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

Letter

Background

During fiscal year 2006, DOD reported obligations of over $685 billion, the second largest amount reported by an executive branch entity. Of this, travel obligations were $8.46 billion for fiscal year 2006. Travel includes expenses such as air fare, lodging, per diem, and local transportation. Travel conducted by DOD represents an estimated 60 percent of total travel obligations for the entire federal government. Travel is one of six programs for which IPIA information is reported in DOD’s PAR.

Improper Payments Information Act of 2002 and OMB Implementing Guidance

IPIA was enacted in November 2002 with the major objective of enhancing the accuracy and integrity of federal payments. Guidance for reporting under IPIA is provided in Appendix C of OMB Circular No. A-123 and requires agencies to: Review all programs and activities and identify those that are susceptible to significant improper payments.

Obtain a statistically valid estimate of the annual amount of improper payments in those programs and activities.

Report estimates of the annual amount of improper payments in programs and activities and, for estimates exceeding $10 million, implement a plan to reduce improper payments.

In addition, this guidance instructs agencies to institute a systematic method of reviewing all programs and identifying those which they believe to be susceptible to significant improper payments. The guidance defines “significant erroneous payments” as annual improper payments exceeding both 2.5 percent of program payments and $10 million. It further explains that agencies must then estimate the gross total of both over- and underpayments for those programs identified as susceptible. These estimates shall be based on a statistically random sample of sufficient size to yield an estimate with a 90 percent confidence interval of plus or minus 2.5 percentage points. The guidance also requires agencies to consult a statistician to ensure the validity of their sample design, sample size, and measurement methodology. If an agency cannot determine whether or not a payment was proper because of insufficient documentation, OMB Circular No. A-123 requires that the payment be considered an error.

According to its guidance, OMB may also determine, on a case-by-case basis, whether certain programs should be reported even if those programs do not meet established thresholds. In February 2007, OMB notified DOD that it was requiring that an improper payment error measurement be reported for travel pay in the fiscal year 2007 PAR under IPIA due to congressional interest and concern regarding this program. For all programs and activities susceptible to significant improper payments, agencies are to determine an annual estimated amount of improper payments made in those programs and activities. If the estimate of improper payments exceeds $10 million, the agency must implement a plan to reduce the amount of such improper payments. If the improper payment estimate is less than $10 million, agencies are still required to report the total in their annual PAR.

Travel Process at the Department of Defense

Although there are over 70 types or circumstances of travel at DOD, DOD travel is generally segregated into two broad types: temporary duty travel (TDY) and permanent change of station (PCS) travel. TDY is travel to one or more places away from a permanent duty station to perform duties for a period of time and, upon completion of assignment, return or proceed to a permanent duty station. PCS travel is the assignment, detail, or transfer of a member or unit to a different permanent duty station under a competent order that does not specify the duty as temporary, provide for further assignment to a new permanent duty station, or direct return to the old permanent duty station.

DOD reported that in a typical year over 3 million DOD personnel perform TDY travel and generate over 5 million travel vouchers. For fiscal year 2006, DOD reported $8.5 billion was obligated for travel. The Institute for Defense Analyses estimates that $7.3 billion of this amount is for TDY and the remaining $1.2 billion is for PCS travel.

DOD has been working to upgrade its TDY travel system since 1993, when the National Performance Review recommended an overhaul of DOD’s TDY travel system. Long-standing concerns about the efficiency and effectiveness of the existing travel systems resulted in the development of DTS to be a centralized, integrated system used to process TDY travel. DTS is envisioned as being DOD’s standard end-to-end travel system. The Defense Finance and Accounting Service (DFAS) reported that about $1.2 billion was processed through DTS in fiscal year 2006.

In January 2006 we reported on DOD’s difficulties implementing DTS. DTS was originally intended to be fully implemented by April 2002, but this date was changed to September 2006—a slippage of over 4 years. The report specified two key challenges facing DTS in becoming DOD’s standard travel system: (1) developing needed interfaces and (2) underutilization of DTS at sites where it has been deployed.

Extensive travel is still processed through legacy systems. One such system is the Integrated Automated Travel System (IATS), which is used by the Army and several other DOD components. IATS is a manual travel system where the traveler submits paper travel documents (e.g., travel orders, travel voucher, and receipts) for entry into IATS. Once the information is entered into IATS, it is processed and a travel reimbursement is made to the traveler. Under current implementation plans, not all legacy travel systems will be eliminated due to current DTS functionality limitations. Despite difficulties implementing DTS, the Institute for Defense Analyses recently issued a report stating that DTS is the only end-to-end system today with the capability to support all DOD policy and business rules.

DOD Travel IPIA Reporting

Responsibility for assessing and reporting DOD’s improper payments, including travel, for IPIA is the responsibility of the Office of the Comptroller. In its fiscal year 2006 PAR, DOD reported that its current IPIA review did not identify any programs or activities at risk of “significant improper payments” in accordance with OMB criteria. However, the department also reported that civilian, commercial, and travel pay potentially were susceptible to improper payments in excess of $10 million and reported estimated improper payment information for these programs. Further, the department again reported on its sampling and corrective actions concerning its military retirement, military health benefits, and military pay programs. Table 1 shows the information DOD reported for estimated improper payments for six programs, including travel pay, in its fiscal year 2006 PAR.

