Defense Civilian Compensation: DOD and OPM Could Improve the Consistency of DOD's Eligibility Determinations for Living Quarters Allowances
Released: 2015-06-16T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: DOD provides LQA as an incentive to recruit eligible individuals for civilian employee assignments overseas. In 2014 DOD spent almost $504 million on LQA for about 16,500 civilian employees to help defray overseas living expenses, such as rent and utilities. GAO was asked to review DOD's implementation of LQA policies for overseas employees. This report evaluates the extent to which (1) DOD has clarified its LQA eligibility requirements and is monitoring its components' LQA eligibility determinations; and (2) DOD, State, and OPM have helped ensure consistency in the interpretation of LQA eligibility requirements.

GAO reviewed the DSSR, DOD's LQA Instruction, and OPM compensation claim decisions. GAO interviewed DOD, State, and OPM officials responsible for overseeing, implementing, or interpreting LQA eligibility requirements, including a nongeneralizable sample of 15 DOD local human resource offices in the U.S. European Command and U.S. Pacific Command areas of responsibility selected based on the number of employees determined to have been erroneously paid LQA in DOD's 2013 LQA audit.

section_title: What GAO Found
paragraphs: The Department of Defense (DOD) and its components have taken steps to clarify living quarters allowance (LQA) eligibility requirements for civilian employees overseas, but DOD has not monitored its components' LQA eligibility determinations. DOD and its components are to make LQA eligibility determinations in accordance with Department of State (State) Standardized Regulations (DSSR) as well as department-wide and component-level guidance. However, after conducting an audit in 2013, DOD determined that 680 of its civilian employees had erroneously received LQA. Most erroneous LQA payments were attributed to misinterpretations of eligibility requirements. This determination was based in part on a 2011 interpretation of a DSSR eligibility requirement for LQA by the Office of Personnel Management (OPM), which settles federal employee compensation claims. After the audit, DOD issued a memorandum and point paper to implement OPM's interpretation and clarify LQA eligibility requirements. DOD is also updating its LQA Instruction, DOD Instruction 1400.25, Volume 1250, to incorporate OPM's 2011 interpretation. Some DOD components also issued clarifying guidance and adopted new procedures for making LQA eligibility determinations. For example, U.S. Air Forces in Europe developed a flow chart to help human resource specialists determine whether overseas job applicants are eligible for LQA. DOD's LQA Instruction directs DOD components to conduct periodic quality assurance reviews of LQA eligibility and payments, but according to DOD and component officials, they have not consistently done so. Further, the Deputy Assistant Secretary of Defense for Civilian Personnel Policy is responsible for monitoring the implementation and effectiveness of DOD's LQA Instruction and administers this responsibility through the Defense Civilian Personnel Advisory Service. However, this office has not monitored its components' reviews of LQA eligibility determinations. Without such monitoring, DOD cannot ensure that LQA eligibility determinations are being made in accordance with applicable regulations and policies.

Agencies have missed opportunities to ensure consistent interpretation of LQA eligibility requirements.

DOD components have raised concerns that some DSSR LQA eligibility requirements are ambiguous or outdated, but DOD has not discussed these concerns with State to determine whether the DSSR should be revised. State officials told GAO that they have collaborated with DOD and other agencies on eligibility issues for other allowances in the past and would be open to future discussions. Without communicating its concerns to State, DOD cannot ensure that State has the information it needs to make any adjustments to the DSSR, if appropriate.

Until recently, OPM had not made its compensation claim decisions widely available to federal agencies, including DOD, and the public because of limited funding. OPM is implementing a new web application for posting compensation claim decisions to its website, but has not established timeframes to routinely post individual decisions. In the absence of doing so, OPM cannot ensure that agencies will have timely access to the most up-to-date information on LQA eligibility issues.

section_title: What GAO Recommends
paragraphs: GAO recommends DOD monitor components' reviews of LQA eligibility determinations and discuss concerns about DSSR LQA eligibility requirements with State. GAO also recommends that OPM develop timeframes for the timely web posting of its decisions. DOD and OPM concurred with GAO's recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD) provides a living quarters allowance  (LQA) as an incentive to recruit eligible individuals for DOD civilian  employee assignments overseas. This allowance helps defray expenses,  such as rent and utilities, associated with living overseas. In fiscal year  2013, DOD paid about 16,880 civilian employees assigned overseas just  over $521 million for LQA. However, after conducting a worldwide audit in  2013, DOD determined, based in part on a 2011 Office of Personnel  Management (OPM) compensation claim decision, that 680 of those  civilian employees had erroneously received a total of about $104.5  million for LQA in part because of misinterpretations of eligibility  requirements for this allowance.

DOD is to make LQA eligibility determinations in accordance with  Department of State (State) Standardized Regulations (DSSR) as well as  department-wide and component-level guidance. The DSSR governs allowances and differentials available to federal civilian employees  assigned overseas, including cost-of-living allowances, quarters  allowances, and pay differentials provided as incentives to those  employees who work in dangerous areas. Within DOD, the Deputy  Assistant Secretary of Defense for Civilian Personnel Policy, under the  authority, direction, and control of the Under Secretary of Defense for  Personnel and Readiness, is to develop, revise, and monitor the  implementation of overseas allowance and differential policies and  procedures. The Deputy Assistant Secretary of Defense for Civilian  Personnel Policy has delegated this responsibility to the Defense Civilian  Personnel Advisory Service (DCPAS), a component of the Defense  Human Resources Activity. In addition to the DSSR, DOD components  are to determine LQA eligibility according to DOD Instruction 1400.25,  Volume 1250, DOD Civilian Personnel Management System: Overseas  Allowances and Differentials (hereinafter cited as DOD’s LQA  Instruction).

You requested that we assess DOD’s implementation of LQA-related  policies for DOD civilian employees assigned overseas. In this report, we  evaluated the extent to which (1) DOD has clarified its LQA eligibility  requirements and is monitoring its components’ LQA eligibility  determinations; and (2) DOD, State, and OPM have helped ensure  consistency in the interpretation of LQA eligibility requirements.

To conduct this review, we present information in this report on DOD’s  2013 LQA audit. We used Defense Finance and Accounting Service’s  payroll data for fiscal years 2011 through 2014 to identify the number of  employees who received LQA, the total dollar amount of LQA spent, and  the debt incurred by the employees determined by DOD’s 2013 LQA audit  to have been erroneously paid LQA. To assess the reliability of these  data, we interviewed Defense Finance and Accounting Service’s  knowledgeable officials and performed electronic testing to identify  obvious problems with completeness or accuracy. We found these data to  be sufficiently reliable for the purposes of our report.

