DOD Financial Management: The Army Faces Significant Challenges in Achieving Audit Readiness for Its Military Pay
Released: 2012-03-22T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Defense Finance and Accounting Service-Indianapolis (DFAS-IN) reported that fiscal year 2010 active Army military payroll totaled $46.1 billion. However, for several years, GAO and others have reported continuing deficiencies with Army military payroll processes and controls, raising questions about the validity and accuracy of reported Army military pay and whether it is auditable. The Department of Defense (DOD) has recently accelerated its Statement of Budgetary Resources audit readiness goal by 3 months to 2014 and is required to achieve audit readiness for a full set of DOD financial statements by 2017. GAO performed basic audit procedures for the Army’s active duty military payroll to assess the Army’s ability to (1) identify a valid population of payroll transactions and (2) test a sample of payroll transactions for validity and accuracy. GAO reviewed applicable laws and regulations, analyzed DOD and Army policies and procedures, drew a statistical sample of payroll transactions to test their accuracy and validity, and met with DOD, DFAS-IN, Army, and Defense Manpower Data Center officials.

section_title: What GAO Found
paragraphs: The Army could not readily identify the population of Army military payroll accounts given its existing procedures and systems. The Army and DFAS-IN did not have an effective, repeatable process for identifying the population of active duty payroll records. For example, it took 3 months and repeated attempts before DFAS-IN could provide a population of service members who received active duty Army military pay in fiscal year 2010. Further, because the Army does not have an integrated military personnel and payroll system, it was necessary to compare the payroll file to active Army personnel records. However, the Defense Manpower Data Center (DMDC), DOD’s central repository for information on DOD-affiliated personnel, did not have an effective process for comparing military pay account files with military personnel files to identify a valid population of military payroll transactions. It took DMDC over 2 months and labor-intensive research to compare and reconcile the total number of fiscal year 2010 active duty payroll accounts to its database of personnel files. DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance states that identifying the population of transactions is a key task essential to achieving audit readiness. Without effective processes for identifying the population of Army military pay records and comparing military pay accounts to personnel records, the Army will have difficulty meeting DOD’s 2014 audit readiness goal for the Statement of Budgetary Resources.

In addition, the Army does not have an efficient or effective process or system for providing supporting documents for Army military payroll. For example, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files and the Army was unable to locate or provide supporting personnel documents for GAO’s statistical sample of fiscal year 2010 Army military pay accounts. GAO’s Standards for Internal Control in the Federal Government and DOD’s FIAR Guidance provide that audited entities document transactions and events and assure that supporting documentation can be identified, located, and provided for examination. Although the Army deployed the Interactive Personnel Management System (iPERMS) as the Army’s Official Military Personnel File in 2007, it had not consistently or completely populated iPERMS with personnel records. At the end of September 2011, 6 months after receiving GAO’s 250 statistical sample items, the Army and DFAS-IN were able to provide complete documentation for 2 of GAO’s sample items and provided partial documentation for 3 items, but provided no documentation for 245 of GAO’s 250 sample items.

The Army has begun several military pay audit readiness efforts that, if successfully implemented, could help increase the likelihood of meeting DOD’s 2014 Statement of Budgetary Resources audit readiness goal and the 2017 mandate for audit readiness on a complete set of DOD financial statements. These efforts include documenting and testing payroll system application controls, documenting Army military pay business processes, identifying the range of supporting documents for military pay, and developing an integrated military personnel and payroll system. Most of these efforts are not yet documented and, therefore, there is no assurance that they will be implemented timely and effectively.

section_title: What GAO Recommends
paragraphs: GAO is making four recommendations to help the Army develop the processes and controls necessary to achieve financial statement audit readiness, including identifying and validating the population of military payroll transactions and obtaining and retaining necessary pay-affecting documents. The Army concurred with GAO’s four recommendations and noted actions it is taking.

section_title: Letter
paragraphs: According to the Defense Finance and Accounting Service in Indianapolis  (DFAS-IN), fiscal year 2010 active Army military payroll totaled $46.1  billion. For years, we and others have reported continuing deficiencies  with Department of the Army military payroll processes and controls. In  November 2003, we reported that weaknesses in processes and controls  resulted in over- and underpayments to mobilized Army National Guard  personnel. In April 2006, we reported that pay problems rooted in  complex, cumbersome processes used to pay Army soldiers from initial  mobilization through active duty deployment to demobilization resulted in  military debt to battle-injured soldiers. In June 2009, we reported that the  Army did not have effective controls for processing and accounting for  military personnel federal payroll taxes because of weaknesses in its  procedures and controls for assuring accurate and timely documentation  of transactions. In July 2011, the Department of Defense (DOD)  Inspector General reported that the Defense Finance and Accounting  Service (DFAS) made potentially invalid active duty military payroll  payments of $4.2 million from January 2005 through December 2009 for  the Army, the Navy, and the Air Force.

These reported continuing deficiencies in Army payroll processes and  controls have called into question the extent to which the Army’s military  payroll transactions are valid and accurate and whether the Army’s  military payroll as a whole is auditable. The Army’s military pay is material  to all of the Army’s financial statements and comprises about 20 percent  of the Army’s $233.8 billion in reported fiscal year 2010 net outlays.  Accordingly, Army active duty military payroll is significant to both Army  and DOD efforts to meet DOD’s 2014 Statement of Budgetary Resources  audit readiness goal.

The Chief Financial Officers Act of 1990, as amended, established  requirements for 24 agencies, including DOD, to prepare annual financial  statements and have them audited. As we have previously reported,  DOD’s many challenges in resolving its pervasive and long-standing  weaknesses in financial management, business operations, and systems  have inhibited its ability to meet this requirement. DOD has undertaken  numerous financial management improvement initiatives over the years,  but it continues to receive disclaimers of opinion on its financial  statements.

The National Defense Authorization Act (NDAA) for Fiscal Year 2010  mandated that DOD be prepared to validate (certify) that its consolidated  financial statements are ready for audit by September 30, 2017. The NDAA for fiscal year 2010 also mandated that DOD develop and maintain  a Financial Improvement and Audit Readiness (FIAR) Plan that includes,  among other things, the specific actions to be taken and costs associated  with correcting the financial management deficiencies that impair the  department’s ability to prepare timely, reliable, and complete financial  management information. Military pay is significant to departmentwide  financial statements. Further, other military components, such as the Air  Force and the Navy, share some of the same process and system risks  as the Army.

In May 2011, the Army reported that it expected to be ready for an audit  of its Statement of Budgetary Resources by the first quarter of fiscal year  2015. The Army also reported that its military pay would be audit ready by  the first quarter of fiscal year 2015. On October 13, 2011, the Secretary of  Defense directed the department to achieve audit readiness for the  Statement of Budgetary Resources by the end of fiscal year 2014 as an  interim milestone for DOD to meet the legal requirement in the NDAA for  Fiscal Year 2010 to achieve full audit readiness for all DOD financial  statements by 2017. audit readiness of the Army’s Statement of Budgetary Resources,  including Army military pay, by 3 months. Military pay audit readiness is  an important element of this goal.

