oversight

Defense Supply Agency's Administration of Debt and Payment Claims

Published by the Government Accountability Office on 1971-05-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

The Defense Supply Agency’s
Administration Of Debt And
Payment Claims e-117a04170)




UNITED  STATES
GENERAL  ACCOUNTING   OFFICE   ’
                                            Ut’d~TED $TATE§     GENERAL      &XOUNTlNG              QFFlCE
                                                        WASHINGYON,D.C.              20548


CLAlPv¶S   DlVlSIOM
       IN REPLY PLEASE QUOTE




                             B-117604(10)




                             Dear    General      Hedlund:

                                   This is our report     on the Defense          Supply   Agency’s     adminis-
                         tration     of debt and payment      claims.         We made     our review     at the
                         Defense       Supply Agency   Headquarters,            Cameron      Station, Alexandria,
                         Virginia,      and at four of its field     activities      in Philadelphia,     Pennsyl-
                         vania D We shall appreciate          being advised         of the actions    taken     or
                         planned      on the matters   discussed       in this report.

                                    Copies       of this report        are   being      sent       to the    Director,          Office
                             of Management          and Budget.

                                                                                     Sincerely         yours,




                                                                             1/      D’ lrector,       Claims        Division

                             Lieutenant       General       Earl    C. Hedlund,         USAF
                             Director,       Defense       Supply   Agency




                      ----                          50TH     ANNIVERSARY          1921-      1971               --
  I
  I
  I
 I
 I
 I    GENERAL
            ACCOUNTING
                     OFFICE                                      THE DEFENSE SUPPLY AGENCY'S ADb!INISTRATION
 I    REPORT
           TO THEDIRECTOR                                        OF DEBT AND PAYMENT CLAIMSB-117604(10)
 I
 I    DEFENSE
            SUPPLYAGEflCY
 I
 I
 I
 I    DIGEST
      _-----
 I

 I
 I
 I
      WHYTHEREVIEWWASMADE
 I
 I           The General    Accounting        Office (GAO), as a part      of its continuing        pro-
 I
 I           gram of review     of agency regulations,        procedures,      and operations       in
 I           the areas of claim        settlement    and debt collection,       made reviews      at the
 I
 I           Defense   Supply   Agency (DSA) Headquarters            at Cameron Station,      Alexandria,
 I           Virginia,   and at the fz?l?%?ng         field  activities      in Philadelphia,       Penn-
 I           sylvania.
 I
 I
 I                 1. Defense       Contract   Administration        Services         Region     (DCASR).
 I
 I                 2. Defense       Industrial    Supply      Center  (DISC).
 I                 3. Defense       Personnel    Support      Center  (DPSC).
 I
 I
                   4. Defense       Surplus   Sales Office        (DSSO).
 I
 I
 I
 I    FINDINGSAND CONCLUSIONS
 I
I
I           Instructions         contained      in the DSA Accounting     and Finance                   Manual     are
I           generally       adequate       and in conformity    with  the GAO manual                    and the Federal
I
I           Claims     Collection        Standards.     GAO noted,   however,   several                  instances     in
I           which the instructions needed to be corrected                   or clarified.                     (See
I
I
            pp. 4, 5, and 10.)
I

I
             In general     the payment       claims    adjudication    at DCASR, DISC, DPSC, and
I            DSSO were handled         fairly     and properly.      GAO noted,     however,     instances
I            at DSSO in which         appeals    had not been submitted         to higher     authority,
I
I            contrary     to instructions        issued    by the Defense     Logistics      Services      Cen-
I            ter.     (See p. 9.)
I
1
I            Debt claims           collection       operations       in   certain    instances      could      be im-
I
I            proved  by:
I
 I
 I
                   --More     aggressive        collection       action    as contemplated         by   the    Federal       Q
 I                    Claims Collection Standards.                   (See   p. 1'2.)
 I
I
I                  --Greater       use     of personal    interviews         and telephone        contacts      in    the
I                     collection         effort.      (See p* 12.)
I
1
I                  --Charging       interest   on the principal              indebtedness        as provided         under
I
I                     Department       of Defense   policy.
I
I
I
I     Tear Sheet
I
I
i
I
I
I                                                                                       MAY28,1971
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I
I
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                                                                                           I   .




      --Better   documentation by the four field activities        of their adminis-
                                                                                       I
         trative  collection    action, indicating    the basis for compromise or
         for terminating     or suspending collection    action.   (See p. 13.)        I
                                                                                       I
                                                                                       I
                                                                                       I
                                                                                       I
RECOMkENDATIONS
            OR SUGGESTIONS                                                             I
                                                                                       I
                                                                                       I
   The report contains specific  recommendations to the Director, DSA, for             I
   bringing about the improvements discussed above. (See pp. 6, 9, 11,                 I
   and 19.)                                                                            I
                                                                                       I

    In general   GAO is recommending that    the Director:
                                                                                       I

      --Emphasize to field activities     the importance     of timely   execution
         of all necessary collection    actions.
                                                                                       I

