oversight

DOD Financial Management: Actions Needed to Address Deficiencies in Controls over Army Active Duty Military Payroll

Published by the Government Accountability Office on 2012-12-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States Government Accountability Office

GAO             Report to Congressional Committees




                DOD FINANCIAL
December 2012



                MANAGEMENT

                Actions Needed to
                Address Deficiencies
                in Controls over Army
                Active Duty Military
                Payroll




GAO-13-28
                                           December 2012

                                           DOD FINANCIAL MANAGEMENT
                                           Actions Needed to Address Deficiencies in Controls
                                           over Army Active Duty Military Payroll
Highlights of GAO-13-28, a report to
congressional committees




Why GAO Did This Study                     What GAO Found
In March 2012, GAO reported on             GAO identified deficiencies in the design of key control procedures relied on by
challenges that DOD and the Army           the Army and the Defense Finance and Accounting Service-Indianapolis (DFAS-
face in achieving audit readiness with     IN) to detect errors in payroll disbursements to active duty Army military
respect to the over $45 billion in         personnel. Specifically, GAO found that the Army’s procedures for reviewing Unit
reported fiscal year 2010 Army active      Commander Finance Reports (UCFR) do not (1) provide for monitoring of
duty military payroll disbursements. In    required UCFR reviews to better assure detection of payroll errors, (2) require
performing that work, GAO identified       reporting on completed UCFR reviews in all cases, and (3) clearly establish time
indications of possible weaknesses in      frames for completing and reporting on UCFR reviews. GAO’s analysis of DFAS
selected processes, systems, and
                                           data on military pay debts and Army investigations of potential fraud completed
controls relied on to reasonably assure
                                           over the past 2 years identified numerous instances of the effect of errors or
the validity and accuracy of reported
Army active duty military payroll that
                                           irregularities in Army active duty payroll disbursements that went undetected for
were beyond the scope of that audit.       lengthy periods of time, including some that were not detected for up to 2 years
GAO subsequently completed work on         or until the soldier left the Army. For example:
those issues and is presenting the         • A soldier who separated from the Army in 2009 continued to receive active
results in this report. GAO                     duty pay totaling about $185,000 until 2011.
(1) assessed the design of key controls    • A soldier who was absent without leave from January 2010 to September
for payroll accuracy and (2) determined         2011 received military pay of $33,268 to which she was not entitled.
the extent to which the Army and           • A soldier under investigation for possible fraud allegedly received over
DFAS-IN have monitoring controls to             $34,000 in paratrooper and language proficiency pay but did not have a
identify and address any systemic               documented record of jumps performed or up-to-date proficiency
weaknesses. GAO compared selected               certifications.
Army and DFAS-IN processes,
systems, and controls for assuring         GAO’s analysis determined that the Army could reduce its risk of lengthy delays
payroll accuracy to applicable internal    in detecting and correcting pay errors with more stringent UCFR monitoring and
control standards and to applicable        reporting requirements.
provisions of law, regulations, and        GAO also found that DFAS and the Army have procedures and metrics in place
policies and procedures. GAO also          that focus on the timeliness of manual processing and payroll adjustments for
interviewed officials and examined         error corrections. However, they do not have procedures and metrics to enable
related data and information.              them to gather data on active duty pay errors that were related to causes other
                                           than timeliness, such as over- and underpayments, data entry errors, and
What GAO Recommends                        unauthorized payments. Further, the design of existing Defense Joint Military Pay
GAO made five recommendations to           System-Active Component and DFAS-IN Case Management System procedures
strengthen Army and DFAS monitoring        for transaction processing and error correction did not provide for monitoring to
and reporting controls over Army active    capture data on all types of pay errors and their causes that would be useful in
duty military payroll accuracy. DOD        identifying the extent to which there are any additional systemic payroll control
partially concurred with all five          weaknesses. For example, an Army National Guard colonel deployed on active
recommendations, stating that it           duty to Afghanistan reported that he experienced financial hardship when his
concurs fully with the goal of improving   military pay was stopped for 1-1/2 months. The absence of data on the extent
military pay but additional testing is     and causes of all types of Army active duty military payroll errors impairs the
needed to identify any cost-effective      Army’s ability to identify and address any adverse trends that may indicate the
corrective actions. GAO continues to       existence of other systemic control weaknesses. Overall, the control deficiencies
believe that its recommendations for       that GAO identified increase the risk that the nearly $47 billion in reported fiscal
corrective action are appropriate, as      year 2011 Army active duty military payroll includes Army servicemembers who
discussed more fully in the report.        received pay to which they were not entitled and others who did not receive the
                                           full pay they were due. Further, to the extent that errors in Army active duty pay
View GAO-13-28. For more information,      are not identified and addressed in a timely manner, they can have a negative
contact Asif Khan at (202) 512-9869 or
khana@gao.gov.                             effect on soldier welfare and, ultimately, could erode soldiers’ focus on their Army
                                           mission.

                                                                                    United States Government Accountability Office
Contents


Letter                                                                                      1
              Background                                                                    2
              Scope and Methodology                                                         7
              Deficiencies in Design of Unit Commander Finance Report
                Monitoring and Reporting Procedures                                         9
              Ineffective Procedures for Capturing Information on Payroll Errors
                to Identify and Correct Systemic Weaknesses                               18
              Conclusions                                                                 23
              Recommendations for Executive Action                                        24
              Agency Comments and Our Evaluation                                          24

Appendix I    Comments from the Department of Defense                                     29



Appendix II   GAO Contact and Staff Acknowledgments                                       33



Tables
              Table 1: Fiscal Year 2011 Active Army Military Pay-Related Out-of-
                       Service Debt                                                       11
              Table 2: Incidences of Potential Military Pay-Related Fraud for
                       Fiscal Years 2010 and 2011 from U.S. Army CID Reports              14


Figure
              Figure 1: Current Process for Review and Submission of UCFRs                17




              Page i                                      GAO-13-28 Army Military Pay Controls
Abbreviations
AR                   Army Regulation
AWOL                 Absent Without Leave
CID                  Criminal Investigation Division
CMS                  Case Management System
DDMS                 Defense Debt Management System
DFAS                 Defense Finance and Accounting Service
DFAS-IN              Defense Finance and Accounting Service – Indianapolis
DJMS–AC              Defense Joint Military Pay System–Active Component
DMPO                 Defense Military Pay Office
DOD                  Department of Defense
FMR                  Financial Management Regulation
GAAP                 Generally Accepted Accounting Principles
iPERMS               Interactive Personnel Electronic Records Management
                     System
IPPS-A               Integrated Personnel and Payroll System–Army
Mil Pay Ops          Military Pay Operations
SRD-1                Standard Financial System (STANFINS) Redesign
                     Subsystem-1
STANFINS             Standard Financial System
TOP                  Treasury Offset Program
UCFR                 Unit Commander Finance Report
UCMJ                 Uniform Code of Military Justice

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Page ii                                              GAO-13-28 Army Military Pay Controls
United States Government Accountability Office
Washington, DC 20548




                                   December 12, 2012

                                   Congressional Committees

                                   On March 22, 2012, we issued a report on challenges in achieving audit
                                   readiness for the U.S. Army’s military pay. 1 In performing the work that
                                   led to our March 2012 report, we identified preliminary indications of
                                   weaknesses in the design of processes, systems, and controls used to
                                   detect and correct errors in Army military payroll disbursements that were
                                   beyond the scope of that audit. These concerns, if not addressed,
                                   increase the risk that the nearly $47 billion in reported fiscal year 2011
                                   military payroll includes active duty Army servicemembers who received
                                   pay to which they were not entitled or did not receive the full pay they
                                   were due.

                                   As discussed in our March report, although the Army had established the
                                   Interactive Personnel Electronic Records Management System (iPERMS)
                                   as the Army’s Official Military Personnel File in 2007, it had not
                                   consistently or completely populated iPERMS with personnel records.
                                   Consequently, we determined that the Army did not have a central
                                   repository of official military personnel records and other documents
                                   affecting pay that was maintained, updated, and validated. Such a
                                   repository would have provided support for the accuracy and validity of
                                   the Army’s active duty payroll transactions. The lack of such a repository
                                   of official records necessitates having effective compensating and
                                   monitoring controls to provide assurance over the accuracy and validity of
                                   active duty Army payroll data. Because of the lack of such a repository
                                   and the preliminary indications of weaknesses in processes, systems,
                                   and controls used to detect and correct errors in military payroll
                                   disbursements that we identified, we initiated this review.

