Prompt Payment Act:

Military Exchanges Had Problems in Paying on Time

AFMD-88-17: Published: Feb 9, 1988. Publicly Released: Mar 10, 1988.

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In response to a congressional request, GAO reviewed the military exchanges to: (1) determine whether the exchanges were complying with the Prompt Payment Act; (2) evaluate their payment procedures and internal controls for ensuring timely payments; and (3) obtain information on vendor complaints and exchange initiatives to resolve payment-timing problems.

GAO found that: (1) of the 250 invoices it reviewed, the exchanges paid 60 late, 28 early, and 162 on time; (2) most exchanges did not pay vendors the required interest penalties; (3) internal controls in three of the six payment systems led to improper discounts, nonpayment of interest, and inconsistent exact-due-date calculations; (4) the Navy overrode the adequate payment-timing features in two of its automated systems to avoid losing cash discounts and paying interest penalties; (5) five automated payment systems contained inaccurate due-date terms for many purchase agreements; (6) the exchange staff's failure to establish accurate starting dates for 30-day payment periods led to early payments; and (7) although Navy exchange policy required retention of purchase agreements for at least 2 years, it had discarded some recent invoices.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: AAFES management has established a policy instructing field payment offices to pay vendors in accordance with prompt payment provisions instead of immediately after receipt of an invoice and acceptance of the goods.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army and the Air Force regarding their military exchanges to establish due-date terms in written agreements for any types of payments that will be made in other than 30 days.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: As an interim measure, on April 14, 1988, a memo was sent to managers reemphasizing proper discount payment procedures. The Mahual, ESM 55-11, was revised on January 30, 1989 to reflect the recommended change.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army and the Air Force regarding their military exchanges to clarify their regional accounting procedures manual to specify that improperly taken discounts should be refunded voluntarily.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: AAFES internal auditors have added this to its audit checklist. A review of the contracts and file maintenance was completed in June 1988, which found major discrepancies. NAVRESSO has completed a first cycle of on-going training regarding the importance of payment terms and ADP system enhancements. The procurement management team has added a review of payment terms to its audit checklist.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army, the Air Force, and the Navy to improve payment timeliness by military exchanges by periodically reviewing whether payment due-date terms on the automated payment systems are consistent with contractual provisions.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: AAFES reemphasized the importance of this policy to its vendor payment offices. NAVRESSO has developed and implemented measures to facilitate timely payment and has initiated on-going training classes. On November 2, 1987, NAVRESSO notified its payment offices to comply with documentation retention requirements.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army, the Air Force, and the Navy to improve payment timeliness by military exchanges by enforcing policies to record the specific dates needed to calculate exactly when bills are due and to retain applicable supporting payment documentation long enough to allow research on payment inquiries.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: AAFES approved a $48-million program to improve its management information systems, including accounts payable. The upgrade will provide faster and more reliable payments. The contract was awarded on September 30, 1988 to Coopers and Lybrand. AAFES is developing payment system enhancements targeted for the summer of 1990. AAFES work will be phased into Coopers and Lybrand's 5-year effort.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army and the Air Force to require the exchange system to incorporate additional automated features as part of the ongoing systems modification work. The regional and headquarters payment systems should include features to: (1) routinely compute an interest penalty payment for invoices paid after a grace period; and (2) recalculate a payment due date based on terms for the full invoice amount when an offered discount period has expired. Such revisions would allow more efficient administration of prompt payment objectives and provide the same system capabilities already available in the Navy exchange payment systems.

    Agency Affected: Department of Defense

 

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