Contract Management: DOD Is Examining Opportunities to Further Use
Recovery Auditing (Letter Report, 03/17/99, GAO/NSIAD-99-78).

In recent years, the Defense Department (DOD) has conducted a
demonstration program to evaluate the feasibility of using private
contractors to identify overpayments it has made to vendors. Identifying
and recovering overpayments is known as recovery auditing. Late last
year, GAO reported that despite DOD's difficulty in recovering about $17
million identified under the program, the concept of recovery auditing
offered the potential to identify overpayments. (See GAO/NSIAD-99-12,
Dec. 1998.) A House report directed DOD to implement the expanded
recovery audit demonstration program of section 388, P.L. 105-85, by
selecting at least two commercial functions within its working capital
fund and issuing a competitive request for proposal by December 31,
1998. This report provides an initial review of the expanded program.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-78
     TITLE:  Contract Management: DOD Is Examining Opportunities to 
             Further Use Recovery Auditing
      DATE:  03/17/99
   SUBJECT:  Contractor payments
             Overpayments
             Refunds to government
             Collection procedures
             Defense audits
             Contract oversight
             Internal controls
             Department of Defense contractors
             Auditing procedures
             Privatization

             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  This text was extracted from a PDF file.        **
** Delineations within the text indicating chapter titles,      **
** headings, and bullets have not been preserved, and in some   **
** cases heading text has been incorrectly merged into          **
** body text in the adjacent column.  Graphic images have       **
** not been reproduced, but figure captions are included.       **
** Tables are included, but column deliniations have not been   **
** preserved.                                                   **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************
ns99078.boo(cover.fm) GAO United States General Accounting Office

Report to Congressional Committees

March 1999 CONTRACT MANAGEMENT

DOD Is Examining Opportunities to Further Use Recovery Auditing




GAO/NSIAD-99-78

  GAO/NSIAD-99-78

United States General Accounting Office Washington, D. C. 20548 Le
t t er

Page 1 GAO/NSIAD-99-78 Contract Management

GAO

National Security and International Affairs Division Le t t er

B-281205 March 17, 1999 Congressional Committees Over the last few
years, the Department of Defense (DOD), under authorization from
the Congress, has conducted a demonstration program to evaluate
the feasibility of using private contractors to identify
overpayments it had made to vendors. Identifying and recovering
overpayments is referred to as recovery auditing. In December
1998, we reported that although DOD was experiencing difficulty in
obtaining recovery of about $17 million identified under the
program, the concept of recovery auditing offers potential to
identify overpayments. 1

In House Report 105- 532, which related to a bill providing for
fiscal year 1999 DOD authorizations, DOD was directed to implement
the expanded recovery audit demonstration program of section 388,
P. L. 105- 85, by selecting at least two commercial functions
within its working capital fund and issuing a competitive request
for proposal by December 31, 1998. The House report also directed
us to provide an initial review of the expanded programs by April
1, 1999. This report responds to the reporting requirement in the
House report.

Results in Brief DOD did not select at least two commercial
functions within its working capital funds accounts and issue a
competitive request for

proposal by December 31, 1998. However, in response to an August
1998 DOD memorandum encouraging the use of recovery auditing,
three working capital funds activities-- the Defense Commissary
Agency, the Defense Logistics Agency (DLA), and the U. S.
Transportation Command told us they are developing plans to use
recovery auditing. The Defense Commissary Agency said it plans to
have a contract for recovery auditing services by March 31, 1999.
The Defense Logistics Agency plans to expand the use of recovery
auditing from the demonstration program in place at the Defense

1 Contract Management: Recovery Auditing Offers Potential to
Identify Overpayments (GAO/NSIAD-99-12, Dec. 3, 1998).

Page 2 GAO/NSIAD-99-78 Contract Management

Supply Center, Philadelphia, Pennsylvania to its other four supply
centers. 2 However, as of February 5, 1999, DLA had not published
a schedule to show when it plans to have contracts for these
supply centers. Finally, the U. S. Transportation Command began
planning to contract for audit recovery services, although it has
not established an implementation schedule. Each of the services
also expressed an interest in recovery auditing and is evaluating
whether to use it.