                                   Our objectives for this report were to (1) assess the effectiveness of the
                                   design of the process for unit commander review of monthly payroll as a
                                   compensating control for assuring the accuracy of the Army’s active duty
                                   military payroll data and (2) determine the extent to which the Army and
                                   the Defense Finance and Accounting Service-Indianapolis (DFAS-IN)



                                   1
                                    GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving
                                   Audit Readiness for Its Military Pay, GAO-12-406 (Washington, D.C.: Mar. 22, 2012).




                                   Page 1                                           GAO-13-28 Army Military Pay Controls
             have monitoring controls in place to accumulate and analyze military
             payroll errors to identify and address any systemic weaknesses. To
             address our first objective, we focused our work on the design of
             compensating controls over the accuracy of monthly payroll data using
             the Unit Commander’s Finance Report (UCFR). To address our second
             objective, we analyzed the design of DFAS-IN’s processes for
             accumulating and analyzing data related to adjusting payroll amounts in
             the Defense Joint Military Pay System-Active Component (DJMS-AC) for
             active Army servicemembers who received over- and underpayments.
             We also analyzed DFAS-IN’s Case Management System (CMS)
             processes for accumulating data on the correction of Army military pay
             errors and processing of pay transactions outside of DJMS-AC. 2 We
             compared Army and DFAS-IN processes, systems, and related controls
             for assuring the reliability of Army active duty military payroll transactions
             to Standards for Internal Control in the Federal Government, 3 as well as
             applicable provisions of laws and regulations, including the Department of
             Defense (DOD), Army, and DFAS policies and procedures. Further
             details are discussed in the scope and methodology section. We
             conducted this performance audit from March 2012 to December 2012 in
             accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             The U.S. Army is responsible for land-based military operations and is the
Background   largest and oldest established branch of the U.S. military. For fiscal year
             2011, Congress appropriated $52.5 billion to the “Military Personnel,
             Army” appropriation, which is a 1-year appropriation available for the pay,
             benefits, incentives, allowances, housing, subsistence, travel, and training




             2
              The Army and DFAS-IN developed CMS to track and measure timeliness of manual
             work-arounds to calculate military pay where DJMS-AC had limited functionality. CMS
             also tracks cases for correcting pay errors identified by soldiers, local military pay offices,
             and other sources.
             3
              GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
             (Washington, D.C.: November 1999).




             Page 2                                                  GAO-13-28 Army Military Pay Controls
                             primarily for active duty servicemembers. 4 DFAS-IN, within the Office of
                             the Under Secretary of Defense Comptroller/Chief Financial Officer (DOD
                             Comptroller), provides accounting, disbursing, and financial reporting
                             services to the Army. According to DFAS-IN, of the $52.5 billion in fiscal
                             year 2011 military personnel appropriations, nearly 800,000 active duty
                             Army servicemembers received nearly $47 billion in pay and allowances.


DOD Organizations,           The DOD Comptroller’s Office sets DOD financial management policy,
Processes, and Systems       including policy on military pay, which is included in DOD’s Financial
Involved in Supporting the   Management Regulation (FMR), Volume 7A, Military Pay Policy and
                             Procedures – Active Duty and Reserve Pay. FMR, Volume 7A provides
Army’s Active Duty           guidance on basic pay calculations; special pays, including pay of
Military Pay                 medical and dental officers, pay for hostile fire or imminent danger, and
                             pay for foreign language proficiency; bonuses; allowances; allotments; tax
                             withholding; and leave. FMR, Volume 7A also sets the policy on the effect
                             of court-martial sentences on pay and allowances. The Office of the
                             Assistant Secretary of the Army for Manpower and Reserve Affairs is
                             responsible for setting the strategic direction and providing overall
                             supervision for manpower, personnel, and Reserve Component affairs of
                             the Army and also is responsible for the Army’s manpower policy and
                             human resources, among other things. In order to fulfill these
                             responsibilities, Manpower and Reserve Affairs relies on the Deputy Chief
                             of Staff, Army G-1, for advice and assistance. 5

                             The Army G-1 Resources Division’s Compensation and Entitlement
                             Branch is responsible for active, reserve, and retired military
                             compensation. The branch develops legislative proposals and policy
                             directives for all forms of pay and allowances and represents the Army on
                             the Per Diem, Travel and Transportation Allowance Committee of the
                             Military Advisory Panel as well as numerous DOD working groups,
                             including Basic Allowance for Subsistence, Basic Allowance for Housing,
                             Special and Incentive Pays, Travel Reengineering, and Debt Avoidance.

                             The Army Human Resources Command supports Army G-1 in the
                             management of all military personnel by serving as the functional


                             4
                              Department of Defense Appropriations Act, 2011, Pub. L. No. 112-10, div. A, 125 Stat.
                             38, 38, 85 (Apr. 15, 2011).
                             5
                             The Deputy Chief of Staff, Army G-1, function also is referred to as Army Personnel.




                             Page 3                                              GAO-13-28 Army Military Pay Controls
                        proponent for military personnel management and personnel systems.
                        The Army Human Resources Command is responsible for providing
                        DFAS-IN with accurate and timely information regarding changes in
                        individual military member status necessary to maintain military payroll
                        accounts. DFAS-IN is responsible for processing the Army’s military
                        payroll using DJMS-AC. DFAS-IN and its Military Pay Operations (Mil Pay
                        Ops) staff rely on numerous Army military personnel records generated
                        by the Army Reception Battalion installation personnel offices, Defense
                        Military Pay Offices (DMPO), Army Finance Offices, Army Human
                        Resources Command, and unit commanders to establish and update
                        active duty military pay accounts in DJMS-AC. The Army Financial
                        Management Command under the Assistant Secretary of the Army for
                        Financial Management and Comptroller provides finance support and
                        liaison to Army commands, installations, and tactical units and to DFAS
                        on matters pertaining to the adequacy of finance policies, systems, and
                        reporting requirements.


DFAS-IN Army Military   To provide payroll support to the vast number of active Army
Pay Process             servicemembers, DFAS-IN has 38 DMPOs within the United States, 6 and
                        the Army has finance offices overseas that provide pay services to
                        military personnel in designated geographical areas. Military pay starts
                        once a master military payroll account is established in DJMS-AC. Army
                        active duty military personnel are to receive pay and allowances based on
                        their grade and time in service; location; and whether they are married,
                        have dependents, or are performing special duties. The Army’s active
                        duty servicemembers may elect to be paid once a month—at the end of
                        the month—or twice a month—at midmonth and at the end of the month.
                        DJMS-AC consolidates servicemember pay information into one monthly
                        Leave and Earnings Statement for each member’s pay account. In
                        addition to basic pay, military members may also be eligible for cash
                        recruitment or retention incentives (that is, bonuses). Any necessary pay
                        change after the pay account is set up is to be initiated by the appropriate
                        officials throughout the Army. These changes generally relate to
                        promotions, special duty pay, incentive pay, Permanent Change of
                        Station assignments, Temporary Change of Station assignments, and
                        changes in dependents. DFAS-IN makes payments of basic pay and
                        allowances to Army active duty servicemembers using electronic funds



                        6
                        DFAS-IN also has 14 satellite offices in the United States.




                        Page 4                                               GAO-13-28 Army Military Pay Controls
transfer from DJMS-AC. 7 DFAS-IN’s Disbursing Office uses the Army’s
disbursing system 8 to send electronic payments to the Federal Reserve
Banks, which in turn distribute payments to each servicemember’s bank
account.

