DOD Financial Management: Improved Documentation Needed to Support the Air Force's Military Payroll and Meet Audit Readiness Goals
Published: 2015-12-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As part of DOD's efforts to achieve auditability of its financial statements, the Air Force in July 2014 asserted audit readiness for its Schedule of Budgetary Activity, of which military payroll is a significant part. In fiscal year 2014, the Air Force obligated over $23 billion for direct compensation of active duty servicemembers.
GAO was asked to examine Air Force military payroll systems and processes. This report evaluates whether for the period October 1, 2013, through July 31, 2014, the Air Force (1) had in place systems and processes designed to provide a complete universe of active duty military pay transactions and (2) could provide adequate documentation to support individual military payroll transactions. GAO examined the Air Force's reconciliations of its payroll system to personnel, accounting, reporting, and disbursement information. GAO selected random statistical samples from various categories of military pay to determine if the Air Force could provide key documents supporting those transactions.
section_title: What GAO Found
paragraphs: Based on GAO's testing of the first 10 months of fiscal year 2014, the Air Force and its service provider, the Defense Finance and Accounting Service, had in place systems and processes designed to provide a complete universe of Air Force active duty military payroll transactions. In addition to reconciling payroll information with accounting, financial reporting, and disbursement information, the Air Force reconciles its payroll system with its personnel system each month to help reasonably assure that actual servicemembers are being paid and are paid correctly. GAO found that the reconciliations were documented and supported the Air Force's ability to provide a population of active duty military payroll transactions for the period tested.
GAO's testing of randomly selected active duty payroll transactions, for the period tested, found that the Air Force could not always provide or readily provide supporting documentation for some categories of pay. While the Air Force provided adequate support for three categories of military payroll—including basic pay, the largest category by dollar amount—it could not always provide or readily provide support for domestic and overseas housing transactions or special pay benefits. The Air Force stated that it could not determine the cause for the missing documentation, nor did it identify to us the cause of delays in retrieving and providing the supporting documentation.
Documentation supporting payroll transactions is one of many key financial controls that helps to provide reasonable assurance that servicemembers are appropriately paid. Department of Defense (DOD) regulations and guidance as well as Standards for Internal Control in the Federal Government , require that audited entities document transactions and events, and that this documentation be readily available for examination for management and audit purposes. Without continued focus on ensuring that documentation is readily available to support military payroll, both the Air Force and DOD are at risk that military personnel may not be paid appropriately and that financial statement auditability goals may not be achieved.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Air Force improve its ability to maintain and readily provide, for management and audit purposes, documentation to support certain types of active duty pay by (1) identifying the causes of the deficiencies responsible for delayed, missing, and incomplete documentation and (2) implementing controls to help assure that documentation is readily available. The Air Force agreed with the report and its recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD) continues to work toward achieving  audit readiness of its financial statements. As part of that effort, in July  2014 the Air Force asserted audit readiness for its Schedule of Budgetary  Activity, of which military payroll is a significant component. Earlier that  year, the Air Force Audit Agency (AFAA) had reported that the Air Force  was unable to provide supporting documentation for some categories of  military payroll transactions.
We have designated DOD financial management as a high-risk area  since 1995 due to because of pervasive weaknesses in its financial and  business management systems, as well as control deficiencies, which  have adversely affected its ability to reasonably assure basic  accountability, maintain funds control, and prepare auditable financial  statements. You asked us to assess the Air Force’s military pay audit  readiness efforts. This report evaluates whether the Air Force, for the  period we tested, (1) had in place systems and processes designed to  provide a complete universe of active duty military pay transactions  prepared through its central payroll processing system and (2) could  provide adequate documentation to support individual active duty payroll  transactions.
