DOD FINANCIAL 

MANAGEMENT

Improved 

Documentation 

Needed to Support 

the Air Force’s Military 

Payroll and Meet 

Audit Readiness 

Goals

Report to Congressional Requesters

December 2015

GAO-16-68

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-68, a report to 

congressional requesters

December 2015

DOD FINANCIAL MANAGEMENT

Improved Documentation Needed to Support the Air 

Force's Military Payroll and Meet Audit Readiness 

Goals

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 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.

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.

Results of GAO’s Tests of the Air Force’s Active Duty Payroll Transaction Documentation for 

the Period October 1, 2013, through July 31, 2014

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 

View GAO-16-68. For more information, not be achieved.

contact William J. Cordrey at (404) 679-1873 

or cordreyw@gao.gov.
Page i GAO-16-68 Air Force Military Pay

Letter 1

Background 3

The Air Force Had in Place Systems and Processes Designed to 

Produce a Complete Universe of Active Duty Military Pay 

Transactions 6

The Air Force Could Not Always Provide or Readily Provide 

Supporting Documentation for Certain Categories of Active 

Duty Payroll Transactions 9

Conclusions 15

Recommendations for Executive Action 15

Agency Comments and Our Evaluation 16

Appendix I Objectives, Scope, and Methodology 18

Appendix II Comments from the Department of the Air Force 22

Appendix III GAO Contact and Staff Acknowledgments 24

Figures

Figure 1: The Air Force’s Fiscal Year 2014 Active Duty Direct 

Compensation Obligations 4

Figure 2: Results of GAO’s Tests of the Air Force’s Active Duty 

Payroll Transaction Documentation for the Period 

October 1, 2013, through July 31, 2014 13

Contents
Page ii GAO-16-68 Air Force Military Pay

Abbreviations

AFAA Air Force Audit Agency

DFAS Defense Finance and Accounting Service

DJMS-AC Defense Joint Military Pay System-Active 

 Component 

DOD Department of Defense

FBWT Fund Balance with Treasury

FIAR Financial Improvement and Audit Readiness

Treasury Department of the Treasury

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-16-68 Air Force Military Pay

441 G St. N.W.

Washington, DC 20548

December 17, 2015

The Honorable Ron Johnson

Chairman

The Honorable Thomas R. Carper

Ranking Member

Committee on Homeland Security and Governmental Affairs 

United States Senate

The Honorable Claire McCaskill

Ranking Member

Permanent Subcommittee on Investigations 

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable K. Michael Conaway

House of Representatives

The Department of Defense (DOD) continues to work toward achieving 

audit readiness of its financial statements. As part of that effort, in July 

2014 the Air Force asserted audit readiness for its Schedule of Budgetary 

Activity,1 of which military payroll is a significant component.2 Earlier that 

year, the Air Force Audit Agency (AFAA)3 had reported that the Air Force 

 1

Unlike the Statement of Budgetary Resources, which reflects multiple-year budget 

activity, the Schedule of Budgetary Activity reflects the balances and associated activity 

related only to funding approved on or after the beginning of the fiscal year. As a result, 

the Schedule of Budgetary Activity excludes unobligated and unexpended amounts 

carried over from prior years’ funding as well as information on the status and use of such 

funding in subsequent years (e.g., obligations incurred and outlays). 

2

In fiscal year 2014, the Air Force obligated over $23 billion for direct compensation of 

active duty servicemembers, a force of approximately 324,000.

3

AFAA provides Air Force management with various audit, review, and examination 

services. Structure and reporting of AFAA was modified pursuant to the Goldwater-Nichols 

Department of Defense Reorganization Act of 1986, wherein the Auditor General of the Air 

Force reports directly to the Secretary of the Air Force who has sole responsibility for the 

function. Pub. L. No. 99-433, 100 Stat. 993 (Oct. 1, 1986).

Letter
Page 2 GAO-16-68 Air Force Military Pay

was unable to provide supporting documentation for some categories of 

military payroll transactions.4

We have designated DOD financial management as a high-risk area 

since 1995 due to because of pervasive weaknesses in its financial and 

business management systems, as well as control deficiencies,5 which 

have adversely affected its ability to reasonably assure basic 

accountability, maintain funds control, and prepare auditable financial 

statements.6 You asked us to assess the Air Force’s military pay audit 

readiness efforts. This report evaluates whether the Air Force, for the 

period we tested, (1) had in place systems and processes designed to 

provide a complete universe of active duty military pay transactions 

prepared through its central payroll processing system and (2) could 

provide adequate documentation to support individual active duty payroll 

transactions.

To determine whether the Air Force had in place systems and processes 

designed to provide a complete universe of active duty military pay 

transactions from its payroll system, we obtained data files representing 

all military payroll transactions processed during the first 10 months of 

fiscal year 2014 (October 1, 2013, through July 31, 2014)7 and examined 

various reconciliations of the data to personnel and financial records. 

