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Challenges in Achieving Audit Readiness for Its Military Pay' which 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

March 2012: 

DOD Financial Management: 

The Army Faces Significant Challenges in Achieving Audit Readiness for 
Its Military Pay: 

GAO-12-406: 

GAO Highlights: 

Highlights of GAO-12-406, a report to congressional committees. 

Why GAO Did This Study: 

The Defense Finance and Accounting Service-Indianapolis (DFAS-IN) 
reported that fiscal year 2010 active Army military payroll totaled 
$46.1 billion. However, for several years, GAO and others have 
reported continuing deficiencies with Army military payroll processes 
and controls, raising questions about the validity and accuracy of 
reported Army military pay and whether it is auditable. The Department 
of Defense (DOD) has recently accelerated its Statement of Budgetary 
Resources audit readiness goal by 3 months to 2014 and is required to 
achieve audit readiness for a full set of DOD financial statements by 
2017. GAO performed basic audit procedures for the Army’s active duty 
military payroll to assess the Army’s ability to (1) identify a valid 
population of payroll transactions and (2) test a sample of payroll 
transactions for validity and accuracy. GAO reviewed applicable laws 
and regulations, analyzed DOD and Army policies and procedures, drew a 
statistical sample of payroll transactions to test their accuracy and 
validity, and met with DOD, DFAS-IN, Army, and Defense Manpower Data 
Center officials. 

What GAO Found: 

The Army could not readily identify the population of Army military 
payroll accounts given its existing procedures and systems. The Army 
and DFAS-IN did not have an effective, repeatable process for 
identifying the population of active duty payroll records. For 
example, it took 3 months and repeated attempts before DFAS-IN could 
provide a population of service members who received active duty Army 
military pay in fiscal year 2010. Further, because the Army does not 
have an integrated military personnel and payroll system, it was 
necessary to compare the payroll file to active Army personnel 
records. However, the Defense Manpower Data Center (DMDC), DOD’s 
central repository for information on DOD-affiliated personnel, did 
not have an effective process for comparing military pay account files 
with military personnel files to identify a valid population of 
military payroll transactions. It took DMDC over 2 months and labor-
intensive research to compare and reconcile the total number of fiscal 
year 2010 active duty payroll accounts to its database of personnel 
files. DOD’s Financial Improvement and Audit Readiness (FIAR) Guidance 
states that identifying the population of transactions is a key task 
essential to achieving audit readiness. Without effective processes 
for identifying the population of Army military pay records and 
comparing military pay accounts to personnel records, the Army will 
have difficulty meeting DOD’s 2014 audit readiness goal for the 
Statement of Budgetary Resources. 

In addition, the Army does not have an efficient or effective process 
or system for providing supporting documents for Army military 
payroll. For example, DFAS-IN had difficulty retrieving and providing 
usable Leave and Earnings Statement files and the Army was unable to 
locate or provide supporting personnel documents for GAO’s statistical 
sample of fiscal year 2010 Army military pay accounts. GAO’s Standards 
for Internal Control in the Federal Government and DOD’s FIAR Guidance 
provide that audited entities document transactions and events and 
assure that supporting documentation can be identified, located, and 
provided for examination. Although the Army deployed the Interactive 
Personnel Management System (iPERMS) as the Army’s Official Military 
Personnel File in 2007, it had not consistently or completely 
populated iPERMS with personnel records. At the end of September 2011, 
6 months after receiving GAO’s 250 statistical sample items, the Army 
and DFAS-IN were able to provide complete documentation for 2 of GAO’s 
sample items and provided partial documentation for 3 items, but 
provided no documentation for 245 of GAO’s 250 sample items. 
The Army has begun several military pay audit readiness efforts that, 
if successfully implemented, could help increase the likelihood of 
meeting DOD’s 2014 Statement of Budgetary Resources audit readiness 
goal and the 2017 mandate for audit readiness on a complete set of DOD 
financial statements. These efforts include documenting and testing 
payroll system application controls, documenting Army military pay 
business processes, identifying the range of supporting documents for 
military pay, and developing an integrated military personnel and 
payroll system. Most of these efforts are not yet documented and, 
therefore, there is no assurance that they will be implemented timely 
and effectively. 

What GAO Recommends: 

GAO is making four recommendations to help the Army develop the 
processes and controls necessary to achieve financial statement audit 
readiness, including identifying and validating the population of 
military payroll transactions and obtaining and retaining necessary 
pay-affecting documents. The Army concurred with GAO’s four 
recommendations and noted actions it is taking. 

View [hyperlink, http://www.gao.gov/products/GAO-12-406]. For more 
information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Process and System Weaknesses Hindered Army's Ability to Identify a 
Valid Population of Military Payroll Transactions: 

The Army Was Unable to Provide Documentation to Support the Validity 
and Accuracy of a Sample of Payroll Transactions: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of the Army: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Army Process for Creating a Military Pay Record for an 
Enlisted Service Member: 

Figure 2: Overview of Major Systems Involved in Processing Active Army 
Military Payroll: 

Figure 3: Test Results for 5 of 250 Soldier Pay Account Sample Items: 

Abbreviations: 

ARISS: Army Recruiting Information Support System: 

ASA (M&RA): Assistant Secretary of the Army for Manpower and Reserve 
Affairs: 

COBOL: Common Business Oriented Language: 

CFO: Chief Financial Officer: 

CIGIE: Council of the Inspectors General on Integrity and Efficiency: 

DA: Department of the Army: 

DD: Defense Department: 

DDRS-AFS: Defense Departmental Reporting System-Audited Financial 
Statements: 

DDRS-B: Defense Departmental Reporting System-Budgetary: 

DFAS-IN: Defense Finance and Accounting Service in Indianapolis: 

DIMHRS: Defense Integrated Military Human Resource System: 

DJMS-AC: Defense Joint Military Pay System-Active Component: 

DMDC: Defense Manpower Data Center: 

DMPO: Defense Military Pay Office: 

DOD: Department of Defense: 

EFT: Electronic funds transfer: 

FAM: Financial Audit Manual: 

FIAR: Financial Improvement and Audit Readiness: 

FIP: Financial Improvement Plan: 

FISCAM: Federal Information System Controls Audit Manual: 

FMR: Financial Management Regulation: 

FSA: Family Separation Allowance: 

GAAP: Generally Accepted Accounting Principles: 

GWOT: Global War on Terrorism: 

HRC: Human Resources Command: 

iPERMS: Interactive Personnel Management System: 

IPPS-A: Integrated Personnel and Pay System-Army: 

MEPS: Military Entrance Processing Station: 

MPRJ: Military Personnel Records Jacket: 

Mil Pay Ops: Military Pay Operations: 

NARA: National Archives and Records Administration: 

NDAA: National Defense Authorization Act: 

OMPF: Official Military Personnel File: 

OUSD(C): Office of the Under Secretary of Defense (Comptroller) and 
Chief Financial Officer: 

PCIE: President's Council on Integrity and Efficiency: 

PDF: Adobe Portable Document Format: 

RECBASS: Reception Battalion Automated Support System: 

SRD-1: Standard Financial System (STANFINS) Redesign Subsystem-1: 

SSAE: Statements on Standards for Attestation Engagements: 

SSN: Social Security Number: 

STANFINS: Standard Financial System: 

USD (P&R): Under Secretary of Defense for Personnel and Readiness: 

USMEPCOM: U.S. Military Entrance Processing Command: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 22, 2012: 

Congressional Committees: 

According to the Defense Finance and Accounting Service in 
Indianapolis (DFAS-IN), fiscal year 2010 active Army military payroll 
totaled $46.1 billion. For years, we and others have reported 
continuing deficiencies with Department of the Army military payroll 
processes and controls. In November 2003, we reported that weaknesses 
in processes and controls resulted in over-and underpayments to 
mobilized Army National Guard personnel.[Footnote 1] In April 2006, we 
reported that pay problems rooted in complex, cumbersome processes 
used to pay Army soldiers from initial mobilization through active 
duty deployment to demobilization resulted in military debt to battle-
injured soldiers.[Footnote 2] In June 2009, we reported that the Army 
did not have effective controls for processing and accounting for 
military personnel federal payroll taxes because of weaknesses in its 
procedures and controls for assuring accurate and timely documentation 
of transactions.[Footnote 3] In July 2011, the Department of Defense 
(DOD) Inspector General reported that the Defense Finance and 
Accounting Service (DFAS)[Footnote 4] made potentially invalid active 
duty military payroll payments of $4.2 million from January 2005 
through December 2009 for the Army, the Navy, and the Air Force. 
[Footnote 5] 

These reported continuing deficiencies in Army payroll processes and 
controls have called into question the extent to which the Army's 
military payroll transactions are valid and accurate and whether the 
Army's military payroll as a whole is auditable. The Army's military 
pay is material to all of the Army's financial statements and 
comprises about 20 percent of the Army's $233.8 billion in reported 
fiscal year 2010 net outlays.[Footnote 6] Accordingly, Army active 
duty military payroll is significant to both Army and DOD efforts to 
meet DOD's 2014 Statement of Budgetary Resources audit readiness goal. 

The Chief Financial Officers Act of 1990, as amended, established 
requirements for 24 agencies, including DOD, to prepare annual 
financial statements and have them audited.[Footnote 7] As we have 
previously reported, DOD's many challenges in resolving its pervasive 
and long-standing weaknesses in financial management, business 
operations, and systems have inhibited its ability to meet this 
requirement.[Footnote 8] DOD has undertaken numerous financial 
management improvement initiatives over the years, but it continues to 
receive disclaimers of opinion on its financial statements. 

The National Defense Authorization Act (NDAA) for Fiscal Year 2010 
mandated that DOD be prepared to validate (certify) that its 
consolidated financial statements are ready for audit by September 30, 
2017.[Footnote 9] The NDAA for fiscal year 2010 also mandated that DOD 
develop and maintain a Financial Improvement and Audit Readiness 
(FIAR) Plan that includes, among other things, the specific actions to 
be taken and costs associated with correcting the financial management 
deficiencies that impair the department's ability to prepare timely, 
reliable, and complete financial management information.[Footnote 10] 
Military pay is significant to departmentwide financial statements. 
Further, other military components, such as the Air Force and the 
Navy, share some of the same process and system risks as the Army. 