To determine whether the Air Force had in place systems and processes  designed to provide a complete universe of active duty military pay  transactions from its payroll system, we obtained data files representing  all military payroll transactions processed during the first 10 months of  fiscal year 2014 (October 1, 2013, through July 31, 2014) and examined  various reconciliations of the data to personnel and financial records.  Specifically, we reviewed the Air Force’s monthly reconciliation of its  payroll and personnel accounts, which helps to reasonably assure that  only actual personnel are paid; its monthly and quarterly reconciliations of  its payroll and accounting systems, which helps to reasonably assure that  all military payroll transactions processed are recorded in the accounting  and reporting systems; and its monthly reconciliation of accounting  records to Department of the Treasury (Treasury) reports, which helps  reasonably assure that the amount of military pay recorded was actually  disbursed by Treasury. To determine whether the Air Force could provide  adequate supporting documentation for active duty pay transactions, we  selected random statistical samples from the 10-month universe of active  duty military payroll transactions provided by the Air Force and reviewed  the supporting documentation. We also reviewed the Air Force’s  corrective actions to address the deficiencies reported by AFAA related to  supporting documentation for domestic housing transactions, a category  of military pay.
Appendix I provides additional information on our objectives, scope, and  methodology. We conducted this performance audit from July 2014 to  December 2015 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: In fiscal year 2014, the Air Force recorded payroll obligations of over   $23 billion for direct compensation of active duty military personnel, a  force of approximately 324,000. This compensation, including, among  other things, basic pay, allowances, and incentives, was distributed  among the various pay categories, as shown in figure 1. These pay  categories are described later in this report.
subsections: section_title: Audit Readiness
paragraphs: DOD has been unable to prepare auditable department-wide financial  statements as required by the Government Management Reform Act of  1994. The National Defense Authorization Act for Fiscal Year 2010  mandated that DOD develop and maintain a Financial Improvement and  Audit Readiness (FIAR) plan. The plan is to include, among other  things, the specific actions to be taken and costs associated with   (1) correcting the financial management deficiencies that impair DOD’s  ability to prepare timely, reliable, and complete financial management  information and (2) ensuring that DOD’s financial statements are  validated as ready for audit by September 30, 2017. Per the FIAR plan,  “audit ready” means the department has strengthened internal controls  and improved financial practices, processes, and systems so there is  reasonable confidence that the information can undergo an audit by an  independent auditor.
In response to difficulties encountered in preparing for an audit of the  Statement of Budgetary Resources, DOD reduced the scope of initial  Statement of Budgetary Resources audits beginning in fiscal year 2015 to  focus on current-year budget activity reported on a Schedule of  Budgetary Activity. This is an interim step toward achieving an audit of  multiple-year budget activity required for an audit of the Statement of  Budgetary Resources.
In July 2014, the Air Force indicated that its fiscal year 2015 Schedule of  Budgetary Activity would be audit ready and would be prepared in all  material respects in conformity with U.S. generally accepted accounting  principles. DOD requires the services to follow the FIAR Guidance  methodology in asserting audit readiness. The guidance requires  complete documentation that is sufficient, relevant, and accurate. The  FIAR methodology also requires that the assertion documentation provide  evidence demonstrating that the reporting entity has designed and  implemented an appropriate combination of control activities and  supporting documentation to mitigate the risk of material misstatement  and achieve the financial reporting objectives.
section_title: Pay Data and Supporting Documentation
paragraphs: The Air Force Personnel Center is responsible for establishing and  maintaining military personnel accounts in the personnel system. Once a  servicemember’s personnel file is created, it is electronically transferred  into the payroll system where a pay account is created for that  servicemember. The personnel and payroll systems electronically  interface daily to record any changes. Air Force Financial Services Office  staff are responsible for submitting changes not driven by personnel  actions, such as those concerning housing allowances. Documentation  supporting payroll changes for individual servicemembers generally is to  be scanned into one of two document management systems: one for  personnel actions and another for all other changes.
The Defense Finance and Accounting Service (DFAS), a separate  component of DOD, processes the Air Force’s active duty military payroll  using its Defense Joint Military Pay System-Active Component. DFAS  systems also process the associated disbursements and record the  entries to the general ledger maintained for the Air Force.
section_title: The Air Force Had in Place Systems and Processes Designed to Produce a Complete Universe of Active Duty Military Pay Transactions
paragraphs: Based on our testing, we determined that the Air Force and DFAS had in  place systems and processes designed to provide a complete universe of  active duty military pay transactions for the period we tested. The Air  Force’s documented processes included reconciling payroll information  with accounting, financial reporting, and disbursement information,  designed to provide reasonable assurance that payroll transactions are  properly recorded in the Statement of Budgetary Resources or the  Schedule of Budgetary Activity and are consistent with personnel records.  The Air Force provided us with transaction data processed by its payroll  system for each of the first 10 months of fiscal year 2014 (October 1,  2013, through July 31, 2014) and the related reconciliations. We  performed walk-throughs of each type of reconciliation discussed below.  Based on those procedures we did not identify any concerns regarding  Air Force processes and controls. However, our scope did not include all  procedures that might be performed in a financial audit of the Statement  of Budgetary Resources or the Schedule of Budgetary Activity.
