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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

Summary: 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. 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. 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.