DOD Contract Management: Overpayments Continue and Management and Accounting Issues Remain (05/30/2002, GAO-02-635}

-------------------------Indexing Terms-------------------------
REPORTNUM:   GAO-02-635
    TITLE:   DOD Contract Management: Overpayments Continue and Management and Accounting Issues Remain
     DATE:   05/30/2002



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United States General Accounting Office: 
GAO: 

Report to the Chairman, Committee on Government Reform, House of
Representatives: 

May 2002: 

DOD Contract Management: 

Overpayments Continue and Management and Accounting Issues Remain: 

GAO-02-635: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Overpayments and Underpayments Continue: 

DOD Initiatives to Manage and Reduce Overpayments: 

Management and Accounting Control Issues Remain: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: List of Contractors We Surveyed and Results: 

Appendix III: Contractor Survey: 

Appendix IV: Summary of Results from DCAA Visits to 28 Contractor
Locations: 

Appendix V: Comments from the Department of Defense: 

Tables: 

Table 1: Summary of Survey Results by Large and Small Business 
Contractors: 

Table 2: Refunds to the Government from Fiscal Years 1994 through 2001: 

Table 3: DFAS Columbus Contracts Waiting for Reconciliation at Fiscal 
Year-End from 1995 to 2001: 

Table 4: Aging of DFAS Columbus Contracts Awaiting Reconciliation as of 
September 30, 2001: 

Table 5: DFAS Columbus Fiscal Year 2001 Monthly Accounts Receivable and 
Amounts in Dispute: 

Abbreviations: 

CCR: Central Contract Registry: 

DCAA: Defense Contract Audit Agency: 

DCMA: Defense Contract Management Agency: 

DFAS: Defense Finance and Accounting Service: 

DMO: Debt Management Office: 

DOD: Department of Defense: 

DPPS: Defense Procurement Payment System: 

FAR: Federal Acquisition Regulation: 

FDPS: Federal Procurement Data System: 

IG: inspector general: 

MOCAS: Mechanization of Contract Administration Services: 

SFFAS: Statement of Federal Financial Accounting Standards: 

SPS: Standard Procurement System: 

[End of section] 

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

May 30, 2002: 

The Honorable Dan Burton: 
Chairman: 
Committee on Government Reform: 
House of Representatives: 

Dear Mr. Chairman: 

Since we reported on Department of Defense (DOD) contractor 
overpayments in 1994,[Footnote 1] we have issued additional reports 
highlighting billions of dollars of overpayments to Defense 
contractors. As a result of these and other reports, there has been 
increasing congressional interest in recovering overpayments made to 
contractors. In December 2001, this interest led to the Congress 
amending Title 31 of the United States Code[Footnote 2] to require a 
federal agency with contracts totaling over $500 million in a fiscal 
year to have a cost-effective program for identifying payment errors 
and for recovering amounts erroneously paid to contractors. 

You requested that we update our previous reviews to determine whether
DODï¿½s problems with overpayments continue. Specifically, we determined
(1) whether overpayments and underpayments to contractors have 
continued, (2) what actions DOD has taken to address payment 
discrepancies with contractors, and (3) whether the Defense Finance and
Accounting Service (DFAS) properly accounts for and collects amounts
due from contractors and accounts for amounts the government owes
contractors. 

Amounts due the government from DOD contractors can arise from
(1) improper payments made because of progress payment liquidation
errors, contractor billing errors, and other processing errors and
(2) contract administration actions, such as item price adjustments,
changes in delivery schedules, and changes in the quantities ordered, 
all of which can occur after valid payments have been made on a 
contract. The Federal Acquisition Regulation (FAR) refers to any 
amounts due the government resulting from these actions as contractor 
debt or overpayments. However, not all of these overpayments could
appropriately be considered improper payments. Specifically, those
resulting from contract administration actions were correct when made,
but due to subsequent changes, the excessive portion of the payment is 
to be immediately pursued and promptly collected. 

To accomplish our objectives, we (1) surveyed 183 DOD contractors, as
agreed to with your staff, similar to the approach we took in our 1995
report on contractor payment problems,[Footnote 3] (2) assessed DFAS 
data on contractor refunds, (3) obtained the status of DOD corrective 
actions on our previous recommendations, and (4) reviewed the 
management of and accounting for overpayments and underpayments. We 
focused our work at DFAS Columbus, which was also the area of emphasis 
in prior audit reports on DOD contractor payment problems, because it 
is the largest, centralized DFAS disbursing activityï¿½disbursing $78 
billion of contract payments to DOD contractors in fiscal year 2001. To 
effectively use audit resources, the Defense Contract Audit Agency 
(DCAA), as part of its contract audits at high-risk contractors, tested 
the validity of selected contractor survey responses for us. 

Our scope and methodology are described in more detail in appendix I. We
did not fully assess the reliability of the underlying data in the 
contractorsï¿½ responses or the data we obtained from DFAS Columbus. We 
reviewed and discussed DCAAï¿½s work at selected contractor locations 
where it performed follow-up work for us. We requested comments on a 
draft of this report from the Secretary of Defense or his designee. We 
received written comments from the Under Secretary of Defense 
Comptroller and have reprinted the comments in this report. We 
performed our work from August 2001 through April 2002 in accordance 
with generally accepted government auditing standards. 

Results in Brief: 

DOD contractorsï¿½ responses to our survey indicate that they have 
millions of dollars in overpayments and underpayments on their records, 
and based on DFAS Columbus records, they are continuing to refund 
overpaymentsï¿½about $488 million in fiscal year 2001. Contractors cited 
progress payment liquidation errors as a primary reason for the 
overpayments and underpayments. They usually did not include debt due 
to contract administration actionsï¿½the reason for the majority of 
contractor refunds according to DFAS Columbus recordsï¿½in their reported 
overpayments. Additional overpayments and underpayments could be 
identified when audits of the over 3,200 contracts requiring some level 
of reconciliation, as of September 30, 2001, are completed by DFAS 
Columbus. Contractor debt, regardless of cause, is likely to continue 
due to DODï¿½s complex contract management and payments processes. Even 
when payment discrepancies are identified, they are not always promptly 
resolved. 

DOD has taken actions to address problems with contractor overpayments.
In addition to its contract audit functions and as part of a broad-based
program to assist DCMA and DFAS, DCAA is auditing at least 190 large
DOD contractors to identify overpayments and ensure that contractors
have adequate internal controls for prompt identification and reporting 
of overpayments. This type of activity can be considered part of a 
recovery audit program. DFAS Columbus has implemented procedures to 
better identify potential duplicate payments before the invoices are 
paid and to determine and monitor the causes of the duplicate payments. 
As part of its long-term solution to contract payment problems, DOD 
also is implementing the Standard Procurement System and the Defense
Procurement Payment System to replace current contract administration
and payment systems. However, the full implementation of these systems
has been delayed and their success is uncertain. 

While DOD has several initiatives to reduce overpayments, it still does 
not yet have basic accounting control over contractor debt and 
underpayments because its procedures and practices do not fully meet 
federal accounting standards and federal financial system requirements 
for the recording of accounts receivable and liabilities. As a result, 
DOD managers do not have important information for effective financial 
management, such as ensuring that contractor debt is promptly 
collected. Further, DODï¿½s reported accounts receivable, accounts 
payable, and other liabilities could be understated or overstated at 
the end of an accounting period. Without complete accounting for 
overpayments and underpayments, DOD has not established adequate 
performance measures to monitor and manage the timely resolution of 
overpayments and underpayments. 

This report contains recommendations to the Under Secretary of Defense
Comptroller and the Under Secretary of Defense for Acquisition,
Technology, and Logistics concerning actions to require internal 
controls on the recovery of overpayments, establish procedures for the 
recording of receivables and liabilities, and to develop and maintain 
more complete records on contractor refunds and underpayments. In 
written comments on a draft of this report, DOD concurred with our 
report recommendations and discussed actions it intends to take to 
implement each of our recommendations. These actions appear to respond 
to our recommendations. 

Background: 

DODï¿½s contract administration and payment processes involve numerous
organizations, including 23 DFAS offices; the contractors that perform
work and bill the government; the Defense Contract Management Agency
(DCMA), which administers most of DODï¿½s largest procurement contracts;
military componentsï¿½ project and contracting offices; and DCAA, which
reviews contractorsï¿½ records, internal controls, and billing systems. 
The contract administration and payment processes have been described 
in our prior reports. If DCMA administers a contract, DFAS Columbus 
makes payments using the Mechanization of Contract Administration 
Services (MOCAS) system, and DOD refers to the disbursements as 
ï¿½contract pay.ï¿½ In fiscal year 2001, DFAS Columbus disbursed about $78 
billion for over 300,000 contracts managed in MOCAS. Contracts that 
DCMA does not administer are paid using other systems at the DFAS 
offices. DOD refers to these contract disbursements as ï¿½vendor pay.ï¿½ 
The Navyï¿½s shipbuilding and repair contracts are viewed as vendor pay 
because they are not managed by DCMA or paid by DFAS Columbus using 
MOCAS. In fiscal year 2001, DFAS processed over 10 million vendor pay 
invoices, valued at over $59 billion. Large contractors with numerous 
DOD contracts and locations can receive both contract pay and vendor 
pay. Effective April 1, 2001, DFAS contract pay and vendor pay 
management were consolidated at DFAS Columbus. 

Contract payments involve payments for the delivery of goods and 
services and financing payments. Financing payments include (1) progress
payments to cover a contractorï¿½s costs as they are incurred during the
construction of facilities or the production of major weapons systems 
and (2) performance-based payments that are based on the accomplishment 
of particular events or milestonesï¿½typically used on production 
contracts. When contractors deliver items and submit invoices for the 
delivered items, DFAS Columbus deducts financing payments from the 
prices of the delivered items, or ï¿½liquidatesï¿½ the financing payments, 
based on a predetermined liquidation rate. Liquidation rates may be 
adjusted when costs are higher or lower than projected. Contract 
modifications can often occur due to changes in liquidation rates, 
quantities ordered, and production schedules. These modifications and 
other contract administration actions are managed by DCMA through 
coordination with the contractors. 

Our prior reports on contractor overpayment problems have highlighted
that (1) Defense contractors were refunding hundreds of millions of 
dollars to DFAS Columbus each year, (2) DFAS Columbus had made 
overpayments due to duplicate invoices and paid invoices without 
properly and accurately recovering progress payments, (3) contract 
administration actions had resulted in significant contractor debt or 
overpayments, (4) DOD and contractors were not aggressively pursuing 
the timely resolution of overpayments or underpayments when they were 
identified, (5) DFAS Columbus did not have statistical information on 
the results of contract reconciliation, and (6) DOD has ongoing actions 
to address contractor payment problems. 

DFAS Columbus can identify overpayments during contract reconciliation
or can be notified of an overpayment by a contractor or DCMA. When
DFAS Columbus becomes aware of an overpayment, its Accounts Receivable 
Branch is to issue an initial demand letter to the contractor and
works with the entitlement divisions, which process and pay invoices, to
collect amounts due the government by initiating an ï¿½offsetï¿½ that 
reduces the amount paid on invoices in process. The Accounts Receivable 
Branch also maintains the detailed records on the accounts receivable. 
The contract reconciliation function deals with contracts being closed 
out as well as active contracts needing partial audits to resolve prior 
and current payment problems, such as overpayments, underpayments, and 
invoice deficiencies. Since the mid-1990s, DFAS Columbus has contracted 
with a major accounting firm to help reconcile and close out thousands 
of contracts. When an amount exceeding $600 is due to the government and
is not collected within 90 days, the debt is supposed to be transferred 
to DFASï¿½s central Debt Management Office (DMO) for further collection
actions that can include referring debts to the Defense Criminal 
Investigative Service or the U.S. Treasuryï¿½s centralized debt collection
programs. 

Within the last 6 months, three key actions have been taken to address
governmentwide issues on improper payments. As previously stated, in
December 2001, the Congress amended Title 31 of the United States Code
to require an agency with contracts totaling over $500 million to have a
cost-effective program for identifying payment errors and for recovering
amounts erroneously paid to contractors. The resources for implementing
the recovery program can include the agency, other federal departments 
or agencies, and the private sector. As of March 2002, the Office of
Management and Budget had not issued implementing guidance on this
law.[Footnote 4] Another key action was our issuance of an executive 
guide,[Footnote 5] in October 2001, that discusses strategies and 
control activities, such as recovery auditing, contract audits, and 
data mining, to identify and correct improper payments. The third 
action, in response to our recommendation,[Footnote 6] was a change in 
the FAR, effective February 19, 2002, which added a paragraph to the 
ï¿½prompt paymentï¿½ clause of contracts that requires a contractor to 
notify the contracting officer if the contractor becomes aware of an 
overpayment and to request instructions for disposition of the 
overpayment. 

Overpayments and Underpayments Continue: 

Defense contractorsï¿½ responses to our survey indicated that they have
millions of dollars in overpayments and underpayments on their records,
and based on DFAS Columbus records, they are continuing to refund
overpayments. According to the contractors, a primary reason for these
payment discrepancies was progress payment liquidation errors.
Contractors usually did not include contractor debt arising from 
contract administration actions in the overpayments amounts they 
reported. However, according to DFAS Columbus records, contract 
administration actions were the primary reason for the $488 million 
that contractors refunded in fiscal year 2001. Contractor refunds are 
likely to continue because of DODï¿½s complex contract management and 
payment processes. Also, even when payment discrepancies are 
identified, they are not always promptly resolved. 

Contractors Reported Overpayments and Underpayments but Extent of Them 
Is Uncertain: 

Based on information from our surveys, business units of 67 contractors
reported that they had about $62 million of overpayments and about
$176 million of underpayments in their records as of September or 
October 2001.[Footnote 7] We sent surveys to 497 business units of 183 
contractors, and at least 249 of the business units of 120 contractors 
responded. The business units of the remaining 53 contractors that 
responded did not report any overpayments or underpayments in their 
records. Appendix II provides the details of our survey results and 
appendix III contains the survey. 

As shown in table 1, which summarizes the results of the survey, 34 of 
the largest contractors did not respond to the survey. The 10 largest
contractorsï¿½according to their reported annual billingsï¿½that responded
to our survey reported about 86 percent of the total overpayments and 78
percent of the total underpayments reported by all of the contractors. 
One Boeing contract alone accounted for $27 million of underpayments 
due to contract funding issues. Contractors cited DFAS progress payment
liquidation errors as a primary reason for the overpayments and
underpayments. Contractors usually did not include contractor debt
arising from contract administration actions in the overpayment amounts
they reported. However, as discussed later in this report, contract
administration actions are the primary source of contractor refunds. 
Most of the contractors reported that demand letters had not been 
issued for the overpayments in their records but that they planned to 
return about 29 percent of the overpayments by check or offset. For the 
remaining 71 percent of the overpayments, contractors did not indicate 
any planned actions. According to DCAA, it plans to ensure that all of 
the overpayments are properly handled. 

Table 1: Summary of Survey Results by Large and Small Business 
Contractors: 

Number of contractors surveyed: 
Large contractors surveyed[A]: 92; 
Small business contractors surveyed[A]: 91; 
Total: 183. 

Number of contractors with at least one response: 
Large contractors surveyed[A]: 58; 
Small business contractors surveyed[A]: 62; 
Total: 120. 

Number of contractors that did not respond: 
Large contractors surveyed[A]: 34; 
Small business contractors surveyed[A]: 29; 
Total: 63. 