Reconciliation of payroll to personnel. We found that the Air Force  performed a monthly reconciliation between the payroll system and  personnel system and generally resolved mismatches within 45 days.  To determine this, we reviewed documentation covering 1 month of  the Air Force’s monthly reconciliation between the individual pay  records in the payroll system and personnel system. This  reconciliation helps reasonably assure that payees are actual  servicemembers and that the characteristics that drive their pay, such  as years of service and rank, match what is recorded in the personnel  system. We reviewed the Air Force’s reconciliation for 1 month to gain  an understanding of how the Air Force matches data elements. For  data mismatches between the individual payroll records and  personnel records that cannot be immediately resolved, the Air Force  creates a tracking record to help reasonably assure that they are  researched and resolved within 45 days, in accordance with Air Force  guidelines. We tested the Air Force’s process by reviewing  documentation detailing the monthly mismatch and aging statistics for  open tracking records internally reported by the Air Force and found  that the Air Force researches the mismatches.
Reconciliation of payroll system to accounting system. We  reviewed each of DFAS’s fiscal year 2014 quarterly reconciliations  between the payroll and accounting systems and found that they  accurately imported data from the payroll system and compared them  to disbursement data in the accounting system, helping to reasonably  assure that the population of transactions was completely reported in  the accounting system. Because the payroll system does not interface  directly with the accounting system, DFAS developed the Military Pay  Reconciliation Tool (Reconciliation Tool), a Microsoft Access  application, to facilitate this reconciliation process. The Reconciliation  Tool tracks payroll data from the payroll system to the disbursements  recorded in the accounting system. The Reconciliation Tool also  allows DFAS to compare an individual servicemember’s Leave and  Earnings Statement with detailed data in the payroll system. We  tested the reconciliation process by reviewing documentation provided  by the Air Force that demonstrated how data are processed through  the payroll system in the form of vouchers and subsequently  reconciled to the accounting system.
Reconciliation of military pay to Fund Balance with Treasury  (FBWT). We reviewed the monthly reconciliation DFAS performs for  the Air Force between the accounting system and Treasury’s  government-wide accounting system. According to Air Force officials,  this multi-tiered reconciliation helps to assure that the recorded  military payroll transactions were actually disbursed through Treasury  accounts. We reviewed key documentation with Air Force personnel  to understand the nature, timing, and frequency of the reconciliations.  The documentation showed that the Air Force was able to tie military  payroll to its FBWT reconciliation. In addition, we traced and agreed  payroll system totals that included each of the 10 months to Treasury  records. However, our scope did not include tests for all elements of  the reconciliation, and we did not assess the accuracy of the recorded  balance of FBWT.
Reconciliation of accounting records to the Statement of  Budgetary Resources. We found that DFAS was able to trace the  recorded payroll to the Statement of Budgetary Resources. To  determine this, we reviewed DFAS’s quarterly reconciliation between  the accounting system and the financial reporting system. DFAS’s  reconciliation between these systems helps to reasonably assure the  accuracy of amounts reported in the Statement of Budgetary  Resources. We reviewed each of DFAS’s fiscal year 2014 quarterly  reconciliations of the accounting system and compared them to  certain key line items of the Statement of Budgetary Resources— specifically, obligations incurred and gross outlays—of which a portion  of the amounts in each included active duty direct compensation.  We were able to trace the amounts in the payroll accounting system  to the Statement of Budgetary Resources and found that they had  been properly recorded.
section_title: The Air Force Could Not Always Provide or Readily Provide Supporting Documentation for Certain Categories of Active Duty Payroll Transactions
paragraphs: We selected statistical samples of six categories of military pay and,  based on the testing we performed, found that while the Air Force could  provide adequate supporting documentation for three of the categories, it  was not able to provide or readily provide documentation for certain  transactions involving Special Pay, Overseas Housing, and Domestic  Housing. For fiscal year 2014, these three categories of military pay  represented nearly 30 percent of active duty direct compensation  obligations. We also tested a statistically selected sample of change order  transactions, which represent pay from all categories initiating the start,  stop, or update of an entitlement, and found that the Air Force could not  provide documentation for certain of these transactions as well.
