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entitled 'Financial Management: DOD's Metrics Program Provides Focus 
for Improving Performance' which was released on March 28, 2003.



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Report to the Chairman and Ranking Minority Member, Subcommittee on 

Readiness and Management Support, Committee on Armed Services, U.S. 

Senate:



March 2003:



Financial Management:



DOD’s Metrics Program Provides Focus for Improving Performance:



GAO-03-457:



GAO Highlights:



Highlights of GAO-03-457, a report to the Chairman and Ranking Minority 

Member, Subcommittee on Readiness and Management Support, Committee on

Armed Services, U.S. Senate



Why GAO Did This Study:



The Department of Defense (DOD) has historically been unable to

accurately account for and record its disbursements. In March 2002,

the DOD Comptroller cited metrics that showed dramatic reductions in 

payment recording errors (57 percent between October 2000

and October 2001), backlogs of commercial payments (41 percent

between April and October 2001), and travel card payment

delinquencies (34 percent for those individually billed and 86 percent

for those centrally billed between January and December 2001). As a

result, the Congress asked us to determine whether the cited

reductions were (1) calculated using consistent definitions and

methodologies, (2) properly supported, and (3) effective

indicators of short-term financial management progress.



What GAO Found:



The DOD Comptroller’s metrics showing significant reductions in payment

recording errors and in commercial and travel card payment 
delinquencies

were, in general, based on definitions and methodologies that were 

either consistent with or better than those used for prior reporting on 

these issues. Although the methodology used to calculate two of the  

cited measures resulted in overstating the rates of improvement, our 

recalculation after correcting for the methodology errors still showed 

positive—although less dramatic—improvement trends.



While we were able to verify the reductions in travel card 

delinquencies because the underlying data were available from an 

independent source, we could not verify the accuracy of the specific 

improvement percentages reported for payment recording errors and 

commercial payment delinquencies. DOD’s archaic and nonintegrated 

systems either do not contain the transaction-level detail to support 

the completeness and accuracy of the metrics or they make it extremely 

onerous and time consuming for the staff to gather and reconcile the 

needed detail. However, we were able to verify that DOD has made 

numerous policy, procedure, and systems changes that support an overall 

trend toward improved performance in these areas.



If they could be verified, some of the cited metrics could be effective

indicators of short-term financial management progress. However, if

considered alone, delinquency rates are not necessarily good indicators 

for centrally billed travel cards or commercial payments. Placing too 

much emphasis on paying bills promptly may tempt DOD staff to bypass 

important internal controls meant to ensure that the goods and services 

being paid for were properly authorized and actually received.



Despite shortcomings, the cited metrics have focused DOD’s attention on

highly visible financial management problems. As shown below, recent

metrics issued by the DOD Comptroller indicate continuing improvements.



What GAO Recommends:





GAO recommends the following:

* Use definitions and criteria consistent with the Defense

Finance and Accounting Service when calculating and reporting

metrics related to payment recording errors.



* Measure improvements in individually billed travel card

delinquencies by using same month to same month comparisons.



* Work with the military services and other defense agencies to

develop performance measures that complement the metrics

program for crosscutting issues. 



DOD concurred with our recommendations.



www.gao.gov/cgi-bin/getrpt?GAO-03-457.

To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Gregory Kutz,

(202) 512-9095 or kutzg@gao.gov.



March 2003



FINANCIAL MANAGEMENT:



DOD’s Metrics Program Provides Focus for Improving Performance



Letter:



Results In Brief:



Background:



Cited Metrics Were Generally Based on Improved Definitions and 

Methodologies:



Most Cited Metrics Are Not Verifiable:



Cited Metrics Serve Important Purpose But Further Steps Are Needed to 

Sustain Improvements:



Conclusion:



Recommendations:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Objectives, Scope, and Methodology:



Appendix II: Comments from the Under Secretary of Defense:



Appendix III: GAO Contact and Acknowledgments:



Related Audit Reports and Testimonies:



Figures:



Figure 1: Reductions in Payment Recording Errors Between October 2000 

and September 2002:



Figure 2: Reductions in the Number of Payment Recording Errors:



Figure 3: Decrease in Vendor Pay Backlogs for the Period April 2001 

through September 2002:



Figure 4: Decrease in Centrally Billed Travel Card Delinquencies for 
the 

Period January 2001 through December 2002:



Figure 5: Decrease in Individually Billed Travel Card Delinquencies for 

the Period January 2001 through December 2002:



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Letter March 28, 2003:



The Honorable John Ensign 

Chairman

The Honorable Daniel K. Akaka

Ranking Minority Member

Subcommittee on Readiness

 and Management Support

Committee on Armed Services

United States Senate:



The Department of Defense’s (DOD) inability to accurately account for 

and record its disbursements has been a serious, long-standing, and 

much reported financial management problem. The department’s ability to 

improve its accounting has historically been hindered by its reliance 

on fundamentally flawed financial management systems and processes and 

a weak overall internal control environment. In fact, DOD’s complex and 

inefficient payment processes have generally inhibited the proper 

recording of transactions when they occur, including the prompt and 

proper matching of disbursements with obligations--a critical funds-

control measure. Such payment recording errors mean that DOD does not 

know the true amount of funds that it has available to obligate and 

spend in each appropriation account. As a result, the department risks 

overspending or not effectively using all available funding for needed 

items.



Auditors have also reported on DOD’s history of delinquent payments to 

its commercial suppliers and for its government-issued individually 

billed travel cards. These weaknesses increased the risk of fraud and/

or disbursement errors, including duplicate payments, payments in the 

wrong amount, or charges to the wrong accounts. In addition, travel 

card delinquencies and charge-offs have resulted in millions of dollars 

in lost rebates and increased fees. These payment problems contributed 

greatly to our decision to put DOD financial management on our high-

risk list of areas that are vulnerable to waste, fraud, abuse, and 

mismanagement in 1995, a designation that continues today.[Footnote 1]



To increase attention to these problems, the Defense Finance and 

Accounting Service (DFAS) accelerated and expanded the use of its 

existing financial management performance metrics several years ago, to 

include specific measures for payment recording errors and payment 

delinquencies. In his March 6, 2002, testimony before your 

Subcommittee, the DOD Comptroller reported significant improvements in 

these measures based on calculations using DFAS data. In particular, 

the Comptroller stated that:



* payment recording errors decreased by 57 percent between October 2000 

and October 2001,



* DOD’s backlog of commercial payments (i.e., delinquent unpaid 

invoices) had been reduced by 41 percent between April 2001 and October 

2001, and:



* payment delinquencies decreased by 34 percent for personal 

(individually billed) travel cards and 86 percent for organizational 

(centrally billed) travel cards between January 2001 and December 

2001.[Footnote 2]



This report responds to your request that we review DOD’s reported 

improvements. As agreed with your office, our objectives were to 

determine whether (1) the cited performance measures were defined and 

calculated in a manner consistent with previous reporting on payment 

recording errors and delinquencies, (2) the cited improvement data were 

properly supported and represent real improvements in performance, and 

(3) the metrics are effective indicators of short-term financial 

management progress that can be sustained.



In conducting this work, we visited various DFAS centers and gathered, 

analyzed, and compared information on how payment recording errors, 

commercial payment backlogs, and travel card delinquencies were 

defined, calculated, and reported both in the past and for the cited 

metrics. We spoke with center personnel about process and systems 

improvements and we gathered and analyzed relevant output that 

demonstrated the results of those changes. We also reviewed the various 

financial management metrics programs in place or being developed 

throughout DOD. However, as discussed later in this report, we were 

unable to independently verify the completeness and accuracy of the 

data that supported the cited metrics, with the exception of travel 

card information. We performed our work in accordance with U.S. 

generally accepted government auditing standards from June 2002 through 

February 2003. Details of our scope and methodology are in appendix I. 

We requested comments from the Secretary of Defense and the Under 

Secretary of Defense (Comptroller). DOD’s comments are reprinted in 

appendix II. We considered and incorporated DOD’s suggested technical 

comments as appropriate.



