DoD using flawed approach to calculate $1.1B in improper payments

Monday - 6/10/2013, 5:49pm EDT

Asif Khan, director of financial management and assurance, Government Accountability Office on "In Depth" with Francis Rose

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The Defense Department reported making just $1.1 billion in improper payments in fiscal 2011, a small fraction of the Pentagon's total outlays of more than $1 trillion.

But, in a new report, the Government Accountability Office said those estimates are neither reliable nor statistically valid because of "longstanding and pervasive" weaknesses in DoD financial-management practices as well as specific deficiencies in the department's procedures for estimating improper payments.

Lacking in DoD's current efforts to curb improper payments are basic quality-control measures, Asif Khan, GAO's director of financial management and assurance, told In Depth with Francis Rose. (Federal News Radio's DoD Reporter Jared Serbu served as guest host)

DoD identified improper payments stemming from eight programs in fiscal 2011, including military pay and health benefits, civilian pay, contractor payments and other areas. Total spending on those programs added up to about $617 billion. However, DoD never took steps to reconcile that figure with total DoD spending outlays, Khan said. That hindered the extent to which DoD was able to produce a valid population from which to sample improper payments.

GAO also reported deficiencies in DoD's sampling methods. DoD used simple random samples to select payments for review, GAO found, "without regard to the complexity of the transaction or the risk of being an improper payment."

In other words, a $100 invoice to the Defense Finance and Accounting Service had the same chance of being selected for further review as a $10 million invoice, GAO found, even though "high dollar payments involve more complex transactions and thus are at greater risk of being an improper payment."

That's simply the "wrong approach," Khan said.

"DoD treats all their programs as equally susceptible to significant improper payments," he added. "So, consequently, they have not done a comprehensive risk assessment to be able to identify the root causes of improper payments."

GAO first recommended DoD implement a more systematic approach to risk assessment in 2009 — a suggestion which has gone mostly unheeded.

Overall, GAO made 10 recommendations to better curb the Pentagon's payout of improper payments, with the ultimate goal of improving the improper-payment estimate that DoD produces.

"They really have to come up with proper estimates, because that's the amount that's reported, that's the amount that DoD leadership focuses on," Khan said. "So they need to have a reliable estimate."

DoD also needs to implement a "robust" risk-assessment plan, Khan said, "so that they can pinpoint where to really apply their resources."

Defense officials concurred with nine of GAO's recommendations but only partially agreed with the recommendation to rethink its sampling methods, arguing that the Pentagon's current sampling methods are in accordance with policy from the Office of Management and Budget.

In comments appended to the report, Undersecretary of Defense and Comptroller Robert Hale said he believed DoD's current method for tackling improper payments is "fundamentally sound," and bristled at the suggestion that "significant" improvements needed to be made, saying it fails to take into account the progress DoD has already taken to minimize improper payments.

Senators on the Homeland Security and Governmental Affairs Committee, who originally requested GAO study the issue, seized on the report as evidence that the department is failing to implement key tenets of the 2010 Improper Payments Elimination and Recovery Act.

"The current fiscal environment requires us to look in every nook and cranny of the federal government to find ways to cut waste and fraud," said Sen. Tom Carper (D-Del.), the chairman of the committee, in a statement. "It's about time the Department of Defense took this sentiment to heart as well.

Eliminating improper payments has been a key feature of the Obama administration's management agenda. The 2010 law set a goal of avoiding at least $50 billion in erroneous payments by the end of 2012 — a goal which agencies narrowly missed.

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