Specifically, we reviewed the Air Force’s monthly reconciliation of its 

payroll and personnel accounts, which helps to reasonably assure that 

only actual personnel are paid; its monthly and quarterly reconciliations of 

its payroll and accounting systems, which helps to reasonably assure that 

all military payroll transactions processed are recorded in the accounting 

and reporting systems; and its monthly reconciliation of accounting 

records to Department of the Treasury (Treasury) reports, which helps 

reasonably assure that the amount of military pay recorded was actually 

disbursed by Treasury. To determine whether the Air Force could provide

 4

Air Force Audit Agency, Military Pay Supporting Documentation (Phase II), F2014-0001-

L10000 (February 2014).

5

A deficiency in internal control exists when the design or operation of a control does not 

allow management or employees, in the normal course of performing their assigned 

functions, to prevent, or detect and correct, misstatements on a timely basis.

6

GAO, High-Risk Series: An Update, GAO-15-290 (Washington, D.C.: Feb. 11, 2015).

7

This time frame reflected the most current data available when we began our work in July 

2014. 
Page 3 GAO-16-68 Air Force Military Pay

adequate supporting documentation for active duty pay transactions, we 

selected random statistical samples from the 10-month universe of active 

duty military payroll transactions provided by the Air Force and reviewed 

the supporting documentation. We also reviewed the Air Force’s 

corrective actions to address the deficiencies reported by AFAA related to 

supporting documentation for domestic housing transactions, a category 

of military pay.8

Appendix I provides additional information on our objectives, scope, and 

methodology. We conducted this performance audit from July 2014 to 

December 2015 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

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 324,000.9 This compensation, including, among 

other things, basic pay, allowances, and incentives, was distributed 

among the various pay categories, as shown in figure 1. These pay 

categories are described later in this report.10

 8

Air Force Audit Agency, Military Pay Supporting Documentation (Phase II). While the 

report identified several deficiencies, domestic housing documentation was the most 

significant and thus AFAA only made recommendations specific to this category of pay.

9

An obligation is a definite commitment that creates a legal liability for the payment of 

goods and services ordered or received. Payment may be made immediately or in the 

future. 

10The Air Force was appropriated more than $28 billion in fiscal year 2014 for active duty 

military personnel pay, allowances, subsistence, and other personnel expenses. In 

addition to direct compensation of servicemembers, active duty payroll expenses include 

accruals for retired pay and the employer’s share of Social Security and Medicare. 

Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, Division C, Title I, 125 Stat. 5, 

87 (Jan. 17, 2014).

Background
Page 4 GAO-16-68 Air Force Military Pay

Figure 1: The Air Force’s Fiscal Year 2014 Active Duty Direct Compensation 

Obligations

DOD has been unable to prepare auditable department-wide financial 

statements as required by the Government Management Reform Act of 

1994.11 The National Defense Authorization Act for Fiscal Year 2010 

mandated that DOD develop and maintain a Financial Improvement and 

Audit Readiness (FIAR) plan.12 The plan is to include, among other 

things, the specific actions to be taken and costs associated with 

(1) correcting the financial management deficiencies that impair DOD’s 

ability to prepare timely, reliable, and complete financial management 

information and (2) ensuring that DOD’s financial statements are 

validated as ready for audit by September 30, 2017. Per the FIAR plan, 

“audit ready” means the department has strengthened internal controls 

and improved financial practices, processes, and systems so there is 

 11Pub. L. No. 103-356, § 405(a), 108 Stat. 3410 (Oct.13, 1994), codified as amended at 

31 U.S.C. § 3515.

12Pub. L. No. 111-84, § 1003, 123 Stat. 2189, 2439-41 (Oct. 28, 2009).

Audit Readiness
Page 5 GAO-16-68 Air Force Military Pay

reasonable confidence that the information can undergo an audit by an 

independent auditor.13

In response to difficulties encountered in preparing for an audit of the 

Statement of Budgetary Resources, DOD reduced the scope of initial 

Statement of Budgetary Resources audits beginning in fiscal year 2015 to 

focus on current-year budget activity reported on a Schedule of 

Budgetary Activity. This is an interim step toward achieving an audit of 

multiple-year budget activity required for an audit of the Statement of 

Budgetary Resources.

In July 2014, the Air Force indicated that its fiscal year 2015 Schedule of 

Budgetary Activity would be audit ready and would be prepared in all 

material respects in conformity with U.S. generally accepted accounting 

principles.14 DOD requires the services to follow the FIAR Guidance 

methodology in asserting audit readiness. The guidance requires 

complete documentation that is sufficient, relevant, and accurate. The 

FIAR methodology also requires that the assertion documentation provide 

evidence demonstrating that the reporting entity has designed and 

implemented an appropriate combination of control activities and 

supporting documentation to mitigate the risk of material misstatement 

and achieve the financial reporting objectives.

