DOD Financial Management: Significant Improvements Needed in Efforts to Address Improper Payment Requirements

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 Secretary of Defense (Comptroller) will continue to coordinate with those DOD components currently using simple random sample designs, to develop methodologies that are stratified by an appropriate variable, such as an invoice or payment amount based on appropriate confidence intervals. In October 2017, GAO received revised sampling plans outlining the sampling methodologies, that included stratification, for all of DOD's improper payment programs reported in its Agency Financial Report. As of December 2017, this recommendation is closed, based on supporting documentation showing that confidence intervals are included in the sampling plans.

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 of four programs reported in the DOD Annual Financial Report (AFR): DFAS commercial pay, civilian pay, USACE commercial pay, and military health benefits. For example, we requested software logs and output files used to select sample items for testing, component standard operating procedures for testing improper payment sample items, and spreadsheets used to calculate improper payment error rates and dollar estimates. Based on our review of documentation provided by DOD, we determined that DOD has generally maintained the supporting documentation necessary to support its improper payment estimates for these programs reported in the AFR. We concur with DOD's determination that this recommendation has been implemented.

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. Therefore, we consider this recommendation to be closed-implemented because DOD is reporting improper payment estimates for all of its programs and therefore those programs do not need risk assessments to determine susceptibility for significant 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 improper payment programs, and therefore DOD would place its initial focus to achieve measurable progress more quickly in this area. In June 2016, DOD officials told us that the Office of the Under Secretary of Defense (Comptroller) (OUSD(C)) will revise and expand the DOD Travel Remediation Plan into a more comprehensive plan for travel improper payments which will include establishing Senior Accountable Officials (SAOs) within each military service. OUSD(C) will collaborate with each SAO to ensure the development of standardized procedures and corrective action plans to include training, root cause identification, and quality assurance goals that comply with improper payment law and regulatory guidance for travel pay. In October 2016, DOD issued its corrective/remediation plan entitled "Preventing Travel Pay Improper Payments and Recovery." This plan required the military services and major defense agencies to designate a Senior Accountable Official (SAO) at the Senior Executive Service level, for reducing travel pay improper payments. In April 2017, we learned that the Office of Management and Budget had done an assessment of this plan and provided helpful suggestions. In an August 2017 response to an inquiry on the status of DOD's implementation of GAO's improper payment recommendations, DOD officials stated that the Department's SAO (Deputy Chief Financial Officer) is considering expanding the focus of the travel pay improper payments working group to include the other major areas of DOD's improper payment program. In September 2017, the department's SAO recommended the establishment of a SAO Steering Committee as well as Action Officer Working Groups for DOD's other improper payment programs. The SAO Steering Group would, among other duties, provide oversight and drive action for compliance with IPERA. The Action Officer Working Groups would be responsible for determining root causes and developing effective written corrective action plans, among other duties. As of October 2018, this recommendation remains open as DOD works to produce corrective action plans that comply fully with IPERA and OMB implementation guidance, including holding individuals responsible for implementing corrective actions and monitoring the status of those corrective actions. As of December 2019, DOD has made progress in developing corrective action plans for its eight improper payment programs, including the identification of root causes of improper payments. In May 2020, the DOD Inspector General reported that for fiscal year 2019, DOD published complete corrective action plans that included all of the information required by OMB guidance. OUSD(C) officials provided us with May 2020 versions of the corrective action plans and we agreed with the DOD Inspector General's assessment. Therefore, we considered this recommendation to be closed as implemented.

