May 8, 2017 —
Our objective was to determine whether the DoD complied with Public Law No. 107-300, “Improper Payments Information Act of 2002,” November 26, 2002, as amended by Public Law 111-204, “Improper Payments Elimination and Recovery Act of 2010” (IPERA), July 22, 2010, in its FY 2016 improper payment reporting. The audit is required by the IPERA, which states that the Office of Inspector General (OIG) must annually review and determine agency compliance with IPERA. The DoD must meet all six of the following requirements to be compliant with IPERA1:
- publish an annual financial statement for the most recent fiscal year and post that report and any accompanying materials required under Office of Management and Budget (OMB) guidance on the agency website;
- conduct a program-specific risk assessment for each program or activity (if required);
- publish improper payment estimates for all programs and activities in the accompanying materials to the annual financial statement (if required);
- publish programmatic corrective action plans for programs that report improper payment estimates;
- publish, and meet, improper payments reduction targets; and
- report an improper payment rate of less than 10 percent for each program and activity for which an estimate is published.
The Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD (USD(C)/CFO) published the Improper Payment and Payment Recapture Programs section of the FY 2016 Agency Financial Report (AFR) on November 15, 2016, which identified 10 programs that report improper payments.
We reviewed the DoD improper payment programs reported in the Improper Payment and Payment Recapture Program section of the FY 2016 AFR to determine compliance with IPERA. To assess DoD Compliance with IPERA, we obtained, reviewed, and analyzed the DoD improper payment programs against Public Law, OMB guidance, and DoD guidance on improper payments. Additionally, we discussed with DoD personnel reduction targets, sampling plans, program completeness, and corrective action plans.
The DoD complied with one of the six requirements of IPERA by reporting improper payment rates of less than 10 percent. The DoD did not comply with five of the six requirements of IPERA: Specifically, the DoD did not:
- publish the AFR by March 1, 2017, due to unresolved discussions between the DoD OIG and DoD management over the accounting treatment of certain transactions; however, the DoD did publish the Improper Payment and Payment Recapture Programs section of the FY 2016 Agency Financial Report on November 15, 2016;
- conduct a risk assessment for the Navy Commercial Bill Pay Office–Singapore payment program and did not report a risk assessment of each program’s susceptibility to significant improper payments in accordance with OMB guidance;
- publish statistically valid improper payment estimates for two programs—DoD Travel Pay and U.S. Army Corps of Engineers Travel Pay—and did not ensure that all payments required to be tested were included in the sample plans used to estimate improper payments;
- include planned or actual completion dates for corrective actions for all programs that report improper payments, and did not include information required by the OMB for four programs; or
- meet the requirements to achieve the reduction target for two of the nine programs—DoD Travel Pay and U.S. Army Corps of Engineers Travel Pay—with established targets.
USD(C)/CFO personnel stated they relied on internal controls at the Component level and did not comply with all requirements in the DoD Financial Management Regulation in completing their oversight and compilation of the Components’ improper payment reporting, such as reviewing the Components statistical sampling plans to ensure completeness. IPERA establishes congressional reporting requirements when agencies are deemed noncompliant with the law. As a result of DoD’s noncompliance with IPERA, the USD(C)/CFO must submit a report to Congress describing the actions the DoD will take to become compliant with IPERA.
We recommend that the USD(C)/CFO coordinate with DoD IPERA reporting Components to verify and report improper payment results that comply with the requirements of IPERA. In addition, we recommend that the USD(C)/CFO evaluate the actions taken to address prior DoD OIG recommendations and make sure future agency financial reports address the specific instances of noncompliance with OMB guidance. Finally, we recommend that USD(C)/CFO submit a plan to Congress, in compliance with IPERA Section 3, describing the actions the DoD will take to become compliant with IPERA requirements.
We recommend that the Chief Financial Officer, U.S. Army Corps of Engineers, Civil Works, develop procedures to maintain sufficient documentation to support the U.S. Army Corps of Engineers improper payment estimates.
Management Comments and Our Response
The Deputy CFO, responding for the USD(C)/CFO, and the Chief, Finance and Accounting Policy Division, Directorate of Resource Management, responding for the CFO, U.S. Army Corps of Engineers, Civil Works, addressed all the specifics of the recommendations; therefore, the recommendations are resolved but remain open. We will close the recommendations after verifying that the actions presented by management have been implemented.
The Deputy CFO agreed to coordinate with DoD Components by November 15, 2018, to verify that all programs are assessed for risk and include all payments made for the DoD improper payment programs, and that sample designs are stratified by an appropriate variable. The Deputy CFO also agreed to coordinate with DoD Components by November 15, 2017, to ensure that reduction targets for DoD Travel Pay and USACE Travel Pay programs are achievable, are reported accurately, and are developed in coordination with corrective action plans. The Deputy CFO agreed to provide guidance to DoD Components on reporting sufficient corrective action plans and to consult with OMB personnel, to include attending OMB meetings related to IPERA, to ensure compliance with OMB guidance in future AFRs. In addition, the Deputy CFO agreed to submit a plan to Congress by November 15, 2017, describing actions taken by the DoD to become compliant with IPERA.
The Chief Finance and Accounting Policy Division, Directorate of Resource Management, agreed with the recommendation, stating that USACE maintains supporting documentation for the estimates and results of improper payment audits. He stated that the data has been modified and reformatted to satisfy auditor requirements.
1 Public Law 111-204, “Improper Payments Elimination and Recovery Act of 2010,” July 22, 2010, Section 3(a).