Further, in its 2006 PAR, DOD described the risk assessment process for each of the programs or activities that addressed the strength of the internal controls in place to prevent improper payments and reported on the results in its disclosure. DOD also described the statistical sampling and corrective action plans for these six programs. Additionally, DOD summarized the improper payment reduction outlook for the military retirement, military health benefits, and military pay programs. Finally, DOD described its improper payments auditing, accountability information, information system usage, and statutory and regulatory barriers limiting the department’s corrective actions. Excerpts from DOD’s fiscal year 2006 PAR related to improper payments are reprinted in appendix III of this report.

Fiscal Year 2006 Improper Payments Reporting and Estimate for the DOD Travel Program Were Incomplete

In its fiscal year 2006 PAR, DOD estimated approximately $8 million in travel program improper payments, reported as reflecting about 1 percent of reported program payments. While this estimate would indicate the program was not at risk of significant improper payments under OMB guidance, we found that DOD’s travel improper payments disclosures for fiscal year 2006 were incomplete as to the full extent of total travel payments made by DOD. The estimate information reported by DOD, which DOD used to assess the travel program’s risk of significant improper payments, only included payments from one system, DTS, which processed an estimated 10 percent of DOD’s travel. Nonetheless, DOD’s 2006 PAR describes a travel postpayment review process that may mislead the reader to believe that the reported travel improper payment estimate represents more than DTS-processed travel. Further, the travel improper payment estimate excluded the largest user of DTS, the Army, which would likely have increased DOD’s estimate by over $4 million. Finally, the statistical sampling methodology and process used by DOD to estimate DTS improper payments as reported for fiscal year 2006 had several weaknesses and did not result in statistically valid estimates of travel improper payments.

Travel Disclosure Reported Only DTS- Processed Travel and Excluded Information on Its Largest User

In its fiscal year 2006 IPIA disclosure for travel, DOD estimated $8 million in improper payments for travel pay, which it reported as reflecting about 1 percent of DOD reported travel payments. Based on our review, we determined that DOD’s estimate of travel improper payments was derived from approximately 10 percent of the $8.5 billion of DOD travel obligations reported by DOD for the fiscal year—excluding a significant portion of travel payments from the PAR disclosure. Further, the DTS improper payments disclosure did not include data on the largest user of DTS, the Army. The reporting of only DTS travel pay and the exclusion of Army travel pay processed through DTS was incomplete.

DOD’s fiscal year 2006 reporting of travel improper payments based on travel processed by DTS (excluding the Army) also excluded travel processed in other systems used by several DOD components, including the following: In fiscal year 2006, the Army Corps of Engineers used IATS to process all travel. According to information provided by DOD, the Army Corps of Engineers processed over $239 million in travel payments during fiscal year 2006.

Air Force officials reported using the Reserve Travel System to process $1.5 billion in travel pay in fiscal year 2006.

The Army utilized IATS to process TDY, PCS, and other types of travel payments. The postpayment review of IATS-processed travel, completed by DFAS for the Army, indicated approximately $1.4 million in improper payments for fiscal year 2006, none of which were reported in the DOD fiscal year 2006 PAR disclosure.

DOD also did not include Army travel processed using DTS in its fiscal year 2006 PAR. The Army is the largest user of DTS—processing a reported $437 million of travel through DTS. As shown in figure 1, the Army represented about 35 percent of the $1.2 billion of total DTS- processed travel in fiscal year 2006. The exclusion of Army improper payment information resulted in further incomplete reporting of travel improper payments in DOD’s fiscal year 2006 PAR. Based on the information provided by DOD, the addition of Army travel payments processed through DTS would have increased estimated improper payments from $7.97 million to $12.6 million. DOD officials told us that the results from Army DTS postpayment reviews were not included in the PAR because the results were not available in time for the reporting deadline. DOD acknowledged that the PAR disclosures regarding this exclusion could have been improved.

Moreover, the descriptive information included in DOD’s PAR did not disclose the limitation to its reported estimates. Within the statistical sampling section of the IPIA reporting in DOD’s fiscal year 2006 PAR, DOD describes reviews of vouchers from IATS and a review of travel conducted by the Army Corps of Engineers, but the results of these reviews were not actually included in the fiscal year 2006 estimate of improper payments. Thus, the descriptive information may mislead readers to believe that the travel improper payment estimates are based on a larger population than is actually reported.

When we discussed the exclusion of non-DTS travel improper payments with Office of the Comptroller staff they explained that they believed the August 2006 release of updated guidance by OMB (namely Appendix C of OMB Circular No. A-123) modified which programs must be reported. In fiscal year 2006, DOD reported three new programs—one of which was travel pay. DOD officials explained that because only DTS data were readily available for reporting by the November 15 deadline, they decided that was to be the only PAR input. DOD acknowledged that the disclosure of this reporting limitation could have been improved.