To evaluate the extent to which DOD has clarified its LQA eligibility  requirements and is monitoring its components’ LQA eligibility  determinations, we reviewed the DSSR, DOD’s current LQA Instruction  and a related September 2013 policy advisory, and OPM compensation  claim decisions related to LQA. We interviewed officials from State’s  Office of Allowances and OPM’s Merit System Accountability and  Compliance division on OPM’s interpretation of key LQA eligibility  requirements. We also reviewed DOD’s draft LQA Instruction and  interviewed officials about their plans for overseeing LQA eligibility  determinations. We interviewed officials from DCPAS, DOD components  with employees who were determined to have been erroneously paid  LQA, and selected DOD agencies and a field activity with regard to  DCPAS’s oversight of LQA eligibility determinations. We also interviewed  officials from the Army, Navy, Air Force, and Marine Corps who are  involved in creating and implementing LQA guidance for the military  services as well as providing support to the overseas officials who make  LQA eligibility determinations to identify potential challenges with  implementation of and recommendations for improving DOD’s current  LQA Instruction and the DSSR. Additionally, we interviewed officials at  U.S. European Command (EUCOM) and U.S. Pacific Command  (PACOM) to obtain their views on the 2013 LQA audit and LQA eligibility  determinations. Finally, we interviewed officials involved in making LQA  eligibility determinations from the Army, Navy, and Air Force service  component commands in the EUCOM and PACOM areas of  responsibility, as well as officials from 15 of the 33 local human resource  offices that report to those service component commands, to identify  potential challenges in determining LQA eligibility at the operational level.  We selected a nongeneralizable sample of 15 of the 33 offices from  service component commands in both the EUCOM and PACOM areas of  responsibility, as well as offices from each of the military departments’  service component commands. While the results of these interviews are  not representative of all offices, they provide valuable insights.

To evaluate the extent to which DOD, State, and OPM have helped  ensure consistency in the interpretation of LQA eligibility requirements,  we assessed DOD’s process for communicating with State about the  DSSR. We also interviewed officials from State’s Office of Allowances  with regard to the extent to which they communicated with DCPAS on  issues related to LQA eligibility requirements and the process for updating  the DSSR. To analyze how DOD has reviewed OPM compensation claim  decisions to inform its LQA eligibility determinations, we examined DOD’s  process for receiving and disseminating OPM compensation claim  decisions. We analyzed the ways in which DCPAS, DOD components,  and the local DOD human resource offices we interviewed receive, share,  and incorporate OPM compensation claim decisions into LQA eligibility  determinations. We also interviewed officials from OPM’s Merit System  Accountability and Compliance division to assess the process for  adjudicating and disseminating OPM compensation claim decisions. We  assessed the agencies’ interaction against the Standards for Internal  Control in the Federal Government. We also interviewed officials from  DCPAS, DOD components, and the local human resource offices to  determine how DOD has communicated with State and received and  disseminated OPM compensation claim decisions with implementation  instructions during and since the 2013 LQA audit. We provide additional  information about our scope and methodology in appendix I.

We conducted this performance audit from July 2014 to June 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Intent of and Eligibility Requirements for LQA
paragraphs: Congress passed the Overseas Differentials and Allowances Act of 1960  (hereinafter referred to as the Act) to (1) provide a means for more  effectively compensating government employees for the extra costs and  hardships associated with overseas assignments; (2) provide for the  uniform treatment of government employees stationed overseas; (3)  establish the basis for more efficient and equitable administration of the  laws compensating government employees who are assigned overseas;  and (4) facilitate government recruitment and retention of the best   The Act  qualified employees for civilian employment overseas.authorized the granting of LQA whenever government-owned or  government-leased housing is not provided free of cost to an employee  assigned overseas. LQA is intended to reimburse employees for the costs  incurred for rent, heat, light, fuel, gas, electricity, and water.

LQA is generally intended as a recruitment incentive to encourage  individuals who are recruited by federal agencies in the United States— hereinafter referred to as “U.S. hires”—to live and work overseas for a  limited period of time. However, under certain circumstances the DSSR  also permits federal agencies to provide LQA to employees recruited and  hired overseas. Specifically, the DSSR allows LQA to be granted to  employees hired overseas provided that the following eligibility  requirements are met:  the employee’s actual place of residence overseas where LQA is to  be granted can be fairly attributable to employment by the federal  agency that is hiring him or her; prior to appointment by the federal agency, the employee was  recruited in the United States or a U.S. territory by the U.S.  government, including by the military; by a U.S. firm, organization, or  interest; by an international organization in which the U.S. government  participates; or by a foreign government;  the employee must have been in “substantially continuous  employment by such employer”; and  the employee must have been authorized by such employer to receive  paid transportation back to the United States or U.S. territory after the  conclusion of his or her overseas employment.

According to DSSR § 013, the head of a federal agency may issue further  implementing regulations within the scope of the DSSR. According to  OPM compensation claim decisions, agency implementing guidance may  impose additional requirements, but may not be applied unless the  employee has first met the basic DSSR eligibility criteria. implementing regulations such as DOD’s LQA Instruction may impose  additional requirements to further restrict LQA eligibility but may not  exceed the scope of the DSSR.

section_title: State, OPM, and DOD Roles and Responsibilities for LQA
paragraphs: State, OPM, and DOD have varying roles and responsibilities related to  LQA for civilian employees assigned overseas, as shown in figure 1.

OPM File Number 11-0037 (July 11, 2012).

OPM File Number 12-0019 (Oct. 9, 2012).

DOD’s LQA Instruction was last revised in February 2012. According to  DCPAS officials, the primary reason for the revision was to extend  eligibility for overseas allowances and differentials to same-sex domestic  partners of civilian employees and their children, to comply with a 2010  Presidential Memorandum. The secondary reason for the revision,  according to DCPAS officials, was to add a requirement that the heads of  DOD components conduct ongoing quality assurance reviews to verify  that foreign allowance and differential payments are consistent with  applicable statutory and regulatory provisions. The addition of this  requirement was partly in response to a DOD Inspector General’s report  in August 2010 that found that the Office of the Deputy Assistant  Secretary of Defense for Civilian Personnel Policy did not provide uniform  guidance to the human resource offices of DOD components with regard  to their authorizing overseas allowances and differentials accurately and  consistently. The 2012 revision to the LQA Instruction also assigned  responsibility to the Deputy Assistant Secretary of Defense for Civilian  Personnel Policy for developing, revising, and monitoring the  implementation of overseas allowance and differential policies and  procedures.

According to DOD’s LQA Instruction, overseas allowances and  differentials, including LQA, are neither automatic salary supplements nor  entitlements that are automatically granted to all employees who meet  eligibility requirements. The LQA Instruction states that allowances and  differentials are specifically intended to be recruitment incentives for U.S.  citizens who are civilian employees living in the United States to accept  federal employment overseas, and that ordinarily, if a person is already  living overseas, that inducement is unnecessary. DOD’s LQA Instruction  defines a “U.S. hire” as a person who physically resided permanently in  the United States from the time he or she applied for employment until  and including the date he or she accepted a formal offer of employment.DOD’s LQA Instruction permits LQA and other allowances in certain  circumstances to be granted to employees hired overseas when those  employees meet eligibility requirements.

