Pentagon Made at Least $1B in Improper Payments in 2010

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The U.S. Defense Department is likely under-reporting its improper payments, auditors told lawmakers in September.

The Pentagon estimates it made about $1 billion in improper payments last year. But that figure is incomplete because it does not include disbursements to vendors and other contractors, a Government Accountability Office official said at a Sept. 22 hearing of the House Armed Services panel on defense financial management.

Such payments, worth $367 billion last year, amounted to about a third of total Defense Department outlays, Asif Khan, the Government Accountability Office’s director of financial management and assurance, said.

Also questioning the reliability of the department’s reporting was Daniel Blair, the Defense Department’s deputy inspector general for auditing. For the first quarter of last year, the department failed to review more than half of $303.7 billion in gross outlays for high-dollar overpayments. In addition, Blair said, both the inspector general and Defense Department officials identified some overpayments that were not reported.

Although the Pentagon claims an improper payment recovery rate of 75 percent in recent years, it needs to improve procedures for reviewing all disbursements, Blair said, or else miss opportunities to recover misspent money.

But the Defense Department’s payment error rate last year was less than half the government-wide average of 5.49 percent, Mark Easton, the Defense Department’s deputy chief financial officer, told the subcommittee. Easton added that financial managers have used statistical sampling to estimate improper payments since 2004 for five of six programs, including military pay, retirement benefits and travel pay.

After taking a different approach for the sixth category — commercial payments to contractors — the Pentagon is now carrying out a full-fledged statistical review effort to comply with the Improper Payments Elimination and Recovery Act approved last year, Easton said.

“I know that perfection is not realistic in any large enterprise, especially one as large and complex as [the Defense Department],” he said.

The Pentagon’s financial management system has been on the Government Accountability Office’s high-risk list since 1995; the department is under orders from Congress to produce a clean audit by 2017.

Like other agencies, it faces pressure from the administration of President Barack Obama and lawmakers to combat improper payments, typically defined as money paid in the wrong amount, to the wrong recipient, not used properly or paid without adequate documentation.

Last year, improper payments government-wide were estimated at more than $125 billion.