department of defense agency financial report fiscal year 2012

Department of Defense Agency Financial Report for FY 2012
(USD(C)/CFO)) made significant disclosures about the limited completeness and
accuracy of DoD efforts to identify and report on improper payments, including:
• The Department did not statistically sample Defense Finance and Accounting Service
(DFAS) commercial payments for its FY 2011 reporting.
• Transactions and processes (business and financial processes, controls, and
systems) were neither standard nor sound in all cases.
• The SBR is not auditable and as a result, the USD(C)/CFO cannot reconcile outlays to
the quarterly or annual gross outlays reported in the SBR to ensure that all required
payments for reporting purposes are captured.
These areas require improvement before the Department will be able to provide
complete and accurate information on its estimated amount of improper payments.
The DoD IG has reported previously about the Department’s “pay and chase” practice,
where contractors are paid the billed invoice amounts before the Department
determines what the correct billing amount should have been. This practice is especially
concerning when used to support operations in Southwest Asia. The DoD IG and others
have reported on multiple occasions where invoices were paid for work outside the
scope of the contract or without adequate support. This type of approach not only
increases the risk of improper payments but also increases the risk that the Department
will never be able to detect and recover the improper payments. Specifically, over time
the condition of contract files and availability of personnel diminishes. The ability to
detect and collect on improper payments within aging contract files may diminish over
time. The Defense Contract Audit Agency (DCAA) is a key component to identify
improper payments in Department contracting. However, there is an emerging concern
that the backlog of audits is growing and improper payments are going undetected
because the DCAA cannot adequately respond to the growing demand for its services.
1-3B. Improper Payments IG Summary of Progress
While the Department made strides to improve the identification and reporting of
improper payments and took many corrective actions to implement recommendations
made by the DoD IG, more work is needed to improve controls over payments
processed throughout the Department. We commend the Department on aggressively
pursuing recovery of identified improper payments, but unless the DoD continues to
improve its methodology to review all its disbursements, it will understate its estimate
of overpayments and will likely miss opportunities to collect additional improper
payments.
After initial resistance to the IG assertion that the Department’s methods used to
estimate high dollar overpayments resulted in under-reporting the amount of improper
payments, the Department recognized it needs to broaden its scope of review for
identifying potential improper payments. The USD(C)/CFO asserted that DFAS will begin
statistical sampling of commercial payments in FY 2012. The ability of DCAA to provide
audit oversight for contract closeouts is critical to the Department’s improper payments
efforts. Leadership must maintain awareness on DCAA’s ability to provide this critical
service.
1-3C. Improper Payments Department Response
The Department concurs with the DoD IG recognition of DoD’s improvements in
identifying, reporting, and recovering improper payments and in implementing
A-8
Addendum A