Financial Management: DOD's Metrics Program Provides Focus for Improving Performance
Published: 2003-03-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) has historically been unable to accurately account for and record its disbursements. In March 2002, the DOD Comptroller cited metrics that showed dramatic reductions in payment recording errors (57 percent between October 2000 and October 2001), backlogs of commercial payments (41 percent between April and October 2001), and travel card payment delinquencies (34 percent for those individually billed and 86 percent for those centrally billed between January and December 2001). As a result, the Congress asked us to determine whether the cited reductions were (1) calculated using consistent definitions and methodologies, (2) properly supported, and (3) effective indicators of short-term financial management progress.
section_title: What GAO Found
paragraphs: The DOD Comptroller's metrics showing significant reductions in payment recording errors and in commercial and travel card payment delinquencies were, in general, based on definitions and methodologies that were either consistent with or better than those used for prior reporting on these issues. Although the methodology used to calculate two of the cited measures resulted in overstating the rates of improvement, our recalculation after correcting for the methodology errors still showed positive--although less dramatic--improvement trends. While we were able to verify the reductions in travel card delinquencies because the underlying data were available from an independent source, we could not verify the accuracy of the specific improvement percentages reported for payment recording errors and commercial payment delinquencies. DOD's archaic and nonintegrated systems either do not contain the transaction-level detail to support the completeness and accuracy of the metrics or they make it extremely onerous and time consuming for the staff to gather and reconcile the needed detail. However, we were able to verify that DOD has made numerous policy, procedure, and systems changes that support an overall trend toward improved performance in these areas. If they could be verified, some of the cited metrics could be effective indicators of short-term financial management progress. However, if considered alone, delinquency rates are not necessarily good indicators for centrally billed travel cards or commercial payments. Placing too much emphasis on paying bills promptly may tempt DOD staff to bypass important internal controls meant to ensure that the goods and services being paid for were properly authorized and actually received. Despite shortcomings, the cited metrics have focused DOD's attention on highly visible financial management problems. As shown below, recent metrics issued by the DOD Comptroller indicate continuing improvements.

section_title: Letter
paragraphs: The Department of Defense’s (DOD) inability to accurately account for and  record its disbursements has been a serious, long-standing, and much  reported financial management problem.  The department’s ability to  improve its accounting has historically been hindered by its reliance on  fundamentally flawed financial management systems and processes and a  weak overall internal control environment.  In fact, DOD’s complex and  inefficient payment processes have generally inhibited the proper  recording of transactions when they occur, including the prompt and  proper matching of disbursements with obligations—a critical funds- control measure.  Such payment recording errors mean that DOD does not  know the true amount of funds that it has available to obligate and spend in  each appropriation account.  As a result, the department risks  overspending or not effectively using all available funding for needed  items.
Auditors have also reported on DOD’s history of delinquent payments to its  commercial suppliers and for its government-issued individually billed  travel cards.  These weaknesses increased the risk of fraud and/or  disbursement errors, including duplicate payments, payments in the wrong  amount, or charges to the wrong accounts.  In addition, travel card  delinquencies and charge-offs have resulted in millions of dollars in lost  rebates and increased fees.  These payment problems contributed greatly  to our decision to put DOD financial management on our high-risk list of  areas that are vulnerable to waste, fraud, abuse, and mismanagement in  1995, a designation that continues today.
To increase attention to these problems, the Defense Finance and  Accounting Service (DFAS) accelerated and expanded the use of its  existing financial management performance metrics several years ago, to  include specific measures for payment recording errors and payment  delinquencies.  In his March 6, 2002, testimony before your Subcommittee,  the DOD Comptroller reported significant improvements in these measures  based on calculations using DFAS data.  In particular, the Comptroller  stated that  payment recording errors decreased by 57 percent between October  2000 and October 2001,   DOD’s backlog of commercial payments (i.e., delinquent unpaid  invoices) had been reduced by 41 percent between April 2001 and  October 2001, and   payment delinquencies decreased by 34 percent for personal  (individually billed) travel cards and 86 percent for organizational  (centrally billed) travel cards between January 2001 and December  2001.
This report responds to your request that we review DOD’s reported  improvements.  As agreed with your office, our objectives were to  determine whether (1) the cited performance measures were defined and  calculated in a manner consistent with previous reporting on payment  recording errors and delinquencies, (2) the cited improvement data were  properly supported and represent real improvements in performance, and  (3) the metrics are effective indicators of short-term financial management  progress that can be sustained.
In conducting this work, we visited various DFAS centers and gathered,  analyzed, and compared information on how payment recording errors,  commercial payment backlogs, and travel card delinquencies were defined,  calculated, and reported both in the past and for the cited metrics.  We  spoke with center personnel about process and systems improvements and  we gathered and analyzed relevant output that demonstrated the results of  those changes.  We also reviewed the various financial management  metrics programs in place or being developed throughout DOD.  However,  as discussed later in this report, we were unable to independently verify the  completeness and accuracy of the data that supported the cited metrics,  with the exception of travel card information.  We performed our work in  accordance with U.S. generally accepted government auditing standards  from June 2002 through February 2003.  Details of our scope and  methodology are in appendix I.  We requested comments from the  Secretary of Defense and the Under Secretary of Defense (Comptroller).   DOD’s comments are reprinted in appendix II.  We considered and  incorporated DOD’s suggested technical comments as appropriate.
