DOD FINANCIAL 

MANAGEMENT

Significant 

Improvements Needed 

in Efforts to Address 

Improper Payment 

Requirements

Report to Congressional Requesters

May 2013

GAO-13-227

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-227, a report to 

congressional requesters 

May 2013 

DOD FINANCIAL MANAGEMENT

Significant Improvements Needed in Efforts to 

Address Improper Payment Requirements

Why GAO Did This Study

DOD reported $1.1 billion in improper 

payments for fiscal year 2011, which

marked the eighth year of 

implementation of IPIA, as well as the 

first year of implementation of IPERA. 

IPIA required executive branch 

agencies to annually identify programs 

and activities susceptible to significant 

improper payments, estimate the 

amount of improper payments for such 

programs and activities, and report 

these estimates along with actions 

taken to reduce them. IPERA amended 

IPIA and expanded requirements for 

recovering overpayments across a 

broad range of federal programs. 

GAO was asked to review the progress

DOD has made to identify, estimate, 

and reduce improper payments. GAO’s

objective was to review the extent to 

which DOD has implemented key 

provisions of IPIA, IPERA, and OMB 

guidance. GAO reviewed improper 

payment requirements; analyzed 

agency financial reports, internal 

guidance and plans, and sampling 

methodologies; and interviewed 

cognizant officials. The scope for this

engagement was DOD’s reported 

improper payment information for fiscal 

year 2011 and DOD’s plans and 

actions to estimate commercial pay 

improper payments for fiscal year 

2012. 

What GAO Recommends

GAO is making 10 recommendations 

to improve DOD’s processes to 

identify, estimate, reduce, recover, and 

report on improper payments. DOD 

concurred with 9 and partially 

concurred with 1 of the 

recommendations and described its 

plans to address them.

What GAO Found

The Department of Defense (DOD) did not adequately implement key provisions 

of the Improper Payments Information Act of 2002 (IPIA) and the Improper 

Payments Elimination and Recovery Act of 2010 (IPERA) and Office of 

Management and Budget (OMB) requirements for fiscal year 2011. Most 

important, GAO found that DOD’s improper payment estimates reported in its 

fiscal year 2011 Agency Financial Report were neither reliable nor statistically 

valid because of long-standing and pervasive financial management weaknesses 

and significant deficiencies in the department’s procedures to estimate improper 

payments. For example, DOD did not

• have key quality assurance procedures in place, such as reconciliations, to 

validate the completeness and accuracy of the populations used to estimate 

improper payments; 

• develop appropriate sampling methodologies for estimating improper 

payments; 

• produce a statistical estimate for its largest program, Defense Finance and 

Accounting Service (DFAS) commercial pay; and

• maintain key documentation supporting its reported improper payment 

estimates.

Also, GAO found significant deficiencies in DOD’s policies and procedures to 

address other key improper payment requirements for fiscal year 2011. 

Specifically, DOD did not

• perform a required risk assessment to identify those programs susceptible to 

significant improper payments, 

• have procedures to identify root causes of improper payments and develop 

related corrective actions, 

• conduct recovery audits for any of its programs or determine that these 

audits would not be cost effective, and

• have procedures to ensure that its annual improper payment and recovery

audit reporting is complete, accurate, and in compliance with IPERA and 

OMB reporting requirements. 

DOD has taken some actions since fiscal year 2011, such as reporting a 

statistical estimate for Defense Finance and Accounting Service commercial pay 

and issuing revised Financial Management Regulation chapters on improper 

payments and recovery audits. However, until the department takes action to 

correct the deficiencies GAO found related to identifying, estimating, reducing, 

recovering, and reporting improper payments and thereby fulfills legislative 

requirements and implements related guidance, it remains at risk of continuing to 

make improper payments and wasting taxpayer funds. 

View GAO-13-227. For more information, 

contact Asif A. Khan at (202) 512-9869 or 

khana@gao.gov. 
Page i GAO-13-227 DOD Financial Management 

Letter 1 

Background 4

Significant Deficiencies Existed in DOD’s Implementation of Key 

Provisions of IPIA, IPERA, and OMB Guidance 14

Conclusions 30

Recommendations for Executive Action 31

Agency Comments and Our Evaluation 32

Appendix I Objectives, Scope, and Methodology 35

Appendix II Comments from the Department of Defense 39

Appendix III GAO Contact and Staff Acknowledgments 43

Figures

Figure 1: GAO’s 2009 Report Recommendations to DOD 12

Figure 2: DOD’s Fiscal Year 2011 Reported Outlays and Improper 

Payments 14

Contents 
Page ii GAO-13-227 DOD Financial Management 

Abbreviations

AFR Agency Financial Report

CFOC United States Chief Financial Officers Council

DFAS Defense Finance and Accounting Service

DOD Department of Defense 

DTS Defense Travel System

FMR Financial Management Regulation

IG Inspector General

IPERA Improper Payments Elimination and Recovery Act of 2010

IPERIA Improper Payments Elimination and Recovery

 Improvement Act of 2012

IPIA Improper Payments Information Act of 2002

OMB Office of Management and Budget

OUSD(C) Office of the Under Secretary of Defense (Comptroller)

PMA President’s Management Agenda

RAA Recovery Auditing Act

SBR Statement of Budgetary Resources

TMA TRICARE Management Activity

USACE United States Army Corps of Engineers

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Page 1 GAO-13-227 DOD Financial Management 

United States Government Accountability Office 

Washington, DC 20548

May 13, 2013

The Honorable Thomas R. Carper

Chairman

The Honorable Tom Coburn

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Claire McCaskill

Chairman

Subcommittee on Financial and Contracting Oversight

Committee on Homeland Security and Governmental Affairs

United States Senate

The Department of Defense (DOD) reported over $1.1 billion in improper 

payments for fiscal year 2011.1

 An improper payment is any payment that 

should not have been made or that was made in an incorrect amount 

(including overpayments and underpayments) under statutory, 

contractual, administrative, or other legally applicable requirements.2

In July 2009,

With 

fiscal year 2011 reported gross outlays of approximately $1,017 billion, 

DOD’s efforts to identify, report, and recover improper payments are 

particularly significant to government-wide improper payment reduction 

initiatives.

3

 

1

This figure is based on GAO’s analysis of DOD’s improper payment reporting in its fiscal 

year 2011 Agency Financial Report. 

we reported that significant improvements were needed in 

DOD’s efforts to address improper payment requirements because the 

department had not established the processes and detailed guidance 

2

Improper payments include any payment to an ineligible recipient, any payment for an 

ineligible good or service, any duplicate payment, any payment for a good or service not 

received (except for such payments where authorized by law), and any payment that does 

not account for credit for applicable discounts. According to guidance from the Office of 

Management and Budget, agencies should also report as improper payments any 

payments for which insufficient or no documentation is found. 

3

GAO, Improper Payments: Significant Improvements Needed in DOD’s Efforts to 

Address Improper Payment and Recovery Auditing Requirements, GAO-09-442 

(Washington, D.C.: July 29, 2009). 

 
 

Page 2 GAO-13-227 DOD Financial Management 

needed to effectively implement the requirements of the Improper 

Payments Information Act of 2002 (IPIA).4 Since that report, IPIA was 

amended by the Improper Payments Elimination and Recovery Act of 

2010 (IPERA).5

You asked us to review the progress DOD has made to identify and 

estimate improper payments and to develop appropriate and prompt 

corrective action to reduce improper payments. Our objective was to 

review the extent to which DOD has implemented key provisions of IPIA, 

IPERA, and Office of Management and Budget (OMB) guidance. The 

scope for our engagement was DOD’s improper payment information 

presented in the department’s fiscal year 2011 Agency Financial Report

(AFR),

IPERA, enacted on July 22, 2010, amended IPIA and, 

among other things, expanded requirements for recovering overpayments 

across a broad range of federal programs.

6 because this was the most current annual report available at the 

time of our review. We assessed the department’s fiscal year 2012 plans 

and actions to statistically estimate improper payments for commercial 

payments processed by the Defense Finance and Accounting Service 

(DFAS),7

To meet this audit objective, we reviewed IPIA and IPERA requirements, 

OMB guidance, and relevant best practices and compared them with 

DOD’s fiscal year 2011 improper payments reporting in its AFR, internal 

guidance in effect during fiscal year 2011 and subsequent revisions, 

DOD’s largest program, because DOD’s reported improper 

payment amounts for this program for fiscal year 2011 were limited to 

known improper payments, rather than a statistical estimate.

 

4

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), codified as amended at 31 U.S.C. § 

3321 note. 

5

Pub. L. No. 111-204, 124 Stat. 2224 (July 22, 2010). Additional amendments to IPIA 

were made by the Improper Payments Elimination and Recovery Improvement Act of 

2012 (IPERIA), Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 10, 2013). This new act was 

outside the scope of our audit and therefore, had no bearing on our findings, conclusions, 

and recommendations.

6

DOD’s Agency Financial Report for fiscal year 2011 provides an overview of the 

department’s financial information and performance goals and objectives. Additional 

information, such as the department’s reporting on improper payments, is in Addendum A 

to the AFR. 

7

DFAS is responsible for providing professional, financial, and accounting services to 

DOD and other federal agencies. It delivers mission-essential payroll, contract and vendor 

pay, and accounting services. 
 

Page 3 GAO-13-227 DOD Financial Management 

sampling methodologies, risk assessments, and the department’s 

corrective action and payment recapture plans.8 In this context, we met 

with key DOD officials involved with the department’s improper payments 

efforts, including officials from the Office of the Under Secretary of 

Defense (Comptroller) (OUSD(C)), DFAS, the TRICARE Management 

Activity (TMA),9

We conducted site visits at two DFAS processing center locations 

(Columbus, Ohio and Indianapolis, Indiana) to determine DFAS’s 

processes for implementing improper payment requirements because 

DFAS compiles the reported improper payment information for five of 

DOD’s eight programs.

and the United States Army Corps of Engineers 

(USACE). 

