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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) internal controls for contract pricing, focusing on: (1) DOD use of deterrent provisions in the Truth in Negotiations Act; and (2) the interest charged on overpayments.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. The Secretary of Defense should more effectively implement the interest and penalty features of the act to ensure contractor compliance. More effectively implementing the act could include: (1) determining, based on an analysis of appropriate defective pricing audit reports, whether charging interest on overpayments in progress payments resulting from defective pricing is administratively feasible and would result in significant interest recovery, and if so, initiating action to revise the regulation; (2) directing contracting activities to instruct contracting officers to charge interest as stipulated in the regulations and to include internal control checks for proper interest charges during business clearance reviews; and (3) modifying DOD guidance to instruct contracting officers on the use of the penalty in determining the amount recoverable from contractors for defective pricing.
Closed - Implemented
DOD has taken the actions promised. However, to determine the results of these actions would require extensive followup. DOD/IG has and will continue to perform detailed followup in this area. Its latest report was in April 1994.
Department of Defense 2. The Secretary of Defense should ensure that the audit follow-up system contains the data needed for oversight and management of the settlement process and that ongoing improvements to internal controls place high priority on providing complete and accurate data.
Closed - Not Implemented
Since the extent of defective pricing has declined significantly, the need for changes in the audit followup system may not be necessary.

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