subsections: section_title: Background
paragraphs: For years, auditors have reported long-standing weaknesses in DOD’s  ability to promptly pay its bills and accurately account for and record its  disbursements.  Numerous of our and DOD Inspector General audit reports  have cited deficiencies in management oversight, a weak internal control  environment, flawed financial management systems, complex payment  processes, delinquent and inaccurate commercial and vendor payments,  and lax management of DOD’s travel card programs.  Those deficiencies  have resulted in billions of dollars in unrecorded or improperly recorded  disbursements, over- and underpayments or late payments to contractors,  and fraudulent or unpaid travel card transactions.
subsections: section_title: Payment Recording Errors
paragraphs: DOD’s disbursement processes are complex and error-prone.  Although  DFAS is responsible for providing accounting services for DOD, military  service and other defense agency personnel play a key role in DOD’s  disbursement process.  In general, military service and defense agency  personnel obligate funds for the procurement of goods and services,  receive those goods and services, and forward obligation information and  receiving reports to DFAS.  Separate DFAS disbursing offices and  accounting offices then pay the bills and match the payments to obligation  information.  Several military services and DOD agencies can be involved  in a single disbursement and each has differing financial policies,  processes, and stand-alone, nonstandard systems.  As a result, millions of  disbursement transactions must be keyed and rekeyed into the vast  number of systems involved in any given DOD business process.  Also,  transactions must be recorded using an account coding structure that can  exceed 75 digits and this coding structure often differs—in terms of the  type, quantity, and format of data required—by military service.  DFAS’s  ability to match disbursements to obligation records is complicated by the  fact that DOD’s numerous financial systems may contain inconsistent or  missing information about the same transaction.  Input errors by DFAS or  service personnel and erroneous or missing obligation documents are two  of the major causes of inconsistent information.
For calculating and reporting performance metrics related to payment  recording errors, officials from the Comptroller’s office included the  following categories.
Unmatched disbursements—Payments that were made by a DFAS  disbursing office and received by a DFAS accounting office but have not  yet been matched to the proper obligation.
Negative unliquidated obligations—Payments that have been matched  to and recorded against the cited obligations but which exceed the  amount of those obligations.
Intransits—Payments that have not yet been received by the DFAS  accounting office for recording and matching against the corresponding  obligation.
Suspense account transactions—Payments that cannot be properly  recorded because of errors or missing information (e.g., transactions  that fail system edit controls because they lack proper account coding)  and are therefore temporarily put in a holding account until corrections  can be made.
For DOD to know how much it has spent and/or how much is still available  for needed items, all transactions must be promptly and properly recorded.   However, we reported as early as 1990 that DOD was unable to fully  identify and resolve substantial amounts of payment recording errors.  We  also stated that DOD’s early reporting of these errors significantly  understated the problems.  For example, DFAS excluded $14.8 billion of  intransits from its 1993 benchmark against which it measured and reported  its progress in reducing recording problems in later years.  In addition,  DOD excluded suspense account transactions from its reporting of  payment recording errors until as late as 1999.  Finally, when negative  unliquidated obligations, intransits, and suspense account transactions  were reported, they were reported using net rather than absolute values.
section_title: Commercial Payments
paragraphs: DFAS has overall responsibility for the payment of invoices related to  goods and services supplied by commercial vendors.  As part of a  reorganization effort in April 2001, DFAS separated its commercial  payment services into two efforts—contract pay and vendor pay.
Contract pay handles invoices for formal, long-term contract instruments  that are typically administered by the Defense Contract Management  Agency (DCMA).  These contracts tend to cover complex, multiyear  purchases with high dollar values, such as major weapon systems.   Payments for contracts are made from a single DFAS system— Mechanization of Contract Administration Service (MOCAS).  For fiscal  year 2001, DFAS disbursed about $78 billion for over 300,000 contracts  managed in MOCAS.
The vendor pay product line handles invoices for contracts not  administered by DCMA, plus miscellaneous noncontractual payments such  as utilities, uniforms/clothing, fuels, and food.  Vendor pay is handled by 15  different systems throughout DFAS and, annually, DFAS personnel pay  nearly 10 million vendor invoices in excess of $70 billion.  In general, DOD  makes vendor payments only after matching (1) a signed contractual  document, such as a purchase order, (2) an obligation, (3) an invoice, and  (4) a receiving report.  If any one of these components is missing, such as  an obligation not being entered into the payment system, payment of the  invoice will be delayed.  According to DOD officials, approximately 80  percent of payment delinquencies are due to the delayed receipt of  receiving reports by DFAS from the military service activities.
section_title: Travel Cards
paragraphs: DOD implemented the current travel card program in November 1998,  through a DOD task order with Bank of America.  This was in response to  the Travel and Transportation Reform Act of 1998 (P.L. 105-264), which  modified the existing DOD Travel Card Program by mandating that all  government personnel must use the government travel card to pay official  travel costs (for example, hotels, rental cars, and airfare) unless  specifically exempted.  The travel card can also be used for meals and  incidental expenses or to obtain cash from an automatic teller machine.   The intent of the travel card program was to provide increased  convenience to the traveler and lower the government’s cost of travel by  reducing the need for cash advances to the traveler and the administrative  workload associated with processing/reconciling travel advances.