The Air Force Personnel Center is responsible for establishing and 

maintaining military personnel accounts in the personnel system. Once a 

servicemember’s personnel file is created, it is electronically transferred 

into the payroll system where a pay account is created for that 

servicemember.15 The personnel and payroll systems electronically 

interface daily to record any changes. Air Force Financial Services Office 

staff are responsible for submitting changes not driven by personnel 

 13To undergo an audit does not necessarily mean that the department is representing that 

it will receive an unmodified opinion on the information being audited, but rather that there 

is a reasonable basis for an independent auditor to audit the information.

14The Air Force is currently undergoing an audit of its General Fund Schedule of 

Budgetary Activity by an independent public accounting firm. 

15For each servicemember, the Defense Joint Military Pay System-Active Component

maintains a pay account, which is a record containing all the data needed to calculate that 

servicemember’s gross pay, allotments, and deductions.

Pay Data and Supporting 

Documentation
Page 6 GAO-16-68 Air Force Military Pay

actions, such as those concerning housing allowances. Documentation 

supporting payroll changes for individual servicemembers generally is to 

be scanned into one of two document management systems: one for 

personnel actions and another for all other changes.

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. DFAS 

systems also process the associated disbursements and record the 

entries to the general ledger maintained for the Air Force.

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. 

The Air Force provided us with transaction data processed by its payroll 

system for each of the first 10 months of fiscal year 2014 (October 1, 

2013, through July 31, 2014) and the related reconciliations. We 

performed walk-throughs of each type of reconciliation discussed below. 

Based on those procedures we did not identify any concerns regarding 

Air Force processes and controls. However, our scope did not include all 

procedures that might be performed in a financial audit of the Statement 

of Budgetary Resources or the Schedule of Budgetary Activity.

• Reconciliation of payroll to personnel. We found that the Air Force 

performed a monthly reconciliation between the payroll system and 

personnel system and generally resolved mismatches within 45 days. 

To determine this, we reviewed documentation covering 1 month of 

the Air Force’s monthly reconciliation between the individual pay 

records in the payroll system and personnel system.16 This 

reconciliation helps reasonably assure that payees are actual 

servicemembers and that the characteristics that drive their pay, such 

as years of service and rank, match what is recorded in the personnel 

 16The Air Force reconciles 16 data elements that include items such as name, duty status, 

service dates, selective reenlistment bonus, and special duty assignment pay. 

The Air Force Had in 

Place Systems and 

Processes Designed 

to Produce a 

Complete Universe of 

Active Duty Military 

Pay Transactions
Page 7 GAO-16-68 Air Force Military Pay

system. We reviewed the Air Force’s reconciliation for 1 month to gain 

an understanding of how the Air Force matches data elements. For 

data mismatches between the individual payroll records and 

personnel records that cannot be immediately resolved, the Air Force 

creates a tracking record to help reasonably assure that they are 

researched and resolved within 45 days, in accordance with Air Force 

guidelines. We tested the Air Force’s process by reviewing 

documentation detailing the monthly mismatch and aging statistics for 

open tracking records internally reported by the Air Force and found 

that the Air Force researches the mismatches.

• Reconciliation of payroll system to accounting system. We 

reviewed each of DFAS’s fiscal year 2014 quarterly reconciliations 

between the payroll and accounting systems and found that they 

accurately imported data from the payroll system and compared them 

to disbursement data in the accounting system, helping to reasonably 

assure that the population of transactions was completely reported in 

the accounting system. Because the payroll system does not interface 

directly with the accounting system, DFAS developed the Military Pay 

Reconciliation Tool (Reconciliation Tool), a Microsoft Access 

application, to facilitate this reconciliation process. The Reconciliation 

Tool tracks payroll data from the payroll system to the disbursements 

recorded in the accounting system. The Reconciliation Tool also 

allows DFAS to compare an individual servicemember’s Leave and 

Earnings Statement with detailed data in the payroll system.17 We 

tested the reconciliation process by reviewing documentation provided 

by the Air Force that demonstrated how data are processed through 

the payroll system in the form of vouchers and subsequently 

reconciled to the accounting system.

 17The Leave and Earnings Statement consolidates the servicemember’s pay information 

into a monthly statement. 
Page 8 GAO-16-68 Air Force Military Pay

• Reconciliation of military pay to Fund Balance with Treasury 

(FBWT).18 We reviewed the monthly reconciliation DFAS performs for 

the Air Force between the accounting system and Treasury’s 

government-wide accounting system. According to Air Force officials, 

this multi-tiered reconciliation helps to assure that the recorded 

military payroll transactions were actually disbursed through Treasury 

accounts. We reviewed key documentation with Air Force personnel 

to understand the nature, timing, and frequency of the reconciliations. 