DFAS-IN and its DMPOs are to update Army active duty military pay
records in DJMS-AC based on changes in the soldier’s status. These
updates generally correct over- and underpayments caused by delay of
document submissions and transaction errors. 9 For active duty soldiers,
underpayments are generally adjusted in the next pay check, while
overpayments result in a deduction to the soldier’s pay. 10 For Army
soldiers who have left the service, DFAS establishes an out-of-service
debt and uses the Defense Debt Management System (DDMS) to
manage the debt collection process. 11, 12 DFAS is responsible for
collecting debts related to military pay issues as well as debts related to
lost or damaged property and other unpaid obligations and fees. Federal
statutes governing claims of the U.S. government authorize DOD to use
certain debt collection tools, such as interest charges, offset, and private


7
 Although most payments are electronic fund transfers to the servicemember, some
payments may be made manually. For example, casual pay (an advance payment) may
be made using a U.S. Treasury check, cash, or a stored value card (that is, a debit card).
8
 The Army’s disbursing system, Standard Financial System (STANFINS) Redesign
Subsystem-1, also referred to by the Army as SRD-1, is an online, interactive accounting
and finance system that incorporates military pay, accounts payable, civilian pay,
accounting, and disbursing into the online finance and accounting system.
9
 Other updates that do not affect the monthly pay amount include name change and
expiration of term of service.
10
  According to the DOD FMR, Volume 7A, Chapter 50, dated February 2012, an
overpayment of pay or allowances determined to be caused by fault of the member will be
recovered in monthly installments not to exceed two-thirds of the member’s monthly
disposable pay. An overpayment of pay or allowances determined to be through no fault
of the member will be recovered in monthly installments not to exceed 15 percent of the
member’s monthly disposable pay.
11
  DDMS is a DOD-wide system used by DFAS to track and collect unpaid debts of civilian
and military employees who have left DOD.
12
  DFAS debt collection action can involve assessing a penalty and an administrative fee,
arranging for installment payments and, if necessary, placing the debt with a private
collection contractor and referring the debt to the Treasury Offset Program (TOP). Under
TOP, Treasury’s Financial Management Service also may place debts with debt collection
contractors, offset debts against federal tax refunds or other federal payments, and refer
cases to the Department of Justice for litigation in federal court.




Page 5                                               GAO-13-28 Army Military Pay Controls
                             collection contractors. 13 Thus, if debts are not paid before the soldier
                             separates from military service, DFAS can refer these debts to private
                             collection contractors.


Establishing, Monitoring,    Army Regulation (AR) 37-104-4, Military Pay and Allowances Policy,
and Investigating Military   dated June 8, 2005, provides detailed policy provisions on specific pay
Pay Statuses                 and allowances as well as guidance on pay stoppages, adjustments, debt
                             collection action, and use of the UCFRs. The Compensation and
                             Entitlement Branch works with DFAS-IN to research and resolve soldier
                             pay issues, process adjustments to pay, and take debt collection action.
                             The DMPOs and Army Finance Offices provide UCFRs containing
                             monthly military payroll data generated by DJMS-AC to unit commanders
                             as a compensating control for verifying payroll accuracy. The UCFR
                             provides the unit commander a summary of a soldier’s monthly pay
                             account status. AR 37-104-4 requires unit commanders to review the
                             UCFR on a monthly basis and promptly report any discrepancies to their
                             local DMPO. In addition, when the Army Financial Management
                             Command, the Compensation and Entitlement Branch, DMPOs, or
                             DFAS-IN’s Mil Pay Ops suspect irregularities in pay or potential fraud,
                             they research the details and document the specifics of the pay issue and
                             may refer the matter to the Army’s Criminal Investigation Division (CID)
                             for further investigation. 14

                             CID is the Army’s primary criminal investigative organization. Army CID’s
                             primary mission is to investigate serious crime, as defined in AR 195-2,
                             Criminal Investigation Activities. Commensurate with authorities in AR
                             195-2, CID special agents collect, analyze, and disseminate criminal
                             intelligence; conduct protective service operations; provide forensic
                             laboratory support; and maintain Army criminal records. CID also
                             investigates less serious crimes, such as military pay-related and travel




                             13
                               See, generally, 31 U.S.C. chapter 37, Claims of the U.S. Government; see 10 U.S.C. §
                             2780, Armed Forces: Debt Collection; see also, generally, the Federal Claims Collection
                             Standards regulations, which are codified, as amended, in 31 C.F.R. parts 900-904, and
                             include government-wide debt collection standards that are prescribed by the U.S.
                             Attorney General and the Secretary of the Treasury.
                             14
                               CID was established in 1863 as the first criminal investigation division of the U.S. Army.
                             On September 17, 1971, CID was designated as a major Army command, but kept its
                             original name.




                             Page 6                                                GAO-13-28 Army Military Pay Controls
              reimbursement irregularities, as needed, to enforce Army law or
              regulations.


              To assess the effectiveness of the design of the process for unit
Scope and     commander review of monthly payroll disbursements as a compensating
Methodology   control for assuring active duty Army payroll accuracy, we compared
              related processes and systems to applicable internal control standards, 15
              as well as applicable laws and regulations, and DOD, DFAS, and Army
              policies and procedures. Specifically, we reviewed the design of Army
              and DFAS-IN processes for reviewing and correcting military payroll data
              based on requirements in AR 37-104-4, Military Pay and Allowances
              Policy, and related guidance and DFAS-IN’s Standard Operating
              Procedures for the Unit Commander Finance Report (May 4, 2009). We
              also reviewed DFAS-IN’s Field Services Division procedures for ensuring
              the accuracy of data on UCFR submissions. For October 2011 to March
              2012, we obtained the monthly summary of unit commander UCFR
              submissions to DMPOs that are forwarded to DFAS-IN and used DFAS-
              IN’s criteria of no later than the 10th of the month for review and
              submission of UCFRs to determine the number of UCFRs that were
              submitted on time, submitted late, or not submitted at all. In addition, we
              interviewed DFAS Debt and Claims Management, DFAS-IN Mil Pay Ops,
              and DMPO officials and Army Financial Management Command, Army G-
              1, and Army CID officials to gain an understanding of their systems,
              processes, and controls. To determine ways in which UCFR information,
              if properly designed, could act as a compensating control for assuring
              payroll accuracy, we analyzed payroll errors that led to out-of-service
              debt, over- and underpayments, unauthorized payments, and Army CID
              fraud investigations.

              We reviewed debt information maintained by DFAS on former military
              servicemembers (referred to as out-of-service debts by DFAS) to identify
              military pay-related debts and determine the types of pay and allowances
              that resulted in these debts to identify the underlying causes. Specifically,
              we analyzed summary and detailed data on Army out-of-service debts
              related to military pay for fiscal year 2011 and the first 7 months of fiscal
              year 2012 to identify debts by category and determine whether the pay
              problems that resulted in these debts could have been detected and



              15
               GAO/AIMD-00-21.3.1.




              Page 7                                       GAO-13-28 Army Military Pay Controls
corrected with effective review of the UCFRs. We analyzed selected
detailed data for fiscal year 2011 and the month of March 2012 to identify
illustrative examples of payroll errors that resulted in the out-of-service
debts and identified the controls that if properly designed, could have
prevented the debts from occurring. To determine the reliability of these
data for the purpose of our work, we reviewed procedural guidance on
DFAS’s systems and processes for collecting out-of-service military
payroll debt and questioned DFAS officials about any additional
procedures they perform related to the reliability of DDMS data. We
determined that these data were sufficiently reliable for the purpose of our
work.

In addition, we reviewed report summaries on investigations of potential
military pay-related fraud to identify weaknesses in related processes,
systems, and controls and whether effective review of the UCFR would
have detected these issues. Specifically, we analyzed Army CID military
pay-related fraud investigations for fiscal years 2010 and 2011—a total of
285 investigations—and obtained and reviewed selected investigation
reports for additional details. Of these 285 investigations, 64 pertained to
travel reimbursements. Therefore, we focused our analysis on the
remaining 221 investigations consisting of 190 investigations that related
only to potential military pay fraud and 31 that involved potential fraud
associated with both military pay and travel reimbursements. We met with
Army CID, Army Financial Management Command, and Army G-1
officials to discuss what triggers investigations of potential military payroll
fraud and the breakdowns in controls that allowed various types of
potential military payroll fraud to occur.

To determine the extent to which DFAS-IN had monitoring controls in
place for identifying the extent of any active Army military payroll errors
and identifying systemic weaknesses and appropriate corrective actions,
we interviewed DFAS-IN officials to gain an understanding of their
processes and performed walk-throughs, where appropriate. We
analyzed military payroll data processed by DJMS-AC and CMS, which
DFAS-IN uses to manually process pay transactions that cannot be
processed by DJMS-AC. We assessed DFAS procedures for assuring the
reliability of data generated by CMS and DJMS-AC. We also reviewed
DFAS-IN performance metrics related to Army military payroll timeliness
and accuracy to assess trends and management oversight.




