DOD Financial Management:

Improvements Needed in Prompt Payment Monitoring and Reporting

GAO-12-662R: Published: Jun 26, 2012. Publicly Released: Jun 26, 2012.

Additional Materials:

Contact:

Asif A. Khan
(202) 512-3000
khana@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

We found that while DOD has a process in place for monitoring and reporting on late-payment penalties, this process has significant flaws and omissions that result in incomplete and inaccurate data, thereby limiting the effectiveness of the process. Specifically, DOD’s performance measure, or metric, for late-payment penalties did not include about $54 billion of commercial payments subject to the Prompt Payment Act, and DOD did not assess the data for accuracy or completeness. In addition, at the time of our review, DOD was not monitoring or reporting on discounts lost across the department because, DOD officials stated, the metric had consistently met its goal. The deficiencies we found in DOD’s process for monitoring and reporting on late-payment penalties and discounts lost significantly increase the risk to the accuracy and completeness of reported data, thus preventing DOD officials and congressional oversight committees from obtaining the reliable and comprehensive data they need for assessing the extent of any issues concerning late-payment penalties and discounts lost across DOD. According to DOD officials and reports, a major contributor to late-payment penalties incurred and discounts lost was the late receipt of documents necessary to validate receipt and acceptance of goods or services and make payments. We are recommending that DOD establish procedures for identifying all DOD systems that process commercial payments, validating completeness and accuracy of late-payment penalty metric data, and monitoring discounts lost. In commenting on a draft of our report, DOD concurred with our recommendations and cited planned corrective actions to address the issues that gave rise to our recommendations.

Why GAO Did This Study

The Prompt Payment Act, as amended, requires executive-branch agencies, including the Department of Defense (DOD), to pay late-payment penalties when they do not pay their invoices for commercial payments on time. DOD’s Prompt Payment Act implementing regulations provide that DOD components should take advantage of discounts offered when a contract or invoice allows an economically justified discount for early payment. Given concern that DOD sometimes incurred late-payment penalties and had not taken full advantage of prompt-payment discounts, the committee report accompanying the 2012 national defense authorization legislation directed that GAO review and report on the issue.

To address this requirement, and as agreed upon with Congressional offices, our objectives were to (1) determine whether DOD’s process for monitoring and reporting on its late-payment penalties and discounts lost accurately reflected the extent of such penalties paid and discounts lost and (2) report on any causes DOD identified for incurring late-payment penalties and forgoing prompt-payment discounts.

What GAO Recommends

To ensure that the Department of Defense accurately reports and effectively monitors late-payment penalties and discounts lost on commercial payments subject to the Prompt Payment Act, we recommend that the Secretary of Defense direct the Deputy Chief Financial Officer, through the Office of the Under Secretary of Defense (Comptroller), to establish procedures for

(1) identifying all DOD systems that process commercial payments and assuring that the late-payment penalties metric data are compiled from the complete population of commercial payments subject to the Prompt Payment Act,

(2) validating the accuracy and completeness of the data compiled and reported as DOD’s late-payment penalties metric, and

(3) monitoring discounts lost DOD-wide based on periodic risk assessments.

For more information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Deputy Chief Financial Officer issued a memorandum in October 2012 that required the inclusion of payments from non-DFAS systems, including Other DOD Paying Agents and Non-Appropriated Funds Instrumentalities, in the monthly interest penalty paid and discounts lost metrics beginning in fiscal year 2013. This action enhances the ability of DOD officials and congressional oversight committees to obtain reliable and comprehensive data on late-payment penalties across DOD, as well as the ability to identify potential cost savings related to late-payment penalties.

    Recommendation: To ensure that the Department of Defense accurately reports and effectively monitors late-payment penalties and discounts lost on commercial payments subject to the Prompt Payment Act, the Secretary of Defense should direct the Deputy Chief Financial Officer, through the Office of the Under Secretary of Defense (Comptroller), to establish procedures for identifying all DOD systems that process commercial payments and assuring that the late-payment penalties metric data are compiled from the complete population of commercial payments subject to the Prompt Payment Act.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Deputy Chief Financial Officer issued a memorandum in October 2012 that required every DOD component, as well as other DOD Paying Agents and Non-Appropriated Funds Instrumentalities, to participate in the OUSD(C) metrics program. In addition, the Defense Finance and Accounting Service (DFAS) established a division charged with the development of metrics that can be utilized to report the health and status of DFAS Operations within the categories of cost, quality, and performance. This division issued a guidance document on its validation process to ensure the accuracy and completeness of the late-payment-penalties metric.

    Recommendation: To ensure that the Department of Defense accurately reports and effectively monitors late-payment penalties and discounts lost on commercial payments subject to the Prompt Payment Act, the Secretary of Defense should direct the Deputy Chief Financial Officer, through the Office of the Under Secretary of Defense (Comptroller), to establish procedures for validating the accuracy and completeness of the data compiled and reported as DOD's late-payment penalties metric.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The Deputy Chief Financial Officer issued a memorandum that reinstated the discounts lost metric in fiscal year 2013. In addition, DOD included the discounts lost metric in the fiscal year 2013 Financial Operations and Strategic Management Plan Metrics Dictionary. These actions enhance the ability of DOD officials and congressional oversight committees to obtain reliable and comprehensive data on the extent of any issues concerning discounts lost across DOD, as well as the ability to identify potential cost savings related to discounts.

    Recommendation: To ensure that the Department of Defense accurately reports and effectively monitors late-payment penalties and discounts lost on commercial payments subject to the Prompt Payment Act, the Secretary of Defense should direct the Deputy Chief Financial Officer, through the Office of the Under Secretary of Defense (Comptroller), to establish procedures for monitoring discounts lost DOD-wide based on periodic risk assessments.

    Agency Affected: Department of Defense

 

Explore the full database of GAO's Open Recommendations »

Aug 27, 2015

Aug 26, 2015

Aug 12, 2015

Aug 11, 2015

Jul 31, 2015

Jul 30, 2015

Jul 27, 2015

Jul 23, 2015

Jul 21, 2015

Jul 20, 2015

Looking for more? Browse all our products here