The documentation showed that the Air Force was able to tie military 

payroll to its FBWT reconciliation. In addition, we traced and agreed 

payroll system totals that included each of the 10 months to Treasury 

records. However, our scope did not include tests for all elements of 

the reconciliation, and we did not assess the accuracy of the recorded 

balance of FBWT.

• Reconciliation of accounting records to the Statement of 

Budgetary Resources. We found that DFAS was able to trace the 

recorded payroll to the Statement of Budgetary Resources. To 

determine this, we reviewed DFAS’s quarterly reconciliation between 

the accounting system and the financial reporting system.19 DFAS’s 

reconciliation between these systems helps to reasonably assure the 

accuracy of amounts reported in the Statement of Budgetary 

Resources. We reviewed each of DFAS’s fiscal year 2014 quarterly 

reconciliations of the accounting system and compared them to 

certain key line items of the Statement of Budgetary Resources—

specifically, obligations incurred and gross outlays—of which a portion 

of the amounts in each included active duty direct compensation.20

We were able to trace the amounts in the payroll accounting system 

 18FBWT is an asset line on the balance sheet that represents the aggregate amount of 

funds in the department’s numerous accounts with Treasury that DOD is authorized to 

spend. In simple terms, FBWT is similar to a personal checking account balance that must 

be increased for deposits (appropriations and collections) and decreased for expenditures. 

Because of the size of the DOD budget and the enormous amount of funds expended and 

collected, the number of accounting transactions that must be reconciled between DOD 

accounts and Treasury is very large and the task complex. DOD has stated that because 

of complexities and other reconciliation challenges, the department has routinely made 

unsupported journal entries to adjust DOD balances to match Treasury balances.

19The financial reporting system collects and consolidates information for financial 

statement presentation. 

20Military pay was approximately 14 percent of obligations incurred of $163 billion. 

Obligations incurred were approximately 86 percent of the Air Force’s total budgetary 

resources as reported in its unaudited fiscal year 2014 financial statements.
Page 9 GAO-16-68 Air Force Military Pay

to the Statement of Budgetary Resources and found that they had 

been properly recorded.

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. For fiscal year 2014, these three categories of military pay 

represented nearly 30 percent of active duty direct compensation 

obligations. We also tested a statistically selected sample of change order 

transactions, which represent pay from all categories initiating the start, 

stop, or update of an entitlement, and found that the Air Force could not 

provide documentation for certain of these transactions as well.

The DOD Financial Management Regulation requires the military 

components to maintain documentation supporting all transactions 

recorded in finance and accounting systems.21 Additionally, Standards for 

Internal Control in the Federal Government22 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. Without adequate documentation to 

support its 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.

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 

 21DOD Financial Management Regulation (FMR) 7000.14-R, vol. 1, ch. 9, Financial 

Records Retention (August 2011).

22GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). GAO recently revised and reissued Standards for 

Internal Control in the Federal Government, with the new revision effective as of 

October 1, 2015. See GAO-14-704G (Washington, D.C.: September 2014).

The Air Force Could 

Not Always Provide or 

Readily Provide

Supporting 

Documentation for 

Certain Categories of 

Active Duty Payroll 

Transactions
Page 10 GAO-16-68 Air Force Military Pay

selected.23 This included a sample of 90 change actions, which represent 

changes to a servicemember’s status or entitlements that could affect any 

of the pay categories.

We drew separate random statistical samples of 45 transactions from 

each of the categories of military pay listed below. These six categories, 

which are defined below, accounted for approximately 94 percent of the 

Air Force’s fiscal year 2014 total active duty direct compensation 

obligations.24

• Basic Pay is the primary form of pay for most servicemembers and is 

based on rank and years of service. In fiscal year 2014, it accounted 

for over 60 percent of active duty direct compensation obligations. 

Examples of supporting documentation for Basic Pay include 

enlistment agreements, promotion orders, and Statements of Service.

• Domestic Housing is a U.S.-based allowance that enables military 

personnel to obtain adequate civilian housing for themselves and their 

dependents when government quarters are not available. It accounted 

for about 20 percent of active duty direct compensation obligations in 

fiscal year 2014. As previously noted, our sampling universe for 

Domestic Housing was limited to the month of July 2014. The primary 

supporting document for Domestic Housing is Air Force Form 594 

(Application and Authorization to Start, Stop, or Change Basic 

Allowance for Quarters (BAQ) or Dependency Redetermination).

• Overseas Housing, including overseas cost-of-living allowances, 

accounted for approximately 6 percent of active duty direct 

compensation obligations in fiscal year 2014. Servicemembers 

stationed outside the continental United States who are not furnished 

government housing receive an overseas housing allowance. In 

 23During our review, the Air Force was in the process of implementing corrective actions 

to address the documentation deficiencies identified by AFAA related to domestic housing. 