This new goal would accelerate the time frames for  This report was initiated under our mandate to audit the U.S.  government’s financial statements. Our objectives were to perform basic audit procedures necessary to conclude about the validity and accuracy  of Army’s active duty military payroll. Those basic audit procedures  included (1) identifying a valid population of military payroll transactions  and (2) testing a sample of payroll transactions for validity and accuracy.

DOD, Secretary of Defense Memorandum, “Improving Financial Information and  Achieving Audit Readiness,” October 13, 2011. personnel records to determine whether the population of Army military  payroll accounts was in agreement with the population of personnel  records in DMDC. Nearly all of the identified differences related to  service members in separation status. However, we referred six  unresolved duplicate items to DMDC and Army Human Resources  Command for further research and correction. To address our second  objective, we used the population of matched personnel and payroll  records to select a statistical sample of 250 soldiers for testing payroll  accuracy for the sampled items. We requested 12 months of fiscal year  2010 Leave and Earnings Statements for each soldier in our sample, the  most recent data available, to compare pay transactions with supporting  Army personnel documents indicating such information as military orders,  special duty and expertise entitlements, marital status, and dependent  information. We focused on key steps to be followed in establishing  military personnel records on specific pay and allowance amounts. We  interviewed Army Personnel, Human Resources Command, and Finance  Command officials and visited a Military Enlistment Program Station in  Indianapolis, Indiana, and a military reception battalion at a training  installation at Ft. Jackson, South Carolina, to document the processes for  capturing pay-related information and setting up military personnel  records. In addition, we interviewed finance officials at Defense Military  Pay Offices at two Army field installations to gain an understanding of  how pay accounts are established, adjusted, and documented.

We conducted this performance audit from June 2010 through March  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Appendix I provides  further details on our scope and methodology. Other matters identified in  our work that merit management’s attention will be reported in a separate  letter to Army management.
subsections: section_title: Background
paragraphs: The United States Army is responsible for land-based military operations.  It is the largest and oldest established branch of the U.S. military. The  modern Army has its roots in the Continental Army, which was formed on  June 14, 1775, before the establishment of the United States, to meet the  demands of the American Revolutionary War. The Army’s mission is to  fight and win our nation’s wars by providing prompt, sustained land  dominance across the full range of military operations and spectrum of  conflict in support of combatant commands. The Army does this by  organizing, equipping, and training forces; accomplishing missions  assigned by the President, the Secretary of Defense, and combatant  commanders; and transforming for the future.

For fiscal year 2010, Congress appropriated more than $52 billion to the  “Military Personnel, Army” appropriation, which is a 1-year appropriation  available for the pay, benefits, incentives, allowances, housing,  subsistence, travel, and training primarily for active duty service  members. The Defense Finance and Accounting Service in  Indianapolis, Indiana (DFAS-IN) is responsible for accounting,  disbursement, and reporting for the Army’s military personnel costs using  the Defense Joint Military Pay System-Active Component (DJMS-AC).  According to DFAS-IN, of the $52 billion in fiscal year 2010 military  personnel appropriations, the Army’s nearly 680,000 service members  received $46.1 billion in pay and allowances. To provide payroll support  to the vast number of active Army service members, DFAS-IN has over  40 Defense Military Pay Offices within the United States that provide  finance services to military personnel in designated geographical areas.
subsections: section_title: Statement of Budgetary Resources
paragraphs: The Statement of Budgetary Resources is the only financial statement  predominantly derived from an entity’s budgetary accounts in accordance  with budgetary accounting rules, which are incorporated into generally  accepted accounting principles (GAAP) for the federal government. The  Statement of Budgetary Resources is designed to provide information on  authorized budgeted spending authority as reported in the Budget of the  United States Government (President’s Budget), including budgetary  resources, availability of budgetary resources, and how budgetary  resources have been used.

section_title: Army Personnel Role in the Military Pay Process
paragraphs: The Under Secretary of Defense for Personnel and Readiness (USD  (P&R)) advises the Secretary of Defense on a number of personnel areas  such as recruitment, pay and benefits, and oversight of military readiness,  and serves as DOD’s Chief Human Capital Officer. The Office of the  Assistant Secretary of the Army for Manpower and Reserve Affairs (ASA  (M&RA)) is responsible for setting the strategic direction and providing  overall supervision for manpower, personnel, and Reserve component  affairs of the Department of the Army, and serves as the Army’s lead for  manpower policy and human resources, among other things. In order to  fulfill these responsibilities, ASA (M&RA) relies on the Deputy Chief of  Staff, G-1, for advice and assistance. In addition to being the principal  military advisor to ASA (M&RA), G-1’s other responsibilities include  developing policy that provides guidance for responsive and flexible  human resources support of the Army and overseeing the officer  accession and enlisted recruiting policy. The Human Resources  Command supports the Deputy Chief of Staff, G-1, in the management of  all military personnel by serving as the functional proponent for military  personnel management and personnel systems. Army Human Resources  Command, unit commanders, and training certification officials, among  others, are responsible for providing DFAS-IN with accurate and timely  information regarding changes in individual military member status  necessary to maintain accurate and timely payroll accounts.

Offsetting collections are collections from intragovernmental transfers, business-like  transactions with the public, and collections from the public that are governmental in  nature but required by law to be classified as offsetting. These collections are all  authorized by law to be credited to appropriation or fund expenditure accounts.

section_title: Creation of a Military Pay Account
paragraphs: As illustrated in figure 1, military pay accounts are established as part of  the enlistment process for new recruits and are based on personnel  records. The recruiting office establishes the basics of the recruit’s  personnel file in the Army Recruiting Information Support System  (ARISS). This file contains the recruit’s full name, contact information,  country of origin, social security number (SSN), and recruiting status.  After applying, the recruit reports to a Military Entrance Processing  Station (MEPS), which works with the recruiting office to qualify  applicants for military service and serves as the quality control unit  between the recruiter and the military service. The applicant concludes  the MEPS visit by signing either an enlistment contract or a delayed entry  contract. The contract notes the terms of enlistment, such as pay grade,  which relate to basic pay information. This completes the entrance  documents that the MEPS collects. MEPS personnel then administer the  Oath of Enlistment. All of the documents created are electronically  transmitted to the respective service recruiting system, that is, ARISS for  the Army, and a paper copy, referred to as a “Packet,” is created that  accompanies the recruit to the training installation where the Packet is  delivered to the personnel office at the Reception Battalion.

