GAO-07-767R DOD Improper Payments Reporting 

United States Government Accountability Office

Washington, DC 20548 

May 31, 2007 

Congressional Committees 

Subject: Improper Payments Information Act of 2002: Department of Defense 

Travel Expenditure Reporting 

In November 2002, the Congress passed the Improper Payments Information Act of 

20021

 (IPIA). The major objective of the legislation was to enhance the accuracy and 

integrity of federal payments. This legislation, in conjunction with implementing 

guidance2

 from the Office of Management and Budget (OMB), requires executive 

branch agency heads to review their programs and activities annually, identify those 

that may be susceptible to significant improper payments, estimate amounts 

improperly paid, and report on the amounts of improper payments and actions to 

reduce them. Since passage of IPIA, the Department of Defense (DOD) has continued 

to expand its annual disclosures in its performance and accountability reports (PAR) 

and currently discloses some detail of improper payment estimates for six programs 

or activities, including civilian pay, commercial pay, travel pay, military retirement, 

military health benefits, and military pay. DOD has reported improper payment 

information since 2003. The Congress mandated that we consider one facet of this 

reporting related to DOD—travel pay. The DOD Office of the Inspector General (OIG) 

first reported on whether the department complied with IPIA in fiscal year 2006 and 

identified several significant flaws in DOD’s efforts to comply with IPIA. 

Over the past several years, GAO has issued numerous reports that highlighted 

problems with DOD travel practices that resulted in wasteful spending of millions of 

dollars, including weak controls over first class travel, unused airline tickets, and the 

accuracy of travelers’ claims.3

 Conference Report 109-6764 accompanying the 

Department of Defense Appropriations Act, 20075

 included a requirement for GAO to 

assess the reasons why DOD is not fully in compliance with IPIA related to travel 

expenditures and make any needed recommendations for corrective action. In 

response, this initial report provides an overview of DOD’s IPIA reporting for fiscal 

years 2003 through 2006 and a discussion of the reasons reported by the DOD OIG 

that DOD was not in compliance with IPIA for fiscal year 2006. To further respond to 

 

1

 Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). 

2

 Appendix C to OMB Circular No. A-123, Requirements for Effective Measurement and Remediation 

of Improper Payments (Aug. 10, 2006). 3

 See the Related GAO Products section at the end of this correspondence. 4

 H.R. Conf. Rep. No. 109-676, at 94 (Sept. 25, 2006). 

5

 Pub. L. No. 109-289, 120 Stat. 1257 (Sept. 29, 2006). 
Page 2 GAO-07-767R DOD Improper Payments Reporting 

 

this mandate, we plan to issue a separate report later this year that will include the 

results of a more comprehensive review of (1) the scope and methodology DOD used 

in its IPIA travel-related improper payments assessment and (2) DOD’s internal 

control over travel-related IPIA reporting disclosures. Our follow-on report will also 

include recommendations for any needed corrective actions. 

To complete this work, we reviewed DOD’s PAR for fiscal years 2003, 2004, 2005, and 

2006. We also reviewed prior GAO reports, applicable federal laws, prior DOD OIG 

reports, and OMB implementing guidance found in OMB Circular No. A-123, 

Appendix C.6

 We did not independently validate the improper payment data reported 

by DOD. However, we are providing this agency-reported data as descriptive 

information that will inform interested parties about DOD improper payments and 

other improper payment-related information. We believe the data to be sufficiently 

reliable for this purpose. We also did not independently assess whether DOD was in 

compliance with IPIA related to travel expenditures. We performed our work from 

November 2006 through April 2007 in accordance with generally accepted 

government auditing standards. We requested comments on a draft of this report 

from the Secretary of Defense or his designee. Written comments from DOD’s Acting 

Deputy Chief Financial Officer are reprinted in enclosure I. 