Results In Brief:



In general, the definitions and methodologies used to gather data for 

the DOD Comptroller reported metrics were either consistent with or 

better than those used for prior reporting related to payment recording 

errors, commercial payment backlogs, and travel card payment 

delinquencies. For example, in contrast to previous reporting, 

intransit transactions[Footnote 3] were appropriately included in the 

definition of payment recording errors for the cited metrics 

calculations. While the underlying data were more complete, however, 

DOD personnel agree that there may still be payment recording errors 

that have not been identified and properly categorized. In addition, 

the methodology used to calculate two of the cited measures resulted in 

overstating the rates of improvement. Our recalculation of the metrics 

after correcting for the methodology errors still showed positive--

although less dramatic--improvement trends.



We could not verify the accuracy of specific improvement percentages 

reported for payment recording errors and commercial payment 

delinquencies, in large part because of DOD’s archaic and nonintegrated 

systems. Either the transaction-level detail supporting the 

completeness and accuracy of the reported metrics was no longer 

available or it would have been extremely onerous and time consuming 

for DOD staff to gather and reconcile the transaction-level data. 

However, DOD was able to provide us with summary-level data that 

matched the amounts reported for these metrics and we did verify that 

DOD has made numerous policy, procedural, and systems changes that 

would support an overall trend toward improved performance in these 

areas. In contrast, we were able to obtain corroborating data from an 

independent source that properly supported the reductions in travel 

card payment delinquencies cited by the Comptroller. In addition, the 

reduction in delinquency rates for individual travel card payments is 

supported by our recent findings that the military services, in 

particular the Air Force,[Footnote 4] have begun to give delinquencies 

greater attention and have used travel card audits to identify problems 

and needed corrective actions.



For metrics to be effective, they must be properly defined, correctly 

measured, and able to be verified. However, none of the DOD 

Comptroller’s cited metrics meet all of these criteria. In addition, 

some of the metrics may not be good indicators of financial management 

improvement if considered separately. For example, focusing only on 

delinquency rates for centrally billed travel cards and commercial 

payments may place too much emphasis on paying bills promptly. As a 

result, DOD staff may be tempted to shortcut important internal control 

mechanisms that are meant to ensure that the goods and services being 

paid for were properly authorized and actually received. We have 

previously reported on problems related to DOD individually billed 

travel card purchases and contract payments[Footnote 5] that indicate 

the need for increased attention to the propriety as well as promptness 

of such payments. Another limitation in the reported metrics for 

payment recording errors and commercial payment backlogs is that only 

DFAS performance is being measured and reported. Even though the 

military services and other defense organizations are key contributors 

to preventing and resolving these problems, these organizations do not 

have complementary measurement programs.



Despite their shortcomings, the cited metrics have served an important 

purpose by focusing DOD’s attention on highly visible financial 

management problems, setting challenging goals, and encouraging staff 

to be diligent and innovative in their attempts to attain those goals. 

In general, the improvements cited by the Comptroller demonstrate what 

can be accomplished in the short term as a result of the focus and 

intensive effort day after day of DOD management and staff. According 

to recent information, DFAS is continuing to report improvements in the 

measured areas.



* Payment recording errors and commercial pay backlogs for September 

2002 show reductions of 26 percent and 35 percent, respectively, from 

the balances reported at October 2001.



* Centrally billed travel card delinquencies declined from 2 percent at 

December 2001 to 1.5 percent at December 2002--1.5 percent is equal to 

the delinquency rate for other federal agencies.



* Individual travel card delinquencies were reduced from 12.2 percent 

at December 2001 to 8.3 percent at December 2002.



However, DFAS has cautioned that, without modern integrated systems and 

the streamlined processes they engender, reported progress for payment 

recording errors and commercial payment delinquencies may not be 

sustainable if its workload is significantly increased or its staffing 

significantly decreased.



As discussed in our January 2003 high-risk report, the keys to 

effective reform of DOD financial management include an integrated 

approach, sustained leadership, results-oriented performance measures, 

and appropriate incentives and consequences. In line with this, DOD is 

currently developing a departmentwide, balanced program of metrics that 

is intended to align with its strategic goals, focus on results, and 

achieve auditable reports. DFAS, the military services, and other 

defense agencies will all be supporting players in this program. From 

the individual performance measurement programs of the military 

services, defense agencies, and DFAS, certain metrics will be selected 

and reported to the top levels of DOD management for evaluation and 

comparison. In this scenario, it is important that DOD properly and 

consistently report the selected metrics and that the services, 

agencies, and DFAS develop complementary metrics programs to assist in 

identifying, measuring, and resolving crosscutting issues. We are 

making specific recommendations in this report to address weaknesses 

where (1) the DOD Comptroller’s office used methodologies that 

overstated improvements, (2) the military services were critical 

partners with DFAS in making improvements or resolving problems but 

were not being measured on their performance in these areas, and (3) 

changes in travel card metrics would improve performance evaluation.



In comments on a draft of this report, DOD agreed with our 

recommendations and explained actions it is taking to implement them.



Background:



For years, auditors have reported long-standing weaknesses in DOD’s 

ability to promptly pay its bills and accurately account for and record 

its disbursements. Numerous of our and DOD Inspector General audit 

reports have cited deficiencies in management oversight, a weak 

internal control environment, flawed financial management systems, 

complex payment processes, delinquent and inaccurate commercial and 

vendor payments, and lax management of DOD’s travel card 

programs.[Footnote 6] Those deficiencies have resulted in billions of 

dollars in unrecorded or improperly recorded disbursements, over-and 

underpayments or late payments to contractors, and fraudulent or unpaid 

travel card transactions.



Payment Recording Errors:



DOD’s disbursement processes are complex and error-prone. Although DFAS 

is responsible for providing accounting services for DOD, military 

service and other defense agency personnel play a key role in DOD’s 

disbursement process. In general, military service and defense agency 

personnel obligate funds for the procurement of goods and services, 

receive those goods and services, and forward obligation information 

and receiving reports to DFAS. Separate DFAS disbursing offices and 

accounting offices then pay the bills and match the payments to 

obligation information. Several military services and DOD agencies can 

be involved in a single disbursement and each has differing financial 

policies, processes, and stand-alone, nonstandard systems. As a result, 

millions of disbursement transactions must be keyed and rekeyed into 

the vast number of systems involved in any given DOD business process. 

Also, transactions must be recorded using an account coding structure 

that can exceed 75 digits and this coding structure often differs--in 

terms of the type, quantity, and format of data required--by military 

service. DFAS’s ability to match disbursements to obligation records is 

complicated by the fact that DOD’s numerous financial systems may 

contain inconsistent or missing information about the same transaction. 

Input errors by DFAS or service personnel and erroneous or missing 

obligation documents are two of the major causes of inconsistent 

information.



For calculating and reporting performance metrics related to payment 

recording errors, officials from the Comptroller’s office included the 

following categories.



* Unmatched disbursements--Payments that were made by a DFAS disbursing 

office and received by a DFAS accounting office but have not yet been 

matched to the proper obligation.



* Negative unliquidated obligations--Payments that have been matched to 

and recorded against the cited obligations but which exceed the amount 

of those obligations.



* Intransits--Payments that have not yet been received by the DFAS 

accounting office for recording and matching against the corresponding 

obligation.



* Suspense account transactions--Payments that cannot be properly 

recorded because of errors or missing information (e.g., transactions 

that fail system edit controls because they lack proper account coding) 

and are therefore temporarily put in a holding account until 

corrections can be made.



For DOD to know how much it has spent and/or how much is still 

available for needed items, all transactions must be promptly and 

properly recorded. However, we reported as early as 1990 that DOD was 

unable to fully identify and resolve substantial amounts of payment 

recording errors. We also stated that DOD’s early reporting of these 

errors significantly understated the problems. For example, DFAS 

excluded $14.8 billion of intransits from its 1993 benchmark against 

which it measured and reported its progress in reducing recording 

problems in later years. In addition, DOD excluded suspense account 

transactions from its reporting of payment recording errors until as 

late as 1999. Finally, when negative unliquidated obligations, 

intransits, and suspense account transactions were reported, they were 

reported using net rather than absolute values.[Footnote 7]



Commercial Payments:



DFAS has overall responsibility for the payment of invoices related to 

goods and services supplied by commercial vendors. As part of a 

reorganization effort in April 2001, DFAS separated its commercial 

payment services into two efforts--contract pay and vendor pay.