      --Require more frequent supervisory  reviews       of claims in process to
                                                                                       I
         ensure greater compliance with prescribed       requirements.
                                                                                       I




                                                                                       I

                                                                                       I
                           Contents
                                                                Page

DIGEST                                                               1

CHAPTER

   1      INTRODUCTION

  2       REGULATIONS RELATING TO PAYMENTCLAIMS
             Recommendations relating to DSAM for
               payment claims

  3       REVIEW OF PAYMENTCLAIMS OPERATIONSAT
          DCASR, DISC, DPSC, AND DSSO                                7
              Recommendations relating   to payment
                claims operations   at DSSO                          9

  4       REGULATIONS RELATING TO DEBT CLAIMS                       10
             Recommendations relating  to debt
               regulations                                          11

   5      REVIEW OF DEBT CLAIMS OPERATIONSAT DCASR,
          DISC, DPSC, DSSO, AND DSA HFADQUARTERS                    12
              Recommendations relating to debt claims
                operations                                          19

   6      STATISTICAL INFORMATION                                   20
              Recommendation relating     to statistical
                information                                         21

                         ABBREVIATIONS
DSA       Defense Supply Agency
DCASR     Defense Contract Administration       Services   Region
DISC      Defense Industrial     Supply Center
DPSC      Defense Personnel Support Center
DSSO      Defense Surplus Sales Office
DSAM      DSA Accounting     and Finance Manual
DLSC      Defense Logistics     Services Center
SC0       sales contracting     officer
ASBCA     Armed Services Board of Contract Appeals
DDM       Defense Disposal Manual
DOD       Department of Defense
GAO       General Accounting     Office
GENERAL,ACCOUNTI5GOFFICE                               THE DEFENSE SUPPLY AGENCY'S ADMINISTRATICN
REPORTTO THE DIRECTOR                                  OF DEBT AND PAYMENT CLAIMS B-117604(10)
DEFENSESVPPL~YAMNCY


DIGEST
__----


WHYTHE R?ZV.EWWASMADE

     The General    Accounting        Office (GAO), as a part      of its    continuing       pro-
     gram of review     of agency regulations,        procedures,       and operations        in
     the areas of claim        settlement    and debt collection,        made reviews       at the
     Defense   Supply Agency (DSA) Headquarters              at Cameron Station,        Alexandria,
     Virginia,   and at the following         field  activities      in Philadelphia,         Penn-
     sylvania.

         1.   Defense     Contract    Administration         Services      Region     (DCASR).
         2.   Defense     Industrial     Supply      Center   (DISC).
         3.   Defense     Personnel     Support      Center   (DPSC).
         4.   Defense     Surplus    Sales Office        (DSSO).


FINDINGS AND CONCLUSIONS
              --
     Instructions          contained      in the DSA Accounting     and Finance              Manual     are
     generally        adequate      and in conformity    with   the GAO manual               and the Federal
     Claims      Collection        Standards.    GAO noted,    however,   several             instances     in
     which     the instructions           needed to be corrected      or clarified.                (See
     pp. 4, 5, and 10.)

     In general     the payment       claims    adjudication    at DCASR, DISC, DPSC, and
     DSSO were handled         fairly    and properly.       GAO noted,     however,     instances
     at DSSO in which         appeals    had not been submitted         to higher     authority,
     contrary     to instructions        issued    by the Defense     Logistics      Services      Cen-
     ter.     (See p. 9.)

     Debt claims         collection       operations      in   certain    instances      could      be im-
     proved  by:

         --More    aggressive         collection       action    as contemplated        by   the    Federal
            Claims    Collection         Standards.         (See p. 12.)

         --Greater       use of personal    interviews            and telephone        contacts      in    the
            collection      effort.    (See p, 12.)

         --Charging       interest    on the principal            indebtedness        as provided         under
            Depdrtment        of Defense   policy.
         --Better    documentation      by the four field            activities             of  their   adminis-
            trative   collection     action,    indicating         the basis          for      compromise    or
            for terminating       or suspending      collection         action.             (See p. 13.)


RECOMMENDfU'IONS
             OR SUGGESTIONS
    The report    contains         specific   recommendations          to     the     Director,       DSA, for
    bringing   about the         improvements     discussed        above.           (See pp. 6,       9, 11,
    and 19.)

    In    general    GAO is     recommending      that    the   Director:

         --Emphasize   to field    activities            the importance         of    timely      execution
            of all necessary    collection           actions.

         --Require    more frequent      supervisory    reviews             of claims     in      process     to
            ensure   greater   compliance     with prescribed               requirements.




                                                 2
                               WTER         1

                            INTRODUCTION

      The General Accounting Office has reviewed and evaluated
claims operations     in connection   with the settlement     of claims
against the United States (payment claims) and the collection
of debts due the United States (debt claims) at the Defense
Supply Agency Headquarters       and at the following   field   activi-
ties in Philadelphia,     Pennsylvania.

      1.   Defense Contract   Administration   Services       Region.
      2.   Defense Industrial   Supply Center.
      3.   Defense Personnel Support Center.
      4.   Defense Surplus Sales Office.

