oversight

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)

      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. Jacobson
    ~QR,Defense l?luwmM Audits




(918872)


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