DOD’s travel card program, which is serviced through Bank of America,  includes both individually billed accounts and centrally billed accounts.   When the travel card is submitted to a merchant, the merchant will process  the charge through its banking institution, which in turn charges Bank of  America.  At the end of each banking cycle (once each month), Bank of  America prepares a billing statement that is mailed to the cardholder (or  account holder) for the amounts charged to the card.  The statement also  reflects all payments and credits made to the account.  For both individual  and centrally billed accounts, Bank of America requires that the cardholder  make payment on the account in full within 30 days of the statement  closing date.  If the cardholder—individual or agency—does not pay the  monthly billing statement in full and does not dispute the charges within 60  days of the statement closing date, the account is considered delinquent.
For individually billed accounts, within 5 business days of return from  travel, the cardholder is required to submit a travel voucher claiming  legitimate and allowable expenses, which must be reviewed and approved  by a supervisor.  DOD then has 30 days in which to make reimbursement.   Although DOD, like other agencies, relies on its employees to promptly pay  their individually billed accounts, DOD does have some tools to monitor  travel card activity and related delinquencies, including Bank of America’s  Web-based Electronic Account Government Ledger System (EAGLS).   Using EAGLS, supervisors can obtain reports on their cardholders’  transaction activity and related payment histories.  For the centrally billed  accounts, the travel office at each military installation or defense agency  must first reconcile the charges shown on the centrally billed travel charge  card account with the office’s internal records of transportation requests.   After reconciliation has been completed, the voucher is sent to DFAS for  payment.
Because the travel card program is fairly new, DOD does not have a long  history of reporting statistics for delinquencies.  However, in our previous  reports and testimonies, we have reported that DOD’s individually billed  delinquency rate is higher than that of other federal agencies.  As of  September 2002, DOD’s delinquency rate was approximately 7.3 percent,  about 3 percent higher than other federal agencies.  Among the military  services, however, the Air Force had the lowest delinquency rate.  As of  September 2002, the Air Force delinquency rate was 4.8 percent,  significantly lower than the rest of DOD.  Even though the Air Force had  lower numbers of delinquent accounts, we found that control environment  weaknesses and breakdowns in key controls were departmentwide and  that these deficiencies led to instances of potential fraud and abuse with  the use of travel cards in all the military services.
section_title: Performance Metrics Programs
paragraphs: In 1998, DFAS developed its Performance Contract to focus on continued  achievement of its mission to provide responsive, professional finance and  accounting services to DOD.  As part of this contract with DOD, DFAS  defined its performance objectives and identified specific performance  measurement indicators.  DFAS managers—and sometimes staff—are  rated and rewarded based on their ability to reach annual reduction goals  for each indicator.  Performance metrics are now calculated monthly and  the DFAS Director and the DOD Comptroller regularly review the results.
Section 1008 of the National Defense Authorization Act for Fiscal Year 1998  (P.L. 105-85) directed the Secretary of Defense to submit a biennial  strategic plan for the improvement of financial management to the  Congress.  In conjunction with the plan, the DOD Comptroller decided to  develop a performance measurement system—a set of departmentwide  metrics that will provide clear-cut goals for financial managers to monitor  their progress in achieving reform.  To begin this effort, the Comptroller  adopted many of the DFAS performance measurement indicators because  the DFAS metrics program had been underway for some time and was  reporting successes.  For payment recording errors and commercial  payment backlogs in particular, the Comptroller’s metrics used information  gathered and tracked by DFAS for its performance management contract.
The metrics cited in the Comptroller’s testimony represent only a few of the  financial management performance metrics developed to date.  From a  comprehensive set, the detailed metrics will be rolled up into “dashboard”  metrics that will provide the Secretary of Defense and the Congress with a  quick measure of DOD’s status in relation to critical financial management  goals.  This effort is part of an even larger effort by DOD to develop  programmatic metrics for all of its operations.
section_title: Cited Metrics Were Generally Based on Improved Definitions and Methodologies
paragraphs: In general, the definitions and methodologies for gathering the data used by  DOD Comptroller officials to calculate the cited improvement percentages  at the ending measurement date were either consistent with or better than  those used at the beginning measurement date or for prior reporting on  payment recording errors, commercial payment backlogs, and travel card  payment delinquencies.  We did find that the reported metrics overstated  the rate of improvement in some areas because Comptroller officials  included transactions that DFAS would not consider to be payment errors  or because they chose an inappropriate comparison to measure travel card  delinquencies.  However, recalculation of the metrics after correcting for  these factors still showed positive—although less dramatic—improvement  trends.
subsections: section_title: Payment Recording Errors
paragraphs: DOD has gradually improved its reporting of payment recording errors over  the years.  DOD is now including all known categories of payment errors— unmatched disbursements, negative unliquidated obligations, intransits,  and suspense account transactions—in its definition and, except in the  case of intransits, is using absolute rather than net amounts in its  calculations.  However, the reporting of payment recording errors may not  be complete.  For example, work that we have performed on closed DOD  accounts and on unliquidated obligations indicates that recording errors  are not always identified or resolved appropriately.  DFAS agrees that to  properly manage and improve its payment processes, it must have a  complete universe of payment recording errors.  Therefore, DFAS  personnel are currently working to determine whether the error categories  identified to date contain all of the relevant transactions and whether other  error categories exist.
