Publicly Released: June 29, 2022
Objective
The objective of this audit was to determine whether, in FY 2021, the DoD complied with Public Law 116‑117, “Payment Integrity Information Act of 2019,” March 2, 2020 (PIIA).
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, was made in an incorrect amount, was made to an ineligible recipient, or was made for ineligible goods or services. The PIIA also considers payments as improper when they do not have the required supporting documentation. Additionally, Office of Management and Budget (OMB) Circular No. A‑123, Appendix C, further categorizes a payment that the agency is unable to determine as proper or improper as a result of insufficient documentation, as an unknown payment.
In the DoD’s FY 2021 Agency Financial Report (AFR), the DoD stated that the reduction of improper payments and compliance with the PIIA are top management priorities. For PIIA compliance consideration, the DoD Components reported both improper and unknown payment estimates for 9 of the 11 DoD Programs: Military Pay – Army; Military Pay – Navy; Military Pay – Air Force; Military Pay – Marine Corps; Civilian Pay; Commercial Pay; Travel Pay; Military Retirement; and Military Health Benefits. For these nine programs, the DoD reported a total of $2.5 billion in estimated improper and unknown payments, an $8.9 billion decrease from the $11.4 billion the DoD reported in the FY 2020 AFR. The remaining 2 of the 11 programs included U.S. Army Corps of Engineers Travel Pay and Commercial Pay. The U.S. Army Corps of Engineers completed risk assessments of its programs in FY 2020 and therefore, it is not required to report improper and unknown payment estimates until FY 2023.
Finding
The DoD did not comply with PIIA requirements in its FY 2021 reporting of improper payments. It complied with five of the PIIA’s six payment integrity requirements, but did not comply with one of the payment integrity requirements. Specifically, the DoD published unreliable, improper, and unknown payment estimates for all nine DoD programs required to report estimates.
The DoD published unreliable, improper, and unknown payment estimates for nine of its programs because:
- Defense Finance and Accounting Service personnel did not use an appropriate variable when calculating the sample sizes, did not have sufficient internal controls to ensure reliable estimates, and did not implement corrective actions in developing the population, as recommended by the DoD OIG, for the Commercial Pay program; and
- Defense Health Agency personnel did not use an adequate Sampling and Estimation Methodology Plan (S&EMP) and did not conduct adequate improper payment reviews.
As a result, the DoD produced unreliable estimates for the 11th consecutive year. Even though the DoD did not comply with the 9 previous years of improper payment reporting requirements, this year is the first official year the DoD did not comply with the PIIA. With unreliable estimates in the DoD AFR, DoD leadership and Congress cannot accurately determine whether the DoD has the resources needed and the controls in place to reduce its improper payments.
Recommendations
We recommend that the Under Secretary of Defense (Comptroller)/Chief Financial Officer, DoD (USD[C]/CFO) develop and implement:
- internal control procedures to ensure that DoD Components produce reliable estimates, and
- a process for accurately reporting confirmed fraud in the accompanying materials to the AFR.
We recommend that the USD(C)/CFO, in coordination with the Deputy Director of Enterprise Accounting and Audit Support for the Defense Finance and Accounting Service:
- use a sufficient sample size to support the improper payment estimate;
- develop and implement internal controls to ensure exclusions occurring during the identification of the sampling universes are appropriate and fully documented; and
- develop and implement additional controls for the post‑pay review process in the Travel Pay program to ensure accurate reviews.
Additionally, the DoD has yet to fully implement corrective actions to address prior DoD OIG recommendations concerning the development of improper payment estimates for the Commercial Pay and Military Health Benefit programs. Until the DoD implements the recommendations from this report and previous DoD OIG reports, it is unlikely that the DoD will meet PIIA requirements and have reliable improper payment estimates.
Management Comments and Our Response
The Deputy Chief Financial Officer (DCFO), responding for the USD(C)/CFO, agreed with three recommendations presented in the report. The DCFO also partially agreed with three other recommendations presented in the report, but described actions that, if taken, would address the underlying intent of the recommendations. Therefore, six of the recommendations are resolved, but will remain open. We will close the recommendations once we verify that management has implemented the actions they presented.
The DCFO disagreed with one recommendation, stating that implementing the DoD OIG’s suggested methodology would cause a burden to the DoD. The DCFO proposed a course of action that includes using the current sampling and estimation methodology. We disagree with the DCFO’s proposed course of action. As we explain in this report the current sampling and estimation methodology does not support a reliable estimate. If the DoD continues to use the methodology used in prior years, the DoD will continue to fail to produce reliable improper payment estimates, as it has done for 11 years. Therefore, the recommendation is unresolved. We ask that the USD(C)/CFO provide additional comments on the final report. The USD(C)/CFO should explain the specific actions the DoD will take to ensure the sample size supports reliable improper payment estimates.
This report is the result of Project No. D2021-D000FL-0155.000.