DOD Financial Management: Actions Needed to Address Deficiencies in Controls over Army Active Duty Military Payroll
Published: 2012-12-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In March 2012, GAO reported on challenges that DOD and the Army face in achieving audit readiness with respect to the over $45 billion in reported fiscal year 2010 Army active duty military payroll disbursements. In performing that work, GAO identified indications of possible weaknesses in selected processes, systems, and controls relied on to reasonably assure the validity and accuracy of reported Army active duty military payroll that were beyond the scope of that audit. GAO subsequently completed work on those issues and is presenting the results in this report. GAO (1) assessed the design of key controls for payroll accuracy and (2) determined the extent to which the Army and DFAS-IN have monitoring controls to identify and address any systemic weaknesses. GAO compared selected Army and DFAS-IN processes, systems, and controls for assuring payroll accuracy to applicable internal control standards and to applicable provisions of law, regulations, and policies and procedures. GAO also interviewed officials and examined related data and information.
section_title: What GAO Found
paragraphs: GAO identified deficiencies in the design of key control procedures relied on by the Army and the Defense Finance and Accounting Service-Indianapolis (DFAS-IN) to detect errors in payroll disbursements to active duty Army military personnel. Specifically, GAO found that the Army's procedures for reviewing Unit Commander Finance Reports (UCFR) do not (1) provide for monitoring of required UCFR reviews to better assure detection of payroll errors, (2) require reporting on completed UCFR reviews in all cases, and (3) clearly establish time frames for completing and reporting on UCFR reviews. GAO's analysis of DFAS data on military pay debts and Army investigations of potential fraud completed over the past 2 years identified numerous instances of the effect of errors or irregularities in Army active duty payroll disbursements that went undetected for lengthy periods of time, including some that were not detected for up to 2 years or until the soldier left the Army. For example:
A soldier who separated from the Army in 2009 continued to receive active duty pay totaling about $185,000 until 2011.
A soldier who was absent without leave from January 2010 to September 2011 received military pay of $33,268 to which she was not entitled.
A soldier under investigation for possible fraud allegedly received over $34,000 in paratrooper and language proficiency pay but did not have a documented record of jumps performed or up-to-date proficiency certifications.
GAO's analysis determined that the Army could reduce its risk of lengthy delays in detecting and correcting pay errors with more stringent UCFR monitoring and reporting requirements.
GAO also found that DFAS and the Army have procedures and metrics in place that focus on the timeliness of manual processing and payroll adjustments for error corrections. However, they do not have procedures and metrics to enable them to gather data on active duty pay errors that were related to causes other than timeliness, such as over- and underpayments, data entry errors, and unauthorized payments. Further, the design of existing Defense Joint Military Pay System-Active Component and DFAS-IN Case Management System procedures for transaction processing and error correction did not provide for monitoring to capture data on all types of pay errors and their causes that would be useful in identifying the extent to which there are any additional systemic payroll control weaknesses. For example, an Army National Guard colonel deployed on active duty to Afghanistan reported that he experienced financial hardship when his military pay was stopped for 1-1/2 months. The absence of data on the extent and causes of all types of Army active duty military payroll errors impairs the Army's ability to identify and address any adverse trends that may indicate the existence of other systemic control weaknesses. Overall, the control deficiencies that GAO identified increase the risk that the nearly $47 billion in reported fiscal year 2011 Army active duty military payroll includes Army servicemembers who received pay to which they were not entitled and others who did not receive the full pay they were due. Further, to the extent that errors in Army active duty pay are not identified and addressed in a timely manner, they can have a negative effect on soldier welfare and, ultimately, could erode soldiers' focus on their Army mission.
section_title: What GAO Recommends
paragraphs: GAO made five recommendations to strengthen Army and DFAS monitoring and reporting controls over Army active duty military payroll accuracy. DOD partially concurred with all five recommendations, stating that it concurs fully with the goal of improving military pay but additional testing is needed to identify any cost-effective corrective actions. GAO continues to believe that its recommendations for corrective action are appropriate, as discussed more fully in the report.

section_title: Letter
paragraphs: On March 22, 2012, we issued a report on challenges in achieving audit  readiness for the U.S. Army’s military pay. In performing the work that  led to our March 2012 report, we identified preliminary indications of  weaknesses in the design of processes, systems, and controls used to  detect and correct errors in Army military payroll disbursements that were  beyond the scope of that audit. These concerns, if not addressed,  increase the risk that the nearly $47 billion in reported fiscal year 2011  military payroll includes active duty Army servicemembers who received  pay to which they were not entitled or did not receive the full pay they  were due.
As discussed in our March report, although the Army had established the  Interactive Personnel Electronic Records Management System (iPERMS)  as the Army’s Official Military Personnel File in 2007, it had not  consistently or completely populated iPERMS with personnel records.  Consequently, we determined that the Army did not have a central  repository of official military personnel records and other documents  affecting pay that was maintained, updated, and validated. Such a  repository would have provided support for the accuracy and validity of  the Army’s active duty payroll transactions. The lack of such a repository  of official records necessitates having effective compensating and  monitoring controls to provide assurance over the accuracy and validity of  active duty Army payroll data. Because of the lack of such a repository  and the preliminary indications of weaknesses in processes, systems,  and controls used to detect and correct errors in military payroll  disbursements that we identified, we initiated this review.
