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. Overpayments and Underpayments Continue

Defense contractors’ 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. However, according to DFAS Columbus records, contract administration  actions were the primary reason for the $488 million that contractors  refunded in fiscal year 2001. Its plan is to complete audits at 190 contractors in fiscal  year 2002. DCAA officials stated that they would continue overpayment audits until  contractors’ controls ensure prompt identification and reporting of  overpayments to DOD. Management and Accounting Control Issues Remain

Despite DOD’s 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. 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. A similar revision to the FAR contract financing clauses would ensure that  all contractor debt would be promptly identified, reported, and collected.
What GAO Found

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.