or
activities at risk of "significant improper 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
payment 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 for estimated improper payments
for six programs, including travel pay, in its fiscal year 2006 PAR.
Table 1: DOD's Reported Improper Payment Estimates for Fiscal Year
2006:
Program: Commercial pay;
Estimated improper payments (in millions): $550.0;
Improper payments as a percentage of total program payments: 0.2%.
Program: Military health benefits;
Estimated improper payments (in millions): 140.0;
Improper payments as a percentage of total program payments: 2.0.
Program: Military pay;
Estimated improper payments (in millions): 65.9;
Improper payments as a percentage of total program payments: 0.1.
Program: Civilian pay;
Estimated improper payments (in millions): 62.8;
Improper payments as a percentage of total program payments: 0.1.
Program: Military retirement;
Estimated improper payments (in millions): 48.8;
Improper payments as a percentage of total program payments: 0.1.
Program: Travel pay;
Estimated improper payments (in millions): 8.0;
Improper payments as a percentage of total program payments: 1.0.
Program: Total;
Estimated improper payments (in millions): $875.5;
Improper payments as a percentage of total program payments: [Empty].
Source: DOD fiscal year 2006 PAR.
[End of table]
Further, in its 2006 PAR, 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.
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.
Excerpts from DOD's fiscal year 2006 PAR related to improper payments
are reprinted in appendix III of this report.
Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD
Travel Program Were Incomplete:
In its fiscal year 2006 PAR, DOD estimated approximately $8 million in
travel program improper payments, reported as reflecting about 1
percent of reported program payments. While this estimate would
indicate the program was not at risk of significant improper payments
under OMB guidance, we found that DOD's travel improper payments
disclosures for fiscal year 2006 were incomplete as to the full extent
of total travel payments made by DOD. The estimate information reported
by DOD, which DOD used to assess the travel program's risk of
significant improper payments, only included payments from one system,
DTS, which processed an estimated 10 percent of DOD's travel.
Nonetheless, DOD's 2006 PAR describes a travel postpayment review
process that may mislead the reader to believe that the reported travel
improper payment estimate represents more than DTS-processed travel.
Further, the travel improper payment estimate excluded the largest user
of DTS, the Army, which would likely have increased DOD's estimate by
over $4 million. Finally, the statistical sampling methodology and
process used by DOD to estimate DTS improper payments as reported for
fiscal year 2006 had several weaknesses and did not result in
statistically valid estimates of travel improper payments.
Travel Disclosure Reported Only DTS-Processed Travel and Excluded
Information on Its Largest User:
In its fiscal year 2006 IPIA disclosure for travel, DOD estimated $8
million in improper payments for travel pay, which it reported as
reflecting about 1 percent of DOD reported travel payments. Based on
our review, we determined that DOD's estimate of travel improper
payments was derived from approximately 10 percent of the $8.5 billion
of DOD travel obligations reported by DOD for the fiscal year--
excluding a significant portion of travel payments from the PAR
disclosure. Further, the DTS improper payments disclosure did not
include data on the largest user of DTS, the Army. The reporting of
only DTS travel pay and the exclusion of Army travel pay processed
through DTS was incomplete.
DOD's fiscal year 2006 reporting of travel improper payments based on
travel processed by DTS (excluding the Army) also excluded travel
processed in other systems used by several DOD components, including
the following:
* In fiscal year 2006, the Army Corps of Engineers used IATS to process
all travel. According to information provided by DOD, the Army Corps of
Engineers processed over $239 million in travel payments during fiscal
year 2006.
* Air Force officials reported using the Reserve Travel System[Footnote
17] to process $1.5 billion in travel pay in fiscal year 2006.
* The Army utilized IATS to process TDY, PCS, and other types of travel
payments. The postpayment review of IATS-processed travel, completed by
DFAS for the Army, indicated approximately $1.4 million in improper
payments for fiscal year 2006, none of which were reported in the DOD
fiscal year 2006 PAR disclosure.[Footnote 18]
DOD also did not include Army travel processed using DTS in its fiscal
year 2006 PAR. The Army is the largest user of DTS--processing a
reported $437 million of travel through DTS. As shown in figure 1, the
Army represented about 35 percent of the $1.2 billion of total DTS-
processed travel in fiscal year 2006. The exclusion of Army improper
payment information resulted in further incomplete reporting of travel
improper payments in DOD's fiscal year 2006 PAR. Based on the
information provided by DOD, the addition of Army travel payments
processed through DTS would have increased estimated improper payments
from $7.97 million to $12.6 million. DOD officials told us that the
results from Army DTS postpayment reviews were not included in the PAR
because the results were not available in time for the reporting
deadline. DOD acknowledged that the PAR disclosures regarding this
exclusion could have been improved.
Figure 1: Fiscal Year 2006 DTS-Processed Travel:
[See PDF for image]
This figure is a pie-chart that depicts the following data:
Fiscal Year 2006 DTS-Processed Travel: DTS Army: 35%;
DTS Air Force: 28%;
DTS Navy: 25%;
DTS Marine Corps: 4%;
DTS Other DOD agencies: 8%.
Source: GAO analysis of data provided by DOD.
[End of figure]
Moreover, the descriptive information included in DOD's PAR did not
disclose the limitation to its reported estimates. Within the
statistical sampling section of the IPIA reporting in DOD's fiscal year
2006 PAR, DOD describes reviews of vouchers from IATS and a review of
travel conducted by the Army Corps of Engineers, but the results of
these reviews were not actually included in the fiscal year 2006
estimate of improper payments. Thus, the descriptive information may
mislead readers to believe that the travel improper payment estimates
are based on a larger population than is actually reported.
When we discussed the exclusion of non-DTS travel improper payments
with Office of the Comptroller staff they explained that they believed
the August 2006 release of updated guidance by OMB (namely Appendix C
of OMB Circular No. A-123) modified which programs must be reported. In
fiscal year 2006, DOD reported three new programs--one of which was
travel pay. DOD officials explained that because only DTS data were
readily available for reporting by the November 15 deadline, they
decided that was to be the only PAR input. DOD acknowledged that the
disclosure of this reporting limitation could have been improved.
DTS Improper Payments Estimates Were Not Prepared According to OMB
Guidance and Were Not Statistically Valid:
We also found weaknesses in the postpayment review process used to
estimate improper payments for DTS-processed travel. Under OMB
guidance, agencies are required to obtain a statistically valid
estimate of the annual amount of improper payments. However, we found
that DOD did not have documented sampling plans that detailed how the
samples were planned, executed, and evaluated to derive a statistically
valid improper payments estimate for DTS-processed travel. We also
found that the methodology used to estimate sampling results for nine
DOD agencies was not statistically valid.[Footnote 19]
Lack of Sampling Plans:
Appendix C of OMB Circular No. A-123 provides guidance on using
statistical sampling to estimate improper payments. According to the
guidance, improper payment estimates shall be based on a statistically
valid random sample of sufficient size to yield an estimate with a 90
percent confidence interval of plus or minus 2.5 percentage points
(agencies may alternatively use a 95 percent confidence interval of
plus or minus 3 percentage points around the estimate of the percentage
of improper payments). The guidance also requires agencies to consult a
statistician to ensure the validity of their sample design, sample
size, and measurement methodology.
DFAS was responsible for estimating improper payment information for
over $1.2 billion in fiscal year 2006 DTS payments. DFAS was unable to
provide us with its DTS postpayment review sampling plan, and according
to our discussions with DFAS and Office of the Comptroller officials,
one was not prepared. At the end of our fieldwork, DOD provided us a
retrospective document describing the fiscal year 2006 sampling plan.
The plan described information on the sampling method, payment and
account selection, treatment of missing records and errors, and summary
reporting. While OMB's guidance does not require a sampling plan, our
Standards for Internal Control in the Federal Government[Footnote 20]
identify control activities such as policies, procedures, and
mechanisms that enforce management's directives and are an integral
part of an entity's planning, implementing, reviewing, and
accountability for stewardship of government resources and achieving
effective results. The lack of a documented sampling plan, before and
during sampling, is an internal control weakness in the process used by
DFAS and could result in testing activities not being completed as
anticipated by management.
For example, our review of testing for fiscal year 2006 DTS payments
raised questions as to the completeness of the testing prior to the
projections being made that were included in the PAR. Based on our
review of the DTS postpayment review results database, as of March
2007, about 41 percent of the vouchers selected for sampling of fiscal
year 2006 payments did not include an annotation that the review was
completed. When we discussed this with DFAS and Office of the
Comptroller staff, they responded by explaining that the population of
DTS trips subject to postpayment review for any given month will not
represent the actual DTS trip records settled or paid for that month
due to the lag between payment and postpayment review. They also stated
that statistics or population projections will not be reported for any
incomplete monthly sample. DFAS staff further clarified that the fiscal
year 2006 reporting was not necessarily based solely on fiscal year
2006 transactions. A component's fiscal year 2006 projection could be
based on activity from both fiscal years 2005 and 2006 due to the
timing of postpayment review. For example, a component's fiscal year
2006 estimate could be based on postpayment review of activity from
April 1, 2005, through March 31, 2006--a 12-month period overlapping 2
fiscal years.
