DOD Financial Management: Improvements Needed in Prompt Payment Monitoring and Reporting

The Prompt Payment Act, as amended, requires executive-branch agencies, including the Department of Defense (DoD), to pay late-payment penalties when they do not pay their invoices for commercial payments on time. DoD's Prompt Payment Act implementing regulations provide that DoD components should take advantage of discounts offered when a contract or invoice allows an economically justified discount for early payment. Given concern that DoD sometimes incurred late-payment penalties and had not taken full advantage of prompt-payment discounts, the committee report accompanying the 2012 national defense authorization legislation directed that GAO review and report on the issue. To address this requirement, and as agreed upon with your offices, our objectives were to do the following: (1) determine whether DoD's process for monitoring and reporting on its late-payment penalties and discounts lost accurately reflected the extent of such penalties paid and discounts lost, and (2) report on any causes DoD identified for incurring late-payment penalties and forgoing prompt-payment discounts. To address our first objective, we analyzed applicable laws, regulations, and DoD documents to identify requirements related to prompt payments, reviewed documentation, and interviewed officials to obtain explanations and clarifications on DoD's process and controls for tracking and reporting on late-payment penalties and discounts lost across DoD. To address our second objective, we interviewed DoD officials and reviewed documentation, including the problems and corrective actions DoD reported on its financial operations metrics briefings, to determine DoD's identified causes of late-payment penalties incurred and discounts lost. We conducted this performance audit from October 2011 to June 2012 in accordance with generally accepted government auditing standards.