DOD components are responsible for making LQA eligibility  determinations for individual job applicants or employees, and for  ensuring that employees are paid LQA properly, in accordance with  DOD’s LQA Instruction and the DSSR. For example, each military service  has multiple human resource offices within the geographic combatant  commands’ areas of responsibility that hire and work with employees  regarding personnel issues. The level of local human resource office  that determines LQA eligibility varies by military service and their  respective human resource offices. For example, officials from the Army’s  local human resource offices propose initial LQA eligibility determinations  to the Army’s Civilian Human Resources Agency’s regional office, which  makes the final eligibility determinations. In contrast, Navy officials stated  that Navy local human resource offices in the EUCOM area of  responsibility have full responsibility to make LQA eligibility  determinations, although the local offices can contact the Navy  Installation Command’s regional human resource office in Europe if there  are questions associated with a particular LQA eligibility determination.  The defense agencies and field activities have a much smaller overseas  presence than the military services and generally centralize LQA eligibility  determinations at the headquarters level. Table 1 shows the number of  DOD employees who received LQA during fiscal years 2011 through  2014, as well as the total amount of LQA payments.

section_title: DOD’s 2013 Audit of Employees Who Were Hired Overseas and Receiving LQA
paragraphs: Prior to the 2008 and 2011 OPM compensation claim decisions that  discuss the single employer interpretation, many DOD components  interpreted the LQA Instruction and the DSSR as authorizing LQA for  employees hired overseas in situations of continuous employment with  multiple employers, rather than a single employer. In May 2011, U.S.  Army in Europe, in response to the 2011 OPM decision, concluded that  its LQA eligibility determinations had been inconsistent with OPM’s single  employer interpretation of the DSSR. In May 2012, EUCOM requested  authorization from the Under Secretary of Defense for Personnel and  Readiness to continue LQA for not longer than 12 months for employees  working for DOD components in the EUCOM area of responsibility who  were currently receiving the allowance, but who did not meet OPM’s  single employer interpretation.

EUCOM’s request prompted the Acting Principal Deputy Under Secretary  of Defense for Personnel and Readiness to issue a memorandum on  January 3, 2013, directing all DOD components to conduct an audit of all  “locally hired overseas employees” (that is, employees hired overseas)  currently receiving LQA. The audit results showed that 680 DOD civilian  employees were considered to have been “erroneously paid LQA after  having been hired overseas,” including 444 who were identified in the  audit as being ineligible for LQA because of inconsistency with the single  employer interpretation.results of DOD’s 2013 audit.

section_title: DOD Has Taken Steps to Clarify Requirements for LQA Eligibility, but Is Not Monitoring LQA Eligibility Determinations Made by Its Components
subsections: section_title: DOD and Its Components Have Taken Some Steps to Clarify LQA Eligibility Requirements
paragraphs: DOD, through its components and DCPAS, has taken some steps to  clarify LQA eligibility requirements, particularly as they relate to the single  employer interpretation and the definition of a U.S. hire. For example,  DCPAS is drafting an update to DOD’s LQA Instruction that will address  the single employer interpretation. Also, the Office of the Under Secretary  of Defense for Personnel and Readiness has issued a memorandum and  DCPAS has issued a point paper and fielded questions from DOD  components about individual employees to clarify LQA eligibility  requirements. In addition, in September 2013, the Deputy Assistant  Secretary of Defense for Civilian Personnel Policy issued a policy  advisory to clarify the definition of a U.S. hire. However, the policy  advisory’s definition of a U.S. hire appears to conflict with OPM’s  interpretation of the DSSR. DCPAS is currently consulting with DOD  components to decide whether to continue using the policy advisory’s  definition, which could prompt it to discuss possible revisions to the DSSR  with State, or to invalidate that definition.

Single Employer Interpretation. The January 2013 memorandum that  initiated the 2013 LQA audit stated that employees hired overseas after  working for more than one employer are not eligible to receive LQA.  DCPAS also disseminated a point paper to DOD components in April  2013 that acknowledged the components had been incorrectly  interpreting the DSSR and further reinforced the single employer  interpretation as the correct interpretation. In the point paper, DCPAS  also provided examples of employee categories that did not meet the  single employer interpretation and thus were not eligible for LQA.example, the point paper clarified the status of military members who  separated from service in a location outside the United States, were  employed in a federal civilian position and properly provided LQA, left for  employment with a contractor(s), and subsequently returned to a federal  civilian position with DOD. The point paper stated that it does not matter  that such employees properly received LQA during their initial civilian  employment. Based upon the clarified definition of “substantially  continuous employment by such employer,” these employees had  intervening employment and were not eligible for LQA upon appointment  to the subsequent period of federal civilian employment with DOD. In  addition, DCPAS officials have periodically assisted officials from DOD  components’ headquarters if they have questions regarding LQA policies.  In particular, officials from two military departments told us that DCPAS  officials will answer questions about LQA eligibility determinations for  individual employees and will respond to inquiries about interpretations of  DOD’s LQA Instruction.

DCPAS is drafting an update to DOD’s LQA Instruction that will address  the single employer interpretation. The LQA Instruction was last revised in  February 2012, prior to the 2013 LQA audit, and therefore does not  reflect, among other things, the single employer interpretation.  Specifically, DOD’s LQA Instruction currently does not state that, to be  eligible for LQA, an employee must have remained with the same  employer that recruited him or her from the United States, and must have  had no intervening employment, prior to his or her DOD civilian position.  Officials from several DOD components told us that it would be helpful to  have an updated LQA Instruction that reflects the single employer  interpretation to minimize potential misinterpretations. According to  DCPAS officials and a February 2015 draft LQA Instruction we reviewed,  DOD’s updated LQA Instruction will address the single employer  interpretation and other LQA eligibility requirements, such as former  military members’ eligibility to receive LQA immediately after separating  from the military. However, the draft LQA Instruction we reviewed also  includes a proposal to eliminate LQA for DOD civilian employees hired  overseas unless a Service Secretary or equivalent grants an exception. If  DOD adopts this proposal, the number of instances where DOD would  apply the single employer interpretation to determine LQA eligibility would  likely be significantly reduced.

DCPAS officials told us that, at the direction of the Deputy Assistant  Secretary of Defense for Civilian Personnel Policy, they began a review of  DOD’s LQA Instruction in fall 2013. As part of this review, DCPAS officials  solicited informal comments and recommendations from DOD  components on the draft LQA Instruction. DCPAS officials stated that they  sent the draft LQA Instruction to DOD components for initial informal  comments in early 2014. These officials explained that they then  transitioned their focus to a larger effort reviewing all DOD guidance  related to overseas civilian employees, and the update to the LQA  Instruction was incorporated into this effort. According to the officials,  DOD’s draft LQA Instruction was sent in February 2015 to DOD  components for additional informal comments. DCPAS officials stated  that they expect DOD’s updated LQA Instruction to be finalized and  released in late 2015. Officials from military service component  commands in the EUCOM area of responsibility told us that they are  waiting for DCPAS to release the updated LQA Instruction before they  issue their own updated LQA guidance.

In addition, DOD components have taken steps to clarify LQA eligibility  requirements, including issuing memorandums and adopting new  procedures for making LQA eligibility determinations. Prior to the 2013  LQA audit, U.S. Army in Europe and U.S. Air Forces in Europe modified  their interpretation of LQA eligibility requirements to be consistent with the  single employer interpretation. For example, U.S. Army in Europe issued  a memorandum in January 2012 stating that six months earlier it had  begun applying the single employer interpretation when making LQA  eligibility determinations, and that the single employer interpretation was  consistent with the DSSR. Also, U.S. Air Forces in Europe revised its  guidance in October 2012 to emphasize that “substantially continuous  employment by such employer” is restricted to the single employer that  initially recruited the employee from the United States.

