Interest Penalties Paid by the Department of Justice
as a Result of the Prompt Payment Act
for Fiscal Year 1999

Information Report 01-02
December 5, 2000
Office of the Inspector General

December 5, 2000
MEMORANDUM FOR:	Stephen R. Colgate Assistant Attorney General for Administration Chief Financial Officer Justice Management Division
FROM:	Glenn A. Fine Acting Inspector General
SUBJECT:	Interest Penalties Paid by the Department of Justice as a Result of the Prompt Payment Act for Fiscal Year 1999 -- Information Report 01-02

The purpose of this report is to inform you of the FY 1999 interest penalties paid under the Prompt Payment Act of 1989 by each component within the Department of Justice (DOJ).

The Prompt Payment Act (P.L. 100-496) as prescribed in Office of Management and Budget (OMB) Circular A-125 (Revised) requires Executive Departments to either pay contractors on time or to pay 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 to the Government for property and services. Payments to contractors must be based on the receipt of proper invoices or progress payment requests, and satisfactory performances of contract terms. Should agencies fail to make timely payment, interest penalties must be paid. These penalties must be paid automatically, without the contractors having to request them, and the agencies must absorb the cost of these penalties into funds available for the administration of the program for which the penalty was incurred.

We obtained the amount of interest penalties paid from the records of each of the components contained within the DOJ for FY 1999. We are relying on the information provided by each of the components and accordingly, we 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 activity of an audit organization pursuant to GAS 2.10.

The following table contains the amount of interest paid by each component during FY 1999:

INTEREST PENALTIES PAID BY THE DEPARTMENT OF JUSTICE
AS A RESULT OF THE PROMPT PAYMENT ACT FOR FY 1999

Component	Dollar Amount Paid As Reported by Component
Assets Forfeiture Fund/Seized Assets Deposit Fund Drug Enforcement Administration Federal Bureau of Investigation Bureau of Prisons/Federal Prison Industries Immigration and Naturalization Service Offices/Boards/Divisions Office of Justice Programs United States Marshals Service Working Capital Fund Department of Justice (Total)	$ 47,513.00 $ 850,438.00 $ 661,183.00 $ 180,148.00 $ 707,181.00 $ 287,513.00 $ 663.00 $ 200,092.00 $ 38,588.00 $ 2,973,319.00

The amount of interest penalties paid by the DOJ appears to be increasing every fiscal year. The interest penalties paid in FYs 1995, 1996, and 1997 were $1,0850,608; $1,151,081; and, $1,252,144 respectively. (Note: Congress repealed Section 3906 of the Prompt Payment Act by Section 1301(c) of the Federal Reports Elimination Act of 1998. Thus, FY 1997 was the last year components were required to submit any Prompt Payment statistics.)

We experienced difficulties in obtaining accurate numbers from several of the components. For example, the Justice Management Division spent over one month reprogramming their system in order to obtain the needed information for the Offices/Boards/Divisions. This caused us concern as these numbers should be relatively simple to account for and should have been readily available for reporting purposes. We are also concerned that some components may not be reporting all penalties paid or may not be paying all penalties due. During performance of the FY 1999 financial statement audits, one of our certified public accounting firms found that one component failed to pay approximately $91,090 owed in late interest penalties. We believe that issues in this area are indicative of other cash management issues (for example, reconciliation of Fund Balance with Treasury) that are currently affecting many of the components.

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 four years of audit. Many components still experience difficulties in reconciling their Fund Balance with Treasury in a timely and efficient manner. 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 Department. Large amounts of funds should not be utilized to pay late interest penalties since these funds could be put to better use elsewhere.

As Chief Financial Officer of the Department, you should ensure that each of the components follow the internal operating procedures developed so that the payment of bills occurs in a timely manner and that all components are complying with the Act. This may entail requiring components to submit Prompt Payment statistics to the Department for review. This will assist in ensuring that the DOJ is utilizing its funds and resources in a more efficient and effective manner.

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:	Therese M. McAuliffe Deputy Assistant Attorney General Controller Justice Management Division Lee J. Loftus Director, Finance Staff Justice Management Division Vickie L. Sloan DOJ Audit Liaison