While the same basic methodologies were used for calculating the cited  metrics at the beginning and ending measurement dates, Comptroller  officials overstated DOD’s improvement percentages because the October  2000 calculation included transactions that did not meet the DFAS criteria  for being considered payment errors while the October 2001 calculation did  not include them.  First, the October 2000 calculation for payment  recording errors included all transactions that were being held in DFAS  suspense accounts; however, DFAS uses certain suspense accounts to  record collection transactions, such as accrued payroll taxes and receipts  for the sale of military property, that are held temporarily before being  distributed to the proper government agency or DOD entity.  The  transactions in these accounts, which DFAS labels as “exempt suspense  accounts,” do not represent payment recording errors.  In fiscal year 2001,  DFAS Cleveland changed its practice of charging payroll taxes to suspense  accounts and began appropriately accruing taxes in an accrued payroll tax  account.  As a result, payment recording errors as calculated by  Comptroller officials at October 2001 were reduced by an estimated $7.5  billion—the amount of DFAS Cleveland’s accrued payroll taxes—even  though payment processes were not improved at all.
Second, in fiscal year 2001, DFAS Indianapolis corrected a reporting error  by a defense agency that had been double-counting transactions in its  suspense accounts.  This resulted in an estimated $1.1 billion reduction  from amounts reported in October 2000, even though no payment  recording errors were corrected or resolved.
In addition, Comptroller officials measured intransits using net rather than  absolute values and did not adopt DFAS criteria for aging intransit and  suspense account transactions.  These practices affected the balances used  to calculate the metrics at both the beginning and ending measurement  dates.  First, net rather than absolute values were used to calculate  intransits at October 2000 and October 2001, which understated both  balances by approximately $4 billion. When net amounts are reported,  collections, reimbursements, and adjustments are offset against  disbursements, thus reducing the balance of intransit transactions.   Second, the reported metrics included all intransit and suspense account  transactions at October 2000 and October 2001 regardless of their age.   However, DOD allows 60 days to 180 days for the normal processing of  various payment transactions because of systems limitations and the  complexity of the department’s processes and, in line with these criteria,  DFAS’s metrics related to payment errors only consider aged intransit and  suspense account transactions.  By not using DFAS’s criteria for aged  intransit and suspense account transactions, the Comptroller officials  overstated the balances of payment recording errors by approximately $6  billion at the beginning and $5 billion at the ending measurement dates.
Figure 1 illustrates the effect on improvement rates of (1) eliminating  exempt suspense accounts and double counting, (2) using DFAS’s criteria  for aged intransits and suspense amounts, and (3) using absolute rather  than net amounts for intransits.  Our recalculation shows an overall 46  percent reduction in payment recording errors between October 2000 and  October 2001 rather than the 57 percent reduction reported by the  Comptroller; however, the reductions are still significant and the trend is  still overwhelmingly positive.  Between October 2001 and September 2002,  DOD continued to report that it had reduced payment recording errors.   Comptroller officials calculated a 26 percent reduction during that period  while our recalculation shows a 22 percent reduction.
section_title: Commercial Payment Backlogs
paragraphs: The metrics for commercial payment backlogs (delinquent unpaid  invoices) at April 2001 and October 2001 were calculated using consistent  definitions and methodologies.  An invoice was considered delinquent if  payment was not made within the time frame established by the contract  terms (e.g., by the 15th day after the invoice date) or, if no time frame was  specified, on or before the 30th day after a proper invoice was received.   DFAS reported information on delinquent invoices to Comptroller officials  monthly using standardized input sheets.  The total backlog percentages  were then calculated by dividing the number of delinquent invoices  outstanding by the total number of invoices on hand.
According to the DOD Comptroller’s metrics, delinquent invoices for  vendor pay decreased by 41 percent from April 2001 through October 2001  while delinquent invoices for contract pay decreased by 32 percent during  that same period.  Because DFAS officials stated that the decrease cited in  the Comptroller’s metrics was primarily due to intensive focus placed on  decreasing the backlog of delinquent vendor invoices, our review  concentrated on vendor pay issues.
section_title: Travel Card Delinquencies
paragraphs: For the travel card metrics, consistent definitions and methodologies were  used to gather the data and calculate the improvement percentages cited by  the DOD Comptroller for January 2001 and December 2001.  Travel card  payments were considered delinquent if they were not paid within 60 days  of the monthly statement closing date.  Even though the terms of the travel  cardholder’s agreement with Bank of America requires payment of the  statement within 30 days of the statement closing date, it is industry  practice to allow 60 days before the invoice is considered delinquent and  interest is charged.  Comptroller officials used a standard industry practice  to calculate the travel card delinquency rates— the total dollar amount  outstanding for 60 days or more was divided by the total balance  outstanding.
While the definitions and methodology were consistent with standard  practices, the metrics comparison of delinquencies for individually billed  accounts in January to those in December could be misleading.  As our  recent work shows, individually billed travel card delinquencies have been  cyclical, with the highest delinquencies occurring in January and February.   Therefore, the most useful metrics would compare same month to same  month, for example, January to January or December to December.  If the  Comptroller officials had compared individual travel card delinquencies at  January 2001 to those at January 2002, the reported decrease would have  been 16 percent as opposed to 34 percent.
section_title: Most Cited Metrics Are Not Verifiable
paragraphs: DFAS only provided us with internally generated summary-level data that  reconciled to the totals reported for payment recording errors and  commercial pay backlogs.  DFAS did not provide us with detailed  transaction-level data that supported those metrics.  As a result, we were  unable to test whether (1) all payment recording errors and delinquent  commercial payments were properly included in the metrics and (2) the  actions taken to resolve or correct payment recording errors were  appropriate.  For individual and centrally billed travel card delinquencies,  we were able to obtain independent verification from a source outside  DOD that supported the Comptroller’s metrics.