In May 2011, the Army reported that it expected to be ready for an 
audit of its Statement of Budgetary Resources by the first quarter of 
fiscal year 2015. The Army also reported that its military pay would 
be audit ready by the first quarter of fiscal year 2015. On October 
13, 2011, the Secretary of Defense directed the department to achieve 
audit readiness for the Statement of Budgetary Resources by the end of 
fiscal year 2014 as an interim milestone for DOD to meet the legal 
requirement in the NDAA for Fiscal Year 2010 to achieve full audit 
readiness for all DOD financial statements by 2017.[Footnote 11] This 
new goal would accelerate the time frames for audit readiness of the 
Army's Statement of Budgetary Resources, including Army military pay, 
by 3 months. Military pay audit readiness is an important element of 
this goal. 

This report was initiated under our mandate to audit the U.S. 
government's financial statements.[Footnote 12] Our objectives were to 
perform basic audit procedures necessary to conclude about the 
validity and accuracy of Army's active duty military payroll. Those 
basic audit procedures included (1) identifying a valid population of 
military payroll transactions and (2) testing a sample of payroll 
transactions for validity and accuracy. 

To address our first objective, we obtained the population of Army 
active duty military payroll records from the Defense Finance and 
Accounting Service, Indianapolis (DFAS-IN). Because the Army does not 
have an integrated military personnel and payroll system, we worked 
with the Defense Manpower Data Center (DMDC) (DOD's central source for 
personnel information) to match DFAS-IN payroll accounts to DMDC 
personnel records to determine whether the population of Army military 
payroll accounts was in agreement with the population of personnel 
records in DMDC.[Footnote 13] Nearly all of the identified differences 
related to service members in separation status. However, we referred 
six unresolved duplicate items to DMDC and Army Human Resources 
Command for further research and correction. To address our second 
objective, we used the population of matched personnel and payroll 
records to select a statistical sample of 250 soldiers for testing 
payroll accuracy for the sampled items. We requested 12 months of 
fiscal year 2010 Leave and Earnings Statements for each soldier in our 
sample, the most recent data available, to compare pay transactions 
with supporting Army personnel documents indicating such information 
as military orders, special duty and expertise entitlements, marital 
status, and dependent information. We focused on key steps to be 
followed in establishing military personnel records on specific pay 
and allowance amounts. We interviewed Army Personnel, Human Resources 
Command, and Finance Command officials and visited a Military 
Enlistment Program Station in Indianapolis, Indiana, and a military 
reception battalion at a training installation at Ft. Jackson, South 
Carolina, to document the processes for capturing pay-related 
information and setting up military personnel records. In addition, we 
interviewed finance officials at Defense Military Pay Offices at two 
Army field installations to gain an understanding of how pay accounts 
are established, adjusted, and documented. 

We conducted this performance audit from June 2010 through March 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. Appendix I 
provides further details on our scope and methodology. Other matters 
identified in our work that merit management's attention will be 
reported in a separate letter to Army management. 

Background: 

The United States Army is responsible for land-based military 
operations. It is the largest and oldest established branch of the 
U.S. military. The modern Army has its roots in the Continental Army, 
which was formed on June 14, 1775, before the establishment of the 
United States, to meet the demands of the American Revolutionary War. 
The Army's mission is to fight and win our nation's wars by providing 
prompt, sustained land dominance across the full range of military 
operations and spectrum of conflict in support of combatant commands. 
The Army does this by organizing, equipping, and training forces; 
accomplishing missions assigned by the President, the Secretary of 
Defense, and combatant commanders; and transforming for the future. 

For fiscal year 2010, Congress appropriated more than $52 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 primarily for active duty 
service members.[Footnote 14] The Defense Finance and Accounting 
Service in Indianapolis, Indiana (DFAS-IN) is responsible for 
accounting, disbursement, and reporting for the Army's military 
personnel costs using the Defense Joint Military Pay System-Active 
Component (DJMS-AC). According to DFAS-IN, of the $52 billion in 
fiscal year 2010 military personnel appropriations, the Army's nearly 
680,000 service members received $46.1 billion in pay and allowances. 
To provide payroll support to the vast number of active Army service 
members, DFAS-IN has over 40 Defense Military Pay Offices within the 
United States that provide finance services to military personnel in 
designated geographical areas. 

Statement of Budgetary Resources: 

The Statement of Budgetary Resources is the only financial statement 
predominantly derived from an entity's budgetary accounts in 
accordance with budgetary accounting rules, which are incorporated 
into generally accepted accounting principles (GAAP) for the federal 
government. The Statement of Budgetary Resources is designed to 
provide information on authorized budgeted spending authority as 
reported in the Budget of the United States Government (President's 
Budget), including budgetary resources, availability of budgetary 
resources, and how budgetary resources have been used.[Footnote 15] 

For fiscal year 2010, the Army reported $331.8 billion in total 
budgetary resources and over $233.8 billion in net outlays (spending, 
net of offsetting collections[Footnote 16]). The Army's reported $46.1 
billion in fiscal year 2010 active duty military payroll accounts for 
20 percent of its net outlays. 

Army Personnel Role in the Military Pay Process: 

The Under Secretary of Defense for Personnel and Readiness (USD (P&R)) 
advises the Secretary of Defense on a number of personnel areas such 
as recruitment, pay and benefits, and oversight of military readiness, 
and serves as DOD's Chief Human Capital Officer. The Office of the 
Assistant Secretary of the Army for Manpower and Reserve Affairs (ASA 
(M&RA)) is responsible for setting the strategic direction and 
providing overall supervision for manpower, personnel, and Reserve 
component affairs of the Department of the Army, and serves as the 
Army's lead for manpower policy and human resources, among other 
things. In order to fulfill these responsibilities, ASA (M&RA) relies 
on the Deputy Chief of Staff, G-1, for advice and assistance.[Footnote 
17] In addition to being the principal military advisor to ASA (M&RA), 
G-1's other responsibilities include developing policy that provides 
guidance for responsive and flexible human resources support of the 
Army and overseeing the officer accession and enlisted recruiting 
policy. The Human Resources Command supports the Deputy Chief of 
Staff, G-1, in the management of all military personnel by serving as 
the functional proponent for military personnel management and 
personnel systems. Army Human Resources Command, unit commanders, and 
training certification officials, among others, are responsible for 
providing DFAS-IN with accurate and timely information regarding 
changes in individual military member status necessary to maintain 
accurate and timely payroll accounts. 

Creation of a Military Pay Account: 

As illustrated in figure 1, military pay accounts are established as 
part of the enlistment process for new recruits and are based on 
personnel records. The recruiting office establishes the basics of the 
recruit's personnel file in the Army Recruiting Information Support 
System (ARISS). This file contains the recruit's full name, contact 
information, country of origin, social security number (SSN), and 
recruiting status. After applying, the recruit reports to a Military 
Entrance Processing Station (MEPS),[Footnote 18] which works with the 
recruiting office to qualify applicants for military service and 
serves as the quality control unit between the recruiter and the 
military service. The applicant concludes the MEPS visit by signing 
either an enlistment contract or a delayed entry contract. The 
contract notes the terms of enlistment, such as pay grade, which 
relate to basic pay information. This completes the entrance documents 
that the MEPS collects. MEPS personnel then administer the Oath of 
Enlistment. All of the documents created are electronically 
transmitted to the respective service recruiting system, that is, 
ARISS for the Army, and a paper copy, referred to as a "Packet," is 
created that accompanies the recruit to the training installation 
where the Packet is delivered to the personnel office at the Reception 
Battalion.[Footnote 19] 

Recruits generally report to their assigned installation Reception 
Battalion for training within 2 weeks to 14 months after signing their 
enlistment contract. The service liaison counselor keeps the 
documentation Packet until the enlistee reports to the Reception 
Battalion, at which time the Packet is sent to the respective training 
installation. The Reception Battalion uses information contained in 
the Packet to create a personnel file in the Reception Battalion 
Automated Support System (RECBASS). The enlistee provides additional 
information on dependents, such as a marriage certificate, birth 
certificates for dependent children, and W-4 dependent information. 
Reception Battalion personnel staff assist the enlistee in filling out 
any additional forms if they were not included in the Packet, such as 
direct deposit, pay allotments for base housing, savings account 
deposits, child support, and emergency contact information. Personnel 
staff enter this information into the personnel system and send the 
information to the installation's Defense Military Pay Office where 
the enlistee's payroll account, referred to as a master military pay 
account, is created in DJMS-AC.[Footnote 20] 

Figure 1: Army Process for Creating a Military Pay Record for an 
Enlisted Service Member: 

[Refer to PDF for image: process illustration] 

1. Recruiting office visit: 
Prospective service member visits Army recruiting office.  

2. Basic information: 
Recruiting office enters basic personnel information in ARISS.  

3. Military Entrance Processing Station (MEPS): 
Recruit visits MEPS, for testing and qualification, signs enlistment 
contract, and takes Oath of Enlistment.  

4. Enlistment packet: 
MEPS bundles qualifications information, enlistment contract, to 
create an enlistment Packet.  

5. Enlistee and packet arrive: 
Enlistee and enlistment Packet arrive at training installation 
Reception Battalion, personnel office. 

6. Personnel file created: 
Reception Battalion creates personnel file in RECBASS. Enlistee 
provides additional information, e.g., dependents.  

7. Files sent to Defense Military Pay Office (DMPO): 
Reception Battalion sends electronic or hard copy files to the DMPO 
for creation of a military pay account in DJMS.  

8. Master Military Pay Account created: 
DMPO staff create service member's MMPA in DJMS-AC.  

9. Pay record updated: 
Pay record is updated for changes in entitlement amounts based on 
special duties. 

Source: GAO analysis of Army and DFAS processes. 

[End of figure] 

Military pay starts once the payroll account is established in DJMS-
AC. Army active duty military personnel 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 service members may elect to be paid once a month 
at the end of the month or twice a month at mid-month and at the end 
of month. The service member's pay information is consolidated into 
one monthly Leave and Earnings Statement. In addition to basic pay, 
military members may also be eligible for cash recruitment or 
retention incentives (i.e., bonuses). Any necessary pay change after 
the pay account is set up is 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. 

