DOD FINANCIAL 

MANAGEMENT

The Army Faces 

Significant Challenges 

in Achieving Audit 

Readiness for Its 

Military Pay

Report to Congressional Committees

March 2012

GAO-12-406

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-406, a report to 

congressional committees 

March 2012 

DOD FINANCIAL MANAGEMENT

The Army Faces Significant Challenges in Achieving 

Audit Readiness for Its Military Pay

Why GAO Did This Study

The Defense Finance and Accounting

Service-Indianapolis (DFAS-IN)

reported that fiscal year 2010 active 

Army military payroll totaled $46.1 

billion. However, for several years, 

GAO and others have reported 

continuing deficiencies with Army 

military payroll processes and controls, 

raising questions about the validity and 

accuracy of reported Army military pay 

and whether it is auditable. The

Department of Defense (DOD) has

recently accelerated its Statement of 

Budgetary Resources audit readiness 

goal by 3 months to 2014 and is 

required to achieve audit readiness for 

a full set of DOD financial statements 

by 2017. GAO performed basic audit 

procedures for the Army’s active duty 

military payroll to assess the Army’s 

ability to (1) identify a valid population 

of payroll transactions and (2) test a 

sample of payroll transactions for 

validity and accuracy. GAO reviewed 

applicable laws and regulations, 

analyzed DOD and Army policies and 

procedures, drew a statistical sample

of payroll transactions to test their 

accuracy and validity, and met with 

DOD, DFAS-IN, Army, and Defense 

Manpower Data Center officials. 

What GAO Recommends

GAO is making four recommendations 

to help the Army develop the 

processes and controls necessary to 

achieve financial statement audit 

readiness, including identifying and 

validating the population of military 

payroll transactions and obtaining and 

retaining necessary pay-affecting 

documents. The Army concurred with 

GAO’s four recommendations and 

noted actions it is taking.

What GAO Found

The Army could not readily identify the population of Army military payroll 

accounts given its existing procedures and systems. The Army and DFAS-IN did 

not have an effective, repeatable process for identifying the population of active 

duty payroll records. For example, it took 3 months and repeated attempts before 

DFAS-IN could provide a population of service members who received active 

duty Army military pay in fiscal year 2010. Further, because the Army does not 

have an integrated military personnel and payroll system, it was necessary to 

compare the payroll file to active Army personnel records. However, the Defense 

Manpower Data Center (DMDC), DOD’s central repository for information on 

DOD-affiliated personnel, did not have an effective process for comparing military 

pay account files with military personnel files to identify a valid population of 

military payroll transactions. It took DMDC over 2 months and labor-intensive 

research to compare and reconcile the total number of fiscal year 2010 active 

duty payroll accounts to its database of personnel files. DOD’s Financial 

Improvement and Audit Readiness (FIAR) Guidance states that identifying the 

population of transactions is a key task essential to achieving audit readiness. 

Without effective processes for identifying the population of Army military pay

records and comparing military pay accounts to personnel records, the Army will 

have difficulty meeting DOD’s 2014 audit readiness goal for the Statement of 

Budgetary Resources.

In addition, the Army does not have an efficient or effective process or system for 

providing supporting documents for Army military payroll. For example, DFAS-IN 

had difficulty retrieving and providing usable Leave and Earnings Statement files

and the Army was unable to locate or provide supporting personnel documents 

for GAO’s statistical sample of fiscal year 2010 Army military pay accounts. 

GAO’s Standards for Internal Control in the Federal Government and DOD’s 

FIAR Guidance provide that audited entities document transactions and events 

and assure that supporting documentation can be identified, located, and 

provided for examination. Although the Army deployed the Interactive Personnel 

Management System (iPERMS) as the Army’s Official Military Personnel File in 

2007, it had not consistently or completely populated iPERMS with personnel 

records. At the end of September 2011, 6 months after receiving GAO’s 250 

statistical sample items, the Army and DFAS-IN were able to provide complete 

documentation for 2 of GAO’s sample items and provided partial documentation 

for 3 items, but provided no documentation for 245 of GAO’s 250 sample items. 

The Army has begun several military pay audit readiness efforts that, if 

successfully implemented, could help increase the likelihood of meeting DOD’s 

2014 Statement of Budgetary Resources audit readiness goal and the 2017 

mandate for audit readiness on a complete set of DOD financial statements. 

These efforts include documenting and testing payroll system application 

controls, documenting Army military pay business processes, identifying the 

range of supporting documents for military pay, and developing an integrated 

military personnel and payroll system. Most of these efforts are not yet 

documented and, therefore, there is no assurance that they will be implemented 

timely and effectively. View GAO-12-406. For more information, 

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

khana@gao.gov. 
Page i GAO-12-406 Army Military Pay Audit Readiness 

Letter 1 

Background 5

Process and System Weaknesses Hindered Army’s Ability to 

Identify a Valid Population of Military Payroll Transactions 12

The Army Was Unable to Provide Documentation to Support the 

Validity and Accuracy of a Sample of Payroll Transactions 16

Conclusions 26

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 28

Appendix I Objectives, Scope, and Methodology 31

Appendix II Comments from the Department of the Army 35

Appendix III GAO Contact and Staff Acknowledgments 38

Figures

Figure 1: Army Process for Creating a Military Pay Record for an 

Enlisted Service Member 8

Figure 2: Overview of Major Systems Involved in Processing Active 

Army Military Payroll 11

Figure 3: Test Results for 5 of 250 Soldier Pay Account Sample 

Items 21

Contents
Page ii GAO-12-406 Army Military Pay Audit Readiness 

Abbreviations

ARISS Army Recruiting Information Support System 

ASA (M&RA) Assistant Secretary of the Army for Manpower and

 Reserve Affairs 

COBOL Common Business Oriented Language

CFO Chief Financial Officer

CIGIE Council of the Inspectors General on Integrity and

 Efficiency

DA Department of the Army

DD Defense Department

DDRS-AFS Defense Departmental Reporting System–Audited

 Financial Statements 

DDRS-B Defense Departmental Reporting System–Budgetary

DFAS-IN Defense Finance and Accounting Service in Indianapolis

DIMHRS Defense Integrated Military Human Resource System 

DJMS–AC Defense Joint Military Pay System–Active Component

DMDC Defense Manpower Data Center

DMPO Defense Military Pay Office

DOD Department of Defense

EFT Electronic funds transfer

FAM Financial Audit Manual

FIAR Financial Improvement and Audit Readiness

FIP Financial Improvement Plan 

FISCAM Federal Information System Controls Audit Manual 

FMR Financial Management Regulation

FSA Family Separation Allowance

GAAP Generally Accepted Accounting Principles 

GWOT Global War on Terrorism

HRC Human Resources Command

iPERMS Interactive Personnel Management System 

IPPS-A Integrated Personnel and Pay System–Army 

MEPS Military Entrance Processing Station 

MPRJ Military Personnel Records Jacket 

Mil Pay Ops Military Pay Operations

NARA National Archives and Records Administration

NDAA National Defense Authorization Act

OMPF Official Military Personnel File 

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

 and Chief Financial Officer 

PCIE President’s Council on Integrity and Efficiency

PDF Adobe Portable Document Format
Page iii GAO-12-406 Army Military Pay Audit Readiness 

RECBASS Reception Battalion Automated Support System 

SRD-1 Standard Financial System (STANFINS) Redesign

 Subsystem-1 

SSAE Statements on Standards for Attestation Engagements

SSN Social Security Number

STANFINS Standard Financial System 

USD (P&R) Under Secretary of Defense for Personnel and

 Readiness

USMEPCOM U.S. Military Entrance Processing Command

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

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Page 1 GAO-12-406 Army Military Pay Audit Readiness 

United States Government Accountability Office 

Washington, DC 20548

March 22, 2012

Congressional Committees

According to the Defense Finance and Accounting Service in Indianapolis 

(DFAS-IN), fiscal year 2010 active Army military payroll totaled $46.1 

billion. For years, we and others have reported continuing deficiencies 

with Department of the Army military payroll processes and controls. In 

November 2003, we reported that weaknesses in processes and controls 

resulted in over- and underpayments to mobilized Army National Guard 

personnel.1 In April 2006, we reported that pay problems rooted in 

complex, cumbersome processes used to pay Army soldiers from initial 

mobilization through active duty deployment to demobilization resulted in 

military debt to battle-injured soldiers.2 In June 2009, we reported that the 

Army did not have effective controls for processing and accounting for 

military personnel federal payroll taxes because of weaknesses in its 

procedures and controls for assuring accurate and timely documentation 

of transactions.3 In July 2011, the Department of Defense (DOD) 

Inspector General reported that the Defense Finance and Accounting 

Service (DFAS)4 made potentially invalid active duty military payroll 

payments of $4.2 million from January 2005 through December 2009 for 

the Army, the Navy, and the Air Force.5

These reported continuing deficiencies in Army payroll processes and 

controls have called into question the extent to which the Army’s military 

 

1

GAO, Military Pay: Army National Guard Personnel Mobilized to Active Duty Experienced 

Significant Pay Problems, GAO-04-89 (Washington, D.C.: Nov. 13, 2003).

