In December 2007, we reported on DOD’s fiscal year  2006 travel program improper payment estimates. However, DOD did not estimate improper payments for  commercial pay despite the large volume and high dollar amounts of the  transactions. Inadequate Monitoring and Oversight of DOD’s Improper Payment Activities

The Office of the Comptroller’s monitoring and oversight of DOD’s  improper payment activities were inadequate because they did not include  verifying the accuracy and completeness of the information reported in  DOD’s AFR as required by DOD guidance. In addition, we noted that DCMA’s and DCAA’s contract  closeout processes were designed to ensure that applicable administrative  actions had been completed during the course of a contract (e.g., all  classified documents were disposed of) and not to specifically identify  contract overpayments. Until the department  establishes processes specifically designed to address recovery auditing  and updates its internal guidance, it will be unable to determine the extent  to which contract overpayments exist and are subsequently recovered to  fulfill the Recovery Auditing Act requirements. DOD Reported Recovery Audit Information for Fiscal Year 2007 Was Incomplete

DOD did not fully address OMB recovery auditing reporting requirements  in its AFR, such as disclosing the total costs associated with its recovery  auditing activities and the associated recovered amounts related to  overpayments made to vendors. Specifically, DOD excluded from its AFR $20.5 billion of its  commercial payment universe for fiscal year 2007. Require DOD agencies and the military services to document the risk  assessment methodology used, including the risk factors considered,  and the rationale for assessing the risk level for the payment activity. However, we disagree because those actions  are not sufficient to address IPIA. However, as we point out in this report, the majority of DOD’s processes  aimed at identifying and recovering improper payments were inadequate  because the primary purpose of these processes were not to identify  commercial improper payments as required by the Recovery Auditing Act. As we  stated in our report, the DOD Office of the Comptroller’s oversight and  monitoring of improper payment and recovery auditing activities were  inadequate as the office did not verify the accuracy and completeness of  information received from DOD agencies and military service components  and reported in its AFR. GAO staff who made major contributions to this  report are listed in appendix V.

Appendix I: Objectives, Scope and Methodology

The objectives of this report were to determine whether the Department of  Defense (DOD) had adequate controls in place to address the Improper  Payments Information Act (IPIA) and the Recovery Auditing Act  requirements.To determine whether DOD adequately addressed IPIA  requirements, we reviewed the applicable legislation and related OMB  implementing guidance.We further reviewed DOD’s agency financial  reports (AFR) for fiscal years 2004 through 2008, internal DOD improper  payment guidance, and prior GAO and DOD Office of Inspector General  (DOD OIG) reports on improper payments. Army Korea did not provide sampling results.
Why GAO Did This Study

The Department of Defense (DOD) is required, as are other federal executive agencies, to report improper payment information under the Improper Payments Information Act of 2002 (IPIA) and recovery auditing information under section 831 of the National Defense Authorization Act for Fiscal Year 2002, commonly known as the Recovery Auditing Act. The DOD Office of Inspector General has previously reported deficiencies at DOD related to these acts and GAO's prior work on DOD's reporting of its fiscal year 2006 travel improper payments estimate also identified shortcomings. Because of these and other long-standing weaknesses, the subcommittee asked GAO to examine DOD's fiscal year 2007 improper payment and recovery audit reporting to determine whether adequate processes existed to address both statutory requirements. To complete this work, GAO reviewed DOD's annual reports, conducted site visits, and met with cognizant DOD officials.

What GAO Found

DOD's process for addressing IPIA requirements had significant weaknesses. For example, as shown in the figure below, DOD did not conduct risk assessments for all of its payment activities as $322 billion in agency outlays were excluded from the amounts assessed. For those payment activities reviewed, DOD assessed the risk of improper payments occurring as low despite the department's long-standing financial management weaknesses and could not provide documentation supporting the methodologies used and the final risk level. GAO also found that DOD did not estimate improper payments for commercial pay under IPIA requirements, its largest payment activity. Further, the Office of the Comptroller's oversight and monitoring activities were inadequate because they did not include verifying the accuracy and completeness of the information in the agency's financial report (AFR). In addition to not estimating improper payments for commercial pay, DOD's processes for identifying and recovering commercial overpayments were inadequate, because they were not designed for this purpose as required by the Recovery Auditing Act. For example, GAO found that contract closeout processes were designed to ensure that applicable administrative actions had been completed (e.g., all classified documents were disposed of) and not to specifically identify contract overpayments. DOD also lacked detailed guidance on how to conduct a recovery audit program and did not fully address the recovery auditing reporting requirements in its AFR, such as disclosing the total cost associated with its recovery auditing activities. The Office of the Comptroller also did not verify the accuracy and completeness of the recovery audit information in the AFR, which resulted in $20.5 billion being excluded from its universe of commercial payments. DOD stated that its processes were sufficient to address the requirements of both acts, but since then has taken some actions, such as updating relevant guidance. Until these critical deficiencies are addressed, DOD will be unable to determine the extent to which improper payments exist and are subsequently recovered.