DOD Financial Management:

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

GAO-13-28: Published: Dec 12, 2012. Publicly Released: Dec 12, 2012.

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Asif A. Khan
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khana@gao.gov

 

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What GAO Found

GAO identified deficiencies in the design of key control procedures relied on by the Army and the Defense Finance and Accounting Service-Indianapolis (DFAS-IN) to detect errors in payroll disbursements to active duty Army military personnel. Specifically, GAO found that the Army's procedures for reviewing Unit Commander Finance Reports (UCFR) do not (1) provide for monitoring of required UCFR reviews to better assure detection of payroll errors, (2) require reporting on completed UCFR reviews in all cases, and (3) clearly establish time frames for completing and reporting on UCFR reviews. GAO's analysis of DFAS data on military pay debts and Army investigations of potential fraud completed over the past 2 years identified numerous instances of the effect of errors or irregularities in Army active duty payroll disbursements that went undetected for lengthy periods of time, including some that were not detected for up to 2 years or until the soldier left the Army. For example:

  • A soldier who separated from the Army in 2009 continued to receive active duty pay totaling about $185,000 until 2011.
  • A soldier who was absent without leave from January 2010 to September 2011 received military pay of $33,268 to which she was not entitled.
  • A soldier under investigation for possible fraud allegedly received over $34,000 in paratrooper and language proficiency pay but did not have a documented record of jumps performed or up-to-date proficiency certifications.

GAO's analysis determined that the Army could reduce its risk of lengthy delays in detecting and correcting pay errors with more stringent UCFR monitoring and reporting requirements.

GAO also found that DFAS and the Army have procedures and metrics in place that focus on the timeliness of manual processing and payroll adjustments for error corrections. However, they do not have procedures and metrics to enable 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 unauthorized payments. Further, the design of existing Defense Joint Military Pay System-Active Component and DFAS-IN Case Management System procedures for transaction processing and error correction did not provide for monitoring to capture data on all types of pay errors and their causes that would be useful in identifying the extent to which there are any additional systemic payroll control weaknesses. For example, an Army National Guard colonel deployed on active duty to Afghanistan reported that he experienced financial hardship when his military pay was stopped for 1-1/2 months. The absence of data on the extent and causes of all types of Army active duty military payroll errors impairs the Army's ability to identify and address any adverse trends that may indicate the existence of other systemic control weaknesses. Overall, the control deficiencies that GAO identified increase the risk that the nearly $47 billion in reported fiscal year 2011 Army active duty military payroll includes Army servicemembers who 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 are not identified and addressed in a timely manner, they can have a negative effect on soldier welfare and, ultimately, could erode soldiers' focus on their Army mission.

Why GAO Did This Study

In March 2012, GAO reported on challenges that DOD and the Army face in achieving audit readiness with respect to the over $45 billion in reported fiscal year 2010 Army active duty military payroll disbursements. In performing that work, GAO identified indications of possible weaknesses in selected processes, systems, and controls relied on to reasonably assure the validity and accuracy of reported Army active duty military payroll that were beyond the scope of that audit. GAO subsequently completed work on those issues and is presenting the results in this report. GAO (1) assessed the design of key controls for payroll accuracy and (2) determined the extent to which the Army and DFAS-IN have monitoring controls to identify and address any systemic weaknesses. GAO compared selected Army and DFAS-IN processes, systems, and controls for assuring payroll accuracy to applicable internal control standards and to applicable provisions of law, regulations, and policies and procedures. GAO also interviewed officials and examined related data and information.

What GAO Recommends

GAO made five recommendations to strengthen Army and DFAS monitoring and reporting controls over Army active duty military payroll accuracy. DOD partially concurred with all five recommendations, stating that it concurs fully with the goal of improving military pay but additional testing is needed to identify any cost-effective corrective actions. GAO continues to believe that its recommendations for corrective action are appropriate, as discussed more fully in the report.