Our objectives for this report were to (1) assess the effectiveness of the  design of the process for unit commander review of monthly payroll as a  compensating control for assuring the accuracy of the Army’s active duty  military payroll data and (2) determine the extent to which the Army and  the Defense Finance and Accounting Service-Indianapolis (DFAS-IN)  have monitoring controls in place to accumulate and analyze military  payroll errors to identify and address any systemic weaknesses. To  address our first objective, we focused our work on the design of  compensating controls over the accuracy of monthly payroll data using  the Unit Commander’s Finance Report (UCFR). To address our second  objective, we analyzed the design of DFAS-IN’s processes for  accumulating and analyzing data related to adjusting payroll amounts in  the Defense Joint Military Pay System-Active Component (DJMS-AC) for  active Army servicemembers who received over- and underpayments.  We also analyzed DFAS-IN’s Case Management System (CMS)  processes for accumulating data on the correction of Army military pay  errors and processing of pay transactions outside of DJMS-AC. We  compared Army and DFAS-IN processes, systems, and related controls  for assuring the reliability of Army active duty military payroll transactions  to Standards for Internal Control in the Federal Government, as well as  applicable provisions of laws and regulations, including the Department of  Defense (DOD), Army, and DFAS policies and procedures. Further  details are discussed in the scope and methodology section. We  conducted this performance audit from March 2012 to December 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.
subsections: section_title: Background
paragraphs: The U.S. Army is responsible for land-based military operations and is the  largest and oldest established branch of the U.S. military. For fiscal year  2011, Congress appropriated $52.5 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 servicemembers.the Under Secretary of Defense Comptroller/Chief Financial Officer (DOD  Comptroller), provides accounting, disbursing, and financial reporting  services to the Army. According to DFAS-IN, of the $52.5 billion in fiscal  year 2011 military personnel appropriations, nearly 800,000 active duty  Army servicemembers received nearly $47 billion in pay and allowances.
subsections: section_title: DOD Organizations, Processes, and Systems Involved in Supporting the Army’s Active Duty Military Pay
paragraphs: The DOD Comptroller’s Office sets DOD financial management policy,  including policy on military pay, which is included in DOD’s Financial  Management Regulation (FMR), Volume 7A, Military Pay Policy and  Procedures – Active Duty and Reserve Pay. FMR, Volume 7A provides  guidance on basic pay calculations; special pays, including pay of  medical and dental officers, pay for hostile fire or imminent danger, and  pay for foreign language proficiency; bonuses; allowances; allotments; tax  withholding; and leave. FMR, Volume 7A also sets the policy on the effect  of court-martial sentences on pay and allowances. The Office of the  Assistant Secretary of the Army for Manpower and Reserve Affairs is  responsible for setting the strategic direction and providing overall  supervision for manpower, personnel, and Reserve Component affairs of  the Army and also is responsible for the Army’s manpower policy and  human resources, among other things. In order to fulfill these  responsibilities, Manpower and Reserve Affairs relies on the Deputy Chief  of Staff, Army G-1, for advice and assistance.
The Army G-1 Resources Division’s Compensation and Entitlement  Branch is responsible for active, reserve, and retired military  compensation. The branch develops legislative proposals and policy  directives for all forms of pay and allowances and represents the Army on  the Per Diem, Travel and Transportation Allowance Committee of the  Military Advisory Panel as well as numerous DOD working groups,  including Basic Allowance for Subsistence, Basic Allowance for Housing,  Special and Incentive Pays, Travel Reengineering, and Debt Avoidance.
The Army Human Resources Command supports Army G-1 in the  management of all military personnel by serving as the functional  proponent for military personnel management and personnel systems.  The Army Human Resources Command is responsible for providing  DFAS-IN with accurate and timely information regarding changes in  individual military member status necessary to maintain military payroll  accounts. DFAS-IN is responsible for processing the Army’s military  payroll using DJMS-AC. DFAS-IN and its Military Pay Operations (Mil Pay  Ops) staff rely on numerous Army military personnel records generated  by the Army Reception Battalion installation personnel offices, Defense  Military Pay Offices (DMPO), Army Finance Offices, Army Human  Resources Command, and unit commanders to establish and update  active duty military pay accounts in DJMS-AC. The Army Financial  Management Command under the Assistant Secretary of the Army for  Financial Management and Comptroller provides finance support and  liaison to Army commands, installations, and tactical units and to DFAS  on matters pertaining to the adequacy of finance policies, systems, and  reporting requirements.
section_title: DFAS-IN Army Military Pay Process
paragraphs: To provide payroll support to the vast number of active Army  servicemembers, DFAS-IN has 38 DMPOs within the United States, and  the Army has finance offices overseas that provide pay services to  military personnel in designated geographical areas. Military pay starts  once a master military payroll account is established in DJMS-AC. Army  active duty military personnel are to 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 servicemembers may elect to be paid once a month—at the end of  the month—or twice a month—at midmonth and at the end of the month.  DJMS-AC consolidates servicemember pay information into one monthly  Leave and Earnings Statement for each member’s pay account. In  addition to basic pay, military members may also be eligible for cash  recruitment or retention incentives (that is, bonuses). Any necessary pay  change after the pay account is set up is to be initiated by 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. DFAS-IN makes payments of basic pay and  allowances to Army active duty servicemembers using electronic funds  transfer from DJMS-AC. DFAS-IN’s Disbursing Office uses the Army’s  disbursing system to send electronic payments to the Federal Reserve  Banks, which in turn distribute payments to each servicemember’s bank  account.