Although we could not audit the reported metrics for all of the measured  areas, we verified that DFAS and other DOD organizations have made  numerous policy, procedure, and systems changes that would support an  overall trend toward improved performance.  For payment recording errors  and commercial payment backlogs, perhaps the most significant change  has been DOD’s inclusion of performance measures in its contracts with  DFAS.  The performance contract and an accompanying data dictionary  provide specific, measurable reduction goals, which DFAS management— and in some cases staff—are held accountable for reaching.  The resulting  focus has fostered innovative process and systems improvements as well  as better communication among the parties involved in preventing or  resolving these problems.  For example, DFAS holds monthly  videoconferences with its centers and field sites to discuss progress and  any impediments to reaching that period’s goals.
subsections: section_title: Payment Recording Errors
paragraphs: In general, DFAS centers did not maintain history files of all the  transactions that were not promptly matched with obligations, created  negative unliquidated obligations, were in transit longer than allowable, or  were in suspense accounts during the period October 2000 through  October 2001—information that is necessary in order to verify the  completeness and accuracy of the reported metrics.  DFAS officials  explained that the detailed data supporting the reported monthly totals are  compiled by hundreds of DFAS field sites using numerous accounting  systems and there is no specific requirement for the field sites to save the  data.  While some DFAS officials believe that it would be possible to  recreate transaction-level detail to support month-end totals, the task  would be extremely onerous and time consuming.
Although we were unable to verify through audit procedures the accuracy  of the reductions reported by the Comptroller, we did reconcile summary- level information provided by the DFAS centers to the metric amounts.  We  also verified that DFAS has made numerous policy and systems  improvements that support a continuing trend of reductions in payment  recording errors as illustrated by the metrics in figure 2.
DFAS has been working to reduce payment recording errors for more than  a decade.  In the late 1990s, DFAS consolidated most of its disbursing and  accounting functions from 300 defense accounting offices into 5 centers, in  large part to help streamline the payment recording process.  DFAS has  also been working with other DOD components to consolidate or replace  about 250 outdated and nonintegrated financial and accounting systems.   While the systems effort will take many years and must be accomplished  within DOD’s overall plan for systems development and integration, DFAS  has made, and continues to make, improvements in the policies and  systems tools available to DFAS personnel for preventing and correcting  payment recording errors.
Since October 2000, DFAS has made several policy changes that have  affected the payment recording process.  In January 2001, DOD revised its  official guidance to clarify and strengthen policies related to the prompt  (1) recording of disbursements and obligations and (2) resolution of  payment recording errors.  If the military services or DOD components  have not provided DFAS with accurate obligation information within  specified time frames, the revision gave DFAS the authority to record  obligations in order to resolve individual unmatched disbursements,  negative unliquidated obligations, and certain suspense account  transactions.  DFAS also expanded its prevalidation policy, which it claims  has been key to reducing payment errors associated with commercial  contracts.  Prevalidation requires that DFAS personnel ascertain that there  is a valid obligation recorded in the accounting records before making a  payment.  Between November 2000 and October 2001, DFAS lowered the  dollar threshold amount for transactions requiring prevalidation from  $100,000 to $25,000.
DFAS developed new systems tools for communicating accounting  information among its centers and field locations that have reduced the  amount of time DFAS personnel need to match disbursements to  obligations.  For example, since the late 1990s DFAS has implemented the  following.
Electronic data access capability, which provides web access to  contract, billing, and other documents pertinent to the payment  recording process.  Electronic access to these documents enables users  to obtain information more quickly than in the past, when many  documents were stored in hard-copy format.
Phase 1 of the Defense Cash Accountability System (DCAS), which  provides a standardized, electronic means for DFAS centers to report  expenditure data for transactions involving more than one military  service (cross-disbursements).  Prior to DCAS, the centers had different  systems and formats for reporting this information to one another and  to Treasury, a situation that increased the complexity of recording and  matching cross-disbursements.  According to DFAS officials, DCAS  reduced the cross-disbursement cycle time from 60 days to 10 days.
The Standard Contract Reconciliation Tool (SCRT), which provides  DFAS personnel a consolidated database for researching commercial  contract records.  Prior to SCRT, locating and accessing these records  was difficult due to the variety of accounting, contracting, and  entitlement systems involved.
DFAS centers have also developed individual applications that have  improved payment processes.  For example, DFAS Indianapolis  implemented an Access “Wizard” application to automate the process of  matching intragovernmental expenditure transactions to obligation  records.  The program also enables center staff to identify transactions that  have not been processed within 30 days so they can follow up with field  accounting personnel.
section_title: Commercial Pay Backlogs
paragraphs: DFAS was unable to provide detailed transaction-level data that supported  the metrics related to vendor payment backlogs—the most significant  contributor to the reductions.  DFAS only maintained summary-level data  that were generated by the 23 DFAS field sites.  Using standard definitions  and standard summary spreadsheets, DFAS personnel collected the  summary information monthly through data calls to the more than 15  different systems that track DOD vendor pay backlog information.  As a  result, we were only able to confirm that the summary information  provided by DFAS reconciled to the amounts reported by the Comptroller.
