DOD Financial Management: Significant Improvements Needed in Efforts to Address Improper Payment Requirements
Highlights
What GAO Found
The Department of Defense (DOD) did not adequately implement key provisions of the Improper Payments Information Act of 2002 (IPIA) and the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and Office of Management and Budget (OMB) requirements for fiscal year 2011. Most important, GAO found that DOD's improper payment estimates reported in its fiscal year 2011 Agency Financial Report were neither reliable nor statistically valid because of long-standing and pervasive financial management weaknesses and significant deficiencies in the department's procedures to estimate improper payments. For example, DOD did not
have key quality assurance procedures in place, such as reconciliations, to validate the completeness and accuracy of the populations used to estimate improper payments;
develop appropriate sampling methodologies for estimating improper payments;
produce a statistical estimate for its largest program, Defense Finance and Accounting Service (DFAS) commercial pay; and
maintain key documentation supporting its reported improper payment estimates.
Also, GAO found significant deficiencies in DOD's policies and procedures to address other key improper payment requirements for fiscal year 2011. Specifically, DOD did not
perform a required risk assessment to identify those programs susceptible to significant improper payments,
have procedures to identify root causes of improper payments and develop related corrective actions,
conduct recovery audits for any of its programs or determine that these audits would not be cost effective, and
have procedures to ensure that its annual improper payment and recovery audit reporting is complete, accurate, and in compliance with IPERA and OMB reporting requirements.
DOD has taken some actions since fiscal year 2011, such as reporting a statistical estimate for Defense Finance and Accounting Service commercial pay and issuing revised Financial Management Regulation chapters on improper payments and recovery audits. However, until the department takes action to correct the deficiencies GAO found related to identifying, estimating, reducing, recovering, and reporting improper payments and thereby fulfills legislative requirements and implements related guidance, it remains at risk of continuing to make improper payments and wasting taxpayer funds.
Why GAO Did This Study
DOD reported $1.1 billion in improper payments for fiscal year 2011, which marked the eighth year of implementation of IPIA, as well as the first year of implementation of IPERA. IPIA required executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.
GAO was asked to review the progress DOD has made to identify, estimate, and reduce improper payments. GAO's objective was to review the extent to which DOD has implemented key provisions of IPIA, IPERA, and OMB guidance. GAO reviewed improper payment requirements; analyzed agency financial reports, internal guidance and plans, and sampling methodologies; and interviewed cognizant officials. The scope for this engagement was DOD's reported improper payment information for fiscal year 2011 and DOD's plans and actions to estimate commercial pay improper payments for fiscal year 2012.
Recommendations
GAO is making 10 recommendations to improve DOD's processes to identify, estimate, reduce, recover, and report on improper payments. DOD concurred with 9 and partially concurred with 1 of the recommendations and described its plans to address them.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to estimating improper payments, to establish and implement key quality assurance procedures, such as reconciliations, to ensure the completeness and accuracy of the sampled populations. |
DOD agreed with this recommendation. The Office of the Under Secretary of Defense (Comptroller) developed an inventory of approximately 80 DOD systems related to disbursing functions. As of March 2025, DOD estimated that by May 2025, the Defense Finance and Accounting Service and DOD components will establish financial management system agreements for improper payments testing. These signed agreements will require DOD components to affirm the completeness of the payments in each financial management system to ensure the completeness and accuracy of the sampled populations. In addition, DOD estimated that by May 2025, DOD's platform for analyzing sampling and transaction details called... Advana will build on DOD's capability to provide a universe of transactions for the annual financial statement audits and will also be used for the payment program. To implement this recommendation, DOD should resolve material weaknesses in its department-wide universe of transactions. Specifically, it should resolve weaknesses that preclude it from performing the quality assurance procedures needed to ensure that the populations from which the samples are drawn to estimate improper payments are complete and accurate. Without implementing this recommendation, DOD remains at risk of producing incomplete and unreliable improper payment estimates.
View More |
| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to estimating improper payments, to revise the procedures documented in DOD's sampling methodologies so that they (1) are in accordance with OMB guidance and generally accepted statistical standards and (2) produce statistically valid improper payment error rates, statistically valid improper payment dollar estimates, and appropriate confidence intervals for both. At a minimum, such procedures should take into account the size and complexity of the transactions being sampled. |
The Department of Defense (DOD) partially concurred with this recommendation, stating that sampling methodologies would be reviewed for all payment types and the sampling plans would be modified as appropriate to produce valid improper payment estimates and related confidence intervals. In its May 2016 FIAR Plan Status Report, DOD officials stated that the department is reviewing the methodologies associated with identifying improper payments for its improper payment programs, and if warranted, will change their sampling plans (which describe the methodologies)used for sampling payments to estimate improper payments. In June 2016, DOD officials stated that the Office of the Under...
