Fiscal year 2011 marked the eighth year of the implementation of IPIA as  well as the first year of implementation of IPERA. IPIA required executive  agencies to (1) identify programs and activities susceptible to improper  payments (typically referred to as risk assessments), (2) estimate the  amount of improper payments in susceptible programs and activities, and  (3) report these improper payment estimates and actions taken to reduce  them. Legislative Requirements Related to Identifying, Estimating, Reducing, Recovering, and Reporting Improper Payments

The following sections describe key provisions of IPIA, the RAA, and  IPERA. IPERA amended IPIA’s requirements for reporting on corrective actions. IPIA required, with respect to any program or activity of an agency with  estimated improper payments that exceeded $10 million, the head of the  agency to provide along with the estimate a report on what actions the  agency was taking to reduce the improper payments, including a discussion of the causes of the improper payments identified, actions  taken to correct those causes, and results of the actions taken to  address those causes;  statement of whether the agency had the information systems and  other infrastructure it needed in order to reduce improper payments to  minimal cost-effective levels; description of the resources the agency had requested in its budget  submission to obtain the necessary information systems and  infrastructure if the agency did not have such systems and  infrastructure; and description of the steps the agency had taken to ensure that agency  managers (including the agency head) were held accountable for  reducing improper payments. Significant Deficiencies Existed in DOD’s Implementation of Key Provisions of IPIA, IPERA, and OMB Guidance

DOD did not adequately implement key provisions of IPIA, IPERA, and  OMB guidance related to estimating improper payments, identifying  programs susceptible to significant improper payments, reducing  improper payments through corrective actions, recovering improper  payments, and reporting improper payment estimates and recovery  efforts. DOD’s Improper Payment Estimates Were Neither Reliable Nor Statistically Valid

DOD’s improper payment estimates reported in its fiscal year 2011 AFR  were neither reliable nor statistically valid because of several deficiencies  in the department’s procedures as documented in its sampling  methodologies. However, the  department’s long-standing and pervasive financial management  weaknesses precluded it from validating the completeness of its payment  transaction populations. For example, the sampling unit for  travel pay for fiscal year 2011 was the travel voucher. DOD neither conducted recovery audits in fiscal  year 2011 nor determined that such audits would not be cost effective, as  required by IPERA. DOD Did Not Have Documented Procedures for Improper Payment and Recovery Audits Reporting

DOD did not have documented procedures to ensure that improper  payment reporting in the AFR was complete, accurate, and in compliance  with statutory and regulatory guidance. Conclusions

Although DOD reported estimated and known improper payments of over  $1.1 billion for fiscal year 2011, this amount cannot be relied upon  because of the deficiencies we found related to DOD’s procedures for  identifying, estimating, reducing, recovering, and reporting improper  payments. Until the department takes definitive action to  address these deficiencies and thereby fulfills the requirements of IPERA  and its implementing guidance, it remains at risk of continuing to make  improper payments and wasting taxpayer funds. In response, DOD provided written comments, in which it  concurred with nine recommendations and partially concurred with one  recommendation. Appendix I: Objectives, Scope, and Methodology

The objective of this engagement was to review the extent to which the  Department of Defense (DOD) has implemented key provisions of the  Improper Payments Information Act of 2002 (IPIA), the Improper  Payments Elimination and Recovery Act of 2010 (IPERA), and related  Office of Management and Budget (OMB) guidance. As part of this objective, we assessed DOD’s plans and actions to  estimate improper payments for commercial payments made by the  Defense Finance and Accounting Service (DFAS) for fiscal year 2012,  because DOD limited its improper payment reporting for this program to  known improper payments for fiscal year 2011, rather than reporting a  statistical estimate.
Why GAO Did This Study

DOD reported $1.1 billion in improper payments for fiscal year 2011, which marked the eighth year of implementation of IPIA, as well as the first year of implementation of IPERA. IPIA required executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.
GAO was asked to review the progress DOD has made to identify, estimate, and reduce improper payments. GAO's objective was to review the extent to which DOD has implemented key provisions of IPIA, IPERA, and OMB guidance. GAO reviewed improper payment requirements; analyzed agency financial reports, internal guidance and plans, and sampling methodologies; and interviewed cognizant officials. The scope for this engagement was DOD's reported improper payment information for fiscal year 2011 and DOD's plans and actions to estimate commercial pay improper payments for fiscal year 2012.

What GAO Found

The Department of Defense (DOD) did not adequately implement key provisions of the Improper Payments Information Act of 2002 (IPIA) and the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and Office of Management and Budget (OMB) requirements for fiscal year 2011. Most important, GAO found that DOD's improper payment estimates reported in its fiscal year 2011 Agency Financial Report were neither reliable nor statistically valid because of long-standing and pervasive financial management weaknesses and significant deficiencies in the department's procedures to estimate improper payments. For example, DOD did not
have key quality assurance procedures in place, such as reconciliations, to validate the completeness and accuracy of the populations used to estimate improper payments;
develop appropriate sampling methodologies for estimating improper payments;
maintain key documentation supporting its reported improper payment estimates.
Also, GAO found significant deficiencies in DOD's policies and procedures to address other key improper payment requirements for fiscal year 2011. Specifically, DOD did not
have procedures to identify root causes of improper payments and develop related corrective actions,
conduct recovery audits for any of its programs or determine that these audits would not be cost effective, and
have procedures to ensure that its annual improper payment and recovery audit reporting is complete, accurate, and in compliance with IPERA and OMB reporting requirements.
DOD has taken some actions since fiscal year 2011, such as reporting a statistical estimate for Defense Finance and Accounting Service commercial pay and issuing revised Financial Management Regulation chapters on improper payments and recovery audits. However, until the department takes action to correct the deficiencies GAO found related to identifying, estimating, reducing, recovering, and reporting improper payments and thereby fulfills legislative requirements and implements related guidance, it remains at risk of continuing to make improper payments and wasting taxpayer funds.

What GAO Recommends

GAO is making 10 recommendations to improve DOD's processes to identify, estimate, reduce, recover, and report on improper payments. DOD concurred with 9 and partially concurred with 1 of the recommendations and described its plans to address them.