The Defense Manpower Data Center (DMDC) is the central DOD source to 
identify, authenticate, authorize, and provide information on DOD-
affiliated personnel. As such, it is the one, central access point for 
information and assistance on DOD entitlements, benefits, and medical 
readiness for uniformed service members, veterans, and their families. 
Major DMDC databases include information on pay; accessions and 
examinations (USMEPCOM); authorizations and requirements; military 
units and addresses, special purposes, for example, contingency 
operations; Joint Command duty assignments; retirement point 
repository; and mobilization/activations. DMDC has five major 
operating locations, including the DOD Center, in Monterey Bay, 
California; the Washington, D.C. area; and overseas locations in South 
Korea, Europe, and Southwest Asia. In addition, DMDC has 2,145 issuing 
stations (badge offices, etc.) at 1,400 worldwide locations. Computer 
support for the DOD Center in Monterey Bay is provided by the DOD 
Center in Monterey Bay and the Naval Postgraduate School in Monterey, 
California. Other computer support offices are located in Arlington, 
Virginia, and Auburn Hills, Michigan. 

Processing of Military Payroll: 

Payments of basic pay and allowances to service members are made via 
electronic funds transfer (EFT) through DJMS-AC.[Footnote 21] At the 
local level, DMPOs are required to review any substantial changes 
(defined as +/-150 percent) in payroll data daily. The intent of this 
review is to identify data input errors. In addition, a day before 
payroll is processed, DFAS-IN conducts a pre-payroll review. This is a 
manual process, where the DFAS-IN Military Pay Operations (Mil Pay 
Ops) staff obtain a sample[Footnote 22] of Leave and Earnings 
Statements from DJMS-AC and trace the information in the statements to 
the relevant table outside of DJMS-AC. The purpose of this review is 
to identify potential system problems with the pay information used to 
calculate the pay amount. After completing this review, DFAS-IN then 
sends the DJMS-AC totals to the certifying official for certification. 
The certification process checks the DJMS-AC totals against the 
disbursing file totals. The certifying official sends an authorization 
and voucher to the Disbursing Office requesting release of payment. 
The DFAS-IN Disbursing Office uses the Army's disbursing system 
[Footnote 23] to send electronic payments to the Federal Reserve 
Banks, which in turn distribute payments to each service member's bank 
account. 

DFAS-IN's Accounting Division performs a number of steps to transfer 
payroll transactions from DJMS-AC to the Army's general ledger 
accounting system.[Footnote 24] The Accounting Division receives DJMS 
reports from Mil Pay Ops that contain the computed total pay costs and 
disbursements for the payroll transactions, which are recorded as 
summary records by budget activity (e.g., officer, enlisted, and cadet 
pay). An individual soldier's payroll information is not recorded in 
the accounting system. Military pay accounting data is uploaded from 
the Army's general ledger accounting system into the Defense 
Departmental Reporting System-Budgetary (DDRS-B) for budgetary 
reporting and then to DDRS-Audited Financial Statement (DDRS-AFS) for 
financial statement reporting. Figure 2 provides a high-level 
illustration of the Army's complex environment for establishing 
military personnel and payroll records and processing military pay. 

Figure 2: Overview of Major Systems Involved in Processing Active Army 
Military Payroll: 

[Refer to PDF for image: system illustration] 

45 total feeder systems and spreadsheets: to: 

Army personnel systems: (feeds DFAS-IN Army Mil Pay Ops and DFAS-IN 
MilPay); 
eMilPo; 
TAPDB-AE/TAPDB-AO; 
iPERMS[A]; 
DEERS; 
PMIS; 
INPROC; 
RETAIN; 
OUTPROC; 
TRANSPROC. 

Army recruiting accessions: (feeds Army personnel systems and DFAS-IN 
MilPay); 
ARISS; 
RECBASS; 
MIRS. 

DFAS-IN MilPay: (feeds and receives from DFAS-IN Army Mil Pay Ops and 
DFAS-IN Disbursing; feeds DFAS-IN Accounting); 
DKMS-AC. 

DFAS-IN Army Mil Pay Ops: (feeds and receives from DFAS-IN MilPay); 
DMO; 
MyPay; 
CMS; 
WIA/KIA. 

DFAS-IN Disbursing: (feeds and receives from DFAS-IN MilPay); 
SRD-1; 
DDS; 
SNIPS. 

DFAS-IN Accounting: (feeds DFAS-IN Reporting); 
ODS; 
STANFINS; 
DDMS. 

DFAS-IN Reporting: 
HQARS; 
DDRS-8; 
DDRS-AFS; 
CLRS-FE & AFS. 

Accession: 
ARISS — Army Recruiting Information Support System; 
RECBASS — Reception Battalion Automated Support System; 
MIRS — US. Military Entrance Processing Command (USMEPCOM) Integrated 
Resource System. 

Personnel: 
eMILPO — electronic Military Personnel Office; 
TAPDB-AE/TAPDB-AO — Total Army Personnel Database-Active 
Enlisted/Active Officer; 
iPERMS — interactive Personnel Electronic Records Management System; 
DEERS — Defense Eligibility Enrollment Reporting System; 
PMIS — Personnel Management Information System; 
INPROC — In-Processing System; 
RETAIN — Reenlistment, Reclassification and Assignment System; 
OUTPROC Out-Processing System; 
TRANSPROC — Military Personnel Transition Point Processing. 

DFAS-IN: 
DMO — Defense MilPay Office System; 
MyPay — My Pay (Individual soldier portal); 
CMS — Case Management System; 
WIA/KIA — Wounded in Action/Killed in Action; 
DJMS-AC — Defense Joint Military Pay System —Active Component; 
ODS — Operational Data Store; 
STANFINS — Standard Finance System; 
DDMS — Defense Debt Management System; 
HQARS — Headquarters Accounting and Reporting System; 
DDRS-B — Defense Departmental Reporting System — Budgetary; 
DDRS-AFS — Defense Departmental Reporting System —Audited Financial 
Statements; 
CLRS-FE — CFO Load & Reconciliation System — Front End; 
CLRS-AFS — CFO Load & Reconciliation System —Audited Financial 
Statements; 
SRD-1 — Standard Finance System — Redesign 1; 
DDS — Deployable Disbursing System; 
SNIPS — Standard Negotiable Instruments Processing System. 

Source: GAO analysis of Army and DFAS-IN systems and process 
information. 

[A] iPERMS does not feed DJMS-AC. 

[End of figure] 

Army Regulation No. 600-8-104, Military Personnel Information 
Management/Records, establishes requirements for the Army's Official 
Military Personnel File.[Footnote 25] The Army deployed iPERMS in 
2007, and certain MilPer (Military Personnel) Messages and a 
Department of the Army memorandum indicate that iPERMS is intended to 
serve as the system of record for the Official Military Personnel 
File.[Footnote 26] In addition, the Army is in the process of 
developing the Integrated Personnel and Pay System-Army (IPPS-A), 
which is targeted for completion in 2017. 

Process and System Weaknesses Hindered Army's Ability to Identify a 
Valid Population of Military Payroll Transactions: 

The Army could not readily identify a complete population of Army 
payroll accounts for fiscal year 2010, given existing procedures and 
systems. The Army and the Defense Finance and Accounting Service in 
Indianapolis (DFAS-IN) did not have an effective, repeatable process 
for identifying the population of active duty payroll accounts. In 
addition, the Defense Manpower Data Center (DMDC) did not have an 
effective process for comparing military pay account files to military 
personnel files to identify a valid population of military payroll 
transactions.[Footnote 27] For example, it took 3 months and repeated 
attempts before DFAS-IN could provide a population of service members 
who received active duty Army military pay in fiscal year 2010. 
Similarly, it took DMDC over 2 months to compare the total number of 
fiscal year 2010 active duty payroll accounts to its database of 
personnel files. Standards for Internal Control in the Federal 
Government requires all transactions and other significant events to 
be clearly documented and the documentation readily available for 
examination.[Footnote 28] In addition, these ineffective processes are 
not in accord with DOD's own guidance or financial audit guidance. 
DOD's Financial Improvement and Audit Readiness (FIAR) Guidance sets 
out key tasks essential to achieving audit readiness, including 
defining and identifying the population of transactions for audit 
purposes.[Footnote 29] The GAO/PCIE Financial Audit Manual (FAM) 
provides guidance concerning typical control activities, such as 
independent checks on the validity, accuracy, and completeness of 
computer-processed data.[Footnote 30] One example of a control in this 
area includes comparing data from different sources for accuracy and 
completeness. Without effective processes for identifying a complete 
population of Army military pay records and comparing military pay 
accounts to personnel records, the Army will have difficulty meeting 
DOD's 2014 audit readiness goal and its 2017 goal for a complete set 
of auditable financial statements. 

DFAS-IN Did Not Have an Effective Process for Identifying the 
Population of Army Military Payroll Records: 

DFAS-IN made three attempts from November 2010 through early January 
2011 to provide us a Defense Joint Military Pay System-Active 
Component (DJMS-AC) file extract of Army service members who received 
active duty pay in fiscal year 2010. The first attempt included 11,940 
duplicate pay accounts, and the total number of pay accounts included 
in the second attempt increased by 28,035 records over the first 
attempt, necessitating a third attempt to establish the population of 
fiscal year 2010 active duty pay records. We requested that DMDC 
compare the results of DFAS-IN's third attempt to identify the 
population of Army fiscal year 2010 payroll accounts against DMDC's 
compilation of monthly active duty payroll data that it received from 
DFAS-IN. Of the 677,024 Army active duty pay accounts, per DJMS-AC, we 
were able to reconcile all but 1,025 pay accounts (less than 1 percent 
of the total active duty pay accounts, which is not considered 
material) to pay account data that DFAS-IN had previously provided to 
DMDC. Standards for Internal Control in the Federal Government 
requires all transactions and other significant events to be clearly 
documented and the documentation readily available for examination. 
[Footnote 31] As discussed later in this report, we were unable to 
verify the validity of the records. Further, we did not attempt to 
reconcile military payroll amounts to the related disbursements 
because an Office of the Secretary of Defense (Comptroller) and Chief 
Financial Officer (OUSD(C)) contractor was in the process of 
performing a pilot reconciliation of payroll to disbursement data. 

