Computation of Cost-of-Living Allowances for Uniformed Personnel Could Be More Accurate

GAO reviewed the methodology used to compute cost-of-living allowances (COLA's) for federal personnel because there were concerns about its appropriateness.

GAO found that the Department of Defense (DOD) uses an out-dated spendable income table on which to base COLA payments and adjustments for environmental factors resulting in undercompensation for some uniformed personnel and overcompensation for others. DOD, the Department of State, and the Office of Personnel Management administer COLA programs for uniformed and federal civilian employees in foreign and nonforeign areas, respectively. COLA's computed by these agencies are based on prices of a market basket of goods and services in the foreign or nonforeign area compared with prices of a similar market basket in the base area. The administering agencies divide the foreign or nonforeign average prices by the base area average prices to obtain a ratio. These item ratios are weighted by the relative importance of the expenditures they represent. Correcting several deficiencies in data collection and processing would insure that the COLA's more accurately reflect differences in prices. Data received from the field were inconsistently edited and incorrectly adjusted for timelags between base area and COLA area price surveys. DOD COLA's would be improved if sale prices were weighted to reflect the proportion of purchases made at sale and regular prices.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Rosslyn S. Kleeman Team: General Accounting Office: Federal Personnel and Compensation Division Phone: (202) 512-9204