Contract pay handles invoices for formal, long-term contract 

instruments that are typically administered by the Defense Contract 

Management Agency (DCMA). These contracts tend to cover complex, 

multiyear purchases with high dollar values, such as major weapon 

systems. Payments for contracts are made from a single DFAS system--

Mechanization of Contract Administration Service (MOCAS). For fiscal 

year 2001, DFAS disbursed about $78 billion for over 300,000 contracts 

managed in MOCAS.



The vendor pay product line handles invoices for contracts not 

administered by DCMA, plus miscellaneous noncontractual payments such 

as utilities, uniforms/clothing, fuels, and food. Vendor pay is handled 

by 15 different systems throughout DFAS and, annually, DFAS personnel 

pay nearly 10 million vendor invoices in excess of $70 billion. In 

general, DOD makes vendor payments only after matching (1) a signed 

contractual document, such as a purchase order, (2) an obligation, (3) 

an invoice, and (4) a receiving report. If any one of these components 

is missing, such as an obligation not being entered into the payment 

system, payment of the invoice will be delayed. According to DOD 

officials, approximately 80 percent of payment delinquencies are due to 

the delayed receipt of receiving reports by DFAS from the military 

service activities.



Travel Cards:



DOD implemented the current travel card program in November 1998, 

through a DOD task order with Bank of America. This was in response to 

the Travel and Transportation Reform Act of 1998 (P.L. 105-264), which 

modified the existing DOD Travel Card Program by mandating that all 

government personnel must use the government travel card to pay 

official travel costs (for example, hotels, rental cars, and airfare) 

unless specifically exempted. The travel card can also be used for 

meals and incidental expenses or to obtain cash from an automatic 

teller machine. The intent of the travel card program was to provide 

increased convenience to the traveler and lower the government’s cost 

of travel by reducing the need for cash advances to the traveler and 

the administrative workload associated with processing/reconciling 

travel advances.



DOD’s travel card program, which is serviced through Bank of America, 

includes both individually billed accounts and centrally billed 

accounts. When the travel card is submitted to a merchant, the merchant 

will process the charge through its banking institution, which in turn 

charges Bank of America. At the end of each banking cycle (once each 

month), Bank of America prepares a billing statement that is mailed to 

the cardholder (or account holder) for the amounts charged to the card. 

The statement also reflects all payments and credits made to the 

account. For both individual and centrally billed accounts, Bank of 

America requires that the cardholder make payment on the account in 

full within 30 days of the statement closing date. If the cardholder--

individual or agency--does not pay the monthly billing statement in 

full and does not dispute the charges within 60 days of the statement 

closing date, the account is considered delinquent.



For individually billed accounts, within 5 business days of return from 

travel, the cardholder is required to submit a travel voucher claiming 

legitimate and allowable expenses, which must be reviewed and approved 

by a supervisor. DOD then has 30 days in which to make reimbursement. 

Although DOD, like other agencies, relies on its employees to promptly 

pay their individually billed accounts, DOD does have some tools to 

monitor travel card activity and related delinquencies, including Bank 

of America’s Web-based Electronic Account Government Ledger System 

(EAGLS). Using EAGLS, supervisors can obtain reports on their 

cardholders’ transaction activity and related payment histories. For 

the centrally billed accounts, the travel office at each military 

installation or defense agency must first reconcile the charges shown 

on the centrally billed travel charge card account with the office’s 

internal records of transportation requests. After reconciliation has 

been completed, the voucher is sent to DFAS for payment.



Because the travel card program is fairly new, DOD does not have a long 

history of reporting statistics for delinquencies. However, in our 

previous reports and testimonies, we have reported that DOD’s 

individually billed delinquency rate is higher than that of other 

federal agencies. As of September 2002, DOD’s delinquency rate was 

approximately 7.3 percent, about 3 percent higher than other federal 

agencies. Among the military services, however, the Air Force had the 

lowest delinquency rate. As of September 2002, the Air Force 

delinquency rate was 4.8 percent, significantly lower than the rest of 

DOD. Even though the Air Force had lower numbers of delinquent 

accounts, we found that control environment weaknesses and breakdowns 

in key controls were departmentwide and that these deficiencies led to 

instances of potential fraud and abuse with the use of travel cards in 

all the military services.



Performance Metrics Programs:



In 1998, DFAS developed its Performance Contract to focus on continued 

achievement of its mission to provide responsive, professional finance 

and accounting services to DOD. As part of this contract with DOD, DFAS 

defined its performance objectives and identified specific performance 

measurement indicators. DFAS managers--and sometimes staff--are rated 

and rewarded based on their ability to reach annual reduction goals for 

each indicator. Performance metrics are now calculated monthly and the 

DFAS Director and the DOD Comptroller regularly review the results.



Section 1008 of the National Defense Authorization Act for Fiscal Year 

1998 (P.L. 105-85) directed the Secretary of Defense to submit a 

biennial strategic plan for the improvement of financial management to 

the Congress. In conjunction with the plan, the DOD Comptroller decided 

to develop a performance measurement system--a set of departmentwide 

metrics that will provide clear-cut goals for financial managers to 

monitor their progress in achieving reform. To begin this effort, the 

Comptroller adopted many of the DFAS performance measurement indicators 

because the DFAS metrics program had been underway for some time and 

was reporting successes. For payment recording errors and commercial 

payment backlogs in particular, the Comptroller’s metrics used 

information gathered and tracked by DFAS for its performance management 

contract.



The metrics cited in the Comptroller’s testimony represent only a few 

of the financial management performance metrics developed to date. From 

a comprehensive set, the detailed metrics will be rolled up into 

“dashboard” metrics that will provide the Secretary of Defense and the 

Congress with a quick measure of DOD’s status in relation to critical 

financial management goals. This effort is part of an even larger 

effort by DOD to develop programmatic metrics for all of its 

operations.



Cited Metrics Were Generally Based on Improved Definitions and 

Methodologies:



In general, the definitions and methodologies for gathering the data 

used by DOD Comptroller officials to calculate the cited improvement 

percentages at the ending measurement date were either consistent with 

or better than those used at the beginning measurement date or for 

prior reporting on payment recording errors, commercial payment 

backlogs, and travel card payment delinquencies. We did find that the 

reported metrics overstated the rate of improvement in some areas 

because Comptroller officials included transactions that DFAS would not 

consider to be payment errors or because they chose an inappropriate 

comparison to measure travel card delinquencies. However, recalculation 

of the metrics after correcting for these factors still showed 

positive--although less dramatic--improvement trends.



Payment Recording Errors:



DOD has gradually improved its reporting of payment recording errors 

over the years. DOD is now including all known categories of payment 

errors--unmatched disbursements, negative unliquidated obligations, 

intransits, and suspense account transactions--in its definition and, 

except in the case of intransits, is using absolute rather than net 

amounts in its calculations. However, the reporting of payment 

recording errors may not be complete. For example, work that we have 

performed on closed DOD accounts and on unliquidated 

obligations[Footnote 8] indicates that recording errors are not always 

identified or resolved appropriately. DFAS agrees that to properly 

manage and improve its payment processes, it must have a complete 

universe of payment recording errors. Therefore, DFAS personnel are 

currently working to determine whether the error categories identified 

to date contain all of the relevant transactions and whether other 

error categories exist.



While the same basic methodologies were used for calculating the cited 

metrics at the beginning and ending measurement dates, Comptroller 

officials overstated DOD’s improvement percentages because the October 

2000 calculation included transactions that did not meet the DFAS 

criteria for being considered payment errors while the October 2001 

calculation did not include them. First, the October 2000 calculation 

for payment recording errors included all transactions that were being 

held in DFAS suspense accounts; however, DFAS uses certain suspense 

accounts to record collection transactions, such as accrued payroll 

taxes and receipts for the sale of military property, that are held 

temporarily before being distributed to the proper government agency or 

DOD entity. The transactions in these accounts, which DFAS labels as 

“exempt suspense accounts,” do not represent payment recording errors. 