Recruits generally report to their assigned installation Reception Battalion  for training within 2 weeks to 14 months after signing their enlistment  contract. The service liaison counselor keeps the documentation Packet  until the enlistee reports to the Reception Battalion, at which time the  Packet is sent to the respective training installation. The Reception  Battalion uses information contained in the Packet to create a personnel  file in the Reception Battalion Automated Support System (RECBASS).  The enlistee provides additional information on dependents, such as a  marriage certificate, birth certificates for dependent children, and W-4  dependent information. Reception Battalion personnel staff assist the  enlistee in filling out any additional forms if they were not included in the  Packet, such as direct deposit, pay allotments for base housing, savings  account deposits, child support, and emergency contact information.

Personnel staff enter this information into the personnel system and send  the information to the installation’s Defense Military Pay Office where the  enlistee’s payroll account, referred to as a master military pay account, is  created in DJMS-AC.

Military pay starts once the payroll account is established in DJMS-AC.  Army active duty military personnel receive pay and allowances based on  their grade and time in service; location; and whether they are married,  have dependents, or are performing special duties. The Army’s active  duty service members may elect to be paid once a month at the end of  the month or twice a month at mid-month and at the end of month. The  service member’s pay information is consolidated into one monthly Leave  and Earnings Statement. In addition to basic pay, military members may  also be eligible for cash recruitment or retention incentives (i.e., bonuses).  Any necessary pay change after the pay account is set up is initiated by  the appropriate officials throughout the Army. These changes generally  relate to promotions, special duty pay, incentive pay, Permanent Change  of Station assignments, Temporary Change of Station assignments, and  changes in dependents.

The Defense Manpower Data Center (DMDC) is the central DOD source  to identify, authenticate, authorize, and provide information on DOD- affiliated personnel. As such, it is the one, central access point for  information and assistance on DOD entitlements, benefits, and medical  readiness for uniformed service members, veterans, and their families.  Major DMDC databases include information on pay; accessions and  examinations (USMEPCOM); authorizations and requirements; military  units and addresses, special purposes, for example, contingency  operations; Joint Command duty assignments; retirement point  repository; and mobilization/activations. DMDC has five major operating  locations, including the DOD Center, in Monterey Bay, California; the  Washington, D.C. area; and overseas locations in South Korea, Europe,  and Southwest Asia. In addition, DMDC has 2,145 issuing stations  (badge offices, etc.) at 1,400 worldwide locations. Computer support for  the DOD Center in Monterey Bay is provided by the DOD Center in  Monterey Bay and the Naval Postgraduate School in Monterey,  California. Other computer support offices are located in Arlington,  Virginia, and Auburn Hills, Michigan.

section_title: Processing of Military Payroll
paragraphs: Payments of basic pay and allowances to service members are made via  electronic funds transfer (EFT) through DJMS-AC. At the local level,  DMPOs are required to review any substantial changes (defined as +/- 150 percent) in payroll data daily. The intent of this review is to identify  data input errors. In addition, a day before payroll is processed, DFAS-IN  conducts a pre-payroll review. This is a manual process, where the  DFAS-IN Military Pay Operations (Mil Pay Ops) staff obtain a sample of  Leave and Earnings Statements from DJMS-AC and trace the information  in the statements to the relevant table outside of DJMS-AC. The purpose  of this review is to identify potential system problems with the pay  information used to calculate the pay amount. After completing this  review, DFAS-IN then sends the DJMS-AC totals to the certifying official  for certification. The certification process checks the DJMS-AC totals  against the disbursing file totals. The certifying official sends an  authorization and voucher to the Disbursing Office requesting release of  payment. The DFAS-IN Disbursing Office uses the Army’s disbursing  system to send electronic payments to the Federal Reserve Banks,  which in turn distribute payments to each service member’s bank  account.

DFAS-IN’s Accounting Division performs a number of steps to transfer  payroll transactions from DJMS-AC to the Army’s general ledger  accounting system. from Mil Pay Ops that contain the computed total pay costs and  disbursements for the payroll transactions, which are recorded as  summary records by budget activity (e.g., officer, enlisted, and cadet  pay). An individual soldier’s payroll information is not recorded in the  accounting system. Military pay accounting data is uploaded from the  Army’s general ledger accounting system into the Defense Departmental  Reporting System-Budgetary (DDRS-B) for budgetary reporting and then  to DDRS-Audited Financial Statement (DDRS-AFS) for financial  statement reporting. Figure 2 provides a high-level illustration of the  Army’s complex environment for establishing military personnel and  payroll records and processing military pay.

The Standard Financial System (STANFINS) is the Army standard general ledger  system currently used for recording military payroll.  iPERMS does not feed DJMS-AC.

Army Regulation No. 600-8-104, Military Personnel Information  Management/Records, establishes requirements for the Army’s Official  Military Personnel File. The Army deployed iPERMS in 2007, and  certain MilPer (Military Personnel) Messages and a Department of the  Army memorandum indicate that iPERMS is intended to serve as the  system of record for the Official Military Personnel File. In addition, the  Army is in the process of developing the Integrated Personnel and Pay  System-Army (IPPS-A), which is targeted for completion in 2017.

section_title: Process and System Weaknesses Hindered Army’s Ability to Identify a Valid Population of Military Payroll Transactions
paragraphs: The Army could not readily identify a complete population of Army payroll  accounts for fiscal year 2010, given existing procedures and systems.  The Army and the Defense Finance and Accounting Service in  Indianapolis (DFAS-IN) did not have an effective, repeatable process for  identifying the population of active duty payroll accounts. In addition, the  Defense Manpower Data Center (DMDC) did not have an effective  process for comparing military pay account files to military personnel files  to identify a valid population of military payroll transactions. For  example, it took 3 months and repeated attempts before DFAS-IN could  provide a population of service members who received active duty Army  military pay in fiscal year 2010. Similarly, it took DMDC over 2 months to  compare the total number of fiscal year 2010 active duty payroll accounts  to its database of personnel files. Standards for Internal Control in the  Federal Government requires all transactions and other significant events  to be clearly documented and the documentation readily available for  examination.with DOD’s own guidance or financial audit guidance. DOD’s Financial   In addition, these ineffective processes are not in accord  Improvement and Audit Readiness (FIAR) Guidance sets out key tasks  essential to achieving audit readiness, including defining and identifying  the population of transactions for audit purposes. The GAO/PCIE  Financial Audit Manual (FAM) provides guidance concerning typical  control activities, such as independent checks on the validity, accuracy,  and completeness of computer-processed data. One example of a  control in this area includes comparing data from different sources for  accuracy and completeness. Without effective processes for identifying a  complete population of Army military pay records and comparing military  pay accounts to personnel records, the Army will have difficulty meeting  DOD’s 2014 audit readiness goal and its 2017 goal for a complete set of  auditable financial statements.
subsections: section_title: DFAS-IN Did Not Have an Effective Process for Identifying the Population of Army Military Payroll Records
paragraphs: DFAS-IN made three attempts from November 2010 through early  January 2011 to provide us a Defense Joint Military Pay System-Active  Component (DJMS-AC) file extract of Army service members who  received active duty pay in fiscal year 2010. The first attempt included  11,940 duplicate pay accounts, and the total number of pay accounts  included in the second attempt increased by 28,035 records over the first  attempt, necessitating a third attempt to establish the population of fiscal  year 2010 active duty pay records. We requested that DMDC compare  the results of DFAS-IN’s third attempt to identify the population of Army  fiscal year 2010 payroll accounts against DMDC’s compilation of monthly  active duty payroll data that it received from DFAS-IN. Of the 677,024  Army active duty pay accounts, per DJMS-AC, we were able to reconcile  all but 1,025 pay accounts (less than 1 percent of the total active duty pay  accounts, which is not considered material) to pay account data that  DFAS-IN had previously provided to DMDC. Standards for Internal  Control in the Federal Government requires all transactions and other  significant events to be clearly documented and the documentation  readily available for examination.were unable to verify the validity of the records. Further, we did not  attempt to reconcile military payroll amounts to the related disbursements  because an Office of the Secretary of Defense (Comptroller) and Chief  Financial Officer (OUSD(C)) contractor was in the process of performing  a pilot reconciliation of payroll to disbursement data.

