Department of Defense

Unless the Pentagon gains control over its payment process, it will continue to risk erroneously paying contractors hundreds of millions of dollars and perpetuating other financial management and accounting control problems. Improving the efficiency of the payment process could save millions of dollars each year. Although the Defense Department (DOD) is trying to improve its payment process and controls, it will likely take many years before DOD gets its payment problems under control. DOD needs to make better use of technology to improve and integrate its payment systems and to streamline and simplify its payment requirements. These actions will require sustained attention from top management. DOD also needs to concentrate on reducing overpayments and to adopt best practices to quickly identify and recover them. Contractors do not have to notify the government when they have been overpaid. GAO believes that contractors should be required to do so. Also, it may be time to raise the minimum dollar threshold required by the Prompt Payment Act. The Defense Finance and Accounting Service now sends out interest payments whose processing costs total more than the face value of the checks.

GAO noted that: (1) the need for DOD to achieve effective control over its payment process remains an imperative; (2) if DOD does not, it will continue to risk erroneously paying contractors hundreds of millions of dollars and perpetuating other financial management and accounting control problems; (3) further, improving the efficiency of the payment process could save millions of dollars annually in reduced processing costs; (4) while DOD is taking steps to improve its payment process and controls, it will likely take many years before DOD gets its pay ment problems under control; (5) the focus of DOD's actions needs to be on making better use of technology to improve and integrate its payment systems and to streamline and simplify its payment requirements; (6) these actions will, however, require sustained top-management efforts; (7) DOD also needs to concetrate on reducing overpayments and, recognizing that some overpayments are inevitable, adopt best practices to quickly identify and recover them; (8) GAO believes that recovery auditing offers a low-risk opportunity to achieve both these goals, and GAO is supportive of the recently introduced legislation to require federal agencies to use recovery auditing; (9) contractors are not required to inform the government when they have been overpaid; (10) contractors should be required to notify the government of overpayments when they become aware of them; (11) this requirement should not impose a significant burden on the contractor; (12) once notified, government contracting personnel should immediately ask contractors to refund the overpayment; (13) it may be time to raise the minimum dollar threshold required by the Prompt Payment Act; (14) the Defense Finance and Accounting Service pays interest amounts to that are less than it costs them to process the checks; and (15) however, raising the threshold should be part of an overall assessment of the efficiency pf the payment process.