      We gave specific     attention       to compliance   by DSA and its
subordinate  activities     with:

      1. Title   4 of the General Accounting  Office Policy and
         Procedures Manual for Guidance of Federal Agencies,
         hereinafter    referred to as the GAO manual.

      2. Regulations     issued jointly    by the Comptroller    Gen-
         eral and the Attorney       General of the United States
         under section 3 of the Federal Claims Collection           Act
         of 1966 (31 U.S.C. 952).        These joint  regulations,
         hereinafter     referred   to as the Federal Claims Collec-
         tion Standards , prescribe      for the administrative     col-
         lection,     compromise, termination    of agency collection
         action,     and referral   to GAO of debt claims (4 CFR
         101-105).




                                       3
                                 CHAPTER 2

             REGULATIONS RELATING TO PAYMENTCLAIMS

      Although we found the instructions       contained in the DSA
Accounting   and Finance Manual (DSAM 7000,l)       to be generally
adequate and in conformity    with title     4 of the GAO manual,
we believe that the following     instructions     should be clari-
fied.

     1. Section 1, paragraph 120102, provides          that claims
        against the United States be settled         locally,     if per-
        mitted,    or be reported   to the Comptroller       at DSA
        Headquarters    for transmission    to GAO. Although sec-
        tion X, paragraph 121001, states that,           as a general
        rule,   all claims against the United States ultimately
        are settled    by GAO either by postaudit       or by prior
        adjudication,     it does not describe specifically          the
        classes of claims which must be referred           to GAO for
        adjudication    prior   to payment or denial,       Section 5,
        title   4, of the GAO manual enumerates the various
        classes of claims required       to be settled     by GAO.

     2.    It is stated in note 1, section X, paragraph 121001,
          that there are claims which executive             agencies have
           statutory     authority   to settle    and which are not sub-
          ject to review by GAO. Since DSA has no such au-
          thority,     this note could be confusing         to the field
          activities      unless the exceptions       are listed   and ex-
          plained in detail.         Note 2 of the same section and
          paragraph appears to confuse the settlement              of a
          claim with the settlement         of the disbursing      officer's
          account,     since it states that most payments made by
          a disbursing       officer   are preliminary,     subject to ac-
          ceptance by GAO of the action of the disbursing                of-
          ficer,     and that acceptance by GAQ is the final            settle-
          ment.

          Acceptance by GAO of the action taken by the dis-
          bursing officer  is final     only concerning the liabil-
          ity of the accountable    officer.    If a payment is
          found to be in error,    collection   action against the
          payee is proper even though the disbursing       officer's
          account has been settled.
                                       4
     3. Section X, paragraph 121004, states that it is incum-
        bent upon claimants      to inform themselves regarding
        statutory    limitations   applicable   to their particular
        claims.    It is true that the basic responsibility
        for filing     a claim before expiration    of the statute
        rests with the claimant.

       To protect   the interests      of persons unfamiliar    with the
provisions    of the lo-year     barring   act (31 U,S.C. 71a), how-
ever, claims received by agencies for which the right              of pay-
ment accrued 8 years or more prior to the date of receipt
and which cannot promptly be approved and paid in the full
amount claimed should be referred          immediately   to the GAO
Claims Division,      since the recording      of a claim in GAO stops
the running of the barring        statute.     (See 4 GAO 7.1.)

      4. Section   X, paragraph    121005-3,    provides   that:

            "Requests for advance decisions          on a voucher
            before a disbursing      officer     for payment will
            be addressed to the Comptroller          General of
            the United States ***;        it will be noted that
            the advance decision procedure is much more
            direct   **  than the claims procedure pre-
            scribed herein.      This advance decision method
            should be used on claims of individuals           or a
            business entity    which are of a nature such
            that they can be reduced to a voucher for
            payment, i.e.    there are few variables        which
            may affect   the amount claimed if it is ap-
            proved."

         When doubt exists     as to the propriety      of certifying
         a claim for payment, the certifying         officer    either
         may refer the matter to the GAO Claims Division               for
         direct   settlement  or may prepare and transmit          a re-
         quest to the Comptroller       General for an advance de-
         cision.    The former procedure is usually          more desir-
         able if the problem relates       merely to the disposition
         of an individual    claim since it is simpler and less
         time-consuming.     The latter    procedure     is preferable
         if an authoritative     decision    is desired to serve as
         a precedent.


                                     5
RECOMMENDATIONS
              RELATING TO DSAM
FOR PAYMENTCUUMS

    We recommend that:

    1. Section 1, paragraph 120102, be amended to enumerate
       the classes   of claims    set forth    in 4 GAO 5 which
       must be referred     to the GAO Claims Division     for set-
       tlement or to make reference        thereto.

    2. Notes 1 and 2 of section     X, paragraph   121001,   be
       omitted.

    3. Paragraph 121004, section X, be amended to provide
       that claims received   by agencies for which the right
       of payment accrued 8 years or more prior    to the date
       of receipt   and which cannot promptly be approved and
       paid in the full   amount claimed be immediately  re-
       ferred  to the GAO Claims Division,

    4. Paragraph 121005-3.,      section X, be reworded to point
       out the difference     between a problem related     to the
       disposition   of an individual      claim and a problem for
       which an authoritative      decision    is desired to serve
       as a precedent.