As discussed later in this report, we  DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance  states that being able to provide transaction-level detail for an account  balance is a key task essential to achieving audit readiness. At the time  we initiated our audit, Army officials told us that they had not yet focused  on this area in their audit readiness efforts because the target date for   The  Army military pay was not until the first quarter of fiscal year 2015. inability to readily provide a population of military pay accounts impeded  our efforts to accomplish our audit objectives and, if not effectively  addressed, will impede the Army’s ability to meet DOD’s new Statement  of Budgetary Resources audit readiness goal of September 30, 2014.

section_title: System Weaknesses Hindered the Matching of Army Pay Accounts to Personnel Files
paragraphs: Subsequent to this discussion, the Secretary of Defense issued a memo accelerating  the Statement of Budgetary Resources audit readiness goal from 2017 to 2014.

DMDC, these differences related primarily to personnel who had either  left or were scheduled to leave the service, were reserve component  soldiers released from active duty, or were soldiers who had died during  fiscal year 2010. For these reasons, the service members were not  included in the personnel file on September 30, 2010, that DMDC used  for our initial comparison. We confirmed six duplicate SSNs in personnel  records with the Social Security Administration and referred these records  to DMDC and the Army for further research and appropriate action.

DMDC attempted to complete our requested comparison of active duty  Army pay accounts to military personnel records in January 2011, but  was unable to complete the reconciliation until early March 2011. DMDC  officials told us that the reasons for the delays included mainframe  computer issues,  staff illness and turnover, and management data  quality reviews of the file comparison results, including additional file  comparisons to resolve differences. Without an effective process for  confirming that the Army’s active duty payroll population reconciles to  military personnel records, the Army’s efforts to meet DOD’s Statement of  Budgetary Resources auditability goal of September 30, 2014, will be  impeded.

DMDC and other DOD agencies use the Navy Postgraduate School mainframe  computer to support their activities and share data processing priorities.

section_title: The Army Was Unable to Provide Documentation to Support the Validity and Accuracy of a Sample of Payroll Transactions
paragraphs: The Army does not have an efficient or effective process or system for  providing documentation that supports payments for Army military payroll.  For example, DFAS-IN had difficulty retrieving and providing usable  Leave and Earnings Statements files for our sample items, and the Army  and DFAS were unable to provide personnel and finance documents to  support our statistical tests of all 250 service members’ pay accounts for  fiscal year 2010. Standards for Internal Control in the Federal  Government and DOD’s FIAR Guidance require audited entities to  document transactions and events and assure that supporting  documentation can be identified, located, and provided for examination.  In addition, DOD Regulation 7000.14-R, Financial Management  Regulation (FMR), requires the military components to maintain  documentation supporting all data generated and input into finance and  accounting systems or submitted to DFAS. Further, DOD’s Financial  Improvement and Audit Readiness (FIAR) Guidance states that  identifying and evaluating supporting documentation for individual  transactions and balances, as well as identifying the location and sources  of supporting documentation and confirming that appropriate supporting  documentation exists, is a key audit readiness step. However, because  the Army was unable to provide documents to support reported payroll  amounts, we were unable to determine whether the Army’s payroll  accounts were valid, and we were unable to verify the accuracy of  payments and reported active duty military payroll. Further, because  military payroll is significant to the financial statements, the Army will not  be able to pass an audit of its Statement of Budgetary Resources without  resolving these control weaknesses. The following discussion  summarizes the problems with the Army’s processes related to military  pay audit readiness.
subsections: section_title: DFAS-IN Could Not Readily Provide Usable Leave and Earnings Statement Files for Sample Items
paragraphs: DFAS-IN staff experienced difficulty and delays in providing usable Leave  and Earnings Statement files to support our testing of Army military  payroll. We selected a sample of 250 service members and requested the  relevant Leave and Earnings Statement files for fiscal year 2010. After  multiple discussions and requests, we ultimately obtained usable Leave  and Earnings Statement files for our sample items—5 weeks after our  initial request. DFAS-IN took over 2 weeks to obtain the initial set of  Leave and Earnings Statement files because it retrieves the files from two  areas of the Defense Joint Military Pay System-Active Component  (DJMS-AC). The active DJMS-AC database holds the current month plus  the previous 12 months’ data; older data are archived. When we  requested Leave and Earnings Statement files for fiscal year 2010 in April  2011, a portion of these files had been archived and had to be retrieved  from the archived database. In addition, the first set of Leave and  Earnings Statement files that DFAS-IN provided included statements  outside the requested fiscal year 2010 timeframe of our audit, thus we  had to request a new set of files. It took over 1 week, including our data  quality review, to obtain the second set of Leave and Earnings Statement  files consisting of 445 separate files containing monthly statements for the  250 service member pay accounts in our sample. We determined that the  Leave and Earnings Statements for an individual service member  generally were in two or more of the files provided. Consequently, we had  to combine these files into a format with each service member’s Leave  and Earnings Statement files grouped together to include all of the pay  and allowance information for the service members in our sample. This  combining and formatting required 2 additional weeks.

section_title: The Army Was Unable to Locate Supporting Documentation for Military Pay Account Sample Items
paragraphs: Although the Army deployed the Interactive Personnel Management  System (iPERMS) as the Army’s Official Military Personnel File in 2007  and the requirements for assuring that adequate supporting  documentation is available for audit and examination are clearly defined,  the Army did not have procedures in place to assure that its military pay  transactions were adequately supported and that the supporting  documentation could be readily retrieved and provided for financial audit  purposes. Standards for Internal Control in the Federal Government  requires internal control and all transactions and other significant events  to be clearly documented and the documentation readily available for  examination. DOD Regulation 7000.14-R, Financial Management  Regulation (FMR), requires the military components to maintain  documentation supporting all data generated and input into finance and  accounting systems or submitted to DFAS. This regulation also requires  the components to ensure that audit trails are maintained in sufficient  detail to permit tracing of transactions from their sources to their  transmission to DFAS. Audit trails are necessary to demonstrate the  accuracy, completeness, and timeliness of transactions as well as to  provide documentary support for all data generated by the component  and submitted to DFAS for recording in the accounting systems and use  in financial reports. Further, DOD’s FIAR Guidance states that  identifying and evaluating supporting documentation for individual  transactions and balances, as well as the location and sources of  supporting documentation and confirming that appropriate supporting  documentation exists, is a key audit readiness step. Without the  capability to readily locate and provide supporting documentation for  military payroll transactions within a short timeframe, the Army’s ability to  pass a financial statement audit will be impeded.

