MANY FEDERAL CONTRACTORS AND GRANTEES ARE POCKETING THE DOLLARS DISCLOSED IN AUDITING DISCREPANCIES EVEN THOUGH THEY ARE NOT ENTITLED TO THE FUNDS. IN ADDITION, SIZABLE SAVINGS IN OPERATING COSTS ARE BEING FOREGONE BY FAILURE TO ACT PROMPTLY ON FINDINGS INVOLVING INTERNAL AGENCY OPERATIONS. THESE OBSERVATIONS ARE SOME OF THE RESULTS OF GAO'S REVIEW OF AUDITING ACTIVITIES OF GOVERNMENT DEPARTMENTS AND AGENCIES PURSUANT TO THE BUDGET AND ACCOUNTING ACT, 1921 AND THE ACCOUNTING AND AUDITING ACT OF 1950. GAO'S EXAMINATION DISCLOSED THAT $4.3 BILLION IN AUDIT FINDINGS, CONTAINED IN NEARLY 14,000 AUDIT REPORTS OF 34 AGENCIES, HAD NOT BEEN RESOLVED. ABOUT 80 PERCENT OF THIS AMOUNT INVOLVES POTENTIAL RECOVERIES FROM GRANTEES AND CONTRACTORS; THE REMAINING 20 PERCENT, SAVINGS IN OPERATING COSTS. A STUDY OF SIX MAJOR AGENCIES SHOWED THAT RESOLUTIONS DRAG OUT FOR YEARS AND THAT OFFICIALS OFTEN RESOLVE VALID FINDINGS IN THE GRANTEE'S OR CONTRACTOR'S FAVOR WITHOUT ADEQUATE EXPLANATION. OFFICIALS APPEAR TO FIND THE TASK OF RESOLVING DISCREPANCIES ONEROUS AND GIVE IT A LOW PRIORITY. MOREOVER, FEW AGENCIES HAVE ADEQUATE SYSTEMS FOR TRACKING AND RESOLVING AUDIT FINDINGS. GAO MAKES THESE SUGGESTIONS: (1) REQUIRE AGENCY AUDITORS TO KEEP ACCURATE RECORDS OF ALL FINDINGS UNTIL FINAL DISPOSITIONS ARE MADE: (2) ALLOW PROGRAM ADMINISTRATORS 6 MONTHS ONLY TO REACH DECISIONS ON WHAT AMOUNT IS DUE FROM GRANTEES OR CONTRACTORS AS THE RESULT OF AUDIT FINDINGS; (3) APPOINT AN INDEPENDENT OFFICIAL TO DECIDE WHETHER TO MAKE RECOVERIES ON FINDINGS NOT DECIDED WITHIN THIS TIME FRAME AND REQUIRE THE OFFICIAL TO MAKE QUARTERLY REPORTS; (4) ESTABLISH ACCOUNTING AND COLLECTION CONTROLS; AND (5) REQUIRE AGENCIES WHO DECIDE AGAINST COLLECTION TO RESOLVE UNDERLYING CAUSES OF DEBT. APPENDIXES CONTAIN AUDIT DATA AND A COPY OF A RELEVANT DECISION. (AUTHOR ABSTRACT MODIFIED--DAG)