Number of contractors reporting overpayments: 
Large contractors surveyed[A]: 31; 
Small business contractors surveyed[A]: 11; 
Total: 42. 

Number of contractors reporting underpayments: 
Large contractors surveyed[A]: 31; 
Small business contractors surveyed[A]: 26; 
Total: 57. 

Number of contractors reporting zero payment discrepancies: 
Large contractors surveyed[A]: 21; 
Small business contractors surveyed[A]: 32; 
Total: 53. 

Total overpayments reported: 
Large contractors surveyed[A]: $61.0 million; 
Small business contractors surveyed[A]: $1.0 million; 
Total: $62.0 million. 

Total underpayments reported: 
Large contractors surveyed[A]: $165.3 million; 
Small business contractors surveyed[A]: $10.8 million; 
Total: $176.1 million. 

Total gross billings reported: 
Large contractors surveyed[A]: $28,656.0 million; 
Small business contractors surveyed[A]: $2,718.0 million; 
Total: $31,374.0 million. 

[A] Large contractors have the highest dollars of contract actions in 
the Federal Procurement Data System, and small business contractors are 
designated as such in the system. 

Source: GAO survey results. 

[End of table] 

These survey results cannot be used to determine the extent of
overpayments and underpayments in contractor records at a point in time.
Specifically, the results cannot be projected to a universe of DOD
contractors even if all contractors had reported because the surveyed
contractors were not randomly selected. Further, our analysis of
contractorsï¿½ responses showed inaccuracies in their reporting. For
example, at least 3 contractors included information on contract 
payments to federal agencies other than DOD and even to nonfederal 
entities. At least 1 contractor reported overpayments that had been 
refunded the government and, therefore, should not have been reported 
because they were not outstanding overpayments. We also observed that 
contractors were not consistent in reporting actions taken on 
overpayments. Out of at least 588 reported overpayments, contractors 
indicated in their responses that they had notified DOD of 251 
overpayments. At the same time, contractors reported that they had not 
notified DOD of 236 overpayments. For the remaining 101 overpayments, 
contractors did not provide any indication one way or the other. 

Based on factors such as contractor size, geographic location, and 
amount of reported payment discrepancies, we selected, in coordination 
with DCAA, 27 contractor locations involving 24 companies to test the 
validity of contractorsï¿½ responses. The selected business units reported
$58 million, or 94 percent, of the total reported overpayments and $126 
million, or 71 percent, of the total reported underpayments. We 
provided our survey results to DCAA for these business units, and its
auditors found that 10 of the contractor locations underreported 
overpayments by $57.2 million and underreported underpayments by $58.0 
million. DCAA stated that the remaining 17 locations had reported 
accurately. According to DCAA, 5 contractors are primarily responsible 
for these large differences and most of the differences are due to 
contractorsï¿½ billing weaknesses and erroneous reporting of unpaid 
invoices. Appendix IV summarizes the DCAA results. At these same 10 
contractor locations, DCAA also found that (1) differences in 
application of liquidation rates and weaknesses in contractor billing 
systems were primary reasons for both overpayments and underpayments 
and (2) unpaid invoices over 30 days old were another primary reason 
for underpayments. Such results demonstrate the need for recovery audit 
programs, such as DCAAï¿½s contractor overpayment and underpayment audits 
to identify payment errors, recover erroneous payments, and identify 
payments due to the contractor. 

During its follow-up to our surveys, DCAA also found that contractors 
are reluctant to return overpayments on a contract when underpayments on
the same contract result in a net underpaid status. For example, 1 of 
the largest DOD contractorï¿½s records showed a contract with millions of
dollars of overpayments and underpayments that resulted in a $1.8 
million net underpaid status. According to the contractorï¿½s records, 
some of these overpayments had occurred in 1997 and had not been 
resolved. As of September 30, 2001, the contract was in reconciliation, 
and, as of February 2002, these payment discrepancies had not been 
resolved. According to DCAA officials, they decided, after consulting 
with DFAS, that settlement of any overpayments and underpayments would 
be deferred until contract reconciliation is complete and the final 
contract amount is settled. DCAA officials stated that the contractor 
had basic internal controls for overpayments, and DCAA is assisting the 
reconciliation through its project on audits of contractor-prepared 
reconciliations. 

In responses to our survey, contractors also included overpayments and
underpayments associated with contracts paid through vendor pay. For
example, at least 28 contractors, including 3 major shipbuilding and 
ship repair contractors, reported overpayments and underpayments 
associated with vendor pay. These 3 major shipbuilding contractors, 
alone, reported overpayments of almost $9.4 million and underpayments 
of about $0.5 million. According to a response from 1 shipbuilding 
contractor, overpayments and underpayments that occur on a contract are 
not resolved until contract closeout, which could be several years 
later. Another vendor pay contractor reported about $12 million of
underpayments primarily due to underpaid invoices. For contractors
indicating receipt of vendor pay, we could not accurately eliminate the
vendor pay discrepancies from the total amounts reported by the 
contractors because (1) not all contractors provided sufficient and
consistent detailed information and (2) we did not validate all of the
responses. Nevertheless, we asked DFAS Columbus to compare its records
to the contractor responses for 106 contracts, and DFAS Columbus told us
it did not make the payments on 42 of the contracts because they were
vendor payments. 

Although our prior reports placed more emphasis on contract pay than
vendor pay, recent DOD Office of Inspector General (IG) audits also have
identified weak internal controls in vendor pay systems and overpayments
to contractors. For example, in October 2001 and March 2002, the DOD IG
reported that the Computerized Accounts Payable System, a vendor pay
system used by DFAS Kansas City and DFAS Indianapolis, did not have
proper internal controls to detect and prevent improper payments, and 
that DFAS had made at least $13 million of duplicate payments.[Footnote 
8] As a result, recovery audits and recovery activities that are now 
required by 31 U.S.C. 3561 could be used to improve the management of 
contract payments associated with both ï¿½contract payï¿½ and ï¿½vendor pay.ï¿½ 

Contractor Refunds Primarily due to Contract Administration Actions but
Improper Payments Also Occurred: 

From fiscal years 1994 through 2001, DOD contractors have refunded over
$6.7 billion to DFAS Columbus. However, as shown in table 2, DFAS 
Columbus records showed that contractor refunds dropped to about $488 
million in fiscal year 2001 from $901 million in fiscal year 2000. Of 
the $488 million in refunds, DFAS Columbus collected $449 million by 
contractors submitting checks and the remaining $39 million through
offsets. However, the level of refunds could be greater because 
contracting officers often collect funds from the contractors by 
offsets that are agreed to during contract negotiations, and DFAS might 
not be notified. Since DFAS keeps track of only those offsets it 
processes, its records would not have the number of refunds due to 
these other offsets handled directly by DCMA and the contractors. 

Table 2: Refunds to the Government from Fiscal Years 1994 through 2001: 

Fiscal year: 1994 
Amount of refunds: $940 million; 

Fiscal year: 1995 
Amount of refunds: $1,000 million; 

Fiscal year: 1996 
Amount of refunds: $1,020 million; 

Fiscal year: 1997 
Amount of refunds: $950 million; 

Fiscal year: 1998 
Amount of refunds: $746 million; 

Fiscal year: 1999 
Amount of refunds: $670 million; 

Fiscal year: 2000 
Amount of refunds: $901 million; 

Fiscal year: 2001 
Amount of refunds: $488 million; 

Fiscal year: Total 
Amount of refunds: $6,715 million; 

Source: GAO reports and DFAS Columbus. 

[End of table] 

DFAS Columbus records showed that about $360 million, or 80 percent of
the $449 million in checks sent to the government in fiscal year 2001, 
was due to DCMA contract administration actions and the remaining
$89 million, or 20 percent, was due to payment problems. This is 
consistent with what we have previously reported. For example, in 
February 2001,[Footnote 9] we reported that 77 percent of $351 million 
in excess payments was primarily related to contract administration 
actions, and, in July 1999, we reported[Footnote 10] that about 78 
percent of the contractor refunds was due to contract administration 
and other actions outside of DFASï¿½s control. 

In tracking contractor refunds due to payment problems, DFAS Columbus
distinguishes between refunds with issued demand letters and refunds
without demand lettersï¿½or unsolicited refunds. According to DFAS 
Columbus records, refunds due to payment problems were caused primarily 
by DFAS processing errors, including improper progress payment 
liquidations. We reviewed 12 unsolicited contractor refunds valued at
about $24.2 million, or 83 percent of the total $29.2 million in 
unsolicited contractor refunds during the months of October 2000, March 
2001, and August 2001. Our review revealed that 6 of the overpayments 
were due to progress payment liquidation errors and 6 were duplicate 
payments caused by contractor billing errors along with DFAS weaknesses 
in detecting and avoiding overpaying in these situations. Some examples 
follow. 

* In September 2000, Textron Systems refunded $8,194,856 because of a 
DFAS error in liquidating progress payments. In August 2000, Textron 
billed a net amount of $2,739,301, based on contract delivery price of
$10, 957,205, of which $8,217,904 should have been liquidated. However,
DFAS paid $10,934,158 in August 2000. 

* In July 2001, Boeing refunded $5,527,922 due to the incorrect 
liquidation of progress payments on two invoices. DFAS overpaid one 
invoice by $2,077,922 and another invoice by $3,450,000 because it used 
an incorrect liquidation rate. 

* In March 2001, Northrup Grumman refunded $1,855,788 for a duplicate
payment. DFAS first paid this amount in September 1999 for an invoice
submitted in August 1999, and it paid the same amount again in January
2000. DFAS documentation did not indicate what allowed the invoice to 
be processed twice. The unsolicited refund was about 15 months after
the overpayment. 

* In August 2001, the Eagle Support Services Corporation refunded 
$958,339 because it had received two payments for the same invoice.
The contractor submitted an electronic invoice on June 28, 2001, which
DFAS paid on July 10, 2001. However, the contractor had earlier 
submitted a hard copy invoice on June 11, 2001, which DFAS paid on
July 18, 2001. DFAS processed each invoice because the invoices had
different shipment numbers. 

DOD contract management, payment, and accounting processes are complex 
and remain at risk of contractor debt arising from contract 
administration actions and overpayments caused by payment and billing
errors. We reported in January 1998[Footnote 11] that DODï¿½s contract 
management and payment process involves numerous organizations that 
share data using both manual and automated means that are not 
integrated. Since then, DOD has implemented more electronic sharing of 
contract information and invoicing to reduce manual processes. However, 
in December 2000 and April 2001, the DOD IG reported that additional
controls were needed in electronic document sharing and interchange to
ensure security of the data.[Footnote 12] In addition, DFAS personnel 
told us that contract and invoicing information still must be manually 
entered into MOCAS. For example, contracts with special payment 
instructions need to be processed manually because they are an 
exception to the MOCAS automatic payment process. 

One effect of the overall complex process is that DFAS Columbus can
sometimes issue demand letters that it later cancels due to subsequent
contractor, contracting officer, or DFAS actions to correct or otherwise
resolve the basis for the debt. In fiscal year 2001, DFAS Columbus 
canceled $37.5 million of demand letters. A few examples follow. 

* Lucent Technologies almost received a duplicate payment of $1,397,200
when the contractor submitted invoices to DFAS Omaha in October 2000 
and DFAS Columbus in December 2000 for the same amount. DFAS Omaha, the 
originally designated contract payment office, paid the first invoice. 
Subsequently, DFAS Columbus became the payment office, and the 
contractor resubmitted the invoice to DFAS Columbus, which initiated 
payment. However, DFAS Columbus identified the duplicate payment, 
issued a demand letter, and then canceled the demand letter when it 
stopped the electronic funds transfer payment before it was processed 
by the contractorï¿½s bank. 

* In April 2001, DFAS issued a demand to Lockheed Martin for a 
$2,755,244 debt that occurred in September 1997 when a contracting
officer issued a contract modification reducing the contract amount. An
April 1998 audit of the contract identified that the wrong accounting 
line was cited in this modification, which created a debt. Even though 
the contracting officer was notified of the mistake at that time, no 
action was taken until DFAS issued the demand letter. In May 2001, a
contracting officer prepared another contract modification to cite the
correct accounting line, which eliminated the debt. DFAS then canceled
the demand. 

* A demand to Litton Systems Advanced, Inc. for a $2,124,022 
overpayment was canceled when the contractor sent an invoice with the
amount reduced for the overpayment. 

The entire contract management and payment process, which has been
described in our prior reports, is further complicated by how progress
payments are accounted for in contract records, a method that can
ultimately create (1) differences in contractor and DFAS Columbus 
records and (2) future payment and contract reconciliation problems. In 
April 1997, we reported [Footnote 13] that contract payment problems 
can occur when DFAS Columbus liquidates progress payments because of 
payment allocations to an accounting classification reference number on 
a contract that have little relationship to the work performed. If 
payment allocations must be made using a different process than the 
MOCAS automated process, especially when contracts have special payment 
instructions, the risk of error increases. As mentioned earlier in this 
report, contractors responded that progress pay liquidation errors were 
a major reason for overpayments. This is consistent with our October 
1995 report [Footnote 14] indicating that according to DFAS Columbus 
analysis the most frequent cause of an overpayment was the incorrect 
recovery of progress payments. DFAS Columbus data on fiscal year 2001 
overpayments showed that progress payment liquidation problems were one 
cause of the overpayments, but that the primary reasons were contract 
modification and invoice processing errors. 

Overpayments Likely to Be Identified by Contract Reconciliation: 

Even though contractors or contracting officers identify many 
overpayments, the DFAS Columbus contract reconciliation function is also
likely to identify many overpayments. Of the 2,512 demand letters issued
by DFAS Columbus in fiscal year 2001, its records showed that contract
reconciliation had identified overpayments associated with 1,115 demand
letters, valued at about $83.4 million. Its records also showed that the
contractor or a contracting officer had initiated the remaining 1,397
demand letters, valued at about $43.8 million. The contract 
reconciliation process is intended to identify and correct imbalances 
between (1) the contractorï¿½s invoiced amounts and recorded amounts paid 
in MOCAS, (2) contract obligation and disbursement balances in DFAS 
accounting records and MOCAS, and (3) the contract obligation amount 
and MOCAS obligation and disbursement amounts. The contract 
reconciliation function at DFAS Columbus deals not only with contracts 
that are candidates for closure but also those contracts needing 
partial audits to resolve prior payment problems and correct 
deficiencies so that DFAS Columbus can pay current invoices. 

As shown in table 3, at fiscal year-end, the number of contracts 
waiting for reconciliation had averaged about 2,300 for the past 7 
years. However, during the year, the number of contracts going through 
reconciliation can be much greater. For example, in fiscal year 2001, 
DFAS Columbus processed over 8,100 contracts through reconciliation. As 
of September 30, 2001, DFAS Columbus had 3,249 contracts waiting for 
some level of reconciliation, a higher level than in the prior 6 years. 
Based on prior year results, contract reconciliation will likely 
identify millions of dollar of overpayments needing resolution. 

Table 3: DFAS Columbus Contracts Waiting for Reconciliation at Fiscal 
Year-End from 1995 to 2001: 

Fiscal year-end: 1995; 
Number of contracts awaiting reconciliation: 2,372. 

Fiscal year-end: 1996; 
Number of contracts awaiting reconciliation: 2,553. 