In order to assess this explanation, we requested additional
information from DFAS that would detail what audit months of data were
used to project and report fiscal year 2006 travel improper payments.
Office of the Comptroller officials told us that they were unable to
provide further support because the database did not have the needed
information. If a written sampling plan, with appropriate detail, had
been developed for fiscal year 2006 DTS postpayment review, it is more
likely that DFAS would have performed procedures to assure that
sampling was completed prior to projection and that appropriate
documentation was maintained.
Incorrect Categorization of Certain Errors:
In order to determine the extent of improper payments for travel
processed through DTS, DFAS officials explained that the DTS
postpayment review was conducted using a monthly random sample for each
component and agency. In fiscal year 2006, this methodology resulted in
the selection of 168 unique samples from 168 distinct populations, with
each sample varying in size from 20 test items for a defense agency to
nearly 500 for a large military component. DOD reported that it
randomly selected vouchers from the monthly population of vouchers
based on a 95 percent confidence interval with a precision of 2.5
percentage points; we did not verify whether the data from which the
samples were selected were complete or the accuracy of the samples
taken.
Once a sample item was selected, DFAS reviewed the selected vouchers
and recorded the results of its findings in a database. The review
process included a recalculation of the travel entitlement based on
information submitted on the travel authorization, DTS data, and
supporting documents (e.g., travel receipts, credit card information,
and DOD and federal travel regulations). The reviewer considered the
overall validity of a payment as well as specific items such as
appropriate use of organization codes, travel dates, per diem rates,
airfare rates, and correct mathematical calculation on the voucher.
If an error was found during the postpayment review process, staff
recorded it in the database. Each error was classified as one of four
error types (lodging, per diem, reimbursement paid incorrectly, or
nonmonetary errors). Errors involving lodging, per diem, and
reimbursement paid incorrectly are all monetary errors, and each error
type had between 13 and 46 subclassification types reviewers used to
more accurately describe the error. For example, "reimbursement paid
incorrectly" errors could be classified as 1 of 46 more specific error
types, such as airfare paid incorrectly, mileage paid incorrectly, and
mileage over-or underpaid. DFAS used the review results and information
in the database to estimate monthly improper payment amounts for each
component and agency.
During our review, we noted what could be an incorrect categorization
of "receipts not received" as a nonmonetary error. OMB guidance states
that "when an agency's review is unable to discern whether a payment
was proper as a result of insufficient or lack of documentation, this
payment must also be considered an error." While DFAS categorized this
as a nonmonetary error, this type of error could potentially be a
monetary error, but was not included in the estimate of improper
payments.[Footnote 21] We noted nearly 200 instances where a payment
was categorized as "receipts not received"--a nonmonetary error.
However, because the monetary value of the error was not provided, we
were unable to determine the effect of this incorrect classification on
travel improper payments reported in DOD's fiscal year 2006 PAR. When
we discussed this categorization error with DOD officials, they
explained that during the review process, DFAS allows a traveler a
maximum of 30 working days to submit receipts that were not available
for review. During this time, the sample item is considered open and
the error is categorized as nonmonetary. If after the allotted time
period the receipts are not provided, the amount is considered a
monetary error. DOD believes the approximately 200 cases are likely
those where the examiner was awaiting receipts for final determination
of their propriety. However, on the basis of our review, we noted that
all of these items had a completed date annotated in the database,
suggesting they were completed audits--not audits awaiting additional
documentation. We requested additional documentation from DOD that
would support its assessment of these vouchers. DOD did not provide any
documentation but did note in a written response to us that "all items
are reviewed and settled with a determination of whether or not they
are improper payment errors, and improper payments are reported as
such. Incorrect or incomplete documentation may relate to nonmonetary
errors that are also not improper payments (such as the wrong form
being used or missing elements that are DOD internal procedural
requirements, but are not required by law to support the payment)."
Flawed Methodology Used to Estimate Improper Payments at DOD Agencies:
DOD also utilized a flawed methodology to estimate DTS improper
payments at nine DOD agencies.[Footnote 22] Information reported for
the defense agencies in the fiscal year 2006 PAR was prepared by
totaling the monthly sample results from the nine defense organizations
and then estimating an improper payment amount based on this aggregate
data instead of deriving a monthly estimate, and then aggregating the
estimated results and related confidence intervals. As described above,
monthly samples were taken by component and agency for postpayment
review. Despite the segmentation of the population during the testing
process, the information reported by DFAS to the Office of the
Comptroller has nine defense organizations reported as "other" and uses
the sum of the nine organizations' sample results to estimate an error
amount. By selecting samples for each organization separately and
aggregating the results from the sample to estimate the total error
rate, estimates made for the organizations were incorrectly projected
to the population. DFAS reports that for fiscal year 2007 it will
ensure that sample statistics and population estimates for defense
agencies are computed at the agency level and then summarized.
DOD Faces Challenges in Plans to More Fully Assess Travel Improper
Payments:
As discussed in the previous section, DOD's process for estimating and
reporting improper payments for its travel program for inclusion in its
fiscal year 2006 PAR was significantly flawed. Going forward, DOD plans
to use the results from its annual Improper Payments Survey, conducted
by the Office of the Comptroller, to determine the extent of improper
payments in several programs, including travel. The survey of fiscal
year 2006 payments[Footnote 23] was not prepared in time for inclusion
in the fiscal year 2006 PAR, in November 2006, but has since been
completed. DOD plans to use these results for its fiscal year 2007 PAR
reporting. We reviewed this survey, as a component of the department's
risk assessment for improper payments in the travel program. Our review
identified several weaknesses in the survey and reported results which,
if uncorrected, will limit the department's ability to fully assess
improper payments in the travel program. We identified weaknesses in
DOD's guidance regarding the estimation of travel improper payments and
lack of oversight and review by the Office of the Comptroller over
implementation of the survey and its results. The department is also
taking other steps to improve its reporting under IPIA. To address
reporting issues identified in its fiscal year 2006 auditor's report,
DOD has established a Program Officer for Improper Payment and Recovery
Auditing. Further, the department is establishing an improper payment
working group and held a "Department of Defense Improper Payments
Information Act Conference."
Improper Payments Survey Results Unreliable Due to Limited Guidance and
Oversight by the Office of the Comptroller:
DOD assesses its programs, including travel, for improper payments,
based on its departmentwide annual Improper Payments Survey. The
survey, distributed annually by the Office of the Comptroller, queries
DOD components[Footnote 24] to determine the extent of improper
payments in several programs, including travel, across the department.
We reviewed this survey as a component of the department's risk
assessment for improper payments in the travel program. Our review
indicated several weaknesses in the survey and reported results,
including weaknesses in the guidance regarding the estimation of travel
improper payments and lack of oversight and review of the survey and
its results. These weaknesses, if uncorrected, will limit the
department's ability to fully assess improper payments in the travel
program.
Limited Guidance Provided to DOD Components to Direct IPIA Assessment:
In order to more fully assess its travel program for improper payments,
the Office of the Comptroller issues its annual Improper Payments
Survey to DOD components. The survey requests that each component
report to the Office of the Comptroller the amount of improper payments
for several programs[Footnote 25] throughout the department and to
specify additional programs or activities as needed. For fiscal year
2006, the Office of the Comptroller issued guidance on completion of
the IPIA survey to DOD officials. The guidance included a cover
memorandum which requested that all services and agencies review and
report on any program or activity payment for which the component
computed the entitlement. Accompanying the memorandum were Appendix C
of OMB Circular No. A-123, results of the previous year's Improper
Payments Survey, and a survey template for the component to use to
submit survey results. The survey for fiscal year 2006 was sent to the
components in January 2007, with survey results due to the Office of
the Comptroller by January 26, 2007. The completed survey was provided
to us in April 2007. DOD also used the survey to report a more complete
travel population to OMB. This report detailed improper payments
information for $3.4 billion in travel payments rather than the $824
million reported in the PAR. The survey also identified $20 million in
travel improper payments, a $12 million increase from the $8 million
reported in DOD's fiscal year 2006 PAR. Eight entities, other than
DFAS, reported information in the fiscal year 2006 IPIA survey for
travel pay. A summary of the improper payment survey results for travel
is shown in table 2.
Table 2: Improper Payments Survey Results: Travel, Fiscal Year 2006:
Program/activity: Navy travel pay: Travel pay (non-DTS) by Navy;
Dollar value total of FY 2006 payments: $50,038,158;
Absolute dollar value total of improper payments in FY 2006: $564,795;
Improper payment percentage: 1.1%.
Program/activity: Navy travel pay: Marine Corp In-House Travel Pay
(IATS);
Dollar value total of FY 2006 payments: 467,678,749;
Absolute dollar value total of improper payments in FY 2006: 1,064,000;
Improper payment percentage: 0.2.