Results in Brief 

In fiscal year 2003, DOD began improper payment reporting in its annual PAR. As 

required under OMB Circular No. A-11,7

 it reported improper payments for military 

health benefits and military retirement. In fiscal year 2004, DOD reported that its 

improper payment survey8

 did not identify any programs or activities that were 

susceptible to risk of significant improper payments for purposes of IPIA. As in the 

prior year, DOD provided additional information for military retirement and military 

health benefits. In fiscal year 2005, DOD reported that none of its programs or 

activities met OMB’s criteria for risk of significant improper payments under IPIA. Its 

survey, however, did find military pay susceptible to significant risk of improper 

payments. DOD’s fiscal year 2005 reporting included information on statistical 

sampling and corrective action plans for its military retirement, military health 

benefits, and military pay programs. 

6 Appendix C to OMB Circular A-123 consolidates three memorandums previously issued by OMB. 

These memorandums are: M-03-07, “Programs to Identify and Recover Erroneous Payments to 

Contractors” (Jan. 16, 2003); M-03-12, “Allowability of Contingency Fee Contracts for Recovery Audits” 

(May 8, 2003); and M-03-13, “Improper Payments Information Act of 2002 (Public Law 107-300)” (May 

21, 2003). 

7 Prior to the executive branchwide IPIA reporting requirements, beginning with fiscal year 2004, 

former section 57 of OMB Circular No. A-11 required certain agencies to submit similar information, 

including estimated improper payment target rates, target rates for future reductions in these 

payments, the types and causes of these payments, and variances from targets and goals established. 

In addition, these agencies were to provide a description and assessment of the current methods for 

measuring the rate of improper payments and the quality of data resulting from these methods. 8

 DOD conducts an annual survey of all programs and activities that may be susceptible to improper 

payments. The survey requires identification of underpayments and overpayments and a description of 

the methodology used to estimate improper payments. 
Page 3 GAO-07-767R DOD Improper Payments Reporting 

 

In its most recent PAR for fiscal year 2006, DOD continued to expand its annual 

reporting, including information in varying levels of detail concerning improper 

payment estimates for civilian pay, commercial pay, travel pay, military retirement, 

military health benefits, and military pay. In total, DOD identified $875.5 million in 

improper payments. Specifically, for travel pay for fiscal year 2006, DOD estimated 

about $8 million in improper payments. For fiscal year 2006, the DOD OIG reported 

that the department did not fully comply with the requirements of IPIA and 

implementing OMB guidance. The DOD OIG cited, for example, an inadequate 

control process at the Defense Finance and Accounting Service as well as control 

weaknesses identified in GAO’s prior assessments demonstrating that programs 

related to military pay, travel, property, contract payments, and automated systems 

may be at risk of making significant improper payments. The DOD OIG also reported 

on steps the department was taking to improve IPIA compliance, including the 

establishment of a Project Officer for Improper Payments and Recovery Auditing. 

Background 

IPIA was enacted in November 2002 with the major objective of enhancing the 

accuracy and integrity of federal payments. IPIA requires executive branch agency 

heads to review their programs and activities annually and identify those that may be 

susceptible to significant improper payments. OMB provided implementing guidance 

for reporting under IPIA in Appendix C of OMB Circular No. A-123. The OMB 

guidance defines significant improper payments9

 as those in any particular program 

exceeding both 2.5 percent of program payments and $10 million annually.10 In 

addition, the guidance provides that agency programs that were included in former 

section 57 of OMB Circular No. A-11 must estimate improper payments even if the 

estimate does not exceed $10 million and 2.5 percent of program payments. 

In its guidance, OMB may also determine, on a case-by-case basis, whether certain 

programs should be reported even if those programs do not meet established 

thresholds. For all programs and activities susceptible to significant improper 

payments, agencies are to determine an annual estimated amount of improper 

payments made in those programs and activities. If the estimate of improper 

payments exceeds $10 million, the agency must implement a plan to reduce the 

amount of such erroneous payments. Agencies that have identified programs or 

activities that may be susceptible to significant improper payments are also required 

to include the amount of estimated improper payments in their annual PAR, 

regardless of whether they meet the $10 million threshold. 

9

 "Improper payment" and "erroneous payment" have the same meaning under Appendix C of OMB 

Circular No. A-123. 

