According to DFAS-IN, of the $52.5 billion in fiscal  year 2011 military personnel appropriations, nearly 800,000 active duty  Army servicemembers received nearly $47 billion in pay and allowances. Scope and Methodology

To assess the effectiveness of the design of the process for unit  commander review of monthly payroll disbursements as a compensating  control for assuring active duty Army payroll accuracy, we compared  related processes and systems to applicable internal control standards,  as well as applicable laws and regulations, and DOD, DFAS, and Army  policies and procedures. Specifically, we found that the  design of Army and DFAS-IN procedures for using the UCFR to assist in  detecting and correcting military payroll errors is not an effective  compensating control for assuring the accuracy of the Army’s active duty  military payroll because they do not (1) provide for monitoring of required  UCFR reviews to better assure detection of payroll errors, (2) require  reporting of completed UCFR reviews in all cases, and (3) clearly  establish time frames for completing and reporting on UCFR reviews. Undetected Payroll Errors Resulted in Overpayments and Debts Owed to the Government by Soldiers No Longer in the Army

Our review of DFAS Debt and Claims Management data and Army CID  reports on investigations of potential military pay-related fraud identified  numerous instances of military pay errors and irregularities that the Army  and DFAS-IN did not detect and correct for several months, or only after  soldiers had left the service. The following examples from our analysis of  DDMS data illustrate the types of pay errors that went undetected for  lengthy periods of time. A soldier who was absent without leave (AWOL) from January 2010 to  September 2011 received military pay of $33,268 to which she was  not entitled. We identified the following deficiencies in the Army’s procedures that  impaired the effectiveness of the UCFR reviews. Ineffective Procedures for Capturing Information on Payroll Errors to Identify and Correct Systemic Weaknesses

Existing monitoring processes and controls for resolving Army active duty  payroll errors were not designed to serve as effective compensating  controls to provide for monitoring to capture data on the extent and  causes of any over- and underpayments, unauthorized payments, and  other pay errors. Moreover, to the  extent that errors in Army active duty pay are not identified and  addressed in a timely manner, they can have a negative effect on soldier  welfare and, ultimately, could erode the focus on Army mission readiness. Data on Payroll Adjustments for Underpayment or Overpayment of Active Duty Military Pay Are Not Used to Help Identify Potential Systemic Control Weaknesses

The system that DFAS-IN uses to pay Army active duty soldiers (DJMS- AC) does not have the capability to identify and report the extent and  causes of under- and overpayments and other types of payroll errors  related to active duty Army soldier pay. For example, a colonel in the Army National Guard  reported experiencing numerous underpayments throughout his 28 years  of service, including suffering financial hardship when he was on active  duty in 2003 to Afghanistan and his active duty pay was stopped for 1-1/2  months. Without a CMS monitoring  capability, the Army is limited in its ability to identify and address any  additional systemic military payroll control weaknesses. Conclusions

The Army’s weaknesses in the design of processes, systems, and  controls for detecting and correcting errors in payroll disbursements to  active duty Army military personnel increase the risk that its active duty  military payroll includes servicemembers who received pay to which they  were not entitled and others who did not receive the full pay they were  due. In addition, because DFAS-IN and the  Army do not have a comprehensive accuracy metric for military payroll  and current processes, systems, and controls are not designed to identify  and document the extent and cause of payroll errors, irregularities, and  corrections, DFAS-IN and the Army are limited in their ability to determine  the overall accuracy of Army active duty military pay or whether there are  any related unidentified systemic weaknesses that should be corrected. With regard to our three recommendations to strengthen UCFR controls,  DOD partially agreed, stating that it concurred fully with the goal of  improving the accuracy of military pay to the extent that cost-effective  corrective actions are warranted. However, as  discussed in our report, Army and DFAS systems and processes do not  currently capture data on all errors and their causes. 1.
Why GAO Did This Study

In March 2012, GAO reported on challenges that DOD and the Army face in achieving audit readiness with respect to the over $45 billion in reported fiscal year 2010 Army active duty military payroll disbursements. In performing that work, GAO identified indications of possible weaknesses in selected processes, systems, and controls relied on to reasonably assure the validity and accuracy of reported Army active duty military payroll that were beyond the scope of that audit. GAO subsequently completed work on those issues and is presenting the results in this report. GAO (1) assessed the design of key controls for payroll accuracy and (2) determined the extent to which the Army and DFAS-IN have monitoring controls to identify and address any systemic weaknesses. GAO compared selected Army and DFAS-IN processes, systems, and controls for assuring payroll accuracy to applicable internal control standards and to applicable provisions of law, regulations, and policies and procedures. GAO also interviewed officials and examined related data and information.

What GAO Found

GAO identified deficiencies in the design of key control procedures relied on by the Army and the Defense Finance and Accounting Service-Indianapolis (DFAS-IN) to detect errors in payroll disbursements to active duty Army military personnel. Specifically, GAO found that the Army's procedures for reviewing Unit Commander Finance Reports (UCFR) do not (1) provide for monitoring of required UCFR reviews to better assure detection of payroll errors, (2) require reporting on completed UCFR reviews in all cases, and (3) clearly establish time frames for completing and reporting on UCFR reviews. GAO's analysis of DFAS data on military pay debts and Army investigations of potential fraud completed over the past 2 years identified numerous instances of the effect of errors or irregularities in Army active duty payroll disbursements that went undetected for lengthy periods of time, including some that were not detected for up to 2 years or until the soldier left the Army. For example:
A soldier who separated from the Army in 2009 continued to receive active duty pay totaling about $185,000 until 2011.
A soldier who was absent without leave from January 2010 to September 2011 received military pay of $33,268 to which she was not entitled.
A soldier under investigation for possible fraud allegedly received over $34,000 in paratrooper and language proficiency pay but did not have a documented record of jumps performed or up-to-date proficiency certifications.
GAO's analysis determined that the Army could reduce its risk of lengthy delays in detecting and correcting pay errors with more stringent UCFR monitoring and reporting requirements.
GAO also found that DFAS and the Army have procedures and metrics in place that focus on the timeliness of manual processing and payroll adjustments for error corrections. However, they do not have procedures and metrics to enable them to gather data on active duty pay errors that were related to causes other than timeliness, such as over- and underpayments, data entry errors, and unauthorized payments. Further, the design of existing Defense Joint Military Pay System-Active Component and DFAS-IN Case Management System procedures for transaction processing and error correction did not provide for monitoring to capture data on all types of pay errors and their causes that would be useful in identifying the extent to which there are any additional systemic payroll control weaknesses. For example, an Army National Guard colonel deployed on active duty to Afghanistan reported that he experienced financial hardship when his military pay was stopped for 1-1/2 months. The absence of data on the extent and causes of all types of Army active duty military payroll errors impairs the Army's ability to identify and address any adverse trends that may indicate the existence of other systemic control weaknesses. Overall, the control deficiencies that GAO identified increase the risk that the nearly $47 billion in reported fiscal year 2011 Army active duty military payroll includes Army servicemembers who received pay to which they were not entitled and others who did not receive the full pay they were due. Further, to the extent that errors in Army active duty pay are not identified and addressed in a timely manner, they can have a negative effect on soldier welfare and, ultimately, could erode soldiers' focus on their Army mission.

What GAO Recommends

GAO made five recommendations to strengthen Army and DFAS monitoring and reporting controls over Army active duty military payroll accuracy. DOD partially concurred with all five recommendations, stating that it concurs fully with the goal of improving military pay but additional testing is needed to identify any cost-effective corrective actions. GAO continues to believe that its recommendations for corrective action are appropriate, as discussed more fully in the report.