DOD Travel Improper Payments: Fiscal Year 2006 Reporting Was Incomplete and Planned Improvement Efforts Face Challenges
Published: 2007-12-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Fiscal year 2006 was the first year that the Department of Defense (DOD) reported improper payment information for its travel program under the Improper Payments Information Act of 2002 (IPIA). For fiscal year 2006, DOD reported obligations of approximately $8.5 billion for travel. Congress mandated that GAO assess the reasons why DOD is not fully in compliance with IPIA related to travel expenditures. In May 2007, GAO issued an initial report in response to this mandate. To further respond, GAO assessed (1) the completeness and accuracy of DOD's fiscal year 2006 IPIA travel disclosure in its performance and accountability report (PAR), and (2) DOD's planned efforts to improve and refine its processes for estimating and reporting on travel improper payments. To complete this work, GAO reviewed DOD's IPIA reporting, IPIA, Office of Management and Budget's (OMB) IPIA implementing guidance, and met with cognizant DOD officials.
section_title: What GAO Found
paragraphs: In its fiscal year 2006 PAR, DOD reported an estimate of approximately $8 million in travel improper payments, reflecting about 1 percent of reported travel payments. While this estimate would indicate the program was not at risk of significant erroneous payments under OMB guidance, DOD's improper payment travel disclosure for fiscal year 2006 was incomplete. The DOD travel payment data used to assess the program's risk of significant improper payments only included payments processed by the Defense Travel System (DTS)--approximately 10 percent of the $8.5 billion of DOD travel obligations reported for fiscal year 2006. Further, DOD's 2006 PAR described a travel postpayment review process that may mislead readers to believe that the reported travel improper payment estimate represents more than DTS-processed travel. The travel improper payment estimate also excluded the largest user of DTS, the Army, which would likely have increased DOD's estimate by over $4 million. Finally, the statistical sampling methodology and process used by DOD to estimate DTS improper payments as reported for fiscal year 2006 had several weaknesses and did not result in statistically valid estimates of travel improper payments. DOD is taking steps to more fully assess and report on its travel program for improper payments for future IPIA reporting. DOD's planned assessment is to be based on an annual Improper Payments Survey conducted by the Office of the Undersecretary of Defense (Comptroller). However, GAO's review identified several weaknesses with the survey and reported results, including limited guidance on how to estimate travel improper payments and a lack of oversight and review over implementation of the survey and its results. As shown in the figure below, there were substantial discrepancies among the travel populations reported in the PAR, improper payment survey, and fiscal year 2006 travel obligations. The exclusion of such a significant portion of travel expenditures in the survey decreases its effectiveness as an improper payments assessment tool. DOD has also established a Program Officer for Improper Payment and Recovery Auditing, an improper payment working group, and held a "Department of Defense Improper Payments Information Act Conference."

section_title: Letter
paragraphs: Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). Prior to IPIA, former section 57 of OMB  Circular No. A-11 required certain agencies to submit similar information, including  estimated improper payment target rates, target rates for future reductions in these  payments, the types and causes of these payments, and variances from targets and goals  established. In addition, these agencies were to provide a description and assessment of  the current methods for measuring the rate of improper payments and the quality of data  resulting from these methods. DOD began reporting improper payment information for  military health benefits and military retirement in fiscal year 2003.
Appendix C to OMB Circular No. A-123, Requirements for Effective Measurement and  Remediation of Improper Payments (Aug. 10, 2006).
Improper payments are defined as any payment that should not have been made or that  was made in an incorrect amount (including overpayments and underpayments) under  statutory, contractual, administrative, or other legally applicable requirements. It includes  any payment to an ineligible recipient, any payment for an ineligible service, any duplicate  payment, payments for services not received, and any payment that does not account for  credit for applicable discounts.
DOD, Department of Defense Budget for Fiscal Year 2008: Financial Summary Tables  (February 2007).
An obligation is a definite commitment that creates a legal liability of the government for  the payment of goods and services ordered or received, or a legal duty on the part of the  United States that could mature into a legal liability by virtue of actions on the part of the  other party beyond the control of the United States. Payment may be made immediately or  in the future. An expenditure is the actual spending of money— an outlay. We use the  terms payment and expenditure interchangeably. government that year. Over the past several years, GAO has issued  numerous reports that highlighted problems with DOD travel practices  that resulted in wasteful spending of millions of dollars and potentially  improper travel, including weak controls over first class travel, unused  airline tickets, and the accuracy of travelers’ claims. The DOD Office of  Inspector General (DOD OIG), first reporting on the department’s overall  compliance with IPIA in fiscal year 2006, identified several significant  flaws.
Conference Report 109-676, accompanying the Department of Defense  Appropriations Act, 2007, included a requirement for GAO to assess the  reasons why DOD was not fully in compliance with IPIA related to travel  expenditures and make any needed recommendations for corrective  action. In May 2007, we issued an initial report that provided an overview  of DOD’s IPIA reporting for fiscal years 2003 through 2006 and a  discussion of the reasons reported by the DOD OIG for why the  department was not in compliance with IPIA for fiscal year 2006. Our  objectives for this report were to assess: (1) the completeness and  accuracy of DOD’s fiscal year 2006 IPIA travel disclosure in its  performance and accountability report (PAR), and (2) DOD’s planned  efforts to improve and refine its processes for estimating and reporting on  travel improper payments.
