Payment Processing:

Validation After Payment on a Sampling Basis

AIMD-98-8R: Published: Oct 21, 1997. Publicly Released: Oct 21, 1997.

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GAO provided information on the Department of Housing and Urban Development's proposed use of a "fast-pay" process to validate receipt and acceptance of goods and services ordered and the accuracy of invoices after payment certification for purchases costing $2500 or less. This process would be in lieu of the validation, required by Title 7 of GAO's Policy and Procedures Manual for Guidance of Federal Agencies, in most instances prior to payment certification. GAO noted that, since it has not tested HUD's system, its response only addresses the issue conceptually.

GAO noted that: (1) generally, to minimize the risks of overpayments, fast pay procedures are used with reliable vendors who have an ongoing relationship with an agency; (2) recovery of overpayment is usually assured through an off-set process on subsequent invoices; (3) vendors doing business with HUD for the first time would not have a prior relationship; (4) HUD should verify receipt and acceptance and invoice accuracy prior to payment certification until such time as confidence is gained in the vendor's ability to provide timely and quality goods and services and accurate billings; (5) for vendors identified as poor risks, HUD should confirm receipt and acceptance and verify invoice accuracy prior to payment certification until the vendor establishes a reliable relationship with HUD; (6) Title 7 requires that when statistical sampling is combined with fast pay, as proposed by HUD, the plan must provide for: (a) invoice examination to be commensurate with the risk to the government; (b) sampling of all invoices under $2500 not subject to complete examination; (c) effective monitoring to ensure that the risks to the government remain within tolerable limits; and (d) a continuing relationship with the vendor such that the risk of loss is minimized; (7) if properly implemented, HUD's sampling and monitoring plans meet the requirements of Title 7; (8) the Federal Managers' Financial Integrity Act of 1982 (FMFIA) requires agencies to review their systems of internal accounting and administrative controls and annually report material weaknesses; and (9) during the initial period and/or the first full year the payment system modifications are operational, HUD's FMFIA reviews should specifically emphasize testing the modifications by determining if the controls are effective and working as designed.

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