Factors Contributing to Contract Payment Process Errors and Cost

We identified three key factors that contribute significantly to problems in DOD’s payment process. These three factors are: nonintegrated computer systems that require data to be entered manually and often with information that is erroneous or incomplete, multiple documents that must be matched before contractors are paid, and payment information that is allocated among numerous accounting categories. 2). Moreover, the organizations we visited reported that payment productivity increased. DOD Is Addressing Its Payment Problems, but It Can Do More

DOD is aware of the seriousness of its payment problems and is taking steps to address them, including testing and adopting some commercial best practices. According to DOD, it has not yet made a decision on how to avoid transferring erroneous data to the new system, but it believes that other initiatives may help minimize errors. DFAS still matches multiple documents before making a payment. Conclusions and Recommendations

It is imperative that DOD achieve cost-effective control over its payment process. Otherwise, it continues to risk hundreds of millions of dollars in potential overpayments and other financial management and accounting control problems. Further, improving the efficiency of the payment process could save additional millions of dollars annually in reduced processing costs. Improving DOD’s payment system will not be an easy or quick undertaking. It will require continued top management attention and support for many years to come. However, when and to what degree these actions will correct its problems remains to be seen. DOD might also benefit from further examining best practices of organizations that have reengineered their contract payments process. Scope and Methodology

To determine the factors contributing to payment process errors and cost, and DOD’s efforts to improve its payment process, we interviewed officials and reviewed supporting documentation from the
Office of the Under Secretary of Defense Comptroller/Chief Financial Officer, Office of the Principal Deputy Under Secretary of Defense for Acquisition and Technology, Deputy Under Secretary of Defense for Acquisition Reform, Washington, D.C.;
Defense Finance and Accounting Service Headquarters, Navy Finance and Accounting Office, Office of the Assistant Secretary of Defense Command, Control, Communications, and Computer Systems Directorate, Department of the Navy’s Office of Research Development and Acquisition, Arlington, Virginia;
Army Materiel Command, Alexandria, Virginia;
Defense Logistics Agency, Fort Belvoir, Virginia;
Air Force Materiel Command, Dayton, Ohio;
Army Aviation and Troop Command, Defense Finance and Accounting Service, St. Louis, Missouri; and
Defense Finance and Accounting Service, Columbus Center, Columbus, Ohio. They focused on a long-term effort of continual improvements with contract payments viewed as an integral part of the acquisition process. In general, these organizations combined technological improvements with streamlined processes to improve service and reduce costs. 2. 3. 4. 5. 8. 9. 10. 11. 12.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) efforts to improve its contract payment practices, focusing on: (1) the factors contributing to payment errors and increased costs; (2) DOD's efforts to improve its payment system; and (3) payment practices of commercial companies that DOD might adopt.

What GAO Found

GAO noted that: (1) it is imperative that DOD achieve cost-effective control over its payment process; (2) otherwise, it continues to risk hundreds of millions of dollars in potential overpayments and other financial management and accounting control problems; (3) further, improving the efficiency of the payment process would save additional millions of dollars annually in reduced processing costs; (4) the following factors contribute significantly to problems and increased costs in DOD's payment process: (a) nonintegrated computer systems that require manual entry of data that are erroneous or incomplete; (b) multiple documents that must be matched before contractors are paid; and (c) payments that require allocation among numerous accounting categories; (5) improving DOD's payment system will not be an easy or quick undertaking; (6) it will require continued top management attention and support for many years to come; (7) while DOD is taking some steps to address its payment problems, when and to what degree they will effectively correct its problems remains to be seen; (8) further, DOD's actions do not go far enough in addressing the factors GAO identified as contributing to payment problems; (9) for example, DOD has yet to decide on how to minimize transferring existing erroneous data to the new automated system; (10) moreover, it also plans to continue to match multiple documents and allocate payments across numerous accounting categories; (11) GAO's review indicated that DOD might benefit from further examining best practices of commercial organizations that have reengineered their contract payments process; (12) the organizations GAO visited have focused on a long-term effort of continual improvements with contract payments viewed as an integral part of the acquisition process; and (13) in general, these organizations have combined technological improvements with streamlined processes to improve service and reduce costs.