10

To assess the reliability of data reported in DOD’s fiscal year 2011 AFR 

related to improper payments, we reviewed DOD’s supporting 

documentation and interviewed knowledgeable agency officials about the 

data. During the course of this assessment, we determined that DOD did 

not collect and maintain the supporting documentation necessary to 

We selected the DFAS-Columbus site because 

this facility processes the largest portion of DOD’s commercial payments 

and hosts the systems used to track commercial pay improper payments. 

We selected DFAS-Indianapolis because this facility is responsible for 

estimating improper payments and compiling and reporting the results to 

the OUSD(C) for five of DOD’s programs.

 

8

OMB, Memorandum M-11-16, Issuance of Revised Parts I and II to Appendix C of OMB 

Circular A-123 (Apr. 14, 2011); OMB, Circular No. A-136 Revised, Financial Reporting 

Requirements (October 27, 2011); OMB, Memorandum M-11-04, Increasing Efforts to 

Recapture Improper Payments by Intensifying and Expanding Payment Recapture Audits

(Nov. 16, 2010); OMB, Standards and Guidelines for Statistical Surveys (September

2006); GAO, Assessing the Reliability of Computer-Processed Data, GAO-09-680G 

(Washington, D.C.: July 2009); GAO, Strategies to Manage Improper Payments, Learning 

From Public and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October

2001); and United States Chief Financial Officers Council, Implementation Guide for OMB 

Circular A-123, Management’s Responsibility for Internal Control, Appendix A, Internal 

Control over Financial Reporting (Washington, D.C.: July 2005).

9

DOD’s TMA administers the TRICARE program, which provides military health benefits 

to active duty personnel and their families, retirees and their family members, and family 

members of deceased service members. 

10DFAS develops improper payment information for military pay, civilian pay, military 

retirement, DFAS commercial pay, and travel pay. TMA develops improper payment 

estimates for military health benefits, and USACE develops estimates for USACE travel 

pay and USACE commercial pay. 
 

Page 4 GAO-13-227 DOD Financial Management 

substantiate the improper payment estimates reported in its fiscal year

2011 AFR. In addition, the department did not perform key quality 

assurance procedures, including reconciliations on all of the populations 

for its programs to validate that the populations were complete, valid, and 

accurate before selecting the statistical samples that were used to 

estimate improper payments. Therefore, we determined that the data 

were not reliable. These problems are discussed further in our report.

We conducted this performance audit from October 2011 to May 2013 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. A more detailed description of 

our scope and methodology is provided in appendix I.

One of the five government-wide initiatives in the 2001 President’s 

Management Agenda (PMA) was improved financial management, which

targeted improper payments as an area with opportunities for 

improvement. This initiative called for the administration to establish a 

baseline on the extent of improper payments. In July 2001, as part of its 

efforts to advance the PMA initiative, OMB revised Circular No. A-11 by 

requiring 16 federal agencies to submit data on improper payments, 

including estimated improper payment rates.11 Section 831 of the National 

Defense Authorization Act for Fiscal Year 2002 included the provisions 

commonly referred to as the Recovery Auditing Act (RAA).12

 

11OMB, Circular No. A-11, Preparing and Submitting Budget Estimates (July 17, 2001). 

The 16 agencies included the Departments of Agriculture, Defense, Education, Health and 

Human Services, Housing and Urban Development, Labor, the Treasury, Transportation, 

and Veterans Affairs. The other agencies were the United States Agency for International 

Development, Environmental Protection Agency, National Science Foundation, Office of 

Personnel Management, Railroad Retirement Board, Small Business Administration, and 

Social Security Administration. 

The RAA 

required, among other things, that all executive branch agencies entering 

into contracts with a total value exceeding $500 million in a fiscal year 

12Pub. L. No. 107-107, div. A, title VIII, § 831, 115 Stat. 1012, 1186 (Dec. 28, 2001), 

formerly codified at 31 U.S.C. §§ 3561-3567, repealed by IPERA § 2(h)(6) (repeal retained 

only 31 U.S.C. § 3562(a)). 

Background
 

Page 5 GAO-13-227 DOD Financial Management 

have cost-effective programs for identifying errors in paying contractors 

and for recovering amounts erroneously paid.

Fiscal year 2011 marked the eighth year of the implementation of IPIA as 

well as the first year of implementation of IPERA. IPIA required executive 

agencies to (1) identify programs and activities susceptible to improper 

payments (typically referred to as risk assessments), (2) estimate the 

amount of improper payments in susceptible programs and activities, and 

(3) report these improper payment estimates and actions taken to reduce 

them.

Among other things, IPERA amended IPIA by changing the definition of 

programs susceptible to significant improper payments and adding 

minimum risk factors for agencies to consider in identifying such 

programs. In addition, IPERA generally repealed the RAA and included a 

new, broader requirement for agencies to conduct recovery audits, where 

cost effective, for each program and activity with at least $1 million in 

annual program outlays. This IPERA provision significantly lowered the 

threshold for required recovery audits and expanded the scope for 

recovery audits to all programs and activities, including grant and loan 

programs. IPERA also added new accountability provisions. For example, 

in its improper payments reporting, an agency is to describe how it 

ensures that agency managers, programs, and states and localities 

(where applicable) are held accountable for meeting applicable improper 

payment reduction targets as well as establishing and maintaining 

sufficient internal controls to prevent improper payments and promptly 

detect and recover those improper payments that are made.

The following sections describe key provisions of IPIA, the RAA, and 

IPERA. 

Under IPIA, executive agencies were required to annually review all 

programs and activities that they administer and identify any that may be 

susceptible to significant improper payments. OMB, in its 2006 

Legislative Requirements 

Related to Identifying, 

Estimating, Reducing, 

Recovering, and Reporting 

Improper Payments

Performing Risk Assessments
 

Page 6 GAO-13-227 DOD Financial Management 

guidance,13

IPERA changed several of the requirements associated with risk 

assessments.

interpreted this IPIA requirement for annual risk assessments 

to apply to only those programs and activities where the risk level was 

unknown. For those programs deemed not risk susceptible, risk 

assessments were required every 3 years. In addition, the guidance 

defined “significant improper payments”—the threshold at which agencies 

must perform an estimate for a program—as annual improper payments 

in the program exceeding both 2.5 percent of program payments and 

$10 million.

14

• Amended IPIA to require agency heads to review agency programs 

and activities during the year following IPERA’s enactment and at 

least once every 3 fiscal years thereafter to identify those that may be 

susceptible to significant improper payments.

Specifically, IPERA did the following:

• Defined “significant” in the law for the purpose of determining a 

program’s susceptibility to significant improper payments. IPERA 

defined “significant improper payments” as gross annual improper 

payments (i.e., the total amount of overpayments plus 

underpayments) in the program that may have exceeded either 

(1) both 2.5 percent of program outlays and $10 million, or 

(2) $100 million (regardless of the improper payment percentage of 

total program outlays).15

• Included the following minimum risk factors likely to contribute to a 

susceptibility to significant improper payments that agencies are to 

consider in performing risk assessments: (1) whether a program or 

 

13OMB, Memorandum M-06-23, Issuance of Appendix C to OMB Circular A-123 (Aug. 10, 

2006). 

14For the purposes of this report, “risk assessment” refers to the required identification of 

programs and activities susceptible to significant improper payments under subsection 

2(a) of IPIA, as amended.

15IPERA required that agencies use 1.5 percent as the threshold rate, with all other 

aspects of the definition as described above, for fiscal years 2011 through 2012, 

transitioning to 2.5 percent in fiscal year 2013. OMB’s implementing guidance instructed 

agencies to apply a 2.5 percent rate for 2011 and 2012, and a 1.5 percent rate thereafter. 

IPERIA, effective January 10, 2013, provided that a 2.5 percent rate be used through 

fiscal year 2013, and a 1.5 percent rate be used thereafter. See IPERIA, Pub. L. No. 112-

248, § 4. 
 

Page 7 GAO-13-227 DOD Financial Management 

activity is new to the agency; (2) the complexity of the program; 

(3) the volume of payments made through the program or activity; 

(4) whether payment decisions are made outside of the agency, such 

as by a state or local government; (5) recent major changes in 

program funding, authorities, practices, or procedures; (6) the level, 

experience, and quality of training for personnel responsible for 

making eligibility determinations or certifying that payments are 

accurate; and (7) significant deficiencies in the audit report of the 

agency or other relevant management findings that might hinder 

accurate payment certification.

Under IPIA, for each program or activity identified as susceptible to 

significant improper payments, the head of each agency was to 

(1) estimate the annual amount of improper payments and (2) submit 

those estimates to Congress before March 31 of the following applicable 

year, with all agencies using the same method of reporting, as 

determined by the Director of OMB.

IPERA revised the IPIA requirements for estimating improper payments 

by directing agency heads to produce statistically valid estimates of their 

agencies’ improper payments, or an estimate that is otherwise 

appropriate using a methodology approved by the Director of OMB, and 

to include the annual improper payment estimates in their performance 

and accountability reports or in the agency financial reports.16

Under IPIA, annual reporting requirements for reducing improper 

payments included a description of the steps the agency has taken to 

ensure that agency managers (including the agency head) are held 

accountable for reducing improper payments.

IPERA amended IPIA’s requirements for reporting on corrective actions. 