DOD's Financial Improvement and Audit Readiness (FIAR) Guidance states 
that being able to provide transaction-level detail for an account 
balance is a key task essential to achieving audit readiness. At the 
time we initiated our audit, Army officials told us that they had not 
yet focused on this area in their audit readiness efforts because the 
target date for Army military pay was not until the first quarter of 
fiscal year 2015.[Footnote 32] The inability to readily provide a 
population of military pay accounts impeded our efforts to accomplish 
our audit objectives and, if not effectively addressed, will impede 
the Army's ability to meet DOD's new Statement of Budgetary Resources 
audit readiness goal of September 30, 2014. 

System Weaknesses Hindered the Matching of Army Pay Accounts to 
Personnel Files: 

DMDC did not have an effective process for comparing military pay 
account files with military personnel files. The Army's pay and 
personnel systems are not integrated, which can lead to differences 
between the systems and potential errors. Therefore, an audit of 
military pay would include comparisons of military payroll accounts to 
personnel records to identify discrepancies. While DMDC was ultimately 
able to confirm that all 677,024 service members who received fiscal 
year 2010 active duty Army military pay from the DJMS-AC had an active 
duty personnel file in one of the multiple personnel systems, the 
reconciliation process was labor intensive and took over 2 months to 
complete. For example, DMDC's initial comparison of active duty Army 
military pay accounts to personnel records identified 67,243 pay 
accounts that did not have a corresponding active army personnel 
record on September 30, 2010.[Footnote 33] Labor-intensive research 
was necessary to reconcile the differences between DJMS-AC pay records 
and Army personnel files compiled by DMDC. According to DMDC, these 
differences related primarily to personnel who had either left or were 
scheduled to leave the service, were reserve component soldiers 
released from active duty, or were soldiers who had died during fiscal 
year 2010. For these reasons, the service members were not included in 
the personnel file on September 30, 2010, that DMDC used for our 
initial comparison. We confirmed six duplicate SSNs in personnel 
records with the Social Security Administration and referred these 
records to DMDC and the Army for further research and appropriate 
action.[Footnote 34] 

DMDC attempted to complete our requested comparison of active duty 
Army pay accounts to military personnel records in January 2011, but 
was unable to complete the reconciliation until early March 2011. DMDC 
officials told us that the reasons for the delays included mainframe 
computer issues,[Footnote 35] staff illness and turnover, and 
management data quality reviews of the file comparison results, 
including additional file comparisons to resolve differences. Without 
an effective process for confirming that the Army's active duty 
payroll population reconciles to military personnel records, the 
Army's efforts to meet DOD's Statement of Budgetary Resources 
auditability goal of September 30, 2014, will be impeded. 

The Army Was Unable to Provide Documentation to Support the Validity 
and Accuracy of a Sample of Payroll Transactions: 

The Army does not have an efficient or effective process or system for 
providing documentation that supports payments for Army military 
payroll. For example, DFAS-IN had difficulty retrieving and providing 
usable Leave and Earnings Statements files for our sample items, and 
the Army and DFAS were unable to provide personnel and finance 
documents to support our statistical tests of all 250 service members' 
pay accounts for fiscal year 2010. Standards for Internal Control in 
the Federal Government[Footnote 36] and DOD's FIAR Guidance[Footnote 
37] require audited entities to document transactions and events and 
assure that supporting documentation can be identified, located, and 
provided for examination. In addition, DOD Regulation 7000.14-R, 
Financial Management Regulation (FMR), requires the military 
components to maintain documentation supporting all data generated and 
input into finance and accounting systems or submitted to DFAS. 
[Footnote 38] Further, DOD's Financial Improvement and Audit Readiness 
(FIAR) Guidance states that identifying and evaluating supporting 
documentation for individual transactions and balances, as well as 
identifying the location and sources of supporting documentation and 
confirming that appropriate supporting documentation exists, is a key 
audit readiness step. However, because the Army was unable to provide 
documents to support reported payroll amounts, we were unable to 
determine whether the Army's payroll accounts were valid, and we were 
unable to verify the accuracy of payments and reported active duty 
military payroll. Further, because military payroll is significant to 
the financial statements, the Army will not be able to pass an audit 
of its Statement of Budgetary Resources without resolving these 
control weaknesses. The following discussion summarizes the problems 
with the Army's processes related to military pay audit readiness. 

DFAS-IN Could Not Readily Provide Usable Leave and Earnings Statement 
Files for Sample Items: 

DFAS-IN staff experienced difficulty and delays in providing usable 
Leave and Earnings Statement files to support our testing of Army 
military payroll. We selected a sample of 250 service members and 
requested the relevant Leave and Earnings Statement files for fiscal 
year 2010. After multiple discussions and requests, we ultimately 
obtained usable Leave and Earnings Statement files for our sample 
items--5 weeks after our initial request. DFAS-IN took over 2 weeks to 
obtain the initial set of Leave and Earnings Statement files because 
it retrieves the files from two areas of the Defense Joint Military 
Pay System-Active Component (DJMS-AC). The active DJMS-AC database 
holds the current month plus the previous 12 months' data; older data 
are archived. When we requested Leave and Earnings Statement files for 
fiscal year 2010 in April 2011, a portion of these files had been 
archived and had to be retrieved from the archived database. In 
addition, the first set of Leave and Earnings Statement files that 
DFAS-IN provided included statements outside the requested fiscal year 
2010 timeframe of our audit, thus we had to request a new set of 
files. It took over 1 week, including our data quality review, to 
obtain the second set of Leave and Earnings Statement files consisting 
of 445 separate files containing monthly statements for the 250 
service member pay accounts in our sample. We determined that the 
Leave and Earnings Statements for an individual service member 
generally were in two or more of the files provided. Consequently, we 
had to combine these files into a format with each service member's 
Leave and Earnings Statement files grouped together to include all of 
the pay and allowance information for the service members in our 
sample. This combining and formatting required 2 additional weeks. 

The Army Was Unable to Locate Supporting Documentation for Military 
Pay Account Sample Items: 

Although the Army deployed the Interactive Personnel Management System 
(iPERMS) as the Army's Official Military Personnel File in 2007 and 
the requirements for assuring that adequate supporting documentation 
is available for audit and examination are clearly defined, the Army 
did not have procedures in place to assure that its military pay 
transactions were adequately supported and that the supporting 
documentation could be readily retrieved and provided for financial 
audit purposes. Standards for Internal Control in the Federal 
Government requires internal control and all transactions and other 
significant events to be clearly documented and the documentation 
readily available for examination.[Footnote 39] DOD Regulation 7000.14-
R, Financial Management Regulation (FMR), requires the military 
components to maintain documentation supporting all data generated and 
input into finance and accounting systems or submitted to DFAS. 
[Footnote 40] This regulation also requires the components to ensure 
that audit trails are maintained in sufficient detail to permit 
tracing of transactions from their sources to their transmission to 
DFAS. Audit trails are necessary to demonstrate the accuracy, 
completeness, and timeliness of transactions as well as to provide 
documentary support for all data generated by the component and 
submitted to DFAS for recording in the accounting systems and use in 
financial reports.[Footnote 41] Further, DOD's FIAR Guidance states 
that identifying and evaluating supporting documentation for 
individual transactions and balances, as well as the location and 
sources of supporting documentation and confirming that appropriate 
supporting documentation exists, is a key audit readiness step. 
[Footnote 42] Without the capability to readily locate and provide 
supporting documentation for military payroll transactions within a 
short timeframe, the Army's ability to pass a financial statement 
audit will be impeded. 

After selecting our sample of 250 Army military payroll accounts in 
March 2011, we worked with Army Human Resources Command, Army Finance 
Command, and DFAS-IN officials to obtain source documents that 
supported basic pay, allowances, and entitlements. After being 
directed to make our document requests to various offices, none of 
which provided supporting documentation but instead referred us to 
other offices, we suggested that the Army focus on the first 20 pay 
account sample items to assess the feasibility of obtaining supporting 
documentation.[Footnote 43] When the Army continued to have difficulty 
locating supporting documentation, we suggested that the Army focus on 
the first 5 sample items. As of the end of September 2011, 6 months 
after receiving our initial request, the Army and DFAS-IN were able to 
provide complete documentation for 2 of our 250 sample items, partial 
support for 3 sample items, and no support for the remaining 245 
sample items.[Footnote 44] Our review of the partial documentation 
provided for 3 sample items showed that the Army was unable to provide 
supporting documentation for common elements of its military pay, 
including basic allowance for housing, cost of living allowance, 
hardship duty pay-location, and hostile fire/imminent danger pay. 
Specifically, 

* The Army was unable to provide supporting documentation for basic 
allowance for housing for one service member. In general, a service 
member on active duty is authorized a housing allowance based on the 
member's grade, dependency status, and location. Basic allowance for 
housing is based on the median housing costs and is paid independently 
of the service member's actual housing costs. At the conclusion of our 
fieldwork, a DFAS-IN official told us they had requested this 
documentation from the National Archives and Records Administration 
(NARA); however, they had not yet received it.[Footnote 45] 

* For two sample items, the Army did not provide adequate 
documentation that the two service members were appropriately paid for 
clothing allowance. A clothing allowance is paid to enlisted service 
members annually in the anniversary month each year after they 
received their first clothing allowance. At the end of our field work, 
DFAS-IN had not provided an explanation as to why these service 
members received their clothing allowance in a month other than their 
anniversary date. 

* The Army was unable to provide supporting documentation for one 
service member residing within the continental United States receiving 
a cost-of-living allowance. A cost-of-living allowance for soldiers 
stationed in the United States is a supplemental allowance designed to 
help offset higher prices in high-cost locations. At the end of our 
field work, a DFAS-IN official told us they had requested the 
documentation from NARA; however, they had not yet received it. 

