DOD Procurement

The 374 business units--representing 82 large defense contractors and 57 small contractors--that responded to GAO's request for data as of July 1994 reported about $231.5 million in outstanding overpayments and about $625.9 million in underpayments. The evidence suggests and contractors reported that they followed up to collect underpayments and usually notified the Defense Department of overpayments. Contractors did not, however, always return overpayments unless told to do so. The Defense Finance and Accounting Service Center in Columbus, Ohio, cannot readily detect payment discrepancies because of significant errors in its automated payment records. Despite these errors, Center personnel pay contractors' invoices as if the payment data were correct. The Center did not properly pursue recovery after overpayments were reported by contractors or identified through contract reconciliation. The Center's delay in collecting overpayments has been long and costly. For the $84.2 million in overpayments that it reviewed, GAO estimates that recovery delays cost the government about $10.6 million in interest. Even after a public accounting firm completed contract reconciliations to identify the amounts owed the government, the Center did not recover overpayments promptly.

GAO found that: (1) the 374 business units (representing 82 large defense contractors and 57 small contractors) that responded to GAO's request for data as of July 1994 reported about $231.5 million in outstanding overpayments and about $625.9 million in underpayments; (2) the evidence suggests and contractors reported that they followed up to collect underpayments and usually notified DOD of overpayments; however, contractors did not always return overpayments unless instructed to do so; (3) the DFAS Columbus Center cannot readily detect payment discrepancies because of significant errors in its automated payment records; (4) despite these errors, Center personnel, in accordance with payment procedures, pay contractor invoices as if the payment data were correct; (5) with significant errors in the automated payment records, incorrect payments are likely to continue; (6) the Center did not properly pursue recovery after overpayments were reported by contractors or identified through reconciliation; (7) on the basis of GAO's research of $84.2 million in overpayments, the Center's delay in collecting overpayments was long and costly; (8) for those overpayments, GAO estimates that recovery delays cost the government about $10.6 million in interest; (9) even after a public accounting firm completed contract reconciliations to identify the amounts owed the government, the Center did not recover overpayments promptly; (10) in response to GAO's August 1994 recommendation that DOD mobilize resources to identify, verify, and correct payment discrepancies, DOD advised GAO in May 1995 that various actions were under way or planned to to reduce payment discrepancies and to use contractor records to facilitate reconciliations; and (11) on July 31, 1995, DFAS requested the Columbus Center to undertake a new effort to identify and resolve payment discrepancies.