A sample item constitutes a soldier’s pay account for fiscal year 2010, including reported  Leave and Earnings Statements for all 12 months of the fiscal year. our 250 sample items, partial support for 3 sample items, and no support  for the remaining 245 sample items. Our review of the partial  documentation provided for 3 sample items showed that the Army was  unable to provide supporting documentation for common elements of its  military pay, including basic allowance for housing, cost of living  allowance, hardship duty pay-location, and hostile fire/imminent danger  pay. Specifically,

The Army was unable to provide supporting documentation for basic  allowance for housing for one service member. In general, a service  member on active duty is authorized a housing allowance based on  the member’s grade, dependency status, and location. Basic  allowance for housing is based on the median housing costs and is  paid independently of the service member’s actual housing costs. At  the conclusion of our fieldwork, a DFAS-IN official told us they had  requested this documentation from the National Archives and Records  Administration (NARA); however, they had not yet received it.

For two sample items, the Army did not provide adequate  documentation that the two service members were appropriately paid  for clothing allowance. A clothing allowance is paid to enlisted service  members annually in the anniversary month each year after they  received their first clothing allowance. At the end of our field work,  DFAS-IN had not provided an explanation as to why these service  members received their clothing allowance in a month other than their  anniversary date.

The Army was unable to provide supporting documentation for one  service member residing within the continental United States receiving  a cost-of-living allowance. A cost-of-living allowance for soldiers  stationed in the United States is a supplemental allowance designed  to help offset higher prices in high-cost locations. At the end of our  field work, a DFAS-IN official told us they had requested the  documentation from NARA; however, they had not yet received it.

Finally, for two service members, the Army was unable to provide  supporting documentation for hardship duty pay and hostile  fire/imminent danger pay. Service members are entitled to hardship  duty pay for location assignments when there is a permanent change  of station duty or temporary/deployed/attached duty of over 30 days in  a specific location. Additionally, a service member is entitled to hostile  fire/imminent danger pay when, as certified by the appropriate  commander, the member is (1) subject to hostile fire or explosion of a  hostile mine; (2) on duty in an area close to hostile fire incidents and  the member is in danger of being exposed to the same dangers  experienced by other service members; or (3) killed, injured, or  wounded by hostile fire and the service member is on official duty in a  designated imminent danger pay area. At the end of our field work,  the Army was unable to provide adequate support for the dates that  each of these service members reported for duty at the specified  location which triggered the start of these two types of pay, and it was  unable to provide documentation that one service member had been  ordered to report to duty in the designated location.

As shown in figure 3, the Army provided complete documentation for  soldier pay accounts associated with sample items #2 and #4, but it was  unable to provide complete documentation for sample items #1, #3, and  #5. Further, after 6 months, the Army was still unable to provide any  documentation for the remaining 245 pay account sample items.

One of the reasons the Army was unable to provide supporting  documentation is that it does not have a centralized repository for pay- affecting documents. Army personnel and finance documentation  supporting basic pay and allowances resides in numerous systems, and  original hard copy documents are scattered across the country—at  hundreds of Army units and NARA federal records centers. According to  Army and DFAS-IN officials, there are at least 45 separate systems that  the Army uses to perform personnel and pay functions with no single,  overarching personnel system. Although these systems contain personnel  data on military members and their dependents and feed these data to  DJMS-AC, the systems do not contain source documents.

Army Regulation No. 600-8-104, Military Personnel Information  Management/Records, establishes requirements for the Army’s Official  Military Personnel File. Army policies indicate that iPERMS is intended  to serve as the system of record for the Official Military Personnel File.  The Army deployed iPERMS in 2007 and designated iPERMS as the  Army’s Official Military Personnel File. However, when we attempted to  find supporting documents in iPERMS, we found that this system had not  been consistently populated with the required service member  documents, resulting in incomplete personnel records. For example,  when attempting to test our sample, we discovered that documents, such  as orders to support a special duty assignment, permanent change of  station orders, and release or discharge from active duty, that should  have been in iPERMS were not. The Army has designated the Human  Resources Command as the owner of iPERMS; however, local  installation personnel offices across the country are responsible for  entering most documents into individual service member iPERMS  accounts, and the Army has not established a mechanism for periodic  monitoring, review, and accountability of iPERMS to ensure that  personnel files are complete. For example, we found that documents  needed to support pay transactions are not in iPERMS because (1) Army  Regulation 600-8-104 does not require the personnel form to be included  and (2) the documents are finance documents and not personnel  documents.

Efforts to achieve auditablity are further compounded by payroll system  limitations. DJMS–AC, used to process Army active duty military pay, is  an aging, Common Business Oriented Language (COBOL) mainframe-based system that has had minimum system maintenance because DOD  planned to transition to the Forward Capability Pay System and then to  the Defense Integrated Military Human Resources System (DIMHRS).DJMS-AC lacks key payroll computation abilities to pay active duty Army  service members. To address these functionality limitations, DFAS has  developed approximately 70 workaround procedures that are currently  being used to compensate for the lack of functionality in DJMS-AC. An  audit of Army military pay would necessitate an evaluation of these  procedures and related controls.

Another factor in the Army’s inability to provide support for military payroll  is that the Army has not adequately documented its personnel processes  and controls related to military pay. During our audit, we spent  considerable time attempting to identify the range of personnel and  finance documents that would be needed to support basic military pay  and allowances reported on service members’ Leave and Earnings  Statements and the appropriate office responsible for providing the  documentation. According to Internal Control Standards, written  documentation should exist covering the agency’s internal control  structure and all significant transactions and events. for internal control includes identification of the agency’s activity-level  functions and related objectives and control activities and should appear  in management directives, administrative policies, accounting manuals,  and other such guidance.

section_title: Army Military Pay Audit Readiness Efforts Currently Under Way
paragraphs: GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1  (Washington, D.C.: November 1999). the success of the Army’s efforts will be key to meeting DOD’s 2014  Statement of Budgetary Resources audit readiness goal.

