The Defense Manpower Data Center (DMDC) is the central DOD source  to identify, authenticate, authorize, and provide information on DOD- affiliated personnel. Army Regulation No. The Army and the Defense Finance and Accounting Service in  Indianapolis (DFAS-IN) did not have an effective, repeatable process for  identifying the population of active duty payroll accounts. In addition, the  Defense Manpower Data Center (DMDC) did not have an effective  process for comparing military pay account files to military personnel files  to identify a valid population of military payroll transactions. For  example, it took 3 months and repeated attempts before DFAS-IN could  provide a population of service members who received active duty Army  military pay in fiscal year 2010. Similarly, it took DMDC over 2 months to  compare the total number of fiscal year 2010 active duty payroll accounts  to its database of personnel files. DOD’s Financial   In addition, these ineffective processes are not in accord  Improvement and Audit Readiness (FIAR) Guidance sets out key tasks  essential to achieving audit readiness, including defining and identifying  the population of transactions for audit purposes. At the time  we initiated our audit, Army officials told us that they had not yet focused  on this area in their audit readiness efforts because the target date for   The  Army military pay was not until the first quarter of fiscal year 2015. inability to readily provide a population of military pay accounts impeded  our efforts to accomplish our audit objectives and, if not effectively  addressed, will impede the Army’s ability to meet DOD’s new Statement  of Budgetary Resources audit readiness goal of September 30, 2014. The Army Was Unable to Provide Documentation to Support the Validity and Accuracy of a Sample of Payroll Transactions

The Army does not have an efficient or effective process or system for  providing documentation that supports payments for Army military payroll. Standards for Internal Control in the Federal  Government and DOD’s FIAR Guidance require audited entities to  document transactions and events and assure that supporting  documentation can be identified, located, and provided for examination. The Army Was Unable to Locate Supporting Documentation for Military Pay Account Sample Items

Although the Army deployed the Interactive Personnel Management  System (iPERMS) as the Army’s Official Military Personnel File in 2007  and the requirements for assuring that adequate supporting  documentation is available for audit and examination are clearly defined,  the Army did not have procedures in place to assure that its military pay  transactions were adequately supported and that the supporting  documentation could be readily retrieved and provided for financial audit  purposes. our 250 sample items, partial support for 3 sample items, and no support  for the remaining 245 sample items. Conclusions

Active Army military payroll, reported at $46.1 billion for fiscal year 2010,  is material to all of the Army’s financial statements, and as such, will be  significant to the Army’s audit readiness goals for the Statement of  Budgetary Resources. Timely and effective  implementation of these efforts could help reduce the risk related to  DOD’s 2014 Statement of Budgetary Resources audit readiness goal. Moreover, these initiatives, while important, do not address (1)  establishing effective processes and systems for identifying a valid  population of military payroll records, (2) ensuring Leave and Earnings  Statement files and supporting personnel documents are readily available  for verifying the accuracy of payroll records, (3) ensuring key personnel  and other pay-related documents that support military payroll transactions  are centrally located, retained in service member Official Military  Personnel Files, or otherwise readily accessible, and (4) requiring the  Army’s Human Resources Command to periodically review and confirm  that service member Official Military Personnel File records in iPERMS or  other master personnel record systems are consistent and complete to  support annual financial audit requirements. Recommendations for Executive Action

To help the Army develop the processes and controls necessary to  achieve financial statement audit readiness for military pay, we are  making the following four recommendations. For instance, our report states that without effective processes for  identifying a complete population of Army military pay records and  comparing military pay accounts to personnel records, the Army will have  difficulty meeting DOD’s 2014 Statement of Budgetary Resources audit  readiness goal and its 2017 goal for a complete set of auditable financial  statements. Our objectives  were to perform basic audit procedures necessary to conclude about the  validity and accuracy of Army’s active duty military payroll. Those basic  audit procedures included (1) identifying a valid population of military  payroll transactions, and (2) testing a sample of payroll transactions for  validity and accuracy. In support of our objectives, we reviewed Army military personnel and  payroll policies and procedures and identified sources of pay-related  documentation.
Why GAO Did This Study