To complete our first objective, we reviewed DOD’s fiscal year 2006 PAR,  prior GAO reports, applicable federal laws, prior DOD OIG reports, and  OMB implementing guidance found in OMB Circular No. A-123, Appendix  C. We also met with cognizant DOD officials. To complete our second  objective, we reviewed DOD’s annual improper payment survey, met with  representatives from DOD components to determine how each calculated  travel improper payments to be reported, and met with officials from the  Office of the Under Secretary of Defense (Comptroller) (Office of the  Comptroller) and other DOD components. Additional details on our scope  and methodology are presented in appendix I. We conducted our review  from November 2006 through September 2007 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: During fiscal year 2006, DOD reported obligations of over $685 billion, the  second largest amount reported by an executive branch entity. Of this,  travel obligations were $8.46 billion for fiscal year 2006. Travel includes  expenses such as air fare, lodging, per diem, and local transportation.  Travel conducted by DOD represents an estimated 60 percent of total  travel obligations for the entire federal government. Travel is one of six  programs for which IPIA information is reported in DOD’s PAR.
subsections: section_title: Improper Payments Information Act of 2002 and OMB Implementing Guidance
paragraphs: IPIA was enacted in November 2002 with the major objective of enhancing  the accuracy and integrity of federal payments. Guidance for reporting  under IPIA is provided in Appendix C of OMB Circular No. A-123 and  requires agencies to:    Review all programs and activities and identify those that are susceptible  to significant improper payments.
Obtain a statistically valid estimate of the annual amount of improper  payments in those programs and activities.
Report estimates of the annual amount of improper payments in programs  and activities and, for estimates exceeding $10 million, implement a plan  to reduce improper payments.
In addition, this guidance instructs agencies to institute a systematic  method of reviewing all programs and identifying those which they believe  to be susceptible to significant improper payments. The guidance defines  “significant erroneous payments” as annual improper payments  exceeding both 2.5 percent of program payments and $10 million. It  further explains that agencies must then estimate the gross total of both  over- and underpayments for those programs identified as susceptible.  These estimates shall be based on a statistically random sample of  sufficient size to yield an estimate with a 90 percent confidence interval of  plus or minus 2.5 percentage points. The guidance also requires agencies  to consult a statistician to ensure the validity of their sample design,  sample size, and measurement methodology. If an agency cannot  determine whether or not a payment was proper because of insufficient  documentation, OMB Circular No. A-123 requires that the payment be  considered an error.
According to its guidance, OMB may also determine, on a case-by-case  basis, whether certain programs should be reported even if those  programs do not meet established thresholds. In February 2007, OMB  notified DOD that it was requiring that an improper payment error  measurement be reported for travel pay in the fiscal year 2007 PAR under  IPIA due to congressional interest and concern regarding this program.  For all programs and activities susceptible to significant improper  payments, agencies are to determine an annual estimated amount of  improper payments made in those programs and activities. If the estimate  of improper payments exceeds $10 million, the agency must implement a  plan to reduce the amount of such improper payments. If the improper  payment estimate is less than $10 million, agencies are still required to  report the total in their annual PAR.
section_title: Travel Process at the Department of Defense
paragraphs: Although there are over 70 types or circumstances of travel at DOD, DOD  travel is generally segregated into two broad types: temporary duty travel  (TDY) and permanent change of station (PCS) travel. TDY is travel to one  or more places away from a permanent duty station to perform duties for a  period of time and, upon completion of assignment, return or proceed to a  permanent duty station. PCS travel is the assignment, detail, or transfer of  a member or unit to a different permanent duty station under a competent  order that does not specify the duty as temporary, provide for further  assignment to a new permanent duty station, or direct return to the old  permanent duty station.
DOD reported that in a typical year over 3 million DOD personnel perform  TDY travel and generate over 5 million travel vouchers. For fiscal year  2006, DOD reported $8.5 billion was obligated for travel. The Institute for  Defense Analyses estimates that $7.3 billion of this amount is for TDY  and the remaining $1.2 billion is for PCS travel.
DOD has been working to upgrade its TDY travel system since 1993, when  the National Performance Review recommended an overhaul of DOD’s  TDY travel system. Long-standing concerns about the efficiency and  effectiveness of the existing travel systems resulted in the development of  DTS to be a centralized, integrated system used to process TDY travel.  DTS is envisioned as being DOD’s standard end-to-end travel system. The  Defense Finance and Accounting Service (DFAS) reported that about    $1.2 billion was processed through DTS in fiscal year 2006.
In January 2006 we reported on DOD’s difficulties implementing DTS.  DTS was originally intended to be fully implemented by April 2002, but this  date was changed to September 2006—a slippage of over 4 years. The  report specified two key challenges facing DTS in becoming DOD’s  standard travel system: (1) developing needed interfaces and                     (2) underutilization of DTS at sites where it has been deployed.
Extensive travel is still processed through legacy systems. One such  system is the Integrated Automated Travel System (IATS), which is used  by the Army and several other DOD components. IATS is a manual travel  system where the traveler submits paper travel documents (e.g., travel  orders, travel voucher, and receipts) for entry into IATS. Once the  information is entered into IATS, it is processed and a travel  reimbursement is made to the traveler. Under current implementation  plans, not all legacy travel systems will be eliminated due to current DTS  functionality limitations. Despite difficulties implementing DTS, the  Institute for Defense Analyses recently issued a report stating that DTS is  the only end-to-end system today with the capability to support all DOD  policy and business rules.
section_title: DOD Travel IPIA Reporting
paragraphs: Responsibility for assessing and reporting DOD’s improper payments,  including travel, for IPIA is the responsibility of the Office of the  Comptroller. In its fiscal year 2006 PAR, DOD reported that its current  IPIA review did not identify any programs or activities at risk of  “significant improper payments” in accordance with OMB criteria.  However, the department also reported that civilian, commercial, and  travel pay potentially were susceptible to improper payments in excess of  $10 million and reported estimated improper payment information for  these programs. Further, the department again reported on its sampling  and corrective actions concerning its military retirement, military health  benefits, and military pay programs. Table 1 shows the information DOD  reported for estimated improper payments for six programs, including  travel pay, in its fiscal year 2006 PAR.
