Pentagon faulted for not collecting contractor debts

The Defense Department has allowed delinquent contractors to avoid paying as much as $209 million owed the government, according to a letter released on Monday by four senators.

The bipartisan group, whose members serve on the Homeland Security and Governmental Affairs Committee, asked the Pentagon for a current inventory of contractor accounts receivable and pending contractor debt in dollar amounts from fiscal 2005 through fiscal 2010.

"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. Tom Carper, D-Del., chairman of the Subcommittee on Federal Financial Management, in the letter to Teresa McKay, director of the Defense Finance and Accounting Service. "The department's poor bookkeeping can mean that delinquent contractors who owe the government money might actually still be receiving payments from the government."

Sen. Scott Brown, R-Mass., who joined in signing the letter with Sens. Tom Coburn, R-Okla., and Claire McCaskill, D-Mo., said Defense Secretary Leon Panetta in his July confirmation hearing "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 toward finally getting its financial house in order."

The senators based their charges of poor financial management on a July 15 Defense inspector general report titled "Defense Finance and Accounting Service Needs More Effective Controls Over Managing Contractor Debt."

It found that DFAS management "did not have controls for recording contractor identification information and did not have effective controls for tracking contractor debts." Specifically, it said DFAS personnel lacked taxpayer identification numbers sand commercial and government entity codes for many of the contractor debt transactions the auditors sampled. Nor did they have the required documentation supporting the appropriation, line of accounting, original principal, or delinquent age attributes for many of the transactions. They also "did not properly record or track contractor debt," resulting in total uncollected debt for fiscal 2009 at $209.3 million.

In addition, the senators cited the Government Accountability Office's ongoing policy of keeping the Pentagon's financial management programs on its high-risk list. "Over the years, DoD has initiated numerous efforts to improve the department's financial management operations and achieve an unqualified (clean) opinion on the reliability of its reported financial information," GAO said in a July report. "These efforts have fallen short of sustained improvement in financial management or financial statement auditability."

In addition to the inventory of outstanding debts, the senators asked for "the 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 and amounts referred for litigation, as well as any other collection programs."

Defense did not respond before publication to requests for comment.

Winslow Wheeler, director of the Straus Military Reform Project at the Center for Defense Information, called the letter "a useful but small step.

"Given the chaos and inscrutability of almost all DoD transactions," he said in an email to Government Executive, "I cannot help but ask why members of Congress are not sending letters like this on other financial black holes -- such as the amount of overhead that Lockheed Martin charges for the F-35 and what exactly is that money truly spent on -- every single day."

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