10 IPIA does not include a similar threshold for defining significant improper payments. 
Page 4 GAO-07-767R DOD Improper Payments Reporting 

 

DOD IPIA Reporting for Fiscal Years 2003 through 2006 

DOD has continued to expand its annual reporting on improper payments in its PAR. 

Its most recent report covering fiscal year 2006 included varying levels of detail 

concerning improper payment estimates for civilian pay, commercial pay, travel pay, 

military retirement, military health benefits, and military pay. The following provides 

an overview of DOD’s reporting for fiscal years 2003 through 2006, with special 

emphasis on fiscal year 2006. 

Fiscal Year 2003. In fiscal year 2003, DOD began reporting information as required 

under IPIA and OMB Circular No. A-11 in its annual PAR.11 DOD reported on 

improper payments for military health benefits and military retirement. DOD also 

reported it “is reviewing all programs and activities and identifying those which are 

susceptible to significant improper payments.” The department went on to describe 

its planned actions, including estimating the amount of improper payments and 

establishing goals to reduce the amounts of these payments. DOD also provided 

further detail on the projected improper payments and approximate error rate for 

military health benefits and military retirement. 

Fiscal Year 2004. In its fiscal year 2004 PAR,12 DOD reported that its improper 

payments survey did not identify any programs or activities where erroneous 

payments exceeded the established thresholds, nor were any found to be susceptible 

to significant risk. Further, DOD described the risk assessments performed on nine 

programs/activities that the department identified as being susceptible to improper 

payments. As a result of this assessment, DOD determined that none of the 

programs/activities were susceptible to high risk. Further, for two programs—

military retirement and military health benefits—DOD described the statistical 

sampling process, planned corrective actions, reduction outlook, existence of 

information systems, and other infrastructure needed to reduce improper payments, 

as well as the statutory or regulatory barriers that might limit corrective action. 

Fiscal Year 2005. In its fiscal year 2005 PAR,13 DOD reported that its survey did not 

identify any programs or activities where payments met OMB’s criteria for reporting 

as “significant” improper payments. DOD reported that its survey, however, did find 

military pay susceptible to significant risk of improper payments. DOD reported 

information on statistical sampling and corrective action plans related to its military 

retirement, military health benefits, and military pay programs. DOD also provided 

information on information systems, accountability for improper payments, and 

recovery auditing at the department. 

Fiscal Year 2006. In its fiscal year 2006 PAR,14 DOD reported that its current IPIA 

review did not identify any programs or activities at risk of “significant erroneous 

11 DOD, Performance and Accountability Report: Fiscal Year 2003 (Dec. 23, 2003). 12 DOD, Performance and Accountability Report: Fiscal Year 2004 (Nov. 15, 2004). 13 DOD, Performance and Accountability Report: Fiscal Year 2005 (Nov. 15, 2005). 14 DOD, Performance and Accountability Report: Fiscal Year 2006 (Nov. 15, 2006). 
Page 5 GAO-07-767R DOD Improper Payments Reporting 

payments” in accordance with OMB criteria. However, the department also reported 

that civilian, commercial, and travel pay potentially were susceptible to improper 

payments in excess of $10 million and reported estimated improper payments 

information for these programs. Further, the department again reported on its 

sampling and corrective actions concerning its military retirement, military health 

benefits, and military pay programs. Table 1 shows the information DOD reported on 

estimated improper payments for six programs in its fiscal year 2006 PAR. 

Table 1: DOD’s Reported Improper Payment Estimates for Fiscal Year 2006 

Program Estimated improper 

payments (in millions) 

Improper payments as a 

percentage of total 

program payments 

Commercial Pay $550.0 0.2% 

Military Health Benefits 140.0 2.0 

Military Pay 65.9 0.1 

Civilian Pay 62.8 0.1 

Military Retirement 48.8 0.1 

Travel Pay 8.0 1.0 

Total $875.5 

Source: DOD fiscal year 2006 PAR. 

