Internal Controls:

Controls Over Expedited Payments to Defense Suppliers Need Improvement

NSIAD-88-113: Published: Feb 29, 1988. Publicly Released: Apr 1, 1988.

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In response to a congressional request, GAO: (1) reviewed the Defense Logistics Agency's (DLA) implementation of the Office of Management and Budget's (OMB) fast pay program revisions; and (2) evaluated the effectiveness of DLA internal control procedures to ensure receipt of items purchased under the program.

GAO found that: (1) DLA did not implement the revised OMB fast pay-procedures; (2) both the Defense Personnel Support Center (DPSC) and Defense Electronics Supply Center (DESC) inappropriately used fast-pay procedures to purchase stocks sent directly to supply depots; and (3) DPSC failed to observe the OMB limit of $25,000 on contracts using fast-pay procedures. GAO also found that DLA: (1) internal control procedures did not identify or resolve payment for items that were not received; (2) failed to collect an estimated $7 million in overpayments to vendors; (3) continued to award fast-pay contracts to contractors with poor performance histories because contracting officers either failed to check or disregarded sanction lists; and (4) has not established procedures to ensure receipt of materiel sent directly from contractors' plants to overseas locations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DLA has discontinued the use of fast pay for routine depot shipments and reviewed and approved fast-pay contracts awarded in excess of $25,000.

    Recommendation: The Director, DLA, should conform to provisions of OMB Circular A-125 by: (1) discontinuing use of fast-pay procedures for payment of supplies sent to depots; and (2) reviewing and approving fast-pay contracts awarded in excess of the $25,000 limitation specified by OMB.

    Agency Affected: Department of Defense: Defense Logistics Agency

  2. Status: Closed - Implemented

    Comments: A Department of Defense (DOD) policy on this issue was established on October 6, 1987. DLA assured agencywide compliance with this policy by December 31, 1988. Also, problem vendors were identified to ensure that problem vendors do not receive fast-pay contracts.

    Recommendation: The Director, DLA, should improve controls over fast-pay procurements by: (1) establishing interim measures to match receiving reports to payment records for direct vendor deliveries to overseas customers until the automated receipt confirmation process is established so that vendors can be notified of nonreceipt within prescribed time frames; and (2) ensuring that current problem vendors do not receive fast-pay contract awards.

    Agency Affected: Department of Defense: Defense Logistics Agency

  3. Status: Closed - Implemented

    Comments: Collection has been made of all outstanding claims of $6.7 million. This recommendation has been fully implemented.

    Recommendation: The Director, DLA, should require the Commander, DPSC, to collect outstanding claims against contractors for materials previously paid for and not received.

    Agency Affected: Department of Defense: Defense Logistics Agency

  4. Status: Closed - Implemented

    Comments: DLA has identified and reported this as a material weakness and will continue to report it until it is assured that the problem has been corrected.

    Recommendation: The Director, DLA, should again identify this area as a material weakness in the fiscal year 1988 internal controls annual assessment and discuss corrective actions planned.

    Agency Affected: Department of Defense: Defense Logistics Agency

 

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