On May 22, the Department of Defense inspector general released Report No. D-2008-098 titled "Internal Controls Over Payments Made in Iraq, Kuwait and Egypt."
The report indicated that Army finance units deployed to war zones in Iraq, Kuwait, and Afghanistan between 2001 and 2006 made a series of vendor payments that it concluded could not be supported. The IG reached this conclusion after having dispatched its auditors to field locations inside the United States to conduct a financial statement review of wartime accounts.
During the years 2001 to 2006, it was Department practice to retain documents substantiating payments in locations both overseas and inside the United States. Based on the documents in the IG's possession during their review, the IG could not rule out waste, fraud, and abuse and recommended the Army perform a more extensive review of additional documentation
<i>Initial IG Review</i>
In 2006, the IG conducted a review of accounting documents for a sample of 702 payments, and concluded that 18 percent of the 702 payments were not properly substantiated. Based on this initial review, the IG could not rule out waste, fraud and abuse for what the IG estimated was nearly $1.4 billion in vendor payments across the years 2001 to 2006. The IG then directed the Army to conduct a further review to determine if these payments constituted a loss of funds.
<i>Pursuant to IG direction, Additional Army Review</i>
Since the IG's review was limited only to those documents filed in the United States, the Army reviewed documents and other information maintained in Kuwait, Iraq, and Afghanistan. The Army then substantiated the payments using technical guidance issued by the Department of Defense Comptroller and approved by the Department of Defense General Counsel for payments made in a war zone. The Army has provided all additional documentation and reviewed information to the DoD IG.
<i>Outcome</i>
The Army concluded that 674, or 96%, of the payments in question were properly substantiated. That is, they were documented with three necessary documents: 1) a contract; 2) an invoice; and 3) a receiving report. For 26 payments (or 700 cumulative of the 702), the Army was able to determine that the payments were proper using additional data sources available to the Army. Research is ongoing for the remaining two payments (totaling about $330 thousand of the $1.485 billion total value of payments audited by the IG) because the payment offices have since permanently closed and the information is archived elsewhere.
<i>Selected Payments</i>
In May 22, 2008 testimony before the House Committee on Oversight and Government Reform, the IG provided examples of five payments they said could not be substantiated. Three of these payments represented the return of Iraqi monies frozen in U.S. banks prior to the war, or captured in Iraq by coalition forces. The Army's internal auditors reviewed 122 payments drawn from about $1 billion of cash belonging to Iraqi citizens and concluded the Army exercised proper accountability and controls over these payments.
The remaining two payments were made to vendors doing business with the U.S. Army. One payment for $6.2 million did not have a vendor invoice. However, the contract terms specified that the vendor would claim payment using a standard government form. The vendor complied with this requirement. The Defense Contract Audit Agency approved the payment, and it was certified by the contracting office prior to payment. The second example was an $11 million payment for rental of commercial vehicles. The automated payment records from Kuwait show a contract was awarded on March 31, 2005, an invoice was prepared on April 30, 2005, was accepted on May 1, 2005, and paid on May 24, 2005.
<i>Army Controls</i>
The Army has taken significant actions over the past several years to improve payment controls, officials said. A balanced scorecard, updated monthly, tracks compliance with the department's documentation criteria. Many accounts payable activities previously performed in war zones are now conducted in the United States. Electronic funds transfer has replaced many cash payments, and enhanced computer systems have replaced manual accounting and finance processes.
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