The DOD Financial Management Regulation requires the military  components to maintain documentation supporting all transactions  recorded in finance and accounting systems. Additionally, Standards for  Internal Control in the Federal Government and DOD’s FIAR Guidance  require audited entities to document transactions and events, and to  reasonably assure that internal controls are effective to help ensure that  supporting documentation is maintained and readily available for  management and audit purposes. Without adequate documentation to  support its military payroll transactions, both the Air Force and DOD are  at risk that military personnel may not be paid appropriately and financial  statement auditability goals may not be achieved.
To test the Air Force’s ability to provide supporting documentation, we  selected several random statistical samples—a total of 360 active duty  military payroll transactions—from transactions recorded during the first  10 months of fiscal year 2014 (October 1, 2013, through July 31, 2014)  except for Domestic Housing for which a single month of transactions was  selected. This included a sample of 90 change actions, which represent  changes to a servicemember’s status or entitlements that could affect any  of the pay categories.
We drew separate random statistical samples of 45 transactions from  each of the categories of military pay listed below. These six categories,  which are defined below, accounted for approximately 94 percent of the  Air Force’s fiscal year 2014 total active duty direct compensation  obligations.
Basic Pay is the primary form of pay for most servicemembers and is  based on rank and years of service. In fiscal year 2014, it accounted  for over 60 percent of active duty direct compensation obligations.  Examples of supporting documentation for Basic Pay include  enlistment agreements, promotion orders, and Statements of Service.
Domestic Housing is a U.S.-based allowance that enables military  personnel to obtain adequate civilian housing for themselves and their  dependents when government quarters are not available. It accounted  for about 20 percent of active duty direct compensation obligations in  fiscal year 2014. As previously noted, our sampling universe for  Domestic Housing was limited to the month of July 2014. The primary  supporting document for Domestic Housing is Air Force Form 594  (Application and Authorization to Start, Stop, or Change Basic  Allowance for Quarters (BAQ) or Dependency Redetermination).
Overseas Housing, including overseas cost-of-living allowances,  accounted for approximately 6 percent of active duty direct  compensation obligations in fiscal year 2014. Servicemembers  stationed outside the continental United States who are not furnished  government housing receive an overseas housing allowance. In  general, the amount depends on a servicemember’s location, pay  grade, and dependency status.
Special Pay includes enlistment, reenlistment, and retention bonuses;  special pay and bonuses for critical skills, such as for certain medical  officers; and special pay for duty subject to hostile fire or imminent  danger. In fiscal year 2014, Special Pay accounted for approximately  4 percent of active duty direct compensation obligations. Examples of  Special Pay supporting documents include job classification/on-the- job training forms, service contracts for medical officers, and certain  travel orders and vouchers.
Incentive Pay includes additional pay or bonuses for certain critical  skills, such as career aviators and aircrew members; foreign language  proficiency; and certain types of hazardous duty. In fiscal year 2014, it  accounted for approximately 1 percent of active duty direct  compensation obligations. Examples of supporting documentation for  Incentive Pay include aeronautical orders and certificates of  proficiency in strategic foreign languages.
Other Pay includes domestic cost-of-living allowances, family  separation allowances, and uniform and clothing allowances, each of  which requires specific documentation. In fiscal year 2014, Other Pay  accounted for about 1 percent of active duty direct compensation.
We tested random samples of transactions to determine whether the Air  Force could provide documentation to support the population of individual  payroll transactions. We counted as errors all instances in which a  necessary document could not be found, could not be readily provided, or  the documents provided were incomplete. For all sampled items, we  looked for sufficient and appropriate evidence of the servicemember’s  eligibility for the pay and the amount of the pay. Our scope of work did not  include observation of Air Force personnel’s document-handling  procedures, identification or testing of internal controls, or examination of  the Air Force’s document management systems. Rather, we tested  whether a specific control objective—maintaining and readily providing  supporting documentation—was being met.
