Prompt Payment Act Interest Penalties Paid by the Department of Justice During Fiscal Years 2002 and 2003, Information Report 04-09

Report No. 04-09
December 2003
Office of the Inspector General

SUBJECT: Prompt Payment Act Interest Penalties Paid by the
Department of Justice During Fiscal Years 2002
and 2003, Information Report 04-09

On February 25, 2002, we issued an information report (02-04) on the Prompt Payment Act Interest Penalties Paid by the Department of Justice (DOJ) during Fiscal Years (FY) 2000 and FY 2001. The report noted our concern with the increasing amounts of interest paid by the 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 FY 2002 and FY 2003.

The Prompt Payment Act (P.L. 100-496), as prescribed by the Prompt Pay regulations at 5 CFR Part 1315, 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 2002 and FY 2003 from their records. We relied on the information provided to DOJ's Justice Management Division (JMD) by each of the components and, accordingly, did not perform detailed tests to verify the information contained in the documentation received from the components and JMD. Thus, this report and the associated work was not performed in accordance with Government Auditing Standards (GAS), but was performed as another activity of an audit organization pursuant to GAS 2.14.

The following table contains the amount of interest penalties paid by each component from FY 1999 through FY 2003.1

Component FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
Bureau of Prisons
(BOP)/Federal Prison
Industries (FPI)2
180,148 525,020 - - -
BOP2 - - 105,503 52,176 67,393
FPI2 - - 1,022,352 172,322 61,074
Drug Enforcement
Administration (DEA)
850,438 836,148 551,127 259,636 102,649
Federal Bureau of
Investigation (FBI)
661,183 1,015,521 2,022,361 912,225 689,600
Immigration and
Naturalization Service (INS)3
707,181 1,631,512 1,583,973 578,652 293,712
Office of Justice Programs
663 86,549 86,163 76,864 52,046
United States Marshals
Service (USMS)4
200,092 63,581 95,739 45,094 128,092
Alcohol, Tobacco, Firearms, and Explosives (ATF)5 - - - - 39,542
Assets Forfeiture Fund
(AFF)/ Offices, Boards, &
Divisions (OBD)/ Working
Capital Fund (WCF)
373,614 373,137 384,922 339,436 276,361
Total DOJ $2,973,319 $4,531,468 $5,852,140 $2,536,405 $1,710,469

As we reported previously, we were concerned by the significant increase in interest penalties paid in FY 2001. However, the Department has taken aggressive action given the significant decreases in FYs 2002 and 2003, as demonstrated in the chart below:

Interest Penalties Paid by the U.S. Department of Justice. For a text version of this chart click the chart.

As indicated in the table below, each component (excluding consideration of the USMS which did not previously report field office interest penalties paid) reduced the amount of interest penalties paid from our last report.

Trend Analysis
Component FY 1999 to
FY 2000
FY 2000 to
FY 2001
FY 2001 to
FY 2002
FY 2002 to
FY 2003
BOP/FPI 191.4% 114.8% - -
    -BOP - - 44.2% -55.7%
    -FPI - - -83.1% -64.6%
DEA -1.7% -34.1% -52.9% -60.5%
FBI 53.6% 99.1% -54.9% -24.4%
INS 130.7% -2.9% -63.5% -49.2%
OJP 12,954.1% -0.4% -10.8% -32.3%
USMS -68.2% 50.6% -52.9% 184.1%
ATF - - - -
AFF/OBDs/WCF -0.1% 3.2% -11.8% -18.6%
Overall DOJ 52.4% 29.1% -56.7% -32.6%

Effective and efficient management of funds disbursed is a critical function. 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 2002 and FY 2003 approximately $2.5 million and $1.7 million, respectively, of the DOJ's resources were unavailable for operational purposes because the funds were used to pay Prompt Payment interest penalties. However, significant progress has been made since the FY 2001 Report. The Department should continue to monitor interest penalties paid by components to ensure these amounts are minimal.

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: Lee J. Lofthus
Deputy Assistant Attorney General,
Deputy Chief Financial Officer
Justice Management Division

Melinda Morgan
Acting Director, Finance Staff
Justice Management Division

  1. FY 1999 interest penalties paid amounts were previously reported in Information Report 01-02, dated December 5, 2000.
  2. For FY 1999 and FY 2000 the BOP and FPI interest penalties paid amount is combined.
  3. The INS was transferred to the Department of Homeland Security on February 28, 2003. Therefore, the amount reported for FY 2003 only includes interest paid through February 28, 2003.
  4. Beginning in FY 2003, the USMS began reporting the amount of interest penalties paid by its field offices. Previous FYs only include the amount of interest penalties paid by the USMS headquarters.
  5. The ATF was transferred to the Department of Justice on January 24, 2003. Therefore, the amount reported for FY 2003 only includes interest penalties paid since January 24, 2003.