* Finally, for two service members, the Army was unable to provide 
supporting documentation for hardship duty pay and hostile fire/ 
imminent danger pay. Service members are entitled to hardship duty pay 
for location assignments when there is a permanent change of station 
duty or temporary/deployed/attached duty of over 30 days in a specific 
location. Additionally, a service member is entitled to hostile fire/ 
imminent danger pay when, as certified by the appropriate commander, 
the member is (1) subject to hostile fire or explosion of a hostile 
mine; (2) on duty in an area close to hostile fire incidents and the 
member is in danger of being exposed to the same dangers experienced 
by other service members; or (3) killed, injured, or wounded by 
hostile fire and the service member is on official duty in a 
designated imminent danger pay area. At the end of our field work, the 
Army was unable to provide adequate support for the dates that each of 
these service members reported for duty at the specified location 
which triggered the start of these two types of pay, and it was unable 
to provide documentation that one service member had been ordered to 
report to duty in the designated location. 

As shown in figure 3, the Army provided complete documentation for 
soldier pay accounts associated with sample items #2 and #4, but it 
was unable to provide complete documentation for sample items #1, #3, 
and #5. Further, after 6 months, the Army was still unable to provide 
any documentation for the remaining 245 pay account sample items. 

Figure 3: Test Results for 5 of 250 Soldier Pay Account Sample Items: 

[Refer to PDF for image: illustrated table] 

Type of pay or allowance: Basic pay; 
Item #1: Adequate supporting documentation was provided; 
Item #2: Adequate supporting documentation was provided; 
Item #3: Adequate supporting documentation was provided; 
Item #4: Adequate supporting documentation was provided; 
Item #5: Adequate supporting documentation was provided.  

Type of pay or allowance: Basic allowance for subsistence (BAS); 
Item #1: Adequate supporting documentation was provided; 
Item #2: Adequate supporting documentation was provided; 
Item #3: Adequate supporting documentation was provided; 
Item #4: Adequate supporting documentation was provided; 
Item #5: Adequate supporting documentation was provided.  

Type of pay or allowance: Basic allowance for housing (BAH); 
Item #1: Adequate supporting documentation was not provided;
Item #2: Adequate supporting documentation was provided; 
Item #3: Adequate supporting documentation was provided; 
Item #4: Adequate supporting documentation was provided; 
Item #5: Adequate supporting documentation was provided.  

Type of pay or allowance: Clothing allowance; 
Item #1: Adequate supporting documentation was not provided;
Item #2: Adequate supporting documentation was provided; 
Item #3: Adequate supporting documentation was not provided;
Item #4: N/A; 
Item #5: Adequate supporting documentation was provided.  

Type of pay or allowance: Family separation allowance (FSA); 
Item #1: N/A; 
Item #2: N/A; 
Item #3: Adequate supporting documentation was provided; 
Item #4: N/A; 
Item #5: N/A. 

Type of pay or allowance: Overseas housing allowance (OHA); 
Item #1: N/A; 
Item #2: N/A; 
Item #3: N/A; 
Item #4: Adequate supporting documentation was provided; 
Item #5: N/A. 

Type of pay or allowance: Dual overseas housing allowance (DUAL OHA); 
Item #1: N/A; 
Item #2: N/A; 
Item #3: N/A; 
Item #4: Adequate supporting documentation was provided; 
Item #5: N/A. 

Type of pay or allowance: CONUS cost of living allowance (COLA); 
Item #1: Adequate supporting documentation was not provided;
Item #2: N/A; 
Item #3: N/A; 
Item #4: N/A; 
Item #5: N/A. 

Type of pay or allowance: Cost of living allowance (COLA); 
Item #1: N/A; 
Item #2: Adequate supporting documentation was provided; 
Item #3: N/A; 
Item #4: Adequate supporting documentation was provided; 
Item #5: N/A. 

Type of pay or allowance: Special Duty Pay; 
Item #1: Adequate supporting documentation was provided; 
Item #2: N/A; 
Item #3: N/A; 
Item #4: N/A; 
Item #5: N/A. 

Type of pay or allowance: Hardship duty pay - location (HDP LOC); 
Item #1: N/A; 
Item #2: N/A; 
Item #3: Adequate supporting documentation was not provided;
Item #4: N/A; 
Item #5: Adequate supporting documentation was not provided. 

Type of pay or allowance: Hostile Fire/Imminent Danger Pay (HFP/IDP); 
Item #1: N/A; 
Item #2: N/A; 
Item #3: Adequate supporting documentation was not provided;
Item #4: N/A; 
Item #5: Adequate supporting documentation was not provided. 

N/A: Not applicable because the service member did not have this type 
of pay or allowance. 

Source: GAO analysis of Army personnel documentation. 

[End of figure] 

One of the reasons the Army was unable to provide supporting 
documentation is that it does not have a centralized repository for 
pay-affecting documents. Army personnel and finance documentation 
supporting basic pay and allowances resides in numerous systems, and 
original hard copy documents are scattered across the country--at 
hundreds of Army units and NARA federal records centers. According to 
Army and DFAS-IN officials, there are at least 45 separate systems 
that the Army uses to perform personnel and pay functions with no 
single, overarching personnel system. Although these systems contain 
personnel data on military members and their dependents and feed these 
data to DJMS-AC, the systems do not contain source documents. 

Army Regulation No. 600-8-104, Military Personnel Information 
Management/Records, establishes requirements for the Army's Official 
Military Personnel File.[Footnote 46] Army policies indicate that 
iPERMS is intended to serve as the system of record for the Official 
Military Personnel File.[Footnote 47] The Army deployed iPERMS in 2007 
and designated iPERMS as the Army's Official Military Personnel File. 
However, when we attempted to find supporting documents in iPERMS, we 
found that this system had not been consistently populated with the 
required service member documents, resulting in incomplete personnel 
records. For example, when attempting to test our sample, we 
discovered that documents, such as orders to support a special duty 
assignment, permanent change of station orders, and release or 
discharge from active duty, that should have been in iPERMS were not. 
The Army has designated the Human Resources Command as the owner of 
iPERMS; however, local installation personnel offices across the 
country are responsible for entering most documents into individual 
service member iPERMS accounts, and the Army has not established a 
mechanism for periodic monitoring, review, and accountability of 
iPERMS to ensure that personnel files are complete. For example, we 
found that documents needed to support pay transactions are not in 
iPERMS because (1) Army Regulation 600-8-104 does not require the 
personnel form to be included and (2) the documents are finance 
documents and not personnel documents.[Footnote 48] 

Efforts to achieve auditablity are further compounded by payroll 
system limitations. DJMS-AC, used to process Army active duty military 
pay, is an aging, Common Business Oriented Language (COBOL)[Footnote 
49] mainframe-based system that has had minimum system maintenance 
because DOD planned to transition to the Forward Capability Pay System 
and then to the Defense Integrated Military Human Resources System 
(DIMHRS).[Footnote 50] DJMS-AC lacks key payroll computation abilities 
to pay active duty Army service members. To address these 
functionality limitations, DFAS has developed approximately 70 
workaround procedures that are currently being used to compensate for 
the lack of functionality in DJMS-AC. An audit of Army military pay 
would necessitate an evaluation of these procedures and related 
controls. 

Another factor in the Army's inability to provide support for military 
payroll is that the Army has not adequately documented its personnel 
processes and controls related to military pay. During our audit, we 
spent considerable time attempting to identify the range of personnel 
and finance documents that would be needed to support basic military 
pay and allowances reported on service members' Leave and Earnings 
Statements and the appropriate office responsible for providing the 
documentation. According to Internal Control Standards, written 
documentation should exist covering the agency's internal control 
structure and all significant transactions and events.[Footnote 51] 
The documentation for internal control includes identification of the 
agency's activity-level functions and related objectives and control 
activities and should appear in management directives, administrative 
policies, accounting manuals, and other such guidance. 

Army Military Pay Audit Readiness Efforts Currently Under Way: 

DOD's November 2011 FIAR Status Report includes DOD's goal of 
achieving audit readiness for its Statement of Budgetary Resources by 
the end of fiscal year 2014. DOD and the Army have established interim 
goals for meeting the fiscal year 2014 Statement of Budgetary 
Resources audit readiness goal. For example, the Army plans to assert 
audit readiness for its General Fund Statement of Budgetary Resources, 
including military pay, by March 31, 2013, and have its assertion 
tested and fully validated by June 30, 2014. Army officials stated 
that military pay audit readiness poses a significant challenge and 
acknowledged that the success of the Army's efforts will be key to 
meeting DOD's 2014 Statement of Budgetary Resources audit readiness 
goal. 

To meet this goal, the Army has several military pay audit readiness 
efforts planned or under way--most of which were begun after we 
initiated our audit. However, many of these efforts are in the early 
planning stages and will need to be carefully documented and managed 
to ensure effective and timely implementation. 

* In November 2010, as part of the Office of the Under Secretary of 
Defense (Comptroller) (OUSD(C)) effort to provide management 
consulting assistance where needed on financial audit readiness, DOD 
provided contractor support to the Army for documenting and testing 
DJMS-AC application system controls.[Footnote 52] In November 2011, 
OUSD(C) and contractor officials provided us a status briefing that 
indicated DOD's contractor expects to complete documentation and 
testing of DJMS-AC controls in March 2012. 

* The November 2011 OUSD(C) status briefing also noted that the Army's 
Financial Improvement Plan (FIP) team began executing discovery, 
documentation, and controls testing of front-end military pay business 
processes, including accessions; field service activities; and 
Military Personnel, Army appropriation budget activities. This effort 
includes processes executed by the Army financial management and 
personnel communities, including the Army Budget Office, Office of the 
Deputy Chief of Staff for Personnel, Army and DFAS installation 
finance and military pay offices, and Army installation military 
personnel offices. The Army FIP effort encompasses the active Army, 
Army National Guard, and U.S. Army Reserve. The Army plans to complete 
these efforts by December 31, 2012, and implement any required 
corrective actions by December 31, 2013. 