Maintaining and readily retrieving supporting documentation requires a  complex series of manual and system processes, the combination of  which can contribute to internal control deficiencies and process issues  that may result in missing, misplaced, or incomplete documentation.  Specifically, supporting documentation often originates in paper form and  may be submitted at any of over 100 Air Force locations worldwide.  Further, documentation may require approval from officials employed at  another location; generally requires manual processing (such as faxing or  scanning); and is ultimately stored in electronic form in one of two Air  Force document management systems, one of which some Air Force  personnel describe as not user friendly. The Air Force often cannot  determine at what point in the document-handling and management  process a breakdown occurred, resulting in missing or incomplete  documentation.
While the Air Force was able to provide supporting documentation for  three categories of active duty military pay transactions that we tested— Basic Pay, Incentive Pay, and Other Pay—there were three  categories—Special Pay, Overseas Housing, and Domestic Housing—for  which the Air Force was not always able or readily able to provide  supporting documentation. (See fig. 2.)
subsections: section_title: Special Pay Documentation
paragraphs: We found that the Air Force could not readily provide supporting  documentation for 5 transactions from our statistical sample of 45 special  pay transactions. This exceeded our tolerable error rate of 1 in 45. Air  Force officials did not identify to us a cause for their delay in retrieving  and providing supporting documentation.
section_title: Overseas Housing Documentation
paragraphs: We found that the Air Force was not able or readily able to provide  adequate support for 4 transactions from our statistical sample of 45  transactions for overseas housing benefits. This exceeded our tolerable  error rate of 1 in 45. Documentation for those transactions was either  not provided, not readily provided or was not signed by a certifying  official. In one case, the Air Force determined that the supporting  document was more than 6 years old, meaning that it would have been  destroyed in accordance with Air Force policy. Air Force officials stated  that they could not determine the cause for the missing documentation  nor did they identify to us a cause for their delay in retrieving and  providing some of the supporting documentation.
section_title: Domestic Housing Documentation
paragraphs: In 2014, AFAA reported that the Air Force could not adequately support  its domestic housing transactions. To address the finding, the Air Force  ordered all active duty military personnel claiming dependents to recertify  their eligibility in writing.
To determine the effectiveness of this recertification and to determine  whether it helped improve documentation supporting domestic housing  transactions, we selected a statistical sample of 45 domestic housing  transactions from the July 2014 active duty military payroll. Although we  found no errors involving servicemembers claiming dependents, the Air  Force was not able or readily able to provide supporting documentation  for 4 transactions involving servicemembers not claiming dependents.  This exceeded our tolerable error rate of 1 in 45. Air Force officials  stated that they could not determine the cause for the missing  documentation, nor did they identify to us a cause for their delay in  retrieving and providing the supporting documentation.
section_title: Change Action Documentation
paragraphs: To determine whether the Air Force could provide supporting  documentation filed during fiscal year 2014, we selected a statistical  sample of 90 changes to active duty military payroll (hereinafter referred  to as change actions) from the first 10 months of fiscal year 2014. While  supporting documentation for the regular pay transactions discussed  above could be years old, support for change actions recorded during  the period we tested would have been submitted during or shortly before  fiscal year 2014—more nearly reflecting the current control environment.
We found that the Air Force was not able to provide supporting  documentation for 7 of the 90 change actions we sampled. This exceeded  our tolerable error rate of 4 in 90. Specifically, we found that the Air  force was not able to provide supporting documentation for 5 recent  change actions related to overseas housing and 2 related to basic pay.  Air Force officials stated that they could not determine the cause for the  missing documentation.
section_title: Conclusions
paragraphs: While the Air Force, for the period we reviewed, had systems and  processes designed to provide a complete universe of active duty military  pay transactions, it could not always provide or readily provide supporting  documentation for certain transactions in three of the categories of pay  transactions nor could it generally determine the cause of missing,  delayed,  or incomplete documents. The ability to maintain and readily  provide documentation supporting all pay categories is one of many key  financial controls that help to provide reasonable assurance that  servicemembers are appropriately paid and that military payroll is  properly reported in the Air Force’s financial statements. Additionally,  maintaining and readily providing supporting documentation to  substantiate financial transactions, often referred to as an audit trail, is a  critical requirement to achieving audit success. Without continuing focus  on ensuring that documentation is readily available to support military  payroll transactions, both the Air Force and DOD are at risk that military  personnel may not be paid appropriately and financial statement  auditability goals may not be achieved.