                                6
                             CHAPTER 3

           REVIEW OF PAYMENTCLAIMS OPERATIONS AT

                  DCASR, DISC, DPSC, AND DSSO

DCASR

       The Auditor General of DSA issued a report          in August
1967 on the results       of his audit of the accuracy of the
contingent   liability      records at DCASR. He recommended that
existing   controls    be strengthened     to ensure that progress
payment limitations       are properly    applied and that contracts
containing   multiple     funds with outstanding     progress pay-
ments are reviewed.         During fiscal    years 1968 and 1969, the
DCASR Internal      Review Group also made reviews.        Therefore
we limited   our review to those claims which had been opened
or closed subsequent to December 1968.

       We gave special attention  to (1) termination       of con-
tracts   for the convenience of the Government,       (2) ,unearned
discounts   taken by the Government, and (3) invoices        aged 90
days or over.     From our review of various    claims against
the Government and our discussions    with responsible       person-
nel, it appears that DCASR is properly      disposing     of its pay-
ment claims and is adhering to the principles        established
in the GAO manual,

DISC

       No internal  review was made of the processing      of pay-
ment claims at DISC. During fiscal         year 1969 it received
31 payment claims,      These claims resulted    from (1) bid mis-
takes,   (2) repackaging   charges,  (3) overshipments    of mate-
rial,   and (4) damages to equipment.       As of May 28, 1969, 10
of the 31 cases were sti%l open.        Five cases were denied,
two were forwarded to GAO, and 14 were resolved         in favor of
the claimant.

       From our review of 10 of the settled    cases, it appears
that DISC is properly    and fairly disposing   of its payment
claims,    We found that the GAO manual was being followed,
that the decision to forward doubtful     claims to GAO had

                                  7
    been made by a person having final        responsibility    for de-
    ciding appropriate  administrative       action,   and that DISC of-
    ficials were aware of a claimant's        right  to appeal a denial
    of his claim to GAO.

    DPSC

            We found that an audit of the practices      and procedures
    used by DPSC in recording,      controlling,   and reporting     com-
    mitments and unliquidated      obligations   had been made by the
    Auditor    General, DSA, in February 1968, To ascertain
    whether payment claims were being handled properly,           we se-
    lected for review one open and three closed cases.            In ad-
    dition,    we reviewed 10 claims for unearned discounts.
    There was no indication     that DPSC was not properly       disposing
    of payment claims.
I

I   DSSO

            In December 1967 the DSA Inspector         General issued a
    report on a general inspection           conducted at DSSO during the
    period October 30 to November 3, 1967.             Although the report
    made one recommendation pertaining           to a minor matter in-
    volving    claims,    it did not discuss compliance by DSSO with
    claims-processing       procedures.      The March 1969 report of the
    Defense Logistics        Services Center (DLSC), which has cogni-
    zance of DSSO activities,         likewise   did not involve the
    processing     requirements     of claims.

            From July 1, 1968, through May 2, 1969, 51 payment
    claims were processed by DSSO. Of the 51 claims., 46 were
    settled,     We selected nine of the settled  claims for review,
    of which eight were for adjustments     due to alleged misde-
    scriptions    of the property  for sale and one was for missing
    property,

            The sales contracting   officer   (SCO) denied requests
    for adjustments     in seven of the eight claims for misdescrip-
    tions of property.      The purchasers    appealed the decision of
    SC0 in four of the seven claims.         SC0 properly  submitted
    two of the four claims to DLSC in accordance with DLSC in-
    structions    which provide that,     if a purchaser requests fur-
    ther consideration     after the denial of a request for


                                      8
adjustment,  the matter be referred to DLSC for review.  The
other two claims were denied improperly  the second time by
sco.

        In discussing    the improper handling of two of the
claims, we learned that, unless the purchaser clearly               makes
known his desire to appeal or to have his claim reviewed by
higher authority,      ordinarily     it will not be so processed.
Instead,    SC0 will make another decision which usually            re-
sults in a second denial,           We pointed out that the DLSC in-
structions     should be followed when further       consideration       is
requested.,     In addition,      we pointed out that 4 GAO 5.1(3)
provides that reclaims        of items previously    denied by the
administrative      agency be forwarded to the GAO Claims Divi-
sion, unless it is determined administratively            that the ac-
tion taken was clearly        in error and can be corrected        prop-
erly by the agency.

RECOMMJZXOATIONS
               RELATING TO
PAYMENTCLAIMS OPERATIONS AT DSSO

      We recommend that appropriate     action be taken to en-
sure that,   after  SC0 has denied a request for adjustment,
any appeal for reconsideration     is forwarded to DLSC for re-
view.   We recommend also that, unless DISC determines        that
the claim should be paid, appropriate       action be taken to
ensure that all appeals to final     administrative   disallow-
ances are transmitted    to the GAO Claims Division     for settle-
ment.