We therefore limited our sample of 45 transactions to July 2014—the final month of our 

10-month sample period—to determine whether the Air Force’s actions were adequate. 

24A seventh category, subsistence, made up the remaining 6 percent of active duty direct 

compensation obligations. The Basic Allowance for Subsistence is intended to provide 

meals for the servicemembers. Subsistence, which changes annually, is generally paid at 

one of two rates—one for officers and one for enlisted servicemembers. While we did not 

test the availability of supporting documentation for eligibility, we did verify that all 

subsistence transactions for the period we tested conformed to the published rates.
Page 11 GAO-16-68 Air Force Military Pay

general, the amount depends on a servicemember’s location, pay 

grade, and dependency status.

• Special Pay includes enlistment, reenlistment, and retention bonuses; 

special pay and bonuses for critical skills, such as for certain medical 

officers; and special pay for duty subject to hostile fire or imminent 

danger. In fiscal year 2014, Special Pay accounted for approximately 

4 percent of active duty direct compensation obligations. Examples of 

Special Pay supporting documents include job classification/on-thejob training forms, service contracts for medical officers, and certain 

travel orders and vouchers.

• Incentive Pay includes additional pay or bonuses for certain critical 

skills, such as career aviators and aircrew members; foreign language 

proficiency; and certain types of hazardous duty. In fiscal year 2014, it 

accounted for approximately 1 percent of active duty direct 

compensation obligations. Examples of supporting documentation for 

Incentive Pay include aeronautical orders and certificates of 

proficiency in strategic foreign languages.

• Other Pay includes domestic cost-of-living allowances, family 

separation allowances, and uniform and clothing allowances, each of 

which requires specific documentation. In fiscal year 2014, Other Pay 

accounted for about 1 percent of active duty direct compensation.

We tested random samples of transactions to determine whether the Air 

Force could provide documentation to support the population of individual 

payroll transactions.25 We counted as errors all instances in which a 

necessary document could not be found, could not be readily provided, or 

the documents provided were incomplete. For all sampled items, we 

looked for sufficient and appropriate evidence of the servicemember’s 

eligibility for the pay and the amount of the pay. Our scope of work did not 

include observation of Air Force personnel’s document-handling 

procedures, identification or testing of internal controls, or examination of 

the Air Force’s document management systems. Rather, we tested 

whether a specific control objective—maintaining and readily providing 

supporting documentation—was being met.

 25This sampling method was not designed to project a dollar impact of any errors found in 

our sample. 
Page 12 GAO-16-68 Air Force Military Pay

Maintaining and readily retrieving supporting documentation requires a 

complex series of manual and system processes, the combination of 

which can contribute to internal control deficiencies and process issues 

that may result in missing, misplaced, or incomplete documentation. 

Specifically, supporting documentation often originates in paper form and 

may be submitted at any of over 100 Air Force locations worldwide. 

Further, documentation may require approval from officials employed at 

another location; generally requires manual processing (such as faxing or 

scanning); and is ultimately stored in electronic form in one of two Air 

Force document management systems, one of which some Air Force 

personnel describe as not user friendly. The Air Force often cannot 

determine at what point in the document-handling and management 

process a breakdown occurred, resulting in missing or incomplete 

documentation.

While the Air Force was able to provide supporting documentation for 

three categories of active duty military pay transactions that we tested—

Basic Pay, Incentive Pay, and Other Pay26—there were three 

categories—Special Pay, Overseas Housing, and Domestic Housing—for 

which the Air Force was not always able or readily able to provide 

supporting documentation.27 (See fig. 2.)

 26These active duty military pay transactions represented nearly 65 percent of the Air 

Force’s direct compensation dollars.

27In November 2015, the Air Force provided adequate supporting documentation for the 

following sample items counted as errors in our testing: 5 of 5 Special Pay transactions, 3 

of 4 Overseas Housing transactions, 1 of 4 Domestic Housing transactions, and the Other 

transaction. The Air Force did not provide additional documentation for any of the 7 

Change Action transactions counted as errors. Because it could not provide these 

documents until 10 months after our initial documentation request, both we and the Air 

Force still considered these errors.
Page 13 GAO-16-68 Air Force Military Pay

Figure 2: Results of GAO’s Tests of the Air Force’s Active Duty Payroll Transaction 

Documentation for the Period October 1, 2013, through July 31, 2014

We found that the Air Force could not readily provide supporting 

documentation for 5 transactions from our statistical sample of 45 special 

pay transactions. This exceeded our tolerable error rate of 1 in 45.28 Air 

Force officials did not identify to us a cause for their delay in retrieving 

and providing supporting documentation.