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 improper payment programs, and therefore DOD would place its initial focus to achieve measurable progress more quickly in this area. In October 2016, DOD issued its corrective/remediation plan entitled "Preventing Travel Pay Improper Payments and Recovery." This plan required the military services and major defense agencies to designate a Senior Accountable Official (SAO) at the Senior Executive Service level, for reducing travel pay improper payments. In April 2017, we learned that the Office of Management and Budget had done an assessment of this plan and provided helpful suggestions. In August 2017, DOD officials stated that the Department's Deputy Chief Financial Officer was considering expanding the focus of the travel pay improper payments working group to include the other major areas of DOD's improper payment program. In September 2017, the department's SAO recommended the establishment of a SAO Steering Committee as well as Action Officer Working Groups for DOD's other improper payment programs. The SAO Steering Group would, among other duties, provide oversight and drive action for compliance with IPERA. The Action Officer Working Groups would be responsible for determining root causes and developing effective written corrective action plans, among other duties. As of October 2018, this recommendation remained open as DOD determines root causes and develops corrective action plans for its other improper payment programs. As of December 2019, DOD has made progress in developing corrective action plans for its eight improper payment programs, including the identification of root causes of improper payments. During fiscal year 2020, we reviewed corrective action plans prepared for Military Health Benefits, Military Retirement Pay, as well as corrective action plans for Military Pay developed by the Air Force, Army, and Navy. The corrective action plans we reviewed included milestones to measure the progress made toward remediating root causes of improper payments. In addition, the DOD Inspector General reported that OUSD(C) officials stated that they have initiated a Corrective Action Plan Milestone Scorecard to document and track milestones for corrective action plans, which OUSD(C) personnel intend to use to provide quarterly updates to the Improper Pay SAO Steering Committee. According to documents we received from the OUSD(C), each individual milestone in a corrective action plan will have a corresponding scorecard and select scorecards will be briefed during the Improper Pay Quarterly SAO meetings. Based on this information, we consider this recommendation to be closed as implemented.

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 2017, DOD officials told us that all components that spend $1 million or more annually for each program and activity, must annually submit a payment recapture plan. One of the elements this plan is to include is a cost-effectiveness analysis. We consider this recommendation to be closed as implemented.

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 chapter requires components to develop cost-effective payment recapture audits or to submit a quantitative justification to the Comptroller for approval. However, we consider this recommendation to be open because DOD did not provide documentation demonstrating that the Office of the Comptroller is monitoring component implementation of recapture audits. As of December 2019, DOD stated that in FY 2020, the Office of the Comptroller will coordinate with the DOD improper payment reporting components to analyze whether it would be cost effective to implement payment recapture audit programs for their payments. In a March 20, 2020 memorandum, the Deputy CFO asked DOD components, programs, or activities with annual payments exceeding $1 million to submit a payment recapture plan by June 30, 2020. If a component determines that payment recapture audits are not cost-effective, then the plan must provide the specific analysis and documentation used to reach that conclusion. When completed, the results of the evaluation will serve the Department's final position on payment recapture audit programs. In February 2021, a Comptroller official stated that this analysis has been completed and that over 40 payment recapture plans were submitted. Office of the Comptroller officials reviewed these component payment recapture plans. Based on these component plans, DOD developed a department-wide payment recapture plan which includes all of its payment integrity programs. DOD's payment recapture program, as outlined in its plan, consists of a combination of (1) cost-effective internal controls implemented by DOD's components and (2) Payment Integrity Act of 2019 related initiatives, including recapture activities performed by TRICARE private sector contractors. We consider this recommendation to be closed as implemented.

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 requires components to develop cost-effective payment recapture audits or to submit a quantitative justification to the Comptroller for approval. However, DOD did not provide documentation demonstrating that the Office of the Comptroller is monitoring component implementation of recapture audits. As of December 2019, DOD stated that in FY 2020, the Office of the Comptroller will coordinate with the DOD improper payment reporting components to analyze whether it would be cost effective to implement payment recapture audit programs for their payments. In a March 20, 2020 memorandum, the Deputy CFO asked DOD components, programs, or activities with annual payments exceeding $1 million to submit a payment recapture plan by June 30, 2020. If a component determines that payment recapture audits are not cost-effective, then the plan must provide the specific analysis and documentation used to reach that conclusion. When completed, the results of the evaluation will serve the Department's final position on payment recapture audit programs. In February 2021, a Comptroller official stated that this analysis has been completed and that over 40 payment recapture plans were submitted. Office of the Comptroller officials reviewed these component payment recapture plans. Based on these component plans, DOD developed a department-wide payment recapture plan which includes all of its payment integrity programs. DOD's payment recapture program, as outlined in its plan, consists of a combination of (1) cost-effective internal controls implemented by DOD's components and (2) Payment Integrity Act of 2019 related initiatives, including recapture activities performed by TRICARE private sector contractors. We consider this recommendation to be closed as implemented.

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 implementation of the revised FMR. In addition, the Office of the Comptroller developed and implemented a Payment Integrity Checklist to help ensure that the department's annual improper payment and recovery audit reporting was complete, accurate, and in compliance with IPERA and OMB guidance. In February 2021, we selected a sampling of these Payment Integrity Checklists and found that officials from the Office of the Comptroller had reviewed the component's responses to ensure that the information provided was as complete and accurate as the department's current systems can provide. We consider this recommendation to be closed as implemented.