Of the other recipients of the August 1998 DOD memorandum, the
Defense Finance and Accounting Service plans to use recovery
auditing at some future time. The Defense Information Services
Agency does not plan to use recovery auditing because it claims to
have a successful track record with vendors in offsetting
overpayments. Finally, the Joint Logistics Systems Center does not
plan to use recovery auditing because it is scheduled to
deactivate this March.

Agency Comments On February 12, 1999, we requested comments from
the Secretary of Defense on a draft of this report. On February
22, 1999, the Office of

the Under Secretary of Defense, Comptroller, informed us that DOD
concurred with the contents of this report.

Scope and Methodology

To determine DOD's efforts to expand the use of recovery auditing,
we obtained information from the offices of the DOD Comptroller;
the Under Secretary of Defense for Acquisition and Technology; the
three military services; and the working capital fund agencies
discussed previously on the status of efforts to select a
commercial function and issue a competitive request for proposal
by December 31, 1998. We also discussed the agencies' future plans
for using recovery auditing.

2 These are the Defense Supply Center, Columbus; Defense Supply
Center, Richmond; Defense Industrial Supply Center; and Defense
Energy Support Center.

Page 3 GAO/NSIAD-99-78 Contract Management

We performed our review from January 1999 through March 1999 in
accordance with generally accepted government auditing standards.

We are sending copies of this report to Senator Robert C. Byrd,
Senator Pete V. Domenici, Senator Frank R. Lautenberg, Senator
Fred Thompson, Senator Joseph I. Liberman, Representative Rod R.
Blagojevich, Representative John R. Kasich; Representative David
R. Obey, Representative Christopher Shays, Representative John M.
Spratt, Jr., and Representative C. W. Bill Young in their
capacities as Chair or Ranking Minority Member of Senate and House
Committees and Subcommittees. We are also sending copies of this
report to The Honorable William Cohen, Secretary of Defense; The
Honorable Jacob Lew, Director, Office of Management and Budget;
Lieutenant General Henry T. Glisson, Director, Defense Logistics
Agency; and Major General Timothy P. Malishenko, Commander,
Defense Contract Management Command. Copies will also be made
available to others on request.

Please contract me at (202) 512- 4587 if you or your staff have
any questions concerning this report. Major contributors to this
report were Charles W. Thompson, Daniel J. Hauser, and Myra W.
Butler.

David E. Cooper Associate Director Defense Acquisitions Issues

Page 4 GAO/NSIAD-99-78 Contract Management

List of Congressional Committees The Honorable John W. Warner
Chairman The Honorable Carl Levin Ranking Minority Member
Committee on Armed Services United States Senate

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

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

The Honorable Jerry Lewis Chairman The Honorable John P. Murtha
Ranking Minority Member Subcommittee on Defense Committee on
Appropriations House of Representatives

(707387) Le t t er

Ordering Information The first copy of each GAO report and
testimony is free. Additional copies are $2 each. Orders should be
sent to the following address, accompanied by a check or money
order made out to the Superintendent of Documents, when necessary,
VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are
discounted 25 percent.

Orders by mail: U. S. General Accounting Office P. O. Box 37050
Washington, DC 20013

or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW)
U. S. General Accounting Office Washington, DC

Orders may also be placed by calling (202) 512- 6000 or by using
fax number (202) 512- 6061, or TDD (202) 512- 2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512- 6000 using a
touchtone phone. A recorded menu will provide information on how
to obtain these lists.

For information on how to access GAO reports on the INTERNET, send
an e- mail message with info in the body to:

info@ www. gao. gov or visit GAO's World Wide Web Home Page at:
http:// www. gao. gov

United States General Accounting Office Washington, D. C. 20548-
0001

Official Business Penalty for Private Use $300

Address Correction Requested Bulk Rate

Postage & Fees Paid GAO Permit No. GI00

*** End of document. ***