GAO found that DOD has processes for monitoring and reporting on late payments, but it has serious flaws.
Later this year, defense officials hope to find out just how much money they are paying in late fees and also identify early-payment discounts they've missed out on.
Beginning Oct. 1, the individual defense agencies will take responsibility for tracking their payments and setting metrics to gather the data. DOD officials also plan to identify, as best they can, the total amount of discounts DOD has lost due to some systems' limitations, wrote Mark Easton, deputy chief financial officer at the Defense Department, in a letter to the Government Accountability Office.
Once officials gather information, they will expect to issue procedures that address how to monitor and report on discounts lost department-wide. They expect to set the procedures by the start of fiscal 2013.
GAO included Easton’s responses to its report to Sen. Carl Levin (D-Mich.), chairman of the Armed Services Committee. The report was released June 26. GAO found that DOD has processes for monitoring and reporting on its late payments, but the processes have serious flaws. As a result, officials have incomplete and inaccurate data on the penalties for sending out a payment late.
DOD’s current late-payment penalty metric data did not include nine systems that process commercial payments, and officials had not validated the data. As for discounts lost because DOD didn't issue invoices early, GAO found officials have not conducted department-wide monitoring since fiscal 2007.
Easton wrote in his letter that DOD sends out fewer late payments since the advent of the electronic payment.
“The expansion of electronic commerce and other process improvements have reduced late payments and associated penalties over recent years,” he wrote.
He acknowledged though that DOD still has gaps in checking all of its systems’ data. Since starting modernization efforts, DOD has moved more payments and entitlement work to systems where the information was not adequately captured and reported on.
GAO said dollar figures for late-payment penalties have decreased, but it may be masked by incomplete reporting. According to reports from the deputy CFO, the ratio of late-payment penalties paid to million dollars of invoices paid has decreased 81 percent since 2001, from an average of $343 in penalties in fiscal 2001 to $65 in fiscal 2011.
Yet, in its own analysis of data, GAO said the trend is misleading because the Defense Finance and Accounting Service did not consider penalties on roughly $54 billion in payments subject to the Prompt Payment Act from nine systems.
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