DFAS-IN and its DMPOs are to update Army active duty military pay  records in DJMS-AC based on changes in the soldier’s status. These  updates generally correct over- and underpayments caused by delay of   For active duty soldiers,  document submissions and transaction errors. underpayments are generally adjusted in the next pay check, while  overpayments result in a deduction to the soldier’s pay. For Army  soldiers who have left the service, DFAS establishes an out-of-service  debt and uses the Defense Debt Management System (DDMS) to  manage the debt collection process.collecting debts related to military pay issues as well as debts related to  lost or damaged property and other unpaid obligations and fees. Federal  statutes governing claims of the U.S. government authorize DOD to use  certain debt collection tools, such as interest charges, offset, and private   DFAS is responsible for  collection contractors.separates from military service, DFAS can refer these debts to private  collection contractors.
section_title: Establishing, Monitoring, and Investigating Military Pay Statuses
paragraphs: Army Regulation (AR) 37-104-4, Military Pay and Allowances Policy,  dated June 8, 2005, provides detailed policy provisions on specific pay  and allowances as well as guidance on pay stoppages, adjustments, debt  collection action, and use of the UCFRs. The Compensation and  Entitlement Branch works with DFAS-IN to research and resolve soldier  pay issues, process adjustments to pay, and take debt collection action.  The DMPOs and Army Finance Offices provide UCFRs containing  monthly military payroll data generated by DJMS-AC to unit commanders  as a compensating control for verifying payroll accuracy. The UCFR  provides the unit commander a summary of a soldier’s monthly pay  account status. AR 37-104-4 requires unit commanders to review the  UCFR on a monthly basis and promptly report any discrepancies to their  local DMPO. In addition, when the Army Financial Management  Command, the Compensation and Entitlement Branch, DMPOs, or  DFAS-IN’s Mil Pay Ops suspect irregularities in pay or potential fraud,  they research the details and document the specifics of the pay issue and  may refer the matter to the Army’s Criminal Investigation Division (CID)  for further investigation.
CID is the Army’s primary criminal investigative organization. Army CID’s  primary mission is to investigate serious crime, as defined in AR 195-2,  Criminal Investigation Activities. Commensurate with authorities in AR  195-2, CID special agents collect, analyze, and disseminate criminal  intelligence; conduct protective service operations; provide forensic  laboratory support; and maintain Army criminal records. CID also  investigates less serious crimes, such as military pay-related and travel  reimbursement irregularities, as needed, to enforce Army law or  regulations.
section_title: Scope and Methodology
paragraphs: To assess the effectiveness of the design of the process for unit  commander review of monthly payroll disbursements as a compensating  control for assuring active duty Army payroll accuracy, we compared  related processes and systems to applicable internal control standards,  as well as applicable laws and regulations, and DOD, DFAS, and Army  policies and procedures. Specifically, we reviewed the design of Army  and DFAS-IN processes for reviewing and correcting military payroll data  based on requirements in AR 37-104-4, Military Pay and Allowances  Policy, and related guidance and DFAS-IN’s Standard Operating  Procedures for the Unit Commander Finance Report (May 4, 2009). We  also reviewed DFAS-IN’s Field Services Division procedures for ensuring  the accuracy of data on UCFR submissions. For October 2011 to March  2012, we obtained the monthly summary of unit commander UCFR  submissions to DMPOs that are forwarded to DFAS-IN and used DFAS- IN’s criteria of no later than the 10th of the month for review and  submission of UCFRs to determine the number of UCFRs that were  submitted on time, submitted late, or not submitted at all. In addition, we  interviewed DFAS Debt and Claims Management, DFAS-IN Mil Pay Ops,  and DMPO officials and Army Financial Management Command, Army G- 1, and Army CID officials to gain an understanding of their systems,  processes, and controls. To determine ways in which UCFR information,  if properly designed, could act as a compensating control for assuring  payroll accuracy, we analyzed payroll errors that led to out-of-service  debt, over- and underpayments, unauthorized payments, and Army CID  fraud investigations.
We reviewed debt information maintained by DFAS on former military  servicemembers (referred to as out-of-service debts by DFAS) to identify  military pay-related debts and determine the types of pay and allowances  that resulted in these debts to identify the underlying causes. Specifically,  we analyzed summary and detailed data on Army out-of-service debts  related to military pay for fiscal year 2011 and the first 7 months of fiscal  year 2012 to identify debts by category and determine whether the pay  problems that resulted in these debts could have been detected and  corrected with effective review of the UCFRs. We analyzed selected  detailed data for fiscal year 2011 and the month of March 2012 to identify  illustrative examples of payroll errors that resulted in the out-of-service  debts and identified the controls that if properly designed, could have  prevented the debts from occurring. To determine the reliability of these  data for the purpose of our work, we reviewed procedural guidance on  DFAS’s systems and processes for collecting out-of-service military  payroll debt and questioned DFAS officials about any additional  procedures they perform related to the reliability of DDMS data. We  determined that these data were sufficiently reliable for the purpose of our  work.
In addition, we reviewed report summaries on investigations of potential  military pay-related fraud to identify weaknesses in related processes,  systems, and controls and whether effective review of the UCFR would  have detected these issues. Specifically, we analyzed Army CID military  pay-related fraud investigations for fiscal years 2010 and 2011—a total of  285 investigations—and obtained and reviewed selected investigation  reports for additional details. Of these 285 investigations, 64 pertained to  travel reimbursements. Therefore, we focused our analysis on the  remaining 221 investigations consisting of 190 investigations that related  only to potential military pay fraud and 31 that involved potential fraud  associated with both military pay and travel reimbursements. We met with  Army CID, Army Financial Management Command, and Army G-1  officials to discuss what triggers investigations of potential military payroll  fraud and the breakdowns in controls that allowed various types of  potential military payroll fraud to occur.