Further, DOD described the risk assessment process for each of the programs or 

activities that addressed the strength of the internal controls in place to prevent 

improper payments and reported on the results in its disclosure. DOD also described 

the statistical sampling and corrective action plans for these six programs or 

activities. Additionally, DOD summarized the improper payment reduction outlook 

for the military retirement, military health benefits, and military pay programs. 

Finally, DOD described its improper payments auditing, accountability information, 

information system usage, and statutory and regulatory barriers limiting the 

department’s corrective actions. 

With regard to improper payments reporting related to its travel program in DOD’s 

fiscal year 2006 PAR, the department described the process in place to conduct 

monthly random postpayment reviews of travel records settled through the Defense 

Travel System (DTS) and Integrated Automated Travel System (IATS). DOD reported 

that these random reviews were designed to produce annual estimates of improper 

payments, with a probability of 95 percent and sample precision of plus or minus 

2.5 percent, at the component level (e.g., Army, Navy, Air Force, and Marine Corps). 

Further, at the U.S. Army Corps of Engineers, DOD reported that all temporary duty 

travel (TDY) and permanent change of station vouchers greater than or equal to 

$2,500 were subject to postaudit review, and a sample of every 366th TDY voucher less 

than $2,500 was also reviewed. 

DOD’s fiscal year 2006 PAR also described the risk assessment DOD completed for 

several programs, including travel, to address the strength of internal controls in 

place to prevent improper payments, system weaknesses identified internally or by 

outside audit activities, and voluntary returns of overpayments. In Section 4 of its 
Page 6 GAO-07-767R DOD Improper Payments Reporting 

 

fiscal year 2006 PAR, DOD described its corrective action plans regarding improper 

payments, including specific information on travel. In this section, the department 

only reported information on travel processed through DTS, although DOD uses 

other systems, such as IATS, to process travel in addition to DTS. In its PAR, DOD 

reported that in fiscal year 2006, over 783,000 trip records with a total settlement 

dollar value of $823.6 million were processed through DTS. However, based on our 

ongoing work, this amounted to only 11 percent of the $7.483 billion of DOD travel 

obligations reported for fiscal year 2006 in the 2008 Budget of the U.S. Government.15

DOD reported that as of September 30, 2006, the department had randomly selected 

and reviewed 30,100 settled trip records related to DTS transactions, with a value 

exceeding $32.6 million. Based on these reviews, DOD projected that improper 

payments accounted for .968 percent of the tested sample and thus DOD projected 

that improper payments in the population of DTS settlements could approach 

$7.97 million. 

The DOD OIG Raised Concerns with DOD’s IPIA Reporting for Fiscal Year 

2006 

DOD’s independent auditor, the DOD OIG, determined that the department’s fiscal 

year 2006 reporting did not fully comply with the requirements of IPIA and 

implementing OMB guidance. The auditors reported that their conclusion was based, 

in part, on an inadequate control process at the Defense Finance and Accounting 

Service as well as control weaknesses identified in GAO’s prior assessments 

demonstrating that programs related to military pay, travel, property, contract 

payments, and automated systems may be at risk of making significant improper 

payments. 

The DOD OIG also reported that the department had taken steps to resolve some 

previously identified issues regarding the methodologies and processes used in 

reporting improper payments. Further, the OIG reported that DOD had recently 

established a Project Officer for Improper Payments and Recovery Auditing. The 

project officer’s reported responsibilities include (1) reviewing DOD’s statistical 

methodologies and processes to verify that DOD’s reported information is accurate, 

complete, and meets or exceeds OMB minimum reporting requirements; and (2) 

establishing an Improper Payments and Recovery Auditing working group to help 

DOD modify improper payment methodologies and processes as needed. 