                                     9
                                  CHAPTEX 4

                REGULATIONS FZLATING TO DEBT CLAIMS

        Recently we discussed with representatives                   of DSA Head-
quarters    a proposed revision       of section II, chapter 12, Ac-
counting and Finance Manual.           At that time we pointed out
that section I, paragraph 120109, was in error in that col-
lection    action could not be terminated             solely because the
debtor had not been located.           We directed         attention      to the
fact that section 104.3(b)          of the Federal Claims Collection
Standards couples the inability            to locate a debtor with the
additional     factors    that 61) no security         remains to be liqui-
dated; (2) the prospects          of collection       by offset,       notwith-
standing the bar of thestatuteof              limitations,         is too remote
to justify     retention     of the claim; and (3) _the applicable
statute    of limitations      has expired,        We were informed that
the manual would be amended to conform with the standards.

       Section II, paragraph 120118, provides that the Depart-
ment of Justice     request that claims of less than $250 ex-
clusive   of interest     not be referred  for litigation,     except
under certain     conditions.    The Federal Claims Collection
Standards recently       were amended to establish      a mi&mum of
$400 for debt referrals       to the Department of Justice.

      On April 8$ 1969, a letter      was issued by DSA Headquar-
ters containing   instructions     for implementing    5 U.S.C. 5584,
as added by Public Law 90-616, approved October 21, 1968.
Such instructions    are effective    until  they are incorporated
in DSAM. This act provides,        under certain    conditions  and in
accordance with standards prescribed        by the Comptroller    Gen-
eral of the United States, for waiver of claims arising           out
of erroneous payments of pay to present a;ld former civilian
employees.

       It is noted that in section VI, paragraph 120601, sub-
paragraph 2, the statement is made that dual compensation
claims cannot be processed as erroneous payment claims.        If
the erroneous payment consists    of civilian rather than mili-
tary pays it may be considered    for waiver under 5 U.S.C.
5584 and in accordance with the implementing     standards for
waiver.
RECQMMEfaDATIONS   RELATING      TO DEBT    REGULATIONS

      We recommend that        DSAM   be amended to:

      1, Conform with the Federal Claims Collection    Standards
         concerning termination  of collection  action based on
         inability  to locate a debtor.

      2. Raise the amount limitation  on debts to be reported
         to the Department of Justice  to $400.

      3. Revise    paragraph     120601,    section VI, relating   to the
         waiver    of claims     statute    and the implementing   stan-
         dards.




                                       11
                                  CHAPTER 5

                 REVIEW OF DEBT CLAIMS OPERATIONS AT

          DCASR, DISC, DPSC, DSSO, AND DSA HEADQUARTERS

      The Federal Claims Collection         Standards provide that an
agency responsible     for processing      and collecting   claims take
aggressive    action on a timely basis with effective          follow-up,
normally   three written   demands at 3Q--day intervals.          The DSA
implementing    procedures provide for three demands to be is-
sued at 15-day intervals,      the initial     demand to be made im-
mediately   upon ascertainment    of the debt and the final          de-
mand to be sent by registered       or certified      mail, return re-
ceipt requested.

        If collection  action is unsuccessful,           the procedures re-
quire that the field      activities,      with the exception      of DSSO,
 forward claims to DSA Headquarters,           unless DSA Headquarters
has granted permission        for retention     of the claim beyond the
45-day collection     period.      In each of the field activities
examined, we found deficiencies           in sending the required      num-
ber of demands and in taking collection             action on a timely
'basis.

       Section 102,4 of the Federal Claims Collection       Standards
requires    agencies to undertake personal interviews     with their
debtors when feasible,      having regard for the amount involved
and the proximity    of agency representatives     to such debtors.
We found significant     use of this technique by DPSC and DSSO.
Conversely,    at DCASR the files    showed that the personal in-
terview technique--contacting      a debtor by telephone--had     been
used in only five of the 39 claims included in our review.
We were informed that undoubtedly       other telephone calls had
been made but that the files      had not been documented.

      Section 102.10 of the Federal Claims Collection                   Stan-
dards provides    that,   in cases in which prejudgment              interest
is not authorized      by statute,     contract,      or regulations,       an
agency may forego the collection           of prejudgment       interest      as
an inducement to voluntary         payment,      It is the policy of the
Department of Defense (DOD), however, to charge interest                      on
any claim amount unpaid 30 days after the first                 demand for
payment,    DSA implementing       procedures      are in accordance with
                                        12
DOD policy,    but they state that mitigating     circumstances
might indicate      that interest  should not be charged although
interest    normally will    not be waived except as part of a
compromise.     Our reviews showed that this policy had not
been followed     at DCASR and DPSC and that interest      was not be-
ing collected     on all claims aged 30 days or over,

       In connection     with the charging of interest,         it is the
practice    of GAO to demand interest     on those claims which
are referred    to the Department of Justice         for litigation     but
not on ordinary     debts due the Government if they do not pro-
vide for interest.        In response to a request from DOD, how-
ever, the Secretary       of Defense was informed (B-131925,
July 13, 1.964) that administrative       interest      charges assessed
on contract    debts pursuant     to a DOD directive      thereafter
would be included       in the demands for payment and certificates
of indebtedness      issued by the GAO Claims Division.

