Contract Management

In recent years, the Defense Department (DOD) has conducted a demonstration program to evaluate the feasibility of using private contractors to identify overpayments it has made to vendors. Identifying and recovering overpayments is known as recovery auditing. Late last year, GAO reported that despite DOD's difficulty in recovering about $17 million identified under the program, the concept of recovery auditing offered the potential to identify overpayments. (See GAO/NSIAD-99-12, Dec. 1998.) A House report directed DOD to implement the expanded recovery audit demonstration program of section 388, P.L. 105-85, by selecting at least two commercial functions within its working capital fund and issuing a competitive request for proposal by December 31, 1998. This report provides an initial review of the expanded program.

GAO noted that: (1) DOD did not select at least two commercial functions within its working capital funds accounts and issue a competitive request for proposals by December 31, 1998; (2) however, in response to an August 1998 DOD memorandum encouraging the use of recovery auditing, three working capital funds activities--the Defense Commissary Agency, the Defense Logistics Agency (DLA), and the U.S. Transportation Command--told GAO they are developing plans to use recovery auditing; (3) the Defense Commissary Agency said it plans to have a contract for recovery auditing services by March 31, 1999; (4) DLA plans to expand the use of recovery auditing from the demonstration program in place at the Defense Supply Center in Philadelphia to its other four supply centers; (5) however, as of February 5, 1999, DLA had not published a schedule to show when it plans to have contracts for these supply centers; (6) the U.S. Transportation Command began planning to contract for audit recovery services, although it has not established an implementation schedule; (7) each of the services also expressed an interest in recovery auditing and is evaluating whether to use it; (8) of the other recipients of the August 1998 DOD memorandum, the Defense Finance and Accounting Service plans to use recovery auditing at some future time; (9) the Defense Information Services Agency does not plan to use recovery auditing because it claims to have a successful track record with vendors offsetting overpayments; and (10) the Joint Logistics Systems Center does not plan to use recovery auditing because it is scheduled to deactivate this March.