We found that the Air Force was not able or readily able to provide 

adequate support for 4 transactions from our statistical sample of 45 

transactions for overseas housing benefits. This exceeded our tolerable 

error rate of 1 in 45.29 Documentation for those transactions was either 

not provided, not readily provided or was not signed by a certifying 

official. In one case, the Air Force determined that the supporting 

document was more than 6 years old, meaning that it would have been 

destroyed in accordance with Air Force policy.30 Air Force officials stated 

that they could not determine the cause for the missing documentation 

 28For this sample, if fewer than 2 transactions with errors were found in our sample of 45 

transactions, we would be 90 percent confident that the error rate of the population would 

not exceed 10 percent. 

29For this sample, if fewer than 2 transactions with errors were found in our sample of 45 

transactions, we would be 90 percent confident that the error rate of the population would 

not exceed 10 percent. 

30Prior to 2015, Air Force policy allowed for the destruction of most documents supporting 

active duty pay after 3 years.

Special Pay 

Documentation

Overseas Housing 

Documentation
Page 14 GAO-16-68 Air Force Military Pay

nor did they identify to us a cause for their delay in retrieving and 

providing some of the supporting documentation.

In 2014, AFAA reported that the Air Force could not adequately support 

its domestic housing transactions.31 To address the finding, the Air Force 

ordered all active duty military personnel claiming dependents to recertify 

their eligibility in writing.

To determine the effectiveness of this recertification and to determine 

whether it helped improve documentation supporting domestic housing 

transactions, we selected a statistical sample of 45 domestic housing 

transactions from the July 2014 active duty military payroll. Although we 

found no errors involving servicemembers claiming dependents, the Air 

Force was not able or readily able to provide supporting documentation 

for 4 transactions involving servicemembers not claiming dependents. 

This exceeded our tolerable error rate of 1 in 45.32 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.

To determine whether the Air Force could provide supporting 

documentation filed during fiscal year 2014, we selected a statistical 

sample of 90 changes to active duty military payroll (hereinafter referred 

to as change actions) from the first 10 months of fiscal year 2014.33 While 

supporting documentation for the regular pay transactions discussed 

above could be years old,34 support for change actions recorded during 

 31AFAA’s testing was performed from April through June 2013 on transactions randomly 

selected from the month of December 2012. See Air Force Audit Agency, Military Pay 

Supporting Documentation (Phase II).

32For this sample, if fewer than two errors were found in our sample of 45 transactions, we 

would be 90 percent confident that the error rate of the population would not exceed 10 

percent. 

33Pay transactions coinciding with the start, stop, or update of a pay entitlement are 

specially coded in the payroll system.

34Nearly all documentation supporting military pay is change documentation. For example, 

for a servicemember whose last promotion occurred 3 years ago, the document 

supporting the servicemember’s present rank—and the basic pay the servicemember 

receives today—is 3 years old, and its availability and adequacy depends largely upon the 

internal controls that were in effect 3 years ago.

Domestic Housing 

Documentation

Change Action 

Documentation
Page 15 GAO-16-68 Air Force Military Pay

the period we tested would have been submitted during or shortly before 

fiscal year 2014—more nearly reflecting the current control environment.

We found that the Air Force was not able to provide supporting 

documentation for 7 of the 90 change actions we sampled. This exceeded 

our tolerable error rate of 4 in 90.35 Specifically, we found that the Air 

force was not able to provide supporting documentation for 5 recent 

change actions related to overseas housing and 2 related to basic pay. 

Air Force officials stated that they could not determine the cause for the 

missing documentation.

While the Air Force, for the period we reviewed, had systems and 

processes designed to provide a complete universe of active duty military 

pay transactions, it could not always provide or readily provide supporting 

documentation for certain transactions in three of the categories of pay 

transactions nor could it generally determine the cause of missing, 

delayed, or incomplete documents. 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. Additionally, 

maintaining and readily providing supporting documentation to 

substantiate financial transactions, often referred to as an audit trail, is a 

critical requirement to achieving audit success. 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.

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:

 35For this sample, if fewer than five errors were found in our sample of 90 transactions, we 

would be 90 percent confident that the error rate of the population would not exceed 10 

percent.

Conclusions

Recommendations for 

Executive Action
Page 16 GAO-16-68 Air Force Military Pay

• 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.

• Develop and implement internal controls to provide reasonable 

assurance that adequate supporting documentation is maintained and 

readily available for examination for management and audit purposes 

and to support that correct amounts are being paid for military payroll 

transactions.

We provided a draft of this report to Air Force for review and comment. In 

its written comments, reprinted in appendix II, the Air Force concurred 

with our recommendations and stated that it had identified and 

subsequently implemented nine corrective actions and taken action to 

help reasonably assure that supporting documentation for military payroll 

is maintained and available. In November 2015—10 months following our 

initial request—the Air Force provided adequate supporting 

documentation for 10 of the 21 transaction exceptions identified in this 

report. While some documentation was ultimately found and provided at 

the close of the audit, Air Force officials agreed it was not provided timely 

and concurred with our judgment in counting them as errors since the 

documentation was not readily provided, which would be necessary under 

a full-scope financial statement audit in order to be considered by the 

auditors.