In fiscal year 2001, DFAS Cleveland changed its practice of charging 

payroll taxes to suspense accounts and began appropriately accruing 

taxes in an accrued payroll tax account. As a result, payment recording 

errors as calculated by Comptroller officials at October 2001 were 

reduced by an estimated $7.5 billion--the amount of DFAS Cleveland’s 

accrued payroll taxes--even though payment processes were not improved 

at all.



Second, in fiscal year 2001, DFAS Indianapolis corrected a reporting 

error by a defense agency that had been double-counting transactions in 

its suspense accounts. This resulted in an estimated $1.1 billion 

reduction from amounts reported in October 2000, even though no payment 

recording errors were corrected or resolved.



In addition, Comptroller officials measured intransits using net rather 

than absolute values and did not adopt DFAS criteria for aging 

intransit and suspense account transactions. These practices affected 

the balances used to calculate the metrics at both the beginning and 

ending measurement dates. First, net rather than absolute values were 

used to calculate intransits at October 2000 and October 2001, which 

understated both balances by approximately $4 billion. When net amounts 

are reported, collections, reimbursements, and adjustments are offset 

against disbursements, thus reducing the balance of intransit 

transactions. Second, the reported metrics included all intransit and 

suspense account transactions at October 2000 and October 2001 

regardless of their age. However, DOD allows 60 days to 180 

days[Footnote 9] for the normal processing of various payment 

transactions because of systems limitations and the complexity of the 

department’s processes and, in line with these criteria, DFAS’s metrics 

related to payment errors only consider aged intransit and suspense 

account transactions. By not using DFAS’s criteria for aged intransit 

and suspense account transactions, the Comptroller officials overstated 

the balances of payment recording errors by approximately $6 billion at 

the beginning and $5 billion at the ending measurement dates.



Figure 1 illustrates the effect on improvement rates of (1) eliminating 

exempt suspense accounts and double counting, (2) using DFAS’s criteria 

for aged intransits and suspense amounts, and (3) using absolute rather 

than net amounts for intransits. Our recalculation shows an overall 46 

percent reduction in payment recording errors between October 2000 and 

October 2001 rather than the 57 percent reduction reported by the 

Comptroller; however, the reductions are still significant and the 

trend is still overwhelmingly positive. Between October 2001 and 

September 2002, DOD continued to report that it had reduced payment 

recording errors. Comptroller officials calculated a 26 percent 

reduction during that period while our recalculation shows a 22 percent 

reduction.



Figure 1: Reductions in Payment Recording Errors Between October 2000 

and September 2002:



[See PDF for image]



[End of figure]



Commercial Payment Backlogs:



The metrics for commercial payment backlogs (delinquent unpaid 

invoices) at April 2001 and October 2001 were calculated using 

consistent definitions and methodologies. An invoice was considered 

delinquent if payment was not made within the time frame established by 

the contract terms (e.g., by the 15TH day after the invoice date) or, 

if no time frame was specified, on or before the 30TH day after a 

proper invoice was received.[Footnote 10] DFAS reported information on 

delinquent invoices to Comptroller officials monthly using standardized 

input sheets. The total backlog percentages were then calculated by 

dividing the number of delinquent invoices outstanding by the total 

number of invoices on hand.



According to the DOD Comptroller’s metrics, delinquent invoices for 

vendor pay decreased by 41 percent from April 2001 through October 2001 

while delinquent invoices for contract pay decreased by 32 percent 

during that same period. Because DFAS officials stated that the 

decrease cited in the Comptroller’s metrics was primarily due to 

intensive focus placed on decreasing the backlog of delinquent vendor 

invoices, our review concentrated on vendor pay issues.



Travel Card Delinquencies:



For the travel card metrics, consistent definitions and methodologies 

were used to gather the data and calculate the improvement percentages 

cited by the DOD Comptroller for January 2001 and December 2001. Travel 

card payments were considered delinquent if they were not paid within 

60 days of the monthly statement closing date. Even though the terms of 

the travel cardholder’s agreement with Bank of America requires payment 

of the statement within 30 days of the statement closing date, it is 

industry practice to allow 60 days before the invoice is considered 

delinquent and interest is charged. Comptroller officials used a 

standard industry practice to calculate the travel card delinquency 

rates--the total dollar amount outstanding for 60 days or more was 

divided by the total balance outstanding.



While the definitions and methodology were consistent with standard 

practices, the metrics comparison of delinquencies for individually 

billed accounts in January to those in December could be misleading. As 

our recent work shows, individually billed travel card delinquencies 

have been cyclical, with the highest delinquencies occurring in January 

and February. Therefore, the most useful metrics would compare same 

month to same month, for example, January to January or December to 

December. If the Comptroller officials had compared individual travel 

card delinquencies at January 2001 to those at January 2002, the 

reported decrease would have been 16 percent as opposed to 34 percent.



Most Cited Metrics Are Not Verifiable:



DFAS only provided us with internally generated summary-level data that 

reconciled to the totals reported for payment recording errors and 

commercial pay backlogs. DFAS did not provide us with detailed 

transaction-level data that supported those metrics. As a result, we 

were unable to test whether (1) all payment recording errors and 

delinquent commercial payments were properly included in the metrics 

and (2) the actions taken to resolve or correct payment recording 

errors were appropriate. For individual and centrally billed travel 

card delinquencies, we were able to obtain independent verification 

from a source outside DOD that supported the Comptroller’s metrics.



Although we could not audit the reported metrics for all of the 

measured areas, we verified that DFAS and other DOD organizations have 

made numerous policy, procedure, and systems changes that would support 

an overall trend toward improved performance. For payment recording 

errors and commercial payment backlogs, perhaps the most significant 

change has been DOD’s inclusion of performance measures in its 

contracts with DFAS. The performance contract and an accompanying data 

dictionary provide specific, measurable reduction goals, which DFAS 

management--and in some cases staff--are held accountable for reaching. 

The resulting focus has fostered innovative process and systems 

improvements as well as better communication among the parties involved 

in preventing or resolving these problems. For example, DFAS holds 

monthly videoconferences with its centers and field sites to discuss 

progress and any impediments to reaching that period’s goals.



Payment Recording Errors:



In general, DFAS centers did not maintain history files of all the 

transactions that were not promptly matched with obligations, created 

negative unliquidated obligations, were in transit longer than 

allowable, or were in suspense accounts during the period October 2000 

through October 2001--information that is necessary in order to verify 

the completeness and accuracy of the reported metrics. DFAS officials 

explained that the detailed data supporting the reported monthly totals 

are compiled by hundreds of DFAS field sites using numerous accounting 

systems and there is no specific requirement for the field sites to 

save the data. While some DFAS officials believe that it would be 

possible to recreate transaction-level detail to support month-end 

totals, the task would be extremely onerous and time consuming.



Although we were unable to verify through audit procedures the accuracy 

of the reductions reported by the Comptroller, we did reconcile 

summary-level information provided by the DFAS centers to the metric 

amounts. We also verified that DFAS has made numerous policy and 

systems improvements that support a continuing trend of reductions in 

payment recording errors as illustrated by the metrics in figure 2.



Figure 2: Reductions in the Number of Payment Recording Errors:



[See PDF for image]



[End of figure]



DFAS has been working to reduce payment recording errors for more than 

a decade. In the late 1990s, DFAS consolidated most of its disbursing 

and accounting functions from 300 defense accounting offices into 5 

centers, in large part to help streamline the payment recording 

process. DFAS has also been working with other DOD components to 

consolidate or replace about 250 outdated and nonintegrated financial 

and accounting systems. While the systems effort will take many years 

and must be accomplished within DOD’s overall plan for systems 

development and integration,[Footnote 11] DFAS has made, and continues 

to make, improvements in the policies and systems tools available to 

DFAS personnel for preventing and correcting payment recording errors.