Program/activity: Navy travel pay: Marine Corp Travel Pay (IATS);
Dollar value total of FY 2006 payments: 144,159;
Absolute dollar value total of improper payments in FY 2006: 0;
Improper payment percentage: 0.0.
Program/activity: Total Navy travel pay;
Dollar value total of FY 2006 payments: 517,861,066;
Absolute dollar value total of improper payments in FY 2006: 1,628,795;
Improper payment percentage: 0.3.
Program/activity: Army travel pay; Army-Korea - travel pay;
Dollar value total of FY 2006 payments: 12,618,749;
Absolute dollar value total of improper payments in FY 2006: 0;
Improper payment percentage: 0.0.
Program/activity: Army travel pay; Army-Europe - travel pay;
Dollar value total of FY 2006 payments: 3,936,946;
Absolute dollar value total of improper payments in FY 2006: 0;
Improper payment percentage: 0.0.
Program/activity: Army travel pay; Army Corps of Engineers - travel
pay;
Dollar value total of FY 2006 payments: 239,350,696;
Absolute dollar value total of improper payments in FY 2006: 57,279;
Improper payment percentage: 0.2.
Program/activity: Total Army travel pay;
Dollar value total of FY 2006 payments: 255,906,391;
Absolute dollar value total of improper payments in FY 2006: 57,279;
Improper payment percentage: 0.2.
Program/activity: Other component travel pay; Air Force Reserve Travel
System travel;
Dollar value total of FY 2006 payments: 101,627,181;
Absolute dollar value total of improper payments in FY 2006: 4,597,319;
Improper payment percentage: 4.5.
Program/activity: Other component travel pay; Defense Security Service
PCS travel;
Dollar value total of FY 2006 payments: 257,436;
Absolute dollar value total of improper payments in FY 2006: 0;
Improper payment percentage: 0.0.
Program/activity: Total other components travel pay;
Dollar value total of FY 2006 payments: 101,884,617;
Absolute dollar value total of improper payments in FY 2006: 4,597,319;
Improper payment percentage: 4.5.
Program/activity: Travel pay processed by DFAS; IATS;
Dollar value total of FY 2006 payments: 1,242,918,935;
Absolute dollar value total of improper payments in FY 2006: 1,456,472;
Improper payment percentage: 0.1.
Program/activity: Travel pay processed by DFAS; DTS Air Force;
Dollar value total of FY 2006 payments: 355,167,040;
Absolute dollar value total of improper payments in FY 2006: 5,576,798;
Improper payment percentage: 1.6.
Program/activity: Travel pay processed by DFAS; DTS Navy;
Dollar value total of FY 2006 payments: 312,163,900;
Absolute dollar value total of improper payments in FY 2006: 373,029;
Improper payment percentage: 0.1.
Program/activity: Travel pay processed by DFAS; DTS Marine Corps;
Dollar value total of FY 2006 payments: 49,545,238;
Absolute dollar value total of improper payments in FY 2006: 1,301,866;
Improper payment percentage: 2.6.
Program/activity: Travel pay processed by DFAS; DTS Army;
Dollar value total of FY 2006 payments: 437,230,722;
Absolute dollar value total of improper payments in FY 2006: 4,629,209;
Improper payment percentage: 1.1
Program/activity: Travel pay processed by DFAS; DTS Other DOD agencies;
Dollar value total of FY 2006 payments: 106,733,572;
Absolute dollar value total of improper payments in FY 2006: 722,876;
Improper payment percentage: 0.7.
Program/activity: Total Travel pay processed by DFAS;
Dollar value total of FY 2006 payments: 2,503,759,407;
Absolute dollar value total of improper payments in FY 2006:
14,060,250;
Improper payment percentage: 0.6.
Program/activity: Total travel pay;
Dollar value total of FY 2006 payments: $3,379,411,481;
Absolute dollar value total of improper payments in FY 2006:
$20,343,643;
Improper payment percentage: 0.6%.
Source: DOD survey of fiscal year 2006 payments.
[End of table]
Going forward, considering the complexity of DOD, extent of travel
throughout the department, and information reported in the survey of
fiscal year 2006 payments, the guidance issued by the Office of the
Comptroller does not provide adequate information to allow components
to properly report improper payment information needed for a useful
assessment. Our internal control standards[Footnote 26] identify
information and communications as one of the five standards for
internal control. This standard states that information should be
communicated to those within the entity in a form that enables them to
carry out their responsibilities. The guidance issued by the Office of
the Comptroller to DOD components does not provide adequate guidance
specific to DOD to allow for components to prepare reliable estimates
of improper payments. For example, while OMB guidance requires that
agencies obtain a statistically valid estimate of the annual amount of
improper payments in a program, Office of the Comptroller guidance does
not adequately address sampling methodologies to employ, or provide
contact information on how to seek assistance with this matter.
Further, the guidance does not offer detailed information on the steps
needed to adequately implement IPIA at DOD or examples of improper
payments relevant to DOD.
In addition, the guidance does not provide sufficient procedures on how
to identify or assess risk factors to assist DOD components in
identifying programs and activities vulnerable to improper payments,
such as assessments of internal control, audit report findings, and
human capital risks related to staff turnover, training, or experience.
Assessing the effect of risk conditions identified during the risk
assessment plays a major role in effectively determining the overall
risk level of an agency's operations. Some risk conditions may affect a
program or activity to a greater or lesser degree. Likewise, not all
risk conditions may be relevant to each program or activity. This type
of risk identification and assessment is consistent with our previous
recommendation[Footnote 27] that OMB establish risk factors in its
guidance for agencies to consider, and is also consistent with our
standards of internal control[Footnote 28] and executive guide on
strategies to manage improper payments,[Footnote 29] which provides a
framework for conducting a comprehensive risk assessment.
Improper Payment Estimate Process for Non-DTS Travel Is Decentralized:
The process each DOD component uses to estimate its travel improper
payments and report to the Office of the Comptroller varies throughout
the department and is largely decentralized. Further complicating the
assessment for travel improper payments are the numerous systems used
to process travel throughout the department. For survey reporting, DFAS
(Indianapolis) is responsible for reporting all travel processed
through DTS and certain payments processed through IATS for Army and
some other defense agencies. The determination of all other travel pay
and associated improper payments is the responsibility of the component
that computed the entitlement. The Office of the Comptroller relies on
each component to determine and report this information. In our review
of the fiscal year 2006 Improper Payments Survey, we noted that the
survey results were not always statistically valid and in some cases
appear unreasonable. Improved guidance by the Office of the Comptroller
will be necessary to assure that survey information is reliable and
complete for IPIA reporting.
DFAS is responsible for estimating and reporting travel improper
payments for travel processed for the Army by the IATS system. In
fiscal year 2006, DFAS (Indianapolis) did not conduct a statistically
valid sample and review of travel payments processed through IATS.
Instead, officials from DFAS performed limited reviews of IATS vouchers
paid to determine if any such payments were improper. For example, DFAS
reviewed payments to determine if payments for the same travel activity
had been paid in both DTS and IATS--essentially a duplicate payment
review. This review found $1.5 million in improper payments in fiscal
year 2006, which was reported in the survey, as shown previously in
table 2. Such DFAS IATS reviews cannot be used to estimate the value of
improper payments to the entire IATS population.
The Air Force reports improper payment information on travel processed
through the Reserve Travel System. For fiscal year 2005, the Air Force
sought the guidance of the Air Force Audit Agency to determine if the
Air Force had developed and used an effective methodology to estimate
and report the dollar amount of improper travel payments processed
through the Reserve Travel System. The Air Force Audit Agency
reported[Footnote 30] that the methodology used by the Air Force to
estimate Reserve Travel System improper payments did not meet IPIA
requirements. As part of the audit, the Air Force Audit Agency
developed and provided the Air Force with a statistically valid
sampling methodology for centralized reviews that it reported would
meet IPIA reporting requirements.[Footnote 31] The Air Force told us
that it now follows the sampling methodology developed by the Air Force
Audit Agency. As shown in table 2, utilizing this methodology, the Air
Force estimated nearly $4.6 million in travel improper payments were
processed in fiscal year 2006 by the Reserve Travel System--an improper
payment estimate of approximately 4.5 percent of the $101 million in
payments processed by the Reserve Travel System during this period.
However, after reporting its estimated results in the survey for fiscal
year 2006 payments, the Air Force revised the results of its IPIA
review. In a memo dated August 8, 2007, the Air Force disclosed an
underestimation of total Reserve Travel System payments, revising the
reported amount to $1.5 billion, instead of the $101 million originally
reported. Based on a centralized review, the Air Force projected its
improper payments to be $13.6 million--an error rate of 0.9
percent.[Footnote 32]
The Army also has a decentralized review process for non-DTS travel
reimbursements for improper payments. As described above, DFAS
(Indianapolis) is responsible for identifying and reporting Army IATS
payments calculated and disbursed by DFAS. However, the Army also
reported travel improper payments for three other programs or
activities in the fiscal year 2006 improper payments survey: Army--
Korea; Army--Europe; and the Army Corps of Engineers.