Fiscal year-end: 1997; 
Number of contracts awaiting reconciliation: 2,167. 

Fiscal year-end: 1998; 
Number of contracts awaiting reconciliation: 2,494. 

Fiscal year-end: 1999; 
Number of contracts awaiting reconciliation: 1,881. 

Fiscal year-end: 2000; 
Number of contracts awaiting reconciliation: 1,507. 

Fiscal year-end: 2001; 
Number of contracts awaiting reconciliation: 3,249. 

Average for fiscal years: 
Number of contracts awaiting reconciliation: 2,318. 

Source: DFAS Columbus. 

[End of table] 

As shown in table 4, of the 3,249 contracts awaiting reconciliation, as 
of September 30, 2001, 575 had been in this status for over 360 days, 
while 1,523 of the contracts had been awaiting reconciliation for 90 
days or less. This is fewer than what we reported [Footnote 15] in July 
1999 when over 900 of 2,453 contracts had been in reconciliation for 
over a year. Included in the contracts awaiting reconciliation are 
contracts for some of the largest contractors included in our survey. 
For example, 3 of the largest DOD contractors that responded to our 
surveyï¿½Lockheed Martin, Raytheon, and Boeingï¿½had 205, 191, and 119 
contracts, respectively, waiting for reconciliation as of August 31, 
2001. In addition, 1 of the large contractors that did not respond to 
our survey had 56 contracts in reconciliation at DFAS Columbus. As 
noted later in this report, DCAA is auditing contractor-prepared 
reconciliations at these large contractors, and DFAS uses the audit 
results in completing the contract closeout process. 

Table 4: Aging of DFAS Columbus Contracts Awaiting Reconciliation as of
September 30, 2001: 

Days in reconciliation: 90 days or less; 
Number of contracts awaiting reconciliation: 1,523. 

Days in reconciliation: 91 to 180; 
Number of contracts awaiting reconciliation: 666. 

Days in reconciliation: 181 to 360; 
Number of contracts awaiting reconciliation: 485. 

Days in reconciliation: 361 to 720; 
Number of contracts awaiting reconciliation: 219. 

Days in reconciliation: Over 720; 
Number of contracts awaiting reconciliation: 356. 

Days in reconciliation: Total; 
Number of contracts awaiting reconciliation: 3,249. 

Source: DFAS Columbus. 

[End of table] 

The error-prone nature of the contract management and payment process
is illustrated by over 15,000 contracts in fiscal years 2000 and 2001
combined that have gone through some level of reconciliation at DFAS
Columbus. Contract provisions often change, affecting deliveries, 
progress payment liquidation rates, and indirect cost rates, which 
creates excess payments after invoices have been paid. As we reported 
[Footnote 16] in January 1998, MOCAS records may differ from the 
accounting office records because contract information, such as 
modifications, may not have been properly and consistently processed by 
all locations. DFAS and contractors can process invoices in different 
sequences resulting in discrepancies in how progress payments are 
liquidated. As a result, many contracts can require some type of 
reconciliation more than once during their life. DFAS Columbus contract 
reconciliation results for fiscal year 2001 indicated that the majority 
of payment problems identified during research were due to payment 
system errors and erroneous processing of contract modifications. 

Overpayments Are Not Always Recovered Promptly: 

We also have previously reported that overpayments are not always
recovered promptly. [Footnote 17] As mentioned in prior reports, such 
delays can cost the government in lost interest charges and use of the 
funds. 

According to DFAS Columbus records, even though it had collected almost
$85.7 million in fiscal year 2001, problems remain with the timely 
recovery of overpayments. For example, of the 546 overpayments, 
including voluntary contractor refunds, for which DFAS Columbus had 
recorded in its records both the check receipt date and the date the 
overpayment was identified, only 75 were refunded within 30 days, with 
294 being refunded after 90 days. Moreover, 360 additional refunds did 
not have the dates necessary to determine the timeliness. Further, as 
of August 2001, DFAS Columbus accounts receivable records showed that 
about $26 million out of $54.8 million total receivables, or 47 
percent, had been outstanding for over 90 days. Of those outstanding 
for over 90 days, about $18.8 million had not been resolved for over a 
year because contractors had disputed these receivablesï¿½also discussed 
later in this report. We reviewed 11 files for these old accounts 
receivable and some examples follow. 

* In November 1997, DFAS Columbus issued a demand letter to McDonnell 
Douglas for $2,294,454. The contractor disputed the demand and, in 
March 1998, the contract was submitted to audit. As a result of the 
audit, the demand was reduced to $27,904. However, DFAS did not issue a 
demand for the reduced amount. In May 2000, DFAS decided to update the 
audit on the contract. As of December 2001, over a year after the 
second audit, the recorded receivable was still $2,294,454 because the 
DFAS Columbus Accounts Receivable Branch had not been informed of the 
audit results. 

* In August 1996, DFAS Columbus issued a demand letter to Hughes 
Aircraft for $2,032,113. DFAS subsequently issued a second demand 
letter in September 1996. The contractor disputed the demand but did
not provide sufficient detail to support the dispute so that an audit 
could resolve the dispute. In January 1997, DFAS Columbus asked the
contractor for additional information, and the contractor responded that
the problem might be with several different progress payment and
liquidation rates on the contract. As of December 2001, the account
receivable file showed that no action had been taken. 

* In September 1999, DFAS Columbus issued a demand letter for 
$3,886,567 to Raytheon because of a duplicate payment that had occurred 
in 1995. The contractor disputed the demand and provided evidence that 
it had sent a check for $3,137,200 for the debt in August 1995. 
However, according to DFAS Columbus, this left a balance due of 
$749,369. In November 1999, DFAS issued a demand letter for this new 
balance due, and Raytheon disputed the remaining amount of the debt.
As of December 2001, the $749,369 demand had not been resolved. 

After we shared our concerns about aged disputes with DCAA, it attempted
to resolve these receivables as part of its recovery audit effort. As 
of this reportï¿½s date, DCAA is still in the process of examining 
contractor data to determine the validity of the debt. DFAS inattention 
to resolving these disputed receivables and determining their validity 
could result in potentially overstated accounts receivable balances. 
Further, contract closeout problems, which we reported on in July 2001, 
[Footnote 18] can be exacerbated when payment discrepancies are not 
promptly resolved. We reported that DFAS had made $615 million of 
illegal and improper adjustments to closed appropriation accounts, and 
these adjustments included $9.9 million of overpayments that had been 
improperly redistributed to open appropriation accounts after the 
original accounts were closed. 

DOD Initiatives to Manage and Reduce Overpayments: 

In response to our prior recommendations, DOD has taken both short-term
actions and established long-term initiatives to address long-standing
contract payment problems that result in overpayments and 
underpayments. Some of the short-term actions appear to be having some
positive results. However, the success of the longer-term initiatives, 
which are more critical to resolving underlying problems in the 
contract payment systems and processes, is uncertain. 

In the short term, DFAS, DCMA, and DCAA, in coordination with the DOD
Comptroller, have initiatives to (1) audit major DOD contractors to 
identify overpayments and evaluate their internal controls for 
identifying and reporting overpayments and (2) reconcile and close out 
old contracts. Specifically, in August 2001, DCAA agreed to assist DFAS 
in addressing excess payments to contractors, debt collection, invoice 
payment instructions, contract reconciliation, and professional 
development. Subsequently, in November 2001, DCAA began audits on 
overpayments and related contractor internal controls for identifying 
and promptly reporting overpayments. Its plan is to complete audits at 
190 contractors in fiscal year 2002. As of March 2002, the number of 
contractors to be audited had increased to 195. As part of this effort, 
DCAA is also examining some of the aged (over 90 days old) accounts 
receivable in dispute according to DFAS Columbus records. 

As of January 2002, DCAA had completed audits of overpayments at 46
contractors and identified over $22.7 million of overpayments. From
additional special audits of progress payments, DCAA identified about
another $27.3 million of overpayments, most of which were promptly
resolved. These results illustrate what can be accomplished from 
programs to identify payment errors and recover erroneous payments.
DCAA officials stated that they would continue overpayment audits until
contractorsï¿½ controls ensure prompt identification and reporting of
overpayments to DOD. While DCAA efforts could be viewed as a type of
recovery activity, DOD does not have an overall recovery audit program
that includes all types of contract payments. DCAA also has been 
involved with the contract reconciliation of old contracts at large 
contractors to facilitate contract closeout and the transition to the 
new systems intended to replace MOCAS. 

DCMA, in response to DOD overpayment issues, has issued additional
guidance to its contracting officers. For example, in April 2000 and
November 2001, it issued memorandums on the identification and recovery
of overpayments and excess progress payments, respectively. These
memorandums emphasized the need for contracting officers to be alert to
situations in which contractor debt is incurred and to immediately issue
demand letters. Further, in a response to our February 2001 
recommendation, DCMA stated that it is using DFAS Columbus information 
on refunds to identify and evaluate possible systemic contract 
administration problem areas. 

DFAS Columbus, in response to prior reported deficiencies, has 
implemented practices to provide better oversight of the reasons for
overpayments and the results from contract reconciliation. For example, 
it established a central-tracking database to categorize reasons for 
contractor refunds. This database identifies different types of 
possible DFAS Columbus errors and the types of contract administration 
actions creating the contractor debt. In addition, DFAS Columbus has 
been tracking contract reconciliation results to identify reasons for 
the payment problems identified during reconciliation. Although DFAS 
Columbus personnel easily provided us summary and detailed information 
from these databases, the information had not been summarized and 
incorporated into performance management indicators. 

An additional DFAS Columbus effort, initiated in May 2000, is to 
identify and monitor the potential for duplicate payments. Monthly 
reports, including one on causes of duplicate payments, are prepared 
for each of the three entitlement sections at DFAS Columbus and 
summarized for management review. According to the duplicate payment 
report for the first quarter of fiscal year 2002, DFAS Columbus had 
avoided making about $181.7 million of duplicate payments that had been 
identified as a result of the new procedures. DFAS Columbus has also 
issued several operating procedures to improve payment processing. 

The success of DODï¿½s implementation of new systems to address the root
causes of contract administration and payment problems is uncertain. 
DOD is planning on full implementation of the Standard Procurement 
System (SPS) and the Defense Procurement Payment System (DPPS) to 
improve contract management and payment processes by replacing MOCAS, 
which has been used since 1968. SPS is intended to be DODï¿½s single, 
standard system to support contracting functions and interfacing with 
financial management functions, such as payment processing. However, in 
July 2001, we reported [Footnote 19] that (1) full implementation of 
SPS has been delayed 3-1/2 years, (2) DOD had not justified the 
continued investment in SPS, (3) SPS modules to manage the large 
weapons systems procurements had not yet been implemented, and (4) the 
DOD IG had found that the system lacked critical functionality and 
users were generally dissatisfied with the system. 

DPPS is intended to be DODï¿½s standard contract payment system. However, 
DPPS implementation at DFAS Columbus has been delayed over 2 yearsï¿½from 
August 2001 to October 2003. According to DPPS program officials, the 
implementation of DPPS is not dependent on the full implementation of 
SPS. Nevertheless, the DOD IG concluded in its September 2001 report 
that DPPS would not fully eliminate disbursement and contract 
accounting problems because DFAS, in order to comply with special 
payment instructions, will need to continue making manual payments for 
which there is a greater risk of errors being made. 

Management and Accounting Control Issues Remain: 

Despite DODï¿½s initiatives and accomplishments in addressing overpayment
problems, DOD does not yet have fundamental control over contractor
debt and underpayments because its procedures and practices do not fully
meet federal accounting standards, federal financial system 
requirements, and its own accounting policy. Further, DOD managers do 
not have the performance measures needed to assess compliance with 
policies and procedures and the extent of overpayment and underpayment 
problems at a point in time. Specific examples follow. 

* Federal accounting standards, federal financial system requirements,
and DODï¿½s accounting policy call for the prompt and accurate recording
of accounts receivable upon completion of the event that entitles
collection of the amount. [Footnote 20] These standards and 
requirements specify that an amount be estimated if the exact amount is 
unknown at the time the claim is established. However, contractor debt 
arising from contract administration actions usually is not recorded as 
an accounts receivable when the debt is established in the contract or 
its modificationï¿½the event that entitles DOD to collect an amount from 
the contractor. Instead, the DFAS Columbus Accounts Receivable Branch 
records an account receivable after it has been notified of the debt 
and it or DCMA has issued a demand letter. Contractors often refund 
amounts from contract administration actions, as well as from payment 
and billing errors, without DCMA or DFAS Columbus issuing demand 
letters. Together, these factors would tend to mask the extent of 
overpayment problems and result in overpayments not being known or 
promptly addressed. 

* Federal financial system requirements and DOD accounting policy also
stipulate that accounts receivable are to be aged for monitoring and
controlling collection. DOD accounting policy specifies that accounts
receivable are to be aged into 10 groups, ranging from 1 to 30 days 
delinquent to over 3 years delinquent. Even though DFAS Columbus tracks 
the number of accounts receivable in dispute, its Accounts Receivable 
Branch, which collects overpayments and maintains the detailed 
accounting records to support collection activities, does not routinely 
age accounts receivable according to DOD accounting policy to help 
manage and monitor the timely resolution of the accounts. 

* DOD policies require that a receivable be recorded within the same 
month discovered in order to be recorded timely and that contractor 
debts be promptly collected. However, DOD does not have adequate 
performance measures on the timeliness of collection efforts for
contractor debt once it has been identified. 

* Federal accounting standards also specify that accounts payable and
other liabilities will be recorded when the potential for the liability 
is first recognized. Such liabilities include estimates of work 
completed for facilities and equipment or requests for progress 
payments for items constructed or manufactured to contract 
specifications. DFAS Columbus does not maintain detailed records on 
underpayment liabilities or accounts payable after the contractors 
notify it of the underpayments, even though the underpayments could be 
for millions of dollars and take months to resolve. 

As a result, DOD managers do not have appropriate management control of
accounts receivable and accounts payable and other liabilities stemming
from its contract administration and payment processes. Aside from the
high risk that these accounting records could be misstated at the end 
of an accounting period, failure to instill these disciplines magnifies 
the level of effort required to later identify and collect these 
amounts. 

Contract Administration Events That Create an Account Receivable Are Not
Recorded When They Occur: 

DFAS Columbus does not usually record an accounts receivable when the 
debt is first created by a contract administration action. Instead, it 
only tracks the checks from contractors when they are received and the 
offsets of contractor invoices after they have been completed. DOD 
policies and procedures require the contracting officer to issue a 
demand letter to a contractor when an overpayment is identified and to 
send a copy of the demand letter to DFAS Columbus where it is recorded 
as an accounts receivable. When contract administration actions are 
implemented through contract modifications or other signed agreements, 
these documents recognize that a repayment will result from the action 
and the amount owed is identified or can be readily calculated. 
However, DCMA and DFAS do not always issue demand letters for 
contractor debt based on contract administration actions because the 
debt could be resolved promptly and issuing a demand letter would 
involve additional effort. 

While federal accounting standards require that such events be 
recognized as accounts receivable, DFAS cannot recognize the receivable 
unless it is promptly notified of contractor debt. 