We were unable to verify by audit the accuracy or completeness of that  data.
DFAS management has focused on reducing commercial payment backlogs  since fiscal year 2000 and this focus is continuing through the present.   According to its performance contracts, DFAS’s goal was to reduce the  backlog by 15 percent per year beginning in fiscal year 2000 from a baseline  of 48,000 delinquent invoices.  In April 2001, DFAS centralized operational  control of contract pay and vendor pay under one executive, who was  given ultimate responsibility for meeting these performance goals.
DFAS also made site-specific procedural changes to reduce the backlog of  vendor payments. These included   hiring temporary contract and permanent staff in key sites, such as   forecasting when civilian employees in Europe would be taking vacation  and then staggering vacation leave and/or hiring temporary help (e.g., in  Germany, every civilian employee has 6 weeks of annual leave, which is  usually taken during the summer); and  forming partnerships with the military services and defense agencies to  improve their processing time for receiving reports, since DFAS must  match the receiving report to the invoice before payment can be made.
DFAS credits these and other changes for the continued reduction of the  backlog of delinquent invoices.  Figure 3 below illustrates the trend in the  reduction of outstanding delinquent vendor invoices compared to the total  number of invoices on-hand.
section_title: Travel Card Delinquencies
paragraphs: We were able to verify the reductions cited by the Comptroller in individual  and centrally billed travel card delinquencies.  We obtained travel card  delinquency information from an independent source, the General Services  Administration (GSA), that supported the Comptroller’s metrics.  GSA  receives information from individual travel card vendors, such as Bank of  America, and prepares a monthly summary report for DOD that documents  individual and centrally billed travel card delinquencies by military service  or defense agency.  We compared the GSA data to the cited metrics and  verified that the reported reductions in travel card delinquencies were  accurate.  As with the other problem areas, DOD credits the decrease in  travel card delinquency rates in both individual and centrally billed  accounts primarily to increased management attention.
For the centrally billed accounts, DOD has attributed the initial high  delinquency rates to problems in transferring the travel card contract from  American Express to Bank of America.  When Bank of America was given  the contract, its on-line travel information system, EAGLS, was not fully  operational and therefore was unable to accurately process all of the travel  data being transferred by American Express.  Because EAGLS contained  incorrect account numbers, invoice information, and billing addresses,  DOD agency program coordinators did not have the information necessary  to determine which accounts were delinquent, in suspense, or canceled.  While DOD and Bank of America officials were working jointly to identify  and resolve the problems, centrally billed invoices became backlogged.   Once the problems were resolved, DOD was able to reduce the backlog.  As  of December 31, 2002, DOD’s centrally billed delinquency rate was 1.5  percent, well below fiscal year 2002’s proposed goal of 3.0 percent and  equal to the delinquency rate for other federal agencies.  Figure 4 below  shows the centrally billed delinquency rates from January 2001 through  December 2002.
For individual travel cards, our recent work also supports the improved  delinquency rates being reported by DOD.  During the past year, we  reported on the travel card programs for all three military services.  In  general, we found that the military services, in particular the Air Force,  have given delinquencies greater attention and have used travel card audits  to identify problems and needed corrective actions.  We reported that all of  the services are now holding commanders responsible for managing the  delinquency rates of their subordinates.  For example, Air Force  management holds monthly command meetings where individual travel  card delinquencies are monitored and briefed.  The individual services have  also implemented new programs to help reduce delinquencies, including  the following.
In January 2003, the Army established two goals of not more than 4.5  percent of dollars delinquent and not more than 3 percent of accounts  delinquent. The Navy has established a similar goal of no more than 4  percent delinquent accounts.
The Air Force is providing financial training to all inductees that  includes developing a personal budget plan, balancing a checkbook,  preparing a tax return, and understanding financial responsibility.  The  training also covers the disciplinary actions and other consequences of  financial irresponsibility by service members.
The Navy has developed a three-pronged approach to address travel  card issues:  (1) provide clear procedural guidance to agency program  coordinators (APCs) and travelers that is available on the Internet,   (2) provide regular training to APCs, and (3) enforce the proper use and  oversight of the travel card by using data mining to identify problem  areas and abuses.
In January 2003, the Army issued two directives to its major  commanders, which address a range of policy requirements, to include:   (1) training for APCs and cardholders, (2) monthly review of cardholder  transactions, (3) exempting and/or discouraging the use of the card for  en route travel expenses associated with deployments, and   (4) prohibiting use of the card for travel expenses associated with  permanent change of station moves.
In addition, DOD has implemented a number of departmentwide programs  to improve the individually billed travel card program.  Beginning in  November 2001, DOD began a salary and military retiree pay offset  program for delinquencies—similar to wage garnishment.  In March 2002,  the Comptroller created a Credit Card Task Force to address management  issues related to the purchase and individually billed travel card programs.
On July 19, 2002, the DOD Comptroller directed the cancellation of   (1) inactive travel charge card accounts, (2) active travel card accounts not  used in the previous 12 months, and (3) travel card accounts for which the  bank cannot identify the cardholders’ organization.  DOD is also  encouraging individual cardholders to elect to have all or part of their  travel reimbursement sent directly by DFAS to Bank of America—a  payment method that is standard practice for many private sector  employers.  The Congress has recently addressed this issue in section  1008(a) and (b) of the National Defense Authorization Act for Fiscal Year  2003, which provides the Secretary of Defense the authority to require use  of this payment method.  According to DOD, about 32 percent of its  individually billed cardholders elected this payment option for fiscal year  2002.