Further, in its 2006 PAR, DOD described the risk assessment process for  each of the programs or activities that addressed the strength of the  internal controls in place to prevent improper payments and reported on  the results in its disclosure. DOD also described the statistical sampling  and corrective action plans for these six programs. Additionally, DOD  summarized the improper payment reduction outlook for the military  retirement, military health benefits, and military pay programs. Finally,  DOD described its improper payments auditing, accountability  information, information system usage, and statutory and regulatory  barriers limiting the department’s corrective actions. Excerpts from DOD’s  fiscal year 2006 PAR related to improper payments are reprinted in  appendix III of this report.
section_title: Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD Travel Program Were Incomplete
paragraphs: In its fiscal year 2006 PAR, DOD estimated approximately $8 million in  travel program improper payments, reported as reflecting about 1 percent  of reported program payments. While this estimate would indicate the  program was not at risk of significant improper payments under OMB  guidance, we found that DOD’s travel improper payments disclosures for  fiscal year 2006 were incomplete as to the full extent of total travel  payments made by DOD. The estimate information reported by DOD,  which DOD used to assess the travel program’s risk of significant  improper payments, only included payments from one system, DTS, which  processed an estimated 10 percent of DOD’s travel. Nonetheless, DOD’s  2006 PAR describes a travel postpayment review process that may mislead  the reader to believe that the reported travel improper payment estimate  represents more than DTS-processed travel. Further, the travel improper  payment estimate excluded the largest user of DTS, the Army, which  would likely have increased DOD’s estimate by over $4 million. Finally, the  statistical sampling methodology and process used by DOD to estimate  DTS improper payments as reported for fiscal year 2006 had several  weaknesses and did not result in statistically valid estimates of travel  improper payments.
subsections: section_title: Travel Disclosure Reported Only DTS- Processed Travel and Excluded Information on Its Largest User
paragraphs: In its fiscal year 2006 IPIA disclosure for travel, DOD estimated $8 million  in improper payments for travel pay, which it reported as reflecting about  1 percent of DOD reported travel payments. Based on our review, we  determined that DOD’s estimate of travel improper payments was derived  from approximately 10 percent of the $8.5 billion of DOD travel  obligations reported by DOD for the fiscal year—excluding a significant  portion of travel payments from the PAR disclosure. Further, the DTS  improper payments disclosure did not include data on the largest user of  DTS, the Army. The reporting of only DTS travel pay and the exclusion of  Army travel pay processed through DTS was incomplete.
DOD’s fiscal year 2006 reporting of travel improper payments based on  travel processed by DTS (excluding the Army) also excluded travel  processed in other systems used by several DOD components, including  the following:  In fiscal year 2006, the Army Corps of Engineers used IATS to process all  travel. According to information provided by DOD, the Army Corps of  Engineers processed over $239 million in travel payments during fiscal  year 2006.
Air Force officials reported using the Reserve Travel System to process  $1.5 billion in travel pay in fiscal year 2006.
The Army utilized IATS to process TDY, PCS, and other types of travel  payments. The postpayment review of IATS-processed travel, completed  by DFAS for the Army, indicated approximately $1.4 million in improper  payments for fiscal year 2006, none of which were reported in the DOD  fiscal year 2006 PAR disclosure.
DOD also did not include Army travel processed using DTS in its fiscal  year 2006 PAR. The Army is the largest user of DTS—processing a  reported $437 million of travel through DTS. As shown in figure 1, the  Army represented about 35 percent of the $1.2 billion of total DTS- processed travel in fiscal year 2006. The exclusion of Army improper  payment information resulted in further incomplete reporting of travel  improper payments in DOD’s fiscal year 2006 PAR. Based on the  information provided by DOD, the addition of Army travel payments  processed through DTS would have increased estimated improper  payments from $7.97 million to $12.6 million. DOD officials told us that the  results from Army DTS postpayment reviews were not included in the PAR  because the results were not available in time for the reporting deadline.  DOD acknowledged that the PAR disclosures regarding this exclusion  could have been improved.
Moreover, the descriptive information included in DOD’s PAR did not  disclose the limitation to its reported estimates. Within the statistical  sampling section of the IPIA reporting in DOD’s fiscal year 2006 PAR, DOD  describes reviews of vouchers from IATS and a review of travel conducted  by the Army Corps of Engineers, but the results of these reviews were not  actually included in the fiscal year 2006 estimate of improper payments.  Thus, the descriptive information may mislead readers to believe that the  travel improper payment estimates are based on a larger population than  is actually reported.
When we discussed the exclusion of non-DTS travel improper payments  with Office of the Comptroller staff they explained that they believed the  August 2006 release of updated guidance by OMB (namely Appendix C of  OMB Circular No. A-123) modified which programs must be reported. In  fiscal year 2006, DOD reported three new programs—one of which was  travel pay. DOD officials explained that because only DTS data were  readily available for reporting by the November 15 deadline, they decided  that was to be the only PAR input. DOD acknowledged that the disclosure  of this reporting limitation could have been improved.
section_title: DTS Improper Payments Estimates Were Not Prepared According to OMB Guidance and Were Not Statistically Valid
paragraphs: We also found weaknesses in the postpayment review process used to  estimate improper payments for DTS-processed travel. Under OMB  guidance, agencies are required to obtain a statistically valid estimate of  the annual amount of improper payments. However, we found that DOD  did not have documented sampling plans that detailed how the samples  were planned, executed, and evaluated to derive a statistically valid  improper payments estimate for DTS-processed travel. We also found that  the methodology used to estimate sampling results for nine DOD agencies  was not statistically valid.
subsections: section_title: Lack of Sampling Plans
paragraphs: Appendix C of OMB Circular No. A-123 provides guidance on using  statistical sampling to estimate improper payments. According to the  guidance, improper payment estimates shall be based on a statistically  valid random sample of sufficient size to yield an estimate with a               90 percent confidence interval of plus or minus 2.5 percentage points  (agencies may alternatively use a 95 percent confidence interval of plus or  minus 3 percentage points around the estimate of the percentage of  improper payments). The guidance also requires agencies to consult a  statistician to ensure the validity of their sample design, sample size, and  measurement methodology.
