May 9, 2018 —
We determined whether the DoD complied with the requirements of the “Improper Payments Elimination and Recovery Act of 2010” (IPERA), July 22, 2010, in its reporting of FY 2017 improper payments.
IPERA requires all agencies to review their programs and activities and identify programs that may be susceptible to significant improper payments, report the amount and causes of improper payments that occurred, and report on corrective actions planned to reduce the improper payments. IPERA also requires agency Offices of Inspector General, including the DoD Office of Inspector General (DoD OIG), to annually review and determine the agency’s compliance with IPERA. The DoD must meet all six of the following requirements to be compliant with IPERA:
- 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 (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 Payment Integrity section of the FY 2017 Agency Financial Report (AFR) on November 15, 2017, which reported improper payments for nine programs. These nine programs were Military Health Benefits, Military Pay, Civilian Pay, Military Retirement, DoD Travel Pay, Defense Finance and Accounting Service (DFAS) Commercial Pay, Commercial Bill Pay Office Naples, U.S. Army Corps of Engineers (USACE) Travel Pay, and USACE Commercial Pay.
We determined that the DoD complied with two of the six IPERA requirements by conducting program-specific risk assessments, as required, and reporting an improper payment rate of less than 10 percent for each program. However, the DoD did not fully comply with four of the six IPERA requirements. Specifically, the DoD did not:
- publish all required information in the Payment Integrity section of the FY 2017 AFR because the USD (C)/CFO discussed the IPERA program at only a summary level and misinterpreted the payment recapture program reporting requirements;
- publish statistically valid improper payment estimates for four programs – DoD Travel Pay, DFAS Commercial Pay, USACE Commercial Pay, and Military Health Benefits – or include all OMB-required reporting information in the AFR because some Components did not complete their tests of payments and the USD(C)/CFO did not obtain and report all required program data;
- publish all required elements for the program corrective actions in the AFR because the USD(C)/CFO did not confirm that components submitted all required information; and
- meets its annual reduction targets for the Military Retirement, DoD Travel Pay, USACE Travel Pay, and USACE Commercial Pay programs because the DoD changed its sampling methodologies.
We also determined that the USD(C)/CFO did not implement strong internal controls at the DoD level to improve reporting and instead relied on controls at the Component level. As a result, the DoD did not comply with IPERA reporting requirements. Additionally, when the AFR is missing key improper payment information, DoD leadership and Congress may not be able to determine if DoD has the resources it needs to reduce its improper payments. Improper payments represent Government errors and potentially waste or fraud that resulted in the under- or over-payment of public funds. DoD officials are accountable for implementing the appropriate internal controls to reduce improper payments and promote accountability within the DoD for taxpayer dollars.
We recommend that the USD(C)/CFO:
- develop a data call template based on IPERA and OMB requirements for Component narrative submissions;
- coordinate with reporting Components to ensure that improper payment testing is completed on time and improper payments estimates are based on 12 months of data, as required by OMB guidance;
- develop milestones for expanding oversight responsibilities of the senior accountable officer to all DoD programs with significant improper payments;
- implement procedures to ensure the USD(C)/CFO receives all required information from the Components for the AFR; and
- take remediation actions required by IPERA for those programs that did not comply with IPERA.
We also recommend that the Director, Financial Services, Army Financial Management Command, develop, implement, and submit statistically valid sampling plans for the Army’s Travel Pay and Commercial Pay programs.
Management Comments and Our Response:
The Deputy Chief Financial Officer and the Deputy to the Commanding General, Army Financial Management Command, either agreed with the recommendations or agreed to take actions that addressed the intent of all of the recommendations. Therefore, the recommendations are resolved but will remain open.