DTS Improper Payments Estimates Were Not Prepared According to OMB Guidance and Were Not Statistically Valid

We also found weaknesses in the postpayment review process used to estimate improper payments for DTS-processed travel. Under OMB guidance, agencies are required to obtain a statistically valid estimate of the annual amount of improper payments. However, we found that DOD did not have documented sampling plans that detailed how the samples were planned, executed, and evaluated to derive a statistically valid improper payments estimate for DTS-processed travel. We also found that the methodology used to estimate sampling results for nine DOD agencies was not statistically valid.

Lack of Sampling Plans

Appendix C of OMB Circular No. A-123 provides guidance on using statistical sampling to estimate improper payments. According to the guidance, improper payment estimates shall be based on a statistically valid random sample of sufficient size to yield an estimate with a 90 percent confidence interval of plus or minus 2.5 percentage points (agencies may alternatively use a 95 percent confidence interval of plus or minus 3 percentage points around the estimate of the percentage of improper payments). The guidance also requires agencies to consult a statistician to ensure the validity of their sample design, sample size, and measurement methodology.

DFAS was responsible for estimating improper payment information for over $1.2 billion in fiscal year 2006 DTS payments. DFAS was unable to provide us with its DTS postpayment review sampling plan, and according to our discussions with DFAS and Office of the Comptroller officials, one was not prepared. At the end of our fieldwork, DOD provided us a retrospective document describing the fiscal year 2006 sampling plan. The plan described information on the sampling method, payment and account selection, treatment of missing records and errors, and summary reporting. While OMB’s guidance does not require a sampling plan, our Standards for Internal Control in the Federal Government identify control activities such as policies, procedures, and mechanisms that enforce management’s directives and are an integral part of an entity’s planning, implementing, reviewing, and accountability for stewardship of government resources and achieving effective results. The lack of a documented sampling plan, before and during sampling, is an internal control weakness in the process used by DFAS and could result in testing activities not being completed as anticipated by management.

For example, our review of testing for fiscal year 2006 DTS payments raised questions as to the completeness of the testing prior to the projections being made that were included in the PAR. Based on our review of the DTS postpayment review results database, as of March 2007, about 41 percent of the vouchers selected for sampling of fiscal year 2006 payments did not include an annotation that the review was completed. When we discussed this with DFAS and Office of the Comptroller staff, they responded by explaining that the population of DTS trips subject to postpayment review for any given month will not represent the actual DTS trip records settled or paid for that month due to the lag between payment and postpayment review. They also stated that statistics or population projections will not be reported for any incomplete monthly sample. DFAS staff further clarified that the fiscal year 2006 reporting was not necessarily based solely on fiscal year 2006 transactions. A component’s fiscal year 2006 projection could be based on activity from both fiscal years 2005 and 2006 due to the timing of postpayment review. For example, a component’s fiscal year 2006 estimate could be based on postpayment review of activity from April 1, 2005, through March 31, 2006—a 12-month period overlapping 2 fiscal years.

In order to assess this explanation, we requested additional information from DFAS that would detail what audit months of data were used to project and report fiscal year 2006 travel improper payments. Office of the Comptroller officials told us that they were unable to provide further support because the database did not have the needed information. If a written sampling plan, with appropriate detail, had been developed for fiscal year 2006 DTS postpayment review, it is more likely that DFAS would have performed procedures to assure that sampling was completed prior to projection and that appropriate documentation was maintained.

Incorrect Categorization of Certain Errors

In order to determine the extent of improper payments for travel processed through DTS, DFAS officials explained that the DTS postpayment review was conducted using a monthly random sample for each component and agency. In fiscal year 2006, this methodology resulted in the selection of 168 unique samples from 168 distinct populations, with each sample varying in size from 20 test items for a defense agency to nearly 500 for a large military component. DOD reported that it randomly selected vouchers from the monthly population of vouchers based on a 95 percent confidence interval with a precision of 2.5 percentage points; we did not verify whether the data from which the samples were selected were complete or the accuracy of the samples taken.

Once a sample item was selected, DFAS reviewed the selected vouchers and recorded the results of its findings in a database. The review process included a recalculation of the travel entitlement based on information submitted on the travel authorization, DTS data, and supporting documents (e.g., travel receipts, credit card information, and DOD and federal travel regulations). The reviewer considered the overall validity of a payment as well as specific items such as appropriate use of organization codes, travel dates, per diem rates, airfare rates, and correct mathematical calculation on the voucher.

If an error was found during the postpayment review process, staff recorded it in the database. Each error was classified as one of four error types (lodging, per diem, reimbursement paid incorrectly, or nonmonetary errors). Errors involving lodging, per diem, and reimbursement paid incorrectly are all monetary errors, and each error type had between 13 and 46 subclassification types reviewers used to more accurately describe the error. For example, “reimbursement paid incorrectly” errors could be classified as 1 of 46 more specific error types, such as airfare paid incorrectly, mileage paid incorrectly, and mileage over- or underpaid. DFAS used the review results and information in the database to estimate monthly improper payment amounts for each component and agency.

