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Pentagon paid $409 for $39 sink, auditors find

WASHINGTON — In a high-tech twist to a familiar Pentagon problem, a computer system designed to prevent purchases of overpriced hammers and toilet seats created some excesses of its own — including spending $409 on a sink worth just $39.

The Defense Department installed the system to automate purchases and eliminate possible fraud by human buyers. But the computer never checked more than one vendor to get the best price.

Besides buying six of the high-priced sinks, the system bought screws for $2 that should have cost less than 50 cents and "dust protection plugs" for 25 cents that actually cost just pennies, according to a Pentagon inspector general report obtained by the Associated Press.

The report said contractors probably know how to cheat the system without getting caught. Auditors estimated that overpayments accounted for $1.2 million of the $14 million in automated purchases they reviewed from April 1999 through March 2000.

"It is now time to change the process," the auditors wrote last week.

The Defense Logistics Agency — the Pentagon's purchasing manager — is upgrading the computer system so it can check prices from several suppliers to find the lowest one. Still, agency officials criticized the $1.2 million overpayment estimate, saying auditors should have deducted more than $45,000 in vendors' refunds.

"We've already gone back to get a refund" of $2,142 for the overpriced sinks, DLA spokeswoman Gerda Parr said Wednesday.

The Pentagon was the target of ridicule — from members of Congress to comedians — in the 1980s for wasteful spending like a $640 airplane toilet cover and a $435 hammer. The overcharging problem remains despite more than a decade of attempts to stamp it out: Examples from the past few years include a $350 ball bearing and a $76 screw.

Critics say some changes meant to streamline the Pentagon's purchasing system have made it more difficult to root out price gouging.

The latest problem involved a computer system that handles purchases of less than $2,500 at the Defense Supply Center in Philadelphia.

When the supply center needs something, the system picks the supplier whose name is at the top of a rotating list of vendors. The system alerts human buyers only when a price is more than 25 percent higher than the last price paid for the same item.

Even then, overpriced purchases often were approved, the inspector general's report said.

"Probably every vendor knows they can mark up a purchase by 25 percent over the highest previous price paid before DLA does a theoretical manual review," the auditors said.

Auditors also criticized the agency's method of determining when a supplier had charged more than the 30 percent markup allowed in their contracts.

Under the current "E-Z Quant" tracking system, the agency looks at all of a company's contracts together to see if the markup is more than 30 percent. Inspector general auditors say the agency should look at each sale individually to catch scattered incidents of price gouging.

"The vendors are probably aware that if their overall markups average less than 30 percent they will never be questioned," the auditors wrote.

Defense Logistics Agency officials responded that they had been using E-Z Quant since 1992 and saw no reason to change it.

"While we are sometimes overcharged on individual low dollar value awards, E-Z Quant provides a fair and effective means of protecting the government's interests," DLA Deputy Director Frank Lotts wrote to the auditors.

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