* Staff responsible for the improper payment review for the Korea
command explained the process they follow to estimate and report
improper payments, which is completed as part of the internal control
process and includes an annual inspection. In fiscal year 2006, this
review included a reinspection of every voucher for a 1-month period.
This review discovered few improper payments. The future plans for
improper payment reviews were unknown when we spoke to the Army-Korea
staff due to ongoing DTS implementation there. In the fiscal year 2006
survey, Army--Korea reported no improper payments and over $12.6
million in travel payments.
* The improper payment review for Army--Europe is even more
decentralized, with finance officers throughout the region preparing
improper payment information independently. From our discussion with
Army--Europe staff, there is no formal process for reviewing and
reporting improper payment information throughout the region beyond the
IPIA guidance provided by the Office of the Comptroller. In the fiscal
year 2006 survey, Army--Europe reported no improper payments and over
$3.9 million in payments.
* During fiscal year 2006, the Army Corps of Engineers processed all of
its travel using IATS. The Army Corps of Engineers finance center is
responsible for compiling and reporting travel improper payments.
Officials from the Army Corps of Engineers finance center reported that
all TDY and PCS vouchers greater than or equal to $2,500 were subject
to postaudit review, and a sample of every 366th TDY voucher less than
$2,500 was also reviewed by finance center staff. The sampling plan was
designed to have a 95 percent confidence level plus or minus 2 percent.
A DFAS statistician attested to the validity of the sampling
methodology used by the Army Corps of Engineers. In the fiscal year
2006 survey, the Army Corps of Engineers reported $57,279 in travel
improper payments.
Limited Oversight by Office of the Comptroller Contributes to
Unreliable Assessment:
Our review indicated weaknesses in the survey and reported results for
travel were caused, in part, by limited oversight and review by the
Office of the Comptroller of the survey and its results. These
weaknesses include a survey that does not consider the entire
population of travel payments for fiscal year 2006 and information
reported that appears unreliable. Without improved oversight by Office
of the Comptroller, the department's future reporting under IPIA could
be compromised.
Our internal control standards[Footnote 33] include monitoring as one
of the five standards for internal control. The standards provide that
internal control should generally be designed to assure that ongoing
monitoring occurs in the course of normal operations and includes
regular management and supervisory activities, comparisons, and
reconciliations. During our review of the fiscal year 2006 improper
payments survey, we noted several weaknesses that indicate a lack of
appropriate monitoring or oversight by the Office of the Comptroller.
The most notable weakness we found in the survey is the population of
travel payments from which improper payments were estimated. As shown
in figure 2, in fiscal year 2006, $8.5 billion was obligated for travel
by DOD as reported in the DOD budget for fiscal year 2008. The improper
payments survey for this same time period reported a total travel
expenditure population of $3.4 billion--a difference of $5.1 billion.
The survey results were more complete than the PAR reporting, which
reported on approximately $824 million in travel payments. The
exclusion of such a significant portion of travel payments in the
survey decreases its effectiveness as an improper payments assessment
tool and indicates inadequate monitoring of the survey process by the
Office of the Comptroller. A strong internal control environment,
particularly monitoring, should have included regular reconciliations
and comparisons that would have brought this discrepancy to
management's attention in a timely manner.
Figure 2: DOD Travel Populations for Fiscal Year 2006:
[See PDF for image]
Reported travel obligations for FY 2006: $8.5 billion;
Travel payments reported by DOD agencies in FY 2006 survey: $3.4
billion;
Travel payments processed by DTS in FY 2006: $1.2 billion;
Travel payments reported in FY 2006 PAR: $824 million.
Source: GAO analysis.
[End of figure]
The Office of the Comptroller did not clearly define DOD's travel
population before collecting the improper payment information for its
fiscal year 2006 improper payment survey. Because DOD did not clearly
define the full population of travel payments, the full extent of
travel improper payments at the department is unknown. Further, until
DOD establishes guidance with sufficiently detailed procedures on how
to define its population for travel IPIA reporting, future annual
reporting is unlikely to be comparable across fiscal years, which could
prevent users of IPIA information from determining progress made in
reducing improper payments.
When we met with Office of the Comptroller officials in March 2007, we
discussed the importance of a complete travel payment population. At
that time, Office of the Comptroller officials said they were not aware
that the travel payment population was a potential problem. However,
after discussion they agreed to reconcile the difference between the
budget obligation amounts ($8.5 billion) and the payment amounts
reported in the fiscal year 2006 improper payments survey ($3.4
billion). In September 2007, the Office of the Comptroller provided
reconciliation information for approximately $1.9 billion in travel
payments and described the following factors that may have contributed
to the remaining variance:
* classified program expenditures that are not included in IPIA
reporting;
* timing differences between obligations and expenditures; and:
* reviews and reporting based on audit month rather than actual
reporting period (e.g., audit and reporting year may run from August
through July while the fiscal year is October through September).
As reported in the PAR, DOD travel improper payments appear immaterial
and the fiscal year 2006 reported travel payment population was
substantially less than other programs reported on by DOD. While this
might decrease the focus given to the travel program, we do not
consider the information reliable and if, for example, the total
population of $8.5 billion was reported on, with an improper error rate
of 1 percent as estimated by DOD, travel improper payments would be
approximately $85 million. This is a substantial amount of improper
payments and would exceed the improper payment estimates for all but
two programs as reported in fiscal year 2006--military health benefits
and commercial pay.
In addition to the incomplete travel payment population, we noted
weaknesses in the oversight and review of some data reported in the
improper payments survey. Four program/activities (Marine Corp Travel
Pay (IATS), Army-Korea, Army-Europe, and the Defense Security Service
PCS travel) reported no improper payments on $17 million in associated
travel payments. We did not review vouchers to determine if any
improper payments existed in this population but based on the
description of the improper payments review we obtained from Army-Korea
and Army--Europe, we do not believe the review process used provided a
reliable basis for IPIA reporting for those components. For example,
Army-Korea's review only considered a review of payments during a 1-
month period, instead of a statistically valid sample of payments for
the fiscal year. Additionally, one entity reporting under Army-Europe
reported that because they preaudit their travel vouchers they have
very few improper payments. Another official told us that Army-Europe
does little to identify and report travel improper payments. Army-
Europe staff told us they were not trained in the proper method for
reporting improper payment information. While it is possible there may
not be any improper payments in a population, the review process was
inadequate to provide a basis for reporting no improper payments on $17
million in travel payments. When we discussed these concerns, Office of
the Comptroller staff informed us that they are doing further analysis
to determine the accuracy and completeness of the information. Further,
the staff told us that they use variance analysis to determine if the
information submitted is reasonable based on previously reported
information.
Office of the Comptroller Taking Steps to Improve Reporting of Travel
Improper Payments:
While there are serious challenges facing the Office of the Comptroller
in the assessment and reporting of travel improper payments, the office
is taking steps to improve its oversight of the IPIA estimating and
reporting process. Recently, the Office of the Comptroller established
a Project Officer for Improper Payments and Recovery Auditing.
Additionally, the DOD Project Officer has established a working group,
comprised of representatives from numerous components, intended to
further improve DOD's compliance with IPIA reporting.
To introduce DOD component participants to improper payment issues,
including identifying and reporting improper payments, establishing and
achieving reduction targets, and recovery auditing, the Office of the
Comptroller held the "Department of Defense Improper Payments
Information Act Conference." The conference, held in May 2007, included
presentations by officials from OMB, DFAS, Navy, DOD OIG, and Office of
the Comptroller. Additionally, there was a 3-hour session dedicated to
statistical analysis, with presentations by OMB and DFAS on statistical
methodologies. Such conferences or other training activities, if held
on a regular basis, could serve to better train DOD staff responsible
for improper payment reporting and help assure that information
provided to the Office of the Comptroller for reporting is reliable and
prepared in accordance with OMB and DOD guidance.
Further, the Office of the Comptroller provided us with a draft of the
"Recommended Post Payment Sampling Plan for Defense Travel System,
WinIATS & PCS Travel Claims," for fiscal year 2008. This sampling plan
details the sampling method, selection process, treatment of missing
records, information on completing the target sample, reporting errors,
and summary reporting. If implemented effectively, this methodology
should result in simple random sampling of DTS payments by component
and the sampling of DOD agencies in aggregate. The plan is estimated to
reduce the number of DTS sample items from approximately 43,600 in
fiscal year 2007 to 17,600 in fiscal year 2008--a 26,000 decrease in
tested sample items for the year, largely from a reduction in sampling
of DOD agencies. This decrease should allow DFAS to perform more timely
postpayment reviews because the number of sample items to be reviewed
would be less.
