U.S. General Accounting Office Report

“Recommends” Recovery Auditing

Like many private sector business leaders, in 1996 the Secretary of Defense was required to evaluate the possibility of using a recovery audit firm to uncover overpayments made by the Department of Defense to their vendors. The United States General Accounting Office issued its findings after measuring the success of the process. Based on what they found, they seem to think it’s a great idea!

The program began in September 1996, and the recovery audit covered purchases made during fiscal years 1993-95. In late 1997, Congress authorized expansion of the program and in an August 1998 memorandum, the DOD Comptroller encouraged DOD agencies “to use recovery auditing as a way to identify and correct payment problems.”

The methods used resulted in the detection of $19.1 million in overpayments. Efforts to identify additional amounts continue. Of the $19.1 million in overpayments, $12.4 million was due to cash discounts not taken or deducted at the wrong rate, $2.2 million was related to most favored customer terms not received, $1.3 million was due to duplicate payments and $1.2 million related to credits not taken.

The fact that the overpayments were made 4 to 6 years before the audit recovery began, made overpayment identification or recovery challenging. Another example of “get it early or it’s gone” which is word to the wise for private companies.

Another hurdle was encountered by the recovery firm when they realized that the DOD payment system did not retain all of the information needed for analysis. In some instances they found that they had to manually sort through records. Another lesson for the private sector, make sure your computer system stores critical information.

In addition to identifying overpayments, the recovery firm also recommended methods, outside the scope of their contract, to reduce future overpayments. This is typical of many firms and another reason why recovery audits pay off.   The DOD concurred with the recommendations made by the recovery firm and is in the initial stages of implementing them. They believe “some of the recommendations are worthy of immediate consideration, do not require costly reprogramming of payment systems and if implemented could reduce future overpayments.”

For the full report from the GAO, see the below link: http://www.gao.gov/archive/1999/ns99012.pdf