Since October 2000, DFAS has made several policy changes that have 

affected the payment recording process. In January 2001, DOD revised 

its official guidance[Footnote 12] to clarify and strengthen policies 

related to the prompt (1) recording of disbursements and obligations 

and (2) resolution of payment recording errors. If the military 

services or DOD components have not provided DFAS with accurate 

obligation information within specified time frames, the revision gave 

DFAS the authority to record obligations in order to resolve individual 

unmatched disbursements, negative unliquidated obligations, and 

certain suspense account transactions. DFAS also expanded its 

prevalidation policy, which it claims has been key to reducing payment 

errors associated with commercial contracts. Prevalidation requires 

that DFAS personnel ascertain that there is a valid obligation recorded 

in the accounting records before making a payment. Between November 

2000 and October 2001, DFAS lowered the dollar threshold amount for 

transactions requiring prevalidation from $100,000 to $25,000.



DFAS developed new systems tools[Footnote 13] for communicating 

accounting information among its centers and field locations that have 

reduced the amount of time DFAS personnel need to match disbursements 

to obligations. For example, since the late 1990s DFAS has implemented 

the following.



* Electronic data access capability, which provides web access to 

contract, billing, and other documents pertinent to the payment 

recording process. Electronic access to these documents enables users 

to obtain information more quickly than in the past, when many 

documents were stored in hard-copy format.



* Phase 1 of the Defense Cash Accountability System (DCAS), which 

provides a standardized, electronic means for DFAS centers to report 

expenditure data for transactions involving more than one military 

service (cross-disbursements). Prior to DCAS, the centers had different 

systems and formats for reporting this information to one another and 

to Treasury, a situation that increased the complexity of recording and 

matching cross-disbursements. According to DFAS officials, DCAS reduced 

the cross-disbursement cycle time from 60 days to 10 days.



* The Standard Contract Reconciliation Tool (SCRT), which provides DFAS 

personnel a consolidated database for researching commercial contract 

records. Prior to SCRT, locating and accessing these records was 

difficult due to the variety of accounting, contracting, and 

entitlement systems involved.



DFAS centers have also developed individual applications that have 

improved payment processes. For example, DFAS Indianapolis implemented 

an Access “Wizard” application to automate the process of matching 

intragovernmental expenditure transactions to obligation records. The 

program also enables center staff to identify transactions that have 

not been processed within 30 days so they can follow up with field 

accounting personnel.



Commercial Pay Backlogs:



DFAS was unable to provide detailed transaction-level data that 

supported the metrics related to vendor payment backlogs--the most 

significant contributor to the reductions. DFAS only maintained 

summary-level data that were generated by the 23 DFAS field sites. 

Using standard definitions and standard summary spreadsheets, DFAS 

personnel collected the summary information monthly through data calls 

to the more than 15 different systems that track DOD vendor pay backlog 

information. As a result, we were only able to confirm that the summary 

information provided by DFAS reconciled to the amounts reported by the 

Comptroller. We were unable to verify by audit the accuracy or 

completeness of that data.



DFAS management has focused on reducing commercial payment backlogs 

since fiscal year 2000 and this focus is continuing through the 

present. According to its performance contracts, DFAS’s goal was to 

reduce the backlog by 15 percent per year beginning in fiscal year 2000 

from a baseline of 48,000 delinquent invoices. In April 2001, DFAS 

centralized operational control of contract pay and vendor pay under 

one executive, who was given ultimate responsibility for meeting these 

performance goals.



DFAS also made site-specific procedural changes to reduce the backlog 

of vendor payments. These included:



* hiring temporary contract and permanent staff in key sites, such as 

Limestone and Dayton;



* forecasting when civilian employees in Europe would be taking 

vacation and then staggering vacation leave and/or hiring temporary 

help (e.g., in Germany, every civilian employee has 6 weeks of annual 

leave, which is usually taken during the summer); and:



* forming partnerships with the military services and defense agencies 

to improve their processing time for receiving reports, since DFAS must 

match the receiving report to the invoice before payment can be made.



DFAS credits these and other changes for the continued reduction of the 

backlog of delinquent invoices. Figure 3 below illustrates the trend in 

the reduction of outstanding delinquent vendor invoices compared to the 

total number of invoices on-hand.



Figure 3: Decrease in Vendor Pay Backlogs for the Period April 2001 

through September 2002:



[See PDF for image]



[End of figure]



Travel Card Delinquencies:



We were able to verify the reductions cited by the Comptroller in 

individual and centrally billed travel card delinquencies. We obtained 

travel card delinquency information from an independent source, the 

General Services Administration (GSA), that supported the Comptroller’s 

metrics. GSA receives information from individual travel card vendors, 

such as Bank of America, and prepares a monthly summary report for DOD 

that documents individual and centrally billed travel card 

delinquencies by military service or defense agency. We compared the 

GSA data to the cited metrics and verified that the reported reductions 

in travel card delinquencies were accurate. As with the other problem 

areas, DOD credits the decrease in travel card delinquency rates in 

both individual and centrally billed accounts primarily to increased 

management attention.



For the centrally billed accounts, DOD has attributed the initial high 

delinquency rates to problems in transferring the travel card contract 

from American Express to Bank of America. When Bank of America was 

given the contract, its on-line travel information system, EAGLS, was 

not fully operational and therefore was unable to accurately process 

all of the travel data being transferred by American Express. Because 

EAGLS contained incorrect account numbers, invoice information, and 

billing addresses, DOD agency program coordinators did not have the 

information necessary to determine which accounts were delinquent, in 

suspense, or canceled. While DOD and Bank of America officials were 

working jointly to identify and resolve the problems, centrally billed 

invoices became backlogged. Once the problems were resolved, DOD was 

able to reduce the backlog. As of December 31, 2002, DOD’s centrally 

billed delinquency rate was 1.5 percent, well below fiscal year 2002’s 

proposed goal of 3.0 percent and equal to the delinquency rate for 

other federal agencies. Figure 4 below shows the centrally billed 

delinquency rates from January 2001 through December 2002.



Figure 4: Decrease in Centrally Billed Travel Card Delinquencies for 

the Period January 2001 through December 2002:



[See PDF for image]



[End of figure]



For individual travel cards, our recent work also supports the improved 

delinquency rates being reported by DOD. During the past year, we 

reported on the travel card programs for all three military 

services.[Footnote 14] In general, we found that the military services, 

in particular the Air Force, have given delinquencies greater attention 

and have used travel card audits to identify problems and needed 

corrective actions. We reported that all of the services are now 

holding commanders responsible for managing the delinquency rates of 

their subordinates. For example, Air Force management holds monthly 

command meetings where individual travel card delinquencies are 

monitored and briefed. The individual services have also implemented 

new programs to help reduce delinquencies, including the following.



* In January 2003, the Army established two goals of not more than 4.5 

percent of dollars delinquent and not more than 3 percent of accounts 

delinquent. The Navy has established a similar goal of no more than 4 

percent delinquent accounts.



* The Air Force is providing financial training to all inductees that 

includes developing a personal budget plan, balancing a checkbook, 

preparing a tax return, and understanding financial responsibility. The 

training also covers the disciplinary actions and other consequences of 

financial irresponsibility by service members.



* The Navy has developed a three-pronged approach to address travel 

card issues: (1) provide clear procedural guidance to agency program 

coordinators (APCs) and travelers that is available on the Internet, 

(2) provide regular training to APCs, and (3) enforce the proper use 

and oversight of the travel card by using data mining to identify 

problem areas and abuses.



* In January 2003, the Army issued two directives to its major 

commanders, which address a range of policy requirements, to include: 

(1) training for APCs and cardholders, (2) monthly review of cardholder 

transactions, (3) exempting and/or discouraging the use of the card for 

en route travel expenses associated with deployments, and 

(4) prohibiting use of the card for travel expenses associated with 

permanent change of station moves.