2

GAO, Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have Struggled to 

Resolve Military Debts, GAO-06-494 (Washington, D.C.: Apr. 27, 2006).

3

GAO, Military Pay: The Defense Finance and Accounting Service–Indianapolis Could 

Improve Control Activities over Its Processing of Active Duty Army Military Personnel 

Federal Payroll Taxes, GAO-09-557R (Washington, D.C.: June 18, 2009).

4

DFAS refers to DFAS-Indianapolis, which processes military pay for the Army and the Air 

Force, and DFAS-Cleveland, which processes military pay for the Navy and the Marine 

Corps.

5

DOD Inspector General, Active Duty Military Personnel Accounts Were Generally Valid 

and Secure, but DoD May have Made Improper Payments, D-2011-093 (Arlington, VA: 

July 27, 2011).

 
 

Page 2 GAO-12-406 Army Military Pay Audit Readiness 

payroll transactions are valid and accurate and whether the Army’s 

military payroll as a whole is auditable. The Army’s military pay is material 

to all of the Army’s financial statements and comprises about 20 percent 

of the Army’s $233.8 billion in reported fiscal year 2010 net outlays.6

The Chief Financial Officers Act of 1990, as amended, established 

requirements for 24 agencies, including DOD, to prepare annual financial 

statements and have them audited.

Accordingly, Army active duty military payroll is significant to both Army 

and DOD efforts to meet DOD’s 2014 Statement of Budgetary Resources 

audit readiness goal.

7 As we have previously reported, 

DOD’s many challenges in resolving its pervasive and long-standing 

weaknesses in financial management, business operations, and systems 

have inhibited its ability to meet this requirement.8

The National Defense Authorization Act (NDAA) for Fiscal Year 2010 

mandated that DOD be prepared to validate (certify) that its consolidated 

financial statements are ready for audit by September 30, 2017.

DOD has undertaken 

numerous financial management improvement initiatives over the years, 

but it continues to receive disclaimers of opinion on its financial 

statements.

9

 

6

Outlays during a fiscal year may be for payment of obligations incurred in prior years or in 

the same year. Net outlays are disbursements net of offsetting collections.

The 

NDAA for fiscal year 2010 also mandated that DOD develop and maintain 

a Financial Improvement and Audit Readiness (FIAR) Plan that includes, 

among other things, the specific actions to be taken and costs associated 

with correcting the financial management deficiencies that impair the 

department’s ability to prepare timely, reliable, and complete financial 

7

Pub. L. No. 101-576, § 303, 104 Stat. 2838, 2849, (Nov. 15, 1990), codified, as amended

at 31 U.S.C. § 3515. 

8

GAO, DOD Financial Management: Numerous Challenges Must Be Addressed to 

Improve Auditability, GAO-11-864T (Washington, D.C.: July 28, 2011); DOD Financial 

Management: Numerous Challenges Must Be Addressed to Improve Reliability of 

Financial Information, GAO-11-835T (Washington, D.C.: July 27, 2011); and High-Risk 

Series: An Update, GAO-11-278 (Washington, D.C.: February 2011). 

9

Pub. L. No. 111-84, § 1003, 123 Stat. 2190, 2439-40 (Oct. 28, 2009). 
 

Page 3 GAO-12-406 Army Military Pay Audit Readiness 

management information.10

In May 2011, the Army reported that it expected to be ready for an audit 

of its Statement of Budgetary Resources by the first quarter of fiscal year 

2015. The Army also reported that its military pay would be audit ready by 

the first quarter of fiscal year 2015. On October 13, 2011, the Secretary of 

Defense directed the department to achieve audit readiness for the 

Statement of Budgetary Resources by the end of fiscal year 2014 as an 

interim milestone for DOD to meet the legal requirement in the NDAA for 

Fiscal Year 2010 to achieve full audit readiness for all DOD financial 

statements by 2017.

Military pay is significant to departmentwide 

financial statements. Further, other military components, such as the Air 

Force and the Navy, share some of the same process and system risks 

as the Army.

11

This report was initiated under our mandate to audit the U.S. 

government’s financial statements.

This new goal would accelerate the time frames for 

audit readiness of the Army’s Statement of Budgetary Resources, 

including Army military pay, by 3 months. Military pay audit readiness is 

an important element of this goal.

12

To address our first objective, we obtained the population of Army active 

duty military payroll records from the Defense Finance and Accounting 

Service, Indianapolis (DFAS-IN). Because the Army does not have an 

integrated military personnel and payroll system, we worked with the 

Defense Manpower Data Center (DMDC) (DOD’s central source for 

personnel information) to match DFAS-IN payroll accounts to DMDC 

Our objectives were to perform basic 

audit procedures necessary to conclude about the validity and accuracy 

of Army’s active duty military payroll. Those basic audit procedures 

included (1) identifying a valid population of military payroll transactions 

and (2) testing a sample of payroll transactions for validity and accuracy.

 

10The FIAR Plan, which was first prepared in 2005, is DOD’s strategic plan and 

management tool for guiding, monitoring, and reporting on the department’s financial 

management improvement efforts. As such, the plan communicates incremental progress 

in addressing the department’s financial management weaknesses and achieving financial 

statement auditability. 

11DOD, Secretary of Defense Memorandum, “Improving Financial Information and 

Achieving Audit Readiness,” October 13, 2011. 

1231 U.S.C. §§ 331(e), 717(b)(1).
 

Page 4 GAO-12-406 Army Military Pay Audit Readiness 

personnel records to determine whether the population of Army military 

payroll accounts was in agreement with the population of personnel 

records in DMDC.13

We conducted this performance audit from June 2010 through March 

2012 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. Appendix I provides 

further details on our scope and methodology. Other matters identified in 

our work that merit management’s attention will be reported in a separate 

letter to Army management.

Nearly all of the identified differences related to 

service members in separation status. However, we referred six 

unresolved duplicate items to DMDC and Army Human Resources 

Command for further research and correction. To address our second 

objective, we used the population of matched personnel and payroll 

records to select a statistical sample of 250 soldiers for testing payroll 

accuracy for the sampled items. We requested 12 months of fiscal year 

2010 Leave and Earnings Statements for each soldier in our sample, the 

most recent data available, to compare pay transactions with supporting 

Army personnel documents indicating such information as military orders, 

special duty and expertise entitlements, marital status, and dependent 

information. We focused on key steps to be followed in establishing 

military personnel records on specific pay and allowance amounts. We 

interviewed Army Personnel, Human Resources Command, and Finance 

Command officials and visited a Military Enlistment Program Station in 

Indianapolis, Indiana, and a military reception battalion at a training 

installation at Ft. Jackson, South Carolina, to document the processes for 

capturing pay-related information and setting up military personnel 

records. In addition, we interviewed finance officials at Defense Military 

Pay Offices at two Army field installations to gain an understanding of 

how pay accounts are established, adjusted, and documented.

 

13We relied on work performed by DMDC because we reviewed its quality control 

procedures and found them to be adequate for our audit purposes.
 

Page 5 GAO-12-406 Army Military Pay Audit Readiness 

The United States Army is responsible for land-based military operations. 

It is the largest and oldest established branch of the U.S. military. The 

modern Army has its roots in the Continental Army, which was formed on 

June 14, 1775, before the establishment of the United States, to meet the 

demands of the American Revolutionary War. The Army’s mission is to 

fight and win our nation’s wars by providing prompt, sustained land 

dominance across the full range of military operations and spectrum of 

conflict in support of combatant commands. The Army does this by 

organizing, equipping, and training forces; accomplishing missions 

assigned by the President, the Secretary of Defense, and combatant 

commanders; and transforming for the future.

For fiscal year 2010, Congress appropriated more than $52 billion to the 

“Military Personnel, Army” appropriation, which is a 1-year appropriation 

available for the pay, benefits, incentives, allowances, housing, 

subsistence, travel, and training primarily for active duty service 

members.14 The Defense Finance and Accounting Service in 

Indianapolis, Indiana (DFAS-IN) is responsible for accounting, 

disbursement, and reporting for the Army’s military personnel costs using 

the Defense Joint Military Pay System-Active Component (DJMS-AC). 

According to DFAS-IN, of the $52 billion in fiscal year 2010 military 

personnel appropriations, the Army’s nearly 680,000 service members 

received $46.1 billion in pay and allowances. To provide payroll support 

to the vast number of active Army service members, DFAS-IN has over 

40 Defense Military Pay Offices within the United States that provide 

finance services to military personnel in designated geographical areas.

The Statement of Budgetary Resources is the only financial statement 

predominantly derived from an entity’s budgetary accounts in accordance 

with budgetary accounting rules, which are incorporated into generally 

accepted accounting principles (GAAP) for the federal government. The 

Statement of Budgetary Resources is designed to provide information on 

authorized budgeted spending authority as reported in the Budget of the 

United States Government (President’s Budget), including budgetary 

 

14Department of Defense Appropriations Act, 2010, Pub. L. No. 111-118, 123 Stat. 3409, 

3410, 3458 (Dec. 19, 2009); Supplemental Appropriations Act, 2010, Pub. L. No. 111-

212,124 Stat. 2302, 2305 (July 29, 2010). 

