Congress Scrutinizes DOD’s Commercial Spending-Error

During a House subcommittee hearing last week, lawmakers expressed concern over the continued problems government has in controlling misspent funds. Of particular concern is the Department of Defense, the sole agency on the GAO’s high-risk list. A top DOD official during the hearing said the department’s spending-error rate now is less than 1 percent, a fact the GAO disputes.

Improper U.S. government payments, where funds either go to the wrong party or in the wrong amount, continue to pose a major problem, accounting for an estimated $105.8 billion in fiscal 2013. Though one of the government’s major spenders, the Department of Defense (DOD) contends it has reduced such errors to less than 1 percent of its payments, far below the government-wide rate of around 4 percent.

The Government Accountability Office (GAO), however, doesn’t believe the error-rate estimate figures from the department, which last year spent some $579 billion. In fact, the GAO is not confident the DOD can accurately measure its payment performance, according to hearing testimony last week before the House Oversight and Government Reform Subcommittee on Government Operations.

In May 2013, the GAO reported major deficiencies in DOD’s process for estimating fiscal 2012’s improper payments in the department’s Defense Finance and Accounting Service (DFAS) Commercial Pay program, and it recommended that the agency develop quality-assurance procedures to help ensure the data’s accuracy. Because the DOD is reevaluating its sampling methodology for fiscal 2014 for that program based on the GAO’s recommendations, “the fiscal year 2013 improper-payment estimate for the DFAS Commercial Pay program may not be reliable,” Beryl H. Davis, director of financial management and assurance at the GAO said in written testimony for the hearing.

Also during the hearing, subcommittee Chairman John L. Mica (R-Fla) called the issue of government-wide misspending “a serious and unfortunately very persistent problem,” with more than $500 billion being lost over the past five years.

While the agencies with the top error rates include the Center for Medicare and Medicaid Services and the Earned Income Tax Credit, the DOD’s deputy chief financial officer, Mark Easton, testified that his agency is doing a much better job, estimating its improper payments at less than 1 percent, low compared with the government-wide rate of 3.53 percent for fiscal 2013.

“I am keenly aware that DOD financial management remains on the high-risk list of the GAO and that we are the only federal agency without a positive financial-audit opinion,” Easton noted in his written testimony. “I assure you that this status will change and that I spend much of my time working to make that happen.”

In conflict with the GAO’s views, the Office of Management and Budget (OMB) generally agrees that the DOD has a strong program in place to control improper payments, Easton noted, adding that the department’s improper payments are not on OMB’s list of high-priority error programs. “In fact, OMB has identified some of the techniques we use to combat improper payments as best practices that other agencies should consider to strengthen their own programs,” he said.

The DOD’s largest challenges go beyond improper payments in that they include the ability to reconcile and present universes of transactions so that it can conduct comprehensive sampling to provide assurance that it has quality control over all payments, while also being able to readily source documents to support those payments, Easton said.

“As a result, many of our improvement efforts are focused on making the department’s financial statements auditable, while also strengthening and increasing the credibility of the low improper payment numbers we report,” he testified.

While Easton noted that the DOD overall is doing a better job controlling error rates overall, he conceded that travel spending continues to pose problems. Last year, DFAS processed nearly 6 million travel payments.

“Our travel pay is an area that has consistently missed annual goals and is receiving increased visibility and emphasis,” Easton said. “Poor training for approving officials is leading to a lack of documentation. This is a known risk area for us.”

As a result, the DOD’s FY 2013 travel improper-payment rate was 6.5 percent, twice the agency’s rate goal, he said.

“We subject our travel payments to monthly statistical sampling to identify, minimize, and correct improper payments,” Easton said. “We have also begun using automated file matching among our travel systems to prevent duplicate payments.”

Most temporary duty travel payments are made within the centralized Defense Travel System, which has provided the opportunity to employ a data-mining software tool that provides a payment-recapture audit looking for potential improper payments, he said. It automatically establishes the debt and contacts both the traveler and approving official to get a problem fixed as soon as possible.