Page 8                                        GAO-13-28 Army Military Pay Controls
                            Our analysis of payroll errors that resulted in out-of-service debts and pay
Deficiencies in Design      irregularities investigated by Army CID found numerous examples of pay
of Unit Commander           problems that could have been but were not promptly detected, reported,
                            and corrected through the UCFR review. Specifically, we found that the
Finance Report              design of Army and DFAS-IN procedures for using the UCFR to assist in
Monitoring and              detecting and correcting military payroll errors is not an effective
                            compensating control for assuring the accuracy of the Army’s active duty
Reporting Procedures        military payroll because they do not (1) provide for monitoring of required
                            UCFR reviews to better assure detection of payroll errors, (2) require
                            reporting of completed UCFR reviews in all cases, and (3) clearly
                            establish time frames for completing and reporting on UCFR reviews. 16
                            Standards for Internal Control in the Federal Government states that
                            internal control should generally be designed to assure that ongoing
                            monitoring occurs in the course of normal operations. 17 The standards
                            also states that transactions should be promptly recorded to maintain
                            their relevance and value to management in controlling operations and
                            making decisions. Also, DFAS-IN UCFR procedural guidance states that
                            the unit commander’s review of the UCFR is essential for establishing
                            combat readiness; reducing fraud, waste, and abuse; and ensuring that
                            soldiers’ pay is accurate.


Undetected Payroll Errors   Our review of DFAS Debt and Claims Management data and Army CID
Resulted in Overpayments    reports on investigations of potential military pay-related fraud identified
and Debts Owed to the       numerous instances of military pay errors and irregularities that the Army
                            and DFAS-IN did not detect and correct for several months, or only after
Government by Soldiers      soldiers had left the service. The following examples from our analysis of
No Longer in the Army       DDMS data illustrate the types of pay errors that went undetected for
                            lengthy periods of time.

                            •     A reserve soldier assigned to active duty was overpaid approximately
                                  $185,000 over a 2-year period from May 2009 to May 2011 because
                                  the DMPO did not enter into DJMS-AC the end-of-tour date from the
                                  order mobilizing the Army Reserve soldier to active duty. The soldier
                                  continued to receive pay and allowances after separation from the
                                  service in May 2009 until the local DMPO processed the separation



                            16
                              AR 37-104-4, Military Pay and Allowances Policy, dated June 8, 2005 and DFAS-IN,
                            Standard Operating Procedures for the Unit Commander Finance Report (May 4, 2009).
                            17
                                GAO/AIMD-00-21.3.1.




                            Page 9                                           GAO-13-28 Army Military Pay Controls
    transaction in DJMS-AC in May 2011. Effective review of the UCFR
    could have determined that this soldier, who had left active duty, was
    continuing to receive active duty pay.

•   A soldier who was absent without leave (AWOL) from January 2010 to
    September 2011 received military pay of $33,268 to which she was
    not entitled. Her unit notified the finance office to suspend her pay in
    September 2011. However, an effective UCFR review process could
    have detected this issue earlier and reduced the accumulated debt for
    this soldier.

•   Another soldier who was later determined to be AWOL received
    $13,208 in pay and allowances to which he was not entitled from
    October 15, 2008, to January 30, 2009. In February 2009, the
    installation where the solider was stationed initiated a CMS case, and
    in March 2012, DFAS-IN recorded the soldier’s expired term of
    service in DJMS-AC effective on June 10, 2011. An additional
    $12,571 of debt for unearned enlistment bonus, travel advance, Army
    emergency relief payment, and government property loss and
    damage resulted in a total debt amount of $25,779. Effective review of
    the UCFR would have detected that the AWOL soldier was still
    receiving active duty pay.
Table 1 shows, by category, the amount of fiscal year 2011 Army military
pay-related debt that was owed by soldiers who had left the Army. At that
time, DFAS was pursuing over $50 million of these debts. According to
unaudited DFAS data, military pay-related debts accounted for over 90
percent of the Army’s out-of-service debts in fiscal year 2011.




Page 10                                     GAO-13-28 Army Military Pay Controls
Table 1: Fiscal Year 2011 Active Army Military Pay-Related Out-of-Service Debt

                                                             Number of          Percentage Original dollar
                                                               soldier              of debt    amount of
    Out-of-service debt category                                debts              amount            debt
    Unearned bonusa                                                  7,248            53.82     $29,937,382
    Overpayment of pay and allowance - no                            6,001            11.07       6,157,416
                b
    entitlement
    Partial pay received that was not                                1,329             5.54       3,080,305
    considered in the final pay computation
    Appellate review leave statusc                                       457           4.84       2,691,413
    Overpayment of leave                                             1,904             3.73       2,075,951
    Overpayment of basic allowance for                                   935           2.81       1,564,688
    housing
    Payment received while in a nonpay                                   205           2.69       1,497,491
    status
    Overpayment of a military pay or                                     359           2.32       1,291,639
    allowance entitlement
    Overpayment while absent without leave                               348           2.20       1,226,404
    Tuition assistance received prior to                             1,965             1.41         783,320
    separation
    Total, active Army military pay-related                        20,751             90.44     $50,306,009
    out-of-service debts
    All other Army debts                                             3,546             9.56      $5,316,341
    Total, all active Army out-of-service                          24,297            100.00     $55,622,350
    debts
Source: GAO analysis of unaudited Defense Debt Management System data.
a
 A bonus is earned as the term of service is fulfilled. An unearned bonus occurs when a
servicemember does not fulfill the service contract, causing all or a portion of the bonus to be
unearned.
b
 For an overpayment of pay and allowances, no entitlement occurs when a servicemember is paid for
a period in which he or she was not entitled to pay and allowance.
c
 According to DFAS officials, appellate review leave status occurs when a servicemember is
undergoing a court-martial. In this situation, the member has been separated as far as the pay
account is concerned but has not been separated from the military.


In addition, our analysis of 221 fiscal year 2010 and 2011 Army CID
investigations of potential military pay-related fraud identified the following
examples of adverse effects of lingering undetected Army payroll errors.

•      A lieutenant colonel allegedly received active duty pay to which she
       was not entitled after she was discharged from active duty on
       December 17, 2008. The estimated loss to the government was
       approximately $188,700. An effective review of the UCFR could have
       detected this type of pay issue because the unit commanders or


Page 11                                                                  GAO-13-28 Army Military Pay Controls
     battalion personnel sergeants (or S-1) would have been in a position
     to know whether a servicemember had separated from the service
     and thus no longer should be receiving active duty pay.

•    A colonel allegedly collected foreign language proficiency pay even
     though he had not recertified his language proficiency since 1999.
     The investigative report stated that the colonel also allegedly received
     jump pay from January 1999 through March 2008 that he was not
     authorized to receive. 18 Army CID estimated the total loss to the
     government for this case at $34,455. A CID review of jump records
     revealed that the colonel had made no documented jumps since
     1999. According to the Army Financial Management Command, once
     jump pay is initially authorized by the unit, jump pay is automatically
     paid to an individual assigned to a unit-level position requiring jumps.
     If the unit was not performing jumps, then the soldier would not be
     entitled to this pay. In addition, foreign language proficiency pay is
     governed by AR 11-6, Chapter 6, which gives the unit commander or
     the battalion S-1 the primary responsibility for monitoring this pay,
     including monitoring language proficiency, preparing a monthly report
     on who is entitled to and is receiving foreign language pay, and
     verifying the UCFR. 19 Because the unit commander and S-1 were in a
     position to know whether their unit was required to perform jumps and
     would have a record of a soldier’s foreign language certifications and
     applicable dates, an effective review of the UCFR could have
     detected these pay issues.

•    A private first class allegedly continued to receive his military pay and
     allowances and utilized his TRICARE benefits while AWOL from
     assigned duty. The estimated loss to the government was $24,194.
     Effective review of the UCFR could have identified this kind of pay
     issue because unit commanders and S-1s would have knowledge of




18
  In accordance with AR 37-104-4, June 8 2005, Chapter 10 on other hazardous duty
incentive pays as well as DOD FMR Volume 7A, Chapter 24, March 2011, a
servicemember qualifies for a hazardous duty incentive pay for parachute duty, or “jump
pay” when the individual is assigned to a unit-level position requiring parachute jumps that
are authorized by the unit.
19
   Under AR 11-6, Army Foreign Language Program, Aug. 31, 2009, Chapter 6 on foreign
language proficiency bonus, the unit commander has primary responsibility for monitoring
foreign language proficiency bonuses and is required to prepare a monthly report on who
is entitled to receive and is receiving this special pay.