In fiscal year 2001, DFAS Columbus records showed that contractors
refunded about $360 million due to contract administration actions, but 
the Accounts Receivable Branch only recorded about $127 million of 
accounts receivable based on issued demand letters that included 
duplicate payments and other payment errors. This comparison shows that
established procedures are not always followed. Additionally, we
reported [Footnote 21] in February 2001 that contracting officers do 
not consistently issue demands for payment when contract changes are 
negotiated even though the amount usually is known or can be 
calculated. As a result, significant amounts of contactor debt arising 
from contract administration actions are not being recorded when they 
first occur as accounts receivable for financial management control and 
reporting. A further result, discussed later, is that DOD cannot fully 
measure the timeliness of contractor debt collection so that problems 
can be identified and effective solutions implemented prior to final 
contract reconciliation. 

Effective February 19, 2002, the FAR was amended to add a paragraph to
the recommended ï¿½prompt paymentï¿½ clauses of contracts requiring the
contractor to notify the contracting officer if it becomes aware of a
duplicate payment or an overpayment on an invoice. By its terms, 
however, this requirement does not apply to overpayments due to errors 
in financing payments or contract administration actions. With few
exceptions, the contracting officer should include this clause in 
contracts. A similar revision to the FAR contract financing clauses 
would ensure that all contractor debt would be promptly identified, 
reported, and collected. The Office of Federal Procurement Policy is 
currently reviewing for approval and publication revisions to the FAR 
financing clauses that will require contractors to notify the 
government if they become aware of overpayments arising from financing 
payments. Adequate implementation of these procedures along with prompt 
contracting officer action could facilitate the proper and complete 
recording of accounts receivable by DFAS. 

Accounts Receivable Were Not Aged: 

DFAS Columbus is a primary DFAS activity involved in collecting 
contractor debt and maintaining the detailed accounting records to 
support collection activities. However, its Accounts Receivable Branch 
did not routinely age its accounts receivable records, stemming from 
DODï¿½s contract management and payment process, as required by DODï¿½s
accounting policy. The DFAS ï¿½Concept of Operations for Recording and
Reporting Receivables Due From the Publicï¿½ effectively exempts DFAS
Columbus from this requirement because all receivables that are not
collected in 90 days are supposed to be sent to DMO. DFAS Columbus
procedures also specify that any debt in excess of $600 that has not 
been resolved after two demand letters be transferred to DMO. However, 
DFAS Columbus personnel told us that when a contractor disputes the 
first or second demand letter the debt would not normally be 
transferred to DMO because the validity of the debt has not been 
established. Even though DFAS Columbus maintained information on the 
number of accounts receivable in dispute each month, the disputed 
amounts were not routinely aged. As we discussed earlier, about 47 
percent of the receivables were over 90 days old. As of August 2001, 
over $23.5 million of the $35.1 million of demand letters in dispute 
had been outstanding for months, even years, and, therefore, had not 
been transferred to DMO. 

As a result of the policy exemption and DFAS Columbus not aging its
accounts receivable, DFAS did not have proper control over receivables
due from contractors. In fiscal year 2001, DFAS Columbus issued demand
letters for about $127 million. However, as shown in table 5, the 
amounts in dispute averaged about $33.8 million, or almost 60 percent 
of the total monthly receivables, during the year. 

Table 5: DFAS Columbus Fiscal Year 2001 Monthly Accounts Receivable and 
Amounts in Dispute: 

Month: October; 
Accounts receivable balance: Number of transactions: 613; 
Accounts receivable balance: Dollars in millions: $60.0; 
Accounts receivable in dispute: Number of transactions: 109; 
Accounts receivable in dispute: Dollars in millions: $35.9; 
Percentage dollar value of accounts receivable in dispute: 60%. 

Month: November; 
Accounts receivable balance: Number of transactions: 597; 
Accounts receivable balance: Dollars in millions: $62.8; 
Accounts receivable in dispute: Number of transactions: 110; 
Accounts receivable in dispute: Dollars in millions: $36.2; 
Percentage dollar value of accounts receivable in dispute: 58%. 

Month: December; 
Accounts receivable balance: Number of transactions: 642; 
Accounts receivable balance: Dollars in millions: $57.1; 
Accounts receivable in dispute: Number of transactions: 114; 
Accounts receivable in dispute: Dollars in millions: $32.5; 
Percentage dollar value of accounts receivable in dispute: 57%. 

Month: January; 
Accounts receivable balance: Number of transactions: 579; 
Accounts receivable balance: Dollars in millions: $57.8; 
Accounts receivable in dispute: Number of transactions: 115; 
Accounts receivable in dispute: Dollars in millions: $32.6; 
Percentage dollar value of accounts receivable in dispute: 56%. 

Month: February; 
Accounts receivable balance: Number of transactions: 582; 
Accounts receivable balance: Dollars in millions: $51.9; 
Accounts receivable in dispute: Number of transactions: 114; 
Accounts receivable in dispute: Dollars in millions: $32.7; 
Percentage dollar value of accounts receivable in dispute: 63%. 

Month: March; 
Accounts receivable balance: Number of transactions: 561; 
Accounts receivable balance: Dollars in millions: $51.9; 
Accounts receivable in dispute: Number of transactions: 115; 
Accounts receivable in dispute: Dollars in millions: $33.8; 
Percentage dollar value of accounts receivable in dispute: 65%. 

Month: April; 
Accounts receivable balance: Number of transactions: 554; 
Accounts receivable balance: Dollars in millions: $61.8; 
Accounts receivable in dispute: Number of transactions: 113; 
Accounts receivable in dispute: Dollars in millions: $33.6; 
Percentage dollar value of accounts receivable in dispute: 54%. 

Month: May; 
Accounts receivable balance: Number of transactions: 666; 
Accounts receivable balance: Dollars in millions: $50.1; 
Accounts receivable in dispute: Number of transactions: 116; 
Accounts receivable in dispute: Dollars in millions: $34.8; 
Percentage dollar value of accounts receivable in dispute: 70%. 

Month: June; 
Accounts receivable balance: Number of transactions: 699; 
Accounts receivable balance: Dollars in millions: $61.5; 
Accounts receivable in dispute: Number of transactions: 119; 
Accounts receivable in dispute: Dollars in millions: $35.7; 
Percentage dollar value of accounts receivable in dispute: 58%. 

Month: July; 
Accounts receivable balance: Number of transactions: 731; 
Accounts receivable balance: Dollars in millions: $56.7; 
Accounts receivable in dispute: Number of transactions: 116; 
Accounts receivable in dispute: Dollars in millions: $34.8; 
Percentage dollar value of accounts receivable in dispute: 61%. 

Month: August; 
Accounts receivable balance: Number of transactions: 782; 
Accounts receivable balance: Dollars in millions: $54.8; 
Accounts receivable in dispute: Number of transactions: 118; 
Accounts receivable in dispute: Dollars in millions: $35.1; 
Percentage dollar value of accounts receivable in dispute: 64%. 

Month: September; 
Accounts receivable balance: Number of transactions: 667; 
Accounts receivable balance: Dollars in millions: $55.0; 
Accounts receivable in dispute: Number of transactions: 91; 
Accounts receivable in dispute: Dollars in millions: $27.6; 
Percentage dollar value of accounts receivable in dispute: 50%. 

Average per month: 
Accounts receivable balance: Number of transactions: 639; 
Accounts receivable balance: Dollars in millions: $56.8; 
Accounts receivable in dispute: Number of transactions: 113; 
Accounts receivable in dispute: Dollars in millions: $33.8; 
Percentage dollar value of accounts receivable in dispute: 60%. 

Source: DFAS Columbus and GAO calculations. 

[End of table] 

In May 2001 and June 2001, the DOD IG and we reported [Footnote 22] 
that even when debts were transferred to DMO, collection of the debts 
was not being effectively and proactively pursued. In its comments to 
our report, DOD indicated that it took immediate actions to monitor and 
improve debt collection in DMO. However, we did not assess the status 
and effectiveness of these actions for this reportï¿½we limited our 
review to those accounts receivable that had not been transferred to 
DMO as of August 2001. 

Lack of Performance Measures on Timeliness of Collection Efforts: 

DOD also does not have adequate performance measures to monitor how
timely contractor debt is collected once it is identified. For example,
DCMA does not include the timeliness of contracting officersï¿½ actions 
on overpayments as a key performance measure, and DCMA officials stated
that statistics on demand letters issued by contracting officers are 
not kept. FAR and DCMAï¿½s procedures require the contracting officer to 
take prompt action on contractor debt. However, the contracting officer 
might not always take immediate action to collect the overpayment due a 
large workload or oversight. For example, during its follow-up at 1 
major contractor, DCAA found that the contractor had reported to its 
contracting officer a $59,346 overpayment in June 1998 and a $144,504 
overpayment in March 2001. The contractor assumed that these amounts 
would be collected by an offset, but DOD did not take actions to 
collect these amounts until after our survey. In January 2002, the 
$144,504 was collected through offsets and a refund check. In December 
2001, the $59,346 had only been partially collect through offset and 
$21,913 was still outstanding at the time of DCAAï¿½s review in February 
2002. In addition, the DFAS Columbus refund records lack key data, such 
as dates of contract modifications or credit memorandums, needed to 
measure the timeliness of collection for most refunds of contractor 
debt arising from contract administration actions. Our review of the 
documentation for 15 contract administration refunds, valued at $62.3 
million, found that (1) 5 of them did not have enough information to 
determine whether the funds were collected timely, (2) 2 were collected 
within 30 days from the time an amount due the government was 
identified, and (3) 8 were collected in over 30 daysï¿½1 in over 90 days 
and another in over a year. 

Even for the offsets that DFAS Columbus processes, it tracks them
separately from the other refunds, does not measure the timeliness of
collection, or does not always identify the reason for the overpayment. 
Our review of 15 offsets from January, February, and June 2001 found 
that 12 of them took over 30 days to fully collect the debt and reasons 
for the debt were not always identified. Two examples follow. 

* On February 21, 2001, United Technologies agreed to DFAS Columbus 
taking offsets to collect $8,607,568 of overpayments. Three offsets were
taken to collect the full amountï¿½the initial offset occurred on February
24, 2001, and the third offset occurred on March 23, 2001. The recording
of these offsets in the contract accounting records was completed on
April 6, 2001, or 44 days later. DFAS Columbus records also did not
indicate a reason for the overpayment. 

* In November 1999, Viasat, Inc. first contacted DCMA about $2,605,889 
it owed the government due to a change in contract terms. The contractor
contacted DCMA again in October 2000 to discuss an offset. DCMA 
provided DFAS Columbus a credit voucher on November 13, 2000, and DFAS 
processed the voucher on December 18, 2000. However, DFAS Columbus did 
not complete the offset until January 29, 2001ï¿½97 days after the 
contractor expressed interest in an offset. DFAS Columbus records did 
not indicate a reason for the time involved to complete the offset. 

In its contractor overpayment audits, DCAA also is examining contractor
records on refunds and offsets. According to DCAA, preliminary results
from its contractor audits indicate that (1) not all amounts due the
government are promptly returned and (2) contractor controls over 
offsets are weak because the contractors lack supporting documentation 
and DFAS is not always notified of offsets that occur. As a result, 
contractor and DFAS accounting records may not agree for certain 
contracts, and DOD lacks complete information on the amount of refunds 
being collected. 

Inadequate Monitoring of Underpayments: 

DOD also is unable to fully measure and monitor underpayments and the
timeliness of their resolution. Even though DFAS Columbus maintains data
on unpaid contractor invoices, it could not provide us any other 
information on contractor underpayments. According to DFAS Columbus
officials, they do not maintain detailed records on underpayments 
because contractors usually notify them promptly about underpayments, 
which is not always the case with overpayments. Yet, the contractors 
that responded to our survey indicated that they had over $176 million 
of underpayments in their records at the end of fiscal year 2001. 
According to federal accounting standards and financial system 
requirements, such information on underpayments should be routinely 
recorded and maintained in accounts payable or other liability records. 
In February 2001, we reported [Footnote 23] that for the 39 contractors 
we reviewed, all of the fiscal year 1999 unresolved underpayments had 
been unresolved for over 180 days. Without complete detailed accounting 
records on payables, DFAS Columbus is unable to adequately monitor the 
resolution of underpayments, and the amount of payables reported by 
DFAS Columbus could be understated at the end of an accounting period. 
Further, any problems with unresolved underpayments could hinder prompt 
resolution of overpayments. 

Conclusions: 

Survey results, DCAA audits, and DFAS Columbus data indicated that
contractor debts resulting from contract administration actions as well 
as payment problems exist for all DOD contract paymentsï¿½contract pay as
well as vendor pay. Further, resolution of contractor debt has not 
always been timely. DOD has taken short-term actions, including 
increased contract audits focusing on overpayments that are achieving 
immediate results. However, its longer-term initiatives rely on new 
automated systems that have not been implemented to address many of the 
existing problems in DODï¿½s contract management and payment processes. 
The success of these systems is uncertain because of the problems in 
functionality, costs, and significant delays that the DOD IG and we 
have reported on. Until these contract management and payment processes 
are improved, DODï¿½s risk of contractor overpayments, regardless of 
cause, and underpayments will continue. Accordingly, development and 
implementation of an internal control to identify and recover 
contractor debt, which is now required by 31 U.S.C. 3561, will be 
important. 

DOD could have better management control of all types of contractor 
debt, regardless of cause, and underpayments by establishing procedures 
calling for (1) accounts receivable and liabilities to be recorded in 
accounting records according to federal accounting standards and 
federal financial system requirements and (2) mechanisms to hold staff 
and management accountable for doing so. The accounting records could 
then provide more comprehensive performance measures for DOD managers 
to monitor the timely collection of all amounts due the government and 
resolution of underpayments. Such measures could, in turn, result in 
more effective financial management and help reduce contract 
reconciliation and closeout problems in the future. 

Recommendations for Executive Action: 

We recommend that the Under Secretary of Defense Comptroller in 
coordination with the under Secretary of Defense for Acquisition,
Technology, and Logistics: 

* implement an internal control, as now required by 31 U.S.C. 3561, to
identify and collect overpayments to contractors, regardless of contract
payment type; 

* reevaluate DCMA, DOD Comptroller, and DFAS established procedures and 
controls and revise them as needed to ensure prompt recognition and 
recording of receivables and potential liabilities stemming from DODï¿½s 
contract management and payment processes, according to federal 
accounting standards and financial management system requirements; and; 

* develop and maintain more comprehensive and complete records on 
contactor refunds and underpayments to better measure and monitor (1) 
the timeliness of all collections, including checks and offsets, (2) the
resolution of demand letter disputes, (3) the causes of overpayments 
and underpayments, (4) the resolution of overpayments and underpayments 
and the need for corrective actions, and (5) compliance with policies 
and procedures. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report, which are
reprinted in appendix V. DOD concurred with the reportï¿½s 
recommendations. 

In its comments, DOD emphasized that it supports the requirement for an
audit recovery program, was taking actions consistent with such a 
program before the enactment of 31 U.S.C. 3561, and will comply with 
future Office of Management and Budget guidance. In addition, DOD 
stated that (1) DFAS has implemented several additional internal 
controls in its contractor entitlement and payment process to identify 
erroneous payments for recovery and minimize future erroneous payments, 
(2) new MOCAS procedures are being developed and implemented to reduce
progress payment liquidation differences, and (3) its contract audit
resources are being better used to detect overpayments. DOD also stated
that its financial management guidance on recording accounts receivable
and payable and account aging is consistent with the federal accounting
standards, but to improve compliance requires consideration of the
existing processes, factors establishing claims or obligations, and 
ways to manage efficiently and cost effectively. Further, DOD stated 
that to improve compliance, (1) DOD is developing new performance 
indicators on accounts receivable, overpayments, and aging, (2) DFAS is 
reviewing and revising its procedures in this area, and (3) DFAS 
Columbus plans to modify its accounts receivable processes to measure 
the timeliness of collections for amounts due and is working with 
contractors and DCAA to reduce the number and age of disputes. 