To determine the extent to which DFAS-IN had monitoring controls in  place for identifying the extent of any active Army military payroll errors  and identifying systemic weaknesses and appropriate corrective actions,  we interviewed DFAS-IN officials to gain an understanding of their  processes and performed walk-throughs, where appropriate. We  analyzed military payroll data processed by DJMS-AC and CMS, which  DFAS-IN uses to manually process pay transactions that cannot be  processed by DJMS-AC. We assessed DFAS procedures for assuring the  reliability of data generated by CMS and DJMS-AC. We also reviewed  DFAS-IN performance metrics related to Army military payroll timeliness  and accuracy to assess trends and management oversight.
section_title: Deficiencies in Design of Unit Commander Finance Report Monitoring and Reporting Procedures
paragraphs: Our analysis of payroll errors that resulted in out-of-service debts and pay  irregularities investigated by Army CID found numerous examples of pay  problems that could have been but were not promptly detected, reported,  and corrected through the UCFR review. Specifically, we found that the  design of Army and DFAS-IN procedures for using the UCFR to assist in  detecting and correcting military payroll errors is not an effective  compensating control for assuring the accuracy of the Army’s active duty  military payroll because they do not (1) provide for monitoring of required  UCFR reviews to better assure detection of payroll errors, (2) require  reporting of completed UCFR reviews in all cases, and (3) clearly  establish time frames for completing and reporting on UCFR reviews.  Standards for Internal Control in the Federal Government states that  internal control should generally be designed to assure that ongoing  monitoring occurs in the course of normal operations. The standards  also states that transactions should be promptly recorded to maintain  their relevance and value to management in controlling operations and  making decisions. Also, DFAS-IN UCFR procedural guidance states that  the unit commander’s review of the UCFR is essential for establishing  combat readiness; reducing fraud, waste, and abuse; and ensuring that  soldiers’ pay is accurate.
subsections: section_title: Undetected Payroll Errors Resulted in Overpayments and Debts Owed to the Government by Soldiers No Longer in the Army
paragraphs: Our review of DFAS Debt and Claims Management data and Army CID  reports on investigations of potential military pay-related fraud identified  numerous instances of military pay errors and irregularities that the Army  and DFAS-IN did not detect and correct for several months, or only after  soldiers had left the service. The following examples from our analysis of  DDMS data illustrate the types of pay errors that went undetected for  lengthy periods of time.
A reserve soldier assigned to active duty was overpaid approximately  $185,000 over a 2-year period from May 2009 to May 2011 because  the DMPO did not enter into DJMS-AC the end-of-tour date from the  order mobilizing the Army Reserve soldier to active duty. The soldier  continued to receive pay and allowances after separation from the  service in May 2009 until the local DMPO processed the separation  transaction in DJMS-AC in May 2011. Effective review of the UCFR  could have determined that this soldier, who had left active duty, was  continuing to receive active duty pay.
A soldier who was absent without leave (AWOL) from January 2010 to  September 2011 received military pay of $33,268 to which she was  not entitled. Her unit notified the finance office to suspend her pay in  September 2011. However, an effective UCFR review process could  have detected this issue earlier and reduced the accumulated debt for  this soldier.
Another soldier who was later determined to be AWOL received  $13,208 in pay and allowances to which he was not entitled from  October 15, 2008, to January 30, 2009. In February 2009, the  installation where the solider was stationed initiated a CMS case, and  in March 2012, DFAS-IN recorded the soldier’s expired term of  service in DJMS-AC effective on June 10, 2011. An additional  $12,571 of debt for unearned enlistment bonus, travel advance, Army  emergency relief payment, and government property loss and  damage resulted in a total debt amount of $25,779. Effective review of  the UCFR would have detected that the AWOL soldier was still  receiving active duty pay.
Table 1 shows, by category, the amount of fiscal year 2011 Army military  pay-related debt that was owed by soldiers who had left the Army. At that  time, DFAS was pursuing over $50 million of these debts. According to  unaudited DFAS data, military pay-related debts accounted for over 90  percent of the Army’s out-of-service debts in fiscal year 2011.
In addition, our analysis of 221 fiscal year 2010 and 2011 Army CID  investigations of potential military pay-related fraud identified the following  examples of adverse effects of lingering undetected Army payroll errors.
A lieutenant colonel allegedly received active duty pay to which she  was not entitled after she was discharged from active duty on  December 17, 2008. The estimated loss to the government was  approximately $188,700. An effective review of the UCFR could have  detected this type of pay issue because the unit commanders or  battalion personnel sergeants (or S-1) would have been in a position  to know whether a servicemember had separated from the service  and thus no longer should be receiving active duty pay.
A colonel allegedly collected foreign language proficiency pay even  though he had not recertified his language proficiency since 1999.  The investigative report stated that the colonel also allegedly received  jump pay from January 1999 through March 2008 that he was not  authorized to receive. Army CID estimated the total loss to the  government for this case at $34,455. A CID review of jump records  revealed that the colonel had made no documented jumps since  1999. According to the Army Financial Management Command, once  jump pay is initially authorized by the unit, jump pay is automatically  paid to an individual assigned to a unit-level position requiring jumps.  If the unit was not performing jumps, then the soldier would not be  entitled to this pay. In addition, foreign language proficiency pay is  governed by AR 11-6, Chapter 6, which gives the unit commander or  the battalion S-1 the primary responsibility for monitoring this pay,  including monitoring language proficiency, preparing a monthly report  on who is entitled to and is receiving foreign language pay, and  verifying the UCFR. Because the unit commander and S-1 were in a  position to know whether their unit was required to perform jumps and  would have a record of a soldier’s foreign language certifications and  applicable dates, an effective review of the UCFR could have  detected these pay issues.
A private first class allegedly continued to receive his military pay and  allowances and utilized his TRICARE benefits while AWOL from  assigned duty. The estimated loss to the government was $24,194.  Effective review of the UCFR could have identified this kind of pay  issue because unit commanders and S-1s would have knowledge of  whether their soldiers are reporting for duty and whether any  absences are for authorized reasons.
Another soldier allegedly received family separation allowance for 31  months, an allowance to which he was not entitled as his family  resided with him in Columbus, Georgia. The estimated loss to the  government was approximately $7,750. Effective review of the UCFR  could have detected this type of pay issue because family separation  allowance applies to soldiers who are away from their dependents for  more than 30 days, and unit commanders are in a position to know  where soldiers are stationed in relation to their family residences.