As a result of these and other actions, DOD has been able to sustain  reduced delinquency rates between October 2002 and December 2002, as  illustrated in figure 5 below.  However, DOD still needs to do more to  address the underlying causes of the problems with its travel card program.   In a recent testimony, we concluded that actions to implement additional  “front-end” or preventative controls are critical if DOD is to effectively  address the high delinquency rates and charge-offs, as well as potentially  fraudulent and abusive activity.  As a result of our work on travel cards,  the Congress included a provision in the Department of Defense  Appropriations Act for Fiscal Year 2003 requiring the Secretary of Defense  to evaluate whether an individual is creditworthy before authorizing the  issuance of any government charge card.  If this requirement is effectively  implemented, DOD should continue to improve delinquency rates and  reduce potential fraud and abuse.
section_title: Cited Metrics Serve Important Purpose But Further Steps Are Needed to Sustain Improvements
paragraphs: The metrics that the DOD Comptroller highlighted in the March 2002  hearing relate to areas that have received considerable congressional and  audit attention.  As discussed earlier, the metrics program increased  management focus on these problem areas and led to improvements in  policies, processes, and—in a limited way—systems.  While some of the  cited metrics could be effective indicators of short-term financial  management progress, assuming they could be verified, others are not  necessarily good indicators, particularly if taken alone.  In addition,  continued financial management progress will require additional actions.   For example, the military services and other defense agencies are key  contributors to preventing and resolving payment recording errors and  commercial payment delinquencies but they do not have the same  incentives to improve their performance in these areas.  Also, because  DFAS lacks modern, integrated financial management systems, preventing  and resolving payment delinquencies and errors require intensive effort day  after day by DFAS and other DOD organizations, which could be difficult to  sustain.
subsections: section_title: Effectiveness of Measures
paragraphs: The cited metrics for individual travel card delinquencies and payment  recording errors could be effective indicators of financial management  improvement.  For payment recording errors, continuing reductions would  indicate better controls over obligation, disbursement, and collection  processes and that, as a result, DOD is less prone to fraud, waste, or abuse  of appropriated funds.  Monitoring the delinquency rates for individual  travel card payments would provide DOD with an early indication that  employees may be abusing their cards (i.e., using the cards for personal  purchases) or having credit problems.
However, improved delinquency rates do not necessarily indicate improved  financial management of centrally billed travel cards or commercial  payments.  In fact, by placing too much emphasis on paying bills promptly,  DOD staff may be tempted to shortcut important internal control  mechanisms that are meant to ensure that the goods and services being  paid for were properly authorized and actually received.  We and DOD  auditors have issued several reports on the improper use of individually  billed travel cards at DOD and on over- and underpayments to DOD  contractors but are just beginning work to identify and evaluate the  adequacy of DOD policies, procedures, and controls related to purchases  from vendors and centrally billed travel cards.  As a result of these audits,  we will likely recommend additional metrics related to program  performance and internal controls for monitoring performance in these  areas.
section_title: Sustainability of Improvements
paragraphs: Measures such as the ones discussed in this report may be useful in the  short term but may not be appropriate once DFAS has reengineered its  business processes and modernized its systems.  As DFAS and the military  services develop integrated and/or interfaced financial management  systems, many of the problems related to transaction recording errors  should be eliminated.  Based on the recent work we performed for your  committee related to DOD’s enterprise architecture, however, these new  systems are years away from implementation.
Because DFAS lacks modern, integrated financial management systems,  preventing and resolving payment delinquencies and errors require  intensive effort day after day by DFAS and military service staff.  As a  result, DFAS has indicated that much of the reported progress to date is  sustainable only if its workload is not significantly increased or its staffing  significantly decreased.
Until new systems and reengineered processes are in place, DOD can take  a number of steps to help maintain improvements in these areas.  First,  continued leadership and focus by top management will be a major factor  in the sustainability of progress made to date.  Second, because DFAS alone  cannot resolve DOD’s payment recording problems or payment  delinquencies, integrated metrics programs across DOD will be important.   As noted earlier in this report, while the military services and other defense  agencies play key roles in obligating DOD funds, preparing obligation  documents, receiving and preparing billing documents, preparing receiving  reports, and recording transaction information into accounting systems,  these organizations do not currently have complementary metrics  programs.  Thus the military services and defense agencies are not  measured on the accuracy and timeliness of their payment processes even  though their assistance is necessary for DFAS to make improvements and  resolve problems.  For example, commercial payment backlogs were  largely due to failure by the military services in providing receiving reports  to DFAS, yet service delays were not being measured.
DOD is currently developing a departmentwide, balanced program of  metrics that is intended to align with its strategic goals, focus on results,  and achieve auditable reports.  As contemplated, DFAS, the military  services, and other defense agencies will all be supporting players in this  program.  From the individual performance measurement programs of the  military services, defense agencies, and DFAS, certain metrics will be  selected and reported to the top levels of DOD management for evaluation  and comparison.  In this scenario, it is important that DOD properly and  consistently calculate and report the selected metrics and that the military  services, other agencies, and DFAS develop integrated metrics programs to  assist in identifying, measuring, and resolving crosscutting issues.
section_title: Conclusion
paragraphs: As the cited metrics demonstrate, DOD can make meaningful, short-term  progress toward better financial management while waiting for long-term  solutions, such as integrated financial systems.  Leadership, real incentives,  and accountability—hallmarks of a good performance measurement  program—have brought about improvements in DFAS policies and  processes.  The cited metrics are also serving as important building blocks  for DOD’s current efforts to develop a departmentwide performance  measurement system for financial management.  However, before the  payment recording error and commercial payment backlog metrics can be  relied upon for decision-making purposes, they must be   properly defined and correctly measured, and  linked to the goals and performance measures of other relevant DOD  organizations.