Background

Statement of Budgetary 

Resources
 

Page 6 GAO-12-406 Army Military Pay Audit Readiness 

resources, availability of budgetary resources, and how budgetary 

resources have been used.15

For fiscal year 2010, the Army reported $331.8 billion in total budgetary 

resources and over $233.8 billion in net outlays (spending, net of 

offsetting collections16). The Army’s reported $46.1 billion in fiscal year 

2010 active duty military payroll accounts for 20 percent of its net outlays.

The Under Secretary of Defense for Personnel and Readiness (USD 

(P&R)) advises the Secretary of Defense on a number of personnel areas 

such as recruitment, pay and benefits, and oversight of military readiness, 

and serves as DOD’s Chief Human Capital Officer. The Office of the 

Assistant Secretary of the Army for Manpower and Reserve Affairs (ASA 

(M&RA)) is responsible for setting the strategic direction and providing 

overall supervision for manpower, personnel, and Reserve component 

affairs of the Department of the Army, and serves as the Army’s lead for 

manpower policy and human resources, among other things. In order to 

fulfill these responsibilities, ASA (M&RA) relies on the Deputy Chief of 

Staff, G-1, for advice and assistance.17

 

15Budgetary resources include the amount available to enter into new obligations and to 

liquidate them. Budgetary resources consist of new budget authority (including direct 

spending authority provided in existing statute and obligation limitations) and unobligated 

balances of budget authority provided in previous years. 

In addition to being the principal 

military advisor to ASA (M&RA), G-1’s other responsibilities include 

developing policy that provides guidance for responsive and flexible 

human resources support of the Army and overseeing the officer 

accession and enlisted recruiting policy. The Human Resources 

Command supports the Deputy Chief of Staff, G-1, in the management of 

all military personnel by serving as the functional proponent for military 

personnel management and personnel systems. Army Human Resources 

Command, unit commanders, and training certification officials, among 

others, are responsible for providing DFAS-IN with accurate and timely 

information regarding changes in individual military member status 

necessary to maintain accurate and timely payroll accounts.

16Offsetting collections are collections from intragovernmental transfers, business-like 

transactions with the public, and collections from the public that are governmental in 

nature but required by law to be classified as offsetting. These collections are all 

authorized by law to be credited to appropriation or fund expenditure accounts. 

17The Deputy Chief of Staff, G-1 function also is referred to as Army Personnel.

Army Personnel Role in 

the Military Pay Process
 

Page 7 GAO-12-406 Army Military Pay Audit Readiness 

As illustrated in figure 1, military pay accounts are established as part of 

the enlistment process for new recruits and are based on personnel 

records. The recruiting office establishes the basics of the recruit’s 

personnel file in the Army Recruiting Information Support System 

(ARISS). This file contains the recruit’s full name, contact information, 

country of origin, social security number (SSN), and recruiting status. 

After applying, the recruit reports to a Military Entrance Processing 

Station (MEPS),18 which works with the recruiting office to qualify 

applicants for military service and serves as the quality control unit 

between the recruiter and the military service. The applicant concludes 

the MEPS visit by signing either an enlistment contract or a delayed entry 

contract. The contract notes the terms of enlistment, such as pay grade, 

which relate to basic pay information. This completes the entrance 

documents that the MEPS collects. MEPS personnel then administer the 

Oath of Enlistment. All of the documents created are electronically 

transmitted to the respective service recruiting system, that is, ARISS for 

the Army, and a paper copy, referred to as a “Packet,” is created that 

accompanies the recruit to the training installation where the Packet is 

delivered to the personnel office at the Reception Battalion.19

Recruits generally report to their assigned installation Reception Battalion 

for training within 2 weeks to 14 months after signing their enlistment 

contract. The service liaison counselor keeps the documentation Packet 

until the enlistee reports to the Reception Battalion, at which time the 

Packet is sent to the respective training installation. The Reception 

Battalion uses information contained in the Packet to create a personnel 

file in the Reception Battalion Automated Support System (RECBASS). 

The enlistee provides additional information on dependents, such as a 

marriage certificate, birth certificates for dependent children, and W-4 

dependent information. Reception Battalion personnel staff assist the 

enlistee in filling out any additional forms if they were not included in the 

Packet, such as direct deposit, pay allotments for base housing, savings 

account deposits, child support, and emergency contact information. 

 

18MEPS are under the U.S. Military Entrance Processing Command (USMEPCOM), which 

is the military entrance processing command for all Department of Defense military 

services and the U.S. Coast Guard. There are 65 MEPS within the United States and 

Puerto Rico.

19Some MEPS have moved to electronic records in lieu of hard copy Packets. Other 

MEPS may use Adobe Portable Document Format (PDF) file records that are e-mailed to 

the training installation.

Creation of a Military Pay 

Account
 

Page 8 GAO-12-406 Army Military Pay Audit Readiness 

Personnel staff enter this information into the personnel system and send 

the information to the installation’s Defense Military Pay Office where the 

enlistee’s payroll account, referred to as a master military pay account, is 

created in DJMS-AC.20

Figure 1: Army Process for Creating a Military Pay Record for an Enlisted Service Member

Military pay starts once the payroll account is established in DJMS-AC. 

Army active duty military personnel receive pay and allowances based on 

their grade and time in service; location; and whether they are married, 

have dependents, or are performing special duties. The Army’s active 

duty service members may elect to be paid once a month at the end of 

the month or twice a month at mid-month and at the end of month. The 

service member’s pay information is consolidated into one monthly Leave 

and Earnings Statement. In addition to basic pay, military members may 

also be eligible for cash recruitment or retention incentives (i.e., bonuses). 

Any necessary pay change after the pay account is set up is initiated by 

 

20Within the United States, DFAS-IN oversees 38 Defense Military Pay Offices and 14 

satellite offices. Outside the United States, the Army Finance Command oversees 20 

Finance Offices, which manage and update military pay accounts.
 

Page 9 GAO-12-406 Army Military Pay Audit Readiness 

the appropriate officials throughout the Army. These changes generally 

relate to promotions, special duty pay, incentive pay, Permanent Change 

of Station assignments, Temporary Change of Station assignments, and 

changes in dependents.

The Defense Manpower Data Center (DMDC) is the central DOD source 

to identify, authenticate, authorize, and provide information on DODaffiliated personnel. As such, it is the one, central access point for 

information and assistance on DOD entitlements, benefits, and medical 

readiness for uniformed service members, veterans, and their families. 

Major DMDC databases include information on pay; accessions and 

examinations (USMEPCOM); authorizations and requirements; military 

units and addresses, special purposes, for example, contingency 

operations; Joint Command duty assignments; retirement point 

repository; and mobilization/activations. DMDC has five major operating 

locations, including the DOD Center, in Monterey Bay, California; the 

Washington, D.C. area; and overseas locations in South Korea, Europe, 

and Southwest Asia. In addition, DMDC has 2,145 issuing stations 

(badge offices, etc.) at 1,400 worldwide locations. Computer support for 

the DOD Center in Monterey Bay is provided by the DOD Center in 

Monterey Bay and the Naval Postgraduate School in Monterey, 

California. Other computer support offices are located in Arlington, 

Virginia, and Auburn Hills, Michigan.

Payments of basic pay and allowances to service members are made via 

electronic funds transfer (EFT) through DJMS-AC.21 At the local level, 

DMPOs are required to review any substantial changes (defined as +/-

150 percent) in payroll data daily. The intent of this review is to identify 

data input errors. In addition, a day before payroll is processed, DFAS-IN 

conducts a pre-payroll review. This is a manual process, where the 

DFAS-IN Military Pay Operations (Mil Pay Ops) staff obtain a sample22

 

21Although most payments are EFTs to the service member, some payments may be 

made manually. For example, casual pay (an advance payment) may be made using a 

U.S. Treasury Check, cash, or stored value card (i.e., debit card). 

of 

Leave and Earnings Statements from DJMS-AC and trace the information 

in the statements to the relevant table outside of DJMS-AC. The purpose 

22The number of Leave and Earnings Statements reviewed is dependent on the number of 

service members within DJMS-AC at that time. A program is run to select every 900th 

statement.

Processing of Military 

Payroll
 

Page 10 GAO-12-406 Army Military Pay Audit Readiness 

of this review is to identify potential system problems with the pay 

information used to calculate the pay amount. After completing this 

review, DFAS-IN then sends the DJMS-AC totals to the certifying official 

for certification. The certification process checks the DJMS-AC totals 

against the disbursing file totals. The certifying official sends an 

authorization and voucher to the Disbursing Office requesting release of 

payment. The DFAS-IN Disbursing Office uses the Army’s disbursing 

system23

DFAS-IN’s Accounting Division performs a number of steps to transfer 

payroll transactions from DJMS-AC to the Army’s general ledger 

accounting system.

to send electronic payments to the Federal Reserve Banks, 

which in turn distribute payments to each service member’s bank 

account.