section_title: Recommendations for Executive Action
paragraphs: To help reasonably assure that supporting documentation for military  payroll, particularly for Special Pay, Overseas Housing, and Domestic  Housing, is properly maintained and readily available for management  and audit purposes, we recommend that the Secretary of the Air Force  direct the Deputy Assistant Secretary of the Air Force for Financial  Management and Comptroller to take the following two actions:
Review the processes and systems used to obtain, maintain, and  readily provide supporting pay documentation to identify the root  cause of deficiencies responsible for delayed, missing, and  incomplete documentation.
Develop and implement internal controls to provide reasonable  assurance that adequate supporting documentation is maintained and  readily available for examination for management and audit purposes  and to support that correct amounts are being paid for military payroll  transactions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Air Force for review and comment. In  its written comments, reprinted in appendix II, the Air Force concurred  with our recommendations and stated that it had identified and  subsequently implemented nine corrective actions and taken action to  help reasonably assure that supporting documentation for military payroll  is maintained and available. In November 2015—10 months following our  initial request—the Air Force provided adequate supporting  documentation for 10 of the 21 transaction exceptions identified in this  report. While some documentation was ultimately found and provided at  the close of the audit, Air Force officials agreed it was not provided timely  and concurred with our judgment in counting them as errors since the  documentation was not readily provided, which would be necessary under  a full-scope financial statement audit in order to be considered by the  auditors.
As auditors must complete their audits and federal agencies must submit  their audited financial statements under statutorily established deadlines,  agencies must be able to provide requested documentation to the  auditors in a timely manner in order to be considered in the test results.  Specifically, the FIAR guidance states that each service should ensure  that it is prepared to respond to requests for audit documentation within 5  business days. For this audit, an Air Force official committed to provide  audit documentation generally within 14 business days of the request in  order to have sufficient time to redact personally identifiable information  and to retrieve documents that were not centrally located.
We have made technical changes and clarified the recommendations as  appropriate to reflect that the documentation was either not provided or  not readily provided. However, without continuing focus on ensuring that  documentation is readily available to support military payroll transactions,  both the Air Force and DOD are at risk that military personnel may not be  paid appropriately and financial statement auditability goals may not be  achieved.
We are sending copies of this report to the Secretary of Defense; the  Under Secretary of Defense (Comptroller)/Chief Financial Officer; the  Deputy Chief Financial Officer; the Director, Financial Improvement and  Audit Readiness; the Secretary of the Air Force; the Assistant Secretary  of the Air Force Finance Command; the Directors of the Defense Finance  and Accounting Service and the Defense Finance and Accounting  Service-Indianapolis Center; the Director of the Office of Management  and Budget; and interested congressional committees. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (404) 679-1873 or cordreyw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made key  contributions to this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine whether the Air Force, for the period we  tested, (1) had in place systems and processes designed to provide a  complete universe of active duty military pay transactions prepared  through its central payroll processing system and (2) could provide  adequate documentation to support individual military payroll  transactions.
To address our first objective, we requested and received all transaction  data processed by the Defense Joint Military Pay System-Active  Component (DJMS-AC) for each of the first 10 months of fiscal year 2014  (October 1, 2013, through July 31, 2014), and we examined four  reconciliations:  For the first reconciliation (payroll to personnel), we reviewed  documentation describing the Air Force’s monthly reconciliation of 16  data elements common to the servicemembers’ records in the payroll and  personnel systems, and examined one month’s 1 month of reconciliation  reports. We also verified that the Air Force tracks and resolves  mismatches by reviewing internally reported monthly mismatch and aging  statistics for open tracking records and by interviewing Air Force officials.
For the second reconciliation (payroll to accounting), we reviewed each of  the Defense Finance and Accounting Service’s (DFAS) fiscal year 2014  quarterly reconciliations between the payroll and accounting systems,  which it accomplishes with the help of the Military Pay Reconciliation  Tool, a Microsoft Access application that tracks payroll data from DJMS- AC to disbursements recorded in the accounting system. We also  interviewed DFAS and Air Force officials and reviewed documentation  describing how data are processed through the payroll system in the form  of vouchers and subsequently reconciled to the accounting system.
