Publicly Released: May 5, 2020
Objective
The objective of this audit was to determine whether the DoD complied with the requirements of three laws related to identifying and reporting on improper payments in the DoD. The three laws are Public Law No. 107-300, “Improper Payments Information Act of 2002,” November 26, 2002, as amended by Public Law No. 111-204, “Improper Payments Elimination and Recovery Act (IPERA) of 2010,” and Public Law No. 112-248, “Improper Payments Elimination and Recovery Improvement Act of 2012.” In this report, we referred to the three Acts as IPERA.
Background
IPERA requires Federal agencies to review their programs and identify those that may be susceptible to significant improper payments, to estimate and report the dollar amount of improper payments in those programs, and to report on actions planned to reduce improper payments in those programs. IPERA also requires agency Inspectors General to evaluate agency compliance with six IPERA requirements each fiscal year. The DoD must meet all of the requirements to comply with IPERA.
The President’s Management Agenda of 2018 focuses on effective and modern Government capabilities, including a focus on effective stewardship of taxpayer funds through 11 Cross-Agency Priority (CAP) goals. CAP Goal 9, “Getting Payments Right,” discusses saving taxpayer money by making payments correctly and collecting money back from incorrect payments. Following the issuance of CAP Goal 9, the Office of Management and Budget updated Circular No. A-123, Appendix C, to seek to ensure that agencies focus on improper payment prevention and have incentives to improve their improper payment rates. IPERA and the Office of Management and Budget guidance define an improper payment as any payment that should not have been made or was made in an incorrect amount (overpayment or underpayment) to an eligible recipient. Improper payments also include payments made to ineligible recipients or for ineligible goods or services, or payments for goods or services not received. However, improper payments do not always result in an actual monetary loss to the Government.
On November 15, 2019, the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD (USD[C]/CFO), published the Payment Integrity section of the FY 2019 Agency Financial Report (AFR). The AFR reported $8.7 billion in estimated improper payments for eight DoD programs, which was an increase from the $1.2 billion, for the same eight programs that were reported in the FY 2018 AFR.
Finding
The DoD complied with four of the six IPERA requirements by publishing all required information in the Payment Integrity section of the AFR; conducting program-specific risk assessments, if required; publishing corrective action plans; and reporting an improper payment rate of less than 10 percent for each of the eight programs that included an improper payment estimate in the FY 2019 AFR.
However, while the DoD continued to make improvements in its FY 2019 reporting of IPERA requirements, the DoD did not comply with the remaining two IPERA requirements. Specifically, the DoD published unreliable improper payment estimates for five programs and missed its annual improper payment reduction targets for three programs. We determined that the DoD did not publish reliable improper payment estimates for five programs because the DoD did not fully implement corrective actions, such as developing a process to use amounts paid for the Commercial Pay and DoD Travel Pay programs that the DoD Office of Inspector General (OIG) recommended in prior IPERA compliance audit reports. Additionally, the Defense Finance and Accounting Service personnel did not follow the Military Retirement program’s sampling and estimation plan by inadvertently using net-pay amounts, instead of gross-pay amounts to calculate the improper payment estimate.
In addition, the DoD did not meet its FY 2019 reduction targets for the Military Pay, Civilian Pay, and Military Health Benefits programs. According to Office of the USD(C)/CFO (OUSD[C]/CFO) personnel, the Military Pay program did not meet its target because the DoD revised its testing methodology and, as a result, the improper payment rate increased by 6.95 percent. The Civilian Pay program did not meet its target because the Defense Finance and Accounting Service personnel did not use a sufficient methodology for testing the transactions and estimating the improper payments. Furthermore, the Military Health Benefits program did not meet its target because one of its contractors did not accurately process claims for health benefits.
As a result of these actions, the DoD did not fully comply with improper payment reporting requirements for the 8th consecutive year.
In FY 2019, the DoD improper payment estimate increased by $7.5 billion. The AFR attributed the majority of this increase, $7.1 billion, to the DoD implementing a more extensive improper payment review of the Military Pay program. By not effectively implementing the corrective actions related to improper payment estimates and reduction targets from prior year audit recommendations for all its programs, the DoD continued to report unreliable improper payment estimates for five of the eight programs and continued to miss opportunities to promptly detect, prevent, and recover improper payments.
When improper payment estimates are unreliable, DoD leadership and Congress cannot accurately determine whether the DoD has the necessary resources and the appropriate measures in place to reduce its improper payments. As the DoD continues to implement corrective actions within its improper payment program, it moves closer to meeting CAP Goal 9 to save taxpayer money by making proper payments and recovering money from improper payments.
Recommendations
We recommend that the USD(C)/CFO:
• coordinate with the Defense Finance and Accounting Service and other DoD Components to update the Travel Pay sampling and estimation plans, including the population of travel payments processed through the Defense Travel Modernization system; and
• submit to the Office of Management and Budget and Congress, within 30 days of this report’s issuance, the required report and planned corrective actions based on DoD program noncompliance with IPERA.
We also recommend that the Deputy Director of Enterprise Audit Support for the Defense Finance and Accounting Service:
• develop and implement internal controls to ensure that the development of the Military Retirement program’s improper payment estimate is complete and accurate; and
• develop and implement complete standard operating procedures of the Military Retirement improper payment review process.
Management Comments and Our Response
The Deputy Chief Financial Officer (DCFO), responding for the USD(C)/CFO and the Defense Finance and Accounting Service Deputy Director of Enterprise Audit Support, agreed with all recommendations and addressed the specifics of the recommendations; therefore, the recommendations are resolved but will remain open. We will close the recommendations once we verify that the actions presented by management have been implemented.
In addition, although not required to comment, the Acting Director, Army Financial Services, U.S. Army Financial Management Command commented on the finding, stating that Army Financial Services concurred with the finding. However, the Acting Director requested that we modify the language in Appendix C of this report to state that two recommendations made in a prior DoD OIG IPERA audit are completed. We agreed to modify the language in Appendix C to reflect actions the Army has taken to close the recommendations. However, we will determine whether we can close the recommendation during the FY 2020 annual improper payment audit.
This report is the result of Proj. No. D2019-D000FL-0184.000