24

 

23The Army’s disbursing system, Standard Financial System (STANFINS) Redesign 

Subsystem-1 (SRD-1), is an online, interactive accounting and finance system that 

incorporates Military Pay, Accounts Payable, Civilian Pay, Accounting and Disbursing into 

the online finance and accounting system. 

The Accounting Division receives DJMS reports 

from Mil Pay Ops that contain the computed total pay costs and 

disbursements for the payroll transactions, which are recorded as 

summary records by budget activity (e.g., officer, enlisted, and cadet 

pay). An individual soldier’s payroll information is not recorded in the 

accounting system. Military pay accounting data is uploaded from the 

Army’s general ledger accounting system into the Defense Departmental 

Reporting System-Budgetary (DDRS-B) for budgetary reporting and then 

to DDRS-Audited Financial Statement (DDRS-AFS) for financial 

statement reporting. Figure 2 provides a high-level illustration of the 

Army’s complex environment for establishing military personnel and 

payroll records and processing military pay.

24The Standard Financial System (STANFINS) is the Army standard general ledger 

system currently used for recording military payroll.
 

Page 11 GAO-12-406 Army Military Pay Audit Readiness 

Figure 2: Overview of Major Systems Involved in Processing Active Army Military Payroll

a

iPERMS does not feed DJMS-AC. 
 

Page 12 GAO-12-406 Army Military Pay Audit Readiness 

Army Regulation No. 600-8-104, Military Personnel Information 

Management/Records, establishes requirements for the Army’s Official 

Military Personnel File.25 The Army deployed iPERMS in 2007, and 

certain MilPer (Military Personnel) Messages and a Department of the 

Army memorandum indicate that iPERMS is intended to serve as the 

system of record for the Official Military Personnel File.26 In addition, the 

Army is in the process of developing the Integrated Personnel and Pay 

System-Army (IPPS-A), which is targeted for completion in 2017.

The Army could not readily identify a complete population of Army payroll 

accounts for fiscal year 2010, given existing procedures and systems. 

The Army and the Defense Finance and Accounting Service in 

Indianapolis (DFAS-IN) did not have an effective, repeatable process for 

identifying the population of active duty payroll accounts. In addition, the 

Defense Manpower Data Center (DMDC) did not have an effective 

process for comparing military pay account files to military personnel files 

to identify a valid population of military payroll transactions.27 For 

example, it took 3 months and repeated attempts before DFAS-IN could 

provide a population of service members who received active duty Army 

military pay in fiscal year 2010. Similarly, it took DMDC over 2 months to 

compare the total number of fiscal year 2010 active duty payroll accounts 

to its database of personnel files. Standards for Internal Control in the

Federal Government requires all transactions and other significant events 

to be clearly documented and the documentation readily available for 

examination.28

 

25Department of the Army, Army Regulation No. 600-8-104, Military Personnel Information 

Management/Records (Washington, D.C.: June 22, 2004).

In addition, these ineffective processes are not in accord 

with DOD’s own guidance or financial audit guidance. DOD’s Financial 

26MilPer Message Number 10-322, “Submitting OMPF Documents into the Interactive 

Personnel Electronic Records System (iPERMS),” § 3, Dec. 9, 2010; MilPer Message 

Number 08-072, “Changes to Information Management Maintenance for the Official 

Military Personnel File (OMPF) and DA Form 201, Military Personnel Records Jacket 

(MPRJ),” §§ 2–5, March 18, 2008; and Department of the Army (DA) Memo 600-8-104, 

“Military Personnel Information Management/Records: Official Military Personnel File 

Access,” §§ 1–6, June 26, 2006.

27DFAS-IN processes military payroll for the Army, and DMDC supports audits by 

performing analyses of Army military personnel files and data.

28GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

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

Process and System 

Weaknesses Hindered 

Army’s Ability to 

Identify a Valid 

Population of Military 

Payroll Transactions
 

Page 13 GAO-12-406 Army Military Pay Audit Readiness 

Improvement and Audit Readiness (FIAR) Guidance sets out key tasks 

essential to achieving audit readiness, including defining and identifying 

the population of transactions for audit purposes.29 The GAO/PCIE

Financial Audit Manual (FAM) provides guidance concerning typical 

control activities, such as independent checks on the validity, accuracy, 

and completeness of computer-processed data.30 One example of a 

control in this area includes comparing data from different sources for 

accuracy and completeness. Without effective processes for identifying a 

complete population of Army military pay records and comparing military 

pay accounts to personnel records, the Army will have difficulty meeting 

DOD’s 2014 audit readiness goal and its 2017 goal for a complete set of 

auditable financial statements.

DFAS-IN made three attempts from November 2010 through early 

January 2011 to provide us a Defense Joint Military Pay System-Active 

Component (DJMS-AC) file extract of Army service members who 

received active duty pay in fiscal year 2010. The first attempt included 

11,940 duplicate pay accounts, and the total number of pay accounts 

included in the second attempt increased by 28,035 records over the first 

attempt, necessitating a third attempt to establish the population of fiscal 

year 2010 active duty pay records. We requested that DMDC compare 

the results of DFAS-IN’s third attempt to identify the population of Army 

fiscal year 2010 payroll accounts against DMDC’s compilation of monthly 

active duty payroll data that it received from DFAS-IN. Of the 677,024 

Army active duty pay accounts, per DJMS-AC, we were able to reconcile 

all but 1,025 pay accounts (less than 1 percent of the total active duty pay 

accounts, which is not considered material) to pay account data that 

DFAS-IN had previously provided to DMDC. Standards for Internal 

Control in the Federal Government requires all transactions and other 

significant events to be clearly documented and the documentation 

 

29DOD, Office of the Under Secretary of Defense (Comptroller/CFO), Financial 

Improvement and Audit Readiness (FIAR) Guidance, December 2011.

30GAO/PCIE, Financial Audit Manual, Volume 1, GAO-08-585G (Washington, D.C.: July 

2008). The President’s Council on Integrity and Efficiency (PCIE) was replaced by the 

Council of the Inspectors General on Integrity and Efficiency (CIGIE). CIGIE was 

statutorily established as an independent entity within the executive branch by the 

Inspector General Reform Act of 2008, Pub. L. No. 110-409, § 7, 122 Stat. 4302, 4305-

4313 (Oct. 14, 2008) (codified at 5 U.S.C. App., § 11).

DFAS-IN Did Not Have an 

Effective Process for 

Identifying the Population 

of Army Military Payroll 

Records
 

Page 14 GAO-12-406 Army Military Pay Audit Readiness 

readily available for examination.31

DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance

states that being able to provide transaction-level detail for an account 

balance is a key task essential to achieving audit readiness. At the time 

we initiated our audit, Army officials told us that they had not yet focused 

on this area in their audit readiness efforts because the target date for 

Army military pay was not until the first quarter of fiscal year 2015.

As discussed later in this report, we 

were unable to verify the validity of the records. Further, we did not 

attempt to reconcile military payroll amounts to the related disbursements 

because an Office of the Secretary of Defense (Comptroller) and Chief 

Financial Officer (OUSD(C)) contractor was in the process of performing 

a pilot reconciliation of payroll to disbursement data.

32 The 

inability to readily provide a population of military pay accounts impeded 

our efforts to accomplish our audit objectives and, if not effectively 

addressed, will impede the Army’s ability to meet DOD’s new Statement 

of Budgetary Resources audit readiness goal of September 30, 2014.

DMDC did not have an effective process for comparing military pay 

account files with military personnel files. The Army’s pay and personnel 

systems are not integrated, which can lead to differences between the 

systems and potential errors. Therefore, an audit of military pay would 

include comparisons of military payroll accounts to personnel records to 

identify discrepancies. While DMDC was ultimately able to confirm that all 

677,024 service members who received fiscal year 2010 active duty Army 

military pay from the DJMS-AC had an active duty personnel file in one of 

the multiple personnel systems, the reconciliation process was labor 

intensive and took over 2 months to complete. For example, DMDC’s 

initial comparison of active duty Army military pay accounts to personnel 

records identified 67,243 pay accounts that did not have a corresponding 

active army personnel record on September 30, 2010.33

 

31

Labor-intensive 

research was necessary to reconcile the differences between DJMS-AC 

pay records and Army personnel files compiled by DMDC. According to 

GAO/AIMD-00-21.3.1. 

32Subsequent to this discussion, the Secretary of Defense issued a memo accelerating 

the Statement of Budgetary Resources audit readiness goal from 2017 to 2014. 

33The personnel file used for comparison included service members who were still on 

active duty in the Army on September 30, 2010, and did not cover the entire fiscal year. 

