Dec. 21, 2018 —
We determined whether the DoD developed accurate and complete improper payment estimates for the Defense Finance and Accounting Service (DFAS) Commercial Pay Program during the first two quarters of FY 2018.
Federal legislation requires agencies to conduct risk assessments to identify programs that are susceptible to significant improper payments and to produce a statistically valid estimate of improper payments for those programs considered susceptible to significant improper payments. Additionally, Office of Management and Budget guidance establishes requirements for agencies to design and document a sampling and estimation plan, test a sample of program payments for improper payments, and project the testing results to the entire program.
The DFAS Commercial Pay program is one of the programs reported in the DoD Agency Financial Report (AFR). Although the DoD titled this program “DFAS Commercial Pay,” the program includes commercial payments made by Military Departments, Defense agencies, and field activities, with the exception of the U.S. Army Corps of Engineers, which is reported separately. Commercial payments include payments for transportation bills, government purchase card purchases, and purchases of goods or services from contractors. The DFAS Commercial Pay program reported total payments of $259.2 billion, and $0.86 million of estimated improper payments in the DoD FY 2017 AFR.
The DoD produced an incomplete and inaccurate improper payment estimate for the first two quarters of the DFAS Commercial Pay Program FY 2018 Improper Payment Elimination and Recovery Act reporting period. The calculation of the improper payment estimate did not include the results of improper payment reviews for:
- $2.2 billion of DoD transportation payments,
- $2.4 billion in government purchase card payments, or
- $1.1 billion in Army payments made at selected overseas offices.
This occurred because Under Secretary of Defense (Comptroller)/Chief Financial Officer (USD[C]/CFO) personnel relied on the DFAS Commercial Pay sampling plan without performing risk assessments or understanding the impact of the limited scope of the plan on the accuracy of the DoD’s commercial payment estimate.
In addition, DFAS Enterprise Solutions and Standards (ESS) personnel did not have sufficient controls in place to validate the accuracy and completeness of the commercial payments population used for developing the DFAS portion of the improper payment estimate. Specifically, DFAS ESS personnel:
- incorrectly excluded $221 million in payments when combining the payment data files from 3 of 15 systems, and
- incorrectly included $783.6 million in intragovernmental payments in the population of payments tested for improper payments.
This occurred because DFAS ESS personnel did not coordinate with the appropriate systems personnel for each of the data systems to validate that the search criteria used for the sampling methodology was correct. Additionally, DFAS ESS procedures did not include sufficient control measures to ensure that DFAS received and correctly processed all the data files the systems submitted to DFAS for inclusion in the population.
As a result, the DoD did not comply with the statutory requirements and will continue to produce unreliable estimates if it does not improve its internal control system. Also, the DFAS Commercial Pay program may miss the opportunity to promptly detect, prevent, and recover improper payments of Federal funds.
We recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD:
- develop and implement procedures to ensure that estimates of transportation and government purchase card improper payments are included in the DoD estimate for the AFR;
- evaluate the Army’s Improper Payments Elimination and Recovery Act compliance procedures and sampling plan to determine whether it would be more cost effective to incorporate improper payments testing at overseas locations into the DFAS Commercial Pay sampling plan;
- conduct an annual review within all Components to identify all types of commercial payments and verify that existing risk assessments and sampling plans encompass all payments; and
- update the DoD Financial Management Regulation to define the types of payments in the DFAS Commercial Pay program and identify which Components are responsible for testing and reporting improper payment estimates within the DFAS Commercial Pay program.
We also recommended that the DFA ESS Director, in coordination with the USD(C)/CFO, develop a memorandum of understanding for each payment system, documenting the payment data requirements from each system.
Management Comments and Our Response
The Deputy CFO, responding for the USD(C)/CFO, and the DFAS, Director, agreed with all recommendations and addressed all 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.
This report is a result of Project No. D2018-D000FL-0131 .000.