Further, as part of the Army FIP discovery effort, Army officials told 
us they plan to develop a repository of military pay entitlement 
information by entitlement type, which includes governing laws and 
regulations; the necessary key supporting documentation, responsible 
parties, and location for retrieval; as well as the automated 
information systems involved and their owners. The Army plans to 
complete these efforts by December 31, 2013. However, it is not yet 
clear who will be responsible for entering pay-supporting documents in 
the repository and what process will be used for ensuring completeness 
of the files. As previously discussed, Army Regulation No. 600-8-104, 
Military Personnel Information Management/Records, established 
requirements for the Official Military Personnel File, but the 
regulation did not include requirements for ensuring that personnel 
documents are centrally located, retained in the service members' 
Official Military Personnel File, or otherwise readily accessible. The 
regulation also did not require that these files be monitored to 
ensure their completeness. 

* Army officials told us that in conjunction with DFAS, it has 
identified other systems for SSAE No. 16[Footnote 53] and DFAS self-
reviews. Further, the Army plans to identify by March 31, 2012, all 
systems that have a material impact on the military pay processes and 
require Federal Information System Controls Audit Manual (FISCAM) 
assessments.[Footnote 54] The Army intends that all required reviews 
will be completed by December 31, 2013. 

Additionally, the Army is working with DFAS-IN to document processes 
and perform control testing of payroll accounting, referred to by the 
Army as back-end processes. The Army expects to implement all 
corrective actions on these controls by December 31, 2012. 

* As a result of our work, Army and DFAS-IN officials told us they 
plan to develop a matrix of personnel documents that support military 
pay and allowances and identify officials responsible for providing 
this documentation. Army Deputy Chief of Staff, G-1, officials plan to 
work with IPPS-A team members to determine how IPPS-A will incorporate 
or link to this information. Effective development of such a matrix 
will be critical to ensuring that payroll transactions are supported 
and, therefore, audit ready. The need for such a matrix became 
apparent nearly 1 year ago, but the Army has not yet completed such a 
matrix or identified personnel responsible for providing needed 
documents. Further, it has not established a central repository for 
these documents, or designated iPERMS as the official repository, and 
it has not established a mechanism for periodic monitoring, review, 
and accountability to ensure that the central repository will be 
effectively maintained. 

* In addition, the Army is in the process of developing the Integrated 
Personnel and Pay System-Army (IPPS-A). However, the current targeted 
IPPS-A implementation date of 2017 will require the Army to rely on 
its current systems for purposes of meeting DOD's Statement of 
Budgetary Resources audit readiness date of September 30, 2014. IPPS-A 
is planned to be developed and implemented in two increments, with 
multiple releases. The Army plans to employ 14-to 18-month development 
cycles for each release, with the goal of fielding capabilities every 
12 months. The Army intends for Increment I to consist of a trusted 
data source of soldier personnel and human resource data and to 
provide the foundation for Increment II, which is expected to provide 
integrated personnel and pay services, to be developed and implemented 
across multiple releases. In response to our findings in this report, 
Army IPPS-A officials told us that they have recently begun efforts to 
determine how IPPS-A will link to personnel records that will be 
needed to support Army military payroll amounts. The Army's strategy 
is for each release of IPPS-A to incrementally build upon the prior 
release's design and capability, to ultimately contribute toward the 
Army's goal of reaching financial auditability by fiscal year 2017. 
Because implementation of the IPPS-A is not targeted for completion 
until 2017, a slippage in the implementation date could impede the 
Army's efforts to support DOD's financial statement audit readiness 
goal of September 30, 2017. Without timely and effective efforts to 
establish an electronic repository of pay-supporting documents and 
ensure that the documentation is complete, IPPS-A will not be able to 
fully support the Army's audit readiness efforts. 

Conclusions: 

Active Army military payroll, reported at $46.1 billion for fiscal 
year 2010, is material to all of the Army's financial statements, and 
as such, will be significant to the Army's audit readiness goals for 
the Statement of Budgetary Resources. The Army has several military 
pay audit readiness efforts that are planned or under way. Timely and 
effective implementation of these efforts could help reduce the risk 
related to DOD's 2014 Statement of Budgetary Resources audit readiness 
goal. However, most of these actions are in the early planning stages. 
Moreover, these initiatives, while important, do not address (1) 
establishing effective processes and systems for identifying a valid 
population of military payroll records, (2) ensuring Leave and 
Earnings Statement files and supporting personnel documents are 
readily available for verifying the accuracy of payroll records, (3) 
ensuring key personnel and other pay-related documents that support 
military payroll transactions are centrally located, retained in 
service member Official Military Personnel Files, or otherwise readily 
accessible, and (4) requiring the Army's Human Resources Command to 
periodically review and confirm that service member Official Military 
Personnel File records in iPERMS or other master personnel record 
systems are consistent and complete to support annual financial audit 
requirements. These same issues, if not effectively resolved, could 
also jeopardize the 2017 goal for audit readiness on the complete set 
of DOD financial statements. In addition, the Army's military pay 
auditability weaknesses have departmentwide implications as the other 
military components, such as the Air Force and the Navy, share some of 
the same military pay process and systems risks as the Army. Going 
forward, focused and committed leadership and knowledgeable staff in 
key functional areas, including personnel, systems, military payroll, 
and accounting will be essential to effective implementation of 
military pay audit readiness efforts. 

Recommendations for Executive Action: 

To help the Army develop the processes and controls necessary to 
achieve financial statement audit readiness for military pay, we are 
making the following four recommendations. 

We recommend that the Secretary of the Army direct the Assistant 
Secretary of the Army for Financial Management and Comptroller to work 
with Army Personnel (G-1), DFAS-IN, and audit readiness officials to: 

* document and implement a process for identifying and validating the 
population of payroll transactions for fiscal year periods at a 
minimum. 

* identify key finance (i.e., pay-affecting) documents that support 
military payroll transactions and develop and implement procedures for 
maintaining them, including responsibility for coordination with Army 
Personnel (G-1) and audit readiness officials. 

In addition, we recommend that the Secretary of the Army direct the 
Assistant Secretary of the Army for Manpower and Reserve Affairs to 
revise AR No. 600-8-104, Military Personnel Information Management/ 
Records, to require that: 

* key personnel and other pay-related documents that support military 
payroll transactions are centrally located, retained in the service 
members' Official Military Personnel File, or otherwise readily 
accessible. Consider first using the Interactive Personnel Management 
System (iPERMS) for this purpose. 

* the Army's Human Resources Command periodically review and confirm 
that service member Official Military Personnel File records in iPERMS 
or other master personnel record systems are consistent and complete 
to support annual financial audit requirements. 

Agency Comments and Our Evaluation: 

We received written comments from the Secretary of the Army on March 
12, 2012, stating that the Army agreed with our four recommendations. 
The Army's letter also states that our work has been extremely helpful 
in identifying the need to have consistent agreed-upon rules for 
documenting files required to support audits of military pay and cited 
several efforts under way to improve the auditability of its military 
pay. The Army's comments are reprinted in appendix II. 

The Army's letter states that it believes we found no significant 
issues in our review of the military pay accounts, but our report is 
very clear in highlighting the significance of the issues with the 
Army's military payroll. For instance, our report states that without 
effective processes for identifying a complete population of Army 
military pay records and comparing military pay accounts to personnel 
records, the Army will have difficulty meeting DOD's 2014 Statement of 
Budgetary Resources audit readiness goal and its 2017 goal for a 
complete set of auditable financial statements. In addition, because 
the Army was unable to provide documents to support reported payroll 
amounts, we were unable to determine whether the Army's payroll 
accounts were valid, and we were unable to verify the accuracy of the 
payments and reported active duty military payroll. 

Further, in responding to our first recommendation that the Army 
document and implement a process for identifying and validating the 
population of payroll transactions for fiscal year periods, the Army 
stated that it validates personnel and payroll records monthly in real 
time, and will evaluate the value of retaining personnel files for 
prior years. If the monthly pay to personnel comparison is a control 
procedure that the Army performs regularly and intends for the 
auditors to rely on, the process and results must be documented and 
retained for the auditor to assess and test beyond the end of the 
fiscal year, as we recommended. 

We are sending copies of this report to the Secretary of Defense; the 
Under Secretary of Defense (Comptroller/Chief Financial Officer); the 
Deputy Chief Financial Officer; the Director, Financial Improvement 
and Audit Readiness; the Secretary of the Army; the Assistant 
Secretary of the Army for Financial Management and Comptroller; the 
Assistant Secretary of the Army for Manpower and Reserve Affairs; the 
Director of Army Finance Command; the Directors of DFAS and the DFAS-
Indianapolis Center; the Director of the Defense Manpower Data Center; 
the Director of the Office of Management and Budget; and appropriate 
congressional committees. In addition, the report is available at no 
charge on the GAO website at [hyperlink, 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 
Office of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix III. 

Signed by: 

Asif A. Khan: 
Director, Financial Management and Assurance: 

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: 
United States House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This audit was initiated under our mandate to audit the consolidated 
financial statements of the United States government.[Footnote 55] Our 
objectives were to perform basic audit procedures necessary to 
conclude about the validity and accuracy of Army's active duty 
military payroll. Those basic audit procedures included (1) 
identifying a valid population of military payroll transactions, and 
(2) testing a sample of payroll transactions for validity and accuracy. 

To identify the population of Army active duty payroll transactions, 
we obtained Army active duty military payroll records from the Defense 
Finance and Accounting Service, Indianapolis (DFAS-IN). DFAS-IN 
processes military payroll for the Army. At our request, DFAS-IN made 
three attempts from November 2010 through January 2011 to provide us a 
complete file of service members who were paid in fiscal year 2010. 
The first attempt included 11,940 pay accounts that were duplicate, 
and the total number of pay accounts included in the second attempt 
increased by 28,035 records over the first attempt, necessitating a 
third request for the population of fiscal year 2010 active duty pay 
records. To obtain assurance that the overall population of Army 
fiscal year 2010 payroll accounts matched the sum of monthly payroll 
accounts, we requested the Defense Manpower Data Center (DMDC) compare 
the results of our third request for the population of Army fiscal 
year 2010 payroll accounts against its compilation of monthly active 
duty payroll data that it received from DFAS-IN. We were able to 
reconcile all but 1,025 pay accounts (less than 1 percent of the 
total, which is not considered material). We did not reconcile 
military payroll amounts to the related disbursements because an 
Office of the Under Secretary of Defense (Comptroller) and Chief 
Financial Officer (OUSD(C)) contractor was in the process of 
performing a pilot reconciliation. 

