	Background

In fiscal year 2014, the Air Force recorded payroll obligations of over   $23 billion for direct compensation of active duty military personnel, a  force of approximately 324,000. The Defense Finance and Accounting Service (DFAS), a separate  component of DOD, processes the Air Force’s active duty military payroll  using its Defense Joint Military Pay System-Active Component. The Air Force Had in Place Systems and Processes Designed to Produce a Complete Universe of Active Duty Military Pay Transactions

Based on our testing, we determined that the Air Force and DFAS had in  place systems and processes designed to provide a complete universe of  active duty military pay transactions for the period we tested. The Air  Force’s documented processes included reconciling payroll information  with accounting, financial reporting, and disbursement information,  designed to provide reasonable assurance that payroll transactions are  properly recorded in the Statement of Budgetary Resources or the  Schedule of Budgetary Activity and are consistent with personnel records. Reconciliation of payroll system to accounting system. The Air Force Could Not Always Provide or Readily Provide Supporting Documentation for Certain Categories of Active Duty Payroll Transactions

We selected statistical samples of six categories of military pay and,  based on the testing we performed, found that while the Air Force could  provide adequate supporting documentation for three of the categories, it  was not able to provide or readily provide documentation for certain  transactions involving Special Pay, Overseas Housing, and Domestic  Housing. Additionally, Standards for  Internal Control in the Federal Government and DOD’s FIAR Guidance  require audited entities to document transactions and events, and to  reasonably assure that internal controls are effective to help ensure that  supporting documentation is maintained and readily available for  management and audit purposes. To test the Air Force’s ability to provide supporting documentation, we  selected several random statistical samples—a total of 360 active duty  military payroll transactions—from transactions recorded during the first  10 months of fiscal year 2014 (October 1, 2013, through July 31, 2014)  except for Domestic Housing for which a single month of transactions was  selected. We tested random samples of transactions to determine whether the Air  Force could provide documentation to support the population of individual  payroll transactions. 2.) Air Force officials  stated that they could not determine the cause for the missing  documentation, nor did they identify to us a cause for their delay in  retrieving and providing the supporting documentation. The ability to maintain and readily  provide documentation supporting all pay categories is one of many key  financial controls that help to provide reasonable assurance that  servicemembers are appropriately paid and that military payroll is  properly reported in the Air Force’s financial statements. Without continuing focus  on ensuring that documentation is readily available to support military  payroll transactions, both the Air Force and DOD are at risk that military  personnel may not be paid appropriately and financial statement  auditability goals may not be achieved. Recommendations for Executive Action

To help reasonably assure that supporting documentation for military  payroll, particularly for Special Pay, Overseas Housing, and Domestic  Housing, is properly maintained and readily available for management  and audit purposes, we recommend that the Secretary of the Air Force  direct the Deputy Assistant Secretary of the Air Force for Financial  Management and Comptroller to take the following two actions:
Review the processes and systems used to obtain, maintain, and  readily provide supporting pay documentation to identify the root  cause of deficiencies responsible for delayed, missing, and  incomplete documentation.
Why GAO Did This Study

As part of DOD's efforts to achieve auditability of its financial statements, the Air Force in July 2014 asserted audit readiness for its Schedule of Budgetary Activity, of which military payroll is a significant part. In fiscal year 2014, the Air Force obligated over $23 billion for direct compensation of active duty servicemembers.
GAO was asked to examine Air Force military payroll systems and processes. This report evaluates whether for the period October 1, 2013, through July 31, 2014, the Air Force (1) had in place systems and processes designed to provide a complete universe of active duty military pay transactions and (2) could provide adequate documentation to support individual military payroll transactions. GAO examined the Air Force's reconciliations of its payroll system to personnel, accounting, reporting, and disbursement information. GAO selected random statistical samples from various categories of military pay to determine if the Air Force could provide key documents supporting those transactions.

What GAO Found

Based on GAO's testing of the first 10 months of fiscal year 2014, the Air Force and its service provider, the Defense Finance and Accounting Service, had in place systems and processes designed to provide a complete universe of Air Force active duty military payroll transactions. In addition to reconciling payroll information with accounting, financial reporting, and disbursement information, the Air Force reconciles its payroll system with its personnel system each month to help reasonably assure that actual servicemembers are being paid and are paid correctly. GAO found that the reconciliations were documented and supported the Air Force's ability to provide a population of active duty military payroll transactions for the period tested.
GAO's testing of randomly selected active duty payroll transactions, for the period tested, found that the Air Force could not always provide or readily provide supporting documentation for some categories of pay. While the Air Force provided adequate support for three categories of military payroll—including basic pay, the largest category by dollar amount—it could not always provide or readily provide support for domestic and overseas housing transactions or special pay benefits. The Air Force stated that it could not determine the cause for the missing documentation, nor did it identify to us the cause of delays in retrieving and providing the supporting documentation.
Documentation supporting payroll transactions is one of many key financial controls that helps to provide reasonable assurance that servicemembers are appropriately paid. Department of Defense (DOD) regulations and guidance as well as Standards for Internal Control in the Federal Government , require that audited entities document transactions and events, and that this documentation be readily available for examination for management and audit purposes. Without continued focus on ensuring that documentation is readily available to support military payroll, both the Air Force and DOD are at risk that military personnel may not be paid appropriately and that financial statement auditability goals may not be achieved.

What GAO Recommends

GAO recommends that the Air Force improve its ability to maintain and readily provide, for management and audit purposes, documentation to support certain types of active duty pay by (1) identifying the causes of the deficiencies responsible for delayed, missing, and incomplete documentation and (2) implementing controls to help assure that documentation is readily available. The Air Force agreed with the report and its recommendations.