As auditors must complete their audits and federal agencies must submit 

their audited financial statements under statutorily established deadlines, 

agencies must be able to provide requested documentation to the 

auditors in a timely manner in order to be considered in the test results. 

Specifically, the FIAR guidance states that each service should ensure 

that it is prepared to respond to requests for audit documentation within 5 

business days. For this audit, an Air Force official committed to provide 

audit documentation generally within 14 business days of the request in 

order to have sufficient time to redact personally identifiable information

and to retrieve documents that were not centrally located.

We have made technical changes and clarified the recommendations as 

appropriate to reflect that the documentation was either not provided or 

not readily provided. However, 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 

Agency Comments 

and Our Evaluation
Page 17 GAO-16-68 Air Force Military Pay

paid appropriately and financial statement auditability goals may not be 

achieved.

We are sending copies of this report to the Secretary of Defense; the 

Under Secretary of Defense (Comptroller)/Chief Financial Officer; the 

Deputy Chief Financial Officer; the Director, Financial Improvement and 

Audit Readiness; the Secretary of the Air Force; the Assistant Secretary 

of the Air Force Finance Command; the Directors of the Defense Finance 

and Accounting Service and the Defense Finance and Accounting 

Service-Indianapolis Center; the Director of the Office of Management 

and Budget; and interested congressional committees. In addition, the 

report is available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (404) 679-1873 or cordreyw@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff members who made key 

contributions to this report are listed in appendix III.

William J. Cordrey

Acting Director

Financial Management and Assurance
Appendix I: Objectives, Scope, and 

Methodology

Page 18 GAO-16-68 Air Force Military Pay

Our objectives were to determine whether the Air Force, for the period we 

tested, (1) had in place systems and processes designed to provide a 

complete universe of active duty military pay transactions prepared 

through its central payroll processing system and (2) could provide 

adequate documentation to support individual military payroll 

transactions.

To address our first objective, we requested and received all transaction 

data processed by the Defense Joint Military Pay System-Active 

Component (DJMS-AC) for each of the first 10 months of fiscal year 2014 

(October 1, 2013, through July 31, 2014),1 and we examined four 

reconciliations:

For the first reconciliation (payroll to personnel), we reviewed 

documentation describing the Air Force’s monthly reconciliation of 16 

data elements common to the servicemembers’ records in the payroll and 

personnel systems, and examined one month’s 1 month of reconciliation 

reports. We also verified that the Air Force tracks and resolves 

mismatches by reviewing internally reported monthly mismatch and aging 

statistics for open tracking records and by interviewing Air Force officials.

For the second reconciliation (payroll to accounting), we reviewed each of 

the Defense Finance and Accounting Service’s (DFAS) fiscal year 2014 

quarterly reconciliations between the payroll and accounting systems, 

which it accomplishes with the help of the Military Pay Reconciliation 

Tool, a Microsoft Access application that tracks payroll data from DJMSAC to disbursements recorded in the accounting system. We also 

interviewed DFAS and Air Force officials and reviewed documentation 

describing how data are processed through the payroll system in the form 

of vouchers and subsequently reconciled to the accounting system.

For the third reconciliation (military pay to Fund Balance with Treasury 

(FBWT)), we reviewed the monthly reconciliation DFAS performs for the 

Air Force between the accounting system and the Department of the 

Treasury’s (Treasury) government-wide accounting system. According to 

Air Force officials, this multitiered reconciliation helps to assure that the 

recorded military payroll transactions were actually disbursed through 

 1

This time frame reflected the most current data available when we began our work in July 

2014.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 19 GAO-16-68 Air Force Military Pay

Treasury records. We reviewed key documentation with Air Force 

personnel to understand the nature, timing, and frequency of the 

reconciliations. The documentation showed that the Air Force was able to 

tie military payroll to its FBWT reconciliation. In addition, we traced and 

verified payroll system totals that included each of the 10 months to 

Treasury records.

For the fourth reconciliation (accounting records to the Statement of 

Budgetary Resources), we reviewed each of DFAS’s fiscal year 2014 

quarterly reconciliations between the accounting system and the financial 

reporting system for two key line items of the Statement of Budgetary 

Resources—obligations incurred and gross outlays—of which a portion of 

each included active duty direct compensation.2 We also interviewed 

DFAS and Air Force officials.

