Millions in Overpayments Returned by DOD Contractors
NSIAD-94-106: Published: Mar 14, 1994. Publicly Released: Apr 12, 1994.
- Full Report:
Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) overpayments to contractors and subsequent contractor refunds, focusing on: (1) the nature of the contractors' payments; (2) how long the funds were outstanding; (3) DOD efforts to detect and recover contract overpayments; and (4) DOD actions to strengthen its contract payment system.
GAO found that: (1) the Defense Finance and Accounting Service (DFAS) received in one six-month period $751 million from defense contractors; (2) $305 million of the refunds represented overpayments to contractors, most of which occurred because DFAS paid invoices without recovering progress payments or made duplicate payments; (3) almost all of the overpayments were detected by the contractors and returned without DFAS issuing a demand letter; (4) DFAS uses its contract reconciliation process to detect overpayments, but it has not reconciled most contracts; (5) DFAS often instructs contractors to withhold refunds until it reconciles the contract and issues a demand letter, which gives contractors a 30-day grace period to refund the overpayment; (6) DOD contract payment records are sufficient in most cases to detect overpayments; (7) the overpayments remained outstanding for an average of 108 days at a cost of $2.3 million in foregone interest; (8) DFAS believes the overpayments were partially caused by the rapid consolidation of payment processing to one center and the loss of experienced personnel which overloaded the center's ability to process payments; and (9) DOD is strengthening its internal control procedures to prevent and rapidly detect contractor overpayments by streamlining complex regulatory policies and procedures and establishing a high-level oversight council for financial management changes.