DOD also provided detailed technical comments that we incorporated into
the report as appropriate. 

As you requested, unless you publicly announce its contents earlier, we
plan no further distribution of this report until 30 days from the 
issue date. At that time, we will send copies of this report to 
interested congressional committees. We also will send copies of this 
report to the Secretary of Defense; the Under Secretary of Defense for 
Acquisition, Technology, and Logistics; the Under Secretary of Defense 
Comptroller; the Director of the Defense Finance and Accounting 
Service; and the Director of the Office of Management and Budget. We 
will make copies available to others upon request, and the report will 
also be available on GAOï¿½s home page at [hyperlink, 
http://www.gao.gov]. 

If you have any questions regarding this report, please contact me at 
(202) 512-9505 or David Childress at (202) 512-4639. Key contributors 
to this report are Jean Lee, Harold Reich, Alan Steiner, and Gary 
Wiggins. 

Sincerely yours, 

Signed by: 

Gregory D. Kutz: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the number and value of overpayments and underpayments in 
selected DOD contractorsï¿½ records at end of fiscal year 2001, we 
surveyed 183 DOD contractors. Appendix II has a complete list of these
contractors. We identified the top 100 DOD contractors and the top 100
small business DOD contractors based on total dollar value of fiscal 
year 2000 contract actions recorded in the Federal Procurement Data 
System (FPDS). After identifying the contractors, we used DODï¿½s Central 
Contract Registry (CCR) to identify contractor business units, their 
addresses, and points of contact. Contractors must be in CCR to receive 
payments, and contractors are responsible for maintaining the data in 
the registry. About 54 percent of the large DOD contractors had 
multiple business units. For example, Lockheed Martin, Raytheon, and 
Boeing had 114, 100, and 61 business units, respectively. Accordingly, 
we contacted officials at many of the contractors for help identifying 
the appropriate addresses to which the questionnaires should be sent so 
that the appropriate finance units would receive them. The appropriate 
finance units for our survey were those that handle the billings and 
maintain accounts receivables; some business units for which we had 
addresses do not maintain these records. We did not send surveys to all 
of the 200 contractors as listed in FPDS because 1 of them was 
classified, 7 of the small businesses were also included in the top 100 
contractors, 3 contractorsï¿½ names could not be matched to those in CCR, 
and 5 contractors listed in FPDS had merged with other contractorsï¿½for 
example, Boeing had merged with McDonnell Douglasï¿½or were business 
units of major contractors already listed. 

We subsequently mailed 497 surveys to business units of 183 DOD 
contractors requesting the total overpayments and underpayments in their
records as of September 30, 2001, [Footnote 24] and specific detail on 
individual overpayments and underpayments equal to or over $1,000. The 
survey is similar to the one we used in our 1995 report. [Footnote 25] 
A copy of our final survey is in appendix III. We either telephoned or 
sent follow-up reminders to business units. In response to our mailings 
and follow-up, we received 249 survey responses from business units of 
58 large contractors and 62 small business contractors. However, some 
of the responses we received did not include all of the business units 
from the contractor, and others indicated that another business unit 
would have the information. Twenty-two mailings were returned as 
undeliverable. The 249 business units that responded to our survey 
reported on overpayments and underpayments associated with over 600 
contracts. The findings from our survey apply only to the contractor 
business units that responded and cannot be projected to any others. 

We coordinated with DCAA, as part of its ongoing recovery audits, for 
its auditors to test the validity of the contractorsï¿½ responses on 27 
business units in our survey. These units reported about $58 million, 
or 94 percent, of the total reported overpayments, and about $126 
million, or 71 percent, of the total reported underpayments. We and 
DCAA selected the business units to visit based on a combination of 
factors, including geographic location, size of the contractor, the 
amount of reported payment discrepancies, and the nonreporting of 
payment discrepancies with significant annual billings. We also visited 
DCAA offices to discuss the agencyï¿½s audit results in verifying 
overpayments and underpayments reported for 9 of the 27 contractor 
locations. 

To determine the status of DOD corrective actions, we obtained and 
reviewed fiscal year 2000 and 2001 data collected by DFAS Columbus on
contractor refunds, offsets, and reasons for the refunds. In addition, 
we obtained data on the number of contracts in reconciliation at the 
end of fiscal year 2001, the number of contracts that had been 
partially or completely reconciled in fiscal years 2000 and 2001, and 
the reasons for payment problems that DFAS Columbus had identified 
during reconciliation. We did not verify the data provided. 

We also obtained and evaluated fiscal year 2001 accounts receivable
balances, which represented demand letters issued by DFAS Columbus. To
identify some of the conditions and reasons for overpayments, we 
selected 58 of the highest dollar transactions from the 3 months in 
fiscal year 2001 with the highest balances for accounts receivable 
cancellations, transfers, collections made through offsets, and 
unsolicited refunds. The transactions selected represented about 80 
percent of the total dollar value of the group for that month. In 
addition, we obtained a detailed list of all accounts receivable over 
90 days old as of August 2001 and reviewed the highest dollar value 
transaction in each year from 1996 through 2001. To further assess the 
timeliness of collections, we analyzed data in DFAS Columbus records on 
refunds due to payments errors and attempted to determine the 
collection time for 15 contract administration action refunds in fiscal 
year 2001. 

Further, we obtained information on performance measures, certain DFAS
Columbus procedural changes, and the planned implementation of DPPS. We 
also discussed payment problems and corrective actions with DFAS 
Columbus and DCMA officials. We reviewed prior GAO and DOD IG reports 
on contract payment problems, applicable laws and FAR sections, federal 
accounting standards and financial system requirements, the DOD 
Financial Management Regulation, DCMA policies and procedures contained 
in its ï¿½One Book,ï¿½ and DFAS Columbus procedures regarding accounts 
receivable, contractor refunds, and contract reconciliation. 

We requested comments on a draft of this report from the Secretary of
Defense or his designee. We received comments from the Under Secretary
of Defense Comptroller and have reprinted these comments in appendix V.
We conducted our review from August 2001 through April 2002 in 
accordance with U.S. generally accepted government auditing standards. 

[End of section] 

Appendix II: List of Contractors We Surveyed and Results: 

Contractor names and fiscal year 2000 contract actions are from the 
Federal Procurement Data System. Dollars of overpayments and 
underpayments are from survey responses received before February 2002. 

Contractor name: Lockheed Martin Corp.
Dollars of overpayments: $9,424,034; 
Dollars of underpayments: $24,070,485; 
Fiscal year 2000 contract actions (dollars in thousands): $15,592,665. 

Contractor name: Boeing - McDonnell Douglas; 
Dollars of overpayments: $32,738,149; 
Dollars of underpayments: $65,981,813; 
Fiscal year 2000 contract actions (dollars in thousands): $12,261,227. 

Contractor name: Raytheon Company; 
Dollars of overpayments: $2,304,572; 
Dollars of underpayments: $3,767,230; 
Fiscal year 2000 contract actions (dollars in thousands): $6,120,469. 

Contractor name: Bath Iron Works Corp. 
Dollars of overpayments: $1,214,695; 
Dollars of underpayments: $330,520; 
Fiscal year 2000 contract actions (dollars in thousands): $4,164,569. 

Contractor name: Northrop Grumman Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $2,944,473. 

Contractor name: Ingalls Shipbuilding, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $2,745,694. 

Contractor name: Pratt & Whitney; 
Dollars of overpayments: $74,357; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $2,022,865. 

Contractor name: TRW, Inc. 
Dollars of overpayments: $70,794; 
Dollars of underpayments: $23,514,753; 
Fiscal year 2000 contract actions (dollars in thousands): $2,010,996. 

Contractor name: General Electric Company; 
Dollars of overpayments: $5,356; 
Dollars of underpayments: $77,578; 
Fiscal year 2000 contract actions (dollars in thousands): $1,599,304. 

Contractor name: SAIC Information Services; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $1,540,529. 

Contractor name: United Defense, L.P. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $1,203,056. 

Contractor name: Computer Sciences Corp. 
Dollars of overpayments: $84,728; 
Dollars of underpayments: $1,841,404; 
Fiscal year 2000 contract actions (dollars in thousands): $1,173,953. 

Contractor name: Bell Helicopter Textron, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $1,156,910. 

Contractor name: BAE Systems Technical Services 
Dollars of overpayments: $55,142; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $967,891. 

Contractor name: Honeywell International, Inc. 
Dollars of overpayments: $1,522,194; 
Dollars of underpayments: $8,394,462; 
Fiscal year 2000 contract actions (dollars in thousands): $908,509. 

Contractor name: Dyncorp; 
Dollars of overpayments: $427,612; 
Dollars of underpayments: $200,801; 
Fiscal year 2000 contract actions (dollars in thousands): $762,608. 

Contractor name: Newport News Shipbuilding & Drydock; 
Dollars of overpayments: $6,924,277; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $741,523. 

Contractor name: Bechtel National, Inc. 
Dollars of overpayments: $179,558; 
Dollars of underpayments: $158,218; 
Fiscal year 2000 contract actions (dollars in thousands): $735,434. 

Contractor name: Canadian Commercial Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $659,145. 

Contractor name: Westinghouse Electric Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $619,694. 

Contractor name: Raytheon Engineers & Construction; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $598,725. 

Contractor name: Rockwell Collins, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $593,550. 

Contractor name: Brown & Root Services; 
Dollars of overpayments: $53,553; 
Dollars of underpayments: $6,649; 
Fiscal year 2000 contract actions (dollars in thousands): $590,689. 

Contractor name: Atlantic Richfield Company, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $558,129. 

Contractor name: ITT Federal Services Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $556,422. 

Contractor name: Foundation Health Federal Services; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $550,668. 

Contractor name: Beneco Enterprises, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $499,464. 

Contractor name: Alliant Techsystems; 
Dollars of overpayments: $2,620,865; 
Dollars of underpayments: $528,680; 
Fiscal year 2000 contract actions (dollars in thousands): $462,132. 

Contractor name: Federal Express Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $452,513. 

Contractor name: Expresser Transport Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $332,423; 
Fiscal year 2000 contract actions (dollars in thousands): $426,798. 

Contractor name: Stewart & Stevenson Services; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $424,053. 

Contractor name: Booz Allen & Hamilton, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $421,237. 

Contractor name: Federal Ministry 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $410,555. 

Contractor name: The Mitre Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $409,221. 

Contractor name: Sverdrup Technology, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $395,160. 

Contractor name: Motorola, Inc.[A]; 
Dollars of overpayments: $451,374; 
Dollars of underpayments: $2,222,106; 
Fiscal year 2000 contract actions (dollars in thousands): $392,952. 

Contractor name: Interstate Electronics Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $373,024. 

Contractor name: Oshkosh Truck Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $1,184,999; 
Fiscal year 2000 contract actions (dollars in thousands): $372,916. 

Contractor name: Alascom, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $358,116. 

Contractor name: Massachusetts Institute of Technology; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $347,248. 

Contractor name: Triwest Healthcare Alliance Co. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $334,342. 

Contractor name: The Aerospace Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $334,194. 

Contractor name: AM General Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $142,216; 
Fiscal year 2000 contract actions (dollars in thousands): $332,383. 

Contractor name: J.A. Jones Construction Co. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $331,725. 

Contractor name: Electronic Data Systems Corp. 
Dollars of overpayments: $1,280; 
Dollars of underpayments: $9,969,770; 
Fiscal year 2000 contract actions (dollars in thousands): $329,391. 

Contractor name: Mobil Oil Corp.[B]; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0 ;
Fiscal year 2000 contract actions (dollars in thousands): $324,772. 

Contractor name: Sencom Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $321,788. 

Contractor name: Johns Hopkins University; 
Dollars of overpayments: $11,252; 
Dollars of underpayments: $5,389,410; 
Fiscal year 2000 contract actions (dollars in thousands): $321,317. 

Contractor name: Hughes Arabia Limited; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $308,876. 

Contractor name: Dell Marketing, L.P. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $299,981. 

Contractor name: GTSI 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $299,249. 

Contractor name: Vector Data Systems, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $286,019. 

Contractor name: Norfolk Shipbuilding & Drydock; 
Dollars of overpayments: $1,216,004; 
Dollars of underpayments: $202,782; 
Fiscal year 2000 contract actions (dollars in thousands): $277,618. 

Contractor name: Arinc, Incorporated; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $272,468. 

Contractor name: Harris Corp. 
Dollars of overpayments: $123,614; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $267,232. 

Contractor name: Equilon Enterprises, LLC; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $265,600. 

Contractor name: Texas Instruments, Inc. 
Dollars of overpayments: $2,843; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $244,741. 

Contractor name: WTAK-3, Inc.[C]; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $241,912. 

Contractor name: Systems & Electronics, Inc. 
Dollars of overpayments: $746,438; 
Dollars of underpayments: $1,135,482; 
Fiscal year 2000 contract actions (dollars in thousands): $237,113. 

Contractor name: Coastal Aruba Refining Company[C]; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $231,784. 

Contractor name: The Procter Gamble Distributing Co. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $228,437. 

Contractor name: CACI, Inc.- Federal; 
Dollars of overpayments: $264,145; 
Dollars of underpayments: $583,686; 
Fiscal year 2000 contract actions (dollars in thousands): $220,547. 

Contractor name: Bergen Brunswig Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $217,183. 

Contractor name: Anthem Alliance Health Insurance[B]; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $215,299. 

Contractor name: Johnson Controls World Service; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $214,447. 

Contractor name: Mantech International Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $211,471. 

Contractor name: B.F. Goodrich Aerospace; 
Dollars of overpayments: $0; 
Dollars of underpayments: $282,274; 
Fiscal year 2000 contract actions (dollars in thousands): $204,447. 

Contractor name: Parsons Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $204,262. 

Contractor name: Bindley Western Industries; 
Dollars of overpayments: $49,411; 
Dollars of underpayments: $11,710,683; 
Fiscal year 2000 contract actions (dollars in thousands): $204,040. 

Contractor name: Rolls-Royce, PLC; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $196,478. 

Contractor name: Foster Wheeler Environmental; 
Dollars of overpayments: $203,750; 
Dollars of underpayments: $1,874,331; 
Fiscal year 2000 contract actions (dollars in thousands): $185,755. 

Contractor name: Cubic Defense Systems, Inc. 
Dollars of overpayments: $22,421; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $184,474. 

Contractor name: Resource Consultants, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $182,720. 

Contractor name: Emery Air Freight Corp. 
Dollars of overpayments: $17,855; 
Dollars of underpayments: $292,236; 
Fiscal year 2000 contract actions (dollars in thousands): $165,119. 

Contractor name: Unisys Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $163,238. 

Contractor name: Battelle Memorial Institute; 
Dollars of overpayments: $83,894; 
Dollars of underpayments: $46,296; 
Fiscal year 2000 contract actions (dollars in thousands): $162,749. 

Contractor name: Chugach Management Services; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $162,692. 

Contractor name: Great Lakes Dredge & Dock; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $150,300. 