After the 2013 LQA audit, some DOD components adopted new  procedures for making LQA eligibility determinations with the intent of  ensuring that civilian employees hired overseas met the single employer  interpretation. For example, prior to the 2013 LQA audit, LQA eligibility  determinations for Army overseas civilian employees to receive LQA were  made at the local overseas human resource office level. After the audit,  the Army’s Civilian Human Resources Agency established the following  multitier review for making LQA eligibility determinations in each of its  overseas regions:

First, a human resource specialist at the local human resource office  reviews an LQA questionnaire filled out by the job applicant to ensure  that the applicant meets LQA eligibility criteria found in both the DSSR  and DOD’s current LQA Instruction.

Second, the human resource specialist’s supervisor conducts another  review. If both of the local officials agree with regard to the job  applicant’s eligibility for LQA, the applicant’s LQA questionnaire is  forwarded to the overseas regional office.

Third, an LQA subject matter expert at the regional office conducts an  additional review.

Fourth, a senior-level LQA subject matter expert at the regional office  conducts a final review before sending the final determination of the  job applicant’s eligibility to receive LQA back to the local human  resource office.

Army officials explained that if at any point there is disagreement among  the officials regarding the eligibility assessment, the officials will discuss  the job applicant’s LQA questionnaire to reach consensus. Similarly, U.S.  Air Forces in Europe developed a flow chart to help local human resource  specialists determine whether overseas job applicants are eligible for  LQA. For example, the flow chart seeks to determine whether an  applicant is a contractor or a separated military member, and whether he  or she was recruited in the United States.

Definition of a U.S. Hire. In an August 2013 memorandum, the Army  Civilian Human Resources Agency requested that Department of the  Army headquarters provide clarification on the definition of a U.S. hire  found in DOD’s LQA Instruction. In the memorandum, the Army Civilian  Human Resources Agency explained that the Department of the Army  had been interpreting DOD’s LQA Instruction to mean that a physical  presence overseas during time of recruitment (that is, from the time of  application to a job offer), for any reason, disqualified a job applicant from  meeting the definition of a U.S. hire. The Army Civilian Human Resources  Agency memorandum stated that this interpretation of a U.S. hire did not  appear to be logical, and cited a recent case as an example.

After receiving the Army Civilian Human Resources Agency’s request for  clarification, in September 2013 the Deputy Assistant Secretary of  Defense for Civilian Personnel Policy sent a policy advisory to the  Department of the Army with guidance on how to define a U.S. hire. The  policy advisory stated that an individual may still be considered a U.S.  hire even though he or she may have left the United States for a short  period of time, and it provided examples of such scenarios. Specifically, it  clarified that a job applicant should be considered to physically reside in  the United States and considered a U.S. hire if he or she takes a vacation  outside the United States, travels outside the United States on a  temporary duty assignment, or is deployed overseas as a reservist or  National Guard member during the time of recruitment. In addition, the  policy advisory stated that reservists and National Guard members  deployed overseas benefit from the provisions afforded by the Uniformed  Service Employment and Reemployment Rights Act when determinations  are made as to whether they are recruited from the United States, and  they should be allowed employment benefits that would accrue as if a  deployment had not occurred. Regarding the issue of U.S. hire, the  policy advisory stated that it was DCPAS’s intent for personnel physically  residing in the United States before being deployed overseas to be  considered for LQA eligibility as if they were not deployed.

The definition of a U.S. hire in DOD’s September 2013 policy advisory  appears to conflict with OPM’s interpretation of the DSSR in  compensation claim decisions since at least 2012. May 2014 OPM compensation claim decision, OPM further clarified that  an employee must be physically residing in the United States during  recruitment to be considered a U.S. hire. Specifically, OPM stated that the  DSSR does not exempt particular categories of employees, such as  military reservists mobilized overseas, from the DSSR’s requirements for  a U.S. hire. Thus, federal agencies cannot exempt categories of  employees in their implementing regulations, since that would exceed the  scope of the DSSR.

OPM File Number 11-0037 (July 11, 2012). in Europe told us they had seen and implemented the policy advisory, but  later advised their local human resource offices to disregard it when they  discovered OPM compensation claim decisions that they felt conflicted  with the policy advisory’s definition of a U.S. hire. The September 2013  policy advisory not being disseminated department-wide and the absence  of a consistent interpretation of how to apply the policy advisory may have  led to inconsistencies in how DOD components determined whether  those applying for a civilian position overseas were “U.S. hires” and thus  eligible for LQA.

When asked about the apparent conflict between OPM’s interpretation of  a U.S. hire and DOD’s September 2013 policy advisory, DCPAS officials  told us that they did not initially believe the policy advisory conflicted with  the definition of a U.S. hire in the DSSR or with OPM’s interpretation.  However, officials told us that they have since recognized such a conflict  may exist. As a result, DCPAS is currently soliciting DOD components’  views on the definition of a U.S. hire. DCPAS officials stated that if DOD  components support the definition in DOD’s policy advisory, then DCPAS  will determine with senior DOD officials whether to discuss the matter with  State and request a revision to the DSSR that reflects the definition in  DOD’s policy advisory. (This issue is discussed in greater detail later in  the report.) They explained that if the components or senior officials do  not support the definition in DOD’s policy advisory, then the definition in  the updated LQA Instruction will invalidate the policy advisory’s  interpretation and no further action would be necessary. As of April 2015,  DCPAS had not yet decided which definition will be included in DOD’s  updated LQA Instruction. According to DCPAS officials, they discussed  the definition of a U.S. hire with OPM in April 2015, at which time OPM  officials agreed that DCPAS should discuss with State revising the DSSR  if DOD continues to use its September 2013 policy advisory. OPM  officials explained to us that they informed DCPAS officials at that  meeting that OPM would continue to apply its interpretation of U.S. hire  until or unless State revised the DSSR.

section_title: DOD Has Not Monitored DOD Components’ LQA Eligibility Determinations
paragraphs: DOD has not monitored DOD components’ LQA eligibility determinations  for civilian employees overseas to help ensure the consistent application  of DOD’s LQA Instruction across the department. According to DOD  Instruction 1400.25, Volume 100, DOD Civilian Personnel Management  System: General Provisions, the Deputy Under Secretary of Defense for  Civilian Personnel Policy is responsible for monitoring the implementation  and effectiveness of DOD’s civilian personnel management, including  DOD’s LQA Instruction. This requirement was the basis for a 2010  recommendation from the DOD Office of the Inspector General that the  Deputy Under Secretary of Defense for Civilian Personnel Policy conduct  periodic quality assurance reviews. In implementing the Office of the  Inspector General’s recommendation, DCPAS charged the heads of DOD  components with conducting periodic quality assurance reviews.  However, DCPAS officials told us that they have not monitored the LQA  eligibility determinations of DOD components, indicating that it is the  responsibility of the components to do so.