During our review, we noted what could be an incorrect categorization of “receipts not received” as a nonmonetary error. OMB guidance states that “when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an error.” While DFAS categorized this as a nonmonetary error, this type of error could potentially be a monetary error, but was not included in the estimate of improper payments. We noted nearly 200 instances where a payment was categorized as “receipts not received”—a nonmonetary error. However, because the monetary value of the error was not provided, we were unable to determine the effect of this incorrect classification on travel improper payments reported in DOD’s fiscal year 2006 PAR. When we discussed this categorization error with DOD officials, they explained that during the review process, DFAS allows a traveler a maximum of 30 working days to submit receipts that were not available for review. During this time, the sample item is considered open and the error is categorized as nonmonetary. If after the allotted time period the receipts are not provided, the amount is considered a monetary error. DOD believes the approximately 200 cases are likely those where the examiner was awaiting receipts for final determination of their propriety. However, on the basis of our review, we noted that all of these items had a completed date annotated in the database, suggesting they were completed audits—not audits awaiting additional documentation. We requested additional documentation from DOD that would support its assessment of these vouchers. DOD did not provide any documentation but did note in a written response to us that “all items are reviewed and settled with a determination of whether or not they are improper payment errors, and improper payments are reported as such. Incorrect or incomplete documentation may relate to nonmonetary errors that are also not improper payments (such as the wrong form being used or missing elements that are DOD internal procedural requirements, but are not required by law to support the payment).”

Flawed Methodology Used to Estimate Improper Payments at DOD Agencies

DOD also utilized a flawed methodology to estimate DTS improper payments at nine DOD agencies. Information reported for the defense agencies in the fiscal year 2006 PAR was prepared by totaling the monthly sample results from the nine defense organizations and then estimating an improper payment amount based on this aggregate data instead of deriving a monthly estimate, and then aggregating the estimated results and related confidence intervals. As described above, monthly samples were taken by component and agency for postpayment review. Despite the segmentation of the population during the testing process, the information reported by DFAS to the Office of the Comptroller has nine defense organizations reported as “other” and uses the sum of the nine organizations’ sample results to estimate an error amount. By selecting samples for each organization separately and aggregating the results from the sample to estimate the total error rate, estimates made for the organizations were incorrectly projected to the population. DFAS reports that for fiscal year 2007 it will ensure that sample statistics and population estimates for defense agencies are computed at the agency level and then summarized.

DOD Faces Challenges in Plans to More Fully Assess Travel Improper Payments

As discussed in the previous section, DOD’s process for estimating and reporting improper payments for its travel program for inclusion in its fiscal year 2006 PAR was significantly flawed. Going forward, DOD plans to use the results from its annual Improper Payments Survey, conducted by the Office of the Comptroller, to determine the extent of improper payments in several programs, including travel. The survey of fiscal year 2006 payments was not prepared in time for inclusion in the fiscal year 2006 PAR, in November 2006, but has since been completed. DOD plans to use these results for its fiscal year 2007 PAR reporting. We reviewed this survey, as a component of the department’s risk assessment for improper payments in the travel program. Our review identified several weaknesses in the survey and reported results which, if uncorrected, will limit the department’s ability to fully assess improper payments in the travel program. We identified weaknesses in DOD’s guidance regarding the estimation of travel improper payments and lack of oversight and review by the Office of the Comptroller over implementation of the survey and its results. The department is also taking other steps to improve its reporting under IPIA. To address reporting issues identified in its fiscal year 2006 auditor’s report, DOD has established a Program Officer for Improper Payment and Recovery Auditing. Further, the department is establishing an improper payment working group and held a “Department of Defense Improper Payments Information Act Conference.”

Improper Payments Survey Results Unreliable Due to Limited Guidance and Oversight by the Office of the Comptroller

DOD assesses its programs, including travel, for improper payments, based on its departmentwide annual Improper Payments Survey. The survey, distributed annually by the Office of the Comptroller, queries DOD components to determine the extent of improper payments in several programs, including travel, across the department. We reviewed this survey as a component of the department’s risk assessment for improper payments in the travel program. Our review indicated several weaknesses in the survey and reported results, including weaknesses in the guidance regarding the estimation of travel improper payments and lack of oversight and review of the survey and its results. These weaknesses, if uncorrected, will limit the department’s ability to fully assess improper payments in the travel program.

Limited Guidance Provided to DOD Components to Direct IPIA Assessment

In order to more fully assess its travel program for improper payments, the Office of the Comptroller issues its annual Improper Payments Survey to DOD components. The survey requests that each component report to the Office of the Comptroller the amount of improper payments for several programs throughout the department and to specify additional programs or activities as needed. For fiscal year 2006, the Office of the Comptroller issued guidance on completion of the IPIA survey to DOD officials. The guidance included a cover memorandum which requested that all services and agencies review and report on any program or activity payment for which the component computed the entitlement. Accompanying the memorandum were Appendix C of OMB Circular No. A-123, results of the previous year’s Improper Payments Survey, and a survey template for the component to use to submit survey results. The survey for fiscal year 2006 was sent to the components in January 2007, with survey results due to the Office of the Comptroller by January 26, 2007. The completed survey was provided to us in April 2007. DOD also used the survey to report a more complete travel population to OMB. This report detailed improper payments information for $3.4 billion in travel payments rather than the $824 million reported in the PAR. The survey also identified $20 million in travel improper payments, a $12 million increase from the $8 million reported in DOD’s fiscal year 2006 PAR. Eight entities, other than DFAS, reported information in the fiscal year 2006 IPIA survey for travel pay. A summary of the improper payment survey results for travel is shown in table 2.