DFAS was responsible for estimating improper payment information for  over $1.2 billion in fiscal year 2006 DTS payments. DFAS was unable to  provide us with its DTS postpayment review sampling plan, and according  to our discussions with DFAS and Office of the Comptroller officials, one  was not prepared. At the end of our fieldwork, DOD provided us a  retrospective document describing the fiscal year 2006 sampling plan. The  plan described information on the sampling method, payment and account  selection, treatment of missing records and errors, and summary  reporting. While OMB’s guidance does not require a sampling plan, our  Standards for Internal Control in the Federal Government identify  control activities such as policies, procedures, and mechanisms that  enforce management’s directives and are an integral part of an entity’s  planning, implementing, reviewing, and accountability for stewardship of  government resources and achieving effective results. The lack of a  documented sampling plan, before and during sampling, is an internal  control weakness in the process used by DFAS and could result in testing  activities not being completed as anticipated by management.
For example, our review of testing for fiscal year 2006 DTS payments  raised questions as to the completeness of the testing prior to the  projections being made that were included in the PAR. Based on our  review of the DTS postpayment review results database, as of March 2007,  about 41 percent of the vouchers selected for sampling of fiscal year 2006  payments did not include an annotation that the review was completed.  When we discussed this with DFAS and Office of the Comptroller staff,  they responded by explaining that the population of DTS trips subject to  postpayment review for any given month will not represent the actual DTS  trip records settled or paid for that month due to the lag between payment  and postpayment review. They also stated that statistics or population  projections will not be reported for any incomplete monthly sample. DFAS  staff further clarified that the fiscal year 2006 reporting was not  necessarily based solely on fiscal year 2006 transactions. A component’s  fiscal year 2006 projection could be based on activity from both fiscal  years 2005 and 2006 due to the timing of postpayment review. For  example, a component’s fiscal year 2006 estimate could be based on  postpayment review of activity from April 1, 2005, through March 31,  2006—a 12-month period overlapping 2 fiscal years.
In order to assess this explanation, we requested additional information  from DFAS that would detail what audit months of data were used to  project and report fiscal year 2006 travel improper payments. Office of the  Comptroller officials told us that they were unable to provide further  support because the database did not have the needed information. If a  written sampling plan, with appropriate detail, had been developed for  fiscal year 2006 DTS postpayment review, it is more likely that DFAS  would have performed procedures to assure that sampling was completed  prior to projection and that appropriate documentation was maintained.
section_title: Incorrect Categorization of Certain Errors
paragraphs: In order to determine the extent of improper payments for travel  processed through DTS, DFAS officials explained that the DTS  postpayment review was conducted using a monthly random sample for  each component and agency. In fiscal year 2006, this methodology resulted  in the selection of 168 unique samples from 168 distinct populations, with  each sample varying in size from 20 test items for a defense agency to  nearly 500 for a large military component. DOD reported that it randomly  selected vouchers from the monthly population of vouchers based on a    95 percent confidence interval with a precision of 2.5 percentage points;  we did not verify whether the data from which the samples were selected  were complete or the accuracy of the samples taken.
Once a sample item was selected, DFAS reviewed the selected vouchers  and recorded the results of its findings in a database. The review process  included a recalculation of the travel entitlement based on information  submitted on the travel authorization, DTS data, and supporting  documents (e.g., travel receipts, credit card information, and DOD and  federal travel regulations). The reviewer considered the overall validity of  a payment as well as specific items such as appropriate use of organization  codes, travel dates, per diem rates, airfare rates, and correct mathematical  calculation on the voucher.
If an error was found during the postpayment review process, staff  recorded it in the database. Each error was classified as one of four error  types (lodging, per diem, reimbursement paid incorrectly, or nonmonetary  errors). Errors involving lodging, per diem, and reimbursement paid  incorrectly are all monetary errors, and each error type had between         13 and 46 subclassification types reviewers used to more accurately  describe the error. For example, “reimbursement paid incorrectly” errors  could be classified as 1 of 46 more specific error types, such as airfare paid  incorrectly, mileage paid incorrectly, and mileage over- or underpaid.  DFAS used the review results and information in the database to estimate  monthly improper payment amounts for each component and agency.
During our review, we noted what could be an incorrect categorization of  “receipts not received” as a nonmonetary error. OMB guidance states that  “when an agency’s review is unable to discern whether a payment was  proper as a result of insufficient or lack of documentation, this payment  must also be considered an error.” While DFAS categorized this as a  nonmonetary error, this type of error could potentially be a monetary  error, but was not included in the estimate of improper payments. We  noted nearly 200 instances where a payment was categorized as “receipts  not received”—a nonmonetary error. However, because the monetary  value of the error was not provided, we were unable to determine the  effect of this incorrect classification on travel improper payments reported  in DOD’s fiscal year 2006 PAR. When we discussed this categorization  error with DOD officials, they explained that during the review process,  DFAS allows a traveler a maximum of 30 working days to submit receipts  that were not available for review. During this time, the sample item is  considered open and the error is categorized as nonmonetary. If after the  allotted time period the receipts are not provided, the amount is  considered a monetary error. DOD believes the approximately 200 cases  are likely those where the examiner was awaiting receipts for final  determination of their propriety. However, on the basis of our review, we  noted that all of these items had a completed date annotated in the  database, suggesting they were completed audits—not audits awaiting  additional documentation. We requested additional documentation from  DOD that would support its assessment of these vouchers. DOD did not  provide any documentation but did note in a written response to us that  “all items are reviewed and settled with a determination of whether or not  they are improper payment errors, and improper payments are reported as  such. Incorrect or incomplete documentation may relate to nonmonetary  errors that are also not improper payments (such as the wrong form being  used or missing elements that are DOD internal procedural requirements,  but are not required by law to support the payment).”
section_title: Flawed Methodology Used to Estimate Improper Payments at DOD Agencies
paragraphs: DOD also utilized a flawed methodology to estimate DTS improper  payments at nine DOD agencies. Information reported for the defense  agencies in the fiscal year 2006 PAR was prepared by totaling the monthly  sample results from the nine defense organizations and then estimating an  improper payment amount based on this aggregate data instead of deriving  a monthly estimate, and then aggregating the estimated results and related  confidence intervals. As described above, monthly samples were taken by  component and agency for postpayment review. Despite the segmentation  of the population during the testing process, the information reported by  DFAS to the Office of the Comptroller has nine defense organizations  reported as “other” and uses the sum of the nine organizations’ sample  results to estimate an error amount. By selecting samples for each  organization separately and aggregating the results from the sample to  estimate the total error rate, estimates made for the organizations were  incorrectly projected to the population. DFAS reports that for fiscal year  2007 it will ensure that sample statistics and population estimates for  defense agencies are computed at the agency level and then summarized.
