Financial Management
DOD's Metrics Program Provides Focus for Improving Performance Gao ID: GAO-03-457 March 28, 2003The 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.
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.
RecommendationsOur 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: Team: Phone:GAO-03-457, Financial Management: DOD's Metrics Program Provides Focus for Improving Performance
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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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