Publicly released: May 17, 2019
We determined whether the DoD complied with Public Law No. 107-300, “Improper Payments Information Act of 2002,” November 26, 2002, as amended by Public Law No. 111-204 and Public Law No. 112-248. (In this report, we refer to the three Acts as IPERA.)
IPERA requires each Federal agency to review its programs 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. To be compliant, the DoD must meet all six reporting requirements identified in IPERA.
On November 15, 2018, the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD (USD[C]/CFO), published the Payment Integrity section of the FY 2018 Agency Financial Report (AFR), which reported improper payments for eight programs: Military Health Benefits, Military Pay, Civilian Pay, Military Retirement, DoD Travel Pay, Commercial Pay, U.S. Army Corps of Engineers (USACE) Travel Pay, and USACE Commercial Pay.
Although we determined that the DoD did not comply with IPERA in reporting its improper payment estimates, we also found that the DoD has made improvements in meeting the reporting requirements of IPERA by including key information that was previously missing in the AFR. The DoD complied with three of the six IPERA requirements by publishing all required information in the Payment Integrity section of the AFR; conducting program-specific risk assessments, as required; 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 2018 AFR.
However, the DoD did not comply with three of the six IPERA requirements. Specifically, the DoD did not publish reliable improper payment estimates, publish all required elements for its corrective action plans, and meet improper payment reduction targets. The DoD did not publish reliable improper payment estimates for six programs because Office of the USD(C)/CFO (OUSD[C]/CFO) personnel did not ensure that Components implemented internal controls to identify accurate and complete populations, implemented effective review processes, and developed sampling plans for Army overseas locations. In addition, OUSD(C)/CFO personnel relied on the Defense Finance and Accounting Service Commercial Pay sampling plan without performing risk assessments or understanding the impact of the limited scope of the sampling plan.
In addition, the DoD did not include all required elements for the corrective action plan descriptions—specifically the results of corrective actions taken—because, according to OUSD(C)/CFO personnel, future reductions in improper payments would demonstrate the results of corrective actions.
Also, the DoD did not meet its improper payment rate reduction targets for three programs—Military Pay, Civilian Pay, and Military Retirement—because of the programs’ sampling and estimation methodologies.
As a result, the DoD did not comply with improper payment reporting requirements for the 7th consecutive year. The DoD reported unreliable estimates and may not have promptly detected, prevented, and recovered improper payments from $11.4 billion of transactions by excluding $6.3 billion in transactions from improper payment reviews and performing inadequate improper payment reviews for an additional $5.1 billion of transactions. Furthermore, when the DoD AFR is missing key improper payment information and improper payment estimates are unreliable, DoD leadership and Congress cannot accurately determine whether the DoD has the necessary resources and the right measures in place to reduce its improper payments.
We recommend that the USD(C)/CFO, in coordination with the respective Components:
- Develop and implement procedures to incorporate Military Health Benefits program payments reported in the Administrative and Other categories in a sampling and estimation plan.
- Develop a process that uses the amount paid for a traveler instead of the entire amount for the Defense Travel System population in the DoD Travel Pay program, and develop and implement sufficient control measures in the population review process to ensure that DoD includes all necessary payments for Military Pay, Civilian Pay, Military Retirement, and DoD Travel Pay populations and reports accurate numbers in the AFR.
- Conduct a risk assessment of military academy cadet payments and, as necessary, implement procedures to review the payments for improper payments.
We also recommend that the USD(C)/CFO submit to OMB and Congress, within 30 days of this report’s issuance, the required report and planned corrective actions based on DoD programs’ noncompliance with IPERA.
Management Comments and Our Response
The Deputy Chief Financial Officer (DCFO), responding for the USD(C)/CFO, agreed with eight recommendations, did not agree with one recommendation, and partially agreed with one recommendation. However, the DCFO presented planned actions that, if implemented, will address the underlying intent of our recommendations. Therefore, we consider all the recommendations resolved. We will close the recommendations once we verify that management has implemented the actions they presented.
This report is a result of Project No. D2018-D000FL-0195.000