Pentagon not spotting overpayments to contractors, IG finds

Report comes as scrutiny of Defense’s budget intensifies.

The Defense Department is not adequately uncovering large overpayments to contractors, according to the Pentagon's internal watchdog.

A recent department search for such overpayments was both "inaccurate and incomplete," the Defense inspector general reported Wednesday.

Less than half the department's $303.7 billion in first quarter expenditures last year were reviewed for overpayments, the IG report found. Unless senior officials improve their review methodology and oversight, Defense "will continue to understate the department's high-dollar overpayments and error rate," the report warned.

"This is clearly unacceptable," said Sen. Tom Carper, D-Del., chairman of the Senate Subcommittee on Federal Financial Management. "The Pentagon has to do a much better job in identifying and eliminating improper payments. We need to look in every nook and cranny of federal spending -- domestic and defense -- to find ways to cut waste and fraud. "

The report comes as scrutiny of Defense's budget has increased among lawmakers. Last June, a bipartisan group of legislators urged the Obama-appointed deficit commission to consider nearly $1 trillion in Defense savings during the next decade. During debate last month over fiscal 2011 spending, the House passed an amendment to cut funding for the F-35 Joint Strike Fighter alternate engine, though the measure was not included in the final bill.

Charles Knight, co-director of the Project on Defense Alternatives, warned that accounting problems at Defense had contributed to the growth of the department's spending during the past decade. "The finding in this report . . . reveal another small piece of the longtime failure of [Defense] to meet basic auditing standards," Knight said.

The IG report was based on the results of the Pentagon's first attempt to screen and report high-value overpayments, which are defined as payments 50 percent larger than the correct amount for contracts of more than $5,000 to individuals and $25,000 to organizations.

The agency conducted that review in response to a November 2009 executive order that requires agency chiefs to publicly submit quarterly reports on significant overpayments found and recovered.