Agency Comments and Our Evaluation 

We requested comments on a draft of this report from the Secretary of Defense or his 

designee. The Acting Deputy Chief Financial Officer of DOD provided written 

comments, which are reprinted in enclosure I. DOD’s comments correctly noted that 

this report does not contain any audit conclusions or recommendations, but does 

provide a summary of the DOD OIG’s conclusions contained in DOD’s fiscal year 2006 

PAR that the department did not fully comply with IPIA for fiscal year 2006. DOD 

commented that our report would achieve a more balanced reporting of the 

15 Fiscal Year 2008 Budget of the U.S. Government, Object Class Analysis (Feb. 5, 2007). 
Page 7 GAO-07-767R DOD Improper Payments Reporting 

department’s compliance with IPIA if it included the positive comments made by the 

DOD OIG, also included in the fiscal year 2006 PAR, as well as an acknowledgement 

of DOD’s ongoing efforts to continually improve oversight and reporting of improper 

payments. Inasmuch as the mandate to which this report responds specifically 

required GAO to assess the reasons why DOD is not fully in compliance with IPIA 

related to travel expenditures, our draft report necessarily focused on the 

noncompliance aspects of the DOD OIG’s fiscal year 2006 reporting. Nonetheless, we 

have modified the report to include the positive steps DOD had taken, as reported by 

the DOD OIG. Further, while we agree that DOD is taking steps intended to improve 

IPIA reporting, including holding an IPIA conference and continuing to work with 

OMB, the scope of our initial review did not include assessing the effectiveness of 

such steps. 

DOD’s comments also included a status update on the department’s efforts to 

reconcile the amount of its travel payments reported in the fiscal year 2006 PAR, 

which represents 11 percent of the $7.483 billion of DOD travel obligations reported 

in object class 21 (travel and transportation of persons) in the fiscal year 2008 Budget 

of the U.S. Government. We appreciate DOD’s ongoing efforts to reconcile the 

disparate amounts reported in its PAR and fiscal year 2008 budget for travel and will 

assess the results of these efforts as part of our ongoing work. 

- - - - - 

We are sending copies of this report to other interested congressional committees. 

Copies will be made available to others upon request. In addition, this report will also 

be available at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have any questions regarding this report, please contact me at 

(202) 512-9095 or at williamsm1@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this 

report. Major contributors to this report include Dianne Guensberg, Assistant 

Director; Heather Dunahoo; and Bradley Klingsporn. 

McCoy Williams 

Director, Financial Management and Assurance 
Page 8 GAO-07-767R DOD Improper Payments Reporting 

List of Congressional Committees 

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Thomas R. Carper 

Chairman 

The Honorable Tom Coburn 

Ranking Member 

Subcommittee on Federal Financial Management, Government Information, Federal 

Services, and International Security 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan L. Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 
Page 9 GAO-07-767R DOD Improper Payments Reporting 

Enclosure I 

Comments from the Department of Defense 
Page 10 GAO-07-767R DOD Improper Payments Reporting
Page 11 GAO-07-767R DOD Improper Payments Reporting

Related GAO Products 

DOD Business Transformation: Defense Travel System Continues to Face 

Implementation Challenges. GAO-06-18. Washington, D.C.: January 18, 2006. 

Army National Guard: Inefficient, Error-Prone Process Results in Travel 

Reimbursement Problems for Mobilized Soldiers. GAO-05-400T. Washington, D.C.: 

March 16, 2005. 

Army National Guard: Inefficient, Error-Prone Process Results in Travel 

Reimbursement Problems for Mobilized Soldiers. GAO-05-79. Washington, D.C.: 

January 31, 2005. 

DOD Travel Cards: Control Weaknesses Led to Millions of Dollars of Improper 

Payments. GAO-04-576. Washington, D.C.: June 9, 2004. 

DOD Travel Cards: Control Weaknesses Led to Millions in Fraud, Waste, and 

Improper Payments. GAO-04-825T. Washington, D.C.: June 9, 2004. 

DOD Travel Cards: Control Weaknesses Led to Millions of Dollars Wasted on 

Unused Airline Tickets. GAO-04-398. Washington, D.C.: March 31, 2004. 

Travel Cards: Internal Control Weaknesses at DOD Led to Improper Use of First 

and Business Class Travel. GAO-04-229T. Washington, D.C.: November 6, 2003. 

Travel Cards: Internal Control Weaknesses at DOD Led to Improper Use of First 

and Business Class Travel. GAO-04-88. Washington, D.C.: October 24, 2003. 

(195105) 
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