section_title: DOD Faces Challenges in Plans to More Fully Assess Travel Improper Payments
paragraphs: As discussed in the previous section, DOD’s process for estimating and  reporting improper payments for its travel program for inclusion in its  fiscal year 2006 PAR was significantly flawed. Going forward, DOD plans  to use the results from its annual Improper Payments Survey, conducted  by the Office of the Comptroller, to determine the extent of improper  payments in several programs, including travel. The survey of fiscal year  2006 payments was not prepared in time for inclusion in the fiscal year  2006 PAR, in November 2006, but has since been completed. DOD plans to  use these results for its fiscal year 2007 PAR reporting. We reviewed this  survey, as a component of the department’s risk assessment for improper  payments in the travel program. Our review identified several weaknesses  in the survey and reported results which, if uncorrected, will limit the  department’s ability to fully assess improper payments in the travel  program. We identified weaknesses in DOD’s guidance regarding the  estimation of travel improper payments and lack of oversight and review  by the Office of the Comptroller over implementation of the survey and its  results. The department is also taking other steps to improve its reporting  under IPIA. To address reporting issues identified in its fiscal year 2006  auditor’s report, DOD has established a Program Officer for Improper  Payment and Recovery Auditing. Further, the department is establishing  an improper payment working group and held a “Department of Defense  Improper Payments Information Act Conference.”
subsections: section_title: Improper Payments Survey Results Unreliable Due to Limited Guidance and Oversight by the Office of the Comptroller
paragraphs: DOD assesses its programs, including travel, for improper payments,  based on its departmentwide annual Improper Payments Survey. The  survey, distributed annually by the Office of the Comptroller, queries DOD  components to determine the extent of improper payments in several  programs, including travel, across the department. We reviewed this  survey as a component of the department’s risk assessment for improper  payments in the travel program. Our review indicated several weaknesses  in the survey and reported results, including weaknesses in the guidance  regarding the estimation of travel improper payments and lack of oversight  and review of the survey and its results. These weaknesses, if uncorrected,  will limit the department’s ability to fully assess improper payments in the  travel program.
subsections: section_title: Limited Guidance Provided to DOD Components to Direct IPIA Assessment
paragraphs: In order to more fully assess its travel program for improper payments, the  Office of the Comptroller issues its annual Improper Payments Survey to  DOD components. The survey requests that each component report to the  Office of the Comptroller the amount of improper payments for several  programs throughout the department and to specify additional programs  or activities as needed. For fiscal year 2006, the Office of the Comptroller  issued guidance on completion of the IPIA survey to DOD officials. The  guidance included a cover memorandum which requested that all services  and agencies review and report on any program or activity payment for  which the component computed the entitlement. Accompanying the  memorandum were Appendix C of OMB Circular No. A-123, results of the  previous year’s Improper Payments Survey, and a survey template for the  component to use to submit survey results. The survey for fiscal year 2006  was sent to the components in January 2007, with survey results due to the  Office of the Comptroller by January 26, 2007. The completed survey was  provided to us in April 2007. DOD also used the survey to report a more  complete travel population to OMB. This report detailed improper  payments information for $3.4 billion in travel payments rather than the  $824 million reported in the PAR. The survey also identified $20 million in  travel improper payments, a $12 million increase from the $8 million  reported in DOD’s fiscal year 2006 PAR. Eight entities, other than DFAS,  reported information in the fiscal year 2006 IPIA survey for travel pay. A  summary of the improper payment survey results for travel is shown in  table 2.
Going forward, considering the complexity of DOD, extent of travel  throughout the department, and information reported in the survey of  fiscal year 2006 payments, the guidance issued by the Office of the  Comptroller does not provide adequate information to allow components  to properly report improper payment information needed for a useful  assessment. Our internal control standards identify information and  communications as one of the five standards for internal control. This  standard states that information should be communicated to those within  the entity in a form that enables them to carry out their responsibilities.  The guidance issued by the Office of the Comptroller to DOD components  does not provide adequate guidance specific to DOD to allow for  components to prepare reliable estimates of improper payments. For  example, while OMB guidance requires that agencies obtain a statistically  valid estimate of the annual amount of improper payments in a program,  Office of the Comptroller guidance does not adequately address sampling  methodologies to employ, or provide contact information on how to seek  assistance with this matter. Further, the guidance does not offer detailed  information on the steps needed to adequately implement IPIA at DOD or  examples of improper payments relevant to DOD.
In addition, the guidance does not provide sufficient procedures on how to  identify or assess risk factors to assist DOD components in identifying  programs and activities vulnerable to improper payments, such as  assessments of internal control, audit report findings, and human capital  risks related to staff turnover, training, or experience. Assessing the effect  of risk conditions identified during the risk assessment plays a major role  in effectively determining the overall risk level of an agency’s operations.  Some risk conditions may affect a program or activity to a greater or lesser  degree. Likewise, not all risk conditions may be relevant to each program  or activity. This type of risk identification and assessment is consistent  with our previous recommendation that OMB establish risk factors in its  guidance for agencies to consider, and is also consistent with our  standards of internal control and executive guide on strategies to manage  improper payments, which provides a framework for conducting a  comprehensive risk assessment.
section_title: Improper Payment Estimate Process for Non-DTS Travel Is Decentralized
paragraphs: The process each DOD component uses to estimate its travel improper  payments and report to the Office of the Comptroller varies throughout  the department and is largely decentralized. Further complicating the  assessment for travel improper payments are the numerous systems used  to process travel throughout the department. For survey reporting, DFAS  (Indianapolis) is responsible for reporting all travel processed through  DTS and certain payments processed through IATS for Army and some  other defense agencies. The determination of all other travel pay and  associated improper payments is the responsibility of the component that  computed the entitlement. The Office of the Comptroller relies on each  component to determine and report this information. In our review of the  fiscal year 2006 Improper Payments Survey, we noted that the survey  results were not always statistically valid and in some cases appear  unreasonable. Improved guidance by the Office of the Comptroller will be  necessary to assure that survey information is reliable and complete for  IPIA reporting.