Going forward, considering the complexity of DOD, extent of travel throughout the department, and information reported in the survey of fiscal year 2006 payments, the guidance issued by the Office of the Comptroller does not provide adequate information to allow components to properly report improper payment information needed for a useful assessment. Our internal control standards identify information and communications as one of the five standards for internal control. This standard states that information should be communicated to those within the entity in a form that enables them to carry out their responsibilities. The guidance issued by the Office of the Comptroller to DOD components does not provide adequate guidance specific to DOD to allow for components to prepare reliable estimates of improper payments. For example, while OMB guidance requires that agencies obtain a statistically valid estimate of the annual amount of improper payments in a program, Office of the Comptroller guidance does not adequately address sampling methodologies to employ, or provide contact information on how to seek assistance with this matter. Further, the guidance does not offer detailed information on the steps needed to adequately implement IPIA at DOD or examples of improper payments relevant to DOD.

In addition, the guidance does not provide sufficient procedures on how to identify or assess risk factors to assist DOD components in identifying programs and activities vulnerable to improper payments, such as assessments of internal control, audit report findings, and human capital risks related to staff turnover, training, or experience. Assessing the effect of risk conditions identified during the risk assessment plays a major role in effectively determining the overall risk level of an agency’s operations. Some risk conditions may affect a program or activity to a greater or lesser degree. Likewise, not all risk conditions may be relevant to each program or activity. This type of risk identification and assessment is consistent with our previous recommendation that OMB establish risk factors in its guidance for agencies to consider, and is also consistent with our standards of internal control and executive guide on strategies to manage improper payments, which provides a framework for conducting a comprehensive risk assessment.

Improper Payment Estimate Process for Non-DTS Travel Is Decentralized

The process each DOD component uses to estimate its travel improper payments and report to the Office of the Comptroller varies throughout the department and is largely decentralized. Further complicating the assessment for travel improper payments are the numerous systems used to process travel throughout the department. For survey reporting, DFAS (Indianapolis) is responsible for reporting all travel processed through DTS and certain payments processed through IATS for Army and some other defense agencies. The determination of all other travel pay and associated improper payments is the responsibility of the component that computed the entitlement. The Office of the Comptroller relies on each component to determine and report this information. In our review of the fiscal year 2006 Improper Payments Survey, we noted that the survey results were not always statistically valid and in some cases appear unreasonable. Improved guidance by the Office of the Comptroller will be necessary to assure that survey information is reliable and complete for IPIA reporting.

DFAS is responsible for estimating and reporting travel improper payments for travel processed for the Army by the IATS system. In fiscal year 2006, DFAS (Indianapolis) did not conduct a statistically valid sample and review of travel payments processed through IATS. Instead, officials from DFAS performed limited reviews of IATS vouchers paid to determine if any such payments were improper. For example, DFAS reviewed payments to determine if payments for the same travel activity had been paid in both DTS and IATS—essentially a duplicate payment review. This review found $1.5 million in improper payments in fiscal year 2006, which was reported in the survey, as shown previously in table 2. Such DFAS IATS reviews cannot be used to estimate the value of improper payments to the entire IATS population.

The Air Force reports improper payment information on travel processed through the Reserve Travel System. For fiscal year 2005, the Air Force sought the guidance of the Air Force Audit Agency to determine if the Air Force had developed and used an effective methodology to estimate and report the dollar amount of improper travel payments processed through the Reserve Travel System. The Air Force Audit Agency reported that the methodology used by the Air Force to estimate Reserve Travel System improper payments did not meet IPIA requirements. As part of the audit, the Air Force Audit Agency developed and provided the Air Force with a statistically valid sampling methodology for centralized reviews that it reported would meet IPIA reporting requirements. The Air Force told us that it now follows the sampling methodology developed by the Air Force Audit Agency. As shown in table 2, utilizing this methodology, the Air Force estimated nearly $4.6 million in travel improper payments were processed in fiscal year 2006 by the Reserve Travel System—an improper payment estimate of approximately 4.5 percent of the $101 million in payments processed by the Reserve Travel System during this period. However, after reporting its estimated results in the survey for fiscal year 2006 payments, the Air Force revised the results of its IPIA review. In a memo dated August 8, 2007, the Air Force disclosed an underestimation of total Reserve Travel System payments, revising the reported amount to $1.5 billion, instead of the $101 million originally reported. Based on a centralized review, the Air Force projected its improper payments to be $13.6 million—an error rate of 0.9 percent.

