In 1991, DOD consolidated debt management within DFAS. At DFAS Columbus, two offices are involved in collecting contractor debts owed to the government. The Accounts Receivable Branch manages all newly identified debts. In managing new debts the Accounts Receivable Branch is to use DOD’s policies and procedures that detail the requirements for an initial demand letter to the contractor, followed by efforts to offset the debt against amounts DOD owes the contractor, followed by a second demand letter. The procedures specify that any debt of $600 or greater that has not been resolved after two demand letters is to be transferred to the Debt Management Office. The Office manages debts in excess of $600 owed to DOD by unresponsive contractors and debts by contractors that agreed to repay the amounts owed in installments. After the transfer from Accounts Receivable, the Debt Management Office is to review the file to ensure that the debt is valid and adequately supported, and that the file does not contain an installment request, deferment request, or bankruptcy notification. If the debt is erroneous or without clear legal merit, the Office can terminate collection action. After determining that the debt is valid and should be collected, the Office is to issue a third and final demand letter to give the contractor a final opportunity to settle the debt. The Debt Management Office is to refer debts to the Defense Criminal Investigative Service if illegal activities by the contractor could be involved. Also, the Office is to undertake other collection actions, such as transferring debts to collection agencies, adding a contractor’s name and amount owed to the List of Contractors Indebted to the United States, or referring debts to the U.S. Treasury’s centralized debt collection programs. The U.S. Treasury’s centralized debt collection programs, the Treasury Offset Program (TOP) and Cross-Servicing Program, were developed to assist agencies in collecting delinquent nontax debt owed to the federal government. TOP is a governmentwide debt matching and payment offset program that uses certain of the Treasury Financial Management Service’s payment data to collect delinquent nontax debts. It uses a centralized delinquent debtor database to match specific delinquent debts against certain payments to be made by the government. The Cross-Servicing Program, like TOP, was developed in response to the Debt Collection Improvement Act of 1996. Under this program, agencies are to identify and refer eligible delinquent nontax debt to Treasury’s Financial Management Service for collection. The program includes the use of demand letters, credit bureaus, private collection agencies, as well as referrals to TOP. After appropriate analyses and collection action, DFAS Columbus can terminate a debt of $100,000 or less if the Debt Management Office is unable to collect any substantial amount, unable to locate the debtor, or determines that cost will exceed recovery. Debts of over $100,000 must be submitted to the Department of Justice, which will determine whether the collection activity should be terminated. According to DOD and Debt Management Office policies and procedures, when it receives a debt, the Debt Management Office is to analyze the debt file to ensure that the debt is valid and that collection efforts should proceed. The Accounts Receivable Branch should have established the debt file before the first demand letter. The file is to contain documentation supporting the debt, such as copies of contract vouchers related to the debt, amounts and dates of collections received, and all demand letters and other correspondence with the debtor. For duplicate payments, the file should include copies of the negotiated checks. The procedures also specify that any documentation that supports the debt should be included with the demand letter. We found that the debt files did not contain required documentation. Copies of checks issued or disbursements records were not in the files and were not included with demand letters. Without required documentation, the Office could spend time and effort on pursuing debts that are not valid and have difficulty in collecting debt if documents are not available to convince contractors of the debts’ validity. In our detailed review and follow-up of 10 cases, we found invalid debts as well as valid debts that were not being collected because needed documents were not used to substantiate the debt. We identified two debts, recorded at $38,557, that were not valid. In one case, a debt of $17,339 was being pursued as a duplicate payment because two invoices for similar services and amounts were paid a few days apart. However, after we noted that the invoices had different shipment numbers, both invoices were determined to be valid and the debt was canceled. In the other case, the contractor had previously reimbursed the government, but the reimbursement had not been correctly recorded against the debt. For a third debt case of $47,539, the U.S. Attorney’s office declined to pursue collection because the contractor was no longer in business and the debt resulted from questioned costs during a contract audit rather than actual overpayments. For five of the remaining seven cases, the contractors reimbursed the government for more than $103,897 after we obtained and provided documentation to the contractors that established the validity of the