Improving Cash Management by Using 'Checks Paid' Method to Reimburse Army Ammunition Plant Contractors

PSAD-77-52: Published: Nov 24, 1976. Publicly Released: Nov 24, 1976.

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A method of improving cash management in the Department of Defense (DOD) and reducing the cost of government borrowing is based on delaying disbursements from the Department of the Treasury to take greater advantage of the time value of money by converting from a checks-written basis to a checks-paid basis for reimbursing contractors. Interest expense to the government is thereby reduced. The technique can be advantageously applied in the Army's reimbursement of contractors who operate government-owned ammunition plants.

Under the proposed checks-paid letter-of-credit system, the contractor's bank would receive government funds when his checks were presented for payment. A review of eight ammunition plants suggests a saving of $290,000. Since there are 26 of these plants, total savings would be much greater.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: DOD, in conjunction with Treasury, should test the feasibility of using this method at selected plant sites. Should it prove feasible, possible application in other DOD cash management situations should be considered.

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