Conclusions:
Although DOD has made some progress in implementing the requirements of
IPIA for its travel program, challenges remain in ensuring that the
complete population of all appropriate travel payments has been
identified and reviewed to reliably determine its susceptibility to
significant improper payments. As DOD continues to improve its IPIA
efforts in the travel program, the agency should be better able to
identify and report improper payments. This is not a simple task and
will not be easily accomplished, particularly in light of the
decentralized nature of DOD's travel program. For example, although DTS
is intended to centralize travel processes at DOD, that goal has not
yet been achieved, and an estimated 90 percent of DOD's travel payments
for fiscal year 2006 were computed outside of DTS. Improved guidance
and oversight by the Office of the Comptroller will be key to ensuring
that complete and reliable estimates of improper payments are reported.
With the ongoing imbalance between revenues and outlays across the
federal government, and the Congress's and the American public's
increasing demands for accountability over taxpayer funds, improving
DOD's ability to identify, reduce, and recover travel improper payments
is even more critical.
Recommendations for Executive Action:
In order to improve the usefulness and completeness of IPIA reporting
for DOD's travel program, we recommend that the Secretary of Defense
direct the DOD Comptroller to take the following four actions:
* Establish and implement policies and procedures to reliably identify
the complete population of DOD travel payments.
* Establish and implement policies and procedures to report a valid
improper payment estimate for the population.
* Develop and implement guidance for the preparation of improper
payment estimates, to include (1) how to compute a statistically valid
estimate of improper payments, and (2) the consideration of risk
factors associated with vulnerability to improper payments.
* Establish and implement policies and procedures specifying actions to
oversee the data collection process for travel improper payments to be
included in the annual PAR, including, at a minimum: (1) periodic
reviews of processes used by components to prepare improper payment
estimates, and (2) reviews of information reported in the improper
payment survey to assure that the population being reported is
complete, and the improper payment estimate data reported are reliable
and complete.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report, which are
reprinted in appendix II. In its written response, DOD concurred with
three of the recommendations and partially concurred with the fourth.
DOD partially agreed with our recommendation that the department
develop and implement guidance for the preparation of improper payments
estimates, including how to compute a statistically valid estimate of
improper payments and the consideration of risk factors associated with
vulnerability to improper payments. Although it concurred with the
intent of our recommendation, DOD stated that OMB's Circular No. A-123,
Appendix C, provided guidance for statistical sampling and for
identifying risk factors and that the decentralized nature of the DOD
components and the varying systems used for travel pay computations
make a detailed universal approach impractical. We agree that DOD is a
decentralized organization, with a wide breadth of activities and
components. Indeed, this is the primary reason for our recommendation
that DOD develop and implement additional guidance for use by its
components. OMB's guidance provides a broad framework for use by
agencies across the federal government. However, individual agencies
are responsible for implementing OMB's guidance with policies and
procedures that meet the specific needs of their operations. Therefore,
we continue to recommend that DOD issue guidance to provide potential
sampling methodologies, contact information on how to seek assistance
with this matter, information on the steps needed to adequately
implement IPIA at the component level, and examples of improper
payments relevant to DOD. This guidance should be developed in a form
that enables DOD staff across the broad range of DOD activities and
components to carry out their responsibilities.
Further, DOD commented that it had completed action on all
recommendations. Specifically, DOD stated that a policy memorandum
issued by the Deputy Chief Financial Officer, dated November 27, 2007,
addressed all needed actions. This document consists of a cover
memorandum, excerpts from Appendix C of OMB Circular No. A-123, and DOD
improper payment component contact information. As part of our standard
recommendation follow-up process, we will consider this policy
memorandum as well as DOD's progress in implementing it throughout the
department. It is important that DOD takes action to ensure that such
policy guidance is fully and effectively implemented if DOD is to
improve the usefulness and completeness of its IPIA report for the
travel program.
DOD also provided technical comments, which we incorporated as
appropriate.
We are sending copies of this report to other interested congressional
committees and to affected federal agencies. Copies of this report will
be made available to others upon request. In addition, this report is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff 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. GAO staff who made major
contributions to this report are listed in appendix IV.
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
[End of section]
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:
[End of section]
Appendix I: Scope and Methodology:
To assess the completeness and accuracy of the Department of Defense's
(DOD) fiscal year 2006 Improper Payments Information Act of 2002 (IPIA)
disclosure for travel improper payments, we reviewed the IPIA
disclosures in its performance and accountability reports (PAR) for
fiscal years 2003, 2004, 2005, and 2006. We also contacted
representatives from DOD Office of Inspector General to discuss their
assessment of DOD's compliance with IPIA for fiscal year 2006. We met
with representatives from the Office of the Under Secretary of Defense
(Comptroller) (Office of the Comptroller) to discuss their preparation
of IPIA disclosure information included in the DOD PAR. We met with and
obtained supporting documentation from the Defense Finance and
Accounting Service (DFAS) officials responsible for estimating and
reporting improper payment information for travel processed by the
Defense Travel System (DTS). We observed the processing of Army travel
through the Integrated Automated Travel System (IATS) and the
postpayment review process for both Army IATS-processed travel and DTS-
processed travel. We analyzed information provided by DFAS officials
related to travel postpayment review to determine if it was complete
and reliable for reporting purposes. We also reviewed associated
improper payment reporting information. Additionally, we reviewed
applicable laws, Office of Management and Budget guidance, DOD
procedural directives, DOD memos, and other guidance used by DOD to
guide IPIA reporting to determine what legislation and guidance was in
place.
To assess DOD's planned efforts to improve and refine its processes for
estimating and reporting on travel improper payments we met with staff
from the Office of the Comptroller. We obtained information from
representatives from Army-Korea, Army-Europe, the Army Corps of
Engineers, Air Force, and Navy to determine how each component reviewed
travel payments processed through its respective legacy systems for
improper payments and the reporting of that information to the Office
of the Comptroller. We reviewed the Improper Payments Survey for fiscal
year 2006 payments and met with officials from the Defense Travel
Management Office and the Project Management Office for the Defense
Travel System. We attended the "Department of Defense Improper Payments
Information Act Conference."
We did not independently verify the reliability of all information
provided. However, we did compare it with other supporting documents,
when available, to determine data consistency and reasonableness. Based
on our analysis, we believe the information we obtained is sufficiently
reliable for its use in this report.
We conducted this performance audit from November 2006 through
September 2007 in accordance with generally accepted government
auditing standards.
We provided a draft of this report to DOD for comment. DOD provided
written comments, which are presented in the Agency Comments and Our
Evaluation section of this report and are reprinted in appendix II. DOD
also provided technical comments, and we made revisions as appropriate.
[End of section]
Appendix II: Comments from the Department of Defense:
Comptroller:
Office Of The Under Secretary Of Defense:
1100 Defense Pentagon:
Washington, DC 20301-1100:
December 6, 2007:
Mr. McCoy Williams:
Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Williams:
This is the Department of Defense (DOD) response to the Government
Accountability Office (GAO) draft report GAO-08-16, "DOD Travel
Improper Payments: Fiscal Year 2006 Reporting Was Incomplete and
Planned Improvement Efforts Face Challenges," dated November 8, 2007,
(GAO Code 195114). The DOD concurs with three recommendations and
partially concurs with one recommendation in the draft report.
Additionally, the Department has taken corrective actions to resolve
the four recommendations. Our detailed responses are enclosed.
The Department appreciates the opportunity to comment on the draft
report. We fully support providing accurate and timely reporting of
improper payments for all of the Department's programs, and we will
continue to work toward that goal. My staff point of contact is Mr.
Mike Weber. He may be reached by email: [email protected] or by
telephone at 703-697-6149.
Sincerely,
Signed by:
J. David Patterson:
Principal Deputy:
Enclosure: As stated:
GAO Draft Report Dated November 8, 2007:
GAO-08-16 (GAO CODE 195114):
"DOD Travel Improper Payments: Fiscal Year 2006 Reporting Was
Incomplete And Planned Improvement Efforts Face Challenges"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the DOD Comptroller to establish and implement policies and
procedures to reliably identify the complete population of DOD travel
payments. (Page 37/GAO Draft Report)
DOD Response: Concur. The Office of the Under Secretary of Defense
(Comptroller) (OUSD(C)) has taken corrective action to provide for
complete reporting. The annual Improper Payments Survey for FY 2007 was
performed and reviewed prior to finalizing the Agency Financial Report
(AFR). The Department of the Air Force also completed a review of the
Reserve Travel System, allowing this data to be included in the FY 2007
AFR. Finally, a Deputy Chief Financial Officer (DCFO) policy
memorandum, dated November 27, 2007, provided Components with
additional guidance and directed them to submit their FY 2008 travel
pay sampling plans, including their risk assessment analysis, for
OUSD(C) review. Action is complete.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the DOD Comptroller to establish and implement policies and
procedures to report a valid improper payment estimate for the
population. (Page 37/GAO Draft Report)
DOD Response: Concur. A DCFO policy memorandum, dated November 27,
2007, provided Components with additional guidance and directed them to
submit their FY 2008 travel pay sampling plans, including their risk
assessment analysis, for OUSD(C) review. Additionally, the Defense
Finance and Accounting Service developed a sampling plan that includes
testing data from the Army Integrated Automated Travel System beginning
in FY 2008. Action is complete.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the DOD Comptroller to develop and implement guidance for the
preparation of improper payment estimates, to include: (1) how to
compute a statistically valid estimate of improper payment, and (2) the
consideration of risk factors associated with vulnerability to improper
payments. (Page 37/GAO Draft Report)
DOD Response: Partially concur. We agree with the intent of the
recommendation; however, the Office of Management and Budget's Circular
A-123, Appendix C, provides guidance for statistical sampling and for
identifying risk factors. The decentralized nature of the DOD
Components and the varying systems used for travel pay computations
makes a detailed universal approach impractical. Additionally, larger
Components have professional staff available to assist with
implementing this requirement. Therefore, the DCFO issued a policy
memorandum, dated November 27, 2007, providing Components with
additional guidance and directing them to submit their FY 2008 travel
pay sampling plans, including their risk assessment analysis, for
OUSD(C) review. Action is complete.