For the third reconciliation (military pay to Fund Balance with Treasury  (FBWT)), we reviewed the monthly reconciliation DFAS performs for the  Air Force between the accounting system and the Department of the  Treasury’s (Treasury) government-wide accounting system. According to  Air Force officials, this multitiered reconciliation helps to assure that the  recorded military payroll transactions were actually disbursed through  Treasury records. We reviewed key documentation with Air Force  personnel to understand the nature, timing, and frequency of the  reconciliations. The documentation showed that the Air Force was able to  tie military payroll to its FBWT reconciliation. In addition, we traced and  verified payroll system totals that included each of the 10 months to  Treasury records.
For the fourth reconciliation (accounting records to the Statement of  Budgetary Resources), we reviewed each of DFAS’s fiscal year 2014  quarterly reconciliations between the accounting system and the financial  reporting system for two key line items of the Statement of Budgetary  Resources—obligations incurred and gross outlays—of which a portion of  each included active duty direct compensation. We also interviewed  DFAS and Air Force officials.
To address our second objective, we selected random samples of pay  transactions from our universe to determine whether the Air Force could  provide supporting documentation for individual active duty pay  transactions and to determine the effectiveness of its corrective actions to  address previously reported deficiencies with domestic housing  documentation. We performed sampling tests of seven populations, in  which we included only active duty pay (appropriation symbol 3500) in our  sampling universes. We excluded from our universes pay types that do  not represent amounts paid to servicemembers, such as retired pay  accruals or employer’s share of Social Security.
We first segregated regular pay transactions from change actions (those  pay transactions initiating a stop, start, or update of pay). For regular pay,  we drew random statistical samples of 45 transactions from each of the  following pay category populations.
Domestic Housing
Other (allowances for cost of living, family separation, and uniforms  and clothing)
For change actions, we drew one random statistical sample of 90  transactions from a population representing all the pay categories listed  above.
To determine whether documentation supporting domestic housing  transactions was complete and had been improved as a result of the Air  Force’s corrective action, we requested and reviewed the supporting  documentation for a randomly selected statistical sample of 45 domestic  housing transactions for the July 2014 active duty military payroll. The Air  Force’s corrective action—taken in response to deficiencies that the Air  Force Audit Agency identified—was to require recertification of domestic  housing benefits for servicemembers with dependents.
Our sampling plan was based on a 90 percent confidence interval and a  tolerable error rate of 10 percent. This sampling plan allowed us to  determine that for a randomly selected statistical sample size of 45, our  tolerable error rate would be 1 or fewer transactions with errors and for a  sample size of 90, the tolerable error would be 4 or fewer transactions  with errors.
We examined the documentation provided by the Air Force and  determined its sufficiency and appropriateness with regard to the data  necessary to establish eligibility and calculate pay. Our primary sources  of criteria were the Department of Defense’s (DOD) Financial  Management Regulation, Air Force instructions, federal travel  regulations, and official pay rate tables.
Our sampling tests were not designed to project a dollar impact of any  errors found. We counted as errors all instances in which a necessary  document could not be found, was not readily provided or was  incomplete. For all sampled items, we looked for sufficient and  appropriate evidence of the servicemember’s eligibility for the pay and the  amount of the pay. For basic pay sample items and for change actions  based on a change in grade, we tested support for rank and years of  service. For other pay types that depend in part on these factors, we  tested only the support for the other factors involved, such as duty  location, number of dependents, or specialty code.
Our scope of work did not include observation of Air Force personnel’s  document-handling procedures, identification or testing of internal  controls, or examination of the Air Force’s document management  systems. Rather, we tested whether a specific control objective— maintaining and readily providing supporting documentation—was being  met. We relied on the Air Force to retrieve the supporting documents and  to determine, as far as possible, the causes of missing or incomplete  documents.
We conducted this performance audit from July 2014 to December 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of the Air Force
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, key contributors to this report were Paul  Kinney (Assistant Director), Russell Brown, Jason Kelly, Sharon Kittrell,  James Ungvarsky, and Matthew Ward.