System Weaknesses 

Hindered the Matching of 

Army Pay Accounts to 

Personnel Files
 

Page 15 GAO-12-406 Army Military Pay Audit Readiness 

DMDC, these differences related primarily to personnel who had either 

left or were scheduled to leave the service, were reserve component 

soldiers released from active duty, or were soldiers who had died during 

fiscal year 2010. For these reasons, the service members were not 

included in the personnel file on September 30, 2010, that DMDC used 

for our initial comparison. We confirmed six duplicate SSNs in personnel 

records with the Social Security Administration and referred these records 

to DMDC and the Army for further research and appropriate action.34

DMDC attempted to complete our requested comparison of active duty 

Army pay accounts to military personnel records in January 2011, but 

was unable to complete the reconciliation until early March 2011. DMDC 

officials told us that the reasons for the delays included mainframe 

computer issues,

 

35 staff illness and turnover, and management data 

quality reviews of the file comparison results, including additional file 

comparisons to resolve differences. Without an effective process for 

confirming that the Army’s active duty payroll population reconciles to 

military personnel records, the Army’s efforts to meet DOD’s Statement of 

Budgetary Resources auditability goal of September 30, 2014, will be 

impeded.

 

34The six duplicate personnel records related to SSNs that were assigned to two different 

service member names.

35DMDC and other DOD agencies use the Navy Postgraduate School mainframe 

computer to support their activities and share data processing priorities.
 

Page 16 GAO-12-406 Army Military Pay Audit Readiness 

The Army does not have an efficient or effective process or system for 

providing documentation that supports payments for Army military payroll. 

For example, DFAS-IN had difficulty retrieving and providing usable 

Leave and Earnings Statements files for our sample items, and the Army 

and DFAS were unable to provide personnel and finance documents to 

support our statistical tests of all 250 service members’ pay accounts for 

fiscal year 2010. Standards for Internal Control in the Federal 

Government36 and DOD’s FIAR Guidance37 require audited entities to 

document transactions and events and assure that supporting 

documentation can be identified, located, and provided for examination. 

In addition, DOD Regulation 7000.14-R, Financial Management 

Regulation (FMR), requires the military components to maintain 

documentation supporting all data generated and input into finance and 

accounting systems or submitted to DFAS.38 Further, DOD’s Financial 

Improvement and Audit Readiness (FIAR) Guidance states that 

identifying and evaluating supporting documentation for individual 

transactions and balances, as well as identifying the location and sources 

of supporting documentation and confirming that appropriate supporting 

documentation exists, is a key audit readiness step. However, because 

the Army was unable to provide documents to support reported payroll 

amounts, we were unable to determine whether the Army’s payroll 

accounts were valid, and we were unable to verify the accuracy of 

payments and reported active duty military payroll. Further, because 

military payroll is significant to the financial statements, the Army will not 

be able to pass an audit of its Statement of Budgetary Resources without 

resolving these control weaknesses. The following discussion 

summarizes the problems with the Army’s processes related to military 

pay audit readiness.

 

36GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

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

37DOD, Office of the Secretary of Under Secretary of Defense (Comptroller/CFO) 

Financial Improvement and Audit Readiness (FIAR) Guidance, December 2011.

38DOD, FMR, Volume 6A, Chapter 2, “Financial Reports Roles and Responsibilities,” 

¶ 020201.B. (rev. August 2011). 

The Army Was Unable 

to Provide 

Documentation to 

Support the Validity 

and Accuracy of a 

Sample of Payroll

Transactions
 

Page 17 GAO-12-406 Army Military Pay Audit Readiness 

DFAS-IN staff experienced difficulty and delays in providing usable Leave 

and Earnings Statement files to support our testing of Army military 

payroll. We selected a sample of 250 service members and requested the 

relevant Leave and Earnings Statement files for fiscal year 2010. After 

multiple discussions and requests, we ultimately obtained usable Leave 

and Earnings Statement files for our sample items—5 weeks after our 

initial request. DFAS-IN took over 2 weeks to obtain the initial set of 

Leave and Earnings Statement files because it retrieves the files from two 

areas of the Defense Joint Military Pay System-Active Component 

(DJMS-AC). The active DJMS-AC database holds the current month plus 

the previous 12 months’ data; older data are archived. When we 

requested Leave and Earnings Statement files for fiscal year 2010 in April 

2011, a portion of these files had been archived and had to be retrieved 

from the archived database. In addition, the first set of Leave and 

Earnings Statement files that DFAS-IN provided included statements 

outside the requested fiscal year 2010 timeframe of our audit, thus we 

had to request a new set of files. It took over 1 week, including our data 

quality review, to obtain the second set of Leave and Earnings Statement 

files consisting of 445 separate files containing monthly statements for the 

250 service member pay accounts in our sample. We determined that the 

Leave and Earnings Statements for an individual service member 

generally were in two or more of the files provided. Consequently, we had 

to combine these files into a format with each service member’s Leave 

and Earnings Statement files grouped together to include all of the pay 

and allowance information for the service members in our sample. This 

combining and formatting required 2 additional weeks.

Although the Army deployed the Interactive Personnel Management 

System (iPERMS) as the Army’s Official Military Personnel File in 2007 

and the requirements for assuring that adequate supporting 

documentation is available for audit and examination are clearly defined, 

the Army did not have procedures in place to assure that its military pay 

transactions were adequately supported and that the supporting 

documentation could be readily retrieved and provided for financial audit 

purposes. Standards for Internal Control in the Federal Government

requires internal control and all transactions and other significant events 

to be clearly documented and the documentation readily available for 

examination.39

 

39

DOD Regulation 7000.14-R, Financial Management

GAO/AIMD-00-21.3.1. 

DFAS-IN Could Not 

Readily Provide Usable 

Leave and Earnings 

Statement Files for Sample 

Items

The Army Was Unable to 

Locate Supporting 

Documentation for 

Military Pay Account 

Sample Items
 

Page 18 GAO-12-406 Army Military Pay Audit Readiness 

Regulation (FMR), requires the military components to maintain 

documentation supporting all data generated and input into finance and 

accounting systems or submitted to DFAS.40 This regulation also requires 

the components to ensure that audit trails are maintained in sufficient 

detail to permit tracing of transactions from their sources to their 

transmission to DFAS. Audit trails are necessary to demonstrate the 

accuracy, completeness, and timeliness of transactions as well as to 

provide documentary support for all data generated by the component 

and submitted to DFAS for recording in the accounting systems and use 

in financial reports.41 Further, DOD’s FIAR Guidance states that 

identifying and evaluating supporting documentation for individual 

transactions and balances, as well as the location and sources of 

supporting documentation and confirming that appropriate supporting 

documentation exists, is a key audit readiness step.42

After selecting our sample of 250 Army military payroll accounts in March 

2011, we worked with Army Human Resources Command, Army Finance 

Command, and DFAS-IN officials to obtain source documents that 

supported basic pay, allowances, and entitlements. After being directed to 

make our document requests to various offices, none of which provided 

supporting documentation but instead referred us to other offices, we 

suggested that the Army focus on the first 20 pay account sample items 

to assess the feasibility of obtaining supporting documentation.

Without the 

capability to readily locate and provide supporting documentation for 

military payroll transactions within a short timeframe, the Army’s ability to 

pass a financial statement audit will be impeded.

43

 

40DOD, FMR, Volume 6A, Chapter 2, “Financial Reports Roles and Responsibilities,” 

020201.B. (rev. August 2011). 

When 

the Army continued to have difficulty locating supporting documentation, 

we suggested that the Army focus on the first 5 sample items. As of the 

end of September 2011, 6 months after receiving our initial request, the 

Army and DFAS-IN were able to provide complete documentation for 2 of 

41DOD, FMR, Volume 6A, Chapter 2, “Financial Reports Roles and Responsibilities,” 

020203.A. (rev. August 2011); GAO/AIMD-00-21.3.1. 

42DOD, Fiscal Year 2010 Financial Improvement and Audit Readiness (FIAR) Guidance,

Office of the Under Secretary of Defense (Comptroller/CFO) (Arlington, VA: May 15, 

2010).

43A sample item constitutes a soldier’s pay account for fiscal year 2010, including reported 

Leave and Earnings Statements for all 12 months of the fiscal year.
 

Page 19 GAO-12-406 Army Military Pay Audit Readiness 

our 250 sample items, partial support for 3 sample items, and no support 

for the remaining 245 sample items.44

• The Army was unable to provide supporting documentation for basic 

allowance for housing for one service member. In general, a service 

member on active duty is authorized a housing allowance based on 

the member’s grade, dependency status, and location. Basic 

allowance for housing is based on the median housing costs and is 

paid independently of the service member’s actual housing costs. At 

the conclusion of our fieldwork, a DFAS-IN official told us they had 

requested this documentation from the National Archives and Records 

Administration (NARA); however, they had not yet received it.

Our review of the partial 

documentation provided for 3 sample items showed that the Army was 

unable to provide supporting documentation for common elements of its 

military pay, including basic allowance for housing, cost of living 

allowance, hardship duty pay-location, and hostile fire/imminent danger 

pay. Specifically,

45

• For two sample items, the Army did not provide adequate 

documentation that the two service members were appropriately paid 

for clothing allowance. A clothing allowance is paid to enlisted service 

members annually in the anniversary month each year after they 

received their first clothing allowance. At the end of our field work, 

DFAS-IN had not provided an explanation as to why these service 

members received their clothing allowance in a month other than their 

anniversary date.