In addition, DOD has implemented a number of departmentwide programs to 

improve the individually billed travel card program. Beginning in 

November 2001, DOD began a salary and military retiree pay offset 

program for delinquencies--similar to wage garnishment. In March 2002, 

the Comptroller created a Credit Card Task Force to address management 

issues related to the purchase and individually billed travel card 

programs. On July 19, 2002, the DOD Comptroller directed the 

cancellation of 

(1) inactive travel charge card accounts, (2) active travel card 

accounts not used in the previous 12 months, and (3) travel card 

accounts for which the bank cannot identify the cardholders’ 

organization. DOD is also encouraging individual cardholders to elect 

to have all or part of their travel reimbursement sent directly by DFAS 

to Bank of America--a payment method that is standard practice for many 

private sector employers. The Congress has recently addressed this 

issue in section 1008(a) and (b) of the National Defense Authorization 

Act for Fiscal Year 2003,[Footnote 15] which provides the Secretary of 

Defense the authority to require use of this payment method. According 

to DOD, about 32 percent of its individually billed cardholders elected 

this payment option for fiscal year 2002.



As a result of these and other actions, DOD has been able to sustain 

reduced delinquency rates between October 2002 and December 2002, as 

illustrated in figure 5 below. However, DOD still needs to do more to 

address the underlying causes of the problems with its travel card 

program. In a recent testimony, we concluded that actions to implement 

additional “front-end” or preventative controls are critical if DOD is 

to effectively address the high delinquency rates and charge-offs, as 

well as potentially fraudulent and abusive activity.[Footnote 16] As a 

result of our work on travel cards,[Footnote 17] the Congress included 

a provision in the Department of Defense Appropriations Act for Fiscal 

Year 2003[Footnote 18] requiring the Secretary of Defense to evaluate 

whether an individual is creditworthy before authorizing the issuance 

of any government charge card. If this requirement is effectively 

implemented, DOD should continue to improve delinquency rates and 

reduce potential fraud and abuse.



Figure 5: Decrease in Individually Billed Travel Card Delinquencies for 

the Period January 2001 through December 2002:



[See PDF for image]



[End of figure]



Cited Metrics Serve Important Purpose But Further Steps Are Needed to 

Sustain Improvements:



The metrics that the DOD Comptroller highlighted in the March 2002 

hearing relate to areas that have received considerable congressional 

and audit attention. As discussed earlier, the metrics program 

increased management focus on these problem areas and led to 

improvements in policies, processes, and--in a limited way--systems. 

While some of the cited metrics could be effective indicators of short-

term financial management progress, assuming they could be verified, 

others are not necessarily good indicators, particularly if taken 

alone. In addition, continued financial management progress will 

require additional actions. For example, the military services and 

other defense agencies are key contributors to preventing and resolving 

payment recording errors and commercial payment delinquencies but they 

do not have the same incentives to improve their performance in these 

areas. Also, because DFAS lacks modern, integrated financial management 

systems, preventing and resolving payment delinquencies and errors 

require intensive effort day after day by DFAS and other DOD 

organizations, which could be difficult to sustain.



Effectiveness of Measures:



The cited metrics for individual travel card delinquencies and payment 

recording errors could be effective indicators of financial management 

improvement. For payment recording errors, continuing reductions would 

indicate better controls over obligation, disbursement, and collection 

processes and that, as a result, DOD is less prone to fraud, waste, or 

abuse of appropriated funds. Monitoring the delinquency rates for 

individual travel card payments would provide DOD with an early 

indication that employees may be abusing their cards (i.e., using the 

cards for personal purchases) or having credit problems.



However, improved delinquency rates do not necessarily indicate 

improved financial management of centrally billed travel cards or 

commercial payments. In fact, by placing too much emphasis on paying 

bills promptly, DOD staff may be tempted to shortcut important internal 

control mechanisms that are meant to ensure that the goods and services 

being paid for were properly authorized and actually received. We and 

DOD auditors have issued several reports on the improper use of 

individually billed travel cards at DOD and on over-and underpayments 

to DOD contractors but are just beginning work to identify and evaluate 

the adequacy of DOD policies, procedures, and controls related to 

purchases from vendors and centrally billed travel cards. As a result 

of these audits, we will likely recommend additional metrics related to 

program performance and internal controls for monitoring performance in 

these areas.



Sustainability of Improvements:



Measures such as the ones discussed in this report may be useful in the 

short term but may not be appropriate once DFAS has reengineered its 

business processes and modernized its systems. As DFAS and the military 

services develop integrated and/or interfaced financial management 

systems, many of the problems related to transaction recording errors 

should be eliminated. Based on the recent work we performed for your 

committee related to DOD’s enterprise architecture,[Footnote 19] 

however, these new systems are years away from implementation.



Because DFAS lacks modern, integrated financial management systems, 

preventing and resolving payment delinquencies and errors require 

intensive effort day after day by DFAS and military service staff. As a 

result, DFAS has indicated that much of the reported progress to date 

is sustainable only if its workload is not significantly increased or 

its staffing significantly decreased.



Until new systems and reengineered processes are in place, DOD can take 

a number of steps to help maintain improvements in these areas. First, 

continued leadership and focus by top management will be a major factor 

in the sustainability of progress made to date. Second, because DFAS 

alone cannot resolve DOD’s payment recording problems or payment 

delinquencies, integrated metrics programs across DOD will be 

important. As noted earlier in this report, while the military services 

and other defense agencies play key roles in obligating DOD funds, 

preparing obligation documents, receiving and preparing billing 

documents, preparing receiving reports, and recording transaction 

information into accounting systems, these organizations do not 

currently have complementary metrics programs. Thus the military 

services and defense agencies are not measured on the accuracy and 

timeliness of their payment processes even though their assistance is 

necessary for DFAS to make improvements and resolve problems. For 

example, commercial payment backlogs were largely due to failure by the 

military services in providing receiving reports to DFAS, yet service 

delays were not being measured.



DOD is currently developing a departmentwide, balanced program of 

metrics that is intended to align with its strategic goals, focus on 

results, and achieve auditable reports. As contemplated, DFAS, the 

military services, and other defense agencies will all be supporting 

players in this program. From the individual performance measurement 

programs of the military services, defense agencies, and DFAS, certain 

metrics will be selected and reported to the top levels of DOD 

management for evaluation and comparison. In this scenario, it is 

important that DOD properly and consistently calculate and report the 

selected metrics and that the military services, other agencies, and 

DFAS develop integrated metrics programs to assist in identifying, 

measuring, and resolving crosscutting issues.



Conclusion:



As the cited metrics demonstrate, DOD can make meaningful, short-term 

progress toward better financial management while waiting for long-term 

solutions, such as integrated financial systems. Leadership, real 

incentives, and accountability--hallmarks of a good performance 

measurement program--have brought about improvements in DFAS policies 

and processes. The cited metrics are also serving as important building 

blocks for DOD’s current efforts to develop a departmentwide 

performance measurement system for financial management. However, 

before the payment recording error and commercial payment backlog 

metrics can be relied upon for decision-making purposes, they must be:



* verifiable,



* properly defined and correctly measured, and:



* linked to the goals and performance measures of other relevant DOD 

organizations.



In addition, because the reported improvements depend heavily on the 

day-to-day effort of DFAS staff, sustaining the progress may be 

difficult if DFAS has significant workload increases or staff 

decreases.



Recommendations:



DOD systems do not provide the transaction-level support needed to 

verify the accuracy and completeness of many of its selected metrics. 

However, because DOD is currently working on developing an 

enterprisewide system architecture to guide its future systems 

development and implementation strategies, we are not making any 

recommendations in this report related to improving the underlying 

business systems. We did identify several steps that DOD could take now 

to improve the reported metrics. We are recommending that the DOD 

Comptroller:



* use definitions and criteria that are consistent with DFAS 

definitions and criteria when calculating and reporting metrics related 

to payment recording errors,



* measure improvements in individually billed travel card delinquencies 

by using same month to same month comparisons, and:



* work with the military service Assistant Secretaries for Financial 

Management to develop performance measures for the military services 

and other defense agencies in areas for which there is shared 

responsibility, in order to complement the DFAS metrics program.