Page 12                                               GAO-13-28 Army Military Pay Controls
    whether their soldiers are reporting for duty and whether any
    absences are for authorized reasons.

•   Another soldier allegedly received family separation allowance for 31
    months, an allowance to which he was not entitled as his family
    resided with him in Columbus, Georgia. The estimated loss to the
    government was approximately $7,750. Effective review of the UCFR
    could have detected this type of pay issue because family separation
    allowance applies to soldiers who are away from their dependents for
    more than 30 days, and unit commanders are in a position to know
    where soldiers are stationed in relation to their family residences.

To the extent that any overpayments or frauds involving Army active duty
military pay are not timely and effectively identified and corrected, they
become more difficult to collect after individuals have left the service
because rather than processing payroll offsets, formal debt collection
action must be taken. Such collections are likely to be increasingly difficult
to make with the passage of time.

Army CID investigators stated that they uncovered sufficient evidence of
potential fraud to meet the Army’s standards for referring the
investigations for additional DOD action. 20 Our analysis included 190
investigations that identified 320 incidences of potential fraud with a total
estimated loss to the government of a little over $6 million related only to
potential military pay fraud and 31 investigations totaling nearly $1 million
that involved potential fraud associated with both military pay and travel
reimbursements. Table 2 shows the results of our analysis of the 190 CID
investigations involving only military pay. Many of these investigations
involved more than one incidence of potential fraud. For example, of the
138 incidences of potential fraud related to basic allowance for housing,
21 also involved incidences of potential fraud related to family separation
allowance.




20
  For the purposes of this report, we focused on report summaries of Army CID
investigations of allegations of fraud. We did not review documentation on the ultimate
outcome of each referral for additional DOD action and whether the referrals resulted in
the investigated individual being subject to adverse outcomes, which may include
administrative action (for example, a requirement to take corrective training), nonjudicial
punishments under Article 15 of the Uniform Code of Military Justice (UCMJ), or a court-
martial.




Page 13                                                GAO-13-28 Army Military Pay Controls
                          Table 2: Incidences of Potential Military Pay-Related Fraud for Fiscal Years 2010
                          and 2011 from U.S. Army CID Reports

                                                                                  Number of incidents                   Percentage
                                                                                   of potential military                of potential               Potential
                              Military pay fraud type                                        pay fraud                      amount                  amount
                              Basic allowance for housing                                                    138                  45.19         $2,727,081
                              Multiple allowancesa                                                             34                 21.46           1,295,004
                              Active duty, incentive, and special                                                9                  9.09             548,414
                              pay
                              Otherb                                                                           30                   7.24             437,070
                              Living quarters allowance and                                                    13                   5.73             345,527
                              temporary quarters subsistence
                              allowance
                              Overseas housing allowance                                                       14                   4.82             290,788
                                              c
                              Entitlements                                                                     37                   4.25             256,227
                              Promotion and enlistment                                                         12                   1.76             106,282
                              Family separation allowance                                                      33                   0.47               28,442
                                                                                                                 d
                              Total                                                                         320                 100.00          $6,034,834
                          Source: GAO analysis of unaudited U.S. Army CID reports on investigations of potential military pay-related frauds from fiscal years
                          2010 and 2011.

                          Note: Numbers may not add because of rounding.
                          a
                           Generally, multiple allowances include a combination of basic allowance for housing and other
                          allowances, such as family separation allowance where amount of the potential fraud was not broken
                          out by allowance.
                          b
                           Other includes potential fraud related to time card charges, GI Bill (education) benefits, and leased
                          housing.
                          c
                           This category includes TRICARE benefits as well as cost-of-living adjustment, and other entitlements
                          not included in other categories, such as post allowance, and entitlements not otherwise specifically
                          identified. TRICARE is the health care program for uniformed service members, retirees, and their
                          families worldwide.
                          d
                              These 320 incidences were drawn from a total of 190 investigations.




Current UCFR Monitoring   We identified the following deficiencies in the Army’s procedures that
and Reporting             impaired the effectiveness of the UCFR reviews. First, Army procedures
Requirement Provides      do not provide for monitoring to assure effective UCFR reviews. Second,
                          AR 37-104-4, Military Pay and Allowances Policy, only requires unit
Limited Assurance of      commanders to submit their UCFRs to their designated finance offices or
Active Duty Military      DMPOs if corrections are needed. When unit commanders do not return
Payroll Accuracy          their UCFRs, the local finance offices and DMPOs do not receive




                          Page 14                                                                         GAO-13-28 Army Military Pay Controls
documented evidence that the UCFRs have been reviewed and thus
have no timely, positive assurance of the accuracy of the UCFR. 21 Third,
AR 37-104-4 does not clearly define the time frame for “immediately”
reporting any needed corrections, such as no later than the 10th of the
month, specified in DFAS-IN guidance. The UCFR could serve as an
effective compensating control for confirming pay status and allowances if
reviews were monitored to help assure that they were appropriately
performed, were required to be reported in all cases, and were required to
be submitted within a clearly prescribed time frame, such as the 10th of
the month specified in DFAS-IN guidance.

AR 37-104-4 establishes procedures for assuring accurate and timely
processing of military payroll and requires battalion S-1s to verify their
UCFRs’ accuracy with respect to personnel- and pay-related information
monthly. Specifically, as prescribed by AR 37-104-4, S-1s are to ensure
the verification of data in monthly UCFRs to the Unit Personnel
Accountability Report to determine whether data on pay account status is
consistent with soldier duty status in the personnel records, including
servicemember’s name, grade, net pay, allotments, housing allowance,
subsistence allowance, leave balance, court-martial/Article 15, 22 AWOL,
debt owed the government, and expiration of term of service, as well as
authorizations to receive special pays and incentive pays, such as jump
pay and foreign language proficiency bonus. Further, AR 37-104-4
requires S-1s to prepare pay-related documents, respond to soldier pay
inquiries, forward pay-related documents to the finance office or DMPO
daily, and process certain pay grade advancements and all reductions,
and it requires unit commanders to ensure that documents affecting pay
are accurate and are promptly forwarded to the finance office or DMPO.
Consequently, S-1s and unit commanders are in a position to identify


21
   Positive assurance is a level of assurance one has that something is good or bad, or
effective or ineffective, based on evidence or experience. For example, an opinion that the
financial statements are presented fairly in conformity with U.S. generally accepted
accounting principles (GAAP) must be based on sufficient audit evidence to support such
a positive assurance opinion. Negative assurance is a statement of the level of confidence
based on what is not known. For example, the statement that the auditor was not aware of
material modifications that should be made to financial statements for them to conform to
U.S. GAAP is negative assurance.
22
   A court-martial is a military court convened under military authority to try members of the
U.S. armed forces who are accused of violating the UCMJ. Article 15 of the UCMJ, which
is codified, as amended, at 10 U.S.C. § 815, provides for nonjudicial punishment imposed
by a commander and accepted by the military member.




Page 15                                                GAO-13-28 Army Military Pay Controls
discrepancies, such as any soldiers who are AWOL but continue to
receive pay and allowances and any soldiers who receive an overseas
housing allowance while living on post. Additionally, because S-1s review
and unit commanders certify soldier eligibility for special pays based on
soldiers meeting the requisite training and certification requirements, they
also are in a position to know what special pays their soldiers are entitled
to receive.

Consistent with AR 37-104-4, Army Vice Chief of Staff guidance 23
requires UCFRs to be immediately reviewed and, if discrepancies are
identified, submitted timely, so that any needed corrections and updates
can be made before the next monthly payroll. However, as shown in
figure 1, because AR 37-104-4 and Army Vice Chief of Staff guidance
only require UCFRs to be submitted if corrections or updates are needed,
the Army and DFAS-IN do not have positive assurance that all UCFRs
were appropriately reviewed. However, current Army regulations do not
include any requirements to monitor the effectiveness of required UCFR
reviews. Further, the lack of a mandatory requirement to submit UCFRs
impairs the ability of the Army and DFAS-IN to obtain a population of
UCFRs that could be used to periodically monitor and test the
effectiveness of UCFR reviews for assuring the accuracy of active duty
Army military payroll transactions. DFAS-IN and Army officials
acknowledged that UCFR review and submission could be a useful
compensating control if submission of the reports was a mandatory
requirement whether or not corrections or updates are needed. Further,
monitoring to better ensure that appropriate review of monthly UCFRs in
concert with a requirement for mandatory UCFR submission within a
certain number of days could provide a useful compensating control for
assuring active duty Army military payroll accuracy by providing early
detection of the types of payroll errors and irregularities that we identified.