Recommendation 4: The GAO recommends that the Secretary of Defense
direct the DOD Comptroller to establish and implement policies and
procedures specifying actions to oversee the data collection process
for travel improper payments to be included in the annual Performance
and Accountability Report, including, at a minimum: (1) periodic
reviews of processes used by Components to prepare improper payment
estimates, and (2) reviews of information reported in the improper
payment survey to assure that the population being reported is
complete, and the improper payment estimate data reported are reliable
and complete. (Page 38/GAO Draft Report)
DOD Response: Concur. A DCFO policy memorandum, dated
November 27, 2007, provided Components with additional guidance and
directed them to submit their FY 2008 travel pay sampling plans,
including their risk assessment analysis, for OUSD(C) review.
Additionally, OUSD(C) will continue reviewing the annual survey
results, supporting the improper payments reported for travel in the
AFR data, for completeness and accuracy. Action is complete.
[End of section]
Appendix III: Excerpts from DOD's Fiscal Year 2006 PAR:
Department of Defense Performance and Accountability Report FY 2006:
Page 16:
Section 1: Management's Discussion and Analysis:
... solutions, the plan addresses known major deficiencies and captures
work done or to be done by large Components in assessing their
weaknesses and developing plans to overcome those weaknesses. The
Department will continue to maximize resources by aligning its Appendix
A efforts with the FIAR plan.
Training and Education:
Management understands that training and education are crucial to the
successful execution of the internal management control program and the
conduct of adequate assessments. The Department conducted training for
21 of the 34 Components at locally-sponsored training workshops. In
addition, the Department conducted a Department-wide conference
attended by more than 200 representatives from all 34 Components.
To increase the education of managers and employees on the importance
of internal management controls and effective assessment techniques,
the Department is conducting a Department-wide survey of Department-
sponsored schools to assess the extent to which training is already
available for internal management controls. The results of the survey
will be an indicator of how much additional course work for the
internal management controls is needed at the Department of Defense
schools.
Systems:
The Federal Financial Management Improvement Act requires federal
agencies to conform to the U.S. Government Standard General Ledger,
comply with all applicable federal accounting standards, establish
financial management systems that meet government-wide standards and
requirements, and support full disclosure of federal financial data,
including the costs of federal programs and activities.
The Department's Inspector General and the audit agencies within the
Military Services have reported on the Department's failure to comply
with the Act's requirements. The Department's inability to comply
materially with the Act primarily results from structural problems
related to legacy accounting systems that do not accurately account for
both budgetary and proprietary activities. Quite simply, the Department
does not have the systems and accounting structures in place to enable
compliance.
To remedy these challenges, the Department of Defense has placed an
unprecedented emphasis on reforming its financial management systems
and accounting processes. Primarily through the Business Enterprise
Architecture and the Enterprise Transition Plan, the Department is
identifying the business capabilities and standards at the Department-
wide level that will support compliance. The Standard Financial
Information Structure and U.S. Standard General Ledger initiatives
discussed earlier in this section are major steps toward achieving
compliance with the Federal Financial Management Improvement Act.
Improper Payments Information Act Reporting:
The Improper Payments Information Act of 2002, as implemented by the
Office of Management and Budget, requires federal agencies to review
all programs and activities annually and identify those that may be
susceptible to significant erroneous payments.
The Department of Defense reports its progress in reducing erroneous
payments to both the President and the Congress. The Department's FY
2006 review did not identify any programs or activities at risk for
"significant erroneous payments" in accordance with the Office of
Management and Budget's criteria (i.e., programs with erroneous
payments exceeding both $10 million and 2.5 percent of program
payments). During this review, however, the Department noted that
civilian, commercial, and travel pay potentially were susceptible to
erroneous payments in excess of $10 million. For FY 2006, the
Department reports on three high risk programs: military health
benefits, military retirement, and military pay.
In accordance with guidance, the Department calculated statistically-
valid estimates of erroneous payments and is implementing plans to
reduce them within each of the six programs. Current estimates for FY
2006 improper payments are presented in the table below.
FY 2006 Estimated Improper Payments (Dollars in Millions):
Program: Military Retirement;
Estimated Amount: $48.8;
Estimated Percentage: 0.1%
Program: Travel Pay;
Estimated Amount: $8.0;
Estimated Percentage: 1.0%.
Program: Military Health Benefits;
Estimated Amount: $140.0;
Estimated Percentage: 2.0%,
Program: Military Pay;
Estimated Amount: $65.9;
Estimated Percentage: 0.1%.
Program: Civilian Pay;
Estimated Amount: $62.8;
Estimated Percentage: 0.1%
Program: Commercial Pay;
Estimated Amount: $550.0;
Estimated Percentage: 0.2%.
[End of table]
While the Department's overall improper payment percentage is quite low
for the over $750 billion it pays each year to individuals,
contractors, agencies, and other entities, the Department has numerous
pre-and post-payment controls in place to minimize and eliminate
improper payments. For further reporting details about these controls
and the Department's Improper Payments Information Act reporting
results, see Section 4: Other Accompanying Information.
Other Management Information, Initiatives, and Issues:
President's Management Agenda:
The President's Management Agenda has been inculcated throughout the
Department and has made significant progress since implementation.
Further information is available at [hyperlink,
http://www.results.gov]. The President's Management Agenda identifies
the following five government-wide initiatives:
* Electronic Government (e-Gov);
* Strategic Management of Human Capital;
* Competitive Sourcing;
* Improved Financial Performance;
* Budget and Performance Integration.
In addition, the President's Management Agenda includes the following
four program initiatives that apply to the Department:
* Eliminating Improper Payments;
* Real Property Management;
* Coordination of Department of Veterans Affairs and Department of
Defense Programs and Systems;
* Privatization of Military Housing.
As of September 30, 2006, the Department's grades were mixed:
Department Scorecard Results (September 30, 2006):
Government-Wide Initiatives: Electronic Government (e-Gov);
Status Score: Failure;
Progress Score: Success.
Government-Wide Initiatives: Strategic Management of Human Capital;
Status Score: Mixed results;
Progress Score: Success.
Government-Wide Initiatives: Competitive Sourcing;
Status Score: Mixed results (improvement in score since FY 2005);
Progress Score: Mixed results (improvement in score since FY 2005).
Government-Wide Initiatives: Improved Financial Performance;
Status Score: Failure;
Progress Score: Success (improvement in score since FY 2005).
Government-Wide Initiatives: Budget & Performance Integration;
Status Score: Mixed results;
Progress Score: Success.
Program Initiatives: Eliminating Improper Payments Initiative;
Status Score: Mixed results;
Progress Score: Success.
Program Initiatives: Real Property Management Initiative;
Status Score: Mixed results (improvement in score since FY 2005);
Progress Score: Mixed results (decline in score since FY 2005).
Program Initiatives: Coordination of VA and DOD Programs and Systems;
Status Score: Mixed results;
Progress Score: Mixed results.
Program Initiatives: Privatization of Military Housing*;
Status Score: Success;
Progress Score: Success.
Note: * = Results as of June 30, 2006.
[End of table]
Section 4: Other Accompanying Information:
Page 206:
However, the Department must be vigilant in ensuring that the strategy
for logistics transformation is continuously reevaluated and that new
initiatives and systems are adequately funded and effectively
implemented.
Government Accountability Office High-Risk Areas:
Since 1990, the Government Accountability Office has periodically
reported on government operations that it has designated as high risk.
Its audits and evaluations identify federal programs and operations
that, in some cases, are high risk due to their greater vulnerabilities
to fraud, waste, abuse, and mismanagement. In its latest report, the
Government Accountability Office designated 26 high-risk areas. Eight
involved Department of Defense programs and operations; five involved
the Department as well as other federal agencies. The Department-
related high-risk areas are listed below.
Department of Defense:
* Approach to Business Transformation;
* Business Systems Modernization;
* Personnel Security Clearance Program;
* Support Infrastructure Management;
* Financial Management;
* Supply Chain Management (formerly Inventory Management);
* Weapon Systems Acquisition;
* Contract Management.