• The Army was unable to provide supporting documentation for one 

service member residing within the continental United States receiving 

a cost-of-living allowance. A cost-of-living allowance for soldiers 

stationed in the United States is a supplemental allowance designed 

to help offset higher prices in high-cost locations. At the end of our 

field work, a DFAS-IN official told us they had requested the 

documentation from NARA; however, they had not yet received it.

 

44We used the results of DMDC’s comparison of the population of Army fiscal year 2010 

active duty military pay accounts to military personnel records to select a statistical sample 

of pay accounts for testing the accuracy of basic pay and allowance transactions reported 

on the related monthly fiscal year 2010 Leave and Earnings Statements. 

45NARA is the nation’s record keeper of all documents and materials created in the course 

of business conducted by the United States federal government. 
 

Page 20 GAO-12-406 Army Military Pay Audit Readiness 

• Finally, for two service members, the Army was unable to provide 

supporting documentation for hardship duty pay and hostile 

fire/imminent danger pay. Service members are entitled to hardship 

duty pay for location assignments when there is a permanent change 

of station duty or temporary/deployed/attached duty of over 30 days in 

a specific location. Additionally, a service member is entitled to hostile 

fire/imminent danger pay when, as certified by the appropriate 

commander, the member is (1) subject to hostile fire or explosion of a 

hostile mine; (2) on duty in an area close to hostile fire incidents and 

the member is in danger of being exposed to the same dangers 

experienced by other service members; or (3) killed, injured, or 

wounded by hostile fire and the service member is on official duty in a 

designated imminent danger pay area. At the end of our field work, 

the Army was unable to provide adequate support for the dates that 

each of these service members reported for duty at the specified 

location which triggered the start of these two types of pay, and it was 

unable to provide documentation that one service member had been 

ordered to report to duty in the designated location.

As shown in figure 3, the Army provided complete documentation for 

soldier pay accounts associated with sample items #2 and #4, but it was 

unable to provide complete documentation for sample items #1, #3, and 

#5. Further, after 6 months, the Army was still unable to provide any 

documentation for the remaining 245 pay account sample items.
 

Page 21 GAO-12-406 Army Military Pay Audit Readiness 

Figure 3: Test Results for 5 of 250 Soldier Pay Account Sample Items

One of the reasons the Army was unable to provide supporting 

documentation is that it does not have a centralized repository for payaffecting documents. Army personnel and finance documentation 

supporting basic pay and allowances resides in numerous systems, and 

original hard copy documents are scattered across the country—at 

hundreds of Army units and NARA federal records centers. According to 

Army and DFAS-IN officials, there are at least 45 separate systems that 

the Army uses to perform personnel and pay functions with no single, 

overarching personnel system. Although these systems contain personnel 

data on military members and their dependents and feed these data to 

DJMS-AC, the systems do not contain source documents.

Army Regulation No. 600-8-104, Military Personnel Information 

Management/Records, establishes requirements for the Army’s Official 

Military Personnel File.46

 

46Department of the Army, Army Regulation No. 600-8-104, Military Personnel Information 

Management/Records (Washington, D.C.: June 22, 2004).

Army policies indicate that iPERMS is intended 
 

Page 22 GAO-12-406 Army Military Pay Audit Readiness 

to serve as the system of record for the Official Military Personnel File.47

The Army deployed iPERMS in 2007 and designated iPERMS as the 

Army’s Official Military Personnel File. However, when we attempted to 

find supporting documents in iPERMS, we found that this system had not 

been consistently populated with the required service member 

documents, resulting in incomplete personnel records. For example, 

when attempting to test our sample, we discovered that documents, such 

as orders to support a special duty assignment, permanent change of 

station orders, and release or discharge from active duty, that should 

have been in iPERMS were not. The Army has designated the Human 

Resources Command as the owner of iPERMS; however, local 

installation personnel offices across the country are responsible for 

entering most documents into individual service member iPERMS

accounts, and the Army has not established a mechanism for periodic 

monitoring, review, and accountability of iPERMS to ensure that 

personnel files are complete. For example, we found that documents 

needed to support pay transactions are not in iPERMS because (1) Army 

Regulation 600-8-104 does not require the personnel form to be included 

and (2) the documents are finance documents and not personnel 

documents.48

Efforts to achieve auditablity are further compounded by payroll system 

limitations. DJMS–AC, used to process Army active duty military pay, is 

an aging, Common Business Oriented Language (COBOL)49

 

47MilPer Message Number 10-322, “Submitting OMPF Documents into the Interactive 

Personnel Electronic Records System (iPERMS),” § 3, Dec. 9, 2010; MilPer Message 

Number 08-072, “Changes to Information Management Maintenance for the Official 

Military Personnel File (OMPF) and DA Form 201, Military Personnel Records Jacket 

(MPRJ),” §§ 2–5, March 18, 2008; and Department of the Army (DA) Memo 600-8-104, 

“Military Personnel Information Management/Records: Official Military Personnel File 

Access,” §§ 1–6, June 26, 2006.

mainframebased system that has had minimum system maintenance because DOD 

planned to transition to the Forward Capability Pay System and then to 

48These documents include the Department of the Army (DA) Form 5960, Authorization to 

Start, Stop or Change Basic Allowance for Quarters and/or Variable Housing Allowance; 

the Department of Defense (DD) Form 1561, Statement to Substantiate Payment of 

Family Separation Allowance (FSA); and the DD Form 2367, Individual Overseas Housing 

Allowance. 

49COBOL is one of the earliest high-level programming languages. It was developed in 

1959, and the language continues to evolve.
 

Page 23 GAO-12-406 Army Military Pay Audit Readiness 

the Defense Integrated Military Human Resources System (DIMHRS).50

Another factor in the Army’s inability to provide support for military payroll 

is that the Army has not adequately documented its personnel processes 

and controls related to military pay. During our audit, we spent 

considerable time attempting to identify the range of personnel and 

finance documents that would be needed to support basic military pay 

and allowances reported on service members’ Leave and Earnings 

Statements and the appropriate office responsible for providing the 

documentation. According to Internal Control Standards, written 

documentation should exist covering the agency’s internal control 

structure and all significant transactions and events.

DJMS-AC lacks key payroll computation abilities to pay active duty Army 

service members. To address these functionality limitations, DFAS has 

developed approximately 70 workaround procedures that are currently 

being used to compensate for the lack of functionality in DJMS-AC. An 

audit of Army military pay would necessitate an evaluation of these 

procedures and related controls.

51 The documentation 

for internal control includes identification of the agency’s activity-level 

functions and related objectives and control activities and should appear 

in management directives, administrative policies, accounting manuals, 

and other such guidance.

DOD’s November 2011 FIAR Status Report includes DOD’s goal of 

achieving audit readiness for its Statement of Budgetary Resources by 

the end of fiscal year 2014. DOD and the Army have established interim 

goals for meeting the fiscal year 2014 Statement of Budgetary Resources 

audit readiness goal. For example, the Army plans to assert audit 

readiness for its General Fund Statement of Budgetary Resources, 

including military pay, by March 31, 2013, and have its assertion tested 

and fully validated by June 30, 2014. Army officials stated that military 

pay audit readiness poses a significant challenge and acknowledged that 

 

50The Defense Integrated Military Human Resources System (DIMHRS) was terminated 

due to the differences in the business processes, operations, and information required by 

each Service. 

51GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

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

Army Military Pay Audit 

Readiness Efforts 

Currently Under Way
 

Page 24 GAO-12-406 Army Military Pay Audit Readiness 

the success of the Army’s efforts will be key to meeting DOD’s 2014 

Statement of Budgetary Resources audit readiness goal.

To meet this goal, the Army has several military pay audit readiness 

efforts planned or under way—most of which were begun after we 

initiated our audit. However, many of these efforts are in the early 

planning stages and will need to be carefully documented and managed 

to ensure effective and timely implementation.

• In November 2010, as part of the Office of the Under Secretary of 

Defense (Comptroller) (OUSD(C)) effort to provide management 

consulting assistance where needed on financial audit readiness, 

DOD provided contractor support to the Army for documenting and 

testing DJMS-AC application system controls.52 In November 2011, 

OUSD(C) and contractor officials provided us a status briefing that 

indicated DOD’s contractor expects to complete documentation and 

testing of DJMS-AC controls in March 2012.

• The November 2011 OUSD(C) status briefing also noted that the 

Army’s Financial Improvement Plan (FIP) team began executing 

discovery, documentation, and controls testing of front-end military 

pay business processes, including accessions; field service activities; 

and Military Personnel, Army appropriation budget activities. This 

effort includes processes executed by the Army financial management 

and personnel communities, including the Army Budget Office, Office 

of the Deputy Chief of Staff for Personnel, Army and DFAS installation 

finance and military pay offices, and Army installation military 

personnel offices. The Army FIP effort encompasses the active Army, 

Army National Guard, and U.S. Army Reserve. The Army plans to 

complete these efforts by December 31, 2012, and implement any 

required corrective actions by December 31, 2013.