DOD’s LQA Instruction includes a requirement that the heads of DOD  components conduct ongoing quality assurance reviews to verify that  overseas allowance and differential payments are proper and consistent  with applicable statutory and regulatory provisions.  However, according  to DCPAS officials, the heads of DOD components have not consistently  conducted these reviews due to the 2013 LQA audit. DCPAS officials  explained that they became aware of issues with LQA eligibility  determinations in the EUCOM area of responsibility approximately in May  2012, shortly after the February 2012 LQA Instruction with the new  requirement for ongoing quality assurance reviews was issued. DCPAS  officials chose not to have DOD components begin conducting the  periodic quality assurance reviews because they anticipated that the  components would soon be involved in what became the 2013 LQA audit.

DCPAS officials told us that they added this requirement in response to one of the  recommendations in the DOD Inspector General’s report, although it differs from the  actual recommendation for the Deputy Under Secretary of Defense for Civilian Personnel  Policy to conduct the review of DOD components. DOD Inspector General, Report No D- 2010-075, Foreign Allowances and Differentials Paid to DOD Civilian Employees  Supporting Overseas Contingency Operations (Aug. 17, 2010). of employees who receive overseas allowances and differentials, and  then send a report with the audit results to the Deputy Assistant Secretary  of Defense for Civilian Personnel Policy by March of each year. However,  there is no specific requirement in the draft LQA Instruction to monitor the  reviews of DOD components to ensure they are accurately and  consistently authorizing LQA as well as other overseas allowances and  differentials. Standards for Internal Control in the Federal Government  state that internal control monitoring should assess the quality of  performance over time and ensure that the findings of audits and other  reviews are promptly resolved. Specifically, managers are to (1) promptly  evaluate findings from audits and other reviews, (2) determine proper  actions in response to findings and recommendations from audits and  reviews, and (3) complete, within established time frames, all actions that  correct or otherwise resolve the matters brought to management’s  attention. Without monitoring DOD components’ reviews, DCPAS  cannot ensure that DOD components are making LQA eligibility  determinations and payments in accordance with applicable statutory and  regulatory provisions.

section_title: Agencies Have Missed Opportunities to Help Ensure Consistent Determinations of LQA Eligibility Requirements
subsections: section_title: DOD Has Not Discussed with State Its Concerns about DSSR LQA Eligibility Requirements
paragraphs: DOD, through DCPAS, has not discussed its concerns related to the  DSSR with State’s Office of Allowances to determine whether LQA  eligibility requirements should be revised, notwithstanding DOD  components’ concerns that some of those requirements are ambiguous or  outdated. Of particular concern are the DSSR requirements related to  “substantially continuous employment by such employer” and the  definition of a U.S. hire, as discussed earlier.

Officials from one military service component command, as well as  regional and local human resource offices in the EUCOM and  PACOM areas of responsibility, told us that the DSSR requirement for  “substantially continuous employment by such employer” remains  unclear, even after the 2013 LQA audit. In particular, the DSSR has  not been modified to explicitly reflect OPM’s single employer  interpretation. Officials we spoke with at the service component  command and local human resource office levels stated that even if  DOD’s LQA Instruction was updated to include the single employer  interpretation, as previously discussed, it would still be helpful to  revise the DSSR to clarify the phrase “substantially continuous  employment by such employer,” since local human resource  specialists routinely use both the LQA Instruction and the DSSR to  make LQA eligibility determinations.

Officials from the military department headquarters, military service  component commands, and regional and local human resource  offices in the EUCOM and PACOM areas of responsibility informed us  that the DSSR’s U.S. hire definition should be updated to reflect  modern travel and Internet access realities, temporary duty  assignments, and the overseas deployment of reservists and National  Guard members. DCPAS’s definition of a U.S. hire in its September  2013 policy advisory to the Army attempts to update the definition  within DOD, as previously discussed, but it may also expand the  DSSR’s LQA eligibility requirements, thereby exceeding DOD’s  authority according to OPM’s interpretation of the DSSR.

State officials told us that, although there is no requirement for State to  proactively review the DSSR and assess the need for revisions, there  have been occasions when State collaborated with other federal  agencies—including DOD—on eligibility issues for overseas allowances.  According to State officials, they have done so when other federal  agencies have initiated the collaboration. For example, in 2014, DCPAS  officials requested that State’s Office of Allowances consider revising a  provision within the DSSR relating to the separate maintenance  allowance. Previously, if the overseas employee was a former military  member whose family had access to military commissary and exchange  facilities, the separate maintenance allowance provided was reduced by  10 percent. DCPAS officials communicated to State that former military  members and their families appeared to be unfairly penalized by this  requirement. In response to DCPAS’s request, State reviewed the  proposed revision and sent it to other federal agencies for comment.  Neither the other federal agencies nor State’s legal counsel had any  substantive objections to the proposed amendment, so the DSSR was  updated in January 2015. DCPAS officials told us they requested that  State revise this provision of the DSSR because it was negatively  affecting a specific class of DOD employees.

State officials also told us that they initiated an internal review of the  DSSR in early 2015. The review encompasses offices within State—such  as the Office of Overseas Schools—and is intended to provide State’s  Office of Allowances with suggestions for revisions or updates to sections  of the DSSR that those offices routinely use. Once the Office of  Allowances receives all internal suggestions, officials told us that they  intend to compile a list of proposed changes to the DSSR and share them  with other agencies, including DOD, for comment. The officials told us  that when they send this list to other agencies, they plan to ask whether  the agencies have any other suggestions for revising the DSSR. State  officials indicated that they expect this review to be completed by the end  of 2015.

Notwithstanding the example cited above, and the concerns about LQA  eligibility raised by the DOD component officials with whom we spoke,  DCPAS officials stated that they have not yet discussed with State their  concerns related to the DSSR, particularly with regard to OPM’s single  employer interpretation and the definition of a U.S. hire. According to  DCPAS officials, they did not feel the need to collaborate with State to  discuss modifications to the requirement for “substantially continuous  employment by such employer” in the DSSR because they believe that  updating DOD’s LQA Instruction would be sufficient to resolve any  ambiguity. However, DOD component officials we interviewed who  determined LQA eligibility told us that updating DOD’s LQA Instruction  and revising the DSSR is needed to help ensure consistent eligibility  determinations as both documents are considered in making such  determinations. DCPAS officials also stated that they have not discussed  with State their concerns with the DSSR’s definition of a U.S. hire or  requested a potential revision of the DSSR definition because, as  previously discussed, they have not yet made a decision about whether  the definition in the September 2013 policy advisory will be included in  DOD’s updated LQA Instruction.