To meet this goal, the Army has several military pay audit readiness  efforts planned or under way—most of which were begun after we  initiated our audit. However, many of these efforts are in the early  planning stages and will need to be carefully documented and managed  to ensure effective and timely implementation.

In November 2010, as part of the Office of the Under Secretary of  Defense (Comptroller) (OUSD(C)) effort to provide management  consulting assistance where needed on financial audit readiness,  DOD provided contractor support to the Army for documenting and  testing DJMS-AC application system controls. In November 2011,  OUSD(C) and contractor officials provided us a status briefing that  indicated DOD’s contractor expects to complete documentation and  testing of DJMS-AC controls in March 2012.

The November 2011 OUSD(C) status briefing also noted that the  Army’s Financial Improvement Plan (FIP) team began executing  discovery, documentation, and controls testing of front-end military  pay business processes, including accessions; field service activities;  and Military Personnel, Army appropriation budget activities. This  effort includes processes executed by the Army financial management  and personnel communities, including the Army Budget Office, Office  of the Deputy Chief of Staff for Personnel, Army and DFAS installation  finance and military pay offices, and Army installation military  personnel offices. The Army FIP effort encompasses the active Army,  Army National Guard, and U.S. Army Reserve. The Army plans to  complete these efforts by December 31, 2012, and implement any  required corrective actions by December 31, 2013.

Further, as part of the Army FIP discovery effort, Army officials told us  they plan to develop a repository of military pay entitlement  information by entitlement type, which includes governing laws and  regulations; the necessary key supporting documentation, responsible  parties, and location for retrieval; as well as the automated information  systems involved and their owners. The Army plans to complete these  efforts by December 31, 2013. However, it is not yet clear who will be  responsible for entering pay-supporting documents in the repository  and what process will be used for ensuring completeness of the files.  As previously discussed, Army Regulation No. 600-8-104, Military  Personnel Information Management/Records, established  requirements for the Official Military Personnel File, but the regulation  did not include requirements for ensuring that personnel documents  are centrally located, retained in the service members’ Official Military  Personnel File, or otherwise readily accessible. The regulation also  did not require that these files be monitored to ensure their  completeness.

Army officials told us that in conjunction with DFAS, it has identified  other systems for SSAE No. 16 and DFAS self-reviews. Further, the  Army plans to identify by March 31, 2012, all systems that have a  material impact on the military pay processes and require Federal  Information System Controls Audit Manual (FISCAM) assessments.  The Army intends that all required reviews will be completed by  December 31, 2013.

Additionally, the Army is working with DFAS-IN to document  processes and perform control testing of payroll accounting, referred  to by the Army as back-end processes. The Army expects to  implement all corrective actions on these controls by December 31,  2012.

As a result of our work, Army and DFAS-IN officials told us they plan  to develop a matrix of personnel documents that support military pay  and allowances and identify officials responsible for providing this  documentation. Army Deputy Chief of Staff, G-1, officials plan to work  with IPPS-A team members to determine how IPPS-A will incorporate  or link to this information. Effective development of such a matrix will  be critical to ensuring that payroll transactions are supported and,  therefore, audit ready. The need for such a matrix became apparent  nearly 1 year ago, but the Army has not yet completed such a matrix  or identified personnel responsible for providing needed documents.  Further, it has not established a central repository for these  documents, or designated iPERMS as the official repository, and it  has not established a mechanism for periodic monitoring, review, and  accountability to ensure that the central repository will be effectively  maintained.

In addition, the Army is in the process of developing the Integrated  Personnel and Pay System-Army (IPPS-A). However, the current  targeted IPPS-A implementation date of 2017 will require the Army to  rely on its current systems for purposes of meeting DOD’s Statement  of Budgetary Resources audit readiness date of September 30, 2014.  IPPS–A is planned to be developed and implemented in two  increments, with multiple releases. The Army plans to employ 14- to  18-month development cycles for each release, with the goal of  fielding capabilities every 12 months. The Army intends for Increment  I to consist of a trusted data source of soldier personnel and human  resource data and to provide the foundation for Increment II, which is  expected to provide integrated personnel and pay services, to be  developed and implemented across multiple releases. In response to  our findings in this report, Army IPPS-A officials told us that they have  recently begun efforts to determine how IPPS-A will link to personnel  records that will be needed to support Army military payroll amounts.  The Army’s strategy is for each release of IPPS-A to incrementally  build upon the prior release’s design and capability, to ultimately  contribute toward the Army’s goal of reaching financial auditability by  fiscal year 2017. Because implementation of the IPPS-A is not  targeted for completion until 2017, a slippage in the implementation  date could impede the Army’s efforts to support DOD’s financial  statement audit readiness goal of September 30, 2017. Without timely  and effective efforts to establish an electronic repository of pay- supporting documents and ensure that the documentation is  complete, IPPS-A will not be able to fully support the Army’s audit  readiness efforts.

section_title: Conclusions
paragraphs: Active Army military payroll, reported at $46.1 billion for fiscal year 2010,  is material to all of the Army’s financial statements, and as such, will be  significant to the Army’s audit readiness goals for the Statement of  Budgetary Resources. The Army has several military pay audit readiness  efforts that are planned or under way. Timely and effective  implementation of these efforts could help reduce the risk related to  DOD’s 2014 Statement of Budgetary Resources audit readiness goal.  However, most of these actions are in the early planning stages.  Moreover, these initiatives, while important, do not address (1)  establishing effective processes and systems for identifying a valid  population of military payroll records, (2) ensuring Leave and Earnings  Statement files and supporting personnel documents are readily available  for verifying the accuracy of payroll records, (3) ensuring key personnel  and other pay-related documents that support military payroll transactions  are centrally located, retained in service member Official Military  Personnel Files, or otherwise readily accessible, and (4) requiring the  Army’s Human Resources Command to periodically review and confirm  that service member Official Military Personnel File records in iPERMS or  other master personnel record systems are consistent and complete to  support annual financial audit requirements. These same issues, if not  effectively resolved, could also jeopardize the 2017 goal for audit  readiness on the complete set of DOD financial statements. In addition,  the Army’s military pay auditability weaknesses have departmentwide  implications as the other military components, such as the Air Force and  the Navy, share some of the same military pay process and systems risks  as the Army. Going forward, focused and committed leadership and  knowledgeable staff in key functional areas, including personnel,  systems, military payroll, and accounting will be essential to effective  implementation of military pay audit readiness efforts.

section_title: Recommendations for Executive Action
paragraphs: To help the Army develop the processes and controls necessary to  achieve financial statement audit readiness for military pay, we are  making the following four recommendations.