Further, as part of the Army FIP discovery effort, Army officials told us 

they plan to develop a repository of military pay entitlement 

information by entitlement type, which includes governing laws and 

regulations; the necessary key supporting documentation, responsible 

parties, and location for retrieval; as well as the automated information 

 

52Application system control is a category of control designed to help ensure 

completeness, accuracy, validity, confidentiality, and availability of transactions and data 

during application processing.
 

Page 25 GAO-12-406 Army Military Pay Audit Readiness 

systems involved and their owners. The Army plans to complete these 

efforts by December 31, 2013. However, it is not yet clear who will be 

responsible for entering pay-supporting documents in the repository 

and what process will be used for ensuring completeness of the files. 

As previously discussed, Army Regulation No. 600-8-104, Military 

Personnel Information Management/Records, established 

requirements for the Official Military Personnel File, but the regulation 

did not include requirements for ensuring that personnel documents 

are centrally located, retained in the service members’ Official Military 

Personnel File, or otherwise readily accessible. The regulation also 

did not require that these files be monitored to ensure their 

completeness.

• Army officials told us that in conjunction with DFAS, it has identified 

other systems for SSAE No. 1653 and DFAS self-reviews. Further, the 

Army plans to identify by March 31, 2012, all systems that have a 

material impact on the military pay processes and require Federal 

Information System Controls Audit Manual (FISCAM) assessments.54

Additionally, the Army is working with DFAS-IN to document 

processes and perform control testing of payroll accounting, referred 

to by the Army as back-end processes. The Army expects to 

implement all corrective actions on these controls by December 31, 

2012.

The Army intends that all required reviews will be completed by 

December 31, 2013.

• As a result of our work, Army and DFAS-IN officials told us they plan 

to develop a matrix of personnel documents that support military pay 

and allowances and identify officials responsible for providing this 

documentation. Army Deputy Chief of Staff, G-1, officials plan to work 

with IPPS-A team members to determine how IPPS-A will incorporate 

or link to this information. Effective development of such a matrix will 

be critical to ensuring that payroll transactions are supported and, 

 

53Statement on Standards for Attestation Engagements (SSAE) No. 16,”Reporting on 

Controls for a Service Organization,” effective July 15, 2011, supersedes Statements on 

Auditing Standards (SAS) No. 70, and provides professional guidance on performing the 

service provider’s (e.g., DFAS) examination. 

54GAO, Federal Information System Controls Audit Manual (FISCAM), GAO-09-232G

(Washington, D.C.: Feb. 2, 2009). See §1.1 for purpose and use of the FISCAM.
 

Page 26 GAO-12-406 Army Military Pay Audit Readiness 

therefore, audit ready. The need for such a matrix became apparent 

nearly 1 year ago, but the Army has not yet completed such a matrix 

or identified personnel responsible for providing needed documents. 

Further, it has not established a central repository for these 

documents, or designated iPERMS as the official repository, and it 

has not established a mechanism for periodic monitoring, review, and 

accountability to ensure that the central repository will be effectively 

maintained.

• In addition, the Army is in the process of developing the Integrated 

Personnel and Pay System-Army (IPPS-A). However, the current 

targeted IPPS-A implementation date of 2017 will require the Army to 

rely on its current systems for purposes of meeting DOD’s Statement 

of Budgetary Resources audit readiness date of September 30, 2014. 

IPPS–A is planned to be developed and implemented in two 

increments, with multiple releases. The Army plans to employ 14- to 

18-month development cycles for each release, with the goal of 

fielding capabilities every 12 months. The Army intends for Increment 

I to consist of a trusted data source of soldier personnel and human 

resource data and to provide the foundation for Increment II, which is 

expected to provide integrated personnel and pay services, to be 

developed and implemented across multiple releases. In response to 

our findings in this report, Army IPPS-A officials told us that they have 

recently begun efforts to determine how IPPS-A will link to personnel 

records that will be needed to support Army military payroll amounts. 

The Army’s strategy is for each release of IPPS-A to incrementally 

build upon the prior release’s design and capability, to ultimately 

contribute toward the Army’s goal of reaching financial auditability by 

fiscal year 2017. Because implementation of the IPPS-A is not 

targeted for completion until 2017, a slippage in the implementation 

date could impede the Army’s efforts to support DOD’s financial 

statement audit readiness goal of September 30, 2017. Without timely 

and effective efforts to establish an electronic repository of paysupporting documents and ensure that the documentation is 

complete, IPPS-A will not be able to fully support the Army’s audit 

readiness efforts.

Active Army military payroll, reported at $46.1 billion for fiscal year 2010, 

is material to all of the Army’s financial statements, and as such, will be 

significant to the Army’s audit readiness goals for the Statement of 

Budgetary Resources. The Army has several military pay audit readiness 

efforts that are planned or under way. Timely and effective 

implementation of these efforts could help reduce the risk related to 

Conclusions
 

Page 27 GAO-12-406 Army Military Pay Audit Readiness 

DOD’s 2014 Statement of Budgetary Resources audit readiness goal. 

However, most of these actions are in the early planning stages.

Moreover, these initiatives, while important, do not address (1) 

establishing effective processes and systems for identifying a valid 

population of military payroll records, (2) ensuring Leave and Earnings 

Statement files and supporting personnel documents are readily available 

for verifying the accuracy of payroll records, (3) ensuring key personnel 

and other pay-related documents that support military payroll transactions 

are centrally located, retained in service member Official Military 

Personnel Files, or otherwise readily accessible, and (4) requiring the 

Army’s Human Resources Command to periodically review and confirm 

that service member Official Military Personnel File records in iPERMS or 

other master personnel record systems are consistent and complete to 

support annual financial audit requirements. These same issues, if not 

effectively resolved, could also jeopardize the 2017 goal for audit 

readiness on the complete set of DOD financial statements. In addition, 

the Army’s military pay auditability weaknesses have departmentwide 

implications as the other military components, such as the Air Force and 

the Navy, share some of the same military pay process and systems risks 

as the Army. Going forward, focused and committed leadership and 

knowledgeable staff in key functional areas, including personnel, 

systems, military payroll, and accounting will be essential to effective 

implementation of military pay audit readiness efforts.

To help the Army develop the processes and controls necessary to 

achieve financial statement audit readiness for military pay, we are 

making the following four recommendations.

We recommend that the Secretary of the Army direct the Assistant 

Secretary of the Army for Financial Management and Comptroller to work 

with Army Personnel (G-1), DFAS-IN, and audit readiness officials to

• document and implement a process for identifying and validating the 

population of payroll transactions for fiscal year periods at a minimum.

• identify key finance (i.e., pay-affecting) documents that support 

military payroll transactions and develop and implement procedures 

for maintaining them, including responsibility for coordination with 

Army Personnel (G-1) and audit readiness officials.

Recommendations for 

Executive Action
 

Page 28 GAO-12-406 Army Military Pay Audit Readiness 

In addition, we recommend that the Secretary of the Army direct the 

Assistant Secretary of the Army for Manpower and Reserve Affairs to 

revise AR No. 600-8-104, Military Personnel Information 

Management/Records, to require that

• key personnel and other pay-related documents that support military 

payroll transactions are centrally located, retained in the service 

members’ Official Military Personnel File, or otherwise readily 

accessible. Consider first using the Interactive Personnel 

Management System (iPERMS) for this purpose.

• the Army’s Human Resources Command periodically review and 

confirm that service member Official Military Personnel File records in 

iPERMS or other master personnel record systems are consistent and 

complete to support annual financial audit requirements.

We received written comments from the Secretary of the Army on March 

12, 2012, stating that the Army agreed with our four recommendations. 

The Army’s letter also states that our work has been extremely helpful in 

identifying the need to have consistent agreed-upon rules for 

documenting files required to support audits of military pay and cited 

several efforts under way to improve the auditability of its military pay.

The Army’s comments are reprinted in appendix II.

The Army’s letter states that it believes we found no significant issues in 

our review of the military pay accounts, but our report is very clear in 

highlighting the significance of the issues with the Army’s military payroll. 

For instance, our report states that without effective processes for 

identifying a complete population of Army military pay records and 

comparing military pay accounts to personnel records, the Army will have 

difficulty meeting DOD’s 2014 Statement of Budgetary Resources audit 

readiness goal and its 2017 goal for a complete set of auditable financial 

statements. In addition, because the Army was unable to provide 

documents to support reported payroll amounts, we were unable to 

determine whether the Army’s payroll accounts were valid, and we were 

unable to verify the accuracy of the payments and reported active duty 

military payroll.

Further, in responding to our first recommendation that the Army 

document and implement a process for identifying and validating the 

population of payroll transactions for fiscal year periods, the Army stated 

that it validates personnel and payroll records monthly in real time, and 

Agency Comments 

and Our Evaluation 
 

Page 29 GAO-12-406 Army Military Pay Audit Readiness 

will evaluate the value of retaining personnel files for prior years. If the 

monthly pay to personnel comparison is a control procedure that the 

Army performs regularly and intends for the auditors to rely on, the 

process and results must be documented and retained for the auditor to 

assess and test beyond the end of the fiscal year, as we recommended. 

