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

United States

General Accounting Office

Washington, D.C. 20548 Lret

Page 1 GAO/NSIAD-99-78 Contract Management

GAO

National Security and

International Affairs Division Lret

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 Commandtold 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 DODs 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) Lret
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