Department of Defense and Other Federal Agencies:
* Strategic Human Capital Management;
* Managing Federal Real Property;
* Protecting the Federal Government's Information Systems and the
Nation's Critical Infrastructures;
* Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security;
* Management of Interagency Contracting.
Management's Response to Auditor Challenges:
In general, the Department concurs with the concerns identified by the
Inspector General in his Summary of Management and Performance
Challenges and the issues presented in the Government Accountability
Office's High Risk List. The Department is taking progressive steps to
evaluate weaknesses across the Department in systems, processes and
internal controls. The Department established comprehensive plans,
presented throughout this report, that describe the steps necessary to
improve these areas of concern within the Department. Without question,
the path forward to implement solutions will be challenging, expensive,
and require much time. However, the Department has made a good start
and has made substantial progress in many areas. The support of the
Congress and the Department's many stakeholders, as well as the efforts
of individuals and organizations across the entire Department, have
contributed to the development of these plans and the progress made in
implementing solutions.
Improper Payments Information Act Reporting Details:
As discussed in Section 1: Management's Discussion and Analysis, the
Department conducted a review of the improper payments per the Office
of Management and Budget guidance.
Risk Assessment:
The Department reviewed all of its programs and activities and
determined that six programs/activities were susceptible to improper
payments: Military Retirement, Travel Pay, Military Health Benefits,
Military Pay, Civilian Pay, and Commercial Pay. These programs
represent approximately 86 percent of the Department's total payments.
The Department of Defense performed risk assessments for each of these
programs/activities that addressed the strength of the internal
controls in place to prevent improper payments (such as prepayment
reviews), system weaknesses identified internally or by outside audit
activities, voluntary returns of overpayments by vendors, etc. The
subsequent paragraphs summarize the process and results of these
assessment surveys. There are two other types of payment programs/
activities that the Department did not conduct surveys for and as a
result are not discussed below, intragovernmental payments
(approximately $75 billion in fiscal year (FY) 2005) and payments for
afloat and deployed forces (approximately $600 thousand in FY 2005).
The Department is developing a program to cover these remaining
program/activity payments.
Statistical Sampling:
Military Retirement. During FY 2006, the Department continued the
process, implemented in FY 2004, of monthly random reviews of confirmed
deceased retiree accounts, in addition to monthly random reviews from
the overall population of retired and annuitant pay accounts. Both of
these sampling plans are designed to produce annual estimates of
improper payments, with probability of 95 percent and sample precision
of plus or minus 2.5 percent.
A monthly sample of accounts is selected from the population of
confirmed deceased accounts. Each account is audited to determine if
the member was overpaid after the member's death. Statistics collected
from the review include the number of accounts reviewed, number with
overpayments, dollar amount of the overpayment, amount of correct pay
(what the payment should have been), and the dollar amount collected
back from the member's account/estate within the first 60 days after
notification. These sample statistics are projected to the population
of deceased retirees to then determine an improper payment rate
population estimate for deceased accounts.
Population estimates from the deceased account reviews are then added
to any improper payments identified through other than retired pay
random or special audits, to determine an overall improper payments
population estimate for retired pay.
Travel Pay. The Department performs monthly random post-payment reviews
of travel records settled through the Defense Travel System and
Integrated Automated Travel System. These reviews satisfy requirements
of Certifying Officers Legislation and ensure payments are legal,
accurate, and have supporting documentation. These random reviews are
designed to produce annual estimates of improper payments, with
probability of 95 percent and sample precision of plus or minus 2.5
percent, at the Military Service component level (Army, Navy, Air
Force, and Marine Corps).
For travel payments made by the U. S. Army Corps of Engineers, all
temporary duty and permanent change of station travel vouchers greater
than or equal to $2,500 are subject to a post audit review. A sample
composed of every 366th temporary duty travel voucher less than $2,500
is also reviewed. These reviews are designed to produce annual
estimates of improper payments, with probability of 95 percent and
sample precision plus or minus 2 percent.
Military Health Benefits. To determine the statistically valid estimate
of the annual amount of improper payments, the Department uses the
following sampling methodology to pull TRICARE (i.e., triple option
health benefit plan available for military families) encounter data
records for the annual target health care cost audits of the managed
care support services contracts.
For each contract option period, a statistically valid sample of claims
with care end dates within the specified option period is selected for
payment error auditing. Variable sampling, using stratified sampling
with optimum allocation, is used to calculate the sample size for the
payment errors. The sample size is designed to produce annual estimates
of improper payments, with probability of 90 percent and sample
precision plus or minus 1 percent.
Section 4: Other Accompanying Information:
Page 206:
Corrective Action Plans:
Military Retirement. The improper payments rate for the military
retirement is projected to remain nearly the same from FY 2005 ($49.3
million or .1381 percent) to FY 2006 ($48.8 million or .137 percent).
The majority of the improper payments are made to deceased retirees
(approximately $48.5 million). Random reviews from FY 2006 indicate 95
percent of the overpaid dollars to deceased retirees is recovered
within the first 60 days after notification. To reduce the initial
improper payment primarily caused by the delay in death notification to
the paying office by family members, the Department has substantially
improved its internal processing methods and is using data mining
techniques with the Social Security Administration. This process allows
the Department to receive death notice information through an automated
system and helps prevent improper payments by the pay system.
Travel Pay. The Defense Travel System contains numerous automated
prepayment flags to alert travelers and approving officials of
potential inconsistencies that could result in an improper payment. In
addition, results of monthly random reviews of Defense Travel System
trip records are summarized and presented to applicable Service
component representatives and to Defense Travel System management
personnel. These reports include number, dollar value, and reasons for
errors discovered among the sampled claims, as well as recommendations
to prevent similar errors on future travel records. Analysis indicates
most errors are attributed to traveler input or authorizing official
oversight. Training of both travelers and authorizing officials is one
of the primary tools the Department uses to alleviate these types of
discrepancies.
In FY 2006, over 783,000 trip records, with total settlement dollar
value of $823.6 million, were processed through the Defense Travel
System. As of September 30, 2006, the Department randomly selected and
reviewed 30,100 settled trip records with a value exceeding $32.6
million. Improper payments accounted for .968 percent of the tested
sample, so projected improper payments in the population of settlements
could approach $7.97 million.
Military Health Benefits. The Department has had contracts with payment
performance standards for military health benefit claims processing in
place for many years. Under the existing managed care support
contracts, the Department has a zero tolerance for unallowable costs.
If the contractor pays a claim that is not allowable, the Department
will not reimburse the contractor. In addition to placing the
contractors at risk for unallowable costs, this contractual design
provides a built-in incentive for contractors to continually perfect
their claims processing system, up to the point where financial costs
outweigh the benefits.
The Department currently audits statistically valid samples that over
the years have consistently produced an error rate of less than the 2
percent standard contained in the TRICARE contracts. Improperly
submitted claims by the provider community, as well as a minimal degree
of human error that can be expected with handling a large volume of
claims within the tight time parameters established through the prompt
payment regulations, cause errors in health care claims processing.
Based on the FY 2006 survey, the FY 2006 improper payments rate for the
military health benefits is projected to be $140.0 million or 2.0
percent.
Numerous prepayment and post-payment controls are built into the
military health benefits' claims processing system to minimize improper
payments. Every TRICARE claim is adjudicated against this system of
checks and balances. The managed care support contractors are required
to utilize specialized software containing specific auditing logic
designed to ensure appropriate coding on professional service claims
and eliminate overpayments. The software does not set coverage/benefit
policy; it merely audits claims for appropriate code combinations. For
calendar...
Section 4: Other Accompanying Information:
Page 214:
provisional billing rates. The Defense Contract Audit Agency also
performs paid voucher reviews at major contractors and special purpose
audits at contractor locations when a risk factor for improper payments
is identified and neither a billing system review nor a test of paid
vouchers is planned.
Accountability:
Certifying officer legislation currently in effect holds certifying and
disbursing officers accountable for government funds. Pecuniary
liability attaches automatically when there is a fiscal irregularity,
i.e., (a) a physical loss of cash, vouchers, negotiable instruments, or
supporting documents, or (b) an improper payment. Pecuniary liability
for accountable officials attaches if a commander/director determines
an improper payment was the result of the accountable official's
negligence. For certifying officers and disbursing officers, there is a
presumption of negligence and those individuals bear the burden of
proof in establishing the absence of negligence, i.e., they must
produce evidence to establish that there was no contributing fault or
negligence on their part. A presumption of negligence does not apply to
accountable officials. Efforts to recover from the recipient must be
undertaken in accordance with the debt collection procedures in Volume
5, Chapters 29 and 30, of the Department's Financial Management
Regulation.
In addition, the Department actively monitors performance metrics to
further reduce improper payments. These metrics include all programs/
activities the Department has identified as having a risk of improper
payments (i.e., military retired, military health benefits, and
military, civilian, travel, and commercial pay areas).