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

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

Deputy Chief Financial Officer; the Director, Financial Improvement and 

Audit Readiness; the Secretary of the Army; the Assistant Secretary of 

the Army for Financial Management and Comptroller; the Assistant 

Secretary of the Army for Manpower and Reserve Affairs; the Director of 

Army Finance Command; the Directors of DFAS and the DFASIndianapolis Center; the Director of the Defense Manpower Data Center; 

the Director of the Office of Management and Budget; and appropriate 

congressional committees. In addition, the report is available at no charge 

on the GAO website at http://www.gao.gov.

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

me at (202) 512-9869 or khana@gao.gov. Contact points for our Office of 

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

of this report. GAO staff who made major contributions to this report are 

listed in appendix III. 

Asif A. Khan

Director, Financial Management and Assurance
 

Page 30 GAO-12-406 Army Military Pay Audit Readiness 

List of Committees

The Honorable Thomas R. Carper

Chairman

The Honorable Scott P. Brown

Ranking Member

Subcommittee on Federal Financial

Management, Government Information,

Federal Services, and International Security

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Claire McCaskill

Chairman

Subcommittee on Contracting Oversight

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Tom Coburn

Ranking Member

Permanent Subcommittee on Investigations

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Todd Platts

Chairman

The Honorable Edolphus Towns

Ranking Member

Subcommittee on Government Organization,

Efficiency and Financial Management

Committee on Oversight and Government Reform

United States House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-12-406 Army Military Pay Audit Readiness 

This audit was initiated under our mandate to audit the consolidated 

financial statements of the United States government.1

To identify the population of Army active duty payroll transactions, we 

obtained Army active duty military payroll records from the Defense 

Finance and Accounting Service, Indianapolis (DFAS-IN). DFAS-IN 

processes military payroll for the Army. At our request, DFAS-IN made 

three attempts from November 2010 through January 2011 to provide us 

a complete file of service members who were paid in fiscal year 2010. 

The first attempt included 11,940 pay accounts that were duplicate, and 

the total number of pay accounts included in the second attempt 

increased by 28,035 records over the first attempt, necessitating a third 

request for the population of fiscal year 2010 active duty pay records. To 

obtain assurance that the overall population of Army fiscal year 2010 

payroll accounts matched the sum of monthly payroll accounts, we 

requested the Defense Manpower Data Center (DMDC) compare the 

results of our third request for the population of Army fiscal year 2010 

payroll accounts against its compilation of monthly active duty payroll 

data that it received from DFAS-IN. We were able to reconcile all but 

1,025 pay accounts (less than 1 percent of the total, which is not 

considered material). We did not reconcile military payroll amounts to the 

related disbursements because an Office of the Under Secretary of 

Defense (Comptroller) and Chief Financial Officer (OUSD(C)) contractor 

was in the process of performing a pilot reconciliation.

Our objectives 

were to perform basic audit procedures necessary to conclude about the 

validity and accuracy of Army’s active duty military payroll. Those basic 

audit procedures included (1) identifying a valid population of military 

payroll transactions, and (2) testing a sample of payroll transactions for 

validity and accuracy.

In addition, because the Army does not have an integrated military 

personnel and payroll system, we worked with the DMDC to match payroll 

accounts to personnel records to determine whether the population of 

Army military payroll accounts was in agreement with the population in 

the DMDC database.2

 

1

31 U.S.C. §§ 331(e), 717(b)(1).

We relied on work performed by DMDC because 

2

DFAS-IN’s third population attempt identified 677,024 active duty Army Service members 

(excluding those who were assigned to classified duties). We excluded soldiers assigned 

to classified duties from our audit scope.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-12-406 Army Military Pay Audit Readiness 

we reviewed its quality control procedures and found them to be 

adequate, for our purposes. We compared the total number of records in 

DFAS-IN’s population and DMDC’s database for the service members 

who received active duty Army military pay in fiscal year 2010. We did not 

separately validate Army personnel file data. DMDC’s file comparison of 

Army active duty pay accounts to military personnel records identified 

67,243 pay accounts that were not matched to a file of military personnel 

records on September 30, 2010. We asked DMDC to perform more 

detailed comparisons of these differences. These differences related 

primarily to personnel who were not active Army service members 

because they had either left or were scheduled to leave the service, were 

reserve component soldiers released from active duty, or were soldiers 

that had died during fiscal year 2010. Finally, we confirmed six duplicate 

SSNs in personnel records with different names with the Social Security 

Administration and referred these records to DMDC and the Army for 

further research and appropriate action.

To address our second objective, we documented key controls, laws, and 

pay regulations and used the population of matched personnel and 

payroll records to select a statistical sample of 250 soldiers for testing the 

accuracy and validity of Army military payroll.3

 

3

Our sampling plan was based on a 95-percent confidence interval and had an acceptable 

error rate of 5 percent.

We obtained 12 months of 

fiscal year 2010 Leave and Earnings Statement files for each soldier in 

our sample, the most recent data available at the time, to compare with 

supporting Army personnel documents indicating such information as 

military orders, special duty and expertise entitlements, marital status, 

and dependent information. We gained an understanding of Army 

processes with a focus on key steps involved in establishing military 

personnel records related to specific pay and allowance amounts. We 

also performed process walkthroughs at DFAS-IN and assessed key 

controls over the accuracy of payroll payments made to service members. 

To document the process for capturing pay-related information and 

setting up military personnel records, we interviewed Army personnel, 

Human Resources Command, and Finance Command officials and 

visited a Military Enlistment Program Station in Indianapolis and a military 

reception battalion at Fort Jackson, South Carolina. We also interviewed 

finance officials at Defense Military Pay Offices at Fort Jackson, South 

Carolina, and Fort Carson, Colorado, to gain an understanding of how 
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-12-406 Army Military Pay Audit Readiness 

pay adjustments are initiated, input, and reviewed. We requested and 

obtained fiscal year 2010 monthly Leave and Earnings Statement files for 

the service members in our sample from DFAS-IN and requested Army 

personnel documents to support basic pay and allowance amounts 

reported on the Leave and Earnings Statements, including such 

information as military orders, and the certifications of special duty 

expertise, marital status, and dependent information. We did not plan to, 

nor did we test deductions and allotments for items such as Service 

Member’s Group Life Insurance, Thrift Savings Plan, and TRICARE. In 

addition to basic pay, we planned to test base housing allowance; 

hazardous duty pay; hostile fire/imminent danger pay; cost of living 

allowance; military overseas housing allowance; family separation 

housing; temporary lodging allowance; clothing allowance; and special 

duty pay, such as foreign language proficiency pay and parachute (jump) 

pay. We reviewed documentation provided by the Army for 5 sample 

items and documentation contained in the Army’s Interactive Personnel 

Management System (iPERMS), which serves as the Army’s Official 

Military Personnel File. We were unable to complete our tests of active 

duty military payroll accuracy because of a scope limitation related to the 

Army’s inability to provide support for its active component military payroll 

transactions.

In support of our objectives, we reviewed Army military personnel and 

payroll policies and procedures and identified sources of pay-related 

documentation. Throughout our work, we interviewed key Army officials in 

Manpower and Reserve Affairs, Human Resources Command, and 

Finance Command. We also interviewed DFAS-IN officials responsible for 

payroll functions and Office of the Under Secretary of Defense 

(Comptroller/Chief Financial Officer) audit readiness contractor officials. 

Additionally, we interviewed agency officials regarding the status of 

Army’s efforts to develop an Integrated Personnel and Payroll SystemArmy (IPPS-A). We also performed walkthroughs of DFAS-IN Military Pay 

Operations, accounting, disbursing, financial reporting, and related 

processes.

We conducted this performance audit from June 2010 through March 

2012 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. Other matters identified in 
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-406 Army Military Pay Audit Readiness 

our work that merit management’s attention and correction will be 

reported in a separate letter to Army management.
Appendix II: Comments from the Department 

of the Army

Page 35 GAO-12-406 Army Military Pay Audit Readiness 

Appendix II: Comments from the Department 

of the Army
Appendix II: Comments from the Department 

of the Army

Page 36 GAO-12-406 Army Military Pay Audit Readiness 
Appendix II: Comments from the Department 

of the Army

Page 37 GAO-12-406 Army Military Pay Audit Readiness 
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 38 GAO-12-406 Army Military Pay Audit Readiness 

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

In addition to the contact named above, Gayle L. Fischer, Assistant 

Director; Carl S. Barden; Tulsi Bhojwani; Frederick T. Evans; Lauren S. 

Fassler; Wilfred B. Holloway; Sabur O. Ibrahim; John J. Lopez; Julia C. 

Matta, Assistant General Counsel; Sheila D. M. Miller, Auditor in Charge; 

Margaret A. Mills; Heather L. Rasmussen; Ramon J. Rodriguez; James J. 

Ungvarsky; and Matthew P. Zaun made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(198649)
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