Contractor name: Kraft Foods, Inc. 
Dollars of overpayments: $20,914; 
Dollars of underpayments: $134,441; 
Fiscal year 2000 contract actions (dollars in thousands): $149,545. 

Contractor name: AAI/ACL Technologies, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $149,537. 

Contractor name: Motor Oil (Hellas) Corinth; 
Dollars of overpayments: $0; 
Dollars of underpayments: $636,200; 
Fiscal year 2000 contract actions (dollars in thousands): $148,432. 

Contractor name: Metro Machine Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $147,301. 

Contractor name: Lucent Technologies, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $143,019. 

Contractor name: Hunt Building Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $1,023,459; 
Fiscal year 2000 contract actions (dollars in thousands): $140,314. 

Contractor name: General Atomics Aeronautical; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $134,234. 

Contractor name: Sierra Health Services, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $134,022. 

Contractor name: EG&G Technical Services, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $130,811. 

Contractor name: Conoco, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $130,735. 

Contractor name: Humana Military Healthcare; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $129,163. 

Contractor name: CH2M Hill Companies, Ltd. 
Dollars of overpayments: $24,368; 
Dollars of underpayments: $1,500,973; 
Fiscal year 2000 contract actions (dollars in thousands): $127,505. 

Contractor name: Rand Corp. 
Dollars of overpayments: $516,231; 
Dollars of underpayments: $3,763; 
Fiscal year 2000 contract actions (dollars in thousands): $127,079. 

Contractor name: Bell Atlantic Network Services; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $126,906. 

Contractor name: Navajo Refining Company; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $121,075. 

Contractor name: Spectrum Astro, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $111,579. 

Contractor name: Oracle Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $91,294. 

Contractor name: M.S. Aerospace; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $90,220. 

Contractor name: Ameriqual Group, LLC; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $89,682. 

Contractor name: Digital System Resources, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $163,000; 
Fiscal year 2000 contract actions (dollars in thousands): $87,939. 

Contractor name: Paramount Petroleum Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $82,708. 

Contractor name: Bay Ship Management Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $77,957. 

Contractor name: Mantech International Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $77,744. 

Contractor name: Ocean Triumph Shipping, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $58,156; 
Fiscal year 2000 contract actions (dollars in thousands): $76,347. 

Contractor name: EER Systems, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $73,770. 

Contractor name: Todd Pacific Shipyards Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $72,599. 

Contractor name: Mevatec Corp. 
Dollars of overpayments: $13,712; 
Dollars of underpayments: $212,212; 
Fiscal year 2000 contract actions (dollars in thousands): $72,147. 

Contractor name: Petro Star Valdez, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $6,403; 
Fiscal year 2000 contract actions (dollars in thousands): $64,050. 

Contractor name: Sparta, Inc. 
Dollars of overpayments: $3,671; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $63,027. 

Contractor name: Earl Industries, LLC; 
Dollars of overpayments: $18,115; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $62,942. 

Contractor name: RQ Construction, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $252,161; 
Fiscal year 2000 contract actions (dollars in thousands): $61,114. 

Contractor name: Dynetics, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $6,828; 
Fiscal year 2000 contract actions (dollars in thousands): $58,620. 

Contractor name: Sealift Holdings, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $56,972. 

Contractor name: Gary-Williams Energy Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $56,528. 

Contractor name: Colsa Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $56,295. 

Contractor name: Environmental Chemical Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $1,434,416; 
Fiscal year 2000 contract actions (dollars in thousands): $54,578. 

Contractor name: Viasat, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $54,002. 

Contractor name: Premier Technology Group, Inc. 
Dollars of overpayments: $69,731; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $53,987. 

Contractor name: American Renovation & Construction 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $53,710. 

Contractor name: Scientific Research Corp. 
Dollars of overpayments: $29,356; 
Dollars of underpayments: $354,671; 
Fiscal year 2000 contract actions (dollars in thousands): $53,248. 

Contractor name: Storage Area Networks, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $52,439. 

Contractor name: Nan, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $1,342,934; 
Fiscal year 2000 contract actions (dollars in thousands): $52,342. 

Contractor name: Bender Shipbuilding & Repair; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $52,296. 

Contractor name: Bioport Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $51,550. 

Contractor name: Signal Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $51,266. 

Contractor name: Federal Data Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $50,839. 

Contractor name: NLX Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $409,241; 
Fiscal year 2000 contract actions (dollars in thousands): $50,416. 

Contractor name: Spectral Systems, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $49,761. 

Contractor name: The Wornick Company; 
Dollars of overpayments: $0; 
Dollars of underpayments: $53,760; 
Fiscal year 2000 contract actions (dollars in thousands): $49,648. 

Contractor name: Applied Research Associates; 
Dollars of overpayments: $0; 
Dollars of underpayments: $325,673; 
Fiscal year 2000 contract actions (dollars in thousands): $48,428. 

Contractor name: CAS, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $248,645; 
Fiscal year 2000 contract actions (dollars in thousands): $48,398. 

Contractor name: Placid Refining Company, LLC; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $47,004. 

Contractor name: Sytex, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $45,745. 

Contractor name: Sabreliner Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $45,125. 

Contractor name: N.E.T. Federal, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $44,838. 

Contractor name: Point Blank Body Armor, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $43,982. 

Contractor name: Sharp, George G, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $43,464. 

Contractor name: DJ Manufacturing Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $41,873. 

Contractor name: Jaycor, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $41,002. 

Contractor name: Ages Group, LTD Partnership; 
Dollars of overpayments: $200,459; 
Dollars of underpayments: $733,264; 
Fiscal year 2000 contract actions (dollars in thousands): $40,785. 

Contractor name: Sundt/Ninteman, Joint Venture; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $40,721. 

Contractor name: KDI Precision Products, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $40,594. 

Contractor name: Landmark Construction Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $39,070. 

Contractor name: Fibertek, Inc.
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $38,928. 

Contractor name: World Wide Technology; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $38,423. 

Contractor name: Evans & Sutherland Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $38,237. 

Contractor name: Mission Research Corp. 
Dollars of overpayments: $7,878; 
Dollars of underpayments: $150,957; 
Fiscal year 2000 contract actions (dollars in thousands): $37,891. 

Contractor name: U.S. Oil & Refining Co. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $37,729. 

Contractor name: Assurance Technology Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $37,411. 

Contractor name: Tybrin Corp. 
Dollars of overpayments: $0 
Dollars of underpayments: $9,011 
Fiscal year 2000 contract actions (dollars in thousands): $36,823. 

Contractor name: Griffin Services, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $36,370. 

Contractor name: Sierratech, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $35,565. 

Contractor name: Sevenson Environmental Service; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $35,538. 

Contractor name: O.K. James Construction, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $34,276. 

Contractor name: Baltimore Marine Industries; 
Dollars of overpayments: $0; 
Dollars of underpayments: $270,008; 
Fiscal year 2000 contract actions (dollars in thousands): $33,910. 

Contractor name: McBride and Associates, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $33,901. 

Contractor name: Logistic Services International; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $33,798. 

Contractor name: American Mechanical, Inc.[C] 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $33,791. 

Contractor name: Pride Companies, LP; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $33,355. 

Contractor name: Cormorant Shipholding Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $11,544; 
Fiscal year 2000 contract actions (dollars in thousands): $33,156. 

Contractor name: Dataline, Inc. 
Dollars of overpayments: $22,375; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $31,548. 

Contractor name: Golden Manufacturing, Inc. 
Dollars of overpayments: $12,293; 
Dollars of underpayments: $11,880; 
Fiscal year 2000 contract actions (dollars in thousands): $31,391. 

Contractor name: Specialty Plastic Products; 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $31,385. 

Contractor name: Science & Engineering Associates; 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $31,275. 

Contractor name: S.W. Day Construction Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $31,012. 

Contractor name: Premco Holdings, Inc.[C] 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $30,905. 

Contractor name: Space Mark, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $89,000; 
Fiscal year 2000 contract actions (dollars in thousands): $29,874. 

Contractor name: Condor Systems, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $2,250; 
Fiscal year 2000 contract actions (dollars in thousands): $29,830. 

Contractor name: Nichols Research Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $29,750. 

Contractor name: Petroleum Traders Corp. 
Dollars of overpayments: $2,333; 
Dollars of underpayments: $1,880; 
Fiscal year 2000 contract actions (dollars in thousands): $29,391. 

Contractor name: Sy Technology, Inc. 
Dollars of overpayments: $155,756; 
Dollars of underpayments: $641,422; 
Fiscal year 2000 contract actions (dollars in thousands): $29,247. 

Contractor name: J.F. Taylor, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $28,728. 

Contractor name: Soza & Company, Ltd. 
Dollars of overpayments: $0; 
Dollars of underpayments: $1,650,253; 
Fiscal year 2000 contract actions (dollars in thousands): $28,224. 

Contractor name: DME Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $28,066. 

Contractor name: Bulova Technologies, LLC; 
Dollars of overpayments: $0; 
Dollars of underpayments: $106,941; 
Fiscal year 2000 contract actions (dollars in thousands): $27,913. 

Contractor name: Engineering Research & Consulting 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $27,511. 

Contractor name: E-OIR Measurements, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $27,418. 

Contractor name: Butt Construction Company, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $27,166. 

Contractor name: Akima Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $26,904. 

Contractor name: Martin Electronics, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $2,306; 
Fiscal year 2000 contract actions (dollars in thousands): $26,711. 

Contractor name: Bradley Broadcast Sales, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $26,469. 

Contractor name: Manufacturing Technology, Inc. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $26,312. 

Contractor name: Sechan Electronics, Inc. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $26,305. 

Contractor name: SMF Systems Corp. 
Dollars of overpayments: $0; 
Dollars of underpayments: $0; 
Fiscal year 2000 contract actions (dollars in thousands): $26,280. 

Contractor name: Camber Corp. 
Dollars of overpayments: No response; 
Dollars of underpayments: [Empty]; 
Fiscal year 2000 contract actions (dollars in thousands): $26,243. 

Total: 
Dollars of overpayments: $61,991,268; 
Dollars of underpayments: $176,088,939. 

[A] Units that reported these amounts are now General Dynamics Decision 
Systems, Inc. 

[B] Responses indicated that these companies no longer have DOD 
contracts. 

[C] Surveys were returned due to invalid addresses. 

[End of table] 

[End of section] 

Appendix III: Contractor Survey: 

Reporting Format For Information Requested By The U.S. General 
Accounting Office: 

The Chairman of the House Committee on Government Reform has asked the 
U.S. General Accounting Office (GAO) to obtain data from contractors on 
the extent of overpayments (any dollars owed) and underpayments 
(dollars owed to you) outstanding on contracts with the Department of 
Defense (DOD). This data will be used as part of an ongoing assignment 
(GAO code 192036) to update the status of DODï¿½s contract overpayments 
and underpayments and to determine what progress has been made from 
prior reports. Please follow the attached instructions when accumulating
the requested information and return it in the enclosed envelope by 
October 26, 2001. If you do not have any overpayments or underpayments, 
we would still appreciate you returning this survey indicating that you 
have not identified any such payments. Please return your completed 
survey and schedules by mail, fax or obtain a survey by email: 

Mr. Harold D. Reich: 
U.S. General Accounting Office: 
Los Angeles World Trade Center: 
350 South Figueroa Street, Suite 1010: 
Los Angeles, CA 90071: 

Or Fax to: 
Harold D. Reich: 
(213) 830-1180: 

Or Get Email format from: ([email protected]): 

Any questions should be directed to Harold Reich at (213) 830-1078 
([email protected]) or Eric Johns at (213) 830-1154 ([email protected]) in 
our Los Angeles Field Office or Al Steiner in our Washington, D.C. 
office at (202) 512-9332 ([email protected]). 

I. General Information: 

1. We are requesting information on the single business unit at the 
address listed below, unless you find an Attachment 3 in your survey. 
If you have an Attachment 3 your response should be an aggregate 
response for all listed and confirmed business units, or any units you 
might add, for which you handle accounts receivable and payable.
(Please make any corrections to address in this space) 

2. Please provide the name and telephone number of a contact in the 
accounting and financial unit for us to contact if additional 
information is needed: 

Name Of Contact: 
Email Address: 
Phone Number: 

3. If your business unit is a subsidiary of a parent company, please 
list the name, DUNS number, and address of the parent business. 

Parent Company: 
DUNS: 
Business Address: 

4. Does your business unit prepare contract billings and maintain 
accounts receivable for contracts with the DOD? 
[Note: If we have called you to make other arrangements, please proceed 
directly to question 5 as we already have the information for this 
question.]
Yes: (Go To Question 5)
No: (Read Instruction In Box Below.) 

[Stop ï¿½ If you answered ï¿½Noï¿½ to question 4 above, please do not 
continue but return this request in the enclosed envelope after 
supplying the information requested in this box. Please do not forward 
to the business unit that does your billings and maintains your 
accounts receivable. Instead, please provide the name and address for 
the business unit that maintains your accounts receivables so we can 
verify that the unit has been included in the initial mailing of this 
data request.
List below the name and address of the business unit that maintains 
your accounts receivable:
Name:
Address:
Contact Person: 
Phone:] 

II. Contract Information: 

5. From your accounts receivable and payable ledgers, or other 
appropriate accounting record, provide total gross dollar amounts of 
existing overpayments and underpayments (billed amounts versus payments 
received) for all DOD contracts as of September 30, 2001 (or if 
September 30 is impracticable, please specify the "as of" date you have
used). Overpayments should exclude advance payments. The total 
underpayments extracted should exclude 1) billings less than 30-days 
old on the "as of" date for the information provided (this excludes 
billings for which payments are not delinquent), and 2) claims, 
accounts under dispute, and unbilled receivables on long-term 
contracts. However, we expect overpayments or underpayments caused by 
incorrect liquidation of progress payments to be included in the 
summary totals provided in response to this question. 

Gross Overpayment Dollar Amount: 

Gross Underpayment Dollar Amount: 

As of date used: 

6. For each overpayment exceeding $1,000, please provide the following 
information on the Schedule for Contract Overpayments (Attachment I): 
contract number, the amount of the overpayment, the date the 
overpayment was identified: action you have taken (i.e., notified DCMA 
and/or DFAS, adjustments by check, offset, or no action); indicate 
whether you received a demand letter for the overpayment, and the 
potential cause for each payment. If you are unable to provide this 
detail contract information, please briefly explain why it is not 
available: 

7. For each underpayment exceeding $1,000, please provide the following 
information on the Schedule For Contract Underpayments (Attachment II): 
contract number, the amount of underpayment, the date the underpayment 
was identified; notification and the action you have taken; and the 
potential cause for the underpayment. If you are unable to provide this 
detail contract information, please briefly explain why it is not 
available: 

8. List the most recent annual dollar amount of gross contract billings 
to DOD by this business unit. 

Year Ending:
Gross Dollar Amount Of Billings To DOD: 

9. Please include any additional information or specific comments and 
issues concerning your DOD contract payment experiences that you 
believe we should consider. 

Please retain any work sheets or records used to prepare this response. 

Thank you for your prompt response. 

Enclosure 2: 

Instruction Sheet For Completing Information Request: 

I. General Information: 

The information requested regarding the business unit reporting is 
intended to identify the unit providing the information. Please make 
any appropriate changes to the name and address of your business unit 
(Question 1). Please provide the name, telephone number, and email 
address of a contact person (Q2) who could best respond to our 
technical questions about the information you provide. Also identify 
the parent company of this business unit (Q3) providing the name, DUNS 
number, and mailing address. 

