Prompt Payment Act:

Agencies Have Not Fully Achieved Available Benefits

AFMD-86-69: Published: Aug 28, 1986. Publicly Released: Sep 29, 1986.

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Pursuant to a congressional request, GAO reviewed whether federal agencies are complying with the Prompt Payment Act by making timely payments to private businesses for the goods and services they provide annually.

GAO evaluated payment procedures at 39 selected payment centers and found that: (1) 24 percent of federal vendor payments were made after the due date; (2) required interest penalties were seldom paid; (3) agencies paid only one of every six penalties owed; (4) almost one-fifth of the prompt payment discounts taken occurred after the offer period expired; and (5) payments were usually late because of missing data and inaccurate agency interpretations of prompt payment requirements. GAO also found that: (1) federal agencies paid about 23 percent of their bills 5 or more days before they were due; (2) the annual reports on federal bill payment performance have been misleading and have not highlighted the need for corrective action; and (3) although federal agencies have taken some initiatives to reduce excessive late payments, they must establish controls to obtain necessary data and ensure the use of appropriate criteria when paying vendor invoices.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The Senate passed the Prompt Payment Act Amendments on October 9, 1987, but did not include this recommended change. Indications are that the House will not likely act on this issue.

    Matter: Congress should consider amending the Prompt Payment Act to add invoice receipt dates to the existing criteria for establishing due dates for meat and perishable agricultural products. This could be accomplished by defining payment periods for these items as starting on the date the items are delivered, or the date the invoice is received from the vendor, whichever is later.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On June 9, 1987, OMB issued its revised Circular A-125, Prompt Payment, which directs agencies to accomplish the corrective actions GAO recommended.

    Recommendation: The Director, Office of Management and Budget (OMB), should direct agencies to review their receiving and acceptance documents and associated procedural guidance to ensure that these documents, including invoices if used for this purpose, contain all pertinent data, including actual receipt and acceptance dates for goods or services. Also, receipt dates should be recorded on invoices and all such data should be forwarded to the appropriate payment center within OMB-established time frames.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: OMB issued its revised Circular A-125, Prompt Payment, on June 9, 1987, which directs agencies to accomplish the actions GAO recommended.

    Recommendation: The Director, OMB, should ensure that agencies have their procurement activities include payment due date terms in all contracts. Also, terms from the underlying contracts should appear on delivery orders.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: On June 9, 1987, OMB issued its revised Circular A-125, Prompt Payment, which directs that agency procurement officials forward copies of contracts to their payment offices immediately upon award.

    Recommendation: The Director, OMB, should instruct agencies to strengthen their payment process by ensuring that payment centers obtain applicable contracts, establish due dates, and take discounts based on contract terms.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: This recommendation was addressed in the changes to the FAR published on February 8, 1988.

    Recommendation: The Director, OMB, should establish, in coordination with the Department of Defense (DOD) and other agencies that commonly make interim payments, what payment period would be in the best interest of the government.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  5. Status: Closed - Implemented

    Comments: OMB issued its revised Circular A-125, Prompt Payment, on June 9, 1987, which requires that agencies include discount terms identical to those specified in FAR.

    Recommendation: The Director, OMB, should revise Circular A-125 to require that agencies include discount terms from the Federal Acquisition Regulation (FAR) in procurement contracts.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  6. Status: Closed - Not Implemented

    Comments: OMB does not plan to make such a change because it believes that agencies can achieve substantive compliance.

    Recommendation: The Director, OMB, should modify Circular A-125 to define early payments as 5 or more days before the due date for payment centers, which mail scheduled payments to the Treasury for check issuance.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  7. Status: Closed - Implemented

    Comments: OMB defined terms for discount periods if contracts do not provide such terms, in its June 9, 1987, revised Circular A-125. DOD must conform to OMB regulations.

    Recommendation: The Secretary of Defense should direct the military services to modify portions of their regulations to conform with policies in the Treasury Financial Manual if contracts or invoices do not contain due date terms for offered discounts.

    Agency Affected: Department of Defense

  8. Status: Closed - Not Implemented

    Comments: DOD contended that the current law intends that payment dates for such products be based partly on the date an invoice is received. GAO asked Congress to clarify the law in this point; however, it has not made a legislative change.

