United States General Accounting Office Washington, D.C. 20548 National Security and International AfTairs Division B-278092 October 28, 1997 The Honorable Tom Harkin United States Senate Subject: DOD Procurement: Funds Returned by Defense Contractors Dear Senator Harkin Over the past few years, we have reported on the Department of Defense (DOD) overpayments to its contractors. In response to your request, we are providing updated information on money returned to the Defense fiance and Accounting Service’s (DFAS) Columbus Center by defense contractors. More specifically, we are providing information on (1) the center’s process to record, research, and categorize money returned by defense contractors; (2) the dollar value of checks received since fiscal year 1993; and (3) the results of the center’s research on the cause of the returned amounts. BACKGROUND The Columbus Center is the largest of the DOD contract payment centers. According to the center, it handles about 389,000 contracts and pays an average of about $7 billion on about 100,000 invoices a month. In recent years, we have reported on DOD’s problems in making accurate . payments to defense contractors. These reports identified millions of dollars in government overpayments, underpayments, and interest on late payments. For example, during a 6-month period in fiscal year 1993, the Columbus Center processed $751 million in checks received from defense contractors.1 In our February 1997 high-risk series on defense contract management, we reported that if DOD did not achieve effective control over its payment process, it would continue to risk erroneously overpaying contractors by millions of ‘DOD Procurement: Millions in Overnavments Returned bv DOD Contractors (GAOLNSIAD-94106, Mar. 14, 1994). GAO/NEW09846R Funds Returned by DOD Contractors B-278092 it would continue to risk erroneously overpaying contractors by millions of dollars and perpetuating other financial management and accounting control problems.2 More recently, we reported to you on the important factors that contribute to DOD’s payment problems and increase its costs3 RESULTS IN BRIEF The Columbus Center has a process in place to record the checks received from defense contractors and to research and categorize the reasons why the checks were received (see encl. I). This process provides the Columbus Center with a way of determinin g if the checks it receives are the result of factors within its control and facilitating corrective actions, if needed. Between fiscal years 199496, the Columbus Center received checks from defense contractors totaling about $1 billion a year. For the first 7 months of fiscal year 1997, the Columbus Center received checks totaling about $559 million (see encl. IlJ The Columbus Center’s data show that, of the $5.1 billion that the center received from contractors during the period of fiscal year 1993 through the tit 7 months of fiscal year 1997, $3.7 billion was attributable to factors outside of its control. These include contract administration actions, such as reductions in contract prices due to contractors’ not meeting delivery dates, reallocations of costs to other contracts resulting in returned progress payments, and contract definitizations resulting in lower unit costs than previously billed by the contractor and paid by DFAS. The remaining $1.4 billion was due to payment errors at the Columbus Center. The center’s data also show that the dollar amounts of its errors have been declining, totaling $592 million in fiscal year 1993, $283 million in fiscal year 1994, $252 million in fiscal year 1995, $191 million in Escal year 1996, and $67 million through the first 7 months of fiscal year 1997 (see encl. III). AGENCY COMMENTS DOD reviewed a draft of this report. It concurred with the information in the report. 2High Risk Series: Defense Contract Management (GAO/HR-97-4, Feb. 1997). “Contract Management: Fixing DOD’s Pavment Problems Is Imnerative (GAO/NSUD-9737, Apr. 10, 199’7). . 2 GAO/NSUD-9846R Funds Returned by DOD Contractors B-278092 SCOPE AND METHODOLOGY To develop information for this report, we analyzed copies of the computerized data files provided by the Columbus Center showing the amounts and reasons for checks received from defense contractors. We also interviewed personnel at the center to ascertain the process for receiving and classifying checks received. We relied on the checks received data that was provided us by the center. We did not validate the reliability or completeness of the data. We conducted our review during July and August 1997 in accordance with generally accepted government auditig standards. We are providing copies of this correspondence to the Secretary of Defense; the Director, Office of Management and Budget; and other appropriate congressional committees and members. We will also make copies available to others on request. Please contact me at (202) 5124587 if you or your staff have any questions concerning this report. Major contributors to this report were Charles W. Thompson and John P. Ting. Sin rely yours, &4&W+-- David E. Cooper Associate Director Defense Acquisitions Issues Enclosures - 3 3 GAO/‘NSIAD-98-46RFunds Returned by DOD Contractors Enclosure I Enclosure I GAO DFAS Process For Recording and Categorizing Checks Received Checks received & Disbursing Retumed Checks Account Receivable Diksions lackup documents -I + *disbursing sends check Inventory Control -determine category codes for stubs & backup records checks in database k- documents l each case (Payment Office - diitributes cases to Account error vs. non-Payment Office Receivable Divisions for coding error). - records category & reason codes -determine reasons for in database non-Payment Office error cases *forward coding and accounting infonation to inventory Control t I I Funds-Returned Project Office -forwards Payment Office error cases to Payment Division I k l research reasons for payment office error cases -review research results from -implement corrective actions payment division and records -fonvard research results to cases Funds-Returned Project Office -generates reports for DFAS management use -performs selective reviews & recommends corrective actions GAO/NSIAD-98-46R Funds Returned by DOD Contractors 4 3xlosure II Enclosure II GA!o Dollar Value of Checks DFAS Columbus Received From Contractors Value of Checks Received Dollars in millions 2,000 1,500 - 1,000 - 500 - F-Y 96 FY97b a includes one check for $252 million. b Through April 1997. GAO/NSIAD-98-46R Funds Returned by DOD Contractors Enclosure Ill Enclosure III G&f3 Reasons Why Contractors Returned Funds as Determined by DFAS Columbus Dollars in millions 1,000 800 600 400 200 0 E FY93 FY 94 FY95 FY96 FY 97a Due to payment Due to contract cl office errors administration actions aThrough April 1997. (707271) GAO/NSlAD-98-46R Funds Returned by DOD Contractors 6 Ordering Information The East copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by maik U.S. General Accountiug Office P.O. Box 37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. 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DOD Procurement: Funds Returned by Defense Contractors
Published by the Government Accountability Office on 1997-10-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)