DOD Contract Management

GAO reported in 1997 that from October 1992 through April 1997, defense contractors refunded more than $5 billion to the Defense Finance and Accounting Service's Columbus Center, the military's largest payment center. GAO updated this information and found that between fiscal years 1994 and 1998, defense contractors returned about $4.6 billion to the Columbus Center--$746 million in fiscal year 1998 alone. Center officials said that most of the returned money was due to factors outside of their control, although payment errors by the center were also a factor. It took about a year, on average, before the 13 contractors refunded overpayments of $56.2 million to the Center. In addition, four of the contractors still retained overpayments totaling $1.1 million. The Center has a sizable and growing backlog of contracts waiting to be examined to ensure that contractors were properly paid--a process called reconciliation.

GAO noted that: (1) in the 5 years between FY 1994 and 1998, defense contractors returned about $4.6 billion to the DFAS Columbus Center--in FY 1998, $746 million; (2) the Center attributes most of the returned money to overpayments caused by factors outside its control; (3) however, payment errors by the Center were also a factor; (4) it took about a year, on average, before the 13 contractors refunded overpayments of $56.2 million to the Center; (5) in addition, four of the contractors were still retaining overpayments totalling $1.1 million; (6) after GAO brought these overpayments to the contractors' and the government's attention, the contractors refunded the overpayments; (7) a Defense Contract Management Command area office also instructed its personnel to ask contractors reporting overpayments to immediately return the money; (8) in some cases, government personnel were aware of the overpayments, but they did not take timely action to obtain recovery; (9) under law, there is no requirement for contractors who have been overpaid to notify the government of overpayments or to return overpayments prior to the government issuing a demand letter; (10) the Center has a sizable and growing backlog of contracts waiting to be examined to ensure that contractors were properly paid--a process called reconciliation; (11) reconciliation has often resulted in claims against contractors for overpayments; (12) the longer a contract remains unreconciled, the longer any overpayment identified through reconciliation will remain undetected, and the greater will be the government's loss of the timely use of these monies; and (13) further, delays in seeking return of overpayments may result in increased difficulty in collection or actual monetary loss to the government.

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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