23
  Vice Chief of Staff, U.S. Army to All Army Activities - ALARACT168/2010: Commanders’
Obligations Regarding the Unit Commander’s Finance Report (UCFR) and Soldier
Options for Debt Suspension and Mitigation, para. 4 (June 3, 2010).




Page 16                                           GAO-13-28 Army Military Pay Controls
Figure 1: Current Process for Review and Submission of UCFRs




The current reporting requirement also limits the effectiveness of the
requirement for monthly UCFR reviews. The requirement to only submit
UCFRs if discrepancies are noted does not provide positive assurance
that the required review was performed. Further, although AR 37-104-4
and Army Vice Chief of Staff guidance do not define “immediately” related
to the requirement to submit UCFRs that identify discrepancies, DFAS-IN
guidance defines timely submission of UCFRs as no later than the 10th of
the following month. Based on DFAS-IN’s timeliness criteria, our analysis
of unaudited data on unit commander UCFR submissions from October
2011 through March 2012 showed that 26 percent of the UCFRs were
submitted late or were not submitted at all. Our analysis also determined



Page 17                                       GAO-13-28 Army Military Pay Controls
                            that although 19 of the 38 DMPOs had high average rates (90 percent or
                            greater) for timely receipt of Army unit commander UCFR submissions, 5
                            of the remaining 19 DMPOs—Indianapolis, Fort Hood, Fort Lewis
                            McChord, Fort Bliss, and Redstone Arsenal—had an average rate for
                            unsubmitted UCFRs of 40 percent or greater during the first 6 months of
                            fiscal year 2012. Without positive assurance that UCFRs were
                            appropriately reviewed and that no military pay corrections or updates
                            were needed, DFAS-IN and the Army cannot rely on UCFR review as an
                            effective control to detect payroll issues and ensure that errors or
                            irregularities are identified and submitted for correction in a timely
                            manner.


                            Existing monitoring processes and controls for resolving Army active duty
Ineffective                 payroll errors were not designed to serve as effective compensating
Procedures for              controls to provide for monitoring to capture data on the extent and
                            causes of any over- and underpayments, unauthorized payments, and
Capturing Information       other pay errors. Effectively designed monitoring could be used to help
on Payroll Errors to        identify and address any systemic internal control weaknesses, determine
                            appropriate corrective actions, and monitor trends in the payroll data to
Identify and Correct        determine the effectiveness of corrective actions. Standards for Internal
Systemic Weaknesses         Control in the Federal Government states that internal control should
                            generally be designed to assure that ongoing monitoring occurs in the
                            course of normal operations. 24 Such monitoring should assess the quality
                            of internal control performance over time and includes regular
                            management activities, such as comparisons, reconciliations, and other
                            reviews.


DFAS-IN and the Army Do     DFAS-IN and the Army have not established a comprehensive metric for
Not Have a Comprehensive    monitoring the accuracy of active duty Army military payroll. The Army
Metric for Monitoring the   Financial Management Command Director and DFAS-IN’s Mil Pay Ops
                            Director stated that DOD-wide military payroll metrics, including the
Army’s Active Duty          Army’s military payroll metric, are designed to track timeliness but not
Military Payroll Accuracy   accuracy and emphasized that they believe transaction timeliness is the
                            best primary metric for monitoring the accuracy of soldier pay. However,
                            all pay errors are not a result of timeliness issues as discussed later in
                            this report; errors also occurred as a result of certain overpayments, data



                            24
                             GAO/AIMD-00-21.3.1.




                            Page 18                                     GAO-13-28 Army Military Pay Controls
entry errors, unauthorized payments, and fraud. DFAS-IN and the Army
do not have monitoring procedures in place to accumulate and analyze
pay problems that are not related to timeliness. Consequently, DFAS-IN
and the Army do not accumulate data and do not have a corresponding
metric to track pay accuracy for all types of military pay and entitlements.
If not corrected, this condition could impede the Army’s ability to respond
to a financial audit because to the extent that auditors cannot rely on
controls, they will need to increase transaction testing. Moreover, to the
extent that errors in Army active duty pay are not identified and
addressed in a timely manner, they can have a negative effect on soldier
welfare and, ultimately, could erode the focus on Army mission readiness.

The Directors of DFAS-IN and the Army Financial Management
Command stated that DFAS and the Army monitor and follow up on late
submissions of pay-affecting documents. The Directors stated that not all
late submissions of pay changes indicate pay errors. For example, the
Directors explained that if a commander approves and military orders are
issued for retroactive promotions, they recognize that the pay amounts
could be viewed as inaccurate until the retroactive promotions are
processed. However, the retroactive nature of the adjustment does not
indicate that there was an error. While timeliness is the issue in these
cases, the retroactive effective date of the promotion indicates both
timeliness and accuracy are issues of concern because servicemembers
were paid an incorrect amount for a period of time. According to the
DFAS-IN Mil Pay Ops Director, the Office of the Secretary of Defense
Personnel/Pay Council’s Pay Performance Metrics include such
retroactive payments in the timeliness “metric” for processing of military
pay transactions within 30 days of the effective date. However, the 20-day
CMS metric for timeliness does not consider the period of time during
which a pay amount was incorrect.

Our analysis determined that if DFAS-IN wanted to accumulate separate
information on types of active duty Army military pay errors, it would need
to establish criteria and perform a labor-intensive review of the details of
approximately 300,000 CMS cases annually, 25 survey DMPOs for
information on active Army military pay errors they correct locally but are
not required to document and report, and consider the extent to which



25
 CMS includes pay cases involving manual work-arounds necessitated by limited DJMS-
AC programming updates related to long-term plans for DJMS-AC’s replacement.




Page 19                                          GAO-13-28 Army Military Pay Controls
                             other processes identify error corrections in order to extract information
                             on errors by pay category and the causes of those errors.


Data on Payroll              The system that DFAS-IN uses to pay Army active duty soldiers (DJMS-
Adjustments for              AC) does not have the capability to identify and report the extent and
Underpayment or              causes of under- and overpayments and other types of payroll errors
                             related to active duty Army soldier pay. As a result, DFAS-IN is not able
Overpayment of Active        to analyze the extent to which there may be any systemic control
Duty Military Pay Are Not    weaknesses that need corrective action. Without the ability to detect and
Used to Help Identify        correct systemic weaknesses, over- and underpayments are likely to
Potential Systemic Control   continue, creating a financial burden for soldiers who did not receive all
                             the pay they were due and soldiers who received more than their entitled
Weaknesses                   amounts and were subjected to collection action. Either problem may
                             pose financial hardship for the soldiers and detract from their focus on
                             mission.

                             Underpayments occur when the events that increase basic pay and
                             allowances are not reflected in a military pay transaction at the time they
                             occur. Underpayments also occur when a soldier is not paid in a timely
                             manner for special pays when the related certification training is
                             completed. 26 When underpayments are identified and confirmed, DFAS-
                             IN pays them to the soldier in the next paycheck. Underpayments affect
                             soldiers’ personal finances, especially when they are not resolved in a
                             timely fashion. For example, a colonel in the Army National Guard
                             reported experiencing numerous underpayments throughout his 28 years
                             of service, including suffering financial hardship when he was on active
                             duty in 2003 to Afghanistan and his active duty pay was stopped for 1-1/2
                             months. He also stated he did not receive hardship duty pay and hostile
                             fire pay while on a deployment to Southeast Asia, which took
                             approximately 1-1/2 years to correct. Further, he reported that his pay
                             problems have persisted, with the most recent being in January 2012.