We recommend that the Secretary of the Army direct the Assistant  Secretary of the Army for Financial Management and Comptroller to work  with Army Personnel (G-1), DFAS-IN, and audit readiness officials to document and implement a process for identifying and validating the  population of payroll transactions for fiscal year periods at a minimum. identify key finance (i.e., pay-affecting) documents that support  military payroll transactions and develop and implement procedures  for maintaining them, including responsibility for coordination with  Army Personnel (G-1) and audit readiness officials.

In addition, we recommend that the Secretary of the Army direct the  Assistant Secretary of the Army for Manpower and Reserve Affairs to  revise AR No. 600-8-104, Military Personnel Information  Management/Records, to require that  key personnel and other pay-related documents that support military  payroll transactions are centrally located, retained in the service  members’ Official Military Personnel File, or otherwise readily  accessible. Consider first using the Interactive Personnel  Management System (iPERMS) for this purpose. the Army’s Human Resources Command periodically review and  confirm that service member Official Military Personnel File records in  iPERMS or other master personnel record systems are consistent and  complete to support annual financial audit requirements.

section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments from the Secretary of the Army on March  12, 2012, stating that the Army agreed with our four recommendations.   The Army’s letter also states that our work has been extremely helpful in  identifying the need to have consistent agreed-upon rules for  documenting files required to support audits of military pay and cited  several efforts under way to improve the auditability of its military pay.  The Army’s comments are reprinted in appendix II.

The Army’s letter states that it believes we found no significant issues in  our review of the military pay accounts, but our report is very clear in  highlighting the significance of the issues with the Army’s military payroll.  For instance, our report states that without effective processes for  identifying a complete population of Army military pay records and  comparing military pay accounts to personnel records, the Army will have  difficulty meeting DOD’s 2014 Statement of Budgetary Resources audit  readiness goal and its 2017 goal for a complete set of auditable financial  statements. In addition, because the Army was unable to provide  documents to support reported payroll amounts, we were unable to  determine whether the Army’s payroll accounts were valid, and we were  unable to verify the accuracy of the payments and reported active duty  military payroll.

Further, in responding to our first recommendation that the Army  document and implement a process for identifying and validating the  population of payroll transactions for fiscal year periods, the Army stated  that it validates personnel and payroll records monthly in real time, and  will evaluate the value of retaining personnel files for prior years. If the  monthly pay to personnel comparison is a control procedure that the  Army performs regularly and intends for the auditors to rely on, the  process and results must be documented and retained for the auditor to  assess and test beyond the end of the fiscal year, as we recommended.

We are sending copies of this report to the Secretary of Defense; the  Under Secretary of Defense (Comptroller/Chief Financial Officer); the  Deputy Chief Financial Officer; the Director, Financial Improvement and  Audit Readiness; the Secretary of the Army; the Assistant Secretary of  the Army for Financial Management and Comptroller; the Assistant  Secretary of the Army for Manpower and Reserve Affairs; the Director of  Army Finance Command; the Directors of DFAS and the DFAS- Indianapolis Center; the Director of the Defense Manpower Data Center;  the Director of the Office of Management and Budget; and appropriate  congressional committees. In addition, the report is available at no charge  on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact  me at (202) 512-9869 or khana@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This audit was initiated under our mandate to audit the consolidated  financial statements of the United States government. Our objectives  were to perform basic audit procedures necessary to conclude about the  validity and accuracy of Army’s active duty military payroll. Those basic  audit procedures included (1) identifying a valid population of military  payroll transactions, and (2) testing a sample of payroll transactions for  validity and accuracy.

To identify the population of Army active duty payroll transactions, we  obtained Army active duty military payroll records from the Defense  Finance and Accounting Service, Indianapolis (DFAS-IN). DFAS-IN  processes military payroll for the Army. At our request, DFAS-IN made  three attempts from November 2010 through January 2011 to provide us  a complete file of service members who were paid in fiscal year 2010.  The first attempt included 11,940 pay accounts that were duplicate, and  the total number of pay accounts included in the second attempt  increased by 28,035 records over the first attempt, necessitating a third  request for the population of fiscal year 2010 active duty pay records. To  obtain assurance that the overall population of Army fiscal year 2010  payroll accounts matched the sum of monthly payroll accounts, we  requested the Defense Manpower Data Center (DMDC) compare the  results of our third request for the population of Army fiscal year 2010  payroll accounts against its compilation of monthly active duty payroll  data that it received from DFAS-IN. We were able to reconcile all but  1,025 pay accounts (less than 1 percent of the total, which is not  considered material). We did not reconcile military payroll amounts to the  related disbursements because an Office of the Under Secretary of  Defense (Comptroller) and Chief Financial Officer (OUSD(C)) contractor  was in the process of performing a pilot reconciliation.

In addition, because the Army does not have an integrated military  personnel and payroll system, we worked with the DMDC to match payroll  accounts to personnel records to determine whether the population of  Army military payroll accounts was in agreement with the population in  the DMDC database. We relied on work performed by DMDC because  we reviewed its quality control procedures and found them to be  adequate, for our purposes. We compared the total number of records in  DFAS-IN’s population and DMDC’s database for the service members  who received active duty Army military pay in fiscal year 2010. We did not  separately validate Army personnel file data. DMDC’s file comparison of  Army active duty pay accounts to military personnel records identified  67,243 pay accounts that were not matched to a file of military personnel  records on September 30, 2010. We asked DMDC to perform more  detailed comparisons of these differences. These differences related  primarily to personnel who were not active Army service members  because they had either left or were scheduled to leave the service, were  reserve component soldiers released from active duty, or were soldiers  that had died during fiscal year 2010. Finally, we confirmed six duplicate  SSNs in personnel records with different names with the Social Security  Administration and referred these records to DMDC and the Army for  further research and appropriate action.

To address our second objective, we documented key controls, laws, and  pay regulations and used the population of matched personnel and  payroll records to select a statistical sample of 250 soldiers for testing the  accuracy and validity of Army military payroll. We obtained 12 months of  fiscal year 2010 Leave and Earnings Statement files for each soldier in  our sample, the most recent data available at the time, to compare with  supporting Army personnel documents indicating such information as  military orders, special duty and expertise entitlements, marital status,  and dependent information. We gained an understanding of Army  processes with a focus on key steps involved in establishing military  personnel records related to specific pay and allowance amounts. We  also performed process walkthroughs at DFAS-IN and assessed key  controls over the accuracy of payroll payments made to service members.  To document the process for capturing pay-related information and  setting up military personnel records, we interviewed Army personnel,  Human Resources Command, and Finance Command officials and  visited a Military Enlistment Program Station in Indianapolis and a military  reception battalion at Fort Jackson, South Carolina. We also interviewed  finance officials at Defense Military Pay Offices at Fort Jackson, South  Carolina, and Fort Carson, Colorado, to gain an understanding of how  pay adjustments are initiated, input, and reviewed. We requested and  obtained fiscal year 2010 monthly Leave and Earnings Statement files for  the service members in our sample from DFAS-IN and requested Army  personnel documents to support basic pay and allowance amounts  reported on the Leave and Earnings Statements, including such  information as military orders, and the certifications of special duty  expertise, marital status, and dependent information. We did not plan to,  nor did we test deductions and allotments for items such as Service  Member’s Group Life Insurance, Thrift Savings Plan, and TRICARE. In  addition to basic pay, we planned to test base housing allowance;  hazardous duty pay; hostile fire/imminent danger pay; cost of living  allowance; military overseas housing allowance; family separation  housing; temporary lodging allowance; clothing allowance; and special  duty pay, such as foreign language proficiency pay and parachute (jump)  pay. We reviewed documentation provided by the Army for 5 sample  items and documentation contained in the Army’s Interactive Personnel  Management System (iPERMS), which serves as the Army’s Official  Military Personnel File. We were unable to complete our tests of active  duty military payroll accuracy because of a scope limitation related to the  Army’s inability to provide support for its active component military payroll  transactions.

