Financial Management:

DOD Progress Payment Distribution Procedures

AIMD-97-107R: Published: Jul 21, 1997. Publicly Released: Jul 21, 1997.

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Pursuant to a congressional request, GAO provided information on selected Department of Defense (DOD) progress payment accounting methods which are being used, or have been used over the past several years, to distribute contract progress payments, focusing on the differences between and results of each of the progress payment accounting methods.

GAO noted that: (1) Defense Finance and Accounting Service (DFAS) officials stated that DOD Financial Management Regulation defines two basic methods for distributing progress payments: (a) specific instructions as requested and directed in a contract; and (b) proration using obligation balances as the basis (commonly referred to as the Automatic Payment of Invoices (API) method); (2) according to DFAS officials, an October 3, 1995, policy memorandum issued by DFAS-Columbus is to be followed when payments are rejected for automatic allocation and staff have to resort to manually allocating progress payments among the funding appropriations which represents a third method; (3) GAO's work in the disbursement area has identified other accounting methods used by DFAS-Columbus personnel to distribute progress payments; (4) in addition, when recording the payment transaction in the official accounting records, accounting station personnel have used other methods, which may change the original distribution made by DFAS-Columbus; (5) GAO was also asked to demonstrate the results of applying the following two progress payment distribution methods: (a) Air Force Regulation 177-120, Accounting and Finance Central Procurement Transactions, requires distribution to the oldest fiscal year funds first; and (b) DFAS-Columbus Desk Procedure 302, Manual Distribution, was finalized on March 16, 1992, and applied the same methodology as the API procedures for those progress payments rejected from the automated process; (6) GAO presented a table summarizing the effect of applying each of the progress payment distribution methods to the same progress payment request of $1,525,000; and (7) the amount distributed varied from nothing to the entire payment, depending on the method used.

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