United States General Accounting Office GAO Report to Congressional Committees March 1999 CONTRACT MANAGEMENT DOD Is Examining Opportunities to Further Use Recovery Auditing GAO/NSIAD-99-78 GAO United States General Accounting Office Washington, D.C. 20548 Ltert National Security and International Affairs Division Ltert B-281205 March 17, 1999 Congressional Committees Over the last few years, the Department of Defense (DOD), under authorization from the Congress, has conducted a demonstration program to evaluate the feasibility of using private contractors to identify overpayments it had made to vendors. Identifying and recovering overpayments is referred to as recovery auditing. In December 1998, we reported that although DOD was experiencing difficulty in obtaining recovery of about $17 million identified under the program, the concept of recovery auditing offers potential to identify overpayments.1 In House Report 105-532, which related to a bill providing for fiscal year 1999 DOD authorizations, DOD was directed to implement the expanded recovery audit demonstration program of section 388, P.L. 105-85, by selecting at least two commercial functions within its working capital fund and issuing a competitive request for proposal by December 31, 1998. The House report also directed us to provide an initial review of the expanded programs by April 1, 1999. This report responds to the reporting requirement in the House report. Results in Brief DOD did not select at least two commercial functions within its working capital funds accounts and issue a competitive request for proposal by December 31, 1998. However, in response to an August 1998 DOD memorandum encouraging the use of recovery auditing, three working capital funds activities--the Defense Commissary Agency, the Defense Logistics Agency (DLA), and the U.S. Transportation Commandtold us they are developing plans to use recovery auditing. The Defense Commissary Agency said it plans to have a contract for recovery auditing services by March 31, 1999. The Defense Logistics Agency plans to expand the use of recovery auditing from the demonstration program in place at the Defense 1 Contract Management: Recovery Auditing Offers Potential to Identify Overpayments (GAO/NSIAD-99-12, Dec. 3, 1998). Page 1 GAO/NSIAD-99-78 Contract Management Supply Center, Philadelphia, Pennsylvania to its other four supply centers.2 However, as of February 5, 1999, DLA had not published a schedule to show when it plans to have contracts for these supply centers. Finally, the U.S. Transportation Command began planning to contract for audit recovery services, although it has not established an implementation schedule. Each of the services also expressed an interest in recovery auditing and is evaluating whether to use it. Of the other recipients of the August 1998 DOD memorandum, the Defense Finance and Accounting Service plans to use recovery auditing at some future time. The Defense Information Services Agency does not plan to use recovery auditing because it claims to have a successful track record with vendors in offsetting overpayments. Finally, the Joint Logistics Systems Center does not plan to use recovery auditing because it is scheduled to deactivate this March. Agency Comments On February 12, 1999, we requested comments from the Secretary of Defense on a draft of this report. On February 22, 1999, the Office of the Under Secretary of Defense, Comptroller, informed us that DOD concurred with the contents of this report. Scope and To determine DODs efforts to expand the use of recovery auditing, Methodology we obtained information from the offices of the DOD Comptroller; the Under Secretary of Defense for Acquisition and Technology; the three military services; and the working capital fund agencies discussed previously on the status of efforts to select a commercial function and issue a competitive request for proposal by December 31, 1998. We also discussed the agencies future plans for using recovery auditing. 2 These are the Defense Supply Center, Columbus; Defense Supply Center, Richmond; Defense Industrial Supply Center; and Defense Energy Support Center. Page 2 GAO/NSIAD-99-78 Contract Management We performed our review from January 1999 through March 1999 in accordance with generally accepted government auditing standards. We are sending copies of this report to Senator Robert C. Byrd, Senator Pete V. Domenici, Senator Frank R. Lautenberg, Senator Fred Thompson, Senator Joseph I. Liberman, Representative Rod R. Blagojevich, Representative John R. Kasich; Representative David R. Obey, Representative Christopher Shays, Representative John M. Spratt, Jr., and Representative C. W. Bill Young in their capacities as Chair or Ranking Minority Member of Senate and House Committees and Subcommittees. We are also sending copies of this report to The Honorable William Cohen, Secretary of Defense; The Honorable Jacob Lew, Director, Office of Management and Budget; Lieutenant General Henry T. Glisson, Director, Defense Logistics Agency; and Major General Timothy P. Malishenko, Commander, Defense Contract Management Command. Copies will also be made available to others on request. Please contract me at (202) 512-4587 if you or your staff have any questions concerning this report. Major contributors to this report were Charles W. Thompson, Daniel J. Hauser, and Myra W. Butler. David E. Cooper Associate Director Defense Acquisitions Issues Page 3 GAO/NSIAD-99-78 Contract Management List of Congressional Committees The Honorable John W. Warner Chairman The Honorable Carl Levin Ranking Minority Member Committee on Armed Services United States Senate The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye Ranking Minority Member Subcommittee on Defense Committee on Appropriations United States Senate The Honorable Floyd D. Spence Chairman The Honorable Ike Skelton Ranking Minority Member Committee on Armed Services House of Representatives The Honorable Jerry Lewis Chairman The Honorable John P. Murtha Ranking Minority Member Subcommittee on Defense Committee on Appropriations House of Representatives (707387) Ltert Page 4 GAO/NSIAD-99-78 Contract Management Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Contract Management: DOD Is Examining Opportunities to Further Use Recovery Auditing
Published by the Government Accountability Office on 1999-03-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)