Summary: Since GAO reported on Department of Defense (DOD) contractor overpayments in 1994, additional reports have been issued highlighting billions of dollars of overpayments to Defense contractors. In December 2001, Congress amended Title 31 of the United States Code 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. DOD contractors' responses to GAO's survey indicate that they have millions of dollars of overpayments on their records and that they are continuing to refund overpayments-- about $488 million in fiscal year 2001. 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 the Defense Contract Management Agency (DCMA) and the Defense Finance and Accounting Service (DFAS), the Defense Contract Audit Agency (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. Although DOD has several initiatives to reduce overpayments, it still does not yet have basic administrative 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.