To address our second objective, we selected random samples of pay 

transactions from our universe to determine whether the Air Force could 

provide supporting documentation for individual active duty pay 

transactions and to determine the effectiveness of its corrective actions to 

address previously reported deficiencies with domestic housing 

documentation. We performed sampling tests of seven populations, in 

which we included only active duty pay (appropriation symbol 3500) in our 

sampling universes. We excluded from our universes pay types that do 

not represent amounts paid to servicemembers, such as retired pay 

accruals or employer’s share of Social Security.

We first segregated regular pay transactions from change actions (those 

pay transactions initiating a stop, start, or update of pay). For regular pay, 

we drew random statistical samples of 45 transactions from each of the 

following pay category populations.3

• Basic Pay

• Domestic Housing

 2

The financial reporting system collects and consolidates information for financial 

statement presentation. 

3

Subsistence, which changes annually, is generally paid at one of two rates—one for 

officers and one for enlisted servicemembers. While we did not test the availability of 

supporting documentation for eligibility, we did verify that all subsistence transactions for 

the period we tested conformed to the published rates.
Appendix I: Objectives, Scope, and 

Methodology

Page 20 GAO-16-68 Air Force Military Pay

• Overseas Housing

• Special Pay

• Incentive Pay

• Other (allowances for cost of living, family separation, and uniforms 

and clothing)

For change actions, we drew one random statistical sample of 90 

transactions from a population representing all the pay categories listed 

above.

To determine whether documentation supporting domestic housing 

transactions was complete and had been improved as a result of the Air 

Force’s corrective action, we requested and reviewed the supporting 

documentation for a randomly selected statistical sample of 45 domestic 

housing transactions for the July 2014 active duty military payroll. The Air 

Force’s corrective action—taken in response to deficiencies that the Air 

Force Audit Agency identified—was to require recertification of domestic 

housing benefits for servicemembers with dependents.4

Our sampling plan was based on a 90 percent confidence interval and a 

tolerable error rate of 10 percent. This sampling plan allowed us to 

determine that for a randomly selected statistical sample size of 45, our 

tolerable error rate would be 1 or fewer transactions with errors and for a 

sample size of 90, the tolerable error would be 4 or fewer transactions 

with errors.

We examined the documentation provided by the Air Force and 

determined its sufficiency and appropriateness with regard to the data 

necessary to establish eligibility and calculate pay. Our primary sources 

of criteria were the Department of Defense’s (DOD) Financial 

 4

During our review, the Air Force’s recertification efforts were ongoing; therefore, we 

limited our sample to the month of July—the final month of our 10-month sample—to 

determine whether the Air Force’s corrective action was adequate. 
Appendix I: Objectives, Scope, and 

Methodology

Page 21 GAO-16-68 Air Force Military Pay

Management Regulation, Air Force instructions,5 federal travel 

regulations,6 and official pay rate tables.

Our sampling tests were not designed to project a dollar impact of any 

errors found. We counted as errors all instances in which a necessary 

document could not be found, was not readily provided or was

incomplete. For all sampled items, we looked for sufficient and 

appropriate evidence of the servicemember’s eligibility for the pay and the 

amount of the pay. For basic pay sample items and for change actions 

based on a change in grade, we tested support for rank and years of 

service. For other pay types that depend in part on these factors, we 

tested only the support for the other factors involved, such as duty 

location, number of dependents, or specialty code.

Our scope of work did not include observation of Air Force personnel’s 

document-handling procedures, identification or testing of internal 

controls, or examination of the Air Force’s document management 

systems. Rather, we tested whether a specific control objective—

maintaining and readily providing supporting documentation—was being 

met. We relied on the Air Force to retrieve the supporting documents and 

to determine, as far as possible, the causes of missing or incomplete 

documents.

We conducted this performance audit from July 2014 to December 2015 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

 5

DOD Financial Management Regulation 7000.14-R, vol. 7A (June 2014); Department of 

the Air Force, Classifying Military Personnel, Air Force Instruction 36-2101 (June 2013); 

Department of the Air Force, Airman Promotion/Demotion Programs, Air Force Instruction 

36-2502 (December 2009); and, Department of Defense, Military Foreign Language Skill 

Proficiency Bonuses, DOD Instruction 1340.27 (May 2013).

6

Department of Defense, Joint Federal Travel Regulations (July 2014).
Appendix II: Comments from the Department 

of the Air Force

Page 22 GAO-16-68 Air Force Military Pay

Appendix II: Comments from the Department 

of the Air Force
Appendix II: Comments from the Department 

of the Air Force

Page 23 GAO-16-68 Air Force Military Pay
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 24 GAO-16-68 Air Force Military Pay

William J. Cordrey, (404) 679-1873 or cordreyw@gao.gov

In addition to the contact above, key contributors to this report were Paul 

Kinney (Assistant Director), Russell Brown, Jason Kelly, Sharon Kittrell, 

James Ungvarsky, and Matthew Ward.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(197134)
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