debts. For example, the files for an overpayment of $30,788 to a contractor did not contain copies of negotiated checks and payment vouchers. After we obtained and provided supporting documents to the contractor’s representative, the representative was able to trace through contract records and substantiate that the overpayment did occur. The contractor paid $32,259, which was the original debt plus accrued interest and administrative fees. The problem of inadequate documentation in debt files is not new. A DOD Inspector General report in 1995 noted that some files did not have adequate documentation. More recently, in 2000, the DFAS Columbus Office of Internal Review noted significant documentation deficiencies in the Debt Management Office’s debt files. The Debt Management Office, after validating the debt, is to send a third and final demand letter to the debtor. DOD policies and procedures state that the second demand letter is to be sent when the due date specified in the first demand letter (30 days) passes. A time frame for sending the third demand letter is not specified; however, the policies specify that collection of debts owed by contractors be accomplished expeditiously. The Debt Collection Improvement Act of 1996 requires agencies to refer for debt collection all eligible nontax debts over 180 days delinquent to the Secretary of the Treasury or a Treasury-designated debt collection center. The Debt Management Office is not promptly sending the third demand letter. In the previously cited DFAS Columbus Office of Internal Review report, a sample of 15 cases showed that third demand letters were not processed promptly after the debts were entered into the Debt Management Office information system. Of the 15 debts reviewed, no letters were issued within 30 days; six letters were issued in less than 100 days; six were issued from 100 to 200 days; and three were issued at 691, 835, and 1,147 days. The previously mentioned DOD Inspector General’s report also identified serious problems with the timeliness of the third demand letter. For the 115 debts in its sample for which third demand letters should have been sent, the Inspector General determined that 51 letters were sent late and 20 letters were not sent. Federal regulations provide that each federal agency take timely and aggressive actions to collect all claims. DOD policies and procedures state that it is essential that the amounts contractors owe to DOD be ascertained promptly and that collection be accomplished expeditiously. Based on the cases we examined and discussions with DFAS officials, we found that the debt collection process DFAS uses is passive—that is, it essentially relies on sending demand letters. It does not involve establishing a dialogue with contractor officials and DOD contract officers to identify and resolve issues related to the debts. Neither DOD policies and procedures nor Debt Management Office procedures discuss proactively pursuing debt collection by establishing communication with appropriate officials. Based on the cases that we investigated, we believe that improved communication between DFAS personnel, contractor officials, and DOD contract officers is essential to resolving debts promptly and efficiently. As previously mentioned, we facilitated debt repayment in several cases by explaining to contractor officials how the debts were incurred and the relation of the debts to outstanding invoices and payments. On one case that resulted from duplicate payments on an invoice, $16,645 was collected after we contacted the administrative contracting officer, DFAS Columbus collection personnel, and contractor officials. We provided proof of the duplicate payment to the contractor and explained how the debt was incurred. Because the contractor believed that the debt should be offset against two other invoices, we examined the status of those invoices and explained to the contractor why an offset was not possible. Prior to our involvement, the contractor had been sent three demand letters over a period of 4 months, but no other contact had been made with the contractor about the debt. The Debt Collection Improvement Act of 1996 seeks to maximize collections of nontax delinquent debts owed to the government by ensuring quick actions and employing all appropriate collection tools, such as private sector professional collection agencies. When debts become delinquent, DFAS Columbus attempts to collect the debts through administrative offsets against other DOD payments to be made to contractors. Also, by adding a contractor’s name to the List of Contractors Indebted to the United States, DFAS in essence notifies other federal agencies of a contractor’s indebtedness so that the agencies can withhold payments and send the amount owed to DOD. If warranted because of potential illegal contractor activities, the debt can be referred to the Department of Justice or to the Defense Criminal Investigative Service. We identified two limitations to the administrative offset process being used at DFAS Columbus. First, only payments authorized for disbursement from one DOD payment system were being considered for offset, although a contractor could be receiving payments through other DOD systems. Second, offsets were being taken against only one contractor identification code, even though a contractor can have multiple identification codes to identify specific facilities/locations.