    Recommendation: The Secretary of Defense should direct the military services to modify portions of their regulations to conform with existing requirements for paying interest on any late payments of meat and perishable agricultural products. Pending any legislative change, interest should generally be paid regardless of whether an invoice was received in time to avoid paying late.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: DOD, GSA, and NASA published changes to the FAR on February 8, 1988, which provides agencies with more guidance on payment timing requirements and incorporates the provisions of OMB revised Circular A-125.

    Recommendation: The Administrator of General Services, the Secretary of Defense, and the Administrator of the National Aeronautics and Space Administration (NASA), should modify FAR to incorporate prompt payment provisions. This modification should specify payment within 30 days of receipt of a proper invoice or acceptance of goods or services, whichever is later. If the revision defines acceptance for calculating due dates as a specific number of days after delivery, the number of days specified should be used consistently unless other terms are justified.

    Agency Affected: Department of Defense

  10. Status: Closed - Implemented

    Comments: DOD, GSA, and NASA published final changes to the FAR on February 8, 1988, which incorporate the provisions as recommended by GAO.

    Recommendation: The Administrator of General Services, the Secretary of Defense, and the Administrator of the National Aeronautics and Space Administration (NASA), should modify FAR to incorporate prompt payment provisions. This modification should specify payment within 30 days of receipt of a proper invoice or acceptance of goods or services, whichever is later. If the revision defines acceptance for calculating due dates as a specific number of days after delivery, the number of days specified should be used consistently unless other terms are justified.

    Agency Affected: General Services Administration

  11. Status: Closed - Implemented

    Comments: DOD, GSA, and NASA published final changes to the FAR on February 8, 1988. The changes specify when payment is due as GAO recommended.

    Recommendation: The Administrator of General Services, the Secretary of Defense, and the Administrator of the National Aeronautics and Space Administration (NASA), should modify FAR to incorporate prompt payment provisions. This modification should specify payment within 30 days of receipt of a proper invoice or acceptance of goods or services, whichever is later. If the revision defines acceptance for calculating due dates as a specific number of days after delivery, the number of days specified should be used consistently unless other terms are justified.

    Agency Affected: National Aeronautics and Space Administration

  12. Status: Closed - Implemented

    Comments: GSA pursued the matter, as recommended, and found that state public utility commissions allow utility companies to have levelized payment plans only for residential customers, and that it is not feasible to obtain commercial tariff changes from the commissions.

    Recommendation: The Administrator of General Services should investigate the feasibility and cost-effectiveness of paying utility bills based on equal monthly payments and reconciliation of payments against actual usage at the end of an established period, such as 12 months. If the results of this study are positive, GSA should take steps to implement such an approach, including submission of any needed legislative recommendations.

    Agency Affected: General Services Administration

  13. Status: Closed - Implemented

    Comments: OMB acted on this recommendation by including the requirement in its revised Circular A-125.

    Recommendation: The Director, OMB, should expand agencies' reporting requirements and the summary report on late payments to selected congressional committees to also include the number, amounts, and percentage of commercial invoices paid: (1) during a grace period; and (2) after any applicable grace period that did not include any late payment penalties.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  14. Status: Closed - Implemented

    Comments: OMB modified its Circular A-125, effective June 9, 1987, and now requires expanded reporting, as GAO recommended.

    Recommendation: The Director, OMB, should modify OMB Circular A-125 to require reporting of both interest penalties under the act and other kinds of late charges, such as those assessed against utility payments made after the payment due date.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  15. Status: Closed - Implemented

    Comments: OMB defined payments accordingly in its June 9, 1987, revised Circular A-125.

    Recommendation: The Director, OMB, should clarify OMB Circular A-125 and its annual request for information from individual agencies by defining the term payment when used for reporting purposes to mean invoices.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  16. Status: Closed - Implemented

    Comments: OMB requires, in its June 9, 1987, revised Circular A-125, that agency inspectors general validate agency prompt payment related reporting.

    Recommendation: The Director, OMB, should analyze internal agency evaluations of payment timeliness on a selective basis to validate or question agency-reported statistics.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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