In addition, because the reported improvements depend heavily on the day- to-day effort of DFAS staff, sustaining the progress may be difficult if DFAS  has significant workload increases or staff decreases.
section_title: Recommendations
paragraphs: DOD systems do not provide the transaction-level support needed to verify  the accuracy and completeness of many of its selected metrics.  However,  because DOD is currently working on developing an enterprisewide system  architecture to guide its future systems development and implementation  strategies, we are not making any recommendations in this report related  to improving the underlying business systems.  We did identify several  steps that DOD could take now to improve the reported metrics.  We are  recommending that the DOD Comptroller  use definitions and criteria that are consistent with DFAS definitions  and criteria when calculating and reporting metrics related to payment  recording errors,  measure improvements in individually billed travel card delinquencies  by using same month to same month comparisons, and  work with the military service Assistant Secretaries for Financial  Management to develop performance measures for the military services  and other defense agencies in areas for which there is shared  responsibility, in order to complement the DFAS metrics program.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report (see appendix II), the Under  Secretary of Defense (Comptroller) stated that the department concurred  with our recommendations and described actions to address them.  The  department also provided several technical comments, which we have  incorporated in the report as appropriate.
We are sending copies of this report to other interested congressional  committees; the Secretary of Defense; the Under Secretary of Defense  (Comptroller); the Director, Defense Finance and Accounting Service; and  the Assistant Secretaries for Financial Management (Comptroller) for the  Army, the Navy, and the Air Force.  Copies will be made available to others  upon request.
Please contact me at (202) 512-9505 or kutzg@gao.gov if you or your staff  have any questions about this report.  Other GAO contacts and key  contributors to this report are listed in appendix III.
section_title: Objectives, Scope, and Methodology
paragraphs: As requested by the Chairman and Ranking Minority Member of the  Subcommittee on Readiness and Management Support, Senate Committee  on Armed Services, we undertook an assessment of the consistency,  accuracy, and effectiveness of certain DOD-reported metrics related to  payment recording errors, commercial payment backlogs, and delinquent  travel card payments.  Specifically, our objectives were to determine  whether (1) the cited performance measures were applied and calculated  in a manner consistent with previous reporting on payment delinquencies  and recording errors, (2) the cited improvement data were properly  supported and represent real improvements in performance, and (3) the  metrics are effective indicators of short-term financial management  progress.
To complete this work, we visited DOD Comptroller offices and DFAS  centers in Arlington, Cleveland, Columbus, Indianapolis, and Denver where  we did the following.
Gathered, analyzed, and compared information on how payment  recording errors, commercial payment backlogs, and travel card  delinquencies were defined, calculated, and reported both in the past  and for the cited metrics.
Reviewed GAO, DOD IG, and other service auditors’ reports for the past  10 years.
Reviewed DOD consolidated financial statement reporting of payment  recording errors over the last 10 years.
Reviewed DOD policy for maintaining financial control over  disbursement, collection, and adjustment transactions.  This policy  specifically describes the requirements for researching and correcting  payment recording errors.
Obtained and analyzed the underlying summary spreadsheets from  DFAS that were the information source for the Comptroller officials’  calculations for payment recording errors and commercial pay  backlogs.  DFAS gathers this information monthly through data calls  from numerous systems used to process and account for payments.   Although we requested the underlying detailed transaction-level data  supporting the spreadsheets so that we could perform audit tests, we  were unable to obtain the detail-level data.
Obtained and analyzed the underlying summary spreadsheets from  DFAS that were the information source for the Comptroller officials’  calculations for travel card delinquencies.  Obtained independent  summary data for travel card delinquencies from GSA and compared  amounts to Comptroller-reported metrics.
Interviewed center personnel about process and system improvements  and gathered and analyzed relevant output that demonstrated the  results of those changes.  Our review of new systems tools and  purported systems improvements was limited:  we did not validate  whether systems changes followed appropriate requirements or  whether they resulted in the production of reliable financial  information.
Obtained explanations from officials from the Office of the Secretary of  Defense regarding the metrics program and assessed whether the cited  metrics are effective indicators of short-term financial management  progress.
The data in this report are based on DFAS records.  With the exception of  travel card delinquency rates, we were unable to independently verify or  audit the accuracy of these data.  We performed our work from June 2002  to February 2003 in accordance with U.S. generally accepted government  auditing standards.
We received written comments on a draft of this report from the Under  Secretary of Defense (Comptroller).  These comments are presented and  evaluated in the “Agency Comments and Our Evaluation” section and are  reprinted in appendix II.  We considered technical comments from the  department and incorporated them as appropriate but did not reprint them.
section_title: Comments from the Under Secretary of Defense
section_title: GAO Contact and Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Staff making key contributions to this report were Rathi Bose, Steve  Donahue, Diane Handley, Fred Jimenez, and Carolyn Voltz.
section_title: Related Audit Reports and Testimonies
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