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)

                  United States General Accounting Office

GAO               Report to Congressional Committees

March 1999

                  DOD Is Examining
                  Opportunities to
                  Further Use Recovery

                   United States
                   General Accounting Office
                   Washington, D.C. 20548                                                                  Ltert

                   National Security and
                   International Affairs Division                                                          Ltert


                   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 Command—told 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 DOD’s 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
                   The Honorable Carl Levin
                   Ranking Minority Member
                   Committee on Armed Services
                   United States Senate

                   The Honorable Ted Stevens
                   The Honorable Daniel K. Inouye
                   Ranking Minority Member
                   Subcommittee on Defense
                   Committee on Appropriations
                   United States Senate

                   The Honorable Floyd D. Spence
                   The Honorable Ike Skelton
                   Ranking Minority Member
                   Committee on Armed Services
                   House of Representatives

                   The Honorable Jerry Lewis
                   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
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