To the extent that any overpayments or frauds involving Army active duty  military pay are not timely and effectively identified and corrected, they  become more difficult to collect after individuals have left the service  because rather than processing payroll offsets, formal debt collection  action must be taken. Such collections are likely to be increasingly difficult  to make with the passage of time.
Army CID investigators stated that they uncovered sufficient evidence of  potential fraud to meet the Army’s standards for referring the  investigations for additional DOD action. Our analysis included 190  investigations that identified 320 incidences of potential fraud with a total  estimated loss to the government of a little over $6 million related only to  potential military pay fraud and 31 investigations totaling nearly $1 million  that involved potential fraud associated with both military pay and travel  reimbursements. Table 2 shows the results of our analysis of the 190 CID  investigations involving only military pay. Many of these investigations  involved more than one incidence of potential fraud. For example, of the  138 incidences of potential fraud related to basic allowance for housing,  21 also involved incidences of potential fraud related to family separation  allowance.
We identified the following deficiencies in the Army’s procedures that  impaired the effectiveness of the UCFR reviews. First, Army procedures  do not provide for monitoring to assure effective UCFR reviews. Second,  AR 37-104-4, Military Pay and Allowances Policy, only requires unit  commanders to submit their UCFRs to their designated finance offices or  DMPOs if corrections are needed. When unit commanders do not return  their UCFRs, the local finance offices and DMPOs do not receive  documented evidence that the UCFRs have been reviewed and thus  have no timely, positive assurance of the accuracy of the UCFR. Third,  AR 37-104-4 does not clearly define the time frame for “immediately”  reporting any needed corrections, such as no later than the 10th of the  month, specified in DFAS-IN guidance. The UCFR could serve as an  effective compensating control for confirming pay status and allowances if  reviews were monitored to help assure that they were appropriately  performed, were required to be reported in all cases, and were required to  be submitted within a clearly prescribed time frame, such as the 10th of  the month specified in DFAS-IN guidance.
A court-martial is a military court convened under military authority to try members of the  U.S. armed forces who are accused of violating the UCMJ. Article 15 of the UCMJ, which  is codified, as amended, at 10 U.S.C. § 815, provides for nonjudicial punishment imposed  by a commander and accepted by the military member. discrepancies, such as any soldiers who are AWOL but continue to  receive pay and allowances and any soldiers who receive an overseas  housing allowance while living on post. Additionally, because S-1s review  and unit commanders certify soldier eligibility for special pays based on  soldiers meeting the requisite training and certification requirements, they  also are in a position to know what special pays their soldiers are entitled  to receive.
Consistent with AR 37-104-4, Army Vice Chief of Staff guidancerequires UCFRs to be immediately reviewed and, if discrepancies are  identified, submitted timely, so that any needed corrections and updates  can be made before the next monthly payroll. However, as shown in  figure 1, because AR 37-104-4 and Army Vice Chief of Staff guidance  only require UCFRs to be submitted if corrections or updates are needed,  the Army and DFAS-IN do not have positive assurance that all UCFRs  were appropriately reviewed. However, current Army regulations do not  include any requirements to monitor the effectiveness of required UCFR  reviews. Further, the lack of a mandatory requirement to submit UCFRs  impairs the ability of the Army and DFAS-IN to obtain a population of  UCFRs that could be used to periodically monitor and test the  effectiveness of UCFR reviews for assuring the accuracy of active duty  Army military payroll transactions. DFAS-IN and Army officials  acknowledged that UCFR review and submission could be a useful  compensating control if submission of the reports was a mandatory  requirement whether or not corrections or updates are needed. Further,  monitoring to better ensure that appropriate review of monthly UCFRs in  concert with a requirement for mandatory UCFR submission within a  certain number of days could provide a useful compensating control for  assuring active duty Army military payroll accuracy by providing early  detection of the types of payroll errors and irregularities that we identified.
The current reporting requirement also limits the effectiveness of the  requirement for monthly UCFR reviews. The requirement to only submit  UCFRs if discrepancies are noted does not provide positive assurance  that the required review was performed. Further, although AR 37-104-4  and Army Vice Chief of Staff guidance do not define “immediately” related  to the requirement to submit UCFRs that identify discrepancies, DFAS-IN  guidance defines timely submission of UCFRs as no later than the 10th of  the following month. Based on DFAS-IN’s timeliness criteria, our analysis  of unaudited data on unit commander UCFR submissions from October  2011 through March 2012 showed that 26 percent of the UCFRs were  submitted late or were not submitted at all. Our analysis also determined  that although 19 of the 38 DMPOs had high average rates (90 percent or  greater) for timely receipt of Army unit commander UCFR submissions, 5  of the remaining 19 DMPOs—Indianapolis, Fort Hood, Fort Lewis  McChord, Fort Bliss, and Redstone Arsenal—had an average rate for  unsubmitted UCFRs of 40 percent or greater during the first 6 months of  fiscal year 2012. Without positive assurance that UCFRs were  appropriately reviewed and that no military pay corrections or updates  were needed, DFAS-IN and the Army cannot rely on UCFR review as an  effective control to detect payroll issues and ensure that errors or  irregularities are identified and submitted for correction in a timely  manner.
section_title: Ineffective Procedures for Capturing Information on Payroll Errors to Identify and Correct Systemic Weaknesses
paragraphs: Existing monitoring processes and controls for resolving Army active duty  payroll errors were not designed to serve as effective compensating  controls to provide for monitoring to capture data on the extent and  causes of any over- and underpayments, unauthorized payments, and  other pay errors. Effectively designed monitoring could be used to help  identify and address any systemic internal control weaknesses, determine  appropriate corrective actions, and monitor trends in the payroll data to  determine the effectiveness of corrective actions. Standards for Internal  Control in the Federal Government states that internal control should  generally be designed to assure that ongoing monitoring occurs in the  course of normal operations. Such monitoring should assess the quality  of internal control performance over time and includes regular  management activities, such as comparisons, reconciliations, and other  reviews.