                             26
                               An underpayment could occur when a soldier gets married and does not notify the
                             DMPO of the related change in dependency status in a timely manner. Dependency status
                             entitles a soldier to a higher rate of pay for certain entitlements. Thus, if a soldier did not
                             notify the DMPO of a marriage, he or she would have an underpayment of basic
                             allowance for housing. Further, if the soldier was assigned to duty away from dependents
                             for more than 30 days, the lack of timely notice of this change could result in
                             underpayment of family separation allowance.




                             Page 20                                                 GAO-13-28 Army Military Pay Controls
Overpayments may occur when a servicemember returns from a combat
zone deployment to a duty station in the United States and the Army
personnel system fails to notify the pay system. Overpayments are
recovered through withholding from the soldier’s subsequent pay. 27 If
soldiers’ entitlements are not adjusted in a timely manner as their duty
status changes, and they spend the extra pay received, collection action
can pose a financial hardship. 28

DFAS-IN procedures for DJMS-AC do not include steps to identify and
report the dollar amounts of and reasons for adjustments it made to
correct active duty soldiers’ military pay accounts for under- and
overpayments on its nearly $47 billion in reported Army military pay for
fiscal year 2011. DFAS-IN officials explained that DJMS-AC does not
have unique transaction codes that identify adjustments to active duty
Army soldiers’ pay. As a result, adjustments for underpayments of military
pay are entered with the same codes as those used for original military
pay transactions. Therefore, although DFAS-IN can identify the total
number of transactions by type of pay and allowance, it cannot separately
identify the number or causes of underpayments made to active duty
servicemembers. Further, DFAS-IN cannot provide a detailed breakdown
of the reasons for and dollar amounts of overpayments because DJMS-
AC is not configured to capture information on the detailed causes of
overpayments of pay and allowances. Instead, debt reason codes in
DJMS-AC relate generally to the type of pay and allowance debt that is
being assessed against a soldier’s pay account, such as basic allowance
of housing or hostile fire pay. The DFAS-IN Mil Pay Ops Director said it
would be too costly to change the current system to include transaction
codes related to correction of under- and overpayments. The Director of
the Army Financial Management Command and Army G-1 officials told us
that user requirements for the Integrated Personnel and Pay System-
Army (IPPS-A), which is intended to replace the Army’s DJMS, include



27
  According to the DOD FMR, Volume 7A, Chapter 50, dated February 2012, an
overpayment of pay or allowance determined to be caused by fault of the member will be
recovered in monthly installments not to exceed two-thirds of the member’s disposable
monthly pay. An overpayment of pay or allowances determined to be through no fault of
the member will be recovered in monthly installments not to exceed 15 percent of the
member’s disposable monthly pay.
28
  For example, in situations involving overpayments, a soldier who returns from combat
zone deployment would continue to receive entitlements linked to the combat zone
location, such as hardship duty pay, hostile fire pay, and combat zone tax exclusion.




Page 21                                             GAO-13-28 Army Military Pay Controls
                             this type of functionality. However, IPPS-A full functionality for military
                             payroll is not targeted for implementation until the third quarter of 2016.
                             Consequently, without establishing an interim process for capturing data
                             on payroll errors and identifying their causes, both DFAS-IN and the Army
                             will be limited in their ability to reasonably assure the effectiveness of any
                             corrective actions until comparable IPPS-A functionality is implemented.


CMS Processing of            We found that the DFAS-IN’s CMS process used to process Army military
Corrections to Active Duty   pay transactions and error corrections that are handled outside of DJMS-
Military Pay Is Not          AC was not designed to identify military payroll errors and monitor trends
                             in the occurrence of these errors. As a result, the Army and its Financial
Designed to Capture          Management Command cannot use CMS to help monitor the number of
Information on the Extent    errors by pay category and their causes. Further, CMS does not capture
of Errors to Identify        and accumulate data on the types and causes of pay errors that are
Systemic Weaknesses          corrected by DMPOs and finance offices. Without a CMS monitoring
                             capability, the Army is limited in its ability to identify and address any
                             additional systemic military payroll control weaknesses.

                             Our analysis of Mil Pay Ops processes determined that CMS serves as
                             an electronic file folder that accumulates documents needed to resolve
                             military pay issues with the capability to identify information on types of
                             cases, such as separations, and their status to ensure that they are
                             processed or corrected within DFAS timeliness metrics. Our analysis of
                             unaudited CMS data showed that the CMS process adopted for Army
                             payroll cases has processed an average of 310,000 DJMS-AC system-
                             generated cases and manual cases annually since fiscal year 2008, 29, 30
                             many of which involved problems with multiple types of pay transactions.
                             For the first 11 months of fiscal year 2012, approximately half of the
                             cases processed were manual cases. We determined that both the
                             manual and the system-generated case categories contain cases that
                             relate to error corrections. However, CMS processes do not require the
                             identification of the types of cases or the extent to which they relate to
                             error corrections. Because CMS does not capture and accumulate data
                             on all corrections of military payroll errors, it does not serve as an


                             29
                               DJMS-AC system-generated cases relate to military personnel and pay transactions that
                             cannot be processed in DJMS-AC and transactions that DJMS-AC processing controls
                             reject.
                             30
                               Sources of manual cases include soldier inquiries, deficiencies identified in UCFR
                             submissions, and pay issues identified in Army CID investigations.




                             Page 22                                              GAO-13-28 Army Military Pay Controls
              effective monitoring control for providing DFAS-IN and the Army the
              ability to determine the extent and nature of active duty Army military pay
              errors and identify systemic weaknesses and their causes in order to
              design appropriate corrective actions, leaving the Army at risk of
              continuing errors.

              For example, our analysis and discussions with DFAS-IN officials
              regarding pay system rejects—DJMS-AC system-generated transactions
              that were not allowed to process in DJMS-AC—determined that some of
              these system-generated rejects relate to error corrections. For example,
              the reject analysis reports contain error codes that identify the type of
              transactions that DJMS-AC controls did not allow DJMS-AC to process.
              The reject analysis report breaks out the number of rejects that are to be
              sent to DMPOs or finance offices for correction and those that must be
              corrected centrally by DFAS-IN and have a CMS case created for
              tracking and visibility. DMPO officials told us that upon receiving reject
              reports, they would contact military units to alert them about any
              unusually high numbers of errors in a pay category, such as basic
              allowance for housing. However, information on the extent of those
              errors, their causes, and any corrective actions taken by the Army units or
              the DMPOs is not accumulated and reported by the DMPOs.


              The Army’s weaknesses in the design of processes, systems, and
Conclusions   controls for detecting and correcting errors in payroll disbursements to
              active duty Army military personnel increase the risk that its active duty
              military payroll includes servicemembers who received pay to which they
              were not entitled and others who did not receive the full pay they were
              due. Accordingly, it is important that the Army implement appropriate and
              effective compensating controls, including monitoring controls to assess
              the quality of performance over time. Improved procedures for monitoring
              and reporting on monthly UCFRs—which detail most pay and allowance
              information for soldiers—could provide an important compensating control
              for assuring payroll accuracy. In addition, because DFAS-IN and the
              Army do not have a comprehensive accuracy metric for military payroll
              and current processes, systems, and controls are not designed to identify
              and document the extent and cause of payroll errors, irregularities, and
              corrections, DFAS-IN and the Army are limited in their ability to determine
              the overall accuracy of Army active duty military pay or whether there are
              any related unidentified systemic weaknesses that should be corrected.
              Without immediate action to address these deficiencies, DFAS-IN and the
              Army will not be able to assure that soldiers are paid timely and
              accurately. Moreover, these weaknesses can have a negative impact on


              Page 23                                     GAO-13-28 Army Military Pay Controls
                      soldier welfare and mission readiness because payroll errors can detract
                      from soldiers’ focus on their mission.


                      We are making five recommendations to the Secretary of Defense to
Recommendations for   strengthen the design of controls over active duty Army military payroll.
Executive Action
                      To assure the effectiveness of the UCFR process as a compensating
                      control for confirming the accuracy of its military pay, we recommend that
                      the Secretary of Defense direct the Secretary of the Army to revise AR
                      37-104-4, Military Pay and Allowances Policy, to include the following
                      three actions:

                         establish a requirement for periodic monitoring of the effectiveness of
                          unit commander UCFR reviews;

                         require unit commanders to review and submit documentation
                          showing completion of all monthly UCFR reviews; and

                         specify the time frame for submitting UCFRs, such as no later than
                          the 10th of the month.
                      To provide a means for monitoring the overall accuracy of the Army’s
                      military payroll, we recommend that the Secretary of Defense direct the
                      DOD Comptroller to require DFAS-IN to take the following two actions:

                         develop criteria and establish a comprehensive metric to capture and
                          measure all types of pay errors affecting accuracy and

                         establish an interim mechanism at DFAS-IN for identifying and
                          analyzing the extent and causes of all types of military payroll errors
                          processed by DMPOs, Army Finance Offices, DJMS-AC, and CMS to
                          address any systemic control weaknesses.