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| Department of Defense | The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to estimating improper payments, to develop and implement procedures to collect and maintain the supporting documentation necessary to support improper payment estimates. | The Department of Defense (DOD) concurred with this recommendation, stating that department will collaborate with the Defense Finance and Accounting Service (DFAS) and Defense Manpower Data Center (DMDC) to develop and implement procedures to collect and maintain the supporting documentation necessary to support improper payment estimates. As of December 2014, DOD reported that this recommendation was closed due to the documentation that DFAS was maintaining to support its improper payment estimates, which included additional documentation, such as SAS logs, from DMDC. To assess the status of the recommendation, GAO requested selected documentation supporting improper payment estimates...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to identifying programs susceptible to significant improper payments, to conduct a risk assessment that is in compliance with IPERA. |
The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable Defense components to develop a framework to conduct risk assessments that are in compliance with the Improper Payments Elimination and Recovery Act (IPERA). According to DOD officials, risk assessments for six DOD programs (military health benefits, military pay, civilian pay, Defense Finance and Accounting Service (DFAS) travel pay, retiree & annuitant pay, and DFAS commercial pay) were done. Consistent with OMB guidance, risk assessments are not required for those programs that are already reported in DOD's Improper Payment Reduction Outlook Table....
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to reducing improper payments, to establish procedures that produce corrective action plans that comply fully with IPERA and OMB implementation guidance, including at a minimum, holding individuals responsible for implementing corrective actions and monitoring the status of the corrective actions. |
The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable components to establish procedures that produce corrective action plans that incorporate best practices, including those recommended by the Chief Financial Officers Council. DOD's corrective action plans would include information on (1) measuring the progress made toward remediating root causes and (2) communicating to agency leaders and key stakeholders the progress made toward remediating the root causes of improper payments. According to DOD's fiscal year 2015 Agency Financial Report, DOD's travel pay had the highest error rate among all DOD-reported...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to reducing improper payments, to establish procedures that produce corrective action plans that are in accordance with best practices, such as those recommended by the Chief Financial Officers Council (CFOC), and include (1) measuring the progress made toward remediating root causes and (2) communicating to agency leaders and key stakeholders the progress made toward remediating the root causes of improper payments. |
The Department of Defense (DOD), in concurring with this recommendation, stated that it would work collaboratively with the applicable components to establish procedures that produce corrective action plans that incorporate best practices, including those recommended by the Chief Financial Officers Council. DOD's corrective action plans would include information on (1) measuring the progress made toward remediating root causes and (2) communicating to agency leaders and key stakeholders the progress made toward remediating the root causes of improper payments. According to DOD's fiscal year 2015 Agency Financial Report, DOD's travel pay had the highest error rate among all DOD-reported...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to develop and implement procedures to (1) identify costs related to the department's recovery audits and existing recovery efforts and (2) evaluate existing improper payment recovery efforts to ensure that they are cost effective. |
Department of Defense (DOD) officials concurred with this recommendation, stating that the DOD would review its procedures for improper payment recovery activities to ensure currency and accuracy and that it would also perform analyses to ensure that its recovery efforts are cost-effective. In July 2015, DOD reported that the development of cost estimates for recovery auditing was ongoing. In addition, DOD officials indicated that only the United States Army Corps of Engineers (USACE) has developed an analysis to evaluate the cost effectiveness of performing recovery audits. As of April 2017, DOD's efforts to develop cost-estimates for recovery audits were still under way. In August...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to monitor the implementation of the revised FMR chapter on recovery audits to ensure that the components either develop recovery audits or demonstrate that it is not cost effective to do so. |
Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would work with the applicable components to monitor the implementation of the revised Financial Management Regulation (FMR) chapter on recovery audits (subsequently renamed as payment recapture audits). According to DOD officials, this action would help to ensure that recapture audits are developed, or will demonstrate that it is not cost-effective to do these audits. In July 2015, DOD was working to update the FMR chapter on recapture audits to reflect revised Office of Management and Budget (OMB) guidance issued in October 2014. DOD issued its revised FMR chapter in November 2015. This...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to implementing recovery audits, to develop and submit to OMB for approval a payment recapture audit plan that fully complies with OMB guidance. |
Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would work with the applicable components to monitor the implementation of the revised Financial Management Regulation (FMR) chapter on recovery audits (subsequently renamed payment recapture audits). According to DOD officials, this action would help to ensure that recapture audits are developed, or will demonstrate that it is not cost-effective to do these audits. In July 2015, DOD was working to update the FMR chapter on recapture audits to reflect revised Office of Management and Budget (OMB) guidance issued in October 2014. DOD issued its revised FMR chapter in November 2015. This chapter...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), with regard to reporting, to design and implement procedures to ensure that the department's annual improper payment and recovery audit reporting is complete, accurate, and in compliance with IPERA and OMB guidance. |
Department of Defense (DOD) officials, in concurring with this recommendation, stated that DOD would design and implement procedures to further ensure that its annual improper payment and recovery audit reporting is complete, accurate, and in compliance with the Improper Payments Elimination and Recovery Act (IPERA) requirements and Office of Management and Budget (OMB) guidance. In June 2015, DOD revised its FMR chapter on improper payments to require components to provide information needed to report on improper payment and recovery audit activities in its annual financial report (AFR) in accordance with IPERA requirements and OMB guidance. DOD's fiscal year 2015 AFR reflected its...
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