subsections: section_title: DFAS-IN and the Army Do Not Have a Comprehensive Metric for Monitoring the Army’s Active Duty Military Payroll Accuracy
paragraphs: DFAS-IN and the Army have not established a comprehensive metric for  monitoring the accuracy of active duty Army military payroll. The Army  Financial Management Command Director and DFAS-IN’s Mil Pay Ops  Director stated that DOD-wide military payroll metrics, including the  Army’s military payroll metric, are designed to track timeliness but not  accuracy and emphasized that they believe transaction timeliness is the  best primary metric for monitoring the accuracy of soldier pay. However,  all pay errors are not a result of timeliness issues as discussed later in  this report; errors also occurred as a result of certain overpayments, data  entry errors, unauthorized payments, and fraud. DFAS-IN and the Army  do not have monitoring procedures in place to accumulate and analyze  pay problems that are not related to timeliness. Consequently, DFAS-IN  and the Army do not accumulate data and do not have a corresponding  metric to track pay accuracy for all types of military pay and entitlements.  If not corrected, this condition could impede the Army’s ability to respond  to a financial audit because to the extent that auditors cannot rely on  controls, they will need to increase transaction testing. Moreover, to the  extent that errors in Army active duty pay are not identified and  addressed in a timely manner, they can have a negative effect on soldier  welfare and, ultimately, could erode the focus on Army mission readiness.
The Directors of DFAS-IN and the Army Financial Management  Command stated that DFAS and the Army monitor and follow up on late  submissions of pay-affecting documents. The Directors stated that not all  late submissions of pay changes indicate pay errors. For example, the  Directors explained that if a commander approves and military orders are  issued for retroactive promotions, they recognize that the pay amounts  could be viewed as inaccurate until the retroactive promotions are  processed. However, the retroactive nature of the adjustment does not  indicate that there was an error. While timeliness is the issue in these  cases, the retroactive effective date of the promotion indicates both  timeliness and accuracy are issues of concern because servicemembers  were paid an incorrect amount for a period of time. According to the  DFAS-IN Mil Pay Ops Director, the Office of the Secretary of Defense  Personnel/Pay Council’s Pay Performance Metrics include such  retroactive payments in the timeliness “metric” for processing of military  pay transactions within 30 days of the effective date. However, the 20-day  CMS metric for timeliness does not consider the period of time during  which a pay amount was incorrect.
Our analysis determined that if DFAS-IN wanted to accumulate separate  information on types of active duty Army military pay errors, it would need  to establish criteria and perform a labor-intensive review of the details of  approximately 300,000 CMS cases annually, survey DMPOs for  information on active Army military pay errors they correct locally but are  not required to document and report, and consider the extent to which  other processes identify error corrections in order to extract information  on errors by pay category and the causes of those errors.
section_title: Data on Payroll Adjustments for Underpayment or Overpayment of Active Duty Military Pay Are Not Used to Help Identify Potential Systemic Control Weaknesses
paragraphs: The system that DFAS-IN uses to pay Army active duty soldiers (DJMS- AC) does not have the capability to identify and report the extent and  causes of under- and overpayments and other types of payroll errors  related to active duty Army soldier pay. As a result, DFAS-IN is not able  to analyze the extent to which there may be any systemic control  weaknesses that need corrective action. Without the ability to detect and  correct systemic weaknesses, over- and underpayments are likely to  continue, creating a financial burden for soldiers who did not receive all  the pay they were due and soldiers who received more than their entitled  amounts and were subjected to collection action. Either problem may  pose financial hardship for the soldiers and detract from their focus on  mission.
Underpayments occur when the events that increase basic pay and  allowances are not reflected in a military pay transaction at the time they  occur. Underpayments also occur when a soldier is not paid in a timely  manner for special pays when the related certification training is  completed. When underpayments are identified and confirmed, DFAS- IN pays them to the soldier in the next paycheck. Underpayments affect  soldiers’ personal finances, especially when they are not resolved in a  timely fashion. For example, a colonel in the Army National Guard  reported experiencing numerous underpayments throughout his 28 years  of service, including suffering financial hardship when he was on active  duty in 2003 to Afghanistan and his active duty pay was stopped for 1-1/2  months. He also stated he did not receive hardship duty pay and hostile  fire pay while on a deployment to Southeast Asia, which took  approximately 1-1/2 years to correct. Further, he reported that his pay  problems have persisted, with the most recent being in January 2012.
Overpayments may occur when a servicemember returns from a combat  zone deployment to a duty station in the United States and the Army  personnel system fails to notify the pay system. Overpayments are  recovered through withholding from the soldier’s subsequent pay. If  soldiers’ entitlements are not adjusted in a timely manner as their duty  status changes, and they spend the extra pay received, collection action  can pose a financial hardship.
DFAS-IN procedures for DJMS-AC do not include steps to identify and  report the dollar amounts of and reasons for adjustments it made to  correct active duty soldiers’ military pay accounts for under- and  overpayments on its nearly $47 billion in reported Army military pay for  fiscal year 2011. DFAS-IN officials explained that DJMS-AC does not  have unique transaction codes that identify adjustments to active duty  Army soldiers’ pay. As a result, adjustments for underpayments of military  pay are entered with the same codes as those used for original military  pay transactions. Therefore, although DFAS-IN can identify the total  number of transactions by type of pay and allowance, it cannot separately  identify the number or causes of underpayments made to active duty  servicemembers. Further, DFAS-IN cannot provide a detailed breakdown  of the reasons for and dollar amounts of overpayments because DJMS- AC is not configured to capture information on the detailed causes of  overpayments of pay and allowances. Instead, debt reason codes in  DJMS-AC relate generally to the type of pay and allowance debt that is  being assessed against a soldier’s pay account, such as basic allowance  of housing or hostile fire pay. The DFAS-IN Mil Pay Ops Director said it  would be too costly to change the current system to include transaction  codes related to correction of under- and overpayments. The Director of  the Army Financial Management Command and Army G-1 officials told us  that user requirements for the Integrated Personnel and Pay System- Army (IPPS-A), which is intended to replace the Army’s DJMS, include  this type of functionality. However, IPPS-A full functionality for military  payroll is not targeted for implementation until the third quarter of 2016.  Consequently, without establishing an interim process for capturing data  on payroll errors and identifying their causes, both DFAS-IN and the Army  will be limited in their ability to reasonably assure the effectiveness of any  corrective actions until comparable IPPS-A functionality is implemented.