Agency Comments and Our Evaluation:



In written comments on a draft of this report (see appendix II), the 

Under Secretary of Defense (Comptroller) stated that the department 

concurred with our recommendations and described actions to address 

them. The department also provided several technical comments, which we 

have incorporated in the report as appropriate.



:



We are sending copies of this report to other interested congressional 

committees; the Secretary of Defense; the Under Secretary of Defense 

(Comptroller); the Director, Defense Finance and Accounting Service; 

and the Assistant Secretaries for Financial Management (Comptroller) 

for the Army, the Navy, and the Air Force. Copies will be made 

available to others upon request.



Please contact me at (202) 512-9505 or kutzg@gao.gov if you or your 

staff have any questions about this report. Other GAO contacts and key 

contributors to this report are listed in appendix III.



Sincerely yours,



Gregory D. Kutz

Director

Financial Management and Assurance:



Signed by Gregory D. Kutz:



[End of section]



Appendixes:



Appendix I: Objectives, Scope, and Methodology:



As requested by the Chairman and Ranking Minority Member of the 

Subcommittee on Readiness and Management Support, Senate Committee on 

Armed Services, we undertook an assessment of the consistency, 

accuracy, and effectiveness of certain DOD-reported metrics related to 

payment recording errors, commercial payment backlogs, and delinquent 

travel card payments. Specifically, our objectives were to determine 

whether (1) the cited performance measures were applied and calculated 

in a manner consistent with previous reporting on payment delinquencies 

and recording errors, (2) the cited improvement data were properly 

supported and represent real improvements in performance, and (3) the 

metrics are effective indicators of short-term financial management 

progress.



To complete this work, we visited DOD Comptroller offices and DFAS 

centers in Arlington, Cleveland, Columbus, Indianapolis, and Denver 

where we did the following.



* Gathered, analyzed, and compared information on how payment recording 

errors, commercial payment backlogs, and travel card delinquencies were 

defined, calculated, and reported both in the past and for the cited 

metrics.



* Reviewed GAO, DOD IG, and other service auditors’ reports for the 

past 10 years.



* Reviewed DOD consolidated financial statement reporting of payment 

recording errors over the last 10 years.



* Reviewed DOD policy for maintaining financial control over 

disbursement, collection, and adjustment transactions. This 

policy[Footnote 20] specifically describes the requirements for 

researching and correcting payment recording errors.



* Obtained and analyzed the underlying summary spreadsheets from DFAS 

that were the information source for the Comptroller officials’ 

calculations for payment recording errors and commercial pay backlogs. 

DFAS gathers this information monthly through data calls from numerous 

systems used to process and account for payments. Although we requested 

the underlying detailed transaction-level data supporting the 

spreadsheets so that we could perform audit tests, we were unable to 

obtain the detail-level data.



* Obtained and analyzed the underlying summary spreadsheets from DFAS 

that were the information source for the Comptroller officials’ 

calculations for travel card delinquencies. Obtained independent 

summary data for travel card delinquencies from GSA and compared 

amounts to Comptroller-reported metrics.



* Interviewed center personnel about process and system improvements 

and gathered and analyzed relevant output that demonstrated the results 

of those changes. Our review of new systems tools and purported systems 

improvements was limited: we did not validate whether systems changes 

followed appropriate requirements or whether they resulted in the 

production of reliable financial information.



* Obtained explanations from officials from the Office of the Secretary 

of Defense regarding the metrics program and assessed whether the cited 

metrics are effective indicators of short-term financial management 

progress.



The data in this report are based on DFAS records. With the exception 

of travel card delinquency rates, we were unable to independently 

verify or audit the accuracy of these data. We performed our work from 

June 2002 to February 2003 in accordance with U.S. generally accepted 

government auditing standards.



We received written comments on a draft of this report from the Under 

Secretary of Defense (Comptroller). These comments are presented and 

evaluated in the “Agency Comments and Our Evaluation” section and are 

reprinted in appendix II. We considered technical comments from the 

department and incorporated them as appropriate but did not reprint 

them.



[End of section]



Appendix II: Comments from the Under Secretary of Defense:



UNDER SECRETARY OF DEFENSE 1100 DEFENSE PENTAGON WASHINGTON, DC 20301-

1100:



COMPTROLLER:



MAR 13 2003:



Mr. Gregory D. Kutz, Director:



Financial Management and Assurance, U.S. General Accounting Office 

Washington, DC 20548:



Dear Mr. Kutz:



This is the Department of Defense (DoD) response to the GAO draft 

report “DoD’s Metrics Program Provides Focus for Improving 

Performance,” dated February 13, 2003 (GAO Code 192060/GAO-03-457).”:



We concur with the recommendations of this report. The DoD comments to 

the GAO recommendations are enclosed.



My staff point of contact on this matter is Mr. Greg Kuechler. He may 

be contacted by e-mail: kuechlerg@osd.pentagon.mil or by telephone at 

(703) 695-0388.



Sincerely,



Dov S. Zakheim



Signed by Dov S. Zakheim:



Enclosure: As stated:



OFFICE OF THE UNDER SECRETARY OF DEFENSE (COMPTROLLER):



Audit Report: “DOD’s Metrics Program Provides Focus for Improving 

Performance”:



General Accounting Office (GAO) Draft Report, GAO CODE 192060/GAO-03-

457 February 13, 2003:



RECOMMENDATION #1: The GAO recommends the Under Secretary Defense 

(Comptroller) use definitions and criteria that are consistent with 

DFAS definitions and criteria when calculating and reporting metrics 

related to payment recording errors.



OUSD(C) RESPONSE: Concur. The DoD metrics program complements the DFAS 

metrics program and appropriately uses consistent definitions and 

reporting criteria. The intent of a good metrics program is to 

emphasize the leading indicators rather than the lagging indicators. 

The leading indicators help the manager identify performance headed in 

an undesirable direction, while the lagging indicators inform managers 

of unsatisfactory performance. Our metrics program emphasizes the 

leading indicators rather than the lagging indicators.



RECOMMENDATION #2: The GAO recommends the Under Secretary Defense 

(Comptroller) measure improvements in individually billed travel card 

delinquencies by using same month to same month comparisons.



OUSD(C) RESPONSE: Concur. We now measure improvements in individually 

billed travel card delinquencies using same month to same month 

comparison.



RECOMMENDATION #3: The GAO recommends the Under Secretary Defense 

(Comptroller) work with the military service Assistant Secretaries for 

Financial Management to develop performance measures for the military 

services and other defense agencies in areas for which there is shared 

responsibilities, in order to complement the DFAS metrics program.



OUSD(C) RESPONSE: Concur. The DoD metrics program includes 

representatives from all military services. Further, the metrics 

program identifies DFAS and component caused delays and DFAS provides 

this data to the appropriate component.



[End of section]



Appendix III: GAO Contact and Acknowledgments:



GAO Contact:



Molly B. Boyle (202) 512-9524:



Acknowledgments:



Staff making key contributions to this report were Rathi Bose, Steve 

Donahue, Diane Handley, Fred Jimenez, and Carolyn Voltz.



[End of section]



Related Audit Reports and Testimonies:



Payment Recording Errors:



Defense Budget: Improved Reviews Needed to Ensure Better Management of 

Obligated Funds. GAO-03-275. Washington, D.C.: January 30, 2003.



Canceled DOD Appropriations: Improvements Made but More Corrective 

Actions Are Needed. GAO-02-747. Washington, D.C.: July 31, 2002.



Canceled DOD Appropriations: $615 Million of Illegal or Otherwise 

Improper Adjustments. GAO-01-697. Washington, D.C.: July 26, 2001.



Department of Defense Office of the Inspector General. Trends and 

Progress in Reducing Problem Disbursements and In-Transit Distribution. 

Report No. 99-135. Arlington, Va.: April 16, 1999.



Financial Management: Problems in Accounting for Navy Transactions 

Impair Funds Control and Financial Reporting. GAO/AIMD-99-19. 

Washington, D.C.: January 19, 1999.



