Contract Management

The Defense Department has made hundreds of millions of dollars in overpayments to contractors, many undetected for years, because it uses inadequate computer systems requiring manual entry of often erroneous or incomplete data and a burdensome document-matching process. Improving DOD's payment system will not be easy or quick. It will take sustained top management attention and support for years to come. Although DOD is taking some steps to overcome its payment problems, it remains to be seen how successful they will be. Emulating the best practices used by the private sector could help DOD reengineer its payment system.

GAO noted that: (1) it is imperative that DOD achieve cost-effective control over its payment process; (2) otherwise, it continues to risk hundreds of millions of dollars in potential overpayments and other financial management and accounting control problems; (3) further, improving the efficiency of the payment process would save additional millions of dollars annually in reduced processing costs; (4) the following factors contribute significantly to problems and increased costs in DOD's payment process: (a) nonintegrated computer systems that require manual entry of data that are erroneous or incomplete; (b) multiple documents that must be matched before contractors are paid; and (c) payments that require allocation among numerous accounting categories; (5) improving DOD's payment system will not be an easy or quick undertaking; (6) it will require continued top management attention and support for many years to come; (7) while DOD is taking some steps to address its payment problems, when and to what degree they will effectively correct its problems remains to be seen; (8) further, DOD's actions do not go far enough in addressing the factors GAO identified as contributing to payment problems; (9) for example, DOD has yet to decide on how to minimize transferring existing erroneous data to the new automated system; (10) moreover, it also plans to continue to match multiple documents and allocate payments across numerous accounting categories; (11) GAO's review indicated that DOD might benefit from further examining best practices of commercial organizations that have reengineered their contract payments process; (12) the organizations GAO visited have focused on a long-term effort of continual improvements with contract payments viewed as an integral part of the acquisition process; and (13) in general, these organizations have combined technological improvements with streamlined processes to improve service and reduce costs.

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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