Publicly Released: November 16, 2020
Objective
The objective of this audit was to determine whether the Defense Finance and Accounting Service (DFAS) accurately identified and reported improper payments from payments processed through the Mechanization of Contract Administration Services system (MOCAS).
Background
The Payment Integrity Information Act of 2019 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 within the DoD Agency Financial Report (AFR).
The Commercial Pay program is one of the DoD’s eight programs reported in the DoD AFR. MOCAS is 1 of the 15 Commercial Pay systems that make up the improper payment estimate for the Commercial Pay program. In FY 2019, MOCAS reported $181 billion or 57 percent of the outlays for the Commercial Pay program, in which DFAS personnel estimated MOCAS to have zero improper payments. To calculate the improper payment estimate for MOCAS, DFAS personnel statistically sampled MOCAS transactions for quarterly review and calculated the MOCAS improper payment estimate based on the MOCAS post-pay review results. DFAS then applied this estimate to the estimated calculation for the entire Commercial Pay program.
The Payment Integrity Information Act of 2019 and the Office of Management and Budget 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.
Finding
DFAS personnel did not accurately identify and report improper payments from MOCAS for the first two quarters of the FY 2020 improper payment reporting period. Specifically, DFAS personnel did not identify 302 improper payments, totaling $136 million, for reporting in the AFR, including $25.8 million that MOCAS Post-Pay Review personnel incorrectly deemed proper during their post‑pay review. This occurred because DFAS personnel did not develop a reliable sampling universe by using the paid invoice amount instead of the actual disbursement amount, thereby increasing the risk that the MOCAS Post-Pay Review would not discover an improper payment. Additionally, DFAS did not document or conduct adequate reviews of the MOCAS transactions reviewed for improper payments. Specifically, the MOCAS Post-Pay Review team did not:
• review certified payment voucher amounts;
• review for duplicate payments;
• verify the accuracy of recoupment amounts; or
• maintain documentation supporting decisions on the propriety of transactions reviewed.
Furthermore, DFAS-Columbus personnel identified 464 payments, totaling $56.5 million, as underpayments to vendors, but did not report them as improper payments. According to DFAS personnel, they did not classify the underpayments on contracts as improper payments because DFAS withheld the payments due to contract deficiencies regarding the lines of accounting.
As a result of DFAS personnel’s inaccurate reporting of MOCAS improper payment estimates, the DoD cannot rely on the improper payment estimate produced from MOCAS payments for the first two quarters of the FY 2020 reporting period. Because MOCAS processed 57 percent of the total reported outlays for the Commercial Pay program, the lack of internal controls surrounding the identification and reporting of the improper payments for MOCAS payments creates an unreliable improper payment estimate for the Commercial Pay program. DFAS limited the ability of DoD leadership and Congress to accurately determine whether the DoD has the necessary resources in place to adequately identify root causes of improper payments and develop corrective actions necessary to reduce its improper payments.
Recommendations
We recommend that the DFAS Deputy Director of Enterprise Audit Support and Compliance perform a review for the statistically sampled MOCAS transactions reported in the DFAS Contract Debt System at year-end for improper payments.
We recommend that the DFAS-Columbus Director of Accounting Operations:
• document and implement post-pay review procedures to review for duplicate payments and
recoupment amounts, and report recoupment errors identified;
• develop and implement supervisory reviews over the MOCAS Post-Pay Review personnel
reviews, and those MOCAS Post-Pay Review personnel provide details to support their post-
pay review determinations; and
• document the Short Pay process, ensure timely payments to vendors, and develop and
implement reporting procedures for Short Pays caused by Government contract deficiencies as
improper payments in the statistical sample.
We recommend that the DFAS Deputy Director of Enterprise Audit Support and Compliance, in coordination with the DFAS-Columbus Director of Accounting Operations, review at the certified voucher level, and include in the improper payment estimate the three improper payments not previously reported.
We recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, describe, in a footnote to Table 1 of the FY 2020 DoD AFR Payment Integrity Section, and every year thereafter, the Commercial Pay improper payments identified outside the statistical sample.
We recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD, in coordination with the DFAS-Columbus Director of Accounting Operations and the contracting agencies, conduct a root cause analysis on Short Pay transactions to prevent future occurrences.
Management Comments and Our Response
The Deputy Chief Financial Officer, responding for Under Secretary of Defense (Comptroller)/ Chief Financial Officer, DoD; the Deputy Director of Enterprise Audit Support and Compliance for DFAS; and the Director of Accounting Operations for DFAS-Columbus, agreed with seven recommendations, partially agreed with two recommendations, and did not agree with one recommendation. However, the comments from the Deputy Chief Financial Officer addressed the intent of all 10 of the recommendations; therefore, 8 of the recommendations are resolved and open and 2 are closed. We will close the remaining eight recommendations once management provides documentation demonstrating that it has implemented the presented actions.
This report is the product of Proj. No. D2020-D000FL-0098.000