In addition, because the Army does not have an integrated military 
personnel and payroll system, we worked with the DMDC to match payroll 
accounts to personnel records to determine whether the population of 
Army military payroll accounts was in agreement with the population in 
the DMDC database.[Footnote 56] We relied on work performed by DMDC 
because we reviewed its quality control procedures and found them to 
be adequate, for our purposes. We compared the total number of records 
in DFAS-IN's population and DMDC's database for the service members 
who received active duty Army military pay in fiscal year 2010. We did 
not separately validate Army personnel file data. DMDC's file 
comparison of Army active duty pay accounts to military personnel 
records identified 67,243 pay accounts that were not matched to a file 
of military personnel records on September 30, 2010. We asked DMDC to 
perform more detailed comparisons of these differences. These 
differences related primarily to personnel who were not active Army 
service members because they had either left or were scheduled to 
leave the service, were reserve component soldiers released from 
active duty, or were soldiers that had died during fiscal year 2010. 
Finally, we confirmed six duplicate SSNs in personnel records with 
different names with the Social Security Administration and referred 
these records to DMDC and the Army for further research and 
appropriate action. 

To address our second objective, we documented key controls, laws, and 
pay regulations and used the population of matched personnel and 
payroll records to select a statistical sample of 250 soldiers for 
testing the accuracy and validity of Army military payroll.[Footnote 
57] We obtained 12 months of fiscal year 2010 Leave and Earnings 
Statement files for each soldier in our sample, the most recent data 
available at the time, to compare with supporting Army personnel 
documents indicating such information as military orders, special duty 
and expertise entitlements, marital status, and dependent information. 
We gained an understanding of Army processes with a focus on key steps 
involved in establishing military personnel records related to 
specific pay and allowance amounts. We also performed process 
walkthroughs at DFAS-IN and assessed key controls over the accuracy of 
payroll payments made to service members. To document the process for 
capturing pay-related information and setting up military personnel 
records, we interviewed Army personnel, Human Resources Command, and 
Finance Command officials and visited a Military Enlistment Program 
Station in Indianapolis and a military reception battalion at Fort 
Jackson, South Carolina. We also interviewed finance officials at 
Defense Military Pay Offices at Fort Jackson, South Carolina, and Fort 
Carson, Colorado, to gain an understanding of how pay adjustments are 
initiated, input, and reviewed. We requested and obtained fiscal year 
2010 monthly Leave and Earnings Statement files for the service 
members in our sample from DFAS-IN and requested Army personnel 
documents to support basic pay and allowance amounts reported on the 
Leave and Earnings Statements, including such information as military 
orders, and the certifications of special duty expertise, marital 
status, and dependent information. We did not plan to, nor did we test 
deductions and allotments for items such as Service Member's Group 
Life Insurance, Thrift Savings Plan, and TRICARE. In addition to basic 
pay, we planned to test base housing allowance; hazardous duty pay; 
hostile fire/imminent danger pay; cost of living allowance; military 
overseas housing allowance; family separation housing; temporary 
lodging allowance; clothing allowance; and special duty pay, such as 
foreign language proficiency pay and parachute (jump) pay. We reviewed 
documentation provided by the Army for 5 sample items and 
documentation contained in the Army's Interactive Personnel Management 
System (iPERMS), which serves as the Army's Official Military 
Personnel File. We were unable to complete our tests of active duty 
military payroll accuracy because of a scope limitation related to the 
Army's inability to provide support for its active component military 
payroll transactions. 

In support of our objectives, we reviewed Army military personnel and 
payroll policies and procedures and identified sources of pay-related 
documentation. Throughout our work, we interviewed key Army officials 
in Manpower and Reserve Affairs, Human Resources Command, and Finance 
Command. We also interviewed DFAS-IN officials responsible for payroll 
functions and Office of the Under Secretary of Defense (Comptroller/ 
Chief Financial Officer) audit readiness contractor officials. 
Additionally, we interviewed agency officials regarding the status of 
Army's efforts to develop an Integrated Personnel and Payroll System-
Army (IPPS-A). We also performed walkthroughs of DFAS-IN Military Pay 
Operations, accounting, disbursing, financial reporting, and related 
processes. 

We conducted this performance audit from June 2010 through March 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. Other matters 
identified in our work that merit management's attention and 
correction will be reported in a separate letter to Army management. 

[End of section] 

Appendix II: Comments from the Department of the Army: 

Secretary of The Army: 
Washington: 

March 12, 2012: 

Memorandum For: Director, Financial Management and Assurance, U.S.
Government Accountability Office, 441 G Street, NW, Washington, DC 
20548. 

Subject: Government Accountability Office Draft Report (GAO-12-406), 
'DOD Financial Management: The Army Faces Significant Challenges in 
Achieving Audit Readiness for Its Military Pay' 

1. I am pleased to provide the following Department of Defense (DOD) 
response to the GAO Draft Report, GA0-12-406, 'DOD Financial 
Management: The Army Faces Significant Challenges in Achieving Audit 
Readiness for Its Military Pay,' dated 8 February 2012 (GAO Code 
198649). 

2. We appreciate your confirmation that no significant issues were 
identified in your review of the military pay accounts for the Army 
and understand the challenges in rapidly obtaining documents and files 
from prior periods to support audit populations for sampling. It 
should be noted that the Army does have an ongoing process for 
comparing payroll and personnel records; however, this is done 
directly with the Army personnel systems rather than the Defense Data 
Management Center, as used by the auditors. This review has been 
extremely helpful in identifying the need to have consistent, agreed-
upon rules of the documentation and files required to support audits 
of military pay data in the payroll system as part of overall 
financial audits. As noted in the report, our audit readiness team is 
developing comprehensive documentation of the processes and controls 
within the military pay area. Documentation requirements are an 
essential part of this effort, as automated and manual controls often 
provide better assurance of transaction validity than paper documents. 

3. Enclosed are specific responses to the report recommendations. 
Please extend our appreciation to your auditors for the work 
performed. My point of contact for this matter is Mr. G. Eric Reid at 
ericseid@dfas.mil or telephone (317) 510-2223. 

Signed by: 

John M. McHugh: 

Enclosure: 

[End of letter] 

Government Accountability Office (GAO) Draft Report Dated February 9, 
2012: 

GAO-12-406 (GAO Code 198649): 

"DOD Financial Management: The Army Faces Significant Challenges
In Achieving Audit Readiness For Its Military Pay" 

Department Of Army Comments To The GAO Recommendations: 

Recommendation 1: The Secretary of the Army direct the Assistant 
Secretary of the Army for Financial Management and Comptroller work 
with Army Personnel (G-1), Defense Finance and Accounting Service 
(DFAS), and audit readiness officials to document and implement a 
process for identifying and validating the population of payroll 
transactions for fiscal year periods at a minimum. 

DoD Response: Concur. The Army will work with DFAS to retain readily 
accessible historical payroll files by fiscal year for support of 
establishing automated populations for audit sampling. Because 
validation between personnel and payroll records is done monthly in 
real time, the value of retaining personnel files for prior years to 
duplicate this process will be evaluated as part of the overall 
documentation of the processes and controls for military pay. ECD: 
June 30, 2013. 

Recommendation 2: The Secretary of the Army direct the Assistant 
Secretary of the Army for Financial Management and Comptroller work 
with Army Personnel (G-1), Defense Finance and Accounting Service 
(DFAS), and audit readiness officials to identify key finance (i.e., 
pay-related) documents that support military payroll transactions and 
develop and implement procedures for maintaining them, including 
responsibility for coordination with Army Personnel (G-1) and audit 
readiness officials.
DoD RESPONSE: Concur. The Army and DFAS are currently documenting the
processes and controls associated with military pay. As part of this 
effort, a matrix of each entitlement, supporting substantiating 
document, and point of retention of those documents is being 
developed. ECD: June 30, 2013. 

Recommendation 3: The Secretary of the Army direct the Assistant 
Secretary of the Army for Manpower and Reserve Affairs to revise Army 
Regulation 600-8-104, Military Personnel Information 
Management/Records, to require that key personnel and other pay-
related documents that support military payroll transactions are 
centrally located, retained in the service members' Official Military 
Personnel File, or otherwise readily accessible. Consider first using 
the Interactive Personnel Management System (iPERMS) for this purpose. 

DoD Response: Concur. ECD: June 30, 2013. 

Recommendation 4: The Secretary of the Army direct the Assistant 
Secretary of the Army for Manpower and Reserve Affairs to revise Army 
Regulation 600-8-104, Military Personnel Information 
Management/Records, to require that the Army's Human Resources Command 
periodically review and confirm that service member Official Military 
Personnel File records in iPERMS or other master personnel record 
systems are consistent and complete to support annual financial audit 
requirements. 

DoD Response: Concur. ECD: June 30, 2013. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Asif A. Khan, (202) 512-9869 or khana@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Gayle L. Fischer, Assistant 
Director; Carl S. Barden; Tulsi Bhojwani; Frederick T. Evans; Lauren 
S. Fassler; Wilfred B. Holloway; Sabur O. Ibrahim; John J. Lopez; 
Julia C. Matta, Assistant General Counsel; Sheila D. M. Miller, 
Auditor in Charge; Margaret A. Mills; Heather L. Rasmussen; Ramon J. 
Rodriguez; James J. Ungvarsky; and Matthew P. Zaun made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] GAO, Military Pay: Army National Guard Personnel Mobilized to 
Active Duty Experienced Significant Pay Problems, [hyperlink, 
http://www.gao.gov/products/GAO-04-89] (Washington, D.C.: Nov. 13, 
2003). 

[2] GAO, Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have 
Struggled to Resolve Military Debts, [hyperlink, 
http://www.gao.gov/products/GAO-06-494] (Washington, D.C.: Apr. 27, 
2006). 

[3] GAO, Military Pay: The Defense Finance and Accounting Service-
Indianapolis Could Improve Control Activities over Its Processing of 
Active Duty Army Military Personnel Federal Payroll Taxes, [hyperlink, 
http://www.gao.gov/products/GAO-09-557R] (Washington, D.C.: June 18, 
2009). 