While federal agencies are not required to collaborate with State about  questions related to LQA eligibility requirements, the Standards for  Internal Control in the Federal Government state that, in addition to  internal communications, management should ensure that there are  adequate means of communicating with, and obtaining information from,  external stakeholders who may have a significant effect on the federal  agency achieving its goals. Additionally, in prior work, we have reported  on leading practices for interagency collaboration. One of these practices  is to establish compatible policies, procedures, and other means to  operate across federal agency boundaries. Frequent communication  among collaborating agencies is another means to facilitate working  across agency boundaries. In the absence of DOD initiating a  discussion with State about concerns related to DSSR LQA eligibility  requirements for U.S. and overseas hires and whether they should be  revised, State may not have the information it needs to determine  whether the DSSR should be revised with regard to the “substantially  continuous employment by such employer” and definition of a U.S. hire  provisions.

section_title: OPM Has Not Posted Its Compensation Claim Decisions in a Timely Fashion
paragraphs: Until recently, past OPM compensation claim decisions have not been  widely available to federal agencies, including DOD, and the public. OPM  officials told us that compensation claim decisions usually have been  provided only to the claimant involved in the specific OPM compensation  claim and to the office within a federal agency that issued the final  agency-level decision. OPM officials added that, under some  circumstances, they send compensation claim decisions to other offices  higher in the employee’s chain of command. To make compensation  claim decisions more widely available, OPM maintains a public website  on which it can post compensation claim decisions. This website is the  primary means by which federal agencies could learn of compensation  claim decisions involving another federal agency that could have  implications for LQA eligibility determinations. However, until recently  OPM did not post its compensation claim decisions on its website for the  years 2003 through 2012. This is because, according to OPM officials,  they lacked the funds needed during that 10-year period to comply with  the statutory requirement that federal agencies make their electronic and  information technology accessible to individuals with disabilities. OPM  compensation claim decisions could not be posted unless they were  compliant. These officials stated that they did not have the resources  available to make the postings accessible to individuals with disabilities  because funding for other OPM programs was prioritized ahead of  funding for the updates necessary to comply with this requirement during  that time. OPM officials stated that those compensation claim decisions  are now compliant with the statutory requirement and are being posted.  According to the officials, in June 2013 and August 2014, respectively,  OPM posted all its compensation claim decisions from 2003 through 2012  and some decisions for 2013 and 2014.

OPM officials told us that they are implementing a new web application  for posting compensation claim decisions to the OPM website in a more  timely manner. This web application—estimated to be fully functional by  June 2015—will facilitate making compensation claim decisions  accessible to individuals with disabilities when posted on OPM’s website.  However, OPM officials acknowledge that they still have a backlog of  decisions that have not been posted online because the web application  was not operational when those decisions were made. We found that as  of early May 2015, no new compensation claim decisions had appeared  on OPM’s website since June 2014, during which time OPM officials told  us they had adjudicated 20 claims, over half of which were related to  LQA.

In addition, OPM officials told us they have not yet developed timeframes  for individual compensation claim decisions to be reviewed and then  posted online after these decisions have been made. For example, these  officials have not determined how long it should reasonably be expected  to take between the time when OPM sends a decision to the claimant and  to the office that issued the final agency-level decision, and the time when  the decision can be posted on its public website. Although there will be  some expected lag time, since OPM must first notify the parties involved  in the compensation claim before the compensation claim decision can be  made publicly available, OPM has not determined how to ensure that the  time it takes to post decisions is of a reasonable length. Standards for  Internal Control in the Federal Government state that agencies must  identify, capture, and distribute pertinent information in a form and in a  timeframe for their employees to perform their duties efficiently. Managers  should also ensure an adequate means of communicating with and  obtaining information from external stakeholders who may have a  significant effect on achieving their federal agency’s goals. Until OPM  develops and implements timeframes for posting individual LQA-related  compensation claim decisions online in a timely manner, it cannot ensure  that agencies, including DOD, have access to the most up-to-date  information to provide accurate guidance on issues relating to LQA  eligibility determinations to their employees.

section_title: DOD Has Plans to Better Disseminate and Issue Guidance for OPM Compensation Claim Decisions That May Affect LQA Eligibility Determinations
paragraphs: While DCPAS has not generally disseminated OPM compensation claim  decisions that may affect LQA eligibility determinations and guidance for  how to apply those decisions, DCPAS officials told us they recently  assigned an official responsibility for doing so. As previously discussed,  earlier this year OPM made compensation claim decisions from 2003  through 2012 and some decisions from 2013 through 2014 available on  its website. OPM officials stated that they expect agencies—including  DOD—to distribute OPM compensation claim decisions internally if they  wish to do so. DCPAS officials agreed that their office should remain  informed of OPM compensation claim decisions. According to OPM  officials, while compensation claim decisions are binding at the individual  case level, it is up to agencies to determine the extent to which the  decisions necessitate broader policy changes. OPM officials also told us  that it makes sense for agencies to reevaluate their policies if necessary  in order to prevent future compensation claims and legal liabilities.

We found that military service component commands and local and  regional human resource offices in the EUCOM and PACOM areas of  responsibility varied in how they viewed and applied OPM compensation  claim decisions when making LQA eligibility determinations, even when  they are in possession of the decisions. For example, some officials in the  Navy stated that they do not consider it mandatory to incorporate OPM  compensation claim decisions into their broader personnel policies, while  other Navy officials stated their understanding was that DOD components  were obliged to comply with all OPM compensation claim decisions  relating to LQA eligibility. Similarly, some Air Force officials stated that  they considered OPM decisions related to LQA eligibility to be binding,  but recognized that other Air Force officials considered them  discretionary.

DCPAS told us the recently assigned official will review OPM  compensation claim decisions and determine the implications for DOD’s  implementation of LQA eligibility determinations. This official will then  disseminate those decisions that affect LQA eligibility determinations to  DOD components, providing views on each decision’s implications and  guidance for how components should use the decisions when making  LQA eligibility determinations. This may help to reduce the confusion that  exists among DOD components about how OPM compensation claim  decisions should be applied when making LQA eligibility determinations.

section_title: Conclusions
paragraphs: Since DOD’s 2013 audit determined that 680 of its civilian employees  assigned overseas had erroneously received LQA because of  misinterpretations of eligibility requirements, DCPAS and DOD  components have taken steps to clarify the eligibility requirements  outlined in DOD’s LQA Instruction. The steps include DCPAS drafting an  update to the instruction that reflects OPM’s single employer  interpretation and coordinating with the components about their views on  the definition of a U.S. hire. However, the Deputy Assistant Secretary of  Defense for Civilian Personnel Policy or DCPAS, as delegated, have not  carried out their responsibility for monitoring the implementation and  effectiveness of DOD’s LQA Instruction, including monitoring reviews of  LQA eligibility determinations conducted by DOD components. Without  fulfilling this responsibility, DOD cannot ensure the consistent application  of LQA eligibility requirements throughout the department, and is at risk  for future erroneous payments of this allowance to its civilian employees  overseas.

Additionally, agencies have missed opportunities to ensure consistency in  LQA eligibility determinations. First, in light of State’s willingness to  discuss revisions to the DSSR if requested and State’s ongoing DSSR  review, DOD has an opportunity to work with State to ensure that State  has the information it needs to determine whether the DSSR needs to be  revised. Doing so would help reduce the risk of future misinterpretation of  terms related to LQA eligibility requirements, including “substantially  continuous employment by such employer” and “U.S. hire,” thereby  avoiding situations similar to that which led to the 2013 LQA audit.  Second, OPM has made some progress that has resulted in the posting  of compensation claim decisions from the past 10 years on its website,  but more recent decisions have not yet been posted. Further, while OPM  is about to launch a new web application to post compensation claim  decisions, it has not yet established timeframes for posting its backlog of  decisions and any future decisions to ensure that the website remains up  to date. Unless OPM establishes timeframes for posting compensation  claim decisions to its website, the number of unposted decisions could  grow, leading to continued delays in agencies’ ability to access the most  recent decisions that may affect their LQA eligibility determinations.

section_title: Recommendations for Executive Action
paragraphs: To ensure that DCPAS and DOD components are determining LQA  eligibility consistently with DOD’s LQA Instruction, the DSSR, and OPM  compensation claim decisions, we recommend that the Secretary of  Defense direct the Under Secretary of Defense for Personnel and  Readiness to take the following two actions:  require the Deputy Assistant Secretary of Defense for Civilian  Personnel Policy or DCPAS, as delegated, to monitor reviews of LQA  eligibility determinations conducted by DOD components; and discuss with State its concerns related to the DSSR to determine  whether LQA eligibility requirements should be revised and then, as  appropriate based on those discussions, request that State make any  revisions deemed necessary, particularly with regard to the  requirement for “substantially continuous employment by such  employer” and the definition of a U.S. hire.

