Bureau of Prisons Contract Payments
Gao ID: GAO-02-508R March 20, 2002GAO reviewed the Bureau of Prisons to determine whether it had made overpayments to contractors. During fiscal year 2001, the Bureau of Prisons had 24 open construction contracts that totaled about $1.9 billion. In addition to general disbursement controls, GAO found internal controls specific to construction contracts in which both the project representative and the contracting officer must approve each monthly progress payment invoice. GAO sampled 27 payments on five construction contracts to determine if construction contract payment controls were properly designed, in place, and operating to prevent or detect overpayments. GAO found that the internal controls were in place and operating and construction contract payment amounts were correct, or, if errors occurred, they were detected and corrected promptly as a normal part of the payment system. A few minor clerical errors were subsequently detected and corrected by the Bureau of Prisons through its own routine control procedures before GAO made its review. GAO concludes that the risk of undetected construction contractor overpayments at the Bureau of Prisons appears to be small.
GAO-02-508R, Bureau of Prisons Contract Payments
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United States General Accounting Office:
Washington, DC 20548:
March 20, 2002:
The Honorable Dan Burton:
Chairman:
Committee on Government Reform:
House of Representatives:
Subject: Bureau of Prisons Contract Payments:
You asked that we review several agencies to determine whether they
had made overpayments to contractors. One of the agencies was the
Department of Justice. In consultations with your staff, we agreed to
concentrate our work at the department's Bureau of Prisons because it
administered large construction contracts. During fiscal year 2001,
the Bureau of Prisons had 24 open construction contracts that totaled
approximately $1.9 billion. As a first step in determining whether the
bureau was likely to have made overpayments to construction
contractors, we identified their internal controls. We then tested how
well the controls were working by reviewing a sample of construction
contract payments. Our work was conducted between August 2001 and
December 2001 in accordance with generally accepted government
auditing standards. We also provided the Bureau of Prisons an
opportunity to comment on a draft of this letter. This letter
describes the scope and results of our work.
In order to assess the risk of construction contractor overpayments,
we asked Bureau of Prisons personnel what types of preventive and
detective controls were in place. Based on these inquiries, we
determined that general disbursement controls included:
* segregating key disbursement responsibilities;
* using only original contractor invoices or, in limited
circumstances, certified copies as a basis for payment;
* performing automated input edit and processing checks; and;
* mutilating invoices to prevent reprocessing.
In addition, we found that internal controls specific to construction
contracts included the following:
* The project representative and the contracting officer must both
approve each monthly progress payment invoice. The contracting officer
checks the invoice for completeness, accuracy, and compliance with
contract terms.
* The contracting officer keeps a running record in the contract file
of funds available for the contract.
* Final contract payment is not made until all required work is
verified as complete and all open claims have been satisfied.
We reviewed a sample of 27 payments on five different construction
contracts to assess whether the construction contract payment controls
were properly designed and whether they were in place and operating to
prevent or detect overpayments for the selected items.[Footnote 1] The
contracts totaled approximately $186 million. The 27 payments selected
for review totaled approximately $31 million, including the final
payment for each of the five construction contracts. For each payment
selected, we reviewed the payment file and obtained clarifications
from Bureau of Prisons personnel when necessary.
For the payments that we reviewed, we found that the internal controls
were in place and operating and that construction contract payment
amounts were correct, or, that if errors occurred, they were detected
and corrected promptly as a normal part of the payment system. We
found a few minor clerical errors for three of the contracts we
reviewed. The errors were subsequently detected and corrected by the
Bureau of Prisons through its own routine detective control procedures
before we made our review. For example, in one contract, there was an
overpayment of $3 on a payment of about $4 million. The error was
rectified the following month by reducing the next month's payment by
$3. In a second contract, the increase in retainage (costs to be paid
later in the contract) was $11,581 more than the contract costs
incurred during the same period. In the following payment period, this
error was corrected by reducing the retainage payment by $11,581.
The risk of undetected construction contractor overpayments at the
Bureau of Prisons does not appear to be significant based on the
controls in place and operating at the time we made our tests. Because
of this, and as agreed with your staff, we believe no further work
relative to this request is warranted at this time. In an oral
response to a draft of this letter, the bureau stated that it had no
comments.
We are sending copies of this letter to the ranking minority member of
the House Committee on Government Reform and the Bureau of Prisons.
Copies of this letter are available to other interested parties. This
letter will also be available on GAO's home page at [hyperlink,
http://www.gao.gov].
If you have any questions, please contact me at (202) 512-9508 or by e-
mail at Calboml@gao.gov or my Assistant Director, Mark P. Connelly, at
(202) 512-8795 or by e-mail at Connellym@gao.gov. Key contributors to
this letter were Don Campbell and Jack Warner.
Sincerely yours,
Signed by:
Linda Calbom:
Director, Financial Management and Assurance:
[End of section]
Footnotes:
[1] These contracts were selected because they had been closed in
fiscal year 2001, allowing us to review the full activity of the
contracts. They included three construction contracts for two prisons
and two related contracts for monitoring and oversight. Because our
sample was not statistically based, our conclusions are drawn solely
for the transactions we reviewed and cannot be extrapolated to all
construction contract payments.