In support of our objectives, we reviewed Army military personnel and  payroll policies and procedures and identified sources of pay-related  documentation. Throughout our work, we interviewed key Army officials in  Manpower and Reserve Affairs, Human Resources Command, and  Finance Command. We also interviewed DFAS-IN officials responsible for  payroll functions and Office of the Under Secretary of Defense  (Comptroller/Chief Financial Officer) audit readiness contractor officials.  Additionally, we interviewed agency officials regarding the status of  Army’s efforts to develop an Integrated Personnel and Payroll System- Army (IPPS-A). We also performed walkthroughs of DFAS-IN Military Pay  Operations, accounting, disbursing, financial reporting, and related  processes.

We conducted this performance audit from June 2010 through March  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Other matters identified in  our work that merit management’s attention and correction will be  reported in a separate letter to Army management.

section_title: Appendix II: Comments from the Department of the Army

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gayle L. Fischer, Assistant  Director; Carl S. Barden; Tulsi Bhojwani; Frederick T. Evans; Lauren S.  Fassler; Wilfred B. Holloway; Sabur O. Ibrahim; John J. Lopez; Julia C.  Matta, Assistant General Counsel; Sheila D. M. Miller, Auditor in Charge;  Margaret A. Mills; Heather L. Rasmussen; Ramon J. Rodriguez; James J.  Ungvarsky; and Matthew P. Zaun made key contributions to this report.


Question-summary annotations: questions: question: Why couldn't the Army readily identify the population of Army military payroll accounts?
answer: The Army could not readily identify the population of Army military payroll accounts given its existing procedures and systems. The Army and DFAS-IN did not have an effective, repeatable process for identifying the population of active duty payroll records.
child_questions: question: How does the lack of an effective process affect administrative work?
answer: For example, it took 3 months and repeated attempts before DFAS-IN could provide a population of service members who received active duty Army military pay in fiscal year 2010. Further, because the Army does not have an integrated military personnel and payroll system, it was necessary to compare the payroll file to active Army personnel records.
child_questions: question: How does this lack of an effective process affect other organizations?
answer: However, the Defense Manpower Data Center (DMDC), DOD’s central repository for information on DOD-affiliated personnel, did not have an effective process for comparing military pay account files with military personnel files to identify a valid population of military payroll transactions. It took DMDC over 2 months and labor-intensive research to compare and reconcile the total number of fiscal year 2010 active duty payroll accounts to its database of personnel files.

question: How important is the identification of the population of transactions?
answer: DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance states that identifying the population of transactions is a key task essential to achieving audit readiness.

question: How might the lack of effective processes affect the Army's audit readiness goal?
answer: Without effective processes for identifying the population of Army military pay records and comparing military pay accounts to personnel records, the Army will have difficulty meeting DOD’s 2014 audit readiness goal for the Statement of Budgetary Resources.

questions: question: How efficiently can the Army provide supporting documents for military payroll?
answer: In addition, the Army does not have an efficient or effective process or system for providing supporting documents for Army military payroll. For example, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files and the Army was unable to locate or provide supporting personnel documents for GAO’s statistical sample of fiscal year 2010 Army military pay accounts.
child_questions: question: How does the Army's readiness compare to GAO's standards?
answer: GAO’s Standards for Internal Control in the Federal Government and DOD’s FIAR Guidance provide that audited entities document transactions and events and assure that supporting documentation can be identified, located, and provided for examination.

question: To what extent has the Army properly deployed the iPERMS?
answer: Although the Army deployed the Interactive Personnel Management System (iPERMS) as the Army’s Official Military Personnel File in 2007, it had not consistently or completely populated iPERMS with personnel records.

question: How does the Army's readiness affect its ability to provide documentation?
answer: At the end of September 2011, 6 months after receiving GAO’s 250 statistical sample items, the Army and DFAS-IN were able to provide complete documentation for 2 of GAO’s sample items and provided partial documentation for 3 items, but provided no documentation for 245 of GAO’s 250 sample items.

questions: question: How is the Army attempting to rectify the lack of an effective pay audit process?
answer: The Army has begun several military pay audit readiness efforts that, if successfully implemented, could help increase the likelihood of meeting DOD’s 2014 Statement of Budgetary Resources audit readiness goal and the 2017 mandate for audit readiness on a complete set of DOD financial statements.
child_questions: question: What do these efforts consist of?
answer: These efforts include documenting and testing payroll system application controls, documenting Army military pay business processes, identifying the range of supporting documents for military pay, and developing an integrated military personnel and payroll system.

question: To what extent have these efforts been documented?
answer: Most of these efforts are not yet documented and, therefore, there is no assurance that they will be implemented timely and effectively.

questions: question: How large is Army military payroll?
answer: The Defense Finance and Accounting Service-Indianapolis (DFAS-IN) reported that fiscal year 2010 active Army military payroll totaled $46.1 billion.

question: What are deficiencies with Army military payroll processes?
answer: However, for several years, GAO and others have reported continuing deficiencies with Army military payroll processes and controls, raising questions about the validity and accuracy of reported Army military pay and whether it is auditable.
child_questions: question: How will DOD audit budgetary resources?
answer: The Department of Defense (DOD) has recently accelerated its Statement of Budgetary Resources audit readiness goal by 3 months to 2014 and is required to achieve audit readiness for a full set of DOD financial statements by 2017.

question: Why did GAO audit the Army's active duty military payroll?
answer: GAO performed basic audit procedures for the Army’s active duty military payroll to assess the Army’s ability to (1) identify a valid population of payroll transactions and (2) test a sample of payroll transactions for validity and accuracy.
child_questions: question: How did GAO source data for its review?
answer: GAO reviewed applicable laws and regulations, analyzed DOD and Army policies and procedures, drew a statistical sample of payroll transactions to test their accuracy and validity, and met with DOD, DFAS-IN, Army, and Defense Manpower Data Center officials.