Systems cited in DOD overpayments

Overpayments Continue and Management and Accounting Issues Remain

The Defense Department overpaid contractors some $448 million in fiscal 2001, partly because of its complex and stovepiped financial management systems, according to an audit by the General Accounting Office.

DOD has taken some actions to rectify the situation, but further moves should be taken, GAO auditors said in a report, "DOD Contract Management: Overpayments Continue and Management and Accounting Issues Remain," issued July 1.

"DOD has taken short-term actions, including increased contract audits focusing on overpayments, that are achieving immediate results," the GAO report says.

But DOD's longer-term initiatives rely on automated systems in DOD's contract management and payment processes. The success of those systems is uncertain because of the problems in functionality, costs and significant delays of DOD's contract management and payment process.

GAO examined 183 Defense contractors to assess the extent of improper payments made by DOD. GAO auditors also reviewed data from Defense Finance and Accounting Service information on overpayments.

DOD has taken some actions to contain overpayments, such as auditing major Defense contractors, evaluating control mechanisms for identifying overpayments and reconciling and closing old accounts.

As of January 2002, the Defense Contract Audit Agency had completed audits of overpayments at 46 contractors and discovered more than $22.7 million in overpayments, GAO reported. "These results illustrate what can be accomplished from programs to identify payment errors and recover erroneous payments," GAO said.

Longer-term fixes will be more difficult, however. DOD's "procedures and practices do not fully meet federal accounting standards and federal financial system requirements for the recording of accounts receivable and liabilities," the report said. "As a result, Defense managers do not have important information for effective financial management, such as ensuring that contractor debt is promptly collected."

GAO recommended that DOD comptroller and chief financial officer Dov Zakheim work with Michael Wynne, the DOD's principal deputy undersecretary for acquisition, technology and logistics, to develop and maintain more comprehensive and complete records on contractor refunds and underpayments to better measure and monitor payments.

In a written response to GAO's report, Zakheim agreed with the report's findings and said that DOD is developing performance measures for senior managers that focus on accounts receivable and overpayments.