Contract Management:

Excess Payments and Underpayments Continue to Be a Problem at DOD

GAO-01-309: Published: Feb 22, 2001. Publicly Released: Mar 26, 2001.

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Jack L. Brock, Jr
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GAO reviewed the amount of excess payments and underpayments made by the Department of Defense (DOD) to its contractors during fiscal year 1999. The Defense Finance and Accounting Service (DFAS)--Columbus Center, Ohio reports that contractors repaid $670 million in fiscal year 1999 and closer to a billion dollars--$901 million--in fiscal year 2000. The higher amount for fiscal year 2000 reflects the inclusion of repayments made through offsets of other payments ($269 million) in addition to the amount repaid by check ($632 million). Although small in relation to total contract payments, these amounts represent a sizable amount of cash in the hands of contractors beyond what is intended to finance and pay for the goods and services DOD is purchasing. The 39 large contractors covered by GAO's review returned excess payments totaling $351 million in fiscal year 1999. Seventy-seven percent of these excess payments stemmed from contract administration actions and 18 percent stemmed from billing or payment errors. Large contractors reported resolving $41 million in underpayments during fiscal year 1999. Contractors attributed most underpayments to payment errors made by DFAS--Columbus.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DCMA reviewed the DFAS report referenced by GAO and has requested that DFAS regularly provide the report to DCMA for purposes of identifying where repayments occur and the problem areas.

    Recommendation: The Secretary of Defense should require that the Defense Contract Management Agency endeavor to minimize excess payments by (1) routinely analyzing DFAS data on the reasons for excess payments relating to contract administration, (2) further investigating problem areas identified by this data, and (3) identifying and implementing actions to reduce the amount of excess payments caused by contract administration actions.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DCMA issued an information memorandum emphasizing to Administrative Contracting Officers the need for prompt recoupment of overpayments associated with progress payments and the requirement for demanding repayment at the time the contract is modified.

    Recommendation: The Secretary of Defense should require, when contract administration actions result in recognition of an excess payment, that contracting officers compute the amount owed and demand payment of this amount at the time the contract is modified.

    Agency Affected: Department of Defense


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