                      We provided a draft of this report to DOD for review and comment. In its
Agency Comments       comments, DOD expressed concern that the draft does not present the
and Our Evaluation    military pay issues discussed in the proper context. DOD stated that the
                      bonus amounts presented in table 1 of this report are not payroll errors,
                      but instead arise when servicemembers leave the service before the end
                      of their service commitments. We disagree. We recognized in the report
                      that an unearned bonus occurs when a servicemember does not fulfill the
                      service contract, causing all or a portion of the bonus to be unearned. We



                      Page 24                                     GAO-13-28 Army Military Pay Controls
also pointed out that doing so has resulted in the largest amount of Army
military pay-related out-of-service debt.

Further, DOD stated that our audit approach focused solely on the design
of the controls without analysis of whether undetected errors exist and
whether the recommended additional activities would efficiently detect
any missed errors. DOD is correct that the focus of this engagement was
on the design of controls, as discussed in detail in the scope and
methodology section of this report. However, because we identified flaws
in the design of controls, we determined there would be little benefit in
testing the implementation of a flawed control. Further, as discussed in
our report, because the flawed design of the UCFR process does not
provide positive assurance that payroll errors will be detected and
corrected, we reviewed the results of other processes, including DFAS’s
debt and claims management information related to military payroll debt
and Army CID’s investigations of potential fraud, to determine if those
processes identified any errors or irregularities that went undetected for
lengthy periods of time.

With regard to our three recommendations to strengthen UCFR controls,
DOD partially agreed, stating that it concurred fully with the goal of
improving the accuracy of military pay to the extent that cost-effective
corrective actions are warranted. However, we continue to believe that
the design of the UCFR process is not fully effective in providing positive
assurance of military payroll accuracy. Consequently, as discussed in our
report, UCFR reviews do not provide an effective compensating control.
Accordingly, we believe that our recommendations in this area are
appropriate and are intended to help strengthen the design of existing
processes and controls to help improve DOD’s ability to rely on UCFR
reviews as a compensating control. Our first recommendation is directed
at establishing a requirement for periodic monitoring of the effectiveness
of UCFR reviews. Because the current UCFR control as designed
requires reporting only if deficiencies are found, it is not possible to
monitor and test the extent to which required reviews were effective in
identifying military payroll errors. Our second recommendation to
enhance the control design is directed at revising AR 37-104-04, Military
Pay and Allowances Policy, to require unit commanders to document
completion of all monthly UCFR reviews, and our third recommended
enhancement calls for the Army to clarify the required time frame for
submitting UCFRs. DOD’s response to all three recommendations was
that by February 28, 2013, the Army, working with DFAS, will complete
statistically valid tests to determine to what extent payroll errors occur and
whether any identified errors can be efficiently detected and prevented


Page 25                                      GAO-13-28 Army Military Pay Controls
before payment by implementing additional control activities. However, as
discussed in our report, Army and DFAS systems and processes do not
currently capture data on all errors and their causes. Consequently, it is
not clear how DOD will identify a statistically valid universe for testing to
support a decision on whether additional actions are warranted to
strengthen the UCFR process as a compensating control.

With respect to our two recommendations directed at actions needed to
improve monitoring of payroll accuracy, DOD also partially agreed, stating
that DFAS believes that it has procedures and metrics to gather
comprehensive data for all types of payroll errors, including both
timeliness and improper payments. However, as discussed in our report,
DOD does not have a comprehensive metric for monitoring the accuracy
of soldier pay. Specifically, we found that Army and DFAS payroll
processes and systems capture data on pay timeliness but do not capture
data on all errors and the causes of the errors. All pay errors are not a
result of timeliness issues. Our report discusses pay errors resulting from
overpayments, data entry errors, unauthorized payments, and potential
fraud. We identified errors that were not detected and corrected for
several months or, in some cases, for several years. Further, errors are
not captured and reported when detected if they are corrected within 30
days of the effective date. DOD also stated that DFAS would analyze
military payroll metrics to determine whether any gaps exist between
current timeliness metrics and accuracy and the errors discussed in our
report. However, without developing criteria to identify and capture data
on all types of payroll errors, a review of current processes and metrics is
likely to be ineffective in identifying such gaps. In responding to our
recommendation to develop an interim mechanism for identifying and
analyzing the extent and causes of all types of errors (until such
functionality can be implemented in IPPS-A), DOD stated that if gaps are
discovered in its analysis, it would take steps to correct them. However, a
onetime DFAS-IN analysis of payroll metrics to identify gaps in timeliness
and accuracy would not serve the purpose of establishing an interim
mechanism.

DOD’s letter is reprinted in its entirety in app. 1. In addition, DOD
provided us with technical comments, which we have incorporated as
appropriate.




Page 26                                      GAO-13-28 Army Military Pay Controls
We are sending copies of this report to the Chairmen and Ranking
Members of the Senate Committee on Homeland Security and
Governmental Affairs, the Senate Committee on Armed Services, the
House Committee on Oversight and Government Reform, and the House
Committee on Armed Services. We also are sending copies to the
Secretary of Defense; the Under Secretary of Defense (Comptroller) and
Chief Financial Officer; the Deputy Chief Financial Officer; the Director for
Financial Improvement and Audit Readiness; the Assistant Secretary of
the Army for Manpower and Reserve Affairs; the Deputy Chief of Staff,
Army G-1; the Assistant Secretary of the Army—Financial Management
and Comptroller; the Deputy Assistant Secretary of the Army for Financial
Operations; the Director of the U.S. Army Financial Management
Command; the Commanding General of the U.S. Army Criminal
Investigation Command; the Directors of the Defense Finance and
Accounting Service and its Indianapolis Center; the Director of the Office
of Management and Budget; and other interested parties. In addition, the
report is available at no charge on the GAO website at
http://www.gao.gov.

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




Asif A. Khan
Director
Financial Management and Assurance




Page 27                                      GAO-13-28 Army Military Pay Controls
List of Committees

The Honorable Thomas R. Carper
Chairman
The Honorable Scott P. Brown
Ranking Member
Subcommittee on Federal Financial
  Management, Government Information,
  Federal Services, and International Security
Committee on Homeland Security and
  Governmental Affairs
United States Senate

The Honorable Claire McCaskill
Chairman
Subcommittee on Contracting Oversight
Committee on Homeland Security and
  Governmental Affairs
United States Senate

The Honorable Tom Coburn
Ranking Member
Permanent Subcommittee on Investigations
Committee on Homeland Security and
  Governmental Affairs
United States Senate

The Honorable Todd Platts
Chairman
The Honorable Edolphus Towns
Ranking Member
Subcommittee on Government Organization,
  Efficiency, and Financial Management
Committee on Oversight and Government Reform
House of Representatives




Page 28                                    GAO-13-28 Army Military Pay Controls
Appendix I: Comments from the Department
             Appendix I: Comments from the Department of
             Defense



of Defense




             Page 29                                       GAO-13-28 Army Military Pay Controls
Appendix I: Comments from the Department of
Defense




Page 30                                       GAO-13-28 Army Military Pay Controls
Appendix I: Comments from the Department of
Defense




Page 31                                       GAO-13-28 Army Military Pay Controls
Appendix I: Comments from the Department of
Defense




Page 32                                       GAO-13-28 Army Military Pay Controls
Appendix II: GAO Contact and Staff
                  Appendix II: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Asif A. Khan, (202) 512-9869 or khana@gao.gov
GAO Contact
                  In addition to the contact named above, Gayle L. Fischer (Assistant
Staff             Director), Lauren S. Fassler, Donald D. Holzinger, Katherine Lenane
Acknowledgments   (Assistant General Counsel), Sheila D. M. Miller, Meg Mills, and
                  Heather L. Rasmussen made key contributions to this report.




(198712)
                  Page 33                                   GAO-13-28 Army Military Pay Controls
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