Specifically, it required that agencies’ annual reporting include the 

estimated completion dates of planned corrective actions. Also, it required 

agencies to report on steps taken to ensure that states and localities, 

where applicable, are held accountable for reducing improper payments 

in the federal programs they implement. OMB’s implementing guidance 

for IPERA also states that for those agency programs not implemented 

directly by federal or state agencies or governments, agencies may also 

 

16OMB’s implementing guidance for IPERA states that the sampling methodologies are to 

be approved by OMB prior to conducting the sampling measurements. 

Estimating Improper Payments

Reducing Improper Payments
 

Page 8 GAO-13-227 DOD Financial Management 

consider establishing these accountability mechanisms. OMB encouraged 

agencies to leverage new technologies and techniques to assist them in 

preventing and reducing improper payments. Agencies implementing 

long-term, ongoing corrective actions should annually review their existing 

corrective actions to determine if any existing action can be intensified or 

expanded, resulting in a high-impact, high return-on-investment in terms 

of reduced or prevented improper payments.

Recovery audits were not required under IPIA, but were required under 

the RAA. Specifically, agencies were required to carry out a cost-effective 

program of recovery audits to identify and recover improper payments to 

contractors, if they entered into contracts with a total value that exceeded 

$500 million in a fiscal year.

IPERA generally repealed the RAA, expanded the scope for recovery 

audits beyond commercial payments to include all programs and 

activities, and lowered the threshold of annual outlays requiring agencies 

to conduct recovery audits—from $500 million in annual agency 

contracting to $1 million in annual program expenditures. Specifically, 

under the recovery auditing provisions of IPERA, agencies are required to 

identify and recover improper payments by conducting recovery audits, 

also known as payment recapture audits, for agency programs that 

expend $1 million or more annually, if such audits would be cost effective. 

In its November 2010 guidance,17

IPIA required, with respect to any program or activity of an agency with 

estimated improper payments that exceeded $10 million, the head of the 

agency to provide along with the estimate a report on what actions the 

agency was taking to reduce the improper payments, including a

OMB required agencies to submit 

payment recapture audit plans by January 14, 2011, that described the 

agencies’ current payment recapture efforts under authorities that predated IPERA and their planned payment recapture efforts based on the 

new authorities provided by IPERA.

• discussion of the causes of the improper payments identified, actions 

taken to correct those causes, and results of the actions taken to 

address those causes;

 

17OMB, Memorandum M-11-04. 

Recovering Improper Payments

Reporting Annually on 

Improper Payments and 

Recoveries 
 

Page 9 GAO-13-227 DOD Financial Management 

• statement of whether the agency had the information systems and 

other infrastructure it needed in order to reduce improper payments to 

minimal cost-effective levels;

• description of the resources the agency had requested in its budget 

submission to obtain the necessary information systems and 

infrastructure if the agency did not have such systems and 

infrastructure; and

• description of the steps the agency had taken to ensure that agency 

managers (including the agency head) were held accountable for 

reducing improper payments.

For RAA, OMB guidance required that agencies include in their annual 

reporting, among other things, a general description and evaluation of the 

steps taken to carry out a recovery auditing program, the total amount of 

contracts subject to review, the actual amount of contracts reviewed, the 

amounts identified for recovery, and the amounts actually recovered in a 

current year. Further, OMB Circular No. A-136 required agencies to report 

cumulative amounts identified for recovery and amounts actually 

recovered as a part of their current year reporting.

IPERA requires the reporting of estimates without regard to thresholds. 

IPERA and OMB guidance require agencies to report, as part of their 

agency financial reports, certain information regarding the improper 

payment estimation process and efforts to recover improper payments. 

These requirements include, among other things, 

• gross estimates of the annual amount of improper payments (i.e., 

overpayments plus underpayments) made in the program and a 

description of the methodology used to derive those estimates;

• discussion of the root causes of the improper payments identified, 

actions planned or taken to correct those causes, the planned or 

actual completion date of those actions, and the results of the actions 

taken; and

• discussion of the amount of actual improper payments that the agency 

expects to recover and how these payments will be recovered.

According to OMB’s recovery auditing guidance under IPERA,18

 

18OMB, Memorandum M-11-04. 

agencies 

must continue to report information on improper contract payments 

reviewed, identified, and recaptured, according to instructions contained 

in OMB Circulars No. A-123 and A-136. In addition, agencies shall report 
 

Page 10 GAO-13-227 DOD Financial Management 

information on other types of recaptured improper contract payments. For 

instance, where applicable, agencies shall also identify and report 

information on improper contract payments recovered, if not already 

included in the annual reporting, including

• improper contract payments voluntarily returned to agencies by 

contractors prior to agency or payment recapture auditor identification;

• improper contract payments identified by the vendors, contractors, or 

agency staff, and used to provide offsets to future payments rather 

than returned to agencies;

• improper contract payments identified and returned through agency 

Office of Inspector General efforts such as audits, reviews, or tips 

from the public;

• improper contract payments identified and recovered through 

management postpayment reviews other than payment recapture 

audits;

• improper contract payments identified and returned or paid through 

contract closeout; and

• payment recapture targets and performance in meeting those targets 

on an annual and quarterly basis.

DOD’s improper payment and recovery auditing policies are in two 

chapters of its Financial Management Regulation (FMR). DOD uses its 

FMR to govern financial management within the department by 

establishing the requirements, principles, standards, systems, 

procedures, and practices necessary to comply with financial 

management statutory and regulatory requirements applicable to the 

department. DOD’s FMR chapter on improper payments that was in effect 

during fiscal year 2011 was issued in 2008, before IPERA was enacted.19

In October 2011, the department issued a revised chapter on improper 

payments to implement the requirements of IPERA and associated OMB 

guidance.20

 

19DOD, FMR, Volume 4, Chapter 14, Improper Payments (December 2008).

According to the FMR chapter on improper payments in effect 

during fiscal year 2011, DOD components, which include the military 

services and defense agencies, are to perform risk assessments, 

statistically estimate improper payments, identify root causes and develop 

corrective actions, and report improper payment information annually to 

20DOD, FMR, Volume 4, Chapter 14, Improper Payments (October 2011). An additional 

update to this chapter was made in October 2012.

DOD’s Improper Payments 

and Recovery Auditing 

Policies
 

Page 11 GAO-13-227 DOD Financial Management 

the OUSD(C). The OUSD(C) is responsible for consolidating component 

information and preparing department-wide improper payment reports.

DOD’s FMR chapter on recovery efforts that was in effect during fiscal 

year 2011 was issued in 2009, before IPERA was enacted.21 In October 

2012, the department issued its revised FMR chapter on recovery audits 

to implement the requirements of IPERA and associated OMB 

guidance.22 The October 2012 recovery auditing chapter was published 

after fiscal year 2011 was completed, and we determined that the 

revisions did not affect the findings in this report.

In July 2009,23

 

21DOD, FMR, Volume 10, Chapter 22, Recovery Audits (November 2009). 

prior to the enactment of IPERA, we reported on DOD’s 

efforts to address improper payments under IPIA and the recovery 

auditing requirements under the RAA. In that report, we made 13 

recommendations aimed at improving DOD’s efforts to strengthen its 

improper payment and recovery auditing processes. At that time, DOD 

did not concur with 12 of our 13 recommendations. However, as 

discussed in that report, we continued to believe that all 13 

recommendations were critical for DOD to enhance its efforts to minimize 

improper payments and recover those that were made. Figure 1 lists the 

recommendations from our 2009 report.

22DOD, FMR, Volume 10, Chapter 22, Payment Recapture Audits (October 2012).

23GAO-09-442. 

GAO’s 2009 Report 

Recommendations
 

Page 12 GAO-13-227 DOD Financial Management 

Figure 1: GAO’s 2009 Report Recommendations to DOD
 

Page 13 GAO-13-227 DOD Financial Management 

The department reported improper payment information for the following 

eight programs in its fiscal year 2011 AFR:

• Military health benefits are payments made to health care providers 

for services provided to active duty personnel and their family 

members, retirees and their family members, and family members of 

deceased service members through the TRICARE program.

• Military pay includes active duty pay (Army, Navy, Air Force, and 

Marine Corps) as well as the reserve components’ pay (Army 

Reserve, Army National Guard, Navy Reserve, Air Force Reserve, Air 

National Guard, and Marine Corps Reserve).

• Civilian pay includes civilian pay accounts from each of the 

components (Army, Air Force, Navy/Marine Corps, and defense 

agencies).

• Military retirement pay includes both payments to military retirees and 

the family members of deceased retirees (annuitants).

• Travel pay includes travel payments made through the Defense 

Travel System (DTS) for the military services and defense agencies 

as well as additional travel payments made by the Army, Navy, and 

Air Force for vouchers paid outside of DTS.

• DFAS commercial pay includes payments made by DFAS on behalf of 

DOD components to vendors and contractors.

• USACE travel pay includes travel payments made by USACE to 

employees.

• USACE commercial pay includes contract payments made by 

USACE. 

Figure 2 shows the total outlays, improper payment totals (sum of the 

overpayments and the underpayments), and total improper payments as 

a percentage of total outlays, as reported by DOD in its fiscal year 2011 

AFR. The improper payment total shown for DFAS commercial pay was 

not a statistical estimate, but was limited to known improper payments.

DOD’s Improper Payment 

Reporting in Its Fiscal Year 

2011 Agency Financial 

Report
 

Page 14 GAO-13-227 DOD Financial Management 

Figure 2: DOD’s Fiscal Year 2011 Reported Outlays and Improper Payments

As shown in figure 2, DOD identified its programs for improper payment 

estimation and reporting in such a way that each program represents a 

category of disbursements made by the department. OMB’s guidance 

does not specify how agencies are to identify programs for improper 

payment estimation and reporting, but advises that agencies determine 

the grouping of programs that most clearly identifies and reports improper 

payments for their agency.