For more information, contact Asif Khan at (202) 512-9869 or khana@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In June 2013, DOD and Army officials told us that the Army and Defense Finance and Accounting Service (DFAS) performed an analysis of the effectiveness of the Unit Commander Finance Report (UCFR) in preventing payroll errors. The officials shared a February 21, 2013, Army memo on the results of the analysis, which indicated that while the UCFR was an effective tool as a snapshot of a Soldier's pay, it was not comprehensive enough to provide the level of detail needed to manage many pay entitlements. Additionally, analytical results showed that in most cases, having units certify and return UCFRs to the Finance Office did not result in corrective action in the month the condition requiring action first appeared on the report. The officials told us the Army intends to rely on existing primary controls over pay transactions and the implementation of the Integrated Personnel and Pay System-Army (IPPS-A), which was targeted for implementation in 2017, to address the issues we reported rather than revising AR-37-104-4 to require certification of the UCFR and its return to the Finance Office. The Army concluded that if used properly, the UCFR could provide a secondary control for units to identify a limited number of pay discrepancies. The Army's Finance Command Director subsequently told us that because the analysis showed that the UCFR was not being used as an effective tool by unit commanders, the Army would continue to pursue methods to improve pay transaction timeliness through training and command awareness efforts, to include use of the UCFR, pending implementation of IPPS-A. For example, the Army expanded the list of entitlements that, like UCFRs, are sent to commands for review and increased the frequency of the command reviews. The Army also implemented a process for monitoring high-risk special pays that have an anniversary date, such as Foreign Language Proficiency Bonus, Basic Allowance for Housing, and Basic Allowance for Subsistence, and confirming that the certifications have not expired. However, DOD's May 2016 FIAR Plan Status Report showed that the Army's IPPS-A implementation date has slipped and the new system is not expected to be fully implemented until August 2020. Further, in May 2016, Army officials told us that a factor in the delayed IPPS-A implementation relates to the Army's Interactive Personnel Electronic Records Management System (iPERMS), designated as the Army's official military personnel file in 2007, not being a searchable database. This has impeded the ability of the Army to link military personnel records to military pay records. Such a match is needed to ensure accuracy of the Army's military pay. We will continue to assess DOD's efforts to address our recommendation.

    Recommendation: To strengthen the design of controls over active duty Army military payroll, and to assure the effectiveness of the UCFR process as a compensating control for confirming the accuracy of its military pay, the Secretary of Defense should direct the Secretary of the Army to revise AR 37-104-4, Military Pay and Allowances Policy, to establish a requirement for periodic monitoring of the effectiveness of unit commander UCFR reviews.

    Agency Affected: Department of Defense

  2. Status: Open

    Comments: In June 2013, DOD and Army officials told us that the Army and Defense Finance and Accounting Service (DFAS) performed an analysis of the effectiveness of the Unit Commander Finance Report (UCFR) in preventing late transactions for updating pay. The results of an Army analysis showed that units certifying and returning UCFRs to the Finance Office did not increase timely corrective actions being taken to a soldier's pay. In a memo dated Feb. 21, 2013, the Army stated, "Creating a mandatory process of requiring Commanders to certify and return the UCFR (even when there are no errors) imposes additional administrative requirements and associated costs on the unit, the Finance Office and DFAS." The memo further stated that, based on the sample taken, most units are already certifying UCFRs and returning them to Finance -- with little impact on Soldiers' pay." Army officials told us that based on the Feb. 21, 2013, memo and subsequent follow up, the Army intended to rely on existing primary controls over pay transactions and the implementation of the Integrated Personnel and Pay System-Army (IPPS-A) targeted for August 2017 to address the issues we reported, rather than revise AR-37-104-4 to require certification of the UCFR and its return to the Finance Office. Army officials told us they would continue to pursue methods to improve pay transaction timeliness through training and command awareness efforts, to include use of the UCFR. The Army stated that the development and fielding of IPPS-A offers opportunities for reducing errors and manual inputs, while providing improved transaction timeliness and pay accuracy. However, DOD's May 2016 FIAR Plan Status Report shows that implementation of IPPS-A integrated military pay and personnel functionality which is intended to support data accuracy by providing reports that allow soldiers to review and request correction of erroneous information in legacy systems has slipped to January 2020.

    Recommendation: To strengthen the design of controls over active duty Army military payroll, and to assure the effectiveness of the UCFR process as a compensating control for confirming the accuracy of its military pay, the Secretary of Defense should direct the Secretary of the Army to revise AR 37-104-4, Military Pay and Allowances Policy, to require unit commanders to review and submit documentation showing completion of all monthly UCFR reviews.

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: In a Feb. 21, 2013 memo, the Army stated that its regulations require units to take immediate action when an error is discovered during a review of an Unit Commander Finance Report (UCFR). According to the Army, specifying a timeframe for the review and submission of UCFRs, such as 10 days, would also require the development of additional controls and monitoring procedures and create exceptions/waivers for those units deployed or on training exercises. As a result, the Army intended to rely on existing primary controls over pay transactions and the targeted implementation of the Integrated Personnel and Pay System-Army (IPPS-A) in August 2017 to address the issues, rather than revise AR-37-104-4. With the slippage in implementation of IPPS-A integrated military personnel and pay functionality to January 2020, the Army needs to reconsider our recommendation along with reasonable timeline accommodations for deployed units. We will continue to assess the Army's efforts to address our recommendation.