II. Contract Information: 

Q4. The accounting and finance unit that maintains the accounts 
receivable and related billing accounts for contracts with DOD should 
respond to this data request. We intended to send this data request to 
the business units that are listed in the CCR and could maintain 
accounts receivable and billing records. If your unit does not maintain 
these records, please provide the name, address of the business unit 
and a contact with phone number who maintains your accounts receivable 
for DOD contracts, but do not forward this request to that unit. 

Q5. From your accounts payable and receivable ledgers or other 
appropriate accounts that include information by individual billing 
numbers (invoices and vouchers), please provide the total gross dollar 
amounts of overpayments and underpayments (including unpaid bills) for 
all DOD contracts billed directly to the government as of September 30, 
2001. If the information is not available as of this date, provide the
information for a date as close as practicable and specify the date 
used. The total underpayments extracted should exclude billings less 
than 30-days old on the "as of" date for the information provided (this 
excludes billings for which payments are not delinquent). Please ensure 
that you do not consider (1) advance payments as overpayments and (2) 
claims, amounts under dispute, and unbilled receivables on long-term
contracts as underpayments. 

The amounts listed in response to question 5 should provide a point-in-
time measurement of total underpayments and overpayments as shown by 
contractor records and include the effects of incorrectly liquidated 
progress payments. We recognize that the payment status for DOD 
contracts will change after the "as of" date. 

Q6. Following the instructions below, please complete the Schedule for 
Contract Overpayments (Attachment I). 

Column: a, b, c; 
Instructions: Enter the contract number, amount of the overpayment, and 
date on which the overpayment was identified. Provide this information 
for individual contract overpayments exceeding $1,000. Do not include 
advance payments. Round dollar amounts to the nearest dollar. 

Column: d, e; 
Instructions: If you have notified DOD of the overpayment, specify 
which DCMA and/or DFAS office you contacted and the date you notified 
them. 

Column: f, g, h; 
Instructions: Check if you have made payment by check, made plans to 
offset against another payment, or if no action has been taken. 

Column: i, j; 
Instructions: If a demand letter was received from DOD for the 
overpayment, please indicate the date of the letter and which DCMA or 
DFAS office sent it. 

Column: k; 
Instructions: For the potential cause, please provide a brief 
descriptionï¿½i.e., contract modification-scope change, contract 
modification-price adjustment, contract modification-other, duplicate 
payment, recording error, etc. 

Q7.Following the instructions below, please complete the Schedule for 
Contract Underpayments (Attachment II). 

Column: a, b, c; 
Instructions: Enter the information indicated for individual contract 
underpayments exceeding $1,000. Round dollar amounts to the nearest 
dollar. 

Column: d, e, f; 
Instructions: If you have notified DOD of the underpayments, specify 
which DCMA and/or DFAS office you contacted and the date you notified 
them. Or if no action taken, check column f. 

Column: g; 
Instructions: For the potential cause, please provide a brief 
descriptionï¿½i.e., progress payment calculation error, prices not 
updated, recording error, lost inventories, contract modification not 
processed, etc. 

Q8. State the volume of business your business unit has with DOD as 
measured by total gross billings to DOD for your most recent year 
ending date. Please include the ending date (month and year) for the 
total billings listed. 

Attachment 3: 

Business Units Handle By Your Accounts Receivable and Payable Office: 

Instructions: Through review of the Central Contract Registry (CCR), or 
by prior contact with your company, we have indications that your 
business unit maintains the accounts receivable and payable for each of 
the units listed below. Please confirm that you do maintain accounts 
for each of these business units by 1) crossing out any units not 
maintained, and 2) adding the name and address of any additional units 
for which you maintain these accounts. Your survey response should be 
an aggregate response for all the confirmed business units. 

Additional Sites: 

Attachment 1: 

Schedule for Contract Overpayments (Exceeding $1,000): 

(See Enclosure 2 for detail instructions on completing this schedule.) 

Important: Please ensure that you do not consider advance payments as 
overpayments. 

Overpayment (Insert information): a. Contract Number: 

Overpayment (Insert information): b. Amount of Overpayment (Round to 
the nearest dollar): 

Overpayment (Insert information): c. Date Overpayment Identified & By 
Whom (Contractor or DOD): 

Action Taken Or Planned: Notifying DOD (Insert information): d. DFAS or 
DCMA Office Notified: 

Action Taken Or Planned: Notifying DOD (Insert information): e. Date 
Office Notified: 

Action Taken Or Planned: Adjustments (Check one column): f. Return 
Overpayment by Check: Done; Planned; 

Action Taken Or Planned: Adjustments (Check one column): g. Offset 
Against Another Payment; Done; Planned; 

Action Taken Or Planned: h. No Action Taken; 

Demand Letter (Only If Letter Received): i. Date of Demand Letter; 

Demand Letter (Only If Letter Received): j. DOD Office Sending Demand 
Letter; 

Cause For Overpayment: k. Potential Cause (Describe briefly): 

[End of attachment] 

Attachment 2: 

Schedule For Contract Underpayments (Exceeding $1,000): 

(See Enclosure 2 for detail instructions on completing this schedule): 

Important: The total underpayments extracted should exclude billings 
less than 30-days old on the "as of" date for the information provided 
(this excludes billings for which payments are not delinquent). Also, 
do not consider claims, amounts under dispute, and unbilled receivables 
on long-term contracts as underpayments. 

Underpayment (Insert Information): a. Contract Number: 

Underpayment (Insert Information): b. Amount of Underpayment (Round to 
the nearest dollar): 

Underpayment (Insert Information): c. Date Underpayment Identified & By 
Whom (Contractor or DOD): 

Notification (Insert Information, Or Check No Action Taken): d. DFAS or 
DCMA Office Notified: 

Notification (Insert Information, Or Check No Action Taken): e. Date 
Office Notified: 

Notification (Insert Information, Or Check No Action Taken): f. No 
Action Taken: 

Cause For Underpayment: g. Potential Cause (Describe briefly): 

[End of attachment] 

[End of section] 

Appendix IV: Summary of Results from DCAA Visits to 28 Contractor 
Locations: 

DCAA auditors found that 17 contractor locations did not have any
differences or the differences were immaterial based on their review of
contractorsï¿½ records and comparison to their survey responses. Shown
below are 10 contractor locations with material differences identified 
by DCAA and the primary reasons for the differences. In addition, DCAA
auditors visited 1 contractorï¿½SAICï¿½that did not respond to the survey,
and they found $259,194 of overpayments and $2,002,243 of underpayments
in the contractorï¿½s records. 

Contractorsï¿½material differences from survey: Ages Group[A]; 
Overpayment differences: ($319,025); 
Primary reasons for differences: Overbilled costs were not reported; 
Underpayment differences: 0;
Primary reasons for differences: Not applicable. 

Contractorsï¿½material differences from survey: Boeing ï¿½ St. Louis; 
Overpayment differences: 1,895; 
Primary reasons for differences: Not identified; 
Underpayment differences: ($997,141); 
Primary reasons for differences: Unpaid invoices not reported. 

Contractorsï¿½material differences from survey: Honeywell Shared 
Services; 
Overpayment differences: (6,946,813); 
Primary reasons for differences: Unanalyzed overpayments were not 
reported;
Underpayment differences: (7,672,885); 
Primary reasons for differences: Unanalyzed underpayments were not 
reported; unpaid invoices not reported. 

Contractorsï¿½material differences from survey: Lockheed Martin Shared 
Service;
Overpayment differences: (30,432,643); 
Primary reasons for differences: Unanalyzed overpayments were not 
reported; outstanding payment variances and contract administration 
adjustments not reported;
Underpayment differences: (16,554,214); 
Primary reasons for differences: Unanalyzed underpayments were not 
reported. 

Contractorsï¿½material differences from survey: Lockheed Martin NE & SS; 
Overpayment differences: (37,833); 
Primary reasons for differences: Not identified; 
Underpayment differences: (876,695); 
Primary reasons for differences: Unpaid invoices not reportedï¿½ only 
reported invoices with partial payments. 

Contractorsï¿½material differences from survey: Newport News 
Shipbuilding; 
Overpayment differences: (12,688,525); 
Primary reasons for differences: Contractor failed to report 
overpayments; inappropriate accounting for labor and material transfers
Underpayment differences: (83,694); 
Primary reasons for differences: Not identified. 

Contractorsï¿½material differences from survey: Raytheon ï¿½ El Segundo; 
Overpayment differences: (4,028,327); 
Primary reasons for differences: Overpayments over 1 year old were not 
reported;
Underpayment differences: (22,612,605); 
Primary reasons for differences: Underpayments over 1 year old were not 
reported; unpaid invoices not reportedï¿½only reported invoices with 
partial payments. 

Contractorsï¿½material differences from survey: TRW Space & Electronics; 
Overpayment differences: (75,103); 
Primary reasons for differences: Not identified; 
Underpayment differences: (631,577); 
Primary reasons for differences: Underpayments on certain contracts 
were not reported. 

Contractorsï¿½material differences from survey: TRW Systems East; 
Overpayment differences: 0; 
Primary reasons for differences: Not applicable; 
Underpayment differences: 1,574,295; 
Primary reasons for differences: Erroneously reported unpaid invoices 
under 30 days. 

Contractorsï¿½material differences from survey: TRW Systems West; 
Overpayment differences: (2,666,281); 
Primary reasons for differences: Overpayments on certain contracts were 
not reported; overpayments and underpayments netted for reporting
Underpayment differences: (10,386,620); 
Primary reasons for differences: Underpayments on certain contracts 
were not reported. 

Totals: 
Overpayment differences: ($57,185,791). 
Underpayment differences: ($58,040,558). 

[End of section] 

Appendix V: Comments from the Department of Defense: 

Under Secretary Of Defense: 
Comptroller: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

MAY 23, 2002: 

Mr. Gregory Kutz: 
Director Financial Management and Assurance: 
U.S. General Accounting Office: 
Washington, DC 20548: 

Dear Mr. Kutz: 

This is the Department of Defense (DoD) response to the General 
Accounting Office (GAO) draft report GAO-02-635, "DoD Contract 
Management: Overpayments Continue and Management and Accounting Issues 
Remain," dated April 19, 2002. 

As indicated in your draft report, the Department has taken positive 
steps to address contract overpayments. The DFAS consolidated the 
management of contract and vendor pay operations and we have improved 
payment process controls and employed data mining to identify erroneous 
payments for recovery. New payment system edits have reduced duplicate 
payments from 94 in the first 6 months of fiscal year (FY) 2001 to 23 
in the first 6 months of FY 2002 and we have improved system controls 
over progress payment liquidation rates. 

The accounts receivable module in the Mechanization of Contract 
Administration System is being modified to improve timeliness in 
collecting amounts due, and the DFAS revised its debt management 
procedures, with over 2,000 cases transferred to the Department of the 
Treasury for collection since May 2001. In addition, my office is 
developing performance indicators for senior DoD management that target 
accounts receivable, overpayments, and aging. 

Defense Contract Audit Agency resources are in use to detect 
overpayments and promote improved contractor policies and billing 
system internal controls. As you noted, DCAA audits have identified 
over $50 million in overpayments, most of which were promptly resolved. 

Responses to the draft report recommendations and other technical 
comments are in the enclosure. The Department appreciates the 
opportunity to comment on this draft report. My staff point of contact 
on this matter is Mr. Chuck Crichley. He may be reached by e-mail: 
[email protected] or by telephone at (703) 602-0369. 

Sincerely, 

Signed by: 

Dov S. Zakheim: 

Enclosure: 

Office Of The Under Secretary Of Defense (Comptroller): 

Draft Audit Report, "Contract Management: Overpayments Continue and
Management and Accounting Issues Remain" (GAO Code 192036): 

Comments On The Recommendations: 

Recommendation: Implement an internal control, as required by 31 U.S.C. 
3561, to identify and collect overpayments to contractors, regardless 
of contract payment type. 

DoD Response: Concur. The Department of Defense endorses the 
requirement for a program to identify errors made in paying contractors 
and recover any amounts paid to those contractors. In fact, the 
Department was taking a number of actions to implement such a program 
even before the enactment of 31 U.S.C. 3561. In addition to the conduct 
of pilot recovery audit programs using private contractors, the 
Department is using internal resources to detect overpayments, 
determine systemic causes, and take appropriate corrective actions. 
These actions are reducing the number of erroneous payments and 
hastening collections. 

The Defense Finance and Accounting Service (DFAS) has improved its 
entitlement and payment process controls to isolate potential improper 
payments and successfully is using data mining to identify erroneous 
payments for recovery. This work has resulted in the implementation of 
new payment system edits to minimize future erroneous payments. 
Automated internal control processes to identify potential duplicate 
payments recently were added to the Mechanization of Contract 
Administration System (MOCAS). As a result, duplicate payments detected 
were reduced from 94 in the first 6 months of fiscal year 2001 to 20 in 
the first 6 months of fiscal year 2002. Two additional changes that 
help eliminate duplicate payments now are in process. First, a new 
system query has been developed to ensure that progress payment 
liquidation rates in two MOCAS modules are consistent. The new 
procedure will help reduce progress payment liquidation differences 
that the General Accounting Office reported were the primary cause of 
over and underpayments. A second system query is being used to identify 
contracts that require special payment instructions. New contracts are 
being screened as received. Deficiency notices are being sent to 
contracting officers to ensure corrective action. In the vendor pay 
network, new software is being used to detect and prevent duplicate 
payments. In the area of debt collection, the DFAS instituted new debt 
management procedures and transferred over 2,000 cases to the 
Department of the Treasury for collection. 

Further, the Department is making better use of its contract audit 
resources to detect overpayments and promote improved contractor 
policies and billing system internal controls. The Defense Contract 
Audit Agency (DCAA) has modified its practices to test the 
effectiveness of contractors' billing system internal controls in the 
areas of overpayments and refunds to the government. 

Upon issuance, the Department will comply with Office of Management and 
Budget guidance on the conduct of a cost-effective program to identify 
errors made in paying contractors. 

Recommendation: Reevaluate DCMA, DoD Comptroller, and DFAS established 
procedures and controls and revise them as needed to ensure prompt 
recognition and recording of receivables and potential liabilities 
stemming from DoD's contract management and payment processes, 
according to federal accounting standards and financial management 
system requirements. 

DoD Response: Concur. The Department's financial management guidance on 
recording accounts receivable, accounts payable, and account aging is 
consistent with the federal accounting standards. The issue is 
compliance with established policy. In deciding what steps may be 
necessary to improve compliance, it is necessary to consider the 
processes in place, factors that establish claims or obligations, and 
the need to manage in efficient and cost-effective ways. For example, 
contractor billing rate adjustments do not result in contract 
modifications and normally are resolved within the normal billing 
cycle; the Federal Acquisition Regulation "Allowable Cost and Payment" 
clause allows contractors up to 120 days after the settlement of 
indirect cost rates to submit a completion voucher; and refunds from 
contractors include routine amounts of penalties and interest, 
government property rental payments and sales proceeds. The recording 
of receivables and payables becomes an issue when such transactions are 
not resolved timely and aged, as indicated in the draft report. 