DOD did not adequately implement key provisions of IPIA, IPERA, and 

OMB guidance related to estimating improper payments, identifying 

programs susceptible to significant improper payments, reducing 

improper payments through corrective actions, recovering improper 

payments, and reporting improper payment estimates and recovery 

efforts. Most important, we found that DOD’s improper payment estimates 

were neither reliable nor statistically valid. Also, DOD did not conduct a 

risk assessment for fiscal year 2011 in accordance with IPERA 

requirements. Further, although DOD had a corrective action plan for 

fiscal year 2011, the plan did not identify the underlying reasons or 

conditions that caused the errors to occur. Additionally, DOD did not 

Significant 

Deficiencies Existed 

in DOD’s 

Implementation of 

Key Provisions of 

IPIA, IPERA, and 

OMB Guidance
 

Page 15 GAO-13-227 DOD Financial Management 

conduct recovery audits nor did it determine that such audits would not be 

cost effective, as required by IPERA. Finally, the department did not have 

procedures to ensure that improper payment and recovery audit reporting 

in its fiscal year 2011 AFR was complete, accurate and compliant.

DOD’s improper payment estimates reported in its fiscal year 2011 AFR 

were neither reliable nor statistically valid because of several deficiencies 

in the department’s procedures as documented in its sampling 

methodologies. Because of DOD’s long-standing and pervasive financial 

management weaknesses, the department did not have complete and 

accurate populations of payments from which to select statistical 

samples. We also identified deficiencies related to its (1) sampling 

methodologies and (2) maintenance of key documentation supporting its 

improper payment estimates.

The foundation of reliable statistical sampling estimates is a complete, 

accurate, and valid population from which to sample. However, the 

department’s long-standing and pervasive financial management 

weaknesses precluded it from validating the completeness of its payment 

transaction populations. For example, DOD’s fiscal year 2011 Statement 

of Budgetary Resources (SBR) reported nearly $1,017 billion in gross 

outlays in fiscal year 2011.24 As previously shown in figure 2, the outlays 

for the eight programs for which the department reported improper 

payments totaled $617 billion. DOD attributed most of the difference 

between the SBR gross outlays and outlays for the eight programs to 

intragovernmental transactions and trust fund transfers,25

 

24The SBR is designed to provide information on authorized budgeted spending authority 

reported in the Budget of the United States Government (President’s Budget), including 

budgetary resources, availability of budgetary resources, and how obligated resources 

have been used. An outlay is the issuance of a check, disbursement of cash, or electronic 

transfer of funds made to liquidate a federal obligation. 

which IPERA 

exempted from improper payment estimation and reporting requirements. 

However, the department was unable to reconcile these two outlay 

amounts. DOD acknowledged in its fiscal year 2011 AFR that reported 

outlays for the eight programs could not be reconciled to gross outlays 

reported in the SBR. As a result, DOD could not ensure that all required 

25Intragovernmental transactions are collections from and payments to other federal 

government accounts, often as payment for goods or services provided. A trust fund is 

used to finance specific purposes or programs under a trust agreement or statute. 

DOD’s Improper Payment 

Estimates Were Neither 

Reliable Nor Statistically 

Valid

Deficiencies in Identifying 

Complete and Accurate 

Populations of Payments
 

Page 16 GAO-13-227 DOD Financial Management 

outlays for improper payment reporting purposes were included in the 

sample populations.

Although DOD had documented methodologies for developing improper 

payment estimates, DOD did not establish and perform key quality 

assurance procedures, such as reconciliations, on its program 

populations to validate that the populations were complete and accurate 

before selecting the statistical samples that were used to estimate 

improper payments. Standards for Internal Control in the Federal 

Government states that control activities such as reconciliations are an 

integral part of an entity’s planning, implementing, reviewing, and 

accountability for stewardship of government resources and achieving 

effective results.26

In addition to the lack of complete, valid, and accurate populations, 

deficiencies in DOD’s procedures as documented in its sampling 

methodologies further impaired DOD’s ability to produce reliable improper 

payment estimates. First, DOD’s sampling methodologies are based on 

the use of simple random samples to select payments to review for 

improper payments and thereby derive error rates. Using these 

methodologies, each transaction in the programs’ sample populations had 

an equal chance of selection without regard to the complexity of the 

transaction or its risk of being an improper payment. OMB guidance 

states that agencies will need to utilize complex sample designs to the 

extent their payment population contains wide-ranging dollar amounts, 

types of payments, or both.

An effective reconciliation process would involve 

comparing transactions to supporting documentation, systems of record, 

or both to ensure the completeness, validity, and accuracy of financial 

information. An effective reconciliation process also involves resolving 

any discrepancies that may have been discovered and determining if 

unauthorized changes have occurred to transactions during processing.

In addition, DOD did not use a sampling unit that was statistically 

appropriate for any of its programs. For example, the sampling unit for 

travel pay for fiscal year 2011 was the travel voucher. Each voucher had 

an equal chance of selection in the samples upon which improper 

payment estimates were based. However, DOD’s travel pay transactions 

 

26GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 

Deficiencies in Sampling 

Methodologies
 

Page 17 GAO-13-227 DOD Financial Management 

range in complexity from an individual soldier’s relocation to payments 

made on travel vouchers involving multiple travel orders. As another 

example, DFAS commercial pay’s sampling unit was an individual 

invoice. As DOD reported in the fiscal year 2012 AFR, a $10 million 

invoice had the same chance of being sampled as a $100 invoice. 

Generally, higher dollar payments involve more complex transactions and 

thus are at greater risk of being an improper payment. If a population 

contains a few large invoices and many smaller invoices, equal probability 

sampling is unlikely to capture the large invoices. DOD’s sampling 

methodologies do not account for this risk. By not designing more 

complex sampling methodologies that utilize more statistically appropriate 

sampling units, such as dollars paid, DOD’s improper payment estimates 

could be significantly understated.

Further, DOD provided evidence that it used its sampling methodologies 

to calculate statistically valid improper payment error rate estimates and 

related confidence intervals for military pay, civilian pay, and travel pay for 

fiscal year 2011, but did not provide such evidence for military health 

benefits, military retirement, USACE commercial pay, or USACE travel 

pay. Additionally, DOD did not generate statistically valid improper 

payment dollar value estimates for any of its programs. For instance, 

DOD did not use appropriate weights to calculate the reported dollar 

value estimates. Moreover, DOD did not derive confidence intervals for its 

improper payment dollar value estimates for any of its programs.

Generally accepted statistical standards require the calculation and 

disclosure of confidence intervals around an estimate with a specified 

degree of confidence.27

As previously mentioned, DOD did not statistically derive an estimate of 

improper payments for DFAS commercial pay for fiscal year 2011, but 

instead limited its reporting to known improper payments. Although DOD 

reported a statistically derived improper payment estimate— 

$100.1 million—for DFAS commercial pay for fiscal year 2012, the 

sampling methodology used to produce this estimate had deficiencies 

similar to the methodologies used for the department’s other programs. 

Confidence intervals are a measure of the 

possible difference between the sample estimate and the actual 

population value, providing an idea of how close the sample estimate is to 

the actual population value.

 

27See OMB, Standards and Guidelines for Statistical Surveys, and GAO-09-680G. 
 

Page 18 GAO-13-227 DOD Financial Management 

For example, to estimate DFAS commercial pay improper payments, 

DOD did not use a statistically appropriate sampling unit or a 

methodology that considered large dollar amounts or the level of 

complexity of the related payments. In its AFR for fiscal year 2012, DOD 

noted that the department had identified $318.3 million in known improper

payments for DFAS commercial pay for fiscal year 2012. Further, DOD 

cited the sampling methodology as the main reason for the difference 

between the reported estimate of $100.1 million and the known amount of 

$318.3 million for DFAS commercial pay improper payments, which 

provides further evidence of how the deficiencies we identified in the 

sampling methodologies adversely affect the reliability of the resulting 

estimates. In our July 2009 report,28

DOD did not have procedures in place to collect and maintain key 

supporting documentation needed to substantiate the improper payment 

estimates reported in its fiscal year 2011 AFR. For example, DOD did not 

maintain complete supporting documentation for the populations of 

transactions, from which statistical samples were selected, for most of the 

programs for which improper payment estimates were reported. This 

deficiency contributed to our determination that DOD’s reported improper

payment estimates were not reliable. DOD officials stated that they were 

unaware of the extent of documentation necessary for the department to 

maintain to support its improper payment estimates. 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.

we recommended that DOD develop 

and implement a statistically valid methodology to estimate and report 

commercial improper payments (contract and vendor over- and 

underpayments). This recommendation remains valid given the issues we 

have found during the course of this review.

29 Further, OMB guidance directs 

agencies to retain documentation to support the calculation of their 

estimates.30

 

28GAO-09-442. 

29GAO/AIMD-00-21.3.1. 

30OMB, Memorandum M-11-16.

Deficiencies in Maintenance of 

Key Supporting Documentation
 

Page 19 GAO-13-227 DOD Financial Management 

To enable auditors and other parties to substantiate reported improper 

payment estimates, we determined that the following documentation 

would generally need to be maintained:

• Description of the sampling methodology, including identification of 

the sampling units accompanied by an explanation of how the 

sampling units were determined.

• Schedules showing the total number of items and dollar value totals 

for each sample population31

• Descriptions and results of data reliability and quality assurance 

testing conducted to ensure that payment information in the sample 

populations was complete and accurate.

for each military service and defense 

agency by program and month.