DFAS is responsible for estimating and reporting travel improper  payments for travel processed for the Army by the IATS system. In fiscal  year 2006, DFAS (Indianapolis) did not conduct a statistically valid sample  and review of travel payments processed through IATS. Instead, officials  from DFAS performed limited reviews of IATS vouchers paid to determine  if any such payments were improper. For example, DFAS reviewed  payments to determine if payments for the same travel activity had been  paid in both DTS and IATS—essentially a duplicate payment review. This  review found $1.5 million in improper payments in fiscal year 2006, which  was reported in the survey, as shown previously in table 2. Such DFAS  IATS reviews cannot be used to estimate the value of improper payments  to the entire IATS population.
The Air Force reports improper payment information on travel processed  through the Reserve Travel System. For fiscal year 2005, the Air Force  sought the guidance of the Air Force Audit Agency to determine if the Air  Force had developed and used an effective methodology to estimate and  report the dollar amount of improper travel payments processed through  the Reserve Travel System. The Air Force Audit Agency reported that the  methodology used by the Air Force to estimate Reserve Travel System  improper payments did not meet IPIA requirements. As part of the audit,  the Air Force Audit Agency developed and provided the Air Force with a  statistically valid sampling methodology for centralized reviews that it  reported would meet IPIA reporting requirements. The Air Force told us  that it now follows the sampling methodology developed by the Air Force  Audit Agency. As shown in table 2, utilizing this methodology, the Air  Force estimated nearly $4.6 million in travel improper payments were  processed in fiscal year 2006 by the Reserve Travel System—an improper  payment estimate of approximately 4.5 percent of the $101 million in  payments processed by the Reserve Travel System during this period.  However, after reporting its estimated results in the survey for fiscal year  2006 payments, the Air Force revised the results of its IPIA review. In a  memo dated August 8, 2007, the Air Force disclosed an underestimation of  total Reserve Travel System payments, revising the reported amount to  $1.5 billion, instead of the $101 million originally reported. Based on a  centralized review, the Air Force projected its improper payments to be  $13.6 million—an error rate of 0.9 percent.
The Army also has a decentralized review process for non-DTS travel  reimbursements for improper payments. As described above, DFAS  (Indianapolis) is responsible for identifying and reporting Army IATS  payments calculated and disbursed by DFAS. However, the Army also  reported travel improper payments for three other programs or activities  in the fiscal year 2006 improper payments survey: Army--Korea;           Army--Europe; and the Army Corps of Engineers.
Staff responsible for the improper payment review for the Korea command  explained the process they follow to estimate and report improper  payments, which is completed as part of the internal control process and  includes an annual inspection. In fiscal year 2006, this review included a  reinspection of every voucher for a 1-month period. This review  discovered few improper payments. The future plans for improper  payment reviews were unknown when we spoke to the Army-Korea staff  due to ongoing DTS implementation there. In the fiscal year 2006 survey,  Army--Korea reported no improper payments and over $12.6 million in  travel payments.
The improper payment review for Army--Europe is even more  decentralized, with finance officers throughout the region preparing  improper payment information independently. From our discussion with  Army--Europe staff, there is no formal process for reviewing and reporting  improper payment information throughout the region beyond the IPIA  guidance provided by the Office of the Comptroller. In the fiscal year 2006  survey, Army--Europe reported no improper payments and over               $3.9 million in payments.
During fiscal year 2006, the Army Corps of Engineers processed all of its  travel using IATS. The Army Corps of Engineers finance center is  responsible for compiling and reporting travel improper payments.  Officials from the Army Corps of Engineers finance center reported that  all TDY and PCS vouchers greater than or equal to $2,500 were subject to  postaudit review, and a sample of every 366th TDY voucher less than  $2,500 was also reviewed by finance center staff. The sampling plan was  designed to have a 95 percent confidence level plus or minus 2 percent. A  DFAS statistician attested to the validity of the sampling methodology  used by the Army Corps of Engineers. In the fiscal year 2006 survey, the  Army Corps of Engineers reported $57,279 in travel improper payments.
section_title: Limited Oversight by Office of the Comptroller Contributes to Unreliable Assessment
paragraphs: Our review indicated weaknesses in the survey and reported results for  travel were caused, in part, by limited oversight and review by the Office  of the Comptroller of the survey and its results. These weaknesses include  a survey that does not consider the entire population of travel payments  for fiscal year 2006 and information reported that appears unreliable.  Without improved oversight by Office of the Comptroller, the department’s  future reporting under IPIA could be compromised.
Our internal control standards include monitoring as one of the five  standards for internal control. The standards provide that internal control  should generally be designed to assure that ongoing monitoring occurs in  the course of normal operations and includes regular management and  supervisory activities, comparisons, and reconciliations. During our  review of the fiscal year 2006 improper payments survey, we noted several  weaknesses that indicate a lack of appropriate monitoring or oversight by  the Office of the Comptroller. The most notable weakness we found in the  survey is the population of travel payments from which improper  payments were estimated. As shown in figure 2, in fiscal year 2006,         $8.5 billion was obligated for travel by DOD as reported in the DOD budget  for fiscal year 2008. The improper payments survey for this same time  period reported a total travel expenditure population of $3.4 billion—a  difference of $5.1 billion. The survey results were more complete than the  PAR reporting, which reported on approximately $824 million in travel  payments. The exclusion of such a significant portion of travel payments  in the survey decreases its effectiveness as an improper payments  assessment tool and indicates inadequate monitoring of the survey process  by the Office of the Comptroller. A strong internal control environment,  particularly monitoring, should have included regular reconciliations and  comparisons that would have brought this discrepancy to management’s  attention in a timely manner.