       Section 102.11 of the Federal Claims Collection            Stan-
dards provides    that all administrative      collection     action be
documented and that the bases for compromise or for termina-
tion or suspension of collection        action be set forth        in de-
tail.    Such documentation     should be retained      in the appro-
priate   claims file,      This action was not followed       by any of
the four field    activities.

      The revision       of section  II, paragraph 120202, DSAM
7000.1, provides      for the use of Contractor     Debt Record Form
1190 which was developed as a uniform          "cradle    to grave" con-
trol over claims against contractors.           This record of actions
will  assist   greatly     in making documentation     uniform   in the
DSA field    activities      as well as in DSA Headquarters.

DCASR

       Reviews relating      to claims processing    were made by the
Auditor    General of DSA and the Internal        Review Group in fis-
cal years 1968 and 1969.          In three reports     which they is-
sued, weaknesses were identified          in the timeliness   of claims
processing     in DCASR. The reports        recommended (1) additional
training    of clerks in processing       credit  memoranda, (2) revi-
sions of accounts receivable          and credit  memo processing    to
insert   tighter    controls    and to install   more safeguards   for
balancing     against listings,     and (3) establishment    of a sys-
tem to account for all receivables.
        As of July 1969 the procedures had not been revised and
a system to account for all receivables      had not been estab-
lished.     Personnel at DCASR were aware that actions to pro-
cess claims were not timely but attributed      these conditions
to the lack of adequately    trained  personnel and to the heavy
work load.

      DCASR records showed that 71 claims were closed between
January 10 and 27, 1969, and that 127 claims were open as of
the latter  date.   These 198 claims had a value of almost
$1 million.   For  our review we selected 39 claims (of which
10 were closed and 29 open) having a value of $695,000.

        In six of the closed and 23 of the open claims,             either
demand letters       were not sent within        the DSA-prescribed    time
limits    or the required         three letters   were not sent.    The de-
lay in processing         collection    actions for the six closed
claims occurred most often from the time that a claim was es-
tablished     until    the initial     demand letter   was issued.     For
the 23 open claims, delays occurred during all phases of the
collection     procedure.        Eight claims had not been forwarded
to DSA Headquarters         upon the expir.ation     of the 45-day collec-
tion period,       contrary     to the regulations.

      As an example, the first      letter  requesting   payment of
a $3,100 claim under contract         DSA 100-67-C-3401 was sent to
Baldwin Dye Works, Inc.,       on November 7, 1968. No response
was received   to this demand nor were responses received to
the two subsequent demands made on December 3, 1968, and Jan-
uary 9, 1969. The claim was not submitted           to DSA Headquar-
ters until   February 13, 1969, or 98 days after the first         de-
mand letter   and 53 days after the 45-day limit        prescribed   by
DSA Headquarters    regulations.

     We were informed      that telephone calls may have been
made but had not been      documented in the files.     Failure to
document such calls is       contrary  to section 102.11 of the Fed-
eral Claims Collection      Standards.

     Every demand letter     contained     a statement that interest
would be computed and added to the         claim if payment was not
made within   30 days.   DCASR placed      primary emphasis, however,
on collection   of the principal     and   made collection  of inter-
est a secondary matter.      It is the     consensus of responsible

                                    14
personnel that the amount of interest which             could be col-
lected would not warrant the time and effort             required.

DISC

       In August 1968 the DSA Auditor           General issued a report
on a review conducted to evaluate            the adequacy of operating
procedures      and management controls        for ensuring that debt
claims were being properly          and promptly    initiated,  recorded,
collected,      or otherwise    disposed of in accordance with ap-
plicable     regulations     and directives.      This review covered
the 6-month period September 1, 1967, through February 29,
1968, during which time DISC processed 51 claims having a
total    value of less than $4,000.

       The Auditor      General stated in his report      that,although
no significant       instances    of adverse effect   had been found,
improvements were needed in operating           procedures     and manage-
ment controls.        The audit papers prepared in connection           with
the report     indicated     that the audit had been thorough and
adequately     documented.       One of the recommendations       provided
that controls      be established     to ensure prompt and aggressive
follow-up    action in connection       with delinquent     accounts.

       For the last half of calendar year 1968, the records
showed '27 claims representing        a total    indebtedness   of $4,400.
In view of the Auditor      General's     report    and the low volume
and value of claims processed by DISC, we did not consider
it necessary to conduct our own detailed             review of debt
claims.    Consequently,    we limited      our examination    of debt
claims to a review of the action taken to correct              the defi-
ciencies   identified    in the report      and found that the recom-
mended improvements had been implemented.