• Descriptions of how each sample was selected, including the random 

number and how it was generated, the software used to select the 

sample from the sample population, and copies of software program 

logs and related output files. The software program logs and related 

output files should have the details related to the sample population 

totals and samples selected, including the total number of items and 

dollar value totals in the sample population as well as a list of the 

items selected to be in the sample. In addition, a description of the 

method of selection of replacement items is needed.

• Descriptions of attributes32 and variables33

• Calculations, spreadsheets (including cell formulas), and software 

programs used to evaluate the individual test results for every sample 

item tested, including the calculations used to derive each improper 

payment error rate and dollar value estimate and the related 

confidence intervals.

tested for each sampled 

transaction used to derive the total dollar value of improperly paid 

amounts, including source documents for each sampled transaction 

that support the conclusion of whether the sampled payment was 

improper. 

 

31The sample population is defined as the population from which the sample was 

selected. 

32Attribute sampling is used to test whether the item being sampled does or does not 

possess specified attributes. The results of an attribute sample can be used to identify the 

extent to which an improper payment had been made, and the error rate based on the 

sample results. 

33Variable sampling results identify whether an error has been made and the dollar 

amount of the error.
 

Page 20 GAO-13-227 DOD Financial Management 

• Calculations, spreadsheets (including cell formulas), software 

programs, inputs and outputs used to aggregate the individual error 

rate and dollar value estimate and related confidence intervals from 

each sample to derive the improper payment estimates reported in the 

AFR. These documents should provide a clear trail showing how the 

results of each sample were aggregated, from the lowest level of 

sampling test results through to the estimates published in the AFR.

• Schedules listing all missing sample items and how these sample 

items were treated and related explanations.

• Schedules listing all items replaced and related explanations.

The lack of complete supporting documentation precludes DOD and 

others from being able to determine the reliability of its reported improper 

payment estimates.

DOD did not perform a risk assessment for fiscal year 2011 as required 

by IPERA, because DOD officials told us that they did not see any added 

value in doing a risk assessment. According to DOD officials, OMB 

directed the department to consider all of its programs as risksusceptible—following its review of the department’s fiscal year 2006 

improper payment reporting—because of the complex nature of the 

department’s business processes and the large dollar value of its annual 

payments. However, DOD officials were unable to provide documentation 

of this directive. Moreover, as discussed previously, IPERA laid out a 

clear statutory requirement to perform a risk assessment in fiscal year 

2011, which would supersede an earlier OMB directive.

Our executive guide describes characteristics of an effective risk 

assessment done for the purpose of determining an entity’s susceptibility 

to improper payments.34

 

34

A risk assessment is an activity that entails a 

comprehensive review and analysis of program operations to determine 

where risks exist and what those risks are, and then measuring the 

potential or actual impact of those risks on program operations. Once risk 

areas are identified, their potential impact on programs and activities 

should be measured and additional controls should be considered. As 

risks are addressed and controls are changed, the assessment should 

occasionally be revisited to determine where the risks have decreased 

and where new areas of risk may exist.

GAO-02-69G. 

DOD Did Not Conduct 

Required Risk 

Assessments
 

Page 21 GAO-13-227 DOD Financial Management 

By not doing a risk assessment for fiscal year 2011, DOD missed the 

opportunity to gain critical information for determining corrective actions 

needed to reduce improper payments. Periodic risk assessments are 

critical to ensuring that the department is identifying the root causes of 

improper payments and developing appropriate corrective actions. The 

information developed during a risk assessment forms the foundation or 

basis upon which management can determine the nature and type of 

corrective action needed. In addition, this information gives management 

baseline data for ensuring progress in reducing improper payments.

Additionally, performing risk assessments may be more cost beneficial 

than estimating improper payments for each program. Given the time and 

resources needed to verify the completeness of populations, select and 

test samples, and evaluate and project the results of the samples, the 

department may be able to realize savings by first performing risk 

assessments. Moreover, if performed in a manner similar to that 

described in our executive guide, the information gained during the risk 

assessment may help DOD to determine the best sampling methodology 

to be used for each program, develop corrective actions, and guide 

recovery auditing efforts.

In our July 2009 report,35

DOD has not fully implemented these recommendations. In October 

2011, DOD updated its FMR chapter on improper payments,

we made three recommendations to DOD with 

regard to risk assessments. Specifically, we recommended that the 

department (1) establish and implement a systematic approach, as a part 

of the risk assessment process, to ensure that all programs and activities 

are reviewed to determine susceptibility to improper payments; 

(2) develop and implement detailed guidance for conducting risk 

assessments, including the steps to determine if risk exists, what those 

risks are, and the potential or actual impact of those risks on program 

operations; and (3) require DOD agencies and military services to 

document the risk assessment methodology used, including the risk 

factors considered and the rationale for assessing the risk level for the 

payment activity.

36

 

35

but the 

section discussing the frequency of risk assessments was not in 

GAO-09-442. 

36DOD, FMR, Volume 4, Chapter 14, Improper Payments (October 2011). 
 

Page 22 GAO-13-227 DOD Financial Management 

accordance with IPERA. For example, IPERA requires agencies to 

perform a risk assessment in the year after enactment (fiscal year 2011) 

and at least once every 3 years thereafter. However, the FMR chapter 

states that components are required to conduct risk assessments only for 

those programs or activities for which the risk level is unknown or is not 

currently measured and reported. DOD’s FMR does not provide a 

systematic approach to ensure that all programs and activities are 

reviewed to determine susceptibility to improper payments. Moreover, 

although DOD’s FMR states that components’ risk assessment 

methodologies must be documented and maintained, the FMR does not 

provide detailed requirements on what should be documented and 

maintained.

As discussed previously, DOD’s lack of a risk assessment makes it 

difficult for the department to fully identify root causes and develop a 

comprehensive, effective, corrective action plan. While DOD has a policy 

for developing and reporting on corrective actions, it did not have detailed 

procedures for identifying root causes and related corrective actions. 

Also, the department’s corrective action plan, included in its fiscal year 

2011 AFR, did not contain all elements of corrective action plans required 

by IPERA and OMB guidance,37

DOD’s corrective action plan reported reasons that improper payments 

occurred for all eight programs and included corrective actions to address 

them, but the reported reasons identified the type of errors that resulted in 

the improper payments, rather than the root causes—the underlying 

conditions that caused the errors to occur. DOD’s identified reasons do 

not consider possible underlying systemic causes of the errors, such as 

whether manual and automated controls were either not sufficient or not

operating as intended. As a result, the related corrective action(s) 

addressed specific errors and not necessarily the underlying condition 

that gave rise to the error. Agencies, when developing corrective action 

plans, can use the results of risk assessments to ensure that the root 

causes leading to improper payments are identified.

such as establishing accountability for 

reducing improper payments and including completion dates for 

implementing corrective actions.

 

37OMB, Memorandum M-11-16. 

DOD’s Corrective Action 

Plan Was Not Sufficiently 

Detailed to Effectively 

Reduce Improper 

Payments
 

Page 23 GAO-13-227 DOD Financial Management 

Also, the corrective actions reported were not sufficiently detailed to 

assess whether they would address the errors that were identified for 

DOD’s reported programs. For example, in fiscal year 2011, DOD 

reported that the corrective actions for military pay consisted of working 

with the military services to advise them of the results of payment reviews 

and the associated reasons for errors, including the provision of monthly 

reports on the reasons for individual improper payments and improper 

payment trends. While these corrective actions provide information on the 

reasons for improper payments, they do not indicate what, if any, actions 

the military services would take to address the causes of improper 

payments.

DOD’s corrective action plan also did not describe the required steps for 

ensuring that responsible officials are held accountable for reducing 

improper payments, as required by IPERA. In addition, according to the 

United States Chief Financial Officers Council’s (CFOC) Implementation 

Guide for OMB Circular A-123, agencies should have procedures for 

tracking the status of corrective action plans.38

In our July 2009 report,

The implementation guide 

provides that corrective action plans should include measurable indicators 

of compliance and resolution for assessing and validating progress 

throughout the resolution cycle. However, DOD’s corrective action plan 

did not include (1) a timetable for when the corrective actions were to be 

implemented and (2) measurable indicators of compliance and resolution, 

which include follow-up tests to verify whether procedures and controls 

are working, to assess and validate progress in reducing improper 

payments.

39 we recommended that DOD identify and fully 

disclose the root causes of improper payments. We also recommended 

that the department identify and fully disclose the corrective actions, and 

monitor the corrective actions to ensure that they address applicable root 

causes. According to DOD’s improper payments chapter in its FMR,40

 

38CFOC, Implementation Guide for OMB Circular A-123. The guide is intended to assist 

federal managers with implementing a process for assessing the effectiveness of an 

entity’s internal control over financial reporting.

DOD components are to (1) identify root causes, (2) develop corrective 

actions and a timeline for implementation, and (3) periodically monitor 

39GAO-09-442. 

40DOD, FMR, Volume 4, Chapter 14, Improper Payments (October 2011).
 

Page 24 GAO-13-227 DOD Financial Management 

those actions to ensure that future improper payments will be reduced or 

eliminated. However, the FMR does not provide detailed procedures for 

the components to follow to identify root causes and develop corrective 

actions, and for the department to follow in monitoring the implementation 

of those corrective actions. DOD has not yet implemented our 

recommendations and told us that it was not planning any significant 

changes to its corrective action processes. Until DOD develops and 

implements detailed procedures that include the information required by 

IPERA and OMB guidance and recommended by best practices, DOD will 

continue to be hindered in its ability to (1) develop corrective action plans 

that address root causes, (2) effectively monitor and measure the 

progress made in taking those corrective actions, (3) hold individuals 

responsible for implementing corrective actions, and (4) communicate to 

agency leaders and key stakeholders the progress made toward 

remediating improper payments.