The Office of the Comptroller did not clearly define DOD’s travel  population before collecting the improper payment information for its  fiscal year 2006 improper payment survey. Because DOD did not clearly  define the full population of travel payments, the full extent of travel  improper payments at the department is unknown. Further, until DOD  establishes guidance with sufficiently detailed procedures on how to  define its population for travel IPIA reporting, future annual reporting is  unlikely to be comparable across fiscal years, which could prevent users  of IPIA information from determining progress made in reducing improper  payments.
When we met with Office of the Comptroller officials in March 2007, we  discussed the importance of a complete travel payment population. At that  time, Office of the Comptroller officials said they were not aware that the  travel payment population was a potential problem. However, after  discussion they agreed to reconcile the difference between the budget  obligation amounts ($8.5 billion) and the payment amounts reported in the  fiscal year 2006 improper payments survey ($3.4 billion). In September  2007, the Office of the Comptroller provided reconciliation information for  approximately $1.9 billion in travel payments and described the following  factors that may have contributed to the remaining variance:    classified program expenditures that are not included in IPIA reporting,  timing differences between obligations and expenditures, and  reviews and reporting based on audit month rather than actual reporting  period (e.g., audit and reporting year may run from August through July  while the fiscal year is October through September).
As reported in the PAR, DOD travel improper payments appear immaterial  and the fiscal year 2006 reported travel payment population was  substantially less than other programs reported on by DOD. While this  might decrease the focus given to the travel program, we do not consider  the information reliable and if, for example, the total population of         $8.5 billion was reported on, with an improper error rate of 1 percent as  estimated by DOD, travel improper payments would be approximately    $85 million. This is a substantial amount of improper payments and would  exceed the improper payment estimates for all but two programs as  reported in fiscal year 2006—military health benefits and commercial pay.
In addition to the incomplete travel payment population, we noted  weaknesses in the oversight and review of some data reported in the  improper payments survey. Four program/activities (Marine Corp Travel  Pay (IATS), Army–Korea, Army–Europe, and the Defense Security Service  PCS travel) reported no improper payments on $17 million in associated  travel payments. We did not review vouchers to determine if any improper  payments existed in this population but based on the description of the  improper payments review we obtained from Army–Korea and            Army--Europe, we do not believe the review process used provided a  reliable basis for IPIA reporting for those components. For example,  Army–Korea’s review only considered a review of payments during a         1-month period, instead of a statistically valid sample of payments for the  fiscal year. Additionally, one entity reporting under Army–Europe reported  that because they preaudit their travel vouchers they have very few  improper payments. Another official told us that Army–Europe does little  to identify and report travel improper payments. Army–Europe staff told  us they were not trained in the proper method for reporting improper  payment information. While it is possible there may not be any improper  payments in a population, the review process was inadequate to provide a  basis for reporting no improper payments on $17 million in travel  payments. When we discussed these concerns, Office of the Comptroller  staff informed us that they are doing further analysis to determine the  accuracy and completeness of the information. Further, the staff told us  that they use variance analysis to determine if the information submitted is  reasonable based on previously reported information.
section_title: Office of the Comptroller Taking Steps to Improve Reporting of Travel Improper Payments
paragraphs: While there are serious challenges facing the Office of the Comptroller in  the assessment and reporting of travel improper payments, the office is  taking steps to improve its oversight of the IPIA estimating and reporting  process. Recently, the Office of the Comptroller established a Project  Officer for Improper Payments and Recovery Auditing. Additionally, the  DOD Project Officer has established a working group, comprised of  representatives from numerous components, intended to further improve  DOD’s compliance with IPIA reporting.
To introduce DOD component participants to improper payment issues,  including identifying and reporting improper payments, establishing and  achieving reduction targets, and recovery auditing, the Office of the  Comptroller held the “Department of Defense Improper Payments  Information Act Conference.” The conference, held in May 2007, included  presentations by officials from OMB, DFAS, Navy, DOD OIG, and Office of  the Comptroller. Additionally, there was a 3-hour session dedicated to  statistical analysis, with presentations by OMB and DFAS on statistical  methodologies. Such conferences or other training activities, if held on a  regular basis, could serve to better train DOD staff responsible for  improper payment reporting and help assure that information provided to  the Office of the Comptroller for reporting is reliable and prepared in  accordance with OMB and DOD guidance.
Further, the Office of the Comptroller provided us with a draft of the  “Recommended Post Payment Sampling Plan for Defense Travel System,  WinIATS & PCS Travel Claims,” for fiscal year 2008. This sampling plan  details the sampling method, selection process, treatment of missing  records, information on completing the target sample, reporting errors,  and summary reporting. If implemented effectively, this methodology  should result in simple random sampling of DTS payments by component  and the sampling of DOD agencies in aggregate. The plan is estimated to  reduce the number of DTS sample items from approximately 43,600 in  fiscal year 2007 to 17,600 in fiscal year 2008—a 26,000 decrease in tested  sample items for the year, largely from a reduction in sampling of DOD  agencies. This decrease should allow DFAS to perform more timely  postpayment reviews because the number of sample items to be reviewed  would be less.
section_title: Conclusions
paragraphs: Although DOD has made some progress in implementing the requirements  of IPIA for its travel program, challenges remain in ensuring that the  complete population of all appropriate travel payments has been identified  and reviewed to reliably determine its susceptibility to significant  improper payments. As DOD continues to improve its IPIA efforts in the  travel program, the agency should be better able to identify and report  improper payments. This is not a simple task and will not be easily  accomplished, particularly in light of the decentralized nature of DOD’s  travel program. For example, although DTS is intended to centralize travel  processes at DOD, that goal has not yet been achieved, and an estimated  90 percent of DOD’s travel payments for fiscal year 2006 were computed  outside of DTS. Improved guidance and oversight by the Office of the  Comptroller will be key to ensuring that complete and reliable estimates of  improper payments are reported. With the ongoing imbalance between  revenues and outlays across the federal government, and the Congress’s  and the American public’s increasing demands for accountability over  taxpayer funds, improving DOD’s ability to identify, reduce, and recover  travel improper payments is even more critical.
section_title: Recommendations for Executive Action
paragraphs: In order to improve the usefulness and completeness of IPIA reporting for  DOD’s travel program, we recommend that the Secretary of Defense direct  the DOD Comptroller to take the following four actions:    Establish and implement policies and procedures to reliably identify the  complete population of DOD travel payments.