    Recommendation: To strengthen the design of controls over active duty Army military payroll, and to assure the effectiveness of the UCFR process as a compensating control for confirming the accuracy of its military pay, the Secretary of Defense should direct the Secretary of the Army to revise AR 37-104-4, Military Pay and Allowances Policy, to specify the time frame for submitting UCFRs, such as no later than the 10th of the month.

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: In June 2013, the Defense Finance and Accounting Service (DFAS)-Indianapolis Director told us that DFAS conducted a gap analysis for two installations (Ft. Carson and Ft. Gordon). This analysis compared data on the effective date of pay impacting transactions (e.g., Basic Allowance for Housing, Foreign Language Proficiency Pay, etc.); the date transactions were entered into the pay system; the elapsed time in days from the effective date through each step of the process to the date pay was input to the military pay system. The Army's analysis concluded that most errors that occurred were due to units' late submissions of source documents. The Army's position is that the key metric for military pay accuracy is the timeliness of processing of pay impacting transactions. The Army intended to rely on the targeted August 2017 implementation of the Integrated Personnel and Pay System-Army (IPPS-A) to address pay transaction timeliness and address any other identified issues rather than require DFAS-Indianapolis to develop additional criteria and metrics within the current systems environment to measure all types of conditions affecting accuracy. However, According to the May 2016 FIAR Plan Status Report, IPPS-A functionality for military personnel and payroll integration, which the Army and DFAS said were critical for assuring accuracy of military pay has slipped more than 2-years. Further, the independent public accounting firm (audit firm) that conducted DFAS's service provider Statement on Standards for Attestation Engagement (SSAE) No. 16 examination of the Army's military payroll processing by the Defense Joint Military Pay System (DJMS) for October 1, 2014, through June 30, 2015, issued a qualified opinion. The firm found that although DFAS's military pay service provider had controls in place to identify and report instances of payroll transactions, contain invalid data formats, violat predefined business rules, and/or lack required data., these controls were not effective. For example, the audit firm found that 3 of 47 selected core edit checks did not report expected condition codes when erroneous payroll transactions were submitted and instead processed the transactions as if they contained no errors. Accordingly, we believe the Army should reconsider our recommendation. We will continue to assess DOD's efforts to address our recommendation.

    Recommendation: To strengthen the design of controls over active duty Army military payroll, and to provide a means for monitoring the overall accuracy of the Army's military payroll, the Secretary of Defense should direct the DOD Comptroller to require DFAS-IN to develop criteria and establish a comprehensive metric to capture and measure all types of pay errors affecting accuracy.

    Agency Affected: Department of Defense

  5. Status: Open

    Comments: In June 2013, DOD and Army officials stated that DFAS, as part of its pre-assertion audit readiness efforts for the Military Pay Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization examination, has identified and validated many controls over the completeness, accuracy and validity of military pay. This included identifying gaps in internal controls and developing and implementing corrective action plans to mitigate any gaps. The Army subsequently engaged another independent public accounting firm to assess its audit readiness for the Statement of Budgetary Resources, including audit readiness for its military pay. In addition, the Army underwent an audit of its Fiscal Year 2015 General Fund Schedule of Budgetary Activity. Both audit engagements identified military pay issues requiring corrective action. Most recently, the audit of the Army's Fiscal Year 2015 Budgetary Schedule resulted in a disclaimer of opinion, in part, due to the inability to produce a complete and accurate population of accession, separation, promotion/reduction, special pay, and leave populations for Active Duty, Reserve, and Guard soldiers. In January 2016, the auditor reported that "Without the ability to produce complete populations, the risk exists that a soldier is improperly accessed, separated, promoted/reduced, awarded special pay, and/or had his or her leave account adjusted incorrectly. Further, the Army's ability to identify and correct any errors is significantly reduced, potentially misstating payroll obligations and outlays reported on the schedule." Therefore, we believe that the Army needs to revisit our recommendation and establish an interim mechanism for identifying and analyzing the extent and causes of military payroll errors and take appropriate action to address any systemic control weaknesses. We will continue to assess the Army's efforts to address our recommendation.

    Recommendation: To strengthen the design of controls over active duty Army military payroll, and to provide a means for monitoring the overall accuracy of the Army's military payroll, the Secretary of Defense should direct the Department of Defense (DOD) Comptroller to require DFAS-IN to establish an interim mechanism at DFAS-IN for identifying and analyzing the extent and causes of all types of military payroll errors processed by Defense Military Pay Offices (DMPOs), Army Finance Offices, Defense Joint Military Pay System-Active Component (DJMS-AC), and Case Management System (CMS) to address any systemic control weaknesses.

    Agency Affected: Department of Defense

 

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