We identified multiple deficiencies and omissions in DOD’s efforts to 

implement IPERA’s recovery audit requirements due to a lack of 

appropriate procedures. DOD neither conducted recovery audits in fiscal 

year 2011 nor determined that such audits would not be cost effective, as 

required by IPERA. Further, most DOD programs did not identify and 

collect cost information for their recovery efforts that would permit costeffectiveness evaluations, and the programs that did collect this 

information did not subsequently evaluate the programs to ensure that 

they were, in fact, cost effective. We also identified deficiencies and 

omissions in the payment recapture audit plan that DOD submitted to 

OMB.

DOD did not conduct recovery audits for the eight programs for which it 

reported improper payments in fiscal year 2011, nor has it determined 

that such audits would not be cost effective (i.e., that the government 

would not suffer additional financial losses because of ineffective 

recovery programs), as required by IPERA, because of outdated policy 

and a decision to rely on other recovery mechanisms. DOD’s FMR 

chapter on recovery efforts that was in effect during fiscal year 2011 was 

issued in 2009, before IPERA was enacted.41

 

41DOD, FMR, Volume 10, Chapter 22, Recovery Auditing (November 2009). 

As a result, the FMR 

chapter did not account for the expansion of recovery audits beyond 

DOD Did Not Implement 

IPERA’s Recovery Audit 

Requirements

DOD Did Not Conduct 

Recovery Audits as Required 
 

Page 25 GAO-13-227 DOD Financial Management 

commercial payments, as called for by IPERA. In addition, DOD cited its 

difficulties in tracing transactions back to source documentation as a 

major obstacle to conducting effective recovery audits.

In lieu of conducting cost-effective recovery audits, DOD’s payment 

recapture audit plan stated that the department would rely on efforts such 

as random sampling of improper payments, DOD Inspector General (IG) 

and other auditor findings, self-reporting by recipients, and other 

activities, such as periodic independent reviews of commercial payments, 

to identify overpayments for potential recovery for seven programs. 

However, DOD did not describe any improper payment recovery effort in 

place for travel pay in the payment recapture audit plan. According to the 

fiscal year 2011 AFR, DOD estimated $238.2 million in overpayments 

related to travel pay during fiscal year 2011.42

In our July 2009 report,

Through procedures, 

including analysis of duplicate payments from fiscal years 2009 and 2010, 

DOD identified for recovery $1.6 million in travel pay overpayments, or 

less than 1 percent of the program’s estimated improper payments. DOD 

officials stated that they believe that a significant portion of the estimated 

improper overpayment amount was due to missing supporting 

documentation and did not represent funds owed to the federal 

government. However, DOD was not able to quantify how much, if any, of 

the overpayment estimate was due to missing documentation. Because 

DOD has not established recovery audits to recapture improper 

overpayments, and has not determined that such mechanisms would not 

be cost effective, DOD is at risk of forgoing the detection and recovery of 

potentially substantial funds owed to the government.

43 we recommended that the DOD Comptroller 

develop and implement detailed guidance to assist DOD agencies and 

the military services in effectively carrying out recovery audits and 

activities. DOD issued a revised FMR chapter on recovery audits in 

November 2009,44 before IPERA was enacted, and again in October 

2012.45

 

42As shown in figure 2, the total travel pay improper payment estimate for fiscal year 2011 

was $286.6 million. This amount consisted of $238.2 million in estimated overpayments 

and $48.4 million in estimated underpayments. 

The October 2012 version of the FMR chapter is designed to 

43GAO-09-442. 

44DOD, FMR, Volume 10, Chapter 22, Recovery Audits (November 2009). 

45DOD, FMR, Volume 10, Chapter 22, Payment Recapture Audits (October 2012). 
 

Page 26 GAO-13-227 DOD Financial Management 

establish the DOD program to implement the requirements of IPERA and 

associated OMB guidance with respect to recovery audits. The revised 

FMR directs all components with programs and activities with annual 

payments that exceed $1 million to determine if instituting recovery audits 

is cost effective. However, our review of the 2012 FMR chapter indicates 

that the guidance is still lacking some key elements that would enable 

DOD components to fully implement IPERA and OMB guidance. For 

example, the 2012 FMR chapter does not require the components to 

submit information to the OUSD(C) that OMB directs agencies to report, 

such as the amount of commercial pay recoveries that were used to offset 

future payments and the amount of improper overpayments identified 

through contract closeouts. Consequently, DOD has not yet fully 

implemented our 2009 recommendation.

We found that DOD, with the exception of USACE, did not have 

procedures to identify and collect information on costs related to its

payment recovery efforts. As a result, DOD did not determine if its 

ongoing recovery efforts, such as periodic independent reviews of 

commercial payments, were cost effective or if it would be cost effective 

for the department to establish and implement recovery audits for its 

programs.

Even when DOD did determine the cost of certain improper payment 

recovery efforts, the department did not ensure that the efforts were cost 

effective. For example, USACE officials told us that the agency’s daily 

automated review system, which uses a data mining process to review 

contract payments for potential errors, costs $64,000 annually. However, 

USACE reported that as of December 2012, the system had only 

identified and recovered one improper payment of $20.79 since its 

implementation in May 2009. A USACE official stated that she believed 

that the data mining process was mandatory and that USACE was 

attempting to keep the cost as low as possible. By not assessing the costeffectiveness of the daily automated review system, DOD is at risk of 

operating an improper payment recovery effort that is not cost beneficial.

As stated previously, in October 2012, DOD issued an updated FMR 

chapter on recovery audits that directed all components with programs 

and activities with annual payments that exceed $1 million to determine if 

instituting recovery audits is cost effective. Further, the FMR chapter 

directed DOD components to report the total cost of their respective 

recovery audits and related recovery efforts. However, until the 

department establishes procedures to consistently identify and collect 

information regarding costs of recovery audits, DOD will be unable to 

DOD Does Not Have a Process 

in Place to Assess Costeffectiveness 
 

Page 27 GAO-13-227 DOD Financial Management 

implement the FMR policy and determine if recovery audits are cost 

effective to operate.

In our July 2009 report,46

OMB directed agencies to prepare and submit to both OMB and the 

agency’s IG a payment recapture audit plan by January 2011 that 

describes payment recapture efforts under both IPERA and authorities 

that pre-dated IPERA.

we recommended that the DOD Comptroller 

establish and implement a process to identify costs related to the 

department’s recovery auditing program, including costs for employees’ 

salaries. DOD has not implemented our recommendation and given the 

findings of this review, our prior recommendation remains valid.

47

• The quantity and dollar amount of payment reviews (except for 

USACE, which indicated quantity of items reviewed).

Payment recapture audit plans, if properly 

developed, would help an agency manage its activities to maximize 

recovery of improper payments. DOD developed and submitted a 

payment recapture audit plan to OMB and the DOD IG in January 2011. 

In response to OMB and DOD IG comments, DOD revised and 

resubmitted its plan in November 2011. However, we found that DOD’s 

payment recapture plan did not include the following required elements:

• Types of tools used to review payments (except for USACE, which 

disclosed an Oracle-programmed data mining tool).

• When the payments that were reviewed were made.

• A description of whether the payment recapture audit program 

focuses on programs or particular steps in a program’s payment 

process that are at higher risk of fraud, waste, and abuse.

• A description of the guidance that DOD provides to agency staff 

related to responsibilities and procedures to implement mechanisms 

to recover improper payments.

• Technology being used or planned that would assist in preventing and 

recapturing improper payments.

By not developing and implementing a payment recapture audit plan that 

contains all elements required by OMB, DOD is not in compliance with 

OMB requirements and is hindered in its ability to effectively manage its 

recovery efforts.

 

46GAO-09-442. 

47OMB, Memorandum M-11-04.

Omissions in DOD’s Payment 

Recapture Audit Plan
 

Page 28 GAO-13-227 DOD Financial Management 

DOD did not have documented procedures to ensure that improper 

payment reporting in the AFR was complete, accurate, and in compliance 

with statutory and regulatory guidance. We identified multiple reporting 

omissions in DOD’s fiscal year 2011 AFR. For example, the department 

did not include the following information required by IPERA and OMB 

guidance:

48

• corrective actions that would address the root causes of military 

health benefits improper payments;

• the actual or planned completion dates for corrective actions;

• the portion of the improper payment estimates attributable to 

insufficient supporting documentation or administrative errors; and

• whether the agency had the human capital, internal controls, and 

accountability mechanisms necessary to reduce improper payments.

DOD also did not have documented procedures to ensure that recovery 

audit reporting in the AFR was complete, accurate, and in compliance 

with statutory and regulatory guidance. We identified instances where 

DOD’s reporting of efforts to recover improper payments did not include 

all information required by OMB guidance. For example, DOD did not 

disclose the following in the fiscal year 2011 AFR:

• the amount of contract payments that was voluntarily returned to 

DOD;

• the amount of improper contract payments identified by contract 

closeouts;

• the amount of commercial pay recoveries used to offset future 

payments rather than returned to DOD;

• improper payments identified as a result of DOD IG investigations, 

GAO audits, or reviews by DOD internal review offices, such as 

TMA’s Program Integrity Office, in its table of overpayments 

recaptured outside of payment recapture audits; and

• the total amount of and justification for identified improper 

overpayments that were determined to be uncollectible in fiscal year 

2011.

An OUSD(C) official told us that the OUSD(C) does not have standard 

operating procedures for the compilation, review, and reporting of 

improper payment and recovery audit information in its AFR. This 

 

48OMB, Circular No. A-136 Revised (October 27, 2011), and OMB, Memorandum M-11-

16. 