The Army also has a decentralized review process for non-DTS travel reimbursements for improper payments. As described above, DFAS (Indianapolis) is responsible for identifying and reporting Army IATS payments calculated and disbursed by DFAS. However, the Army also reported travel improper payments for three other programs or activities in the fiscal year 2006 improper payments survey: Army--Korea; Army--Europe; and the Army Corps of Engineers.

Staff responsible for the improper payment review for the Korea command explained the process they follow to estimate and report improper payments, which is completed as part of the internal control process and includes an annual inspection. In fiscal year 2006, this review included a reinspection of every voucher for a 1-month period. This review discovered few improper payments. The future plans for improper payment reviews were unknown when we spoke to the Army-Korea staff due to ongoing DTS implementation there. In the fiscal year 2006 survey, Army--Korea reported no improper payments and over $12.6 million in travel payments.

The improper payment review for Army--Europe is even more decentralized, with finance officers throughout the region preparing improper payment information independently. From our discussion with Army--Europe staff, there is no formal process for reviewing and reporting improper payment information throughout the region beyond the IPIA guidance provided by the Office of the Comptroller. In the fiscal year 2006 survey, Army--Europe reported no improper payments and over $3.9 million in payments.

During fiscal year 2006, the Army Corps of Engineers processed all of its travel using IATS. The Army Corps of Engineers finance center is responsible for compiling and reporting travel improper payments. Officials from the Army Corps of Engineers finance center reported that all TDY and PCS vouchers greater than or equal to $2,500 were subject to postaudit review, and a sample of every 366th TDY voucher less than $2,500 was also reviewed by finance center staff. The sampling plan was designed to have a 95 percent confidence level plus or minus 2 percent. A DFAS statistician attested to the validity of the sampling methodology used by the Army Corps of Engineers. In the fiscal year 2006 survey, the Army Corps of Engineers reported $57,279 in travel improper payments.

Limited Oversight by Office of the Comptroller Contributes to Unreliable Assessment

Our review indicated weaknesses in the survey and reported results for travel were caused, in part, by limited oversight and review by the Office of the Comptroller of the survey and its results. These weaknesses include a survey that does not consider the entire population of travel payments for fiscal year 2006 and information reported that appears unreliable. Without improved oversight by Office of the Comptroller, the department’s future reporting under IPIA could be compromised.

Our internal control standards include monitoring as one of the five standards for internal control. The standards provide that internal control should generally be designed to assure that ongoing monitoring occurs in the course of normal operations and includes regular management and supervisory activities, comparisons, and reconciliations. During our review of the fiscal year 2006 improper payments survey, we noted several weaknesses that indicate a lack of appropriate monitoring or oversight by the Office of the Comptroller. The most notable weakness we found in the survey is the population of travel payments from which improper payments were estimated. As shown in figure 2, in fiscal year 2006, $8.5 billion was obligated for travel by DOD as reported in the DOD budget for fiscal year 2008. The improper payments survey for this same time period reported a total travel expenditure population of $3.4 billion—a difference of $5.1 billion. The survey results were more complete than the PAR reporting, which reported on approximately $824 million in travel payments. The exclusion of such a significant portion of travel payments in the survey decreases its effectiveness as an improper payments assessment tool and indicates inadequate monitoring of the survey process by the Office of the Comptroller. A strong internal control environment, particularly monitoring, should have included regular reconciliations and comparisons that would have brought this discrepancy to management’s attention in a timely manner.

The Office of the Comptroller did not clearly define DOD’s travel population before collecting the improper payment information for its fiscal year 2006 improper payment survey. Because DOD did not clearly define the full population of travel payments, the full extent of travel improper payments at the department is unknown. Further, until DOD establishes guidance with sufficiently detailed procedures on how to define its population for travel IPIA reporting, future annual reporting is unlikely to be comparable across fiscal years, which could prevent users of IPIA information from determining progress made in reducing improper payments.

When we met with Office of the Comptroller officials in March 2007, we discussed the importance of a complete travel payment population. At that time, Office of the Comptroller officials said they were not aware that the travel payment population was a potential problem. However, after discussion they agreed to reconcile the difference between the budget obligation amounts ($8.5 billion) and the payment amounts reported in the fiscal year 2006 improper payments survey ($3.4 billion). In September 2007, the Office of the Comptroller provided reconciliation information for approximately $1.9 billion in travel payments and described the following factors that may have contributed to the remaining variance: classified program expenditures that are not included in IPIA reporting, timing differences between obligations and expenditures, and reviews and reporting based on audit month rather than actual reporting period (e.g., audit and reporting year may run from August through July while the fiscal year is October through September).

As reported in the PAR, DOD travel improper payments appear immaterial and the fiscal year 2006 reported travel payment population was substantially less than other programs reported on by DOD. While this might decrease the focus given to the travel program, we do not consider the information reliable and if, for example, the total population of $8.5 billion was reported on, with an improper error rate of 1 percent as estimated by DOD, travel improper payments would be approximately $85 million. This is a substantial amount of improper payments and would exceed the improper payment estimates for all but two programs as reported in fiscal year 2006—military health benefits and commercial pay.