To ensure that agencies have access to recent OPM compensation claim  decisions online, including those related to LQA, we recommend that the  Director of OPM develop timeframes for posting its compensation claim  decisions on OPM’s public website.

section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD, OPM, and State for review and  comment. In written comments, which are summarized below and  reprinted in appendix III, DOD concurred with the two recommendations  directed to it. In its written comments, which are summarized below and  reprinted in appendix IV, OPM concurred with the recommendation  directed to it. State did not provide comments on the draft.

In its written comments, DOD noted that it is in the process of revising  DOD Instruction 1400.25, Volume 1250, which provides guidance for  overseas allowances and benefits for civilian employees. Further, DOD  indicated that it welcomes State’s review of the DSSR and the opportunity  to work with State on any proposed changes, including any changes DOD  initiates.

In its written comments, OPM noted that, in May 2015, it used its new  web application to successfully post 13 LQA-related claim decisions.  OPM expects to complete testing of the new web application in June  2015 and post the current backlog within two months after testing is  complete. Thereafter, OPM expects to post completed cases monthly.  OPM also provided technical comments, which we have incorporated into  the report, as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Secretary of State, the Director  of OPM, and the Under Secretary of Defense for Personnel and  Readiness. In addition, this report is available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions regarding this report, please  contact me at (202) 512-5741 or ayersj@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 V.

section_title: Appendix I: Scope and Methodology
paragraphs: To conduct this review, we used the Defense Finance and Accounting  Service’s payroll data for fiscal years 2011 through 2014 to assess the  number of employees who received a living quarters allowance (LQA),  the total dollar amount spent for LQA, and the debt incurred for the  employees determined by the Department of Defense’s (DOD) 2013 LQA  audit to have been erroneously paid LQA. To assess the reliability of  these data, we interviewed Defense Finance and Accounting Service’s  knowledgeable officials about these data and performed electronic testing  to identify obvious problems with completeness or accuracy. We found  these data to be sufficiently reliable for the purposes of our report. See  the Background section and appendix II of this report for additional  information.

To evaluate the extent to which DOD has clarified its LQA eligibility  requirements and is monitoring its components’ LQA eligibility  determinations, we reviewed DOD Instruction 1400.25, Volume 1250,  DOD Civilian Personnel Management System: Overseas Allowances and  Differentials and a related September 2013 policy advisory. We also  reviewed the Department of State (State) Standardized Regulations  (DSSR) and selected Office of Personnel Management (OPM)  compensation claim decisions to determine if DOD had incorporated into  DOD’s current LQA Instruction OPM’s interpretation of the DSSR’s  requirement for federal overseas civilian employees to be in “substantially  continuous employment by such employer” prior to their current job. We  interviewed officials from State’s Office of Allowances and OPM’s Merit  System Accountability and Compliance division on OPM’s interpretation  of key LQA eligibility requirements. In addition, we assessed a DOD  policy advisory on the definition of a U.S. hire to determine if it was  consistent with DOD’s current LQA Instruction and the DSSR. We also  interviewed Defense Civilian Personnel Advisory Service (DCPAS)  officials to assess their oversight of DOD components’ LQA eligibility  determinations, including plans to conduct periodic audits. We also  determined the status of DCPAS officials’ efforts to update DOD’s current  LQA Instruction. We interviewed officials from the Army, Navy, Air Force,  and Marine Corps who are involved in creating implementing LQA  guidance for the military services and providing support to the overseas  officials who make LQA eligibility determinations to identify potential  challenges with implementing DOD’s current LQA Instruction and  recommendations for improving the instruction and the DSSR. We also  interviewed similar officials from the DOD office, the DOD field activity,  and one DOD agency that were identified in the 2013 LQA audit: the  Office of the Under Secretary of Defense for Intelligence, the Defense  Logistics Agency, and the Department of Defense Education Activity. We  interviewed officials at U.S. European Command (EUCOM) and U.S.  Pacific Command (PACOM) to identify potential effects that the 2013 LQA  audit had on those commands’ missions and readiness.

We also interviewed officials involved in determining LQA eligibility from  the Army, Navy, and Air Force service component commands in the  EUCOM and PACOM areas of responsibility, as well as 15 of the 33 local  human resource offices that report to those service component  commands to identify potential challenges in applying LQA eligibility  requirements at the operational level. To select the local human resource  offices we conducted interviews with, we selected a nongeneralizable  sample of 15 of the 33 offices from service component commands in both  the EUCOM and PACOM areas of responsibility, as well as offices from  each of the military departments’ service component commands. In  developing our selection criteria, we chose local human resource offices  with the most employees determined to have been erroneously paid by  the 2013 LQA audit. We also chose a set of local human resource offices  with relatively few such employees, which allowed us to identify any  variation in how eligibility determinations were made between them and  the other local human resource offices with the most employees  determined to have been erroneously paid. Specifically, we interviewed  officials from nine human resource offices in the EUCOM area of  responsibility and six human resource offices in the PACOM area of  responsibility, which included seven Army human resource offices, five  Air Force offices, and three Navy offices. While the results of these  interviews are not representative of all offices, they provide valuable  insights.

To evaluate the extent to which DOD, State, and OPM have helped  ensure consistency in the interpretation of LQA eligibility requirements,  we interviewed officials from DCPAS, DOD components, and the local  human resource offices to determine the extent to which DOD has  communicated with State and received and disseminated OPM  compensation claim decisions with implementation instructions during  and since the 2013 LQA audit. We evaluated DCPAS’s process for  collaborating with State regarding the DSSR’s definition of a U.S. hire and  “substantially continuous employment by such employer.” We also  interviewed officials from State’s Office of Allowances on the extent to  which they communicated with DCPAS on issues related to LQA eligibility  requirements and the process for updating the DSSR. We assessed  DOD’s collaboration with State against Standards for Internal Control in  the Federal Government. To evaluate DOD’s process for receiving and  disseminating OPM compensation claim decisions related to LQA  eligibility requirements, we evaluated the extent to which DCPAS, DOD  components, and the local human resource offices we interviewed  receive, share, and incorporate OPM compensation claim decisions into  LQA eligibility determinations. We also interviewed officials from OPM’s  Merit System Accountability and Compliance division to assess the  process for adjudicating OPM compensation claim decisions and  procedures for disseminating those decisions to agencies and publicly on  OPM’s website.