DOD Did Not Have 

Documented Procedures 

for Improper Payment and 

Recovery Audits Reporting
 

Page 29 GAO-13-227 DOD Financial Management 

OUSD(C) official stated that the department uses Appendix C of OMB 

Circular No. A-123, Requirements for Effective Measurement and 

Remediation of Improper Payments;

49

Standards for Internal Control in the Federal Government provides that 

internal control activities need to be clearly documented.

OMB Circular No. A-136; and other 

relevant OMB instructions to prepare the improper payment addendum. 

However, as evidenced by the omissions in DOD’s improper payment and 

recovery audit reporting for fiscal year 2011, the department’s current 

process is not producing reports that comply with IPERA and OMB 

guidance.

50

Further, DOD has not yet implemented our 2009 recommendations that 

the DOD Comptroller perform oversight and monitoring activities to 

ensure the accuracy and completeness of the improper payment and 

recovery audit data submitted by DOD components for inclusion in the 

AFR.

Without 

documented procedures for the compilation and review of improper 

payment and recovery audit information, DOD is at risk of continuing to 

publish incomplete and inaccurate reports.

51

 

49OMB Memorandum M-11-16 comprises the current version of Parts I and II of Appendix 

C to Circular No. A-123. 

During our current review, we identified multiple instances when 

DOD’s oversight and monitoring of improper payment and recovery audit 

data submitted by components for inclusion in the AFR did not identify 

errors or omissions. For example, we identified a calculation error in the 

military health benefits improper payment estimate. Specifically, TMA 

used an improper denominator to calculate the improper payment rate for 

its sample. Instead of dividing the dollar amount of identified improper 

payments in the sample by the dollar amount paid to providers, which 

would provide a percentage of improper payments, TMA divided the 

dollar amount of identified improper payments by the dollar amount billed 

by providers for the services rendered. As a result, TMA’s improper 

payment rate of 0.24 percent, as reported in DOD’s fiscal year 2011 AFR, 

was incorrect. This calculation error was not identified by OUSD(C) 

personnel during their review of DOD component submissions of data for 

inclusion in the AFR.

50GAO/AIMD-00-21.3.1. 

51GAO-09-442. 
 

Page 30 GAO-13-227 DOD Financial Management 

In addition, OUSD(C) oversight and monitoring did not detect the 

overstatement of overpayment amounts identified and recovered for 

military retirement. Upon receiving a notification of death for a retiree or 

annuitant, DFAS records the entire amount of the last payment made to 

the retiree or annuitant as an overpayment identified and, after collecting 

the funds, as an overpayment recovered. However, the identified and 

recovered amounts recorded did not take into account that the retiree or 

his/her survivor may have been entitled to receive a portion, if not all, of 

the payment. As a result, the amounts that DFAS reported to the 

OUSD(C) as military retirement overpayments identified and recovered 

were overstated. This is one reason why DOD reported for fiscal year 

2011 that the department had identified $67.6 million in military retirement 

improper overpayments for recovery, while estimating that only 

$18.8 million in military retirement improper overpayments had 

occurred.52 Further, the OUSD(C) oversight and monitoring did not 

identify omissions in TMA’s submission regarding overpayments identified 

outside of recovery audits. In its submission to OUSD(C), TMA did not 

include improper overpayments identified through its Program Integrity 

Office, which is responsible for prevention, detection, investigation and 

control of TRICARE fraud, waste, and abuse. As noted above, the 

OUSD(C) subsequently omitted this information from its fiscal year 2011 

AFR reporting. Therefore, our prior recommendations for the DOD 

Comptroller to perform oversight and monitoring activities to ensure the 

accuracy and completeness of the improper payment and recovery audit 

data submitted by DOD components for inclusion in the AFR remain valid 

given the findings of this review.

Although DOD reported estimated and known improper payments of over 

$1.1 billion for fiscal year 2011, this amount cannot be relied upon 

because of the deficiencies we found related to DOD’s procedures for 

identifying, estimating, reducing, recovering, and reporting improper 

payments. DOD’s long-standing history of pervasive financial 

management weaknesses, coupled with problematic sampling 

methodologies and the lack of adequate supporting documentation, 

contributed to improper payment estimates that were not reliable. Further, 

DOD has not established the procedures needed to effectively implement 

 

52As shown in figure 2, the total military retirement improper payment estimate for fiscal 

year 2011 was $18.9 million. This amount consisted of $18.8 million in estimated 

overpayments and $0.1 million in estimated underpayments. 

Conclusions
 

Page 31 GAO-13-227 DOD Financial Management 

the improper payment and recovery auditing requirements included in 

IPERA and OMB’s implementing guidance. By not performing a risk 

assessment as required by IPERA, DOD did not reap the associated 

benefits, including the ability to better identify root causes and develop a 

comprehensive and effective corrective action plan to reduce improper 

payments. DOD’s lack of a detailed and effective corrective action plan 

also made it difficult for department officials to monitor and measure the 

extent of progress made to remediate causes, hold individuals 

responsible for implementing corrective actions, or communicate to DOD 

leadership and other key stakeholders the extent of the department’s 

progress in remediating the causes of improper payments. In addition, 

DOD did not comply with the IPERA requirement to either conduct 

recovery audits or provide justifications that such audits would not be cost 

effective. Finally, the department’s lack of key required information in its 

fiscal year 2011 AFR precludes DOD’s leadership and external 

stakeholders from determining whether DOD has the necessary human 

capital, internal controls, and accountability mechanisms to reduce 

improper payments. Until the department takes definitive action to 

address these deficiencies and thereby fulfills the requirements of IPERA 

and its implementing guidance, it remains at risk of continuing to make 

improper payments and wasting taxpayer funds.

We recommend that the Secretary of Defense direct the Under Secretary 

of Defense (Comptroller) to take the following 10 actions:

• With regard to estimating improper payments:

• Establish and implement key quality assurance procedures, such 

as reconciliations, to ensure the completeness and accuracy of 

the sampled populations.

• Revise the procedures documented in DOD’s sampling 

methodologies so that they (1) are in accordance with OMB 

guidance and generally accepted statistical standards and 

(2) produce statistically valid improper payment error rates, 

statistically valid improper payment dollar estimates, and 

appropriate confidence intervals for both. At a minimum, such 

procedures should take into account the size and complexity of 

the transactions being sampled.

• Develop and implement procedures to collect and maintain the 

supporting documentation necessary to support improper payment 

estimates.

Recommendations for 

Executive Action
 

Page 32 GAO-13-227 DOD Financial Management 

• With regard to identifying programs susceptible to significant improper 

payments, conduct a risk assessment that is in compliance with 

IPERA. 

• With regard to reducing improper payments, establish procedures that 

produce corrective action plans that:

• Comply fully with IPERA and OMB implementation guidance, 

including at a minimum, holding individuals responsible for 

implementing corrective actions and monitoring the status of the 

corrective actions.

• Are in accordance with best practices, such as those 

recommended by the CFOC, and include (1) measuring the 

progress made toward remediating root causes and 

(2) communicating to agency leaders and key stakeholders the 

progress made toward remediating the root causes of improper 

payments.

• With regard to implementing recovery audits:

• Develop and implement procedures to (1) identify costs related to 

the department’s recovery audits and existing recovery efforts and 

(2) evaluate existing improper payment recovery efforts to ensure 

that they are cost effective.

• Monitor the implementation of the revised FMR chapter on 

recovery audits to ensure that the components either develop 

recovery audits or demonstrate that it is not cost effective to do so.

• Develop and submit to OMB for approval a payment recapture 

audit plan that fully complies with OMB guidance.

• With regard to reporting, design and implement procedures to ensure 

that the department’s annual improper payment and recovery audit 

reporting is complete, accurate, and in compliance with IPERA and 

OMB guidance.

We provided a draft of this report to the Secretary of Defense for 

comment. In response, DOD provided written comments, in which it

concurred with nine recommendations and partially concurred with one 

recommendation. In commenting on our report, DOD acknowledged that 

implementing our recommendations would further strengthen its program. 

DOD cited its planned actions, including (1) reviewing its sampling 

methodologies to ensure that they are appropriate and properly 

documented; (2) developing risk assessments and corrective actions in 

accordance with IPERA, OMB guidance, and best practices; (3) reviewing 

its recovery efforts to ensure that they are cost effective; and (4) ensuring 

that its reporting is complete, accurate, and in compliance with IPERA 

and OMB guidance. 

Agency Comments 

and Our Evaluation
 

Page 33 GAO-13-227 DOD Financial Management 

DOD partially concurred with our recommendation to revise the 

procedures documented in its sampling methodologies so that they 

(1) are in accordance with OMB guidance and generally accepted 

statistical standards and (2) produce statistically valid improper payment 

error rates, statistically valid improper payment dollar estimates, and 

appropriate confidence intervals for both. The department believes that its 

sampling methodologies are in accordance with OMB guidance and 

produce statistically valid improper payment rates and appropriate 

confidence intervals. However, as discussed in our report, we found that 

DOD produced statistically valid error rates and related error rate 

confidence intervals for only three of its programs. Additionally, we found 

that DOD did not produce statistically valid dollar estimates and 

appropriate dollar confidence intervals for any of its programs. However, 

DOD did state that it will review methodologies for all payment types and 

make modifications as appropriate. 

DOD also expressed concern that our characterization of the 

recommended improvements as “significant” does not account for its

efforts to minimize improper payments, particularly through prepayment 

reviews. We acknowledge in our report efforts DOD has made to attempt 

to minimize improper payments. However, the deficiencies we identified 

related to DOD’s identifying, estimating, reducing, recovering, and 

reporting improper payments are significant and indicate that it has not 

yet established the detailed procedures necessary to effectively 

implement IPERA and OMB guidance and thus reduce the risk of making

improper payments. Accordingly, we continue to believe that 

implementation of our recommendations is critical for DOD to enhance its 

efforts to minimize improper payments and to recover those that are 

made.

