Defense Procurement:

Need to Improve Internal Controls on Deferred Contractor Debts

NSIAD-92-198: Published: Aug 20, 1992. Publicly Released: Aug 24, 1992.

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Pursuant to a congressional request, GAO reviewed contractor debt deferments granted by the Department of Defense (DOD) from 1980 through 1991, focusing on: (1) deferment criteria; (2) the number of deferments given to small or disadvantaged businesses; (3) deferment terms and conditions; (4) management policies and procedures; and (5) resolution of the deferred debts.

GAO found that: (1) DOD does not have adequate internal controls over contractor debt deferments; (2) DOD does not know how many debt deferments it has granted because the military services and DOD agencies do not maintain a centralized system to identify deferred contractor debts; (3) federal and defense acquisition regulations establish the criteria for granting deferments, but they permit a considerable degree of flexibility; (4) the regulations specifically mention small or financially weak contractors as being eligible for deferments, but DOD records do not identify contractors as small or disadvantaged businesses; (5) terms and conditions of DOD deferment agreements met regulatory requirements; (6) DOD management and documentation of debt deferments were deficient; and (7) responsible DOD officials are not aware of the current status of debt cases, and do not periodically review the records so that proper follow-up measures can be taken.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 1992, DFAS debt collection personnel began contacting the Armed Services Board of Contract Appeals to determine the status and take appropriate action on each of the 72 deferments cited in the GAO report and are continuing to work with all component counterparts to revise procedures for coordinating debt collection and deferment actions.

    Recommendation: The Secretary of Defense should direct the head of the Defense Finance and Accounting Service to immediately begin collection efforts on all formerly disputed debts that have been resolved with some monies being owed the U.S. government, including applicable interest.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: On December 30, 1992, the DOD Deputy Comptroller issued a memorandum to all military services and defense agencies to review their procedures to ensure that the deficiencies noted in the GAO report are not evident in future deferments.

    Recommendation: The Secretary of Defense should direct the military services and DOD agencies to implement the appropriate internal controls to manage, safeguard, and control accounts receivable on deferred debts. These controls should be consistent with the Federal Managers' Financial Integrity Act of 1982 (31 U.S.C. 3512(b)) and the Comptroller General's "Standards for Internal Controls in the Federal Government." Such controls should ensure, among other things, compliance with the Federal Acquisition Regulations (FAR) and the DOD FAR Supplement, prompt collection of funds in disputed debt cases resolved in the government's favor, and proper maintenance and periodic reviews of debt records.

    Agency Affected: Department of Defense

 

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