section_title: CMS Processing of Corrections to Active Duty Military Pay Is Not Designed to Capture Information on the Extent of Errors to Identify Systemic Weaknesses
paragraphs: We found that the DFAS-IN’s CMS process used to process Army military  pay transactions and error corrections that are handled outside of DJMS- AC was not designed to identify military payroll errors and monitor trends  in the occurrence of these errors. As a result, the Army and its Financial  Management Command cannot use CMS to help monitor the number of  errors by pay category and their causes. Further, CMS does not capture  and accumulate data on the types and causes of pay errors that are  corrected by DMPOs and finance offices. Without a CMS monitoring  capability, the Army is limited in its ability to identify and address any  additional systemic military payroll control weaknesses.
Our analysis of Mil Pay Ops processes determined that CMS serves as  an electronic file folder that accumulates documents needed to resolve  military pay issues with the capability to identify information on types of  cases, such as separations, and their status to ensure that they are  processed or corrected within DFAS timeliness metrics. Our analysis of  unaudited CMS data showed that the CMS process adopted for Army  payroll cases has processed an average of 310,000 DJMS-AC system- generated cases and manual cases annually since fiscal year 2008,many of which involved problems with multiple types of pay transactions.  For the first 11 months of fiscal year 2012, approximately half of the  cases processed were manual cases. We determined that both the  manual and the system-generated case categories contain cases that  relate to error corrections. However, CMS processes do not require the  identification of the types of cases or the extent to which they relate to  error corrections. Because CMS does not capture and accumulate data  on all corrections of military payroll errors, it does not serve as an  effective monitoring control for providing DFAS-IN and the Army the  ability to determine the extent and nature of active duty Army military pay  errors and identify systemic weaknesses and their causes in order to  design appropriate corrective actions, leaving the Army at risk of  continuing errors.
For example, our analysis and discussions with DFAS-IN officials  regarding pay system rejects—DJMS-AC system-generated transactions  that were not allowed to process in DJMS-AC—determined that some of  these system-generated rejects relate to error corrections. For example,  the reject analysis reports contain error codes that identify the type of  transactions that DJMS-AC controls did not allow DJMS-AC to process.  The reject analysis report breaks out the number of rejects that are to be  sent to DMPOs or finance offices for correction and those that must be  corrected centrally by DFAS-IN and have a CMS case created for  tracking and visibility. DMPO officials told us that upon receiving reject  reports, they would contact military units to alert them about any  unusually high numbers of errors in a pay category, such as basic  allowance for housing. However, information on the extent of those  errors, their causes, and any corrective actions taken by the Army units or  the DMPOs is not accumulated and reported by the DMPOs.
section_title: Conclusions
paragraphs: The Army’s weaknesses in the design of processes, systems, and  controls for detecting and correcting errors in payroll disbursements to  active duty Army military personnel increase the risk that its active duty  military payroll includes servicemembers who received pay to which they  were not entitled and others who did not receive the full pay they were  due. Accordingly, it is important that the Army implement appropriate and  effective compensating controls, including monitoring controls to assess  the quality of performance over time. Improved procedures for monitoring  and reporting on monthly UCFRs—which detail most pay and allowance  information for soldiers—could provide an important compensating control  for assuring payroll accuracy. In addition, because DFAS-IN and the  Army do not have a comprehensive accuracy metric for military payroll  and current processes, systems, and controls are not designed to identify  and document the extent and cause of payroll errors, irregularities, and  corrections, DFAS-IN and the Army are limited in their ability to determine  the overall accuracy of Army active duty military pay or whether there are  any related unidentified systemic weaknesses that should be corrected.  Without immediate action to address these deficiencies, DFAS-IN and the  Army will not be able to assure that soldiers are paid timely and  accurately. Moreover, these weaknesses can have a negative impact on  soldier welfare and mission readiness because payroll errors can detract  from soldiers’ focus on their mission.
section_title: Recommendations for Executive Action
paragraphs: We are making five recommendations to the Secretary of Defense to  strengthen the design of controls over active duty Army military payroll.
To assure the effectiveness of the UCFR process as a compensating  control for confirming the accuracy of its military pay, we recommend that  the Secretary of Defense direct the Secretary of the Army to revise AR  37-104-4, Military Pay and Allowances Policy, to include the following  three actions:    establish a requirement for periodic monitoring of the effectiveness of  unit commander UCFR reviews; require unit commanders to review and submit documentation  showing completion of all monthly UCFR reviews; and specify the time frame for submitting UCFRs, such as no later than  the 10th of the month.