                                     15
       At DBSC the contracting     officers    are responsible      for
handling the bulk of the claims and are required             to maintain
the records necessary to process and follow up ob; claims.
There are no centralized      records of claims,       SUpWViSQl.-y
personnel review claims prwessing           at monthly intervals,        but
each case is not reviewed individually          to make certain       that
all the required   standards are met.

        During fiscal   year 1968 and early fiscal_ year 1969,
DPSC handled ,a total      of 50 claims valued at over $500,000.
Of the 50 claims9 we selected for review 31 clsiins (62 per-
c2nt) having a value of about $153,100,              Of the 31 claims,
11 were collected,      four were collected      by offset,    two in-
volved bankruFt:ey,     one was before the Armed Sewices Board
of Contract      Appeals (ASBCA), 10 were forwarded to DSA Head-
quarters9     and three were open,       These claims resulted      from
delivery     shortages,   overpa.Fnents,   termination     for default,
additional     testing,   and excess usage of Government-furnished
mterial.

        In I2 of the 31 claims, we found that either          the de-
mand letters       had not been sent within     the time limits     pre-
scribed by DSA or the required          three letters    had not been
sent o For example, a claim of $2,394 under contract              DSA
100-3224 was established         on April 30, 1968, against
Betsy aoss Flag co. 0 Inc., after the contractor's            appeal to
XSBCA was denied,        The first   demand letter    was seni-, on
July 24, 1968, or 85 days after           the appeal was denied.      A
follow-up     letter   was issued withill    the prescribed   1%day
period;     however, the second follow-up       was mailed 20 days
thereafter.

      Nine claims had not been submitted        to DSA Headquarters
upo,~ the expiration    of the 45-&y collection      period.    In one
case an initial     demand for $345 was made on July 1, 1968,
against the J , B. Manufacturing     Company. A follow-up     letter
was sent on August 7, 1968. The file         showed no other con-
tact with the company until      January 17, 1969, when a tele-
phone call was made to it.       This claim was in the process
of being forwarded to DSA Headquarters         on February 28, 1969,
or 242 days after the first      demand letter    was issued and
197 days after the prescribed      45-day limit.
      We noted five claims on which, in our opinion,        interest
should have been collected    but was not.     Personnel at DPSC
felt  that their noncompliances    with DSA-prescribed    require-
ments were due to misunderstanding,     oversight,    and the need
for additional   training  in claims processing.

DSSO

        At this activity      SCOs are responsible      for handling
claims as part of their         overall  responsibility      for adminis-
tration    of sales actions,        Each SC0 maintains      a file  of con-
tracts    on which there are outstanding        claims.      There are no
specific     periodic    reviews of each claim case to ensure that
the required      collection    standards are being met,

       DSSOs operate under instructions           issued by DLSC. The
instructions      relative    to the processing      of claims supple-
ment the Defense Disposal Manual (DDM) which prescribes                  the
policies      and procedures to be followed         by all installations
in the disposition         of personal property.       Although the basic
requirement      of three written     demands within      45 days was
promulgated and made applicable            to claims against surplus
sales contractors         by DSA in its DSAN in June 1967, this re-
quirement was not incorporated           into DDM until      September 1968.
DDM required       only one written    demand for payment, with op-
tional    follow-up     by the individual     DSSO.

       During fiscal    year 1968 and through May 2 of fiscal
year 1969, of 41 claims having an aggregate value of $16,200,
21 were collected,      three were written    off,     15 were forwarded
to DLSC as uncollectible,        and two were in the process of
collection     action.   We selected   20 of the 41 claims for re-
view.      In 10 claims we found that either        the demand letters
had not been sent within       the prescribed     time limits    or the
required     number of letters    had not been sent.       In eight of
the 10 claimsp however9 it appeared that failure              to incorpo-
rate the provisions       of DSAM into DDM had contributed        materi-
ally to the SCOs' noncompliance.

        In July 1969 DSSO established     a system providing  for
the use of a diary for recording       the date on which additional
letters     were due to be sent.,  This file was established      be-
cause of the weakness in processing        claims on a timely ba-
sis.      Under this system the employee responsible      for

                                     17
maintaining  the diary must notify   SC0 when additional  action
is required.    DSSO personnel stated that the basic reasons
for noncompliances   were lack of knowledge of the provisions
set forth in DSAM and administrative    oversight.

DSAH

        Debt claims of $50 or more, except those against sur-
plus sales contracts,       that are not collected   by the field
activities     within   45 days from the date of the first     demand
should be forwarded to DSA Headquarters         for processing   to
completion.       Since November 1968, claims arising     out of sur-
plus property      sales have been forwarded by the field      ac-
tivity     (DSSO) to DLSC.

       The Federal Claims Collection       Standards provide for
prompt referral       to GAO of debt claims which cannot be col-
lected or compromised or on which collection             action cannot
be terminated     by the administrative     office    so that GAO's
collection    action,     as well as any necessary legal action,
may be initiated        on a timely basis.   Consequently,        since
DSA Headquarters       and DLSC are responsible     for effecting
compromise, suspension9 or termination           of collection       action
at the administrative        level, it is imperative      that claims
determined to be uncollectible         by DSA field    activrties      be
forwarded promptly to DSA Headquarters           and DLSC.