Establish and implement policies and procedures to report a valid  improper payment estimate for the population.
Develop and implement guidance for the preparation of improper payment  estimates, to include (1) how to compute a statistically valid estimate of  improper payments, and (2) the consideration of risk factors associated  with vulnerability to improper payments.
Establish and implement policies and procedures specifying actions to  oversee the data collection process for travel improper payments to be  included in the annual PAR, including, at a minimum: (1) periodic reviews  of processes used by components to prepare improper payment estimates,  and (2) reviews of information reported in the improper payment survey to  assure that the population being reported is complete, and the improper  payment estimate data reported are reliable and complete.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report, which are  reprinted in appendix II. In its written response, DOD concurred with  three of the recommendations and partially concurred with the fourth.  DOD partially agreed with our recommendation that the department  develop and implement guidance for the preparation of improper  payments estimates, including how to compute a statistically valid  estimate of improper payments and the consideration of risk factors  associated with vulnerability to improper payments. Although it concurred  with the intent of our recommendation, DOD stated that OMB’s Circular  No. A-123, Appendix C, provided guidance for statistical sampling and for  identifying risk factors and that the decentralized nature of the DOD  components and the varying systems used for travel pay computations  make a detailed universal approach impractical. We agree that DOD is a  decentralized organization, with a wide breadth of activities and  components. Indeed, this is the primary reason for our recommendation  that DOD develop and implement additional guidance for use by its  components. OMB’s guidance provides a broad framework for use by  agencies across the federal government. However, individual agencies are  responsible for implementing OMB’s guidance with policies and  procedures that meet the specific needs of their operations. Therefore, we  continue to recommend that DOD issue guidance to provide potential  sampling methodologies, contact information on how to seek assistance  with this matter, information on the steps needed to adequately implement  IPIA at the component level, and examples of improper payments relevant  to DOD. This guidance should be developed in a form that enables DOD  staff across the broad range of DOD activities and components to carry  out their responsibilities.
Further, DOD commented that it had completed action on all  recommendations. Specifically, DOD stated that a policy memorandum  issued by the Deputy Chief Financial Officer, dated November 27, 2007,  addressed all needed actions. This document consists of a cover  memorandum, excerpts from Appendix C of OMB Circular No. A-123, and  DOD improper payment component contact information. As part of our  standard recommendation follow-up process, we will consider this policy  memorandum as well as DOD’s progress in implementing it throughout the  department. It is important that DOD takes action to ensure that such  policy guidance is fully and effectively implemented if DOD is to improve  the usefulness and completeness of its IPIA report for the travel program.
DOD also provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to other interested congressional  committees and to affected federal agencies. Copies of this report will be  made available to others upon request. In addition, this report is available  at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-9095 or at williamsm1@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 who made major contributions to  this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess the completeness and accuracy of the Department of Defense’s  (DOD) fiscal year 2006 Improper Payments Information Act of 2002 (IPIA)  disclosure for travel improper payments, we reviewed the IPIA disclosures  in its performance and accountability reports (PAR) for fiscal years 2003,  2004, 2005, and 2006. We also contacted representatives from DOD Office  of Inspector General to discuss their assessment of DOD’s compliance  with IPIA for fiscal year 2006. We met with representatives from the Office  of the Under Secretary of Defense (Comptroller) (Office of the  Comptroller) to discuss their preparation of IPIA disclosure information  included in the DOD PAR. We met with and obtained supporting  documentation from the Defense Finance and Accounting Service (DFAS)  officials responsible for estimating and reporting improper payment  information for travel processed by the Defense Travel System (DTS). We  observed the processing of Army travel through the Integrated Automated  Travel System (IATS) and the postpayment review process for both Army  IATS-processed travel and DTS-processed travel. We analyzed information  provided by DFAS officials related to travel postpayment review to  determine if it was complete and reliable for reporting purposes. We also  reviewed associated improper payment reporting information.  Additionally, we reviewed applicable laws, Office of Management and  Budget guidance, DOD procedural directives, DOD memos, and other  guidance used by DOD to guide IPIA reporting to determine what  legislation and guidance was in place.
To assess DOD’s planned efforts to improve and refine its processes for  estimating and reporting on travel improper payments we met with staff  from the Office of the Comptroller. We obtained information from  representatives from Army-Korea, Army-Europe, the Army Corps of  Engineers, Air Force, and Navy to determine how each component  reviewed travel payments processed through its respective legacy systems  for improper payments and the reporting of that information to the Office  of the Comptroller. We reviewed the Improper Payments Survey for fiscal  year 2006 payments and met with officials from the Defense Travel  Management Office and the Project Management Office for the Defense  Travel System. We attended the “Department of Defense Improper  Payments Information Act Conference.”
We did not independently verify the reliability of all information provided.  However, we did compare it with other supporting documents, when  available, to determine data consistency and reasonableness. Based on our  analysis, we believe the information we obtained is sufficiently reliable for  its use in this report.
We conducted this performance audit from November 2006 through  September 2007 in accordance with generally accepted government  auditing standards.
We provided a draft of this report to DOD for comment. DOD provided  written comments, which are presented in the Agency Comments and Our  Evaluation section of this report and are reprinted in appendix II. DOD  also provided technical comments, and we made revisions as appropriate.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: Excerpts from DOD’s Fiscal Year 2006 PAR
paragraphs: FY 2006 Estimated Improper Payments (September 30, 2006)
Electronic Government (e-Gov)
section_title: Appendix IV: GAO Contact and Staff Acknowledgements
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, the following individuals also  made significant contribution to this report: Dianne Guensberg, Assistant  Director; Sharon Byrd; Francine DelVecchio; Heather Dunahoo; and  Bradley Klingsporn.