Process and System Weaknesses Hindered Army’s Ability to Identify a Valid Population of Military Payroll Transactions

We found that the Army could not readily identify a complete population of  Army payroll accounts for fiscal year 2010, given existing procedures and  systems. The Army and 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), DOD’s central  source for personnel information, 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. Standards for Internal Control in the Federal  Government requires all transactions and other significant events to be  clearly documented and the documentation readily available for  examination. DOD’s Financial 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. The GAO/PCIE Financial Audit Manual provides guidance  concerning typical control activities, such as independent checks on the  validity, accuracy, and completeness of computer-processed data.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. The Army Was Unable to Provide Documentation to Support the Validity and Accuracy of a Sample of Payroll Transactions

We identified deficiencies in DFAS-IN and Army processes and systems  for readily identifying and providing documentation that supports  payments for Army military payroll. First, DFAS-IN had difficulty retrieving  and providing usable Leave and Earnings Statement files for our sample  items. Second, the Army and DFAS-IN were able to provide complete  documentation for 2 of our 250 military pay account sample items, partial  support for 3 sample items, but no support for the remaining 245 sample  items. Because the Army was unable to provide documents to support  reported payroll amounts for our sample of 250 soldier pay accounts, we  were unable to determine whether the Army’s payroll accounts were valid  and we could not verify the accuracy of payments and reported active  duty military payroll. Further, because military payroll is significant to the  financial statements, the Army will not be able to pass an audit of its  Statement of Budgetary Resources without resolving these control  weaknesses. In addition, the Army’s efforts to achieve auditability are compounded by  payroll system limitations. Army Military Pay Audit Readiness Efforts Currently Under Way

DOD’s November 2011 FIAR Status Report includes DOD’s goal of  achieving audit readiness for its Statement of Budgetary Resources by  the end of fiscal year 2014. DOD and the Army have established interim  goals for meeting the fiscal year 2014 Statement of Budgetary Resources  audit readiness goal. Concluding Observations

Active Army military payroll, reported at $46.1 billion for fiscal year 2010,  is material to the Army’s financial statements and, as such, will be  significant to DOD’s audit readiness goals for the Statement of Budgetary  Resources. 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. In addition,  the Army’s military pay auditability weaknesses have departmentwide  implications for other military components, such as the Air Force and the  Navy, that share some of the same military pay process and systems  risks as the Army.
Why GAO Did This Study

This testimony discusses our work on the significant challenges the Army faces in achieving audit readiness for its military pay. The Armys military pay is material to the Armys financial statements. The Chief Financial Officers Act of 1990, as amended, established requirements for 24 agencies, including the Department of Defense (DOD), to prepare annual financial statements and have them audited. Further, the National Defense Authorization Act (NDAA) for Fiscal Year 2010 mandated that DOD be prepared to validate (certify) that its consolidated financial statements are ready for audit by September 30, 2017. On October 13, 2011, the Secretary of Defense directed the department to achieve audit readiness for the Statement of Budgetary Resources, one of the principal financial statements, by the end of fiscal year 2014 as an interim milestone for DOD to meet the legal requirement in the NDAA for Fiscal Year 2010 to achieve full audit readiness for all DOD financial statements by 2017.
The Armys active duty military payroll, comprising about 20 percent of its reported $233.8 billion in fiscal year 2010 net outlays, is significant to both Army and DOD efforts to meet DODs 2014 Statement of Budgetary Resources auditability goal as well as the mandate to achieve full audit readiness for all DOD financial statements by 2017. For years, we and others have reported continuing deficiencies with the Armys military payroll processes and controls. These reported continuing deficiencies in Army payroll processes and controls have called into question the extent to which the Armys military payroll transactions are valid and accurate, and whether the Armys military payroll is auditable. Further, other military components, such as the Air Force and the Navy, share some of the same process and system risks as the Army.
Today's remarks are based on our report, "DOD Financial Management: The Army Faces Significant Challenges in Achieving Audit Readiness for Its Military Pay," which is being released today. The testimony focuses on problems that impede the Armys ability to (1) identify a valid population of military payroll transactions and (2) provide documentation that supports the validity and accuracy of payments for Army military payroll.

What GAO Found

We found that the Army could not readily identify a complete population of Army payroll accounts for fiscal year 2010, given existing procedures and systems. The Army and 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), DODs central source for personnel information, 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. "Standards for Internal Control in the Federal Government" requires all transactions and other significant events to be clearly documented and the documentation readily available for examination. DODs "Financial 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. The "GAO/PCIE Financial Audit Manual" provides guidance concerning typical control activities, such as independent checks on the validity, accuracy, and completeness of computer-processed data. 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 DODs 2014 Statement of Budgetary Resources audit readiness goal and its 2017 goal for a complete set of auditable financial statements.
We identified deficiencies in DFAS-IN and Army processes and systems for readily identifying and providing documentation that supports payments for Army military payroll. First, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files for our sample items. Second, the Army and DFAS-IN were able to provide complete documentation for 2 of our 250 military pay account sample items, partial support for 3 sample items, but no support for the remaining 245 sample items. Because the Army was unable to provide documents to support reported payroll amounts for our sample of 250 soldier pay accounts, we were unable to determine whether the Armys payroll accounts were valid and we could not verify the accuracy of payments and reported active duty military payroll. Further, because military payroll is significant to the financial statements, the Army will not be able to pass an audit of its Statement of Budgetary Resources without resolving these control weaknesses.