The Department of Defense’s efforts to identify and recover improper payments are not adequate to collect and report comprehensive data on overpayments, according to a report prepared by the DoD Inspector General (DoDIG).  The DoDIG reviewed DoD’s methodology and quarterly report to determine compliance with Executive Order 13520, which required each agency to publish a quarterly report on high dollar overpayments.  A high dollar overpayment is defined as any overpayment that is over 50 percent of the intended payment.

As a result of its review, the DoDIG said DoD’s First Quarter FY2010 High Dollar Overpayments Report was “inaccurate and incomplete.”  Specifically, DoDIG charged that DoD 1) did not review 55 percent ($167.5 billion) of the $303.7 billion in outlays to identify overpayments, 2) did not report some overpayments, and 3) did not include enough information on recoveries or corrective actions.   

In addition, the report found weaknesses in the methodology used by the Defense Accounting and Finance Service (DFAS) to prepare a list of commercial overpayments.  According to the report, DFAS gathered information from only two systems—Contractor Debt System (CDS) and Improper Payments Online Database (IPOD).  However, the report identified six systems that did not report contract entitlement systems improper payments into either CDS or IPOD.  The report also criticized DFAS for not fully reviewing collections for civilian and military pay and travel and retired annuitant pay, and excluding civilian Permanent Change of Station (PCS) travel payments or military health benefits payments.  

The DODIG report recommended that the Under Secretary of Defense (Comptroller/CFO) improve its methodology for identifying and reporting high dollar overpayments to ensure that all DoD outlays are reviewed for high dollar overpayment and to disclose payment areas that are not reviewed.  The report also recommended that the Director of DFAS develop procedures to conduct samples of commercial pay entitlement systems and improve internal controls to ensure that travel payments go to only those individuals with valid Social Security numbers. 

The DoDIG report urged DOD to move quickly to address the inadequacies found and the recommendations made in the report.  The report warned that if DoD did not act to improve data collection and oversight it “will continue to understate the Department’s high dollar overpayments and error rate.”

In a response (included in the report) to the DoDIG recommendations, DoD’s Deputy Chief Financial Officer (DCFO) DoD will develop a plan to improve oversight of high dollar value overpayments reporting and will review all payment and collection areas for disclosure in the report.  However, due to resource and time constraints DoD cannot review all individual payments, but will conduct a statistical sample to identify individual high dollar overpayments to meet the requirements of the Executive Order. 

Responding to the report for DFAS, the Acting Director for Standards and Compliance stated that DFAS plans to conduct a risk assessment on entitlement systems not currently using current procedures to report improper payments.  After that assessment is complete, DFAS will evaluate the need to develop a sampling plan.  Currently, DFAS said it does require reporting on actual improper payments into its database.  Regarding review of civilian, military, travel, and retirement pay, DFAS said it decided to review random samples to identify high dollar value overpayments.  And, while it does not review travel pay collections, DFAS said it does review travel pay overpayments identified in monthly random audits and database comparisons.  It also conducts random reviews of retired pay accounts.  DFAS stated that completion of these improvements combined with ongoing procedures meets the intent of the Executive Order.