DOD’s comments are reprinted in appendix II. DOD also provided 

technical comments on our draft report, which we incorporated as 

appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Secretary of Defense, and other interested 

parties. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov. 
 

Page 34 GAO-13-227 DOD Financial Management 

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

Asif A. Khan at (202) 512-9869 or khana@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Key contributors to this report are listed in 

appendix III.

Asif A. Khan

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

Methodology

Page 35 GAO-13-227 DOD Financial Management 

The objective of this engagement was to review the extent to which the 

Department of Defense (DOD) has implemented key provisions of the 

Improper Payments Information Act of 2002 (IPIA),1 the Improper 

Payments Elimination and Recovery Act of 2010 (IPERA),2 and related 

Office of Management and Budget (OMB) guidance.3 The scope for our 

engagement was DOD’s improper payments information presented in the 

department’s fiscal year 2011 Agency Financial Report (AFR),4 because 

this was the most current annual report available at the time of our 

review. As part of this objective, we assessed DOD’s plans and actions to 

estimate improper payments for commercial payments made by the 

Defense Finance and Accounting Service (DFAS) for fiscal year 2012, 

because DOD limited its improper payment reporting for this program to 

known improper payments for fiscal year 2011, rather than reporting a 

statistical estimate.5

To meet this audit objective, we identified the requirements agencies 

must meet by reviewing IPIA and IPERA requirements and OMB 

guidance. We analyzed key documents—such as DOD’s improper 

payments reporting in its fiscal year 2011 AFR, internal guidance in its 

Financial Management Regulation (FMR) in effect for fiscal year 2011 

and subsequent revisions, sampling methodologies, risk assessments, as 

well as the department’s corrective action and payment recapture plans—

and compared them with legal requirements, OMB guidance, and relevant 

 

1

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), codified, as amended, at 31 U.S.C. 

§ 3321 note.

2

Pub. L. No. 111-204, 124 Stat. 2224 (July 22, 2010). 

3

OMB, Memorandum M-11-16, Issuance of Revised Parts I and II to Appendix C of OMB 

Circular A-123 (Apr. 14, 2011); OMB, Circular No. A-136 Revised, Financial Reporting 

Requirements (October 27, 2011); OMB, Memorandum M-11-04, Increasing Efforts to 

Recapture Improper Payments by Intensifying and Expanding Payment Recapture Audits

(Nov. 16, 2010). 

4

DOD’s Agency Financial Report (AFR) for Fiscal Year 2011 provides an overview of the 

department’s financial information and performance goals and objectives. Additional 

information, such as the department’s reporting on improper payments, is in Addendum A 

to the AFR. 

5

DFAS is responsible for providing professional, financial, and accounting services to 

DOD and other federal agencies. It delivers mission-essential payroll, contract and vendor 

pay, and accounting services. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-13-227 DOD Financial Management 

best practices.6

• To assess DOD’s process to review all agency programs and identify 

those susceptible to significant improper payments, we reviewed DOD 

documentation regarding the department’s identification of its eight 

programs,

We interviewed agency officials, including the Deputy 

Chief Financial Officer and Improper Payments Project Officer from the 

Office of the Under Secretary of Defense (Comptroller) (OUSD(C)), and 

the DFAS Deputy Director of Operations, for additional information and 

clarifications. Specifically, we performed the following work:

7 included in the department’s fiscal year 2011 improper 

payments reporting, and why these programs were deemed to be risksusceptible. We interviewed DOD officials, such as the Improper 

Payments Project Officer, to obtain needed clarifications on how these 

programs were identified as being susceptible to significant improper 

payments. In addition to DOD officials, we interviewed OMB officials 

and requested supporting documentation for clarification as to any 

instructions the department received from OMB. We also compared 

DOD’s practices to the GAO executive guide for managing improper 

payments.8

• We performed an independent analysis of DOD’s sampling 

methodologies for the seven programs,9 including a review of their 

sampling plans and other underlying documentation, and evaluated 

whether DOD’s sampling methodologies complied with OMB guidance 

and generally accepted statistical sampling practices.10

 

6

OMB, Standards and Guidelines for Statistical Surveys (September 2006); GAO, 

Assessing the Reliability of Computer-Processed Data, GAO-09-680G (Washington, D.C.: 

July 2009); GAO, Strategies to Manage Improper Payments: Learning From Public and 

Private Sector Organizations, GAO-02-69G (Washington, D.C.: October 2001); and United 

States Chief Financial Officers Council Implementation Guide for OMB Circular A-123, 

Management’s Responsibility for Internal Control, Appendix A, Internal Control over 

Financial Reporting (Washington, D.C.: July 2005). 

7

The eight programs are military health benefits, military pay, civilian pay, military 

retirement, travel pay, DFAS commercial pay, U.S. Army Corps of Engineers (USACE) 

travel pay, and USACE commercial pay. 

8

GAO-02-69G. 

9

Although DOD reported improper payment information for eight programs, statistical 

estimates were provided for only seven of those programs for fiscal year 2011. DOD’s 

improper payments reporting for DFAS commercial pay for fiscal year 2011 was limited to 

known improper payments. 

10OMB, Memorandum M-11-16; OMB, Standards and Guidelines for Statistical Surveys;

and GAO-09-680G. 
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-13-227 DOD Financial Management 

• We interviewed officials from DFAS, the TRICARE Management 

Activity (TMA),11

• To assess the department’s plans and actions for estimating DFAS 

commercial pay improper payments for fiscal year 2012, we reviewed 

the department’s methodology for statistically estimating DFAS 

commercial pay improper payments for fiscal year 2012 and 

interviewed DFAS officials to obtain clarifications about this 

methodology.

and the U.S. Army Corps of Engineers (USACE) to 

obtain additional information about these methodologies.

• We conducted site visits at two DFAS processing center locations—

DFAS-Columbus and DFAS-Indianapolis. We selected the DFASColumbus site because this facility processes the largest portion of 

DOD’s commercial payments and hosts the systems the department 

uses to track commercial pay improper payments. We interviewed 

DFAS-Columbus officials regarding how improper payments were 

identified and reported. We selected DFAS-Indianapolis because this 

facility houses the team that performed the reviews of selected 

sample transactions for military pay, civilian pay, military retirement for 

deceased retirees and annuitants, and travel pay. DFAS-Indianapolis 

compiles the results of the improper payment testing for all DFAStested programs, including DFAS commercial pay and military 

retirement pay, and reports these results to DOD’s OUSD(C). 

• We examined the department’s corrective action plan and assessed it 

with the requirements in OMB’s implementing guidance for IPERA,12

OMB Circular No. A-136,13 and best practices suggested by the 

United States Chief Financial Officers Council (CFOC).14

• We analyzed DOD’s payment recapture plan, DOD’s FMR chapter on 

recovery audits,

We followed

up with DOD officials, including the Improper Payments Project 

Officer, to obtain additional information about the department’s 

corrective action plan.

15

 

11DOD’s TRICARE Management Activity (TMA) administers the TRICARE program, which 

provides military health benefits to active duty personnel and their families, retirees and 

their family members, and family members of deceased service members. 

and information in the AFR. We interviewed DFAS, 

12OMB, Memorandum M-11-16. 

13OMB, Circular No. A-136 Revised (October 27, 2011). 

14CFOC, Implementation Guide for OMB Circular A-123. 

15DOD, FMR, Volume 10, Chapter 22, Recovery Auditing (November 2009). 
Appendix I: Objectives, Scope, and 

Methodology

Page 38 GAO-13-227 DOD Financial Management 

TMA, and USACE officials, as well as the Improper Payments Project 

Officer, about the processes used to recover improper payments.

• To assess DOD’s implementation of the reporting requirements in 

IPERA and OMB’s guidance,16

To assess the reliability of data reported in DOD’s fiscal year 2011 AFR 

related to improper payments, we reviewed DOD’s supporting 

documentation and interviewed knowledgeable agency officials about the 

data. In the course of this assessment, we determined that DOD did not 

collect and maintain the supporting documentation necessary to 

substantiate the improper payment estimates reported in its fiscal year 

2011 AFR. In addition, the department did not perform key quality 

assurance procedures, including reconciliations on all of the populations 

for its programs to validate that the populations were complete, valid, and 

accurate before selecting the statistical samples that were used to 

estimate improper payments. Therefore, we determined that the data 

were not reliable. These problems are discussed in our report.

we compared the improper payment 

information provided in DOD’s fiscal year 2011 AFR to the reporting 

requirements. We interviewed OUSD(C), DFAS, TMA, and USACE 

officials about the department’s process to compile the information 

reported in the AFR.

We conducted this performance audit from October 2011 to May 2013 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.

 

16OMB, Circular No. A-136 Revised (October 27, 2011).
Appendix II: Comments from the Department 

of Defense

Page 39 GAO-13-227 DOD Financial Management 

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 40 GAO-13-227 DOD Financial Management 
Appendix II: Comments from the Department 

of Defense

Page 41 GAO-13-227 DOD Financial Management 
Appendix II: Comments from the Department 

of Defense

Page 42 GAO-13-227 DOD Financial Management 
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 43 GAO-13-227 DOD Financial Management 

Asif A. Khan, (202) 512-9869 or khana@gao.gov

In addition to the contact named above, Cindy Brown Barnes (Assistant 

Director), Sharon Byrd (Assistant Director/Audit Sampling), Michael 

Bingham, and Sandra Silzer made key contributions to this report. Also 

contributing to this report were Francine DelVecchio, Justin Fisher, 

Wilfred Holloway, and Jason Kirwan.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(197109)
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