United States GAO General Accounting Washington, Office D.C. 20548 Accouuting and Information Management Division B-273000 April 3,x397 Mr. Charles R. Coffee, Director Defense Finance and Accounting Service, Columbus Center P.O. E3ox182317 East 5th Avenue Columbus, Ohio 43.2182317 Subject: DOD Problem Disbursements: Contract Modifications Not Properly Recorded in Pavment Svstem Dear Mr. Coffee: The Department of Defense (DOD) has idenaed payment and accounting errors related to contract modifications as a significant cause of problem disbursements. Contract modifications authorize and specify changesto contracts and can, among other things, increase and decrease amounts to be paid and change accounting lines from which payments should be made. Therefore, such modifications must be recorded properly in the payment systems in a time frame that is consistent with both the effective dates of the modif%xtions and related contract payments. We have an ongoing review of 175 selectedlong-term contracts for which recurring payments are made by the DefenseFinance and Accounting Service, Columbus Center. These contracts were associatedwith large amounts of problem disbursements. As a part of this review, we evaluated those contracts’ modification files. We advised you and your staff during our March 13,1997, brie- that our preliminary analysisraised significant concerns as to whether (1) modifications were being input properly into the Center’s payment system in a timely manner and (2) information from the modification files was being used to effectively manage the input process. The purpose of this letter is to outline our concerns in three key areas: missing modification numbers, delayed modification input, and duplicate modification input. The data in this letter were derived from the Columbus Center’s modification files, and we did not GAO/m97-69R DOD Contract Modi6cations B-273000 independently verify or audit the data We performed our work &om June 1996 to March 199’7in accordancewith generally accepted government auditing standards. MISSING MODIFICATION NUMBERS To effectively controKand account for contract modi&ations, each new modification is to be assigneda unique number in sequential order. The Center% modScation records contain a file identifying modification numbers missing from the sequencesthat have been input into the payment system. According to your staff9thisPileistobeusedaSabasicint contrQ~to folnow up m-nLlnmcorded mod.Bctions to help ensure timely input. For the 175 selected contracts in our review? we fomd that the Center’s missing modification file identified over 2,400 missing modification numbers, including some that had been missing for years. FQRexample, one modification number had been in the missing modification fik- meaning the modification had not been received or cancelled-since July 23, X?%. A.nothe~ modifkati~~ number had been in the file since I%mmbep Ifi, I%@. Columbus &h?r persxxmeltQld us that H1QfO]llow-uphad been done to determine why these numbers were missing. k!CQI'diD~t0 YOUI' and consistent with our observation of the Center’s mod&x&ion input process, the nIiz&ng m0 fsle is IlQt b&l$2JPnsQd t0 f~aow up on unrecorded ITIQ~%~C&Q~.One division director said the f&s w@re not used becaxnse!&I& did not haYetime to ~O~QW up. We were &XI tQld eh& it was not aanaaslad for ~~~~difk&i~~tnumbers to be $xnisingfkom sequencesbecause personnel who prepare m~difbti~l~ may skip or not use a number. However? dearin the d would fQT actud modi&xtions are accounted for and entered into the payment system. h.CCQRdin$j tQ Pe~QIS'ibk fQRI-QOCi&XtiQniR@URt &KIdprobkm eorrectioq InzQ Cl%tiOlW th& hEWeIlQt be@lleEltW6?dhRtQthe em are often not detected under current processes until a payment problem occurs. a.amRateand timely payment Of iWQi@eS,we compzed th dates with input dates over a l-year period for 26 of the more hquemtly modified CQn&B feOmtie 175 tie&d COAX. We fOmd thi3.tfor 17 Qf the 25 c0ntra.c~~m~d3ictions, on av effective dates. For l0 of the 25 c e time between the E&273000 effective modification dates and the input dates exceeded 100 days. Modifications for one contract were input to the Columbus Center’s contra& payment system an average of about 260 days after their effective dates. In addition, over 5,200modifications related to our selected 176 contracts had been input out of sequencewith respect to their effective dates. This means that modifications with later effective dates-which can change the impact of preceding modifications-were input &st. For example, a modification on one contract with an effective date of September8, 1988,was input to the Center’s payment system on September 22,1988, whereas another modification to the same contract with an earlier effective date of September 7, 1988,was not input until April 26, 1994. Although we did not analyze the causesfor input delays, we did note that in many cases Columbus Center did not receive the modifications from the responsible contract officials within 30 days of their effective dates. For example, one modification with an effective date of November 151995, was reported as received by the Columbus Center on September I3, 1996,and was input into the system 2 days later. DUPLICATE MODIFICATION INPUT Finally, we identified 146 numbered modifications that had been entered more than once into the Center’s system. For example, a contract modification with an effective date of November 30,1990, was entered on January 8, 1991,and again on May 1, 1991. If a modification involves contract funding, duplicate entries would result in inappropriate increases or decreases to obligation amounts. If an obligation is inappropriately entered twice, the obligations for the contract are overstated, and overpaymentscould result. Conversely, if an obligation is inappropriately decreased,funding may be inadequate to pay proper invoices. In either case, additional audit and/or reconciliation work would be necessary to resolve problems causedby duplicate entries. Your staff reviewed payment system records for selected modifications that were recorded as duplicates in the modification files and confIrmed that some had been entered twice into the contract payment records. However, they stated that other modifications that had been identified as duplicates in the modification files resulted from the transfer of contract records between the Center’s directorates but had not been entered twice into the contract payment records. GAO&BID-97-69RDOD Contract Modifications B-273000 In responding to the matters discussed ti this letter, DOD officials advised us that actions are under way to improve the accuracy and timeliness of modification input. They said that DOD is testing the feasibility of dkect input of modifications by adm&Mrative contracti.ng offices rather than by Cohm-kbus Center personnel. Also, they said DOD has proposed an edit changeto the contract payment system that will h6Ip prevent modi&ations Brombeing entered out of sequence. This proposed change would involve the ax&on of a suspense file in which out-of-sequencemod%caBons will be held for mama;ml review to determine appropriate application. These actions indicate DQD’s recognition of the continubngneed to have adequate control over the input of m~dific&ows. We are not making specifk recommendations at this time becausewe are continuing our more comprehenskve of actions that could be needed to more effectively usement problems on existing contracts r, becausey~aaand ~QUR i%KlidEn& tQ fOuQWUg,QII the BnQ issues dismssed during the!bxief&ng,we are pnotiding t&s letter at this time. If u desire, we will provide more specific info the I’ed& Qf 0l.E y&s. we wotdd ah a~~IWi.ate being itl.fQlTKXiQf We are sending copies of this letter to the Under fens3 (cQHn~t.K’Ol.&)and the H)lirpeCtQn; Defense Finance %!m&?. cQ@3S will be k t0 0th~ UlpOnEY~UC?!St. u YOUhave ~U@&QBQPcommenti Qn matters discussedin this letter; please contact me at (202) SB2-9095.‘The major CQl-dTibUtQE3tQ thh kttE% WWC? b6’id Q=kb.ikhsS, &I&iIIh w. stit& Jr., WeEt A Stevens, and Donald k. I!kddin. 6. 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DOD Problem Disbursements: Contract Modifications Not Properly Recorded in Payment System
Published by the Government Accountability Office on 1997-04-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)