Report | May 7, 2021

Audit of the Department of Defense Compliance in FY 2020 With Improper Payment Reporting Requirements (DODIG-2021-080)

Audit

Publicly Released: May 11, 2021

 

Objective

The objective of this audit was to determine whether, in FY 2020, the DoD complied with Public Law 116‑117, “Payment Integrity Information Act (PIIA) of 2019,” March 2, 2020.

 

Background

The PIIA was enacted to improve efforts to identify and reduce Government‑wide improper payments. It 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.

The PIIA defines 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. Improper payments do not always result in an actual monetary loss to the Government.

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 goals. Goal 9, “Getting Payments Right,” discusses saving taxpayer money by making payments correctly and recovering money from incorrect payments. Reducing improper payments and complying with the PIIA are also top financial management priorities for the DoD.

On November 16, 2020, the Deputy Secretary of Defense published the DoD’s FY 2020 Agency Financial Report (AFR), including the Payment Integrity section. The DoD reported in the AFR $11.4 billion in estimated improper payments for 11 DoD programs, a $2.7 billion increase from the $8.7 billion the DoD reported in the FY 2019 AFR.

 

Finding

The DoD did not comply with all PIIA requirements in its FY 2020 reporting of improper payments. The DoD complied with four of the six PIIA requirements. However, it did not comply with two of the six PIIA requirements because it published unreliable improper payment estimates for 7 of its 11 programs and missed its annual improper payment reduction target for the Military Health Benefits program.

The DoD did not publish reliable improper payments estimates for 7 of its 11 programs because Defense Finance and Accounting Service personnel:

  • did not use reliable gross pay amounts to develop the universe used for calculating improper payment estimates for the Military Pay programs;
  • did not include Civilian Mariner transactions totaling $538 million from the sampling universe used to calculate the improper payment estimate for the Civilian Pay program;
  • did not fully implement corrective actions to consistently use the sample pay amount in calculating the Military Retirement program improper payment estimate, as recommended by the DoD Office of Inspector General (DoD OIG) in prior improper payment compliance audit reports; or
  • did not fully implement corrective actions to use actual paid amounts versus invoice amounts in developing the population, as recommended by the DoD OIG for the Commercial Pay program in prior improper payment compliance audit reports.

In addition, the DoD did not meet its FY 2020 reduction targets for the Military Health Benefits program because one of the contractors for the program did not accurately process health benefits claims. As a result of these actions, the DoD did not comply with all improper payment reporting requirements for the 9th consecutive year. The DoD attributed the increase of its improper payment estimate, $8.7 billion in FY 2019 to $11.4 billion in FY 2020, a $2.7 billion increase, to the lack of supporting documentation for the Civilian Pay payments. In spite of this increase, the DoD has completed corrective actions necessary to close 79 of 90 recommendations the DoD OIG made in the last 9 years, continued to make the reduction of the improper payments, and made compliance with the PIIA a top financial priority for the DoD. However, by not fully implementing corrective actions related to improper payment estimates, the DoD continued to report unreliable improper payment estimates and missed opportunities to promptly detect, prevent, and recover improper payments. With unreliable estimates, 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.

 

Recommendations

We recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD:

  • develop an improper payment definition that can be consistently applied to the recapture of improper payments and the improper payment estimate;
  • identify the recovered improper payments, separate from other recovered payments in the Payment Recapture Audit program section of the AFR;
  • provide justification for the amount of uncollectable improper payments in the Payment Recapture Audit program section of the AFR; and
  • submit to the Office of Management and Budget and Congress, within 90 days of this report’s issuance, the required report and planned corrective actions to prevent and reduce improper payments for the programs that did not comply with the PIIA.

We also recommended that the Deputy Director of Enterprise Audit Support and Compliance for the Defense Finance and Accounting Service ensure consistency and transparency within the process used to reconcile the gross pay amounts by documenting the process that was implemented for FY 2021.

Additionally, the DoD has yet to fully implement corrective actions to address prior DoD OIG recommendations concerning the development of the improper payment estimates for the Military Retirement program and Commercial Pay program. Therefore, we re‑addressed the need for DoD to implement these recommendations in this report.

 

Management Comments and Our Response

The Deputy Chief Financial Officer (DCFO), responding for the Under Secretary of Defense (Comptroller)/ Chief Financial Officer and the Deputy Director of Enterprise Audit Support and Compliance for the Defense Finance and Accounting Service, agreed with six recommendations and partially agreed with one recommendation. However, the DCFO presented planned actions that, if implemented, would address the underlying intent of all recommendations. Therefore, all recommendations are resolved but will remain open. We will close the recommendations once we verify that management has implemented the actions they presented.

 

This report is the result of Proj. No. D2020-D000FL-0171.000.