In addition to the incomplete travel payment population, we noted weaknesses in the oversight and review of some data reported in the improper payments survey. Four program/activities (Marine Corp Travel Pay (IATS), Army–Korea, Army–Europe, and the Defense Security Service PCS travel) reported no improper payments on $17 million in associated travel payments. We did not review vouchers to determine if any improper payments existed in this population but based on the description of the improper payments review we obtained from Army–Korea and Army--Europe, we do not believe the review process used provided a reliable basis for IPIA reporting for those components. For example, Army–Korea’s review only considered a review of payments during a 1-month period, instead of a statistically valid sample of payments for the fiscal year. Additionally, one entity reporting under Army–Europe reported that because they preaudit their travel vouchers they have very few improper payments. Another official told us that Army–Europe does little to identify and report travel improper payments. Army–Europe staff told us they were not trained in the proper method for reporting improper payment information. While it is possible there may not be any improper payments in a population, the review process was inadequate to provide a basis for reporting no improper payments on $17 million in travel payments. When we discussed these concerns, Office of the Comptroller staff informed us that they are doing further analysis to determine the accuracy and completeness of the information. Further, the staff told us that they use variance analysis to determine if the information submitted is reasonable based on previously reported information.

Office of the Comptroller Taking Steps to Improve Reporting of Travel Improper Payments

While there are serious challenges facing the Office of the Comptroller in the assessment and reporting of travel improper payments, the office is taking steps to improve its oversight of the IPIA estimating and reporting process. Recently, the Office of the Comptroller established a Project Officer for Improper Payments and Recovery Auditing. Additionally, the DOD Project Officer has established a working group, comprised of representatives from numerous components, intended to further improve DOD’s compliance with IPIA reporting.

To introduce DOD component participants to improper payment issues, including identifying and reporting improper payments, establishing and achieving reduction targets, and recovery auditing, the Office of the Comptroller held the “Department of Defense Improper Payments Information Act Conference.” The conference, held in May 2007, included presentations by officials from OMB, DFAS, Navy, DOD OIG, and Office of the Comptroller. Additionally, there was a 3-hour session dedicated to statistical analysis, with presentations by OMB and DFAS on statistical methodologies. Such conferences or other training activities, if held on a regular basis, could serve to better train DOD staff responsible for improper payment reporting and help assure that information provided to the Office of the Comptroller for reporting is reliable and prepared in accordance with OMB and DOD guidance.

Further, the Office of the Comptroller provided us with a draft of the “Recommended Post Payment Sampling Plan for Defense Travel System, WinIATS & PCS Travel Claims,” for fiscal year 2008. This sampling plan details the sampling method, selection process, treatment of missing records, information on completing the target sample, reporting errors, and summary reporting. If implemented effectively, this methodology should result in simple random sampling of DTS payments by component and the sampling of DOD agencies in aggregate. The plan is estimated to reduce the number of DTS sample items from approximately 43,600 in fiscal year 2007 to 17,600 in fiscal year 2008—a 26,000 decrease in tested sample items for the year, largely from a reduction in sampling of DOD agencies. This decrease should allow DFAS to perform more timely postpayment reviews because the number of sample items to be reviewed would be less.

Conclusions

Although DOD has made some progress in implementing the requirements of IPIA for its travel program, challenges remain in ensuring that the complete population of all appropriate travel payments has been identified and reviewed to reliably determine its susceptibility to significant improper payments. As DOD continues to improve its IPIA efforts in the travel program, the agency should be better able to identify and report improper payments. This is not a simple task and will not be easily accomplished, particularly in light of the decentralized nature of DOD’s travel program. For example, although DTS is intended to centralize travel processes at DOD, that goal has not yet been achieved, and an estimated 90 percent of DOD’s travel payments for fiscal year 2006 were computed outside of DTS. Improved guidance and oversight by the Office of the Comptroller will be key to ensuring that complete and reliable estimates of improper payments are reported. With the ongoing imbalance between revenues and outlays across the federal government, and the Congress’s and the American public’s increasing demands for accountability over taxpayer funds, improving DOD’s ability to identify, reduce, and recover travel improper payments is even more critical.

Recommendations for Executive Action

In order to improve the usefulness and completeness of IPIA reporting for DOD’s travel program, we recommend that the Secretary of Defense direct the DOD Comptroller to take the following four actions: Establish and implement policies and procedures to reliably identify the complete population of DOD travel payments.

Establish and implement policies and procedures to report a valid improper payment estimate for the population.

Develop and implement guidance for the preparation of improper payment estimates, to include (1) how to compute a statistically valid estimate of improper payments, and (2) the consideration of risk factors associated with vulnerability to improper payments.

Establish and implement policies and procedures specifying actions to oversee the data collection process for travel improper payments to be included in the annual PAR, including, at a minimum: (1) periodic reviews of processes used by components to prepare improper payment estimates, and (2) reviews of information reported in the improper payment survey to assure that the population being reported is complete, and the improper payment estimate data reported are reliable and complete.

