Prompt Payment Act Interest Penalties
Paid by the Department of Justice During
Fiscal Years 2000 and 2001
Report No. 02-04
February 25, 2002
Office of the Inspector General
February 25, 2002
| MEMORANDUM FOR | ROBERT F. DIEGELMAN
ACTING ASSISTANT ATTORNEY GENERAL FOR ADMINISTRATION JUSTICE MANAGEMENT DIVISION |
| FROM: | GLENN A. FINE
INSPECTOR GENERAL |
| SUBJECT: | Prompt Payment Act Interest Penalties
Paid by the Department of Justice During Fiscal Years 2000 and 2001, Information Report 02-04 |
On December 5, 2000, we issued an information report noting our concern with the increasing amounts of interest paid by the Department of Justice (DOJ) as a result of the Prompt Payment Act. The purpose of this report is to update you on the amounts of Prompt Payment interest penalties paid in fiscal years (FY) 2000 and 2001.
The Prompt Payment Act (P.L. 100-496), as prescribed in the Office of Management and Budget (OMB) Circular A-125 (Revised), requires executive departments to pay contractors interest penalties when payments are late. By paying contractors timely, the government enhances relationships with contractors, improves competition for government business, and reduces the cost of property and services by avoiding interest payments. Payments to contractors must be based on the receipt of proper invoices or progress payment requests and satisfactory performance of contract terms. If agencies fail to make timely payment, interest penalties must be paid. These penalties are to be paid automatically without contractors having to request them. The agencies must absorb the cost of these penalties from available funds of the program for which the payment was late.
We obtained the amounts of interest penalties DOJ components paid for FY 1999 through FY 2001 from their records. We relied on the information provided by each of the components and, accordingly, did not perform detailed tests to verify the information contained in the documentation received from the components. Thus, this report and the associated work was not performed in accordance with Government Auditing Standards (GAS), but was performed as an other activity of an audit organization pursuant to GAS 2.10.
The following table contains the amount of interest paid by each component from FY 1999 through 2001:
INTEREST PENALTIES PAID BY THE DEPARTMENT OF JUSTICE AS A RESULT OF THE PROMPT PAYMENT ACT
| Component | FY 1999 | FY 2000 | FY 2001 |
|---|---|---|---|
| Drug Enforcement Administration | $ 850,438 | $ 836,148 | $ 551,127 |
| Federal Bureau of Investigation | 661,183 | 1,015,521 | 2,022,361 |
| Federal Prison Industries/Bureau of Prisons | 180,148 | 525,020 | 1,076,764 |
| Immigration and Naturalization Service | 707,181 | 1,631,512 | 1,583,973 |
| Office of Justice Programs | 663 | 86,549 | 86,163 |
| United States Marshals Service | 200,092 | 63,581 | 95,739 |
| Assets Forfeiture Fund/Offices, Boards & Divisions/Working Capital Fund | 373,614 | 373,137 | 384,922 |
| Total - Department of Justice | $2,973,319 | $4,531,468 | $5,801,049 |
The amount of interest penalties paid by the DOJ has significantly increased since FY 1999. By comparison, the interest penalties paid in 1995, 1996, and 1997 were $1.1M; $1.2M; and $1.3M respectively. (Note: Congress repealed Section 3609 of the Prompt Payment Act by Section 1301 (c) of the Federal Reports Elimination Act of 1998. Thus, FY 1998 Prompt Payment statistics are not available.)
The DOJ, as a whole, should be concerned with improving its cash management. This has been a continuing issue in the financial statement audits for the last six years. Effective and efficient management of funds disbursed is a critical function that must be addressed. It is important that purchases and transactions be processed and paid in a manner that will achieve the lowest possible cost to the DOJ since interest costs are funded out of agency resources. Thus, in FY 2001, almost $6 million of the DOJ's resources were unavailable for operational purposes because the funds were used to pay Prompt Payment interest penalties.
We recommend that, in your capacity as Acting Chief Financial Officer of the DOJ, you monitor each of the components to ensure the timely payment of bills. This may involve components periodically submitting Prompt Payment statistics to the Justice Management Division for review and monitoring.
As this report is advisory in nature, no formal response is required. However, we would appreciate your keeping us informed of any action taken in this regard. If you have any questions pertaining to the above issue, please contact me on (202) 514-3435 or Marilyn A. Kessinger, Director, Financial Statement Audit Office, on (202) 616-4660.
| cc: | Eugene Schied Deputy Assistant Attorney General/Controller Deputy Chief Financial Officer Justice Management Division Lee J. Loftus Vickie L. Sloan |