The DFAS revised its debt management procedures and is transferring 
more debts for collection. Over 2,000 cases have been transferred to 
the Department of the Treasury for collection since May 2001. The DFAS 
is further reviewing and revising its procedures in this area. A manual 
payment procedure implemented in October 2000 is preventing future 
duplicate payments like the January 2000 duplicate payment made to 
Northrup Grumman. In April 2002, a new procedure was implemented to 
expedite the transfer of overdue receivables to the Debt Management 
Office for collection. Finally, in January 2002, new procedures were 
issued that address recording, reporting and reconciling receivables 
from the public. 

This office is developing new performance indicators for accounts 
receivable, overpayments, and aging. These measures will assure better 
management visibility of performance and help identify any further 
actions needed. 

Recommendation: Develop and maintain more comprehensive and complete 
records on contractor refunds and underpayments to better measure and 
monitor: (1) the timeliness of all collections, including checks and 
offsets, (2) the resolution of demand letter disputes, (3) the causes 
of overpayments and underpayments, (4) the resolution of over and 
underpayments and the need for corrective actions, and (5) compliance 
with policies and procedures. 

DoD Response: Concur. The MOCAS accounts receivable module currently 
lacks the ability to capture the accrual date of a debt, but that 
module will be modified to measure timeliness in the collection of 
amounts due. Underpayments, when validated, are paid immediately. The 
DFAS monitors the number of disputes and is working to reduce the 
backlog and keep it small. Contractor cooperation and Defense Contract 
Audit Agency assistance are contributing to the reductions. The DFAS 
Contract Pay Operations, Customer Service, and Contract Reconciliation 
functions detect over and underpayments. Root cause statistics are 
collected and recorded for two of the three functions. The DFAS 
Columbus site (DFAS-CO) will study the feasibility of using error codes 
in Contract Pay Operations and make a decision by September 30, 2002. 
Full compliance with all procedures is expected, and procedures are 
reviewed and updated continuously. 

Technical Comments: 

Page 3, Middle Paragraph, et al. The second sentence comments that the 
DCAA audits large contractors, to identify overpayments and ensure that 
contractors have adequate internal controls for prompt identification 
and reporting of overpayments. The report suggests that DCAA efforts 
may be considered part of a recovery audit program. This is a 
mischaracterization of the DCAA role as the Department's contract 
auditing organization. The distinction between contract auditors and 
those who perform recovery "audits" should not be confused. The purpose 
of contract auditing is to assist in achieving prudent contracting by 
providing procurement officials with financial information and advice 
relating to the effectiveness, efficiency, and economy of contractors' 
operations. In doing so, the DCAA reviews contractor records. Recovery 
auditing is the practice of identifying and recovering overpayments. In 
recovery auditing, the review is normally limited to an examination of 
government financial and procurement records. 

Page 7, Final Sentence. The sentence states that for the remaining 71 
percent of the overpayments, contractors did not indicate any planned 
action. The following should be added as the final sentence: 

"The DCAA plans to follow up on the overpayments to ensure that all are 
properly handled." 

Page 9, Bottom Paragraph. The third sentence states that the DCAA did 
not recover overpayments on a contract because the underpayments 
exceeded them. The sentence is not technically correct, and is not 
complete in its explanation. The wording should be changed to read as 
follows: 

"DCAA officials stated that the contract was in a net underpaid status 
and the contractor has basic internal controls for overpayments. After 
consulting with the DFAS, it was decided that settlement of the final 
contract amount and any resulting overpayment or underpayment would be 
deferred until the DFAS contract reconciliation is completed. The DCAA 
is assisting the DFAS' reconciliation of the contract through the DCAA 
project on audits of contractor prepared reconciliations." 

Page 16, Final Sentence. The sentence states that the DCAA is working 
with the DFAS-CO on reconciling contracts. The sentence should be 
changed to indicate that the DCAA is performing audits of contractor 
prepared reconciliations, and that the DFAS uses the results in 
completing the contract closeout process. 

Page 19, Middle Paragraph. The second and third sentences state that 
the DCAA's preliminary conclusion is that demands for return of 
contract overpayments that it reviewed, which had not been resolved for 
over a year, may not be valid. The DCAA is still in the process of 
examining contractor data and has not reached a conclusion on the 
possible overstatement of accounts receivable. The sentences should be 
revised to indicate that it is too soon to state whether the debts are 
valid or DFAS-CO accounts receivable are overstated. 

Page 24, Second Paragraph. The fifth sentence notes that the Defense 
Contract Management Agency and the DFAS do not always issue demand 
letters for contract debt based on contract administration because the 
debt could be resolved promptly and issuing a demand letter would 
involve additional effort. Some contract administration actions do not 
result in modifications, such as auditor or contracting officer billing 
rate adjustments made by mutual agreement (FAR 42.704). In this and 
other instances, such as the settlement of final indirect cost rates or 
noncompliance with Cost Accounting Standards, the appropriate and 
expeditious method of resolution is routine offset, as provided for in 
FAR 32.611. The DFAS believes that its current practice of using 
offsets is in full compliance with the procurement regulation. 

Page 25, Middle Paragraph: 

1. The draft report correctly observes that there is no requirement for 
notification of overpayment arising from contract administration 
actions. This is because an amount owed by the contractor as a result 
of a contract administration action does not arise from an invoice 
payment by the government, and thus is not subject to the provisions 
(including the overpayment notification provision) of the prompt 
payment clause. If a contract administration action consists of a 
change to contract requirements (e.g., delivery schedule or quantities) 
the modification that revises contract requirements also will indicate 
whether an equitable adjustment is due the contractor or the 
government. If the government is due an equitable adjustment, a demand 
letter should be issued in conjunction with the contract modification. 
Because of the normal sequence of events, no purpose would be served by 
requiring a contractor to provide notification of overpayment. Other 
contract administration actions can result in either the contractor 
owing the government money, or vice versa, and arise from the normal 
and expected operation of the contract's provisions, e.g., adjustment 
of the contract's provisional billing rates. Typically, any amount owed 
either by the contractor or by the government as the result of a change 
to billing rates, or similar contract administration action, is 
resolved as part of the billing and payments process provided for under 
the contract (i.e., when the contractor makes, and the government pays, 
the contractor's next payment request). Consequently, the contractor's 
submittal of timely, accurate payment requests in accordance with the 
terms of the contract, in effect subsumes any amount due the government 
which may have arisen as a result of contract administration. In these 
instances, a separate requirement for notification of overpayment 
arising from contract administration actions would be redundant and 
potentially confusing. 

2. The third sentence states that the overpayment notification 
requirement (in the clauses for prompt payment) is binding only if the 
contracting officer includes the clause in the contract. This sentence 
gives the impression that contracting officers have the latitude to 
leave the applicable prompt payment clause out of contracts. FAR 32.908 
requires the inclusion of the appropriate prompt payment clause in 
contracts, except when the clause at 52.212-4, "Contract Terms and 
Conditions-Commercial Items," applies, or when other governmental 
authority (e.g., tariffs) establishes payment terms and late payment 
penalties. FAR Case 2001-005 will add the requirement for notification 
of overpayments to FAR 52.212-4. 

3. The fourth sentence states that the Department's efforts to reduce 
progress payment liquidation problems have not been fully effective. It 
goes on to say that contracting officers have not always provided 
payment instructions in accordance with policy and the DFAS had not 
always followed payment instructions when provided, thereby creating 
the likelihood of future payment problems. This comment appears to be 
misplaced since a lack of payment instructions leads to the question of 
whether the correct appropriation is being charged when a payment is 
made, not whether a contract will be over or under paid. 

4. The seventh sentence states that the prompt payment clause should be 
expanded to include financing payments so that all contractor debt will 
be promptly identified, reported and collected. Because the Prompt 
Payment Act does not apply to financing payments, other than interim 
payments of services contracts, the Department has chosen not to revise 
the prompt payment clauses to add a reference to notification of 
overpayments that may occur on a financing payment. Rather, the 
Department has proposed that the contract financing clauses (i.e., 
Federal Acquisition Regulation (FAR) 52-216-7; 52.216-13; 52.232-7; 
52.232-16; 52.232-30; 52.232-32; and 52.232-39) be revised to add the 
same notification of overpayment requirement as was recently added to 
the prompt payment clauses. This revision to financing clauses is being 
accomplished via FAR Case 2001-005; that case has been approved by the 
Defense Acquisition Regulations Council and Civilian Agency Acquisition 
Council, and currently is awaiting approval by the Office of Federal 
Procurement Policy (OFPP), which must occur prior to publication as a 
proposed rule. FAR Case 2001-005 also modifies FAR 12.210 and the 
clause at FAR 52.212-4 to provide for notification of overpayments on 
contract financing and invoice payments on commercial contracts. 

5. The paragraph concludes that the OFPP is considering adding 
financing payments to the prompt payment clauses. This comment is not 
technically correct. The FAR case (i.e., 2001-005), currently 
undergoing the normal OFPP review that precedes publication of a 
proposed rule, does not revise the prompt payment clauses. Rather, it 
revises the contract financing clauses to add a requirement for 
contractors to notify the government if they become aware of an 
overpayment arising from a financing payment. 

Page 29, Middle Paragraph. The sentence states that DCAA preliminary 
results indicate that amounts due the government are not promptly 
returned and controls over "agreed to" offsets are weak. The DCAA 
concluded that contractor controls over offsets are weak, and that 
contractors used offsets. The wording should be changed to read: 

"According to the DCAA, preliminary results of its contract audits 
indicate that (1) not all amounts due the government are returned 
promptly, and (2) contractor controls over offsets are weak because 
they lack supporting documentation and the DFAS is not always notified 
of offsets that occur." 

Page 30, Middle Paragraph. The first sentence states that survey 
results, DCAA audits and DFAS-CO data indicate that contractor debt 
caused by contract administration actions as well as payment problems 
have continued. The wording implies that contract administration debt 
is a problem, but that view is not one that is shared. The first 
sentence should be changed to read: 

"Survey results, DCAA audits, and DFAS-CO data indicated that payment 
problems have continued with DoD contract payments--contract pay as 
well as vendor pay--and that resolution of payment discrepancies and 
contract administration actions has not always been timely." 

[End of section] 

Footnotes: 

[1] U.S. General Accounting Office, DOD Procurement: Millions in 
Overpayments Returned by DOD Contractors, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-94-106] (Washington, D.C.: Mar. 
14, 1994). 

[2] 31 U.S.C. 3561-3567, National Defense Authorization Act for Fiscal 
Year 2002, section 831, Public Law No. 107-107, 115 Stat. 1012, 1186 
(2001). 

[3] U.S. General Accounting Office, DOD Procurement: Millions in 
Contract Payment Errors Not Detected and Resolved Promptly, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-96-8] (Washington, D.C.: Oct. 6, 
1995). 

[4] 31 U.S.C. 3561-3567. 

[5] U.S. General Accounting Office, Strategies to Manage Improper 
Payments: Learning From Public and Private Sector Organizations, 
[hyperlink, http://www.gao.gov/products/GAO-02-69G] (Washington, D.C.: 
Oct. 2001). 

[6] U.S. General Accounting Office, DOD Contact Management: Greater 
Attention Needed to Identify and Recover Overpayments, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-99-131] (Washington, D.C.: July 
19, 1999). 

[7] Even though we requested data as of September 30, 2001, some 
contractors reported as of that date and others reported as of various 
dates, most in October 2001. 

[8] DOD Inspector General, Controls Over the Computerized Accounts 
Payable System at Defense Finance and Accounting Service Kansas City, 
Report No. D-2002-008 (Washington, D.C.: Oct. 19, 2001), and Financial 
Management: Controls Over Vendor Payments Made for the Army and Defense 
Agencies Using the Computerized Accounts Payable System, Report No. D-
2002-056 (Washington, D.C.: Mar. 6, 2002). 

[9] U.S. General Accounting Office, Contract Management: Excess 
Payments and Underpayments Continue to Be a Problem at DOD, [hyperlink, 
http://www.gao.gov/products/GAO-01-309] (Washington, D.C.: Feb. 22, 
2001). 

[10] [hyperlink, http://www.gao.gov/products/GAO/NSIAD-99-131]. 

[11] U.S. General Accounting Office, Financial Management: Seven DOD 
Initiatives That Affect the Contract Payment Process, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-98-40] (Washington, D.C.: Jan. 30, 
1998). 

[12] DOD Inspector General, Controls Over Electronic Document 
Management, Report No. D-2001-101 (Washington, D.C.: Apr. 16, 2001); 
Controls for the Electronic Interchange at the Defense Finance and 
Accounting Service Columbus, Report No. D-2001-095 (Washington, D.C.: 
Apr. 6, 2001); and General Controls Over the Electronic Document Access 
System, Report No. D-2001-029 (Washington, D.C.: Dec. 27, 2000) 

[13] U.S. General Accounting Office, Contract Management: Fixing DODï¿½s 
Payment Problems Is Imperative, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-97-37] (Washington, D.C.: Apr. 
10, 1997). 

[14] [hyperlink, http://www.gao.gov/products/GAO/NSIAD-96-8]. 

[15] [hyperlink, http://www.gao.gov/products/GAO/NSIAD-99-131]. 

[16] [hyperlink, http://www.gao.gov/products/GAO/AIMD-98-40]. 

[17] [hyperlink, http://www.gao.gov/products/GAO-01-309] and 
[hyperlink, http://www.gao.gov/products/GAO/NSIAD-99-131]. 

[18] U.S. General Accounting Office, Canceled DOD Appropriations: $615 
Million of Illegal or Otherwise Improper Adjustments, [hyperlink, 
http://www.gao.gov/products/GAO-01-697] (Washington, D.C.: July 26, 
2001). 

[19] U.S. General Accounting Office, DOD Systems Modernization: 
Continued Investment in the Standard Procurement System Has Not Been 
Justified, [hyperlink, http://www.gao.gov/products/GAO-01-682] 
(Washington, D.C.: July 31, 2001). 

[20] Statement of Federal Financial Accounting Standards (SFFAS) No. 1, 
Accounting for Selected Assets and Liabilities, Mar. 30, 1993; SFFAS 
No. 5, Accounting for Liabilities of the Federal Government, Dec. 20, 
1995; Joint Financial Management Improvement Program, Federal Financial 
Management System Requirements: Core Financial System Requirements 
(Washington, D.C.: Sept. 1995); and DOD, Financial Management 
Regulation, vol. 4, chap. 3, (Washington, D.C.: Jan. 2001). 

[21] [hyperlink, http://www.gao.gov/products/GAO-01-309]. 

[22] U.S. General Accounting Office, Debt Collection: Defense Finance 
and Accounting Service Needs to Improve Collection Efforts, [hyperlink, 
http://www.gao.gov/products/GAO-01-686] (Washington, D.C.: June 29, 
2001) and DOD Inspector General, DOD Contractor Debt Collection 
Process, Report No. D-2001-114 (Washington, D.C.: May 7, 2001). 

[23] [hyperlink, http://www.gao.gov/products/GAO-01-309]. 

[24] See footnote 7. 

[25] [hyperlink, http://www.gao.gov/products/GAO/NSIAD-96-08]. 

[End of section] 

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each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 

Orders should be sent to: 

U.S. General Accounting Office: 
441 G Street NW, Room LM: 
Washington, D.C. 20548: 

To order by Phone: 
Voice: (202) 512-6000: 
TDD: (202) 512-2537: 
Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 

E-mail: [email protected]: 

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 
Jeff Nelligan, managing director, [email protected]: 
(202) 512-4800: 
U.S. General Accounting Office: 
441 G Street NW, Room 7149:
Washington, D.C. 20548: