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Lawmakers Say System Encourages Improper Billing

May 5, 1985

WASHINGTON (AP) _ Defense contractors bill the taxpayers for such things as haircuts and belt buckles knowing they won’t be penalized if caught by Pentagon auditors, two House Armed Services subcommittee chairmen said Sunday.

″They do this because there’s no penalty for submitting even the most outrageous bill to the government,″ Rep. Bill Nichols, D-Ala., of the investigations subcommittee said in a prepared statement.

Nichols, who along with Rep. Charles E. Bennett, D-Fla., of the seapower subcommittee, is investigating contractor billing practices, said that the Pentagon receives tens of thousands of bills monthly.

″The contractor is paid monthly based on estimates of future billings, although the Pentagon has started some new controls,″ Nichols said. ″The auditors are flooded with work and are years behind in trying to review the records.″

Nichols said that even when a contractor is caught submitting an improper bill, ″the worst that can happen is that he must repay the funds in question. But he’s had the use of the money in the meantime. It’s sort of a free loan.″

He and Bennett both said the government could discourage such bills by imposing interest charges on contractors.

Bennett said the Pentagon’s system for resolving disputed bills also encourages contractors to submit them.

″All the questionable bills earmarked by auditors are tossed into a big pot to be negotiated between the contractor and the service,″ Bennett said. ″The bigger the pot, the more the contractor is likely to get.″

Nichols said the findings of Pentagon auditors are not always supported by military officials who negotiate disputed bills with contractors.

″I’m not concerned that every penny questioned by an auditor be repaid,″ Nichols said. ″But I am concerned that government negotiators may be letting abusive claims slip through.

″One problem is that when claims are negotiated as part of a giant pot, the result is a single number,″ he said. ″You don’t know whether the haircut bill was approved and the belt buckle bill rejected. To eliminate that problem would require tracking action on each questioned item individually.″

Bennett said imprecise federal regulations make it difficult to determine if a bill is legitimate.

″These regulations can never be so exact as to wipe out the gray area entirely, but we can certainly narrow it considerably,″ Bennett said.

The subcommittees last month began an investigation of billing practices by seven major defense contractors. So far, congressional auditors have questioned claims totaling $110 million out of total billings of about $3.7 billion.

The panels last week said they had found questionable items from all seven companies, including running a dining room where corporate executives ate free, $100 for a disco dance and hiring a public relations firm to help a contractor brighten its image following the crash of one of its commercial aircraft.

A Defense Department spokesman, Maj. Peter Hefler, said there would be no immediate comment on the Bennett-Nichols statement.

″I have nothing on that, and I doubt if I can get anything today,″ he said.

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