[4] DFAS refers to DFAS-Indianapolis, which processes military pay for 
the Army and the Air Force, and DFAS-Cleveland, which processes 
military pay for the Navy and the Marine Corps. 

[5] DOD Inspector General, Active Duty Military Personnel Accounts 
Were Generally Valid and Secure, but DoD May have Made Improper 
Payments, D-2011-093 (Arlington, VA: July 27, 2011). 

[6] Outlays during a fiscal year may be for payment of obligations 
incurred in prior years or in the same year. Net outlays are 
disbursements net of offsetting collections. 

[7] Pub. L. No. 101-576, § 303, 104 Stat. 2838, 2849, (Nov. 15, 1990), 
codified, as amended at 31 U.S.C. § 3515. 

[8] GAO, DOD Financial Management: Numerous Challenges Must Be 
Addressed to Improve Auditability, [hyperlink, 
http://www.gao.gov/products/GAO-11-864T] (Washington, D.C.: July 28, 
2011); DOD Financial Management: Numerous Challenges Must Be Addressed 
to Improve Reliability of Financial Information, [hyperlink, 
http://www.gao.gov/products/GAO-11-835T] (Washington, D.C.: July 27, 
2011); and High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011). 

[9] Pub. L. No. 111-84, § 1003, 123 Stat. 2190, 2439-40 (Oct. 28, 
2009). 

[10] The FIAR Plan, which was first prepared in 2005, is DOD's 
strategic plan and management tool for guiding, monitoring, and 
reporting on the department's financial management improvement 
efforts. As such, the plan communicates incremental progress in 
addressing the department's financial management weaknesses and 
achieving financial statement auditability. 

[11] DOD, Secretary of Defense Memorandum, "Improving Financial 
Information and Achieving Audit Readiness," October 13, 2011. 

[12] 31 U.S.C. §§ 331(e), 717(b)(1). 

[13] We relied on work performed by DMDC because we reviewed its 
quality control procedures and found them to be adequate for our audit 
purposes. 

[14] Department of Defense Appropriations Act, 2010, Pub. L. No. 111-
118, 123 Stat. 3409, 3410, 3458 (Dec. 19, 2009); Supplemental 
Appropriations Act, 2010, Pub. L. No. 111-212,124 Stat. 2302, 2305 
(July 29, 2010). 

[15] Budgetary resources include the amount available to enter into 
new obligations and to liquidate them. Budgetary resources consist of 
new budget authority (including direct spending authority provided in 
existing statute and obligation limitations) and unobligated balances 
of budget authority provided in previous years. 

[16] Offsetting collections are collections from intragovernmental 
transfers, business-like transactions with the public, and collections 
from the public that are governmental in nature but required by law to 
be classified as offsetting. These collections are all authorized by 
law to be credited to appropriation or fund expenditure accounts. 

[17] The Deputy Chief of Staff, G-1 function also is referred to as 
Army Personnel. 

[18] MEPS are under the U.S. Military Entrance Processing Command 
(USMEPCOM), which is the military entrance processing command for all 
Department of Defense military services and the U.S. Coast Guard. 
There are 65 MEPS within the United States and Puerto Rico. 

[19] Some MEPS have moved to electronic records in lieu of hard copy 
Packets. Other MEPS may use Adobe Portable Document Format (PDF) file 
records that are e-mailed to the training installation. 

[20] Within the United States, DFAS-IN oversees 38 Defense Military 
Pay Offices and 14 satellite offices. Outside the United States, the 
Army Finance Command oversees 20 Finance Offices, which manage and 
update military pay accounts. 

[21] Although most payments are EFTs to the service member, some 
payments may be made manually. For example, casual pay (an advance 
payment) may be made using a U.S. Treasury Check, cash, or stored 
value card (i.e., debit card). 

[22] The number of Leave and Earnings Statements reviewed is dependent 
on the number of service members within DJMS-AC at that time. A 
program is run to select every 900th statement. 

[23] The Army's disbursing system, Standard Financial System 
(STANFINS) Redesign Subsystem-1 (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. 

[24] The Standard Financial System (STANFINS) is the Army standard 
general ledger system currently used for recording military payroll. 

[25] Department of the Army, Army Regulation No. 600-8-104, Military 
Personnel Information Management/Records (Washington, D.C.: June 22, 
2004). 

[26] MilPer Message Number 10-322, "Submitting OMPF Documents into the 
Interactive Personnel Electronic Records System (iPERMS)," § 3, Dec. 
9, 2010; MilPer Message Number 08-072, "Changes to Information 
Management Maintenance for the Official Military Personnel File (OMPF) 
and DA Form 201, Military Personnel Records Jacket (MPRJ)," §§ 2-5, 
March 18, 2008; and Department of the Army (DA) Memo 600-8-104, 
"Military Personnel Information Management/Records: Official Military 
Personnel File Access," §§ 1-6, June 26, 2006. 

[27] DFAS-IN processes military payroll for the Army, and DMDC 
supports audits by performing analyses of Army military personnel 
files and data. 

[28] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[29] DOD, Office of the Under Secretary of Defense (Comptroller/CFO), 
Financial Improvement and Audit Readiness (FIAR) Guidance, December 
2011. 

[30] GAO/PCIE, Financial Audit Manual, Volume 1, [hyperlink, 
http://www.gao.gov/products/GAO-08-585G] (Washington, D.C.: July 
2008). The President's Council on Integrity and Efficiency (PCIE) was 
replaced by the Council of the Inspectors General on Integrity and 
Efficiency (CIGIE). CIGIE was statutorily established as an 
independent entity within the executive branch by the Inspector 
General Reform Act of 2008, Pub. L. No. 110-409, § 7, 122 Stat. 4302, 
4305-4313 (Oct. 14, 2008) (codified at 5 U.S.C. App., § 11). 

[31] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[32] Subsequent to this discussion, the Secretary of Defense issued a 
memo accelerating the Statement of Budgetary Resources audit readiness 
goal from 2017 to 2014. 

[33] The personnel file used for comparison included service members 
who were still on active duty in the Army on September 30, 2010, and 
did not cover the entire fiscal year. 

[34] The six duplicate personnel records related to SSNs that were 
assigned to two different service member names. 

[35] DMDC and other DOD agencies use the Navy Postgraduate School 
mainframe computer to support their activities and share data 
processing priorities. 

[36] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[37] DOD, Office of the Secretary of Under Secretary of Defense 
(Comptroller/CFO) Financial Improvement and Audit Readiness (FIAR) 
Guidance, December 2011. 

[38] DOD, FMR, Volume 6A, Chapter 2, "Financial Reports Roles and 
Responsibilities," ¶ 020201.B. (rev. August 2011). 

[39] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[40] DOD, FMR, Volume 6A, Chapter 2, "Financial Reports Roles and 
Responsibilities," 020201.B. (rev. August 2011). 

[41] DOD, FMR, Volume 6A, Chapter 2, "Financial Reports Roles and 
Responsibilities," 020203.A. (rev. August 2011); [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[42] DOD, Fiscal Year 2010 Financial Improvement and Audit Readiness 
(FIAR) Guidance, Office of the Under Secretary of Defense 
(Comptroller/CFO) (Arlington, VA: May 15, 2010). 

[43] A sample item constitutes a soldier's pay account for fiscal year 
2010, including reported Leave and Earnings Statements for all 12 
months of the fiscal year. 

[44] We used the results of DMDC's comparison of the population of 
Army fiscal year 2010 active duty military pay accounts to military 
personnel records to select a statistical sample of pay accounts for 
testing the accuracy of basic pay and allowance transactions reported 
on the related monthly fiscal year 2010 Leave and Earnings Statements. 

[45] NARA is the nation's record keeper of all documents and materials 
created in the course of business conducted by the United States 
federal government. 

[46] Department of the Army, Army Regulation No. 600-8-104, Military 
Personnel Information Management/Records (Washington, D.C.: June 22, 
2004). 

[47] MilPer Message Number 10-322, "Submitting OMPF Documents into the 
Interactive Personnel Electronic Records System (iPERMS)," § 3, Dec. 
9, 2010; MilPer Message Number 08-072, "Changes to Information 
Management Maintenance for the Official Military Personnel File (OMPF) 
and DA Form 201, Military Personnel Records Jacket (MPRJ)," §§ 2-5, 
March 18, 2008; and Department of the Army (DA) Memo 600-8-104, 
"Military Personnel Information Management/Records: Official Military 
Personnel File Access," §§ 1-6, June 26, 2006. 

[48] These documents include the Department of the Army (DA) Form 
5960, Authorization to Start, Stop or Change Basic Allowance for 
Quarters and/or Variable Housing Allowance; the Department of Defense 
(DD) Form 1561, Statement to Substantiate Payment of Family Separation 
Allowance (FSA); and the DD Form 2367, Individual Overseas Housing 
Allowance. 

[49] COBOL is one of the earliest high-level programming languages. It 
was developed in 1959, and the language continues to evolve. 

[50] The Defense Integrated Military Human Resources System (DIMHRS) 
was terminated due to the differences in the business processes, 
operations, and information required by each Service. 

[51] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[52] Application system control is a category of control designed to 
help ensure completeness, accuracy, validity, confidentiality, and 
availability of transactions and data during application processing. 

[53] Statement on Standards for Attestation Engagements (SSAE) No. 
16,"Reporting on Controls for a Service Organization," effective July 
15, 2011, supersedes Statements on Auditing Standards (SAS) No. 70, 
and provides professional guidance on performing the service 
provider's (e.g., DFAS) examination. 

[54] GAO, Federal Information System Controls Audit Manual (FISCAM), 
[hyperlink, http://www.gao.gov/products/GAO-09-232G] (Washington, 
D.C.: Feb. 2, 2009). See §1.1 for purpose and use of the FISCAM. 

[55] 31 U.S.C. §§ 331(e), 717(b)(1). 

[56] DFAS-IN's third population attempt identified 677,024 active duty 
Army Service members (excluding those who were assigned to classified 
duties). We excluded soldiers assigned to classified duties from our 
audit scope. 

[57] Our sampling plan was based on a 95-percent confidence interval 
and had an acceptable error rate of 5 percent. 

[End of section] 

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