Inspector General Report finds DOD Does Not Effectively Collect Millions of Dollars in Delinquent Contractor Debts Due to Poor Accounting and Financial Practices
Today, Sen. Tom Carper (D-Del.) led a bipartisan group of senators in urging the Department of Defense (DOD) to swiftly address troubling deficiencies in its debt collection efforts from delinquent contractors. The letter is part of the senators' ongoing oversight work regarding the DOD's financial management practices. Sens. Scott Brown (R-Mass.), Tom Coburn (R-Okla.) and Claire McCaskill (D-Mo.) joined Sen. Carper on the letter.
"In these times of ever shrinking budgets, a soaring deficit, and disturbingly-high levels of wasteful spending across the federal government, the Department of Defense must do all it can to get its fiscal house in order," said Sen. Carper, Chairman of the Subcommittee on Federal Financial Management. "A recent Department of Defense Office of Inspector General report detailed hundreds of millions of dollars owed to the federal government that will be difficult to collect due to poor bookkeeping. That is unacceptable. Adding insult to injury, the Department's poor bookkeeping can mean that delinquent contractors who owe the government money might actually still be receiving payments from the government. I look forward to hearing the Department's response to these concerns, and I will continue my efforts to push for better financial management in the Department of Defense and throughout the federal government."
"In light of the current budget crisis, we simply cannot afford to let hundreds of millions of dollars owed to the federal government go unpaid because of poor financial management practices at DoD," said Sen. Brown, Ranking Member of the Subcommittee on Federal Financial Management. "In his confirmation hearing, Secretary Panetta has assured Congress that improvement in this area is a priority for the Department going forward. His commitment should be supported by real action to show that DoD is making progress towards finally getting its financial house in order."
"At a time when we're looking for ways to reduce deficits, it's just commonsense to hold Pentagon leadership and contractors accountable on their financial practices, and ensure they don't leave American taxpayers holding the bag," said Sen. McCaskill, Chairman of the Senate Subcommittee on Contracting Oversight.
A 2011 DOD Office of the Inspector General (OIG) report shows that the DOD has $209 million in outstanding debt due from defense contractors. The report states that the DOD office responsible for the collections, the Defense Finance and Accounting Service (DFAS), has failed to effectively obtain and maintain complete and accurate records of delinquent debts due to poor accounting and financial practices. The OIG found that a majority of the transactions examined had insufficient documentation, making it difficult for the DOD to collect the debt. Moreover, some debts were tracked so badly that there is a possibility that the DOD may still be making payments to certain companies with existing delinquent debt.
In response to this report and well-documented challenges in the collection of contractor debt, the senators sent a letter to the DOD's DFAS division, seeking an update on current inventory of contractor accounts receivable and pending contractor debt, including the age of the debts for FY 2005-2010.
The DOD's debt collection problems are just part of the agency's financial management challenges. The Government Accountability Office (GAO) continues to find that DOD financial management is at a high risk for waste, fraud, abuse, or mismanagement. Moreover, the DOD has never been able to conduct a department-wide audit despite the clear requirement to do so by the Chief Financial Officers Act of 1990. Preparing auditable financial statements by 2017 is an important requirement established by Congress, but it appears unlikely that the Department of Defense will be able to meet that 2017 requirement. Sen. Carper's Subcommittee on Federal Financial Management will hold a hearing to examine the Department of Defense's plans for improving its financial accountability in September.
The text of the letter follows:
August 15, 2011
Ms. Teresa McKay
Director, Defense Finance and Accounting Service
8899 East 56th Street
Indianapolis, IN 46249
Dear Ms. McKay:
We are writing to request some specific information regarding Department of Defense (DOD) debt collection. This information is important to our ongoing oversight work regarding the Department's financial management practices.
It is our understanding that contractor debt collection is initiated and managed by the Accounts Receivable Branch and the Debt Management Office, both Defense Accounting and Finance Service (DFAS) components. We are seeking some information from these components' current inventory of contractor accounts receivable and pending contractor debt.
Specifically, we would like to know the results of contractor debt collection activities for fiscal years 2005 through 2010. In this regard, please provide information on an annual basis:
(1) dollar amounts of contractor overpayments, regardless of cause (e.g., contractor overbillings, overpayments, and duplicate payments) for which an account receivable was established (i.e., an initial demand letter was issued by a contracting officer, disbursing officer, or other authorized official);
(2) dollar amounts of contractor overpayments both collected and pending as of the end of the fiscal year under each internal Department of Defense (DOD) collection process, including totals for credit invoices issued, administrative offsets made, installment agreements approved, and other DOD debt collection procedures;
(3) number of debts and dollar amounts referred to the Department of the Treasury or the Department of Justice for collection, including specific amounts referred to the Treasury Offset Program (TOP) and amounts referred for litigation, as well as any other collection program; and
(4) number of debts and dollar amounts suspended, compromised, or terminated.
In addition, for all outstanding debts as of the end of each fiscal year, we would like to know the number of debts and dollar value that are more than 3 months, 6 months, 9 months, 1 year, 2 years and 5 years old.
We understand that DFAS processes all contractor and vendor debts for DOD. Please let us know if this is not the case.
Thank you for your attention to this information request. Please consider Peter Tyler (202-224-8707) of Senator Carper's staff as the point of contact.
Senator Tom Carper
Senator Scott Brown
Senator Tom Coburn
Senator Claire McCaskill