Defense steps up efforts to recover overpayments

The Defense Department is stepping up its efforts to collect hundreds of millions of dollars in overpayments made to contractors, an agency official said Friday. JoAnn Boutelle, director of commercial pay services at the Defense Finance and Accounting Service (DFAS), said the agency has already put in place several recommendations from the General Accounting Office to improve its debt management. "We've recently implemented a new contract debt tracking system, which flags overdue debts for transfer to the Treasury Department," Boutelle said. The Debt Management Office at DFAS handles debts over $600 that are owed by contractors who have been unresponsive to requests for payment. A June GAO report criticized DFAS for not using checklists to distinguish between real debts and ones that had already been paid, failing to promptly issue notification letters to contractors, and failing to communicate directly with contractors to resolve debts. The watchdog agency also found that DFAS did not take advantage of Treasury's centralized debt collection programs to recover debt or use the Defense Criminal Investigative Service to pursue potential fraud. "Ineffective and insufficient efforts by the office are the results of both deficiencies in and lack of adherence to policies and procedures," said the report, "Debt Collection: Defense Finance and Accounting Service Needs to Improve Collection Efforts (GAO-01-686). According to a March GAO report, overpayments to contractors frequently occur when discrepancies arise between the actual costs incurred during a project and the original cost estimate. Contracting officers must monitor project progress and take action if progress lags behind payments, adjusting liquidation rates accordingly. The contracting officer is responsible for ensuring the government receives a refund when there is a change in the project schedule or the quantity of items delivered by the contractor. GAO recommended that DFAS establish internal controls to validate debts, including holding backup documentation in each debt file, establishing time frames for sending letters to contractors and communicating directly with contractors. GAO also suggested that DFAS improve its timeliness in referring debts to Treasury and seek help from the Justice Department when debts involve illegal activities. "The improved procedures for issuing demand letters and controlling the debt cases will allow the agency to resolve the issues identified in the report," Boutelle said. DFAS has incorporated all of GAO's recommendations so far except the suggestion regarding debt referral to Treasury. DFAS said it plans to implement that recommendation by the end of August.

Overpayments to contractors are a longstanding problem for the Defense Department. From 1994 to 1999, Defense contractors returned nearly $1.2 billion in overpayments to the department. As of September 2000, contractors still owed Defense nearly $750 million.