DOD Procurement

Overpayments and Underpayments at Selected Contractors Show Major Problem Gao ID: NSIAD-94-245 August 5, 1994

GAO testified in April 1994 that defense contractors were returning millions in contract overpayments to the Defense Finance and Accounting Service (DFAS). GAO was then asked to review whether all overpayments were being returned. A review of overpayments and underpayments to nine major defense contractors revealed $118 million in inaccurate payments that potentially could cost the government more than $20,000 a day in lost interest or late payment penalties. Each contractor had returned some overpayments, but the nine contractors were keeping some overpayments. Contractor officials gave several reasons for not returning overpayments, but none of the reasons appeared to justify not returning overpayments or delaying the resolution of discrepancies. Neither the Defense Department nor the contractors were aggressively trying to resolve the discrepancies, some of which had been outstanding for years.

GAO found that: (1) contractor payment discrepancies include both overpayments and underpayments; (2) contractor overpayments and underpayments result in significant unnecessary costs to the government; (3) all nine of the contractors reviewed have retained some overpayments; (4) none of the contractors have given justifiable reasons for not returning overpayments or delaying the resolution of discrepancies, some of which have been outstanding for several years; (5) DOD officials have been notified of the discrepancies but have not taken corrective action; (6) neither DOD nor the contractors appear to be aggressively pursuing the resolution of payment discrepancies; and (7) DOD needs to develop a comprehensive plan to identify and correct payment discrepancies to reduce costs to the government, future payment discrepancies, and the incidence of uncollectible overpayments.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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