DOD Procurement:

Overpayments and Underpayments at Selected Contractors Show Major Problem

NSIAD-94-245: Published: Aug 5, 1994. Publicly Released: Aug 11, 1994.

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Louis J. Rodrigues
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Pursuant to a congressional request, GAO reviewed whether: (1) Department of Defense (DOD) contractors are retaining contract overpayments; and (2) contract underpayments are being corrected.

GAO found that: (1) contractor payment discrepancies include both overpayments and underpayments; (2) contractor overpayments and underpayments result in significant unnecessary costs to the government; (3) all nine of the contractors reviewed have retained some overpayments; (4) none of the contractors have given justifiable reasons for not returning overpayments or delaying the resolution of discrepancies, some of which have been outstanding for several years; (5) DOD officials have been notified of the discrepancies but have not taken corrective action; (6) neither DOD nor the contractors appear to be aggressively pursuing the resolution of payment discrepancies; and (7) DOD needs to develop a comprehensive plan to identify and correct payment discrepancies to reduce costs to the government, future payment discrepancies, and the incidence of uncollectible overpayments.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DFAS Columbus Center has established a process to record and research returned payments from defense contractors to identify the reasons and to take actions. The Defense Contract Audit Agency has required its auditors to ensure contractors have policies and procedures for identifying overpayments and promptly refunding them to the government. In June 1998, DFAS issued revised contract reconciliation procedures to improve resource efficiency and provide for more timely reconciliation. Nevertheless, the DFAS Columbus Center continues to have a sizable and growing backlog of contracts to be reconciled. Moreover, significant discrepancies continue to exist, as found in GAO's recent review of Army and Air Force disbursing and accounting records (GAO/AIMD-99-205).

    Recommendation: The Secretary of Defense should mobilize available DOD contract, financing, and audit resources to identify, verify, and correct payment discrepancies identified in contractors' records. Using contractor records, DOD can research the payment status of contracts and use this information, along with government records, as a basis for further actions to reconcile payment discrepancies.

    Agency Affected: Department of Defense


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