Information Systems:
The Department has the information and infrastructure needed to reduce
improper payments for five of the six major program/activity areas. For
commercial payments, as previously mentioned, the Department is
currently in the process of procuring business activity monitoring
services, which will employ the latest technology to increase the
efficiency and effectiveness of improper payment detection efforts. The
Department will prioritize the use of this capability first toward
commercial payments and then to all payment areas.
Statutory or Regulatory Barriers:
There are currently no statutory or regulatory barriers limiting the
Department's corrective actions for five of the six major
program/activity areas.
For military retirement, two barriers impede the agency's ability to
take corrective actions in reducing improper payments: the Federal
Acquisition Regulation and the Retired and Annuitant Pay service
contract. In January 2002, the Defense Finance and Accounting Service
awarded the Retired and Annuitant Pay service operations to a
government contractor. Although most functions remain unchanged from
when the government performed these functions, there are now
contractual limits to the government's involvement in the day-to-day
operations of Retired and Annuitant Pay. The Continuing Government
Activity Office was formed to oversee the Retired and Annuitant Pay
contract. To ensure the contractual requirements are followed, however,
the government can no longer direct how the work is accomplished. To
bring about an operational change, both the government and the
contractor must agree on how to effect and fund the change. The Federal
Acquisition Regulation requires any deviation from the current contract
be accomplished via a contract modification.
Additional Comments:
The Office of Management and Budget requested that the Department
identify Iraq improper payment indicators. In support of this request,
additional reviews are conducted on payments for Iraq by the...
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgements:
GAO Contact:
McCoy Williams, (202) 512-9095 or [email protected]:
Staff Acknowledgments:
In addition to the contact named above, the following individuals also
made significant contribution to this report: Dianne Guensberg,
Assistant Director; Sharon Byrd; Francine DelVecchio; Heather Dunahoo;
and Bradley Klingsporn.
[End of section]
Footnotes:
[1] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). Prior to IPIA,
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.
DOD began reporting improper payment information for military health
benefits and military retirement in fiscal year 2003.
[2] Appendix C to OMB Circular No. A-123, Requirements for Effective
Measurement and Remediation of Improper Payments (Aug. 10, 2006).
[3] Improper payments are defined as any payment that should not have
been made or that was made in an incorrect amount (including
overpayments and underpayments) under statutory, contractual,
administrative, or other legally applicable requirements. It includes
any payment to an ineligible recipient, any payment for an ineligible
service, any duplicate payment, payments for services not received, and
any payment that does not account for credit for applicable discounts.
[4] DOD, Department of Defense Budget for Fiscal Year 2008: Financial
Summary Tables (February 2007).
[5] An obligation is a definite commitment that creates a legal
liability of the government for the payment of goods and services
ordered or received, or a legal duty on the part of the United States
that could mature into a legal liability by virtue of actions on the
part of the other party beyond the control of the United States.
Payment may be made immediately or in the future. An expenditure is the
actual spending of money--an outlay. We use the terms payment and
expenditure interchangeably.
[6] A recent GAO report shows that DOD has substantially reduced its
use of premium class travel charged to government credit cards since
2004, following our DOD premium class travel report. See GAO, Premium
Class Travel: Internal Control Weaknesses Governmentwide Led to
Improper and Abusive Use of Premium Class Travel, GAO-07-1268
(Washington, D.C.: Sept. 28, 2007).
[7] H.R. Conf. Rep. No. 109-676, at 94 (Sept. 25, 2006).
[8] Pub. L. No. 109-289, 120 Stat. 1257 (Sept. 29, 2006).
[9] GAO, Improper Payments Information Act of 2002: Department of
Defense Travel Expenditure Reporting, GAO-07-767R (Washington, D.C.:
May 31, 2007).
[10] "Improper payment" and "erroneous payment" have the same meaning
under Appendix C of OMB Circular No. A-123.
[11] IPIA does not include a similar threshold for defining significant
improper payments.
[12] Agencies may alternatively use a 95 percent confidence interval of
plus or minus 3 percentage points around the estimate of the percentage
of improper payments.
[13] Institute for Defense Analyses, Assessment of the Potential to
Improve the Cost-Effectiveness of the Defense Travel System, IDA Paper
P-4200 (March 2007).
[14] GAO, DOD Business Transformation: Defense Travel System Continues
to Face Implementation Challenges, GAO-06-18 (Washington, D.C.: Jan.
18, 2006).
[15] IDA Paper P-4200, March 2007.
[16] DOD, Performance and Accountability Report: Fiscal Year 2006 (Nov.
15, 2006).
[17] The Reserve Travel System processes PCS travel, Air National Guard
travel, and deployments.
[18] We did not perform a detailed review of the IATS postpayment
review results; however, we did observe the process and obtained
information on the results of the review in fiscal year 2006.
[19] According to DOD's fiscal year 2006 PAR, the random postpayment
sample reviews were originally performed to satisfy the requirements of
"certifying officers legislation." 31 U.S.C. �3521(b) authorizes heads
of agencies to carry out a statistical sampling procedure, within
certain parameters, to audit vouchers when the head of the agency
determines that economies will result. In general, certifying officers
designated in writing by the agency are financially liable for any
improper, illegal, or incorrect payment made, and each payment made
must be audited. However, 31 U.S.C. �3521(c) provides that certifying
and disbursing officers are not liable for payments that are not
audited if they were made in good faith under a statistical sampling
procedure. Because of the weaknesses we describe below, we have doubts
that the DTS postpayment sample reviews constitute a valid statistical
sampling procedure under 31 U.S.C. �3521(b) for payments processed
through DTS. We are referring this matter to the DOD OIG for further
review.
[20] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[21] DOD travel regulations require submission of receipts for lodging
expenses regardless of amount and for all other expenditures of $75 or
more. These regulations implement Internal Revenue Service requirements
for an "accountable plan."
[22] These 9 include 8 defense agencies and 1 unified combatant
command. There are 16 defense agencies in total. Samples were also
selected for a population group labeled "unknown" but from
documentation provided, testing of these samples was not completed nor
was an estimate of improper payments.
[23] DOD officials refer to the improper payments survey of payments
made in fiscal year 2006 as the fiscal year 2007 survey, because it was
prepared in fiscal year 2007. For the purposes of this report, the
improper payments survey of payments made in fiscal year 2006 will be
known as the fiscal year 2006 survey, because it discloses information
related to fiscal year 2006 payments.
[24] The memorandum issuing guidance on completion of the survey of
2006 payments was addressed to the assistant secretaries of the
military departments (Financial Management and Comptrollers), the U.S.
Marine Corps Assistant Deputy Commandant for Programs and Resources,
the Inspector General of the Department of Defense, the directors of
defense agencies, the Commander of the Army Corps of Engineers, and the
directors of DOD field activities.
[25] The programs and activities provided were based on the prior year
survey and included total military pay; retired/annuitant pay and
descendent pay; civilian pay; travel pay; health care; commercial pay;
afloat & deployed forces; and intra-and intergovernment payments.
[26] GAO/AIMD-00-21.3.1.
[27] GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under
the Improper Payments Information Act Remains Incomplete, GAO-07-92
(Washington, D.C.: Nov. 14, 2006).
[28] GAO-AIMD-00-21.3.1.
[29] GAO, Strategies to Manage Improper Payments: Learning From Public
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October
2001).
[30] Air Force Audit Agency, Improper Payments Information Act of 2002-
Travel Payments, F2007-0002-FB1000 (Nov. 20, 2006).
[31] The report recommended that the Air Force "select a statistical
sample of payments for review from the Reserve Travel System database.
According to OMB guidance, the sample should be of sufficient size to
yield an estimate with a 90 percent confidence interval of plus or
minus 2.5 percent around the erroneous payment estimate."
[32] The Air Force also reported that the reviews were still ongoing as
of August 8, 2007, and they were awaiting documentation for 42 vouchers
(of the 463 sample items) in order to complete the audit. However, the
Air Force did not believe these outstanding items would significantly
change the final report.
[33] GAO/AIMD-00-21.3.1.
[End of section]
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[End of section]
Footnotes:
[1] H.R. Conf. Rep. No. 109-676 at 94 (Sept. 25, 2006), accompanying
the Department of Defense Appropriations Act, 2007, Pub. L. No. 109-
289, 120 Stat. 1257 (Sept. 29, 2006).
[2] GAO, Improper Payments Information Act of 2002: Department of
Defense Travel Expenditure Reporting, GAO-07-767R (Washington, D.C.:
May 31, 2007).
[3] GAO, DOD Travel Improper Payments: Fiscal Year 2006 Reporting Was
Incomplete and Planned Improvement Efforts Face Challenges, GAO-08-16
(Washington, D.C.: Dec. 14, 2007).
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
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Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
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Contact:
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E-mail: [email protected]:
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Congressional Relations:
Gloria Jarmon, Managing Director, [email protected]:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, [email protected]:
(202) 512-4800:
U.S. Government Accountability Office:
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Washington, D.C. 20548:
*** End of document. ***