DOD Contract Management:

Greater Attention Needed to Identify and Recover Overpayments

NSIAD-99-131: Published: Jul 19, 1999. Publicly Released: Aug 2, 1999.

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Pursuant to a congressional request, GAO updated its previous report on the Department of Defense's (DOD) overpayments to contractors and subsequent refunds to the Defense Finance Accounting Service (DFAS), focusing on: (1) DOD's efforts to identify and recover overpayments made through fiscal year (FY) 1998; and (2) whether 13 contractors were retaining overpayments and how quickly overpayments were refunded.

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 for Executive Action

  1. Status: Closed - Implemented

    Comments: A FAR change implementing this change has been approved for publication in Federal Acquisition Ciruclar 2001-3.

    Recommendation: The Secretary of Defense should require contractors to promptly notify the government of overpayments made to them.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Deputy Director, DFAS, issued a memorandum on January 13, 2000, emphasizing the need to perform timely reconciliations and promptly collect identified overpayments.

    Recommendation: The Secretary of Defense should direct the Director, DFAS, and the Commander, Defense Contract Management Command, to reemphasize the need to request refunds of overpayments promptly and to perform timely reconciliations.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DFAS completed its review of the cost-effectiveness of requiring contractors to periodically provide a status of their accounts with the government. DFAS concluded it would not be cost effective because implementation would entail annual auditing of contractor status.

    Recommendation: The Secretary of Defense should direct the Director, DFAS, to examine the cost-effectiveness of requiring contractors to periodically provide a status of their accounts with the government.

    Agency Affected: Department of Defense

 

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