The Defense Finance and Accounting Service-Indianapolis (DFAS-IN) reported that fiscal year 2010 active Army military payroll totaled $46.1 billion. However, for several years, GAO and others have reported continuing deficiencies with Army military payroll processes and controls, raising questions about the validity and accuracy of reported Army military pay and whether it is auditable. The Department of Defense (DOD) has recently accelerated its Statement of Budgetary Resources audit readiness goal by 3 months to 2014 and is required to achieve audit readiness for a full set of DOD financial statements by 2017. GAO performed basic audit procedures for the Armys active duty military payroll to assess the Armys ability to (1) identify a valid population of payroll transactions and (2) test a sample of payroll transactions for validity and accuracy. GAO reviewed applicable laws and regulations, analyzed DOD and Army policies and procedures, drew a statistical sample of payroll transactions to test their accuracy and validity, and met with DOD, DFAS-IN, Army, and Defense Manpower Data Center officials.

What GAO Found

The Army could not readily identify the population of Army military payroll accounts given its existing procedures and systems. The Army and DFAS-IN did not have an effective, repeatable process for identifying the population of active duty payroll records. For example, it took 3 months and repeated attempts before DFAS-IN could provide a population of service members who received active duty Army military pay in fiscal year 2010. Further, because the Army does not have an integrated military personnel and payroll system, it was necessary to compare the payroll file to active Army personnel records. However, the Defense Manpower Data Center (DMDC), DODs central repository for information on DOD-affiliated personnel, did not have an effective process for comparing military pay account files with military personnel files to identify a valid population of military payroll transactions. It took DMDC over 2 months and labor-intensive research to compare and reconcile the total number of fiscal year 2010 active duty payroll accounts to its database of personnel files. DODs Financial Improvement and Audit Readiness (FIAR) Guidance states that identifying the population of transactions is a key task essential to achieving audit readiness. Without effective processes for identifying the population of Army military pay records and comparing military pay accounts to personnel records, the Army will have difficulty meeting DODs 2014 audit readiness goal for the Statement of Budgetary Resources.
In addition, the Army does not have an efficient or effective process or system for providing supporting documents for Army military payroll. For example, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files and the Army was unable to locate or provide supporting personnel documents for GAOs statistical sample of fiscal year 2010 Army military pay accounts. GAOs Standards for Internal Control in the Federal Government and DODs FIAR Guidance provide that audited entities document transactions and events and assure that supporting documentation can be identified, located, and provided for examination. Although the Army deployed the Interactive Personnel Management System (iPERMS) as the Armys Official Military Personnel File in 2007, it had not consistently or completely populated iPERMS with personnel records. At the end of September 2011, 6 months after receiving GAOs 250 statistical sample items, the Army and DFAS-IN were able to provide complete documentation for 2 of GAOs sample items and provided partial documentation for 3 items, but provided no documentation for 245 of GAOs 250 sample items.
The Army has begun several military pay audit readiness efforts that, if successfully implemented, could help increase the likelihood of meeting DODs 2014 Statement of Budgetary Resources audit readiness goal and the 2017 mandate for audit readiness on a complete set of DOD financial statements. These efforts include documenting and testing payroll system application controls, documenting Army military pay business processes, identifying the range of supporting documents for military pay, and developing an integrated military personnel and payroll system. Most of these efforts are not yet documented and, therefore, there is no assurance that they will be implemented timely and effectively.

What GAO Recommends

GAO is making four recommendations to help the Army develop the processes and controls necessary to achieve financial statement audit readiness, including identifying and validating the population of military payroll transactions and obtaining and retaining necessary pay-affecting documents. The Army concurred with GAOs four recommendations and noted actions it is taking.