We conducted this performance audit from July 2014 to June 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our objectives.

section_title: Appendix II: Results from the Department of Defense’s 2013 Audit of Living Quarters Allowances
paragraphs: In response to the January 3, 2013, memorandum from the Acting  Principal Deputy Under Secretary of Defense for Personnel and  Readiness, all Department of Defense (DOD) components conducted an  audit of all “locally hired overseas employees” (that is, employees hired  overseas) currently receiving a living quarters allowance (LQA). On May  15, 2013, the Acting Under Secretary of Defense for Personnel and  Readiness issued a memorandum announcing the LQA audit conclusion  and results. The audit results showed that 680 DOD civilian employees  were considered to have been “erroneously paid LQA after having been  hired overseas,” 444 of whom were identified in the audit as being  ineligible for LQA because of inconsistency with the single employer  interpretation.

Table 2 shows the DOD components to which the 680 employees were  assigned, as identified in DOD’s 2013 audit as erroneously receiving  LQA.

Figure 2 shows the command locations of the overseas assignments of  the 680 employees, as identified in DOD’s 2013 audit of LQA.

Employees identified by the 2013 LQA audit as erroneously receiving  LQA were determined to owe a debt to the United States for the full  amount of LQA payments they had been erroneously granted. DOD is  required to initiate collection on all debts due the United States promptly  and in accordance with applicable laws and regulations. Because of the  unique circumstances involved with these debts, however, the Office of  the Under Secretary of Defense for Personnel and Readiness decided  that it was in the best interest of the department to support requests for  debt waivers, so long as each employee making a request was unaware  that he or she had not been entitled to LQA and there was no evidence of  misrepresentation, fraud, or deception to initially acquire LQA. The  Defense Finance and Accounting Service received and sent 592 debt  waiver applications to the Defense Office of Hearing and Appeals for  review, and all of these applications were approved. As shown in table 3,  the total amount of debt incurred was about $104.5 million.

Table 4 shows the status of employees, as of January 2015, who were  identified in DOD’s 2013 audit of LQA.

DOD took additional measures to assist those employees who were  determined by the 2013 LQA audit to have been erroneously paid LQA.  For example, a team from the Defense Finance and Accounting Service  traveled to local human resource offices in the U.S. European Command  and U.S. Pacific Command areas of responsibility to directly assist  employees who were determined to have been erroneously paid LQA  with preparing requests for waivers of debt. In addition, DOD authorized a  temporary limited exception to a standard priority placement program for  employees determined to have been erroneously paid LQA that allowed  them to be placed in U.S. job vacancies that were otherwise subjected to  a hiring freeze. DOD also provided counseling services to those  employees who were determined to have been erroneously paid LQA.

section_title: Appendix III: Comments from the Department of Defense

section_title: Appendix IV: Comments from the Office of Personnel Management

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

section_title: Staff Acknowledgments
paragraphs: In addition to the above named contact, Tina Won Sherman, Assistant  Director; Tracy Barnes; Nick Benne; Tom Costa; Alissa Czyz; Lorraine  Ettaro; Susannah Hawthorne; Amie Lesser; Biza Repko; Steven Rocker;  Wayne Turowski; Sarah Veale; and Cheryl Weissman made key  contributions to this report.


Question-summary annotations: questions: question: What is the current status of LQA eligibility requirements?
answer: The Department of Defense (DOD) and its components have taken steps to clarify living quarters allowance (LQA) eligibility requirements for civilian employees overseas, but DOD has not monitored its components' LQA eligibility determinations.
child_questions: question: Through what regulations does DOD make LQA eligibility determinations?
answer: DOD and its components are to make LQA eligibility determinations in accordance with Department of State (State) Standardized Regulations (DSSR) as well as department-wide and component-level guidance.

question: What problems have occured with LQA eligibility?
answer: However, after conducting an audit in 2013, DOD determined that 680 of its civilian employees had erroneously received LQA.
child_questions: question: To what were these errors attributed?
answer: Most erroneous LQA payments were attributed to misinterpretations of eligibility requirements. This determination was based in part on a 2011 interpretation of a DSSR eligibility requirement for LQA by the Office of Personnel Management (OPM), which settles federal employee compensation claims.

question: What steps has DOD taken to improve this process?
answer: After the audit, DOD issued a memorandum and point paper to implement OPM's interpretation and clarify LQA eligibility requirements. DOD is also updating its LQA Instruction, DOD Instruction 1400.25, Volume 1250, to incorporate OPM's 2011 interpretation. Some DOD components also issued clarifying guidance and adopted new procedures for making LQA eligibility determinations. For example, U.S. Air Forces in Europe developed a flow chart to help human resource specialists determine whether overseas job applicants are eligible for LQA.

question: To what extent has DOD evaluated its eligibility process?
answer: DOD's LQA Instruction directs DOD components to conduct periodic quality assurance reviews of LQA eligibility and payments, but according to DOD and component officials, they have not consistently done so. Further, the Deputy Assistant Secretary of Defense for Civilian Personnel Policy is responsible for monitoring the implementation and effectiveness of DOD's LQA Instruction and administers this responsibility through the Defense Civilian Personnel Advisory Service. However, this office has not monitored its components' reviews of LQA eligibility determinations.
child_questions: question: What are the possible effects of the lack of monitoring?
answer: Without such monitoring, DOD cannot ensure that LQA eligibility determinations are being made in accordance with applicable regulations and policies.

questions: question: How have concerns about LQA eligibility unfolded?
answer: DOD components have raised concerns that some DSSR LQA eligibility requirements are ambiguous or outdated, but DOD has not discussed these concerns with State to determine whether the DSSR should be revised.
child_questions: question: How might State participate in this process?
answer: State officials told GAO that they have collaborated with DOD and other agencies on eligibility issues for other allowances in the past and would be open to future discussions.
child_questions: question: Why is it necessary that DOD and State communicate?
answer: Without communicating its concerns to State, DOD cannot ensure that State has the information it needs to make any adjustments to the DSSR, if appropriate.

questions: question: To what extent are the OMP compensation claim decisions readily available?
answer: Until recently, OPM had not made its compensation claim decisions widely available to federal agencies, including DOD, and the public because of limited funding.
child_questions: question: How has OPM attempted to increase access?
answer: OPM is implementing a new web application for posting compensation claim decisions to its website, but has not established timeframes to routinely post individual decisions.

question: Why is it necessary that decisions be widely available?
answer: In the absence of doing so, OPM cannot ensure that agencies will have timely access to the most up-to-date information on LQA eligibility issues.

questions: question: What is the purpose of LQA?
answer: DOD provides LQA as an incentive to recruit eligible individuals for civilian employee assignments overseas.
child_questions: question: What is the scale of LQA spending?
answer: In 2014 DOD spent almost $504 million on LQA for about 16,500 civilian employees to help defray overseas living expenses, such as rent and utilities.

question: What was GAO asked to study?
answer: GAO was asked to review DOD's implementation of LQA policies for overseas employees.
child_questions: question: What does its report discuss?
answer: This report evaluates the extent to which (1) DOD has clarified its LQA eligibility requirements and is monitoring its components' LQA eligibility determinations; and (2) DOD, State, and OPM have helped ensure consistency in the interpretation of LQA eligibility requirements.