Agency Comments and Our Evaluation

DOD provided written comments on a draft of this report, which are reprinted in appendix II. In its written response, DOD concurred with three of the recommendations and partially concurred with the fourth. DOD partially agreed with our recommendation that the department develop and implement guidance for the preparation of improper payments estimates, including how to compute a statistically valid estimate of improper payments and the consideration of risk factors associated with vulnerability to improper payments. Although it concurred with the intent of our recommendation, DOD stated that OMB’s Circular No. A-123, Appendix C, provided guidance for statistical sampling and for identifying risk factors and that the decentralized nature of the DOD components and the varying systems used for travel pay computations make a detailed universal approach impractical. We agree that DOD is a decentralized organization, with a wide breadth of activities and components. Indeed, this is the primary reason for our recommendation that DOD develop and implement additional guidance for use by its components. OMB’s guidance provides a broad framework for use by agencies across the federal government. However, individual agencies are responsible for implementing OMB’s guidance with policies and procedures that meet the specific needs of their operations. Therefore, we continue to recommend that DOD issue guidance to provide potential sampling methodologies, contact information on how to seek assistance with this matter, information on the steps needed to adequately implement IPIA at the component level, and examples of improper payments relevant to DOD. This guidance should be developed in a form that enables DOD staff across the broad range of DOD activities and components to carry out their responsibilities.

Further, DOD commented that it had completed action on all recommendations. Specifically, DOD stated that a policy memorandum issued by the Deputy Chief Financial Officer, dated November 27, 2007, addressed all needed actions. This document consists of a cover memorandum, excerpts from Appendix C of OMB Circular No. A-123, and DOD improper payment component contact information. As part of our standard recommendation follow-up process, we will consider this policy memorandum as well as DOD’s progress in implementing it throughout the department. It is important that DOD takes action to ensure that such policy guidance is fully and effectively implemented if DOD is to improve the usefulness and completeness of its IPIA report for the travel program.

DOD also provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to other interested congressional committees and to affected federal agencies. Copies of this report will be made available to others upon request. In addition, this report is available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions regarding this report, please contact me at (202) 512-9095 or at williamsm1@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To assess the completeness and accuracy of the Department of Defense’s (DOD) fiscal year 2006 Improper Payments Information Act of 2002 (IPIA) disclosure for travel improper payments, we reviewed the IPIA disclosures in its performance and accountability reports (PAR) for fiscal years 2003, 2004, 2005, and 2006. We also contacted representatives from DOD Office of Inspector General to discuss their assessment of DOD’s compliance with IPIA for fiscal year 2006. We met with representatives from the Office of the Under Secretary of Defense (Comptroller) (Office of the Comptroller) to discuss their preparation of IPIA disclosure information included in the DOD PAR. We met with and obtained supporting documentation from the Defense Finance and Accounting Service (DFAS) officials responsible for estimating and reporting improper payment information for travel processed by the Defense Travel System (DTS). We observed the processing of Army travel through the Integrated Automated Travel System (IATS) and the postpayment review process for both Army IATS-processed travel and DTS-processed travel. We analyzed information provided by DFAS officials related to travel postpayment review to determine if it was complete and reliable for reporting purposes. We also reviewed associated improper payment reporting information. Additionally, we reviewed applicable laws, Office of Management and Budget guidance, DOD procedural directives, DOD memos, and other guidance used by DOD to guide IPIA reporting to determine what legislation and guidance was in place.

To assess DOD’s planned efforts to improve and refine its processes for estimating and reporting on travel improper payments we met with staff from the Office of the Comptroller. We obtained information from representatives from Army-Korea, Army-Europe, the Army Corps of Engineers, Air Force, and Navy to determine how each component reviewed travel payments processed through its respective legacy systems for improper payments and the reporting of that information to the Office of the Comptroller. We reviewed the Improper Payments Survey for fiscal year 2006 payments and met with officials from the Defense Travel Management Office and the Project Management Office for the Defense Travel System. We attended the “Department of Defense Improper Payments Information Act Conference.”

We did not independently verify the reliability of all information provided. However, we did compare it with other supporting documents, when available, to determine data consistency and reasonableness. Based on our analysis, we believe the information we obtained is sufficiently reliable for its use in this report.

We conducted this performance audit from November 2006 through September 2007 in accordance with generally accepted government auditing standards.

We provided a draft of this report to DOD for comment. DOD provided written comments, which are presented in the Agency Comments and Our Evaluation section of this report and are reprinted in appendix II. DOD also provided technical comments, and we made revisions as appropriate.

Appendix II: Comments from the Department of Defense

Appendix III: Excerpts from DOD’s Fiscal Year 2006 PAR

FY 2006 Estimated Improper Payments (September 30, 2006)

Electronic Government (e-Gov)

Appendix IV: GAO Contact and Staff Acknowledgements

Staff Acknowledgments

In addition to the contact named above, the following individuals also made significant contribution to this report: Dianne Guensberg, Assistant Director; Sharon Byrd; Francine DelVecchio; Heather Dunahoo; and Bradley Klingsporn.