Financial Management: Improved Reporting Needed for DOD Problem 

Disbursements. GAO/AIMD-97-59. Washington, D.C.: May 1, 1997.



DOD Problem Disbursements: Contract Modifications Not Properly Recorded 

in Payment System. GAO/AIMD-97-69R. Washington, D.C.: 

April 3, 1997.



Financial Management: Improved Management Needed for DOD Disbursement 

Process Reforms. GAO/AIMD-97-45. Washington, D.C.: March 31, 1997.



Financial Management: Status of Defense Efforts to Correct Disbursement 

Problems. GAO/AIMD-95-7. Washington, D.C.: October 5, 1994.



Financial Management: Problems in Accounting for DOD Disbursements. 

GAO/AFMD-91-9. Washington, D.C.: November 9, 1990.



Commercial Payment Backlogs:



Department of Defense Office of the Inspector General. Controls Over 

the Computerized Accounts Payable System at Defense Finance and 

Accounting Service Columbus. Report No. D-2002-113. Arlington, Va.: 

June 21, 2002.



Department of Defense Office of the Inspector General. Closing Overage 

Contracts Prior to Fielding a New DOD Contractor Payment System. Report 

No. D-2002-027. Arlington, Va.: December 19, 2001.



Department of Defense Office of the Inspector General. Controls Over 

Vendor Payments Made for the Army and Defense Agencies Using the 

Computerized Accounts Payable System. Report No. D-2002-056. Arlington, 

Va.: March 6, 2002.



Contract Management: Excess Payments and Underpayments Continue to Be a 

Problem at DOD. GAO-01-309. Washington, D.C.: February 22, 2001.



Internal Controls: Reporting Air Force Vendor Payment System Weaknesses 

Under the Federal Managers’ Financial Integrity Act. GAO/AIMD-99-33R. 

Washington, D.C.: December 21, 1998.



Financial Management: Improvements Needed in Air Force Vendor Payment 

Systems and Controls. GAO/AIMD-98-274. Washington, D.C.: September 28, 

1998.



Contract Management: Fixing DOD’s Payment Problems is Imperative. GAO/

NSIAD-97-37. Washington, D.C.: April 10, 1997.



Department of Defense Office of the Inspector General. Vendor

Payments - Operation Mongoose Fort Belvoir Defense Accounting Office 

and Rome Operating Location. Report No. 97-052. Arlington, Va.: 

December 23, 1996.



High Risk Series: Defense Contract Management. GAO/HR-95-3. Washington, 

D.C.: February 1995.



Travel Card Delinquencies:



Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and 

Abuse. GAO-03-147. Washington, D.C.: December 23, 2002.



Travel Cards: Air Force Management Focus Has Reduced Delinquencies, but 

Improvements in Controls Are Needed. GAO-03-298. Washington, D.C.: 

December 20, 2002.



Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential 

Fraud and Abuse. GAO-03-169. Washington, D.C.: October 11, 2002.



Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and 

Abuse. GAO-03-148T. Washington, D.C.: October 8, 2002.



Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential 

Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.



Department of Defense Office of the Inspector General. Acquisition: 

Summary of DOD Travel Card Program Audit Coverage. Report No. D-2002-

065. Arlington, Va.: March 18, 2002.



(192060):



FOOTNOTES



[1] U.S. General Accounting Office, High Risk Series: An Overview, GAO/

HR-95-1 (Washington, D.C.: February 1995); U.S. General Accounting 

Office, Major Management Challenges and Program Risks: A Governmentwide 

Perspective, GAO/OCG-99-1 (Washington, D.C.: January 1999); U.S. 

General Accounting Office, High-Risk Series: An Update, GAO-03-119 

(Washington, D.C.: January 2003); U.S. General Accounting Office, Major 

Management Challenges and Program Risks: Department of Defense, GAO-03-

98 (Washington, D.C.: January 2003). 



[2] Individually billed accounts are held and paid by individual 

cardholders based on reimbursement of expenses incurred while on 

official government travel. Centrally billed accounts are used to 

purchase transportation or for the travel expenses of a unit and are 

paid directly by the government.



[3] Intransit transactions include payments that have not yet been 

received by the DFAS accounting office for recording and matching 

against the corresponding obligation. DOD began reporting intransits in 

response to a recommendation in a report titled Financial Management: 

Status of Defense Efforts to Correct Disbursement Problems, GAO/AIMD-

95-7 (Washington, D.C.: Oct. 5, 1994).



[4] U.S. General Accounting Office, Travel Cards: Air Force Management 

Focus Has Reduced Delinquencies, but Improvements in Controls Are 

Needed, GAO-03-298 (Washington, D.C.: Dec. 20, 2002).



[5] GAO-03-298; U.S. General Accounting Office, Travel Cards: Control 

Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse, GAO-02-

863T (Washington, D.C.: July 17, 2002); U.S. General Accounting Office, 

Travel Cards: Control Weaknesses Leave Navy Vulnerable to Potential 

Fraud and Abuse, GAO-03-148T (Washington, D.C.: Oct. 8, 2002); U.S. 

General Accounting Office, Financial Management: Improvements Needed in 

Air Force Vendor Payment Systems and Controls, GAO/AIMD-98-274 

(Washington, D.C.: Sept. 28, 1998).



[6] See the “Related Audit Reports and Testimonies” section for a list 

of GAO and DOD Inspector General reports related to payment recording 

errors, commercial payment problems, and travel card program 

deficiencies.



[7] Collections, reimbursements, and adjustments are offset against 

disbursements when net amounts are reported. When absolute amounts are 

reported, collections, reimbursements, and adjustments are added to 

disbursements. Reporting net amounts can significantly understate the 

magnitude and impact of payment recording errors. 



[8] U.S. General Accounting Office, Defense Budget: Improved Reviews 

Needed to Ensure Better Management of Obligated Funds, GAO-03-275 

(Washington, D.C.: Jan. 30, 2003); U.S. General Accounting Office, 

Canceled DOD Appropriations: $615 Million of Illegal or Otherwise 

Improper Adjustments, GAO-01-697 (Washington, D.C.: July 26, 2001). 



[9] According to DOD’s Financial Management Regulation (FMR), 

intraservice transactions should not remain in transit for more than 60 

days and interservice and interfund transactions for more than 120 

days. For suspense accounts, the DOD FMR allows 60 days for clearing 

most transactions and 180 days for interfund transfers. DOD has stated 

that the normal processing time for most transactions is 60 days.



[10] The principal guidance used for making payment to vendors is the 

Prompt Payment Act, as implemented by the Office of Management and 

Budget (OMB) in 5 Code of Federal Regulations (C.F.R.) Part 1315, “ 

Prompt Payment: Final Rule,” September 29, 1999. The Prompt Payment Act 

requires the government to pay interest if an invoice is not paid on 

time.



[11] Section 1004 of the National Defense Authorization Act for Fiscal 

Year 2003 (P.L.107-314, Dec. 2, 2002) requires the Secretary of Defense 

to develop a comprehensive financial management enterprise architecture 

plan no later than May 1, 2003. It also requires the preparation of a 

Transition Plan that will guide DOD in implementing its architecture 

plan, and must include a schedule for terminating “legacy systems.” 



[12] DOD 7000.14-R, Financial Management Regulation, Volume 3, Chapter 

11.



[13] Appendix I discusses the limited scope of our review of systems 

tools and systems improvements.



[14] GAO-03-298; GAO-02-863T; GAO-03-148T.



[15] P.L. 107-314, Dec. 2, 2002.



[16] GAO-02-863T.



[17] See the “Related Audit Reports and Testimonies” section for a list 

of our reports and testimonies related to DOD travel cards. 



[18] P.L. 107-248, Oct. 23, 2002, Sec. 8149.



[19] U.S. General Accounting Office, DOD Business Systems 

Modernization: Improvements to Enterprise Architecture Development and 

Implementation Efforts Needed, GAO-03-458 (Washington, D.C.: Feb. 28, 

2003).



[20] DOD 7000.14-R, Financial Management Regulation, Volume 3, Chapter 

11. 



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