      During our review at DSA Headquarters      beginning in
June 1970, we examined 48 of the 78 active debt claims.          We
determined that collec%ion    action had been initiated
promptly and that follow-up    demands generally    had been is-
sued on a timely basis.     In 13 of the 48 claims,     appeals
were pending before ASBCA; one claim was suspended; 17 were
being collected;   three were being settled    by offset;   and 14
were under various stages of collection     action,    such as is-
suing first   or second demands.

      As a general rule,  DSA Headquarters      does not solicit
compromises.    DSA Headquarters   officials    stated that they
had not yet encountered a claim in which solicitation          of an
offer in compromise appeared to be to the advantage of the
Government.   DSA Headquarters   personnel informed us that,
on occasion,  mostly during visits      of indebted contractors
or during telephone conversations       with them,
DSA Headquarters   had offered    to waive interest      charges if
the claim was paid in full     by a stipulated     date.     Such of-
fers have not been considered       or recorded as solicitations
of compromises.    Paragraph 120112, section       I, DSAM, however,
provides that interest    normallyVnot     be waived on a claim
against a contractor    except as part of a compromise reached
under provisions   of paragraph 120107, section I.

RECOMMENDATIONSRELATING TO
DEBT CLAIMS OPERATIONS

      On the basis of our review        of the enumerated     activities,
we recommend that:

      1. DCASR improve its existing    system for ensuring timely
         and proper processing   of claims actions.    If not ac-
         complished since our review, necessary action,      if
         required,  should be taken on the three recommenda-
         tions made by the Auditor   General of DSA and the
         Internal  Review Group.

     2. Personal interviews --or at least telephone contact--
        be utilized  to the maximum extent practicable  in
        processing  debt claims.

     3. All collection actions be fully  documented as re-
        quired by the Federal Claims Collection   Standards.

     4. Paragraph 120112, section I, DSAM, be followed            by
        the field   activities;      that is, that interest    be
        charged on claims unless mitigating         circumstances
        indicate  that it should not be charged.          In such
        event, the file       should indicate   the reason.

     5. DSA Headquarters        emphasize to DSA field    activities
        the importance        of timely execution  of all necessary
        collection      actions and require more frequent         super-
        visory     reviews of claims in process to ensure
        greater compliance with prescribed         requirements.

     6. Consideration  be given to the advisability         of DSA
        Headquarters'  requiring    individual    DSA field   activi-
        ties to report periodically       on their debt claim col-
        lections.

                                   19
                        STATISTICAL INFORMATION

       The various branches within         the DPSC Directorate      of
Procurement and Production          issue reports    semiannually    on the
statzls and vokme of claims handled,             These reports    are in
terms of numbers of claims only and cite the opening bal-
ance, additions,     dispositions,       and closing balance.      Active
claim statistics     are segregated by fiscal         year and by type
of claim.     The individual      reports    are summarized in a re-
port to the Chief of the Directorate.              No report is made to
the DPSC commander or to DSA Headquarters.

       At DCASR and DSSO we learned that there is no periodic
compilation  of statistics  snmmarizing the status of claims
for submission either to the local level or to DSA Head-
quarters,

       DSA activities   do not, on a regular          and frequent,basis,
 compile statistics    necessary to permit an adequate evalua-
tion of claims-processing        operations.        Helpful  statistics
 in this area would include (1) the number and value of
claims on hand, (2) the number and value of claims added
and closed during the period,         (3) the age of claims          on hand,
and (4) the manner in which cases were closed.                Without
these statistics,     DSA activities      cannot measure the effec-
tiveness   of their   debt collection      efforts,

      The Federal Claims Collection      Act of 1966 and the Fed-
eral Claims Collection      Standards provide for the termination
of collection    action on debt claims if it appears that the
costs will exceed the amout of expected recovery,              Further,
in accordance with 4 GAO 55.3, administrative         collection
procedures    should provide for the establishment      of realistic
points of diminishing     returns beyond which further       collec-
tion efforts    by the agency would not be justified.

        We did not find       information     on the cost of claims proc-
essing at any of the         four DSA field       activities    included in
our review.       Without    such information       DSA cannot establish
realistic     points of     diminishing     returns     in determining   the
amount of collection         effort    that should be expended by the
 field    activities.      DSA regulations  do provide a point of
 diminishing       returns  to the extent that,   for claims up to
 $50, a minimum of two demands will be made and thereafter
 collection       action may be terminated   at the field-activity
 level.

RECOMMENDATIONRELATING TO
STATISTICAL INFORMATION

       To achieve more effective          management and control          over
 claim collection       efforts,    we recommend that DSA Headquarters
 develop procedures providing          for periodic    reporting      of debt
 claim collections       made by individual     DSA field     activities.
 Included should be the total          claims on hand and their           ag-
 gregate value, together         with estimates     of costs of collec-
 tion,  particularly       of small debts so that realistic           points
 of diminishing      returns may be determined and applied,




U.S. GAO Wash.,   D.C.


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