To provide a means for monitoring the overall accuracy of the Army’s  military payroll, we recommend that the Secretary of Defense direct the  DOD Comptroller to require DFAS-IN to take the following two actions:    develop criteria and establish a comprehensive metric to capture and  measure all types of pay errors affecting accuracy and   establish an interim mechanism at DFAS-IN for identifying and  analyzing the extent and causes of all types of military payroll errors  processed by DMPOs, Army Finance Offices, DJMS-AC, and CMS to  address any systemic control weaknesses.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for review and comment. In its  comments, DOD expressed concern that the draft does not present the  military pay issues discussed in the proper context. DOD stated that the  bonus amounts presented in table 1 of this report are not payroll errors,  but instead arise when servicemembers leave the service before the end  of their service commitments. We disagree. We recognized in the report  that an unearned bonus occurs when a servicemember does not fulfill the  service contract, causing all or a portion of the bonus to be unearned. We  also pointed out that doing so has resulted in the largest amount of Army  military pay-related out-of-service debt.
Further, DOD stated that our audit approach focused solely on the design  of the controls without analysis of whether undetected errors exist and  whether the recommended additional activities would efficiently detect  any missed errors. DOD is correct that the focus of this engagement was  on the design of controls, as discussed in detail in the scope and  methodology section of this report. However, because we identified flaws  in the design of controls, we determined there would be little benefit in  testing the implementation of a flawed control. Further, as discussed in  our report, because the flawed design of the UCFR process does not  provide positive assurance that payroll errors will be detected and  corrected, we reviewed the results of other processes, including DFAS’s  debt and claims management information related to military payroll debt  and Army CID’s investigations of potential fraud, to determine if those  processes identified any errors or irregularities that went undetected for  lengthy periods of time.
With regard to our three recommendations to strengthen UCFR controls,  DOD partially agreed, stating that it concurred fully with the goal of  improving the accuracy of military pay to the extent that cost-effective  corrective actions are warranted. However, we continue to believe that  the design of the UCFR process is not fully effective in providing positive  assurance of military payroll accuracy. Consequently, as discussed in our  report, UCFR reviews do not provide an effective compensating control.  Accordingly, we believe that our recommendations in this area are  appropriate and are intended to help strengthen the design of existing  processes and controls to help improve DOD’s ability to rely on UCFR  reviews as a compensating control. Our first recommendation is directed  at establishing a requirement for periodic monitoring of the effectiveness  of UCFR reviews. Because the current UCFR control as designed  requires reporting only if deficiencies are found, it is not possible to  monitor and test the extent to which required reviews were effective in  identifying military payroll errors. Our second recommendation to  enhance the control design is directed at revising AR 37-104-04, Military  Pay and Allowances Policy, to require unit commanders to document  completion of all monthly UCFR reviews, and our third recommended  enhancement calls for the Army to clarify the required time frame for  submitting UCFRs. DOD’s response to all three recommendations was  that by February 28, 2013, the Army, working with DFAS, will complete  statistically valid tests to determine to what extent payroll errors occur and  whether any identified errors can be efficiently detected and prevented  before payment by implementing additional control activities. However, as  discussed in our report, Army and DFAS systems and processes do not  currently capture data on all errors and their causes. Consequently, it is  not clear how DOD will identify a statistically valid universe for testing to  support a decision on whether additional actions are warranted to  strengthen the UCFR process as a compensating control.
With respect to our two recommendations directed at actions needed to  improve monitoring of payroll accuracy, DOD also partially agreed, stating  that DFAS believes that it has procedures and metrics to gather  comprehensive data for all types of payroll errors, including both  timeliness and improper payments. However, as discussed in our report,  DOD does not have a comprehensive metric for monitoring the accuracy  of soldier pay. Specifically, we found that Army and DFAS payroll  processes and systems capture data on pay timeliness but do not capture  data on all errors and the causes of the errors. All pay errors are not a  result of timeliness issues. Our report discusses pay errors resulting from  overpayments, data entry errors, unauthorized payments, and potential  fraud. We identified errors that were not detected and corrected for  several months or, in some cases, for several years. Further, errors are  not captured and reported when detected if they are corrected within 30  days of the effective date. DOD also stated that DFAS would analyze  military payroll metrics to determine whether any gaps exist between  current timeliness metrics and accuracy and the errors discussed in our  report. However, without developing criteria to identify and capture data  on all types of payroll errors, a review of current processes and metrics is  likely to be ineffective in identifying such gaps. In responding to our  recommendation to develop an interim mechanism for identifying and  analyzing the extent and causes of all types of errors (until such  functionality can be implemented in IPPS-A), DOD stated that if gaps are  discovered in its analysis, it would take steps to correct them. However, a  onetime DFAS-IN analysis of payroll metrics to identify gaps in timeliness  and accuracy would not serve the purpose of establishing an interim  mechanism.
DOD’s letter is reprinted in its entirety in app. 1. In addition, DOD  provided us with technical comments, which we have incorporated as  appropriate.
We are sending copies of this report to the Chairmen and Ranking  Members of the Senate Committee on Homeland Security and  Governmental Affairs, the Senate Committee on Armed Services, the  House Committee on Oversight and Government Reform, and the House  Committee on Armed Services. We also are sending copies to the  Secretary of Defense; the Under Secretary of Defense (Comptroller) and  Chief Financial Officer; the Deputy Chief Financial Officer; the Director for  Financial Improvement and Audit Readiness; the Assistant Secretary of  the Army for Manpower and Reserve Affairs; the Deputy Chief of Staff,  Army G-1; the Assistant Secretary of the Army—Financial Management  and Comptroller; the Deputy Assistant Secretary of the Army for Financial  Operations; the Director of the U.S. Army Financial Management  Command; the Commanding General of the U.S. Army Criminal  Investigation Command; the Directors of the Defense Finance and  Accounting Service and its Indianapolis Center; the Director of the Office  of Management and Budget; and other interested parties. 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 Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff members who made key contributions to  this report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Defense
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gayle L. Fischer (Assistant  Director), Lauren S. Fassler, Donald D. Holzinger, Katherine Lenane  (Assistant General Counsel), Sheila D. M. Miller, Meg Mills, and   Heather L. Rasmussen made key contributions to this report.